[Senate Hearing 109-852]
[From the U.S. Government Publishing Office]
S. Hrg. 109-852
STOP!: A PROGRESS REPORT ON PROTECTING AND ENFORCING INTELLECTUAL
PROPERTY RIGHTS HERE AND ABROAD
=======================================================================
HEARING
before the
OVERSIGHT OF GOVERNMENT MANAGEMENT,
THE FEDERAL WORKFORCE AND THE DISTRICT
OF COLUMBIA SUBCOMMITTEE
of the
COMMITTEE ON
HOMELAND SECURITY AND
GOVERNMENTAL AFFAIRS
UNITED STATES SENATE
ONE HUNDRED NINTH CONGRESS
SECOND SESSION
__________
JULY 26, 2006
__________
Printed for the use of the Committee on Homeland Security
and Governmental Affairs
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COMMITTEE ON HOMELAND SECURITY AND GOVERNMENTAL AFFAIRS
SUSAN M. COLLINS, Maine, Chairman
TED STEVENS, Alaska JOSEPH I. LIEBERMAN, Connecticut
GEORGE V. VOINOVICH, Ohio CARL LEVIN, Michigan
NORM COLEMAN, Minnesota DANIEL K. AKAKA, Hawaii
TOM COBURN, Oklahoma THOMAS R. CARPER, Delaware
LINCOLN D. CHAFEE, Rhode Island MARK DAYTON, Minnesota
ROBERT F. BENNETT, Utah FRANK LAUTENBERG, New Jersey
PETE V. DOMENICI, New Mexico MARK PRYOR, Arkansas
JOHN W. WARNER, Virginia
Michael D. Bopp, Staff Director and Chief Counsel
Michael L. Alexander, Minority Staff Director
Trina Driessnack Tyrer, Chief Clerk
OVERSIGHT OF GOVERNMENT MANAGEMENT, THE FEDERAL WORKFORCE AND THE
DISTRICT OF COLUMBIA SUBCOMMITTEE
GEORGE V. VOINOVICH, Ohio, Chairman
TED STEVENS, Alaska DANIEL K. AKAKA, Hawaii
NORM COLEMAN, Minnesota CARL LEVIN, Michigan
TOM COBURN, Oklahoma THOMAS R. CARPER, Delaware
LINCOLN D. CHAFEE, Rhode Island MARK DAYTON, Minnesota
ROBERT F. BENNETT, Utah FRANK LAUTENBERG, New Jersey
PETE V. DOMENICI, New Mexico MARK PRYOR, Arkansas
JOHN W. WARNER, Virginia
Andrew Richardson, Staff Director
Richard J. Kessler, Minority Staff Director
Nanci E. Langley, Minority Deputy Staff Director
Emily Marthaler, Chief Clerk
C O N T E N T S
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Opening statements:
Page
Senator Voinovich............................................ 1
Senator Coburn............................................... 3
Senator Akaka................................................ 14
Senator Coleman.............................................. 15
Prepared statement:
Senator Levin................................................ 31
WITNESSES
Wednesday, July 26, 2006
WITNESSES
Chris Israel, Coordinator for International Intellectual Property
Enforcement, U.S. Department of Commerce....................... 4
Stephen M. Pinkos, Deputy Under Secretary of Commerce for
Intellectual Property, and Deputy Director, U.S. Patent and
Trademark Office............................................... 6
Arif Alikhan, Vice Chairman, U.S. Department of Justice's Task
Force on Intellectual Property, and Deputy Director, National
Intellectual Property Law Enforcement Coordination Council..... 8
Anthony C. LaPlaca, Vice President and General Counsel, Bendix
Commercial Vehicle Systems LLC................................. 10
Loren Yager, Director, International Affairs and Trade, U.S.
Government Accountability Office............................... 12
Alphabetical List of Witnesses
Alikhan, Arif:
Testimony.................................................... 8
Prepared statement........................................... 52
Isreal, Chari:
Testimony.................................................... 4
Prepared statement........................................... 32
LaPlaca, Anthony C.:
Testimony.................................................... 10
Prepared statement........................................... 66
Pinkos, Stephen M.:
Testimony.................................................... 6
Prepared statement with attachments.......................... 45
Yager, Loren:
Testimony.................................................... 12
Prepared statement........................................... 81
APPENDIX
Questions and answers submitted for the Record from:
Mr. Israel................................................... 101
Mr. Pinkos................................................... 106
Mr. Alikhan.................................................. 111
Mr. LaPlaca with attachments................................. 118
Mr. Yager.................................................... 124
STOP!: A PROGRESS REPORT ON
PROTECTING AND ENFORCING INTELLECTUAL
PROPERTY RIGHTS HERE AND ABROAD
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WEDNESDAY, JULY 26, 2006
U.S. Senate,
Oversight of Government Management,
the Federal Workforce, and the
District of Columbia Subcommittee,
of the Committee on Homeland Security
and Governmental Affairs,
Washington, DC.
The Subcommittee met, pursuant to notice, at 3:34 p.m., in
room SD-342, Dirksen Senate Office Building, Hon. George V.
Voinovich, Chairman of the Subcommittee, presiding.
Present: Senators Voinovich, Coleman, Coburn, and Akaka.
OPENING STATEMENT OF SENATOR VOINOVICH
Senator Voinovich. The Committee will come to order. Good
afternoon. I thank all of you for coming.
Today, the Subcommittee on Oversight of Government
Management, the Federal Workforce, and the District of Columbia
will review the President's Strategy for Targeting Organized
Piracy, also known as STOP!. The Subcommittee will also review
how the STOP! Initiative is working in conjunction with the
National Intellectual Property Law Enforcement Coordination
Council, also known as NIPLECC, to protect intellectual
property rights and to prosecute those who violate IP Plans.
In 2002, after hearing one too many stories about
intellectual property (IP) theft from small and medium-sized
companies, I initiated a series of hearings, of which this is
the fifth hearing, on trade protection of IP, IP theft, and the
negative impact of counterfeit and pirated goods on the
economy. I also began my effort to persuade the Bush
Administration and then-Secretary of Commerce Evans and then-
U.S. Trade Representative Bob Zoellick to take action. In fact,
I voted against two trade bills to send a message to the
President that more needed to be done to protect intellectual
property rights.
Therefore, I was very pleased when the STOP! Initiative was
announced in October 2004. STOP! is designed to improve the
Federal Government's effort to protect and enforce intellectual
property rights through increased cooperation and coordination
among the various Federal agencies charged with each oversight.
STOP! and interagency groups such as NIPLECC are leading the
Administration's efforts at combating IP theft.
Last June, the Subcommittee held a hearing to review the
initial progress of the STOP! Initiative after its first year.
Though the STOP! Initiative was making progress, I was
concerned that it lacked leadership and direction. Strong
leadership is particularly important because there are so many
Federal departments and agencies involved in protecting and
enforcing U.S. intellectual property rights.
Shortly after that hearing, I was pleased the
Administration appointed Chris Israel to the post of
Coordinator for International Intellectual Property
Enforcement. Mr. Israel is aided by Arif Alikhan, who is with
the Department of Justice. These two gentlemen are with us
today, and I look forward to their testimony.
Since the last hearing, Senator Bayh and I introduced S.
1984, the Intellectual Property Rights Enforcement Act, which
would unify and improve upon the STOP! Initiative and NIPLECC.
S. 1984 was referred to the Judiciary Committee, and I am
continuing to work with that committee on this legislation.
I want to stress the importance of this hearing to
manufacturing. In 2000, the United States employed roughly 17.2
million people in manufacturing. In May 2006, the number of
manufacturing jobs had decreased to roughly 14.2 million, a
loss of approximately 3 million jobs. In Ohio, there were more
than 1 million manufacturing jobs in 2000. By April of this
year, the number of manufacturing jobs had fallen to 810,700.
While counterfeiting is not the only factor in these job
losses, it is part of the problem. The U.S. Chamber of Commerce
estimates that roughly 750,000 jobs have been lost as a result
of counterfeiting. Moreover, profits from counterfeit products
fill the pockets of criminals at the expense of legitimate
businesses and their employees whose jobs are put at risk, as
well as the consumers who buy these fake, and often dangerous,
products.
America's competitive advantage is derived from innovation
and rising productivity, and the protection of intellectual
property remains one of the best means for ensuring that
American manufacturers enjoy the fruits of their investments
and innovation. The very foundation of our economy is the
American entrepreneur. Who will want to continue on this path
if you know your work product is going to be stolen under your
nose at every turn? Unfortunately, I can give you one example
after another of how that has happened.
I am particularly interested in hearing about the
strategies to address counterfeit goods from China, which
remains the global leader in production and sale of counterfeit
goods. Customs and Border Patrol seizure statistics indicate
that almost 70 percent of all intellectual property-related
seizures involve goods from China. However, China is not the
only culprit. Brazil, Russia, Venezuela, India, and Argentina
also have weak records on intellectual property rights
enforcement.
This past May, I was a guest speaker at a U.S. Patent and
Trademark Office conference entitled ``IP Global Marketplace,''
which was held in Columbus, Ohio. PTO is one of the agencies
working as part of the STOP! Initiative, and these programs are
part of the ongoing STOP! outreach to small and medium-sized
businesses. I thought that this conference went very well. I
was glad to be part of it, and I applaud such efforts. I look
forward to hearing from Stephen Pinkos, Deputy Director of the
U.S. Patent and Trademark Office, about this important aspect
of the STOP! Initiative, as well as future plans for similar
activity.
I believe that if the government's efforts to protect IP
are to succeed, there must be close and seamless coordination
between the numerous agencies involved in IP protection. In
addition, the Federal Government must be able to recruit,
train, and retain the necessary workforce needed to implement
such programs. The human capital aspect of the IP enforcement
effort is often overlooked, but critically important for their
success.
I look forward to the witnesses' testimony and learning
what progress has been made over the past year and what remains
to be done to address the challenges. Manufacturers, including
those in Ohio, have run out of patience as they see their jobs
lost to intellectual property theft, and the flourishing black
market of the 21st Century.
The Ranking Member of this Committee, Senator Akaka, is
currently not here, but will be. And I would like to recognize
Senator Coburn, who has presiding duty at 4 o'clock. Senator, I
am glad you are here today.
OPENING STATEMENT OF SENATOR COBURN
Senator Coburn. Thank you, Mr. Chairman. I want to tell you
how much I appreciate your holding the hearing on this issue.
The success and future of our country and our trading relations
depend on the value of our intellectual property. It is as
important as the defense to our country in terms of our
military defense. It is as important as any other aspect of our
economy.
Our education system and our motivation within our economy
is tuned to the idea that if you have a better mousetrap, you
can get copyright or patent and trademark protection on that.
This government will, in fact, allow you the opportunity to
gain the reward from that. That has not been so in terms of
international trade, especially with China. My Subcommittee
held a hearing in Los Angeles on intellectual property and also
on counterfeiting of our currency. And the fact is the
Administration has not been as aggressive as it needs to be in
forcing the hands of those people that we deal with, who
benefit greatly from having access to our markets to protect
the real property, the intellectual property, of people of this
country. I believe this hearing could not be more timely, nor
more important, to our future, because if you unravel
intellectual property ownership and you unravel patent
ownership, what you do is you unravel our economy. Our future
depends on our ability to have a robust and vibrant economy to
secure the future, both in terms of military and defense, but
also to secure the future for a standard of living that is
above and beyond everyone else in the world. And we have done
that through intellectual property advances and through the
economy benefiting from innovation and invention in this
country. It should be protected and it should be rewarded as a
method to advance our Nation.
Thank you, Mr. Chairman.
Senator Voinovich. Thank you very much.
We have an impressive line-up of witnesses. I look forward
to our discussion. Given the late start for this hearing, we
will have one panel of five witnesses:
Chris Israel is the Coordinator for International
Intellectual Property Enforcement. Nice that you are here
today. I have heard your name and used it for a long time, and
now am going to have a chance to hear from you.
Stephen Pinkos is the Deputy Under Secretary of Commerce
for Intellectual Property and Deputy Director of the U.S.
Patent and Trademark Office. Steve and I have had a chance to
meet each other, and he did a wonderful job for us in Columbus.
Arif Alikhan is the Vice Chairman and Executive Director of
the Department of Justice Task Force on Intellectual Property.
Anthony LaPlaca is Vice President and General Counsel of
Bendix Commercial Vehicle Systems LLC.
And Loren Yager is the Director of International Affairs
and Trade at the Government Accountability Office.
Gentlemen, it is the custom of this Subcommittee that we
swear in the witnesses. If you will stand and take the oath, I
would appreciate it. Do you swear that the testimony you are
about to give this Subcommittee is the truth, the whole truth,
and nothing but the truth, so help you, God?
Mr. Israel. I do.
Mr. Pinkos. I do.
Mr. Alikhan. I do.
Mr. LaPlaca. I do.
Mr. Yager. I do.
Senator Voinovich. As is the custom with this Subcommittee,
if the witnesses could limit their testimony to 5 minutes, your
full written statements will be included in the record.
Ms. Israel, we would like to hear from you first.
TESTIMONY OF CHRIS ISRAEL,\1\ COORDINATOR FOR INTERNATIONAL
INTELLECTUAL PROPERTY ENFORCEMENT, U.S. DEPARTMENT OF COMMERCE
Mr. Israel. Thank you Chairman Voinovich and Senator
Coburn. I am pleased to be here with you today to discuss the
U.S. Government's intellectual property enforcement efforts.
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\1\ The prepared statement of Mr. Israel appears in the Appendix on
page 32.
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As the U.S. Coordinator for International Intellectual
Property Enforcement, it is the task of my office to leverage
the capabilities and resources of the U.S. Government to
promote effective global enforcement of intellectual property
rights. Today, I would like to discuss the ongoing leadership
and prioritization of the Bush Administration regarding IP
enforcement, the progress of the Administration's STOP!
Initiative, and, finally, provide some insight on how we are
coordinating our efforts.
The reasons for the Administration's leadership on IP
enforcement and for its prioritization are clear. As you both
noted, there are, frankly, few issues that are as important to
the current and future economic strength of the United States
as our ability to create and protect intellectual property.
U.S. IP industries account for over half of U.S. exports. They
represent 40 percent of our economic growth, and they employ 18
million Americans who earn 40 percent more than the average
U.S. wage.
This growth and prosperity is put in jeopardy, though, by
rampant theft of American IP worldwide. Quite simply our
ability to ensure and secure a reliable environment for
intellectual property is critical to the strength and continued
expansion of the U.S. economy. Therefore, the protection of
intellectual property is a critical trade and economic issue
for the Bush Administration. We seek every opportunity at every
level to engage our trading partners, strengthen our
enforcement capabilities, and engage our industry.
As this Subcommittee understands, the problem of global
piracy and counterfeiting confronts many industries, exists in
many countries, and demands continuous attention. With finite
resource and seemingly infinite concerns, how we focus our
efforts is crucial. A critical element in our overall
coordination is the Strategy Targeting Organized Piracy
(STOP!), Initiative launched by the Bush Administration in
October 2004.
STOP! is built on five key principles: First, empowering
innovators to better protect their rights at home and abroad;
second, increasing efforts to seize counterfeit goods at our
borders; third, pursuing criminal enterprises involved in
piracy and counterfeiting; fourth, working closely and
creatively with industry; and, fifth, aggressively engaging our
trading partners to join our efforts.
STOP! is a broad, interagency effort led by the White House
that draws upon the capabilities of the Department of Commerce,
Department of Justice, USTR, the State Department, the
Department of Homeland Security, and FDA.
The principles of STOP! are essentially our combined action
plan. They are the things that this Administration is committed
to expanding, coordinating, and executing in order to protect
American IP and demonstrate leadership around the world.
On a number of fronts, STOP! has shown measurable success.
We have provided useful tools and information for rights
holders. Criminal enforcement has increased dramatically.
Customs seizures of counterfeit goods have doubled since 2001.
And we are leading an aggressive effort around the world to
promote IP enforcement.
On this front, we are especially pleased by strong IP
enforcement programs, established recently at the U.S., EU, and
G-8 summits. These, essentially, establish an international
network of like-minded countries committed to addressing piracy
and counterfeiting.
The flexibility of STOP! has been a key element to its
effectiveness. It has provided leadership and direction, while
allowing agencies to remain focused on their priorities and
maximize their strengths. Through STOP!, we have accomplished a
great deal; however, we certainly know that much remains to be
done.
We know that the effort to fight IP theft is a long-term
commitment that requires a coordinated strategic approach.
Developing and maintaining this approach is the mission of my
office. Our office has supported a number of Administration
priorities, worked to maintain senior-level commitment,
provided input on key policy matters, established a presence
internationally, reached out to industry, attempted to sustain
clear communication with Congress, and provided accountability.
Mr. Chairman, we are dedicated to stopping intellectual
property theft and providing businesses with the tools they
need to flourish in a global economy. As the Bush
Administration continues its efforts, we look forward to
working with this Subcommittee to promote strong intellectual
property rights protection for American businesses and
entrepreneurs around the world.
Thank you very much for the opportunity to be here today,
and I look forward to your questions.
Senator Voinovich. Thank you very much for being here. Mr.
Pinkos.
TESTIMONY OF STEPHEN M. PINKOS,\1\ DEPUTY UNDER SECRETARY OF
COMMERCE FOR INTELLECTUAL PROPERTY, AND DEPUTY DIRECTOR, U.S.
PATENT AND TRADEMARK OFFICE
Mr. Pinkos. Thank you, Chairman Voinovich. It is good to
see you again, Ranking Member Akaka. Thank you both for your
leadership on the issue of protecting intellectual property
around the globe.
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\1\ The prepared statement of Mr. Plinkos with attachments appears
in the Appendix on page 45.
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I appreciate this opportunity to be a part of this panel,
and especially join my Administration colleagues, two gentlemen
who are doing yeoman's work on the front line of protecting
intellectual property. I am happy to be able to report on some
of USPTO's progress as part of a very strong Bush
Administration STOP! team in promoting effective IP protection
and enforcement, both here in the United States and abroad.
Our goal, the Administration goal, as Chris alluded to, is
quite simple. It is to decrease the amount of global IP theft
and increase the bottom line for America's creators, inventors,
entrepreneurs, and manufacturers. And also, as Chris mentioned,
President Bush fully appreciates the importance of IP-based
industries to the future of America's economic success.
At the USPTO, our STOP! efforts fall under three general
categories. First, we work under the auspices of STOP! to
ensure that we have an effective IP system here in the United
States that is understood and accessible to everybody. Second,
we work very hard to help other countries enact effective IP
laws and operate efficient, high-quality, and customer-friendly
patent and trademark offices. So when we advise, like we did in
Ohio, folks to register their trademarks overseas that when
they approach an office, it is very similar to ours and very
easy to understand. And, third, we work as part of the STOP!
team to help ensure that U.S. businesses and individuals can
enforce their rights that they have so diligently secured.
Under number one, helping U.S. businesses and entrepreneurs
and independent inventors to understand the system here, we are
particularly concerned that they understand the importance of
IP and take the steps that they may want to take to protect
their IP. Thus, we have launched a small business awareness
campaign. Mr. Chairman, you alluded to it. We are sponsoring IP
conferences around the country where we bring IP experts to
these various cities, and not just from the U.S. PTO, but from
DOJ and Customs and Federal judges, as well. In addition to
Columbus, we have been to Salt Lake City, Phoenix, Austin,
Miami, San Diego, and recently in Nashville, all within the
last 14 months.
We are doing some programs that are specific to China so
that businesses can understand the IP environment there, which
includes changes in the law, and that they may want to take
defensive action by registering a trademark or seeking patent
protection. Even if they are not intending to do business
there, we have programs to help protect their products from
being counterfeited. We have done these programs in Baltimore,
Detroit, Atlanta, Chicago, Seattle, and here at our
headquarters in Alexandria.
Mr. Chairman, as you also know, the U.S. PTO mans the
government hotline, where real live IP experts answer the phone
and help provide guidance and direction to U.S. citizens and
businesses to help them navigate the government agencies that
are involved in IP. We refer a lot of people to Justice, and
the FBI, and other places. And we also maintain a specific
website, stopfakes.gov/smallbusinesses, particularly aimed at
informing small businesses of their IP rights.
But going forward on the small business initiative, there
is a lot to still do. We would like to place IP experts at
trade shows around the country, to bringing STOP! to thousands
of people. We would like to do more Webinars--or start doing
Webinars, and we are examining that now instead of having to go
around the country, which we intend to continue to do, of
course, next year with at least another half a dozen
conferences.
We also want to promote these resources more effectively,
with more private sector associations, coordinate a little bit
better with USG agencies, like the Small Business
Administration, and work more with State and local officials.
We talked a little bit about that in Columbus, because
sometimes the first place a businessperson will go will be the
Secretary of State to register their business.
The U.S. Patent and Trademark Office also offers a lot of
training and coordinates a lot of training globally, and under
STOP! we are establishing an academy at the PTO where we are
able to greatly increase the number of foreign officials that
we are bringing here. We are going to do 16 programs this year,
21 next year. Again, our counterparts from across the
government come to help. And we do a lot of training overseas
as well, including technical training at the patent and
trademark offices in foreign countries and bring them here too.
For example, 2 weeks ago, we had the commissioner of trademarks
for China and several of his officials in our office learning
very technical things.
We are doing all of this because we want to make sure that
we get to the right people from the right countries, targeting
the right issues and measuring all the results so we can
maximize benefits.
Mr. Chairman, I appreciate the opportunity to be here and
to expand upon some of our efforts during the questioning. I
just want to emphasize that the Patent and Trademark Office is
very much dedicated to making sure all U.S. businesses,
particularly small and medium-size businesses, have the
information they need to protect their rights here and abroad.
Thanks again for having the hearing.
Senator Voinovich. Thank you. Mr. Alikhan.
TESTIMONY OF ARIF ALIKHAN,\1\ VICE CHAIRMAN, U.S. DEPARTMENT OF
JUSTICE'S TASK FORCE ON INTELLECTUAL PROPERTY, AND DEPUTY
DIRECTOR, NATIONAL INTELLECTUAL PROPERTY LAW ENFORCEMENT
COORDINATION COUNCIL
Mr. Alikhan. Chairman Voinovich and Ranking Member Akaka,
thank you very much for this opportunity to discuss the
Department of Justice's contribution to the Administration's
STOP! Initiative and the Department of Justice's efforts to
protect and enforce intellectual property rights.
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\1\ The prepared statement of Mr. Alikhan appears in the Appendix
on page 52.
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The Department's principal contribution to the STOP!
Initiative is the work of the Department of Justice's Task
Force on Intellectual Property. In October 2004, the IP Task
Force issued a comprehensive report detailing 31
recommendations, which the Department then spent the next year
and a half implementing. I am proud to say that as of this
June, when the task force issued this progress report, the
Department implemented all 31 of the recommendations contained
in the 2004 report, by, among other things, increasing the
number of intellectual property prosecutors by creating five
additional Computer Hacking and Intellectual Property, or CHIP,
Units in the District of Columbia, Nashville, Orlando,
Pittsburgh, and Sacramento; by deploying an experienced Federal
prosecutor as an Intellectual Property Law Enforcement
Coordinator, or IPLEC, to Southeast Asia and obtaining funding
for a coordinator in Eastern Europe; by increasing the number
of extradition and mutual legal assistance treaties that
include intellectual property offenses; by vigorously
protecting the right of victims to bring cases in the civil
courts; and by organizing victims' conferences on intellectual
property awareness.
The Department of Justice, however, did not stop at simply
implementing the recommendations of the task force. Instead,
the Department went well beyond those recommendations by
creating seven new CHIP Units, in addition to the five I
previously mentioned, in Austin, Texas; Baltimore; Denver;
Detroit; Newark; New Haven, Connecticut; and Philadelphia--
bringing the total number of CHIP Units to 25; in addition, the
Department increased the number of defendants prosecuted for
intellectual property offenses by 98 percent; by providing
training and technical assistance to over 2,000 foreign
prosecutors, investigators, and judges regarding intellectual
property investigations and prosecutions; by working closely
with the U.S. Trade Representative to improve language
regarding IP protections in free trade agreements and other
international treaties; by publishing a nearly 400-page
comprehensive resource manual on prosecuting IP crimes; and by
filing 13 amicus, or ``friend of the court,'' briefs in the
Supreme Court in cases involving IP disputes.
The Department of Justice has also prosecuted a wide array
of intellectual property crimes, including novel prosecutions
that are likely to have the greatest deterrent effect. In
addition, the Department is focused on the prosecution of cases
that endanger the public's health and safety, including cases
involving counterfeit pharmaceuticals, such as cholesterol
medication, counterfeit Viagra and Cialis, and also other items
such as counterfeit batteries and electrical cords.
A large part of the Department's success stems from its
efforts to marshal the right people to do the job the right
way. In doing so, the Department has implemented a three-part
approach.
First, the Department of Justice's anti-counterfeiting
enforcement is anchored by the Criminal Division's Computer
Crime and Intellectual Property Section, a team of highly
specialized prosecutors focused on computer crime and IP
offenses.
Second, the Department has designed Computer Hacking and
Intellectual Property, or CHIP, Coordinators in every U.S.
Attorney's Office in the country. CHIP Coordinators are Federal
prosecutors who are given specialized training in intellectual
property and certain types of computer crime. Each district has
at least one CHIP Coordinator; many have two or more.
Third, the Department has created CHIP Units generally in
districts where the incidence of intellectual property and
high-tech crimes is higher and more likely to affect the
national economy. Each unit consists of a concentrated number
of trained CHIP prosecutors in the specific U.S. Attorney's
Office.
Through this three-part approach, the Department has
developed a highly motivated and effective nationwide network
of 25 CHIP Units and more than 230 skilled intellectual
property prosecutors. But in addition to these contributions,
the Department has also contributed to the STOP! Initiative by
supporting legislative efforts. The Department of Justice has
developed legislation known as the Intellectual Property
Protection Act of 2005. This proposed legislation is designed
to strengthen penalties against copyright criminals, reform
forfeiture provisions, strengthen a victim's ability to recover
losses for IP crimes, and criminalize the attempt to commit
copyright infringement.
The Department also recognizes that education is a key tool
in the efforts to promote intellectual property protection. For
example, in a joint venture with the U.S. Patent and Trademark
Office, the Department of Justice and USPTO are funding a 3-
year, $900,000 youth education program with national nonprofit
educational organizations. In addition, the Department of
Justice has also educated American business owners by
participating in USPTO's Global Marketplace conferences, as Mr.
Pinkos has mentioned.
Thank you again for this opportunity to address the
Department of Justice's efforts to protect and enforce
intellectual property rights. I will be happy to answer any
questions you may have.
Senator Voinovich. Pretty impressive testimony.
Mr. Alikhan. Thank you, sir.
Senator Voinovich. Somebody caught fire over there. That is
great. Mr. LaPlaca.
TESTIMONY OF ANTHONY C. LAPLACA,\1\ VICE PRESIDENT AND GENERAL
COUNSEL, BENDIX COMMERCIAL VEHICLE SYSTEMS LLC
Mr. LaPlaca. Good afternoon Chairman Voinovich and
distinguished Members of the Subcommittee. My name is Anthony
LaPlaca, and I am Vice President and General Counsel for Bendix
Commercial Vehicle Systems LLC. I am testifying today on behalf
of Bendix and will be sharing our views and experiences on
dealing with intellectual property theft.
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\1\ The prepared statement of Mr. LaPlaca appears in the Appendix
on page 66.
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First, I would like to thank the Subcommittee for the
invitation. We are honored to represent business here today and
hope that our testimony will lead to a greater understanding of
the issues.
Bendix Commercial Vehicle Systems is headquartered in
Elyria, Ohio. We develop and supply active safety technologies,
including air brake control systems, air disc brakes, and
electronic stability systems used on medium- and heavy-duty
commercial vehicles. Bendix employs over 2,200 people in North
America.
Motor Equipment Manufacturers Association estimates that
counterfeiting has a $12 billion impact on the transportation
industry. We at Bendix are concerned about this issue's impact
on our business, as well as the adverse effect on our brand
equity, as well as potential impact on vehicle brake
performance, and highway safety.
The financial impact to Bendix from the infringement of its
intellectual property rights and from the recent influx from
Asia of knock-off air brake parts is significant. For air brake
valve products alone, we lose millions of dollars of revenues
annually due to this issue. Other Bendix product lines, such as
air dryers, are also currently becoming prime targets for this
activity.
But the challenge is more than financial for us. Bendix's
brand reputation is built on products that are highly
engineered and validated through extensive testing to ensure
quality and reliability to withstand the demanding operating
conditions of commercial vehicle use. Customers rely on Bendix
air brakes to stop commercial vehicles that can weigh up to
80,000 pounds, and these vehicles transport all types of cargo,
from commercial goods to hazardous materials, as well as buses
and coaches that transport people.
Bendix believes customer confusion is a major contributor
to the proliferation of knock-off replacement parts. Many of
these knock-offs look so similar to the genuine parts that they
are often returned to Bendix as part of a warranty claim. Even
Bendix personnel, at times, have trouble telling the difference
until the parts are disassembled for examination.
Through warranty claims and ongoing reports from the field,
we are aware of multiple instances where end users have been
confused or misled at the time of purchase. Customers are under
the impression that they are purchasing genuine Bendix
replacement parts. They are influenced by the look of the part
as well as by use of Bendix part numbers and part names.
I would like to give a recent example of where a knock-off
component returned from the field demonstrated how a poorly
built air brake valve could have potentially serious safety
implications.
An air brake technician reported the difficulty he
experienced in getting a new relay valve to work following the
purchase and installation on a new truck. After numerous
adjustments and rechecking of the air lines, the technician
removed the valve and discovered the problem. The valve's
control port was not drilled all the way through. If this valve
were to be used on a vehicle, the partially blocked port would
have prevented proper air flow. This type of air flow blockage
could cause as much as a 70-percent degradation in the
vehicle's braking capability. Fortunately, a catastrophic brake
failure was avoided by this technician's diligence. However,
this scenario illustrates how the situation can pose
potentially significant risks to highway safety.
Bendix has instituted a three-pronged intellectual property
protection and enforcement program which focuses on protection,
enforcement, and education and awareness. Here are examples of
the intellectual property protection and enforcement actions
taken thus far:
We are instituting a patent and trademark infringement
action in the U.S. District Court against a company selling and
distributing knock-off parts that infringe Bendix patents and
trademarks.
Trade show enforcement actions at major industry events
where we have successfully worked with show sponsors to remove
infringing products and product literature from the offending
party's show booth.
Sending numerous cease-and-desist letters to successfully
stop infringing sales by companies in the United States and in
Canada.
While our efforts to enforce patent and trademarks against
infringement have been successful, the problem of customer
confusion with the proliferation of knock-offs still persists.
Lookalike products sold with the same names and part numbers
continue to exacerbate the situation for us.
We have launched a multi-faceted customer and industry
awareness campaign aimed at trucking fleets, our distributors
and dealers, and end users.
We have had continuing dialogues with senior management of
our distributors to discuss the importance of IP compliance,
and we continuously train our sales and customer service people
about the issues.
To date, Bendix has conducted this program entirely with
its own resources. We spend over $1 million annually on
intellectual property protection and enforcement activities in
addition to the significant expenditure of internal management
time and attention. Although Bendix has not yet had occasion to
utilize many of the government's resources, we have sent
representatives to anti-counterfeiting conferences sponsored by
the National Intellectual Property Rights Coordination Center,
and we have learned about many of the available government
resources through this activity.
Bendix recommends expanding and promoting these seminars,
making them more widely accessible in the industry. We think
distributors, dealers, and retailers would particularly benefit
from this type of government-sponsored education and awareness
program.
The sophistication of counterfeit operations has improved
to the point of making it difficult for customers to discern
real from fake. But, in terms of performance, quality, and
actual costs, there are obvious differences. And for Bendix, in
particular, dealing with components and systems that affect
braking ability of heavy vehicles, with their impact on highway
safety, underscores the need to control this issue.
But in many instances, existing intellectual property laws
do not adequately address Bendix's current problem. The buying
and selling of lookalike products is a problem propagated by
the knock-off reseller's use of the same part numbers and the
same product names as the genuine Bendix products. Often these
part numbers are not eligible for trademark protection. Since
these air brake products and components have safety-critical
applications, Bendix recommends that new legislation should be
enacted extending intellectual property protection to
industrial designs of these types of safety-critical
components. In fact, the entire automotive industry, and
certainly other key U.S. manufacturing sectors, would benefit
from this type of legislation. I have included in my written
testimony a brief statement about this type of proposal.
Bendix would like to thank the Members of the Subcommittee
for the invitation to testify and for focusing much needed
attention on this issue. We welcome the opportunity to answer
questions that you may have. Thank you.
Senator Voinovich. Thank you very much, Mr. LaPlaca.
Mr. Yager, you have been watching things from the cat-bird
seat. I remember your testimony in prior hearings on this
issue. I am interested in hearing how you think things are
going.
TESTIMONY OF LOREN YAGER, DIRECTOR,\1\ INTERNATIONAL AFFAIRS
AND TRADE, U.S. GOVERNMENT ACCOUNTABILITY OFFICE
Mr. Yager. Thank you, Mr. Chairman. It is good to be back
in front of this Subcommittee again. Thank you for the
opportunity to appear again before the Subcommittee to discuss
our work on U.S. efforts to protect U.S. intellectual property
rights. We appreciate the opportunity to contribute to the
record that this Subcommittee has established on IP protection.
As you stated in the Subcommittee's 2005 hearing, and repeated
again today, counterfeit and pirated goods create health and
safety hazards for consumers, damage companies that are victims
of this theft, and pose a threat to the U.S. economy.
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\1\ The prepared statement of Mr. Yager appears in the Appendix on
page 81.
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Since my last testimony before this Subcommittee, the
United States has continued to develop and implement its
Strategy for Targeting Organized Piracy (STOP!), which outlines
the priority IP efforts of six agencies. To understand more
fully how this strategy might contribute to better protection
of IP, I will address three topics: First, the range and
effectiveness of multi-agency efforts on IP protection that
preceded STOP!; second, initial observations on the
organization and efforts of STOP!; and, finally, some initial
observations on the efforts of U.S. agencies to combat pirated
goods at U.S. borders, which is one of the STOP! priority
efforts.
To address these issues, I have drawn on a number of
completed GAO studies, and I also provide initial observations
from ongoing projects, including one for this Subcommittee and
one for the House Committee on Government Reform. Let me first
talk about some of the prior multi-agency efforts to address
IP.
As you know, STOP! is not the first effort to coordinate
agency activities, and as I mentioned last year, these prior
coordination efforts have achieved very different levels of
success. For example, the Special 301 process, led by USTR, was
generally cited as an effort that has been quite effective in
collecting input from multiple agencies and improving IP-
related laws in other nations. On the other hand, U.S.
Government efforts to improve IP enforcement through NIPLECC
were ineffective, having done little more than publish a number
of annual reports compiling individual agency activities. STOP!
was an effort to boost attention to IP enforcement. As most
agency and industry observers indicated, the enforcement area
is where the emphasis is now needed.
In terms of my second issue, STOP! has energized U.S.
efforts to protect and enforce IP. As earlier witnesses have
stated, STOP! has focused attention on outreach to foreign
governments and on helping small and medium-sized enterprises,
among a range of other activities. Private sector members
generally had positive views about STOP!. However, let me make
two comments. First, the relationship between STOP! and
NIPLECC, its predecessor, is not entirely clear and may create
confusion among agency and private sector officials. In
addition, as a Presidential initiative, STOP! does not have the
same accountability requirements and permanence as a
legislatively created structure, which makes it difficult to
track the progress of its efforts.
To the extent that the coordinator takes the best of the
two structures using the energy and multi-agency input from
STOP! to fulfill the reporting requirements of NIPLECC for a
results-oriented strategy, this would be a very positive
development.
On my final point, continuing weaknesses in U.S. agencies'
IP enforcement efforts at the U.S. borders illustrate the
challenges STOP! faces in carrying out some of its objectives.
The overall task of assessing whether particular imports are
authentic has become more and more difficult as trade volume
and counterfeit quality increase. As I mentioned in my written
statement, a number of the new tools that CBP has developed to
better target suspect shipments and deal with problem importers
are works in progress whose future impact is uncertain.
In response to your request, GAO will be reporting to this
Subcommittee early next year on the level of resources and the
tools to best utilize those resources at the U.S. border for
the purpose of IP protection. I look forward to a dialogue with
the Subcommittee on those topics.
In conclusion, the challenges of IP piracy are enormous and
will require the sustained and coordinated efforts of U.S.
agencies, their foreign counterparts, and industry to be
successful. We appreciate the Subcommittee's attention to this
topic, as it appears that the hearing today has already led to
some clarifications of the relationship between STOP! and
NIPLECC. In addition, this Subcommittee has been a leader in
developing and applying accountability measures to improve
government performance, and we believe that the long-term
success on this issue will be enhanced by this kind of
oversight.
Mr. Chairman, other Members of the Subcommittee, this
concludes my prepared statement. I would be pleased to answer
any questions that you may have.
Senator Voinovich. Thank you, Mr. Yager.
We have been joined by the Ranking Member of this
Committee, Senator Akaka.
Senator Akaka, I understand that you have a statement that
you would like to put in the record, and we welcome it.
OPENING STATEMENT OF SENATOR AKAKA
Senator Akaka. Thank you very much, Mr. Chairman. I want to
join you in welcoming the witnesses, and I want to commend our
Chairman for his leadership in the area of enforcing
intellectual property rights for American manufacturers and
entrepreneurs. We have made technological advances due to the
efforts and exceptional talents of individuals who are from our
academic institutions, government, and private enterprise, and
these advances have transformed the American economy and
changed the way that our companies do business.
Mr. Chairman, I am pleased that you have led on this and
that you recognize the importance of this issue and are
reviewing the status of the STOP! Initiative. I thank you for
holding today's hearing, and I will submit my remarks for the
record.
[The prepared statement of Senator Akaka follows:]
PREPARED STATEMENT OF SENATOR AKAKA
Thank you, Chairman Voinovich. I join you in welcoming our
witnesses and commend you for your leadership in the area of enforcing
intellectual property rights for American manufacturers and
entrepreneurs.
We live in an increasingly changing world. Technology provides
improvements and conveniences for everyday life that were almost
unimaginable only a few decades ago. These technological advances are
the product of efforts by exceptionally talented individuals who are
supported by academic institutions, government, and private enterprise.
We are justifiably proud of the achievements of our brightest minds and
most innovative companies.
These technological advances have transformed the American economy
and changed the way that our companies do business. Today's global
economy is fostering new opportunities for U.S. businesses and
opportunities to forge relationships around the world.
Unfortunately, U.S. manufacturers and businesses daily face the
threat of theft of their most innovative products and ideas. Although
estimates vary widely, we know that counterfeiting costs our companies
billions of dollars and deprives our workforce of hundreds of thousands
of jobs.
Counterfeit goods also threaten public health and safety by
bringing unregulated and untested products into the U.S. marketplace.
Consumers have no way of determining whether the goods that they are
buying are legitimate or counterfeit.
The STOP! Initiative is an important step forward because the
program demonstrates an understanding that solving the problem of
counterfeit goods cannot be accomplished solely through the efforts of
the Federal Government and law enforcement agencies. Counterfeit goods
are a global problem. Protecting manufacturers and consumers from
counterfeiters must be accomplished through international efforts and
through cooperation with our trading partners.
I am pleased that Chairman Voinovich recognizes the importance of
this issue and is reviewing the status of the STOP! Initiative. Thank
you for holding today's hearing. I look forward to hearing from our
witnesses about this important and timely subject.
Senator Voinovich. Senator Coleman, thank you for being
here today. Do you have a statement you would like to give.
OPENING STATEMENT OF SENATOR COLEMAN
Senator Coleman. Thank you, Mr. Chairman. Let me start by
thanking you for holding this important hearing, and I thank
our witnesses for their commitment to solving this. It is a big
challenge we face. I represent a State that has high-tech
companies. Medtronic for cardiac pacemakers and 3M are targets.
It is a big issue there. It is also a big issue with small
business that sometimes do not have the knowledge of how to
deal with it. Many of the small businesses are now doing
international trade, and so this is an extremely important
area.
I would like to have my full statement, Mr. Chairman,
entered into the record, and I would just then appreciate the
opportunity to ask some questions of the witnesses. So, again,
thank you for your leadership on this issue.
[The prepared statement of Senator Coleman follows:]
PREPARED OPENING STATEMENT OF SENATOR COLEMAN
I want to start by thanking Chairman Voinovich for holding this
important hearing, and also by thanking our witnesses for their
commitment to solving one of the biggest challenges we face in an era
of increased global competition.
There have been a lot of columns, reports, and studies published
about the role of the United States in a changing global economy. Of
all the recommendations I have read about how we can maintain our
competitive edge, one that really struck me came from Minnesota native
Tom Friedman in his book, The World is Flat. Friedman says that despite
the many challenges we face, we will always be a global economic leader
if we continue to be ``the world's dream machine.'' By fostering,
nurturing, and most importantly--protecting--the creativity of our
Nation's greatest minds, I believe we will continue to win the global
competition for many generations to come.
We are all at today's hearing because we know how important it is
to protect our Nation's innovations, inventions, and ideas. According
to the United States Trade Representative's office, theft of
intellectual property costs American corporations a staggering $250
billion per year. IPR violations also hurt working moms and dads. The
U.S. Customs and Border Protection service estimates that over 750,000
jobs have been lost due to counterfeiting intellectual property. We
need to make numbers like these a thing of the past.
This hearing is of particular interest to me because this is a
critical issue to my home State of Minnesota where companies like 3M,
Target, and General Mills can't afford to have their products pirated
and their trademarks counterfeited. I look forward to hearing the
testimony of our witnesses to learn more about where we have been, how
far we have come, and where we need to go to better protect our
intellectual property.
Senator Voinovich. Mr. LaPlaca, have you looked at the
legislation that is now pending here in Congress?
Mr. LaPlaca. No, Senator, I have not.
Senator Voinovich. Do you belong to a trade organization,
the National Association of Manufacturers or----
Mr. LaPlaca. We are members of Motor Equipment
Manufacturers Association and members of their Government
Affairs Council, so we get a lot of our useful information on
these topics through MEMA.
Senator Voinovich. Well, I would like to suggest to you
that you ask those folks to look at the bill Senator Bayh and I
have introduced. The purpose of this legislation is to
formalize the kind of coordination that we are discussing here
today. The STOP! Initiative is not in the law now, and it is
being done at the request of the President. Senator Grassley
has, I think, introduced a bill on dealing with China currency
issues and I would really like for you and your association to
review them and give me an appraisal of what you think of them.
If you or your association think more is needed, I would like
to hear from you.
Mr. LaPlaca. Absolutely. Yes, sir.
Senator Voinovich. You stated that your company spends $1
million a year, plus a lot of management time, to address IP
issues. Your people have been impressed with the hearings that
have been held--not the Congressional hearings, but the IP
Conferences the PTO sponsors. And you think that is a good
idea.
Mr. LaPlaca. I do, Senator. I think raising awareness--we
are very pleased with the level of awareness over the past
several years. And, we encourage that type of activity to
continue, particularly with certain segments. I think certain
segments of industry, at least from our vantage point, can be
targeted and can benefit. Those that are in the resale channels
through whose hands some of these products pass could benefit
from this awareness.
Senator Voinovich. Mr. Alikhan, as I said, I was impressed
with your testimony. How many people, all together, have you
added at the Justice Department in the areas of IP protection?
Mr. Alikhan. Mr. Chairman, we have, as I mentioned, the
three different groups, and that would be a total of 230
prosecutors, plus or minus a few, who are dedicated to
intellectual property and cyber crime prosecutions throughout
the country.
Senator Voinovich. How many have been added in the last
couple of years?
Mr. Alikhan. Well, we have added a series of 12 additional
CHIP Units, and with that came additional funding for roughly
two new prosecutors per unit.
In addition to that, there may have been other CHIP
coordinators designated, so I do not have an exact number on
how many precisely have been added, but we have had a
substantial number of prosecutors added since the October 2004
report of the Intellectual Property Task Force was issued.
Senator Voinovich. I would like to know, for the record,
how many you have added, where you have added them, so I can
get an idea of the human capital that you have got involved in
this.
Mr. Alikhan. Certainly.
Senator Voinovich. Where do these cases come from?
Mr. Alikhan. Most of the cases come from referrals from
victims, if that is what you are referring to.
Senator Voinovich. Yes.
Mr. Alikhan. We rely on victims to refer those cases to
Federal law enforcement agencies, and that is why industry
outreach, as Mr. LaPlaca was indicating, is so critical in
these areas. We have worked closely with various industry
groups, including the Motor Equipment Manufacturers Association
(MEMA), the Chamber of Commerce's Coalition Against
Counterfeiting and Piracy, as well as other industry groups, to
make sure we are getting those cases in a timely fashion.
Senator Voinovich. How successful have you been?
Mr. Alikhan. I think we have been fairly successful. We
still have a long way to go, but I think if you were to talk to
victim industry groups, they would say, not only the
Department, but other agencies in the STOP! Initiative have
gotten the word out that we are interested in pursuing these
cases, and it is certainly a priority. I know the Attorney
General has made this a personal priority to pursue
intellectual property cases and has publicly said so.
Senator Voinovich. Is the message getting out to the people
that are involved in this, the criminals? Do we have any
deterrence yet because of what you are doing?
Mr. Alikhan. Well, it is certainly hard to measure what the
deterrent effect is, but certainly one of the priorities of the
Department is to prosecute those cases that have the maximum
deterrent effect, going after large-scale distributors,
manufacturers of counterfeit goods, large-scale software
pirates, those who are producing counterfeit pharmaceuticals.
So we are hoping that through those very public prosecutions
that we are establishing some deterrent effect.
Senator Voinovich. Mr. Pinkos or Mr. Israel, one of my
concerns, and how I became involved with this subject matter in
the first place, is when we had the first hearing and I was
told by representatives from the departments that they had this
great system in place. So, I called the number and no one
seemed to know what I was talking about. I know that has
improved, but how closely do you work with the Justice
Department? I am somebody, I call, I feel that my company has
been victimized by IP theft. Do you take that call and look at
it and then try to evaluate it so that you could then refer it
to the Justice Department? How does that work?
Mr. Pinkos. That is exactly what we do. One of our attorney
advisers--an administrative person will take the call,
determine the nature of the call, refer it to an appropriate
attorney adviser in our office, and they specialize in patents,
trademarks, or copyright. And they will often determine that it
is a law enforcement issue, and what they have is a list of all
the IP enforcement offices going down to all of the different
U.S. Attorney's Offices, Customs offices, and FBI offices in
the particular city. So, they have the list of contacts right
at their fingertips to make the precise referral if it involves
a law enforcement matter.
Senator Voinovich. Well, a few years ago, I called to test
the systems in place, I was told to call the local Customs
office. I entered the maze. Mr. Alikhan, have you ever talked
to the folks that are prosecuting? Do they seem to feel that
the system has been streamlined in terms of getting referals?
Or are they complaining about it is still pretty cumbersome?
Mr. Alikhan. I can tell you as a former prosecutor in Los
Angeles who did intellectual property cases that we have been
streamlining the process to refer cases, and the best way for
us to do that is actually sending prosecutors out into these
industry groups and telling them how to refer cases and whom to
refer them to. We encourage them to refer, sometimes directly,
to the U.S. Attorney's Office and the CHIP Coordinators because
they may know which agency is best suited to pursue the case.
In addition, in our progress report and the original
report, in the back of it, we have a series of checklists for
victims to know how to report a case to Federal law enforcement
for prosecution.
Senator Voinovich. Mr. Israel, are you tracking the real
bad guys out there? By that, I mean there are some companies or
importers that are notorious for producing knockoffs and
counterfeits. Have you got the sophistication yet to identify
who they are and any kind of communication to the Customs and
Border Patrol that they have got to keep them out of here or
you ought to look for them or any of that? Have you got the
STOP! Initiative to that stage yet?
Mr. Israel. It does exist. It does exist at a fairly
sophisticated level, Mr. Chairman, and actually, Customs is one
of the generators of a good deal of that information. One of
the things Customs has really been trying to do over the last
several years is really improve and strengthen their use of
intelligence. They do post-entry audits. For example, if they
do seize counterfeit goods, they essentially reverse engineer
the supply chain that brought those goods to the United States
to try to determine where it came from, what organization or
entity might be behind the transmission of those goods to the
United States, and try to develop fact patterns and trend
analysis and really deploy that to their agents in the field in
a very coordinated fashion to try to get as much ahead of this
problem as they can.
It is a deluge at our borders, and what they are trying to
do is use good information, use intelligence, assemble
information the best they can, coordinate with the Department
of Justice, FBI, other agencies as well, to utilize that
information and pass that. It is certainly information that,
through the STOP! Initiative and through our coordination
efforts, is shared with other agencies. It is also shared with
industry. I know particularly in the instance of the auto
industry, there are trade specialists in the Strategic Trade
Center in Los Angeles, who are focused specifically on the
transportation industry, and they share detailed information
about what they are seizing and where it is coming from with
industry representatives to try to combine that with
information that industry itself has.
As others have noted, the information that industry
captures and has, and knows is as valuable as anything the
government is aware of, and we need to couple that information
to the best of our ability.
Senator Voinovich. Senator Coleman.
Senator Coleman. Thank you, Mr. Chairman. I am going to
start with the international and kind of move it, focus it from
there.
I will be in China in 2 weeks. I think in 2005 U.S. Customs
reported China was the No. 1 source of counterfeit products
seized at our borders. Whoever can respond, how do you assess
the level of cooperation today with the Chinese in dealing with
this issue?
Mr. Israel. I will take a first reaction to that, Senator,
and that is, certainly China, it needs no explanation from me
for everyone to understand, is the primary focus of our
international IP enforcement efforts. It is obvious for all the
reasons you stated.
I think within the last few years we have seen a good level
of cooperation from Chinese leadership. I think this is an
issue that they understand they need to address, not just
because the United States is raising it at a very high level
with them and exploring the utilization of trade tools, such as
a WTO dispute resolution case, as a possible step to take to
address some of these concerns. They are increasingly seeing it
as a threat to their own economic growth and stability over the
long term.
Having said that--and this is something we certainly share
with the Chinese--it is our view that the implementation and
taking action on that cooperation is still a huge challenge in
China. Commitment from leaders in Beijing is certainly a
positive step forward. Putting that in action in the field and
actually turning that into strong enforcement across the entire
country of China, in areas like Guangzhou in southern China,
which is the heart of so many problems that we see,
particularly in the manufacturing area, is--there is a long way
to go, quite frankly, and it is an area that we are now focused
very significantly upon.
So, I think the level of cooperation from Chinese leaders
is positive, and it has been helpful over the last few years. I
think the implementation and acting upon that commitment is
where we need to go in the future and the next step we need to
take.
Senator Coleman. Let me just try others, Brazil and India.
Anyone else want to respond? Are there similar problems? And,
by the way, if anyone else--you are all impacted. I would be
interested in other perspectives, whether you agree or disagree
with----
Mr. Israel. I will try to do it very quickly and then share
some time with my counterparts. I had the chance to be in India
about 2 or 3 months ago, Senator, to address IP enforcement
issues with the Indian Government. We are in a place now where
I think we see tremendous opportunity to work with India in a
constructive way. I think the economic relationship and the
trade relationship between the United States and India is in a
positive place now. Some things were launched as a result of
the President's trip to India several months ago.
On the issue of IP enforcement, again, the Indian
Government is committed to trying to take some steps to improve
enforcement. It is somewhat similar to China in that you see
huge enforcement challenges across a very vast and complicated
country. The individual states within India essentially run
their own enforcement apparatus, so it is very hard to
implement something nationwide in India.
We are doing some positive things with India. The
Department of Justice hosted a 2-week session for Indian law
enforcement officials in California earlier this summer. The
State Department ran a four-city program in India to discuss
this issue with industry leaders and representatives.
So I think we have a finite set of challenges and issues we
need to address with India, but I think we are in a very
constructive and positive place to address those with the
Indian Government.
Senator Coleman. Mr. Pinkos.
Mr. Pinkos. Yes, if I could comment on Brazil, I recently
accompanied Secretary Gutierrez on a trip there in early June.
On the overall IP environment, I would say that it is
improving. But we have been to countries like Brazil, and there
is a long way to go. But they do have a national strategy to
address IP theft, and according to industry statistics, the
amount of counterfeit--or the amount of piracy of copyrighted
works is decreasing. There are deeper problems with patented
products, particularly pharmaceutical products there. One of
the steps we are taking to help address that is part of the
Secretary's trip. We established a commercial dialogue, and one
aspect of that is increased technical cooperation between the
U.S. PTO and NP, which is their patent office. We are beginning
that next month to try to help bring them up to speed, so to
speak, because there are thousands of U.S. applicants that are
waiting in line right there to get that protection. Of course,
then the next step is to actually make it meaningful protection
within the country, but you have to start somewhere.
Senator Coleman. I was going to ask you, Mr. LaPlaca--I am
not sure I have enough time because I have so many questions I
want to ask--whether the private side agrees with the public
side in terms of progress being made in China, or the situation
in India.
Mr. LaPlaca. I think raising awareness is key. From our
perspective at least, from our industry, we go to trade shows
now, and we are starting to see vendors from China who years
ago would come in here and blatantly sell counterfeit products,
are now backing off. And somehow they are getting the message,
whether it is through the efforts of these organizations or
just from enforcement within the industry, I am not sure. But
we start to see some recognition that there are IP laws in the
states that they need to be aware of.
Senator Coleman. Mr. Yager.
Mr. Yager. If I could just add one thing, Senator Coleman.
During the work we did on IP earlier, we visited China, Brazil,
Russia, and Ukraine. And one of the things that we observed
when we were doing that work is that when the United States is
able to join with like-minded individuals in those countries,
it is likely to be much more successful. So when those
countries have their own IP to protect and you work with the
folks that have a stake in it, then success is more likely to
be achieved. I think Brazil is a good example of that. In some
cases, they have quite a bit of intellectual property, whether
it is in music or other things, and in those cases I think the
United States has generally found like-minded groups that they
can ally with and get some success.
In other areas, for example, in pharmaceuticals, those
kinds of conditions may not exist, but I think that is a
strategy that seems to have some real future to it. The
difficulty is that in some countries, frankly, those kinds of
groups are quite small, if you are talking about countries like
Paraguay that really just exist on the illegal stuff and do not
have much of their own in terms of property that they need to
protect. But I think that is a strategy that generally can be
effective.
I noted on the stopfakes website, they do list a lot of
those other groups within other countries, like Brazil and
others, that have an interest in protecting their own
intellectual property.
Senator Coleman. I take it we are going to do another
round, Mr. Chairman?
Senator Voinovich. We are.
Senator Coleman. Good. Thank you.
Senator Voinovich. I would like to follow up on Senator
Coleman. I know when I met with Premier Wen a year ago this
last May, I raised the issue of currency fixing and also
intellectual property rights. He seemed to understand the
problem, but as one of the witnesses pointed out, so often it
is the localities that are involved, and it is just a way of
life for some of them. My goal is to convince other nations
such as China that it is in the best interest of Chinese
businesspeople to protect intellectual property rights.
I just wonder how much work is the Department doing in
terms of American Chambord??? Commercies??? abroad AmChams that
we have got around the country--around the world. I know when I
have visited other countries on trade missions, we spent time
not only with the embassy folks but, more importantly, with
AmCham groups and other groups in those countries that were
basically business organizations. Is there any targeting of
those groups to try and get them engage in this effort?
Mr. Israel. I think, Senator, there is a tremendous amount
of interaction that happens between U.S. officials when they
travel overseas and AmChams and, importantly, just day-to-day
interaction between our embassy teams, our Foreign Commercial
Service teams, and AmChams and other industry groups around the
world.
For instance, in China, where PTO has had an IP attache
posted for the last 2 or 3 years, there is a significant amount
of interaction between the IP enforcement team in China and the
U.S. Federal Government and the AmCham over there. The Quality
Brands Protection Council, which is a number of trademark
owners who have come together to form----
Senator Voinovich. Who is the spokesman? One of the
problems that we identified at former hearings is that we have
got all these various agencies. Who is the spokesman in this
area for us? Is it Gutierrez or who is it that really drives
this home? Is it the Secretary of State? Who is it that
concentrates on this and speaks and says, ``I represent all
these agencies''?
Mr. Israel. With a bit of humility in mind, Senator, I
think that is a bit of the job that our office was asked to do,
was to represent these agencies. Admittedly, that is at a much
lower level, and that does not resonate nearly as much as when
Cabinet officials and, indeed, the President, offer their views
on this.
One thing we have tried to do over the past several years,
the past couple years, in particular through the STOP!
Initiative, is to make sure we are taking advantage of every
opportunity we can that there is coordination within the
government.
Senator Voinovich. Is the President briefed on IP issues
and activities? For instance, when he went to the G-8 meeting,
is he briefed on IP issues so that he can raise this issue with
his colleagues at that level?
Mr. Israel. Yes, sir, I know that was part of his briefing
package. There was a G-8 leaders' statement on IP that came out
of the recent meeting in St. Petersburg. The National Security
Council in the White House, the economic trade team within the
NSC, has really taken a leadership role on this. So it is part
of the package that is prepared for the President as he travels
internationally and addresses economic and trade issues with
his counterparts.
Senator Voinovich. One of the other questions that came up
that was a concern--and I would like Mr. Yager to comment on
this--was that USTR had about 200 people and they continue to
maintain that same number of people. I would like to know where
are they in terms of that staffing? And then what they were
doing is they were reaching out into other agencies in terms of
trying to get an expert here and an expert there. I think the
observation of GAO was that this thing is large enough that
some effort should be made to locate some of that expertise in-
house because they have got enough work to do to justify that.
Mr. Yager. That is right, Mr. Chairman. In our most recent
report about USTR and the human capital challenges they face,
we made two recommendations. One was to work more closely with
the agencies that it relies on. Notwithstanding, the fact that
they might bring more attorneys in, which I think USTR has done
fairly consistently over the last couple years, some of which
focus on particular problems like IP; but in addition to that,
we felt it was important that they do a better job of trying to
coordinate their efforts in a more systematic way with the
agencies that they work with and the agencies that they rely on
to help them, whether it is in negotiating new agreements with
IP provisions or whether it is working with countries like
China that need a great deal of assistance and an awful lot of
encouragement to improve their IP laws.
Oour recommendations were aimed not only internally at the
way they provided centers for their own personnel, but also the
way that they communicate with those other agencies about the
need for those folks to accompany them or to assist them in
achieving the goals like protecting IP.
Senator Voinovich. Mr. Israel, are you aware that the
Senate Appropriations Committee recommended no funding for
NIPLECC in fiscal year 2007?
Mr. Israel. Yes, sir, I am.
Senator Voinovich. The reason the Appropriations Committee
cited for eliminating the funding is the lack of any tangible
action in prior years, including a failure to release an annual
report this year. I recognize that you have not been in your
job very long--I think it was just a year ago?
Mr. Israel. July, sir.
Senator Voinovich. What tangible actions have you
undertaken since that time? And when do you expect to issue a
2006 report? What are you going to do about the committee's
recommendations to eliminate NIPLECC funding? Because I
understand that you work under, and get your funding through
NIPLECC, and if NIPLECC is flat-funded or zeroed out, what
happens?
Mr. Israel. A difficult situation, Senator. First, to
address the topic of the report, as you point out, our office
came online July almost exactly a year. We are this year--and
one reason that the report has not been sent to Congress yet is
that we are in the process of finalizing the report. It should
go into interagency clearance within the next few days. It
should be delivered to Congress and to the President upon your
return in September.
We are, quite frankly, putting much more effort and
emergency and emphasis into this report this year. We are going
to send you a new and improved report. It is going to have
better analysis of the actual coordination that exists between
agencies.
Senator Voinovich. This will be under the auspices of
NIPLECC?
Mr. Israel. Correct, sir. Yes, sir. That will be the
report. It will, in addition, cover both 2005 and to the point
we are at in 2006. It will be more expansive than previous
reports.
It has been our goal to put more effort and more energy
into this report to give Congress and the President a better
assessment and analysis of the actual coordination that exists
to address questions such as the relationship between STOP! and
NIPLECC, to work with agencies to address some of the
priorities that we are setting going forward, to have a
looking-forward section to it as well. So it will be a much
more value-added----
Senator Voinovich. What are you going to do to try to
restore funding? How much money is NIPLECC getting and how much
is going to be cut out?
Mr. Israel. Well, under the current situation, the Office
of Coordination at NIPLECC was funded with $2 million in the
fiscal year 2004 Omnibus Appropriations Act running through
September of the end of this fiscal year. So it has $2 million
to run from 2004 to 2006. The President's request for fiscal
year 2007 was $1 million, so we would continue, obviously, to
urge Congress to look favorably upon the President's request.
I think it would impact the ability of our interagency
process to move forward with a number of the priorities that we
have set through the STOP! Initiative. I think also the removal
of this function, the elimination of the coordination function
at a senior level within the Administration, would also send an
unfortunate signal to U.S. industry and to our international
trading partners that we are downgrading, to some extent, the
focus that we are paying to this issue. Our position is to
continue to provide any and all information to members in terms
of their decisionmaking process on how to allocate resources to
the IP coordination function of the Federal Government in
fiscal year 2007.
Senator Voinovich. If you can get that information to us so
that we are on top of it, we will see if we cannot help get the
money that is necessary. I hope that somebody over in Commerce
is working to resolve those issues.
Mr. Israel. We will provide you any information that would
be helpful, Mr. Chairman.
Senator Voinovich. Senator Coleman.
Senator Coleman. Thank you, Mr. Chairman. I share your
concerns you raised regarding NIPLECC, and I do hope that we
get some information on that.
Let me throw out a question about terrorist funding from
counterfeit, pirated materials. Does anybody have any
information as to whether that is a problem, what we know about
the problem, and what we are doing about it if there is a
problem?
Mr. Alikhan. Senator Coleman, I will take that question. We
have seen at least one case in which there was a tie to
terrorist financing. This was a case in Detroit that was
charged in March 2006 where 19 individuals allegedly operated a
racketeering enterprise that supported Hezbollah by selling
counterfeit Viagra and also contraband and counterfeit
cigarettes.
That, of course, is of concern to the Department of
Justice. Of course, the Department's No. 1 priority is the
prevention of terrorism and concern of prosecuting terrorist
activity. But aside from that one case, we have not seen,
necessarily, a definitive link, but certainly there is the
potential for the use by terrorists of financing through
intellectual property because of the lucrative nature. And we
are remaining vigilant and making sure that message is going
out to the law enforcement agencies to look out for that so we
can prosecute it aggressively.
Senator Coleman. What about on the international level?
Brief mention was made of Paraguay, the tri-border area; there
has been concern that you have funding there that could be used
to support Hezbollah, concern that Hezbollah was involved in
the attack on Israeli--Jewish interests in Argentina that
resulted in death a number of years back. I am not sure how
much of this has been confirmed, but how do we keep track of
the international side, particularly in light of concerns about
Hezbollah activating sleeper cells and other potential dangers
that we face as a result of what is going on today in the
Middle East?
Mr. Alikhan. Well, we certainly can keep track of any
criminal prosecutions that are resulting for that. With respect
to whether, in fact, there is funding for terrorism, I think I
would have to defer that to the intelligence agencies and what
they are learning from that.
Mr. Yager. If I could, briefly. We did a report just a
couple years ago where we looked at a number of the different
ways that terrorists might raise funds, and certainly
counterfeiting and selling counterfeit goods was on the list
because of, again, as others have mentioned, the very lucrative
nature of it, the fact that it is either illegal or at least on
the borders of legality. And I think that is also why it is
quite important to have the allies like Brazil and Argentina,
because in some places like Paraguay, frankly, the central
government does not have the capacity, nor does it necessarily
have the incentive, to try to drive out that kind of an
element, because, in fact, some of the areas, particularly the
tri-border area, thrives on this kind of illegal activity.
So, clearly, there are potential links there, and I think
as Mr. Alikhan mentioned, the intelligence agencies are very
aware of this as well. But it is a fairly significant problem.
In fact, it is almost the only reason that some of these cities
like the tri-border area exist.
Senator Coleman. It would seem to me that common sense
would dictate that this is a great potential problem. Again, I
do not have the detail, but the amount of money involved is
massive. The ability to track it is difficult. And it is just
kind of ripe for something that is problematic.
Just one more question in that regard. In terms of state-
sponsored activity, we talked about China and Brazil, and
obviously we are working with those countries and trying to
deal with this. And some will question whether we are doing
enough. What about renegade states like North Korea and Iran?
Is there any indication of state-sponsored counterfeiting
activities and whether it is having any impact here?
Mr. Israel. Well, I know, Senator--and this, again, I think
falls to some extent within the realm of our intelligence
agencies and our security agencies. I do know of instances in
Korea there have been concerns, counterfeit cigarettes,
counterfeit products--North Korea--which is funding some of the
activities of that government and keeping it afloat to some
extent. And I know the Treasury Department in particular has a
specialized unit that is focused on issues such as that. And
counterfeit currency is also an issue that our Treasury
Department is focused on with regard to North Korea.
I would be happy to consult with them and provide
additional information.
Senator Coleman. I would appreciate that.
Let me go from the global to the local STOP! program. I
think, Mr. Yager, in your testimony you expressed concerns
about the lack of permanency in the program. Could you
elaborate on that a little bit and perhaps give us some
direction as to what we can do to provide some greater long-
term stability and continuity in dealing with these issues?
Mr. Yager. Yes, we did talk about the permanence. In my
oral statement I also talked about the fact that STOP! really
has created some energy while NIPLECC has the permanence and
accountability requirements that allow you to look and see what
has been done from one year to the next. Obviously, I think
everyone here knows that the IP problem will not be solved
within this Administration's timetable, so it has to be a
mechanism that continues to have the kind of attention, as well
as the resources, that are necessary not just through this
Administration but as we go forward.
And as I mentioned, to the extent that there is this
linkage between a permanent mechanism made up by NIPLECC and
the energy that was created with STOP!, that would be a
positive development. But, we also think that the reporting on
that needs to have some of the characteristics that allow
Members of Congress, as well as others, to understand what is
being done, the kind of accountability requirements in terms of
results, leadership, some very specifically defined roles and
responsibilities for the different agencies, and how those
roles reflect the other agencies' internal goals.
And so I think that those are the kinds of things that we
look for in a strategy, and we will be, in fact, reviewing the
strategy to see if it has those kinds of characteristics that
will allow you to look from one year to the next and really
track the kinds of successes, as well as the challenges, that
this organization will face.
Senator Coleman. Thank you, Mr. Yager. Thank you, Mr.
Chairman.
Senator Voinovich. Have you reviewed the legislation that
Senator Bayh and I have introduced?
Mr. Yager. Yes, Mr. Chairman, we have. I think that there
are a couple of things. Obviously, some of the more common
features that we typically look for when you are talking about
a group like this, which is designed to bring together so many
different agencies--and I mentioned a couple of them before,
but clear goals and objectives as well as performance measures,
some discussion of the risks and the threats associated with
it. The cost and resources are obviously something that you
have always been interested in, particularly the human capital
resources, the delineation of roles and responsibilities, and,
in particular with this group, the relationship of this new
organization to the existing organization of NIPLECC, as well
as where will that leadership be.
We know in your legislation you have designated OMB as
chairing this particular group, and one of the things that we
have observed is that, obviously, it is important to have
someone who is clearly in charge of this effort, and that
person has to have the respect and certainly the participation
of the different agencies. And so, we have seen different ways
that this has happened, and, frankly, it depends upon the level
of energy and the amount of assistance that the interagency
mechanism provides.
I do not think it is as important as to where it is, as
long as there is a dynamic group and someone who leads that
group and can get the agencies to participate.
Senator Voinovich. One of the things I am worried about is
that we have this energy or IP efforts, but as it is an
Executive initiative, and it is extinguished after we get a new
President in place. I am trying to figure out how do we
institutionalize the current efforts in a way that does not
burden the next Administration. But NIPLECC has been around for
how long?
Mr. Israel. Since 1999.
Senator Voinovich. I would like to work with you folks on
trying to figure out what the relationship is and how we can
expand and improve it.
Now, Mr. Pinkos, is your budget part of NIPLECC's budget,
or do you get your money from some other source?
Mr. Pinkos. We get our money from patent and trademark
applicants. We get no money from the general treasury, so a
certain amount of money is used on our public policy and our
training and enforcement efforts.
Senator Voinovich. The Patent Office, you are on their
payroll?
Mr. Pinkos. That is correct.
Senator Voinovich. So it is separate? And you get your
money from Commerce under NIPLECC, right?
Mr. Israel. Correct.
Senator Voinovich. OK. Can you give me for the record the
number of people that you brought on as a result of this? I
would like, for example, in terms of the--how many lawyers do
you have? I would really like to know the results of the
telephone calls that come in to the PTO and what happens with
them. Because that gives us an idea about the level of
activity, and does anybody track results? Is there any follow-
up as to whether anything has taken place or not?
Mr. Pinkos. We are focused very much on results, and we can
provide a lot of those numbers to you for the record.
Senator Voinovich. Do you collect data from these calls in
terms of the specific issues? Have you developed any plans to
collect, analyze, and disseminate this data to other agencies
or the private sector?
Mr. Pinkos. We collect data about the nature of the
problem, where people are calling from, what advice we
provided. Initially our determination was for privacy reasons,
we were not keeping the person's contact information because
certainly some people did not want to provide that. And then,
also, there are FOIA issues.
We are re-examining that part of the issue. We are
instructing our folks to make sure that they have the contact
to call us back if they have follow-up questions or if they are
having a problem with another agency and they were not able to
get through. So we do that, but we are not following back up
with them currently to see what came to pass with their
particular issue.
Senator Voinovich. OK. And you will be able to give me that
information about the staffing, the human capital part of it?
Mr. Pinkos. Absolutely. Some of it off the top of my head
is we have spent $25 million this year--we will have spent in
2006, and that includes sending attaches overseas to seven
different countries to focus on IP issues. And we have
increased our staffing--significantly, and I will get you those
numbers as well.
Senator Voinovich. And the Foreign Commercial Service
(FCS), you have got a special program for them----
Mr. Pinkos. That is right.
Senator Voinovich [continuing]. To upgrade their
information so they are better prepared to handle these issues?
Mr. Pinkos. Well, the Foreign Commercial Service, if I
could speak a little bit for them: One, we are partnering with
the Foreign Commercial Service and State Department on the
attache program, sending these IPR experts to the hot spots
around the globe. They have a particular--well, it is actually
part of ITA, but not part of the Commercial Service, a case
referral system that I think you have heard about with China,
when someone alleges a systematic problem there. And I know
that is sophisticated, monitored, etc., but I cannot speak much
more about Mr. Israel has had some exposure to FCS, maybe, but
I don't know precisely how all their systems work.
Mr. Israel. Just a couple of things, Senator. Definitely,
FCS has over the past 2 years--and we can provide some
information to you about the type of material that is being
provided to Foreign Commercial Service officers overseas to
allow them to be more understanding of IP issues, to be better
responders to companies that are coming to them in the
countries they are posted in and help them out.
Senator Voinovich. A lot of those guys show up at those
AmCham meetings, too. They are very active.
Mr. Israel. Very active. It is an amazingly effective tool
that we have internationally. Our Foreign Commercial Service is
also working internationally on trade show initiatives and to
make sure that if they are engaged in a trade show, as Foreign
Commercial Service often is internationally, that there is a
strong program in place and a strong policy in place by those
trade show organizers. So the U.S. Government will never be
involved in a foreign trade show that does not have a strong
intellectual property enforcement program and policy in place.
Senator Voinovich. Have you been able to observe the
Customs and Border Patrol? And do you feel the Department of
Homeland Security has enough resources, including staffing and
funding, to effectively and efficiently combat IP issues at the
border?
Mr. Israel. I have had several opportunities to work, and
work very closely, with Customs and Border Protection officials
over the past year. We have also expanded our interagency
coordination efforts to include Immigration and Customs
Enforcement (ICE), to bring them into the STOP! program, and
also to allow them to participate in NIPLECC.
I would defer any questions regarding their resources and
funding levels to DHS officials, but as I said, I do get the
sense--and I know this is the reality--that this is a trade
priority for them. IP enforcement is a strategic trade priority
for the Department of Homeland Security. They have a Strategic
Trade Center based in Los Angeles, with IP specialists who are
focused on providing information to agents throughout the
Customs infrastructure. Their seizure numbers have gone up
significantly over the past 3 or 4 years. They are reaching out
very aggressively to industry. They have put tools in place,
such as a recordation system, an online recordation system that
allows companies to record their trademarks with Customs to
provide information to Customs in an online database that is
then used by their agents at the border to give them
information, for instance, about how you discern differences
and how you pick up a counterfeit good when it comes in. An
agent is faced with a shipment at 3 o'clock in the morning, and
they have to make a very quick decision about whether or not
they feel it is counterfeit or not. Customs is putting a big
priority on working with industry to generate that type of
expertise and information through intelligence gathering, and
through tools such as their recordation system.
So, I think there is a tremendous amount of effort and
emphasis that Customs has put into this problem. They realize
it is a very huge trade issue they need to deal with.
Senator Voinovich. So your assumption is that they probably
are putting a lot more resources into IP enforcement than they
did before?
Mr. Israel. I would want to verify that. I would not want
to assume that, Mr. Chairman.
Senator Voinovich. Well, we have jurisdiction over them, so
we will get it.
Mr. Israel. OK.
Senator Voinovich. Mr. Yager.
Mr. Yager. Yes, Mr. Chairman, if I could just make a point.
In our written testimony on page 15, we talk about some initial
observations from the work that we currently are performing for
this Subcommittee, and our initial findings are that the
resources to address this kind of issue have been dropping, and
fairly significantly. We have not been to all the ports, and we
have not completed our survey. We have been in some very
important points like Los Angeles, Long Beach, San Francisco,
Philadelphia, and others, and our initial findings are that the
number of people who are available to do this kind of work is
decreasing.
And I certainly agree with Mr. Israel, the challenges
associated with this, because of the volume, the sophistication
of the products, make that job very difficult. We are going to
be reporting soon on the level of resources that we are able to
find more systematically across the country. But, at least in
Long Beach and Los Angeles, for example, we found that the
number of CBP officers--those are the front-line officers that
are opening the boxes, looking inside, trying to determine
whether the goods are accurately described in the manifest, as
well as the entry document, we found they dropped by about 43
percent. And in addition to that, the import specialists, those
are the folks that the Customs and Border Patrol officers call
up and they say, ``I have got some auto parts here. I frankly
cannot tell whether this is a legitimate part or not. Can you
help me out? Can you come look at it? Can I put a hold on this
long enough to determine whether it is legitimate or not?''
Those folks have also dropped in some of those key ports. So I
think that there are reasons to be concerned about the level of
resources.
Also, just one quick mention. CBP is putting out this risk
model. They are trying to develop a risk model to help them
select the highest-risk shipments so that they can focus their
resources on the ones that are the highest risk. But that is
still a work in progress. It has not been implemented fully.
They are going to run another trial during the summer, but that
particular model is not operational at this point, and it is
obviously a very important way to try to target their efforts
on the highest-risk shipments. And we would certainly support
that kind of a risk-based model, but, frankly, it is not
working yet. And they need to get that working in order to make
maximum use of the personnel that they have.
Senator Voinovich. OK. In GAO's area of oversight, have you
looked at Mr. Israel's efforts to coordinate U.S. IP
enforcement efforts?
Mr. Yager. Well, the work that we are doing for this
Subcommittee really is what is happening at the border. So it
would address exactly the kind of question that you just put on
the table, which is, What is the status of the efforts at the
U.S. border, particularly with CBP? And so that is the focus of
the project that we are doing for this Subcommittee.
We are also doing some work for the House Government Reform
Committee, which is looking at the national strategy and seeing
whether the kinds of things that you can use for effective
oversight are present in the strategy that will be put
forward--as we hear now from Mr. Israel, is going to be put
forward in the next month or so. So we really have efforts
along both of those different avenues.
Senator Voinovich. Maybe we ought to get a letter. What I
would like to do, would be to look at what Mr. Israel is doing,
what Mr. Pinkos is doing what the Justice Department is doing,
and the other agencies, to better understand whether or not we
have the resources employed to get the job done.
One of the things that really bothers me--and it should
bother, I think, the people of our country--is that the non-
defense discretionary budget is being squeezed. And the
President does not get credit for this, but, I mean, if you
look at those budgets, many of the department budgets are less
this year than they were last year. And at the same time, we
are asking them to do more.
I think that we really need to better understand what
resources do you need to get the job done. Just like Mr.
LaPlaca, you say you have X number of people, they are all
busy, and you say, here are two other things for them to do.
And they say, well, what am I doing now that I am going to stop
doing so I can do this new task.
It seems to me that this is a significant enough--I mean, I
really believe--and I think that--again, I am not as eloquent
as Senator Coburn, but the fact of the matter is that
intellectual capital is the last competitive advantage that we,
as a Nation, have. If people can steal our intellectual
property, we are dead. We are not a cheap labor nation and
other costs, such as energy and healthcare, remains high, but
the new ideas that come up will keep us ahead. If our
competitons can take that advantage away from us, then we are
really in bad, bad shape.
Mr. Israel, you are in Commerce. That is your shop, right?
Mr. Israel. I am based on Commerce Department, yes.
Senator Voinovich. I am going to ask Secretary Gutierrez,
to allow you to sit down and look at what would be the ideal
operation to make this thing work effectively. OK? In other
words, you are starting to get a feel of how all these
processes and agencies come together, and it is all over the
lot. I am not asking that it all come under one head agency,
but it needs coordination. I want to know, what are your
thoughts on how to best coordinate the Nation's efforts? What
are the resources that we would need in these various agencies
and departments to really get this job done? Because I think
that if we can--and sometimes those of us in Congress--that is
my big complaint--that the Congress, we are always coming up
with how you guys ought to do things, and from my experience as
a governor and mayor, usually the best way to find out how to
get something done is to go to the people who really are doing
it.
But, I have this legislation--we think it is good, but I
don't know how it would effect your daily efforts. I would
really like to have you look at it and say, from your
perspective, this is the ideal way this thing can be organized.
It may require us to do away with some existing efforts and do
something else new and innovative. But I think that it would be
a great gift to your country, and a great legacy for the Bush
Administration, to come up with something in this area, so that
once you complete your public service, we know that your
efforts will continue. I believe that if the folks we are
dealing with, the countries and the companies in those
countries, understand that we have got a bunch of people that
get up early in the morning and go to bed late at night working
on this issue, that we are going to start to see some real
progress. But if they think we are just putting in half the
resources that we need to get the job done we will not see
enough progress. But if we devote enough resources to these
efforts, I think that we will make some significant headway in
terms of dealing with this problem.
And, Mr. LaPlaca, I am going to look forward to getting
your information back on some of the legislation that is
pending.
I just want you to know that I am going to stay on this
issue. I think it is important as part of our oversight of
government management. So I just want all of you to know that
this is not just something that I will let go until we get the
job done. So you have my commitment that I am going to stay
with this, and if you put your time in, you can be assured I
will do everything I can to help you do the work.
So, I really thank you for coming today. This has been
really worthwhile. I know a lot of my colleagues are
interested. Before these hearings, we held a staff briefing and
several Senators are really interested in this subject, so we
have got some allies out there.
Thank you very much. The hearing is adjourned.
[Whereupon, at 5:05 p.m., the Subcommittee was adjourned.]
A P P E N D I X
----------
PREPARED STATEMENT OF SENATOR LEVIN
I commend Senator Voinovich for holding a hearing to look at the
progress we are making in the protection and enforcement of our
intellectual property rights laws as a follow up on the hearing he
chaired last year on this topic.
People may not realize intellectual property theft is not just
movies, high end handbags and watches being knocked off. Counterfeiting
has exploded in recent years across many industries to become a serious
threat to the competitiveness of the U.S. economy. One of the greatest
assets of American businesses is their intellectual property, but when
American innovations can quickly be stolen by competitors around the
world the vitality of those businesses is at risk. The FBI estimates
that counterfeiting costs U.S. businesses $200 billion to $250 billion
annually, and growing. Counterfeiting money is a serious crime and
treated as such. The Counterfeiting of products is a serious and
growing crime, and the Justice Department and other Federal agencies
should be doing more to fight it.
We know that China is the primary source of counterfeit auto parts
and components and product counterfeiting is one of the U.S. auto parts
industry's greatest concerns with China along with currency
manipulation and the ongoing U.S.-European Union and Canadian WTO case
challenging China's auto parts tariffs. The U.S. auto parts industry
conservatively estimates it loses $12 billion annually to counterfeit
auto parts and China is responsible for about three-fourths of that or
$9 billion.
The auto parts industry estimates millions of counterfeit auto
parts enter the U.S. every year and only a fraction of them are ever
detected at the border. We need to act to stop it cold--because
counterfeit and pirated automotive parts mean lost revenue and jobs in
the Untied States. The FTC estimates that the auto industry could hire
250,000 additional Americans if the sale of counterfeit parts were
eliminated. Fake parts also undermine U.S. safety standards and put
customers at risk.
If I can relay only one message to today's witnesses representing
some of the Federal agencies working to combat intellectual property
theft, it is to urge you to increase your prosecution of auto parts
piracy. So far there has been a lack of willingness to initiate
criminal cases against auto parts counterfeiters because it was not
viewed as a serious enough problem by the Department of Justice. The
industry knows of only one prosecution for auto parts counterfeiting.
The Department of Justice told us they were unaware of any pending
case.
I certainly hope these statistics will change as the U.S.
Government's initiatives to combat counterfeiting take shape and that
we will begin to vigorously protect America's intellectual property.
If the government won't act against currency manipulation by our
trading partners as they should, if it won't force open export markets
for U.S. products blocked by tariff and non-tariff barriers and
aggressively enforce U.S. trade laws as they should, the least it can
do is enforce our anti-counterfeiting laws.
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