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STATEMENT OF STEPHEN
M. PINKOS
DEPUTY UNDER SECRETARY OF COMMERCE FOR INTELLECTUAL PROPERTY
AND DEPUTY DIRECTOR OF THE UNITED STATES PATENT AND TRADEMARK
OFFICE BEFORE THE COMMITTEE ON THE JUDICIARY SUBCOMMITTEE
ON INTELLECTUAL PROPERTY United States Senate
"Piracy of Intellectual Property"
MAY 25, 2005
Chairman Hatch, Ranking Member Leahy, and Members of the
Subcommittee: Thank you for this opportunity to appear
before you to discuss international intellectual property
(IP) piracy and counterfeiting problems and the Department
of Commerce's role in protecting IP abroad. Secretary
Gutierrez is keenly aware of the increasing significance
of IP protection for American businesses and innovators
and has made combating piracy and counterfeiting a top
priority for the entire Department. As Deputy Under Secretary
of Commerce for Intellectual Property and Deputy Director
of the United States Patent and Trademark Office (USPTO),
I am dedicated to marshalling U.S. government efforts
to reduce the toll that IP theft takes on American IP
owners. I am very appreciative of the Subcommittee's interest
in addressing additional ways to protect U.S. IP owners'
assets, and I commend you for holding today's hearing
on IP piracy and counterfeiting, with an emphasis on China
and Russia. Scope of Global IP Piracy and Counterfeiting
Problem Increasingly, both the United States and our trading
partners are relying on IP to drive economic growth. This
is because competitive success in a market economy depends
more and more on the IP assets held by an institution
-- from the skills of its employees to the results of
its latest research. IP-based businesses, such as the
software and entertainment industries, now represent the
largest single sector of the U.S. economy. According to
the International Intellectual Property Alliance, U.S.
copyright industries continue to lead the U.S. economy
in their contributions to job growth, gross domestic product
(GDP), and foreign sales/exports. Between 1977 and 2001,
the U.S. copyright industries' share of the GDP grew at
an annual rate more than twice as fast as the rest of
the U.S. economy. In 2002, the U.S. "core" copyright industries'
activities accounted for approximately 6 percent of the
U.S. GDP
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($626.6 billion).1 In 2002, the U.S. copyright industries
achieved estimated foreign sales and exports of $89 billion,
leading all major industry sectors, including motor vehicles
(equipment and parts), aircraft and aircraft parts, and
the agricultural sector.2 Unfortunately, the economic
benefits of capitalizing on intellectual property rights
(IPR) have captured the attention of pirates, organized
crime, and terrorists. The global criminal nature of IP
piracy has effects in other areas as well. As former U.S.
Attorney General John Ashcroft reported: "In addition
to threatening our economic and personal well being, intellectual
property crime is a lucrative venture for organized criminal
enterprises. And as law enforcement has moved to cut off
the traditional means of fund-raising by terrorists, the
immense profit margins from intellectual property crimes
risk becoming a potential source for terrorist financing."
USPTO and DOC Efforts to Combat Problem Given these threats
to U.S. economic interests and our national security,
the USPTO and our colleagues in the Department of Commerce
are working hard to curb IP crime and strengthen IP enforcement
in every corner of the globe. Indeed, former Secretary
Evans heavily emphasized this issue, and Secretary Gutierrez
has indicated it is a top priority for the entire Department.
Because American IP owners compete in a global marketplace,
we must expand our efforts to promote IP protection internationally.
We must make sure that American IP owners have sufficient
knowledge and legal tools to fight piracy and counterfeiting.
We also must provide foreign countries technical assistance
on drafting and implementing effective IP laws and promoting
the effective enforcement of IP rights. American Inventors
Protection Act of 1999 The passage of the American Inventors
Protection Act of 1999 (AIPA) (P.L. 106-113) set the stage
for the USPTO to advise the President, through the Secretary
of Commerce, and all Federal agencies, on national and
international IP policy issues, including IP protection
in other countries. USPTO is also authorized by the AIPA
to provide guidance, conduct programs and studies, and
otherwise interact with foreign IP offices and international
intergovernmental organizations on matters involving the
protection of intellectual property. Our established Offices
of International Relations and Enforcement carry out the
functions authorized by the AIPA. These include (1) working
with Congress to implement international IP treaties;
(2) providing technical assistance to foreign governments
that are looking to develop or improve their IP laws and
systems; (3) training foreign IP officials on IP enforcement;
(4) advising the Department of State and the Office of
the U.S. Trade Representative (USTR) on drafting/reviewing
of IP sections in bilateral investment treaties and trade
agreements; (5) advising USTR on intellectual property
issues in the World Trade Organization (WTO); and (6)
working with USTR and industry on the annual review of
IP protection and enforcement under the Special 301 provisions
of the Trade Act of 1974. The USPTO also represents the
United States in United Nation bodies, such as the World
Intellectual Property Organization (WIPO), to help set
the international standards for IP protection and enforcement.
1 "Copyright Industries in the U.S. Economy: The 2004
Report," Stephen E. Siwek, Economists Inc., prepared for
the International Intellectual Property Alliance. "Core"
industries include: newspapers, publishing, recording,
music, motion pictures, radio, television broadcasting
and computer software. 2 "Id.
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National Intellectual Property Law Enforcement Coordination
Council (NIPLECC) The USPTO serves as the co-chair of
the National Intellectual Property Law Enforcement Coordination
Council (NIPLECC), which is tasked with coordinating domestic
and international intellectual property law enforcement.
NIPLECC was launched in 1999 to ensure the effective and
efficient enforcement of intellectual property in the
United States and worldwide. NIPLECC's coordination activities
ensure that government enforcement efforts are consensus-based
and non-duplicative. NIPLECC has developed a comprehensive
database that includes all recent IP law enforcement training
provided by the U.S. government and many associations
to developing and least developed nations. It is also
developing legislative suggestions to improve domestic
IP laws related to enforcement. We look forward to continuing
our efforts in NIPLECC. Strategy Targeting Organized Piracy
(STOP) Further, the Strategy Targeting Organized Piracy
(STOP) Initiative, which has been developed over the last
year, is the most comprehensive U.S. government-wide initiative
ever advanced to demolish the criminal networks that traffic
in fakes, stop trade in pirated and counterfeit goods
at America's borders, block bogus goods around the world,
and help small businesses secure and enforce their rights
in overseas markets. I will discuss this important initiative
in more detail later. Enforcement Training and Technical
Assistance The USPTO provides a variety of IP enforcement
training and technical assistance activities. These programs
are designed to foster respect for IP, encourage governmental
and right holders' efforts to combat infringement, and
promote best practices in the enforcement of IPR. Our
technical assistance and capacity building initiatives
grew out of a desire to promote IP protection and assist
developing countries in meeting their obligations under
the WTO's Trade-Related Aspects of Intellectual Property
Rights (TRIPs) Agreement. In addition, we have responded
to an increasing number of requests by foreign governments
for such training and technical assistance activities.
Our efforts have had positive results in some countries,
measured by decreasing levels of IP piracy and counterfeiting,
and the implementation of stronger legal protections in
many of the countries in which we have provided such training.
Still, much work remains, including in China and Russia,
where IP theft has not decreased. Today, our efforts are
aimed at: (1) assisting developing and least developed
countries to meet international standards in the protection
and enforcement of IP; and (2) assisting administrative,
judicial, and law enforcement officials in addressing
their enforcement issues. Trade-Related Aspects of Intellectual
Property Rights Agreement (TRIPs) At the conclusion of
the Uruguay Round in 1994, the resulting TRIPs Agreement
presented WTO members with new obligations and challenges.
The TRIPs Agreement sets minimum standards of protection
for the various forms of IP and requires WTO members to
provide for "enforcement procedures ... that permit effective
action against any act of infringement of intellectual
property rights." The TRIPs Agreement includes detailed
provisions on civil, criminal and border enforcement measures
designed to provide the owners of IP with the tools to
protect and enforce their rights. Today, Developing Countries
obligations' under the TRIPs Agreement have fully
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entered into force. Least Developed Countries have until
2006 to comply with the bulk of the provisions, including
the enforcement obligations. Over the last several years,
the USPTO has assisted countries around the world in establishing
adequate enforcement mechanisms to meet their obligations
under the TRIPs Agreement. In bilateral negotiations,
we work closely with USTR to seek assurances from our
trading partners of even higher levels of IP enforcement
than those set forth in the TRIPs Agreement. We provide
technical advice through the annual Special 301 process,
the GSP review, the TRIPs Council review of implementing
enforcement legislation, and in the negotiation of free
trade agreements (FTAs). Our approach to the on-going
FTA negotiations has been to build upon the TRIPs Agreement.
In other words, our negotiating position is that these
trade agreements should follow a "TRIPs Plus" format by,
among other things, expanding the minimum standards set
out in the TRIPs Agreement. For example, by incorporating
provisions of the WIPO Copyright Treaty and WIPO Performances
and Phonograms Treaty, the FTA updates copyright protections
and enforcement for the digital environment. In our advisory
capacity, we will continue to work with the Department
of State and USTR to conclude FTAs that reflect the level
of protection and enforcement of IP rights in the United
States. Intellectual Property Issues and USPTO Approach
in China and Russia Due to the rapid increases in piracy
and counterfeiting in China and Russia, we recognize that
U.S. companies face enormous IPR protection and enforcement
challenges in these countries and that their losses are
mounting daily. At the same time, the pressures of the
competitive global marketplace, criminal elements, and
protectionist and non-tariff barriers, make these challenges
increasingly more sophisticated. That is why the USPTO's
team of experts has developed comprehensive work-plans
to address the rising IP problems facing these countries.
While the USPTO does not have the lead on trade policy
issues, which is the mandate of USTR, we have devoted
significant resources to making progress in improving
China and Russia's IPR regimes for our industries, right
holders and this Administration. The Bush Administration
understands that IP is a vital component of our nation's
economy and that this Administration's focus on combating
global piracy and counterfeiting has produced a solid
track record of real results. The STOP Initiative, which
I mentioned earlier and will discuss in more detail later,
is a continuation of these efforts by providing additional
tools to protect American workers from counterfeiters
and pirates who are robbing billions of dollars from the
U.S. economy. China The U.S. has long been concerned about
IP protection dating back to the founding of our country.
For example, Gilbert Stuart's Athenaeum portrait of George
Washington was replicated without authorization by a Philadelphia
merchant, who was later sued for copyright infringement.
Our first engagement with China on IP dates back to the
early 20th century. In early 1903, at the end of the Qing
dynasty, the U.S. government entered into the first bilateral
agreement between China and the United States to protect
IP. Our first commercial agreements in the 1970s with
the People's Republic of China contemplated that China
improve its IP system. Our current Ambassador to China,
Clark Randt, was involved in some of these early negotiations.
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Unfortunately, problems persist and our concerns about
IP enforcement in China continue to grow. Despite China's
membership in the WTO and its requirement to comply with
the TRIPs Agreement, as well as a series of bilateral
commitments made over the past 10 or more years, the lack
of effective IP enforcement in China is a major problem
for U.S. business interests, costing billions of dollars
in lost revenue and perhaps tens of thousands of U.S.
jobs. While China has done a generally good job of creating
laws to comply with its WTO commitments, IP enforcement
problems remain pervasive. These problems run the gamut
from rampant piracy of movies and business software to
counterfeiting of consumer goods, electrical equipment,
automotive parts, and pharmaceuticals. I was very pleased
that Secretary Gutierrez stated the following during his
confirmation hearing with respect to intellectual property
rights: "We actually lived through this as a food company,
ironically, where we found that our brand was actually
being copied and used in some markets and obviously without
any authorization. One of the great assets that we have
as a country is our brands, our technology. I think this
is a matter to focus on. I think it is a big issue." Secretary
Gutierrez also cited IP protection as a key issue in U.S.
trade ties with China, and he has reiterated his commitment
to addressing this issue to me. IP Problem in China Estimates
from the computer software and automotive parts industries
are illustrative of the scope of the problem. The software
industry estimates that more than 90 percent of all software
installed on computers in China in 2003 was pirated.3
The automotive parts industries estimate that counterfeit
automotive parts production costs the industry billions
of dollars in lost sales. China is a leader in counterfeit
goods in this industry. In the automotive arena, most
counterfeiting involves parts that need to be replaced
frequently, such as oil filters, headlamps, batteries,
brake pads, fan belts, windshields, and spark plugs. For
example, DaimlerChrysler, BMW, Audi, Volvo, Mitsubishi,
and Toyota report that even though a factory in Guangdong
Province has been raided three times in a two-and-a-half-year
period, it has been allowed to continue making windshields
stamped with their brand names for sale in the world market.
One industry group estimates that legitimate automotive
companies could hire 210,000 more employees if the counterfeit
auto parts trade is eradicated.4 According to the World
Health Organization (WHO), 10 percent of the medicines
in the world are counterfeit, with China being one of
the main centers of counterfeit production. Rudolph Giuliani
offered the following testimony before a Senate Committee
in June of last year: "An August 30, 2002, Washington
Post story cites the Shenzhen Evening News in reporting
that an estimated 192,000 people died in China in 2001
because of counterfeit drugs. Another news story reported
that as much as 50 percent of China's drug supply is counterfeit
(Investor's Business Daily dated October 20, 2003)."5
3 Ibid. Key Findings: BSA and IDC Global Software Piracy
Study. 4 Motor and Equipment Manufacturers Association,
September 2003.
5 See Statement of Rudolph W. Giuliani before the Senate
Government Affairs Committee, Permanent Investigations
Subcommittee, Oversight Hearing on Safety of Internet
Drugs (July 16, 2003).
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While no definitive statistics exist on total U.S. job
losses attributable to IP piracy and counterfeiting in
China, there is no doubt piracy and counterfeiting deprive
the government of billions of dollars of much needed tax
revenue, cost thousands of jobs, and injure the domestic
software industries. China's Enforcement Issues The Chinese
IPR enforcement environment today is complicated by a
variety of different Chinese and foreign interests, including
Chinese industrial policies, trade policies, the interests
of foreign investors, and the interests of Chinese domestic
enterprises. In this environment, our right holders increasingly
look to adequate enforcement of criminal IPR laws in implementation
of China's WTO commitments as a key to reducing counterfeiting
and piracy rates in China. China, it should be noted,
does not lack for quantitative enforcement. Each year,
tens of thousands of enforcement actions are undertaken.
However, these actions are typically pursued by administrative
agencies, which impose non-deterrent penalties. This Administration
has been pressing China to impose prison sentences and/or
stiffer fines on violators of IPR since fines and other
penalties imposed are too modest and provide little or
no deterrence. In December 2004, two branches of China's
government - the Supreme People's Court and Supreme People's
Procuratorate (prosecutor) issued a new "Judicial Interpretation"
for criminal IPR infringements. The new Interpretation
expanded the scope of violations punishable by prison
sentences by lowering the value threshold necessary to
initiate a prosecution, but on the enforcement side took
a significant step backwards with respect to violations
committed by repeat offenders. The new Interpretation
was also deficient in many other areas of concern to industry
and foreign governments, including, for example, coordination
among China's civil and administrative systems as well
as the relationship with other IP laws. Furthermore, the
new Interpretation complicated matters by allowing infringing
goods to be valued based on their street value, not their
legitimate value, thus sanctioning declarations by the
infringer as a measure for determining whether or not
Chinese valuation thresholds were met dictating prosecution.
Equally disconcerting was that unfinished or offsite products
were exempt in assessing that value. Many of the challenges
that China encounters are at least partially due to deficiencies
in its own system, including extensive corruption, local
protectionism, and lack of interagency coordination. Some
of the issues we have raised with Chinese colleagues include:
the use of mandatory sentencing guidelines for IPR crimes;
support for specialized IPR courts which have greater
independence from local financing and control; establishing
appropriate procedures for investigation, prosecution,
and conviction of IPR criminals; and effectively addressing
trans-border IPR crime, as well IP crime committed over
the Internet. It is important to recognize that there
is a Chinese domestic constituency also seeking enhanced
IPR protection and enforcement, and that pirates and counterfeiters
do not necessarily discriminate against Americans or just
against Americans lacking political influence. As the
economy grows, domestic interest in IP, particularly in
the more developed cities on China's seaboard, is increasing
dramatically. China's deficient IP protection and enforcement
hinders Chinese software engineers, inventors, and movie
producers who have to struggle with a severely deficient
domestic market as their principal source of income. Chinese
IP owners have become increasingly vocal proponents of
stronger IP protection. One indication that IPR is attaining
increased domestic importance is the number of trademark
applications received by the Chinese Trademark Office
(CTO). For the past two years, the CTO received more trademark
applications than any country in the world. The State
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Intellectual Property Office is also growing rapidly and
receives some of the highest number of filings for patent
applications worldwide. Growing domestic interest in IP
protection and enforcement may be of small comfort to
U.S. industry when the impact of piracy and counterfeiting
on U.S. industry appears to be growing. U.S. Government
statistics show a worsening situation. For example, USTR's
2004 Special 301 Report states that during 2003, 66 percent
of all of the IPR-infringing goods seized at the U.S.
border came from China.6 Many industries also increasingly
suspect that the Chinese government, by restricting market
access, is providing free rein for counterfeiters, pirates,
and criminals to exploit the void created by the lack
of legitimate products. Many U.S. companies also complain
of industrial policies that help create conditions for
production of infringing products. Counterfeit Viagra,
for example, dominates the Chinese market, while the legitimate
product has been hampered by market access restrictions.
Pirated movies appear in the Chinese market long before
censors have approved the legitimate product. Other high-tech
companies complain of standards setting, such as in wireless
networking technology, which limits introduction of legitimate
products or mandates technology transfer. USPTO's Efforts
in China Under the direction of this Administration, the
USPTO has been working extensively to reduce piracy and
counterfeiting activity in China. First, we provide technical
support to all agencies of the U.S. Government that are
addressing these issues, including USTR, the Department
of Commerce/International Trade Administration (ITA),
the U.S. Department of Justice, the Department of Homeland
Security, and the State Department. The USPTO has an established
team of experts on Chinese IP matters, which includes
IP attorneys with detailed knowledge and background on
patents, trademarks, copyrights, enforcement issues, and
WTO/WIPO issues. Our cooperation with other U.S. government
agencies extends beyond the trade agenda to providing
support on strategies and to addressing transnational
crime and transnational trade in counterfeit goods, as
well as other issues. TRIPS review. For example, we take
an active role in the annual review of China's TRIPs commitments
at the WTO, including primary responsibility for drafting
many of the TRIPs-related questions. Three USPTO officials
attended China's WTO review last year. We also actively
participate in the APEC Intellectual Property Experts
Group, which plays a constructive role in developing regional
standards for IP, including cooperation on enforcement
matters. Further IP initiatives in China supported by
the USPTO are described below. IP attorney at U.S. embassy.
For two summers, with the active support of U.S. Ambassador
Clark Randt, we stationed one of our IP enforcement attorneys,
who is fluent in Mandarin, in our embassy in Beijing to
help with IP enforcement issues in the region. Last fall,
the USPTO was proud to continue this support by detailing
this individual as attaché to the U.S. Embassy in Beijing
for a three-year appointment to continue our Government's
efforts to combat piracy and counterfeiting. This is the
first time the USPTO has sent an official abroad for an
extended period of time to assist in improving IP protection
in a specific country, which highlights the seriousness
of IP violations in China. Having an attaché stationed
in China has enhanced the USPTO's ability to work with
6http://www.ustr.gov/Document_Library/Reports_Publications/2004/2004_Special_301/2004_Special_301_Report_Section_306.html.
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Chinese government officials to improve IP laws and enforcement
procedures in addition to assisting U.S. businesses to
better understand the challenges of protecting and enforcing
their IPR in China. Meetings with Enforcement Officials
and Other Influences. One of the greatest challenges in
China is ensuring that localities fully enforce national
laws. To that end, the USPTO has held meetings with numerous
local copyright, trademark, judicial, police, and prosecutorial
enforcement officials throughout China to ensure that
local officials fully understand their international obligations.
We have hosted numerous delegations at the USPTO, with
the objective of addressing this challenge. We have also
worked with U.S. non-governmental organizations in support
of rule of law efforts and training programs, including
a Temple University program and Franklin Pierce Law School's
annual summer program on intellectual property law in
Beijing for American and Chinese law students. Training.
Recent efforts in China that we have supported include:
training on criminal IPR with the support of the British
Government and China's Ministry of Public Security; training
on patent data protection and patent linkage with the
State Intellectual Property Office and State Food and
Drug Administration; training on "business methods patents"
with the State Banking Regulatory Commission, State Council
Legislative Affairs Office and the Development Bank of
China; training with the World Customs Organization on
border measures and criminal IPR; participation in Chinese
sponsored programs on IP protection in Shanghai and on
IPR strategies for multinational companies in Beijing;
and a joint U.S. Semiconductor Industry Association and
Chinese Semiconductor Industry Association training program
on IPR in high tech industries, to name but a few. Bilateral
meetings with trade groups. We have also participated
in a range of bilateral meetings and consultations with
visiting U.S. trade associations such as the Intellectual
Property Owners, U.S. Information Technology Office, Research
and Development Pharmaceutical Association of China, Quality
Brands Protection Committee, American Bar Association,
International Federation of Phonographic Industries, Motion
Pictures Association, Entertainment Software Association,
Business Software Association, Association of American
Publishers, U.S. Chamber of Commerce, to name just a few.
We have also worked with some of these organizations to
host enforcement conferences in such major cities as Beijing,
Shanghai, Guangzhou, Wuhan, Nanjing, and Chengdu. Both
domestically and in Beijing, we have provided briefings
for visiting congressional and judicial delegations, and
we have provided training for State Department and Commerce
Department officials at our various consulates, including
participation at a regional training program in Hong Kong
sponsored by the Economic Bureau of the State Department.
Working with the Department of Commerce's Technology Administration
and the International Intellectual Property Institute,
we have provided technical assistance on copyright protection
in Dalian and Shenzhen. Public relations efforts. The
USPTO continues to work through our own office of public
affairs and the public diplomacy offices of the Embassy
and consulates on providing an informed perspective on
IP matters to the Chinese public and Chinese decision
makers. Additionally, we are supporting State Department
efforts to provide informational materials on U.S. IP
practices to the Chinese public. We have also had several
meetings at Chinese Universities. Under Secretary of Commerce
for Intellectual Property and Director Jon W. Dudas delivered
a talk at Qinghua University, one of China's leading law
and engineering institutions, on IP protection. In addition,
my staff has delivered presentations at Sichuan Normal
University Law Faculty, Qinghua Law Faculty, People's
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University and other institutions, as well as appearing
on several television shows and being featured in newspaper
articles. Supporting Businesses and Working with Law Enforcement
in China Apart from these advocacy and training efforts,
we are involved in developing practical strategies to
support our businesses in handling problems in China.
We have worked extensively with the Commerce Department
on improving methods for handling business complaints
involving unfair IP practices in China and have become
involved with the STOP Initiative whereby we handle complaints
involving IP, many of which involve China. We have worked
on two leading programs associated with the U.S. Embassy
involving IP: a "toolkit" on IP matters for U.S. businesses
on the Embassy's website, and the "IPR Roundtable" that
the Ambassador hosts each year. Meetings in China. We
have held meetings at the Canton Trade Fair to discuss
IPR enforcement and complaints filed. We continue working
with ITA, the American Bar Association, and many other
organizations to provide better assistance to U.S. small
and medium businesses. USPTO attorneys have been meeting
with other foreign missions and trade associations to
exchange ideas on innovative ways to promote better protection
of IPR in China. Training programs for American businesses.
We have participated in training programs for our business
people in the United States, to better enable them to
forcefully address the IPR challenges they experience
in China and, when necessary, bring well-founded complaints
to our attention. Typically in conjunction with the Department
of Commerce, members of our China team have participated
in programs in such cities as: Cincinnati, Ohio; Grand
Rapids and Pontiac, Michigan; Charlotte, North Carolina;
Miami, Florida; Minneapolis, Minnesota; Wichita, Kansas;
St. Louis, Missouri; New York City and Long Island, New
York; Waterbury, Connecticut; Boston, Massachusetts; Providence,
Rhode Island; Portsmouth, New Hampshire; Fresno, San Jose
and San Francisco, California; Salt Lake City, Utah; and
Washington, D.C. A major focus of these efforts has been
to address problems of small and medium enterprises, although
larger enterprises have also benefited from participation
in many of these programs as well. Workshops about China.
In addition to our work with the Department of Commerce,
our China team is planning to roll out a series of intensive
China workshops and seminars in several cities throughout
the United States in 2005-2006. The first of these seminars
is planned for Detroit, Michigan, in June. The program
will provide companies with information about several
useful topics, ranging from an overview of the IP protection
and enforcement environment in China, specific information
on how to file patent and trademark applications in China,
how to use China's administrative and judicial systems
to enforce IPR, and useful tips about how to locate and
hire a local company to investigate IP infringement in
China. Another activity, as part of our ongoing efforts
to assist U.S. businesses and IP owners in protecting
their rights overseas, includes a seminar on the Chinese
criminal justice system for IP offenses that we held in
February of this year. The seminar introduced the Chinese
criminal justice system to U.S. industry, government agencies,
IP owners, and legal practitioners and included information
on the recently amended Judicial Interpretation so they
may better understand the system and use this information
to their full advantage to combat counterfeiting and piracy.
We sponsored a follow up program in April of this year.
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Our China team has supported a number of programs to advise
our companies on how to file a criminal IPR case in China.
These programs have already been held in Guangzhou, Beijing,
and Hong Kong with an additional program planned for Shanghai.
In addition, we provide support to our own law enforcement
authorities where possible on IP criminal matters. For
example, we have supported the Joint Liaison Group on
criminal justice cooperation in its efforts to facilitate
better criminal IPR cooperation, and joined in training
programs run by a number of different government agencies
on criminal IPR matters. Our China team works closely
with the Customs Attaché and Legal Attaché at the U.S.
embassy as well as the Bureau of International Narcotics
and Law Enforcement at the State Department on these matters.
More United States Government Efforts in China. Like Secretary
Gutierrez, former Secretary of Commerce Evans believed
in the strong enforcement of our trade laws and took innovative
and proactive measures to strengthen the enforcement and
compliance of our trade agreements. During his tenure,
he tasked Commerce agencies, such as USPTO and the new
Investigations and Compliance Unit within ITA's Market
Access and Compliance Group, to coordinate their efforts
to vigorously pursue allegations of IPR violations wherever
they occur, especially in China. Delegations to China.
In 2003, then-Commerce Secretary Evans led a mission to
China and highlighted China's lack of IPR enforcement.
The Secretary met with high-ranking Chinese officials
and reiterated a continuing concern -- that effective
IPR protection requires that criminal penalties for IP
theft and fines are large enough to be a deterrent, rather
than a business expense. As a follow-up to the October
2003 trip, Under Secretary and Director Jon W. Dudas led
two delegations in 2004 for consultations with senior
officials at China's patent, trademark, copyright, and
other IP agencies. Our delegation also met with U.S. companies
facing IP issues in China. The primary focus of these
trips was to further the Administration's goals of improving
the IP environment for U.S. companies doing business in
China, and specifically of addressing widespread counterfeiting
and piracy. We discussed several issues, including the
need for improved criminal, civil, and administrative
enforcement, the need for protecting copyrights over the
Internet and China's accession to the WIPO Internet Treaties.
In January 2005, Under Secretary Dudas traveled to Beijing
as part of a second Evans-led delegation. He was fortunate
to be able to meet with Chinese Premier Wen Jiabao and
Vice Premier Wu Yi to discuss concerns over China's enforcement
of IPR of American businesses. Ambassador Randt also hosted
the third roundtable on Intellectual Property Rights,
which was attended more than 250 government officials
and business and industry representatives from the USPTO,
the European Union, Japan, and China's IP agencies. In
addition to providing the luncheon keynote address during
the January roundtable, Under Secretary Dudas announced
the USPTO's new plans for IP technical assistance for
Chinese IP-related agencies. He was pleased that the USPTO's
offers of cooperative assistance were well received, and
we are in the process of implementing these as well. U.S.-China
Joint Commission on Commerce and Trade (JCCT) Working
Group on IPR In an effort to address problems in China,
the U.S. and China created a "working group on IPR" that
resulted from the April 2004 session of U.S.-China Joint
Commission on Commerce and Trade. We are pleased that
Under Secretary Dudas co-chairs this working group with
Deputy U.S. Trade Representative Josette Shiner.
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Through the JCCT and other avenues, the U.S. hopes to
continue to work with closely with China to improve the
situation for U.S. rights holders. During the April 2004
session of the JCCT, China presented an action plan designed
to address the piracy and counterfeiting problems faced
by U.S. companies. Under the plan, China committed to:
(1) significantly reduce IPR infringement levels; (2)
issue a judicial interpretation for criminal enforcement
of IPR cases by end of year; (3) conduct nation-wide enforcement
campaigns; (4) ratify and implement the WIPO Internet
Treaties as soon as possible, and (5) agree to establish
an IPR working group under the JCCT. In line with the
JCCT mandate, the working group will seek to ensure that
China significantly reduces IPR infringement to levels
consistent with standards required by WTO rules. Challenges
and Recommendations concerning China While our trips to
China have been well received, and we are pleased to note
a continuing and increasing awareness among Chinese officials
of the importance of IP protection and enforcement, we
have not yet seen significant progress on most of the
key issues. These issues include enhanced criminal enforcement,
a deterrent administrative enforcement system, protecting
copyrights over the Internet, and stopping the export
of counterfeit goods. We are also interested in other
developments, such as China's efforts to develop an IPR
Strategic Plan for development of its IP assets, other
industrial policy goals, legislative efforts to draft
a Civil Code that may include IPR, and general rule of
law efforts that could significantly affect the protection
of IPR over the long run. While we fully recognize that
China needs to make drastic improvements in its IPR system
to ensure that our right holders are fairly protected,
we should not underestimate the steps that our businesses
and government can take to reduce the risks of piracy
and counterfeiting. The USPTO will continue working with
small and medium-sized companies on how best to protect
their valuable IP rights in China. One particular example
is for companies to register all their trademarks promptly
in China, especially their Chinese language trademarks.
Given the fast pace of China's economic development and
the huge volume of trademark applications in China, companies
should file for their marks early in their marketing cycle.
Globalization means that competitors can retrieve information
about products not yet introduced in their country from
a U.S. company's web site. Counterfeiting and piracy also
originates from employees, agents, or distributors who
have taken confidential information to engage in a competing
operation. China's practice regarding protection of trade
secrets by former employees who have signed non-compete
agreements is different from the United States. We will
continue to educate companies on how best to protect their
intellectual property rights. It is especially important
we encourage our industries to work with us and the other
U.S. agencies involved in improving China's IP protection
and enforcement environment by: urging the fair and transparent
implementation of China's IPR system; fully exploiting
this system; providing us with detailed information on
its deficiencies in order to reduce future risks of such
activities; and supporting our bilateral and multilateral
efforts to reduce the impact of these problems. Russia
As indicated by the listing of Russia as a priority watch
list country in the 2005 Special 301 Report, copyright
piracy in Russia is of serious concern. In 2004, industry
estimates that more than $1.7
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billion in losses occurred in Russia.7 Due to poor enforcement,
industry calculates more than $7 billion in losses to
the copyright industries in the last eight years. Estimated
copyright piracy levels in the Russian Federation in 2004
were estimated by industry at 80 percent for motion pictures,
66 percent for records and music, 87 percent for business
software, and 73 percent for entertainment software. The
production of optical media in Russia far exceeds legitimate
demand. According to industry, in the last three years,
the number of optical disc plants that manufacture and
distribute optical media has more than doubled. In the
past four years, production capacity of optical media
in Russia has nearly tripled. Issues in Russia While the
Russian government has made significant progress in improving
the legal framework for IP protection, current laws and
regulations in the Russian Federation have not had a significant
impact on controlling illegal optical disc production.
Although raids and seizures at optical disc plants increased
last year, in most cases, according to industry, plants
continue to operate after the raids and little meaningful
action is taken against the plant operators. These raids
did not have an appreciable effect on reducing optical
disc piracy, especially in cases where effective prosecution
by the Procuracy were lacking. Industry reports that piratical
product seized from raids sometimes returns to the market.
The lack of effective criminal enforcement of IP theft
in the Russian Federation is a concern. The involvement
of organized crime in the manufacture, distribution and
exportation of piratical entertainment software is also
of concern. The banning of street sales, including kiosks
of audio and audiovisual products, was encouraging, initially;
but industry reports that the prohibition is not regularly
enforced and that pirated music compact discs continue
to be available on the streets. In 2004, the industry
reported that 1,300 administrative raids against music
pirates were undertaken, resulting in numerous administrative
actions. The average administrative penalty in these cases
was approximately $50. This level of fines cannot be considered
a deterrent to piratical activity. The majority of administrative
actions involving storeowners and sellers averaged $200.
Unfortunately, industry reports that the supply and distribution
sources are rarely pursued. Effective enforcement of IPR
at the borders of the Russian Federation is in need of
improvement as well. Industry indicates that piratical
optical media was forensically identified as being exported
from Russia to over 25 countries. Russian steps to reform
and deficiencies Last year, Russia took some steps in
reforming its laws for compliance with the 1992 U.S.-Russian
bilateral trade agreement. For example, Russia did amend
its laws on trademarks, appellations of origin, patents,
designs for integrated circuits, plant varieties, computer
software, and databases. Serious concerns remain about
Russia's denial of national treatment for protection of
geographical indications (GIs). Further, significant shortcomings
remain with Russia's trademark laws, especially provisions
dealing with geographical indications. There do not seem
to be any provisions in the Russian law that ensures that
the principles of priority and exclusivity are preserved
for trademarks and geographical indications. These rights
are required under the TRIPs Agreement, which requires
that owners of trademarks established prior to a later
in time GI should be able to assert the exclusivity of
their prior rights. 1
7 http://www.iipa.com/rbc/2005/2005SPEC301RUSSIA.pdf
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IPR Initiatives concerning Russia USPTO continues to provide
capacity building assistance to the Russian Federation
focusing on the enforcement of IPR. In December 2001,
we hosted the United States-Russia Intellectual Property
Rights Enforcement program in Washington in cooperation
with the Commercial Law Development Program. The conference
was attended by Russian officials representing various
government agencies involved in the enforcement of intellectual
property rights in Russia. The conference included a discussion
of judicial administration issues involving IPR, discovery,
interim measures and damages in civil infringement cases,
arbitration, deterrent criminal penalties and border measures.
In November 2002, we cosponsored and participated in a
United Nations Economic Commission for Europe seminar
in Moscow on IPR enforcement in Russia. The seminar was
attended by Russian government officials representing
the State Duma and the Ministries of Defense, Culture,
Education, and Science. This summer, USPTO will be co-sponsoring
a three-day workshop in St. Petersburg on border enforcement
of IPR in coordination with the International Intellectual
Property Institute, U.S. Customs and Border Protection
and Russian Customs. In addition, the U.S. Embassy in
Moscow has had ongoing collaboration with relevant Russian
entities to provide training to the Russian law enforcement
agencies and the Procuracy on IPR enforcement. The Embassy
sponsored a series of seminars last year, both in Moscow
and in the regions, and plans to offer more training this
year. With U.S. copyright industries losing more than
$1 billion a year to copyright piracy in Russia, we look
forward to increased effective enforcement efforts in
Russia. We continue to urge the closure of plants producing
illegal optical discs, increased raids and prosecution
of optical disc piracy, and the adoption and implementation
of an effective optical media regulation and enforcement
regime. Moreover, any organized crime involvement in counterfeit
goods and piratical works must be addressed through increased
investigative efforts and stronger criminal penalties.
The Russian government must also strengthen its border
enforcement, combat counterfeiting and piracy, and address
deficiencies in its intellectual protection laws. We have
enjoyed a cooperative working relationship with the Russian
Federal Service on Intellectual Property, Patents, and
Trademarks headed by Boris Simonov, and we continue a
productive dialogue with him and the Russian law enforcement
agencies on ways to improve Russia's IP record. However,
for our efforts to be truly effective in reducing IP violations
in Russia, we need genuine commitment from all levels
of the Russian government to view this as a priority problem
and take meaningful steps to combat it. The Global STOP
Initiative We are pleased to discuss with you the STOP
Initiative, the most comprehensive intergovernmental agency
initiative ever advanced to smash the criminal networks
that traffic in fakes, stop trade in pirated and counterfeit
goods at America's borders, block bogus goods around the
world, and help small businesses secure and enforce their
rights in overseas markets. There are several important
features of the STOP Initiative that I'll mention: Hotline
and Website 1
First, the USPTO participates heavily in this initiative
by managing a hotline, 1-866-999-HALT, established by
the Department of Commerce to help business protect their
IPR at home and
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overseas. The goal of the hotline is to empower U.S. business
to secure and enforce their IPR by providing them the
information they need to secure their patents, copyright
and trademarks, and to enforce these rights here in the
U.S. and abroad. Callers receive information from IP attorneys
with regional expertise on how to secure patents, trademarks,
and copyrights, and on the enforcement of these rights.
Businesses and innovators now have access to a place to
learn more about the risks of global piracy and counterfeiting
and how to protect their IP rights in both individual
countries and in multiple countries through international
treaties. In addition, we have established a link from
our USPTO website to www.stopfakes.gov on the Department
of Commerce's website, which provides in depth detail
of the STOP Initiative. No Trade in Fakes Program The
Department of Commerce is in charge of another important
component of the STOP Initiative, the no-trade-in-fakes
program that is being developed in cooperation with the
private sector. This is a voluntary, industry-driven set
of guidelines and a corporate compliance program that
participating companies will use to ensure their supply
chains and retail networks are free of counterfeit or
pirated goods. Increasing and Communicating Enforcement
The STOP Initiative will raise the stakes for international
IP thieves by more aggressively pursuing perpetrators
of IP crimes and dismantling criminal enterprises. STOP
also seeks to increase global awareness of the risks and
consequences of IP crimes through public awareness campaigns,
and creating and operating a website publicizing information
about international criminal IP enforcement actions. Building
Coalitions The ultimate success of the STOP Initiative
involves building coalitions with many of our like-minded
trading partners, such as Japan, the United Kingdom, and
France, who have all recently launched similar initiatives.
We are seeking to continue working with our partners in
the G-8, Organization for Economic Cooperation and Development
(OECD) and the Asia-Pacific Economic Cooperation (APEC)
forum. Cooperation on new initiatives to improve the global
intellectual property environment is essential to disrupting
the operations of pirates and counterfeiters. International
Outreach A delegation of U.S. officials from seven federal
agencies, including myself, recently kicked-off our international
outreach effort to promote STOP internationally. Last
month we visited various capitals in Asia generating much
interest and fruitful discussions. On each leg of the
trip, U.S. officials shared information on our efforts
to combat the theft of inventions, brands and ideas. This
first leg abroad is advancing our commitment by enlisting
our trading partners in an aggressive, unified fight against
intellectual property theft. Outreach to Asia will be
followed by visits to other capitals later in the year,
for example, next month we plan on visiting Europe. We
have tentatively planned that countries receptive to cooperation
on STOP will be invited to attend a meeting in Washington,
D.C. (likely in the fall of 2005) designed to formalize
their participation and finalize a work plan.
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Future STOP Activities The USPTO has several future planned
activities supporting our initiatives under STOP. The
first involves our public outreach efforts. In addition
to our China-related workshops and seminars for 2005-2006,
my staff will also be embarking on an educational road
show to various cities in the United States to educate
small- and medium-sized business on what IPR are, why
they are important, and how to protect and enforce these
rights domestically and internationally. The first of
these workshops took place earlier this week in Salt Lake
City, Utah, and already, we have found an enormous amount
of interest in the program. We will replicate this program
in other cities throughout several regions of the U.S.
in the coming months. We continue to work in WIPO to seek
to simplify, streamline, and improve the cost efficiency
of the trademark application process across borders to
provide more efficient and less burdensome systems for
right holders. We will continue to work closely with the
IP community, STOP team, and you to promote a legislative
agenda that is designed to meet the huge challenge of
combating piracy and counterfeiting. Tougher enforcement
of our international trade laws is necessary for the growth
of our economy and the creation of new jobs. In order
to fully implement the STOP Initiative, it may be necessary
to reassess current legislation. Conclusion Mr. Chairman,
the requirements on the Department of Commerce and USPTO's
expertise in the international arena have grown dramatically
in the last few years. These demands will continue to
increase in the next few years, along with our obligations
to meet our core patent and trademark examination functions.
As we look to the future, however, let me conclude on
a positive note. Although by all accounts counterfeiting
and piracy appear to be growth "industries," there have
been some recent successes in attacking the problem. Between
2001 and 2002, the software industry estimates that software
piracy in Indonesia decreased from 89 percent to 68 percent.
In South Africa, it fell from 63 percent to 36 percent.
The motion picture industry has reported a decrease in
piracy levels in Qatar from 30 percent in 2001 to 15 percent
in 2002. In Bahrain, there have been dramatic and systemic
improvements in IP protection and enforcement over the
past few years. These include the signing of numerous
international IP conventions and the virtual elimination
of copyright piracy and counterfeiting in retail establishments.
There is some reason for optimism. I remain hopeful that
with the continued support and partnership of the Subcommittee,
we will be able to do even more to provide American businesses
and entrepreneurs with the IP knowledge and protection
they need. Clearly, in terms of the economy and national
security, much is at stake. That is why our dedicated
team of experts will continue to work tirelessly to protect
American products all around the globe. Thank you very
much. 1
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