Prepared Statement of The Honorable Cliff Stearns

Product Counterfeiting: How Fakes Are Undermining U.S. Jobs, Innovation, and Consumer Safety

Subcommittee on Commerce, Trade, and Consumer Protection
June 15, 2005

Good afternoon. Today, counterfeiters have become just another competitor for legitimate U.S. businesses in the high-stakes world of global commerce, and remain busy in every industry and in every region of the world developing new ways to exploit and steal the hard work, creativity, and knowledge of others. Unfortunately, in many areas of the world, the traditional practice of branding goods and registering trademarks no longer adequately protects the brand value and know-how associated with distinctive and innovative products from thieves and criminal organizations. As we will hear from the distinguished panel before us today, global counterfeiting is not just limited to fake high-end watches, movie DVDs, and designer apparel, it is a multi-billion dollar criminal enterprise that has infiltrated virtually every sector of the U.S. economy - targeting our industrial know-how in cars, computers, medicines, aircraft parts, or just about anything.

What's even more disturbing is that counterfeiting thieves are no longer content with undercutting inexpensive, labor-intensive products with cheaper fakes; they are going after high-value products that represent a large part of current U.S. intellectual capital and know-how. According to the World Customs Organization and Interpol, product counterfeiting and copyright piracy have increased from a $5.5 billion dollar a year enterprise in 1982 to a one that costs almost $600 billion annually. In the U.S., product counterfeiting alone costs U.S. business $200-$250 billion annually, according to the FBI.

If the numbers don't alarm you, be aware that counterfeiting is not a victimless crime. In terms of U.S. jobs, those sterile economic statistics translate into layoffs and plant closings at home. U.S. Customs and Border Protection calculate that the resulting loss in revenue from counterfeiting translates into the loss of more than 750,000 U.S. jobs. Companies, both large and small, are faced with sharply reduced revenue and lost profits when counterfeiters strike. This, in turn, translates into less capital to invest in expansion, research and development, and innovation. In the auto sector alone, the Federal Trade Commission estimated that by eliminating fakes, the U.S. auto industry could create at least 200,000 more auto-related jobs, all at a time when many of these jobs are being lost. Our concern today is about how fakes are robbing our U.S. companies of the hard-earned intellectual property and ingenuity that they own and need to compete globally.

Consumer safety is another area that greatly concerns the Committee. Counterfeiters have attempted to sell fake baby formula, counterfeit pharmaceuticals, and phony aircraft parts to turn a fast buck. Those are frightening revelations that should alarm all of us. The World Health Organization (WHO) figures that over ten percent of the world's medicines are counterfeit, with percentages reaching as high as 60% in the developing world. There also have been product recalls involving consumer products like shampoo and life-style pharmaceuticals. Increased technological capability has made counterfeiters even more brazen to push their way into lucrative, intellectual property-driven industries like healthcare goods and pharmaceuticals. Deaths and injuries are inevitable if the current rate of counterfeiting continues. The auto industry is starting to see more critical safety components like brake pads and windshields being counterfeited, and there are even reports from the Federal Aviation Administration (FAA) that over 2% of all aircraft replacement parts are counterfeited every year, with some linked to fatal crashes.

This is a massive and pervasive problem that demands a massive and global response. I applaud the Administration for action like the STOP! (Strategy Targeting Organized Piracy) Initiative and for aggressively using the USTR Special 301 Report to call out countries that should be doing better. According to the U.S. Customs Service, over 60% of seized counterfeit goods last year originated from China. As we learned last week, the Administration is taking China to task for its lack of Intellectual Property Rights (IPR) enforcement, placing it on the USTR Special 301 Priority Watch List. But before we direct all the blame, we should also understand that counterfeiting is clearly a global phenomenon not just a Chinese one. Counterfeiting hot spots in Eastern Europe, South America, and even in the U.S. are just as capable of inflicting serious damage on U.S. economy as any other region. Unfortunately, with today's advances in computer technology, global supply chain management, and the Internet, even the smallest counterfeiting operation based anywhere in the world can be a major problem for our companies.

As I said at last week's hearing on the U.S.-China Joint Commission on Commerce and Trade (JCCT), Intellectual Property Rights (IPR) are critical to the U.S. economy and its engine of innovation. The fortress around our ingenuity, technological leadership, and creativity is the rule of law. And as we will hear today, it is time to ensure that our laws are as robust as they can be, they are aggressively enforced, and that all relevant parties be required to live up to our international agreements regarding IPR, especially obligations under the WTO and the TRIPs (Trade-Related Aspects of Intellectual Property) agreement.

Again, I would like to welcome our distinguished panel of witnesses here today. I would like to especially welcome Mr. David Pearl of Uniweld Inc., a family-owned manufacturing company based in Fort Lauderdale, Florida for joining us today. Your story gives a voice to all the U.S. small businesses that are also feeling the brunt of this global scourge. I also would like to thank the U.S. General Accounting Office for the samples of counterfeit products they provided us for this hearing. We look forward to the important testimony from all of our witnesses. Thank you.

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