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members manufacture men's, women's, children's, and infants' outer- and innerwear.

Our interest in this legislation stems from the fact that a substantial portion of the counterfeit goods marketed in the United States is apparel carrying a counterfeit version of the well-known trademarks of several of our member companies. We support the position of the International Anti-Counterfeiting Coalition.

Commercial counterfeiting is not a new practice. What is new is the enormity of the problem that exists today. By any measurement counterfeiting has reached huge proportions, with its cost to consumers and legitimate manufacturers in the billions of dollars. The very scope of the problem demonstrates the inadequacy of existing sanctions and the need for H.R. 2447. Presently, commercial counterfeiting is a relatively low-risk, high return venture. Ominously, it has spread from "luxury” type items to health and safety related products.

Though individual companies have gone to great lengths at signficant expense to combat counterfeiting of their products, their efforts have simply not been enough under existing law and institutions. What is needed are sanctions that raise the risk of counterfeiting for both the domestic and international trafficker to a level that outweights its economic incentives.

H.R. 2447 would address this need. It would provide criminal penalties together with the forfeiture of goods for intentionally trafficking in counterfeit goods. The ability to bring and succeed in civil actions would be enhanced. Innocent parties, including retailers, would not be adversely impacted.

Commercial counterfeiting is illegal conduct involving the theft of property. There are federal criminal sanctions for counterfeiting patents and federal copyrights. Furthermore, the counterfeiting of record labels is a federal felony. The broader problem of general commercial counterfeiting should be treated no less equally.

The United States is the largest and most lucrative market for counterfeit goods. Estimates of the value of counterfeit articles sold in this country annually are in the billions of dollars. Strong measures are required to reduce the volume of counterfeit products which are sold in increasing amounts each year in the United States.

H.R. 2447 would create an effective deterrent to trademark counterfeiting by significantly increasing its risk and the cost of getting caught. AAMA urges its prompt passage by the Congress. Cordially,

ELLIS E. MEREDITH, President.

TRADEMARK COUNTERFEITING ACT OF 1983

THURSDAY, NOVEMBER 3, 1983

HOUSE OF REPRESENTATIVES,

SUBCOMMITTEE ON CRIME,
COMMITTEE ON THE JUDICIARY,

Washington, DC. The subcommittee met, pursuant to call, at 10:20 a.m., in room 2237, Rayburn House Office Building, Hon. William J. Hughes (chairman of the subcommittee) presiding.

Present: Representatives Hughes, Smith, Sawyer, and Sensenbrenner.

Staff present: Hayden W. Gregory, counsel; Virginia Sloan, assistant counsel; Eric Sterling, assistant counsel; Ed O'Connell, assistant counsel; Theresa Bourgeois, staff assistant; and Charlene Vanlier, associate counsel.

Mr. HUGHES. The Subcommittee on Crime will come to order.

The Chair has received a request to cover this hearing in whole or in part by television broadcast, radio broadcast, still photography or by other similar methods. In accordance with committee rule 5(a), permission will be granted, unless there is objection. Is there objection?

Hearing none, permission will be granted.

Today is the second hearing of the Subcommittee on Crime on H.R. 2447, the "Trademark Counterfeiting Act of 1983," introduced by the distinguished chairman of the full Committee on the Judiciary, Peter Rodino.

Two weeks ago, the subcommittee heard from representatives of businesses with an interest in this legislation: the International Anticounterfeiting Coalition, which primarily represents manufacturers, and which supports H.R. 2447 as drafted; the Association of General Merchandise Chains, representing retailers, and the American Free Trade Association, representing wholesalers, both of which have substantial reservations about the bill, at least as it is presently drafted.

There seems to be general consensus that, at least where trademark counterfeiting poses a risk to human life or safety, it is an extremely serious matter, where criminal penalties seem to be most appropriate. However, the subcommittee is aware that, in other circumstances, there is substantial controversy about the provisions of H.R. 2447.

That is why today's hearing will be so helpful to the subcommittee. Today we will hear from representatives of the governmental agencies with the most expertise in, and concern about, trademark counterfeiting: The Department of Justice, the Office of the Commissioner of Patents and Trademarks, and the Customs Service.

We will also hear from Robert T. Widham, president of Stanley Tools, Stanley Works, New Britain, CT.

At this time, I would like to introduce our first witness, Timothy J. Finn, Associate Deputy Attorney General in the Department of Justice.

From May 19, 1981 to March 1983, he was Deputy Assistant Attorney General; and from 1977 to 1981, he was in the private practice of law in the Washington, DC area.

Mr. Finn, if you will come forward and take your seat at the witness table.

I will recognize at this time, before we get into the testimony, the gentleman from Michigan, the ranking minority member.

Mr. SAWYER. Thank you, Mr. Chairman.

I join you in welcoming the witnesses. The subcommittee has heard testimony on the magnitude of the trademark counterfeiting problem and the need for legislation to counter it. It is a tremendous drain on trademark goods and a real pirating.

The witnesses today can assist us in the finer points of legislating in the crime and trademark areas. Their suggestions will help us to develop effective and equitable language.

I thank the chairman for arranging this hearing.
Mr. HUGHES. Thank you.

Welcome, Mr. Finn. We have your statement, which is quite comprehensive. Without objection, it will be made a part of the record, and we hope that you will proceed as you see fit. Welcome. TESTIMONY OF TIMOTHY J. FINN, ASSOCIATE DEPUTY ATTOR

NEY GENERAL, U.S. DEPARTMENT OF JUSTICE, ACCOMPANIED
BY JULIAN S. GREENSPUN, DEPUTY CHIEF FOR LITIGATION,
GENERAL LITIGATION AND CRIMINAL DIVISION, U.S. DEPART-
MENT OF JUSTICE
Mr. FINN. Thank you very much, Mr. Chairman.

I would like to note that I have with me today Julian Greenspun of the Criminal Division, who is my criminal law expert on this bill.

It is a pleasure to be here with you this morning to discuss H.R. 2447. I would like, if I could, to summarize my prepared statement, which is somewhat long to read in its entirety.

The Department of Justice strongly favors the purpose of this legislation, to provide greater protection for federally registered trademarks. As this subcommittee has already heard in its previous hearing, there is substantial evidence indicating that, in recent years, notwithstanding the existence of the Lanham Act, there has been a proliferation of counterfeiting activity involving a broad range of products.

It is important to note the harm caused by counterfeit products is not limited to economic loss to consumers and legitimate businesses. Counterfeit products, such as counterfeit medical supplies or auto parts, can also seriously endanger the health and safety of consumers.

The Department of Justice is persuaded by the apparent proliferation of counterfeit merchandise that the present remedies allowed by the Lanham Act are not sufficient to deal with the problem, and that more stringent civil and criminal laws are warranted.

There are, of course, already other criminal statutes that can in some circumstances be used by Federal prosecutors to attack commercial counterfeiting. These include the food and drug laws, customs laws, the mail and wire fraud statutes. The existing criminal laws are, however, more limited in their applicability and provide a less significant deterrent than the provisions of this bill.

The level of criminal fines that may be imposed under existing statutes are far too low to constitute a meaningful deterrent to highly profitable counterfeiting enterprises. The maximum fine available under the mail and wire fraud statutes, for instance, is only $1,000. The fines of $250,000 against individuals and $1 million against corporations allowed by this bill provide a much more realistic deterrent to counterfeiters and a greater incentive to Federal prosecutors to devote the resources needed to develop cases against counterfeiters.

I would also like to note that the current antifraud provisions in the Federal Code require proof of certain interstate jurisdictional predicates, such as use of the mail or the wires or interstate transportation, which are not constitutionally required for criminal legislation protecting federally created trademarks and which can prove to be a significant burden to the prosecutor in some cases.

Even with strengthened criminal prohibitions against counterfeiting, it must, of course, be recognized that protection of trademarks will continue to depend primarily on private enforcement actions. By strengthening the civil remedies for trademark counterfeiting, this bill should facilitate the private enforcement efforts needed to combat counterfeiting.

We believe that the mandatory treble damages provided by this bill are appropriate for the intentional criminal counterfeiting which this bill intends to address.

I would like now to turn briefly to our analysis of the bill's competitive effects. Because trademarks do play an important role in our free market competitive system, the purpose of this legislation, to protect trademarks, is strongly procompetitive.

We do have some concern, however, with the possibility that the threat of criminal penalties or treble damages presented by this legislation could deter some good-faith challenges to or uses of registered trademarks by a party other than the trademark owner.

As you know, the use of another's trademark is not, in every instance, necessarily illegal. A defense to a Lanham Act action to the use of another's trademark would exist in a number of different circumstances; for instance, if a trademark became generic, if the mark was abandoned, if the mark is descriptive of the goods and does not have a secondary meaning, or if it is used over a substantial period of time in a particular locale. There are competitive benefits to allowing legitimate challenges to trademarks and defenses against Lanham Act actions.

To assure that this bill does not penalize or discourage those who use a mark in a manner that is not legally unacceptable and which

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