remain. company insiders can still walk off with trade secrets to sell to the highest bidder. competitors still steal secrets through trickery or by breaking into a factory or office building. it is impossible to determine the full extent of the loss to american businesses as a result of the theft of trade secrets and other intellectual property. there have been estimates that our nation may lose 1% to 3% of our gross domestic product through trade secret theft alone. the defense department has said that every year an amount of . >> an amount of intellectual property larger than that in the library much congress is stolen from computer networks belonging to american businesses and government. an estimate so the value of ip stolen by foreign actors as high as $300 billion.

general keith alexander, until recently, the head of nsa and of cyber command at the pentagon, has characterized the cyber theft of american intellectual property as i'll quote the greatest transfer of wealth until history. and of course, we're on the losing end of it. but no estimate can fully capture the real impact of trade secret theft. when other countries and foreign businesses steal our trade secrets, they are stealing our ideas. they are stealing our innovation. most importantly, they are stealing our jobs. in my own state of rhode island, we continue to face unexpectedly high unemployment despite having some of the most innovative businesses in the country. if we do not protect our businesses, we are letting that innovation go to waste and we are letting american jobs go

overseas. in the past, some companies were reluctant to talk about this issue because no one likes to admit that they have been victimized. but many are not coming forward to speak out because they recognize how important it is to work together to address this common threat. i particularly want to thank the company representatives who are appearing before us today in the second panel. as well as many, many others who've worked closely with me and with other senators on this issue. i'm encouraged that the administration last year released a blueprint for a strategy to combat trade secret theft. agencies across the government are increasing efforts to address this problem. it administration must recognize that the theft of intellectual property is one of the most important foreign policy challenges we face.

and it must communicate to china and other nations that stealing from our businesses to help their businesses is unacceptable. we in congress must do our part, we need to make sure that our criminal laws in this area are adequate and up to date. last fall, senator graham and i released a discussion draft of legislation designed to clarify that state sponsored overseas hacking could be prosecuted as economic espionage, and to strengthen criminal protection of trade secrets. we received valuable comments and suggestions about this legislation, and we look forward to hearing from our witnesses today about how to improve our laws and what we can do to help defend our industries. and we hope to introduce our legislation in the coming weeks.

companies also need civil remedies against those who steal from them. while state law has traditionally provided companies with remedies for misproep ration of trade secrets, there's currently no federal law that allows companies themselves to seek civil remedies for those that steal from them. senators have recently introduced legislation to give victims the option of pursuing thieves in federal court. senator flake has also introduced legislation to give companies a federal civil remedy for trade secret theft. i hope that the judiciary committee will act soon on legislation to strengthen both the criminal and civil protections against trade secret theft. and i look forward to working with those colleagues toward that goal. today, we will hear from witnesses in government, industry, and the nonprofit sector who confront the threat of trade secret theft on a daily

basis. what i hope will be clear is we need an all-in approach to this hearing. we must strengthen our criminal laws and our law enforcement agencies must prioritize stopping trade secret theft before it occurs. and investigating and prosecute it when it does occur. i will add that there remains an urgent need for us to pass broader cyber security legislation. and i appreciate working with senator graham on that effort. i look forward to hearing from our witnesses today and to working with my colleagues on both sides of the aisle to address this critical issue. our first witness, is randall c. coleman. the assistant director of the counterintelligence division at the federal bureau of investigation. mr. coleman is responsible for ensuring that the fbi carries out its mission to defeat foreign intelligence threats.

mr. coleman began his career as a special agent with the fbi in 1997, and has previously served as assistant special agent in charge of the san antonio division, chief of the counterespionage section, and special agent in charge of the little rock division. prior to his appointment to the fbi, mr. coleman served as an officer in the united states army for nine years. we are delighted that he could join us today, and we ask him to proceed with his testimony, proceed, sir. >> good afternoon, chairman white house, i am pleased to be here with you discuss to the fbis efforts. the fbi considers the theft to trade secrets a top priority. in 2012 alone, the national counterintelligence executive estimated a range of loss to the u.s. economy approaching $400

billion. to foreign adversaries and kp competitors who illegally obtained trade secrets. degraded the research and development in the global market. this immense loss threatens the security of our economy and preventing such loss requires constant vigilance and aggressive mitigation. the fbi is diligently working to investigate and of a-end targets pursuing against u.s.-based businesses, academic institutions, contractors, and government agencies. it has made a significant progress in putting some of the most egregious offenders behind bars. economic espionage and theft to trade secrets are increasingly linked to the insider threat and the growing trend of cyber-enabled trade secret theft. cyber-enabled trade secret threat. the insider may steal for personal gain or a spy for other organizations or a country.

foreign competitors aggressively target and recruit insiders to take the most pry pry teary information. the fbi however cannot protect the nation's economy by acting alone. the fbi counterintelligence oversees more than 80 special agents that are serving as program coordinators who work hand in hand with industry and academic institutions across the country. these partnership coordinators conduct classified and unclassified threat presentations and briefings. it's an early referral mechanism for reports of possible economic espionage, theft of trade secrets and cyber intrusions. working through the more than 15,000 contacts nationwide, this program helps companies detect, deter and defend against attacks of sensitive proprietary

information from foreigned av r adversaries. by forming close partnerships with local, logical businesses and ak deppic and government indid i stugss, the fbi wishes to have a greater impact on deferring trade secrets before any loss can actually occur. thank you again for the opportunity to testify and i look forward to answering any of yr questions, sir. >> i would like to talk with you about a couple of things. first of all, have you any specific reaction to the draft legislation that senator graham and i circulated for discussion purposes? >> sir, i will -- i will stand on this that any legislation that allows the fbi to have ray better advantage at going after our foreign adversaries as it relates to economic espionage and theft of proprietary information the fbi is in favor of. >> the people we are working

with at the department of justice, you support that? >> yes, sir. >> the arguments and points they are making? >> absolutely. >> one of the things that i have observed having watched this for a while while, is that whenever hear about a case that is brought for inte in every case i've found, so far, there has been some nexsus, somebody taking the dvd home, somebody taking the patened item out of the factory, we have seen an explosion in pure cyber intrusions and extraction through the cyber network of intellectual property with no other technique involved. and to my knowledge, there have

been no charges brought ever against anyone for that kind of activity. i understand these cases are very complicated, i understand that they have huge forensic issues, that there's an overlay with national security with the intelligence services that requires a lot of effort, i understand that some of the targets are overseas, and that creates a whole other array of league ad and other issues, trust me, having served as the united states attorney, i can see somehow very challenging these cases are to make, but when you have general alexander saying we're on the losing end, you'd like to see a little bit more actual hard prosecution activity. can you tell me what you think is behind that difficulty and is it just a resource question. what can we do in congress to put points on the board against these people in criminal law

courts? >> chairman, i think you described it to a t as it obviously, when you get outside the borders of the united states and many of these investigations where there's a foreign nexsus, or ability to conduct effective investigations is diminished greatly. effective investigations is diminished greatly. i will tell you that we do have ongoing investigations that i would foresee as having a logical conclusion that i think you would agree, as you described. in fact, the, the fbi has placed se cyber assets working with the counterintelligence resources at our national cyber intrugs task force that are working hand in hand and shoulder to shoulder on these specific investigations.

so i think technology plays a critical role in the advancement of technology makes the threat that much more complicated. but i think there has been tremendous progress made by the fbi, along with our partners. at investigating these type crimes. so i'm hopeful, as we go forward, that we'll be able to demonstrate that we have been effective and will be effective in this arena. >> i wouldn't want to suggest that the fbi has not been effective. i've been out to the ncijtv. i i've seen what you guys do out there. if i had to take my concern and turn it into a single phrase, it would not be the fbi's not effective. it would be the fbi's so busy trying to keep track of who's coming through the doors and windows and trying to warn all the companies that they're hacking into that there is a resource constraint in taking all that effort which could be devoted to tracking all these

attacks and trying to help our businesses, is it the capability or enough capability to sit down and go through putting a prosecution package together, working it through the intelligence agencies and doing all the other steps that need to be done. so in many ways i'm trying to throw you a friendly question, saying let's let us help you do what needs to be done in terms of the resorurceresources. i wouldn't want to take anybody off to put a package together. do we indict chinese generals who are pulling this thievery off. >> another thing that is important and the threat is so i

am men am, immense, that that's what make it is so important to bring in the academic institutions to work hand in hand with us to get out in front of this threat. you're absolutely right. the threat is so immense that the fbi cannot take this on along. whatever help we can get in those industries and sectors is of great help to us. >> there's a provision in the last appropriations bill that requires the department of justice to do a report for us, looking forward, looking out a couple years. and thinking about what the structure should being, like for addressing this particular threat. it's exploded, as you know. it explodes even further every year. it grows just at massive levels.

i'm not convinced at this point that the present setup makes sense. and if you look at another area that exploded. if you look at what happened when aviation began and what its effect was on the conduct of warfare, you started with the army air effort as a sub part of the signal corps. and then it became a sub part of the army, and it really wasn't until after world war ii that you had a full-on u.s. air force. and sense then, we've been a very successful leader in that theater of military operations. but until then we really weren't set up right. i'm not convinced that we're set up right. and i would invite you to comment on this. but let me also ask it as a question for the record that you can take back to headquarters. how does it make sense to have

these kind of cases, perhaps in your counter intell jns division, perhaps in the cyber division, perhaps in the criminal division. how do you sort amongst those three divisions to have this be efficient and smooth flowing? because i understand that each of those different sections have a piece of this. >> i think the first part of your comment is are we structured right. and i will tell you that i, i look at this on a daily basis. it is certainly a priority for the, our director as to look at, are we efficiently and effectively addressing the threats, and i will tell you in the counter intelligence division, economic espionage has become a priority because of the expansion of the threat. so there are always ways that we are looking to better address this. and some of the more significant

effort that we've made is to really have outreach, and i can't stress how important that is to this process and what benefits that we've seen from that. the, we've expanded our contacts across the country to 15,000 contacts. and we are starting to see the maturity of these relationships is starting to pay off, in the fact that companies are starting to come to us. academic institutions are actually coming to us, early on, and calling that contact, so we can get engaged in the problem at the very early period, versus after a bad actor has left the company with two or three terabytes of information has already left. so that's absolutely a victory for us in this process, but we have a lot of room for impro improvement that we will

continue to do. and we're always looking at ways to improve that. >> well, in the context of that, if you could take it as a question for the record and get an official response from your organization, i'm interested in whether you think five years out, ten years out, that similar division across all those separate parts of the bureau will continue to be a wise allocation or whether we're in sort of a transenterstep. >> thank you for your service. i know this is a challenging area that calls on all sorts of different resources, and i'm proud of the way the fbi conducts itself in this area, and i appreciate your service it this country. >> thank you very much for having me today. >> we'll take a two-minute recess while the next panel gets itself sorted out and come back

into action then.

all right. the hearing will come back to order. and i thank the witnesses for attending and participating in this hearing. we have a terrific panel of witnesses, and i'm delighted that you all are here. this is very promising. peter hoffman is the vice president of intellectual property management for the boeing company which has plenty of intellectual property to manage. he has worked there since 1984. in his current role he manages

the company's patent portfolio, protection of its trade secrets and licensing of technical data images, consumer patents. prior to being appointed to his current position, he served as t the director of global strategy for boeing, which is the company's advanced research section. we'll open up for questions after that. please proceed, mr. hoffman. >> good afternoon. on behalf of the boeing company i thank you for convening this hearing and m grateful for your efforts to improve trade secret laws. it's a privilege to be part of this panel. boeing first began making twin float airplanes in 1915 from a

small rid boathouse in seattle. while much has changed since then, our company remains unique in that we assemble and test most of our products in the united states. mostly in washington and south carolina but we have facilities in multiple states, including organize organization, florida, california, montana and utah. our defense and space-related production is primarily located in california, missouri, pennsylvania, texas, arizona, florida, and alabama. boeing employs 160,000 people, across the united states. since 2005, we have created more than 15,000 new high-paying jobs driven by our backlog of over 5,000 commercial airplanes. last year we paid $48 billion to businesses which support a 1.5 million jobs across the country.

boeings significant contribution to the economy is a result of the ingenuity of our employees. they develop the most sought-after products and technologies in the world. boeing's cutting edge technology takes years to develop at an enormous expense, approximately $3 billion in research and development spent every year. and the bulk of our operations are protected as trade secrets. boeing does not have one recipe for its secret sauce. we have thousands. unfortunately, boeing's valuable engineering and business information is at significant risk. once publicly disclosed, rights and trade secrets may be lost forever. the investments wiped out in an instant along with the competitive advantage those trade secrets provided. of course boeing is on constant guard to prevent theft of our

trade secrets, but today, companies cannot simply lock trade secrets in a safe. the vast the majority is trade electronically. it has brought productivity but risk. we could lose a trade secret through a breach in our network, through disclosure by one of our employees or partners or through an escape at one of our suppliers. fear of trade secret theft is not just a concern for boeing but many small companies have as muff or more to fear than big companies, technically if their survival depends on a single pro duct or service. more needs to be done to prevent thieves from steeling our trade secrets. we must send a clear message that we will not stand by as thieves steal or secrets and harm our economy. we support your efforts and the efforts of ranking member graham

to call attention to the issue and provide law enforcement with additional tools to deter trade secret theft. the act provides protections, but the standards and procedures adapted can vary state to state. as such, it is a real concern of u.s. companies that state action under the uniform trade secrets act may not in some cases be immediate enough to prevent the loss of a trade secret. so we also ak nobl the need for companies to have the ability to take immediate action of our own in federal court to prevent the loss of our valuable trade secrets when state courts and federal law enforcement cannot act quickly enough. therefore, we would also like to thank senator kuhns and hatch and your efforts to establish the right for a company to file an application in federal district court in order to seize property, proprietary property

containing trade secrets stolen from a company. we look forward to working with senator kuhns and hatch on this bill and support your efforts for the congress to work quickly and pass this legislation. we're also encouraged that the new laws if passed would strengthen overseas trade secret enforcemen enforcement. in conclusion, we applaud your efforts to highlight this issue and to strengthen u.s. trade secret laws and there by help protect our valuable assets. thank you for your time in hearing our concerns. >> thank you, mr. hoffman. i appreciate your testimony. our next witness is pamela passman, the president and ceo of the center for responsible enterprise and trade, also known as create.org. create is a global,

non-governmental organization dedicated to helping companies and supply chain members implement leading practices for preventing corruption and protecting intellectual property. prior to finding create in october 2011, ms. passman was the corporate vice president and deputy general counsel for global corporate and regulatory affairs at microsoft where she had worked since 1996. and i have to say, i have, as a lawyer, i am impressed by microsoft's legal shop, particularly the really path-breaking work that they did to go after spammers and people who are coming after them on the net with civil theories that dated back to, probably 15th century english common law. it was quite impressive to see

such ancient doctrines applied to such a new problem, and i think the microsoft complaints in that area have really set a model, not only for the rest of the corporate sector in that area of law, but even for government enforcement in that area of law. so you come from a good place. and welcome. >> thank you very much, chairman white house. again, my name is pamela passman, and i'm the ceo for create.org. i appreciate the opportunity to testify. create is a non-profit dedicated to helping companies reduce corruption and intellectual property theft, including trade secret theft. we provide resources to cops, large and small, that help them assess their risks and develop strategies to protect their trade secrets and other i.p. assets, boast within their organizations and in their supply chains. in today's intergrated goebel

economy, companies that succeed into turning their knowledge and know how into competitive advantage are the ones that will create new jobs and drive economic growth. increasingly, companies rely on trade secret laws to protect this knowledge. through tremendous value, it also makes them prime targets for theft. create recently teamed up with price waterhouse coopers to assess the economic impact of theft. a copy of the create pwc report is attached to my written testimony. the report makes clear that the problem of trade secret theft is massive and inflicts material damage on the u.s. and other economies. if we are to energize our economy by enabling innovative companies to protect their trade secrets we need to focus on two key goals. first, we need to innocent advise companies to take

proactive measures and secure their trade secrets on the front end, both within their own organizations and their supply chains. second, we need a consistent, predictable and harm nietzed legal system to provide remedies when a trade secret theft has occurred. it occurs through many avenues, and companies need different tools and strategies to protect against each type of threat actor. businesses need to be technically cognizant of risks that arise in their supply chains. supply chains have given many firms an enormous competitive edge, but companies using chains must often share highly valuable business information with their suppliers, which may be located in a different country with different laws and different corporate norms. in the face of this reality, it

is absolutely essential that companies implement effective strategies to protect trade secrets, not just within their own four walls, but with their suppliers as well. in the create pwc report, we recommend a 5-step approach for safeguarding trade secrets and mitigating potential threats. we suggest that companies, one, identify and categorize their trade secrets. two, conduct a risk assessment. three, identify the most valuable trade secrets to their operations. four, assess the economic impact of losing those secrets. and five, use the data collected to allocate resources and stree strengthen existing processes for protection. create recently created a pilot program with more than 60 countries and countries around the world that helped them assess vulnerabilities and implement procedures to mitigate threats. based on that pilot program, we

just launched a system to help companies to manage their systems for anticorruption. unfortunately, no amount of protection can completely safeguard all trade secrets from theft. companies also need a system that provides support and meaningful action. i applaud you for your focus on law enforcement. i'm also encouraged by the efforts of senators kuhns and hatch to create a model for around the world. the problem of theft that happens entirely overseas is worthy of further study. governments and companies both play a role in improving protection for trade secrets. in our view, companies would benefit from taking a more

proactive role in assessing vulnerabilities and employing best practices to manage their risks. they also need an effective legal system through which to enforce their rights when their know how has been misappropri e misappropriat misappropriated. i look forward to your questions. >> thank you, ms. passman. our next witness is drew greenblatt. he's owned this company since 1998. the company exports baskets and sheet metal fabrications to 36 countries and has been recognized as one of the 5,000 fastest growing companies in the united states for each of the last two years. he serves as a board member of the national association of manufacturers. and on the regional manufacturing institute of maryland. he's also a member of the maryland commission of manufacturing competitiveness as well as an advisory counsel.

-- council. >> thank you. thank you for the focus on this critical challenge of trade secret theft and the opportunity to testify today. as you mentioned, my name is drew greenblatt. we're based in baltimore city and are the leading manufacturer for custom wire baskets and sheet metal fabrications. we make everything in the usa. i'm very proud to report that we export to 36 countries, and my favorite country that we export to is china. we cater to the automotive, pharmaceutical industries. i'm here for three reasons. number one, trade secrets aren't just important for manufacturers that are big but for small manufacturers like myself. number two, america's trade secret laws and policies must keep pace with today's threats which increasingly are not only

interstate but international threats. null three, manufacturers need your help to effectively and efficiently protect and enforce trade secrets. we need to secure strong commitments in our trade agreemen agreements. like so many other manufacturers, marlin steel competes on a global economy. we succeed through investing in ideas and innovations and the hard work of our dedicated employees. when i bought marlin in 1998, we were a local business, and we made commodity bagel baskets, 18 employees, $800,000 in sales. last year we almost hit $5 million in sales, and we now have over 24 employees. we're proud member of the national association of manufacturers. we average about 40 member, 40 employees in the national association of manufacturers, and we have 12,000 members. i'm also the co-founder and chairman of the national alliance for jobs and innovation, 380 members.

both are working hard to strengthen and protect trade secret and intellectual property rights. we want to level the playing field for manufacturers and businesses throughout the united states. trade secrets are more important than ever. they include things like drawings, proprietary the manufacturing processes, software, formulas. all of these things are very valuable to the nation. $5 trillion for public companies and even more when you include small companies. small companies, our secret sauce is those trade secrets. that's our intellectual property. we leverage the expertise of our employees. 27% of them are engineers. think come up with characteristics for our baskets that make us unique and different than our chinese competitors. some think 3% of our gdp is lost

to these trade secrets being stolen. in our grandparents day, they would be stolen from across town. now it can be done on a thumb drove and sold to can companies and governments across the world. these cyber incursions are very threatening to us. we have lasers in our company, robots. if they can hack into our system, they can manipulate our equipment and possibly hurt our employees. that would be devastating to us. the thing i'm most proud about, we've gone over 1,981 days without a safety incident. if they were able to hack into our systems and hurt our systems they could hurt our team. we spend so much money hardening our network that we could hire another unemployed steelworker to fill that job remember than spending money on these other activities. the good news is washington is starting to recognize this problem.

we need washington to do three things. first of all, we need to you have strong operational collaboration between the federal agencies. we cannot have the silo approach we have right now. we need the fbi cooperating with the justice department cooperating with customs and tsa. number two, we need access to federal, civil enforcement to trade secrets theft. well conceived legislation recently introduced by senator kuhn and hatch. this is going to give us the ability to pursue people in the federal people, not on the state level. finally, we need to meet the global challenge of trade secret theft with global solutions. good trade agreements to stop these thefts. in conclusion, chairman white house, senator hatch, trade secrets are vital for manufacturers, small and large. america's trade secret laws must keep pace with today's threats. manufacturers need your help to

ensure that they can effectively and efficiently protect and enforce their trade secrets. i applaud your attention to this critical challenge and your focus on solutions, with strong global partnerships and closer collaborations between agencies and government and business, including federal, civil enforcement, we can have a real impact, we desperately need it now. thank you for the opportunity to testify this afternoon. i look forward to answering your questions. our final witness is douglas norman, the vice president for e l ely lily company. he is chair of the national manufacturers sub committee for intellectual property. mr. norman has previously served as the 2002 co-chair of the intellectual property and

anti-trust task force. please proceed. >> good afternoon chairman whitehouse, thank you for the opportunity to testify today on the issue of great importance not only to my company and not only to my industry, but to all segments of the american economy. ely lily was founded and headquartered in indianapolis, indiana on may 10, last saturday, lily celebrated its 138th birthday as a u.s. company. our mission is to discover and develop medicines to help people live healthier, longer lives. to fulfill this vision, lily must rely on intellectual property protection that includes patents, trademarks and trade secrets.

unfortunately, like too many innovative firms, lily has recently been the victim of trade a cross sector group of companies that supports a harmonized, federal civil remedy for misappropriation. we're pleased to support the s-2267 which would accomplish this objective. we thank senators coops and hatch for their relationship and we're also encouraged by your work, chairman white house to ensure law enforcement has the tools it needs. we appreciate the efforts by senator patrick in to highlight the continued problem of trade secret theft that occurs abroad. the bipartisan evidence by this committee's work is important to our shared objective of improving effectiveness and remedies against trade secret misappropriation. trade secrets are an essential

form of intellectual property and part of the backbone of our information-based economy. whether you're a major form pseudocall firm or start up software company, your trade secrets set you apart. and their sprex vitally important to maintaining a competitive edge and keeping workers on the job. unfortunately, companies that are creating jobs in america are increasingly the targets of sophisticated efforts to steal pro pry tear information. trade secrets are particularly vulnerable to theft, given the rise of global supply chains and the rapid technological advances that have resulted in greater connectivity. voluntary or involuntary disclosure, or by a joint venture partner. the economic espionage act makes the threat of a trade secret a federal crime and an array of state laws provide civil relief. the tools thieves use are

growing more sophisticated by the day however, our laws must keep pace. eea as a criminal statute necessarily has limitations. we very much appreciate the corporation we get from federal law enforcement, the fbi, and department of justice limited resources at the time and would never be in a position to bring charges in all cases of interstate trade secret theft. state laws provide an important right for trade secret owners to bring a civil action for relief. state trade secret laws developed and made sense at the time when misappropriation was largely a local matter. but for companies that operate across state lines and have their trade secrets threatened by competitors around the globe, the array of state laws is inefficient and often inadequate. also inconsistent with how other forms of intellectual property are affected. the secret across state line to preserve evidence to protect the trade secret from being die vul

jed. this is particularly true when the theft is by an individual looking to flee the country. once the trade secret have been divulge or is made known, may be lost forever. and the harm from disclosure is very often irreparable. we're pleased that the act would address these limitations and provide owners with the same ability to enforce their rights in federal court as owners of other forms of property have. the breath of support for the legislation from companies focussed on diverse areas such as software, biotechnology, semiconductors, agricultural and apparel, demonstrates the importance of a harmonized federal civil remedy. the companies that have indicated their support often disagree on other areas of intellectual property protection. but we are united on this front. we also look forward to working with chairman of the white house and ranking member graham on ensuring law enforcement has the too manies it needs to prosecute trade secret theft.

similarly look forward to working with senator flake and agree that it's important to study ways in which we can address overseas theft effect e effectively. in conclusion, americans companies are competing globally in our know how is subject to theft everywhere. a national solution that provides persistent and trade secret protection and enforcement is essential. the defend trade secrets act will establish the gold standard for national trade secret laws globally, and serve as an important base for international harm anization efforts. we urge the committee to support this. thank you again for the opportunity to testify today. i look forward to your questions. >> thank you, mr. norman. let me welcome senator hatch and senator counce to the hearing. before i turn to them for their questions. let me ask unanimous consent that chairman leahy's statement be put into the record which should it should be without objection.

and let me ask each of you just very simply and quickly, using your own words and your own experience, explain what you think the scope is of this problem for our country and its industries. starting with mr. huffman. >> it is a tremendously big problem for us as a company. and i think more broadly as an industry because of so much of our intellectual property is protected as trade secrets. and right now, a lot of those are very vulnerable considering the changing landscape, sophistication of the means of which our intellectual property can be and trade secrets can be obtained. so anything that helps to improve law enforcement's ability to protect our trade

secrets and allows us to be more secure in keeping those secrets, that are still valuable is very much appreciated by boeing. >> from your experience, the scope of the problem. >> well, with companies having almost 75% of their value in intangible assets including trade secrets, the problem is quite significant. in the create pwc report, we attempted to put a figure to the magnitude of the problem looking at the different threat actors that are involved, looking at the fact that u.s. companies, other advanced economies rely on distributed supply chains increasingly. and we looked at other elicit economic activity as a proxy for this. since it's a figure that is very difficult to get arms around because companies themselves don't know the magnitude of the trade secrets they have, as well as when there is a trade secret theft. we looked at other examples of

elicit activity, corruption, money laundering, similar kinds of threat actors and came to a figure of 1 to 3% of gdp, quite significant. >> thank you. in your experience. >> well, this problem is out of control. we need your help. we're being attacked daily. what this will have, if we can get this legislation enacted, this will save jobs. in baltimore city, unemployed steel workers will be employed, we are getting things stolen left and right. we need your help. >> and mr. norman. top that for clarity by the way. >> i'll try to add some clarity myself. the issue is enormous. i cann behalf of pharmaceutical firms that spend billions of dollars every year doing research and development, as we move forward and try to develop new life-saving

medicines, we continuingly build chemical platforms and pharmaceutical platforms in hopes of reaching a point where we can apply for pattens. instances where interlopers are stepping in and trying to steal our trade secrets on our formula prior to the time we can reduce those into a patent application. it very often may take two, three, perhaps longer, two or three years or longer to do enough research to get to the single molecule that we think will be able to carry on into clinical trials. if we lose the trade secrets, and all of that formula, prior to the time we can reduce that to a patent application, the loss is irrevocable. so we may spend, $10 million, $20 million, $30 million building a chemical platform of rich diversity of a number of compounds, and if any one of

those is stolen from us, prior to the time that we can obtain a patent on it, then it is lost forever. therefore the public and those citizens gets to enjoy the fruits of this research once it's gone. >> thank you very much. >> senator hatch. >> thank you, mr. chairman. i should say both to you and senator coons before you got here your names were sung with praise over and over again for the legislation. it was almost as if you were summoned here by those voices. >> that's always unusual. i'll tell you. >> we're happy to have all of you here and you're also experts in your field. let me ask mr. norman and mr. hoffman to respond to this one. under u.s. law, protections for trade secrets are some of the most robust in the world. we're hoping to make those provisions even -- protections even stronger.

but protecting trade secrets in numerous countries is a challenge it seems to me. facing many transnational companies. something i'm very concerned about. but now mr. norman and mr. hoffman, how will changes we make to u.s. law have an impact either positive or negative, on what other countries are doing in this area and do we need to be careful here? mr. norman, you can go first? >> sure. thank you again, senator hatch, for the legislation that you have introduced. we greatly appreciate it. greatly appreciate your leadership. the instances of what it would do on a positive standpoint is that we believe that the legislation to obtain a federal trade secret remedy,

particularly the ability to seek an ex parte seizure of stolen materials and prevent further ir disclosure or divestment of that information broadly would be a very positive gold standard for future discussions on harmonization of trade secret laws around the world with our major trading partners. it's important i believe to get beyond the state trade secrets laws, which are often a bit unwieldy and difficult to enforce across state lines, simply because the procedures aren't always set up to work very well along those lines. but with a federal standard, with the appropriate kind of ex parte control, i believe we can show the rest of the world what the gold standard would look like as far as giving us the rights, on our own, to take a private civil action and protect our trade secrets.

>> thank you. >> thank you. care to add anything? >> yes, i fully agree with my colleague. any opportunity for our trade negotiators to be able to point to improvements in trade secret law protection in the united states, and thus strengthen the laws outside of our borders with global companies such as ours will be very helpful to protecting our trade secrets. >> let me ask a question for the whole panel. trade secrets also seem to be a lot more difficult to protect than patents. i understand there may be industry best practices and model policies but i imagine these vary widely based on the industry and type of process and information you're trying to protect. so i'm very interested in as a practical matter how do you determine what measures are reasonable to protect your trade secrets? >> okay.

>> well, when it comes to trade secret versus patent, we actually base that upon the reverse engineering capability of the innovation but once we decide to go the trade secret route, we have to have the processes and the systems in place in order to assure that those secrets are -- those trade secrets are secure. and as mentioned previously, that 60% of what we sell we buy from others as a company. so the sharing of our intellectual property across our supply chain domestically and internationally is an area we have to be careful they have the same type of procedures in place and protect our intellectual property at the same level. >> okay. yes? >> in our work with companies around the world, we found this is something that's not very mature. inside their businesses, or with their supply chain partners. so in the create work with pwc we laid out a five-step framework for companies to begin to get their arms around how to

best manage their intellectual property. first being able to identify and categorize what you have and where it is in a company is critical. whether you're a small company or a large company that has global operations. we also recommend that companies conduct a risk assessment and identify who are the primary threat actors. who's interested in their trade secrets and intellectual property and potential vulnerabilities in their policies and procedures in their internal controls. really looking inside of their company and in their supply chain. and also identify those trade secrets that would have the greatest impact on the company's operations and business. also looking at the economic impact of a loss of a trade secret, understanding the magnitude that will have on their business. finally taking all of this information and allocating resources to better protect your trade secrets, thinking of it as an investment, not just a cost. >> my time is up, mr. chairman.

>> senator coons. >> thank you, senator whitehouse. i'd like to thank you for chairing this hearing and for the great work that you and senator graham have done to make sure that we protect america's intellectual property. we have heard from an array of witnesses today, the compelling picture of what's at stake here up to $5 trillion of value held in america's intellectual property, and in particular in the form of trade secrets. we have criminal law, prosecutions for the protection of trade secret theft, economic espionage act is a good platform, a good beginning. but as we've heard from you today as witnesses there are significant gaps and i applaud the chair today senator whitehouse and senator graham for their hard work in improving efforts to deal with that. the department of justice has many priorities and limited resources so it's unsurprising to me that they were just 25 trade secret cases brought last year. before he leaves, i need to say my profound personal thanks to senator hatch for being a great partner and good leader on this issue.

>> well, it's the same here. this young man has really done a very good job on this. >> even got a young man out of that. >> as a former intern, i will say i never imagined there would be a day when senator hatch would be patting me on the shoulder and saying i look forward to passing a bill with this nice young man. when at the time i was mostly passing cups of coffee. it is a tremendous sense of satisfaction that i've got through working with senator hatch and with eli lilly and number of other companies represented here today and i'm grateful to the national association of manufacturers and the coalition for the protection of trade secrets and protect trade secrets coalition for their very able and valued input as we crafted this bill and tried to get to a place that makes sense and that can help

stem the gap in u.s. law to ensure we really vigorously defend trade secrets. let me ask a series of questions quickly of the panel if i might before i run out of time. first, if i might mr. hoffman, boeing does business globally, as your testimony thoroughly demonstrates. most of the significant threats to u.s. trade secrets today originate from other countries around the world. can you speak to how respect for trade secret theft varies around the world and how our laws domestically and what we might enact in terms of measures to strengthen our domestic laws could then influence the protection of u.s. i.p. international? >> i'd be glad to. thank you for the question, senator coons. when you look at trade secret theft regardless of whether it comes from domestic or internationally it hurts boeing, it hurts other companies. but i think the best thing we can do is set the standard and provide the tools necessary for efficient and effective

protection of trade secrets and give those standards to our trade negotiators to press the issue with their counterparts. >> i couldn't agree more and appreciate that response. if i might, mr. greenblatt, from marlon steel, an admirable small manufacturer that has grown significantly under your leadership, trade secret theft can impose an existential threat. if a northeast succeeds in stealing as you put it your secret sauce it could literally mean the end of your business. very harmful for eli lilly or boeing or others. for a place like marlon steel it could mean the end. asserting your rights in court can also be significantly expensive relative to the size of your business. i saw this in my own experience. as in-house counsel for a manufacturing firm. can you speak to how existence of a federal private right of action would reduce the cost of protecting trade secrets and how having won uniform federal

standard might strengthen your ability to go after those who would steal your trade secrets? >> the defend trade secrets act is very well crafted. it's going to help us go around the state system, which is very inefficient, it's very slow, and it's very expensive. little companies can't afford having lawyers in five different states on retainers trying to go after a bad actor. it would be much more elegant if we could have a federal jurisdiction on this matter, and much more efficient. the coons/hatch bill, your bill, would tremendously accelerate our ability to stop bad actors and get good results. >> thank you, if i might mr. chairman, one last question of mr. norman. mr. norman just thank you again for your hard work and leadership, and in particular one of the sections we worked on was the ex parte injunctive relief.

if you'd explain why an authority like that is particularly important to eli lilly or to other companies facing trade secret theft? >> yes, sir. we often run into situations where we find that an ex-employee has left and is going to work for a competitor and we finds out something such that in once they turn in their lilly issued computer that there's been a download of a number of documents which contain highly confidential lilly trade secrets. these occurrences almost always happen on a late friday afternoon. and therefore, the best part i believe about the ex-parte seizure aspect of the bill that's currently pending is the fact that we could go to federal court and in one action kick out

an ounce of prevention rather than worrying about a pound of cure a week or two later when we can get the indiana state courts involved or new jersey state courts involved or perhaps both indiana and new jersey state courts involved, leading to a whole lot more expense and whole lot more risk because we may not be able to isolate and seize the stolen materials as quickly. and therefore a federal cause of action before we can go to a single court and institute the power of the federal court system to seize stolen materials would be extraordinarily helpful in those situations and i thank you for your leadership on this bill. >> thank you, mr. norman and miss passman for your estimate if my math is right that it's $150 billion to $450 billion a year trade secret theft is a big deal. senator whitehouse, senator graham, your leadership in strengthening the criminal law protections for american companies is admirable

and i very much look forward to working with you to pass the two bills in tandem in a way that can strengthen for millions of americans and thousands of companies. >> thank you. >> now lindsey graham. >> thank you mr. chairman. seem to have two challenges, protecting the nation against what i think is an inevitable cyber attack on a large scale, that's coming. the question is will we do something about it in time to diminish the effect? that's one problem the nation faces from criminal terrorist enterprises and potentially nation states. the other is the private sector trying to do business in a very interconnected, complicated world. one of the things that america always has had going for her is that we're pretty innovative and we're always thinking outside the box. and other people pretty good at copying. from a criminal point of view, we're trying to put teeth into this area of the law. mr. hoffman, when you're overseas representing boeing on trying to do a joint venture, what do you worry about the most? i mean if you're going -- some

countries require you to have a 51% partner. is that correct? >> it varies by country. but in some cases you can have a majority share and some cases you can have a minority share. >> but you'll have a forced partnership based on the host country's laws. >> whatever the laws are, typically it is some type of partnership, yes. >> these partnerships are created by the host country, not at your own choosing. i guess you can choose who to partner with. but to do business in that country, you're going to have a local partner, for lack of a better term? >> in general, yes, sir. >> how does the private sector and the government interact when there's a trade secret theft or intellectual property theft in a foreign country? what more can we do and how does that system work? >> i'm not an expert in those areas but i can tell you that we are very globally spread company and when we make the decision to go into a country and do

business, we study the laws and how we need to establish ourselves as a business and are prepared to defend our trade secrets as best we can, knowing it's going to be a different environment than we have here at home in some cases. >> mr. norman, when you do business overseas and have a local partner, what is your biggest concern? >> the biggest concern of course is losing our trade secrets and losing the value of all of the investment that we put in -- >> having a company across the street from where you're located doing exactly the same thing you're doing? >> right. that's always an issue and therefore we're quite circumspect about the type of research, development and disclosure we make in many of the partner institutions where we do business outside the united states. >> if we had laws on our books that would hold a country or individual acting on behalf of

af nation state liable for engaging in that theft, do you think it would make business easier for doing overseas? >> i believe it would if we can use that by the standard in which we could get other countries to change laws and harmonize them with the appropriate way that we would like to see trade secrets protected, yes. >> mr. hoffman is it fair to say that in the international arena, when it comes to protecting intellectual property trade secrets in many countries it's the wild, wild west? >> there's definitely a different threat levels out there and i agree with my colleague that we choose carefully what type of work and intellectual property we do outside of the united states. >> the more we can get this right, the more opportunity to create jobs here at home and abroad. is this an impediment to job creation? >> i believe any time we lose the fruits and labors that our scientists and engineers put in to developing drug products

it is a huge jobs issue. we employ thousands of scientists and engineers who work years trying to develop a drug product and if a competitor can step in and take that away from us right before we cross the finish line, it's devastating. >> i want to thank chairman whitehouse. i've never known anyone more knowledgeable about the stuff and a real zeal to do something about it. i look forward to see if we can get our bill over the finish line there. >> it's been a pleasure working with senator graham on a variety of issues, and i thank him for his leadership, and senator flake the floor is yours. >> thank you mr. chairman. thank you for being here. i apologize for not being here earlier. i hope i'm not plowing old ground here. but i'm concerned about the rate at which trade secrets are being stolen internationally as opposed to domestically and trying to get some sense of that. i've introduced legislation and future of america innovation and

research act which allows the owner of trade secret to bring civil action in federal court against the person who stole the trade secret if the bad actor is located abroad or on behalf of a foreign entity. miss passman, there was a recent report by create.org that cited a survey of u.s. firms that were asked to report on suspected successful or unsuccessful attempts to compromise trade secrets information of the incidents where the nationality of the primary beneficiary of the theft was known, 70% of the time was foreign individuals, firms or governments that were those beneficiaries. do you see this as a growing problem that the foreign nature of the threat? >> certainly in an integrated economy, we're going to increasingly see the challenge with the trade secrets. you know, american companies benefit from having participate

in these global supply chains and as they move their business overseas, whether it's a supplier overseas or a customer overseas, they need to understand the global environment in which they are working. we're working with companies around the world, including with companies in china and other emerging markets that also want to mature their systems and better protect intellectual property. but we advise companies to understand the environment that they are entering and to put business processes in place to better protects and manage intellectual property inside of their business as well as with their supply chain. >> thank you, mr. hoffman, your testimony you note that one of the cases doj prosecuted under section 1831 was against the defendant who stole trade secrets from boeing related to the space shuttle and the delta 4 rocket to benefit a foreign entity. you also seen an uptick in this

foreign activity? >> well, that particular case the gentleman was charged with stealing our trade secrets, there was no particular focus on what happened to those. in fact, once it leaves, of course the damage has been done. i might defer to our department of justice colleagues regarding those issues. >> all right. what is boeing specifically doing to combat this? what measures have you taken -- sorry if i'm plowing old ground here. >> in terms of our overseas presence? >> yes. >> we hold our subsidiaries and our relationships with partners to the same level we have in the united states. the complexities are that we're in a different country and we have to adhere to their laws and they may not be as harmonized with ours and as effective as ours. >> do you think it's important to have legislation that protects both domestic and

foreign trade secret theft, do all of you agree with that? good. we'll proceed with the legislation. i appreciate -- >> everybody nodded for the record. >> okay, good. >> if you can do that more audibly next time that would be great. thank you for your testimony. >> let me ask one last -- or two last questions of everybody. there's been some reluctance on the part of corporate victims of trade secret theft to engage in the criminal law enforcement process, and one of the things that we've heard has been that taking that step rather than just simply trying to bury things could make matters worse as the trade secret rattled around through the case and became more public and further compromised the company's

secrecy and its advantage. is that something that is a real concern? are there any other concerns we should be looking at in terms of things having to do with the process of a criminal case that are deterring criminal victims from taking advantage of that means of redress? mr. norman? >> yes, chairman whitehouse, that is very much a deep concern we have as we look at the ken of criminal prosecution arising from the disclosure of trade secrets outside the bounds of our corporate entity. and i applaud you particularly for the language that you have in your legislation concerning the ability to protect the trade

secret, even during the time that the court is reviewing. because it is often difficult to question witnesses. it's very difficult to come forward with documentation. it's very difficult to seek expert testimony that can help prove that a theft has occurred if you can't talk about specifically in open court what the means of the disclosure was or what the subject matter of the disclosure was. because once it's made its way into open court, it is no longer a trade secret, and you lose it anyway. and so, many of the mechanisms that have been proposed and the mechanism in particular that i have seen in your legislation i believe is a great leap forward in helping us move into an arena where we could help prosecute these cases much more readily than we've been able to in the past, and i thank you for that.

>> final question for mr. greenblat. you indicated earlier that one of the things that we as senators should focus on is improving coordination among the agencies. you used the term silos. when i go out to the unofficially termed fusion centers, if you will, where the fbi, for instance, leads one, or homeland security and they've got all the agencies there, they've got everybody represented, it's all up on screens, it looks like a model of interagency cooperation, at least at that level, obviously you had a different experience down at the level of the attacks on your company and the experience that you had. could you articulate more specifically exactly what your concerns were about the silo problem and the problems of coordination?

>> so, for example, if we identify -- if the fbi identifies a bad actor, we would like that that company can't import things into america and the customs, you know, agency halts their products from coming into america. the only way we're going to get their attention is by the wallet. and if we could stop them from shipping into the greatest, biggest economy in the world, we'll get their attention. >> okay. so you're not -- your experience wasn't that on the investigative side there was discoordination. rather that, when a case is done, you should be able to have as a remedy that the company doesn't get to import goods? that's an additional penalty for them? >> precisely. we just want everybody to work together and quickly resolve these top ticks, and we just can't have each agency in their own little zone. we have to have everybody working together and collaborate as much as possible, and then we have to stop these bad actors

from bringing their parts into america. >> all right. well, let me thank all of the witnesses for coming in. this is a very helpful process for us. we have a lot of things going for us with this legislation. for one thing, it's a real issue that is causing americans to be hurt in very concrete and meaningful ways. second, as you've seen today, couldn't be more bipartisan. so i don't see us getting dragged into the partisan turmoil. we're following regular order and having proper hearings and so forth so that we can pull this together and move it forward. but i hope very much that we'll be able to make progress, and the advice and the counsel of all of you who are here -- some of whom have been very helpful in the preparation of the legislation as well as in testimony about it -- is something that we're all very grateful for. i think senator flake, senator

hatch, senator coons, senator graham and myself have all put effort into addressing different aspects of this problem, and i'm confident that we will all continue to work together to try to solve this problem so that you have one less thing to worry about, and you can focus your considerable skills on making the best products in the world and expanding your businesses. thank you very much. the hearing will stay open for an additional week for anybody who wishes to add anything, but subject to that, we are adjourned.

the u.s. economy added 214,000 jobs in october, with the unemployment rate dropping to 5.8%. that's the lowest unemployment rate in six years. the labor department announced those numbers this morning.

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at the national press club here in washington regarding efforts to improve medical care and other services for veterans. that will be live on c-span2, as i said, starting at 1:00 p.m. eastern. we begin at 8:00 p.m. eastern with three medal of honor recipients who served in world war ii, vietnam and afghanistan. they spoke at the u.s. naval institute and the naval academy in annapolis, maryland. then at 9:40 on american history tv, former nbc knitly news anchor tom brokaw on his coverage of the fall of the berlin wall in 1989. thomas pickering served as u.s. ambassador to the united states, russia, india and israel. he spoke at george washington university last month about u.s. efforts to promote democracy. this is about an hour and ten minutes. >> thank you all for coming to this event.

we're all very excited to hear from the honorable thomas pickering. the panel -- the conversation is going to be moderated by chris cojam who is a visiting professor of the practice of international affairs after serving as the chairman of the national intelligence council at the elliot school he was previously the director of the mid career mipp program and director of the summer foreign policy program. in government, chris served as a staffer on the house foreign affairs committee, under representative lee h. hamilton as the depuuty assistant secretary of state in the bureau of intelligence and research and as deputy director of the 9/11 commission. he was also the president of the 9/11 public discourse project, the commission's follow on public education organization. he served as a senior adviser to the iraq study group. please welcome him.

>> it's a real honor to be here tonight, and this is in the very best traditions of this school. a very erudite, accomplished policymakers into the academy, and so that both can benefit. and i'm deeply dedicated to this continuing interaction between scholarship and practice. so it's a real honor tonight to introduce ambassador thomas pickering. he is a career ambassador. and that is the designation that very few ever receive. only a few in a generation. and ambassador pickering really is a phenomenon. the most accomplished ambassador of his generation. and he joined the foreign service in 1960 and retired for a second time in 2001. and during that period of time, oh, the assignments he had.

it's just stunning for me to contemplate him having served as ambassador of the united states of america seven times. in important countries and positions around the world. he was not limited to any single area of expertise. so he served as ambassador in jordan, from '74 to '78. ambassador in nigeria, '81 to '83. el salvador '83 to '85. israel, '85 to '88. and then he was the ambassador of the united states to the united nations from '89 to '92. in the lead-up to, during and then the aftermath of the gulf war. a hugely important position for the united states, and he represented our government so very well.

followed by his service as ambassador to india, and then during the clinton administration, as ambassador to russia. as the first ambassador to russia. his predecessor, of course, had been ambassador to the soviet union. he also served as the undersecretary for political affairs from 1997 till the last day of 2000. again, a position of exceeding importance in the formulation and implementation of american foreign policy. just on a personal note, i have never seen an individual with more energy and more creativity and more ideas working tirelessly to figure out ways to advance the diplomacy of this great country. he has served with enormous distinction.

i can't tell you how fortunate all of you are, as am i, standing here to have the opportunity to hear from ambassador pickering, and he will speak for approximately half an hour, and then he'll take questions and we'll have a bit of a conversation here. so ambassador pickering. [ applause ] >> thank you. thank you all very much. and chris, thank you for that very elegant, very hyperbolic, wonderful introduction. i'm sure i'm going to have to put that on paper somewhere and keep it. it's a pleasure to be with you, and thank you very much for the invitation to come by tonight. i want to talk about three things. i want to talk a little bit about the changing world situation in terms of some of keet influences on foreign policy.

that are new or different or more challenging. and then i'd like to talk about seven major issues, problem areas, challenges, difficulties, that we face with the opportunity perhaps on two or three of those to talk about some policy directions for the future that i think are interesting and possible and useful and perhaps not yet being fully pursued. then i look forward to your questions and comments, criticisms, ideas, thoughts, whatever. everything but tomatoes. thank you. the world is perhaps going through the most rapid change in the human environment that we have ever seen. one wonders whether, in fact, with the geometric speed with which things are proceeding there is an end point at some

time. one also used to look years ago at the roman empire. and when the barbarians came in, everything froze. we're all related to both romans and barbarians, so we can be proud of the roman achievements, and a little bit sorry that some of our ancestors threw spears. but that is obviously a question that none of us is prepared to answer, seemingly we can move on from strength to strength, and deal with change. the most fascinating change that i think we are all facing, and that you see, know and master well beyond what i have to deal with, is the electronic information related revolutionary changes that we all see. much of this has changed the way in which we do diplomacy. it's changed the way in which we understand the world. it's changed the way in which the people of the world absorb it, know about it, and understand a bit about it.

and i think one of the major contributions, not the only one, to something like the arab spring, or the arab transition as i think we all prefer to call it now, was, in fact, the notion of a rapid movement of information people taking in ideas and thoughts that they had. 9 notion that dictatorships and autocracy were not a successful way of treating people. in terms of the governments, and the need to change that, and the fact that you could mobilize people through electronics in the main and bring them out and use public demonstrations to make a serious change in governmental organization was very, very interesting. in ea in egypt it was fascinating that one of the things that people seemed to have forgotten in the plethora of changes was that there already were established political forces at work and had been at work in society. some of them a little bit

underground. certainly the muslim brotherhood was one. another, perhaps, was the notion that ordinary people ought to be able to gain an opportunity to participate in their own governance in a serious way. there were no leaders of that movement strikingly, and one of the interesting things is that with no leaders you can't win elections. and if elections are the preferred method of choice, then you become absent from the future in an unusual way, even though you have, perhaps, been instrumental in causing it. but these are examples of things that are happening around us and all the time. but the pace of change, i think, the breadth of change in the world, is very much due to this. closer to home, and i think more interesting, if i can sort of swivel around in a different way, is the fact that over the last decade we found not to the surprise of a lot of people but to the surprise of some in the

leadership of the country, that military force is not a very good way of solving diplomatic problems. and that diplomatic problems can be usefully solved at the conference table, often because you have a first-rate military course. and if you begin using military force to try to resolve problems, that don't -- that -- where it doesn't work very well, then you undermine in a serious way the capacity to have, in fact, the value of a first-rate military force behind your diplomacy, and behind your actions, and so if used and abused, if i could put it that way, it tends to be less persuasive. less useful. less important. as an american diplomat i was always grateful that we had a first-rate military force behind us. i was grateful, too, that we had a first-rate economy. and even with some of the change that came about in 2008, and in 2009, from which we're still

recovering, i think that our ability as an economy to perform, and to show leadership, and to deal with issues, great and small, is very significant. i think that there is another set of questions that's very important that we tend, when we add up what is it that's behind our diplomacy that makes us have a great chance to be more successful, is in the political realm, interestingly enough. and interestingly enough, it happens to be, i think, our values and principles. if there was one thing around the world that people admired about this country, was its freedom, its prosperity, its commitment to doing things correctly, its valuing ethical principles and its ability to act in accordance with them. some of that has gone away. and we've lost some of that. there's nothing written in stone

that says we cannot come back to it. and i think we are. i think it's -- we're moving perhaps more slowly than we should be, but it's a significant and important part of what underpins our diplomacy in a changing world. i think that there's several other things that are happening. diplomats normally used to work on a country by country basis. now we work much more significantly multilaterally. we used to be very much consumed by political questions and they were always treated by american diplomats as the top priority and the top of the heap. now that has shifted remarkably. and questions that are both multilateral, and heavily economically based are equally as significant, if not more significant, in the concentration of our effort, and the focus of our diplomacy. and that's important. i'd like to say two or three other things. i think that, as we come to look at questions, it is important

for us to begin to move out of the traditional stovepipes of consideration, particularly if we want to look at questions from a strategic point of view. from a point of view of strategic impact and strategic importance. and i've come to believe that there are now clusters or packages or groupings of issues that need to be taken together, as we consider them a foreign policy importance. one example is obviously the intimate relationship between energy policy, environmental issues and policies, and climate change. they're not uniquely clustered, and all alone. but they form the center focus of i think one of the important clusters of questions we have to deal with. i'll talk in a minute about seven of these. they vary.

some are clusters of issues that we would call worldwide, and functional. and others happen to do with regional areas of the world, where, in fact, regional problems and major country competitions are important to us. but looking at them this way, at least from a strategic perspective, is helpful from two directions. one of those directions is that it helps us avoid the unanticipated consequences that sometimes happen he we make a move on a set of issues and intimately related questions in one way or another affected. so the broader sweep of the cluster gives us an opportunity, at least, to understand those are interrelationships that we need to pay attention to. i think the second question is maybe more technical, more useful for the diplomat, but it gives us an opportunity when we're negotiating in a set of questions, to understand that if

we need a broader scope to get the negotiations moving, to offer either concessions or to seek concessions on a broader basis, looking at questions through the cluster focus is helpful and important in being able to gain those advantages in a negotiating scenario. let me now turn to the questions, and perhaps some of the things that we should do about them. i always am a little bit stymied at this point as to which priority is important. absolutely fascinating. i've been talking about this for a few years. and almost every time i come before an audience to talk about it, the priority has shifted a little bit. so tonight i want to begin with what i call the extended middle east as a cluster of questions. it's self-evident, it's obvious, the importance is perhaps, if anything, been overstressed in the press recently.

but we can look at that. and so, from the straits of gibraltar to the hindu kush, the extent of the middle east is a fertile field to continue to present us with new, interesting, challenging, and sometimes very destructive problems. and, in fact, the middle east fertility in this sense has probably outstripped our capacity in any real way to continue to deal with them. certainly new questions have emerged since the beginning of 2013, or even 2012, with a kind of rapidity that has left us all breathless, left our government masters, if i can call them that, certainly stymied often at the starting post, as to how to get at them. and looking now at the complications of their interrelationship. no one set of questions, i think, in the middle east has the silver bullet embedded in it, that will solve the others. but it is interesting that as things get worse in one area,

they tend to affect others. so that as we fail, and indeed, as the process fails to find a way to deal with the problem between israel and the palestinians, it tends in the main to affect arab attitudes toward the united states that runs across the full gamut of the middle east. and while it wasn't the centerpiece of change in egypt or in yemen or in libya, it is certainly there in the minds of many people who think about that problem. similarly, in an interesting way, and i'll talk about this in a minute, if we are able to break through in the negotiations with iran over a nuclear arrangement, there are opportunities to follow on, because we in iran share some common interests in afghanistan, in iraq, and maybe eventually even in syria. although that looks like a long shot at this point. but it is interesting to see

that interrelationship, and we should keep it in mind. it doesn't mean finally that all of these issues have to be treated in a broader context. we can deal with them in stovepipes. but we should keep our mind on the strategic interrelationships as we go ahead, and understand some of that, rather than to fence ourselves off in a narrow corner and treat with the policy merely as the policy as we are the press, or as our own inventions about the region, tend to catalog it. often people in the region don't see it the same way and we should be cautious about that. i would say that the number one problem at the moment is probably what our arabic speaking friends called daish, it is arabic for isil or isis or i.s. the islamic state in iraq and in greater syria.

and this is a serious problem, and we've addressed it as a serious problem. perhaps in my view we've overmilitarized it. but it has great military connotations. and if anybody wants to undertake a really unpopular cause, just go out here and raise up a banner and say, let's negotiate with isil. you can understand why, in effect, this has a bigger military character. but there are political and economic issues that are important here. and i think they need to be looked at. political questions of what kind of a coalition can we built. and those are important. political questions that have to do with how and in what way in iraq, in which the maliki government spent a good bit of its time either ignoring or tormenting sunni, a new iraqi government can pick up its socks and understand that it has to deal with minority from the point of view of their rights, as well as obviously the

significant value of majority rule, and that happens to be at the moment the shia. but those are significant. and economic questions are very important. where is some of our oil coming from? well right out of isil-land. do we continue to take that oil, and do we continue to feed the money into isis that that oil is being paid to -- paid for to receive? a very interesting question, particularly at a time when oil prices are going down. of course, if it were isil, it couldn't happen to nicer guys but there are still real problems with a resistance to, a fundamentalist terrorist movement that is now heavily funded by the oil enterprise and we need to think about that. so those are significant. on the military side i think it's very interesting. there are now clear indications, whether we like it or not, that while our aerial attack has been quite successful, both in

northern syria, and in northern iraq in supporting the forces opposing isis, it is also now become an isis rallying cry to try to bring more recruits to the flag, more folks to the kalashnikov. and this is something we need to keep our eye on. it is also useful to begin to think about whether isis in its own galloping mistreatment of the sunni population of northern iraq has opened an opportunity for us politically and militarily to begin with deal with the sunni tribal leaders that we worked with in 2005 and 2006. is that door going to open? well the problem with that door is, having opened it once years ago, and then walked away when they had a feeling that somehow we were going to be around to protect their interests, and left them cold in the hands of a new shia government, are they going to move to our side as

rapidly as they did before. are they going to be useful? and then the final piece, who are the ground troops who are going to help us deal with isil if we are limiting ourselves now to air, to training, to intelligence support, and to equipment. i don't know. it's interesting. the shia forces in iraq have shown up until now they can protect baghdad. but can they help retake the region? which is an important objective. general allen who is leading the effort, i believe, is now focused on a two-year plan, that sometime by 2017 he hopes to see the kind of results that we would like to see as soon as possible, but aren't going to be possible, in part because much training is required, and much equipping is required and that's not ready to handle. i always ask the kind of question myself, in looking at

this sort of issue, why is it that the afghan taliban, with almost no training, are so effective as military operators, when, in fact, the afghan national security forces, with all of our training, doesn't seem to be up to the grade, and why is it that isil, a kind of ragtag bunch, a combination of islamic fundamentalists, exofficers of the iraqi army and some real banditis, why are they doing so well? we have to look at that a little bit and see, in fact, whether we have an answer to that particular problem or not. that takes me to syria. i'll only say the following. syria is a real conundrum for us. we declared war on two of the three major elements in syria. isis, and assad. assad is happy to fight isis. isis is happy to fight assad. we've picked the moderates who

are arguably, perhaps, the most timid of the military forces. maybe the most divided of the military forces, to put our chips on for all the obvious reasons. they're politically the kind of people that we should support. but that raises real difficulties. do we, in fact, go slow on assad while we try to go fast on isil? that seems to be some way in which we're leaning. on the other hand, the turks are very upset by assad. don't want to join us if, in fact, we go slow there. the final political piece is interesting. because, in dealing with isil, we have this unusual combination of people who all kind it in their interest to oppose isil, but with whom we have wide variety of varying differences. iran, russia, saudi arabia, turkey, the gulf states, certainly the sunni gulf states.

if we could figure out a way to unify them against their other divisive interests, we would certainly have a better coalition than if we kind of move in with support from our traditional friends. that's a challenge. it's not yet fixed. it's a real problem. in syria, this problem is forcing taking hold, as well. because we have serious differences in our interests in syria, between us and iran and russia, among others, and saudi arabia and turkey. syrian problem has been going on for three years. 200,000 people have been killed. 9 million people have been displaced in one way or another. a human tragedy of the first dimensions, bordering on genocide in many ways. a situation in which we saw almost no attention in the papers except when it comes to a problem on the turkish border. we know little about what's going on, in many ways.

and some of the more dispeckible inhuman acts are regular fare, unfortunately. and the principle sufferers are probably women and children. the people who least deserve to suffer for any reason at all. and so this is a huge problem. there's no question at all in my mind that a cease-fire is an imperative. and increased humanitarian assistance. on the other hand, there is no way at this point that we know of to generate the leverage to do that. i think in some ways, perhaps, further consideration of things like a no-fly zone might help to generate the pressure that might bring us closer to the table. but that's an arguable proposition but an important one. i think it is also significant that beyond a cease-fire, can you can get there, then the challenge is to negotiate a transitional government, with or without some electoral arrangements, and then obviously, to ease out

mr. assad, and put him on his way to whatever hotel or villa arrangements he's chosen. and then see, in fact, whether syria can be held together with all of the terror and turmoil. and that's a huge job. it's a very big challenge, and one that i don't see on the near horizon, as well. so we're looking at two-year time frames or worse. for some of these problems. i spent a lot of time on this, because i think it's important to demonstrate how difficult diplomacy is these days. how intertwined it is with military, political and economic considerations, and how complicated the interrelationship is just between these two issues in the middle east. i won't spend a lot of time on arab palestine. i think that there are several things that are important here. we almost know what the solution could be. we also know that the parties are not ready to negotiate on

both sides, despite their professions of interest in doing so. we also know that the status quo is not defensible. and it is not permanent. and it is pushing the parties once again toward violence and conflict, whether we like it or not. the bicycle principle applies. if you're not riding forward, you're falling down. and this is important to keep in mind because too many american administrations have kited their arab/israeli check on the basis of the theory that peace has to mean to the parties than it does to us is the overwhelming judgmental basis for our proceeding. the truth is that if our national security is intimately involved in the middle east, and i believe it is, then it has to mean as much to us as it does to the parties. the truth also is that the parties have shown themselves almost congenitally now unable

to cross enough of the divide to get themselves started, much less to move down the path to negotiations. the tragedy is that i still think majorities in both camps, palestinians and israelis, with any kind of a reasonable leader, would move in the direction of the risks that have to be taken for a two-state solution. and while academics write won r wonderful papers on the demise of the two-state solution, i don't see anybody who's ready to accept a one-state solution where there is equal vote, equal political rights, equal citizenship, equal civil rights. at the moment, the situation is that the palestinians are under a kind of virtual occupation, and i don't believe that will continue to be the case forever. they won't accept it. we are a key, perhaps the most important key, even though we have continued to fail. and that's a significant issue.

i will mention as well iran, because i followed the negotiations for a long time. let me just say this -- i said that the negotiations if successful could produce real progress in the middle east. i think if they're not successful, watch out, because i don't think the absence of progress there will do anything but lead us on the road to conflict again, a conflict we can ill afford and a conflict which will solve little. and the opportunities are great at the present time. we have some gaps to cross, but it was interesting to read on a back page of the paper today that on the critical question of enrichment, the western side has increased the offer, if i can put it that way, of how many centrifuges the iranians can operate. so i think we're beginning to see a little movement even before the election day in the united states. but that's one of the questions that obviously is at the moment

containing in my view real progress. the other two issues are how rapidly the sanctions come off and what duration the agreement should be. i think they're all bridgeable, but i'm a consummate optimist. nevertheless, i think that the next three weeks will be critically important in where we go. i don't expect to see a full treaty, but i expect to see either one of two things and that's what i'm optimistic about. either agreement on the major questions that have to be resolved with the treaty to be drafted later or a set of arrangements that is close enough to that particular goal to justify a further continuation of negotiations. and i believe that both of those are better results than nothing at all. i believe that we can get a good agreement, and i believe that it's now in sight. i'll only mention one other area of the middle east -- what to do about afghanistan and pakistan.

i happen to believe that there are opportunities there that some of them can come out of the potential for india and pakistan to find a way through some of their deep problems that underlie if not overburden some of pakistan's preoccupation with afghanistan. the new president of afghanistan has gotten himself off to a good start. he's a very intelligent man. he understands some of the difficulties. he's take an real swipe at corruption, something that was not in the lexicon of the former president. it will be interesting to see where that goes. in the meantime, pakistan is still a state that has an army or an army that has a state but not at the moment a democracy in which the army is, in fact, part and parcel of political decisionmaking made by the civilians.

that i think will continue for some time. i'm not sure that the army is ready to move to take back governance in pakistan, but it's always a danger, particularly when the governance gets as weak as the present civilian government is now. well, we spent a lot of time on my number-one priority so, let me go through some of the others so you don't get the idea that the world is simply the middle east. the world is even more complex in other areas. the one i would choose to discuss next is probably the one that i like to call rivals and partners. our relations as a country with china, with russia, with inya, with the european union, which is not a state yet, and not in some cases not a state yet, japan, brazil, if you want to add others perhaps continental countries where the real sweep with strong economies are growing economies weather real

potential for the future, a potential to be rivals or partners. and our challenge, obviously, is in our foreign policy whether we can work to make one and not the other be the outcome of that relationship. it's not all diplomacy, but diplomacy has a lot to do with it and, in fact, can help in an important way. china is slowing down in its economic advancement. that should please some. it certainly isn't pleasing to the chinese. china is shifting. some of its economic focus from export-driven growth to domestic demand-driven growth, and we should be grateful for that. we're concerned about chinese expansionism as we're concerned about russian expansionism. new elements perhaps on the scene and how and in what way we deal with them.

it's critical in my view that with major countries that are part of what now is a multipolar set of directions if i can put it that way from the major countries of the world, that we seek several things, that we seek to find those win-wins which can buttress a relationship and make sure that there are on both sides real investments in that relationship rather than major competition for leadership. and that's significant. much of those relationships relates to personal relationships between leaders. when it sours, things don't go well. when the relationships get defined by negatives as our relationship with russia has been defined, i think unfortunately on both sides from time to time, it takes on a kind of version and diplomacy of ankle kicking. but then it gets worse. and i can answer questions and

talk further about some of those issues, but we have real opportunities with friends and partners. we have opportunities to use diplomacy, to seek a better sense of where countries are going and where they would like to see themselves, what they see as their role in a major world in which we are still looked to for leadership despite some of the declines. another set of questions intimately connected with the rivals and partners question because they all seem to play in it in one way or another is the issue of weapons of mass destruction. they've been around for 60 or 70 years. we have had evidence of use, happily not nuclear use in wartime, since august of 1945, and that's a fire break that we should work hard to keep and perpetuate. we're concerned about proliferation. we talked a moment ago about iran and how and in what way they can provide a problem for

us as they could. even worse, i think in north korea, we have some capacity to contain, but the question of whether we can roll back a north korean program or not is a highly continention one -- contentious one and a very difficult one. there is potential for serious instability and a potential ofly as we saw when the world began to wring its hands with the one-month absence of kim jong-un, that raises the specter of difficulty for us, and it won't be easy. i think that beyond that we owe it to four quite serious cold warriors, henry kissinger, george schultz, sam nun and bill perry, none of them wimps, to come out of the closet four

years ago and say, you know, we really have to take a serious look at whether we can get rild of these things and if so how. a lot of people were taken up short by that. there was a theory that in the world of the blind, the one-eyed man is king, if somebody develops in their back garage a nuclear weapon and threatens a denuclearized world with it, will that be the end-all and be-all of danger? happily, we see conventional force playing some role in that. happi happily, we see the potential for some serious interest in moving in that direction. and it will be a challenge, obviously, if we can make any progress there, but we've made progress in other fields as well. a third and important issue or a fourth and important issue for us is perhaps also connected with the larger players. it's 2008 and 2009. the cluster of questions that runs from