# House Report 102-873 (Part 2)

102nd Congress
House Report 102-873 Part 2
102 H. Rpt. 873; Part 2
AUDIO HOME RECORDING ACT
September 21, 1992. Ordered to be printed
Mr. Rostenkowski, from the Committee on Ways and Means, submitted the following
REPORT
(To accompany H.R. 3204 which on August 2, 1991, was referred jointly to the Committee on the Judiciary, the Committee on Energy and Commerce, and the Committee on Ways and Means) (Including cost estimate of the Congressional Budget Office)
The Committee on Ways and Means, to whom was referred the bill (H.R. 3204) to amend title 17, United States Code, to implement a royalty payment system and a serial copy management system for digital audio recording, to prohibit certain copyright infringement actions, and for other purposes, having considered the same, report favorably thereon with an amendment and recommend that the bill as amended do pass. The amendment (stated in terms of the page and line numbers of the introduced bill) is as follows: Page 57, between lines 11 and 12 insert the following:
H.R. 3204, the "Audio Home Recording Act of 1991," was introduced by Mr. Brooks on August 2, 1991. It was jointly referred to the Committees on Energy and Commerce, the Judiciary, and Ways and Means. On June 2, 1992, the Committee on Energy and Commerce ordered reported H.R. 4567, the 1991 Senate-passed version of H.R. 3204. The Judiciary Committee ordered reported H.R. 3204 on August 12, 1992, with an amendment in the nature of a substitute. The purpose of H.R. 3204 is to create the necessary legal environment for digital audio tape (DAT) technology to be introduced into the commercial marketplace in the United States. Heretofore, as will be explained below, legal uncertainties surrounding the use of this technology have impeded its commercialization in this country. DAT technology was first introduced to the consumer-electronics world in 1986. With this new technology, consumers would be able to make home copies of prerecorded music that is as good as the quality of commercial originals. Moreover, the technology would allow consumers to make such copies not only from the commercial originals but from copies of copies. From a single prerecorded work, hundreds of copies and copies of copies might be made that would be virtually indistinguishable from the original. The music recording industry became concerned that the DAT recorders "perfect" copying capabilities could significantly decrease consumer demand for commercially prerecorded music products because there would be significantly more illegal "perfect" copies in circulation. In order to safeguard its copyrighted material, the industry threatened legal action against any company that attempted to market DAT recorders in the United States. This threat was taken seriously by hardware manufacturers, importers, and distributors and they have refrained from selling DAT recorders to date. At the same time, the music recording industry has sought legislation since 1987 that would control this potential for massive copyright infringement by requiring that all DAT recorders incorporate technology that identifies and precludes the copying of copyrighted works. On the other hand, the electronics industries and consumer rights organizations have argued that restricting the copy capability of DAT recorders would violate the consumers "right" to reproduce copyrighted material for personal use under the fair use exceptions of the copyright law. Finally, the music composers, authors, and publishers have argued that they should receive some form of compensation if DAT technology is to be permitted. After legislative efforts in the 100th and 101st Congresses failed to bridge the differences between the various interested parties, the electronics manufacturers, the recording companies, and the songwriting and music publishing interests finally agreed that their various interests could generally be accommodated in the approach set forth in H.R. 3204. H.R. 3204 basically sets forth an intellectual-property-based approach on digital audio technology that falls primarily within the jurisdiction of the Committee on the Judiciary. This report concentrates on the trade-related aspects of the bill within the jurisdiction of the Committee on Ways and Means. The report of the Committee on the Judiciary contains a more complete description and analysis of the entire bill.
H.R. 3204, as amended, would add a new chapter 10 on digital audio recording devices and media to Title 17 of the U.S. Code. In brief, this new chapter would provide for: (1) a serial copy prevention system under which consumers are permitted to make an infinite number of copies directly from a lawfully purchased prerecorded tape but, due to digital code that is inserted into any initial copy of the purchased tape, are prevented from making further copies from any initial copy; (2) a 2-percent royalty levy on the transfer price of digital recorders and a 3-percent royalty levy on the transfer price of blank recording media; (3) the deposit of these royalties into the Copyright Office for distribution by the Copyright Royalty Tribunal under a sound recording fund and a musical works fund; and (4) various civil remedies and the arbitration of certain disputes.
H.R. 3204 was introduced by Mr. Brooks on August 2, 1991, and referred to the Committees on Energy and Commerce, the Judiciary, and Ways and Means. The bill was further referred by the Committee on Ways and Means to the Subcommittee on Trade. The Subcommittee on Trade reviewed the record on the bill compiled by the Committee on the Judiciary. On September 10, 1992, the Subcommittee ordered H.R. 3204 favorably reported to the full Committee on Ways and Means, by voice vote, with an amendment. The amendment would amend section 337 of the Tariff Act of 1930 to cross-reference new section 1002 of Title 17 of the U.S. Code. On September 16, 1992, the Committee on Ways and Means ordered favorably reported H.R. 3204, as amended, by voice vote.
Section 2 of H.R. 3204 would add a new chapter 10 on digital audio recording devices and media to Title 17 of the U.S. Code. The trade-related sections referred to below would be part of this new Title 10.
Section 1001(14)(A)(i) defines the transfer price of a digital audio recording device or a digital audio recording medium as, in the case of an imported product, the actual entered value at United States Customs (exclusive of any freight, insurance, and applicable duty).
Section 1002 provides that no action may be brought under Title 17, or under section 337 of the Tariff Act of 1930, alleging infringement of copyright based on the manufacture, importation, or distribution of a digital audio recording device, a digital audio recording medium, an analogue recording device, or an analogue recording medium, or the use of such a device or medium for making phonorecords. However, this does not apply with respect to any claim against a person for infringement by virtue of the making of one or more copies or phonorecords for direct or indirect commercial advantage.
Section 1011 prohibits any person from importing and distributing, or manufacturing and distributing, any digital audio recording device or digital audio recording medium unless they file certain notices and statements of account with the Register of Copyrights and pay certain royalties.
Section 1012 sets the level of royalty payments that must be paid under section 1011. These royalties shall be 2 percent of the transfer price for each digital audio recorder imported or manufactured and 3 percent of the transfer price for each digital audio recording medium imported or manufactured, subject to specified maximum levels.
Section 1021 provides that no person shall import, manufacture, or distribute any digital audio recording device that does not contain the serial copy management system, which prohibits the serial copying or copyrighted works embodied in digital musical recordings.
Section 3(d) was added by the Committee to amend the second sentence of section 337(b)(3) of the Tariff Act of 1930 to provide that, if the International Trade Commission has reason to believe that the matter before it relates to an alleged copyright infringement with respect to which action under this section is prohibited by section 1002 of title 17, United States Code, the Commission shall terminate, or not institute, any investigation into the matter. The purpose of the amendment is to ensure that section 337 remains a self-contained statute with respect to the subject matter that may be litigated thereunder.
vote of the committee in reporting the bill In compliance with clause 2(l)(2)(B) of rule XI of the Rules of the House of Representatives, the following statement is made relative to the vote of the Committee in reporting the bill: H.R. 3204 was ordered favorably reported by the Committee, by voice vote, with one amendment. oversight findings In compliance with clause 2(l)(3)(A) of rule XI of the Rules of the House of Representatives relating to oversight findings, the Committee, based on the Committees ongoing oversight of the U.S. Trade Agreements Program, particularly section 337 of the Tariff Act of 1930, and a review of the record compiled on this bill by the Committee on the Judiciary, finds that this bill is justified. With respect to clause 2(l)(3)(D) of rule XI of the Rules of the House of Representatives, no oversight findings or recommendations have been submitted to the Committee by the Committee on Government Operations with respect to the subject matter contained in the bill. budgetary authority and cost estimates, including estimates of the congressional budget office In compliance with clause 2(l)(3)(B) of rule XI of the Rules of the House of Representatives, the Committee states that there are no tax expenditures or new budgetary authority providing financial assistance to State and local governments in the bill. In compliance with clause 2(l)(3)(C) of rule XI of the Rules of the House of Representatives, the Committee agrees with cost estimates furnished by the Congressional Budget Office on H.R. 3204, as amended, and required to be included herein:
Dear Mr. Chairman: The Congressional Budget Office has prepared the attached cost estimate for H.R. 3204, the Audio Home Recording Act of 1992, as ordered reported by the House Committee on Ways and Means on September 16, 1992. Because this bill would affect direct spending and receipts, it would be subject to pay-as-you-go procedures under section 252 of the Balanced Budget and Emergency Deficit Control Act of 1985. As a result, the estimate required under clause 8 of House Rule XXI is attached. If you wish further details on this estimate, we will be pleased to provide them.
CONGRESSIONAL BUDGET OFFICE COST ESTIMATE 1. Bill number: H.R. 3204. 2. Bill title: The Audio Home Recording Act of 1992. 3. Bill status: As ordered reported by the House Committee on Ways and Means on September 16, 1992. 4. Bill purpose: H.R. 3204 would protect manufacturers, importers, and distributors of digital audio recorders and blank media from lawsuits claiming copyright infringement. The bill would require importers and manufacturers to pay royalties, which would be collected by the Copyright Office and deposited as governmental receipts into two funds in the Treasury, a Sound Recordings Fund and a Musical Works Fund. The amounts in these funds would then be allocated among persons and groups whose audio works had been distributed to the public. H.R. 3204 would designate those entitled to a share of the funds. The bill would establish a formula for dividing the royalty payments between the funds and for distributing the amounts in the funds. It also would establish a schedule of damages to be paid by those who violate requirements of the act. Finally, H.R. 3204 would direct the Copyright Office to oversee payments into the funds and the Copyright Royalty Tribunal (CRT) to administer their distribution. 5. Estimated cost to the Federal Government: (PLEASE REFER TO ORIGINAL SOURCE FOR TABLE) The budgetary impact of this bill falls within function 370. Basis of estimate: Estimates of royalty payments are based on information provided by the Copyright Office and on an assumed enactment date early in fiscal year 1993. Payments for each quarter would be deposited into the funds within 45 days of the end of the quarter, would be recorded as governmental receipts, and would accrue interest until disbursed. Gross royalty payments into the funds are estimated to be $73 million in fiscal year 1993, $105 million in 1994, and larger amounts in subsequent years. Net of income and payroll tax offsets, however, total receipts would only increase $54 million in 1993, $79 million in 1994, $86 million in 1995, $94 million in 1996, and $101 million in 1997. Disbursements to interested parties would be mandatory and would count as direct spending, as would amounts paid to the Copyright Office and the CRT to cover costs associated with administration of the funds. We assume that distributors would begin marketing digital audio recording devices and tapes in the first quarter of fiscal year 1993; therefore, we expect the Treasury to begin receiving royalty payments in February 1993. Disbursements to interested parties would be based on royalties accrued over the previous calendar year. Thus, while receipts would accrue over the entire 1993 fiscal year, disbursements in that year would include only the $23 million in copyright payments accrued in calendar year 1992 (i.e., the first quarter of fiscal year 1993). As a result, receipts in fiscal year 1993 would exceed disbursements by about $32 million. In later years, receipts and disbursements would both include amounts for an entire year, but a reduction in collections from other tax sources would cause receipts to be smaller than direct spending. Based on information from the CRT and the Copyright Office, CBO estimates that implementing H.R. 3204 would cost the federal government $1.15 million over the next five years. Of this amount, $115,000 would not be recovered from payments to the funds. While the bill would provide that the Copyright Office and the CRT can recover costs associated with administering the funds, the Copyright Office would incur some unrecoverable costs in establishing the funds. As specified in appropriation bills, the CRT recovers only costs associated with fund distribution, which in 1992 are approximately 85 percent of total costs. CBO assumes that the Congress will appropriate the full amounts authorized. We estimate accrued interest consistent with CBO baseline assumptions. Outlay estimates are based on historical spending patterns for similar activities. 6. Pay-as-you-go considerations: H.R. 3204 as ordered reported. The Budget Enforcement Act of 1990 sets up pay-as-you-go procedures for legislation affecting direct spending or receipts through 1995. Enacting H.R. 3204 would affect direct spending and receipts, and the bill would therefore be subject to pay-as-you-go procedures. Royalty payments paid into the funds would be counted as governmental receipts. Payments to interested parties would be mandatory and would count as direct spending as would amounts paid to the Copyright Office and the CRT to cover costs associated with administering the funds. The following table summarizes the estimated pay-as-you-go impact of this bill as ordered reported by the Ways and Means Committee. (PLEASE REFER TO ORIGINAL SOURCE FOR TABLE) The bill as ordered reported by the Ways and Means Committee would decrease the deficit in fiscal year 1993 by $32 million but would increase the deficit in all subsequent fiscal years. H.R. 3204 with Judiciary Committee amendment. The House Committee on the Judiciary has prepared a floor amendment that would alter the pay-as-you-go effects of the bill. At the request of the Ways and Means Committee staff, CBO has estimated the budgetary impact of this bill assuming adoption of the Judiciary Committees amendment. Under the amendment, royalty payments paid into the funds would be counted as offsetting receipts, which are shown as negative outlays. CBO estimates that the pay-as-you-go impact of the bill ordered reported by the Ways and Means Committee, if amended this way, would be a net decrease in the deficit of $50 million in 1993 and smaller amounts in subsequent years. The table below summarizes the pay-as-you-go effects of the bill assuming the amendment offered by the Committee on the Judiciary were incorporated into the bill as ordered reported by the Ways and Means Committee. (PLEASE REFER TO ORIGINAL SOURCE FOR TABLE) 7. Estimated cost to State and local governments: None. 8. Estimate comparison: None, 9. Previous CBO estimate: On June 9, 1992, the Congressional Budget Office prepared a cost estimate for S. 1623, a similar bill reported by the Senate Committee on the Judiciary on November 27, 1991, and reflecting floor amendments proposed by that committee. On September 17, 1992, the Congressional Budget Office prepared a cost estimate for H.R. 3204, as ordered reported by the House Committee on the Judiciary on August 11, 1992, and reflecting floor amendments proposed by that committee. The budget impact of H.R. 3204 as ordered reported by the Committee on Ways and Means differs from that of those two previous versions of the bill because its fee collections would be treated as revenues (governmental receipts) rather than offsetting receipts. 10. Estimate prepared by: John Webb and John Stell. 11. Estimate approved by: Paul Van de Water, for C.G. Nuckols, Assistant Director for Budget Analysis. congressional budget office estimate
1
The applicable cost estimate of this act for all purposes of sections 252 and 253 of the Balanced Budget and Emergency Deficit Control Act of 1985 shall be as follows:
1 An estimate of H.R. 3204 as ordered reported by the House Committee on Ways and Means on September 16, 1992. This estimate was transmitted by the Congressional Budget Office on September 18, 1992.
$ (By fiscal year, in millions of dollars) 1992 1993 1994 1995
Change in outlays 0 $3 103 113
Change in receipts 0 $4 $9 86
With respect to clause 2(l)(4) of rule XI of the Rules of the House of Representatives, the Committee states that H.R. 3204, as amended, would not have an inflationary impact on prices and costs in the operation of the general economy.
In compliance with clause 3 of rule XIII of the Rules of the House of Representatives, changes in existing law made by the bill, as reported, are shown as follows (existing law proposed to be omitted is enclosed in black brackets, new matter is printed in italic, existing law in which no change is proposed is shown in roman):TITLE 17, UNITED STATES CODE
As used Except as otherwise provided in this title, as used in this title, the following terms and their variant forms mean the following: An "anonymous work" is a work on the copies or phonorecords of which no natural person is identified as author.
CHAPTER 8 COPYRIGHT ROYALTY TRIBUNAL 801. Copyright Royalty Tribunal: Establishment and purpose (a) * * * (b) Subject to the provisions of this chapter, the purposes of the Tribunal shall be
(a) * * *
(d) With respect to proceedings under section 801(b)(3) or (4), concerning the distribution of royalty fees in certain circumstances under section 111, 116, or 119 119, 1015, or 1016, the Chairman of the Tribunal shall, upon determination by the Tribunal that a controversy exists concerning such distribution, cause to be published in the Federal Register notice of commencement of proceedings under this chapter.
* * * * * * *CHAPTER 9 PROTECTION OF SEMICONDUCTOR CHIP PRODUCTS
* * * * * * * 912. Relation to other laws
(a) Nothing in this chapter shall affect any right or remedy held by any person under chapters 1 through 8 or 10 of this title, or under title 35. (b) Except as provided in section 908(b) of this title, references to "this title" or "title 17" in chapters 1 through 8 or 10 of this title shall be deemed not to apply to this chapter.
Sec. 1001. Definitions. 1002. Prohibition on certain infringement actions. 1003. Effect on other rights and remedies with respect to private home copying or otherwise.
1011. Obligation to make royalty payments. 1012. Royalty payments. 1013. Deposit of royalty payments and deduction of expenses. 1014. Entitlement to royalty payments. 1015. Procedures for distributing royalty payments. 1016. Negotiated collection and distribution arrangements.
1021. Incorporation of the serial copy management system. 1022. Implementing the serial copy management system.
1031. Civil remedies. 1032. Binding arbitration.
SEC. 337. UNFAIR PRACTICES IN IMPORT TRADE. (a) * * * (b) Investigations of Violations by Commission; Time Limits. (1) * * *
(3) Whenever, in the course of an investigation under this section, the Commission has reason to believe, based on information before it, that a matter, in whole or in part, may come within the purview of section 303 or of subtitle B of title VII of the Tariff Act of 1930, it shall promptly notify the Secretary of Commerce so that such action may be taken as is otherwise authorized by such section and such Act. If the Commission has reason to believe the matter before it is based solely on alleged acts and effects which are within the purview of section 303, 701, or 731 of this Act, it shall terminate, or not institute, any investigation into the matter. If the Commission has reason to believe that the matter before it (A) is based solely on alleged acts and effects which are within the purview of section 303, 671, or 673, or (B) relates to an alleged copyright infringement with respect to which action under this section is prohibited by section 1002 of title 17, United States Code, the Commission shall terminate, or not institute, any investigation into the matter. If the Commission has reason to believe the matter before it is based in part on alleged acts and effects which are within the purview of section 303, 701, or 731 of this Act, and in part on alleged acts and effects which may, independently from or in conjunction with those within the purview of such section, establish a basis for relief under this section, then it may institute or continue an investigation into the matter. If the Commission notifies the Secretary or the administering authority (as defined in section 771(1) of this Act) with respect to a matter under this paragraph, the Commission may suspend its investigation during the time the matter is before the Secretary or administering authority for final decision. For purposes of computing the 1-year or 18-month periods prescribed by this subsection, there shall be excluded such period of suspension. Any final decision of the Secretary under section 303 of this Act or by the administering authority under section 701 or 731 of this Act with respect to the matter within such section 303, 701, or 731 of which the Commission has notified the Secretary or administering authority shall be conclusive upon the Commission with respect to the issue of less-than-fair-value sales or subsidization and the matters necessary for such decision.
This work is in the public domain in the United States because it is a work of the United States federal government (see 17 U.S.C. 105).
Public domainPublic domainfalsefalse