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COMMITTEE ON ENERGY AND COMMERCE

JOHN D. DINGELL, Michigan, Chairman

JAMES H. SCHEUER, New York
RICHARD L. OTTINGER, New York
HENRY A. WAXMAN, California
TIMOTHY E. WIRTH, Colorado
PHILIP R. SHARP, Indiana
JAMES J. FLORIO, New Jersey

EDWARD J. MARKEY, Massachusetts
THOMAS A. LUKEN, Ohio
DOUG WALGREN, Pennsylvania
ALBERT GORE, JR., Tennessee
BARBARA A. MIKULSKI, Maryland
AL SWIFT, Washington
MICKEY LELAND, Texas

RICHARD C. SHELBY, Alabama
CARDISS COLLINS, Illinois

MIKE SYNAR, Oklahoma

W. J. "BILLY" TAUZIN, Louisiana

RON WYDEN, Oregon

RALPH M. HALL, Texas

DENNIS E. ECKART, Ohio

WAYNE DOWDY, Mississippi

BILL RICHARDSON, New Mexico
JIM SLATTERY, Kansas

GERRY SIKORSKI, Minnesota

JOHN BRYANT, Texas

JIM BATES, California

JAMES T. BROYHILL, North Carolina
NORMAN F. LENT, New York
EDWARD R. MADIGAN, Illinois
CARLOS J. MOORHEAD, California
MATTHEW J. RINALDO, New Jersey
TOM CORCORAN, Illinois

WILLIAM E. DANNEMEYER, California
BOB WHITTAKER, Kansas
THOMAS J. TAUKE, Iowa
DON RITTER, Pennsylvania
DAN COATS, Indiana

THOMAS J. BLILEY, JR., Virginia
JACK FIELDS, Texas

MICHAEL G. OXLEY, Ohio

HOWARD C. NIELSON, Utah

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CONTENTS

Wigman, Victor, counsel, Apple Computer, Inc

Material submitted for the record by:

160

Article from Business Week, August 1, 1983, entitled "High-Tech
Entrepreneurs Create a Silicon Valley in Taiwan"

268

Article from the Mainichi Daily News (Japan) May 26, 1983, entitled
"Patent Infringement: Matsushita Admits Faults"

152

Customs Service, Seattle District, case files, submitted by Mr. Broy-
hill

229

Excerpts from manuals of various pirated instruments.

Patent supplemental declaration entitled "Optical Information Stor-
age Material and Method of Making It"

U.S. Customs Service: News articles from Gateway West, re product
pirating..

276, 280

144

342

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UNFAIR FOREIGN TRADE PRACTICES

MONDAY, JUNE 27, 1983

HOUSE OF REPRESENTATIVES,

COMMITTEE ON ENERGY AND COMMERCE,

SUBCOMMITTEE ON OVERSIGHT and INVESTIGATIONS,

Washington, D.C.

The subcommittee met, pursuant to notice, at 10 a.m., in room 2123, Rayburn House Office Building, Hon. John D. Dingell (chairman) presiding.

Mr. DINGELL. The subcommittee will come to order.

This morning, the Subcommittee on Oversight and Investigations initiates a series of hearings into the impact of illegal and unfair trade practices on interstate commerce.

These practices exacerbate the large and growing unfavorable balance of trade that has already claimed millions of American jobs, destituted American industry and caused enormous hardship to the people of different parts of this country. For example, nearly 120,000 steelworkers are currently out of work and more people are employed by McDonald's hamburgers than by United States Steel Corp.

In 1967, the U.S. balance of trade showed a surplus of $2.3 billion. Over the past 15 years, we have experienced only 3 years of surplus in this account. The last such year was 1975. By 1982, the U.S. balance of trade reached a record deficit of $42.7 billion. Moreover, last year this country imported significantly more manufactured goods than we exported.

The issue to be addressed in these hearings is the extent to which our declining international trade position is the consequence not of legitimate competitive factors, but of a total disregard of U.S. laws and regulations.

We, in the Congress, have heard much about the need for free trade. But unless free trade is accompanied by fair trade, and fairly conducted, the U.S. economy will continue to suffer from foreign imports that are subsidized, priced below home market levels or based on pirated technology or other criminal behavior.

The hearings continue the subcommittee's specific investigation into the crisis in the steel industry and our more general look into the issues and problems of reindustrialization.

At the outset, two fundamental questions arise: Is it feasible to attempt to rebuild the so-called smokestack industries, such as steel, if domestic manufacturers cannot be protected against unfair competition from dumped imports and unless there is a strong body of laws to protect American workers.

Is it realistic to count on continued high capital investment and resulting economic expansion in the high-technology sector if the

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fruits of the costly research spending are stolen by foreign competitors, with little or nothing in the way of enforcement or law to assure the protection of American jobs, American industry, and American investment?

Today's hearing will focus on the high technology issue and specifically the illegal acquisition of technology from American firms by their foreign competitors.

Subsequent hearings will examine piracy and additional cases of theft of proprietary information, dumping-predatory pricing practices and other illegal commercial behavior by foreign competitors. This will be a matter of special concern in the area of steel and electronics. The adequacy of U.S. laws and the effectiveness of U.S. Government agencies in dealing with these problems will also be examined in detail.

The two case studies to be presented today demonstrate that the theft of very valuable U.S. research impacts both large and small firms. The subcommittee will hear testimony from Mr. Herbert Hoffman, the prosecuting attorney in the case of attempted theft of highly proprietary design information and component parts of what was then IBM's newest commercial computer.

Hitachi, Ltd., a large Japanese manufacturer of IBM compatible computers, machines that can operate with the same software and peripheral equipment as that made and marketed by IBM, was caught in an FBI sting operation conducted from November 1981 through June 1982.

Hitachi pleaded guilty to conspiracy to transport stolen goods from California to Japan and received the maximum sentence under applicable U.S. law, a $10,000 fine. The contemptible character of this fine and its gross inadequacy was the subject of comment from the bench by the judge in the case.

Thus, while Hitachi paid undercover agents over $600,000 for technology that would undoubtedly have been worth millions of dollars to the firm, the company's fine was less than the cost of returning the nine Hitachi employees who are currently fugitives from U.S. justice to this country for trial, and was far less than the cost of the FBI and Justice Department efforts to conduct the undercover operation and prosecute the case.

Mr. Hoffman will narrate selected portions of the video tapes which will show that Hitachi executives of the highest level were clearly aware of the illegality of their actions.

The second case study involves patent infringement, currently a civil matter under U.S. law. Mr. Stanford Ovshinsky, president of Energy Conversion Devices, Inc., a small Troy, Mich., firm, will describe the experience of his company and others primarily engaged in research, whose patents on very valuable ideas were pirated by foreign competitors. In this case, the firm is Matsushita Electric, a multi-billion-dollar Japanese firm that sells products in the United States under the brand names Panasonic, Quasar, and Technics.

In both cases studies presented today, the central issue is the adequacy of U.S. law. There are also numerous enforcement questions which will be explored at future hearings. While we intend to focus on the implications for this country's economic survival, we must not overlook the national security implications of this problem, and those are indeed substantial.

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