[House Hearing, 112 Congress]
[From the U.S. Government Publishing Office]

SAFE DOSES ACT, THE COUNTERFEIT DRUG PENALTY ENHANCEMENT ACT OF 2011,
AND THE FOREIGN COUNTERFEIT PREVENTION ACT

=======================================================================

HEARING

BEFORE THE

SUBCOMMITTEE ON CRIME, TERRORISM,
AND HOMELAND SECURITY

OF THE

COMMITTEE ON THE JUDICIARY
HOUSE OF REPRESENTATIVES

ONE HUNDRED TWELFTH CONGRESS

SECOND SESSION

H.R. 4223, H.R. 3668 and H.R. 4216

__________

MARCH 28, 2012

__________

Serial No. 112-132

__________

Printed for the use of the Committee on the Judiciary

Available via the World Wide Web: http://judiciary.house.gov

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COMMITTEE ON THE JUDICIARY

LAMAR SMITH, Texas, Chairman
F. JAMES SENSENBRENNER, Jr., JOHN CONYERS, Jr., Michigan
Wisconsin HOWARD L. BERMAN, California
HOWARD COBLE, North Carolina JERROLD NADLER, New York
ELTON GALLEGLY, California ROBERT C. ``BOBBY'' SCOTT,
BOB GOODLATTE, Virginia Virginia
DANIEL E. LUNGREN, California MELVIN L. WATT, North Carolina
STEVE CHABOT, Ohio ZOE LOFGREN, California
DARRELL E. ISSA, California SHEILA JACKSON LEE, Texas
MIKE PENCE, Indiana MAXINE WATERS, California
J. RANDY FORBES, Virginia STEVE COHEN, Tennessee
STEVE KING, Iowa HENRY C. ``HANK'' JOHNSON, Jr.,
TRENT FRANKS, Arizona Georgia
LOUIE GOHMERT, Texas PEDRO R. PIERLUISI, Puerto Rico
JIM JORDAN, Ohio MIKE QUIGLEY, Illinois
TED POE, Texas JUDY CHU, California
JASON CHAFFETZ, Utah TED DEUTCH, Florida
TIM GRIFFIN, Arkansas LINDA T. SANCHEZ, California
TOM MARINO, Pennsylvania JARED POLIS, Colorado
TREY GOWDY, South Carolina
DENNIS ROSS, Florida
SANDY ADAMS, Florida
BEN QUAYLE, Arizona
MARK AMODEI, Nevada

Richard Hertling, Staff Director and Chief Counsel
Perry Apelbaum, Minority Staff Director and Chief Counsel
------

Subcommittee on Crime, Terrorism, and Homeland Security

F. JAMES SENSENBRENNER, Jr., Wisconsin, Chairman

LOUIE GOHMERT, Texas, Vice-Chairman

BOB GOODLATTE, Virginia ROBERT C. ``BOBBY'' SCOTT,
DANIEL E. LUNGREN, California Virginia
J. RANDY FORBES, Virginia STEVE COHEN, Tennessee
TED POE, Texas HENRY C. ``HANK'' JOHNSON, Jr.,
JASON CHAFFETZ, Utah Georgia
TIM GRIFFIN, Arkansas PEDRO R. PIERLUISI, Puerto Rico
TOM MARINO, Pennsylvania JUDY CHU, California
TREY GOWDY, South Carolina TED DEUTCH, Florida
SANDY ADAMS, Florida SHEILA JACKSON LEE, Texas
MARK AMODEI, Nevada MIKE QUIGLEY, Illinois
JARED POLIS, Colorado

Caroline Lynch, Chief Counsel

Bobby Vassar, Minority Counsel

C O N T E N T S

----------

MARCH 28, 2012

Page

THE BILLS

H.R. 4223, the ``Safe Doses Act''................................ 4
H.R. 3668, the ``Counterfeit Drug Penalty Enhancement Act of
2011''......................................................... 14
H.R. 4216, the ``Foreign Counterfeit Prevention Act''............ 17

OPENING STATEMENTS

The Honorable F. James Sensenbrenner, Jr., a Representative in
Congress from the State of Wisconsin, and Chairman,
Subcommittee on Crime, Terrorism, and Homeland Security........ 1
The Honorable Robert C. ``Bobby'' Scott, a Representative in
Congress from the State of Virginia, and Ranking Member,
Subcommittee on Crime, Terrorism, and Homeland Security........ 21
The Honorable John Conyers, Jr., a Representative in Congress
from the State of Michigan, and Ranking Member, Committee on
the Judiciary.................................................. 22

WITNESSES

Dara A. Corrigan, Associate Commissioner for Regulatory Affairs,
U.S. Food and Drug Administration
Oral Testimony................................................. 28
Prepared Statement............................................. 30
Thomas T. Kubic, President and CEO, Pharmaceutical Security
Institute
Oral Testimony................................................. 38
Prepared Statement............................................. 41
Travis D. Johnson, Vice President-Director of Legislative Affairs
& Policy, The International AntiCounterfeiting Coalition
Oral Testimony................................................. 45
Prepared Statement............................................. 47
Gilbert Lee Sandler, Member, Sandler, Travis, & Rosenberg, P.A.
Oral Testimony................................................. 57
Prepared Statement............................................. 59
Lucian E. Dervan, Professor, Southern Illinois University School
of Law
Oral Testimony................................................. 73
Prepared Statement............................................. 76

LETTERS, STATEMENTS, ETC., SUBMITTED FOR THE HEARING

Prepared Statement of the Honorable F. James Sensenbrenner, Jr.,
a Representative in Congress from the State of Wisconsin, and
Chairman, Subcommittee on Crime, Terrorism, and Homeland
Security....................................................... 23
Prepared Statement of the Honorable Robert C. ``Bobby'' Scott, a
Representative in Congress from the State of Virginia, and
Ranking Member, Subcommittee on Crime, Terrorism, and Homeland
Security....................................................... 24
Prepared Statement of the Honorable John Conyers, Jr., a
Representative in Congress from the State of Michigan, and
Ranking Member, Committee on the Judiciary..................... 26
Material submitted by the Honorable Jason Chaffetz, a
Representative in Congress from the State of Utah, and Member,
Subcommittee on Crime, Terrorism, and Homeland Security........ 190

APPENDIX
Material Submitted for the Hearing Record

Prepared Statement of the Honorable Sheila Jackson Lee, a
Representative in Congress from the State of Texas, and Member,
Subcommittee on Crime, Terrorism, and Homeland Security........ 199
Prepared Statement of the Honorable Steve Chabot, a
Representative in Congress from the State of Ohio, and Member,
Subcommittee on the Constitution............................... 202
Prepared Statement of the Honorable Linda T. Sanchez, a
Representative in Congress from the State of California, and
Member, Committee on the Judiciary............................. 205
Letter from the Chamber of Commerce of the United States of
America........................................................ 206
Letter from the International Trademark Association (INTA)....... 207

SAFE DOSES ACT, THE COUNTERFEIT DRUG PENALTY ENHANCEMENT ACT OF 2011,
AND THE FOREIGN COUNTERFEIT PREVENTION ACT

----------

WEDNESDAY, MARCH 28, 2012

House of Representatives,
Subcommittee on Crime, Terrorism,
and Homeland Security,
Committee on the Judiciary,
Washington, DC.

The Subcommittee met, pursuant to call, at 10 a.m., in room
2141, Rayburn Office Building, the Honorable F. James
Sensenbrenner, Jr., (Chairman of the Subcommittee) presiding.
Present: Representatives Sensenbrenner, Goodlatte, Poe,
Chaffetz, Conyers, and Scott.
Staff Present: (Majority) Sam Ramer, Counsel; Arthur
Radford Baker, Counsel; Tony Angeli, Counsel; Lindsay Hamilton,
Clerk; (Minority) Bobby Vassar, Subcommittee Chief Counsel; Ron
LeGrand, Counsel; and Veronica Eligan, Professional Staff
Member.
Mr. Sensenbrenner. The Subcommittee will come to order.
Today's hearing will examine legislation to address the
transportation, sale, and theft of various types of counterfeit
goods. Counterfeit and stolen merchandise constitute a danger
to the public that is not readily evident. More than the costly
theft of intellectual property, counterfeit goods have the
capacity to injure and kill innocent and unsuspecting
Americans.
This hearing studies three legislative proposals: H.R.
4223, the ``Safe Doses Act;'' H.R. 3668, the ``Counterfeit Drug
Penalty Enhancement Act of 2011;'' and H.R. 4216, the ``Foreign
Counterfeit Prevention Act.'' The common purpose of all three
of these bills is to reduce and punish the trafficking of
counterfeit goods and stolen merchandise.
Last week, I introduced H.R. 4223, the ``Safe Doses Act,''
a bipartisan bill to combat medical cargo theft. This bill
increases penalties for stealing, embezzling, and fraudulently
obtaining medical products in the interstate of foreign
commerce.
Counterfeit or stolen medical products enter the legitimate
stream of commerce, and the ultimate user relies on the belief
that the products are authentic. Unfortunately, these products
are often adulterated or mishandled, thereby making the product
ineffective or even hazardous to the user.
The Safe Doses Act enhances penalties for those who traffic
in counterfeit, adulterated, or stolen medical products. It
also gives law enforcement enhanced tools to curb medical cargo
theft.
The Senate companion to this bill, S. 1002, was reported
unanimously by the Senate Judiciary Committee earlier this
month.
H.R. 3668, sponsored by Mr. Meehan of Pennsylvania and Ms.
Sanchez of California, increases penalties for trafficking in
or attempting to traffic counterfeit drugs. This bipartisan
bill also doubles the penalties for repeat offenders.
Counterfeit drugs can be deadly. Last month, the FDA
notified 19 doctors and clinics in the U.S. that they may have
purchased counterfeit vials of a life-saving cancer drugs.
Avastin is an integral part of cancer treatment for millions of
Americans each year.
The fake drug is believed to have originated in China or
India, and was sent to the United States from a company in
Barbados. The owner of the Barbados company admitted there was
nothing in the vials that would fight cancer, but equally
asserted he did nothing wrong.
The FDA is still investigating how many cancer patients
missed their critical treatments or were administered a
solution of salt, starch, and acetone, rather than the genuine
chemotherapy drug.
Counterfeit drugs are prosecuted under the general
counterfeit goods statute, which contains a maximum penalty of
10 years for a first offense. Even with a 10-year penalty, the
actual sentences imposed under the existing counterfeit goods
statute are dramatically lower.
According to the Sentencing Commission, between FY06 and
FY10, there were 385 Federal prosecutions for counterfeit
goods. The median sentence was 17 months. The mean sentence was
only 10 months.
This legislation provides needed enhancements to both deter
and punishing the trafficking of counterfeit drugs.
The Senate passed its companion bill, S. 1886, by voice
vote last month.
H.R. 4216 was introduced last week by Mr. Poe and Mr.
Chabot to reduce unnecessary hurdles faced by law enforcement
when investigating suspected counterfeit or pirated products
detained at our ports of entry. The Trade Secrets Act currently
prohibits officials from the U.S. Customs and Border Protection
from communicating with or providing information to copyright
and trademark owners during the course of an investigation of
suspected counterfeit or pirated goods. This bill would permit
the flow of information between the CBP and mark-owners, and
allow better enforcement of the law, while preventing
counterfeit or pirated goods from entering our country.
Counterfeit goods seriously mislead the public. Goods and
merchandise bearing a well-known brand name or trademark are
inherently trusted by the purchasing public. This trust extends
beyond the products' authenticity. In the case of medicine, it
extends to a drug's purity in ingredients. In the case of
consumer electronics--for instance, a DVD player--it extends to
its performance.
Brand names are a mechanism by which great companies endure
or fail.
Counterfeit goods can cause great harm. Last month, the GAO
issued a report to the Senate Armed Services Committee,
following a lengthy undercover investigation of suspected
counterfeit electronic parts in the supply chain of the
Department of Defense. The GAO made undercover purchases of
military-grade electronic parts. These parts were sent to an
independent testing laboratory for analysis, ranging from
electron microscope inspection to x-ray analysis. Testing
revealed that all of the parts purchased were determined to be
what is called suspect counterfeit, the strongest term
signifying the potential violation of copyright or trademark
laws, or misrepresentation through fraud or deceit.
These bills propose common-sense, necessary improvements to
the Federal law to combat counterfeit drugs, stolen medical
cargo, and misbranded merchandise.
I look forward to hearing from the witnesses, and I thank
them for participating in today's hearing.
[The bills, H.R. 4223, H.R. 3668, and H.R. 4216 follow:]

__________

__________
Mr. Sensenbrenner. It is now my pleasure to recognize, for
his opening statement, the Ranking Member of the Subcommittee,
the gentleman from Virginia, Mr. Scott.
Mr. Scott. Thank you, Mr. Chairman.
I am pleased to join you today for the hearing on important
matters of concern the bills before us seek to address.
Two of the bills we will address today concern problems
with prescriptive drugs. One concerns problems presented by
counterfeit drugs; the other large-scale theft of prescriptive
drugs from warehouses, distribution facilities, and while in
transit.
The first bill, H.R. 3668, the ``Counterfeit Drug Penalty
Enhancement Act of 2011,'' doubles imprisonment maximums from
10 to 20 years for an offense involving counterfeit drugs, the
same maximum level for knowingly or recklessly causing serious
bodily injury with a counterfeit product, including drugs. It
also increases the maximum fines for both individuals and
companies, doubling the maximum for a base offense.
The second bill, the Safe Doses Act, establishes offenses
related to pre-retail medical products, including aggravated
offense where a defendant is an employee or recidivist, or
where the offense involves violence or a deadly weapon, or
causes serious bodily injury or death.
For violation without an aggravation, the penalty is up to
3 years. If aggravated, the maximum penalty is up to 15 years,
unless it involves more than $5,000, which drives it up to 20
years; if it involves death or serious bodily injury, up to 30
years. And then, for good measure, we make a predicate offense
for all manner of additional penalty provisions, such as RICO
or other racketeering, money laundering, or other provisions,
and increase the maximum for these penalties beyond the maximum
for their original purposes, to go after major organized crime
syndicates.
So what we are doing to solve the crime? We are increasing
penalties. We keep doing the same thing, but increasing
penalties doesn't really increase the ability to reduce the
crime.
The next Congress and beyond we will see the same
complaints about the problem. We are likely to do the same
thing again, just increase penalties. Yet there is no evidence
that the serious problems we are seeking to address result from
lack of laws or lack of penalties. We have plenty of laws on
the books. Everything we are covering in these bills is already
against the law. And the penalties are plenty high enough.
We have more or higher penalties for crime than any other
Nation on Earth. We lock up a higher portion of our population
than any country on Earth. We have 5 percent of the world's
population; 25 percent of the world's incarcerations.
So I would be curious to see what evidence our witnesses
will put forth to establish that criminals are currently
choosing to engage in the conduct addressed by these bills
simply because the current penalties are not high enough to
dissuade them. And if there is no such evidence, then we are
just making the proposals on notions of what might work.
What we need to do is to increase the resources to
prosecutors, so that they can solve more crimes rather than
just increase penalties for those unlucky enough to get caught.
Moreover, we want to encourage the industry to exhaust all
reasonable means of preventing these thefts from properties and
other facilities in the transit scheme. In April 2001, a
Fortune magazine article, entitled ``Drug Theft Goes Big,''
reports that when thieves committed the largest prescriptive
drug theft in history, by breaking into Eli Lilly's warehouse
in Connecticut, they did so by cutting through the tar roof of
a warehouse and sliding down ropes. Security was so lax that
the thieves were able to pull their own tractor-trailer up to
the loading dock, spend a couple hours loading the stolen
goods. In a similar event several months earlier, thieves broke
into a GlaxoSmithKline warehouse, by coming through the roof.
While none of this in any way shields or excuses the
perpetrators, it clearly gives a suggestion that more security
is needed. And I believe the Government and industry working
together at all points in the factory-to-retail chain need to
work together to prevent and detect such thefts.
That would yield greater reductions than continually just
adding crimes and penalties to the code when there are
questions about whether the laws on the books are not being
adequately enforced. I am aware that industry and Government
regulatory authorities are working toward these ends, and I
would hope that they will let us know what ways we can help
that effort based on evidence of what works.
Finally, H.R. 4216, the ``Foreign Counterfeit Prevention
Act,'' aims to thwart the flow of stolen and counterfeit goods
from entering the country. While I support the bill's goals, I
cannot support the measure in its current form. The samples and
images that the bill would allow U.S. Customs and Border
Protection to release to rights-holders will include tracking
and distribution codes that identify proprietary and
confidential supply-chain information, even though these codes
serve little if any purpose for the process of determining the
authenticity of a product. Lawful importers will not have any
protection or recourse from the release of this information.
I sympathize with the needs of rights-holders and
manufacturers to protect the integrity of their brands and the
safety of their products, and for this reason I fully support
anti-circumvention device provisions in the legislation. I hope
the bill moves forward, that the compromises will include
guarantees that importers and exporters will have many a
meaningful role in verifying products' authenticity, and also
provide for penalties against rights-holders that knowingly
provide false information to Customs and Border Patrol to
damage a competing legitimate importer.
Mr. Chairman, thank you, and I look forward to the
testimony of the witnesses.
Mr. Sensenbrenner. The gentleman from Michigan, Mr.
Conyers, the Ranking Member of the full Committee.
Mr. Conyers. Thank you, Chairman Sensenbrenner. I begin my
comment by expressing my gratitude to you for allowing the
professor of the law school, named Lucian Dervan, to join here
in the discussions this morning, because he is prepared to
discuss the first two measures.
And of course our old friend, Gilbert Lee Sandler, is here
to talk about the third provision, the Foreign Counterfeit
Prevention Act.
And I think this balances out our investigation of these
three measures in a very fine way.
Let me first point out that the first two measures need to
be examined in terms of how we might be able to improve the law
enforcement and prosecutorial aspect of the problem that we are
taking on in the first two bills before us.
Let's ensure that our law enforcement and prosecutors'
offices are adequately resourced, that they have what is needed
to effectively investigate and prosecute offenders.
I often wonder how many law violators are examining the
criminal code to find out what the maximum sentencing is, or
whether it has been increased or even doubled, or whether they
think first of that area of concern. Or do they maybe more
likely remember that these cases are being aggressively handled
by the law enforcement apparatus in their particular community?
And it is something that I hope we will have a full discussion
of here this morning.
And then with regard to the third bill, the whole question
of how we deal with foreign counterfeit issues, H.R. 4216, I am
impressed with the Sandler view that we may be able to make
some progress on this area. By the way that he has described
what their experience is in the firm that--mostly from Florida,
but it is actually a global operation--has experienced in terms
of import-export regulatory issues.
I join with the Chair and Ranking Member in welcoming each
and every witness. And I will submit my statement for the
record.
Mr. Sensenbrenner. Without objection, all Members' opening
statements will be placed in the record at this point.
[The prepared statement of Mr. Sensenbrenner follows:]

Prepared Statement of the Honorable F. James Sensenbrenner, Jr., a
Representative in Congress from the State of Wisconsin, and Chairman,
Subcommittee on Crime, Terrorism, and Homeland Security

Today's hearing will examine several issues related to the
transportation, sale, and theft of various types of counterfeit goods.
Counterfeit and stolen merchandise constitute a danger to the public
that is not readily evident. More than the costly theft of intellectual
property, counterfeit goods have the capacity to injure and kill
innocent and unsuspecting Americans. My hope is that this hearing will
reveal those issues and identify areas which may require legislative
action.
This hearing studies three legislative proposals. H.R. 4223, the
``Safe Doses Act,'' H.R. 3668, the ``Counterfeit Drug Penalty
Enhancement Act of 2011,'' and H.R. 4216, the ``Foreign Counterfeit
Prevention Act.'' A common purpose for all three of these bills is to
reduce and punish the trafficking of counterfeit goods and merchandise.
Last week, I introduced H.R. 4223, the bi-partisan House companion
bill to S. 1002, the Safe Doses Act. These bills set and increase the
penalties for stealing, embezzling and fraudulently obtaining medical
products in interstate or foreign commerce. An important point to this
legislation is that counterfeited medical products enter the legitimate
stream of commerce and the ultimate user relies on the belief that the
products are authentic. This legislation enhances the penalties for
those who traffic in counterfeit, adulterated or stolen medical
products. It also gives law enforcement enhanced tools to curb medical
cargo theft. S. 1002 was reported out of the Senate Judiciary Committee
earlier this month.
H.R. 3668, sponsored by Mr. Meehan and Ms. Sanchez, enhances the
penalties for trafficking in, or attempting to traffic, counterfeit
drugs. The bi-partisan bill also doubles the penalties for repeat
offenders. Even with the current 10-year maximum penalty, the actual
sentences imposed under the existing counterfeit goods statute are
dramatically lower. According to the U.S. Sentencing Commission,
between FY 2006 and FY 2010, there were 385 federal prosecutions for
counterfeit goods. The median sentence was 17 months; the mean sentence
was only 10 months. This legislation provides needed enhancements to
both deter and punish the trafficking of counterfeit drugs. The Senate
companion bill, S. 1886, passed by voice vote in the Senate.
H.R. 4216 was introduced last week by Mr. Poe and Mr. Chabot to
reduce unnecessary hurdles faced by law enforcement when investigating
suspected counterfeit or pirated products detained at the border. The
Trade Secrets Act currently prohibits officials from U.S. Customs and
Border Protection from communicating with and providing information to
copyright and trademark owners during the course of an investigation of
suspected counterfeit or pirated products. This bill would permit the
flow of information between CBP and mark owners and allow better
enforcement of the law while preventing counterfeit or pirated products
from entering the United States.
Counterfeit goods seriously mislead the public. Goods and
merchandise bearing a well-known brand name or trademark are inherently
trusted by the purchasing public. This trust extends beyond the
product's authenticity. In the case of medicine, it extends to a drug's
purity and ingredients. In the case of consumer electronics, for
instance a DVD player, it extends to its performance--every time, and
for a long period of time. For decades, brand names are a mechanism by
which great companies endure or fail.
Counterfeiters, also known as brand pirates, exploit the brand name
of a quality product. No one is going to counterfeit a Ford Edsel or a
Sony Betamax. Yet brand pirates will go to great lengths to counterfeit
a Sony Playstation or an iPod. Like many criminals, their singular
objective is financial gain.
Counterfeit goods can cause great harm. Last month, the GAO issued
a report to the Senate Armed Service Committee following a lengthy
undercover investigation of suspected counterfeit electronic parts in
the supply chain of the Department of Defense. The GAO made undercover
purchases of military-grade electronic parts. The parts were sent to an
independent testing laboratory for analysis ranging from electron
microscope inspection to x-ray analysis. Testing revealed that all of
the parts purchased were determined to be what is called ``suspect
counterfeit,'' the strongest term signifying a potential violation of
copyright or trademark laws, or misrepresentation to defraud or
deceive.
Counterfeit drugs could be deadly. Last month, the FDA had to
notify 19 doctors and clinics in the United States that they may have
purchased counterfeit vials of a life-saving cancer drug. Avastin is an
integral part of cancer treatment for millions of Americans each year.
The fake drug is believed to have originated in China or India and was
sent to the United States from a company in Barbados. The owner of the
Barbados company admitted there was nothing in the vials that would
fight cancer but equally asserted that he did nothing wrong. The FDA is
still investigating how many cancer patients missed their critical
treatments and were administered a solution of salt, starch and acetone
rather than a genuine chemotherapy drug.
This hearing will explore the harm caused by counterfeit goods and
misbranded merchandise. We will look at the need for legislation and
whether law enforcement requires more tools to combat counterfeit
products.
I look forward to hearing from the witnesses, and I thank them for
participating in today's hearing.
__________

[The prepared statement of Mr. Scott follows:]

Prepared Statement of the Honorable Robert C. ``Bobby'' Scott, a
Representative in Congress from the State of Virginia, and Ranking
Member, Subcommittee on Crime, Terrorism, and Homeland Security

Thank you, Mr. Chairman. I am pleased to join you today for this
hearing on the important matters of concern that the bills before us
seek to address. Two of the bills that we will discuss today concern
problems with prescription drugs. One concerns the problems presented
by counterfeit drugs; the other concerns the large scale theft of
prescription drugs from warehouses, distribution facilities, and while
in transit. Both counterfeit drugs and large-scale medical product
theft pose substantial risks to the public. Patients should be able to
rely on their medications to be safe, effective, and unadulterated, and
we certainly need to treat it as a significant crime when criminals
counterfeit drugs or steal shipments of drugs. Both counterfeit drugs
and large-scale medical product theft are serious problems that merit
serious solutions. Unfortunately, the bills we are discussing today do
not adequately address the problems.
The first bill, H.R. 3668, the ``Counterfeit Drug Penalty
Enhancement Act of 2011,'' doubles imprisonment maximums from 10 years
to 20 years, for an offense involving counterfeit drugs, the same
maximum level as for knowingly or recklessly causing serious bodily
injury with any counterfeit product, including drugs. It also increases
the maximum fines for both individuals and companies, doubling the
maximum for a base offense.
The second bill, H.R. 4223, the ``Safe Doses Act of 2012,''
establishes offenses related to ``pre-retail medical products,''
including aggravated offense where the defendant is an employee or a
recidivist or where the offense involves violence or a deadly weapon,
or causes serious bodily injury or death. For a violation without an
aggravation, the penalty is up to 3 years. If aggravated, the maximum
penalty is up to 15 years, unless it involves more than $5,000, which
drives it up to 20 years, and if it involves death or serious bodily
injury, up to 30 years. Then, for good measure, we make the crimes
under the bill predicate offenses for all manner of additional penalty
provisions such as RICO, other racketeering, money laundering and other
provisions, and we even increase the maximum for these penalties beyond
the maximums for their original purposes to go after major organized
crime syndicates.
So here we go again doing what we almost always do to solve a crime
problem--increase penalties. We keep doing the same thing hoping for
different results. And next Congress, or beyond, when we see the same
complaints about the problem we'll likely do the same thing again--
increase penalties. Yet, there is no evidence that the serious problems
we are seeking to address result from a lack of laws or penalties. We
have plenty of laws on the books. Everything we are covering in these
bills is already against the law. And the penalties are plenty high
enough. We have more and higher penalties for crime than any nation on
earth. We have more people locked up than any nation on earth, by far,
both by total number and per capita. We have 5% of the world's
population and 25% of the world's incarcerations. So I will be curious
to see what evidence our witnesses put forth to establish that
criminals are currently choosing to engage in the conduct addressed by
these bills simply because the current penalties are not high enough to
dissuade them. If there is no such evidence and we are simply making
these proposals on notions of what might work, it is my notion that we
are far more likely to see results if we prosecuted more of the cases
we are concerned about, and there is no evidence to show that the
proposals in the bills will cause any more prosecutions than are
currently being brought.
Moreover, we want to encourage the industry to exhaust all
reasonable means of preventing these thefts from their properties and
other facilities in the transit scheme. The April 2011 Fortune Magazine
article, titled, ``Drug Theft Goes Big'' reports that when thieves
committed the largest prescription drug theft in history, by breaking
into Eli Lilly's warehouse in Connecticut, they did so by cutting
through the tar roof of the warehouse and sliding down ropes. Security
was so lax that the thieves were able to pull their own tractor trailer
up to the loading dock, and spend a couple of hours loading the stolen
goods. In a similar event several months earlier, thieves broke into a
GlaxoSmithKline warehouse by coming through the roof. While none of
this in any way shields or excuses the perpetrators of these crimes,
clearly these examples point to the need for more security. I believe
that government and industry working together, at all points along the
factory to retail chain to prevent and detect such thefts, would yield
greater reductions than continually adding crimes and penalties to the
code when there are questions as to whether the laws already on the
books are not being adequately enforced. I am aware that industry and
government regulatory authorities are working toward these ends, and I
would hope that they will let us know ways in which we can help that
effort based on evidence of what works.
Finally, H.R. 4216, the ``Foreign Counterfeit Prevention Act'',
aims to thwart the flow of stolen and counterfeit goods from entering
the country. While I support the bill's goals, I cannot support the
measure in its current form. The samples and images that the bill would
allow U.S. Customs and Border Protection to release to rights holders
will include tracking and distribution codes that identify proprietary
and confidential supply chain information even though these codes serve
little, if any, purpose in the process of determining the authenticity
of a product. Lawful importers will not have any protection or recourse
from the release of this information.
I sympathize with the needs of rights holders and manufacturers to
protect the integrity of their brands and the safety of their products.
For this reason, I fully support the anti-circumvention device
provisions of the legislation. I hope that if the bill moves forward,
any compromise will include guarantees that importers and exporters
have a meaningful role in verifying products' authenticity, and also
provide for penalties against rights holders that knowingly provide
false information to Customs and Border Patrol to damage a competing,
legitimate importer.
Thank you, Mr. Chairman.
__________

[The prepared statement of Mr. Conyers follows:]

Prepared Statement of the Honorable Robert C. ``Bobby'' Scott, a
Representative in Congress from the State of Virginia, and Ranking
Member, Subcommittee on Crime, Terrorism, and Homeland Security

Mr. Sensenbrenner. It is now my pleasure to introduce
today's witnesses.
Dara Corrigan became associate commissioner for Regulatory
Affairs at the FDA in September 2010. Prior to joining FDA, Ms.
Corrigan worked in the Office of Health Reform at the
Department of Health and Human Services. In 2003, she served as
an acting inspector general and principle deputy general
inspector general for the Department of Health and Human
Services. She left public service for 3 years between 2004 and
2007 to join the firm of Arnold & Porter in Washington.
She began her career in the Federal Government in 1990,
following a judicial clerkship, spent almost 8 years as a trial
attorney at the Department of Justice in the Civil Division and
as an assistant civil attorney for the District of Columbia.
She moved in 1999 to the Department of Health and Human
Services, where she served as the deputy chief counsel and the
director of program identity for the Centers for Medicare and
Medicaid Services. She received her juris doctorate degree from
the University of Virginia in 1990.
Thomas Kubic is the president and CEO of the Pharmaceutical
Security Institute. He serves as an officer with the
Partnership for Safe Medicines and is an adviser to the
Permanent Forum on International Pharmaceutical Crime and
Interpol's Medical Products Counterfeiting and Pharmaceutical
Crime Unit.
Prior to joining PSI, he served with the FBI for 30 years.
As an FBI deputy assistant director, his innovative programs in
both the Laboratory Division and Criminal Investigation
Division were recognized throughout the law enforcement
community.
Travis Johnson has been with the International Anti
Counterfeiting Coalition in Washington since 2005. He currently
serves as the vice president and director of legislative
affairs and policy. Previously, he served as associate counsel.
Before his work at the IACC, Mr. Johnson was an associate
IP attorney at the Draughon Attorneys at Law in Ponte Vedra
Beach, Florida. He received his bachelor of arts in political
science from the University of Florida and juris doctor and
certificate in intellectual property law from the University of
Florida in 2002. He received a master's of arts in political
management from George Washington in 2009
Gilbert Lee Sandler is a founding member of the law firm of
Sandler, Travis, & Rosenberg, PA, and as a principle of its
affiliated consulting company, Sandler & Travis Trade Advisory
Services. He is also a Chair of the Regulated Industry
Committee on the American Association of Exporters and
Importers, and general counsel to the American Free Trade
Association.
Previously, he served as a Department of Justice senior
trial attorney on customs and trade matters before going into
private practice 37 years ago. He is a graduate of Dartmouth
and received his J.D. from the NYU Law School.
Lucian Dervan has been a professor at the Southern Illinois
University School of Law since 2009. In 2011, he was appointed
to the advisory committee of the NACDL White-Collar Criminal
Defense College at Stetson. He serves as a faculty member of
the program.
Prior to joining the SIU School of Law, Professor Dervan
served as a law clerk for the Honorable Phyllis A. Kravitch of
the U.S. Court of Appeals for the 11th Circuit, and spent 6
years in private practice with King & Spalding LLP and Ford &
Harrison LLP. He received his B.A. in history and political
science from Davidson and his J.D. from Emory University School
of Law in 2002.
Without objection, the witnesses' written statements will
be entered in the record in their entirety.
I ask them to summarize their testimony in 5 minutes or
less. Please pull the microphone close to you and make sure
that is on when you testify. And we have the little green, red,
and yellow lights to remind you when to wrap it up.
Ms. Corrigan.
Can you pull it a little closer to you, and is it on?
Ms. Corrigan. Yes.
Mr. Sensenbrenner. Okay, reset the clock. [Laughter.]

TESTIMONY OF DARA A. CORRIGAN, ASSOCIATE COMMISSIONER FOR
REGULATORY AFFAIRS, U.S. FOOD AND DRUG ADMINISTRATION

Ms. Corrigan. Thank you. I appreciate that. And thank you
again, Chairman Sensenbrenner, Ranking Member Scott, and
Members of the Subcommittee. My name is Dara Corrigan, and I am
the associate commissioner for Regulatory Affairs at the FDA.
FDA's simple, yet increasingly difficult mission, is to
protect the public health by ensuring the safety and efficacy
of medical products, and the safety of food, in an era of
globalization. The FDA very much appreciates this opportunity
to testify and this Subcommittee's focus on the public health
dangers that occur when patients receive stolen or counterfeit
prescription drugs.
The Office of Regulatory Affairs, which I lead, represents
FDA's boots on the ground. We are an office of 4,400 people,
about one-third of all employees at the FDA. We are the
employees who inspect food, drugs, devices, and other medical
products at the sites where they are manufactured and at the
border where they are imported. We test medical products and
other regulated products in our laboratories across the
country.
But of greatest interest to this subcommittee is our staff
of 262 special agents and support staff who are charged with
conducting criminal investigations under the Federal Food,
Drug, and Cosmetic Act.
Since it began in 1993, the Office of Criminal
Investigations, or OCI, has investigated thousands of criminal
schemes involving FDA-regulated products. These schemes have
included the distribution of counterfeit and unapproved drugs;
large-scale organized illicit diversion of prescription drugs;
and fraudulent schemes involving ineffective treatments for
AIDS, cancer, and other diseases, just to name a few.
Since it began, OCI's cases have resulted in close to 6,000
criminal convictions and the levying of nearly $13 billion in
fines and restitution.
FDA has a forensic chemistry lab that has patented a device
that allows us to differentiate between many counterfeit and
legitimate prescription drugs. It is a portable handheld device
that can be used by health and regulatory officials, law
enforcement, and even pharmaceutical companies. This is one of
the many tools that FDA is using to improve safety along the
entire drug supply chain.
As you know, as you have already mentioned, the potential
danger to the public from trafficking in counterfeit drugs is
very high. Counterfeit drugs may not contain life-saving or
life-sustaining ingredients. They may be contaminated with
toxic materials. In instances of cargo theft of drugs, FDA is
particularly concerned, because patients are in danger of
receiving substandard treatment if criminals do not keep these
products in an appropriate way. They may be expired, and they
may not have been stored properly.
These are not hypothetical risks. As the Chairman just
mentioned, FDA notified 19 medical practices in three States
that they had purchased unapproved drugs from a foreign
supplier that were distributed through a licensed wholesaler in
the U.S. The drug's labels said Avastin, as you know, but they
contained none of the active ingredient of the very necessary
cancer drug Avastin.
You talked about already the fact that in March 2010
thieves broke into an Eli Lilly warehouse and stole
pharmaceuticals valued at $75 million. In 2009, criminals stole
129,000 vials of insulin and reintroduced at least some of
those vials into the legitimate drug supply. Those vials of
insulin required refrigeration, and the criminals did not keep
the insulin in the appropriate way. Because they reintroduced
these vials, at least some of these vials, into the legitimate
supply chain, they had lost their potency, and people were not
able to maintain the necessary glucose control.
This Subcommittee has introduced legislation that would
increase penalties for cargo theft of medical products and for
trafficking counterfeit drugs.
From the FDA's perspective, the risk of public harm is
significant, and we see enhanced penalties that are focused
specifically on prescription drugs as beneficial to our overall
effort to protect the supply chain. Our legitimate drug supply
chain is one of the safest in the world, but there are real
risks.
To address these risks, FDA has a comprehensive strategy to
further enhance the safety along the entire supply chain, from
raw source materials to finished products for consumers. The
strategy includes doing more inspections, placing people
overseas, using sophisticated technology for imports. And we
think our ability to track and trace over the entire supply
chain will help us.
We very much appreciate the opportunity to discuss these
issues and to deter criminal activity that endangers the
public.
Thank you.
[The prepared statement of Ms. Corrigan follows:]

__________

Mr. Sensenbrenner. Thank you.
Mr. Kubic.

TESTIMONY OF THOMAS T. KUBIC, PRESIDENT AND CEO, PHARMACEUTICAL
SECURITY INSTITUTE

Mr. Kubic. Good morning, Chairman Sensenbrenner, Ranking
Member Scott, Members of the Subcommittee.
It is indeed an honor to be asked to testify today about
two criminal law problems that have serious implications for
consumer safety. They are the large-scale medical product theft
and pharmaceutical counterfeiting.
I want to commend Chairman Sensenbrenner and the other
sponsors of the Safe Doses Act, and Congressman Meehan, the
sponsor of the Counterfeit Drug Penalties Enhancement Act, for
your leadership in protecting patients.
My name is Tom Kubic, and I am the president and CEO of the
Pharmaceutical Security Institute. This is a nonprofit
association composed of the security directors from 26
pharmaceutical manufacturers, who are dedicated to protecting
the public health by ensuring the safe distribution of
pharmaceuticals that are indeed effective.
PSI has developed an anti-counterfeiting strategy and a
unique and globally recognized counterfeit medicines reporting
system known as the Counterfeits Incidents System.
As mentioned, prior to joining the PSI, I served a 30-year
career in the FBI, including a term as deputy assistant
director in the Criminal Division.
I am here today on behalf of the Coalition for Patient
Safety and Medicine Integrity, whose purpose is to protect
patients from the risks posed by stolen and inappropriately
handled medical products, and their ultimate reentry into the
legitimate supply chain.
The coalition's members include Abbott, Eli Lilly,
GlaxoSmithKline, J&J, Novartis, Novo Nordisk, Sanofi, and
PhRMA.
Large-scale medical product theft is a significant problem,
and by large-scale, I mean inched entire tractor-trailer loads
and warehouses full of medicines and medical products. Thefts
of this magnitude are conducted by sophisticated criminal
organizations that are hijacking tractor-trailers at rest
stops, breaking into warehouses, and evading alarm systems,
forging shipping documents, producing high-quality counterfeit
labels with alternate expiration dates and lot numbers, and
otherwise thwarting the intense security measures used by the
industry.
These criminal organizations face little risk of being
caught, but patients face a significant risk from unsafe
products.
As mentioned earlier, the risk to patient safety was well
illustrated by the 2009 incident in which a truckload
containing 129,000 vials of insulin was stolen in North
Carolina. And a few months later, the FDA received a report
that some of these vials had been reintroduced into the supply
chain, when a diabetic patient reported to the medical center
in Houston.
The compromised product was ultimately found in pharmacies
in 17 States. And today, there are over 125,000 units which are
still unaccounted for.
The Safe Doses Act is bipartisan legislation that would
modernize the Federal Criminal Code. The passage of this
statute will allow law enforcement to utilize well-established
investigative tools against an increasingly sophisticated
criminal element that traffics in stolen medical products
without regard for public safety.
The companion bill in the Senate has 34 bipartisan
cosponsors and was recently unanimously approved by the Senate
Judiciary Committee.
In contrast to stolen medical products, counterfeit
medicines are deliberately and fraudulently produced and/or
mislabeled in order to appear to be genuine. The counterfeiting
occurs to both branded and generic products, and it represents
a wide range of danger.
In 2010, globally, there were 2,054 incidents of this
nature, and often millions of dosage units were involved.
The current penalties for counterfeiting do not reflect the
serious danger posed to ordinary consumers. Federal
counterfeiting laws do not distinguish between trafficking
counterfeit medicines and counterfeit wallets, even though
counterfeit medicines pose a significantly graver danger to the
public health.
The Counterfeit Drug Penalty Enhancement Act would increase
penalties for trafficking of counterfeit drugs to a level
similar to offenses such as those of narcotics trafficking.
Thank you again for the opportunity to testify here today
and for your attention to this very serious problem. And I look
forward to some discussion and questions
[The prepared statement of Mr. Kubic follows:]

__________
Mr. Sensenbrenner. Thank you very much.
Mr. Johnson.

TESTIMONY OF TRAVIS D. JOHNSON, VICE PRESIDENT-DIRECTOR OF
LEGISLATIVE AFFAIRS & POLICY, THE INTERNATIONAL
ANTICOUNTERFEITING COALITION

Mr. Johnson. Chairman Sensenbrenner, Ranking Member Scott,
Members of the Committee, thank you for the opportunity to
appear before you today.
The issues that H.R. 4216, the ``Foreign Counterfeit
Prevention Act,'' seek to address have been priority concerns
for the IACC's members for a number of years. I would like to
thank Judge Poe and Representative Chabot for their recognition
of these concerns and their sponsorship of this bill.
Recent events, such as the discovery of counterfeit Avastin
in the drug supply chain, and this week's report published by
GAO regarding counterfeit military components, serve as a
reminder of the threats posed by counterfeit goods, not only to
businesses but to the general public and to the Nation's
security.
Counterfeiting is a serious crime, and U.S. Customs and
Border Protection remains our first line of defense against
these crimes. For that reason, I would ask you for a second to
step into a CBP officer's shoes.
Last year, over $2 trillion worth of goods were imported
into the United States, passing through over 300 ports. Your
job, in the simplest of terms, is to get legitimate goods to
the consumer market as quickly as possible, while also assuring
that illicit goods, including counterfeit products, are
identified and interdicted before they make it to consumer
shelves. From the time the shipment is presented for
inspection, you have 5 days to make a decision: Should you let
them into the country, exclude them, or do you need more time
to investigate?
Aside from all the other contraband that you have to deal
with, you are also tasked with determining whether the goods in
front of you violate one of the nearly 30,000 individual IP
rights that are recorded with Customs.
It is beyond unreasonable to expect CBP officers to gain
and maintain the expertise necessary to quickly and accurately
make those sorts of determinations.
We know that is the case, because there is not a day that
goes by without my member companies receiving calls from ports
around the country requesting their assistance in determining
whether certain goods are real or fake. Traditionally, when
these goods came into a port, if the officer had any doubts
about their legitimacy, his first call was to the rights-
holder.
Customs regulations authorize sharing of samples of suspect
goods from the time that the goods are presented, well before
an officer is required to make a decision as to whether or not
the goods should be obtained for further investigation.
Our members report an average turnaround time of 48 hours
or less from the time that a sample or even a digital
photograph of the goods is received, to respond to those CBP
inquiries.
Though that authority to seek assistance from rights-
holders remains, beginning around 2007 to 2008, our members
began reporting a reluctance on the part of CBP officers to
provide those images and samples, or if they did provide them,
to do so in such a highly redacted form that any relevant
information, which might have been useful in making a
determination of the authenticity, was obscured.
CBP cites an April 2000 directive and the Trade Secrets Act
as its justification for this policy shift. But unable to
leverage the expertise of rights-holders, we can expect
significantly greater delays and significantly lower accuracy
in CBP's authentication of goods. Yet every day that a decision
is delayed and every decision that is made incorrectly results
in additional harm to legitimate manufacturers, retailers, and
consumers. In either circumstance, American businesses and
consumers will continue to suffer until CBP's policy is
rectified.
Customs' approach to sharing information and collaborating
with rights-holders is likewise frustrated in both the pre- and
post-seizure context. Rights-holders who are injured by the
importation of illegal circumvention devices due to what we
believe was a simple legislative oversight. CBP has refused to
this day to make disclosures to rights-holders, citing a lack
of authority under Section 1201 that was enacted by the DMCA.
In 2004, this Judiciary Committee acknowledged this as a
concern, noting in its report language for the Piracy
Deterrence and Education Act, ``The Committee believes this gap
in disclosure serves only to protect those who import illegal
devices. The Committee recommends CBP close this loophole and
provide information about illegal circumvention of devices to
copyright owners.''
Closing this gap was likewise the subject of legislation
proposed later that year by DHS, which was never adopted. And
nearly 8 years later, the owners of intellectual property who
were harmed by the importation of circumvention devices have no
means of obtaining information about the seizure of those
goods.
While CBP is actively seeking to leverage new technologies
and tools to aid their efforts in detecting and deterring
counterfeits, the expertise of rights-holders is a powerful
tool that can and should be leveraged without delay. H.R. 4216
provides a simple and direct means of doing so by providing
clear guidance to CBP regarding its authority to work with IP
owners to achieve some of its most fundamental goals.
I thank you again, and I look forward to your questions.
[The prepared statement of Mr. Johnson follows:]

__________

Mr. Sensenbrenner. Thank you.
Mr. Sandler.
I don't think your mike is on.
Mr. Sandler. I apologize.
Mr. Sensenbrenner. Much better.

TESTIMONY OF GILBERT LEE SANDLER, MEMBER,
SANDLER, TRAVIS, & ROSENBERG, P.A.

Mr. Sandler. Mr. Chairman, thank you, and Ranking Member,
thank you very much for allowing us to testify here today.
I am here on behalf of the American Free Trade Association.
We are very committed to facilitation of trade, to competitive
pricing and distribution of brand-name products. And we are
very much opposed to the introduction of counterfeit goods into
the United States, and are prepared to assist in every way to
try and make the Customs and Border Protection more effective
at the borders.
The legislation, however, H.R. 4216, as drafted, is
legislation which we would oppose, because it lacks any of the
safeguards we think are important to preserve legitimate
parallel market trade. And we think that that can be
accomplished through amendment of this bill in ways that would
allow law enforcement to proceed very, very effectively.
Before going into that, the first thing to do, though, is
to put into perspective what this bill actually does. It does
not attack the real problem, which was described very
eloquently by Mr. Johnson. The explosion of imports into the
United States, the numbers that have come up because of the
small express shipments and mail shipments that come in, have
meant that in the last years, CBP is seizing more shipments
than ever but of lower value, because they have so many
shipments to police.
They have a huge haystack to go through, and they are
working hard with the trade. And we are participating with them
to try to find ways that they can better target the suspect
shipments to determine whether or not they have counterfeit
goods in them.
This legislation doesn't deal with that issue at all. This
legislation deals with the needles and the straws that have
already been identified as suspect by CBP. It talks about how
to deal with those small numbers as opposed to the large volume
that they have to deal with at the ports.
It does not address that real problem. And it does it in
the context in which they already have authority to provide
redacted samples to rights-holders prior to seizure, and they
do so regularly.
The last report by CBP said that in the current
environment, working cooperatively with intellectual property
owners, their seizures of fragrance products and colognes last
year increased 470 percent, that they are able to be very
effective and much more effective by working in partnership in
ways that do not jeopardize confidential information that
appears on these samples.
Make no mistake about it that the samples that would be
provided in an unredacted or coded condition would reveal
highly commercially sensitive information. And we don't rest
our arguments upon some arcane interpretation of the Trade
Secrets Act. What we are concerned about is that we have had
four companies--Macy's, Costco, Kmart, and Quality King--have
all had to go to the Supreme Court to affirm the legitimacy of
the parallel market.
Since 1983, I have regularly been in court, fighting to
keep confidential information about sources of supply of the
parallel market, and we have been very successful in that for
over 27 years.
There are codes placed on these products, which are
tracking codes, which are used by those who would like to
eliminate parallel market competition in their brand-name
genuine products, and that could be used under this legislation
to impede that trade.
We would encourage the Committee to take a hard look at
opportunities to mold this into something which is an effective
anticounterfeiting tool, while at the same time balancing the
interests of legitimate trade. And we have proposed many
examples of things that might be done: limit disclosures to
where there is a demonstrated need; determine whether or not
redacted or unredacted samples would be sufficient; educate CBP
to be more effective; use third parties to test and to prove
whether or not goods are genuine; allow importers a short time
in that 30-day window, which Customs has, in which to assure
that the goods are genuine; limit this to recorded marks and
copyrights, and to piratical and not infringing; and have a
real undertaking by the rights-holders that would commit them
to not use this for anti-competitive purposes when the products
turn out to be genuine.
We look forward to working with the Committee and its
Members to try and bring this to a better solution to a very
real problem.
[The prepared statement of Mr. Sandler follows:]

ATTACHMENT

__________

Mr. Sensenbrenner. Thank you very much.
Mr. Dervan.

TESTIMONY OF LUCIAN E. DERVAN, PROFESSOR,
SOUTHERN ILLINOIS UNIVERSITY SCHOOL OF LAW

Mr. Dervan. Thank you, Mr. Chairman, Ranking Member Scott,
Members of the Subcommittee.
My name is Lucian Dervan, and I am an assistant professor
of law at Southern Illinois University School of Law. I
currently write and teach in the area of criminal law,
including sentencing, and I greatly appreciate the invitation
to speak today, regarding the important work of this
Subcommittee in seeking to eradicate the significant issue of
counterfeit drugs and large-scale medical product theft.
In my limited time today, I would like to focus my
statement on several specific issues in hopes that my insights
might further assist the Subcommittee in achieving its goals.
First, I encourage the Subcommittee to further examine the
mens rea elements of the newly proposed theft of medical
products statute. A cornerstone of the American criminal
justice system is mens rea, or the idea that to be convicted of
a crime, one must have acted with a guilty mind. In many
instances, however, new legislation fails to require adequate
mens rea for conviction. The result is that innocent conduct
may become criminalized.
Second, I encourage the Subcommittee to consider the true
impact of the proposed increase to seven statutory maximums in
an effort to deter crime and enhance punishments. Studies
regarding the impact of increasing the severity of sentences
for criminal offenses, particularly where the offense already
carries a significant sentence, indicate that such policies,
though well-intentioned and meant to create a strong deterrent
result, unfortunately, do not have the desired effect.
Further, research I have conducted regarding the impact of
increases in statutory maximums indicate such amendments fail
to significantly increase individual defendants' sentences. As
discussed more fully in my written statement, this is due, at
least in part, to the utilization of such enhanced sentencing
provisions by prosecutors during plea-bargaining.
Often, instead of using these new tools to secure increased
sentences as intended by the legislature, prosecutors use such
revisions to create significant and powerful incentives for
defendants to accept plea offers.
Given the evidence that increasing sentencing severity is
often ineffective at deterring criminality generally, and the
evidence that increasing statutory maximum sentences does not
translate into significantly increased sentences for convicted
individuals, perhaps consideration should be given to other
mechanisms by which to achieve the goals of eradicating
counterfeit drugs and large-scale medical product theft.
One proposition that is supported by research in the field
of criminal justice is to increase enforcement actions against
those engaging in these offenses. In fact, studies indicate
that increasing the likelihood of apprehension and conviction
can have a significant deterrent effect.
Further, additional mechanisms by which to advance the
mission of the Subcommittee might include requiring
manufacturers and distributors of pre-retail medical products
to increase security at storage facilities and during the
transportation of these materials. It might also be advisable
to consider ways in which pre-retail medical products might be
better tracked during manufacture and transportation. Such a
tracking system might better enable law enforcement and the
industry to identify compromised materials and allow for more
accurate and swifter notification to the public when a breach
has occurred, thus empowering consumers with information to
better protect themselves.
In closing, I would like to address one additional issue.
While creating additional overlapping Federal criminal statutes
and significantly increasing the statutory maximum penalties
for offenses related to prescription drug offenses may not
result in greater deterrence of potential offenders or
significantly increase sentences for those convicted, such
legislation will perpetuate the phenomenon of
overcriminalization and with it the continued deterioration of
our constitutionally protected right to trial by jury.
Today, almost 97 percent of criminal cases in the Federal
system are resolved through a plea of guilty. As the number,
breadth, and sentencing severity of Federal criminal statutes
continue to increase through overcriminalization, prosecutors
gain increased ability to create overwhelming incentives for
defendants to waive their constitutional right to a trial.
As my research has shown, a symbiotic relationship exists
between overcriminalization and plea-bargaining. This
relationship has led us to our current state and created an
environment in which we have jeopardized the accuracy of our
criminal justice system in favor of speed and convenience.
In my most recent article, written in collaboration with
Dr. Vanessa Edkins, we discovered that more than half of
innocent defendants will falsely admit guilt in return for a
perceived benefit.
As overcriminalization continues to create the incentives
that make plea-bargaining so prevalent and powerful, we must
ask ourselves as a country what constitutional price is being
paid when, even though we act with good and noble intentions,
we create yet another law or increase yet another statutory
maximum where it is not absolutely necessary to achieve our
goal.
I commend the Subcommittee for its focus on the important
issue of stolen and counterfeit goods, and I thank you for the
opportunity to testify today.
I welcome any questions the Subcommittee might have
regarding my remarks.
[The prepared statement of Mr. Dervan follows:]

__________

Mr. Sensenbrenner. Thank you very much.
We will proceed with questions under the 5-minute rule. The
Chair will defer his questions until the end and recognize the
gentleman from Texas, Mr. Poe.
Mr. Poe. Thank you, Mr. Chairman. Thank you all for being
here.
The issue of stealing, thievery, and criminals has always
been part of my background, in that I spent my time down at the
courthouse in Houston as a prosecutor, a criminal court judge,
referred to the courthouse as the Palace of Perjury. Some of
you lawyers might relate to hearing that before.
But anyway, I am concerned specifically about H.R. 4216,
and it is because small-business owners in America have their
goods counterfeited throughout the world, and they are smuggled
back into the United States. Some of them stay in foreign
countries, which is a different issue.
It came to my attention by small-business guy, Farouk Shami
in Houston, who moved his business from China to Houston to
hire American workers, about 1,000 of them. And he makes CHI
hair products, all kinds of things that folks that want all of
that fancy equipment for hair products, they buy from him
because he is one of the best in the world.
But about $10 million a year is stolen from him in
counterfeit goods. The products are so perfect that I can't
tell the difference of them. It even has Farouk's photograph on
there, like the real thing does. It has his warranty, phone
number, and when these products that don't work--I was going to
use another word, but I will just say products that don't work,
they call him, they are all mad, because they have some
counterfeit product. They don't know that. And he reimburses
them and gives them the real thing.
And he says it is an increasing problem; it is not it
decreasing problem. And some of these goods come back across
the border into the United States.
And the way that the law, I think, is being misinterpreted,
when he works with Border Patrol, he doesn't get enough
information to confirm whether it is the real thing or not.
That is his concern.
D'Addario makes, I think, some of the best guitar strings
in the world. Seventy percent of the market in China is
counterfeit goods. This is the real thing, and this is the
counterfeit product. The counterfeit product even has the
hologram on it. That is how you know it is counterfeit. That is
one way.
But they look exactly alike. And you know what irks me?
They even have the ``Made in the USA'' sticker on the back when
these things are made in China.
And they are being smuggled back into the U.S. And they
need the ability from Border and Customs, who I think does a
great job, to have a photograph of the fake and tell whether it
is theirs are not. And then tell Border Patrol, no, this is a
fake or it is the real thing.
Right now, they can't give that information because all of
the redaction in the photographs, for some reason. Why
shouldn't the owner or the rights-holder have the ability to
look at the fake and tell Border Patrol this is a fake?
It's not just on guitar strings. You have these products--
the real thing, this is a power strip. Another power strip. The
problem with this one, the counterfeit power strip doesn't come
with the label counterfeit on it.
But these are defective. If you plug these in, you may
start a fire. So you have a safety issue coming into the United
States.
And one way the rights-holder, the owners of these
products, say let us cooperate with Border and Customs and fix
the law so we can look at the fake, the proposed fake, and tell
you whether it is fake or not. And if it is not, bring it on
into the United States. If it is, then follow the rules of law
after that.
And there many other products. These are small-business
owners, and they operate on a small margin. And the
counterfeiting products with the organized crime syndicate of
China, I think, is hurting American manufacturing and sales.
One other thing about Farouk and the D'Addario family, this
is their name on these things. It is their family reputation
that is being counterfeited. And when these counterfeit
products are no good, it hurts their family name. And long-
term, it will hurt their business because of the fakes. And
they are concerned about a name. A name actually means
something to small-business owners. Their good name means
something.
That is why Farouk reimburses the counterfeit products with
the real thing and writes a letter of apology and tells them it
was a counterfeit.
And I guess my question, Mr. Johnson, my one question, I
guess I will have to put it in writing, Mr. Chairman.
Mr. Sensenbrenner. Oh, go ahead. [Laughter.]
Mr. Poe. I ask unanimous consent for one more----
Mr. Sensenbrenner. Without objection.
Mr. Poe. Thank you, sir.
Explain to me, in less than 30 seconds, why business owners
need the Border Patrol to send them a photograph of the
document or the product coming into the U.S.?
Mr. Johnson. Thank you, Judge Poe.
In 30 seconds or less, I would say that the need for the
photographs unredacted and the information that is available on
the product, whether it is the specific coding that the brand
is using, or other indicia of authenticity, or indicia of the
counterfeit nature of the goods, is because the quality of the
counterfeit product that we see coming into the country these
days is so much better than what was seen in the past. It is
nearly impossible for somebody who has not received significant
training and does not have the expertise to be able to identify
on their own.
That is not to say that CBP does not receive significant
training. The IACC Foundation, which is a separate organization
that we work with, has trained over 35,000 law enforcement
personnel in making these sorts of terminations.
But they are really only able to make the initial call as
to whether or not they think there is possibly a problem with
it. They are generally not able to make a final factual
determination, yes or no, that this is authentic or this is
counterfeit.
Mr. Poe. Thank you, Mr. Chairman. I appreciate the
additional minute.
Mr. Sensenbrenner. The time of the gentleman has expired.
The gentleman from Virginia, Mr. Scott.
Mr. Scott. Thank you.
Mr. Sandler, what trade secrets or legitimate practices
might be compromised if more information is disclosed to
rights-holders?
Mr. Sandler. The sources of supply are often revealed by
the tracking codes that are placed on these products. The
examples that we have demonstrated before in public testimony
show that the batch codes, the manufacturing codes, the codes
used for recall, are ones that we had no problem with those
being revealed.
We do have problems with special tracking and other types
of track-and-trace codes, which are placed on--some are only
readable by ultraviolet lights. Some are placed inside the
boxes. They are strictly put there in connection with trying to
identify sources of parallel market trade in legitimate goods.
Those are the sorts of codes that we thought would be
revealing of the nature of the commercial transaction in a way
that would be very harmful and would essentially stop this type
of legitimate trade.
Mr. Scott. What is parallel market mean? And how do rights-
holders use information gained to undermine the legitimate
market?
Mr. Sandler. Well, the parallel market itself is really a
creature of our copyright law and our trademark law. You have
the right to copy and you have the right to manufacture,
absolutely. But the right to distribute is limited essentially
to the first sale, also under our patent law.
So once goods are sold, the person who purchases those
goods is free to sell them anywhere they wish. There are some
exceptions to that, but basically that is the arrangement under
our law. And it allows for interbrand competition in the U.S.
marketplace.
So goods which are sold at a lower price in one market will
find their way into a market where there is a higher price. And
so it is trade in legitimate goods that are sold in commerce
legitimately and unlawfully. It has been tested before the
Supreme Court on at least four separate occasions.
Mr. Scott. Well, how does the information that is sought to
be revealed, how do rights-holders undermine the legitimate
transactions?
Mr. Sandler. Rights-holders, in looking at who was the
person who sold for export to the United States or who was also
involved in the supply chain, can prevent sales to them in the
future, can take action against them. Lawsuits are often filed.
Sometimes they are good lawsuits; sometimes they are not good
lawsuits.
For the most part, we have been very successful in
litigation, but it fosters litigation. It is intimidating to
the trade. And rights-holders and manufacturers can cease doing
business with those who they think shouldn't be selling their
goods into a different marketplace.
Mr. Scott. Thank you.
Ms. Corrigan, you indicated you have 262 agents. Is that
nationally?
Ms. Corrigan. Yes, it is. That includes----
Mr. Scott. Can you turn your mike on?
And is there anything in the legislation, in any of these
bills, that will increase the number of agents?
Ms. Corrigan. There is not.
Mr. Scott. Then how will just increasing the sentencing
help you investigate and prosecute dangerous drug offenses?
Ms. Corrigan. Our criminal agents do not have the actual
authority to bring cases. What we believe the enhanced
penalties will do is enable a full discussion of our cases with
law enforcement and give law enforcement more tools to
prosecute individuals who endanger the public health by
introducing stolen drugs or trafficking in counterfeit drugs.
Mr. Scott. Without any more agents, why will increasing a
sentence bring that about?
Ms. Corrigan. What often happens is we investigate under
the Federal Food, Drug, and Cosmetic Act. And we bring those
facts to the Justice Department. And what they have the ability
to do is look across the board at all of the laws that would
allow prosecution, and giving them more tools that are focused
solely on medical products or drugs with enhanced penalties----
Mr. Scott. Are there any enhanced penalties in any of these
bills for things that are not now crimes but would be crimes if
any of these bills passed?
Ms. Corrigan. There are already penalties and laws that
cover counterfeit drugs and cargo theft. There is not cargo
theft--cargo theft is not authorized under the Federal Food,
Drug, and Cosmetic Act.
Mr. Scott. Cargo theft is not theft?
Ms. Corrigan. The investigation. I mean, cargo theft is not
part of the Federal Food, Drug, and Cosmetic Act. Counterfeits
are, but cargo theft is investigated by the FBI and prosecuted
by the Justice Department.
Where we get involved is when those drugs are reintroduced
into the legitimate supply chain.
Mr. Scott. Thank you, Mr. Chairman.
Mr. Sensenbrenner. The gentleman from Utah, Mr. Chaffetz.
Mr. Chaffetz. Thank you, Mr. Chairman. I do appreciate it.
I know all good Americans subscribe----
Mr. Scott. Mr. Chairman?
Is your mike on?
Mr. Chaffetz. Is that better?
Mr. Sensenbrenner. Without objection, the gentleman from
Utah can move closer to the Chair. [Laughter.]
And the clock will be reset.
This is without prejudice to senior members.
Mr. Chaffetz. I am just not used to being up here on this
upper level here, so thank you, Mr. Chairman.
As I was saying, I know all good Americans subscribe to
Electronic Engineering Times, since I am sure you do.
But specifically, the October 24, 2011, article, I would
ask unanimous consent that this be inserted into the record.
Mr. Sensenbrenner. Without objection.
[The information referred to follows:]

__________

Mr. Chaffetz. Thank you.
It highlights one of the concerns, dealing specifically in
the semiconductor issue.
Mr. Johnson, I would appreciate if you could get into this
a little bit. My concern is that back, evidently, in 2000,
there was a directive that went out that suggested that,
``Prior to the release of the sample, Customs officers should
remove or obliterate any information indicating the name and/or
address of the manufacturer, exporter, and/or importer,
including are all barcodes and identifying marks.''
So you have a situation where somebody is looking at, say,
some discs or some chips, and the only thing that they are
allowed to share, we have an example here, in this little
presentation, a redacted chip picture, where they redact the
very information that a manufacture would actually need in
order to properly identify whether this is a legitimate chip or
not. This was a directive that was issued in 2000, and really
not enforced until the year 2008.
Let me just, to the size and scope, Mr. Chairman, between
2007 and 2010, ICE collaborated with U.S. Customs and Border
Patrol on more than 1,300 seizures that collectively involved
5.6 million counterfeit semiconductor devices.
If you move forward and look at the SanDisk, portable
memory chips, in June, there were some $852,000 worth of
counterfeit SanDisks that were seized when they found 1,932
karaoke machines being shipped from China that had these chips
in it.
This is just a portion of that iceberg.
Mr. Johnson, I want to talk about the size and scope,
specifically as it relates to chips in the semiconductor issue
and how you view this.
Mr. Johnson. Well, the issue with regard to semiconductors
is really representative of the issue that is being faced by
manufacturers across all sectors. And the Customs Directive
that you reference, 2310-008A, has been viewed as problematic
by all of the IACCs' members, regardless of their product
sector, in part because really the directive seems to place a
mandate on Customs to take action that was never actually
authorized by Customs regulation.
If you look at 19 CFR 133.25, that Customs drew the
authority for that directive from, there is absolutely no
reference to requiring Customs officers to remove the sort of
information that the directive directed them to do, directed
them to do so.
With regard to the scope of the problem----
Mr. Chaffetz. Well, let's stay specific on that point. My
understanding is that the National Defense Authorization Act
allowed, actually has language saying that they may share this
information but they have chose not to thus far.
Shouldn't we be compelling them to do that, if they don't
understand that they do have permission?
Mr. Johnson. That is correct. That NDAA included provisions
that explicitly authorized CBP to share that information with
rights-holders for the limited purposes of making
authentication of the goods.
Unfortunately, based on feedback we have been hearing from
our members, CBP has indicated that they feel that the and NDAA
provisions are in conflict with existing Customs regulations,
and that they need to resolve that issue before they can move
forward with information-sharing.
Mr. Chaffetz. So, in essence, we have passed a law, it has
been signed into law, and they believe that is in conflict with
their own regulations, so they are electing to go with the
regulation as opposed to the law.
Mr. Johnson. That is exactly correct.
Mr. Chaffetz. And this, Mr. Chairman, is the heart of the
challenge I think that we face. There is a way to swiftly
determine whether or not these goods are legitimate or not.
They are taking an extra step to redact the very information
that these companies need in order to identify, and we have
passed this into law. It is inexcusable that Customs and Border
Patrol is taking this extra step. In abundance of caution, they
should be providing the information to these manufacturers, so
that they can clearly validate this.
And with that, I will yield back the balance of my time.
Thank you, Mr. Chairman.
Mr. Sensenbrenner. I thank the gentleman.
The Chair will bat cleanup now.
Mr. Sandler, I need a little bit more information to try to
figure out why there is this objection to giving tracking codes
to Customs.
The parallel market is legal; peddling counterfeit goods is
not. So what is wrong with giving tracking codes to the rights-
holder, basically so that the rights-holder can find out,
number one, if the goods are counterfeit or not?
Mr. Sandler. Well, there is nothing wrong with giving
information to rights-holders to determine whether or not goods
are counterfeit. However, much of that information, the
tracking codes in particular, are generally not necessary for
that determination.
The electronic chips that we just talked about, that very
well could be the exception to the rule. That may be an
industry where it is important to give that information. But in
the fragrance area, it is not necessary.
There are many other tests and many other ways to verify
the authenticity of the goods.
So if that is understood and recognized as a truth, if that
is accepted for the moment, then the issue becomes, what about
those rights-holders who would prefer not to have to deal with
parallel market competition? The many court cases that are
recorded make it very clear that there is a battle that is
ongoing, and that the rights-holders, when they are able to,
those that would oppose that type of legitimate trade will take
action to stop it. They will file lawsuits. They will make sure
that merchandise is no longer sold to suppliers, to cut them
off. They will take those sorts of actions.
The CBP should not be in the middle of giving information
that fuels the flames of the fire.
Mr. Sensenbrenner. Well, on the other hand, we heard all
kinds of information, both in this hearing and from other
sources beforehand, of the dangers of counterfeit goods. Now
maybe in the fragrance area, the dangers are not as great as in
the counterfeit drug area, or in the case of the counterfeit
surge protectors that the gentleman from Utah presented to the
Committee.
But are you saying that a little bit of knowledge can be a
dangerous thing, if CBP ends up giving this information? It is
still up to the rights-holder to have the burden of proof that
somebody in the parallel market is violating the law.
Mr. Sandler. I am not asking that CBP turn its back on
those issues. I am saying that CBP needs better targeting to
identify more suspect shipments. And I am saying that in the
context of this legislation, CBP not only has identified this
importation as a problem, but they have it under detention. It
is in their custody. It is in their control. It is not going
anywhere.
So why would CBP, knowing that it often seizes and detains
goods which are genuine goods, why would it give commercially
sensitive information to the rights-holder without first going
to the importer and giving that importer an opportunity to
establish that the goods are genuine without first determining
whether or not this could be validated as genuine or not
through an independent third laboratory, through some training
of CBP itself? Why not take those alternatives?
CBP operates today, and will under this legislation if it
is adopted, with a 30-day window to do something. The
legislation recommended by the Administration would use the
first 12 of those 30 days to allow the importer an opportunity
to validate the goods. Why not have a safeguard like that built
into this process?
Mr. Sensenbrenner. I think we all agree that the CBP needs
to do better targeting to be able to spot the contraband that
is trying to be imported into the United States. But it still
goes back to the business of what is the danger of giving the
tracking code to the rights-holder?
Mr. Sandler. The danger is that there will be a cut off of
the supply of legitimate goods coming into United States to
trade in a wider distribution arrangement and at lower prices
to the benefit of the U.S. consumers.
That has been the battleground that I have been involved in
since 1983, where not all rights-holders but certain rights-
holders, either through commercial activity, through litigation
or otherwise, are trying to eliminate this form of lawful
competition.
Mr. Sensenbrenner. Well, my time has expired.
I would like to thank all of the witnesses for their
testimony today. This is a problem. We are going to have to
address it. We want to address it in the most effective manner
possible. And that is what the legislative process is all
about.
Without objection, the hearing is adjourned.
[Whereupon, at 11:11 a.m., the Subcommittee was adjourned.]

A P P E N D I X

----------

Material Submitted for the Hearing Record

Prepared Statement of the Honorable Sheila Jackson Lee, a
Representative in Congress from the State of Texas, and Member,
Subcommittee on Crime, Terrorism, and Homeland Security

First, I would like to thank the Subcommittee Chairman and Ranking
Member for holding today's hearing on H.R. 3668, the ``Counterfeit Drug
Penalty Enhancement Act of 2011,'' H.R.4223, the ``Safe Doses Act of
2012,'' and H.R.4216, the ``Foreign Counterfeit Prevention Act of
2012'' and I would also like to thank today's witnesses:

(1) Dara Corrigan, Associate Commissioner for Regulatory
Affairs, U.S. Food and Drug Administration.

(2) Thomas T. Kubic, President and CEO, Pharmaceutical
Security Institute, and

(3) Travis D. Johnson, Vice President and Director of
Legislative Affairs & Policy, The International
AntiCounterfeiting Coalition.

(4) Gilbert Lee Sandler, Member, Sandler, Travis & Rosen P.A.,
and

(5) Lucian E. Dervan, Professor, Southern Illinois University
School of Law.

As we all know counterfeit drugs pose a grave threat to consumer
safety. H.R. 3668, the ``Counterfeit Drug Penalties Enhancement Act of
2011'' increases the penalties for using a counterfeit mark on
illegally trafficked drugs. This legislation serves to plug a gap in
the law which accounts for counterfeit goods only.
Because of the increased activity in fake drugs it is important for
Congress to lay down a marker so that potential criminals are faced
with more deterrents should they consider stealing drugs.
Because I represent Houston, Texas, it is of heightened importance
for consumers and law enforcement officials in our state because of the
proximity to the Mexican border. It is not inconceivable that crime
syndicates operating on both sides could cause significant problems by
stealing drugs and selling them in Mexico.
That is why I am pleased that the bill amends the federal criminal
code to increase the maximum penalty from 10 years to 20 years and
increase the maximum fines for individuals from $2 million to $4
million and for companies from $5 million to $10 million.
Where there are multiple offenses, the bill leaves the 20 year
maximum penalty the same but increases the fine for individuals from $5
million to $8 million and for companies from $15 million to $20
million.
This bill, introduced by my colleagues, Rep. Patrick Meehan and
Rep. Linda Sanchez on December 14, 2011will hopefully send a strong
message to criminal enterprises.
Counterfeit drugs are becoming increasingly more prevalent in
America. News outlets recently reported that a counterfeit version of a
widely-prescribed cancer drug, Avastin, appears to have entered the
U.S. market. John Clark, Chief Security Officer at Pfizer, testified to
the problem before the full committee in November at SOPA hearing:
``Counterfeit medicines pose a threat because of the conditions
under which they are manufactured--in unlicensed and unregulated sites,
frequently under unsanitary conditions--and the lack of regulation of
their contents.''
In many instances, they contain none of the active pharmaceutical
ingredient (API) found in the authentic medicine, or an incorrect
dosage, depriving patients of the therapeutic benefit of the medicines
prescribed by their physicians. In others, they may contain toxic
ingredients such as heavy metals, arsenic, pesticides, rat poison,
brick dust, floor wax, leaded highway paint and even sheetrock or
wallboard. Counterfeit medicines are a global problem, one from which
no region, country, therapeutic area is immune.''
It is important to note that current law prohibits trafficking in
counterfeit goods. The current penalty for an individual who violates
the law is not more than 10 years in prison or a $2,000,000 fine or
both. For a person other than an individual, the current maximum
penalty is $5,000,000. Penalties are increased for second or subsequent
offenses or causing serious bodily injury or death.
This bill increases the penalties for trafficking in counterfeit
drugs, specifically. Some supporters of H.R. 3668 contend that this
bill is necessary because counterfeit drugs are a particularly serious
threat to the public.

H.R. 4223, THE ``SAFE DOSES ACT OF 2012''

Rep. Sensenbrenner, Chairman of the Crime, Terrorism and Homeland
Security Subcommittee, introduced H.R. 4223 on March 20, 2012. In the
Senate, a bipartisan measure was introduced by Senators Schumer and
Kyl, the Strengthening and Focusing Enforcement to Deter Organized
Stealing and Enhance Safety Act of 2011, known as the Safe Doses Act.
The bill has been reported unanimously by the Senate Judiciary
Committee. As of today, the Senate bill has 30 co-sponsors.
Large-scale medical product theft has become a significant problem.
Sophisticated criminal organizations are believed to be the primary
perpetrators in the theft of large quantities of medical products and
the re-introduction of these products into the legitimate supply chain,
including into pharmacies and hospitals. The result of their criminal
conduct can be serious public health and safety implications because
improperly cared for medical products--which can be ineffective or
harmful--are being used by unsuspecting patients and health care
professionals.
The story back in 2009, widely reported, 129,000 vials of insulin
(valued at approximately $11 million) were stolen in North Carolina. A
few months later, the FDA received a report that some of the vials had
been reintroduced into the supply chain when a diabetic patient
reported to a medical center in Houston with an adverse reaction after
using insulin from the stolen lot. The FDA issued a warning that the
insulin had likely not been stored correctly and could still be in the
market--at that time only 2% of the stolen product had been recovered.
The spoiled product was ultimately found in pharmacies in 17
states, with at least 2 additional patients experiencing adverse
reactions. An investigation linked the theft to an organized crime
ring, and while some arrests have been made, over 125,000 vials of
insulin still remain at large.
Criminal organizations are hijacking tractor-trailers at rest
stops, breaking into warehouses and evading alarm systems, forging
shipping documents, producing high-quality counterfeit labels with
altered expiration dates and lot numbers, and otherwise thwarting the
intense security measures used by the industry. Some of these
organizations employ sophisticated surveillance equipment and
techniques in order to learn exactly when and where they can steal the
particular shipments they want. The stolen medical products are then
sold back into legitimate channels.
All kinds of pharmaceuticals, medical devices and specialty
nutrition products including infant formula are being stolen. High-
value pharmaceuticals, including treatments for serious diseases, are
frequent targets.
These high-value items are the very type of sensitive products that
need the most careful handling and temperature control since many of
them can become ineffective and even toxic if stored at the wrong
temperature, even for a brief time.
Title 18 United States Code, Section 659 prohibits the theft of
``any goods or chattels moving as or which are a part of or which
constitute an interstate or foreign shipment of freight, express or
other property'' from a variety of sources including storage
facilities, trailers, warehouses.
This provision sets forth penalties of a fine and/or imprisonment
of not more than 10 years. The industry representatives believe that
the current federal criminal laws are inadequate in that they make no
distinction between the theft of a load of insulin and stealing a truck
full tires or electronic products.
They argue that a specific provision should address the theft of
medical products because the potential harm is vastly greater when
medical products are involved. They believe that higher possible
sentences may not only make people think twice before acting, but also
will provide law enforcement agencies with the tools they need to
obtain cooperation in bringing down criminal organizations.
The industry is calling for tougher federal laws that go after the
multi-dimensional enterprises carrying out these crimes and recognize
the health risks created by the improper care and handling of sensitive
medical products.
In meetings with Committee staff, pharmaceutical, medical device
and medical products industry representatives advise that they have
adopted sophisticated security systems and practices.
Many companies have instituted strict protocols for their truck
drivers, including instructions on where they can stop for breaks. Some
companies even provide armed escorts for their most sensitive
shipments.
Although these efforts are making it more difficult for the
criminals to get what they want, the industry believes that only the
genuine threat of significant criminal penalties can provide effective
deterrence.
No evidence is offered to support such beliefs and no comparisons
are offered as to the effectiveness of this approach compared to
others, such as putting more resources into directed investigations and
prosecutions.
Nor is there any evidence to support the contention that offenders
are so specifically aware of the federal laws affecting these issues
that they are calculating the risks such that they are willing to risk
up to 10 years in prison, but wouldn't risk a sentence of up to 20
years in prison and the increased fines under the bill.
Moreover, it is not clear that any more cases will be brought as a
result of the provisions of this bill and there is no evidence that
recidivism is a problem which higher penalties would effectively
address.

H.R. 4216, THE ``FOREIGN COUNTERFEIT PREVENTION ACT''

H.R. 4216, the ``Foreign Counterfeit Prevent Act,'' amends the
Trade Secrets Act to authorize U.S. Customs and Border Protection (CBP)
to provide intellectual property rightsholders with samples and images
of goods offered for import or export, including retail packaging and
other packing material.
In order to authenticate suspected counterfeit or pirated products
seized at U.S. ports, CBP has routinely released samples and images of
products to rightsholders. In 2008, the agency directed its agents to
redact identifying markings and codes prior to transmitting images to
the rightsholders.
Proponents of this bill are concerned that when the rightsholder
receives an image from the CBP officer with key numbers, codes, or
markings blacked out, the remaining information that is provided is
virtually useless and does not allow the rightsholder to identify the
product as legitimate or counterfeit.
Last fall, an amendment was included to the Defense Authorization
Act (Pub. L. No. 112-81) that partially and temporarily addresses this
issue. The Defense Authorization Act provision authorizes information
sharing with the trademark rightsholder when CBP suspects a product
violates intellectual property laws.
Proponents of H.R. 4216 feel that the provision in the Defense
Authorization Act did not go far enough because it only covers
trademark law violations and it also contains a sunset date.
H.R. 4216 amends the Trade Secrets Act to provide that it is not a
violation of that Act for CBP officers to provide information and
samples, including bar codes and identifying marks, with the
rightsholder. Proponents of the bill say it will help ensure that CBP
can continue to seek input from rightsholders to interdict dangerous
counterfeit products before they enter the U.S. market.
This legislation also addresses a corollary issue involving
``circumvention devices,'' which are devices that bypass technological
means of protection that copyright owners use to prevent illegal access
to or copying of their works.
Trafficking in such devices is illegal under the Digital Millennium
Copyright Act (DMCA) and CBP is authorized to seize such devices.
However, there is no specific authority for CBP to share information on
circumvention devices after seizure with copyright owners to help with
identification or for law enforcement purposes.
Mr. Chairman, I look forward to hearing from our witnesses this
morning.

Prepared Statement of the Honorable Steve Chabot, a Representative in
Congress from the State of Ohio, and Member, Committee on the Judiciary

I would first like to thank the Chairman of the Crime, Terrorism
and Homeland Security subcommittee, Mr. Jim Sensenbrenner, for holding
this hearing to address concerns with counterfeit goods in our
marketplace. Trade of counterfeit goods has a negative impact on our
national economy. The International Chamber of Commerce estimates that
7% of the world trade is in counterfeit goods--totaling $350 billion.
This results in American industries losing out on billions of dollars,
and opportunities for growth in addition to the lost tax revenues.
Intellectual Property in the United States is responsible for
spurring new industry, developing useful technology, and creating jobs.
But this very property is ripe for foreign criminals hoping to profit
from American innovation. These bad actors replicate trademarked
American goods and then ship them back to the United States to be sold
for a profit. Customs and Border Patrol (CBP) agents here in the state,
make the first contact with these shipments. Unfortunately due to the
evolving sophistication of counterfeiters and pirates, it is nearly
impossible for CBP officers to determine whether a shipment is the real
thing.
It's critical that CBP officers be able to communicate valuable
information with rightsholders the individuals most able to
authenticate their products. For many years, this important partnership
between and copyright owners made it possible to test and verify items
seized at the border. Unfortunately, based off a new legal
interpretation of the Trade Secrets Act in 2008, CBP officers were
instructed to remove bar codes and product markings, which are often
the most valuable information in weeding out counterfeit products. The
new rules have resulted in a major threat to valuable intellectual
property and in turn, job creation. Procter and Gamble, a major
employer in my district, has faced many challenges with the change in
procedure, explained through a specific case study.
Congressman Ted Poe and I have introduced H.R. 4216 to provide a
permanent remedy to this deficiency by clarifying that it is not in
fact a violation of the Trade Secrets Act for CBP officers to share
information and samples, including barcodes and other identifying
marks, with the rightsholders. This will result in renewed partnerships
to better protect intellectual property against imported counterfeits.
It is time we start untangling regulation that is strangling U.S.
companies and preventing job growth in these hard economic times.

ATTACHMENT

Prepared Statement of the Honorable Linda T. Sanchez, a Representative
in Congress from the State of California, and Member, Committee on the
Judiciary

Mr. Chairman,
Thank you for including H.R. 3668, the ``Counterfeit Drug Penalty
Enhancement Act of 2011'' in this important hearing about the security
of the pharmaceuticals upon which our constituents, seniors and
children all rely.
I am proud to have introduced H.R. 3668 with my colleague,
Representative Patrick Meehan of Pennsylvania. I am also pleased to
note that the Senate counterpart, S. 1886, which was introduced by
Chairman Patrick Leahy and Ranking Member Charles Grassley of the
Senate Judiciary Committee, passed the Senate by voice vote earlier
this month. This demonstrates that this legislation is needed,
bipartisan, and non-controversial. I strongly encourage this Committee
to swiftly move this legislation to a mark-up, and from there, to the
House floor.
Why is it so important to move this legislation?
Because our constituents deserve to know the medicine they put into
their bodies is safe and effective. While all of our districts are
impacted by counterfeit pharmaceuticals, I would like to describe an
incident that occurred near my home in Southern California.
In Los Angeles, a mother and son went looking for some relief from
their nagging colds at what they thought was a health clinic.
Unfortunately, what they were told was medication didn't just make them
sick, it sent them to the hospital.
The mother reported that as soon as the ``vitamin injection'' hit
her bloodstream, her heart started racing. Then, her lips went numb and
she started getting excruciating headaches. After that, she started
passing out. She lost 30 pounds in a week and her pancreas stopped
working.
This frightening story shows the dangers of fraudulent medicines
are very real, and the consequences can be fatal.
The Swiss drugmaker Roche, which produces the popular cancer drug
Avastin, recently became well acquainted with this rampant problem.
Roche is still investigating how phony vials of Avastin made it to
nineteen oncology practices in the U.S. The FDA began notifying clinics
about the questionable drugs in mid-February, but counterfeit Avastin
might have made it to doctor's offices as early as last July.
Roche analyzed the vials of phony Avastin in February, and didn't
find the active ingredient found in the cancer drug. However, they say
they found traces of the chemical acetone--a solvent used in paint
thinner. To date, there is no medical use for acetone.
Experts say that it's tough to gauge what harm a counterfeit cancer
treatment can inflict on a patient because drug infusions are typically
spaced out over weeks and months. So, in the span of six months, a
cancer patient might have received up to twenty fake Avastin infusions.
That's twenty treatments that did nothing to improve the health of
a patient suffering from cancer.
The list of drugs that authorities have found to be counterfeited
is a long one. They include medications that treat cancer, Alzheimer's
disease, ulcers, high-blood pressure and high cholesterol. Certain
vaccines have even been counterfeited.
Counterfeit drugs account for an estimated $75 billion in annual
revenue. Why are these criminals so bold? It's because, currently, the
penalty for selling a counterfeit drug is the same as selling a bootleg
DVD.
A DVD will not cause you bodily harm, but each year counterfeit
drugs result in 100,000 fatalities worldwide. It stands to reason that
we should have penalties in place that reflect the serious health
dangers posed by these phony medications.
H.R. 3668 would be a strong step by this Committee in addressing
this problem. This bipartisan, non-controversial legislation would
increase the penalties for those who engage in trafficking of
counterfeit drugs acting as an important deterrent to criminals and
providing greater consumer confidence in their medication.
Thank you Mr. Chairman for holding this hearing, and I again urge
this Committee to quickly move H.R. 3668.