health and safety - hsdl
TRANSCRIPT
ThishearingcompilationwaspreparedbytheHomelandSecurityDigitalLibrary,NavalPostgraduateSchool,CenterforHomelandDefenseandSecurity.
APRIL27,2016
COUNTERFEITSANDTHEIRIMPACTONCONSUMER
HEALTHANDSAFETY
UNITEDSTATESSENATECOMMITTEEONTHEJUDICIARY
ONEHUNDREDFOURTEENTHCONGRESS,SECONDSESSION
HEARINGCONTENTS:MEMBERSTATEMENTS
SenatorChuckGrassley(R-IA)[viewpdf]SenatorPatrickLeahy(D-VT)[viewpdf]
WITNESSSTATEMENTS
Mr.BruceFoucart[viewpdf]Director,NationalIntellectualPropertyRightsCoordinationCenterU.S.ImmigrationandCustomsEnforcement,HomelandSecurityInvestigationsArlington,VAMr.ConradW.Wong[viewpdf]Attorney-Advisor,OfficeofPolicyandInternationalAffairsU.S.PatentandTrademarkOffice,Alexandria,VAMr.DavidHirschmann[viewpdf]PresidentandCEO,GlobalIntellectualPropertyCenterU.S.ChamberofCommerce,Washington,DCMs.ShelleyDuggan[viewpdf]DirectorandAssociateGeneralCounsel,GlobalBrandProtectionProgramLeaderProctor&Gamble,Cincinnati,OH
ThishearingcompilationwaspreparedbytheHomelandSecurityDigitalLibrary,NavalPostgraduateSchool,CenterforHomelandDefenseandSecurity.
Mr.GregMaguire[viewpdf]SeniorDirector,GovernmentandLegalAffairsRevisionMilitary,EssexJunction,VT
RELATEDFILES
MaguireResponsetoQuestionsfortheRecord[viewpdf]
DugganResponsestoQuestionsfortheRecord[viewpdf]
HirschmannResponsestoQuestionsfortheRecord[viewpdf]
WongResponsestoQuestionsfortheRecord[viewpdf]
AVAILABLEWEBCAST(S)*: [WatchFullHearing]
COMPILEDFROM:
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Prepared Statement by Senator Chuck Grassley of Iowa
Chairman, Senate Judiciary Committee
Hearing on Counterfeits and Their Impact on Consumer Health and Safety
Wednesday, April 27, 2016
Good morning everyone. We’re here to discuss an intellectual property crime that’s growing in
magnitude across the United States and around the globe: counterfeiting and, in particular, the impact
of counterfeits on consumer health and safety. This is an important consumer protection issue, and a
timely one, considering that yesterday was World IP Day. We have an excellent panel of witnesses
that will be able to provide us with their invaluable insights into this serious problem that affects us
all. I thank them for being here today.
The production and sale of counterfeit goods is a world-wide problem with tremendous economic
and health ramifications. Governments, industries and consumers all are impacted by “fakes.”
Counterfeiters operate elaborate global networks to manufacture, export, import, and distribute their
illegitimate products. They exploit border control weaknesses, poor regulatory frameworks, and
overwhelmed law enforcement agencies to advance the sale of their illicit goods. While
counterfeiters profit in the billions from their criminal activities, millions of consumers are at risk
from their unsafe and ineffective products.
Counterfeits are a real threat to our economy, to job creation, and to innovation. According to some
sources, counterfeiting costs the global economy over 2.5 million jobs per year and drains tax
revenue. Counterfeits undermine the ability of American businesses to compete in foreign markets,
and they expose American companies to increased liability.
In recent years, there has been a tremendous increase in the manufacturing, trade and consumption of
these products. For example, last year, the Department of Homeland Security’s Customs and Border
Patrol seized over 28,000 items that infringed on intellectual property with a value of $1.3 billion.
According to an OECD Report on counterfeiting released just last week, in 2013, counterfeit and
pirated goods represented up to 2.5% of world trade, or as much as $461 billion. Further,
counterfeits help fund criminal gangs, organized crime, and even terrorism.
Enforcement efforts are having a tough time keeping pace with the ever changing tactics of these
criminals. Moreover, criminals are taking advantage of advances in technology to increase their
sales to unsuspecting consumers.
However, possibly the most nefarious impact of counterfeit goods is the danger they present to the
consumer health and safety. Hazardous counterfeit products, like counterfeit medicines, electronics,
and automotive and military parts, put the public at tremendous risk of harm, and even death.
Criminals have ramped up their production of counterfeit items like airbags, smoke detectors,
computer chips, and cancer medication—products that have an immense impact on everyday life.
These kinds of counterfeits have lasting and potentially fatal consequences for consumers’ health and
safety. Americans expect that their brakes will work and stop their cars in the rain, or that their
prescription drugs will contain the correct mix of active ingredients to cure an illness.
But with increased counterfeiting of so many everyday products, this presumption of quality and
effectiveness is becoming less and less certain, often times with devastating results.
I’ve been interested in the issue of unsafe counterfeits for some time. In fact, I worked with the
Ranking Member a few years back to address the problem of counterfeit pharmaceuticals and
medical devices. Unfortunately, consumers unwittingly buy counterfeit medicines that have been
manufactured in unlicensed, unregulated, uninspected, and frequently unsanitary sites. These
medicines often have inactive or harmful ingredients. Counterfeit medicines are estimated to be a
multi-billion industry worldwide, one of the most profitable commodities for criminal organizations.
Because counterfeit medicines are particularly dangerous to public health and impact the most
vulnerable in our society – the sick, the elderly, the very young – Senator Leahy and I authored
legislation that became law to enhance the criminal penalties for the trafficking of counterfeit
medicines and devices. We need to do all we can to keep consumers safe in this area.
So counterfeiting has gone beyond just another cost of doing business. It now strikes at the core with
its direct impact on the public’s health and safety. In order to address this growing problem, we need
programs in place to educate businesses and consumers about how to deal with counterfeits and the
criminals that make them. Law enforcement should take a tough and proactive stand. They should
work with their foreign counterparts, as well as with international organizations and public health
authorities.
Federal agencies should cooperate with each other and with industry to secure supply and
distribution chains, and bolster detection and enforcement efforts.
Voluntary and best practices must be encouraged amongst the various government, industry, and
consumer stakeholders. Governments need to strengthen global IP protection and enforcement
through stakeholder and law enforcement coordination in key countries. Data sharing will help
inform everyone about the scope of the threat.
We in Congress also must strive to work together with law enforcement and industry to raise
awareness and keep consumers safe from counterfeit products in the marketplace. In my capacity as
a Co-Chair of the Congressional Trademark Caucus, we’ve tried to inform our colleagues about the
value of trademarks and their impact on society and the economy.
Consumers and businesses alike must understand the scale of the counterfeiting problem, and they
should be constantly vigilant of the threat.
So, it’s important for us to know what the state of play is with respect to not only the impact of
counterfeits on the economy, but also their impact on the health and safety of American consumers.
We have a great panel of witnesses from the government and private industry ready to tell us about
the extent of the problem, the current and emerging challenges they face, and the strategies that will
help put an end this scourge. I look forward to their testimony.
-30-
Statement of Senator Patrick Leahy (D-Vt.),
Ranking Member, Senate Judiciary Committee,
Hearing on “Counterfeits and Their Impact on Consumer Health and Safety”
April 27, 2016
As we begin today’s hearing, I want to note that the date is April 27. It is now 42 days since
Chief Judge Merrick Garland was nominated to the Supreme Court. If the Senate were following
the average confirmation schedule that this Committee has followed for the past 40 years,
today’s hearing should be a confirmation hearing for Chief Judge Garland. Instead of reading
about Congressional dysfunction and hearing baseless attacks against Chief Judge Garland from
dark money groups, the American people should be hearing directly from their Supreme Court
nominee in this Committee. Since this Committee began holding hearings for Supreme Court
nominees in 1916, no pending nominee has been denied a hearing and a vote.
It is time to put aside the obstruction and listen to what the American people are saying. More
than two-thirds of Americans think Senators should do their jobs and give Chief Judge Garland a
hearing. We should do our jobs and consider this nominee.
Today’s hearing focuses on another important issue confronting the American people: the impact
of counterfeiting on health and safety. The witnesses who will testify illustrate the scope of this
grave problem. When a law enforcement officer purchases ballistic eyewear, he or she should be
able to trust its authenticity. When a parent buys shampoo to use on their child, we want them to
trust its quality. Counterfeiters take advantage of consumers and destroy that trust.
As more Americans shop online for themselves and for their families, the threat of counterfeits is
greater than ever. The Internet has expanded consumers’ choices, but it has also created new
opportunities for consumers to be deceived. Internet sales have also made counterfeiting harder
to detect. Counterfeits are no longer arriving in big container ships that can be detected at the
border, but in one-off small packages sent directly to the consumer.
In this new reality, businesses and law enforcement must work together to protect consumers and
the supply chain. Businesses are sharing information with Customs and Border Protection to
help them detect counterfeits. Brand owners are sharing information with each other to help
track down bad actors. Online retailers and payment processers have created product quality
departments to respond to reported counterfeits. Today’s hearing will explore these efforts and, I
hope, build on them by asking what is working, and what more must be done.
I thank the witnesses for testifying today, including Greg Maguire of Revision Military, a leading
company protecting our military personnel that is based in Essex Junction, Vermont. I look
forward to the panel’s testimony.
#####
________________________________________________________________________
STATEMENT
OF
BRUCE FOUCART DIRECTOR
NATIONAL INTELLECTUAL PROPERTY RIGHTS
COORDINATION CENTER
HOMELAND SECURITY INVESTIGATIONS U.S. IMMIGRATION AND CUSTOMS ENFORCEMENT
REGARDING A HEARING ON
“COUNTERFEITS AND THEIR IMPACT ON CONSUMER HEALTH AND SAFETY”
BEFORE THE
U.S. SENATE COMMITTEE ON THE JUDICIARY
Wednesday, April 27, 2016 226 Dirksen Senate Office Building
1
Introduction
Chairman Grassley, Ranking Member Leahy, and distinguished members of the
Committee:
On behalf of the Department of Homeland Security (DHS), thank you for the opportunity
to testify before you today to discuss the efforts of U.S. Immigration and Customs Enforcement
(ICE) to combat the illegal importation and sale of counterfeit products, and the threats to public
safety and national security that counterfeit products may pose.
As you know, ICE is the largest investigative component within DHS with an extensive
portfolio of enforcement authorities. ICE Homeland Security Investigations (HSI) is responsible
for a wide range of domestic and international criminal investigations arising from the illegal
movement of people and goods into, within, and out of the United States, often in coordination
with other federal agencies.
ICE has a legacy of enforcement against intellectual property (IP) crime that spans from
our past as U.S. Customs Service investigators to our present role as Homeland Security
investigators. ICE is the lead agency in the investigation of IP violations involving the illegal
importation and exportation of counterfeit merchandise and pirated works, as well as associated
money laundering violations. In coordination with U.S. Customs and Border Protection (CBP),
we target and investigate counterfeit merchandise and pirated works, and we seize such illicit
goods associated with these investigations, including those that infringe on trademarks, trade
names, and copyrights. Investigating counterfeit products falls within ICE’s broad IP mandate.
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ICE recognizes that no single U.S. law enforcement agency alone can succeed in the fight
against IP crime. Rather, it is essential that all relevant federal agencies work together and with
IP industry partners to confront this challenge. Law enforcement, public education, demand
reduction, and global collaboration are all critical to successfully combat these crimes. To focus
government efforts and enhance efficiency, the former U.S. Customs Service’s Office of
Investigations (now known as ICE HSI) and the Federal Bureau of Investigation (FBI)
established in 1999 the multi-agency National Intellectual Property Rights Coordination Center
(IPR Center), which combats violations of intellectual property rights with a focus on trademark
and copyright infringement. Recently, the IPR Center was expressly codified in statute by
Section 305 of the Trade Facilitation and Trade Enforcement Act of 2015 (TFTEA) (Pub. L. No.
114-125), which was signed into law by President Obama on February 24, 2016. In Section 305,
Congress also cemented the IPR Center’s role as the lead office within the U.S. Government for
coordinating with other federal agencies on IP infringement investigations, law enforcement
training, and private sector and public outreach.
Pursuant to the Prioritizing Resources and Organization for Intellectual Property Act of
2008 (PRO-IP Act) (Pub. L. No. 110-403), ICE and CBP are members of the interagency
intellectual property enforcement advisory committee established by Section 301 of the PRO-IP
Act (15 U.S.C. § 8111). Chaired by the White House Office of the U.S. Intellectual Property
Enforcement Coordinator (IPEC), the committee is responsible for developing the PRO-IP Act’s
three-year "Joint Strategic Plan against counterfeiting and infringement” (Section 303; 15 U.S.C.
§ 8113). In addition to its role in developing and implementing the Joint Strategic Plan, the IPR
Center collaborates regularly with the IPEC and other federal agencies on IP policy issues. The
IPR Center also shares the investigative outcomes and trend information that we obtain with
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interagency partners and the IPEC to further inform the Administration’s IP policy development
process, the U.S. Trade Representative’s Special 301 Report, and the Administration’s legislative
recommendations.
The IPR Center’s mission is to address the theft of innovation that threatens U.S.
economic stability and national security, undermines the competitiveness of U.S. industry in
world markets, and places the public’s health and safety at risk. The IPR Center brings together
many of the key domestic and foreign investigative agencies to efficiently and effectively
leverage resources, and promotes the skills and authorities to provide a comprehensive response
to IP crime.
The IPR Center operates on a task force model and is comprised of 23 relevant federal
and international partners. While ICE HSI holds the director position, the IPR Center includes
U.S. Government team members from: ICE HSI, CBP, the Food and Drug Administration (FDA)
Office of Criminal Investigations (OCI), the FBI, the U.S. Postal Inspection Service (USPIS), the
U.S. Department of Commerce’s International Trade Administration and U.S. Patent and
Trademark Office, the Defense Criminal Investigative Service (DCIS), the U.S. Consumer
Product Safety Commission (CPSC), the National Aeronautics and Space Administration
(NASA), the Naval Criminal Investigative Service (NCIS), the Army Criminal Investigative
Command Major Procurement Fraud Unit, the U.S. Air Force Office of Special Investigations,
the Nuclear Regulatory Commission, the U.S. Department of State’s Office of International
Intellectual Property Enforcement, the Defense Logistics Agency (DLA), the U.S. Postal Service
Office of the Inspector General and the Inspector General’s Office from the General Services
Administration, and the Federal Maritime Commission. In addition, Department of Justice
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(DOJ) trial attorneys from the Computer Crime and Intellectual Property Section (CCIPS)
regularly provide input for ongoing enforcement operations and policy.
In 2010, the Government of Mexico and INTERPOL joined the IPR Center as our first
international partners. Since then, the Royal Canadian Mounted Police and Europol have joined
as well.
Protecting National Security, Health, and Safety
The illegal importation, distribution, and sale of counterfeit products pose a significant
and growing threat to public health and safety. Counterfeiters do not care if their products
contain the correct materials. They do not care if their products are made in sanitary conditions.
They do not care if their products physically harm consumers. They do not care if their products
result in economic damage to legitimate companies. Rather, they care about their product
looking good enough to be purchased. They care about their bottom line.
The IPR Center has a wealth of experience and subject matter expertise to combat these
counterfeiters and we support our field agents in their significant efforts to enforce IP rights.
Working collaboratively with our law enforcement partners, the IPR Center has developed
numerous initiatives and interdiction efforts to combat the infiltration of counterfeits that pose a
risk to the health and safety of the American public, or could potentially harm the economy of
this country. Specifically, the IPR Center focuses efforts on health and beauty products,
automotive, aerospace, and heavy industry products, as well as goods entering the U.S.
Department of Defense (DOD) and U.S. Government supply chains. Today, I would like to
discuss our efforts to protect the public’s health and safety from counterfeit consumer products.
5
Using interdiction, enforcement, and outreach, the IPR Center promotes a comprehensive
layered approach that focuses on the production, import, and distribution of counterfeit goods.
Partnerships are essential; the IPR Center works closely across agency boundaries with law
enforcement colleagues at the local, state, and federal levels and across international boundaries
to form a united front against criminal enterprises and international organizations that threaten
public safety and security.
Operation Chain Reaction
Operation Chain Reaction is an IPR Center initiative that combines the efforts of 16
federal law enforcement partner agencies to target counterfeit items entering the DOD and other
U.S. Government agencies supply chains. Operation Chain Reaction (OCR) partner agencies
coordinate their efforts to more productively protect the U.S. Government supply chain from
substandard counterfeit parts that could impact the reliability of weapons systems, delay DOD
missions, imperil the safety of servicemen and women, and waste taxpayer money.
For example, in a case investigated by ICE, DCIS, and NCIS, a Massachusetts man
pleaded guilty in 2014 to importing thousands of counterfeit integrated circuits (ICs) from China
to Hong Kong and then reselling them to U.S. customers, including contractors supplying them
to the U.S. Navy for use in nuclear submarines. The subject told his customers, many of whom
specified in their orders that they would only accept new ICs that were not from China, that the
ICs were brand new and manufactured elsewhere, including in Europe. However, the subject
instead wired nearly $2 million to his suppliers’ bank accounts in China and Hong Kong to order
ICs. Testing by the Navy and one of their contractors revealed that many of the ICs had been
resurfaced to change the date code and to affix counterfeit marks to hide the fact that they were
6
actually older, used parts. On October 6, 2015, the defendant was sentenced to 37 months
imprisonment. This was the second conviction ever under the new enhanced penalties for
trafficking in counterfeit military goods enacted in 2011.
In another case, the former Chief Executive Officer (CEO) of Powerline, Inc., a battery
distributor, was found guilty of five counts of wire fraud and one count of conspiracy to defraud
the United States by selling more than $2.6 million in cheap, counterfeit batteries to the DOD. In
a joint case by ICE and DCIS, with assistance from DLA and the Defense Contract Audit
Agency, investigators discovered that Powerline sold the DOD more than 80,000 batteries and
battery assemblies that the U.S. Navy used for emergency back-up power on aircraft carriers,
minesweepers, and ballistic submarines. Powerline, Inc. affixed counterfeit labels falsely
identifying the batteries as originating from approved manufacturers and used chemicals to
remove “Made in China” markings from the batteries. The CEO fled the United States, but was
arrested on December 6, 2013, after he spent more than two years near St. Martin. On October
15, 2014, he was sentenced to 87 months incarceration and ordered to pay $2,787,193 in
restitution. In Fiscal Years (FY) 2014 and 2015, OCR cases have resulted in 15 criminal arrests,
28 indictments, 23 convictions, and seizures with a Manufacturer’s Suggested Retail Price
(MSRP) of $13,768,355 in counterfeit parts, currency, and vehicles.
Operation Plastic Beauty
Operation Plastic Beauty was initiated in FY 2014 by the IPR Center to combat the
illegal importation, sale, and distribution of counterfeit healthcare and beauty products, such as
shampoo, toothpaste, makeup, and lip balm. Through Plastic Beauty, the IPR Center combines
the expertise of ICE, FDA-OCI, and CBP, and coordinates with industry.
7
As a result of operations conducted by CBP, multiple shipments of counterfeit name-
brand cosmetics were discovered. ICE opened an investigation and linked the cosmetics to a
woman in Florida. A review of seizure records uncovered that she had been trafficking in
counterfeit cosmetics for several years, and bank records related to her business indicated that
over one million dollars had been deposited as proceeds. ICE, with assistance from the Postal
Inspection Service, conducted an enforcement operation and seized approximately $16,905 and
over 1,500 counterfeit brand name cosmetic products that had an estimated resale value of
$31,715. The defendant pled guilty to trafficking in counterfeit goods and, on July 20, 2015, was
sentenced to 18 months imprisonment and ordered to pay $961,744.75 in restitution.
In FY 2015, Plastic Beauty resulted in 18 arrests, 19 indictments, 19 convictions, and the
seizure of goods valued at over $7 million.
Operation Engine Newity
Operation Engine Newity addresses safety threats posed by counterfeit automotive,
aerospace, rail, and heavy industry components. These counterfeit parts are not only an evident
health and safety risk to Americans, but they also impact the economic health of these industries.
Investigations and interdictions have uncovered counterfeit airbags, steering, braking, and
seatbelt components, bearings, and diagnostic equipment.
To combat counterfeit automotive parts, Operation Engine Newity member agencies
work closely with the private sector, including the Automotive Anti-Counterfeiting Council.
This is a collaborative voluntary industry group comprised of BMW, Fiat Chrysler Automobiles,
Ford, General Motors, Honda, Hyundai, Kia Motors, Mercedes-Benz, Nissan, Subaru, Toyota,
and Volkswagen. Automakers have shared lead information with the IPR Center that is now
8
being worked in the field, and are actively cooperating with the agents investigating this
information. Additionally, they have shared knowledge regarding upcoming trends in
counterfeit automotive parts, which is being used to target potential shipments and redirect
government resources to top priorities focusing on health and safety concerns.
In September 2014, an ICE Public Service Announcement (PSA) was released to alert the
public of the dangers of counterfeit automotive parts. The PSA, which was coordinated through
CBP, the FBI, and the National Highway Traffic Safety Administration, is displayed by
automotive industry partners in dealership service departments. In one ICE-led case, two
brothers sold counterfeit airbags in an online marketplace. The brothers, both Canadian citizens,
were importing the airbags from China into Canada. They would drive the counterfeit airbags
into the United States to mail them to customers from a U.S. address. As part of its
investigation, ICE identified the entities in China providing the counterfeit airbags. Working
through the United States - China Joint Liaison Group (JLG) on Law Enforcement Cooperation,
ICE HSI Beijing provided information on the Chinese sources to the Chinese Ministry of Public
Security (MPS), which led to the arrests of the individuals who made the airbags in China. In
September and October 2014, the brothers were sentenced to six and four months incarceration,
respectively.
In FY 2014 and 2015, Operation Engine Newity resulted in 31 arrests, 32 indictments, 16
convictions, and the seizure of goods worth approximately $18.4 million.
Operation Joint Venture
To help educate consumers on emerging dangers of counterfeit products and facilitate
productive partnerships with the public and private sectors, the IPR Center launched Operation
9
Joint Venture. This effort is designed to increase support, communication, and cooperation for
our ongoing IPR enforcement initiatives and our critical public health and safety efforts.
Operation Joint Venture is the IPR Center’s method to provide industry with valuable
information about our efforts to combat the importation of hazardous and counterfeit products,
and it gives industry a point of contact they can use to provide us with leads and tips regarding
efforts to compromise intellectual property rights. Also, we have developed a website
(www.iprcenter.gov) where the public can obtain information on the efforts of all IPR Center
partner agencies to combat IP crime and we have placed a button on the website where
consumers and industry can report allegations of counterfeit or pirated products.
Other Interagency Efforts
ICE shares its border security and trade mission responsibilities with its sister agency,
CBP. ICE and CBP work closely to target counterfeit and other illicit goods crossing the
borders, including through the co-location of personnel at Trade Enforcement Coordination
Centers (TECC) in Los Angeles, New York/Newark, Detroit, New Orleans, Houston, and
Chicago Ports of Entry (POE). The TECCs enhance communication and combine resources to
identify and combat trade fraud and IP crime. The TECCs proactively identify, interdict, and
investigate inbound cargo that may enter U.S. commerce in violation of U.S. customs and trade
laws. TECCs ensure joint CBP and ICE oversight and prioritization of the enforcement and
interdiction process in the local area, and involve ICE early in the enforcement process. ICE and
CBP are establishing additional TECCs in El Paso, Texas; Buffalo, New York; and San Juan,
Puerto Rico.
The IPR Center also has agents who sit full-time at the National Cyber-Forensics &
Training Alliance (NCFTA) in Pittsburgh, Pennsylvania. The NCFTA is a non-profit
10
organization, which brings together experienced personnel from academia, law enforcement, and
industry. By merging a wide range of expertise in one location, the NCFTA provides a neutral
forum for information sharing regarding emerging and ongoing threats. In FY 2015, our NCFTA
agents, working with IPR Center analysts, processed 17,990 viable new leads.
Trade Facilitation and Trade Enforcement Act of 2015
The TFTEA is the most comprehensive customs legislation in over two decades. Many
of its provisions directly impact ICE’s trade fraud, intellectual property, and the forced labor
enforcement missions. Specifically, the TFTEA enhances the ability of the Government to
combat IP violations. The IPR Center and ICE HSI are currently implementing the Act’s
requirements, working closely with its partners in the federal government, including CBP, DHS,
and the IPEC. The IPR Center welcomes this new focus and is rapidly ramping up its efforts to
enforce IP laws.
Key Provisions Impacting ICE’s IP Enforcement Efforts
Sections 305 and 306 codify the establishment of the IPR Center within ICE. TFTEA
outlines the IPR Center’s duties to include: coordinating investigations of IP violations;
conducting and coordinating domestic and international law enforcement training on IP
investigations; coordinating with CBP activities to prevent the importation or exportation of IP
infringing merchandise; supporting international interdiction of prohibitive IP merchandise
destined for the United States; collecting and integrating domestic and international information
on IP infringement; disseminating information on IP infringement to other federal agencies;
developing and implementing, in coordination with CBP, a risk-based alert system to improve
11
targeting; coordinating with U.S. Attorneys to develop expertise in IP investigation and
prosecution; and conducting private sector outreach and information sharing.
Implementation
ICE and the IPR Center are proactively working to implement the provisions of this law
and have formed a team that will oversee the implementation. Implementation will require close
cooperation with CBP and DHS Office of Policy, and initial steps have been made to coordinate
efforts among our offices. The IPR Center will continue to co-host the two-week advanced
training, Intellectual Property and Trade Enforcement Investigations Course, with CBP, which
has been recently revised and updated. This training is provided to ICE HSI and CBP personnel
to gain a better understanding of trade fraud and IP investigations and current priorities. The
training also includes presentations from the DOJ and the private sector.
Challenges Ahead
Our biggest challenge is that criminals are willing to counterfeit and market any product
that will sell, regardless of whether it could result in serious and significant injury to consumers
or the public. Through the course of its investigations, ICE has uncovered counterfeit lithium
batteries that are not properly vented, counterfeit airbags that have too much propellant,
counterfeit jewelry that contains lead, counterfeit pharmaceuticals that contain potentially toxic
substances, and counterfeit health and beauty products that are made under unsanitary
conditions.
ICE anticipates that cyber-commerce and for-profit streaming will continue to be
challenges, along with the following upcoming technologies: 3D printing; additive
12
manufacturing; and the dark web and virtual currency. ICE feels that IP criminals will continue
to use these technologies, and others we have not seen, in furtherance of their criminal activity.
One other challenge that lies ahead is the use of e-commerce platforms with a business direct to
consumer business model that utilizes the express mail environment. There are numerous
weaknesses in this model that counterfeiters can exploit.
IP cases demand attention from criminal investigators and regulatory agencies. We take
our responsibility to protect American consumers and industry very seriously, and ICE’s
priorities in IP crime enforcement remain to protect the public’s health and safety, the military
supply chain, and the American economy. The IPR Center successfully brings together members
of industry, state and local partners, federal government and international counterparts to train,
exchange best practices and ultimately remove counterfeit and pirated products from the
marketplace and put the criminals behind them in jail.
Conclusion
Thank you again for the opportunity to appear before you today to discuss the work of
ICE and the IPR Center in protecting U.S. consumers from the international illicit trade of
dangerous counterfeit, unapproved, and/or adulterated products. I look forward to working
closely with Congress on this issue of critical importance as it directly threatens worldwide
health and safety.
I would be pleased to answer any questions.
Statement of
Conrad W. Wong
Attorney-Advisor, Office of Policy and International Affairs
United States Patent and Trademark Office
Before the
Senate Judiciary Committee
Hearing on “Counterfeit Goods and their Impact on Consumer Health and Safety”
April 27, 2016
Chairman Grassley, Ranking Member Leahy and members of the Committee:
Thank you for the opportunity to appear before you today.
The United States Patent and Trademark Office (USPTO) advises the President, through the
Secretary of Commerce, on national and international intellectual property (IP) policy issues and
assists foreign governments and international intergovernmental organizations on matters of
intellectual property matters.
The USPTO advises on a full range of intellectual property policy and enforcement issues,
including patents, trademarks, copyright, and trade secrets, as well as administrative issues. For
purposes of today’s hearing, I will focus on the enforcement of intellectual property rights which
is integral to an effective intellectual property regime. Addressing the continuing problem of
counterfeiting on a global scale is an Administration priority. And, counterfeiting activity that
threatens the health and safety of consumers is of particular concern.
Counterfeiting is an opportunistic crime with a focus that varies with changes in technology and
market demand. When technology was more limited and the demand was for luxury goods, the
consumer was most likely to see counterfeit luxury brands and apparel for sale. As technology
has advanced and consumer demands have changed, the market contains illegal counterfeits for a
wide range of goods, including pharmaceuticals, food products, herbicides, pesticides, toys,
automotive parts, aircraft parts, and electronics, to name a few. One of the most insidious
aspects of unlawful products is that consumers are now more likely to be taking higher health
and safety risks when they unwittingly buy these products. For example, a consumer takes a
knowing risk when he or she purchases a $10,000 name-brand watch for $100 at a flea market.
But often there are no similar warning signs that the cardiac or cancer medicine the consumer is
about to buy is counterfeit. Counterfeiting is not a victimless crime. An important part of the
USPTO’s mission is to make sure that issued patents and trademarks are effectively enforceable,
especially when infringing goods pose health or safety dangers.
2
The USPTO engages with government officials in various countries to improve legislation and
regulations that promote effective intellectual property systems. Such laws and regulations
create the necessary framework to support IP enforcement, but having laws on the books only
goes so far. The inclusion of the enforcement section in the World Trade Organization
Agreement on the Trade-Related Aspects of Intellectual Property Rights (TRIPS) highlights this
fact on a multilateral basis. All countries face significant challenges and harms resulting from
counterfeit goods. The inclusion of enforcement provisions in the intellectual property rights
chapters of free trade agreements also reflects the integral role of enforcement in ensuring
adequate protection of intellectual property.
In the Office of Policy and International Affairs at the USPTO, we help provide global
leadership and education on intellectual property policy and awareness. This includes working
with those in foreign governments responsible for enforcement of intellectual property rights in
their countries, generally focusing on civil, criminal, and border enforcement, covering all
aspects of intellectual property. On the domestic front, we provide policy and technical advice
on legislation impacting civil, criminal, and border enforcement of intellectual property laws to
promote a climate that respects intellectual property.
With respect to enforcement, we work in close coordination with the Administration’s
Intellectual Property Enforcement Coordinator and also partner with the National Intellectual
Property Rights Coordination Center. We provide technical and policy guidance on foreign
laws, regulations, and practices that impact the effective enforcement of civil, criminal, and
border provisions intended to combat trafficking in counterfeit goods. Our work addresses both
brick and mortar sales outlets and online sales of counterfeit goods. We also provide technical
support in the negotiation of free trade agreements that promote strong and balanced protection
and enforcement of intellectual property rights.
This expertise provides the USPTO with the tools needed to build programs for foreign
audiences, targeting judicial regimes, civil and criminal procedures, border measures, and
administrative regulations relating to the enforcement of intellectual property laws. These
capacity building programs are central to our efforts to address counterfeiting around the world.
Through USPTO’s Global Intellectual Property Academy, we develop and implement capacity
building programs, in partnership with U.S. enforcement agencies, on the effective enforcement
of civil, criminal, and border provisions. These programs are held both at USPTO Headquarters
in Alexandria, Virginia, and around the globe. Providing information and facilitating discussion
on effective methods to combat counterfeiting, promulgating effective anti-counterfeiting
policies, including public awareness, and adjudicating cases in a timely manner continue to be a
focus of our technical assistance program.
In FY 2015, the USPTO, through the Global Intellectual Property Academy and the IP attachés
in the field, conducted 49 enforcement programs both domestically and abroad for foreign
officials. Of these enforcement programs, 13 were designed with a specific focus on the issue of
counterfeiting. The USPTO’s efforts to promote balanced intellectual property systems and
effective enforcement of intellectual property rights are assisted by the activities of the IP
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Attaché Program. The attachés provide invaluable support in promoting USG policies for the
protection and enforcement of intellectual property on the ground.
The IP Attaché Program is an important asset that supports the USPTO’s efforts. IP attachés are
IP experts who serve as U.S. diplomats in Embassies and Consulates abroad. As a former IP
attaché stationed in the United States Consulate General in Guangzhou, China, I helped to
directly facilitate some of this work. IP attachés promote U.S. IP policies, including high-quality
and balanced IP systems, including effective protection and enforcement, in their host countries
and regions, for the benefit of U.S. stakeholders. The IP attaches work closely with USPTO and
the Office of Intellectual Property Rights (OIPR) in advancing the commercial interests of U.S.
companies in foreign markets where they are experiencing barriers to market access. The
attachés are supported by country-specific teams of specialized attorneys in the Office of Policy
and International Affairs.
The origins of the IP Attaché Program may be traced to the Uruguay Round negotiations that
established the World Trade Organization (WTO). At that time, complex negotiations over
trade-related IP issues were ongoing in Geneva. The Japan Patent Office posted an IP attaché in
Geneva in 1992 to leverage the attaché’s technical expertise in the negotiation of the TRIPS
Agreement. USPTO followed suit with the posting an IP attaché to the U.S. Mission to the WTO
in Geneva in 1993. About 10 years later, due to the importance of IP matters in China, USPTO
posted an IP attaché to the U.S. Embassy in Beijing. Based upon the success of these postings,
USPTO expanded the program in the fall of 2006 to include new attaché positions in Rio de
Janeiro, Moscow, New Delhi, Bangkok, and Cairo.
USPTO currently has 13 IP attaché positions. This includes attachés based in Rio de Janeiro,
Moscow, New Delhi, Beijing, Guangzhou, Shanghai, Bangkok, Mexico City, Kuwait City,
Brussels, Lima, and two attachés in Geneva. When our IP attaché in Moscow completes his
assignment this year, we plan to replace his position with a new position in Kyiv to take
advantage of new opportunities in Ukraine. All of our IP attachés have regional responsibilities,
except for those in China and Geneva.
One of our IP attachés in Geneva is detailed to the State Department to serve at the U.S. Mission
to the UN Organizations, and covers the World Intellectual Property Organization and IP matters
arising in other UN organizations. The other attaché is detailed to the Office of the U.S. Trade
Representative (USTR) to serve at the U.S. Mission to the World Trade Organization. The other
attachés have been assigned to the U.S. Foreign Commercial Service (USFCS) as Limited
Appointees. The attachés all have a two-year term, which is extendable to a maximum of five
years.
The attachés’ fundamental role is to advocate U.S. government IP policy positions for the benefit
of U.S. stakeholders through direct advocacy with host governments, seeking changes in
policies, laws, and regulations related to intellectual property; educating host government
officials on IP matters, including training of judges, prosecutors, patent and trademark
examiners, customs officials, police and policy makers; and building grass roots support for U.S.
policy objectives by conducting public awareness programs on intellectual property.
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The IP attaché often brings to our attention specific problems facing U.S. stakeholders and also
works closely with other U.S. agencies in the region.
Our IP attachés have provided significant benefits to U.S. rights holders, based upon the
feedback that we have received. They continue to be highly valued by other USG agencies,
including the USFCS, USTR, and the U.S. Department of State. We believe that the IP attachés’
expertise is a key component of their success. This allows them to address everything from
broad policy issues to specific legal problems. Also important is the USPTO’s significant
guidance and support provided to the attachés. We are proud of this successful program and the
contributions that it makes.
Thank you.
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ON: Counterfeits and Their Impact on Consumer Safety
TO: U.S. Senate Committee on the Judiciary
BY: U.S. Chamber of Commerce’s Global Intellectual
Property Center
DATE: April 27, 2016
1615 H Street NW | Washington, DC | 20062 The Chamber’s mission is to advance human progress through an economic,
political and social system based on individual freedom, incentive, initiative, opportunity and responsibility.
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The U.S. Chamber of Commerce is the world’s largest business federation, representing the interests of more than 3 million businesses of all sizes, sectors, and
regions, as well as state and local chambers and industry associations. The Chamber is dedicated to promoting, protecting, and defending America’s free enterprise system.
More than 96% of Chamber member companies have fewer than 100
employees, and many of the nation’s largest companies are also active members. We are therefore cognizant not only of the challenges facing smaller businesses, but also
those facing the business community at large.
Besides representing a cross-section of the American business community with respect to the number of employees, major classifications of American business—e.g.,
manufacturing, retailing, services, construction, wholesalers, and finance—are represented. The Chamber has membership in all 50 states.
The Chamber’s international reach is substantial as well. We believe that global
interdependence provides opportunities, not threats. In addition to the American Chambers of Commerce abroad, an increasing number of our members engage in the export and import of both goods and services and have ongoing investment activities. The Chamber favors strengthened international competitiveness and opposes artificial
U.S. and foreign barriers to international business.
1615 H Street NW | Washington, DC | 20062 The Chamber’s mission is to advance human progress through an economic,
political and social system based on individual freedom, incentive, initiative, opportunity and responsibility.
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Testimony of David Hirschmann President and CEO, Global Intellectual Property Center of the U.S. Chamber
of Commerce
Before the U.S. Senate Committee on the Judiciary
Wednesday, April 27, 2016
CHAIRMAN GRASSLEY, RANKING MEMBER LEAHY, AND MEMBERS
OF THE JUDICIARY COMMITTEE:
The Global Intellectual Property Center (“GIPC”) was established in 2007 as an affiliate of the U.S. Chamber of Commerce. Today, the GIPC is leading a worldwide effort to champion intellectual property rights as vital to creating jobs, saving lives, advancing global economic growth, and generating breakthrough solutions to global challenges.
The U.S. Chamber of Commerce (the “Chamber”), the world’s largest business federation representing the interests of more than three million businesses of all sizes, sectors and regions, as well as state and local chambers and industry associations, is dedicated to promoting, protecting and defending America’s free enterprise system. The Chamber appreciates the opportunity to submit this testimony to the Committee as you examine the impact of counterfeits.
The GIPC and the Chamber advocate for the right rules to protect intellectual property on behalf of the broad business community. We will emphasize three main issues related to counterfeits: the devastating impact of counterfeits to consumers, the growing scale and scope of the problem, and the need for Congress to support and appropriate additional resources to combat counterfeits. The Chamber firmly believes that businesses and consumers benefit from stronger enforcement resources dedicated to IP protection. The GIPC appreciates the attention that you are devoting to this topic.
1. Counterfeits Harm Consumers
Naturally, when discussing counterfeits, the health and safety of consumers are paramount. In this month alone, counterfeit medicines caused as many as ten deaths due to overdoses in California. Patients believed that they were taking legitimate Norco, a generic version of Vicodin. Really–they were taking fentanyl–a painkiller that
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is up to 100 times stronger than morphine and can be lethal in very small doses. This is one small example of the consequences of counterfeit pharmaceuticals entering the illegitimate supply chain; we know it occurs with lifesaving medicines as well. From fake Avastin, the injectable cancer medicine unwittingly purchased by some medical practices, to diabetes medicine without active ingredient, counterfeit medicines pose a serious threat to the consumer. Unsafe medicines purchased on the Internet from illegitimate sources–harm patients–and those ten patients in California are, tragically, just the tip of the iceberg.
It’s not just medicine. There are phony spark plugs or dangerous airbags that explode in cars. Federal safety regulators have revealed that tens of thousands of American motorists may be operating vehicles with counterfeit parts or a dangerous airbag.1
Counterfeit circuit boards have found themselves into our military supply chain. The Defense Research Projects Agency, (“DARPA”) , has taken on a new quality control in military procurement. The military’s research agency is developing a device to detect used and counterfeit electronic components in the Pentagon’s supply chain that may put soldier’s lives at risk.
In 2011, the Senate Armed Services Committee, released the results of an investigation in which investigators found that for 100 counterfeit parts, 70 percent of them originated in China. Others were traced to the U.K. and Canada.2
In 2012, there were 1,800 cases of suspect counterfeit electronic parts in the defense supply chain, with the total number of suspect parts exceeding one million. A senior Naval Air Systems official estimated “that as many as 15 percent of all spare and replacement microchips the Pentagon buys are counterfeit.”
Knock-off toys can carry dangerous chemicals often including lead. These toxic
substances put young children at risk.3 Often today’s consumers are unknowingly paying top dollar for fakes. If even one toy placed in your child’s hands is counterfeit and can threaten your child’s safety, it is one too many. Thankfully, the Office of Immigration and Customs Enforcement (“ICE”) has seized thousands of fake or
1 http://www.thedetroitbureau.com/2012/10/how-to-spot-counterfeit-auto-parts/ 2 http://gao.gov/assets/590/588736.pdf 3 Two Individuals Plead Guilty to Importing and Selling Hazardous and Counterfeit Toys in New York, https://www.justice.gov/opa/pr/two-individuals-plead-guilty-importing-and-selling-hazardous-and-counterfeit-toys-new-york
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illegitimate toys that will not end up in the hands of a child. But, they can’t seize them all and it takes only one to cause harm.
No industry is spared. Household goods, luxury handbags, jewelry, and
watches, athletic shoes and equipment, sports jerseys and apparel—counterfeiting is
prevalent across nearly every market segment—even baby formula.
2. What are counterfeit goods? A counterfeit is any product that does not contain what the packaging
indicates. This applies to branding, chemical content, freshness and potency.4 Another widely accepted definition includes the term “counterfeit” as tangible goods that infringe trademarks, design rights or patents; and “pirated” to describe tangible goods that infringe copyright. References in this submission do not include intangible infringements, such as online piracy.
Counterfeiting is a tremendous global threat. Counterfeit products also result in detrimental effects on economies due to decreased innovation, loss of revenue and taxation, and higher unemployment rate. The reach of counterfeiting is expansive. Counterfeits are found in nearly every industry sector and every product line from mainstream household items to luxury goods.
The impact of counterfeits is real to consumers, but also to our global economy. Intellectual property (IP) is a key engine of growth and economic development in the global economy. Intellectual property – trademarks, patents, copyrights, and trade secrets are the foundation of a significant part of the American economy.
IP-intensive industries create real jobs for Americans. IP-intensive industries
contribute over $5 trillion dollars and over 40 million jobs.5 Intellectual property generates 34% of U.S. GDP, two thirds of U.S. exports, and 5.8 trillion in U.S. output. Counterfeit goods threaten our economic prosperity:
What is the scope of the problem? The OECD released new statistics nearly ten
years in the making last week. They cite that the total value of imported fake goods worldwide is $461 billion.6
4 UNODC, https://www.unodc.org/documents/data-and-analysis/tocta/8.Counterfeit_products.pdf 5 http://2010-2014.commerce.gov/blog/2012/04/11/intellectual-property-intensive-industries-contribute-5-trillion-40-
million-jobs-us- 6 http://www.oecd.org/industry/global-trade-in-fake-goods-worth-nearly-half-a-trillion-dollars-a-year.htm
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The GIPC commissioned a study that offers deeper, complementary analysis. We’ve found 86% of all fake products come from China and Hong Kong. The next largest source of fake products totaled less than one percent. The GIPC knows the Chinese government is also focused on its commitment to the health and safety of its citizens; for example in March, Chinese officials detained almost 40 people in connection with the sale and manufacture of fake vaccines.7 However, more must be done to protect consumers around the world.
Counterfeit products follow global trends. Thus, additional resources are necessary to continue to combat the problem. The GIPC has seen incredible changes and disruption to the old brick-and-mortar days of shopping.
With the powerful rise of online shopping and the “new normal” of e-
commerce delivery platforms, enforcing against counterfeits is a much more challenging endeavor. For example, as of February 2016, small parcel shipments of counterfeits are now seized ten times more than large shipping containers, a major reversal of the challenges only a few years ago. This means the volume of parcels containing counterfeits is much higher, and when one is caught, the amount of counterfeit products seized is much smaller. This means that more resources are needed to do the job.
3. Counterfeiting is a Massive and Growing Problem
The OECD released new statistics nearly ten years in the making last week. They calculate that the total value of imported fake goods worldwide is $461 billion.8
In this light, the Global IP Center is unveiling a new study, Measuring the Magnitude of Global Counterfeiting, that offers two new data points:
1. A deep analysis of trade-related physical counterfeiting;
2. A breakdown of economies’ share of the global rate of physical counterfeiting (in both percentage and U.S. dollar terms) for a wide number of economies based on new modeling of economies’ propensity for counterfeiting, including factors such as IP protection and estimated rates of corruption rates. The updated metric uses three equally-weighted indicators: the local IP
enforcement level, including robust legal frameworks and effective border measures, the local rate of corruption based on Transparency International’s Global Corruption 7 http://www.techtimes.com/articles/143447/20160323/china-arrests-37-for-selling-fake-vaccines.htm 8 http://www.oecd.org/industry/global-trade-in-fake-goods-worth-nearly-half-a-trillion-dollars-a-year.htm
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Barometer, and the country’s ranking on OECD’s GTRIC-e measure newly updated just a week ago.
As part of the U.S. Chamber’s 2016 International IP Index, we offer an
empirical assessment of the strengths and weaknesses of 38 developmentally and geographically diverse countries representing 85% of global gross domestic product.
This cross-disciplinary, empirical assessment of intellectual property protection and enforcement in 38 economies provides a snapshot of what countries are doing well and what they can be doing better.
This year, as part of the Chamber’s Index, we have created this complimentary study to offer this new proprietary Global Measure of Physical Counterfeiting, which provides an updated assessment of the international counterfeiting landscape.
The report created a unique metric which estimates the share of each of the 38 examined economies in global counterfeit trade, in a way which is specific to each economy. This was achieved using three equally-weighted indicators:
1. The local IP enforcement level, reflecting the scores on relevant indicators in the IP Index which together capture the total IP enforcement environment (including border measures) in Index economies;
2. The local rate of corruption, on the presumption that a strong relationship exists between corruption and propensity to counterfeiting;
3. The likelihood of importing a counterfeit product from a given economy country’s ranking on the original OECD GTRIC-e measure.
When it comes to precise seizure data, the first and most basic challenge is that
actual seizures of counterfeit goods reveal only a small percentage of the overall levels of the relevant illicit activity. In this sense seizure statistics only provide a ‘tip of the iceberg’ sense of true levels of counterfeiting.
Our unique metric assigns each of the 38 economies a percentage, which is translated into a dollar figure, representing the value of counterfeit products that are being locally produced in the economy and exported overseas.
4. The Threat of Counterfeiting is Global
The U.S. Chamber of Commerce’s Measuring the Magnitude of Global Counterfeiting uses a baseline of global counterfeit trade as 2.5% of world trade which was the baseline estimated by the OECD in their 2016 study. The OECD recently released
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updated statistics measuring global counterfeiting trade at nearly a quarter of a trillion dollars.
Looking at the extent of trade-related physical counterfeiting globally from the
perspective of the scale of world trade, the share of physical counterfeiting to world
trade is 2.5%.
5. Additional Resources Should be Allocated
There is a bright side. The Chamber advocated for, and Congress successfully
passed, the Trade Facilitation and Trade Enforcement Act of 2015, and now the
threat of counterfeits can be drastically reduced by effective border enforcement and
implementation of key intellectual property provisions in the Bill. Customs officers
can now capture photos and samples to share unredacted and in a timely manner with
the private sector to make sure that fake, unsafe product do not end up in the hands
of unsuspecting consumers. Specially, the U.S. Chamber is very encouraged by the
intellectual property provisions below:
The National Intellectual Property Rights Coordination Center is authorized and funded (Section 305);
A Chief Innovation & Intellectual Property Negotiator is established (Section 611);
The Special 301 Report will include consideration of Trade Secrets protection (Section 612);
Customs and Border Protection (“CBP”) is required to provide samples of suspected counterfeits to IPR rights holders (Section 628A);
New Intellectual Property enforcement monitoring tools & procedures are included (Section 611);
A report to Congress from ICE and CBP on seizures/activities will be required (Section 310);
Agency submissions to IPEC strategic plan will be required (Section 306);
Post-seizure information sharing will consistency occur with industry (Section 628A);
Information sharing with international enforcement partners will occur (Section 310);
Increased training with domestic enforcement agencies and international partners will be encouraged (Section 305).
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The U.S. Chamber looks forward to working with CBP Commissioner Kerlikowske to implement each of these provisions that will prove helpful both to industry and to consumers.
It is vitally important that Congress provide all the IP enforcement agencies with adequate funding. These include CBP, ICE, the National Intellectual Property Rights Coordination Center, and the Department of Justice (including FBI and the regional IP Law Enforcement Coordinators). As my testimony illustrates, counterfeiting often occurs abroad, but the effects are felt here at home. We should and do strive to stop the problem at its source. This is why action against counterfeiting must include vibrant provisions in the IP chapters of our free trade agreements, which are then approved by Congress and properly implemented by our trading partners.
6. Conclusion
The Chamber is thankful to Congress, and especially the co-chairs of the Congressional Trademark Caucus, Senators Grassley and Coons and longtime leadership Senators Hatch and Leahy, for codifying the National Intellectual Property Rights Coordination Center through the Customs Reauthorization Bill. The Intellectual Property Enforcement Coordinator position, created by the by the Prioritizing Resources and Organization for Intellectual Property Act in 2008 (“PRO-IP Act”), remains a crucial role to build consensus from the IP community. The Chamber strongly supported the law because the responsibility of protecting intellectual property should be at the White House level in order to maximize resources and effectiveness by coordinating efforts with all federal agencies.
We hope this Committee will ensure additional resources for IPEC, the
National Intellectual Property Rights Coordination Center, all critical enforcement agencies and partners so that collectively, we can be as effective as possible.
In partnership with law enforcement, the GIPC strives to be one step ahead of
the counterfeiter. As of February 2016, small parcel shipments are now seized ten times more than container shipments. The business community responded to this challenge by doubling its efforts. Still, we must identify gaps and work to improve upon existing law. The Defend Trade Secrets Act, recently passed, is a great example of a narrowly tailored solution. Now, we must also work on streaming and other areas of IP protection where Congress can act.
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American businesses invest significantly to ensure consumer safety and enforcement of illegal goods. Industry collaboration including a new coalition formed by the U.S. Chamber, the Global Brand Council, has been especially effective working with industry associations and the private sector.
Anti-counterfeiting solutions are best addressed when working collaboratively
with Congress, the Administration and federal law enforcement agencies to implement strong intellectual property policies at every level, including with Customs agents at our ports. Each of us appreciates the complexity of budgetary issues and the competition for limited resources. However, the dangers of under-resourced law enforcement to protect consumers and defend the IP rights of the business community are far too significant for us to pause. We must find a way to appropriate additional resources and staff to this growing threat.
We look forward to working with you to create improvements to anti-
counterfeiting strategies that will create jobs, support innovation, and protect consumers in the United States and around the world. We must find a way to appropriate additional resources and staff to address this growing threat.
Testimony of Shelley Duggan
Global Brand Protection Program Leader
The Procter & Gamble Company
Cincinnati, Ohio
United States Senate Judiciary Committee
Hearing on
“Counterfeits and Their Impact on Consumer Health and Safety”
Wednesday, April 27, 2016
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Introduction Chairman Grassley, Ranking Member Leahy and Members of the Committee, thank you for inviting me to testify this morning on this important topic of counterfeits and their impact on consumer health and safety.
My name is Shelley Duggan and I am the Director and Associate General Counsel, Global Brand Protection Program Leader, for The Procter & Gamble Company. P&G is a global company with a portfolio of quality consumer brands such as Tide laundry detergent, Gillette blades and razors, Head & Shoulders and Pantene shampoo, Crest toothpaste and Oral B toothbrushes. P&G has approximately 110,000 employees around the world and a presence in 34 states, including our headquarters state of Ohio, Iowa, Vermont, Utah, California, Georgia, Louisiana, Missouri, North Carolina, Delaware, Arizona and Minnesota.
I have worked as an intellectual property attorney and brand protection specialist for over 21 years. As P&G’s Global Brand Protection Leader, I am responsible for designing and implementing the Company’s strategy, policy and direction, to fight counterfeits across the entire product portfolio which spans about 65 brands centered on 10 core product categories, sold in over 180 countries.
I lead a global, multi-functional team of 30 professionals, including lawyers, forensic specialists, research and developers and investigators, dedicated to fighting counterfeits and ensuring that wherever possible, consumers and retailers are protected from counterfeiters and counterfeit products.
While I am here to represent a consumer goods company, no industry, market, product category or geography is immune from the effects of counterfeits so thank you for holding a hearing on this important topic.
Counterfeiting is Consumer Fraud Protecting consumers against counterfeits is consistent with P&G’s purpose to touch and improve the lives of consumers around the world. Our products are used by billions of consumers as a part of their daily routines and lives. Consumers wash their hair with our shampoo, brush their teeth with our toothpaste, and use our razors to shave.
As such, P&G takes counterfeiting very seriously. Counterfeiting of consumer products is consumer fraud, plain and simple. Consumers who unknowingly purchase counterfeit products often pay the same price as they would for legitimate goods, but receive inferior (potentially unsafe) products that do not deliver on performance they expect and receive from legitimate P&G products. Cheaper and more widely available manufacturing technologies mean counterfeit packaging has improved making consumer detection even more difficult. Yet the product inside is still exceptionally poor. This consumer fraud undermines consumers’ trust in our brands and our Company. In addition to losing sales to counterfeiters, P&G may also lose loyal consumers.
We manufacture our products pursuant to good manufacturing practices and in compliance with applicable laws and regulations. Contrast this with counterfeiters who manufacture without any regard for consumer health and safety or product integrity. Counterfeit products are always substandard and can be harmful to consumers’ health and safety. P&G’s investigations regularly discover unsanitary and dangerous counterfeit manufacturing operations.
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A rise in consumer complaints is one indication that P&G consumers may have purchased a counterfeit product. Consumers’ health and safety is put in jeopardy because the content of the counterfeit products is unknown and untraceable. If a safety issue arises, there is no reliable way of tracing the counterfeit product’s origins. If there is an issue with a legitimate P&G product, the Company has processes and detailed records that can be used to quickly identify the issue and respond accordingly.
Counterfeiting is IP Theft and a Growing Problem Innovation has been core to P&G for more than 175 years and is key to the Company’s future growth. The Company invests heavily in creating and manufacturing products that delight our consumers. Annually, P&G spends about 2.0 billion USD on R&D enabling us to create new products, upgrade existing products and improve our manufacturing processes. P&G spends billions of dollars building brands through innovative marketing campaigns that convey our products’ benefits and superior product performance. P&G relies on intellectual property to protect these investments and the consumer trust the Company has earned over its long history.
Counterfeiters’ theft of P&G intellectual property encroaches upon P&G’s market share, suppresses profitability, hinders business growth and hurts the equity of our brands. Counterfeiters’ theft frustrates the Company’s capability to innovate and slows down the pace of upgrade. Financial resources allocated to fighting counterfeits could be used more productively against the Company’s core capability as a manufacturer of consumer goods.
Counterfeiters challenge every company’s ability to recover R&D and brand building investments and, if counterfeiters are not effectively contained, ultimately make innovation financially unsustainable.
Unfortunately, the problem is growing. Organization for Economic Cooperation and Development (OECD) recently reported that in 2013, counterfeit and pirated products represented 2.5% of world trade or as much as 461 billion USD. This is up from 2008 when the OECD estimated counterfeit and pirated goods accounted for up to 1.9% of world imports or 200 billion USD.
For national governments, counterfeits deprive them of billions of dollars in tax revenues that would be generated by the production and sale of legitimate products. This much needed revenue could be spent on schools, hospitals, parks and other social programs provided by governments. P&G’s Best in Class Brand Protection Program P&G has had a robust brand protection program for many years. Like many companies, the program’s early years focused on seizures. Federal and local law enforcement agencies in the United States and around the world have been successful in preventing millions of counterfeit consumer products from entering the stream of commerce. P&G would like to thank the Intellectual Property Rights Center (IPR Center), Customs & Border Protection (CBP), Homeland Security Investigations (HSI) and the Department of Justice (DOJ) for prioritizing IP crime in the United States and bringing these criminals to justice. Law enforcement must continue to seize counterfeits at the borders and P&G will continue to support their efforts.
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But with the exponential and rapid growth of eCommerce and the Internet, it became clear the Company needed a multi-pronged approach to remain as agile as possible to fight the counterfeiters’ new business model.
Frustrate Counterfeiters’ Supply Chain P&G first seeks to attack and frustrate the counterfeiters’ supply chain. When counterfeit goods are seized at the border, the importer suffers the financial loss—not the counterfeiter. Since there was no financial threat to deter the counterfeiter, P&G proactively began attacking the counterfeiters’ profit stream—refocusing attention on finding and shutting down manufacturing facilities on a systematic and regular basis. In the last 9 months, P&G has worked closely with law enforcement agencies around the world to identify and shutdown over 50 large facilities manufacturing counterfeits, 12 of which had the capability of generating tens of millions of dollars in illicit sales.
In circumstances where the manufacturing facility is unknown, the objective becomes to frustrate other elements of the counterfeiters’ supply chain. For example, P&G via our trade associations works with banks to cut off funding sources, with intermediaries to hinder the ability to advertise counterfeit products by removing advertisements and online offers, and conducts market sweeps where counterfeit products are literally removed from store shelves.
Influence and Enable Third Parties P&G cannot win the fight against counterfeiters alone so we seek to influence and enable third parties.
Work with Governments Collaborative relationships between P&G, law enforcement and government agencies around the world demonstrate the public-private partnership that is a crucial element to an effective IPR enforcement regime. Anti-counterfeiting efforts undertaken by law enforcement agencies overlap and intersect with those undertaken by individual rights holders like P&G.
Counterfeiters are criminals and P&G fully supports law enforcement efforts to identify, prosecute and bring them to justice. In the United States, P&G cooperates with CBP and HSI on approximately 70-80 cases per year, from port seizures to undercover investigations with global sourcing.
P&G regularly assists law enforcement and customs officials with their IPR enforcement programs by offering expertise and cooperation to identify, investigate and seize counterfeit products at the manufacturing sites or within the supply chain. Here are two examples from the US:
Beginning in 2008, P&G found counterfeit razors in major retailers in the US and Canada. P&G investigated the source and presented its initial findings to HSI. HSI conducted its own investigation and seized $500,000 of counterfeit razor blades. In 2013, the defendant was subsequently convicted of conspiring to traffic in counterfeits, fined and sentenced to 30 months in jail.
P&G also fights against counterfeit coupons. In 2012, P&G noticed a significant uptick in fraudulent coupon redemptions. Investigators from P&G’s brand protection team identified a website, savyshoppersite.com, selling significant quantities of counterfeit coupons and shared its findings with the Phoenix, Arizona police department. The Phoenix PD and the local FBI
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commercial crimes unit conducted their own investigation after which the FBI issued warrants and seized over 40 million USD in counterfeit coupons. Agents also seized 22 weapons, 24 vehicles and cash. These coupons represented millions of dollars in fraudulent coupon redemptions for P&G alone. The defendants were convicted of conspiring to traffic in counterfeit goods, fined and the ringleader was sentenced to 24 months in jail. At the time, this was the largest coupon raid in US history.
In addition, P&G conducts training sessions for thousands of law enforcement and customs officers around the world on how to distinguish genuine P&G products from counterfeits. Also P&G has an advisory role on CBP’s Commercial Operations Advisory Committee (COAC) IPR Subcommittee Working Group, where P&G provides the voice of the consumer packaged goods industry on IP enforcement issues that rights holders face with CBP around the world.
Work with Distributors and Retailers P&G’s retailers can be our eyes and ears in the trade so P&G collaborates with them to develop best practices on how to buy genuine P&G products. P&G works with distributors to transition stores that had previously sold counterfeits to stores that sell only genuine products.
Work with Intermediaries Intermediaries are entities such as carriers, shipping companies, websites, platforms, portals and payment processors, that connect manufacturers and consumers and are essential for legitimate business. The inherent complexity and inter-connectedness of intermediary channels make them attractive to counterfeiters who infiltrate their processes to facilitate their illicit activity. P&G works collaboratively with intermediaries, directly and through our trade associations, to develop and implement best practices to prevent counterfeiters from using their services.
Work with Trade Associations Trade associations play a vital role in the fight against counterfeiters. They develop and distribute voluntary best practices, convene multi-stakeholder meetings around the world, and help educate governments about the threat of counterfeits and how to effectively address the problem. P&G supports many effective trade associations around the world but would like to highlight two programs– one from The International AntiCounterfeiting Association (IACC) and one from the Business Action to Stop Counterfeiting and Piracy – an initiative of the International Chamber of Commerce (BASCAP). IACC developed RogueBlock in 2012 as innovative, cross-industry partnership between rights holders, like P&G, credit card companies and payment processors. RogueBlock allows rights holders to report online sellers of counterfeit goods directly to participating credit card and payment processors. The credit card company can then take prompt action. This program makes it more difficult for counterfeiters to profit from their illicit activity.
Consumers knowingly buy counterfeits for a variety of reasons—from price to a belief it is a victimless crime. BASCAP’s “Fakes Cost More, I Buy Real” is global awareness campaign that helps consumers understand the health and safety risks associated with counterfeit goods and identifies steps they can take to stop purchasing them. The campaign is available in 26 languages and is currently used in Belgium, France, Germany, Italy, Kenya and Turkey, with plans to expand to more geographies. P&G supports the underlying principle that consumers must be educated on the proliferation of counterfeits (they impact every product category) so they can make educated purchases.
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P&G also appreciates the work from the US Chamber’s Global Intellectual Property Center (GIPC) to quantify and fight the counterfeit problem and encourage cross-industry collaboration.
Make Products More Difficult to Copy, Counterfeits Easier to Detect P&G invests heavily in making our products more difficult to copy, making them less attractive to counterfeiters. Unique production qualities enable P&G to train customs officers on how to identify counterfeit product at the ports and providing risk analysis data to increase the likelihood of counterfeits being caught. P&G has developed and deployed innovative in-field testing kits customs officials around the world use to quickly and accurately distinguish the genuine from the counterfeit. Evolution of Counterfeiters’ Business Model Counterfeiting is a global and ever-changing industry. P&G sees the following evolution of the counterfeiters’ business models. Direct Sales to Consumers Most P&G counterfeits are produced in China and then exported to other markets. However, counterfeiters are modifying their business models to take advantage of the rise of eCommerce and the Internet and lower costs to ship directly to consumers. These small shipments are growing. CBP seizures (both in terms of number and value) have increased in express delivery and mail shipments and the ocean category has decreased. Smaller packages of counterfeits are more difficult and less likely to detect. In-Country Assembly P&G is seeing fewer shipping containers of finished counterfeit product and a rapid rise of in-country assembly. Counterfeiters import bulk counterfeit components and packaging materials into a region then assemble in the destination countries. We work with local and federal law enforcement agencies to shut down these operations, which produce substandard (and often unsafe) products and are dangerous facilities. What Is Working and What More Can Be Done? The scope and dynamic nature of the counterfeit problem merits the attention of all stakeholders, including industry and governments at the highest levels. By Governments P&G applauds the US government efforts to fight counterfeits and its efforts to strengthen IPR enforcement around the world. The US has a very robust IPR regime and agencies at every branch of government take an active role in the fight against fakes. The US has a legal framework with robust civil, customs criminal and internet enforcement rules, that together weave an effective and multi-pronged approach to fight counterfeits. P&G has had positive experiences with the IP Attaches’ that are a part of the USPTO’s Overseas IPR Attaché program. We appreciate these efforts by the US government to assist American companies abroad and encourage the Program’s continuation. P&G has also greatly benefitted from the US governments work to coordinate its anti-counterfeit efforts. Counterfeiting is a multi-faceted issue that requires domestic and global coordination amongst diverse agencies and jurisdictions to effectively combat. P&G believes the IPR Center and Intellectual Property Enforcement Coordinator (IPEC) are good models of cooperation and
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collaboration and believe each should receive the funding and staffing resources necessary to achieve their important objectives. P&G has worked closely with the IPR Center on a number of critical counterfeit investigations. The IPR Center provides an efficient, single point of contact for rights holders seeking assistance when their valued IP is under attack. We also applaud the work of the IPEC and its strong advocacy of advancing the protection and enforcement of IP rights within the Administration. The IPEC has had an open-door policy and has welcomed input from rights holders with regard to what is working well and where there could be improvements. We are supportive of the IPEC's efforts to provide a data-driven approach to policymaking. P&G was pleased to see the Trade Facilitation & Trade Enforcement Act (TF&TE) recently pass. We testified in support of TF&TE in 2013 citing the disclosure and information-sharing between CBP and rights holders (such as unredacted images and samples) as a positive development. While we appreciate successful efforts to date, more could be done. It would be helpful if governments empowered customs authorities to take enforcement action against suspected counterfeit goods whenever the goods are under customs supervision—including in transit. Transshipment of counterfeit goods continues to grow in importance as counterfeiters adopt more complex distribution schemes in an attempt to evade detection and seizure of their illicit goods. The United States remains an outlier with regard to in-transit enforcement, in that it provides clear statutory authority to seize goods passing through the country, even where those goods are ultimately destined for another market. US officials should promote this policy with other countries when given the opportunity.
We believe it would also help if the US would cooperate with global intergovernmental organizations to improve capacity building and technical assistance to other foreign governments to support the implementation and enforcement of IPR. P&G strongly supports the Trans-Pacific Partnership (TPP) and the intellectual property rights protections and enforcement for manufacturing companies like P&G. These IPR protections provide even more tools to fight counterfeiters and complement P&G’s future business growth in all eleven of the TPP member countries. By Industry Industry should continue to develop voluntary standards, share best practices and, with the appropriate legal parameters in place, share information with each other. Companies must implement robust brand protection programs or enlist their trade associations or governments to assist them. For example, the USPTO, the IPR Center and the Department of Justice, provide instructions and how-to guides on protecting a company’s intellectual property and fighting counterfeits-- all at no cost to businesses. In addition, rights holders must be willing work collaboratively with law enforcement as time is of the essence when it comes to seizures and shutting down counterfeit operations. Companies should also develop forensic expertise to quickly and accurately distinguish the genuine from the counterfeit products. By All Stakeholders
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Raising awareness and consumer education are essential in decreasing the demand for counterfeits. As discussed earlier in this testimony, effective education helps consumers understand the health and safety risks associated with counterfeits and identifies steps they can take to stop purchasing them. All stakeholders need to make the development and distribution of outreach and effective consumer awareness a priority. Conclusion Chairman Grassley, Senator Leahy, thank you again for the invitation to testify this morning. P&G values our partnership with you and this Committee on this important topic. We also value our partnerships with our trade associations and government agencies here and around the world that are dedicated to fighting counterfeits and keeping consumers safe.
UNITED STATES SENATE COMMITTEE ON THE JUDICIARY
Hearing on
Counterfeits and Their Impact on Consumer Health and Safety
April 27, 2016
Testimony of
Gregory Maguire
Senior Director, Legal & Governmental Affairs Revision Military
Introduction
Good morning Chairman Grassley, Ranking Member Leahy, and Members of the Committee. Thank you
for holding this hearing and inviting me to take part. I appreciate the opportunity to testify before you
today about the important issue of Counterfeits and Their Impact on Consumer Health and Safety. My
name is Gregory Maguire, and I am the Senior Director of Legal & Governmental Affairs for Revision
Military.
In recent years, despite forceful measures taken to protect our intellectual property, Revision has seen a
dramatic rise in counterfeit products across multiple distribution channels. We expect that this trend will
continue as our brand awareness and product penetration grows. As a small business, Revision is deeply
concerned about the rise in businesses using and manipulating our intellectual property to produce
counterfeit goods. The emergence of this activity requires ever-larger and more aggressive efforts to
offset the effects that put significant strain on our resources.
About Revision
To understand the full scope of this problem, I’d like to first provide you with a bit of background about
Revision. Revision Military was founded in 2001 with a singular mission: to produce cutting-edge
protective eyewear that makes a real-world impact. Reports of eye and face injuries were increasing as
the profile of the modern battlefield, specifically the proliferous use of improvised explosive devices (IED),
drastically changed soldiers’ protective needs. Revision developed technology for eyewear that provides
ballistic and fragmentation protection as measured against strict military specification standards. By all
accounts, this technology has made a significant and tangible impact. The protective eyewear industry is
now a growing equipment sector in high demand. Revision has built a name on meeting or exceeding
extremely stringent and comprehensive global military specifications for products used in hostile
situations.
The U.S. Department of Defense has developed the Military Combat Eye Protection (MCEP) System
which establishes not only ballistic performance, but also optical quality, protection from ultraviolet harm,
weight, equipment compatibility, accommodation of prescription inserts, chemical resistance, luminous
transmittance, field of view, resistance to fogging, resistance to scratching, resistance to abrasion,
durability, climatic condition durability, and flammability.1 The U.S. Army uses these standards in the
development and maintenance of the Authorized Protective Eyewear List (APEL).2 No other eyewear than
that which is listed on APEL can be worn by a soldier while on duty. 3
Revision eyewear, particularly the
Desert Locust goggle, has been listed on APEL since 2007.
Revision has over 440 employees, the majority of which are located in Vermont. Revision’s flagship
Sawfly® kit is now the issued eyewear for most NATO countries, including U.S., U.K., Swiss, and
German forces, among others. Revision has since developed and released additional lines of ballistic
spectacles, as well as a number of goggle lines, all of which are engineered for ballistic impact
protection. Revision has produced and delivered approximately 7 million units of protective eyewear
to military and tactical customers globally. Revision has diversified and is now a leader in armor,
helmets, and head system protection products. Additionally, Revision has expanded into power
management systems in response to the unmet needs of military and commercial markets to store,
deliver, harvest, and share power in relatively lightweight configurations. Revision has successfully
managed large scale contracts for the U.S. Army, Canadian Department of National Defence,
German Armed Forces, Swiss Department of Defence, Dutch Ministry of Defence, and the Belgian
Ministry of Defence.
Revision’s facilities house state-of-the-art optics, ballistics, and laser laboratories equipped with over $2.5
million of high-tech testing equipment. These laboratories are used for product development, but also for
rigid quality assurance. Revision designs, develops and owns the intellectual property and the tooling that
are fundamental to the delivery of the company’s head, facial, and torso protective equipment. Revision’s
1 MIL-PRF-32432, 9 Jan. 2013
2 Policy for MCEP APEL, 19 June 2009
3 Policy for MCEP APEL, 19 June 2009
lens production operation takes place in an environmentally controlled clean room with cutting-edge,
custom-designed technology. All this experience, expertise, and investment has allowed Revision to
establish a strong intellectual property portfolio, including many patents, trademarks, copyrights and trade
secrets that expands across Revision’s Optical, Armor and Power business segments.
Revision’s Tactics for Combating Counterfeiting
Revision has been battling counterfeit products and operations for years. We have found that Revision’s
Desert Locust® goggle, the company’s original goggle line, is the item most frequently illegally replicated,
but counterfeit versions of Revision’s Sawfly spectacles have also surfaced. Additionally, Revision’s
brand names and photography are often used by sellers to support the sale of the counterfeit products.
Counterfeiters will often use the company name Revision, the trademarked names Desert Locust, Sawfly,
Revision logos, and will repurpose imagery that is displayed on Revision’s website.
Revision has actively maintained an anti-counterfeiting strategy since 2009. We’ve deployed a litany of
countermeasures to stop the sale of counterfeit eyewear in particular. Revision invests substantially in its
intellectual property and goes to great lengths to protect it; filing for copyright, patent and trademark rights
across numerous regions, including, but not limited to, the U.S., Canada, Europe, and China. As part of
this strategy, Revision utilizes law firms to send Take-down notices and to issue Cease and Desist letters.
Revision also takes any and all necessary steps to record the company’s trademarks with U.S. Customs
and Border Protection in order to track shipments and seize counterfeit products bearing Revision’s
trademarks entering the country. While this program has shown success, seizures occur only at Ports of
Entry and not at the source.
E-commerce activity has been one of the most significant challenges to tracking and removing counterfeit
products, and has required a great deal of time investment and additional human and financial resource
allocation. Revision vigilantly monitors dozens of websites in the attempt to capture any and all counterfeit
products. These websites consist of Business to Consumer (B2C) and Business to Business (B2B)
platforms, and many are websites for Chinese sourcing. We have identified counterfeit products for sale
through most major global online retailers, including, but not limited to, Amazon.com, Ebay.com,
Alibaba.com, Aliexpress.com, 1688.com, and Taobao.com. In searching these websites, Revision has
identified over 4,500 Desert Locust counterfeit product listings. Out of necessity, based on the volume of
counterfeit products we have witnessed in e-commerce channels, we began monitoring on a weekly,
sometimes even daily, basis in December 2014. To be this aggressive, Revision has had to create a
specialized job position and hire an individual fluent in Mandarin to support this anti-counterfeiting effort.
Revision’s Experiences with Counterfeit Operations
Because of Revision’s sustained investment, and aggressive pursuit of these operations, we have been
somewhat successful at constraining counterfeit listings posted by most major e-commerce retailers.
However, the numbers continue to rise, as does the investment needed to keep pace. The prices for
counterfeit products that we’ve encountered range from as low as 3% of the total retail price to 40%,
luring consumers with attractive price points and false claims. I have here samples of seized counterfeit
products side-by-side with authentic Revision eyewear. Seeing them together, it is clear how compelling
these counterfeit products can be. Despite our vigilance in identifying counterfeit products across
distribution channels, removing these clearly-inferior counterfeit products from the market, and keeping
them off, can be a difficult and lengthy process.
While most online retailers acknowledge that infringement occurs through their websites, and, in most
cases, have established policies and procedures at least for counterfeits, these are far from fool-proof.
Often, the process of reporting and monitoring these listings places a significant burden on the company
that owns the intellectual property rights. Upon reporting counterfeits to these websites, the online retailer
is supposed to notify the seller and have the product listing removed. In our experience, however,
removal of counterfeit product listings by online retailers is not an assured outcome. Additionally, lesser
known online retailers lack any procedure for the rightful intellectual property owner to report counterfeit
product listings. Ultimately, these efforts do little to inhibit offending suppliers from re-posting the same
counterfeit goods on the exact same online retailer website, whether under the same seller identity or re-
posting the same product under a different title, tagline, or user name. Despite considerable resources
devoted to combating these activities, the results of our efforts are considerably lessened by inconsistent
and ineffectual policies. The consequences for those engaged in these illegal operations are very
minimal, especially considering their potential impact. We have seen the same sellers repeatedly in the
course of our efforts. Although some large online retailers have policies and procedures for dealing with
counterfeits, these online retailers are the least responsive to our reports.
In response to this frustrating lack of oversight, Revision has recently taken much more aggressive action
to thwart sellers of counterfeit products, with the hopes of also dissuading other retailers that have been
conducting similar illicit business practices. This past January, Revision worked in conjunction with the
Dearborn and Ohio County Prosecutor’s Office in Indiana to enact a sting at the SnowSports Industries
America (SIA) Snow Show in Denver, Colorado. The target was Guangzhou Botai Optical Visor Co., Ltd.
(Guangzhou Botai), a company based in Guangzhou, China. Guangzhou Botai has been producing
unauthorized counterfeit versions of Revision’s Desert Locust goggle. The company’s U.S. representative
and part owner was arrested by local authorities on the showroom floor and arrest warrants were issued
for two other co-owners and a sales associate for this company. The four are facing six felony charges,
including counterfeiting, theft, and corrupt business practices, as well as conspiracy to commit for each.
Even this successful action, which remains ongoing, was a difficult, costly and lengthy process.
This Guangzhou Botai case was the most recent and distinct case we’ve experienced, adding to
Revision’s now-lengthy track-record with counterfeit operations. Another significant experience occurred
in 2014 whereby Revision submitted a bid under a Ukrainian eyewear tender for 1,500 protective goggles.
Revision lost the tender to a competitor providing counterfeit versions of the Desert Locust product line.
The company that produced the counterfeit products submitted Revision’s test data with their replica
products. In this particular case, not only was this a missed business opportunity for Revision, resulting in
lost revenue, but a government body was the recipient of inferior, counterfeit products. More importantly,
soldiers receiving this product were exposed to inferior eye protection in the face of combat. This provides
a sense of the prevalence and scale of this international problem.
The Consequences of Counterfeiting
Revision Military is in the business of protecting those that put themselves in harm’s way for our safety.
To this end, Revision has invested significant resources making state-of-the-art ballistic protection
available to its customers. Counterfeits which do not meet such standards endanger the soldier or law
enforcement officers, and would lead to the possible maiming and/or blinding of the wearers, if not more
serious injury, or death.
All of Revision’s efforts to combat counterfeit operations take up valuable resources. Not only do these
counterfeit activities cut into Revision’s revenue, but the impact is even more considerable. For Revision,
these operations erode Revision’s reputation as a leader in protective equipment solutions and
manufacturing, with an unequivocal record for producing products that more than exceed worldwide
military-grade specifications and standards. The degree to which these counterfeit products diminish the
Revision name and reputation is difficult to quantify. The resulting loss of value due to this exposure only
grows over time. The time and money invested in marginally disputing these counterfeit businesses takes
away from our vital mission: dedication to developing and manufacturing life-saving protective gear for
military forces, law enforcement officers, and private citizens around the world who are seeking the
highest level of ballistic and fragmentation protection available.
Even more severe and disturbing are the potential consequences to Revision customers. Over a decade-
and-a-half of operations, Revision has received countless testimonials from users that report first-hand,
the life-saving quality of Revision products. From soldiers in life-threatening combat situations to law
enforcement officer protecting our homeland, we have consistently heard powerful stories of our product
saving eyesight.
Counterfeit products are typically distributed under the pretense of providing military-grade ballistic
protection. This false claim presents a danger to the safety of users expecting the high level eye
protection of authentic Revision products. After extensive investigation and testing of counterfeit products
obtained by Revision, these counterfeits have failed safety metrics conclusively across measures,
including optical standards, anti-fog capability, abrasion resistance, and ballistic quality. Recent testing on
seized counterfeit goggles established that these products fail to meet the standards set forth by the
American National Standards Institute (ANSI Z87.1), Military Combat Eye Protection (MCEP) System
standards (MIL-PRF-32432 (GL)), European Standards for Eyewear Protection (EN 166), and perform
considerably lower under NATO procedures set forth under STANAG 2920 V50 than Revision’s Desert
Locust goggle. Simply put, counterfeit eyewear would not have withstood the high-projectile impact
standards encountered in a combat situation and the wearer would be subject to severe injury. The
severity of these ramifications is unique in Revision’s case because we are invested in making premier
protective products; any devaluation has potentially fatal consequences.
Opportunities of Improvement for Consideration
Given our experience, Revision submits for consideration the following suggested initiatives:
First, enable the Department of Homeland Security, namely U.S. Customs and Border Protection
(CBP), to seize at the border imports that infringe U.S. design patents and enable the recording of
design patents with the U.S. Customs and Border Protection, IPR Enforcement Program.
Second, large online retailers need to be held more responsible and accountable for the sale of
counterfeit goods on their websites.
Finally, federal law needs strengthening along the lines of jurisdictions, such as in Indiana, with
regard to enforcement of intellectual property rights.
Federal law enforcement, U.S. Customs and Border Protection (CBP) specifically, should be given the
tools necessary to interdict all manner of counterfeit products. CBP allows holders of trademarks or
copyrights to electronically submit proof so as to alert enforcers regarding counterfeiting.4 The electronic
record that is created alerts agents to monitor imports and to seize goods that violate Revision’s
intellectual property rights. Revision has used this service to register its Desert Locust trademark, which
has led to successful seizures in five different enforcement actions.5 Revision has found this tool to be
both effective and easy to use and the enforcement personnel to be very cooperative. This is very much
appreciated and it is our hope that such a program could be extended to holders of patents.
CBP should, at a minimum, allow for the enforcement of design patents. Design patents protect the look
or appearance of a product, without regard to the underlying technology. 6 Counterfeiters market
eyewear that closely resembles Revision’s products to mislead consumers. Those counterfeit products do
not meet ballistic resistance and other quality and performance standards inherent in Revision’s eyewear.
In determining whether a trademark or copyright is infringed, assessment of design patent infringement
does not require technical skills or expertise to make a determination, which has always been the concern
regarding any extension of patent enforcement. 7 Design patents, similar to trademarks and copyrights
are visually observable.
Adding design patent enforcement would mirror authority already in existence in other jurisdictions. For
instance, the European Union (EU) enforces Registered Community Designs through their analogous
customs authority. 8 It would therefore represent the extension of equivalent enforcement to the holders
of U.S. design patents.
4 19 C.F.R. sections 133.1 et seq.; 19 C.F.R. 133.31 et seq.
5 Jan. 31, 2012 seizure in Anchorage, Feb. 8, 2012 seizure in Cleveland, June 26, 2014 seizure in Anchorage, Jan. 9,
2015 seizure in Anchorage, and Jan. 9, 2015 seizure in Anchorage 6 35 U.S.C. sections 101, 171
7 See, e.g., Timothy P. trainer & Vicki E. Allums, Protecting Intellectual Property Rights Across Borders, Patents,
Customs Enforcement of ITC Exclusion Orders section 5.1 (“customs lack of authority to protect patents at the border is… primarily a result of the technical nature of patents and the expertise required to make infringement determinations. 8 Council Regulation 1383/2003 O.J. (L 196/7)
Online retailers should be more responsive to properly documented requests to remove content by
counterfeiters. Although the law is largely unresolved regarding the responsibility of online retailers for
patent infringement under 35 U.S.C. section 271(a), 9 some online retailers are more responsive than
others regarding our requests to remove offending product listings. The responsibility, under section 271
(a) rests upon “selling” and “offering to sell” liability, which does not make clear the liability large online
retailers have, despite all of the activity they undertake to fulfill the meeting of customer and seller,
shipping of product, and payment processing. In some court opinions, online retailers are not involved in
the “selling” or “offering to sell,” as defined by the statute. Some online retailers have taken notice of such
legal determinations and have been less than responsive regarding properly documented requests to
remove content by counterfeiters. As large online retailers extend their reach to hundreds of millions of
customers, more needs to be done to insure that there is a higher degree of responsibility that
accompanies such a large business opportunity.
In lieu of any change to federal law regarding internet commerce, it is Revision’s recommendation that
Congress encourage the internet retailing and reselling industry to oversee and remove counterfeit
content. Much like past efforts by various industries to assure that standards of consumer confidence
have been adopted, large online retailers should give consumers assurances that products listed are
genuine. Present technology affords aggrieved parties to submit electronic proof, which is then subject to
easy review and verification by the online retailer. The offending product can thus be easily removed,
protecting consumers as well as the legitimate merchandise manufactures and retailers.
Federal criminal law should be enhanced in order to modernize the intellectual property rights that it
protects. In many instances, there are distinct advantages to relying upon state law claims for intellectual
property protection. For example, Indiana’s criminal code includes an expansive and comprehensive
9 The question is presently under consideration by the Federal Circuit Court of Appeals from the U.S. District Court
matter Milo v. Amazon, U.S. District Court for the Western District of Washington, Case No. 2:13-cv-01932. See also Tiffany Inc. v. eBay, Inc, 600 F.3d 93 (2d Cir. 2010), in which eBay avoids liability. See also Coach v. Goodfellow, 717 F. 3d 498 (2013), in which flee market owner was held liable.
definition of property.10
This definition of property, in turn, sets the stage for prosecutions against
unauthorized takings of intangible property based upon Indiana’s theft and conversion statutes.11
This is
contrasted with a much more limited and rigid approach as to what constitutes property worthy of similar
protection under federal law.12
Revision encourages the Committee to consider a similar scope of
protection at the federal level.
In addition to the broader definition of property, Indiana prohibits a more expansive range of conduct with
regard to the unauthorized taking or use of intellectual property. Indiana’s counterfeiting and forgery
statutes, for example, do not limit proscribed conduct simply to the sale of goods. Instead, the prohibited
activity that is the focus of Indiana’s counterfeiting and forgery statutes is the unauthorized “making or
uttering” of a written instrument.13
“Making” or “uttering” includes not only selling but also authenticating,
transferring, publishing, delivering, transmitting, or presenting.14
This more expansive definition of
prohibited activities, allows for greater flexibility to address the myriad forms of intellectual property
violations now conducted on the internet.
Closing Remarks
Revision is committed to the continued protection of intellectual property rights of American
manufacturers. We commend the Committee for holding this hearing to explore opportunities to protect
American consumer health and safety from the dangers of counterfeit products.
Thank you for the opportunity to share our story and provide recommendations for improvements to
intellectual property enforcement. I welcome any questions members of the Committee may have.
10
Indiana Code 35-31-5-2-253(a) which defines “property” as “anything of value” including intangibles. 11
See, for example, An-Hung Yao v. State, 975 N.E. 2d 1273 (2012) in which the Indiana Supreme Court ruled that “encumbering” all manner of intangible property, including a trademark, amounted to theft. 12
18 USCA §2320 13
Indiana Code section 35-31.5-2-345 14
Indiana Code section 35-31.5-2-345
United States Senate Committee on Judiciary
Hearing entitled “Counterfeits and Their Impact on Consumer Health and Safety” April 27, 2016
Responses to Questions for the Record Gregory Maguire, Senior Director, Legal and Government Affairs, Revision Military
Questions from Chairman Grassley 1) How are counterfeiters’ tactics evolving, and how are you keeping up
with these changes?
Until three years ago, Revision encountered the marketing of forgeries on vendor web sites, which were often small businesses, commonly located in Europe. The identities of the counterfeiters were usually easy to obtain from the information contained on the website, and if not, the data under which that site had registered its URL. With that information, cease and desist and take down demands made by counsel in the country in which it was posted were easily issued to known parties and compliance with such requests was high. Often the counterfeiters offered manufacturing source information, which, more often than not lead to sources in Asia. The case-‐load was usually less than 200 each year and while a burden was relatively manageable. However, with the emergence of large online retailers such as Alibaba and Amazon, product vendors no longer had to develop and maintain their own websites. They could now simply use the large online retailer platform to market their counterfeits worldwide. In addition, the particulars of their company were only shared with the online retailer, which, in turn, could choose what they shared with the customer. The fact that online retailers also began assuming all of the transactions associated in fulfilling the orders, there developed a glaring lack of transparency regarding the true source of the product that had otherwise been better revealed when offered direct through the vendors own websites. Not only were the vendors much harder to identify as counterfeiters increased their use of large online retailers, the volume of counterfeit product increased exponentially. The ease of use and reduced cost of posting a retail offering has greatly benefited the world economy. Small offerors can reach a worldwide market, which is a benefit that needs to be preserved. However, these benefits are also enjoyed by the counterfeiters and vastly simplified market entry has had its affect. With the increased volume of counterfeiters, Revision has had to hire more staff and devote more resources to the thousands of postings that are now occurring. Staff has had to learn and implement the various and different complaint registrations and complaint filing procedures and processes implemented by the various large online retailers. While the online processes are efficient, each site is different and not all online retailers are equally responsive to take down requests.
2) Could you give us more information on what best practices you encourage or engage in to fight against the sale of counterfeit products? Do you have best practices specifically designed to protect consumer health and safety?
Revision has implemented the following best practices: • Obtained patents, trademark registrations and copyrights for our products, not only in the
US, but also in countries in which Revision markets our products and in countries where we need to most defend ourselves from counterfeits.
• Recorded our trademarks with the CBP, IPR Enforcement program. This has resulted in interdiction of counterfeited product.
• Actively monitor online content on a daily basis. • Aggressively pursue complaints against those who market counterfeit products on the
internet. • Pursue criminal remedies against egregious offenders.
With regard to protection of consumer health and safety: • Obtain and test counterfeit products; • Educate distributors, retailers and customers regarding the dangers of counterfeit products
and the need to assure that products are obtained from reliable retailers.
3) What has been your experience working with local, state, and federal law enforcement to protect against counterfeits? Are they responsive to your concerns? What can be done to better improve law enforcement efforts?
Revision has recorded our trademark with Customs and Boarder Protection, IPR Enforcement and that has led to five seizures of counterfeited product. CBP personnel have been professional, responsive and helpful regarding confirmation that such products were counterfeit, offering a sample for product testing, and ensuring that such products do not enter the stream of commerce in the United States. This past January, Revision decided to escalate action against an especially challenging counterfeiter, which had repeated instances of online offerings of counterfeit goods. In conjunction with the Dearborn and Ohio County Prosecutor’s Office in Indiana, Revision participated in a sting operation at the SnowSports Industries America (SIA) Snow Show in Denver, Colorado. The target was Guangzhou Botai Optical Visor Co., Ltd. (“Guangzhou Botai”), a company based in Guangzhou, China. Guangzhou Botai has been producing unauthorized counterfeit versions of Revision’s Desert Locust goggle. The company’s U.S. representative and part owner was arrested by local authorities on the showroom floor and arrest warrants were
issued for two other co-‐owners and a sales associate for this company. The four are facing six felony charges, including counterfeiting, theft, and corrupt business practices, as well as conspiracy to commit for each. In the end, it is a question of resources. CBP should receive adequate funding to protect Americans from the import of counterfeit goods. Federal, state and local law enforcement should have adequate resources to enforce the laws in place regarding the sale of counterfeit goods. Questions from Ranking Member Leahy 1) Businesses like yours in Vermont and across the country spend years
developing their products so that customers know and trust their brand. How does counterfeiting affect the brand you’ve worked so hard to develop at Revision?
The most significant impact of counterfeiting on customer safety is the erosion of confidence that customers have developed regarding protective eyewear. Protective eyewear has irrefutable benefit regarding the prevention of serious injuries to the soldier, the police officer or anyone who is put at risk of being injured by flying projectiles or debris. It is confidence that has been build due to reliability and the comfort and ease of use that has been painstakingly developed through the investment of Revision resources over the years. The moment that this confidence is eroded through negative experiences with counterfeit products that fail or perform badly is the moment that people will be less likely to be safe. Like the erosion of confidence in the product, there will be erosion of confidence in Revision and our line of personal protective equipment. Consumers have come to rely on Revision and as a result Revision has continued to reinvest in safety and comfort improvements to improve our products. Given this important connection to the consumer, Revision employs Americans and strives to protect not only those who put their lives on the line to protect our safety but provides critical eye protection for all who wear Revision products. 2) Law enforcement officers around the country rely on Revision products
for safety. The samples you brought to the hearing demonstrate how hard it can be to spot counterfeits. What advice do you give to local law enforcement agencies to combat the risk of counterfeiting? Are there consumer education efforts that the federal government can help support?
Law enforcement officers are perhaps the most vulnerable consumers of counterfeit eye protection. Often a law enforcement officer’s eye protection is purchased out of an equipment allowance that is offered to them by their department. In order to stretch the buying power of this allowance for all of the officer’s safety and protective needs, any online offering of product that is much cheaper than the same product offered elsewhere will become an attractive option, particularly if it has every appearance of being legitimate. Online retailers give the impression of legitimacy, whereas the actual product sold can be quite different. It is therefore a best practice for police departments to procure protective eyewear directly for the use of its officers. If they do not procure directly, better guidance can be provided by police departments as to approved eyewear through approved dealers. Police departments should also take care to use reliable retailers and distributors. Meanwhile, retailers and distributors must ensure that they are selling genuine product. Consumer education is a key component regarding the dangers of counterfeit goods. First, consumers need to be made aware that counterfeit protective eyewear will not function properly to provide desired protection. Second, consumers need to be educated on the need to exercise caution when they purchase items. Better consumer education resources should be developed to highlight the dangers posed by counterfeit products. There are several, sector based, counterfeit education programs that currently exist, having been developed by industry trade associations. However, there is a lack of well known, comprehensive education programs. Perhaps one the best comprehensive presentations has been developed is the UNReal Campaign by the International Trademark Association: http://www.inta.org/Advocacy/Pages/UnrealCampaign.aspx.
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SENATOR GRASSLEY’S WRITTEN QUESTIONS FOR JUDICIARY COMMITTEE HEARING
“COUNTERFEITS AND THEIR IMPACT ON CONSUMER HEALTH AND SAFETY,” APRIL
27, 2016
Questions for Shelley Duggan (Procter & Gamble)
1. Could you please elaborate on how the tactics of counterfeiters are evolving, and
how you are keeping up with these criminals?
Answer: P&G sees the following evolution of the counterfeiters’ business
models--
Direct Sales to Consumers
Most P&G counterfeits are produced in China and then exported to other
markets. However, counterfeiters are modifying their business models to take
advantage of the rise of eCommerce and the Internet and lower costs to ship
directly to consumers. These small shipments are growing. CBP seizures (both
in terms of number and value) have increased in express delivery and mail
shipments and the ocean category has decreased. Smaller packages of
counterfeits are more difficult and less likely to detect.
In-Country Assembly
P&G is seeing fewer shipping containers of finished counterfeit product and a
rapid rise of in-country assembly. Counterfeiters import bulk counterfeit
components and packaging materials into a region then assemble in the
destination countries. We work with local and federal law enforcement agencies
to shut down these operations, which produce substandard (and often unsafe)
products and are dangerous facilities.
Counterfeiting is a global and ever-changing industry. P&G has had a robust
brand protection program for many years. Like many companies, the program’s
early years focused on seizures. But with the exponential and rapid growth of
eCommerce and the Internet, it became clear the Company needed a multi-
pronged approach to remain as agile as possible to fight the counterfeiters’ new
business model. Firstly, we frustrate the counterfeiters’ supply chain. Secondly,
we work to influence and enable third parties to help us in our fight and thirdly
we make our products difficult to copy and counterfeits easier to detect. P&G’s
written testimony explains each prong in depth.
2. Could you give us more information on what best practices you encourage or
engage in to fight against the sale of counterfeit products? Do you have best
practices specifically designed to protect consumer health and safety?
Answer: P&G’s Global Brand Protection program incorporates many of the best
practices identified by industry associations and governments. We believe a key
best practice is to stop the manufacture of counterfeits and keep them out of
consumers’ hands in the first place. P&G works with local and federal law
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enforcement agencies around the world to shut down these operations, which
produce substandard (and often unsafe) products and are dangerous facilities.
We manufacture our products pursuant to good manufacturing practices and in
compliance with applicable laws and regulations. Contrast this with
counterfeiters who manufacture without any regard for consumer health and
safety or product integrity. Counterfeit products are always substandard and
can be harmful to consumers’ health and safety. P&G’s investigations regularly
discover unsanitary and dangerous counterfeit manufacturing operations.
A rise in consumer complaints is one indication that P&G consumers may have
purchased a counterfeit product. Consumers’ health and safety is put in
jeopardy because the content of the counterfeit products is unknown and
untraceable. If a safety issue arises, there is no reliable way of tracing the
counterfeit product’s origins. If there is an issue with a legitimate P&G product,
the Company has processes and detailed records that can be used to quickly
identify the issue and respond accordingly. If a consumer has an issue with one
of our products, the consumer can call a toll free number and consumer relations
will address their concerns.
3. What characteristics of products in the health and personal care industry make
their counterfeiting such a sensitive problem for consumers? Can you elaborate
on the specific harms in the health and personal care product industry?
Answer: Protecting consumers against counterfeits is consistent with P&G’s
purpose to touch and improve the lives of consumers around the world. Our
products are used by billions of consumers as a part of their daily routines and
lives. Consumers wash their hair with our shampoo, brush their teeth with our
toothpaste, and use our razors to shave. As such, P&G takes counterfeiting very
seriously.
For consumer products industry, counterfeit packaging has improved with the
availability of cheaper technology but the product inside remains exceptionally
poor. Better packaging makes consumer detection especially difficult.
P&G manufactures in compliance with applicable laws and good manufacturing
practices. Counterfeiters manufacture without regard to consumer health and
safety. P&G believes any counterfeit health or personal care product should be
deemed unsafe and a threat to consumer health and safety. We have seen
consumers cut by counterfeit razors and experience skin irritation from
counterfeit shampoo.
4. Is there anything that Congress should consider in terms of legislation to help
address the counterfeiting problem and specifically counterfeits that directly
impact the health and safety of consumers?
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Answer: The U.S. has a legal framework with robust civil, customs criminal and
Internet enforcement rules that together weave an effective and multi-pronged
approach to fight counterfeits. The recently passed TF&TE bill has provisions
allowing for information sharing between CBP and rights holders. Outside the
U.S., we support strengthening intellectual property rights, including the ability
to interdict suspected counterfeit goods in transit.
5. Do you think that provisions in the Trade Enforcement and Trade Facilitation
Act of 2015 will help companies in the fight against counterfeiting?
Answer: P&G was pleased to see the Trade Facilitation & Trade Enforcement
Act (TF&TE) recently pass. We testified in support of TF&TE before Senate
Finance in 2013 citing the disclosure and information-sharing between CBP and
rights holders (such as unredacted images and samples) as a positive
development. We are looking for quick implementation of these information
sharing provisions and other provisions so that CBP can work more efficiently
with rights holders.
6. What has been your experience with addressing counterfeiting problems with
foreign law enforcement? Are certain countries’ law enforcement more willing to
deal with the problem than others?
Answer: IP theft is a crime that does not get the necessary attention in some
countries. That’s not the case in the U.S. Collaborative relationships between
P&G, law enforcement and government agencies around the world demonstrate
the public-private partnership that is a crucial element to an effective IPR
enforcement regime. Anti-counterfeiting efforts undertaken by law enforcement
agencies overlap and intersect with those undertaken by individual rights
holders like P&G.
7. Has your company ever worked with the USPTO to get assistance in enforcing
your intellectual property rights abroad?
Answer: P&G has had positive experiences with the IP Attachés that are a part
of the USPTO’s Overseas IPR Attaché program. We appreciate these efforts by
the US government to assist American companies abroad and encourage the
Program’s continuation.
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Questions for the Record of Senator Patrick Leahy (D-Vt.),
Ranking Member, Senate Judiciary Committee,
Hearing on “Counterfeits and Their Impact on Consumer Health and Safety”
April 27, 2016
Questions for Shelley Duggan, Proctor and Gamble
1. Proctor & Gamble has developed sophisticated operations to respond to the challenges of
counterfeiting. Small businesses may not have that capacity. What is the business
community doing to collaborate and share information to help report and prevent
counterfeits, and what more can be done to encourage and facilitate such collaboration?
What resources are available to small businesses?
Answer: The scope and nature of the counterfeit problem means everyone must take an
active role in the fight against fakes, including small businesses and we encourage small
companies to actively participate in the fight against fakes.
We appreciate that small businesses may not have the resources to combat counterfeits,
but all legitimate businesses, even small ones are at risk. We encourage smaller
companies to join trade or industry associations to collaborate and share information with
larger companies. In these industry associations, located around the world, with
appropriate legal parameters in place businesses share best practices, benchmark,
exchange information and coordinate training for government officials, to fight the
counterfeiters. P&G assists many small businesses on an informal basis to help them
with their brand protection efforts.
There are also free resources available from governments. In the US, the USPTO, the
IPR Center and the Department of Justice, all provide instructions and how-to guides on
protecting a company’s intellectual property and fighting counterfeits-- all at no cost to
businesses.
2. Increasingly, counterfeits are entering the country in small parcels sent directly to
consumers, instead of in large shipments that are easy for Customs & Border Protection
to detect. Is Proctor & Gamble experiencing this problem, and what steps are you taking
to address it? Is there more that law enforcement and entities in the private sector,
including delivery services, can do to address this problem?
Answer: Most P&G counterfeits are produced in China and then exported to other
markets. However, counterfeiters are modifying their business models to take advantage
of the rise of eCommerce and the Internet and lower costs to ship directly to consumers.
These small shipments are growing. CBP seizures (both in terms of number and value)
have increased in express delivery and mail shipments and the ocean category has
decreased. Smaller packages of counterfeits are more difficult and less likely to detect.
P&Gs Global Brand Protection Program has evolved to meet the change in the
counterfeiters’ business model, including the shift to small packages and direct to
consumer sales. P&G has trained customs’ officers on this trend, has made its products
more difficult to copy and fakes easier to detect and has worked directly and indirectly
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with intermediaries to develop and implement best practices to prevent counterfeiters
from using their services.
Again, the scope and nature of the counterfeit problem means everyone must take an
active role in the fight against fakes. It is important for governments to train Customs
and law enforcement officers at express ports and to develop systems, processes and tools
that make it easier for customs officers to identify, detail, evaluate and seize express
shipments of counterfeits.
Intermediaries are entities such as carriers, shipping companies, websites, platforms,
portals and payment processors that connect manufacturers and consumers and are
essential for legitimate business. The inherent complexity and inter-connectedness of
intermediary channels make them attractive to counterfeiters who infiltrate their
processes to facilitate their illicit activity. Intermediaries have a vested interest in
keeping counterfeits out of consumers’ hands. Intermediaries should continue to actively
work with companies like P&G to identify and mitigate vulnerabilities in their supply
chain. Also, intermediaries should educate themselves and institute best practices, for
example those outlined in BASCAP/ICC’s March 2015 report entitled Roles and
Responsibilities of Intermediaries.
3. External packaging for counterfeits has evolved such that it is difficult for consumers to
detect counterfeits from the outside alone—but the product inside still poses potential
health and safety risks. Does Procter & Gamble support consumer education about this
issue? What should consumers know to help them avoid such counterfeits?
Answer: Raising awareness and consumer education are essential in decreasing the
demand for counterfeits. Effective education helps consumers understand the health and
safety risks associated with counterfeits and identifies steps they can take to stop
purchasing them. But counterfeiters have improved the packaging (due to technology)
and now price their products so as not to raise suspicion so we find that many consumers
do not know they are purchasing a counterfeit product. For that reason, P&G supports
the underlying principle that consumers must be educated on the proliferation of
counterfeits-- they impact every product category-- so they can make educated purchases
and if their experience with a product is inconsistent, to be suspicious that it may be
counterfeit. All stakeholders need to make the development and distribution of outreach
and effective consumer awareness a priority.
4. You have experience working collaboratively with third parties including government,
intermediaries and industry to fight counterfeits. What types of voluntary efforts have
been the most successful? What can each stakeholder do better?
Answer: Counterfeited products are always substandard and defraud consumers so
P&G’s Global Brand Protection Program focuses on doing what we can do to stop the
counterfeited products from getting into consumers’ hands in the first place. P&G’s
multi-pronged approach to fighting counterfeits allows us to attack counterfeits at every
point in the supply chain.
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To do this, we collaborate with law enforcement, intermediaries and other third parties,
either directly or via trade associations. We support several voluntary initiatives,
including eCommerce take down programs and consumer awareness programs such as
the BASCAP’s “Fakes Cost More, I Buy Real campaigns.” We are proud of the success
we had in shutting down major counterfeiting manufacturing operations. But as the
OECD report makes clear, the counterfeit problem is increasing for all industries and
brands so we cannot be complacent.
It is our experience that the most successful voluntary efforts are those where the
stakeholders acknowledge the growing problem with counterfeits, is willing to make
necessary changes to address the issue and remains agile to modify strategies or tactics if
they are not working.
May 18, 2016
The Honorable Chuck Grassley Chairman Committee on the Judiciary United States Senate Washington, DC 20510 Re: Responses to Questions for the Hearing Record (April 27, 2016) Mr. Chairman:
Thank you for the opportunity to testify on April 27, 2016, and present the views of the United States Chamber of Commerce (the “Chamber”) to you and members of the Committee on counterfeits and their impact on consumer safety. The following pages are responsive to the questions posed to me for the record by members of the Committee.
Regards,
David Hirschmann President and CEO
Global Intellectual Property Center
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Response to Question 1 by Chairman Grassley
Today’s counterfeiters use every avenue to reach consumers directly. Counterfeiters are excellent marketers. Criminals used to sell goods in flea markets to target consumers. Now, criminals have taken their sales online. The sale of counterfeits on social media platforms such as Twitter, Instagram and WeChat is a growing threat.1 While the sale of counterfeit goods on the Internet is not new, the medium through which a sale occurs has changed. Criminals are harder to locate and prosecute because of concealed identities used online.
As criminals continue to target various e-commerce platforms, law enforcement’s tactics to target and seize goods becomes more challenging. Goods are shipped directly to consumers in small, individual parcels.2
Response to Question 2 by Chairman Grassley
The Trustworthy Accountability Group (TAG) is an advertising industry-driven initiative that will help protect brands in the online environment to combat online piracy by keeping legitimate companies’ digital ads from inadvertently being placed on websites dedicated to counterfeiting or piracy. As more consumers turn to online marketplaces to purchase goods and digital advertising becomes smarter, criminals are getting smarter as well, often purchasing fake domain names and pursuing other forms of digital fraud such as malware and identify theft. The TAG initiative is a great example of an industry adapting to the challenges of online piracy and protecting its consumers.3
The National Crime Prevention Council organized a public service announcement and coordinated campaign where the Global Intellectual Property Center (“GIPC”) offered its own consumer awareness tips. The public service announcement video is used for law enforcement educational purposes. The video is an educational tool created to educate about various industry sectors that are victims to counterfeit goods.4
1 For Counterfeit Fighters on Social Media, Fake Profiles Are a Real Ally, http://www.wsj.com/articles/for-counterfeit-fighters-on-social-media-fake-profiles-are-a-real-ally-1461578495 2 Intellectual Property Rights Seizure Statistics Fiscal Year 2015, https://www.cbp.gov/sites/default/files/assets/documents/2016-Apr/FY%202015%20IPR%20Stats%20Presentation.pdf 3 Largest Brands and Agencies Take TAG Pledge To Fight Ad-Supported Piracy For All Digital Ads, http://www.tagtoday.net/largest-brands-and-agencies-take-tag-pledge-to-fight-ad-supported-piracy-for-all-digital-ads/ 4 National Crime Prevention Council Takes Home Top Honor, http://ncpc.mediaroom.com/2016-04-19-National-Crime-Prevention-Council-Takes-Home-Top-Honor
3
In December, the GIPC created a safe holiday shopping campaign focused on raising public awareness of the potential harms of counterfeit products. The multimedia effort highlights the consumer and economic impacts of purchasing fake goods during the holiday shopping season.5 Response to Question 3 by Chairman Grassley
Businesses are taking actions to address the issue of counterfeits to ensure consumers have safe access to products. Collaboration between the public and private sector is the key to addressing the problem including global collaboration on enforcement and investigations as well as engagement to improve laws and regulations internationally. The best solution is still an informed, empowered consumer. However, there are some voluntary efforts that are successful.
The Copyright Alert System is an educational platform intended for users to find safe and legal content. The system is a voluntary mechanism. Notices are sent to content owners when their work is infringed, but protects privacy of users. The primary goal of the system is to enhance understanding of copyright law among younger generations.6
Industry is also invested in training U.S. Customs agents at each of the ports of entry as well as training international law enforcement. Product identification training allows agents to more easily identify suspect goods.7
Response to Question 4 by Chairman Grassley
The Center for Safe Internet Pharmacies created its own best practices guidance, Principles of Participation8, leading the way for internet and e-commerce companies to promote safe online pharmacies through enforcement and information sharing.
In addition, the National Association of Boards of Pharmacy offers a list of safe providers known as the Verified Internet Pharmacy Practice Sites9, where consumers may safely purchase prescriptions online. This tool can help eliminate the risks associated with sites that fail to comply with federal and state laws and regulations.
5 Shop Smart This Holiday Season, http://www.cnn.com/2015/11/27/opinions/hirschmann-holiday-season-counterfeit/ 6 The Copyright Alert System, http://www.copyrightinformation.org/the-copyright-alert-system/ 7 Intellectual Property Rights Enforcement , https://www.cbp.gov/sites/default/files/documents/ipr_guide.pdf 8 Find a VIPPS pharmacy Online, http://www.nabp.net/programs/accreditation/vipps/find-a-vipps-online-pharmacy 9 Principles of Participation, http://www.safemedsonline.org/who-we-are/principles-participation/
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Response to Question 5 by Chairman Grassley
According to the U.S. Customs and Border Protection (“CBP”) and the United Nations Office on Drugs and Crime, wearing apparel and accessories are the most counterfeited items. Criminal counterfeiters will counterfeit any item that offers a low risk and yields high returns.10
Response to Question 6 by Chairman Grassley
China is the world’s largest exporter. The GIPC found 86% of all fake products come from China and Hong Kong translating to over $396 billion dollars’ worth of counterfeit goods each year.11 China is estimated to be the source for more than 70% of global physical trade-related counterfeiting, amounting to nearly $285 billion.
Physical counterfeiting accounts for the equivalent of 11% of China’s exports of goods and the equivalent of nearly 1.5% of its GDP. We understand from our member companies that Brazil continues to be a market where fake products are prevalent.12
The Organisation for Economic Co-operation and Development (“OCED”) recently published information about countries with the most counterfeit exports. The chart is attached for reference.13
Response to Question 7 by Chairman Grassley
Anti-counterfeiting solutions are best addressed when working collaboratively with Congress, the Administration and federal law enforcement agencies to implement strong intellectual property policies at every level.
10 Counterfeit Products, https://www.unodc.org/documents/data-and-analysis/tocta/8.Counterfeit_products.pdf, Intellectual Property Rights Seizure Statistics Fiscal Year 2015, https://www.cbp.gov/sites/default/files/assets/documents/2016-Apr/FY%202015%20IPR%20Stats%20Presentation.pdf 11 Counterfeits and Their Impact on Consumer Safety, https://www.judiciary.senate.gov/imo/media/doc/04-27-16%20Hirschmann%20Testimony.pdf 12 https://ustr.gov/sites/default/files/Brazil_0.pdf 13 OECD/EUIPO, (2016). Trade in Counterfeit and Pirated Goods: Mapping the Economic Impact, OECD
Publishing, Paris. http://www.keepeek.com/Digital-Asset-Management/oecd/governance/trade-in-counterfeit-and-pirated-goods_9789264252653-en#page1 (See Table A.1 Propensity of economies to export counterfeit products)
5
Deterrence is the goal. The GIPC advocates for increased penalties directed at criminals, who knowingly traffic in counterfeit goods that bear a counterfeit mark.
It is vitally important that Congress provide all the IP enforcement agencies with adequate funding. These include CBP, ICE, the National Intellectual Property Rights Coordination Center, and the Department of Justice (including FBI and the regional IP Law Enforcement Coordinators).
Response to Question 1 by Ranking Member Leahy
The GIPC engages in education campaigns about counterfeits for all businesses. The GIPC presents at local, regional and state Chambers about the dangers of counterfeit goods and the global economic impact as well as recent best practices.
The National Intellectual Property Rights Coordination Center (IPR Center)
invites businesses of any size to engage in their programming and work with law enforcement on education, best practices, seizure techniques, and its new Threat Matrix being used by the FBI to work specifically with brand protection programs that are less developed or smaller in scale.
The Trade Facilitation and Trade Enforcement Act of 2015 will solidify
information sharing between rights holders and CBP. This means that even the smallest business will have the opportunity to work directly with Customs.
The GIPC has many resources on its website including the “Report IP Theft” button established by the IPR Center. This alert button may be used by any business or consumer. Response to Question 2 by Ranking Member Leahy
With the powerful rise of online shopping and e-commerce delivery platforms, enforcing against counterfeits is a much more challenging endeavor. For example, as of February 2016, small parcel shipments of counterfeits are now seized ten times more than large shipping containers, a major reversal of the challenges only a few years ago. The volume of parcels containing counterfeits is much higher, and when
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one is caught, the amount of counterfeit products seized is much smaller. This means that more resources are needed to do the job.14
Additionally, the Office of the Intellectual Property Enforcement Coordinator
(“IPEC”) has been helpful in convening conversations and U.S. government-focused strategies regarding small parcels. The GIPC looks forward to reviewing the IPEC’s Joint Strategic Plan where the issue of small parcels may be covered in fuller detail. Response to Question 3 by Ranking Member Leahy
Counterfeiting is a tremendous global threat.15 Counterfeit products also result in detrimental effects on economies due to decreased innovation, loss of revenue and taxation, and higher unemployment rate. The reach of counterfeiting is expansive. Counterfeits are found in nearly every industry sector and every product line from mainstream household items to luxury goods.
The Trustworthy Accountability Group (TAG) is an advertising industry-driven initiative that will help protect brands in the online environment to combat online piracy by keeping legitimate companies’ digital ads from inadvertently being placed on websites dedicated to counterfeiting or piracy.
The National Crime Prevention Council organized a public service announcement and coordinated campaign where the GIPC offered its own consumer awareness tips. The public service announcement video is used for law enforcement educational purposes. The video is an educational tool created in an effort to educate about various industry sectors that are victims to counterfeit goods.
In April of 2016, through the Trade in Counterfeit and Pirated Goods: Mapping the
Economic Impact – the OECD now estimates that global trade-related counterfeiting accounts for 2.5% of world trade, or $461 billion.16 Since the total value of imported fake goods continues to increase, each industry effort will need to continue to grow, evolve and adapt to address the issue of counterfeiting.
14 Intellectual Property Rights Seizure Statistics Fiscal Year 2015, https://www.cbp.gov/sites/default/files/assets/documents/2016-Apr/FY%202015%20IPR%20Stats%20Presentation.pdf 15 OECD/EUIPO, (2016). Trade in Counterfeit and Pirated Goods: Mapping the Economic Impact, OECD
Publishing, Paris. http://www.keepeek.com/Digital-Asset-Management/oecd/governance/trade-in-counterfeit-and-pirated-goods_9789264252653-en#page1 16
OECD/EUIPO, (2016). Trade in Counterfeit and Pirated Goods: Mapping the Economic Impact, OECD
Publishing, Paris. http://www.keepeek.com/Digital-Asset-Management/oecd/governance/trade-in-counterfeit-and-pirated-goods_9789264252653-en#page1
Responses to Questions for the Record for
Conrad Wong
Attorney-Advisor, Office of Policy and International Affairs
U. S. Patent and Trademark Office (USPTO)
Committee on the Judiciary, U.S. Senate
Hearing on “Counterfeit Goods and their Impact on Consumer Health and Safety”
April 27, 2016
Submitted on July 1, 2016
Questions from Sen. Grassley (R-IA)
1. Could you please elaborate on how the tactics of counterfeiters are evolving, and how
you are keeping up with these criminals?
One evolving tactic employed by criminal counterfeiters involves the mode of transport of
fake goods. The use of container ships has typically been the common mode of transport of
counterfeit goods. However, criminals are now increasingly using express mail delivery
services to ship their goods internationally in small consignments. This mode is frequently
used in the trafficking of counterfeit pharmaceuticals.
In fact, the Organization for Economic Co-operation and Development (OECD) recently
confirmed this trend in a study on trade in counterfeit goods, which included input from the
World Customs Organization (WCO), the European Union, and the U.S. Department of
Homeland Security. To address this growing trend, U.S. Patent and Trademark Office's
Global Intellectual Property Academy is addressing this transport issue in its technical
assistance trainings for foreign officials on customs and border enforcement. For example, in
May 2016, the U.S. Patent and Trademark Office in coordination with the IPR Center, U.S.
Immigration and Customs Enforcement's Homeland Security Investigations (ICE/HSI), and
U.S. Postal Inspection Service, conducted two (2) week-long trainings for Brazilian law
enforcement, specifically focused on the trafficking of counterfeit goods via express mail
delivery services. Colombian and Chinese law enforcement officials also participated.
2. Are foreign countries recognizing that the trafficking of counterfeit medicines is a
problem, and are they working with us to address it? Can you tell us about your
experience with foreign law enforcement and legislators? Are you seeing progress in
this area?
Foreign countries do recognize that the trafficking of counterfeit medicines is a problem, and
the successful investigation, interdiction and prosecution of criminals engaged in this trade
depends on the strength of a country’s enforcement resources and its consumer health and
safety laws. Foreign countries are working with us to address this issue. In our provision of
technical assistance programs and capacity building training, USPTO collaborates with our
domestic and foreign counterparts from the drug regulatory agencies, U.S. Customs and
USPTO Responses to QFRs (April 2016 SJC Hearing on Counterfeiting) | 2
Border Protection (CBP), the judiciary, pharmaceutical industry, enforcement agencies, and
public awareness and consumer groups.
The USPTO incorporates discussion on combating counterfeit medicines in our technical
assistance programs and capacity building trainings, as well as organizes workshops that
focus on the topic of combating counterfeit medicines and products that impact health and
safety. There has been some progress in this area, as countries work to protect the supply
chain, and incorporate technology tools for customs, regulatory officials and consumers to
determine the legitimacy of medicines.
3. Could you give us more information on what best practices you encourage or engage in
to fight against the sale of counterfeit products?
A number of private sector voluntary best practice initiatives have been developed and are
being implemented. These formalized best practices include initiatives from the Center for
Safe Internet Pharmacies; the Center for Copyright Information’s Copyright Alert System;
the Ad Industry’s Trustworthy Accountability Group Initiative; and the International Anti-
Counterfeiting Coalition’s Payment Processor Initiative, “RogueBlock.” In particular, these
efforts are aimed at decreasing the likelihood that a consumer will access and/or purchase
counterfeit goods or copyright-infringing content online. The most effective initiatives
employ various strategies that make it more difficult to access counterfeit and otherwise
infringing products and content online, and they include both supply-side and demand-side
initiatives.
4. Do you have best practices specifically designed to protect consumer health and safety?
USPTO collaborates closely with our interagency law enforcement partners, such as the U.S.
Food and Drug Administration’s Office of Criminal Investigations and DHS Immigration
and Customs Enforcement, in providing training and exchanging best practices with foreign
government officials as they relate to enforcing intellectual property rights in the field of
health and safety. For instance, in 2015 USPTO organized a series of workshops for law
enforcement officials and health regulators from ASEAN, South American, South Asian and
Middle Eastern countries. These workshops included discussions on effective practices for
combatting counterfeit agricultural chemicals, counterfeit pharmaceuticals, and other
counterfeit products affecting health and safety.
5. What trends are you seeing in terms of the type of goods that are being counterfeited?
Do the criminals have a preference for the type of products they like to counterfeit?
Counterfeiters gravitate toward any product in which the counterfeiter can profit from the
stolen IP. Accordingly, counterfeit products range from luxury goods, such as fashion
apparel and watches, industrial products, such as machines, spare parts and chemicals, and
consumer goods, such as pharmaceuticals, food, toys and cosmetics. Moreover,
USPTO Responses to QFRs (April 2016 SJC Hearing on Counterfeiting) | 3
counterfeiters have exploited growing market openings, globalization of value chains and the
increase of e-commerce in the furtherance of their illicit activities, which has contributed to a
proliferation of various counterfeit products.
6. From which countries are you seeing an increase of exports of counterfeit products?
According to U.S. Customs and Border Protection (CBP) FY 2015 seizure statistics, the
number of IPR seizures increased nearly 25% to 28,865 from 23,140 in FY 2014. The top
sources for seized counterfeit products were China (49 %) and Hong Kong (34 %).
7. What can we do better here in the United States to protect consumer health and safety,
given the realities of counterfeiting you and your colleagues at USPTO have observed in
foreign markets?
In large part, thanks to our stricter regulatory framework governing the production of
medicines and the distribution chain, counterfeit drugs are a lower threat in the U.S. than in
many other countries. We note that Congress has taken some very positive steps to protect
consumer health and safety in recent years. For example, the Food and Drug Administration
Safety and Innovation Act (Pub. Law 112-144) provided the FDA with new authorities that
will help to secure the safety and integrity of prescription drugs in the United States.
Additionally, the FDA’s recently began implementing its administrative authority to destroy
certain drugs refused admission to the U.S., which is a good approach. As stated by the
FDA, its implementation of this regulatory action serves to reduce the likelihood of drugs
being refused admission and subsequently offered for re-importation into the domestic
market.
Demand also needs to be addressed by supporting the FDA’s efforts to educate the public on
the dangers of purchasing prescription drugs from online pharmacies.
8. Is there anything that Congress should consider in terms of legislation to help address
the counterfeiting problem and specifically counterfeits that directly impact the health
and safety of consumers?
Current statutory provisions are working as intended to effectively provide parties with the
tools they need to combat counterfeiting. The United States has a strong history of protecting
intellectual property rights, specifically fighting the introduction of counterfeit goods into the
stream of commerce. Our robust legal regime has evolved over time in response to
increasing threats to the public and new technologies that challenge earlier iterations of laws.
And, with the ability to point to U.S. law as an effective model, U.S. negotiators are better
positioned to encourage other countries to adopt similar laws. A timely example of updating
U.S. IP laws to address new challenges is the recent passage of the Defend Trade Secrets Act
of 2016, signed into law by President Obama on May 11, 2016.
USPTO Responses to QFRs (April 2016 SJC Hearing on Counterfeiting) | 4
Congressional approval of the Trans-Pacific Partnership, which includes countries that today
account for nearly 40 percent of the world’s GDP, would also advance our efforts to set high
intellectual property protection and enforcement standards. TPP establishes strong and
balanced protections for patents, trademarks and copyrights, and closes loopholes that let
dangerous counterfeits come across borders and get into the supply chain. Strong and fair
enforcement rules to protect against trademark counterfeiting allow for increased penalties in
cases where counterfeit or pirated goods threaten consumer health or safety.
9. What do you see is the value of building relationships with foreign legislators, judges,
and law enforcement? What kind of results are we seeing from those efforts?
Creating a framework that provides effective protection and enforcement of
intellectual property rights requires sustained efforts in reaching out to all branches of
governments of U.S. trading partners. A key component is sustained engagement on
relevant and emerging protection and enforcement issues. Building relationships with
foreign legislators, judges and law enforcement through policy discussions and
capacity building is instrumental in effecting positive change in combatting
counterfeit medicines, enforcement in the digital environment, and a focus on
deterrent penalties. The 2016 Special 301 Report issued by USTR illustrates results
that we are seeing from these types of efforts. For example, we have been working
closely with Pakistan, which has taken significant steps to improve IPR protection.
As a result, Pakistan was upgraded from the Priority Watch List to the Watch List
with an Out of Cycle Review to monitor ongoing progress. Also, Tajikistan, Belarus
and Trinidad & Tobago are removed from the Watch List this year for improvements
to enforcement of IPR, including in the areas of customs enforcement, criminal
prosecutions, and broadcast piracy, respectively.
10. Does the USPTO program have any special initiatives to deal with counterfeits that
impact consumer health and safety?
The USPTO, through its Global Intellectual Property Academy, conducts IP training and
education programs, including programs with emphasis on IP counterfeits that impact
consumer health and safety. As noted in the U.S. Intellectual Property Enforcement
Coordinator’s FY 2015 Annual Report1, the USPTO conducted five programs that included a
focus on the impact of IP counterfeits on consumer health and safety. These programs
included: a “Workshop on Effective Practices in Transnational Cooperation in the Border
Enforcement of Intellectual Property Rights” in March 2015 for customs, border, regulatory
and enforcement officials from the ministries of food, health, environment and agriculture
from the ASEAN region; an “ASEAN-USPTO Roundtable for the ASEAN Judiciary on
Intellectual Property Rights Issues” in October 2014; a “Philippines Roundtable Discussion
on Issues and Concerns Relating to Intellectual Property Rights Enforcement” in October
2014 for officials from the Philippines Department of Justice and the Philippines Intellectual
1 See, Annual Report of the Intellectual Property Enforcement Coordinator for Fiscal Year 2015 Under Section 304 of the Pro IP Act of 2008 (15 U.S.C. § 8114) (April 29, 2016), at pp. 28, 29, 31, 59, 60.
USPTO Responses to QFRs (April 2016 SJC Hearing on Counterfeiting) | 5
Property Office; an “Inter-regional (MENA and South Asia) Counterfeit Medicines Program”
in April 2015 in Bahrain; and a March 2015 workshop on “Combatting Counterfeit
Pharmaceutical Sales on the Internet” held at the USPTO for officials from Brazil, Paraguay,
Uruguay, Chile, Panama and Mexico.
11. What can you tell us about the experiences of American companies enforcing rights
abroad? How does the USPTO Intellectual Property Attaché Program help American
companies in problem countries?
U.S. companies have a range of experiences working overseas in trying to protect and
enforce their IP rights. In several countries, there are problems with “local protectionism”
where IP enforcement officials are often reluctant to take action against local domestic
companies that infringe against a U.S. company’s IP interests. The USPTO’s IP attachés
regularly meet with representatives from U.S. businesses to learn from them about the
situation on the ground in their various areas affecting IP protection and enforcement.
The IP attaché can also raise specific cases with host government officials where those cases
demonstrate a systemic flaw in the host country’s IP protection and enforcement regime.
The IP attaché can take a local problem and elevate discussion of the matter to the next
higher level. For example, in the case of China, they could elevate a municipal level problem
to an engagement with provincial level officials. If the problem persists, then it can also be
elevated to the national level where officials from the central government are then able to
investigate and determine whether there are any instances of undue local influence. This
type of interaction is also very useful in informing USPTO Headquarters in its bilateral
negotiations within the U.S.–China Joint Commission on Commerce and Trade or the U.S.–
China Strategic and Economic Dialogue framework.
12. How do foreign law enforcement and other authorities deal with dangerous
counterfeits? Are counterfeits a priority for foreign law enforcement and other
authorities?
There is a great disparity amongst the many nations on their prioritization and approach to
dealing with dangerous counterfeits. Undoubtedly, most developed countries with an
effective regulatory system and market control (e.g., Australia, the European Union, and
Japan to name a few) are more effective in addressing the problem. However, according to a
2015 analysis by the Pharmaceutical Security Institute, geographical regions:
“[t]hat are more frequently linked to incidents are not necessarily those with weak
enforcement and inspection programs. . . Those regions with seemingly low incident
totals are not necessarily unaffected by or at a lower risk of pharmaceutical crime. Due to
competing law enforcement priorities, lack of funding or inadequate regulatory
structures, in certain regions of the world, counterfeit medicines often go undetected. It is
important to recognize these facts, since they complicate region to region comparisons.”2
2 See, http://www.psi-inc.org/geographicdistributions.cfm
USPTO Responses to QFRs (April 2016 SJC Hearing on Counterfeiting) | 6
According to a 2004 report issued by the World Health Organization, “[m]ost countries have
a medicines regulatory authority and formal requirements for registering medicines.
However, medicines regulatory authorities differ substantially in their human and financial
resources, and in their overall effectiveness. Fewer than one in six WHO Member States have
well-developed drug regulation and two in six have no or very little drug regulatory
capacity….” These figures are still accurate today.
13. I understand that the illegal production and trade of counterfeit crop protection is a
major problem in the global agricultural industry, causing dangerous consequences
that affect the entire agricultural production chain and jobs in the United States. Over
$1 billion of the $58 billion international trade in crop protection chemicals is estimated
to be produced illegally, either by counterfeited patented and branded chemicals or by
illegally producing chemicals legally registered by other parties that may not be
intended for these uses. What role can the USPTO play to combat this issue?
Combatting the illegal trade and production of counterfeit crop protection products requires
the participation and coordination of national governments, health and regulatory agencies,
law enforcement as well as agricultural producers and the food and pesticide industries.
The USPTO meets with stakeholders and manufacturers of agricultural products to receive
insight as to the nature, scope and extent of the counterfeiting problem. We also, through
capacity building training and technical assistance programs, as well as our intellectual
property attachés, engage legislators, regulatory officials, intellectual property law officials,
customs, police, prosecutors, and the judiciary to highlight the nature of the problem, discuss
laws available to protect consumers, delineate the agency charged with enforcement, and
review strategies and best practices for ensuring a coordinated approach to combat this
growing problem.
In March 2015, the USPTO organized an ASEAN-USPTO Workshop on Effective Practices
in Transnational Cooperation in The Border Enforcement of Intellectual Property Rights.
Regulatory and enforcement officials from the food and health ministries, environmental
regulators, agricultural officials, as well as customs and border officials from Brunei,
Malaysia, Laos, Cambodia, Vietnam, Singapore, Indonesia, Philippines and Thailand all
participated in the workshop. The workshop focused on the problem of adulterated,
substandard and counterfeit agricultural chemicals in the ASEAN region. One of the many
goals of the workshop was to open discussion on the issue of counterfeit agricultural
chemicals, introduce the officials to their counterparts in other countries, and to facilitate
dialogue among the participants to improve the skills and knowledge of customs and border
officials to better analyze, target and interdict IP counterfeit and pirated goods, especially
those that affect health and safety.
USPTO Responses to QFRs (April 2016 SJC Hearing on Counterfeiting) | 7
Questions from Sen. Leahy (D-VT)
1. The IP attachés do important work advocating for strong intellectual property
protections in other countries. One step that could make them more effective in their
advocacy is to elevate their rank, to improve their diplomatic stature with other
governments and give them greater access to resources. Do you agree this would be a
helpful step? What actions, if any, is the Commerce Department taking to achieve this
goal?
The Commerce Department has been in discussions with the State Department on this issue.
2. In his testimony, Mr. Maguire recommended that Customs & Border Protection (CBP)
should enable the recording of design patents to facilitate CBP’s seizure of counterfeit
products. What views does the U.S. Patent & Trademark Office (USPTO) have of that
recommendation? Is the USPTO willing to facilitate a conversation to explore whether
this would be an effective tool?
USPTO is prepared to engage CBP in conversations on the feasibility and effectiveness of
design patent enforcement.
3. Mr. Maguire testified about how Revision Eyewear lost a contract in the Ukraine to a
competitor that was providing counterfeit versions of Revision’s product. The
competitor even submitted Revision’s own test data with its replicas. What is the
United States government doing to educate other governments about the safety risks
and broader economic effects of purchasing counterfeits of American goods?
Part of the training conducted by the USPTO’s Global Intellectual Property Academy
educates foreign governments on the health and safety risks of counterfeit goods, as well as
the economic harm they cause. These critical issues play a prominent role in our capacity-
building programs. For example, these issues are raised in the outreach conducted by our IP
attachés in their bilateral engagements with foreign governments and industry, as well as by
the USPTO when hosting foreign officials.
USPTO Responses to QFRs (April 2016 SJC Hearing on Counterfeiting) | 8
Question from Sen. Klobuchar (D-MN)
Question for Mr. Foucart and Mr. Wong:
There are many ways to get counterfeit products into the market, but third party websites
are one of the most widespread and flagrant. We have seen some websites shut down, but it
is still too easy to find online sources for counterfeit products.
What efforts are being taken to shut down websites selling counterfeit products?
What are the biggest obstacles in the way, and how can we fix them?
The U.S. Patent and Trademark Office (USPTO) is responsible for patent and trademark
operations and examination in the United States, and maintaining the patent and trademark
registry. It does not have enforcement authority over web sites which sell counterfeit products.
However, the USPTO works closely with the National IPR Coordination Center, which U.S.
Immigration and Customs Enforcement administers, as well as with prosecutors with the
Computer Crime and Intellectual Property Section of the U.S. Department of Justice. When we
learn of rogue web sites offering fake products for sale, through complaints submitted via the
stopfakes.gov website or other sources, we collect as much information as possible, then refer it
to our aforementioned colleagues. To collect this information, attorneys from the USPTO’s
Enforcement Team of the Office of Policy and International Affairs confer with the complainants
themselves, requesting as much information as possible including the following: the alleged
infringing activity; the suspect products; individuals or entities involved; how long the conduct
has been occurring; contact information; the web address of the suspect website; and whether the
individual or entity is active in other locales. We then forward all of this information to the
National IPR Coordination Center, where officers of U.S. Immigration and Customs
Enforcement commence their review and determine whether the information is sufficient and
credible enough to open an investigation.
Regarding obstacles, even when suspect websites are shut down, they re-appear, sometimes in a
matter of hours, under a different owner. Regardless of whether a suspicious website may have
“re-appeared” after being shuttered, the USPTO will continue to collect as much information as
possible, then refer it to our aforementioned colleagues.
Congressional approval of the Trans-Pacific Partnership, which includes countries that today
account for nearly 40 percent of the world’s GDP, would also advance our efforts to set high
intellectual property protection and enforcement standards. TPP establishes strong and balanced
protections for patents, trademarks and copyrights, and closes loopholes that let dangerous
counterfeits come across borders and get into the supply chain. Strong and fair enforcement
rules to protect against trademark counterfeiting allow for increased penalties in cases where
counterfeit or pirated goods threaten consumer health or safety.
USPTO Responses to QFRs (April 2016 SJC Hearing on Counterfeiting) | 9
Question for Mr. Wong:
The Organization for Economic Cooperation and Development’s recent report “Trade in
Counterfeit and Pirated Goods” identifies that goods originating in, or shipped through,
China make up the bulk of seized counterfeited goods.
From your experience in your current position and previously as an IP attaché in
China, has China’s enforcement against counterfeiting improved?
What more could China do to address this problem?
China is transitioning its economy from one based on low-cost manufacturing to an innovation
and consumer-driven model. As such, it has undertaken efforts to improve IP protection,
including against counterfeit goods. Nonetheless, serious systemic problems remain, including
low civil damages, rapid growth in online sales, and non-deterrent administrative enforcement.
To address problems with counterfeits emanating from China at this time, we are working with
the Chinese Government to improve enforcement remedies and transparency through outreach
and information exchanges under the U.S./China Cooperative Framework Agreement (CFA), a
commitment of the U.S./China Joint Commission on Commerce and Trade (JCCT). Under the
CFA, the USPTO brings approximately fifteen to twenty Chinese officials from relevant IP
agencies, the courts, and various ministries and legislative offices to the U.S. to study the various
vehicles through which we protect IP and promote innovation.
In September 2014, the USPTO organized a program held in Washington, D.C. and Silicon
Valley, California on how the U.S. promotes innovation through partnerships between
government and research institutions, such as universities, as well as individual rights holders,
such as companies. In April 2015, the USPTO facilitated a legislative study program in
Washington, D.C., where the Chinese officials learned how the U.S. promulgated legislation that
enables robust IP protection as well as maximizing IP’s commercial potential. In April 2016, the
USPTO focused on judicial remedies for enforcing IP, arranging for appointments in
Washington, D.C. and Madison, Wisconsin, to visit with federal and state jurists, federal
prosecutors from the Department of Justice, and representatives from and the U.S. International
Trade Commission. Participants also conferred with officials of the University of Wisconsin’s
IP-licensing office to learn how to maximize the commercial potential of inventions emanating
from the University’s laboratories.
The USPTO also currently is organizing a program, tentatively scheduled for the latter part of
2016 or the first half of 2017, to bring federal judges with IP trial and appellate experience to
China, so that they may interact with their Chinese counterparts. China is just beginning to allow
injunctive relief, evidentiary preservation, and redacted opinions, remedies that American courts
and practitioners have extensive experience in smartly moving forward IP litigation towards
resolution. The Chinese judicial system still has much to learn in handling complex litigation
and sensitive information, such as proprietary intellectual property and trade secrets. This judge-
to-judge interaction will promote greater understanding between China and the U.S., and foster
greater exchange, as China’s judicial system evolves into one of greater efficiency, transparency,
and ease of use.