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SINKING THE COPYRIGHT PIRATES: GLOBAL

PROTECTION OF INTELLECTUAL PROPERTY

HEARING

BEFORE THE

COMMITTEE ON FOREIGN AFFAIRS 

HOUSE OF REPRESENTATIVES

ONE HUNDRED ELEVENTH CONGRESS

FIRST SESSION

APRIL 6, 2009

Serial No. 111–17

Printed for the use of the Committee on Foreign Affairs

(

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

(II)

COMMITTEE ON FOREIGN AFFAIRS 

HOWARD L. BERMAN, California, Chairman 

GARY L. ACKERMAN, New York 

ENI F.H. FALEOMAVAEGA, American 

Samoa 

DONALD M. PAYNE, New Jersey 

BRAD SHERMAN, California 

ROBERT WEXLER, Florida 

ELIOT L. ENGEL, New York 

BILL DELAHUNT, Massachusetts 

GREGORY W. MEEKS, New York 

DIANE E. WATSON, California 

RUSS CARNAHAN, Missouri 

ALBIO SIRES, New Jersey 

GERALD E. CONNOLLY, Virginia 

MICHAEL E. MCMAHON, New York 

JOHN S. TANNER, Tennessee 

GENE GREEN, Texas 

LYNN WOOLSEY, California 

SHEILA JACKSON LEE, Texas 

BARBARA LEE, California 

SHELLEY BERKLEY, Nevada 

JOSEPH CROWLEY, New York 

MIKE ROSS, Arkansas 

BRAD MILLER, North Carolina 

DAVID SCOTT, Georgia 

JIM COSTA, California 

KEITH ELLISON, Minnesota 

GABRIELLE GIFFORDS, Arizona 

RON KLEIN, Florida 

ILEANA ROS-LEHTINEN, Florida 

CHRISTOPHER H. SMITH, New Jersey 

DAN BURTON, Indiana 

ELTON GALLEGLY, California 

DANA ROHRABACHER, California 

DONALD A. MANZULLO, Illinois 

EDWARD R. ROYCE, California 

RON PAUL, Texas 

JEFF FLAKE, Arizona 

MIKE PENCE, Indiana 

JOE WILSON, South Carolina 

JOHN BOOZMAN, Arkansas 

J. GRESHAM BARRETT, South Carolina 

CONNIE MACK, Florida 

JEFF FORTENBERRY, Nebraska 

MICHAEL T. MCCAUL, Texas 

TED POE, Texas 

BOB INGLIS, South Carolina 

GUS BILIRAKIS, Florida 

RICHARD J. KESSLER, Staff Director 

YLEEM POBLETE, Republican Staff Director 

SHANNA WINTERS, Senior Policy Advisor and Counsel 

GENELL BROWN, Senior Staff Associate/Hearing Coordinator 

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C O N T E N T S 

Page

WITNESSES 

Mr. Steven Soderbergh, National Vice President, Directors Guild of America .. 27

Mr. Richard Cook, Chairman, The Walt Disney Studios ..................................... 38

Mr. Michael F. Miller, Jr., International Vice President, The International 

Alliance of Theatrical Stage Employes (IATSE) ................................................ 46

Mr. Zach Horowitz, President and Chief Operating Officer, Universal Music 

Group .................................................................................................................... 59

Mr. Timothy P. Trainer, President, Global Intellectual Property Strategy 

Center, P.C. .......................................................................................................... 67

LETTERS, STATEMENTS, ETC., SUBMITTED FOR THE HEARING 

The Honorable Dana Rohrabacher, a Representative in Congress from the 

State of California: Statement of Mr. Jeffrey ‘‘Skunk’’ Baxter ......................... 8

The Honorable Howard L. Berman, a Representative in Congress from the 

State of California, and Chairman, Committee on Foreign Affairs: Statement of the Recording Industry Association of America and letter, along 

with attachments, from Mr. Mitch Bainwol to the Honorable Howard L. 

Berman dated September 25, 2008 ..................................................................... 16

Mr. Steven Soderbergh: 

Prepared statement .............................................................................................. 30

Additional submission by the Directors Guild of America ............................... 33

Mr. Richard Cook: Prepared statement ................................................................. 41

The International Alliance of Theatrical Stage Employes (IATSE): Prepared 

statement .............................................................................................................. 49

Mr. Zach Horowitz: Prepared statement ............................................................... 62

Mr. Timothy P. Trainer: Prepared statement ....................................................... 70

APPENDIX 

Hearing notice .......................................................................................................... 100

Hearing minutes ...................................................................................................... 101

The Honorable Howard L. Berman: Prepared statement .................................... 103

The Honorable Ileana Ros-Lehtinen, a Representative in Congress from the 

State of Florida: Prepared statement ................................................................. 106

The Independent Film & Television Alliance: Statement .................................... 111

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SINKING THE COPYRIGHT PIRATES: GLOBAL 

PROTECTION OF INTELLECTUAL PROPERTY 

MONDAY, APRIL 6, 2009

HOUSE OF REPRESENTATIVES, 

COMMITTEE ON FOREIGN AFFAIRS, 

Washington, DC. 

The committee met, pursuant to notice, at 10 o’clock a.m., in the 

Van Nuys Civic Center, 14410 Sylvan Street, Van Nuys, California, 

Hon. Howard L. Berman (chairman of the committee) presiding. 

Chairman BERMAN. The hearing of the Foreign Affairs Committee will come to order. Thank you all for coming, and I do want 

to notice the presence of Congressman Adam Schiff, who is not now 

a member of the committee, but has been for a number of years, 

and is a active member of the Judiciary Committee, with great interest in some of the issues we will be discussing, and a fellow Californian. We appreciate his interest in this issue, and without objection, he may participate in the hearing and be able to ask questions of the witness. 

I would like to start off by thanking everyone who traveled here 

today to help sink the copyright pirates who plunder our country’s 

creative wealth. The theft of intellectual property, or IP, has 

plagued America’s entertainment industry for many years. Just 

this week, a month before its release, the film ‘‘Wolverine’’ was 

downloaded over the Internet hundreds of thousands of times. IP 

piracy has now become an issue for a broad cross-section of the 

U.S. economy—for companies big and small in places far from Hollywood, Nashville and Broadway. 

While the House Foreign Affairs Committee has always delved 

into matters of global economics and trade, this hearing marks the 

start of a concerted effort to capitalize on opportunities that are 

unique to this committee. Through our oversight of international 

programs, travel, and long-standing relationships with policymakers from other countries around the world, we plan to work 

more closely with other governments to provide the resources, 

training, legal guidance and tools which they need to alleviate the 

international piracy that is so devastating to American ingenuity 

and American jobs. 

According to the International Intellectual Property Alliance, copyright infringement in 43 countries caused an estimated $18.3 

billion in trade losses in 2007. The Motion Picture Association of 

America noted that the film industry lost $6.1 billion in 2005 due 

to motion picture piracy. The music industry estimates over 40 billion illegal downloads in 2008. 

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The U.S. Chamber of Commerce found that trade in counterfeited goods is responsible for the loss of 750,000 American jobs per 

year. We just spent billions of dollars on a stimulus package to provide jobs to millions of unemployed Americans, and if we merely 

focused on curtailing piracy and counterfeiting, we would preserve 

almost 1 million jobs. 

IP protection is an economic stimulus. To help boost our economy, it is imperative we take measures to ensure American innovations are protected abroad and artistic communities can earn a return on their investment in new creative expression. 

This hearing is particularly timely as the Office of the United 

States Trade Representative will soon release the ‘‘Special 301’’ report. This report lists specific countries whose lack of IP protection 

has the greatest adverse effects on the United States’ intellectual 

property industries—among them, Russia, China and India. 

The types of piracy occurring abroad range from selling DVDs on 

street corners to mass productions of optical discs and unauthorized reproductions distributed via the Internet. 

By way of example, even though Russian law enforcement officials have increased the number of raids against warehouses storing pirated material, the number of criminal enforcement actions 

in the physical as well as online environment falls far short of what 

is necessary to address the problem. 

While Russia did shut down the Web site, allofmp3.com, which 

sold business without rights holders authorization, it became a 

game of Whac-A-Mole, as almost immediately several others took 

its place. In addition, Russia has yet to certify a legitimate collecting rights society, which, if it finally happens, will finally allow 

performers to collect for use of their music. Russia needs to live up 

to the intellectual property rights agreement it made with the 

United States in November 2006, especially if it would like to be 

considered ready to join the World Trade Organization. 

While Russia has failed to enforce intellectual property rights 

sufficiently, China has chosen to enforce them selectively. During 

the summer Olympics in China, there were few, if any, counterfeit 

Olympic T-shirts to be found in the street stalls. NBC found that 

only 1 percent of online viewing by Americans occurred on copyright-infringing sites. This proved that it is possible for Beijing to 

combat piracy when it wants to—when the eyes of the world are 

on China. Estimates from the United States copyright industries 

show that 85–90 percent of their members’ copyrighted work sold 

in China in 2007 were pirated. Internet piracy is rampant in China 

and increasing as more Chinese are going online. In fact, the leading Chinese search engine for audio files, Baidu, offers links for 

downloading or streaming unauthorized copyright material. 

According to a recent article in Forbes, the number of copyright 

infringing videos on Chinese user-generated sites jumped more 

than six fold between September 2007 and September 2008. China 

must demonstrate the will and the way to deal with piracy. 

As the desire for American content reaches new audiences overseas, pirates are becoming more sophisticated and daring. In particular, we are disturbed by the rise of signal piracy in the Philippines, and alarmed by pirates in Thailand who have established 

their own movie channels. These modern day Thai pirates of the 

3

air are beaming unauthorized programming to millions around the 

region. Clearly, these types of piracy don’t need to be occurring in 

big countries to have a devastating impact on the American economy. The Bahamas currently maintains a provision in its copyright 

law that allows local cable operators to downlink, retransmit and 

profit from United States-copyrighted works without authorization 

from the copyright holder. This practice sets a dangerous precedent 

for the protection of United States audiovisual works throughout 

the Caribbean and Latin America. 

Even countries not on the priority watch list engage in unprecedented levels of piracy. Spain remains a hub of Internet piracy. 

Mexico has more than 80 well-organized black markets selling pirated goods. Moreover, Mexico has the most prolific camcorder piracy problem in Latin America as Mexican law doesn’t protect 

against the recording of motion pictures in theaters. Speaking of 

lack of laws, we still need Canada to take a meaningful step to updating its copyright laws to come into compliance with the World 

Intellectual Property Organization Internet treaties. 

Intellectual property piracy is truly a global problem that harms 

not only U.S. industry but has economic implications for other 

countries developing and supporting their own entertainment industries. India ought to appreciate the need to address IP protection. Its own homegrown entertainment industry, ‘‘Bollywood,’’ is 

subject to many of the same concerns that plague Hollywood. We 

need to do better at protecting Bollywood films when pirated copies 

are sold in mom and pop shops here in the U.S. And, as is evident 

with the crossover success and number of pirated copies of 

‘‘Slumdog Millionaire’’ viewed in India, India needs to enforce adequate protections for international innovation as well. 

The United States and its trading partners rely heavily on investments in intellectual property to drive our economies. Unfortunately, the incentives and profits for engaging in piracy are high, 

and the risks of being apprehended and sanctioned are low in 

many of the countries around the world. Furthermore, The Center 

for Global Risk and Security at the RAND Corporation released a 

report in March documenting a link between piracy, organized 

crime and funding of terrorist activities. Piracy of copyrighted materials is not a victimless crime and its global repercussions must 

be addressed. I plan to introduce legislation shortly that will begin 

to elevate the attention given to intellectual property concerns 

abroad. 

We hope to hear from our distinguished panel of witnesses today 

about the real impact of piracy on their businesses and what mechanisms we can implement to protect American intellectual property 

internationally. 

And it is now my pleasure to recognize someone who came a very 

long way for this hearing, and we are very grateful. She gets the 

prize, for many things, but she is the ranking member of the House 

Foreign Affairs Committee. She is a good friend and we are really 

excited. She came to Van Nuys, California, for this hearing. Our 

ranking member, Ileana Ros-Lehtinen, for any opening remarks 

that she might have. 

Ms. ROS-LEHTINEN. Thank you so much, Howard. It is indeed, a 

pleasure and an honor to be here in your area, and to have our 

4

California colleagues as well. Our districts have a symbiotic relationship, because your constituents make their livelihoods here, so 

it is in my interest to make sure that they continue to have a 

strong economy, because then they take their money to my district 

in South Beach and spend it. So we want them to continue to make 

money so they can come to Florida and stimulate our economy. 

Now my husband is a lawyer, who always lectures me at the end 

of the week about what Congress is doing meddling in all these 

issues for which we have no jurisdiction. But in this case—and he 

made sure that I had this with me—the Constitution of the United 

States, our Founding Fathers, Article I, Section A, states that 

‘‘Congress shall have the power to promote the progress of science 

and useful arts by securing for limited times to authors and inventors the exclusive right to their respective writings and discoveries.’’

So copyrights and patents have been important from our Founding Fathers to the front pages of today’s papers. When we look at 

the piracy that was going on, and continues to go on in ‘‘Wolverine’’ 

and other movies and music, we see that it has continued from way 

back when to today. 

I am so glad that you have made sure that our committee has 

had a long-standing interest in this worldwide problem, and its 

broad impact on our U.S. interests, including our national security. 

A prominent example of the committee’s work was the hearing in 

2003, at which senior officials from Homeland Security and 

INTERPOL testified that violent militants, including al-Qaeda, 

Hamas, and Hezbollah, were in fact enriching themselves from intellectual property piracy and their proceeds in order to fund their 

activities around the world. 

According to the Secretary-General of INTERPOL:

‘‘Intellectual property crime is becoming the preferred method 

of funding for a number of terrorist groups. There are enough 

examples now with the funding of terrorist groups in this way 

for us to worry about the threat to public safety.’’

As you pointed out, many people believe that the piracy of intellectual property, including their own illegal copying of music, movies, and software, or their purchasing of bootleg copies, is close to 

being a victimless crime with only a minor cost to large and 

wealthy corporations. 

But there are in fact real victims in these so-called victimless 

crimes. I am so glad that you have been so involved in international copyright infringement for many years. As our economy 

has moved from one of traditional manufacturing to one that is 

knowledge-based, the protection of intellectual property rights has 

become increasingly important to our country’s prosperity. 

It is definitely a cause for concern to the increasing number of 

Americans whose livelihoods depend on these industries. 

In 1996, the International Intellectual Property Alliance, which 

you quoted, estimated that United States businesses lost more than 

$6 billion to copyright pirates in other countries, with China accounting for one-third of the total. 

The problem was enormous then, but it has grown rapidly since. 

U.S. companies lost last year, as you pointed out, more than $20 

5

billion due to copyright infringement around the world. It’s an annual theft of tens of billions of dollars as manifested in the loss of 

countless jobs, and a major reduction in tax revenues. The problem 

is a global one, and there are few countries where it does not occur, 

sadly, including our own. 

But the great bulk of the problem occurs in relatively few countries. The principal blame falls upon the criminals and those who 

do the dirty work, but their ability to operate requires the tolerance 

of national and local governments. Protection from law enforcement 

officials is often secured through corruption funded by large profits 

from these criminal activities. 

But widespread corruption is not the only obstacle. The biggest 

problem is that many of these foreign governments view this issue 

as being of little concern to them and see the cost as being largely 

borne by others. Thus, they have little incentive to do more than 

the minimum needed to keep the U.S. and other countries reasonably satisfied that they are in fact doing something. 

This lax attitude makes much of our effort to deal with this problem ineffective. When they are confronted with evidence that their 

citizens are engaged in illegal activities, and are reminded that 

their international agreements require them to take action to stop 

it, foreign governments are prone to make empty pledges that they 

will do more in the future. They believe that then we will go away. 

So new measures are often agreed to, promises are made, and yet 

somehow the problem is never fully resolved. So any policy that relies on securing new agreements or fresh promises is unlikely to 

solve the problem. That is the case in China, the worst violator of 

intellectual property rights. 

The U.S. Government has repeatedly asked Chinese authorities 

to take action and we have been repeatedly told that they are doing 

the best they can. But too little is being done and that is by choice. 

China’s largest Internet search company automatically asks anyone who logs on to their site if they want to link to a wide array 

of known music piracy sites. It is actually pushing piracy. It is a 

legitimate company operating openly in China, Baidu. The Chinese 

authorities are well aware of this problem, they could shut it down 

with a phone call, but they have knowingly decided to do nothing 

to address our complaints because they have decided to pursue a 

policy in which Baidu and other Chinese companies will become 

global players in this industry. 

The Chinese authorities have invested enormous resources into 

censoring anything on the Web that dares to mention democracy, 

that dares to mention the Falun Gong, or any other subject that 

the regime wants to suppress. Many people have actually gone to 

jail for simply expressing their views, yet Chinese officials make 

the absurd claim that there is nothing more that they can do regarding online intellectual property piracy. That is outright theft 

made possibly by government policy, and China is not the only 

country where this occurs. The root of the problem is worldwide. 

For many governments, the costs of doing nothing are small while 

the financial benefits to their own companies can be quite large. 

The only way to change that attitude is to change the incentives, 

namely by increasing the cost of failing to take action. The effectiveness of this approach will depend directly upon the pressure 

6

that is applied. That cannot happen without the active role of the 

U.S. Government. Asking our trading partners to uphold their commitments is certainly a part of that process, but the olive branch 

alone has not worked and will not work. It must be supplemented 

with firmer measures. Yes, we must actively use the existing process in the various international agreements that concern intellectual property rights, and yes, we must work with our allies to coordinate our efforts as many of these are increasingly impacted by 

this problem too. 

We literally cannot afford to look the other way and tolerate inaction when our interests are being undermined by governments 

which profess friendship and profess cooperation even as their citizens rob ours of their wealth and livelihoods, and our country of 

its prosperity. 

Thank you so much, Mr. Chairman, as always, for holding this 

hearing, and thank you for the kind invitation, Mr. Berman. 

Chairman BERMAN. We’re glad to have you here, Ileana, and now 

I am going to recognize the other members who are with us for 

short—as opposed to my—comments. Then of course we will all 

leave. Oh, no. [Laughter.] 

I am pleased to recognize my neighbor and colleague from Los 

Angeles, Mr. Sherman. 

Mr. SHERMAN. Thank you, Mr. Chairman. If this subject affected 

only the entertainment industry, there would be well enough reason to have these hearings here today, because the core copyright 

industries, by themselves, are 7 percent of American gross domestic 

product, and are responsible for well in excess of $100 billion of exports each year. 

But this problem is even larger than the entertainment industry. 

It affects counterfeit drugs, counterfeit aircraft and auto parts, 

handbags. In total, counterfeiting costs U.S. business over $250 billion annually. That is increasing. 

Illegitimate goods have increased from $5.5 billion in 1982 to 

more than $600 billion annually, and now comprise 6–9 percent of 

world trade. Counterfeit auto parts alone cost auto companies $12 

billion annually, $3 billion to the U.S. companies. Some 750,000 

American jobs have been lost due to counterfeit merchandise. 

There’s a threat to consumers as 10 percent of all pharmaceuticals 

worldwide are fake drugs. And 2 percent of the airline parts installed each year are counterfeit. 

The benefit to organized crime has been noted by the ranking 

member. There is also a benefit to terrorism. The 1993 World 

Trade Center bombing was partially financed through the sale of 

counterfeit goods. One-point-two million dollars in counterfeit 

brake pads and shock absorbers were seized in Lebanon. The profits were earmarked for Hezbollah. An al-Qaeda training manual 

recommends the sale of counterfeit goods as a source of revenue for 

that organization. 

We face a worldwide recession, and I think at the core of our 

world economic problem is the lopsided trade deficit that the 

United States has with the world, and a big part of that is the fact 

that so many countries have, as a matter of policy, decided to allow 

American copyrights, patents and trademarks to be infringed upon. 

7

Some countries approach this with good faith, and we need to 

streamline, we need to provide aid to their enforcement efforts. But 

let’s face it: Some countries do not have good faith. They are playing us and we will have to decide, as a country, whether we are 

serious about intellectual property or whether we are just going to 

go through this kabuki dance again, where we send a protest note 

and one or two counterfeiters are inconvenienced for a while. 

Ultimately, we’ll have to decide whether those who are playing 

us on the intellectual property issue will have access to U.S. markets, and that will get very controversial. I yield back. 

Chairman BERMAN. I thank the gentleman and now the casual, 

sort of Hollywood, California, gentleman, who took off his sunglasses, unfortunately. Mr. Rohrabacher is recognized. 

Mr. ROHRABACHER. Thank you very much, Mr. Chairman, and 

thank you for holding this hearing on an issue that should be of 

the utmost importance to the American people. 

The theft of America’s intellectual property represents a tremendous loss of wealth, that undermines the standard of living of our 

people and undermines the prosperity of our country. America’s 

creative genius has always been our greatest asset. In the last few 

decades, however, as we have heard, our country has shied away 

from confronting this issue of intellectual property theft with both 

friends and countries that are adversarial as well. 

We can no longer turn a blind eye to this situation. In today’s 

economy, it is our duty to the creative Americans, with patents and 

copyrights, to see that their ownership rights are not being violated, and that the value of their creativity is not looted, and that 

foreign governments that are aiding and abetting this blatant theft 

are called to task. 

Mr. Chairman, whether it is an attempt to severely limit damages suffered by our inventors, when the rights of their patents are 

violated, or whether it is the copyright violations which are manifested in the piracy of music and films, American law should be on 

the side of our creative citizens. American inventors, songwriters, 

musicians, scriptwriters and film producers are valuable national 

assets that we should defend from foreign, and yes, domestic 

looters. 

The body of our Constitution, as Ileana has pointed out, uses, 

mentions the word right, and I might add, it only uses in the body 

of the Constitution, that word once, and that is in reference to the 

right of inventors and authors to control and profit from their genius. 

But now we are allowing these rights granted by our Constitution to be violated by foreign thieves. I look forward today to hearing about the details of the magnitude of the challenge that we 

face, in order to put an end to this global and domestic thievery. 

It is time to bring the hammer down on those who engage in this 

crime, and I would ask at this time to include in the record remarks on intellectual property theft by my good friend, ‘‘Skunk’’ 

Baxter, Jeffrey ‘‘Skunk’’ Baxter, who was lead guitar player with 

Steely Dan, and of course the Doobie Brothers, and I would ask 

that his remarks be made part of the record. 

Chairman BERMAN. After we read them. No. Of course. And 

without objection, they will be included in the record. 

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[The information referred to follows:]


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Mr. ROHRABACHER. And finally, one point that I would like to 

make, and that is Ileana outlined very well the just arrogant theft 

that’s taking place in China. China is widely recognized as an adversarial country to the United States, competitor and an adversary, perhaps even a potential enemy. Certainly a nondemocratic, 

authoritarian country that has seen no liberalization of their political system. 

You might expect this type of theft, this type of behavior from 

the Chinese, and we should try to push them in the right direction 

and put pressure on them. 

But we have trouble with our friends as well. Let us note that 

many of the pirated items that we are talking about, that end up, 

even sent back to the United States, adding insult to injury, they 

are pirating, selling them overseas, then they bring them here. One 

of the worst violators of permitting their country to become a transshipment depot happens to be Canada, our best friend. 

So we have one of our, you know, worst adversaries on one side, 

engaging in this crime, but who is aiding and abetting the crime 

but our best friend, Canada. And Canada refuses, for example, to 

permit their customs people to seize, or to at least stop goods that 

are being transshipped through Canada into the United States. 

They won’t even permit them to stop these counterfeit items that 

are blatantly counterfeit items. 

So we need to hold Canada, our friend as well as our adversaries, 

we need to hold them responsible for this, and we need to make 

sure people know, around the world, we are getting serious with 

this issue because it has a dramatic impact on the economic wellbeing of our people at a time when we cannot take that for granted. 

Thank you very much, Mr. Chairman. 


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Chairman BERMAN. Thank you, and the gentleman from California, Mr. Royce, a member of the committee. 

Mr. ROYCE. Thank you, Mr. Chairman. I don’t think many people 

realize just the impact this has on our economy. The estimate is 

about $5 trillion a year in terms of the portion of our economy, the 

GDP that comes about as a result of intellectual property, everything from motion picture to pharmaceuticals. And that’s larger 

than the GDP of any other country on the planet. So when it comes 

to undermining intellectual property in the U.S., it has a very pronounced effect. 

But more importantly I think to us right now, is because of the 

margins in this particular crime, the ability for this to fund terrorism becomes very acute. Hezbollah utilizes this type of activity. 

As a matter of act, Assad Ahmad Barakat, who runs the tri-border 

area in Argentina, Paraguay, Brazil, he has been caught sending 

checks to Hezbollah. Hezbollah, as a matter of fact, the leadership 

of Hezbollah, have thanked him for his ongoing efforts. 

Now today, he is in jail for tax evasion in Paraguay. But that 

hasn’t stopped him, or his associates, from continuing in this endeavor to support the Hezbollah terrorist organization. And as we 

know, maybe it cost $1.5 million to run that operation on 9/11, it 

is very, very vital for these terrorist groups to have access to these 

types of resources. 

So unless we shut this down, everything from human trafficking 

rings to terrorist operations around the planet, are funded by this 

kind of activity. 

Another reason why India—you know, the chairman, Chairman 

Berman spoke about the need to get India on board. If you think 

about it, the godfather of godfathers, as he is called, of Indian organized crime, Dawoud Ibrahim, is linked to piracy in a big way, and 

frankly, also, he is a big supporter of al-Qaeda, and in the past also 

of the LeT. He was largely responsible—that that organization was 

responsible, back in 1993, for the Mumbai bombings. That series of 

bombings killed 257 people. 

Now D Company is the operation he runs. It is now integrated 

into every part of the Indian film making industry, from distribution to loan sharking, and I guess a special irony here, for those 

of you who saw ‘‘Slumdog Millionaire,’’ is the fact that a lot was 

made of organized crime there, and the way in which corruption 

has that insidious effect. 

Think for a minute, the very people portrayed, the very organized crime syndicates, are involved today in pirating and undermining Bollywood, and on undermining Hollywood. One more example. And if they weren’t tied to terrorist networks that were engaged in this kind of activity, we would have enough to worry 

about. 

But this should really focus our attention, I’m afraid. The high 

profit margins in this type of crime make for little wonder why 

gangsters and terrorists have turned to piracy. But turning back to 

the overarching theme of the Founding, the architects of this republic. You know, they said patents and copyrights are the legal 

implementation of the base of all property rights, and that, to 

them, was a person’s right to the product of that individual’s mind. 

13

That is why the architects of this republic cared a lot about this 

concept and put it in the Constitution, that is why we should care, 

and thank you again, Mr. Chairman, for this hearing. 

Chairman BERMAN. Thank you, and the fifth gentleman from 

California, Mr. Schiff, is recognized. 

Mr. SCHIFF. Thank you, Mr. Chairman. It is my privilege to represent the cities of Burbank, Glendale and Pasadena, and several 

surrounding communities, home to many hard-working Americans 

who are employed in the entertainment industry, both at movie 

studios, the recording industry post-production shops, among other 

IP enterprises, and I have seen firsthand, the toll that intellectual 

property theft takes on the lives of real Americans. 

The work product of my constituents is being stolen every day. 

I have often said that on an individual level, piracy is nothing less 

than high-tech shoplifting, and in the aggregate, it can destroy 

whole industries. 

There is no difference between stealing a DVD from a store and 

selling a pirated DVD on the street, or uploading it to the Internet, 

and when people buy pirated DVDs on the street, or download 

music on the Internet without paying for it, they aren’t just stealing products, they’re stealing jobs from American workers, which 

with unemployment rates in excess of 10 percent here, in California, and approaching that point in other parts of the country, we 

ought to be more concerned with than ever. 

A critical component of our Nation’s competitive strength is the 

creation of copyright-based goods and services. This is a reality 

even clearer now as the American automobile industry, once the 

prime example of 20th Century American ingenuity and prowess in 

manufacturing exports, stands on the brink of collapse. 

The American assembly line of the 21st Century is now made up 

of the creation, production and export of things like music, motion 

pictures, software products, books, accounting for 6 percent of our 

Nation’s GDP. 

Indeed, the U.S. copyrighted industry is one of the few bright 

spots in our economy, and will serve as a key cornerstone in the 

effort to rebuild our economy. 

When one of our trading partners allows copyright infringement 

to occur with impunity, they are gaming the system and injuring 

our economy. We have to take much stronger steps to ensure other 

countries on our list of infringers are forced to take piracy more seriously. 

In Congress, we have been working to accomplish this. As a cofounder and co-chair of the Congress International Anti-Piracy 

Caucus, a caucus made up of over 70 Members of both the House 

and Senate, we are committed to reducing the scourge of piracy 

abroad. 

Each year, we unveil a country watch list, signaling out high priority countries such as Russia and China, due to the scope and 

depth of their piracy problems, which cost United States copyright 

industries, and millions of Americans who work in these companies, billions of dollars every year. Next month, we will be unveiling our 2009 watch list. 

14

I want, though, to highlight also the role that some of the American companies and American industries play in tacitly support piracy in other parts of the world. 

For example, unfortunately, many of the major United States 

credit card companies were previously facilitating transactions on 

a notorious Russian Web site that has been identified by our U.S. 

Trade Representative and the Department of Commerce as the 

world’s highest volume online seller of pirated music. 

But these problems go on. There are a number of fringe, online 

sites that brazenly promote the infringement of U.S. copyrights, 

that also benefit from hosting ads and obtaining ad revenues from 

legitimate U.S. companies, often at times unbeknownst to these 

companies. 

I have, for example, here, a screen capture of a Web site, and I 

am not going to give the name of it, it is in the Ukraine, cause I 

don’t want to promote their illegal business, but if you can see a 

little more closely on this, they are illegal offering songs and albums from Kelly Clarkson and U2 for sale, and on the front page 

you can see logos for Visa and MasterCard. 

Not only is it problematic to facilitate these transactions, but 

their inclusion on the page can add a false perception of legitimacy 

to the Web site. I think we need to look at how extensive this problem is, and how other companies and other industries are, at times 

willingly, at times knowingly, facilitating the piracy of American 

work product, and, by extension, the piracy of American jobs. 

I am greatly appreciative to the leadership Chairman Berman 

has shown on this issue, and I guess I thought we were here as 

an acting subcommittee of the Judiciary. So I must thank you also, 

since we are not, since we are here with your Foreign Affairs hat 

on, Mr. Chairman, to thank you for allowing me to participate as 

an ex officio member of Foreign Affairs. 

Thank you, Mr. Chairman. 

Chairman BERMAN. Yes, but I do hope Chairman Conyers understands, we are not asserting authority to pass copyright amendments in the Foreign Affairs Committee. Although—well, no; never 

mind. [Laughter.] 

I want to thank all my colleagues, and sort of the warm-up act, 

and now for the feature, we really have an exceptionally knowledgeable panel with us today to discuss global protection of intellectual property rights. And I would like to introduce them. 

Mr. Steven Soderbergh is the director and the national vice 

president of the Directors Guild of America. He also chairs the 

Eastern Directors Council, is co-chair of the Creative Rights Committee, and is chairman of the Eastern Independent Directors Committee. 

In 2000, two of Mr. Soderbergh’s films, and they were remarkable films, ‘‘Erin Brockovich,’’ and ‘‘Traffic,’’—and ‘‘Traffic,’’ having 

just been to Mexico City, it is like that is playing out in real life—

were nominated for a Best Director Oscar, making him the first director since 1938 to receive dual Academy Award nominations in 

the same year in the directing category. He is a prolific filmmaker, 

who has directed 20 films and produced numerous others. 

Mr. Richard Cook is a 38-year veteran film executive and chairman of Walt Disney Studios. Mr. Cook oversees all aspects of the 

15

developing, production, distribution and marketing for all live action and animated films at Walt Disney Studios. 

He is also responsible for Disney’s worldwide home entertainment operations, Disney Music Group, Disney Theatrical Group, 

Disney ABC Worldwide Television, and Disney Media Networks, 

Disney ABC domestic television, as well as the studio’s legal and 

business affairs in all areas of new technology. 

Mr. Michael Miller, Jr., is the international vice president of the 

International Alliance of Theatrical Stage Employees (IATSE) General Executive Board and also serves as a labor trustee on the Motion Picture Industry Pension and Health Alliance. 

He began his career with IATSE in 1990 when he was initiated 

into IATSE’s Stagehands Local 27 in Cleveland, Ohio. In 1993, he 

was elected to the executive board of that local and served in that 

capacity until he was elected Secretary-Treasurer in 2003, then 

joined the IATSE West Coast office as international representative 

in 2001. 

Mr. Zach Horowitz is the president and chief operating officer of 

Universal Music Group and is responsible for Universal’s Music 

Publishing Group, one of the industry’s largest and most successful 

operations. He also oversees a number of other key areas of the 

company including Universal Music Group Distribution, 

Universal’s leading distribution operation, which includes Vivendi 

Visual Entertainment and Fontana. 

Mr. Horowitz serves on the board of directors of the Recording 

Industry Association of America and holds a post on the National 

Academy of Recorded Arts and Sciences presidential advisory council. 

Mr. Horowitz, I will include the statement of the RIAA and Mr. 

Mitch Bainewalls’ September letter to me in the hearing record. 

[The information referred to follows:]

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Chairman BERMAN. And finally, we have Timothy Trainer, the 

founder and president of Global Intellectual Property Strategy Center, an intellectual property legal consulting firm. Mr. Trainer’s career includes work with the U.S. Government in the intellectual 

property rights branch of the U.S. Customs Service, and in the Office of Legislative and International Affairs for the U.S. Patent and 

Trademark Office. 

Mr. Trainer worked for the law firm, Archer and Haddon, and 

served as a past president of the International AntiCounterfeiting 

Coalition. His work has included representing the United States at 

the World Intellectual Property Organization, representing the industry at INTERPOL’s IP Crime Action Group, and co-chairing the 

U.N.’s Economic Commission for Europe’s IP Group. 

All of your written statements will be a part of the record. If you 

could try to summarize your statements in about 5 minutes. We 

are not going to pound the gavel. We have looser, California laidback rules here. But we will sort of lightly touch the gavel when 

you are getting as long as we have been. 

And Mr. Soderbergh, why don’t you begin. 

STATEMENT OF MR. STEVEN SODERBERGH, NATIONAL VICE 

PRESIDENT, DIRECTORS GUILD OF AMERICA 

Mr. SODERBERGH. Good morning. I am honored enough to be 

here, and respectful enough of your time to speak briefly and plainly. We are here to talk about piracy, primarily Internet piracy, and 

while I am here officially representing the Directors Guild, I would 

like to speak to you personally. 

I am a film maker, and so by some loose definition, I am also an 

artist, but since the subject of art is very subjective, I want to talk 

about numbers, because numbers are not subjective. Numbers are, 

inarguably, what they are. 

So here are a few numbers to think about. In 2007, the entertainment industry, despite the piracy figures mentioned by the 

chairman, generated a trade surplus of $13.6 billion. 

In 2005, the entertainment industry generated 1.3 million jobs, 

over $30 billion paid in wages, and over $30 billion paid to vendors 

and suppliers. That generated $10 billion in paid taxes. 


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As strong as those numbers are, we could do more. We could 

make an even larger contribution to the economy, if it weren’t for 

theft, in the form of piracy. 

I won’t bore you in this verbal testimony with figures of how piracy has affected my own work, because I am not an exceptional 

case here. Everyone is hurt by this. 

Most people see the entertainment industry as a bunch of pampered celebrities. I see it that way, sometimes, and I wish my saying that that’s not true could just instantly dissolve that illusion. 

Certainly, Michael Miller will attest to the fact that most people 

that work in this industry are resolutely middle class and are 

largely living paycheck to paycheck. But let’s set aside this issue 

of perception for a moment and get back to the numbers. 

I guess my question is: If the automobile industry told you that 

25 percent of its cars had gone missing, from leaving the assembly 

line to getting to the car lot, you would have the Department of 

Justice doing wind sprints to figure out how to solve this. We are 

facing a very similar situation. 

Piracy increases unemployment by reducing the revenue paid to 

the people providing that employment, and that results in lost jobs. 

What is our solution here? Well, this is what we know. Litigation 

is slow and the Internet is fast. This may not be the best time to 

speak about self-regulation, but I don’t think it makes much sense 

for us to ask the Government to be the police in this issue. 

What we would like is to be deputized to solve our own problems. 

We would like to be granted the kind of pull-down and inspection 

abilities that we are seeing proposed in France, so that we can act 

swiftly and fairly on our own behalf. IF we are given this ability, 

I feel we can figure out a way that is efficient and creative to make 

piracy a difficult last resort instead of a best first option. 

The other reason to do this is that it will allow the industry to 

retain and continue to create jobs without asking for taxpayer assistance in the form of Government intervention. 

Forty years ago, as some movies targeted for adults began to 

show the world as it is instead of as we might wish it to be, censorship bodies sprung up all over the country to determine whether 

each film complied with community standards, and film makers 

were faced with the possibility of having to screen their films for 

every one of these groups before they could present their work to 

the public. 

this was impractical, to say the least, and a subsequent court 

ruling deemed that it was illegal as well. The solution was the creation of the MPAA, which established a ratings system that we still 

use today. It works and it doesn’t cost the taxpayers a single 

penny. 

The extreme level of competition at all levels of this business has 

resulted in an intelligent hard-working, capable workforce, and this 

business is actually remarkably transparent when you compare it 

to other businesses of similar scale. It is for these reasons I ask you 

to empower the industry to confront this problem, which extends 

to every country and every content provider in the world. 

Since the United States is the world’s largest exporter of entertainment, I believe we have an obligation to create a new paradigm 

for combating piracy. I don’t think it is going to happen without a 

29

fresh approach to the way the Government and the rights holders 

interact. I am here as a member of the creative community, to tell 

you that we are ready and able to confront this problem. 

I would like to submit some additional materials for the record 

which will provide details on the impact of piracy on my own films, 

as well as our thoughts on the French solution, and other DGA 

suggestions for Congressional action on this matter. 

Thank you for your time. 

[The prepared statement of Mr. Soderbergh follows:]

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Chairman BERMAN. Thank you, and the additional submission 

will be included in the record of this hearing. 

[The information referred to follows:]


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Chairman BERMAN. And Mr. Cook. 

STATEMENT OF MR. RICHARD COOK, CHAIRMAN, THE WALT 

DISNEY STUDIOS 

Mr. COOK. Mr. Chairman, thank you for convening this hearing 

today. No issue is more important to The Walt Disney Studios than 

the protection of intellectual property. Intellectual property is the 

core of our business. The ability to protect that intellectual property is what drives our ability to continue investing in new creativity, to tell new stories, and to keep innovating. 

These are challenging times for the entertainment industry. 

Movie studios, like other companies, have had a difficult choice in 

these tough economic conditions. Yet the motion picture industry 

maintains great promise as a truly unique American industry with 

a strong history of creating high-paying jobs and contributing to 

local economies across the United States. 

Now, more than ever, we should encourage policies that promote 

investment in this type of creativity. We are facing a sea change 

in the nature of the piracy challenge. Gone are the days when borders provided a barrier to trafficking in pirated goods. No longer 

do we live in a world where piracy is confined to a small number 

of large criminal syndicates. 

Today, the actions of a single individual can feed an entire chain 

of online and offline piracy. Most importantly, what happens in one 

country now has a profound impact on businesses in other countries. 

Let me share with you an example that illustrates the international scope and complexity of the piracy challenge. 

Last year, we released ‘‘Wall–E,’’ a wonderful Disney-Pixar film 

that won the Academy Award for best animated film. The film was 

released in theaters in the United States on June 27. It was released in the Ukraine a week later, on July 3rd. On July 5th, a 

copy of the movie that was camcorded in a theater in Kiev appeared for the first time on a Russian Internet site. 

Within 2 days, copies of the same version appeared on a peerto-peer site. Within 7 days, copies were uploaded on 13 other Internet sites. Within 10 days of the film’s Ukrainian release, there 

were copies online in Russian, English, Spanish, Dutch and Mandarin. 

The same copy served as a master for physical copies, worldwide. 

This DVD copy was found in Kiev 1 day after a copy first appeared 

on the Internet. One day later, a second copy was purchased in 

Chicago. The next day, a third copy was purchased in Lima, Peru. 


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A week later, these copies were purchased in Guadalajara, Mexico, 

and New York City. By July 31st, copies of the same version were 

purchased in Argentina, Indonesia, Philippines, the U.K., China, 

Canada, Turkey Hungary, Japan, Russia, Chile, Australia and 

Brazil. 

In total, 54 purchases were made, all sourced from the same 

copy. Camcording is a major concern. More than 90 percent of recently-released movies on counterfeit DVDs can be sourced to illegal camcording. 

The camcording also demonstrates that the combined efforts of 

industry and Government can make a difference. In 2005, Mr. 

Chairman, you joined with then-Chairman Smith, and Senators 

Feinstein and Cornyn, to pass a law making unauthorized 

camcording a Federal crime. The impact of this law has been dramatic. 

In 2004, New York was the center of illegal camcording activity. 

That year, there were 113 camcorded copies traced to New York 

theaters. In 2008, there were nine. 

In the 50 States put together, the number of camcorded copies 

in 2008 was down by almost a third from 2004. 

When camcording began to decrease in the United States, we noticed increased activity elsewhere, particularly in Canada. Between 

2005 and 2006, Canadian-source camcorded copies rose by 24 percent. After consultations with the Canadian Government, including 

cooperative engagement between the United States and Canadian 

Governments, Canada enacted its own camcording law in 2007. 

Since then, we have seen Canadian-source camcorded copies fall 

by nearly half. 

As might be expected, effective legislation and enforcement is 

starting to push this activity elsewhere. Countries without effective 

camcording legislation, such as Ukraine, the Philippines, Thailand 

and Mexico, have become havens for illegal camcording operations. 

There is an urgent need for action and an effective international 

response. 

The camcording provisions in the recent South Korea and Malaysia FTAs should be a model for future FTAs. Similarly, the United 

States Government should make effective legal protections a priority in bilateral discussions and in Special 301 determinations. 

This is an area where we know we can make a difference. But 

it will take joint efforts of industry and government on an international scale to make it work. There are other manifestations of 

technological development enabling widespread infringing distribution that demand attention if piracy is going to be meaningfully addressed. A case in point is Internet piracy on user-generated content, or UGC sites. 

In just a few short years, we have seen unprecedented growth in 

UGC sites and services. Rather than resort to litigation or legislation, as our first response to the rampant piracy on these sites, we 

engaged a number of sites directly in an effort to find a solution. 

The result was a set of Principles for User-Generated Content 

Services that reflect a shared commitment to eliminating infringement on these sites, including through the use of state-of-the-art 

filtering technology, while also protecting fair use and promotion of 

original and authorized user-generated content. Those principles 

40

have now been joined by 12 companies in the United States and 

in Europe, and as a result, we have seen a substantial reduction 

in piracy on participating UGC sites. 

But similar to the camcording experience, infringing activity is 

moving from those sites that are implementing effective filtering 

technologies to those that do not. 

Unsurprisingly, many of those sites are located overseas. So as 

with camcording, a meaningful solution was must an international 

one. As we engage with UGC sites, both domestically and around 

the world, we continue to advocate a constructive solution along 

the lines of the one embodied in the UGC principles. We would 

strongly encourage the United States Government to do what it can 

to promote similarly effective interindustry solutions, here, and in 

its interactions abroad. 

Finally, I want to take note that while our problems with piracy 

and counterfeiting abroad remain significant, we continue to have 

very serious threats right here at home. 

The fact is the United States studios lose more revenue to piracy 

occurring over broadband networks in this country than they do to 

piracy in countries abroad, like China, Russia and Thailand, where 

piracy rates run between 75 and 90 percent. This is an area, Mr. 

Chairman, to which you have devoted substantial thought, and to 

which we must continue to devote our energy and attention. 

I look forward to working constructively with you and other 

members of the committee as we seek meaningful solutions to 

these complex problems. Thank you. 

[The prepared statement of Mr. Cook follows:]

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Chairman BERMAN. Thank you, Mr. Cook. 

And Mr. Miller. 

STATEMENT OF MR. MICHAEL F. MILLER, JR., INTERNATIONAL VICE PRESIDENT, THE INTERNATIONAL ALLIANCE OF THEATRICAL STAGE EMPLOYES (IATSE) 

Mr. MILLER. Good morning. Thank you for the opportunity to set 

forth the impact of piracy on IATSE members. The IATSE was 

founded in 1893 by a group of stagehands in New York City, and 

has expanded during our 116-year history with local unions chartered throughout the United States and Canada. 

Today, the IATSE is the largest entertainment union in the 

world with nearly 120,000 members. For our members, the issues 

of combating piracy and protecting intellectual property are of 

paramount concern. There are hundreds of thousands of individuals employed in the entertainment industry. Most are hard-working people who do not earn the millions of dollars that a few highprofile actors do, but work in middle class jobs for middle class 

wages and middle class benefits. 

Besides the actors and actresses, the number of individuals employed on the production of any given motion picture may be anywhere from 200 to a 1000 employees. They are not in front of the 

camera but supply the necessary labor to make those movies. 

The wages we negotiate for our talented and skilled members are 

higher than the minimum hourly wage, but it must be remembered 

that often our members have to make their paychecks last much 

longer, because these are not permanent jobs, they are jobs that 

will end when production is complete, and the next job they get 

may not be for many months. 

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

residual payments. When studios release DVDs to the market, our 

members share in those sales with these residuals. In the IATSE, 

those payments are contributing to the health and retirement benefits that our members so desperately need. 

When pirated copies are selling on the streets, are being illegally 

downloaded from the Internet, our members and many more workers see nothing. Piracy is costing these individuals an estimated 

$100 million in pension and health care benefits, annually. 

Piracy is stealing, pure and simple. Anyone who sells, acquires 

or copies these materials, without permission, is simply a thief. 

Downloading a movie without paying for it is no different than 

stealing a DVD off the shelf of a store. 

Making movies available on the Internet for downloading, selling 

pirated DVDs on the street, or camcording and redistributing movies, broadcasts or performances, are all forms of piracy. 

Unfortunately for our members, much of the public still perceives 

the illegal pirating of motion pictures as a victimless crime. But piracy is not a petty and victimless crime. Piracy is a devastating 

economic attack that in 2005, alone, cost our industry $6 billion, 

and as large as that sum is, it is only a fraction of the $250 billion 

that copyright piracy costs the overall U.S. economy every year. 

47

In fact, in 2005, piracy cost the movie industry more than 141,000 jobs and $4.5 billion in annual lost wages, while depriving 

State and local governments of $837 million in tax revenue, money 

that could have gone toward roads, schools, or infrastructure to 

help further shore up American communities. 

Downloading movies and music without the authorization of 

copyright holders is a growing international problem, and we need 

to take action. Recently, the international community has started 

to get involved, and China, Russia and the European Union have 

drafted legislation to implement or increase criminal penalties for 

counterfeiting and intellectual property piracy. But that is not 

enough. 

Other international law enforcement agencies have recognized 

that piracy is a serious crime, and are beginning to step up their 

efforts to prevent, or maybe reduce it. Mexico has begun to step up 

its fight against piracy by creating new advertising aimed at children, and statements by officials that denounce piracy as an illegal 

activity that supports more sinister aspects of organized crime. 

The IATSE consists of members in both the United States and 

Canada, and our Canadian brothers and sisters are seeking relief 

from the Canadian Government in the form of anti-piracy legislation as well. Canadian movie theaters account for nearly 50 percent 

of all camcorded sources worldwide, and Canada’s film industry is 

taking steps to attempt to address that. 

Amendments to Canada’s criminal code were passed in 2006, 

which made individuals videotaping a movie for purposes of resale 

punishable by up to 5 years in prison. 

In addition, there is currently an initiative led by the Canadian 

Motion Picture Distributors Association, and other industry stakeholders, to support amendments to the Copyright Act in Canada. 

They have not yet been successful. 

What can we do? Well, first, just as society punishes bank robbers, the society should punish those pirates who rob us of our intellectual property. Sadly, the U.S. Government has not been in the 

forefront of this movement. In 2008, there were only 11 Federal 

cases brought, and of those, five defendants pled guilty and one defendant was actually tried and found guilty. We can hope that the 

States are also enforcing these laws more rigorously. 

Secondly, we seek to support the sponsorship of stronger legislation protecting intellectual property. On the Federal level, we now 

have the PRO–IP Act of 2008 which increases penalties for violating U.S. copyright and trademark laws, and creates a Cabinetlevel IP Czar to advise the President and coordinate Federal programs and policy designed to combat piracy. 

Finally, we would like to reach out to the studios and employers 

of our members to work together to find new ways of encouraging 

legal downloading of movies and content. 

If the audience for movies can be reached with quick, legal, highquality downloads, this would produce an economic benefit, almost 

immediately. 

The entertainment industry is one of the largest exporters of 

product in the United States and right now is one of the few areas 

in which our economy thrives. It provides revenue for our Government and employment for a vast number of U.S. citizens. We must 

48

collectively take strong action against this problem as expeditiously 

as possible. 

The movie industry is a significant portion of the economy, accounting for about 1.3 million jobs, over $30 billion in wages and 

$10 billion in Federal and State taxes each year. The loss of more 

than $6 billion in any year to piracy is unacceptable. 

The majority of the workers hurt by piracy are not the big name 

actors or wealthy producers, as they make up a very small percentage of the motion picture industry workforce. 

The people who are hurt the most are the ones working behind 

the scenes in middle class jobs on a job-to-job employment. 

Motion picture piracy is not something that can be ignored, it is 

a serious crime, and we, in the IATSE, and about 1 million other 

hardworking men and women are its victims. 

On behalf of the IATSE, I am particularly appreciative of this opportunity to have testimony presented to you and I thank the committee for inviting us to participate. If we can be of any assistance 

of answer any questions, we remain available. Thank you. 

[The prepared statement of IATSE follows:]

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Chairman BERMAN. Thank you very much, Mr. Miller. 

And now Zach Horowitz, we look forward to hearing. 

Mr. HOROWITZ. Mr. Chairman——

Chairman BERMAN. Oh. Let me interrupt you for 1 second. Two 

announcements. This is no longer Florida and Southern California. 

We have been joined, I am very happy to say, by our colleague from 

Houston, Texas, Ms. Sheila Jackson Lee, a member of the committee, and interested in these issues. 

And I also want to particularly acknowledge the presence of two 

distinguished representatives from the Consul-General of France, 

David Martinon, and the executive director of the Film and TV Department. Notice, in France, the Consul-General has a position, executive director of the Film and TV Department. Maybe some of 

our embassies and consulates should have someone like that. But 

Laurent Morlet, we are very happy to have both of you with us 

today. 

Mr. Horowitz. 

STATEMENT OF MR. ZACH HOROWITZ, PRESIDENT AND CHIEF 

OPERATING OFFICER, UNIVERSAL MUSIC GROUP 

Mr. HOROWITZ. Mr. Chairman, let me begin by thanking you for 

the many hours, over many decades, you have dedicated to America’s creative community. Effective copyright laws give us the confidence to look for the next new sound; but we need your help. 

One in 3 CDs sold globally are made by pirates, and only 1 in 

20 downloads is legitimate. We estimate that there were over 40 

billion illegal downloads in 2008. That is an online piracy rate of 

95 percent. 

And when it comes to physical piracy, 90 percent of recorded 

music sales, in places like China and Russia, are counterfeit. Even 

in many EU countries, the piracy rate is over 50 percent. These 

bleak statistics have a real cost. 

Our domestic music industry loses over $5 billion annually in 

global piracy, and because U.S. music is the most popular genre 

around the globe, piracy disproportionately affects U.S. artists and 

the U.S. economy. It means lost jobs and lost tax revenues. 

If we can’t secure a return on our investments, we cannot invest 

in developing artists. How many great artists will go undiscovered? 

Will piracy cheat us out of the next Beethoven or the next Beatles? 

We will never know. And as manufacturing jobs disappear, intellectual property is how our kids will earn their livelihoods. The stakes 

are incredibly high, but IP has not been the national priority that 

it needs to be. 

While we appreciate the complexities of trying to protect intellectual property in a world with different legal regimes and cultures, 

every country should be expected to abide by basic principles of 

fairness and the rule of law. 

You can be a powerful force in sending that message. 

Allofmp3.com, which has been mentioned by some of you today, 

was a Russian company and it provides a perfect illustration of 

how the U.S. Government can make a difference. 

Allofmp3 was an online service that sold all the most popular 

music of the world, without any authorization from artists or rights 

holders. Users were charged a few cents per song, which gave the 

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site a patina of legitimacy, and the purchases were redeemed 

through MasterCard or Visa. No money was ever paid out to artists 

or rights holders. 

By 2006, it was one of the world’s most popular music sites. 

When the music industry brought the site to the attention of Congress, Members like you made the rogue operation the focal point 

of dialogues on global piracy. 

When Russian officials wanted to discuss membership in the 

WTO, the U.S. Government used allofmp3.com as an example of 

why Russia was not ready to join the global alliance. 

Over time, the spotlight led to action by the Russian Government. One of the world’s most notorious illegal music sites was 

reined in because U.S. officials brought attention to its indefensible 

business model. 

The success in handling allofmp3.com demonstrates that legislation is not the only tool in Congress’s arsenal, and that traditional 

law enforcement is not the administration’s only leverage. We could 

use that kind of spotlight on Baidu, China’s number one online 

search engine. Baidu purposely provides links to unauthorized 

music sites and is responsible for 50 percent of the Internet-based 

piracy in China. 

Google recently launched a fully-authorized online music service 

in China to compete with Baidu. It will be free to users and content 

creators will share in ad revenue generated by the site. But can 

Google China overcome Baidu’s first mover advantage, or the competitive disadvantage of compensating artists and rights holders 

when Baidu does not? 

Our piracy problems are not limited to far-away places like Russia and China. Regrettably, as has been mentioned, our closest 

neighbors present some of our worst piracy challenges. The OECD 

estimates that Canada has the highest level of online piracy in the 

world. Amazingly, Canada still has not modernized its copyright 

law for the digital age, and is now a haven for those running unauthorized music Web sites. 

And in Mexico, piracy has reached epidemic proportions. Seven 

out of 10 CDs sold are pirated. We hope this committee will call 

out Canada for its utter disregard for the policies at the heart of 

copyright, and its indifference to the realities of the borderless digital marketplace, and we urge the committee to add its voice to 

those calling on Mexico’s leaders for sustained and consistent antipiracy enforcement initiatives. 

Another area where this committee can make a difference is with 

the USTR’s Special 301 list. It would be productive for the committee to meet with the ambassadors from the most problematic 

countries, so that you can make clear that lax IP enforcement is 

unacceptable. They need to be left with a real sense that there are 

meaningful repercussions for our trading partners, if they don’t resolve the 301 issues that place them on the list. 

This would be especially valuable for Mexico and Canada to do. 

Mr. Chairman, we are in a technology revolution where we have 

the real opportunity to bring music to fans everywhere, when they 

want, where they want, and how they want, in legitimate ways 

never dreamed of before. 

61

However, unless we are vigilant, unless there is basic protection 

for the work of those who labor so hard to create the magic that 

is music, the opportunities afforded by breakthroughs in technology 

will be lost. 

This will be a tragedy for musicians and fans, for the global economy, and for our culture. We hope that the committee and Congress can send this powerful message to the world. 

Thank you for your interest and for your continuing efforts on 

behalf of creators. 

[The prepared statement of Mr. Horowitz follows:

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Chairman BERMAN. Thank you very much, Zach. 

Mr. Trainer. 

STATEMENT OF MR. TIMOTHY P. TRAINER, PRESIDENT, 

GLOBAL INTELLECTUAL PROPERTY STRATEGY CENTER, P.C. 

Mr. TRAINER. Mr. Chairman, members of the committee, I thank 

the chairman and the committee for the privilege and opportunity 

to provide a summary of my full testimony regarding the issue of 

global IP theft. IP crimes threaten our national economic security, 

consumer safety, and the economic health of our employers and investors, the companies that research, develop, manufacture and 

distribute products that incorporate their trademarks, patents, 

copyrights, trade secrets, and other IP assets. 

Governments around the world have enacted new and stronger 

IP laws, they have seized hundreds of millions dollars worth of 

counterfeit pirated products and prosecuted many IP criminals. Yet 

the overall picture of global IP counterfeiting piracy appears generally unchanged from a decade ago. 

At the outset, I outline some of my recommendations. On the domestic front, they are to instruct Customs to adopt its proposed IP 

rules that were first published in October 2004. 

Strengthen IP enforcement by providing clear ex officio authority. Improve consumer protection against counterfeit and pirate 

products by decreasing dependence on post-entry audits. Amend 

relevant laws to clearly authorize enforcement actions against infringing goods that are being exported and moving in-transit 

through the United States. 

Strengthen the legal provisions to permit judicial forfeiture of infringing goods and the collection of penalties and fines. 

Increase IP-dedicated Customs officers to IP enforcement, and 

fund executive branch agency programs to specifically address the 

U.S. demand side for infringing goods. 

My recommendations for the United States on the global front 

are to continue efforts to raise IP enforcement standards with our 

trading partners through free trade agreements, and I would echo 

the comments that have been made already by my fellow panelists 

here with regard to Canada. 

Also to work with intergovernmental organizations to promote 

increased enforcement activity and new standards. Provide better 

IP enforcement assistance programs for our trading partners and 

expand IP technical assistance programs to include IP awareness. 

Our challenge. 

Today’s market reality provides counterfeiters and pirates with 

almost unlimited opportunities. Piracy and counterfeiting problems 

pose serious public health and safety risks, some of which have 

been well-documented while others have not. 

Some recent examples include cases involving construction 

cranes, toothpaste, toothbrushes, spacecraft parts, lifestyle drugs, 

eye toner and cosmetic lenses. 

The role of the Internet is implicated even where hard goods are 

involved. Although products must still be transported, the Internet 

is used to offer counterfeit and pirate goods, to take orders for 

goods and to conduct the financial transactions. Counterfeiters and 

pirates can easily take advantage of increased bandwidth, an everVerDate 0ct 09 2002 19:10 Jun 29, 2009 Jkt 000000 PO 00000 Frm 00071 Fmt 6633 Sfmt 6633 F:\WORK\FULL\040609\48986.000 HFA PsN: SHIRL
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faster Internet, a global digital system that grows hourly, and a 

global system of trade facilitation that promotes uninterrupted 

movement of goods. 

With regard to volume and some of our conclusions, the latest 

available annual Customs IP seizure statistics from the United 

States, the European Union and Japan, total over 80,000 cases. 

These Customs statistics are just a piece of the puzzle in fitting together the picture of global piracy and counterfeiting, because not 

every Customs administration has detailed statistics of its IP border enforcement activity. 

U.S. IP owners are injured around the world. For example, in 

Uganda, Procter and Gamble reported that it had lost 20 percent 

of market share during a 3-month period because of fake counterfeit products. 

Some of the most startling cases have occurred more recently, 

years after IP enforcement has been highlighted globally, and years 

after government and industry have made it a priority issue. 

One case involved a joint U.S.-EU effort that resulted in the seizure of over 360,000 integrated circuits and computer networking 

components. A second case involved Cisco computer network products that made their way to the FAA, FBI, and other sensitive U.S. 

agencies. 

Separately, a 19-month long investigation by Customs resulted in 

charging 29 individuals with conspiracy to smuggle 950 shipments 

of counterfeit goods into the United States. The estimated value of 

the seized goods, had they been genuine, was $700 million. 

The cases against the defendants involved charges of money 

laundering, smuggling, and conspiracy to import counterfeit goods. 

The few cases mentioned here point to a global piracy and counterfeiting problem that goes far beyond the old notions of mom and 

pop operations. 

The quantities involved, the value of goods in these cases, and 

the global distribution channels linking manufacturers on one continent to distributors and sellers on another, point to a more sophisticated network. 

As the last case above demonstrates, today’s global trade in counterfeit and pirate products is a business and includes people in the 

operation that know how to move products. 

The more troubling aspect of these cases is that after many years 

of highlighting this problem, and attacking the problem with more 

raids, seizures and destruction of goods, as well as imprisonment 

of defendants, we continue to see what seems to be a growing onslaught of illegal activity. 

The fact is that all the enforcement actions by the U.S., EU and 

other government, and their law enforcement authorities, have not 

deterred criminals from engaging in massive scale counterfeiting 

and piracy. 

In conclusion, what is clearly evident is that the singular message of IP enforcement is insufficient and inadequate. Government 

and industry must become much more creative and imaginative in 

their messaging about IP. 

What are the benefits and advantages of intellectual property? 

We need to improve our ability to demonstrate why intellectual 

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property, in and of itself, is good for all, and balance the enforcement message with something that is positive. 

I look forward to responding to any questions the committee may 

have. Thank you very much. 

[The prepared statement of Mr. Trainer follows:]

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Chairman BERMAN. Well, thank you all very much. There are a 

lot of specifics in your testimony that I think we can pursue. We 

will now move from that California thing back to Washington for 

strict enforcement of the 5-minute rule, with the exception of our 

colleague from Texas who missed a chance to have an opening 

statement. So we will give Sheila Jackson Lee a few extra minutes. 

The 5 minutes includes not only our speeches and our questions 

but your answers, so members should tailor the initial comments 

accordingly. I will yield myself 5 minutes. 

I guess this is maybe more particularly to Mr. Cook and Mr. 

Horowitz, but anyone on the panel who wants to add to it. 

You have talked about some situations and made some suggestions. Mr. Trainer, you raised some very specific issues which, I 

think, make sense for me to talk with Mr. Rangel on the Ways and 

Means Committee about. 

But one of the things I have heard for many years, as we move 

on this path, is you guys are suffering these losses, not primarily 

because of piracy, because the industry hasn’t adopted new business models. Whatever truth there was to that in the late 1990s, 

the circumstances have changed, and I was wondering if either or 

you, and anyone else on the panel, could describe the efforts taken 

by the industry to help compete with free, and what efforts can 

Congress take to help you outside the marketplace in other countries? Particularly your efforts to provide consumers what they 

want, the way they want it. 

Mr. COOK. I think that anyone that has taken a look at the business in the last year or so will definitely not subscribe to the theory 

that the industry is not doing anything. I can speak for Disney, 

which, actually, I think we have been the leader in most of—meeting these new challenges and new business models. We have embraced the view that the best way to meet these challenges is to 

make our products readily available through legitimate means, on 

a well-timed, well-priced basis. 

In doing that, we were the first to offer TV shows and full-length 

feature films for downloads on iTunes. We were the first to put our 

movies on day-and-date rentals with the DVD release, and the first 

company to stream our television content online, trying to get the 

material out faster, in legitimate ways, and at prices that are reasonable. 

It is always very difficult to compete with free, but we are trying 

to do that, get them on a timely basis, and well-priced, and to the 

public in the best means we possibly can through the Internet. 

Chairman BERMAN. Mr. Horowitz. 

Mr. HOROWITZ. Last year, Universal Music probably had over 

500 deals to offer our music to all sorts of new innovative business 

models, everything from downloads to subscription services, to adsupported services where it feels like free for the consumer, but 

rights holders and artists are compensated. 

I think the lesson of Napster for the music industry is that if we 

don’t find ways to make our music available, legitimately, to the 

consumer, the void will be filled by illegitimate users, and we have 

been, not just Universal, but the music industry, generally, have 

been probably at the forefront of finding new ways to bring our 

music to consumers. It is hard to compete with free. It is hard to 

86

compete with countries that seem to have absolutely no respect for 

intellectual property, and I think it is important for us to have 

these kinds of meetings with people like you, because education becomes a key way of making people aware of the problem. 

Chairman BERMAN. Thank you. I have a little over 1 minute left. 

You spoke about the Visa/MasterCard issue with allofmp3.com, and 

a number of us met with their representatives, to get them to discontinue. 

Are there other kinds of things that we, in Congress, can do, 

apart from the legislative approach, that could be helpful here? 

Question: Should Baidu be allowed to be listed on the stock exchange without some of the practices that some of our user-generated sites are now engaging in in terms of filtering? Any 

thoughts on how we bring pressure to bear on American interests 

which support international piracy, consciously, or just by indirect 

facilitation? 

Mr. HOROWITZ. Well, Visa and MasterCard are sort of the Good 

Housekeeping seal of approval, and they provide an aura of legitimacy to whatever sites use their services, and it was absolutely 

critical, when Congress people met with Visa and MasterCard, and 

conveyed this to them, and ultimately, they backed down. 

Chairman BERMAN. I think in order to enforce the rule on myself, 

I am going to say our time is up. No. I know. But we will come 

around again. So I apologize. But the ranking member is recognized for 5 minutes. 

Ms. ROS-LEHTINEN. Thank you so much. Thank you for pointing 

out all of the domestic measures that have been taken, need to be 

taken, and international action as well. 

I was wondering if Mr. Soderbergh could flesh out, a little bit, 

his idea about deputizing the industry itself in order to take action 

and wanted to know the panelists’ thoughts on that. 

Mr. SODERBERGH. Well, when you go into Target and shoplift, 

there is a security guy from Target that catches you, and then they 

make a decision, whether or not they are going to take you to the 

police and prosecute you. At the very least, you are not allowed to 

go into Target anymore. And I just feel like we are in a similar situation, that there aren’t enough police officers in the world to sit 

at Target and Wal-Mart, and all the places where crimes are being 

committed. It wouldn’t be very difficult for us, if we were given, 

you know, this ability to identify the people who are making it 

easiest to transmit this copyrighted material, and if we had some 

sort of, you know, graduated mechanism along the lines of the 

French model. 

First, they are contacted through the Internet. Then they are 

contacted through the mail. Then the third time they get pulled for 

a year. I mean, I think that any solution that involves suing people 

and taking people into court is just not going to work. It is not 

practical, 

and on a public relations level, it is disastrous. 

Ms. ROS-LEHTINEN. So you are basing it on the French model 

that has been successful. Are there any differences in terms of laws 

and procedures that you would find that might be a problem for 

us? 

87

Mr. SODERBERGH. Well, I think trying to get legislation enacted, 

that gives us this ability, is going to be really tricky. I also think 

that the industry has to discuss what we are doing on the Internet 

now, how we are placing content on the Internet, because I think 

in the mind of the consumer, when you have sites, you know, that 

have come up recently, and which there is a lot of material available for free, most of it television, that may work in the sense that 

it is supposed to draw eyeballs to the show and get them to become 

regular viewers of the show. What I think it may be doing, though, 

in the minds of the consumer is, you know, promulgating this idea, 

that if it is on the Internet it is free, and they are going, well, I 

don’t understand, I can get—this whole series that I love, they are 

giving me access to this for free. But then that same place makes 

a movie and they are telling me I have got to pay for it. 

Then there is the pay structure itself. We are all running toward 

a business model that drops our price point per unit precipitously. 

We are now charging people the least amount of money for the 

easiest access to our product, when I feel like we should be looking 

at our pricing and making it easier for them to go out to a movie 

theater, for instance, and rewarding them for making that effort instead of making that the most expensive price point in our business. 

But that is just, these are just my own theories. 

Ms. ROS-LEHTINEN. Thank you. If you could comment, just anybody else on the panel. 

Mr. HOROWITZ. Just to simplify, under the Digital Millennium 

Copyright Act, the ISPs have what is called safe harbor, but they 

are the key vehicles by which the illegal sites are able to get their 

music to the consumers. 

We are very encouraged by conversations we are having with 

many of the ISPs on the music side, about this graduated response, 

the automatic warning system. We are having conversations, you 

have probably heard, with everyone from AT&T to Comcast to Cox, 

and we hope that they will lead to things that echo what is happening, what is being discussed in places like France and the U.K., 

and New Zealand. 

Ms. ROS-LEHTINEN. Thank you very much. Thank you, Mr. 

Chairman. 

Chairman BERMAN. The time of the lady has expired and the 

gentleman from California, Mr. Sherman, is recognized for 5 minutes. 

Mr. SHERMAN. I am a bit confused as to how this French model 

that you propose would work. You say that the offending site gets 

pulled. That means that Internet users in the United States are 

not able to get to that site? Is that the way it would work? 

Mr. SODERBERGH. I guess my limited understanding of it, it is 

something that was just enacted, is that the ISP in the third round 

is, after these two warnings, is pulled off and——

Mr. SHERMAN. I am trying to understand what pulled off means. 

ISP or the user? 

Mr. SODERBERGH. It is the user that is on this ISP, that has been 

tracked as trafficking in copyrighted material. 

Mr. SHERMAN. So if——

88

Mr. SODERBERGH. They then lose the ability to be on that site for 

a year. 

Mr. SHERMAN. That site for a year. So you are saying if Joe 

Schmo in the United States logs on to a Chinese site and 

downloads a movie, then Joe Schmo will continue to be able to use 

the Internet but won’t be allowed to go to that particular site 

again, which Chinese site will then open up 50 other sites. 

Mr. SODERBERGH. Sure. 

Mr. SHERMAN. It would be interesting to see how well this is 

working for the French. 

Mr. Horowitz and Mr. Miller, what are the politics in Canada 

that are preventing Canada from adopting good IP protection, 

given the importance of the United States-Canada relationship to 

Canada, but also given the importance of IP industries in Canada 

to Canada? 

Mr. Horowitz? 

Mr. HOROWITZ. Well, my colleagues in Canada have taken to calling the Great White North the Great Black Hole when it comes to 

copyright protection. There seems to be a complete indifference, 

bordering on disdain, for any sort of copyright protection, which is 

astonishing, when you consider that this is one of our most important allies, a great trading partner, a developed nation. 

They have not brought their laws into compliance with WIPO, 

and as a result, this has become the haven for Web sites that traffic in——

Mr. SHERMAN. Let me ask a rhetorical, extreme question. That 

is, should we provide any copyright protection for any video material or movie where the value-added is over 50 percent Canadian? 

That is a hypothetical question. Mr. Cook, I am trying to understand camcordering, it seems very easy, and yet with ‘‘Wall-E,’’ 

some very sophisticated criminals waited until the movie got to the 

Ukraine. They could have gotten it here, in the United States, a 

week sooner. 

As I understand this camcording, all an organized crime enterprise would have to do is bribe the guy that projects the movies at 

the theater to just give them a special midnight screening and they 

cold set up their camcorder. 

How is it that we were successful, at least in the United States, 

in preventing camcording and forcing the criminals to wait until 

you decided to release the movie in the Ukraine? 

And secondly, are these criminals sophisticated enough to then 

dub the movie into a dozen other languages, presumably almost as 

well as Disney dubbed the movie? Because I assume when they 

camcorded it, they only got it in either Russian or Ukrainian. I 

don’t know which language that theater used. 

They were sophisticated enough to dub it into a dozen languages 

but not sophisticated enough to get somebody in Hoboken to let 

them get it. They had to wait until it went to Ukraine. 

Mr. COOK. I think what has happened in the United States is 

that through a lot of education with the theater owners, and with 

the theater managers, and with all of them, they know that it is 

against the law. There are countless things that go out to notify 

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cessful in catching them. It is the reason all the camcording in New 

York has been down so dramatically. 

So I think that has been a big part of it, and, you know, the ones 

that are camcording, some of them are extremely sophisticated. 

They wait to go to Ukraine because there is no law against it. They 

can go in and make very sophisticated copies. Some of the copies 

that I brought along to show, they are maybe not quite as good as 

coming right out of Pixar, but it is nearly as good, and they can 

soon either do subtitled or actual, their own voice recordings, and 

all, and they are not as good but they are good enough, in many 

cases. 

Chairman BERMAN. The time of the gentleman has expired. But 

the U.S. experience is a little bit like what 

Mr. Soderbergh was talking about, working with theater owners, 

like working with store security. 

The gentleman from California, Mr. Rohrabacher, is recognized 

for 5 minutes. 

Mr. ROHRABACHER. Thank you very much, Mr. Chairman. 

So I take it from the testimony today that we are talking about 

several major challenges. At least the biggest, if not one of the biggest, is dealing with the downloading of material that is owned by 

someone else, and by the studios, and thus, the people who are involved with producing the material are not getting their money and 

not being paid. Downloads from the Internet. Is that what we are 

talking about, is one of the biggest challenges that we face? 

Then isn’t there a technological answer to this somewhere? I 

mean, I am on the Science Committee as well as on the Foreign 

Affairs Committee, and it would seem to me that if we have a vehicle, a technological vehicle, and that that is what is being used, 

isn’t there a poison pill we can put into our product, that will prevent it from being downloaded unless there is something done that 

would identify that? 

Mr. SODERBERGH. Well, I think there are two issues there. There 

is no question that you could probably create a sort of encryption 

that, you know, wreaks havoc whenever it is downloaded and 

played. Within days, probably, there is a very, very bright Dutch 

teenager that would figure out how to break that encryption. 

One of my more radical solutions is to start finding those people 

and having them work for us. Since they are doing this for free, 

maybe we could pay them to beat their pals at their own game. It 

worked in ‘‘Catch Me If You Can.’’ [Laughter.] 

Mr. ROHRABACHER. Whose movie? 

Mr. SODERBERGH. Steven Spielberg, who ought to be here as 

well. And then I think you would be the ones to know, that there 

are sort of legal ramifications about creating something like that, 

that even though they are theoretically trafficking in copyrighted 

material, the damage that you might create, that could move beyond them personally, might become a legal issue. 

Mr. ROHRABACHER. Let me note that there are, in other arenas, 

in the intelligence arena of our Government, there are certain technologies that are in play, that I think could be put to work here, 

and I don’t know exactly how free I am to discuss them here, however. 

But with that said, I think we should thoroughly investigate——

90

Chairman BERMAN. Is this the one where the computer explodes? 

[Laughter.] 

Mr. ROHRABACHER. Well, at any rate. But I think that we should, 

Mr. Chairman, actually go into this, and look to see if there is a 

technological solution that we could bring forward to the industry, 

and I would be happy to talk to you about some of these things, 

off the record. 

Also the second issue that I would like to bring up now—my time 

is almost up—is again Canada. See, we expect China to act like a 

potential enemy and an adversary to the United States. We don’t 

expect that from Canada, and it is so disturbing to know that Canada is becoming the transshipment depot of the world for goods 

that are counterfeited in China, 

and end up coming through Canada to come here. 

What would you suggest, Mr. Horowitz, that we actually do to 

Canada? Give me a retaliation that we can do. 

Mr. HOROWITZ. I think the most important, practical thing you 

could do is engage directly with the Canadian Government. 

Mr. ROHRABACHER. Well, what do we threaten them with? Tell 

me. I am agreeing with you. I am calling on the United States Government today to retaliate against Canada, do something specific 

to try to get them to pay attention to something they could solve. 

This is definitely within their capabilities but they are intentionally not solving it. 

What can we do? What is the retaliation that we should seek 

from our Government against them? 

Mr. HOROWITZ. I don’t have the answer. 

Mr. ROHRABACHER. Anybody else have the answer? Come on. 

Mr. SODERBERGH. Well, they are very polite. We could say please. 

[Laughter.] 

Mr. ROHRABACHER. Come on. Here is your chance. You have got 

us here. We have got somebody we can actually influence. 

Mr. SODERBERGH. Well, I mean, the only thing that is going 

to——

Chairman BERMAN. The military option is off the table. 

Mr. SODERBERGH. Exactly. [Laughter.] 

Mr. ROHRABACHER. Anybody else have a——

Mr. SODERBERGH. Well, I mean, the only thing that is going to 

have any teeth is actually something along the lines of when their 

content comes this way, that it is harder for them to make the kind 

of profits on their material that, you know, they are allowed to 

make because——

Mr. ROHRABACHER. Let me offer this. If anybody could come to 

me and tell me specifically what you are suggesting, what the industry is suggesting, I will work with the chairman and try to see 

if we can push it in that direction. 

Chairman BERMAN. The time of the gentleman has expired. 

Mr. ROHRABACHER. Thank you. 

Chairman BERMAN. And just sort of the chairman’s abuse of his 

prerogatives, the irony is this is a country that pays taxpayer 

money to cover labor costs of American producers who will make—

they want to make intellectual property in Canada. They just don’t 

want to protect it in Canada. 

91

Mr. SODERBERGH. If I could suggest that perhaps we ask the Canadian Ambassador to brief us, weekly, on this. 

Chairman BERMAN. I think that is a subcommittee issue. [Laughter.] 

But monthly, I hope. The gentlelady from Texas is recognized for 

7 minutes to use as she wishes. 

Ms. JACKSON LEE. Mr. Chairman, thank you very much, and the 

suggestion of meeting with the committee in Washington, weekly, 

might be a sufficient punishment, that might motivate them. We 

might consider that suggestion, Mr. Chairman. 

I am very pleased that the chairman has focused this on an issue 

of great importance, but, more importantly, that he has enormous 

expertise, and I am delighted that the ranking member is here. Let 

me, as a Texan with stars in her eyes, thank all of these presenters, and particularly make note of the fact that when we come 

from places like Texas, we are in fact star bitten. So let me thank 

all of you for the movies and entertainment that we have had the 

pleasure of enjoying, and particularly those, Mr. Soderbergh, that 

have been both entertaining and with a message. We appreciate it, 

greatly. 

We have been using a term that our President has reinstituted, 

and I would like to use it now. The urgency of now. That phrase 

was first utilized by Dr. Martin Luther King, and, frankly, I think 

that we have come to a point where we have nowhere to go but to 

hit this crisis, head on. And I would just like to put these numbers 

in the record, that have probably already been. 

But the motion picture industry has suffered piracy that has resulted in $6.1 billion in piracy. It is 80 percent of the U.S. motion 

picture studio losses. And then to determine that $200 billion, since 

2005, which is a lot of money. Then the Intellectual Property Alliance has noted that 43 countries resulted in an estimated $18.3 billion in trade losses, $3.5 billion in China, and $2.6 billion in Russia. 

I think we have a monumental crisis, and I believe that we need 

to roll up our sleeves and take all the ideas that we can. 

Mr. Soderbergh, I like both of your ideas. I think we need to understand the one that France has put in place. But I think the pricing question is something to really look at, because I would tell you 

that many populations, inner city populations, rural populations, 

would like to go to the theater. They don’t have access to the Internet, like to have it, but might be receptive to being rewarded and 

fill those theater facilities and create additional jobs, which I think 

is very important. 

So I am going to pose questions to all of you. 

Mr. Trainer, if we were to begin to look at countries, and, say, 

for example, we looked at the suggestion in France, would we have 

any First Amendment problems in terms of someone’s ability to 

have free expression to use the Internet, etcetera? 

Mr. TRAINER. I think the way the U.S. judicial system works 

with litigation, we always have that possibility. 

I think one of the issues is to really look at the Internet community. We know that, for example, in the New Zealand situation that 

was raised, they actually postponed the implementation of some of 

92

their provisions simply because of a global outcry to what they had 

proposed, which is very similar to France. 

So I think the problem is there are multiple sides to this issue, 

and before something like this is formally proposed, there will be 

a lot of communities that have to be consulted with. 

Ms. JACKSON LEE. So we have to get our hands around it and 

really vet it, so that we can have something that will work. 

Mr. Cook, again, do you find this problem internationally, meaning the kind of problems we are having? Is India, with its problems 

of participating in this, can they be an ally because of Bollywood? 

Is there any way that we could reach out to them and get them 

to see that this is a mutual loss, which I understand they are losing dollars as well? 

Mr. COOK. Well, they are. I think the recent estimates are something like $5 billion a year. They also feel there is a loss of some 

800,000 jobs. They have, obviously, a very robust film community 

that is being rocketed in the wrong direction. It is becoming a giant 

problem for them. Certainly, we can, you know, learn from anyone 

that is doing it well. I am not sure they are doing it well right now. 

Ms. JACKSON LEE. Well, since we have a problem with their taking some of our intellectual property, this is a Foreign Affairs Committee, we need to use a hammer, maybe along with some sugar, 

and India might be a place to go, because they are being mutually 

victims but also taking advantage of us. 

Mr. COOK. Absolutely. 

Ms. JACKSON LEE. Mr. Horowitz, if we were to meet with ambassadors, I think you mentioned the 301 list, and if we were to meet 

with ambassadors, my colleague asked the question—but do we 

add more countries to the list? How should we handle this? Again 

this is a hammer, or the, if you will, chicken and egg, or anything 

to get people to come to the table. Do we use a hammer in this 

meeting? Do we put more people on the 301 list? Or nations? 

Mr. HOROWITZ. I know Canada has been on the 301 list for 13 

years now. 

Ms. JACKSON LEE. So you wonder what the impact is. 

Mr. HOROWITZ. Right. But I think that one thing to consider is 

that there are attache ́s, IP attache ́s in many of our embassies, and 

I think it would be worthwhile for this committee to talk to them 

and find out what is working, and what isn’t, and perhaps one of 

the solutions would be to increase the number of attache ́s that we 

have around the world. 

Ms. JACKSON LEE. The chairman mentioned a similar position 

that France has, which is a producer or an arts person that would 

be looking at these issues. 

Mr. Trainer, quickly, I think we can help you by having more 

Customs and Border Patrol agents. You said we never fulfilled our 

responsibilities on that, and I would like to say yes to that, as 

quickly as possible, to move forward on that. 

I just want to get my last question in to Mr. Miller. These jobs 

are created all over America. When films come to different cities, 

as much as we bid for them, different States. We hire people, sometimes on site, obviously. We certainly look to hire those who are a 

part of the union. 

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What can we do, working internationally with our union brothers 

and sisters, to see that this is a problem, and they begin to put 

pressure on their own governments? 

Mr. MILLER. Well, that is absolutely the case, and that this is, 

for the IATSE, and the people that work in the industry, it is a 

benefits issue and it is a jobs issue, and for every dollar that is stolen, it is a job, in some way, shape or form, and we need to work 

with the international community to make them aware that they 

are stealing health care from our citizens, and they are stealing 

jobs on the—not just in the United States and Canada, but globally 

as well, because motion pictures are made by U.S. companies all 

over the world. 

We need to work with all of our trading partners, to encourage 

everyone to protect the intellectual property of every artist and 

company in the world. This is a benefits issue and a jobs issue. 

Chairman BERMAN. The time of the gentlelady has expired. 

Ms. JACKSON LEE. Thank you, Mr. Chairman. 

Chairman BERMAN. Mr. Royce is recognized for 5 minutes. 

Mr. ROYCE. So how do you incentivize the worst offenders, and 

China, in all of these reports, is the worst violator of IP protection? 

How do you ratchet up that pressure on piracy there? You know, 

being listed as a priority watch country on the Special 301 report 

apparently only goes so far. It hasn’t achieved the goal. 

Ted Fishman has got a book, ‘‘China Incorporated,’’ that is interesting in its analysis, in terms of the organized way in which China 

has done this. He says China’s failure to police intellectual property creates a massive global subsidy worth hundreds of billions of 

dollars to its businesses. China’s vast counterfeiting schemes invade deep into the economies of their victims, expropriating their 

most valuable assets, and in so doing, undermining their victim’s 

ability to counter. 

As China grows into a great power, the wealth transferred into 

the country by stealing intellectual property will propel it forward. 

So far, pilfering intellectual property has cost China little. It has 

benefited it tremendously. 

And he concludes, you know, with this concept. He says when 

tackling the issue of intellectual copyright protection, officials from 

the United States must see their task, not simply as a legal issue, 

but as an exercise in global political power. 

Is it time for Congress, and the United States, and for the administration, to form a united front here in terms of using political 

power on China on this issue? 

Mr. TRAINER. I will jump in. Well, I think there was some attempt to do that with the case against China in the World Trade 

Organization, and unfortunately, it didn’t have, necessarily, the result the United States wanted. 

I think the other thing we should look at is in the post-war period. You know, we went through this with Japan and with Korea, 

where they were major counterfeiters and pirates, but because they 

have developed and have some very big multinationals, and very 

successful, they too are very sensitive to intellectual property 

today. 

I think one of the big challenges we may have is to add another 

dimension to our efforts in engaging China, which is, in addition 

94

to the enforcement emphasis, to really get in there and try to sensitize, not just the government, but other elements of the society 

about intellectual property——

Mr. ROYCE. But they have a different business model, again 

going back to the point made in China, Incorporated. He says the 

business model is one where counterfeiters, companies there usurp 

foreign technology China desperately needs to meet its industrial 

goals. The counterfeiters give those companies the means to compete with foreign rivals who are forced to pay full fare for proprietary technology. 

In other words, your thesis there, that we could convince the 

companies themselves—no, that is their advantage, that is their 

subsidy. 

Mr. SODERBERGH. They were built doing this. 

Mr. ROYCE. Right. 

Mr. SODERBERGH. And that started decades ago, with software 

needed to grow these companies. 

Mr. ROYCE. So we are going to need a different strategy. What 

might that strategy be? 

Mr. SODERBERGH. It is wound so tightly into their culture, it is 

literally a Gordian knot, that I don’t know how you unwind it. The 

other problem——

Mr. ROYCE. Are we missing something on the WTO enforcement, 

where we go back and use all our force to try to get——

Mr. SODERBERGH. Well, the problem if they can do it if they 

want. Chinese films don’t get pirated in China. 

Mr. ROYCE. Right. 

Mr. SODERBERGH. So, clearly, you know, when they want something to stop, they can make it stop. I mean, this is the regime we 

are dealing with. 

Mr. ROYCE. So going back to incentivizing them, so they know 

they have to stop it, do you have a thought on what might do the 

trick? 

Mr. SODERBERGH. I think if you are talking about—if you get 

into the area of economic activity, the world is large enough, and 

diverse enough, that even if we removed ourselves from certain key 

areas, there are plenty of other places to go for them to do business. 

Mr. ROYCE. And so they have wrecked the WTO, in a sense. I 

mean, the very concept behind the World Trade Organization is to 

have effective rule of law and effective enforcement. Is there a way 

to reinstitute that, so that there is enough pressure, collectively, to 

offset exactly what you are discussing? 

Mr. SODERBERGH. Well, that is the issue, is how many people can 

you get to stand behind that idea? 

Mr. TRAINER. If I just may add, one of the efforts of the anticounterfeiting trade agreement negotiations that are ongoing, 

which is a smaller subset of countries, to raise IP enforcement 

standards is being pursued in a way, because you can’t pursue it 

at the WTO. 

We don’t have a critical mass of countries that want to raise 

standards beyond the current international standard. 

Mr. ROYCE. Yes. I think further examination of this issue, Mr. 

Chairman, would be well worthwhile in order to try to figure out 

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a methodology where we might reach that goal of having the WTO 

effectively enforcing intellectual property. 

Chairman BERMAN. This may be a good time just to indicate—

I was going to do it at the end of the hearing—that we are going 

to hold, in Washington, once the Special 301 report comes out, a 

follow-up hearing to bear down on bilateral remedies, technology 

issues, and the use of our trade representative on this, hopefully 

with an IP Czar there as well as the trade representative, if one 

is appointed. 

Mr. ROHRABACHER. Mr. Chairman, if you could just indulge me 

for 10 seconds. 

Mr. Soderbergh mentioned the Gordian knot of China. I would 

remind Mr. Soderbergh, that how did Alexander the Great untie 

the Gordian knot? And that is what we have to do. Thank you. 

Chairman BERMAN. Mr. Schiff is recognized for 5 minutes. 

Mr. SCHIFF. Thank you, Mr. Chairman. I wanted to just make a 

couple comments and get your thoughts. 

One is I know through the different business models that have 

been employed, like iTunes, we have increased the legitimate sales 

on the Internet, which is great, and I assume those have brought 

in new revenue. 

But I would assume at the same time that piracy has also increased. So it is not that we have taken a chunk out of piracy, or 

diminished piracy, necessarily, but we have maybe expanded the 

pie. So some additional revenues have come in, but the piracy probably has come in at an even greater rate than legitimate sales. 

So while I think it is laudable that you are trying to adapt your 

business models to capture more legitimate revenue, I am not sure 

it is really curing the piracy problem. And I am also a little skeptical of the Google experiment. China, for the reason that if the 

content providers move to an advertising-only revenue model, they 

may be repeating what is happening to the newspaper industry. It 

hasn’t worked out that well for them, to sort of drop subscriptions, 

and paying for content, and go to a model where they are completely reliant on advertising revenue. 

And I would be concerned about moving too much in that direction. I realize in China, it is better to get something than nothing, 

but if it ends up becoming the sort of standard model for the industry, you may find out that you are falling in the steps of the newspaper industry. 

I am very interested in the French model, and as I understand 

it—I don’t even know if it has gone into effect yet. The challenge 

I would think we would have, legislatively, is if we deputize you—

and there is nothing I would like better than to deputize you, because I don’t think the Government can do all this. 

What form would that take? Would it take the form of providing 

a legal immunity for those who, after the proper notices, take down 

a site, and therefore may be subject of being sued for taking down 

the site? So would we be authorizing, and therefore, in effect, immunizing the ISPs from doing that? 

What kind of due process would we need to give if we are going 

to be, you know, affecting speech, among other things, and potentially barring people’s access to the Internet? So that would be a 

second issue. 

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And the final question I have is won’t there be an increasing confluence of interests among the content makers, among the studios, 

and the recording industry, as well as the pipelines, as the pipelines start to get into the entertainment business with their video 

on demand, and other things? 

Don’t the pipelines now have a greater confluence of interest 

with you to attack piracy on their own pipeline, because they are 

offering legitimate content now? 

So if you could share your thoughts on those questions. 

Mr. HOROWITZ. Well, let me just clarify one thing. The graduated 

response notion that we have been talking about in France is not 

the law yet. It has not been passed. It is something that is still 

being debated in France. 

But I think that, to answer one of, I think, your key questions, 

ISPs, for their own purposes now, are realizing that their systems 

are becoming clogged, and that as they become more and more interested in freeing up their systems for legitimate purposes, their 

interests do become more and more aligned with the content companies, which is part of the reason why I think on the music side 

we are having some very successful discussions, for the first time 

with them now, about implementing some sort of voluntary, graduated response system here in the United States. 

Mr. SODERBERGH. And I guess it would be our hope, that since you are not talking 

about finding them, you are not talking about hauling them into 

court, that that person then who tries to sue, basically for the fact 

that you have annoyed them and made their life a little more difficult, or at least made it more difficult for them to do this specific 

thing, is going to make it more palatable, that these abilities have 

been granted, you know, to the people who control the copyright. 

Mr. SCHIFF. I thought, though, that part of the French model, 

and I understand that it is not in effect yet, but was individuals 

who are in the business of uploading stuff and doing it on a massive scale, and get the requisite notice, or whatnot, could be denied 

the service by the Internet provider, and the desire would be not 

just to block them from access with that provider but have an 

agreement among other providers, that if you are banned, you can’t 

go to another provider. 

If that is what France is proposing, in part, then you are talking 

about the prospect of basically blocking people’s access to the Internet, which is quite a substantial sanction. 

So I would think, you know, the question would be, you know, 

what kind of due process would be necessary, if you are talking 

about, you know, potentially blocking access to such a now important tool in all of our lives? 

Mr. SODERBERGH. Well, again I get back to the Target analogy. 

How many times do you have to catch this guy pulling stuff off 

your shelf, before you say you can’t come in here? 

Mr. HOROWITZ. I would just point out, there have been studies 

in the U.K., that simply getting a warning notice, just that in and 

of itself, has a significant effect on people pirating. Dramatic drop 

offs in the U.K. when they get that warning notice. 

What we are talking about in France, or in any of these other 

countries that are discussing it, are some sort of graduated warnVerDate 0ct 09 2002 19:10 Jun 29, 2009 Jkt 000000 PO 00000 Frm 00100 Fmt 6633 Sfmt 6633 F:\WORK\FULL\040609\48986.000 HFA PsN: SHIRL
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ing that ratchets up. It may not be, ultimately, that you are out 

for a year. It may be that you are out for a shorter period of time. 

But there needs to be some sort of rational, reasonable way that 

ISPs themselves take responsibility and accountability for what 

happens on their services, on their systems. 

Chairman BERMAN. The time of the gentleman has expired. I 

think we are going to forgo a second round at this point because 

we are going to have a subsequent hearing. 

There are a lot of different areas, with some specificity, that both 

the witnesses and members have discussed, which I think we 

should be following up on, and I had my own experience with trying to provide a self-help mechanism for intellectual property owners to deal with pirates that drew some controversy in the community. But we are going to take a look at a lot of these things and 

see what we can do, and particularly in our interventions with representatives of countries that are known, in part, for the massive 

amount of piracy that they are countenancing. 

So with that, I thank all of my colleagues for coming today. I 

thank, really, an excellent group of witnesses for being here, and 

this is an ongoing process, and I appreciate very much your taking 

the time to be with us this morning. 

And with that, the committee hearing is adjourned. 

[Whereupon, at 12:10 p.m., the committee was adjourned, subject 

to the call of the chair.] 

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