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INTERNATIONAL IP ENFORCEMENT: 

OPENING MARKETS ABROAD AND 

PROTECTING INNOVATION 

HEARING 

BEFORE THE

SUBCOMMITTEE ON 

INTELLECTUAL PROPERTY, 

COMPETITION, AND THE INTERNET 

OF THE

COMMITTEE ON THE JUDICIARY 

HOUSE OF REPRESENTATIVES 

ONE HUNDRED TWELFTH CONGRESS 

SECOND SESSION 

SEPTEMBER 20, 2012 

Serial No. 112–149 

Printed for the use of the Committee on the Judiciary 

( 

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

(II) 

COMMITTEE ON THE JUDICIARY 

LAMAR SMITH, Texas, Chairman 

F. JAMES SENSENBRENNER, JR., 

Wisconsin 

HOWARD COBLE, North Carolina 

ELTON GALLEGLY, California 

BOB GOODLATTE, Virginia 

DANIEL E. LUNGREN, California 

STEVE CHABOT, Ohio 

DARRELL E. ISSA, California 

MIKE PENCE, Indiana 

J. RANDY FORBES, Virginia 

STEVE KING, Iowa 

TRENT FRANKS, Arizona 

LOUIE GOHMERT, Texas 

JIM JORDAN, Ohio 

TED POE, Texas 

JASON CHAFFETZ, Utah 

TIM GRIFFIN, Arkansas 

TOM MARINO, Pennsylvania 

TREY GOWDY, South Carolina 

DENNIS ROSS, Florida 

SANDY ADAMS, Florida 

BEN QUAYLE, Arizona 

MARK AMODEI, Nevada 

JOHN CONYERS, JR., Michigan 

HOWARD L. BERMAN, California 

JERROLD NADLER, New York 

ROBERT C. ‘‘BOBBY’’ SCOTT, Virginia 

MELVIN L. WATT, North Carolina 

ZOE LOFGREN, California 

SHEILA JACKSON LEE, Texas 

MAXINE WATERS, California 

STEVE COHEN, Tennessee 

HENRY C. ‘‘HANK’’ JOHNSON, JR., 

Georgia 

PEDRO R. PIERLUISI, Puerto Rico 

MIKE QUIGLEY, Illinois 

JUDY CHU, California 

TED DEUTCH, Florida 

LINDA T. SA ́ NCHEZ, California 

JARED POLIS, Colorado 

RICHARD HERTLING, Staff Director and Chief Counsel 

PERRY APELBAUM, Minority Staff Director and Chief Counsel 

SUBCOMMITTEE ON INTELLECTUAL PROPERTY, COMPETITION, AND THE INTERNET

BOB GOODLATTE, Virginia, Chairman 

BEN QUAYLE, Arizona, Vice-Chairman 

F. JAMES SENSENBRENNER, JR., 

Wisconsin 

HOWARD COBLE, North Carolina 

STEVE CHABOT, Ohio 

DARRELL E. ISSA, California 

MIKE PENCE, Indiana 

JIM JORDAN, Ohio 

TED POE, Texas 

JASON CHAFFETZ, Utah 

TIM GRIFFIN, Arkansas 

TOM MARINO, Pennsylvania 

SANDY ADAMS, Florida 

MARK AMODEI, Nevada 

MELVIN L. WATT, North Carolina 

JOHN CONYERS, JR., Michigan 

HOWARD L. BERMAN, California 

JUDY CHU, California 

TED DEUTCH, Florida 

LINDA T. SA ́ NCHEZ, California 

JERROLD NADLER, New York 

ZOE LOFGREN, California 

SHEILA JACKSON LEE, Texas 

MAXINE WATERS, California 

HENRY C. ‘‘HANK’’ JOHNSON, JR., 

Georgia 

BLAINE MERRITT, Chief Counsel 

STEPHANIE MOORE, Minority Counsel 

(III) 

C O N T E N T S 

SEPTEMBER 20, 2012 

Page 

OPENING STATEMENTS 

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

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

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

of North Carolina, and Ranking Member, Subcommittee on Intellectual 

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

WITNESS 

Victoria A. Espinel, U.S. Intellectual Property Enforcement Coordinator, Office of Management and Budget, Executive Office of the President 

Oral Testimony ..................................................................................................... 5 

Prepared Statement ............................................................................................. 7 

Response to Questions for the Record ................................................................ 32 

(1) 

INTERNATIONAL IP ENFORCEMENT: OPENING 

MARKETS ABROAD AND PROTECTING INNOVATION 

THURSDAY, SEPTEMBER 20, 2012 

HOUSE OF REPRESENTATIVES,

SUBCOMMITTEE ON INTELLECTUAL PROPERTY,

COMPETITION, AND THE INTERNET, 

COMMITTEE ON THE JUDICIARY, 

Washington, DC. 

The Subcommittee met, pursuant to call, at 2:26 p.m., in room 

2141, Rayburn Office Building, the Honorable Bob Goodlatte 

(Chairman of the Subcommittee) presiding. 

Present: Representatives Goodlatte, Coble, Griffin, Marino, Watt, 

and Chu. 

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

and (Minority) Stephanie Moore, Subcommittee Chief Counsel. 

Mr. GOODLATTE. Good afternoon. The hearing of the Subcommittee on Intellectual Property, Competition, and the Internet 

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

Today we are holding an oversight hearing on the Obama administration’s international IP enforcement efforts, focusing specifically 

on international patent, trade secret, and market access issues to 

shine the spotlight on the problems that American companies face 

when seeking enforcement and using patents overseas. 

This Subcommittee held hearings in April with industry stakeholders and in June with the Deputy Director of the USPTO to look 

at the patent systems in foreign countries and whether they meet 

global trading standards. The fundamental question we sought to 

answer was whether we have a level or an unlevel playing field 

abroad for American investors. What we learned is that much work 

needs to be done to level the playing field for American innovators. 

When American businesses seek to sell their goods abroad, they 

must be able to compete fairly. Our trading partners must live up 

to their international obligations and not discriminate against U.S. 

companies or fields of technology when it comes to patentability 

and market access. 

World Trade Organization members are required to make patents available for inventions in all fields of technology. However, 

many countries discriminate based on the place of invention, field 

of technology, or whether products are imported or locally produced. For example, countries like Brazil and India limit the scope 

2 

of patent eligible subject matter in a way that makes it difficult, 

if not impossible, for a U.S. innovator to get patent protection. Just 

as problematic is the flip side where a country grants many low 

quality or junk patents to local companies so that they can sue 

American companies and get rich quick. Many of these are utility 

model patents that go through minimal review and lack real inventiveness. 

Recently we heard about the Goophone I5, a supposed iPhone 5 

clone being manufactured by a Chinese company. This same company also sells a clone of the Samsung Galaxy smartphone. The 

issue here is that this company has filed for Chinese patents on innovations that were made by others, and this type of patent trolling can be used to threaten American companies and force monetary settlements. 

For example, Bloomberg reported that in China, of the 530,000 

patents granted during the first half of this year, only 107,000 were 

invention patents. The rest were for design or utility model patents, neither of which requires a rigorous examination process before being approved. 

We have also seen a series of rulings in Canada that dramatically heightens utility requirements as to the usefulness of an invention, which will result in certain pharmaceutical patents being 

valid in the U.S., but not in Canada. This directly disadvantages 

American drug companies and could open the door to other countries that seek to further weaken protections for pharmaceutical 

patents. 

Another field where foreign competitors have engaged in protectionist practices is trade secrets. Certain foreign governments have 

begun adopting policies that undermine trade secrets and disadvantage American companies. These policies include, one, requiring companies to provide trade secret information to a local partner 

or government agency as a condition of investment or market access, and two, testing or certification programs that require companies to disclose confidential information in order to sell their product in the foreign market. 

When U.S. companies are forced to give their confidential business information to a government authority, there is usually a lack 

of adequate safeguards to protect it. U.S. companies should not 

have to choose between treating trade secret theft as simply a cost 

of doing business and avoiding certain markets in Asia all together. 

The issue of trade secret theft is not simply a business-to-business 

concern. Foreign governments must take these cases seriously and 

ensure that they have adequate remedies and laws in place. 

Some countries, like South Korea, China, and India, are looking 

at using compulsory licensing in the trade secret space. The regulators in these countries can potentially compel new licensing of a 

trade secret by a third party. This is done to help a local competitor 

that claims that it needs access to the trade secret in order to compete. What makes this more troubling is that some of these third 

parties are State-owned enterprises. 

All of these practices point to the fact that the U.S. needs to be 

more vigilant in ensuring an international market that is fair to 

U.S. companies looking to compete. 

3 

Today we will examine what the U.S. has and has not been doing 

to ensure this is indeed the case. Some have argued that the 

Obama administration has taken a narrow approach when it comes 

to concerns of American innovative companies in the patents, trade 

secrets, and market access space. They point to the Administration’s lack of focus on international patent and trade secret issues 

generally, as well as the lack of a strong public response when in 

March the Indian government took the unprecedented step of 

issuing a compulsory license on a pharmaceutical patent. 

Trade agreements, like the Trans Pacific Partnership Act, or 

TPP, provide platforms for the U.S. to exert pressure on other 

countries to level the playing field when it comes to these issues. 

It has come to our attention that some provisions being discussed 

in the TPP, like requirements for plain packaging of tobacco products and pharmaceutical test data protection issues, could weaken 

rather than strengthen global commitments to intellectual property 

rights. 

I look forward to continuing to work to ensure that these negotiations result in stronger, not weaker, commitments by other countries to enhance their IP laws. Today I hope to hear more about 

the Administration’s plans to do more to expand the U.S. government’s efforts to find real solutions to these unfair trade practices 

which distort the free market and trade, and hinder American job 

creation. 

And before we turn to our distinguished witness today, I would 

be pleased to recognize the Ranking Member of the Subcommittee, 

the gentleman from North Carolina, Mr. Watt. 

Mr. WATT. Thank you, Chairman Goodlatte. And let me start by 

thanking you also for accommodating today’s witness and me at 

our previous hearing on this topic in June. As we as Members all 

recognize, there are simply those occasions where you cannot be in 

two places at one time. And both our witness and I had that problem, as I recall, when the hearing was previously scheduled. 

Be that as it may, I am happy that the Intellectual Property Enforcement Coordinator, Victor Espinel, is with us here today. Based 

upon her written submission, it is clear that she has been very 

busy working to fulfill the requirements of the position conceived 

by then Chairman Conyers and current Chairman Smith in the 

PRO-IP Act of 2008. 

The Intellectual Property Enforcement Coordinator handles nationwide and international coordination of intellectual property enforcement efforts. The position has provided an institutional IP enforcement structure to help to ensure that the United States and 

our IP intensive industries have a solid economic base in the increasingly competitive global marketplace. 

In April of this year, the Obama administration issued a report 

entitled ‘‘Intellectual Property and the U.S. Economy: Industries in 

Focus.’’ The report makes plain the value of IP industries to the 

American economy. These industries produce 27.1 million jobs for 

our citizens. 

But as we have seen over the course of this Congress, the foreign 

threat to American-generated intellectual property is real and ongoing, and in some cases is intensifying. Other countries and their 

citizens continue to profit from an immense world trade of illicit 

4 

goods, digital theft, and anti-competitive practices that violate the 

IP rights of U.S. rights holders. 

Just this morning, the Congressional International Anti-Piracy 

Caucus, co-chaired by Chairman Goodlatte, released a report adding Switzerland and Italy to the list of countries that engage in piracy of American copyrights. So while today we focus on innovation 

and patent intensive industries, it is clear that foreign thieves do 

not discriminate with respect to the type of intellectual property 

they steal or misappropriate. 

An emerging threat that I hope we will hear more about in this 

hearing is the theft of trade secrets of American businesses. In the 

2011 annual report to Congress, the IPAC reported that, ‘‘The pace 

of foreign economic collection of information and industrial espionage activities against major U.S. corporations is accelerating. Foreign competitors of U.S. corporations with ties to companies owned 

by foreign governments have increased their efforts to steal trade 

secret information and intellectual property.’’ 

The theft trade secrets poses a substantial risk unlike that experienced in the production of low quality, substandard counterfeits. 

Trade secrets may enable foreign operatives to duplicate American 

products and undermine market access. 

Earlier this year, I was happy to co-sponsor with Chairman 

Smith Foreign and Economic Espionage Penalty Enhancement Act 

of 2012, which I believe will send a clear message that those who 

dare to steal American trade secrets will pay a heavy price when 

caught. The bill passed the House in July and awaits action in the 

Senate. 

Another area of interest is the impact on the U.S. pharmaceutical industry of the successful enforcement efforts noted in Ms. 

Espinel’s written testimony. While our witness rightly emphasizes 

the public health and safety aspects of these efforts, it would be 

helpful to hear the impact both from an economic and reputational 

perspective on the companies whose drugs were copied. 

Finally, Director Kappos, the Director of the Patent and Trademark Office, earlier this year testified in essence that litigation 

within and across American IP industries was a necessary and generally healthy aspect of IP enforcement. I am interested in the witness’ perspective in her capacity as basically the one who herds the 

cats in how the U.S. IP industries cooperate or do not cooperate in 

the protection of each other’s intellectual property abroad. Specifically, does IP litigation among U.S. companies have an adverse impact on whether they collaborate with government efforts to confront the global threat against intellectual property theft? 

With that, Mr. Chairman, I will close. I thank you for holding 

this hearing again, and welcome our witness, and look forward to 

her testimony. 

I yield back. 

Mr. GOODLATTE. I thank the gentleman. 

And without objection, and I do not believe there will be any objection, other Members’ opening statements will be made a part of 

the record. 

We have a very distinguished witness here today, and in light of 

the fact that we have just one witness here today, we will be more 

generous than the 5 minutes we ordinarily allow. But we will turn 

5 

the light on just so you know how the timing is going on that. And 

when it turns to red, that signals 5 minutes have expired, but we 

want to hear your report, Ms. Espinel. 

And as I the custom of this Committee, we swear in our witnesses. So if you would like to stand and be sworn. 

[Witness sworn.] 

Mr. GOODLATTE. Thank you very much. And please join me in 

welcoming today the Honorable Victoria Espinel, the Intellectual 

Property Enforcement Coordinator at the Office of Management 

and Budget in the Executive Office of the President. 

Ms. Espinel joined OMB in December 2009. Her responsibilities 

include developing the Obama administration’s overall strategy for 

IP enforcement both at home and abroad. Earlier Ms. Espinel 

served in the Office of the U.S. Trade Representative as the Assistant U.S. Trade Representative for Intellectual Property and Innovation. 

Ms. Espinel received her undergraduate degree from the Georgetown University School of Foreign Service, her law degree from 

Georgetown University Law School, and a master of law degree 

from the London School of Economics. 

Welcome, and we are pleased to have your testimony. 

TESTIMONY OF VICTORIA A. ESPINEL, U.S. INTELLECTUAL 

PROPERTY ENFORCEMENT COORDINATOR, OFFICE OF MANAGEMENT AND BUDGET, EXECUTIVE OFFICE OF THE PRESIDENT 

Ms. ESPINEL. Thank you. Chairman Goodlatte, Ranking Member 

Watt, Members of the Subcommittee, thank you for your leadership 

on intellectual property enforcement and for the support that this 

Subcommittee has provided to the Administration’s overall intellectual property enforcement efforts. 

There are three areas that I will focus on in my remarks today: 

first, patent enforcement, second, counterfeit pharmaceuticals, and 

third, trade secret theft. 

With respect to patents, last year in response to growing concerns over China’s administrative and judicial systems of patent 

enforcement, we launched a new initiative to focus on patent enforcement in China. My office and the USPTO have conducted 

roundtables in Washington, Beijing, Shanghai, and Guangzhou to 

learn from U.S. companies directly about the specific challenges 

they face when trying to enforce their patents in China. The goal 

is to address the deficiencies in China’s systems, including the lack 

of effective discovery, low damage awards, unexamined utility 

model patents, and the enforceability of judicial orders. 

With respect to counterfeit pharmaceuticals, because of the very 

serious risk to health and safety that they pose, combatting counterfeit drugs is a critical priority for us. In March of last year, we 

sent to Congress a strategy that was specifically focused on how we 

will combat counterfeit drugs. 

A few examples of our approach include a Customs and Border 

Protection pilot program that is focused on forming closer partnerships with the pharmaceutical companies to better understand 

their industry practices, and then to leverage that information into 

more effective and more efficient targeting and enforcement. The 

6 

effects of CBP’s overall prioritization of health and safety is clear 

as seizures of counterfeit pharmaceuticals have increased in the 

last 2 years by nearly 600 percent. 

There have been several notable law enforcement operations over 

the last year. In my written testimony, I highlight several instances of recent joint operations, many of them cross border operations, that resulted in the arrest of individuals that were selling 

counterfeit drugs and significant seizures. 

In addition, we have worked with a number of companies from 

diverse sectors to form a non-profit group to combat illegal fake online pharmacies, criminals that are masquerading as legitimate 

pharmacies. The Center for Safe Internet Pharmacies was 

launched in July of 2012 and is now fully operational. And we hope 

and expect that CSIP will be particularly effective in reducing the 

prevalence of counterfeit and illegal pharmaceuticals. 

On trade secret theft, we have very serious concerns related to 

the threat that is posed to U.S. innovation from economic espionage 

and trade secret theft. President Obama and senior Administration 

officials have expressly raised our concerns with China on trade secret theft, and we will continue to raise this as a priority issue and 

a grave concern. 

In May at the most recent Strategic and Economic Dialogue, 

China agreed for the first time to include protection of trade secrets 

and agreed to intensify enforcement against trade secret theft. This 

past year, the Department of Justice and the FBI increased investigations of economic espionage and trade secret theft by 29 percent. 

I want to thank Chairman Goodlatte, Chairman Smith, Ranking 

Member Watt, and many Members of the Subcommittee for the 

work that they did in sponsoring the Foreign and Economic Espionage Penalty Enhancement Act of 2012, which recently passed the 

House. Increasing penalties for economic espionage was one of the 

recommendations that we made to Congress to strengthen our ability to enforce against this crime, and I thank you for acting on this 

issue. 

We are currently in the process of developing a strategy to officially coordinate the government’s effort to mitigate the theft of 

trade secrets and economic espionage. We need to act aggressively 

to combat the theft of trade secrets, and I look forward to working 

with Members of this Committee as we develop the strategy. 

Mr. Chairman, intellectual property is used throughout the U.S. 

economy, and intellectual property rights support innovation and 

creativity in virtually every sector and every U.S. industry. I look 

forward to working closely with this Subcommittee on improving 

protection of American intellectual property. 

Now I am happy to take your questions. 

[The prepared statement of Ms. Espinel follows:] 

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EXECUTIVE OFFICE OF THE PRESIDENT 

OFFICE OF MANAGEMENT AND BUDGET 

WASHINGTON, D.C. 20502 

Testimony of Victoria A. Espinel 

U.S. Intellectual Property Enforcement Coordinator 

Office of Management and Budget 

Before the U.S. House of Representatives' 

Committee on the Judiciary -

Subcommittee on Intellectual Property, Competition, and the Internet 

Washington, DC 

September 20, 2012 

Chainnan Goodlatte, Ranking Member Watt, members of the subcommittee 

on Intellectual Property, Competition, and the Internet, thank you for your 

continued leadership on intellectual property enforcement. 1 also want to thank you 

for the support that the Committee on the Judiciary and this subcommittee has 

provided to my office and the Administration's overall intellectual property 

enforcement efforts. 

In June of 20 1 0, we sent to you the Administration's Inaugural Joint 

Strategic Plan on Intellectual Property Enforcement. That Strategy was developed 

with significant input from the public and the coordinated efforts of Federal 

agencies, including the U.S. Departments of Commerce (DOC), Health and Human 

Services, Homeland Security (DHS), Justice (DOJ), State, and the Office of the 

u.S. Trade Representative (USTR). The overarching goal of the Strategy is to 

protect U.S. jobs, to increase exports of i11llovative technology and creative works 

and protect intellectual property rights, thereby allowing America's innovation to 

continue to drive our economic growth. A second overarching goal is to protect the 

health and safety of the public. In that Strategy, we set out six broad principles that 

we would follow to meet our goals and 33 specific actions that we would take to 

improve enforcement. We knew the Strategy would take time to implement fully, 

and we are making progress, including in areas involving international cooperation 

and improved protection for U.S. rightholders abroad. 

Let me briei1y mention the process my otfice is now conducting to review 

and revise the Administration's Strategy. When Congress passed the Pro-lP Act in 
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2008, it required the Intellectual Property Enforcement Coordinator to review and 

revise the Joint Strategic Plan to ensure we are addressing the latest challenges. 

On June 26, 2012, my office published a notice in the Federal Register 

soliciting comments from the public on the new Joint Strategic Plan. The comment 

period closed on August 10,2012. All the comments we received are available for 

review by the general public. Currently, my office is analyzing hundreds of 

comments submitted by companies, trade organizations, labor unions, academics, 

technology experts, and concerned citizens. There have been some excellent 

submissions with recommendations on ways to protect intellectual property rights 

both domestically and internationally, which will be helpful in shaping the next 

Strategy. 

Let me shift to the subject of this hearing and the efforts we are making to 

ensure that American intellectual property is protected around the world. Today, I 

will be discussing partnerships with foreign law enforcement how we use trade 

policy tools, the use of US. personnel stationed overseas, international capacity 

building, the ongoing efforts with China, the development of a strategy to combat 

the theft of trade secrets and economic espionage, and the commitments made at 

the May 2012 G-8 Summit at Camp David. 

Foreign Law Enforcement 

Operating from abroad, often beyond the reach of US. law enforcement, 

today's criminals exploit technology and global distribution chains to develop 

increasingly sophisticated and diverse methods of infringement, such as the 

manufacture and sale of a wide range of counterfeit goods, including counterfeit 

phanllaceuticals; online infringement and theft of trade secrets. Enha11ced 

international law enforcement cooperation is a critical component to combat the 

global nature of intellectual property infringement. Federal law enforcement 

agencies have strengthened ties with their foreign counterparts to: (1) enhance 

efforts to pursue domestic investigations of foreign intellectual property infringers; 

(2) encourage foreign law enforcement to pursue those targets themselves; and (3) 

increase the number of criminal enforcement actions against intellectual property 

infringers in foreign countries in general. To successfully reduce infringement 

overseas, we need the cooperation of other cOlUltries. Attorney General Eric Holder 

and US. Immigration and Customs Enforcement (ICE) Director John Morton have 

been pressing their foreign counterparts for better law enforcement cooperation in 

intellectual property crime investigations. 

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In addition, as described in more detail below, we are increasing the number 

of personnel overseas focused on intellectual property enforcement. The 

deployment of U.S. Government personnel abroad cultivates foreign law 

enforcement cooperation, expands the capabilities of foreign partners to enforce 

intellectual property rights, and further signals the commitment of the US. 

Government to protect intellectual property rights. 

Cooperation between US. law enforcement and foreign counterparts in 

combating intellectual property crime has improved in recent years. For example, 

the National Intellectual Property Rights Coordination Center (IPR Center) has 

been able to expand its global membership. The LPR Center now has 17 domestic 

partner agencies and four international partners: Europol, INTERPOL, the Royal 

Canadian Mounted Police, and the Mexican Revenue Service. The IPR Center also 

has a partnership with multilateral organizations that has resulted in increased 

worldwide collaboration from international partners. 

Counterfeit products that impact public health and safety remain a top 

priority for the IPR Center and the global law enforcement communityparticularly regarding the escalating problem offoreign-based cOlUlterfeit 

pharmaceutical merchants. Toward that end, I am pleased to report that in January 

2011, a Belgian national pleaded guilty to operating an illegal Internet pharmacy 

that sold $1.4 million worth of counterfeit and misbranded dmgs (along with 

controlled substances). The defendant used multiple web sites to sell more than 40 

types of prescription drugs. He operated a customer call center in the Philippines, 

received payments from customers using a credit card processor in the 

Netherlands, and paid employees using Western Union in the Philippines, Costa 

Rica, and the U.S. The defendant was arrested in Costa Rica and extradited to the 

US. under an agreement with that country. As part of his plea, the defendant 

agreed to pay a judgment of $1.4 million. 

Last fall, Operation Pangea IV, involving 81 participating countries, was 

launched by INTERPOL and the World Customs Organization (WCO) in a global 

law enforcement effort focused on web sites supplying illegal and dangerous 

medicines. As a result, 2.4 million illicit and counterfeit pills worth $6.3 million 

were confiscated, 13,495 websites were shut down, and 55 individuals are 

currently under investigation or under arrest, according to INTERPOL. 

Operation APEC was a U.S. Customs and Border Protection (CBP)-led 

Asia Pacific Economic Cooperation (APEC) Mutual IPR Enforcement Operation. 

The operation targeted counterfeit pharmaceuticals by developing model practices 

for intellectual property enforcement in international postal and express courier 

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facilities. This is the first time ajoint law enforcement operation has ever been 

conducted through the auspices of APEC. The United States and ten other 

countries participated in the operation which had enforcement actions ranging from 

detentions to seizures of over 1,200 shipments. 

This year, CBP apprehended a notorious counterfeit phannaceutical 

offender. A New Zealand physician (based in China) now faces up to 30 years in 

prison and $6 million in fines after pleading guilty in July 2012 to supplying 

counterfeit erectile dysfunction pills. Robert Han was originally indicted in 

December 2007, but remained at large until March 29, 2012. He was tal\.en into 

custody at San Francisco International Airport by CBP officers following his 

arrival on a flight from Hong Kong. The original investigation was spearheaded by 

ICE, in conjunction with the Food & Drug Administration. 

In addition to counterfeit phannaceuticals, the law enforcement community 

continues to target a wide variety of infringing products through joint operations 

and providing strategic training programs for our overseas counterparts. In 

February 2011, Paraguayan law enforcement authorities cooperated with DOJ, the 

U.S. Marshal Service and the FBI Joint Terrorism Task Force in Philadelphia to 

extradite a fugitive who had been identified as providing material support to 

Hizballah through the sale of counterfeit goods and other illegal activities. At the 

time ofthe indictment, the defendant had tled to the Tri-Border Area of Paraguay. 

This area includes Ciudad del Este, which has been identified in USTR's Special 

Out-of-Cycle Review of Notorious Markets as a haven for purveyors of cOlUlterfeit 

hard goods. 

In June 2011, lCE-HSl Attache special agents in Brasilia participated with 

Brazilian authorities in operations against several complexes near a shopping 

district that led to the seizure of 1 0 million counterfeit items estimated to be worth 

the equivalent of approximately $255 million. The Sao Paulo Mayor's office 

initiated the program and invited the lCE-HSl Brasilia special agents to participate 

in the operation which included 400 Brazilian national, state, and city officials. 

Operation Short Circuit was a three-month operation concluded in October 

2011 and conducted by 43 countries that led to the seizure of more than one 

million counterfeit electrical goods that posed a significant risk to public safety. 

This operation was spearheaded by the IPR Center and conducted on an 

internationalleve1 in coordination with the WCO. 

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During the six-week Holiday Hoax II Operation in November and December 

2011, the IPR Center coordinated with several federal agencies, state and local law 

enforcement, and the Govemment of Mexico to seize over 327,000 counterfeit 

items worth an estimated $76.8 million, nearly 300 percent greater than the first 

Holiday Hoax operation in 2009 ($26 million). The 2011 operation spread across 

66 U.S. cities; 55 cities in Mexico; and Seoul, South Korea. Local authorities also 

arrested 33 people cOlmected to the violations. 

While there is still much work to be done to foster cooperation 

intemationally, these cases demonstrate a trend towards increased cooperation. In 

addition to coordinated law enforcement operations, the Administration continues 

to pursue improved international law enforcement cooperation through continued 

diplomatic engagement by the State Department, enforcement activities by DOJ 

and DBS, and trade agreements and reporting mechanisms at USTR. 

Trade Policy Tools 

The Administration has also been utilizing trade policy tools to press foreign 

govemments to do more to protect American rightholders. In April, USTR issued 

the 2012 Special 301 Report. The report, which USTR issues pursuant to Section 

182 of the Trade Act of 1974, as amended by the Omnibus Trade and 

Competitiveness Act of 1988 and the Uruguay Round Agreements Act (enacted in 

1994), represents the result of an intensive review of our trading partners efforts to 

provide adequate and effective protection and enforcement of intellectual property 

rights (IPR) and market access for U.S. industries that rely on IPR. 

This year's Special 301 Report highlights progress made in Spain, which 

after years of placement on the Watch List, was removed from the list because of 

steps made to address piracy over the Tntemet, including the recent adoption of 

regulations to implement a law regarding this issue. Malaysia was also removed 

from the Watch List after passing significant copyright amendments to strengthen 

its protection and enforcement against copyright piracy and promulgating 

regulations to protect pharmaceutical test data. The United States will continue to 

monitor their progress and work with these trading partners to address other areas 

ofconcem. Tn addition, Ukraine was moved to the Priority Watch List in this 

year's Special 301 Report because of its failure to effectively implement its 2010 

TPR action plan and in light of serious concems relating to counterfeiting and 

rampant piracy, including piracy over the Intemet. 

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In addition to the removal of Spain and Malaysia from the Watch List and 

placement of Ukraine on the Priority Watch List, the 2012 Special 301 Report 

noted significant new laws, rules, and/or leadership structures in Israel, the 

Philippines, Russia, and China, among other countries. Significant trends noted in 

the report included growth in the online sale of pirated products and cOlmtelieit 

hard goods; a surge in the use of legitimate courier services to deliver infringing 

goods; an increase in the practice of shipping of counterfeit products separately 

from labels and packaging in order to evade enforcement efforts; and growing 

challenges facing rightholders seeking to collect royalties that are legally owed for 

the public perfonnance of their musical works in certain regions. 

The report also noted the need for stronger and more effective criminal and 

border enforcement to stop the manufacture, import, export, transit, and 

distribution of pirated and counterfeit goods, including, counterfeit 

phannaceuticals and bulk active phannaceutical ingredients (API) used to 

manufacture counterfeit phannaceuticals. 

In 2012, the Special 301 Report contained a section highlighting best 

practices by trading partners in the area of intellectual property enforcement, 

including: 

• Etlorts by several trading partners that participated or supported 

imlOvative mechanisms, such as the Medicines Patent Pool, that enable 

govemment and the private sector to vollmtarily donate or license 

intellectual property on mutually-agreed terms and conditions; and 

• Positive reports regarding Russia's efforts to combat counterteit 

medicines through a Memorandum of Understanding between the 

Ministry of Health and the Federal Service for Intellectual Property. 

In February 2011, USTR released its first-ever Special 301 Out-of-Cycle 

Review of Notorious Markets (Notorious Markets List), following a separate 

request for comments and review of online and physical foreign markets that deal 

in infringing products. As a standalone report published separately from USTR's 

annual Special 301 report, the February 2011 Notorious Markets List increased 

public awareness of, and guided trade-related enforcement actions against, markets 

that exemplify the problem of global piracy and counterfeiting. As a result of the 

increased attention to these markets, Baidu, a leading Chinese search engine listed 

in the report, signed a music licensing agreement with One-Stop China, ajoint 

venture between the Universal Music Group, the Warner Music Group, and Sony 

BMG. 

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In December 20 I I, USTR released its second Notorious Markets List 

following another request for comments published in September 22, 2011. In 

addition to listing markets that are reportedly engaged in piracy and counterfeiting, 

the Notorious Markets List also highlighted positive developments since the 

previous review. For example, the December 2011 Notorious Markets List noted 

Baidu's landmark licensing agreement mentioned above, as well as action taken by 

Hong Kong's local customs oftlcials at the Ladies Market to remove allegedly 

infringing goods from the premises. These authorities reported a commitment to 

continue to undertake enforcement actions at the market. In addition, the Notorious 

Markets List noted that at the Save10vsky Market in Russia, management 

implemented an action plan to stop the distribution of infringing goods. 

Accordingly, Baidu, the Ladies Market, and the Savelovsky Market-which had 

been listed previously in February 20 II-were removed from the Notorious 

Markets List in December 2011. 

Tn October 2011, the United States and seven other countries signed the 

Anti-Counterfeiting Trade Agreement (ACTA). ACTA provides for enhanced 

international cooperation, promotion of sound enforcement practices, and a 

strengthened legal framework for IPR enforcement. We are currently working with 

our partners to bring the agreement into force. Tn October, Congress 

overwhelmingly approved and President Obama signed legislation approving 

bilateral Free Trade Agreements with Colombia, Panama, and South Korea. Each 

of these trade agreements contains a chapter dedicated to intellectual property 

rights, with requirements for protection spanning all types of intellechlal property 

and commitments to join key multilateral intellectual property rights agreements. 

They also contain strong provisions to ensure that intellechlal property rights are 

efficiently and effectively enforced in those countries. 

The United States is also participating in the Trans-Pacific Partnership (TPP) 

negotiations with eight partner countries (Australia, Brunei Darussalam, Chile, 

Malaysia, New Zealand, Peru, Singapore, and Vietnam) to conclude an ambitious, 

next-generation Asia-Pacific trade agreement that reflects U.S. priorities and 

values, including with respect to intellectual property and enforcement. All the 

TPP countries have agreed to reinforce and develop existing World Trade 

Organization Agreement on Trade-Related Aspects of Intellectual Property 

(TRIPS) rights and obligations to ensure an effective and balanced approach to 

intellectual property rights among the TPP countries. Proposals are under 

discussion on many forms of intellectual property, including trademarks, 

geographical indications, copyright and related rights, patents, trade secrets, data 

required for the approval of certain regulated products, as well as intellectual 

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property enforcement. [n June 2012, the TPP negotiating countries extended an 

invitation to Canada and Mexico to join the negotiations, pending successful 

conclusion of domestic procedures. 

Overseas Personnel & International Capacity Building and Training 

us. personnel stationed overseas play an important role in combatting 

intellectual property infringement. 

In 2010, as part of the Joint Strategic Plan, IPEC established an interagency 

working group to improve the effectiveness and efficiency of overseas personnel 

involved in the effort to combat intellectual property infringement in priority 

locations around the world. It includes representatives from the State Department 

(Bureau of Economic and Business Affairs and Bureau of International Narcotics 

and Law Enforcement Affairs); the US. Agency for International Development; 

Treasury Department; DOJ (Computer Crime & Intellectual Property Section and 

the FBI); DRS (CBP and ICE); DOC (US. Patent and Trademark Office 

(USPTO), International Trade Administration (IT A), and Commercial Law 

Development Program (CLDP)); USTR; and the Copyright Office. The group 

identified 17 key countries - Brazil, Canada, Chile, China, Colombia, Egypt, India, 

Israel, Mexico, Nigeria, Peru, Russia, Saudi Arabia, Spain, Thailand, Turkey, and 

Ukraine. Each embassy in those 17 countries established a senior-level interagency 

team to bring together U.S. personnel stationed there to improve enforcement of 

intellectual property. In 2011, those 17 embassies drafted their first annual 

interagency work plans that set out objectives and activities to address the host 

country's critical intellectual property issues identified by the United States. These 

embassy work plans were developed with the input of outside stakeholders and in 

coordination with an IPEC interagency working group. The embassies report on a 

quarterly basis to the !PEC on the status of the implementation of the work plans. 

We are also increasing the number ofpersomlel overseas in key countries. 

The USPTO is adding two more intellectual property attaches to assist US. 

businesses in foreign countries by creating new posts in Mexico City, Mexico and 

Shanghai, China. In September 2011, the FBI posted an intellectual propertytrained agent in Beijing, China to work full time on intellectual property crime. In 

the President's 2013 budget, DOJ requested funds to place six International 

Computer Hacking and Intellectual Property (TCHIP) Coordinators in strategic 

global locations to strengthen international intellectual property enforcement. . In 

2010, ICE-HSI designated its Assistant Attache in Guangzhou to be its first "TP 

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Attache" and point of contact for all intellectual property matters involving China. 

In addition, ICE-HSI has added a liaison to the European Union in Bmssels, 

Belgium. 

In 2010, IPEC also established an interagency working group to improve the 

efficiency and coordination of intemational intellectual property enforcement 

capacity building and training, and to ensure the U.S. Government makes the best 

possible use of its training resources by focusing on priorities, such as training 

foreign law enforcement officials to tackle counterfeit drugs and developing new 

techniques to combat intellectual property crime. 

To help facilitate the group's coordination and oversight of training 

activities, USPTO launched a searchable database (http://v.'Ww.usipr.gov) where 

relevant U.S. Govemment agencies now post information on the intellectual 

property enforcement trainings they conduct. The publicly available database is 

intended to: (I) use resources more efficiently by sharing training materials 

between U.S. Govemment agencies and avoiding duplicative programs; (2) 

improve results by building on past programs and targeting U.S. Government 

efforts on countries and topics where more training is needed; (3) increase 

transparency by allowing the public to see how the U.S. Govemment is allocating 

resources on intellectual property training; and (4) increase public participation by 

identifying upcoming training events that are open to the public. Notable training 

programs conducted in 2011 include: 

• Philippines: The IPR Center and ICE-HSI Attache special agents in 

Manila organized an LPR Criminal Enforcement Symposium in Manila 

on July 18-20,2011 for law enforcement officers, customs of Ii cia Is, and 

prosecutors. Within two months of receiving this training, Philippine 

authorities conducted two highly successful enforcement operations, 

resulting in the seizure of counterfeit goods worth over $18 million. 

• Ukraine: CLDP and U.S. Embassy Kyiv conducted a workshop on 

counterfeit medicines for Ukraine's health and safety enforcement 

agencies in May 2011, where U.S. officials put forward a key legislative 

recommendation for Ukraine to make the manufacture or distribution of 

counterfeit medicines a crime. This legislative recommendation was 

adopted by the Government of Ukraine in October 20 II. 

• Mexico: DOJ worked with several other groups, including the WCO, 

U.S. and Mexican rightholders, and customs and intellectual property9 
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related agencies within the Mexican government to provide a new 

generation of Mexican officials with the skills necessary to identify 

counterfeit products, refer cases for criminal prosecution, and continue to 

establish prosecutors at the major ports in Mexico. Based on the success 

of previous joint programs, the Mexican Navy requested to participate in 

the program to increase interagency cooperation on enforcement. This 

training resulted in the identification of containers of counterfeit products 

and the initiation of new criminal prosecutions. 

Intellectual Property Enforcement in China 

President Obama, Vice President Biden, and other senior Administration 

officials have directly and frequently engaged with Chinese officials and conveyed 

that they have much more to do to combat intellectual property theft. 

President Obama has repeatedly raised intellectual property enforcement 

with China's president, Hu Jintao, including during his State Visit to Washington 

D.C. in January 2011. The engagement resulted in a commitment that "China will 

continue to strengthen its efforts to protect IPR, including by conducting audits to 

ensure that government agencies at all levels use legitimate software" and that 

"China will not link its innovation polices to the provision of govemment 

procurement preferences." Tn November 2011, President Obama continued the 

Administration's press for more A.mericanjobs at the Asia Pacific Economic 

Cooperation (APEC) leader's summit, by calling attention to China's record on 

intellectual property. 

Vice President Biden also continued the Administration's engagement on 

intellectual property rights as part of his August 2011 trip to China, pressing for 

better enforcement in several forums, including in his meetings with China's 

leaders. In February 2012, during Vice President Xi's visit to the United States, 

Vice President Biden announced an agreement with China to significantly increase 

market access for U.S. movies in order to resolve outstanding issues related to 

films after the United States' victory in a WTO dispute in 2011. The agreement 

allows for more U.S. film exports to China and provides fairer compensation to 

U.S. film producers for the movies being shown there. Among other things, the 

agreement allows more American exports to China of 3D, IMAX, and similar 

enhanced format movies on favorable commercial terms, strengthens the 

opportunities to distribute films through private enterprises rather than the state 

film monopoly, and ensures fairer compensation levels for U.S. blockbuster films 

distributed by Chinese state-owned enterprises. 

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VE-11.eps

Secretary of State Hillary Clinton, Treasury Secretary Timothy Geitlmer, 

Acting Commerce Secretary Rebecca Blank, Attorney General Eric Holder, U.S. 

Trade Representative Ron Kirk, Ambassador Gary Locke, ICE Director John 

Morton, Under Secretaries Robert Honnats, David Kappos, and Francisco 

Sanchez, DHS Assistant Secretary and Chief Diplomatic Officer Alan Bersin, and 

other senior Administration otficials have directly and repeatedly pressed China to 

do much more to combat intellectual property theft. China has made several 

important commitments as part of our ongoing bilateral trade dialogues. 

Following closely on the President's engagement at the APEC in November 

2011, USTR and DOC secured important commitments from China on key 

intellectual property issues during the 22nd Joint Commission on Commerce and 

Trade (JCCT) in Chengdu, China. These included the following: the establishment 

of a State Council-level leadership stmcture to lead and coordinate intellectual 

property rights enforcement across China; the completion dates for the legalization 

of software at the provincial, municipal, and county level governments; and the 

elimination of any catalogues or other measures linking innovation policies to 

government procurement preferences at the provincial, municipality, and 

autonomous region levels. 

Tn May 2012, at this year's Strategic & Economic Dialogue (S&ED), the 

United States and China committed to intensive, ongoing discussions of the 

implementation of China's February 2012 commitment that technology transfer 

and technology cooperation shall be decided by businesses independently and will 

not be used by the Chinese government as a pre-condition for market access. Both 

countries will ensure the full participation and timely cooperation of all relevant 

agencies and authorities. 

Also during the S&ED, the United States and China affinned that the 

protection of trade secrets is an important part of the protection of intellectual 

property rights and agreed to intensify enforcement against trade secret 

misappropriation. China agreed that enforcement against trade secret 

misappropriation would be included in the 2012 Annual Work Plan of the State 

Council Leading Group on Intellectual Property Enforcement. 

During the S&ED, China also, for the tlrst time, committed to creating an 

environment where sales oflegitimate intellectual property-intensive products and 

services within its border will increase, in line with its status as a globally 

significant economy. This commitment is significant, as one goal of enforcement is 

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to take back the marketplace from counterfeiters so that our businesses can 

compete on fair terms and legitimate sales can flourish. 

As previously mentioned, the Notorious Markets Lists published in Febmary 

2011 and December 2011 noted progress and the need for additional work in 

China. The December report documented that some sites have tal\.en positive steps 

in obtaining licensing agreements and were removed from the list. 

The Administration has attempted to forge better partnerships with Chinese 

law enforcement. In May 2011, ICE Director Morton signed a Memorandum of 

Understanding (MOU) with China's General Administration of Customs (GACC) 

to enhance cooperation on law enforcement, including intellectual property theft. 

This agreement followed Director Morton's trip to China that resulted in a Letter 

ofTntent with China's Ministry of Public Security (MPS) to cooperate on joint 

intellectual property investigations signed in 2010. Also in May 2011, CBP signed 

an MOU with China's MPS to increase information sharing and enforcement. 

As noted earlier, the Administration has placed more U.S. personnel in 

China dedicated to intellectual property enforcement. In 2010, ICE designated its 

Assistant Attache in Guangzhou to be its first "TP Attache" and point of contact for 

all intellectual property matters involving China. In September 2011, the FBI 

posted an intellectual property trained agent in Beijing to work full time on 

intellectual property crime. USPTO, adding to its two Intellectual Property 

Attaches in Beijing and Guangzhou, has stationed a third in Shanghai. 

Lastly, in response to growing concems over China's administrative and 

judicial systems of patent enforcement, we launched an initiative to focus on 

China's patent enforcement system. The goal is to address the deficiencies in 

China's system, including the lack of effective discovery, low damages awards, 

unexamined utility model patents, and enforceability of judicial orders. In 2011, 

[PEC and USPTO conducted roundtables in Washington, Beijing, Shanghai, and 

Guangzhou to leam from U.S. companies about challenges they have faced when 

enforcing their patents in China. 

Trade Secret Theft 

The Administration has serious concems related to the threat posed to U.S. 

innovation from economic espionage and trade secret theft by persons on behalf of 

Chinese companies. Economic espionage and the theft of trade secrets represent 

significant costs to victim companies. These include loss of unique intellectual 

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property, loss of expenditures related to research and development, and loss of 

future revenues and profits. Many companies are unaware when their sensitive data 

is pilfered, and those that find out are often reluctant to report the loss, fearing 

potential damage to their reputation with investors, customers, and employees. 

The pace of foreign economic collection of infonnation and industrial 

espionage activities against major U.S. corporations is accelerating. Foreign 

competitors of U.S. corporations, including competitors with ties to companies 

owned by foreign governments, have increased their efforts to steal trade secret 

infonnation and intellectual property. The loss of this infonnation and intellectual 

property can have serious repercussions for the victim company. 

In FY 20 II, DO] and the FBI increased investigations of economic 

espionage and trade secret theft by 29 percent compared to FY 2010. Since the 

passage of the Economic Espionage Act, nine cases have been prosecuted pursuant 

to 18 U.S.c. § 1831 - economic espionage to benefit a foreign agent. Seven of 

those cases have involved a link to China. 

We are currently developing a strategy to more efficiently coordinate the 

govemment's efforts to mitigate the theft of trade secret misappropriation and 

economic espionage. We need to act aggressively to combat the theft of trade 

secrets, whether state sponsors, those that are supported by state actors, or those 

that are acting for their own commercial gain. I look forward to working with the 

members of this subcommittee as the Administration continues to develop the 

strategy. 

Counterfeit Drugs 

Because of serious risks to health and safety, combating counterfeit drugs is 

a critical priority. In March 2011, we sent to Congress a strategy focused on how 

we will combat counterfeit drugs sold on the lntemet and smuggled into the U.S. A 

few examples of our approach include a CBP pilot program-the Centers for 

Excellence and Expertise (CEE)- instituted in 2011 that focused on forming 

closer partnerships with phanllaceutical companies to better understand industry 

practices and leverage this information into more efficient and effective 

enforcement. The effect of CBP' s prioritization of health and safety is clear as 

seizures of counterfeit pharmaceutical have increased by nearly 600 percent over 

the last two years. 

13 
20 

Mr. GOODLATTE. And in less than 5 minutes, too. My goodness. 

Well, thank you very much for that report, and we do have a 

number of questions. And Mr. Watt and I may go back and forth 

here in terms of the opportunity to ask lots of questions without 

going too far. And I hope we are joined by some of our other Members of the Committee because this is a very important issue. 


VE-14.eps
21 

The Administration is currently negotiating a Trans-Pacific Partnership Trade Agreement that includes provisions dealing directly 

with the issue of regulatory test data protection and how it should 

be protected. I understand that although trade promotion authority 

has expired, the Administration continues to negotiate agreements 

in line with TPA standards, which require the U.S. when in negotiations for a trade agreement to advocate for standards that are 

in line with existing U.S. law, which would mean a 12-year term 

of protection for biologic test data as provided for in the Affordable 

Care Act. 

But it appears that when it comes to regulatory test data protection, the Administration has instead been working off of a suggestion from the President’s budget that calls for a 7-year term. I also 

understand that as part of the United States-China Joint Commission on Commerce and Trade Meetings, the issue of a 12-year data 

protection term was planned on being raised, but then taken out 

and watered down during interagency review to simply push for a 

generic ‘‘new protections’’ for biologics. 

There seems to be a real disconnect here. Regulatory test data 

is valuable IP, and when countries provide limited or no protection, 

it would make sense for our negotiators to at least start their negotiations with U.S. law rather than a suggestion made in the President’s budget proposal. 

Can you explain to the Committee the importance of data protection, the markets that lack adequate protection, and how you believe it should be protected as a part of the TPP? 

Ms. ESPINEL. So with respect to data protection, this Administration, like prior Administrations, has made that a priority issue in 

our trade negotiations. 

With respect to the specific issue you raise and the term of years, 

I know that Ambassador Kirk has spoken on that in previous hearings, and I will just repeat that he, the USTR, and the Administration as a whole, we stand by U.S. existing law. We also stand by 

the President’s budget. 

My understanding on this specific issue of the difference of term 

is that that USTR has not, in fact, tabled text on that particular 

issue yet, and is in the process now of talking to a range of stakeholders about the right path there. 

So I am happy to take that back to them, but that is my current 

understanding of the status of that. 

Mr. GOODLATTE. Let me interrupt there. If you stand by both 

U.S. law and the proposal in the President’s budget, there seems 

to be a conflict between the two. Is there a way to reconcile that? 

Ms. ESPINEL. So as I said, my understanding is that the USTR 

has not tabled text on that because I believe them to be in discussion with the various stakeholders right now about that very issue. 

On the JCCT and the agenda in the JCCT, that I am not aware 

of, but I can certainly look into that and take that back to them. 

Mr. GOODLATTE. Thank you. It is crystal clear that many countries have de facto TRIPS violations. And although the President 

announced a subsidies case while in Ohio on Monday, the Administration has failed to bring a single IP case at the WTO in 4 years. 

The Bush administration filed 24 WTO cases overall, including 2 

IP cases, and 7 cases against China, despite having a limited 

22 

amount of time to file since China joined the WTO in 2001 and 

China’s WTO commitment did not become fully operative until 

2006. 

One incredibly powerful tool to help address serious challenges 

to the economic value of U.S. companies’ IPR would be to make use 

of non-violation nullification and impairment disputes at the WTO. 

NVNI disputes relate to measures that may not on their face clearly violate any specific TRIPS or other WTO rule, but that nonetheless prevent a member from enjoying the benefits that should accrue to it under the relevant agreement. 

NVNI measures that harm the economic interests of creative and 

innovative U.S. companies are prevalent, especially in the area of 

IP, and they result in significant economic harm to U.S. companies 

and exporters. And yet there is currently a moratorium on the use 

of NVNI disputes, and the Administration recently agreed to an extension of this moratorium, essentially giving a free pass to China, 

Indian, and Brazil on measures that impair U.S. IP interests. 

Examples of subsidies that could be targeted include preferential 

or IP free procurement or subsidy programs that programs such as 

China have in place, and technical standards that discriminate in 

favor of a locally owned IPR, as well as a range of other preferences accorded to indigenous IPR owners and assets. They could 

also be used to deal with inadequate enforcement regimes that may 

implement TRIPS in a manner that impairs the economic interests 

of right holders. 

Why has this been allowed to continue, and why has the United 

States not been more aggressive in investigating and in bringing 

IP cases at the WTO and making use of all of our international 

trade tools? 

Ms. ESPINEL. So I was at USTR as the Assistant USTR for Intellectual Property and Innovation during the Bush administration 

when the two intellectual property cases were brought against 

China. So I am personally aware of how much of a priority intellectual property was for the former Administration, and I hope it is 

evident from the work that we have been doing that it is very 

much a priority for this Administration as well. 

There are a variety of trade tools that we use, and I am happy 

to speak to those. But since you really focused on WTO dispute resolution in your remarks, I will focus on that. And one thing that 

I want to make sure that you are aware of, in case you are not, 

is that the President announced in his State of the Union, and it 

is now up and running, to form something called the ITEC, the 

Interagency Trade and Enforcement Committee. And the ITEC is 

charged with aggressively investigating potential trade barriers 

and looking for ways to resolve them using a variety of trade tools, 

as you said, to bring all of our trade tools to bear. And that includes using our domestic trade law and using WTO dispute resolution. 

We are very interested in looking for more aggressive ways to resolve the trade barriers that remain. You mentioned, at least in 

general terms, what might be some specific suggestions for cases 

that could be brought. I think we would be very interested in that. 

And if there is a way for us to have a follow-up conversation—probVerDate Aug 31 2005 11:47 Dec 26, 2012 Jkt 000000 PO 00000 Frm 00026 Fmt 6633 Sfmt 6601 H:\WORK\IP\092012\76033.000 HJUD PsN: DOUG
23 

ably best not in an open hearing—about specific suggestions, we 

would really welcome that. 

Mr. GOODLATTE. Thank you. And can you shed any light on the 

Administration’s apparent recent agreement for an extension of the 

moratorium on NVNI disputes? 

Ms. ESPINEL. That is not an issue that I have been close to. I am 

familiar with nullification and impairment cases as a concept for 

the USTR, but I was not aware of the moratorium or the recent 

extension on that. But that is certainly something that I can look 

into further. 

Mr. GOODLATTE. Yes, if you would and report back to the Committee your thoughts on that and where that is headed, that would 

be helpful. 

Next, I would like to ask about two significant problems that 

American companies face abroad that center on trade secret theft 

and patent quality, including weak utility model patents, particularly in foreign markets in Asia, I mentioned in my opening statement. 

The trade secret theft issue becomes even more troubling when 

the companies involved may be State-owned enterprises or share 

significant links with their home government. Trade secret theft is 

not simply a business-to-business concern, but one that requires 

real governmental action and legal reform. 

American companies operating overseas should not have to view 

this kind of theft as simply a cost of doing business. As part of the 

Strategic and Economic Dialogue, and the U.S.-China Joint Commission on Commerce and Trade, what are the types of commitments that the Administration is pushing for to address these 

pressing problems? 

Ms. ESPINEL. So first let me say, I absolutely agree with you that 

this should not be a cost of doing business. It should absolutely not 

be occurring. And I think we need to move very aggressively to try 

to stop it as I referred to in my opening remarks. 

With respect to trade secrets, I think there are a number of 

things that we can do. You mentioned the Strategic and Economic 

Dialogue. I will talk about that specifically, but I think there are 

a few other things that we can do as well. 

First, this is a critical issue for us. I think the theft of trade secrets, economic espionage, and the potential impact that it could 

have on our economy, on our ability to stay competitive globally, 

is a critical one. So it is very much a front and center issue for us. 

The President and a range of other very senior Administration 

officials have been raising this with China very directly and very 

forcefully. And coming out of the most recent Strategic and Economic Dialogue, which was held in May, China for the first time 

made a commitment to include trade secret theft and to increase 

enforcement against trade secret theft. So obviously now our job is 

to make sure, having had China make that commitment—agree to 

make that commitment for the first time—to have them actually 

follow through on that commitment. 

There are other things that we can do here at home. One of those 

is to increase our own domestic law enforcement investigation of 

trade secret theft to try to stop it before it happens, and then prosecution of trade secret theft after it has happened. 

24 

In that regard, I want to note again the Foreign Economic Espionage Penalty Enhancement Act. We think that will be very valuable to us in terms of enforcing, so I thank you and other Members 

of this Subcommittee that worked on that piece of legislation. 

And then the last thing that I want to note is that we are right 

now working internally on developing a strategy focused on trade 

secret theft and economic espionage specifically to try to make sure 

that we are as coordinated as possible and that we are acting as 

aggressively as we can. And I would very much look forward to 

working with this Committee as we develop that strategy. 

Mr. GOODLATTE. Thank you. And one final question. Tying patent rights to domestic manufacturing, or actual use in country appears to be the new trick that countries are employing to nullify 

legally-granted patent rights. Brazil and India are countries that 

require a patentee to ‘‘make use of’’ a patent in the country, basically forcing a domestic manufacturing requirement on foreign companies. 

The Chinese patent office has a made in China requirement requiring inventions that have a tangential link to China be filed in 

China first or risk losing patent protection. 

What is the next threat or legal trick that you are just starting 

to see come up on the horizon, and what can we do about these? 

Ms. ESPINEL. So as you know, there have been a number of 

things that other countries, including China, have done to try to 

undermine our innovation in ways that go beyond simply infringement of intellectual property, and you mentioned a few of them. Indigenous innovation was something that we were very concerned 

about, I believe Members of this Committee were very concerned 

about. And China did take steps back from that when it was raised 

as an issue of serious concern by the Administration. 

But it is, I think, inevitable that other countries will try to gain 

an unfair advantage in gaming their system in various ways. And 

for us, anything that means that our companies have a less stable 

and predictable environment overseas is an issue of real concern. 

So whether it is tying things to local manufacture, whether it is, 

as you said, other tricks that countries are using to try to undermine our innovation in different ways, whatever those issues are, 

we will continue to try to combat them. 

Let me take this opportunity, though, to mention one other new 

commitment that came out of the S&ED, which I think is very relevant to this conversation. In the most recent S&ED, China made 

a commitment to increase sales of legitimate IP intensive products 

in accordance with its status as a global leader and the economy. 

And I think that is worth spending a little bit time on it because 

of the significance of having China agree to a commitment in those 

terms. 

One of the reasons, one of the primary reasons that we are concerned about piracy and counterfeiting, that we are concerned 

about infringement, that we are concerned about other countries 

gaming their system to undermine innovation is because we truly 

believe—we collectively truly believe—that if our companies have a 

level and fair playing field, if they have the ability to compete on 

fair terms, that they will do very well. And so having China make 

a commitment that will focus and that will lead to increased exVerDate Aug 31 2005 11:47 Dec 26, 2012 Jkt 000000 PO 00000 Frm 00028 Fmt 6633 Sfmt 6601 H:\WORK\IP\092012\76033.000 HJUD PsN: DOUG
25 

ports of U.S. product, that will lead to increased sales of legitimate 

products. 

So having China agree to a commitment that is focused on that 

for a practical outcome of what we are trying to achieve I think is 

very significant, and I wanted to highlight it. That is basically a 

different way, in addition to the all the other things we were doing, 

to try to combat unfair practices that China and other countries 

raise. It is another way of us going at this issue and trying to make 

sure that our companies have the ability to compete on fair terms. 

Mr. GOODLATTE. Well, given the substantial trade deficit that the 

United States has with China, if we were to impose a make use 

of or made in China requirement on the protection of property 

manufactured in China, and essentially force a domestic manufacture in the United States, it would have an enormous impact on 

the Chinese economy, would it not? 

Ms. ESPINEL. I believe it would. I think there are—— 

Mr. GOODLATTE. I am not necessarily advocating that. I would 

rather see the Chinese back away. But sometimes when you get 

overwhelmed, the pressure builds on people like Members of Congress who if you cannot beat them, join them. 

Ms. ESPINEL. Really what we are all looking for are ways to get 

China’s attention and make sure that they are taking this seriously. And they have made progress in some areas, but I do not 

want to overstate that because there is still an enormous problem. 

What we are looking at doing is looking basically at every point 

of leverage that we have and trade policy tool that we have and 

seeing how we can use it most effectively against China. But then 

also as I mentioned, in the most recent S&ED, looking to see if 

there are other ways to address this rather than just going trade 

barrier by trade barrier by China and having them step back and 

make improvements in one area, but then raise new trade barriers 

in other areas. Get at the core of the problem, which is trying to 

make sure that our companies have the ability to compete fairly 

and that we are seeing exports and sales of legitimate goods go up 

in those markets. And that is really one of our primary goals . That 

is really at the core of what we are trying to get at. 

Mr. GOODLATTE. Thank you. We will now turn to the gentleman 

from North Carolina, Mr. Watt, and he will enjoy the same latitude 

that he afforded me. 

Mr. WATT. Mr. Chairman, I am going to exercise my latitude to 

let Ms. Chu go before me, if it is all right. 

Mr. GOODLATTE. The gentlewoman from California is recognized 

for 5 minutes. 

Ms. CHU. Thank you. I actually wanted to follow up on a question that Congressman Goodlatte asked, and ask about the issue of 

compulsory licenses because some countries have been able to use 

their ability to demand compulsory licenses in ways that I find 

alarming. 

For instance, on March 12, 2012, India gave a license to an Indian company to sell a generic version of a patented Bayer drug, 

even though Bayer had a valid and enforceable Indian patent for 

the drug. The Indian government justified the compulsory license 

by stating that the cost was too high and the drug was imported 

into India as opposed to being manufactured in the country. 

26 

Some people have opined that compulsory licensing has weakened an intellectual property owner’s use of the property. How do 

you respond to that statement, and what impact do you believe 

that compulsory licenses have on the effectiveness of international 

agreements? 

Ms. ESPINEL. So I am not familiar with the details of that particular case, so I cannot speak to that particular case. I can say as 

a general matter that I believe that countries can and should be 

able to address the public health situations that they face without 

taking measures that are going to undermine American intellectual 

property and American innovation. And that whatever steps they 

take they do working closely with U.S. industry. It sounds like U.S. 

industry was not necessarily involved in that case, but that they 

work with our stakeholders, they work with our companies in a cooperative way. 

Ms. CHU. Okay. Well, let me also ask about the Special 301 report. This identifies foreign policies that may unfairly disadvantage 

U.S. rights holders in other countries. It lists those countries that 

are deemed to have inadequate intellectual property right protections. What is the significance of this report, and how can it be 

used to incentivize countries to harmonize their laws to conform to 

international agreements to which they are a party? 

Ms. ESPINEL. Many countries are unhappy with being listed on 

the Special 301 list, so it does serve as an incentive for countries 

to make changes to increase enforcement, or there are other reasons beyond enforcement that countries end up on the Special 301 

list. And so it has been a useful tool. 

I believe in order for it to be effective, it needs to be clear to 

countries exactly what they need to do to get off of the Special 301 

list, or exactly what will place on the Special 301 list. So one of the 

things that we have been working with the USTR on, and the 

USTR could of course speak to this in more detail, is working with 

countries that are on the Special 301 list to come up with action 

plans that make it very clear to them what steps they would need 

to take to come off of the Special 301 list. 

I fear that at least in the past, countries either felt that they did 

not know enough of why they were there, or they knew why they 

were there, but they were not sure exactly what steps they needed 

to take to get off. And so I think whether or not that was true or 

that was simply an excuse they made, I think steps that USTR has 

been taking to negotiate action plans with countries to make it 

very clear to them the kinds of improvement the United States 

would like to see will go far in making the Special 301 list even 

more effective than it has been. And I think there are a number 

of instances where it has been quite effective in getting countries 

to bring their practices more in line with protection of American intellectual property. 

Ms. CHU. In fact, in your testimony you mentioned that Spain 

was removed this year after years of placement on that list. What 

specifically did Spain do to get themselves off the list? What got 

them on the list, and then what steps did they take to get off? 

Ms. ESPINEL. So I believe Spain was put on the list after my tenure at USTR, so with your permission I would like to go back to 

27 

them so I can get more details from them about Spain’s placement 

on the list. And I would be happy to come back to you on that. 

Ms. CHU. Well, in general, how about the kind of trading best 

practices that might be able to ensure that people get off the list, 

that these countries get off the list? 

Ms. ESPINEL. Right, absolutely. So I think there are a number of 

things that we as government can do to try to help countries get 

off the list. Part of that is being clear about what our expectations 

are. Part of that, as you alluded to, is training and capacity building, and there is a lot that we do now to try to make sure that our 

training and capability building is as effective as it can be and is 

focused on the priorities that we have. 

I would be happy to talk more about sort of the specifics, and 

USTR can certainly speak to this as well, the specifics of how action plans are negotiated. 

I know this past year when they put the list out at the end of 

April, they made an open offer for the first time to any country 

that was on the list to negotiate an action plan with the United 

States to try to set up concrete deliverables so that country would 

see a path forward to getting off the list. Obviously our goal is not 

to have countries on the list. Our goal is to use the list as a way 

to encourage countries to make improvements in their system. 

Ms. CHU. Like are there any one or two or concrete examples 

that you have? 

Ms. ESPINEL. In terms of countries making improvements to 

come off the list? 

Ms. CHU. Yeah. 

Ms. ESPINEL. So I am going to reach back to my time at USTR. 

So just as one example that is relevant to the subject matter of this 

hearing, we worked with the government of Hungary because of 

concerns that we had with their data protection legislation. And 

they made changes to their data protection legislation, and I understand that the reason why they did that was because of their concern of being placed on the list. 

I know we have listed in the Special 301 report and the Notorious Markets list particular markets in China and Russia, and 

sort of highlighted the level of concern we have about counterfeit 

and pirated goods being sold in those markets. And that has also 

apparently motivated increased enforcement against those markets. 

So those are a couple of specific examples off the top of my head. 

And again, I would be happy to go back to the USTR and give you 

a more thorough debrief. 

Ms. CHU. Okay, thank you. I yield back. 

Mr. COBLE [presiding]. I apologize to the Subcommittee for my 

delay. I had two other hearings to attend to simultaneously. Good 

to have you with us. 

What are the three key problems that American companies face 

in China and India regarding patent and trade secret protection? 

And are they in compliance with their international obligations 

under the TRIPS agreement? 

Ms. ESPINEL. What are the key problems, and are they in compliance with the TRIPS Agreement? 

Mr. COBLE. Correct. 

28 

Ms. ESPINEL. So let me speak to the key problems. I am not the 

right person to speak to compliance of the TRIPS Agreement, so I 

will put that aside, although I will, as I noted earlier, mention that 

USTR and the President’s Interagency Trade Enforcement Committee is looking at investigating whether or not there are new 

ways that we can resolve trade barriers. 

But putting aside WTO consistency for the moment, certainly 

patent enforcement or the deficiencies in patent enforcement in 

China and trade secret theft are, I believe, a real issue of concern 

to our companies. And in the last year, on patent enforcement, as 

I mentioned, we actually mid-strategy launched a new initiative 

specifically focused on patent enforcement in China because of concerns that we were hearing from our industry that our companies 

had been having in trying to enforce their patents in China. They 

have met with a significant amount of difficulty. 

There are a range of reasons why they have. So one of the things 

that we did when we launched this initiative is have a series of sitdowns with a wide range of companies in various industry sectors 

to find out exactly the problems that they were facing in China and 

which of those we could try to make progress on. That is an ongoing effort that we have, but it is coming directly because of our increasing concern about the ability to enforce our patents in China. 

We also have concerns about the quality of patents in China, 

which I alluded to earlier. And then with respect to trade secret 

theft, I would just reiterate my remarks from before, but, yes, we 

are very concerned about trade secret theft. We are very concerned 

about economic espionage. We are concerned about the impact that 

it will have on our companies and our economy as a whole. 

There is much that we are already doing to try to combat the 

theft of trade secrets, but because of the level of concern that we 

have on trade secret theft, we are at this moment engaged in a 

process of developing across agency administration strategy focused 

just on trade secret theft. And as we are in the process of developing it now, we would be very interested in working with Members of this Subcommittee as we come up with that strategy. 

Mr. COBLE. Thank you. I appreciate your response. The distinguished gentleman from North Carolina, Mr. Watt. 

Mr. WATT. Thank you, Mr. Chairman. I am glad to see you. 

Let me deal with two questions that I kind of glossed over in my 

opening statement first, and then I will ask one final question. And 

then I will let you go, unless somebody else comes and demands 

your presence. 

Your testimony talked some about the pharmaceutical industry 

and the public health and safety aspects of the efforts that we are 

undertaking. I just wanted to give you an opportunity to talk a little bit about the economic and reputational aspects or implications 

of the pharmaceutical efforts that we are taking in addition to the 

health and safety aspects of it. 

Ms. ESPINEL. So perhaps I will open by saying when I took this 

job, and I tried not to have that many preconceived notions when 

I took it. But when I took this job, my assumption was going to be 

that there were almost no incidents of counterfeit or substandard 

drugs coming into the United States, and that the real problem— 

and it is an enormous problem—was in overseas markets, particuVerDate Aug 31 2005 11:47 Dec 26, 2012 Jkt 000000 PO 00000 Frm 00032 Fmt 6633 Sfmt 6601 H:\WORK\IP\092012\76033.000 HJUD PsN: DOUG
29 

larly in Africa, which are really plagued by an incredibly high prevalence of counterfeit drugs, and that our efforts would be focused 

on trying to get more aid to those countries. And that is something 

that has happened, and we have increased the amount of the State 

Department budget for aid on those issues. 

But what I also found out was that we recently have started seeing counterfeit and substandard drugs come into the United 

States—come to U.S. citizens—because of these fake pharmacies, 

which are pharmacies in no sense of the word. So we have worked 

very aggressively to try to combat those fake online pharmacies in 

a number of ways, which I am happy to talk about. 

But I think, you know, to your question on economic impact, I 

think at least in the United States, given the levels we have seen, 

this is not an issue that I think is having, at least in terms of the 

U.S. market, a major economic impact on the pharmaceutical industries. What I think is happening, though, is that you have counterfeit drugs going to U.S. citizens. And even one instance of that 

happening is too much because of the health and safety risks that 

they pose. 

In terms of reputational harm to the industry, that again is 

something that obviously we would like to avoid. But at bottom, 

our real concern, the real thing that is driving this, is the level of 

concern of having fake drugs coming into the United States, coming 

to our citizens, and the risk that that pose to people that are taking 

them unknowingly. 

Mr. WATT. I also alluded to in my opening statement this question about what impact all of this litigation is having. I take it that 

to really be effective internationally, we need all hands on board, 

including the private sector. And one of the concerns a number of 

people have expressed is that these internal disputes, legal disputes, may be undermining the willingness and aggressiveness of 

private sector participants in supporting aggressive efforts internationally to protect somebody else’s patent and intellectual property. 

Can you give us some assurance that you are getting full cooperation from our private sector participants in protecting not 

only their own intellectual property, but protecting the intellectual 

property of other U.S. companies? 

Ms. ESPINEL. So I heard that in your statement, and I thought 

it was interesting. So I will say two different things. One is in 

terms of the domestic situation, I am probably not the person best 

suited to speak to the domestic litigation that is going on. But I 

will say that we heard a lot when we asked people for input for 

the next strategy. We heard a lot about escalating litigation costs 

in the United States, and of course we want to have a patent system here that is working as efficiently as possible. And Director 

Kappos and others are trying to make sure that happens through 

implementation of the American Invents Act. 

In terms of cooperation with other companies, I would say I 

think by and large we have had good cooperation with companies. 

We have tried to have an approach that is very inclusive and has 

as much input as possible from a whole range of companies. 

And so what I have seen over the last couple of years is a real 

increase in cooperation. Now is it—there are clearly areas where I 

30 

feel like we could have more cooperation, we could have more effective cooperation. So I guess I would say I feel like there is a positive increasing trend, but we are by no means there. 

Mr. WATT. Finally, in a report to Congress in October, there was 

a suggestion that U.S. technologies and trade secrets face heightened vulnerability to theft in cyberspace. Do you have any recommendations on how we should confront those increasing risks, or 

do you recognize that that is an increasing risk as the report seems 

to suggest? 

Ms. ESPINEL. I think trade secret theft is definitely an increasing 

risk, whether it happens through cyber or not through cyber. And 

cyber itself I think is also an increasing risk, and our concern 

about increased risk is why, as I mentioned before, we are working 

on developing the strategy to try to make sure that we as a government are pulled together in as coordinated and as forceful as possible as we can be on that issue because, yes, we see it as an increasing concern. 

Mr. WATT. Okay, Mr. Chairman, I think I will yield back. 

Mr. COBLE. I thank the gentleman. I am told the gentleman from 

Pennsylvania has no questions. Is that accurate? 

Mr. MARINO. That is accurate. I just apologize. I am trying to get 

to several Committee hearings today. 

Mr. COBLE. I, too, was late as well, so you will not be punished. 

Mr. MARINO. And I apologize to Ms. Espinel. I am very sorry that 

I was not here earlier. 

Mr. COBLE. Well, I want to thank the witness for her testimony 

today. Good to have you with us. 

Without objection, all Members will have 5 legislative days to 

submit to the Chair additional written questions for the witness, 

which we will forward and ask the witness to respond as promptly 

as she can so that their answers may be made a part of the record. 

Without objection, all Members will have 5 legislative days to 

submit any additional materials for inclusion in the record. 

With that, again I thank the witness. And this hearing is adjourned. 

[Whereupon, at 3:16 p.m., the Subcommittee was adjourned.] 

(31) 

A P P E N D I X 

MATERIAL SUBMITTED FOR THE HEARING RECORD

32 

Response to Questions for the Record from Victoria A. Espinel, U.S. Intellectual Property Enforcement Coordinator, Office of Management and 

Budget, Executive Office of the President 


76033A-1.eps
33 


76033A-2.eps

specific intellectual property issues and to illustrate systemic problems with China's 

intellectual property system. 

The case referral mechanism mentioned in your question was established under the Joint 

Commission on Commerce and Trade (JCCT). In 2009, the JCCT was suspended by 

China as a consequence of the United States filing a dispute with the WTO regarding, 

among other things, audiovisual media piracy in China. China - Measures Affecting the 

Protection and Enforcement of Intellectual Property Rights (WT/DS362). China 

suspended its participation in the JCCrs IP Working Group (IPWG) and was unwilling 

to discuss company issues raised as part of the Case Referral Mechanism (CRM). When 

the JCCT was reinstated, USTR and DOC did not reinstate CRM because it had become 

an ineffective mechanism to resolve company issues. Rather, USTR and DOC now have 

a more streamlined referral mechanism that achieves the same objective as the CRM. 

DOC's interagency program known as the Case Referral Process (CRP) effectively 

replaced the CRM process to help track company issues. This program is part of the 

International Trade Administration's (ITA) Trade Agreements Compliance Program. 

The Administration also regularly handles basic intellectual property procedural issues 

raised by U.S. companies through the CRP. DOC assembles an interagency team ofIP 

experts to provide advice to U.S. companies navigating China's intellectual property 

system. Companies can also receive basic resources and access to self-help through 

DOC's website DOC also coordinates with our embassies to 

facilitate meetings between U.S. companies and foreign government ot1icials as 

appropriate. In certain circumstances, when warranted, DOC and USTR will weigh in 

with the Chinese government directly on company-specific issues, including raising 

specific cases during the JCCT IPWG and other meetings. Let me cite an example in 

which the CRP has had a success: the Zippo Manufacturing Company obtained wellknown trademark status in China, allowing it to effectively enforce its trademark in China 

and curtail the counterfeiting of its lighters. 

The Administration also responds to the needs of U.S. companies through a multifaceted, interagency case management process that addresses both basic and complex 

intellectual property infringement cases. In China, U.S. companies can face a 

combination of complex market access barriers and intellectual property rights 

enforcement issues. For example, U.S. companies may experience shortcomings or 

irregularities in the Chinese government's enforcement mechanisms, including 

irregularities in judicial processes or decisions. 

As noted above, the IT A's Trade Agreements Compliance Program works to break down 

barriers to market access abroad and proactively monitors and helps promote foreign 

government compliance with trade agreement obligations, such as those in the WTO 

Agreement on Trade Related Aspects of Intellectual Property Rights (TRIPS). The 

program provides a framework for proactive monitoring of trade agreements; a process 

for identification, investigation, and resolution of trade barriers for individual companies; 

and a strategy for conducting outreach to inform stakeholders of efforts and services in 

this area. For example, the ITA organizes regular webinars in which experts provide free 

advice to companies on recent developments in and strategies for protecting and 

enforcing their IP rights in China. 
34 


76033A-3.eps

In addition, the USPTO's Office of Policy and External Affairs (OPEA) works to address 

intellectual property rights (IPR) protection and enforcement concerns on a case-by-case 

basis, as well as on a macro level. As part of OPEA' s efforts, OPEA attorneys work with 

the interagency IP team to address issues raised by U.S. industry constituents who are 

experiencing problems with protecting and enforcing their IPR in China (or in any other 

foreign market) and can provide assistance, as appropriate, in addressing those problems. 

The USPTO also has established strong office-to-office relationships with Chinese IP 

agencies and engages directly with those agencies to institute a stronger IPR protection 

and enforcement regime in China. 

The above-mentioned methods of engagement are fully integrated into a broader 

interagency process. This program and the types of assistance outlined above are 

available to U.S. companies of all sizes not only in China, but in all markets worldwide. 

Question #3: The U.S. government's IP attache program has been a key part of our 

IP efforts abroad. But we have seen one significant shift over the past couple years. 

In June, we heard from the Deputy Director of the PTO, and it appears that 

Administration policy is to not allow the I P attaches to deal with specific issues 

raised by an American company, and instead only allow them to engage if several 

companies face the same problem or more likely jnst have them deal with general 

policy concerns? Shouldn't our attaches be helping American companies directly in 

places like China, India, Brazil and Russia? 

USPTO's IP Attaches can, and do, provide direct assistance to U.S. companies on the IP 

problems they face overseas (although such support does not include legal advice). IP 

Attaches work with individual companies, in a variety of ways, including providing 

information and insight on the intellectual property climate offoreign markets, helping 

companies understand how to navigate the challenges of regimes, and putting companies 

in touch with relevant government agencies or local trade associations. They also discuss 

problems directly with foreign governments. 

DOC's Ethics Office recently clarified that there is no ethics problem with an IP Attache 

advocating on behalf of specific companies as part of duties under the terms of a 

Memorandum of Understanding. It is worth noting that, to maximize efficiency and 

etJectiveness, IP Attaches often address issues that relate to widespread or systemic 

problems with a foreign government's intellectual property regime, as many U.S. 

companies face similar types of challenges. 

I would also like to mention the Administration's proposal contained in the President's 

budget for Fiscal Year 2013 to deploy six Department ofJustice (DOl) Attaches overseas 

to fight transnational crime, with particular emphasis on intellectual property crime. 

These 001 Attaches, who will also serve as regional International Computer Hacking 

and Intellectual Property attorneys (ICHIPs), will be well-positioned to help American 

companies combat the increasing threat of transnational crime. The ICHIP Attaches 

would build on and expand the highly successful Intellectual Property Law Enforcement 

Coordinator ("IPLEC") program, through which DOl placed two experienced federal 
35 


76033A-4.eps

prosecutors in Asia and Eastern Europe to carry out DOJ's IP mission in those regions. 

The ICHIP program is modeled on the successful approach in Thailand where the 

incumbent serves as both DOJ Attache and IPLEC. As a DOJ Attache, the incumbent will 

be able to directly assist in the operational aspects of investigations and to participate in 

capacity-building and other outreach and training programs. 

Question #4: When a decision is made by the IIC to ban foreign products infringing 

on U.S. intellectual property rights, it appears that Customs has been taking a more 

subjective approach as to which IIC orders it will enforce. Is there anything that 

your office can do to ensure that DHS enforces orders that are in place to prevent IP 

infringing goods from entering the United States? 

Once the International Trade Commission (ITC) finds a violation of 19 U.S.c. § 1337 

and issues an exclusion order barring the importation of infringing goods, u.s. Customs 

and Border Protection (CBP) is responsible for carrying out the enforcement of the ITC 

exclusion order. In carrying out this function, CBP is charged with making a 

determination as to whether an imported article falls within the scope of the IrC 

exclusion order. This determination can often be challenging, particularly in cases 

requiring a determination whether a technologically sophisticated product has been 

redesigned in such a way as to no longer infringe the intellectual property right addressed 

in the ITC exclusion order. 

We take seriously any concerns over subjectivity or inequity in the Federal agencies' 

enforcement approach, and we would appreciate learning any further details you or your 

staff can provide. 

When my office issued the Administration's first Joint Strategic Plan on Intellectual 

Property Enforcement in June 2010, we, as an Administration, committed to work 

towards improving the enforcement of Section 337 exclusion orders, including through 

enhanced communications between the ITC and CBP. In implementing this commitment, 

the ITC, CBP, and my office have worked together to establish a process for ITC staff to 

provide CBP with advanced draft exclusion order lanh'llage prior to issuance. This 

approach provides CBP with the ability to discuss any questions of interpretation or 

scope prior to being called upon to enforce the exclusion order. 

As you may be aware, my office is right now in the process of working with the Federal 

agencies to develop a new intellectual property enforcement strategy for submission to 

the President and Congress. In this regard, my office is evaluating opportunities to 

improve the Section 337 process. This could include CBP developing new regulations in 

19 C.F.R. Part 177 that would create inter partes proceedings to either replace or 

supplement the current ex pane process for exclusion order-related rulings. Although the 

strategy is still being developed, I can tell you that the Administration is committed to 

ensuring that the processes and standards used during enforcement of exclusion orders 

are transparent, effective, and efficient for all parties involved. 

I welcome the continued focus and attention of Congress on intellectual property 

enforcement, and I look forward to opportunities to continue to work with you and the 
36 


76033A-5.eps

committee to ensure the effective and fair enforcement of US. intellectual property 

rights. 

Question #5: Ms. Espinel, in recent years, we have seen countries like Brazil, 

Thailand and India using the threat of a compulsory license as a negotiating 

strategy, to force American companies to manufacture or license their products to 

local companies at government mandated prices. Earlier this year, India took the 

unprecedented step of issuing a compulsory license against a Bayer oncology drug, 

stating among other reasons, that the patented drug was not being sufficiently 

"worked" in India because it was not locally manufactured. In October, the Indian 

government went one step further and simply revoked a Pfizer patent on Sutent, a 

cancer therapeutic, that has been patented in over 90 countries. And, most recently, 

in November the Indian government revoked a Roche patent for drug treating liver 

disease. The denial of patent protection in India, for therapies that have been 

granted intellectual property rights elsewhere in the world is quite troubling. It 

appears that the Indian government is slowly creating a protectionist regime that 

harms U.S. job creators and violates their international commitments under TRIPS. 

What steps have the Administration taken to ensure that India lives up to their 

WTO commitments and provide meaningful patent protection for innovative 

pharmaceuticals? Has the Administration considered raising these issues at the 

WTO? If not, why? 

The Administration agrees that there are serious and growing concerns about the 

innovation climate in India. These problems span many fields of technology, including 

pharmaceuticals, green technology, information technology, and many others. They arise 

in connection with India's intellectual property system, its approach to international 

standards, its industrial policies, and in a variety of other ways. 

These are high-priority issues for the Administration, and we are raising them in all 

appropriate fora. US. trade officials are closely monitoring the developments on 

phanllaceutical patents in particular. In the case of the Pfizer product Sutent, we 

understand that India's courts have, for the time being, stepped in to block the initial 

adverse decision. However, this is far from the only concern; continued engagement is 

needed to promote pro-innovation policies in India and in other countries. 

For example, last month in Geneva, the United States partnered with other WTO 

Members to promote a broad-based exchange of national experiences on IP and 

innovation. There, the United States strongly encouraged constructive policies, like those 

reilected in the APEC innovation principles agreed to last year in Honolulu, and joined 

with others in tinllly rejecting certain policies that India has recently pursued, like local 

working requirements. On December 7, 2012, Ambassador Marantis, the Deputy US. 

Trade Representative, highlighted our concerns with India's deteriorating innovation 

climate in a speech delivered in India. US. trade officials intend to continue that kind of 

pro-innovation advocacy in India and more broadly. 
37 

Æ 


76033A-6.eps

Question #6: As described in a recent report by the Business Software Alliance, 

China's Multi-Level Protection Scheme (MLPS) requires that products and 

software procured for "sensitive IT networks." Essentially, the definition covers a 

broad array of networks related to transportation, finance, telecommunications, 

health, education and others - basically, a large portion of the Chinese economy. 

This shuts out many U.S. companies, or forces them to transfer their IP to Chinese 

companies to qualify for these sales. What should the U.S. government be doing to 

combat this policy? Can you discuss how policies like this are beginning to springup in other countries as well? 

The Administration has been working to combat China's framework regulations for 

information security in critical infrastructure known as the Multi-Level Protection 

Scheme (MLPS), first issued in June 2007 by the Ministry of Public Security (MPS) and 

Ministry of Industry and Infonnation Technology (MilT). The MLPS regulations put in 

place guidelines to categorize information systems by level, according to the extent of 

damage a breach in the system could pose to social order, public interest, and national 

security. The MLPS regulations bar foreign products from information systems graded 

level 3 and above, because all products deployed must be developed by Chinese 

information security companies and must bear Chinese intellectual property in their key 

components. The United States is raising the concerns posed by these regulations at the 

2012 JCCT and will continue to urge China to refrain from adopting any measures that 

condition the receipt of government preferences on where intellectual property is owned 

or developed.