THE CONGRESSIONAL INTERNATIONAL ANTI-PIRACY CAUCUS HOLDS A NEWS CONFERENCE TO UNVEIL THE COUNTRIES ON THE 2011 WATCH LIST

THE CONGRESSIONAL INTERNATIONAL ANTI-PIRACY CAUCUS HOLDS A NEWS CONFERENCE TO UNVEIL THE COUNTRIES ON THE 2011 WATCH LIST

MAY 26, 2011

SPEAKERS: SEN. SHELDON WHITEHOUSE, D-R.I.

SEN. ORRIN G. HATCH, R-UTAH

REP. ROBERT W. GOODLATTE, R-VA.

REP. ADAM B. SCHIFF, D-CALIF.

MITCH BAINWOL, CHAIRMAN AND CEO OF THE RECORDING INDUSTRY ASSOCIATION OF AMERICA

MICHAEL GALLAGHER, PRESIDENT AND CEO OF THE ENTERTAINMENT SOFTWARE ASSOCIATION

ROBERT HOLLEYMAN, PRESIDENT AND CEO OF THE BUSINESS SOFTWARE ALLIANCE

DAVIE ISRAELITE, PRESIDENT AND CEO OF THE NATIONAL MUSIC PUBLISHERS' ASSOCIATION

[*] GOODLATTE: Well, welcome everyone. We are very pleased that all of you have joined us this morning.

The advent of digital technology holds the promise of a golden age for movies, music, video games, software, books and other forms of entertainment. More new devices for watching, listening to, recording, sharing and saving copyrighted works have emerged in the last decade than in the previous 100 years and these technologies are a key to America's economic growth.

Disturbingly, however, an explosion in the piracy and the diminution and copyright protection have accompanied these exciting new advances in entertainment technology. Result is a virtual evisceration of the legitimate market for American entertainment in many foreign countries.

Each year copyright piracy of motion pictures, sound recordings, business and entertainment software, video games and books cost the U.S. economy billions of dollars in total output, cost hundreds of thousands of jobs and cost federal, state, and local governments billions in tax revenue.

In response to this growing problem, we formed the Congressional International Anti-Piracy Caucus in 2003. Our bicameral/bipartisan caucus has been working hard to support congressional efforts to deal with the problems of piracy and administrative efforts to obtain strong intellectual property protections in the context of international trade agreements.

Each spring our caucus releases its annual Priority Country Watch List, the countries that are of most concern and highest priority to our caucus. This is a list that our counterparts and foreign countries do not want to be on and it has been a successful too in getting the attention of the governments in the offending countries that the United States Congress has taken notice of their copyright piracy epidemics.

This year we have listed five high priority countries, and we would, I would say unveil, but I think there's been a poster outside and a rather large display up here, but I will quickly run through these five countries. Canada, China, Russia and Spain were highlighted in 2010 by the caucus and continue to lag in efforts to combat piracy. We remain deeply concerned by the inadequacy of intellectual property protections in these countries and are greatly disappointment in their failure to make meaningful progress during the last year. Ukraine was added to the list in recognition of its serious setbacks in its protection of American intellectual property and because of its status as a host for websites that profit from piracy.

Canada's copyright law remains inadequate including clear laws making online piracy illegal. Canada also has failed to prohibit both circumvention of technological copyright protection measures and the trafficking of circumvention devices whose purpose is to facilitate copyright piracy. Finally, adequate enforcement tools continue to be lacking.

While China has made some progress as a result of its special campaign against IPR infringement, we remain concerned by the very high level of piracy in China in both pirated hard goods and digital piracy. A number of Chinese laws and regulations exacerbate these piracy problems. In addition, market access impediments prevent American companies from releasing authorized versions of their works in a timely and effective manner which creates a vacuum that pirates readily fill.

Russia has been plagued for years by intellectual property enforcement challenges and many severe problems remain. This year we particularly call on the Russian government to address the continuing growth of online piracy. Digital piracy has become so prevalent that it threatens to shut out legitimate content online.

The level of Internet piracy in Spain continues to be of serious concern. We recognize positive steps taken by Spain; however, the wide availability of pirated content online in Spain continues to cause substantial damage to the American content industry. Spain still lacks the legal authorities necessary to combat peer-to-peer piracy and meaningful enforcement is also lacking.

Online piracy levels in Ukraine have reached a level that can no longer be ignored. Ukraine has a history as a regional source of pirated hard goods and in recent years Ukraine has increasingly become a hub for infringing online content both through peer-to-peer networks and hosted websites.

More information about our priority countries and our recommendations can be found in our full watch list document.

Now it is my pleasure to turn the microphone over to our senate colleague, Senator Sheldon Whitehouse. I must say that when I came in I thought maybe we were impeaching a judge because Congressman Schiff and I had the honor of appearing before a senate panel last year to deal with one federal judge and both Senator Hatch and Senator Whitehouse were members of that panel. So we're -- we're tough on crime here.

(LAUGHTER) Senator Whitehouse?

WHITEHOUSE: Thank you, Representative Goodlatte, and it is a pleasure to join you and Representative Schiff here as well as my extraordinary colleague, Senator Hatch.

I'm a little bit over-awed by the lawyering capacity that I've got behind me. We did have the chance to see Representative Goodlatte and Representative Schiff in action and some of the best lawyers from academia and elsewhere were present in the room, and I want to thank (inaudible) two members of Congress for coming over to do the lawyering. I'll be overmatched by these super-duper celebrity lawyer types and exactly the opposite was the -- was the case.

They really did a superb job as lawyers and, of course, Senator Hatch, before he came to the Senate was one -- not one of the great lawyers of Utah but one of the great lawyers of the country. So it's -- it's a good group here to be focused on the particular crime of online piracy and the countries that facilitate it more than others.

The five countries on our watch list today, Canada, China, Russia, Spain and Ukraine, particularly need to bring their laws and enforcement practices in line with international standards. Our trading partners, and they are our trading partners, have to stop looking the other way when American intellectual property is stolen in plain sight. They have to encourage fair economic competition rather than permitting online and physical piracy and counterfeiting to flourish within their borders.

If they don't take these steps, then our nation pays the price in reduced American jobs, in dampened American creativity, and through reductions in licenses in corporate profits through cuts into America's tax base. These harms are particularly significant during this economic downturn.

Our intellectual property industries are leaders among American exports and they support high-paying and high-quality jobs. Piracy and counterfeiting directly undermine those industries ability to continue to support those jobs and to create new ones. So we must protect our intellectual property industries and the jobs that they support.

Now, this International Anti-piracy Caucus watch list puts a spotlight on other countries that are failing to protect American intellectual property but we also need to do more in the United States to enforce our intellectual property laws.

As many of you likely know, Senator Hatch and I, and the other members of the Senate Judiciary Committee, today will mark up Chairmen Leahy's Protect IP Act. This bill, of which I'm proud to be an original co-sponsor, is an important step forward. It targets the worst types of rogue websites that clearly violate existing copyright and trademark law all while including important procedural protections and substantive limitations to ensure that it does not sweep overly broadly. It will protect American jobs. It will facilitate continued American leadership of the intellectual property industries. I look forward to working my distinguished colleague, Senator Hatch, on this bill going forward as well as with Representative Goodlatte and Representative Schiff as the House takes up this legislation or a comparable bill. Thanks very much.

Representative Goodlatte?

GOODLATTE: Thank you, Senator.

Senator Orrin Hatch has long been a champion of protecting and creating American jobs through fighting piracy and protecting intellectual property and, as a creator of copyrighted works himself, he knows that from which he speaks.

HATCH: Well, I'm really very honored to be here with my colleagues. These are the top people in the whole Congress of the United States with regard to copyright, regard to piracy, and doing something about it. I better add that last part.

(LAUGHTER)

The 2011 watch list report makes it clear that our ideas and ingenuity are increasingly at risk from piracy abroad. Unfortunately, this year's report doesn't look very good. It's not very good news by way of compliance. It's less than encouraging to read section after section of the report's country reviews that describe progress as "huge amounts of Internet piracy have gone unchecked, widespread piracy continues to damage American content industry or piracy continues to be of serious concern."

Now, the country watch list underscores the importance of this fight and the cooperation that we need to stop copyright piracy. We simply can't do it alone. Listen to these figures. It has been estimated that by 2015 the total global economic value of counterfeit and pirated products could be as much as 1.7 trillion dollars.

Now, these crimes cost hundreds of thousands of dollars -- excuse me, hundreds of thousands of jobs, lost tax revenues, and an additional cost of health services for deaths or injuries caused by fake products. Through international trade agreements and domestic laws the United States can make significant strides in combating online piracy and counterfeiting.

Today, as Senator Whitehouse has said, the Senate Judiciary Committee is prepared to report the Leahy/Hatch Protect IP Bill; I should say Leahy/Hatch/White House. I can't tell you what this man has meant to us on the judiciary committee. He's not only a great lawyer, he's a great human being and he's a great partner, and I just really appreciate his leadership in this area.

Now this bill itself is gonna be of great help in protecting online intellectual property rights. The Internet is not a lawless freeway for all where just anything goes. It cannot be forgotten that the Constitution protects both property and states expressly, both online and off. Maybe not so expressly but certainly (inaudible).

There's no doubt that the fight to protect intellectual property rights is a global right and fight. We must come together to combat this threat in a truly systematic and coordinated manner.

Both Senator Whitehouse and I are really honored to be here with these two leading luminaries from the House. Bob Goodlatte is as good as it gets on our side of the -- of the floor, and he's done a terrific job over there for years. Adam Schiff, I gotta say, is one of the best lawyers I've seen in the whole Congress the whole time I've been here which is only 35 years. But I have to say...

(LAUGHTER)

...I have to say that during that last impeachment he did one of the best jobs I've ever seen done by any lawyer on Capitol Hill.

So you have -- you have three really outstanding people here. And I see in the audience a lot of outstanding people who make a real difference in intellectual property issues and I'm just very proud to be here with all of you and I hope that we can really make some dents in this piracy.

And these bills, this bill that we intend to put out today, I think will make a very, very positive dent and hopefully will help us to get some of these problems under control. I just want to thank all of you for the work that you do.

GOODLATTE: Thank you, Senator Hatch.

Adam Schiff is, indeed, an outstanding lawyer, as I've gotten to very much appreciate over the last two years, but he is also a great champion for intellectual property representing major sectors of the motion picture industry and the recording industry, and I'm sure a lot of other great creative folks as well. And he has been a great partner not only in impeachment processes but also as the co-chair of the Congressional International Anti-Piracy Caucus.

Welcome, Representative Schiff.

SCHIFF: Well, Bob, thank you. And I want to thank my colleagues for their generous comments and -- and for their extraordinary work in protecting intellectual property which is so important to many of my constituents in southern California, the home of so many hardworking Americans who are employed by the motion picture and recording industries, post-production shops, and other IP dependent businesses.

The work product of my constituents is, unfortunately, stolen from them every day and it has a real world impact on our economy and our competitiveness. Now, these are some of the most successful industries we have, and I believe that the creative industries, the industries that are most dependent on intellectual property, are going to lead our economic growth in the decades to come. So it's crucial that we protect them at home and abroad from piracy.

Last year the Anti-Piracy Caucus highlighted websites dedicated to copyright infringement. Some were based overseas, others had operations in the United States, but all of them facilitated theft from the U.S. intellectual property in some way.

Digital piracy poses major challenges, and I'm very pleased that the Senate Judiciary Committee with the leadership of our two senators here is considering the Protect IP Act today, a bill that takes important steps in cracking down on IP theft. And I know that Congressman Goodlatte will lead a similar effort here in the House.

Last year I noted that pirate websites don't operate in a vacuum. They rely on payment processors to facilitate transactions, hosting companies and cyber lockers to host their files, search engines to drive them traffic, and today I'm gonna highlight the role of advertising.

Websites dedicated to piracy frequently feature advertisements from some of the best known companies in America. These companies didn't ask for their ads to appear on pirate websites but they do anyway. When someone sees the logo of a major U.S. company on a website, there's a natural tendency to think that it's legitimate. And sites that are gaining traffic by illegal copyrighted files are able to generate revenues by placing ads on their pages.

On the screen I'm going to show a few examples that illustrate what I'm talking about.

On the first slide, you will see streaming video of Harry Potter and the Deathly Hallows. Viewers can watch the full movie for free, but first they have to sit through a 15-second commercial for Lexus, which you can see on the screen.

On this slide, a website provides links to downloadable and streaming versions of the TV show Private Practice. On the bottom you can see a banner advertisement for American Express.

And on the next slide, a user can download Furious Five, the highest grossing movie of 2011, which has not yet been released on DVD. On the side there's a banner ad for Chase Bank.

This problem is so pervasive that we could show slides all day, but time is limited and I'll finish by displaying one last site which lets the user download Lady Gaga's single Born This Way. Lady Gaga's album is one of the most anticipated releases of the year and demand for it brought down Amazon servers when it went on sale earlier in the week.

Here it's available for free bracketed by advertisements allowing the user to sign up for Sprint cell phone service and download Google's Chrome web browser. I'm asking all advertisers to take a look at their online advertising policies and take all the steps they can to keep their brand off of illegal websites.

Earlier this year the Anti-Piracy Caucus wrote to the ad council alerting them that their PSAs are appearing on pirate sites and asking them to consider a PSA campaign related to piracy. In the coming days we, through the caucus, will be sending letters to more advertisers, some featured on the screens that we have shown, alerting them that their brand is appearing on pirate websites and asking them to work with us with the ad networks and with copyright holders to stop it from happening in the future.

With that, I turn it back to Congressman Goodlatte.

GOODLATTE: Thank you, Congressman Schiff.

We are very pleased and honored to be joined by several industry heads that represent major sectors of the intellectual property industry. Let me ask four of them to come forward and give some remarks and we'll begin with Mitch Bainwol, the Chairman and Chief Executive Officer of the Recording Industry Association of America.

WHITEHOUSE: Adam and I both have to leave. I'm going to judiciary to work on the bill we just talked about, and I don't have the mark up as well. So please -- there's no correlation between them coming up and us leaving.

(LAUGHTER)

BAINWOL: We're gonna get a complex here.

We just want to thank all the members who are behind IAPC for -- for their hard work and major focus on the problem of piracy. Their work is making a real difference.

The sale of music now is -- is essentially 50 percent digital and what that really means for us is how we deal with the Internet and what kind of place the Internet is -- is crucial to our ability to thrive in the future.

There are basically three prongs if we want to have a civilized Internet. One prong is legislation and the bill that is being marked up right now is -- is -- is an example of -- of establishing the rule of law on the Interned, and that's terrific. Another prong is -- is litigation and just last week we saw the culmination of -- of a four- year exercise against LimeWire. And the third prong really is -- is working with intermediaries on a -- on a voluntary basis.

During this event just last year, the members focused attention on -- on the role of the payment processors and as a result we've seen some very substantial progress and Victoria Espinel of IPEC picked it up, and the vice president got involved, the members on both sides of the isle in both chambers have focused attention on the issue, and -- and we are making real progress with that intermediary.

We're delighted today that the focus now is on another intermediary as the good corporate citizens who are advertised on these rogue -- rogue sites. So we think that it's another opportunity to -- to -- to engage and focus attention on -- on this real problem. These -- these brands, Lexus and -- and other's case are unwittingly, and I think unknowingly, really sustaining these rogue sites, and it's kind of contradictory and paradoxical because in effect what they're doing is -- is killing jobs in the U.S. and taking out the wage space. And it's that wage space and those jobs that really sustain their own brands.

So -- so they're also providing kind of a patina of legitimacy for these rogue sites and for that reason we think it's the right time to, kind of, close up the circle and work on -- on the advertisers. So we thank you for your attention on the advertisers and we look forward to working with the IAPC for they're making a big difference there.

Thank you.

GOODLATTE: Thank you, Mitch.

Michael Gallagher is the President and CEO of the Entertainment Software Association.

GALLAGHER: Thank you, Congressman Goodlatte. And on behalf of the 120,000 employees that are engaged in making the video game industry a real hub for growth and excitement, we thank you for your leadership and for the leadership of the caucus on this very, very important issue for all of the content industries, but in particular for -- for our industry.

Our -- our industry is, fortunately, in a state where we're growing. In the last couple of years we've seen $5 billion in revenue grow in a -- in -- in new digital formats and new digital applications of video game technologies and excitement that are provided to consumers. But at the same time, the other side of that coin is the 144 million confirmed downloads on -- on P-to-P sites of our leading members products that occurred in the last year, and these are confirmed downloads. It doesn't even touch on the one-click host sites where a similar volume of piracy is expected to be occurring.

So where that's coming from we know because we -- we've done the research on this. It's these countries that you see represented on this map. I want to draw attention to a few of them.

First, with Canada, you know, once again failed to pass very, very important copyright reform legislation last year and we're looking forward with the results of their election and the stability that that will provide over the next several years that they'll be able to get that done as a first order of business. And will have in Canada rules -- a rule of the road that respects U.S. innovation and U.S. job growth.

Just one example on that: There are devices which are manufactured and created and sold purely to bypass the DRM that our members put into the hardware. Things like the Nintendo DS and the marketplace for these devices which just bypass security. The only purpose of them is to do that so that games can be downloaded for free. Those devices are illegal in over 80 countries. They are not illegal in Canada and that needs to be fixed.

And an example of where that matters, where that leads to improvement in the marketplace is Australia. When we signed a free trade agreement with Australia they were -- prior to that they were advertised on television, widely available. Once the FTA was implemented we saw 27 percent growth in the first year after those devices were made illegal. So it's very, very important. It leads directly to results, directly to jobs, and directly to opportunity.

The second is China.

Congressman Goodlatte, I very much appreciated your clear summary of the issues that we face there. I want to add one more to the list as the console ban. There is a ban on the sale of consoles in China. To us it makes no sense from a trade perspective. Obviously it's a huge market opportunity if we could have that reversed and -- and we look forward to seeing that -- seeing progress on that.

I'll just close by saying that we also appreciate very much the movement forward on the Protect IP Act. We appreciate very much the leadership of Senator Whitehouse, Senator Hatch, Senator Leahy in moving that legislation forward. It's -- it's a very important thing for all of us here in the content community. So thank you again for your leadership.

GOODLATTE: Thank you.

Robert Holleyman is the President and CEO of the Business Software Alliance.

HOLLEYMAN: Congressman Goodlatte and your colleagues on the caucus, and my colleagues in the copyright industries, and all of us in the room, the consequences of the issues that are identified in this report and other countries that are havens of piracy to the U.S. economy cannot be overstated.

For the software industry, which is at the heart of the digital economy adding about $260 billion in value to the U.S. economy, we release every year a report on levels of piracy around the world. Our report for BSA was released two weeks ago. It showed that the value of new pirated software put into use in the marketplace last year grew by 14 percent over the prior year, reached $60 billion and just the five countries identified in this list are responsible for $13.4 billion in losses due to software piracy last year alone.

Those numbers are staggering, but I think it really helps to sort of drill down into a few of the biggest problems we face. The biggest problems we face are the fact that piracy rates in the emerging markets and the value of pirated software in the emerging markets has doubled over the last five years, and now emerging markets account for the majority of global losses to software piracy.

It could not be put in more stark terms than in the context of China. The International Trade Commission released a report last week showing that all forms of piracy in China resulted in losses to the U.S. economy of $100 billion and $2 billion jobs. For software alone, we look at this not only because of a huge loss to the software industry, but because software is a tool of production.

Any business in any sector in a high piracy market like China, where only 20 percent of the software is paid for, have an unfair competitive advantage in using illegal software to run their businesses and operations to compete unfairly against businesses in the United States where 80 percent of the software is paid for.

So this is an issue that has ripple effects not only for the copyright industries, for software industry, but broader to the U.S. economy, and we want to thank Congressman Goodlatte and his colleagues for calling attention to this persistent and serious problem.

Thank you.

GOODLATTE: Thank you, Robert. And, as a side, I was told earlier this year by the CEO of one major American software company that international piracy cost 50,000 to 60,000 American jobs with that company alone.

Finally, we are pleased to be joined by David Israelite, the President and CEO of the national Music Publishers Association.

ISRAELITE: Thank you, Mr. Chairman.

As the last speaker, I'll brief. And on behalf of America's songwriters and music publishers, we just want to thank the caucus and these leaders for their focus on these countries and in particular thank them for the online advertising problem.

Often these sites that traffic an illegal content can't operate unless they can offer our copyrighted material for free. And the reason why they can do that is because of the profit they make from the online advertising. So it's an enormous problem and we appreciate the leadership.

We know that when corporate interests have an economic interest or a reason to police and filter what they do, they're very successful. So, for example, when Google decides that it's bad for its business to have pornographic material on a YouTube site it takes efforts and it scrubs everything that you could possibly find on their site that would be bad for their business.

The opposite economic incentive is there, unfortunately, with regard to online advertising with these rogue sites. And so without the leadership of the caucus and these members, we really could not get these corporate interests to change their focus because of their economic incentive to do so. And so we very much appreciate the efforts on that and on the countries that are focused here today.

Thank you, very much.

GOODLATTE: Thank you, David.

I also want to acknowledge and mention several other important folks who are in attendance. We have administration representatives from the Office of Intellectual Property Enforcement Coordinator, the State Department, the Department of Justice, the Department of Commerce, and the United States Trade Representative. Thank you all for your dedicated efforts in this area as well.

And I must say that as chairman of the Intellectual Property Competition and the Internet subcommittee of the Judiciary Committee, we have ongoing challenges to make sure that we have ongoing -- ongoing improvements in our domestic efforts to combat piracy.

But as you heard today the U.S. is far and away the largest producer and exporter of the creative works that entertain and form and educate the world. In addition, the contribution of the American Copyright Industry to the strength of the overall American economy is very important.

A vibrant sector of the U.S. economy is at tremendous risk due to widespread piracy of U.S.-made movies, music, software, video games, books and other creative works. We must work with our international trade partners to secure the enactment of strong copyright laws and the vigilant enforcement of those laws and we'll be especially watching closely those countries that have been highlighted here today.

Thank you all for coming.

(APPLAUSE)

And any media representatives who wish to ask any questions are welcome to do so. None.

(LAUGHTER)

END