Trademark Anticounterfeiting Act of 1998; Amending the Trademark Act of 1946 with Respect to the Dilution of Famous Marks; Celebrity Impostors and a Federal Right of Publicity; State Commodity Commissions and Product Certification; International Expropriation of Registered Marks, and Patent Extension Review

SPEAKERS       CONTENTS       INSERTS    Tables

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59–926

2000
TRADEMARK ANTICOUNTERFEITING ACT OF 1998; AMENDING THE TRADEMARK ACT OF 1946 WITH RESPECT TO THE DILUTION OF FAMOUS MARKS; CELEBRITY IMPOSTORS AND A FEDERAL RIGHT OF PUBLICITY; STATE COMMODITY COMMISSIONS AND PRODUCT CERTIFICATION; INTERNATIONAL EXPROPRIATION OF REGISTERED MARKS, AND PATENT EXTENSION REVIEW

HEARING

BEFORE THE

SUBCOMMITTEE ON COURTS AND INTELLECTUAL
PROPERTY

OF THE
COMMITTEE ON THE JUDICIARY
HOUSE OF REPRESENTATIVES

ONE HUNDRED FIFTH CONGRESS

SECOND SESSION

ON
H.R. 3891 and H.R. 3119

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MAY 21, 1998

Serial No. 135

Printed for the use of the Committee on the Judiciary

For sale by the U.S. Government Printing Office
Superintendent of Documents, Congressional Sales Office, Washington, DC 20402

COMMITTEE ON THE JUDICIARY
HENRY J. HYDE, Illinois, Chairman
F. JAMES SENSENBRENNER, Jr., Wisconsin
BILL McCOLLUM, Florida
GEORGE W. GEKAS, Pennsylvania
HOWARD COBLE, North Carolina
LAMAR SMITH, Texas
ELTON GALLEGLY, California
CHARLES T. CANADY, Florida
BOB INGLIS, South Carolina
BOB GOODLATTE, Virginia
STEPHEN E. BUYER, Indiana
ED BRYANT, Tennessee
STEVE CHABOT, Ohio
BOB BARR, Georgia

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WILLIAM L. JENKINS, Tennessee
ASA HUTCHINSON, Arkansas
EDWARD A. PEASE, Indiana
CHRIS CANNON, Utah
JAMES E. ROGAN, California
LINDSEY O. GRAHAM, South Carolina
MARY BONO, California

JOHN CONYERS, Jr., Michigan
BARNEY FRANK, Massachusetts
CHARLES E. SCHUMER, New York
HOWARD L. BERMAN, California
RICK BOUCHER, Virginia
JERROLD NADLER, New York
ROBERT C. SCOTT, Virginia
MELVIN L. WATT, North Carolina
ZOE LOFGREN, California
SHEILA JACKSON LEE, Texas
MAXINE WATERS, California
MARTIN T. MEEHAN, Massachusetts
WILLIAM D. DELAHUNT, Massachusetts
ROBERT WEXLER, Florida
STEVEN R. ROTHMAN, New Jersey

THOMAS E. MOONEY, Chief of Staff-General Counsel

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JULIAN EPSTEIN, Minority Staff Director

Subcommittee on Courts and Intellectual Property
HOWARD COBLE, North Carolina, Chairman
F. JAMES SENSENBRENNER, Jr., Wisconsin
ELTON GALLEGLY, California
BOB GOODLATTE, Virginia
EDWARD A. PEASE, Indiana
CHRIS CANNON, Utah
BILL McCOLLUM, Florida
CHARLES T. CANADY, Florida
JAMES E. ROGAN, California
MARY BONO, California

BARNEY FRANK, Massachusetts
JOHN CONYERS, Jr., Michigan
HOWARD L. BERMAN, California
RICK BOUCHER, Virginia
ZOE LOFGREN, California
WILLIAM D. DELAHUNT, Massachusetts

MITCH GLAZIER, Chief Counsel
BLAINE MERRITT, Counsel
VINCE GARLOCK, Counsel
DEBBIE K. LAMAN, Counsel

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ROBERT RABEN, Minority Counsel
EUNICE GOLDRING, Staff Assistant

C O N T E N T S

HEARING DATE
    May 21, 1998
OPENING STATEMENT

    Coble, Hon. Howard, a Representative in Congress from the State of North Carolina, and chairman, Subcommittee on Courts and Intellectual Property

WITNESSES

    Bliss, John S., President, International Anticounterfeiting Coalition

    Blunt, Hon. Roy, a Representative in Congress from the State of Missouri

    Downey, Bruce, President and Ceo, Barr Laboratories

    Hutt, Peter Barton, Partner, Law Firm of Covington and Burling

    Ingram, Michael, President, Ingram Enterprises, Inc.

    Kirk, Michael K., Executive Director, American Intellectual Property Law Association

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    Kole, Patrick J., Vice President, Legal and Governmental Affairs, Idaho Potato Commission

    Meyer, Gerald, Consultant, ACC Consulting Group, Inc.

    Moore, Sam, Member of Musical Group Sam and Dave

    Mostert, Fred, President-Elect, International Trademark Association

    Partoyan, Garo A., General Counsel for Marketing and Technology, Mars, Inc., on behalf of Intellectual Property Owners

    Samuels, Jeffrey M., Esq., Law Offices of Jeffrey M. Samuels, P.C.

    Sanchez, Ignacio E., Kelley Drye, and Warren, LLP

    Terry, Joe, Member of Musical Group Danny and the Juniors

LETTERS, STATEMENTS, ETC., SUBMITTED FOR THE HEARING

    Bliss, John S., President, International Anticounterfeiting Coalition: Prepared statement

    Coble, Hon. Howard, a Representative in Congress from the State of North Carolina, and chairman, Subcommittee on Courts and Intellectual Property: Statement on Patent Extension Review

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    Crapo, Michael D.: Prepared statement

    DiMasi, Joseph A., Ph.D., Director of Economic Analysis, Tufts Center for the Study of Drug Development, Tufts University: Prepared statement

    Downey, Bruce, President and Ceo, Barr Laboratories: Prepared statement
Letter to Hon. Howard Coble, dated June 2, 1998

    Hutt, Peter Barton, Partner, Law Firm of Covington and Burling: Prepared statement

    Ingram, Michael, President, Ingram Enterprises, Inc.: Prepared statement

    Kirk, Michael K., Executive Director, American Intellectual Property Law Association: Prepared statement

    Kole, Patrick J., Vice President, Legal and Governmental Affairs, Idaho Potato Commission: Prepared statement

    Meyer, Gerald, Consultant, ACC Consulting Group, Inc.: Prepared statement

    Moore, Sam, Member of Musical Group Sam and Dave: Prepared statement

    Mossinghoff, Gerald J.: Prepared statement

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    Mostert, Fred, President-Elect, International Trademark Association: Prepared statement

    Partoyan, Garo A., General Counsel for Marketing and Technology, Mars, Inc., on behalf of Intellectual Property Owners: Prepared statement

    Samuels, Jeffrey M., Esq., Law Offices of Jeffrey M. Samuels, P.C.: Prepared statement

    Sanchez, Ignacio E., Kelley Drye, and Warren, LLP: Prepared statement

    Stark, Hon. Fortney Pete, a Representative in Congress from the State of California: Prepared statement

    Terry, Joe, Member of Musical Group Danny and the Juniors: Prepared statement

    Waxman, Hon. Henry A., a Representative in Congress from the State of California

APPENDIX
    Material submitted for the record

TRADEMARK ANTICOUNTERFEITING ACT OF 1998; AMENDING THE TRADEMARK ACT OF 1946 WITH RESPECT TO THE DILUTION OF FAMOUS MARKS; CELEBRITY IMPOSTORS AND A FEDERAL RIGHT OF PUBLICITY; STATE COMMODITY COMMISSIONS AND PRODUCT CERTIFICATION; INTERNATIONAL EXPROPRIATION OF REGISTERED MARKS, AND PATENT EXTENSION REVIEW

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THURSDAY, MAY 21, 1998

House of Representatives,
Subcommittee on Courts and
Intellectual Property,
Committee on the Judiciary,
Washington, DC.

    The subcommittee met, pursuant to notice, at 2 p.m., in Room 2337, Rayburn House Office Building, Hon. Howard Coble [chairman of the subcommittee] presiding.

    Present: Representatives Howard Coble, Bob Goodlatte, Edward A. Pease, Ed Bryant, and Zoe Lofgren.

    Staff present: Mitch Glazier, Chief Counsel; Debbie Laman, Counsel; Vince Garlock, Counsel; Eunice Goldring, Staff Assistant, and Robert Raben, Minority Counsel.

OPENING STATEMENT OF CHAIRMAN COBLE

    Mr. COBLE [presiding]. The subcommittee will come to order.

    It's good to have all of you here. We are going to have sort of a hodgepodge calendar today. Most of the matters before us today are here upon request, involving five or six different issues. We hope to plow some new ground and perhaps plow some ground that's been previously plowed.

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    I must revert, briefly, if you'll bear with me. I made my singing debut with Carl Gardner of the Coasters—— [laughter] and Charlie Thomas of the Drifters as they let me sing ''Charlie Brown.'' No contract, however, was forthcoming, so I presume I did not make the cut, but I very much enjoyed having you all in our office some weeks ago.

    Today, ladies and gentlemen, the subcommittee will consider several unique and important issues. We will conduct a legislative hearing on bills related to trademarks and an oversight hearing on four other issues, three of which pertain to trademark and the fourth to regulatory patent delay. I will briefly summarize the subject matter before us.

    First, we will review H.R. 3119, a bill introduced by Representative Roy Blunt of Missouri. He has introduced this legislation at the behest of one of his constituents, Mr. Michael Ingram, who is requesting that we consider amending the Trademark Dilution Act, by requiring holders of famous marks to sue Federal registrants under the Act within a 1-year time period.

    Second, we will examine the contents of a bill introduced by subcommittee member Bob Goodlatte, the gentleman from the Roanoke Valley of Virginia. Mr. Goodlatte's legislation, H.R. 3891, the Trademark Anticounterfeiting Act of 1998, presents a complement to trademark law which would safeguard the ability of manufacturers to control the use of products with which valuable marks are associated by protecting the integrity of corresponding product identification codes contained in product packaging. These codes, comprised of numbers, letters, symbols, or expiration marks affixed to goods, enable manufacturers to trade products back to a particular production lot, batch, or date of removal. In my opinion, this bill will further legitimate commercial interests, maintain the value of trademarks affiliated with goods, and promote public health and safety.

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    Third, we will hear from celebrity performers or oldies as they are affectionately called—affectionately called, I said. [Laughter.]

    No offense intended there—who believe that State and Federal law presently offers them little protection against impostors who appropriate their acts and perform nationwide under the guise of originality.

    Fourth, Representative Mike Crapo of Idaho has—and I don't believe he's here today. Mr. Crapo is ill today. But he has requested attention to a matter. I think Mr. Patrick Kole of Idaho State Potato Commission will be with us. Mr. Crapo advocates that Congress fine-tune the Lanham Act with regard to the use of registered certification marks. More specifically, Mr. Kole wishes to prevent companies from advertising an agricultural product as though it had State quality standards when, in fact, the product had only been grown in that State.

    Fifth, an attorney representing the Bacardi rum company, Mr. Ignacio Sanchez, will share his client's story of how the Castro government forcibly expropriated the trademarks of a third-party company based in Cuba, then used a State enterprise to register these same marks in the United States. Since Bacardi has legally purchased the rights to these marks from a third-party—from the third-party owners—Mr. Sanchez will offer some suggestions as to how we may rectify this problem.

    Sixth, and finally, we will hear testimony from experts regarding the FDA delay in the approval process for patent on pharmaceuticals and corresponding patent extensions. Many members of the pharmaceutical industry believe that the process of making extension requests of Congress is too politicized and that companies and consumers might be better served by transferring this authority to the Patent and Trademark Office or to a special master.

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    In sum, I think we all agree that we have a rather full plate before us. And as those of you have previously appeared, we do try to adhere to the 5-minute rule. And we impose the 5-minute rule against us, as well as against the witnesses. When the red light illuminates, the hangman's noose will drop around your neck. Not literally, but when you see the red light illuminate, that is your signal that the 5 minutes have expired.

    Now, Zoe, I said before you came here, we have sort of a hodgepodge collection today. Do you have an opening statement?

    Ms. LOFGREN. No, I don't. Thank you.

    Mr. COBLE. Very well, let me bring the first panel forward. Now, where's the gentleman from Ohio? Dennis, did you want to make a brief statement?

    Mr. KUCINICH. Yes I did, Mr. Chairman.

    Mr. COBLE. Dennis Kucinich, the gentleman from Ohio. Mr. Kucinich.

    Mr. KUCINICH. Thank you very much, Mr. Chairman, Ms. Lofgren, and committee staff. I am very grateful to the Chair for his willingness to provide this important forum for an opportunity for very famous American music artists, who have come to your committee to humbly submit a plea for consideration for protection of their rights as artists.

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    What's happened, Mr. Chairman, I'm sure you're familiar with it, is that this is a case where these artists, many of whom are members of the Rock and Roll Hall of Fame, their entire identities have been taken away by impostors who have pretended to be them, advertised as these great performers, made performances in their name, with their titles and their honors, and cashed in on their reputation. And, actually, what we have here, is a situation where the public has been dealt a disservice by these impostors. And, what we have here, this afternoon, Mr. Chairman, are the real performers, some of the greatest rock and roll artists in American history have come to this committee to tell you their story.

    I'm going to ask, with permission of the Chair, Sam Moore from Sam and Dave, ''Soul Man.'' He's going to be here to introduce the artists along with Mr. Terry. And then they can tell you their story. I became involved with them a while back and have agreed to help champion their cause, but your participation in this means so much to all of us and I want to let you know how grateful we are for this forum.

    Mr. COBLE. Well, you're indeed welcome and the fact that we're having this hearing indicates that they convinced me that this needs to be publicly aired and I thank you for your comments, sir.

    Mr. KUCINICH. You're very kind, Mr. Chairman, Mr. Pease. And I have another engagement, but they're certainly going to be here to present their case. And I want to let you know, again, how grateful we are that you are doing this. Thanks.

    Mr. COBLE. Thank you, sir. Thank you, Dennis. The gentleman from Virginia, I think, wanted to make an opening statement, Mr. Goodlatte.

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    Mr. GOODLATTE. Thank you, Mr. Chairman. I appreciate your holding this hearing. One of the two pieces of legislation that we're considering today, which I've introduced, is called the Trademark Anticounterfeiting Act of 1998, will strengthen the integrity of the identity of certain products by providing law enforcement the tools they need to combat the growing crime of altering or removing product identification codes from goods and packaging. This bill will also provide manufacturers and consumers with civil and criminal remedies to fight those counterfeiters and illicit distributors of goods with altered or removed product codes. Finally, this bill will protect consumers from the possible health risks that so often accompany tampered goods.

    Most of us think of UPC codes when we think of product identification codes, that block of black lines and numbers on the backs of cans and other containers. However, product ID codes are different than UPC codes. Product ID codes can include various combinations of letters, symbols, marks, or dates that allow manufacturers to fingerprint each product with vital production data, including the batch number, the date and place of manufacture, and the expiration date. These codes also enable manufacturers to trace the date and destination of shipments, if needed.

    Product codes play a critical role in the regulation of goods and services. For example, when problems arise over drugs or medical devices regulated by the Food and Drug Administration, the product code plays a vital role in conducting successful recalls. Similarly, the Consumer Product Safety Commission and other regulators rely on product codes to conduct recalls of automobiles, dangerous toys, and other items that pose safety hazards.

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    Product codes are frequently used by law enforcement to conduct criminal investigations as well. These codes have been used to pinpoint the location and sometimes the identity of criminals. Recently, product codes aided in the investigation of terrorist acts, including the bombing of Olympic Park in Atlanta and the bombing of Pan Am Flight 103 over Lockerbie, Scotland.

    At the same time, manufacturers have limited weapons to prevent unscrupulous distributors from removing the coding to divert products to unauthorized retailers or place fake codes on counterfeit products. For example, one diverter placed genuine, but outdated, labels of brand-name baby formula on substandard baby formula and resold the product to retailers. Infants who were fed the formula suffered from rashes and seizures. We cannot take the chance of any baby being harmed by infant formula or any other product that might have been defaced, decoded, or otherwise tampered with.

    FDA enforcement of current law has been vigilant and thorough, but this potentially serious problem must be dealt with even more effectively as counterfeiters and illicit distributors utilize the advanced technologies of the digital age in their crimes. Manufacturers have attempted, at great expense and with little success, to prevent decoding through new technologies designed to create invisible codes, incapable of detection or removal. However, decoders have proven to be equally diligent and sophisticated in their efforts to identify and defeat new codings techniques. We, therefore, must provide manufacturers with the appropriate legal tools to protect their coding systems in order for them to protect the health and safety of American consumers.

    Currently, Federal law does not adequately address many of the common methods of decoding products and only applies to a limited category of consumer products, including pharmaceuticals, medical devices, and specific foods. Moreover, current law only applies if the decoder exhibits criminal intent to harm the consumer. It does not address the vast majority of decoding cases, which are motivated by economic considerations, but may ultimately result in harm to the consumer.

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    My legislation will provide Federal measures which will further discourage tampering and protect the ability of manufacturers to implement successful recalls and trace products when needed. It would prohibit the alteration or removal of product identification codes on goods or packaging for sale in interstate or foreign commerce, including those held in areas where decoding frequently occurs. The legislation will also prohibit goods that have undergone decoding from entering the country, prohibit the manufacture and distribution of devices primarily used to alter or remove product identification codes, and allow the seizure of decoded goods and decoding devices.

    It will require offenders to pay monetary damages and litigation costs and treble damages in the event of repeal violations—repeat violations. The bill will also impose criminal sanctions, including fines and imprisonment for violators who are knowingly engaged in decoding violations. The bill would not require product codes, prevent decoding by authorized manufacturers, or prohibit decoding by consumers. It is a good approach, designed to strengthen the tools of law enforcement, provide greater security for the manufacturers of products, and, most importantly, provide consumers with improved safety from tampered or counterfeit goods.

    Mr. Chairman, I think we know now all we will ever need to know about this legislation—— [laughter] and I thank the chairman's forbearance.

    Mr. COBLE. You have almost induced sleep, but we'll move along. [Laughter.]

    Well, I do know that you have worked very diligently on this piece of legislation, Bob. It's good to have you here.

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    Ladies and gentlemen, our first witness is the Honorable Roy Blunt, who represents the seventh district of Missouri, accompanied by Michael Ingram, who is president of Ingram Enterprises, Inc., one of the largest importers and distributors of consumer fireworks in the United States.

    Our next witness was to have been Mike Crapo, the Honorable Mike Crapo, who is ill. He is replaced by Mr. Kole, the vice president of the Idaho Potato Commission. If you will come forward.

    Our next witness is a long-time and familiar, friendly face in these halls, Mike Kirk, who is the executive director of the American Intellectual Property Law Association. His valuable expertise has benefitted this subcommittee on many occasions in the past. And, Mr. Kirk, we are appreciative to you for that.

    The next witnesses are Mr. Fred Mostert, who is the president-elect of the International Trademark Association; Mr. John Bliss, President of the International AntiCounterfeiting Coalition, a coalition of more than 170 members who share a common concern for the protection of intellectual property rights; Mr. Jeff Samuels, a private attorney. Mr. Samuels specializes in the practice of trademark and related unfair competition law and copyright law, and Mr. Garo Partoyan, who has been with Mars, Inc., of McLean, Virginia, since 1976 as general counsel for marketing and technology. Mars is the world's largest manufacturer of confectionery products.

    Mr. Ignacio E. Sanchez—am I pronouncing your name correcting, Mr. Sanchez? He is a partner with Kelley, Drye, and Warren in Miami and his litigation practice includes representation of clients with domestic and international dispute pertaining to the distribute or franchise, relationships, trademark and trade name infringement, and other commercial and regulatory issues. And, as I mentioned before, Mr. Sanchez, is representing the Bacardi rum and I presume, Mr. Sanchez, you did not bring any samples with you today?

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    Mr. SANCHEZ. Not today.

    Mr. COBLE. That's too bad.

    Our next witness is Mr. Sam Moore, who was best-known for his work with the stirring soul duo of Sam and Dave. Some of his hits include ''Hold On, I'm Coming,'' ''Soul Man,'' ''I Thank You,'' and ''Soul Sister.'' So is Sam—Mr. Moore, in the audience? Yes, come along, Mr. Moore. And our final witness on panel one is Joe Terry, who is one of the founding members of Danny and the Juniors, the recording group who recorded the top hit records, ''At The Hop,'' ''Rock and Roll is Here to Stay,'' in the late 1950's.

    Again, gentlemen, it's good to have you all with us. It's good to have those in the audience with us. And let me reiterate my earlier admonition. We have your written testimony. I assure you, it will not be casually discarded; it will be studied as it has been. But if you could confine your oral testimony to 5 minutes, we will be appreciative. Mr. Blunt, why don't we start with you.

STATEMENT OF HON. ROY BLUNT, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF MISSOURI

    Mr. BLUNT. Thank you, Mr. Chairman. Let me thank you, particularly, for having the hearing on this bill. I appreciate it very much. This is clearly a case where we have a small business that is disadvantaged by some of the changes in Federal trademark law, the Federal Trademark Dilution Act specifically. Certainly, no one has been more at the forefront of that debate and trying to get our trademark legislation and our copyright legislation in the condition it needs to be in, Mr. Chairman, than you have. I certainly don't come here today with any sense that I begin to know as much about this topic as you do.

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    But I do know that I have a constituent, Mr. Ingram, who has built a significant business, Ingram Enterprises, in the fireworks industry. He has a product that he has produced for a number of years that shares a name with a name that now is covered under the Famous Trademark Definition of the law. His product, Blockbuster, similar to a place that I used to rent movies from before I began to hear about Mr. Ingram's problems with the Blockbuster Company, is a name and a name that's been used in the fireworks industry for generations, literally. It's a name that has been used for a specific product since the 1980's. It's a name that Mr. Ingram's company used on a product beginning in 1991, and he went to the effort at every level, both the Federal and State, to do everything a small business person could possibly do to protect their use of that product name. His company has been involved in litigation for the last several years with Blockbuster the video rental store. Hard to confuse the two products, I think, the fireworks product and the video that you'd rent. But, in litigation with the video rental company, Blockbuster, about his use of this name, long used in his industry before there were video rental places, and used since 1991 by his business and, again, protected in every way that a small business person could go about protecting the use of a trademark.

    The Famous Name Dilution is a significant thing, particularly if somebody begins to use that name at a later date. This legislation really requires the owner of that famous name or famous trademark to, within a year of use, go ahead and take the action that would be taken and wouldn't allow those people to, years later, decide that they want to eliminate a product that a small business person has put product quality and goodwill behind and created their own sense of that product as well, possibly even before the famous name became a famous name.

    And I'll submit my statement for the record. Mr. Ingram has a statement for the record and understands this struggle from a small business perspective. I'm glad he's come today. And I'm particularly grateful, again, that you've taken time to have this hearing on this bill.

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    Mr. COBLE. Thank you, Roy. Mr. Ingram.

STATEMENT OF MICHAEL INGRAM, PRESIDENT, INGRAM ENTERPRISES, INC.

    Mr. INGRAM. Thank you, Roy, and thank you, Mr. Chairman, and the members of the subcommittee——

    Mr. COBLE. Mr. Ingram, if you could pull the mike a little closer to you. That's the way, thank you.

    Mr. INGRAM. Thank you. For allowing me the opportunity to testify in support of House Bill H.R. 3119. I'm president of Ingram Enterprises Incorporated and we're located in Springfield, Missouri, and our primary business has been, since 1971, the importing and wholesaling of family fireworks. I'm here today to testify about firsthand knowledge of the unfairness and the potential for abuse in existing Federal antidilution law and to encourage you to support the proposed amendment to that law as reflected in House Bill H.R. 3119.

    If enacted, H.R. 3119 would amend the Trademark Act of 1946, specifically Section 43(c) of the Lanham Act that came into effect on January 16, 1996. I believe that this Section 43(c) has caused significant confusion among trademark attorneys and the courts since it came into effect. The law has potential to cause, and in fact has caused, major problems in the marketplace regarding the use of a previously registered Federal trademarks.

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    The proposed change to Section 43(c) simply confirms, as the Federal district court did in the Circuit Cities versus Office Max case, that civil actions for Federal dilution cannot be filed to enjoin the use of a previously issued Federal registration for the same mark. The current version of Section 43(c) can be improperly used by large companies that own a famous trademark—or so-called famous trademark—in civil actions to enjoin existing Federal registrations, even though the goods are completely different, in spite of the fact that the companies compete in different channels of trade and no confusion exists in the marketplace between their respective products.

    And that's exactly what has happened to our company. For the past 4 years, we've been involved in very costly and time-consuming litigation in Federal court against a much larger company that has never considered competing in our market. This company has been using Section 43(c) in an effort to prevent us from selling products identified by our own Federally registered trademark that we obtained over 5 years ago. And even though no potential for confusion exists in the marketplace, this 900-pound gorilla has been using Section 43(c) to effectively destroy the value of our trademark registration that we received from the Patent and Trademark Office long before the Federal Dilution Law came into effect.

    On August 7, 1990, our company filed an application with the United States Trademark and Patent Office seeking to register the trade name Blockbuster to identify fireworks products based on our first use in 1991. The Patent Office examined our application and granted a Federal registration for the trademark Blockbuster to our company on May 19, 1992. We've continued to use the mark Blockbuster for over 7 years and we've invested significant time and money in developing and marketing the product lines under that mark.

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    On May 20, 1994, over 2 years after Ingram received its registration and nearly 4 years after Ingram filed an application with the U.S. Trademarks and Patents Office, Blockbuster Entertainment filed a civil action in the United States district court seeking to cancel our registration for Blockbuster. As you know, Viacom, or Blockbuster, is almost entirely engaged in the business of leasing and selling videotape movies and has never been involved in the marketing of firework products of any type. In the personal statement that I filed before the subcommittee, I have briefly outlined the status in the ongoing litigation by and between Ingram Enterprises and Viacom.

    The observations by the Eighth Circuit Court illustrate some of the difficulties and concerns that the courts have in deciding how to apply Section 43(c) of the Lanham Act. The current law makes it far too easy for a large company to claim dilution of a so-called famous mark by simply filing a civil action against any other user of the same mark no matter how different the products are or how diverse the marketplace in which the two companies exist. The unfairness and prejudice of such bullying tactics can be devastating to a small company like ours.

    We have endured 4 years of very costly and time-consuming litigation with Viacom with no trial date even yet in sight. By necessity, our company has expended hundreds of thousands of dollars and countless hours of our time in defending what we consider our legitimate right to the mark Blockbuster to sell fireworks into a completely different market. For all the above reasons, I request that this committee support House Bill H.R. 3119 which clarifies Section 43(c) of the Lanham Act. Thank you very much for your time and I'd be happy to answer any questions that you might have.

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    [The prepared statement of Mr. Ingram follows:]

PREPARED STATEMENT OF MICHAEL INGRAM, PRESIDENT, INGRAM ENTERPRISES, INC.

SUMMARY

    Ingram Enterprises, Inc. is among numerous small to mid-sized companies in the United States that are vulnerable to the potential unfairness and abuse of the current federal anti-dilution law, Section 43(c) of the Lanham Act. Over five years ago, Ingram Enterprises received a federal registration for a mark (''Blockbuster'') to identify fireworks products sold in interstate commerce. After receiving its registration, Ingram expended substantial time and energy in marketing products identified by its new mark because its registration conferred a prima facie right under the Lanham Act to use the mark in commerce throughout the United States. Ingram has now suffered four years of costly litigation brought about by a much larger company (Viacom) that has been using the 1996 federal dilution law in an attempt to enjoin Ingram from using its pre-existing federal registration to identify its products, even though the companies conduct business in completely different markets.

    The courts in this country have adopted conflicting and inconsistent theories as to the scope and effect of the 1996 federal law, i.e., whether it can be applied retroactively to enjoin a party's use of its own federally registered mark. As in the Ingram case, an interpretation of Section 43(c) that permits the law to be applied against pre-existing federal registrations creates an enormous potential for abuse and unfairness to companies struggling to compete against larger businesses. Unfortunately, the current law allows some companies to obtain a virtual monopoly for their marks without regard to the possibility of trademark confusion or the lack of competition between the parties' goods and services. The current proposed amendment to Section 43(c) as reflected in H.R. 3119 will serve to prevent that abuse.

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STATEMENT

    My name is Mike Ingram. I would like to thank Chairman Hyde and all of the members of the Subcommittee on Courts and Intellectual Property for allowing me the opportunity to testify in support of House Bill H.R. 3119.

    I am President of Ingram Enterprises, Inc., located in Springfield, Missouri. Ingram Enterprises was incorporated in 1971 and our primary business is the importing and wholesaling of family fireworks. I am here today to testify based on first-hand knowledge about the unfairness and potential for abuse in the existing federal anti-dilution law, and to encourage you to support the proposed amendment to that law as reflected in House Bill H.R. 3119.

    If enacted, H.R. 3119 would amend the ''Trademark Act of 1946,'' specifically Section 43(c) of the Lanham Act that came into effect on January 16, 1996. As you know, Section 43(c) is the new dilution law that permits the owner of a ''famous mark'' to enjoin another person's commercial use of a mark or trade name, if such use begins after the first mark has become ''famous'' and the new mark causes dilution of the distinctive quality of the famous mark.

    Ingram Enterprises owns a large number of trademarks to identify the fireworks products we sell throughout the country. At the present time, I believe that we own at least 75 different trademarks that are registered on the Principal Register of the U.S. Patent and Trademark Office. Before Ingram introduces a new line of fireworks products into the market, we file an application for the trademark covering those products. Like most trademark applicants, we wait for approval from the Patent Office before we actually begin using the new mark. After we receive final approval from the PTO, we commit a substantial amount of time and money to commercialize our products. In addition, once the trademark registration issues, we depend on the fact that under the Lanham Act the registration gives us the exclusive right to use the mark in commerce throughout the United States, without fear that we will be sued by other companies in completely different lines of business.

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    Although Congress enacted Section 43(c) with good intentions, namely to protect ''famous'' marks from unfair dilution, the existing law has the potential for very serious and adverse effects on small to medium-sized businesses. I also believe that Section 43(c) has caused significant confusion among trademark attorneys and the courts since it came into effect. The law has the potential to cause, and in fact has caused, major problems in the market regarding the use of previously registered federal trademarks.

    If Congress amends Section 43(c) as proposed in House Bill H.R. 3119, it will adopt a clear and simple remedy to the inherent unfairness of the existing statute. The proposed change to Section 43(c) simply confirms (as the federal district court held in Circuit City Stores v. Office Max, Inc.) that civil actions for federal dilution cannot be filed to enjoin the use of a previously issued federal registration for the same mark. In other words, the proposed amendment prevents Section 43(c) from being applied retroactively against companies who previously ''played by the rules'' by obtaining a valid federal registration for their trademark and then made substantial commitments of time and resources under a belief that the registration gave them the right to use their mark in interstate commerce.

    The proposed amendment to Section 43(c) states that ownership of a registration ''shall be a complete bar to an action against that person under paragraph one (1) if the action is commenced more than 365 days after the date of registration or 365 days after the person began to use the mark or trade name in commerce, whichever is later.'' The current version of Section 43(c) can be improperly used by large companies claiming to own a ''famous'' trademark in civil actions to enjoin existing federal registrations, even though the goods are completely different, and despite the fact that the companies compete in different channels of trade and no confusion exists in the marketplace between their respective products. Because the existing law does not require a finding of ''likelihood of confusion,'' a large company can claim that its so-called ''famous'' mark has been ''diluted'' by virtually any other mark that even remotely resembles the older mark, even though the companies' products do not compete in the same market.

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    This is exactly what happened to Ingram Enterprises. For the past four years, we have been involved in very costly and time-consuming litigation in both state and federal courts against a much larger company that has never considered competing in our market. That company has been using Section 43(c) in an effort to prevent us from selling products identified by our own federal registration granted by the PTO over five years ago. Even though no potential for confusion exists in the marketplace, this ''900 pound guerrilla'' has been using Section 43(c) to effectively destroy the value of the trademark registration we received from the Patent Office long before the federal anti-dilution law came into effect.

    Ingram Enterprises is not alone in its belief that the existing law can lead to potential abuse. As part of this prepared Statement, I have enclosed a summary chart showing a number of federal registrations—some of which enjoy ''incontestable'' status on the Principal Register—that could all be enjoined by an older, so-called ''famous'' mark under the current version of Section 43(c). The list of vulnerable registrations includes such well-known marks such as ''Mercury'' for outboard motors and ''Cannon'' for posters and trading cards.

    It is my understanding that the issuance of a registration on the Principal Register gives the trademark owner a prima facie right to use his mark on the goods identified in the registration throughout the United States. The registrant acquires that right only after an extensive examination and approval of the registration by the Patent Office. Prior to the enactment of Section 43(c), that right could never be taken away except through an inter partes cancellation proceeding conducted in either the Patent Office or the courts. If the current federal dilution law can be applied to enjoin existing federal registrations, it gives any owner of a ''famous'' mark the unbridled power to effectively destroy pre-existing, federal property rights of other, less ''famous'' companies who began using their registrations in good faith and in completely different areas of commerce before Section 43(c) came into existence.

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    The story of Ingram's' unfortunate involvement with Section 43(c) can be summarized as follows. On August 7, 1990, our company filed an application in the United States Patent and Trademark Office seeking to register the trademark ''Blockbuster'' to identify fireworks products based on a date of first use for the mark in 1991. The Patent Office examined our application and granted a federal registration for the trademark ''Blockbuster'' on May 19, 1992. Ingram has continued to use its registered ''Blockbuster'' mark for over seven years and has invested significant resources in developing and marketing the product lines under that mark.

    On May 20, 1994—two years after Ingram received its registration and nearly four years after Ingram filed an application with the U.S. Patent and Trademark Office—Blockbuster Entertainment (Viacom) filed a civil action in the United States District Court for the Western District of Missouri seeking to cancel the Ingram registration for ''Blockbuster.'' Viacom is engaged almost entirely in the business of leasing and selling videotape movies and has never been involved in the marketing of fireworks products of any kind. Nevertheless, its complaint alleged that Ingram's sales of fireworks products constituted trademark infringement and unfair competition under the Lanham Act, as well as trademark ''dilution'' under Missouri state law. Later, Viacom filed an amended complaint adding an additional count based on Section 43(c) of the new federal dilution law. As I mentioned, Section 43(c) did not come into effect until January 16, 1996, well after Ingram first began using its ''Blockbuster'' mark in commerce and long after we received our registration.

    During the litigation, both Ingram and Viacom moved for summary judgment after the close of discovery. In a series of orders, the district court denied Viacom's summary judgment regarding trademark infringement but granted summary judgment on its claim under Missouri's anti-dilution statute. The court dismissed Viacom's claim under the Federal Trademark Dilution Act (because the relief sought would render the statute impermissibly retroactive). Both Ingram and Viacom appealed the district court judgment.

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    Recently, the Eighth Circuit ruled that the district court erred in declining to apply the Federal Trademark Dilution Act retroactively. In its decision, the Eighth Circuit made the following observations regarding Section 43(c).

    1. The court recognized that Section 43(c)(3) provides a complete defense to state dilution claims to owners of valid, federally registered marks. That aspect of the decision appears to be consistent with the plain language of the present law.

    2. With respect to Section 43(c)(1), the Eighth Circuit noted that ''fairness is important in considering retroactivity issues,'' and that a difference exists between applying a new trademark infringement law to enjoin conduct that causes public confusion, and applying a new anti-dilution statute to enhance one party's property rights at the expense of a defendant's pre-existing property rights. Thus, the court seemed to realize that if Ingram's previous non-competing, non-confusing use of its ''Blockbuster'' mark to identify fireworks was lawful, Ingram had acquired a valuable and legitimate property interest of its own. Thus, Viacom would not be entitled to an injunction based on ''dilution'' because the injunction would be tantamount to a nationwide monopoly over a common word (''Blockbuster''). The court nevertheless held that the district court improperly refused to apply Section 43(c)(1) retroactively to Ingram's mark. In effect, the court thereby ignored the fact that Ingram received its federal registration for ''Blockbuster'' in 1992—over four years before the new law.

    3. The Eighth Circuit also recognized that in order to warrant injunctive relief under Section 43(c)(1), a plaintiff must prove that its mark was ''famous'' at the time the defendant first began using the diluting mark. ''By definition, all 'trademarks' are 'distinctive'—very few are 'famous.'''

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    4. Finally, despite its interpretation of Section 43(c)(1), the court noted that Viacom appeared to be using the federal dilution law to obtain a ''monopoly'' over the use of a rather common word (''Blockbuster'') having multiple meanings. The court recognized that ''this is a potent legal tool, which must be carefully used as a scalpel, not a ''sledgehammer.'' (citing 3 McCarthy at Section 24:114, p. 24–208).

    The above observations by the Eight Circuit illustrate some of the difficulties and concern that the courts have in deciding how to apply Section 43(c) of the Lanham Act. The current law makes it far too easy for a large company to claim ''dilution'' of a so-called ''famous'' mark by simply filing a civil action against any other user of the same mark, no matter how different the products or how diverse the marketplace in which two companies exist. The unfairness and prejudice of such ''bullying'' tactics can be devastating to a small company. Ingram has endured four years of very costly and time consuming litigation with Viacom, with no trial date in sight. By necessity, our company has expended hundreds of thousands of dollars and lost countless hours of time in defending what we consider to be our legitimate right to use the mark ''Blockbuster'' to sell fireworks products into a completely different market. Our only desire is to sell family fireworks under our own duly issued federal registration.

    The Ingram situation is not unique. Literally hundreds of companies who have obtained federal registrations for their marks are vulnerable to civil actions for ''dilution'' under the existing law. The attached summary chart clearly demonstrates that possibility and represents only a small fraction of the marks that co-exist on the Principal Register. In my experience, Section 43(c) permits a form of predatory practice by large companies and thus has enormous potential for abuse in this country.

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For all of the above reasons, I request that this committee support House Bill H.R. 3119 which clarifies Section 43(c) of the Lanham Act.

Thank you very much.

Table 1

PERSONAL NARRATIVE

    Michael Ingram was born in 1949 and is a lifelong resident of Springfield, Missouri where he resides with his wife Barbara and their two children, Michael and Natalie.

    Mr. Ingram graduated from southwest Missouri State University in 1971 with a Bachelor of Science Degree in Sociology. In 1991, Mr. Ingram was awarded the Outstanding Young Alumni Award from southwest Missouri State University.

    Mr. Ingram began selling fireworks from a fireworks stand made out of scrap lumber at the age of fifteen. Today, Ingram Enterprises, Inc. d/b/a Fireworks Over America is one of the largest importers and distributors of consumer fireworks in the United States. Mr. Ingram is the President and Chairman of the Board of Ingram Enterprises, Inc.

    Other fireworks related companies in which Mr. Ingram owns 50% or more of the stock include Fireworks Supermarkets, Inc. which is one of the largest year-round interstate retail fireworks operations in the United States with ten (10) stores in three (3) states. Additionally, Mr. Ingram is President of Blockbuster Fireworks with seasonal retail operations in the Springfield, Missouri area and a separate wholesale operation in Southern California.

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    Mr. Ingram has been or is presently involved in various commercial developments including Bradford Park, a business and commercial development in Springfield, Missouri and Sunset Cover a condominium and single family residential development in Branson, Missouri. In 1997, Mr. Ingram became one of the founding shareholders of City Bancorp., a local bank organized to service the banking needs of the citizens of Southwest Missouri.

    Mr. Ingram currently serves on the Board of Directors of the American Pyrotechnics Association and is a foundling Director and current President of the Missouri Fireworks Association. Mr. Ingram and companies in which he is an officer financially support numerous civil organizations and charitable causes in both the Springfield, Missouri area and in parts of the country where they operate. Mr. Ingram and his family are members of the First and Cavalry Presbyterian Church in Springfield, Missouri.

    Mr. COBLE. I thank you, Mr. Ingram. Mr. Kole.

STATEMENT OF PATRICK J. KOLE, VICE PRESIDENT, LEGAL AND GOVERNMENTAL AFFAIRS, IDAHO POTATO COMMISSION

    Mr. KOLE. Good afternoon, Mr. Chairman, committee members, distinguished members and guests. Thank you for the opportunity to appear here today. My name is Patrick Kole. I'm assistant to the executive director and vice president for legal and governmental affairs of the Idaho Potato Commission. And, Mr. Chairman, I didn't bring any samples along either, I thought about it. [Laughter.]

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    The Idaho Potato Commission was——

    Mr. COBLE. I should have asked—I should have given potatoes equally billing with rum. I apologize to you. [Laughter.]

    Ms. LOFGREN. Well, it was Mr. Partoyan who had the——

    Mr. COBLE. Yes, pardon me?

    Ms. LOFGREN. The Mars bars that we wanted to sample.

    Mr. COBLE. Or to bars. I'm going to get in everybody's doghouse here if I'm not careful. [Laughter.]

    Mr. KOLE. Longer ago, there was a potato vodka called ''Spudka'' that was produced—so——

    Mr. Chairman, the Idaho Potato Commission was created in 1937. It's a self-governing State agency. It's really a consumer protection agency. It is designed to make sure that only Idaho potatoes go into Idaho potato bags. There are other similar programs throughout the United States, operated by the Florida Department of Citrus, and the Vidalia Onion Committee in Georgia are examples, and so it's not unusual to see consumers make a positive association between a State and a product, such as Wisconsin cheese or Virginia ham, and many other examples, California raisins come to mind.

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    An essential component of these programs is creating consumer awareness so that consumers know to look for the seal to know that that product is real. An important common bond between these different groups is the use of certification trademarks, under the Lanham Act. Specifically. Section 4 of the Lanham Act permits the registration of marks that indicate regional origin. Registration is an important tool that provides statutory remedies. It also prevents product substitution, misrepresentation, and fraud.

    Is counterfeiting in produce a problem? Yes, sir, it is. Last year, we prosecuted an action against a company in Chicago that had mislabeled over 1.2 million consumer units. We currently have two actions pending in the State of New York with the same issues.

    Over the years, issues have arisen with respect to two sections of the Lanham Act, which are relevant not only to the Idaho Potato Commission, but to all certification mark holders. The first issue relates to Section 14 of the Lanham Act which is codified at 15 U.S.C., 1064(5). It has been argued in the past and at the present time in cases currently pending that registration of a certification mark may be canceled if the certification mark holder engages in advertising and promotion to cause recognition of the mark.

    In the case of the Idaho Potato Commission, even though it has never grown, packed, or sold a single potato during its more than 60 years of existence, its certification mark may be challenged in lengthy, costly, and unnecessary litigation on this basis. This kind of attack undermines the very purpose of the Lanham Act's provision providing for the registration and protection of certification marks. They're meant to guarantee to consumers genuineness, authenticity and adherence to the quality standards that are being certified. This guarantee is meaningless if consumers are not informed about the certification mark and the standards that are being certified thereby.

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    There is a substantial investment of taxpayers from Florida and Idaho that could be squandered in these unnecessary battles. We have provided language to the committee which we suggest being attached right after 1064, Subparagraph 5, which would clarify this issue. We note that this is entirely consistent with some of the judicial decisions that have been reached. So the purpose of this legislation is to ratify those court holdings so that we don't unnecessarily spend funds in the future on these issues in litigation.

    The second issue concerns Section 33 of the Lanham Act. That section sets forth certain defenses to a certification mark owner's proof of incontestability and infringement. Among these enumerated defenses is the fair use defense, set forth in Section 15. The purpose of this defense is to prevent trademark holders from preventing others from using fairly terms that are descriptive of the goods or services in question, which include names used fairly and in good faith, indicating geographic origin or goods or services.

    It has been argued in these cases that the fair use defense permits persons to use certification marks indicating regional origin, like our Idaho and grown in Idaho marks—of which I have examples here, Mr. Chairman, for the committee members to be able to see—that those marks can be used even though they don't agree to adhere to the quality standards or to being checked to make sure that they are fairly using those terms. We believe that this assertion of the fair use defense is inconsistent with the original intent of the Lanham Act, as codified, in the case of certification marks. We believe that the language we have provided to the committee in the form of my written testimony, will clarify that and end what is really an unfair use. We believe it's important that if somebody uses a certification mark fairly, that they do so legally.

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    Mr. Chairman, I would be happy to answer any questions of any committee members.

    [The prepared statement of Mr. Kole follows:]

PREPARED STATEMENT OF PATRICK J. KOLE, VICE PRESIDENT, LEGAL AND GOVERNMENTAL AFFAIRS, IDAHO POTATO COMMISSION

    Good afternoon, Mr. Chairman, committee members, distinguished members and guests. Thank you for the opportunity to appear here today. My name is Patrick Kole. I am the Assistant to the Executive Director of the Idaho Potato Commission, and Vice President for Legal and Governmental Affairs.

    The Idaho Potato Commission is a self-governing agency of the government of the State of Idaho. It was created in 1937. Some of the important purposes of the IPC are to set grade and quality standards for Idaho potatoes, to promote the sale of Idaho potatoes and to protect consumers by making sure that only genuine Idaho potatoes are put in Idaho—labeled bags.

    Other similar programs are in place throughout the nation. These include programs operated by the Florida Department of Citrus and the Vidalia Onion Committee in the State of Georgia.

    An essential component of these programs is creating customer awareness of the commodity in question. Florida and Idaho have been quite successful in this effort. So have many other programs. It is not unusual for consumers to associate cheese with Wisconsin, ham with Virginia, raisins with California and so on. These positive connections are the result of the hard work of many people, including the dedicated growers, shippers and processors working through commodity groups over the past sixty years. These agencies have worked hard to insure those quality standards, for products uniquely associated with their states are often set higher than those minimally required by other bodies.

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    An important common bond exists between these commodity groups. This bond is the registration and use of ''certification marks'' as provided for in the Lanham Act. Specifically, Section 4 of the Lanham Act, 15 U.S.C. §1054, permits the registration of certification marks that ''indicate regional origin.'' Registration is an important tool that provides access to statutory remedies. These remedies provide additional clout in the effort made by holders of certification marks to prevent product substitution, misrepresentation and fraud.

    Is counterfeiting a problem? Last year the IPC brought an administrative action against a Chicago company that had falsely labeled more than 1.3 million consumer units in five and ten lb. poly bags as Idaho potatoes, when, in fact, the potatoes were not from Idaho. Currently, in federal district court in New York, the IPC is prosecuting two actions in which it alleges that mislabeling and misbranding has occurred.

    Issues have arisen with respect to two sections of the Lanham Act which are relevant not only to the IPC, but to all other holders of federally registered certification marks. The IPC believes that certain amendments to these two sections would serve the best interests of all registered certification mark holders as well as the interest of the consuming public in general.

    The first issue relates to Section 14 of the Lanham Act, codified at 15 U.S.C. §1064(5). That section sets forth grounds for cancellation of a registered certification mark, and provides as follows, in pertinent part:

A petition to cancel a registration of a mark . . . may . . . be filed . . .

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(5) At any time in the case of a certification mark on the ground that the registrant . . . (B) engages in the production or marketing of any goods and services to which the certification mark is applied, or (C) permits the use of the certification mark for purposes other than to certify . . .

    It has been argued in the past and at the present time in cases currently pending that a registration of a certification mark may be canceled under the aforementioned section of the Act if the certification mark holder engages in advertising and promotion of the mark. Thus, in the case of the IPC, even though it has never grown, packed or sold a single potato during its more than 60 years of existence, its certification marks may be challenged in lengthy, costly and unnecessary litigation.

    This kind of attack undermines the very purpose of the Lanham Act's provisions providing for the registration and protection of certification marks. Certification marks are meant to guarantee to the consumer genuineness, authenticity and adherence to the standards that are being certified. This guarantee is meaningless if consumers are not informed about the certification mark and the standards that are being certified thereby. In short, consumers need to know, and are entitled to know, that they should and can ''look for the seal to know that it's real'' when purchasing certified product. In order to inform consumers about the ''seal,'' the States of Idaho, Florida and others have used advertisements and other material ''promoting'' consumer awareness of their certification marks.

    Moreover, the substantial investment that the taxpayers of States like Idaho and Florida funding the Florida Department of Citrus and the IPC may be squandered in these unnecessary battles.

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    Consequently, we suggest that 15 U.S.C. §1064(5) be amended by adding the following language:

Provided further that a certification mark holder may use the certification mark in advertising and promotional materials so long as the holder does not directly produce, manufacture or sell the certified goods or services.

    We note that this is entirely consistent with the case law on the issue. For example, in American Angus Ass'n v. Sysco Corp., 865 F. Supp. 1180 (W.D.N.C. 1994), the defendant asserted a claim to cancel the certification mark ''Certified Angus Beef'' under 15 U.S.C. §1064 (5) on the grounds that the mark holder used the mark for purposes other than to certify. The court dismissed the claim, noting that the evidence showed no activity on the part of the mark holder other than promotion and advertising, which, the court held, ''are obviously allowed and used by organizations holding certification marks.''

    Consequently, the proposed amendment would not change 15 U.S.C. §1064 (5), but would serve the valuable purpose of providing finality to an issue that apparently has been raised several times and continues to be raised regarding the kinds of activities in which holders of registered certification marks are permitted and prohibited to engage.

    The second issue relates to Section 33 of the Lanham Act, codified at 15 U.S.C. §1115(b). That section sets forth certain defenses to mark holder's proof of incontestability and proof of infringement. Among the enumerated defenses is the ''fair use'' defense, set forth in 15 U.S.C. §1115(b)(4), which provides as follows:

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That the use of the name, term or device charged to be an infringement is a use, otherwise than as a mark, of the party's individual name in his own business, or of the individual name of anyone in privity with such party, or of a term or device which is descriptive of and used fairly and in good faith only to describe the goods or services of such party, or their geographic origin.

    The purpose of this defense is to prevent the trademark owners from preventing others from using fairly terms that are fairly descriptive of the goods or services in question, which includes names fairly and in good faith indicating geographic origin of those goods or services.

    It has been argued, including in cases currently pending, that the ''fair use'' defense permits persons to use certification marks indicating regional origin, like the IPC's ''Idaho'' and ''Grown in Idaho'' certification marks, who have not been authorized by the certification mark owner to use that mark because they have not met the owner's standards for certification.

    This raises two issues. First, how can a defendant in an infringement action raise the ''fair use'' defense under 15 U.S.C. §1115(b)(4) based on its use of a certification mark indicating geographic origin when another section of the Lanham Act, 15 U.S.C. §1054, expressly authorizes the registration of certification marks indicating regional origin? Only one conclusion can be reached: that the ''fair use defense'' set forth in 15 U.S.C. §1115(b)(4) applies to trademarks, service marks and non-geographic certification marks, but cannot possibly apply to certification marks indicating regional origin. Any other construction would effectively nullify whatever rights the holder of that mark obtained by virtue of its registering the mark under 15 U.S.C. §1054. This could not possibly have been Congress's intent.

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    Second, if a non-authorized user of a certification mark is permitted to defend against an infringement action based on the ''fair use'' defense, he has no incentive to seek certification of his goods or services from the mark holder in the first place, and thus has no incentive to meet the often stringent standards required by the mark holder to obtain certification of those goods or services. This encourages cheating. The obvious loser in this scenario is the general consuming public, who will deprived of the protection that the certification mark system is designed to provide, i.e., that the goods or services he or she is purchasing meets the quality standards required by the owner of the certification mark to obtain certification.

    In order to eliminate any such problems, and to prevent any subterfuge of the Lanham Act's provisions providing for registration and protection of certification marks indicating regional origin, we suggest the following amendment to 15 U.S.C. §1115(b)(4):

Provided, however, that the use of a term or device which is descriptive of and used fairly and in good faith to describe the goods or services of such party, or their geographic origin, shall not be available as a defense or defect in connection with a certification mark indicating regional origin registered under section 1064 of this title.

    The concepts we have presented today identify issues of broad concern. We, of course, are willing to work with all interested persons and organizations and we, of course, welcome any questions or suggestions that they or this Subcommittee may have.

    Thank you, Mr. Chairman and Subcommittee Members.

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    Mr. COBLE. I thank you, Mr. Kole. Folks, we have a vote occurring on the House Floor. Why don't we suspend momentarily while we go vote and then we will return imminently and continue.

    [Recess.]

    Mr. COBLE. Again, folks, I reiterate my apology, but we have no control over when the votes occur and we will probably have another vote in another 30 or 40 minutes.

    So, Mr. Kirk, we'll be happy to hear from you.

STATEMENT OF MICHAEL K. KIRK, EXECUTIVE DIRECTOR, AMERICAN INTELLECTUAL PROPERTY LAW ASSOCIATION

    Mr. KIRK. Thank you, Mr. Chairman. I appreciate the opportunity to appear today on behalf of the AIPLA to testify on H.R. 3891, H.R. 3119, and patent term extensions.

    On the basis of its preliminary review, AIPLA believes that H.R. 3891 would benefit both consumers and trademark owners. Trademark owners often face circumstances in which their trademarked products are resold or distributed in ways that are not only destructive of the trademark's goodwill, but are deceptive and potentially harmful to consumers. For example, many consumer products have a stated shelf life, as Mr. Goodlatte indicated, to prevent consumers from receiving a product which is stale, ineffective, or otherwise not up to the trademark owners' quality standards. Trademark owners attempt to protect and promote these standards through various quality-control measures, such as shipping goods within a stated period of time from manufacture, marking shipping cases with the shelf life of the product, educating consumers about product shelf life, and monitoring and accepting for credit the return of any products which have passed their shelf life date. This vigilance is necessary because if stale products fall into the wrong hands, they can show up at discount retail stores with the shelf life date altered, concealed, or obliterated.

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    Further, product labels contain not only the date of manufacture, but also the place and lot number of manufacture. Such information is essential in the event of a product recall. If products are diverted from their intended destination, repackaged, and placed in the retail market, without the necessary product codes, effective product recall becomes impossible, as Mr. Goodlatte stated. In some cases, existing trademark law can be used to stop such activities, but courts do not always find these activities to constitute trademark infringement. A bill establishing criminal and civil remedies for label tampering would be very helpful to both consumers and trademark owners.

    As a technical matter, however, Mr. Chairman, we believe that these measures would be better placed in title 18.

    Turning now to H.R. 3119, AIPLA believes that the bill's imposition of a 1-year statute of limitations on Federal dilution claims against users of Federally registered trademarks is unwise and ill-conceived. As currently drafted, H.R. 3119 would place the owners of famous marks in an untenable situation. They would be forced to closely monitor the publication of marks for opposition, and to promptly bring an action against the continued commercial use of any potentially diluting mark in order to avoid the 1-year bar. But there are situations where even this would not fully protect the interests of the owners of famous marks.

    The imposition of a 1-year bar to actions under the Federal Dilution Act would require an extensive revision of the Lanham Act. For example, if the owners of famous marks are barred from challenging registrations of potentially diluting marks in court after 1 year, consideration would have to be given as to whether the owners of famous marks should be permitted to oppose the registration of marks which they believe would dilute their marks. This would also have implications for the Trademark Examining Operation of the Patent and Trademark Office. Accordingly, AIPLA would urge the subcommittee to reject H.R. 3119.

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    Turning now to patent term extension, today there are only two statutory avenues to obtain extensions of patent terms. The 1984 Drug Price Competition and Patent Term Restoration Act provides for limited extensions to compensate for delays caused by Federal pre-market regulatory procedures. Compensation for the possible loss of patent term due to delays in the PTO was included as part of the TRIPs implementing legislation.

    AIPLA is generally chary of proposals to extend patent terms, especially on an ad hoc basis. The absence of appropriate and generally accepted criteria to evaluate such requests has been a thorny problem in the past. Because the reasons advanced for extending patents in private bills have been so varied, the criteria against which such requests have been measured in previous PTO reviews and set forth in legislative proposals have tended to be rather general. This creates a climate of unpredictability and a fertile ground for political pressures.

    We do believe, however, that the two existing statutory schemes for patent term extensions can be improved. Fortunately, any deficiencies which might prevent diligent patent applicants from receiving an adequate patent term are now fully addressed in H.R. 400 passed by the House and its counterpart S. 507 in the Senate.

    The same cannot be said about the 1984 Act, however. Even when originally crafted, that Act failed to adequately compensate patent holders for marketing delays. Moreover, in the 14 years since the passage of that Act, the difficulties of creating and marketing new pharmaceutical products have changed substantially. R&D costs are greater and regulatory review times can be even longer. AIPLA therefore believes that the extension provisions of that Act should be thoroughly reviewed and we would urge the subcommittee to undertake this task promptly in the next Congress.

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    Thank you, Mr. Chairman.

    [The prepared statement of Mr. Kirk follows:]

PREPARED STATEMENT OF MICHAEL K. KIRK, EXECUTIVE DIRECTOR, AMERICAN INTELLECTUAL PROPERTY LAW ASSOCIATION

    Mr. Chairman:

    I am pleased to have the opportunity to present the views of the American Intellectual Property Law Association (AIPLA) on three of the topics scheduled for today's hearing: H.R. 3891, the ''Trademark Anticounterfeiting Act of 1998;'' H.R. 3119, a bill ''to amend the Trademark Act of 1946 with respect to the dilution of famous marks''; and, oversight of patent extension review. We have not yet formulated any views on the remaining topics that will be discussed at today's hearing.

    The AIPLA is a national bar association of nearly 10,000 members engaged in private and corporate practice, in government service, and in the academic community. The AIPLA represents a wide and diverse spectrum of individuals, companies and institutions involved directly or indirectly in the practice of patent, trademark, copyright, and unfair competition law, as well as other fields of law affecting intellectual property.

SUMMARY

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    In the short period of time the AIPLA has had to review H.R. 3891, the ''Trademark Anticounterfeiting Act of 1998,'' we are pleased with its thrust. The development of effective remedies to prevent tampering with product labels to protect both consumers and trademark owners is needed. AIPLA members represent both owners and users of intellectual property, including many large and small businesses whose success in the marketplace depends heavily on the ability of the purchasing public to rely upon the quality of their trademarked products. Activities which interfere with this trust and potentially create public health risks to consumers' health must be stopped.

    On the other hand, we oppose H.R. 3119. The one-year bar which H.R. 3119 would establish to an action under the Dilution Act would place owners of famous marks in an untenable position. We also believe that private relief bills such as H.R. 3119 are inappropriate mechanisms to resolve ongoing litigation.

    Finally, while AIPLA does not, at this time, support the suggestion of empowering the Commissioner of Patents and Trademarks to grant patent term extensions, we do believe that a thorough review of the Drug Price Competition and Patent Term Restoration Act of 1984 is needed and long overdue.

H. R. 3891

    H. R. 3891, the ''Trademark Anticounterfeiting Act of 1998,'' would impose criminal and civil sanctions on certain persons who, without authorization of the manufacturer, alter, conceal, or obliterate product identification information affixed to a product by which a manufacturer could identify a particular production lot or to otherwise identify the source of the product. In addition, the Act would prescribe placing product identification information on a product different from that intended by the manufacturer, placing simulated product identification information on a product, and importing, exporting or selling of any product for which the identification information had been altered, concealed, obliterated, or was otherwise improper.

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    The sanctions established would apply for tampering with product identification information on products customarily consumed or used by individuals. They would not apply to acts by the manufacturer or by the ultimate consumer, including hotels and restaurants.

    Violators of H.R. 3891 would be subject to fines and imprisonment of from up to one year for initial, low-volume activities to life imprisonment for violations resulting in the death of an individual. Products involved in such violations would be subject to impoundment and forfeiture, with the court empowered to order either their destruction or, in appropriate cases, distribution to eleemosynary institutions. Anyone injured by a violation of H.R. 3891 would have the right to bring a civil action to impound the goods on such terms as the court finds reasonable, together with either actual damages or statutory damages up to $1 million where the violation threatens the health and safety of the public. Successful plaintiffs could also recover full costs and reasonable attorneys' fees. Anyone convicted of a second offense within three years of an earlier conviction for a previous offense under H.R. 3891 would be subject to treble damages.

    The Attorney General and Secretary of the Treasury would be directed to enforce the requirements of H.R. 3891.

    In the short period of time AIPLA has had to review and evaluate the Trademark Anticounterfeiting Act of 1998, we have not been able to develop a definitive position. However, we can state that AIPLA is generally supportive of the thrust of this measure. There are a number of circumstances where both consumers and trademark owners would benefit from the protections contained in the draft bill.

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    A trademark owner is often faced with circumstances under which its trademarked product, which was originally packaged and sold under its authority and control is resold or distributed in ways that are not only destructive of the trademark's goodwill but are deceptive and potentially harmful to consumers. For example, many consumer products have a stated shelf life to prevent consumers from receiving product which is stale, ineffective, or otherwise not up to the trademark owner's quality standards. Trademark owners often attempt to protect and promote this quality standard through various quality control procedures, such as, 1) shipping goods within a given period of time from the date of manufacture; 2) marking shipping cases with the shelf life of the product being shipped; 3) educating customers about the shelf life on a product label; and, 4) monitoring goods in retail outlets for expired shelf life dates (and accepting for credit the return of any products which have passed their shelf life date).

    Such vigilance is necessary because if stale products fall into the wrong hands, they often show up at discount retail stores with the shelf life date altered, concealed, or obliterated. Further, product labels not only contain the date of manufacture, but also the place and lot number of manufacture. Such information is essential in the event a product recall becomes necessary.

    Similar problems can arise with products which are packaged and labeled specifically for institutional or bulk sale. Such products are sometimes repackaged and placed in the retail market, again without the necessary product codes. Also, diversion of consumer products from lower priced foreign markets back into the higher priced US market is also a problem both for consumers and trademark owners. Often the product which is packaged for sale outside of the US is modified to appeal to local tastes or preferences. However, to facilitate mass advertising, such products bear the same trademark as the US product, but with certain differences in the packaging and labeling to indicate the market for which the products are intended. Profiteers will alter the packaging and labeling to make the diverted product look more like the product intended for the US market, i.e., product identification codes may be deleted, obliterated or changed or the country of manufacture on the label, if it is other than the US, may be changed. It must be emphasized that such practices not only injure the trademark owner, they also deceive consumers who think they have purchased a product with known quality, taste or effect only to later find they have been misled.

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    In some cases, traditional trademark law and trademark causes of action can be used to stop these unwanted activities, but often it requires some creativity to frame a viable complaint, and courts do not always find these activities to constitute trademark infringement. Compare Warner-Lambert Co. v. Northside Development Corp., 922 F.Supp. 840 (S.D.N.Y.) with the decision on appeal 86 F.3rd 3 (2nd Cir. 1996), rvs'g in part. A bill making tampering a crime or a specific violation of a civil statute would be very helpful to both consumers and trademark owners and the proposed legislation appears to provide such needed remedies for these circumstances. As a technical matter, however, we question whether the Lanham Act is the appropriate home for such provisions. In our view, measures of the type contained in H.R. 3891 are better placed in Chapter 113 of title 18 of the United States Code.

    For all of the above-mentioned reasons, AIPLA supports the creation of an effective remedy to protect consumers and trademark owners from such deceptive and potentially dangerous practices. We would like to work with the Subcommittee as it refines and improves the draft Trademark Anticounterfeiting Act.

H. R. 3119

    H.R. 3119 would amend the ''Federal Trademark Dilution Act of 1995,'' contained in Section 43(c) of the Trademark Act of 1946 (15 USC 1125(c)) to impose a one-year statute of limitations on federal dilution claims against users of marks which have been federally registered. The Federal Trademark Dilution Act created a federal cause of action to protect famous marks from unauthorized users that even in the absence of competition or a likelihood of confusion, would blur or dilute the distinctive quality of such marks. As noted in House Report 104-374, the Act did not pre-empt any of the approximately 25 existing state dilution statutes. In essence, it provided a ''floor'' for protecting against the dilution of famous trademarks on a national basis, to coexist with state dilution laws in the same manner in which federal trademark infringement law coexists with state trademark infringement laws.

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Under section 43(c ) (3) of the Dilution Act, the ownership of a valid federal trademark registration was made a complete bar to an action brought against the registrant under state dilution law. This recognizes, as has been done in other contexts, that it would be inconsistent with the Lanham Act to permit a state to regulate the use of a federally-registered trademark. However, the ownership of a valid federal trademark registration was not made a bar to an action for dilution under the Dilution Act. The imposition of such a bar against federal dilution actions would require an extensive revision of the Lanham Act. For example, if the owners of famous marks are barred from challenging registrations of potentially-diluting marks in court, consideration would have to be given as to whether the owners of famous marks should be permitted to oppose the registration of marks which they believe would dilute their marks as well as the implications this would have on the Trademark Examining Operation of the Patent and Trademark Office (PTO). In addition, consideration would have to be given as to whether Section 14 providing for cancellation of registrations should be amended to permit a petition for cancellation to be filed on the ground that a registered mark caused dilution of the distinctive quality of a famous mark.

H.R. 3119 would establish such a bar without any apparent consideration given to the effect this would have on the owners of famous marks. Under H.R. 3119, a federal trademark registration would be a complete bar to an action under the Dilution Act if brought after the later of 365 days from the date of registration or 365 days from the date of first use of the mark in commerce. This would place the owners of famous trademarks in an untenable situation. They would be forced to closely monitor the publication of marks for opposition by the PTO and to promptly bring an action against the continued commercial use of any potentially diluting mark in order to avoid such a one- year bar. But even this would not fully protect the interests of the owners of famous marks.

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    For example, consider the situation where a company has a mark for footwear that is extensively used and is famous in the eastern United States. Another firm files to register the same mark for office supplies based on use in Alaska and Hawaii. Under current law and precedents, the owner of a famous mark cannot oppose or petition to cancel a registration of the trademark on the basis that its use would dilute the distinctive quality of its famous mark. Moreover, because a court could very well hold that the use of the mark for office supplies in Alaska and Hawaii would not dilute the distinctive quality of the famous mark for footwear on the east coast, the owner of the famous mark would not be able to stop the use of the mark under the Dilution Act. Eventually, if the owner of the mark for office supplies expanded its market to the east coast more than a year after obtaining its federal trademark registration, H.R. 3119 would leave the owner of the famous mark without the remedy for dilution which was the very purpose of the Dilution Act.

    Similarly, if the company selling office supplies had a registration in Japan, it could obtain a U.S. registration without use of its mark in the United States under section 44(e). Then, if the company began to use the mark in a remote part of the United States where it would not necessarily come to the attention of the owner of the famous mark, H.R. 3119 would deny the owner of the famous mark any remedy after one year of such use.

    We are aware of on-going litigation in the 8th Circuit, Viacom Inc. v. Ingram Enterprises, Inc., 43 USPQ2d 1148 (W.D. Mo 1997), XX F.2d XX (8th Cir. 1998), rvs'g and rem'g, which might be affected by H.R. 3119. In this controversy, Viacom, which owns Blockbuster Entertainment Corp., filed federal and state dilution actions in the District Court for the Western District of Missouri against Ingram's use of its trademark ''Blockbuster'' for fireworks. Ingram is defending in part on the basis of its federal registration for the trademark ''Blockbuster'' which it obtained two years before the suit was filed.

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    AIPLA believes that the one-year statute of limitations which H.R. 3119 would establish against federal dilution claims against federally-registered marks is both undesirable and ill-conceived. We also believe that private relief bills are inappropriate mechanisms to resolve ongoing litigation. In the event, however, the Subcommittee concludes that a federal trademark registration should provide some degree of protection from a federal dilution action, we would strongly urge that full consideration be given to the impact which such a rule might have on all aspects of the federal trademark registration system, including whether the owners of famous marks should be permitted to oppose or cancel registrations of diluting marks in the Patent and Trademark Office.

PATENT TERM EXTENSION

    Another of the questions presented by this hearing is that of conferring upon the Commissioner of Patents and Trademarks or a special master the authority to consider and, in appropriate circumstances, grant extensions of patent terms. This is a recurring issue that Congress is asked to address in practically every session, usually in the form of a private relief bill. Presumably, a consideration underlying this proposal is the thought that Congress is ill-equipped to investigate such requests and that entrusting this to some expert body would result in objective decisions, free of political pressures, permitting Congress to focus on its legislative responsibilities.

    Today, there are only two statutory avenues for patentees to obtain extensions of their patent terms. The first in time was established by the Drug Price Competition and Patent Term Restoration Act, P.L. 98-417, which was enacted in 1984. The purpose of this act was twofold: 1) to make available low cost generic drugs by establishing a shortened drug approval procedure for pioneer drugs approved after 1962, and, 2) to create a new incentive for increased expenditures for research and development of certain products subject to premarket regulatory review and approval. More recently, protection against the possible loss of patent term due to procedural delays by the Patent and Trademark Office in issuing patents was included as part of the Uruguay Round Agreements Act (URAA) approved by Congress in 1994. Under the URAA, patentees can have up to 5 years added to their patent terms for delays in patent issuance caused by secrecy orders, successful appeals and contests to determine which of rival inventors was the first to make an invention.

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The proponents of the concept of empowering the Commissioner or a special master to consider and grant patent term extensions must believe either that there are additional situations not covered by existing law in which patent terms should be extended or that the existing provisions are deficient. AIPLA is generally chary regarding proposals to extend patents and especially to extend patents on an ad hoc basis. We note that no criteria have been set forth against which such requests for patent extension would be evaluated. The absence of appropriate criteria by which requests for term extension might be evaluated has proven to be one of the thornier problems in the consideration of patent term extensions in the past. Because the reasons advanced are far more varied than processing delays in the Patent and Trademark Office or marketing delays caused by federal premarket regulatory review, the criteria against which such requests have been measured in previous PTO reviews tend to be rather general. This creates a climate for unpredictable decisions with resulting uncertainty for competitors, not to mention fertile ground for political pressures. Even if such a proposition were enacted, patentees who failed to obtain an extension from the Commissioner or a special master would rush to their Representative's office seeking relief. Accordingly, while AIPLA would not rule out a proposal such as that raised by the materials distributed for this hearing, we are not convinced of the wisdom of such a course of action at this time.

On the other hand, we do believe that the two existing statutory schemes for patent term extensions are in need of improvements. The rules for extending patent terms to compensate for delays experienced by patent applicants in various PTO procedures were extensively debated in the consideration of H.R. 400, both in this Subcommittee and on the House floor. AIPLA believes that any deficiencies which may have prevented diligent patent applicants from receiving an adequate patent term under the URAA are now fully addressed in H.R. 400 and its Senate counterpart, S. 507.

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Unfortunately, the same cannot be said about the provisions of the Drug Price Competition and Patent Term Restoration Act. Even when originally crafted, the Act failed to adequately compensate patent holders for marketing delays due to federal regulatory review processes. While patentees in unregulated markets enjoyed seventeen years of market exclusivity, the Act capped the length of term that would be restored to patentees in regulated markets. Notwithstanding persuasive evidence that led the PTO to recommend that losses of up to seven years be restored, the Act capped the period which could be restored to five years. Moreover, even where a five-year restoration would otherwise be appropriate, the Act provides that no restored term can exceed fourteen years. On top of these overly restrictive limits, a number of conditions were included in the Act which undercut the stated purpose of providing an incentive to invest in research and development of new products to alleviate pain and suffering and save lives.

In the fourteen years since the passage of the Act, the circumstances of creating and marketing new pharmaceutical products have changed substantially. In a study entitled Sustaining Innovations in U.S. Pharmaceuticals (1996), conducted by the Boston Consulting Group, it was found that fully capitalized costs of the R&D process appear to have risen from approximately $350 million for drugs introduced in the 1981-83 time period to over $500 million for drugs introduced in 1990. The time required to obtain approval to market a new product was found in a 1993 study by the Congress' Office of Technology Assessment to be up to twelve years. (Pharmaceutical R&D: Costs, Risks and Rewards, February, 1993). Clearly, the realities of the regulatory review process and increased R&D costs for pharmaceutical products, food and color additives, medical devices and other regulated products strongly argues for a thorough review and adjustment of the Drug Price Competition and Patent Term Restoration Act. Moreover, such a review should not be limited to the length and conditions for term extensions. The period of exclusivity for data submitted during the approval process should also be revisited, particularly in light of the more protective systems in Europe and Japan.

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    While there is not sufficient time to accomplish this in the 105th Congress, AIPLA would urge the Subcommittee to undertake this task promptly in the 106th Congress. The quality of health care for American citizens and fundamental fairness to those who create and market regulated products demand this.

SUMMARY

    While AIPLA has not had sufficient time to develop a definitive position on H.R. 3891, the ''Trademark Anticounterfeiting Act of 1998,'' we support the general thrust of the bill. The development of effective remedies to prevent tampering with product labels to protect both consumers and trademark owners is needed. A trademark owner is often faced with circumstances under which its trademarked product is resold or distributed in ways that are not only destructive of the trademark's goodwill but are deceptive and potentially harmful to consumers. Businesses and consumers rely heavily upon product labels and codes to evaluate the quality and safety of a product. Any activity which interferes with the trust that consumers place in trademarked products and which can create public health risks must be stopped.

    AIPLA opposes H.R. 3119's imposition of a one-year statute of limitations on federal dilution claims against users of marks which have been federally registered. While the ownership of a valid federal trademark registration was made a bar to an action against the registrant under state dilution law, the imposition of such a bar against federal dilution actions would require extensive revisions of the Lanham Act. The enactment of H.R. 3119 without complementary amendments to the Lanham Act would leave the owners of famous marks without an effective remedy against dilution in a number of situations. Moreover, AIPLA believes that private relief bills which determine the outcome of ongoing litigation are inappropriate.

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    Regarding patent term extensions, AIPLA is generally chary of proposals to extend patents on an ad hoc basis. There are two existing statutory schemes for extending patent terms, one arising out of TRIPs for delays in the PTO and the other arising out of the Drug Price Competition and Patent Term Restoration Act of 1984 for delays resulting from federal premarket regulatory procedures. While H.R. 400 would eliminate any deficiencies in the TRIPS-inspired extension provisions, no similar legislative help is currently under consideration for the 1984 Act's patent term extension provisions. These provisions were deficient at the outset and have become less effective in the current research and regulatory climate. AIPLA urges the Subcommittee to undertake a thorough review and amendment of the 1984 Act in the 106th Congress.

    Mr. COBLE. Thank you, Mr. Kirk. Mr. Mostert.

STATEMENT OF FRED MOSTERT, PRESIDENT-ELECT, INTERNATIONAL TRADEMARK ASSOCIATION

    Mr. MOSTERT. Good afternoon, Mr. Chairman. It is a pleasure to be here today to present the views of the International Trademark Association on various pieces of legislation and issues relating to the development of U.S. trademark law. My name is Fred Mostert and I am the president of the INTA. Since, as William Shakespeare wrote in his play Henry VI, ''delays have dangerous ends,'' and has been asked to cover five topics in just 5 minutes, I will now begin my presentation.

    First, the Trademark Anticounterfeiting Act of 1998. I think it is safe for me to say that INTA supports in full the intent of this proposed legislation. Preserving the integrity of product identification codes is vital if we are to ensure proper control of the commercial distribution process. While INTA supports the intent of this legislation, we cannot endorse the bill as it is currently drafted, as an amendment to the Lanham Act.

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    Simply stated, the Lanham Act is the wrong place for the type of provisions enumerated in this bill. The tampering and alteration of product ID codes lies at the heart of this measure. How this relates to the registration and protection of trademarks, the purpose of the Lanham Act, is a question we at INTA have been asking ourselves since we became aware of the bill in its present form. INTA believes strongly that in order to be most effective and at the same the least disruptive to trademark law, the provisions of the bill before us today belong in another area of Federal law.

    The second topic on the agenda is H.R. 3119, a bill to amend the Federal trademark dilution law by placing a 1-year statute of limitations on dilution claims. We believe, Mr. Chairman, that this legislation is inconsistent with current trademark law, is excessive in light of available equitable defenses under common law and imposes a substantial risk of creating unnecessary litigation. INTA, therefore, opposes the bill.

    The next topic is the right of publicity. The issues raised by those in the entertainment industry concerning the right of a person to control the commercial use of his or her persona are indeed valid. Today we are seeing more and more examples of individuals' right of publicity being infringed by those who would seek to profit from another's hard work. Many trademark owners enjoy the marketing benefits of exclusive licenses from celebrities and the estates of deceased celebrities. Negotiating such licenses and pursuing infringes would be more predictable if the right of publicity was a single national law, rather than the present patchwork of State laws and court decisions.

    To provide clarification and uniformity for both trademark owners and personalities alike, INTA believes a right of publicity law is in order. To that end, the INTA board of directors recently adopted a resolution which approves, in principle, Federal right of publicity legislation as an amendment to the Lanham Act. A more detailed explanation of this resolution is contained in my written statement. We look forward to working with the subcommittee and those in relevant industries to draft appropriate legislation for introduction during the next Congress.

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    Moving along, INTA has reviewed the draft legislation concerning the expropriation of trademark rights by a foreign country. It is our understanding that the proposal likely arose as a result of a case involving the expropriation of trademark rights by the government of Cuba. After careful consideration I'm obliged to inform you, Mr. Chairman, that INTA would actively oppose this measure if it were introduced in the Congress. We feel strongly that this provision would place a burden on the U.S. PTO to ascertain what precisely determines expropriation without just compensation, an interpretation that the agency is not and should not have to be qualified to make. There are some other concerns which are raised in my written testimony.

    The last issue deals with two amendments concerning certification marks which have been drafted by the Idaho Potato Commission and the Florida Department of Citrus. First, after preliminary analysis I'm able to report, Mr. Chairman, that INTA is open to discussion regarding the proposed amendment to Section 14, relating to the marketing of a certification mark. I would like to stress, however, that we have not made a final determination and, therefore, recommend postponement of the introduction of legislation until early in the next Congress so as to permit a sufficient time for further discussion and examination concerning the language and the possible impact of the changes.

    The second proposed amendment, that which pertains to Section 33(b)(4), would create an exception to the fair use defense. INTA believes that certification marks should be subject to the fair use defense and opposes efforts to amend the Lanham Act in this area.

    This concludes my oral testimony. Thank you for the opportunity and I'm prepared to answer your questions.

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    [The prepared statement of Mr. Mostert follows:]

PREPARED STATEMENT OF FRED MOSTERT, PRESIDENT-ELECT, INTERNATIONAL TRADEMARK ASSOCIATION

INTRODUCTION

    Good afternoon, Mr. Chairman and Members of the Subcommittee on Courts and Intellectual Property. The International Trademark Association (INTA) is pleased to appear before you today to discuss matters relating to the following:

the Trademark Anticounterfeiting Act of 1998;

an amendment to the Federal Trademark Dilution Act, as contained in H.R. 3119;

the development of federal right of publicity legislation;

expropriation of trademark rights by a foreign country; and

the proper use of certification marks.

We thank the Subcommittee for its willingness to hold this hearing and look forward to sharing with you our views on these diverse topics.

    My name is Frederick Mostert and I currently serve as Chairperson of the Board of Directors and President of the INTA. I am employed by INTA member Richemont International Limited in London, United Kingdom, as Intellectual Property Counsel. As with all INTA officers, board members and committee members, I serve on a voluntary basis.

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    INTA is a not-for-profit membership organization which just last week wrapped up its 120th Annual Meeting in Boston, Massachusetts. Since its founding in 1878, membership has gown from 12 New York-based manufacturers to more than 3,500 members that are drawn from across the United States and from 119 additional countries.

    Membership in INTA is open to trademark owners and those who serve trademark owners. Its members are corporations, advertising agencies, professional and trade associations, and law firms practicing trademark law. INTA's membership is extremely diverse, crossing all industry lines and spanning a broad range of manufacturing, retail and service operations. All of INTA's members, regardless of their size or level or international scope, share a common interest in trademarks and a recognition of the importance of trademarks to their owners, to the general public, and to the economy of the United States and the global marketplace.

TRADEMARK ANTICOUNTERFEITING ACT OF 1998

    For both consumers and the producers of goods, product identification codes play an important role. Numbers, letters, symbols, marks, and dates—all of which are forms of product identification codes—provide valuable details to the consumer concerning the origin of products (company), warranties, addresses for submitting complaints and/or compliments, and, most importantly, information concerning health and safety. As for the producers of goods, product identification codes help to preserve the integrity of the distribution process by enhancing the ability to track a product as it moves through the market to ensure quality control, to fulfill product warranties, and ultimately to maintain a high level of customer satisfaction.

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    Given this critical function, efforts to enact or increase criminal penalties for tampering with product identification codes are worthwhile and should be encouraged. This is especially true in light of the growth of the gray market, the complexity of counterfeiting operations, and the sheer volume of goods (both gray and counterfeit) which have flooded the global marketplace in recent years. INTA therefore offers its support for the intent of the bill before us today.

    We cannot however, Mr. Chairman, offer our endorsement of the bill as it is presently drafted. The bill seeks to amend to the Lanham Act by adding a new §43A. Simply stated, the Lanham Act is the wrong place for the type of provisions contained in this bill.

    The purpose of a product identification code is to allow the manufacturer and the consumer to ''trace a product back to a particular product lot or batch or date of removal.''(see footnote 1) The tampering and alteration of these codes lie at the heart of this measure. How this relates to the registration and protection of trademarks and the prevention of unfair competition, the purposes of the Lanham Act, is a question we at INTA have been asking ourselves since we became aware of the bill in its present form.

    What this issue is really about, Mr. Chairman, is control of the distribution process. That is what product identification codes are all about—tracking goods as they move through commercial channels. The issue here is helping manufacturers and consumers trace lot numbers, determine that expiration dates are not violated, and ensure that the products get to their ultimate destination. While these are certainly admirable goals, to be most effective and at the same time the least disruptive to other areas of the law (specifically trademark law), the provisions of this bill belong perhaps in Title 18 of the U.S. Code .(the criminal law) or even in another area of Title 15 which is not related to the Lanham Act.

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    An example of the possible disruption caused by amending the Lanham Act relates to the manner in which the term ''mark'' is used. The definition of ''product identification code'' in this bill includes ''any number, letter, symbol'' and ''mark.''(see footnote 2) Let us not forget, however, that under existing provisions of the Lanham Act, a ''number'', ''letter,'' and ''symbol'' are already considered to be marks. The definition of ''product identification code'' here sets ''number,'' ''letter,'' and ''symbol'' apart from ''mark.'' How will this conform with the rest of the Lanham Act? I believe that there may very well be some inconsistencies in the future—ones which I am sure the Subcommittee would like to avoid.

    To sum up INTA's position on this legislation, I think it is safe to say that we would be happy to support a bill which does not amend the Lanham Act and is titled the ''Product Code Anti-Tampering Act.'' We cannot however, under any circumstances, support the ''Trademark Anticounterfeiting Act of 1998,'' a bill to amend the Lanham Act.

H.R. 3119, AN AMENDMENT TO THE FEDERAL TRADEMARK DILUTION ACT

    H.R. 3119 seeks to amend §43(c) of the Lanham Act by placing a one-year statute of limitation on dilution claims after the registration date or after the person began to use the mark or trade name in commerce, whichever is later. We believe, Mr. Chairman, that this legislation is inconsistent with current trademark law, is excessive in light of available equitable defenses under common law, and poses a substantial risk of creating unnecessary litigation. INTA therefore opposes the bill.

    H.R. 3119 does not take into account that an owner of a famous mark may not have any knowledge of the diluting use. Traditional trademark law recognizes the equitable defenses of estoppel (passive conduct on the part of the plaintiff, i.e. a trademark owner), laches (delay by plaintiff in seeking redress), and acquiescence (conduct of plaintiff recognizing action by defendant). These defenses, like equitable statutes of limitations, all depend to some extent on when the owner of the famous mark becomes aware of the diluting use and whether there has been silence or some other affirmative conduct by the trademark owner (the plaintiff). The Lanham Act does not have any statutory limitation on filing trademark infringement claims. Instead, the equitable defenses of estoppel, laches, and acquiescence are used by courts and defendants to bar actions which are not timely filed.

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    The bill also fails to take into consideration that, under present law, the owner of a famous mark cannot prevent federal registration because there is no examination for dilution at the Trademark Office. The Trademark Trial and Appeal Board (TTAB) also does not recognize dilution as a grounds for opposition or cancellation in the registration process.(see footnote 3) The end result of H.R. 3119 would be to require owners of famous trademarks to file a dilution claim within one-year from registration of a diluting mark. This then places the onus on the owner of the famous mark to search every class for potentially diluting marks when the Official Gazette is published. They would be forced to sue prior to registration, rather than protest and take a ''wait and see'' attitude.

    One problem faced by our society is the proliferation of unnecessary litigation. INTA believes that passage of H.R. 3119 will result in thousands of lawsuits that otherwise would never have been initiated. By foreclosing legal action one year after third party use of a famous mark, a premium is placed upon requiring owners of famous marks to bring suit against any party whose use might potentially be viewed as diluting or tarnishing the famous mark.

PROTECTION OF AN INDIVIDUAL'S ''RIGHT OF PUBLICITY''

    The issues raised by those in the entertainment industry (both past and present) concerning the protection of the ''right of publicity'' are indeed valid, Mr. Chairman. A ''right of publicity'' is the right of a person to control the commercial use of his or her persona including, but not limited to attributes such as name, voice, likeness or other indicia of his or her personality (i.e., ''persona''). Nicknames and pseudonyms that identify a particular living or deceased individual also could qualify as an aspect of persona. Today, with the advent of new technologies such as the Internet, we are seeing more and more examples of an individual's ''right of publicity'' being infringed by those who would seek to profit from another's hard work.

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Many trademark owners enjoy the marketing benefits of exclusive licenses from celebrities and the estates of dead celebrities.(see footnote 4) Negotiating such licenses and pursuing infringers would be more predictable if the ''right of publicity'' was a single national law rather than the present patchwork. Some states have yet to address the question and some states have lower court decisions that hold there is no right of publicity.(see footnote 5) To provide clarification and uniformity for both trademark owners and personalities alike, a right of publicity law is in order. After all, Mr. Chairman, as I am sure you will agree, legal certainty promotes commercial efficiency.

INTA supports comprehensive efforts to amend the Lanham Act to protect an individual's ''right of publicity.'' To that end, the INTA Board of Directors recently adopted a resolution which approves in principle, federal right of publicity legislation as an amendment to the Lanham Act. The INTA Board added that this legislation should embody all of the following standards:

preemption of state law—both statutory and common law;

harmonization, to the extent practicable, the divergent laws of various states in a manner that recognizes the principles underlying the right of publicity and fairly balances competing public interests;

recognition of the principles underlying the right of publicity by providing for a descendible and transferable right of publicity for a fixed term after death without regard to whether the right was exploited during a person's lifetime;

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protection of the public interest by providing, through a ''grandfather clause,'' prior user rights for the owners of names and marks consisting of an aspect of persona lawfully acquired before enactment of federal right of publicity legislation; and

protection of the public's interest by exempting from liability uses of persona that meet fair use/First Amendment standards for uses such as, without limitation, news, biography, history, fiction, commentary and parody.

    Consistent with INTA's long-standing policy of opposing any special interest trademark legislation, we believe the ''right of publicity'' should be extended to every individual, not only those persons from a particular segment of the entertainment industry, as some have suggested. Congress should resist this kind of piecemeal approach, which will only hinder the process of developing a comprehensive solution.

    The road that lies ahead in the drafting of a ''right of publicity'' bill is lengthy and will likely involve amendments to existing provisions in the Lanham Act relating to the Principal Register (§2), assignments (§10), remedies (§32), injunctions (§34), and definitions (§45). In addition, INTA contemplates the need for several new sections pertaining specifically to aspects of persona. One of the most important new sections (especially to studio owners and television producers) is the question of ''defenses'' to a claim of ''right of publicity'' infringement. Drafting these amendments, Mr. Chairman, should not be taken lightly. This will require great care on the part of Congress.

    Finally, INTA believes that it is vital that all interested private sector groups join the effort to craft a ''right of publicity'' bill. Already, just a few short months after the adoption of INTA's resolution, we have been in contact with representatives of the Motion Picture Association of America, the Screen Actors Guild, and the American Bar Association's Intellectual Property Law Section to learn about their concerns with respect to this issue. INTA recommends that the Congress reach out to these organizations, as well as trademark owners, to draft appropriate legislation.

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EXPROPRIATION OF TRADEMARK RIGHTS

    INTA has reviewed the draft legislation concerning the expropriation of trademark rights by a foreign country which was forwarded to us by this subcommittee. It is our understanding that the proposal likely arose as a result of a case involving the expropriation of trademark rights by the government of Cuba.(see footnote 6)

    After careful consideration by the relevant INTA legislation analysis subcommittee, I am obliged to inform you, Mr. Chairman, that INTA would actively oppose this measure if it were introduced in the Congress.

    Our first concern with the proposal lies in the fact that it would prevent the U.S. Patent and Trademark Office (USPTO) from granting registration to a mark on deceptiveness or misdescriptiveness grounds if the applicant can show prior use in another country and that the applicant's mark in that country was expropriated without just compensation. We feel strongly that this provision would plate a burden on the USPTO to determine what precisely determines ''expropriation without just compensation,'' a fact based interpretation that the agency is not, and should. not have to be, qualified to make.

    In addition, from a policy perspective, INTA is concerned that, although this provision may be equitable as applied to the Cuban government, in the future, U.S. policy may well favor other foreign governments that could be accused by their citizens or dissidents of having ''expropriated'' trademarks, through the nationalization of industries or otherwise. In such an instance, the application of this proposed legislation could actually run contrary to the interests of U.S. foreign policy. For this reason, INTA believes it would be best not to statutorily adopt a presumption as to which party (i.e. an individual or their government) should be entitled to register a disputed trademark in U.S. Instead, federal law should maintain the flexibility to address these questions in the context of their specific circumstances. In what we believe to be the instant case, plaintiffs who hail from Cuba have generally found favorable treatment in U.S. courts, and they already have a good body of precedent to draw on.(see footnote 7)

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CERTIFICATION MARKS

    INTA has reviewed the Lanham Act amendments concerning certification marks which were forwarded to us by the Idaho Potato Commission and the Florida Department of Citrus. In particular, these amendments relate to the grounds for cancellation of a certification mark in §14 and the so-called ''fair use'' defense in §33(b)(4).

    After a preliminary analysis by the relevant INTA legislation subcommittee at our Annual Meeting in Boston, I am able to report, Mr. Chairman, that INTA is open to discussion regarding the proposed amendment to §14, but recommends postponement of the introduction of legislation until early in the next Congress so as to permit sufficient time for further examination concerning language and the possible impact of the changes. As for the proposed amendment to §33(b)(4), INTA would oppose such an amendment were it to be introduced as legislation.

    We understand that the Idaho Potato Commission and Florida Department of Citrus wish to amend §14 of the Lanham Act to permit holders of certification marks to conduct promotional activities and advertising campaigns which feature the certification marks without fear that such actions will result in the cancellation of their mark. According to our latest information, the proposed amendment reads as follows:

''Provided further that a certification mark holder may use the certification mark in promotional activities and advertisements so long as the holder does not directly produce, manufacture, or sell the certified goods or services.''

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    The current language in §14(5)(B) of the Lanham Act states that a certification mark is subject to cancellation if the owner ''engages in the production or marketing of any goods or services to which the certification mark is applied.'' Our reading of this provision, as well as existing case law, suggests that this language does not prevent the owner of a certification mark from promoting recognition of the mark itself. Rather, the owner is only prohibited from marketing goods on which the mark is applied.(see footnote 8) Thus, for example, the Idaho Potato Commission cannot market potatoes, but it can market its certification mark as a reliable indicator of the origin of potatoes that bear that mark. Assuming that commercials of entities such as the Idaho Potato Commission only tout the certification mark itself, their activities should not fall within the prohibitions of the existing statutory language.

    Notwithstanding this conclusion, INTA remains sympathetic to the plight of certification mark owners who believe that their right to promote their respective certification marks may somehow be restricted by a perceived lack of clarifying language in §14(5)(13) with respect to the scope of the term ''marketing''. We therefore, as I indicated earlier, remain open to discussion on the subject of amendments. In the short time we have had to study the language which has thus far been proposed by the Idaho Potato Commission and the Florida Department of Citrus (regarding ''promotional activities'' and ''advertising''), we believe that it may be overly broad and may very well lead to unintended consequences.

    We look forward to reviewing later drafts of proposed amendments to §14 and discussing them with the Congress and other interested parties.

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The second proposed amendment, which is to §33(b)(4), reads as follows:

''provided; however, that a party asserting a defense against infringement of a certification mark based upon geographic origin must show that the allegedly infringing goods were in fact obtained from the geographic area in question, and in compliance with applicable federal and state law.''

In essence, this proposed amendment would create an exception to the ''fair use'' defense in situations where the mark in question is a certification mark registered by a statutorily created entity required by law to certify the geographic origin of particular goods. The INTA subcommittee members who studied this proposal believe that certification marks should be subject to the ''fair use'' defense and that the Association should actively oppose efforts to amend the Lanham Act in this area.

Although a certification mark can be a geographic term to certify that goods originate from a geographic region, protection of that term is still subject to the ordinary requirements of trademark law. For example, the Trademark Manual of Examining Procedure (TMEP), an official guide published by the USPTO and used by trademark examiners to aid in the examination process, indicates that the registration should be refused for certification marks consisting only of geographic terms when there is evidence in the record that the specific term has a principal significance as a description of the goods rather than as a service mark (such as ''Paris'' for perfume).(see footnote 9) The TMEP provides a good summary of the concerns involved in protecting a mark consisting only of a geographic term:

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''When a geographical term is used as a certification mark, at least two issues are of basic concern: first, preserving the freedom of all persons in the region to use the term and, second, preventing confusing or other improper uses of the mark which would be detrimental to all those entitled to use the mark.''(see footnote 10)

The ''fair use'' defense is necessary to maintain the balance between these two concerns. If the geographic term has taken on a primary significance as a certification mark, then the ''fair use'' defense would be impacted by that fact. If however, the geographic term still has significance as such, then producers in that geographic region should still be permitted to use it appropriately to the extent necessary to describe their location. Thus, the proposed amendment would unduly restrict commercial speech.

When a certification mark consists solely of a geographical term, the mark will likely be available for use by all producers in that geographic region. When additional standards are required for use of the certification mark, the consuming public and producers who will utilize the mark are better served by having a mark that incorporates elements in addition to the geographic term, such as other words or a logo. For example, the Florida Department of Citrus adopted the mark SUNSHINE TREE to certify citrus from Florida.(see footnote 11) Thus, the owners of certification marks are not unduly hampered by the ''fair use'' defense; rather, they have the option of creating marks that contain additional protectable elements, instead of relying exclusively on geographic terms.

CONCLUSION

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    On behalf of the membership of INTA, I would like to take this opportunity to thank you, Mr. Chairman and your colleagues on the Subcommittee, for reaching out to trademark owners to learn our views on the diverse issues before us today. As I am just beginning my presidency, I look forward to continuing to work with the Congress toward a productive year for us all.

    Thank you.

HOUSE RULE XI DISCLOSURE

    Pursuant to House Rule XI, clause 2(g)(4), the Subcommittee is hereby informed that the International Trademark Association has received no federal grant, contract, or subcontract in the current and preceding two fiscal years.

CURRICULUM VITAE

    Frederick Mostert is Intellectual Property Counsel for the Richemont Group which includes Cartier, Alfred Dunhill, Montblanc, Lancel and Hanover Direct.

    He is principal author and coordinating editor of the book ''Famous and Well-Known Marks—An International Analysis''. Dr. Mostert has written widely on the subject of trademarks and intellectual property and some of his most recent publications have been translated into Mandarin Chinese and Russian. In addition, he has provided expert testimony in the McDonald's case in South Africa and the Smirnoff case in Russia.

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    Dr. Mostert is a member of the New York Bar and has practiced corporate law at the law firm of Sherman and Sterling and international intellectual property law at the firm of Fross, ZeInick, Lehrman and Zissu. He holds a doctorate in law from RAU in Johannesburg and a master's degree from Columbia University School of Law in New York City. He lives in London with his wife.

SUMMARY OF TESTIMONY OF THE INTERNATIONAL TRADEMARK ASSOCIATION

    Trademark Anticounterfeiting Act of 1998: Product identification codes play an important role for both consumers and producers of goods. Given their critical function, strong criminal penalties for tampering with product identification codes should be encouraged and we support the intent of the proposed legislation before this Subcommittee. However, INTA cannot offer our endorsement of the bill as it is presently drafted. Amending the Lanham Act is the wrong approach for these type of changes. To be most effective and, at the same time, the least disruptive to trademark law, the provisions of this bill belong perhaps in Title 18 of the U.S. Code (the criminal law) or even in another area of Title 15 that is not related to the Lanham Act. INTA cannot support a ''Trademark Anticounterfeiting Act'' that amends the Lanham Act.

    H.R. 3119,, An Amendment to the Federal Trademark Dilution Act: H.R. 3119 would amend the Lanham Act by placing a one-year statute of limitation on dilution claims after the registration date or after use of the trademark or trade name in commerce, whichever is later. INTA believes this legislation is inconsistent with current trademark law, is excessive in light of available equitable defenses under common law and poses a substantial risk of creating unnecessary litigation.

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    Protection of an Individual's ''Right of Publicity'': INTA supports comprehensive efforts to amend the Lanham Act to protect an individual's ''right of publicity''—that is, the right of a person to control the commercial use of his or her persona. Today, with the advent of new technologies such as the Internet, we are seeing more and more infringement of an individual's ''right of publicity'' by those who would seek to profit from another's hard work. The present patchwork of differing state laws has led to unpredictable and confusing results. A federal right of publicity law would provide needed uniformity and clarification, benefiting trademark owners and personalities alike. INTA believes that the ''right of publicity'' should be extended to every individual, not just a particular segment of the entertainment industry, as some have suggested. Congress should resist this kind of piecemeal approach, which will only hinder the development of a comprehensive solution.

    Expropriation of Trademark Rights: After careful consideration of the draft legislation concerning the expropriation of trademark rights, INTA has concluded that we would actively oppose this measure if it were introduced in Congress. Our first concern is that the U.S. Patent and Trademark Office (USPTO) would be required to make a determination on whether an applicant's mark was ''expropriated without just compensation'' in another country. This is a fact-based interpretation that the agency is not, and should not have to be, qualified to make. In addition, although this provision may be equitable as applied to the Cuban government, in the future, the application of this legislation could in fact run contrary to U.S. foreign policy interests. For this reason, INTA does not support a statutory presumption as to which party (i.e., an individual or their government) should be entitled to register a disputed trademark in the U.S.

    Certification Marks: This issue deals with two amendments concerning certification marks which have been drafted by the Idaho Potato Commission and the Florida Department of Citrus. With regard to the first amendment relating to the ''marketing'' of a certification mark, INTA is concerned that the language may be overly broad, leading to unintended consequences. We are, however, open to further discussion on this issue. The second proposed amendment would create an exception to the ''fair use'' defense for certification marks in certain circumstances. INTA believes that certification marks should be subject to the ''fair use'' defense and opposes efforts to amend the Lanham Act in this area.

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    Mr. COBLE. Thank you, Mr. Mostert. Mr. Bliss.

STATEMENT OF JOHN S. BLISS, PRESIDENT, INTERNATIONAL ANTICOUNTERFEITING COALITION

    Mr. BLISS. My name is John Bliss. I'm the president of the International AntiCounterfeiting Coalition and we are here today in full support of H.R. 3891, the Trademark Anticounterfeiting Act of 1998.

    A little context as to how we got to where we are today. Three years ago, Congressman Bob Goodlatte was interested and, ultimately, very successful in introducing legislation that was subsequently enacted that dealt with the first wave of the counterfeiting activity. Among other things, that legislation, passed in July 1996, introduced significant reforms to trademark counterfeiting law by increasing civil and criminal penalties, authorizing destruction of goods, disclosure of documentation to customs, and requiring the Justice Department to track these kinds of cases. Representative Goodlatte did so because of the growing evidence that counterfeiting is becoming a significant economic crime involving organized criminals and presenting significant health and safety risks. We have had some successes. The U.S. attorneys around the country have prosecuted 141 cases this past year, 60-some odd of which resulted in conviction.

    However, the counterfeiters, response to the ACPA, to the bill in 1996, was simply to become more organized, more sophisticated, and more aggressive. And, in response to the increased law enforcement threat, they have shown a propensity to form increasing numbers of alliances between unscrupulous diverters, themselves as counterfeiters, and also organized retail thieves.

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    Let me, just for a minute, describe how this symbiotic relationship works. Counterfeiters need the diverters because they know that if they salt the diverter's inventory with counterfeit goods and are ever caught, they can claim innocence. The counterfeit goods that they were trying to sell to unsuspecting consumers, they will argue, were goods they thought were diverted product, and isn't diverted product lawful, they will say. Diverters, on the other hand, need the counterfeiters, particularly in circumstances involving product decoding, because, in many cases, to successfully divert requires an effort to manipulate the product code and, in some cases, counterfeit the product coding. That is the symbiotic relationship which this legislation would attempt to sever.

    What the legislation won't do, I might add, is prohibit diversion. What it will do is prohibit removal, alteration or counterfeiting of codes. Congressman Goodlatte went into detail on the other aspects of this legislation, but, those are the principal points of the legislation.

    I think it would be constructive to tell you what kinds of products sectors we are now seeing this problem occurring in, that is, the problem of product decoding. We are seeing it with respect to infant formula. We are seeing it with respect to liquid medical foods involving critical care patients. Now these are patients in life-threatening situations and if they die, no one would ever know it was because of manipulated product codes that remove the expiration date. Pharmaceuticals, RX: we're talking about everything from fertility drugs to AIDS drugs to antibiotics. Food products, packaged dry foods, including peanut butter, cereal goods, and so forth, to liquors and wines. And, recently in discussions with law enforcement authorities, I learned that product decoders are now able to inject a hypodermic needle into bottles of liquor, which will inject a dye into that liquor which will cause the expiration date to be obliterated. So the sophistication involved in trying to manipulate products which ultimately could affect the health and safety of the consumers, is quite real. In effect, there is no food or drug product on the market now that is not routinely being manipulated, if it is being repackaged, for the purpose of hiding diversion, including over-the-counter toothpaste, aspirins, Glad trash bags, mouthwash, shampoo, et cetera.

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    As Congressman Goodlatte also indicated, this product decoding legislation is also important in the area of forensic investigations in conducting recalls and investigating terrorist acts. I think he mentioned the battery code situation where they were able to look at battery codes on the pipe bomb in the Atlanta bombing and I think he also referred to the Pan Am bombing where the part number on the microprocessor on the bomb provided vital clues regarding the identity of the Libyan terrorists.

    In summary, this legislation is significant in that it fills gaps in the Federal regulatory scheme and removes some very clear obstacles. For example, under the Federal Food, Drug, and Cosmetic Act—excuse me, under the Antitampering Act, we would require intent to injure the end-user, the ultimate consumer. This Act would remove that intent to injure requirement.

    Last, I'd just like to respond to the comments of the previous witnesses. I believe, in response to Mr. Mostert, that there is relevance to the Lanham Act. Both the Lanham Act and product decoding have a common denominator and that is eliminating confusion in the marketplace for the consumer. And, in fact, I would also acknowledge Mr. Kirk's statement that there are existing trademark cases in which trademark infringement actions have been brought in this area. Thank you very much.

    [The prepared statement of Mr. Bliss follows:]

PREPARED STATEMENT OF JOHN S. BLISS, PRESIDENT, INTERNATIONAL ANTICOUNTERFEITING COALITION

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BIO

    Mr. Bliss is President of the International AntiCounterfeiting Coalition, Inc. (IACC), a coalition of more than 170 members, from Fortune 500 companies, international law firms, and business trade associations, to product security companies and private investigators—all of whom share a common concern for the protection of intellectual property rights.

    Prior to assuming his role as President of the IACC, Mr. Bliss served as senior legislative aide and principal legal advisor to Republican Senator Hank Brown of Colorado, and was Republican Chief Counsel of the Constitution, Juvenile Justice; and Technology and the Law.

    Before his entry into government service, Mr. Bliss was in private practice specializing in complex business, financial and securities litigation. Mr. Bliss received his BA from the University of California, San Diego, and his JD from the Georgetown University Law Center in Washington, D.C.

STATEMENT

    Good afternoon. My name is John Bliss. I am President of the International AntiCounterfeiting Coalition (IACC). It is my pleasure to testify today in support of Rep. Goodlatte's legislation, ''The Trademark Anticounterfeiting Act of 1998''.

The International AntiCounterfeiting Coalition—Background

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    The IACC is the largest multinational organization representing exclusively the interests of companies concerned with product piracy and counterfeiting. The IACC is comprised of a cross-section of U.S. industry, including manufacturers of automobiles, apparel, food, pharmaceuticals, children's toys, books, software, motion picture videotapes, and audio recordings. The combined annual sales of IACC members exceed $500 billion, and account for more than 10 percent of the annual U.S. GNP.

    Today, the IACC has more than 170 members, from Fortune 500 companies, major international law firms, and business trade associations, to private investigators and product security companies, all of whom share the common goal of protecting intellectual property rights.

    The touchstone of the IACC's mission is to combat counterfeiting and piracy by promoting laws, regulations and directives designed to render theft of intellectual property undesirable and unprofitable.

Congress' Most Recent Response to Counterfeiting: The Anticounterfeiting Consumer Protection Act of 1996 (ACPA)

    Two years ago, in response to the growing threat posed by counterfeiters to the health and safety of consumers and the U.S. economy, the IACC testified before this Subcommittee in support of H.R. 2511. That legislation, also sponsored by Rep. Goodlatte, marked the first significant reforms to federal anticounterfeiting law in over a decade. H.R. 2511 was unanimously reported out of this Subcommittee and the full Committee, unanimously passed the House of Representatives, and was signed into law on July 2, 1996 as Public Law 104–153.

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ACPA accomplished four principal objectives in its fight against counterfeiting:

(1) It increased criminal penalties by making trafficking in counterfeit goods or services a RICO offense, thereby providing for increased jail time, criminal fines, and asset forfeiture;

(2) ACPA allowed greater involvement by all federal law enforcement in fighting counterfeiting, including enhanced authority to seize counterfeit goods and the tools of the counterfeiter's trade;

(3) It made it more difficult for these goods to re-enter the stream of commerce once they have been seized; and

(4) ACPA added teeth to existing statutes by providing for further civil remedies, including civil fines pegged to the value of genuine goods and statutory damage awards of up to $1,000,000 per mark.

The Need for a Second Congressional Response to the Counterfeiting Epidemic: The Symbiotic Relationship between Criminal Diversion and Counterfeiting

Distinctions between diversion and counterfeiting.

With the passage in July 1996 of ACPA, Congress sent a message to the public that counterfeiting is a serious crime that involves domestic and international organized crime rings. Unfortunately, two years later, the counterfeiters are sending us an even louder message: they are stronger, more organized and sophisticated and have uncovered and exploited a loophole of ACPA and current federal law: the symbiotic roles that unscrupulous diverters and counterfeiters can play in facilitating each of their respective criminal schemes.

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    The commercial practice of diversion is defined as the distribution of legitimate goods through unauthorized distributors or retailers. Diversion is lawful in the United States inasmuch as diverted goods are manufactured by the trademark owner or an authorized manufacturer and thus are considered to be ''genuine''. Diversion is generally accomplished through three principal means—(1) the diversion of foreign-manufactured goods into the U.S.; (2) reimportation, which involves the reimportation of U.S.-manufactured goods exported for sale in a foreign market; and (3) domestic diversion, or the diversion of U.S.-manufactured goods within the U.S.

    Counterfeiting, on the other hand, is unlawful both in the United States and abroad because goods are produced without the trademark owner's authorization, and their manufacture or sale represents a clear violation of the trademark owner's intellectual property rights. Moreover, because counterfeit goods typically are of poor quality and can consequently pose serious risks to the consumer, the manufacture and sale of counterfeit goods are considered per se illegal.

    The Trademark Anticounterfeiting Act of 1998 would not prohibit diversion, but would simply prohibit the removal or affixing of fake product codes, which manufacturers embed in products for identification purposes. The bill would thereby contribute toward strengthening the integrity of the product's identity, a goal of our trademark laws, and also enhance the tools of law enforcement agencies to combat counterfeiting activities.

    While there are economic arguments which support the activity of diversion in its most pristine state, these theoretical views oversimplify the problem of diversion, and ignore the reality that some diverters are allied with professional organized criminals, violate civil and criminal laws in order to successfully divert product, and willingly introduce into the market products which often pose significant economic harm to the manufacturer and potentially serious risks to the U.S. consumer. For example—

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diverted products manufactured for sale in a foreign market may not meet U.S. regulatory standards;

diverted product may lack the proper storage or shipping conditions necessary to preserve product quality; and

diverted products are often intermingled with, and provide cover for, counterfeit products. For example, the enactment of the Prescription Drug Marketing Act, which prohibits the unauthorized reimportation of U.S.-manufactured prescription goods, was due, in part, to concerns that reimported pharmaceuticals labeled as ''American Goods Returned'' were providing cover for foreign-made counterfeits.

The manufacturers' response to diversion: implementation of product indentification codes.

Because of the difficulty in obtaining legal protection against diversion, manufacturers have attempted to implement business strategies to control distribution and limit the potential for diversion. One very important strategy is the use of product identification codes to monitor distribution and trace products to those distributors who are diverting goods in violation of distribution agreements. Product identification codes allow manufacturers to track vital production data, including the batch number, the date and place of manufacture, and the date and destination of shipment.

The importance of product codes to consumer protection and law enforcement.

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    When a product is found to be defective, whether through tampering or a manufacturing error, product coding enables the manufacturer to identify the production batch, determine how and when the defect occurred, assess the number of products affected, and pinpoint the intended geographical market.

(a) consumer protection

    Product identification codes are, without question, the single most important factor in a successful recall. In recent years, this link between product coding and consumer protection has become increasingly evident. Following the Tylenol poisonings of 1982, product coding enabled Johnson & Johnson to identify the tainted production lots and issue a nationwide recall of potentially dangerous products. Similarly, the manufacturers of automobiles, toys, food products and other consumer goods have consistently relied upon product coding to identify and recall goods that fail to meet consumer quality and safety standards. Last spring, the FDA used product codes to quickly identify a shipment of contaminated strawberries that had caused an outbreak of hepatitis in Michigan schools.

    In short, without product coding, the task of identifying and recalling defective goods becomes infinitely more difficult and often impossible.

(b) law enforcement

    Product codes also play a critical role in certain criminal investigations, allowing law enforcement officers to pinpoint the location and in some cases, including the World Trade Center bombing, the identity of the offender. In cases of stolen or tainted goods, product codes point to the source of the product and the site of the crime. More recently, product codes have assisted in the investigation of terrorist acts. For example, in the Atlanta bombing, the codes found on batteries used in the pipe bomb enabled federal agents to trace their site of the purchase, which led to a significant shift in the investigation. Similarly, in the Pan Am bombing, the part number found on a microprocessor from the bomb provided the vital clue as to the identity of the Libyan terrorists.

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The Trademark Anticounterfeiting Act of 1998 Will Sever the Symbiotic Relationship between the Criminal Diverter and Counterfeiter

    Despite the importance of product coding—and the potential dangers of decoding—federal law currently lacks a uniform or comprehensive regulatory framework to prevent the removal of product coding or the affixing of fake codes. Indeed, federal decoding regulations apply only to a limited category of products, including pharmaceuticals, medical devices, and certain foods. Even in those rare cases in which product coding may be prosecuted under the Federal Anti-Tampering Act, the Act only applies if the decoder exhibits the requisite criminal intent to harm the consumer. Thus, this law is of no practical use in the vast majority of decoding cases which are motivated purely by economic considerations.

    Thus, most manufacturers have no federal remedy in cases of decoding and no means of ensuring that defective, hazardous or stolen products will be traceable. In order to close the gap in consumer protection and law enforcement legislation, the proposed Trademark Anticounterfeiting Act of 1998 would prohibit for all products the intentional removal or alteration of product codes, as well as the affixing of counterfeit codes. Significantly, the Act would provide the remedies and enforcement authority necessary to ensure implementation of these prohibitions.

Passage of comprehensive product decoding legislation as necessary complement to brand name protection.

    To be sure, product decoding of the kind to be proscribed by this Act constitutes unauthorized, injurious and frequently criminal activity. Moreover, in addition to the criminal component to this legislation, there is an equally important trademark issue, because rampant product decoding frustrates the efforts of U.S. manufacturers to protect their brand names from dilution and adversely affects the integrity of the product's mark. U.S. manufacturers each expend millions of dollars per year to protect and enforce their intellectual property rights. These efforts are clearly frustrated when the unholy alliance of unscrupulous diverters and counterfeiters permits decoded products to enter the stream of commerce, thus threatening the health and safety of the public and frustrating the important forensic and recall efforts of law enforcement.

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SUMMARY

    Criminal diverters often utilize the services of counterfeiters to facilitate their illegal diversion schemes by affixing fake codes to decoded goods in order to lessen the likelihood of detection and disguise the fact that such goods are intended for a different market. Counterfeiters often utilize the services of unscrupulous diverters to shield the distribution of unlawful counterfeit product. Thus, diverters willingly permit counterfeiters to use their distribution channels and infiltrate a diverter's product inventory with counterfeits. In this way, counterfeiters have at their disposal a disingenuous defense if ever caught: ''we thought the product we purchased was lawfully diverted product''. The Trademark Anticounterfeiting Act of 1998 is necessary to sever this symbiotic relationship between diversion and counterfeiting activities, which harms consumers, and frustrates legitimate law enforcement efforts, and undermines the integrity of our products' trademark. The Act is a necessary follow-on Congressional response to the Anticounterfeiting Consumer Protection Act of 1996. The IACC urges its speedy enactment.

    Mr. COBLE. Thank you, Mr. Bliss. Mr. Samuels.

STATEMENT OF JEFFREY M. SAMUELS, ESQ., LAW OFFICES OF JEFFREY M. SAMUELS, P.C.

    Mr. SAMUELS. Thank you, Mr. Chairman. H.R. 3119 would amend Section 43(c)(3) of the Trademark Act to provide that the owner of a Federal registration could not be sued for violation of the Federal dilution statute unless such suit was brought within 1 year of the date of registration or 1 year after the alleged diluter began use of its mark, whichever is later. In my opinion, enactment of such an amendment would be ill-advised.

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    First, it should be noted that permitting the owner of a famous mark to sue a Federal registrant for violation of the Federal dilution statute does not raise any Federal preemption concerns. Such concerns were a primary reason why the owner of a Federal registrant was granted immunity from suit under State dilution statutes.

    Second, the fact is that, today, Federal trademark registrants can be and are sued for trademark infringement. While recovery on an infringement suit is predicated upon proof of likelihood of confusion, it is difficult to understand why a Federal registrant should not also be held liable for violation of the Federal dilution statute, particularly since the definition of the term ''dilution'' provides that a mark may be diluted, even if there is likelihood of confusion.

    Third, in my opinion, for all intents and purposes, H.R. 3119 would effectively emasculate the application of the Federal dilution statute in cases brought against owners of Federally registered marks. As you may know, Mr. Chairman, the Trademark Trial and Appeal Board, an administrative body within the Patent and Trademark Office, held a couple years ago that the Federal dilution statute does not provide a ground to oppose registration of a mark. Thus, the owner of a famous mark does not now have an opportunity to prevent a mark from being registered on the grounds of dilution. If this bill becomes law, not only would a owner of a famous mark not be able to prevent a mark from being the subject of a Federal registration on grounds of dilution, but they could not even sue the Federal registrant for a violation of the Federal dilution statute unless such action was brought within 1 year.

    And that brings me to my final point with respect to 3119, and that is that, even if you were to agree with the basic premise of the bill, the 1-year statute of limitations is much too short. The concept of dilution has often been defined as the gradual—and I emphasize gradual—whittling away of the distinctiveness of a mark. As noted in at least one leading law review article, if courts permitted Rolls-Royce Restaurants, Rolls-Royce Cafeterias, Rolls-Royce Pants, and Rolls-Royce Candy, ''in 10 years, you will not have the Rolls-Royce mark any more.'' The point is that the harm which the Federal dilution statute is designed to remedy may not—and probably will not—manifest itself until well after the time period set forth in H.R. 3119.

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    And if I can just respond briefly to some of the comments made by the proponents of this bill, the dilution statute, perhaps, is not as unfair and inequitable as one might be led to believe in that it must be remembered that you can't recover under the Federal dilution statute if the defendant, Ingram in this case that we were talking about today, if it started to use its mark before the Blockbuster mark became famous. So there is some equity, quite a bit of equity, built into the statute as is.

    Turning to H.R. 3891, the Anticounterfeiting Amendment introduced by Representative Goodlatte. I think it's a tremendous piece of legislation and would urge its enactment. As others have indicated, I, too, have some concern about whether it should be an amendment to the Lanham Act. Right now, it's proposed to be an amendment to Section 43 of the Lanham Act. I would suggest, Mr. Chairman, that, if you want to keep it in the Lanham Act, that a better home for it might be as an amendment to Section 34, which currently deals with counterfeiting issues, or as a separate chapter to the Lanham Act, rather than as an amendment to Section 43.

    Turning briefly to the provisions relating to certification marks, I guess my bottom line is, I really don't see a need to amend either Section 14 or Section 15, particularly Section 15, which, as I understand the proposal, would amend the Lanham Act to provide that the fair use defense shall not be allowed where certified goods have been acquired for resale in violation of the law. Well, the fair use defense only applies if a person uses the mark in a fair way and in good faith. And if they're using it and have acquired the goods in violation of the law, that would seem to be inconsistent with the basis of the fair use defense and they wouldn't be able to rely on it. So I don't think we need an amendment to Section 15 and I'm doubtful whether we need any amendment to Section 14 as well.

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    Thank you, Mr. Chairman.

    [The prepared statement of Mr. Samuels follows:]

PREPARED STATEMENT OF JEFFREY M. SAMUELS, ESQ., LAW OFFICES OF JEFFREY M. SAMUELS, P.C.

SUMMARY

    H.R. 3119 would amend Section 43(c)(3) of the Trademark Act to provide that the owner of a federal registration could not be sued for violation of the federal dilution statute unless such suit was brought within one year of the date of registration or one year after the alleged diluter began use of its mark, whichever is later. In my opinion, enactment of such an amendment would be ill-advised.

    First, it should be noted that permitting the owner of a famous mark to sue a federal registrant for violation of the federal dilution statute does not raise federal preemption concerns. Such concerns were a primary reason why the owner of a federal registrant was granted immunity from suit under state dilution laws.

    Second, the fact is that, today, federal trademark registrants can be and are sued for trademark infringement (as opposed to dilution). While recovery on an infringement suit is predicated upon proof of likelihood of confusion, it is difficult to understand why a federal registrant should not also be held liable for violation of the federal dilution statute, particularly since the definition of the term ''dilution'' provides that a mark may be diluted ''regardless of the presence or absence of — *** likelihood of confusion. . . .'' (emphasis added)

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    Third, in my opinion, for all intents and purposes, H.R. 3119 would effectively emasculate the application of the federal dilution statute in cases brought against owners of federally registered marks. As you may know, Mr. Chairman, the Trademark Trial and Appeal Board, in Babson Bros. Co. v. Surge Power Corp., 39 USPQ2d 1953 (TTAB 1996), held that the federal dilution statute does not provide a ground to oppose registration of a mark. Thus, the owner of a ''famous'' mark may not prevent the federal registration of an arguably diluting mark (unless, of course, a case of likelihood of confusion exists). Thus, given the current state of the case law, it would seem unfair and inequitable to deprive the owner of a famous mark from seeking relief against a federal registrant unless suit was brought within the one-year time period set forth in H.R. 3119.

    Fourth, even if one was to agree with the basic premise of H.R. 3119, the one-year statute of limitation set forth therein is much too short. The concept of dilution has often been defined as the gradual whittling away of the distinctiveness of a mark. As noted in the seminal law review article, The Rational Basis of Trademark Protection, 40 Harv. L. Rev. 1813 (1927), if courts permitted Rolls-Royce Restaurants, Rolls-Royce Cafeterias, Rolls-Royce Pants and Rolls-Royce Candy, ''in ten years you will not have the Rolls-Royce mark any more.'' The point is that the harm which the federal dilution statute is designed to remedy may not—and probably will not—manifest itself until well after the time period set forth in H.R. 3119.

STATEMENT

    Mr. Chairman:

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    I am pleased to have the opportunity to testify today on H.R. 3119, which would amend the Trademark Act with respect to the dilution of famous marks.

    By way of brief background, Mr. Chairman, I served as the Assistant Commissioner for Trademarks at the Patent and Trademark Office from November 1987 to January 1993. I am currently engaged in the private practice of law in Fairfax, Virginia, and I am an adjunct faculty member at both George Washington University and George Mason University law schools, where I teach courses on trademark and related unfair competition law. This fall I will join the University of Akron School of Law as Professor of Law and Director of its Center on Intellectual Property and Technology.

    As you know, Mr. Chairman, the ''Federal Trademark Dilution Act of 1995'' amended U.S. trademark law, effective January 16, 1996, to protect ''famous'' marks from subsequent uses that blur the distinctiveness of the mark or tarnish or disparage it. The new dilution statute, codified in Section 43(c) of the Trademark Act, was the product of years of study and debate. It is a delicately balanced statute. Thus, for example, while the new act was designed to promote nationwide uniformity and predictability in the application of the dilution doctrine, it does not preempt continued application of state dilution laws.

    The federal dilution statute, however, does provide, in Section 43(c)(3), that ownership of a federal registration shall be a complete bar to an action brought under a state dilution statute. Currently, though, the owner of a federal registration may be sued for violation of the federal dilution statute.

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    H.R. 3119 would amend Section 43(c)(3) of the Trademark Act to provide that the owner of a federal registration could not be sued for violation of the federal dilution statute unless such suit was brought within one year of the date of registration or one year after the alleged diluter began use of its mark, whichever is later. In my opinion, enactment of such an amendment would be ill-advised.

    First, it should be noted that permitting the owner of a famous mark to sue a federal registrant for violation of the federal dilution statute does not raise federal preemption concerns. Such concerns were a primary reason why the owner of a federal registrant was granted immunity from suit under state dilution laws.

    Second, the fact is that, today, federal trademark registrants can be and are sued for trademark infringement (as opposed to dilution). While recovery on an infringement suit is predicated upon proof of likelihood of confusion, it is difficult to understand why a federal registrant should not also be held liable for violation of the federal dilution statute, particularly since the definition of the term ''dilution'' provides that a mark may be diluted ''regardless of the presence or absence of — *** likelihood of confusion. . . .'' (emphasis added)

    Third, in my opinion, for all intents and purposes, H.R. 3119 would effectively emasculate the application of the federal dilution statute in cases brought against owners of federally registered marks. As you may know, Mr. Chairman, the Trademark Trial and Appeal Board, in Babson Bros. Co. v. Surge Power Corp., 39 USPQ2d 1953 (TTAB 1996), held that the federal dilution statute does not provide a ground to oppose registration of a mark. Thus, the owner of a ''famous'' mark may not prevent the federal registration of an arguably diluting mark (unless, of course, a case of likelihood of confusion exists). Thus, given the current state of the case law, it would seem unfair and inequitable to deprive the owner of a famous mark from seeking relief against a federal registrant unless suit was brought within the one-year time period set forth in H.R. 3119.

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    Fourth, even if one was to agree with the basic premise of H.R. 3119, the one-year statute of limitation set forth therein is much too short. The concept of dilution has often been defined as the gradual whittling away of the distinctiveness of a mark. As noted in the seminal law review article, The Rational Basis of Trademark Protection, 40 Harv. L. Rev. 1813 (1927), if courts permitted Rolls-Royce Restaurants, Rolls-Royce Cafeterias, Rolls-Royce Pants and Rolls-Royce Candy, ''in ten years you will not have the Rolls-Royce mark any more.'' The point is that the harm which the federal dilution statute is designed to remedy may not—and probably will not—manifest itself until well after the time period set forth in H.R. 3119.

    Finally, to the extent that H.R. 3119 is prompted by argument that the new dilution statute can effectively destroy preexisting property rights of a federal registrant, I note that, just last month, the Fifth Circuit, in its much anticipated decision in Chavez v. Arte Publico Press, held that trademarks do not qualify as ''property'' within the meaning of the Fourteenth Amendment.

    Mr. COBLE. Thank you, Mr. Samuels. Mr. Partoyan—help me again on the correct pronunciation.

STATEMENT OF GARO A. PARTOYAN, GENERAL COUNSEL FOR MARKETING AND TECHNOLOGY, MARS, INC., ON BEHALF OF INTELLECTUAL PROPERTY OWNERS

    Mr. PARTOYAN. Partoyan, sir.

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    Mr. COBLE. Partoyan.

    Mr. PARTOYAN. Partoyan. Thank you.

    Mr. COBLE. It's always good to have you with us.

    Mr. PARTOYAN. Thank you, sir, it's a pleasure to be here. I appreciate the opportunity to appear before this committee—subcommittee, and to present the views of the Intellectual Property Owners Association. I'd like to speak to three topics that are before the subcommittee this afternoon: the dilution of famous trademarks, the trademark anticounterfeiting proposal, and the patent term extension.

    Referring to H.R. 3119, the proposal to limit the ability of the owner of a famous trademark to attack another party for dilution based on the other party's use of a registered—Federally registered trademark—put forth the proposition that this legislation is at least untimely in the sense that the anti-dilution provision to the Lanham Act is only 2 years old and we certainly have not had enough experience with it to be able to gauge whether it works properly and is doing the job that was intended when it was enacted.

    By the way, you'll recall that it took a long time before that provision was enacted and, therefore, I think it was carefully considered before it was enacted. We should, therefore, give it an opportunity to see how it works.

    Some of the earlier speakers have commented about a number of aspects of this and I will not try to repeat those points. They also are in the submission on behalf of IPO. There are two things, however, I would like to point out. One is the likelihood that the proposed amendment would increase the litigation relating to famous trademarks, litigation based on Section 43(c). The reason for that is because, if there is a short time limit, indeed any time limit, that is placed on the ability to sue or not sue, then the owner of a famous trademark will be forced to take action, even when he's not sure that there is dilution taking place. And, indeed, it would be at an early time when it might not be completely clear whether there is dilution or not. So I think that would be a very unfavorable result of the amendment.

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    Another point to mention, I think, is the following: Usage of a trademark that falls within the scope of a Federal registration can vary over a fairly wide range and a usage today, which might be perfectly acceptable to the owner of a famous trademark, might be modified—whether deliberately or without any evil intent—might be modified over a period of time so that later it does have a diluting effect against the famous trademark. But that change of usage could very well take place over quite a number of years, so that if there's a 1-year cutoff or even a two-or 3-year cutoff, it would be unfair to the owner of the famous trademark.

    Turning to the question of the trademark anticounterfeiting proposal, the position of IPO on this is that the legislation as intended is very worthy. We applaud it and we heartily support it. We are very much in favor, as an association, against any sort of activity that smacks of counterfeiting. We do have difficulty, however, with having such a piece of legislation included in the Trademark Act. Historically, the Trademark Act and the present Lanham Act does not contain criminal sanctions and we do not think it ought to be amended to include criminal sanctions at this point. Therefore, this legislation should be placed elsewhere in the Federal Code, perhaps as an extension or an amendment to the Federal Food, Drug, and Cosmetic Act.

    Finally, on the patent term restoration or extension, IPO does not have a position as to the creation of an administrative board or other mechanism within the Patent and Trademark Office to deal with patent extensions. However, we would welcome any sort of proposed legislation that has that in mind. The thing that IPO considers to be very important in this regard is that, if there is a delegation by Congress to the Patent and Trademark Office or to any other agency, that the delegation include a clear set of criteria against which a patent extension can be evaluated, that is to say, the merits of the application for an extension of the patent term.

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    I think my time is up. Thank you, Mr. Chairman. I appreciate this opportunity.

    [The prepared statement of Mr. Partoyan follows:]

PREPARED STATEMENT OF GARO A. PARTOYAN, GENERAL COUNSEL FOR MARKETING AND TECHNOLOGY, MARS, INC., ON BEHALF OF INTELLECTUAL PROPERTY OWNERS

STATEMENT

    Mr. Chairman and Members of the Subcommittee:

    I appreciate the opportunity to appear before the Subcommittee today on behalf of Intellectual Property Owners association (IPO).

    IPO is a trade association of U.S.-based owners of intellectual property rights—patents, trademarks, copyrights, and trade secrets. Our members file about 30 percent of the patent applications that are filed in the Patent and Trademark Office (PTO) by U.S. companies and inventors. Our members also file for and obtain thousands of federal trademark registrations. I am a member of the Board of Directors of IPO. I am also General Counsel for Marketing and Technology at Mars Incorporated.

    We would like to comment on three topics: the trademark dilution amendment (H.R.3119), the ''Trademark Anticounterfeiting Act of 1998'' (H.R.3891), and the issue of patent extension review.

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Dilution of Famous Marks

    Section 43(c) of the Trademark Act, which took effect in 1996, protects famous marks from uses that dilute the distinctive quality of the mark. As the members of this Subcommittee are aware, the 1996 legislation was passed only after years of study and discussion of its likely effects on trademark owners and consumers. We believe the federal dilution statute is a carefully crafted law that attempts to bring greater certainty and uniformity to the doctrine of trademark dilution, which, of course, already existed and still exists in state law as well.

    While the federal dilution statute does not preempt state law, it bars a suit under state law against the owner of a federal registration. It does not, however, bar a suit against the owner of a federal registration under the federal dilution statute. That is the point on which H.R.3119 proposes to amend the 1996 law.

    H.R.3119 proposes to amend section 43(c)(3) of the Trademark Act by adding a sentence stating that ownership of a federal registration shall be a complete bar to an action against its owner under the federal dilution statute if the action is commenced more than a year after the date of registration or more than a year after the owner of the registration began using the mark, whichever is later.

    IPO cannot support H.R.3119. First of all, we are reluctant to support any amendment of the federal dilution statute when it has been in effect only two years unless a very compelling case for amendment exists. Trademark owners and the courts have had only a small amount of experience with the delicately balanced law so far. We believe several more years of case-by-case experience will be needed before Congress can evaluate whether the law is achieving its intended purposes.

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    In addition, barring actions for dilution against owners of federal registrations seems incompatible with the features of the federal trademark statute. It is well-accepted that owners of federal trademark registrations can be sued for trademark infringement that results from likelihood of confusion. It seems to follow that owners of federal registrations also should be subject to actions for dilution, given the determination made by Congress that federal law should protect against dilution. Likelihood of confusion and dilution are closely related concepts.

    The federal dilution statute has been interpreted not to give the owner of a famous mark any right to oppose the registration of the same mark by another party in the U.S. Patent and Trademark Office on the ground of dilution. By adding a bar to suit against owners of registrations, H.R.3119 would leave the owners of famous marks with very limited ability to prevent other parties from diluting the distinctive quality of their marks.

    The concept of dilution is that the distinctive quality of marks can be impaired over a period of time. Dilution might occur over several years. Any arbitrary time period for bringing a dilution action such as the one year proposed in H.R.3119 appears to be inconsistent with the concept of dilution. While we appreciate the need for continuing, careful oversight by Congress of the federal dilution statute, we do not believe sufficient need has been demonstrated to warrant amending the statute at this time.

Product Identification Codes

    Turning to H.R.3891, the ''Trademark Anticounterfeiting Act of 1998,'' IPO supports strong laws to prevent counterfeiting and piracy of intellectual property, in the United States and abroad. We compliment Representative Goodlatte for taking the initiative to put forward this new proposal to combat counterfeiting. It appears that a prohibition against unauthorized alteration of product identification codes by counterfeiters would be of help to U.S. manufacturers.

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    IPO believes, however, that legislation relating to product identification codes and criminal sanctions for tampering with such codes should not be included as part of the trademark law. Instead, it would be better to incorporate such legislation with other laws, either or both civil and criminal, having to do with product identification codes. Historically in the United States, the trademark laws have not included criminal sanctions for infringement. That would be changed by the proposed legislation, however, which defines product identification codes to include trademarks. Rather than make such a radical change, the focus of the trademark law should continue to be on civil responsibility based on the symbols used to present goods and services in the marketplace, while civil and criminal responsibility for tampering with product identification codes should be elsewhere in more appropriate parts of the Federal Code.

Patent Extension Review

    Finally, we would like to offer our opinion on patent extension review. IPO does not have a position on the proposal to create an administrative board in the PTO to review requests for patent extensions.

    However, IPO members have expressed concern that the existing system under which Congress considers patent extensions outside the scope of the existing 1984 Hatch-Waxman legislation on an ad hoc basis without guidelines is not ideal. We believe the Subcommittee should examine ways in which the ad hoc procedure for granting extensions might be modified to assure that reasonable terms of patent protection are made available, to maintain incentives for innovation and product development, and to insure fairness.

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    One such procedure might be to establish a review board in the PTO to evaluate the merits of extension requests under criteria established by Congress. The power of such a board should be set out clearly by statute in order to achieve the policy objectives sought by Congress. Such a board might be given power to grant extensions or, alternatively, might advise Congress on particular patents that, under criteria set out by Congress, warrant the grant of a term extension.

    For example, we are aware that the Hatch-Waxman Act contains transitional provisions under which patent term restorations for so-called ''pipeline drugs'' were capped at two years. Extension of the two-year cap for at least certain of the pipeline drugs might be appropriate in the interest of even-handed treatment of patent owners and incentives to invest in innovations and clinical trials. Perhaps procedures and standards could be established for awarding extensions of the two-year cap for these drugs. Other examples may exist.

    More generally, IPO would like to emphasize the importance of adequate patent term as an incentive for innovation. In this context, significant and substantial concerns have been expressed about the effect of the existing 1984 Hatch-Waxman Act on innovation. Under this Act, the effective term of patents for products subject to delays in regulatory review by the FDA is capped at a maximum of 14 years. IPO believes that the Subcommittee should consider whether the present provisions of Hatch-Waxman are adequate in today's circumstances to provide the necessary incentives for continued innovation in the pharmaceutical and agrochemical areas.

    IPO will study patent extension review further and comment on any legislative proposals that might come before the Subcommittee.

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We appreciate this opportunity to appear before the Subcommittee. I will be happy to answer any questions.

SUMMARY

IPO does not support H.R. 3119, ''A bill to amend the Trademark Act of 1946 with respect to the dilution of famous marks.''

Trademark owners and the courts have had little experience with the two-year-old federal dilution statutes.

The proposal to bar suits against owners of federal registrations would unreasonably limit the ability of owners of famous marks to prevent dilution.

IPO supports strong laws to prevent counterfeiting and endorses the objectives of H.R. 3891, ''the Trademark Anticounterfeiting Act of 1988.'' IPO suggests, however, that H.R. 3891 should not be a part of the trademark law but should be incorporated into other laws having to do with product identification codes.

The Subcommittee should examine alternatives to the existing ad hoc procedure for granting patent extensions.

One procedure might be establish a review board in the Patent and Trademark Office to evaluate extension requests.

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Any such board should apply criteria for evaluating extension requests established by Congress.

    Mr. COBLE. Thank you, Mr. Partoyan. Mr. Sanchez.

STATEMENT OF IGNACIO E. SANCHEZ, KELLEY DRYE, AND WARREN, LLP

    Mr. SANCHEZ. Thank you, Mr. Chairman, for the opportunity to address this subcommittee on the issue of expropriation by foreign governments of internationally trademarks. While I will explain Bacardi's unique situation in my testimony and outline the facts of the case presently pending in a Federal court in New York, I want to stress the importance of the larger issue at stake here, which is that of reconciling our existing statutory and regulatory framework with respect to trademarks with existing case law and overriding public policy in this area.

    Currently, it is possible—in fact, it's more than possible, it has occurred—that a foreign government can expropriate businesses within its jurisdiction; take its assets, including its trademarks; provide them, turn them over, to a State-owned enterprise; and then have that State enterprise come to the United States and register those trademarks with the U.S. Patent and Trademark Office. That scenario is not only contrary to the emphatic case law on this issue, but it is contrary to the public policy of the United States, established over many generations, dating back to the Russian Revolution, that states that uncompensated confiscations of property are disapproved and not given effect within the United States, including trademarks.

    And the United States is not alone in this public policy. I've cited the case law in my written testimony, but I've also cited case law from Argentina, Austria, Belgium, France, Germany, Italy, Switzerland, and the United Kingdom, and there are many more, which also adopt this policy, also dating back to the dates of the Russian Revolution and the expansion of Soviet influence throughout Eastern Europe where the Western countries refused to recognize the expropriations, and the expropriation of trademarks, in particular, of entities within those countries when those Eastern European state enterprises tried to register them or use them in the other Western countries.

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    With respect to the specific scenario that I would like to address and that takes place with respect to a family in Cuba, dating back to 1878, which established a distilling company known as Jose Arechabala, S.A. And they were the providers or distillers and bottlers of a famous rum brand known as Havana Club. In the 1930's, they obtained two registrations from the United States Patent and Trademark Office and, again, in the 1950's. When the Cuban Revolution took place in 1959, that company was confiscated forcibly by the Castro regime and its assets turned over to a state enterprise. That state enterprise then came to the United States and registered the trademark ''Havana Club'' and has maintained that registration, until recently, and obtained that registration in 1976. The Arechabala family, which owned that company was forced into exile and unable to combat the Cuban government.

    The Cuban government, in turn, entered into a joint venture with a French liquor company known as Pernod Ricard and has now filed suit against the Arechabala family, who entered into their own joint venture with Bacardi to try to remarket and relaunch the brand. This scenario actually creates a situation where the confiscating—the illegal confiscator, the entity that confiscated without compensating the owner, is able to come to the United States, register a trademark, then sue the original owner in the United States, in Federal court, under the Lanham Act, for trademark infringement.

    I'm certain that, at no point, did the authors of the Lanham Act, or anyone who has reviewed the Lanham Act, ever anticipated that anyone would be able to come to the United States and register illegally confiscated trademarks. What we have recommended, or what we suggest, is that the public policy, which I outlined in the cases in my written testimony, be incorporated into the Lanham Act such that the Patent and Trademark Office, which, as the gentleman from the INTA said, is not used to dealing with this issue, be provided guidance by the Congress and advised that it is the public policy of the United States that foreign expropriations will not be recognized in the United States as they have not been, but particularly with respect to trademarks. And that, if there is sufficient proof brought to their attention that this was the case, that the trademark registration be canceled by the successor to the expropriating government.

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    As I said, this is a matter that is presently pending in Federal court. We are confident that, on the basis of the case law and the public policy, our case will be resolved favorably. But we are aware that there are other situations where this has occurred. We're aware of another family in the Miami area in the cigar industry that also had a trademark named Trinidad that the Cuban government has also come and registered in the United States and it is blatantly inconsistent to have this policy and yet permit the registrations to stand. Thank you.

    [The prepared statement of Mr. Sanchez follows:]

PREPARED STATEMENT OF IGNACIO E. SANCHEZ, KELLEY DRYE, AND WARREN, LLP

    Mr. Chairman and Members of the Subcommittee:

    Thank you for the opportunity to testify today on the subject of international expropriation of U.S. registered trademarks. My name is Ignacio Sanchez and I serve as outside counsel to Bacardi-Martini, Inc. While I will explain Bacardi's unique situation in my testimony, I want to stress the importance of the larger issue at stake here—the need to close a loophole in U.S. law that allows registration of confiscated trademarks in the U.S. Without prompt legislative action, what is happening to Bacardi-Martini could happen to others.

    The United States Patent & Trademark Office (''PTO'') has permitted the registration of trademarks that were illegally confiscated from their private owners. The PTO's present practice is wholly inconsistent with the emphatic law and public policy of the United States over many generations that uncompensated confiscations of property are disapproved and not given effect within the United States, including trademarks.(see footnote 12)

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    ''Acts of intervention and nationalization which do not afford compensation to the persons adversely affected are undoubtedly inconsistent with our policy and laws.'' See F. Palicio y Compania, S.A. v. Brush, 256 F. Supp. 481, 488 (S.D.N.Y. 1966). Such uncompensated confiscation is simply ''repugnant to our fundamental concept of justice.'' See Republic of Iraq v. First National City Bank, 241 F. Supp. 567, 574 (S.D.N.Y. 1965). Thus, as stated in Maltina Corp. v. Cawy Bottling Co., 462 F.2d 1021 (5th Cir. 1972), and cases cited therein, ''our courts will not give 'extra-territorial effect' to a confiscatory decree of a foreign state, even where directed against its own nationals.'' Id. at 1025.

    With respect to Cuba, this policy was reiterated in 1996 with the passage of the Cuban Liberty and Democratic Solidarity Act of 1996. P.L. 104–114. Titles III and IV of that Act impose specific penalties upon persons who ''traffic'' in property that was illegally confiscated by the Cuban government. The Act defined ''property'' to include trademarks and other forms of intellectual property. 22 U.S.C. §6023(12).

    The U.S. is not alone in asserting this policy. The courts of many other nations have refused to recognize uncompensated state confiscation.(see footnote 13) With respect to Cuba, as recent as three days ago our State Department announced that the European Union had recognized the illegality of property confiscations by the Castro regime and would also take measures to discourage businesses from participating with the Castro regime in transactions that involve uncompensated confiscations.

  AUSTRIA—Hans Hoffman v. JirAE0i Dralle (S. Ct. May 10, 1950) (1950 Propriété Industrielle, p. 219 and 1957 p. 204) (The 1945 nationalization by the Czech government of a German company's local subsidiary, pursuant to wartime legislation, was found insufficient to transfer Austrian trademarks to the Czech government under the nationalization); Jenaer Glaswerk Schott & Gen. v. Waldmüller (S. Ct., December 19, 1957) (24 I.L.R. 42) (The Austrian Supreme Court found in favor of a German family who had their company confiscated in East Germany and moved to West Germany where they resumed production under the original company's name and trademarks and asserted that trademark against the nationalized enterprise in East Germany).

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  BELGIUM—Cie Belgo-Lithuaniennne d' Electricité (Brussels Appellate Court, June 25, 1947) (1948 Journales Tribunaux, p. 104, N. 3756) (A Lithuanian corporation with assets in Belgium was nationalized and dissolved following the Soviet occupation of Lithuania. The appellate court held that the Soviet nationalization was contrary to Belgian public policy and could not have any effect in Belgian territory).

  FRANCE—Union des Républiques Socialistes Soviétiques v. Intendant Général Bourgeois (Court of Cassation, March 5, 1928) (A French court of appeals and later the Court of Cassation rejected the Soviet government's claim of ownership over certain assets belonging to a Russian navigation company where the Soviet government expropriated without any compensation the assets. The court held that, under French law, no one should be forced to give up his property without fair and prepaid compensation); Volatron v. Moulin, (Aix Appellate Court, March 25, 1939) (A French appellate court affirmed a lower court's decision not recognizing a Catalonian confiscatory decree where the foreign expropriation was not accompanied by just indemnification. The French court ruled that without such indemnification the decree was contrary to French public policy); Bauer Marchat et Cie v. Pioton and Others, (Court of Cassation, March 2, 1955) (22 I.L.R. 13) (The Court of Cassation refused to recognize a 1917 Russian Decree nationalizing a bank and finding that the Russian decree was confiscatory and had no legal effect in France. The court went on to hold that all the shareholders, regardless of their nationality, were entitled to share in the funds in an account in France.)

  GERMANY—Trademark Expropriation Case, (Court of Appeal of Düsseldorf, December 20, 1949) (16 I.L.R. 22) (A business in the Soviet occupied zone of Germany was confiscated by the Soviet authorities and its assets were transferred to a state enterprise. The former owners tried to restrain the state enterprise from using the trademark connected with the business in the western zones of Germany. The court granted an injunction in favor of the former owners and held that the Soviet confiscation did not have effect outside the Soviet zone; Confiscation of Trademarks Case (Federal Supreme Court, June 7, 1955) (22 I.L.R. 17) (A Czech firm owned trademarks registered in Germany. The firm was nationalized in Czechoslovakia and its property, including trademarks transferred to a state enterprise. The former owners of the firm tried to restrain the national enterprise from using the trademarks in Germany. The court granted an injunction in favor of the original owner.)

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  ITALY—Svit Nsrodin Padnik & Bata A.S. v. Societa B.S.F. Stiftung and Others, (Bologna Appellate Court, April 1956) (An Italian appellate court refused to give effect to Czechoslovak nationalization decrees on the basis that they were contrary to Italian international public policy because the expropriations were without adequate and fair compensation); Societa Ornati v. Archimedes Rechenmaschinenfabrik Reinhold Pothig (Court of Cassation, October 5, 1959) (28 I.L.R. 110) (The Italian Court of Cassation refused to recognize an East German expropriation of a trademark and ruled in favor of the daughter of the original owner of the expropriated East German company. Significantly, the court also held that even if the East German state enterprise had been able to prove prior use in Italy such prior use would not be recognized as it would have been based on the confiscation, and the confiscation was not entitled to recognition in Italy).

  SWITZERLAND—Bibliographisches Institut A.G. v. VEB Bibliographisches Institut, (Tribunal of Commerce of St. Gall, September 29, 1971) (71 I.L.R. 26) (In a dispute involving companies in East Germany and West Germany, both of whom claimed to be the rightful successor of a company established in Gotha in 1826, the court ruled in favor of the West German company on the basis that Switzerland would not recognize expropriations without compensation and, therefore, the rights stemming from the nationalization asserted by the East German company was given no extra territorial effect).

  UNITED KINGDOM—Lecouturier v. Rey, (House of Lords, March 18, 1910) (1910 A.C. 262) (The House of Lords refused to recognize the French government's confiscation of the ''Chartreuse'' liqueur trademark.); Frankfurther v. W.L. Exner Ltd., (Chancery Division, June 23, 1947) (Ch. 629 [1947]) (The Chancery Division refused to give effect to a purported extraterritorial decree of the Nazi regime in Austria confiscating the property of Jews in Austria; Anglo-Iranian Oil Company Ltd. v. Jaffrate and Others (Supreme Court of Aden, January 9, 1953) (1 W.L.R. 246 [1953]) (The British court refused to recognize the expropriation without compensation by the Iranian government of oil concessions which had been granted to a British company.)

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    The problem is compounded by the PTO's adoption of a policy that puts U.S. companies, particularly those with a Cuban heritage, at a distinct disadvantage with regard to registering trademarks that have a Cuban theme. At present, the state-run enterprises of the Castro regime and their European trading partners are permitted to register Cuban theme trademarks but exiled Cubans, in fact any U.S. nationals, are denied the right to register these trademarks because the marks arguably have geographic significance with respect to Cuba.

    The result of this PTO policy, ironically enough, is that when a democratic government is reestablished in Cuba and goods from Cuba are once again allowed into the United States, the Cuban state enterprises or their assigns could have an advantage over U.S. nationals that observed the U.S. embargo. Under the PTO's present policy, only after the embargo is lifted and U.S. companies have actually set up facilities in Cuba will they be allowed to register Cuban theme trademarks.

    To illustrate the problems caused by the PTO's policy, let me explain the present situation involving the ''Havana Club'' mark for rum. From the 1930's to 1960, Jose Arechabala, S.A., a Cuban company owned by the Arechabala family, produced Havana Club rum at its distillery in Cardenas, Cuba and sold it in the United States. In 1935, 1936 and 1953, Jose Arechabala, S.A. was issued U.S. trademark registrations for the Havana Club mark.

    In October of 1960, the Cuban assets of Jose Arechabala, S.A., along with other Cuban companies, were seized without compensation by the Castro government pursuant to Cuban Decree No. 890.(see footnote 14) The confiscation was carried out by armed members of the military. A member of the confiscating force installed himself as the company's director. Not surprisingly, the business soon deteriorated. The Arechabala family members were told not to report back to work. Today, all but one of the living shareholders of Jose Arechabala, S.A. reside in exile outside of Cuba.

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    In 1976, a Cuban state enterprise, Cubaexport, registered the ''Havana Club'' mark in the U.S. In 1993, Cubaexport's Havana rum business was reorganized to incorporate a foreign partner. Cubaexport reached agreement with the French liquor distributor, Pernod Ricard, S.A., to form two companies: (1) Havana Club Holding, of which 50% equity and board representation was to be held by a newly formed Cuban company, Havana Rum & Liquor, S.A., and 50% by Pernod; and (2) Havana Club International, which has a 50–50 equity split between Havana Rum Liquors and Pernod, both through direct holdings and through holdings in Havana Club Holding. As part of this reorganization, the Havana Club trademark was transferred by Cubaexport to Havana Rum & Liquors, which then transferred it to Havana Club Holding. Havana Club Holding then granted Havana Club International an exclusive license to sell Havana Club Rum and to use the Havana Club trademark. As part of this transaction, Cubaexport applied for and obtained from the PTO an assignment of the 1976 Havana Club trademark registration in the U.S. Pursuant to the assignment, the U.S. trademark registration for Havana Club was transferred to Havana Club Holding.

    While Cubaexport and Pernod Ricard were working on their joint venture, the Arechabala family was still trying to get back into the rum business and seeking a partner who could assist them in re-establishing their rum business outside of Cuba. After speaking to other possible partners, the Arechabala family chose to enter into an agreement with Bacardi, whose officers and shareholders were sympathetic to the Arechabala family's plight having suffered the confiscation of their Cuban assets at the hands of the Castro regime.

    Bacardi began distilling Havana Club rum and distributing it in the United States. As a result, in December of 1996, the Cuban government's joint venture entities with Pernod Ricard, namely Havana Club Holding and Havana Club International, sued Bacardi and its distributors alleging federal trademark infringement of the trademark registration granted by the PTO. The lawsuit was filed in the United States District Court for the Southern District of New York, Case No. 96–CIV.–9655(SAS).

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    The lawsuit presents the unbelievable scenario of the successor-in-interest to the government that illegally confiscated the trademark being able to sue the legitimate and original owner. Worse still, the claim is made in the United States under federal trademark law.

    The Arechabala family and Bacardi continue to fight in the U.S. and abroad to retrieve that which was illegally confiscated from the Arechabalas without compensation by the Castro regime and which legitimately belonged to the Arechabala family. In fact, in August of 1997, Bacardi was able to obtain favorable rulings on a motion for summary judgment. See Havana Club Holding S.A., et al. v. Galleon S.A., et al., 974 F.S. 302 (S.D.N.Y. 1997). The matter is still pending and based on many of the same legal points raised here, Bacardi and the Arechabala family feel confident that they will ultimately prevail. The fact, however, remains that this scenario should never have existed.

    Legislation is, therefore, appropriate to correct the unfairness of this situation and others like it. Contrary to U.S. policy and American jurisprudence, uncompensated foreign confiscations should not give rise to assertion of U.S. rights by the confiscator. The PTO should be directed to deny registration by the Cuban government (or its partners) of trademarks obtained through uncompensated confiscation. The PTO should instead register Cuban-theme trademarks in favor of the legitimate former owners notwithstanding that the goods cannot be produced in Cuba.

    While it is unknown if similar situations presently exist with respect to other countries, they could arise with respect to any country which, in the past or in the future, confiscates property without compensation, including trademarks which may have U.S. equivalents or for which U.S. equivalents are subsequently sought. Since the appropriate principles are the same regardless of what country is involved, any proposed legislation should be of general application.

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    The following language, if added as a new section to Title 15 U.S.C., should cure the inequities outlined above:

    Notwithstanding any other provision of this Title or of any other law,

    (a) No trademark shall be refused registration on the ground that such mark is either deceptive or primarily geographically deceptively misdescriptive with respect to a particular foreign country, and no action shall lie against any person for the use of such mark or the importation of goods bearing such mark, if the applicant or person demonstrates:

  (1) that he, or a predecessor in interest, was at any time after January 1, 1959, the owner or registrant of the same mark for the same or similar goods or services in that foreign country;

  (2) that the mark, or a business or property associated with the mark, was expropriated in that foreign country from him, or a predecessor in interest, without the payment of just compensation, and

  (3) that neither he nor any predecessor in interest has authorized any other person to make exclusive use of the mark.

    (b) No trademark shall be registered, and no assignment or transfer of a trademark shall be recorded or recognized, if an opposer demonstrates that:

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  (1) the same mark for the same or similar goods or services, or a business or property associated with the mark, was at any time since January 1, 1959, expropriated in a particular foreign country without the payment of just compensation, and

  (2) that, at any time following such expropriation, the purported present owner of the mark or applicant for the registration, assignment or transfer, or any predecessor in interest, acquired his claim to or registration of the mark in that foreign country without the authorization of the person from whom the mark, or a business or property associated with the mark, had been expropriated or of a successor in interest of such person.

    Mr. Chairman and members of the Committee, thank you for your time and consideration of this issue.

    Mr. COBLE. Mr. Moore, in addition to enjoying rock and roll, I'm also an avid country and bluegrass music aficianado and the late Lester Flat, Earl Scruggs, and the Foggy Mountain Boys once recorded a song entitled ''I'm Gonna Sleep With One Eye Open.'' You all have done a good job of keeping one eye on the red light and I commend you for that. And I now am pleased to recognize Mr. Moore.

STATEMENT OF SAM MOORE, MEMBER OF MUSICAL GROUP SAM AND DAVE

    Mr. MOORE. Mr. Chairman, ladies and gentlemen of the committee. On behalf of myself and Artists And Others Against Impostors, I would like to thank you for the opportunity to appear before you today on behalf of the proposed changes to the Lanham Act.

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    My name is Sam Moore.

    I have been a performer for most of my life. In 1992, I was inducted into the Rock and Roll Hall of Fame as was my former partner with the duo ''Sam and Dave.'' David Prater, Jr. died in 1988. His Hall Of Fame induction was posthumous.

    Dave and I began to record as a team in 1961. Over the next decade, we had a string of hits, including, ''Hold On, I'm Coming'' and ''Soul Man'' for which we won a Grammy Award in 1967. We appeared on network TV many times and toured the country, around the world. We performed before queens, kings, head of states, including President Jimmy Carter. Later in my career, I had the personal honor to participate in the George Bush's inaugural, ''A Celebration for Young Americans,'' which my wife produced in association with Lee Attwater.

    I am not here today to paint a pretty picture. Sam and Dave were a great team onstage and we always gave the audience what we thought was a good show. We did not enjoy a great friendship when we came off, unfortunately. That's not important.

    What is important about Sam and Dave here today is what happened to the team after the hits stopped. We broke up the act twice; the first time was in 1969. At that time, it never occurred to either Dave or myself to get an imposter partner, but, unfortunately, the pressure to get us to reunite was so strong my solo career got sabotaged and a solo album that I had recorded, which was in my launch, got buried. It is now finally going to be released 27 years later, as the case may be.

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    The second, and final time we broke up was on New Year's Eve, 1981. I cleaned up my act and started again, pursuing a solo career. It wasn't easy for me. When I tried to get bookings for myself as Sam Moore, agents, club owners, and show producers would say, you just need to get another ''Dave,'' any ''Dave,'' and go out and use the name ''Sam and Dave.'' I eventually allowed myself to be booked as ''Sam and Dave's legendary Sam Moore'' or ''Sam Moore of Sam and Dave fame.'' In each case, I was comfortable in the truth and accuracy in my representation of who I was to the public [sic]. I also know the same agents and buyers were telling Dave just to get a ''Sam.''

    All the way back in 1968, at Dave's request, I had bought Dave's rights in a corporation we owned and therefore the name of ''Sam and Dave.'' I alone—only I alone—am the holder of the trademark in the name. As a result, legally I could go out and take anyone with me, advertised and promoted as such and being ''Sam and Dave'' onstage or otherwise. To me, it wasn't the honest thing to do. The audience would then come and pay money to see a performance that was half a lie. In my mind that would have made the whole show a lie. I wouldn't do that to myself or anyone else.

    That decision cost me a lot. I know there were a lot of well-paying dates I could have played with a ''Dave,'' trading on the name and fame of ''Sam and Dave.'' And there were even record contracts I could have gotten. Believe me, I badly needed the money from those offers because I had lost all I had made in the 1960's and never got a chance to put anything aside for a rainy day. There were never—no new Sam and Dave hit records. I wasn't getting a fair shake from the record companies and my royalties and I really couldn't afford the lawyers and the accountants I needed to fight for my rights.

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    Dave, I am sure, had a hard time. It's not so much I did fine working as a solo artist, I was the most dominant and lead singer of our duo. And I know that from his actions, that lure of easy money was just too great for him. He found another ''Sam.'' He was quoted, during that period of time, to say he changed ''Sams'' like he changed his underwear.

    One such ''Sam'' was named Sam, Sam Daniels. I already knew a lot about Sam Daniels. We attended the same high school. At the height of our career and even before in the early 1960's, we sued to keep Sam Daniels from appearing as part of an act known as ''Sam and Dan,'' which copied our songs, style, and our stage act. We won that case.

    But yet Dave took Sam Daniels on the road to invade my name, likeness, and history. Sometimes they were billed as ''Sam and Dave.'' Sometimes they were billed as ''The New Sam and Dave.'' Sometimes they were billed as ''The New Sam and Dave's Revue.'' Never did they ever tell anyone that ''Sam'' was fake. Sam Daniels did his best to sound like me and look like me. I honestly believe that I had dyed my hair green and painted my face purple, he would have honestly followed suit.

    Mr. COBLE. Mr. Moore, you didn't keep one eye on that red light. If you could conclude in just a minute.

    Mr. MOORE. Yes, sir. Okay. Thank you. So I'll jump all the over onto the last page.

    Mr. COBLE. Yes, because we have your entire written statement in the record.

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    Mr. MOORE. Thank you. Thank you. These men and women gave our American culture something of themselves, something special, something personal, when they created the records and live performances. And I'd like to say to you, I'm speaking for the Dennis Yosts, the lead singers of the Classics V, who cannot make such references when he wants to sing in public. I speak for the Chuck Blasko who can call himself, a Vogue, a group he helped make famous, only in small parts of western Pennsylvania. I speak for Gladys Horton of the Marvelettes, Dennis Edwards and Ali Woodson, both famous lead singers of the Temptations; Alex Chilton, Gary Talley, and Bill Cunningham, of the Box Tops.

    Gentlemen, I would like to thank you and if you can give us some kind of help, we more than would appreciate it. Thank you.

    [The prepared statement of Mr. Moore follows:]

PREPARED STATEMENT OF SAM MOORE, MEMBER OF MUSICAL GROUP SAM AND DAVE

SUMMARY

    Sam Moore, Rock and Roll Hall of Fame inductee and surviving member of the legendary soul duo ''Sam and Dave'' is no stranger to the damage caused by impostor groups. For many years, he pursued fake acts that improperly and unethically traded on his own name and substantial musical accomplishments, and the time, effort and money expended to protect and defend his interests cost him and his family dearly. Mr. Moore, speaking on behalf of many of his peers, endorses the proposal set forth before the committee by Artists & Others Against Impostors, a non-profit organization dedicated to ending the abuses of the authentic artists and the consuming public by the impostors and those that promote them.

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    The proposal would establish a sub-registry for famous group names that would recognize a personal right in the individuals who performed on original recordings released under the group name. Those individuals who appear in the registry would be allowed to use the name of the group in promotion and advertising for their current work, provided that the advertising and promotion truthfully sets forth the individual's relationship to the group. Mr. Moore believes that this would permit the authentic artists to compete fairly against the impostors and protect the public who would thereby know if the performers on stage are the ones responsible for the performances that they remember.

STATEMENT

    Mr. Chairman, ladies and gentlemen of the committee, on behalf of myself and Artists & Others Against Impostors, I would like to thank you for the opportunity to appear before you today on behalf of the proposed changes to the Lanham Act.

    My name is Sam Moore.

    I have been a performer for most of my life. In 1992, I was inducted into the Rock and Roll Hall Of Fame as was my former partner with the duo ''Sam and Dave.'' Dave Prater Jr., died in 1988. His Hall Of Fame induction was posthumous.

    Dave and I began to record as a team in 1961. Over the next decade, we had a string of hit records including ''Hold On, I'm Coming'' and ''Soul Man,'' for which we won a Grammy Award in 1967. We appeared on network television many times and toured across the country and around the world. We performed for Kings, Queens and Heads Of State including President Jimmy Carter. Later in my career I had the personal honor to participate in the George Bush Inaugural, ''A Celebration For Young Americans'' which my wife produced in association with Lee Atwater.

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    I am not here before you to paint a pretty picture of those days. Sam and Dave were a great team on stage, and we always gave the audience everything we had. We did not enjoy a great friendship when we came off, unfortunately. That's not important now, what is important about Sam and Dave, here today, is what happened to the team after the hits stopped.

    We broke up the act twice, the first time was in 1969. At that time, it never occurred to either Dave or myself to get an ''impostor'' partner, but unfortunately the pressure to get us to reunite was so strong my solo career got sabotaged and a solo album that I had recorded, which was to be my launch, got buried. It is only now finally going to be released, twenty-seven (27) years late or later, as the case may be.

    The second and final time we broke up was New Years Eve 1981. I cleaned up my act and started once again pursuing a solo career. It wasn't easy for me. When I tried to get bookings for myself as Sam Moore, agents, club owners and show promoters would say ''you need to just get another 'Dave,' any 'Dave,' and go out and use the name 'Sam and Dave.' '' I eventually allowed myself to be booked as ''Sam & Dave's legendary Sam Moore'' or Sam Moore of ''Sam & Dave'' fame. In each case I was comfortable in the truth and accuracy in my presentation of who I was to the buying public. I also know the same agents and buyers were telling Dave, ''just get a 'Sam'.''

    All the way back in 1968, at Dave's request, I had bought Dave's rights in a corporation we owned and therefore the name ''Sam and Dave''. I alone am the holder of the trademark in the name. As a result, legally I can or could have taken anyone with me, advertised and promoted as such and been ''Sam and Dave'' on stage or otherwise. To me, it wasn't the honest thing to do to the audience who would then come and pay money to see a performance that was half a lie. In my mind that would have made the show a whole lie, and I wouldn't do that to myself, or anybody else.

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    That decision cost me a lot. I know there were a lot of well-paying dates I could have played with a ''Dave,'' trading on the name and fame of ''Sam and Dave'' and there were even record contracts I could have gotten. Believe me, I badly needed the money from those offers because I had lost all I had made in the 60's and never got a chance to put anything aside for a rainy day. There were no new ''Sam and Dave'' hit records. I wasn't getting a fair shake from the record companies on my royalties either and I really couldn't afford the lawyers and accountants I needed to fight for my rights.

    Dave, I am sure, had as hard a time, if not more so as I did finding work as a solo artist (as I was the more dominant and lead singer of our duo), and I know from his actions that the lure of easy money was too great for him. He found another ''Sam.'' He was quoted during that period of time to say he changed ''Sam's'' like he changed his underwear.

    One such ''Sam'' was named Sam Daniels, a man whose first name was in fact ''Sam.'' I already knew a lot about Sam Daniels, we'd attended the same high school. At the height of our career and even before in the 1960's, we sued to keep Sam Daniels from appearing as part of an act known as ''Sam and Dan,'' which copied our songs, style and our stage act. We won that case.

    But yet, Dave took Sam Daniels on the road to invade my name, likeness and history. Sometimes they were billed as ''Sam and Dave.'' Sometimes they were ''The NEW Sam and Dave.'' Sometimes they were ''The New Sam and Dave Revue.'' Never, ever, did they tell anyone that ''Sam'' was a fake. Sam Daniels did his best to sound like me and look like me. I honestly believe that if I had dyed my hair green and painted my face purple, he would have followed suit. He autographed records that I had sung on many of which went gold. They fooled some very smart people. The State of Arkansas declared a ''Sam and Dave Day,'' in the mid 1980's, but, that wasn't me at the ceremony with then Governor Clinton, a self professed ''big fan''. Atlantic Records released a record called ''Stars on 45—The Sam and Dave Medley,'' claimed it was by the original artists but that was not me singing. They had Sam Daniels singing a medley of songs that I made famous with Dave. I sued Atlantic and I won. They had to recall all the records from the stores to re-label them, indicating that the ''Sam'' on the records was not the original ''Sam'', me. They weren't entirely successful and much of the damage was already done.

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I pursued Dave and the ''fake Sams'' to protect my name and reputation, to enforce my rights and to increase my ability to get some work in the marketplace. I chased them from state to state and court to court. I got injunctions, contempt citations, and even arrest warrants against them , but, the laws are such that I found myself playing ''catch me if you can'' with them from one end of this country and the world to the other. The legal bills were staggering. At this time there was very little work for me. I would be told that I was only half an act and since buyers could buy and marquee the name ''Sam and Dave'' if they took my ex-partner's act, legal or not, that is what they would do. These fights cost my new wife nearly everything she had. She lost her house. We moved from a four bedroom Encino townhouse into a one bedroom motel, paying weekly, with her daughter, my daughter and one of our grand babies. The fight did not really end until Dave died in a car crash in 1988 and sadly. I am convinced that if he were still alive today, I would still have problems with him over the name.

I have to say something else about my wife, Joyce Moore, at this point. She lived through the rough days this problem caused me, and came out of it with a strong and determined commitment to end the fraud and the fakery that is part of the business. She founded Artists & Others Against Impostors, the non-profit organization, that has played a fundamental role in getting this proposal before you today. For years she attempted to educate agents, artists and others in the industry that their practices were not only hurting ''Sam & Dave'' but all the other artists who were being invaded by phonies. She worked tirelessly to accomplish the objective of change and she's done this because it is the right thing to do and it had to be done. Often she's paid dearly for her strength and courage which was taken as interference and trouble making. She's been accused of everything under the sun. I am so proud of her because I know she hung in there for years, long after our direct problems with my ex-partner were over, so that I could be here today to explain to you the reasons for seeking the changes in the law.

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    I consider myself one of the lucky ones. I have a recording contract, as myself. I have participated in a platinum album project dueting with the late Conway Twitty, appeared in three motion pictures, most recently ''Blues Brothers 2000.'' A book I wrote with Dave Marsh, noted rock music critic, about my life and career has just been published by Avon Books. I am singing all over the country and world, working, earning a living at my craft. I am finally enjoying some personal prosperity and my solo career is finally on its' way. Wow! I am just another over night sensation.

    But still, even with all of the highly visible, status level events and bookings I've had, Joyce, who also serves as my manager, still gets told how much better we'd do, how much more money we'd make and how many more bookings we'd get if we'd just get a guy, any guy and call him ''Dave''. I attribute this to the mentality that's invaded the side of the industry that deals with Rock & Roll and Oldies acts.

    Such conduct is not and will never be tolerated in country music. There are no fake Oak Ridge Boys or impostor Judds. You would never see four (4) impostors try to pass themselves off as The Statler Brothers. You will also not find this behavior or mentality in the jazz or opera worlds; only Rock and Roll, the historic cash cow.

    A collection of impostor acts, Coasters, Drifters and Platters appeared and performed last summer on The Today Show. In the interview that Lauer conducted with one of the ''un-ifters'', as Joyce calls them, the statement was made by Lauer, ''It's the music that counts, that's what the fans love, the songs, that's what's endured.'' To me, that's like looking at a Picasso and saying, ''Oh! It's just the paint.''

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    The whole practice of fakes and phonies is out of hand. We are all paying dearly. Consumers are paying their hard earned dollars to be lied to because of their love for what those of us who payed the dues created. We're losing work to wanna-be's, many of whom were not born when we were traveling up and down the highways of our great land.

    You don't know what it feels like to arrive for a show and discover that the promoter expects you to take the stage with phonies who are passing themselves off to the audience that payed to see the real recording artists they've loved for so long. The process cheapens and brings invalidation of your own worth and legacy. Contractually, you are obligated to perform or you are sued so you go on stage ashamed for the audience their loss of innocence.

    We need your help. We need to fix the broken laws that allow, tolerate and reward these practices.

    I speak here today for those who cannot be here to tell you their story. I speak on behalf of Johnny Moore, lead singer of the Drifters on some of their greatest hits like ''Up on a Roof'', ''On Broadway'' and ''Under The Boardwalk''. Unable to call himself a Drifter here at home, where he made those hits, Johnny must work in exile in Europe. I speak for Dennis Yost, the lead singer of the Classics IV, who cannot make such reference when he wants to sing in public. I speak for Chuck Blasko, who can call himself a Vogue, a group he helped make famous, only in a small part of western Pennsylvania. I speak for Gladys Horton of the Marvelettes, Dennis Edwards and Ali Woodson, both famous lead singers of the Temptations, Alex Chilton, Gary Talley and Bill Cunningham of the Box Tops, and for dozens more, some of whom are sitting behind me this afternoon.

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    These men and women gave our American culture something of themselves, something special, something personal when they created the recorded songs, and live performances that have become an important part of our lives. Yet, they are denied their rightful place because the law does not recognize their standing. Furthermore, for every one of these legitimate creators, there are impostors working right now under those names ans histories the real artists made famous. They have even set the pay standard for our industry which is absolutely unacceptable. These fakes will work for little more than day wages in comparison to what the rightful heirs of their legacies, should. It makes it hard for all real acts to compete and be paid in accordance with their history and prestige. Bar bands often get double or triple what is offered to legends. would that it has impacted everyone. Impostors are everywhere, taking away opportunities that belong to the real acts. Why, there were even impostors at the 1996 Clinton Inaugural.

    That just isn't right.

    We are here to petition this committee to give careful consideration to a change in the law that will permit the artists who created the histories by their recordings, to declare who they are to the world, and to make the impostors admit what they are so as to make sure that the buyers, promoters, agents and the millions of fans know who is who when money is being exchanged regardless of if its to buy, sell or see a show.

    I thank you for the time you have given me to make our case today.

    Mr. COBLE. Thank you, Mr. Moore. Mr. Terry.

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STATEMENT OF JOE TERRY, MEMBER OF MUSICAL GROUP DANNY AND THE JUNIORS

Mr. TERRY. Mr. Chairman, I want to thank you for allowing me to speak today. I'm the very proud owner of the trademark assigned to Danny and the Juniors. In 1957, we were 4 16-and 17-year-olds from Philadelphia who had just recorded a song called, ''At The Hop,'' which was rapidly climbing its way to number one on the charts. The original contract tendered by our record company contained a clause that said they would be the owners of our name. My mom worked with popular singer Eddie Fisher's father in his factory and suggested it might be a good idea to take our contract to his lawyer for a quick check. He, being a patent attorney, advised us that we must own our own name or the record company would forever control our name and they could replace us at will and we would lose everything we were working towards. The company grudgingly accepted the change and, as the years passed, we maintained and protected our mark. But others not so fortunate as us who failed to register their mark fell prey to unscrupulous representation who came to control their marks by promising work, protection, or other inducements.

By the mid-1960's and early 1970's, two and three groups bearing the same name began appearing in the workplace and from the 1970's until now, the situation has gone from bad to worse. And today, on any given night, you can find 30 or 40 or more counterfeit groups working in this country. Even right here in our nation's capital, clone groups of Drifters, Coasters, Marvelettes were featured performers at the 1992 and 1996 inaugural balls. Shortly thereafter, that same group of Drifters appeared on the Today Show, along with synthetic Platters and Coasters. Just last Friday night, a proxy group calling themselves the Drifters appeared at a fund-raiser for the Best Friends Program in the ballroom of the Georgetown Four Seasons Hotel.

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    These abuses are not limited to the performers of the 1950's and 1960's. Fleetwood Mac, Tony Orlando and Dawn, among others, fell victim in later decades. And if we don't repair the cracks in the Lanham Act, who's next? Boyz to Men or Pearl Jam? These imposter groups perpetrate a fraud on the public and a terrible injustice to the artists who created the original works that the public has come to know and love.

    I know firsthand, because 2 years ago the Larry Marshak Agency invited us to a meeting at their offices and proposed that five groups of Danny and the Juniors could work this country if we would allow them to represent our trademark, while we could relax on the beach and collect a percentage of monies earned or work in one of the groups if we so chose, for we might be sick 1 day or too old. I was 54 at the time.

    He then took us to his bank of computers and showed us exactly how it would work, how many dates a week we would work, how much money we could make, how he was doing it with all his other groups. Well, we asked, where do you get these people from. He said, Broadway, of course, and showed us the newspaper ads he used to obtain these people and how easy it would be to train new people to do our routines, interchanging them at will. Our question was: Wouldn't that be confusing? He said, the public does not care. They just want to hear the songs and it really doesn't matter. Well, after I got rid of that sick feeling in my stomach, we politely declined.

    Franchising people is not like franchising pizzas. Their fingerprints are unique. Their vocal tones are unique. The styles they create are individual and they should not be cloned. The law must be amended.

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    In 1977, we were advised by our lawyers to franchise. That's the law. We had a group dispute. It created a terrible competition resulting in, in our opinion, Danny's suicide in 1983.

    We've had our trademark for 40 years now. The climate in this business is so bad, we had to fend off a fake Danny and the Juniors in Boston, a Jeffrey and the Juniors in Buffalo, and Juniors in Las Vegas, all working top venues at low money. Now our attorneys advised us we have slam-dunk cases because we own the trademark, but they urged us not to take them to trial, because there's no guarantee legal fees or damages will be awarded if we win. And that happened in the precedent-setting cases of Herb Reed and the Platters, the Four Aces, and the Belmonts, all of whom spent hundreds of thousands of dollars and never recouped. Treble damages and reasonable attorney fees must be made mandatory to us. If you give us the weapons we'll defend ourselves.

    This is America's music. It was born in America, nurtured here, and is this country's biggest export around the world. Please help us solve our problems with just laws that are fair to the responsible artists who have kept this music alive through hard and diligent effort. Protect the citizens of the world from fraud, confusion, and create a safe climate for future artists to come. Thank you.

    [The prepared statement of Mr. Terry follows:]

PREPARED STATEMENT OF JOE TERRY, MEMBER OF MUSICAL GROUP DANNY AND THE JUNIORS

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    We are very proud to be the owners of trademark #1,045,604 registered in the U.S. Patent And Trademark Office in 1957 and assigned to Danny & the Juniors. In that year we were four 16 and 17 year olds from Philadelphia who had just recorded a song called At The Hop which was rapidly climbing the charts on it's way to #1. It was explained to us that this registration would identify us as the people who recorded this composition and provide us protection from anyone else's claims that they were Danny & the Juniors.

    We would like to say we had the wisdom at that tender age to register our name but in actuality we came to do so quite by chance. The original contract tendered by our record company contained a clause that said they would be the owners of our collective record name—not uncommon. This didn't bother us very much—we wanted to become stars and we didn't want to make waves. We would have signed anything. However, just by chance Joe Terranova's (one of the members) mother worked for the father of famous pop singer Eddie Fisher, and she suggested that it just might be a good idea to take the contract to his lawyer for a quick check. He just happened to be a patent attorney and advised us that we must own our name or the record company would forever control our name and us. The company grudgingly accepted the change and we were on our way, assured that we were under the guardianship of the U.S. Patent And Trademark Office. For these reasons and others noted below we feel the Lanham Act should be amended as noted.

    We feel that marks of famous performing artists differ markedly from other marks and should fall into a completely different category. The entire persona of a famous performing artist including their face, voice, actions, body language, talents, accomplishments and history are part of their distinctive mark. Their mark is both the product and the service rolled into one and is unique in all the world. When the famous name mark that designates the life's work of a famous performing artist is owned by someone other than that performing artist he becomes a mere lackey, a slave to every whim of the owner and has no control of all he created under the mark. He must forever live in fear of the owner of the mark and history has shown that he is usually discarded and replaced by others who cannot possibly clone all that he originally gave birth to.

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    Therefore, Accordingly, we propose the Trademark Act of 1946 (the Lanham Act) be amended as follows: Sec. 2 (15 U.S.C. Sec. 1052)

  Sec. 1052 Trademarks registrable on principal register; concurrent registration [Section 2]

  No trademark by which the goods of the applicant may be distinguished from the goods of others shall be refused registration on the principal register on account of its nature unless it—

  (a)-(e) remain as is

  f. Consists of a name of a famous performing artist or group of artists when the application to register such famous name is not being filed on behalf of such performing artists or the individuals comprising such performing group.

  g. Except as expressly excluded in paragraphs (a,) (b,) (c,) and (d) and (e) (3) and (f) of this section. . .

    As the years passed we maintained and protected our mark, but others not so fortunate as us, who failed to register their mark fell prey to unscrupulous representation who came to control their trademarks by promising work, protection and other inducements. By the mid-60's and early 70's two and three groups bearing the same name began to appear in the workplace. From the 70,s until now the situation has gone from bad to worse. And today on any given night you can find 30 or 40 or more counterfeit groups working in this country. These imposter groups perpetrate a fraud on the public and a terrible injustice to the artists who created the original works that the public has come to know and love.

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    We know first hand because two years ago the Larry Marshak Agency (RCI) invited us to a meeting at their offices and proposed that five groups of Danny and the Juniors could work this country if we would allow them to represent our trademark, while we could relax on the beach and collect a percentage of the monies earned, or work in one of the groups if we so chose, for we might be sick one day or be too old (I was 54 at the time, by the way). He then took us to his bank of computers and showed us exactly how it would work. How many dates a week we would work, how much money we could make and how he was doing it with all his other groups. We asked where he got all his people? He said ''Broadway of course'' and showed us the newspaper ads he used to obtain these people and how easy it would be to train new people to do our routines, interchanging them at will. Our Question was, Wouldn't that be confusing? ''The public doesn't care who's up there'' he said ''they just want to hear the songs and it really doesn't matter''. After I got rid of that sick feeling in my stomach, we politely declined.

    Franchising people is not like franchising pizzas. Their fingerprints are unique. Their vocal tones are unique. The styles they create are individual and they should not be cloned. The law must be amended. In 1977 we were advised by our lawyers to franchise ourselves during a group dispute. It created a terrible competition resulting, in our opinion, Danny's suicide in 1983. For these reasons:

    We also recommend that section (a)(1) of section 1125 be amended to prevent dilution of famous names of a performing group or individual by the use of the famous name for multiple groups or acts even by the owner of the famous name. History has shown that the franchising and multiple distribution of products and services has created the benefit of easy access for these goods and services for the public, but history has also shown that franchising and multiple distribution has created great abuses in the area of famous names of popular performing artists, that have defrauded and confused the public

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    Accordingly, we propose the Trademark Act of 1946 (the ''Lanham Act'') be amended as follows: SEC. 43 (15 U.S.C. 1125 (a) (1))

  Any person who, or famous name/person who, on or in connection with any goods or services, or any container for goods, uses in commerce any word, term, name, symbol or device or any combination thereof, or any false designation of origin, false or misleading description of fact, or false and misleading representation of fact, which—

  (a) is likely to cause confusion, or to cause mistake, or to deceive as to the affiliation, connection, or association of such person with another person, or as to the origin, sponsorship, or approval of his or her goods, services, or commercial activities, by another person, or

  (b) in commercial advertising or promotion, misrepresents the nature, characteristics, qualities, or geographic origin of his or her's or another person's goods, services, or commercial activities

  (c) in a case of a famous name designating a famous performing group or individual well-known to the populace of the United States it shall be a violation of Sec. (a) (1) (b) of this section for any person including the owner of any registration to the name of such performing group or individual to authorize or permit more than one version of such performing group or individual, or who shall license, franchise or otherwise permit use of the mark by others for the purpose of presenting to the populace of the United States more than one group or individual performing under the same famous name for public performance . . .

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shall be liable in a civil action by any person who believes that he or she is or is likely to be damaged by such act.

And in addition

    The entire persona of a famous performing artist including their face, voice, actions, body language, talents, accomplishments and history are part of their distinctive famous name. Their name is both the product and the service rolled into one and is unique in all the world. When the famous name that designates the life's work of a famous performing artist is used by someone other than that performing artist, who cannot possibly clone all that he originally gave birth to, the public is unfairly deceived and defrauded.

    Therefore, Accordingly, we propose that as set forth in Title 15 Section 57a. of the United States Code the Federal Trade Commission promulgate new rules regarding the advertising and exploitation of the famous names of famous performing artists and should read as follows:

  It is regarded as unlawful under Title 15 Section 45(a)(1) that the name of a famous performing artist or group of artists be used by anyone other than that performing artist or group of artists unless said artist or artists can prove right-of-succession from the original performing artist or group of artists.

  Accordingly, there may not be more than one famous performing artist or group of performing artists using a specific name unless it can be shown that they have rights-of-succession from the original famous performing artist or group of artists.

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    We've had our trademark for forty years now. The climate in this business is so bad we've had to fend off a fake Danny and the Juniors in Boston, a Jeffery and the Juniors in Buffalo and a Juniors in Las Vegas, all working top venues at low money. Our attorneys advise us we have slam-dunk cases but they urge us not to take them to trial because there is no guarantee legal fees or damages will be awarded if we win, as happened in the precedent-setting cases of Herb Reed and the Platters, the Four Aces and the Belmonts, all of whom spent hundreds of thousands of dollars. Treble damages and reasonable attorneys fees must be made mandatory to us. Give us the weapons and we will defend ourselves. The following will explain how.

    The United States trademark law provides enhanced protection for the symbols of the United States Olympic Committee, and also provides damages and attorneys' fees against those who counterfeit trademarks registered with the United States Patent and Trademark Office. It is recommended that the same provisions provided to protect the symbols of the United States Olympic Committee and to protect against counterfeits of registered trademarks be provided to the names of musical groups and performers who have become famous for their contributions to the culture of the United States and the entire planet.

    Section 1125 of the Trademark Act of 1946 was amended in 1996 to add subsection (c)(1) prohibiting dilution of a ''famous'' mark; and thus the legal aspects of what may make a trade mark ''famous'' have been established by the courts.

    Accordingly, we propose the Trademark Act Of 1946 (the ''Lanham Act'') be amended as follows: Title 15 of the United States Code 1117(b) be amended as follows:

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  In assessing damages under subsection (a), the court shall, unless the court finds extenuating circumstances, enter judgment for three times such profits or damages, whichever is greater, together with a reasonable attorneys fee, in the case of any violation of section 32(1)(a) of this act (15 U.S.C. 1114(1)(a) or section 110 of the act entitled ''An Act To Incorporate The United States Olympic Association'', approved September 21, 1950 (36 U.S.C. 380) that consists of intentionally using a mark or designation, knowing such mark or designation is a counterfeit mark (as defined in section 34(d) of this act (15 U.S.C. 116(d)) this title. or the use of a famous name designating a performing group or individual well known to the populace of the United States, whether or not such name is registered under. . . , in connection with the sale, offering for sale, or distribution of goods or services.

    Providing mandatory attorney's fees and treble damages for those seeking to enforce the rights to famous names in the performing arts will enable those individuals who have contributed so much to the American culture to protect their names even if they cannot afford the extensive attorney's fees which are often associated with bringing civil actions under the trademark laws.

    This is America's music. It was born in America, nurtured here and is this country's biggest export around the world. Please help us solve our problems with just laws that are fair to the responsible artists who have kept this music alive through hard and diligent effort, protect the citizens of the world from fraud and confusion and create a safe climate for future artists to come.

    Mr. COBLE. Thank you, Mr. Terry. Mr. Terry, you and other members of Danny and the Juniors actually own the trademark to the band name, do you not?

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    Mr. TERRY. Yes.

    Mr. COBLE. In your words, why has the current trademark law been insufficient to protect the rights of that trademark?

    Mr. TERRY. Because mandatory treble damages and attorney's fees are not awarded you bring civil action as I said, you call a lawyer and he says, great, and he sends some cease and desist letters, which could cost up to $1000 to do that but when you really want to get some teeth into it and you want to stop somebody from infringing on your mark, you're advised not to because you're going to get in front of a judge and the judge is going to say, well, gee, it was his first time. The arguments come back that that they'll never do it again. And a case could run hundreds of thousands of dollars and no monies could be awarded.

    We're not IBM. We're just singers trying to revitalize our careers. We don't have that kind of money. So provisions for mandatory treble damages and attorney's fees need to be done. And we need to make sure that the artists own their own names. That has to be a law for people who are both the product and the service. There's a service mark for people who provide a service. And a trademark is issued if you provide a product such as automobiles. But there's nothing in that law for a mark when people are involved, human beings are involved. And I think we need to fix that as well.

    Mr. COBLE. Mr. Moore, have you, personally, encountered evidence of consumer dissatisfaction as a result of performances by impostors? In other words, someone says, well, Mr. Moore, I paid money hoping to see you and I got to the stage there and there's some guy impersonating you. Have you actually run into that?

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    Mr. MOORE. Yes, Mr. Chairman, I have. But, you know, when you're not a superstar and you need the money as much as you do, as well as you do, what you have to do, you have to honor that contract, whether that fake actor's on the show with you. If you don't, then your contract, you're going to get sued. So what you do, you bite the bullet and you get up there and you feel ashamed to perform before the audience, knowing full well that it's a fake act.

    Mr. COBLE. Mr. Partoyan, Mr. Samuels, Messers Kirk and Mostert, let me put this question to you all. And you may respond identically; you may not. But how quickly does dilution manifest itself in a given case (a) and (b) does H.R. 3119 reflect this reality? And that may be a difficult question. It's an easy question to put to you, but it may not be so easy to answer.

    Mr. PARTOYAN. Garo Partoyan, sir. I really would be hard-pressed to put any sort of a time period on dilution manifesting itself. I've seen it overnight, so to speak. I've also seen it occurring over, sort of creeping on, if you will, and occurring over a period of time.

    One thing that was not mentioned before and it might be relevant at this point is that there are the traditional defenses available to someone who is accused of making a use that's diluting a famous mark: the defense of estoppel, the defense of laches, and the defense of acquiescence, implied permission or the owner of the famous mark sitting on his hands. These are defenses which are always available, sir, and they are not limited in time in any way.

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    Mr. SAMUELS. As I said in my statement, Mr. Chairman, dilution basically has been defined as the gradual whittling away of distinctiveness of a mark. By the very usage of that definition, it implies that it's, in most cases, it takes a period of time. It's very difficult, if not impossible, to put a concrete number on that period of time. It depends from case to case. To set an artificial 1-year time period, as H.R. 3119 does, assuming you buy into the basic premise of the bill at all, I think is unwise.

    Mr. MOSTERT. Mr. Chairman, if one draws from experiences in countries where dilution has been a Federal form of action, such as Germany, I believe the law there bears out the fact that there's a wide range of when and how dilution can take place and that, certainly, a 1-year term is a very arbitrary period of time to apply.

    Mr. COBLE. Mr. Kirk.

    Mr. KIRK. Thank you, Mr. Chairman. I would also agree with the notion that the 1-year cutoff is the problem because dilution may occur quickly; it may occur over a long period of time, but the 1-year statute of limitations, particularly with the way that would work in the existing Lanham Act, would totally deny the owners of famous marks even the opportunity to bring an action in certain cases and that is why we oppose H.R. 3119.

    Mr. COBLE. Mr. Blunt, in your absence most of the members of the panel have warmly embraced Mr. Goodlatte's bill, but have not been so identically attracted to yours. Mr. Ingram, let me put a question to you, then we'll hear from Mr. Blunt. And I don't mean to imply that I'm taking sides here, but I've never been in your shoes. I know it must be frustrating to undergo the problems that you have encountered. But I'm bothered by the 1-year timeframe. The 1-year window seems very narrowly defined and I'm just having difficulty digesting that. Talk to me about that.

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    Mr. INGRAM. Well, possibly that should be defined in a different way. However, the problem is, as in my case, in 1991, we applied for a registration through the Patents and Trademark Office. As you know, when you apply for that registration, the Patent and Trademark Office reviews that and sends out a time for opposition. At that time, anybody can oppose—that feels they've got a right, one, to oppose it can oppose that. No one did oppose our registration and we turned that into our registered trademark. And it wasn't until 1994, 3 years after, that Viacom decided that they had what they considered a famous mark and that they asked us to quit using the mark.

    Well, the problem is, here, we, in good faith, registered our mark. We spent thousands and thousands of dollars promoting it and they wanted us just to abandon it. We were operating in good faith with a federally registered trademark; what's the use of having a Trademark and Patents Office?

    Another thing, the Eighth Circuit just recently ruled that, by definition, all trademarks are distinctive, but very few are famous. Maybe we should work on the bill and have it further define the definition of what is a famous mark. In our case, basically, the Eighth Circuit has said that it's real questionable whether the very common word ''blockbuster'' is a famous mark at all. So that's a matter of what is a famous mark? And I guess that's the question. And it's cloudy in Section 43(c); it's not addressed as to what is a famous——

    So, in other words, a small company competing against a multi-billion dollar corporation, most small companies can't afford what we spent. We spent hundreds of thousands of dollars and we haven't even gone to court yet. We're just to the hearing stage. Most companies just automatically fold to pressure from a big corporation like that.

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    Mr. COBLE. Well, as Mr. Terry said, you're not IBM, and that's why I say I empathize with you, but I am bothered by the 1 year in that it does seem to be pretty tightly drawn.

    Mr. Blunt, do you want to be heard?

    Mr. BLUNT. Well, Mr. Chairman, I know that you want to do your best to be eminently fair to——

    Mr. COBLE. I do, indeed.

    Mr. BLUNT [continuing]. To small business people as well as other business people. I'd certainly be very open to the thoughts of the chairman and this committee as to a better way to solve this problem. We really had two different triggering mechanisms here. One was 1 year after the filing of the trademark. And the companies that could have the famous mark, I would think, with the technology available today could monitor whether those marks are being filed over a 12-month period or not. And the second was, if the filing didn't create a problem, 1 year after the actual marketing of the product began to create a problem. There are really two potential triggers.

    Now whether that should be 1 year or 18 months or 3 years, I just think the—particularly the intrinsic unfairness of retrospectively being able to go back and decide that you had a mark that is now famous and, whatever some small business person did, as your mark was becoming a famous mark, to create goodwill for that had no value at all, and your mark that has become famous is the one that dominates the issue here, seems intrinsically unfair to me.

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    Now whether that 1 year is the right amount of time or not. I suspect if it had been 3 years, we'd be hearing today that 3 years is not enough time. And if it was 10 years, we might be hearing that 10 years was not enough time. But from the witnesses, not from the committee. And maybe the committee can come up with a—I'd certainly be open to any amendment that the committee thought would protect the people who had their own investment in these trademarks and names and respect the chairman's desire to be fair to all parties in this.

    Mr. COBLE. Mr. Kole, if you will elaborate, in some limited detail, as to why you wish to change the definition of ''marketing'' as set forth in Section 14 of the Lanham Act. And, if you're successful, what will be the result, or what will be accomplished?

    Mr. KOLE. Mr. Chairman, what would be accomplished is the ability of the commission and other similar organizations to continue the activities that they're presently engaged in. For example, both the Florida Department of Citrus and the Idaho Potato Commission run national advertising campaigns to promote recognition and awareness of their certification marks. The Florida Department of Citrus sponsors the Citrus Bowl, a collegiate football game. Those types of activities which have historically been carried on by these organizations, would be ratified by the language we have proposed. So it's not really changing any of the activities, it's merely clarifying that those activities are permissible under the Lanham Act.

    Mr. COBLE. Mr. Bliss, last but not least, although—no, Mr. Sanchez. I haven't talked to him yet. I'll get to you in a minute, Mr. Sanchez, as well.

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    Now some of you have indicated, prior to today's hearing and during the hearing today, where the provisions of the Trademark Anticounterfeiting Act will be placed. Now, of course, the provisions, if enacted into law, will be effective regardless of where they're placed in the code, it seems to me. But I can appreciate some order involved as well. In copyright, complementary protections with criminal penalties are placed in title 17, which is a codified title. Now, following that pattern, this bill places complementary protection of the integrity of trademarks in the Lanham Act.

    Now, this may well be subject to interpretation, folks, but it seems to me that it doesn't affect the effectiveness as to where they end up. But I'm certainly willing to work with Mr. Goodlatte, the primary sponsor. I'm willing to work with Chairman McCollum of the House Judiciary Crime Subcommittee. And it may be title 15; it may be title 18. I think we can work this out.

    But let me ask you a question, Mr. Bliss. And I think I know the answer to this, but there may be some in the audience who are not informed. How would—and I may not be informed, but I think I am. How would enactment of H.R. 3891 promote public health and safety?

    Mr. BLISS. The principal problem we face under existing Federal law is there's no comprehensive——

    Mr. COBLE. Pull that a little closer to you, if you don't mind, Mr.——

    Mr. BLISS. The principal problem that we face under Federal law, existing law, is there's no comprehensive Federal regulatory framework that encompasses an ability to impose criminal penalties against all products that are susceptible of this product decoding. I know there was a suggestion by Mr. Partoyan earlier that maybe the fix would be an amendment to the Food, Drug, and Cosmetic Act. That is, with respect, fraught with problems because that Act doesn't even apply to all foods and cosmetics, let alone those that are ingested or applied to the body. So there's a whole litany or host of products that would not routinely fall under that Act.

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    The other acts are faced with similar difficulties. The Antitampering Act, for example, only covers consumer products covered by the Food, Drug, and Cosmetic Act. So the value that this legislation has is bringing it all into one place and, frankly, removing the intent to injure the end-user component under the Antitampering Act.

    I think that reasonable minds probably could differ as to whether the more appropriate place is in title 18 or in a separate chapter in the Lanham Act or, perhaps, as Jeff suggested, moving it to a separate subchapter. But what is clear is that you do have criminal activity here, but you also have product decoding, which is frustrating the efforts of U.S. manufacturers to protect their brand names from dilution. So you clearly have a policy interest that's commensurate with the goals of the Lanham Act, as well.

    Mr. COBLE. Mr. Sanchez, I am not attempting to portray myself as a Federal judge, but why should the Congress intervene prior to the November bench trial involving Bacardi and Havana Club holdings? Now, I'll admit, November seems in the far-distant future now, but here we are in the shadow of June and it'll be here before you know it. In fact, I'm not even sure we can get this accomplished by November. [Laughter.]

    Give me a good answer. Thought out a response to that?

    Mr. SANCHEZ. Yes, sir. By proposing and bringing this issue to the subcommittee awareness, we are not asking for an intervention in the lawsuit. We believe that the court will have the ability to rely on existing case law to sort this mess out and we're confident that the correct ruling will come out.

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    At the same time, we believe that this can be a recurring problem, and I mentioned the example of another family that suffered the same situation. And it seems incongruous for an illegally expropriated trademark to be used by the expropriator as a sword against the legitimate owner in any context. And the best way to cut that off is to not have to go, as in this case, through 2 years of a cancellation proceeding and then two more years of litigation. It should be a directive from the Congress that allows the PTO to evaluate the issue and, if they make the finding that the mark was illegally expropriated and that the expropriator or someone, a successor to them, is the one who registered it, then, at that point, the PTO can make the decision.

    That decision is one that I believe is difficult for the PTO to make and is almost the kind of decision that they're not used to dealing with which is why we're in the court. This way, it would be nipped in the bud.

    Mr. COBLE. All right, sir. Gentlemen, I thank you all for your contribution today. I think that much illumination has been shed on several problems and issues and hopefully a resolution will be realized in due time. Anybody want to make a closing statement? I'm not trying to run anybody off. Oh, I'm sorry. Mr. Goodlatte. I stand corrected. I've the primary sponsor of the bill at hand.

    Mr. GOODLATTE. Mr. Chairman, I explained my bill so well at the outset and you were so patient that I don't want to elaborate. And you have asked the pertinent questions regarding where the bill should be properly placed so, unless anybody has anything they want to add to that, I continue to look forward to working with all of these individuals and the groups they represent to make sure that we pass this legislation and do it in a way that makes sense for everybody.

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    Mr. COBLE. I thank you, sir. Yes sir, Mr. Mostert. Good to have you visiting us from abroad, by the way.

    Mr. MOSTERT. Thank you, Mr. Chairman. Just one last comment on where the Anticounterfeiting Act should be placed. As we've indicated before, we are concerned that if it's placed in the Lanham Act, there might be some confusion. And in this context, I'm talking about legal confusion.

    A trademark right is a right. It's a form of intellectual property and, therefore, property. It can be assigned. It can be licensed. Taxes can be paid on it. Capital gains taxes can be paid on it. We are concerned that those principles of traditional trademark doctrine and the tenets of trademark law should not be applied to a product identification code, which is merely a very useful tool, as Congressman Goodlatte mentioned in his opening statement. It is just that, a very useful, functional mechanism to ensure that the product is controlled throughout the distribution chain. It helps with many different aspects and areas of life, such as safety and health.

    And, as the U.S. Trade Representative, Charlie Barchevsky, just mentioned yesterday, grey goods and parallel imports are of great concern in New Zealand. It would be very helpful if the United States could take the lead throughout the world by introducing legislation in this format.

    Mr. COBLE. Well, we do this in copyright and I think trademark attorneys are very bright, able people, as are copyright attorneys, so I think we can probably plow that field effectively. Gentlemen, thanks to all of you. And I'll call forward the second panel as the first panel is withdrawing.

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    We'll come to order and I'll call the next panel forward. We'll come to order and resume business. We'll let the people depart and we'll get underway here in just a minute.

    The first witness on our second panel today will be Mr. Peter Hutt, who is a partner in the Washington, D.C., law firm of Covington and Burling. Mr. Hutt has coauthored a legal casebook on food and drug law. He teaches a course on food and drug law during the winter term at Harvard School of Law and during the spring term at Stanford School of Law. He received his B.A. magna cum laude from Yale University, his LL.B. from Harvard University, and his LL.M. from New York University, and is a member of the New York, District of Columbia, and Supreme Court bars.

    Our next witness is Mr. Gerald F. Meyer, who is senior consultant with the ACC Consulting Group, Inc., of Bethesda, Maryland. Prior to that time, he spent 22 years in senior positions with the United States Food and Drug Administration. And Mr. Meyer is a Domer, a graduate of Notre Dame. I use that term affectionately, too, Mr. Meyer. You all use that proudly, I'm told.

    Mr. MEYER. Yes, we do. Thank you, Mr. Chairman.

    Mr. COBLE. And our final witness on this panel is Mr. Bruce Downey, who is chairman of the board and chief executive officer and president of Barr Laboratories, Inc., a leading independent developer, manufacturer, and marketer of generic pharmaceuticals. Mr. Downey provides a wide range of generic pharmaceuticals in several major therapeutic categories, including antibiotics, cardiovascular agents—I'm not sure I can pronounce this—psycho——

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    Mr. DOWNEY. Psychotherapeutics.

    Mr. COBLE. Psychotherapeutics. I thank you, sir. And oncology products. Mr. Downey graduated with honors from Miami University in 1969 and received his law degree, cum laude, from Ohio State. He served as well on the board of editors at the Ohio State University Law Journal and was elected to the Order of the Coin.

    We have written statements of all the witnesses on this panel and I ask unanimous consent to submit them into the record in their entirety. Gentlemen, if you will, as I have previously requested, if you can comply with the 5-minute rule we will be appreciative. And your warning signal will be the illuminated red light. We have your written statement. It has been perused and will be perused again, so don't think we're giving you short shrift by holding the 5-minute stop watch on you. Wait, suspend just for a moment.

    Mr. Bryant of Tennessee has joined us and would like to make a statement.

    Mr. BRYANT. Thank you, Mr. Chairman. I have just a brief statement. First, I want to thank you for holding today's hearings, or hearing, and for allowing me to participate.

    Roughly 2 months ago, this subcommittee held an oversight hearing of the Patent Trademark Office. At that time you allowed me to explore with Commissioner Layman his views on what should be done to address the impact of regulatory delay on patent terms. As I noted then, when the House approved H.R. 400, the 21st Century Patent System Improvement Act, we included language restoring lost patent terms for delays at PTO in processing patent applications. My concern is that we should look further to consider the effects of similar delays that occur in other Federal regulatory agencies.

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    In response to my question, Commissioner Layman proposed a concept whereby claims of extraordinary regulatory delay could be heard by the patent office and, where appropriate, patent term could be restored. Such process would remove Congress from having to evaluate individual claims for relief. I look forward to hearing the testimony of today's witnesses on this issue and, again, appreciate all of your assistance in allowing me to participate today. Thank you.

    Mr. COBLE. Thank you, Mr. Bryant. Mr. Hutt, why don't we begin with you, sir.

STATEMENT OF PETER BARTON HUTT, PARTNER, LAW FIRM OF COVINGTON AND BURLING

    Mr. HUTT. Mr. Chairman, members of the subcommittee, I am pleased to be here today to present testimony on the subject of patent term restoration. When the Drug Price Competition and Patent Term Restoration Act of 1984 was being considered during the years 1983 and 1984, I served as counsel to the Pharmaceutical Manufacturers Association on that matter. I was therefore deeply involved in the development, negotiation, and drafting of those statutory provisions.

    Let me explain why that statute became necessary. As a result of the increased regulatory requirements for new drugs imposed by the Drug Amendments of 1962, the time required for the manufacturer of a drug to obtain the necessary evidence of safety and effectiveness increased and the time required for FDA to review and approve a new drug application also increased. As a consequence, instead of receiving the full statutory patent term of 17 years, the effective patent life for a new drug gradually was reduced to less than 10 years and, at time, absolutely down to zero.

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    By 1980, the average effective patent life of new drugs had deteriorated to such an extent that it required remedial legislation. And thus, in 1984, patent term restoration was enacted into law, in combination with legislation authorizing FDA approval of generic versions of new drugs through an abbreviated NDA.

    That 1984 Act was a compromise, a balance between two competing interests. The research-based drug industry obtained up to 5 years of patent term restoration, in partial, but not complete, restoration for the time lost. The generic industry received the assurance that generic versions of a pioneer drug would be approved by FDA following expiration of applicable patents and a period of market exclusivity.

    Let me turn to the problem we face today, and that is the pipeline drug exception. As I have said, the general rule under the 1984 act was that the pioneer drug received up to 5 years of patent term restoration. But there was one very important exception to this general rule. A pipeline drug was limited to 2 years of patent term restoration. Pipeline drugs were defined in the law as any drug for which both a patent had been issued and an investigational new drug application had been submitted to FDA prior to the date of enactment of the 1984 statute. Accordingly, there was a full 3 years difference in patent term restoration between two drugs being developed at the identical time. One would have had the IND submitted to FDA shortly before the date of enactment and the other would have had it submitted shortly after the date of enactment.

    A year ago, in May 1997, the chief counsel for the Senate Committee on Government Affairs asked about the origin of this 3-year disparity. As already noted, I had been deeply involved in the legislation and I therefore provided to him a letter in May 1997 laying out the two reasons. I quote on page seven of my prepared testimony from that letter. That letter is also appended to my testimony. First, it was felt that the pipeline drugs would be approved by FDA shortly after enactment. And, second, it was felt that, for any drug for which an IND had been submitted, the manufacturer had made the decision to invest and that no further incentive was needed, particularly, again, because it was anticipated that approval would come not long after enactment. My recollection of that has been confirmed, I should point out, with an exchange of correspondence with the person who served as counsel to Congressman Henry Waxman at that time on the House Subcommittee.

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    Let me narrow the field of focus here to what I call outlier pipeline drugs. For most of the pipeline drugs, the assumption that FDA approval would come shortly after enactment turned out to actually be true. At that time, the average time for FDA approval was about two and a quarter years. But there were a few outliers where this assumption turned out to be totally inaccurate. For these outlier pipeline drugs, the time for FDA review and approval was more than twice the average. They therefore suffered an enormous disadvantage in terms of reduction in effective patent life. Indeed, some of the post-1984 drugs were actually approved by FDA before the pre-1984 drugs were approved, with the net effect that there was about a four and a half year difference in effective patent life between these outlier pipeline drugs and the post-1984 drugs that got the full 5 years.

    Mr. Chairman, I will not go into the details of all that Congress has done to remedy inequitable situations of this kind. You will find on page 11 of my prepared testimony citations to some seven different statutes that Congress has enacted to deal with inequitable situations where the 1984 Act simply resulted in unfair harm to one product or another.

    In conclusion, what I would like to point out is that there are two ways that one could go about solving this problem. The first way would be to do it the way Congress has done it in the past and to go drug by drug. That is, however, a very time-intensive, resource-intensive effort for the people in Congress.

    The other way was suggested by Mr. Bruce Lehman in testimony in 1991. I happened to appear at that hearing and was on the same panel with him. He suggested that Congress should find a broader, more comprehensive administrative approach to solve this kind of a problem, rather than ad hoc legislation. Mr. Chairman, I would endorse his views. I believe that would be a far more reasonable, far more efficient way to solve this problem.

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    [The prepared statement of Mr. Hutt follows:]

PREPARED STATEMENT OF PETER BARTON HUTT, PARTNER, LAW FIRM OF COVINGTON AND BURLING

    Mr. Chairman and Members of the Subcommittee, I am Peter Barton Hutt. I am a partner in the Washington, D.C. law firm of Covington & Burling.

    I have been asked to present testimony on patent term restoration. For almost forty years, I have been engaged in the practice of food and drug law. During 1971–1975, I served as Chief Counsel for the Food and Drug Administration (FDA). I am the co-author of the casebook used to teach food and drug law in law schools throughout the country.(see footnote 15) I teach a full course on food and drug law during Winter Term at Harvard Law School and during Spring Term at Stanford Law School. When the Drug Price Competition and Patent Term Restoration Act of 1984 was being considered during 1983–1984, I served as counsel to the Pharmaceutical Manufacturers Association (now the Pharmaceutical Research and Manufacturers of America) and was deeply involved in the development, negotiation, and drafting of the provisions in that statute.(see footnote 16) I have published articles on the subject of patent term restoration both before(see footnote 17) and after(see footnote 18) enactment of the 1984 Act. Finally, I have twice before testified on legislation intended, and ultimately enacted, to provide patent term restoration for specific products as a matter of fairness and equity.(see footnote 19)

THE ORIGIN AND PURPOSE OF THE DRUG PRICE COMPETITION AND PATENT TERM RESTORATION ACT OF 1984

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    In 1962, Congress enacted new legislation to increase the regulatory requirements for new drugs. The Drug Amendments of 1962(see footnote 20) replaced the 1938 requirement of premarket notification with a more stringent requirement of premarket approval, and added a requirement of proof of effectiveness to the 1938 requirement of proof of safety. In the years that followed, the time required to obtain the necessary evidence of safety and effectiveness increased, and the time required for FDA review and approval of a new drug application (NDA) also increased. As a result, instead of receiving the full statutory patent term of seventeen years, the effective patent life for a new drug gradually was reduced to less than ten years and at times to zero. The longer it took a company to prove safety and effectiveness and the longer it took FDA to review and approve the NDA, the shorter the effective patent life became.

    By 1980, the average effective patent life of new drugs had deteriorated to such an extent that many concluded it required remedial legislation. During 1981 and 1982, Congress considered legislation relating solely to patent term restoration. This legislation narrowly missed enactment in September 1982.

    Following enactment of the Drug Amendments of 1962, FDA approved the marketing of generic versions of pioneer drugs under abbreviated NDAs for those pioneer new drugs first marketed before the 1962 Amendments, but not for new drugs with NDAs approved after the 1962 Amendments. For two decades, generic versions of post-1962 new drugs were virtually precluded from the market. Both administrative and legislative approaches were considered during this time to permit FDA approval of generic drugs, but none was successful.

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    In 1983 and 1984, the pending patent term restoration legislation was combined with legislation authorizing FDA approval of generic versions of post-1962 new drugs through an abbreviated NDA. That legislation was ultimately enacted in September 1984 as the Drug Price Competition and Patent Term Restoration Act of 1984 (which is shortened in this testimony to the ''Patent Term Restoration Act'' or the ''1984 Act'').(see footnote 21)

    The 1984 Act was an attempt to balance two competing interests. The research-based drug industry obtained up to five years of patent term restoration for pioneer new drugs, to compensate for part of the diminished effective patent life resulting from the FDA requirements for the investigation and approval of a new drug. The generic drug industry received the assurance that generic versions of a pioneer drug would be approved by FDA following expiration of applicable patents and market exclusivity through an abbreviated NDA that did not require duplicative testing for safety and effectiveness.

THE PIPELINE DRUG EXCEPTION

    As noted above, the general rule under the Patent Term Restoration Act of 1984 was that the pioneer drug received up to five years of patent term restoration. There was, however, one important exception to this general rule. A pipeline drug was limited to two years of patent term restoration. Pipeline drugs are defined in what is now 35 U.S.C. 156(g)(6)(C) as any drug for which a patent had been issued and an investigational new drug (IND) application had been submitted to FDA prior to the date of enactment of the 1984 Act, which was September 24, 1984. Accordingly, there was a full three years difference in patent term restoration between two new drugs that were being developed at the same time, simply by reason of the fact that the IND for one was submitted shortly before the enactment date and the other was submitted shortly after the enactment date.

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THE CONGRESSIONAL RATIONALE FOR THE REDUCED PATENT TERM RESTORATION FOR PIPELINE DRUGS

    The three-year disparity between the two years of patent term restoration provided where an IND had been submitted before the date of enactment and the five years provided for all other new drugs has provoked substantial interest and concern. A year ago, the Chief Counsel for the Senate Committee on Government Affairs asked about the origin of this disparity. I provided a letter in May 1997 describing the two reasons for the two-year limitation on pipeline drugs. A copy of that letter is attached to this testimony.

    As already noted, I participated in the development, negotiation, and drafting of the 1984 Act on behalf of the industry trade association. My clear recollection of the reasons for the two-year limitation for pipeline drugs, as set forth in that May 1997 letter, are as follows:

  There were two fundamental reasons why the two-year limitation was included for pipeline drugs in what is now 35 U.S.C. 156(g)(6)(C). These reasons were frequently discussed among those of us who were involved in the daily negotiations.

  First, it was felt that the pipeline drugs would be approved by FDA shortly after enactment of the 1984 legislation. Accordingly, it was thought that the five year period of patent term restoration granted to all post-enactment drugs would be unjustified for pipeline drugs, and that a two-year period of patent term restoration would more appropriately reflect the anticipated short period of time between the date of enactment and the date of FDA approval for pipeline drugs. (While this assumption has in large part proved to be true, I understand that for a handful of pipeline drugs the time between date of enactment and FDA approval has extended beyond the time needed for approval of post-enactment drugs and has in fact exceeded ten years—something clearly not contemplated by any of us when we were drafting the legislation in 1984.)

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Second, it was felt that, for any drug for which an IND had been submitted to FDA prior to the date of enactment, the manufacturer had already made the decision to invest resources in the drug and therefore less of an economic incentive was needed to assure continued pursuit of the drug to final FDA approval—particularly when it was anticipated that approval would come not long after enactment of the legislation. Accordingly it was concluded that two years, rather than five, would provide sufficient economic incentive to assure that a pipeline drug would not be abandoned.

These were the two considerations that led to the two-year limitation on patent term restoration for pipeline drugs, as contrasted with the five-year grant of patent term restoration for post-enactment drugs, in the 1984 Act. To the best of my recollection, they were the only two considerations that were discussed at that time.

In October 1997, I discussed this matter with John P. McLaughlin when I saw him at a meeting and then sent him my May 1997 letter to ask his recollection. Mr. McLaughlin had served as Counsel to the Subcommittee on Health and the Environment of the House Committee on Energy and Commerce, and was involved in the legislation on a daily basis, throughout 1983 and 1984. At the time I wrote him, Mr. McLaughlin was Executive Vice President of Genentech, a highly successful biotechnology company. Genentech has no interest of any kind in any pipeline drug. Mr. McLaughlin wrote back to confirm my recollection of the above reasons for the pipeline drug limitation. Copies of my letter to Mr. McLaughlin and his reply are also attached to this testimony.

THE OUTLIER PIPELINE DRUGS

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    For most of the pipeline drugs, the assumption that FDA approval would come shortly after enactment of the 1984 Act turned out to be accurate. At that time, the average time for FDA approval of an NDA was approximately 2.25 years.(see footnote 22)

    For a few outliers, however, this assumption turned out to be quite inaccurate. For these outlier pipeline drugs, the time for FDA review and approval of an NDA was more than twice the average, and they therefore suffered an even greater reduction in effective patent life. A number of post-1984 new drugs that received a full five years of patent term restoration were in fact approved by FDA before the agency approved these pre-1984 outlier pipeline drugs that received only two years of patent term restoration. This produced the anomalous result that the outlier pipeline drugs, whose NDA approval time was more than twice the average, received less than half the normal patent term restoration. None of us who participated in the drafting of the 1984 Act anticipated or intended this result.

    These outlier situations, with approval times more than double the average, reflect the large new drug review workload imposed on FDA in the late 1980s and early 1990s, the increasingly restricted resources available to the agency to do this work, and thus the growing shortfall in the personnel assigned to these tasks. FDA was doing everything it could to meet its new drug review obligations throughout this time. But the resources simply were not there to satisfy the workload needs.

    Congress squarely faced this issue in the early 1990s and found a solution in the Prescription Drug User Fee Act of 1992.(see footnote 23) Using the additional funds made available under the 1992 Act, FDA has hired approximately 650 new employees to handle NDAs in a more expeditious manner. As a result, the time for NDA approval has been cut in half. If this approach had been adopted earlier, there would have been no outlier pipeline drugs and no need for legislation to redress the inequity in patent term restoration that has in fact occurred for these drugs.

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LEGISLATIVE ATTEMPTS TO REDRESS THE INEQUITY FOR OUTLIER PIPELINE DRUGS

The two-year limitation for pipeline drug patent term restoration in the 1984 Act was intended to deal with the expected FDA average approval time of about 2.25 years. It made no attempt to address unusual or unique situations of lengthy regulatory review for which accepted principles of fairness and equity would justify exceptions.

As a result, Congress has on seven specific occasions enacted legislation to address particular FDA-regulated products where application of the general rules in the 1984 Act would have been unfair and inequitable. Two of those occurred in the middle of the congressional consideration of the 1984 Act, two occurred at the end of the congressional consideration of the 1984 Act and were enacted a month later, and the remaining three occurred in 1988, 1993, and 1996. In all seven instances, Congress concluded that the general rules applicable under the 1984 Act were insufficient to address the particular situations involved, and thus that legislation was necessary and appropriate. The following table lists those seven statutes:

Table 2

In a number of other instances, similar legislation has been considered by Congress for other FDA-related products but has not yet been enacted.

I have in the past supported this type of legislation, because I believe it is entirely appropriate for Congress to enact legislation addressing the inequities that inevitably arise in the application of general rules to unique situations.

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    It is, however, time-consuming and inefficient for Congress to examine and take action on each specific product where a general problem has been identified, such as outlier pipeline drugs. During a Senate hearing held in August 1991 to consider patent term restoration bills for three specific products, Bruce Lehman, who now serves as Commissioner of Patents and Trademarks, offered the thoughtful suggestion that Congress establish some type of new administrative procedure to consider identified problems of fairness and equity rather than to handle each individual product on an ad hoc legislative basis.(see footnote 24) As Mr. Lehman pointed out at that time, this alternative way of approaching the matter offers substantial advantages. I am aware that this type of approach for outlier pipeline drugs has been discussed since 1991, but no legislation of this nature has been introduced.

CONCLUSION

    Without doubt, outlier pipeline drugs have not been treated fairly. These drugs received only two years of patent term restoration, whereas competitors who submitted their IND applications later but received their NDA approvals earlier received a full five years of patent term restoration. This result cannot be justified on any principled basis. The assumptions on which the two-year pipeline drug limitation was based have turned out to be erroneous for this limited category of drugs. Under these circumstances, Congress has in the past enacted legislation to redress the resulting inequity. In the case of outlier pipeline drugs, this could be accomplished either by drug-specific legislation or, more efficiently, by establishing a new administrative procedure to evaluate the few remaining outlier pipeline drugs involved.

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Covington & Burling,

Washington, DC, May 12, 1997.

Frederick S. Ansell, Esquire, Chief Counsel,
Senate Committee on Governmental Affairs,
Dirksen Building, Washington, DC.

    DEAR MR. ANSELL: This is in response to your request for information on the origin of the two-year limitation on patent term restoration for pipeline drugs under the Drug Price Competition and Patent Term Restoration Act of 1984. As counsel to the Pharmaceutical Manufacturers Association (now the Pharmaceutical Research and Manufacturers of America) with respect to that legislation, I participated in the development, negotiation, and drafting of the 1984 Act.

    The 1984 Act established patent term restoration of up to five years for new drugs approved by the Food and Drug Administration (FDA) after the date of enactment, except that a two-year limitation was placed on pipeline drugs. Pipeline drugs were defined as those drugs for which an IND was submitted prior to the date of enactment.

    There were two fundamental reasons why the two-year limitation was included for pipeline drugs in what is now 35 U.S.C. 156(g) (6) (C). These reasons were frequently discussed among those of us who were involved in the daily negotiations.

    First, it was felt that the pipeline drugs would be approved by FDA shortly after enactment of the 1984 legislation. Accordingly, it was thought that the five year period of patent term restoration granted to all post-enactment drugs would be unjustified for pipeline drugs, and that a two-year period of patent term restoration would more appropriately reflect the anticipated short period of time between the date of enactment and the date of FDA approval for pipeline drugs. (While this assumption has in large part proved to be true, I understand that for a handful of pipeline drugs the time between date of enactment and FDA approval has extended beyond the time needed for approval of post-enactment drugs and has in fact exceeded ten years—something clearly not contemplated by any of us when we were drafting the legislation in 1984.)

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Peter Barton Hutt.

Covington & Burling,

Washington, DC, October 16, 1997.

John P. McLaughlin, Esquire,
Executive Vice President,
Genentech, Inc., San Francisco, CA.

DEAR JOHN: For the past several years, manufacturers of ''pipeline'' prescription drugs—those drugs that received only two years of patent term restoration under the Drug Price Competition and Patent Term Restoration Act of 1984 because a clinical trial had begun before the date of enactment—have pursued legislation to expand their term of patent term restoration to a full five years. They argue that the 1984 Act unjustifiably discriminated against the pipeline drugs and that the premises on which the reduction from five to two years of patent term restoration was based have turned out to be incorrect.

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    Recently I was asked to provide a letter to the Senate Committee on Government Affairs to relate my views on why the pipeline drugs were provided a shorter term of patent term restoration. A copy is enclosed.

    I would be very interested in knowing your recollection of this matter. When you have a moment, please give me a call.

    With best regards,

Sincerely yours,

Peter Barton Hutt.

Genentech, Inc.,

San Francisco, CA, October 31, 1997.

Peter Barton Hutt,
Covington & Burling,
Washington, DC.

DEAR PETER: Thank you for your letter of October 16, 1997. You ask whether I have recollection as to the rationale for affording two years of patent restoration for ''pipeline drugs'' (as compared to five years for certain other categories of drugs) in the Drug price Competition and Patent Term Restoration Act of 1984. Based on my service as Counsel to the House Subcommittee on Health and the Environment, I have a very clear recollection of the rationale. It is accurately summarized in your letter of May 12, 1997 to the Senate Committee on Governmental Affairs.

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If you would like to discuss this matter further, please feel free to give me a call.

Sincerely,

John P. McLaughlin,

Executive Vice President.

    Mr. COBLE. Thank you, Mr. Hutt. Mr. Meyer.

STATEMENT OF GERALD MEYER, CONSULTANT, ACC CONSULTING GROUP, INC.

    Mr. MEYER. Thank you, Mr. Chairman. I appreciate, also, the opportunity to be here.

    From 1987 through September 1993, I served as deputy director of FDA's Center for Drug Evaluation and Research, which is the agency's operating component for the review and approval of applications before it. And from 1993 to April 1994, I was the acting director of the Center, while we attempted to recruit another physician to replace Dr. Carl Peck. In total, I spent a long time at FDA.

    I currently serve as a consultant to a range of firms that are regulated by FDA, some brand-name and some generic. But I would emphasize that I am not here today on behalf of any firm, any group of firms, or industry association. And I am not being paid by anyone in any way for my testimony or time.

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    I am simply here because I was asked to come and speak about the workload that FDA had at that time. And I can tell you, Mr. Chairman, that, prior to enactment of the Prescription Drug User Fee Act, we faced enormous difficulties in reviewing new drugs. We simply did not have adequate funding and resources to keep up with a very creative and a very expanding industry. Talented, dedicated physicians, statisticians, chemists, and many others were working long hours.

    In the late 1980's and 1990's, we simply began to get further behind. Review and approval times increased and by 1992, the median review time was more than 22 months for NDAs covering new molecular entities and approximately 26 months for all NDAs. After substantial effort by myself and many others, we had only reduced review time by some 3 months when I left in 1994.

    There were many causes for these delays. But, in my opinion, the overriding reason was always simply that we had insufficient staff to address the workload. And I think this view has been borne out by the Prescription Drug User Fee Act. This Act has infused hundreds of millions of dollars from industry user fees into the agency to be used for review staff. And it has significantly improved the median review time, which is now just over 12 months—most of which are approvals. This amounts to cutting that time essentially in half from what it was before review time. It is a great accomplishment.

    I can assure you, when I was there, that we did everything in our power to review applications efficiently, but we also had to choose priorities in response to what was then public health demands. So we chose those drugs which represented the greatest potential benefit and gave them a priority for review. Drugs for life-threatening diseases without current adequate therapies were given the highest priority. It was not a perfect solution, but it was, in a time of limited resources, a way to try to be responsive to the public health.

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    Thus it happened that some drug applications took longer than others did. And, as Mr. Hutt just said, some took several years, while available agency reviewers had to focus their attention on higher priority products. I would add that in certain categories of drugs, Mr. Chairman, we had incredible problems. We were not competitive in attracting physicians to help us review applications in those areas, and we faced enormous interest from the industry in developing drugs in those areas. I could think of several areas, but the non-steroidal, anti-inflammatories, cardiovascular drugs, and pulmonary drugs faced the greatest problems.

    Now, even under the User Fee Act, there are still priorities, Mr. Chairman, but it is a different situation today and non-priority drugs are receiving a much quicker review and approval than they did before.

    I hope this summary is useful to the committee, Mr. Chairman, in your consideration of how to fairly consider the concerns that firms might bring before you, and fairly restore effective patent lives for those drugs that experienced delays due to our inadequate funding at that time. And, of course, I would be pleased to be of any further assistance to the committee in that regard. Thank you.

    [The prepared statement of Mr. Meyer follows:]

PREPARED STATEMENT OF GERALD MEYER, CONSULTANT, ACC CONSULTING GROUP, INC.

SUMMARY

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    Mr. Meyer will present his view that prior to the Prescription Drug User Fee Act of 1992, the FDA faced substantial difficulty in attempting to review new drug applications within the statutory time frame primarily because of limited staff as a consequence of insufficient available funding. Mr. Meyer will express his views that this legislation and the outside funding and staff it provided were instrumental in reducing median review time to the current level of just over 12 months. Mr. Meyer expresses the hope that this information will be of value to the committee in considering how to provide opportunities to fairly restore effective patent lives to those products whose applications were being reviewed in the period prior to this legislation, were not assigned a priority because they were indicated for life-threatening conditions without adequate current therapies, and therefore experienced extended delays in review primarily because of limited and inadequate funding.

STATEMENT

    Good afternoon Mr. Chairman. My name is Gerald F. Meyer, and I appreciate this opportunity to testify today concerning the Food and Drug Administration's process for reviewing and approving new drug applications (NDAs). From 1987 through September of 1993, I served as Deputy Director of FDA's Center for Drug Evaluation and Research, the agency's operating component responsible for NDA review and approval. From 1993 through April of 1994, I was Acting Director of the Center. In total, I spent 22 years in senior positions within FDA. I currently serve as a consultant to firms that are regulated by the FDA, but I would emphasize that I am not here today on behalf of any firm, group of firms, or industry association, and I am not being paid by anyone in any way for my testimony.

    Prior to enactment of the Prescription Drug User Fee Act of 1992 (PDUFA), FDA faced enormous difficulties in reviewing new drugs because of a chronic lack of adequate funding and resources. Talented and dedicated physicians, statisticians, chemists, and many other scientists and specialists employed by the FDA devote their professional lives to the vital process of reviewing and approving new drugs. In the late 1980s and early 1990s, however, the agency simply could not keep up with the number of NDAs being submitted by the pharmaceutical industry.

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    Review and approval times inevitably increased. By 1992, the median review time was a bit more than 22 months for NDAs covering new molecular entities and approximately 26 months for all NDAs.

    Many causes have been suggested for these delays. In my opinion, the principal and overriding reason was quite simply the lack of sufficient staff as a consequence of limited available funding. This view is borne out by experience and PDUFA, which has infused hundreds of millions of dollars from industry user fees into the drug approval process. By 1997, the median review time had dropped to just over 12 months, cutting the time essentially in half from the last year before user fees. In recognition of the agency's accomplishments under PDUFA, Congress reauthorized the user fee program last year as part of the Food and Drug Administration Modernization Act of 1997.

    Going back to the era before user fees, I can assure you that FDA did everything in its power to review applications efficiently and in a manner designed to promote the public health. Toward that end, we prioritized the NDA review process to ensure that those drugs representing the greatest potential benefit would be considered first. Thus, for example, drugs for life-threatening diseases without current adequate therapies would be given a higher priority, and more rapid attention, than other drugs. This is not to say that other drugs are not important to the public health. They are. But in an era of limited resources, priorities had to be established and that was how we made choices. Thus, it happened that some drug applications took longer than others did, and some took several years—while available agency reviewers had to focus their attention on higher-priority products.

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    Even under PDUFA, different priorities have been established based on similar criteria. Priority drugs are targeted for review within six months. Others are reviewed within 10 to 12 months. Today, of course, the non-priority drugs receive much quicker review and approval than they did before PDUFA, faster even than priority drugs used to receive.

    I hope that this short summary is useful to the subcommittee in your consideration of how to provide opportunities to fairly restore effective patent lives for those drugs that experienced delays due primarily to the limited and inadequate funding of the FDA review process before 1992.

    Mr. COBLE. Thank you, Mr. Meyer. Mr. Downey.

STATEMENT OF BRUCE DOWNEY, PRESIDENT AND CEO, BARR LABORATORIES

    Mr. DOWNEY. Thank you, Mr. Chairman. As you mentioned in your introductory remarks, I serve as chairman of Barr Laboratories, an independent generic pharmaceutical company. I'm testifying today not only on behalf of my company, but also on behalf of our two principal trade associations: the Generic Pharmaceutical Industry Association and the National Pharmaceutical Alliance.

    I don't have any prepared remarks, but I would like to respond briefly to some of the comments of Mr. Hutt and I think it's important for us to upfront say why the motivating force of what brought us here today to this hearing. And that motivating force is the effort of a company, Schering-Plough, to obtain a 3-year extension of a key product, Claritin. They've been moving in other committees in other parts of the Congress over the last 2 years to achieve that objective and today is the third time our trade associations have had to respond to those initiatives.

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    Now the product Claritin is an anti-allergy product taken by people who suffer from allergies. It has $1 billion, over $1 billion, in annual sales. And the 3 years of extended patent life, basically, would cost $3 billion in monopoly protection to the American people.

    Now the product originally got a 17-year patent when it was approved many years ago. It got a 2-year patent extension after the Hatch-Waxman Act was passed in 1984. And then, again, just 2 years ago, it got two additional years of patent extension when the Congress passed enabling legislation adopting the GATT treaty. And, if you'll recall, that treaty provision changed or conformed U.S. law to that of Europe where patents would receive 20 years of life from the time the application was received, as opposed to 17 years from the time the patent was granted.

    And in the enabling legislation, Congress added a provision that says, for patents in existence at the time of the Act, the patent would receive the longer of 20 years from application or 17 years from grant and in that one fell swoop, a number of products, and including Claritin, got substantial patent term extensions. In the case of Claritin, that was almost 2 years. So we think it's time to say no to this initiative. Congress has twice said no to this initiative in different forms and we urge the committee to do the same.

    One point where I do agree with Mr. Hutt, and that's the point that the Hatch-Waxman Act, as enacted, was a compromise. And there were many compromises there, long negotiation including Mr. Hutt on behalf of the branded industry, the Members of the Congress, both in the minority and the majority, and the consumer groups and our industry, the generic industry.

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    And one part of that compromise dealt with the specific questions of patent term extensions. And, for products that were in existence on that day, the answer was, they got zero extensions. They got no extensions. For new products, they got 5 years of patent extension. And for those products that fell in-between, the so-called pipeline products, they got 2 years of extension. That was the compromise at the time. What's being asked to do today is to undo that compromise and that's just the branded industry, or at least the company—I'm not sure if Mr. Hutt's testifying for the industry or for Schering-Plough, he wasn't clear in his remarks—but what is being asked by Mr. Hutt is that we undo that compromise and that we establish a new procedure, at a bureaucracy in Crystal City, where companies can go and seek additional patent life.

    And I think it's very interesting, some of the standards that are established here. If you look at this proposed legislation, at least the copy that I've seen, there will be a presumption in favor of that patent extension unless someone opposing it can prove by overwhelming weight of evidence, that that extension was against the public interest. And that's in the proposed legislation on page three. I'd practiced law for 20 years and tried a lot of cases and I have never heard of that standard of evidence that was being offered for this particular patent extension.

    In any event, we think you have a case where the Patent Office would be reviewing the work of the FDA, the deck would be loaded in a way that basically presumed the extension was proper, and the Schering-Plough company would get what it wants. I think it's important for this committee to really focus on what the effect of that 3-year extension would be. And it really would be imposing a $3 billion tax on people who suffer from allergies, collecting that tax and sending the money to the shareholders of Schering-Plough.

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    And I think if you pose that question in that way, you'll see you should reject this legislation. Stick with the balance. Stick with the compromise that was enacted in 1984. Allow the product to come off patent, even though its gotten 4 years of extension already, and let allergy sufferers in the United States receive a lower-cost, high-quality, generic medication. Thank you.

    [The prepared statement of Mr. Downey follows:]

PREPARED STATEMENT OF BRUCE DOWNEY, PRESIDENT AND CEO, BARR LABORATORIES

    Mr. Chairman, members of the Subcommittee, thank you for the opportunity to testify. My name is Bruce L. Downey, and I am the President and Chief Executive Officer of Barr Laboratories, Inc. For 27 years, Barr Laboratories has been a leading provider of affordable, high quality medicine. With facilities in Pomona, New York, Northvale, New Jersey and Lynchburg, Virginia, we manufacture and distribute a wide range of products for the treatment of diseases ranging from cancer to depression. As a member of the Generic Pharmaceutical Industry Association and the National Pharmaceutical Alliance, I am happy today to testify from the generic industry perspective.

    When Congress passed the Drug Price Competition and Patent Term Restoration Act of 1984, better known as the Hatch-Waxman Act, the regulation of the pharmaceutical industry was significantly different from what it is today. At that time, no one seemed happy. Brand companies were complaining of lost market life due to unnecessary regulatory delays at the Food and Drug Administration (FDA). The generic industry was struggling with a cumbersome and, at times, impossible approval process, one that was highly dependent on the brand owner's willingness to allow a generic company access to its clinical data. And, consumers often had no option other than to pay the high price of the innovator's brand.

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    The Hatch-Waxman Act changed this unfortunate situation to the benefit of brand companies, the generic industry, and consumers. One of the most successful pieces of legislation in recent history, the Act is a carefully balanced compromise that has already provided over 500 years of patent extensions to existing brand products, stimulated research and innovation through other market exclusivity provisions, and rewarded consumers by allowing generics to come to market more quickly and without having to unnecessarily reprove a drug's safety and efficacy.

    Since the Hatch-Waxman Act, brand sales have increased steadily, exceeding $77 billion in 1996. Research and development annual outlays have risen from $3 billion in 1983 to almost $19 billion in 1997, a year in which advertising expenditures by PhRMA companies totaled another $20 million. Generic companies and consumers also have benefited. Since 1984, the generic industry has grown steadily and today has total revenues of approximately $11 billion. In fact, 45% of all prescriptions filled today are for generics. Because of generic competition, consumers have saved literally billions of dollars by having access to generic pharmaceuticals that are priced as much as 70% below their brand counterparts.

    Consequently, given the unprecedented success of the Act, the real question before the Subcommittee is whether Congress should overturn the delicate compromises that are the heart of the statute in order to provide six brand name pharmaceutical companies with a windfall of several billion dollars. The answer should be a resounding no.

    There is no secret why this issue is being raised today. Claritin, a popular and effective allergy medication manufactured by Schering-Plough, is one of the most financially successful drugs currently on the market. In 1994, when the product was first marketed in the United States, each 10 milligram tablet had an AWP price of $2.35. Today, that same tablet costs $2.83, an increase of approximately 20%. Last year, sales of Claritin exceeded $1.2 billion worldwide, and this year, based on first quarter reports, annual sales may exceed $1.7 billion. Consequently, the proposed three year patent extension, which will prevent any generic competition, is worth at least a billion dollars to the company.

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    Mr. Chairman, this is Schering-Plough's third attempt to win a patent extension for Claritin. Last year, in late May, it attempted to add an amendment to S. 507, the Omnibus Patent Act of 1997. That effort was blocked at the last minute in the Senate Judiciary Committee. And, in the closing moments of the 1997 Congressional session, there was an attempt through the appropriations process, while a bill was in conference, to create a special demonstration project never considered in either body, to award additional market exclusivity for specific products in exchange for a 3% royalty payment to the National Institutes of Health. There was no prohibition against the companies passing on this royalty payment to consumers. Fortunately, this proposal was also rejected.

    There are several reasons why this latest attempt to legislate a patent extension for Claritin is wrong. First, the special treatment afforded to so-called ''pipeline'' drugs was part of the negotiated compromise in 1984. While an individual company may today, in retrospect, wish to argue that these products should have been treated differently, that was not the decision of the brand companies at the time. They readily agreed to the significant concessions they won from Congress, which has benefited the industry far beyond expectation. To now argue that a specific benefit the bill also provided to the generic industry and consumers is unfair makes no sense. I am sure that these same companies would oppose any attempt to overturn other provisions of Hatch-Waxman that the generic industry might endorse.

    Second, the latest Schering-Plough proposal would require the Commissioner of the United States Patent and Trademark Office to make a legal determination about issues involving an entirely different agency, the Food and Drug Administration. Look at the standards the Commissioner of the Patent and Trademark Office must consider. First, did the drug review at the FDA exceed 60 months? Second, did the company act with due diligence during the regulatory review period at the FDA? Clearly, this is a determination that the Commissioner of the Patent and Trademark Office is not competent to make. Even more amazing, the requested extension will be presumed by law to be in the public interest, unless an opponent of the extension can prove by ''the overwhelming weight of the evidence submitted'' that the extension would be against the public interest and the interest of fairness. The burden is not on the company to prove that granting the patent extension is in the public's interest by the overwhelming weight of the evidence. Someone else must prove the negative.

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Third, the proper way for Congress to consider awarding a company a patent extension or an extension for market exclusivity is well-established. Instead of trying to circumvent the Committee process, instead of ruining the Hatch-Waxman Act, instead of creating a new administrative mechanism that guarantees an outcome for the requesting party, the issue should be decided on its merits in public. It is interesting to note that other pharmaceutical companies have done just this. For example, Warner-Lambert was given an extension for its heart drug, Lopid, in the late 1980s. The company obtained bipartisan support for a bill, which was enacted after appropriate Congressional consideration of its merits. Conversely, in the early 1990s, the House Judiciary Committee declined to support a patent extension for Lodine after public hearings and a report by the General Accounting Office. What has been so remarkable about the various efforts concerning Claritin has been the unwillingness of the company to subject this issue to a public examination by the committees of competent jurisdiction. One has to wonder why the company is so afraid of informed, competent, public scrutiny.

In conclusion, if Claritin or any other drug deserves a patent extension or additional market exclusivity, appropriate committees of the Congress should consider the matter only after adequate notice and a full public hearing in which all interested parties present testimony subject to questioning and review. Moreover, this hearing should include a report by an independent third party, such as the General Accounting Office, addressing the allegations of agency delay or other complaints or arguments raised by the parties. Delegating this responsibility to an administrative agency not directly involved and without the necessary expertise to assess the validity of the allegations raised by the parties is as illogical as having the Food and Drug Administration determine whether the Patent and Trademark Office is correctly granting patents.

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    While it may have its faults, the traditional legislative process is still the best way to ensure that an issue is considered on its merits and that all who have an interest in the outcome, in this case brand name pharmaceutical companies, the generic industry, taxpayers, and consumers, all have a voice in the process.

    Mr. COBLE. Let me put this question to each of you. Assuming that an administrative body were assigned the task of reviewing extension requests, what criteria should it invoke or should it consider in reaching its decisions? Mr. Hutt, I'm going to start with you.

    Mr. HUTT. I would be happy to respond. The touchstone of all criteria ought to equity and fairness. As my testimony pointed out, for the seven times when Congress has been moved to pass legislation to redress problems of the past, each one has been based upon principles of equity. In the situation that I mentioned with regard to, not all pipeline drugs, but just the outlier pipeline drugs which had massive review times far beyond anything anticipated when the legislation was under consideration, one would take a look at how long a period of time was involved there, at some of the factors that Mr. Meyer mentioned of the FDA difficulty in reviewing those drugs, and would try to reach a conclusion whether this was the fault of the Congress in not thinking about this issue; the fault of the agency in not being able to deal with this; or whether this was simply, if you will, an act of nature whereby the problem got out of control with nobody's fault. Is it equitable to have a 4.5 year difference in effective patent life under these kinds of circumstances?

    So I come back, Mr. Chairman, to the issue of equity, to the issue of fairness. That was the issue with Daypro, Olestra, Lopid, and all of the other drugs for which special laws were enacted. Thank you.

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    Mr. MEYER. Mr. Chairman, I certainly also believe that equity and fairness are the criteria. I would look at what the median review time was for applications before the agency at that time, and then I would look at the time an application actually took to be reviewed. I remember non-steroidal, anti-inflammatory applications that I swear took 8, 10, and I believe there was one there that took 12 years to be reviewed. The reason was we had one reviewer and one part-time reviewer who were assigned those applications. Some had as many as ten thousand patients in their studies. There was no way a reviewer could get to an application and review it manually in less than 8 to 9 months. So if one happened to submit the fifth or sixth application, the application sat there in the agency for 2, 3, or 4 years before anyone could pick it up to look at it.

    I have every bit of confidence that if you set up an administrative process to consider that, it would do so fairly. I have no doubt about that.

    Mr. COBLE. Thank you, Mr. Meyer. Mr. Downey.

    Mr. DOWNEY. In the first place, Mr. Chairman, we would urge that the matter——

    Mr. COBLE. You know, I said, assuming that it is——

    Mr. DOWNEY. Yes. We think that the most important thing would be the cost and who pays the cost of the requested extension. In the case of Claritin, that cost will be borne by allergy sufferers and would be $3 billion, at least. And I think that would be the defining issue in deciding whether or not to grant this third dispensation for this particular product and for any other product.

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    Mr. COBLE. I'm asking this just for informational purposes. You all may not know. You mention Claritin. From the time it entered the market until 4:30 on Thursday, including previous extensions, how much of its original 17-year term has Claritin enjoyed? You may not know that.

    Mr. MEYER. I have no idea, Mr. Chairman. I suspect that there are people from Schering or FDA who could provide you with that information.

    Mr. HUTT. Mr. Chairman, I cannot answer that. I do not know. I am not here representing Schering-Plough. I am here at your request, presenting my personal views on the matter.

    Mr. COBLE. And, gentlemen, I was not quizzing you. I was not interrogating, I was just asking. Do you happen to know, Mr. Downey?

    Mr. DOWNEY. No, sir, I don't.

    Mr. COBLE. Thank you, gentlemen. Mr. Goodlatte.

    Mr. GOODLATTE. Thank you, Mr. Chairman. I appreciate your holding hearings on this issue. I especially want to welcome Mr. Downey, whose company has a facility just outside my district and I'm sure many employees who live in the Lynchburg area and are affected by any of the decisions we make and we take them very seriously.

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    Let me ask you, Mr. Downey, I take it this is something that would not just affect this particular circumstance. If we address this issue, it's going to affect a host of different companies and drugs, would it not?

    Mr. DOWNEY. No, sir, actually it will affect a large number of companies in the generic industry, but I don't believe it would affect a large number of drugs. This particular legislation is drafted to the so-called pipeline drugs and those are a set of drugs that were in a particular stage of the approval process in 1984. By my count, there are really seven or eight possible candidates in that group and there are really only three that have any substantial commercial value, at least as far as I'm aware. So it would not affect a large number of drugs. Two of the three large drugs that it would affect are Schering-Plough products: Claritin and Eulixi. The third one is Ralofen, which is SmithKline Beecham.

    Mr. GOODLATTE. Okay. Thank you. Mr. Chairman, I don't have any other questions.

    Mr. COBLE. Mr. Bryant, even though you're not a member of the subcommittee, I'll be glad to hear from you. You'll be able to question these witnesses.

    Mr. BRYANT. Thank you, Mr. Chairman. I do have a couple of questions. I will be brief. In deference to my good friend from Virginia who has a facility in his district and employees of Mr. Downey's, I can agree with Mr. Downey on the issue of competition and consumer prices and so forth, but I think perhaps you overstate your—is it $3 billion tax increase?

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    Mr. DOWNEY. A $3 billion cost to consumers who buy Claritin, yes, sir. I'll stand by that.

    Mr. BRYANT. But you're—so you give your product away? They're going to buy it somewhere, aren't they?

    Mr. DOWNEY. I can actually give—no, no, I can give you the arithmetic of that, if you'd like. The current market for Claritin on an annualized rate is about $1.7 billion. It's growing very rapidly because it's replacing another product, Seldane, in the marketplace. For the last 12-month period, reported in a financial statements it was nearly $900 million in domestic sales. It's well over $1 billion now and over 3 years, it will tacked on—I'm projecting the growth rate—that would put it at about $4 billion a year. But our rates are very substantially below—a product like this would be expected to sell at something like 10 to 20 percent off the brand price.

    Mr. BRYANT. I understand what you're saying and I agree that you do, I think, sell it cheaper. And you should do it, because, as I understand the concept of a generic—and I take generic medication and I appreciate the low price—but I think on the other hand, in fairness to the companies that spend a lot more money than you do in research and development and take all the risk. I doubt very seriously that you make generic products of failed products, so you really just take the successful products and you don't have to go through quite the same process of FDA. Part of the American way is not only competition and lower price, but also reward for those people who take the risk and who fail and who succeed. It's an issue of fairness and equity that they ought to be able to recover their costs and a fair profit.

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    I think maybe what we disagree on is what is a fair profit. And I do have a question to these gentlemen here in terms of this process. I know Members of Congress are very—not tired—but it's difficult when these issues, these excellent issues, come along on case-by-case basis People have tried, I'm told in the past—I'm fairly new—to hide them all over the place in these bills.

    But it seems to me this is a very equitable way to work this out. It's a process bill that we don't have to do this anymore. We can, I guess, send it over to PTO and let them make a decision based on the facts, and perhaps the standards, and so forth, you know, those things may be up in the air, but wouldn't—I guess my question is is PTO the best place as opposed to the FDA or do you all have an opinion on that?

    Mr. HUTT. Clearly, the PTO would be a far more appropriate place than the Food and Drug Administration. FDA's expertise, obviously, resides in the safety and effectiveness of drugs. They have little or no expertise in patent law and the principles that might apply in the equitable conclusions that one would need to reach about extending and restoring patent term. I have never known anyone in FDA to be able adequately to deal with those kinds of issues.

    Let me also agree completely that Congress has had great difficulty, even in the seven cases that I cite in my prepared testimony, in coming to grips with the criteria that should be used and in applying those criteria across-the-board in a fair and equitable way. An administrative procedure, therefore, as Bruce Lehman has suggested, would be a far better way. It would then allow Congress, at most, to serve in a broad oversight position and let the Patent and Trademark Office make the actual decisions on restoration.

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    Mr. BRYANT. Mr. Meyer, do you have a comment on that?

    Mr. MEYER. I agree with Mr. Hutt that the FDA plate is plenty full and I frankly am one of those who even oppose putting any tobacco responsibility there. Not because I smoke. I don't. But just because I don't want to take anything away from their responsibilities to review product applications. So I don't see this kind of thing as being the right assignment at the FDA. And if others who are more familiar with the Patent Office than I am think that's the best place, it's fine with me.

    Mr. DOWNEY. I actually don't think the Patent Office is the right place, Congressman. Mr. Hutt said the FDA is not competent to evaluate patent issues. I don't believe the Patent Office is competent to evaluate whether or not there was undue regulatory delay at FDA in the review of technical and medical issues.

    I think, and our industry thinks, the proper place to have these unusual issues aired—occasionally there are products where you can make a case for extension—it should be in the political process in full and open hearings before this Judiciary Committee and the one in the Senate. And I think there, in the full light of day, with full opportunity to present evidence, then the value judgment about whether or not a proper—whether an extension is proper could be granted.

    Remember we're only talking about a second extension. These products already got the first extension. We're talking about the second and third extension here.

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    Mr. MEYER. Let me add that I agree the process ought to be open and public.

    Mr. BRYANT. And I agree. I think that's probably something we can all accept and, even in the generics case, it would be an advantage in terms of from what I've seen that trying to, you know, depending on who you are and what influence you have in this Congress, you can squeeze things in and hide them here and there. And to go to a process that is open, I think is the best situation. And that's why I have, certainly, pushed this and, certainly, I, again, let me just thank the chairman for these hearings and, again, for allowing me to participate.

    Mr. COBLE. You're indeed welcome. Mr. Downey, not unlike my friend from Tennessee, I was struck by the $3 billion figure as well. Not that I'm challenging you, but I was going to ask you the source of that and I guess there is no bona fide source. You're more——

    Mr. DOWNEY. Actually, there is. If you want me to go through the arithmetic, I can do that.

    Mr. COBLE. If you could get that to me, I would appreciate that.

    Mr. DOWNEY. Sure.

    [The information referred to follows:]

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Barr Laboratories, Inc.,

Washington, DC, June 2, 1998.

The Honorable Howard Coble, Chairman,
Subcommittee on Courts and Intellectual,
Committee on the Judiciary,
House of Representatives, Washington, DC.

    DEAR CONGRESSMAN COBLE: Thank you for the opportunity to address the members of the Subcommittee about attempts by the brand pharmaceutical industry to use various means to unfairly extend the patents on specific brand products.

    During my testimony, I told the Subcommittee that extending the patent protection for Claritin for three additional years would amount to a $3 billion tax on allergy sufferers. Based on Claritin sales projections from key analysts, the proposed Claritin patent extension could conservatively result in an additional $ 10 billion in revenues for Schering Plough and as much as a $6 billion tax on Americans seeking to treat their allergies.

    This conclusion is based on the comments and projections of two independent financial analysts: ABN Amro Securities and Cowen and Company, both of Boston. According ABN Amro Securities Claritin's sales are expected to reach $2.22 billion in 1998, $2.74 billion in 1999, $3.31 billion in 2000 and $3.89 billion in 200 1. Cowen and Company projected that global annual Claritin sales would grow from $2.2 billion in 1998 to approximately $3.5 billion by the end of 2001. Cowen estimates that 45% of Schering Plough's projected 2001 earnings per share of $3.45 will result directly from Claritin sales, and that this product will represent 6 1 % of the earnings growth of the company.

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    Clearly, these two independent sources show the value of the Claritin franchise to Schering Plough, and the dramatic growth that this product can be expected to achieve prior to the current patent expiration in 2002. Based on sales since launch in 1994, and the analyst projections above, Schering Plough will have total sales during the existing life of the current patents in excess of $15 billion.

    While one might debate the value of the product in the years beyond these projections, even if the conservative sales estimate of the Cowen model was frozen at the projected $3.5 billion for each of the three years that would result from this proposed patent extension, Schering Plough's sales would amount to a dramatic $10.5 billion for the three-year extension period.

    These projections are unsurprising, given the fact that only 6-8 million of the more than 42 million allergy sufferers use prescription medicine to treat to symptoms. Reportedly, Schering Plough spent more than $68.4 million during 1997 in promoting the Claritin line in the United States.

Generic Competition

    One of the critical questions raised during the testimony involved generic competition, and the benefit to consumers following introduction of generic alternatives.

    Today, generic products capture from 70-80% of the market within the first year, at anywhere from 10-60% of the brand price. In the case of pharmaceutical products such as Claritin which are relatively simple to formulate and manufacture (other recent examples include Zantac and Capoten), the generic erosion rate can be very rapid, often reaching 80% of the market in less than three months, at a discount in excess of 80%.

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Thus, if one were to assume that such rapid generic erosion would be typical for Claritin, and that generics versions captured 75% of the market, at a discount of 75% from the brand price, total annual revenues for this product would decline by $1.96 billion in the first year for which the patent extension has been proposed.

Table 3

    If the Claritin patent is extended for three years, the potential savings lost to consumers would total nearly $6 billion, a tax on allergy sufferers that is 100% greater than I described during the Subcommittee hearing. It is important to note that Schering Plough would still continue to enjoy more than $700 million in annual revenues after competition.

Product and Patent History

    Several questions were raised during the Subcommittee meeting regarding the approval time for Claritin, as well as the period of marketplace exclusivity it will enjoy before patent expiration in 2002.

    Claritin has been approved and marketed in the United States since April 12, 1993. The IND for the product was filed with the FDA in January 1983, and the NDA was filed in October 1986. According to the testimony of Joseph A. Dimasi, Ph.D., Director of Economic Analysis, Tufts University, before the House Commerce Committee's Subcommittee on Health and the Environment on April 23, 1997, ''The time it takes to go from initial clinical testing in the United Sates to marketing approval has averaged nine years for approvals in recent years.'' The approval time for Claritin was approximately 10 years, which is in line with other pharmaceutical approvals.

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    The original patents for Claritin were filed on June 19, 1980 and granted on August 4, 1981. The patents, after 17 years of protection, would have expired on August 4, 1998. According to a Federal Register Notice of August 31, 1993, Schering sought a 731 day patent extension pursuant to Waxman Hatch and was successful in extending the patent until August 4, 2000. As part of the GATT implementation legislation, the patent was further extended by approximately 684 days to June 19, 2002. This gives a total patent life of approximately 21 years—four years more than Schering Plough could have expected when it was developing Claritin. Clearly, the impact of an extension to this patent is unjustified based on the extensions already received and will impose a tremendous burden on consumers and taxpayers.

    The current effort to extend the Claritin patent until 2005 represents Schering Plough's third attempt to win a third extension. In May 1997, the company attempted to add a patent extension amendment to S.507, the Omnibus Patent Act of 1997, an effort that was blocked in the Senate Judiciary Committee. In the closing moments of the 1997 Congressional session, there was a second attempt to extend the patent through the appropriation process, while a bill was in conference, that would have awarded additional market exclusivity for specific products in exchange for a 3% royalty payment to the National Institutes of Health. This proposal was rejected.

    Evidently dissatisfied with the outcome of these prior attempts to obtain a Congressional extension, Schering Plough is now asking Congress to give the PTO authority to extend the patent, under a proposed standard that would virtually assure a favorable outcome for Schering Plough. The concept seems to be that the PTO would take the political heat for any extensions, while avoiding the full and fair Congressional debate normally associated with private interest bills of this type.

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I would urge that the authority to extend patent protection for specific brand pharmaceutical products remain with the appropriate committees of the Congress, and continue to be subject to the full and open public debate afforded in this forum. A decision to shift this responsibility to the PTO would be a disservice to the consumer and taxpayer.

Sincerely,

Bruce L. Downey, Chairman & CEO

59926a.eps

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59926i.eps

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    Mr. COBLE. I'll be appreciative, to you. Mr. Kirk, no rest for the weary. You thought you had been relieved of your duties today. In conclusion—I'm just thinking aloud now, Mike, and you may not know the answer to this, but how do you think your rank and file membership would respond to—for want of a better way of saying it—farming out the review process to an administrative body, such as the PTO? Or maybe you don't know the answer to that?

    Mr. KIRK. Mr. Chairman, I could only address that from the standpoint of having had a discussion with the Executive Committee of the association. We've not had a vote of the entire membership on the position that we take here.

    We heard earlier that we're talking about, basically, seven or eight patents that deal with pipeline drugs—drugs that were in the pipeline during the transition between no patent term extension and patent term extension—and only three of these are commercially significant.

    I think, from the standpoint of AIPLA's position, we would look at it much like we look at the extensions in H.R. 400. In H.R. 400 there is the possibility of extensions of up to 10 years for administrative delays in the PTO and for successful appeals, and you have unlimited extensions for two other types of delay that occur in the PTO. This is not to say that this particular application is going to get that kind of an extension. The point is that each application will get an extension to compensate for what the loss actually was.

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    One of the criticisms that we have and that, in my former life in the Patent and Trademark Office, we had in 1984, is that the 1984 Act's patent term extension provisions are inadequate. It was a bad compromise because there were products that were delayed in regulatory review that simply did not get the term extended to cover the length of the delay. This is inconsistent with what was done in H.R. 400 and what is proposed in S. 507 for delays in the office.

    The difficulty, I think, lies when you go back into the Patent and Trademark Office, is that instead of individuals coming directly to the Congress with their proposals, you will get the dissatisfied individuals that will come to Congress with their proposals when they don't like what the Patent and Trademark Office did. We would rather see a more crisp, objective, statutory approach taken.

    Mr. COBLE. I thank you, Mr. Kirk. And, gentlemen, I thank you all as well for your appearance today. And for those in the audience, I have been requested by Messers Congressman Waxman and Congressman Stark to introduce into the record statements from these gentlemen and, without objection, it will be done.

    [The prepared statement of Mr. Waxman and Mr. Stark follows:]

PREPARED STATEMENT OF HON. HENRY A. WAXMAN AND HON. FORTNEY PETE STARK, REPRESENTATIVES IN CONGRESS FROM THE STATE OF CALIFORNIA

    Mr. Chairman, we thank the Subcommittee for the opportunity to submit testimony on the subject of prescription drug patent extensions.

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    We wish to express our concerns over the proposal to establish an administrative process at the Patent and Trademark Office (PTO) for the resolution of prescription drug patent term extension claims. As original sponsors, and coauthor, of the 1984 Waxman-Hatch Act, we wish to emphasize that any consideration of the issue of drug patents is impractical without comprehensive deliberations regarding the Act and its delicate balance of commercial interests and the public welfare.

    Although the administrative process being considered by the Subcommittee is offered as a panacea to corporate lobbying on behalf of patent term extensions, it is a solution in search of a problem. The whole point of the Waxman-Hatch Act is to render such special interest claims superfluous. Insofar as meritorious claims are concerned, it has been largely successful.

    The Act succeeds in this regard because it strikes a careful balance between promoting innovation and ensuring that consumers have timely access to affordable medicines. This balance rests on the Act's clear and fair standards for the provision of prescription drug patent term extensions. Sponsors who obtain new drug approvals from the Food and Drug Administration (FDA) with due diligence are eligible for Waxman-Hatch patent term extensions of up to five years. The period of extension consists of the entire period the product is undergoing FDA review and half of the time required for clinical investigations in support of the New Drug Application (NDA).

    On numerous occasions, we and our colleague Senator Hatch have publicly emphasized that any revisions to the 1984 Act must be made in the same spirit and to the same effect as the original statute. We would strongly oppose any proposals which would upset the existing balance of commercial and public interests sustained by the Waxman-Hatch Act. Absent careful or systematic consideration of these issues by the Congress, we would oppose the proposed administrative process as falling short of this high standard.

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    Another disturbing feature of the proposed administrative process is the manner in which it would undercut scientific judgments made by the FDA and its advisory committees in new drug reviews. ''Regulatory delay'' is simply a loose and derogatory characterization of the lengthy amounts of time frequently required to make fundamental determinations of a drug's safety and efficacy. Often, such ''delays'' are the product of sponsor miscalculations, unexpected complications in the conduct of large-scale clinical trials and legitimate scientific disagreements concerning a product's toxicity or carcinogenicity. Having the Patent Office second guess the conclusions of a scientific regulatory agency and its expert advisors on such issues would be extremely ill-advised.

    This problem is best illustrated by the complications which arose from the lengthy review of Claritin, one of the ''pipeline drugs'' eligible for patent term extension under the proposed administrative process. Although no legislation has been offered as the subject of this hearing, it is clear from today's testimony that a proposal championed by the prescription drug company Schering Slough provides its conceptual basis. For several years, Schering has sought to extend its patent protections for Claritin, a prescription antihistamine with over $900 million in domestic sales last year.

    Under the 1984 Act, Claritin has already received a 2 year patent extension. But this product would be undeserving of additional patent extensions from a PTO administrative proceeding. Any delays in Claritin's approval were the result of persistent and serious scientific concerns regarding its safety, as well as the sponsor's own missteps in the regulatory process. Schering submitted the Claritin NDA in 1986 and had received FDA's recommendation for approval in October 1987. However, the FDA's Pulmonary and Allergy Drugs Advisory Committee undertook a careful review of Claritin's potential carcinogenicity. Only in 1991 did the Committee conclude that Claritin was ''not likely'' a human carcinogen, but the possibility of greater cancer risk ''is not excluded for anyone.'' A 1994 study published in the Journal of the National Cancer Institute only served to resurrect concerns that Claritin and other antihistamine drugs might cause cancer.

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    These facts have been obscured by the persistent lobbying on behalf of Claritin. Last year, Schering lobbied the Senate in support of an amendment to omnibus patent reform legislation granting outright five-year patent term extensions for Waxman-Hatch ''pipeline'' drugs, such as Claritin. In 1996, Schering sought unsuccessfully to attach Claritin patent extensions to the omnibus appropriations bill, the continuing resolution and the agriculture appropriations bill. In the first half of that year alone, Schering spent over $1 million in lobbying the Congress.

    The lobbying on behalf of Claritin is only one example of the numerous efforts in recent years to obtain special patent extensions and special extensions of market exclusivity in direct contravention of the Waxman-Hatch Act and its underlying purpose. Some of these efforts have literally taken place in the dead of night. For example, one patent extension was smuggled into the conference report of the 1997 Kennedy-Kassebaum Health Care Reform Act. Only our strenuous, last minute efforts, together with Senators Kennedy and Wellstone, prevented it from becoming law.

    Finally, the proposed administrative process would not deter undeserving claimants from seeking patent term extensions. Instead, it would simply shift their unwanted and meritless petitions from the Congress to the Patent Office. Given the Patent Office's limited resources, the implications for timely patent approvals and other crucial work conducted by this agency are distressing.

    Rather than advance a special interest proposal which serves only to reward undeserving claimants and to undercut FDA's scientific deliberations, we urge the Subcommittee to join other committees of jurisdiction in careful deliberations over whether it is timely or appropriate to revise a statute which has so clearly served the best interests of American consumers and the competing interests of the generic and brandname prescription drug industries.

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STATEMENT OF CHAIRMAN COBLE ON PATENT EXTENSION REVIEW

    I would like the record to reflect that the subcommittee invited a representative of the generic pharmaceutical industry to testify before us today on the issue of patent extension renewal, but they have not been able to join us. However, I want everyone to know that we will keep today's hearing record open for another two weeks in the event the generic industry, or any other interested party, decides that they would like to submit a written statement for the record.

    [The prepared statement of Mr. Crapo follows:]

PREPARED STATEMENT OF MICHAEL D. CRAPO

    I want to thank Chairman Coble and the Members of the Subcommittee for the opportunity to speak briefly today on an issue of great concern to the people of Idaho. In my testimony, I intend to call your attention to a unique trademark problem, which affects one of Idaho's most important and well-known commodities, the Idaho potato. While my testimony focuses on the problems affecting Idaho potatoes and the Idaho Potato Commission, the issues I will raise have far-reaching ramifications on agricultural commodities of other states.

    Idaho presents a unique and perfect environment for the production of potatoes. Idaho's desert climate, clean air, water and volcanic composition of soil all come together to produce the ideal conditions for growing the nation's best potatoes. Idaho potatoes have a strong national and international reputation for quality and excellence. While this global reputation of excellence is partly attributable to the quality of the product itself, it is also a result of the diligent efforts of the Idaho Potato Commission to ensure the quality of the product and to promote that high standard worldwide.

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    The Idaho Potato Commission was established by the Idaho legislature in 1937 as a state agency charged with the responsibility of promoting Idaho potatoes. The nine members of the Commission represent various aspects of the potato industry, including growers, packers/shippers and processors. The Commission has the authority to define the potato grades that may be advertised, as well as to designate the character of the brands, labels or stencils under which Idaho potatoes may be marketed.

    In the sixty years since its establishment, the Idaho Potato Commission has successfully promoted Idaho potatoes around the world and has sought to ensure that customers receive Idaho's quality potatoes rather than lower quality substitutes. One way in which this has been done is through the Commission's federally registered certification marks ''Idaho'' and ''Grown in Idaho.'' The certification mark is a guarantee to the consumer that the produce he or she is purchasing is truly from the place from which it purports to come and that it meets the quality standards required for certification.

    In the case of Idaho potatoes, the Idaho Potato Commission's certification marks have often been violated at the expense not only of my constituents but, perhaps more importantly, at the expense of consumers. Unfortunately, the nature of the product, which itself cannot be easily marked with stickers or dyed stamps, makes it highly susceptible to fraudulent schemes that violate the protections provided by the certification marks, including packing non-Idaho potatoes in bags that bear those certification marks. It is not uncommon for unscrupulous entities to circumvent the certification marks and then attempt to take cover under certain provisions of the Lanham Act.

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While Idaho potatoes have been harmed by these kind of infringements of the Commission's certification marks, other products, including Vidallia onions, Florida oranges and Washington apples have been subject to some of the same problems. These types of situations can be reduced by amending Sections 14 and 33 of the Lanham Act. Specifically, Section 14 permits a party to seek cancellation of a certification mark if the mark's owner ''engages in the production or marketing of any goods or services to which the certification mark is applied.'' It has been argued by several entities, including some entities the Commission alleges to have participated in misbranding activities, that the Commission's certification marks should be canceled under Section 14's prohibition against ''marketing'' because the Commission advertises and promotes Idaho potatoes. We believe, and courts have held, that advertising and promotion by the owner of a certification mark is not prohibited under Section 14, yet such claims continue to be asserted. Consequently, an amendment to Section to state that advertising and promotion is not prohibited would enable not only the Idaho Potato Commission, but also other authorized agricultural marketing order committees and state commodity commissions, to better promote their products and to protect their certification marks.

Secondly, Section 33 of the Lanham Act provides a defense to an action for trademark infringement to any party based on ''fair use:'' that the use of a name or term charged to be infringement is descriptive of and used fairly and in good faith only to describe the geographic origin of the goods or services involved. While this might make sense in cases of ordinary trademarks or service marks, which cannot even be registered under Section 2 of the Lanham Act if they are primarily geographically descriptive, it cannot apply to certification marks indicating regional origin, like the Commission's ''Idaho'' and ''Grown in Idaho'' marks, which are expressly permitted to be registered under Section 4 of the Act. If it did apply, it would have the anomalous effect of taking away whatever rights the owner of a geographic certification mark obtained by registering that mark as it would permit, and encourage, unauthorized counterfeiters to use the marks without having to comply with the quality standards required by the certification mark owner for certification. This would clearly undermine the very purpose for having certification marks, which is to protect the consuming public who has a right and expectation that, when it purchases goods or services associated with certification marks, those goods and services meet the quality standards associated with those marks and, in the case of geographic marks, actually come from the place they are purported to come from. An amendment to Section 33 stating that the ''fair use'' defense based on geographic origin does not apply to certification marks indicating regional origin would remedy this issue.

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    Pat Kole, the Vice President for Legal and Governmental Affairs for the Idaho Potato Commission and one of my constituents, will be testifying on the next panel. He will provide additional expertise on the nature of the issues that the Idaho Potato Commission seeks to address, details about the adverse impact on promoting Idaho potatoes both domestically and internationally, as well as a more detailed outline of possible remedies. I think you will find his knowledge and insight on this issue helpful as you consider these complex issues.

    In the coming months, I look forward to working with you and your staff to address the issues raised in today's hearing. I am hopeful that, through cooperative efforts, amendments can be made to the Lanham Act to ensure that the protections afforded by the Lanham Act to holders of certification marks associated with regional agricultural commodities, and to the general consuming public who have come to rely on registered certification marks as indicia of quality and authenticity, are fully realized. I thank you again Mr. Chairman and the entire subcommittee for the opportunity to testify this afternoon.

    [The prepared statement of Mr. Mossinghoff follows:]

PREPARED STATEMENT OF GERALD J. MOSSINGHOFF

    Mr. Chairman and Members of the Subcommittee:

    My name is Gerald J. Mossinghoff. I am pleased to submit this statement regarding the appropriate handling of requests for patent term restoration to remedy protections lost due to delays in regulatory agency review processes. I served as Assistant Secretary of Commerce and Commissioner of Patents and Trademarks during the consideration and enactment of the Drug Price Competition and Patent Term Restoration Act of 1984, commonly known as the Hatch-Waxman law. Later, I was President of the Pharmaceutical Research and Manufacturers of America. Currently, I am Senior Counsel to the law firm of Oblon, Spivak, McClelland, Maier & Neustadt, P.C. and a Visiting Professor of Intellectual Property Law at the George Washington Law School. The views expressed in this statement are my own; they do not necessarily reflect those of any institution.

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    The problem of lost effective patent life due to regulatory delay is a real one. While the Hatch-Waxman law addressed this question at a general level for products subject to premarket approval by the Food and Drug Administration, there are inevitably situations in which the law's restrictions lead to an inequitable result. This is especially true for so-called ''pipeline'' drugs, whose patent term restorations are limited to two years even though the Hatch-Waxman law also established an abbreviated application and review process for follow-on products, which was not in place when development efforts on these drugs began.

    The ability to restore lost patent life is necessary not only as a matter of fairness, but also to ensure adequate incentives for research and development in the future. Companies that invest in discovering and developing new medicines, for example, need some assurance that if, for reasons beyond their control, patent life is lost that cannot be restored through the Hatch-Waxman law, some avenue will be available to rectify the situation.

    At the same time, the current process for reviewing individual patent term restoration requests is in serious need of improvement. Because the enactment of legislation is the only means currently available to restore patent lives, these requests inevitably come before Congress. You must then spend the time and resources necessary to evaluate the requests, hold hearings, draft legislation, and consider it and vote on the floor. While these requests deserve such attention, there should be a better way to provide it.

    Based on my experience as Commissioner of Patents and Trademarks, I believe that the Patent and Trademark Office (PTO) is ideally suited to review and decide patent term restoration requests. The PTO already has a process in place under the Hatch-Waxman law to obtain information on drug review times. This could readily be supplemented to secure and review such additional information as would be appropriate in any individual case, pursuant to factors established by Congress. I am confident that the PTO could handle these requests without any impact on its patent application review process.

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    In addition to reducing the burdens on Congress, placing the process within the PTO would have the advantage of regularizing the process and ensuring its fundamental fairness. In place of ad hoc decisions on proposed legislation, which depend on a variety of factors often beyond anyone's control, Congress could set forth in legislation the relevant factors to be considered. The PTO, in turn, could apply those factors to individual circumstances pursuant to an established procedure. Judicial review would be available as a safeguard against arbitrary or capricious decisions. This process of delegating authority to ail agency is of course a common feature of administrative law. The Hatch-Waxman law itself embodies such a process for restoring patent terms; Congress can now supplement and improve on that process with one designed to handle individual cases of potential unfairness.

    I agree totally with the current Commissioner of Patents and Trademarks, Bruce Lehman, who testified before this Subcommittee on the same point just a few months ago. On March 19, 1998, in response to a question from Representative Bryant, he stated that setting up an administrative process within the PTO to review patent term restoration requests for pipeline drugs and other products would be an ''excellent idea.'' He said that this would provide a ''more objective procedure'' as an alternative to private bills. I agree.

    Empowering the PTO to make a final decision on these matters, subject only to judicial review under the arbitrary and capricious standard of the Administrative Procedures Act, would make the process workable, fair, and nonpolitical. Companies that have invested many millions of dollars in research and development, only to see their intellectual property protections eroded by administrative delays, deserve to have their requests for restoration of lost patent life heard and decided on the merits. The PTO, in my opinion, is able to do that job.

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[The prepared statement of Mr. DiMasi follows:]

PREPARED STATEMENT OF JOSEPH A. DIMASI, PH.D., DIRECTOR OF ECONOMIC ANALYSIS, TUFTS CENTER FOR THE STUDY OF DRUG DEVELOPMENT, TUFTS UNIVERSITY

ABSTRACT

The Drug Price Competition and Patent Term Restoration Act of 1984 (the Act) has significantly altered the marketplace for pharmaceutical products sold in the United States. The Act greatly eased the burden of getting generic versions of pioneer products on the market, while concomitantly restoring portions of the patent terms for pioneer products that are lost during clinical testing and Food and Drug Administration (FDA) review of the application for marketing approval. The Act contained a transitional feature that limited to two years the amount of a patent term that could be restored for products that had begun U.S. clinical testing and had a patent issued prior to the Act's date of enactment (pipeline compounds). To determine the effects that this transitional limitation and time spent in FDA review had on the benefits of patent term restoration received by certain pipeline compounds, an analysis of restoration times and effective patent lifetimes (EPLs) was conducted for human use drugs and biologics approved through 1995 that have received patent term restoration under the Act. In particular, the restoration times and EPLs of pipeline compounds that experienced lengthy review of their marketing applications was compared with those for non-pipeline compounds. It was found that the average effective patent lifetime for pipeline compounds that had regulatory approval periods of at least five years was 8.1 years, in comparison to 12.6 years for non-pipeline compounds.

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INTRODUCTION

This report provides an analysis of patent term restoration and effective patent lifetimes for human use drugs and biologics that have received patent term extensions under the provisions of the Drug Price Competition and Patent Term Restoration Act of 1984 (commonly referred to as the Waxman-Hatch Act).(see footnote 25) The Waxman-Hatch Act contained a transitional feature that mandated differential treatment of patents depending on whether or not the patent had issued and the compound was in clinical testing at the time of the Act. In this report, we specifically examine patent term restorations and consequent changes. in effective patent lifetimes (EPLs) according to whether this transitional feature was in effect.

Background

The Waxman-Hatch Act was enacted on September 24, 1984, with final implementing regulations published on March 7, 1987 by the Patent and Trademark Office,(see footnote 26) and on October 3, 1994 by the Food and Drug Administration.(see footnote 27) The Act represented an attempt to balance the effects of lowered barriers to entry for generic drug manufacturers by restoring, in certain circumstances, a portion of patent terms of brand name products that had been effectively lost because the patent issued before the product had been cleared for marketing. Title I of the Act established a statutory procedure that greatly eased the burden that generic drug manufacturers had to bear when filing product marketing approval applications with the Food and Drug Administration (FDA). Instead of having to undertake costly and lengthy clinical trials, generic manufacturers could utilize the Abbreviated New Drug Application (ANDA) process to establish the safety and efficacy of products by referencing information contained in the original new drug application (NDA) and proving that the generic versions were bioequivalent to the pioneer versions.

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Recognizing that Title I of the Act would significantly diminish the rewards for innovation and also that effective patent lifetimes for drugs had been declining for decades,(see footnote 28) Congress incorporated in the legislation a means by which brand name manufacturers could recoup at least some of their anticipated economic losses. Title 11 established a procedure for the restoration of a portion of a compound's patent lifetime that had been lost during the period between when the patent issued and when the compound was cleared for marketing by the FDA. Specifically, the amount of lost patent life that is restored under the Act depends in part upon how long the compound had spent in clinical testing and how long its marketing application had been under review at the FDA. The Act defines the regulatory review period for a compound with an eligible patent to be the time from the effective date of the investigational new drug application (IND) for the compound to the date of NDA or product license application (PLA) approval. For purposes of determining a potential restoration period, the regulatory review period is divided into two parts—the clinical testing phase, defined as the time from the date that the IND became effective to the NDA or PLA submission date, and the approval phase, defined as the time from NDA or PLA submission to NDA or PLA approval.(see footnote 29)

Subject to certain constraints on the maximum length of patent restoration, lost patent life may be restored by an amount equal to one-half the clinical testing phase plus the entire approval phase less the time between the effective IND filing date and the date that the patent issued.(see footnote 30) In no case may a compound receive patent term restoration beyond the amount that would result in an EPL (the period from marketing approval to patent expiration) of 14 years. In addition, the maximum allowable restoration time is either two or five years, depending on whether the compound was transitional (i.e., already in development at the time the Act was enacted). This latter constraint determines the distinction between what have been referred to as pipeline and non-pipeline compounds. Pipeline compounds are those for which an IND had been submitted and for which the patent had issued before the Act was enacted; these compounds are subject to the two year maximum. Non-pipeline compounds are subject to the five year maximum.

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    For some compounds, the patent expiration date absent patent term restoration has been recalculated as a consequence of the Uruguay Round of the General Agreement on Tariffs and Trade (GATT).(see footnote 31) Among other things, the modifications to GATT resulted in harmonization of patent laws with respect to patent expiration. Under GATT, the patent term for U.S. patents that were applied for after the GATT enactment date of June 8, 1995 is 20 years from patent filing. For applications pending on June 8, 1995 and for patents issued prior to that date that were still in effect (absent Waxman-Hatch extensions) at that time, the patent expiration is 17 years from patent issuance or 20 years from patent filing, whichever is later. Waxman-Hatch patent term restorations can be applied to patent expiration dates that have been recalculated as a result of GATT.

METHODS

    The data analyzed in this report apply to human use drugs and biologics that received marketing approval from the Waxman-Hatch Act enactment date through 1995.(see footnote 32) NDA and PLA submission and approval dates were obtained from Tufts Center for the Study of Drug Development (CSDD) databases of approved compounds. Patent filing and issuance dates were found from on-line Lexis Database searches. IND submission dates and patent term restoration times were obtained from Federal Register Notices and data provided to CSDD by the FDA.

    Compounds in the report dataset were placed in a ''pipeline'' category if both the compound's IND was submitted and the compound's patent issued prior to September 24, 1984 (i.e., the Waxman-Hatch enactment date). Other compounds approved during the study period were placed in a ''non-pipeline'' category. Compounds were further grouped according to the length of the NDA/PLA approval phase (time from NDA/PLA submission to NDA/PLA approval).

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    EPL was calculated as the time from the date of NDA/PLA approval to the date of patent expiration plus the Waxman-Hatch extension. The patent expiration date is 17 years from patent issuance or 20 years from patent filing if GATT allowed for a later expiration date.

FINDINGS

    The Waxman-Hatch Act provides for a maximum of five years of patent term restoration for non-pipeline products, but only two years for pipeline products. Unless the 14 year maximum applies to nearly all products or is relatively more important for pipeline compounds, the benefits of patent term restoration for pipeline compounds can be expected to be notably lower relative to non-pipeline compounds. In addition, the protection for pioneer firm products is likely to be especially limited for pipeline compounds that had unusually long FDA approval phases.

    To examine the potential differential impact on patent protection for pipeline compounds with very long approval phases, we need to determine from the data just what are particularly long approval times. Figures 1 and 2 show how FDA approval times were distributed for non-pipeline and pipeline compounds, respectively. The median approval time for all compounds included in our patent term restoration dataset is 29.3 months.(see footnote 33) The data suggest that a useful demarcation point for the upper tails of these distributions is five years.(see footnote 34) The five-year cutoff point also dovetails with the maximum time for restoration allowed for non-pipeline compounds.

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    Pipeline compounds receive up to two years patent term restoration. Unless these compounds would have an EPL that exceeds 14 years if they were granted two years restoration or if they had unusually short development and approval phase times, they would receive the full two years restoration. All of the 16 pipeline compounds in our dataset that had approval phases of at least five years received the full two year restoration. Figure 3 shows the mean number of days of patent term restoration granted under the Waxman-Hatch Act for these compounds compared to non-pipeline compounds. The non-pipeline compounds received, on average, patent term restorations that exceeded those of the pipeline compounds by 43%.(see footnote 35) The difference in the number of days restored between the pipeline and the non-pipeline compounds would have been greater except that restoration for many of the non-pipeline compounds (42%) was limited by the Act's 14 year maximum for EPL, while none of the pipeline compounds with approval phases of at least five years had EPLs that reached the maximum.

    Although data on the number of days extended are informative, the EPLs of the products are more directly indicative of differential economic impact. On average, the EPL for pipeline compounds that had FDA approval phases of at least five years was 4.5 years less than for non-pipeline compounds (Figure 4).(see footnote 36) The EPL for these pipeline compounds is also substantially less than the average EPL of 11.2 years for all other compounds (i.e., all compounds with patent term restoration exclusive of pipeline compounds with approval phases of at least five years).

    Since pipeline compounds with especially long approval phases would tend to be disadvantaged in terms of effective patent protection relative to other compounds, in part, because of lengthy NDA/PLA approval periods, it is informative to examine patent term restoration expressed as a percent of the NDA/PLA approval phase. As Figure 5 indicates, pipeline compounds with approval phases of at least five years had, on average, only 30% of the time that they lost on their patent terms while they were undergoing review for marketing approval restored by the Waxman-Hatch Act. In contrast, on average, non-pipeline compounds had 179% of their patent time lost under NDA/PLA review restored by the Waxman-Hatch Act.(see footnote 37) Thus, non-pipeline drugs, on average, had all of their NDA/PLA approval period plus some of their clinical testing period restored by the Waxman-Hatch Act.

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SUMMARY

Our data on patent lifetimes and patent term restorations indicate that human drugs and biologies that fell into the Waxman-Hatch pipeline category and that had undergone particularly lengthy periods of regulatory review of their applications for marketing approval were substantially disadvantaged in the marketplace relative to other compounds that have received patent term restorations under the Act. These pipeline compounds were subject to the Act's lower maximum restoration period of two years and had also lost substantial portions of their patent lifetimes due to very long NDA/PLA approval phases. Effective patent lifetimes for these products tend to be significantly below the averages for non-pipeline compounds and for all other compounds that have received patent term restorations under the Waxman-Hatch Act. Less than one-third of the patent time lost while these pipeline compounds were under review for marketing approval has been restored under the Waxman-Hatch Act, while non-pipeline compounds, on average, had all of their patent time lost during their NDA/PLA approval phases and some of their time lost during their testing phases restored.

I wish to acknowledge the contributions made to the preparation of this report by Mark Seibring and Maria Wood-Armany of the Tufts Center for the Study of Drug Development.

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59926m.eps

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Mr. COBLE. The subcommittee appreciates your contribution again, gentlemen. This concludes the oversight hearing on trademark. The record will remain open for 1 week. I thank you for your cooperation and the committee stands adjourned.

[Whereupon, at 4:37 p.m., the subcommittee adjourned subject to the call of the Chair.]

A P P E N D I X

Material Submitted for the Hearing Record

Jon Bauman Productions,

Los Angeles, CA, May 15, 1998.

Hon. HOWARD COBLE, Chairman,
Subcommittee on Courts and Intellectual Property,
Committee on the Judiciary,
House of Representatives, Washington, DC.

DEAR MR. COBLE: I am writing to you in support of changes in trademark law which would stop the proliferation of phony musical groups. This situation is especially damaging to the pioneers of the uniquely American art form of Rock 'n' Roll, and to the expectations of the American consumer.

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    I function as a packager of live performances, a Rock historian (two TV series) and a performer myself (''Bowzer'', formerly of Sha Na Na). Much of the public which is familiar with my 50's-style stage character wouldn't suspect that I'm a Columbia College graduate. But it doesn't take an Ivy League education to see that what's going on in the world of Classic Rock 'n' Roll defrauds the public, twists the intent of trademark law, and devalues the efforts of Rock's greatest early heroes.

    Unscrupulous ''managers'' have manipulated faulty language in trademark law to convince some concert promoters that they have legal rights to certain famous names. They then flood the market with multiple groups of impostors pretending to be The Coasters or The Platters, to use prime examples. No effort is made to inform the public that the acts aren't the real thing. On the contrary, I have heard some of these performers announce on stage that ''we recorded this one back in '58''. I've watched some sign autographs on tapes apparently made by the authentic groups. I've even heard one make the outrageous claim that ''this music would die without us.'' Amazing, considering that because of them, the real artists who would keep their own music alive often sit home out of work!

    As a host of many ''Oldies'' shows, I've frequently been put in the position of having to introduce phony groups as if they were the real thing. I will no longer tolerate perpetrating this deception on an unsuspecting public. I'm sure we would all agree that trademark law is not meant to encourage consumer fraud! However, trademark law as currently written appears to poorly address entities whose services are, in effect, themselves. A famous musical group's trademark should not be controllable by an outside party. This leaves too much room for abuse of the real artists and the public. Also, the notion of ''franchising'', which may make sense if the product is, say, an article of clothing, clearly has no place in the world of musical groups. A concert audience that goes to see ''The Platters'' would be less than pleased to find out that 16 other sets of ''Platters'' were performing elsewhere that night!

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    The phony groups also devalue the entire market, of course, since a hired hand impersonating a Coaster is satisfied with far less pay than is an actual inductee of The Rock 'n' Roll Hall of Fame!

    All of us who value integrity, truth in advertising, and reward based on one's contribution to society ask Congress to help in this matter by amending trademark law. Night after night, I've watched impostors soak up applause from unsuspecting audiences. All of us in this business know that this applause is really intended to honor the recordings and longevity of others who aren't even there to hear it! To watch these impostors taking bows for other people's work could only disgust any thinking, feeling human being!

    And please act quickly! Some of the ''managers'' of phony groups prey on problems within our legal system by tying the original artists up in (often frivolous) litigation, hoping to drain the artists' resources while boasting that ''by the time this is settled, we'll have made millions of dollars in concert fees.''

    Please help us stop this tragic devaluation of the contribution of the pioneers of Rock 'n' Roll by affording them clearer protection under the law.

Best regards,

John ''Bowzer'' Bauman.

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Schering-Plough Corporation,

Madison, NJ, June 1, 1998.

Hon. HOWARD COBLE, Chairman,
Subcommittee on Courts and Intellectual Property,
Committee on the Judiciary,
House of Representatives, Washington, DC.

DEAR MR. CHAIRMAN: We understand that at a May 21, 1998 hearing before the Subcommittee on Courts and Intellectual Property, Bruce Downey, President and CEO of Barr Laboratories, stated that Schering's product, CLARITIN (loratadine), received 17 years of patent protection plus two additional extensions of approximately two years each. We want to correct this misstatement and would request that this letter be included in the record of the hearing.

The compound patent for CLARITIN (loratadine) expires on June 19, 2002. The marketing application for CLARITIN was approved by the Food and Drug Administration (FDA) on April 12, 1993; the application spent almost 6 1/2 years in FDA review with total regulatory review exceeding ten years. Because CLARITIN was classified as a pipeline drug, it received only two years of patent term restoration under Hatch-Waxman. The effective patent life for this patent is only nine years and two months (inclusive of Hatch-Waxman and the General Agreement on Tariffs and Trade) not the 17 plus years Mr. Downey's testimony would suggest.

Sincerely,

Joseph C. Connors, Executive Vice President

and General Counsel.

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The Sumter Branch of NAACP,

Sumter, SC, May 20, 1998.

Hon. HOWARD COBLE, Chairman,
Subcommmittee on Courts and Intellectual Property,
Committee on the Judiciary,
House of Representatives, Washington, DC.

    DEAR MR. COBLE: This letter is in reference to the Congressional Hearing concerning Trade Marks and the Federal Trade Commission. Our focus is on the musical groups of the '50's and '60's whose music laid the foundation for ''pop'' music that is enjoyed through out the world today.

    In the early years groups such as the Drifters, the Coasters, and the Platters, Danny and the Juniors, the Marvelettes, and other groups that are too numerous to list changed the cultural scene in America. It is important to note that many of these groups were products of the African-American heritage and their influence remains on the music scene today.

    The history of Rock and Roll music reveals facts that many of these entertainers did not receive their just rewards from their own music. Many lost the rights and royalties to their music because of devious individuals. Now more than 40 years later, they are still being denied the fruits of their labor.

    The manner in which the Trade Laws are written has caused the great pioneers of our music to suffer the same indignity, loss of ownership and profit to others who weren't even around when these groups were organized. We are grateful to pioneers such as Bill Pinkney of the Original Drifters, Carl Gardener of the Coasters, Herb Reed of the Platters, just to name a few. All are members of the Rock and Roll hall of Fame.

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Hopefully this hearing will bring about the change that is needed to serve justice to these great artists. Let's give them their names back.

Sincerely,

Bill Shaw, President.

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PREPARED STATEMENT OF WILLIAM F. HADDAD, CHAIRMAN AND CEO, THE MIR PARTNERSHIP

    My name is William F. Haddad. I am chairman and CEO of the MIR Partnership. The Partnership includes both U.S. and foreign generic firms with the goal of manufacturing essential off patent pharmaceuticals in the former Soviet Union.

    I was one of the founders of the Generic Pharmaceutical Industry Association and served as its Chairman and CEO for a decade and currently I am a Member of its Board of Directors.

    I led the generic industry's team which negotiated the Drug Price Competition and Patent Restoration Act of 1984 and I personally helped to negotiate, shape and write the ''pipeline'' section of that Act which is under review today.

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    Although I do not speak for the GPIA today, I understand their point of view and would have represented it before this subcommittee if events beyond my control did not require me to decline your kind invitation. I have also had the opportunity to review the statement delivered by Bruce Downey before this subcommittee. Suffice it to say that while we may agree on certain issues, I have some difficulties with his historical interpretation of the Act and I do not subscribe to some of the motives, interpretations and conclusions he presented.

    When GPIA entered the fray in the early eighties we had our backs against the wall. Two-thirds of the House and 90 Senators had signed on to legislation which would have extended patent life for seven years for all new drugs and seven years for all drugs already off patent. If it had passed, the generic industry would have been destroyed. What complicated the situation was that the information on which the Congresspersons and the Senators had based their conclusions . . . that patent life had been cut in half by bureaucratic regulation . . . turned out to be a fiction promoted by a respectable University and secretly financed by those who would have benefited from the legislation.

    The so-called Waxman-Hatch Act was a compromise, an intricately built house, a series of delicately balanced and interwoven almost seamless compromises which, in the end, all but one Senator accepted and which was signed into law in a Rose Garden ceremony by President Ronald Reagan during which he told consumers that he used generic drugs. Congressmen Gore and Waxman led the house fight; Senators Hatch, Kennedy and Metzenbaum led the Senate fight. We cleared a major hurdle in the House when two courageous Republican conservatives sided with Gore and Waxman. In the end, Waxman-Hatch was an agreement reached by honorable persons who had fought bitterly and sometimes angrily over several years. We parted and went about our businesses. The branded industry has never been more dynamic; and the generic industry has dramatically reduced the cost of pharmaceuticals to consumers.

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    The non-patent exclusivities in Title I of the Act were unrelated to the patent term extensions of Title II. The so-called ''pipeline'' exclusivity which underlies your review was drafted as a safety belt for the brand name companies, a fairness provision, almost a catch-all to insure that all contingencies were as covered as they can be in complicated legislation. At the time, to the best of our ability, we reviewed the pipeline drugs and also the economic implications for the patent holders, generic companies and consumers.

    Not written into the legislation was the ''handshake'' agreement between the parties that if a particular drug fell through the cracks, or there was a particular injustice, we would work together to insure that the error was corrected. In that first year, Warner Lambert came to GPIA to argue that Lopid, one of their blockbuster drugs, deserved extended patent life but could not obtain it under the 1984 Act. Mr. William, who headed the company, provided GPIA with all of the information it requested. We agreed with him and together we lobbied the Congress. Patent restoration, outside the Act, was granted for Lopid. We had given our word.

    I won't pretend for the sake of harmony that over the years some companies successfully . . . and some unsuccessfully . . . ran around end and obtained patent extensions by inserting an unnoticed paragraph here and a paragraph there into various omnibus bills. But in the same context, we all know that can not happen again.

    GPIA believes the factual issues should be decided at FDA and that the Congressional process provides ample opportunity for review and comment. The legislation has served us well for almost 14 years.

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    My own viewpoint is that each drug and each company should have a review of its supporting facts in a forum which is transparent, fair and expeditious. That was the intent of the agreement and of the handshake. The door may be closed on Waxman-Hatch, but the handshake agreement, as far as I am personally concerned, is still alive. What, then, is a proper forum?

    I recall the first outline of the possible agreement that GPIA and Pfizer, acting for PMA, presented for Congressman Waxman's review. The Congressman and his staff studied it and told us: ''this is good for the brand name companies and it is good for the generic companies, but I am not sure it is in the public interest''. He was talking about the consumer. He was right. Congress, in passing the legislation, represented the consumer as well as the business interests involved. That must be kept in mind as we move to change or alter or by unique exception change a law that has worked fairly for our industry. Some of us would concede the 1984 Act needs some oiling or servicing from the outside to compensate for the rust of time . . . as distinguished from a concept that would open up the Act itself.

    Pragmatically, in light of the three parties involved, I believe the only way the issue you are considering is going to be decided is within the context of resolving the accumulated issues which over time have become serious, costly and contentious for both sides. The generic industry is under great commercial and regulatory pressure on several fronts, both domestically and internationally; the brand name industry wants limited patent restoration and says it is willing to make its case in a neutral forum; that side of the industry has other issues which they also consider contentious. In the near and distant future both segments of the industry . . . brand and generic . . . will need to find ways in which to cooperate in their own self interest. It is within this broader context that this narrower issue, I respectfully submit, can and needs to be resolved.

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Thank you for hearing my views.

Olsson, Frank and Weeda, P.C.,

Attorneys at Law,

Washington, DC, May 28, 1998.

Mr. MITCH GLAZIER,
Subcommittee on Courts and Intellectual Property,
Committee on the Judiciary,
House of Representatives, Washington, DC.

Re: The May 21, 1998 Hearing on Patent Extension Review

DEAR MR. GLAZIER: The National Association of Pharmaceutical Manufacturers, the Generic Pharmaceutical Industry Association, and the National Pharmaceutical Alliance appreciate the opportunity to present their views to the Subcommittee concerning the May 21, 1998 hearing on patent extension review.

Enclosed please find one original and four copies of the testimony. If you have any questions, please do not hesitate to call me at (202) 789–1212.

Sincerely,

David F. Weeda, Counsel,

National Association of

Pharmaceutical Manufacturers.

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Enclosures

Generic Pharmaceutical

Industry Association,

Washington, DC.

National Association of

Pharmaceutical Manufacturers,

Garden City, NY.

National Pharmaceutical Alliance,

Alexandria, VA, May 28, 1998.

Hon. HOWARD COBLE, Chairman,
Subcommittee on Courts and Intellectual Property,
Committee on the Judiciary,
House of Representatives, Washington, DC.

DEAR CHAIRMAN COBLE: The National Association of Pharmaceutical Manufacturers (NAPM), the Generic Pharmaceutical Industry Association (GPIA), and the National Pharmaceutical Alliance (NPA) jointly submit this letter to the House Subcommittee on Courts and Intellectual Property of the Committee on Judiciary regarding the hearing on May 21, 1998. NAPM, GPIA, and NPA are national not-for-profit trade associations representing manufacturers and distributors of finished multi-source generic pharmaceuticals, manufacturers and distributors of bulk active pharmaceutical chemicals, and suppliers of other goods and services to the generic drug industry. Our combined membership encompasses virtually the entire U.S. generic pharmaceutical industry.

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    We support the testimony given before your Subcommittee by Bruce Downey, Chairman and Chief Executive Officer of Barr Laboratories, Inc. We are providing these additional comments to express unequivocally our strong objection to the proposal outlined before the Subcommittee and to provide written comments regarding the issues raised at the hearing.

    In 1984, the U.S. Congress fairly balanced all the interests of the pharmaceutical industry by passing the Drug Price and Competition and Patent Term Restoration Act of 1984 (Waxman-Hatch Act). This law created a framework for patent term extensions and non-patent exclusivity periods for brand name drug products and a system for speeding the Food and Drug Administration (FDA) approval of generic drug products. As a result of the Waxman-Hatch Act, brand name drug companies' profits and research and development expenditures have grown exponentially, new life saving drugs have become available to patients, the generic drug industry has grown, enabling American consumers and taxpayers to save billions of dollars in the purchase of medicines, while creating new jobs and investment opportunities in every region of the country.

    During the negotiations that led to the Waxman-Hatch Act, it was agreed by all parties that brand name drug companies would receive up to a two-year patent term restoration for so-called ''pipeline'' drugs (a drug for which a patent had been issued and an investigational new drug application (IND) had been submitted to FDA before the enactment date of the Waxman-Hatch Act, September 24, 1984), instead of up to a five-year patent term restoration granted for later developed products. Patent term extensions were more generous for future development rather than for ''pipeline'' drugs because the purpose of the legislation was to encourage future investment incentives. Brand name companies are again selectively attempting to undo the balance struck in 1984—the balance they agreed to—in order to extend their monopoly periods, at the expense of consumer savings and healthcare costs.

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    The Subcommittee heard testimony from Peter Barton Hutt, Esq., that brand name drug companies received a maximum two-year rather than five-year patent extension for pipeline drugs under the Waxman-Hatch Act because (1) it was anticipated that pipeline drugs would be approved by FDA shortly, and (2) ''less of an economic incentive was needed to assure continued pursuit of [pipeline drugs] to final FDA approval.''(see footnote 38) Mr. Hutt argued that several pipeline drugs were not approved quickly by FDA as anticipated by the negotiators of the Waxman-Hatch Act. Yet, Mr. Hutt failed to establish that additional patent time was needed as an economic incentive to brand name drug companies to pursue final approval of these pipeline drugs. The fact is, pipeline drugs did not need more than two years of extra monopoly time because the companies making those drugs were at a point in the review process where it was highly unlikely the development of the drug would be abandoned. Thus, extra patent terms would have but one effect—to continue monopoly prices and huge profits.

    Currently, Schering-Plough is attempting for a third time to secure a patent extension on their profitable allergy drug, Claritin, a pipeline drug. This would result in overturning or reversing the delicate compromises that are at the heart of the Waxman-Hatch Act. An extension would allow Schering-Plough to make more profits with no corresponding benefits to the public health or healthcare cost control. Under Schering-Plough's current monopoly period the cost of Claritin has increased from $2.35 for a 10 milligram tablet in 1994 to $2.83 today, approximately a 20% increase. Last year alone sales of Claritin exceeded $1.2 billion worldwide. Schering-Plough wants to continue its monopoly and therefore continue to reap huge profits with allergy sufferers paying the cost.

    The proposal discussed at the Subcommittee hearing would grant the Patent and Trademark Office (PTO) the authority to determine if a patent extension is warranted. The PTO lacks the expertise to evaluate the FDA approval process and therefore would not be competent to make a determination regarding the appropriateness of a patent extension. In fact, Congress has already addressed this issue.

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    The Waxman-Hatch Act provides that FDA—not the PTO—shall determine whether an applicant acted with due diligence in pursuing FDA approval. If brand name companies believe that this mechanism has not adequately compensated them for regulatory delay, they may pursue, as they have in the past, a Congressional patent extension. As pointed out by Peter Barton Hutt, Congress has on seven occasions passed such legislation to redress alleged inequities.

    As stated in Mr. Downey's testimony, any request for additional patent life should take place in an open, Congressional forum where both sides of the issue are given full consideration and the opportunity to debate. Moreover, prior to any such hearing an independent body, such as the GAO, should be directed to investigate the true cause of regulatory delay and determine the economic consequences of granting the patent extension to government purchasers and consumers.

    The brand name drug companies are correct in labeling this issue as one of ''fairness'' and ''equity''—it is not fair and equitable for the Federal Government and consumers, especially the elderly on fixed incomes, to continue to pay inflated prices for pharmaceuticals in a competition-free market. Congress has told Schering-Plough ''no'' twice before. Congress must tell Schering-Plough ''no'' for a third and, hopefully, final time.

    We appreciate the opportunity to present our views.

Sincerely,

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Alice E. Till, Ph.D.

President, GPIA.

Robert S. Milanese

President, NAPM.

Christina Sizemore

President, NPA.

(Footnote 1 return)
See page 3, lines 10–11 of draft bill provided to INTA by Subcommittee staff.

(Footnote 2 return)
See page 3, lines 5–12 of the draft bill provided to INTA by Subcommittee staff.

(Footnote 3 return)
On March 3, 1998, the INTA's Board of Directors adopted a resolution in support of dilution as a grounds for opposition and cancellation. INTA looks forward to working with the Subcommittee in seeking the introduction of legislation consistent with the resolution.

(Footnote 4 return)
Examples of the licensed use of the right of publicity include the use of Michael Jordan's name and likeness in ads for GATORADE, and a model turning into Marilyn Monroe in an ad for CHANEL NO. 5.

(Footnote 5 return)
Currently, rights of privacy and publicity are controlled by the vastly differing statutory and case law of the fifty states. To date, eight states have recognized this right exclusively by statute. Eleven states by common law common law. Eight states recognize both a common law and a statutory right of publicity. Businesses wishing to make nationwide use of particular aspects of a living or deceased individual's persona need to analyze all of these laws and apply the most onerous requirements of each state in order to avoid liability.

(Footnote 6 return)
See Havana Club Holding, S.A. and Havana Club International S.A. v. Galleon S.A., Bacardi-Martini U.S.A., et. al., 974 F. Supp. 302 (S.D.N.Y. 1997).

(Footnote 7 return)
See 4 J. Thomas McCardiy, McCarthy on Trademarks and Unfair Competition, §29.01[6] (3d ed. 1995). See e.g. Menendez et. al. v. Saks and Company et.al., 179 U.S.P.Q. 513 (2d Cir. 1973).

(Footnote 8 return)
In the case of In Re Florida Citrus Commission, 160 U.S.P.Q. 495 (T.T.A.B.), the Trademark Trial and Appeal Board explained that the legislative history of the Lanham Act demonstrates that tile provisions in §14 were intended ''to preclude the owner of a certification mark from producing or selling goods or services in connection with which the certification is to be used.''

(Footnote 9 return)
TMEP §1306.02(a).

(Footnote 10 return)
TMEP §1306.02(b).

(Footnote 11 return)
See State of Florida Department of Citrus v. Real Juices, Inc., 171 U.S.P.Q. 66 (MD Fla. 1971).

(Footnote 12 return)
Merely as a few examples, see Baglin v. Cusenier Co., 221 U.S. 580 (1911); Republic of Iraq v. First National City Bank, 241 F. Supp. 567 (S.D.N.Y. 1965), aff'd, 353 F.2d 47 (2d Cir. 1965), cert. denied, 382 U.S. 1027 (1966); Vladikavkazsky Ry. Co. v. New York Trust Co., 189 N.E. 456 (N.Y. 1934); Zwack v. Kraus Bros. & Co., 237 F.2d 255 (2d Cir. 1956); F. Palicio y Compania, S.A. v. Brush, 256 F. Supp. 481, 490–93 (S.D.N.Y. 1966), aff'd, 375 F.2d 1011 (2d Cir. 1967), cert. denied, 389 U.S. 830 (1967); Carl Zeiss Stiftung v. V.E.B. Carl Zeiss Jena, 293 F. Supp. 892, 896–97 (S.D.N.Y. 1968), aff'd as modified, 433 F.2d 686 (2d Cir. 1970), cert. denied, 403 U.S. 905 (1971); Maltina Corp. v. Cawy Bottling Co., 462 F.2d 1021 (5th Cir. 1972), cert. denied, 409 U.S. 1060 (1972); Castro v. ITT Corp., 598 A.2d 674, 678–80 (Del. Ch. 1991); Williams & Humbert Ltd. v. W. & H. Trade Marks (Jersey) Ltd., 840 F.2d 72, 75 (D.C. Cir. 1988); Financial Matters, Inc. v. Pepsico, Inc., 806 F. Supp. 480, 484 (S.D.N.Y. 1992); Restatement (3d), Foreign Relations Law of the United States §443 reporters' note 4 at 375–76, and earlier authorities cited in all of the above. ''[T]he public policy of our nation is antithetical to the recognition of the Cuban government's confiscatory decree with respect to property outside Cuba. . . .'' Compania Ron Bacardi, S.A. v. Bank of Nova Scotia, 193 F. Supp. 814, 815 (S.D.N.Y. 1961).

(Footnote 13 return)
E.g., Argentina—Enterprise Nationale L. & C. Hardtmuth v. L. & C. Hardtmuth Inc. (Federal District Court, Buenos Aires, July 16, 1960) (1964 Propriété Industrielle p. 179) (The 1948 confiscation of a Czech family's company by the new communist government of Czechoslovakia was not recognized in Argentina and the company's trademarks were held to belong to the original owners. The expropriations without compensation were held unconstitutional under Argentine law).

(Footnote 14 return)
Decree No. 890 violated Cuba's Constitution which required any government nationalization to be based on just cause and accompanied by full, fair and immediate indemnification.

(Footnote 15 return)
Peter Barton Hutt & Richard A. Merrill, Food and Drug Law: Cases and Materials (1st ed. 1980 & 2d ed. 1991).

(Footnote 16 return)
See, e.g., my testimony on behalf of PMA in ''Patent Term Extension and Pharmaceutical Innovation,'' Hearing before the Subcommittee on Investigations and Oversight of the Committee on Science and Technology, U.S. House of Representatives, 97th Cong., 2d Sess. 123 (1982).

(Footnote 17 return)
Peter Barton Hutt, The Importance of Patent Term Restoration to Pharmaceutical Innovation, 1 Health Affairs, No. 2, at 6 (Spring 1982).

(Footnote 18 return)
Ellen J. Flannery & Peter Barton Hutt, Balancing Competition and Patent Protection in the Drug Industry: The Drug Price Competition and Patent Term Restoration Act of 1984, 40 Food Drug Cosmetic Law Journal, No. 3, at 269 (July 1985).

(Footnote 19 return)
''Lopid Patent Term Restoration and Fairness Act of 1987,'' Hearing before the Subcommittee on Courts, Civil Liberties, and the Administration of Justice of the Committee on the Judiciary, House of Representatives, 100th Cong. 1st Sess. 41, 72 (1987), 101 Stat. 1107, 1569 (August 23, 1988); ''Patent Extension Hearing,'' Hearing before the Subcommittee on Patents, Copyrights and Trademarks of the Committee on the Judiciary, United States Senate, 102d Cong., 1st Sess. 44 (1991), 107 Stat. 2040 (December 3, 1993).

(Footnote 20 return)
76 Stat. 780 (1962).

(Footnote 21 return)
98 Stat. 1585 (1984).

(Footnote 22 return)
FDA, New Drug Evaluation Statistical Report 53 (October 1985) (FDA mean approval time of 26.9 months for new molecular entities approved in 1984).

(Footnote 23 return)
106 Stat. 4491 (1992).

(Footnote 24 return)
''Patent Extension Hearing,'' note 5 supra, at 218.

(Footnote 25 return)
Drug Price Competition and Patent Term Restoration Act of 1984, Public Law No. 98–417; 98 Stat. 1585 (1984).

(Footnote 26 return)
Rules for Extension of Patent Term (Patent and Trademark Office) 1987 Mar 24;52 Federal Register: 9386.

(Footnote 27 return)
Patent Term Restoration Regulations (Food and Drug Administration) 1988 Mar 7;53 Federal Register: 7298; 21 CFR Part 60, and Abbreviated New Drug Application Final Regulations; Patent and Exclusivity Provisions 1994 Oct 3;59 Federal Register: 50338; 21 CFR Part 314.

(Footnote 28 return)
For analyses of effective patent lifetimes for new drugs prior to the Act, see Eisman M., Wardell W., ''The Decline in Effective Patent Life of New Drugs,'' Research Management 1981; 21: 18–21 and Kaitin KI, Trimble AG, ''Implementation of the Drug Price Competition and Patent Term Restoration Act of 1984: A Progress Report'' Journal of Clinical Research and Drug Development 1987; 1:263–75.

(Footnote 29 return)
A firm may submit a number of INDs for a compound. The relevant submission for purposes of patent term restoration is the first IND that is considered to be material to the approved product.

(Footnote 30 return)
The period of patent term restoration may be reduced if it is determined that the sponsor failed to pursue marketing approval with due diligence.

(Footnote 31 return)
35 USC 154 (1988) as amended by the Uruguay Round Agreements Act, Public Law No. 103–465; 108 Stat. 4809 (at 4984–85;1994).

(Footnote 32 return)
An on-line search of the Lexis Database revealed that no additional pipeline compounds with approval phases of at least five years have been approved since 1995.

(Footnote 33 return)
The Prescription Drug User Fee Act of 1992 (Public Law 102–571 [1992 Oct 29]; 21 USC 379; 106 Stat 4491) was associated with substantial reductions in approval times at the FDA, especially since 1994 when the legislation would have had close to its fullest impact on approval times. The compounds in our patent term restoration dataset that had been approved from enactment of the Waxman-Hatch Act through 1993 had a median approval time of 29.8 months. For approvals from 1994 to 1995, the median approval time is 22.9 months. Similarly, data in a CSDD database of approved new chemical entities (NCEs) shows that the median approval time for all NCEs approved from enactment of the Waxman-Hatch Act through 1993 was 26.0 months, while NCEs approved during 1994 and 1995 had a median approval time of 15.2 months.

(Footnote 34 return)
Although the charts are constructed by rounding approval times to the nearest year, all of the compounds associated with the 5-year bars had approval times that exceeded five years.

(Footnote 35 return)
The seven non-pipeline compounds that had approval phases of at least five years received, on average, 1181 days of patent term restoration.

(Footnote 36 return)
EPL is dependant on a number of factors, including transitional status, how long the compound spent in testing and under review for marketing approval, whether the 14 year maximum is in effect, and when in the development process the patent was issued. Because of differences in some of these factors, the mean EPL for non-pipeline compounds with approval phases of at least five years was the same as the mean EPL for non-pipeline compounds with shorter approval phases (12.6 years).

(Footnote 37 return)
Non-pipeline compounds with approval phases of at least five years could not have any of their patent time lost during the testing phase restored because of the five-year maximum on restorations. The seven compounds in this category had, on average, 54% of their patent time that was lost during the NDA/PLA approval period restored under the Waxman-Hatch Act.

(Footnote 38 return)
Testimony of Peter Barton Hutt, Esq. before the Subcommittee on Courts and Intellectual Property of the Committee on the Judiciary, United States House of Representatives, on the Impact of Regulatory Delay on Patents, at 8 (May 21, 1998).