Intellectual property has become a critical component of our country’s economy, accounting for an average of 18 percent of the U.S. gross domestic product from 1998 through 2003. Industries that rely on IP protection—including the aerospace, automotive, computer, pharmaceutical, semiconductor, motion picture, and recording industries—are estimated to have accounted for 26 percent of the annual real gross domestic product growth rate during this period and about 40 percent of U.S. exports of goods and services in 2003 through 2004. Further, they are among the highest-paying employers in the country, representing an estimated 18 million workers or 13 percent of the labor force. The economic value of IP-protected goods makes them attractive targets for criminal networks. Criminal activities have negative effects for U.S. innovation and investment, the value and reputation of individual companies, and consumers who are put at risk by substandard or dangerous products. Such activity is inherently difficult to measure, but the Organization for Economic Cooperation and Development recently estimated that international trade in counterfeit and pirated products in 2005 could have been up to $200 billion. According to industry groups, a broad range of IP-protected products are subject to being counterfeited or pirated, from luxury goods and brand name apparel to computer software and digital media to food and medicine. Evidence of counterfeiting in industries whose products have a public health or safety component, such as auto and airline parts; electrical, health, and beauty products; batteries; pharmaceuticals; and infant formula, presents a significant concern. The World Health Organization estimates that as much as 10 percent of medicines sold worldwide are believed to be counterfeit, including essential medicines such as vaccines, antimalarials, and human immunodeficiency virus therapies. The federal government plays a key role in granting protection for and enforcing IP rights. It grants protection by approving patents or registering copyrights and trademarks. It enforces IP rights by taking actions against those accused of theft or misuse. Enforcement actions include both civil and criminal penalties. U.S. laws criminalize certain types of IP violations, primarily copyright and trademark violations, and authorize incarceration or fines. These laws are directed primarily toward those who knowingly produce and distribute IP-infringing goods, rather than those who consume such goods. Although U.S. laws do not treat patent violations as a crime, the federal government does take actions to protect patents and authorizes civil enforcement actions against infringers. See appendix II for a detailed list of the U.S. laws that grant IP protection and the criminal and civil penalties that federal law enforcement agencies are authorized to impose. Protection is also provided by the U.S. International Trade Commission, which investigates allegations of unfair import practices that commonly involve claims of patent or trademark infringement. For example, in January 2007, the commission issued an “exclusion order” to cease importation of certain types of laminated floor panels that it found infringed on three U.S. patents. Exclusion orders direct CBP to stop certain goods from entering the United States while the order is in effect. The commission is also authorized to take other actions, such as issuing “cease and desist” orders to those engaging in unfair import practices or assessing civil penalties. Congress has supported several interagency mechanisms to coordinate federal IP law enforcement efforts. In 1999, Congress created the interagency NIPLECC as a mechanism to coordinate U.S. law enforcement efforts to protect and enforce IP rights in the United States and abroad. Officials from seven federal entities are members of NIPLECC. A presidential initiative, called the Strategy Targeting Organized Piracy (STOP), is the council’s strategy, and it articulates five broad goals. From 2001, Congress supported the creation of the National Intellectual Property Rights Coordination Center, another interagency mechanism that aims to improve federal IP enforcement and coordinate investigative efforts between ICE and FBI (discussed in detail later in this report). For the five key federal agencies with IP enforcement roles, such enforcement is not a top priority for most of them, and determining their resource allocations to IP enforcement is challenging. These agencies’ IP enforcement functions include: (1) seizing IP infringing goods; (2) conducting investigations; and (3) prosecuting alleged violations. The overall aim of U.S. government efforts is to stop trade in counterfeit and pirated goods, and the three functions each present some degree of deterrent. The key law enforcement agencies—CBP, ICE, FBI, and DOJ— have broad missions with many competing responsibilities, and their IP enforcement role is not generally their highest priority, while FDA’s primary mission is to protect public health. We were not able to identify the total resources allocated to IP enforcement across the agencies because few staff are dedicated solely to IP enforcement, and only certain agencies track the time spent on IP criminal investigations by non- dedicated staff who carry out this function. The information we were able to compile shows declines in IP enforcement resources in several agencies, and fluctuating or growing resource allocations to IP enforcement in others. Because federal IP enforcement roles are interdependent—seizures may launch or contribute to investigations, and investigations may lead to prosecutions—the emphasis placed on enforcement of IP at one agency or field office can impact the IP enforcement efforts of others. Key federal agencies carry out three IP enforcement functions. Seizing IP infringing goods is primarily performed by CBP. IP-related investigations are performed by agencies located in three different departments. Prosecuting IP crimes is carried out by two different entities within DOJ. Figure 1 identifies the IP enforcement functions and the structure, including the departments and agencies, in which they are performed. The four key federal law enforcement agencies and FDA have broad missions and many responsibilities, and IP enforcement is not a top priority at most agencies. CBP and ICE address IP enforcement as part of their legacy efforts to combat commercial fraud, but their top mission is securing the homeland. DOJ identifies IP enforcement as one of its top priorities, but FBI does not. FDA’s role is driven by its public health and safety mission, not IP enforcement per se. Regardless of the priority ranking agencies assign to IP enforcement, within their IP enforcement efforts, they have all given priority to IP-related crimes that pose risks to public health and safety. Staff in agency headquarters play a role in setting IP enforcement policies and, at some agencies, carry out certain IP enforcement actions, but most enforcement activity takes place at the field office level. Each field office faces a unique set of challenges in its local environment, balancing IP enforcement efforts with other agency priorities. Several companies and associations we interviewed remarked that the federal IP enforcement structure is not clear. For example, one association remarked that agency responsibilities are unclear and may overlap, while another said that there is no formal process for referring cases for federal action. This structure was seen as especially challenging for small companies who need federal assistance but lack the resources or expertise to navigate the federal system. Additional information on private sector views about federal IP enforcement is contained in appendix III. Information is presented below on each agency’s IP enforcement function, the priority assigned to IP enforcement, and the structure within which such enforcement is carried out. Function: CBP is the primary federal agency authorized to seize goods, including IP-infringing goods, upon their arrival in the United States. CBP is also responsible for preventing the entry of goods into the United States that are subject to exclusion orders and assesses penalties against IP infringers when warranted. Priorities: CBP’s primary mission is to protect the homeland. CBP is also responsible for carrying out its legacy Customs functions, including trade enforcement. CBP has identified six Priority Trade Issues, one of which is IP enforcement. Within its IP enforcement efforts, CBP gives priority to large value seizures and violations that affect public health and safety or economic security or that have ties to terrorist activity. Structure: CBP’s Office of International Trade develops IP enforcement policies and plans, develops national instructions for targeting shipments suspected of carrying IP-infringing goods, writes guidance for assessing penalties and enforcing exclusion orders, and maintains data on IP-related seizures. The Office of Field Operations oversees implementation of these policies and procedures at 325 U.S. ports of entry. While much of CBP’s IP enforcement activity is carried out by the ports, headquarters staff play an integral role in supporting those efforts, including providing policy and guidance on enforcement priorities and developing systems and technologies to enhance enforcement. Function: ICE conducts investigations of IP-related criminal activity, including infringement of trademark and copyright law. Priorities: ICE’s primary mission is to protect the homeland. It is also responsible for combating commercial fraud, which includes IP enforcement. ICE’s interim agency-wide strategic plan and its plan for commercial fraud are law enforcement sensitive and not available to the public. However, according to ICE officials, the top priorities within commercial fraud enforcement are public health and safety violations and IP infringement. Structure: Within ICE’s Office of Investigations, the Critical Infrastructure and Fraud Division develops the agency’s IP policies and oversees its IP enforcement efforts. The division’s IP responsibilities are handled by the Branch for Commercial Fraud and Intellectual Property Rights, which also houses the National Intellectual Property Rights Coordination Center. Although the center is officially an interagency coordination body, it plays a lead role in developing and carrying out ICE’s IP enforcement policies. In addition, ICE has a Cyber Crimes Center that focuses on Internet-based crimes, including IP piracy, and provides referrals and investigative assistance to ICE’s field offices. IP investigations are carried out by agents located in about 100 U.S. cities, organized under ICE’s 26 field offices. Function: FBI conducts investigations of IP-related criminal activity, including infringement of trademark and copyright law, as well as theft of trade secrets.