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

INTERNATIONAL PATENT ISSUES: PROMOTING A LEVEL PLAYING FIELD FOR
AMERICAN INDUSTRY ABROAD
=======================================================================

HEARING

BEFORE THE

SUBCOMMITTEE ON
INTELLECTUAL PROPERTY,
COMPETITION, AND THE INTERNET

OF THE

COMMITTEE ON THE JUDICIARY
HOUSE OF REPRESENTATIVES

ONE HUNDRED TWELFTH CONGRESS

SECOND SESSION

__________

APRIL 26, 2012

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Serial No. 112-115

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Printed for the use of the Committee on the Judiciary

[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]

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 Intellectual Property, Competition, and the Internet

BOB GOODLATTE, Virginia, Chairman

BEN QUAYLE, Arizona, Vice-Chairman

F. JAMES SENSENBRENNER, Jr., MELVIN L. WATT, North Carolina
Wisconsin JOHN CONYERS, Jr., Michigan
HOWARD COBLE, North Carolina HOWARD L. BERMAN, California
STEVE CHABOT, Ohio JUDY CHU, California
DARRELL E. ISSA, California TED DEUTCH, Florida
MIKE PENCE, Indiana LINDA T. SANCHEZ, California
JIM JORDAN, Ohio JERROLD NADLER, New York
TED POE, Texas ZOE LOFGREN, California
JASON CHAFFETZ, Utah SHEILA JACKSON LEE, Texas
TIM GRIFFIN, Arkansas MAXINE WATERS, California
TOM MARINO, Pennsylvania HENRY C. ``HANK'' JOHNSON, Jr.,
SANDY ADAMS, Florida Georgia
MARK AMODEI, Nevada

Blaine Merritt, Chief Counsel

Stephanie Moore, Minority Counsel
C O N T E N T S

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APRIL 26, 2012

Page

OPENING STATEMENTS

The Honorable Bob Goodlatte, a Representative in Congress from
the State of Virginia, and Chairman, Subcommittee on
Intellectual Property, Competition, and the Internet........... 1
The Honorable Melvin L. Watt, a Representative in Congress from
the State of North Carolina, and Ranking Member, Subcommittee
on Intellectual Property, Competition, and the Internet........ 3
The Honorable John Conyers, Jr., a Representative in Congress
from the State of Michigan, Ranking Member, Committee on the
Judiciary, and Member, Subcommittee on Intellectual Property,
Competition, and the Internet.................................. 4

WITNESSES

Roy F. Waldron, Senior Vice President, Associate General Counsel
and Chief Intellectual Property Counsel, Pfizer, Inc., on
behalf of Pharmaceutical Research and Manufacturers of America
Oral Testimony................................................. 7
Prepared Statement............................................. 9
Chris Israel, Partner, American Continental Group (former U.S.
Coordinator for International Intellectual Property
Enforcement)
Oral Testimony................................................. 22
Prepared Statement............................................. 24
Sean P. Murphy, Vice President and Counsel, International
Government Affairs, Qualcomm Incorporated
Oral Testimony................................................. 38
Prepared Statement............................................. 41
A. Christal Sheppard, Ph.D. J.D., Assistant Professor, University
of Nebraska College of Law
Oral Testimony................................................. 62
Prepared Statement............................................. 65

LETTERS, STATEMENTS, ETC., SUBMITTED FOR THE HEARING

Material submitted by the Honorable John Conyers, Jr., a
Representative in Congress from the State of Michigan, Ranking
Member, Committee on the Judiciary, and Member, Subcommittee on
Intellectual Property, Competition, and the Internet........... 6

APPENDIX
Material Submitted for the Hearing Record

Prepared Statement of the Honorable John Conyers, Jr., a
Representative in Congress from the State of Michigan, Ranking
Member, Committee on the Judiciary, and Member, Subcommittee on
Intellectual Property, Competition, and the Internet........... 95
Response to Post-Hearing Questions from Chris Israel, Partner,
American Continental Group (former U.S. Coordinator for
International Intellectual Property Enforcement)............... 97
Prepared Statement of Horacio E. Gutierrez, Corporate Vice
President & Deputy General Counsel, Microsoft Corp............. 100
Prepared Statement of Biotechnology Industry Organization........ 105

INTERNATIONAL PATENT ISSUES:

PROMOTING A LEVEL PLAYING FIELD

FOR AMERICAN INDUSTRY ABROAD

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THURSDAY, APRIL 26, 2012

House of Representatives,
Subcommittee on Intellectual Property,
Competition, and the Internet,
Committee on the Judiciary,
Washington, DC.

The Subcommittee met, pursuant to call, at 10:12 a.m., in
room 2141, Rayburn House Office Building, the Honorable Bob
Goodlatte (Chairman of the Subcommittee) presiding.
Present: Representatives Goodlatte, Quayle, Chabot, Watt,
Conyers, Chu, Deutch, Lofgren, Jackson Lee, Waters, and
Johnson.
Staff Present: (Majority) Vishal Amin, Counsel; Olivia Lee,
Clerk; and (Minority) Stephanie Moore, Subcommittee Chief
Counsel.
Mr. Goodlatte. Good morning. This hearing of the
Subcommittee on Intellectual Property, Competition, and the
Internet will come to order. And I recognize myself for an
opening statement.
I will start by wishing you all a Happy World IP Day. Today
we are holding a hearing on international patent issues,
looking specifically at the problems that American companies
face when seeking enforcement and using patents overseas. The
Leahy-Smith America Invents Act was the first patent reform
bill in over 60 years and the most substantial reform of U.S.
patent law since the 1836 Patent Act. In light of the AIA's
recent passage which maintains the U.S. patent system as the
global standard, we need to now expand our focus and closely
examine the adequacy and effectiveness of patent systems in
foreign countries and whether they meet global trading
standards. We need to evaluate whether they create a level or
an unlevel playing field for American inventors.
Looking at recent history, today's hearing topic appears to
be the first time in either the House or Senate that Congress
has looked specifically at international patent laws in the
context of intellectual property enforcement. As we will learn
today, U.S. innovators continue to face patent-specific
enforcement issues internationally. These global problems
require real solutions. The ability to obtain timely decisions
regarding patent applications as well as meaningful enforcement
of patent rights go to the very heart of our innovative
companies and their ability to compete on the global playing
field.
Unfortunately, we have seen many foreign countries ignore
real legal reforms and effectively create major barriers to
trade for U.S. companies in the patent space. When asked why he
robbed banks, Willie Sutton once said, ``Because that is where
the money is.'' And it appears that in the context of IP
enforcement, foreign countries have been focusing their market-
distorting actions right where the money is. From an economic
and jobs perspective, company profits are driven directly by
the goods or products that they can sell. And for patented
innovations, many foreign countries are getting a free pass
when it comes to the patent systems they have in place.
As more and more American companies expand their
international presences and seek patent protection in foreign
markets, these patent-specific harms have grown exponentially
in their importance. Less than a decade ago, there were only a
handful of companies that filed for patents abroad and faced
these kinds of market access issues. Today nearly every
innovative American company that sells patented products abroad
is harmed in some way by these market-distorting actions.
This hearing is meant to shine a spotlight on these issues
and encourage the Administration to expand the U.S.
Government's efforts to do more and work to find real solutions
to these unfair trade practices that distort the free market
trade and end American jobs. For a range of innovative
companies, from the pharmaceutical and biotech space to
technology and manufacturing, the patents that they own or
license form the foundation of their business. In the United
States, we have worked to ensure a patent system that not only
expeditiously reviews patent applications but issues quality
patents that can be enforced through the courts and
administrative proceedings. The U.S. patent system is designed
to be fair, meeting our international obligations and not
discriminating against any field of technology.
The same cannot be said of the patent systems and patents
granted in many markets around the world. When American
companies seek patent protection in foreign markets, they see
their patent applications being held up, with patent pendency
times approaching a decade in some cases. They see their
patents subjected to unnecessary administrative hurdles. And
even after going through these challenges they continue to face
issues in foreign courts and administrative agencies to even
bring their product into the local market.
When Nations go out of their way to devalue the
intellectual property of America's innovative companies, they
not only violate their international commitments but create a
significant negative economic impact that hits the U.S. economy
and domestic jobs.
This hearing is just a start. And as we work to make
progress on these issues, we look forward to working with
American innovators and industry to help identify specific
concerns and issues so that the U.S. Government works with our
trading partners to find solutions. We can ensure that the
solutions reached are in line with compelling U.S. economic
interests and job creation.
I look forward to both hearing from all of our witnesses on
the issues that they have seen on the ground and also engaging
in a discussion on how we can improve and correct the patent
issues that American industry faces abroad to promote U.S.
manufacturing, technology, and innovation.
It is now my pleasure to recognize the Ranking Member of
the Subcommittee, the gentleman from North Carolina, Mr. Watt.
Mr. Watt. Thank you, Mr. Chairman. And thank you for
convening this important hearing--maybe among the most
important hearings we could be having, although unfortunately
about things we don't have absolute control over but need to
evaluate nevertheless.
A little over 2 weeks ago on April 10, the Obama
administration issued a report entitled, ``Intellectual
Property and the U.S. Economy: Industries in Focus.'' The
report stands as the first of its kind backed by comprehensive
investigation by the Federal agencies that share responsibility
for safeguarding the interests of American industries, the
Department of Commerce and the U.S. Patent and Trademark
Office.
As we celebrate World IP Day today, this report reinforces
the major contributions that all U.S. intellectual property-
intensive industries make to the Nation's economy;
specifically, after examining 313 American industries, the
investigation identifies 75 industries as IP-intensive. These
industries produce 27.1 million jobs for our citizens.
The report further concludes that a substantial share of
IP-intensive employment in the United States was in trademark-
intensive industries, followed by patent- and copyright-
intensive industries respectively.
Intellectual property has played a major role in building
American industry, largely because IP enforcement within the
United States is strong. Unfortunately, American intellectual
property does not always enjoy the same level of protection
throughout the world. Other countries profit from an immense
world trade of illicit goods and anti-competitive practices
that violate the IP rights of U.S. rights holders. So while
today we focus on patent-intensive industries and the
challenges those industries face globally, we must remain ever
vigilant in our effort to enhance America's standing in the
competitive international market and to guard against unfair
foreign encroachments on our intellectual property rights.
The annual Special 301 Report by the United States Trade
Representative is scheduled for release next Monday, April 30.
That report will identify those countries that continue to
provide inadequate intellectual property protections for U.S.
products and also highlight any progress that has been made.
Inadequate protections can consist broadly of a lack of legal
structure for protecting IP rights and inadequate penalties for
IP crimes or poor enforcement of laws designed to protect
rights holders.
We are fortunate to have here today witnesses from the
pharmaceutical and technological industries to report to us
firsthand some of the ongoing obstacles they face in foreign
markets as well as two experts, including our former staff
person Dr. Christal Sheppard, who have extensive experience
evaluating these issues.
The bottom line, Mr. Chairman, is, we can have the most
innovation, best protected intellectual property possible in
the United States; but unless it is protected around the world
in this international global environment in which we are
operating, we are kind of swimming upstream always.
So I will conclude, Mr. Chairman, and allow the witnesses
to update us on the current state of affairs for patent
protection abroad and hopefully some suggestions also on how we
may be able to strengthen those enforcements and patent
protections in other parts of the world.
I yield back.
Mr. Goodlatte. The Chair is pleased to recognize the
Ranking Member of the full Committee, the gentleman from
Michigan, Mr. Conyers.
Mr. Conyers. Chairman Goodlatte, I thank you and the
Ranking Member for putting this together. And its importance
has already been stated by both of you. I agree completely.
Earlier this week, I began developing something that is
related. And it is called the zero percent unemployment goal of
this country, another very far-reaching attempt to come about
full employment at another way. It has never been put together
before. But that connects very directly into this hearing on
international patent issues. So it gives me a chance to broach
both of these topics and invite our witnesses to think about
the interrelationship.
The economy, both nationally and globally, the economies of
the world in the end all turn on how many people are gainfully
employed. And we have now reached the point in our political
maturation that we now realize that having a job is a right, a
serious and important right. And the way our patent laws relate
to this is of critical importance; what the Internet does, how
intellectual property is regarded in each of these states.
So this Committee has a huge ongoing responsibility to
begin to examine the systems in the rest of the world because
we can't ask people to do what we would like them to do when we
don't even know what they are doing. And that is going to task
our staff and our resources going into the next Congress, for
sure. And I think we are up to it. I think it is an exciting
challenge that all ties into why we joined here today.
I did want to say one word about our witness Mr. Israel,
who is here. I wanted to in particular welcome him to the
Committee. I may be given the honor of introducing Christal
Sheppard. So I will turn back my time and thank you very much.
Mr. Goodlatte. Thank you, Mr. Conyers. And I have a feeling
that request is going to be honored. And without objection,
other Members' opening statements will be made a part of the
record.
We have a very distinguished panel of witnesses today. Each
of the witnesses' written statements will be entered into the
record in its entirety. And I ask that each of you summarize
your testimony in 5 minutes or less. To help you stay within
that time, there is a timing light on your table. When the
light switches from green to yellow, you have 1 minute to
conclude your testimony. When the light turns red, it signals
the witness' 5 minutes have expired. And before I introduce our
witnesses, as is customary with this Committee, I would like to
ask them to stand and be sworn.
[Witnesses sworn.]
Mr. Goodlatte. Thank you. Be seated. Our first witness is
Dr. Roy F. Waldron, Senior Vice President, Associate General
Counsel and Chief Intellectual Property Counsel at Pfizer. Dr.
Waldron leads a team of Pfizer attorneys and professionals
worldwide who procure patents, work closely with R&D business
development, and the Pfizer business units and ensure
enforcement of trademarks. He serves as the chair of the IP
task force at PhRMA and is on the board of the Intellectual
Property Owners Association. He joined Pfizer in 1999 from
White & Case's IP practice group and was also previously an
associate at Fish & Neave. Dr. Waldron has a JD from New York
University School of Law, a Ph.D. in physical organic chemistry
from Yale University, and a bachelor's degree from Dartmouth
College.
Our second witness is the Honorable Chris Israel. Mr.
Israel served as our Nation's first U.S. Coordinator for
International Intellectual Property Enforcement during the
administration of President George W. Bush. As the President's
IP Coordinator, he was responsible for coordinating and
leveraging the resources of the U.S. Government to protect
American intellectual property rights at home and abroad. Prior
to this, he served as Deputy Chief of Staff to Commerce
Secretaries Don Evans and Carlos Gutierrez, where he assisted
in the leadership and management of all major Commerce
Department priorities, such as trade and economic policy. Mr.
Israel also served as Deputy Assistant Secretary of Commerce
for Technology Policy where he helped lead the Administration
policy designed to maximize U.S. competitiveness and
technological growth. Currently Mr. Israel is a partner at the
American Continental Group. He received his bachelor's degree
from the University of Kansas and an MBA from George Washington
University.
Our third witness is Mr. Sean Murphy, Vice President and
Counsel, International Government Affairs, at Qualcomm. Mr.
Murphy manages Qualcomm's international public policy agenda,
representing the company before branches of the U.S. and
foreign governments, industry associations, and multilateral
institutions like the OECD and APEC. Before joining Qualcomm in
2001, Mr. Murphy practiced law at Mayer Brown and served in the
Office of the U.S. Trade Representative. He holds a bachelor's
degree in political science from the University of California
Santa Barbara, a master's degree from the University of
Cambridge and a law degree from Georgetown University.
And our fourth and final witness has some close ties to
this Committee and most especially to the Ranking Member of the
Committee, so I will yield to Mr. Conyers for the purpose of an
introduction.
Mr. Conyers. Thank you very much, Chairman Goodlatte. I am
going to put this in the record because it is far too long. And
I know she didn't have anything to do with its preparation, but
with the admiration of all of your former staff members and the
Members of the Committee, I will just briefly summarize.
She is presently teaching law at Nebraska College of Law.
But ironically, she started off as a scientist, at the
University of Michigan and then finally to Cornell Law School
and working on the Appeals Federal court, practicing in a large
firm and then the United States International Trade Commission.
So she brings a full circle of expertise that is important in
forming the views that she will present here today.
Dr. Sheppard, we are all here, on both sides of the aisle,
very pleased to welcome you back as a distinguished witness.
[The information referred to follows:]

__________

Ms. Sheppard. Thank you.
Mr. Goodlatte. Thank you, Mr. Conyers. And Dr. Sheppard, we
welcome you as well. We welcome all of you, and we will begin
with Dr. Waldron.

TESTIMONY OF ROY F. WALDRON, SENIOR VICE PRESIDENT, ASSOCIATE
GENERAL COUNSEL AND CHIEF INTELLECTUAL PROPERTY COUNSEL,
PFIZER, INC., ON BEHALF OF PHARMACEUTICAL RESEARCH AND
MANUFACTURERS OF AMERICA

Mr. Waldron. Good morning, Mr. Chairman and Members of the
Subcommittee. Thank you for this opportunity to appear here
today.
Mr. Conyers. Turn it on.
Mr. Waldron. Thank you for this opportunity to appear here
today. My name is Roy Waldron and I am the Chief Intellectual
Property Counsel for Pfizer. I am also the Chair of the
Intellectual Property Task Force within the International
Section of PhRMA, the Pharmaceutical Research and Manufacturers
of America. It is in this capacity as chairman of that task
force that I appear here today.
With your permission I would like to summarize our prepared
statement and I request that our full written submission be
included in the record in its entirety.
PhRMA represents the country's leading pharmaceutical
research----
Mr. Goodlatte. Dr. Waldron, you may want to pull that
microphone closer to you. People will hear you better in the
audience I think.
Mr. Waldron. PhRMA represents the country's leading
pharmaceutical research and biotechnology companies. U.S.
biopharmaceutical research makes important economic
contributions to the U.S. GDP, contributions likely to grow if
the incentives and underpinnings for large-scale R&D investment
remain intact. The U.S. biopharmaceutical sector supported a
total of 4 million jobs in 2009, including more than 650,000
direct jobs. The U.S. biopharmaceutical industry also exported
about $46 billion in goods in 2011, making it the sixth largest
U.S. exporting industry for the year. Markets outside of the
U.S. are fueling demand for innovative medicines due to their
increasing economic growth and rising middle class. Both
innovative medicines and generics play a critical role in the
health of patients around the world. However, the innovation of
new medicines depends on a respected and enforced intellectual
property regime. Intellectual property protections spur the
discovery of new medicines which later become generics.
Although strong intellectual property protections are
provided in the United States, this is not true in many
countries where the greatest growth potential for U.S.-
developed innovative medicines is expected to occur in the
future. Many of these countries' local biopharmaceutical
companies are owned or connected to the government, if not
supported by the government's industrial policies. The main
competitive edge of the U.S. biopharmaceutical industry
relative to these local businesses is the innovative nature of
our products. However, while developing and testing a new
medicine requires significant and risky investment of over $1
billion on average and over a development period of up to 12
years, local companies can copy medicines with little effort in
a very short period of time. Without the legal principles and
mechanisms in place which recognize and enforce patents
effectively, local companies can market copies immediately and
obliterate our industry's innovative competitive advantage.
Unsurprisingly, foreign governments as well as local companies
resist the establishment of these IP principles and mechanisms.
We face three categories of patent-related barriers: lack
of efficient, effective, and timely patent enforcement;
problems with extreme delay in the grant of patents; and
restrictive requirements and other locally imposed hurdles to
patent grants. Some barriers are inconsistent with
international law but are maintained to protect local
interests. At the same time, these local interests, when doing
business in the U.S., benefit from the effective and open U.S.
patent system.
To move to a more level playing field, we urge the
Subcommittee to, one, ensure that the Administration pursues
strong intellectual property standards in free trade
agreements, including the ongoing negotiations of the TPP, the
Trans-Pacific Partnership, by building on the agreement with
Korea and the principles in U.S. law, particularly the
provision of 12 years of regulatory data protection for
biologics.
Two, support efforts of the U.S. Government to secure full
implementation of all international obligations under
multilateral regional and bilateral trade agreements.
And three, support the IP attache's program of the USPTO
and other capacity building programs.
Effective patent enforcement is absolutely critical for
growth in exports of our medicines. A country such as China,
with weak patent enforcement, illustrates the problems
encountered by our industry. In China, the enforcement of court
orders is not automatic and damages are simply inadequate. Many
countries permit the grant of compulsory licenses that allow
others to exploit a patented invention without the permission
of the patent owner. Compulsory licenses may be appropriate in
extraordinary situations to meet legitimate needs of the
public; however, competitors in many countries want to use them
to obtain U.S. technology without having to make the costly and
risky investment needed to develop it.
In many countries significant delays in granting patents
create business uncertainty and, even worse, allow copiers to
free ride and enter the market with impunity. PhRMA's members
can wait an average of 8 years for a final patent rejection in
Chile and 10 to 13 years in Brazil. To make matters worse,
these countries do not extend the terms of their patents to
compensate for these delays, nor for regulatory approval
delays, as we do in the U.S.
As our statement for the record sets out, although PhRMA
members are now able to get onto a playing field of patent
protection, that field is far from level. Unfortunately, it is
not just a game. The level playing field is critical to the
future sustainability of U.S. innovation, innovative
businesses, jobs, and exports.
We greatly appreciate, therefore, your interest in
obtaining more information about the level of IP protection
worldwide and we would be pleased to provide additional
information. Thank you again.
[The prepared statement of Mr. Waldron follows:]
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__________
Mr. Goodlatte. Thank you, Dr. Waldron. Mr. Israel, welcome.

TESTIMONY OF CHRIS ISRAEL, PARTNER, AMERICAN CONTINENTAL GROUP
(FORMER U.S. COORDINATOR FOR INTERNATIONAL INTELLECTUAL
PROPERTY ENFORCEMENT)

Mr. Israel. Thank you. Chairman Goodlatte, Ranking Member
Watt, and Members of the Committee, I truly appreciate the
opportunity to appear before you to discuss the promotion and
protection of American intellectual property and specifically
to examine challenges and barriers presented to American
companies when they seek patent protection in key global
markets.
From May 2005 to March 2008, I had the privilege of serving
as the U.S. Coordinator for International Intellectual Property
Enforcement. We were tasked by Congress and the President to
coordinate and leverage the resources of the U.S. Federal
Government to protect American IP at home and abroad. Mr.
Chairman, during my experience in this position, it became
clear to me that it was and remains critical for the U.S.
Government to actively seek every opportunity to support IP-
intensive U.S. companies competing globally in their compelling
economic interests. It is clear that adequate and effective
global patent protection is essential to U.S. competitiveness,
and I would argue that there are several key reasons for this.
First, as you noted in your opening statements, Mr.
Chairman, and directly related to the work of this Committee is
the passage of the Leahy-Smith America Invents Act. The AIA
represents a major achievement in strengthening and modernizing
U.S. patent law and making it the global standard for quality
and efficiency. While the USPTO continues to implement the AIA
in a methodical and thoughtful way, many of our biggest
competitors are going either advertently or inadvertently in
the opposite direction. This disconnect, as was noted by
Ranking Member Watt, with the U.S. setting the global standard
while other countries seek competitive advantage by racing to
the bottom, is certainly not a new competitive dynamic for the
United States but seeing it play out in terms of global patent
policy is something policymakers need to be aware of and
prepared to address.
Second, exacerbating this problem is the fact that we are
seeing a dramatic increase in international patent filing in
the countries that often expose U.S. companies to poor patent
protection. The growth in patent applications in China, India,
and Brazil from 2006 to 2010 average 7 percent a year, while
the growth in patent applications in the United States, the EU,
and Japan over the same period average 0.7 percent.
Third, and perhaps most importantly, the challenges and
threats to global patent protection affect our most competitive
and innovative companies and industries. As was reported in the
Obama administration report that Ranking Member Watt noted in
his opening comments, the 26 patent intensive industries in the
United States support 3.9 million very well-paying jobs. Not
surprisingly, our U.S. patent-intensive industries also drive
U.S. exports. Our innovative products lead the world and span
multiple categories, including health care, advanced
manufacturing, chemicals, energy, transportation, software,
information technology, and others. These are areas where the
U.S. must seek to increase its competitive advantage through
innovation and global commercialization. This can only be
accomplished when coupled with a policy approach that promotes
strong patent protection.
Mr. Chairman, while my written testimony provides detailed
examples of the many ways our trading partners have undercut
American innovation through overt and less obvious practices, I
would like to quickly bring a few of these examples to the
attention of the Committee.
Some countries explicitly restrict the patentability of
inventions for a number of unrelated factors purely for
competitive reasons. For example, India excludes software
patents as a whole, except when combined with novel hardware.
In the context of breakthrough U.S. innovations in clean
technologies, countries such as China, India, Bolivia,
Venezuela, and others have pushed for a range of, quote,
flexibilities in global patent rules under the false claim that
patent protections hinder the flow of important energy-related
technologies. Additionally, countries such as Chile, Brazil,
India, Russia, Argentina and others have continuously avoided
requirements in the TRIPS Agreement to provide exclusivity for
proprietary data that is required in order to grant marketing
approval to pharmaceutical agrichemical and biotechnology
products.
Also a major concern of many U.S. innovators is the threat
of countries issuing compulsory licenses for their products,
essentially breaking the patent and allowing their competitors
to manufacture and market a product in that country. India
recently issued a compulsory license for a patent that was held
by a U.S. subsidiary of Bayer.
The Chinese Government even subsidizes the development of
domestic technologies by providing direct financial support for
Chinese companies to file foreign patent applications. China
also discriminates against foreign competitors by limiting the
ability of non-Chinese IP owners to access the Chinese market.
Mr. Chairman, this Committee has raised an important issue
that impacts countless U.S. businesses of all sizes and is at
the core of our overall global competitiveness. I truly
appreciate the opportunity to participate in this hearing and
look forward for any chance to support the work of the
Subcommittee and the Committee in the future.
[The prepared statement of Mr. Israel follows:]
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__________

Mr. Goodlatte. Thank you, Mr. Israel. Mr. Murphy, welcome.

TESTIMONY OF SEAN P. MURPHY, VICE PRESIDENT AND COUNSEL,
INTERNATIONAL GOVERNMENT AFFAIRS, QUALCOMM INCORPORATED

Mr. Murphy. Good morning, Chairman Goodlatte, Ranking
Member Watt, and other Members of the Subcommittee. It is an
honor to testify this morning. I am grateful for the
opportunity.
My name is Sean Murphy and I manage international policy
issues at Qualcomm, including intellectual property and
international trade. Let me begin by thanking Members of the
Subcommittee for your important efforts to support American
innovation through strong intellectual property laws. Thank you
also for your recognition of the challenges that U.S. patent
holders confront in other countries which threaten America's
competitive edge, technology leadership, and jobs.
The patent system has been critical to Qualcomm's success.
Founded in 1985, Qualcomm started with seven engineers in a
living room with ideas to improve mobile communications. At the
time, mobile technologies were expensive, unreliable, and
limited only to voice calls. Our founders were determined to do
better and pioneered a new digital communications technology
called code division multiple access, or CDMA. Today we are a
successful global company of more than 23,000 employees, 65
percent of whom are engineers, with 73 locations in the U.S.
and 172 locations worldwide. More than 90 percent of our global
revenues are earned outside the United States but nearly 70
percent of our employees work here.
The adoption of CDMA has exceeded our expectations and
helped to drive a global revolution in mobile technologies and
services. Today there are 6 billion mobile connections in a
world of 7 billion people.
Qualcomm's business model concentrates on two key areas.
First, we design state-of-the-art semiconductors and software
which are the brains of today's advanced mobile phones,
tablets, e-readers, and other mobile devices.
Second, we broadly license our portfolio of U.S. and
foreign patents to virtually every manufacturer in the mobile
industry. We reinvest approximately 20 percent of annual global
revenues in R&D, which equated to about $3 billion last year
and over $19 billion since our founding.
These investments produce new inventions that drive what we
call a virtuous cycle of innovation. Our business model enables
a $1.3 trillion global ecosystem, promotes competition and
choice, and benefits consumers. Qualcomm is one of countless
innovative technology companies that rely on strong patent
protections to drive U.S. jobs, economic growth, and exports.
According to the Department of Commerce report that
Congressman Watt mentioned, IP-intensive industries account for
over one-third of U.S. GDP and 40 million American jobs. IP
licensing generated a trade surplus of $84 billion last year.
To sustain this impressive growth, American innovators need
fair market opportunities and adequate patent protections
globally. However, foreign governments and industries try to
achieve unfair competitive advantage through a variety of
protectionist policies. These measures aim to promote
indigenous innovation or exclude, minimize, or devalue American
technologies.
A few examples: pressure to reduce licensing fees or
royalty rates and make other concessions; local working
requirements, such as local manufacturing in order to preserve
patent rights; exclusion of certain technologies from patent
protection; the use of homegrown technical standards to benefit
domestic technology or industry; and the threat of antitrust
enforcement to force the transfer of patented technologies on
unfair terms.
Beyond these specific practices, which are not adequately
addressed by existing treaties or trade agreements, we see a
growing trend worldwide to weaken patent protection. It is
imperative that the United States lead by example and send
consistent messages to our trading partners about strong patent
laws and fair market access for American innovators.
Governments, including our own, should not favor or
discriminate against any particular business model, technology,
or means of commercializing intellectual property. In sum,
policymakers should refrain from picking winners and losers,
and laws and policies should be ``business model-neutral'' in
their design and their effect. Yet the opposite is the norm in
many countries critical to U.S. companies.
We should vigorously expand and enforce international
agreements and trade policy dialogues in order to promote a
level playing field for American innovators and job creation.
This approach will serve us well today, while also encouraging
the next generation of U.S. inventors and U.S. employment.
Thank you again for the opportunity to appear today to
share Qualcomm's perspectives. I welcome your questions. Thank
you.
[The prepared statement of Mr. Murphy follows:]
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__________

Mr. Goodlatte. Thank you, Mr. Murphy. Dr. Sheppard,
welcome.

TESTIMONY OF A. CHRISTAL SHEPPARD, Ph.D. J.D., ASSISTANT
PROFESSOR, UNIVERSITY OF NEBRASKA COLLEGE OF LAW

Ms. Sheppard. Good morning, Mr. Chairman, Ranking Member
Watt, and distinguished Members of the Subcommittee. I thank
you for the opportunity to appear today before you to discuss
international patent issues. I am sincerely honored and humbled
to testify before this Committee on an issue of utmost
importance to our national economy. I have a strong academic
interest in this area; but also as a citizen of the United
States, I, along with every other person in this country, have
a personal interest in ensuring a level playing field for
American industry worldwide.
As alluded to in that wonderful introduction--thank you
very much--I come at this issue from a unique perspective. As
was discussed, I have had the pleasure of working as a bench
scientist in the field of molecular biology. I am a registered
patent attorney. So I have prosecuted patents both nationally
and internationally. I have worked within the Federal Circuit
and at the International Trade Commission. And I have worked in
science policy and most recently in intellectual property
policy right here with this very Committee.
So having that background, I can personally attest to the
amount of hard work, labor, cost, and time that goes into
creating new inventions, including new drugs and how important
it is that the intellectual property laws provide a framework
so that such research can continue to take place. I know the
challenges and intricacies and frankly the headaches involved
in obtaining patent protection nationally and internationally
and then later enforcing those same patents.
I understand the challenges the courts face in interpreting
IP laws. They try very hard but sometimes it is challenging.
And I also know--and I do not take lightly--how hard it is to
enact the reforms that I have and will continue to propose.
Finally, as I currently teach law students patent law
international IP and other issues, students bring me insights
that I previously did not have. I hope all of those things will
be useful in this conversation.
In my written remarks, I discuss in detail the importance
of IP with reference to the American innovators Steve Jobs and
Steve Wozniak, the Steves who cofounded Apple Computer. I
discuss these two to drive home the fact that the economy of
the United States in the 21st century is and will remain based
on the ingenuity of we, the people. And that ingenuity of ``we,
the people'' must be protected. The Steves and others built
their American empires not upon manufacturing but upon the
intellectual property laws that help to protect the fruits of
their labor from outright theft and surreptitious free riding.
One of the things I hammer into my students--and I am sure
they would say ``hammer''--is that patent law does not convey a
right to use. Patent law does not convey a right to sell. All a
patent gives a patent holder is the right to stop others from
making or using or selling or importing or offering to sell.
But to be more succinct, all a patent actually conveys is a
right to sue.
Unfortunately, that right can be undermined in many ways
that are discussed in my written testimony and that were
discussed by others here today and that we will continue to
discuss. These are the actual companies at this table who have
been in the trenches in these issues and with the
Administration trying to protect these rights.
Congress has taken many steps in the past, including
creating the Special 301 list, to level the playing field
globally for IP. I discuss in my written remarks several of the
steps that the Congress has taken, including implementing
TRIPS, the creation of Special 301, passage of Pro IP, creation
of the International Trade Commission which addresses
infringing imports, and passage of the America Invents Act.
However, today I think what I am going to talk about--with
the time left, which is almost none--the additional hurdles
that I think can bear fruit, if tackled. In my written remarks,
I detail several places where I think congressional efforts
would be the most effective and the Administration to tackle.
The summary of my written submission is that a lot of these
issues are public policy issues that the Constitution put upon
Congress. The courts look to Congress for guidance. However, on
the issue of patentability that guidance has not been
forthcoming.
Within my written testimony, there is a quote from 1972
with the courts looking for guidance from Congress on
patentability issues. That guidance has not come. And most
recently, the Supreme Court has again revisited that issue, and
narrowed patentability. The companies here will talk about the
fact that other countries have been narrowing patentability in
various ways or doing things that affect U.S. companies'
ability to patent or enforce. In order for the United States to
have a legitimate voice in the conversations to stop other
countries from narrowing patentability and enforcement, the
United States has to, in some ways, put their own house in
order. Patentability has to be addressed in the U.S..
Additionally, the U.S. itself is not in full compliance on some
IP issues.
I am over my time. From that side of the dais, it seems
like a lot more time. From this side, it seems like no time at
all. So I will stop talking now.
[The prepared statement of Ms. Sheppard follows:]
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__________

Mr. Goodlatte. Dr. Sheppard, you have a unique perspective
on that, and we appreciate your statement.
I will begin the questions with Dr. Waldron. Dr. Waldron,
in the patent world, there are many hurdles that a foreign
country can raise to prevent a company from selling a product
based on a lawfully granted patent. But in recent years, we
have seen countries like Brazil, Thailand, and India using the
threat of a compulsory license as a negotiating strategy to
force American companies to manufacture or license their
products to local companies at government mandated prices.
Recently, India took the unprecedented step of issuing a
compulsory license against a Bayer oncology drug, stating among
other reasons that the patented drug was not being sufficiently
worked in India because it was not locally manufactured.
What steps can the U.S. Government take or should it have
taken to ensure that countries think twice about using a
compulsory license simply as a negotiating strategy or to
facilitate their budget planning?
Mr. Waldron. The U.S. Government should take a hard line on
these issues. I think if you liken compulsory licensing to the
lifeboats on an ocean liner, you don't frequently see those
being employed except in extraordinary circumstances. In fact
if they are used regularly, one would begin to question the
sanity of running ocean liners, if that would be the only
recourse. What we really need to do is get to the heart of why
some of these countries are imposing compulsory licensing. Some
of them are for fiscal reasons. They haven't put enough money
in the budget for their health care systems. These are not
extraordinary circumstances that would justify essentially the
abrogation of an individual patent holder's rights. I mean,
this has a direct effect if it were to continue and extrapolate
to other countries. And other countries may mimic what has
happened in Brazil and India and Thailand, which would be
devastating to the U.S. industry. This has a direct effect on
our ability to sell drugs in those countries and has a direct
effect on the investment that we put into developing drugs that
may be of use in those countries. And it has a direct effect on
the jobs that are created in the United States. We have a
competitive advantage versus the rest of the world in the
biopharmaceutical and biotech area. We should not hesitate, as
a government, to go forward and protect the interests of our
companies, particularly our competitive advantage versus those
in the economic area.
Mr. Goodlatte. If the Indian Government's decision is not
reversed on appeal, do you envision an increased risk for other
patent protected drugs or even other patented technologies in
other areas, like energy, communications, and the Internet
basically being taken away by foreign governments?
I will ask you and then I will ask Mr. Israel the same
question.
Mr. Waldron. I believe there is a risk. This is something
that is being experimented with. And I think it is also a test
of our resolve to see whether we are going to stand up for our
own industry in these contexts. If we don't send a hard message
on these issues, I think we will find it increasingly difficult
to combat it at a later stage when sort of the horse is out of
the barn. I believe it is important to make a statement very
early about this because we will find green technology and
other industries under the same pressure. And when we find the
whole panoply of our industries under siege and unable to do
business in these countries, I think we will find ourselves in
a sorry state.
Mr. Goodlatte. Thank you. Mr. Israel?
Mr. Israel. I think the dynamic that you lay out, Mr.
Chairman, is exactly correct. And I think we are seeing it play
out in realtime. I think we have seen in recent years the
threat of compulsory licensing being applied or at least
discussed in relationship to clean technologies. I think we
need to be also very aware that this isn't just an individual
Nation concern but it is a more global concern because a lot of
the countries that are using this tactic or threatening this
tactic are also working very hard within global organizations,
such as WIPO, the World Intellectual Property Organization, to
promote this type of position, to promote this type of a
framework. Brazil, for example, has recommended within the
Standing Committee on Patents at WIPO that a manual be put
together that would instruct countries on how to essentially
work around intellectual property rights.
So as Dr. Waldron lays out, this is something that has a
slippery slope dynamic to it. I think we are seeing it played
out in realtime and I think on the compulsory licensing
question, we need to be very focused on the prongs that exist
within TRIPS that do allow for compulsory license. You need to
exhaust the negotiations with the rights holders and there
needs to be a true emergency at hand. And I think in very few--
no circumstances really have we seen those prongs being met.
And it has largely been used as a tool, either as a negotiating
tactic or for other competitive purposes.
Mr. Goodlatte. Dr. Waldron, the Administration is currently
negotiating a Trans-Pacific Partnership Aagreement that
includes provisions dealing directly with the issue of
regulatory test data protection and how it should be protected.
Can you explain to the Committee the importance of data
protection, the markets that lack adequate protection, and how
it should be protected as a part of the TPP? And I will ask
that question of Mr. Israel as well.
Mr. Waldron. The 12 years of data protection that you
mentioned that is set forth under U.S. law and we believe is
key to being part of the TPP and other free trade agreement
negotiations that are ongoing, the reason we say it is key is
because the biomedical and biotechnology industries are
extremely risky industries. The investment is very risky. There
is an extremely high attrition rate. As I noted, it costs over
$1 billion on average to develop a new drug. In these times of
selective capital movement around the world, we want to ensure
that companies feel certainty in investing in drugs so that
when they come to a country or one of our trading partners that
they are at least guaranteed a period of nonusage of their data
in the regulatory scenarios. It is absolutely critical to have
that certainty and I think that we would absolutely think it is
a key part of any trade negotiation going forward.
Mr. Goodlatte. Mr. Israel, my time has expired. But I am
going to ask you one more question and you can address both. We
know that many of these countries have de facto TRIPS
violations. Should the United States be more aggressive in
bringing cases at the WTO or utilizing our other international
trade tools? And also, can you give me a sense of what the Bush
administration did?
Mr. Israel. Certainly, Chairman Goodlatte. I think the
answer is definitely. I think the position of the United States
Government--and this transcends any Administration I think--
should always be to enforce the interests and the rights of
American companies and American intellectual property holders
at the WTO through well constructed and winnable cases. It is a
very difficult process, as you know. And you have to win these
cases when you go forward with them. The Bush administration
brought about 24 cases before the WTO and has expanded a number
of fields and ranges. There were two cases brought for
intellectual property infringements against the Chinese. We
settled a patent case against the Argentineans in 2002. So
there is an active history here, and I think the Obama
administration is carrying forward with that.
In terms of TPP, just very quickly, as Dr. Waldron noted,
it is very important to include provisions regarding data
exclusivity within all of our trade agreements. I think it is
important to understand that the proprietary test data that is
required for regulatory approval of a pharmaceutical or a
biological product is in and of itself an intellectual
property. It is a piece of intellectual property. It is very
difficult to construct that data. The Administration has stated
that it is negotiating TPP as if trade promotion authority were
in place, which unfortunately it is not. Trade promotion
authority--and it dated back to the 2002 Trade Act which
extended it to 2007--stipulates that the government, that the
Administration, any Administration should negotiate a trade
agreement that attempts to mirror or mimic U.S. law as closely
as it possibly can. Of course in U.S. law, we do have 12 years
of data exclusivity for biological products and 5 years for
pharmaceutical products.
So I think that indicates a note of consistency that should
be noted as we negotiate to TPP.
Mr. Goodlatte. Thank you very much. My apology to our other
two witnesses. I am sure that other Members will have some
questions for you.
And I now yield to the Ranking Member, Mr. Watt.
Mr. Watt. Thank you, Mr. Chairman. Let me first compliment
all four of the witnesses on your testimony which dealt very
well with a description of the problem. But as I started to
mention in my opening statement, I am more interested in
flipping the switch and trying to find some solutions to the
problem. I think we have identified the problem pretty
comprehensively, and I know that is what this hearing was
about. But it seems to me that Representative Waters and I may
have a slightly different perspective on this because we serve
on both the Financial Services Committee and the Judiciary
Committee. And there seems to me to be three areas in which our
economy can be pretty--either out of step with the rest of the
world or in step with the rest of the world. And I think we
probably have done a better job in the financial services
economic currency area than we have in the trade policy area
and the intellectual property area. Those are the three areas
generally where I kind of look at this. One side of me says
that it is easier, I suppose, to have a world regime of money
because you are dealing with only one product. In fact, when we
stepped outside of dealing only with money and started dealing
with derivatives and collateralized debt obligations and other
things and we didn't have any worldwide system of dealing with
them, our financial services system broke down, too, and our
economy collapsed as a result of it.
So I am not here bragging about the financial services
mechanisms. But at least we have you know Basel I, II, and III
and the International Monetary Fund and what have you. I don't
know that there is a parallel system of entities in place in
the intellectual property area. And I am not sure we have done
an outstanding job of writing into our trade policies any
requirements that there be any harmonization of intellectual
property standards. We tend to approach these things, it seems
to me, in different categories, even though they intersect with
each other regularly.
So I guess my general question would be, what are the
incentives that would make other countries want to be more
aggressive in the intellectual property area? How can we
increase those incentives? Is the only way that we have to
increase those incentives to increase the disincentives for
them not to do it? In other words, a more punitive deterrence--
what is the word I am looking for--reactive kind of system
where we retaliate against people and other countries who don't
do it. Is there some positive way we can incentivize this other
than increasing the negative way we do it?
Those are the two questions generally that I--and I am
sorry it took me so long to kind of outline my vision of how
this works. But maybe my vision of how it works is inaccurate
also. And if you want to take a shot at dealing with that
vision, I am happy to have you do that, too. But I am more
interested in finding out whether you think there are ways that
we can incentivize other countries to have a more robust
intellectual property protection regime rather than just
retaliating against them for not doing it.
Mr. Waldron. Thank you for that question. I do think that
there are things that we can do. The U.S. economy is the prize
of a lot of our trading partners. They want to do business
here. We allow a number of countries and their businesses to do
business in the United States. I think that there is a lot of
levers that we can push on sort of ensuring that countries
respect intellectual property, particularly our intellectual
property, and come to a harmonized regime on intellectual
property. It is like, right now we have several FTAs which sort
of remain unenforced with respect to IP provisions, Chile being
one of them where it has been pending for 7 or 8 years and
still that country has not implemented measures to comply with
its free trade agreement. I say that we should at least take a
serious look at allowing other countries to have the benefits
of trading with the United States, yet at the same time not
enforcing their obligations reciprocally I think is
problematic, and I think we have to take a serious look at
that. I also think diplomatically--I mentioned the USPTO
attache's program is a positive step. I think we need to
empower our Diplomatic Corps on IP issues, and I think that
they can achieve good results locally if we are able to empower
them to work essentially in the Diplomatic Corps to achieve
those goals. Other countries around the world--I mean and there
are many of them--have topnotch people pushing IP issues in a
number of fora, and I think that we should actually look to
that as a mechanism for showing that we are serious about this
and we are empowering people to do it and that we really mean
it.
Mr. Watt. Let me go to the other end of the spectrum here
because my time has run out with my question rather than your
answer. We will get an academic perspective, and then at some
point in the process later, maybe you can address, Mr. Israel,
I am particularly interested in your perspective on it since
you were in the prior Administration and had something to do
with it. The Administration, I think, is consistently trying to
find an answer to the mechanism here.
But let me get an academic perspective on it from Dr.
Sheppard.
Ms. Sheppard. You mentioned the three areas, and that is a
very important point. One of the reasons that TRIPS, Trade-
Related Aspects of Intellectual Property, that agreement was
seen to be such a success--and, frankly, countries thought it
was very heavily favored toward industrial Nations, was because
for the first time, it melded two of the areas that you talked
about. It linked intellectual property with trade. And by doing
that, they were able to have an active redress for countries
that were in violation of IP.
Prior agreements, such as Paris and Berne, did not tie
trade to intellectual property. By tying tade to IP, they were
able to look at the interdependency between the countries
because as was mentioned a moment ago, not only do we want to
sell our products abroad and have them protected, they want to
sell their products here. And by linking those two things
together, trade and IP, if IP isn't respect on one end, then
perhaps something that they want to sell here is not able to be
sold. So that is how we link those two things.
TRIPS was successful on that basis. However, perhaps now we
need TRIPS Plus, and that is what the TPP, some people believe
and also ACTA are attempting to do. I am going to stop on that
point.
Mr. Murphy. Mr. Chairman, may I briefly add three
observations.
The first thing I would offer up is the United States, as I
said in my statement, can lead by example. One thing that we
can do is ensure that we as a government are sending consistent
messages to our trading partners. In some areas involving
intellectual property, there are mixed signals. On the one
hand, you have some of the trade agencies that are pushing very
hard to ensure strong enforcement and strong protections.
There are other agencies whose missions are tangential or
touches on intellectual property which may be saying things
that are sending some of our trading partners the idea that
maybe U.S. policy is shifting. Such as, for example, comments
on certain high-profile patent litigation in the United States,
which suggest an evolution in our law. Also, for example, the
nexus between antitrust and intellectual property right now is
in a state of change. Governments around the world are watching
what emanates from Washington at the nexus of these two fields.
Again, foreign governments are drawing conclusions, perhaps
selectively, that what we are doing and talking about
domestically is consistent with their own domestic interests.
Secondly, I agree with Dr. Sheppard that more can be done
for TRIPS Plus obligations. As I said in my statement, I gave a
list of different practices that are problematic to U.S. Patent
holders which are not currently addressed by existing rules.
There are loopholes, and there are certain exclusions or
flexibilities which are being exploited, and I think we can do
more to leverage what our foreign trading partners' economic
interests are in order to shore up our own by getting better
obligations.
Thirdly, I also note that a lot of developing economy
companies are slowly moving up the value chain. Mr. Israel's
testimony talks about the fact that Chinese patent holders are
applying for patents in much larger volumes than ever before.
It may take a generation or more, but I think we can be
optimistic that some of our trading partners, who are causing
us some difficulty, will slowly come to the conclusion that
strong patent protection is in their own national interest.
Mr. Quayle. [Presiding.] Thank you, Mr. Watt.
The Chair now recognizes the gentleman from Ohio, Mr.
Chabot, for 5 minutes.
Mr. Chabot. Thank you. I would like to personally thank you
for being generous with your time and for allowing me to go
next. I had planned on attending a classified cybersecurity
briefing at 11, so I am going to catch the tail end of it. I
wouldn't have made it at all except for your willingness to
allow me to go next. Thank you.
Mr. Israel, I have a couple of questions for you. In your
testimony, you mentioned the current negotiations to establish
the TPP, which could provide global patent protection for U.S.
businesses. Again, in regard to the data exclusivity, and I
know that Dr. Waldron has already commented on this somewhat,
but if you can expound upon a little bit about why it is so
important, so critical that we continue to negotiate for 12
years of data exclusivity?
Mr. Israel. Thank you, Mr. Chabot.
I think the principle is so important, and Dr. Waldron did
begin to explain why it is so critical for U.S. pharmaceutical
and biotech and agricultural companies as they invest so much
money in the regulatory approval process. I think the step of
getting a patent granted in many of these countries is a very
difficult and lengthy and expensive one in and of itself. You
are then asked, obviously, to go to the regulatory agency and
get that product approved and demonstrate its safety and
efficacy. That is what this package of information that we are
talking about really represents in providing an exclusivity so
it cannot be relied upon by other competitors which have not
put that similar set of resources and time and energy into
constructing that information and providing it is absolutely
critical.
As we have noted, the standard here in the United States is
12 years for biological products, 5 years for small molecule
pharmaceutical products. So I think that the notion that we
would be absolutely consistent and very strong on that
consistency as we negotiate with our foreign trade partners,
whether it is within the context of the TPP or other trade
agreements, it is a principle in almost all of our free trade
agreements. And certainly it is something that we need to be
very vigilant to continue to stress going forward.
Mr. Chabot. Thank you.
Can you tell us how the Obama administration has approached
the data exclusivity issue as well as the intellectual property
rights generally in their negotiations thus far?
Mr. Israel. I can do my best to answer that question,
Congressman. I am obviously not involved in a lot of the very
important and well-structured arguments and negotiations that
the Administration is leading. It is a very, very talented and
effective team that exists at USTR. Victoria Espinel is
obviously doing a great job leading the enforcement effort
within the Administration. It is a difficult issue.
I think it is important to recognize, as we were engaged in
this issue in 2005 and through the remainder of that decade, a
lot of these issues were really just starting to kind of bubble
up. India only put its patent law in place in 2005. China only
joined the WTO in 2000. So they were really starting to heat up
at that point. I think they are really starting to almost boil
over at this point.
It is a difficult challenge, I think, maintaining the
posture that the United States be as aggressive as possible to
protect the economic interests of U.S. rights holders overseas,
particularly in light of the fact that the United States has
implemented the AIA and it has really set the global standard
is an important principle for the entire U.S. Government. I
think this is an issue that involves Congress and the
Administration and industry, and everyone really needs to be
focused in working together. So I think we need to all accept
that responsibility and shoulder it.
Mr. Chabot. Thank you. You mentioned that during your time
with the Bush administration, the USPTO engaged with foreign
trade partners to increase capacity and quality of patent
prosecutions overseas. Under the Obama administration, have you
seen a continuation of those efforts? How would you describe
them?
Mr. Israel. Yes, I think there has been a consistency and
continuation. The PTO attache program continues to be a very
strong point. It is something which provides the U.S.
Government a lot of information and relationship building with
critical foreign governments, and provides U.S. companies
access to expertise in countries and relationships. I know that
Director Kappos has been very active in engaging other patent
offices and trying to provide training in capacity building.
That is one key area.
It reflects back a bit to the question that Ranking Member
Watt asked earlier, where are the carrots, and where are the
sticks? This is a carrot. I think the extent to which the
United States, through the PTO and through other resources, can
provide training and capacity, building to foreign patent
offices that are struggling, obviously.
And I think we see examples in our judiciary as well. Judge
Rader, the Chief Judge of the Federal Circuit, is taking the
entire Federal Circuit, all of his colleagues, to China in May
to interact with their colleagues in China and really try to
build some capacity there.
So I think there are some carrots, and there are some
sticks, and I think we need to deploy all of them sensibly.
Mr. Chabot. Thank you.
I see my time has expired. I yield back, Mr. Chairman.
Mr. Waldron. If I may briefly supplement the comment Mr.
Israel made, regarding the TPP, the Administration has not yet
tabled the 12 years of biological data exclusivity. I think,
given the breadth and the scope of this agreement and the
effect on jobs and our economy going forward in the future, I
think it is imperative that we look toward tabling that as soon
as possible.
Mr. Goodlatte. [Presiding.] The gentlewoman from
California, Ms. Chu, is recognized for 5 minutes.
Ms. Chu. Thank you, Mr. Chair.
Dr. Waldron, the U.S.-Korea trade agreement did provide
state-of-the-art commitments in intellectual property rights.
Can you discuss whether you think trade agreements that
incorporate these strong IP protections, like the U.S.-Korea
free trade agreement, are ones that the U.S. should be seeking,
and do they help or hinder your industry in foreign markets?
Mr. Waldron. We believe that the Korea-U.S. Trade Agreement
is sort of the gold standard and, along with adding in a
provision for 12 years of biological data exclusivity, would be
the gold standard going forward for free trade agreements. I
think that is the underpinning of showing how serious we are
about IP protection with our trading partners. I think they are
critical in their implementation, and I think they have been
very effective in some countries but not all countries, and I
think we have to be willing to enforce those agreements and
make sure our trading partners abide by them going forward. And
I think they are very beneficial in the long term if they have
these provisions in them for IP protection.
Ms. Chu. Okay. Dr. Sheppard, as you know, the Special 301
Report is an annual review of the global state of intellectual
property rights protection and enforcement, which is conducted
by the Office of the United States Trade Representative. It
identifies a wide range of serious concerns and lists the
countries which are deemed to have inadequate intellectual
property right protections. What is the significance of this
report and how can it be used to incentivize countries to
harmonize their laws to conform to these international
agreements to which they are a party?
Ms. Sheppard. I thank you for that question.
As I noted in my testimony, there are some countries who
have been on the list and then have put through the necessary
changes to get off the list. But there are many, many more
countries that have been on the list, the watch list, the
priority watch list since the inception and are still there
today.
Does that mean that the list is not important? No, that is
not what that means. The list is very important because it
requires the Administration to look every year at the
agreements and at individual countries to figure out who is in
compliance and who is not, either de facto or in its result,
and then have a country-level conversation on specific issues.
In some places, changes have been made. In the Special 301,
they also make a determination on whether or not they are going
to go before the dispute settlement board at the WTO, and that
is an important determination. Unfortunately, or maybe
fortunately for some, that particular avenue has not been taken
up as often as it could be. That is one of the sticks that is
available.
But I believe your question is, is 301 important? Yes,
because it shines a spotlight on the issue, and action plans
are developed.
Last year, the Administration started to have the actions
plans, invite countries to work with the Administration to
develop an action plan that the other countries believed they
could implement. I don't know how that process is working. It
is still the first year; but this is the first year where the
Special 301 and the Administration have reached out to the
other countries to make sure that the action plan is something
that is doable in the eyes of the other country.
Ms. Chu. Some countries that were on the 301 listing were
eventually removed from the list. In fact, I think South Korea
and the Bahamas have succeeded in removing themselves from this
list. How did they go about doing this?
Ms. Sheppard. I don't know the exact details. Perhaps Mr.
Israel knows the exact details. But there is an action plan.
There are things that listed that say in order to be in
compliance, you need to do A, B and C. And without knowing the
details, they must have complied with at least the majority of
those issues.
Mr. Chu. Mr. Israel?
Mr. Israel. I would have to check some of the detail. I
would suspect that their implementation of the Free Trade
Agreement that the United States agreed to with South Korea
probably has a very significant impact on their being removed
from the list, and they implemented some things such as the
TRIPS Plus provisions that we negotiated with them as part of
that free trade agreement. And so I suspect that put them on
the path to making some pretty significant improvements.
Ms. Chu. Although I don't think the Bahamas has a free
trade agreement, so how did they end up getting removed from
the list? The Bahamas?
Mr. Israel. That I am not sure of, Congresswoman. I would
have to check and probably get back.
Ms. Chu. Dr. Sheppard, how is it that a country could be
part of the TRIP agreement but still be seriously having
deficiencies in protecting intellectual property rights?
Ms. Sheppard. The TRIPS agreement, like most international
agreements, it is just an agreement. I believe it was Ranking
Member Watt who alluded to before--we can give our input, but
we can't make anyone do anything. And conversely, they can have
their input, but they can't make us do anything. These
agreements are gentlemen's agreements that you are going to
comply with what your word is. If you don't comply with what
your word is, then we will put higher tariffs on some other
product.
As I mentioned earlier, the United States has not taken
advantage of that as often as possibly it could. But there are
countries, including the United States, which are in violation
of the TRIPS agreement.
So, in my opinion, it is hard. It is hard when we are still
in violation on some issues and go to other countries and talk
about them being in violation of their issues.
Ms. Chu. Thank you.
Mr. Murphy. Mr. Chairman, may I briefly offer an
observation based upon my time at USTR?
Mr. Goodlatte. Sure.
Mr. Murphy. Thank you very much.
Congresswoman Chu, I agree with your question or statement
that Special 301 and the annual reporting and watch list is
still very valuable. It continues to create an opportunity for
peer pressure and observation, for lack of a better term.
But I can also offer this: Special 301 predates the
creation of the WTO and the TRIPS agreement. The United States
as a member of the WTO is constrained in its ability to bring
pressure to bear against trading partners that are not in
compliance with their TRIPS obligations or otherwise
maintaining policies that burden U.S. IP holders. I think we
need to have a very honest conversation about how in the post-
WTO, post-TRIP world, can we ensure that our trade enforcement
agencies have some leverage to bring to bear that does not
itself cause the United States to violate its own trade
commitments, in order to focus the attention of our foreign
trading partners on doing what they need to do to better
protect U.S. IP.
Ms. Chu. Thank you.
I yield back.
Mr. Goodlatte. Thank you.
The Chair recognizes the gentleman from Arizona, the Vice-
Chairman of the Subcommittee, Mr. Quayle, for 5 minutes.
Mr. Quayle. Thank you, Mr. Chairman.
And thank you for holding this important hearing today to
examine the challenges to U.S. intellectual property
protections in foreign countries.
As others have noted, the U.S. Commerce Department reported
earlier this month that intellectual property supports 40
million U.S. jobs, or 28 percent of our workforce, and
contributes over $5 trillion to our GDP. According to the
report, intellectual property protections have a direct and
significant impact on the U.S. economy, and the jobs it creates
are high-paying and important for working families. This really
shows how important this hearing is, and I thank all of the
witnesses for their testimony.
Dr. Waldron, you mentioned Chile as not enforcing IP
protections as a part of the FTA. I was wondering if you could
provide a few additional examples of lack of enforcement of
basic patent rights abroad and explain how that lack of
enforcement really hampers the innovative industry's ability to
maintain and grow jobs here in the United States?
Mr. Waldron. There are a number of provisions, as I look at
the countries for which we have free trade agreements, but
Chile is an important one because I think it is one where it is
imperative that we have sort of a linkage system which would be
set up to protect our IP rights before the market essentially
is destroyed by the entry of competitors that essentially can
go on, and the enforcement mechanisms are very poor. If you are
not able to export to a market--I mean, there are markets in
Latin America where we have introduced a product, and within 1
year, we have lost 85 percent of our market to 23 competitors.
That was Lipitor.
With Viagra, there was a case where we lost 98 percent of
our market within a year to 35 competitors. So there is no
shortage of competitors willing to come in, particularly in an
instance where you are not getting the patent protection that
you have applied for. There is no data exclusivity protection.
So, within a very short period of time, within a year,
competitors enter the market. And there is no linkage
mechanism, no means to resolve a patent dispute, if you have a
patent, within that period of time, as we do in the United
States.
These markets represent huge growth opportunities for U.S.
businesses. They are big. If we are regularly losing 90 percent
of our market to local competitors that is a problem because we
can't expand locally at home, we can't invest and make the
investments and create the jobs at home that support those
innovative industries, and it is just sort of a chain reaction
of things that sort of piecemeal around the world add up to a
collective problem for the United States where we have that
competitive advantage.
Mr. Quayle. Do you think that the Administration is doing
everything that it can to support U.S. industry and enforcing
their rights?
Mr. Waldron. I think we really need to ensure that if we
have free trade agreements with partners--and Chile has been
noted--I mean, there are others--that we make sure and follow-
up on that. There is the 301 mechanism, but it seems to be a
paper tiger sometimes. It seems it is not followed up on, or it
is a chastisement, but it really doesn't have any strong
economic teeth. I think there really has to be something here
that sort of makes it perfectly clear that these kinds of
violations are backsliding on obligations, and that is
unacceptable.
Mr. Quayle. Thank you.
Mr. Israel, what additional steps can the U.S. take to
improve judicial education in foreign countries so that
enforcement measures can be counted on?
Mr. Israel. I think that is a key question, Congressman.
And It does, again, kind of touch on this theme of, what
can we do to provide incentives, and where does the United
States have leverage that doesn't necessarily implicate direct
trade rules or bringing cases? There have been I think some
great examples in the past where the Justice Department, for
example, has sent delegations to places like India to help
train judges, to work with their judicial system, and to try to
give them a little more capacity on what are obviously very
complicated cases in any country. We work directly with China.
We had a system in place called the case referral mechanism
with China for several years, whereby American companies could
work directly with the Commerce Department and PTO and our
attache program in China, and have really kind of a pipeline
directly into the Chinese enforcement officials to refer
specific cases of infringement that they saw on the ground.
I noted the efforts of some individual jurists, such as
Judge Rader, who has been very active in this area. But I think
we need to look at this as one of those kind of compliant/
noncompliant areas, where we see some obvious and overt areas
where countries violate TRIPS, as Dr. Sheppard has noted. But
there are a lot of areas that when you get on the ground, if
you are an American company and it takes you 10 years to even
get a patent, and then when you get it, there is a judicial
system that simply disallows you, through inconsistency or
inability, to really enforce that patent, you are dealt a hand
that you really can't compete with.
Mr. Quayle. Do you think even with the education aspect,
where the DOJ is going in and educating judges, do you think
you are witnessing, even if you do educate and get them up to
speed on patent protections and patent law, that if you have a
process or a thought process from the governing body, that they
are just not going to actually administer or protect patent
rights from out-of-state companies, then it is really not going
to do that much?
Mr. Israel. Good point. A very fair point. I think you see
some things that cut against those best efforts very
dramatically. It is not uncommon in China, for example, in high
profile intellectual property cases for officials of the
Chinese government to physically be present at those hearings
where there is a state-owned enterprise potentially implicated
in the hearing. It is very hard to counter that from the United
States. I suppose we could have our diplomats attend a range of
cases in big countries like China, but you are up against not
just some systemic flaws but, as you know, you are clearly up
against some attempts to tilt the competitive framework, again
the foreign rights holder, typically the United States.
Mr. Quayle. Thank you, I yield back.
Mr. Goodlatte. I thank the gentleman.
The gentlewoman from California, Ms. Waters, is recognized
for 5 minutes.
Ms. Waters. Thank you very much, Mr. Chairman.
I had to step out for awhile and I can imagine that some of
my questions may have already been answered. I will try to
frame them in a way that could glean some additional
information.
The first thing I want to know is what is our Trade
Representative doing on these issues? That is where we place
responsibility for ensuring that we have fair trade, and I am
sure this must be an issue with the Trade Representative.
Dr. Waldron, what is our Trade Representative doing?
Mr. Waldron. I don't have the exact details of the
procedures going on at USTR right now, but I do know that they
have not tabled 12 years of biological data exclusivity yet in
the Trans-Pacific Partnership negotiations that are ongoing. I
think it is very important for us to ensure that there is a
strong IP package in this. I think that is an essential part of
it, and it has not yet been tabled. And I think we really have
to ensure that we do this because of the breadth and the scope
of this agreement. I mean, it involves a vast chunk of the
Pacific Rim countries. These are huge markets for all of
American businesses, and I think we have to get this right
because it is going to have huge knock-on effects later.
I don't know why there has been delay in introducing this;
but certainly, it is something that represents U.S. law, and I
think we should definitely push the Trade Representative.
Ms. Waters. Dr. Sheppard, has this risen as an issue with
the WTO? Have we taken any initiative from the United States to
look as if, if not actually, make this an issue with the WTO?
Ms. Sheppard. Yes. The United States and the USTR has taken
up several issues with the dispute settlement body. The issue
went directly against China, and the United States received a
lot of negative reaction from China for taking them to the
dispute resolution settlement board. But the conversations
between USTR and the United States had no fruitful outcomes.
And when that happens, that is the process you are able to go
through.
Someone mentioned earlier, I think it was Mr. Israel,
talked about the other times when the United States has tried
to negotiate, negotiate, and then gotten nowhere. That is why I
think the Trans-Pacific Partnership, as Dr. Waldron was talking
about, and other avenues of TRIPS Plus agreements are so
important. And that is one of the things that the USTR is doing
right now, actively negotiating new treaties that will put into
place some of the lessons learned from what was lacking in
TRIPS.
TRIPS was a huge step forward, but it has been 18 years
since then. And in that time, other industries have grown up
that weren't envisioned then. So new protections and new laws
need to be in written. Mr. Murphy can talk about this, having
been at the USTR, more than I can--I haven't been there--that
they are actively every day pushing forward our policies in
every country. We just don't hear about them.
Ms. Waters. Well, you know, what you are describing has
been going on for an awful long time. And it seems to me it is
time for a resolution.
Mr. Watt alluded to the work that we have done in financial
reform. Tremendous work with Dodd-Frank and all that goes along
with that. So having taken a look at what you are describing
and the negotiations that have gone on and the continued and
long-term bias against us in many ways, what do you recommend
can be done legislatively outside of the USTR Trade
Representative working for us?
What do you recommend, Mr. Israel?
Mr. Israel. That is a great and obvious question,
Congresswoman Waters.
Trade promotion authority, giving that to the
Administration, from the standpoint of empowering their
negotiating status, would be a good thing. I think there are
things that we can do. There are obviously resource issues
which are difficult to discuss and it is a very difficult
environment for that. But I think things like potentially
giving the Patent and Trademark Office greater ability to
leverage and manage the IP attache program overseas. Right now,
it is a bit complicated as they work internationally. It is not
their natural, kind of organic statute to place individuals and
diplomats in embassies. And so I think there are some things we
could do that might strengthen that program and empower it even
more.
Ms. Waters. Excuse me a moment. You just said something. I
have never heard that the role that our ambassadors and their
staffs could play is to take an issue like this in country and
help to promote the idea of fairness and a level playing field.
That may be something, Mr. Watt, that we may be able to
encourage in some ways.
My husband was an ambassador, and they talked about a lot
of things. Of course, he told me that there were a lot of
things that he couldn't talk about. But I never heard that this
was a role that they played, even though they have one of their
designated staff persons dealing with economic development or
something like that in these countries. I have never heard them
talk about this.
Please continue. Thank you.
Mr. Israel. Clearly, the global footprint that the U.S. has
through its embassies and diplomats overseas is huge. I
personally think this problem, this issue, is equal parts law
and diplomacy; getting the legal framework correct, enforcing
TRIPS, all of the very detailed things that Dr. Sheppard noted
is huge. But there is a diplomatic element to this as well. We
need to be working very aggressively with our trading partners
that we are aligned with on this issue--the Europeans, the
Japanese, and other developed countries.
I think one of the things it is, again going back to this
carrot and stick formulation that the Congressman Watt spoke
about, a lot of countries, particularly the growing BRIC
countries, China in particular, I think are very sensitive to
being as framed outside the norm. They may be more sensitive to
that than a handful of individual WTO cases. If their legal
system is portrayed consistently and effectively as being
outside the global norm by their trading partners, by the
United States, the Europeans, their partners that matter, that
has an impact.
I think, to your point, if you have an ambassador and a
team in country that are focused on this--Ambassador Rant from
2001 to 2008 had a series of annual IP conferences in Beijing.
The vice premier of China frequently attended, and Cabinet
members from the United States frequently attended it. It
really became a focal point for driving these issues.
Action-forcing events are key. They force our government to
put things on the table. They force the other government to
react to those. So there is a lot of diplomacy that can be done
around this issue in a very strategic way.
Ms. Waters. Thank you very much.
Our Chair has been very generous with the time, but in
wrapping up, do you see this as something that can be framed as
a serious trade imbalance issue, and how do we do that?
Mr. Israel. I think it is absolutely a serious trade
imbalance issue. I think we need to look at this issue when we
view overall American competitiveness in the same way we talk
about making our tax system competitive, making our regulatory
system competitive, our R&D portfolio, all of these things
that, at a very high level, feed into issues that are of the
level of congressional committees and Cabinet officials and
CEOs. I think this is an issue that deserves a place and
attention on that list as well.
Mr. Watt. Mr. Chairman, may I make a one-sentence
intervention?
Mr. Goodlatte. The gentleman is recognized.
Mr. Watt. I just remind my colleague from Financial
Services that it took a worldwide economic meltdown to create
the environment for international harmonization in the
financial services area. I am not sure that those kinds of
incentives are there yet in the intellectual property
protection environment. So I kind of stacked the question a
little bit, but I didn't want anybody--we got a lot more
cooperation internationally after the meltdown than we were
getting before the meltdown.
Mr. Murphy. May I respond briefly to Mr. Watt?
Mr. Goodlatte. Briefly.
Mr. Murphy. Innovation and patents are key to our 21st
century economy. We need a corresponding trade policy that
recognizes that. We need to find better tools and levers for
our trade negotiators and our diplomats worldwide. We need to
have strategies that focus on foreign capitals as well as the
foreign delegations at international institutions. We often
have disconnects between governments, our foreign trade
partners in different locations.
Mr. Goodlatte. Thank you, Mr. Murphy.
The gentleman from Georgia, Mr. Johnson, is recognized for
5 minutes.
Mr. Johnson. Thank you, Mr. Chairman.
This is a very important hearing today. It comes at a great
time. Today is World IP Day, where we celebrate. Everyone goes
home for half a day, and we celebrate innovation throughout the
world and put up lights and everything and give gifts. It is a
wonderful day. We are all working today.
The process and results of research, innovation and
development, and the protection of these results through our
patent, trademark and copyright laws are very important,
particularly in a global community. There are major patent
barriers that American patent holders face in protecting their
intellectual property while doing business in many places,
including China.
Dr. Waldron, I know that you were asked a question earlier
about the performance of the Obama administration and you
mentioned that there was something that needed to be done
before it expires. What was that?
Mr. Waldron. It was getting the 12 years of biological data
exclusivity into the TPP negotiations, the Trans-Pacific
Partnership.
Mr. Johnson. Well, I tell you, we have had so much gridlock
around here. Partisan politics have been the practice. It has
resulted in us not being able to do many of the things that the
country needs to do. But I am hopeful we will be able to get
through this period, and with folks like PhRMA, I hope you will
support good government and not gridlock government, and we can
get these things--we can do the things that America needs to do
in order to maintain its position in the global economy.
Now, I know that WTO members are required to make patents
available for inventions in all fields of technology, but many
countries discriminate based on the place of invention, the
field of technology or whether products are imported or locally
produced. Does China utilize regulatory and administrative
hurdles to devalue patent rights of American companies, in your
opinion, Dr. Waldron?
Mr. Waldron. There are a number of levers that effect us in
China. And I think when you talk about the patent grant
process, we have a system of fairly arbitrary standards that
are imposed that we have experienced as pharmaceutical
companies on how much data is required to get a grant of a
patent or a grant of a claim. It seems to vary considerably
across the board. We think that they need to harmonize their
standards better so it doesn't appear as arbitrary. It seems
that we have a great deal of difficulty getting scope of claims
in our patents that are broad enough to protect our products,
and this is an important issue going forward.
The other issues in China range from enforcement of
intellectual property, particular patents. The evidentiary
hurdles are great. Oftentimes, foreign evidence is not allowed.
Evidence has to be generated within China. Sometimes this is
very difficult if you are trying to present a test result and
there is nobody in China that can perform it; sometimes you are
just out of luck. This is an unfortunate situation we face on a
daily basis.
Mr. Johnson. If I might stop you right there, I wish I
could let you go forward, but I have got one more question. I
have more questions actually that I want to ask, but thank you.
Professor Sheppard, in China, do American innovators have
sufficient recourse in the Chinese judicial system to protect
their locally manufactured or their locally granted patents?
And if not, tell us the extent of the problem and perhaps some
solution for being able to solve?
Ms. Sheppard. The biggest part of the problem, and it is
hard for us as Americans to really internalize this, is that
there is no judicial independence in China. The courts are very
much influenced by politics and the needs of the people. If
putting a company out of business that employs 500 people
because they are infringing is the right thing to do legally, a
lot of judges won't do it because of political reasons. I don't
know how we change that.
As we discussed earlier, Judge Rader goes to China on a
regular basis and he is taking the entire Federal Circuit to
talk about these issues. Maybe one of the things that we should
be pushing for that kind of comes in from a different angle in
protecting American interests is looking for not only democracy
across the world but also judicial independence across the
world.
Mr. Johnson. Anyone have any other comments about that?
Mr. Israel. I think Dr. Sheppard hit it right on the head.
I think it is a rule of law question as much as anything in
China. China, except laws and rules they want to enforce, by
and large doesn't enforce a lot of its laws particularly well.
So I think you are dealing with a question of--there is a
question of judicial independence. There is a question of the
laws being relatively new in China. China only became a WTO
member in 2000. So as a body of law, it is relatively new in
China. I think it is, as Dr. Sheppard noted, it is almost first
and foremost tied to economic rationales or social rationales
largely in China, and that has to be a very difficult dynamic
for any American company to walk into a courtroom and not just
be confronted with needing to win the legal argument, but also
needing to win the social and potentially the economic argument
against what they are faced in China in that courtroom.
Mr. Goodlatte. Without objection, the gentleman is
recognized for 1 additional minute.
Mr. Johnson. Thank you, Mr. Chairman.
Do you think that the way that--well, the Chinese economy
in 2015 it is projected, 2016 maybe, is projected to become the
world's largest economy. So that is something you have to deal
with, America as well as all of the other countries and their
economies in this global economy, and if the big, 800-pound
gorilla is cheating, how do you stop the cheating? Is it
through a trade war? What do you do in order to encourage
compliance with international standards in a situation like
this?
Mr. Israel. I think it has to be a mix of tactics. I think
it has to be a mix of very high level focus by the U.S.
Government and other governments that are similarly impacted.
It needs to be a head of state issue. I think it consistently
has been for the United States for several years. I think we
need to make--look at ways to make improvements to the Chinese
judicial system.
Mr. Johnson. Do the Chinese want to do that?
Mr. Goodlatte. The time of the gentleman has expired.
The gentlewoman from Texas, Ms. Jackson Lee, is recognized
for 5 minutes.
Ms. Jackson Lee. Let me thank the Chairman and the Ranking
Member for this hearing, and the Ranking Member of the full
Committee who studiously attends these hearings to build his
excellent portfolio of knowledge, Mr. Conyers. I am delighted
that he is here and an active Member of this Committee, among
others.
Let me acknowledge, standing behind me but not in the room,
Mr. Chairman, Amanda Woodson, who is my daughter for the day, a
beautiful, young 13-year-old, who is learning about protecting
our assets. As a 12-year Member formerly of the Science
Committee and now a Member of the Homeland Security Committee,
I have always believed that science, technology, the work that
many of you are doing, is the work of the 21st century, 22nd
century, and it is a job creator. Which makes me even more
proud to welcome back Dr. Christal Sheppard, who quietly served
us and did not acknowledge the genius of having a masters and a
Ph.D. in cellular and molecular biology. I needed to put that
on the record. So I know the University of Nebraska School of
Law is excited that we added a smidgeon to her vast talent. We
are delighted to see her as a witness.
I would like to take a different approach, and again, let
me say that I couldn't be more chauvinistic, and I don't
usually use that word, on the inventiveness and the level of
technological sophistication that America has. And we need to
protect it.
So, first of all, I want to acknowledge that President
Obama has elevated to Cabinet status the Intellectual Property
Enforcement Coordinator, and I want to have our representative,
Dr. Waldron, comment on that elevation and how that can be
utilized?
I would like Dr. Sheppard to answer a question that I will
read in just a moment, but let me raise a question generally to
ask about intellectual property jobs and trade agreements and
the importance in putting in strong provisions. If you can take
that question down.
But what I really want to talk about, because I met with
members of the Chinese embassy yesterday, and I truly believe
that we have an opportunity to be a friend and that we are
doing business with China. They want to do business with us,
and they are looking to be able to frame their structure going
forward in a way that comports with the respect of the
intellectual property of those who they engage with. So I am
very interested in doing it this way, and that is the moving
and looking at the Leahy-Smith bill, and I am looking at that,
that deals with reestablishing a patent system for the global
market. What I would like to see us do is for America to be the
standard for all countries, and if you are not in keeping with
America's standard, you are outside of the marketplace in both
world ideas and world opportunities.
Dr. Waldron, would you proceed with that.
And Dr. Sheppard, I think you heard my question. Why don't
we push getting our standards to be the world standards and
match it with enforcement, and anybody that is outside of that
circle simply can't do business? Because everybody recognizes
what is precious, and that is your genius and the idea of Bayer
aspirin being manipulated would not hold because that country
would be isolated because no one would dare go there if their
procedures undermine the process. Would you go forward on that
answer?
Mr. Israel, you might answer, too, since you are formerly
head of that agency.
Yes, Dr. Waldron.
Mr. Waldron. I agree with you wholeheartedly,
Representative Jackson Lee. The genius of America is its
innovativeness. And our competitive advantage vis-a-vis other
countries is our prize asset, and we should have as a matter of
policy a means of protecting these things, the things that we
develop and the things that we market and sell abroad.
We acknowledge the elevation of the IP coordinator status
within the Obama administration. This is a welcomed
development. It brings IP to a high status within the
Administration, and we think that is a good thing to have on
people's minds. It also deals with the issue of counterfeits,
which is something that is a pernicious danger that we also
have to be constantly vigilant about.
But we do need a set of policies in this government that
sort of protects American innovation and American business
abroad. As mentioned earlier in some of the discussions, the
diplomatic emphasis here is essential to having that go
forward. So I agree with everything that has been said.
Ms. Jackson Lee. Chairman, can we allow them to answer the
question?
Mr. Israel, would you add to your answer what strong
provision we would need to protect, what kind of strong
provisions?
And then I would like Dr. Sheppard to finish.
Mr. Goodlatte. Briefly, if you would.
Ms. Jackson Lee. Thank you, Mr. Chairman.
Mr. Israel. Very briefly, I think the answer to your
question partially answers the question that Congressman
Johnson answered, which is regarding the Chinese and the
economy.
Ms. Jackson Lee. The answer to Jackson Lee's question
partly is the answer to Congressman Johnson's question? I am
not sure who you are answering.
Mr. Israel. I am sorry, Congresswoman. Mr. Johnson asked a
question.
Ms. Jackson Lee. And I am asking a global question. I am
not pointing to the Chinese. Thank you.
Mr. Israel. Thank you. As China, in particular, becomes the
world's largest economy, I think it is impossible for them to
also have a judicial system simultaneously that is not taken
seriously by the rest of the world. So I do think to your
question, there is pressure that will mount. And I agree, they
will gradually need to face that pressure and do something
about it. And I do think that will have a very positive impact
going forward.
Ms. Jackson Lee. Thank you.
Dr. Sheppard, welcome.
Ms. Sheppard. Thank you.
The importance of taking strong positions in IP, very
briefly, it is very essentially important. It is the only way
that dollars come back into the United States. To use Apple as
an example, iPads are made by a Taiwanese company with Chinese
workers in China. The way that the money comes back to the
United States is through intellectual property. And unless we
continue and maintain strong IP, the inventiveness of our
inventors and the R&D that we do here will never see returns
from those countries.
As you mentioned, we do have leverage. They want access to
our market; we want access to their markets. America is a
really good market still. So we have leverage, and we shouldn't
be afraid to use that leverage. It is part law, and it is part
diplomacy, but we cannot afford to be a paper tiger, as someone
mentioned earlier.
Ms. Jackson Lee. Mr. Chairman, I would like to submit
additional questions for the record.
And may I just indicate that I am very proud that one of my
questions to be submitted into the record was written by Ashley
Hawks who is my Texas Tech intern. This is her last week, and I
wanted to congratulate her for the work she has done on behalf
of the people of this country and the 18th Congressional
District.
I thank you, Mr. Chairman. And I ask unanimous consent that
my questions may be submitted in writing for a response.
Mr. Goodlatte. We will cover that right now. I am proud of
Ashley and her good work for you.
I would like to thank all of our witnesses for their
testimony today.
Without objection, all Members will have 5 legislative days
to submit to the Chair additional written questions to the
witnesses which we will forward and ask the witnesses to
respond as promptly as they can so that their answers may be
made a part of the record.
Without objection, all Members will have 5 legislative days
to submit any additional materials for inclusion in the record.
With that, I again thank our witnesses and the Members who
participated, and this hearing is adjourned.
[Whereupon, at 12:02 p.m., the Subcommittee was adjourned.]
A P P E N D I X

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Material Submitted for the Hearing Record

Prepared Statement of the Honorable John Conyers, Jr., a Representative
in Congress from the State of Michigan, Ranking Member, Committee on
the Judiciary, and Member, Subcommittee on Intellectual Property,
Competition, and the Internet
Today's hearing provides an opportunity for us to scrutinize
whether the patent systems in foreign countries provide adequate and
effective patent protection for American innovators and whether they
provide a level playing field for American creators.
In particular, we should focus on the problems that American
companies encounter when they request, enforce, and implement patents
overseas.
And, I intend to explore in detail ways that Congress can foster
U.S. global competitiveness with respect to patent laws and government
policies in light of the recent enactment of the Leahy-Smith, America
Invents Act.
There are several factors we should keep in mind as we consider
this and other issues today.
First, a robust patent system is integral to the health of our
Nation's economy.
Coincidently, today is World Intellectual Property Day, which
recognizes the significance of preserving intellectual property
protection for American businesses and inventors when they use
international patent laws.
Last month, the U.S. Department of Commerce released a report
finding that America's most IP-intensive industries in 2010 generated
direct employment of 27.1 million jobs and an additional 12.9 million
jobs. In 2010, these IP-intensive industries accounted for an estimated
34.8 percent of U.S. gross domestic product.
At its heart, intellectual property defends the economic value of
the fruits of the mind's labor, whether it be the spark of invention or
the inspiration of the artist. It gives an inventor or artist the
opportunity to profit from their work, in order to both reward and
support additional creativity.
It is imperative that American industry abroad is protected by
sufficient international patent laws and government policies.
Second, it is critical for us to address barriers to effective
international patent protection.
American innovators, industries, and other interested parties have
identified many of these barriers as part of their proposals to the
U.S. Trade Representative (USTR), as part of the annual ``Special 301''
review process.
Congress enacted Special 301 pursuant to the 1988 Trade and
Competitiveness Act. The USTR produces an annual survey of the
intellectual property laws of foreign countries and issues the
``Special 301'' report. Last year, 12 countries were included on the
Priority Watch List and 28 were on the Watch list.
These submissions list challenges for international patent issues
including lack of effective patent enforcement and administrative
hurdles in the patent granting procedures.
Historically, the annual USTR Special 301 has mentioned the
deficiencies in patent laws in countries listed on their priority watch
list. Accordingly, I am looking forward to reviewing the next Special
301 Report for 2012, which is due later this month.
Third, we must assure businesses that their patents will be granted
within a reasonable period of time and not be discriminated against.
The patent application process, which includes patent filings, can
often have long pendency times and prevent patentability for certain
fields of technology.
While businesses need certainty that a patent will be granted in a
timely manner, the total pendency for patent applications can be as
long as 34 months.
In fact, applicants for pharmaceutical patents may take more than 5
years in many countries. For example, applicants for pharmaceutical
patents in Chile have to wait an average of 8 years for final action on
their patent applications.
Additionally, many foreign countries have barriers to effective
enforcement. For example, China is often cited for their inadequate
damages and ineffective injunctions.
Our trading partners need to live up to their international
obligations and they should not discriminate against U.S. companies or
fields of technology when it comes to patentability and market access.
Moreover, foreign governments should be able to condition approval
of a U.S. innovator's license to patent technologies to domestic
companies unless it reduces the price associated with the products.
This pressure from foreign governments is a demand for a reduction
in the price of the patented technology, often below the global
marketplace value.
It is clear that many foreign countries simply lack consistent
stands for patentablity.
This hearing will allow us to explore these topics and determine
what role Congress can play to promote a level playing field for
international patent issues.

Response to Post-Hearing Questions from Chris Israel, Partner, American
Continental Group (former U.S. Coordinator for International
Intellectual Property Enforcement)
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