[Senate Hearing 110-782]
[From the U.S. Government Publishing Office]
S. Hrg. 110-782
EXAMINING U.S. GOVERNMENT ENFORCEMENT OF INTELLECTUAL PROPERTY RIGHTS
=======================================================================
HEARING
before the
COMMITTEE ON THE JUDICIARY
UNITED STATES SENATE
ONE HUNDRED TENTH CONGRESS
FIRST SESSION
__________
NOVEMBER 7, 2007
__________
Serial No. J-110-60
__________
Printed for the use of the Committee on the Judiciary
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48-142 PDF WASHINGTON : 2009
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COMMITTEE ON THE JUDICIARY
PATRICK J. LEAHY, Vermont, Chairman
EDWARD M. KENNEDY, Massachusetts ARLEN SPECTER, Pennsylvania
JOSEPH R. BIDEN, Jr., Delaware ORRIN G. HATCH, Utah
HERB KOHL, Wisconsin CHARLES E. GRASSLEY, Iowa
DIANNE FEINSTEIN, California JON KYL, Arizona
RUSSELL D. FEINGOLD, Wisconsin JEFF SESSIONS, Alabama
CHARLES E. SCHUMER, New York LINDSEY O. GRAHAM, South Carolina
RICHARD J. DURBIN, Illinois JOHN CORNYN, Texas
BENJAMIN L. CARDIN, Maryland SAM BROWNBACK, Kansas
SHELDON WHITEHOUSE, Rhode Island TOM COBURN, Oklahoma
Bruce A. Cohen, Chief Counsel and Staff Director
Stephanie A. Middleton, Republican Staff Director
Nicholas A. Rossi, Republican Chief Counsel
C O N T E N T S
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STATEMENTS OF COMMITTEE MEMBERS
Page
Cornyn, Hon. John, a U.S. Senator from the State of Texas........ 1
Leahy, Hon. Patrick J., a U.S. Senator from the State of Vermont. 6
prepared statement............................................... 127
Specter, Hon. Arlen, a U.S. Senator from the State of
Pennsylvania, opening statement................................ 145
WITNESSES
Bayh, Hon. Evan, a U.S. Senator from the State of Indiana........ 3
Israel, Chris, U.S. Coordinator for International Intellectual
Property Enforcement, Department of Commerce, Washington, D.C.. 7
Moore, Chris, Deputy Assistant Secretary for Trade Policy and
Programs, Bureau of Economic, Energy and Business Affairs,
Department of State, Washington, D.C........................... 9
O'Connor, Kevin J., U.S. Attorney for the District of
Connecticut, and Chairman, Task Force on Intellectual Property,
U.S. Department of Justice, Washington, D.C.................... 10
PRE-HEARING QUESTIONS AND ANSWERS
Responses of Kevin O'Connor to questions submitted by Senator
Coburn......................................................... 19
QUESTIONS AND ANSWERS
Responses of Chris Israel to questions submitted by Senators
Leahy, Hatch and Coburn........................................ 24
Responses of Kevin O'Connor to questions submitted by Senators
Leahy, Hatch and Coburn........................................ 33
Questions submitted by Senator Hatch to Chris Moore (Note:
responses to questions were not received as of the time of
printing, April 1, 2009)....................................... 43
SUBMISSIONS FOR THE RECORD
Bayh, Hon. Evan, a U.S. Senator from the State of Indiana,
statement...................................................... 44
Forman, Marcy M., Director, Office of Investigations, U.S.
Immigration and Customs Enforcement, Department of Homeland
Security, Washington, D.C., statement.......................... 49
GAO, Intellectual Property, Strategy for Targeting Organized
Piracy, Washington, D.C., report............................... 56
Israel, Chris, U.S. Coordinator for International Intellectual
Property Enforcement, Department of Commerce, Washington, D.C.,
statement...................................................... 113
Moore, Chris, Deputy Assistant Secretary for Trade Policy and
Programs, Bureau of Economic, Energy and Business Affairs,
Department of State, Washington, D.C., statement............... 128
O'Connor, Kevin J., U.S. Attorney for the District of
Connecticut, and Chairman, Task Force on Intellectual Property,
U.S. Department of Justice, Washington, D.C., statement........ 134
U.S. Trade Representative, Washington, D.C., November 2007,
mission........................................................ 147
Voinovich, George V., a U.S. Senator from the State of Ohio,
statement...................................................... 149
EXAMINING U.S. GOVERNMENT ENFORCEMENT OF INTELLECTUAL PROPERTY RIGHTS
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WEDNESDAY, NOVEMBER 7, 2007
U.S. Senate,
Committee on the Judiciary,
Washington, D.C.
The Committee met, pursuant to notice, at 2:11 p.m., in
room SD-226, Dirksen Senate Office Building, Hon. Patrick J.
Leahy, Chairman of the Committee, presiding.
Present: Senators Leahy and Cornyn.
OPENING STATEMENT OF HON. JOHN CORNYN, A U.S. SENATOR FROM THE
STATE OF TEXAS
Senator Cornyn. Senator Leahy has been detained, but he is
en route and in the interest of time asked that we go ahead and
get started. Let me start with a brief opening statement, and
then I will turn it over to our distinguished colleague from
Indiana, Senator Bayh.
First of all, I want to express my gratitude to Senator
Leahy for convening this important hearing on protection of
intellectual property. He and I are introducing a bill today
that provides additional tools to the Justice Department and
which strengthens our anti-piracy and anti-counterfeiting laws.
Our bill reflects extensive input from the content community as
well as the Department of Justice, particularly the DOJ's Task
Force on Intellectual Property.
The Leahy-Cornyn Intellectual Property Enforcement Act of
2007 is another example of bipartisan cooperation on an issue
of critical importance to the United States economy and U.S.
consumers. This legislation builds on previous legislation
Senator Leahy and I cosponsored, the Protecting American Goods
and Services Act of 2005, which passed the Senate during the
109th Congress.
I am proud that the Chairman and I have been able to work
together on this and other IP legislation, like the Patent
Reform Act and the Vessel Hull Design Protection Act. I am also
proud of the work that this Committee has done and to be able
to work with another distinguished colleague on the Judiciary
Committee, Senator Feinstein, on the Artists' Rights and Theft
Prevention, or ART, Act. That legislation, which was signed
into law by President Bush in 2005, criminalized the use of
recording devices in movie theaters and provided stiff
penalties for violators.
Earlier this year, Senator Feinstein and I were alerted to
the fact that Canadian-sourced camcordings had jumped in 2006
by 24 percent and Canadian theaters were suspected to be the
source for nearly half of all illegal camcordings. It became
clear to us that changes to the U.S. law was not enough, and we
wrote to Prime Minister Harper and urged the Canadian
Government to consider similar legislation. We are pleased to
learn that, in June, Canada took a decisive step toward
combating camcording-generated piracy by enacting legislation
modeled on the ART Act.
I know there is another area of bipartisan agreement, and
that is the hard work that is done by our anti-counterfeiting
and anti-piracy experts and enforcement personnel throughout
the Federal Government. We should endeavor to give them all the
tools that they need to fight this growing problem.
To its credit, the administration has devoted significant
resources and personnel to fighting pirated and counterfeit
goods. The Department of Justice's Task Force on Intellectual
Property, represented here today by Mr. O'Connor, is an
integral part of these efforts and provided significant input
into the legislation that the Chairman and I have introduced
today.
I think it is important to recognize a few of the recent
accomplishments in this regard. For example, there has been a
surge of seizures in counterfeit goods by Customs and Border
Protection, nearly a doubling from 2005 to 2006. The Department
of Justice has deployed more than 230 specialized intellectual
property prosecutors across the country since 2004, and there
has been a significant increase in the number of Federal IP
prosecutions, 287 convictions in fiscal year 2007 versus 2,013
convictions in fiscal year 2006.
The President has launched the Anti-Counterfeiting Trade
Agreement, which is a major new initiative with several trading
partners, including the European Union and Japan. This accord
aims to raise the bar on IP enforcement across the globe.
The administration has implemented, I believe, effective
and coordinated strategies to address key concerns like China
and Russia. This administration brought the first intellectual
property cases against China in the WTO and is leading the
effort to improve intellectual property enforcement in Russia
prior to that Nation joining the WTO. These are significant
developments, and there is much more to be done. The FBI
estimates that counterfeiting costs companies in the United
States somewhere on the order of $250 billion a year. And we
must confront the fact that profits from counterfeiting and
piracy wind up in the hands of those who may wish America harm.
We know, for example, that confiscated al Qaeda training
manuals have recommended the sale of counterfeit goods as a
revenue stream for its operatives. This disturbing fact alone
should motivate our work to combat counterfeiting and piracy.
When the Founding Fathers put the protection of
intellectual property in the Constitution, they recognized the
unique and unlimited creativity of the American people and the
impact that American innovators would have on the world in the
areas of art and technology. It is our obligation to protect
those innovations as well as American consumers, and I look
forward to learning here today about the administration's
progress and the ways that Congress can continue to provide the
necessary tools.
Finally, again, I want to welcome our distinguished
colleague, Senator Bayh, who has contributed with his own
intellectual property legislation, along with Senator
Voinovich, which I look forward to learning more about this
afternoon.
Senator Bayh, let me turn it over to you.
STATEMENT OF HON. EVAN BAYH, A UNITED STATES SENATOR FROM THE
STATE OF INDIANA
Senator Bayh. Thank you, Senator Cornyn. I appreciate your
courtesy in allowing me to offer my thoughts today about an
issue that is of great importance to businesses and workers
across our country, and particularly in my home State of
Indiana. I hope you will relay my thanks to the Chairman. I
know the Committee has many pressing matters before it,
including the matter you dealt with yesterday, the next
Attorney General of the United States, judicial nominations,
patent protection, among other things. And so I thank you and
the Chairman for making intellectual property protection a
priority by having this hearing today.
On a personal note, I cannot help but come before your
Committee with at least some nostalgia. My father served on
this Committee for 18 years, and so I know firsthand about the
good work that you do, and it is an honor to be with you again
today.
Since the founding of our Republic, innovation has been a
driving force behind our national prosperity. As you pointed
out, Senator, the Constitution's Framers listed intellectual
property protection as the eighth enumerated power of Congress
in Article I, Section 8. It is listed even before governing
imperatives like forming a court system.
Consistent with our historic responsibility, members of
this body have over time crafted a system of intellectual
property rights protection that has become a successful
catalyst for economic growth and job creation. A recent study
traced 30 to 40 percent of all U.S. productivity gains over the
last century to economic innovation. Further studies have found
that IP-intensive industries pay wages almost 50 percent higher
than firms that are not IP focused.
Today however, many of our innovators are being undermined
by countries that refuse to play by the rules of the global
marketplace. American companies have lost almost 750,000 jobs
because of intellectual property theft, making it a major
impediment to employment growth.
Consumer safety concerns are also very real. Counterfeit
pharmaceuticals and auto and aviation parts have caused serious
injuries and death. An estimated 2 percent of the 26 million
airline parts installed each year are counterfeit. Fake goods
account for 10 percent of all pharmaceuticals.
Finally, as you pointed out, Senator, there is a serious
national security dimension to this problem. For example, the
United States seized an al Qaeda training manual in Afghanistan
that recommended the sale of counterfeit goods as a source of
terrorist funding. And also, at the time of the first attack on
the World Trade Center, there were reports that that attack
might have been funded in part by the sale of counterfeit
goods. So there is a pressing national security dimension to
this challenge.
Earlier this year, I joined with Senator Voinovich in
introducing S. 522, the Intellectual Property Rights
Enforcement Act, to improve the Government response to this
problem. The administration has taken some good first steps
with its STOP initiative, but we are still lacking the kind of
high-level coordination and accountability needed to deal
effectively with this problem.
Our legislation was crafted--welcome, Mr. Chairman, at
least temporarily. That is all right.
Our legislation was crafted after extensive consultations
with private industry groups to identify the flaws with our
domestic and international IP enforcement regime. What emerged
from these consultations was a consensus that interagency
coordination is lacking in a number of important areas, and
international cooperation on enforcement is weak at best.
Under our current fragmented approach, we see a stovepiping
effect in which communication occurs vertically within agencies
but not horizontally throughout the Government. As you know all
too well, interagency coordination is critical to the success
of any large-scale Federal effort.
Currently, there is no plan for how agencies should work
together on this problem. Current reporting requirements to
Congress merely show what agencies are doing individually, not
collectively as part of the united force. There is no
indication of which organizations will provide the overall
framework for oversight and accountability.
Last November, the GAO released a study that echoes this
critique of the shortcomings of our current approach. With the
Chairman's permission, I would like to enter this GAO report
into the record, along with my statement.
Chairman Leahy. Without objection.
Senator Bayh. Thank you, Mr. Chairman.
I hope that members of the Committee will review this
report and promptly move legislation to the floor, because
there are many systemic problems in our Government's approach
to IP rights enforcement that require immediate corrective
action. Our legislation requires a permanent strategy that
addresses some of these flaws. It requires U.S. Government
agencies to unify as part of an intellectual property
enforcement network. It would vest responsibility for IP
enforcement with a Senate-confirmed Government official--the
Deputy Director for Management of the OMB. The Deputy Director
would be responsible for submitting to Congress a strategic
plan that includes objectives for IP enforcement, means for
measuring results, and how agencies are to work together.
Currently, Congress plays no meaningful role in IP
enforcement other than appropriating funds and asking for
briefings from administration officials. American workers,
businesses, and taxpayers have the right to expect that we will
take more of a leadership role in the face of a serious problem
affecting our national economy and so many of our constituents.
The OMB is uniquely situated to address the flaws in our
current approach. Curbing global IP theft involves criminal
prosecutions, border enforcement, trade policy, and
international relations. Setting priorities and budgets for
such a broad multi-agency effort is outside the scope of the
Department of Justice, Homeland Security, or the U.S. Trade
Representative alone. We need a stronger management presence to
ensure that separate agencies are part of a single mission,
thereby increasing overall efficiency and effectiveness.
Our approach would also establish an international task
force of concerned countries to track and identify IP
criminals. The task force would be modeled on a similar
international team that fights money laundering and other black
market crimes. The task force will grant membership solely to
countries with adequate IP protection laws and a track record
of enforcing those laws. Today, international cooperation in
many organizations is hampered by the worst global actors being
part of those organizations. Our legislation envisions the
United States sharing information on criminal activity and even
engaging in joint enforcement operations. Such a close-knit
arrangement can only flourish among trusted allies.
A broad coalition of interests dissatisfied with the
current approach supports our legislation. More than 500
companies, labor groups, and other organizations as diverse as
the U.S. Chamber of Commerce, the AFL-CIO, the National
Association of Manufacturers, and United Auto Workers have
endorsed our strategy.
Mr. Chairman, time is of the essence on this issue. The
STOP program expires when the President leaves office. Our
legislation will ensure that robust IP protection is a
permanent priority regardless of the politics of the moment.
In closing, Mr. Chairman, I would simply say this: The
heart of America's competitive advantage lies in the economy of
tomorrow, an economy that is being invented and discovered each
and every day. Until we take more aggressive action to curtail
IP theft, we will continue to be robbed of profits, jobs, and
legal protection for our best ideas. A stronger and more
effective approach is needed to prevent the United States from
losing its most valuable asset in the global marketplace--our
innovators and entrepreneurs.
Mr. Chairman, I want to take this opportunity to thank you
for making this subject a priority--I know how busy the
Committee is--and for your courtesy in allowing me to share my
thoughts with you today.
Thank you.
Chairman Leahy. Well, thank you, Senator Bayh. I also want
to thank Senator Cornyn for stepping in. He has been a partner
with me on so much of this material where we tried to
demonstrate to the Senate that it is not a partisan matter. We
have passed, I think, the PIRATE bill three times, John, in the
Senate? And we have reintroduced it again this morning to allow
the Department of Justice the authority to prosecute copyright
violations and civil wrongs, and we will continue to support
that.
I know you have to be at other places, Senator Bayh, so you
are welcome to stay, but you are welcome to leave, too.
John, do you have anything?
Senator Cornyn. No. Thank you.
Senator Bayh. Thank you very much, Mr. Chairman.
Thank you, Senator Cornyn.
[The prepared statement of Senator Bayh appears as a
submission for the record.]
STATEMENT OF HON. PATRICK J. LEAHY, A U.S. SENATOR FROM THE
STATE OF VERMONT
Chairman Leahy. You know, I was going to say earlier that
intellectual property--our copyrighted works, our trademarked
goods, our patented inventions--is the engine that drives our
U.S. economy. Intellectual property, I am told, accounts for
around 40 percent of our Nation's exports. At a time when the
dollar is sliding so precipitously against other currencies, we
have to increase our exports.
We also consume it voraciously here at home. IP is the
medicine that cures us, the movies that thrill us, the music
that inspires us, the software that empowers us, the technology
that aids us. It is everywhere in our lives, and it is very
important in our economy.
Unfortunately, the piracy and counterfeiting of
intellectual property is at an unprecedented high, certainly
way beyond anything I saw when I first came to the Senate.
Copyright infringement alone costs the U.S. economy at least
$200 billion and also 750,000 jobs each year. Not only does
piracy infringe these rights, but it can also endanger our
health and safety when there is counterfeiting of things that
we depend upon for our health or our safety--fake drugs that
look just like the real thing or tainted infant formula sold to
unsuspecting parents, electrical appliances that have shoddy
insulation, automobile parts that fail under stress--like
brakes. These kinds of goods are proliferating. They are often
difficult to distinguish from the real ones.
I have worked for years to strengthen our laws and to give
our law enforcement the powers they need. We passed in the last
Congress the Stop Counterfeiting in Manufactured Goods Act,
which expanded the prohibition on trafficking in counterfeit
goods to include trafficking in labels or similar packaging
with knowledge that a counterfeit mark had been applied to
those goods. I have regularly authored amendments to the State
Department's appropriations bill. My amendments have provided
millions to the Department in order to send staff overseas
specifically to combat piracy in countries that are not members
of the Organization for Economic Co-Operation and Development,
or OECD.
In the current Congress, there are a number of other bills
along with Senator Cornyn's and my PIRATE Act. Senator Bayh
introduced a bill focused on interagency coordination. Senator
Biden recently introduced omnibus crime legislation that has
many provisions suggested by the Department of Justice. There
are bound to be more.
I worry that anything like this, if it is addressed
piecemeal, could be a mistake. It is far too important to be
addressed piecemeal. To have the greatest change, we have to
examine enforcement efforts from the top down. So in our second
panel--and I would invite you to come forward. I will first let
the people who actually make this place run, the staff, put up
the names.
Mr. Chris Israel is the United States Coordinator for
International Intellectual Property Enforcement, serving as
head of the National Intellectual Property Law Enforcement
Coordination Council. Is it true that it is called NIPLECC?
Mr. Israel. Yes. We did not name it, Senator.
Chairman Leahy. I know you did not. But what it does, it
includes the Departments of Commerce, Justice, State, and
Homeland Security, and the U.S. Trade Representative. Before
becoming the U.S. Coordinator, Mr. Israel was Deputy Chief of
Staff first to Commerce Secretary Donald Evans, then to the
current Commerce Secretary, Carlos Gutierrez.
Chris Moore is the Deputy Assistant Secretary of State for
Trade Policy and Programs in the Bureau of Economic, Energy,
and Business Affairs, and oversees the State Department's
activities to strengthen intellectual property rights
protection. Prior to the State Department, he served in both
the Office of the U.S. Trade Representative and the Department
of Commerce.
Kevin O'Connor currently serves as United States Attorney
for the District of Connecticut, as Chief of Staff to the
United States Attorney General, as Chairman of the Department
of Justice Task Force on Intellectual Property, and was a
partner before that in the law firm of Day, Berry & Howard. I
believe you served in the Securities and Exchange Commission,
too. Is that correct, Mr. O'Connor?
Mr. O'Connor. That is correct, Senator.
Chairman Leahy. Mr. Israel, why don't we begin with you,
sir.
STATEMENT OF CHRIS ISRAEL, U.S. COORDINATOR FOR INTERNATIONAL
INTELLECTUAL PROPERTY ENFORCEMENT, U.S. DEPARTMENT OF COMMERCE,
WASHINGTON, D.C.
Mr. Israel. Thank you, Chairman Leahy. I am pleased to join
you today to discuss the U.S. Government's intellectual
property enforcement efforts.
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, provide an account of some of the progress we have
made, and, finally, give 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.
Few issues 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 all U.S. exports. They represent 40 percent of
our economic growth and employ 18 million Americans, who earn
40 percent more than the average U.S. wage. This growth in
prosperity is put in jeopardy, however, by rampant theft of
intellectual property. Quite simply, a secure and 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 major
trade, economic, health, and safety issue for the Bush
administration. We seek every opportunity at every level to
engage our trading partners, strengthen our enforcement
capabilities, and collaborate with industry.
As this Committee understands, the problem of global piracy
and counterfeiting confronts many industries, exists in many
countries, and demands continuous attention. With finite
resources and seemingly infinite concerns, how we focus our
efforts is crucial. A critical element of our overall
coordination is the Strategy Targeting Organized Piracy, or
STOP! Initiative, launched by the administration in October of
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 effort.
STOP is a broad interagency effort led by the White House
that draws upon the capabilities of the Department of Commerce,
the 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, our efforts have brought meaningful
results. We have provided useful tools and information that has
reached thousands of American rights holders. As you will hear
from Mr. O'Connor, criminal enforcement has increased
dramatically, and Justice is leading our effort to promote even
stronger domestic IP laws. U.S. seizures of counterfeit goods
doubled from 2005 to 2006, in total over 50,000 since 2002.
Finally, we are leading an aggressive effort around the world
to promote IP enforcement. We have launched a major new
initiative, the Anti-Counterfeiting Trade Agreement, with the
EU, Japan, Korea, Mexico, Canada, New Zealand, and Switzerland,
to create a global gold standard for IP enforcement. We have
also established strong IP enforcement programs with the EU,
the G-8, and through the Security and Prosperity Partnership
with Canada and Mexico.
To confront major concerns, we have filed the first
complaint with the WTO regarding China's failure to enforce
intellectual property rights and made IP enforcement a major
premise for our support of Russia's accession to the WTO.
To achieve these results, we have established a permanent
and comprehensive U.S. Government strategy that draws upon
multiple agencies and spans the globe. We have utilized the
statutory National Intellectual Property Law Enforcement
Coordination Council as a cornerstone for implementing our key
priorities, and we have taken steps to be more transparent and
accountable, such as through our quarterly IP enforcement
updates and an improved annual report to the President and
Congress.
These are significant steps in a very long and difficult
journey to combat global IP theft. Piracy and counterfeiting is
an expanding global business led by sophisticated and organized
criminals. Mr. Chairman, we are dedicated to stopping
intellectual property theft and providing businesses with the
tools they need to flourish in the global economy. We look
forward to working with this Committee to promote strong
intellectual property rights protection for American businesses
and entrepreneurs around the world.
Thank you very much, and I welcome your questions.
[The prepared statement of Mr. Israel appears as a
submission for the record.]
Chairman Leahy. Thank you very much. I think we will have
each one of you testify and then ask some questions. So, Mr.
Moore?
STATEMENT OF CHRIS MOORE, DEPUTY ASSISTANT SECRETARY FOR TRADE
POLICY AND PROGRAMS, BUREAU OF ECONOMIC, ENERGY, AND BUSINESS
AFFAIRS, U.S. DEPARTMENT OF STATE, WASHINGTON, D.C.
Mr. Moore. Thank you, Chairman Leahy. Thank you for this
opportunity to speak today about the State Department's work to
combat counterfeiting and piracy and enforce intellectual
property rights around the world.
A strong intellectual property rights regime has made the
United States economy one of the most innovative and
competitive on Earth, and the administration is working
aggressively to combat counterfeiting and piracy and to
strengthen intellectual property enforcement at home and abroad
using all available tools.
The United States was instrumental in building a robust
worldwide legal infrastructure for innovation and creativity
through the WTO Agreement on Trade-Related Aspects of
Intellectual Property Rights. This administration has built on
the strong legal protections in the WTO by including
groundbreaking IPR provisions that improve on the TRIPS
foundation in a dozen free trade agreements reached with 17
countries since 2001, and we have brought new tools and
partnerships to our work in this critical area through STOP,
the administration's Strategy Targeting Organized Piracy
Initiative.
In close coordination, agencies across the Federal
Government are successfully engaging our partners around the
world to promote full implementation of the IPR protections in
America's trade agreements and to strengthen laws and take
other steps to improve enforcement. The State Department plays
a vital role in supporting and complementing the enforcement
activities of other Federal agencies with lead responsibilities
in this area. Secretary Rice is a strong champion of
intellectual property protection, and top Department officials
regularly press their overseas counterparts to improve
enforcement.
In 2005, at the request of Congress, the State Department
established its first Office of International Intellectual
Property Enforcement. This office is marshalling and leveraging
the full range of often unique tools and resources at our
disposal to achieve real results for American innovators and
creative artists.
Through the State Department's network of more than 260
embassies, consulates, and missions around the world, America's
Ambassadors, consul generals, and economic officers are playing
a powerful role in advancing and implementing the
administration's global IPR enforcement policies and
activities, acting as first responders for U.S. right holders
facing counterfeiting and piracy challenges abroad, engaging
regularly and successfully with foreign government officials to
secure tougher enforcement, and promoting full implementation
of trade agreement commitments.
Capitalizing on our central role in negotiations leading to
annual G-8 leaders meetings, the State Department is leading
work among the industrialized nations of the world to
prioritize and build a common agenda for IPR enforcement.
Through this work, G-8 leaders are giving priority to
substantially reducing global trade in counterfeit and pirated
goods.
Thanks to your leadership, Mr. Chairman, and to the
leadership of Representative Diane Watson and others in
Congress, the State Department has significantly increased the
funding available for its IPR law enforcement training programs
from less than $1 million in fiscal year 2003 to $3 million in
fiscal year 2007, and we are working to ensure these funds are
effectively managed and deployed to maximum impact around the
world.
Our training programs are delivering real results. In
Indonesia, for example, we support two full-time U.S. advisors
who have helped the Indonesian Government launch a recent
series of large-scale enforcement actions.
Finally, the State Department is utilizing its extensive
global public diplomacy tools to help build public
understanding of the value of IPR and public support for
stronger enforcement in countries around the world.
In closing, I would like to thank you, Mr. Chairman, and
the other members of this Committee for your continued
leadership, focus, and engagement on this vital issue and for
emphasizing the need for stronger intellectual property
enforcement with foreign government officials, legislators, and
media in your overseas travel. Our trading partners pay close
attention to what Members of Congress say, and your actions
play a big part in helping us to effectively meet the challenge
of global counterfeiting and piracy.
Thank you again, Mr. Chairman, for the opportunity to
testify today. I look forward to answering any questions you or
other members of the Committee may have.
[The prepared statement of Mr. Moore appears as a
submission for the record.]
Chairman Leahy. Thank you very much, Mr. Moore.
Mr. O'Connor, please go ahead. Is your microphone on?
The little red button there.
STATEMENT OF KEVIN J. O'CONNOR, UNITED STATES ATTORNEY FOR THE
DISTRICT OF CONNECTICUT, AND CHAIRMAN, TASK FORCE ON
INTELLECTUAL PROPERTY, U.S. DEPARTMENT OF JUSTICE, WASHINGTON,
D.C.
Mr. O'Connor. Chairman Leahy, good afternoon, and thank you
for the opportunity to discuss the Department of Justice's role
in the coordinated effort to protect intellectual property
rights.
Today the Department is dedicating more energy and
resources than ever before to the protection of intellectual
property. As part of President Bush's Strategy Targeting
Organized Piracy, or the ``STOP,'' initiative, the Department
created a task force that you previously referred to on
intellectual property, which conducted a thorough review of the
Department's IP enforcement efforts and implemented numerous
recommendations, 31 in all, to improve those efforts.
At the core of that task force's mission is enforcement,
specifically increasing our criminal prosecutions of those who
violate our IP laws. We have done just that. Through the
dedicated efforts of U.S. Attorney's Offices, our Criminal
Division, and law enforcement across the country, the
Department has convicted and sentenced 287 defendants on
intellectual property charges in this past fiscal year, which
is a 35-percent increase over the prior fiscal year and a 93-
percent increase over fiscal year 2005.
The Department is also dedicating more prosecutors to IP
crime. In 2001, the Department had one Computer Hacking and
Intellectual Property Unit, otherwise known as a CHIP Unit.
Today we have 25 units and over 230 prosecutors in U.S.
Attorney's Offices across the country dedicated exclusively to
prosecuting IP and other computer crimes. In fiscal year 2007,
those CHIP units successfully convicted and sentenced 80
percent more defendants than they did last year.
Time does not allow me to cover all the prosecutions listed
in my written testimony, but I would like to take a moment to
highlight a recent case from the District of Connecticut, where
I am proud to serve as the U.S. Attorney.
Recently, an individual by the name of Eli El was sentenced
to 30 months' imprisonment for conspiracy to distribute over
the Internet more than 20,000 copies of pirated software. His
conviction arose from an undercover investigation targeting an
underground Internet community specializing in cracking and
distributing copyrighted works online.
I cite this case not only because it is from Connecticut,
but also because this prosecution exemplifies the Department's
strategy against the growing global threat of online software
piracy. We were attacking the high end of the supply chain and
prosecuting the sources and first suppliers of the pirated
material so widely available online. We hope Mr. El's 30-month
sentence will send the message that this type of conduct will
not be tolerated.
Our enforcement strategy is not and cannot, however, be
confined to our borders. Recently, in a joint investigation
with the FBI, China's Ministry of Public Security arrested 25
individuals and seized more than half a billion dollars of
counterfeit software and another $7 million in assets. This
case, known as ``Operation Summer Solstice,'' dismantled one of
the largest international piracy syndicates. To continue to
promote these types of joint international investigations, the
Department established an IP Law Enforcement Coordinator for
Asia. This week, a second Coordinator for Eastern Europe just
began work in Bulgaria. These seasoned prosecutors with
experience in IP prosecutions will coordinate our joint
investigations in those parts of the world and promote training
and outreach efforts with our foreign counterparts.
Just last month, with assistance from our colleagues with
the State Department and the U.S. Patent and Trademark Office,
we hosted the first IP Crime Enforcement Network in Bangkok.
This conference brought together key law enforcement officials
from 12 nations in Asia with the aim of developing an
international network targeting large-scale intellectual
property crimes.
While the Department is pleased with its record, more work
remains. In May, the Department transmitted to Congress
comprehensive legislation to provide prosecutors with
additional tools to combat organized piracy and hacking
networks. This legislation would strengthen sentences for
repeat copyright offenders, increase the penalties for
counterfeiters whose actions threaten public health and safety,
and create a new crime for attempting to commit copyright
infringement. I want to thank the Committee and your staffs for
continuing to work with the Department toward enactment of as
many of these bills' provisions as possible.
Finally, Mr. Chairman, despite the divergent roles played
by many of the Government agencies involved in STOP,
coordination has not been a significant problem. In fact,
thanks in no small part to the leadership of my colleague Chris
Israel, support and cooperation amongst the agencies involved
in this effort and important endeavor has been outstanding and
has produced unprecedented results.
Thank you for the opportunity to highlight this afternoon
the Department's role and achievements in the coordinated U.S.
Government effort to protect intellectual property rights. I am
pleased to answer any questions you may have.
[The prepared statement of Mr. O'Connor appears as a
submission for the record.]
Chairman Leahy. Thank you, and I am glad to hear you
speaking of the cooperation and how that works. I want to get
into this a little bit.
It was interesting during the days when I was a prosecutor,
and you worried about people who stuck a gun in the face of a
bank teller or something like that and off you would go. And
here you are talking about somebody who may be doing the
stealing and could be a thousand miles away from where they
stole it and be selling it thousands of miles away from there.
It is an entirely different situation. And we know that the way
it is going, we are always going to have more battles to fight,
and we are always going to have a finite amount of resources to
use.
So let me ask you this, and I will ask each of you: What
pirates and counterfeiters do the most harm? And what kind of
enforcement targets, assuming you could use whatever you
wanted, would be best to bring them down? Mr. Israel? And I
realize there are all kinds of people out there. Who causes the
most harm?
Mr. Israel. Well, Mr. Chairman, that is a very insightful
question, obviously, and I think we are seeing--with the
deployment of technology around the world, I think the Internet
has become a very efficient and preferred platform for a
variety of different types of IP crimes. I think you obviously
see the quick-to-market type of applications when it comes to
movies and music and really moving those products globally very
quickly. And it has changed dramatically the entire business
model of a number of industries.
One thing that is certainly alarming is the trend in the
sophistication, moving upscale in terms of the sophistication
of the types of products that we see--electronics,
pharmaceutical products. If you look into the Customs' seizure
data over the last couple of years, you see a pretty dramatic
uptick in the number of seizures they are making of IT
products--consumer electronics, pharmaceuticals. So higher
value-added, more sophisticated products I think is a trend
that clearly is drawing a tremendous amount of attention from
the enforcement resources within the Federal Government and
from industry itself.
Chairman Leahy. And what would be the targets?
Mr. Israel. The targets are clearly the products that have
high brand-name recognition.
Chairman Leahy. But would the people that we want to bring
down, are they in this country? Are they outside of this
country? Or both?
Mr. Israel. It is going to be both. You are going to see
distribution mechanisms that are set up within this country
using direct mail, using a variety of different methods to get
product to consumers who are demanding it. That is a piece of
this we need to address, too, the demand side.
But you see a large sourcing of these products in Asia; 80
percent of the counterfeit goods coming to this country that we
seize come from China. So, clearly, that is the nexus of the
production for a vast majority of the counterfeit goods in the
world.
Chairman Leahy. Thank you. You know, it is interesting. We
had another matter. We had people who made movies in the
digital age, very easy to copy, and the man who had spent a
considerable amount of his life to produce the movie ``Ray''
about Ray Charles. He talked about how he had mortgaged his
home, had done all these other things to raise the money, and
was so proud when it opened in New York. And he is walking up
the street the day after it opens and admiring it on the
marquee, walks around the corner and somebody is trying to sell
him a counterfeit copy of ``Ray.''
Mr. Moore.
Mr. Moore. Thank you, Mr. Chairman. I think as we look out
at this challenge globally, what we find most alarming are the
examples of organized and sophisticated transnational groups
that are involved in counterfeiting and piracy. Where we see
organizations that are counterfeiting and pirating goods on a
commercial scale, who are causing those goods to be distributed
around the world, these are the companies or the organizations
that tend to be one of the largest problems for us. They are
the companies and the organizations that are causing
significant damage to many of our small businesses. Oftentimes,
our small businesses are not aware that if you have a website,
you are a global company today. And so we have instances of
counterfeiters and pirates in China basically looking at the
product lists that they have on their website, downloading that
product list, reproducing the items that are there to quite a
high and sophisticated quality level, and then distributing
those products in many countries around the world, undermining
the market and value of--
Chairman Leahy. Gorilla Glue.
Mr. Moore. I am sorry?
Chairman Leahy. Gorilla Glue is one.
Mr. Moore. Yes, exactly. And so that is one of the key
challenges that I think we see.
In terms of solutions to that, I think it underscores the
need for us to continue to engage aggressively with our trading
partners around the world. When you are talking about
transnational counterfeiting and piracy, the production of
these goods in one country and the distribution through others
and finding markets in still third countries, we need to be
working aggressively with our partners so that--
Chairman Leahy. Well, and in that regard, if you take
China, which has been a very significant problem--it is a very
significant problem in legal goods, as we have found with lead
in children's toys--something that every parent or every
grandparent is looking at especially as the holiday seasons are
coming up. But China is a country that if they really wanted to
bring a stop to that, could. I mean, you have got as controlled
a distribution system and economy and law enforcement and so on
there. And you have to assume that in many instances there is a
blind eye being turned to this. Am I correct?
Mr. Moore. Well, I think we have seen--
Chairman Leahy. I do not want to get you on the carpet when
you get back to the office, but isn't that a fact?
Mr. Moore. What I think we have seen in China is certainly
some will to have additional raids and crackdowns. As a result
of our bilateral engagement, they have taken certain other
steps that have been helpful. But I think what they are looking
at, what we are looking at, is a systemic problem. It is not
enough to have raids and crackdowns if that is not followed up
by effective prosecution and enforcement, if it is not followed
up by deterrent penalties, including criminal penalties, if the
market is not open to legitimate copyrighted and trademarked
items.
And so all of these things added together, I think they are
looking at a systemic problem, but they are dealing with just
one piece of that.
Chairman Leahy. And when you have instances like you have a
factory that is basically controlled by the military, and when
pressure is brought, they will bring counterfeit goods out in
the parking lot in front and run some kind of a crushing
machine over it for all the cameras rolling, and out the back
door there are large tractor-trailers filling up with the same
product being shipped out, I think that raises a real concern.
Mr. O'Connor, your view on this?
Mr. O'Connor. I do not want to, Senator--
Chairman Leahy. You are coordinating with U.S. Attorneys
around the country. I mean, what pirates and counterfeiters are
doing the most harm?
Mr. O'Connor. Well, I would agree with and echo the
comments of my colleagues here today in the sense that
obviously the organized criminal syndicates, whether they are
the ``warez scene'' that we have seen in Connecticut and across
the country, they probably are the biggest threat because they
can do the most harm and do it most efficiently, because they
are organized, they are extensive, they use the Internet to
distribute stuff in seconds that would otherwise take months or
years. And so they pose the biggest threat.
But I must say, in fairness to the victims of these crimes,
they are probably less concerned whether it is an organized
criminal syndicate or somebody sitting behind their computer by
themselves. I mean, it still has affected them as any defendant
would feel.
So we have to be sure to balance our efforts to go after
organized criminal syndicates with also the ability to
prosecute what you might call ``Lone Rangers,'' and that is,
you know, the balance we are trying to strike.
Chairman Leahy. Well, let me just followup on that a little
bit, and then I will yield to Senator Cornyn, if he is able to
come back. But let me just followup a little bit on this. Let's
look at it from the view of state and local law enforcement. I
look at my little State of Vermont. We have only got 650,000
people, but on a per capita basis, we are the largest exporting
state in the country. We have a great deal of intellectual
property that is sent out, computer software and so on. I
remember years ago, when he was first starting, the man who
began Burton Snowboards--it is now worldwide--Jake Burton--I
was getting on a plane in Chicago with him, and we were both
kind of squeezed into--those of us who are large enough know
how uncomfortable some of these seats are way back in steerage,
and Jake and I were squished in with a third person in a row in
the back, and he said, ``See that guy who is going in first
class? '' I said, ``Yes.'' He said, ``He is a pirate.'' I said,
``What do you mean? '' He said, ``We just spent a fortune
designing a new boot for our snowboards. He just took it over
to China. They are copying it, and they are underselling us. He
gets to fly first class.''
Now, Jake has done well enough that--I still ride in those
seats in the back. I will wave to him as he goes up front. But
you see what I am getting at.
Now, I was thinking, okay, he has got a business in
Burlington, Vermont. What can the State do? I mean, how do
local prosecutors or even up to the level of the Federal
prosecutor within a district, or in our case the district is
the whole State, what do they do? How do they go after this?
Mr. O'Connor. Well, I would think in most States in
situations like that, they would work very closely with Federal
authorities, particularly if there is an international element
to the offense. You know, the State and locals generally do not
have the amount of resources the Federal level does. They do
not have the ability to do international or multi-State
investigations.
That being said, in many States, including Connecticut, and
I am sure Vermont, they are doing great work on the local level
on other computer crimes, whether it is tracking child
predators--so it is a question of, I think if you are a U.S.
Attorney and this is a problem, you should have a very close
working relationship with your State's authority or local DA
and be sharing information and utilizing the laws that fit the
situation best.
In some States, they may have--I doubt it as a general
rule, but they may have strong IP laws, and in that case it
might make sense to help out federally, but let the case be
prosecuted by the State.
Chairman Leahy. In other words, if they put together a good
law, but there may be one assistant or one half of an
assistant, as it sometimes is in a local prosecutor's office,
if the Feds can come in and help them make the case, then
prosecute it under State law.
Mr. O'Connor. Yes, that is what we do, whether it is
Project Safe Neighborhoods, Project Safe Childhood, you can
oftentimes use the Federal resources to leverage State pleas.
At the end of the day, I think we are less concerned where the
person pleads guilty than that they are held accountable in
some court of law.
Chairman Leahy. Mr. Israel has the job of coordinating
efforts, and notwithstanding the acronym, but what does that
mean, we support each other, we complement each other, whether
it is the State Department or Justice Department? Each agency
seems to conduct its own training seminars on IP enforcement.
Give me actual cases of how across agencies you are actually
supporting each other.
Mr. Israel. Sure. Thank you, Mr. Chairman. I will give you
two examples that indicate a good deal of cooperation with the
number of agencies, and I will leave the questions of actual
tactical law enforcement engagement to Mr. O'Connor.
Just 2 weeks ago, in China, our U.S. Ambassador there,
Ambassador Randt, has the sixth of his annual IP enforcement
roundtables, which was a product organized by the State
Department, put together in large measure with a U.S. Patent
and Trademark Office IP Attache who has been posted in Beijing
now for about 3 years; our U.S. Trade Representative's Office
participated, as did ICE, Customs and Protection, and the
Department of Justice. So we had literally every Federal agency
that has a role to play in IP enforcement present at this day-
long session in Beijing hosted by the Ambassador that listened
for the entire day to U.S. industry and the concerns they have
got and some of the specific cases that we are going to try
to--
Chairman Leahy. Well, what comes of that?
Mr. Israel. We are putting together as a result of that--it
essentially formulates the action strategy for the U.S.
Embassy's IP enforcement efforts in Beijing for the coming
year. From that will come the specific projects and the
followup that they will do with our industry, and some of those
things are diplomatic relationship issues with the Chinese.
There are some specific law enforcement activities that will
come as a result of that. So really there I think you see the
coming together of just about every agency involved in China.
Chairman Leahy. But if China just ignores you, there is not
much you can do in China.
Mr. Israel. We every day have to deal with the challenge of
getting and sustaining the attention of the Chinese and--
Chairman Leahy. And I do not mean that dismissively saying
that. I have dealt with the Chinese. I know how difficult that
is. But--
Mr. Israel. We are constrained certainly by the attention
and the focus of the Chinese, and we will keep trying to work
on that.
A second quick example I would cite is the ACTA Agreement
that Ambassador Schwab announced about 2 weeks ago. That is
really the result of about a year's worth of discussion and
dialogue with all the member countries that are involved in
that, and that was truly an interagency, U.S. interagency
process. The things we are talking about doing with these
countries go well beyond just trade enforcement and operating
under the WTO. They involve law enforcement cooperation,
establishing networks of law enforcement officials across all
these countries to work with each other, share information,
work on operations that could lead to law enforcement
activities. Customs is involved in that. Our Patent and
Trademark Office is involved in that effort, as is the State
Department. So that really was about a year-long process that
involved a number of agencies and culminated in what we think
is a pretty cutting-edge agreement with some very relevant
nations that the Ambassador announced 2 weeks ago.
Chairman Leahy. Thank you.
Mr. Moore, would you like to add anything to that?
Mr. Moore. Sure. I will just give you a couple of examples
from the different areas that I mentioned in my prepared
testimony.
Chris has already mentioned the ways that our embassies can
be very supportive, talking about the Ambassador's roundtable
in Beijing. Our embassies around the world play a vital role in
supporting the enforcement actions and monitoring of our trade
agreements that are done by the Commerce Department and by
USTR, helping to advise in those issues, helping to conduct on
the ground what is needed to support the activities here in
Washington.
Through our training programs, my colleague from the
Department of Justice talked about some work that we are doing
in Eastern Europe, through the intellectual property law
enforcement. Oftentimes, the programs that are done by DOJ and
by some of the other agencies are funded through our training
programs, and so we help to support those.
In our international efforts, we are also helping to build
global coalitions through our work in the G-8 and other
international forums.
Chairman Leahy. Are you getting cooperation there?
Mr. Moore. We are. We are getting very good cooperation
there.
Chairman Leahy. I would think that some of these countries,
while they may think, gosh, they could make a short-term gain
by kind of ignoring us, especially as they become more
technically adept themselves, and many of them have equal
technical abilities as we do, in the long term it is going to
hurt them.
Mr. Moore. One of the things that has been most striking
about our engagement with other countries through these
international forums is the degree to which they are seeing
many of the same challenges that we are with global
counterfeiting and piracy, the trade in counterfeit and pirated
goods. They are looking to cooperate with us. They want to
cooperate with us. And so I think we are getting a good
response in the forums and--
Chairman Leahy. And when you think of some of the countries
that have large pharmaceuticals, countries that are beginning
to go if not to the degree we do but into the entertainment
world, whether music, movies, or software, and how that goes.
We have it with manufactured goods. We have it with computers,
telephones, automobiles, and replacement parts for automobiles,
which is a significant aftereffect of having sold you--the car
may have been made in Germany or France or elsewhere. But they
also want to make sure, if they are going to have replacement
parts, that they know where they come from.
Mr. Moore. Exactly, and it is on that basis, I think, they
are seeing some of the economic damage that we are. They are
concerned about the public health and safety, the implications
of counterfeit and pirated goods. And so all of those are areas
where we have seen good cooperation.
Chairman Leahy. And, Mr. O'Connor, you get the last word on
this, because what I am going to do after you finish, I am
going to place in the record, without objection, a statement by
Senator Specter, and I am going to leave the record open for
questions others might have. What we are trying to do is
prepare enough of a record for legislation that we will keep
trying to get through before we get out of here.
Mr. O'Connor. At the risk of delaying things, I will simply
say that--
Chairman Leahy. Take all the time you want, Mr. O'Connor. I
am actually fascinated by this, so go ahead.
Mr. O'Connor. Thank you, Mr. Chairman. I think from the
Department's perspective, perhaps the biggest benefit to us
from working with State and Commerce in particular is State is
really our bridge to our foreign counterparts who we must work
with in light of the international aspects of this problem very
closely. And they can open up doors to help establish good
working relationships, whether it is China, India, Russia, or
anywhere else.
I would say with respect to Commerce, they are our bridge,
but our bridge to the industry, those victimized the most by
these crimes. They understand the industry. They know the key
players in the industry, and they are always the vehicle by
which we are able to set up forums, including, I believe, one
in Vermont not too long ago, to discuss this in--
Chairman Leahy. I was there.
Mr. O'Connor. I know you were. I was supposed to be, but
could not be, but I know we did have a Department of Justice--
Chairman Leahy. You had Department representation there,
and we have gotten nothing but great feedback from the people,
and we went from IBM, which, of course, has all sorts of
worldwide--connect down to people, a three- or four-person
business, but making a very, very unique product that has been
copyrighted and trademarked and everything else and terrified
about somebody else just duplicating it.
Mr. O'Connor. And those forums are key for us as
prosecutors because that is where we learn not only, you know,
the impact on the victims. I think we are fairly sensitized to
that by now. But it is really how we learn about the tools of
the trade because the victims are usually the ones who first
discover the newest techniques, whether it is by the Internet
or elsewhere, that they are victimizing people. So they are
tremendous, useful forums, and our friends in the Commerce
Department have always been very good about including us, and I
expect in the future we will continue to play a role in that.
Chairman Leahy. Well, the Committee will stand in recess,
and I thank you very much.
[Whereupon, at 3:06 p.m., the Committee was adjourned.]
[Questions and answers and submissions follows.]
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