[House Hearing, 111 Congress]
[From the U.S. Government Printing Office]
PROTECTING U.S. INTELLECTUAL PROPERTY
OVERSEAS: THE JOINT STRATEGIC PLAN
AND BEYOND
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HEARING
BEFORE THE
COMMITTEE ON FOREIGN AFFAIRS
HOUSE OF REPRESENTATIVES
ONE HUNDRED ELEVENTH CONGRESS
SECOND SESSION
__________
JULY 21, 2010
__________
Serial No. 111-111
__________
Printed for the use of the Committee on Foreign Affairs
Available via the World Wide Web: http://www.foreignaffairs.house.gov/
______
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COMMITTEE ON FOREIGN AFFAIRS
HOWARD L. BERMAN, California, Chairman
GARY L. ACKERMAN, New York ILEANA ROS-LEHTINEN, Florida
ENI F.H. FALEOMAVAEGA, American CHRISTOPHER H. SMITH, New Jersey
Samoa DAN BURTON, Indiana
DONALD M. PAYNE, New Jersey ELTON GALLEGLY, California
BRAD SHERMAN, California DANA ROHRABACHER, California
ELIOT L. ENGEL, New York DONALD A. MANZULLO, Illinois
BILL DELAHUNT, Massachusetts EDWARD R. ROYCE, California
GREGORY W. MEEKS, New York RON PAUL, Texas
DIANE E. WATSON, California JEFF FLAKE, Arizona
RUSS CARNAHAN, Missouri MIKE PENCE, Indiana
ALBIO SIRES, New Jersey JOE WILSON, South Carolina
GERALD E. CONNOLLY, Virginia JOHN BOOZMAN, Arkansas
MICHAEL E. McMAHON, New York J. GRESHAM BARRETT, South Carolina
THEODORE E. DEUTCH, CONNIE MACK, Florida
FloridaAs of 5/6/ JEFF FORTENBERRY, Nebraska
10 deg. MICHAEL T. McCAUL, Texas
JOHN S. TANNER, Tennessee TED POE, Texas
GENE GREEN, Texas BOB INGLIS, South Carolina
LYNN WOOLSEY, California GUS BILIRAKIS, Florida
SHEILA JACKSON LEE, Texas
BARBARA LEE, California
SHELLEY BERKLEY, Nevada
JOSEPH CROWLEY, New York
MIKE ROSS, Arkansas
BRAD MILLER, North Carolina
DAVID SCOTT, Georgia
JIM COSTA, California
KEITH ELLISON, Minnesota
GABRIELLE GIFFORDS, Arizona
RON KLEIN, Florida
Richard J. Kessler, Staff Director
Yleem Poblete, Republican Staff Director
C O N T E N T S
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Page
WITNESSES
The Honorable Victoria A. Espinel, U.S. Intellectual Property
Enforcement Coordinator, Executive Office of the President..... 14
The Honorable John T. Morton, Assistant Secretary, U.S.
Immigration and Customs Enforcement (ICE), U.S. Department of
Homeland Security.............................................. 40
The Honorable Chris Israel, Co-Founder and Managing Partner, PCT
Government Relations LLC (Former U.S. Coordinator for
International Intellectual Property Enforcement)............... 58
LETTERS, STATEMENTS, ETC., SUBMITTED FOR THE HEARING
The Honorable Howard L. Berman, a Representative in Congress from
the State of California, and Chairman, Committee on Foreign
Affairs:
Prepared statement............................................. 4
Letter from James N. Gianopulos, Fox Filmed Entertainment,
dated July 20, 2010.......................................... 10
Statement from the American Association of Independent Music
(A2IM) dated July 21, 2010................................... 11
The Honorable Victoria A. Espinel: Prepared statement............ 16
The Honorable John T. Morton: Prepared statement................. 44
The Honorable Chris Israel: Prepared statement................... 60
APPENDIX
Hearing notice................................................... 72
Hearing minutes.................................................. 73
The Honorable Eni F.H. Faleomavaega, a Representative in Congress
from American Samoa, and Chairman, Subcommittee on Asia, the
Pacific and the Global Environment: Prepared statement......... 75
The Honorable Russ Carnahan, a Representative in Congress from
the State of Missouri: Prepared statement...................... 78
The Honorable Gerald E. Connolly, a Representative in Congress
from the Commonwealth of Virginia: Prepared statement.......... 80
The Honorable Michael E. McMahon, a Representative in Congress
from the State of New York: Prepared statement................. 82
Written responses from the Honorable John T. Morton to questions
submitted for the record by the Honorable Howard L. Berman..... 83
Written responses from the Honorable Victoria A. Espinel to
questions submitted for the record by the Honorable Russ
Carnahan....................................................... 87
Written responses from the Honorable John T. Morton to questions
submitted for the record by the Honorable Russ Carnahan........ 88
Written responses from the Honorable Victoria A. Espinel to
questions submitted for the record by the Honorable Michael E.
McMahon........................................................ 91
Written response from the Honorable John T. Morton to question
submitted for the record by the Honorable Michael E. McMahon... 92
PROTECTING U.S. INTELLECTUAL PROPERTY OVERSEAS: THE JOINT STRATEGIC
PLAN AND BEYOND
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WEDNESDAY, JULY 21, 2010
House of Representatives,
Committee on Foreign Affairs,
Washington, DC.
The committee met, pursuant to notice, at 10:04 a.m. in
room 2172, Rayburn House Office Building, the Honorable Howard
L. Berman (chairman of the committee) presiding.
Chairman Berman. The hearing will come to order. In a
moment I will recognize myself and the ranking member for up to
7 minutes each to make opening statements. All other members
will then have an opportunity to make a 1-minute opening
statement if they wish to do so, and without objection members
may also place written statements in the record.
Last year the committee held a hearing with witnesses from
industry and labor to examine the impact of intellectual
property theft on the U.S. economy. Today's hearing will focus
on government efforts to stem the problem of piracy.
In my district, I have seen firsthand how piracy and
counterfeiting impacts not only creativity, but jobs. The
lengthy credits at the end of every movie remind us how many
people it takes to bring a film to the screen--and there are
many who play supporting roles to the projects who don't even
appear in the credits. When a movie is pirated, it puts all of
those jobs at risk.
The ease of the distribution in the case of CDs and DVDs
make them an obvious target for piracy, but counterfeiting and
IP theft impact many other industry from pharmaceuticals to
auto parts, from clothing to sporting goods. As such,
intellectual property is an integral part of many important
policy issues, from climate change, to fighting infectious
disease in the developing world, to Russia's accession to the
WTO.
The geographic scope of intellectual property theft has
also grown. While our attention was previously focused on a
relatively small number of countries--most notably Russia and
China--we have now seen an explosion of piracy and
counterfeiting in many nations. And the situation is further
exacerbated by Chinese policies like ``indigenous innovation''
which may discriminate against foreign intellectual property
holders in favor of their own domestic businesses. Today,
piracy and counterfeiting has become so effortless, and
enforcement resources spread so thin, that the legitimate
marketplace for music and movies is disappearing in countries
such as Spain.
The current situation is untenable--and I commend the Obama
administration for taking aggressive action to improve
enforcement. We were pleased to see Vice President Biden call
industry leaders together back in December, and eagerly awaited
the Joint Strategic Plan on Intellectual Property Enforcement,
which was recently issued by U.S. Intellectual Property
Enforcement Coordinator Victoria Espinel, one of our
distinguished witnesses today.
In the 2009, Pro-IP Act, we envisioned that the
intellectual property enforcement coordinator would work with
all the key players in the administration and make policy
recommendations to help Congress and the relevant agencies and
departments more efficiently and more effectively protect this
vital part of our economy. The Joint Strategic Plan takes an
important step in the right direction by including IP-
enforcement guidelines stretching across eight different
Federal agencies. We look forward to hearing Ms. Espinel speak
on behalf of the administration about improving and modernizing
our laws, and look forward to working with her and ensuring she
has adequate resources to do her job.
The coordinator has a tough job that is enhanced by the
many agencies it works with to coordinate our IP enforcement
strategy. Most recently, I was interested to read about the
initiative undertaken by Immigration and Customs Enforcement,
or ICE, to seize the domain names of Web sites that were
unlawfully offering first-run movies. That is exactly the kind
of innovative thinking the Vice President called for--and I am
curious to hear from Assistant Secretary Morton on how it came
about, the obstacles you faced and how we can scale Operation
``In Our Sites'' to enterprises that facilitate the theft of
music, books and other products prone to counterfeiting.
I understand that the program isn't a panacea--I know that
some unlawful sites that we take down today will spring up with
new names, and in new jurisdictions, tomorrow. But part of the
idea is to educate users--looking for the many legitimate sites
such as Hulu, Vevo, Pandora Rhapsody, and others coming online
every day.
Senator Leahy and I are exploring legislative approaches to
expand on the ICE program, and would like to learn from your
experiences before introducing legislation later this month.
But we are committed to reining in the rogue sites and the
intermediaries that facilitate or support financially the
online businesses predicated on theft. As was described at a
subcommittee hearing held 3 years ago, Visa testified that its
credit card system should not be used for illegal transactions.
Furthermore, they stopped processing transactions for
ALLOFMP3.com, a notorious foreign Web site based in Russia for
downloading illegal music in part because it was the ``right
thing to do.'' This should be the guiding principle.
Our frustration with lackluster foreign enforcement is
nothing new. The Office of the U.S. Trade Representative has
been publishing its Special 301 report for about two decades,
detailing the state of intellectual property enforcement in all
its forms on a country-by-country basis. While there is some
positive news in this year's report in three countries--the
Czech Republic, Hungary, and Poland--have been removed from the
watch list much more work needs to be done. Some of the largest
countries and largest markets in the world such as China,
Russia, and India remain on the priority watch list. The same
goes for one of our closest trading partners, Canada, which is
on the priority watch list for failing to fulfill international
commitments to strengthening its copyright laws and for
demonstrating weak enforcement in the IP and online areas.
This committee should play a positive role in moving the
ball forward. After last year's hearing on copyright issues,
the committee engaged in conversations with the Government of
the Bahamas on their compulsory license of pay television which
had been on the books for almost 10 years. As a result of our
intervention, the Bahamas repealed those compulsory license and
copyright owners are now negotiating for their goods and
service for market value.
In the State Department authorization bill passed by the
House last year, we included a provision that would expand the
IP attache program to provide for greater focus on intellectual
property protection in our embassies around the world and
station additional personnel in countries where greater U.S.
involvement could result in better enforcement.
The committee needs to continue to engage on these issues.
I look forward to hearing from all of our distinguished
witnesses on the ways we can support a strong and productive
government role in protecting one of our most treasured assets.
First, though, I would like to turn to the ranking member,
Ileana Ros-Lehtinen for any opening remarks that she may wish
to make.
[The prepared statement of Mr. Berman follows:]
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Ms. Ros-Lehtinen. Thank you so much, Mr. Chairman. My
commitment to protecting the intellectual property rights of
U.S. citizens and our companies is longstanding. Prior to
becoming the ranking member of this committee, I chaired the
Subcommittee on International Economic Policy and Trade where
fighting the piracy of intellectual property was one of our top
concerns. I would like to note that our chairman has
demonstrated consistent leadership on this issue in this
committee as well as at the Judiciary Committee where in the
110th Congress Chairman Berman served as the chairman of the
Subcommittee on Courts, the Internet and Intellectual Property.
Under his direction the Foreign Affairs Committee held a field
hearing, as he noted, in California in April 2009, that brought
together a remarkable set of witnesses representing the major
interests in the music and movie industries. He knows a lot of
cool people in Hollywood. Thank you for that hearing.
Their description of the threat to their industries from
piracy in China and elsewhere was stunning in its scope and
consequences. Unfortunately, this problem has continued to grow
rapidly. The Global Intellectual Property Center estimates that
the annual loss to U.S. businesses now total over $12 billion
in the music recording industry, $12 billion in the automotive
industry, $46 billion the pharmaceutical industry, and $53
billion in the software industry. That is well over $100
billion in income and jobs lost--stolen actually--from this
country and our citizens every year.
It is unfortunate that many people in our country and
abroad regard these crimes as impacting only faceless and
wealthy corporations. The fact is that our economy has become
increasingly more knowledge-based, and costs resulting from IPR
policy have grown for all of us in terms of reduced employment,
reduced income, and government revenue.
The problem is a global one, and there are few countries
where it does not occur, including our own, but there are some
countries where the problem is not only widespread among the
general population, but it is tolerated, even promoted by
national and local governments. China is by far the worst
violator of intellectual property rights globally, and its
government is complicit in ensuring that it keeps its number
one position. Chinese authorities have repeatedly pledged to
take action to deal with the open and rampant theft of U.S.
intellectual property. However their efforts to date have been
minimal, especially when compared with the immense resources
and energy they have dedicated to censoring the Internet
services of content that they find objectionable. In fact,
intellectual property piracy in China is rapidly increasing,
often with tacit government support and even as a consequence
of official policy.
For example, the government is actively supporting efforts
by China's largest Internet search company to become a global
player. With the government looking on by automatically
offering to those who log on its site the opportunity to link
to a long list of known music piracy sites, in effect actively
facilitating the theft of intellectual property. The Chinese
authorities are fully aware of this problem and could stop it
with a simple phone call, but they have brushed aside all
requests to do so and have deliberately decided to do nothing
to halt the aiding and abetting of this continuing theft.
But this is only one of many examples. Intellectual
property violations in Russia are also extensive and
longstanding, ranging from pirated music and videos to
pharmaceuticals. Here, too, the government has repeatedly
promised to take action, but then has done little or nothing.
Corruption at all levels of the Russian Government has made
this problem a difficult one to address, but it is compounded
by the lack of interest on the part of senior officials who see
it as an American problem that does not impact them. However,
Russia's desire to join the World Trade Organization, or the
WTO, provides the United States with the necessary leverage to
compel Moscow to carry out its promises. Before the U.S.
approves its application, we must require that Moscow take
effective action to shut down the expensive piracy of
intellectual property occurring on its territory and put in
place far-reaching safeguards to ensure that it does not
reoccur.
In fact, given Russia's history of broken promises, Moscow
should be required to demonstrate a long track record of
success prior to an okay by the United States to its joining
the WTO.
President Obama has said that increasing U.S. exports is a
key to creating jobs here in the U.S. Because those exports are
increasingly made up of intellectual property, our future
prosperity depends upon our ability to fight piracy in other
countries.
An easy way to enhance U.S. exports and intellectual
property rights at the same time is through carefully
negotiated trade agreements such as those we have already
signed with Colombia, Panama and South Korea. These agreements
will help raise the standards of our trading partners' national
laws and regulations regarding intellectual property protection
to new highs. They will also provide enhanced monitoring and
corrective measures if the governments refuse to take action to
end piracy.
At a time when Americans are apparently facing
extraordinary economic challenges, Congress cannot leave the
task of protecting intellectual property rights of U.S.
citizens and U.S. businesses to the Executive Branch alone. We
cannot afford a business as usual approach to those governments
that profess friendship and cooperation even as they bless the
theft of our citizens' wealth and of our country's prosperity.
Thank you, Mr. Chairman, for this hearing and this
opportunity.
Chairman Berman. Thank you very much for your very strong
statement, and does the gentleman from California seek
recognition? The gentleman is recognized for 1 minute.
Mr. Sherman. I think we have taken good steps to do what we
can to protect intellectual property if we are going to be
inside the box, but the problem is as long as we stay inside
the box America will be a nation in decline. China is
synonymous with intellectual property theft. Our diplomats trip
over pirated disks being sold on the streets on their way to
meetings where they can make further concessions to the
Chinese.
Not content with stealing our intellectual property for the
Chinese market, China now wants to steal the U.S. market as
well through the Internet. Clearly trade retaliation is
necessary to get China's attention, but that would anger many
in Wall Street, Washington, and Wal-Mart. We should also be
taking cyber offensive to use viruses to shutdown these sites
and we should be going after those who advertise on sites
primarily dedicated to piracy.
I look forward to trying to get outside the box. I realize
that the tendency is to stay inside. Thank you.
Chairman Berman. Thank the gentleman. The gentleman from
New Jersey, Mr. Smith, is recognized for 1 minute.
Mr. Smith. Mr. Chairman, it is very sobering to read that
the Global Intellectual Property Center estimates almost $125
billion of losses annually in just four industries alone: The
pharmaceutical, automotive, recording, and software industries.
The loss of American jobs is staggering. Mr. Chairman, as we
all know, almost all of the damage done to American workers, to
our companies, and to our economy is done by a mere handful of
foreign governments--China, Russia, Brazil, Mexico, and just a
few others. In fact, the Chinese Government is the cause of
most of the problem. It tolerates and in some cases probably
encourages widespread infringement of American intellectual
property rights, and then exports U.S. property rights
infringing products right back to us.
In fact, the U.S. Trade Representative's 2010 Special 301
report said that 79 percent of the infringing products ceased
at our border were of Chinese origin.
Mr. Chairman, my hope is that we will take not only Special
301 actions against the Chinese on such things as labor rights,
but Special 301 negotiations should be fully initiated, and if
they fail we need to take more aggressive action.
Chairman Berman. The time of the gentleman has expired. The
gentleman from Florida, Mr. Deutch, is recognized for 1 minute.
Mr. Deutch. Thank you, Mr. Chairman. Thank you, Ranking
Member Ros-Lehtinen. Thank you for holding this hearing. I
would like to thank the witnesses for being here today and I
look forward to hearing your thoughts.
Intellectual property theft is often overlooked as a
serious crime but, unfortunately, it is a highly lucrative
underground business that often serves as a profitable and low-
risk funding source for very serious criminal activities from
international crime groups to terrorist organizations. There
are too many examples to list where profits from IP piracy ends
up in the hands of terrorist groups. One notable example
involves several piracy rings in the tri-border area of South
America that have been linked to large-scale donations to the
Iranian-backed terrorist organization Hezbollah.
Isolating the sources of this funding through this IP
piracy will take high level international cooperation,
increased accountability, and adequate resources. This hearing
should provide an opportunity to explore this further. I hope
we will continue our work on this important issue, Mr.
Chairman, and I look forward to probing this further as we get
into questions.
I yield back. Thank you.
Chairman Berman. The gentleman from California, Mr.
Rohrabacher, is recognized for 1 minute.
Mr. Rohrabacher. Thank you very much, Mr. Chairman.
So, we are losing jobs, we are losing over $100 billion a
year. This is insane. I will just say that steal from me once,
shame on you. Steal from me twice, shame on me. Well, the fact
is we have been ignoring this for years. We watched China track
down a dissident who may utters a few words on the Internet,
and yet they won't put up one bit of effort to try to stop this
theft of intellectual property rights which is putting our
people out of work, and transferring wealth into their
countries. We have been putting up with it. It is time for us
not to put up with it anymore. We either get tough on
intellectual property rights and the theft of our intellectual
property or we will lose the future because that is what the
future is all about.
Thank you very much, Mr. Chairman.
Chairman Berman. I thank the gentleman, and the gentleman
from Illinois, Mr. Manzullo, is recognized for 1 minute.
Mr. Manzullo. Thank you, Mr. Chairman, for calling this
meeting. It has been nearly 2 years since we passed the Pro IP
Act and it was signed into law, and it is quite appropriate
that we have this oversight hearing today.
IP piracy threatens our future economic prosperity. IP
piracy is more than music, it is more than movies, it threatens
the long-term health of the manufacturing sector. Coming from a
district where one out of four jobs in our biggest city is
directly related to manufacturing, it is quite important to us.
I experienced this issue firsthand several years ago when I
advocated for an environmental technology firm located in
Rockford, Illinois, which experienced theft of their IP for a
wastewater treatment plant when bidding on a project in China.
They were one of the few success stories using the Chinese
court system to enforce their patent. I worked directly with
our U.S. Embassy officials in Beijing who personally monitored
the hearing and also worked very closely with the Chinese
Ambassador to the United States. At that time I chaired the
U.S.-China Interparliamentary Exchange, and he took great
interest in the case because it was such a rank violation.
Chairman Berman. Time.
Mr. Manzullo. But it should not take the intervention of a
Member of Congress in order to protect our manufacturers.
Chairman Berman. The time of the gentleman has expired. I
now ask unanimous consent to enter into the record a letter
from Jim Gianopulos, chairman and CEO of Fox Filmed
Entertainment, and comments from the American Association of
Independent Music, supporting the importance of this hearing.
The committee has received no letters dismissing the importance
of the hearing. [Laughter.]
[The information referred to follows:]Fox Filmed
Entertainment deg.
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Chairman Berman. We are very pleased to have Victoria
Espinel with us, the only member of the first panel. Victoria
Espinel currently serves as the first U.S. Intellectual
Property Enforcement Coordinator in the Executive Office of the
President. She is responsible for developing and implementing
the administration's unified strategy for the defense of
intellectual property right.
From 2007 to 2009, Ms. Espinel taught intellectual property
and international trade law at George Mason School of Law.
Prior to this, Ms. Espinel served as the first Assistant U.S.
Trade Representative for Intellectual Property and Innovation
at the Office of the USTR, and in that capacity I remember her
testifying before the committee down the hall.
She holds a master's of law from the London School of
Economics, a J.D. from Georgetown University Law School, and a
B.S. in foreign service from Georgetown University's School of
Foreign Service.
We are very pleased to have you here and we look forward to
hearing your testimony. Your entire statement will be put in
the record, and if you would care to summarize your remarks, we
welcome you to begin.
STATEMENT OF THE HONORABLE VICTORIA A. ESPINEL, U.S.
INTELLECTUAL PROPERTY ENFORCEMENT COORDINATOR, EXECUTIVE OFFICE
OF THE PRESIDENT
Ms. Espinel. Thank you very much. Chairman Berman, Ranking
Member Ros-Lehtinen, and members of the House Committee on
Foreign Affairs, thank you for your leadership on this
important issue. I feel particularly privileged to work with
this committee. This is a global problem that will require
global solutions.
As many have already noted, intellectual property
infringement affects a vast range of businesses and industry
sectors. In developing a strategic plan, we asked the public
for input so that the administration could hear their concerns
directly, and we received over 1,600 responses. We reviewed all
of those responses, and the hundreds of recommendations that
came with them, and posted them on our Web site so that
everyone could see what we were taking into account.
We met with companies across a broad spectrum of America's
industries as well as unions, academics, and consumer groups to
engage them about where the problems in enforcement lie, and to
find out what we can do to make things better for the many
Americans and American industries that depend on intellectual
property for success. The strategy that we delivered to
Congress a few weeks ago reflects that input from the public.
I also want to emphasize that the strategy reflects an
extensive interagency collaboration: Justice, Homeland
Security, Commerce, USTR, HHS, State, and others all worked
with us to make this an excellent and forward-leaning strategy.
This plan has the ability to alter our approach to
intellectual property enforcement for many years to come. To do
so we are taking some bold new steps and we look forward to
working with this committee on many of them. Let me highlight a
few now.
Recognizing the importance of our overseas personnel, we
will improve their effectiveness and coordination.
Specifically, we will work to prioritize our personnel where
they are needed most. We will establish embassy working groups
and work plans to better coordinate, and we will ensure that
our overseas personnel have clear priorities and guidance.
We are establishing an interagency working group to improve
our capacity-building and training so that foreign governments
can strengthen enforcement on their own. We will share plans
and information and best practices, focus efforts where
enforcement is most needed, develop agency strategic plans,
ensure that our trainings are consistent with our laws and with
our polices, and coordinate our efforts with international
organizations and the business community to make our trainings
as effective as possible.
We will work with foreign government to increase foreign
law enforcement efforts, and we will promote enforcement of
American intellectual property rights through our trade policy
tools, including bilateral dialogues, our trade agreements,
communicating our concerns clearly through mechanisms such as
Special 301, and when necessary, asserting our rights at the
WTO to dispute settlement process.
We are establishing an interagency counterfeit
pharmaceutical committee to focus on the problems associated
with unlicensed Internet pharmacies distributing counterfeits
in the United States and the proliferation of counterfeit drugs
abroad.
We need to facilitate cooperation to reduce infringement
over the Internet. It is essential for the private sector to
work together to find practical and effective solutions to this
problem, at the same time we will vigorously investigate and
prosecute criminal activity. We will focus on foreign-based Web
sites and web services that violate our intellectual property
rights using a combination of tools, including law enforcement,
diplomatic measures, and coordination with the private sector.
We will review how we support our businesses as they face
difficulties in overseas markets. Due to the scale and scope of
manufacturing, its industrial policies and its potential as an
export market, it is fair to say that China raises a
particularly troubling set of issues. Therefore China will be a
significant focus of our enforcement efforts.
Since the release of the strategy a few weeks ago the
administration announced the launch of a new joint initiative
to go after Internet piracy, Operation In our Sites. During the
course of the first investigation under this initiative, DHS
and DOJ authorities moved together across the country to seize
numerous bank and PayPal accounts from sites that were offering
first run movies, often within hours of their theatrical
release. Federal agents also seized the names for these pirate
sites. But this is only the beginning of our enforcement
actions.
Before I conclude I want to say a word or two about John
Morton who is following me at this table. Under his leadership
ICE has made intellectual property enforcement a real priority.
ICE's creation of the interagency IPR center demonstrates that
agency's commitments, and John has taken that center to a new
place. Domestic and foreign law enforcement, as well as
industry partners, are coordinating better and working together
because of it both domestically and internationally, and I want
to applaud what he has done.
I have stated some ambitious goals today. We are aware that
the release of the strategy is just the beginning, and that
much hard work lies ahead. I commend your leadership on these
issues and I look forward to working closely with this
committee in the coming months on improving our enforcement
efforts both here and abroad.
Thank you very much and I look forward to your questions.
[The prepared statement of Ms. Espinel follows:]
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Chairman Berman. Well, I thank you very much, Ms. Espinel,
and I will yield myself 5 minutes to start the questioning.
In the Joint Strategic Plan there is a paragraph about
improving the effectiveness of personnel overseas to combat IP
infringement. Do you have a notion of how the administration
will do that? Will the administration support the provision on
greater IP resources abroad that we had in our State Department
authorization bill?
And just to add, I have some information that the
administration does not have plans to replace the person who is
in the Department of Justice's Intellectual Property Law
Enforcement Coordinator Program who is now based in Sofia,
Bulgaria, and as we understand when that individual returns at
the end of the year there will be no replacement. Could you
take a look into that particular issue and let us know if it
has been resolved?
Ms. Espinel. We agree, as many have said the experience of
the company in Mr. Manzullo's district indicates that our
overseas personnel are critical to our efforts. They play a
very important role in a number of ways, including improving
our relationships with our counterparts in foreign law
enforcement, which is critical because we have to have our
trading partners taking this seriously if we are going to be
effective. They have been very effective in terms of training
capacity building, again to help foreign law enforcement take
this on more seriously.
So I am in complete agreement with you that while the
overseas personnel that we have right now are doing an
excellent job, I think that there are also ways that they could
be improved further.
We have some ideas along those lines. Part of that is
making sure we have personnel in the places where we need them
most. Part of that is making sure that they are working well
within the embassies; that they have the support that they need
when they are on the ground. Part of that is making sure that
they are getting clear guidance and priorities from Washington,
and that we have clear communication.
I am well aware of the bill that you introduced on this and
it seems to me that the goals in that bill are entirely
consistent with what we are trying to do with the
administration's strategy, so we would indeed support that.
Chairman Berman. Can you give me advice on how to get the
Senate to take it up? [Laughter.]
Ms. Espinel. I will confer and get back to you.
Chairman Berman. The same issue in the context of
cooperative efforts within the business community the Joint
Strategic Plan talks about, can you elaborate on that a little
bit? And how do you hope to see that work, and what should
Congress do, and how does it measure cooperative efforts within
the business community to reduce Internet piracy, especially if
no agreement is reached? Can we name and shame?
Ms. Espinel. So as we noted in the strategy, we think it is
not just important but essential for the private sector to be
working together, to have all sort of players in the Internet
economy working cooperatively to find a solution to Internet
piracy that is both practical and efficient. We are actively
encouraging that cooperation to happen.
That said, while we think it is essential that it is
happening, it is also not our position that we will sit back
and wait for the private sector to figure this out on their
own. There are actions that we can take as the government and
we will take those actions, including investigating, vigorously
investigating and prosecuting criminal activity where we can.
While we are also exploring alternative measures to
reducing Internet piracy, and it may be that there are new
things that we need to do, I will tell you we take this problem
very seriously, and we would like to consider all options.
In terms of naming and shaming, since you raised that
specifically, one of the things that we have committed to do in
the strategy is work with USTR and the other agencies, of
course, to use the Special 301 to highlight foreign Web sites
that are a particular problem. One thing that has been very
clear to me in this job is that foreign Web sites are a
particular problem that we need to address both because of the
scope of material that is coming into the United States from
foreign-based Web sites, and because they pose particular
challenges for our law enforcement to go after them. So we are
very focused on figuring out how we address what is an
admittedly an complicated problem, but an extremely important
one.
Chairman Berman. Thank you, and my time has expired. I am
going to yield 5 minutes to the ranking member, Ms. Ros-
Lehtinen.
Ms. Ros-Lehtinen. Thank you so much, Mr. Chairman. Thank
you for your testimony.
On China and Russia, all experts agree that China is by far
the leading violator of intellectual property rights in the
world and has been for some time, and for years the United
States and other governments have pressed Chinese officials to
take action to stop this rampant piracy with little to show for
it. How can we bring sufficient pressure on China to stop this
widespread theft? What form would that pressure take? And is
this a country that deserves normal trade relations with the
U.S.? I don't believe that it does because of this and many
other reasons.
And on Russia, the Russian Government has repeatedly
pledged and signed agreements to fight the rampant intellectual
property piracy on its territory, but it has yet to fulfill any
of those commitments. Now President Obama has said that he will
work to bring Russia into the WTO as soon as possible. Now,
given Russia's history of false promises wouldn't it make more
sense to have its government demonstrate a track record of
success in fighting piracy before we let them enter the WTO and
thereby we lose our leverage? Thank you.
Ms. Espinel. Well, first of all, I would agree with you
that China is the biggest problem that we face for a whole host
of reasons, including the fact that the volume of what is
coming out of China dwarfs what is coming out of other
countries. Eighty percent of what our Customs seizes every year
comes from China. The range of products that are coming out of
China are immense, and the fact that China has beyond sort of a
lack of enforcement has affirmative industrial policies in
place that are directed at putting our companies at a
competitive disadvantage is an enormous problem, and one that
we are very focused on. It is unacceptable for China to
continue the practices that it has in place, and we are
committed to making that stop.
There are a number of things in the strategy that I think
will go to helping us enforce our rights better overseas in all
markets, but let me assure you that in all of those areas China
is a particular focus. There are a number of things that I
could highlight. In the interest of time, though, let me focus
on one that has a particular focus on China which is the
following: We think it is very important to make sure that as
our companies are moving into overseas markets, and in
particular in China, that they know that they have the full
support of the U.S. Government behind them.
And you mentioned the President's goals of doubling
exports. Using intellectual property enforcement as one of the
tools that we have to double exports is of critical importance
to the administration. So we are going to, we are actively now
actually working with Commerce and other agencies to assess
what it is that we do as a government to support our industries
as they are moving into China, and to see if, one, our
companies are aware of the resources of the U.S. Government
that are at their disposal, but two, and even more than that,
that there is more that we could be doing now to make sure that
our companies know that they are well supported by their
government as they are navigating the Chinese market.
With respect to Russia, I could speak to the issues with
Russia at great length. I will just say briefly there are
enormous intellectual property enforcement problems in Russia
as you pointed out. They have been going on for a significant
amount of time. USTR and other agencies are well aware of that.
I think that the point that you make about WTO accession is a
very good one, and clearly Russia needs to make significant
improvements in intellectual property in order to join the WTO.
Ms. Ros-Lehtinen. Thank you, but I am not sure that my
question was answered. What kind of pressure can we bring to
bear on China and on Russia to make them fulfill their pledges
and commitments, and isn't our rush to have Russia enter the
WTO giving them an easy pass and saying they don't have to do
anything about intellectual property theft?
Ms. Espinel. With respect to Russia, we have made clear to
the Russian Government repeatedly that intellectual property
enforcement has to be strengthened in order for them to enter
the WTO, and in fact USTR is on its way to meet with Russia
about WTO accession and the improvements that we need to make
there in the coming weeks.
So, I think the leverage that we have with Russia and one
of the important points of leverage that we have is exactly
what you referred to, the WTO accession process, and we intend
to use it. And if there is a lack of doubt about that let me
allay those concerns.
Ms. Ros-Lehtinen. Thank you, Mr. Chairman, my time is up
but I think that we are just letting China and Russia slide,
and I think it is pretty obvious.
Chairman Berman. The time of the gentlelady has expired.
The gentleman from Florida, Mr. Deutch, is recognized for 5
minutes.
Mr. Deutch. Thank you, Mr. Chairman. Thank you for your
testimony, Ms. Espinel.
Intellectual property theft, as I raised earlier, has been
increasingly funding to the terrorist organizations like Hamas
and Hezbollah, an egregious example of which there are,
frankly, too many to list, involves counterfeiters in tri-
border area of South America who have provided millions of
dollars in direct contributions to Hezbollah through their IP
piracy. In fact, one such especially designated global
terrorist entity in Paraguay provided the payment of millions
of dollars directly to Hezbollah.
Can you outline what is being done to combat this type of
terror financing and what level of coordination between U.S.
enforcement and intelligence agencies take place, and
ultimately as you pursue your broader strategy, if you could
speak to the extent to which this type of financing that comes
from IP piracy plays a role in your determination of how best
to approach these issues?
Ms. Espinel. Thank you. So, first I would say that we are
well aware of the fact that piracy and counterfeiting generally
are attractive for the types of organizations that you are
talking about, for illicit organized criminal activity, because
the margins are high and because the risks are low, or
perceived as low, so that is something that we are quite
focused on.
One of the things that I think that we need to ensure that
we are doing a better job of in order to go after this problem
is to make sure our law enforcement agencies are sharing
information cooperatively, and that is something that we are
very focused on and have already started to put steps in place
to make sure that that happens.
With respect to the link between organized criminal
activity and international piracy and counterfeiting, we are
working with the National Security Council as well as other
relevant agencies to see what more we can find out about the
extent of that scope. There are some cases that you alluded to
but there may be a problem, there may or may not be a problem
that sort of extends beyond that, and I think that is important
for us to know as we are putting our policies in place.
But more generally I think the efforts that we are taking
with DOJ, with the FBI, with DHS, and others to prioritize this
issue and to make sure our law enforcement agencies are sharing
information cooperatively will be helpful to address this issue
generally, and including the kind of links that you refer to
between piracy and counterfeiting and organized criminal
activity.
Mr. Deutch. Thank you. So as you put in place, as you
pursue these efforts to share information between law
enforcement agencies can you describe what that looks like on
the ground, the enforcement of the IP laws and how that
information ultimately is shared with appropriate national
security agencies?
Ms. Espinel. Well, obviously I am somewhat limited in what
I can say in a public hearing like this. What I can do, first
of all, I am happy to have discussions outside this hearing if
that would be helpful.
The second thing that I can tell you is, as we move forward
in this progress and move toward better sharing of databases
and other information, I think there will be stuff that we can
talk about publicly. I am both obligated by legislation, but
also interested in coming back and talking to this committee
and to Congress generally about what we have done in December
to move forward in practical ways.
Again, I may always be somewhat limited in what I can say
in a public hearing.
Mr. Deutch. Finally, is the issue of funding of terrorist
organizations through IP piracy on the agenda in discussions
that take place not just interagency in America but in your
discussions with the folks who do enforcement in the countries
that we are dealing with to combat these issues?
Ms. Espinel. Absolutely.
Mr. Deutch. Thank you.
Chairman Berman. The time of the gentleman has expired, and
the gentleman from New Jersey, Mr. Smith, is recognized for 5
minutes.
Mr. Smith. Thank you very much, and thank you for your
testimony.
Let me just focus on one particular issue. Both over-the-
counter and prescription drug safety and efficacy are of deep
concern to all patient consumers. As more drugs are foreign-
sourced the risk of producing inferior, substandard products
and/or the stealing of the patents to those compounds is
obviously very, very high.
Bing reported last December on its blog, and it was an
article written by Jim Edwards, that in China there were two
inspectors watching the drug factories--in the entirety of
China. I have seen other reports that suggested that less than
10 percent of the factories are looked at by FDA, so this is
obviously an engraved invitation, if you ask me, for huge
amounts of fraud, ripping off of, again, this intellectual
property. And even if they don't sell the product to the United
States, there are markets all over the world where that
American name or that multinational's name will be bought and
bought in huge quantities, and if it is an inferior compound or
a ripped off product, obviously that raises very serious
concerns.
So my question to you is, how does your office work with
the FDA to ensure, and on the proactive side, I mentioned two
inspectors, I don't know if that is true, we tried to get
information, we got all kinds of numbers, but two is like--I
mean, that is incompetence if you ask me in terms of sourcing
or deploying FDA inspectors, how does your office work with the
FDA to ensure that on-site inspections actually occur? Because
if you don't go to the source, if you check out, how do you
know what is going into the product as that product is
produced, and whether or not it is being counterfeited, or they
are doing something on the cheap in order to put the name on it
but not have the effective ingredients?
And do you do anything when it comes to adverse events that
are reported to the FDA? Is your office brought in in any way
when there is a suspicion that these adverse impacts on
patients might be triggered by a counterfeit or a compound that
was pirated, and then it came back into the United States?
It seems to me, I mean, I have met with FDA people over the
years many times, whether it be on Acutane or other things, and
I have been shocked at how laissez-fairelazzifare deg.
on some sells products they have been developing over the
years. And it seems to me that, if there is a spike in adverse
events, does that trigger anything to suggest there might be a
counterfeit product making its way into the United States?
And this is especially pertinent as more and more of our
pharmaceuticals are foreign sourced, especially the
manufacturing of that product--Pfizer, Astro-Zenica, and
Novartis are only the most recent huge companies that are
putting more, not less, of their operations in the PRC.
Ms. Espinel. Thank you. So this is an enormously important
problem. As you pointed out, it has detrimental effects for our
economy in terms of intellectual property infringement, but
obviously the health and safety implications of this problem
are enormous, and it is something that we care very much about.
It is a problem that is both domestic in terms of an impact on
our domestic economy, and a potentially growing problem in
terms of counterfeit drugs actually getting into the supply
chain in the United States.
Although I think most Americans probably feel that the U.S.
supply chain is relatively safe, there are counterfeit
pharmaceuticals coming into the United States, which is
obviously an enormous problem, and as you pointed out, overseas
the scope of this problem, particularly in countries located in
Africa, is significant and reprehensible. So it is something we
are very focused on.
We are setting up an interagency committee that is going--a
new interagency committee that is going to focus on exactly
this set of issues. We have been working very closely with FDA
actually over the past few months as we put together the
general strategic plan, and we will continue to do that.
One of the things that we are working with FDA on is seeing
if there is a way to better track into the U.S. Government
supply chain particular pharmaceuticals if it become clear that
there is a problem, for example, counterfeiting, with those
pharmaceuticals. So we are very focused on that.
With respect to your question about inspectors in China, I
think we have grave concerns about the level of quality control
in China.
Mr. Smith. Is two the right number?
Ms. Espinel. But I was going to say that is something I
don't know. So rather than speculate let me look into that and
we will get back to you.
Mr. Smith. I appreciate that. I noted or would note that
there was a GAO report issued back in 2008 and it did make the
point that we were spending some $11 million in 2008, fiscal
2008, on foreign inspectors. It seems to me that is woefully
inadequate. And you know, if there could be some kind of
collaboration with your office to say if we really want to cut
down on the piracy but also protect the health and well being
of your people we need to beef up inspections.
Ms. Espinel. Thank you.
Mr. Smith. Thank you.
Chairman Berman. The time of the gentleman has expired. The
gentleman from Virginia, Mr. Connolly, is recognized for 5
minutes.
Mr. Connolly. Thank you, Mr. Chairman, and thank you for
holding these hearings. I would ask, if it hasn't already been
done, concurrence to at this point put my full statement in the
record.
Chairman Berman. Without objection, it will be included.
Mr. Connolly. I thank the chair. Ms. Espinel, if the United
States is successful in shutting down a Web site like China's
Baidu, is there a risk for retaliatory measures for U.S. search
engines?
Ms. Espinel. As I have said in the testimony, as we say
very clearly in the strategy, one of the problems that we have
to address is this issue of foreign-based Web sites, and the
products that are being brought into the United States with
digital content, but also physical products such as counterfeit
pharmaceuticals that are coming in through foreign-based Web
sites. So, we have committed to focus on those as a particular
problem, and I think John Morton is also going to be speaking
directly to that issue.
That said, we are aware of the fact that foreign-based Web
sites raise a whole host of complicated issues. One of those
issues is the fact that it is difficult for our law
enforcement, it is more challenging for our law enforcement to
go after foreign-based Web sites. The other is that it is very
important to this administration that our policies with respect
to the Internet in general are ones that preserve openness and
don't give other countries excuses to do things that we find
unacceptable.
However, this is illegal activity. This is illegal activity
that has an enormously detrimental impact on our economy, so it
is important that we go after it vigorously.
Mr. Connolly. In May, the Congressional International Anti-
Piracy Caucus highlighted the problem of foreign Web sites, as
you just said, that provide access to unauthorized copies of
U.S. copyrighted material. Priority sites for China's Baidu,
Canada's isohunt, the Ukraine's MP3's fiesta, Germany's
RapidShare, Luxembourg's RMX 4U.com, and Sweden's The Pirate
Bay, what sort of collaborative efforts are needed among the
original content producer and companies that specialize in
advertising of payment solutions to shutdown these sites, in
your view?
Ms. Espinel. I think it is absolutely essential that that
cooperation take place and that is something that we have been
working on facilitating very actively. There are many, many
players in the Internet economy. Obviously the rightholders
have a big responsibility to be enforcing their rights, but in
order for us--for us as a country to have a solution to this
problem that is practical, efficient, and not overly
burdensome, it is necessary for us to have cooperation from all
the players in the Internet economy, and all the people that
are benefitting either directly or indirectly from
infringement.
I do want to emphasize though that while we think that
cooperation is very important we also know that we as a
government need to be taking action, so we will not just sit
back and wait for the private sector to come to an agreement.
We are both exploring whether there are other measures that we
can use to reduce Internet piracy, and we will vigorously
investigate and prosecute Internet piracy as we can with the
existing law enforcement authorities that we have now.
Mr. Connolly. To what extent do you believe in this effort,
Europe's lack of recognition of the First Sale Doctrine is an
impediment?
Ms. Espinel. That my lack of recognition?
Mr. Connolly. No, no. Europe's, Europe's lack of
recognition of the First Sale Doctrine. They have a different
view of copyright law than we do.
Ms. Espinel. The Europeans have a different view of many
things compared to what we do. With respect to the First Sale
Doctrine and their view of that, would you allow me to find out
more about that----
Mr. Connolly. Sure.
Ms. Espinel [continuing]. So I can give you a better and
more complete answer?
Mr. Connolly. Yes, get back to us.
And my final question, you know, President Obama has made
significant expansion, I think, of the doubling of exports, one
of his major goals, a laudable goal, lots of things have to be
in place for that to happen--new trade agreements, strengthen
and enforce trade agreements and so forth, but one of them
clearly is this issue of intellectual property protection, and
especially in a place like China. If they are going to be
stealing intellectual property left and right so that we have
nothing to sell them because they sell it and manufacture it
themselves to the domestic market, it defeats the whole purpose
of a free trade regime, and significantly impedes the ability
of the President to achieve his goal. Your comment?
Ms. Espinel. I absolutely agree with you. We have a very
ambitious goal set by the President to double exports in 5
years. Part of what we have to do in order to meet that goal is
to make sure we have viable export markets. If our export
markets are polluted by counterfeit and piracy, there is no way
for our businesses to be able to compete. So, it is critical to
the administration that one of the things we do, and as you say
there are many things that we will have to do, but one of these
has to be ensuring that our intellectual property rights are
being enforced overseas.
Chairman Berman. The time of the gentleman has expired, and
I believe this is the first time the First Sale Doctrine has
ever been mentioned in a Foreign Affairs Committee hearing.
[Laughter.]
Mr. Manzullo, the gentleman from Illinois is recognized for
5 minutes. It is all according to this screen. I just follow
the screen.
Mr. Manzullo. Well, thank you.
Maybe this question is over simple, if that is a word. Mr.
Smith talked about piracy taking place in pharmaceuticals,
which is very subtle, hard to determine, and takes an enormous
amount of people and agencies to try and find the source, et
cetera. I was in China several years ago in Ku-ming, when I led
the U.S.-China Interparliamentary Exchange. Congresswoman
Jackson Lee was with me, and Congresswoman Marcia Blackburn,
and we went into the town square there, and the people that
were our hosts surrounded us. Marcia said, ``Don, why don't you
pull the guards with you and let me go off and find the
stuff?''
Well, it wasn't too hard. So I took the guards with me.
Congresswoman Blackburn just walked a few feet and there they
were, first run movies for a buck, everything being openly
sold, absolutely no desire, no enforcement on the part of the
Chinese Government to stop that. Interestingly enough when you
leave China, when you fill out the declarations it says that
you are not taking from China any CDs or movies or things of
that nature.
My question is, if the Chinese are making absolutely no
efforts to corral piracy within their own country, knowing full
well that that crap finds its way back to the United States and
around the world and destroys jobs, what do you do in a case
like that?
You can have all the personnel you want. I mean, how do you
enforce that? How do you force China to follow their words that
says that they want to be a player and protect intellectual
property rights?
Ms. Espinel. So, first, with your permission I would like
to refer to something that you said in your opening statement.
You referred to a company in your district that had been having
serious problems in China.
Mr. Manzullo. Right.
Ms. Espinel. And I wanted to note that I have been talking
to a number of companies in the manufacturing space and working
with the National Association of Manufacturers to visit
Illinois, in particular, to talk to manufacturing companies
there so that we understand better the problems that they are
facing, and can do a better job of trying to address them.
With respect to your question now, obviously the lack of
political will in China to address this issue and the lack of
it being a significant priority for many parts of the Chinese
Government is a real challenge that we face. So part of what we
need to do to address this is to make clear to the Chinese that
for this administration at this time this is a real problem and
the policies that China has put in place----
Mr. Manzullo. No, I understand that it has been a problem
all along, regardless of who is in the White House or who
controls Congress. You would agree, this is not a political
issue because we all agree up here it is a big trade
infringement, but how do you punish China for doing this?
I mean, it is so outrageous. You have probably been there
and seen the piracy taking place. That is why I said it is
probably an over-simple question, but that goes right to the
heart of it. You know, unless China enforces these laws
internally--I mean, why even waste your time sitting at a table
with them? There has to be a penalty that they have to pay.
What would the penalty be?
Ms. Espinel. Well, China needs to enforce its laws
domestically, but even beyond the domestic market one of the
problems that we face with China, we as the United States face
with China, is the fact that they are manufacturing illegal
products and then exporting them around the world. Obviously we
need to be working very closely with the Chinese Government to
try to fix this problem but----
Mr. Manzullo. But why would they work with you when they
allow the open sale taking place in the town squares? I mean,
they have no desire to crack down. They need to pay a penalty.
I mean, they know that. They have gamed the system so long. I
am sorry. I took your time.
Ms. Espinel. But I do want to emphasize that part of--the
United States is not going to be able to address this problem
by itself, we are aware of that, and one of the things that we
need to do as well is working with our trading partners because
we are not the only country that is facing these problems now,
and see if we can improve the coordination that we have with
other governments so that we can collectively bring pressure to
bear on China.
Chairman Berman. The time of the gentleman has expired. The
gentleman from California, Mr. Sherman, is recognized for 5
minutes.
Mr. Sherman. Thank you, Mr. Chairman.
I want to agree with the gentleman from Illinois. They are
not going to do anything unless there is a penalty, but I think
that the Chinese are right if they assume that Wall Street,
Wal-Mart and Washington will combine to make sure that they
never face a penalty.
I think the witness is wrong when you tell us that this is
a low priority for China. It is a high priority. It is very
important to them that they keep stealing, and for them to say,
no, this is a low law enforcement priority, no, it is a very
high priority that they keep stealing our intellectual
property.
Now, the gentleman from Virginia talked about the
President's idea of tripling exports. I hope that this is not
to be combined with quintupling imports. We have got to cut the
trade deficit. Increased exports when exceeded by increased
imports means we lose even more jobs.
I do want to highlight the particular venality of Baidu,
which is perhaps more than any--well, certainly more than any
other company in the IAPC 2010 report responsible for the theft
of American music, and China is like 99 percent of the online
piracy for music, and I hope you would respond for the record
what you are going to do about it, but I suggest that the
gentleman from Illinois is probably right. Without penalties
they are not going to do anything.
It is your job to summarize for the President all the
options, and so my concern is whether you are investigating all
the options or just those that you are allowed to talk about in
polite society. For example, have you investigated and do you
know whether we have the technological capacity to take down
the illegal site, the sites primarily devoted to music piracy
or movie piracy? The site is up somewhere in the world, God
know some hackers at a high school in China could take it down.
They have taken down our U.S. Government sites, whether it is
virus or multiple hit.
Do we have the capacity to do that? Have you investigated
that?
Ms. Espinel. That is something that we are actively
investigating because----
Mr. Sherman. Oh, good. Go ahead.
Ms. Espinel [continuing]. It is obviously a big concern. It
is not a simple question and it is not a simple answer. In
summary, I will say there are technological ways to take down
sites, but one of the challenges that we face is that even if a
site is taking down it is not that hard for a site to go back
up at a slightly different----
Mr. Sherman. Well, if you take down 10 or 20, it makes a
statement. You can take them down as quickly as they can put
them up. But you are saying we have the capacity if somebody
has got a site, you know, stolenmusic.com, we could take that
site down, we are just not doing it yet because we figure they
will pop up as----
Chairman Berman. Will the gentleman yield?
Mr. Sherman. Yes, I will yield.
Chairman Berman. What about a safe harbor for copyright
holders who want to use efforts to deny service to----
Mr. Sherman. They will help.
Chairman Berman [continuing]. Intellectual property
infringers? I heard that idea once.
Ms. Espinel. If I could just make a general comment. I
would also say our ability and what we can do differs
significantly when we are talking about domestic versus
foreign-based Web sites.
Mr. Sherman. I am talking about foreign-based Web sites.
Ms. Espinel. That is not one of the things----
Mr. Sherman. And you are right, I think Universal could
hire a couple of those high school kids and maybe act more
quickly than the government. Let me ask and squeeze in one more
question.
What do we do with those who pay money to advertise on
sites devoted chiefly to music or movie theft? Are they allowed
to deduct their cost of their advertising? Do they face any
penalties based on the amount, or what is the penalty for
buying an ad on stolenmusic.com?
Ms. Espinel. So since your question is with respect to
foreign-based Web sites, let me just emphasize that our ability
to take down----
Mr. Sherman. Assume it's a U.S. company selling vegematics
to Americans and they buy an ad on this Chinese Web site
westealmusic.com?
Ms. Espinel. And with respect to your question about
penalties for ad brokers, it is an interesting one. It is not
one that has been raised.
Mr. Sherman. I have raised it. Please report back to the
committee about it.
Ms. Espinel. One of the things that my office can do is
take exactly this kind of input and concerns and make sure that
we are investigating it and discussing it internally as an
administration.
So, I thank you for that, and I thank you for any input you
might have in the future.
Mr. Sherman. Thank you.
Chairman Berman. The time of the gentleman has expired. The
gentleman from California, Mr. Rohrabacher, is recognized for 5
minutes.
Mr. Rohrabacher. First and foremost, let me identify myself
with the line of questioning and the statements made by Mr.
Manzullo or Mr. Sherman. Mr. Sherman, as some of us have dealt
with in the past, understand that he is an accountant by
profession, and thus accountability actually means something to
him, and he has a career of looking at cost/benefit and
calculating that out, and so I think that really leads to
reality at times, although I disagree with him on some thing.
[Laughter.]
Now with that said let me note that there were some things
that I disagreed with Members of Congress a few years ago when
they were proposing that our patent system change so that the
actual publication of patents even before they were issued was
mandated.
Do you think that if we would have mandated the publication
of our patent applications before the issuance of those patents
would have increased the theft of American intellectual
property rights?
Ms. Espinel. The type of domestic patent reforms that you
refer to are not ones that my office has directly focused on.
Mr. Rohrabacher. That is not what I am asking you. I am
asking you as someone who understands intellectual property
theft. The law mandating the publication of a person's patent
application before it was issued would it increase the chances
of theft?
Ms. Espinel. Well, in truth since that is not what my
office focuses on, and since it's not deeply familiar with the
background of, I don't want to give an answer. However, I am
happy to take those concerns back and----
Mr. Rohrabacher. Okay, got it. Now, how long have you been
in your position now?
Ms. Espinel. A little over 6 months.
Mr. Rohrabacher. 6 months? And what consequences have you
determined were applicable to people in countries that we
actually find blatantly and continuing even after being
notified involved the intellectual cost of American property,
or the cost of American intellectual property I should say?
Ms. Espinel. So I came into this office about 6 months ago
with three main goals.
Mr. Rohrabacher. I am not asking that. What are the
consequences, I don't care what main goals you came in with,
what are the consequences you have determined after 6 months
plus you have a background in this for years, what consequences
are you suggesting that someone or some government that
continues to acquiesce or involves themselves in intellectual
property theft should face?
Ms. Espinel. I think with respect to individuals that are
engaged in intellectual property, that are engaged in criminal
activities, we need to be prosecuting them. Investigating them
and then prosecuting them.
Mr. Rohrabacher. In other countries. So we demand that the
other countries prosecute them. What are we doing now? The
other countries know this intellectual property theft is going
on. They have not prosecuted. What if they continue to refuse
to prosecute those people? What consequences are you suggesting
that people who blatantly go along with this intellectual
property theft or are involved in it will suffer?
You have been there 6 months. You would have a whole career
based on this. What are your recommendations?
Ms. Espinel. One of the things that we need to do is see
whether or not our own domestic law enforcement, which is very
focused on the situation now, as John Morton and others can
testify to is to make sure that they have the authorities that
they need. There may be additional legislative authorities in
order to be able to go after effectively people that are in
overseas markets so that we are not entirely dependent on the
government of those countries to act.
Mr. Rohrabacher. And if indeed the other government refuses
to permit our jurisdiction, our people doing this, what are the
consequences that you believe that we should do as a nation to
those nations that are refusing to go along with us and are
acquiescence to this $100 billion rip off of the American
people?
Ms. Espinel. Well, obviously, if other government are not
respecting our rights, we need to make clear to them that the
United States considers this to be----
Mr. Rohrabacher. No, no, what are the consequences? Making
clear, they know what they are doing, we know what they are
doing. What are the consequences that you are suggesting that
our Government do to a government like China that is blatantly
permitting this rip off of the American people?
Ms. Espinel. One of the areas where there can be
consequences is to use our trade policy tools, including as the
ranking member, Ms. Ros-Lehtinen said.
Mr. Rohrabacher. What retaliation in those trade rules
would you suggest that we implement?
Chairman Berman. The time of the gentleman has expired.
Unanimous consent if there is no objection heard, I will give
the gentleman another minute.
Mr. Rohrabacher. Thank you very much, Mr. Chairman.
So what would you suggest that when the President has seen
the leadership in China four times so far in his presidency,
what do you think the President--now you say we are getting
serious--what should the President say, if you don't do this,
you have known all along they are ripping us off, what should
the President suggest we are going to do this if you don't
crack down?
Ms. Espinel. Well, as you are aware, our ability to impose
penalties on other countries is limited, it is shaped by the
laws that Congress put in place. So as I alluded to before, and
maybe I should be more explicit about this, it may be necessary
for us to make legislative changes both so that we have more
teeth in our trade policy tools, and so that our domestic law
enforcement----
Chairman Berman. Would the gentleman yield for 10 seconds?
Mr. Rohrabacher. Of course I will.
Chairman Berman. In the late 1990s, rampant continues, at
another time when there was rampant piracy in China with the
manufacturing of counterfeit CDs, we proposed countervailing
tariffs on a variety of items that we thought equaled the value
of the stolen property. Just the threat of that caused three
plants to be destroyed. Unfortunately the piracy continued in
other places.
Mr. Rohrabacher. Let me reclaim my time. The chairman has
come up with a great suggestion of what we can consider. Would
you think that this is something that we should do and threaten
other countries that are acquiescent to this type of rip off of
the American people?
Chairman Berman. Unfortunately, the time has expired 40
seconds, but we can hear back from you later.
Ms. Espinel. Those types of suggestions from Members of
Congress are enormously helpful.
Chairman Berman. The gentlelady from Texas, Ms. Sheila
Jackson Lee, is recognized for 5 minutes.
Ms. Jackson Lee. Thank you very much, Mr. Chairman, and
thank you for the hearing, and that of the ranking member.
This is an issue that many members have been addressing
from the 1990s, and as Congressman Manzullo said, it is not an
issue that is partisan. I remember working with Chairman Hyde,
the late Chairman Hyde from Illinois on the Judiciary Committee
and as well Chairman Berman over the years on this question of
intellectual property.
I think it is important to note that the cost of this abuse
is jobs, and I have never seen an administration more committed
to creating job than the Obama administration. The true cost to
the American people is seen in the 750,000 jobs that have been
lost as a result of intellectual property violations. Worst of
all the statistics have indicated that the scale of these
illegal activities is rising despite efforts from both the
government and private sector by billions of dollars a year.
One of the most troubling, my colleagues have spoken about
the pharmaceuticals, but I remember the tooth paste scare,
counterfeit tooth paste that contained a dangerous chemical
that was distributed and sold to consumers under the trademark
of Colgate-Palmolive. Of course, that company lost reputation
and millions of dollars.
So, I think what we are trying to glean from you, Ms.
Espinel, is what is the enthusiasm, the energy? I am going to
yield to you for an answer but as I do that I note that my
friend John Morton will be testifying, and let me just as an
aside compliment him for an innovative and new approach to
ICE's immigration efforts with respect to employers. I know
this is not that hearing, but I want to put that on the record.
It has achieved, I think, a better approach.
I use that as an example that the government can be
effective, but I am not hearing the sense of urgency in
grabbing after this crisis of losing jobs in an economy that
cannot afford to lose the jobs, and I know that you work with
the USTR (U.S. Trade Representative), a very competent part of
your competent team and your own competence.
So let me yield to you to allow you to energetically give
us some meat and potatoes. What would you be doing with respect
to your efforts at the WTO, at the IPR? Would you seek stronger
commitments? Where is, as my colleagues have been asking, where
is the hammer? Where is the recognition that this is a crisis?
If we were to go and find ``Avatar'' for $1 in China,
recognizing all that the director and others put in that
amazing picture, if nothing else because of the magnitude of
it, I use that as an example that is most in our minds that it
is a huge cost of putting that together, and then to find that
in China, then I would say this is dish banging time on the
table. This is time to show that kind of ``I am going to get
them'' in an obviously civil manner.
I am going to yield to you for the enthusiasm, the action
items that the administration is doing and thinking about it in
terms of stopping the loss of almost 1 million jobs from
counterfeit activities going on.
I yield to you, Ms. Espinel.
Ms. Espinel. Thank you, and thank you for your kind words
to my colleague, John Morton, and all the excellent work that
ICE, the whole ICE team, is doing under his leadership which is
indeed innovative and a real significant step forward in terms
of the progress and priorities.
Let me assure you this administration is enormously
committed to this problem. As you pointed out, the President's
number one priority is getting our economy back on track, and
enforcement of intellectual property is critical to protect the
jobs that we talked about and to promote our exports as we have
already talked about.
Ms. Jackson Lee. Will you look for stronger language in a
WTO TRIPs agreement specifically?
Ms. Espinel. That is an interesting question. That is,
again, one that has not come up in the 6 months, but those
kinds of suggestions are interesting to us. I think, you know,
beyond the TRIPs agreement, which is not to downplay the
importance of it because it is enormously important, it is
clear that we need a stronger international standard on
enforcement, and whether we do that at the WTO or whether we do
that working with our trading partners directly, I completely
agree with you that the legal framework, the international
agreements that we have right now on intellectual property
enforcement, while good, are not good enough.
Ms. Jackson Lee. So you would ask for stronger intellectual
property rights enforcement?
Ms. Espinel. Yes, absolutely.
Chairman Berman. The time of the gentlelady has expired,
and the gentleman from Texas is recognized for 5 minutes.
Ms. Jackson Lee. Thank you very much.
Mr. Poe. Thank you very much, Mr. Chairman. Thank you for
being here. Appreciate your comments. I have several questions.
But first, I just want to make it clear to you that in my other
life I used to be a judge and prosecutor and I hate thieves.
There is just nothing worse than a thief, whether it is an
individual or a nation.
China seems to me to have a culture of thievery. It is
culturally and politically acceptable, in my opinion, in China
to have theft of American products and intellectual property,
and I know they are big trading buddies, but how do we hold
them accountable specifically. I like the tariff idea.
What about until China gets their thievery in order not
allowing visas for their citizens not to come to the United
States? If we mean business about not stealing business, what
do you think about that idea?
Ms. Espinel. I think we do mean business. I think we
absolutely need to make sure that China is being held
accountable.
Mr. Poe. Do you like the idea of withholding visas until
they start cracking down on the organized crime in their
country of stealing intellectual property?
Ms. Espinel. I think it is an interesting idea. I think we
need to make sure in everything that we do that we are taking
steps that benefit our economy as a whole. And so one of the
things that makes dealing with China complicated is the fact
that we do have many different connections with China in our
economy, and while we absolutely need to make sure that the
violations of American intellectual property rights, the fact
that China is taking our research and development, the fact
that China is building an innovation industry basically on the
backs of our own industries, we need to make sure that stops,
but we need to make sure that stops in a way that doesn't have
a significant detrimental impact on other parts of our economy.
Mr. Poe. Well, I don't know that prohibiting visas from the
Chinese that wants to come to school here hurts our economy as
much as the thievery that takes place in China with the
intellectual property. I understand that the piracy of movies,
the piracy of songs has prohibited the development of more
movies, the development of more music in the music industry
because of the cost to our industry because of piracy, not just
in China, but the former Soviet Bloc and Eastern European
countries are involved in all of this as well. So there needs
to be some consequences.
I agree with all of those who have stated, you know, we can
try the diplomatic channels. Well, that doesn't work.
Next question: Have you had any input, influence,
encouragement or discouragement from the State Department not
to be so tough on the Chinese because they are our trading
buddies?
Ms. Espinel. No. The State Department, among other
agencies, works very closely with us on the plan. I think they
are well aware, as are we, of the problems that we face in
China. I think the short answer to that question is no.
Mr. Poe. Good. Good to hear.
Google was real concerned about the Chinese and their
intellectual property theft of Google. Now that has sort of
been resolved. I understand that Google is not too concerned
about their blog site being a venue for intellectual property
theft. Do you want to comment on that? That their blogs are
being used as a basis for developing piracy, international
piracy.
Ms. Espinel. Well, I won't comment or speak for Google in
terms of their views on intellectual property enforcement or
intellectual property infringement. I will tell you that we are
discussing with Google, as we are with a number of the
companies that are involved in making the Internet work and
making the Internet the great thing for American commerce as it
has been, to see whether or not there are additional things
that we could be doing to address one of the negative effects
of the Internet, which has been this proliferation of
counterfeiting and piracy.
Mr. Poe. I have two more questions in my 30 seconds. Master
Card and Visa, how cooperative are they in all of this process?
When people use Master Card, pirate company allows Master Card
or uses Master Card and Visa, are they cooperative in trying to
bring down these sites, refuse payment? Are you getting
cooperation from Master Card and Visa or are they slow?
Ms. Espinel. We are talking to Master Card and Visa about
what their operations are. Again, I don't want to speak for
them but I don't believe they want their services to be used
for illegal activity, so I am hopeful that we will be able to
move the ball there.
Chairman Berman. The time of the gentleman has expired. The
gentleman from New Jersey, Mr. Sires, and I do remind the
members we have the second panel. Mr. Sires.
Mr. Sires. Thank you, Mr. Chairman, and I apologize for not
being here earlier but I had other commitments.
I will just be very blunt with you. Is there anything that
they don't steal or copy in China from us or from the rest of
the world? Can you think of anything?
Ms. Espinel. Certainly the scope of what is manufactured in
China in various ways is vast.
Mr. Sires. Okay. So how can I as a consumer in New Jersey
feel that it is safe for me to take it off the shelf if they
don't cooperate? They obviously are not embarrassed by it
because I assume that you have approached this subject with
them, and I would like to know of their reaction, but how can I
as a consumer feel that it is safe to take that product off the
shelf that comes from China?
I mean, just the other day I saw medicine. You know, it
just goes on and on and on. So what can you assure me that we
are doing everything we can to make sure that the product that
I am going to purchase is safe?
Ms. Espinel. I can assure you that this is an issue that we
care deeply about, and we have already talked in this hearing
quite a bit about the importance of intellectual property
enforcement to our jobs and to our exports, and to restoring
our economy. But the issues that you raise, the issues of
health and safety and that sort of basic issue of consumer
confidence in the system is one that I think is enormously
important. Part of what intellectual properties do for us as a
society has helped give our consumer that certainty, that
predictability, that faith that our products are what they
purport to be.
So, we need to have our laws, but we also need to make sure
that those laws are being enforced so that consumer can have
confidence.
I think the U.S. Government supply chain is certainly the
focus of this committee. There are other countries overseas
that struggle even more with the issue of their supply chain
being infiltrated, but we are very focused on making sure that
our own supply chain into the United States Government and to
our United States consumers is as secure as it can be.
Mr. Sires. And I will just share this with you in less than
1 minute. The other day I was having lunch--this happened a
couple of months ago--I was having lunch and I was having a
piece of catfish, and another member sat next to me, and he
said--I won't mention his name. He said, you know, we have to
do something in the agriculture bill because most of the
catfish that is imported into the United States are grown by
sewage outflows in Vietnam. I can tell you that I will never
eat another piece of catfish for the rest of my life. But this
is just the kind of thing that we are not aware of, and this
happened to me a couple of months ago. Thank you.
And what is the reaction of the Chinese when you approach
them on some of these issues?
Ms. Espinel. Well, with respect to the catfish story for a
moment. My husband's family is from Louisiana, and I am deeply
attached to Louisiana, so you know, catfish is something near
and dear to me as well.
Mr. Sires. I said Vietnam, not Louisiana. I will buy that.
Ms. Espinel. With respect to China, it is clear Chinese
needs to take this more seriously. Regardless of what their
sort of official reaction is, they need to be doing more, and
that is a priority for us to make that happen.
Mr. Sires. Just tell your husband to put on it Louisiana
grown. Thank you.
Chairman Berman. The time of the gentleman has expired. I
guess it is choice of Vietnamese sewage or American oil on the
catfish.
The gentleman from Massachusetts.
Mr. Delahunt. Well, Mr. Chairman, you can always come to
New England where things are clean and clear and tasty.
You know, I agree clearly it is about jobs and it is about
balance of things and it is about the economy, but at one level
it is really about our national security, and I think we should
not lose sight of that, and I think it is clear from the
comments that we hear there is an anger, justifiable anger that
exists, and I think it is also clear that it is perceived that
China is the most significant aspect of this problem, and that
it would appear that you don't have the tools to motivate the
Chinese from rhetoric to action.
I think it is absolutely essential that the administration
propose to the Congress those tools or those mechanisms that
will get the attention of the Chinese and actually motivate
them to match their actions with their rhetoric. I am sure
different moments there have been optics as far as enforcement
is concerned, but this conversation has been going on every
since I came to Congress and that is some 14 years, and it is
getting to the point where it is just totally unacceptable.
I think we are losing credibility as well as jobs because
we have not taken hard sufficient action. There has to be real
consequences, and if they are not it is just simply going to
continue. I bet if you took a vote of this committee, that
would receive unanimous support, and it is up to this
administration now to move expeditiously in a way that is
respectful but if we do not respond forcefully and hard against
China until they clean up their act it is going to send a
message to the rest of the world that, you know, we are just
spinning our wheels.
I applaud the good efforts that are being made. I think
task force comments headed by task for concepts headed by ICE,
the work that you are doing is fine, but it is going to require
something of a different order of magnitude. I think we ought
to consider this economic terrorism. We are at risk if we do
not address this problem, and I think you are hearing that, you
know, from both sides, Republic and Democrat. This has got to
become a high priority right up there with job creation and
health care, and all of the other issues that we are
confronting. If we do not do something about protecting our
intellectual property, we are at risk. Care to make a comment?
Ms. Espinel. I fully agree with that. I appreciate your
suggestion about proposals to Congress because I look forward
to working with you and with the committee as a whole to figure
out more what we can do there.
Mr. Delahunt. Let me just get to Mr. Poe's idea about
withholding visas, but, first of all, we want them to come here
so that they will spend some money here. I want those students
to come to schools in New England because for every
international student it generates 50 trips from overseas by
family members and friends which helps our economy.
So this has got to be directed along the lines that were
suggested earlier by the chairman, about having clear
countervailing tariffs that are painful and will keep Chinese
goods from coming into this country. My instinct tells me that
is the answer. You know, jobs are leaving China now going to
other countries that are undercutting, so it is not like there
is not a market out there. That, I think, is a suggestion that
should be taken up expeditiously.
Chairman Berman. The time of the gentleman has expired.
Others are saying no more small ball, but the fact is, Ms.
Espinel, you are unwavering in a number of things that are
going to make incremental improvements, and the question is, is
there something bigger? And we appreciate you being here, and
what you are doing, and thank you very much. We will now have a
second panel. We will hear from Mr. Morton who will talk about
what ICE has done that have some real consequences.
We have our second panel. Our first witness will be
Assistant Secretary John Morton, Assistant Secretary of
Homeland Security for the U.S. Immigration and Customs
Enforcement, known as ICE. In this capacity, he directs the
principal investigative component of the Department of Homeland
Security, the second largest investigative agency in the
Federal Government.
Mr. Morton has an extensive background in Federal law
enforcement. He has held a variety of positions within the
Department of Justice, including those of trial attorney,
special assistant with the general counsel in the former INS,
and counsel to the deputy attorney general. Mr. Morton received
his law degree from the University of Virginia, School of Law.
Our second witness is Chris Israel. He is the former U.S.
Coordinator for International Intellectual Property
Enforcement, which was located then at the Department of
Commerce.
Appointed by President Bush in 2005, Mr. Israel was
responsible for coordinating resources within the Federal
Government to defend intellectual property rights domestically
and internationally. Prior to this appointment Mr. Israel
served in the Department of Commerce, first as deputy assistant
secretary for technology policy, and later as deputy chief of
staff to two commerce secretaries. Prior to that time he was
deputy director for international policy at Time Warner. Mr.
Israel has a B.A. from the University of Kansas and an MBA from
the George Washington University.
Thank both of you for being here today, and Secretary
Morton, why don't you start.
STATEMENT OF THE HONORABLE JOHN T. MORTON, ASSISTANT SECRETARY,
U.S. IMMIGRATION AND CUSTOMS ENFORCEMENT (ICE), U.S. DEPARTMENT
OF HOMELAND SECURITY
Mr. Morton. Well, Mr. Berman, and Ms. Ros-Lehtinen, and Mr.
Sires, thank you very, very much for inviting me here today to
appear before you. This is my first time, Mr. Chairman, before
the committee and I very much appreciate the invitation, and
the ranking member as well.
Let me just note for the committee how much I have enjoyed
working with Victoria in her short time. She has brought a lot
of energy and enthusiasm to her job, and it is very much
appreciated. We are lucky to have her as the IPEC.
I also want to thank the work of the Department of Justice.
We have worked very, very closely recently with the United
States Attorney offices, the Computer Crime and Intellectual
Property Section in the Criminal Division led by Assistant
Attorney General Lanny Breuer, and they have been good
partners.
And a final note of thanks before I get started to the
industry that has been victimized and has worked with us on a
number of our enforcement efforts. The motion picture industry,
the music industry, and the pharmaceutical industry, in my
view, a strong partnership between the affected businesses and
government is essential if we are going to make any headway in
bringing real consequences to people who violate the law.
Mr. Chairman, let me just be direct. We need to focus on
strong intellectual property enforcement from Los Angeles to
Asia. Simply put, American business is under assault from
criminals who knowingly pirate copyrighted material or
counterfeit and trademark goods. American ideas, American
products are being stolen and sold. Sold on the corner of 4th
and Main, sold over the Internet. From the counterfeit
pharmaceuticals and electronics, to pirated movies and
software, organized criminals are undermining the United States
economy on a grand scale.
Why should we care? Well, here is why. American jobs and
American innovation are being lost. Public health and safety
are at risk. Pirates and counterfeiters don't pay wages or
taxes. They don't fund pensions and health care plans. They
don't invest in new movies or TV shows. They don't develop new
drugs to cure diseases. They don't invent the next iPhone or
flat-screen TV. They don't employ Americans. They don't make
America great. Counterfeiting and piracy hurt American workers
and American industry, pure and simple.
Take the music industry, for example, home to extraordinary
American talent and creativity over the years. In the past 10
years, the industry has experienced a dramatic decline in
legitimate sales and employment due to piracy and
counterfeiting, hurting our major music capitals like
Nashville, New York and Miami.
So what do we need to do in the face of this crime, Mr.
Chairman? In my view, we have to change the face of
intellectual property enforcement. We can't just seek marginal
changes. Incremental improvements, a few extra cases here or
seizures there are welcome but they are ultimately a losing
cause. We have to think through and address the root causes and
the long-term cures. In short, we need enforcement marked by
innovation and by energy.
Intellectual property enforcement is a central part of what
we do at ICE. Last fiscal year, we arrested a record 265
violators and we made 1,750 seizures. This fiscal year, we are
well on our way to setting new records in both categories of
arrests and seizures, and we are going to open over 1,000
cases, the most we have ever done by a long shot in a given
year. In short, our enforcement efforts have greatly increased,
and they will continue to strengthen while I am assistant
secretary, I promise you.
Intellectual property is also a central part of the broader
DHS mission. Our sister agencies, Customs and Border Protection
and the United States Secret Service, play a very important IP
enforcement role, and Secretary Napolitano has been a strong
proponent of IP enforcement during her entire tenure at DHS.
We pursue intellectual property enforcement through three
ways: Through our domestic offices, through our international
offices, and through the Intellectual Property Rights
Coordination Center that is based just across the river near
National Airport in Arlington, Virginia, which ICE leads.
Let me say very quickly about the IPR Center. We have a
total of 12 partners from all over the Federal Government and
elsewhere. It includes ICE, the FBI, CBP, FDA, the Postal
Inspection Service, and the Patent and Trademark Office,
Defense Criminal Investigative Service, the Naval Criminal
Investigative Service, the Army Criminal Investigation Command,
and GSA IG's office. They have all just joined to help bolster
our efforts in the defense supply chain. We also have for the
first time international partners in Mexico and Interpol.
At the IPR Center we receive leads, we generate cases, and
we de-conflict enormous efforts. This last year has been
particularly busy with successful initiatives being undertaken
against counterfeit holiday goods, counterfeit pharmaceuticals
and pirated movies. Let me briefly focus on one such initiative
focused on the Internet, which you will see here on the
monitors what is called Operation In Our Sites.
At the end of June, the IPR Center launched Operation In
Our Sites, a new initiative aimed at counterfeiting and piracy.
During the first phase of this initiative, ICE agents working
with the United States Attorney's Office for the Southern
District of New York seized domain names of seven Web sites
offering first run movies, often within hours of their
theatrical release. These sites on the screen now is a view of
what one of them looked like prior to June 30, allowed visitors
to stream or illegally download current and highly popular
television shows and movies. You could also on some of them buy
counterfeit software.
On June 30, over the course of one of the investigations
agents observed links to more than 200 movies and more than 300
television programs. I mean, everything is available. On June
30, more than 75 ICE agents participated in the enforcement
action, resulting in the seizure of assets from bank accounts,
from PayPal, investment and advertising accounts.
Our efforts successfully disrupted the ability of criminals
to purvey pirated films over the Internet. Industry experts
tell us that Internet piracy takes about 9 to 15 months when
you start a new site to develop enough traffic to yield the ad
revenue that produces a profit. So although these sites can
come back up again, it takes time to get the advertisers back
on board and get the necessary traffic.
The domain names discovered during this operation are now
controlled, not by the pirates, but by the United States
Government, namely, ICE. Instead of pirated content, the Web
sites now feature a banner announcing the seizure of the site
by the government, ICE and the Department of Justice, and an
explanation of the Federal crime and punishment for copyright
theft and distribution. So if you were to go to the sites
today, instead of the original site you would see this banner.
Here is an interesting part of this, Mr. Chairman. As the
new owners of the domain name, ICE has been able to determine
the number of visitors these sites have received since the
seizures. Within 2 days of ICE's enforcement action against
these pirating Web sites, over 1.7 million visitors saw just
one banner on one site. This number is substantially more than
the total number of hits the sites were receiving when they
were selling pirated goods, and that was substantial. One site
to date has seen over 20 million views, people coming to see
the government's seizure banner.
In other words, we believe the government's warning banners
have gone viral and Internet users by the millions are actually
seeking a Web site out to view what the government has been
doing because the government hasn't been doing a lot of it, and
now all of a sudden the government is doing it and doing it
forcefully.
And so it has been a silver lining unanticipated--I had no
idea this was going to happen--consequence to our enforcement
action, so we are getting tremendous----
Chairman Berman. Can you sell advertising? [Laughter.]
Mr. Morton. We are going to do it for free. We are all
about being neutral for the taxpayer.
Operation In Our Sites not only targets Web sites offering
pirated films and music, but we are going to go after
everything on the Internet.
Very briefly, we have domestic offices in every State in
the Union, Mr. Chairman. We are going to put the full weight of
those offices to doing this kind of work. Just 6 days ago, we
arrested in New York two individuals involved in the
distribution of counterfeit footwear and other products.
Internationally, we have 63 offices in 44 countries wherein
nine of the 11 countries on the USTR's priority watch list. We
have opened an office in Brussels to work directly with the WCO
on this, and we have got an office, two offices as a matter of
fact, in China, and we are working hard. It is tough work.
Obviously, we have heard numerous comments already on how much
and deep--how deep the challenges are, but we have had some
success.
We have worked with the Chinese in Operation Spring
Cleaning. They actually extradited an individual from China to
the United States to face prosecution. The person was sentenced
to 4 years in prison and ordered to pay almost $900,000 in
restitution to the Motion Picture Association of America, and
we have had similar successes in China.
We are also looking to start efforts in Africa. That is the
next unfortunate wave of IP problems facing us. We are working
with the State Department.
Let me just close by saying this, Mr. Chairman. I really
want to thank you and the other members of the committee for
having this hearing and, frankly, highlighting the need for IP
enforcement. It is an area in my view that has long needed more
attention. It isn't a particularly partisan issue from my
perspective. It is a problem that has been around for decades.
It is very serious, and in these times of economic pressure in
the United States it is a problem I think we as a nation can
ill-afford to ignore. Thank you.
[The prepared statement of Mr. Morton follows:]
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Chairman Berman. Mr. Israel.
STATEMENT OF THE HONORABLE CHRIS ISRAEL, CO-FOUNDER AND
MANAGING PARTNER, PCT GOVERNMENT RELATIONS LLC (FORMER U.S.
COORDINATOR FOR INTERNATIONAL INTELLECTUAL PROPERTY
ENFORCEMENT)
Mr. Israel. Thank you, Chairman Berman, Ranking Member Ros-
Lehtinen, and members of the committee. I really appreciate the
opportunity to appear before you today and discuss the
importance of American intellectual property.
As the chairman noted, from May 2005 to March 2008, I had
the privilege of serving as the U.S. Coordinator for
International Intellectual Property Enforcement. That previous
effort and those we are here to discuss today reflect the
critical role that IP plays in the competitiveness and growth
of the U.S. economy. Many of the statistics that back this up
are well known. Some of them have been discussed today, but
they certainly deserve noting.
Particularly relevant to this committee, IP intensive
industries in the U.S. create an average $14.6 billion in trade
surplus each year. U.S. IP is worth between $5 trillion and
$5.5 trillion, more than the Gross Domestic Product of any
other single country. In States that are represented by
Representatives of congressional districts of this committee,
the movie industry alone supports 520,000 jobs and provides
over $33 billion in direct annual wages. Finally, the number of
U.S. patents for clean and renewable energy sources has risen
from 720 in 2002 to 1,125 in 2009.
For policymakers seeking to support our creative and
cutting edge industries and workers, few things are as
important as a strong commitment to the protection of their
intellectual property.
Unfortunately, as we are discussing, we are confronting an
environment in which counterfeiting and piracy have become
sophisticated global enterprises that threaten entire
industries, put U.S. consumers at risk, and often provide a
source of revenue for criminal organizations.
The Obama administration's 2010 Joint Strategic Plan on
Intellectual Property and Enforcement lays out a thoughtful and
comprehensive approach to tackling a number of difficult IP
policy and enforcement challenges. For instance, the strategy
recognizes the global proliferation of Web sites that traffic
in huge volumes of pirated material, and as Assistant Secretary
Morton just went through in compelling detail, Operation In Our
Sites led by ICE and DOJ and a number of Federal agencies does
really provide a compelling example of how law enforcement and
industry can collaborate to address the problem.
Likewise, the strategy recognizes that better cooperation
among a range of industry players, as Coordinator Espinel
mentioned this morning, is necessary, and ultimately
legislation, as the chairman noted in his opening comments, may
indeed be required to have a meaningful impact on online
piracy.
The strategy also addresses the significance of the Anti-
Counterfeiting Trade Agreement. This is a major policy
initiative that will substantially improve the global climate
for IP protection. The administration's strategy also promises
to take the government's own coordination to a new level in
terms of agencies involved and their ability to tackle
difficult challenges like counterfeit medicines and supply
chain management.
Finally, the importance of sound and relevant data is of
tremendous importance to policymakers and industry, and can be
sometimes tedious in detail but I think it is a very important
thing to consider, and the strategy envisions new government
data that will quantify the true value of IP to our economy.
The U.S. confronts a range of domestic and international IP
issues at any given time. However as we discussed this morning,
China and Russia do present very unique challenges.
The U.S. has made some progress with China by working
bilaterally attempting to enforce trade rules and attacking
criminal organizations, but it is clear that we are probably
treading water at best. The WTO cases brought by the United
States against China in 2007 may ultimately improve some
enforcement efforts and provide additional market access for
U.S. content, but we are quickly reminded that nearly four out
of five software applications running on Chinese computers, the
biggest PC market in the world by the way, are pirated.
And late last year China significantly raised the stakes
for U.S. industries from IT to Clean Tech with more aggressive
implementation of its indigenous innovation strategy. These
policies would exclude U.S. companies from large parts of the
Chinese market and compel transfers of intellectual property as
the price of entry when they are let in. As Robert Holleyman,
CEO Of the Business Software Alliance recently put in the
Washington Post, ``This squeezes us at both ends, shutting many
of our innovative products out of the market and stealing the
rest.''
As has been the case for several years, Russia's desire to
join the WTO is directly tied to its IP enforcement record.
Presidents Obama and Medvedev announced at their summit last
month that they hoped to conclude Russia's outstanding WTO
commitments by September 30th of this year. In terms of IP
enforcement this means Russia must make a range of criminal,
civil and customs enforcement improvements that they first
committed to in very excruciating detail back in 2006.
Given the scope of these commitments, it seems to be quite
a heavy lift. However, the administration has indicated that
interactions with Russia have intensified on IP issues of late.
Mr. Chairman, it has become very clear in recent years that
our ability to protect and promote intellectual property is a
critical component of our overall foreign policy and important
goals such as addressing our competitive issues with countries
like China, reducing our dependence on foreign energy sources,
promoting exports, and incentivizing foreign investment in the
United States all depend on our intellectual capital. It is one
of our most valuable resources and competitive advantages.
Again, I appreciate the opportunity to come here before you
today, and I am honored to have this opportunity, and I very
much look forward to your questions.
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Chairman Berman. Thank you very much, and I will give
myself 5 minutes for a few questions.
The seizing of a domain name, what does ICE have to do to
make that happen?
Mr. Morton. We work with the United States Attorney's
Office. We demonstrate that the particular Web site in question
is engaged in the illegal distribution of copyrighted material,
and then we go to the United States District Court, we get a
seizure order to cease the domain name as an instrument of a
crime, and we then put up a banner to the world saying we now
own this. And because the domain registries are largely in the
United States and are controlled by the intellectual property
it is a very effective way for us to have a short-term, quick
enforcement effort.
It is important to note that the domain name is different
than the content that may be hosted on the server, and so you
can get a new domain name. The server may be overseas. The
contents may be overseas. That is more of a long-term challenge
for us. But we go into court and we seize them.
Chairman Berman. I take it the one short-term benefit of
this process is for people who know that name there is a lag
time between them picking up what the new domain name is and
shifting, although practically speaking do you have any sense
that that does cut down on the piracy, or are there just so
many different alternatives that if one is back they are
immediately going to one of the other ones that people who do
that are totally familiar with?
Mr. Morton. First of all, you are right. It makes it more
difficult. I mean, all the individual users have their favorite
sites and their favorites list. You now have got to change all
of that. You have got to know what the new one is. If there are
contractual arrangements with PayPal or with the advertisers,
those all have to be changed. So it takes--it is definitely a
serious hindrance. It obviously shuts the site down. They can
start up again, but it is even more complicated.
We saw with a few of the Web sites that we seized the
domain name they didn't get all of the links within the new
site right and so there would be portions of the site of the
new site, and if you clicked on a link, for example, their
policy or about us it would take you back to the original site,
and it would take you to the government's seizure banner. So it
definitely hurts their ability to do it.
Time will tell on the second portion of your question, Mr.
Chairman. What we are trying to do in Operation In Our Sites is
not just seize one site here, one site there. We are trying to
do a whole wave of sites. We are going to follow those sites.
If they reappear, we are going to follow them. We are going to
seize those domain names as well, and we are going to try to do
it across whole categories, and just get in the business of
letting these folks know we are going to follow you wherever
you go and we are going to take these domain names. We are
going to follow you and we expect you to try to pull up again
and start a new site, but you can expect us to be right on your
heels.
Chairman Berman. Thank you. Great.
Mr. Israel, Ms. Espinel is now in a new place and with some
new authorities has a position you held. Could you describe a
couple of the most serious challenges you faced? Any thoughts
you have of how she might overcome those challenges?
Mr. Israel. Thank you for the question, Mr. Chairman. She
is off to a great start in clearing the strategy. They have
really articulated a number of very key issues. She seems to
have great cooperation and collaboration across the range of
industries. I personally never found that to be a huge problem.
I think there was a perception that there were massive stove
pipes and heels dug in across the Federal Government. I
personally found that the people wanted to collaborate, wanted
to tackle the problem. You are dealing with very eclectic and
very different agencies, all the way from trade negotiators to
Federal investigators and prosecutors. It is a challenge to
pull all those people together in a way that provides
leadership and adds value to it.
I think the biggest challenge that we are facing, and I
will equate it maybe to China in a strange way, we need to
institutionalize our IP enforcement, priorities, methodologies,
strategies, and tactics in a way that expands beyond just those
issues we are talking about at the hearing today. They are
going to be manning the front line today, and this really has
to be a long-term systemic effort for the U.S. Government. In
the way that we see other countries go after IP, we have to go
after it just as aggressively. That is a huge challenge facing
us.
Chairman Berman. Thank you very much. My time has expired.
The ranking member.
Ms. Ros-Lehtinen. Thank you so much, Mr. Chairman, and
thank you, gentlemen, for excellent testimony. I will bunch my
questions together and let you answer.
Secretary Morton, you are heading to China in September to
discuss intellectual property piracy with Chinese officials and
to sign a new cooperation agreement. Why do you believe that
these new discussion and yet another agreement will produce
different results than the ones in the past, and isn't the
Chinese approach to promise cooperation and then do the
minimum, throw us a bone to keep us quiet?
And then, Mr. Israel, on China and Russia you had discussed
briefly real action that we can take to stop the piracy and to
stop the theft. Could you elaborate a bit? I wasn't quite
satisfied with the previous answer of our previous witness of
how we can bring sufficient pressure to bear on both of these
countries to have them do the right thing?
Thank you, Mr. Chairman.
Mr. Morton. I don't have any illusions about the trip that
I am going to take to China. I think it is important, though,
because we have had a number of conversations with the Chinese
here. I try to be fairly straightforward in my dealings as a
law enforcement agency. The Chinese know my views, and we have
had a number of successful operations with the Chinese, and we
have very good cooperation with Chinese authorities in Hong
Kong. Now, obviously, Hong Kong has a separate charter and
status right now.
And so I, while not underestimating the challenge, and it
is sobering, my view is while I am in this job I need to do
everything I can as part of a larger coordinated effort to
bring about a change result and meaningful consequences. I am
all about meaningful consequences for criminals who are
stealing American products and services. And we have had some
successes with the Chinese.
I am going to try to push those successes to particularly
where we have found the Chinese to be willing to work with us
where there is an international component to the case, where
there are Americans involved as well as Chinese, and I am going
to do everything in my power to increase the number of cases
that we are working to, and take it as far as I can.
Ms. Ros-Lehtinen. I believe that you will. Thank you, Mr.
Secretary. Mr. Israel?
Mr. Israel. Thank you for the question.
I think in terms of China, as Assistant Secretary Morton
mentioned, the impression I always receive from speaking to our
law enforcement officials who are working directly with China
is that when you got to the actual level of enforcement
officials, cops working with cops, the rest of China, the level
of cooperation is pretty good.
The risk that China runs with this strategy is that at some
point they are dealing with criminal organizations that are
engaging in this high-level, sophisticated intellectual
property theft. That is a problem and a threat to them
internally as well. I mean, it is kind of a hard thing to
manage, so I think working directly with their law enforcement
agencies to bring cases, to go after transnational crime is a
compelling place, an important place to start and remain.
The international groups, the G-8, Lyon-Roma
infrastructure, we initiated some things working through there,
working through Interpol, I think attacking it as a criminal
problem; the issue of, you know, potentially looking into what
types of cases we might be able to bring to the WTO to create
the authority to bring the type of countervailing duty based on
IP losses to the United States that some members were speaking
about earlier certainly is an interesting theory to pursue, an
idea to pursue.
This is at the end of the day in economic security issue
for China, and I think we need to make sure that we try to find
leverage points that will recognize that.
With Russia, I think this seems to have all crystallized in
the WTO question. I do think that is a point of leverage for
us. I do think there appears to be tremendous consistency
between the Bush administration and the Obama administration on
the question of holding to the line on WTO accession for Russia
and making sure they complete commitments that have been on the
table now for a very long time. I think that is important to
remain consistent there.
There seems to be some renewed incentive in Russia. They
are trying to evolve their economy into a more innovative place
so they are compelled by that, I think.
Ms. Ros-Lehtinen. Thank you very much. Thank you,
gentlemen. Thank you, Mr. Chairman.
Chairman Berman. Mr. Manzullo, 5 minutes.
Mr. Manzullo. Thank you. The first time I went to China was
in 1997 with Congressman Behrider, Congressman Hastings, and
actually Rick Kessler was along with a group, and we met with a
Chinese group called Moffet, which was the--I don't know if
they call it the same--the intellectual property protection
agency that was set up at the time, and I returned to China
several times after that. Nothing gets done.
You know, I don't think it's a matter of political will.
Perhaps Mr. Sherman said it correctly that there is a high
priority to do nothing, and my question is, in terms of the
remedies has anybody ever thought about the fact that if a
country stands by and knowingly sees the private sector engage
in a crime, in this case the pirating of most especially movies
and songs of that nature, does it ever reach a point when the
inactivity of a government leads to the criminal activity of
the private sector being imputed to the government for purposes
of enforcement?
Mr. Morton. I am unaware of any circumstance in which that
has happened in the intellectual property world, and in the
case of China there have been a number of enforcement actions
over the years, joint enforcement actions between the United
States and government authorities to shut down offending
factories and to arrest and prosecute individuals. It is a
small number, far fewer than we want, and I am not going to
challenge Mr. Israel's characterization of us treading water,
which is what you have observed yourself, but I am not aware.
Mr. Manzullo. Well, it may be more drowning than treading
water. The area that I represent is so heavily involved in
manufacturing intellectual property--the Chinese will take
something and they will do a knock off in such a short period
of time. I was told that one of the reasons we have no golf
club manufacturers in this country, with the exception, I
think, of PING that does some assembly here, is that they will
come out with a real great golf club and within 12 hours there
is a knock off being manufactured in China.
I just don't know how we are going to be able to get our
arms around this thing. You know, we talk about how there is no
political will on the part of the Chinese. I just don't think
private property rights are within their vocabulary. It is not
in their culture.
Mr. Israel. Indeed, Congressman, private property is a new
concept in China, and I think we are still in the process of
that being fully adopted into the rule of law and through the
judicial system in China, and I think what we see in the
indigenous innovation proposals that are coming out of China
that are drawing such appropriate scrutiny because we are
seeing the intellectual property policies, weakness in
enforcement tied directly to an overt economic strategy. It is
clearly designed to promote domestic champions. It is clearly
designed to build those domestic champions upon the innovation
and input of primarily U.S. companies, but other global
companies as well, in position in a way in which they are
directly competitive to----
Mr. Manzullo. But when the Olympics were in China they knew
how to protect their trademarks of everything associated with
the Olympics. I mean, I don't know how long this system can be
gamed like this, and you wonder how much we are we
deg.going to lose to China. If you lose on an even playing
field, that is competition. I know you don't have an answer for
me and I am not expecting one, but I just want to thank you
guys for all the hard work that you put in on this.
Chairman Berman. The time of the gentleman has expired. You
know, the ranking member, in her first round of questions,
raised this issue of the leverage point, and in this case she
was talking about Russia, and accession to WTO. One does start
to think that we didn't drive a tough enough bargain when we
let China into WTO in terms of not just laws but enforcement of
those laws. I mean, there is an acceptance of a certain culture
in WTO that China did not have to incorporate in order to get
into that organization.
You talked about a footprint, I am just going to finish up
and then anybody else who wants, but you talked about a
footprint in other countries. We are not talking here about
people meeting with top government officials and heads of
enforcement agencies.
Are you talking about people who are doing enforcement and
how do they operate in another country? Run around and seize
stuff?
Mr. Morton. No. Mr. Chairman, we have a very large
footprint overseas, the largest in the Department of Homeland
Security, and it is because we are essentially a criminal
investigative agency dedicated to transnational crime. That is
our business--investigating the illicit movement of people,
money, goods into the United States and out of the United
States in efforts to steal our goods and services, whether it
is export control or intellectual property.
So, we have special agents. They are investigators posted
throughout the world. They obviously do not have direct law
enforcement authority in the country in question, so their job
is to work very, very closely with their law enforcement
counterparts to educate them, to train them, and wherever
possible, to engage in joint investigations. Some countries we
have a great deal of success, others we don't have so much
success.
China is a fascinating study in that we have a lot of work
to do in mainland China. We have a tremendously good working
relationship on intellectual property with Hong Kong
authorities. So it is critical to us--one of the things I am
very interested in, we don't receive a specific appropriation
for intellectual property, although that may change because
this year for the first year the President's budget calls for
specific investigative agents in ICE for this purpose, in
creating a dedicated corps of overseas ICE investigative
attaches that line up with the IP resources of USTR and the
State Department in those countries that are not only the areas
of concern, but also the countries where we have some like-
minded views and an ability to carry out additional
enforcement.
Chairman Berman. I thank both of you very much. Very
interesting, very important and I appreciate your being here
and sharing your thoughts with us, and with that the committee
hearing is adjourned.
[Whereupon, at 12:12 p.m., the committee was adjourned.]
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