The Honorable Patrick Leahy

United States Senator
Vermont
May 25, 2005

Statement of Senator Patrick Leahy
Intellectual Property Subcommittee of the Committee on the Judiciary
Hearing on "Piracy of Intellectual Property"
May 25, 2005

More and more Americans today "think globally" as they enjoy the fruits of others' creativity and innovation. Unfortunately, those who profit by stealing intellectual property are doing exactly the same thing. The technological advances of the Digital Age have eliminated many of the barriers between buyers and sellers. Digital content, today, be it software or music or video, can be distributed almost instantly via the Internet, and optical discs can be reproduced almost perfectly in massive numbers. Thus, piracy has blossomed into a global problem as well, and because the United States is the world leader in intellectual property, we are - or at least we ought to be - acutely aware of its impact on U.S. industries and our citizens' own creativity and innovation.

Intellectual property is vital to the health and strength of the U.S. economy, and the estimated financial losses in a number of industries due to piracy are significant. According to the International Intellectual Property Alliance, in 2002 the various copyright industries accounted for 12 percent of the U.S. Gross Domestic Product (about $1.25 trillion) and employed nearly 11.5 million workers. As profitable as these industries are, the U.S. loses hundreds of billions of dollars to piracy every year. The Business Software Alliance estimates its losses at $30 billion in software sales annually, and the MPAA estimates that it loses $3 billion a year to piracy. The International Intellectual Property Alliance reports that the U.S. lost more than $13 billion in trade due to copyright piracy in 2003. And the FBI estimates that we lose $200-$250 billion annually to counterfeiting alone. These numbers reflect a crisis that demands immediate and meaningful solutions.

Much of our focus today will be on China and Russia, and for good reason. In 2000, when China entered the World Trade Organization, I expressed concerns about China's record on human rights and labor rights. When ultimately I voted in favor of establishing Permanent Normal Trade Relations, I noted that isolationist policies do not work. For several years now, we have been engaging China in attempts to improve its record on piracy. Instead of progress, however, the United States Trade Representative's 2005 Special 301 Report placed China on its Priority Watch List. The report notes that while China has expended significant efforts, we have not seen the meaningful reduction in infringement that China promised to attain: "China's inadequate IPR enforcement is resulting in infringement levels at 90 percent or above for virtually every form of intellectual property..." This has resulted in estimated losses of $2.5 billion to $3.8 billion annually in pirated copyrighted works.

Russia, too, is on USTR's Priority Watch List. The Special 301 report notes that while Russia has passed numerous laws designed to improve intellectual property protection, enhanced enforcement has not followed. The piracy rate for the recording industry is 66 percent; for the movie industry that rate is 80 percent. Among the many problems in Russia is the fact that of the pirated goods that are confiscated by law enforcement, 70 percent get returned to the market. Meaningful enforcement needs to involve more than a revolving door. The copyright industries estimate losses in Russia of $1.7 billion dollars.

I remain committed to working on solutions to these problems. Last week, Senator Cornyn and I introduced S. 1095, the Protecting American Goods and Services Act of 2005, which will criminalize possession of counterfeit goods with intent to traffic, close off loopholes under current law in the definition of "trafficking", and criminalize the importation and exportation of counterfeit goods. In 1996, I worked with Senator Hatch to pass the Anti-counterfeiting Consumer Protection Act, which addressed counterfeiting by amending several sections of our criminal and tariff codes.

Intellectual property theft is more than a problem faced by a few. It is a crisis with the potential to drastically impact our economy, and both Congress and this Administration must work to ensure that we are up to the task of fighting increasingly sophisticated piracy operations. To that end, I am pleased that we have two distinguished panels of witnesses today. My hope is that from these witnesses both in and out of government we will hear not only about the size of the problem but about solutions to this growing scourge. Does the United States Trade Representative have adequate tools to address this issue? Do we need to strengthen our domestic laws through legislation like the bill Senator Cornyn and I recently introduced? Must we engage more vigorously with China, and Russia, and other countries too lax in their IP enforcement?

I suspect the answers are all "yes," and I am eager to "think globally" with all of you about how to take the next steps toward improving the situation.