Intellectual Property
U.S. Efforts have Contributed to Strengthened Laws Overseas, but Significant Enforcement Challenges Remain Gao ID: GAO-05-788T June 14, 2005Although the U.S. government provides broad protection for intellectual property domestically, intellectual property protection in parts of the world is inadequate. As a result, U.S. goods are subject to piracy and counterfeiting in many countries. A number of U.S. agencies are engaged in efforts to improve protection of U.S. intellectual property abroad. This testimony, based on a prior GAO report as well as recent work, describes U.S. agencies' efforts, the mechanisms used to coordinate these efforts, and the impact of these efforts and the challenges they face.
U.S. agencies undertake policy initiatives, training and assistance activities, and law enforcement actions in an effort to improve protection of U.S. intellectual property abroad. Policy initiatives include identifying countries with the most significant problems--an annual interagency process known as the "Special 301" review. In addition, many agencies engage in assistance activities, such as providing training for foreign officials. Finally, a small number of agencies carry out law enforcement actions, such as criminal investigations and seizures of counterfeit merchandise. Agencies use several mechanisms to coordinate their efforts, although the mechanisms' usefulness varies. The National Intellectual Property Law Enforcement Coordination Council, established in 1999 to coordinate domestic and international intellectual property law enforcement, has struggled to find a clear mission, has undertaken few activities, and is generally viewed as having little impact despite recent congressional action to strengthen the council. The Congress's action included establishing the role of Coordinator, but the position has not yet been filled (although the selection process is underway). The Administration's October 2004 Strategy Targeting Organized Piracy (STOP!) is intended to strengthen U.S. efforts to combat piracy and counterfeiting. Thus far, the initiative has resulted in some new actions and emphasized other ongoing efforts. U.S. efforts have contributed to strengthened intellectual property legislation overseas, but enforcement in many countries remains weak, and further U.S. efforts face significant challenges. For example, competing U.S. policy objectives such as national security interests take precedence over protecting intellectual property in certain regions. Further, other countries' domestic policy objectives can affect their "political will" to address U.S. concerns. Finally, many economic factors, as well as the involvement of organized crime, hinder U.S. and foreign governments' efforts to protect U.S. intellectual property abroad.
GAO-05-788T, Intellectual Property: U.S. Efforts have Contributed to Strengthened Laws Overseas, but Significant Enforcement Challenges Remain
This is the accessible text file for GAO report number GAO-05-788T
entitled 'Intellectual Property: U.S. Efforts have Contributed to
Strengthened Laws Overseas, but Significant Enforcement Challenges
Remain' which was released on June 14, 2005.
This text file was formatted by the U.S. Government Accountability
Office (GAO) to be accessible to users with visual impairments, as part
of a longer term project to improve GAO products' accessibility. Every
attempt has been made to maintain the structural and data integrity of
the original printed product. Accessibility features, such as text
descriptions of tables, consecutively numbered footnotes placed at the
end of the file, and the text of agency comment letters, are provided
but may not exactly duplicate the presentation or format of the printed
version. The portable document format (PDF) file is an exact electronic
replica of the printed version. We welcome your feedback. Please E-mail
your comments regarding the contents or accessibility features of this
document to Webmaster@gao.gov.
This is a work of the U.S. government and is not subject to copyright
protection in the United States. It may be reproduced and distributed
in its entirety without further permission from GAO. Because this work
may contain copyrighted images or other material, permission from the
copyright holder may be necessary if you wish to reproduce this
material separately.
Testimony:
Before the Committee on Homeland Security and Government Affairs,
Subcommittee on Oversight of Government Management, the Federal
Workforce, and the District of Columbia, United States Senate:
United States Government Accountability Office:
GAO:
For Release on Delivery Expected at 10:00 a.m. EDT:
Tuesday, June 14, 2005:
Intellectual Property:
U.S. Efforts have Contributed to Strengthened Laws Overseas, but
Significant Enforcement Challenges Remain:
Statement of Loren Yager, Director, International Affairs and Trade:
GAO-05-788T:
GAO Highlights:
Highlights of GAO-05-788T, testimony before the Subcommittee on
Oversight of Government Management, the Federal Workforce, and the
District of Columbia, Committee on Homeland Security and Government
Affairs, United States Senate:
Why GAO Did This Study:
Although the U.S. government provides broad protection for intellectual
property domestically, intellectual property protection in parts of the
world is inadequate. As a result, U.S. goods are subject to piracy and
counterfeiting in many countries. A number of U.S. agencies are engaged
in efforts to improve protection of U.S. intellectual property abroad.
This testimony, based on a prior GAO report as well as recent work,
describes U.S. agencies‘ efforts, the mechanisms used to coordinate
these efforts, and the impact of these efforts and the challenges they
face.
What GAO Found:
U.S. agencies undertake policy initiatives, training and assistance
activities, and law enforcement actions in an effort to improve
protection of U.S. intellectual property abroad. Policy initiatives
include identifying countries with the most significant problems”an
annual interagency process known as the ’Special 301“ review. In
addition, many agencies engage in assistance activities, such as
providing training for foreign officials. Finally, a small number of
agencies carry out law enforcement actions, such as criminal
investigations and seizures of counterfeit merchandise.
Agencies use several mechanisms to coordinate their efforts, although
the mechanisms‘ usefulness varies. The National Intellectual Property
Law Enforcement Coordination Council, established in 1999 to coordinate
domestic and international intellectual property law enforcement, has
struggled to find a clear mission, has undertaken few activities, and
is generally viewed as having little impact despite recent
congressional action to strengthen the council. The Congress‘s action
included establishing the role of Coordinator, but the position has not
yet been filled (although the selection process is underway). The
Administration‘s October 2004 Strategy Targeting Organized Piracy
(STOP!) is intended to strengthen U.S. efforts to combat piracy and
counterfeiting. Thus far, the initiative has resulted in some new
actions and emphasized other ongoing efforts.
U.S. efforts have contributed to strengthened intellectual property
legislation overseas, but enforcement in many countries remains weak,
and further U.S. efforts face significant challenges. For example,
competing U.S. policy objectives such as national security interests
take precedence over protecting intellectual property in certain
regions. Further, other countries‘ domestic policy objectives can
affect their ’political will“ to address U.S. concerns. Finally, many
economic factors, as well as the involvement of organized crime, hinder
U.S. and foreign governments‘ efforts to protect U.S. intellectual
property abroad.
Pirated DVDs from Brazil, China, and Ukraine:
[See PDF for image]
Source: GAO.
[End of figure]
What GAO Recommends:
GAO is not recommending executive action.
www.gao.gov/cgi-bin/getrpt?GAO-05-788T.
To view the full product, including the scope and methodology, click on
the link above. For more information, contact Loren Yager at (202) 512-
4128 or yagerl@gao.gov.
[End of section]
Mr. Chairman and Members of the Subcommittee:
Thank you for the opportunity to discuss our work on U.S. efforts to
protect U.S. intellectual property rights (IPR) overseas. As you know,
the United States dominates the creation and export of intellectual
property--creations of the mind. The U.S. government provides broad
protection for intellectual property through means such as copyrights,
patents, and trademarks. However, protection of intellectual property
in many parts of the world is inadequate. As a result, U.S. goods are
subject to substantial counterfeiting and piracy in many countries.
The U.S. government, through numerous agencies, is seeking better
intellectual property protection overseas. To understand more fully how
U.S. agencies have performed in this regard, we have examined several
issues. This testimony addresses (1) the specific efforts of U.S.
agencies to improve intellectual property protection in other nations,
(2) the means used to coordinate these efforts, and (3) challenges
facing enforcement efforts abroad. In addition, this testimony, based
on our September 2004 report addressing these topics,[Footnote 1]
provides an update on key IPR-related events since that time--an
administration initiative referred to as the Strategy Targeting
Organized Piracy, or STOP!; a report prepared by a Department of
Justice intellectual property task force,[Footnote 2] and congressional
action concerning an interagency intellectual property law enforcement
council.
To address these issues, we analyzed key U.S. government reports and
documents from eight federal agencies and two offices. In addition to
meeting with federal officials, we met with officials from key
intellectual property industry groups and reviewed reports they had
prepared. We also conducted field work in four countries where serious
problems regarding the protection of intellectual property have been
reported (Brazil, China, Russia, and Ukraine) and met with U.S. embassy
and foreign government officials as well as representatives of U.S.
companies and industry groups operating in those countries. We
conducted this work from June 2003 through July 2004. We subsequently
updated our work in May and June of 2005 by meeting with key government
officials and industry groups involved in recent U.S. government
efforts. All work was conducted in accordance with generally accepted
government auditing standards.
Summary:
U.S. agencies' efforts to improve protection of U.S. intellectual
property in foreign nations fall into three categories--policy
initiatives, training and assistance activities, and law enforcement
actions. The Office of the U.S. Trade Representative (USTR) leads U.S.
policy initiatives with an annual assessment known as the "Special 301"
review, which results in an annual report detailing global intellectual
property challenges and identifying countries with the most significant
problems. This report involves input from many U.S. agencies and
industry. In addition to conducting policy initiatives, most agencies
involved in intellectual property issues overseas also engage in
training and assistance activities. Further, although counterterrorism
is the overriding U.S. law enforcement concern, U.S. agencies such as
the Departments of Justice and Homeland Security conduct law
enforcement activities regarding IPR. These activities have included
Justice's creation of an intellectual property task force in March
2004, which in October 2004 published a report containing
recommendations for, among other things, improving the department's
criminal enforcement, fostering international cooperation, and
preventing intellectual property crime.
Several mechanisms exist to coordinate U.S. agencies' efforts to
protect U.S. intellectual property overseas, although the level of
activity and usefulness of these mechanisms vary. First, the Special
301 process requires formal interagency meetings as part of the U.S.
government's annual review to identify countries with inadequate IPR
protection; government and industry sources view this effort as
effective and thorough. Second, the National Intellectual Property Law
Enforcement Coordination Council (NIPLECC)[Footnote 3] was established
in 1999 to coordinate domestic and international intellectual property
law enforcement among U.S. federal and foreign entities. However,
NIPLECC has struggled to find a clear mission, has undertaken few
activities, and is perceived by officials from the private sector and
some U.S. agencies as having little impact. In fiscal year 2005
appropriations legislation, Congress established a Coordinator for
International Intellectual Property Enforcement to head NIPLECC, but
the position remains unfilled (although a selection process is
underway). Third, the most recent interagency coordination effort--the
Strategy Targeting Organized Piracy, or STOP!, announced in October
2004--represents the administration's increased focus on IPR
enforcement and is intended to strengthen U.S. government and industry
efforts to combat piracy and counterfeiting. The initiative includes
some new actions, such as the establishment of a hotline that
businesses can use to report IPR problems to the U.S. government, and
also emphasizes numerous preexisting efforts. U.S. government officials
told us that the STOP! has strengthened interagency coordination in
addressing IPR issues.
U.S. efforts have contributed to strengthened foreign IPR laws, but
enforcement overseas remains weak and U.S. efforts face numerous
challenges. Competing U.S. policy objectives may take priority over
protecting intellectual property in certain countries. In addition, the
impact of U.S. activities overseas is affected by countries' domestic
policy objectives, which may complement or conflict with U.S.
objectives. Further, economic factors, as well as the involvement of
organized crime, pose additional challenges to U.S. and foreign
governments' enforcement efforts, even in countries where the political
will for protecting intellectual property exists. These economic
factors include low barriers to producing counterfeit or pirated goods,
potential high profits for producers of such goods, and large price
differentials between legitimate and counterfeit products for consumers.
Background:
Intellectual property is an important component of the U.S. economy,
and the United States is an acknowledged global leader in the creation
of intellectual property. However, industries estimate that annual
losses stemming from violations of intellectual property rights
overseas are substantial. Further, counterfeiting of products such as
pharmaceuticals and food items fuels public health and safety concerns.
USTR's Special 301 reports on the adequacy and effectiveness of
intellectual property protection around the world demonstrate that,
from a U.S. perspective, intellectual property protection is weak in
developed as well as developing countries and that the willingness of
countries to address intellectual property issues varies greatly.
Eight federal agencies, as well as the Federal Bureau of Investigation
(FBI) and the U.S. Patent and Trademark Office (USPTO), undertake the
primary U.S. government activities to protect and enforce U.S.
intellectual property rights overseas. The agencies are the Departments
of Commerce, State, Justice, and Homeland Security; USTR; the Copyright
Office; the U.S. Agency for International Development (USAID); and the
U.S. International Trade Commission.[Footnote 4]
U.S. Agencies Undertake Three Types of IPR Efforts:
The efforts of U.S. agencies to protect U.S. intellectual property
overseas fall into three general categories--policy initiatives,
training and technical assistance, and U.S. law enforcement actions.
Policy Initiatives:
U.S. policy initiatives to increase intellectual property protection
around the world are primarily led by USTR, in coordination with the
Departments of State and Commerce, USPTO, and the Copyright Office,
among other agencies. A centerpiece of policy activities is the annual
Special 301 process.[Footnote 5] "Special 301" refers to certain
provisions of the Trade Act of 1974, as amended, that require USTR to
annually identify foreign countries that deny adequate and effective
protection of intellectual property rights or fair and equitable market
access for U.S. persons who rely on intellectual property protection.
USTR identifies these countries with substantial assistance from
industry and U.S. agencies and publishes the results of its reviews in
an annual report. Once a pool of such countries has been determined,
the USTR, in coordination with other agencies, is required to decide
which, if any, of these countries should be designated as a Priority
Foreign Country (PFC).[Footnote 6] If a trading partner is identified
as a PFC, USTR must decide within 30 days whether to initiate an
investigation of those acts, policies, and practices that were the
basis for identifying the country as a PFC. Such an investigation can
lead to actions such as negotiating separate intellectual property
understandings or agreements between the United States and the PFC or
implementing trade sanctions against the PFC if no satisfactory outcome
is reached.
Between 1994 and 2005, the U.S. government designated three countries
as PFCs--China, Paraguay, and Ukraine--as a result of intellectual
property reviews. The U.S. government negotiated separate bilateral
intellectual property agreements with China and Paraguay to address IPR
problems. These agreements are subject to annual monitoring, with
progress cited in each year's Special 301 report. Ukraine, where
optical media piracy was prevalent, was designated a PFC in 2001. The
United States and Ukraine found no mutual solution to the IPR problems,
and in January 2002, the U.S. government imposed trade sanctions in the
form of prohibitive tariffs (100 percent) aimed at stopping $75 million
worth of certain imports from Ukraine over time.
In conjunction with the release of its 2005 Special 301 report, USTR
announced the results of a detailed review examining China's
intellectual property regime. This review concluded that infringement
levels remain unacceptably high throughout China, despite the country's
efforts to reduce them. The U.S. government identified several actions
it intends to take, including working with U.S. industry with an eye
toward utilizing World Trade Organization (WTO) procedures to bring
China into compliance with its WTO intellectual property obligations
(particularly those relating to transparency and criminal enforcement)
and securing new, specific commitments concerning actions China will
take to improve IPR protection and enforcement.
By virtue of membership in the WTO, the United States and other
countries commit themselves not to take WTO-inconsistent unilateral
action against possible trade violations involving IPR protections
covered by the WTO but to instead seek recourse under the WTO's dispute
settlement system and its rules and procedures. This may impact any
U.S. government decision regarding whether to retaliate against WTO
members unilaterally with sanctions under the Special 301 process when
those countries' IPR problems are viewed as serious. The United States
has brought a total of 12 IPR cases to the WTO for resolution, but has
not brought any since 2000 (although the United States initiated a WTO
dispute panel for one of these cases in 2003).[Footnote 7] A senior
USTR official emphasized that this is due to the effectiveness of tools
such as the Special 301 process in encouraging WTO members to bring
their laws into compliance with WTO intellectual property rules.
Training and Technical Assistance:
In addition, most of the agencies involved in efforts to promote or
protect IPR overseas engage in some training or technical assistance
activities. Key activities to develop and promote enhanced IPR
protection in foreign countries are undertaken by the Departments of
Commerce, Homeland Security, Justice, and State; the FBI; USPTO; the
Copyright Office; and USAID. Training events sponsored by U.S. agencies
to promote the enforcement of intellectual property rights have
included enforcement programs for foreign police and customs officials,
workshops on legal reform, and joint government-industry events.
According to a State Department official, U.S. government agencies have
conducted intellectual property training for a number of countries
concerning bilateral and multilateral intellectual property
commitments, including enforcement, during the past few years. For
example, intellectual property training has been conducted by numerous
agencies in Poland, China, Morocco, Italy, Jordan, Turkey, and Mexico.
U.S. Law Enforcement Efforts:
A small number of agencies are involved in enforcing U.S. intellectual
property laws, and the nature of these activities differs from other
U.S. government actions related to intellectual property protection.
Working in an environment where counterterrorism is the central
priority, the FBI and the Departments of Justice and Homeland Security
take a variety of actions that include engaging in multicountry
investigations involving intellectual property violations and seizing
goods that violate intellectual property rights at U.S. ports of entry.
* The Department of Justice has an office that directly addresses
international IPR problems.[Footnote 8] Further, Justice has been
involved with international investigation and prosecution efforts and,
according to a Justice official, has become more aggressive in recent
years. For instance, Justice and the FBI coordinated an undercover IPR
investigation, with the involvement of several foreign law enforcement
agencies. The investigation focused on individuals and organizations,
known as "warez" release groups, which specialize in the Internet
distribution of pirated materials. In April 2004, these investigations
resulted in 120 simultaneous searches worldwide (80 in the United
States) by law enforcement entities from 10 foreign countries[Footnote
9] and the United States in an effort known as "Operation Fastlink."
* In addition, in March 2004, the Department of Justice created an
intellectual property task force to examine all of Justice's
intellectual property enforcement efforts and explore methods for the
department to strengthen its protection of IPR. A report issued by the
task force in October 2004 provided recommendations for improvements in
criminal enforcement, international cooperation, civil and antitrust
enforcement, legislation, and prevention of intellectual property
crime. Some of these recommendations have been implemented, while
others have not. For example, Justice has implemented a recommendation
to create five additional Computer Hacking and Intellectual Property
(CHIP) units to prosecute IPR crimes.[Footnote 10] Additionally,
Justice has designated a CHIP coordinator in every U.S. Attorney's
office in the country, thereby implementing a report recommendation
that such action be taken. However, an FBI official told us the FBI has
not been able to implement recommendations such as posting additional
personnel to the U.S. consulate in Hong Kong and the U.S. embassy in
Budapest, Hungary for budgetary reasons; Justice has not yet
implemented a similar recommendation to deploy federal prosecutors to
these same regions and designate them as Intellectual Property Law
Enforcement Coordinators. Fully implementing some of the report's
recommendations will require a sustained, long-term effort by Justice.
For example, to address a recommendation to develop a national
education program to prevent intellectual property crime, Justice held
two day-long events in Washington, D.C. and Los Angeles with high
school students listening to creative artists, victim representatives,
the Attorney General, and a convicted intellectual property offender,
among others, about the harm caused by intellectual property piracy.
The events were filmed by Court TV and produced into a 30 minute show
aired on cable television. Further, to enhance intellectual property
training programs for foreign prosecutors and law enforcement
officials, as recommended in the report, Justice worked with the
Mexican government to provide a three-day seminar for intellectual
property prosecutors and customs officials in December 2004. Such
actions are initial efforts to address recommendations that can be
further implemented over time.
* The Department of Homeland Security (DHS) tracks seizures of goods
that violate IPR and reports seizures that totaled almost $140 million
resulting from over 7,200 seizures in fiscal year 2004. In fiscal year
2004, goods from China (including Hong Kong) accounted for almost 70
percent of the value of all IPR seizures, many of which were shipments
of cigarettes and apparel.[Footnote 11] Other seized goods were shipped
from, among other places, Russia and South Africa.[Footnote 12] A DHS
official pointed out that providing protection against IPR-infringing
imported goods for some U.S. companies--particularly entertainment
companies--can be difficult, because companies often fail to record
their trademarks and copyrights with DHS. DHS and Commerce officials
told us that they believe this situation could be ameliorated if,
contrary to current practice, companies could simultaneously have their
trademarks and copyrights recorded with DHS when they are provided
their intellectual property right by USPTO or the Copyright Office.
* To identify shipments of IPR-infringing merchandise and prevent their
entry into the United States, DHS is developing an IPR risk-assessment
computer model. The model uses weighted criteria to assign risk scores
to individual imports. The methodology is based on both historical risk-
based trade data and qualitative rankings. The historical data are
comprised of seizure information and cargo examination results, while
qualitative rankings are based on information such as whether a
shipment is arriving from a high-risk country identified by USTR's
annual Special 301 report. According to DHS officials, the model has
been piloted, and several issues have been identified which must be
addressed before it is fully implemented.
* DHS officials also told us that problems in identifying and seizing
IPR-infringing goods frequently arise where the department's in-bond
system is involved. The in-bond system allows cargo to be transported
from the original U.S. port of arrival (such as Los Angeles) to another
U.S. port (such as Cleveland) for formal entry into U.S. commerce or
for export to a foreign country. We previously reported that weak
internal controls in this system enable cargo to be illegally diverted
from the supposed destination.[Footnote 13] The tracking of in-bond
cargo is hindered by a lack of automation for tracking in-bond cargo,
inconsistencies in targeting and examining cargo, in-bond practices
that allow shipments' destinations to be changed without notifying DHS
and extensive time intervals to reach their final destination, and
inadequate verification of exports to Mexico. DHS inspectors we spoke
with during the course of our previous work cited in-bond cargo as a
high-risk category of shipment because it is the least inspected and in-
bond shipments have been increasing. We made recommendations to DHS
regarding ways to improve monitoring of in-bond cargo. USTR's 2005
Special 301 report identifies customs operations as a growing problem
in combating IPR problems in foreign countries such as Ukraine, Canada,
Belize, and Thailand.
Several Mechanisms Coordinate IPR Efforts, but Their Usefulness Varies:
Several interagency mechanisms exist to coordinate overseas law
enforcement efforts, intellectual property policy initiatives, and
development and assistance activities, although these mechanisms' level
of activity and usefulness vary.
Formal Interagency Coordination on Trade Policy:
According to government and industry officials, an interagency trade
policy mechanism established by the Congress in 1962 to assist USTR has
operated effectively in reviewing IPR issues. The mechanism, which
consists of tiers of committees as well as numerous subcommittees,
constitutes the principle means for developing and coordinating U.S.
government positions on international trade, including IPR. A
specialized subcommittee is central to conducting the Special 301
review and determining the results of the review.
This interagency process is rigorous and effective, according to U.S.
government and industry officials. A Commerce official told us that the
Special 301 review is one of the best tools for interagency
coordination in the government, while a Copyright Office official noted
that coordination during the review is frequent and effective. A
representative for copyright industries also told us that the process
works well and is a solid interagency effort.
National Intellectual Property Law Enforcement Coordination Council
(NIPLECC):
NIPLECC, created by the Congress in 1999 to coordinate domestic and
international intellectual property law enforcement among U.S. federal
and foreign entities, seems to have had little impact. NIPLECC consists
of (1) the Under Secretary of Commerce for Intellectual Property and
Director of the United States Patent and Trademark Office; (2) the
Assistant Attorney General, Criminal Division; (3) the Under Secretary
of State for Economic and Agricultural Affairs; (4) the Deputy United
States Trade Representative; (5) the Commissioner of Customs; and (6)
the Under Secretary of Commerce for International Trade.[Footnote 14]
NIPLECC's authorizing legislation did not include the FBI as a member
of NIPLECC, despite its pivotal role in law enforcement. However,
according to representatives of the FBI, USPTO, and Justice, the FBI
should be a member. USPTO and Justice cochair NIPLECC, which has no
staff of its own. In the council's several years of existence, its
primary output has been three annual reports to the Congress, which are
required by statute. (NIPLECC's 2004 report has been drafted but is not
yet available.)
According to interviews with industry officials and officials from its
member agencies, and as evidenced by its own reports, NIPLECC has
struggled to define its purpose and has had little discernible impact.
Indeed, officials from more than half of the member agencies offered
criticisms of NIPLECC, remarking that it is unfocused, ineffective, and
"unwieldy." In official comments to the council's 2003 annual report,
major IPR industry associations expressed a sense that NIPLECC is not
undertaking any independent activities or effecting any impact. One
industry association representative stated that law enforcement needs
to be made more central to U.S. IPR efforts and said that although he
believes the council was created to deal with this issue, it has
"totally failed." The lack of communication regarding enforcement
results in part from complications such as concerns regarding the
sharing of sensitive law enforcement information and from the different
missions of the various agencies involved in intellectual property
actions overseas. According to a USTR official, NIPLECC needs to define
a clear role in coordinating government policy. A Justice official
stressed that, when considering coordination, it is important to avoid
creating an additional layer of bureaucracy that may detract from
efforts devoted to each agency's primary mission.
According to an official from USPTO, NIPLECC has been hampered
primarily by its lack of its own staff and funding. In our September
2004 report, we noted that "If the Congress wishes to maintain NIPLECC
and take action to increase its effectiveness, the Congress may wish to
consider reviewing the council's authority, operating structure,
membership, and mission." In the Consolidated Appropriations Act, 2005,
the Congress provided $2 million for NIPLECC expenses, to remain
available through fiscal year 2006.[Footnote 15] The act addressed
international elements of the council and created the position of the
Coordinator for International Intellectual Property Enforcement,
appointed by the President, to head NIPLECC. This official may not
serve in any other position in the federal government, and the NIPLECC
co-chairs, representatives from USPTO and Justice, are to report to the
Coordinator. The law also provides additional direction regarding
NIPLECC's international mission, providing that NIPLECC shall (1)
establish policies, objectives, and priorities concerning international
intellectual property protection and intellectual property law
enforcement; (2) promulgate a strategy for protecting American
intellectual property overseas; and (3) coordinate and oversee
implementation of items (1) and (2) by agencies with responsibilities
for intellectual property protection and intellectual property law
enforcement. The Coordinator, with the advice of NIPLECC members, is to
develop a budget proposal for each fiscal year to implement the
strategy for protecting American intellectual property overseas and for
NIPLECC operations and may select, appoint, employ, and fix
compensation of such officers and employees as may be necessary to
carry out NIPLECC functions. Personnel from other departments or
agencies may be temporarily reassigned to work for NIPLECC. Agency
officials told us that, as of June 2005, no Coordinator had been named
(although a selection process was underway), the $2 million in NIPLECC
funding has not been spent, and NIPLECC continued to accomplish little.
Strategy Targeting Organized Piracy (STOP!):
In October 2004, USTR and the Departments of Commerce, Justice, and
Homeland Security announced STOP! to fight trade in pirated and
counterfeit goods. Other STOP! participants are the Department of State
and the Department of Health and Human Service's Food and Drug
Administration. STOP!, which is targeted at cross-border trade in
tangible goods and was initiated to strengthen U.S. government and
industry enforcement actions. STOP! has five general objectives:
1. Stop pirated and counterfeit goods at the U.S. border. Such efforts
are to be achieved through, for example, the implementation of the DHS
IPR risk model, mentioned above, to better identify and seize
infringing goods at U.S. borders.
2. Dismantle criminal enterprises that steal intellectual property.
Justice and DHS are taking measures to maximize their ability to pursue
perpetrators of intellectual property crimes through, for example, the
addition of the 5 new Justice CHIP units mentioned above. Justice and
DHS are also committed under STOP! to work with the Congress to update
IPR legislation.
3. Keep counterfeit and pirated goods out of global supply chains.
Commerce is working with industry to develop voluntary guidelines
companies can use to ensure that supply and distribution chains are
free of counterfeits.
4. Empower U.S. businesses to secure and enforce their rights at home
and abroad. For example, Commerce is meeting with small and medium
enterprises to inform companies on how to secure and protect their
rights in the global marketplace.
5. Reach out to U.S. trading partners to build an international
coalition to block trade in pirated and counterfeit goods. USTR and
State are engaging in multilateral forums, such as the Organization for
Economic Cooperation and Development (OECD) and the Asia-Pacific
Economic Cooperation (APEC), through the introduction of new
initiatives to improve the global intellectual property environment.
Agency officials told us that STOP! has both furthered ongoing agency
activities and facilitated new initiatives. For example, Commerce
officials told us that while they had been working on having the OECD
conduct a study of the extent and impact of counterfeiting and piracy,
STOP! provided additional momentum to succeed in their efforts. They
said that the OECD has now agreed to conduct a comprehensive study on
the extent and effect of international counterfeiting and piracy in
tangible goods, with a study addressing the digital arena to follow. In
addition, in March 2005, Justice announced the continuation of work by
its intellectual property task force, which had been rolled into STOP!.
Regarding new initiatives, USPTO has established a hotline[Footnote 16]
for companies to obtain information on intellectual property rights
enforcement and report problems in other countries. According to USPTO,
this hotline has received 387 calls since it was activated in October
2004. Commerce has also developed a website[Footnote 17] to provide
information and guidance to IPR holders for registering and protecting
their intellectual property rights in other countries. The most visible
new effort undertaken as a part of STOP! is a coordinated U.S.
government outreach to foreign governments. In April 2005 officials
from seven federal agencies traveled to Hong Kong, Japan, Korea, and
Singapore and in June, they traveled to Belgium, France, Germany, and
the United Kingdom. According to USTR officials, the goals of these
trips are to describe U.S. initiatives related to IPR enforcement and
to learn from the activities of "like-minded" trading partners with IPR
concerns and enforcement capacities similar to the United States. DHS
officials reported that their Asian counterparts were interested in the
U.S. development of the IPR risk model to target high-risk imports for
inspection, while a USTR official emphasized that U.S. participants
were impressed by a public awareness campaign implemented in Hong Kong.
Officials involved in STOP! told us that one key goal of the initiative
is to improve interagency coordination. Agency officials told us that
to achieve this goal, staff-level meetings have been held monthly and
senior officials have met about every 6 weeks. Agency officials also
told us that as an Administration initiative with high-level political
support, STOP! has energized agencies' enforcement efforts and
strengthened interagency efforts. A USPTO official explained that STOP!
has laid the groundwork for future progress and continued interagency
collaboration. Agency officials noted that STOP! goals and membership
overlap with those of NIPLECC, and remarked that STOP! could possibly
be integrated into NIPLECC at some future date. In May 2005, a NIPLECC
meeting was held to address coordination between STOP! and NIPLECC.
According to a Justice official, once an International Intellectual
Property Enforcement Coordinator is appointed, there may be an
opportunity to continue the momentum that STOP! has provided in the
context of NIPLECC activities.
One private sector representative we met with said that although U.S.
industry has worked closely with agencies to achieve the goals of
STOP!, he is frustrated with the lack of clear progress in many areas.
For instance, he said that the administration has neither supported any
pending legislation to improve intellectual property rights protection,
nor proposed such legislation. He added that agencies need to do more
to integrate their systems, noting the situation where companies must
currently receive a trademark or copyright from USPTO or the Copyright
Office, and then separately record that right with DHS. Another
industry representative noted that STOP! has been announced with great
fanfare, but that progress has been sparse. However, he noted that
industry supports this administration effort and is working
collaboratively with the federal agencies to improve IPR protection.
Another industry official cited issues of concern such as insufficient
enforcement resources "on the ground" (particularly at DHS).
Other Coordination Mechanisms:
Other coordination mechanisms include the National International
Property Rights Coordination Center (IPR Center) and informal
coordination.[Footnote 18] The IPR Center in Washington, D.C., a joint
effort between DHS and the FBI, began limited operations in 2000.
According to a DHS official, the potential for coordination between
DHS, the FBI, and industry and trade associations makes the IPR Center
unique. The IPR Center is intended to serve as a focal point for the
collection of intelligence involving copyright and trademark
infringement, signal theft, and theft of trade secrets. However, the
center is not widely used by industry. For example, an FBI official
told us that from January 2004 through May 2005, the FBI has received
only 10 referrals to its field offices from the IPR Center. Further,
the number of FBI and DHS staff on board at the center has decreased
recently and currently stands at 10 employees (down from 20 in July
2004), with no FBI agents currently working there and fewer DHS agents
than authorized. However, IPR Center officials emphasized one recent,
important case that was initiated by the center. DHS, in conjunction
with the Chinese government and with the assistance of the intellectual
property industry, conducted the first ever joint U.S.-Chinese
enforcement action on the Chinese mainland, disrupting a network that
distributed counterfeit motion pictures worldwide. More than 210,000
counterfeit motion picture DVDs were seized, and in 2005, four
individuals (two Chinese and two Americans) were convicted in China.
Policy agency officials noted the importance of informal but regular
communication among staff at the various agencies involved in the
promotion or protection of intellectual property overseas. Several
officials at various policy-oriented agencies, such as USTR and the
Department of Commerce, noted that the intellectual property community
was small and that all involved were very familiar with the relevant
policy officials at other agencies in Washington, D.C. Further, State
Department officials at U.S. embassies regularly communicate with
agencies in Washington, D.C., regarding IPR matters and U.S. government
actions. Agency officials noted that this type of coordination is
central to pursuing U.S. intellectual property goals overseas.
Although communication between policy and law enforcement agencies can
occur through forums such as the NIPLECC, these agencies do not
systematically share specific information about law enforcement
activities. According to an FBI official, once a criminal investigation
begins, case information stays within the law enforcement agencies and
is not shared. [Footnote 19] A Justice official emphasized that
criminal law enforcement is fundamentally different from the activities
of policy agencies and that restrictions exist on Justice's ability to
share investigative information, even with other U.S. agencies.
Enforcement Overseas Remains Weak and Challenges Remain:
U.S. efforts such as the annual Special 301 review have contributed to
strengthened foreign IPR laws, but enforcement overseas remains weak.
The impact of U.S. activities is challenged by numerous factors.
Industry representatives report that the situation may be worsening
overall for some intellectual property sectors.
Weak Enforcement Overseas:
The efforts of U.S. agencies have contributed to the establishment of
strengthened intellectual property legislation in many foreign
countries, however, the enforcement of intellectual property rights
remains weak in many countries, and U.S. government and industry
sources note that improving enforcement overseas is now a key priority.
A recent USTR Special 301 report states that "although several
countries have taken positive steps to improve their IPR regimes, the
lack of IPR protection and enforcement continues to be a global
problem." For example, although the Chinese government has improved its
statutory IPR regime, USTR remains concerned about enforcement in that
country. According to USTR, counterfeiting and piracy remain rampant in
China and increasing amounts of counterfeit and pirated products are
being exported from China. In addition, although Ukraine has shut down
offending domestic optical media production facilities, pirated
products continue to pervade Ukraine, and, according to USTR's 2004
Special 301 Report, Ukraine is also a major trans-shipment point and
storage location for illegal optical media produced in Russia and
elsewhere as a result of weak border enforcement efforts.
Although U.S. law enforcement does undertake international cooperative
activities to enforce intellectual property rights overseas, executing
these efforts can prove difficult. For example, according to DHS and
Justice officials, U.S. efforts to investigate IPR violations overseas
are complicated by a lack of jurisdiction as well as by the fact that
U.S. officials must convince foreign officials to take action. Further,
a DHS official noted that in some cases, activities defined as criminal
in the United States are not viewed as an infringement by other
countries and that U.S. law enforcement agencies can therefore do
nothing.
Challenges to U.S. Efforts:
In addition, U.S. efforts confront numerous challenges. Because
intellectual property protection is one of many U.S. government
objectives pursued overseas, it is viewed internally in the context of
broader U.S. foreign policy objectives that may receive higher priority
at certain times in certain countries. Industry officials with whom we
met noted, for example, their belief that policy priorities related to
national security were limiting the extent to which the United States
undertook activities or applied diplomatic pressure related to IPR
issues in some countries. Further, the impact of U.S. activities is
affected by a country's own domestic policy objectives and economic
interests, which may complement or conflict with U.S. objectives. U.S.
efforts are more likely to be effective in encouraging government
action or achieving impact in a foreign country where support for
intellectual property protection exists. It is difficult for the U.S.
government to achieve impact in locations where foreign governments
lack the "political will" to enact IPR protections.
Many economic factors complicate and challenge U.S. and foreign
governments' efforts, even in countries with the political will to
protect intellectual property. These factors include low barriers to
entering the counterfeiting and piracy business and potentially high
profits for producers. In addition, the low prices of counterfeit
products are attractive to consumers. The economic incentives can be
especially acute in countries where people have limited income.
Technological advances allowing for high-quality inexpensive and
accessible reproduction and distribution in some industries have
exacerbated the problem. Moreover, many government and industry
officials believe that the chances of getting caught for counterfeiting
and piracy, as well as the penalties when caught, are too low. The
increasing involvement of organized crime in the production and
distribution of pirated products further complicates enforcement
efforts. Federal and foreign law enforcement officials have linked
intellectual property crime to national and transnational organized
criminal operations. Further, like other criminals, terrorists can
trade any commodity in an illegal fashion, as evidenced by their
reported involvement in trading a variety of counterfeit and other
goods.[Footnote 20]
Many of these challenges are evident in the optical media industry,
which includes music, movies, software, and games. Even in countries
where interests exist to protect domestic industries, such as the
domestic music industry in Brazil or the domestic movie industry in
China, economic and law enforcement challenges can be difficult to
overcome. For example, the cost of reproduction technology and copying
digital media is low, making piracy an attractive employment
opportunity, especially in a country where formal employment is hard to
obtain. The huge price differentials between pirated CDs and legitimate
copies also create incentives on the consumer side. For example, when
we visited a market in Brazil, we observed that the price for a
legitimate DVD was approximately ten times the price for a pirated DVD.
Even if consumers are willing to pay extra to purchase the legitimate
product, they may not do so if the price differences are too great for
similar products. Further, the potentially high profit makes optical
media piracy an attractive venture for organized criminal groups.
Industry and government officials have noted criminal involvement in
optical media piracy and the resulting law enforcement challenges.
Recent technological advances have also exacerbated optical media
piracy. The mobility of the equipment makes it easy to transport it to
another location, further complicating enforcement efforts. Likewise,
the Internet provides a means to transmit and sell illegal software or
music on a global scale. According to an industry representative, the
ability of Internet pirates to hide their identities or operate from
remote jurisdictions often makes it difficult for IPR holders to find
them and hold them accountable.
Industry Concerns:
Despite improvements such as strengthened foreign IPR legislation,
international IPR protection may be worsening overall for some
intellectual property sectors. For example, according to copyright
industry estimates, losses due to piracy grew markedly in recent years.
The entertainment and business software sectors, for example, which are
very supportive of USTR and other agencies, face an environment in
which their optical media products are increasingly easy to reproduce,
and digitized products can be distributed around the world quickly and
easily via the Internet. According to an intellectual property
association representative, counterfeiting trademarks has also become
more pervasive in recent years. Counterfeiting affects more than just
luxury goods; it also affects various industrial goods. An industry
representative noted that U.S. manufacturers of all sizes are now being
adversely affected by counterfeit imports.
An industry representative also added that there is a need for
additional enforcement activity by the U.S. government at the border.
However, he recognized that limited resources and other significant
priorities for DHS heighten the need to use existing resources more
effectively to interdict more counterfeit and pirated goods.
Conclusions:
The U.S. government has demonstrated a commitment to addressing IPR
issues in foreign countries using multiple agencies. However, law
enforcement actions are more restricted than other U.S. activities,
owing to factors such as a lack of jurisdiction overseas to enforce
U.S. law. Several IPR coordination mechanisms exist, with the
interagency coordination that occurs during the Special 301 process
standing out as the most significant and active. Efforts under STOP!
appear to have strengthened the U.S. government's focus on addressing
IPR enforcement problems in a more coordinated manner. Conversely,
NIPLECC, the mechanism for coordinating intellectual property law
enforcement, has accomplished little that is concrete and its
ineffectiveness continues despite recent congressional action to
provide funding, staffing, and clearer guidance regarding its
international objectives. In addition, NIPLECC does not include the
FBI, a primary law enforcement agency. Members, including NIPLECC
leadership, have repeatedly acknowledged that the group continues to
struggle to find an appropriate mission.
Mr. Chairman, this concludes my prepared statement. I would be pleased
to respond to any questions that you or other members of the
subcommittee may have at this time.
Contacts and Acknowledgments:
Should you have any questions about this testimony, please contact me
by e-mail at yagerl@gao.gov. I can also be reached at (202) 512-4128.
Other major contributors to this testimony were Emil Friberg, Leslie
Holen, Jason Bair, Ming Chen, Sharla Draemel, and Reid Lowe.
FOOTNOTES
[1] GAO, Intellectual Property: U.S. Efforts Have Contributed to
Strengthened Laws Overseas, but Challenges Remain, GAO-04-912
(Washington, D.C.: Sept. 8, 2004).
[2] Report of the Department of Justice's Task Force on Intellectual
Property, Office of the Attorney General, U.S. Department of Justice,
October 2004.
[3] NIPLECC was mandated under Section 653 of the Treasury and General
Government Appropriations Act, 2000, Public Law 106-58 (15 U.S.C. 1128).
[4] Although the FBI is part of the Department of Justice and the USPTO
is part of the Department of Commerce, their roles will be discussed
separately because of their distinct responsibilities.
[5] Other policy actions include: use of trade preference programs for
developing countries that require IPR protection, such as the
Generalized System of Preferences; negotiation of agreements that
address intellectual property; participation in international
organizations that address IPR issues; and, diplomatic efforts with
foreign governments.
[6] PFCs are those countries that (1) have the most onerous and
egregious acts, policies, and practices with the greatest adverse
impact (actual or potential) on the relevant U.S. products and (2) are
not engaged in good-faith negotiations or making significant progress
in negotiations to address these problems.
[7] Of these 12 cases, 8 were fully resolved, and one was substantially
resolved before going through the entire dispute settlement process by
mutually agreed solutions between the parties--the preferred outcome,
according to a USTR official. Another 3 cases resulted in the issuance
of a final WTO decision, or panel report, and all of these cases
concluded with favorable rulings for the United States, according to
USTR. (One of these 3 cases--involving a dispute with the European
Community regarding geographical indications--began with a request for
consultations in 1999, for which a new expanded request was filed in
2003 and the case was brought before a WTO panel the same year.) In the
substantially resolved dispute, involving Argentina, consultations
continue with respect to certain issues.
[8] The Computer Crime and Intellectual Property Section (CCIPS)
addresses intellectual property issues (copyright, trademark, and trade
secrets) within the Department of Justice's Criminal Division. In April
2004, CCIPS appointed an International Coordinator for Intellectual
Property.
[9] These foreign countries were Belgium, Denmark, France, Germany,
Hungary, Israel, the Netherlands, Singapore, Sweden, and Great Britain
and Northern Ireland. According to a Justice official, law enforcement
officials in Spain subsequently took action against related targets in
that country.
[10] These CHIP units have been added in the District of Columbia;
Sacramento, CA; Pittsburgh, PA; Nashville, TN; and Orlando, FL.
[11] For information on cigarette smuggling, see GAO, Cigarette
Smuggling: Federal Law Enforcement Efforts and Seizures Increasing, GAO-
04-641 (Washington, D.C.: May 28, 2004).
[12] One additional area of note regarding counterfeit seizures
involves pharmaceutical products. DHS, in cooperation with the
Department of Health and Human Services' Food and Drug Administration,
conducts "blitz" exams in an effort to target, identify, and stop
counterfeit and potentially unsafe prescription drugs from entering the
United States from foreign countries via mail and common carriers. Such
efforts have been undertaken in the past in locations such as Florida,
New York, and California and have identified, in some instances, drugs
that appeared to be counterfeit. For more information on federal
efforts regarding prescription drugs imports, see GAO, Prescription
Drugs: Preliminary Observations on Efforts to Enforce the Prohibitions
on Personal Importation, GAO-04-839T (Washington, D.C.: July 22, 2004).
[13] GAO, International Trade: U.S. Customs and Border Protection Faces
Challenges in Addressing Illegal Textile Transshipment, GAO-04-345
(Washington, D.C.: Jan. 23, 2004).
[14] NIPLECC is also required to consult with the Register of
Copyrights on law enforcement matters relating to copyright and related
rights and matters.
[15] The Consolidated Appropriations Act, 2005, Public Law 108-447,
Division B (118 Stat. 2809 at 2872-2873).
[16] 1-866-999-HALT.
[17] www.stopfakes.gov. According to Commerce, between November 2004
and May 2005, there were almost 70,000 visits to this website.
[18] Another coordination mechanism is the IPR Training Coordination
Group, led by the State Department. This voluntary, working-level group
comprises representatives of U.S. agencies and industry associations
involved in IPR programs and training and technical assistance efforts
overseas or for foreign officials.
[19] Further, a DHS official noted that the Trade Secrets Act (18 USC
1905) precludes sharing information about specific imports, even where
there is criminal activity. The Trade Secrets Act makes it a criminal
offense for an employee of the United States, or one of its agencies,
to disclose trade secrets and certain other forms of confidential
commercial and financial information except where such disclosure is
"authorized by law."
[20] See GAO, Terrorist Financing: U.S. Agencies Should Systematically
Assess Terrorists' Use of Alternative Financing Mechanisms, GAO-04-163
(Washington, D.C.: Nov. 14, 2003).
