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109th Congress                                                   Report
                        HOUSE OF REPRESENTATIVES
 1st Session                                                     109-68

======================================================================
 
             STOP COUNTERFEITING IN MANUFACTURED GOODS ACT

                                _______
                                

  May 3, 2005.--Committed to the Committee of the Whole House on the 
              State of the Union and ordered to be printed

                                _______
                                

 Mr. Sensenbrenner, from the Committee on the Judiciary, submitted the 
                               following

                              R E P O R T

                         [To accompany H.R. 32]

      [Including cost estimate of the Congressional Budget Office]

  The Committee on the Judiciary, to whom was referred the bill 
(H.R. 32) to amend title 18, United States Code, to provide 
criminal penalties for trafficking in counterfeit marks, having 
considered the same, report favorably thereon with an amendment 
and recommend that the bill as amended do pass.

                                CONTENTS

                                                                   Page
The Amendment....................................................     1
Purpose and Summary..............................................     3
Background and Need for the Legislation..........................     3
Hearings.........................................................     5
Committee Consideration..........................................     5
Vote of the Committee............................................     5
Committee Oversight Findings.....................................     5
New Budget Authority and Tax Expenditures........................     5
Congressional Budget Office Cost Estimate........................     5
Performance Goals and Objectives.................................     6
Constitutional Authority Statement...............................     7
Section-by-Section Analysis and Discussion.......................     7
Changes in Existing Law Made by the Bill, as Reported............     9
Markup Transcript................................................    11

                             The Amendment

  The amendment is as follows:
  Strike all after the enacting clause and insert the 
following:

SECTION 1. SHORT TITLE; FINDINGS.

    (a) Short Title.--This Act may be cited as the ``Stop 
Counterfeiting in Manufactured Goods Act''.
    (b) Findings.--The Congress finds that--
            (1) the United States economy is losing millions of dollars 
        in tax revenue and tens of thousands of jobs because of the 
        manufacture, distribution, and sale of counterfeit goods;
            (2) the Bureau of Customs and Border Protection estimates 
        that counterfeiting costs the United States $200 billion 
        annually;
            (3) counterfeit automobile parts, including brake pads, 
        cost the auto industry alone billions of dollars in lost sales 
        each year;
            (4) counterfeit products have invaded numerous industries 
        including those producing auto parts, electrical appliances, 
        medicines, tools, toys, office equipment, clothing, and many 
        other products;
            (5) ties have been established between counterfeiting and 
        terrorist organizations that use the sale of counterfeit goods 
        to raise and launder money;
            (6) ongoing counterfeiting of manufactured goods poses a 
        widespread threat to public health and safety; and
            (7) strong domestic criminal remedies against 
        counterfeiting will permit the United States to seek stronger 
        anticounterfeiting provisions in bilateral and international 
        agreements with trading partners.

SEC. 2. TRAFFICKING IN COUNTERFEIT MARKS.

    Section 2320 of title 18, United States Code, is amended as 
follows:
            (1) Subsection (a) is amended by inserting after ``such 
        goods or services'' the following: ``, or intentionally 
        traffics or attempts to traffic in labels, patches, stickers, 
        wrappers, badges, emblems, medallions, charms, boxes, 
        containers, cans, cases, hangtags, documentation, or packaging 
        of any type or nature, knowing that a counterfeit mark has been 
        applied thereto, the use of which is likely to cause confusion, 
        to cause mistake, or to deceive,''.
            (2) Subsection (b) is amended to read as follows:
    ``(b)(1) Upon a determination by a preponderance of the evidence 
that any article in the possession of a defendant in a prosecution 
under this section bears or consists of a counterfeit mark, the court 
shall order the forfeiture and destruction of such article, regardless 
of whether the defendant is convicted of an offense under this section.
    ``(2) The court, in imposing a sentence upon a person convicted of 
a violation of this section, or upon a person who pleads guilty or nolo 
contendre to a violation of this section, shall order, in addition to 
any other sentence imposed, that the person forfeit to the United 
States--
            ``(A) any property constituting or derived from any 
        proceeds the person obtained, directly or indirectly, as the 
        result of such violation, and
            ``(B) any of the person's property used, or intended to be 
        used, in any manner or part, to commit, facilitate, aid, or 
        abet the commission of such violation, if the court in its 
        discretion so determines, taking into account the nature, 
        scope, and proportionality of the use of the property in the 
        offense.
    ``(3) When a person is convicted of an offense under this section, 
or pleads guilty or nolo contendre to an offense under this section, 
the court, pursuant to sections 3556, 3663A, and 3664, shall order the 
person to pay restitution to the owner of the mark and any other victim 
of the offense as an offense against property referred to in section 
3663A(c)(1)(A)(ii).
    ``(4) The term `victim', as used in paragraph (3), has the meaning 
given that term in section 3663A(a)(2).''.
            (3) Subsection (e)(1) is amended--
                    (A) by striking subparagraph (A) and inserting the 
                following:
                    ``(A) a spurious mark--
                            ``(i) that is used in connection with 
                        trafficking in any goods, services, labels, 
                        patches, stickers, wrappers, badges, emblems, 
                        medallions, charms, boxes, containers, cans, 
                        cases, hangtags, documentation, or packaging of 
                        any type or nature;
                            ``(ii) that is identical with, or 
                        substantially indistinguishable from, a mark 
                        registered on the principal register in the 
                        United States Patent and Trademark Office and 
                        in use, whether or not the defendant knew such 
                        mark was so registered;
                            ``(iii) that is applied to or used in 
                        connection with the goods or services for which 
                        the mark is registered with the United States 
                        Patent and Trademark Office, or is applied to 
                        or consists of a label, patch, sticker, 
                        wrapper, badge, emblem, medallion, charm, box, 
                        container, can, case, hangtag, documentation, 
                        or packaging of any type or nature that is 
                        capable of being applied to or used in 
                        connection with the goods or services for which 
                        the mark is registered in the United States 
                        Patent and Trademark Office; and
                            ``(iv) the use of which is likely to cause 
                        confusion, to cause mistake, or to deceive; 
                        or''; and
                    (B) in the matter following subparagraph (B), by 
                striking ``used in connection with goods or services'' 
                and inserting ``that is applied to goods, or used in 
                connection with services,''.
            (4) Section 2320 is further amended--
                    (A) by redesignating subsection (f) as subsection 
                (g); and
                    (B) by inserting after subsection (e) the 
                following:
    ``(f) Nothing in this section shall entitle the United States to 
bring a criminal cause of action under this section for the repackaging 
of genuine goods or services not intended to deceive or confuse.''.

                          Purpose and Summary

    H.R. 32, the ``Stop Counterfeiting in Manufactured Goods 
Act'' would enhance criminal penalties for those who traffic in 
counterfeit products. Under this legislation, 18 U.S.C. 
Sec. 2320 would be expanded to include penalties for those who 
traffic in counterfeit labels, symbols, or packaging of any 
type with knowledge that a counterfeit mark has been utilized. 
Additionally, this legislation would require the forfeiture of 
any property derived, directly or indirectly, from the proceeds 
of the violation as well as any property used, or intended to 
be used in relation to the offense. This legislation also 
requires that restitution be paid to the owner of the mark that 
was counterfeited.
    An amendment in the nature of a substitute to H.R. 32 was 
adopted by the full Committee to include specific language 
clarifying that repackaging activities conducted without intent 
to deceive or confuse are not subject to the criminal 
prosecution established under this legislation.

                Background and Need for the Legislation

    The proliferation of counterfeit products in recent years 
creates not only a threat to legitimate businesses, but also to 
consumers. Many of the products that are falsely labeled are 
labeled with brand names or trademarks that consumers know and 
trust. The mislabeling of genuine products creates a false 
sense of security for consumers. Additionally, some of the 
counterfeited products, such as prescription or over-the-
counter medications, could have serious health consequences if 
they are used by an unsuspecting consumer.
    Federal Bureau of Investigation (``FBI''), Customs, and 
Immigration Customs Enforcement Agents (``ICE'') estimate that 
sales of counterfeit goods are enriching criminal organizations 
by up to $500 billion in sales per year. By midyear for fiscal 
2003, the Department of Homeland Security (``DHS'') had 
reported 3,117 seizures of counterfeit branded goods including 
cigarettes, books, apparel, handbags, toys and electronic games 
with an estimated street value of about $38 million--up 42 
percent from 2002.
    The fiscal 2003 midyear report the top five offending 
countries of origin are the People's Republic of China ($26.7 
million), Hong Kong ($1.9 million), Mexico ($1.6 million), 
South Korea, ($1.4 million) and Malaysia ($1 million). The 
International AntiCounterfeiting Coalition, (``IACC'') 
estimates that counterfeiting results in more than $200 billion 
a year in lost jobs, taxes and sales. Fortune 500 companies 
spend an average of between $2 million and $4 million a year 
each to fight counterfeiters.
    In addition to counterfeiting general retail products, many 
counterfeiters are engaged in the sales of products which may 
present substantial threats to the health and safety of 
consumers. The Food and Drug Administration (``FDA'') estimates 
that although the prevalence of counterfeit pharmaceuticals is 
hard to determine, estimates suggest that upwards of 10 percent 
of drugs worldwide are counterfeit, and in some countries more 
than 50 percent of the drug supply is made up of counterfeit 
drugs. Counterfeit drugs may include products without the 
active ingredient, with an insufficient quantity of the active 
ingredient, with the wrong active ingredient, or with fake 
packaging. The FDA website indicates that counterfeit drugs can 
have serious consequences for consumers. According to the FDA, 
patients who receive counterfeit medications may experience 
unexpected side effects, allergic reactions, or a worsening of 
their medical condition. Additionally, the FDA has found that a 
number of counterfeits do not contain any active ingredients, 
and instead contain inert substances, which do not provide the 
patient any treatment benefit.
    The Automobile Manufacturers Association indicates that 
counterfeit auto parts comprise a $12 billion global problem--
$3 billion in the U.S. alone. In terms of lost jobs, the 
Department of Commerce estimates that the U.S. auto industry 
could hire over 200,000 more workers if the counterfeit auto 
parts trade disappeared. In addition to the economic losses and 
loss of jobs for American workers, consumer safety is also at 
risk by counterfeit automobile parts. The U.S. automobile 
industry has reported a number of instances of brake failure 
caused by brake pads manufactured from wood chips.
    According to the FBI's Financial Institution Fraud Unit, 
counterfeit products cheat the U.S. of tax revenues, add to the 
national trade deficit, subject consumers to health and safety 
risks, and leave consumers without any legal recourse when they 
are financially or physically injured by counterfeit products. 
The FBI has identified counterfeit products not only in 
pharmaceuticals and automobile parts, but also in such products 
as airplane parts, baby formulas and children's toys. In 
addition to misrepresenting products and services, 
counterfeiters have also misrepresented product testing and 
certification organizations.
    At the Subcommittee on Crime, Terrorism, and Homeland 
Security hearing on combating trafficking in counterfeit 
products, the Subcommittee received testimony indicating that 
commerce in counterfeit labels, tags, containers, and 
documentation bearing the registered trademarks of 
manufacturers of genuine goods often occurs separately from 
illegal commerce in countrfeit goods themselves. As a result, 
packaging, labels, or tags bearing the registered mark are 
often matched with the goods downstream and applied to products 
or services that are not manufactured by the owner of the mark.
    The products and services to which these counterfeit 
labels, tags, documents, containers, and packaging are applied 
often do not meet the product qualities or the safety or 
performance requirements of the manufacturer of the genuine 
product or the product testing and certification organization. 
As a result, these products can be unsafe to users and 
consumers who are deceived.

                                Hearings

    The Committee's Subcommittee on Crime, Terrorism, and 
Homeland Security held a hearing on counterfeit products and 
retail theft on March 17, 2005. Testimony was received from 
four witnesses: Chris Swecker, Assistant Director, Criminal 
Investigative Division, Federal Bureau of Investigation; Paul 
Fox, Director, Gillette Corporation; Chris Nelson, Director, 
Target Corporation; and Lauren V. Perez, Vice President, 
Sandler, Travis, and Rosenberg, with additional material 
submitted by other concerned individuals and organizations.

                        Committee Consideration

    On March 17, 2005, the Subcommittee on Crime, Terrorism, 
and Homeland Security met in open session and ordered favorably 
reported the bill H.R. 32, by a voice vote, a quorum being 
present. On April 13, 2005, the Committee met in open session 
and ordered favorably reported the bill H.R. 32, with an 
amendment in the nature of a substitute by voice vote, a quorum 
being present.

                         Vote of the Committee

    In compliance with clause 3(b) of Rule XIII of the Rules of 
the House of Representatives, the Committee notes that there 
were no recorded votes during the Committee consideration of 
H.R. 32.

                      Committee Oversight Findings

    In compliance with clause 3(c)(1) of Rule XIII of the Rules 
of the House of Representatives, the Committee reports that the 
findings and recommendations of the Committee, based on 
oversight activities under clause 2(b)(1) of Rule X of the 
Rules of the House of Representatives, are incorporated in the 
descriptive portions of this report.

               New Budget Authority and Tax Expenditures

    Clause 3(c)(2) of Rule XIII of the Rules of the House of 
Representatives is inapplicable because this legislation does 
not provide new budgetary authority or increased tax 
expenditures.

               Congressional Budget Office Cost Estimate

    In compliance with clause 3(c)(3) of Rule XIII of the Rules 
of the House of Representatives, the Committee sets forth, with 
respect to the bill, H.R. 32, the following estimate and 
comparison prepared by the Director of the Congressional Budget 
Office under section 402 of the Congressional Budget Act of 
1974:

                                     U.S. Congress,
                               Congressional Budget Office,
                                    Washington, DC, April 15, 2005.
Hon. F. James Sensenbrenner, Jr., Chairman,
Committee on the Judiciary,
House of Representatives, Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office has 
prepared the enclosed cost estimate for H.R. 32, the ``Stop 
Counterfeiting in Manufactured Goods Act.''
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contact is Gregory 
Waring, who can be reached at 226-2860.
            Sincerely,
                                       Douglas Holtz-Eakin.

Enclosure

cc:
        Honorable John Conyers, Jr.
        Ranking Member
H.R. 32--Stop Counterfeiting in Manufactured Goods Act.
    CBO estimates that implementing H.R. 32 would have no 
significant cost to the Federal Government. Enacting the bill 
could affect direct spending and revenues, but CBO estimates 
that any such effects would not be significant. H.R. 32 
contains no intergovernmental or private-sector mandates as 
defined in the Unfunded Mandates Reform Act and would not 
affect the budgets of State, local, or tribal governments.
    H.R. 32 would expand the Federal crime against trafficking 
in counterfeit goods or services by including penalties for 
those who traffic in counterfeit labels, patches, symbols, 
packaging, or other types of marks. Thus, the government would 
be able to pursue cases that it otherwise may not be able to 
prosecute. However, we expect that H.R. 32 would apply to a 
relatively small number of additional offenders, so any 
increase in costs for law enforcement, court proceedings, or 
prison operations would not be significant and would be subject 
to the availability of appropriated funds.
    Because those prosecuted and convicted under H.R. 32 could 
be subject to criminal fines, the Federal Government might 
collect additional fines if the legislation is enacted. 
Collections of such fines are recorded in the budget as 
revenues, which are deposited in the Crime Victims Fund and 
later spent. CBO expects that any additional revenues and 
direct spending would not be significant because of the small 
number of cases involved.
    The CBO staff contact for this estimate is Gregory Waring, 
who can be reached at 226-2860. This estimate was approved by 
Peter H. Fontaine, Deputy Assistant Director for Budget 
Analysis.

                    Performance Goals and Objectives

    The Committee states that pursuant to clause 3(c)(4) of 
Rule XIII of the Rules of the House of Representatives, H.R. 
32, will give law enforcement additional tools to prevent 
counterfeit products from being introduced into the consumer 
marketplace in the United States.

                   Constitutional Authority Statement

    Pursuant to clause 3(d)(1) of Rule XIII of the Rules of the 
House of Representatives, the Committee finds the authority for 
this legislation in article I, section 8, clause 8 of the 
Constitution.

               Section-by-Section Analysis and Discussion

    The following discussion describes the bill as reported by 
the Committee.

                    SECTION 1. SHORT TITLE. FINDINGS

    This section makes findings with regard to the prevalence 
of counterfeit products in the United States and the threat to 
public safety.

              SECTION 2. TRAFFICKING IN COUNTERFEIT MARKS

    Under this section, section 2320 of title 18 would be 
expanded to include penalties for those who traffic in 
counterfeit labels, symbols, or packaging of any type knowing a 
counterfeit mark has been applied.
    18 U.S.C. Sec. 2320(a) would be modified, under this 
section, to allow a criminal cause of action for intentionally 
trafficking or attempting to traffic in labels, patches, 
stickers, wrappers, badges, emblems, medallions, charms, boxes, 
containers, cans, cases, hangtags, documentation, or packaging 
of any type or nature knowing that a counterfeit mark has been 
applied thereto, the use of which is likely to cause confusion, 
to cause mistake, or to deceive.
    This modification is intended to overrule the holding in 
the case United States v. Giles, 213 F.3d 1247 (10th Cir. 
2000), where the court of appeals overturned a conviction under 
18 U.S.C. Sec. 2320, holding that, based on the current 
language of the statute, no criminal liability could attach to 
trafficking in labels, patches, medallions, boxes, containers, 
cases, documentation, packaging and the like bearing registered 
marks, where the item bearing the registered marks were not 
attached to the goods.
    This section would amend current law to require the 
forfeiture of any property derived, directly or indirectly, 
from the proceeds of the violation as well as any property 
used, or intended to be used in relation to the offense. This 
is intended to provide forfeiture and destruction provisions 
similar to those already enjoyed by copyright and trade secret 
holders. The current trademark counterfeiting law only provides 
for the discretionary destruction of the counterfeit goods 
themselves. This section will change current law to require 
both the destruction of the counterfeit goods and the 
forfeiture of any assets traceable to illegal counterfeiting 
activities.
    This section will also permit the forfeiture and 
destruction of any property/equipment used to aid in the 
commission of the violation. The current language is simply 
inadequate for domestic enforcement purposes and, more 
importantly, prevents U.S. free trade negotiators from seeking 
stronger anti-counterfeiting enforcement provisions in 
bilateral or multilateral agreements with U.S. trading 
partners. Because the majority of counterfeit goods are 
produced overseas, it is imperative that other countries 
provide for forfeiture and destruction remedies similar to 
those called for in domestic law. Under this section, a victim 
of the offense is entitled to recover restitution from the 
defendant.
    The definition contained in 18 U.S.C. Sec. 2320(e) are 
amended by this section to reflect the criminal cause of action 
that was created in 2320(a). Accordingly, the definition of a 
counterfeit mark now also includes marks applied to labels, 
patches, stickers, wrappers, badges, emblems, medallions, 
boxes, containers, hangtags, documentation, or packaging of any 
kind or nature.
    The final subsection of this legislation includes language 
to ensure that a criminal cause of action will not be brought 
against an individual or business that repackages genuine goods 
or services without deception. The language of this section was 
modified by an amendment in the nature of the substitute to 
further clarify that this section was not intended to allow 
criminal actions against persons who repackage genuine goods or 
services with no intent to deceive or cause confusion as to the 
authenticity of the products therein.\1\
---------------------------------------------------------------------------
    \1\ This savings clause is consistent with the court of appeals 
decision in United States v. Hanafy, 302 F.3d 485 (5th Cir. 
2002)(unadulterated and unexpired genuine baby formula, repackaged with 
manufacturer's trademark in trays in manner so that purchaser could see 
expiration dates does not give rise to criminal liability under 18 
U.S.C. Sec. 2320).
---------------------------------------------------------------------------
    The phrase ``the use of which is likely to cause confusion, 
to cause mistake, or to deceive'' is not intended to create a 
new element for this cause of action, but it reiterates what is 
already reflected in the definition of ``counterfeit mark'' in 
Section 2320(e)(1), that the application of the counterfeit 
mark to a label, patch, tag, container, document, packaging and 
the like must have the effect of being likely to cause 
confusion, mistake or deception. See United States v. Hon, 904, 
F.2d 803, 806 (2nd Cir. 1990).\2\
---------------------------------------------------------------------------
    \2\ See United States v. Hon, 904, F.2d 803, 806 (2nd Cir. 
1990)(rejecting narrow construction of confusion requirement stating 
``Congress was concerned not only that ``trademark counterfeiting . . . 
defrauds purchasers, who pay for brand-name quality and take home only 
a fake,'' but also that ``counterfeiters [can earn] enormous profits . 
. . by capitalizing on the reputations, development costs, and 
advertising efforts of honest manufacturers at little expense to 
themselves.'' S.Rep. No. 98-526, supra, at 4-5, reprinted in 1984 U.S. 
Code Cong. & Admin. News at 3630-31.)
---------------------------------------------------------------------------
    Because the bill amends the definition of a counterfeit 
trademark to include packaging and labeling formats, which can 
be used lawfully by a variety of businesses, this language is 
intended to clarify that repackaging activities such as 
combining single genuine products into gift sets, separating 
combination sets of genuine goods into individual items for 
resale, inserting coupons into original packaging or repackaged 
items, affixing labels to track or otherwise identify genuine 
products, removing genuine goods from original packaging for 
customized retail displays are not intended to be prosecuted as 
counterfeiting activities under the amended title 18 U.S.C. 
Sec. 2320.
    In making a determination as to whether to bring a cause of 
action under the new section 2320 in cases involving the 
repackaging of genuine goods, it is expected that the 
Government will consider evidence tending to show an intent to 
deceive or confuse such as altering, concealing or obliterating 
expiration dates, or information important to the consumer use 
of the product such as safety and health information about the 
quality, performance, or use of the product or service; 
statements or other markings that a used, discarded, or 
refurbished product is new; or statements or other markings 
that the product meets testing and certification requirements. 
Also relevant to a decision to bring a criminal action under 
this section would be a meaningful variance from product 
testing and certification requirements, placing seals on 
product containers that have been opened and the original 
manufacturer's seal has been broken, or altering or otherwise 
adulterating the genuine product.

         Changes in Existing Law Made by the Bill, as Reported

  In compliance with clause 3(e) of rule XIII of the Rules of 
the House of Representatives, changes in existing law made by 
the bill, as reported, are shown as follows (existing law 
proposed to be omitted is enclosed in black brackets, new 
matter is printed in italics, existing law in which no change 
is proposed is shown in roman):

              SECTION 2320 OF TITLE 18, UNITED STATES CODE

Sec. 2320. Trafficking in counterfeit goods or services

    (a) Whoever intentionally traffics or attempts to traffic 
in goods or services and knowingly uses a counterfeit mark on 
or in connection with such goods or services, or intentionally 
traffics or attempts to traffic in labels, patches, stickers, 
wrappers, badges, emblems, medallions, charms, boxes, 
containers, cans, cases, hangtags, documentation, or packaging 
of any type or nature, knowing that a counterfeit mark has been 
applied thereto, the use of which is likely to cause confusion, 
to cause mistake, or to deceive, shall, if an individual, be 
fined not more than $2,000,000 or imprisoned not more than 10 
years, or both, and, if a person other than an individual, be 
fined not more than $5,000,000. In the case of an offense by a 
person under this section that occurs after that person is 
convicted of another offense under this section, the person 
convicted, if an individual, shall be fined not more than 
$5,000,000 or imprisoned not more than 20 years, or both, and 
if other than an individual, shall be fined not more than 
$15,000,000.
    [(b) Upon a determination by a preponderance of the 
evidence that any articles in the possession of a defendant in 
a prosecution under this section bear counterfeit marks, the 
United States may obtain an order for the destruction of such 
articles.]
    (b)(1) Upon a determination by a preponderance of the 
evidence that any article in the possession of a defendant in a 
prosecution under this section bears or consists of a 
counterfeit mark, the court shall order the forfeiture and 
destruction of such article, regardless of whether the 
defendant is convicted of an offense under this section.
    (2) The court, in imposing a sentence upon a person 
convicted of a violation of this section, or upon a person who 
pleads guilty or nolo contendre to a violation of this section, 
shall order, in addition to any other sentence imposed, that 
the person forfeit to the United States--
            (A) any property constituting or derived from any 
        proceeds the person obtained, directly or indirectly, 
        as the result of such violation, and
            (B) any of the person's property used, or intended 
        to be used, in any manner or part, to commit, 
        facilitate, aid, or abet the commission of such 
        violation, if the court in its discretion so 
        determines, taking into account the nature, scope, and 
        proportionality of the use of the property in the 
        offense.
    (3) When a person is convicted of an offense under this 
section, or pleads guilty or nolo contendre to an offense under 
this section, the court, pursuant to sections 3556, 3663A, and 
3664, shall order the person to pay restitution to the owner of 
the mark and any other victim of the offense as an offense 
against property referred to in section 3663A(c)(1)(A)(ii).
    (4) The term ``victim'', as used in paragraph (3), has the 
meaning given that term in section 3663A(a)(2).

           *       *       *       *       *       *       *

    (e) For the purposes of this section--
            (1) the term ``counterfeit mark'' means--
                    [(A) a spurious mark--
                            [(i) that is used in connection 
                        with trafficking in goods or services;
                            [(ii) that is identical with, or 
                        substantially indistinguishable from, a 
                        mark registered for those goods or 
                        services on the principal register in 
                        the United States Patent and Trademark 
                        Office and in use, whether or not the 
                        defendant knew such mark was so 
                        registered; and
                            [(iii) the use of which is likely 
                        to cause confusion, to cause mistake, 
                        or to deceive; or]
                    (A) a spurious mark--
                            (i) that is used in connection with 
                        trafficking in any goods, services, 
                        labels, patches, stickers, wrappers, 
                        badges, emblems, medallions, charms, 
                        boxes, containers, cans, cases, 
                        hangtags, documentation, or packaging 
                        of any type or nature;
                            (ii) that is identical with, or 
                        substantially indistinguishable from, a 
                        mark registered on the principal 
                        register in the United States Patent 
                        and Trademark Office and in use, 
                        whether or not the defendant knew such 
                        mark was so registered;
                            (iii) that is applied to or used in 
                        connection with the goods or services 
                        for which the mark is registered with 
                        the United States Patent and Trademark 
                        Office, or is applied to or consists of 
                        a label, patch, sticker, wrapper, 
                        badge, emblem, medallion, charm, box, 
                        container, can, case, hangtag, 
                        documentation, or packaging of any type 
                        or nature that is capable of being 
                        applied to or used in connection with 
                        the goods or services for which the 
                        mark is registered in the United States 
                        Patent and Trademark Office; and
                            (iv) the use of which is likely to 
                        cause confusion, to cause mistake, or 
                        to deceive; or
                    (B) a spurious designation that is 
                identical with, or substantially 
                indistinguishable from, a designation as to 
                which the remedies of the Lanham Act are made 
                available by reason of section 220506 of title 
                36
        but such term does not include any mark or designation 
        [used in connection with goods or services] that is 
        applied to goods, or used in connection with services, 
        of which the manufacturer or producer was, at the time 
        of the manufacture or production in question authorized 
        to use the mark or designation for the type of goods or 
        services so manufactured or produced, by the holder of 
        the right to use such mark or designation;

           *       *       *       *       *       *       *

    (f) Nothing in this section shall entitle the United States 
to bring a criminal cause of action under this section for the 
repackaging of genuine goods or services not intended to 
deceive or confuse.
    [(f)] (g)(1)  * * *

           *       *       *       *       *       *       *


                           Markup Transcript



                            BUSINESS MEETING

                       WEDNESDAY, APRIL 13, 2005

                  House of Representatives,
                                Committee on the Judiciary,
                                                    Washington, DC.
    The Committee met, pursuant to notice, at 10:03 a.m., in 
Room 2141, Rayburn House Office Building, Hon. F. James 
Sensenbrenner, Jr. [Chairman of the Committee] presiding.
    [Intervening business.]
    AFTERNOON SESSION [2:34 p.m.]
    Chairman Sensenbrenner. The next item on the agenda is the 
adoption of H.R. 32, the ``Stop Counterfeiting in Manufactured 
Goods Act.'' The Chair recognizes the gentleman from North 
Carolina, Mr. Coble, the Chairman of the Subcommittee on Crime, 
Terrorism, and Homeland Security, for a motion.
    Mr. Coble. Mr. Chairman, the Subcommittee on Crime, 
Terrorism, and Homeland Security reports favorably the bill 
H.R. 32 and moves its favorable recommendation to the full 
House.
    Chairman Sensenbrenner. Without objection, the bill will be 
considered as read and open for amendment at any point.
    [The bill, H.R. 32, follows:]
      
      

  


      
      

  


      
      

  


      
      

  


      
      

  


      
      

  


    Chairman Sensenbrenner. The Chair recognizes the gentleman 
from North Carolina, Mr. Coble, to strike the last word.
    Mr. Coble. Thank you, Mr. Chairman.
    I told the Chairman I would be terse, and he said the 
terser, the better, so I will make it terse. We had 
disagreements but they have all been resolved now, and I come 
to you with a clean bill.
    Last month, Mr. Chairman, the Subcommittee on Crime, 
Terrorism, and Homeland Security conducted a hearing to examine 
the harm being caused to consumers, manufacturers, and 
retailers by counterfeit products. I'm happy to say that the 
hearing was a success and gave us much needed insight into the 
ever growing--this ever growing problem. The trafficking of 
counterfeit goods creates problems not only for businesses and 
the economy, but also creates a real threat to consumers who 
may unknowingly receive these products. I am pleased that the 
Federal Government is taking action to address this crime, but 
more needs to be done.
    H.R. 32, the ``Stop Counterfeiting in Manufactured Goods 
Act,'' is vital to continue to combat the counterfeiting of 
manufactured goods. Finally, Mr. Chairman, I intend to offer an 
amendment in the nature of a substitute which makes technical 
changes to the bill to ensure that the changes to the criminal 
code address true counterfeiters and do not allow charges to be 
brought against any person who is operating without deception 
in the sale or repackaging of goods.
    This was an issue that was raised at the Subcommittee 
hearing, and we worked with several groups, including the 
minority, in an attempt to address these concerns. I urge my 
colleagues to support this legislation and the technical 
amendments that I have made in the nature of a substitute, Mr. 
Chairman.
    I yield back.
    Chairman Sensenbrenner. The gentleman from Virginia, Mr. 
Scott?
    Mr. Scott. Thank you, Mr. Chairman, for convening this 
markup on H.R. 32, the ``Stop Counterfeiting in Manufactured 
Goods Act.'' The bill amends existing law in a manner designed 
to intensive the effort to prevent counterfeiting goods. 
Counterfeited goods not only victimize the manufacturer, but 
shortchange purchasers with substandard products, exposes us to 
risks from unsafe products, and deprives Americans of jobs and 
other benefits from commerce of authentic goods.
    When we began working with the bill on a bipartisan basis 
at the Subcommittee level and with a general consensus that 
something needed to be done from the industry, there was 
concern that, as then drafted, the bill went too far and 
criminalized currently legitimate, time-honored practices by 
law-abiding merchants who legally purchased manufactured goods 
and then repackaged them in various ways to enhance sales of 
such goods without any deception. Because of that disagreement, 
additional discussion went on, and I understand that we have 
now reached an agreement on additional language which will 
hopefully be added through and amendment by the gentleman from 
Florida, Mr. Wexler.
    With that done, Mr. Chairman, I would support the bill and 
urge my colleagues to do the same. I yield back the balance of 
my time.
    Mr. Conyers. Mr. Chairman?
    Chairman Sensenbrenner. The Chair will unilaterally send 
the balance of the gentleman from Virginia's time back to him 
so he can yield to the gentleman from Michigan.
    Mr. Conyers. Would the distinguished Ranking Member yield 
to me?
    Mr. Scott. I do.
    Mr. Conyers. Thank you. I merely wanted to add, as quickly 
as I could, with you and the gentleman from Florida, what a 
wonderful job of working behind the scenes, talking with all 
the parties, and both sides of the aisle in the Committee, 
including our Chairman, and having this come to what I think is 
a highly successful conclusion. I congratulate all of the 
parties that participated in it, and I return the time to the 
gentleman from Virginia. Thank you.
    Mr. Scott. I yield back.
    Chairman Sensenbrenner. The gentleman yields back the 
balance of his time.
    Without objection, all Members may include opening 
statements in the record at this point.
    [The prepared statement of Mr. Conyers follows:]
Prepared Statement of the Honorable John Conyers, Jr., a Representative 
 in Congress from the State of Michigan, and Ranking Member, Committee 
                            on the Judiciary
    I rise in support of this legislation and thank the Chairman and 
his staff for working with us to ensure the bill does not overreach.
    The bill was designed to target illegitimate actors who trade in 
counterfeit marks. We all agree that manufacturers have a right to 
ensure that fake goods are not marketed in their names and that their 
own goods are not marketed under fake names.
    The bill as originally written, however, went further than that. It 
left as an open question whether someone other than the manufacturer 
could affix marks to goods that correctly identify the source of the 
goods. This struck at the very heart of the parallel market, in which 
third parties lawfully obtain goods and make them available in discount 
stores. Not only has this practice been upheld by the Supreme Court, 
but it also saves consumers billions of dollars each year.
    I appreciate that the Majority has negotiated in good faith to 
address this concern, and we now have a bill that protects 
manufacturers, targets illegitimate actors, and leaves a legitimate 
industry unscathed.
    I urge a ``Yes'' vote on this legislation.

    [The prepared statement of Mr. Smith follows:]
 Prepared Statement of the Honorable Lamar Smith, a Representative in 
Congress from the State of Texas, and Chairman, Subcommittee on Courts, 
                the Internet, and Intellectual Property
    Mr. Chairman, I'm an original cosponsor of H.R. 32 because it 
ensures that law enforcement has the tools it needs to address 
counterfeiting.
    This bill closes a loophole that has allowed counterfeiters to 
avoid prosecution.
    Current law does not prohibit trafficking in counterfeit labels, so 
many counterfeiters simply ship fake brand name labels to a warehouse 
and then affix them to a product to avoid prosecution.
    H.R. 32 strengthens the sanctions against those who traffic in 
counterfeit labels.
    Counterfeit products harm consumers and manufacturers. Consumers 
often buy products because they see a particular brand name.
    When the product then turns out to be counterfeit, not only has the 
consumer bought a product that is not what they thought, but also in 
the case of goods like brake pads or electrical products, they could be 
physically harmed.
    And manufacturers are disadvantaged because counterfeit products 
adversely affect their sales and diminish their reputation.
    We must update our laws to effectively fight counterfeiting. That's 
why this is a good bill.

    Chairman Sensenbrenner. Are there amendments? And the Chair 
recognizes the gentleman from North Carolina, Mr. Coble, for 
purposes of offering an amendment in the nature of a 
substitute.
    Mr. Coble. I thank the Chairman.
    Mr. Chairman, in my opening statement I explained the 
amendment in the nature of a substitute.
    Chairman Sensenbrenner. Does the gentleman have an 
amendment at the desk?
    The Clerk. Yes, he does, sir.
    Chairman Sensenbrenner. The gentleman from North Carolina, 
do you have an amendment at the desk?
    Mr. Coble. I do have an amendment at the desk.
    Chairman Sensenbrenner. The clerk will report the amendment 
in the nature of a substitute.
    The Clerk. Amendment in the nature of a substitute to H.R. 
32, offered by Mr. Coble of North Carolina----
    Chairman Sensenbrenner. Without objection, the amendment in 
the nature of a substitute is considered as read and open for 
amendment at any points.
    [The amendment in the nature of a substitute follows:]
      
      

  


      
      

  


      
      

  


      
      

  


      
      

  


    Chairman Sensenbrenner. The Chair recognizes the gentleman 
from North Carolina for 5 minutes, which he hopes he will yield 
back.
    Mr. Coble. I do indeed yield back because I explained it 
earlier, Mr. Chairman.
    Chairman Sensenbrenner. Are there any second degree 
amendments to the Coble amendment in the nature of a 
substitute? The gentleman from Florida, Mr. Wexler?
    Mr. Wexler. Yes, Mr. Chairman, I have one.
    Chairman Sensenbrenner. Okay. The clerk will report the 
amendment.
    The Clerk. Amendment to the amendment in the nature of a 
substitute to H.R. 32, offered by Mr. Wexler. Page 5, strike 
lines 21 to 30--24, and insert: ``(f) Nothing in this section 
shall entitle the United States to bring a criminal cause of 
action under this section for the repackaging of genuine goods 
or services not intended to deceive or confuse.''
    [The amendment in the nature of a substitute follows:]
    
    
    Chairman Sensenbrenner. The gentleman from Florida is 
recognized for 5 minutes.
    Mr. Wexler. Thank you, Mr. Chairman.
    First, I want to thank you for being as accommodating as 
you have been and Mr. Coble for being especially easy to work 
with, and I very much appreciate your efforts.
    H.R. 32, the ``Stop Counterfeiting in Manufacturing Goods 
Act,'' is a critically important bill which makes it harder for 
criminals to traffic in counterfeit products, and I'm proud to 
be an original cosponsor of the legislation. I'm concerned, 
however, that in our zeal to stamp out counterfeiting we are 
unintentionally ensnaring some retail and wholesale industries 
and needlessly opening legitimate businesses up to costly 
liability.
    It is important that it is clear that the intent of H.R. 32 
is to put an end to counterfeit traffic and target falsely 
labeled products, not honest and legitimate repackaged goods, 
as part of secondary discount or parallel market trade. This 
bill is not intended to jeopardize repackaging of genuine goods 
by parties other than the product manufacturers, third-party 
repackagers of gift sets, or downstream wholesalers or discount 
traders who may affix unique tags or labels to original boxes 
to identify and track consumer goods. And H.R. 32 is not 
intended to prohibit the use of coupons or other third-party 
promotional vehicles relied upon to increase retail sales of 
discounted branded goods by parties other than the original 
product manufacturer.
    It is important to distinguish between those counterfeiters 
who are intending to steal the good name of a company to sell 
their own cheap substitute or related products and those who 
are intending to sell legitimate trademarked products as a part 
of a package set or simply in the resale market. What this 
amendment would do is add the phrase ``not intended to deceive 
or confuse'' instead of the language ``repackaging without 
deception.'' This way we are establishing an intent standard so 
that counterfeiters are stopped but legitimate resale marketers 
are not affected. Without these minor changes, H.R. 32 could be 
misunderstood to mean that anyone who knowingly repackages 
genuine goods without the express permission of the trademark 
owner is a criminal, an interpretation I am sure all of us 
would oppose.
    I'm confident that with these changes this legislation will 
be 100 percent clear in its intent and focused solely on 
stopping the counterfeit thieves. I want to thank Mr. Scott and 
Mr. Conyers and just quickly, Mr. Chairman, just so people 
understand what it is we're talking about, this package here, 
which could be found at any supermarket in America, it's got a 
Dove soap bar and a Dove conditioner. And in many places you 
may buy six cans of tuna fish in a cellophane-wrapped bag or 
you may buy something like this. And what we're doing with this 
amendment is simply to say that if a legitimate business--if 
Public's or Giant or Wal-Mart wants to put two of these things 
together and you go buy it, that Wal-Mart or the supermarket is 
not going to be subject to criminal liability for doing it, as 
long as it's labeled properly and the whole bit.
    Thank you very much.
    Mr. Issa. Would the gentleman yield? Would the gentleman 
yield?
    Mr. Wexler. Yes, of course.
    Mr. Issa. Is the intention of your act also to deal with or 
to eliminate the trademark owner's legitimate right to prohibit 
repackaging? And the example you show is a wonderful one, but 
what about the example of 100 Bayer aspirin being taken out and 
repackaged into a new package still containing Bayer? Is that 
something that you envision that the trademark owner has a 
right to prohibit? And would you consider modifying your 
language to say unless specifically prohibited by the packager 
in writing? So if the package says ``may not be''--``not 
intended for sale separately,'' that they could, in fact, 
prohibit? Because that is one of the areas of concern. It 
appears as though your amendment which circumvent the 
legitimate right of somebody to say, look, my Tylenols are 
sealed and I have a liability if they're repackaged and I don't 
want to have that liability.
    Mr. Wexler. I'm no expert, but my understanding of what it 
is I'm--what we're doing in this bill wouldn't affect any 
packaging of safety and that. They couldn't open that. They 
couldn't change it.
    As to the sale of the product itself, that's a matter of 
contract between, I presume, the manufacturer and whoever it is 
the manufacturer is selling it to, and that's a function of the 
capital market and whatever rules govern is what would prevail.
    Mr. Issa. I guess to ask the gentleman one more time, 
though, your example is a packaging together, and I think no 
one here would object to that, but a breaking down of a master 
pack into subs is, in fact, an area of concern that I'm afraid 
your amendment might work around.
    Mr. Wexler. I don't believe it--you're talking about like 
opening the Tylenol box and then putting it again--that would 
violate all sorts of drug regulations and all sorts of things. 
That's not what this is intended to do.
    Chairman Sensenbrenner. The time of the gentleman has 
expired. The question is on the amendment offered by the 
gentleman from Florida, Mr. Wexler, in the second degree to an 
amendment offered in the nature of a substitute by the 
gentleman from North Carolina, Mr. Coble. Those in favor will 
say aye? Opposed, no?
    The ayes appear to have it. The ayes have it, and the 
Wexler amendment to the Coble substitute is agreed to.
    Are there further amendments?
    [No response.]
    Chairman Sensenbrenner. If there are no further amendments, 
the question is on the amendment in the nature of a substitute 
offered by the gentleman from North Carolina, Mr. Coble, as 
amended. Those in favor will say aye? Opposed, no?
    The ayes appear to have it. The ayes have it. The amendment 
in the nature of a substitute is agreed to
    A reporting quorum is not present. Therefore, without 
objection, the previous question is ordered on the motion to 
report the bill H.R. 32 favorably as amended. And we will vote 
on that once a reporting quorum appears.
    [Intervening business.]
    Chairman Sensenbrenner. A reporting quorum is present. The 
unfinished business before the Committee is the question 
occurring on the motion to report the bill, H.R. 32, favorably 
as amended. All in favor will say aye.
    Opposed, no. This is the counterfeiting bill. Opposed, no?
    The ayes appear to have it. The ayes have it. The motion to 
report favorably is adopted.
    Without objection the bill will be reported favorably to 
the House in the form of a single amendment in the nature of a 
substitute, incorporating the amendments adopted here today.
    Without objection the staff is directed to make any 
technical and conforming changes. And all Members will be given 
2 days, as provided by the House rules, in which to submit 
additional dissenting supplemental or minority views.
    [Intervening business.]
    Chairman Sensenbrenner. The Committee stands adjourned.
    [Whereupon, at 4:02 p.m., the Committee was adjourned.]