S. HRG.

110561

PROTECTING CONSUMERS BY PROTECTING

INTELLECTUAL PROPERTY

HEARING
BEFORE THE

COMMITTEE ON THE JUDICIARY

UNITED STATES SENATE
ONE HUNDRED TENTH CONGRESS
SECOND SESSION

JUNE 17, 2008

Serial No. J110100

Printed for the use of the Committee on the Judiciary

U.S. GOVERNMENT PRINTING OFFICE

WASHINGTON

43659 PDF

2008

For sale by the Superintendent of Documents, U.S. Government Printing Office

Internet: bookstore.gpo.gov Phone: toll free (866) 5121800; DC area (202) 5121800
Fax: (202) 5122104 Mail: Stop IDCC, Washington, DC 204020001

VerDate Aug 31 2005

12:52 Oct 27, 2008

Jkt 043659

PO 00000

Frm 00001

Fmt 5011

Sfmt 5011

S:\GPO\HEARINGS\43659.TXT

SJUD1

PsN: CMORC

COMMITTEE ON THE JUDICIARY

PATRICK J. LEAHY, Vermont, Chairman
EDWARD M. KENNEDY, Massachusetts
ARLEN SPECTER, Pennsylvania
JOSEPH R. BIDEN, JR., Delaware
ORRIN G. HATCH, Utah
HERB KOHL, Wisconsin
CHARLES E. GRASSLEY, Iowa
DIANNE FEINSTEIN, California
JON KYL, Arizona
RUSSELL D. FEINGOLD, Wisconsin
JEFF SESSIONS, Alabama
CHARLES E. SCHUMER, New York
LINDSEY O. GRAHAM, South Carolina
RICHARD J. DURBIN, Illinois
JOHN CORNYN, Texas
BENJAMIN L. CARDIN, Maryland
SAM BROWNBACK, Kansas
SHELDON WHITEHOUSE, Rhode Island
TOM COBURN, Oklahoma
BRUCE A. COHEN, Chief Counsel and Staff Director
STEPHANIE A. MIDDLETON, Republican Staff Director
NICHOLAS A. ROSSI, Republican Chief Counsel

(II)

VerDate Aug 31 2005

12:52 Oct 27, 2008

Jkt 043659

PO 00000

Frm 00002

Fmt 5904

Sfmt 5904

S:\GPO\HEARINGS\43659.TXT

SJUD1

PsN: CMORC

CONTENTS
STATEMENTS OF COMMITTEE MEMBERS
Page

Hatch, Hon. Orrin G., a U.S. Senator from the State of Utah ............................
Leahy, Hon. Patrick J., a U.S. Senator from the State of Vermont ....................
prepared statement ..........................................................................................
Whitehouse, Hon. Sheldon, a U.S. Senator from the State of Rhode Island ......

3
1
30
4

WITNESSES
Monks, Brian H., Vice President, Anti-Counterfeiting Operations, Underwriters Laboratories Inc., Melville, New York ...................................................
Rose, Mike, Vice President, Supply Chain Technology, Johnson & Johnson,
Fountainville, Pennsylvania ................................................................................
Thurnau, Jeffrey, Patent Counsel, Gates Corporation, Denver, Colorado ..........
Yager, Loren, Director, International Affairs and Trade, Government Accountability Office, Washington, D.C. .........................................................................

7
9
11
5

QUESTIONS AND ANSWERS

Responses of Brian Monks to questions submitted by Senator Leahy ................
Responses of Michael P. Rose to questions submitted by Senator Leahy ...........
Responses of Jeffrey Thurnau to questions submitted by Senator Leahy ..........

21
23
26

SUBMISSIONS FOR THE RECORD

Monks, Brian H., Vice President, Anti-Counterfeiting Operations, Underwriters Laboratories Inc., Melville, New York, statement ...............................
Partnership for Safe Medicines, statement and attachment ...............................
Rose, Mike, Vice President, Supply Chain Technology, Johnson & Johnson,
Fountainville, Pennsylvania, statement .............................................................
Thurnau, Jeffrey, Patent Counsel, Gates Corporation, Denver, Colorado,
statement ..............................................................................................................
Yager, Loren, Director, International Affairs and Trade, Government Accountability Office, Washington, D.C., statement ......................................................

32
36
38
42
49

(III)

VerDate Aug 31 2005

12:52 Oct 27, 2008

Jkt 043659

PO 00000

Frm 00003

Fmt 5904

Sfmt 5904

S:\GPO\HEARINGS\43659.TXT

SJUD1

PsN: CMORC

VerDate Aug 31 2005

12:52 Oct 27, 2008

Jkt 043659

PO 00000

Frm 00004

Fmt 5904

Sfmt 5904

S:\GPO\HEARINGS\43659.TXT

SJUD1

PsN: CMORC

PROTECTING CONSUMERS BY PROTECTING

INTELLECTUAL PROPERTY
TUESDAY, JUNE 17, 2008

U.S. SENATE,
JUDICIARY,
Washington, D.C.
The Committee met, Pursuant to notice, at 10:06 a.m., in room
SD226, Dirksen Senate Office Building, Hon. Patrick J. Leahy,
Chairman of the Committee, presiding.
Present: Senators Leahy, Cardin, Whitehouse, and Hatch.
COMMITTEE

ON THE

OPENING STATEMENT OF HON. PATRICK J. LEAHY, A U.S.

SENATOR FROM THE STATE OF VERMONT

Chairman LEAHY. Good morning. I should note that we are going

to be talking about intellectual property. It is nice to have Senator
Hatch of Utah here with me. During a number of years, part of the
time he was Chairman, part of the time I was Chairman, we put
together bipartisan coalitions on intellectual property issues. It
turned out to be a pretty effective partnership, so, Senator Hatch,
I am delighted you are here.
I do not think there is dispute that our Nation is in economic and
political turmoil. Gas prices have exceeded our worst fears, especially those of us who live in rural areas, as I do. They are continuing to rise. They highlight the entrenched power of overseas oil
suppliers. Subprime mortgages have devastated many of our homeowners, and they have revealed serious flaws in our lending systems. Just reading the press again today, you discover more and
more of this. Health insurance is still only a distant dream for millions of Americans in the wealthiest Nation on Earth. The costs in
lives and dollars of the Iraq war mount higher by the day. We are
deep into a Presidential election year, so the debate on these issues
will only intensify as summer turns to fall and as politics becomes
even more intense.
But today the Committee is going to address a significant economic issue confronting our Nation, which actually should have no
partisan flavor whatsoever.
Intellectual property, and the creativity and innovation it represents, that is really the fuel in the engine of our economy. For
the United States to maintain its position as the worlds economic
leader, we have to focus on protecting its industries intellectual
property. In a year like this, partisan legislation is impossible; even
bipartisan legislation is unlikely. It is only truly non-partisan legislation that presents an opening for progress, and I want to give intellectual property enforcement legislation that kind of a chance.
(1)

VerDate Aug 31 2005

12:52 Oct 27, 2008

Jkt 043659

PO 00000

Frm 00005

Fmt 6633

Sfmt 6633

S:\GPO\HEARINGS\43659.TXT

SJUD1

PsN: CMORC

2
The piracy and counterfeiting of intellectual property has
reached unprecedented levels in recent years. This theft costs the
American economy at least $200 billion and results in the loss of
750,000 jobs per year. Just think of that. Stealing and counterfeiting of intellectual property costs the American economy at least
$200 billion and loses 750,000 jobs per year. Think how much we
could use those jobs. While this theft alone is unacceptable, it is
not the only cost incurred by piracy and counterfeiting. You only
have to look at reports of poisoned counterfeit toothpaste or dangerous counterfeit automobile parts that are entering U.S. markets.
Think about that if you have had your brakes repaired. Were they
counterfeit? Think of that when you suddenly need them in an
emergency. These things are sold disproportionately to lower-income Americans. And when you see this and you see the fact that
peoples lives are at stake, you understand how important the enforcement of our IP laws is to protect the health and safety of the
American people.
Now, we have representatives of pharmaceutical, automotive,
and product safety industries here today who can attest to these
dangers, but also to the vast resources they have to expend not to
create new products but to protect American consumers from the
dangers of these counterfeit products. I would like to see, and I suspect every one of them would like to be able to use that money for
research and development of new products.
Our other witness today is from the Government Accountability
Office. I have been troubled by reports from the GAO that have
shown the ineffectiveness of the current enforcement strategies
being employed by the Federal Government. The lack of coordination among the Federal agencies responsible for IP enforcement
seems to be one of the biggest hurdles we face. I want to hear what
other roadblocks are preventing effective IP enforcement.
I have worked for years, as has Senator Hatch, to strengthen our
existing laws and give our law enforcement agents the necessary
tools to combat infringement. Other Members of Congress have
been active this session in offering legislation to strengthen the enforcement of IP laws. Even the Chinese Government, which allows
some of the most rampant theft of intellectual property in the
world, has suddenly begun to realize the value and the importance
of IP enforcement now that their own intellectual property has
been threatened, and they have begun to crack down on infringement of their Olympic copyrights. So it is not ever too late for the
sinner to come to the church, but I thought I would never see the
day.
Justice Kennedy reminded us in his opinion for the Supreme
Court in the case of Boumediene v. Bush last week that the only
mention of the term right in the Constitution, as ratified, is in its
clause giving Congress the power to protect the rights of authors
and inventors, referring, of course, to Article I, Section 8 of the
Constitution. These rights in intellectual property have been fundamental to Americans since our founding and have never been more
important than they are today. Enforcement and protection of
these rights is too important to be addressed piecemeal. I think we
have to examine enforcement efforts from the top down and the
bottom up. I hope that those testifying today can help us on that.

VerDate Aug 31 2005

12:52 Oct 27, 2008

Jkt 043659

PO 00000

Frm 00006

Fmt 6633

Sfmt 6633

S:\GPO\HEARINGS\43659.TXT

SJUD1

PsN: CMORC

3
Orrin, if you would just allow me to tell just a quick story, we
have a manufacturer, actually one of the preeminent in the world,
of snowboards, Burton Snowboards, in Vermont. I remember getting on an airplane years ago in Chicago with Jake Burton, and the
two of us were squeezed back in the cheap seats, way in the back
of this airplane.
And we are both fairly good size guys. And Jake said, See that
guy going up there into first class? I said, Yes.
He said, You know, he represents a Chinese company that stole
our design for ski boots that we spent hundreds of thousands of
dollars to design for the safety and everything else. He can afford
to fly first class because it does not cost him anything to steal the
design and use it. We had to pay to develop it.
That has always stuck in my mind.
[The prepared statement of Senator Leahy appears as a submission for the record.]
Senator Hatch?
STATEMENT OF HON. ORRIN G. HATCH, A U.S. SENATOR FROM
THE STATE OF UTAH

Senator HATCH. Well, thank you, Mr. Chairman, for the opportunity to say a few words this morning on the enforcement of intellectual property rights. I regret I have to go to another meeting in
the Leaders office and will not be able to stay for much of the
hearing. But we are paying strict attention to what you have to
say.
The protection and the enforcement of intellectual property
rights are crucial components that foster ingenuity and innovation,
which in turn drive our economy. Without meaningful intellectual
property rights protection, our artists, our innovators, our entrepreneurs, and workers will all suffer. But we should be mindful
that abuse of IP rights is not just about downloaded music, pirated
software, or fake designer handbags. All sectors of our economy are
affected because of this, including pharmaceuticals, auto parts, and
the quality and safety of our food, and so many other things.
Indeed, robust IP protection promotes the health and safety of
every American person. Far too often, enforcement of these rights
has not been as strong a priority as it should be. As a result, we
have an environment in which the IP rights of others are treated
casually or without any regard. This pervasive nonchalance stems
not only from inadequate enforcement but also because of an inadequate education about the law.
For example, some believe that if it is on the Internet, it is free.
Well, our Nation must take the lead in this endeavor, but everyone
here already knows that this is a global problem, and the solution
will require a commitment not only to beef up domestic enforcement, but it will also require a concentrated governmentwide effort
to prevent intellectual property rights abuse.
Furthermore, I believe any meaningful solution will need to take
an integrated approach with both domestic and international
prongs which incorporate educational, judicial, and enforcement
components to help this insidious attack on our intellectual property.

VerDate Aug 31 2005

12:52 Oct 27, 2008

Jkt 043659

PO 00000

Frm 00007

Fmt 6633

Sfmt 6633

S:\GPO\HEARINGS\43659.TXT

SJUD1

PsN: CMORC

4
In order to accomplish this task, all stakeholders must cooperate
and work in an integrated fashion with State, Federal, and international governments. In the Senate, we face the challenge of
working with multiple committees that have jurisdiction over various aspects of the integrated approach I just outlined. Coordinating efforts may take extra time, but doing nothing seems to me
to not be an option.
As technology advances and becomes more sophisticated, so does
the enemy. As many of you already know, I am working on legislation in the Finance Committee that will provide our Government
with the tools necessary to combat this very real and growing
threat to our economy. And although I am not prepared to discuss
the particulars of my legislative approach today, I hope upon introduction to work closely with this respective Committee to enact a
comprehensive and well-balanced bill that will protect both the creators and the consumers of intellectual property.
This is an important hearing. These are important issues. We
take a tremendous interest in them. I have particularly enjoyed
working with Senator Leahy over the years and others on this
Committee, but particularly Senator Leahy, on intellectual property issues. And we have consistently been able to get together in
the best interests of our country, and for that I am very grateful
to him.
And I am grateful to have all of you here today for the wisdom
that you can provide to us in helping us to understand these issues
better.
Thank you, Mr. Chairman.
Chairman LEAHY. Thank you very much.
Did you want to say anything, Senator Whitehouse, or we will
just go right to the witnesses?
STATEMENT OF HON. SHELDON WHITEHOUSE, A U.S. SENATOR
FROM THE STATE OF RHODE ISLAND

Senator WHITEHOUSE. I will have to go to the floor during the

course of this hearing, so if I get up and leave, it is not because
of anything anybody said. I am very interested in this hearing. I
appreciate very much that the Chairman has held it. And when the
time comes for questions, I would be particularly interested in the
extent to which the cyber attack that the country is sustaining relates to efforts to steal intellectual property and take advantage of
it in foreign countries.
Thank you, Chairman.
Chairman LEAHY. Thank you.
Shortly after the signing of the peace agreement between Egypt
and Israel, Anwar Sadat, the President of Egypt, and Menachem
Begin, the Prime Minister of Israel, camethat famous photo of
the signing ceremony at the White House. They came up onto the
Hill. We met separately with them in big receptions and a luncheon. When Prime Minister Begin was speaking, he started off with
remarks that were a little bit critical of something that the Egyptians had done, and three Senators got up and walked out. He did
not realize that the lights had gone off and that we had votes.
He looked a little bit nervous, and he said, However, I must say
this about President Sadat. And it was very favorable. Then it

VerDate Aug 31 2005

12:52 Oct 27, 2008

Jkt 043659

PO 00000

Frm 00008

Fmt 6633

Sfmt 6633

S:\GPO\HEARINGS\43659.TXT

SJUD1

PsN: CMORC

5
goes on a while longer, and he says something else, and three more
get up. The poor man is getting very, very nervous until Frank
Church, who was then the Chairman of the Foreign Relations Committee, whispers to him what is going on. He said, Oh. Of course,
as Prime Minister, I am also a member of Knesset, the parliament,
and I understand. Things went along a lot better. So we do explain to witnesses if we leave, it is not because of what you said.
Dr. Loren Yager is the Director of International Affairs and
Trade at the U.S. Government Accountability Office. It is a position
he has held since 2000. He has been at GAO since 1998. He previously directed the Office of the Chief Economist. Prior to his work
with the GAO, Dr. Yager was an economic analyst with the Rand
Corporation studying high-technology trade issues. He has completed several reports on Government agencies involved in intellectual property protection. He has offered congressional testimony on
a variety of topics, including China import remedies and container
security.
Dr. Yager, you are always welcome on Capitol Hill.
Please go ahead, sir.
STATEMENT OF LOREN YAGER, DIRECTOR, INTERNATIONAL
AFFAIRS AND TRADE, GOVERNMENT ACCOUNTABILITY OFFICE, WASHINGTON, D.C.

Mr. YAGER. Thank you very much, Mr. Chairman. Good morning,
Mr. Chairman and members of the Committee. Thank you for the
opportunity to discuss our work on U.S. efforts to protect and enforce intellectual property rights.
As you mentioned in your opening statement, the illegal importation and distribution of counterfeit and pirated goods poses a
threat to the health and safety of U.S. citizens, as well as enormous costs to the U.S. economy.
However, the challenges involved in IP protection are also significant and include the technological advances that facilitate piracy as
well as the need for effective coordination among a wide range of
policy and law enforcement agencies.
In my summary today, I will address two topics: first, the need
for greater leadership and permanence in our national IP enforcement structure and strategy; and, second, the need for key agencies
to improve their data collection and analysis on issues related to
IP enforcement.
My remarks are based on numerous assignments that GAO has
conducted on intellectual property protection over the past 5 years
and, most recently, a report issued to Senator Voinovich regarding
U.S. agencies enforcement efforts.
Let me first talk about the leadership issue. The current U.S.
Government coordinating structure that has evolved for protecting
and enforcing U.S. intellectual property rights lacks permanence,
presenting challenges for effective and viable coordination over the
long run. At present, we have a combination of leadership mechanisms.
The National Intellectual Property Law Enforcement Coordination Council, called NIPLECC, is responsible for coordinating IP
protection and enforcement across multiple agencies. And the
White Houses Strategy for Targeting Organized Piracy, called

VerDate Aug 31 2005

12:52 Oct 27, 2008

Jkt 043659

PO 00000

Frm 00009

Fmt 6633

Sfmt 6633

S:\GPO\HEARINGS\43659.TXT

SJUD1

PsN: CMORC

6
STOP, is the strategy that guides this council. NIPLECC has struggled to define its purpose and retains an image of inactivity within
the private sector. It continues to have leadership problems despite
enhancements made by Congress in December of 2004 to strengthen its role.
From the beginning of NIPLECC in 1999, Congresss goal has
been to institutionalize law enforcement coordination. But our work
suggests this goal has not yet been met. In contrast, STOP has a
positive image but lacks permanence, and the momentum that it
helped create could disappear after the current administration.
We have recommended that the IP coordinator and the STOP
agencies clarify the relationship between the council and the White
House strategy, but also recognize that some of the legislative proposals under consideration by the Congress call for more fundamental changes in this relationship.
Let me now briefly summarize the second issue, the potential for
improvement in agencies data collection and analysis on IP enforcement.
Federal IP enforcement functions include seizures, investigations, and prosecutions, and while IP enforcement is generally not
the highest priority for agencies such as the Department of Justice,
Department of Homeland Security, or Health and Human Services,
addressing IP crimes with a public health and safety risk has become an important enforcement activity at each of those agencies.
Our report also provides some good news in that Federal IP enforcement actions generally increased during the years 2001
through 2006. Given the importance of this issue, there are some
ways that the agencies can improve their data and analysis to enable Congress and others to better assess agency achievements. Let
me give just a few examples.
Despite the fact that many agencies identified IP related to
health and safety as a priority, we found that some agencies lacked
the data to report or to analyze their efforts to address these types
of crimes. We also found a few field offices were driving a huge
share of some of the agencies overall enforcement activity. But
agencies had not always considered the implications of these patterns.
Most agencies had not established IP performance measures or
targets to assess their achievements, making it more difficult for
the Congress and for agency managers to make informed resource
decisions and assess whether they are achieving their enforcement
objectives. And, finally, the IPR Center was created with the mission to collect, analyze, and disseminate information about IPR enforcement. But the center has never achieved those goals.
We made a number of recommendations to the agencies regarding improvements, and these were similar to earlier recommendations made to the IP coordinator to improve accountability measures. We continue to work with the agencies in terms of their response to those recommendations.
Mr. Chairman, as you noted in your opening statement, a number of legislative proposals are before the Congress that would
modify the Federal IP enforcement structure. As the Committee
continues to consider this issue and these proposals, we would be

VerDate Aug 31 2005

12:52 Oct 27, 2008

Jkt 043659

PO 00000

Frm 00010

Fmt 6633

Sfmt 6633

S:\GPO\HEARINGS\43659.TXT

SJUD1

PsN: CMORC

7
happy to provide additional information where we believe the proposals address the weaknesses that our work has identified.
Mr. Chairman, this concludes my prepared remarks, and I would
be happy to answer any questions that you or other members of the
Committee have.
[The prepared statement of Mr. Yager appears as a submission
for the record.]
Chairman LEAHY. Thank you.
I would mention that Dr. Yager is very familiar with Capitol
Hill. He ended within the time.
What I am going to do is have each witness testify, and then we
will ask questions.
Brian Monks is the Vice President of Anti-Counterfeiting Operations at Underwriters Laboratories, something that is more than
a full-time job, I am sure.
Underwriters, of course, is a nonprofit company that certifies
public safety. In his role at UL, Mr. Monks works closely with the
Bureau of Customs and Border Protection, the FBI, Interpol, as
well as other international law enforcement agencies to identify
and seize products bearing counterfeit UL marks. He has written
numerous articles in industry journals, frequently addresses anticounterfeiting conferences around the world. He is also a member
of several anti-counterfeiting organizations, including the International Anti-Counterfeiting Coalition, where he is an executive
board member.
Mr. Monks, thank you for coming, and please go ahead, sir.
STATEMENT OF BRIAN H. MONKS, VICE PRESIDENT, ANTICOUNTERFEITING OPERATIONS, UNDERWRITERS LABORATORIES INC., MELVILLE, NEW YORK

Mr. MONKS. Chairman Leahy, distinguished members, thank you

for this opportunity for Underwriters Laboratories to appear before
you today. I am pleased to provide ULs perspective on our work
to keep counterfeit products out of the marketplace.
Counterfeiting is a serious threat to our economy and to the safety of U.S. consumers. A variety of counterfeit products enter the
stream of commerce every day, many posing unsuspectingly serious
fire and electrical hazards that endanger the American public.
For 114 years, UL has built a reputation on the integrity of the
UL mark and what it represents to consumers. The UL mission is
the protection of human life and property from product risks and
hazards. In 2007, an estimated 21 billion products entered the
global marketplace carrying the UL mark. To put this in perspective, the average American consumers home contains 120 products
bearing the UL mark. Everything in this room today you touched
electrically probably has a UL mark on it.
Like other brand leaders, the UL mark is being counterfeited
leaving consumers with a false sense of security about the safety
of the products they purchase. To minimize this risk, UL maintains
a zero tolerance policy, working aggressively with law enforcement
to seize product and to prosecute counterfeiters.
There can be no doubt about the correlation between counterfeiting and product safety. Counterfeiters do not discriminate in
their selection of products. They care about profit. In 2007 alone,

VerDate Aug 31 2005

12:52 Oct 27, 2008

Jkt 043659

PO 00000

Frm 00011

Fmt 6633

Sfmt 6633

S:\GPO\HEARINGS\43659.TXT

SJUD1

PsN: CMORC

8
UL issued warnings about fire extinguishers, smoke alarms, extension cords, holiday lights, lamps, power strips, and surge protectors
bearing counterfeit UL certification marks. Penetration of product
and certification mark counterfeiting in electrical and fire protection categories increase the risk of fire, shock, and other hazards
to American consumers, their homes, and their workplaces.
Common household extension cords can typically be purchased
for under a dollar at discount stores nationwide. They are often
targeted by counterfeiters. Producing them requires basically copper and plastic. To maximize their profit, counterfeiters use extra
plastic and reduce the amount of copper. Reducing the amount of
copper means that when the electrical current is appliedfor example, plugging in a hair dryerthese products can overheat, melt,
and catch fire.
In 2007, Customs and Border Protection made over 150 seizures
of products bearing counterfeit UL marks. When examined, many
of these products posed an unacceptable risk to the public.
Even more disturbing is the recent appearance of counterfeit
marks on fire safety devices, such as smoke detectors, heat detectors, sprinkle heads, and fire extinguishers. Senator, these devices
are designed to save your life in case of a fire.
Aggressive, proactive measures need to be taken to prevent the
entrance of these products into the marketplace. They need to be
stopped before a failure becomes another fatality statistic. We cannot overstate the importance of enforcement authorities and lawmakers working together with the private sector to combat these
criminal activities. For over a decade, UL has worked closely with
the Department of Justice, the Federal Bureau of Investigation,
and other enforcement agencies to identify and seize products bearing counterfeit UL marks and to prosecute offenders to the fullest
extent of the law.
ULs goal is to continue working with enforcement agencies to
prevent these products from ever reaching the hands of the consumer. Ultimately, UL hopes that increased enforcement will deter
counterfeiters. In 2006, the U.S. Attorneys Office of the Southern
District of Florida announced that two defendants found guilty of
trafficking in a range of products, including extension cords bearing
counterfeit marks, were each sentenced to more than 7 years in
Federal prison. The rights holders worked in partnership with Government to assist in successful prosecution, sending a message that
counterfeiters that compromise the safety of American citizens will
be pursued and punished.
As these examples show, some success has been achieved in combating the serious and growing threat of product counterfeiting.
There is more to be done. Additional resources are necessary in
order to continue this positive track record. We believe that additional staffing and resources for the DOJ and FBI that are dedicated solely to combating IP crimes would be a step in the right
direction. This means things like dedicated FBI agents for existing
or new Computer Hacking and Intellectual Property units; it
means additional Assistant U.S. Attorneys dedicated to the prosecution of IP cases; and it means staffing available for the formation of ad hoc task forces that can be mobilized quickly to address
short-term situations and threats to combat these dangers. These

VerDate Aug 31 2005

12:52 Oct 27, 2008

Jkt 043659

PO 00000

Frm 00012

Fmt 6633

Sfmt 6633

S:\GPO\HEARINGS\43659.TXT

SJUD1

PsN: CMORC

9
ad hoc task forces have proven effective in New York, Newark, and
recently Los Angeles, where the combined effort of Federal and
local authorities were able to take down large-scale counterfeiting
operations.
Let me leave you with a parting thought. Last Friday, Federal
authorities seized $1.5 million in counterfeit circuit breakers. Circuit breakers are found in our home electrical panels and protect
against electrical current overloading and fire. Had they not been
seized, these breakers could have ended up in our homes. Senator,
one shipping container holds 186,000 circuit breakers. To put that
in perspective, that is the potential of 186,000 house fires.
Thank you very much.
[The prepared statement of Mr. Monks appears as a submission
for the record.]
Chairman LEAHY. Thank you, Mr. Monks. We will get back to
questions in a moment, but thank you for emphasizing two things:
One, that counterfeiting is not just stealing money; it could cost
you your life. You can go out and buy a product that you think is
very reputablemy wife and I always look for the UL mark on
electrical things we buybut it could cost you your life. And, second, I like the emphasis you put on prosecution. As a former prosecutor myself, I think sometimesI probably expect the finest motives of people, but sometimes the thought that the jail door may
clang shut with them behind the door, that sometimes motivates
them to be even more conscientious about following the law.
Mike Rose is the Vice President of Supply Chain Technology at
Johnson & Johnson. He has been with them for over 30 years in
a variety of positions within the company, including Chief Information Officer. Mr. Rose works with several industry associations on
supply chain issues, including the Pharmaceutical Research and
Manufacturers of Americas Supply Chain Work Group. He is cochair of the Health Care Distribution Management Association Industry Relations Council.
Mr. Rose, thank you very much for coming here. Please go ahead,
sir.
STATEMENT OF MIKE ROSE, VICE PRESIDENT, SUPPLY CHAIN
TECHNOLOGY, JOHNSON & JOHNSON, FOUNTAINVILLE,
PENNSYLVANIA

Mr. ROSE. Thank you, Mr. Chairman.

Mr. Chairman, on behalf of the nearly 120,000 employees of the
Johnson & Johnson family of companies, thank you for the opportunity to speak here today.
Violation of intellectual property through counterfeit health care
products presents a significant risk to patients and consumers. Mr.
Chairman, there are three points I would like to underscore this
morning.
First, we believe that there should be one national standard for
ensuring the integrity of the health care products supply chain.
Second, coordination among the various governmental agencies
and industries involved in combating counterfeiting, as well as aggressive enforcement of existing laws, is essential.

VerDate Aug 31 2005

12:52 Oct 27, 2008

Jkt 043659

PO 00000

Frm 00013

Fmt 6633

Sfmt 6633

S:\GPO\HEARINGS\43659.TXT

SJUD1

PsN: CMORC

10
Third, we must acknowledge that the lack of international enforcement of intellectual property laws allows counterfeiters to
thrive.
According to the FDA, while the United States pharmaceutical
supply chain is one of the safest in the world, counterfeiting of
health care products is a growing concern. The World Health Organization estimates that 8 to 10 percent of pharmaceutical products
outside the United States are counterfeit. In some countries, counterfeit products may represent 50 percent of medicines.
The Internet is fast becoming the marketplace of choice for counterfeiters where counterfeit pharmaceutical, consumer products,
and medical devices can be purchased from unregulated Internet
sites. Counterfeiters can easily sell their products via website and
distribute them to unsuspecting U.S. consumers. This problem is so
widespread that, according to the Pharmaceutical Security Institute, seizures of bogus prescription medicines jumped 24 percent to
1,513 incidents in 2007, and illicit versions of 403 different prescription drugs were confiscated in 99 countries.
Another avenue for counterfeiters is diversion, which refers to
merchandise that is distributed into markets other than originally
intended. Diverted products, so-called gray market products, frequently are past dated or expired, have been previously marked for
destruction, have not been properly stored, or are counterfeit.
Counterfeiters show total disregard for the safety of consumers,
patients, doctors, and nurses. They have no regard for intellectual
property rights and take advantage of countries with gaps in intellectual property laws or where enforcement of IP laws is non-existent or lax.
Countries that do not enforce IP laws for products made for export provide counterfeiters a safe haven. The active ingredient can
be manufactured in one country, exported to a second, where the
product is packaged; exported to a third country, where it is labeled
and placed in finished packaging; and exported for final sale.
Both health care manufacturers and Government regulators are
taking action to combat counterfeiting and to protect consumers
and patients. Many health care manufacturers have invested in
measures to tighten the security of supply chains and products.
Here are some examples where manufacturers are focusing their
efforts: monitoring market activities and trading practices; collaborating with Customs and police to investigate suspected cases of
counterfeiting or tampering; working with Government agencies to
ensure trademark and IP laws are enforced and prosecuting infringements; applying overt and covert features to products and
packaging to aid in product identification; and, last, investigating
and piloting track and trace and pedigree systems to communicate
the products chain of custody. These systems are intended to add
greater clarity into where products have been and where they are
moving.
One area of special focus has been a products pedigree, which
documents the chain of custody of a specific product. More than 30
U.S. States have enacted legislation requiring pharmaceutical pedigrees. As a consequence, we have a patchwork quilt of pedigree
laws and regulations that could defeat the purpose of improving
supply chain security.

VerDate Aug 31 2005

12:52 Oct 27, 2008

Jkt 043659

PO 00000

Frm 00014

Fmt 6633

Sfmt 6633

S:\GPO\HEARINGS\43659.TXT

SJUD1

PsN: CMORC

11
We believe legislative efforts should eliminate the complexity of
multiple pedigree laws and implement a simple and potentially effective solutionthe electronic pedigree, otherwise known as
ePedigree.
Making the distributors produce ePedigrees would increase the
effectiveness of law enforcement. The Federal Government can and
should take the lead in establishing a single Federal standard for
electronic pedigree.
We have submitted additional testimony and our recommendations to the Committee. Johnson & Johnson is committed to working with Congress, the FDA, and other Government agencies on
counterfeit challenge and is ready to make our company experts
available to assist with legislative and regulatory efforts.
Thank you for allowing Johnson & Johnson to share our perspective on this critical issue with you today. I am happy to answer
your questions.
[The prepared statement of Mr. Rose appears as a submission for
the record.]
Chairman LEAHY. We will go into those, but also, listening to
your testimony makes me realize, too, that when you have a company like Johnson & Johnson that is a well-recognized name, like
General Motors or something like that in cars. If somebody counterfeits your product and illness or death results from that, the billions of dollars that have been invested to buildup a basic product
name is severely damaged. Is that not correct?
Mr. ROSE. That is correct.
Chairman LEAHY. I saw Mr. Monks shaking his head. The same
would be with UL where an enormous amount of time has been
spent to get into consumers minds that this is a seal of approval,
and there you are.
Jeffrey Thurnau is a patent attorney for the Denver-based Gates
Corporation, where he has worked since 1999. Mr. Thurnau is responsible for assisting the administration of Gates worldwide intellectual property portfolio, including preparation and prosecution of
patent applications, trademark registrations, and licensing. Prior to
joining Gates, Mr. Thurnau was a private attorney representing clients before the American Arbitration Association, the New York
Stock Exchange in various State and Federal courts. He is a founding member of the Motor and Equipment Manufacturing Association Brand Protection Council.
Mr. Thurnau, please go ahead, sir, and thank you for being here.
STATEMENT OF JEFFREY THURNAU, PATENT COUNSEL,
GATES CORPORATION, DENVER, COLORADO

Mr. THURNAU. Chairman Leahy, thanks very much, other distinguished members of the Judiciary Committee, thank you for this
opportunity to testify on Protecting Consumers by Protecting Intellectual Property. Gates is headquartered in Denver, Colorado.
We have 5,000 employees at 25 facilities across America. The motor
vehicle parts suppliers are the Nations largest manufacturing sector, directly employing 783,100 people and contributing to 4.5 million jobs in private industry across the Nation.
Today I am going to focus my comments on the safety implications of counterfeit parts. I will begin with an overview of the coun-

VerDate Aug 31 2005

12:52 Oct 27, 2008

Jkt 043659

PO 00000

Frm 00015

Fmt 6633

Sfmt 6633

S:\GPO\HEARINGS\43659.TXT

SJUD1

PsN: CMORC

12
terfeit challenges facing the auto parts industry, give you an idea
of the issues facing Gates Corporation, and then offer some ideas,
legislative and otherwise, that help move this important legislation
forward.
Counterfeit parts and components for cars, trucks, buses, and
commercial vehicles pose a critical problem to the American economy. Chairman Leahy mentioned the $2 million in annual losses
to counterfeit sales, and in the auto parts industry, approximately
250,000 fewer jobs as a result of counterfeit parts in the marketplace.
Vehicle performance and safety can be severely impacted by
counterfeit products such as brakes, brake pads, timing belts, automotive lighting, and tires. The use of counterfeit parts can result
in sudden, catastrophic engine failure, brake failure, and other system malfunctions.
Trademark and brand infringement is the most immediate problem we face at Gates Corporation. That is because this represents
the easiest method by which pirates can get their products sold in
the marketplace.
Another issue we confront is trade dress infringement.
Trade dress relates to the unique or distinctive appearance of
products or packaging. Often, the consumers are unable to distinguish the difference between the authentic goods and counterfeit
goods and may mistakenly make a purchase of counterfeit products.
We have tested pirate timing belts and find they simply do not
rise to industry standards. As I have said, failure of a timing belt
can lead to catastrophic engine damage. This saddles the consumer
with thousands of dollars in repairs, as well as presenting a significant safety risk when one considers where the failure may occur,
for example, on a busy highway.
Let me give you some other examples. In March 2008, Taiwan
customs contacted Gates with respect to a suspect shipment of
counterfeit timing belts. Gates confirmed that they were counterfeit, and we are in the process of working with Taiwanese officials
to move the case forward.
In November 2006, a Puerto Rican distributor was caught selling
counterfeit timing belts. The supplier was located in China. The
supplier had 600 timing belts in his possession and had been selling them on the Internet.
In October 2006, a Polish distributor was caught selling counterfeit timing belts. Warsaw authorities brought a criminal complaint
against the distributor.
As you can see, a company like Gates faces a myriad of challenges to its intellectual property. I urge you to consider some of
the following ideas to address the range of concerns I have expressed today on behalf of Gates and the Motor Equipment Manufacturers Association.
First, better coordination among executive branch enforcement
agencies. Current legislation provides three options worth looking
at: Senate bill 522, with its OMB-centered Coordinating Committee; next, legislation recently passed in the House creates an IP
czar at the Department of Justice; and last, but certainly not least,
Mr. Chairman, your legislation, S. 2317, which provides for a spe-

VerDate Aug 31 2005

12:52 Oct 27, 2008

Jkt 043659

PO 00000

Frm 00016

Fmt 6633

Sfmt 6633

S:\GPO\HEARINGS\43659.TXT

SJUD1

PsN: CMORC

13
cial unit at the FBI, as well as increased penalties for trafficking
in counterfeit labels.
We also support increased enforcement resources at the Department of Homeland Security and the Department of Justice. This
would be directed toward additional personnel, training, and technology for detecting counterfeit parts at U.S. ports.
Finally, we support increased coordination and cooperation
among U.S. law enforcement agencies and the law enforcement
agencies of like-minded countries so that the IP laws in those countries might be more vigorously enforced.
Mr. Chairman, thanks very much for the opportunity to testify
today. I am glad to take any questions.
[The prepared statement of Mr. Thurnau appears as a submission for the record.]
Chairman LEAHY. Well, thank you, and I think you agree with
me that prosecution alone is not the answer, but it is good to have
some pretty tough teeth if you do catch people and prosecute them.
Mr. THURNAU. Yes.
Chairman LEAHY. Dr. Yager, let me ask you, the National Intellectual Property Law Enforcement Coordination Council,
NIPLECC, as we have said, is an interagency group that is supposed to coordinate U.S. domestic and international IP enforcement
activities. We had the former coordinator of NIPLECC, Chris
Israel, before this Committee several times, and he was doing as
well as he could. But NIPLECC itself is often criticized as being
ineffective. In contrast, we have the Strategy Targeting Organized
Piracy, or STOP. It seems to have done a little bit better in bringing in the Departments of Commerce, Justice, Homeland Security,
State, Food and Drug, Office of the U.S. Trade Representative together.
Has STOP been more effective and why? And if it has been more
effective, how can we make it even more effective than that?
Mr. YAGER. We believe that STOP actually did add quite some
energy and some momentum to the efforts among agencies to work
together to improve IP enforcement. I think there are a couple reasons for that. One, it was a very highly visible effort, not only inside the Government but in terms of outreach to the private sector.
There was also some additional reporting and a little bit more in
terms of accountability features, providing information to the Congress and other stakeholders as to what their goals were, and what
was the purpose. They set some targets for performance. So I think
there were a number of factors that made STOP more effective, including some fairly vigorous support from the White House. So it
being an important effort within the administration gave it some
additional prominence, and, frankly, it got the attention not just internally in the United States but also abroad. So there were some
features about it that made it more effective than its predecessor.
On the other hand, one of the problems with a Presidential initiative is it is certainly possible that that initiative will go away
with the new administration. So one of the points that I made in
my statement and my written report was about the permanence of
this particular entity, because after achieving some momentum
along the lines of the things that I mentioned, as well as, frankly,
some increased prosecutions at Justice. This problem obviously will

VerDate Aug 31 2005

12:52 Oct 27, 2008

Jkt 043659

PO 00000

Frm 00017

Fmt 6633

Sfmt 6633

S:\GPO\HEARINGS\43659.TXT

SJUD1

PsN: CMORC

14
not be solved by the end of this administration, and there needs
to be some discussion about how to make that group and that function more permanent to continue to make some progress on this
difficult subject.
Chairman LEAHY. I wear another hat as Chairman of the Subcommittee that funds all of the State Department and its overseas
operations. I have been pushing very hard to make sure we have
people in our embassies who can work on these issues and train
to.
I should probably ask Mr. Monks, and Mr. Rose and Mr.
Thurnau, has the coordination worked well? It is one thing to have
our agencies coordinate with each other. They are coordinating
with the industry. Mr. Monks?
Mr. MONKS. I think the reach-out is mutual. You know, from private industry we reach out to the Department of Justice, to the Bureau, to ICE, whoever it may be, and educate, talk about the problem how we can work together to combine our resources to get effective enforcement, get effective prosecution. So it is a two-way
street. From ULs vantage point, it has worked on many occasions
where we have had some good prosecutions. We are certainly not
catching all the crooks, but, you know, we are out there pushing
the envelope.
So it has worked. There are some limitations. There is communication problems here and there. But overall we are quite happy
with the outcome.
Chairman LEAHY. Mr. Rose?
Mr. ROSE. We have coordinated with various governmental agencies, and they are very important resources to us. In our industry,
we work very closely with the FDA and also with the group in the
FDA, the Office of Criminal Investigation. They are very important
to us, and they have been great resources, as well as Homeland Security and ICE.
Coordination always is a difficult thing. As we look at counterfeiting, we have to also be cognizant that counterfeiting is occurring outside the U.S.; we need to have better coordination with regulatory agencies, and enforcement agencies overseas.
Chairman LEAHY. Mr. Thurnau?
Mr. THURNAU. Thank you. Let me take that segue in terms of
international efforts. From the Gates Corporations point of view,
our primary issues are offshore, and we have had some success in
dealing with U.S. agencies, but at the moment, we also are trying
to beef up our contacts with other governments, other law enforcement agencies in those governments, so that they are familiar with
us and familiar with the products and the automotive industry
products. So to the extent that U.S. agencies can assist in that coordination effort between U.S. and other governments, it would be
appreciated.
Chairman LEAHY. Well, thank you. And, you know, I would hope
that each one of you would feel free, after you think further on this,
to write to me if you have ideas, concrete things that you feel that
could be done, and write to both myself and Senator Hatch, who
is interested in this. This really is not a partisan issue. It is one
that we all have a stake in. I have a lot of small companies but
very big companies in my own State of Vermont that have inter-

VerDate Aug 31 2005

12:52 Oct 27, 2008

Jkt 043659

PO 00000

Frm 00018

Fmt 6633

Sfmt 6633

S:\GPO\HEARINGS\43659.TXT

SJUD1

PsN: CMORC

15
national work, many in the electronic areas, other types of areas,
and one that does circuit breakers that you have certified, Mr.
Monks, your company has. And they are constantly being faced
with counterfeit products labeled as theirs, and they do not begin
to match the quality of theirs.
Mr. Rose, we just touched on this earlier, but just give us some
idea of what you have to do in your company, a brand that we all
recognize, what you have to do just to protect your brand name
that people are counterfeiting and thinking they are buying a Johnson & Johnson brand. I am sure that what you would say is probably could be said by just about every large corporation in this
country.
Mr. ROSE. I will speak on behalf of the health care industry. I
am sure Mr. Thurnau could comment on the automotive industry
as well.
What we are seeing is a huge investment of resources and time.
If you go back 30 years ago, this was not an issue on anyones
agenda. We were developing products and marketing products.
Now we have added another dimension to our supply chain activities where we have to protect our products. So we invest in various
anti-counterfeiting measures and features for our products, overt
and covert markers, color-shifting inks and holograms. We have invested in time with our trading partners to reassess our agreements, our trade agreements that we have with them. We are monitoring the marketplace as well.
These activities are taking a lot of resources, corporate resources,
that we now have to invest in just to protect products. We manufacture genuine products, and as you rightfully mentioned, the
Johnson & Johnson name is a very important name to protect. Now
we have to invest to protect that name even more than we ever
have in the past.
Chairman LEAHY. It would be more fun to be spending that
money on developing new products, I am sure.
Mr. ROSE. We would all benefit from spending money on new
products. Many of us would benefit from having new medical products.
Chairman LEAHY. I am going to yield to Senator Cardin in just
one moment, but, Mr. Thurnau, when I walked in, I noticed you
had a belt over there, and I am sitting here intrigued. Would you
tell me what that is?
Mr. THURNAU. Absolutely. Thank you. I brought in an authentic
belt and a counterfeit belt and some authentic and counterfeit
packaging as well. And the point is that counterfeiters to a certain
extent have to meet quality standards, as odd as that sounds, because even though it is a point-of-sale issue for the purchase of
counterfeit products, they still have to get past that initial purchase. So often it is very difficult to distinguish between the authentic goods and the counterfeit goods. I am glad to offer these up
for inspection by the Committee.
Chairman LEAHY. Thank you.
Senator Cardin?
Senator CARDIN. Well, Mr. Chairman, thank you very much for
holding this hearing, and I thank our witnesses for their testimony.
The stealing of intellectual property is a very serious problem. It

VerDate Aug 31 2005

12:52 Oct 27, 2008

Jkt 043659

PO 00000

Frm 00019

Fmt 6633

Sfmt 6633

S:\GPO\HEARINGS\43659.TXT

SJUD1

PsN: CMORC

16
is not only an economic loss. It is a fairness issue. It is a safety
issue. And I think you all have pointed that out in your testimony.
And whether we are dealing with pirated goods or we are dealing
with counterfeit products, it is a huge problem.
And there is an attitude issue. I think people in this country do
not realize that when they take a pirated product, it is stealing; or
that when they use software that they get from a friend without
a license, it is stealing. When they look for a product that might
be counterfeit and are not really too concerned about it, it is stealing. And we need to do a much better job on enforcement.
In the last Congress, I served as the ranking Democrat on the
Trade Subcommittee of the House Ways and Means Committee. I
spent a lot of time dealing with intellectual property issues in our
trade agreements. So I just really want to ask the panel a question.
This hearing is primarily focused as to how we can strengthen our
internal enforcement of our intellectual property rights, how we
can help enforce the laws of this country, strengthen the laws.
One could say, Are our laws adequate? That is, is it clear what
is legal and what is not legal? Second, do we have the right enforcement? And we have been talking here and the Chairman has
been very active as to the coordination of so many agencies that
are involved here, whether there should not be a better way to coordinate that, either through a central person or through a better
focus within an agency. And the third is whether we should be
looking at our trade laws in a different light.
I remember discovering in regards to counterfeit products that
other countries that we trade with actually finance the manufacturing operations of counterfeit products. They actually assist in
getting U.S. product to their country, which they analyze, then
they set up manufacturing plants that produce that product in a
counterfeit way for their own economic advantages, which is clearly
something that should never be tolerated by the United States for
a trading partner or any other country. So the question really is:
Do we need to take a new look at our multinational trade agreements or our bilateral trade agreements or our U.S. attitude as to
which countries we will allow access to our country if they are not
enforcing basic intellectual property protections for U.S. manufacturers and producers?
So, yes, we have got to take care of our own domestic laws. We
have to take care of enforcement here. We have got to take care
of our trade laws. And if you could just help me a little bit as to
where we should place our priorities in regards to being the most
effective in preventing the stealing of intellectual property with
American companies and individuals.
Mr. YAGER. If I could answer that, Senator Cardin, I think certainly we will not be successful if our efforts end at the U.S. borders in terms of trying to protect the U.S. from the entry of these
goods.
There is a procedure, there is a special 301 process, which includes a number of the different agencies, and the focus of the special 301 process is for Government to get together with different industry representatives and foreign governments to talk about the
ways that their legislation abroad can be improved. And there also

VerDate Aug 31 2005

12:52 Oct 27, 2008

Jkt 043659

PO 00000

Frm 00020

Fmt 6633

Sfmt 6633

S:\GPO\HEARINGS\43659.TXT

SJUD1

PsN: CMORC

17
has been some discussion about enforcement of those laws within
the special 301 process.
So there is an active process within the Federal Government that
has been relatively successful
Senator CARDIN. The United States has been challenged internationally on its enforcement, and in the latest round, there was
a fear that we might have actually weakened some of our enforcement provisions. We did not get to that point, but it does not seem
like we are winning in the international arena.
Mr. YAGER. There certainly have been some situations where the
special 301 tool has been used against countries like Russia,
Ukraine, and others to exert pressure. In some cases, there has
been stronger legislation written in those countries. I have to say,
though, the real difficulty with working with foreign countries is to
try to convince them to put resources into this effort because, obviously, stopping the production of pirated goods abroad is a very resource-intensive effort, as it is here. And one of the things that we
noticed when we did some travel is if there are groups within the
law enforcement agencies abroad that are serious about seizing
counterfeit goods, they have a storage problem very quickly. There
is just so much counterfeit merchandise in many of these other cities that if the agencies, whether they are police or other, get serious about this, in a matter of days of seizures they have trucks full
of counterfeit goods that they somehow have to try to destroy while
keeping enough evidence to prosecute.
So it is an enormous effort where I believe the U.S. Government
has been somewhat successful in helping them strengthen the
laws, but the enforcement is still a major challenge.
Senator CARDIN. I would point out, if a country wants a trade
agreement with the United States or, as we negotiate the multinational trade agreements, it should be, I think, high on our agenda to deal with how those nations are enforcing protection against
taking of intellectual property. What resources are they putting behind enforcing the laws they have on the books to protect in this
area? And certainlyand this is very true in the auto parts area.
They certainly should not be helping to finance companies in their
own country that are making counterfeit product. And that has
been true of some of our trading partners. You at least want them
to stop encouraging it, and certainly we would like them to enforce
by confiscating counterfeit products and making sure they do not
get into commerce.
Mr. THURNAU. Yes, Senator Cardin, exactly. We agree.
And enforcement in those countries presents a problem, and it is
not entirely clear in all instances that enforcement has taken place,
even when there has been a successful seizure or shutting down of
a pirate operation. It is not uncommon that they simply reopen
someplace down the road and put a different label on, and they are
off and running again.
So there does seem occasionally to be lack of interest on the part
of these governments to follow through with the process, either destruction of the physical plant that was doing the counterfeit operation, incarceration of the individuals who were involved, and it is
a serious problem. We agree.

VerDate Aug 31 2005

12:52 Oct 27, 2008

Jkt 043659

PO 00000

Frm 00021

Fmt 6633

Sfmt 6633

S:\GPO\HEARINGS\43659.TXT

SJUD1

PsN: CMORC

18
Senator CARDIN. I thank the Chairman. I guess my point is, Mr.
Chairman, you are absolutely right to put attention in this hearing
on the jurisdiction of our Committee to enforcement of our IP laws.
We need to do a much better job here in this country. But we also
need our trade representatives to put a higher priority on IP protections on the trade agenda so that you do not have to fight as
hard with other countries as you do only to find when you win
what you think is a battle, they just move down the street and
open up another operation and you really have not gained anything
other than costing a lot of energy and time and resources of your
company.
Thank you, Mr. Chairman.
Chairman LEAHY. Thank you very much, Senator Cardin.
We talked about the cost of the theft of intellectual property. Mr.
Rose, do you know offhand how much your company spends to protect your intellectual property a year?
Mr. ROSE. Mr. Chairman, I do not know the exact number that
we spend to protect our intellectual property. I think it is hard to
estimate because we integrate it into so many parts now of our
company, and we do not look at it as an isolated cost. We can tell
you some numbers. We have seen from the World Health Organization, we understand the economic impact is about $40 billion just
to the pharmaceutical industry alone. And as you know, Johnson
& Johnson is a medical device company, as well as a pharmaceutical company, as well as a consumer products company. So that
is just one estimate for the whole pharmaceutical industry globally,
$40 billion, what it costs us and what the economic impact would
be. What it means specifically for our company, we do not have a
good estimate for that.
Chairman LEAHY. Mr. Monks, do you have any idea?
Mr. MONKS. It is in the several millions of dollars. This is my
full-time job. This job did not exist with this function UL 15 years
ago, so it is relatively new. And it is global in its reach. And I
would just say if we put in, you know, another thousand people
into the job, it still would not be enough. It is growing at an epidemic level. It is in the millions. And it has to be spent because
like Johnson & Johnson and everyone else that is in this room, the
integrity of the UL mark cannot be tarnished, that if people plug
something in, they expect it to be safe. And so we have to put this
asset in place and protect the mark.
Chairman LEAHY. Mr. Thurnau, and I realize that I am jumping
around here a little bit, but we have heard about organized criminal syndicates, especially in Eastern Europe and China, counterfeiting American goods. Has that been your experience? Are they
a major force in all of this?
Mr. THURNAU. It has. We in the past, had instances in Russia,
for example, where the counterfeiting operation, as far as we understand, was based in organized crime. And it presented problems
for the investigators and for the individuals who are dealing with
the counterfeiters. So we have run across that, yes.
Chairman LEAHY. Should we be looking at changes in our RICO
statutes or anything in our criminal laws that we should change?
Or is it simply a case of enforcement and trying to grab people?

VerDate Aug 31 2005

12:52 Oct 27, 2008

Jkt 043659

PO 00000

Frm 00022

Fmt 6633

Sfmt 6633

S:\GPO\HEARINGS\43659.TXT

SJUD1

PsN: CMORC

19
Mr. THURNAU. I think in this case, sir, it is a matter of enforcement, resources being allocated in terms of Federal agents and
prosecutors to, as you say, put people behind bars.
Chairman LEAHY. I realize this is kind of a broad-based question,
but have you found in some of these countries that there is at least
implicit government support, if not direct?
Mr. THURNAU. Yes, but not at the central government levels. It
is usually at the provincial or city levels where the folks who we
are working with may have an interest in the operation itself, so
they have got the bias in favor of seeing that it continued to operate. That has happened, but as I said, not at the central government level, primarily provincial and city.
Chairman LEAHY. You know, I have been following this. I have
had so many briefings, both public briefings and closed-door briefings of this. It is hard to think of any area of crime, and international crime as well as internal crime, that has grown so fast in
this whole area.
Mr. Monks, we try to figure out ways to stop the counterfeiting
of seals, whether it is the UL seal or any other seal. Should we be
doing more in that? Do we need more laws in place? I am happy
to push for laws, but I am also trying, as Iagain, we are not trying to bring everything back to ones own experience as a prosecutor. I recall telling the Vermont Legislature once, when we had
a rash of armed robberies around the State, I said, We need some
help to get that. They said, Well, we will double the penalty. I
said, People do not think they are going to get caught. Doubling
the penalty does not do anything. You need people to go out there
and catch them.
If you wanted to leave me with any last thought, what would it
be?
Mr. MONKS. I think the clang of the jail door is really a deterrent. More police tuned into, trained on IP crime. It is quite possible that police officers walk into a warehouse and seize drugs and
weapons, and then there is a bank of DVR players, and they think
the guy is into hi-fi. But, really, he is counterfeiting movies and
making money.
It is the prosecution of these individuals. You need to create the
laws that makes a deterrent to steal, because counterfeiting right
now is all about stealing, and if I am going to steal and bring a
shipment in of a million dollars and I get caught and the fine is
$25,000, I will play that game every day with you. It is a win-win
for the counterfeiter.
So it is not only prosecution, putting the assets on the ground,
the police officers, the law enforcement, the customs agents, and
taking it to them.
Chairman LEAHY. I think we have to do a better job of letting
people know that people die from some of these things, not just
buying a counterfeit article of clothing. And I am not suggesting in
any way to condone that if somebody has done their own design
and done the work. But if your seat belt does not meet the standards, if your medicine does not meet the standards, if your brake
pad does not meet the standards, you can die.
One of the things that I am glad to seeand I have talked about
this not being a partisan issue. It is also one where labor and busi-

VerDate Aug 31 2005

12:52 Oct 27, 2008

Jkt 043659

PO 00000

Frm 00023

Fmt 6633

Sfmt 6633

S:\GPO\HEARINGS\43659.TXT

SJUD1

PsN: CMORC

20
ness have joined together. I know organized labor has joined industry in promoting stronger intellectual property protection. We have
all got a stake in this. You have got the stake of your reputations.
We have the stake of our lives. We also have the stake of jobs. And
we all know that in todays world, you are going to have international competition anyway. And that is significant. It is a fact of
life. But I would kind of like to have fair competition. Most of the
corporations I have known in this country can keep the rules the
same for everybody. They can compete. You can make tough competition, but they can compete. It is when somebody does not have
to follow the rules where you have a difficult time.
Well, gentlemen, I appreciate your being here. You will get a
copy of the transcript. If you want to add to it, please feel free. But
also know that almost every member of the Committee has about
three different meetings going on today, but we are going to be
talking about this in the Committee. Feel free to add anything you
want to.
We will stand in recess. Thank you.
[Whereupon, at 11:07 a.m., the Committee was adjourned.]
[Questions and answers and submissions for the record follow.]

VerDate Aug 31 2005

12:52 Oct 27, 2008

Jkt 043659

PO 00000

Frm 00024

Fmt 6633

Sfmt 6633

S:\GPO\HEARINGS\43659.TXT

SJUD1

PsN: CMORC

VerDate Aug 31 2005

12:52 Oct 27, 2008

Jkt 043659

PO 00000

Frm 00025

Fmt 6633

Sfmt 6633

S:\GPO\HEARINGS\43659.TXT

SJUD1

PsN: CMORC

43659.001

21

VerDate Aug 31 2005

12:52 Oct 27, 2008

Jkt 043659

PO 00000

Frm 00026

Fmt 6633

Sfmt 6633

S:\GPO\HEARINGS\43659.TXT

SJUD1

PsN: CMORC

43659.002

22

VerDate Aug 31 2005

12:52 Oct 27, 2008

Jkt 043659

PO 00000

Frm 00027

Fmt 6633

Sfmt 6633

S:\GPO\HEARINGS\43659.TXT

SJUD1

PsN: CMORC

43659.003

23

VerDate Aug 31 2005

12:52 Oct 27, 2008

Jkt 043659

PO 00000

Frm 00028

Fmt 6633

Sfmt 6633

S:\GPO\HEARINGS\43659.TXT

SJUD1

PsN: CMORC

43659.004

24

VerDate Aug 31 2005

12:52 Oct 27, 2008

Jkt 043659

PO 00000

Frm 00029

Fmt 6633

Sfmt 6633

S:\GPO\HEARINGS\43659.TXT

SJUD1

PsN: CMORC

43659.005

25

VerDate Aug 31 2005

12:52 Oct 27, 2008

Jkt 043659

PO 00000

Frm 00030

Fmt 6633

Sfmt 6633

S:\GPO\HEARINGS\43659.TXT

SJUD1

PsN: CMORC

43659.006

26

VerDate Aug 31 2005

12:52 Oct 27, 2008

Jkt 043659

PO 00000

Frm 00031

Fmt 6633

Sfmt 6633

S:\GPO\HEARINGS\43659.TXT

SJUD1

PsN: CMORC

43659.007

27

VerDate Aug 31 2005

12:52 Oct 27, 2008

Jkt 043659

PO 00000

Frm 00032

Fmt 6633

Sfmt 6633

S:\GPO\HEARINGS\43659.TXT

SJUD1

PsN: CMORC

43659.008

28

VerDate Aug 31 2005

12:52 Oct 27, 2008

Jkt 043659

PO 00000

Frm 00033

Fmt 6633

Sfmt 6633

S:\GPO\HEARINGS\43659.TXT

SJUD1

PsN: CMORC

43659.009

29

VerDate Aug 31 2005

12:52 Oct 27, 2008

Jkt 043659

PO 00000

Frm 00034

Fmt 6633

Sfmt 6633

S:\GPO\HEARINGS\43659.TXT

SJUD1

PsN: CMORC

43659.010

30

VerDate Aug 31 2005

12:52 Oct 27, 2008

Jkt 043659

PO 00000

Frm 00035

Fmt 6633

Sfmt 6633

S:\GPO\HEARINGS\43659.TXT

SJUD1

PsN: CMORC

43659.011

31

VerDate Aug 31 2005

12:52 Oct 27, 2008

Jkt 043659

PO 00000

Frm 00036

Fmt 6633

Sfmt 6633

S:\GPO\HEARINGS\43659.TXT

SJUD1

PsN: CMORC

43659.012

32

VerDate Aug 31 2005

12:52 Oct 27, 2008

Jkt 043659

PO 00000

Frm 00037

Fmt 6633

Sfmt 6633

S:\GPO\HEARINGS\43659.TXT

SJUD1

PsN: CMORC

43659.013

33

VerDate Aug 31 2005

12:52 Oct 27, 2008

Jkt 043659

PO 00000

Frm 00038

Fmt 6633

Sfmt 6633

S:\GPO\HEARINGS\43659.TXT

SJUD1

PsN: CMORC

43659.014

34

VerDate Aug 31 2005

12:52 Oct 27, 2008

Jkt 043659

PO 00000

Frm 00039

Fmt 6633

Sfmt 6633

S:\GPO\HEARINGS\43659.TXT

SJUD1

PsN: CMORC

43659.015

35

VerDate Aug 31 2005

12:52 Oct 27, 2008

Jkt 043659

PO 00000

Frm 00040

Fmt 6633

Sfmt 6633

S:\GPO\HEARINGS\43659.TXT

SJUD1

PsN: CMORC

43659.016

36

VerDate Aug 31 2005

12:52 Oct 27, 2008

Jkt 043659

PO 00000

Frm 00041

Fmt 6633

Sfmt 6633

S:\GPO\HEARINGS\43659.TXT

SJUD1

PsN: CMORC

43659.017

37

VerDate Aug 31 2005

12:52 Oct 27, 2008

Jkt 043659

PO 00000

Frm 00042

Fmt 6633

Sfmt 6633

S:\GPO\HEARINGS\43659.TXT

SJUD1

PsN: CMORC

43659.018

38

VerDate Aug 31 2005

12:52 Oct 27, 2008

Jkt 043659

PO 00000

Frm 00043

Fmt 6633

Sfmt 6633

S:\GPO\HEARINGS\43659.TXT

SJUD1

PsN: CMORC

43659.019

39

VerDate Aug 31 2005

12:52 Oct 27, 2008

Jkt 043659

PO 00000

Frm 00044

Fmt 6633

Sfmt 6633

S:\GPO\HEARINGS\43659.TXT

SJUD1

PsN: CMORC

43659.020

40

VerDate Aug 31 2005

12:52 Oct 27, 2008

Jkt 043659

PO 00000

Frm 00045

Fmt 6633

Sfmt 6633

S:\GPO\HEARINGS\43659.TXT

SJUD1

PsN: CMORC

43659.021

41

VerDate Aug 31 2005

12:52 Oct 27, 2008

Jkt 043659

PO 00000

Frm 00046

Fmt 6633

Sfmt 6633

S:\GPO\HEARINGS\43659.TXT

SJUD1

PsN: CMORC

43659.022

42

VerDate Aug 31 2005

12:52 Oct 27, 2008

Jkt 043659

PO 00000

Frm 00047

Fmt 6633

Sfmt 6633

S:\GPO\HEARINGS\43659.TXT

SJUD1

PsN: CMORC

43659.023

43

VerDate Aug 31 2005

12:52 Oct 27, 2008

Jkt 043659

PO 00000

Frm 00048

Fmt 6633

Sfmt 6633

S:\GPO\HEARINGS\43659.TXT

SJUD1

PsN: CMORC

43659.024

44

VerDate Aug 31 2005

12:52 Oct 27, 2008

Jkt 043659

PO 00000

Frm 00049

Fmt 6633

Sfmt 6633

S:\GPO\HEARINGS\43659.TXT

SJUD1

PsN: CMORC

43659.025

45

VerDate Aug 31 2005

12:52 Oct 27, 2008

Jkt 043659

PO 00000

Frm 00050

Fmt 6633

Sfmt 6633

S:\GPO\HEARINGS\43659.TXT

SJUD1

PsN: CMORC

43659.026

46

VerDate Aug 31 2005

12:52 Oct 27, 2008

Jkt 043659

PO 00000

Frm 00051

Fmt 6633

Sfmt 6633

S:\GPO\HEARINGS\43659.TXT

SJUD1

PsN: CMORC

43659.027

47

VerDate Aug 31 2005

12:52 Oct 27, 2008

Jkt 043659

PO 00000

Frm 00052

Fmt 6633

Sfmt 6633

S:\GPO\HEARINGS\43659.TXT

SJUD1

PsN: CMORC

43659.028

48

VerDate Aug 31 2005

12:52 Oct 27, 2008

Jkt 043659

PO 00000

Frm 00053

Fmt 6633

Sfmt 6633

S:\GPO\HEARINGS\43659.TXT

SJUD1

PsN: CMORC

43659.029

49

VerDate Aug 31 2005

12:52 Oct 27, 2008

Jkt 043659

PO 00000

Frm 00054

Fmt 6633

Sfmt 6633

S:\GPO\HEARINGS\43659.TXT

SJUD1

PsN: CMORC

43659.030

50

VerDate Aug 31 2005

12:52 Oct 27, 2008

Jkt 043659

PO 00000

Frm 00055

Fmt 6633

Sfmt 6633

S:\GPO\HEARINGS\43659.TXT

SJUD1

PsN: CMORC

43659.031

51

VerDate Aug 31 2005

12:52 Oct 27, 2008

Jkt 043659

PO 00000

Frm 00056

Fmt 6633

Sfmt 6633

S:\GPO\HEARINGS\43659.TXT

SJUD1

PsN: CMORC

43659.032

52

VerDate Aug 31 2005

12:52 Oct 27, 2008

Jkt 043659

PO 00000

Frm 00057

Fmt 6633

Sfmt 6633

S:\GPO\HEARINGS\43659.TXT

SJUD1

PsN: CMORC

43659.033

53

VerDate Aug 31 2005

12:52 Oct 27, 2008

Jkt 043659

PO 00000

Frm 00058

Fmt 6633

Sfmt 6633

S:\GPO\HEARINGS\43659.TXT

SJUD1

PsN: CMORC

43659.034

54

VerDate Aug 31 2005

12:52 Oct 27, 2008

Jkt 043659

PO 00000

Frm 00059

Fmt 6633

Sfmt 6633

S:\GPO\HEARINGS\43659.TXT

SJUD1

PsN: CMORC

43659.035

55

VerDate Aug 31 2005

12:52 Oct 27, 2008

Jkt 043659

PO 00000

Frm 00060

Fmt 6633

Sfmt 6633

S:\GPO\HEARINGS\43659.TXT

SJUD1

PsN: CMORC

43659.036

56

VerDate Aug 31 2005

12:52 Oct 27, 2008

Jkt 043659

PO 00000

Frm 00061

Fmt 6633

Sfmt 6633

S:\GPO\HEARINGS\43659.TXT

SJUD1

PsN: CMORC

43659.037

57

58

VerDate Aug 31 2005

12:52 Oct 27, 2008

Jkt 043659

PO 00000

Frm 00062

Fmt 6633

Sfmt 6011

S:\GPO\HEARINGS\43659.TXT

SJUD1

PsN: CMORC

43659.038