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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. SHEILA JACKSON LEE (D-TX): Chairman, Thank you very much for holding this hearing, and I apologize to the witness for being delayed in other overlapping hearings.

I will narrow my inquiry to a comment and then a question. Frankly I think that we are severely disadvantaged, and I thank the chairman for continuing his oversight on some of these mini issues involving intellectual property, but severely impacted and damaged by the fact that trade, intellectual property is all wrapped up in foreign policy.

And many times we are more concerned about not offending our perceived allies as opposed to protecting the intellectual property of Americans and the ability for our economy to churn.

I frankly believe that the trade imbalance for example, is a stark example, particularly with China, of how skewed our foreign policy and trade policies has gotten.

So with respect to the protection of intellectual property sometimes we yield even with the 301 review to not offending. I'd like to ask each of you to express your level of anguish or anger with the present state of intellectual property thievery, and also as I heard Ms. Espinel, mention stronger piracy laws.

If each of you -- and if this has been asked and answered forgive me, but each of you give me again what kind of legislative fix, the strongest legislative fix we could get to impact in particular both Russia and China, but others in terms of intellectual property.

Strengthening 301, I've heard it mention that it is a fair process and you are happy, but any other legislative fixes that would be helpful in what is still an ongoing problem with the theory of our intellectual property, and I'll start with Mr. MacCarthy.

MR. MacCARTHY: In terms of the bigger picture our access to information about the problem comes largely from intellectual property owners who come to us with complaints, and in that regard we have a process in place for dealing with those kind of complaints.

We think that process resolves the responsibilities that we have in that area. We think it's a balanced and legitimate use of our complaint process to come to us when there are these kinds of difficulties. It's a business problem for many, many copyright owners. And we are pleased to step forward to process the complaints when they come to us, in an appropriate fashion.

In terms of legislation, we don't have general recommendations --

REP. LEE: What do you do -- what is the relief that you give to the Internet --

MR. MacCARTHY: If -- when a grieved copyright owner comes to us with a documented complaint, and if they identify the Internet site that's involved in the alleged infringement they give us evidence that indeed this is illegal activity, and they provide us documentation that Visa cards are used.

We will conduct an assessment of the legal situation, and if we find that indeed these transactions are illegal either under the laws of the country where the merchant is located or where the card holder is located in either jurisdiction, we'll pass that information on to the banks that work within our system directly with the merchant and ask them to take corrective action.

REP. LEE: You do a civilian relief. You are obviously processed to move that client's problem through and try to resolve it in that way. All right, let me ask you -- (inaudible) -- legislatively you had a suggestion.

MR. MacCARTHY: We don't have an affirmative suggestion for legislation on the broader issues. We don't have any expertise or competence in there. We do think it would be unnecessary to have legislation that imposed liability on financial services, intermediaries in this area.

We think we stepped forward with the kind of responsible private sector enforcement action that should help to resolve the problem.

We talked about the limits of private sector action in that area, we can't help to resolve local laws or conflicts between local laws.

And if there are many, many conflicts among the laws in many different countries the system I described won't work as effectively as it did in the cases that we have applied it to already.

So we don't think that a legislation that would give us legal responsibilities would improve the situation, and we are already taking the steps that we are think are necessary to resolve the problem through private sector action.

REP. LEE: Thank you.

Mr. Yager.

MR. YAGER: Yes, we've made one recommendation to the Congress; it has to do with the coordinating group that is now bringing together the U.S. agencies to combat IP. While our recommendation is to capture the energy that is currently housed within the presidential initiative called STOP!, try to capture that to make it a more permanent structure.

Right now STOP! is a presidential initiative, it could go away at the end of this administration. Obviously, intellectual property protection won't be solved by then. We think there needs to be a permanent structure to maintain that and we made a recommendation in that direction.

We also made a number of recommendations to the U.S. agencies in terms of their attention to intellectual property in trying to find the right balance between this particular function, which is often called the legacy function.

For example, in the Department of Homeland Security, trying to use the existing resources better to more -- to focus better their efforts on the kinds of things that can generate intellectual property seizures, because even with the existing resources we believe that seizures and penalties and prosecution afterwards, can be a more effective deterrent to that crime than they are right now. And we have a number of specific recommendations in those areas.

REP. LEE: Is that in your statement?

MR. YAGER: Yes, and we also cite a number of reports that we have done within the last year that has those -- that have those recommendation.

REP. LEE: Seizures and penalties?

MR. YAGER: That's correct.

REP. LEE: Thank you.

MR. SMITH: I think our position is that with respect to foreign piracies, opposed to customs and what happens here, there are ways to more effectively use the existing trade mechanisms that are in our current law. And I wanted to mention that, and then mention something about legislation.

REP. LEE: Or do you just want to briefly instruct us to how to be more effective in using --

MR. SMITH: Yes, I mean, I think there are programs and unilateral trade program that can be removed from countries that do not adequately protect our intellectual property. That authority has tended in the last years not to be used, and I think lacks credibility now with our trading partners in --

REP. LEE: You mean you need to do diligence and act up on that --


REP. LEE: -- if they are violating those laws they need to suffer through what we already have in place or partly what we have in place which is to stop the relationship.

MR. SMITH: That's right.

REP. LEE: Stop the ability.

MR. SMITH: The -- also in addition there are trade agreements with countries that aren't WTO members that could be used effectively. There are dispute settlement processes in the free trade agreements, which are available to be used as leverage to get countries. Now we haven't needed to do that yet, but at some point we will need to do that.

Those are tools that we have that will leverage improvements. But I also think that there are things that can be done in the legislative area that may increase the credibility of this process and leverage improvements both in the Special 301 area, I think, for example, we would like to see more and stronger representation of the IP industries in the White House.

We would like to see perhaps changes in Special 301 that tighten up the timetables, tighten up the way USTR does that business.

We have some ideas there. But all of these things ultimately end up with the -- there are no quick fixes which Ranking Member Coble mentioned at the beginning of this hearing, there are no quick fixes this is a long slog and a continuing push to make countries aware that it is in their interest to protect our intellectual property.

All these tools help get you to that place and that's where you need to get.

REP. LEE: And that's probably where we have not acted particular in Russia and China, but Ms. Espinel, I'll allow you to refute what I have just said by in addition to your answer that I hope that you repeat also this intellectual privacy, strengthening that you would like, what is the record of the trade office in the White House on denying access to the United States based on bad actors in terms of intellectual property violation. What's your record, what are the last five that you've denied that access?

MS. ESPINEL: In terms of the denied market access is one of the things that we have been discussing today is that for example, using the Special 301 process to impose unilateral sanctions.

Our ability to do that is now somewhat restricted by the fact that most of our trading partners including China are members of the WTO, and so we are not in a position where we can, for example, impose unilateral sanctions to block access consistent with our WTO obligations. With that said --

REP. LEE: Have you gone to the WTO? What's your current status in the WTO in terms of challenging those who have violated the -- our agreements, what are the countries?

MS. ESPINEL: Exactly, that said, we do have rights at the WTO, so while the WTO membership may have restricted in some ways our abilities under Special 301, membership in the WTO has also given us certain rights against countries including China.

And we have exercised those rights at the WTO. We have recently filed two different cases against China at the WTO.

REP. LEE: Are they broad cases? Meaning coming --

MS. ESPINEL: They are -- yes, they impact IP enforcement and protection that is the first case. And then there is a second case which goes after certain market access restrictions that China places on copyright products.

While that is not a intellectual property case per se the restrictions that China have, do have the impact of restricting our copyrights industry's ability to access the Chinese market, and as an ancillary effect to that they create an enormous vacuum for legitimate product, and therefore an incentive to pirates.

So we believe that China needs to get rid of those market access restrictions both, so that our products can enter the Chinese market, but also to remove an enormous incentive to pirate, and we think that will be helpful in improving the enforcement situation in China.

In terms of -- I also want to comment on Special 301. We do feel that it's a very effective process, countries do pay attention to this daily, and the list, it has been successful in getting countries institute reforms, but we are always looking at ways that we can improve the tools that we have.

And in fact, last year, USTR launched something that we call the Special 301 initiative where we were looking at about -- looking to see how we could better focus our resources, and we selected a group of countries where we felt increased engagement under Special 301 will lead to progress, and that has, in fact, been successful.

We've seen some concrete results come out of that, and we are planning to continue that initiative this year.

In terms of legislative fixes, I think we would look more at the international side of things. And where we see a gap in international rules to protect intellectual property is in areas where we are facing new challenges that have risen in the last 10 years.

And two, I would point to and particularly our Internet piracy, and the fact that counterfeiting and pirating has become a much more sophisticated global criminal enterprise than it was 10 years ago.

REP. LEE: The first one was Internet piracy --

MS. ESPINEL: Internet piracy.

REP. LEE: What's the second?

MS. ESPINEL: The sophistication of counterfeiters, the fact that counterfeiters are not at this point just servicing a domestic market, but are manufacturing and then distributing their products all across the world in very sophisticated ways.

Though we feel that we need a new set of international rules, a new consensus on how to fight those rules, if we are going to be able to effectively addresses that. USTR has some ideas in that regard and that's something that we are working on actively with our trading partners.

REP. LEE: Thank you, Mr. Chairman.


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