<DOC>
[109th Congress House Hearings]
[From the U.S. Government Printing Office via GPO Access]
[DOCID: f:21645.wais]
ISSUES BEFORE THE U.S.-CHINA JOINT
COMMISSION ON COMMERCE AND TRADE
=======================================================================
HEARING
before the
SUBCOMMITTEE ON
COMMERCE, TRADE, AND CONSUMER PROTECTION
of the
COMMITTEE ON ENERGY AND COMMERCE
HOUSE OF REPRESENTATIVES
ONE HUNDRED NINTH CONGRESS
FIRST SESSION
__________
JUNE, 9 2005
__________
Serial No. 109-73
__________
Printed for the use of the Committee on Energy and Commerce
Available via the World Wide Web: http://www.access.gpo.gov/congress/
house
__________
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------------------------------
COMMITTEE ON ENERGY AND COMMERCE
JOE BARTON, Texas, Chairman
RALPH M. HALL, Texas JOHN D. DINGELL, Michigan
MICHAEL BILIRAKIS, Florida Ranking Member
Vice Chairman HENRY A. WAXMAN, California
FRED UPTON, Michigan EDWARD J. MARKEY, Massachusetts
CLIFF STEARNS, Florida RICK BOUCHER, Virginia
PAUL E. GILLMOR, Ohio EDOLPHUS TOWNS, New York
NATHAN DEAL, Georgia FRANK PALLONE, Jr., New Jersey
ED WHITFIELD, Kentucky SHERROD BROWN, Ohio
CHARLIE NORWOOD, Georgia BART GORDON, Tennessee
BARBARA CUBIN, Wyoming BOBBY L. RUSH, Illinois
JOHN SHIMKUS, Illinois ANNA G. ESHOO, California
HEATHER WILSON, New Mexico BART STUPAK, Michigan
JOHN B. SHADEGG, Arizona ELIOT L. ENGEL, New York
CHARLES W. ``CHIP'' PICKERING, ALBERT R. WYNN, Maryland
Mississippi, Vice Chairman GENE GREEN, Texas
VITO FOSSELLA, New York TED STRICKLAND, Ohio
ROY BLUNT, Missouri DIANA DeGETTE, Colorado
STEVE BUYER, Indiana LOIS CAPPS, California
GEORGE RADANOVICH, California MIKE DOYLE, Pennsylvania
CHARLES F. BASS, New Hampshire TOM ALLEN, Maine
JOSEPH R. PITTS, Pennsylvania JIM DAVIS, Florida
MARY BONO, California JAN SCHAKOWSKY, Illinois
GREG WALDEN, Oregon HILDA L. SOLIS, California
LEE TERRY, Nebraska CHARLES A. GONZALEZ, Texas
MIKE FERGUSON, New Jersey JAY INSLEE, Washington
MIKE ROGERS, Michigan TAMMY BALDWIN, Wisconsin
C.L. ``BUTCH'' OTTER, Idaho MIKE ROSS, Arkansas
SUE MYRICK, North Carolina
JOHN SULLIVAN, Oklahoma
TIM MURPHY, Pennsylvania
MICHAEL C. BURGESS, Texas
MARSHA BLACKBURN, Tennessee
Bud Albright, Staff Director
David Cavicke, Deputy Staff Director and General Counsel
Reid P.F. Stuntz, Minority Staff Director and Chief Counsel
______
Subcommittee on Commerce, Trade, and Consumer Protection
CLIFF STEARNS, Florida, Chairman
FRED UPTON, Michigan JAN SCHAKOWSKY, Illinois
NATHAN DEAL, Georgia Ranking Member
BARBARA CUBIN, Wyoming MIKE ROSS, Arkansas
GEORGE RADANOVICH, California EDWARD J. MARKEY, Massachusetts
CHARLES F. BASS, New Hampshire EDOLPHUS TOWNS, New York
JOSEPH R. PITTS, Pennsylvania SHERROD BROWN, Ohio
MARY BONO, California BOBBY L. RUSH, Illinois
LEE TERRY, Nebraska GENE GREEN, Texas
MIKE FERGUSON, New Jersey TED STRICKLAND, Ohio
MIKE ROGERS, Michigan DIANA DeGETTE, Colorado
C.L. ``BUTCH'' OTTER, Idaho JIM DAVIS, Florida
SUE MYRICK, North Carolina CHARLES A. GONZALEZ, Texas
TIM MURPHY, Pennsylvania TAMMY BALDWIN, Wisconsin
MARSHA BLACKBURN, Tennessee JOHN D. DINGELL, Michigan,
JOE BARTON, Texas, (Ex Officio)
(Ex Officio)
(ii)
C O N T E N T S
__________
Page
Testimony of:
Dudas, Jon W., Undersecretary of Commerce for Intellectual
Property, Director, United States Patent and Trademark
Office..................................................... 7
Additional Material Submitted for the Record
United States Patent and Trademark Office, response to
questions from Hon. Barbara Cubin and Hon. Jan Schakowsky.. 34
(iii)
ISSUES BEFORE THE U.S.-CHINA JOINT
COMMISSION ON COMMERCE AND TRADE
----------
THURSDAY, JUNE 9, 2005
House of Representatives,
Committee on Energy and Commerce,
Subcommittee on Commerce, Trade,
and Consumer Protection,
Washington, DC.
The subcommittee met, pursuant to notice, at 1:22 p.m., in
room 2123 of the Rayburn House Office Building, Hon. Cliff
Stearns (chairman) presiding.
Members present: Representatives Stearns, Blackburn,
Schakowsky, and Green.
Staff present: Andy Black, deputy staff director, policy;
Chris Leahy, policy coordinator; David Cavicke, general
counsel; Brian McCullough, professional staff; Will Carty,
professional staff; Billy Harvard, clerk; Terry Lane, deputy
communications director; Larry Neal, deputy staff director,
communications; Jonathan Cordone, minority counsel; Turney
Hall, staff assistant; and David Vogel, staff assistant.
Mr. Stearns. Good afternoon. The subcommittee will come to
order. I want, first of all, to start by thanking the
Department of Commerce for appearing here today to talk about
the U.S.-China Joint Commission on Commerce and Trade, the
JCCT. Now, there are many important issues to discuss with
regard to China. Given the importance of intellectual property
rights--IPR--to the American economy and its engine of
innovation, we are particularly glad that Mr. Dudas has come to
discuss intellectual property rights--IPR. Now, frankly, Mr.
Dudas, your testimony, I think, is very critical to the
committee's understanding the complexity of these problems and,
of course, how we go about solving them.
My colleagues, U.S.-China trade began to grow shortly after
diplomatic relations were established in 1979, paving the way
for a bilateral trade agreement and most-favored nation status
in 1980. Since 1980, U.S.-China trade has risen from $5 billion
a year to $231 billion a year in 2004. China joined the World
Trade Organization, the WTO, in 2001. China is now the third-
largest U.S. trading partner, it is the second largest source
of imports, and it is fifth largest export market. All of that
economic activity suggests a thriving economic relationship
between the United States and China. But for some this rapid
growth also represents a cause of some concern, especially when
we consider the $162 billion trade deficit with China last
year. And while China continues to make significant progress in
addressing a number of trade issues, the USTR in 2005 placed
China on a Special 301 Priority Watch List simply because of
its failure to significantly improve protection of intellectual
property rights. This is a critical issue for this committee,
and the health of the United States economy, and for our U.S.
global leadership in developing intellectual capital, whether
it is the latest ``Star Wars'' movie, the most advanced and
safest automobiles, or the next generation of medicines that
will save millions of lives around the world every year.
Established in 1983, the JCCT serves as a forum for high-
level discussions on bilateral trade and for promoting
commercial relations between the United States and China. The
Intellectual Property Working Group was established in 2004 to
address the ever-increasing problem of theft of U.S.
intellectual property through counterfeiting and piracy. And
while the JCCT has been a very valuable mechanism for
identifying issues ripe for discussion and setting priorities,
there is much work to be done and result yet to be seen.
According to a recent estimate from the International
Intellectual Property Alliance, U.S. copyright firms lost
between $2.5 to $3.5 billion in 2004 from lost sales in China.
It also is estimated that between 15 and 20 percent of all
products made in China are fakes, either counterfeited or
pirated. These figures become even more significant when one
considers that in the year 2002, the U.S. core copyright
industries' activities accounted for more than 6 percent of the
United States GDP and achieved foreign sales and exports of
over $89 billion. These are very large numbers that represent
very real economic harm to the United States business,
innovation, and, of course, its jobs.
The rampant theft of U.S. intellectual property in China
through illegal counterfeiting and copyright piracy continues
to challenge the belief that trade and the economic inertia it
creates will eventually lead to a net benefit for all who are
involved. In those industries that are fueled by intellectual
capital--movies, recordings, software, engineering, and so on--
there is increasing concern that the legal IPR fortifications
protecting this critical and valuable knowledge are being
breached by lack of enforcement, understanding, and just plain
respect for a rules-based trading system like the WTO and
agreements like the Trade-Related Aspects of Intellectual
Property, the TRIP. The engine of U.S. innovation relies on the
rule of law to work and create value for both the producer and,
of course, the consumer. Robust intellectual property rights
protection and enforcement is equally important for the many
innovative Chinese companies who are now just embracing IPR as
a means to protect and grow their own investment in knowledge.
We, therefore, are very interested to get a status report from
the under secretary as to the current situation regarding IPR
in China and the progress--and, of course, by progress I mean
the results--of the JCCT and the Intellectual Property Working
Groups to address these concerns.
It is my hope that our hearing today will identify what the
JCCT is doing to stem the U.S. losses from fakes and other the
ways that thieves are stealing U.S. intellectual property and
indirectly, of course, United States jobs and prosperity. I am
heartened by the important work the JCCT is doing in the IPR
area, including the establishment of a working group to consult
on rule-of-law issues related to a market economy, as well as
careful review of Chinese progress at instituting structural
market reforms. Today, the committee would like to review in
particular the progress being made by the Chinese government to
combat intellectual property theft, specifically counterfeiting
and piracy, including Chinese efforts to reduce intellectual
property rights, infringement levels, increase penalties for
intellectual property infringement, crack down on these
violators, and educate the Chinese public about the importance
of IPR protection. We would also like to know how effective the
United States has been in simply influencing China to
accomplish these goals and how the success of these efforts is
being measured. Today, the committee wants to hear about
progress--and, of course, by that I think we all want to hear
some results this afternoon.
So I would like to welcome you here, Mr. Dudas, and look
forward to your testimony. With that, the ranking member, Ms.
Schakowsky.
[The prepared statement of Hon. Clifford Stearns follows:]
Prepared Statement of Hon. Clifford Stearns, Chairman, Subcommittee on
Commerce, Trade, and Consumer Protection
Good Afternoon. I want to start by thanking the Department of
Commerce for appearing here today to talk about the U.S.-China Joint
Commission on Commerce and Trade, the JCCT. There are many important
issues to discuss with regard to trade with China, and given the
importance of intellectual property rights (IPR) to the American
economy and its engine of innovation; we are particularly glad Mr.
Dudas is here to discuss intellectual property rights (IPR). Your
testimony is critical to the Committee's understanding the complexity
of these problems and how we are solving them.
U.S.-China trade began to grow shortly after diplomatic relations
were established in 1979, paving the way for a bilateral trade
agreement and most-favored nation (MFN) treatment in 1980. Since 1980,
U.S.-China trade has risen from $5 billion a year to $231 billion a
year in 2004. China joined the World Trade Organization (WTO) in 2001.
China is now the third-largest U.S. trading partner, its second largest
source of imports, and its fifth largest export market. All of that
economic activity suggests a thriving economic relationship between the
United States and China. But for some, this rapid growth also
represents a cause for concern, especially when we consider the $162
billion trade deficit with China in 2004. And while China continues to
make significant progress in addressing a number of trade issues, the
USTR in 2005 placed China on a Special 301 Priority Watch List because
of its failure to significantly improve protection of intellectual
property rights. This is a critical issue for this Committee, the
health of the U.S. economy, and for our U.S. global leadership in
developing intellectual capital, whether it's the latest Star Wars
movie, the most advanced and safest automobiles, or the next generation
of medicines that will save millions of lives around the world every
year.
Established in 1983, the JCCT serves as a forum for high-level
discussions on bilateral trade and for promoting commercial relations
between the U.S and China. The Intellectual Property Working Group was
established in 2004 to address the increasing problem of theft of U.S.
intellectual property through counterfeiting and piracy. And while the
JCCT has been a very valuable mechanism for identifying issues ripe for
discussion and setting priorities, there is much work to be done and
results yet to be seen. According to a recent estimate from the
International Intellectual Property Alliance, U.S. copyright firms lost
between $2.5 and $3.5 billion in 2004 from lost sales in China. It also
is estimated that between 15 and 20% of all products made in China are
fakes, either counterfeited or pirated. These figures become even more
significant when one considers that in 2002, the U.S. core copyright
industries' activities accounted for more that 6% of U.S. GDP and
achieved foreign sales and exports of over $89 billion. These are very
big numbers that represent very real economic harm to U.S. business,
innovation, and jobs.
The rampant theft of U.S. intellectual property in China through
illegal counterfeiting and copyright piracy continues to challenge the
belief that trade and the economic inertia it creates will eventually
lead to a net benefit for all involved. In those industries that are
fueled by intellectual capital--movies, recordings, software,
engineering, and so on--there is increasing concern that the legal IPR
fortifications protecting this critical and valuable knowledge are
being breached by lack of enforcement, understanding, and just plain
respect for a rules-based trading system like the WTO and agreements
like Trade Related Aspects of Intellectual Property (TRIPs). The engine
of U.S. innovation relies on the rule of law to work and create value
for both the producer and consumer. Robust intellectual property rights
protection AND enforcement is equally important for the many innovative
Chinese companies who are just now embracing IPR as a means to protect
and grow their own investment in knowledge. We therefore, are very
interested to get a status report from Undersecretary Dudas as to the
current situation regarding IPR in China and the progress--and by
progress I mean results--of the JCCT and the Intellectual Property
Working Group to address these concerns.
It is my hope that our hearing today will identify what the JCCT is
doing to stem the U.S. losses from fakes and other the ways thieves are
stealing U.S. intellectual property, and indirectly, U.S. jobs and
prosperity. I am heartened by the important work the JCCT is doing in
the IPR area, including the establishment of a working group to consult
on rule of law issues related to a market economy as wells as careful
review of Chinese progress at instituting structural market reforms.
Today, the Committee would like to review, in particular, the progress
being made by the Chinese government to combat intellectual property
theft, specifically counterfeiting and piracy, including Chinese
efforts to reduce intellectual property rights infringement levels,
increase penalties for intellectual property infringement, crack down
on violators, and educate the Chinese public about the importance of
IPR protection. Also, we would like to know how effective the United
States has been in influencing China to accomplish these goals and how
the success of these efforts is measured. Today, the Committee wants to
hear about progress--and by that, we mean results.
Again, I would like to welcome Undersecretary Dudas here today. We
look forward to your important testimony. Thank you.
Ms. Schakowsky. Thank you, Mr. Chairman, for holding this
hearing on the Administration's progress in addressing the
serious trade issues that we have with China. I understand that
the Commerce Department was reluctant to provide us with a
witness today, and I welcome Mr. Dudas. I am glad that you are
here. I can really understand the hesitation. I would demure as
well, frankly, if I had to defend the record of this
Administration.
Failure by the Administration to address such U.S.-China
trade issues such as forced labor production practices, massive
counterfeiting of American products, and the refusal to allow
the Yuan to float freely may be good for the Walton family
dividend checks from Wal-Mart, but it has been a disaster for
the American economy as a whole and America's working families
in particular.
Furthermore, this failure to achieve meaningful resolution
of the unfair trade practices employed by China is having more
and more serious consequences. As our trade deficit grows and
these dollars are used to purchase evermore of the debt
instruments created by this Administration, China becomes less
and less vulnerable to retaliatory measures available to the
U.S. Government. By the time either this Administration wakes
up or is replaced by one more in-tune with economic reality, we
may find ourselves with no choice but to accept the terms of
trade dictated by the Chinese because they will have the power
to harm our economy with a computer stroke.
Despite promises made as a condition of U.S. acceptance of
the admission of China to the World Trade Organization, despite
international treaties signed by the Beijing government, and in
the face of public aggravation worldwide, China continues to
rely upon slave-like labor conditions for its export advantages
from its only unions, whose sole function is to transmit
government messages to the workforce, exploits its workers with
subsistence wages, treacherous working conditions and little or
no benefits. Women in the workforce face the worst
exploitation. What has the Administration done about the import
of goods made under these competitive conditions?
China has become the pirate capital of the world. Goods
that we have a notable comparative advantage in--namely movies
and recorded music and computer software--generate little
income to their American owners as pirates dominate sales in
China. Current estimates are that 15 to 20 percent of China's
manufactured goods are counterfeit, encompassing 8 percent of
its GNP. The counterfeiting problem has grown even more,
threatening our economic well-being. Apparently, designs for
such large-scale items as GM cars and SYSCO operating systems
are being knocked off. If all of our technology continues to be
appropriated at will by Chinese entrepreneurs, then our
economic demise is a long-term certainty.
China is also playing Russian roulette with the world
economy by refusing its currency to float freely. Our record
trade deficit with China, $162 billion in 2004 alone, and the
related growth in foreign currency reserves, reportedly $608
billion, more than triple the reserves of 2000, cannot be
sustained. Inflationary pressures are bound to eventually reach
the boiling point in China, and another international financial
crisis will result.
Finally, I acknowledge that China, as a superpower, is a
special case. It is understandable that this Administration
would treat their economic imperialism lightly if such kid-
glove treatment resulted in political advances that made the
region and the world more stable. But what has the
Administration gotten for its forbearance? The answer is
nothing. For all its kid-gloves approaches to China's economic
aggression, this Administration has not advanced the cause of
peace and democracy in China and in the region as a whole.
My question to the Administration is simple. When do the
gloves come off? When are we going to get serious about the
threat to our economy posed by China's unfair trade practices?
Thank you, Mr. Chairman.
Mr. Stearns. I thank my colleague. The gentleman from
Texas, Mr. Green.
Mr. Green. Thank you, Mr. Chairman. I would like to thank
you and our ranking member for holding this important hearing
on U.S.-China Joint Commission on Commerce and Trade. I am
pleased the subcommittee is exerting our trade jurisdiction
which extends to non-tariff trade barriers. In my opinion, most
of this country's trade problems with China fall squarely
within that jurisdiction.
China's currency manipulation and state subsidies give it
an unfair competitive advantage when it comes to trade with the
United States. But those are government-sponsored activities.
It has become all too clear that a growing problem is with
China's counterfeiting and intellectual property violations
that are taking place underground.
According to the U.S. trade representatives, Chinese goods
account for 66 percent of all goods seized at U.S. ports that
infringe on intellectual property rights. Figures from the
software industry suggest that at least 90 percent of all
software installed in Chinese computers is pirated. Whether it
is piracy of movies, software, or the counterfeiting of auto
parts and pharmaceutical, these IPR infringements by the
Chinese have cost our country billions of dollars, and without
a doubt, this illegal activity has contributed to the loss of
jobs in our own country.
As many of us mourn the decline of the U.S. manufacturing
sector, we are told to be encouraged because the United States
is a country of ideas, and these ideas will keep us on track
for economic growth. But infringing on U.S. intellectual
property rights, the Chinese essentially are stealing these
ideas. For our economic security we must demand that China
abide by international laws protecting our ideas and our
intellectual property.
Over the last 25 years, the copyright industry's share of
U.S. GDP grew twice as fast as the rest of the U.S. economy. It
is clear that the continued growth in IPR infringement will
have an increasingly devastating impact on our economy. And I
have no doubt that this was one of the most important topics
discussed at the U.S.-China Joint Commission on Commerce and
Trade meeting. And I have every confidence that the U.S. will
take a hard line with the Chinese, but it is imperative that we
hold their feet to the fire on this issue and demand that the
Chinese comply with international law.
I look forward to hearing from our witness about the best
way to accomplish that goal. And again I thank you for
appearing today, and again thank you, Mr. Chairman and ranking
member, for holding the hearing.
Mr. Stearns. I thank my colleague. Now, without further
ado, there appears to be no more opening statements.
[Additional statement submitted for the record follows:]
Prepared Statement of Hon. Joe Barton, Chairman, Committee on Energy
and Commerce
Thank You, Chairman Stearns, for holding this important hearing
today. This Committee has jurisdiction over non-tariff trade issues and
this hearing continues the work we did in the last Congress to examine
the issues within our jurisdiction. And I expect the Committee to
continue work on these trade-related issues.
Trade is a vital component to our economic growth and prosperity.
Trade facilitates jobs in the U.S. for both imports and exports. Trade
also provides our trading partners and us a higher standard of living.
But trade can also create growing pains as resources--and jobs--are re-
allocated to our most competitive sectors. We all enjoy cheaper goods
that leave more income for other needs, but at the same time nobody
wants to lose US jobs. We expect that when we open our markets to
foreign trade that benefits our consumers, likewise our partners will
open their markets to the goods and services we export and in the same
manner.
No other bi-lateral trade partner has received as much attention in
recent years as China, and with good reason. With its accession to the
WTO in December of 2001, it has become a force in global trade. China
is now our third largest trading partner with over $231 billion in
trade in 2004. It has moved ahead of Germany as our fifth largest
export market and is our second largest source of imports. Our trade
deficit with China could reach $211 billion this year.
Although there are a number of reasons for the trade imbalance,
many concerns regarding China's trade practices involve their
commitment to fulfilling their obligations as a member of the WTO. I am
generally a ``free trader'', but I voted against giving China permanent
status as a ``most favored nation''. I opposed China becoming a member
of the World Trade Organization (WTO). I did not believe we could count
on the Chinese government to live it up to its promises. This hearing
provides yet another example of why we should be skeptical about
promises made by China.
A number of recent trade concerns have been addressed successfully
through the Joint Commission on Commerce and Trade (JCCT).
Unfortunately, some concerns require additional work.
One specific area that needs continued improvement is the
protection of Intellectual property rights. One of our most valuable
exports is our intellectual property, whether in the form of computer
software, entertainment DVDs, or other copyright and trademark
products. Yet more than 90% of the market for these products in China
is lost to counterfeits and piracy.
Last year, the JCCT addressed many of these issues. Through their
work, progress has been made and China instituted reforms last year.
Yet concerns remain that despite this progress, the market for our IP
exports has changed very little in China and piracy is still rampant.
This is not fair trade. It is important that our most valuable assets
receive the same protections abroad as the protections we provide to
foreign producers who send their goods here. Our relationship with
China depends on a mutual respect that is necessary for bi-lateral
trade.
I am pleased we have the Under Secretary of Commerce for
Intellectual Property Dudas here to answer questions on this important
topic. He is Co-chair of the JCCT Intellectual Property Working Group
and knows how important it is that we achieve further improvement from
China on IP protection.
I thank the Chairman and yield back the balance of my time.
Mr. Stearns. We welcome Mr. Jon W. Dudas, Under Secretary
of Commerce for Intellectual Property Rights; Director, United
States Patent and Trade Office, to our hearing. And I think you
have worked on the Hill before, so it is probably nice to say
welcome back to the Hill and we appreciate your opening
statement this morning.
STATEMENT OF JON W. DUDAS, UNDERSECRETARY OF COMMERCE FOR
INTELLECTUAL PROPERTY, DIRECTOR, UNITED STATES PATENT AND
TRADEMARK OFFICE
Mr. Dudas. Thank you very much, Mr. Chairman, and thank
you, Ranking Member Schakowsky and----
Mr. Stearns. You might pull the mike just a little----
Mr. Dudas. Oh, yes.
Mr. Stearns. [continuing] closer to you. That is good.
Mr. Dudas. Thank you, yes. You are correct, I did work on
the Hill. I worked for the Judiciary Committee, and I think it
is always important that I acknowledge mistakes I made as a
staffer. I remember sitting behind the dais and passing notes
to the chairman or the ranking member to ask mean questions of
the witness, and I just want to admit openly to the committee I
was wrong to do that. So I can recognize that. I think it
shouldn't be done.
I sincerely appreciate the opportunity to discuss the U.S.-
China Joint Commission on Commerce and Trade and related
intellectual property issues with China. Mr. Chairman, I am
sure you won't remember, but I had the opportunity 5 years ago
to staff you on a delegation to the European Union where you
helped lead, with Congressman Goodlatte, discussions on the
importance of intellectual property and the importance of trade
and technology. Much has changed since then, but as today's
hearing demonstrates your strong commitment to resolving
critical international economic issues relating to intellectual
property and trade and technology has not changed.
As the Under Secretary for Intellectual Property and
Director of the Patent and Trademark Office, I lead the only
government agency solely devoted to intellectual property. But
that leaves for me my only regret today, that my knowledge and
expertise are limited to intellectual property matters. I am
certain we can fill more than a day with these critical issues,
and any matter that I cannot address I can assure you I will
bring back to the appropriate agency within the department or
at the Administration.
Secretary of Commerce Carlos Gutierrez is keenly aware of
the significance of intellectual property protection for
American businesses and has made combating piracy and
counterfeiting a top priority for the Department of Commerce.
As Under Secretary of Commerce for Intellectual Property, I am
dedicated to reducing the toll that IP theft takes on
Americans. As you know, I co-chair the Joint Commission on
Commerce and Trade Intellectual Property Rights Working Group
along with Ambassador Josette Shiner, who is the Deputy U.S.
Trade Representative.
Through the JCCT and other avenues, we are working closely
with China to improve the situation for U.S. IP rights holders.
JCCT functions range from technical consultations to meetings
with high-level U.S. and Chinese officials literally from the
offices and agencies up through the Premier of China.
Today, I will update you on the progress of this group as
it relates to intellectual property rights. And I can tell you,
China has taken some important steps in the right direction to
improve intellectual property protection. Unfortunately,
however, we have not yet seen a significant reduction in IPR
infringements throughout China, the critical test. The Chinese
have reported significant increases in the last several months
in criminal prosecutions as a result of some of the measures of
JCCT, but we still have not yet seen the effect on the sales of
legitimate products in China, again, the real test, the real
results. So we continue to impress on the Chinese that action
plans and commitments are important, but they must translate
into actual reductions of IP theft.
During last year's session of the JCCT, China committed to,
first and foremost, significantly reduce IPR infringement
levels across the county, to subject a greater range of
violations to criminal penalties, and to apply criminal
sanctions to the import, export, storage, and distribution of
pirated and counterfeited goods, as well as online piracy. They
committed to crack down on IPR violators through nationwide
enforcement actions and increase customs enforcement actions
making it easier for rights holders to secure effective border
enforcement. They committed to improve protection of electronic
works by ratifying and implementing the WIPO Internet Treaties
and by extending the ban on the use of pirated software to
local governments. They also committed to launch a national IPR
education campaign and to establish an Intellectual Property
Rights Working Group to consult and cooperate with the U.S. on
the full range of IPR issues.
In December the Chinese Supreme People Court issued a new
judicial interpretation intended to increase criminal
prosecution of IPR infringements in China. We have seen some
results; we have also seen some disappointments. The most
recent IPR Working Group meeting was just 2 weeks ago right
here in Washington where I met with my Chinese counterpart,
Madame Ma. We discussed our expectations about intellectual
property rights related commitments made by the Chinese in the
2004 JCCT. We advanced cooperation between the U.S. and Chinese
agency in combating large-scale IPR counterfeiting and piracy
syndicates, and in this process, many issues were clarified,
understanding was advanced, and progress was made.
China agreed to anti-counterfeiting campaigns begun in
Beijing and Shanghai to other large cities. The Beijing and
Shanghai campaigns allow rights holders to register their
trademarks with the authorities, and those authorities then
sweep illegal street stalls and kiosks and seize all infringing
goods.
And as part of our continuing staff-level consultations
with the Chinese, we have developed a mechanism to refer
appropriate cases to China's Ministry of Commerce with a formal
request for review and appropriate response, specific cases
seeking specific responses. Under this mechanism, U.S.
companies may report infringing activity to the Department of
Commerce and provide all relevant information about the
infringement and efforts to resolve it.
Secretary Gutierrez returned just this week from his first
official trip to China where he was promoting the
Administration's Fair Trade Agenda and discussing issues of
ongoing concern. His central message on intellectual property
was that China must deter widespread infringements of IPR
through strict enforcement. He made his message clear and he
made his message simple. And I will quote what he said the
first day in China. ``Intellectual property rights violations
are a crime, and we don't believe we should be negotiating
crimes with our trading partners.'' Next, Secretary Gutierrez
will chair the 2005 JCCT meeting scheduled in July in Beijing
along with the U.S. Trade Representative Portman and Vice
Premier Wu Yi from China.
As we work toward China taking drastic improvements in its
IPR system, we absolutely must not underestimate the steps that
our businesses can take to reduce the tolls in IP thefts. We
are encouraging our industries to work with us and other U.S.
agencies to improve China's IP protection and enforcement
environment, and we are asking entities to do specific things:
one, they themselves urge the fair and transparent
implementation of China's IPR system; that they fully exploit
the system within China; that they provide us with detailed
information on each deficiency they see; and that they support
our bilateral and multilateral efforts.
So in closing, Mr. Chairman, members of the subcommittee,
the JCCT process continues to be a high-level government-to-
government forum to examine and address important trade and
commerce issues with China. By continuing to work with you,
other Members of Congress, other agencies and private
industries in likeminded countries importantly, we will
continue to do more to help American businesses protect their
intellectual property. Thank you all for your leadership on
this issue, and I look forward to continuing to work with you
in this hearing and beyond.
[The prepared statement of Jon W. Dudas follows:]
Prepared Statement of Hon. Jon W. Dudas, Under Secretary of Commerce
for Intellectual Property and Director of the United States Patent and
Trademark Office
INTRODUCTION
Chairman Stearns, Ranking Member Schakowsky, and Members of the
Subcommittee: Thank you for this opportunity to appear before you to
discuss the U.S.-China Joint Commission on Commerce and Trade (JCCT),
as well as the broader set of international intellectual property (IP)
issues relating to China. As you are surely aware, the U.S. Department
of Commerce has a prominent role in protecting IP abroad. Secretary of
Commerce Carlos 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 Under Secretary of Commerce for Intellectual
Property and 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 also co-
chair the JCCT IPR Working Group along with Ambassador Josette Shiner,
Deputy U.S. Trade Representative. We are very appreciative of the
Subcommittee's interest in IP protection and the JCCT process and thus
commend you for holding today's hearing.
Through the JCCT and other avenues, the U.S. hopes to continue to
work closely with China to improve the situation for U.S. right
holders. The process aims to produce concrete, discrete results. During
the last year's 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 by
the end of 2004 and apply it to increase criminal enforcement of IPR
violations; (3) conduct nation-wide education and enforcement campaigns
and increase customs enforcement; (4) ratify and implement the WIPO
Internet Treaties as soon as possible and extend to the local level the
ban on the use of pirated software in central and provincial government
offices, and (5) establish an IPR working group under the JCCT. In line
with the JCCT mandate, the working group seeks to ensure that China
significantly reduces IPR infringement levels.
While we recognize that China has expended significant effort to
improve the protection of intellectual property, much work remains to
be done. We have not seen any significant reduction in IPR
infringements throughout China. We continue to impress upon the Chinese
that action plans and commitments must translate into actual reductions
in infringing activity. As former Secretary Evans said earlier this
year: ``Process isn't progress. Results are progress.''
HISTORY AND BACKGROUND OF THE JCCT PROCESS
It may be useful to provide a brief background and some history of
the JCCT, before I detail the broader set of issues and initiatives
being implemented by the Administration to address the problems of the
piracy and counterfeiting of IP. There are several functions of the
JCCT that range from technical consultations to meetings by high level
U.S. and Chinese officials that have resulted in measurable concrete
results that have benefited U.S. intellectual property owners.
The JCCT was established in 1983 to serve as a government-to-
government consultative mechanism that provides a forum to resolve
trade concerns and promote bilateral commercial opportunities. Issues
addressed by the JCCT over the years have included industrial policies,
services and agriculture. In recognition of the critical role
intellectual property plays in our economy and the serious effects of
piracy and counterfeiting, an intellectual property rights (IPR)
Working Group was established at the 15th annual meeting of the JCCT in
April 2004. That meeting of the JCCT was chaired by former Commerce
Secretary Donald Evans, former USTR Robert Zoellick and Chinese Vice
Premier Wu Yi.
The most recent meeting of the IPR Working Group was just a few
weeks ago here in Washington when I, along with Ambassador Shiner, met
with our Chinese counterpart, Vice Minister Ma Xiuhong. We discussed
the past progress made and expectations regarding various IPR-related
commitments made by the Chinese at the 2004 JCCT to address piracy and
counterfeiting of American ideas and innovations.
The process is working and we are beginning to see results. For
example, one recent positive development has been the issuance of a new
judicial interpretation by the Chinese Supreme People's Court intended
to increase the incidence of criminal prosecution of IPR infringements
in China. The issuance of the interpretation last December is
consistent with the commitments made by Chinese officials at the 2004
JCCT. The interpretation serves as a guideline to lower courts on case
acceptance and minimum thresholds necessary for conviction of a
criminal IP offense. According to statistics provided by the Chinese at
our latest meeting, criminal IPR case filings are up almost 19% (18.9%)
since the issuance of the new judicial interpretation. While the
interpretation appears to significantly reduce the criminal thresholds
for trademark and patent counterfeiting and copyright piracy, we have
identified a number of potential concerns with the judicial
interpretation, including the methodology for determining the value of
infringing goods, the criminalization of exports and certain copyright
offenses, and the treatment of repeat offenders. We continue to study
the interpretation and will monitor its implementation by the Chinese
courts.
During JCCT IPR Working Group meetings on May 26 and May 27, 2005,
a full complement of technical experts from both sides discussed ways
to work better together to combat IP theft in China. In particular,
U.S. and Chinese law enforcement agencies exchanged views on increasing
information and expertise sharing, and cooperation in individual cases,
including with respect to investigation techniques. The USPTO and the
U.S. Copyright Office conferred with their counterparts on a number of
topics, including ways to enhance IPR monitoring of trade fairs in
China and the expansion of crackdown campaigns that closed down the
infamous ``Silk Alley'' Market in Beijing and a number of illegal
street stalls and kiosks in Shanghai that sell counterfeit and pirated
name brand and luxury goods. I hope and expect that this meeting of the
JCCT IPR Working Group is only the beginning of continuing and
substantive technical dialogue.
Secretary Evans' successor, Secretary of Commerce Carlos Gutierrez,
earlier this month completed his first trip to China to promote the
Administration's fair trade agenda and discuss issues of ongoing
concern. His central message on IP was that China must deter widespread
infringements of intellectual property rights through strict
enforcement. Secretary Gutierrez will co-chair the 2005 JCCT scheduled
in July in Beijing, along with U.S. Trade Representative Portman and
Vice-Premier Wu Yi.
As part of our continuing staff-level consultations with the
Chinese, we--have developed--a mechanism to refer appropriate cases to
China's Ministry of Commerce with a formal request for review and
appropriate response. Under this mechanism, U.S. companies--may report
infringing activity to the Department of Commerce and provide all
relevant information regarding the nature of the infringement and all
efforts taken to resolve the matter. If a company has attempted to
obtain or enforce intellectual property rights via the foreign
country's legal system and its efforts have been unsuccessful, due to
either systemic flaw or unfair application of the laws,--the Commerce
Department may be able to engage the foreign government on the issues
raised by the company.
SCOPE OF GLOBAL IP PIRACY AND COUNTERFEITING PROBLEM
The background for the need for these efforts is well-known, as you
increasingly hear about IP piracy and counterfeiting issues from your
constituents and on the nightly news. 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 ($626.6 billion).<SUP>1</SUP> 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.<SUP>2</SUP>
---------------------------------------------------------------------------
\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.
---------------------------------------------------------------------------
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.
The Role of the USPTO in IP Policy
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 Nations bodies, such as the World Intellectual
Property Organization (WIPO), to help set the international standards
for IP protection and enforcement.
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.
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, 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 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. 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 provide strong
enforcement and reflect a standard of protection similar to that found
in United States law.
INTELLECTUAL PROPERTY ISSUES AND USPTO APPROACH IN CHINA
Due to the rapid increases in piracy and counterfeiting in China,
we recognize that U.S. companies face enormous IPR protection and
enforcement challenges and that their losses there 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'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 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
Unfortunately, problems persist and our concerns about IP
enforcement in China continue to grow. Despite China's membership in
the WTO and its obligation 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 am very pleased Secretary Gutierrez has cited IP protection as a
key issue in U.S. trade ties with China. During his first trip to China
as Secretary of Commerce, Secretary Gutierrez urged China to deter
widespread infringements of intellectual property rights through strict
enforcement. Secretary Gutierrez told business officials on the first
day of his visit to China ``Intellectual property rights violations are
a crime and we don't believe we should be negotiating crimes with our
trading partners.''
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.<SUP>3</SUP> The automotive
parts industries estimate that counterfeit automotive parts production
costs the industry billions of dollars in lost sales. One industry
group estimates that legitimate automotive companies could hire 210,000
more employees if the counterfeit auto parts trade is
eradicated.<SUP>4</SUP> China is a leader in counterfeit goods in this
industry.
---------------------------------------------------------------------------
\3\ Ibid. Key Findings: BSA and IDC Global Software Piracy Study.
\4\ Motor and Equipment Manufacturers Association, September 2003.
---------------------------------------------------------------------------
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.
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).'' <SUP>5</SUP>
---------------------------------------------------------------------------
\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).
---------------------------------------------------------------------------
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 as 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. 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 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 2005 Special
301 Report states that during 2004, 67 percent of all of the IPR-
infringing goods seized at the U.S. border came from China.<SUP>6</SUP>
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.
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\6\ http://www.ustr.gov/assets/Document_Library/
Reports_Publications/2005/2005_Special_301/
asset_upload_file195_7636.pdf
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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 T. 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 attache 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 attache stationed in China has
enhanced the USPTO's ability to work with 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. For example, I
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 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.
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 Attache and Legal Attache 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, I 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, I traveled to Beijing as part of a second Evans-
led delegation. We were 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, I announced the USPTO's new
plans for IP technical assistance for Chinese IP-related agencies.
Ambassador Randt was pleased that the USPTO's offers of cooperative
assistance were well received, and we are in the process of
implementing these as well.
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 and 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.
THE GLOBAL STRATEGIC TARGETING ORGANIZED PIRACY (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
First, the USPTO participates heavily in this initiative by
managing a hotline, 1-866-999-HALT, established by the Department of
Commerce to help businesses protect their IPR at home and 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 Deputy Secretary of Commerce for Intellectual Property Steve
Pinkos, recently kicked-off our international outreach effort to
promote STOP! internationally. In April, our officials visited various
capitals in Asia generating much interest and fruitful discussions.
Just this week, our USPTO representative and officials from the other
STOP! agencies are meeting with their counterparts and representatives
from the private sector in five capitals throughout Europe. This week's
second global outreach tour is an important opportunity to continue
developing enforcement mechanisms to raise the stakes for pirates and
counterfeiters and share proposals on how to make it easier for
businesses to protect their innovation at home and abroad.
During these international visits, U.S. officials share information
on our efforts to combat the theft of inventions, brands and ideas. Our
efforts abroad are advancing our commitment by enlisting our trading
partners in an aggressive, unified fight against intellectual property
theft. Finally, 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.
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
businesses 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 in Salt Lake City on May 23 and 24, 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 JCCT process continues to provide a high-level
government-to-government forum to examine and address the trade and
commerce issues with China that are important to us all. While there is
a lot of discussion about the problems regarding piracy and
counterfeiting in China, it is my hope that the Subcommittee now has an
increased understanding of how the process is working toward concrete,
discrete solutions that benefit U.S. small businesses and owners of
intellectual property.
As we look to the future, let me conclude on a positive note. The
Administration is working on several fronts to combat the theft of U.S.
IP through efforts, such as the STOP! Initiative. 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 intellectual property all around the globe.
Thank you very much.
Mr. Stearns. I thank you, Mr. Under Secretary. I will start
with the first questions. This is going to be fun to ask you
because I just want a yes or a no. And since you have been
behind me here advising Henry Hyde to see if you can get a yes
or no, I am going to ask you this question. So just a yes or no
now.
You are a business and a businessman comes to you and says,
you know, I had this property, this business that deals
totally, exclusively, core assets are intellectual property,
and I have got an opportunity to set up a shop in China and to
work with the Chinese to develop this business and to do
business with China in China with intellectual property rights
associated with some of the Motion Picture Association back
here. Do you think I should do it? Just yes or no.
Mr. Dudas. No.
Mr. Stearns. No, okay. So now, with that in mind tell me
why ``no'' because that is the question that I was hoping you
would answer because if you said yes, based upon your
statistics in your opening statement and everything, I
wouldn't, as a businessman, go into China to develop something
dealing with intellectual property rights. I would be very wary
because not even going into business they are going to get my
product if they come over here; there are many ways to get it.
So answer the question ``no'', why ``no''?
Mr. Dudas. And, again, you asked me to answer the question
as my person opinion as a businessperson who a 100 percent of
my assets are intellectual property, I think I can compare that
to industries that are there right now. And I believe the
industries have answered that in the affirmative, not as a
``no.'' But I look at the Motion Picture Association, the
business software, others who 100 percent of their business is
in intellectual property, the concern is that there is rampant
theft of intellectual property. That is the very problem. It is
the challenge that we face right now.
I think each of you had an opening statement that talked
about that our country's future to some degree depends on our
ideas and the protection of our ideas. So while I answered in
the negative myself--I am looking at myself--if all I had was
one asset and it was intellectual property and I had no level
of protection, I would be wary, certainly, of investing that.
Again, I will say that there are--the industries that are
out there find that the market is attractive enough that they
have found ways to invest; they have found ways to go forward.
So I think the fact that many in the industry have still found
it to be worthwhile because it is such a large market, such an
important market.
And perhaps I might conclude that part of the theft is a
part of just doing business; that is their overhead that they
are going to lose because the market is so big. It is possible
that industries make that calculation and view it almost as a
business decision, but I think that is the very threat that
businesses are facing is in terms of if you have a 99-percent
piracy rate or a 92-percent piracy rate, the question is how
much do you have to gain and how much do you have to lose.
Again, evidence shows that they are willing to invest because--
if I take moment, I know I am beyond yes or no--I believe that
most industries see, and I certainly see, that the situation is
getting better. The question is is it getting better quickly
enough? Is it getting better as rapidly as we want to see it?
And are we seeing it at the level we need to see? I think----
Mr. Stearns. Yes.
Mr. Dudas. [continuing] businesses who actually invest the
money feel that it is and it will.
Mr. Stearns. And as I understand it we have a trade surplus
in intellectual property, so that is one of the few areas where
we have a surplus, and so we want to protect it.
Your testimony shows there is a plant in China that
produces windshields illegally, and they are stamped with major
auto manufacturers name on them, so they are replicating theses
windshields. This plant was raided three times over a period of
2.5 years, yet it continues to operate. So if that is an
example of China's effort to stop just the windshields being
replicated based upon American auto parts, you realize that
either, one, the enforcement mechanism is not strong enough;
two, they are incorrigible to people because they have realized
the penalties are so weak.
So my question is can you influence--and maybe you can
start in telling me--are there civil and criminal penalties and
are they severe enough and can you have any influence to make
them enforced? And is China committed to doing this? I mean
that is the feeling we have that this is sort of a misdemeanor
crime that China doesn't even care about. In many countries you
can go into and you go down a street, you just find vendor
after vendor selling--for example, in Singapore. Well, we sat
down with Singapore and we worked it out. And when I was in
Singapore, you could go down these streets; you couldn't find
it, which was good. It is good for American consumers and it is
good for intellectual property rights.
But now I was recently in Barcelona, Spain and there was
people with all kinds of movies, DVDs, right there on rugs just
tens and tens of these movies. So my question basically, you
know, how do you get the Chinese government to put in place the
enforcement mechanism and the penalties, whether civil or
criminal, to make this thing real?
Mr. Dudas. You get to the very heart of the problem. Is
there a deterrent, an effective system of enforcement within
China? And certainly, within the United States I think we lead
by example. Where there have been problems with intellectual
property theft, often there is a bill that comes to Congress;
it passes, it is implements, and it is publicly displayed, what
enforcement has occurred. And that is what we are working with
the Chinese on as well. Is the system that they have in place
creating a deterrent for piracy and counterfeiting, or is it
considered a cost of doing business?
And your question about what kind of system do they have,
they have an administrative system and a civil system and a
criminal system. Their administrative system is unlike what we
have here in the United States. We have pushed very hard in
China.
Mr. Stearns. It is unlike the one we have?
Mr. Dudas. The administrative system is unlike what we have
in the United States. And it is a different area of the law
that they have there. What we have pressed for through the JCCT
was we want to see stronger criminal prosecutions; we want to
see lower thresholds. And what we have seen in December of last
year as a result of the JCCT was a new judicial interpretation.
They came out and gave guidance to court systems, to
prosecutors, to the procurator in China that basically directed
how criminal IPR violations should be handled.
The Chinese came and reported to us that in the last
several months they have had about a 19-percent increase in
criminal violations. That is a promising statistic. But what is
most important--and I think what you are getting at in your
opening statement and what we are getting at with the JCCT--is
we must see an absolute result that we can understand in terms
of metrics, and that result will be more legitimate goods being
sold in China. And that is where we are working toward with the
Chinese. So we see progress. The difference between delegations
I led to China about 2 years ago versus last year, I met with
agency heads with the Food and Drug Administration, with the
intellectual property offices in China after the JCCT in going
with the Secretary of Commerce then Evans, we met with the
premier, the vice-premier Wu Yi; you could see that there were
differences. Well-known marks, certain marks that had never
been protected, U.S. names, trademarks that had no protection
in China were now being protected. We established many more
cooperative efforts where we give technical assistance to the
Chinese patent office or we give it to the Chinese trademark
office.
At the end of the day, the question comes down to, however,
Congressman Green had pointed to the fact that our seizures at
our borders, two-thirds of those seizures of counterfeited and
pirated goods came from mainland China. That must come down. We
must see more legitimate goods being sold there. There is a
commitment from what I have seen and heard from the premier to
the vice-premier, but that commitment needs to be shown in
actions and results.
Mr. Stearns. My time has expired. The ranking member.
Ms. Schakowsky. There is somewhat of a credibility gap,
though, Mr. Dudas, because Beijing has the ability to find and
jail a trade union organizer or sympathizer at will. Do you
really believe that if a government of China decided to, that
it couldn't stop counterfeiting tomorrow if it really put an
emphasis on that?
Mr. Dudas. I don't know that I am an expert enough on the
Chinese government to know whether or not, but that is
certainly one of the issues we have, is the political will
there to get that done? Are we seeing any results? I can tell
you again that we have seen dramatic differences within the
last 2 years. I think your question goes to the heart again.
Are those differences enough? Is the political well-being shown
to the level that we think is necessary and sufficient?
Ms. Schakowsky. I wanted to ask you some questions about
workers' rights and labor, the unfair, illegal advantage that
China gains by suppressing workers' rights and artificially
keeping wages low. I am going to ask them all at once
basically. A little over a year ago the Administration convened
four Cabinet secretaries to announce the decision to reject the
AFL-CIO Section 301 Petition, alleging that China's egregious
repression of workers' rights constituted an unfair trade
practice. And at the time, the four Cabinet secretaries
conceded that there were workers' rights problems in China, but
they would address these through dialog and engagement. So you
have had over a year now to dialog with the Chinese government
over those very serious issues. Can you tell me what concrete
improvements in Chinese workers' rights have been made in the
last year? In particular, has there been any progress in
reforming China's labor laws, which prohibit the formation of
independent unions and the right to bargain collectively? Have
any Chinese workers actually formed an independent union, a
real independent union? And aside from Labor Secretary Chao's
visit to China last summer and a couple of non-binding letters
of understanding that were signed at the time, what other
actions has the Administration taken to ensure progress on
workers' rights, human rights, and democracy found in China?
And finally, I want to just ask given the slow progress in the
last year, would you consider, would the department consider
accepting the AFL-CIO 301 Petition if it were re-filed? Do you
think this issue needs to be addressed with more urgency and a
higher priority, or are you satisfied with the progress that
has been made so far?
Mr. Dudas. I will open by thanking you for your questions,
and I have to tell you, in your opening statement you mentioned
that there might have been some reluctance to testify. I can
assure the committee there was no reluctance to testify. I had
a person concerned that there are areas of expertise I do not
have. I am certain I will disappoint you with my answer that I
have really no knowledge on that front. My expertise is limited
to intellectual property. I am happy to bring those questions
to the appropriate folks within the Administration.
Ms. Schakowsky. You know, I just want to tell you, I think
that in some ways that this is indicative of the various levels
that intellectual property rights, as opposed to workers'
rights, environmental rights are placed. This is not a
criticism of you, but rather it would have been a good thing, I
think, since it is not unknown that many of us are concerned
about these issues of labor rights. You know, when you have got
a situation that it has been reported that many child workers
aged 12 to 15 migrate to the southern coast of China and end up
working in these special economic zones using false identify
papers, according to Hong Kong news reports, instead of
acknowledging the lack of adequate information, officials at
the Labor Ministry ``claim that no government figures are
available because child labor is not a problem in China.'' Now,
you probably know enough--well, let me ask you is child labor a
problem in China?
Mr. Dudas. I don't have the expertise to answer that
question.
Ms. Schakowsky. In 2000 worker rights advocates affiliated
with the Hong Kong Christian Industrial Committee reported that
McDonald's Happy Meals toys were being produced by a supplier
that employed child labor from mainland China. Children as
young as 14 were earning $3 for 16 hours of work each day. So
what has your agency done to investigate this allegation and to
prevent similar incidents from occurring in the future?
Mr. Dudas. I don't know what our agency has done and only,
again, because I am solely committed to intellectual property.
But I would welcome the opportunity to supply you with answers
to these questions.
Ms. Schakowsky. Well, I have a number of questions that,
you know----
Mr. Stearns. We are going to go to a second.
Ms. Schakowsky. Well, he is not going to know in a second
round the answers to my questions either. And, you know, I just
think that in our zest here for low-cost goods for developing
and increasing this relationship with China that we should not
only be concerned with what I do agree is the future
comparative edge for the United States of America, and that is
our brain power, our technological advantage, our intellectual
property, but that we have to put as much emphasis, I believe,
on looking--because otherwise, we then become supportive of a
real race to the bottom, which ends up affecting our workers at
home. And the interests of business and multinational
corporations and protecting the rights of intellectual property
or any kinds of property, while they are important, human
capital is very important too. So I can submit these to the
department for answers.
Mr. Stearns. I thank the gentlelady. The gentlelady from
Tennessee, Ms. Blackburn.
Ms. Blackburn. Thank you, Mr. Chairman, and I thank you for
working on this issue. And, Mr. Dudas, I thank you for being
with us today. I certainly appreciate it. I represent a little
bit of Nashville, a little bit of Memphis, so I am a little bit
country and a little bit rock and roll and real concerned about
intellectual property. And so I thank you for being here with
us today. As a matter of fact, I am doing a hearing or a
listening session, if you will, over on Music Row in Nashville
on Sunday with some of our folks over there. We are looking at
the impact on the small business entertainment community, the
impact that intellectual property has on our economy and the
impact that is coming from China and how we fill that. And, you
know, our State of Tennessee, when you look at State revenues,
$26 billion budget, about $14 billion of it comes from the
State. About $1 billion is a direct result of entertainment
products. So when they steal, we squeal. And it hurts.
So let us talk about this for a second in terms of
percentages. I understand that 85 percent of the music that is
sold in China is pirated. I understand that 95 percent of films
is pirated. And these are troubling, troubling numbers. And,
you know, we accept and we understand it is a cultural
difference. You know, when something is printed here it is
copyrighted and you own it. When something is printed there it
is public. And there is a different level of respect for that
creative energy, but I really am protective of this creative
community that we have here. I think that it is worth
protecting. And they are great people, and by and large they
are small business people.
So does the Administration--do you all have plans to raise
these percentages and raise this issue with them and bring it
to pursue it before the WTO? Because it is such an egregious
violation. What is the plan there?
Mr. Dudas. Commenting generally on what you said, you are
absolutely right that the United States has--it is in our
Constitution--how fundamental the protection of intellectual
property rights is. It went without a vote; it went with out
debate. It was clearly understood from the Framers of the
Constitution through today what patents and copyrights and
trademarks and IP does for our country.
The answer to the statistics that you have spoken of, yes,
those are industry-reported statistics. Some you even hear
higher from industries. Some industries have said in the
business software that they see 92 up to 99 percent. That is
something that must be addressed, and I can assure you it is
being addressed within the JCCT where we are very specific
talking just specific points that we are making with specific
actions that we expect the Chinese to take in order to reduce
these levels. We have also gotten overall promises they will
reduce these levels. As I mentioned earlier, what is important
at the end of the day will not be more promises or more
discussions of crackdowns or anything else other than having
more legitimate product sold in China, the absolute result.
On your question about a WTO action, the United States has
kept all options open vis-`-vis China. That is a decision that
it has ultimately made out of the office of the President's
United States Trade Representative. But I can tell you that
China last year was put on this special priority watch list.
There is a plan to invoke the transparency provisions of the
TRIP agreement, which basically says we want to see from you,
China, what kinds of piracy levels you see. We will have
requests for information to find specifically what is in there.
There is working going on right now with the industries you
have mentioned to find out, to gather evidence and gather
information in case a WTO procedure is taken. So those options
all remain open.
On another front, the Joint Commission on Commerce and
Trade has a very cooperative relationship at the highest levels
of the U.S. Government and Chinese government. But we have laid
out very specific line-item actions that we believe they should
take to reduce the level of piracy and counterfeiting. And our
point is we believe this will make a difference; this has
worked in the United States and in other countries. But at the
end of the day what is important is that you reduce your levels
of IPR infringement----
Ms. Blackburn. But we----
Mr. Dudas. [continuing] that would be the test.
Ms. Blackburn. Yes, we would just like to see you all a
little quicker on the uptake on following up with some of this.
Let us go back. You said that China has a--I think my time is
about to expire and I do have another group of questions I
think I will start while they are--okay. You said 19-percent
increase in their criminal prosecutions, and I am familiar with
their saying they have done 40,000 raids in the past few
months, and I think we are all familiar with ``Silk Alley,''
that closing that took place in January. So what are we seeing
as far as prosecutions, convictions, and penalties? Is there an
increase that you all can substantiate, not just what they say?
But can you all substantiate this and point to some things
other than the Golden Sciences Technology's decision that we
got out of Hong Kong last year, which was a 5-year process to
get something done? So where are you on that? Give something
more specific if you will, please.
Mr. Dudas. Well, on that front on the specifics on criminal
prosecutions we are relying--just 2 weeks ago--I am relying on
the documents they gave us to show that there was a 19-percent
increase in criminal prosecution----
Ms. Blackburn. Are they listing them----
Mr. Dudas. [continuing] due to----
Ms. Blackburn. [continuing] and----
Mr. Dudas. [continuing] they are not listed, and that is
part of what is important to do if you consider a WTO procedure
to be looking at the transparency provisions where you say to
the government we need to see all of the information that we
need. Again, that is a process that does not come out of my
office. It comes out of the United States Trade Representative.
But in the out-of-cycle review, it was noted that that is
something that the United States will be looking at is getting
that information.
Ms. Blackburn. Okay, and the issue is raised----
Mr. Dudas. An issue has been----
Ms. Blackburn. [continuing] is what you are saying. You
have raised that. I think that is part of the frustration. When
we look at an industry that is so important to our community
and your friends and your neighbors and the people you see and
you work with and you cross paths with every single day. And
they are getting ripped off. They make an independent film, and
then when they go to sell those video rights, they can't sell
them in Southeast Asia, and the reason is the pirated copy has
made it to the streets. So then their rights are worth nothing.
You have authors--we have a big publishing industry in Middle,
Tennessee, a lot folks writing a lot of books, different
genres, and they can't sell the rights on those books.
So, you know, understanding that it is a different culture
and accepting that, I hope that you will take to heart our
frustration on behalf of our constituents who comprise a
wonderful creative community. We don't want to lose them. And
it is encouraging to us to see your aggressiveness. We need to
see more aggressiveness, and not just in writing, but in some
actions, something that is quantifiable so when I step before
this music industry on Sunday afternoon to do a listening
session--and I have got several small business/entertainment
industry folks in front of me, I can say let me tell you what
the U.S. Government and this Administration is specifically
doing to protect your right to exercise your giftedness and
your talents in order to earn a living. And that is what I
don't have chapter and verse, and that is what I want to see,
chapter and verse. And I appreciate so much that you would take
your time and come here and visit with us on this issue today
because it is an economic issue. It is a jobs issue. It is
preservation of an industry issue for me and for my
constituents. Thank you, Mr. Chairman. I yield back.
Mr. Stearns. I thank the gentlelady. The ranking member is
recognized in unanimous consent.
Ms. Schakowsky. I could have unanimous consent to insert
into the record a report called ``The Struggle for Workers'
Rights in China.''
Mr. Stearns. By unanimous consent, so ordered.
[The report is available at http://
www.solidaritycenter.org/publications/jfa_china.cfm]
Mr. Stearns. I told my colleagues we are going to go around
for a second round. With Mr. Dudas here, we might as well just
camp out here for a while if we have got him here. And he has
been kind enough to stay, so I will start with another round.
Mr. Dudas, we just had a vote on the WTO whether we should
leave the WTO. And, as you know, every 5 years we have this
vote, and the vote overwhelmingly lost. But there were, I
think, about 33----
Ms. Schakowsky. 85.
Mr. Stearns. 85 people who voted ``yes.'' And I have been
on both sides of this issue. Dealing with intellectual property
rights, is there any response to the WTO to handle this? Can a
WTO do anything to China? I mean, I know your boss is going for
another round of negotiations out to China in July, I guess it
is? Is that correct? Secretary Gutierrez will co-chair the 2005
JCCT schedule in July in Beijing along with U.S. Trade
Representative Portman and the Chinese Vice-Premier. And you
are talking to the Chinese, but why isn't there a two-prong
approach going through the WTO?
Mr. Dudas. Well, WTO procedures are one potential avenue.
As I mentioned, the Administration is keeping all avenues open.
The----
Mr. Stearns. That is just so weak that you don't think it
works?
Mr. Dudas. I will go to another instance of whether WTO
actions have worked. There is something called geographical
indications----
Mr. Stearns. Yes, that is good. If you can give me an
example of what WTO works, I would like to hear that, dealing
with China.
Mr. Dudas. That is outside my expertise, I apologize, but
in the semiconductor industry I believe a WTO action was
taken----
Mr. Stearns. But does it work with intellectual property
rights?
Mr. Dudas. Well, I can give you an example where it has
worked with the European Union----
Mr. Stearns. Okay.
Mr. Dudas. [continuing] on an issue of geographical
indications. The United States took a case against the European
Union on something called geographical indications.
Essentially, you want to be able to protect Idaho potatoes and
say that Idaho potatoes come from Idaho. Certainly, a number of
European nations want to protect certain kinds of cheeses, and
the United States has a system that does protect certain kinds
of cheeses. Parmigiano-Reggiano comes from a certain region in
Italy. That is a geographical indication that is protected in
the United States. However, Idaho potatoes and Florida oranges
were not protected in the European Union. The USPTO working
together with the United States trade representative, USTR took
a case on that through the WTO and that came out very favorably
for the U.S. interests saying they were insufficient----
Mr. Stearns. Why don't we have a case going to WTO or do we
have a case going to WTO on intellectual property rights asking
for them to assess China or to put tariffs on them for this
theft of our property rights?
Mr. Dudas. I think that is under consideration when I say
all options are open, whether or not to take a case to China.
There are a number of issues--before you would ever take a case
you want to make sure you have your evidence lined up perfectly
in a row----
Mr. Stearns. You don't think there is enough evidence?
Mr. Dudas. Well, I think the United States trade
representative is gathering evidence right now, working with--
--
Mr. Stearns. Would you personally--your office think there
is enough evidence now to make the case that we could go to the
WTO?
Mr. Dudas. I don't know that I have--I would have to look
at the very specific evidence----
Mr. Stearns. Well, let me just remind you now, your title
as the expert here is Under Secretary of Commerce for
Intellectual Property. So if I have to go to anybody, I assume
I would go to you to find out if there is enough evidence--and
you have just advised me if you had a company on intellectual
property rights you would not go to China to do business. So
obviously, there is enough evidence in your mind, so I just
can't understand why we don't have a two-prong approach:
negotiate but at the same time move forward with a case against
China in the WTO. That is what the WTO is for.
Mr. Dudas. Well, and I think those are--there are certainly
negotiations going on and the discussions and decisionmaking
process about whether or not to invoke WTO procedures. Again, I
can tell you it is--the United States trade representative has
said we are looking at evidence. We are also looking at the
transparency provisions. These are----
Mr. Stearns. I think you make a weak case when you say we
are looking at the evidence. I mean, I think the evidence is
clear. The question is do you want to act?
Mr. Dudas. Well, let me be clear----
Mr. Stearns. Unless you are saying that the evidence now is
dubious that they are stealing our intellectual property
rights.
Mr. Dudas. Well, I think what I am saying is there is
discussions that need to occur, pulling together, working with
industry to get very specific information. There are certain
areas that you would go into, invoking the transparency
provisions where you are telling the government there are
certain areas of evidence that we would like to have, evidence
that we would like to look at. Those are underway right now.
The decision on whether or not to actually take a case, I am
not the expert. I am not the person who ultimately gets to make
that decision and----
Mr. Stearns. Oh, I appreciate that you are not the lawyer
that would take it to the WTO, but I think you should be the
person to say yes, there is enough evidence and yes, it is
powerful enough that the United States should take it to the
WTO, because you could make that decision.
Mr. Dudas. Actually, I am not the person that gets to make
the decision on whether or not to take a case to the WTO----
Mr. Stearns. No, I know----
Mr. Dudas. [continuing] but----
Mr. Stearns. [continuing] but you could recommend it to
Secretary Gutierrez and say----
Mr. Dudas. Well, certainly, we have discussions within
trying to make these determinations, but I ultimately,
certainly, defer to the United States trade representative.
Mr. Stearns. So let me ask you pointblank yes or no. Do you
think there is enough evidence to go to the WTO to complain
about China stealing our intellectual property rights? Yes or
no?
Mr. Dudas. I can't give you a yes or no answer to that
question because I am not the person that makes that decision.
Mr. Stearns. You don't think there is enough evidence of
them stealing our intellectual property rights?
Mr. Dudas. I don't feel that there is a lack of evidence.
What I am telling you is that is a decision that is being
reviewed through a variety of agencies throughout the U.S.
Government and one that--I know that if the U.S. ever takes a
case, I know that that day that yes, there is enough evidence
to take that case.
Mr. Stearns. In the judicial interpretation that was issued
in December your testimony states, ``it took a step backwards
regarding the enforcement against repeat offenders.'' Could you
explain what that means and what should the penalties be?
Mr. Dudas. Yes, sir, in those judicial interpretations
there were a number of steps that we thought were forward
steps. There were a few steps that we thought were backward
steps, including eradicating the provision that allows for
repeat offenders to have certain penalties. We are now working
very closely with the Chinese on making certain that we
understand fully what is in their judicial interpretation, and
we are seeking clarifications.
Another area where there was express disappointment on
behalf of my office in the U.S. Government, it looked as though
sound recordings had been excluded from the judicial
interpretation for criminal penalties. In discussions with the
Chinese just 2 weeks ago it was made clear to us that that was
not intention, that actually there is a way that they have been
included. We are working very closely with them to make certain
that if that is the case, we get a clarification.
The successes of the JCCT are along those lines where we
are finding out we can have very express conversation where we
discuss where we think there are deficiencies, where we think
things need to be improved, and we are working closely with the
agencies to make sure we get that clarification with them and
in through the highest level of the government.
Mr. Stearns. My last question is I think you stated that
the Chinese government is giving free rein to counterfeiters by
restricting market access to foreign companies. What
restrictions do they impose and how are we working to open
those markets if, indeed, that is occurring and it is giving
free rein to these counterfeiters? Does that make sense? Do you
know what I mean?
Mr. Dudas. Yes. I think the philosophical argument, and it
makes perfect sense and it is correct, that if a company does
not have access to the markets, if an industry does not have
access to markets in any country there is----
Mr. Stearns. Underground market.
Mr. Dudas. Right, they don't have--well, I mean, just the
fact that if a legitimate company cannot get into the market
because of other restrictions----
Mr. Stearns. By the Chinese government.
Mr. Dudas. [continuing] by the Chinese government in this
case, then how will you ever be able to compete with
counterfeiters? So an example, case in point--and I think
Congresswoman Blackburn referred to it--in the motion picture
situation, there are certain limits on how many motion pictures
can be shown, foreign films can be shown in China. That was an
agreed-to discussion under WTO negotiations. That number is 20.
We believe that that number 20 is absolutely a floor not a
ceiling. The Chinese have treated it as a ceiling. It is very
difficult for a company to be able to--if they can't sell their
product--if it takes 2 months to get their product out on the
street, an illegitimate, a copy, a pirated version will be
sold. The market is gone within a month. So if you can
compete--I guess many industries are saying we will even try to
compete with counterfeiters, but you have to give us the
opportunity to compete with counterfeiters.
The business software folks that have issues in China are
very concerned that there might be government procurement
regulations that would favor the Chinese government that would
somehow not allow foreign companies to come into those markets.
If you put in barriers to markets in areas where 90 percent of
the production is occurring in the United States, we are
obviously most at risk.
Mr. Stearns. I am just curious; you say that the Chinese
government only allows 20 showings of a film? Is that what you
said?
Mr. Dudas. No, the rule is that there are only 20 foreign
films that are allowed in----
Mr. Stearns. Oh.
Mr. Dudas. [continuing] to be shown in their movie
theaters.
Mr. Stearns. Okay, so 1.3 billion people, only 20 specific
foreign films are allowed in----
Mr. Dudas. For the movie----
Mr. Stearns. [continuing] for the movie industry?
Mr. Dudas. Yes.
Mr. Stearns. And is there a floor on American films? That
includes the American films I guess----
Mr. Dudas. Oh, no----
Mr. Stearns. [continuing] because we are foreign.
Mr. Dudas. [continuing] it includes American films, yes.
Mr. Stearns. So out of that that means you have got France
and you have got India, you have got Italy, so you have got the
entire European Union and not to mention the----
Mr. Dudas. Right.
Mr. Stearns. --Pacific Rim, so all these countries, only 20
films are allowed a year?
Mr. Dudas. Get approximately 15 from the United States.
Mr. Stearns. So 15. And I am just curious, how do they make
that selection of those 15? Is it based upon politics?
Mr. Dudas. There are certain censorship decisions, other
decisions that they are making in China that go into that
decision, yes.
Mr. Stearns. Because you can see that there is a dearth of
these movies, and so the people say by golly, I am going to
find another way to counteract that. And, you know, that goes
to the heart of what we are trying to do if we are trying to
get China to be a free society and an open society and then you
wouldn't have this huge restriction and the counterfeiters are
actually making a lot better money because the Chinese
government is restricting films. So my time has expired. The
gentlelady from Tennessee.
Ms. Blackburn. Thank you, Mr. Chairman. You might wish you
had never come over this afternoon when we finish with all of
our questions, but, you know, it is a pretty important issue.
And so let us go back to this prosecutions question. You know,
we talked percentages; we talked about the 40,000 raids they
say that they have conducted. Do you have a number? Can you say
this is the total number? If you can't recite chapter and verse
and where and what the offense was, are they giving you a total
number rather than just saying we have had an increase?
Mr. Dudas. An increase in prosecutions or in----
Ms. Blackburn. Correct----
Mr. Dudas. [continuing] raids or----
Ms. Blackburn. [continuing] prosecutions.
Mr. Dudas. The answer is yes, they will give us--they gave
us a total number. I don't know what that total number was----
Ms. Blackburn. Would you get that to me----
Mr. Dudas. I will----
Ms. Blackburn. [continuing] please?
Mr. Dudas. [continuing] get you what they----
Ms. Blackburn. Okay.
Mr. Dudas. [continuing] give us. If you wouldn't mind, I
would say that it is not important in many ways what the total
number is because it almost can't be enough--it can't be enough
if we are not seeing legitimate products being sold in China.
In other words, it can be anecdotal if you say I did 10,000
prosecutions or I did 20,000 prosecutions or 30,000
prosecutions, it won't be enough if there has still been a rise
in----
Ms. Blackburn. I realize that and I agree with you on that.
Mr. Dudas. Yes.
Ms. Blackburn. However, when you have had zero and you have
got something, at least there is some tangible action----
Mr. Dudas. Yes.
Ms. Blackburn. [continuing] that you can point to. Now,
part of the problem with this entire situation is they have to
come to the point that they value the product created from
intellectual property, that they see that as something that is
a revenue stream in their county. When you go into China, many
times government is your partner on something. So they have to
have a value for that. And you have talked about process, you
have talked progress, you have talked about gathering evidence
and being able to move forward, so let us talk about what you
are tangibly doing. Are you all working with NGO's or other
groups in addition to the WTO? Or who are you working with on
education? Are there NGO's that are out there helping us with
not only China, but other of the Asian nations, other of the
Central American nations to get laws on the books so that we
have something that we can negotiate to, so that we have
something that we can demand enforcement of?
Mr. Dudas. Absolutely. Thank you for that question. First,
let me say on the value of intellectual property within China,
I can give you some good news. They have the largest trademark
office in the entire world. The United States used to have the
largest trademark office in the world----
Ms. Blackburn. Size means nothing----
Mr. Dudas. But they----
Ms. Blackburn. [continuing] I mean we want to see----
Mr. Dudas. Right.
Ms. Blackburn. [continuing] action.
Mr. Dudas. But what you see is in the patent office, they
have one of the largest patent offices in the world. Last year
was the first year where there was more intellectual property
produced in China than by foreign nations, which is very
important for them to understand and need.
In answer to your question of what are we doing, the
Administration has raised to the highest levels. President Bush
asked last year to get Secretaries together of Commerce, the
United States Trade Representative, Department of Homeland
Security, and Department of Justice and go forward on this STOP
Initiative, which is the strategy for targeting organized
piracy. As part of that, there have been what are called world
tours. There is one going on right now in the EU. There was one
a few months ago where our deputy under secretary, Steve
Pinkos, attended on behalf of the PTO going into different
Asian nations, working with them, explaining to them what we
are doing to crack down, what we are doing in customs, et
cetera. My office has an enforcement division where literally
hundreds of training programs go on a year. We will travel to
China; we will travel to Russia; we have an institute where we
are working with people here. We have trained Supreme Court
Justices in India and other Asian nations. We have trained the
prosecutors; we have trained judges; we have trained IP
officials. We work very closely with IP officials--wherever we
can get people who are likeminded within any nation on the
value of intellectual property and getting that education
throughout their country, we will work with them.
Ms. Blackburn. Let me ask you one more thing. You know, not
only does this affect our entertainment folks in Tennessee, but
we have a lot of pharmaceutical distributors, some
manufacturing and biotech. Tool and die is a big industry, and
tool and die has been hit tremendously. I have one constituent
who lost $500,000 worth of business this year because of China.
And that always brings up the problems with liability. So, you
know, I know that there are some products, you know, when you
are talking about products with safety elements and the
liability issue enters into that, whether it is a grommet or
some small piece used in a car. And then you get that pirated
in China, sold, counterfeit labeled, sold back into the
American market. Should consumers be concerned? Have you all
raised this as a safety issue? And what action are you taking
there?
Mr. Dudas. Certainly, it is something that we are very
concerned about as well. The issue of counterfeiting and piracy
is not just an issue of money and economics; it is an issue of
safety. If you have drugs that are being counterfeited, if you
have products that are otherwise for safety, the UL listing has
been counterfeited so that what you think you are getting is a
safe--electrical cord that explodes. We definitely have been
raising that. We do have a very strong customs department in
the United States. So we are very good at our borders and
protecting our borders in what comes in, but worldwide, the
World Health Organization has estimated that up to 10 percent
of pharmaceuticals are counterfeited. Of those, 67 percent of
the wrong amounts in them, wrong amounts of----
Ms. Blackburn. Now, with all due respect, you know, if we
have got two-thirds of the counterfeit product in this
country--the counterfeit product that is being sold in this
county coming from China, we have got a leak somewhere.
Something is not exactly working. So I would just respectfully
request that there be a review and a reconsideration of that
process. Mr. Chairman, I yield back.
Mr. Stearns. I thank the gentlelady. And I think we have
completed our questions for you, Mr. Dudas. And I want to thank
you very much for coming. I would conclude by advising you that
you should tell your boss, Mr. Gutierrez, that when he goes to
Beijing, if he wants to see the theft of intellectual property
rights, all he has to do is go behind the American Embassy and
there is a shopping venue where he doesn't get just 15 American
films; he can get any American film he wants. So before he sits
down to meet with the Chinese, just walk behind the American
Embassy to the shopping venue. You can give him that tip, and
that will give him a good idea of how to start his
negotiations. With that, the subcommittee is adjourned.
[Whereupon, at 2:26 p.m., the subcommittee was adjourned.]
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