6 June 2002

Meeting in Orange County, California
on
Agricultural Intellectual Property Rights Issues

Thursday, June 6, 2002

Proceedings:

MR. LEFEUVRE: Okay, we'll go ahead and begin today's meeting. I want to welcome everybody for coming. Intellectual trade issues on the international market have become a very important issue, and we hope to cover a lot of those here, and we appreciate everyone taking time out of a busy schedule to become involved in this.

My name is Rick LeFeuvre. I'm the Orange County Agricultural Commissioner, and I'll be introducing you to a series of people, then we'll launch into our regular meeting.

The staff that have been gracious enough to come out from Washington, D.C., Roger Minami, USDA, Robert Tse, USDA, Amy Cotton with the U.S. Patent and Trademark Office. We're very glad to have them here. Also, we'd like to ask Doug McGeoghegan of the California Farm Service Agency. He's a board member. If he could just give a few comments before we begin.

MR. McGEOGHEGAN: Thank you very much, and I really appreciate the opportunity to be here. I--again, I'm Doug McGeoghegan. I'm a rice farmer involved in related agribusiness activities, in Colusa County, California. And Colusa County, of course, is the largest rice county in the United States, and the state of California produces--I guess we could come in second to Arkansas in terms of total acreage, and now, of course, because California rice is the finest quality rice in the world, of course, there are just any one of a number of food issues that are very much like the kinds that you'll be talking about today, in terms of intellectual capital, and trade issues and so on.

Just a little bit of background. Farm Services Agency and USDA, I'm sitting on a five-person board. Every state of the union has a Farm Services Agency. To my knowledge, the boards are authorized at between three and five individuals. Our purpose, of course, is to support the Secretary of Agriculture in his administration's farm program. Also to help the state executive director with his implementation of in-place federal farm legislation. And, as you know, on May 12, I believe it was of this year, President Bush signed into law the current farm bill, which is the, I believe the title is Farm Security and Rural Investment Act of 2002. And although many of you who are involved in the wonderful diversity of crop-growing in California would be the first to admit that California was not a big winner in the farm bill, one issue is there, and that is it has received a significant investment and reinvestment in issues of international trade, foreign market development and market access for which we're all celebrating. And we hope that by the time we reach the fully-invested year of 2007 that we've set out and accomplished the goals for which we intended, particularly given the diversity of crops and the need for vibrant exports in California.

With that I would like to--I suppose this falls to me, does it not?--I would like to--are you going to introduce Mr. Rogan.

MR. LEFEUVRE: Unless you wanted to.

MR. McGEOGHEGAN: No, you probably prepared for that. I would close my remarks and give it back to our M.C. so you can introduce our featured individual today.

MR. LEFEUVRE: Thank you very much. It is a true honor, and we've a very distinguished individual, who is a former member of Congress from the State of California, and also a former majority leader of the California state legislature. He also serves as the Director of the U.S. Patent and Trademark Office. We're very honored to have today with us the Under Secretary, Mr. James E. Rogan.

UNDER SECRETARY ROGAN: Rick, thank you. Ladies and gentlemen, good afternoon, welcome. Please forgive my tardiness. Aside from all of those things in my bio that Rick just shared with you, I'm also a former state court judge, and I always insisted on starting court on time, and I'm afraid here I'm about 15 minutes late because I didn't pick up on the subtle nuance between Civic Center Drive, and Civic Center Plaza, so please forgive me. We'll try to keep this moving. I do have some introductory remarks that I will also keep short.

Today's session stems in part from a conversation I had a few months ago in Washington with the Secretary of Agriculture Ann Veneman. During our talk, Secretary Veneman relayed the concerns of food producers and processors here in California about the problems they've had protecting their intellectual property rights -- both in the U.S. and abroad. Having both served the people of California in various capacities - she as State Agriculture Secretary from 1995 to 1999 -- we both know quite well how important agriculture is to our state economy.

California is the largest agricultural economy in the U.S., producing more than 350 crop and livestock commodities. We are the sole U.S. producer of many specialty fruits and vegetables, including almonds, artichokes, dates, kiwi and raisins. California agriculture is a $27 billion dollar industry that generates $100 billion in related economic activity for the state.

Nonetheless, our Ag industry here is in trouble. Rural unemployment is at an all time high, and family farms are struggling.

Working with Congressman Royce and others, Secretary Veneman and I are committed to seeing how the U.S. Government might be able to help. Today's session is an important part of this process, as we explore the concerns of the California agricultural community as they relate to intellectual property rights protection.

When most people think of intellectual property, they tend to think about high-tech patents, or copyrights on movies, or software. But the scope and importance of IP are much broader. Intellectual property goes to the heart of America's economic competitiveness, our standard of living, and our standing in the global economy. Half of all U.S. exports depend on some form of IP protection.

Given the increasing significance of IP, the Bush Administration is committed to doing all it can to ensure that American IP owners are able to protect their assets no matter where they're traded in the world. We're reaching out to our foreign trading partners to encourage their support for strong intellectual property laws and enforcement systems. As the Under Secretary for Intellectual Property, I am working hard to make sure that American IP owners and law enforcement authorities have sufficient legal tools to battle piracy, counterfeiting, and other threats to their property rights.

Clearly, strong IP protection is essential to the continued vitality and prominence of American food producers and processors. IP protection can help ensure that California food producers and processors retain a competitive edge and market share.

So, with that in mind, I am here to listen and learn and I look forward to hearing the presentations of all the participants. I encourage you to tell us what strengths and weaknesses you see in the U.S. intellectual property system as it relates to food producers and processors, and to share any suggestions for ways the system could be improved.

And so I'm delighted to be here, Rick. I thank the Orange County Board of Supervisors for hosting this hearing, and I will turn it back to you.

MR. LEFEUVRE: At this point in time, Robert Tse will be taking over.

MR. TSE: Thank you. Before we start with the speakers, what I wanted to do was lay down some of the ground rules for the listening session and, actually before that, some housekeeping matters. If you are not speaking and you haven't registered or come up and left a business card, before you leave today, please either leave us a business card or just fill out one of those index cards there with your name, address, your organization and other contact information.

We have about 10 speakers, and in order for us to efficiently go through and let everyone have their say, each speaker will be given six minutes, and you may have noticed that we were fiddling around with that light over there. That's a timer, and so when each speaker starts, the six minutes will start, that light will turn green. And it'll signal you when you have about a minute left, I think it will turn yellow, and when it turns red, your six minutes is up, and then it's my opportunity to beat you up or something to go on to the next speaker.

We passed out cards earlier which were numbered, and that is the order of the speakers. And when you come up to speak, if you could--this is being audiotaped, so that's how we're preserving a record of this meeting. If you could very clearly pronounce your name, and you may wish to also spell it; I also have to spell my name, because it's never--it does not--it's not spelled the way it sounds--and then also list the organizations that you represent and then go into your six minutes.

And then the plan is after each speaker finishes, the next one will come up and go through the six minutes until we finish. At the end of that time, we will have some time for comments from the speakers, from the panel, and from the audience, and then after that there will be some time--there will be some concluding remarks from the panel. So if we kind of stick to that schedule, we'll be able to get out of here well before the sun sets, I hope.

So now the first speaker, actually, it is--there are prepared remarks from Mike Wooten with Sunkist, and he was unable to be here today, so Roger Minami is actually going to read his remarks into the record, and I'm going to start the timer now.

MR. MINAMI: This is a letter to, addressed to Secretary Rogan.

"Dear Secretary Rogan:

"As you may recall from your tenure in the California legislature and the U.S. Congress, the Sunkist Growers is a nonprofit, nonstock member cooperative market association owned by and operated for the benefit of farmers who produce approximately 65 percent of the citrus fruit grown in California and in Arizona. The cooperative was formed over 108 years ago to market its farmer-members' produce, to develop and maintain reliable markets, and gain the best return for their fruit, and to consistently supply consumers with top quality fresh citrus fruit and processed citrus products.

"Membership in Sunkist is limited to farmers and associations of farmers. Since its inception in 1893, our cooperative has developed substantial time, resources, and effort to the promotion and sale of our growers' Sunkist products. Today export markets account for approximately 33 percent of the sales of our fresh production yielding approximately 45 percent of our farmers' fresh fruit revenue. As higher costs Ameri can producers, we are relying on the value and reputation of our Sunkist brand to help us favorably and effectively compete in both domestic and foreign markets.

"On behalf of Sunkist Growers I thank you and the U.S. Patent and Trademark Office for soliciting industry comment about trademark infringement difficulties encountered by U.S. brand products in foreign markets. Today we wish to bring your attention to the widespread infringement of our Sunkist trademark in both English and Chinese in the People's Republic of China. While we continue to grapple with difficulties of trademark infringement world wide, the problem seems most egregious in the markets of the PRC. Since the spring of 2000, the markets of the PRC have been officially accessible for our U.S. orange and citrus fruit. Since that time, we have undertaken substantial advertising and market promotion of our Sunkist-branded products. That advertising effort must truly add value to the trademark, because we have experienced an upsurge in trademark counterfeiting and unauthorized use of our Sunkist name is the sale of competing goods in China for the past two years. There we are encountering infringement of for both fresh fruit and licensed products.
"In recent months, we have brought to the attention of the Patent and Trademark Department the unauthorized use of the Sunkist trademark as well as our trademark in Chinese, XIN QI SHI, in the marketing of fruit, confections, beverages and juices. Additionally, XIN QI SHI was being used by an individual for the name of his snack shops.

"We were recently advised by one of our licensees in China that, supported by Chinese government officials, they successfully raided the MeiJaiMei Foods Company, Ltd., seizing over 1,500 boxes of ice cream, displaying an infringement of the Sunkist trademark in Chinese on the cartons. We are told that all of the packages were confiscated by the government officials. Supposedly, the Chinese government required the infringing company to remove the XIN QI SHI trademark from all containers and will punish them for the infringement.

"Additionally, we are told the Chinese government will analyze the ice cream to determine whether it meets prescribed quality standards. If not, the company will even more be severely punished.

"We have attached the examples of the counterfeit trademark packaging we are currently experiencing in the PRC. There are examples derived from markets in Beijing and Shanghai. Such infringements cause serious problems for Sunkist's ability to sell our growers' fruit in the China market for the following reasons:

"Counterfeit trademarks create confusion. Countless times during the past year we have received phone calls from potential buyers in China asking why Sunkist citrus fruit is selling in markets in Shanghai and Beijing for less than one-half the price of delivered actually Sunkist citrus to these markets. Clearly, it is the result of cheaper, lower quality, locally-produced fruit in counterfeit Sunkist cartons with counterfeit Sunkist stickers. The consequence of these activities disrupts the market, and it inhibits the free flow of commerce between the real Sunkist product and regular and potential customers.

"The local Chinese orange season occurs during the heart of the lunar new year holiday season, a critical market time of increased consumption of fresh fruit, particularly oranges in China. Counterfeit product is most prevalent in the market at this time competing directly with U.S. origin products and adversely impacting our growers' concerns. The efforts we must undertake to seek remedy to this persistent problem are costly in terms of loss in sales, both short and long-term as well as legal expenses incurred by Sunkist to combat this problem.

"We have been unable to take effective action against many of these infringers because we have been unable to identify the source of this activity, both in the manufacturing of the cartons, the distribution of the fruit, or the production of the stickers. In the past, the trademarks of some of our Sunkist-affiliated packing houses have also suffered widespread infringement, notably the popular ROOSTER brand carton label of Villa Park Orchards Association. The problem is not limited to poor quality of fresh fruit being bogusly marketed as Sunkist."

MR. TSE: Time.

MR. MINAMI: All right.

MR. TSE: Finish that paragraph. What I would suggest is, both in this case and for all of our remaining witnesses that have prepared statements, if time does expire, let's just make the remaining portion of their statement part of the written record.

MR. MINAMI: Okay, that would be fine. This is respectfully submitted by Mr. Michael Wooten, Vice President, Corporate Relations of Sunkist. Thank you.

MR. TSE: Okay. Speaker No. 2, if you would come up to the podium. Go ahead.

MR. MARGULEAS: Good afternoon, and thank you for the opportunity to share these comments on agricultural intellectual property rights issues. My name is David Marguleas, and I am the Senior Vice President of Licensing and Corporate Development for Sun World International, Inc., a California-based agricultural company involved in fruit breeding and variety development, farming, marketing, and the licensing of proprietary fruit varieties.

Sun World operates one of the world's largest breeding programs involving seedless table grapes, plums, apricots, and peaches. We currently hold 120 plant patents and nearly 300 trademark registrations and have introduced dozens of new fresh fruit varieties to American consumers. Many of our more promising varieties are produced on our own California vineyards and orchards and by more than 2,000 licensed growers in most major fruit-producing countries around the world. Accordingly, we closely follow local and international plant variety rights legislation and the use of trademarks in connection with fruit production and promotion.

My comments today address two different intellectual property rights subjects. One pertains to current variety labeling requirements for fresh fruit and vegetables, and the importance of having variety names that are distinct from trademarks or brands used when identifying or promoting fruit varieties in the marketplace. The other addresses our concerns about agricultural inventions developed by the USDA and on which intellectual property rights are neither sought nor licensed.

On the matter of variety labeling requirements, I note that our own company licenses the use of its brands or trademarks as well as its trees, vines, and plant variety rights comprising its varieties. Many governmental bodies maintain fresh produce grape standards and design such standards by variety. Some, including those adopted by the European community and the UN/ECE mistakenly refer to many varieties by private registered proprietary trademarks creating confusion and encouraging infringement of trademark owners' rights. This practice disadvantages those whose trademarks are misused and potentially diminishes the value of agricultural-related intellectual property rights as well as the owners' ability to enforce their rights.

We urge the United States Departments of Commerce and Agriculture to work closely with their counterparts in Europe and elsewhere to guard against and discourage the improper use of trademarks when identifying varieties or establishing grade standards.
My second subject deals with inventions or new varieties developed by USDA breeders that are typically not protected under intellectual property rights legislation and that are freely exploited by foreign producers, often at the expense of the U.S. producers who helped to fund their development. For many years the USDA has developed and introduced many impressive tree fruit and table grape varieties, among other crops.

Some of these developments were co-funded by industry groups. While we are encouraged by the productivity and success of the USDA's research programs, we must also express grave concern over the process used for releasing and exploiting these varieties here and abroad. The system is at best broken and in need of urgent attention. Currently, on table grapes bred by the USDA here in California, for example, there is an ill-defined approach to releasing cultivars whereby no plant patent protection is sought, and thus there is no means available for protecting the USDA's agricultural inventions.

As importantly, plant material from many USDA selections are usually distributed abroad where no protection is sought and no licensing mechanism exists and often before American growers have the opportunity to evaluate and commercialize them. We would urge the USDA to develop and implement a policy of obtaining relevant intellectual property rights protection for each of its promising agricultural inventions and then crafting a careful strategy for licensing nurseries, growers and others to use these rights and inventions.

For the USDA's agricultural research endeavors and investments to pay real dividends for it and its constituents and stakeholders, such a policy and practice is essential and long overdue.
Thank you for allowing me the opportunity to share these views with you today.

MR. TSE: Speaker No. 3.

MR. ONO: Good afternoon. My name is Chris Ono, and I represent the California Association of Nurserymen. I am the president of this association, and our association represents nurseries throughout the state of California, and we have some members here in the audience today who will be discussing specific issues with you, but I would like to thank Under Secretary Rogan for coming here today and holding this listening session, and I'd just like to say thank you for that.

MR. TSE: Speaker No. 4.

Mr. PASTERNAK: Good afternoon. Thank you, also, Secretary Rogan. My name's Ted Pasternak. I'm with Hines Nurseries, and I want to speak today on some issues relating to the intellectual projection of new plant varieties. Hines is headquartered in Irvine. We have approximately 13 growing facilities across the country, and Hines is one of the largest U.S. growers of containerized ornamental nursery products with annual sales of approximately $327 million.

Hines is also a leader in the development of the production of landscape plants. We currently hold approximately--we currently hold 36 plant patents and have about 20 pending plant patents applications. Our customers insist on having access to new plants of high quality, and our strategy for meeting our customers' demands for exciting new products focuses on the proprietary control of new plants through plant patent protection and also by licensing new plant varieties from others who use patents to protect their property. We are strongly committed to this strategy as the key to our success and our customers' satisfaction and our company's profitability.

Now, beginning in October 2000, the Patent Office began reinterpreting some accepted standards for the patent eligibility of plants that are developed in other countries. Reversing 70 years of time and court-tested prior practice, the plant patent examinations, the Patent Office began rejecting applications of new plant varieties that were published and sold in foreign countries more than one year prior to the patient application date. This action was taken with little warning and with no input from those companies that would be affected by the reinterpretation.

The process of finding the best new plants in many countries, purchasing the rights to those plants, and applying for a plant patent is a long and expensive one. Hines has already spent a great deal of money on plants we are now seeking a patent, and, in addition, plant patents already awarded to us are in danger of being rendered unenforceable by the Patent Office, the interpretation on the 102(b) issue. We face the prospect of extensive litigation and the strong probability of losing the value of more than 10 years' research and development.

The direct and indirect economic consequences of this reinterpretation are potentially enormous for Hines. Losses related to past development costs for plants we are patenting could exceed $400,000. Estimated lost potential sales of Hines affected products could exceed $5 million per year, and the estimated loss, sales potential over the life of the patents, conservatively, could reach tens of millions of dollars.

These changes in patent regulations, if permitted to stand, would be damaging to our company and to all similar forward-looking plant breeders, nursery companies, and plant licensing companies. The changes are unfair, shortsighted, and broadly harmful to our industry. Short of reversal of the P.T.O.'s examination practices with respect to 102(b), we urge you, Secretary Rogan, to please give your full support to the National Association of Plant Patent Owners legislative proposal which provides for a 10-year grace period for foreign prepublication of new plant varieties, and we also urge your support for the retroactivity provisions contained in the amendment to help us safeguard our patents which have already been awarded.

Again, thank you for the opportunity to speak.

UNDER SECRETARY ROGAN: Ted, thank you. Before you leave, I promised that this was going to be a listening session on my part, but I do just want to make a brief comment, because I know it affects you, and it may affect some of the other people here, just so you know. A decision came down a couple of years ago. I think it was ex parte Thompson that dealt with that issue that--actually, the decision came down some time ago, and a couple of years ago it started to be enforced. It was before my watch, however, I looked at it. I think the decision was right on the law; however, having said that, we recognize that there are significant issues that are raised by this sudden reversal in law.

I'm not sure if you're aware of this or not, but the former Chairman of the House Agricultural Committee in the House of Representatives, Bob Smith, who's a good friend of mine, also now is representing, I believe, the National Association. Bob has been to see me with the representatives. We've had a number of discussions over the phone. We've actually been working now between the National Association and members of the House and Senate Judiciary Committee to try to come up with language that will help correct the situation. I'm hopeful that this is going to move this year, and so I just wanted you to know that even though I want this to be a listening session on my part, that hopefully help will be on the way to deal with the issue that you've raised.

MR. PASTERNAK: Excellent. Craig Reggelbrugge of the NLA has kept us up to date on the progress, and we look forward to your continued support for the amendment.

MR. TSE: Speaker 5.

MR. HARRISON: Under Secretary Rogan, esteemed guests, my name is Will Harrison. I'm the president-elect of the Orange County Farm Bureau. I would like to take this opportunity to thank you for coming and listening to the concerns of the agricultural industry. We are facing many challenges, and we appreciate the opportunity to share our concerns with those who may be able to protect our rights to do business. We appreciate the timeliness of your visit and hope that we can provide you with adequate information so that the United States can help protect the domestic agricultural industry against unfair trade practices.

The Orange County Farm Bureau is an 85-year-old organization and with every new era brings all kinds of new challenges. The issue of agricultural-related intellectual property rights is a new realm for many of us. With the ability to get animal and plant patents, copyrights on labels, and research protection, and with the increase in international trade, we are now faced with a whole new set of challenges. These challenges require a sophistication and understanding which most of us do not possess, but we intuitively know that with the increase in trade, the ability to protect our rights of ownership may be challenged. It is these rights that the Farm Bureau wishes to protect.

My colleagues will be able to provide you with additional and specific problems, but the Farm Bureau wants you to know that your support is requested to make sure that the ownership rights, be that on real or intellectual property, is paramount for our farmers. Without this, the incentive to continue to provide the most current technology and best products will be diminished.

Thank you again for taking the time to listen to our concerns.

MR. TSE: Speaker 6.

MR. GROOT: Good afternoon. My name is Norm Groot, and I have been in agriculture here in Orange County for a little over 24 years. I come before you today representing both my employer, Monrovia Growers, based on Azusa, California, and the Orange County Farm Bureau and organization of farming families based here in Irvine.

First, Orange County Farm Bureau thanks you for holding these hearings here in an urbanized county, not readily thought of when it comes to agriculture. Our member families have been farming the land in our county for multiple generations, and while we are surrounded by urban sprawl, we are still viable as an element of the Orange County landscape. The issues of patents and trademarks are just as important here in Orange County as in more rural California counties. I appreciate your time and efforts to listen to these issues brought to you today.

My employer, Monrovia Growers, which is a national grower supplying plants and products to the garden centers of America, is the holder of over 200 plant patents and numerous trademarks. These intellectual rights are core values of our business philosophy and our ability to compete in the marketplace.

We have built a steady business over the past 75 years that relies on the protections of these plant patents and their uniqueness of their value in today's economy. We continually strive to develop new plants and products that can be patented and trademarked allowing us to provide our customers with unique items for their consumer marketplace. Increasingly, the cost for developing these new products and plant patents and trademarks are substantial. Years of trials and growth cycles are needed to determine the viability of any plant or product determined eligible for application.

The development of new plant patents specifically requires an ongoing effort of discovery, breeding, and evaluation. Developing these plants and products for the marketplace requires a significant investment of time and money. Securing a plant patent or trademark ensures that a revenue stream will be created to recover the costs of development, and protections exist to sustain the revenue stream over the life of that patent or trademark. Plant patents and trademarks are fundamental to the success of our organization, and all methods and means should be used to uphold the intellectual rights of those patents and trademarks we are awarded. Without adequate protection and enforcement, we will be unable to sustain our continuing efforts to seek out new products and promote commerce and a sound economy within the lawn and garden sector of the marketplace.

I urge you to consider plant patents and trademarks a very important part of our economy. Again, thank you for your time today.

MR. TSE: Speaker No. 7.

MR. CRAMER: Good afternoon. My name is Ron Cramer. That's with a "C," and I represent the Paul Ecke Ranch in the Ecke group of companies both in North American and in Europe. I'd like to also thank Secretary Rogan for giving us his time today, and while I agree that the developments recently for plant patents and the new interpretations that were discussed earlier are certainly optimistic and maybe some of my comments and some others will be beating a dead horse here. I would like to sort of try to put a little different face on it today, the face of how does it affect real people trying to get their job done on a day-to-day basis.

A little bit of background for those who might not know. The companies that are key in this type of activity for the Ecke family are the production company, the Paul Ecke Ranch in San Diego County, and a royalty and license administration company called P.L.A. which is headquartered in Denmark, and then a relatively new development of which the Ecke Group is one member of the Flower Fields Alliance group of companies producing ornamental young plants for finished production.

The Ecke Company is worldwide today, and the Flower Fields Alliance represents or services more than 30 plant breeders and several thousand licensees on six continents. This group is producing more than a half a billion young plants that will ultimately be used for finished production. In Asia this includes active programs in Japan, China, Taiwan, and South Korea. And in South America a strong program in the Mercosur countries as well as Colombia and Ecuador. Our activities are two-way, meaning that we not only supply the producers in these countries with plant material to produce, but also we exploit their intellectual property for them in the European and North American markets through our royalty and license administration efforts.

Some of the more important breeding activities are in South Africa and Australia, including the representation of the University of Sydney ornamental breeding program. I mention this primarily because, particularly in those situations and the breeders that we represent in Europe, the plant material is tested and developed outside the United States and often commercialized long before it gets to the U.S. to be protected or tested.

In this capacity, we are involved or associated with more than 500 applications per year for plant breeders' rights or plant patents. This includes about 100 U.S. plant patent applications each year, including a few utility patent applications.

Especially in the European and Australian markets, the breeders tend to commercialize first in their own countries because the production trials have been finished there first. This means by the time we get enough plant material in the U.S., it may already be--have been applied for and/or commercially available in Australia or Europe for nearly a year.

The alternative is to take all new plants directly from the breeding program before they are tested, even in the breeders' home environment, and apply in the United States. Unfortunately, this is prohibitively expensive, and the result has been that the amount of material available in our system to test has been reduced by at least 50 percent in the last two years. At a minimum, this is a temporary slowdown of several years and, in some cases, permanently, and the loser is the U.S. consumer and producer.

It would seem that this came at a particularly bad time for a couple of reasons. Never before had the new breeding technology generated so many new innovative plant creations and inventions. These were just beginning to hit the market and become available for exploitation. Many of them that were not already applied for and caught in the gap were held back and are now in the wait-and-see mode before new applications or original applications are filed.

The second reason is that as the developing nations in Asia and South America look on, this is quite confusing to them, and it doesn't strengthen our position with them when we're trying to cooperate and get them to cooperate and protect our intellectual property in their markets.

Just an example of the inconsistency, I think, that is fairly easy to understand without getting into the legal and technical aspects of this situation, I have on my desk now several office actions that will require additional information in order to satisfy the enabling requirement for the application. And we can provide that information, it's no problem, but it seems, then, inconsistent that the mere publication in the catalog or the commercial availability in a foreign country could cause us to forfeit the right to protect that plant in the United States when that same information is missing in the same situation.

Thank you very much for your time. I appreciate it.

MR. TSE: Speaker 8.

MR. ZARY: Good afternoon. I'd like to thank you for the opportunity to speak to you about intellectual property concerns. My name is Keith Zary. I'm the Vice President of Research for Jackson and Perkins Roses. We have a large breeding program in Ventura County and 3,000 acres of rose plant production in Kern County. We employ anywhere from 250 to a thousand workers in California to harvest those crops.

When the P.T.O. gave their rather arbitrary interpretation of Section 102(b), this threw our licensing arrangement into a great deal of confusion, and, unfortunately, has created a very unfavorable situation with our foreign cooperators. Under the old interpretation of the law, Jackson and Perkins imported rose varieties from Europe and Asia. I, myself, would often visit the cooperators in Europe, go through their trial fields, select among the varieties that they were going to introduce over the next year or two and arrange to bring propagating material back to United States. We would bring that material into Ventura County, put it under the USDA quarantine for two years, and then evaluate the variety in five locations around the United States.
That trial period takes us three years. By now we've had the variety for five years; it's now a commercial variety in Europe. Under the old interpretation of the law, this did not matter. We still had the right, if we decided after evaluation to commercialize it, to protect the variety. We would then file for protection and supply a royalty stream to the breeder in Europe and be able to introduce to the consumer in the United States an exciting new rose variety.

Under the new interpretation of the law, we have one year from the time of introduction of the variety anywhere in the world to apply for protection. This means that each year we would have to apply for 200 to 300 new patents of which we would probably introduce two or perhaps three. This would cost us several hundred thousand dollars a year for a royalty stream return which would be considerably less. As a result, we've informed our cooperators in Europe and Asia that we can no longer ensure the protection of their varieties in our market. The result of this is that our cooperating breeders have decided that they will have to shut off supply of new material into the United States and, in turn, in Europe they've asked that the EU impose similar restrictions on our varieties that we send to them for commercial evaluation and introduction, that they would like to see the same rules that we impose imposed in Europe.

This is going to cause Jackson and Perkins a tremendous loss of income. We project over $10 million in losses over the next 10 years. It's caused us to have a great deal of difficulty with our European cooperators, many of which we've worked with for over 100 years.

Our solution to this difficult situation is the one that has been mentioned already, and that is that we ask Congress to enact legislation to restore order to the plant patent system. It seems like the most timely and straightforward way to get relief. Jackson and Perkins urges Secretary Rogan and the P.T.O. to support our legislative effort that we ask that a 10-year grace period be installed, and that Napels (ph) retroactivity language be used.

Thank you for your attention.

MR. TSE: Speaker 9.

MR. BRACHSON: Thank you, Secretary Rogan. My name is Mark Brachson (ph), and I'm the Executive Director of an organization called Proven Winners Limited Liability Company, and what Proven Winners does is we market exclusive varieties to organization. We advertise them, we promote them, and our business is become a leading branded plant, branded horticultural plant organization in the United States with sales, retail sales--not our sales but retail sales--of about three to four hundred million dollars annually. So, indeed, it's very important to us and very important to our industry, too.

This subject, I know has been discussed by a few of us already, but I guess from our perspective, we were just shocked, I guess, at the changing in the interpretation of the laws with really no warning, no input at all, especially to a business such as ours that relies so heavily upon patented plants, and especially those that come from outside the United States.

The ruling has caused some extreme difficulties for plant marketers such as ourselves and also for plant patent owners worldwide. And we think, from our perspective, this problem, if it continues, could significantly damage the horticultural plant industry going forward, and I'd like to give you a few examples.

But to start off with what we saw occur, there was no official notification of the starting date that was given when this new interpretation went into effect. So what happened is, essentially, hence all past granted patents can be affected. In fact, we've heard figures that 70 percent, roughly, of all existing plant patents could be rendered invalid under this change which we feel is completely unacceptable. And, of course, our grower customers can now, or anybody could really challenge a past plant patent that's granted in terms of whether to pay royalties or they essentially work within the system doing that plant, and our breeders have incredible exposure because of this and, potentially burdensome legal costs to defend the granted patents in the past.

We find the interpretation is also very inconsistent. For example, if a variety is patented outside of the United States for many years but is never sold outside of the U.S., it could still be patented in the United States. Now, of course, the reason for plant patents, as we all know, is not to protect old varieties, but new ones.

But there's loopholes in this regulation that would allow us--allow somebody to do that, and as Ted, and Keith, and Ron have said in the past and listened to their presentations, the interpretation does just not allow enough time to fully test the variety to see whether it makes sense to bring it into the United States market, and to essentially pay the plant patent cost associated with it.

Some examples of the economic hardship that we personally feel that's really causing the plant marketers and breeders, there are many fewer plant patent--excuse me--many fewer plant varieties we believe will be developed for U.S. markets going forward. And we think there's been a lot of changes in the last 10 years with horticultural plants, horticultural varieties. They're getting better, they're more unique, they flower more profusely, they last longer in the environment. There are plant varieties that weren't available 10 years ago, and we think that varieties such as lacoba verbena, things like that, that really weren't available on a large scale 10 years ago are now very common plant varieties, and they wouldn't have been--they couldn't have become as common if it wasn't for the plant patent status allowing breeders--allowing us the time to work with these varieties closely and decide whether to introduce them.

So we think essentially long-term, the loser will be the U.S. consumer, that it's had some great varieties of plants available to them that wouldn't have been available to them had this not occurred.

There are many products, also, in our own current plants for introduction that are falling outside of the new ruling, and they're not going to be granted plant protection. In fact, an individual we work with just told me a couple of our plant patent applications that fell in between this ruling have just been kicked back out. Now, there are varieties that, from our standpoint, we've put quite a bit of time into marketing, developing, promoting, advertising on TV, things of this sort because we believe that they're exclusive and there's royalties that can come back not only to our organization but the breeders that developed them.

Specifically, to our business with the way we're structured, we see economic losses in the $20-to-30-to-40 million-dollar range because our business is based upon that, new plants. In the future, losses we believe will increase to the hundreds of millions of dollars and mainly putting many growers, breeders, and plant marketers such as ourselves, potentially, out of business.

Lastly, what are our options, and I think Keith touched them. Our options are to patent everything that comes down the pike, any time we hear of a variety that's been mentioned in a publication and it's available to our organization, we need to get a plant patent in the system for that. And I don't know if that's good for the plant patent office or bad. In some respects, you could say it's bogging you down. At the same time, I don't know if it's a revenue opportunity for the plant patent office. But it's something we've started to do, and we're just not going to do it any more. I think our option is to stop doing that, because we needs the time to fully look at, evaluate, and understand the plants and varieties before we spend the two to three thousand dollars per variety to bring them to market.

So with that said, as everyone else has said so far, we believe the changes were ill-conceived and ill thought out, and we would really like to convince you or urge you to move toward the plant patent owners' proposal, the 10-year grace period that's been proposed most recently.

Thank you.

MR. TSE: Okay, speaker No. 10.

MR. GILLILAND: Good afternoon. My name is Ken Gilliland. I'm the International Trade Manager for Western Growers Association. We're an agricultural trade association representing growers, packers, and shippers of fresh fruits, vegetables, and tree nuts in the state of California and Arizona.

I just wanted to hit on a couple of things today, mainly for some of the medium-sized growers in trying to develop their international marketing. It was mentioned in the introduction to the farm bill, we have access to the market program, foreign market development. For some of the small growers and to encourage developing these markets, they rely on sometimes third-parties brokers in selling in the foreign market. I talked to several of our growers about some of the problems that they've incurred recently, and, in particular, in two countries that came up, China and Korea, infringement rights on trademarks or the difficulty in trying to register their labels in foreign countries, in particular in China. There's been a small market opening up for fresh celery. Three or four of our growers that I spoke with found that their labels are widespread over there, even though they're only in one small region within the country. They've been attempting for two and a half years now to register some of their labels, at this point to no success. In the meantime, the domestic product is put into cartons with their labels on it, not of the same quality of the product that we have in the United States, and, obviously, impacting the possibility of future sales. So it's an area that I hope that the Department could look at and try to assist some of these grower-shippers as they try to develop their markets.

Another issue that came up is from one of our growers that markets what's called California Sweetie into Japan. It's, a prod-assignment was developed here in California through the UC system, and they received a notice recently from the Citrus Board in Israel claiming that that name has been trademarked, yet the California Sweetie is a varietal name that's even designated in the California State Code requiring that the name be placed on the carton, not as a label, but just as a variety. These are some of the areas that our growers are facing that they certainly need some assistance in, and I would hope that we would look at perhaps developing some kind of a packet with information or guidance for these growers as they try to develop their markets to assist them in filing for trademark registration or plant variety.

I also spoke with the California Table Grape Commission today. They're indicating that they have been working with the USDA in the hopes of developing some kind of a program to register the new varieties to protect producers in California from the use in foreign countries.

Thank you.

MR. TSE: Speaker 11.

MR. JAUNZEMES: Good afternoon. Under Secretary Rogan, thank you very much for the opportunity today to present our trademark issues. My name is Craig Jaunzemes, and I'm the International Sales Manager of La Mexicana Foods. The parent company, Paige's Produce Company, has been a distributor of produce for the past 40 years. La Mexicana itself is the manufacturer of salsa for the past 20 years, and at this time we're the No. 1 top-selling fresh salsa in the United States.

In order to expand our markets, we've been looking to penetrate Japan for the past few years. We've attracted the interest of many buyers, among them Mori Nagafits (ph) and Mitsubishi Foods. The difficulties that we've encountered with penetrating Japan has been the prohibition of the entry of the foods at the port due to the preservative which we need, sodium benzoate. Our food products could be manufactured in its current state in Japan, however, it's prohibited entry as an import.

This last March, we did meet in Tokyo with the Japanese Minister of Health, Labor, and Welfare, and we're currently applying to the Minister for revision of standards of food additives in Japan, according to the food sanitation law. This is in coordination with our sponsors in Japan, the Audia Technica Company in Japan. This application process requires submission of our formulas and trade secrets for the manufacturer of the food to the Japanese government. Because we believe the Japanese Health Minister has taken a protectionist position in regard to our salsa product, we are very careful to lose our trade secrets as part of our application process.

We respectfully ask for any assurances, assistance, or precautions that you can offer both in Japan and in the rest of Asia markets. Thank you very much.

MR. TSE: Okay. We have actually finished ahead of schedule with the scheduled speakers, so the next segment that we will go into are comments, and that can come from comments either from the panel, or the audience, or, again, additional comments from the previous speakers.

Do you want to have any additional comments?

UNDER SECRETARY ROGAN: Actually, I have a question, and I'd like to direct it to the gentleman from Western Growers. Again, this is a--I have a, you know, a significantly steep learning curve on this issue, a lot of it. I have some experience with issues related to germ plasm with regard to rice production and so on, and not a whole lot of experience in this particular issue. But I'm intensely interested in learning as much as I can in this session today.

The issue that you related to with regard to China and so on and labeling and that kind of thing, does the language in the farm bill, which requires the Secretary of Agriculture to develop some language for labeling by September of this year offer, in your opinion, any relief with regard to some of the problems that you've articulated today?

MR. GILLILAND: I think you're talking about the country of origin labeling?

UNDER SECRETARY ROGAN: Yes, indeed.

MR. GILLILAND: Which would apply in the United States.

UNDER SECRETARY ROGAN: Exactly.

MR. GILLILAND: For labeling at the retail level for fresh fruits and vegetables but would not have any impact on exports.

UNDER SECRETARY ROGAN: Right.

MR. GILLILAND: Each country adopted their own. It would on product coming in, obviously.

UNDER SECRETARY ROGAN: Okay.

MR. GILLILAND: But it would strictly be country of origin.

UNDER SECRETARY ROGAN: Because the farm bill came together fast, and so many of these programs start out as a well-intended shell. Oftentimes, their opportunities for protocols to be written, you know, after the signing of these things, and that's really--that--my question is related to do you see opportunities in any of the title with respect to trade that offer opportunities for some stop-gap measures relative to the problem that you talked about today.

MR. GILLILAND: I'm not aware of anything. I know there's provision on specialty crops that allows some funding, and that may be more towards AFIS (ph) and areas like that. But it could be looked at as perhaps a trade barrier and something that could be pursued.

MR. TSE: Thank you. Are there any additional comments from the audience?

UNDER SECRETARY ROGAN: This is your opportunity to raise anything that wasn't raised before.

If that's it, then I guess I'm getting back to Washington a little earlier than I thought. Let me just say this: I notice that the preponderance of testimony and information presented today has to deal with plant patents and the issue that I briefly discussed. I just want to assure everybody here that this very much is on the radar of the Administration, particularly on the radar of Secretary Ann Veneman at the United States Department of Agriculture. I personally met with Secretary Veneman for almost a half hour on this issue a few months ago. I think you can see by the presence alone of the Department of Agriculture representatives here in Orange County that this is an incredibly important issue to us, domestically and internationally.

Also, we've been working very closely with Congressman Ed Royce, who--an Orange County congressman and his staff, in conjunction with Secretary Veneman on this issue. So I just want to bring the assurance that I can to those affected parties that we recognize this is an incredibly important issue. It has profound economic consequences, and we're going to do everything we can.

Just as an aside, stepping away from that, one thing I should pass along to you just with respect to the operation of patents in general, generally speaking, we don't have the luxury of the United States Patent and Trademark Office to simply decide or not decide what we feel like patenting today or tomorrow. We take our cues on patenting from the courts and from Congress. And so after having reviewed this issue very carefully, this is something that we are convinced will require legislative action, and that's why we're so engaged in working with our friends on Capitol Hill to try to reach this.

Now, it's actually given me a nice opportunity to get reacquainted with some of my former colleagues on the Judiciary Committee and on the Intellectual Property Subcommittee, but even though that is no longer the branch of government from which I come, I am here to assure you that members of Congress on both sides of the aisle are working very closely together to bring this to a successful resolution.

The good news is that oftentimes in Washington, one thinks that Democrats and Republicans are always at each others' throats, and on some issues that tends to be true. But one of the areas of the law that tends to be the most bipartisan of all is in the area of intellectual property. It really doesn't break down between Democrats or Republicans, Conservatives versus Liberals; it breaks down in two camps: people who understand the importance of intellectual property and people who don't. I'm happy to say that most of them do, and that's why I think that there will be some good news forthcoming during this legislative session.

If there are any other comments, we'll be happy to entertain them. Otherwise I'm prepared to thank everybody.

MR. ZARY: [Inaudible]

MR. TSE: Could you step up to--

UNDER SECRETARY ROGAN: I can repeat the question, if that's easier.

MR. ZARY: Secretary Rogan, is there anything, as individuals, as companies, or with our trade associations that we can do to help encourage this resolution of the 102(b) issue?

UNDER SECRETARY ROGAN: Keith, I think the key thing is to simply stay in touch with your elected representatives, let them know of its importance, and that is probably the primary thing that can be done, and make sure it stays on their radar screen.

MR. TSE: As you mentioned earlier, that there would be some relief for patent owners this term, can you say anything more about what the time line would be? That is, when would patents cease being rejected under the 102(b) issue?

UNDER SECRETARY ROGAN: Just like I said, that requires a legislative change, and that ball is not in the Administration's court. Congress, obviously, works at their own speed and at their own schedule, but I've heard cautious optimism from former colleagues on the Judiciary Committee that they're looking at having something to move later this summer.

MR. TSE: Okay, with that I think we can go to the, I guess, concluding remarks, or you may have already done that?

UNDER SECRETARY ROGAN: Actually, I really don't have anything to add other than to thank you all for coming here today. It's been--it's really gratifying for me, and I--I have probably, probably a list of some more questions because I know a lot more about this issue than I did when I came down here.

I would appreciate it, if you haven't already, if you all would leave your addresses and contact members here. Perhaps Roger already has those, because there are several issues that were brought up today that have to do with USDA portfolio that I would like to follow up on, perhaps maybe and take the luxury of contacting you in the future.

So with that I would say thank you very much, and it's a pleasure to be here.

MR. TSE: Okay. Thank you.