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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:


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 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 

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.

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

[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 

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.


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.


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, 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 

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.


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 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.


[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 

[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] 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).