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Hearing of Subcommittee on Courts, the Internet, & Intellectual Property of the House Judiciary Committee - International Piracy:Intellectual Property


Location: Washington, DC

Hearing of Subcommittee on Courts, the Internet, & Intellectual Property of the House Judiciary Committee - International Piracy:Intellectual Property


REP. MELVIN L. WATT (D-NC): Thank you, Mr. Chairman. I want to first applaud the chair for convening this important hearing, but I'm new to this subcommittee. There probably hadnÂÂ't been any more consistent theme or set of involvements that I've had in international travel, since I've been Congress, than this one issue.

I don't think I've ever been to a foreign country on a congressional delegation trip, on an informal trip, on anybody's dime, where there hadnÂÂ't been an aggressive discussion of how we attack the piracy and theft of intellectual property, and its products.

And, I guess, if I had made an opening statement, it would have paralleled Ms. Espinel's, that we started all thinking that in most countries it was primarily a question of weak laws or no laws.

We progressed beyond that to a recognition that having a set of laws on the books without some effective enforcement mechanism and policing and sanctioning process weren't very helpful.

And the third point she made was that despite all of those efforts, after 15 years in Congress, the explosion of international trade and the opportunities for people to engage in piracy and intellectual property theft have gotten bigger and bigger and bigger and bigger.

So one walks away from a hearing of this kind with a sense of frustration. A much, much better understanding of the description of the problem, which all of the witnesses were very well equipped to describe, what seems always lacking at the end of these kinds of hearings, is not a lack of understanding about what the problem is, but what can we do more aggressively to try to solve the problem.

And so, let me start with Mr. Yager, and Mr. MacCarthy. First of all, maybe I'll start with Mr. MacCarthy, just to see whether other facilitators of the economic transactions, credit issuers, banks that facilitate the transfer of money and facilitate commerce in the regular course of events aside from the off-market itself, I'm not much on using the term "black market" for reasons that some people might understand better than others, but what is the general attitude of facilitators of financial transactions?

Are they consistent with the ones that you've expressed here? Are they being aggressively engaged, and what more can they do to help us with this problem?

MR. MacCARTHY: I can't speak in detail for all of the financial service providers in this area, but in general, they have policies and procedures that are similar to the ones that I described, which is, they have in place a process for evaluating complaints that come to them, investigating them and then taking appropriate action.

Even if the systems, the traditional systems that are involved in electronic commerce could stamp out these kind of transactions within their systems, and for reasons I mentioned in my testimony, it seems unlikely that they will be successful in doing that completely. But even if they could, there are alternative payment mechanisms out there that are ready to move into the gap and to provide payment services when the traditional payment providers are successful in driving the illegal activity out of their circumstance.

You've seen that already in the context of child pornography where there is a coalition against child pornography that the financial institutions have organized in working cooperatively together with the national center against missing and exploited children. And what we found is that the success that we've had in driving those kind of transactions out of our system has been mirrored by the use of alternative payment mechanisms for those transactions. Various kinds of e-cash or digital cash are stepping into be the transaction processor of choice.

Similar things are happening in internet gambling as we are using our coding and blocking mechanism to reduce the use of regular payment cards for internet gambling transactions. Those merchants are turning to the automated clearing house and using that as a mechanism for completing the transactions. And that mechanism is not, you know, as kind of underground operation, that's the same mechanism that many people would use to get their payment from employment. It's the same mechanism that people use for many recurrent payments for their mortgages, or utilities, or the rental payments.

But it's a harder system to control. There is less ability to know exactly who is doing what on that system. And it's the kind of system that can be used as an alternative mechanism when the traditional payment mechanisms have done what they can to drive the illegal transactions out of them.

REP. WATT: You may be depressing everybody in the room by your -- if I allow you to go further. My time has expired.

Mr. Yager, and you don't have to answer this now. If you -- if the GAO has done some specific set of recommendations about how we may approach solutions. I mean, I understand the problem. There is a great description of the problem that you've outlined in your testimony. But if there is a set of solutions that you all came up in the process of doing the GAO study I would welcome --

MR. YAGER: Let me just answer that very briefly. We have done a lot of work obviously. Ms. Espinel has covered what happens abroad. Some of the work that we've done has to do with what can de done in the United States to raise the level of deterrent, because that's really what we are talking about, trying to create a bigger deterrent for the operation.

So a couple of the very specific studies we did had to do with the officers, the Customs and Border Protection that operate in our borders when the good are coming across.

One of the keys there is that there has to be a greater extent and a greater level of seizure activity. Because we found in looking at their seizure efforts that they are highly concentrated in certain specific ports. And major ports are not getting much seizure activity.

And there isn't that awareness of the management of this problem to try to learn how is that some ports are doing so much better than others? What can they learn internally to make sure that that kind of skill exists at all ports?

The second recommendation and a second issue that we brought up in that report is that in some cases there are penalties assessed against seized goods. But one of the things that we found is less that 1 percent of those penalties are currently being collected.

Penalties without payment are not an effective deterrent, so there has to be greater attention in actually not just levying the fines, but collecting the fines from those that are abusing the laws. So I think that also means at some point a greater threat of prosecution in the United States.

So I think that the deterrent level needs to be raised. Certainly a lot can be done abroad, but there is also things that can be done domestically, and we have some very specific suggestions as to how that could be done.

REP. WATT: I know my time is over, but it seems to me that there is a parallel effort going on here to intercept the prospect of terrorism before it gets to the borders that you are talking about.

MR. YAGER: That's right.

REP. WATT: Is anybody looking at the -- I mean, we tend to look at this stuff in silos. I'd like to benefit at some point, not right now, of knowing whether anybody is even talking to each other across those silos to try to figure out some common steps that we could be making on the intellectual property front while we are making steps on the terrorism -- counter terrorism front.

Mr. Chairman, I'm way over my time, and I'll yield back.


REP. WATT: Let me just follow up on what Mr. MacCarthy said. It is, I assume, true that somebody could still sit in Russia under what Ms. Espinel has said, internal to Russia, the law would still be --

MR. MacCARTHY: Our interpretation of Russian law right now is that we don't have the legal standing to say to the Russian banks that operate within Russia, you have to stop processing transactions for domestic transactions.

REP. WATT: So what do you say about that, Ms. Espinel?

MS. ESPINEL: Sir, the change that Russia has made to the civil code, which is one of the commitments that they agreed to do in their bilateral agreement with the United States, this change that they've enacted should fix that problem in the context of sites like Allofmp3 on the Internet. And that change should go into effect in Russia in January of '08.

REP. WATT: Because they use the royalty collecting society, which was sort of a phony deal, it never was authorized by the people to whom the royalties were owed, they claimed that that was -- that's what made what they were doing legal. They were making payments to this society and now -

MS. MacCARTHY: And that they prevailed in court. And if that changes in January of 2008, we'd then be able to move forward in a context of addressing the local distribution of this music.

By the way, in terms of the successor sites to Allofmp3 and Alltunes, our understanding is that Alltunes is in business these days, but they're not taking Visa cards at all.

And another site called Mp3Sparks is also in business, but they're not taking Visa cards at all.

REP. WATT: Smith seemed not quite as satisfied what you all were saying.

MR. : No, I don't --

MR. SMITH: I think everything that was said here is completely accurate. I would -- we in the industry -- and, I think, lawyers that are familiar with the Russian law when it was passed in the early 90s, have always concluded that this case, this particular case was decided wrongly, that, in fact, the existing Russian law, it made these acts including collecting societies representing -- purporting to represent record companies that they don't represent, was a violation of Russian law. And it is true that the 2008 amendments will fix that specifically.

But, I think, everyone who -- lawyer who has looked at this including, I think, Visa's lawyers, we all scratched our heads and said, wait a minute, this is already a violation of Russian law and this should've been solved years ago.

REP. WATT: I have no further questions.


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