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112th Congress                                                   Report
                        HOUSE OF REPRESENTATIVES
 2d Session                                                     112-537

======================================================================



 
               COUNTERFEIT DRUG PENALTY ENHANCEMENT ACT 
                                OF 2012

                                _______
                                

 June 18, 2012.--Committed to the Committee of the Whole House on the 
              State of the Union and ordered to be printed

                                _______
                                

Mr. Smith of Texas, from the Committee on the Judiciary, submitted the 
                               following

                              R E P O R T

                        [To accompany H.R. 3668]

      [Including cost estimate of the Congressional Budget Office]

    The Committee on the Judiciary, to whom was referred the 
bill (H.R. 3668) to prevent trafficking in counterfeit drugs, 
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..............................................     2
Background and Need for the Legislation..........................     2
Hearings.........................................................     3
Committee Consideration..........................................     3
Committee Votes..................................................     3
Committee Oversight Findings.....................................     3
New Budget Authority and Tax Expenditures........................     3
Congressional Budget Office Cost Estimate........................     3
Performance Goals and Objectives.................................     4
Advisory on Earmarks.............................................     4
Section-by-Section Analysis......................................     5
Changes in Existing Law Made by the Bill, as Reported............     5

                             The Amendment

  Strike all after the enacting clause and insert the 
following:

SECTION 1. SHORT TITLE.

  This Act may be cited as the ``Counterfeit Drug Penalty Enhancement 
Act of 2012''.

SEC. 2. COUNTERFEIT DRUG PENALTY ENHANCEMENT.

  (a) Offense.--Section 2320(a) of title 18, United States Code, is 
amended--
          (1) by striking ``or'' at the end of paragraph (2);
          (2) by inserting ``or'' at the end of paragraph (3);
          (3) by inserting after paragraph (3) the following:
          ``(4) imports, exports, or traffics in a counterfeit drug,''; 
        and
          (4) by striking ``through (3)'' and inserting ``through 
        (4)''.
  (b) Penalties.--Section 2320(b)(3) of title 18, United States Code, 
is amended--
          (1) in the heading, by inserting ``and counterfeit drugs'' 
        after ``services''; and
          (2) by inserting ``or counterfeit drug'' after ``service''.
  (c) Definition.--Section 2320(f) of title 18, United States Code, is 
amended--
          (1) by striking ``and'' at the end of paragraph (4);
          (2) by striking the period at the end of paragraph (5) and 
        inserting ``; and''; and
          (3) by adding at the end the following:
          ``(6) the term `counterfeit drug' has the meaning given that 
        term in section 201 of the Federal Food, Drug, and Cosmetic 
        Act.''.
  (d) Priority Given to Certain Investigations and Prosecutions.--The 
Attorney General shall give increased priority to efforts to 
investigate and prosecute offenses under section 2320 of title 18, 
United States Code, that involve counterfeit drugs.

                          Purpose and Summary

    H.R. 3668 makes certain enhancements to current Federal 
law, which criminalizes trafficking in counterfeit goods or 
services and use of a counterfeit mark on or in connection with 
such goods or services. This legislation expressly identifies 
the offense of trafficking counterfeit drugs and increases the 
penalties for persons who traffic in counterfeit drugs. This 
bill requires the Attorney General to give increased priority 
to efforts to investigate and prosecute counterfeit drug cases.

                Background and Need for the Legislation

    Current law prohibits trafficking in counterfeit goods. 
Section 2320 of title 18, United States Code, is primarily 
concerned with goods that are trafficked using counterfeit 
marks or labeling. However, counterfeit drugs are more serious. 
Counterfeit drugs present a real health risk to consumers and 
are not limited to a financial loss to the manufacturer or mark 
holder. While current law technically includes counterfeit 
drugs, the law does not expressly prohibit trafficking in 
counterfeit drugs and carries a maximum penalty of only 10 
years.
    In February 2012, drug manufacturer Roche announced that a 
counterfeit form of the cancer drug Avastin had been imported 
and distributed to doctors in the U.S. The counterfeit versions 
of the drug contained a variety of chemicals, ranging from 
starch and salt to solvent chemicals like acetone, but not the 
active ingredient found in the genuine drug. Law enforcement 
authorities in the United States and several foreign countries 
attempted to locate the source of the counterfeit drugs with 
limited success. It is unknown how many patients in the U.S. 
may have received useless cancer treatments when they were 
administered these counterfeit drugs.
    Even with a 10 year maximum penalty, the actual sentences 
imposed under the existing counterfeit goods statute are 
dramatically lower. According to the U.S. Sentencing 
Commission, between FY 2006 and FY 2010, there were 385 Federal 
prosecutions for counterfeit goods (18 U.S.C. Sec. 2320). The 
median sentence was 17 months; the mean sentence was only 10 
months.

                                Hearings

    The Committee on the Judiciary held a hearing on H.R. 3668 
on March 28, 2012.

                        Committee Consideration

    On June 6, 2012, the Committee met in open session and 
ordered the bill H.R. 3668 favorably reported with an 
amendment, by voice vote, a quorum being present.

                            Committee Votes

    In compliance with clause 3(b) of rule XIII of the Rules of 
the House of Representatives, the Committee advises that there 
were no recorded votes during the Committee's consideration of 
H.R. 3668.

                      Committee Oversight Findings

    In compliance with clause 3(c)(1) of rule XIII of the Rules 
of the House of Representatives, the Committee advises 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. 3668, 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, June 14, 2012.
Hon. Lamar Smith, 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. 3668, the 
``Counterfeit Drug Penalty Enhancement Act of 2012.''
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contact is Mark 
Grabowicz, who can be reached at 226-2860.
            Sincerely,
                                      Douglas W. Elmendorf,
                                                  Director.
Enclosure

cc:
        Honorable John Conyers, Jr.
        Ranking Member




          H.R. 3668--Counterfeit Drug Penalty Enhancement Act 
                                of 2012.

      As ordered reported by the House Committee on the Judiciary 
                           on June 14, 2012.




    CBO estimates that implementing H.R. 3668 would have no 
significant costs to the Federal Government. Enacting the bill 
could affect direct spending and revenues; therefore, pay-as-
you-go procedures apply. However, CBO estimates that any 
effects would be insignificant for each year.
    H.R. 3668 would establish a new Federal crime for 
trafficking in counterfeit drugs. As a result, the government 
might be able to pursue cases that it otherwise would not be 
able to prosecute. CBO expects that H.R. 3668 would apply to a 
relatively small number of additional offenders, however, so 
any increase in costs for law enforcement, court proceedings, 
or prison operations would not be significant. Any such costs 
would be subject to the availability of appropriated funds.
    Because those prosecuted and convicted under H.R. 3668 
would be subject to criminal fines, the Federal Government 
might collect additional fines if the legislation is enacted. 
Criminal fines are recorded as revenues, 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 additional cases likely to be affected.
    H.R. 3668 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.
    On January 12, 2012, CBO transmitted a cost estimate for S. 
1886, the Counterfeit Drug Penalty Enhancement Act of 2011, as 
reported by the Senate Committee on the Judiciary on December 
8, 2011. The two pieces of legislation are similar and the cost 
estimates are the same.
    The CBO staff contact for this estimate is Mark Grabowicz. 
The estimate was approved by Theresa Gullo, 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. 
3668 makes certain enhancements to Title 18, United States 
Code, Section 2320 which criminalizes trafficking in 
counterfeit goods or services and use of a counterfeit mark on 
or in connection with such goods or services.

                          Advisory on Earmarks

    In accordance with clause 9 of rule XXI of the Rules of the 
House of Representatives, H.R. 3668 does not contain any 
congressional earmarks, limited tax benefits, or limited tariff 
benefits as defined in clause 9(e), 9(f), or 9(g) of Rule XXI.

                      Section-by-Section Analysis

    The following discussion describes the bill as reported by 
the Committee.
Sec. 1: Short Title.
    Section 1 provides that the short title of H.R. 3668 is the 
``Counterfeit Drug Penalty Enhancement Act of 2012.''
Sec. 2: Counterfeit Drug Penalty Enhancement.
    Section 2 expressly identifies the offense of trafficking 
counterfeit drugs and increases the penalties for persons who 
traffic in counterfeit drugs. This section also requires the 
Attorney General to give increased priority to efforts to 
investigate and prosecute counterfeit drug cases.

         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 italic, 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) Offenses.--Whoever intentionally--
            (1) * * *
            (2) traffics 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, [or]
            (3) traffics in goods or services knowing that such 
        good or service is a counterfeit military good or 
        service the use, malfunction, or failure of which is 
        likely to cause serious bodily injury or death, the 
        disclosure of classified information, impairment of 
        combat operations, or other significant harm to a 
        combat operation, a member of the Armed Forces, or to 
        national security, or
            (4) imports, exports, or traffics in a counterfeit 
        drug,
or attempts or conspires to violate any of paragraphs (1) 
[through (3)] through (4) shall be punished as provided in 
subsection (b).
    (b) Penalties.--
            (1) * * *

           *       *       *       *       *       *       *

            (3) Counterfeit military goods or services and 
        counterfeit drugs.--Whoever commits an offense under 
        subsection (a) involving a counterfeit military good or 
        service or counterfeit drug--
                    (A) * * *

           *       *       *       *       *       *       *

    (f) Definitions.--For the purposes of this section--
            (1) * * *

           *       *       *       *       *       *       *

            (4) the term ``counterfeit military good or 
        service'' means a good or service that uses a 
        counterfeit mark on or in connection with such good or 
        service and that--
                    (A) * * *
                    (B) is intended for use in a military or 
                national security application; [and]
            (5) the term ``traffic'' means to transport, 
        transfer, or otherwise dispose of, to another, for 
        purposes of commercial advantage or private financial 
        gain, or to make, import, export, obtain control of, or 
        possess, with intent to so transport, transfer, or 
        otherwise dispose of[.]; and
            (6) the term ``counterfeit drug'' has the meaning 
        given that term in section 201 of the Federal Food, 
        Drug, and Cosmetic Act.

           *       *       *       *       *       *       *