Peru, Venezuela, and all of Central America. At that point, Paraguayan authorities had done nothing to address this problem.

When Paraguay was named to the Special 301 watch list, Paraguayan authorities took notice. They discovered that this listing harmed their international image and their ability to attract foreign investment-particularly much needed U.S. investment. One of the emerging trends in today's business community is attention to intellectual property protection, even by companies whose intellectual property concerns are only ancillary to their business. The last decade's concern about nationalization of businesses is today's concern about the failure of governments to adequately and effectively protect intellectual property.

In this case, Special 301 was able to serve its function merely by highlighting a problem. Once placed in the spotlight, Paraguayan authorities moved relatively quickly and decisively to eliminate piracy. They have done such a good job in this effort, that I am pleased to confirm that last week I wrote to USTR requesting that Paraguay be removed from all Special 301 lists. This is a truly remarkable development, and I commend the government of Paraguay for its swift and effective action. I also want to take this opportunity to express my great hope that the government of Paraguay will continue to support anti-piracy operations in the future and thus prevent the reemergence of trade tensions between our countries.

On the other side of the coin, however, is Thailand, where years of bilateral discussions aimed at improving copyright enforcement have failed to produce any concrete results. This may be the result of Thai confidence in their ability to avoid sanctions based on larger geo-political relationships between Thailand and the United States or, simply, that the Thais did not believe that sanctions, even if imposed, was too high a price to pay for maintaining the pirates. Whatever the underlying reasons, efforts to address copyright piracy in Thailand have been spectacularly unsuccessful.

Once again, as we near the April 30th deadline for designation under Special 301, the Thais have been more vocal about their intentions regarding piracy. But these words are unmatched by any deeds. Not a single pirate has been convicted or sent to jail as a result of Thai enforcement actions. That is a sorry record that should not go unnoticed or unpunished.

Somewhere in between the success story of Paraguay and the failure in Thailand lies Taiwan and Korea. Both countries have long-standing reputations-well deserved-for hosting large scale piracy. Recent events seem to suggest that concern about possible Special 301 retaliatory measures have led to a new round of government expressions of concern.

Taiwan, the world's leading source of pirated compact discs, last year had taken a few halting steps to address this problem but has failed to follow through on these initiatives and was just a few months ago backsliding into non-enforcement. Events during the past few weeks including further raids and indictments against CD pirates, as well as constructive discussions to eliminate the reservations Taiwan placed on the AIT CCNAA bilateral treaty-appear to reflect an awareness that 301 retaliation will be announced and swiftly implemented if U.S. concerns are not addressed.

Korea, too, has finally recognized that it's failure to adequately and effectively protect intellectual property has dramatic consequences for its' development and trading relationships. After years of struggle in which U.S. record and film companies have lost hundreds of millions of dollars to piracy in Korea-a problem that the Korean government itself exacerbated by granting licenses to pirates—the government has finally announced a plan by which it appears ready to address the problem.

If Korea, currently on the priority watch list, is to avoid designation this year, it must amend some of the inadequate features of this plan, such as permitting continued unauthorized production of pirate tapes and CDs under existing ministry of culture licenses, and it must move quickly to implement this plan. We will be closely monitoring progress in Korea over the next few months, and we hope that we will be able to report that pirate tapes and CDs have become an endangered species. If I could change gears a little bit, I would like to talk about a country that poses the greatest threat to the U.S. recording industry and also represents perhaps the greatest potential, yet does not appear at the top of our list for priority designation. am speaking of China, a country in which Special 301 has already achieved a monumental, if currently only procedural, milestone. The milestone was the passage of China's first copyright law and a memorandum of understanding committing the Chinese to participation in an international framework for copyright protection.

I cite this great achievement as "procedural" because, in the absence of market access for U.S. companies and adequate enforcement, the copyright law is merely symbolic. As CD facilities have begun to proliferate in china, and entrepreneurial

Chinese seek to expand exports, we cannot afford to have this important legislation merely occupy space on a shelf. Non-transparent rules and regulations have kept U.S. recording companies out of this potentially huge market and pirates are left free to reap the rewards secured from the theft of our property. This year we must send the Chinese an unambiguous message: Access to our market is placed in jeopardy by their failure to allow us to compete in their market and by their failure to take effective action to curtail a growing piracy problem. China should be upgraded from the watch list to the priority watch list and the market access talks must produce concrete results for U.S. companies.

Time does not permit me to detail our concerns elsewhere around the globe, but I will make a few general observations. First, today's problems generally reflect the failure of governments to commit to enforcement of laws already on the books rather than an unwillingness to pass legislation. As a consequence, more and more of our attention under Special 301 must be focused on enforcement policies that actually shut down the pirates.

Second, that the problems faced by U.S. record companies are more likely to result from discriminatory laws and practices than inadequate substantive legislation. The developing pattern within the EC suggests that trading blocs and individual countries will maximize the opportunities under the existing international legal framework to discriminate against foreign copyright owners-read that to mean the U.S. We are engaged in negotiations to create a new international framework in both the GATT and WIPO that will hopefully bear fruit. If we do not succeed in these multilateral endeavors, we will need to continue to pursue bilateral measures with even greater intensity and resolve.

My final general observation is that one should be wary of general observations. As we speak, the legislation of many of our trading partners, as well as that of the United States itself, is quickly being outdistanced by advances in technology, or is otherwise inadequate. Many countries have yet to expand the scope of their laws to give record companies the ability to prohibit rental. And a fifty year term of protection, while generally accepted, has not been universally adopted.

Our concerns to date have focussed on our ability to secure access to a market and to prohibit others from manufacturing pirate copies of our sound recordings. Developments in digital transmission systems in which CD quality sound can be delivered directly to a retailer or consumers without the need for copies threatens to transform the market and to completely undermine the copyright system unless record companies have the legal and practical ability to exercise control over such activity. Thus, we need to remain constantly vigilant. Today, what appears to be adequate standards may be tomorrow's invitations to piracy.

With the continued support of this subcommittee and USTR, Special 301 can be the instrument for denying such invitations to those pirate trading partners.

RESPONSES OF MR. BERMAN TO QUESTIONS SUBMITTED BY SENATOR GRASSLEY Question No. 1. If you had to list the top two or three most egregious countries that violate our intellectual property rights, who would they be, and what action would you recommend the United States government pursue?

Answer. Over the course of the past few years, the most consistent offenders of U.S. intellectual property rights, or at least those where we and the U.S. government have focused the greatest amount of attention, have been Korea, Taiwan and Thailand.

Fortunately, the Administration's message that piracy will not be tolerated has had a significant impact even on these countries, and I would not recommend any course of action other than that announced by Ambassador Kantor under Special 301-out of cycle reviews for Korea and Taiwan, and designation of Thailand with the immediate imposition of sanctions if they fail to live up to commitments or relent in their recently found anti-piracy vigor.

Question No. 4. Since 1989, Japan has been on the "Special 301" "Watch List" from which the United States seeks stronger intellectual property protection. I would like to hear from each of you as to what you perceive is Japan's most flagrant violation and what if any action this administration should be contemplating?

Answer. The greatest existing limitation of Japan's copyright law is the failure to extend to copyright owners of sound recordings the exclusive right to control the rental of their sound recordings. Until legislation passed in 1991 extending to U.S. copyright owners the same limited ability to control rental as Japan had granted to its own nationals since 1984, Japanese law completely discriminated against U.S. record companies. Fortunately, the 1991 copyright amendments, passed in the face of strong trade pressure from the U.S. Administration, resolved the discriminatory element of Japanese law. The overall inadequacies, however, remain.

Japanese copyright law continues to discriminate against U.S. record companies and performers by denying us the right to get paid when our sound recordings are broadcast. This discriminatory behavior unfortunately does not conflict with Japan's existing international legal obligations, and the RIAA, supported by the Administration, has been seeking to create new international obligations to bar discriminatory conduct.

Question No. 6. I would like to ask a question as it relates to the NAFTA. As we all know, Mexico has made strides in resolving many of its intellectual property concerns and the NAFTA will resolve additional U.S. concerns if implemented. I would like each of you to tell me your position on the NAFTA generally and specifically how you envision the NAFTA strengthening the intellectual property rights issue? Answer. The NAFTA text on intellectual property is satisfactory and RIAA supports the intellectual property text specifically and NAFTA generally. We remain extremely troubled, however, by overall lack of enforcement and correspondingly alarming piracy levels. Reports from the region suggest that two pirate tapes are sold for every legitimate one, and that the total volume of pirate tapes sold annually may approach 100 million units! Mexican authorities have begun to address this rampant piracy problem, but little or no change in the market has been effected. This gives us pause in enthusiastically supporting NAFTA, and consideration of Mexico's willingness and ability to enforce its laws has great relevance in a determination of likely benefits that would flow from NAFTA.

Question No. 7. Russia is the largest and wealthiest republic of the former Soviet Union. While there are no significant legal barriers to trade with Russia, there are a number of factors that discourage trade. The Russian government has shown considerable interest in formulating laws to bring the country up to world standards in the area of intellectual property. One of the weak point's with Russia is its inability to enforce existing and contemplated IPR laws. What if anything should the United States be doing to help them resolve this problem? Or should we be even contemplating trading with the Russians?

Answer. I believe unequivocally that we should strengthen the trading relationship between the U.S. and Russia, and that assistance, both technical and financial, should be made available to promote market reform and the development of a stable democracy. This includes, for the purposes of your question, such assistance as may be required to enforce the law. Market opening initiatives such as copyright reform in the absence of effective enforcement are merely symbolic. Where the U.S. targets aid for Russia, we should provide that funds be directed to facilitate the enforcement of copyright laws. Such assistance is mutually beneficial, and the costs quickly recouped through the sale of U.S. copyrighted materials and the consequent contribution to balance of trade payments.

PREPARED STATEMENT OF JOHN J. CUMMINS

Mr. Chairman: The U.S. Trademark Association (USTA) appreciates the opportunity to appear before your committee to comment on:

• Major problems trademark owners encounter abroad with respect to the protection of their marks;

• The "Special 301" process; and,

• The most current pressing trademark owner concerns today.

My name is John J. Cummins. I presently serve as Chairman of the Board of Directors and President of USTA. I am employed by the Procter & Gamble Company as Corporation Counsel and Assistant Secretary. As with all USTA officers, board members and committee chairpersons, I serve on a voluntary basis.

USTA is a 115 year old not-for-profit worldwide membership organization. The Association's principal goal is the preservation and promotion of trademarks as essential instruments of international commerce. Since its founding in 1878, its membership has grown to over 2500 corporations, package design firms, law firms and professional associations from across the United States and 90 countries. Although eighty-five of the Fortune 100 companies are USTA members, we also welcome new and small businesses. USTA crosses all industry lines, spanning a broad range of manufacturing, retail and service operations.

The United Nations formally recognized USTA in 1979 as a non-governmental organization. In this capacity, we work closely with the World Intellectual Property Organization (WIPO). USTA also was involved in the intellectual property (TRIPS) negotiations of the Uruguay Round of the GATT negotiations and the trademarkrelated aspects of the proposed North American Free Trade Agreement (NAFTA).

Additionally, we have worked closely with a variety of governmental entities to reduce trademark-related non-tariff barriers to trade that exist around the world.

By filing a "Special 301" petition with the U.S. Trade Representative (USTR) on February 12, USTA has indicated its commitment to create and implement a worldwide program that will raise the profile of trademark protection issues to provide the same level of trade negotiation priority that copyright and patent interests have enjoyed. Our presence here further indicates our resolve.

I. MAJOR PROBLEMS TRADEMARK OWNERS ENCOUNTER ABROAD WITH RESPECT TO THE PROTECTION OF THEIR MARKS

Trademarks are words, names and logos which enable trademark owners (and thus consumers) to distinguish their goods or services from those of their competitors. In other words, trademarks serve as identifiers and symbols. Trademarks that are "adequately and effectively" protected under a jurisdiction's laws provide assurance of consistent standards and values to both trademark owners and consumers alike. Consequently, any reduction of a trademark's utility will reflect a corresponding decline in its practical meaning and monetary value. This in turn, reduces our nation's economic potency.

Contrary to popular belief, a trademark that is registered and established in the marketplace does not become fixed or invulnerable, generating profits for its owner as long as it actively uses the mark. If left unprotected, the value of a trademark is certain to descend rapidly. Consequently, unprotected marks are subject to myriad dangers, of which the most pernicious is counterfeiting the use of a mark identical or substantially indistinguishable from a registered mark.

Trademark counterfeiting affects more than just the trademark owner's ability to distinguish and sell his or her product. Counterfeiting undermines consumer confidence in the marketplace, threatens consumer health and safety, and controverts the principles of free and fair competition. Moreover, it injures the international reputations of the countries in which counterfeiting flourishes.

Ironically, counterfeiting is proof of the value of trademarks. No one copies something having no value. However, because counterfeiting is such a surreptitious activity, it is almost impossible to accurately calculate its total costs to trademark owners. Nevertheless, it is commonly estimated that the damage caused by counterfeiting causes trademark owners to lose over $1 billion of business annually in the U.S. alone. Outside of this country, trademark and service mark owners estimate that they lose $12-$15 billion annually due to trademark piracy. USTA has embarked upon an extensive project to assemble more precise data in this area and expects to be able to offer more detailed industry-by-industry composite global data in the time ahead.

While most nations possess adequate trademark registration laws, many lesser developed countries routinely fail to enforce those laws. This leads to rampant trademark infringement, particularly of the trademarks of U.S. Companies.

II. THE "SPECIAL 301" PROCESS

USTA and "Special 301" generally

USTA is a recent participant in the "Special 301" arena. Thus, with the exceptions of Taiwan and the Republic of Korea, it is difficult for the Association to comment fully on "Special 301's" forthcoming benefits to trademark owners at present. Nonetheless, we can make several observations, both procedural and substantive, with respect to trademarks in response to the Committee's inquiry.

First, our submission to the USTR under the "Special 301" provisions of the 1988 Omnibus Trade and Competitiveness Act should dramatically increase the attention of offending nations to the importance we attach to the protection of trademarks. Second, the filing submissions will require the USTR to identify and investigate foreign "priority" nations that deny “adequate and effective" trademark protection and "fair and equitable" market access. Third, the submission will grant the agency authority to recommend trade sanctions for those countries which engage in unjustified or discriminatory trade practices relating to the protection of marks. Lastly, the submission should spur nations that have not acted in a spirit of cooperation to bolster their efforts to better protect marks and streamline their registration processes. USTA "Special 301” Submission

As noted, in February, USTA made its initial "Special 301” filing with the USTR. The Association provided specific information on eight countries that deny "adequate and effective" protection to trademark owners and/or deny "fair and equitable market access" to persons, corporations and other interests that rely upon trademark protection as a cornerstone of their business.

USTA has requested that the USTR:

• Maintain current 306 monitoring of the Peoples' Republic of China (PRC), Taiwan and Thailand;

• Place The Republic of Korea, Brazil, Spain and Indonesia on the priority watch list; and,

• Place Mexico on the "watch list."

Special comment was made in regard to the trademark counterfeiting problems in Italy as well.

The above named nations have serious trademark protection/trade barrier problems in many or most of the following areas:

• slow or cumbersome judicial procedures;

• arbitrary judicial decisions;

• ineffective civil remedies;

• ineffective criminal remedies;

• trafficking in counterfeit marks;

• non-national treatment;

• uncooperative and/or uninformed police;

• unsympathetic or uninformed judges; and,

inability to sue for infringement.

The ranking of the countries varies for different industries/companies. However, in terms of counterfeiting and overall enforcement problems, the survey reveals that the lack of cooperation by Taiwan, the Republic of Korea, Indonesia, Brazil and Thailand is particularly egregious. Not surprisingly, these same countries also were at the top of the 1988 list of the International Trade Commission's (ITCs) survey. Unfortunately, since that time, little progress has been made.

III. MOST PRESSING TRADEMARK INDUSTRY CASES TODAY

The specific concerns and recommendations of USTA are contained in the filing. In summary, they are as follows:

Peoples' Republic of China (PRC)

The PRC is a major center of piracy of trademarked goods. Ironically, it is also the beneficiary of international trade for many trademark owners who "source" their product manufacturing from the PRC. The PRC recently drafted trademark legislation and USTA has commented extensively on the PRC text. These comments have been forwarded to the PRC by the Association. Nevertheless, USTA continues to have grave concerns as to whether the necessary intellectual property protection mechanisms will be created for the legislation to be effective.

USTA strongly recommends that PRC administrative, judicial and customs staffing, procedures be given close scrutiny to ensure that long delays, under-staffing and insufficient resources are addressed. Close monitoring of goods being exported as well as those being distributed throughout the PRC is certainly required as are strong sanctions for those who violate the law.

Taiwan

For many years, Taiwan has held the reputation of being an "epicenter" of piracy. USTA believes that, despite some indications of improvement of its trademark policies and procedures. A great deal of work remains to be done in implementing those intentions. In this respect, the Association refers to the extensive IACC filing on Taiwan which contains both important “case histories" and details that which illustrate the frustrations and impediments trademark owners have faced in Taiwan over an extended period of time. As that document illustrates, continuous and unrelenting trade pressure and/or incentives are needed in order to obtain policy changes and, perhaps even more importantly, to ensure that Taiwan actually complies with the extensive promises and representations it has made.

Taiwan presents the U.S. government with a "test" of the overall effectiveness of the "Special 301" process. Ten years of arduous negotiations and attempts to implement treaties, laws and viable mechanisms for enforcement is proving merely to be a triumph of "process" over "performance." USTA encourages strong measures to accelerate this protracted process.

USTA has expressed its views on several priority points in respect to the Taiwan law and its implementation. Specifically, USTA recommends the following:

• Examinations based on the "overall commercial impression" of the elements of the trademark viewed as an entirety. The current practice has been to separate a mark into elements and examine each element as if it typically was perceived by consumers as separate entities. This seemingly-innocuous practice has fore