U.S. GOVERNMENT PRINTING OFFICE

WASHINGTON : 

For sale by the Superintendent of Documents, U.S. Government Printing Office

Internet: bookstore.gpo.gov Phone: toll free (866) 512–1800; DC area (202) 512–1800

Fax: (202) 512–2104 Mail: Stop IDCC, Washington, DC 20402–0001

57–791 PDF 2010

PROTECTING INTELLECTUAL PROPERTY RIGHTS

IN A GLOBAL ECONOMY: CURRENT TRENDS

AND FUTURE CHALLENGES

HEARING

BEFORE THE

SUBCOMMITTEE ON GOVERNMENT MANAGEMENT,

ORGANIZATION, AND PROCUREMENT

OF THE

COMMITTEE ON OVERSIGHT

AND GOVERNMENT REFORM

HOUSE OF REPRESENTATIVES

ONE HUNDRED ELEVENTH CONGRESS

FIRST SESSION

DECEMBER 9, 2009

Serial No. 111–65

Printed for the use of the Committee on Oversight and Government Reform

(

Available via the World Wide Web: http://www.gpoaccess.gov/congress/index.html

http://www.house.gov/reform

(II)

COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM

EDOLPHUS TOWNS, New York, Chairman

PAUL E. KANJORSKI, Pennsylvania

CAROLYN B. MALONEY, New York

ELIJAH E. CUMMINGS, Maryland

DENNIS J. KUCINICH, Ohio

JOHN F. TIERNEY, Massachusetts

WM. LACY CLAY, Missouri

DIANE E. WATSON, California

STEPHEN F. LYNCH, Massachusetts

JIM COOPER, Tennessee

GERALD E. CONNOLLY, Virginia

MIKE QUIGLEY, Illinois

MARCY KAPTUR, Ohio

ELEANOR HOLMES NORTON, District of

Columbia

PATRICK J. KENNEDY, Rhode Island

DANNY K. DAVIS, Illinois

CHRIS VAN HOLLEN, Maryland

HENRY CUELLAR, Texas

PAUL W. HODES, New Hampshire

CHRISTOPHER S. MURPHY, Connecticut

PETER WELCH, Vermont

BILL FOSTER, Illinois

JACKIE SPEIER, California

STEVE DRIEHAUS, Ohio

JUDY CHU, California

DARRELL E. ISSA, California

DAN BURTON, Indiana

JOHN L. MICA, Florida

MARK E. SOUDER, Indiana

JOHN J. DUNCAN, JR., Tennessee

MICHAEL R. TURNER, Ohio

LYNN A. WESTMORELAND, Georgia

PATRICK T. MCHENRY, North Carolina

BRIAN P. BILBRAY, California

JIM JORDAN, Ohio

JEFF FLAKE, Arizona

JEFF FORTENBERRY, Nebraska

JASON CHAFFETZ, Utah

AARON SCHOCK, Illinois

BLAINE LUETKEMEYER, Missouri

ANH ‘‘JOSEPH’’ CAO, Louisiana

RON STROMAN, Staff Director

MICHAEL MCCARTHY, Deputy Staff Director

CARLA HULTBERG, Chief Clerk

LARRY BRADY, Minority Staff Director

SUBCOMMITTEE ON GOVERNMENT MANAGEMENT, ORGANIZATION, AND PROCUREMENT

DIANE E. WATSON, California, Chairman

PAUL E. KANJORSKI, Pennsylvania

JIM COOPER, Tennessee

GERALD E. CONNOLLY, Virginia

HENRY CUELLAR, Texas

JACKIE SPEIER, California

PAUL W. HODES, New Hampshire

CHRISTOPHER S. MURPHY, Connecticut

MIKE QUIGLEY, Illinois

BRIAN P. BILBRAY, California

AARON SCHOCK, Illinois

JOHN J. DUNCAN, JR., Tennessee

JEFF FLAKE, Arizona

BLAINE LUETKEMEYER, Missouri

BERT HAMMOND, Staff Director

(III)

C O N T E N T S

Page

Hearing held on December 9, 2009 ........................................................................ 1

Statement of:

Glickman, Dan, chairman and chief executive officer, Motion Picture

Association of America, Inc.; Robert W. Holleyman II, president and

chief executive officer, Business Software Alliance; Brian Toohey, senior

vice president for international affairs, Pharmaceutical Research and

Manufacturers of America; and Frank Vargo, vice president, international economic affairs, National Association of Manufacturers .......... 87

Glickman, Dan ........................................................................................... 87

Holleyman, Robert W., II, ......................................................................... 95

Toohey, Brian ............................................................................................ 103

Vargo, Frank .............................................................................................. 125

McCoy, Stanford K., Assistant U.S. Trade Representative for Intellectual

Property and Innovation, Office of the U.S. Trade Representative; Robert L. Stoll, Commissioner for Patents, U.S. Patent and Trademark

Office; Jason Weinstein, Deputy Assistant Attorney General, Criminal

Division, U.S. Department of Justice; William E. Craft, Acting Deputy

Assistant Secretary, Bureau of Economics, Energy, and Business Affairs, U.S. Department of State; and Loren Yager, Director, International Affairs and Trade, Government Accountability Office ................ 8

Craft, William E. ....................................................................................... 40

McCoy, Stanford K. ................................................................................... 8

Stoll, Robert L. .......................................................................................... 17

Yager, Loren .............................................................................................. 60

Weinstein, Jason ....................................................................................... 28

Letters, statements, etc., submitted for the record by:

Bilbray, Hon. Brian P., a Representative in Congress from the State

of California, prepared statement of ........................................................... 4

Craft, William E., Acting Deputy Assistant Secretary, Bureau of Economics, Energy, and Business Affairs, U.S. Department of State, prepared

statement of ................................................................................................... 42

Glickman, Dan, chairman and chief executive officer, Motion Picture

Association of America, Inc., prepared statement of .................................. 90

Holleyman, Robert W., II, president and chief executive officer, Business

Software Alliance, prepared statement of ................................................... 97

McCoy, Stanford K., Assistant U.S. Trade Representative for Intellectual

Property and Innovation, Office of the U.S. Trade Representative, prepared statement of ........................................................................................ 10

Murphy, Hon. Christopher S., a Representative in Congress from the

State of Connecticut, prepared statement of .............................................. 146

Stoll, Robert L., Commissioner for Patents, U.S. Patent and Trademark

Office, prepared statement of ....................................................................... 19

Toohey, Brian, senior vice president for international affairs, Pharmaceutical Research and Manufacturers of America, prepared statement

of ..................................................................................................................... 105

Vargo, Frank, vice president, international economic affairs, National

Association of Manufacturers, prepared statement of ............................... 127

Weinstein, Jason, Deputy Assistant Attorney General, Criminal Division,

U.S. Department of Justice, prepared statement of ................................... 30

Yager, Loren, Director, International Affairs and Trade, Government Accountability Office, prepared statement of ................................................. 62

(1)

PROTECTING INTELLECTUAL PROPERTY

RIGHTS IN A GLOBAL ECONOMY: CURRENT

TRENDS AND FUTURE CHALLENGES

WEDNESDAY, DECEMBER 9, 2009

HOUSE OF REPRESENTATIVES,

SUBCOMMITTEE ON GOVERNMENT MANAGEMENT,

ORGANIZATION, AND PROCUREMENT,

COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM,

Washington, DC.

The subcommittee met, pursuant to notice, at 10 a.m. in room

2247, Rayburn House Office Building, Hon. Diane E. Watson

(chairwoman of the subcommittee) presiding.

Present: Representatives Watson, Connolly, Cuellar, Speier, Chu,

Maloney, Bilbray, and Issa.

Staff present: Bert Hammond, staff director; Valerie Van Buren,

clerk; Adam Bordes and Deborah Mack, professional staff; Adam

Fromm, minority chief clerk and Member liaison; John Ohly, minority professional staff member; and April Canter, minority staff

member.

Ms. WATSON. Good morning. The Subcommittee on Government

Management, Organization, and Procurement of the Committee on

Oversight and Government Reform will now come to order.

Today’s hearing will focus on the Federal Government’s role and

responsibility in the global protection and enforcement of intellectual property rights. The subcommittee will also seek additional information from administrative witnesses on the strategic objectives

of the Obama administration for improving coordination among the

stakeholder agencies having IPR protection or enforcement responsibilities.

Without objection, the Chair and ranking minority member will

have 5 minutes to make opening statements, followed by opening

statements not to exceed 3 minutes by any other Member who

seeks recognition.

Without objection, Members and witnesses may have 5 legislative days to submit a written statement or extraneous materials for

the record.

I would like to welcome all of you to today’s subcommittee hearing on Federal efforts to protect and enforce the intellectual property rights of our Nation’s industrial base throughout the domestic

and global marketplace.

Before we begin, I would like to apologize for the subcommittee

having to postpone our original hearing that was scheduled for November 4th, but our legislative calendar was rather full that week,

2

as some of you probably will recall. So I welcome our distinguished

witnesses, especially those who have had to rearrange their travel

or business schedules in order to attend today’s rescheduled hearing, and look forward to hearing your testimony.

Intellectual property rights [IPR], is an issue that is near and

dear to my heart and the livelihood of many of my constituents. My

congressional district, the 33rd, which includes Los Angeles, Culver

City, and Hollywood, CA, is home to a number of important entertainment companies, including Sony Studios, the Culver Studios,

Capital Records, Raleigh Studies, and Television Studios, and, of

course, the American Film Institute.

According to figures compiled by Americans for the Arts, approximately 30,000 people are employed in entertainment-related industries located in my congressional district. More than 18,000 people

who work in the congressional district make a living from film,

radio, and television, whose profits and future viability are dependent on strong IPR protection and enforcement.

As a fellow member of the California congressional delegation, I

know my Ranking Member Bilbray recognizes the vital economic

importance of intellectual property to our State’s economic health,

as well as to the future growth and stability of our Nation and the

global economy.

Since the establishment of the World Trade Organization in

1995, America’s key IP-related industries have prospered through

our domestic comparative advantage in innovation and research,

but this advantage has been severely undermined by sharp escalation in IP infringement, such as piracy and counterfeiting, even

among our closest and most vital trading partners and strategic allies. This causes great economic harm to innovations and

innovators who invest significant capital in the products or creations that have improved our standard of living and increased our

knowledge base. While the true amount is unclear, recent estimates of the losses or costs associated with IP infringement for the

U.S. domestic industry ranges from $200 to $250 billion annually.

The prevalence of such losses extends to all IP-related sectors, including information technology, life sciences, digital content, pharmaceuticals, the defense industry, and the entertainment industry.

These losses threaten our Nation’s economic growth and global

leadership in innovation.

Furthermore, IPR infringement poses significant risk to our national security, consumer welfare, and ability to rely upon an effective legal framework for our domestic industries working abroad.

According to the Los Angeles County Economic Development Corp.,

the cost of global piracy and counterfeiting activities in Los Angeles

County in the year 2005 was estimated at $5.2 billion. Those figures were proportionately shared across all sectors of the IP-driven

economy, with motion pictures leading the way at $2.7 billion, followed by the recording industry, apparel makers, and software developers.

Unless such trends are soon curtailed, the roughly 1 million L.A.

County IP-dependent jobs will be placed at a significant risk. The

findings in this year’s special 301 Report issued by the Office of

U.S. Trade Representatives tell us that a combination of technological advances and various market access barriers in key counVerDate 11-MAY-2000 18:00 Sep 09, 2010 Jkt 000000 PO 00000 Frm 00006 Fmt 6633 Sfmt 6633 U:\DOCS\57791.TXT KATIE PsN: KATIE
3

tries are preventing our companies from protecting their IP-based

goods and services.

With that in mind, I would like our witnesses to discuss what

they believe are the major factors in the escalation of IPR infringement abroad. Specifically, I want our Government panelists to explain how they believe the newly established intellectual property

enforcement coordination office will aid in their development of a

stronger framework for managing our inter-agency IPR protection

and enforcement responsibilities, both domestically and abroad.

Specifically, what new authorities has this office been granted to

police our patchwork of agencies charged with combating global

IPR infringement.

Furthermore, I would like you to discuss how our trade agreements with other nations, including those issues being negotiated

as part of the proposed anti-counterfeiting trade agreement, are reducing the growing incidence of digital-based piracy or the illegal

manufacturing of counterfeit drugs and consumer goods for importation.

These activities pose significant threats to our economy, to public

health, to national security, and must be countered in order to

maintain our position in the global marketplace.

Last, I would like to address an emerging IPR issue with the

People’s Republic of China and its efforts to restrict our domestic

technology industries from participating in their governmentwide

procurement programs. And under the Chinese government’s newly

issued rules, only products that contain Chinese proprietary intellectual property would be eligible for government procurement.

This process will, in effect, result in excluding the products of international companies from the government procurement market in

China. This is a troubling development that will have major economic consequences for our trade relations if we do not find an amicable resolution.

I am hopeful that our witnesses can educate us on the latest developments with these matters and other recommendations on how

we at the subcommittee can be helpful in facilitating a resolution

for all parties involved.

I will also ask my ranking member, Mr. Bilbray, for his consideration on how we may be able to work collaboratively on this topic

of vital importance to our home State’s economy.

Once again, I want to thank our panelists for joining us today

and look forward to your testimony.

Are you taking his place, Mr. Issa?

Our distinguished Member, Mr. Issa from San Diego, will take

the place of our ranking member, Mr. Bilbray.

Mr. Issa.

Mr. ISSA. Thank you, Madam Chair. I would ask unanimous consent that Mr. Bilbray’s entire opening statement be placed in the

record.

Ms. WATSON. Without objection.

[The prepared statement of Hon. Brian P. Bilbray follows:]

4

5

6

Mr. ISSA. Thank you, Madam Chair. Intellectual property contributes $5.5 trillion—I repeat, $5.5 trillion—a year to our economy. In fact, we have become the intellectual property giant around the world. We have traded many, many

jobs, entry-level jobs in manufacturing of garments and other products, for our development of these high-skill, high-paying jobs, and

we have off-loaded many of them to China. So I find it today particularly confusing that China would look at this bargain that has

been so favorable to them and begin the process of far exceeding

any moratorium or prohibition allowed under the WTO.

We in the U.S. Congress, under the chairwoman and my watch,

participated in China ascending to the WTO. They did so not having met all the requirements but with the promise to meet them

and to continue in this direction. Intellectual property was, in fact,

at the core of the items which China had not lived up to their responsibility but promised to. Over the years, countries such as Russia have been prohibited and stopped from getting into that for

good reason. We have seen that China has not gained any respect

for intellectual property. In fact, they continue to be the largest

customer in Asia for Microsoft products. They simply don’t buy

them.

Madam Chair, it is very clear that we have to say that China has

a right to have such special property as is necessary for its own defense. We, too, maintain a policy that certain technology must be

domestic for our national security. Certainly neither one of us

would want the ability to put a space-based defense system into

space not to be domestically controllable and known. But China

very clearly is trying to force partnering with U.S. companies’

transfer of technology for purposes of getting a jump start on that

next generation of products and services.

So, Madam Chair, I appreciate your viewing something which

this committee has a longstanding belief that we not only control

the procurement process governmentwide, but we have, by necessity, a requirement to look beyond our borders for free and fair

trade and access for our products.

So I look forward to our witnesses and, again, Madam Chair,

thank you for holding this important hearing.

I yield back.

Ms. WATSON. Thank you.

Without objection, Members and witnesses may have 5 legislative days to submit a written statement or extraneous materials for

the record.

I now yield to Congressman Cuellar for an opening statement.

Mr. CUELLAR. Thank you, Madam Chair. I appreciate this hearing.

I am a big believer in trade agreements, but one of the things

that I think, along with my other colleagues, we have to make sure

that we protect our intellectual properties. I am interested, as we

go through the testimony, to see what we are looking at as we look

at the countries of Colombia, of Panama, and, of course, of Korea

also. If you all could highlight that also during your testimony, if

one of you all could do that. Otherwise, Madam chair, I am ready

to listen to the testimony and ask some questions afterwards.

Thank you very much for having this hearing today.

7

Ms. WATSON. If there are no further opening statements, the subcommittee will now receive testimony from the witnesses before us

today.

We will now turn to our first panel. There will be two this morning. It is the policy of the Committee on Oversight and Government

Reform to swear in all witnesses before they testify. I would like

to ask all of you to please stand and raise your right hands.

[Witnesses sworn.]

Ms. WATSON. Let the record reflect that the witnesses answered

in the affirmative.

I will now introduce the panelists. We will first start with Mr.

Stanford K. McCoy, who is the Assistant U.S. Trade Representative

for the Intellectual Property and Innovation at the Office of U.S.

Trade Representative. He serves as the chief policy advisor to the

U.S. Trade Representative on the intellectual property and trade

issues and serves as the lead U.S. trade negotiator on intellectual

property and innovation to the WTO and Trips Council, and as

part of the U.S. Free Trade Agreement negotiations.

Next to him is Mr. Robert Stoll, who is the Commissioner of Patents at the U.S. Patent and Trademark Office, where he oversees

the administration of all U.S. PTO patent programs. Prior to his

current appointment, Mr. Stroll served as Director of Enforcement

for U.S. PTO, as well as Dean of Education and Training Programs

for external agency stakeholders involved with intellectual property

issues.

Mr. Jason Weinstein is the Deputy Assistant Attorney General

of the Criminal Division at the U.S. Department of Justice. Before

joining the Criminal Division, Mr. Weinstein served as chief of the

Violent Crime Section in the U.S. Attorney’s Office for the District

of Maryland, and as assistant U.S. attorney for the Southern District of New York. Before becoming a Federal prosecutor, Mr.

Weinstein served as Special Investigative Counsel in the Justice

Department’s Office of the Inspector General.

Mr. William Craft is the Acting Deputy Assistant Secretary of

the Bureau of Economics, Energy, and Business Affairs at the U.S.

Department of State. Prior to this, he was Director of the Office of

Multilateral Trade and Agricultural Affairs. He is the lead officer

in the State Department for all issues related to the World Trade

Organization [WTO], including negotiations including the DOHA

Development Round and WTO Accession issues.

Mr. Loren Yager is the Director of International Affairs and

Trade at the Government Accountability Office, where he oversees

issues associated with intellectual property rights and international trade negotiations.

I ask that each of the witnesses now give a brief summary of

their testimony, and to keep this summary under 5 minutes in duration. Your complete written statement will be included in the

hearing record.

Before we proceed, I am going to ask Ms. Chu if she would like

to make an opening statement.

Ms. CHU. I am just happy to take part in these proceedings and

I look forward to hearing what the witnesses have to say.

Ms. WATSON. We are happy to have you.

Mr. McCoy, would you please proceed.

8

STATEMENTS OF STANFORD K. MCCOY, ASSISTANT U.S. TRADE

REPRESENTATIVE FOR INTELLECTUAL PROPERTY AND INNOVATION, OFFICE OF THE U.S. TRADE REPRESENTATIVE;

ROBERT L. STOLL, COMMISSIONER FOR PATENTS, U.S. PATENT AND TRADEMARK OFFICE; JASON WEINSTEIN, DEPUTY

ASSISTANT ATTORNEY GENERAL, CRIMINAL DIVISION, U.S.

DEPARTMENT OF JUSTICE; WILLIAM E. CRAFT, ACTING DEPUTY ASSISTANT SECRETARY, BUREAU OF ECONOMICS, ENERGY, AND BUSINESS AFFAIRS, U.S. DEPARTMENT OF

STATE; AND LOREN YAGER, DIRECTOR, INTERNATIONAL AFFAIRS AND TRADE, GOVERNMENT ACCOUNTABILITY OFFICE

STATEMENT OF STANFORD K. MCCOY

Mr. MCCOY. Thank you, Madam Chairwoman. Thank you to the

ranking member, Mr. Bilbray, and all the members of this subcommittee for the opportunity to join you today and talk a little bit

about the mission of the Office of the U.S. Trade Representative in

respect to the protection and enforcement or intellectual property

rights.

As you said in your opening statement, Madam Chairwoman, one

of the factors that makes American exporters and investors competitive across so many sectors of the global economy is the value

we add to our products and services through innovation and creativity.

Intellectual property rights and their protection and enforcement

are critical to securing that comparative aviation in global trade,

and thus to securing the jobs of workers in America’s many innovative and creative industries. Providing leadership in the creation

and maintenance of the global infrastructure of trade rules to support American exports and investments is a critical part of the

work of the Office of the U.S. Trade Representative. It is a job that

we carry out in coordination with the other agencies represented

here at the table, and in coordination in coming days with the new

Intellectual Property Enforcement Coordinator, who has recently

been confirmed by the Senate.

We carry out that mission in many ways. One of the best tools

we have is one that was handed to us by the U.S. Congress of consistently monitoring our partners’ trade practices through the special 301 report. If they know that we are holding a magnifying

glass up to their actions, they will be less likely to break the rules,

and special 301 is one of our biggest and strongest magnifying

glasses. We use it to scour the globe for copycats and counterfeiters

and call out countries that provide safe havens for the theft of

American intellectual property.

Madam Chairwoman, this year marks the 20th anniversary of

the first special 301 report, which was mandated by the U.S. Congress in 1988 and first issued in 1989. The past two decades have

brought enormous new challenges in the scope and sophistication

of international piracy and counterfeiting. The special 301 process

has expanded in scope and breadth to match that challenge. For

our most recent report, USTR examined IPR protection and enforcement in 77 countries and listed 46 of them in the report.

9

Special 301 works because the reports’ rankings shine a light on

IP protection and enforcement, and also afford an opportunity to

give credit where it is due.

The Republic of Korea is a good example of both of those. It was

removed from the watch list in 2009, marking the latest in a series

of improvements in the Asia Pacific region and around the world

that have been encouraged and recognized through the special 301

process created by Congress.

We hope to see that trend continue and spread. It is vital that

trading partners such as China, Russia, and other countries on the

priority watch list and watch list follow suit. It is also critical that

valued trading partners like Canada and Spain step up and confront emerging challenges like Internet piracy.

China still presents significant challenges to the protection and

enforcement of intellectual property rights, including the indigenous innovation challenge that was mentioned by you, Madam

Chairwoman, and by Mr. Issa in your opening statements. With

China we are making use of every available trade tool to achieve

progress on IP issues.

Madam Chairwoman, let me say it as plainly as Ambassador

Kirk has said it: China must do more to protect U.S. intellectual

property rights.

In addition to reporting and engaging bilaterally, USTR is also

providing essential leadership through trade agreements to

strengthen norms for the enforcement of intellectual property

rights. A key USTR initiative in this area is the Anti-Counterfeiting Trade Agreement [ACTA]. In that effort, we are partnering

with a group of key trading partners representing about 50 percent

of global merchandise trade. When it is finalized, the ACTA will

help governments around the world to more effectively combat the

proliferation of pirated and counterfeit goods.

With that, Madam Chairwoman, I will close my summary of my

remarks and thank you and the members of the committee again

for the opportunity to be here today.

[The prepared statement of Mr. McCoy follows:]

10

11

12

13

14

15

16

17

Ms. WATSON. I thank you, Mr. McCoy.

Mr. Stoll, you may proceed.

STATEMENT OF ROBERT L. STOLL

Mr. STOLL. Thank you, Madam Chairwoman Watson and members of the subcommittee. I am pleased to be here to discuss the

efforts of the Department of Commerce and the U.S. PTO in promoting the protection of intellectual property rights in a global

economy.

Innovation and creativity are essential ingredients of our Nation’s prosperity. Appropriate protection of that innovation and creativity domestically and internationally is necessary to stimulate

job growth and promote our economic well-being. That is why safeguarding these important assets is a top priority for all of us at

this table and throughout the Obama administration. It is truly a

team effort among our agencies to help fight piracy and counterfeiting within and outside our borders.

The Department of Commerce plays an important role in encouraging innovation and strengthening the Nation’s ability to compete

in the global marketplace. The U.S. PTO’s statute directs us to advise the President through the Secretary of Commerce in intellectual property issues and to advise other Federal departments and

agencies on matters of intellectual property policy in the United

States and in intellectual property protection in other countries.

To this end, we are actively involved with the development of

overall U.S. Government IP policy. We work to develop unified

standards for international IP, provide policy guidance on domestic

IP issues, and work with other agencies to procure strong IP provisions in free trade and other international agreements. We also

provide training, education, and capacity building programs designed to foster respect for IP and encourage the development of

strong IP enforcement regimes by U.S. trading partners.

Madam Chair, my written statement contains more details of a

wide range of our efforts. In my limited time here, I would like to

highlight some of our programs and initiatives.

The U.S. PTO coordinates, organizes, and participates in intellectual property rights training, trade capacity building, and technical

assistance. We are especially proud of our Global Intellectual Property Academy [GIPA]. Since its creation in 2005, the U.S. PTO has

provided in its 20,000 square foot training facility in Alexandria,

VA, high-level capacity building programs and technical assistance

training to foreign judges, prosecutors, Customs officials, IP enforcement personnel, as well as officials from copyright, trademark,

and patent offices from around the world. Those individuals come

to the United States to learn, discuss, and strategize about global

intellectual property rights protection and enforcement.

Our program goals include fostering a better understanding of

international intellectual property obligations and norms, exposing

participants to the U.S. model of protecting and enforcing intellectual property rights, and promoting discussion of intellectual property issues in a friendly and supportive environment.

The Academy provides both multi-lateral programs and countryspecific programs as needed. We further envision programs dedicated to specific legal issues or technologies as the Academy continVerDate 11-MAY-2000 18:00 Sep 09, 2010 Jkt 000000 PO 00000 Frm 00021 Fmt 6633 Sfmt 6633 U:\DOCS\57791.TXT KATIE PsN: KATIE
18

ues to develop. The U.S. PTO’s programs reached an average of

4,000 individuals in over 100 countries annually.

In partnership with the Department of Commerce’s United

States and Foreign Commercial Service and the Department of

State, U.S. PTO intellectual property experts are sent out to

strengthen global intellectual property protection and enforcement

overseas in selected high-profile countries where U.S. IP challenges

are greatest.

The IP experts support, as part of the overseas intellectual property rights attache program, U.S. embassies and consulates on IPR

issues, including devising strategies to stop counterfeiting and piracy and supporting U.S. Government efforts to improve the protection and enforcement of IPR. They also advocate U.S. intellectual

property policies, coordinate training on IPR matters, and assist

U.S. businesses that rely on IPR protection abroad.

The U.S. PTO has offered free programs and materials to help

small- and medium-sized businesses improve their understanding

of intellectual property, increase the value of intellectual property

in their businesses to protect against counterfeits and piracies and

of their intellectual property through our public awareness campaign.

An important effort is the intellectual property awareness campaign [IPAC], IP basics program, offered nationwide by U.S. PTO

since 2005 to over 1,000 small- and medium-sized businesses.

These programs include presentations by our attorney advisors

that cover the entire range of intellectual property.

With that, Madam Chairman, I would like to conclude my remarks. Thank you.

[The prepared statement of Mr. Stoll follows:]

19

20

21

22

23

24

25

26

27

28

Ms. WATSON. Thank you, Mr. Stoll.

Mr. Weinstein, you may proceed.

STATEMENT OF JASON WEINSTEIN

Mr. WEINSTEIN. Good morning. I want to thank you, Chairwoman Watson, and the ranking member and members of the subcommittee for the opportunity to appear before you today.

Attorney General Holder has made intellectual property protection a top priority, and the Department of Justice is fully committed to aggressive, effective criminal enforcement efforts to protect

our Nation’s IP stakeholders and the American public. The Department has worked with our law enforcement partners to develop a

strong enforcement program that combines aggressive investigation

and prosecution of IP crimes with law enforcement training and

victim outreach. However, because we understand that in the global economy a successful criminal enforcement program requires a

strong international component, we also work in partnership with

our foreign law enforcement counterparts whenever possible, which

has resulted in great successes.

For example, in January of this year Kevin Xu was sentenced to

78 months in prison for conspiring with others in China to traffic

in counterfeit cancer drugs and other pharmaceuticals. Many of

these counterfeits were lacking active ingredients or contained unidentified impurities, and drugs with lot numbers identical to the

counterfeits were detected in the legitimate supply chain in London, which promoted a massive recall in the U.K.

Just this past September the department obtained its 64th felony

conviction arising from Operation Fastlink, which targeted multinational organized criminal networks. In the underlying investigation, which was one of the largest international law enforcement

actions ever taken against online piracy, the FBI worked with foreign law enforcement to conduct over 120 simultaneous search warrants in 27 States and a dozen foreign countries.

These are just two examples of the many, many successful international enforcement efforts that we have participated in, and we

are proud of all of them, and they all demonstrate the value of

strong relationships with international and foreign law enforcement.

The cornerstone of the Department’s international efforts is the

Intellectual Property Law Enforcement Coordinator [IPLEC], program. With the help of the State Department, we have deployed

two experienced Federal prosecutors to serve as IPLECs, one in

southeast Asia and one in eastern Europe, to provide training and

operational assistance in those regions.

Working with the IPLEC for Asia, the Department also spearheaded the formation of the Intellectual Property Crimes Enforcement Network [IPCEM], which has helped to strengthen communication channels and promote the informal exchange of evidence

among member nations in Asia.

In addition, the Department through the Criminal Division cochairs the Intellectual Property Criminal Enforcement Working

Group, which is part of the U.S.-China joint liaison group for law

enforcement cooperation. The working group has fostered an open

dialog on criminal IP enforcement, has increased information and

29

evidence sharing, and has resulted in a number of successful joint

operations between the United States and China, including Operation Summer Solstice, which targeted a criminal organization believed to be responsible for the distribution of over $2 billion worth

of pirated and counterfeit software. Summer Solstice was the largest ever joint criminal enforcement operation between the FBI and

law enforcement in China.

More generally, the Department has placed great emphasis on efforts to strengthen enforcement capacity overseas, from Europe to

Asia to Africa to South America to Mexico. In fact, over the past

5 years, working on partnership with some of the agencies represented here on this panel with me, DOJ attorneys have provided

training and education on IP enforcement to over 10,000 prosecutors, investigators, and judicial officers from over 100 countries.

Because IP crime has increasingly become the province of international organized crime, we are working to identify and to address

links between organized crime and intellectual property. The Department has already taken a number of significant steps to incorporate IP into its existing organized crime strategy, as directed by

the PRO-IP Act.

To succeed in the missions that I have outlined, we work closely

with all of our partner law enforcement agencies, including through

the National Intellectual Property Rights Coordination Center. Our

ability to increase the number and scope of our IP investigations

has also been bolstered more recently by the addition of 31 dedicated FBI special agents to investigating IP crime, and we appreciate Congress’ decision to fund those positions.

Finally, the Department works extensively on IP issues with

other agencies in the Federal Government, including those represented here today, and with the industries most affected by IP

crime, and we also look forward to working very closely with Victoria Espinel, who was confirmed just last week as the new IP Enforcement Coordinator, and with our partner agencies on the newly

formed or to-be-formed IPEC Advisory Committee.

Again I thank you for the opportunity to share with you the high

priority that the Attorney General places on criminal enforcement

of IP rights and the work that we do every day at the Department

of Justice to combat intellectual property crime both here and

abroad.

I would be happy to take your questions.

[The prepared statement of Mr. Weinstein follows:]

30

31

32

33

34

35

36

37

38

39

40

Ms. WATSON. Thank you, Mr. Weinstein.

Now you may proceed, Mr. Craft.

STATEMENT OF WILLIAM E. CRAFT

Mr. CRAFT. Thank you, chairwoman and committee members. It

is a pleasure to be here today to testify on the State Department’s

role in protecting intellectual property rights in today’s global economy.

We welcome the committee’s interest in this issue and look forward to continuing to work with you to achieve our mutual goal of

ensuring that U.S. intellectual property rights are fully respected

everywhere in the world. As President Obama has said, innovation

is the key to good new jobs for the 21st century.

Since intellectual property rights encourage and reward innovation, protecting American intellectual property abroad is one of the

State Department’s top economic policy priorities. We work closely

with other U.S. Government agencies, the private sector, and foreign governments to achieve that goal.

Within the State Department, our efforts are led by the Office of

Intellectual Property Enforcement, part of the Trade Policy and

Programs Deputate that I head. That office now has a staff of 12

people. As you are aware, Congress created this office in 2005 to

strengthen State Department efforts to combat counterfeiting and

piracy.

IPE promotes enforcement of U.S. IP rights overseas, represents

the State Department in inter-agency IPR policy discussions, and

participates actively in bilateral and multilateral negotiations to

improve enforcement of IP rights.

State implements IPR enforcement training and technical assistance programs for which the Congress has given us $4 million in

2009. In calendar year 2009, we used that money to train over

1,500 customs, police, and judicial officials from more than 20 countries, including the Ukraine, Mexico, Russia, Vietnam, and Nigeria.

State also conducts public outreach to foreign audiences on the

importance of IP to host country economies, innovators, and creators, and trains our embassy officers overseas around the world

on IP enforcement.

Intellectual property enforcement is integrated into the work of

other State Department bureaus and offices. For example, we work

closely with our Bureau of International Organizations and with

other agencies to strengthen the World Intellectual Property Organization and to ensure that other U.N. agencies support good IP

policy. Our regional bureaus, U.S. embassies, and consulates are on

the front lines of protecting U.S. IP rights in particular countries,

responding to complaints raised by U.S. companies and vigorously

pressing foreign governments to combat piracy and counterfeiting.

There is a Foreign Service officer assigned to work on intellectual

property protection in every U.S. embassy overseas.

Madam Chairwoman, as you have noted, piracy and counterfeiting are still enormous problems, but we are making some headway.

There are more examples in my written testimony, but let me just

cite two examples of areas where we think we have made a positive

impact.

41

On the enforcement side, the U.S. Government and the private

sector have been working actively with Mexico to encourage them

to increase enforcement of their laws, and working on information

provided by the U.S. industry, the Mexican Attorney General’s office recently arrested a number of individuals for camcording in

movie theaters, thereby dismantling one of Mexico’s major

camcording rings.

In terms of the winning hearts and minds side on public outreach, an excellent example is the way that our embassy in Bosnia

helped to develop an IPR school campaign with a curriculum and

comic books printed in the three local languages, supported by appearances by the U.S. Ambassador and several Bosnian movie and

music stars.

Let me just note, Madam Chairwoman, that the State Department concurs with the recent GAO report’s recommendations on

improving coordination between our embassies and our intellectual

property attaches overseas, and we have sent a cable to relevant

posts instructing them to implement the recommendations of the

GAO. We are getting responses from the posts and we are reviewing those now.

As Mr. Stoll and the others have noted, we know very well and

very favorably Ms. Espinel and we look forward to working with

her as she tries to raise the image and profile of protecting intellectual property as she takes on her new role. We look forward to

working very closely with her.

Finally, let me thank you and the committee for your interest in

this very important issue and to assure you that we look forward

to working with you to strengthen our efforts to protect intellectual

property.

Thank you very much.

[The prepared statement of Mr. Craft follows:]

42

43

44

45

46

47

48

49

50

51

52

53

54

55

56

57

58

59

60

Ms. WATSON. Thank you, Mr. Craft.

Now you may proceed, Mr. Yager.

STATEMENT OF LOREN YAGER

Mr. YAGER. Thank you. Good morning, Madam Chairwoman,

Ranking Member Bilbray, and members of the subcommittee.

Thank you for the opportunity to appear before the subcommittee

to discuss our work on U.S. efforts to protect intellectual property

rights. We appreciate the opportunity to continue our contributions

to the record that this committee has established on IP protection.

This hearing is timely, as Congress recently overhauled the U.S.

structure for IP protection. The PRO-IP Act created a new structure, and the Senate recently confirmed the coordinator to chair

the Advisory Committee.

In my statement today I will address two topics on IP protection

and enforcement that are relevant to that structure. First let me

talk about the lessons learned from past efforts to coordinate IP

protection and enforcement, and second I will make a few observations on the efforts of the Patent and Trademark Office intellectual

property attaches in key countries around the world.

Let me start with a few observations from our prior work. The

PRO-IP Act of 2008 enacted several changes that addressed weaknesses we found in the prior IP coordinating structure. That structure was initiated under two different authorities and lacked clear

leadership and permanence, hampering the effectiveness and longterm viability of such coordination.

In a GAO report undertaken for this committee in 2004, we reported that this council had not undertaken any independent activities since it was created. Congress subsequently made enhancements in 2004 to strengthen its role but we reported that it continued to have leadership challenges.

In contrast, the Presidential initiative called STOP had a positive

image among the agencies and the private sector, and from its beginning was characterized by a high level of coordination and visibility. However, as a Presidential initiative it lacked permanence,

since its influence was tied to a single administration.

While its impact will depend upon its implementation, the PROIP Act of 2008 enacted several changes that addressed weaknesses

in that prior structure. For example, the act places leadership in

the Executive Office of the President, a status similar to STOP. In

addition, the PRO-IP Act specifically requires the new agency to

prepare a strategic plan that builds in mechanisms for accountability and for oversight. The PRO-IP Act requires the council to submit the strategic plan to committees of the Congress to improve accountability.

Let me now turn to another important issue, and that is the

placement of the PTO IP attaches abroad. An additional theme of

the PRO-IP act is the emphasis on strengthening the capacity of

U.S. agencies abroad to protect and enforce IP rights. In a report

we released in September of this year, we found that the IP attaches could be an asset to U.S. firms and to other U.S. agencies

who needed assistance in matters related to IP enforcement. These

IP attaches provided this assistance by adopting a number of practices.

61

First, the attaches served as effective focal points. Prior to the

creation of the IP attache position, State economic officers had primary responsibility for IP, but IP attaches are full time in the

issue, and they also impart their subject matter expertise, which

enhances their effectiveness as focal points.

Second, they established IP working groups. Several agency officials at the posts we visited in China, Thailand, and India said

that the working groups provided several benefits, such as increasing coordination on training and on other activities.

Third, the attaches leverage resources through joint activities.

For example, the IP attaches helped the Foreign and Commercial

Service efforts to assist firms by providing advice on how to avoid

IP problems and answering IP-related questions.

While our observations on PTO’s attaches abroad are largely

positive. Our prior work has also demonstrated that the long-term

success of overseas operations requires careful attention to human

capital planning. In particular, we have observed that other agencies attempting to establish a presence abroad had to make specific

efforts to ensure that they could recruit and retain sufficient personnel with both the technical as well as the cultural expertise that

is essential in those posts. These considerations may be important

as the Congress and the PTO make decisions about the scale and

the performance of this program.

Madam Chairwoman, Ranking Member Bilbray, thank you for

the opportunity to appear before this subcommittee to summarize

our work. I will be happy to answer any questions that you or

other Members have.

[The prepared statement of Mr. Yager follows:]

62

63

64

65

66

67

68

69

70

71

72

Ms. WATSON. Thank you so much, Mr. Yager.

We will now move to our question period and proceed under the

5-minute rule. Before that, I would like to welcome Congresswoman Carolyn Maloney to our committee. Thank you for coming

and sitting in with us today.

I want to delve a little deeper into what is happening, Mr.

McCoy, and particularly this week, in China. We know that the

government is developing regulations regarding what are being

called, as you mentioned, national indigenous innovation products.

My understanding is that these regulations would, in essence, create preferences for Chinese vendors and eliminate U.S. information

technology and intercommunication industries from China’s government procurement and acquisition markets. This proposal obviously raises multiple issues surrounding compliance with international trade laws, as well as our bilateral agreements with the

Chinese government.

Can you address how the Obama administration, including the

USTR, has been proactive with this issue? It is very troubling to

us, so let us know.

Mr. MCCOY. Madam Chairwoman, this is indeed a serious concern that you have identified, this indigenous innovation preference

issue. Certainly it is in the interest of both the U.S. Government

and the Chinese government to promote innovation. There are appropriate ways to do that, and there are inappropriate ways to do

that. Let’s be clear: innovation is no excuse for discrimination. We

are very alert to these industry concerns about China’s indigenous

innovation policies in a wide range of areas, including the recent

announcements out of China on a procurement preference list.

We are in the process of expressing our serious concerns. The

inter-agency team in the U.S. Government has sprung into action.

Ambassador Huntsman has received instructions and he and his

team are in the process of raising our questions with all of the appropriate counterparts in the Chinese government. I can assure

you we will stay fully engaged and continue to follow this closely.

Ms. WATSON. There has been mention that we have attaches and

we have FBI and so on in our overseas embassies, and so I am

really pleased to hear that you are working through the Ambassadors. I have been there, and we really need to have close scrutiny

and interchange back with our administration as to how we are

progressing.

The 2009 special 301 report that was mentioned highlighted the

increased incidence of Internet piracy among U.S. trading partners.

Some countries such as France and Britain have pursued legislation that would cutoff Internet access for users who repeatedly are

caught engaging in integral peer-to-peer file sharing. Any of you

that would like to address this particular question, please feel free

to do so. Do you believe that this is a potential legislative remedy

to our own significant peer-to-peer file sharing problem? We will

start with you, Mr. Stoll.

Mr. STOLL. Thank you, Madam Chairman.

I am not sure that type of activity would be something that the

United States would want to follow. I think that there is an intent

to try to take care of the issues related to piracy in many manners,

but I am not sure that removing access—I think in France it is a

73

three strikes you are out program. I am not sure that would be palatable here in the United States.

I think that taking many other actions to be able to reduce piracy in the United States is an important interest in all of the

agencies represented here, but I am not sure that is the right direction to go in.

Ms. WATSON. Mr. Weinstein.

Mr. WEINSTEIN. I would agree with that, Madam Chairwoman.

As a general matter, it is my view that the technology is not the

problem, it is the way in which the technology is being used that

creates the problem, and I think this is no exception.

In terms of criminal enforcement, we are increasingly concerned—we have been for some time and we continue to be concerned it—online piracy. It is perhaps the greatest emphasis of our

computer crime and IP section. In pursuing online piracy, we work

closely with industry, with the Motion Picture Association of America, with the Business Software Alliance, with the Entertainment

Software Association to help identify emerging trends and to identify and prosecute the most serious online copyright thieves.

We have had great successes over the last few years and are continuing to prosecuting wares groups—that is, online organized

groups that are engaging in piracy of software and music—focusing

on the first suppliers, on the primary distributors of those materials online.

We have more recently engaged in fairly aggressive investigative

operations against peer-to-peer networks, particularly those using

BitTorrent software. We had an operation that we called the Elite,

which resulted in eight convictions, including the first ever conviction at trial of a high-ranking administrator of a P2P Web site that

was distributing massive amounts of infringing copyrighted

works—software, video games, music, movies, the whole works—

and who got a substantial sentence.

We are also trying to get the problem at the source. Oftentimes

the multi-million dollar online piracy scheme begins with a

camcorder, someone who is taping a movie, for example, in a movie

theater, and so we have aggressively worked in partnership with

the MPA and other interested partners to identify appropriate targets for camcording cases and recently convicted, late last year,

convicted a gentleman named Michael Logan here in D.C. who was

viewed as perhaps the most prolific camcorder on the east coast.

So we are trying to get to the problem at all ends, both once they

are on an infringing site and even at the origin at the camcording

level.

I would also say that since this problem is increasingly an international one, our international work engagement with foreign partners is increasingly important in this area, perhaps more than any

other, and the IPLEC program that I mentioned is a key component of that strategy.

The fact that these sites are often posted on servers that are located overseas presents some investigative challenges, but they are

challenges that we are working very closely with our foreign partners to overcome. The fact that a person commits this kind of crime

from what he thinks is the privacy of an apartment or an office

somewhere in eastern Europe, for example, or Asia is not the safe

74

haven that it used to be. We are working very hard with our foreign partners, not only to aggressively enforce criminal laws and to

take down the organizations and individuals engaging in this conduct, but we are also working to increase their capacity so that we

can reduce the number of safe haven countries throughout the

world for people who engage in this kind of behavior.

Criminals, particularly criminal organizations, that engage in

this type of online piracy, particularly from overseas or using overseas servers and other assets, should make no mistake about our

resolve to find them and locate them and our increasing capacity

to do that.

Ms. WATSON. Thank you. My time is up, so I would like to go

to our most distinguished ranking member, Mr. Bilbray, for 5 minutes.

Mr. BILBRAY. Thank you, Madam Chair. I apologize for my tardiness, gentlemen.

Mr. Stoll, you said that the American people, you didn’t think the

American system had the stomach to do the three strikes like the

British and the French. First of all, it kind of gets me nervous

when we figure we don’t have the intestinal fortitude of the

French, but that’s a different issue.

You want to elaborate on why we don’t have the stomach for it?

Mr. STOLL. I am not sure I didn’t—maybe I shouldn’t have said

don’t have the stomach. I don’t think that would be the direction

we would go, because their access for informational purposes would

be removed completely, as well. So we have a balancing act of interests here. I think there are many mechanisms where we are

able to take care of the problem related to piracy, but I am not sure

that it would probably be in the interests of our society to block access for other purposes of information exchange, education, of

Internet access. So I think that’s what I am trying to say.

I think that there are mechanisms that are in place. We work

with MPAA, with RIAA. There are many different things to do. I

am not sure just about blocking access would be something that we

would want to do.

Mr. BILBRAY. I apologize. I am not as well versed as obviously

I should be. When you say blocking access, are they talking about

a national ban?

Mr. STOLL. Yes.

Mr. BILBRAY. The British are talking about a national ban?

Mr. STOLL. That’s what my understanding is. I believe that is

correct.

Mr. BILBRAY. OK. Gentlemen, let me be a little blunt. I think the

perception out there—and I would ask you to either verify it or refute it—is that when it comes to intellectual piracy, China is the

Somalia of the intellectual world. Is that fair to say?

Mr. YAGER. If I could just make a couple of comments on that,

Ranking Member Bilbray, certainly China has some unique features that make it a special problem. One, it is an enormous exporter. It has the capability to export a wide range of goods and

services, many of which have some level of intellectual property.

Second, China is also a major market. It has become an increasingly large market, not just for U.S. goods, but for goods from other

places around the world.

75

So this is one of the few places around the world where you have

both this enormous export capacity as well as a large internal market, so U.S. firms are understandably interested in serving that

market, as well as gaining protection from the kinds of exports that

China does produce, both shipping here as well as to third countries.

Mr. BILBRAY. So what you are telling me is China is at that critical location right along the major shipping lanes of intellectual

property, which indicates that sounds a lot like Somalia to me.

Mr. YAGER. They certainly have a unique position. Whether it is

in the south, the manufacturing center of the world, where they are

able to produce in mass quantities and at relatively high quality,

and using intellectual property in some cases that is not owned by

those firms. It does have a unique position.

Mr. BILBRAY. Are you a diplomat? You sure sound like it.

Go ahead, sir.

Mr. WEINSTEIN. I am not a diplomat, either, but I have never

been accused of being a diplomat, but I do think it is worth pointing out, Congressman, that sometimes some of the countries that

present the greatest challenges for IP crimes generally also are the

most engaged in terms of trying to address their weaknesses, so it

is certainly no—there really is no secret and there can’t be any dispute that China is a source of a very large quantity of infringing

goods, both hard goods and electronic goods.

But we have enjoyed a very productive and increasingly so working relationship with Chinese law enforcement, and I think the FBI

and ICE and Chinese law enforcement officials, working with our

prosecutors, have made great strides over the last few years. So at

least from a law enforcement perspective I think China is working

hard to try to address the challenges that even it identifies within

its borders.

One of the areas in which I think we have been effective in other

parts of Asia, particularly in southeast Asia and in eastern Europe

through the IPLEC program that I mentioned, we have a prosecutor who works on a day-to-day basis not only to do joint operations

with law enforcement in those countries or those regions where we

have IP problems, but also to build their capacity to investigate

and prosecute their own cases. That is a program that we very

much would like to see expanded, and it is our long-term goal to

expand, and China would be probably first on the list of places on

the globe where we think more engagement, at least at the law enforcement level, would be productive for everyone.

Mr. BILBRAY. Well, China probably has the best capabilities of

doing enforcement of anybody in the world. I mean, they probably

have one of the tightest-knit enforcement capabilities that anybody

has ever seen on the face of the earth, so their argument for not

being able to crack down really is not germane to this issue.

The question that I have, though, is with at least the huge reputation of being the pirating capital, doesn’t that give indications

to other countries that, look, if you are big enough, if you are rich

enough, if you intimidate the rest of the world you can get away

with a lot of this, or maybe it is the other way that, Look what’s

going on in China. Why don’t we try it in Monterrey, Mexico, or

why don’t we try it in Singapore. Well, Singapore is kind of a tight,

76

little community, so you might have that problem, too. But questions about how that gives a potential for other parts of the world

to expand into the pirating aspect.

Mr. MCCOY. I could speak to that, Mr. Ranking Member, if I

could. I think it is important to bear in mind that China, in addition to being the world’s leading exporter of knock-off products, is

also really suffering in terms of its domestic market the consequences of really decimating markets for software, music, films,

and other IP-intensive products because of inadequate respect for

IPR, so there is a lesson there to other trading partners, as well,

not to go down this path, and we have seen in the Asia Pacific region and around the world other trading partners such as the Republic of Korea, such as Hong Kong, Taiwan, Singapore, take a different path and really look toward growing respect for IP rights as

an important part of their economic growth story, and we would

hope that other trading partners around the world follow that example.

Mr. BILBRAY. Thank you, Madam Chair. I would be very interested to know how they handle Windows 7, which was really a blatant piracy action that was going on in China.

Ms. WATSON. Thank you.

We will now proceed with questioning. Mr. Cuellar of Texas.

Mr. CUELLAR. Thank you very much, Madam Chair.

Mr. Weinstein, let me ask you, what are we doing to—let me

start off with the Republic of Mexico, a big NAFTA country along

with Canada. What are we doing to work with them internationally, because I saw your report where you talk about domestically

and the coordination that we have here, but what are we doing to

work with, let’s say, the Republic of Mexico, because now, as in our

drug cartels are now involved, the ones in Mexico are involved in—

they are going into legitimate areas now, what we call legitimate

businesses. I just want to see what we are doing to work with the

Mexican government.

Mr. WEINSTEIN. Congressman, one of the things that we have

been doing recently with Mexico is working with their officials at

the border. One of the things that we do generally when we engage

internationally—bilaterally, that is—is try to identify what the particular weakness is in the enforcement regime of particular countries, and it does vary by region and it certainly varies by country.

Sometimes the problem is a lack of political will. Sometimes the

problem is the political will is there but there is corruption. And

sometimes it is a lack of coordination among agencies that would

be responsible for various aspects of IP enforcement. Sometimes it

is a combination of the three.

In Mexico, at least on the ports, in the ports, what we identified

as a significant weakness was a lack of coordination among agencies that would be responsible for port security, and so one of the

things that we did was work aggressively at three of the largest

ports in Mexico, including Monterrey and Vera Cruz, to improve

the level of coordination to teach the inspectors and the other people responsible for the security of the port how to do targeted inspections, how to identify potentially infringing goods.

In at least two of the ports, if I recall correctly, there had never

been—or at least one of them, if not two—there had never been a

77

seizure of infringing goods prior to our training and our engagement with them, and in the period following that, the technical assistance we provided, there were seizures through the roof at those

ports and those ports became much more effective at trying to identify infringing goods as they are moving across the border.

That is one area in which we have engaged in Mexico. It is not

the only one, but it is one of the most prominent recently.

Mr. CUELLAR. When working with our domestic partners, and

different law enforcement, I know that I have heard from the U.S.

Chamber and other folks saying that we have so many threats to

our country that when it comes to counterfeiting and this type of

piracy that our resources are not put there. Is there anything else

we can do to help our businesses, to protect them from this economic loss? Whoever else wants to add to that.

Mr. WEINSTEIN. I will jump in. I will lead off briefly and then

turn it over to my colleagues.

One of the things that we have done with our partners at FBI

and ICE to try to improve the level of coordination and to improve

our ability to be responsive to IP stakeholders is to invest a lot of

time and resources in the IP Rights Coordination Center, which is

located in Crystal City. It is operated principally by ICE, but it has

partnership from a number of different agencies, FBI and other law

enforcement agencies that have some interest in IP enforcement.

It is intended to do a number of things. No. 1, it provides for a

pooling of intelligence from all these different agencies so that they

can share intelligence and share information and make their investigations more coordinated and more effective. It is also a

deconfliction center, and it is also meant to be one-stop shopping

for an industry. We had an industry meeting there on Monday, a

lunch with representatives of 29 different IP stakeholder companies or organizations, and one of the things we emphasized to them

is that not only can they make referrals directly to the Justice Department, but they can make referrals to the IP Rights Coordination Center. It is meant to be a place where they can share information themselves, they can make referrals, and they can get law

enforcement to respond as quickly as possible.

Mr. CUELLAR. I appreciate that. I think that one-stop center so

they know who to call instead of being bounced from one place to

the other place, so I appreciate that. I appreciate the work that you

all do.

Mr. Yager.

Mr. YAGER. Yes. One point I’d like to make. I think your question

raises a very important issue, and that is in some cases what we

find is these are criminal networks that operating, for example, on

the border, so they may not just be involved in intellectual property

crimes. There could also be money laundering, there could be illegal arms sales, there could be illegal drugs that are being traded

by the same criminal networks. So I think it is important to focus

not just on China but also look, for example, at the southern border

to determine whether products are being brought in by those same

criminal networks that are also taking advantage of the border to

make other transactions, either guns moving south or illegal drugs

moving north.

78

Mr. CUELLAR. Right. Again, from what we hear—I live in Laredo,

a border town, and we hear that those criminal organizations are

starting to look at different ways of making money, so we appreciate it, so whatever you all can do to protection it.

Last question for Mr. McCoy.

Mr. McCoy, our Ambassador Ron Kirk—I will close up with

this—are we doing everything possible? I am a big supporter, was

a big supporter of CAFTA, big supporter of Colombia, big supporter

of Panama, South Korea, and hopefully we will have those agreements this coming year, but are we doing everything possible

under those negotiations to make sure that we protect the intellectual property rights of our stakeholders?

Mr. MCCOY. I believe we are, Congressman. Ambassador Kirk

has said repeatedly that ensuring strong IP protection is one of the

top priorities for the President’s trade agenda. It is something that

we are working to move forward, both through the implementation

of free trade agreements that are already out there, close monitoring and enforcement to make sure that those agreements are properly implemented, our trading partners deliver on their promises,

going forward as we look toward new trade agreements, as we look

to getting the trade agreements that are out there into force. We

will continue that emphasis on proper implementation of IP provisions, and with efforts like the Anti-Counterfeiting Trade Agreement and the special 301 report we can continue to drive home

that point.

Mr. CUELLAR. Thank you all. Thank you, Madam Chair.

Ms. WATSON. Thank you very much. You are welcome.

Ms. Chu of California.

Ms. CHU. Thank you, Madam Chair.

Well, this is for any of the panelists. The GAO has identified continued weakness in Global intellectual property protections and enforcement mechanisms, and specifically cites one challenge being

the ineffective coordination of agency stakeholders charged with

protection and enforcement responsibilities. From what I understand, there are eight agencies with overlapping protection and enforcement responsibilities, and from what I can tell there is not one

single agency that leads the charge.

I know that there was legislation that created the Intellectual

Property Enforcement Coordinator, and this is one step forward,

but that person has not yet been put into place as of now.

What specific steps would you like to see the coordinator take in

tackling these issues?

Mr. YAGER. Ms. Chu, I think there are three points that we

would make.

We think that the legislation does address some of the prior

weaknesses. I think a couple things that we would recommend is

that the new group follows the guidance regarding the key elements of the national strategy so that the IP coordinator can create

that strategy and ensure that all parts are working together. That

would include not just the law enforcement but also the policy level

working together.

The balance would also include working both at the firm level as

well as at the industry and at the country level.

79

Finally, I think a point that was made earlier, to the extent possible utilize alliances with IP owners abroad, because in many

cases the leverage that the United States has can be limited, but

when you also team up with some of the IP owners abroad there

could be greater success. So I think there are a couple of general

points that we make in our prior statements about how this person

or this new group could be effective.

Mr. MCCOY. Let me add from the perspective of USTR, Congresswoman, that I know that as of yesterday Victoria Espinel, the IP

Enforcement Coordinator, has just started work. I know she was

burning the midnight oil last night on her first day at work, because she talked with me a little bit about how we can work together, so at USTR we are looking very much forward to teaming

with her.

We already work intensely with the other agencies here through

inter-agency coordination of trade policy under the rubric of the

trade policy staff committee mechanism that has been set out by

Congress as a vehicle to coordinate, including on intellectual property trade policy.

So we work very closely with the other agencies of the U.S. Government, and we are looking forward to further enhancing that cooperative relationship under the guidance of the IP Enforcement

Coordinator.

Ms. CHU. Very good. Then, Mr. Weinstein, the World Health Organization estimates that 50 percent of drugs worldwide are counterfeit, which translates into approximately $38 billion in loss of legitimate U.S. corporate sales each year due to the sale of these

counterfeit drugs. This statistic raises great concerns for me, because these are life-threatening type of issues, and there are huge

ramifications to consumers who unknowingly purchase these counterfeit drugs and put themselves at risk.

What methods are the Department of Justice implementing to

address this problem?

Mr. WEINSTEIN. Congresswoman, it is of great concern to us, as

well, and one of the ways in which we have tried to use our limited

resources, prosecutory resources, is to focus on intellectual property

violations that are a threat to the public health and safety, and I

can’t think of one more serious than the one you just mentioned.

We have prosecuted a number of cases, going back several years

now and continuing through the present, involving people who

have produced counterfeit drugs of all types. Cancer drugs is the

one case I mentioned in my oral statement. There are a number

of others involving Viagra and other types of medications that are

mentioned in my written testimony.

What is striking about these cases is that they are international

in scope, just as the online piracy cases are. In fact, in November

of last year a citizen of the Republic of the Philippines was charged

here and was convicted and sentenced for participating in a conspiracy to import Viagra and Cialis, and I believe other types of

medication, as well, and was the first person—he was extradited

from Thailand. He was the first person ever extradited to the

United States on a counterfeit pharmaceutical charge. We hope he

will not be the last.

80

So in that area as well as the online piracy area we were talking

about earlier we are not stopping at the borders and we are trying

to find people who engage in this conduct, wherever they are,

whether they are in China or here.

Speaking of China, one of the biggest cases involving counterfeit

products—it is not a pharmaceutical, but it is a counterfeit product

that affects health and safety—involved a national Guinea and a

U.S. citizen in the Bronx who were conspiring to import counterfeit

tubes of toothpaste from China that not only didn’t contain fluoride, but also contained microorganisms and in some cases contained diethylene glycol, which is an ingredient in hydraulic and

brake fluid. The co-conspirators brought in almost 83,000 tubes of

this toothpaste, which had a retail value of just under $117,000.

And we managed to get the importers here in the United States,

and they got significant sentences.

So this is an area that continues to be of concern to us. I would

say, other than online piracy and counterfeiting that involves online auctionsites and direct sales sites, the public health and safety

continues to be the area where we try to put our greatest emphasis.

Ms. CHU. Thank you. I see my time is up.

Ms. WATSON. Thank you.

We will now proceed to Mr. Connolly of Virginia.

Mr. CONNOLLY. Thank you, Madam Chairwoman.

Let me pick up, if I may, where Ms. Chu left off, Mr. Weinstein.

We acknowledge that not only human pharmacological agents but

veterinarian pharmacological agents are a problem, as well, coming

into the United States. I know the Department of Justice was involved for many years in trying to prosecute folks who were

wilfully violating our laws and introducing pirated antibiotics and

other substances to Forest Grove into our livestock and feed chain

here in the United States.

There are just lots of examples, intellectual property examples

involving software, involving music and movies and all the technologies associated with them over the years. It wasn’t that long

ago you could go to Etawon and Seoul or you could go to neighborhoods in Taipei or Hong Kong and blatantly get knock-offs or infringed items at a discount.

If enforcement is everything it should be and the estimate is accurate that we are losing about a quarter of a billion dollars a year

because of intellectual property infringements of one sort or another, the best estimate I have seen, in terms of border agent seizures of pirated materials, the value is something south of $300

million. In other words, about 1 percent of the estimated cost of the

total infringements.

Doesn’t that suggest that, while you are not expecting everything

to come through our borders, but 1 percent sounds pretty low in

terms of our success rate at interdicting these materials or agents

coming into our country?

Mr. WEINSTEIN. Congressman, I wasn’t smart enough to check

your math and I don’t have figures myself on the amount of infringing goods, hard goods, that is, that are seized at the border,

but I will tell you as a general matter, whether you are talking

about goods coming in across borders or you are talking about

81

goods that are coming here electronically, the problem is far greater than the resources that law enforcement has available, either investigative or prosecutive resources, and I think the problem grows

as more and more piracy is committed through online means.

I am an optimist by nature, but I am also particularly optimistic

because I think the people who we have conducting these investigations, leading these prosecutions, are the best trained in the world

and work very hard to keep pace with and, indeed, to be one step

ahead of the people that we are investigating. And so I think that

we have terrific people doing it; we just don’t have enough of them.

And the problem is of a magnitude that is far greater than our resources allow.

Having said that, I think that one of the things that demonstrates is the need for us to be able to turn ourselves into force

multipliers, and that is to expand capacity overseas so that our

overseas partners can engage in aggressive enforcement actions

within their own borders.

I will give you just one example that I think is fairly illustrative.

The IPLEC that I mentioned in eastern Europe—you are going to

begin I am getting paid by every time I mention IPLEC—but our

IPLEC in eastern Europe worked with law enforcement of the

Ukraine, which was trying to take down a major piracy site that

was operating in the Ukraine and they didn’t know how to conduct

an investigation of that type, and the IPLEC worked with them.

Their technology was quite outdated. They had an outdated personal computer and they had a dial-up Internet connection. And

using an outdated personal computer with a dial-up Internet connection, following the guidance given to them by the one prosecutor

we have over there, an investigator in the Ukraine took down the

entire site.

So by engaging in trainings like that and in teaching people overseas how to make these cases, themselves, not only do we have bigger, splashier, more high-impact law enforcement operations here,

but we can multiply the number of people who are able to be prosecuted in the countries in which they are operating.

Mr. CONNOLLY. Right. Thank you. That’s helpful.

With respect to enforcement there are sort of two broad aspects

to this. One has to do with capability on the ground, ours and our

counterparts; the other has to do, though, with political will. I

would like the panel to address that.

Candidly, we know that in some cases, including trading partners and allies of the United States, are not seized with this mission. How severe are we prepared to be, and historically how severe

have we ever been in impressing upon an ally or a trading partner,

or even somebody who is neither of those categories, that we mean

business and we are prepared to exact a price if they don’t, in fact,

change their behavior from the top?

Mr. MCCOY. I can speak to that, Congressman. I think that we

need to have a strategy that proceeds on two fronts. One is to be

very frank and, when appropriate, very critical of our trading partners who don’t step up to the challenge. And the other front is to

work in tandem with our trading partners through leadership and

partnership to really get at this problem better, because on the one

hand we have to be honest enough to call it out when the problem

82

is bad; on the other hand, we cannot solve this global problem

alone. We have to have international leadership and partnership

and be working with our trading partners.

Sometimes we have to be capable of walking and chewing gum,

of doing both of those things at the same time with the same trading partners.

There have certainly been occasions in the past when we have

gone all the way to the extent of trade sanctions with trading partners who refuse to protect U.S. intellectual property. The most recent occasion was Ukraine. All of the tools of the trade arsenal are

available to make progress where it is appropriate, and we are continuing to use all the tools at our disposal.

Mr. CONNOLLY. Madam Chairwoman, my time is up. By the way,

I would ask for unanimous consent that my opening statement be

entered into the record.

Ms. WATSON. Without objection.

Mr. CONNOLLY. I just want to observe before you call on Mr.

Murphy that I thank Mr. McCoy for his answer.

Inferentially, one could conclude from your answer some criticism

of past performance on our part in terms of our consistency in

strict enforcement and so conveying to other countries in the international community.

Thank you.

Ms. WATSON. Thank you.

Mr. Murphy from Connecticut.

Mr. MURPHY. Thank you, Madam Chair.

I want to continue to pursue the line of questioning from Mr.

Connolly and other members of the committee regarding our current approach to, I guess, supply side enforcement when it comes

to pirated content on the Internet.

I was a little discouraged to hear your critique of demand side’s

restrictions, because I wonder about the efficacy of a strategy that

effectively tries to play whack-a-mole around the world. We are

talking about one guy with a computer that can move his computer, can move his location, can move the site of his hosting entity

from city to city, from country to country. I guess I don’t doubt your

resolve, but as we look at the trend line over the last several years

the amount of pirated content and the number of sites that are

selling them are going in only one direction.

So I guess I will ask this: what tools do you need that you don’t

have now to try to pursue this supply side enforcement policy, and

how worried should I or any of us be about the ability of the people

who are perpetuating these sites to just simply move to a different

place or to take up residence under a different business entity,

given the fact that it is so easy to just put up a new site and take

one down the minute that they sniff that law enforcement is on to

them?

Mr. WEINSTEIN. First, Congressman, I am not suggesting that

enforcement should only be supply side or demand side. I think

that, given limited Federal resources, we can have the greatest impact by pursuing the supply side, by getting the people who doing

exactly what you just described, who are actually the first providers of the online content that is then downloaded by people

throughout the world.

83

You can get the person who is downloading it and making a few

infringing copies, but you haven’t actually made an impact unless

you take down the person who is obtaining it, putting it online, and

making it available.

To your question what do we need, I would say that the greatest

investment of resources that we have made is in this IPLEC program, because with the cost of putting one prosecutor in a foreign

region or foreign country, that person can have an impact on enforcement operations, both trans-national enforcement operations

and enforcement operations in the countries and regions in which

he is operating that go far beyond what that one prosecutor could

do working on even a very full caseload here in the United States.

So it is not an inexpensive program by any means. The cost of

putting a person and his family overseas for an extended period of

time is not small, but we view it as a sound investment in our ability to have a greater impact on the enforcement side not only here

but throughout the world.

In terms of how concerned you should be that someone has the

capacity to basically pick up and move their operations, I would say

there is reason to be concerned about it, but by no means are those

methods of evading detection or evading capture foolproof; in fact,

quite the contrary.

As we have improved our relationships with our foreign partners,

as we have increased our ability to share evidence and to share intelligence and to share information more quickly than we ever have

before, the person who picks up a server and moves it overseas or

moves it from one country to another country overseas is much

more vulnerable than he ever has been before. That is why Attorney General Holder—I said that this was a high priority for him.

Attorney General Holder actually initiated the Department’s first

major IP initiative when he was the Deputy Attorney General back

in 1999, and one of the principles of that initiative that we continue to build on today is the need to engage with our foreign partners so that we can not only have effective law enforcement against

people who are operating in their countries, but so that they can

be more effective in their own countries.

So I think that our determination to get people wherever they

are and to find their servers and to find their assets, wherever they

are in the world, has never been greater, and our capacity to do

it has never been greater.

Mr. MURPHY. So let me ask this: how do I square that with data

showing that the amount of pirated content is greater than ever?

So how do I square your enforcement capacity being greater than

ever with the amount of pirated content continuing to grow?

Mr. WEINSTEIN. Unfortunately, I don’t think that they are inconsistent at all. I think, as I mentioned to Congressman Connolly, I

think the problem is of a magnitude that is far greater than the

resources that are currently available to address it. So we try to

address it as intelligently and strategically as we can, both in

terms of identifying what targets we should pursue in our own enforcement operations, and, as I said, in terms of trying to improve

the ability of our international partners. But it is largely a resource

problem.

84

I think the strategies we have are effective. I think the people

we have doing it are outstanding. But there are not enough of

them. So I think it is a resource issue.

Mr. MURPHY. Thank you, Madam Chair.

Ms. WATSON. Thank you so much.

Now we will call on our distinguished Member from California,

Ms. Jackie Speier.

Ms. SPEIER. Thank you, Madam Chairman.

I guess this is a question for Mr. Weinstein. There is an alarming

number of reported instances where information technology goods

are counterfeited abroad to sell here in America. Can you speak in

general terms of those nations that pose the greatest threat to our

information technology vendor supply chain for counterfeiting and

national security matters?

Mr. WEINSTEIN. Congresswoman, I don’t think I can speak, even

in the most general terms, to the countries that pose the greatest

threat from a national security point of view, but I would be happy

to discuss that with the folks in our national security division and

get back to you with a more detailed answer after the hearing.

What I can say is that the regions that are the greatest concern

to us right now I think are China, obviously, as we discussed earlier, South America, and parts of Africa. And we have tried to devote resources in terms of training and technical assistance to law

enforcement in South Africa, for example, in Brazil, in India, and

in other parts of southeast Asia, and again in China, to try to address that as practically as we can. But I think that the regions

that we are the most concerned about in terms of not just online

piracy but all types of policy would be South America and Africa

and China.

And, as I mentioned earlier, I think those areas that present the

greatest challenge often also present the greatest opportunity, and

some of the law enforcement officials in those countries tend to be

the ones who are the most fully engaged with us and are just as

aware as we are of the extent to which the problem flows through

or arises from the region that they are operating in. So the fact

that there is a great deal of piracy that involves those countries is

not in any way an indictment of the law enforcement officials in

those countries’ commitment to address it; in fact, oftentimes, as I

said, those tend to be our most committed partners.

Ms. SPEIER. All right.

Mr. Yager, thank you for your work on the GAO reports, and I

guess the ones that predated it that created the genesis of the new

legislation. The one area that you keep coming back to is the area

of just human capital and not necessarily committing enough

human capital planning. I guess you are speaking of the operations

abroad. Could you elaborate on that some more and tell us, if you

haven’t already, what more we need to do.

Mr. YAGER. GAO has done a number of reports, as you know, on

human capital planning. We have done some for the State Department. More generally, we have done some for USAID. But in this

context I think one of the things that we learned when we traveled

last summer to visit some of the key locations where intellectual

property crimes are rampant is that having someone in that post

who is full-time on that job, full-time on IP, someone who underVerDate 11-MAY-2000 18:00 Sep 09, 2010 Jkt 000000 PO 00000 Frm 00088 Fmt 6633 Sfmt 6633 U:\DOCS\57791.TXT KATIE PsN: KATIE
85

stood some of the technical issues related to intellectual property

protection, even understanding some of the laws in those host

countries, and having the ability to understand the culture, we

thought that those three particular assets were extremely important.

And where you have that combination, we found, in our discussions with the private sector, that the private sector felt very well

served, and they felt that the U.S. officials could be helpful to them

in making contact, solving problems, in some cases before they became a serious problem, and in some cases solving problems after

it got to the point where they needed to address it with the host

government.

So we certainly found great support for some of the kinds of people that were put abroad recently by the Patent and Trademark Office, but I think one of the other points that we make—and I make

this in my written statement—is that you need the ability to continue to send that set of people with those skills over there, and

agencies that haven’t long had a foreign presence may not be that

deep in terms of having people with the cultural expertise as well

as the technical expertise. So that’s one of the cautions that we

made in the report that we recently released.

Ms. SPEIER. So you looked at four different countries?

Mr. YAGER. That’s right. We went to three countries, four posts.

China, because of the importance of the Guangzhou area, has an

IP attache in that consulate because it is such a larger producer

of goods for the world.

Ms. SPEIER. So where else do we need to have individuals

outposted that we don’t presently?

Mr. YAGER. Of course, it depends on the size of the program. We

know that some places in central Europe are a significant problem.

We know that South America has some, I think what USTR calls

notorious trading areas. There are certainly other places in southeast Asia where you could probably benefit from having additional

personnel. But, again, if the personnel don’t have that unusual

combination of expertise, they will not be as effective as the people

who were first put in those posts.

Ms. SPEIER. But it would seem to me—I see my time has expired—that should be a high priority for us if we are really going

to address this issue long-term, so it might behoove us to identify

those other countries and make sure that there are individuals

with those skills outposted, if you could provide that to us and the

committee.

Thank you, Madam Chair.

Ms. WATSON. Thank you so much.

I would like to thank this panel for your testimony. Now you will

be excused so we can bring up the second panel. Thank you so

very, very much.

We are now going to proceed to the second and final panel. We

will try to get you out of here by noon, and so we have to watch

our own timing, the committee, but now that we have narrowed

down to just three of us, I think we can do that.

It is the policy of the Committee on Oversight and Government

Reform to swear in all witnesses before they testify. I would like

to ask all of you to please stand and raise your right hands.

86

[Witnesses sworn.]

Ms. WATSON. Let the record reflect that the witnesses answered

in the affirmative.

I will now take a moment to introduce our prestigious and distinguished panelists.

I would first like to start with Mr. Dan Glickman, who serves as

the chairman and CEO of the Motion Picture Association of America. Prior to becoming the leading voice for the motion picture industry, and some of my congressional district’s most prominent employers, Mr. Glickman proudly served as a Member of Congress

from the 4th congressional district of Kansas for 18 years, as well

as the Secretary of Agriculture in the Clinton administration.

In addition to his current position with MPAA, he serves on the

boards of the American Film Institute, the Chicago Mercantile Exchange, communities and schools, and the Center for U.S. Global

Engagement. He is also a member of the Genocide Prevention Task

Force, which is chaired by Secretaries Madeleine Albright and Bill

Cohen, and a member of the Council on Foreign Relations, and a

member of the Academy of Motion Pictures, Arts, and Sciences.

Mr. Robert W. Holleyman is the president and chief executive officer of the Business Software Alliance. He is widely known for his

work on policy related issues affecting the technology industry, including intellectual property laws, cyber security, international

trade, and electronic commerce. Before joining BSA, he spent 8

years serving as counsel in the U.S. Senate, and was an attorney

with a leading law firm in Houston, TX.

Mr. Brian Toohey is the senior vice president for international

affairs at the Pharmaceutical Research and Manufacturers of

America [PHARMA]. And prior to joining PHARMA, Mr. Toohey

served in multiple Government affairs roles in the medical device

and telecommunications industry. Before entering the private sector, he served as both a desk officer and Deputy Director in the

Equipment Officers of the U.S. Department of Commerce.

Finally, Mr. Frank Vargo is the vice president for international

affairs at the National Association of Manufacturers. He serves as

its lead lobbyist and spokesman on issues of trade, currency, and

other issues related to global markets and access. And prior to joining them, Mr. Vargo had a three decade trade policy career at the

U.S. Department of Commerce.

Without objection, before proceeding to testimony from our panelists, I would like to submit a statement for the record on behalf of

the Coalition of Music Ministries representatives that include performing artists, publishers, song writers, composers, and record labels. What is telling to me from their testimony is how critical IPR

protection and enforcement is to industry stakeholders across the

entertainment spectrum, including independent artists and major

recording studios, alike. I am proud to have the music industry as

a major constituent in our California’s 33rd Congressional District

and welcome the many cultural and economic contributions they

provide to our Nation.

As I travel abroad and introduce myself as representing Los Angeles, CA, and Culver City, and I get nice nods, but when I say

Hollywood, big smiles. So our industry reaches every corner of the

87

globe and pretty much represents who we are. At least we try to

put forth the movies that represent the true beliefs of America.

So I ask that each of the witnesses now give a brief summary

of their testimony, and to keep this summary under 5 minutes in

duration if possible. Your complete written statements will be included in the hearing record.

Mr. Glickman, I would like to start with you. Welcome.

STATEMENTS OF DAN GLICKMAN, CHAIRMAN AND CHIEF EXECUTIVE OFFICER, MOTION PICTURE ASSOCIATION OF

AMERICA, INC.; ROBERT W. HOLLEYMAN II, PRESIDENT AND

CHIEF EXECUTIVE OFFICER, BUSINESS SOFTWARE ALLIANCE; BRIAN TOOHEY, SENIOR VICE PRESIDENT FOR INTERNATIONAL AFFAIRS, PHARMACEUTICAL RESEARCH AND

MANUFACTURERS OF AMERICA; AND FRANK VARGO, VICE

PRESIDENT, INTERNATIONAL ECONOMIC AFFAIRS, NATIONAL ASSOCIATION OF MANUFACTURERS

STATEMENT OF DAN GLICKMAN

Mr. GLICKMAN. Thank you, Madam Chairwoman. Thank you

very much for your leadership on film and entertainment issues. It

is a great honor for me, after spending 18 years in the House of

Representatives, to come back here and to be in the greatest

deliberative——

Ms. WATSON. Does it feel like home?

Mr. GLICKMAN. It feels like home, and also it makes me yearn

to come back, although I have no intention of going down that road.

But I would say that you all have the greatest jobs in the world,

and you realize it more when you are out, in terms of the impact

that you have on people’s lives.

Ms. WATSON. Well, I understand you will be leaving soon. What

are you going to pursue, if I can get into your private business?

Mr. GLICKMAN. We will talk privately about that afterward.

Ms. WATSON. All right.

Mr. GLICKMAN. And not for a while, so I will still be around.

First of all, let me say that the intellectual property industries

represented by those of us here are so critically important to the

country. In the case of motion pictures, directly and indirectly we

employ about 2.5 million people in this country. We are one of the

few industries that has a positive balance of payment surplus with

every single country in the world we do business with.

The movies and television shows are produced in all 50 States

now, employment in all 50 States. And if you talk about a symbol

of America, entertainment is probably as profound and powerful

symbol of everything to do with our great country. So this is a really important industry and important issue for us, as well. These

jobs are good jobs, high-paying jobs, and important to the country,

as well.

By the way, over half of our revenues are derived from outside

the United States. So what happens in the rest of the world, these

trade issues are life or death for us, because people do love our

product.

So what are the things? I was listening to the work of the Government officials—and, by the way, they have done a very good job.

88

USTR, Justice, the other agencies here, I must say both in the

Bush administration and in the Obama administration have picked

up these issues and the importance of intellectual property right

protection. They can always do more. We talk about that. I am

going to talk about some additional suggestions.

The first thing is we now have a coordinator—and we talked

about that—under the PRO-IP bill. We have an IP coordinator.

This is very important. There is somebody that is accountable, that

we can focus on, that we can go to, and can help lead and marshall

resources and enforcement policy throughout the U.S. Government.

The question now is to make sure that she and her organization

realize the full potential of this position by funding its remaining

elements in the PRO-IP bill, the agents, the enforcement authorities that are provided in that bill.

It is also important that the nomination for Deputy U.S. Trade

Representative for IP be confirmed. Her name is Miriam Sapiro.

She is a critical senior level official in the U.S. Inter-Agency Team.

That position has not been confirmed yet. That’s very important to

get that done.

We have talked about the special 301 process. This is a critical

tool which identifies deficiencies in foreign markets and served as

the administration’s overall road map. Just to give you some idea,

I was over in Spain recently. Spain has very serious problems involving Internet piracy. President Obama met with the president

of Spain, Mr. Zapatero, raised the issue of Internet piracy. Spain

is on the special 301 list and is hot because of that governmentto-government coordination and impact. It has highlighted their

hopeful desire to fix some of the problems that we have here.

We have something called the general system of preferences

[GSP], program, which is intended to offer trade benefits to developing countries, while at the same time protecting U.S. interests.

However, too frequently there is a disconnect between special 301,

which are the countries on our watch list, and trade preference programs, with some of the most egregious offenders of U.S. intellectual property rights receiving preferential access to the U.S. market, despite their longstanding failure to effectively protect U.S.

creativity.

So in my view our foreign policy needs to be more coordinated

and cohesive in this particular resolve. Linking special 301 and

trade preference program eligibility would provide the United

States a powerful enforcement tool.

We have a variety of trade agreements, free trade agreements.

There are three pending right now: Columbia, Korea, and Panama.

We want to work with you and your colleagues to see the three

pending FTAs implemented so that we can benefit from the negotiated IPR obligations of our trading partners. They all involve

IPR. In the case of Korea, there are very significant improvements

in their enforcement of intellectual property as a result of these

trade agreements, and it is something that we think is important

to us.

While not a free trade agreement, the U.S. motion picture industry has a keen interest in the anti-counterfeiting trade agreement

[ACTA], which is in particular dealing with issues of Internet piVerDate 11-MAY-2000 18:00 Sep 09, 2010 Jkt 000000 PO 00000 Frm 00092 Fmt 6633 Sfmt 6633 U:\DOCS\57791.TXT KATIE PsN: KATIE
89

racy. And I would echo the comments that have been made about

having more IPR attaches overseas in our industries.

Above all, I guess my point in all of this is that this is a big, dynamic, important industry for America. It is very much a face of

the soft power of America, our entertainment world. Having you all

engaged in this, having an enforcement team and a trade team in

our U.S. Government engaged in this, we can make real progress

in dealing with what Mr. Bilbray calls the problems of China,

which just keep going and going and going, although there is some

hope for some improvement there. But the fact of the matter is we

have made progress in other places in the world, and we appreciate

your interest in this issue.

[The prepared statement of Mr. Glickman follows:]

90

91

92

93

94

95

Ms. WATSON. Thank you so much. I was just talking to staff. We

are going to plan another hearing where we want you to describe

just what plans have been laid out by this administration and the

enforcement. That is so important. We were just talking about how

we would line up the countries. I think China, No. 1. I mean, they

are expert at stealing our intellectual property. Maybe Russia No.

2. And Nigeria, No. 3 in terms of technology.

So anyway, what we are going to do is hold a hearing, probably

after the first of the year. I just want to let you know what our

plans are.

Mr. Holleyman, you may proceed, please.

STATEMENT OF ROBERT W. HOLLEYMAN II

Mr. HOLLEYMAN. Madam Chairwoman, Mr. Bilbray, I thank you

so much for holding this hearing today. The hearing is about protecting intellectual property rights in the global economy, but this

hearing is also about jobs, it is about health care, it is about education, it is about the environment, and national economic security.

The software industry is helping to provide specific solutions to

each of these national needs. The greatest value of what software

is is what software does. I would like to offer for the record examples of several BSA member companies and the type of software

that they are providing and developing here in the United States

to help us meet these national needs.

Ms. WATSON. Without objection.

Mr. HOLLEYMAN. But we also face a challenge of our own. Theft

of intellectual property, both in the United States and overseas, is

robbing us of resources that we could invest in more innovative solutions. Let me give you a few facts about this industry. It is a $300 billion software and services industry, the largest

copyright industry in the United States and globally. Sixty cents of

every dollar spent on software worldwide inures to U.S.-based companies, and it is a source of American pride, with over 2 million

direct workers and a $36 billion trade surplus.

But all of these benefits are endangered by software theft. The

compelling statistic for today is that software theft reached $53 billion last year. Most software theft occurs when an otherwise legitimate business makes illegitimate copies of software for its use.

When repeated millions of times by businesses and consumers

throughout the world, this has a staggering cumulative effect.

Harms of software theft include lost jobs, industry, and tax revenues, but what has been missing from this equation is the way this

distorts competition. A company that steals business software has

an unfair competitive advantage over an enterprise that pays for

it. Both get roughly equal productivity benefits from the software,

but only one is bearing the legitimate cost.

Software piracy is a problem around the world. It is particularly

acute in many of the fastest growing developing markets that have

disproportionately high rates of piracy.

Let me talk about China. Wherever I travel in the United States

and around the world, the place I am asked about most frequently

is China. In China, only 20 percent of software is paid for. In comparison, in the United States 80 percent is paid for. That means

that there are a whole host of Chinese enterprises that are enjoyVerDate 11-MAY-2000 18:00 Sep 09, 2010 Jkt 000000 PO 00000 Frm 00099 Fmt 6633 Sfmt 6633 U:\DOCS\57791.TXT KATIE PsN: KATIE
96

ing an unfair advantage over their U.S. counterparts. This unfair

advantage is exacerbated by the new industrial policies that threaten to shut out U.S. companies.

Madam Chairwoman, I want to thank you for your comments in

your opening statement, for your questions to the Government witnesses today. Steps by the U.S. Government to ensure that providers of software and other innovative technologies can continue to

have access to China as the fastest-growing market in the world

are critical.

Companies in six critical sectors, from software, telecommunications, and high energy efficiency products were given a December

10th deadline to apply to get on a list of preferred products the

Chinese government will buy. We believe that few, if any, U.S.

companies will qualify unless they turn over their IP to a Chinese

entity. This could amount to a potentially massive transfer of IP,

jobs, and economic power.

Madam Chairwoman, that is a step that is not in our national

interest or in the interest of U.S. companies.

China made this announcement just a few weeks ago. It violates

a series of commitments. The administration is actively pushing

back from this policy, and I urge you and the ranking member to

strengthen their hand by expressing your own opposition to China’s

Ambassador here in Washington. This issue is important not just

to the IT industry, but to a wide range of business and governmental interests in the United States and abroad. And, indeed, I

could add that it is not even in China’s own interest to exclude

their ability to obtain the best products from the United States or

elsewhere.

In closing, I would ask all of us to begin thinking about intellectual property theft in a different way. The problem is more pervasive, it is more complex, and it is more pernicious than it was just

a few years ago.

Quite frankly, I think we need to think of another term other

than the word piracy for this to talk about the breadth and scope

of the problem. It has national implications, national economic implications.

Thank you for holding this very timely hearing.

[The prepared statement of Mr. Holleyman follows:]

97

98

99

100

101

102

103

Ms. WATSON. Thank you, Mr. Holleyman.

Mr. Toohey, you can proceed.

STATEMENT OF BRIAN TOOHEY

Mr. TOOHEY. Thank you, Madam Chairwoman, thank you, Mr.

Bilbray, for the opportunity to be here this morning.

First let me just say I absolutely agree with Secretary Glickman’s and Mr. Holleyman’s statements about the importance of IP

intensive industries. According to the Commerce Department, currently driving over 50 percent of our exports and 40 percent of our

growth here in the United States. Very important economic industries.

PHARMA’s member companies are innovators devoted to developing medicines that allow patients to live longer, healthier, and

more productive lives. PHARMA’s membership ranges in size from

small startup research firms to corporations that employ tens of

thousands of Americans and encompass both pharmaceutical and

biotechnology companies.

The research-based pharmaceutical sector is one of the most

knowledge-intensive enterprises of the U.S. economy. In 2008, our

sector invested over $65 billion in research and development, and

of that amount about 70 percent was invested here in the United

States. The pharmaceutical industry supports more than 3 million

jobs and directly employs nearly 700,000 Americans.

To foster continued economic growth and deliver breakthroughs,

our sector relies on policies that promote and protect pharmaceutical innovation, especially complementary protections of patents and data protections.

Our companies face significant challenges to the discovery, development, and commercialization of new medicines. Adequate protection of intellectual property, both within and outside the United

States, is essential for continued advances against challenging and

costly diseases. In addition, access to international markets is critical to ensuring that these products reach as many patients as possible.

In that regard, PHARMA members especially appreciate the continuing strong efforts of USTR, State, Commerce, and PTO to promote compliance with international obligations by our trading partners.

PHARMA member companies also undertake significant research, both privately and through public/private partnerships, to

develop medicines that disproportionately affect poor countries.

In addition to research in this area, in recent years our industry

has donated more than $9 billion to access the medicines programs,

more than the entire foreign aid budget of countries like Canada

or the Netherlands, and provided enough health interventions to

help 1.7 billion people in the developing world.

Currently, nearly 3,000 medicines are under development, including 300 medicines for rare diseases, 750 for cancers, and 109

to fight HIV/AIDS. A recent Tufts study estimated that the cost of

developing a new medicine at over $1.2 billion a year, and for every

approximately 10,000 compounds that enter the R&D pipeline,

eventually only one comes to market, and can take as long as 15

years.

104

Two complementary legal mechanisms, in particular, provide periods of exclusive marketing for new therapies. These mechanisms

are essential to attract investment needed to fund the R&D process. First, patents protect inventions made in the course of research and development by giving the innovator the right to prevent the unauthorized use of inventions for a defined period of

time. Second, data protection has proven essential. Clinical data

represents the investment in conducting the rigorous, lengthy preclinical and clinical studies that the FDA requires.

One of our concessions made by the United States in the TRIPS

agreement was to provide developing countries with a number of

extended transition periods to implement new standards. As of

2005, all but the least-developed countries were required to comply

with provisions of TRIPS. Many of these trading partners have

benefited tremendously from the openness of our market and the

industries that aggressively compete with our own. Yet even now

many of these countries have not fully met their TRIPS obligations

to provide effective IP protection.

Another important area of concern which was discussed earlier

is counterfeit drugs. Weak regulatory and IP enforcement regimes

in some countries contribute to this problem, which increase health

risks to patients.

In addition to the failure to meet IP obligations, many countries

erect barriers to reduce the access of our products. Clearly, these

restrictions adversely affect the health of patients in their countries, while they also have potential negative effects on the United

States and consumers worldwide.

We believe it is critical for the U.S. Government to take action

against measures that prevent fair and equitable market access for

our products. PHARMA members believe the special 301 process is

a particularly useful trade tools through which these barriers and

priority markets can be removed. In addition to special 301, the administration should use all available trade tools, including bilateral

and multilateral trade negotiations, to pursue a positive agenda on

pharmaceutical trade.

For example, the U.S.-Korea Free Trade Agreement or negotiations included provisions on pharmaceuticals and specific steps to

improve the transparency and accountability of the pricing and reimbursement listing process. We urge the administration to build

on this success and include similar provisions and agreements with

future trading partners.

Thank you again for the opportunity to speak with you today.

PHARMA and its member companies believe it is crucial for this

subcommittee and the Government, as a whole, to foster incentives

for innovation both United States and abroad.

Thank you very much.

[The prepared statement of Mr. Toohey follows:]

105

106

107

108

109

110

111

112

113

114

115

116

117

118

119

120

121

122

123

124

125

Ms. WATSON. Thank you, Mr. Toohey.

Mr. Vargo.

STATEMENT OF FRANK VARGO

Mr. VARGO. Thank you, Madam Chairwoman and Mr. Bilbray.

The NAM is all about manufacturing in America. We are still the

world’s largest manufacturer. We make, believe it or not, one out

of every $5 of everything made and manufactured in the whole

world.

But we are under a lot of challenges and a lot of threats, and

the most serious truly is the threat to the protection of intellectual

property. The United States is never going to be the world’s lowcost producer, nor would we want to be. We want to be the hightech producer, the high-value-added producer, but we have to have

protection of patents, trademarks, copyrights, and those are under

real, real threat right now through what I call the three Cs: counterfeiting, compulsory licensing, and China. Let me just say a few

words about each.

The administration has and the previous administration have

done a good job in increasing enforcement and trying to intercept

counterfeited goods. More resources are going on. Having Victoria

Espinel, who everybody in the trade community knows and thinks

is just a fantastic choice, is very, very helpful. But there has been

a major step backward that nobody has mentioned as yet, and I do

want to focus on, because it may require legislation. When I first

heard of this I couldn’t believe it.

What Customs officials do when they suspect a counterfeit shipment is, logically, contact the trademark holder or the patent holder and send photographs or descriptions and say is this your product. Well, the Customs and Border Protection legal office recently

sent a notification to Customs agents saying you can’t do that any

more. You cannot custom the rights owners with photos or descriptions of suspected counterfeit products because this could allow facing of liability under the Trade Secrets Act.

Now, to me this is ridiculous, and if there is, indeed, some legal

conflict here I hope this subcommittee will look into it, and if we

need legislation let’s do it. This can undo all the good. You know,

if a Customs official if prohibited from contacting, say, the Square

D Co., which makes excellent circuit breakers, because they suspect

that there is a shipment of counterfeit circuit breakers—are these

real, did you bring these in—but if they are prohibited from doing

that, believe me, the interception of counterfeit goods in the United

States is going to come way down. I think this is an extremely serious problem.

Compulsory licensing: the country of Ecuador, for example, is

saying now we need U.S. agricultural chemicals, so we are going

to just force, we will steal the technology. There are countries talking about global climate change are saying well, you know, if you

want us to participate in improving the environment, you have to

give us the technology. This technology costs billions and billions

to develop, and the even better technologies of the future are going

to require more billions. Where does this come from? It comes from

the flow of funds by having U.S. companies marketing around the

world.

126

What these countries need to do is not say we want to steal your

technology, but what they need to do first is to join in the idea the

United States has promoted, that look, there should be an environmental goods and services agreement globally. What sense does it

make for countries to put 20 or 40 or 60 percent import duties on

clean climate technologies. You know, let’s get rid of government

interference there and let them take it from there.

Then China. Based on Customs data, we can estimate that 80

percent of the counterfeit goods in the world are made in China.

China joined the WTO in 2001 and promised that they would provide an effective deterrent against counterfeiting. An effective deterrent. That means they were going to stop it.

Now 8 years later they haven’t done it. They still don’t have the

laws necessary to criminalize counterfeiting. It is an administrative

procedure, you get a slap on the hand, you move across the street,

and you are back in business. They have not cracked down on the

corruption in the provinces, where frequently you have local leaders in cahoots with the counterfeiters. Enough is enough. This has

to be accelerated. China Customs has to start intercepting the export of counterfeit goods.

And then China comes along with the indigenous innovation

product accreditation system, saying, you know, we are tired of

using American technologies and British technologies and Japanese

and others. We want Chinese. And the best way to do that is to

take our enormous government procurement market and close it

off. So only indigenous Chinese technologies, those developed in

China and owned by Chinese, and that were originally registered

in China, will be able to participate in the Chinese government

market. Well, you know, that is blatant protectionism. That is what

the whole world trading system is designed to stop.

Now, on top of that, it was only a couple of months ago that

China solemnly promised in the Joint Commission of Commerce

and Trade statement, that China will require that products produced in China by foreign enterprises will be treated equally with

domestic products. Well, you know, I guess that promise was good

only for 3 months.

Anyway, this is a very, very serious challenge. This could be the

most serious challenge to U.S. manufacturing ever faced. So I commend you for this hearing. Please stay on top with the NAM will.

The best way to solve this, of course, is in a collegial way with the

Chinese government, and we certainly hope that works, but one

way or another this is unacceptable.

Thank you.

[The prepared statement of Mr. Vargo follows:]

127

128

129

130

131

132

133

134

135

136

137

138

Ms. WATSON. I would like to thank all the witnesses for your

very informative testimony.

I would like to raise some questions, first with Mr. Holleyman.

I want to continue on this issue that we have been referring to,

China’s proposed regulation on what is being called the national indigenous innovation products.

Is my understanding correct that these regulations will require

your members to partner with or transfer their IPR to Chinese industry in order to qualify for government procurement programs?

Mr. HOLLEYMAN. Madam Chairwoman, that’s the perfect question, and this issue is moving so quickly. Fortunately, the U.S.

Government team has mobilized very quickly to counter this. But

yes, that certainly is the intent of those regulations, that something

would have to be completely indigenous to China, which would require the transfer of IP. It is certainly not clear that any of my

members could ever——

Ms. WATSON. What type of products?

Mr. HOLLEYMAN. Well, there are six categories: computer applications and devices, communications products, modernized office

equipment, software, new energy and equipment, and highly energy efficient products, and the understanding is this will be rolled

out across a very broad sector of products, starting with these. And

so it is not clear that any U.S. company could qualify or will make

the type of concessions that the Chinese are seeking, so this will

effectively exclude them from the market and certainly give hard

preferences to whatever indigenous innovation occurs.

Ms. WATSON. Are there other proposals still under consideration?

Mr. HOLLEYMAN. Still under consideration. As with all things in

China, it is not completely explicit and clear until it is seen, and

in this case it moves very quickly, but the business community not

only here but in Europe, elsewhere in Asia and Latin America, and

governments understand that this could be sweeping in scope, and

what we need is this to be rolled back while there are further discussions with the United States, the E.U., and other major trading

partners.

Ms. WATSON. Are we still partnering, discussing partnering in

terms of the membership of China with the WTO?

Mr. HOLLEYMAN. Well, they have made a commitment that they

will join the government procurement agreement as part of the

WTO. They did it when they entered the WTO. They have made

it in JCC to commitments to the United States and we believe that

this action is contrary to the spirit of those commitments. in addition, it will have a dramatic exclusionary effect for companies.

Ms. WATSON. Now, do you think it would be helpful for us here

on this subcommittee to assist you in engaging our Federal agencies or China’s diplomatic representatives here in Washington on

these matters?

Mr. HOLLEYMAN. Absolutely. I think that an outreach by this

committee, you as the Chairwoman and Mr. Bilbray, directly to the

Chinese Ambassador urging cooperation and trying to hold these

off for pending further discussions will be useful.

I know that the issue is now getting the highest level of attention

within the U.S. Government. One of our CEOs raised it at the

President’s job summit last week because not only does this take

139

away the potential for job growth for American companies and software and other industries in China, but it could cost the loss of

jobs that we currently have today if that large market is shut out

for further procurements.

Ms. WATSON. Our ranking member, Mr. Bilbray, has questions.

Mr. BILBRAY. Thank you.

Congressman, thank you very much for broaching the issue that

there needs to be a nexus between trade agreements and intellectual property. I think, looking at the lack of oversight in trade

agreements in the past create a situation like what we have right

now with Colombia, and especially Panama, where we have still

got that trade agreement hanging out there. And I see why people

are skeptical of trade agreements, because they look at the history

of not maintaining some level playing field.

And it really does hurt when you have a gray proposal, like we

have with Panama, that they want to buy our bulldozers, Mr.

Vargo. They want to build a canal with American equipment, and

Washington’s political structure is holding this up, when boy, I tell

you, if there was any agreement that I saw that should be a matter

of signing, that was one. But because of the lack of nexus, we are

not doing enforcement.

Now, the Korean situation to me is as close to a parallel, could

become a parallel, as China as we see on the horizon. The question

is: is it just because, as we would say, too big to fail, that China

is too big to confront now, that we are confronted with an 80 percent of world pirating coming out of one political agency.

And we can’t say that they are not willing to do enforcement. We

saw how effective they were with the milk tainting situation. Instead of giving them AIG pay raises, they take people out in the

back yard. But you want to clarify exactly how we could be a little

tougher on this?

Mr. GLICKMAN. First of all, that’s a great question. I mentioned

this before. We have this conflict because we have these countries

on our special 301 list, and yet the same countries are on our general preference list.

Mr. BILBRAY. Right.

Mr. GLICKMAN. One, for example, is Russia. Eight years ago the

U.S. industry submitted a petition to suspend GSP benefits for

Russia, which has been on the priority watch list for the last 12

years, which has some of the highest piracy in the world; however,

no action has been taken on the petition, and copyright piracy

rages in Russia. Ironically, Russia is one of the fastest growing

legal markets, as well, for U.S. products. So these are, as you can

imagine, very complicated issues.

China, my friend Robert talked a bit about China. We, of course,

filed a WTO case against China for basically inadequate intellectual property enforcement. We largely won that case. The Chinese

are going to be appealing that case. And I think one of the things

that is helping us now more than what we faced in the past is the

rest of the world is coming along with us now.

If it were viewed just as the United States versus China, we will

probably wait for another 250 years to get really anything done.

But if it is the rest of the world involved in this case, if they join

with us on the manufacturing sectors, the pharmaceutical sectors,

140

the automobile sectors, the entertainment sectors, and at agriculture sectors, then I think that we can have some impact.

They are in the WTO now, and one positive sign I see out of

China for the first time is a great entrepreneurial class that is

building that wants to protect their own intellectual property and

see themselves victims of an arbitrary government action in this

regard. But it is not easy and there is no simple solution except

pressure at all levels, from the public sector and the private sector.

It has had some impacts on other parts of the world; it has not yet

had dramatic impact in China. There is no question about it.

Mr. BILBRAY. Is the European Union backing us up on this now?

Mr. GLICKMAN. They are beginning to back us up a lot more than

they used to be. For example, you know, for a while they let us

fight the battles for them, as they often——

Mr. BILBRAY. Europe has gotten into that habit.

Mr. GLICKMAN. But now, I mean, Europe and the United States

share many of the same perspectives on manufacturing and intellectual property issues. In the film issue, for example, there is a

quota. China will only import 20 foreign films a year under what

you call normal revenue sharing agreements. The United States

has maybe 13 or 14 of those, and the rest of the world has 6 or

7 of those. Of course, you can find any movie ever made in the history of the world on the streets of China, as well. But the Europeans are beginning to join us on those issues, as well.

By the way, the Europeans are making their own positive movement in the area of piracy. You mentioned both France, U.K., that

are moving ahead, particularly in the area of Internet piracy. That

is a positive sign, not only for themselves but also how it relates

to places like China that we have seen very little movement in the

past.

Mr. BILBRAY. Now, let’s get back to this, though, this nexus between if you want to be our first class trading partner you have

to be responsible to the intellectual property issue. I see this as a

major issue. I have scientists that have developed new, you know,

genetically altered algaes that can produce diesel gasoline and

jetco. This is going to be a big deal in the next 20 years. Have we

made that nexus? Are we tying those together? Are we welding

them together to where you can’t play one game here and then expect to play the other game over here?

Mr. GLICKMAN. I think it requires, quite frankly, much greater

attention to the inconsistencies that exist in the world trading situation, and for the U.S. Government to be a lot more consistent in

its own approach.

I realize there are a lot of political issues here that you have to

deal with country-by-country, but the disconnect, just the Russia

example I have given you, and there are a lot of others in there

where we kind of turn a blind eye on some things for maybe political reasons and our trade agenda suffers. That is something that

we really need to move away from.

Mr. BILBRAY. And I worry about it, Madam Chair, that the fact

is the big guys get away with murder while the little guys like

Panama are waiting in hand with everything we have ever asked

from them, but because they are so little we don’t want to bother

with the negotiations, and I just think it sends a really wrong mesVerDate 11-MAY-2000 18:00 Sep 09, 2010 Jkt 000000 PO 00000 Frm 00144 Fmt 6633 Sfmt 6633 U:\DOCS\57791.TXT KATIE PsN: KATIE
141

sage. I think any parent would never accept the same thing in

their family, and I don’t think in the international community we

should accept it, either.

Thank you very much.

Ms. WATSON. Thank you.

Ms. Chu.

Ms. CHU. Mr. Toohey, California is home to many research institutions from well respected universities to biotech firms. In fact,

the State is home to 2,042 biomed companies. In fact, the California biomed industry has grown from ideas first germinated in the

State’s first universities and has flourished through entrepreneurial commitment and investor financing to create a very strong industry that has led to breakthrough technologies and therapies

that have helped patients around the world. These businesses create high-paying jobs and keep more than 270,000 Californians employed. All of this is dependent on patent protection that is strong.

How do the needs of the pharmaceutical industry compare to

that of the biotech and research universities? What are the areas

where you agree with regard to patent requirement? Where do they

diverge?

Mr. TOOHEY. Well, first of all, Congresswoman, I absolutely agree

with the importance to California and the leading role that California has played with respect to biomedical innovation and it is a

growing engine for the industry and for the world and it needs to

be protected.

Patents and data protection and the whole suite of protections

available for biomedical innovations are critical. They are critical

to universities. They are critical to innovative companies. But we

are finding in many cases that these patents are not really respected around the world. I believe we share very much with biomedical universities the same concerns about the protection of patents and the protection of test data protection.

You know, I would appreciate the opportunity perhaps to discuss

a little bit more with some colleagues and get a more complete answer back to you about some of the areas and ways we have

worked with some of the California biomedical universities. But as

I understand it, we very much share the concerns that countries

around the world need to enforce patents, need to provide appropriate protection for our clinical data. And in many cases that is

not happening. The United States really leads the world in its protection, and we are finding that countries, even developed countries, are not allowing the protection of IP and market access in

order for all patients to be able to receive their medicines.

Ms. CHU. Thank you.

Mr. Glickman, many of my constituents work in the film industry, either in set design, editing, or even acting. I know how important a strong and robust film industry is to them, not to mention

to the overall U.S. economy. I know the industry is working hard

with international governments and the Federal Government here

at home to ensure that intellectual property laws are adequately

enforced.

Just yesterday your organization was successful in helping to put

an end to a notorious illegal Web site that was being operated in

China after a 2-year-long Government investigation. This convicVerDate 11-MAY-2000 18:00 Sep 09, 2010 Jkt 000000 PO 00000 Frm 00145 Fmt 6633 Sfmt 6633 U:\DOCS\57791.TXT KATIE PsN: KATIE
142

tion of a Chinese couple is the most recent that you have successfully brought against copyright infringers on mainland China.

What can we learn from other countries? I know we talked a lot

about China and how badly they are protecting, but are there examples that are both good and bad of how we can improve our enforcement system here at home?

Mr. GLICKMAN. That’s a very good question. First of all, I don’t

want to say it is 100 percent bad in China. After we filed the WTO

case, the Chinese resisted, but there have been some improvements

of training of IP judges. There has been some enforcement improvement. I would call it not material yet, but better than it was 5

years ago. But there is a lot of great stuff. So the pressure stays

on and what we find is the more the Chinese develop an indigenous

film industry of local producers, local actors, local directors, their

stuff is getting pirated all over the place in China, just like our

stuff is getting pirated. So the more we are all in this together, the

better they, as well as us, see the need to protect intellectual property.

You go into these stores, there is a store in Shanghai called the

Oscar Club. It is about 95 percent pirated stuff. Most beautiful

video store you have ever seen in your life. It is not just American

stuff. It has as much Chinese stuff as almost anything else. It has

French. It has south Asian. It has everything else. So the more we

can get the Chinese creative community involved, the better we

are.

But other countries are also taking a very strong lead, particularly in Internet piracy. The French have adopted a system of graduated responses where they try to educate consumers, and then if

they can’t get them educated then they give the Internet service

provider a mandate to take more forceful action. Other countries

around the world are following that model.

We in our country, we are working with the Internet service providers very diligently to get them to do the same kind of thing that

is permitted under something called the Digital Millennium Copyright Act [DMCA] in which all of this is done. But this is a worldwide battle waged everywhere in the world, but there are two positive things that have happened that I must tell you. One is this

used to be a music and movies issue. This is a comprehensive,

worldwide manufacturing, software, pharmaceutical, automobile,

and everything, and for the first time in the last 4 or 5 years we

are all working on this thing as an American issue. It is a gigantic

American issue.

Then, in terms of the movie industry, we now have our unions,

our guilds, the folks who actually work in the trenches all the time

making these movies, as much involved with us—the Directors

Guild, the Screen Actors Guild, and others, the Theater—well, all

the organizations that are there. So we are finally beginning to get

some political clout, both with respect to American industry generally as well as within our own industry.

There is a lot of perception out there that our business is big

movie stars and that’s it. Of the people, 99.9 percent make less

than $100,000 a year. They work very hard. They support their

families. They are the people that Chairwoman Watson, I am sure,

that occupies her District by and large.

143

So with that you try and develop the political clout to be able to

show that this is important to our Government as well as governments around the world.

I don’t want to make this all the voice of gloom and doom. I think

there is a growing political clout to take this on as a very monumentally serious economic issue to this country. I hope we can get

your help, which we have, and the help of our U.S. Government

representatives to keep the fight going.

Ms. WATSON. I would like to conclude with throwing this question out to all of you, and then specifically being that we are in the

kind of financial crisis as a Government that we are in, would your

industries that are represented here at the table be willing to contribute financially to our efforts as the Government through a dedicated tax or users fee? So if you have recommendations that have

not been mentioned, would you comment on those and let us know

how we can pay, how you can help us to be able to bring these recommendations to fruition. Let’s start with Mr. Holleyman.

Mr. HOLLEYMAN. Madam Chairwoman, I think the question for

us is how do we drive more American jobs through protecting IP

here and abroad. I think that companies in BSA are spending tens

of millions of dollars a year independently and through organizations like BSA to do this. I think that a tax to cover this could be

misused in other markets as a subterfuge for diverting resources

into funds that were not focused on IP enforcement.

So I don’t think the tax mechanism, certainly in the current climate, is the way to do it. I think it is a will. I think it is getting

the new people in place who are now getting in place, and the support of this Congress to ensure that agencies understand this is an

issue of American jobs and American innovation.

Mr. VARGO. Madam Chairwoman, American manufacturing is already the most heavily taxed in the world. That’s one of the major

problems that we face, along with theft of intellectual property. So

I would not see this as a way to go ahead. But there is so much

more the Government can do, both through coordination and

through the trade agreements.

Mr. Bilbray mentioned Panama. He is exactly right. The NAM

likes these trade agreements because we have a manufactured

goods trade surplus. We think NAFTA, CAFTA, Australia, and the

rest together, last year we sold $21 billion more in manufactured

goods than we bought, so we need more of these. The Government

can do more to advance these. Every day that the Colombia, Panama, and other agreements languish costs us jobs. It costs us revenues.

Enforcement of trade agreements, this administration is doing a

good job with accelerating that.

Ms. WATSON. Mr. Toohey.

Mr. TOOHEY. Well, as has already been stated, innovation is critical to the future of this country, and protecting innovation ought

to be a core function of what the U.S. Government does. I think in

some cases countries around the world think differently about intellectual property. Intellectual property is the only right contained

in the main body of the U.S. Constitution. Article I, Clause VIII,

Section VIII, it is the only right. We have it so much in the soul

144

of our country, which allows us to really lead in innovation, and

many countries around the world simply don’t share that view.

We as the pharmaceutical industry have worked proactively and

in many cases with partnerships with organizations like PTO and

the State Department to train judges in Latin America, to train

patent examiners in China, to build that capacity. I think it is a

cooperation that we need to do more of, and it is the right type of

capacity building that we are engaged in. But protecting innovation

ought to be a core function of the U.S. Government.

Ms. WATSON. Mr. Bilbray.

Mr. BILBRAY. Yes. I appreciate your bringing that up, because I

think that is one thing we don’t teach our children or our Members

of Congress enough, about the intellectual property issue, that everything that we looked at what happened after 1800 in this country and how we basically moved on and beyond our mother country,

which was the industrial base, countries like Germany and Britain

had a big head start.

But intellectual property allowed us to evolve. That’s where we

did get the Carnegies. That’s where we did get new processing for

creating steel. That’s where the railroad systems were totally renovated by the Americans. That’s where the automobile was evolved.

All of the prosperity that we see in capitalism we have to understand was based on the fact that intellectual property protection,

that Government’s place in this great economic boom was to protect

those intellectual properties so that there was the return for the investment in developing these new concepts.

I think we grossly underestimate that, and I am glad you

brought up the fact that before there was the Bill of Rights, before

we articulated the rights of individuals to do and speak and possess certain things, the right to possess and protection your intellectual property was in our Constitution before all those other

rights were enumerated, and that is an essential thing that we

don’t articulate enough either in our classrooms or in the halls of

Congress.

Thank you very much.

Ms. WATSON. And Mr. Glickman, we are going to give you the

final word. Since you represent an industry in my District, we will

give you the final word.

Mr. GLICKMAN. I just concur with what my colleagues have said.

This is a matter that affects the general economy of the country,

so I think that if we go down the road of doing special assessments

and special taxes for issues that affect——

Ms. WATSON. Or user fees.

Mr. GLICKMAN. Or even user fees for items that affect the country as a whole, then, you know, you could probably fund the Government just by nothing else but special assessments, special user

fees. So I think the question here is resources, but it is also a question of will. It is also a question of commitment.

What is so great about your hearing today is that the message

that is being shouted out from you all is that we need to sustain

this will to take this problem on, and I can tell you from an industry’s perspective we are getting our act together, without question.

Ms. WATSON. I appreciate that.

145

I just want all of you in the audience to know this is a very critical issue, and this won’t be the last hearing, as I mentioned before.

We are going to followup. We want to know what is being done in

Government. We have a theory of pay-go, and we have a huge debt.

China becomes the central focus, Mr. Vargo, as you mentioned

among your three Cs, politically. We need their assistance in dealing with North Korea and so on, the largest nation in population

on the globe, and so it presents some unique challenges to us.

But we are on it. The political will is there. We are going to continue to pursue it until we get some resolutions that are workable.

With that, thank you for your testimony panel two. Thank you

for the audience being here. We will adjourn the meeting.

[Whereupon, at 12:30 p.m., the subcommittee was adjourned.]

[The prepared statement of Hon. Christopher S. Murphy follows:]

146

147

Æ