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May 18, 2005, 9:00 AM ET, Alert No. 1,138.
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House Subcommittee Holds Hearings on IP Theft in China and Russia

5/17. The House Judiciary Committee's Subcommittee on Courts, the Internet, and Intellectual Property held a pair of back to back oversight hearings titled "Intellectual Property Theft in China" and "Intellectual Property Theft in Russia".

For the China hearing, see prepared testimony of Victoria Espinel (acting Assistant USTR for Intellectual Property), prepared testimony of Ted Fishman (author), prepared testimony of Myron Brilliant (U.S. Chamber of Commerce), and prepared testimony [PDF] of Eric Smith (International Intellectual Property Alliance).

For the Russia hearing, see prepared testimony of Victoria Espinel, prepared testimony of Bonnie Richardson (Motion Picture Association of America), prepared testimony of Matt Gerson (Universal Music Group), and prepared testimony [28 pages in PDF] of Eric Schwartz (IIPA).

Rep. Lamar Smith (R-TX), the Chairman of the CIIP Subcommittee, presided at both hearings. He wrote in his opening statement for the China hearing that "the theft of intellectual property inflicts substantial economic harm on our country, our entrepreneurs, our innovators and, ultimately, American consumers. The losses incurred are not limited to those sustained by the traditional ``core´´ copyright industries but extend to virtually all manufacturers and industries throughout our economy."

He said, with respect to China and Russia, that "it is possible that the persistent failures of these two governments to adequately protect and enforce IP rights may be systemic and deliberate rather then mere ``growing pains´´ associated with the development of market economies. We need to determine for ourselves whether it is credible to believe the Chinese government is serious about enforcing the legitimate IP rights of U.S. companies when copyright piracy levels continue to average 90% and the government refuses to even police their own computers by removing unlicensed software. We need to assess whether the Chinese government has determined that they can continue to simply take without compensation the fruits of the investment, innovations and industriousness of our most creative citizens."

Victoria Espinel is responsible for the preparation of the USTR's Special 301 reports. She wrote in her prepared testimony regarding Russia that "Protection and enforcement of American’s intellectual property rights (IPRs) in Russia is an issue that is of utmost concern to USTR and the Administration and is one that we take very seriously." She made similar comments regarding China.

Members of the Subcommittee questioned her regarding what enforcement actions the administration would take against China, and when it would file a complaint with the World Trade Organization (WTO). Members also asked her if and when the administration would designate China and Russia as Priority Foreign Countries. (Both are now on the Priority Watch List.)

She made no commitments. She repeatedly stated that the Office of the USTR is concerned, that it takes these issues seriously, that it is studying these issues, that it is reassessing its strategy, that it is talking to affected industries, that it is talking to foreign governments, and that it feels the frustration of the members of the CIIP Subcommittee.

Rep. Howard Berman (D-CA), the ranking Democrat on the CIIP Subcommittee, pressured Espinel regarding taking China to the WTO. He pointed out that the Clinton administration brought numerous cases before the WTO, but the Bush administration has not.

He asked Espinel if six months would be a reasonable time frame for the USTR to reach a conclusion as to whether to file a complaint against China with the WTO. Espinel said that it might be.

Rep. William Jenkins (R-TN) asked Espinel "why aren't we in WTO court?" He suggested that you have to file a complaint to get some peoples' attention. However, he added that "I don't have as much confidence in the WTO as I do in the courts of east Tennessee".

Ted Fishman, the author of China, Inc.: How the Rise of the Next Superpower Challenges America and the World [Amazon], stated that another recourse would be to "put a tax" on imports from China that involve IP theft. He said that this would cause China to enforce IP rights. He also suggested taking some action against the retailers and companies in the U.S. that sell products made in China that involve stolen intellectual property.

Fishman also argued in his prepared testimony, and again in response to questions, that the Chinese government is rationally pursuing a policy that is in the best interests of both the Chinese people and the government. He wrote that "China has been growing faster than any large economy in the history of the world. ... we must acknowledge, and grudgingly admire how the Chinese have improved their lot and moved to the forefront of the world’s economic powers."

He continued that "China's loose intellectual property regime allows the government to pass on to its citizens goods that make the Chinese people richer, smarter and healthier. They have solid reasons for doing business the way they do, and many of us would act in much the same way were we in the position the Chinese now find themselves in."

"Suppose you could transfer to your people the jewels of the world’s advanced industrialized nations, paying nothing for much of it and pennies on the dollar for some more. Suppose, in other words, you could steal the best technology, copyrighted materials, brand names and top entertainment for your wanting people. And imagine further that you had little expectation of being held to account for that theft. To the contrary, you would be rewarded for it. In fact, that theft would make your country an ever-more desirable home for the very international fashion, technology and knowledge enterprises you were so liberally borrowing from. Anyone here would make that choice -- the choice which the Chinese government and people made and still do make every day. One of the precepts of good leadership is to make one’s people prosperous and capable, and the Chinese practices have followed that hands down", wrote Fishman.

He concluded that "China's failure to police its intellectual property rules often looks less like ineffective government than a conscious policy to shift the highest value goods from other economies into the country. It is, in essence, the largest industrial subsidy in the world, and brilliantly, it costs the Chinese nothing."

Eric Smith of the IIPA then commented that China "will not continue to go up the value chain" if it remains a copying economy.

Fishman also commented that products made in China, with the benefit of IP theft, result in lower prices for U.S. consumers. Rep. Randy Forbes (R-VA) followed up that he has yet to hear from a U.S. consumer about this. However, he says he does hear from the companies that sell such products. Said Forbes, "it is the businesses that are selling these DVD players that are calling us."

Rep. Bob Goodlatte (R-VA) challenged the rational government policy interpretation of Chinese IP theft. He asked about the involvement of organized crime in both Russia and China. Witnesses throughout the hearing described optical media piracy in Russia in terms of crime and corruption. In the case of China, Eric Smith stated that there are "organized crime syndicates" in PR China, Taiwan China, and elsewhere in Asia. He added that they are involved, not only in IP theft, but also gun running and money laundering.

Rep. Smith commented in his opening statement at the hearing on Russia that "The Russian Federation now seeks to become a member of the World Trade Organization and is counting on the support of the United States government and the American people for that privilege." He added that "If Russia is permitted to join the WTO without first demonstrating a sustained and serious commitment to the enforcement of IP rights, then the real winners will be the criminal syndicates. We owe it to the Russian people and to the American people to consider this record before the U.S. advocates that the Russian government be rewarded with accession to the WTO."

The witnesses stated that the primary IP problem with Russia is illegal optical media, such as music and movie CDs and DVDs. The IIPA's Eric Schwartz stated that there are at least 34 plants in Russia that produce illegal products, and that these products have been exported to at least 27 countries.

The MPAA's Bonnie Richardson said that part of the problem with these optical media plants is that some are "restricted access regime enterprises", located on military property, where prosecutors cannot easily operate.

The industry witnesses stated that the U.S. has leverage over Russia that it should use to incent the Russia government to enforce intellectual property rights. First, there is the pending decision of the U.S. to grant permanent normal trade relations (PNTR). Second, there is Russia's pending request to accede to the WTO.

Universal Music's Matthew Gerson said that while optical media piracy is the primary problem with Russia, there is also a problem with the unlicensed sale of music recordings over the internet. Schwartz added that this is not a problem of indirect infringement, as is the situation in the Grokster case. Rather there is a problem with an infringer that is hosting a server from which it is selling music downloads, without license from the copyright holders. This is not a case of peer to peer infringement.

Rep. Darrell Issa (R-CA) raised the subject of counterfeit copies of consumer electronics devices. He previously owned a company that made such devices.

He stated that "China is not, in my opinion, going to do anything unless we pull the trigger with sanctions remedies".

He also asked if the Bush administration is "soft pedaling" the trade issue with China because of North Korea. He also asked whether China's "size, strength and geopolitical influence is part of the problem".

He did not obtain responsive answers from the USTR's Espinel. However, his questions prompted Rep. Berman to joke that "at least China is being helpful with respect to North Korea".

FCC Releases NPRM on Cable Ownership Limits

5/17. The Federal Communications Commission (FCC) released a Second Further Notice of Proposed Rulemaking [90 pages in PDF] in its proceeding titled "In the Matter of The Commission's Cable Horizontal and Vertical Ownership Limits".

This NPRM proposes to write ownership limits for cable operators, to implement the Cable Television Consumer Protection and Competition Act of 1992, which the Congress enacted 13 years ago.

Section 613(f) of the 1992 act, which is codified at 47 U.S.C. § 533(f), directs the FCC to conduct proceedings to establish reasonable limits on the number of subscribers a cable operator may serve (horizontal limit), and the number of channels a cable operator may devote to its affiliated programming networks (vertical, or channel occupancy, limit).

The FCC did previously write implementing rules, which provided for a 30% horizontal ownership limit, and a 40% channel occupancy limit. However, the U.S. Court of Appeals (DCCir) vacated and remanded on March 2, 2001. See, opinion in Time Warner Entertainment Co. v. FCC, 240 F.3d 1126.

The DC Circuit wrote that "we reverse and remand the horizontal and vertical limits, including the refusal to exempt cable operators subject to effective competition from the vertical limits, for further proceedings. We also reverse and remand the elimination of the majority shareholder exception and the prohibition on sale of programming by an insulated limited partner. We uphold the basic 5% attribution rule and the creation of a 33% equity-and-debt rule."

The FCC did issue a further NPRM back in September of 2001, but did not follow through with the adoption of new rules.

Commissioners Michael Copps and Jonathan Adelstein wrote in a joint statement [PDF] that "we hope the Commission will prioritize this proceeding and move to a decision. Toward that end, we're pleased that today's item, even if it does not establish new numerical limits, does resolve some issues. Most importantly, the item puts to rest the notion that the Commission could simply decide that horizontal and vertical limits of some kind aren't necessary."

The FCC adopted this item on May 13, but did not announce or release it until May 17. This item is FCC 05-96 in MM Docket No. 92-264. See also, FCC release [PDF] describing this item.

Initial comments will be due 30 days after publication of a notice in the Federal Register. Reply comments will be due within 45 days. This publication has not yet taken place.

More News

5/17. The House approved HR 2360, the "Department of Homeland Security Appropriations Act, 2006" by a vote of 424-1. See, Roll Call No. 180.

5/17. The House Rules Committee adopted a rule for consideration of HR 1817. "Department of Homeland Security Authorization Act for Fiscal Year 2006", which includes an amended version of the "Department of Homeland Security Cybersecurity Enhancement Act of 2005", at §§ 311-314. The rule provides for the consideration of an amendment in the nature of a substitute [PDF], and numerous other amendments. (The rule in the Rules Committee web site contains hyperlinks to PDF copies of all amendments that are in order.)

5/17. The Copyright Office published a notice in the Federal Register that recites, describes, and sets the deadline for comments on, proposed rules containing a proposed settlement of royalty rates for the retransmission of digital over-the-air television broadcast signals by satellite carriers under the statutory license. The deadline to submit comments, and notices of intent to participate, is June 16, 2005. See, Federal Register, May 17, 2005, Vol. 70, No. 94, at Pages 28231 - 28233.

5/16. Deputy Assistant Secretary of the Treasury Scott Parsons gave a speech in Scottsdale, Arizona, on identity theft. "We have also seen an explosion of promising technological innovation," said Parsons. "We applaud the opportunity for a market based solution versus a more heavily regulated environment. Anti-phishing and anti-spyware software, software updates, and firewalls all exist to help spot the crime, spot the origin of the Internet scam, and slow the amount of potentially dangerous spam email that gets through to users. Financial institutions also have developed sophisticated, automated anti-fraud technologies that can spot unusual or risky transactions and stop them quickly."

Bush Says New USTR Will Stop IPR Piracy in China

5/17. President Bush gave a speech at a swearing in ceremony for the new U.S. Trade Representative (USTR), Robert Portman. Bush said that the USTR will "ensure that China stops the piracy of U.S. intellectual property".

Bush said that he has three trade priorities, winning Congressional approval of the Central American and Dominican Republic Free Trade Agreement (CAFTA), pursuing the Doha Development Agenda (DDA), and enforcing existing trade agreements.

He said that "China's membership in the World Trade Organization has been a good thing for America. Our exports to China have increased 81 percent since China's entry into the WTO. When it joined the WTO, China also agreed to the rules of international trade, and it's in the interest of both China and the United States for China to abide by them."

Bush then said that "Ambassador Portman will work to ensure that China stops the piracy of U.S. intellectual property".

Portman also discussed China at this event. He said that "A top priority of mine will be China. The President already mentioned this and I concur with him that China's entry into the WTO was, and remains, in the best interests of the United States. It brought China into a rules-based system, which is very important. It also allowed us to significantly expand U.S. exports, good and services. But our trade relationship with China also presents challenges. We face a trade deficit that is too high, in part because the Chinese do not always play by the rules. I have already begun a top-to-bottom review of China trade issues, and I will work closely with Congress ..."

Bush also said that the DDA "is the largest negotiation of its kind in history, and it would reduce and eliminate tariffs in key industry sectors, and unfair agricultural subsidies, and open the global market in services."

Portman said that "By reducing barriers to trade across the board, Doha has the potential to substantially expand U.S. exports and also to spread hope and opportunity to the developing world."

Washington Tech Calendar
New items are highlighted in red.
Wednesday, May 18

The House will meet at 10:00 AM for legislative business. The House may consider HR 1817 RH [79 pages in PDF] the "Department of Homeland Security Authorization Act for Fiscal Year 2006", which includes an amended version of the "Department of Homeland Security Cybersecurity Enhancement Act of 2005". See, Republican Whip Notice.

The Senate will meet at 9:30 AM. It is scheduled to begin consideration of the nomination of Priscilla Owen to be a Judge of the U.S. Court of Appeals for the 5th Circuit.

12:01 AM. The Business Software Alliance (BSA) will release a study of international software piracy. For more information, contact Debbi Mayster at 202 530-5132 or debbim at bsa dot org or Laura Brinker at 202 715-1540 or laura dot brinker at dittus dot com.

CANCELLED. 9:30 AM. The Senate Judiciary Committee has scheduled an executive business meeting. The SJC frequently cancels meetings without notice. The SJC rarely follows its agenda. See, notice. Press contact: Blain Rethmeier (Specter) at 202 224-5225, David Carle (Leahy) at 202 224-4242 or Tracy Schmaler (Leahy) at 202 224-2154. Location: Room 226, Dirksen Building.

10:00 AM. The House Judiciary Committee will meet to mark up several bills, including HR 744, the "Internet Spyware Prevention (I-SPY) Act of 2005". The agenda includes six bills. HR 744 is the last on the list. Press contact: Jeff Lungren or Terry Shawn at 202 225-2492. See, notice [PDF]. Location: Room 2141, Rayburn Building.

10:00 AM - 12:00 NOON. The House Science Committee's Subcommittee on Research will hold a hearing titled "The National Nanotechnology Initiative: Review and Outlook". The witnesses will be Floyd Kvamme (Co-Chair of the President's Council of Advisors on Science and Technology), Scott Donnelly (General Electric), John Kennedy (Clemson University's Center for Advanced Engineering Fibers and Films), John Cassady (Oregon State University), and Alain Kaloyeros (President of Albany NanoTech). For more information, contact Joe Pouliot at 202 225-0581 or joe dot pouliot at mail dot house dot gov. Location: Room 2318, Rayburn Building.

10:00 AM. The Senate Commerce Committee (SCC) will hold a hearing on the nominations of David Sampson to be Deputy Secretary of Commerce and John Sullivan to be General Counsel of the Department of Commerce. Press contact: Melanie Alvord (Stevens) 202 224-8456 or Melanie_Alvord at commerce dot senate dot gov, or Andy Davis (Inouye) at 202 224-4546 or Andy_Davis at commerce dot senate dot gov. The hearing will be webcast by the SCC. Location: Room 253, Russell Building.

10:00 AM. The House Financial Services Committee's (HFSC) Subcommittee on Financial Institutions will hold a hearing titled "Enhancing Data Security: The Regulators' Perspective". The witnesses will be Lydia Parnes (Director of the FTC's Bureau of Consumer Protection), Sandra Thompson (Deputy Director of the FDIC's Division of Supervision and Consumer Protection), and Robert Fenner (General Counsel of the National Credit Union Administration). See, notice. Location: Room 2128, Rayburn Building.

12:15 PM. The Federal Communications Bar Association's (FCBA) Young Lawyer's Committee (YLC) will host a brown bag lunch to hold elections. There will be no proxy voting. Voting is limited to current YLC members. All nominations must be e-mailed to Jason Friedrich or Pam Slipakoff by May 11. For more information, contact Jason Friedrich at jason dot friedrich at dbr dot com or 202 354-1340 or Pam Slipakoff at pamslip at yahoo at com or 202 418-7705. Location: Willkie Farr & Gallagher, 1875 K Street, NW, 2d Floor.

6:00 - 8:30 PM. Federal Communications Bar Association's (FCBA) Young Lawyers Committee will host an event titled "Happy Hour". For more information, contact Pam Slipakoff at pamslip at yahoo dot com. Location: Poste-Modern Brasserie, 555 8th Street, NW.

Day two of a three day event hosted by the Armed Forces Communications and Electronics Association (AFCEA) titled "TechNet International 2005: Network Centric Operation: Balancing Speed and Agility with Security". See, event web site and schedule. Location: Washington Convention Center.

Thursday, May 19

The House will meet at 10:00 AM for legislative business. The House may consider HR 2360, the "Department of Homeland Security Appropriations Act for FY 2006", and HR 1817 RH [79 pages in PDF] the "Department of Homeland Security Authorization Act for Fiscal Year 2006", which includes an amended version of the "Department of Homeland Security Cybersecurity Enhancement Act of 2005". See, Republican Whip Notice.

9:00 AM. The House Permanent Select Committee on Intelligence will hold a hearing on extension of sunsetting provisions of the USA PATRIOT Act pertaining to the Foreign Intelligence Surveillance Act (FISA). This hearing is open to the public. The speakers will be Viet Dinh (Georgetown University Law Center and former Assistant Attorney General for Legal Policy), Richard Seamon (University of Idaho School of Law), James Dempsey (Center for Democracy and Technology), Tim Edgar (American Civil Liberties Union). See, notice [PDF]. Location: Room 2167, Rayburn Building. (This is the House Transportation Committee's hearing room.)

9:30 AM. The Senate Judiciary Committee has scheduled an executive business meeting. The SJC frequently cancels meetings without notice. The SJC rarely follows its agenda. See, notice. Press contact: Blain Rethmeier (Specter) at 202 224-5225, David Carle (Leahy) at 202 224-4242 or Tracy Schmaler (Leahy) at 202 224-2154. Location: Room 226, Dirksen Building.

RESCHEDULED FROM MAY 12. 9:30 AM. The Federal Communications Commission (FCC) will hold a meeting. See, agenda [PDF]. The event will be webcast by the FCC. Location: FCC, 445 12th Street, SW, Room TW-C05 (Commission Meeting Room).

9:30 AM. The Senate Homeland Security and Governmental Affairs Committee will hold a hearing on several nominations, including that of Philip Perry to be General Counsel of the Department of Homeland Security (DHS). See, notice. Location: Room 562, Dirksen Building.

11:00 AM - 2:00 PM. The U.S. Patent and Trademark Office (USPTO) will hold its 9th annual Community Day. USPTO Director Jon Dudas will speak. See, notice. Location: USPTO Madison Building, 600 Dulany Street, Alexandria, VA.

2:00 PM. The Senate Banking Committee will hold a hearing on the nomination of Ben Bernanke to be a Member of the President's Council of Economic Advisers. Location: Room 538, Dirksen Building.

5:30 PM. The Discovery Institute and the Progress and Freedom Foundation (PFF) will host a book presentation. George Gilder will discuss his book titled The Silicon Eye: How a Silicon Valley Company Aims to Make All Current Computers, Cameras, and Cell Phones Obsolete [Amazon]. RSVP to 202 682-1201 or rsvp at dc dot discovery dot org. Location: 1015 15th St. NW, Suite 900.

TIME? The Department of Justice's (DOJ) Antitrust Division will give an award to Robert Bork for "his lifetime contributions to the teaching and enforcement of antitrust law and the development of antitrust policy". For more information, contact 202 514-2007. Location: DOJ Main, Great Hall.

Day three of a three day event hosted by the Armed Forces Communications and Electronics Association (AFCEA) titled "TechNet International 2005: Network Centric Operation: Balancing Speed and Agility with Security". See, event web site and schedule. Location: Washington Convention Center.

Friday, May 20

The House may meet at 9:00 AM for legislative business. See, Republican Whip Notice.

12:00 NOON - 2:00 PM. The Progress and Freedom Foundation (PFF) will host a panel discussion titled "The Future of The Broadcast Flag: Implications for Congress, the FCC and the DTV Transition". The speakers will be John Rogovin (former FCC General Counsel), Fritz Attaway (MPAA), James Burger (Dow Lohnes), Mike Godwin (Public Knowledge) and Lawrence Sidman (Paul Hastings). See, notice. Location: Room 1537, Longworth Building, Capitol Hill.

12:15 PM. Federal Communications Bar Association's (FCBA) Wireless Telecommunications Practice Committee will host a luncheon titled "Hot Topics in Wireless". The speakers will be Sam Feder (assistant to FCC Chairman Kevin Martin), John Branscome (assistant to FCC Commissioner Kathleen Abernathy), Paul Margie (assistant to FCC Commissioner Michael Copps), and Barry Ohlson (assistant to FCC Commissioner Jonathan Adelstein). The price to attend is $15.00. RSVP by 5:00 PM on Tuesday, May 17th to Location: Sidley Austin, 6th Floor conference room, 1501 K Street, NW.

Monday, May 23

2:00 PM. The Senate Finance Committee's Subcommittee on Taxation and IRS Oversight will hold a hearing titled "Blowing the Cover on the Stealth Tax: Exposing the Individual AMT". There are many pending bills to modify or repeal the Alternative Minimum Tax (AMT). See for example, HR 703, the "AMT Middle Class Fairness Act of 2005" and HR 1186, the "Alternative Minimum Tax Repeal Act of 2005". Location: Room 628, Dirksen Building.

Deadline to submit initial comments to the Federal Communications Commission (FCC) in response to its Further Notice of Proposed Rulemaking (FNPRM) regarding its intercarrier compensation system. This FNPRM is FCC 05-33 in CC Docket No. 01-92. The FCC adopted this FNPRM at its meeting of February 10, 2005, and released it on March 3, 2005. See, notice in the Federal Register, March 24, 2005, Vol. 70, No. 56, at Pages 15030 - 15044. See also, story titled "FCC Adopts FNPRM in Intercarrier Compensation Proceeding" in TLJ Daily E-Mail Alert No. 1,076, February 14, 2005.

Tuesday, May 24

10:00 AM - 2:00 PM. The Federal Communications Commission (FCC) will hold a pre-auction seminar for the Lower 700 MHz Band Auction (Auction No. 60). Pre-register by May 20. See, FCC notice [PDF]. Location: FCC, 445 12th Street, SW.

POSTPONED. The Federal Communications Bar Association's (FCBA) will host a seminar on enforcement.

Deadline to submit to the Federal Communications Commission (FCC) reply comments and oppositions to petitions to deny in its antitrust merger review proceeding (transfer of control of licenses) associated with the acquisition of MCI by Verizon. See, FCC Public Notice DA 05-762 in WC Docket No. 05-75.

Wednesday, May 25

TENTATIVE. 12:00 NOON. The Federal Communications Bar Association's (FCBA) State and Local Practice Committee will host a seminar regarding telecommunications industry mergers. For more information, contact Enrico (Erick) Soriano at esoriano at fw-law dot com, J.G. Harrington at jharringto at dlalaw dot com, or Brad Ramsay at jramsay at naruc dot org. Location:?

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