The Dog & Pony Show
The Dog & Pony Show
The Dog & Pony Show

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    There are several types of hearings. Some bring together various thinkers with various points of view to raise issues and begin hashing out solutions. Others start with a predetermined conclusion and present “witnesses” for the sole purpose of validating that predetermined conclusion. This hearing was of the latter variety. If you weren't reading Alex's play by play tweets, here's a full rundown.

    The Opening Statements

    While Senators Benjamin Cardin (D-MD) and Sheldon Whitehouse (D-RI) sat in for no more than 10 minutes combined, presiding were Chairman Patrick Leahy (D-VT) and Senator Orrin Hatch (R-UT). Leahy and Hatch’s opening remarks were virtually interchangeable: IP is the fuel of creativity and drives the economy; the US loses tons of money and jobs as a result of IP violations; it’s a global problem; people’s lives and safety hang in the balance; and we therefore need stronger laws and more empowered enforcement. The witnesses were Loren Yager of the Government Accountability Office (GAO), Brian Monks from the Anti-Counterfeit Operations of Underwriters Laboratories, Mike Rose of Johnson & Johnson, and Jeffrey Thurnau, counsel of the Gates Corporation, a car parts manufacturer.

    Yager recommended greater leadership and permanence in our IP policy, so that it may survive the passing of any given presidential administration. Interestingly, he also pointed out the necessity for agencies to improve their data, even mentioning that the issue of health and safety, in particular, required more data. It passed by in a fleeting moment, but it was perhaps the closest thing to a critique within the confines of the hearing.

    Monks, representing the people who ensure standards and stamp “UL” on the back of every certified electronic device, reiterated the theme of consumer safety/threat to the economy, and foreboded that counterfeit fire extinguishers and surge protectors were among the 150 seizures made last year of items bearing counterfeit UL marks. Therefore, according to Monks, more resources and more enforcement are necessary.

    Rose argued for a unified national counterfeit standard, requiring an “e-pedigree,” for all shipments by suppliers and distributors. Furthermore, said Rose, there should be aggressive, international enforcement over the entire supply chain. He cited World Health Organization numbers that up to 8-10% of pharmaceuticals outside of the US are counterfeit, usually sold over the Internet by unauthorized sites.

    Thurnau claimed that 250,000 jobs have been lost to counterfeit auto parts. Mind you, “counterfeit” to Thurnau and his clients is not “counterfeit” according to TRIPs or any law dictionary. According to Thurnau, the biggest chunk of counterfeits comes not merely from the deceptive carrying of an unauthorized trademark, but from infringing “trade dress,” products that look similar to a product made by a trademark holder. We’re talking auto parts here. Most pipes or belts are likely to be near-commodity products and are bound to look relatively similar. The attack on “trade dressed” car parts is mostly an attack on unbranded, generic car parts, sold cheaply without a brand name mark-up.

    The Questions: Some that were Asked, Some that Weren’t

    This theme of “we MUST protect the health and safety of the American people” was probably the one, big theme of the hearing and it was repeated by everyone, ad nauseum. Of course we must protect the health and safety of the American people. Who can argue with that? While the testimony portion of the hearing was a lot of doom and gloom, to the extent that there was a question and answer portion, it highlighted, perhaps inadvertently, that the US is already doing a pretty darn good job of keeping us all safe.

    The occurrence of counterfeit pharmaceutical and health care items are a combined 2% of total counterfeit seizures (PDF), by value. By comparison, the bulk of seized counterfeit goods are shoes, clothes, and handbags, accounting for 43% of seizures. While these items may be trademark infringements, they are hardly worthy of health and safety alarm bells. The frequency of counterfeit pharmaceuticals and health care items are below one percent, according to WHO, and may be much lower than that, considering GAO’s data showing a 0.017% IP seizure rate in the US. The frequency of actual injuries due to such counterfeits are probably orders of magnitude lower.

    Speaking of injuries, it would have been nice if Monks was asked the following: Did any parts bearing unauthorized UL marks make their way into the marketplace? Was anyone harmed as a result of these parts? Wouldn’t it be important to know this before we commit more resources and increase enforcement measures?

    To what would the federal government be committing more resources? Counterfeiting, of course. But, as Rose’s use of the word “counterfeit” made clear, the word “counterfeit” is not the same to everyone. Rose’s meaning seemed to include parallel imports, since he vigorously railed against them, not even referring to them by name, instead calling them “diverted” goods. After Rose had finished, Leahy added in approval that death from a counterfeit good can damage a brand name and even cited “anti-freeze-laced toothpaste” in his opening remarks. This was a curious choice since something like this actually happened, except the tainted toothpaste that shared an ingredient with antifreeze was already illegal, it was discovered, it represented an infinitesimal percentage of all toothpaste shipments, it was pulled from the two store shelves that it reached, further shipments potentially containing the common ingredient were detained at the border, and no one was harmed! It seems to me that the system was working perfectly well, in that case.

    This raises the question of whether the goal of the hearing and legislation is truly consumer safety, which has been well-safeguarded in the US, or protecting businesses that deal in high-priced, branded goods from competition by businesses that deal in lower-priced, non-branded goods.

    And what of Thurnau’s claims of 250,000 jobs lost in the auto parts industry? What is surprising is the claim that, of the 750,000 US lost jobs due to counterfeit goods cited by Senator Leahy, one third of them occurred in the auto parts industry. Don’t ask how. It just is. Is it possible that corporations don’t want to compete against generic or aftermarket products, even though such generics are perfectly legal—even if they’re of lesser quality than branded products. Is it wrong to question whether these corporations are ringing the “counterfeit” alarm to raise the bogeyman of “consumer life and safety?” That was brought up during the House Judiciary hearing on counterfeit fashion and auto parts back in February and Jack Gillis from the Consumer Federation of America suggested that auto manufacturers were promoting protections to destroy competition in the repairs parts market. But those “controversial” questions weren’t asked at this hearing.

    Did We Learn Anything from this Hearing?

    So, what is the federal government supposed to do? Spend, say, $100bn to reduce the frequency of “counterfeit” health care items (including legitimate parallel imports) from, say, 0.01% to 0.001%? Hey, if it were presented this way, it would actually be an improvement over the current situation. At least under this scenario, the public would be able to conduct a cost-benefit analysis and decide what we think the given decision is worth. Are we really steamed up about camcorded movies? Yes? Well, are we still steamed up if we know it will cost us $10bn to bust 15% of the people selling them? Are we steamed up about the “poor quality” of “counterfeit” car parts (including cheap generics)? Yeah? Well, are we mad about the parts or are we mad about the car manufacturers’ supplying and testing procedures? Is there any proof that generic parts break down more frequently or in more dangerous ways than branded parts? Should we pay for corporations to maintain their brand equity and share prices, or should they? While we’re at it, should we disallow drug stores from making cheap, generic aspirin and every other over-the-counter medication, thereby forcing us to buy only more expensive, branded goods?

    This was my first congressional hearing. There are so many ways in which I wish it were a more serious inquiry and directly addressed what it claimed to address. The participants approached the inquiry as a foregone set of conclusions—counterfeiting is a massive problem, causing huge economic and employment casualties; we’re all at serious risk for our health and lives and untold increases in resources and enforcement are necessary to fix the situation. Each witness was present only to bolster those foregone conclusions. Very little data was presented in support of the conclusions. What data was there was not substantiated. But, fundamental to anything else, the word “counterfeit” was used loosely and expansively, incorporating goods such as parallel imports and generics—goods that are often perfectly legitimate. A clearer, more accurate definition of counterfeit—the unauthorized and deceptive use of another’s registered trademark—would have been more useful for isolating whatever problems exist and designing solutions for them.

    But, hey, thank God that this hearing at least didn’t touch copyright.