Written Testimony of Larry Spiegel;

Before the U.S. China Economic and Security Review Commission
January 18, 2002 Public Hearings on

WTO Compliance and Sectoral IssuesPANEL IV – ENTERTAINMENT INDUSTRY AND
INTELLECTUAL PROPERTY RIGHTS



Mr. Chairman, members of the Commission, thank you for inviting me to appear before you this afternoon. It is a great privilege for which I am most honored.

Those distinguished gentlemen and gentlewoman who are to testify after me will, I am certain, do so with eloquence and a depth of understanding of the intricacies of the China ‘problem’ that I cannot htmire to match.

And so, I shall attempt to provide you with the perspective of an industry member but most certainly, not a China specialist.

Webster’s Dictionary defines piracy as: the unauthorized use of another’s production, invention or conception especially in infringement of a copyright. Webster also defines piracy as ‘an act of robbery.’

So, why not call it as it is. China, it appears, is condoning robbery on a grand scale. Think about it, while the Chinese government has promised long and loud to protect intellectual property rights and continues to claim that pirated software will soon be a thing of the past - Business Software Alliance, an industry watchdog reports that an estimated 94 percent of all the software currently in use in China is pirated, up from 91 percent in 1999. Except for records and music where an almost negligible decrease has occurred, for every other area of optical media products: Motion Pictures - Business Software Applications - Entertainment Software and Books - the rate of piracy either remained static or rose between the years 1999 and 2000. The loss in real dollars is staggering - According to the International Intellectual Property Alliance, more than two billion dollars in the optical/media sector was lost to piracy in China in 2000, the last year for which complete records are available.

Two billion Dollars - As deplorable as this figure is, what must also be addressed is the lip service currently being paid to efforts by the Chinese government to reduce and/or eradicate the economic malignancy of piracy. While press releases emanating from various sources, Chinese and other, uniformly laud this so-called ‘effort,’ the IIPA raises the specter of a continued increase in China’s production of pirate optical media products including DVD’s by licensed as well as underground CD plants. Where does the truth lie? Hard statistics provided by any number of independent sources speak plainly - while Chinese claims to address this situation is just plain lip service.

Adding further concern is the growing sophistication of the pirate market, including the increasing production of high-end DVD’s as well as burgeoning Internet piracy.

It makes one wonder what harsher actions our own government might embark upon if year, year after year a couple of billion dollars was so blatantly purloined by the Chinese from our farm, manufacturing or other hard good exports.

And in reality, cannot the Chinese government put an end to their own robber barons of intellectual property? China is, after all, a state in which the Communist Party reigns with impunity. When the rulers in Beijing feel threatened by an internal source or get their fill of this group or that, they are infamous for cracking the whip. Surely, they have the wherewithal to do so here. Then why the lip service, why the showboating? Is it possible that high party functionaries are themselves benefiting from the annual two billion dollar plus windfall?

With specific respect to motion pictures, perhaps some practical examples might better illuminate the problem. According to Michelle Delio who filed this report for Reuters just a few months ago ... and I’m now taking the liberty of quoting from her piece...

“The Grinch may be stealing Christmas on movie screens across America, but Chinese copyright pirates have already done him one better: they've stolen the Grinch here.

Within a week after the release in the United States of "DR. SEUSS' HOW THE GRINCH STOLE CHRISTMAS," video compact discs copies of the film were selling on China's streets for about $1.20 each —— further proof that China's well-oiled copyright piracy machine is running smoothly despite government promises to shut it down.

Ms Delio goes on to say, “The video discs are mocking reminders of the difficulties China has carrying out trade agreements even as it prepares to enter the World Trade Organization.”

In an August 2000 article in the Los Angeles Times, it was reported that pirate DVD’s containing the George Clooney movie, THREE KINGS on one side and STUART LITTLE on the other side were selling for about three dollars. The article went on to state that two dollar pirated versions of GLADIATOR were for sale on Chinese streets soon after it’s U.S. release.

By far, the most successful sale of a motion picture on legitimate videodisc in China was the film, “TITANIC.” 300,000 copies were sold. That’ s a lot of copies. However, compare that figure to the 20 to 25 million copies of TITANIC sold by video pirates and the 300,000 figure suddenly seems paltry. Even with less popular films, the pirates outsell legitimate distributors about 35 to one.

The impact of piracy not only significantly reduces revenues for motion picture studios but also has a direct negative financial impact on people - those writers, directors and actors who work on films. Some have expressed the opinion that if a Tom Cruise or a Julia Roberts, who earn millions for each film, lose some thousands of dollars to piracy, what’s the big deal? Well, beside the principal that stealing is just plain wrong, there are many, many writer, screen and director guild members who earn far less - some barely a living wage and to whom the loss of royalty income - no matter how little - effects their lives in a very meaningful way.

Can or will China meet its obligations under the standards set by the WTO’s TRIPS Agreement. According to a piece in the Internet Law Journal (March 8, 2001) “China is going to struggle mightily to comply. A significant portion of its economy is based upon counterfeiting and the violation of virtually every intellectual property law known to the western world. It is basically ingrained in China's economy, and supported by the government in many of its various regions.“

The forgoing barely scratches the surface of America’s piracy problem in China. Now, what can be done about it? And do we - does our government have the resolve to stand up to this outrage and protect one of America's signature industries - an industry which Jack Valenti, President and CEO of the Motion Picture Association of America rightfully calls unique - a melting pot of people - much like America herself - an economic engine driving hundreds of thousands of jobs.

The motion picture industry as well as those other American industries which have economic interests in China cannot, of their own accord, force Chinese compliance. And while I am not personally familiar with the avenues of recourse available under the WTO treaty, to rely solely on WTO compliance and/or the threat of WTO sanctions doesn’t seem a near term practical approach or solution. Therefore, it is imperative that this commission urge our government, in the strongest terms possible, to take a stand - a forceful, unflinching stand and to do so now. Piracy on the scale discussed here today has one and only one victim - the United States of America and the hard working American men and women who pay their fair share of taxes, play by the rules and expect a fair shake in the marketplace.

Thank you.