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DIGITAL MILLENNIUM COPYRIGHT ACT

SECTION 104 REPORT

HEARING

BEFORE THE

SUBCOMMITTEE ON COURTS, THE INTERNET, 

AND INTELLECTUAL PROPERTY

OF THE

COMMITTEE ON THE JUDICIARY 

HOUSE OF REPRESENTATIVES

ONE HUNDRED SEVENTH CONGRESS

FIRST SESSION

DECEMBER 12 AND 13, 2001

Serial No. 52

Printed for the use of the Committee on the Judiciary

(

Available via the World Wide Web: http://www.house.gov/judiciary 

(II)

COMMITTEE ON THE JUDICIARY 

F. JAMES SENSENBRENNER, JR., WISCONSIN, Chairman 

HENRY J. HYDE, Illinois 

GEORGE W. GEKAS, Pennsylvania 

HOWARD COBLE, North Carolina 

LAMAR SMITH, Texas 

ELTON GALLEGLY, California 

BOB GOODLATTE, Virginia 

ED BRYANT, Tennessee 

STEVE CHABOT, Ohio 

BOB BARR, Georgia 

WILLIAM L. JENKINS, Tennessee 

CHRIS CANNON, Utah 

LINDSEY O. GRAHAM, South Carolina 

SPENCER BACHUS, Alabama 

JOHN N. HOSTETTLER, Indiana 

MARK GREEN, Wisconsin 

RIC KELLER, Florida 

DARRELL E. ISSA, California 

MELISSA A. HART, Pennsylvania 

JEFF FLAKE, Arizona 

MIKE PENCE, Indiana 

JOHN CONYERS, JR., Michigan 

BARNEY FRANK, Massachusetts 

HOWARD L. BERMAN, California 

RICK BOUCHER, Virginia 

JERROLD NADLER, New York 

ROBERT C. SCOTT, Virginia 

MELVIN L. WATT, North Carolina 

ZOE LOFGREN, California 

SHEILA JACKSON LEE, Texas 

MAXINE WATERS, California 

MARTIN T. MEEHAN, Massachusetts 

WILLIAM D. DELAHUNT, Massachusetts 

ROBERT WEXLER, Florida 

TAMMY BALDWIN, Wisconsin 

ANTHONY D. WEINER, New York 

ADAM B. SCHIFF, California

PHILIP G. KIKO, Chief of Staff-General Counsel 

PERRY H. APELBAUM, Minority Chief Counsel 

SUBCOMMITTEE ON COURTS, THE INTERNET, AND INTELLECTUAL PROPERTY

HOWARD COBLE, North Carolina, Chairman

HENRY J. HYDE, Illinois 

ELTON GALLEGLY, California 

BOB GOODLATTE, Virginia, Vice Chair

WILLIAM L. JENKINS, Tennessee 

CHRIS CANNON, Utah 

LINDSEY O. GRAHAM, South Carolina 

SPENCER BACHUS, Alabama 

JOHN N. HOSTETTLER, Indiana 

RIC KELLER, Florida 

DARRELL E. ISSA, California 

MELISSA A. HART, Pennsylvania 

HOWARD L. BERMAN, California 

JOHN CONYERS, JR., Michigan 

RICK BOUCHER, Virginia 

ZOE LOFGREN, California 

WILLIAM D. DELAHUNT, Massachusetts 

ROBERT WEXLER, Florida 

MAXINE WATERS, California 

MARTIN T. MEEHAN, Massachusetts 

TAMMY BALDWIN, Wisconsin 

ANTHONY D. WEINER, New York

BLAINE MERRITT, Chief Counsel 

DEBRA ROSE, Counsel 

CHRIS J. KATOPIS, Counsel 

ALEC FRENCH, Minority Counsel 

(III)

C O N T E N T S 

HEARING DATES 

Page 

December 12, 2001 ................................................................................................... 1

December 13, 2001 ................................................................................................... 71

December 12, 2001

OPENING STATEMENTS 

The Honorable Howard Coble, a Representative in Congress From the State 

of North Carolina, and Chairman, Subcommittee on Courts, the Internet, 

and Intellectual Property .................................................................................... 1

The Honorable Howard L. Berman, a Representative in Congress From the 

State of California, and Ranking Member, Subcommittee on Courts, the 

Internet, and Intellectual Property .................................................................... 2

WITNESSES 

The Honorable Marybeth Peters, Register of Copyrights, Copyright Office 

of the United States, The Library of Congress 

Oral Testimony ..................................................................................................... 6

Prepared Statement ............................................................................................. 8

Mr. Carey Ramos, Esq., Paul, Weiss, Rifkind, Wharton & Garrison, on behalf 

of the National Music Publishers Association 

Oral Testimony ..................................................................................................... 17

Prepared Statement ............................................................................................. 19

Mr. Cary Sherman, senior executive vice president and general counsel, Recording Industry Association of America, Inc. 

Oral Testimony ..................................................................................................... 24

Prepared Statement ............................................................................................. 26

Mr. Emery Simon, counsel, Business Software Alliance 

Oral Testimony ..................................................................................................... 45

Prepared Statement ............................................................................................. 47

LETTERS, STATEMENTS, ETC., SUBMITTED FOR THE HEARING 

Video Software Dealers Association: Prepared statement ................................... 63

The Honorable Marybeth Peters, Register of Copyrights, Copyright Office 

of the United States, The Library of Congress: Responses to questions 

from Representative Bachus ............................................................................... 68

December 13, 2001

OPENING STATEMENTS 

The Honorable Howard Coble, a Representative in Congress From the State 

of North Carolina, and Chairman, Subcommittee on Courts, the Internet, 

and Intellectual Property .................................................................................... 71

The Honorable Howard L. Berman, a Representative in Congress From the 

State of California, and Ranking Member, Subcommittee on Courts, the 

Internet, and Intellectual Property .................................................................... 72

The Honorable John Conyers, Jr., a Representative in Congress From the 

State of Michigan, and Ranking Member, Committee on the Judiciary ......... 72

Page

IV

WITNESSES 

The Honorable Marybeth Peters, Register of Copyrights, Copyright Office 

of the United States, The Library of Congress 

Oral Testimony ..................................................................................................... 74

Mr. Marvin Berenson, Senior Vice President and General Counsel, Broadcast 

Music Incorporated 

Oral Testimony ..................................................................................................... 76

Prepared Statement ............................................................................................. 78

Mr. Jonathan Potter, Executive Director, Digital Media Association 

Oral Testimony ..................................................................................................... 85

Prepared Statement ............................................................................................. 87

Mr. Gary Klein, Counsel, Consumer Electronics Association 

Oral Testimony ..................................................................................................... 122

Prepared Statement ............................................................................................. 139

LETTERS, STATEMENTS, ETC., SUBMITTED FOR THE HEARING 

American Society of Composers, Authors & Publishers, Broadcast Music, Inc., 

and the National Music Publishers’ Association/Harry Fox Agency: Prepared statement ................................................................................................... 83

Intellectual Property Law Professors: Letter ........................................................ 124

National Association of Recording Merchandisers: Prepared statement ............ 131

The Honorable Marybeth Peters, Register of Copyrights, Copyright Office 

of the United States, The Library of Congress: Responses to questions 

from Representative Cannon ............................................................................... 150

Mr. Carey Ramos, NMPA: Responses to questions from Representative Cannon ......................................................................................................................... 154

APPENDIX 

Material submitted for the record .......................................................................... 175

(1)

DIGITAL MILLENNIUM COPYRIGHT ACT 

SECTION 104 REPORT 

WEDNESDAY, DECEMBER 12, 2001

HOUSE OF REPRESENTATIVES, SUBCOMMITTEE ON COURTS, THE INTERNET, AND INTELLECTUAL PROPERTY, COMMITTEE ON THE JUDICIARY, Washington, DC. 

The Subcommittee met, pursuant to call, at 2 p.m., in Room 

2141, Rayburn House Office Building, Hon. Howard Coble [Chairman of the Subcommittee] presiding. 

Mr. COBLE. Good afternoon, ladies and gentlemen. Welcome to 

the hearing. 

As the Ranking Member from California knows, we’re on a tight 

leash today. I’m told we’re going to have four or five votes at 2:30. 

That will consume probably 35 to 40 minutes. And there will be a 

subsequent vote later on, so we’re going to pretty inflexibly enforce 

the 5-minute rule today, both upon the witnesses and upon the 

Members. 

It’s good to have all of you with us. Today we will receive testimony regarding the Digital Millennium Copyright Act Section 104 

report, submitted by the U.S. Copyright Office. 

There’s no getting around the fact that the report presents complex and controversial issues. The Ranking Member, the gentleman 

from California, and I have attempted to organize the hearings in 

such a way that Members can more easily focus on specific issues. 

While all the witnesses are free to comment on any portion of the 

report in their written testimony, we’ve asked them to focus their 

oral testimony and presentations on their primary issue of concern. 

Today we’ll hear from the Register of Copyrights, a representative from the Recording Industry Association of America, the Business Software Alliance, and the National Music Publishers Association. These witnesses will focus on the Copyright Office conclusion 

and recommendations regarding the legal status of temporary copies. 

The Copyright Office recommended that Congress enact legislation to preclude any liability for infringement of a copyright owner’s reproduction right with respect to temporary buffer copies that 

are incidental to a licensed digital transmission of a public performance of a sound recording and the underlying musical work. 

In other words, when webcasters stream a sound recording over 

the Internet, incidental buffer copies would not require a separate 

license from the songwriter for the use of the musical work, or 

what we would commonly know or refer to as sheet music. The 

2

stream would implicate only the songwriter’s performance right in 

the musical work. 

We look forward to hearing arguments both for and against this 

recommendation. 

I’m now pleased to recognize the distinguished gentleman from 

California, the Ranking Member, Mr. Berman. 

Mr. BERMAN. Thank you, Mr. Chairman. And thank you for calling these hearings on the Copyright Office report under section 104 

of the Digital Millennium Copyright Act. 

The quality of the report demonstrates once again the consummate professionalism and dedication of the Copyright Office and its 

staff. 

At issue in today’s hearing is the status of temporary copies of 

copyrighted material, copies made during either the transmission 

or use of a digital work. Such copies are often the necessary byproduct of the way in which the Internet, computers, and many 

playback devices function. 

At the same time, however, the temporary copy implicates the 

copyright holder’s exclusive right of reproduction. While opposing 

general legislation dealing with temporary copies, the report recommends a narrow exemption for temporary buffer copies of musical compositions made during audio streams over the Internet. 

This hearing provides us with the first opportunity since enactment of the DMCA in 1998 to evaluate the interplay of copyright 

law and electronic commerce, along with competing claims about 

its effect on users of copyrighted works. 

On the one hand, certain representatives of user groups claimed 

that the DMCA would stifle traditional uses of copyrighted works 

and greatly restrict their access to such works. 

On the other hand, representatives of copyright holders claimed 

that DMCA was necessary to protect against crippling digital infringement, and thus to preserve an incentive to digitally distribute 

copyrighted works. 

I strongly believe consumer privileges and copyright limitations 

existing in the physical domain, such as fair use and the first sale 

doctrine, must exist equally in the digital domain. 

Furthermore, we must ensure that, in our desire to protect copyrights, we do not over-legislate or create new impediments to accessing the digital world. 

We must be equally careful to ensure that the law adequately 

and appropriately protects copyright holders in the digital environment. Pursuant to careful oversight and debate, Congress should 

step in where necessary to facilitate the evolution of the copyright 

system. 

It appears that copyright users have not experienced the severe 

negative effects predicted by their representatives. In fact, the 

truth seems to be that copyrighted works have become more accessible in more formats and under more varied terms than was the 

case 3 years ago. Movie DVDs are now widely available at every 

Blockbuster and Borders Bookstore and have become the fastestgrowing consumer electronic platform in history. Downloadable 

software applications are not only commonplace but are almost 

automated in their ease of use and access. Multiplayer Internet 

gaming is now an essential option in most computer games. EVerDate Jan 17 2002 11:21 Mar 13, 2002 Jkt 000000 PO 00000 Frm 00006 Fmt 6633 Sfmt 6633 G:\WORK\COURTS\121201\76669.000 HJUD1 PsN: 76669
3

books have been the product of significant experimentation by 

major authors and publishers and have spawned new consumer 

electronic devices and software applications. And last, but certainly 

not least, Internet music is in the midst of a boom. Legal music is 

now widely available on the Internet through interactive streams, 

digital downloads, and a variety of other forms. 

While no download or interactive streaming services yet have a 

license for all major label sound recordings, the recently completed 

licensing deal between music publishers and record labels should 

remove the last major obstacle to such services. 

The magnificent array of copyrighted content now available online constitutes strong evidence that consumer access to copyrighted works has dramatically increased over the past 3 years. 

The fears that the DMCA and electronic commerce would diminish consumer access to copyrighted works have proven unjustified 

to date. On the other hand, the concerns copyright owners expressed about digital piracy have proven true. Most famously there 

is Napster, which the Ninth Circuit found to be facilitating infringement on a massive scale. 

In all, the experience of the past 3 years demonstrates that the 

threat of Internet copyright infringement is real and has been realized. 

Widespread and growing consumer access to digital copyrighted 

works, combined with the reality of massive digital copyright infringement indicate, to my way of thinking, that Congress made 

the right call in enacting the DMCA 3 years ago. And I’m pleased 

that the Copyright Office implicitly agreed with this conclusion in 

the reports it conducted pursuant to the DMCA. 

Thank you, Mr. Chairman, for indulging my opening statement, 

and I yield back. 

Mr. COBLE. You are indeed welcome. 

As you all know, we normally restrict opening statements to the 

Chairman and the Ranking Member, but I note the presence of the 

Ranking Member of the full Committee, and if he would like to 

make a statement, I’ll recognize Mr. Conyers. 

Mr. CONYERS. Thank you, Mr. Chairman. 

Just an observation, I’m thinking about the fallout from the 

Napster case of a little while ago. While we put the kabash on 

them, others are still doing it. 

So, question: What is the industry doing to make sure that artists will receive their royalties in the digital environment? 

I think that’s a key question. The creativity writers, composers, 

songwriters bring to music and computer programs must not be stifled by government regulations that discourage them from sharing 

their works, unique works, creative works, art, culture. 

And it starts with one person, has an idea, puts it down on 

paper, like Miles Davis used to do. He would bring in creative artists into the studio and pass out little scraps of paper. And he’d 

say, ‘‘OK, let’s see what happens from here.’’ And usually what 

happened became jazz history. 

So now we’re moving to the computer screen. My view is that we 

ought to protect creative genius and ensure our artists and creators 

get financial rewards. 

4

How many people are there in this industry and can it take of 

people that can’t play one note that are making millions of bucks? 

I mean, what is this? The artists get crap. The businesspeople 

hustle them and then come to the Congress and say, ‘‘Cool out, you 

guys. Let’s let the marketplace do its thing.’’

As a friend and a comedian used to say, ‘‘I think you get my 

drift.’’

Thank you, Mr. Chairman. 

Mr. COBLE. I thank the gentleman. 

Mr. Boucher and Mr. Cannon, both of this Committee, have introduced legislation relating to these issues. And Mr. Boucher has 

requested an opening statement, and I would ask the other Members unanimous consent to have their statements included in the 

record, if that’s agreeable. 

Mr. Boucher? 

Mr. BOUCHER. Well, thank you very much, Mr. Chairman. I appreciate your indulgence. 

I also want to thank you for scheduling hearings to examine a 

variety of matters relating to the distribution of digital works and, 

in particular, the distribution of music over Internet. 

I welcome the testimony today from the Copyright Office regarding its recent report on barriers that stand in the way of effective 

electronic commerce and online music distribution. 

I’m pleased to observe that the Copyright Office report confirms 

the direction that my colleague Chris Cannon and I are taking in 

legislation that we’ve introduced, styled the Music Online Competition Act, or MOCA. 

Legal uncertainties, which have fueled prolonged licensing disputes, have been the single largest stumbling block holding back 

the launch of affordable online music distribution services that respect copyrights. 

I welcome the report from the Copyright Office that recommends 

removing a number of these barriers. The Copyright Office report 

specifically supports three elements of the MOCA legislation that 

Mr. Con—that Mr. Cannon and I have offered. 

We’d welcome Mr. Conyers, too. [Laughter.] 

Mr. BOUCHER. First, the Copyright Office report agrees with a 

provision in MOCA that authorizes temporary copies made during 

the course of lawful audio streaming. The Copyright Office found 

that these temporary buffer copies have no independent economic 

value, are protected by fair use, and should be exempted from copyright liability. 

The report is a vindication of fundamental principles that a public performance royalty should be required only when a transmission can be actually performed, and that a reproduction royalty 

should be required only when the reproduction has economic value 

that is distinct from the authorized performance it has enabled. 

Secondly, the report agrees with principles set forth in MOCA 

that multiple server copies made to facilitate lawful webcasting activities should also be exempted from copyright liability. These 

ephemeral copies have no separate value apart from the performance they enable, for which the copyright owner has already been 

compensated. Although this is a footnote in the Copyright Office reVerDate Jan 17 2002 11:21 Mar 13, 2002 Jkt 000000 PO 00000 Frm 00008 Fmt 6633 Sfmt 6633 G:\WORK\COURTS\121201\76669.000 HJUD1 PsN: 76669
5

port, it also constitutes a firm recommendation for legislative action. 

Third, the report supports MOCA’s recognition that consumers 

should have a clear ability to archive lawfully acquired media files. 

The report confirms that fair use protects backup copies that people in prudence would make of the digital media that they lawfully 

acquired. 

MOCA also provides for streamlined filing procedures to obtain 

the section 115 compulsory mechanical license. While I understand 

that some music publishers and the recording industry have now 

reached an agreement with regard to the clearance of the mechanical license, I’m very interested in hearing from the witnesses today 

whether this agreement removes, for all parties, the need to resolve 

through legislation the cumbersome process for clearing the music 

publisher and songwriter interests. I rather suspect that the answer is that some additional legislation will be necessary in order 

to achieve that goal fully. 

While the Copyright Office report confirms many elements of the 

Music Online Competition Act, there other issues that I believe are 

not satisfactorily examined and answered in the report. I’m particularly disappointed that the Copyright Office did not seize this 

opportunity to recommend that the first sale doctrine be updated 

to permit users to transfer electronic copies of books and other electronic files without the risk of liability, just as they can do with 

paper versions of these works. 

I’m confident that the day will come when we will all see the 

need to make a change to bring the law into conformity with practices that will promote the growth of electronic commerce and preserve deeply rooted expectations of consumers, libraries, and other 

users that they can transfer particular copies of works. 

Mr. Chairman, I think we can see from this report that legislation is definitely needed to enable the music-consuming public to 

enjoy the benefit of a robust competitive offering of music for 

download over the Internet. 

The Copyright Office has suggested some needed elements. Mr. 

Cannon and I have suggested those and other needed elements. 

And I look forward to working with the Members of this Committee 

as we seek to meet these challenges. 

Thank you, Mr. Chairman. 

Mr. COBLE. I thank the gentleman. 

Our first witness this afternoon will be the Honorable Marybeth 

Peters, who is Register of Copyrights for the United States. She 

has served as acting general counsel of the Copyright Office and is 

chief of both Examining and Information and Reference divisions. 

She has served as a consultant on copyright law to the World Intellectual Property Organization and authored ‘‘The General Guide to 

the Copyright Act of 1976.’’ Ms. Peters received her undergraduate 

degree from Rhode Island College, and her law degree with honors 

from the George Washington University Law Center. 

And, folks, I apologize for my lengthy introduction, but there 

may be some of you who are uninformed about our witnesses, and 

I think it’s important that all of you know about their impressive 

credentials they bring to the table. 

6

Our next witness is Carey Ramos, of the firm Paul, Weiss, 

Rifkind, Wharton & Garrison. His practice concentrates on intellectual property and technology matters, including litigation transactions and counseling. Mr. Ramos attended the Massachusetts Institute of Technology and Yale College and received a bachelor of 

arts degree magna cum laude from Yale University in May 1976. 

In June 1979, he received a doctor of jurisprudence degree from the 

Stanford School of Law, where he served as a note editor of the 

‘‘Stanford Law Review.’’ Our third witness is Mr. Cary Sherman, who is the senior executive vice president and general counsel for the Recording Industry 

Association of America. Mr. Sherman serves as RIAA’s chief legal 

counsel and coordinates the industry’s legal, policy, and business 

objectives. His responsibilities include technology and licensing enforcement and government affairs issues, among others. Mr. Sherman graduated from the Cornell University and the Harvard 

School of Law in 1971. 

Our final witness is Mr. Emery Simon, who is counselor to the 

board of directors of the Business Software Alliance. He advises 

BSA on a broad range of policy issues, including copyright law, 

electronic commerce, trade, and encryption. Mr. Simon has a law 

degree from Georgetown University, a master’s degree in international affairs from the Johns Hopkins University School of Advanced International Studies, and a bachelor’s degree in economics 

from Queens College. 

Good to have all of you with us. We have written statements 

from each of you, which have been examined. And I ask unanimous 

consent to submit them into the record in their entirety. 

Folks, I hate to put you on short leashes, but in view of the imminent vote that will be forthcoming, I would ask you to keep a 

sharp lookout upon that red light, because when it illuminates in 

your eye, that tells you your 5 minutes have elapsed. 

Ms. Peters, why don’t we start with you? 

STATEMENT OF THE HONORABLE MARYBETH PETERS, REGISTER OF COPYRIGHTS, COPYRIGHT OFFICE OF THE 

UNITED STATES, THE LIBRARY OF CONGRESS 

Ms. PETERS. Thank you, Mr. Coble. 

I’m pleased to present the Copyright Office’s views as outlined in 

its section 104——

Mr. COBLE. Ms. Peters, pull that mike a little closer to you, if you 

don’t mind. 

Ms. PETERS. All right. 

Mr. COBLE. I guess you’re activated, is the mike activated? 

Ms. PETERS. I’m getting over a cold. 

What I was saying is that we are pleased to present our views 

on our section 104 of the DMCA report, and I would specifically 

like to thank you, Mr. Coble, and you, Mr. Berman, as the Ranking 

Member, for holding this hearing. 

In the DMCA, Congress asked us to focus on two provisions of 

the Copyright Act: section 109, which codified the first sale doctrine; and section 117, which includes, among other provisions, an 

exception permitting the reproduction of computer programs that 

are incidental to the use of programs in a machine. 

7

Tomorrow I will have opportunity to testify on the first sale doctrine and on archival copying. Today the focus, of course, is temporary copies. 

Obviously, in coming to our conclusions, it was a difficult task. 

The issues are complex, and we did have the benefit of many written comments and the testimony at a public hearing. And of course, 

my staff conducted extensive legal research. 

With respect to temporary copies, the issue really stemmed from 

a provision in the Boucher-Campbell bill of 1997, which contained 

an exemption for incidental copies. Many who participated in our 

study supported the proposal in the Boucher-Campbell bill; however, we focused the inquiry on what were the real-world problems 

that were impeding electronic commerce. 

The responses to that question uniformly centered on online 

music services. The issue that was identified was the legal status 

of buffer copies of portions of a music file that are made in a computer’s random access memory to facilitate the streaming of that 

music file to a listener. 

Online music services told us that despite the fact that they were 

delivering to the public an audio performance through streaming 

technology, and despite the fact that they had licenses from performing rights organizations to publicly perform the musical compositions delivered through the stream, music publishers were 

seeking compensation for the incidental buffer copy created temporarily in RAM. 

They, not the Copyright Office, characterize this is double dipping because the use—in other words, the stream—was already 

fully licensed. They saw paying for this incidental, temporary copy 

as duplicative. They argued that music publishers and composers 

and lyricists were already paid for the activity; that is, delivering 

performance. 

We also heard the flip side. Performance rights organizations 

were demanding licenses when the activity was a pure digital 

download; in other words, a DPD. 

In analyzing the issues, we looked at the issue of temporary copies in general and specifically at the issue of the buffer copy. We 

looked at the copyright law, its legislative histories, and the policies that underlie it. 

This led us to conclude that the making of a temporary copy of 

a work in RAM implicates the reproduction right as long as the reproduction persists long enough to be perceived, copied, or communicated. In other words, the temporary copy made in streaming 

audio does in fact implicate the reproduction right. 

Our conclusion is in keeping with every case that has examined 

the issue of temporary copies. 

The next issue is whether this reproduction was subject to liability under the current law. Or to put it another way, was there any 

provision in the law—for example, a specific exemption or fair 

use—that removed liability for the creation of this copy? 

Obviously, there are a number of specific exemptions for temporary copies in the law. Sqection 117 has two. Section 512 has 

some. But there is no specific exemption for this type of activity, 

so we turn to fair use. And as you already know, based on a detailed analysis of the making of the buffer copy in streaming, we 

8

concluded that, under fair use, there was a strong case that could 

be made that this activity was a fair use. 

But because fair use is determined on a case-by-case basis, we 

believed that it may be too uncertain to form the basis of a business decision. Because we believe there should be no liability for 

a buffer copy made in the course of a licensed stream of an audio 

file, we recommended that a narrow statutory provision be added 

to the law to solve this real-world problem. 

We rejected the broader solution because no one identified any 

additional problem, and we were concerned about unintended consequences. We also took note of the fact that since 1980 Congress 

had been dealing with temporary copy issues and had dealt with 

these narrowly. They identified a problem, and they solve that 

problem. And while this may result in amending the law more than 

once, we believe that this is better than legislating broadly where 

you could have an impact that was negative on e-commerce. 

We then turned to the symmetrical problem, the delivery of 

downloads of audio files and the statement by performance rights 

organizations that all transmissions, even those that facilitate and 

are incidental to the delivery of a phonorecord, needed a public performance license. We concluded that in this narrow situation, the 

equivalent of going to a record store and buying a CD, the transmission has no separate economic significance, apart from the sale 

of phonorecord. And, therefore, there should be no liability for this 

transmission. 

Finally, as you know, the National Music Publishers Association 

and RIAA have concluded an agreement; that was concluded on October 5th. This agreement is a positive step, but it does not, in fact, 

affect our analysis or our recommendation. 

Thank you. 

[The prepared statement of Ms. Peters follows:]

PREPARED STATEMENT OF MARYBETH PETERS

Mr. Chairman, Congressman Berman, Members of the Subcommittee, thank you 

for inviting me to appear before the Subcommittee today. It is always a pleasure 

to testify before this Subcommittee, and I appreciate the opportunity to discuss the 

Office’s Digital Millennium Copyright Act (DMCA) Section 104 Report. 

The DMCA was the foundation of an effort by Congress to implement United 

States treaty obligations and to move the nation’s copyright law into the digital age. 

But as Congress recognized, the only thing that remains constant is change. The 

enactment of the DMCA was only the beginning of an ongoing evaluation by Congress on the relationship between technological change and U.S. copyright law. The 

Report we are discussing today was mandated in the DMCA to assist Congress in 

that continuing process. 

Our mandate was to evaluate ‘‘the effects of the amendments made by [title I of 

the DMCA] and the development of electronic commerce and associated technology 

on the operation of sections 109 and 117 of title17, United States Code; and the relationship between existing and emergent technology and the operation of sections 

109 and 117. . . .’’ Specifically, this Report focuses on three proposals that were put 

forward during our consultations with the public: creation of a ‘‘digital first sale doctrine;’’ creation of an exemption for the making of certain temporary incidental copies; and the expansion of the archival copying exemption for computer programs in 

section 117 of the Act. 

Part I of the Report describes the circumstances leading up to the enactment of 

the DMCA and the genesis of this study. Part I also examines the historical basis 

of sections 109 and 117 of the Act. Part II discusses the wide range of views expressed in the public comments and testimony. This input from the public, academia, libraries, copyright organizations and copyright owners formed the core information considered by the Office in its evaluation and recommendations. Part III 

9

evaluates the effect of title I of the DMCA and the development of electronic commerce and associated technology on the operations of sections 109 and 117 in light 

of the information received and states our conclusions and recommendations regarding the advisability of statutory change. 

I. BACKGROUND

A. The Digital Millennium Copyright Act 

The World Intellectual Property Organization (WIPO) treaties were the impetus 

for the U.S. legislation. In order to facilitate the development of electronic commerce 

in the digital age, Congress implemented the WIPO treaties by enacting legislation 

to address those treaty obligations that were not adequately addressed under existing U.S. law. Legal prohibitions against circumvention of technological protection 

measures employed by copyright owners to protect their works, and against the removal or alteration of copyright management information, were required in order 

to implement U.S. treaty obligations. 

The congressional determination to promote electronic commerce and the distribution of digital works by providing copyright owners with legal tools to prevent widespread piracy was tempered with concern for maintaining the integrity of the statutory limitations on the exclusive rights of copyright owners. In addition to the provisions adopted by Congress in 1998, there were other proposals—including amendments to sections 109 and 117, that were not adopted, but were the subjects of a 

number of studies mandated by the DMCA. Section 104 of the DMCA requires the 

Register of Copyrights and the Assistant Secretary for Communications and Information to report on the effects of the DMCA on the operation of sections 109 and 

117 and the relationship between existing and emergent technology on the operation 

of sections 109 and 117 of title 17 of the United States Code. 

The inclusion of section 109 in the study has a clear relationship to the digital 

first sale proposal contained in a bill introduced in 1997 by Congressmen Rick Boucher and Tom Campbell. The reasons for including section 117 in the study are less 

obvious. While there is no legislative history explaining why section 117 is included 

in the study, it appears that the reference was intended to include within the scope 

of the study a proposed exemption for incidental copies found in the Boucher-Campbell bill, which would have been codified in section 117 of the Copyright Act. 

B. Section 109(a) and the First Sale Doctrine 

The common-law roots of the first sale doctrine allowed the owner of a particular 

copy of a work to dispose of that copy. This judicial doctrine was grounded in the 

common-law principle that restraints on the alienation of tangible property are to 

be avoided in the absence of clear congressional intent to abrogate this principle. 

This doctrine appears in section 109 of the Copyright Act of 1976. Section 109(a) 

specified that this notwithstanding a copyright owner’s exclusive distribution right 

under section 106 the owner of a particular copy or phonorecord that was lawfully 

made under title 17 is entitled to sell or further dispose of the possession of that 

copy or phonorecord. 

C. Section 117 Computer Program Exemptions 

Section 117 of the Copyright Act of 1976 was enacted in the Computer Software 

Copyright Amendments of 1980 in response to the recommendations of the National 

Commission on New Technological Uses of Copyrighted Works’ (CONTU). Section 

117 permits the owner of a copy of a computer program to make an additional copy 

of the program for purely archival purposes if all archival copies are destroyed in 

the event that continued possession of the computer program should cease to be 

rightful, or where the making of such a copy is an essential step in the utilization 

of the computer program in conjunction with a machine and that it is used in no 

other manner. 

II. VIEWS OF THE PUBLIC

Section II of the report summarizes the views received from the public through 

comments, reply comments and hearing testimony. The summaries are grouped into 

three categories: views concerning section 109, views concerning section 117, and 

views on other miscellaneous issues. 

A. Views Concerning Section 109

Most of the comments dealt with section 109 whether of not they addressed section 117. While there was a broad range of views on the effect of the DMCA on the 

first sale doctrine, most of the commenters believed that the anticircumvention provisions of 17 U.S.C. section 1201 allowed copyright owners to restrict the operation 

of section 109. Of particular concern to many commenters was the Content ScramVerDate Jan 17 2002 11:21 Mar 13, 2002 Jkt 000000 PO 00000 Frm 00013 Fmt 6633 Sfmt 6621 G:\WORK\COURTS\121201\76669.000 HJUD1 PsN: 76669
10

bling System (CSS) and the ‘‘region coding’’ used to protect motion pictures on Digital Versatile Disks (DVDs). They argued that use of CSS forces a consumer to make 

two purchases in order to view a motion picture on DVD: the DVD and the authorized decryption device. In the view of these commenters, this system reduces or 

eliminates the value of and market for DVDs by interfering with their free 

alienability on the market. A similar argument was advanced for the region coding 

on DVDs in that the geographic market for resale is restricted by this technological 

protection measure. 

Another concern expressed by a number of commenters was the growing use of 

non-negotiable licenses accompanying copyrighted works that are written to restrict 

or eliminate statutorily permitted uses, including uses permitted under section 109. 

In some cases, these license restrictions are enforced through technological measures. It was argued that these licensing practices and the prohibition on circumvention frustrate the goals of the first sale doctrine by allowing copyright owners to 

maintain control on works beyond the first sale of a particular copy. These commenters stated that this interference with the operation of the first sale doctrine 

has the capacity to inhibit the function of traditional library operations, such as 

interlibrary loan, preservation, and use of donated copies of works. 

Other commenters rebutted these claims, arguing that over-restrictive technological protection measures or licenses would not survive in the marketplace, since 

competition would be a limiting principle. It was also argued that the effect of licensing terms on the first sale doctrine is beyond the scope of this study. 

Commenters generally viewed section 1202 of the DMCA, which prohibits the alteration or removal of copyright management information, as having no impact of 

the operation of the first sale doctrine. 

The greatest area of contention in the comments was the question of whether to 

expand the first sale doctrine to permit digital transmission of lawfully made copies 

of works. Although some proponents argued that such transmissions are already 

permitted by the current language of section 109, most thought that clarification of 

this conclusion by Congress would be advisable since the absence of express statutory language could lead to uncertainty. 

The proponents of revising section 109 argued that the transmission of a work 

that was subsequently deleted from the sender’s computer is the digital equivalent 

of giving, lending, or selling a book. Allowing consumers to transfer the copy of the 

work efficiently by means of online transmission would foster the principles of the 

first sale doctrine. These principles have promoted economic growth and creativity 

in the analog world and should be extended to the digital environment. Proponents 

of this argument sought amendment to section 109 to allow a person to forward a 

work over the Internet and then delete that work from his computer. 

Others opposed such an amendment for a number of reasons. Opponents pointed 

out that the first sale doctrine is a limitation on the distribution right of copyright 

owners and has never implicated the reproduction right which is, in their view, a 

‘‘cornerstone’’ of copyright protection. In addition, the impact of the doctrine on copyright owners was also limited in the off-line world by a number of factors, including 

geography and the gradual degradation of books and analog works. The absence of 

such limitations would have an adverse effect on the market for digital works. Opponents also believed that proposals that depend on the user deleting his copy 

would be unverifiable, leading to virtually undetectable cheating. Given the expanding market for digital works without a digital first sale doctrine, opponents questioned the consumer demand for such a change in the law. 

B. Views Concerning Section 117

The comments related to section 117 fell into two main categories: those addressing the status of temporary copies in RAM and those concerning the scope of the 

archival exemption. 

Many commenters advocated a blanket exemption for temporary copies that are 

incidental to the operation of a device in the course of use of a work when that use 

is lawful under title 17. Such an exemption was originally proposed in the BoucherCampbell bill as an amendment to section 117. 

Other commenters vigorously opposed any exemption for incidental copies at this 

time. They argued that such an exemption would dramatically expand the scope of 

section 117 in contrast to the carefully calibrated adjustment made to section 117 

in the DMCA to address the problems experienced by independent computer service 

organizations at issue in MAI Systems Corp. v. Peak Computer, Inc. These commenters stated that Congress’ narrow adjustment to section 117 in the DMCA reaffirmed the conclusion that temporary copies in random access memory (RAM) are 

copies that are subject to the copyright owner’s exclusive reproduction right. Further 

11

change would undercut the reproduction right in all works and endanger international treaty obligations. 

There was disagreement on the economic value of temporary copies. Proponents 

of an amendment argued that temporary buffer copies are necessary to carry out 

streaming of performances of works on the Internet and have no value apart from 

that performance. They argued that the limitations under other sections of the 

Copyright Act, including sections 107 and 512, were insufficient to sustain the operation of businesses that stream audio performances to the public. 

Opponents, on the other hand, argued that these copies are within the scope of 

the copyright owner’s exclusive rights and do possess value. Particular emphasis 

was placed on the value of temporary copies of computer programs. It was also argued that as streaming performances become more common, these temporary copies 

will increase in value because of the adverse effect of the performances on the market for purchases of copies of these works. Opponents believed it would be premature to change the law because of the absence of specific evidence of harm and 

the high potential for adverse unintended consequences. It was noted that when 

Congress was presented with concrete evidence of harm to independent service organizations after the MAI v. Peak decision, Congress took steps to remedy the situation. Similarly, section 512 of the DMCA created limitations on the remedies available against Internet service providers for incidental copying that is essential to the 

operation of the Internet. 

The other major concern involving section 117 concerned the scope of the archival 

exemption. Proponents of amending section 117 raised two primary points. First, 

they argued that the policy behind the archival exemption needs to be updated to 

encompass all digital works rather than just computer programs. Since computers 

are vulnerable to crashes, viruses, and other failures, downloaded music, electronic 

books and other works face the same risks that precipitated the exemption for computer programs. Some argued that all digital media is susceptible to accidental deletion or corruption. Consumers should be permitted to protect their investments in 

works. 

Proponents of expansion of the archival exemption offered another argument—section 117 does not comport with reality. Systematic backup practices do not fit the 

structure of section 117, which is limited to making a copy of an individual program 

at the time the consumer obtains it. It was argued that such a discrepancy between 

the law and commonly accepted practices undermines the integrity of the law. Such 

a fundamental mismatch creates the perception that the law need not be literally 

followed, thereby creating a slippery slope. 

Opponents of an expansion of the archival exemption countered that the justification behind section 117 no longer exists. Most software is distributed on CD-ROM, 

which is far more robust than floppy disks. Consumers need merely retain the original CD as a backup, since it is a simple operation to reinstall software that is compromised. In addition, these opponents argued that there is currently an inaccurate 

public perception of the scope of the backup copy exception. These commenters 

argue that many invoke the archival exception as a shield to commercial piracy. 

Opponents of an amendment to section 117 asserted that even if there is a mismatch between actual backup practices and the current exception, no one has been 

harmed by it. Commenters noted that no one has been sued as a result of backing 

up material outside the scope of section 117, and no one has stopped performing 

backups. It was also argued that if a particular activity does not fall within the 

terms of section 117, it may nevertheless be privileged under the fair use doctrine. 

C. Views Concerning Other Miscellaneous Issues 

There were assorted other comments and testimony on a range of issues. There 

were concerns raised about the potential adverse effects of sections 1201 and 1202 

on the traditional concepts of first sale, fair use, and the archival and preservation 

exemptions. It was argued that these prohibitions are likely to diminish, if not 

eliminate, otherwise lawful uses. It was asserted that copyright management information may also have the capacity to reveal user information in a manner that 

would chill legitimate uses of copyrighted works. 

Another prevalent concern was that licenses are being used increasingly by copyright owners to undermine the first sale doctrine and restrict other user privileges 

under the copyright law. These commenters argue that this trend is displacing the 

uniformity of federal copyright law with a wide variation of contract terms that 

must be evaluated and interpreted. This poses a particular challenge to large institutions, such as universities and libraries, in determining legal and acceptable use 

in any given work. A number of commenters argued that federal copyright law 

should preempt such license terms. 

12

Other commenters argued that Congress did not intend copyright law broadly to 

preempt contract provisions. They argue that the freedom to contract serves the interests on both copyright owners and the public by allowing greater flexibility in determining pricing, terms and conditions of use, and other options. 

III. EVALUATION AND RECOMMENDATIONS

We are not persuaded that title I of the DMCA has had a significant effect on 

the operation of sections 109 and 117 of title 17. The adverse effects that section 

1201, for example, is alleged to have had on these sections cannot accurately be ascribed to section 1201. The causal relationship between the problems identified and 

section 1201 are currently either minimal or easily attributable to other factors such 

as the increasing use of license terms. Accordingly, none of our legislative recommendations are based on the effects of section 1201 on the operation of sections 

109 and 117. 

A. The Effect of Title I of the DMCA on the Operation of Sections 109 and 117

The arguments raised concerning the adverse effects of the CSS technological protection measure on the operation of section 109 are flawed. The first sale doctrine 

is primarily a limitation on copyright owner’s distribution right. Section 109 does 

not guarantee the existence of secondary markets for works. There are many factors 

which could affect the resale market for works, none of which could be said to interfere with the operation of section 109. The need for a particular device on which 

to view the work is not a novel concept and does not constitute an effect on section 

109. VHS videocassettes for example, must be played on VHS VCRs. 

A plausible argument can be made that section 1201 may have a negative effect 

on the operation of the first sale doctrine in the context of works tethered to a particular device. In the case of tethered works, even if the work is on removable 

media, the content cannot be accessed on any device other than the one on which 

it was originally made. This process effectively prevents disposition of the work. 

However, the practice of tethering a copy of a work to a particular hardware device 

does not appear to be widespread at this time, at least outside the context of electronic books. Given the relative infancy of digital rights management, it is premature to consider any legislative change at this time. Should this practice become 

widespread, it could have serious consequences for the operation of the first sale 

doctrine, although the ultimate effect on consumers is unclear. 

We also find that the use of technological measures that prevent the copying of 

a work potentially could have a negative effect on the operation of section 117. To 

the extent that a technological measure prohibits access to a copyrighted work, the 

prohibition on the circumvention of measures that protect access in section 

1201(a)(1) may have an adverse impact on the operation of the archival exception 

in section 117. Again, however, the current impact of such a concern appears to be 

minimal, since licenses generally define the scope of permissible archiving of software, and the use of CD-ROM reduces the need to make backup copies. 

Given the minimal adverse impact at the present time, we conclude that no legislative change is warranted to mitigate any effect of section 1201 on section 117. 

B. The Effect of Electronic Commerce and Technological Change on Sections 109 and 

117

There is no dispute that section 109 applies to works in digital form. Physical copies of works in a digital format, such as CDs or DVDs, are subject to section 109 

in the same way as physical copies in analog form. Similarly, a lawfully made tangible copy of a digitally downloaded work, such as a work downloaded to a floppy 

disk, ZipTM disk, or CD-RW, is clearly subject to section 109. The question we address here is whether the transmission of a work to another person falls within—

or should fall within—the scope of section 109. 

1. The First Sale Doctrine in the Digital World

a. Evaluation of Arguments Concerning First Sale 

The first sale doctrine is primarily a limitation on the copyright owner’s exclusive 

right of distribution. It does not limit the exclusive right of reproduction. While disposition of a work downloaded to a floppy disk would only implicate the distribution 

right, the transmission of a work from one person to another over the Internet results in a reproduction on the recipient’s computer, even if the sender subsequently 

deletes the original copy of the work. This activity therefore entails an exercise of 

an exclusive right that is not covered by section 109. 

Proponents of expansion of the scope of section 109 to include the transmission 

and deletion of a digital file argue that this activity is essentially identical to the 

transfer of a physical copy and that the similarities outweigh the differences. While 

13

it is true that there are similarities, we find the analogy to the physical world to 

be flawed and unconvincing. 

Physical copies degrade with time and use; digital information does not. Works 

in digital format can be reproduced flawlessly, and disseminated to nearly any point 

on the globe instantly and at negligible cost. Digital transmissions can adversely effect the market for the original to a much greater degree than transfers of physical 

copies. Additionally, unless a ‘‘forward-and-delete’’ technology is employed to automatically delete the sender’s copy, the deletion of a work requires an additional affirmative act on the part of the sender subsequent to the transmission. This act is 

difficult to prove or disprove, as is a person’s claim to have transmitted only a single 

copy, thereby raising complex evidentiary concerns. There were conflicting views on 

whether effective forward and delete technologies exist today. Even if they do, it is 

not clear that the market will bear the cost of an expensive technological measure. 

The underlying policy of the first sale doctrine as adopted by the courts was to 

give effect to the common law rule against restraints on the alienation of tangible 

property. The tangible nature of a copy is a defining element of the first sale doctrine and critical to its rationale. The digital transmission of a work does not implicate the alienability of a physical artifact. When a work is transmitted, the sender 

is exercising control over the intangible work through its reproduction rather than 

common law dominion over an item of tangible personal property. Unlike the physical distribution of digital works on a tangible medium, such as a floppy disk, the 

transmission of works interferes with the copyright owner’s control over the intangible work and the exclusive right of reproduction. The benefits to further expansion 

simply do not outweigh the likelihood of increased harm. 

Digital communications technology enables authors and publishers to develop new 

business models, with a more flexible array of products that can be tailored and 

priced to meet the needs of different consumers. We are concerned that these proposals for a digital first sale doctrine endeavor to fit the exploitation of works online 

into a distribution model—the sale of copies—that was developed within the confines of pre-digital technology. If the sale model is to continue as the dominant 

method of distribution, it should be the choice of the market, not due to legislative 

fiat. 

We also examined how other countries are addressing the applicability of the first 

sale—or exhaustion—doctrine to digital transmissions. We found that other countries are addressing digital transmissions under the communication to the public 

right and are not applying the principle of exhaustion, or any other analog thereof, 

to digital transmissions. 

b. Recommendation Concerning the Digital First Sale Doctrine 

We recommend no change to section 109 at this time. Although speculative concerns have been raised, there was no convincing evidence of present-day problems. 

In order to recommend a change in the law, there should be a demonstrated need 

for the change that outweighs the negative aspects of the proposal. The Copyright 

Office does not believe that this is the case with the proposal to expand the scope 

of section 109 to include digital transmissions. The time may come when Congress 

may wish to address these concerns should they materialize. 

The fact that we do not recommend adopting a ‘‘digital first sale’’ provision at this 

time does not mean that the issues raised by libraries are not potentially valid concerns. Similarly, our conclusion that certain issues are beyond the scope of the 

present study does not reflect our judgment on the merits of those issues. 

The library community has raised concerns about how the current marketing of 

works in digital form affects libraries with regard to five specifically enumerated 

categories: interlibrary loans, off-site accessibility, archiving/preservation, availability of works, and use of donated copies. Most of these issues arise from terms 

and conditions of use, and costs of license agreements. One arises because, when 

the library has only online access to the work, it lacks a physical copy of the copyrighted work that can be transferred. These issues arise from existing business models and are therefore subject to market forces. We are in the early stages of electronic commerce. We hope and expect that the marketplace will respond to the various concerns of customers in the library community. However, these issues may require further consideration at some point in the future. Libraries serve a vital function in society, and we will continue to work with the library and publishing communities on ways to ensure the continuation of library functions that are critical 

to our national interest. 

14

2. The Legal Status of Temporary Copies

a. RAM Reproductions as ‘‘Copies’’ under the Copyright Act 

All of the familiar activities that one performs on a computer, from the execution 

of a computer program to browsing the World Wide Web, necessarily involve copies 

stored in integrated circuits known as RAM. This information can remain in memory until the power is switched off or the information is overwritten. These reproductions generally persist only for as long as the particular activity takes place. 

The legal status of RAM reproductions has arisen in this study almost exclusively 

in the context of streaming audio delivery, including webcasting. In order to render 

the packets of audio information in an audio ‘‘stream’’ smoothly, in spite of inconsistencies in the rate of delivery, packets of audio information are saved in a portion 

of RAM called a buffer until they are ready to be rendered. 

Based on an the text of the Copyright Act—including the definition of ‘‘copies’’ in 

section 101—and its legislative history, we conclude that the making of temporary 

copies of a work in RAM implicates the reproduction right so long as the reproduction persists long enough to be perceived, copied, or communicated. 

Every court that has addressed the issue of reproductions in RAM has expressly 

or impliedly found such reproductions to be copies within the scope of the reproduction right. The seminal case on this subject, MAI, Sys. Corp. v. Peak Computer, Inc., 

found that the loading of copyrighted software into RAM creates a ‘‘copy’’ of that 

software. At least nine other courts have followed MAI v. Peak in holding RAM reproductions to be ‘‘copies’’ and several other cases have held that loading a computer 

program into a computer entails making a copy, without mentioning RAM specifically. 

b. Evaluation of Arguments Concerning Temporary Incidental Copy Exceptions 

In the course of this study, arguments were advanced in support of a blanket exemption for incidental copies similar to that proposed in the Boucher-Campbell bill. 

Most of the arguments advanced on such a proposal focused exclusively on the specific issue of buffer copies made in the course of audio streaming, rather than the 

broader issue of incidental copying generally. This focus suggests that legislation 

tailored to address the specific problems raised in the context of audio streaming 

should be examined. This focus is particularly appropriate since there was no compelling evidence presented in support of a blanket exemption for incidental copies 

and there was evidence that such an exemption could lead to unintended adverse 

consequences for copyright owners. 

There was compelling evidence presented, however, on the uncertainty surrounding temporary buffer copies made in RAM in the course of rendering a digital 

musical stream. Specifically, webcasters asserted that the unknown legal status of 

buffer copies exposes webcasters to demands for additional royalty payments from 

the owner of the sound recording, as well as potential infringement liability. 

The buffer copies identified by the webcasting industry exist for only a short period of time and consist of small portions of the work. Webcasters argue that these 

reproductions are incidental to the licensed performance of the work and should not 

be subject to an additional license for a reproduction that is only a means to an authorized end. Buffer copies implicate the reproduction right, thus potentially resulting in liability. There is, therefore, a legitimate concern on the part of webcasters 

and other streaming music services as to their potential liability. 

We believe that there is a strong case that the making of a buffer copy in the 

course of streaming is a fair use. Fair use is a defense that may limit any of the 

copyright owner’s exclusive rights, including the reproduction right implicated in 

temporary copies. In order to assess whether a particular use of the works at issue 

is a fair use, section 107 requires the consideration and balancing of four mandatory, but nonexclusive, factors on a case-by-case basis. 

In examining the first factor—the purpose and character of the use—it appears 

that the making of buffer copies is commercial and not transformative. However, the 

use does not supersede or supplant the market for the original works. Buffer copies 

are a means to a noninfringing and socially beneficial end—the licensed performance of these works. There is no commercial exploitation intended or made of the 

buffer copy in itself. The first factor weighs in favor of fair use. 

The second factor—the nature of the copyrighted work—weighs against a finding 

of fair use because musical works are generally creative. The third factor—the 

amount and substantiality of the portion used in relation to the copyrighted work 

as a whole—would also be likely to weigh against fair use since, in aggregate, an 

entire musical work is copied in the RAM buffer. Since this is necessary in order 

to carry out a licensed performance of the work, however, the factor should be of 

little weight. 

15

In analyzing the fourth factor—the effect of the use on the actual or potential 

market for the work—the effect appears to be minimal or nonexistent. This factor 

strongly weighs in favor of fair use. 

Two of the four statutory factors weigh in favor of fair use, but fair use is also an ‘‘equitable rule of reason.’’ In the case of temporary buffer copies, we believe that 

the equities unquestionably favor the user. The sole purpose for making the buffer 

copies is to permit an activity that is licensed by the copyright owner and for which 

the copyright owner receives a performance royalty. In essence, copyright owners 

appear to be seeking to be paid twice for the same activity. Additionally, it is technologically necessary to make buffer copies in order to carry out a digital performance of music over the Internet. Finally, the buffer copies exist for too short a period 

of time to be exploited in any way other than as a narrowly tailored means to enable 

the authorized performance of the work. On balance, therefore, the equities weigh 

heavily in favor of fair use. 

c. Recommendation Concerning Temporary Incidental Copies 

Representatives of the webcasting industry expressed concern that the case-bycase fair use defense is too uncertain a basis for making rational business decisions. 

We agree. While we recommend against the adoption of a general exemption from 

the reproduction right to render noninfringing all temporary copies that are incidental to lawful uses, a more carefully tailored approach is desirable. 

We recommend that Congress enact legislation amending the Copyright Act to 

preclude any liability arising from the assertion of a copyright owner’s reproduction 

right with respect to temporary buffer copies that are incidental to a licensed digital 

transmission of a public performance of a sound recording and any underlying musical work. 

The economic value of licensed streaming is in the public performances of the musical work and the sound recording, both of which are paid for. The buffer copies 

have no independent economic significance. They are made solely to enable the performance of these works. The uncertainty of the present law potentially allows those 

who administer the reproduction right in musical works to prevent webcasting from 

taking place—to the detriment of other copyright owners, webcasters and consumers 

alike—or to extract an additional payment that is not justified by the economic 

value of the copies at issue. Congressional action is desirable to remove the uncertainty and to allow the activity that Congress sought to encourage through the 

adoption of the section 114 webcasting compulsory license to take place. 

Although we believe that the fair use defense probably does apply to temporary 

buffer copies, this approach is fraught with uncertain application in the courts. This 

uncertainty, coupled with the apparent willingness of some copyright owners to assert claims based on the making of buffer copies, argues for statutory change. We 

believe that the narrowly tailored scope of our recommendation will minimize, if not 

eliminate, concerns expressed by copyright owners about potential unanticipated 

consequences. 

Given our recommendations concerning temporary copies that are incidental to 

digital performances of sound recordings and musical works, fairness requires that 

we acknowledge the symmetrical difficulty that is faced in the online music industry: digital performances that are incidental to digital music downloads. Just as 

webcasters appear to be facing demands for royalty payments for incidental exercise 

of the reproduction right in the course of licensed public performances, it appears 

that companies that sell licensed digital downloads of music are facing demands for 

public performance royalties for a technical ‘‘performance’’ of the underlying musical 

work that allegedly occurs in the course of transmitting it from the vendor’s server 

to the consumer’s computer. 

Although we recognize that it is an unsettled point of law that is subject to debate, we do not endorse the proposition that a digital download constitutes a public 

performance even when no contemporaneous performance takes place. If a court 

were to find that such a download can be considered a public performance within 

the language of the Copyright Act, we believe the that arguments concerning fair 

use and the making of buffer copies are applicable to this performance issue as well. 

It is our view that no liability should result from a technical ‘‘performance’’ that 

takes place in the course of a download. 

3. Archival Exemption

a. Evaluation of Arguments Concerning the Scope of Section 117(a)(2) 

Currently the archival exemption under section 117(a)(2) is limited to computer 

programs. This section allows the owner of a copy of a computer program to make 

or authorize the making of an additional copy of the program ‘‘for archival purposes,’’ provided that ‘‘all archival copies are destroyed in the event that continued 

16

possession of the computer program should cease to be rightful.’’ A number of arguments were advanced in the course of this study for an expansion of this archival 

exemption in order to cover the kind of routine backups that are performed on computers and to allow consumers to archive material in digital format other than computer programs. 

Commenters asserted that consumers need to backup works in digital form because they are vulnerable. That was CONTU’s rationale for recommending that 

Congress create an exemption to permit archival copies of computer programs. In 

both cases, the vulnerability stems from the digital nature of the works. It would 

be perfectly consistent with the rationale of CONTU’s recommendations and Congress’ enactment of section 117 to extend the archival exemption to protect against 

the vulnerabilities that may afflict all works in digital format. 

Evidence was presented to us noting that the archival exemption under section 

117 does not permit the prevailing practices and procedures most people and businesses follow for backing up data on a computer hard drive. There is a fundamental 

mismatch between accepted, prudent practices among most system administrators 

and other users, on the one hand, and section 117 on the other. As a consequence, 

few adhere to the law. 

While there is no question that this mismatch exists, nobody was able to identify 

any actual harm to consumers as a result of the limited scope of the archival exemption. Additionally, it was argued that the need to make archival copies of computer 

programs has diminished, because almost all software sold in the United States is 

distributed on CD-ROM, which itself serves as an archival copy in the event of hard 

drive problems or upgrades. 

b. Recommendations Concerning the Archival Exemption 

Although there has been a complete absence of any demonstrated harm to the 

prospective beneficiaries of an expanded archival exemption, and although we believe that a strong case could be made that most common archival activities by computer users would qualify as fair use, we have identified a potential concern—the 

interplay between sections 107 and 109. It appears that the language of the Copyright Act could lead a court to conclude that copies lawfully made under the fair 

use doctrine may be freely distributed under section 109. 

Section 109 permits ‘‘the owner of a particular copy or phonorecord lawfully made’’

under title 17 to distribute that copy without the copyright owner’s permission. To 

the extent that section 107 permits a user to make a backup copy of a work stored 

on a hard drive, that copy is lawfully made and the user owns it. Section 109, on 

its face, appears to permit the user to sell or otherwise dispose of the possession 

of that backup copy. The legislative history can be read to support either view. 

We conclude that a statutory change is desirable, and recommend that Congress 

amend the copyright law in one of two ways. 

Given the uncertain state of authority on the issue, we cannot conclude with a 

satisfactory level of certainty that a court will not, in the future, find a backup copy 

made by virtue of section 107 to be eligible for distribution under section 109. We 

believe that such a result is contrary to the intent of Congress and would have the 

capacity to do serious damage to the copyright owner’s market. We therefore recommend that Congress either (1) amend section 109 to ensure that fair use copies 

are not subject to the first sale doctrine or (2) create a new archival exemption that 

provides expressly that backup copies may not be distributed. We express no preference as between the two options, and note that they are not mutually exclusive. 

The first option would entail amending section 109(a) to state that only copies 

lawfully made and lawfully distributed are subject to the first sale doctrine. This 

proposed change would not preclude the distribution of copies made pursuant to the 

fair use doctrine since the exclusive right of distribution is equally subject to the 

fair use doctrine. It would, however, require that a separate fair use analysis be applied to the distribution of that copy. 

The second option entails creating a new exemption for making backups of lawful 

copies of material in digital form, and amending section 117 to delete references to 

archival copies. The new exemption should follow the general contours of section 

117(a)(2) and (b), and include the following elements: it should permit the making 

of one or more backup copies of a work. The copy from which the backup copies are 

made must be in digital form on a medium that is subject to accidental erasure, 

damage, or destruction in the ordinary course of its use. It should stipulate that the 

copies may be made and used solely for archival purposes or for use in lieu of the 

original copy. It should also specify that, notwithstanding the provisions of section 

109, the archival copy may not be transferred except as part of a lawful transfer 

of all rights in the work. Finally, it should specify that the archival copies may not 

17

be used in any manner in the event that continued possession of the work ceases 

to be rightful. 

4. Contract Preemption

The question of contract preemption was raised by a number commenters who argued that the Copyright Act should be amended to insure that contract provisions 

that override consumer privileges in the copyright law, or are otherwise unreasonable, are not enforceable. Although the general issue of contract preemption is outside the scope of this Report, we do note that this issue is complex and of increasing 

practical importance, and thus legislative action appears to be premature. On the 

one hand, copyright law has long coexisted with contract law. On the other hand, 

the movement at the state level toward resolving questions as to the enforceability 

of non-negotiated contracts coupled with legally-protected technological measures 

that give right holders the technological capability of imposing contractual provisions unilaterally, increases the possibility that right holders, rather than Congress, 

will determine the landscape of consumer privileges in the future. Although market 

forces may well prevent right holders from unreasonably limiting consumer privileges, it is possible that at some point in the future a case could be made for statutory change.

Mr. COBLE. Thank you, Ms. Peters. In a sense of fairness and equity, Ms. Peters consumed 6 minutes, so I will allow you all 6 minutes as well. 

Mr. Ramos? 

STATEMENT OF CAREY RAMOS, ESQ., PAUL, WEISS, RIFKIND, 

WHARTON & GARRISON, ON BEHALF OF THE NATIONAL 

MUSIC PUBLISHERS ASSOCIATION 

Mr. RAMOS. Thank you, Mr. Chairman, and Members of the Subcommittee. My name is Carey Ramos. 

I appreciate the opportunity to express the views of the National 

Music Publishers Association and its licensing affiliate, the Harry 

Fox Agency, concerning the section 104 report. 

There has been a reference to a recent agreement between the 

NMPA and Harry Fox and the RIAA, and I would like to initially 

address that, because I think it’s directly relevant to the subject of 

today’s hearing. 

We worked hard, since the Subcommittee’s hearings last spring, 

to develop marketplace arrangements that will assist the launch of 

legitimate Internet music services. I am pleased to report that 

those efforts have borne fruit. 

In October, we concluded a breakthrough agreement with the 

RIAA to provide a mechanism for Internet music businesses to obtain licenses to copyrighted musical works for use in subscription 

music services. In our negotiations, we were able to reach a compromise under which we have agreed to issue licenses to the 

RIAA’s members, to enable them lawfully to use our works on their 

subscription music services without having to make royalty payments on a current basis, as the law requires. 

We agreed to forego receiving royalty payments today on the understanding that the licensees will pay the full amount of royalties 

due once the rates are set on a retroactive basis. 

For radio-style webcasting—and I want to emphasize this—we 

have expressly agreed not to seek mechanical licenses. The reason 

we believe on-demand streaming requires a mechanical license is 

that it involves the making of copies and it displaces record sales. 

Common sense says that if consumers are able to hear a song on 

demand—that is, whenever they want—they are less likely to go 

18

out and buy that record. This displacement will have a direct and 

substantial effect on songwriters’ and music publishers’ income. 

We have publicly stated that is our policy to license not only 

RIAA members but also other digital musical services that wish to 

negotiate comparable agreements. We have already concluded our 

first such agreement with Listen.com last month and are currently 

negotiating with other prospective licensees that are not affiliated 

with the RIAA. 

Although the agreement does not establish a royalty rate for ondemand streams or limited downloads, it incorporates the framework already established by Congress for doing so. We will engage 

in good-faith negotiations to agree on industry rates. If negotiations 

do not result in agreement, the applicable rates will be established 

through arbitration, as provided by law. 

Our agreements with the RIAA and Listen.com show that marketplace solutions work. We have reached a compromise that benefits the creators of music, the distributors of music, and the consumers of music by making a diverse catalog of music available to 

subscription services offering on-demand streams and limited 

downloads. 

While there is much that we agree with in the Copyright Office 

report, I do wish to address one part of the report; that is the recommendation that Congress exempt so-called buffer copies of musical works that are made in the streaming process, because they 

supposedly have no economic value separate from a performance. 

The report predates our recent agreements with RIAA and Listen.com and, unlike those agreements, does not distinguish between on-demand and radio-style streaming. This is a critical distinction. To the extent that the report recommends a statutory exemption from mechanical licensing for radio-style streaming, we respectively submit that no exemption is necessary. 

Publishers have never required and have now expressly agreed 

not to require mechanical licenses for such streaming. To the extent, however, that the report may be construed to seek a statutory 

exemption for on-demand streaming, such legislation would seriously impair the copyright in musical works and deprive songwriters and music publishers of a vital source of licensing income. 

The potential for the online delivery of music to displace record 

sales in fact was Congress’ principal concern in enacting the DPRA 

in 1995. The legislative history of the DPRA makes clear that the 

act was intended to respond to a concern that ‘‘certain types of subscription and interactive audio services might adversely affect sales 

of sound recordings and erode copyright owners’ ability to control 

and be paid for the use of their work.’’

An exemption for buffer copies made in on-demand streams 

would have just such an adverse effect. The resulting loophole in 

the law, moreover, would create an artificial incentive for the market to favor the streaming model, regardless of whether streaming 

is the optimal musical delivery technology from an efficiency or 

consumer standpoint. 

It would be as though Congress determined in the 1960’s that, 

in order to promote the nascent 8-track industry, the production of 

8-track tapes should be exempt from mechanical royalties. 

19

There is simply no reason to favor one technology over another 

by creating a particular statutory exemption, whereas here the 

technology chosen for exemption is one of several alternative technologies that are still evolving. 

In closing, I want to thank the Subcommittee for considering the 

views of the NMPA and HFA. We hope this testimony has demonstrated the effectiveness of the marketplace in meeting the 

unique challenges faced by copyright owners and users in developing fair licensing and business models for Internet music delivery. 

Thank you. 

[The prepared statement of Mr. Ramos follows:]

PREPARED STATEMENT OF CAREY RAMOS

INTRODUCTION

Mr. Chairman and members of the Subcommittee, my name is Carey Ramos. I 

am here on behalf of the National Music Publishers’ Association (‘‘NMPA’’) and its 

licensing affiliate, The Harry Fox Agency (‘‘HFA’’). 

NMPA is the principal trade association representing the interests of music publishers in the United States. The more than 600 music publisher members of 

NMPA, along with their subsidiaries and affiliates, own or administer the majority 

of U.S. copyrighted musical works. For more than eighty years, NMPA has served 

as the leading voice of the American music publishing industry before Congress and 

in the courts. 

HFA is the licensing affiliate of the NMPA. It provides an information source, 

clearing house and monitoring service for licensing musical copyrights, and acts as 

licensing agent for more than 27,000 music publisher principals, which in turn represent the interests of more than 160,000 songwriters. 

I will address two subjects in my testimony: first, the deals that we have recently 

reached with the Recording Industry Association of America (‘‘RIAA’’) and with Listen.com, an independent Internet music service and, second, the Copyright Office’s 

Section 104 Report. 

THE LANDMARK NMPA/HFA/RIAA AGREEMENT

We have worked hard since the Subcommittee’s hearings last Spring to develop 

marketplace arrangements that will assist the launch of legitimate Internet music 

services. I am pleased to report that those efforts have borne fruit. On October 5, 

2001, we concluded a breakthrough agreement with the RIAA for participating songwriters and publishers to provide a mechanism for Internet music businesses to obtain licenses to copyrighted musical works for use in subscription music services. 

In our negotiations, we were able to reach a compromise under which we have 

agreed to issue licenses to the RIAA’s members to enable them lawfully to use our 

works on their subscription music services, in the absence of a rate, without having 

to make royalty payments on a current basis as the law requires. We agreed to forego receiving royalty payments on a current basis, and to issue licenses nonetheless, 

on the understanding that the licensees will pay the full amount of royalties due 

once the rates are finally determined, on a retroactive basis. 

We also agreed to settle the issue of rights by agreeing that ‘‘on-demand streams’’

and ‘‘limited downloads’’ are processes that entail the making and distribution of 

copies of musical works and, accordingly, constitute digital phonorecord deliveries 

(or ‘‘DPDs’’) within the meaning of Section 115 of the Copyright Act. An ‘‘on-demand 

stream,’’ under the agreement, is a real-time digital transmission of a song using 

streaming technology (such as Real Audio or Windows Media Player) to a consumer 

who requests that song. A ‘‘limited download’’ is a download that can be played for 

a limited period of time or a limited number of plays. We anticipate that on-demand 

streams and limited downloads will take their place in the digital music marketplace alongside full downloads (for which compulsory licenses are already available 

at the current statutory mechanical rate). We expect some music service providers 

will choose to offer several—or all—of these services to their subscribers. 

20

1Specifically, we agreed that ‘‘under current law the process of making streams that would 

qualify for a license under Section 114(d)(2) of the Copyright Act does not involve the making 

of a DPD, and thus does not require a mechanical license.’’ 2Prior to making the agreement with RIAA, HFA entered into agreements with various Internet businesses—including MP3.com, Streamwaves.com, emusic.com, and many others—to issue 

mechanical licenses for diverse methods of on-line music delivery, including on-demand streaming, digital ‘‘locker’’ services, and downloads. 3See 17 U.S.C. § 115(c)(3)(B)-(D). 4DMCA Section 104 Report of the Copyright Office (August 2001) at 139. Regrettably, this 

part of the Report was based on an incomplete record. Questions concerning the status of ‘‘buff- er’’ copies made during streaming first arose during the comment period. No testimony was 

taken from economic or technical experts in the field of on-line music delivery. 

For radio-style webcasting, we have agreed not to seek mechanical licenses.1

The reason we believe on demand streaming requires a mechanical license is that 

it involves the making of copies and it displaces record sales. Common sense says 

that, if consumers are able to hear a song on-demand—that is, whenever they want, 

and as many times as they want—they are less likely to go out and buy that record. 

This displacement will have a direct and substantial impact on songwriters’ and 

music publishers’ income. 

By settling the question of rights, the agreement will make licenses immediately 

available to new services and thus promote competition in the delivery of music over 

the Internet. To encourage such services to enter the on-line music marketplace, we 

have publicly stated that it is our policy to license not only RIAA members but also 

other digital music services that wish to negotiate comparable agreements. We have 

already concluded our first such agreement, with Listen.com, last month, and are 

currently negotiating with other prospective licensees.2

Under the agreement, we also have agreed to simplify and expedite the mechanical rights licensing process. The agreement provides for electronic ‘‘bulk’’ licensing 

to allow companies to obtain mechanical licenses quickly. The procedures will allow 

a potential licensee to request licenses for multiple titles at the same time. In order 

to facilitate the launch of services, licenses issued will be retroactive to the date of 

request. Moreover, for musical works owned by multiple copyright owners, HFA will 

issue a license if it represents any one of those owners. As a further undertaking, 

HFA also will attempt to arrange licenses of songs even when it does not represent 

any of the copyright owners. HFA’s ability to serve as an information clearinghouse 

and as licensing agent for thousands of publishers will provide substantial benefits 

for licensees. 

The agreement is non-exclusive—record companies and Internet music services 

are free to obtain compulsory licenses other than through HFA, and, while record 

companies that take licenses under the agreement may exercise their statutory authority to authorize Internet music services to distribute digital recordings of musical works, HFA and individual music publishers are also free to grant licenses directly to Internet music services. 

Although the agreement does not establish a royalty rate for on-demand streams 

or limited downloads, it incorporates the framework already established by Congress 

for doing so.3 We will engage in good faith negotiations with the record companies 

aimed at establishing such a rate, or rates. If negotiations fail, the applicable rate 

or rates will be established by a Copyright Arbitration Royalty Panel (or ‘‘CARP’’) 

convened by the Copyright Office. In the interim, however, the agreement allows licensees to launch their services now and pay the royalties due once rates are established. 

Our agreements with the RIAA and Listen.com show that marketplace solutions 

work. We have reached a compromise that benefits the creators of music, by confirming their rights in on-demand streams and limited downloads and guaranteeing 

that royalties will be paid to them for the use of their works on a retroactive basis 

when rates are finally set. That compromise also benefits the licensees of the music 

by allowing them to launch and operate new businesses immediately with the comfort that they are fully licensed and will not be subject to claims of copyright infringement by participating music publishers. Consumers benefit, because the agreement makes a diverse catalogue of music available to subscription services offering 

on-demand streams and limited downloads. 

THE SECTION 104 REPORT

In August 2001, the Copyright Office published a report (the ‘‘Report’’) in which 

it recommended that Congress exempt so-called ‘‘buffer’’ copies of musical works 

that are made in the streaming process from the compulsory license provisions of 

the Copyright Act, because such copies have ‘‘no economic value independent of the 

performance that [they] enable[].’’ 4

21

5 Report at 132. 

6 Report at xxiv. 

7 Report at 138 (quoting Harper & Row Publishers, Inc. v. Nation Enters., 471 U.S. 539, 566– 67 (1985)). 8 Report at 139 (quoting Sony Corp. v. Universal City Studios, Inc., 464 U.S. 417, 449–50 

(1984)). 9S. Rep. No. 104–128 at 362 (1995). 10Performers’ and Performance Rights in Sound Recordings, 103d Cong. 4 (1993) (statement 

of Ralph Oman, Register of Copyrights, accompanied by Marybeth Peters, Policy Planning Adviser to the Register of Copyrights). 11 141 Cong. Rec. H10, 098–108 at 10,103 (1995) (statement of Rep. Sensenbrenner). 

The Report predates our recent agreements with RIAA and Listen.com and unlike 

those agreements does not distinguish between on-demand and radio-style streaming. This is a critical distinction. To the extent that the Report recommends a statutory exemption from mechanical licensing for radio-style streaming, we respectfully 

submit that no exemption is needed. Publishers have never required, and have now 

expressly agreed not to require, mechanical licenses for such streaming. To the extent that the Report may be construed to seek a statutory exemption for on-demand 

streaming, however, such legislation would seriously impair the copyright in musical works and deprive songwriters and music publishers of a vital source of licensing 

income. 

The Report correctly concludes that streaming involves the copying of musical 

works. The ‘‘aggregate effect’’ of streaming, it states, ‘‘is the copying of the entire 

[musical] work.’’ 5

The Report, however, then proceeds to consider whether so-called ‘‘buffer’’ copies 

made in the course of streaming are nevertheless a ‘‘fair use’’ of copyrighted music. 

Applying the factors codified in Section 107 of the Copyright Act, the Report concludes that, because two of the four factors (the transformative nature and economic 

value of the use) favor the user rather than the copyright owner, a ‘‘strong case’’

could be made that the making of a ‘‘buffer’’ copy in the course of streaming is a 

fair use not subject to the payment of royalties.6 The law is crystal-clear, however—

and the Report acknowledges—that the doctrine of fair use ‘‘is limited to copying 

by others which does not materially impair the marketability of the work which is 

copied.’’ 7 In conducting the fair-use analysis, the law requires that consideration be 

given to whether, ‘‘if [the use] should become widespread, it would adversely affect 

the potential market for the copyrighted work.’’ 8 Here, there can be no question 

that on-demand streams—which allow consumers to choose the songs they want, 

when they want to hear them—will displace record sales, and therefore directly affect ‘‘the marketability of the work that is being copied,’’ or the ‘‘potential market 

for the copyrighted work,’’ so as not to qualify as a fair use. Under these circumstances, it defies economic reality to say that ‘‘buffer’’ copies are fair use. Indeed, it would do violence to the fair use doctrine to do so. 

The potential for the on-line delivery of music to displace record sales, in fact, was 

Congress’s principal concern in enacting the Digital Performance Right in Sound Recordings Act of 1995 (the ‘‘DPRA’’). The legislative history of the DPRA states that 

the Act was intended to respond to the concern that ‘‘certain types of subscription 

and interactive audio services might adversely affect sales of sound recordings and 

erode copyright owners’ ability to control and be paid for the use of their work.’’ 9

Or, in the words of then-Register of Copyrights Ralph Oman, ‘‘[W]ill what you call 

the ’celestial jukebox’ replace Tower Records and the corner outlet stores and their 

glitzy stock of CD’s, tapes, and records?’’ 10

Chairman Sensenbrenner put it this way: ‘‘[N]ew interactive services are being 

created which allow consumers to use their TV’s and computers to order any recording at any time. These subscriber services threaten sales of CD’s, records and 

tapes.’’ 11

The Report did not consider on-demand streams in its analysis. It appeared to address only radio-style webcasting (for which, as noted, we do not seek mechanical 

licenses in our agreements with the RIAA and Listen.com). Given the direct and 

substantial impact that on-demand streaming will have on record sales, there is no 

basis for concluding that ‘‘buffer’’ copies made in the course of streaming a song on 

demand are a fair use of the underlying copyrighted work. 

Finally, the fair use doctrine is ill-suited to the inquiry and analysis undertaken 

by the Report here. It is an equitable doctrine, to be applied in fact-specific circumstances. To apply it broadly, without the benefit of a fully developed factual 

record, as the Report does, is inconsistent with the terms of Section 107. 

22

12See http://www.totalrecorder.com. Although the Report acknowledges the concerns of music 

publishers that, as a consequence of software such as Total Recorder, ‘‘streaming audio renders 

musical works vulnerable to digital copying’’ (Report at 146 & n.438), it does not consider those 

concerns in its fair use analysis or in its recommendation that Congress enact a statutory exemption for ‘‘buffer’’ copies. 13 17 U.S.C. § 115(d) (emphasis added). 

The Report Does Not Take Into Account Recent Technical and Business Developments 

In Internet Music Delivery 

Because it was not based on testimony from economists or experts in streaming, 

the Report also fails to consider the economic impact of new methods of on-line 

music delivery on the mechanical right. The Report assumes the existence of only 

two methods of on-line music delivery: radio-style streaming (or ‘‘webcasting’’ in the 

Report) and full downloads, by which a song is downloaded to the consumer’s harddrive and stored there permanently. 

But these are only two methods of on-line distribution in a rapidly-expanding industry. Today, there are services poised to offer on-demand streams as well as radiostyle webcasting. In addition, there are technologies that combine aspects of 

downloading and streaming. Certain media players make and store a complete copy 

of the streamed song in a file that remains accessible on the consumer’s computer 

for an indefinite period of time. In addition, regardless of whether the consumer’s 

PC automatically creates a stored version of the song, widely available software 

such as Total Recorder permits even the most unsophisticated consumer to make 

a perfect digital copy of a streamed song on his hard drive or a CD. (Total Recorder 

can be downloaded over the Internet for $11.95.12

Listen.com—one of the services that we have agreed to license—uses a new technology that downloads approximately 99% of a song to a user’s hard drive, then 

streams the remaining 1% on demand. Other new technology allows consumers to 

listen to a song while it is downloading, implicating not only a copyright owner’s 

reproduction right, but also his or her right to be compensated for the public performance of the work. 

As these examples demonstrate, the line of demarcation between downloads and 

streams is already far from clear, and is likely to be further blurred as new technologies and business models develop. It would be unwise to codify an exception for 

a technology that is rapidly changing. 

The resulting loophole in the law, moreover, would create an artificial incentive 

for the market to favor the streaming model, regardless of whether streaming is the 

optimal music delivery technology from an efficiency or consumer standpoint. It 

would be as though Congress determined in the 1960s, that, in order to promote 

the nascent 8-track industry, that production of 8-track tapes would not be subject 

to mechanical royalty payments. There is no reason to favor one technology over another by creating a particular statutory exemption where, as here, the technology 

on which the exemption is based is one of several alternative technologies that are 

still evolving. 

THERE IS NO RISK OF ‘‘DOUBLE-DIPPING’’

Those who would prefer to avoid payment for the on-line use of copyrighted musical works have been heard to assert that songwriters and music publishers are 

‘‘double dipping’’ because they seek to be compensated for both the mechanical and 

the public performance value of their works. This argument ignores the express 

terms of the Copyright Act, which has long recognized that songwriters and music 

publishers possess several distinct rights in their works—including the right to reproduce and distribute copies of their songs (the mechanical right) and, separately, 

the right to perform those songs publicly. The Copyright Act also expressly entitles 

songwriters and music publishers to receive a royalty—a separate royalty—for the 

licensing of each of these rights. 

In amending section 115 in 1995, Congress was concerned that digital transmissions of music would displace sales of physical phonorecords. Congress correctly 

determined that, apart from any performance value, consumers’ ability to listen to 

particular songs on demand would be an effective substitute for purchasing those 

songs for their permanent collections. Thus, section 115 specifically defines a DPD 

as each individual delivery of a phonorecord, ‘‘regardless of whether the digital 

transmission is also a public performance of the sound recording or any nondramatic 

musical work embodied therein.’’ 13

The ‘‘double dipping’’ charge, therefore is seriously misleading. The rights to reproduce, distribute and publicly perform a work are separate and distinct rights 

23

14 17 U.S.C. § 201(d)(2). 15 141 Cong. Rec. S11957 (1995) (emphasis added).

under section 106 of the Copyright Act and have long been recognized as rights that 

may be independently owned and exercised. Indeed, the Act expressly provides that

[a]ny of the exclusive rights comprised in a copyright, including any subdivision 

of any of the rights specified by section 106, may be transferred as provided by 

clause (1) and owned separately. The owner of any particular exclusive right is 

entitled, to the extent of that right, to all of the protection and remedies accorded to the copyright owner by this title.14

Regardless of whether the rights are held by different owners or the same owner, 

there are independent income streams flowing from the reproduction and distribution rights licensed under Section 115, on the one hand, and the separately licensed 

performance right, on the other. Congress did not alter this basic principle of music 

copyright law in amending Section 115 to cover digital transmissions—in fact, as 

noted above, it explicitly preserved the distinct income streams by providing that 

a digital transmission can constitute a DPD regardless of whether it also constitutes 

a performance. As Congress explained then,

[t]he intention in [amending Section 115 to cover DPDs] is not to substitute for 

or duplicate performance rights in musical works, but rather to maintain mechanical royalty income and performance rights income for writers and music 

publishers.15

The separate exercise of the rights of reproduction, distribution and public performance is not unique to the music industry. The motion picture industry, for example, provides separate licenses for public display in theater, for pay-per-view and 

for DVD or video sales and rental. A person who pays to see a public performance 

of a movie in a theater is not entitled to a DVD or video copy of the movie without 

additional charge. Moreover, to include music in a motion picture or television program, a synchronization license to record the music on the soundtrack must be obtained; when the movie or the TV show is broadcast, a separate performance license—in addition to the synch license—is required. 

The technology of the Internet allows on-line services to render a public performance at the same time that a song is reproduced and distributed to the consumer, 

in which case the reproduction and distribution rights and the public performance 

right are all implicated. That each of these rights may be involved in a single transaction should not deprive song owners of the benefits of each right. 

CONCLUSION

In closing, I want to thank the Subcommittee for considering the views of the 

NMPA and HFA. And I am pleased to report the substantial progress that has been 

made toward launching fully licensed music services on the Internet. That progress 

is a direct result of the agreements we have reached with RIAA, Listen.com and others. The licenses we grant under the agreements will enable legitimate Internet 

music services to offer their customers the music that they love best—and will provide customers a legitimate alternative to unlicensed pirate services. At the same 

time, by confirming that on-demand streaming and limited downloads result in the 

creation of DPDs, the parties have ensured that songwriters and music publishers 

will be compensated at a reasonable rate for the value of their creative contributions. Under these agreements, the question of what rates Internet services should 

pay for the music will be determined through negotiations or, if necessary, in a 

CARP, under the auspices of the Copyright Office. 

We hope this testimony has demonstrated the effectiveness of the marketplace in 

meeting the unique challenges faced by copyright owners and users in developing 

fair licensing and business models to provide consumers on-line access to copyrighted music, while ensuring that songwriters and music publishers receive reasonable compensation for the value of that music.

Mr. COBLE. Thank you, Mr. Ramos. 

Mr. Sherman? 

24

STATEMENT OF CARY SHERMAN, SENIOR EXECUTIVE VICE 

PRESIDENT AND GENERAL COUNSEL, RECORDING INDUSTRY ASSOCIATION OF AMERICA, INC. 

Mr. SHERMAN. Good afternoon. I am Cary Sherman, senior executive vice president and general counsel of the Recording Industry 

Association of America. And I’m grateful for the opportunity to 

present our views on the Copyright Office’s study under section 104 

of the Digital Millennium Copyright Act. 

I would like to begin by congratulating the Copyright Office on 

the thoughtful and comprehensive report that it prepared. As I will 

detail in a moment, the careful analysis reflected in the office’s report has already been helpful in bringing a measure of clarity to 

the difficult and challenging issues that the office confronted. 

I would also like to thank this Subcommittee, under the leadership of Chairman Coble and Ranking Democratic Member Berman, 

for its careful and thorough examination and development of the 

law in this complex area over the past several years. We not only 

appreciate the expertise you have brought to these issues, but also 

the balanced manner in which you have considered them. 

I’ll devote most of my 5 minutes to one of the subjects addressed 

by the study: copies incidental to the digital performance of a musical work. 

One of the most difficult issues we have faced in applying copyright law to the new digital environment has been the licensing requirements for on-demand streams and limited downloads offered 

as part of new subscription services. 

On-demand streaming is the real-time transmission of songs chosen by the listener. Limited downloads refer to music files which 

are transferred to a user’s computer but can only be accessed for 

a limited period of time. 

Uncertainty about the licensing requirements for these services 

has been an impediment to the launch of digital music services. 

But since the release of the report, and in part because of the very 

helpful legal analysis set forth in it, RIAA, NMPA, and HFA have 

been able to agree on a common interpretation of the relevant provisions of the Copyright Act. And as a result, we agreed on a 

framework for licensing subscription music services. 

That agreement is posted on our website, so that anyone with an 

interest in these issues can read for themselves every provision of 

our agreement. 

In brief, the core elements of our agreement with the music publishers are that, consistent with the Copyright Office’s report, the 

process of making on-demand streams through a subscription service, as well as the process of making limited downloads, from the 

making of the server copy to transmission and local storage involves the making of a DPD. Webcasting of the kind covered by the 

statutory license for sound recording performances does not involve 

the making of a DPD. 

Consistent with the 1995 amendments to section 115, compulsory 

licenses to make on-demand streams and limited downloads are 

available under section 115 of the Copyright Act. 

HFA will now issue licenses for on-demand streams and limited 

downloads through subscription services, even though there is presVerDate Jan 17 2002 11:21 Mar 13, 2002 Jkt 000000 PO 00000 Frm 00028 Fmt 6633 Sfmt 6601 G:\WORK\COURTS\121201\76669.000 HJUD1 PsN: 76669
25

ently no statutory royalty rate for on-demand streams and it has 

not been clear what royalty rate applies to limit downloads. 

Our agreement contemplates that those questions will be answered by voluntary industry negotiations as authorized by section 

115 or by arbitration if necessary. But as is the case with other 

compulsory licenses, services may commence operations in reliance 

on their licenses while the rate-setting process continues. 

This agreement has many benefits. Most importantly, it will facilitate the immediate launch of licensed music services that will 

offer consumers a broad array of music and diverse methods of 

electronic music delivery. 

Indeed, new licensing deals have been announced between record 

labels, Internet music services, and music publishers. A number of 

Internet music services have already launched, and a number of 

others are scheduled to launch within days or weeks. Legitimate 

services are finally commencing operations. 

The agreement simplifies and expedites the process for licensing 

mechanical rights for subscription services. It provides for electronic bulk licensing to expedite the process, and licenses issued 

will be retroactive to the date of request. 

Moreover, for musical works owned by multiple copyright owners, HFA will issue a license if it represents any one of those owners. 

By resolving the legal uncertainties and providing a streamlined 

process for obtaining licenses, the agreement fosters competition in 

the nascent online music marketplace and represents the type of 

marketplace solution that Congress has urged to resolve these business and legal issues. 

Turning briefly to the other major issues in the Copyright Office 

report, we concur wholeheartedly with the office’s conclusion that 

no change should be made to the first sale doctrine in section 109. 

That provision is a limitation on the copyright owner’s distribution 

right, not the reproduction right. It was plainly intended to apply 

to physical copies, where disposing of the copy means that the 

original is no longer retained. To extend section 109 to distribution 

by means of digital transmission when there’s no meaningful way 

to ensure that the original has been destroyed would be to create 

a loophole that would undermine the fundamental objectives of the 

Copyright Act. 

With respect to the issue of archival copying and the interplay 

between the first sale doctrine and the fair use doctrine, the office’s 

suggestion that a court could conclude that copies lawfully made 

under the fair use doctrine may be freely distributed under section 

109 is troubling, because, as the Copyright Office points out, such 

an interpretation would clearly do serious damage to the copyright 

owners market. It would have a significant adverse effect on the 

market for recorded music if someone could make copies of entire 

recordings, perhaps a large number of such copies, and distribute 

them, perhaps for a profit, merely because the copies ostensibly 

were made for personal or backup use. 

This interpretation is so obviously incorrect, and it is so clear 

that Congress could not have intended such a result, that I think 

it unlikely that a court would ever adopt this mistaken view of the 

law. 

26

Thank you again for the opportunity to present our views, and 

I’d be happy to respond to any questions you may have. 

[The prepared statement of Mr. Sherman follows:]

PREPARED STATEMENT OF CARY SHERMAN

Good Afternoon. I am Cary Sherman, Senior Executive Vice President and General Counsel of the Recording Industry Association of America (‘‘RIAA’’), and I am 

grateful for the opportunity to present our views on the Copyright Office’s study 

under Section 104 of the Digital Millennium Copyright Act. 

I would like to begin by congratulating the Copyright Office on the thoughtful and 

comprehensive report that it prepared. The careful analysis reflected in the Office’s report has already been helpful in bringing a measure of clarity to the difficult and 

challenging issues confronted in the report, and will undoubtedly continue to provide insights in the months ahead. 

I would also like to thank this Subcommittee, under the leadership of Chairman 

Howard Coble and Ranking Democratic Member Howard Berman, for its careful and 

thorough examination and development of the law in the complex area over the past 

several years. The recording industry realizes and appreciates the expertise that 

this Subcommittee has brought to these issues, and we are grateful for the manner 

in which you have considered them. 

I will devote most of my time this afternoon to one of the subjects addressed by 

the study: copies incidental to the digital performance of a musical work. This has 

been an uncertain area of copyright law, and that uncertainty has been an impediment to the launch of digital music services. It was in an effort to eliminate that 

uncertainty that we petitioned the Office last November to address in a rulemaking 

the question of whether streams implicate the reproduction right, as well as other 

questions concerning the copyright status of certain kinds of transmissions made by 

digital music services. In its report, the Office discussed some of these questions, 

although it ultimately concluded that its answers to these questions were not so 

clear that they could be relied upon to make important business decisions. 

But the Office’s report did provide a very helpful legal analysis and perspective 

that has facilitated an emerging consensus on some of the vexing legal issues confronting the music industry and its partners in the online music market. Since the 

release of the report, RIAA, the National Music Publishers Association (‘‘NMPA’’) 

and its licensing affiliate The Harry Fox Agency (‘‘HFA’’) have been able to agree 

on a common interpretation of the relevant provisions of the Copyright Act, on the 

basis of which we have reached agreement on a framework for licensing subscription 

music services. This marketplace agreement became effective on October 5, 2001, 

and promptly thereafter, we posted it on our web site so that anyone with an interest in these issues could read for themselves every provision of our agreement. Not 

only is the agreement consistent with the legal analysis set forth in the Copyright 

Office’s report, but it is also a very important step in giving consumers widespread 

online access to the music they love. 

A copy of the agreement and a joint explanatory letter signed by representatives 

of the Recording Industry Association of America, the National Music Publishers Association, and the Harry Fox Agency is attached for the hearing record. 

I will give you some more details of this agreement in a moment, but first, so as 

to place it in context, I should give you a little background concerning music copyright law. Although the members of this Subcommittee may already be experts in 

this arcane area of the law, I will review the basics of the copyright law as it applies 

to music rights for the sake of completeness of the hearing record. 

Background 

Music involves two distinct copyrighted works: a ‘‘musical work’’ is the notes and 

lyrics of a song, and a ‘‘sound recording’’ is a particular recorded performance of a 

song. The copyrights in musical works tend to be owned by music publishers, and 

the copyrights in sound recordings tend to be owned by record companies. Copyright 

law gives the owners of both of those copyrights various exclusive rights. 

In the case of musical works, one of those rights, the ‘‘performance right,’’ allows 

the copyright owner to control the playing of the work for the public, either live or 

by transmission (whether a broadcast, Internet transmission or otherwise). Performance licenses typically are obtained from performing rights organizations such as 

ASCAP and BMI. 

Other of those rights are the ‘‘reproduction’’ right and ‘‘distribution’’ right. Since 

1909 there has been a compulsory license—called the ‘‘mechanical’’ compulsory license—that has allowed record companies and others to reproduce copies of recorded 

musical works and distribute them to the public. This compulsory license is codified 

27

in Section 115 of the Copyright Act. The vast majority of music publishers use the 

services of HFA to administer their mechanical licensing. 

In 1995, Congress clarified the application of the mechanical compulsory license 

to digital music services. To do that, Congress recognized a type of transmission 

called a ‘‘digital phonorecord delivery’’ or ‘‘DPD.’’ A DPD is essentially the distribution of a copy by means of a digital transmission. A compulsory license under Section 115 includes the right to make DPDs. 

Subscription digital music services are interested in offering consumers diverse 

methods of electronic music delivery. ‘‘On-demand streams’’ are one kind of offering 

that services would like to make available to consumers. These are real-time transmissions of recordings selected by users and delivered when the users want. The 

legal issue involving on-demand streaming has been that, while streaming creates 

the user experience of a performance, the operation of a streaming service involves 

making several different kinds of reproductions. So-called ‘‘server copies’’ reside on 

the computers used by a service to make transmissions. Other copies, called ‘‘buffer 

copies’’ in the Office’s report, reside briefly on a user’s computer. In between, many ‘‘transient’’ reproductions may be made. 

Until recently it has not been clear whether any of these reproductions are technically ‘‘copies,’’ and hence DPDs, for purposes of copyright law. And if they are 

DPDs, it has not been clear how the mechanical compulsory license applies. In particular, there has been no royalty rate for these so-called ‘‘incidental DPDs.’’

Services are also likely to offer what we call ‘‘limited downloads,’’ which are 

downloads that can only be played for a limited time, such as the duration of a subscription, or a limited number of times. It likewise has not been clear how the mechanical compulsory license applies to limited downloads. 

The Copyright Office’s study concluded that streams do implicate the reproduction 

right, implying that they are DPDs. The Office found that when a stream is licensed 

as a performance, certain reproductions made in connection with that performance 

probably qualify as a fair use, although it said that conclusion could not be relied 

upon with confidence in making important business decisions like whether to launch 

a service. Our agreement with NMPA and HFA will allow licensing of these activities, and those licenses will give companies the assurance they need to launch services. 

The Agreement 

Let me turn now to the core elements of our agreement with the music publishers: 

Consistent with the Copyright Office’s report, RIAA, NMPA and HFA have agreed 

that the process of making on-demand streams through a subscription service, as 

well as the process of making limited downloads, from the making of a server copy 

to transmission and local storage, involves the making of a DPD. Conversely, we 

agreed that webcasting of the kind covered by the statutory license for sound recording performances does not involve the making of a DPD. We also recognized, that 

consistent with the 1995 amendments to Section 115, compulsory licenses to make 

on-demand streams and limited downloads are available under Section 115 of the 

Copyright Act. Just as HFA administers compulsory licensing for physical product 

configurations, HFA now will issue licenses for on-demand streams and limited 

downloads through subscription services. To the extent that they have not done so 

already, we expect that record companies that have licensed their recordings to digital music services together with related mechanical rights will seek and obtain such 

licenses very shortly. 

NMPA and HFA also have announced that it is their policy to license not only 

RIAA members but also other digital music services that wish to negotiate comparable agreements. Thus, whether a service obtains its licenses through an RIAA 

member or directly from HFA, the agreement assures that an entity seeking to offer 

legitimate services will have the opportunity to obtain the appropriate licenses, and 

avoid the uncertainty that previously impeded the launch of services, promptly and 

through procedures that are not burdensome. By resolving disagreements over the 

nature and scope of the licenses needed by services and providing a streamlined 

process for obtaining the necessary licenses, the agreement also fosters competition 

in the nascent online music marketplace. 

I said that there has been no statutory royalty rate for on-demand streams, and 

it has not been clear what royalty rate applies to limited downloads. Our agreement 

contemplates that those questions will be answered by voluntary industry negotiations as authorized by Section 115 of the Copyright Act, or by arbitration if necessary. But, as is the case with other compulsory licenses, services may commence 

operations in reliance on their licenses while the rate-setting process continues. Although we intend to begin rate negotiations in the near future, the final determination of a statutory rate may take a while, so RIAA agreed to make an advance payVerDate Jan 17 2002 11:21 Mar 13, 2002 Jkt 000000 PO 00000 Frm 00031 Fmt 6633 Sfmt 6621 G:\WORK\COURTS\121201\76669.000 HJUD1 PsN: 76669
28

ment to HFA as a sign of good faith and to ensure that music publishers and their 

songwriters did not have to wait until a final rate is determined before receiving 

payment for the use of their musical works in subscription services. 

This agreement has many benefits:

• Most important, the agreement will facilitate the immediate launch of licensed music services that will offer consumers a broad array of the music 

they love and diverse methods of electronic music delivery. The agreement 

assures that an entity seeking to offer legitimate services across this range 

of options will have the opportunity to obtain the appropriate licenses promptly and through procedures that are not burdensome. Indeed, the proof is in 

the pudding. New licensing deals have been announced between record labels, 

Internet music services and music publishers; a number of Internet music 

services have already launched; and a number of others are scheduled to 

launch within days or weeks. Legitimate services are finally commencing operations.

• The agreement will benefit both record companies and Internet music services 

in launching subscription services on the Internet. The agreement is nonexclusive, so Internet music services will have the option of obtaining licenses 

directly from HFA or individual publishers, or seeking authorization from 

record companies that take licenses under the agreement.

• The agreement resolves legal uncertainties that have impeded the licensing 

of musical works for subscription services in a manner consistent not only 

with the law, but also Congress’ manifest intent in 1995 when it made clear 

that the compulsory license for musical works extends to digital delivery. The 

agreement thus clears the way for more productive negotiations of terms and 

rates of royalty payments.

• The agreement confirms that the compulsory mechanical license provisions of 

the Copyright Act are applicable not only to digital download services (i.e. 

selling recordings online just as they are sold on physical media), but also to 

the newer subscription service business models. This will enhance the availability of new delivery options and business models from which consumers 

can choose.

• It is clear that server copies will be licensed under the agreement and that 

they are covered by the compulsory mechanical license provisions of the Copyright Act. Having ready access to licenses that include the right to make server copies will be particularly reassuring for companies seeking to launch services.

• The agreement simplifies and expedites the process for licensing mechanical 

rights for subscription services. It provides for electronic ‘‘bulk’’ licensing to 

allow companies to obtain mechanical licenses very quickly. To facilitate the 

launch of services, licenses issued will be retroactive to the date of request. 

Moreover, for musical works owned by multiple copyright owners, HFA will 

issue a license if it represents any one of those owners, subject to the licensee 

paying the non-HFA co-owner its share of the royalties directly.

• By resolving uncertainties over the nature and scope of the licenses needed 

by services and providing a streamlined process for obtaining the necessary 

licenses, the agreement fosters competition in the nascent online music marketplace.

• The agreement provides a framework to establish fair royalty rates, while ensuring that services can launch and operate in the interim. We have always 

been willing to pay a fair royalty for the use of musical works. But it has been 

difficult to agree on what that is in the abstract. In the absence of legitimate 

music subscription services in the marketplace, offering real consumers real 

content in exchange for real dollars, we haven’t had the marketplace experience that would facilitate the kind of analysis leading to an agreed rate structure. But legitimate music subscription services couldn’t launch, and provide 

us the needed marketplace experience, in the absence of a license. Under the 

agreement, subscription services can go into business while the royalty rate 

is being negotiated among the affected industries. Should we fail to agree on 

a fair royalty rate, we will rely on the arbitration provisions of Section 115 

of the Copyright Act. Once a royalty rate is set, whether by negotiation or 

arbitration, payments will be made retroactive to the date the subscription 

services went into business.

• The agreement represents the type of marketplace solution that Congress has 

urged to resolve these business and legal issues.

29

• Having legitimate digital music services available in the marketplace sooner 

rather than later is very important to our continuing efforts to stem the tide 

of online piracy. We recognize that legal enforcement action alone will not put 

an end to the proliferation and growing use of pirate services. This agreement 

will allow record companies and their licensees to offer legitimate alternatives. 

First Sale Doctrine 

I would also like to address briefly the Office’s discussion of the first sale doctrine. 

We concur wholeheartedly with the Office’s conclusion that the reproduction of a 

new copy by means of a digital transmission is so different from the physical distribution of an existing copy that Section 109 should not be changed to address digital transmissions. Section 109 is a limitation on the copyright owner’s distribution 

right, not his or her reproduction right. It was plainly intended to apply to physical 

copies, where disposing of the copy means that the original is no longer retained. 

To extend Section 109 to distribution by means of digital transmission, when there 

is no meaningful way to ensure that the original has been destroyed, would be to 

create a loophole that would undermine the fundamental objectives of the Copyright 

Act. 

Archival Copies 

The other major part of the report concerns archival copying, and focuses on the 

interplay between the first sale doctrine and the fair use doctrine. The Office’s suggestion that a court could conclude that copies lawfully made under the fair use doctrine may be freely distributed under Section 109 is troubling. It is troubling because, as the Copyright Office points out, such an interpretation would clearly do 

serious damage to the copyright owner’s market. We hear constantly that it is a fair 

use for someone to reproduce our sound recording products in their entirety for personal or backup use. Whether or not that may be true in any particular situation, 

it should be clear to everyone that it would have a significant adverse effect on the 

market for recorded music if someone could make copies of entire recordings—perhaps a large number of such copies—and distribute them—perhaps for profit—merely because the copies ostensibly were made for personal or backup use. If a court 

were to adopt the misguided interpretation referred to by the Office, I have no doubt 

that every piracy case we pursue would get bogged down in this issue as even street 

vendors selling counterfeit CDs claimed they were just disposing of copies made for 

fair use. 

This interpretation is so obviously incorrect, and it is so clear that Congress could 

not have intended such a result, that I think it unlikely that a court would ever 

adopt this mistaken view of the law. 

In addition, I think that creating a new exemption would be a real mistake. We 

already worry about new consumer electronics devices with hard drives capable of 

storing the equivalent of hundreds of CDs of recorded music, either ripped from 

CDs, or more often, I fear, downloaded from infringing peer-to-peer systems. If Congress were broadly to sanction ‘‘archival’’ copying of all copyrighted works, such devices would proliferate, and inevitably be equipped with digital outputs and probably direct Internet connections, so that they could serve as engines of piracy that 

would make Napster and the current generation of peer-to-peer systems look tame 

by comparison.

The Copyright Office’s report addressed a number of important policy issues that 

should receive thoughtful review. We welcome careful consideration of these issues, 

and look forward to playing a part in it. 

Thank you again for the opportunity to present our views, and I would be happy 

to respond to any questions you may have.

AGREEMENT 

This agreement (the ‘‘Agreement’’), dated as of October 5, 2001 (‘‘Effective Date’’), 

is made by and between the Recording Industry Association of America, Inc. 

(‘‘RIAA’’), on the one hand, and National Music Publishers’ Association, Inc. 

(‘‘NMPA’’) and The Harry Fox Agency, Inc. (‘‘HFA’’), on the other (all of the foregoing collectively referred to as the ‘‘Parties’’). 

WHEREAS, record companies desire to offer to consumers, or authorize others to 

provide to consumers, certain digital music services that provide On-Demand 

Streams and Limited Downloads (as defined below); 

30

WHEREAS, music publishers desire to make their copyrighted musical works 

widely available to consumers by licensing such services; 

WHEREAS, while the Parties have differed concerning certain legal and procedural questions implicated by the licensing of musical works for use in such services, record companies have always believed that musical work copyright owners 

should receive for the use of musical works in digital music services a fair royalty 

that reasonably reflects the value of the use of those works, irrespective of the particular rights of the copyright owner applicable to that use, and music publishers 

have always believed that their copyrighted works should be made available 

through such services for fair compensation; 

WHEREAS, there has been litigation concerning the use of musical works in digital music services; the U.S. Copyright Office has issued a Notice of Inquiry whether 

to conduct a rulemaking concerning the legal status of On-Demand Streams and 

Limited Downloads; the U.S. Copyright Office has issued a report pursuant to Section 104 of the Digital Millennium Copyright Act addressing certain issues relating 

to streaming; and certain record companies may prefer to make business decisions 

concerning the launch of Covered Services (as defined below) with greater assurance 

concerning the legal status of such services; 

WHEREAS, the Parties desire to avoid the uncertainty and expense of litigation 

concerning the use of copyrighted musical works by Covered Services, and to provide 

assurance to record companies and others seeking to offer such services to consumers; 

WHEREAS, Section 115(c)(3) of the U.S. Copyright Act authorizes voluntary negotiations for determining royalty rates and terms under the mechanical compulsory 

license; and 

WHEREAS, in settlement of their differences and to facilitate the expeditious and 

widespread launch of digital music services, the Parties have reached this Agreement with respect to terms pursuant to which RIAA member record companies may 

obtain licenses to make and authorize On-Demand Streams and Limited Downloads 

of musical works in Covered Services; 

NOW, THEREFORE, pursuant to 17 U.S.C. § 115(c)(3), and in consideration of the 

mutual promises contained in this Agreement and for other good and valuable consideration, the adequacy and sufficiency of which are hereby acknowledged, the Parties hereby agree as follows:

1. Covered Services. Any member of RIAA that seeks to use, or authorize the use 

of, a copyrighted musical work for which an HFA publisher-principal has the right 

to grant the rights that are the subject matter of this Agreement in connection with 

the operation of one or more Covered Services may obtain through HFA on behalf 

of such HFA publisher-principal a mechanical license (‘‘License’’) to make On-Demand Streams and Limited Downloads of the work through Covered Services, 

through to the end user, including by making server and related reproductions of 

the work used in the operation of Covered Services. 

1.1. ‘‘Covered Service’’ means a service that offers (but the offerings of which are 

not necessarily limited to) On-Demand Streams and/or Limited Downloads of sound 

recordings of musical works from servers located within the United States (including the territories and possessions thereof), where the basic charge to users for the 

service is a recurring subscription fee (in contrast to the basic charge being a perdownload, per-play or per-song fee), including any use of such a service on a limited 

basis without charge to users in order to promote the subscription service. 

1.2. ‘‘On-Demand Stream’’ means an on-demand, real-time digital transmission of 

a sound recording of a single musical work to allow a user to listen to a particular 

sound recording chosen by the user at a time chosen by the user, using streaming 

technology, which may include but is not limited to Real Audio or Windows Media 

Audio, that is configured by the provider of the Covered Service in a manner designed so that such transmission will not result in a substantially complete reproduction of a sound recording being made on a local storage device (e.g., the hard 

drive of the user’s computer or a portable device) so that such reproduction is available for listening other than at substantially the time of the transmission. 

1.3. ‘‘Limited Download’’ means a digital transmission of a time-limited or other 

use-limited download of a sound recording of a single musical work to a local storage 

device (e.g., the hard drive of the user’s computer or a portable device), using technology designed to cause the downloaded file to be available for listening only either 

(1) during a limited time (e.g., a time certain or a time tied to ongoing subscription 

payments) not to extend more than thirty (30) days beyond the expiration of the 

user’s subscription, or (2) for a limited number of times not to exceed twelve (12) 

times after the expiration of the user’s subscription. 

31

1.4. Any member of RIAA that obtains a License hereunder is referred to herein 

as a ‘‘Participating RIAA Member.’’ Any member of NMPA or HFA publisher-principal that grants a License and/or accepts a portion of an Advance Payment hereunder is referred to herein as a ‘‘Participating NMPA/HFA Publisher.’’ The terms 

‘‘Participating RIAA Member’’ and ‘‘Participating NMPA/HFA Publisher’’ are limited 

to such entities and their majority-owned subsidiaries. 

1.5. Any digital music service that is majority owned by one or more RIAA members in the aggregate shall be entitled directly to obtain a License hereunder, and 

so shall be treated as a ‘‘member of RIAA’’ for purposes of Section 3.1. If such a 

service either obtains a License directly or is authorized under a License hereunder 

to make On-Demand Streams and/or Limited Downloads through Covered Services, 

such service shall be treated as a ‘‘Participating RIAA Member’’ for all purposes of 

this Agreement. 

2. Covered Deliveries. 

2.1. A License with respect to a musical work includes all reproduction, distribution and DPD rights necessary for Covered Services to make On-Demand Streams 

and Limited Downloads of that work, from the making of server reproductions to 

the transmission and local storage of the On-Demand Streams or Limited 

Downloads. A License does not extend to other transmissions made by a Covered 

Service or to activities not encompassed by a mechanical license, including, without 

limitation, print or display rights, merchandising rights, adaptation (derivative 

work) rights except as provided in Section 115(a)(2) of the Copyright Act, rights to 

synchronize musical works with visual images resulting in audiovisual works, or 

karaoke rights, all of which rights are specifically reserved. The Parties agree that 

server reproductions made under a License to transmit On-Demand Streams or 

Limited Downloads may be used to make transmissions other than On-Demand 

Streams and Limited Downloads; provided that the foregoing is without prejudice 

to any applicable requirement, if any, that the Participating RIAA Member also obtain a license for such other transmissions made using such server reproductions. 

It is understood that this Agreement does not address or extend to any performance 

rights that may be implicated by the making of On-Demand Streams or Limited 

Downloads through Covered Services. 

2.2. A License includes the right to make, and there shall be no separate payment 

or accounting for, On-Demand Streams of Promotional Excerpts (as defined below) 

of sound recordings of musical works licensed hereunder used for promotional purposes, provided that the applicable Participating RIAA Member shall be deemed 

likewise to authorize the relevant copyright owner or copyright owners of such musical work (or an organization of copyright owners designated by such copyright owners as their common agent) to make On-Demand Streams of Promotional Excerpts 

of that sound recording for the purpose of promoting that musical work without payment of any royalty. ‘‘Promotional Excerpt’’ is defined as a stream consisting of no 

more than thirty (30) seconds of playing time of the sound recording of a musical 

work, or in the case of sound recordings with a playing time of more than five minutes, a stream that is of no more than the lesser of ten percent (10%) or sixty (60) 

seconds of playing time of the sound recording of the musical work. 

3. Licensing Process. 

3.1. Commencing on the Effective Date, a member of RIAA may submit License 

requests in electronic form, either individually or batched, and either for On-Demand Streams and/or Limited Downloads alone or in combination with other configurations, substantially in accordance with Exhibit A. Promptly after the Effective 

Date, during the opt-out period described in Section 3.2, the Parties shall arrange 

discussions between appropriate personnel of HFA and of certain RIAA members 

concerning electronic licensing procedures, with the goal of refining and testing 

HFA’s electronic licensing procedures so that they can be used readily for the 

issuance of mechanical licenses expeditiously following the completion of such optout period, and with the goal of enhancing such procedures so that they later can 

be used readily by RIAA members to request and obtain mechanical licenses for all 

configurations for which they desire licenses in a single request. In addition, a member of RIAA may submit License requests by other means generally accepted by 

HFA, including but not limited to SirNet (for so long as it is available), HFA’s new 

web-based licensing system (when it becomes available), and HFA’s standard paper 

form (but only using paper forms for complex License requests (e.g., requests involving medleys or samples), in limited numbers during times when electronic licensing 

capabilities are unavailable, or at other times in numbers that are generally consistent with such RIAA member’s past use of paper forms, and in any case in numbers that do not exceed what HFA can reasonably be expected to process under the 

32

circumstances). HFA may modify its license request and license forms from time to 

time, provided that it gives reasonable notice thereof to RIAA and Participating 

RIAA Members and such modifications do not unreasonably affect the ability of Participating RIAA Members to submit license requests and obtain licenses. License 

forms may be issued electronically or in paper form, but when a Licensee submits 

a License request in electronic form in accordance with this Section 3.1, HFA shall, 

promptly after processing the License request, return to such Licensee an electronic 

file substantially in accordance with Exhibit A, with (1) the addition of that information indicated in Exhibit A as being ‘‘output’’ fields, (2) the addition of information, other than individual publisher share information, to complete any blank optional fields in the request, to the extent that such information is available in HFA’s databases and is matched to the request in the License issuance process, (3) the 

substitution of information concerning HFA publisher-principal names where such 

information in HFA’s databases is different from that in the request, and (4) the 

aggregated share of Participating NMPA/HFA Publishers. If an RIAA member submits a License request in accordance with this Section 3.1 but the request contains 

insufficient information for HFA to find a match for the relevant work in its databases, HFA will work with such RIAA member to provide the information necessary 

to enable a License to be issued, and if such RIAA member resubmits such request 

with the necessary information and the License can be issued, the provisions of Section 3.4 shall apply from the date of the original request. The Parties acknowledge 

the importance to NMPA, HFA and music publishers of having License requests 

submitted promptly, and the importance to RIAA and record companies of having 

License forms issued promptly. The Parties shall cooperate in good faith to promote 

each of those goals. 

3.2. The authority of HFA to license any individual musical work on behalf of its 

publisher-principals is subject to the approval of the relevant publisher-principal. 

HFA shall not require its publisher-principals to opt in to this Agreement either before or after commencing to issue Licenses, but HFA may establish an opt-out period 

before commencing to issue Licenses, provided that such period ends not later than 

six (6) weeks following the Effective Date. If an HFA publisher-principal at any time 

requests that HFA not issue Licenses on its behalf (either with respect to particular 

musical works or in general), HFA will honor that request; provided, however, that 

any such request shall not affect the validity or subsistence of a License issued prior 

to such request. During the opt-out period described in Section 3.2, HFA shall notify 

RIAA weekly of HFA publisher-principals that have notified HFA that they do not 

wish to make Licenses of their works available under this Agreement. Thereafter, 

through December 31, 2002, HFA shall notify RIAA quarterly of HFA publisherprincipals that have notified HFA that they do not wish to make Licenses of their 

works available under this Agreement. 

3.3. HFA shall issue mechanical licenses for DPD configurations (including but 

not limited to Licenses under this Agreement) with respect to a musical work in its 

entirety if one or more of its publisher-principals owns or controls a partial interest 

in such musical work, even if other co-owners of such musical work are not HFA 

publisher-principals, except that, pursuant to Section 3.2, if all the HFA publisherprincipals that own or control a partial interest in such work request that HFA not 

issue mechanical licenses on their behalf, HFA will not issue such licenses. In the 

case of a mechanical license issued as descibed in this Section 3.3, a Participating 

RIAA Member shall pay directly to each co-owner that is not an HFA publisherprincipal (or such co-owner’s authorized payee) such co-owner’s share of the applicable royalty payments under Section 6.1. 

3.4. License forms issued by HFA pursuant to this Agreement shall be retroactive 

to the date of the License request made by the Participating RIAA Member on or 

after the Effective Date in accordance with Section 3.1. To the extent that the Participating RIAA Member makes or authorizes On-Demand Streams and Limited 

Downloads of musical works pending the processing by HFA of license forms in response to proper License requests submitted on or after the Effective Date in accordance with Section 3.1, NMPA and HFA shall not directly or indirectly file, encourage, aid, support, finance, contribute to, promote, or participate in any claim, suit, 

action or proceeding asserting that such activities are infringing. 

3.5. Subject to Section 3.3, HFA shall also accept License requests to make OnDemand Streams and Limited Downloads through Covered Services of musical 

works as to which no HFA publisher-principal has any ownership interest or control, in whole or in part, and for which a License is not otherwise available under 

this Agreement. In such a case, HFA shall use commercially reasonable efforts to 

secure the requested Licenses from the relevant non-HFA publisher-principals on 

the same terms as apply to HFA publisher-principals under this Agreement. (NonHFA publisher-principals who grant Licenses through this arrangement shall be reVerDate Jan 17 2002 11:21 Mar 13, 2002 Jkt 000000 PO 00000 Frm 00036 Fmt 6633 Sfmt 6621 G:\WORK\COURTS\121201\76669.000 HJUD1 PsN: 76669
33

ferred to as ‘‘Participating Independent Publishers’’.) In addition to any commission 

charged to the Participating Independent Publisher, HFA may charge the relevant 

Participating RIAA Member a one-time administrative fee of ninety-five dollars 

($95) for each publisher that agrees to become a Participating Independent Publisher (it being understood that no such administrative fee shall be payable for any 

subsequent Licenses issued on behalf of that Participating Independent Publisher 

to any Participating RIAA Member), unless the Participating Independent Publisher 

also authorizes HFA to grant mechanical licenses other than Licenses under this 

Agreement, in which case no such fee shall apply. The Advance Payment described 

in Article 4 may be applied to such administrative fee when payable by a Participating RIAA Member specified by RIAA, and HFA shall provide to RIAA or an independent accounting firm designated by RIAA sufficient information concerning liability for such administrative fee to allow reconciliation of the Advance Payments 

as described in Section 4.4. When HFA arranges Licenses from Participating Independent Publishers pursuant to this Section 3.5, HFA shall collect and distribute 

mechanical royalties to such Participating Independent Publisher (or other authorized payees) unless the Participating RIAA Member requests to make such payments directly. 

3.6. It is understood that compilations of data supplied by HFA in electronic form 

pursuant to Section 3.1, except to the extent that they consist of data provided by 

the relevant Participating RIAA Member pursuant to Section 3.1, are proprietary 

in nature and shall not be used by the recipient Participating RIAA Member to engage in business activities in competition with HFA or for any purpose other than 

to request and administer licenses issued by HFA and/or other licenses such Participating RIAA Member acquires with respect to the same works or other works owned 

or controlled by the same copyright owners, and shall not be disclosed by the recipient Participating RIAA Member to any other party except insofar as it is reasonably 

necessary to disclose specific data relating to particular works for the purpose of requesting or administering licenses issued by HFA and/or other licenses such Participating RIAA Member acquires with respect to the same works or other works owned 

or controlled by the same copyright owners. 

3.7. Nothing in this Agreement, including but not limited to the availability of Licenses or the procedures for obtaining the same, shall preclude an RIAA member 

or digital music service from at any time serving or filing a notice of intention to 

obtain a compulsory license in accordance with applicable law or, other than in Article 8, imply that any notice of intention so served or filed is valid or invalid. Nothing 

in this Agreement shall preclude any digital music services from seeking, or HFA 

or any of its publisher-principals from granting, direct licenses to digital music services, including without limitation Covered Services, on whatever terms might be 

agreed upon between the relevant parties, and it is the intention of HFA to make 

such licenses widely available as described more fully in a press release to be issued 

by HFA. By taking Licenses pursuant to this Agreement, Participating RIAA Members will be able to facilitate on a prompt and widespread basis the availability of 

music over the Internet through Covered Services. 

4. Advance Payment. 

4.1. Within thirty (30) days after the Effective Date, RIAA, on behalf of Participating RIAA Members (including their licensees), shall pay to HFA a non-refundable advance royalty payment of one million dollars ($1,000,000) in the aggregate 

(‘‘Advance Payment’’). If, by the second anniversary of the Effective Date, there has 

then been no final non-appealable determination of royalty rates for On-Demand 

Streams and Limited Downloads through negotiation and/or a CARP proceeding, as 

the case may be, then, subject to Section 4.2, until such a determination, RIAA, on 

behalf of Participating RIAA Members (including their licensees), shall each month 

pay to HFA a supplementary Advance Payment of sixty-two thousand five-hundred 

dollars ($62,500) in the aggregate. 

4.2. Effective at the second anniversary of the Effective Date or any time thereafter, RIAA may terminate this Agreement upon thirty (30) days advance written 

notice to NMPA and HFA. In the event RIAA does so, all Licenses previously issued 

under this Agreement shall terminate at the same time as this Agreement, without 

prejudice to the right of Participating RIAA Members thereafter to obtain new licenses under 17 U.S.C. § 115. Effective at the second anniversary of the Effective 

Date or any time thereafter, any Participating RIAA Member may opt out of this 

Agreement upon thirty (30) days advance written notice to each of the Parties. In 

the event a Participating RIAA Member does so, (1) the provisions of this Agreement thereafter shall not apply to such Participating RIAA Member except as provided in Article 7, and (2) all Licenses previously issued to such Participating RIAA 

Member under this Agreement shall terminate at such time, without prejudice to 

34

the right of such Participating RIAA Member thereafter to obtain new licenses 

under 17 U.S.C. § 115. In the case of termination by either RIAA or one or more 

Participating RIAA Members, (a) payments shall be due in accordance with Section 

6.1 for activities under this Agreement prior to the termination of the relevant Licenses, (b) Advance Payments may be applied against such payments in accordance 

with Section 4.4, and (c) to the extent remaining, Advance Payments also may be 

applied to royalties due under new licenses for On-Demand Streams and Limited 

Downloads made through Covered Services, which licenses are issued by HFA at 

least one year after the relevant date of termination to the Participating RIAA 

Members whose Licenses were terminated. In addition, in the event a Participating 

RIAA Member that is one of the five ‘‘major record companies’’ (as that term is commonly understood, including any successors thereto and the subsidiaries thereof) so 

opts out of this Agreement, RIAA’s monthly supplementary Advance Payments 

under Section 4.1 thereafter shall be reduced proportionately, based on the number 

of major record companies at such time (e.g., if there are then five major record companies and one opts out, RIAA’s monthly supplementary Advance Payments shall 

be reduced by twenty percent (20%)). In addition to the foregoing, if there is a decision of the U.S. Copyright Office or a court, or any new legislation, inconsistent with 

Section 8.1, with the result that mechanical royalties are not required to be paid 

for some or all On-Demand Streams and/or Limited Downloads made through Covered Services, then the amount of RIAA’s monthly supplementary Advance Payments under Section 4.1 shall be reduced to take into account such decision or legislation, based on actual usage under this Agreement to date, with the exact amount 

of such reduction to be agreed upon by the Parties promptly after such decision or 

legislation; provided that if any such decision is appealed and finally reversed on 

appeal, the amount of RIAA’s monthly supplementary Advance Payments under 

Section 4.1 shall be restored, and RIAA shall promptly pay to HFA the total amount 

by which the supplementary Advance Payment was reduced in the interim. 

4.3. HFA shall deposit Advance Payments into an interest-bearing bank account 

(with such interest being treated as part of the Advance Payment). HFA shall be 

free to distribute the initial and supplementary Advance Payments to HFA publisher-principals in accordance with a reasonable and nondiscriminatory methodology based on market share, actual usage or a per musical work payment (which 

methodology HFA shall provide to RIAA), as well as to any Participating Independent Publishers pursuant to Section 3.5. Except insofar as it is recouped pursuant to Sections 4.4 and/or 4.5, the Advance Payment shall be nonrefundable. 

4.4. Upon the final non-appealable determination of royalty rates for On-Demand 

Streams and Limited Downloads through negotiation and/or a CARP proceeding, as 

the case may be, the total amount of Advance Payments (including interest) shall 

be applied against undisputed amounts owed to HFA on behalf of its publisher-principals and Participating Independent Publishers by Participating RIAA Members 

under this Agreement. Such Advance Payments shall be applied to the accounts of 

individual Participating RIAA Members as specified by RIAA, or an independent accounting firm designated by RIAA, by written notice to HFA within 45 days after 

the date of such final non-appealable determination of royalty rates. If the Advance 

Payments are not fully recouped at such time, any remainder of the Advance Payments thereafter shall be applied against all undisputed amounts owed to HFA on 

behalf of its publisher-principals and Participating Independent Publishers by Participating RIAA Members identified by RIAA, under mechanical licenses issued by 

HFA for On-Demand Streams and Limited Downloads made through Covered Services (including but not limited to Licenses under this Agreement), until such amount 

is fully recouped, unless RIAA notifies HFA of a different allocation of the Advance 

Payments among the accounts of Participating RIAA Members from time to time. 

HFA shall provide to RIAA or an independent accounting firm designated by RIAA 

sufficient accounting information to allow payments between RIAA and Participating RIAA Members, or vice versa, as necessary for each Participating RIAA 

Member ultimately to have paid to RIAA a net amount equal to that portion of the 

Advance Payments recouped by royalties actually owed by such Participating RIAA 

Member hereunder. 

4.5. At the request of HFA, with RIAA’s written consent, which consent shall not 

be withheld unreasonably, Advance Payments may be applied to other undisputed 

amounts (e.g., other mechanical royalties) owed by Participating RIAA Members to 

HFA on behalf of its publisher-principals.

5. Royalty. The royalty rate payable under a License shall be determined through 

negotiation and/or a CARP proceeding. The applicable rate will be structured as determined through negotiation or by the CARP, and may comprise separate royalty 

rate components for distinct uses of the musical work authorized by the License. 

35

The Parties shall meet to negotiate royalty rates in good faith, with the goal of concluding such negotiations promptly after the launch of Covered Services, and if an 

agreement is reached, jointly petition the U.S. Copyright Office for its adoption pursuant to 37 C.F.R. § 251.63(b). NMPA reserves its right to seek interest as a part 

of such royalty rate determination. RIAA reserves its right to seek to have such royalty rate determination reflect any payments under foreign copyrights in the case 

where On-Demand Streams or Limited Downloads are transmitted to users outside 

of the United States. Whether royalty rates are determined by negotiation or a 

CARP, and regardless of how royalty rate categories may be denominated, the Parties shall seek a determination of royalty rates such that it is clear which royalty 

rates are applicable to each of On-Demand Streams and Limited Downloads. 

6. Accounting and Payment. 

6.1. Beginning with the issuance of a License, a Participating RIAA Member will 

be required to account to HFA on a quarterly basis for activity under such License, 

45 days after the close of each quarter, providing information comparable to that 

presently provided for physical products, and specifically including the number of 

On-Demand Streams and Limited Downloads of each work made during such quarter. Without limitation, quarterly reports shall include a breakdown of On-Demand 

Streams and Limited Downloads made by Covered Services under Licenses in the 

applicable quarter, by musical work and delivery method code (indicating On Demand-Streams and/or Limited Downloads), and including ISRC number if available, 

catalog number if available and HFA license number if available (in the same manner indicated by the Participating RIAA Member in its License request), and shall 

identify the specific Covered Services in which such On-Demand Streams and Limited Downloads were made. Each Participating RIAA Member shall preserve all 

usage and financial data that reasonably should be expected to be relevant, upon 

the determination of royalty rates, to the calculation of royalties hereunder and use 

commercially reasonable efforts to require that each Covered Service it has authorized hereunder to make On-Demand Streams and Limited Downloads does the 

same. Subject to Article 4 and Section 3.3, upon the final non-appealable determination of royalty rates for On-Demand Streams and Limited Downloads through negotiation and/or a CARP proceeding, each Participating RIAA Member shall make the 

applicable payment for all previous quarters then completed, from the launch of the 

applicable Covered Services to date, within 45 days, to be accompanied by a cumulative statement setting forth and aggregating the information provided in the previous quarterly reports supplied under this Agreement. Thereafter, on a quarterly 

basis, 45 days after the close of each quarter, each Participating RIAA Member shall 

account to HFA for activities and/or revenues realized on such activities during such 

quarter as determined through negotiation and/or by regulation, providing such information as is required by regulation, a CARP, and/or a negotiated rate agreement, 

and, subject to Article 4 and Section 3.3, pay royalties at the applicable rate. Notwithstanding the foregoing, NMPA reserves its right to seek more frequent access, 

including without limitation real-time access, to usage information. 

6.2. At the request of HFA, a Participating RIAA Member shall accompany its 

quarterly reports with any available data in addition to that described in Section 

6.1 concerning the numbers of On-Demand Streams and Limited Downloads made 

through Covered Services operated or authorized by such Participating RIAA Member (but not any personally identifying information), which data is regularly gathered or compiled by such Participating RIAA Member or provided to such Participating RIAA Member by its licensees with the right to disclose such data to HFA 

hereunder; provided that a Participating RIAA Member may provide any such data 

to HFA in whatever form it is available to such Participating RIAA Member in the 

ordinary course of its business and subject to any applicable confidentiality and 

other contractual use restrictions; and provided further that, before making any 

such request, HFA shall review with the Participating RIAA Member the types of 

such data the Participating RIAA Member has and can disclose to HFA, and the 

form in which such data is available, and HFA shall not request, and Participating 

RIAA Members shall not be required to provide, data that (given the volume and 

form of such data, the degree to which such data is reflected in quarterly reports, 

the data processing capabilities of HFA and the Participating RIAA Member, HFA’s 

intentions to use such information, and other relevant factors) would not be commercially reasonable to provide. In addition, to the extent such information is available to a Participating RIAA Member and can be disclosed to HFA hereunder, at 

the request of HFA, a Participating RIAA Member shall accompany its quarterly reports with the total number of subscribers to and total number of subscriber months 

for each Covered Service operated or authorized by such Participating RIAA Member during the reporting period; provided that any such information relating to a 

36

Covered Service operated by a Participating RIAA Member shall be subject to an 

appropriate confidentiality restriction, and any such information provided to a Participating RIAA Member by a third party shall be subject to any applicable confidentiality and other contractual use restrictions. Notwithstanding the foregoing, to the 

extent that information requested by HFA under this Section 6.2 is subject to existing, proposed or future confidentiality restrictions that would preclude its disclosure 

to HFA, the relevant Participating RIAA Member shall in good faith seek the consent of the party that is the source of such information to disclose such information 

to HFA, subject to appropriate confidentiality restrictions.

7. Term. The term of this Agreement shall commence on the Effective Date and, 

subject to Sections 4.2 and 8.5, continue until the final non-appealable determination of royalty rates for each of On-Demand Streams and Limited Downloads 

through negotiation and/or a CARP proceeding. New Licenses shall continue to be 

issued pursuant to this Agreement for the duration of such term. Thereafter, RIAA 

member companies may request, and HFA shall issue, mechanical licenses covering 

On-Demand Streams and Limited Downloads at the applicable royalty rates in accordance with its customary practices for the issuance of licenses where there is an 

applicable statutory rate, which the Parties currently understand to include the 

means of application described in Section 3.1. Notwithstanding the foregoing, Licenses once issued under this arrangement shall remain in effect unless terminated 

for default in respect to payment (once royalty rates are determined) or accounting 

(either before or after royalty rates are determined) pursuant to 17 U.S.C. § 115(c)(6) 

(or other applicable provision of law, if any), it being understood that a License may 

not be terminated for such a default where the default is remedied as provided in 

17 U.S.C. § 115(c)(6). In addition, the provisions of Sections 3.6, 4.2, 4.4 and 4.5, and 

of Articles 6 and 7, shall survive the expiration or termination of this Agreement 

or any License under this Agreement. 

8. Legal Framework for Agreement. 

8.1. Subject to the other provisions of this Article 8, in order to settle issues in 

dispute and avoid litigation, provide assurance to record companies seeking to 

launch digital music services and enable HFA’s issuance of license forms for Covered Services hereunder: 

(a) The Parties agree that under current law the process of making On-Demand 

Streams through Covered Services (from the making of server reproductions to the 

transmission and local storage of the stream), viewed in its entirety, involves the 

making and distribution of a DPD, and further agree that such process in its entirety (i.e., inclusive of any server reproductions and any temporary or cached reproductions through to the transmission recipient of the On-Demand Stream) is subject 

to the compulsory licensing provisions of Section 115 of the Copyright Act. The Parties further agree that under current law the process of making streams that would 

qualify for a statutory license under Section 114(d)(2) of the Copyright Act does not 

involve the making or distribution of a DPD, and thus does not require a mechanical license. The foregoing does not express or imply any agreement that, and shall 

not be used to support any argument that, the process of making On-Demand 

Streams other than through Covered Services, or the process of making streams 

that would not qualify for a statutory license under Section 114(d)(2) of the Copyright Act (including, without limitation, because such streams are part of an ‘‘interactive service’’ (as that term is defined in Section 114(j)(7)) or exceed the ‘‘sound recording performance complement’’ (as that term is defined in Section 114(j)(13)) does 

or does not involve the making and distribution of a DPD, and the Parties expressly 

reserve all their rights with respect to that issue. 

(b) The Parties agree that under current law the process of making Limited 

Downloads through Covered Services (from the making of server reproductions to 

the transmission and local storage of the Limited Download), viewed in its entirety, 

involves the making and distribution of a DPD, and further agree that such process 

in its entirety (i.e., inclusive of any server reproductions and any temporary or 

cached reproductions through to the transmission recipient of the Limited 

Download) is subject to the compulsory licensing provisions of Section 115 of the 

Copyright Act. 

(c) The Parties agree that under current law a compulsory license to make OnDemand Streams and Limited Downloads through Covered Services (from the making of server reproductions to the transmission and local storage of the On-Demand 

Streams and Limited Downloads) is available under Section 115 of the Copyright 

Act. 

8.2. Subject to Sections 8.3 and 8.5, for the term of this Agreement, no Party, no 

Participating RIAA Member and no Participating NMPA/HFA Publisher shall take 

a position contrary to or inconsistent with Section 8.1, or lend support or resources, 

37

financial or otherwise, to any other person or entity taking a contrary or inconsistent position, before the Copyright Office, a CARP, a court or any other government office or tribunal. Thereafter, no Party, no Participating RIAA Member and 

no Participating NMPA/HFA Publisher shall commence or lend support to any action in court to challenge the validity of the rates determined pursuant to Article 

5 on the ground that On-Demand Streams and Limited Downloads do not involve 

the making or distribution of DPDs. It is understood that, for purposes of this Section 8.2, a Participating RIAA Member or Participating NMPA/HFA Publisher shall 

not be deemed to lend financial support or resources to affiliated entities merely 

through intra-enterprise financial arrangements in the ordinary course of business. 

8.3. Notwithstanding Sections 8.1 and 8.2, the Parties, Participating RIAA Members and Participating NMPA/HFA Publishers may at any time (1) raise and litigate 

(including, without limitation, before a CARP) the economic value of, and the appropriate royalty rates to be applied to, On-Demand Streams and Limited Downloads; 

(2) take or support any position they choose with respect to sound recordings (as 

distinguished from any musical works embodied therein) and the rights therein, including, without limitation, rights under Sections 106 and 114 of the Copyright Act, 

and (3) make or lend support to any arguments they choose to prosecute, or defend 

or counterclaim against, an infringement claim relating to activities before the Effective Date. Notwithstanding Sections 8.1 and 8.2, RIAA and Participating RIAA 

Members may at any time make or lend support to any arguments they choose to 

defend or counterclaim against an infringement claim relating to activities on or 

after the Effective Date, in the event that a License with respect to the relevant 

works is not available hereunder (it being understood that, subject to Section 8.4, 

NMPA, HFA and Participating NMPA/HFA Publishers may participate in the litigation of any such claim, so long as their doing so is consistent with Sections 8.1 and 

8.2). The Parties agree that they will act in good faith not to induce, promote or 

encourage the litigation of an infringement claim relating to activities as described 

in the immediately preceding sentence. 

8.4. To the extent that an action being litigated by RIAA and/or a Participating 

RIAA Member, other than that pending case in the Southern District of New York 

captioned Rodgers & Hammerstein Organization v. UMG Recordings, Inc., involves 

the question of the validity of a notice of intention to obtain a compulsory license 

as described in Section 8.1(c) for a musical work for which a License is not available 

under this Agreement, neither NMPA nor HFA shall participate in or lend support 

to such action. The Parties agree that they will act in good faith not to induce, promote or encourage litigation concerning the validity of a notice of intention to obtain 

a compulsory license as described in Section 8.1(c). 

8.5. To the extent that a final, non-appealable decision of the Copyright Office or 

a court, or any new legislation, is inconsistent with Section 8.1, this Agreement 

shall be inapplicable to the extent of the inconsistency as of the date thereof, but 

subject to Article 4, Participating RIAA Members shall not be entitled to a refund 

of any monies paid prior to such date. 

8.6. This Agreement is entered into in settlement and compromise of certain disputes among the Parties and to clarify certain aspects of the licensing of On-Demand Streams and Limited Downloads. Nothing in this Article 8 shall be used by, 

or be enforceable by, a third party not a Party to this Agreement, other than a Participating RIAA Member or Participating NMPA/HFA Publisher, in any manner or 

in any context, including without limitation in any legal proceeding. This Agreement 

does not give rise to any third-party beneficiary rights in any party other than Participating RIAA Members and Participating NMPA/HFA Publishers. The agreements set forth in this Article 8 and the course of dealing hereunder shall be inadmissible, and shall not be used to support any argument of law, in any litigation 

or arbitration relating to (1) activities before the Effective Date or (2) activities 

other than making and distributing On-Demand Streams and Limited Downloads 

through Covered Services, except making streams that would qualify for a statutory 

license under Section 114(d)(2) of the Copyright Act. 

9. Copyright Office Proceedings. 

9.1. RIAA and NMPA promptly shall file in the Copyright Office, in the Mechanical and Digital Phonorecord Delivery Compulsory License rulemaking proceeding 

(docket number 2000–7) (the ‘‘Proceeding’’), an appropriate mutually agreeable document (the ‘‘Joint Statement’’) signed by representatives of both RIAA and NMPA 

and (1) explaining that they have entered into this Agreement to resolve certain differences between them and enable the expeditious launch of subscription music 

services; and (2) describing the material terms of this Agreement (including without 

limitation the agreement in Section 8.1). Unless the Parties agree otherwise, the 

Joint Statement shall not address the question of whether the Copyright Office 

38

should or should not proceed with the Proceeding, and none of the Parties shall use 

the existence of the Agreement to argue to the Copyright Office that the Office 

should or should not proceed with the Proceeding. 

9.2. Either in the Joint Statement, in joint comments submitted in response to 

the Copyright Office’s Notice of Proposed Rulemaking dated August 28, 2001, or in 

a separate petition signed by representatives of both Parties to be filed in the Copyright Office promptly after the Effective Date, RIAA and NMPA shall request that 

the Copyright Office amend 37 C.F.R. § 201.18 to facilitate the licensing process for 

digital music services by addressing in a mutually agreeable manner such procedural issues as: 

(a) Permitting combined notices of intention; 

(b) Permitting service of notices of intention on the copyright owner’s agent, and 

designating HFA as agent for the receipt of such notices; 

(c) Eliminating the requirement that officer/director information be provided for 

publicly traded companies and their subsidiaries; 

(d) Permitting notices of intention to be signed by any authorized representative 

of the licensee; 

(e) Permitting mailing to a known correct address of the copyright owner; and 

(f) Permitting the service of notices of intention by regular mail.

10. Congress. As soon as practicable after the Effective Date, and before any relevant congressional hearings then scheduled, if possible, the Parties shall draft and 

submit a mutually agreeable letter to appropriate members of Congress describing 

this Agreement and the benefits thereof.

11. Memoranda of Understanding. Promptly after the Effective Date, HFA and 

RIAA shall commence good-faith negotiations to (1) revise and renew for an additional year the Memorandum of Understanding dated September 21, 2000 (the 

‘‘MOU’’) concerning interim licenses for DPDs, the revisions to address updated licensing procedures consistent with the licensing procedures to be implemented 

under this Agreement, and (2) enter into a second Memorandum of Understanding 

concerning certain licensing, payment and additional operational issues of mutual 

concern to HFA and RIAA members, which issues shall include: 

(a) record companies’ payment to HFA of 100% of royalties due for a particular 

musical work regardless of whether HFA acts as an agent for all owners of such 

work; 

(b) record companies’ provision of album label copy to HFA in order to facilitate 

the licensing process; and 

(c) what information concerning publisher names and shares appropriately should 

be provided by HFA to Participating RIAA Members, and the appropriate confidentiality protections therefor. 

Pending completion of such negotiations, HFA will continue to issue ‘‘Interim DPD 

Licenses’’ as described in the MOU in accordance with the practice that has developed under the MOU.

12. Economic Data. In order to help the Parties better understand and evaluate 

emerging business models for digital music services, RIAA and NMPA shall jointly 

hire an independent accounting firm to collect from Participating RIAA Members on 

a confidential basis information concerning the economics of emerging subscription 

service business models and report composite information to RIAA and NMPA for 

the duration of this Agreement.

13. Security. If RIAA or any Participating RIAA Member learns of any substantial 

(in terms of number of musical works affected, number of copies or prevalence) circumvention of security measures used by Covered Services resulting in unauthorized copying or distribution of sound recordings of musical works by authorized or 

unauthorized users of Covered Services, RIAA and/or the Participating RIAA Member shall use commercially reasonable efforts promptly to notify HFA of such unauthorized activity; provided, however, that RIAA and Participating RIAA Members 

shall be liable for damages for breach of this Article 13 only if, and to the extent, 

that they themselves are liable for direct, contributory or vicarious copyright infringement under applicable U.S. law, and in such case such damages shall be only 

those payable for such infringement.

14. Electronic Reporting. The Parties agree to work together in good faith to implement means whereby accounting information relating to Licenses will be provided 

to HFA in electronic, machine-readable form.

15. Publicity. RIAA and NMPA will issue a joint press release announcing this arrangement. In their communications to their members concerning this Agreement, 

the Parties shall recommend that their members avail themselves of this AgreeVerDate Jan 17 2002 11:21 Mar 13, 2002 Jkt 000000 PO 00000 Frm 00042 Fmt 6633 Sfmt 6621 G:\WORK\COURTS\121201\76669.000 HJUD1 PsN: 76669
39

ment. The Parties confirm that, subject to Section 8.6, this Agreement is not confidential. 

16. Miscellaneous. 

16.1. Governing Law. This Agreement shall be governed by, and construed in accordance with, the laws of the State of New York (without giving effect to conflicts 

of law principles thereof). 

16.2. Amendment. This Agreement may be modified or amended only by a writing 

signed by each of the Parties. 

16.3. Entire Agreement. This Agreement expresses the entire understanding of the 

Parties and supersedes all prior and contemporaneous agreements and undertakings of the Parties with respect to the subject matter hereof. 

16.4. No Effect on Other Agreements. Without limitation, this Agreement shall not 

terminate, supersede, limit or otherwise affect the enforceability of, or the rights of 

any of the respective parties to, any of the following agreements: (1) the Settlement 

Agreement dated as of October 17, 2000 between HFA, MPL Communications, Inc. 

and Peer International Corporation, on the one hand, and MP3.com, Inc., on the 

other, and any amendments thereto; (2) the Governing Agreement dated as of October 2000 between HFA, MPL Communications, Inc. and Peer International Corporation, on the one hand, and MP3.com, Inc., on the other, and any amendments thereto; (3) the Digital Phonorecord Delivery License dated January 15, 1999 between 

HFA and Emusic.com Inc., and any amendments thereto; and (4) the Amendment 

Agreement dated November 2000 between HFA and Emusic.com Inc., and any 

amendments thereto. 

16.5. Counterparts. This Agreement may be executed in counterparts, including by 

means of facsimile, each of which shall be deemed to be an original, but which taken 

together shall constitute one agreement. 

16.6. Headings. The titles used in this Agreement are used for convenience only 

and are not to be considered in construing or interpreting this Agreement. 

IN WITNESS WHEREOF, the Parties have executed this Agreement as of the Effective Date.

Edward P. Murphy 

President and CEO, NMPA

Hilary B. Rosen 

President and CEO, RIAA

Gary Churgin 

President and CEO, HFA

Cary Sherman 

Senior Executive Vice President 

and General Counsel, RIAA

40


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Mr. COBLE. Thank you, Mr. Sherman. 

Mr. Simon? 

STATEMENT OF EMERY SIMON, COUNSEL, BUSINESS 

SOFTWARE ALLIANCE 

Mr. SIMON. Mr. Chairman, Mr. Berman, and Members of the 

Subcommittee, I’m grateful for the opportunity to appear before 

you today to present the views of America’s leading software and 

computer companies on the section 104 report prepared by the 

Copyright Office. 

I would like to start by congratulating the Copyright Office for 

having produced a sound and well-reasoned report. With few exceptions, primarily in the area of its analysis on temporary copies, we 

support its analysis and conclusions. 

The report concludes that the law overall is working well and 

that changes in technology and the marketplace do not support significant changes at this time. We fully concur with this conclusion. 

I note that the Commerce Department, which was also charged 

with the responsibility for conducting a 104 report, and which is 

also well-situated to analyze technology, issued its report earlier 

this year and also concluded that the law is working well. And in 

fact, it concluded that no changes at all were necessary. 

The BSA member companies approach the issues and findings of 

the report with two equally important considerations. 

First, our member companies are determined and committed to 

making the Internet and e-commerce thrive. BSA member companies make the computers, software, servers, and switches that 

make e-commerce possible. 


Agree6.eps
46

As importantly, these companies suffer substantial losses due to 

piracy, amounting to billions of dollars each year. Strong copyright 

protection is the essential tool we rely on to attack and deter theft. 

We highlight these points because many of the submissions made 

in the course of this report suggests that these are incompatible 

and conflicting goals, that e-commerce will wither unless changes 

are made to section 109 and section 117. We disagree. 

We see no evidence in the marketplace that would support such 

grim predictions, and we are gratified to read that the Copyright 

Office has reached the same conclusions. 

On the issue of temporary copies, the report is a bit more of a 

mixed bag. The legal analysis is generally sound, but it contains a 

number of statements which we find, at the best, imprecise, both 

in terms of immediate impact and their implication. 

We’re pleased to see that the report concludes that the reproduction right covers all forms of copies, regardless of duration, including copies in RAM, random access memory. It correctly notes that 

the leading case, MAI v. Peak, has been followed without deviation 

or qualification by all courts that have considered the issue, and 

there appears to be no confusion among the courts. 

Clear legal protection of temporary copies is critically important 

to both the current and future business models of the software industry. Most popular computer programs are very large, consisting 

of millions of lines of code. Computers that run these programs operate by processing the code in pieces. The code is stored, fixed, 

buffered, or cashed in RAM—random access memory—until it is 

needed by the computer, at which time the central processor calls 

up the necessary data. 

Using software over the Internet, which is likely to increase substantially in the coming years, takes place essentially the same 

way. Anyone connected to the Internet through a personal computer, handheld organizer, telephone, or other device can make full 

use of that software by making only a temporary copy of all or part 

of that program in random access memory. 

Internet-based use typically takes place through the creation of 

temporary copies; some or all are temporary copies. Other than the 

single original copy on the host computer or server, no permanent 

copies need be made. 

A relatively new development in the software marketplace is the 

emergence of application service providers. These companies permit 

users of software products—use of software products without having to buy or install a copy on a local computer. The software is 

accessed as needed over the Internet; for example, once a week to 

write checks for employees or do basic bookkeeping. 

The marketplace evidence we think is clear: Our customers are 

becoming less interested in possessing a full copy of a software 

product than in having the software available to them as they need 

it. 

If temporary copy exceptions were somehow introduced, or different, additional exceptions were introduced into law, we think 

this would create uncertainty. 

I would like to turn to the specific conclusions of the report for 

a moment. It recommends changes to reproduction rights with respect to streaming performances of music. Although the BSA memVerDate Jan 17 2002 11:21 Mar 13, 2002 Jkt 000000 PO 00000 Frm 00050 Fmt 6633 Sfmt 6601 G:\WORK\COURTS\121201\76669.000 HJUD1 PsN: 76669
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1The Business Software Alliance (www.bsa.org) is the voice of the world’s software and Internet industry before governments and with consumers in the international marketplace. Its members represent the fastest growing industry in the world. BSA educates computer users on software copyrights; advocates public policy that fosters innovation and expands trade opportunities; and fights software piracy. BSA members include Adobe, Apple Computer, Autodesk, Bentley Systems, CNC Software/Mastercam, Compaq, Dell, Entrust, IBM, Intel, Intuit, Macromedia, 

Microsoft, Network Associates, Novell, Sybase, Symantec, and UGS. 

bers are not generally in the streaming audio business as such, the 

analysis that leads to this recommendation and the precedents it 

may set raise three questions. 

First, the language on its face appears to be ambiguous. It could 

suggest an amendment which created an exception to reproduction 

right, but it could also be read to advocate amendment which 

would declare temporary buffer copies not to be reproductions within the meaning of the Copyright Act. We would have substantial 

reservations about either of these approaches. 

Second, the report makes amply clear that the proposed changes 

would apply to buffer copies and not all temporary copies, but the 

concept of buffer copies is really indistinguishable from any temporary copy made in RAM, random access memory. In fact, the 

term ‘‘buffer’’ describes a function of the copy, a fixation of data 

packets in random access memory while they wait for recall from 

the device’s central processing unit. They are merely one form of 

random access memory copies. And as the report points out, RAM 

copies generally should not be treated differently from any other 

reproduction. 

Finally, while the report lists a number of justifications recommending this change, we find very troubling the rationale that the 

copies should be excused because they have no independent economic significance. If the Copyright Office is suggesting a concept 

of testing for economic value of a copy in determining whether it 

is a copy within the meaning of the Copyright Act, this proposal 

is without foundation or precedent. 

In conclusion, Mr. Chairman, every indication from the marketplace suggests that e-commerce and the Internet will continue to 

grow vigorously. Over the past 3 years since the enactment of the 

DMCA, that growth has accelerated, despite our economic slowdown. 

Thus, we would urge the Committee to proceed with utmost care 

to ensure that the positive developments now underway are not 

suppressed. 

Thank you very much. 

[The prepared statement of Mr. Simon follows:]

PREPARED STATEMENT OF EMERY SIMON

Mr. Chairman and members of the subcommittee, we are grateful for the opportunity to appear before you today to present the views of the software and computer 

companies that are members of the Business Software Alliance 1 on the Section 104 

Report of the Copyright Office. 

These comments will address four areas: the importance of the Copyright Act and 

the Digital Millennium Copyright Act (DMCA) to our industry; the first sale doctrine (section 109); temporary or buffer copies; and some miscellaneous points raised 

in the Report. As a general matter, we think the Report is sound, and well reasoned, 

and support its analysis and conclusions. We do have specific concerns in certain 

areas, most importantly in its analysis of the justification for, and scope, of its recommendations in respect of temporary or buffer copies. 

48

THE SECTION 104 DIRECTIVE FROM CONGRESS

It is our understanding that this Committee and the Congress directed this Report because, at the time of the enactment of the DMCA, it determined that changes 

to Sections 109 and 117 were not merited, beyond a narrow change for maintenance 

of computer programs that was made to section 117. 

In a very real sense, the Congress ordered this Report, as a prudential measure: 

to ensure that the enactment of the DMCA, and intervening developments in technology, did not harm the marketplace. The Copyright Office’s Report concludes that 

the law is working well, and that changes in technology and the marketplace do not 

support significant changes to the law at this time. We fully concur with this conclusion. 

THE REPORT’S CONCLUSIONS ON THE DMCA

The member companies of the BSA believe the DMCA is a good law, which has 

made a substantial contribution to the development of their businesses. Its provisions limiting remedies against service providers in certain circumstances have promoted cooperation by service providers in our efforts to stem the threat of piracy. 

While that collaboration has at times been imperfect, the law is working. Similarly, 

our companies are increasingly relying on technological protection measures to defend themselves against those who would steal their works. In both respects, the 

DMCA has accomplished its intended goal of updating the Copyright Act, and has 

thus contributed to increasing confidence and encouraging the greater use of the 

Internet. 

We wholeheartedly support the conclusion of the Report with respect to Section 

1201, the rules on circumvention of technological protection measures. The Report 

states: ‘‘We are not persuaded that Title I of the DMCA has had a significant effect 

on the operation of Section 109 and Section 117 . . . Consequently, none of the legislative recommendations made in this Report are based on effects of section 1201 

on the operation of {these} Sections) . . .’’ (At pg. 73) 

More specifically, Congress directed the examination of two provisions of the 

Copyright Act: the ‘‘first sale doctrine’’ codified in Section 109, and the backup and 

archival copies provisions contained in section 117. 

CONTEXT

Before commenting on the specific conclusions of the Report, I would like to note 

that the BSA’s member companies approach these issues with two considerations of 

equal importance.

1. First, our member companies are determined and committed to making the 

Internet and e-commerce grow and thrive. BSA member companies make the 

computers, software, servers, and switches that make e-commerce possible. 

Many of these companies are also in the business of providing web-design, 

data management, hosting and other critical services.

2. As important, these companies suffer substantial losses due to piracy, 

amounting to billions of dollars each year. Strong copyright protection is the 

essential tool we rely on to attack and deter theft.

We highlight these points, because many of the outside submissions made in the 

course of this Report suggest these are incompatible and conflicting goals, and that 

e-commerce will wither unless changes are made to Sections 109 and 117. We disagree: we see no evidence in the marketplace that would support such grim conclusions, and we are gratified to read that the Copyright Office has reached the same 

conclusion. 

Here are just two facts:

• Under current law, recent estimates suggest that e-commerce has grown ten 

fold over the past three years, and even though our economy has slowed, the 

growth in online transactions will continue to explode.

• By 2005, the BSA’s CEOs anticipate that a compelling 66 percent of software 

will be distributed over the Internet-compared to only 12 percent in 2000, accounting for over $40 billion in sales.

Having set the commercial context, I would like to focus in the balance of these 

comments on Sections 109 and 117. 

49

SECTION 109

Proposals considered by the Copyright Office included changing Section 109 to 

make all copies of all works, including software, distributed over the Internet—

whether by purchase, lease or license—transferable, regardless of the terms on 

which the copy was acquired. The Copyright Office Report unequivocally rejects this 

proposition, concluding that ‘‘. . . Section 109 does not apply to digital transmissions . . .’’ (at pg. 80) and that change in the law are not needed. 

Their reasoning, which we find both correct and compelling, focuses on issues of 

law and the practical threats of infringement in the marketplace. With respect to 

the issue of statutory interpretation, the Report correctly notes that the language 

of Section 109 must be read for what it is—modifying the distribution right—and 

if Congress had intended for it cover other rights, such as reproduction, Congress 

would have specifically included them. With respect to the marketplace realities, the 

Report concludes that it would be impossible to administer a rule that would require 

persons re-selling a copy of a work to simultaneously destroy the original copy in 

their possession. 

BSA agrees with these conclusions. If Section 109 were read to apply to digital 

transmissions of works, the already acute piracy problem our industry faces would 

become substantially worse. 

TEMPORARY COPIES

The second principal issue considered by the Report is that of temporary copies. 

In this regard the Report is mixed: it has elements of legal analysis that we support, 

but it contains a number of statements which we find at best imprecise, and potentially quite disturbing both in terms of their immediate impact and their precedent 

and implications. 

We are pleased to see that the Report undertakes a thorough and comprehensive 

analysis that the reproduction right covers all forms of copies, regardless of duration, including copies in RAM. It correctly notes that the leading case, MAI v. Peak, 

has been followed without deviation or qualification by all courts that have considered the issue. In MAI Systems v. Peak Computer the court held that:

Because the loading of software into a computer’s RAM creates a copy that can 

be perceived, reproduced, or otherwise communicated as defined by the Copyright Act, such loading . . . create(s) a copy protected under the Act . . .

As the Report correctly notes, this legal conclusion was endorsed and affirmed by 

Congress through the enactment of the Digital Millennium Copyright Act. Title III 

of which creates an exception for making a copy of a computer program by switching-on a computer for the purposes of maintenance or repair. This exception would 

have been wholly unnecessary if Congress had concluded that temporary copies 

should not be subject to protection. Moreover, Congress had ample opportunity at 

that time to create a broader exception. It did not. 

Finally, the Report notes that while a number of academic commentators have 

criticised Mai v. Peak, the Report also notes those criticisms are without merit, nor 

is there any evidence of confusion among the courts on the issues they raise. 

THE IMPORTANCE OF TEMPORARY COPIES TO SOFTWARE DEVELOPERS

These conclusions are critically important to both the current and even more significantly future business models of the software industry. Because most popular 

software programs are very large, consisting of millions of lines of code, computers 

that run these programs operate by processing the code in pieces. Code is stored 

(fixed, buffered or cached in RAM), until it is needed for the program to operate at 

which time the central processor calls up the necessary data. Proposals submitted 

to the Copyright Office would have put these copies of portions of a program outside 

the scope of the reproduction right. 

Our member companies, which make devices that ‘‘buffer’’ and cache data, do not 

see the logic of creating an exception from the reproduction right for these functions. 

Moreover, creating such exceptions could have dire negative economic consequences 

for the software industry. While exemptions from copyright liability are not to be 

made lightly, we do not object to creating exemptions from liability for temporary 

copies made in the course of otherwise authorized uses. 

A substantial percentage of the software piracy problem consists of unauthorized 

use of software over local-area networks (LANs). Piracy results if the number of people using a software program stored on a central computer known as a ‘‘server’’ exceeds the number of licenses that the LAN operator has purchased from the copyright holder. 

50

In the LAN environment, only one permanent copy needs to be installed on a 

server. Anyone connected to that LAN through a personal computer, handheld organizer, telephone, or other device, can make full use of that software by making a 

temporary copy of all or part of that program in random access memory (RAM). 

There is no need to make a permanent copy of the software on the internal memory 

of every PC or device to enjoy the full functionality of the software. Given the ubiquity of LANs, denying the software copyright owner the ability to control temporary 

digital copies in this environment is likely to significantly diminish the value of the 

software. 

Using software over the Internet—which is likely to increase substantially in coming years—takes place essentially the same way as in the LAN environment, but 

on a vastly larger scale. As in the case of LAN, Internet-based use typically takes 

place through the creation of temporary digital copies of some or all a computer program in the RAM of the PC or other device running the software. Other than the 

single original copy on the host computer or server, no permanent copies need be 

made. 

A relatively new development in the software marketplace is the emergence of application service providers (ASP). ASP’s permit a company to use a software product, 

without having to buy or install a copy on a local computer. The software is accessed 

‘‘as needed,’’ over the Internet, for example once a week to write checks for employees and to do basic bookkeeping. Consumers are also using web based software services to pay their taxes and design websites. 

ASP’s can be a popular choice for business users because developing and maintaining an information technology system diverts in-house resources away from a 

company’s main line of business. Companies are increasingly ‘‘outsourcing’’ their 

business software needs to outside vendors (ASPs). Companies find outsourcing attractive for several reasons including:

• Reducing the burden of maintaining in-house software systems

• Reducing the need for information technology staff;

• Allowing faster access to new software; and

• Creating a predicable cost structure for software use by substituting standard 

monthly service charges for up front payments.

The demand for ASP services is expected to grow rapidly, with some experts pre- dicting that it will become a $21 billion business by 2002. 

The marketplace evidence is clear: our customers are becoming less interested in 

possessing a full copy of our software products, than in having the software available to them, as they need them. Denying or limiting the legal ability of the copyright owner to control and manage the making of temporary copies flies in the face 

of this marketplace reality. 

THE REPORT’S RECOMMENDATION ON BUFFER COPIES

Turning to the specific conclusion of the Report, it recommends changes in the reproduction right. While these changes are narrowly cast with respect to streaming 

performances of music, and although the BSA members are not generally in the 

streaming audio business as such, the analysis that leads to this recommendation, 

and the precedents it may set, raises a number of important questions. 

The relevant part of the Report’s recommendation states:

We recommend that Congress enact legislation amending the Copyright Act to 

preclude any liability arising from the assertion of a copyright owner’s reproduction right with respect to temporary buffer copies that are incidental to a licensed digital transmission of a public performance of a sound recording and 

any underlying music. (at page 142–43).

This proposal raises three questions. First, the language on its face appears to be 

ambiguous. It could suggest an amendment which would create an exception to the 

reproduction right, but it could also be read to advocate an amendment which would 

declare ‘‘temporary buffer copies’’ not to be reproductions within the meaning of the 

Copyright Act. For reasons explained below, we would have substantial reservations 

about the either of these approaches. We believe the intent of the recommendation 

is to create an exception from liability, but not from the reproduction right or public 

performance right—for copies that are incidental to an otherwise licensed digital 

transmission of a public performance. Such an approach, if adopted by Congress, 

would be a more logical and measured means to address the interests of all parties. 

Second, the proposed change would apply to ‘‘buffer’’ copies, and not to all temporary copies, as the Report makes amply clear. The concept of buffer copies, however, is really indistinguishable from any temporary copy made in RAM. In fact, the 

51

term ‘‘buffer’’ describes a function of the copy (fixations of data packets in RAM 

while they wait for a call from the device’s processing chip). They are merely one 

form of RAM copy, and as the Report points out, RAM copies generally should not 

be treated differently from any other reproduction. 

Finally, while the Report lists a number of justifications for recommending this 

change, we find very troubling the rationale that these copies should be excused because they have ‘‘. . . no independent economic significance.’’ (at pg. 143.) If the 

Copyright Office is suggesting a concept of testing for the economic value of a copy 

in determining whether it is ‘‘a copy’’ within the meaning of the Copyright Act, its 

proposal is without foundation or precedent. Section 101 of the Act, directs the analysis to determine whether there has been a fixation, in a material object, from 

which the work can be perceived, reproduced or otherwise communicated. It stops 

there. The Copyright Office’s apparent suggestion that the Act contains a further 

precondition of economic value would present enormous problems to our industry. 

As I noted above, in both the local area network use of software, and in the ASP 

environment, full enjoyment the work may require only temporary copies. For copyright owners to have to prove that each such portion copied had distinguishable and 

independent economic value would create an enormous burden along with unprecedented uncertainty and insecurity. While the economic impact of a particular unauthorized temporary copy may be a relevant factor to be considered in analyzing 

whether the reproduction in question constitutes a fair use, see 17 USC 107, this 

‘‘economic value’’ evaluation should have no role in determining whether the making 

of that copy was an unauthorized exercise of the reproduction right in the first 

place. 

SECTION 117

The software industry is the specific object of the back-up and archival provisions 

of Section 117. With one notable exception discussed below, these provisions have 

not presented substantial issue for our industry. The software industry has been 

subject to this provision for over 20 years, and as the Report correctly notes, it has 

never been the subject of a reported litigation. The facts summarized in the Report 

are all correct: that prudent computer users regularly back-up their files, that such 

files may include a number of works, and that the act of making backups may result 

in the making of copies not specifically authorized. But there was no evidence presented in the submissions, nor is there any in the Report, that these practices result 

in either uncertainly, confusion or litigation. 

The Report discusses in some detail one aspect of Section 117 that has posed a 

problem for our companies. Recently, operators of pirate web sites have been posting 

notices on these sites suggesting that downloading software be excused by Section 

117. Their deliberate goal is to mislead, by suggesting that these acts of unauthorized downloading are not illegal. While the Copyright Office Report correctly notes 

that these posting by pirates have no basis in law, and are deliberately misleading, 

the Report does not make any recommendations on how to address the problem. As 

this Committee proceeds with its work, we would urge you to take these facts into 

account. 

TWO FINAL POINTS

First, the Report notes that ‘‘tethering’’ copies of works to a particular machine 

may, if it becomes widespread, have implications for the first sale doctrine. We respectfully disagree. ‘‘Tethering’’, as used in the Report, consists of making a copy 

of a work available for use with a specified device. One of the most serious piracy 

problems confronting the software industry is the loading on multiple machines, 

sometimes thousands of machines, of a single copy of a word processing or accounting software program. This practice, common within corporations, causes substantial 

lost sales and direct harm. Copyright owners may, in certain circumstances, find 

that ‘‘tethering’’ copies of works, through the use of technological measures, to one 

or a limited number of devices is the only practical solution for addressing piracy 

of this sort. 

Finally, almost as an afterthought and certainly outside the scope of the Section 

104 mandate, the Report includes a section on contracts and licensing practices. The 

Report correctly states that there ‘‘is consensus among the courts that enforcement 

of contracts is not prohibited . . .’’ by the Copyright Act, and cities the leading case 

of ProCD v. Zeidenberg for this proposition. It also notes that no court has overruled 

contract provisions relying principally in its reasoning on the Copyright Act. The Report nonetheless suggests that the freedom of parties to contract should be monitored. We find this concept very troubling indeed. Parties have long used contracts 

to specifically state which of the copyright owners bundle of rights (reproduction, 

52

distribution, translation, etc.) are implicated by a particular transaction. With the 

advent of the Internet, it has become commonplace for software developers to make 

their works available subject to a ‘‘click-I-agree’’ contracts where the user must click 

on an onscreen ‘‘I agree’’ button in order to begin using the program. These practices 

and use of contracts generally, are critical to the way our industry works. The rules 

governing these contracts has been upheld consistently the courts. Moreover, contract law has historically been a matter of state law, and those laws contain safeguards, such as unconscionability doctrines, to protect against abuse. 

CONCLUSION

In conclusion, every indication from the marketplace suggests that e-commerce 

and the Internet will continue to grow vigorously. Over the past three years since 

the enactment of the Digital Millennium Copyright Act, that growth has accelerated. Thus, we would urge this Committee to proceed with utmost care to ensure 

that the positive developments now underway are not suppressed by the legislative 

initiatives you pursue. Our concerns in this regard are most acute in respect of the 

changes you may consider with respect to the reproduction right.

Mr. COBLE. Thank you, and I thank the entire panel. 

Now, we have imposed the 5-minute rule upon you all, and in a 

sense of fairness, we will impose the 5-minute rule upon us as well. 

If the Members want it, I am not adverse to a second round of 

questioning, so we’ll sort of play that by ear. 

Ms. Peters, is it your opinion that, if a temporary reproduction 

has no economic significance, it does not implicate the copyright 

owner’s reproduction right? 

Do you want me to repeat that? 

Ms. PETERS. Yes. 

Mr. COBLE. Is it your opinion that, if a temporary reproduction 

has no economic significance, it does not implicate the copyright 

owner’s reproduction right? 

Ms. PETERS. No. That is not our position. 

In fact, we conclude that these temporary copies are in fact copies, and then the question is whether or not there should be liability. In other words, you need to license the use. 

And the piece about whether or not it has any economic significance, it is whether or not it has any separate economic significance apart from the licensed use. 

In other words, you license the activity, and what we’re saying 

is, in this case, the copies that are made merely facilitate the licensed use. And we believe that because it facilitates the use that’s 

licensed, they don’t have any separate economic value apart from 

that already licensed use. 

Mr. COBLE. Hypothetically, if the parties at this table, and other 

tables on the issue, hammered out an agreement satisfactory to all, 

do you believe that legislation would still be needed? 

Ms. PETERS. Well, I guess you’re referring to the NMPA-RIAA 

agreement. To the extent that they agree between themselves that 

this is a way to solve the problem, it is fine. As to whether or not 

that is good copyright policy that should be binding on everybody, 

I think that’s a different issue. 

And so, to the extent that we believe that our recommendation 

is sound copyright and balanced copyright policy, we would stay 

with our recommendation. 

Mr. COBLE. I thank you. 

Mr. Sherman, now that you’ve reached an agreement with the 

music publishers, do you want the Congress to codify it, A, and, if 

53

not, do you think that the agreement or the deal eliminates the 

need for Congress to act on the recommendations in the report? 

Mr. SHERMAN. At this point, it’s our feeling that our agreement 

does obviate the need for congressional action. We have always said 

that we prefer marketplace responses to these kinds of problems. 

These are business problems in need of business solutions. They’re 

best worked out across the negotiating table. 

If we were to rely on Congress to solve these problems for us, 

we’d be back here every 6 months, every time a new business 

model has emerged that is a new wrinkle on an old problem. 

We’re very pleased that we were able to, across the negotiating 

table, come up with a system that provides a framework for this 

system to operate. And, therefore, we think that legislation is not 

necessary at this point. 

Mr. COBLE. Well, I concur. There’s much to be said for marketplace resolutions. I don’t disagree with that. 

Mr. Ramos, we’ve heard a great deal today about downloads versus streaming, various business models for online music services, 

and developments in licensing that will enable the launch of these 

services. How much business has been created by these new services? 

Mr. RAMOS. Mr. Chairman, regrettably, to date, virtually no business has been generated by legitimate services. The market has 

been dominated by pirates who are giving away my clients’ copyrighted works free. That is the major problem that we face today. 

And we believe that through this deal with RIAA that we will 

be able to assist the legitimate services to get out there and compete with the illegitimate ones, and that that is a positive step in 

the right direction. 

Mr. COBLE. I thank you. 

We didn’t start my time until about a minute late, so technically 

my time has expired. 

Mr. Simon, I will get you on the next round. I’ve not been ignoring you. 

The gentleman from California? 

Mr. BERMAN. Thank you. Mr. Chairman, I’d like to ask Ms. Peters a couple of questions, and then hear her answer, and if any 

other members of the panel want to add, contradict, comment on 

her answer, I’d be happy to hear them. 

First, let’s get to this issue of the RAM buffer copies. Part of the 

reason why you thought there was a good case to be made that this 

was a fair use was the absence of economic harm, as I understand 

it. Is that a fair—— Ms. PETERS. Right. We believed——

Mr. BERMAN [continuing]. Assumption? 

Ms. PETERS [continuing]. That, yes, there was no separate economic value to the buffer copy. 

Mr. BERMAN. Well, initially that struck me as a good argument. 

But at least the music publishers say, take this case, the streaming, the interactive digital streaming on demand, this is different 

than radio or webcasting in that sense, because now you’re getting 

the music in perfect quality, exactly when you want it, and at any 

time that you want it; and that that is going to replace a sale, because why buy it, if I can get it any time I want it; and that, thereVerDate Jan 17 2002 11:21 Mar 13, 2002 Jkt 000000 PO 00000 Frm 00057 Fmt 6633 Sfmt 6601 G:\WORK\COURTS\121201\76669.000 HJUD1 PsN: 76669
54

fore, there is economic harm to the writers and owners of that 

copyright of that musical work; and that, therefore, this temporary 

buffer copy should be implicated as a—in the context of developing 

a legitimate mechanism for compensating; forget why the copy is 

made or what utility that copy has, that this is a good mechanism 

to balance equities with. And I would like to get your response to 

that argument. 

Ms. PETERS. I agree with you until you get to the issue with the 

buffer copy. I agree that on-demand streams can have a negative 

impact with regard to the sale of records, because if you can get 

it whenever you want it, why own the physical object? 

But what’s happened is, it’s the performance right that is implicated, and it’s the value of the performance right that has now increased. 

Mr. BERMAN. Well, I mean——

Ms. PETERS. Because the random access—you never make a copy 

from what’s in the random access memory. 

Mr. BERMAN. I understand that. But in reality, one plays his own 

CD, and it’s not a public performance, but there’s—in other words, 

we worked out these mechanisms ages ago to get in—to deal with 

the radio, the broadcasting, and the public performances versus the 

purchasing of a record or a CD. Now you have this individual—the 

streaming to the individual——

Ms. PETERS. Right. 

Mr. BERMAN [continuing]. And on-demand at any time. Why isn’t 

that more analogous to the purchasing of a CD? And why won’t it 

replace the purchasing of the CD? 

Ms. PETERS. It may, but the activity is essentially a performance. 

What you’re getting at is the copyright law, as it exists today, 

breaks things into rights and you attach them to rights. This problem, and the reason why we only have this problem in the music 

area, was because there are two organizations that administer different rights. It didn’t come up in any of the other areas because, 

if you are going to a company that owns all of the rights and you 

identify the activity, they price that activity. But if in fact different 

rights are administered by different people, each one has got to 

grab on to the piece that they have. 

But the truth of the matter, with regard to streaming, is that it’s 

performance. The European Union has in its directive a mandated 

exception. The activity that we propose to exempt is required to be 

exempted under the European Union directive. 

So it’s not that what we’re suggesting is that far off. But all I’m 

saying is, the value is in the performance. What my argument is, 

is the performance right value goes up. The performance right 

value goes up. The music publishers get paid from the performing 

rights organizations. And the composers and lyricist get paid, and 

get paid directly. 

So my own analysis is that they don’t lose. It’s just who gets to 

dish out the money and who gets to administer the right. 

Mr. BERMAN. Mr. Chairman, could I just—does anyone else on 

the panel, particularly Mr. Ramos, want to make any response to 

this? 

Ms. PETERS. I am sure they do. [Laughter.] 

55

Mr. RAMOS. I just don’t want to run over the time. If I may, I 

would like to address that. 

I appreciate that this issue was a difficult one for the Copyright 

Office to address, because the questions of economics in this industry are not simply resolved. 

I guess what I would say is that the objective of the music publishers and the songwriters they represent here is to hold on to the 

meager income streams—no pun intended—that they already have. 

And if they lose the income streams from on-demand streams on 

the Internet, they’re going to lose income. They’re going to be worse 

off. 

And we believe that that should not be a necessary consequence 

of the development of music delivery on the Internet, as opposed 

to in the physical world. 

Much has been made of this concept of the double-dip, and it has 

a certain superficial appeal, but the reality is that IP is not ice 

cream. We’re not talking about taking two dips of ice cream. These 

are two distinct, separate rights that have been recognized in copyright law for over a century: the right of reproduction and distribution, and the right of public performance. 

If I take a stack of CDs down to an auditorium for a high school 

dance and play those CDs, there’s no question but that I need a 

performance license. That doesn’t mean that I am entitled to go 

into Tower Records and take a stack of CDs without paying for 

them on the theory that, because I’m going to perform them, it 

would be a double-dip for the copyright owner to be paid for the 

record as well as the performance. 

That has been the case for years in copyright law. And we think 

there’s no reason for departing from that very simple concept. 

There are two streams that the copyright owner relies on. They 

are meager streams. We are the small mammals——

Mr. COBLE. Mr. Ramos, if you’d wrap up——

Mr. RAMOS [continuing]. Going around the feet of the mighty animals. 

Mr. COBLE [continuing]. Because I think your time is about up. 

Mr. RAMOS. I’m done. Thank you. 

Mr. COBLE. Thank you, sir. 

Mr. RAMOS. Thank you, Mr. Chairman. 

Mr. COBLE. The gentleman from Tennessee. 

Mr. JENKINS. Thank you Mr. Chairman. I don’t have any questions at this time. 

Mr. COBLE. I thank the gentleman. 

The gentleman from Michigan, Mr. Conyers. 

Mr. CONYERS. Thank you, Mr. Chairman. 

Somewhere in this discussion there are issues far more complex 

than I ever imagined, very heavy philosophical questions, tremendous economic free-market considerations. 

Mr. Sherman, I think you’re the biggest free marketeer on the 

panel. Why doesn’t the government just butt out of this stuff, and 

we wouldn’t even have this hearing, and let the market work its 

way? What’s wrong with that? 

Mr. SHERMAN. At this point, I think that’s what’s happening. I 

think the fact that Congress has actually been looking at these 

56

issues has actually been helpful in pushing the parties to work out 

these issues, and there really has been a beneficial effect. 

But at this point, government regulation of this marketplace is 

more likely to interfere with the natural evolution of the marketplace than benefit it. 

Mr. CONYERS. Right. That comes down to ‘‘butt out.’’ [Laughter.] 

Mr. CONYERS. OK, let’s go to the next consideration. 

Mr. SHERMAN. I don’t think I can say that as freely as you can. 

[Laughter.]. 

Mr. CONYERS. Oh, OK. 

And that might extend to antitrust considerations. I mean, we’re 

always, ‘‘What’s happening? Who’s merging? Who’s weighing in? 

Who’s using their weight?’’ You think there’s little bit too much of 

that, too? 

Mr. SHERMAN. I don’t think I can——

Mr. CONYERS. Just between you and me. [Laughter.] 

Mr. SHERMAN. I think it is an unusual situation where companies with a 0 percent market share are being investigated for antitrust activity, but the marketplace will evolve. And the antitrust 

law should remain fully applicable and applied as deemed warranted, as the market develops. 

Mr. CONYERS. Well, you’re losing some of your free-market credentials here, sir. 

OK, what about people being compensated for their ownership, 

creativity, even though they may not be corporations? What about 

that? 

Mr. SHERMAN. Absolutely. Relationships with artists are critical 

in the industry. Without the artists, we wouldn’t have music to 

sell. 

Mr. CONYERS. Well, that’s great. We’re coming a long way now, 

because for a long time, that wasn’t the case. 

I mean, there are a lot of artists, not all of them dead, who never 

got a dime, and people made millions and millions of bucks. Did 

you know that? 

Mr. SHERMAN. I have certainly heard that reported. But whatever the experience was in the past, I assure you that artists today 

are very well represented in their negotiations with record labels. 

In fact, most major record labels will not even negotiate with an 

artist unless they’re represented by a lawyer. 

Mr. CONYERS. I didn’t know that. 

You know what I know? I know artists who come in with their 

product, and they’re given a contract, and they’re told, ‘‘You’ve got 

24 hours to sign this, buster. And if you don’t sign it, don’t ever 

walk in this door again.’’

You ever heard that before? 

Mr. SHERMAN. Actually, I haven’t, but I’ve heard of lots of stories 

where——

Mr. CONYERS. You’ve heard allegations——

Mr. SHERMAN [continuing]. There are multiple companies bidding 

for the same artist, and those artists and their agents are able to 

put one bid against another and increase the advance and royalties 

that they’re paid. That is the effect of a marketplace. 

Mr. CONYERS. Well, that’s the free market at its finest moment, 

right? 

57

Mr. SHERMAN. Well, it is the marketplace at work, yes. 

Mr. CONYERS. That’s the real world. 

Well, I suggest that maybe we’re both looking at the same glass 

of water, but you’re looking at it from the top. 

See, Quincy Jones really doesn’t need ASCAP, to be honest with 

you. I mean, he can negotiate his own terms. But Barry Gordy, 

when he first started out, he needed every CAP there was in town, 

because he couldn’t negotiate anything. 

And so if you look at it from the top, it’s great. I mean, the big 

guys, if you make it, you can sit down and do what you’re talking 

about. 

The little guys that you’ve heard allegations of, that I reported 

to you, of which there are many more than there are the guys at 

the top, guess what? They’re told that if they try to change as 

much as a clause in this contract drawn up by the lawyers, they 

can just keep the contract and their music and go somewhere else. 

So what we’re trying—this is where the government comes in, 

Mr. Free Market Celebrity for This Panel, named by me. This is 

what the government does, my man. We create policy, and we 

think that there’s something—there’s a pirate problem in here 

somewhere that seems to me so simple and elementary, I can’t figure out what all this very lofty conversation is about. 

But maybe I’ll see you on the next panel, next round. 

Mr. COBLE. The gentleman’s time has expired. 

The gentleman from Utah, Mr. Cannon. 

Mr. CANNON. Thank you. 

Given Mr. Conyers’ line of questioning there, I hope he’ll consider 

cosponsoring the Music Online Competition Act, which provides for 

direct payment to artists. 

Mr. Chairman, I’d ask unanimous consent to submit for the 

record a recent article from the Washington Post. 

Mr. COBLE. Without objection. 

[The information referred to follows:]

58


WP1.eps
59

Mr. CANNON. Thank you. 

This article reviews the MusicNet digital music service offered by 

some of the major labels represented here today by the RIAA. The 

article offers, to say the least, a very harsh assessment of MusicNet 

from a consumer perspective, saying MusicNet represents one of 

the worst consumer bargains since the DivX pay-per-view DVD 

scheme. 

The article also notes each download expires in 30 days. You cannot make a backup copy of a song, write to a recordable CD, or 

transfer it to a portable player. The record labels made this choice, 

electing to sacrifice convenience and choice to copy protection. 

Those behind PressPlay, a competing subscription system, seem on 

their way to making the same mistake. 

Mr. Sherman, the article and others suggest that the major labels do not intend to fully embrace the Internet, preferring instead 

to continue to derive their revenues from the more lucrative and 

costly to consumers CD marketplace. 

Reviews of the new online music services stand in direct contrast 

to what your superior, Hilary Rosen, promised last April before the 


WP2.eps
60

Senate Judiciary Committee, when she urged us to stay tuned for 

the rollout of services like MusicNet and to just give the industry 

time. 

Specifically, she said, ‘‘I am amused by those who suggest that 

record companies don’t want to be online with legitimate music, 

that we don’t want to serve our customers.’’ But the realities of MusicNet, the MusicNet offering, seemed to 

confirm just the opposite. Of the top 20 billboard CDs for this 

week, only two have tracts available for download on the MusicNet 

services, and both those two CDs—that is Britney Spears and the 

Backstreet Boys—are distributed by Zomba Records, the largest 

independent label. 

In short, the major labels have not made a single track available 

from top-selling CDs, even as rentals to download using that service. 

Mr. Sherman, in your opening statement you said that the RIAANMPA deal will bring competition to digital music. Today’s hearing 

is to examine the need for change to the copyright laws. However, 

I look forward to measuring your statement on competition in antitrust hearings next year on this issue. 

But now for a question, if we can get there: Is the present copyright system under the DMCA in part to blame for your member 

companies’ inability to offer what consumers want, or is it solely 

a function of your industry’s desire to maximize control over content and profit margins? [Laughter.] 

Mr. SHERMAN. That’s one of those questions like, ‘‘When did you 

last stop beating your wife?’’ [Laughter.] 

The truth is that it really would be a mistake to think that 

record companies don’t want to be online, because they have to be 

online. They have no choice. 

Right now, the online marketplace is simply a pirate marketplace. It is where all the music is available for free, any time of 

the day or night. 

So record companies, even if they didn’t want to be online, can’t 

afford not to be. And therefore, they are trying to move online as 

aggressively as they can. 

The DMCA has not been responsible for the difficulties in getting 

online. There are lots of reasons for the difficulties in getting online, some of them involving clearance of the various publishing 

rights and artists’ rights that are necessary to do so. 

You know, Mr. Conyers is very concerned about artists. Well, a 

lot of those artists own the rights for electronic distribution and 

aren’t allowing their music to go online. That’s why you don’t have 

any Beatles songs on any of the services. 

So before you jump to the conclusion that the major labels have 

chosen not to put their first releases, their new releases that are 

on the Billboard Top 20, online, you really need to understand 

whether it’s the artist that has the rights or whether the publishing licenses haven’t yet cleared. 

Mr. CANNON. Pardon me, Mr. Sherman, but do you know, of the 

other 18 of the top 20 that are not available, what the cause is for 

those not being available? 

Mr. SHERMAN. I do not know. It may be because they’re owned 

by labels that aren’t participating in MusicNet. It may be because 

61

the—with new releases, we have a problem with getting publishing 

licenses out in a timely fashion. If my mechanical licenses haven’t 

yet been issued, then they cannot yet go online. It is a problem that 

we are working hard to solve, but it is a problem. 

Believe me, record companies want their new releases online, because they need to appeal to consumers to bring them to the legitimate alternative instead of the pirate marketplace. Bringing the 

newest material online is important to them. 

Mr. CANNON. Thank you. 

I see my time has expired, so I yield back what does not remain 

of it. 

Mr. COBLE. I thank the gentleman. 

Folks, we have six votes; you’re talking about 45 to 50 minutes, 

but I think we can get the gentlelady from California in prior to 

going to vote. 

Ms. LOFGREN. Thank you, Mr. Chairman. I’ll be quick, because 

we do need to get over to the floor. 

Ms. Peters, I found the report very interesting, and I wanted to 

explore just a couple of quick items. 

As I understand it, the office, your office, did establish a concern 

about tethering and its impact on the first sale doctrine but don’t 

recommend that we do anything about that at this time, because 

the tethering phenomenon is, in your office’s judgment, limited. I 

am not so sure it is that limited, and I’m wondering what remedy 

you would urge us to explore if my assumption that the tethering 

is not as limited as you suspect is correct. 

Ms. PETERS. I’m not sure that we said——

Ms. LOFGREN. If I’ve misstated it, correct me. 

Ms. PETERS. No, no, no. 

What we said was that tethering could become a problem in the 

overall balance, but I’m not sure that it went totally to first sale. 

You can take the physical object and can transfer it. It’s just that 

you are not going to have access to it, because the access is to a 

particular device. But first sale doesn’t really necessarily go to access. It goes to the distribution of the physical copy. 

So what we were doing was looking at a variety of concerns that 

libraries basically raised with regard to things like preservation 

and their issue with regard to access down the line and donated 

copies that may be tethered and someone is giving them a copy. 

What we basically said is, at the moment, for example, we recognize that certain electronic books are tethered. We’ve talked to 

book publishers and they say that’s a nascent market. They’re 

aware of a library’s need to preserve those works, and they will be 

working with libraries to figure out how libraries can be served. 

I noted in my report that the Library of Congress is taking a 

leadership role in making sure that libraries have preserved the 

works for future generations, and that we’re looking—the Copyright Office is looking to the library and the committee, which I basically serve as an adviser, to how to deal with those issues. 

So it’s not that we didn’t say that there weren’t legitimate issues. 

We didn’t think it was necessarily exactly a first sale issue. But it 

is an issue for libraries with regard to access of works. 

62

And in part, it has maybe more to do not with section 109 but 

with the DMCA and the access controls and the copy controls that 

may be put on these things. 

Ms. LOFGREN. So do you think the consumer has a stake in this 

tethering issue? 

Ms. PETERS. At the moment, any book that is being put out in 

electronic form is also available in a non-electronic form. So a consumer, as far as getting and reading the work and having access 

to the work, I think at the moment, it has not risen to the level 

of a major problem. It is something that we identified as it’s something worth looking at. 

Ms. LOFGREN. Although it’s not subject to the same lingo, tethering, isn’t it essentially the same, that if you paid to download a 

song and then you want to transfer the song that you paid for to 

your MP3 player, but you can’t because of an access code, isn’t that 

a form of tethering, in a sense? Isn’t that the same thing as the 

books? 

Ms. PETERS. Well, I think it’s a little bit different. 

One of the—the issue with regard to the downloaded song was 

in fact a first sale issue. It was, whether or not I acquire the work 

through a transmission, do I have a right to make a copy of it and 

put it someplace else? And the answer is, under first sale, you do 

not, because, in effect, first sale is only the distribution right. 

With regard to the tethering, it’s not really that you can’t really 

basically distribute the copy sometimes. It’s that there may be a 

control that limits it to a particular machine. 

Nobody gave evidence that this was a real-world, large problem 

now. We basically commented that we thought that maybe the 

marketplace would address this. People are either going to accept 

it or they’re not. It’s either going to work in the marketplace or it’s 

not. 

And we hoped that we wouldn’t see, you know, a big problem developing in this area. But we did say: Monitor it. 

Ms. LOFGREN. But if the marketplace is really controlled only by 

a few actors in terms of distribution, in terms of legal distribution, 

isn’t the real market competition the pirates? 

Ms. PETERS. I don’t know. What we were really referring to, and 

Emery Simon can comment on it, is if the restrictions are seen is 

too cumbersome by the consuming public, so that they don’t purchase it—and it was in the software area where technical protection measures were used and given up. That’s the marketplace we 

were talking about. 

We think that if things are too onerous, consumers will not buy 

into it. 

Ms. LOFGREN. My time is up, Mr. Chairman. Thank you. 

Mr. COBLE. Mr. Berman and I have agreed to adjourn, unless the 

Members want a second round. I’ll put that to the Members. 

The gentleman from Alabama wants to introduce a statement, I 

think. 

Mr. BACHUS. Yes. And, Mr. Chairman, I’m going to be very brief. 

There are 20,000 video stores in the United States, and that’s 

really how a lot of my constituents interact on these issues. And 

they have prepared a statement concerning the report, section 104 

report. I’d like that to be introduced in the record. 

63

[The information referred to follows:]

PREPARED STATEMENT OF VIDEO SOFTWARE DEALERS ASSOCIATION

The Video Software Dealers Association (VSDA), the international trade association representing the home video industry and video stores across the nation, submits this statement for the record of the oversight hearing on the DMCA Section 

104 Report. We wish to make the Subcommittee aware of certain efforts of copyright 

owners to expand the limited privileges granted to them by Congress under the 

Copyright Act to control the lawful distribution and use of copyrighted products. 

These efforts promise to undermine the first sale doctrine and the public policies 

it serves, and ultimately will impede the development of online entertainment, to 

the detriment of consumers, retailers, and copyright owners. 

VIDEO SOFTWARE DEALERS ASSOCIATION

Established in 1981, the Video Software Dealers Association (VSDA) is a not-forprofit international trade association for the $19 billion home entertainment industry. VSDA represents more than 2,000 companies throughout the United States, 

Canada, and 10 other countries. Membership comprises the full spectrum of video 

retailers (both independents and large chains), as well as the home video divisions 

of all major and independent motion picture studios, and other related businesses 

that constitute and support the home video entertainment industry. 

COPYRIGHT LAW AND HOME VIDEO

Having built the world’s first home distribution system for motion pictures on the 

strength of first sale provision of the Copyright Act, video retailers may have more 

at stake in this discussion than perhaps any other market segment. 

Copyright law, and particularly the first sale doctrine (codified at 17 U.S.C. 

109(a)), provides the legal foundation that has facilitated the phenomenal growth 

of the home video industry over the past two decades. Section 109(a) provides that, 

notwithstanding a copyright owner’s distribution right, the owner of a particular 

copy or phonorecord lawfully made under U.S. copyright law ‘‘is entitled, without 

the authority of the copyright owner, to sell or otherwise dispose of that copy or phonorecord.’’ By giving retailers the right to sell and rent these lawfully made videos 

and video games without restriction by the copyright owner, the first sale provision 

benefits society by promoting retail competition and maximizing distribution of creative works. 

When videocassette recorders (VCRs) first emerged as a consumer electronics 

product in the late 1970s, few imagined how ubiquitous they would become in America’s homes and how popular watching a prerecorded video of a motion picture 

would be. For an overwhelming majority of America’s 250 million plus consumers, 

renting and buying prerecorded videocassettes and digital versatile disks (DVDs) is 

an integral component of their entertainment options. More than 90% of the households in the U.S. own at least one VCR. And although the DVD is a relatively new 

format, it is projected that by the end of the year approximately 25 million U.S. 

households will own a DVD player. It is estimated that almost 2.8 billion videotapes 

and DVDs were rented in 2000. Approximately one-third of all video-equipped 

households rent a videotape or DVD weekly, while 50% rent at least once a month. 

More than 60% of video-equipped homes have a video library of some sort. The average videotape library contains 75 titles, while the average DVD collection contains 

19 titles. Consumer spending on video rentals in 2000 was a record $8.25 billion. 

An additional estimated $10.8 billion was spent purchasing videotapes and DVDs, 

with DVDs representing 32% of the total dollars spent. 

Although the motion picture studios strenuously resisted the emergence of the 

VCR and the creation of the video rental industry, even going so far as petitioning 

Congress to eliminate the first sale doctrine for prerecorded videos of movies, the 

home video industry today is an enormously profitable enterprise for the motion picture studios. Total revenue to the studios from domestic video sales and rentals totaled $9.5 billion in 2000. Over the past several years, revenue from home video has 

accounted for more than half of the studios’ gross domestic film revenue. 

Video retailing, while experiencing some of the consolidation and slowing of 

growth of a maturing industry, remains a vibrant enterprise. As of early 2000, there 

were 20,000 video rental specialty stores in the U.S. These stores included the major 

public chains such as Blockbuster, Hollywood Video, and Movie Gallery, and a significant number of independent retailers. It is estimated that more than 40% of 

video specialty stores currently are single-store operations. Another 8,000 non-speVerDate Jan 17 2002 11:21 Mar 13, 2002 Jkt 000000 PO 00000 Frm 00067 Fmt 6633 Sfmt 6621 G:\WORK\COURTS\121201\76669.000 HJUD1 PsN: 76669
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cialists, primarily supermarkets and drugstores, also rent video as a regular part 

of their business, and numerous other retail outlets sell prerecorded videos. 

Thus, the freedom to rent and resell videos guaranteed by the first sale provision 

has provided consumers with access to affordable, quality entertainment that they 

can enjoy in their homes, generated a tremendous revenue stream for the copyright 

owners, and created a thriving industry consisting primarily of small, communitybased businesses. 

THREATS TO THE FIRST SALE DOCTRINE

The benefits of the first sale provision to society, consumers, copyright owners, 

and video retailers are threatened by some of the trends in online entertainment. 

VSDA is opposed to any erosion in the rights provided by the first sale provision 

and the suppression of competition and restriction of consumer choice such erosion 

portends. 

Copyright law maintains a careful balance between protecting the intellectual 

property of copyright owners and promoting the broad dissemination and enjoyment 

of protected works. Section 202 of the Copyright Act clearly delineates between ownership of the copyright to a work and ownership of a lawful copy of a copyrighted 

work. The copyright owner and the copy owner each have distinct rights under the 

Copyright Act, and the rights of each must be respected. 

Some in the copyright owner community seek to disable the protections that copyright law provides to legal owners of lawfully made copies of copyrighted works—

and expand the limited privileges granted to copyright owners by Congress—in 

order to control the lawful distribution and use of copyrighted materials, control 

Congress has expressly denied to them in the Copyright Act. Copyright owners have 

taken the position that they are free to control the distribution and use of digitally 

delivered copyrighted works through access control technology and non-negotiable 

contracts after ownership of a copy has passed to others. They seek this control in 

order to impose a business model under which they can charge for repeated use or 

multiple users of copyrighted works. 

‘‘Access control technology’’ serves important functions when used to protect rights 

granted by the Copyright Act. For example, it is acceptable for a copyright owner 

to deny initial access to a digitally distributed work until payment for the reproduction is received. But such access control technology must not be abused to expand 

the copyright monopoly without congressional warrant. Examples of the misuse of 

access control technology by copyright owners include ‘‘tethering’’ (limiting a 

download to use on a single computer) and ‘‘timing out’’ (disabling a download after 

a certain amount of time). The practical effect of such use of access control technology is to allow the copyright owner to restrict the lawful distribution and use of 

the work. The use of such technological locks is the digital equivalent of preventing 

anyone from reading a book unless they get permission from the copyright owner 

every time they wish to do so. 

Non-negotiable contracts in the digital environment are most commonly presented 

as ‘‘click-thru end user license agreements.’’ These contracts of adhesion typically 

incant that a sale is not a sale but a ‘‘rental’’ or a ‘‘license’’ that restricts the purchaser’s ability to use and transfer ownership of the product. In a digital environment, ‘‘click here to agree’’ is a non-negotiable step in an automated transaction, 

leaving no opportunity to object. 

Video retailers are concerned that such access control technology and non-negotiable contracts are being used not to prevent piracy, but to restrict the legal rights 

of lawful owners to give away, sell, and rent the digital copies they own, in contravention of first sale rights. 

These concerns are not theoretical. The MovieFly ‘‘video on demand’’ online delivery service for motion pictures is set to launch soon. MovieFly is a joint venture of 

five motion picture studios. Reportedly, a download from this service will have to 

be watched within 30 days from the date of download and will be operable only for 

24 hours after the first viewing, after which the movie will be rendered as inaccessible code. In addition, the download will be tethered to the computer on which it 

is downloaded. 

Under the Copyright Act, the person who downloads a movie from the MovieFly 

service owns that copy and has the right to give it away, sell it, or lend it. The questions that must be asked are whether copyright owners are free to nullify those 

rights, and if so, what is the source of copyright owners’ right to do so? We submit 

that copyright owners have no right to prevent the owners of lawfully made copies 

from disposing of them by gift, sale, or even lending, yet that is exactly what the 

technology to be employed by MovieFly apparently would do. 

65

Because the first sale provision furthers the important public policies of promoting 

competition and maximizing dissemination of copyrighted works, the rights it confers cannot be extinguished either by technological controls or non-negotiable contracts. To conclude otherwise would make the rights granted by the first sale doctrine merely contingent on the technological prowess or goodwill of copyright owners. The attempts of copyright owners to control distribution and use of digitally delivered works also have the potential to erode consumer choice, retail competition, and 

fair use and free speech rights in the digital marketplace and result in a new exclusive and unrestricted general copyright ‘‘right of use.’’ They may also infringe upon 

consumer privacy. Therefore, Congress must closely examine the use of access control technology and non-negotiable contracts in digitally delivery by copyright owners. 

THE NEED TO DETER VIDEO PIRACY

This is not a debate about piracy. Video retailers support the efforts of copyright 

owners to protect their intellectual property against infringement, as legitimate retailers are usually the first to feel the impact of piracy. 

VSDA actively supported the enactment of the Digital Millennium Copyright Act 

of 1998 (DMCA) and specifically the anticircumvention provisions with the understanding that these provisions were intended by Congress to deter piracy. VSDA has 

supported the positions of copyright owners in A&M Records v. Napster, Inc., DVD 

Copy Control Ass’n, Inc. v. Bunner, and similar cases. VSDA also actively works 

with the Motion Picture Association of America to identify individuals engaged in 

piracy. Thus, VSDA is not aligned with those who seek to make meaningless the 

legal protections that copyright law provides to prevent piracy of covered works. 

However, allowing consumers to exercise their right to give away, resell, or rent 

lawfully acquired digitally delivered works will not inevitably lead to the unauthorized exhibition, reproduction, or public performance of copyrighted works. Copy protection software is distinct from the software used to tether or time-out digital 

downloads. The technology exists today, through digital rights management, to facilitate the lawful digital distribution of works while respecting first sale rights and 

deterring piracy. Moreover, the Ninth Circuit’s decision in A&M Records v. Napster, 

Inc., 239 F.3d 1004 (9th Cir. 2001), demonstrates that copyright owners have adequate legal remedies at their disposal to address online piracy. 

THE DMCA SECTION 104 REPORT

The DMCA Section 104 Report, issued by the Copyright Office in August, was requested by Congress in the DMCA. The Report examined the impact of Title 1 of 

the DMCA and the development of electronic commerce on the operation of the first 

sale doctrine and Section 117 of the Copyright Act, and the relationship between 

existing and emerging technology and the operation of the first sale doctrine and 

Section 117. During the study process, VSDA submitted written comments and 

made oral presentations to the Copyright Office. 

First Sale Rights and Digital Downloads: The DMCA Section 104 Report states 

that the first sale provision unequivocally applies to digital downloads that are fixed 

in a tangible medium, such as a writable CD or DVD, a computer diskette, or a hard 

drive. 

VSDA agrees that a digital copy authorized by the copyright owner that is reproduced by downloading onto a consumer’s computer or portable storage medium is 

no different from a digital copy authorized by the copyright owner that is reproduced in the form of packaged media (such as a prerecorded videocassette or DVD). 

Both are lawfully made copies and are fixed in tangible media. First sale rights 

apply to both. 

VSDA commends the Copyright Office for affirming that the first sale provision 

of the Copyright Act applies to videos and other entertainment lawfully downloaded 

from the Internet. This report should resolve whatever ambiguity may have existed 

regarding whether first sale rights apply to digital downloads. 

However, VSDA strongly disagrees with the Copyright Office’s dictum that the 

first sale provision is not a right, but is an unenforceable restriction on copyright 

owners. The Copyright Office said:

Many of the commenters referred to the first sale doctrine as a ‘‘right.’’ This is 

an inartful term to describe the doctrine. Rights are guaranteed to individuals 

and are generally enforceable in court. The first sale doctrine is not an enforceable right from the standpoint of the owner of a copy—that is, there is no independent remedy if a person is effectively denied the benefits of section 109 

through technological or contractual means. The first sale doctrine is a limitaVerDate Jan 17 2002 11:21 Mar 13, 2002 Jkt 000000 PO 00000 Frm 00069 Fmt 6633 Sfmt 6621 G:\WORK\COURTS\121201\76669.000 HJUD1 PsN: 76669
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tion to the scope of copyright; specifically it is a limitation to the distribution 

right of copyright owners.

This statement appears to invite copyright owners to infringe with impunity the 

first sale rights of owners of lawfully made copies. We can find no support for the 

proposition that the first sale doctrine is unenforceable, and the Copyright Office’s interpretation is clearly at odds with the Supreme Court’s recognition that the 

Copyright Act’s limitations on copyrights should be given just as much weight as 

the copyrights themselves. See Fogerty v. Fantasy, Inc., 510 U.S. 517 (1994). 

Access Control Technology and Non-Negotiable Contracts: The Section 104 Report 

also touched on whether copyright owners can use access control technology and 

non-negotiable contracts for digital works to circumvent the first sale doctrine. The 

Copyright Office correctly noted that access control technologies that tether digital 

downloads to a single computer and non-negotiable ‘‘click-thru’’ contracts that attempt to override copyright law may negatively impact consumer choice and retail 

competition. It concluded, however, that the problems raised by them are speculative, or premature, or beyond the scope of the report. 

In this respect, the Copyright Office was remiss. The announced efforts of copyright owners to defeat first sale rights and control retailers’ and consumers’ lawful 

use of digitally delivered media through restrictive access control measures and nonnegotiable contract terms fall squarely within the Copyright Office’s mandate from 

Congress. Yet the Copyright Office’s report makes no mention of business models 

promoted by joint ventures among copyright holders over the past year, under which 

consumers would be locked out of their own property unless they keep paying the 

copyright owner for access. The problems created by overly restrictive access control 

technology and non-negotiable contracts need to be addressed now, not at some indefinite time in the future. To fail to do so leaves to the designers of access controls 

the allocation of rights between consumers and copyright owners, a function that 

previously was the exclusive responsibility of Congress. 

These restrictions on consumers’ abilities to transfer and use fully the products 

they lawfully purchase and download are not speculative and consideration of their 

impact is not premature. Motion picture studios will soon offer ‘‘video-on-demand’’ over the Internet through studio joint ventures. It appears these services will restrict purchasers’ abilities to transfer and use fully the downloaded movies. 

VSDA’S STATEMENT OF PRINCIPLES

In light of the Copyright Office’s failure to adequately address the harm to consumers from overly restrictive access control technology and non-negotiable contracts, we believe Congress needs to address this issue. VSDA calls for the adoption 

of our ‘‘Principles to Facilitate Digital Delivery of Movies,’’ which are attached to 

this statement. These principles are designed to ensure consumer choice, prevent piracy, and promote retail competition. VSDA’s principles emphasize anti-piracy protections, endorsement of first sale rights for digital products, rejection of exclusive 

dealing, promotion of consumer choice, protection of consumer privacy, and limitation of digital rights management systems to copyright protection and management. 

Consumers have legitimate concerns over their ability to use and transfer possession of digitally delivered copyrighted works; copyright owners have legitimate concerns about unlawful reproduction and distribution of their movies; and retailers 

have legitimate concerns about business models that would suppress or eliminate 

retail competition. Consumers, retailers, and copyright owners of motion pictures 

would all benefit from adoption of our principles. 

CONCLUSION

Copyright law is a balance between the protection of intellectual creations and the 

promotion of broad public dissemination of these creations in a manner that benefits 

society as a whole. Congress must ensure the proper balance is maintained between 

the rights of copyright owners on the one side and consumers and retailers on the 

other so that lawful digital distribution can move forward. 

VSDA is deeply concerned about the overreaching that appears to be part of some 

emerging business models for online entertainment. Copyright owners’ use of access 

control technology and non-negotiable contracts are upsetting the equilibrium of 

copyright law. Many such uses do not deter piracy at all but instead control the lawful use, resale, and rental of digitally delivered entertainment. Overreaching by 

copyright owners, if unchecked by Congress, will impede the development of online 

entertainment, to the detriment of consumers, retailers, and copyright owners. 

Video retailers see tremendous possibilities in digital distribution and want to see 

this market grow. They do not fear a free market, but believe that copyright owners 

should not be able to expand the limited privileges granted to them under the CopyVerDate Jan 17 2002 11:21 Mar 13, 2002 Jkt 000000 PO 00000 Frm 00070 Fmt 6633 Sfmt 6621 G:\WORK\COURTS\121201\76669.000 HJUD1 PsN: 76669
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right Act to lock out retail competition. They ask only for the opportunity to compete 

fairly for consumers in the digital marketplace. They disagree with the notion that 

any single participant in the marketplace should be allowed to dictate the winners 

and losers. 

While it can be argued that, ultimately, business models that rely on consumerunfriendly technology will fail, in the interim some retailers may be driven out of 

business and the development of the market for digital delivery will be severely impeded. 

We call on Congress to support public policies for digitally delivered copyrighted 

works that preserve the balance of copyright law, promote competition for consumer 

allegiance, protect consumer rights, and stimulate technological innovation. These 

policies must ensure that the first sale, fair use, private performance, and other intellectual property rights of consumers guaranteed under the Copyright Act remain 

vital and meaningful in the digital marketplace. They must prevent copyright owners from misusing the limited privileges granted to them by Congress under the 

Copyright Act to extend their copyright monopoly. And they must enable copyright 

law to continue to stimulate artistic, business and technological innovation that benefits society, enhances the quality of life, and fuels economic growth. 

Thank you. 

STATEMENT OF PRINCIPLES FOR FACILITATING

DIGITAL DISTRIBUTION OF MOTION PICTURES

PRESENTED BY THE VIDEO SOFTWARE DEALERS ASSOCIATION

1. Federal law must continue to make it a crime to disseminate or use technology 

to circumvent the encryption of digital works for the purpose of creating unlawful copies. However: 

a. These provisions of federal law should not be utilized for purposes other 

than protecting against copyright infringement, such as extension of the 

copyright term or limiting the rights provided by the first sale doctrine. 

b. The anticircumvention provisions of the DMCA ‘‘[do] not apply to the subsequent actions of a person once he or she has obtained authorized access to 

a copy of the work ... even if such actions involve circumvention of additional 

forms of technological protection measures.’’ H. Rpt. No. 105–551(I) (1998). 

Accordingly, technological measures should not be employed by copyright 

owners to limit the lawful owner’s ability to realize the full value of ownership, such as by use of time-out or limited play features, or binding the initial access to a single computer and thereby preventing the lawful copy from 

being played in a different computer.

2. The first sale doctrine, and its codification at 17 U.S.C. § 109(a), are essential 

parts of U.S. copyright law. 

a. Copyright law provides content owners with special legal protection of their 

work in exchange for their maximizing dissemination of their works to the 

public. 

b. The first sale doctrine is a distinct right under copyright law, not an exception to the copyright owner’s exclusive right of reproduction or a fair use defense. 

c. The first sale doctrine encourages wide distribution of creative works that 

can benefit society and promotes competition and consumer choice. 

d. While the first sale doctrine is a right belonging to the owner of a lawfully 

made copy against the copyright owner, it exists for the benefit of the public 

and therefore cannot be abrogated or voided by the copyright owner, either 

unilaterally (such as by use of technology) or by agreement with the owner 

of the copy (such as by an end-user license agreement).

3. The first sale doctrine transcends technologies and should not be abandoned. 

The public policy considerations against restraints on alienation of property or 

trade in lawfully acquired copyrighted works are technology-neutral.

4. The first sale doctrine applies to digital copies lawfully made under the Copyright Act that are fixed on any tangible medium of expression (including computer hard drives or portable storage media) and the lawful owner of such digital copies may transfer ownership of such copies. In the case of audiovisual 

works, the owner may also transfer possession by rental. 

a. The first sale doctrine does not authorize the owner of a lawfully made digital copy to make other digital copies, such as by e-mailing copies to friends 

and family. 

b.

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The copyright owner may not restrict how a lawfully made copy is used by 

its owner because there is no general ‘‘use’’ right under copyright law. A lawfully made copy is personal property, even though it contains intellectual 

property.

5. Exclusive dealing (including exclusive cross-licensing among suppliers) that 

forecloses an open and competitive market for electronic distribution of motion 

pictures should not be permitted.

6. Consumers should continue to be assured of aggressive competition for price, 

service, selection, and convenience in the retailing of motion pictures. They 

should be able to select the retailers from whom they obtain digitally delivered 

motion pictures, just as they currently are able to do with packaged media, and 

retailers should have access to product from all suppliers in order to meet consumer demand and ensure competition.

7. Any digital rights management (‘‘DRM’’) systems should be limited to preventing copyright infringement and should not be used to restrict otherwise 

lawful access and use, whether by retailers or consumers.

8. Consumers should not be required by copyright owners, directly or indirectly, 

to surrender personally identifiable information as a prerequisite for obtaining 

motion pictures via digital distribution from third parties.

9. A retailer’s customer base is as important to the retailer as copyrights are to 

the copyright owner. The copyright owner’s use of DRM systems to protect its 

copyrights should not require that the retailer’s customers (or their addresses) 

be identified to the copyright owner or any third party.

10. All digital delivery systems must ensure that the privacy of consumer video 

sales and rental records are protected at all times, as required under the Video 

Privacy Protection Act (18 U.S.C. § 2710). No retailer should be made to violate 

the federal law by use of technology that captures personally identifiable information the retailer is prohibited from disclosing.

Mr. BACHUS. I also have five questions, and Ms. Peters will be 

back here tomorrow; particularly for one question—Mr. Sherman. 

I’m not going to ask it, but I would like to submit it to him in 

writing——

Mr. COBLE. Without objection, that can be done. 

Mr. BACHUS [continuing]. And have him respond to it. 

[The information referred to follows:]

QUESTIONS FOR MARYBETH PETERS, REGISTER OF COPYRIGHTS, FROM

REPRESENTATIVE BACHUS

1. The Copyright Office states that the first sale provision of the Copyright 

Act is not a right, but is an unenforceable restriction on copyright owners 

(footnote 41). Doesn’t the Copyright Office’s interpretation of first sale 

rights make those rights contingent on the technological prowess and 

goodwill of copyright owners? 

Do you believe that Congress intended the rights it granted to the owners of lawful copies in the Copyright Act to be subject to voiding by copyright owners?

Unlike the exclusive rights of the copyright owner set forth in section 106 of the 

Copyright Act, first sale is not referred to as a ‘‘right’’ in section 109. Moreover, 

while infringements of a copyright owner’s exclusive rights are subject to the remedies set forth in chapter 5 of the Act, ‘‘infringements’’ of first sale are not subject 

to any remedies. Consequently, within the statutory scheme created by Congress it 

is not accurate to refer to first sale as a ‘‘right.’’ Rather, as stated in footnote 41 

of the Report, the first sale doctrine ‘‘is a limitation on the scope of copyright’’: The 

owner of a particular copy of a work cannot be sued for infringement for disposing 

of possession or ownership of that copy. 

While section 109(a) permits the owner of a particular lawful copy to dispose of 

it ‘‘[n]otwithstanding the provisions of section 106(3),’’ that is no guarantee that the 

owner of that copy can in fact dispose of it as he wishes. Plainly, applicable law 

(e.g., laws concerning obscenity or libel), or contractual obligations to third parties 

(e.g., exclusive dealing arrangements) may limit the ways that the owner of a copy 

may dispose of it. Similarly, copyright owners have long had the ability to impose 

limitations on the disposition of copies. Certain types of works have traditionally 

been licensed (e.g., 35mm prints of motion pictures for exhibition, computer proVerDate Jan 17 2002 11:21 Mar 13, 2002 Jkt 000000 PO 00000 Frm 00072 Fmt 6633 Sfmt 6621 G:\WORK\COURTS\121201\76669.000 HJUD1 PsN: 76669
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grams and databases) or rented (e.g., classical music, stage plays and musicals) 

rather than sold, thus avoiding the first sale doctrine entirely. These practices— which often benefit consumers by allowing them to gain access to works more cheaply than if copies were sold outright—were in existence at the time that section 109 

was formulated and there’s no indication that Congress intended to disturb them. 

Other works are distributed subject to contractual restrictions on further disposition of the copy. As in other fields of commerce, contracts permit parties to order 

their business dealings in the way that is most efficient for them, often resulting 

in greater availability of a work than would be possible under the default rules in 

the Copyright Act. Congress recognized when it enacted section 109 that the first 

sale doctrine ‘‘does not mean that conditions on future disposition of copies or 

phonorecords, imposed by a contract between their buyer and seller, would be unenforceable between the parties as a breach of contract.’’ H.R. Rep. No. 1476, 94th 

Cong., 2d Sess. 79 (1976). There is substantial case law holding that copyright owners and their licensees may, by contract, generally agree to limitations on the licensee’s conduct that may otherwise be permitted under copyright law, and that such 

contracts are not preempted by the Copyright Act. See, e.g., ProCD v. Zeidenberg, 

86 F.3d 1447 (7th Cir. 1996); Trandes v. Guy F. Atkinson Co., 996 F.2d 655 (4th 

Cir.), cert. denied, 114 S.Ct. 443 (1993); National Car Rental Sys., Inc. v. Computer 

Assocs. Int’l, Inc., 991 F.2d 426 (8th Cir.), cert. denied, 114 S.Ct. 176 (1993); Harper 

& Row, Publishers v. Nation Enters., 723 F.2d 195 (2d Cir. 1983), rev’d on other 

grounds, 471 U.S. 539 (1985). 

Finally, Congress has amended section 109 twice to limit the first sale doctrine 

to allow copyright holders to exercise their distribution right as to copies of certain 

types of works in order to prevent rental of those copies. For all of these reasons 

it is clear that section 109 does not confer an absolute right on owners of copies to 

dispose of them in any manner. Congress was aware of a number of circumstances 

where the ability to dispose of copies would be limited and, in some circumstances, 

endorsed the ability of copyright owners to impose limitations.

2. You have stated that the issue of contract preemption is outside the 

scope of the Section 104 Report (p. 163). However, the mandate of Section 

104, in part, was to ‘‘evaluate . . . the effects of . . . the development of 

electronic commerce and associated technology on the operation of [the 

first sale doctrine].’’ Contract provisions that attempt to override the rights 

of owners of lawful copies is an issue in electronic commerce and they do 

have an impact on the ability of those owners to exercise their first sale 

rights, particularly when the contract is enforced by access control technology. Can you explain why you declared contract preemption to be outside the scope of the interplay between electronic commerce and the first 

sale doctrine?

Electronic commerce comprehends the entire gamut of commercial issues as applied 

to the Internet. In instructing the Copyright Office to examine the effects of the development of electronic commerce on sections 109 and 117 of the Copyright Act, it 

can be safely assumed that Congress did not intend the Office to examine all of the 

effects of all of the commercial issues involved in electronic commerce on those two 

sections of the Act. In interpreting the scope of our mandate under section 104 of 

the DMCA, we focused on those issues that are unique or different in the online 

context. Contract preemption is not one of those issues. It is, rather, an issue that 

predates electronic commerce, and has as much importance in the off-line world as 

in the online world. 

Our interpretation is confirmed by the legislative history of section 104 of the 

DMCA, which is reviewed on pages 14-19 of the Report. The legislative history of 

section 104 indicates that the study was intended to cover a subset of the issues 

that were raised by the proposals in H.R. 3048 in the 105th Congress. Sections 4 

and 6 of that bill proposed amendments to sections 109 and 117 of the Copyright 

Act, to create a digital first sale doctrine and a temporary copy exemption, respectively. Section 7 of that bill would have amended section 301(a) of the Act to preempt state-law enforcement of non-negotiable license terms that abrogate or restrict 

limitations on copyright owners exclusive rights. Section 109 of the DMCA directs 

the Office to examine sections 109 and 117 (corresponding to the proposals in sections 4 and 6 of H.R. 3048), but does not direct the Office to examine section 301(a). 

We interpret the failure to mention section 301(a) as a strong indication that the 

proposal on contract preemption in section 7 of H.R. 3048 is outside the scope of 

the study.

3. In light of the opening of MusicNet and the imminent launch of 

PressPlay and the online movie delivery services Movies.com and 

MovieFly, do you have a concern that access control technologies, such as 

70

tethering and time outs, that may be used by those services will have a 

negative effect on the operation of the first sale doctrine?

On page 76 of the Copyright Office Report we state that ‘‘if the practice of tethering 

were to become widespread, it could have serious consequences for the operation of 

the first sale doctrine, although the ultimate effect on consumers of such a development remains unclear.’’

At this point in time it is premature to conclude whether these services represent 

a trend toward use of access control technologies, such as tethering and time outs, 

in a way that would have a negative effect on the operation of the first sale doctrine. 

The services that you mention in your question are, by their own admission, the 

first, limited steps toward online delivery of these kinds of content. We are in a period of experimentation and change, and it is certain that a number of different 

types of services, offering content to consumers in a variety of formats, will come 

into (and go out of) existence in the coming years. What does appear certain to us, 

given the current environment, is that the availability of the existing services has 

not deprived consumers of the opportunity to obtain copies and phonorecords that 

are fully subject to the first sale doctrine.

Mr. COBLE. And, Mr. Simon, I’ll give my question to you subsequently as well. 

This, I think, is the best sense for everyone. It frees you all. 

We appreciate your being here and appreciate your testimony. 

This includes the first oversight hearing on the Digital Millennium Copyright Act section 104 report. 

The record will remain open for one week. 

Thank you for your cooperation. The Committee stands adjourned. 

[Whereupon, at 3:16 p.m., the Subcommittee was adjourned.]

(71)

DIGITAL MILLENNIUM COPYRIGHT ACT 

SECTION 104 REPORT 

THURSDAY, DECEMBER 13, 2001

HOUSE OF REPRESENTATIVES, 

SUBCOMMITTEE ON CRIME, 

COMMITTEE ON THE JUDICIARY, 

Washington, DC. 

The Subcommittee met, pursuant to call, at 10:04 a.m., in Room 

2141, Rayburn House Office Building, Hon. Howard Coble [Chairman of the Subcommittee] presiding. 

Mr. COBLE. Good morning, ladies and gentlemen. Even though 

the Ranking Member from California is not here, I am sure he is 

en route, and we do have the Ranking Member of the full Committee, so we will commence the Subcommittee hearing, and I ask 

that it come to order. 

Today we again will receive the testimony regarding the Digital 

Millennium Copyright Act Section 104 report submitted by the U.S. 

Copyright Office. As was stated yesterday, there is no avoiding the 

fact that the report presents complex and controversial issues. 

Today we will hear from the Register of Copyrights and representatives, from Broadcast Music, Inc., the Digital Media Association and the Consumer Electronics Association. These witnesses 

will focus on the Copyright Office conclusions and recommendations regarding Sections 109 and 117 of the Copyright Act. 

The Copyright Office was not persuaded that Section 109 or the 

first sale doctrine should be expanded to include digital transmissions. On the other hand, the Copyright Office was persuaded 

that the Copyright Act should be admended to permit what has become the customary practice of consumers when making archival 

or backup copies of the information stored on their computers. The 

Copyright Office recommended two alternatives to achieve this result, and we look forward to hearing the arguments both for and 

against these recommendations. 

As I said yesterday, normally the opening statements are reserved for the Ranking Member from California and me, but we are 

glad to have the Ranking Member of the full Committee here. Representatives Cannon and Boucher have legislation in the hopper 

and if either of those two come and would like to be recognized—

otherwise, by unanimous consent, I would like to move that all 

other opening statements be submitted into the record. 

Mr. COBLE. I am now pleased to recognize the distinguished gentleman from California and Ranking Member, Mr. Berman. 

72

Mr. BERMAN. I won’t test your patience today with a lengthy 

statement. I just want to share few thoughts that were inspired by 

Mr. Conyers’ comments yesterday. 

The digital music debate that has raged for the past few years 

both here in Congress and in the press and in the marketplace has 

often been misdirected. It usually plays out as different industries 

arguing about how much they will have to pay to use copyrighted 

works, whether there is adequate competition in the markets that 

utilize works, and whether certain industries feel copyrighted laws 

impair their ability to bring new technologies to market. 

Consistently lost in this debate are the artists over whose rights 

everyone is arguing, the men and women who pour their hearts 

and souls, days and nights, their life savings and economic security 

into a creative dream. Why do creators, the vast majority 

unheralded and unknown, take these great emotional financial and 

sometimes physical risks to write a book, create a song, record 

music, code a software program, or make a film? In no small measure because they love to do so or are driven to create. But also in 

no small measure because they hope against all odds that they will 

be able to support themselves and even prosper by creating. 

It is the works and property of these creators that others end up 

arguing they should be able to exploit, use for free, benefit from, 

or take at a government rate. It is the rights of these creators, 

their copyrights, that others want to ignore, downplay, or belittle 

to advantage their industry. 

Clearly, the effective utilization of property, the development of 

new technology, the creation of economic activity and the satisfaction of consumers are all very important goals and are goals consistent with the protection of copyrights, but in pursuit of these 

goals Congress should remain equally focused on the need to nurture artists, to exalt them, to ensure they thrive, not just survive. 

Thank you, Mr. Chairman, and I yield back. 

Mr. COBLE. I thank the gentleman from California. 

Mr. Conyers, would you like to make an opening statement? 

Mr. CONYERS. Only to welcome this panel and the previous panelist. I don’t know what we would do without her. She heard all 

of this from what we did yesterday, so she has got a head start on 

everybody else. 

But we have got the Digital Millennium Copyright Act, and we 

are trying now to figure out how this applies in the digital world 

and the question is now how we do this. We have got Boucher-Cannon which is attracting less and less attention so now we are going 

to do a whole drafting thing. When we go overseas, we promote 

copyright law, respect trademarks, understand authors, sympathize 

with composers, and then we come back home and say, well, we 

have got a new technology, and we start all over again. 

Well, what do we do for these guys here? Around the world they 

are just getting used to the idea that copyright is a legitimate legal 

concept, but then we come here and what do we say? Well, digital, 

we don’t want double dipping. We don’t want these people to take 

advantage of the system. 

It is almost like Welfare to Work. I mean, you know, we have got 

to get these guys out and off the dole. But this discussion around 

the failures of digitally transmitted material and whether copyright 

73

laws should an attach to buffer copies and archival copies, ephemeral recordings, heavy, heavy stuff. But the question is, are we 

going to be fair? 

And we have come a long way—it used to be that we weren’t fair, 

period, I mean, without reference to digital. I mean, the recent 

past, it is something like when somebody around here introduces 

a reparations bill, they say don’t talk about the slave experience. 

That’s got nothing to do with it. 

And we come here, we say, well, let us talk about how we will 

be fair. They say, don’t go back into the early days of the industry 

where we didn’t treat artists like anything, and they got nothing. 

We are now in the new era where we all respect each other. But 

now, this new technology, I don’t know. 

So the three primary ways to receive music from the Internet— webcasting, radio-like programming, streaming music performances 

in real time, downloading copies of music for the consumers to 

use—well, I mean digital is digital, and artists deserve performance royalties regardless of the type of transmission used. Is this 

a new statement of law foreign to the panelists? What is wrong 

with that? 

The Copyright Offices report performance rights and mechanical 

rights do not always attach to the transmission of music. Well, that 

is great. Music can be copied and sold and given away, so why 

shouldn’t the rights attach? What is different? 

Well, that is why we kept her over for two sessions, because we 

are going to find out today. So that is what I am thinking about. 

I am happy that Mr. Potter is here because we will probably be 

talking with each other, more than likely. 

Thank you, Mr. Chairman. 

Mr. COBLE. I thank the gentleman. 

We welcome as well the gentlemen from Virginia and California 

and Massachusetts. 

Our first witness this morning will be the Honorable Marybeth 

Peters, who is Register of Copyrights for the United States. While 

she needs no introduction, we enumerated Ms. Peters’ many 

achievements yesterday. Thank you again, Madam Register, for 

joining us. 

Our next is Marvin Berenson, Senior Vice President and General 

Counsel of Broadcast Music Incorporated, who oversees the operation of the BMI legal department as well as the company’s legal 

affairs. Mr. Berenson graduated cum laude from Michigan State 

University and received his law degree from Boston University 

School of Law and was admitted to the bar in 1967. Good to have 

you back with us, Mr. Berenson. 

Mr. Jonathan Potter has served as the Executive Director of the 

Digital Media Association since its creation in June 1998. In this 

role he represents the digital media industries in public policy, industry promotion and industry relations activities. Mr. Potter is a 

graduate of the New York University School of Law and the University of Rochester. 

Our final witness today is Mr. Gary Klein, who is currently Vice 

President of Government and Legal Affairs, General Counsel for 

the Consumer Electronics Association, whose 600 plus members 

produce virtually every consumer electronic product imaginable. 

74

Prior to joining CEA, Mr. Klein served as counsel to the Senate Judiciary Committee’s Subcommittee on Courts and Administrative 

Oversight, where he was responsible for the issues relating to intellectual property, antitrust, and tort reform. He earned his BA from 

Queens College and his JD with honors from the Harvard Law 

School LLM program. Good to have you with us. 

We have your written statements which have been examined and 

which will be reexamined, I am confident, and I ask unanimous 

consent that they be submitted into the record in their entirety. 

Now, lady and gentlemen, you all know our rule here. We are 

into the death throes of this session now and you won’t be 

keelhauled if you violate it, but I direct your attention to the two 

clocks that are before you. When the amber light illuminates, that 

is your warning that you have about a minute left. So if you all 

can confine your oral statements to 5 minutes, we will be appreciative. 

Mr. COBLE. Madam Register, we will start with you. 

STATEMENT OF THE HONORABLE MARYBETH PETERS, REGISTER OF COPYRIGHTS, COPYRIGHT OFFICE OF THE 

UNITED STATES, THE LIBRARY OF CONGRESS 

Ms. PETERS. Thank you, Mr. Chairman. I am pleased to be back 

today again for a second hearing on the DMCA Section 104 report. 

Today’s topic is Section 109 of the copyright law known as the 

first sale doctrine which limits a copyright owner’s distribution 

right. Subject to certain limitations, it permits the owner of a lawfully made copy of a work to dispose of that particular copy, for example, by selling it, giving it away, or destroying it. 

The first sale doctrine, originally a judicially created doctrine to 

prevent restraints on the alienation of physical property, was codified in the 1909 Copyright Act and carried forward in the 1976 Act. 

Many commenters voice concerns about perceived hurdles to the 

exercise of the first sale privilege raised by the application of technological protection measures such as the content scrambling system known as CSS on DVDs. 

We concluded that at this point in time legal protection for technological protection measures are not having any significant effect 

on the operation of Section 109. While the application of CSS may 

limit the resale market for a particular copy of a work, Section 109 

does not guarantee either the availability of a secondary market or 

a particular price for copies of copyrighted works. 

The primary issue for us was whether Section 109 permitted the 

digital transmission of a copyrighted work by the owner of a lawfully made copy of that work. The problem is that such transmissions result in the creation of a new copy of the work on the 

computer of each of the recipients, thereby implicating the reproduction right. 

The statutory first sale doctrine, however, is an express limitation on only the distribution right. It is not and never has been a 

limitation on the reproduction right. 

Further, the legislative history indicates that the intent of Congress was to apply it only to the transfer of a particular tangible 

copy of a book, a CD, a floppy disc. A transmission does not transfer a particular copy of a work. A transmission results in the creVerDate Jan 17 2002 11:21 Mar 13, 2002 Jkt 000000 PO 00000 Frm 00078 Fmt 6601 Sfmt 6601 G:\WORK\COURTS\121201\76669.001 HJUD1 PsN: 76669
75

ation and distribution of a new copy. Thus a transmission of a work 

from one computer to another does not fall within the first sale doctrine. 

The question then becomes whether the law should be amended 

to permit precisely this type of activity. Many commenters supported such an amendment, arguing that technological measures 

could be imposed in a way to ensure that the source copy would 

be deleted or would become inaccessible upon transmission of the 

work. This is generally referred to as the forward and delete model. 

The appeal of this model is that it resembles the traditional application of the first sale doctrine. The owner of a lawfully made 

copy transfers that work to someone else and, in doing so, deprives 

himself of the copy that he had. 

Our answer to the question of whether the law should be amended to permit this activity is no. 

First, such an amendment would be inconsistent with the purpose of the first sale doctrine and its legislative history. The doctrine was primarily adopted to prevent restraints on the alienation 

of physical property. That focus on tangible copies was carried over 

in the congressional codification of the doctrine. A digital transmission of a work presents a substantially different set of circumstances than the transfer of a tangible copy, even if the disposition of the work at the conclusion of the transmission bears a superficial resemblance to the effect of the transfer of a particular 

tangible copy. 

Second, the technology to enforce a forward and delete model is 

unreliable and expensive. There are issues with respect to who 

would bear the cost of these technological measures and what incentives there are to use these measures. Of course, without widespread use of a reliable forward and delete technology, any pretense with regard to similarity between the first sale doctrine and 

digital first sale disappears. 

Third, we are very concerned about the effect that such a change 

could have on the balance that was struck when the doctrine limiting copyright owners’ distribution or vending right was created 

and enacted into law. When the existing balance was struck, it was 

in the context of all the inefficiency of the resale market for tangible copies. Exhausting the distribution right after first sale of a 

copy did not and was not likely to impair a copyright owner’s market for the work. 

In a digital network environment, the considerations and the balance are totally different. In 1909 and in 1976, the effect of the 

first sale doctrine on the market of a work was limited by virtue 

of application only to tangible copies. Time, space, effort, cost, and 

the quality of the copy are all factors which have limited the practical effect of the first sale doctrine on the market for the work. 

These factors continue for digital tangible copies and for all tangible copies, but in the environment of digital transmissions the 

balance that was struck disappears. The market for copyrighted 

works would be substantially harmed by the easy and wide availability of perfect secondhand copies. 

Finally—my time is up—let me just say that we did do an analysis of Section 117 and archival copies in that intersection of that 

analysis with Section 109. As you mentioned, we did conclude that 

76

reality today, where everybody backs up everything on their computer, is not consistent with what is in Section 117. We also found 

that there seem to be no problems for consumers in exercising 

these archival rights. It just doesn’t match the law. 

We therefore ask Congress to amend the law to basically make 

it fit with what is established practice and to fit with what we perceive is a potential problem between lawfully made archival copies 

and the first sale doctrine. We hope that Congress does in fact really take one of the courses of action that we suggest. 

Thank you, Mr. Chairman. 

Mr. COBLE. Thank you, Madam Register. 

Let me welcome the gentleman from Utah and the gentlelady 

from Pennsylvania who have joined us since we started. 

Mr. Berenson. 

STATEMENT OF MARVIN BERENSON, SENIOR VICE PRESIDENT 

AND GENERAL COUNSEL, BROADCAST MUSIC INCORPORATED 

Mr. BERENSON. Good morning, Mr. Chairman and Members of 

the Subcommittee. I appear on behalf of BMI, one of three U.S. 

Music performing licensing organizations. BMI has been entrusted 

by approximately 300,000 songwriters, composers and music publishers to license their performing right in over four million musical 

works. 

BMI’s general message to the Subcommittee is Congress should 

continue to promote authorship and let the marketplace resolve 

business issues such as the value of a performing right. Obtaining 

a performing right license has never been an obstacle to transmission of music on the Internet. All the music user has to do is 

request the license from BMI and ASCAP and the user is instantaneously licensed. 

Examples of BMI licensees on the Internet include Yahoo, 

MP3.Com, MSN Music, MusicNet. In fact, BMI has a digital music 

licensing center which allows small users to take a license on line 

through a technology called ‘‘Klik-Thru’’ licensing, very easy. 

Briefly, I will cover three topics. 

First, the Register and the Department of Commerce through the 

NTIA did not file a joint report to Congress as was required. In its 

report the NTIA made no legislative recommendations. The Register diverged from the NTIA’s approach and made recommendations that, if enacted, would adversely affect the rights of songwriters, the ultimate small businessmen. BMI agrees with the 

NTIA. 

Second, the Register, having proposed an exemption for music 

publishers’ reproduction rights in streaming, considered the applicability of the performing right to digital downloads of music when 

no contemporaneous rendering takes place. The Register concluded 

that, assuming digital downloads of music are public performances, 

they should be considered fair use. BMI disagrees with the Register’s approach as flawed, outside the scope of the inquiry, and not 

supported by the record. 

Just looking at the continuum of commercial uses for which both 

performing and mechanical rights are implicated demonstrates the 

defects in the Register’s simplistic approach. Examples would be 

you could have a download of a single song per song fee. You can 

77

have downloads of an unlimited number of songs for a monthly 

subscription; you can have downloads that are limited, namely only 

three songs for—you can listen to them once, twice, three times, 

and then you would pay them again if you wanted to hear them 

again. The purpose is to hear the music here. 

Third, despite the fact that BMI disagrees with the substance of 

the Register’s report, we have considered her conclusions and, rather than simply opposing, we have examined whether common 

ground can be achieved. BMI, along with ASCAP and the NMPA, 

has suggested a possible marketplace solution with respect to pure 

audio downloads, criteria such as, (1) the musical work could not 

be heard while the transmission was taking place, and (2) the sole 

purpose of the transmission was to deliver a phonorecord of the 

musical work to the home user, and (3) the resulting phonorecord 

received by the home user was permanent, capable of further noncommercial duplication by the home user and is not limited by the 

time, usage or further payment or any other factor, and (4) the 

transmission of the musical work was made on demand. That 

would be a pure audio-only download. 

Regarding the performing right in a musical work, any legislative action by Congress is premature. We should let the marketplace develop. Now is not the time to weaken the current protections afforded the songwriters. 

As Frances Preston, BMI’s President and CEO, has said time 

and time again, ‘‘it all starts with a song,’’ but the song is written 

by a songwriter, an individual. How does a songwriter give back to 

society? She creates music that we hear every day. Songs give 

confort and courage, they inspire us in times of adversity, they lift 

hearts in the face of tragedy, they unite and rally society, they 

evoke love. 

What does this have to do with the topic before us today? Simply 

put, the Register has raised an issue as to the value of a songwriter’s creation when transmitted on the Internet. She suggests a 

certain Internet usage of songwriters creation have little value or 

are fair use. Implicitly she suggests that songwriters should be denied a right of compensation for these uses. 

I can go on and on about a songwriter’s contributions to society. 

However, in light of what happened on September 11—I was going 

to play a videotape to demonstrate the value of the songwriter to 

society, however, due to the—basically, the consumer technology 

not working in this hearing room, we are not going to hear that. 

The three musical works on the videotape were written by people 

performing the songs and were examples of the many songs that 

were written to help lift the spirit of America since September 11. 

I would like the opportunity to leave a copy of the videotape with 

the Subcommittee so they can hear it and offer it as part of the 

record. 

Basically, these songs were written to bring people together, and 

the last song on there was basically Lee Greenwood performing at 

the September 11 memorial at Yankee Stadium bringing—truly 

trying to heal. 

Thank you, Mr. Chairman. 

78

1 I am authorized to report that BMI has received no federal grants or engaged in any federal 

contract or subcontract the disclosure of which would be required by House Rules. 

Mr. COBLE. Thank you, Mr. Berenson. Without objection, we will 

accept that tape; and I regret the inappropriate forum and time 

when our electronic media failed on us. 

[The prepared statement of Mr. Berenson follows:]

PREPARED STATEMENT OF MARVIN L. BERENSON

Mr. Chairman, Mr. Ranking Minority Member, Members of the Subcommittee, 

thank you for the opportunity to testify on a very important subject, the Copyright 

Office’s DMCA Section 104 Report, mandated by the Digital Millennium Copyright 

Act of 1998 (the ‘‘Report’’). My name is Marvin L. Berenson. I am Senior Vice President and General Counsel of Broadcast Music, Inc. (‘‘BMI’’). BMI licenses the public 

performing right in approximately four and one-half million musical works on behalf 

of its 300,000 affiliated songwriters, composers and music publishers, including 

thousands of foreign works through BMI’s affiliation agreements with over sixty foreign performing right organizations. BMI’s repertoire is licensed for use in connection with performances by over one thousand Internet web sites, as well as by 

broadcast and cable television, radio, concerts, restaurants, stores, background 

music services, sporting events, trade shows, corporations, colleges and universities, 

and a large variety of other uses. BMI issued the first commercial Internet copyright 

license for music performed on web sites in April 1995 and has continued to provide 

innovative licensing solutions for the evolving online music marketplace. 

Some of BMI’s individual songwriter and composer affiliates are well-known to 

the public and through their music participated in the recent tributes to the victims 

and fallen heroes of the tragedies at the World Trade Center and the Pentagon. 

Their songs of patriotism and grief and their artistry have been a major vehicle for 

fund-raising for the victims and their families. However, most BMI affiliates are ordinary citizens who receive a modest income for the creative efforts of writing music 

that is publicly performed by others. There can be no question that the majority of 

songwriters are not wealthy. They struggle to make a living, day to day, just as the 

average citizen does. Now is especially not the time to send a negative message to 

them. 

At the outset, on behalf of BMI and its affiliates, I would like to commend this 

Subcommittee not only for its leadership on intellectual property issues but for the 

body of copyright law that it has produced over the past three decades.1 The copyright law serves as an economic incentive to stimulate the creativity of authors who 

make their livings from the fruits of their creativity. The incentive works. If the incentive is reduced, there will be less creativity. The law is not perfect; perfection 

is impossible in a time of globalization and given the blinding speed of technological 

change. However, the current copyright statute, as a law that fuels the American 

free-market economy in a global environment, is well-suited to the on-line world. 

BMI’s general message is twofold. First, Congress should continue to promote and 

protect authorship. To quote from BMI’s President Frances W. Preston, ‘‘it all starts 

with a song.’’ Without the songwriter to create the song, there is no music. Second, 

in the Internet space, it is abundantly clear that a sole songwriter, composer, or 

music publisher cannot easily monitor the astronomical number of public performances of a musical work that may occur. Collective licensing for the performing right 

organizations is even more necessary and cost efficient in this market than it has 

historically been in other markets. The performing right organizations—BMI, 

ASCAP and SESAC—are recognized in the Copyright Act and, although not the subject of today’s hearing, should continue to play a pivotal role in administering authors’ rights in the electronic environment. In the final analysis, Congress should 

not only protect creativity and promote competition, it should also allow the marketplace to develop with such time-tested tools as collective licensing. 

In my testimony today, I propose to cover three topics: first, a general appraisal 

of the Report; second, specific views on the Report’s recommendations for section 

109 and section 117 of the Copyright Act, including the Report’s statements about 

the public performing right; and third, a marketplace solution to the Report’s rec- ommendations about perceived problems with music licensing. 

I. A GENERAL APPRAISAL OF THE REPORT. 

Section 104(a) of the Digital Millennium Copyright Act (‘‘DMCA’’) required the 

Register of Copyrights and the Assistant Secretary for Communications and Technology, U.S. Department of Commerce, to ‘‘jointly’’ evaluate ‘‘(1) the effects of the 

79

2Section 109 of the Copyright Act contains an exemption from the distribution right in Section 

106(3) of the Act permitting owners of copies or phonorecords lawfully made to sell or otherwise 

dispose of that copy or phonorecord, subject to certain limitations. This is commonly known as 

the First Sale Doctrine. Section 117 of the Act contains a small number of narrowly tailored 

exemptions to copyright rights allowing users of computer software to make copies in certain 

circumstances involving machine functionality and/or repair. 3Public Law No. 105–304, § 104(a), 112 Stat. 2860, 2876 (1998). 4The NTIA’s report is firmly grounded in recognition of electronic commerce, existing and 

emergent technology change, and their impact on sections 109 and 117 of the Copyright Act (the 

‘‘Act’’). Based on this recognition, NTIA prudently concluded that ‘‘it is premature . . . to draw 

any conclusions or make any legislative recommendations at this time....’’ NTIA Report at 

1. 

amendments made by [Title I of the DMCA] and the development of electronic commerce and associated technology on the operation of sections 109 and 117 of title 

17, United States Code, and (2) the relationship between existing and emergent 

technology and the operation of sections 109 and 117....’’ 2 Further, section 104(b) 

required the two agencies to submit to Congress a ‘‘joint report’’ on their evaluation, 

including any legislative recommendations they might have.3

Although the Register and the Department of Commerce, through the National 

Telecommunications and Information Administration (‘‘NTIA’’), did jointly evaluate 

information obtained pursuant to a public comment and hearing period, they did not 

submit to Congress a ‘‘joint report’’ as required by section 104(b). The NTIA issued 

its report in March 2001, and made no legislative recommendations.4 The Register 

issued the Copyright Office DMCA Section 104 Report in August 2001. While agreeing with the NTIA that no changes are needed to section 109 of the Act, the Report 

advised several legislative changes concerning section 117. 

The Copyright Office’s report was correct on the main point at issue when it 

agreed with the NTIA that no change is necessary to the First Sale Doctrine in Section 109 of the Act at this time. To this extent, the NTIA and the Office share a 

common viewpoint that it is appropriate to take a conservative approach to changing the copyright law in the face of new technologies. The Office diverged with this 

cautious approach to dealing with technological change, however, in its comments 

specifically directed to the music industry that will injure the rights of the music 

community. First, the Office proposed an unwarranted exemption to the reproduction right for the making of certain temporary buffer copies of musical works incidental to streaming. Second, and for reasons that are not within the Office’s mandate under Section 104 of the DMCA, the Report makes groundless statements 

about the scope of the public performing right in digital downloads of musical works. 

BMI opposes the Report’s recommended legislation as unwarranted expansions of 

section 117 and also opposes the Report’s ‘‘off the cuff’’ observations about the scope 

of the public performing right in downloads. Both proposals are well beyond the 

scope of the Congressional DMCA Section 104 mandate and without evidentiary 

support in the record. 

II. SPECIFIC VIEWS ON SECTIONS 109 AND SECTION 117 OF THE ACT. 

a. No changes are necessary to section 109 of the Act. 

BMI agrees with both the Register and the NTIA in their respective conclusions 

concerning the First Sale Doctrine that no legislative changes to section 109 of the 

Act are necessary at this time. Section 109 of the Act permits the owner of a copy 

of a copyrighted work like a compact disk (‘‘CD’’) to redistribute that property without violating the exclusive right set forth in Section 106(3) of the Act. Digital transmissions on the Internet for downloading music are different from distributions of 

physical media because they implicate several copyright rights—including the public 

performing right, the public display right and the reproduction right in addition to 

the distribution right. Applying the first sale doctrine to digital transmissions would 

adversely affect the copyright owners’ ability to license mechanical rights and public 

performing rights in their musical works as the online music marketplace continues 

to develop. 

In the past five years, there has been a continued explosion in transmissions of 

music on the Internet. The Internet is literally awash with transmissions of unauthorized, unlicensed music in the form of digital MP3 files. In view of this, it is hard 

to make a factual case that section 109 is inhibiting digital transmissions. In these 

circumstances, we support the conclusions of both the NTIA and the Copyright Office that no change to section 109 of the Act is warranted at this time. 

80

5See Report at pp. 142–143. 6 ‘‘Label Deal to unclog music logjam,’’ issued September 17, 2001, by CNET News.com, at 

http://news.cnet.com/news. 7 Report at pp. xxix-xxx; see also pp. 147–148 (‘‘(I)t is our view that no liability should result 

from a technical ‘performance’ that takes place in the course of a download’’). 8Musical works are written by composers and lyricists and are usually owned or administered 

by music publishers. The copyrights in musical works are to be distinguished from those in 

sound recordings, which are the particular renditions of the musical works performed by the 

artists and which are usually controlled by record companies. 9The Register’s rationale, that a bill had been introduced in 1997 by Representatives Boucher 

and Campbell (H.R. 3048, 105th Cong., 1st Sess. (1997)) who proposed to amend section 117 

by permitting reproductions of digital works necessary to the operation of a device and not affecting the normal exploitation of the work, squares neither with the plain meaning of section 

104 nor an actual reading of H.R. 3048. In pertinent part, H.R. 3048 proposed to amend section 

117 to provide that ‘‘it not be an infringement to make a copy of a work in a digital format 

if such copying (1) is incidental to the operation of a device in the course of the use of a work 

otherwise lawful under this title; and (2) does not conflict with the normal exploitation of the 

work and does not unreasonably prejudice the legitimate interests of the author.’’ (emphasis 

added). H.R. 3048’s language, although somewhat murky on protecting the author, at least pays 

deference to the author. 10See 65 Fed. Reg. 35673–75 (May 16, 2000). 11The notice of public hearings adhered to this circumscribed approach. At the public hearing 

held by the Office and the NTIA on November 29, 2000, I testified about the applicability of 

the public performing right to digital transmissions under the Act to illustrate the inapplicability of the first sale doctrine to digital transmissions. At the hearing I testified about the legal 

rationale for performing right organizations to license a public performance of the underlying 

musical work that occurs in the course of transmitting sound recordings from the vendor’s server to the consumer’s personal computer. In response to a question from the panel about such 

licensing, I replied that the marketplace would handle this as a licensing matter. For all practical purposes, that is the extent of the record before the Office on this subject on which the 

Report purports to base a ‘‘fair use’’ analysis of the applicability of the public performing right 

to music downloads. See Hearing Transcript at 199–201. 

b. The Proposals Regarding Section 117 Exemptions Are Unwarranted. 

1. Buffer Copies in Streaming 

The Report recommends that Congress enact legislation to amend the Copyright 

Act ‘‘to preclude any liability arising from the assertion of a copyright owner’s reproduction right with respect to temporary buffer copies that are incidental to a licensed digital transmission of a public performance of a sound recording and any 

underlying musical work.’’ 5 The Report recites the fair use factors from section 107 

of the Act and purports to engage in a balancing of the equities in favor of the users. 

But there is no indication that the marketplace or the current provisions of the Act 

are not satisfactory to handle the issue of buffer copies. 

Section 115 of the Act provides for the conducting of CARP proceedings to set 

rates for digital phonorecord deliveries and incidental digital phonorecord deliveries. 

The first such case has been noticed, and there is no need to amend the Act prior 

to learning the outcome of that proceeding. Indeed, recent reports of a negotiated 

license between the Harry Fox Agency and the record industry confirm that this 

issue is capable of being resolved by the marketplace.6

2. Downloads of Musical Works 

Having proposed an exemption for music publishers’ reproduction rights in 

streaming, the Register then felt compelled to go beyond reproduction right issues 

under section 117 and venture into what the Report characterized as an unsettled 

point of law that is subject to debate, the applicability of the public performing right 

to digital downloads of music when no contemporaneous rendering takes place. The 

Report concluded that assuming digital downloads of musical works are public performances, they should be considered fair use.7 BMI disagrees with the Report’s approach to musical works on a number of levels.8

First, the Report’s conclusory statements regarding the value of the public performing right are outside the scope of the Register’s Congressional mandate under 

section 104 of the DMCA. To shoehorn section 106(4) of the Copyright Act into an 

analysis of section 117 (a ‘‘copying’’ exemption) is (to say the least) a stretch.9 A review of the request for public comment issued by the Copyright Office and the NTIA 

on June 5, 2000, confirms that all specific questions related to sections 109 and 117 

of the Copyright Act.10 No mention was made of public performances in digital 

downloads, and no user group filed written comments about the licensing of public 

performing rights. At least with respect to the public performing right the Register 

did not act on a full record in making the comments in her report.11

When Congress passed the Digital Performance Right in Sound Recordings Act of 

1995 (‘‘DPRA’’), Congress clarified the applicability of the mechanical compulsory liVerDate Jan 17 2002 11:21 Mar 13, 2002 Jkt 000000 PO 00000 Frm 00084 Fmt 6601 Sfmt 6621 G:\WORK\COURTS\121201\76669.001 HJUD1 PsN: 76669
81

12See 17 U.S.C. § 115(d) (definition of digital phonorecord delivery); see also 17 U.S.C. § 115 

(c)(3)(K) (‘‘Nothing in this section annuls or limits (i) the exclusive right to publicly perform a 

sound recording or the musical work embodied therein, including by means of digital transmission....’’). 13 2 Nimmer § 8.24[B]. A work is publicly performed if it is transmitted in such a way that 

it can be seen or heard by the public, such as a broadcast or webcast, or by a limited portion 

of the public, such as cable or satellite transmissions that are available only to subscribers. To 

‘‘transmit’’ a performance ‘‘is to communicate it by any device or process whereby images or 

sounds are received beyond the place from which they are sent.’’ 17 U.S.C. § 101. A work is publicly performed if it is transmitted electronically over the air by a network to a local broadcasting station or a cable system, or streamed over the Internet by a webcaster. The transmission’s definition as a performance is not dependent on a particular number of people who 

choose to receive a transmission. 14 H.R. Rep. No. 94–1476, 94th Cong., 2d Sess. 66 (1976); see also H.R. Rep. No. 102–286, 

102nd Cong., 2d Sess. (1992). 15 Rogers and Hammerstein Organization, et al. v. UMG Recordings, Inc. and the Farm Club 

Online, Inc., 00 Civ. 5444 (S.D.N.Y. September 25, 2001), slip. op. at 22 (citations omitted), 2001 

U.S. Dist. LEXIS 16111. 16See Report at 147, fn. 441. 17 Report at 147. 

cense to digital phonorecord deliveries. In so providing, it preserved the applicability 

of the public performing right to digital transmissions.12 In reviewing the DPRA, 

Nimmer observes that ‘‘the prudent course would seem for purveyors of the new digital services to pay royalties under both theories [i.e., performance and mechanical].’’ 13

The Report’s conclusion that the public performance that takes place in the course 

of a download is fair use is simplistic and ignores the substance of the fair use doctrine as it is codified in section 107 of the Act. Section 107 sets forth four non-exclusive factors to be considered by courts in determining whether or not a particular 

use is fair: (1) the purpose and character of the use; (2) the nature of the copyrighted work; (3) the amount and substantiality of the portion used in relation to 

the copyrighted work as a whole; and (4) the effect of the use upon the potential 

market for or value of the copyrighted work. As this Committee stated in its Report 

on the 1976 Copyright Revision Act, ‘‘. . . courts must be free to adapt the doctrine 

to particular situations on a case-by-case basis.’’14

The Copyright Office has in a prior rulemaking proceeding wisely decided that it 

would not interpret definitions in the Act in cases involving complex, fact-specific 

inquiries similar to ‘‘fair use’’ claims. See Petition for Rulemaking Denial, Public 

Performance of Sound Recordings; Definition of Service, 65 Fed. Reg. 77330, 77332 

(Nov. 21, 2000). In that proceeding the Office denied a request by webcasters to 

issue a general rule interpreting the statutory definition of ‘‘interactive service’’. The 

Office’s denial was based on the rapidly changing nature of the marketplace for digital music services. That same prudent rationale adopted for treatment of sound recording copyrights was not followed by the Office, however, in making its sweeping 

comments about exemptions for licensing musical works rights online. 

The federal courts have much better fact-finding abilities when it comes to analyzing fair use claims. In a recent decision resolving litigation between music publishers and the Universal Music Group over mechanical licensing of streaming services, the district court rejected the defendant record label’s contention that the issue 

of infringement of mechanical rights should be deferred until the Copyright Office 

issued its rulemaking. The court stated: ‘‘The Second Circuit has recognized that ‘the 

Copyright Office has no authority to give opinions or define legal terms, and [that] 

its interpretation on an issue never before decided should not be given controlling 

weight.’ ’’ 15 The Court found liability for infringement of mechanical rights even 

though the service in question was licensed for public performing rights by BMI and 

ASCAP. 

While the Report discussed the four fair use factors as they applied to the reproduction right and the making of ‘‘buffer’’ copies by webcasters (BMI does not believe 

their conclusions were correct, however), there was no similar analysis for the public 

performing right. The Report merely incorporated by reference the fair use analysis 

for the reproduction right.16 In a giant leap of faith, the Report concluded that ‘‘fairness requires that we acknowledge the symmetrical difficulty that is faced by the 

online music industry: digital performances that are incidental to music 

downloads.’’ 17

In order to test the Report’s logic, let us consider five types of digital performances that occur in digital downloads:

• Downloads of a single song for a per-song fee;

• Downloads of an unlimited number of songs for a monthly subscription;

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18 Billboard Bulletin, September 27, 2001, MusicNet Unveils Platforms for Technology, Business. 19 In covering the Mossberg address, the M Street Daily wrote ‘‘(W)hen the labels debut their 

own legal successor to Napster, they’ll charge a download fee and also code the song to vanish 

off a hard drive in 30 days. To Mossberg, renting a song equals streaming.’’ M Street Daily, September 6, 2001, at 1. 

• Limited (e.g., three songs only, or listen for two days only) downloads of songs 

for promotional purposes, free-of-charge;

• Technical downloads of audio programming for purposes of digital radio 

broadcasting;

• Technical downloads of audiovisual programs for purposes of broadcasting 

digital television.

Would the fair use analysis be the same for each scenario? Obviously not. In fact, 

it is easy to see that there will be a wide variety of delivery methods of music online 

that involve downloads, each of which has the potential to impact the market for 

public performing rights. 

To give one example, MusicNet announced the launch of its subscription music 

delivery service to compete with unlicensed peer-to-peer services such as Aimster. 

One possible model under discussion, according to Billboard Bulletin, would offer 

consumers 50 musical tracks in the form of downloads, on-demand streams, or a 

mixture, for $9.95 per month.18 Under the Copyright Office’s flawed reasoning, BMI 

would be able to license the streams for value, but not the downloads. Clearly the 

marketplace makes no arbitrary distinctions in the types of transmissions as the Office claims users need or require. 

BMI understands that PressPlay and MusicNet will offer limited download services that will compete with radio and cable broadcasting. At a recent keynote address before the NAB convention, a respected commentator Walt Mossberg (The 

Wall Street Journal computer columnist) warned the radio industry that these new 

services will compete with them for audience.19 Obviously, any negative impact on 

radio listenership and revenues will also hurt the public performing right licensing 

marketplace. 

As if to excuse the lack of analysis of the public performing right issue, the Report 

buttressed its conclusion by explaining that ‘‘this issue only applies to the music industry . . . because in other industries the public performance and reproduction 

rights are exercised by the same entity.’’ But why should the music publishing industry be disadvantaged because of its historic structure? Other industries can license the value of all rights by combining control over all rights in one entity. In 

foreign countries, the music licensing societies frequently license the public performing right and mechanical right in digital transmissions, and assign a value to 

each component of the license. 

Many user groups have paid both performing right fees and reproduction rights 

fees for the entertainment services they provide. Background music services are one 

example. They obtain public performing right licenses from performing right organizations as well as electrical transcription licenses from music publishers. Television 

broadcasting also involves both rights: synchronization rights for recording the 

music and the public performing right for broadcasting. 

The Copyright Act of 1976 created the concept of divisibility of rights, and there 

is no reason to revisit that decision. Divisibility of rights is one of the incentives 

to authorship. Indeed, divisibility of copyright rights promotes competition. In our 

view, by commenting on the structure of the musical works marketplace the Copyright Office is essentially opining on policy matters that are outside the purview of 

its expertise. But the Office’s suggestions regarding musical works licensing actually 

would have more profound affects on the very nature of the Copyright Act, itself. 

Through the leadership of this Subcommittee, Congress created the 1976 Act as a 

technologically neutral statute that has proven flexible enough to respond to the incredible pace of change brought about by computers in the past 25 years. The Office 

seeks to upend the Act to respond to certain technologies, in a manner that is no 

longer technology neutral. This could have unsettling consequences for future developments in the law. 

Despite the fact that BMI disagrees with the procedures and substance of the 

Register’s Report that relate both to ‘‘buffer’’ copies and public performances in digital downloads, we respect the influence of the Register of Copyrights. We have considered her conclusions and recommendations, and rather than simply opposing the 

Register, we have examined whether common ground can be achieved. We have 

identified one area in which commonality of interests is present. The attached joint 

statement of BMI, ASCAP and HFA discusses the current evolving state of music 

83

20Several key members of this Subcommittee have stated in a letter to Colleagues that in 

their view no legislation concerning the Internet music marketplace is necessary: ‘‘If there is 

one thing we know about the Internet music marketplace, it is how little we know. . . . It is 

a marketplace without a proven business model. . . . [T]he most appropriate Congressional role 

at this point is to continue to develop our knowledge and monitor marketplace developments.’’ The letter concludes that ‘‘We strongly believe it is premature for Congress to act on legislation 

that regulates this quickly evolving marketplace’’ and notes that any legislation attempted by 

Congress will ‘‘most likely be obsolete before it is enacted.’’ Letter to Colleagues from the Hon. 

Howard L. Berman, John Conyers, Jr., Elton Gallegly, Bob Goodlatte, Henry J. Hyde and Robert 

Wexler sent September 2001. 21See, e.g., Art. 10, WIPO Copyright Treaty. 1Musical works—songs or other musical compositions—are written by composers and lyricists 

and usually owned or administered by music publishers. The copyrights in musical works are 

to be distinguished from those in sound recordings, which are the particular renditions of musical works recorded by performing artists and usually owned by record companies. We deal here 

only with musical works, not sound recordings. 

online and makes suggestions designed to accommodate the reasonable needs of 

webcasters and music users. We believe this presents a model for marketplace solutions to licensing problems. Legislative ‘‘fixes’’ to what are essentially business problems are not called for and, in our view, would be more damaging than useful at 

this time. 

CONCLUSION

In summary, section 117 is a limited exception aimed at copying computer software and has nothing to do with the webcasting or downloading of musical works. 

There is insufficient support in the Report or in the record before the Office for the 

Report’s proposed exemptions and purported ‘‘fair use’’ analyses concerning music. 

The Register’s recommendation regarding the public performing right is not in the 

public interest, and we believe that no legislation is required.20

The Berne Convention and the WIPO Copyright Treaty require that the marketplace for new uses of copyrighted works have the opportunity to develop in a manner that does not unreasonably prejudice the legitimate interests of authors. These 

treaties prohibit limitations on (and exceptions to) copyright that interfere with authors’ rights and copyright owners’ legitimate business opportunities, whether they 

are established licensing practices or prospective in nature.21

There is no indication in Section 104 of the DMCA that Congress intended that 

this inquiry should involve music public performing right issues on the Internet. In 

view of the explosive growth of webcasting since 1998, it is difficult to see how a 

diminution of the public performing right is necessary to foster webcasting over the 

next several years. 

It is clear that we have entered into the era of globalization. Realizing this fact, 

BMI has entered into agreements with other performing right organizations for the 

global licensing of performing rights on the Internet. Obviously, transmissions over 

the Internet are global in nature. Therefore, whatever this Subcommittee recommends and the Congress enacts will have an effect on the rest of the world. The 

U.S. should not become a lawless haven for entities that want to avoid liability from 

copyright liability. 

We should strengthen our laws to promote lawful activities rather than diluting 

our laws to promote free-riding. We should set and adhere to high standards for the 

rest of the world to follow, rather than following the lowest common denominator 

approach. BMI looks forward to assisting this Subcommittee in exercising its oversight and legislative responsibilities to monitor developments in the area of emerging technologies and their impact on various aspects of U.S. copyright law.

PREPARED STATEMENT OF THE AMERICAN SOCIETY OF COMPOSERS, AUTHORS & PUBLISHERS, BROADCAST MUSIC, INC., AND THE NATIONAL MUSIC PUBLISHERS’ ASSOCIATION/HARRY FOX AGENCY

ASCAP, BMI and the NMPA (through its licensing subsidiary, HFA) represent 

virtually all American songwriters and music publishers, in licensing all the rights 

that are necessary for Internet music services to use copyrighted musical works.1

At the outset, we unequivocally state our desire to license copyrighted musical 

works for transmission on the Internet so that consumers may have on-line access 

to the world’s repertory of musical works. 

HFA has licensed many Internet music services and, together with the NMPA, recently reached landmark agreements with the RIAA and Napster to license the reproduction and distribution rights in copyrighted musical works for a broad array 

84

2 ‘‘Oppose Regulation of the Internet Music Market,’’ Letter from the Honorable Howard L. 

Berman, John Conyers, Jr., Elton Gallegly, Bob Goodlatte, Henry J. Hyde and Robert Wexler 

to Colleagues (September 2001). 3 U.S. Copyright Office, DMCA Section 104 Report (August 2001). 

4For example, a ‘‘pure’’ audio-only download could be one that met all these requirements: 

(1) the musical work could not be perceived (i.e., heard) while the transmission was taking place; 

(2) the sole purpose of the transmission was to deliver a phonorecord of the musical work to 

the home user; (3) the resulting phonorecord received by the home user was permanent, capable 

of further non-commercial duplication by the home user, and not limited by time, usage, further 

payment, or any other factor; and (4) the transmission of the musical work was made on demand. By contrast, a ‘‘pure’’ audio-only webcast could be one that met all these requirements: 

(1) no copy was made on a local storage device (e.g. the hard drive of a user’s computer or portable device) that would be accessible for subsequent listening; (2) the webcast was not part of 

an ‘‘interactive service’’ (as that term is defined in Section 114(j)(7) of the Copyright Act); and 

(3) the webcast does not exceed the ‘‘sound recording performance complement’’ (as that term 

is defined in Section 114(j)(13) of the Copyright Act). 

of Internet music subscription services. BMI and ASCAP have licensed and will continue to license any Internet users who request a license for the public performance 

of musical compositions. 

These licensing agreements confirm that the marketplace, while continuing to 

evolve, will adapt to meet new business models as they emerge. We thus agree, in 

the strongest terms, with the recent statements made by members of the House Judiciary Subcommittee on Courts, the Internet, and Intellectual Property:

• ‘‘If there is one thing we know about the Internet music marketplace, it is 

how little we know. . . . It is a marketplace without a proven business 

model....’’

• ‘‘[T]he most appropriate Congressional role at this point is to continue to develop our knowledge and monitor marketplace developments.’’

• ‘‘We strongly believe it is premature for Congress to act on legislation that 

regulates this quickly evolving marketplace.’’

• ‘‘Government regulation can only stifle the tremendous innovation in this 

market and serve to pick winners and losers, and, in any case, will most likely be obsolete before it is enacted.’’ 2

It has nevertheless been suggested by others that Congress should intervene now 

to change the legal framework in which the marketplace is evolving. The Copyright 

Office, for example, recently issued a report suggesting that Congress amend existing law to limit the rights of songwriters and music publishers to be compensated 

for the use of their copyrighted musical works on the Internet.3 A bill has also been 

introduced that seeks to regulate the still-evolving marketplace for Internet music. 

We believe strongly that legislative intervention is unwarranted and could impede 

marketplace solutions. 

In particular, we wish to respond to the suggestion by the proponents of these 

changes that certain economic rights expressly granted under the Copyright Act 

have no value in the digital domain. We appreciate that different uses of different 

rights may be valued differently in the marketplace. At opposite ends of the spectrum, for example, it can be said that ‘‘pure’’ audio-only downloads should not require payment for the public performing right and that ‘‘pure’’ audio-only webcasts 

should not require payment for the mechanical right.4 In between those examples, 

however, both rights may be implicated. How to value those various uses should be 

left to the marketplace—as it was, with a successful resolution, in the NMPA/HFARIAA agreement and in the many ASCAP and BMI license agreements. 

The recent NMPA/HFA-RIAA agreement proves that marketplace solutions work. 

The agreement provides a flexible model for immediately licensing reproduction and 

distribution rights to all subscription services delivering music in a variety of forms, 

including on-demand streaming and time-limited downloads. Although the agreement does not establish industry-wide rates at this time, it contemplates that different uses of music may have different values in the marketplace. Indeed, NMPA/

HFA and RIAA have committed to engage in good faith negotiations to agree on industry-wide mechanical royalty rates for Internet services—and to issue licenses 

even before such rates are set so as to assure that consumers have access to music 

now. 

So, too, ASCAP and BMI, in licensing the public performing right, have repeatedly 

expressed their desire for, and willingness to engage in, marketplace negotiations 

for licenses that also reflect the different values of different uses of music on the 

Internet. Indeed, BMI and ASCAP have already licensed thousands and thousands 

of Internet music users, covering all their performances. 

85

These developments prove that the free marketplace works. It should be allowed 

to continue to work, without legislative intervention.

Mr. COBLE. Mr. Potter. 

STATEMENT OF JONATHAN POTTER, EXECUTIVE DIRECTOR, 

DIGITAL MEDIA ASSOCIATION 

Mr. POTTER. Thank you, Mr. Chairman, Representative Berman, 

and Members of the Subcommittee. On behalf of more than 50 companies of DiMA, the Digital Media Association, thank you for inviting me to testify today about the DMCA Section 104 report and 

particularly about the important legislative recommendations of 

the Copyright Office. We thank Chairman Coble and Representative Berman for your continued commitment to sound copyright 

policy that benefits all Americans. 

We also thank Representatives Cannon and Boucher for introducing the Music OnLine Competition Act, which includes provisions that reasonably implement the recommendations of the Copyright Office report. 

As reflected in my written statement, DiMA appreciates the reasoned analysis and persuasive legislative suggestions made by the 

Copyright Office. The report’s overpowering theme is that logic 

must prevail in copyright law, public policy, and commerce. 

DiMA is particularly appreciative of the report’s conclusions in 

the following respects: First, that RAM buffer and server copies of 

sound recordings and musical works made in association with lawful webcast performances should be exempt from reproduction royalty obligations as a matter of law. 

Second, that performance royalties should not be paid on 

downloads known as digital phonorecord deliveries because they either do not qualify as a legal performance or, if they do qualify, the 

technical performance cannot be perceived and therefore should not 

trigger a performance royalty. 

Third, that consumers have the right to archive or make backup 

copies of their purchased digital media. 

I would like to provide a business perspective on the importance 

of these recommendations. As you may know, webcast streaming 

technology breaks the musical sounds into millions of packets that 

take different routes through the Internet to the user’s computer. 

These packets are played from a buffer in the PC that puts them 

in order so that the consumer listening experience is as smooth as 

broadcast radio. 

NMPA and Harry Fox say that this buffer, used solely to enable 

licensed webcast performances, requires a separate royalty payment in addition to the performance license. The Copyright Office 

concludes so firmly that no second royalty should be due that it 

suggests legislation to ensure that no duplicative royalty is sought 

and that no business leverage is created by the risk of infringement 

liability. DiMA agrees. 

DiMA further agrees with the Copyright Office recommendation 

that webcast server copies also should be exempt from reproduction 

royalties and reproduction liability. Terrestrial broadcasters for 25 

years have enjoyed an exemption from the reproduction right so 

that they can make tapes or electronic copies of musical works simply to support their broadcasts. 

86

Webcasters need several copies to accommodate different media 

formats and bandwidth speeds, but each webcast ephemeral reproduction has the same essential qualities as that single broadcast 

reproduction. Each is intended only to facilitate a lawful and compensable performance and each is inaccessible to consumers and 

thus secure against piracy. 

Here, again, the Copyright Office has suggested that webcasters 

be exempt from the reproduction right as broadcasters are, the full 

value of the economic act is compensated in the paid performance 

and, thus, the server reproduction has no independent economic 

value. 

From a business perspective, the recommended server copy and 

buffer royalty exemptions are very significant. The NMPA RIAA license demands that signatories concede the existence of rights that 

the Copyright Office states do not exist. Indeed, this license prohibits licensees from publicly disagreeing with the NMPA’s legal 

position or even supporting the Copyright Office report’s conclusions. 

Do not be misled by those who proclaim that this license evidences marketplace solutions. On the contrary, the aggressive provisions of this agreement illustrate the point made yesterday by 

Register Peters. Sound copyright policy requires that Congress exempt server copies and buffers that support licensed compensable 

streaming. 

DiMA emphatically disagrees with any contention that on-demand streaming changes this analysis a bit. Rather, we agree with 

the Copyright Office conclusion that only the performance right is 

implicated by on-demand streaming and that creators, songwriters 

and publishers can be compensated for any lost sales royalties 

through higher performance royalties. 

Moreover, testimony yesterday from the RIAA confirmed that 

even under the NMPA agreement the process for obtaining publishing licenses is impeding digital music services from making the 

most popular music available online. We encourage this Committee 

to quickly adopt improvements to the Section 115 compulsory mechanical license process that will remove these roadblocks. 

DiMA further appreciates that the Copyright Office soundly rejected the contentions of performing rights organizations ASCAP 

and BMI which have repeatedly claimed that whenever a music file 

is transmitted, even when that file cannot be perceived, that a public performance has occurred. DiMA hopes that this Committee 

agrees with the Copyright Office conclusion that unless a transmission can simultaneously be heard by human ears no performance has occurred and no royalty obligation or liability should be 

incurred. 

Mr. Chairman, the Copyright Act imposes stiff statutory infringement liability penalties, up to $150,000 per work. In that environment, NMPA and the PROs today are using the leverage of legal 

uncertainty to force on-line music companies to sign licenses and 

pay duplicative royalties upon rights that do not exist. This legislation or the legislation recommended by the Copyright Office is important to clarify the law, even in the absence of specific litigation. 

In conclusion, Mr. Chairman, the recommendations of Register 

Peters and her staff carefully balance the interests of creators, conVerDate Jan 17 2002 11:21 Mar 13, 2002 Jkt 000000 PO 00000 Frm 00090 Fmt 6601 Sfmt 6601 G:\WORK\COURTS\121201\76669.001 HJUD1 PsN: 76669
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tent owners, digital media companies and the public. We urge you 

to act promptly to implement her recommendations. 

Mr. COBLE. Thank you, Mr. Potter. 

[The prepared statement of Mr. Potter follows:]

PREPARED STATEMENT OF JONATHAN POTTER

Mr. Chairman, Representative Berman, and Members of the Subcommittee: 

I am Jonathan Potter, Executive Director of the Digital Media Association 

(‘‘DiMA’’), which represents the interests of the online media industry. On behalf of 

more than 50 DiMA member companies, thank you for inviting me to testify today 

concerning the Section 104 Reports of the Copyright Office and the National Telecommunications and Information Administration (‘‘NTIA’’). For DiMA companies, 

the Reports address issues of great and timely importance, which must be resolved 

for ecommerce in music and video to flourish on the Internet. 

In summary, DiMA is gratified by the Copyright Office conclusion that amendments to the Copyright Act are necessary. After hearing testimony from all the interested parties and balancing carefully the needs of creators, consumers, copyright 

owners and digital media companies, the Copyright Office has concluded that logic 

must prevail in law, in public policy and in business: a public performance royalty 

should be due only when a transmission can actually be perceived; and a reproduction royalty should be paid only when the reproduction has economic value that is 

distinct from the authorized performance it has enabled. DiMA urges the Subcommittee to accept the Copyright Office’s careful and persuasive legislative recommendations, and proceed toward expeditious enactment of amendments that will 

resolve many significant legal and business issues that have hindered the development of the online music marketplace. 

Specifically, DiMA agrees with the Copyright Office’s conclusion that Internet 

companies should not be charged royalties just to make copies of music that enable 

licensed performances and downloads—the same way that radio broadcasters today 

do not pay royalties on the making of copies that enable their terrestrial broadcasts. 

By clarifying that these ‘‘broadcast use’’ server copies are exempt from copyright liability, Congress will speed deployment and stabilize the future of new music services, and thereby support value to consumers and new sources of royalties to songwriters and performers. 

DiMA would have preferred that the Report also concur with our view that consumers deserve the right to exercise a ‘‘digital first sale’’ privilege by giving away, 

lending or selling digitally-purchased content via digital transmission. Notwithstanding the Copyright Office’s conclusion to the contrary, we support the Report’s 

suggestion that Congress continue to monitor how the absence of this digital first 

sale privilege affects ecommerce, and whether new digital rights management technologies can securely implement the digital first sale privilege while protecting the 

rights of copyright owners. 

Finally, Mr. Chairman, we note that many of the provisions recommended by the 

Copyright Office already have been proposed to this Subcommittee in legislation introduced by two of your members, Representatives Chris Cannon and Rick Boucher. 

DiMA and its members thank these Congressmen for their interest and insight in 

assuring a fair and competitive online music marketplace, and we urge the Subcommittee to carefully consider the legislative solutions offered in the Music Online 

Competition Act of 2001, H.R. 2724, as a reasoned way to implement many of the 

recommendations of the Copyright Office’s Section 104 Report. 

DiMA Represents the Interests of the Online Media Industry. 

DiMA advocates the interests of a relatively new industry that digitally delivers 

and markets music and video in online electronic commerce. Our member companies, large and small, are leaders in developing new technology, infrastructure and 

business models for the digital entertainment economy. DiMA member companies 

are a mix of well-known brand names and small start-ups, but each subscribes to 

certain core principles: First, copyright owners and artists deserve fair and reasonable compensation for commercial uses of their content. Second, copyright and commercial law should not discriminate against new media companies or, conversely, 

favor existing media companies, based upon the technology used to deliver content 

to the consumer. Third, in this regard, the laws applicable to analog media and preexisting technologies should be extended and expanded to grant equivalent and appropriate rights to spur the growth and enjoyment of new digital media. 

88

DIMA’S LONGSTANDING CONCERN WITH THE ISSUES

ADDRESSED IN THE REPORT UNDER THE DMCA

Since our founding in June 1998, DiMA has urged policymakers to consider solutions to issues that appear at the crossroads of copyright and ecommerce:

• The need for streamlined licensing of sound recordings for Internet 

webcasting;

• Exempting from copyright liability the caching and temporary buffers created 

during the technical process of webcasting;

• Clarifying that downloading and webcasting are two separate acts, so as to 

avoid duplicative royalty payments to music publishers and composers;

• Assuring consumer rights to make back-up copies of media they lawfully acquire online;

• Obtaining an exemption or right to make multiple ephemeral server recordings of musical works and sound recordings;

• Extending the existing ‘‘in-store’’ exemption for music performances in section 

110(7) of the Copyright Act, to support Internet retailing of sound recordings; 

and,

• Exercising the first sale privilege by digital retransmission.

In 1998, when developing the DMCA, Congress responded favorably to several key 

points raised by DiMA. Most importantly, Congress clarified and extended the statutory license for the digital performance of sound recordings, in section 114(d) of the 

Copyright Act, to unambiguously cover noninteractive Internet webcasting. 

Additionally, to avoid delaying passage of the DMCA and, yet, interested in the 

developing online media issues that were first highlighted by Representative Boucher and former Representative Tom Campbell, Congress enacted section 104 of the 

DMCA, requiring the Copyright Office and NTIA jointly to study two additional concerns, namely, the temporary copying of digital works, and consumers’ right to use 

digital transmission technology in the exercise of the first sale privilege. 

DIMA’S PARTICIPATION IN THE COPYRIGHT OFFICE AND NTIA STUDY

DiMA actively participated in the study conducted by the Copyright Office and 

NTIA in preparing their respective reports. In extensive comments and reply comments, and in testimony at the November 29, 2000, hearing, DiMA essentially 

elaborated upon four key points:

1. Extending the existing pro-consumer elements of today’s copyright law into 

the digital environment is consistent with the policies underlying the Copyright Act and the World Intellectual Property Organization treaties implemented by the DMCA.

2. Copyright law provisions (i.e., 17 U.S.C. § 117) that legitimize archiving and 

usage of computer software should be adapted and applied to digitally-delivered audio performances and copies of downloaded sound recordings. Specifically, temporary copies that enable the performance of digital media, including streaming audio, should explicitly be exempted from the exclusive rights 

of copyright owners, including the rights of reproduction and distribution. 

Further, consumers should retain the right to make one archival copy of 

digitally-delivered media to guard against losses from technical errors or 

equipment failure.

3. To create a level playing field for ecommerce in digitally-delivered audio, 

video and other media, the first sale doctrine of 17 U.S.C. § 109(a) should 

apply to content lawfully acquired by digital transmission. Unless consumers 

receive from digital media the same quality, value and convenience they receive from physical media, ecommerce may be left stranded at the starting 

gate.

4. To rapidly promote ecommerce, it would be preferable for Congress to enact 

these limitations into law now, rather than wait for the courts to sort 

through the panoply of issues. Unanswered questions surrounding the legal 

status of webcasting or consumer rights in digitally-purchased media indisputably will continue to dampen promising markets and technologies.

Six DiMA member companies also testified at the hearing before the Copyright 

Office and NTIA, where they amplified these points with real world examples of how 

legal uncertainty continually inhibited their businesses. Specifically, the companies 

noted that well-funded agents of music publishers were seeking to be paid reproduction royalties for public performances of music over the Internet, and public perVerDate Jan 17 2002 11:21 Mar 13, 2002 Jkt 000000 PO 00000 Frm 00092 Fmt 6601 Sfmt 6621 G:\WORK\COURTS\121201\76669.001 HJUD1 PsN: 76669
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formance royalties for downloads or distributions over the Internet. As the Copyright Office noted, these music services were being asked unfairly to pay the same 

copyright owners twice for a single economic act (i.e., webcasting or downloading) 

primarily because the copyright owners are being represented by different agents. 

Indeed, in some cases these agents refused to grant licenses to DiMA members only 

for the rights that the companies wanted, unless the companies also paid for licenses that were not necessary and, indeed, could not lawfully be licensed by these 

agents because the claims were not within the copyright owners’ rights. 

Moreover, our members testified, the requirement to pay duplicative royalties 

would significantly change the economics of webcasting, and diminish the potential 

return on margins that already were razor-thin. In an environment in which license 

rights are uncertain, the current return on investment is elusive, and the possibility 

of copyright infringement suits and crippling statutory damages remains a constant 

threat, our member companies told the Copyright Office that it had become increasingly difficult to attract new capital investment necessary to their survival. 

DiMA therefore appreciated the acknowledgement in the NTIA report that these 

licensing conflicts were impeding the development of electronic commerce in online 

music, and the suggestion in that report that Congress should examine closely the 

underlying legal issues and take appropriate legislative action. 

THE COPYRIGHT OFFICE SECTION 104 REPORT: AN IMPORTANT EVENT FOR CONSUMERS

AND THE ONLINE MUSIC INDUSTRY

Mr. Chairman, although the August 29, 2001, Copyright Office Section 104 Report 

does not adopt all of the changes suggested by DiMA and its members, we are gratified that the Copyright Office confirmed three central points: that Internet companies should not have to pay twice for a single economic act, that copyright law 

should treat webcasters and terrestrial broadcasters essentially alike, and that consumer rights should not be associated only with traditional media or business models. 

DiMA Applauds the Report Finding that Temporary RAM Buffers are Fair Use. 

Internet webcasters pay license fees to perform copyrighted music and sound recordings over the Internet. Those performance rights fees are paid to the music publisher, the songwriter, the sound recording copyright owner and the performing artist. 

As you may be aware, the technical process of webcast ‘‘streaming’’ creates on the user’s computer a small, evanescent buffer of data, so that webcasts will sound to 

the user as smooth and uninterrupted as terrestrial broadcasts. These buffers are 

a technological artifact necessitated by the technology of Internet communications. 

In brief, when the user ‘‘tunes in’’ to an Internet webcast channel, individual packets of data, each constituting a minute portion of the webcast signal, are sent by 

a multiplicity of routes to the end user’s computer. The user’s computer sequences 

and stores these packets continually, until it has accumulated a sufficient amount 

of data in its memory as insurance against further transmission delays. Once the 

first data in the buffer are performed (i.e., the music is played for the listener), the 

buffered data are gone and inaccessible to the user. Those data are replaced by the 

next bits of data, which then will be performed and replaced, and so on. As the 

Copyright Office found, these buffers have no independent economic value apart 

from their role in enabling the performances themselves. 

Unfortunately, for several years the Harry Fox Agency (‘‘HFA’’) and the National 

Music Publishers Association (‘‘NMPA’’) have been taking the position that these 

buffers infringe the reproduction rights of music publishers and songwriters, and 

have insisted that Internet webcasters should pay a license fee for these buffers, in 

addition to the performance royalty fees that the webcasters already pay to these 

same music publishers and songwriters through ASCAP, BMI and SESAC. Thus, 

DiMA and its members appreciate that the Copyright Office Report agrees that no 

additional royalty payments should be required, because ‘‘[t]he buffer copy has no 

economic value independent of the performance that it enables, so there appears to 

be no conceivable effect upon the market for or value of the copyrighted work’’ Report at 139. Therefore, the Copyright Office concludes, there is a strong case that 

the making of these buffers is a fair use that does not infringe the publishers’ and 

songwriters’ copyrights and does not require a mechanical license payment. The Report further finds that ‘‘there appears to be some truth to the allegation made by 

some commenters that copyright owners are seeking to be paid twice for the same 

activity.’’ Report at 140. 

Notwithstanding this definitive pronouncement from the Copyright Office, music 

publishers are conceding no ground. Indeed, they have undertaken an aggressive effort to maximize any remaining legal uncertainty and stifle opposing points of view 

90

before Congress, the Copyright Office and the courts. On October 5, 2001, the 

NMPA, HFA and the RIAA entered into a private agreement that guaranteed RIAA 

members particular rights that they needed in order to offer subscription on-demand 

music services, IF the RIAA also conceded that current law requires a mechanical 

license for the server copies used to make the licensed downloads and performances, 

and for the buffers made on the users’ PCs during webcast streaming. This is not 

a question of subtle interpretation, Mr. Chairman; it is right there in black and 

white in paragraph 8.1 of their agreement. 

Perhaps this concession and the additional royalty costs pose no problem for 

record labels, as they can pass on the costs to independent Internet companies who 

license their sound recordings. But HFA now is offering this same deal to 

webcasters; and for webcasters the proposed agreement creates the very scenario 

that the Copyright Office said should not occur, and that would be avoided if Congress agrees with the 104 Report’s suggestion—webcasters having to pay the same 

copyright owners twice for a single act of streaming. Effectively, through this agreement the NMPA is using its aggregation of copyright licensing rights to force Internet companies to acquire a tied license that they do not want and do not need, in 

order to obtain mechanical license rights that are required in order to offer online 

music services. This, we respectfully submit, is unfair as a matter of business and 

perhaps as a matter of law. 

Furthermore, Mr. Chairman, the NMPA and HFA inserted an additional poison 

pill into the agreement. Section 8.2 of the agreement specifically states that a licensee cannot argue to any governmental agency—including this Subcommittee, the 

Copyright Office or the Department of Justice—that the Copyright Office Report is 

correct, and that under current law webcasting does not require a mechanical license payment. Indeed, the agreement goes so far as to prohibit any licensee from 

providing financial support to any organization that advocates that the Copyright 

Office’s interpretation of the law is correct. What is the intention of this clause? If 

DiMA had signed this license agreement on behalf of its members, would I be able 

to give this testimony here today, or to honestly answer your questions, without 

jeopardizing our members’ license rights that they need to compete online? Does this 

agreement require any DiMA member that signs it (e.g., to avoid costly litigation 

with music publishers) to resign from DiMA? Would a company that signs this 

agreement be unable to join DiMA? 

For these reasons, Mr. Chairman, the final recommendation of the Copyright Office with respect to temporary webcast buffers is so important. Even though the Report finds that webcasting buffers are protected under the fair use doctrine, the 

Copyright Office strongly recommends that buffers be exempted from any copyright 

liability by statute, so as ‘‘to preclude any liability arising from the assertion of a 

copyright owner’s reproduction right with respect to temporary buffer copies that 

are incidental to a licensed digital transmission of a public performance of a sound 

recording and any underlying work.’’ Report at 142–143. As demonstrated by the 

RIAA’s need to concede their own fair use rights when faced with the risk of expensive complex litigation, legislation clearly and indisputably is needed, now. 

Server Copies Used for Licensed Transmissions should be Exempt from Duplicative 

License Fees. 

Solving the buffer problem, Mr. Chairman, would be significant, but would not be 

sufficient to stimulate the true potential of the legitimate online music market. Perhaps the greatest hurdle to long-term success of new, comprehensive digital music 

services that will generate valuable new royalty streams for artists, songwriters and 

publishers, is the ongoing dispute over the need to obtain separate licenses and pay 

additional royalties in order to make the server copies necessary to make licensed 

performances of musical works. 

To explain webcasters’ dilemma: In order to make licensed digital phonorecord deliveries (DPDs) or licensed public performances of musical works over the Internet, 

it is necessary for the Internet service first to copy the sound recording onto computer servers. Given that these Internet transmissions must be made to many consumers, who access the Internet at various speeds (e.g., telephone dial-up, cable 

modem, DSL or T1), using different software (e.g., RealNetworks’ ‘‘RealPlayer’’ or 

Microsoft’s ‘‘Windows Media Player’’), Internet companies must make multiple copies of the sound recordings in order to make these licensed transmissions to the 

marketplace. 

Unfortunately, here again the agents of music publishers and composers are exploiting digital media services’ need for multiple copies into a demand for excessive 

reproduction royalty payments. After thoughtfully considering all sides of this issue, 

which were ably presented in written and oral testimony, the Copyright Office concluded that there is not ‘‘any justification for the imposition of a royalty obligation 

91

under a statutory license to make copies that have no independent economic value 

and are made solely to enable another use that is permitted under a separate compulsory license.’’ Section 104 Report at 144 n. 434. In other words, because Internet 

webcasting and DPDs are subject to statutory and compulsory licensing, there is no 

reason for music publishers, composers or, for that matter, recording companies, to 

charge additional fees for the reproductions of their musical works and sound recordings that are used to facilitate these licensed performances and downloads. Accordingly, the Copyright Office suggested that Congress (A) repeal Section 112(e) of 

the Copyright Act, which provides an ‘‘ephemeral’’ copy royalty to sound recording 

owners, and (B) provide webcasters with an exemption from copyright royalties for 

all server and cache copies of musical works and sound recordings that are made 

in (and limited to) the furtherance of licensed performances and downloads. DiMA 

strongly endorses these proposals. 

In this context also, Mr. Chairman, the October 5, 2001, agreement between HFA 

and NMPA, and RIAA plays a role. That agreement requires reproduction royalty 

payments for server copies that are used solely to enable licensed webcasts and 

downloads—precisely the server copies that the Copyright Office suggests should 

not trigger royalties. Thus, NMPA may claim to this Committee that its agreement 

with the RIAA is evidence of ‘‘marketplace resolution’’ which obviates the need for 

legislation. DiMA vigorously disagrees. Rather, this agreement further demonstrates 

that—as the Copyright Office recommends—Congressional action is needed to establish plainly that multiple server copies made by digital music services in furtherance of licensed webcasts and downloads, are exempt from copyright liability. 

Consumers and the Online Music Market Would Benefit From a Workable Electronic 

Section 115 Mechanical License Process. 

In part because of these problems, as highlighted in the Copyright Office Report, 

there is a continuing need in the digital media marketplace for a functioning compulsory mechanical license in the Copyright Act. Unfortunately, the consensus of 

users and potential users of the section 115 compulsory license is that it simply does 

not work for the Internet music market. Testimony from Internet companies and recording labels before this Subcommittee at a May 17, 2001, hearing uniformly criticized the existing process for obtaining the section 115 compulsory mechanical license as unduly expensive, unwieldy and unworkable. 

To obtain a compulsory license, one must send a notice of intention to the copyright owner of each individual musical composition for each sound recording to be 

transmitted by digital phonorecord delivery. To find the name of the copyright 

owner, one must search the records of the Copyright Office. Electronic searching 

was only recently made available, but (a) the electronic database only begins in 

1978, and so manual searching still is required for a large body of recorded material, and (b) the Copyright Office electronic database is not updated regularly 

enough. For example, the number one song in the U.S. on the Billboard charts last 

week is called ‘‘U Got It Bad,’’ by an artist named Usher; the number one country 

song is ‘‘I Wanna Talk About Me,’’ by Toby Keith; the number one Modern Rock 

track is ‘‘How You Remind Me,’’ by Nickelback; the top rap record is ‘‘Dansin Wit 

Wolvez (Where My Tribe At?),’’ by Strik 9ine; and the number one Adult Top 40 

record is called ‘‘Superman (It’s Not Easy),’’ by Five for Fighting. An online search 

of the Copyright Office electronic database shows no copyright registration information for any of those musical works. 

Once the information is located, a notice must be sent to the copyright owner on 

a song-by-song basis. If the copyright owner information is incorrect or if the owner 

refuses the notice—which, despite the fact that this is a compulsory license, happens 

more often than you might suspect—then the Internet service has to serve a new 

notice on the Copyright Office. 

That’s just for one song. New music services being launched this month and in 

future months each require mechanical licenses for more than 100,000 sound recordings. The existing Copyright Office system clearly cannot handle this load, and so 

the system must be updated so that all necessary searches and filings with the 

Copyright Office can be performed online. 

Undoubtedly, you will hear testimony at this hearing that the HFA-RIAA agreement is the marketplace solution to these services’ mechanical licensing concerns. 

However, putting aside for argument’s sake the unacceptable terms of that agreement, it still does not resolve new music services’ dilemma. Even if the Harry Fox 

Agency represented every music publisher in the United States (which it does not), 

each HFA publisher has the right to opt out of each agreement that purports to license their rights, including the recent agreement with RIAA. Many publishers in 

fact have opted out of the RIAA agreement, but HFA apparently refuses to tell its 

licensees which publishers have dropped out and what songs those publishers repVerDate Jan 17 2002 11:21 Mar 13, 2002 Jkt 000000 PO 00000 Frm 00095 Fmt 6601 Sfmt 6621 G:\WORK\COURTS\121201\76669.001 HJUD1 PsN: 76669
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resent. Conversely, HFA even refuses to say which publishers have opted in to the 

agreement, and which songs they represent. Moreover, the fact that a publisher has 

opted in to an agreement with one service does not guarantee that it will opt in 

to agreements with all services. Plainly this is not an acceptable solution. 

This leaves Internet music services in an impossible quandary, a Catch-22 for the 

Internet age. If online music services don’t know what licenses they will be getting 

under the HFA voluntary agreement, the only way services can protect themselves 

from lawsuits would be to file compulsory license requests. But, as I noted, the current system for obtaining the compulsory license is outmoded and unworkable. 

Mr. Chairman, Representative Berman and Members of the Subcommittee: We 

wish that it were otherwise, but most emphatically the marketplace for Section 115 

mechanical licenses does not work for online music services. When the world’s largest recording company—Universal Music Group—cannot get statutorily-mandated 

music licensing rights to launch new interactive services that consumers want— without risking hundreds of millions of dollars in infringement damages—something 

is profoundly wrong with our copyright licensing regime. 

What record companies and online music companies (and consumers who wish to 

utilize legal innovative services) need, Mr. Chairman, is certainty that necessary licenses can be obtained and that payments will flow accurately to creators and publishers. Congress enacted the compulsory mechanical license intending that it be usable by those who needed it. Today, that means there should be simple and reliable 

electronic methods to comply with the law and to pay creators and copyright owners 

every dollar they are due. DiMA urges this Subcommittee to consider carefully and 

act promptly to implement the types of improvements to the existing compulsory 

mechanical license process proposed by Representatives Cannon and Boucher in 

H.R. 2724. 

DiMA Agrees with the Copyright Office that Downloads are Not Compensable Public 

Performances. 

DiMA and our member companies appreciate that the Copyright Office went beyond the duplicative royalty issues discussed above, and also addressed the symmetrical issue associated with claims for public performance fees being made against 

digital phonorecord deliveries, or DPDs. A DPD essentially is the equivalent of buying a CD electronically rather than in a physical store. The consumer purchases a 

copy of the music, then downloads and records the music on a home PC or on a 

recordable CD (rather than purchasing the music prerecorded on a physical medium 

manufactured by the recording label). DPDs clearly are an important element of tomorrow’s online commerce. DPDs are a terrific option for consumers who can buy 

the music and have it delivered to them digitally within minutes. DPDs also are 

a good deal for the recording industry, which will receive royalties and profits from 

the sale of DPDs without incurring the costs of manufacturing, warehousing and 

distributing compact discs. 

The Copyright Act states in section 115 that DPDs implicate the reproduction

rights of the music publishers and songwriters in the same way that those rights 

are implicated by the manufacture and distribution of a compact disc. However, 

each of the three performing rights organizations (‘‘PROs’’) in the United States— ASCAP, BMI and SESAC—at various times has demanded that Internet music services make public performance rights royalty payments for the downloading of music 

files. 

Let me be clear what this means in practice. When a compact disc is purchased 

in a brick and mortar record store, music publishers and composers are paid a single royalty for the mechanical reproduction of their songs in that compact disc. 

When a CD is purchased from an Internet retailer, like Amazon.com, CDNow or 

Tower Records Online, and the CD is shipped to the consumer via FedEx, music 

publishers and composers again are paid the same single mechanical license royalty. 

But when a DPD is purchased from an Internet retailer and the music is shipped 

digitally through the Internet, PROs are demanding that Internet services pay the 

music publishers and composers a second royalty, based on a tortuous interpretation 

of the law which concludes that any ‘‘transmission’’ of a song file is a ‘‘public performance’’ that justifies a royalty. 

Fortunately, the Copyright Office Report rejected the PROs’ interpretation. DiMA 

noted in its testimony that the definition of ‘‘perform’’ in the Copyright Act unambiguously provides that a transmission is not a ‘‘performance’’ unless the work is 

being displayed or heard simultaneously with the transmission. As noted by the 

‘‘White Paper’’ report of the United States Information Infrastructure Task Force in 

September 1995:

A distinction must be made between transmissions of copies of works and transmissions of performances or displays of works. When a copy of a work is transVerDate Jan 17 2002 11:21 Mar 13, 2002 Jkt 000000 PO 00000 Frm 00096 Fmt 6601 Sfmt 6621 G:\WORK\COURTS\121201\76669.001 HJUD1 PsN: 76669
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mitted over wires, fiber optics, satellite signals or other modes in digital form 

so that it may be captured in a user’s computer, without the capability of simultaneous ‘‘rendering’’ or ‘‘showing,’’ it has rather clearly not been performed. 

Thus, for example, a file comprising the digitized version of a motion picture 

might be transferred from a copyright owner to an end user via the Internet 

without the public performance right being implicated. 

Intellectual Property and the National Information Infrastructure: The Report of the 

Working Group on Intellectual Property Rights at 71 (Sept. 1995); emphasis in 

original.

Moreover, the illogical nature of the PROs’ claim was apparent during the November 29, 2000, hearing, in the following colloquy between Copyright Office General 

Counsel David Carson, and BMI’s Senior Vice President and General Counsel 

Marvin Berenson: 

Mr. BERENSON: Our contention is that download or not, if there is a transmission, 

the public performance right is implicated along with the other rights.

Mr. CARSON: So I may download the file from some website but I may never actually play it and hear it. That’s still a public performance? 

Mr. BERENSON: Yes. 

Mr. CARSON: You realize how intuitively that seems to be absolutely wrong? 

Notwithstanding the Copyright Office Report’s conclusion that a download does 

not implicate the performance right, the PROs continue to insist that Internet music 

sites pay performance rights on downloaded music files. BMI’s Internet license, for 

example, currently requires payments on downloads as well as streaming:

This Agreement shall only include public performances in the Territory of musical works by transmissions over the Internet received via personal computers 

or by means of another device capable of receiving the Internet through streaming technologies AS WELL AS THOSE TRANSMISSIONS THAT ARE DOWNLOADED BY

PERSONS ON PERSONAL COMPUTERS OR OTHERWISE....

Thus, DiMA particularly appreciates the finding by the Copyright Office Report 

that, regardless of whether there is any technical or theoretical ‘‘performance,’’ the 

transmission has no economic value apart from the value of the download itself and, 

therefore, is a fair use for which no double-dip payment is required. We urge this 

Committee to re-affirm the conclusions of the Copyright Office and the National Information Infrastructure Task Force. 

DiMA Supports an Exemption for the Making of Archival ‘‘Back-Up’’ Copies. 

As ecommerce flourishes, consumers anticipate that they will receive from the 

goods they purchase electronically tomorrow the same value they acquire from the 

goods they purchase physically today. The same should be true for music that consumers purchase electronically, online, by DPD. DiMA therefore commented to the 

Copyright Office and NTIA that consumers need the right to make personal backup copies of music they download, as a safeguard against accidental erasure, damage from viruses, hard disk crashes, and as a way to migrate downloaded music collections to new computers or more capacious hard drives. We noted that in 1976, 

Congress enacted in 17 U.S.C. § 117 an archival exemption for computer software, 

for analogous reasons. Therefore, DiMA suggested that an extension of the current 

section 117 archival exemption to also cover audio files acquired by digital 

downloading would be consistent with existing legislative policy, as well as beneficial in promoting ecommerce and consumer satisfaction. 

DiMA therefore supports the Copyright Office Report’s conclusion that it would 

be consistent with policies underlying existing law for an archival exemption to protect downloaded music files against technical vulnerabilities that afflict all digital 

files. The Report further acknowledges that a strong case can be made that most 

common consumer archival activities qualify as fair use. 

The Copyright Office Report suggests two ways that this archival privilege could 

be established. We strongly advocate the second of these alternatives; that is, that 

Congress should ensure consumers’ right to protect their investments in online 

music by securing the archiving privilege, via an amendment to section 117. We do 

not support the first alternative, that is, making a change to the language of section 

109 (the ‘‘first sale’’ statute). This proposal could lead to uncertain and potentially 

prejudicial results for consumers and music retailers, particularly in light of the 

Copyright Office’s conclusion that the first sale doctrine should not otherwise be 

amended to allow consumers to exercise their first sale privilege by digital transmission. We discuss this point from the Section 104 Report below. 

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DiMA Supports a ‘‘Digital First Sale’’ Privilege. 

DiMA is disappointed that the Copyright Office declined to support consumers’

digital first sale privilege. Although many business models are being tested, we expect that there will always be a role for the purchasing of digital media by 

download, and that consumers will expect their purchased downloaded digital media 

to have the same value as purchased paper books or plastic discs. Consumers deserve the right to utilize, for their own legitimate purposes, the flexibility inherent 

in digital technology, including the right to resell, lend or give away digital media 

via digital transmissions. Moreover, we are confident that technology exists to ensure copyright owners that digital redistribution does not have the effect of duplication for multiple uses simultaneously. 

Although the Copyright Office Report observes that a digital first sale privilege 

would benefit consumers (as well as libraries, museums and educational institutions), the Copyright Office believed that the potential threat to copyright owners 

from abuse outweighed the potential benefit to the public. DiMA remains concerned 

that the law not reduce well-established economic privileges of law-abiding citizens 

because of fears associated with the few who misbehave. Moreover, unless the law 

grants the public at least the same rights and privileges in their digital purchases 

as their physical purchases, the law will deter rather than facilitate e-commerce. 

In the absence of immediate action, we agree with the Copyright Office suggestion 

that Congress continue to monitor whether the absence of a digital first sale privilege has a negative impact on consumers, ecommerce and the public interest and, 

if so, to revisit this question in the future. In addition, we recommend that Congress 

and this Committee monitor the progress of digital rights management technology, 

so that when technologies are developed that facilitate the secure operation of the 

first sale doctrine, then Congress could reassess whether the balance has tipped in 

favor of the use of such technologies to exercise the first sale privilege. 

DIMA SUPPORTS THE ENACTMENT OF THE PROVISIONS OF H.R. 2724,

THE MUSIC ONLINE COMPETITION ACT OF 2001. 

We note, Mr. Chairman, that before Congress and this Committee now is a bill, 

authored by two members of this Subcommittee, that resolves many of the issues 

raised in the Section 104 Report in a manner that is fully consistent with the Copyright Office’s recommendations. On August 2, 2001, Representatives Cannon and 

Boucher introduced the Music Online Competition Act or ‘‘MOCA,’’ H.R. 2724. Although some have contended that certain provisions of MOCA might prove disruptive to marketplace negotiations, nonpartisan observers such as the Duke University 

Law and Technology Review have concluded that that MOCA is a modest and ‘‘important first step in making beneficial changes to copyright law.’’ See ‘‘The Music 

Online Competition Act Of 2001: Moderate Change Or Radical Reform?’’ 2001 Duke 

L. & Tech. Rev. 0031, available online at http://www.law.duke.edu/journals/dltr/articles/2001dltr0031.html 

To those who would counsel against considering the provisions of MOCA now, we 

would urge this Subcommittee to consider carefully how Congressional action can 

spur rather than deter the marketplace by creating a level and certain playing field. 

Early Congressional intervention into the webcasting market, through the enactment of a statutory license for the performance of sound recordings, created the 

legal certainty necessary to foster investment in webcasting services. Today, music 

webcasting is ubiquitous, royalty payments are flowing and will increase steadily in 

future years, and even the hearings of this Subcommittee are webcast over the 

Internet. 

Legislative resolution of the legal (and associated business) issues that NTIA and 

the Copyright Office identify will have the same result: a more stable, more efficient, more innovative online music industry that generates more royalties for creators and copyright owners, and more value and excitement for consumers. 

Since the introduction of MOCA, the intention behind several of its key provisions 

has found acceptance in both the Copyright Office Report and in private commercial 

practices. Specifically:

• Section 6 of MOCA narrowly implements two of the findings of the Section 

104 Report, with respect to the making of temporary copies during the course 

of lawful audio webcasting, and the right to make archival copies of music 

files lawfully acquired by DPD.

• Section 3 of MOCA addresses the Report’s suggestion that multiple server 

copies made to facilitate lawful webcasting and DPD activities also should be 

exempt from copyright liability.

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• Section 5 of MOCA, dealing with the administration of the compulsory mechanical license in section 115 of the Copyright Act, includes a number of elements that are suggested in the October 5, 2001, agreement between HFA, 

NMPA and RIAA, and in a recent request for comment published by the 

Copyright Office.

MOCA includes a number of other elements that we believe are worthy of this 

Subcommittee’s consideration. One particular provision would modestly and reasonably extend current law into the digital age, by allowing online music retailers the 

right to give consumers the ability to ‘‘try before they buy’’—to hear short excerpts 

of songs they might be interested in purchasing online—without payment of performance license fees. I say that this provision is modest and reasonable for two reasons. First, whereas current law allows brick and mortar retailers to play entire 

songs, indeed entire CDs, the MOCA provision would permit only the transmission 

of 30 or 60 second samples of these songs. Second, it is modest and reasonable because the October 5 agreement between the music publishers and the RIAA includes 

a provision whereby each of them can use sound recording samples for free when 

promoting the sale of music online. It therefore stands to reason that the exemption 

for these samples also should be extended to independent Internet retailers. 

CONCLUSION

In conclusion, we thank Chairman Coble, Mr. Berman and this Subcommittee for 

scheduling hearings on the Copyright Office Report. DiMA believes that the recommendations of the Report with respect to exempting by statute temporary buffers 

made during webcasting, consumer back-up copies of lawfully downloaded music, 

and the making of multiple server copies of music files, are sound and necessary 

to the promotion of a robust and competitive Internet music market that will generate substantial royalties to creators. We therefore urge this Subcommittee to implement these recommendations, and in so doing, to carefully consider the approach 

and additional provisions of the Music Online Competition Act. 

Thank you. 

AGREEMENT 

This agreement (the ‘‘Agreement’’), dated as of October 5, 2001 (‘‘Effective Date’’), 

is made by and between the Recording Industry Association of America, Inc. 

(‘‘RIAA’’), on the one hand, and National Music Publishers’ Association, Inc. 

(‘‘NMPA’’) and The Harry Fox Agency, Inc. (‘‘HFA’’), on the other (all of the foregoing collectively referred to as the ‘‘Parties’’). 

WHEREAS, record companies desire to offer to consumers, or authorize others to 

provide to consumers, certain digital music services that provide On-Demand 

Streams and Limited Downloads (as defined below); 

WHEREAS, music publishers desire to make their copyrighted musical works 

widely available to consumers by licensing such services; 

WHEREAS, while the Parties have differed concerning certain legal and procedural questions implicated by the licensing of musical works for use in such services, record companies have always believed that musical work copyright owners 

should receive for the use of musical works in digital music services a fair royalty 

that reasonably reflects the value of the use of those works, irrespective of the particular rights of the copyright owner applicable to that use, and music publishers 

have always believed that their copyrighted works should be made available 

through such services for fair compensation; 

WHEREAS, there has been litigation concerning the use of musical works in digital music services; the U.S. Copyright Office has issued a Notice of Inquiry whether 

to conduct a rulemaking concerning the legal status of On-Demand Streams and 

Limited Downloads; the U.S. Copyright Office has issued a report pursuant to Section 104 of the Digital Millennium Copyright Act addressing certain issues relating 

to streaming; and certain record companies may prefer to make business decisions 

concerning the launch of Covered Services (as defined below) with greater assurance 

concerning the legal status of such services; 

WHEREAS, the Parties desire to avoid the uncertainty and expense of litigation 

concerning the use of copyrighted musical works by Covered Services, and to provide 

assurance to record companies and others seeking to offer such services to consumers; 

WHEREAS, Section 115(c)(3) of the U.S. Copyright Act authorizes voluntary negotiations for determining royalty rates and terms under the mechanical compulsory 

license; and 

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WHEREAS, in settlement of their differences and to facilitate the expeditious and 

widespread launch of digital music services, the Parties have reached this Agreement with respect to terms pursuant to which RIAA member record companies may 

obtain licenses to make and authorize On-Demand Streams and Limited Downloads 

of musical works in Covered Services; 

NOW, THEREFORE, pursuant to 17 U.S.C. § 115(c)(3), and in consideration of the 

mutual promises contained in this Agreement and for other good and valuable consideration, the adequacy and sufficiency of which are hereby acknowledged, the Parties hereby agree as follows:

1. Covered Services. Any member of RIAA that seeks to use, or authorize the use 

of, a copyrighted musical work for which an HFA publisher-principal has the right 

to grant the rights that are the subject matter of this Agreement in connection with 

the operation of one or more Covered Services may obtain through HFA on behalf 

of such HFA publisher-principal a mechanical license (‘‘License’’) to make On-Demand Streams and Limited Downloads of the work through Covered Services, 

through to the end user, including by making server and related reproductions of 

the work used in the operation of Covered Services. 

1.1. ‘‘Covered Service’’ means a service that offers (but the offerings of which are 

not necessarily limited to) On-Demand Streams and/or Limited Downloads of sound 

recordings of musical works from servers located within the United States (including the territories and possessions thereof), where the basic charge to users for the 

service is a recurring subscription fee (in contrast to the basic charge being a perdownload, per-play or per-song fee), including any use of such a service on a limited 

basis without charge to users in order to promote the subscription service. 

1.2. ‘‘On-Demand Stream’’ means an on-demand, real-time digital transmission of 

a sound recording of a single musical work to allow a user to listen to a particular 

sound recording chosen by the user at a time chosen by the user, using streaming 

technology, which may include but is not limited to Real Audio or Windows Media 

Audio, that is configured by the provider of the Covered Service in a manner designed so that such transmission will not result in a substantially complete reproduction of a sound recording being made on a local storage device (e.g., the hard 

drive of the user’s computer or a portable device) so that such reproduction is available for listening other than at substantially the time of the transmission. 

1.3. ‘‘Limited Download’’ means a digital transmission of a time-limited or other 

use-limited download of a sound recording of a single musical work to a local storage 

device (e.g., the hard drive of the user’s computer or a portable device), using technology designed to cause the downloaded file to be available for listening only either 

(1) during a limited time (e.g., a time certain or a time tied to ongoing subscription 

payments) not to extend more than thirty (30) days beyond the expiration of the 

user’s subscription, or (2) for a limited number of times not to exceed twelve (12) 

times after the expiration of the user’s subscription. 

1.4. Any member of RIAA that obtains a License hereunder is referred to herein as a ‘‘Participating RIAA Member.’’ Any member of NMPA or HFA publisher-principal that grants a License and/or accepts a portion of an Advance Payment hereunder is referred to herein as a ‘‘Participating NMPA/HFA Publisher.’’ The terms ‘‘Participating RIAA Member’’ and ‘‘Participating NMPA/HFA Publisher’’ are limited 

to such entities and their majority-owned subsidiaries. 

1.5. Any digital music service that is majority owned by one or more RIAA members in the aggregate shall be entitled directly to obtain a License hereunder, and 

so shall be treated as a ‘‘member of RIAA’’ for purposes of Section 3.1. If such a 

service either obtains a License directly or is authorized under a License hereunder 

to make On-Demand Streams and/or Limited Downloads through Covered Services, 

such service shall be treated as a ‘‘Participating RIAA Member’’ for all purposes of 

this Agreement. 

2. Covered Deliveries. 

2.1. A License with respect to a musical work includes all reproduction, distribution and DPD rights necessary for Covered Services to make On-Demand Streams 

and Limited Downloads of that work, from the making of server reproductions to 

the transmission and local storage of the On-Demand Streams or Limited 

Downloads. A License does not extend to other transmissions made by a Covered 

Service or to activities not encompassed by a mechanical license, including, without 

limitation, print or display rights, merchandising rights, adaptation (derivative 

work) rights except as provided in Section 115(a)(2) of the Copyright Act, rights to 

synchronize musical works with visual images resulting in audiovisual works, or 

karaoke rights, all of which rights are specifically reserved. The Parties agree that 

server reproductions made under a License to transmit On-Demand Streams or 

Limited Downloads may be used to make transmissions other than On-Demand 

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Streams and Limited Downloads; provided that the foregoing is without prejudice 

to any applicable requirement, if any, that the Participating RIAA Member also obtain a license for such other transmissions made using such server reproductions. 

It is understood that this Agreement does not address or extend to any performance 

rights that may be implicated by the making of On-Demand Streams or Limited 

Downloads through Covered Services. 

2.2. A License includes the right to make, and there shall be no separate payment 

or accounting for, On-Demand Streams of Promotional Excerpts (as defined below) 

of sound recordings of musical works licensed hereunder used for promotional purposes, provided that the applicable Participating RIAA Member shall be deemed 

likewise to authorize the relevant copyright owner or copyright owners of such musical work (or an organization of copyright owners designated by such copyright owners as their common agent) to make On-Demand Streams of Promotional Excerpts 

of that sound recording for the purpose of promoting that musical work without payment of any royalty. ‘‘Promotional Excerpt’’ is defined as a stream consisting of no 

more than thirty (30) seconds of playing time of the sound recording of a musical 

work, or in the case of sound recordings with a playing time of more than five minutes, a stream that is of no more than the lesser of ten percent (10%) or sixty (60) 

seconds of playing time of the sound recording of the musical work. 

3. Licensing Process. 

3.1. Commencing on the Effective Date, a member of RIAA may submit License 

requests in electronic form, either individually or batched, and either for On-Demand Streams and/or Limited Downloads alone or in combination with other configurations, substantially in accordance with Exhibit A. Promptly after the Effective 

Date, during the opt-out period described in Section 3.2, the Parties shall arrange 

discussions between appropriate personnel of HFA and of certain RIAA members 

concerning electronic licensing procedures, with the goal of refining and testing 

HFA’s electronic licensing procedures so that they can be used readily for the 

issuance of mechanical licenses expeditiously following the completion of such optout period, and with the goal of enhancing such procedures so that they later can 

be used readily by RIAA members to request and obtain mechanical licenses for all 

configurations for which they desire licenses in a single request. In addition, a member of RIAA may submit License requests by other means generally accepted by 

HFA, including but not limited to SirNet (for so long as it is available), HFA’s new 

web-based licensing system (when it becomes available), and HFA’s standard paper 

form (but only using paper forms for complex License requests (e.g., requests involving medleys or samples), in limited numbers during times when electronic licensing 

capabilities are unavailable, or at other times in numbers that are generally consistent with such RIAA member’s past use of paper forms, and in any case in numbers that do not exceed what HFA can reasonably be expected to process under the 

circumstances). HFA may modify its license request and license forms from time to 

time, provided that it gives reasonable notice thereof to RIAA and Participating 

RIAA Members and such modifications do not unreasonably affect the ability of Participating RIAA Members to submit license requests and obtain licenses. License 

forms may be issued electronically or in paper form, but when a Licensee submits 

a License request in electronic form in accordance with this Section 3.1, HFA shall, 

promptly after processing the License request, return to such Licensee an electronic 

file substantially in accordance with Exhibit A, with (1) the addition of that information indicated in Exhibit A as being ‘‘output’’ fields, (2) the addition of information, other than individual publisher share information, to complete any blank optional fields in the request, to the extent that such information is available in HFA’s 

databases and is matched to the request in the License issuance process, (3) the 

substitution of information concerning HFA publisher-principal names where such 

information in HFA’s databases is different from that in the request, and (4) the 

aggregated share of Participating NMPA/HFA Publishers. If an RIAA member submits a License request in accordance with this Section 3.1 but the request contains 

insufficient information for HFA to find a match for the relevant work in its databases, HFA will work with such RIAA member to provide the information necessary 

to enable a License to be issued, and if such RIAA member resubmits such request 

with the necessary information and the License can be issued, the provisions of Section 3.4 shall apply from the date of the original request. The Parties acknowledge 

the importance to NMPA, HFA and music publishers of having License requests 

submitted promptly, and the importance to RIAA and record companies of having 

License forms issued promptly. The Parties shall cooperate in good faith to promote 

each of those goals. 

3.2. The authority of HFA to license any individual musical work on behalf of its 

publisher-principals is subject to the approval of the relevant publisher-principal. 

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HFA shall not require its publisher-principals to opt in to this Agreement either before or after commencing to issue Licenses, but HFA may establish an opt-out period 

before commencing to issue Licenses, provided that such period ends not later than 

six (6) weeks following the Effective Date. If an HFA publisher-principal at any time 

requests that HFA not issue Licenses on its behalf (either with respect to particular 

musical works or in general), HFA will honor that request; provided, however, that 

any such request shall not affect the validity or subsistence of a License issued prior 

to such request. During the opt-out period described in Section 3.2, HFA shall notify 

RIAA weekly of HFA publisher-principals that have notified HFA that they do not 

wish to make Licenses of their works available under this Agreement. Thereafter, 

through December 31, 2002, HFA shall notify RIAA quarterly of HFA publisherprincipals that have notified HFA that they do not wish to make Licenses of their 

works available under this Agreement. 

3.3. HFA shall issue mechanical licenses for DPD configurations (including but 

not limited to Licenses under this Agreement) with respect to a musical work in its 

entirety if one or more of its publisher-principals owns or controls a partial interest 

in such musical work, even if other co-owners of such musical work are not HFA 

publisher-principals, except that, pursuant to Section 3.2, if all the HFA publisherprincipals that own or control a partial interest in such work request that HFA not 

issue mechanical licenses on their behalf, HFA will not issue such licenses. In the 

case of a mechanical license issued as descibed in this Section 3.3, a Participating 

RIAA Member shall pay directly to each co-owner that is not an HFA publisherprincipal (or such co-owner’s authorized payee) such co-owner’s share of the applicable royalty payments under Section 6.1. 

3.4. License forms issued by HFA pursuant to this Agreement shall be retroactive 

to the date of the License request made by the Participating RIAA Member on or 

after the Effective Date in accordance with Section 3.1. To the extent that the Participating RIAA Member makes or authorizes On-Demand Streams and Limited 

Downloads of musical works pending the processing by HFA of license forms in response to proper License requests submitted on or after the Effective Date in accordance with Section 3.1, NMPA and HFA shall not directly or indirectly file, encourage, aid, support, finance, contribute to, promote, or participate in any claim, suit, 

action or proceeding asserting that such activities are infringing. 

3.5. Subject to Section 3.3, HFA shall also accept License requests to make OnDemand Streams and Limited Downloads through Covered Services of musical 

works as to which no HFA publisher-principal has any ownership interest or control, in whole or in part, and for which a License is not otherwise available under 

this Agreement. In such a case, HFA shall use commercially reasonable efforts to 

secure the requested Licenses from the relevant non-HFA publisher-principals on 

the same terms as apply to HFA publisher-principals under this Agreement. (NonHFA publisher-principals who grant Licenses through this arrangement shall be referred to as ‘‘Participating Independent Publishers’’.) In addition to any commission 

charged to the Participating Independent Publisher, HFA may charge the relevant 

Participating RIAA Member a one-time administrative fee of ninety-five dollars 

($95) for each publisher that agrees to become a Participating Independent Publisher (it being understood that no such administrative fee shall be payable for any 

subsequent Licenses issued on behalf of that Participating Independent Publisher 

to any Participating RIAA Member), unless the Participating Independent Publisher 

also authorizes HFA to grant mechanical licenses other than Licenses under this 

Agreement, in which case no such fee shall apply. The Advance Payment described 

in Article 4 may be applied to such administrative fee when payable by a Participating RIAA Member specified by RIAA, and HFA shall provide to RIAA or an independent accounting firm designated by RIAA sufficient information concerning liability for such administrative fee to allow reconciliation of the Advance Payments 

as described in Section 4.4. When HFA arranges Licenses from Participating Independent Publishers pursuant to this Section 3.5, HFA shall collect and distribute 

mechanical royalties to such Participating Independent Publisher (or other authorized payees) unless the Participating RIAA Member requests to make such payments directly. 

3.6. It is understood that compilations of data supplied by HFA in electronic form 

pursuant to Section 3.1, except to the extent that they consist of data provided by 

the relevant Participating RIAA Member pursuant to Section 3.1, are proprietary 

in nature and shall not be used by the recipient Participating RIAA Member to engage in business activities in competition with HFA or for any purpose other than 

to request and administer licenses issued by HFA and/or other licenses such Participating RIAA Member acquires with respect to the same works or other works owned 

or controlled by the same copyright owners, and shall not be disclosed by the recipient Participating RIAA Member to any other party except insofar as it is reasonably 

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necessary to disclose specific data relating to particular works for the purpose of requesting or administering licenses issued by HFA and/or other licenses such Participating RIAA Member acquires with respect to the same works or other works owned 

or controlled by the same copyright owners. 

3.7. Nothing in this Agreement, including but not limited to the availability of Licenses or the procedures for obtaining the same, shall preclude an RIAA member 

or digital music service from at any time serving or filing a notice of intention to 

obtain a compulsory license in accordance with applicable law or, other than in Article 8, imply that any notice of intention so served or filed is valid or invalid. Nothing 

in this Agreement shall preclude any digital music services from seeking, or HFA 

or any of its publisher-principals from granting, direct licenses to digital music services, including without limitation Covered Services, on whatever terms might be 

agreed upon between the relevant parties, and it is the intention of HFA to make 

such licenses widely available as described more fully in a press release to be issued 

by HFA. By taking Licenses pursuant to this Agreement, Participating RIAA Members will be able to facilitate on a prompt and widespread basis the availability of 

music over the Internet through Covered Services. 

4. Advance Payment. 

4.1. Within thirty (30) days after the Effective Date, RIAA, on behalf of Participating RIAA Members (including their licensees), shall pay to HFA a non-refundable advance royalty payment of one million dollars ($1,000,000) in the aggregate 

(‘‘Advance Payment’’). If, by the second anniversary of the Effective Date, there has 

then been no final non-appealable determination of royalty rates for On-Demand 

Streams and Limited Downloads through negotiation and/or a CARP proceeding, as 

the case may be, then, subject to Section 4.2, until such a determination, RIAA, on 

behalf of Participating RIAA Members (including their licensees), shall each month 

pay to HFA a supplementary Advance Payment of sixty-two thousand five-hundred 

dollars ($62,500) in the aggregate. 

4.2. Effective at the second anniversary of the Effective Date or any time thereafter, RIAA may terminate this Agreement upon thirty (30) days advance written 

notice to NMPA and HFA. In the event RIAA does so, all Licenses previously issued 

under this Agreement shall terminate at the same time as this Agreement, without 

prejudice to the right of Participating RIAA Members thereafter to obtain new licenses under 17 U.S.C. § 115. Effective at the second anniversary of the Effective 

Date or any time thereafter, any Participating RIAA Member may opt out of this 

Agreement upon thirty (30) days advance written notice to each of the Parties. In 

the event a Participating RIAA Member does so, (1) the provisions of this Agreement thereafter shall not apply to such Participating RIAA Member except as provided in Article 7, and (2) all Licenses previously issued to such Participating RIAA 

Member under this Agreement shall terminate at such time, without prejudice to 

the right of such Participating RIAA Member thereafter to obtain new licenses 

under 17 U.S.C. § 115. In the case of termination by either RIAA or one or more 

Participating RIAA Members, (a) payments shall be due in accordance with Section 

6.1 for activities under this Agreement prior to the termination of the relevant Licenses, (b) Advance Payments may be applied against such payments in accordance 

with Section 4.4, and (c) to the extent remaining, Advance Payments also may be 

applied to royalties due under new licenses for On-Demand Streams and Limited 

Downloads made through Covered Services, which licenses are issued by HFA at 

least one year after the relevant date of termination to the Participating RIAA 

Members whose Licenses were terminated. In addition, in the event a Participating 

RIAA Member that is one of the five ‘‘major record companies’’ (as that term is commonly understood, including any successors thereto and the subsidiaries thereof) so 

opts out of this Agreement, RIAA’s monthly supplementary Advance Payments 

under Section 4.1 thereafter shall be reduced proportionately, based on the number 

of major record companies at such time (e.g., if there are then five major record companies and one opts out, RIAA’s monthly supplementary Advance Payments shall 

be reduced by twenty percent (20%)). In addition to the foregoing, if there is a decision of the U.S. Copyright Office or a court, or any new legislation, inconsistent with 

Section 8.1, with the result that mechanical royalties are not required to be paid 

for some or all On-Demand Streams and/or Limited Downloads made through Covered Services, then the amount of RIAA’s monthly supplementary Advance Payments under Section 4.1 shall be reduced to take into account such decision or legislation, based on actual usage under this Agreement to date, with the exact amount 

of such reduction to be agreed upon by the Parties promptly after such decision or 

legislation; provided that if any such decision is appealed and finally reversed on 

appeal, the amount of RIAA’s monthly supplementary Advance Payments under 

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Section 4.1 shall be restored, and RIAA shall promptly pay to HFA the total amount 

by which the supplementary Advance Payment was reduced in the interim. 

4.3. HFA shall deposit Advance Payments into an interest-bearing bank account 

(with such interest being treated as part of the Advance Payment). HFA shall be 

free to distribute the initial and supplementary Advance Payments to HFA publisher-principals in accordance with a reasonable and nondiscriminatory methodology based on market share, actual usage or a per musical work payment (which 

methodology HFA shall provide to RIAA), as well as to any Participating Independent Publishers pursuant to Section 3.5. Except insofar as it is recouped pursuant to Sections 4.4 and/or 4.5, the Advance Payment shall be nonrefundable. 

4.4. Upon the final non-appealable determination of royalty rates for On-Demand 

Streams and Limited Downloads through negotiation and/or a CARP proceeding, as 

the case may be, the total amount of Advance Payments (including interest) shall 

be applied against undisputed amounts owed to HFA on behalf of its publisher-principals and Participating Independent Publishers by Participating RIAA Members 

under this Agreement. Such Advance Payments shall be applied to the accounts of 

individual Participating RIAA Members as specified by RIAA, or an independent accounting firm designated by RIAA, by written notice to HFA within 45 days after 

the date of such final non-appealable determination of royalty rates. If the Advance 

Payments are not fully recouped at such time, any remainder of the Advance Payments thereafter shall be applied against all undisputed amounts owed to HFA on 

behalf of its publisher-principals and Participating Independent Publishers by Participating RIAA Members identified by RIAA, under mechanical licenses issued by 

HFA for On-Demand Streams and Limited Downloads made through Covered Services (including but not limited to Licenses under this Agreement), until such amount 

is fully recouped, unless RIAA notifies HFA of a different allocation of the Advance 

Payments among the accounts of Participating RIAA Members from time to time. 

HFA shall provide to RIAA or an independent accounting firm designated by RIAA 

sufficient accounting information to allow payments between RIAA and Participating RIAA Members, or vice versa, as necessary for each Participating RIAA 

Member ultimately to have paid to RIAA a net amount equal to that portion of the 

Advance Payments recouped by royalties actually owed by such Participating RIAA 

Member hereunder. 

4.5. At the request of HFA, with RIAA’s written consent, which consent shall not 

be withheld unreasonably, Advance Payments may be applied to other undisputed 

amounts (e.g., other mechanical royalties) owed by Participating RIAA Members to 

HFA on behalf of its publisher-principals.

5. Royalty. The royalty rate payable under a License shall be determined through 

negotiation and/or a CARP proceeding. The applicable rate will be structured as determined through negotiation or by the CARP, and may comprise separate royalty 

rate components for distinct uses of the musical work authorized by the License. 

The Parties shall meet to negotiate royalty rates in good faith, with the goal of concluding such negotiations promptly after the launch of Covered Services, and if an 

agreement is reached, jointly petition the U.S. Copyright Office for its adoption pursuant to 37 C.F.R. § 251.63(b). NMPA reserves its right to seek interest as a part 

of such royalty rate determination. RIAA reserves its right to seek to have such royalty rate determination reflect any payments under foreign copyrights in the case 

where On-Demand Streams or Limited Downloads are transmitted to users outside 

of the United States. Whether royalty rates are determined by negotiation or a 

CARP, and regardless of how royalty rate categories may be denominated, the Parties shall seek a determination of royalty rates such that it is clear which royalty 

rates are applicable to each of On-Demand Streams and Limited Downloads. 

6. Accounting and Payment. 

6.1. Beginning with the issuance of a License, a Participating RIAA Member will 

be required to account to HFA on a quarterly basis for activity under such License, 

45 days after the close of each quarter, providing information comparable to that 

presently provided for physical products, and specifically including the number of 

On-Demand Streams and Limited Downloads of each work made during such quarter. Without limitation, quarterly reports shall include a breakdown of On-Demand 

Streams and Limited Downloads made by Covered Services under Licenses in the 

applicable quarter, by musical work and delivery method code (indicating On Demand-Streams and/or Limited Downloads), and including ISRC number if available, 

catalog number if available and HFA license number if available (in the same manner indicated by the Participating RIAA Member in its License request), and shall 

identify the specific Covered Services in which such On-Demand Streams and Limited Downloads were made. Each Participating RIAA Member shall preserve all 

usage and financial data that reasonably should be expected to be relevant, upon 

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the determination of royalty rates, to the calculation of royalties hereunder and use 

commercially reasonable efforts to require that each Covered Service it has authorized hereunder to make On-Demand Streams and Limited Downloads does the 

same. Subject to Article 4 and Section 3.3, upon the final non-appealable determination of royalty rates for On-Demand Streams and Limited Downloads through negotiation and/or a CARP proceeding, each Participating RIAA Member shall make the 

applicable payment for all previous quarters then completed, from the launch of the 

applicable Covered Services to date, within 45 days, to be accompanied by a cumulative statement setting forth and aggregating the information provided in the previous quarterly reports supplied under this Agreement. Thereafter, on a quarterly 

basis, 45 days after the close of each quarter, each Participating RIAA Member shall 

account to HFA for activities and/or revenues realized on such activities during such 

quarter as determined through negotiation and/or by regulation, providing such information as is required by regulation, a CARP, and/or a negotiated rate agreement, 

and, subject to Article 4 and Section 3.3, pay royalties at the applicable rate. Notwithstanding the foregoing, NMPA reserves its right to seek more frequent access, 

including without limitation real-time access, to usage information. 

6.2. At the request of HFA, a Participating RIAA Member shall accompany its 

quarterly reports with any available data in addition to that described in Section 

6.1 concerning the numbers of On-Demand Streams and Limited Downloads made 

through Covered Services operated or authorized by such Participating RIAA Member (but not any personally identifying information), which data is regularly gathered or compiled by such Participating RIAA Member or provided to such Participating RIAA Member by its licensees with the right to disclose such data to HFA 

hereunder; provided that a Participating RIAA Member may provide any such data 

to HFA in whatever form it is available to such Participating RIAA Member in the 

ordinary course of its business and subject to any applicable confidentiality and 

other contractual use restrictions; and provided further that, before making any 

such request, HFA shall review with the Participating RIAA Member the types of 

such data the Participating RIAA Member has and can disclose to HFA, and the 

form in which such data is available, and HFA shall not request, and Participating 

RIAA Members shall not be required to provide, data that (given the volume and 

form of such data, the degree to which such data is reflected in quarterly reports, 

the data processing capabilities of HFA and the Participating RIAA Member, HFA’s 

intentions to use such information, and other relevant factors) would not be commercially reasonable to provide. In addition, to the extent such information is available to a Participating RIAA Member and can be disclosed to HFA hereunder, at 

the request of HFA, a Participating RIAA Member shall accompany its quarterly reports with the total number of subscribers to and total number of subscriber months 

for each Covered Service operated or authorized by such Participating RIAA Member during the reporting period; provided that any such information relating to a 

Covered Service operated by a Participating RIAA Member shall be subject to an 

appropriate confidentiality restriction, and any such information provided to a Participating RIAA Member by a third party shall be subject to any applicable confidentiality and other contractual use restrictions. Notwithstanding the foregoing, to the 

extent that information requested by HFA under this Section 6.2 is subject to existing, proposed or future confidentiality restrictions that would preclude its disclosure 

to HFA, the relevant Participating RIAA Member shall in good faith seek the consent of the party that is the source of such information to disclose such information 

to HFA, subject to appropriate confidentiality restrictions.

7. Term. The term of this Agreement shall commence on the Effective Date and, 

subject to Sections 4.2 and 8.5, continue until the final non-appealable determination of royalty rates for each of On-Demand Streams and Limited Downloads 

through negotiation and/or a CARP proceeding. New Licenses shall continue to be 

issued pursuant to this Agreement for the duration of such term. Thereafter, RIAA 

member companies may request, and HFA shall issue, mechanical licenses covering 

On-Demand Streams and Limited Downloads at the applicable royalty rates in accordance with its customary practices for the issuance of licenses where there is an 

applicable statutory rate, which the Parties currently understand to include the 

means of application described in Section 3.1. Notwithstanding the foregoing, Licenses once issued under this arrangement shall remain in effect unless terminated 

for default in respect to payment (once royalty rates are determined) or accounting 

(either before or after royalty rates are determined) pursuant to 17 U.S.C. § 115(c)(6) 

(or other applicable provision of law, if any), it being understood that a License may 

not be terminated for such a default where the default is remedied as provided in 

17 U.S.C. § 115(c)(6). In addition, the provisions of Sections 3.6, 4.2, 4.4 and 4.5, and 

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of Articles 6 and 7, shall survive the expiration or termination of this Agreement 

or any License under this Agreement. 

8. Legal Framework for Agreement. 

8.1. Subject to the other provisions of this Article 8, in order to settle issues in 

dispute and avoid litigation, provide assurance to record companies seeking to 

launch digital music services and enable HFA’s issuance of license forms for Covered Services hereunder: 

(a) The Parties agree that under current law the process of making On-Demand 

Streams through Covered Services (from the making of server reproductions to the 

transmission and local storage of the stream), viewed in its entirety, involves the 

making and distribution of a DPD, and further agree that such process in its entirety (i.e., inclusive of any server reproductions and any temporary or cached reproductions through to the transmission recipient of the On-Demand Stream) is subject 

to the compulsory licensing provisions of Section 115 of the Copyright Act. The Parties further agree that under current law the process of making streams that would 

qualify for a statutory license under Section 114(d)(2) of the Copyright Act does not 

involve the making or distribution of a DPD, and thus does not require a mechanical license. The foregoing does not express or imply any agreement that, and shall 

not be used to support any argument that, the process of making On-Demand 

Streams other than through Covered Services, or the process of making streams 

that would not qualify for a statutory license under Section 114(d)(2) of the Copyright Act (including, without limitation, because such streams are part of an ‘‘interactive service’’ (as that term is defined in Section 114(j)(7)) or exceed the ‘‘sound recording performance complement’’ (as that term is defined in Section 114(j)(13)) does 

or does not involve the making and distribution of a DPD, and the Parties expressly 

reserve all their rights with respect to that issue. 

(b) The Parties agree that under current law the process of making Limited 

Downloads through Covered Services (from the making of server reproductions to 

the transmission and local storage of the Limited Download), viewed in its entirety, 

involves the making and distribution of a DPD, and further agree that such process 

in its entirety (i.e., inclusive of any server reproductions and any temporary or 

cached reproductions through to the transmission recipient of the Limited 

Download) is subject to the compulsory licensing provisions of Section 115 of the 

Copyright Act. 

(c) The Parties agree that under current law a compulsory license to make OnDemand Streams and Limited Downloads through Covered Services (from the making of server reproductions to the transmission and local storage of the On-Demand 

Streams and Limited Downloads) is available under Section 115 of the Copyright 

Act. 

8.2. Subject to Sections 8.3 and 8.5, for the term of this Agreement, no Party, no 

Participating RIAA Member and no Participating NMPA/HFA Publisher shall take 

a position contrary to or inconsistent with Section 8.1, or lend support or resources, 

financial or otherwise, to any other person or entity taking a contrary or inconsistent position, before the Copyright Office, a CARP, a court or any other government office or tribunal. Thereafter, no Party, no Participating RIAA Member and 

no Participating NMPA/HFA Publisher shall commence or lend support to any action in court to challenge the validity of the rates determined pursuant to Article 

5 on the ground that On-Demand Streams and Limited Downloads do not involve 

the making or distribution of DPDs. It is understood that, for purposes of this Section 8.2, a Participating RIAA Member or Participating NMPA/HFA Publisher shall 

not be deemed to lend financial support or resources to affiliated entities merely 

through intra-enterprise financial arrangements in the ordinary course of business. 

8.3. Notwithstanding Sections 8.1 and 8.2, the Parties, Participating RIAA Members and Participating NMPA/HFA Publishers may at any time (1) raise and litigate 

(including, without limitation, before a CARP) the economic value of, and the appropriate royalty rates to be applied to, On-Demand Streams and Limited Downloads; 

(2) take or support any position they choose with respect to sound recordings (as 

distinguished from any musical works embodied therein) and the rights therein, including, without limitation, rights under Sections 106 and 114 of the Copyright Act, 

and (3) make or lend support to any arguments they choose to prosecute, or defend 

or counterclaim against, an infringement claim relating to activities before the Effective Date. Notwithstanding Sections 8.1 and 8.2, RIAA and Participating RIAA 

Members may at any time make or lend support to any arguments they choose to 

defend or counterclaim against an infringement claim relating to activities on or 

after the Effective Date, in the event that a License with respect to the relevant 

works is not available hereunder (it being understood that, subject to Section 8.4, 

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tion of any such claim, so long as their doing so is consistent with Sections 8.1 and 

8.2). The Parties agree that they will act in good faith not to induce, promote or 

encourage the litigation of an infringement claim relating to activities as described 

in the immediately preceding sentence. 

8.4. To the extent that an action being litigated by RIAA and/or a Participating 

RIAA Member, other than that pending case in the Southern District of New York 

captioned Rodgers & Hammerstein Organization v. UMG Recordings, Inc., involves 

the question of the validity of a notice of intention to obtain a compulsory license 

as described in Section 8.1(c) for a musical work for which a License is not available 

under this Agreement, neither NMPA nor HFA shall participate in or lend support 

to such action. The Parties agree that they will act in good faith not to induce, promote or encourage litigation concerning the validity of a notice of intention to obtain 

a compulsory license as described in Section 8.1(c). 

8.5. To the extent that a final, non-appealable decision of the Copyright Office or 

a court, or any new legislation, is inconsistent with Section 8.1, this Agreement 

shall be inapplicable to the extent of the inconsistency as of the date thereof, but 

subject to Article 4, Participating RIAA Members shall not be entitled to a refund 

of any monies paid prior to such date. 

8.6. This Agreement is entered into in settlement and compromise of certain disputes among the Parties and to clarify certain aspects of the licensing of On-Demand Streams and Limited Downloads. Nothing in this Article 8 shall be used by, 

or be enforceable by, a third party not a Party to this Agreement, other than a Participating RIAA Member or Participating NMPA/HFA Publisher, in any manner or 

in any context, including without limitation in any legal proceeding. This Agreement 

does not give rise to any third-party beneficiary rights in any party other than Participating RIAA Members and Participating NMPA/HFA Publishers. The agreements set forth in this Article 8 and the course of dealing hereunder shall be inadmissible, and shall not be used to support any argument of law, in any litigation 

or arbitration relating to (1) activities before the Effective Date or (2) activities 

other than making and distributing On-Demand Streams and Limited Downloads 

through Covered Services, except making streams that would qualify for a statutory 

license under Section 114(d)(2) of the Copyright Act. 

9. Copyright Office Proceedings. 

9.1. RIAA and NMPA promptly shall file in the Copyright Office, in the Mechanical and Digital Phonorecord Delivery Compulsory License rulemaking proceeding 

(docket number 2000–7) (the ‘‘Proceeding’’), an appropriate mutually agreeable document (the ‘‘Joint Statement’’) signed by representatives of both RIAA and NMPA 

and (1) explaining that they have entered into this Agreement to resolve certain differences between them and enable the expeditious launch of subscription music 

services; and (2) describing the material terms of this Agreement (including without 

limitation the agreement in Section 8.1). Unless the Parties agree otherwise, the 

Joint Statement shall not address the question of whether the Copyright Office 

should or should not proceed with the Proceeding, and none of the Parties shall use 

the existence of the Agreement to argue to the Copyright Office that the Office 

should or should not proceed with the Proceeding. 

9.2. Either in the Joint Statement, in joint comments submitted in response to 

the Copyright Office’s Notice of Proposed Rulemaking dated August 28, 2001, or in 

a separate petition signed by representatives of both Parties to be filed in the Copyright Office promptly after the Effective Date, RIAA and NMPA shall request that 

the Copyright Office amend 37 C.F.R. § 201.18 to facilitate the licensing process for 

digital music services by addressing in a mutually agreeable manner such procedural issues as: 

(a) Permitting combined notices of intention; 

(b) Permitting service of notices of intention on the copyright owner’s agent, and 

designating HFA as agent for the receipt of such notices; 

(c) Eliminating the requirement that officer/director information be provided for 

publicly traded companies and their subsidiaries; 

(d) Permitting notices of intention to be signed by any authorized representative 

of the licensee; 

(e) Permitting mailing to a known correct address of the copyright owner; and 

(f) Permitting the service of notices of intention by regular mail.

10. Congress. As soon as practicable after the Effective Date, and before any relevant congressional hearings then scheduled, if possible, the Parties shall draft and 

submit a mutually agreeable letter to appropriate members of Congress describing 

this Agreement and the benefits thereof.

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11. Memoranda of Understanding. Promptly after the Effective Date, HFA and 

RIAA shall commence good-faith negotiations to (1) revise and renew for an additional year the Memorandum of Understanding dated September 21, 2000 (the 

‘‘MOU’’) concerning interim licenses for DPDs, the revisions to address updated licensing procedures consistent with the licensing procedures to be implemented 

under this Agreement, and (2) enter into a second Memorandum of Understanding 

concerning certain licensing, payment and additional operational issues of mutual 

concern to HFA and RIAA members, which issues shall include: 

(a) record companies’ payment to HFA of 100% of royalties due for a particular 

musical work regardless of whether HFA acts as an agent for all owners of such 

work; 

(b) record companies’ provision of album label copy to HFA in order to facilitate 

the licensing process; and 

(c) what information concerning publisher names and shares appropriately should 

be provided by HFA to Participating RIAA Members, and the appropriate confidentiality protections therefor. 

Pending completion of such negotiations, HFA will continue to issue ‘‘Interim DPD 

Licenses’’ as described in the MOU in accordance with the practice that has developed under the MOU.

12. Economic Data. In order to help the Parties better understand and evaluate 

emerging business models for digital music services, RIAA and NMPA shall jointly 

hire an independent accounting firm to collect from Participating RIAA Members on 

a confidential basis information concerning the economics of emerging subscription 

service business models and report composite information to RIAA and NMPA for 

the duration of this Agreement.

13. Security. If RIAA or any Participating RIAA Member learns of any substantial 

(in terms of number of musical works affected, number of copies or prevalence) circumvention of security measures used by Covered Services resulting in unauthorized copying or distribution of sound recordings of musical works by authorized or 

unauthorized users of Covered Services, RIAA and/or the Participating RIAA Member shall use commercially reasonable efforts promptly to notify HFA of such unauthorized activity; provided, however, that RIAA and Participating RIAA Members 

shall be liable for damages for breach of this Article 13 only if, and to the extent, 

that they themselves are liable for direct, contributory or vicarious copyright infringement under applicable U.S. law, and in such case such damages shall be only 

those payable for such infringement.

14. Electronic Reporting. The Parties agree to work together in good faith to implement means whereby accounting information relating to Licenses will be provided 

to HFA in electronic, machine-readable form.

15. Publicity. RIAA and NMPA will issue a joint press release announcing this arrangement. In their communications to their members concerning this Agreement, 

the Parties shall recommend that their members avail themselves of this Agreement. The Parties confirm that, subject to Section 8.6, this Agreement is not confidential. 

16. Miscellaneous. 

16.1. Governing Law. This Agreement shall be governed by, and construed in accordance with, the laws of the State of New York (without giving effect to conflicts 

of law principles thereof). 

16.2. Amendment. This Agreement may be modified or amended only by a writing 

signed by each of the Parties. 

16.3. Entire Agreement. This Agreement expresses the entire understanding of the 

Parties and supersedes all prior and contemporaneous agreements and undertakings of the Parties with respect to the subject matter hereof. 

16.4. No Effect on Other Agreements. Without limitation, this Agreement shall not 

terminate, supersede, limit or otherwise affect the enforceability of, or the rights of 

any of the respective parties to, any of the following agreements: (1) the Settlement 

Agreement dated as of October 17, 2000 between HFA, MPL Communications, Inc. 

and Peer International Corporation, on the one hand, and MP3.com, Inc., on the 

other, and any amendments thereto; (2) the Governing Agreement dated as of October 2000 between HFA, MPL Communications, Inc. and Peer International Corporation, on the one hand, and MP3.com, Inc., on the other, and any amendments thereto; (3) the Digital Phonorecord Delivery License dated January 15, 1999 between 

HFA and Emusic.com Inc., and any amendments thereto; and (4) the Amendment 

Agreement dated November 2000 between HFA and Emusic.com Inc., and any 

amendments thereto. 

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16.5. Counterparts. This Agreement may be executed in counterparts, including by 

means of facsimile, each of which shall be deemed to be an original, but which taken 

together shall constitute one agreement. 

16.6. Headings. The titles used in this Agreement are used for convenience only 

and are not to be considered in construing or interpreting this Agreement. 

IN WITNESS WHEREOF, the Parties have executed this Agreement as of the Effective Date.

Edward P. Murphy 

President and CEO, NMPA

Hilary B. Rosen 

President and CEO, RIAA

Gary Churgin 

President and CEO, HFA

Cary Sherman 

Senior Executive Vice President 

and General Counsel, RIAA

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Mr. COBLE. Mr. Klein. 

STATEMENT OF GARY KLEIN, COUNSEL, CONSUMER 

ELECTRONICS ASSOCIATION 

Mr. KLEIN. Thank you, Mr. Chairman and Members of the Committee. 

On behalf of the Home Recording Rights Coalition and the Consumer Electronics Association, I appreciate the opportunity to be 

here today to discuss the subjects addressed by the Copyright Office’s report pursuant to Section 104 of the DMCA. 

The HRRC, as you probably know, was formed 20 years ago in 

response to a decision that held that an object as ‘‘threatening’’ as 

the Betamax video cassette recorder was illegal. Our attention is 

attracted whenever the subject is consumer affair use, a doctrine 

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mains the subject of litigation. Unfortunately, no technical advance 

in consumer electronics has gone unpunished by the content owner 

community. 

The HRRC’s view as to the Copyright Office’s recommendations 

is summarized as follows: 

HRRC is disappointed that the Register did not support legislation to confirm that the first sale doctrine covers copies made from 

digital transmissions. HRRC supports the provision of the BoucherCampbell bill that would have done so. We find the Office’s rationale for not recommending this step unpersuasive. 

Given our disappointment with the Register’s report, we have 

joined with the American Library Association, the Association of 

Research Libraries and others in a letter to you more fully articulating our shared concerns. 

I would like to also submit for the record a letter from approximately 50 of our Nation’s leading intellectual property law professors addressing this and related points, as well a statement from 

the National Association of Recording Merchants who agrees with 

some of our positions. 

[The information referred to follows:]

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PREPARED STATEMENT OF NATIONAL ASSOCIATION OF RECORDING MERCHANDISERS

(NARM) 

SUMMARY OF NARM’S RESPONSE TO THE COPYRIGHT OFFICE DMCA SECTION 104 REPORT

The Copyright Office Report on Section 104 offers important clarifications that 

could help facilitate electronic commerce in copyrighted works, but it also offers suggestions that, if followed, would seriously undermine public rights while offering additional rights to copyright owners without adequate justification. The Report correctly responds with concern about mounting evidence of practices by copyright owners to expand their copyright control beyond the limits imposed by Congress, but 

suggests that market forces be given a chance to correct the problem. When the 

Copyright Office and NTIA conducted the study last year, PressPlay and MusicNet 

had not yet been formed, and there was still hope that free market principles would 

come into play. In the year since then, we have witnessed the failure of free market 

forces, and we respectfully suggest that it is no longer premature for Congress to 

step in to restore the necessary balance. We applaud the Copyright Office for recognizing that the first sale doctrine does, indeed, apply to all lawfully downloaded (reproduced) works, but we are disappointed that its Report suggests that copyright 

holders may enjoy carte blanche to nullify the rights granted copy owners in Section 

109(a) of the Copyright Act. 

America’s retailers of music, represented by the National Association of Recording 

Merchandisers, 

AGREE with the conclusion that a mechanical royalty should be paid when a reproduction is made (a download), and that a performance royalty should be paid 

when a public performance is made (streaming). No reproduction infringes the performance right unless someone can actually hear the performance. No public performance infringes the reproduction right unless a ‘‘copy or phonorecord’’ remains 

after the public performance is over. 

AGREE with the conclusion that lawfully made digital downloads of sound recordings are entitled to the full application of Section 109(a). Section 109(a) entitles the 

owner of a lawfully made copy to sell it or give it away without the consent of the 

copyright owner. 

DISAGREE with the Copyright Office’s assertion in Footnote 41 that Section 

109(a) is a right without a remedy. There is absolutely no legal basis for concluding 

that Congress didn’t mean what it said in enacting Section 109(a), or that Congress 

intended Section 109(a) to be voidable at the discretion of a copyright owner. 

AGREE with the Copyright Office’s conclusion that Section 109(a) should not be 

interpreted to authorize the sale of other disposition of archival copies apart from the 

originals. If an archival copy is sold separately from a legally downloaded copy it 

is no longer archival, and therefore, it no longer enjoys Section 109 rights. 

AGREE that consideration be given to the creation of a new archival exemption 

that provides expressly that backup copies may not be distributed (option 2), but with 

care to avoid unintended results. The proposal to amend Section 109(a) to require 

that copies be lawfully made ‘‘and lawfully distributed’’ (Option 1) would have the 

effect of completely nullifying Section 109(a)’s applicability to digital downloads, and 


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should be rejected. Such language would give copyright owners control over perfectly 

lawful downloaded copies for which retailers and consumers have already paid. 

QUESTION the wisdom of continuing to just let the marketplace try to solve these 

issues. In recent months the music industry has announced plans in which consumers will be limited to one of only two similar business models, two media players, little or no price competition, and an incomplete selection of music through a 

handful of retail channels. Contrary to the first sale doctrine’s principles, copyright 

monopolies are being leveraged to eliminate or restrict all competition in the retailing of copyrighted content. The Copyright Office Report fails to note the potential 

harm to the public of limiting exclusively to the copyright owners the right to develop new business models. 

DISAGREE with the suggestion that use by copyright owners of Section 1201 to 

protect business models rather than copyrights does not warrant Congressional concern. Congress never intended for Section 1201 to permit copyright owners to neutralize the limitations Congress justifiably placed upon their copyrights, or to use 

technology to create for themselves rights never before conferred, such as the right 

of private performance. Today, Section 1201 is being used to shield the unauthorized 

usurpation of public rights by copyright owners. Copyright owners are claiming that 

though the owner of a lawfully made copy may legally sell or give away that copy, 

the copyright owner may nevertheless use access control technology to prevent the 

buyer or gift recipient from privately and lawfully performing the work. Such power 

upsets the careful balance of public and private interests that Congress has historically preserved in crafting the Copyright Act. 

QUESTION some of the unsubstantiated allegations of economic harm (or threats 

to possible future economic harm) to copyright owners that have colored the Report.

Retailers of music are the first to feel the sting of sales lost to pirates. We share 

the concern of copyright owners about potential harm to our industry. Nevertheless, 

retailers are reluctant to attribute every lost sale to piracy. Sales are also lost to 

free CDs from record clubs, to lousy weather, a soft economy, and poor releases. Retailers know that Napster did not kill the singles market. Before Napster came 

along, record companies were killing the singles market by not releasing singles. We 

need independent studies which can help us all better evaluate the impact of new 

technologies on the economics of our business. 

QUESTION the conclusion that Section 109(a) should not be updated so that the 

principles of the first sale doctrine may carry forward to prevent copyright owners 

from exercising control over individual copies that they do not own. The Constitution 

and the public policy foundations of copyright law lend no support for allowing copyright owners to expand their control over electronic commerce once they have been 

fully compensated for the license to their exclusive rights. 

Additional support for and explanation of NARM’s position is set forth below. 

NARM—The Voice of Music Retailing 

The National Association of Recording Merchandisers (NARM) represents music 

retailers that share both the enthusiasm of the recording industry for digital distribution as well as concerns about the potential negative impact of digital piracy. 

NARM supported the RIAA litigation against Napster with an amicus brief and has 

a long history of supporting copyright enforcement and anti-piracy efforts. We do 

not, however, believe that the rights of owners of lawful copies need be sacrificed 

to protect the rights of copyright owners. We do not believe that the only way copyright owners can receive adequate compensation for their properties is through total 

control over distribution and use. 

Our segment of the music industry is most intimately involved with the workings 

of the first sale doctrine and Section 109(a) of the Copyright Act. Our members are 

beneficiaries of the right to sell sound recordings without the consent of the copyright owner, thereby preserving vigorous competition for price, service, selection and 

customer loyalty. Our customers also enjoy the right to sell, lend or give away the 

CDs they purchase, thereby preserving avenues for others to acquire lawfully made 

sound recordings by second-hand sales, lending (including library lending), gifts and 

bequests. By keeping such activity beyond the control of copyright holders, the constitutional objective of the Copyright Act—to encourage wide dissemination of creative works to the public—is carried out. 

The First Sale Doctrine 

When Congress first codified the first sale doctrine in Section 27 of the Copyright 

Act of 1909, the House Committee on Patents stated that ‘‘it would be most unwise 

to permit the copyright proprietor to exercise any control whatever over the article 

which is the subject of copyright after said proprietor has made the first sale.’’ H.R. 

REP. NO. 2222, 60th Cong., 2d Sess. (1909). Though still referred to as the ‘‘first 

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sale doctrine,’’ the current codification in Section 109(a) of the 1976 Act, as amended, no longer requires a sale, but merely the ownership of a lawfully made copy. 

The Constitution’s purpose for copyright law (the promotion of science and the useful arts) is better served if copyright owners are denied control over retail distribution and redistribution, leaving such commerce to a free and competitive marketplace. Likewise, consumers who purchase CDs should never have to be the ‘‘ultimate’’ consumers, but should instead be free to pass along their lawfully made copies to others, whether by gift, bequest, lending, barter or resale. The first sale doctrine is, then, one of the most critical parts of the balance struck in the Copyright 

Act. In exchange for a grant of certain limited exclusive rights, authors are required 

to give up the right to control who can buy or otherwise obtain a lawful copy of a 

work, and also give up the right to control to whom it may be transferred and under 

what terms. 

Section 109 is a Right 

One of the most curious portions of the Copyright Office report is footnote 41, 

which declares that Section 109(a) is a right without a remedy. There is, in fact, 

no legal support for such a statement. To the contrary, Section 109(a) itself is cast 

in terms of rights, and statements to the effect that Section 109(a), like Section 107 

(fair use), is merely a limitation on the rights of copyright owners but not a right 

in itself are simply wrong. (Even the Bill of Rights is cast largely in terms of limitations upon the rights of the government.) 

Section 109(a) states that notwithstanding the distribution right, the owner of a 

lawfully made copy or phonorecord is ‘‘entitled,’’ without the consent of the owner 

of the distribution right, to transfer ownership or possession of that copy or phonorecord. (In fact, the distribution right in Section 106(3) is made ‘‘subject to’’ Section 

109(a).) Section 109(d) refers to the provisions of 109(a) and 109(c) as ‘‘privileges.’’ These important terms mean what they say, and elevate the first sale doctrine to 

more than a mere defense to a claim of copyright infringement 

Public debate has often lumped the first sale doctrine in with ‘‘fair use’’ rights, 

but Congress was careful to treat it separately and distinctly, and with good reason. 

Fair use relates to the use of the work (that is, the intellectual property itself), regardless of who owns the copy or phonorecord being used, or even whether a copy 

or phonorecord is being used. Section 109(a), in contrast, codifies a doctrine aimed 

at protecting retail competition and encouraging infinite re-distribution. It provides 

that the right to dispose or transfer possession of a lawfully made copy or phonorecord is a right belonging to the owner of the copy or phonorecord. It is not cast 

as a defense to a claim of infringement of the distribution right but, rather, as an 

entitlement and a privilege that serves to exhaust the distribution right as to any 

particular copy or phonorecord. The Copyright Office acknowledges that Congress 

was careful to point out in Section 202 that there is a significant distinction in the 

Copyright Act between ownership of intangible work protected by copyright and 

ownership of a tangible copy that embodies the work. 

Section 109 and Contract Preemption 

The Copyright Office Report concluded that the general issue of contract preemption was outside the scope of the report. While we disagree with that conclusion, 

we are encouraged that they acknowledged the possibility that rights holders, rather 

than Congress, may potentially determine the landscape of consumer privileges in 

the future. We agree, and believe the time for statutory change is now. 

During the Copyright Office and NTIA inquiry into this issue, the Copyright Industry Organizations made it clear that, though they acknowledged that the first 

sale doctrine applied to copies and phonorecords made by means of a licensed reproduction, including downloading, they nevertheless believed that they could nullify 

the public’s rights under Section 109(a) by use of restrictive end-user license agreements (‘‘EULAs’’). This view is contrary to law. 

As recently stated by Judge Pregerson, a significant effect of Section 109(a) is to 

‘‘negate copyright owner control over further or ’downstream’ transfer to a third 

party.’’ Softman Products Co. v. Adobe Sys., Inc., 2001 U.S. Dist. LEXIS 17723, at 

*11 (C.D. Cal. October 19, 2001) (citing Quality King Dist. v. L’anza Research Int’l, 

Inc., 523 U.S. 135, 142–44 (1998)). ‘‘The first sale doctrine vests the copy owner with 

statutory privileges under the Act which operate as limits on the exclusive rights 

of copyright owners.’’ Id. (emphasis added). 

In Softman, the District Court had little patience for Adobe’s insistence that its 

‘‘license to use’’ could trump the first sale doctrine:

Adobe asserts that its license defines the relationship between Adobe and any 

third-party such that a breach of the license constitutes copyright infringement. 

This assertion is not accurate because copyright law in fact provides certain 

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rights to owners of a particular copy. This grant of rights is independent from 

any purported grant of rights from Adobe. The Adobe license compels third-parties to relinquish rights that the third-parties enjoy under copyright law.

Id. at *11–12 (emphasis added, footnote omitted). The EULA used by Adobe to limit 

those Section 109(a) rights ‘‘conflicts with the first sale doctrine in copyright law, 

which gives the owner of a particular copy of a copyrighted work the right to dispose 

of that copy without the permission of the copyright owner.’’ Id. at *13 (emphasis 

added). 

(Though the posture of Softman was that the owner of the lawfully made copies 

was able to enforce its Section 109(a) rights once it was sued by Adobe, the only 

reason that case made it to court was that the owner was free to ignore the EULA 

in the exercise of those rights. If, however, Adobe had employed access control technology to prevent the owner of the lawfully made copies from even having the option 

of selling the products separately, justice compels the conclusion that the owner of 

the lawfully made copy should have had the right to seek declaratory and injunctive 

relief against Adobe’s infringement.) 

In its consideration of the public interest in the dispute, Judge Pregerson offered 

words of wisdom we commend to this Committee: ‘‘The Court finds that the provisions contained in Adobe’s EULA purport to diminish the rights of customers to use 

the software in ways ordinarily enjoyed by customers under copyright law. Therefore, these restrictions appear to be inconsistent with the balance of rights set forth 

in intellectual property law.’’ Id. at *35 (footnote omitted). Because the balance in 

copyright law is already tilted heavily in favor of copyright holders, the need to protect the rights retained for the public is more important than ever. Id. at *35–36. 

Almost as though it was speaking of the major record companies as they prepare 

to control all distribution through PressPlay and MusicNet, the Softman court found 

that Adobe was seeking ‘‘a vast and seemingly unlimited power to control prices and 

all channels of distribution.’’ Id. at *37. ‘‘A system of ’licensing’ which grants software publishers this degree of unchecked power to control the market deserves to 

be the object of careful scrutiny.’’ Id.

We disagree that the concerns identified by Judge Pregerson are speculative. 

Some pre-recorded CDs already contain EULAs asserting that if the CD is not returned to the copyright owner within seven days after purchase from the retailer, 

the consumer agrees never to give it away or play it on a different device. (The 

EULA will not even be seen in the ordinary private performance of the CD.) One 

Internet site offering licensed downloads required agreement to an eight-page EULA 

in which Section 109(a) rights would be waived. The consumer had to agree that 

the lawful copies would not even be left to the owner’s heirs. 

We ask that this Committee heed Judge Pregerson’s admonition, and give careful 

scrutiny to efforts to use EULAs to obtain unchecked control over pricing and distribution. 

Section 109(a) and Technological Controls 

Because the same principles Judge Pregerson examined in relation to EULAs also 

apply to technological restraints such as ‘‘tethering’’ and ‘‘time-outs’’ used in the 

place of EULAs, we believe that the same scrutiny should be applied to them as 

well. We believe that the Congressional mandate in Section 104 of the DMCA included consideration of how use of digital technology is affecting the public’s rights 

under Section 109(a), and respectfully disagree with the Copyright Office’s conclusion that this impact falls beyond the scope of the study. 

Digital technology brings with it the ability of copyright owners to exercise the 

very control Congress has denied them. Copyright owners have acknowledged the 

right of the owner of the lawfully made copy to sell it or give it away, but are attempting to obtain a waiver of that federal right or, failing that, to use technological 

controls, typically ‘‘tethering’’ or ‘‘time-out,’’ with the object of making the exercise 

of that right futile. This use of technological access controls is the equivalent of saying ‘‘you can give your book to the library, but the library cannot lend it without 

paying us to unlock it;’’ ‘‘you can lend your CD to your classmate, but your classmate cannot listen to it without paying us to unlock it;’’ and ‘‘you can sell the DVD 

movie your kids have outgrown on eBay, but the parents that buys them from you 

will only get worthless pieces of plastic.’’ Moreover, when tethering and time-outs 

are carried out collaboratively by the major copyright industries, the effect not only 

impacts Section 109(a) rights but permits copyright owners to expand their control 

beyond the limits of the copyright grant. 

a. Section 109(a) and Tethering 

We were encouraged that the Copyright Office report acknowledged that the practice of tethering, if it became widespread, would have the effect of diminishing SecVerDate Jan 17 2002 11:21 Mar 13, 2002 Jkt 000000 PO 00000 Frm 00138 Fmt 6601 Sfmt 6621 G:\WORK\COURTS\121201\76669.001 HJUD1 PsN: 76669
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tion 109. We believe, however, that Congress should not wait for more serious damage to be done, and encourage the Committee to question the companies behind 

MusicNet and PressPlay regarding the tethering provisions of their subscription 

services and the impact on first sale rights. 

b. Section 109(a) and Technological Time-Outs 

The business model of choice of all of the major copyright owners in the music 

industry is the ‘‘subscription’’ model, otherwise known as a ‘‘limited download.’’ Touted as a ‘‘new’’ choice, in reality it takes an existing choice and limits it, by timing out access to the consumer’s own copy. These time-outs are either by time (such 

as 24 hours or 30 days) or by number of private performances (such as 12 plays). 

In the music industry, MusicNet and PressPlay are based upon this model. What 

distinguishes the ‘‘subscription model’’ being adopted collaboratively by the major 

record companies and motion picture studios to the suppression of competing businesses is that, by use of these technological time-outs, the right of reproduction is 

masquerading as a public performance. Rather than going to the expense of streaming a performance publicly and having to pay for the cost of transmission each time, 

they are licensing reproductions that lead to the making of lawful copies and 

phonorecords, and then, applying technological controls to take away the rights Congress has attached to ownership of those copies, they are collecting a fee for entirely 

private performances over which the Copyright act grants them absolutely no right 

of control or remuneration. Copyright owners have the choice of licensing public performances (Section 106(4)) or licensing reproductions (Section 106(1)), but have no 

right to leverage the license to reproduce into usurpation of the rights that Congress 

has granted to the owners of lawfully made reproductions, or to create a de facto

right of private performance where none exists under the law. 

If the copyright owner can control private performances, it can effectively control 

retail sales protected by Section 109(a) as well. Just as buying a used car would 

be to no avail if the manufacturer retained control of the access, if consumers who 

buy lawful copies of books, sound recordings or movies must pay the copyright 

owner for the right to read the book, play the CD or watch the DVD, retailers would 

be relegated to selling worthless paper or plastic unless they obtained the copyright 

owner’s permission to unlock the access. 

Some copyright owners have protested that if the law prevents copyright owners 

from charging per play or per view, or to individually charge listeners or viewers, 

then theater owners would be at risk. Such an alarmist view requires a complete 

distortion of copyright law. The theater owner licenses the right to perform a work 

publicly, but the patron does not license any right under the Copyright Act to listen 

or view, for none exists. If someone sneaks in without paying, the theater owner 

may get angry and demand payment, but this implicates no rights under the Copyright Act. Indeed, copyright owners may license public performances of music over 

the Internet (streaming), but it is the right to perform the work publicly that is implicated—not the ability to listen the public performance. Just as copyright owners 

have no right to license anyone to listen to the radio, those who listen to the 

streamed audio infringe no copyright. Likewise, the copyright owner may not tax 

those who listen to their own CDs, for the right of the copyright holder only extends 

to the right to license public performances. See, e.g., Allen v. Academic Games 

League of America, Inc., 89 F.3d 614 (9th Cir. 1996). The copyright holder has no 

right to prevent anyone from singing the copyrighted song in the shower, Twentieth 

Century Music Corp. v. Aiken, 422 U.S. 151, 155 (1975), or playing a movie at home 

or in a hotel room, Columbia Pictures Indus., Inc. v. Professional real Estate Investors, Inc., 866 F.2d 278 (9th Cir. 1989). 

Notwithstanding these legal restraints, some copyright owners are moving ahead 

with efforts to avoid them. The Recording Industry Association of America (‘‘RIAA’’) 

recently petitioned for the right to pay authors a lower mechanical royalty for reproductions which were timed out (so-called ‘‘limited downloads’’). 66 Fed. Reg. 14099 

(March 9, 2001). The request was premised on the notion that authors should not 

receive the full royalty if the consumer was going to be denied full enjoyment of the 

reproduction. NARM objected to this petition, arguing that the limited download 

was, in purpose and effect, nothing more than a device to gain control over private 

performances. Nevertheless, the RIAA has entered into an agreement with the National Music Publishers Association to accomplish the same result. If they succeed, 

not only will consumers have to pay to listen to their own music, but any lawfully 

made copies sold or given away pursuant to Section 109(a) could not be enjoyed by 

the new owner unless the copyright holders are paid again, and again. 

In short, very real technological and contractual restraints are being placed upon 

lawfully made copies that have the effect or destroying the public’s rights under Section 109(a) while extending the copyright owner’s control beyond the very clear limVerDate Jan 17 2002 11:21 Mar 13, 2002 Jkt 000000 PO 00000 Frm 00139 Fmt 6601 Sfmt 6621 G:\WORK\COURTS\121201\76669.001 HJUD1 PsN: 76669
136

its set by Congress. Nothing in the record suggests that tethering and time-outs contribute to the battle against piracy. Indeed, the technology to time out a song after 

a certain number of plays is entirely separate from the technology to prevent unauthorized duplication. Because the right to listen to what is bought is central to the 

retail transaction, imposing a ‘‘pay-per-listen’’ model onto lawful copies directly impairs Section 109(a) rights without in any way making copyrights themselves more 

secure from piracy. 

The Need For Modernization of Section 109(a) 

Access to Reproduction Licenses 

In the five or so years that digital distribution has been viable, we have seen the 

number of available business models, digital players and compression codecs shrink. 

Thanks to the efforts of the five major record companies to amass 85% or more of 

all distribution through either PressPlay or MusicNet, consumers undoubtedly will 

be denied access to innovative and highly competitive retail channels. Today, most 

lawfully made copies are still produced in a factory and resold through various distribution channels before reaching the retailer and, finally, consumers. Occasionally, 

one retailer might negotiate an exclusive on a music product. Thanks to Section 

109(a), however, even those exclusives leave ample room for a variety of competitive 

responses with which other retailers can (and do) respond: Some will simply refuse 

to stock the product; others will buy the product at the exclusive outlet and resell 

it for the same price, hoping that their losses on each resale will be made up in 

the long run by keeping their customers happy; still others may buy in small quantities from the exclusive outlet, but not promote the title. Most important in such 

scenarios is that despite the effort of a content owner to pick and choose which trading partners win in the marketplace, is the ability of the marketplace to protect 

competition and choice for the consumer. 

In the online world, by contrast, ‘‘resales’’ are in reality ‘‘sublicenses.’’ That is, if 

the exclusive licensee were to offer licensed reproductions available exclusively from 

that dealer, its competitors could not offer their own customers the right to 

download from those copies even if the store paid for the right to download its own, 

because each download implicates the right of reproduction and requires the copyright owner’s consent. The first sale doctrine would allow the exclusive licensee’s 

competitors to download from the exclusive dealer onto a writeable CD and then sell 

that CD, but the exclusive dealers’ competitors would be unable to compete in the 

market for digital downloads (sublicensing reproductions) without the copyright 

owner’s consent. Under this hypothetical scenario, the exclusive dealers’ competitors 

would be unable to compete at all, and consumers lose all choice in the marketplace. 

Thus far, record companies have shown the most interest in cross-licensing digital 

rights to each other, or to companies they control or in which they have invested. 

They have withheld rights from retailers who are perfectly capable of offering secure, compensated digital downloads, but who they no longer see as partners, but 

as competitors. We estimate that over 99% of the repertoire owned by copyright 

holders today remains off limits to legitimate retailers who are trying to compete 

with peer-to-peer file sharing. 

For these reasons, NARM supports reasonable measures to protect the consumer’s 

right to vigorous retail competition for their dollars. The objective should be to bring 

the historic benefits of the Section 109(a) right to sub-distribute physical goods to 

the sub-licensing of downloads, which can result in copy virtually identical to the 

pre-recorded CD. 

This could be done in a number of ways. Congressmen Boucher and Cannon have 

introduced the Music Online Competition Act which would require any copyright 

holder that licenses an affiliated retail venture (the right to sublicense reproductions 

to the public) to license competing retailers on the same basis. Whatever approach 

is taken, it is imperative that Congress act expeditiously to stimulate the free market in distribution of lawfully made copies outside of the control of copyright holders. 

Freedom to Advertise What Is For Sale 

Total control over distribution is something Congress has historically insisted 

must never fall into the hands of copyright owners, because ‘‘the policy favoring a 

copyright monopoly for authors gives way to the policy opposing restraints of trade 

and restraints on alienation.’’ M. Nimmer, D. Nimmer, Nimmer on Copyright, 

§ 8.12[A]. Since this freedom of alienation would be severely restrained if a license 

were required to advertise the product to be transferred under Section 109(a), we 

recommend codifying the right of retailers to make promotional use of copyrighted 

works for the purpose of exercising their Section 109(a) rights. 

137

It had long been understood that retailers of copyrighted goods enjoy the right to 

reasonably copy portions of the works, display them, and publicly perform them, 

where the purpose is to promote the sale of the works in question. Notwithstanding 

the copyright owner’s exclusive right to publicly display a work, it has been standard practice for retailers of books, music and video to display publicly over the Internet those works that are being offered for sale. Just as the bookseller may allow 

patrons to leaf through and read books in the store without purchasing them, so 

too may a music retailer allow patrons to listen to the music in the store. Just as 

the bookseller may post a sample of a book’s text on the Internet, so, too, may a 

music retailer post a sound clip. 

All of that is changing now. Our members are reporting efforts by copyright owners to prohibit these forms of advertising without a license. The only effective way 

for retailers to advertise even pre-recorded sound recordings over the Internet, even 

for physical distribution, is to post an image of the artwork and offer a 30-second 

or so sound clip as a sample. BMI has taken the novel position that a 30-second 

sound clip, long considered the industry norm within the bounds of fair and sensible 

use, is illegal absent authorization from the copyright owner. Some record companies are demanding that retailers get their permission even to post the graphics of 

the CD itself. There cannot possibly be any diminution in value to the copyright 

owner when retailers promote the lawful sales of the copyright owner’s own works. 

The sole purpose for this seemingly irrational behavior appears to be to gain greater 

control over distribution. Indeed, at least one record company has offered to license 

these uses at virtually no cost, yet requiring a written acknowledgment that a license is required, and reserving for itself the right to withhold authorization to 

show graphics or offer 30-second samples of any songs it chooses. A major movie 

studio has sued to prevent one vendor from streaming promotional movie samples 

to retail customers, while at the same time allowing competitors to do the same 

thing without charge. Absolute and total control over distribution appears to be the 

sole objective, and Congress should act now to preserve the full value of Section 

109(a). The provisions for this in the Music Online Competition act are a god first 

step. 

Conclusion 

We thank this Subcommittee for scheduling hearings on the Copyright Office Report and for allowing the views of music retailers to be entered into the record. We 

commend the Copyright Office and the NTIA for their hard work over the past 

many months, and we encourage Congress to continue to ask for input into these 

complex issues. 

NARM asks that the first sale doctrine be respected for digital downloads just as 

it is for pre-recorded copies. We do not believe that protecting the first sale doctrine 

will result in rampant piracy. Rather, NARM’s retail members are confident that, 

given a fair opportunity, they could offer products and services superior to those offered either by free peer-to-peer file copying or by restrictive ‘‘subscription’’ services, 

such as MusicNet and PressPlay. 

The Committee has heard from copyright owners and others on the fringes of the 

first sale doctrine. We suggest that this Committee should also set aside time to 

hear from those who are operating at the heart of the first sale doctrine, who truly 

have practical experience with it, and who actually enjoy the benefits of it—the retailers and consumers of lawfully made copies of copyrighted works. 

For further information, please contact Pamela Horovitz, NARM’s President, at 

(856) 596–2221.

Mr. KLEIN. With regard to temporary buffer copies, HRRC would 

not oppose the enactment of the legislative relief proposed by the 

Copyright Office. HRRC believes, however, that such relief should 

be extended to other instances of clear fair use recording, as recommended in the Ashcroft-Boucher-Campbell bill. 

With respect to archival copies, the Copyright Office suggests 

modifying both the nature and the scope of Section 117. HRRC 

sympathizes with the stated goal which is to broaden this back up 

copying exemption so as to reflect the actual practice of IS administrators and consumers. However, we are concerned that an effort 

to tweak this provision could result in a narrowed interpretation of 

the more general fair use home recording right. 

138

First, we are uneasy with the basis upon which the Office rests 

this proposal. The Office acknowledges that a fair use defense remains available as to archival and other home recording. The report suggests a need for legislation only because it suddenly anticipates that a defendant might additionally invoke a first sale defense for having given a lawfully made fair use copy to someone 

else. Such a case has not yet arisen under the present Section 117. 

Apparently, the office is concern that it could arise once Section 

117 has been amended to embrace the additional media. 

According to this rationale, the perceived problem seems to exist 

only if the solution has already been enacted. This Committee usually rests its enactment on more compelling arguments. 

Second, the Copyright Office proposes moving to a more code-like 

statement of the law, because it anticipates that additional types 

of content and media, not just computer programs, will be acquired 

on line. Our dilemma is: If the new provisions explicitly or implicitly overlap with fair use jurisprudence, will fair use, in turn, be 

squeezed down to fit the confines of the new provision? The Copyright Office proposals, though well intentioned, seem laden with 

this possibility. We see a potential Trojan horse, and we are staring 

it in the mouth. 

We worry about either of these legislative approaches suggested 

by the Office. The first would amend the first sale provision in a 

manner that could be read by courts as a congressional intention 

to scale back fair use generally. If Congress is to reconsider the 

scope of fair use, it should do so explicitly and only after intense 

study and advice. 

The second approach would seem flatly to circumscribe existing 

private noncommercial home recording by, one, including a vast 

range of home recorded material under the new definition of 

backup copies and, two, declaring that such backup copies may not 

be given to others. In its discussion, the Office takes a view of private and noncommercial home recording that is intensely personal 

and self-centered, and with which we disagree strongly. It seems 

to give no consideration whatever to the fact that home recordings 

routinely are shared with the rest of the household or with members of the family residing in a different household. 

Surveys done by the Office of Technology Assessment and others 

have shown consistently that such home recording has a clear promotional effect on sales of prerecorded music. Congress should not 

even consider going down this road, making a fundamental abrogation of fair use, without a full airing of all such issues. 

We are also concerned that a code-like regime as to home recording would create more uncertainty rather than less for manufacturers such as CEA members who would wish to comply with the new 

law. We are glad that the Office has noted, with some concern, that 

manufacturers and their customers are increasingly subject to technical and licensing regimes imposing de facto limitations on product design. Adding a parallel, de jure regime by drawing inflexible 

lines about what may be done with recordings may subject manufacturers as well as consumers to inconsistent regimes. 

In HRRC’s view, Congress’s first priority should be to proceed 

now with enacting relief as to temporary buffer copies, for which 

the case is clearly and urgently established. It should only address 

139

Section 117 with respect to archival copies if it is confident that it 

can do so without explicitly or implicitly impinging on the fair use 

doctrine. If Congress is to address the issues related to Section 117, 

it should start with the more cautious approach taken in the relevant parts of the Boucher-Cannon bill, H.R. 2724. 

Thank you. 

And if I may just add, in conclusion, to Marvin that perhaps—

we sympathize with his plight, but perhaps it is a technological 

protection measure in his video, as opposed to the electronics, that 

is causing the difficulty. 

Mr. COBLE. Thank you, Mr. Klein. But why did it have to happen 

here in the Judiciary hearing room? It could have been in another 

forum. 

[The prepared statement of Mr. Klein follows:]

PREPARED STATEMENT OF GARY KLEIN

On behalf of the Home Recording Rights Coalition I appreciate the opportunity 

to appear today to discuss the subjects addressed by the Copyright Office in its report pursuant to Section 104 of the Digital Millennium Copyright Act. The HRRC 

was formed 20 years ago after an appellate court ruled that it was illegal to provide 

consumers with an object as ‘‘threatening’’ as a Betamax video cassette recorder. 

Our attention is attracted whenever the subject is consumer fair use, a doctrine 

which narrowly survived in the Betamax case and periodically remains the subject 

of litigation. No technical advance in consumer electronics has gone unpunished by 

the content owner community. 

I am also appearing today as a Vice President and counsel of the Consumer Electronics Association. It is CEA members that bring to market the new products that 

consumers wish to enjoy at home. 

The HRRC was quite active in arguing for a balanced approach to the DMCA, respecting the reasonable and customary practices of ordinary consumers. We succeeded in some key areas, such as Sections 1201(c)(3) (‘‘no mandate’’) and Section 

1201(k), which recognizes that technical restraints must be accompanied by ‘‘encoding rules’’ that protect consumers. However, we also supported resolving the deeper 

issues raised by the so-called ‘‘ABC’’ legislation offered in that Congress, named 

after its sponsors—Senator, now Attorney General Ashcroft; Congressman Boucher 

of this Committee, and former Congressman Tom Campbell. The final DMCA compromise resulted in some issues raised by the ‘‘ABC’’ bill being held over for further 

study by the Copyright Office and by the National Telecommunications and Information Administration. Thus, our continuing interest in the Copyright Office report 

on issues presented for study in DMCA section 104, which is the subject of this 

hearing. 

Summary of HRRC Positions 

The HRRC view as to the Copyright Office’s recommendations is summarized as 

follows: 

DIGITAL FIRST SALE

HRRC disagrees with the recommendation not to extend the ‘‘first sale’’ doctrine 

to copies made from digital transmissions. As we stated in testimony before the 

Copyright Office, HRRC supports the provision of the Boucher-Campbell bill (H.R. 

3048, 105th Congress) that would have extended the first sale doctrine to digital 

transmissions. We find the Office’s rationales for not recommending this step 

unpersuasive. 

Mr. Chairman, our concerns about the Register’s report are widely shared. In testimony before the Copyright Office, our nation’s leading library associations expressed particular concern about the first sale doctrine:

We believe that with the implementation of the Digital Millennium Copyright 

Act, the first-sale-doctrine is diminished and the ability of libraries to support 

the legitimate access needs of their users is undermined while the ability of 

publishers to control and monitor use of works is expanded.

Given our disappointment with the Register’s report, we have joined the American 

Library Association, the Association of Research Libraries, and others in a letter to 

140

you more fully articulating our shared concerns, a copy of which is attached to my 

testimony today. I would also like to submit for the record a letter from our nation’s leading intellectual property law professors, for inclusion in the hearing record. Accordingly, though we recognize that this Committee at present is more interested 

in comments as to what the Copyright Office did recommend, we hope that the Congress will keep this issue on its copyright agenda. 

TEMPORARY BUFFER COPIES

HRRC would not oppose the enactment of legislative relief, as proposed by the 

Copyright Office, to preclude any liability arising from assertion of the reproduction 

right with respect to temporary buffer copies incidental to a licensed digital transmission of a public performance. HRRC believes, however, that such relief should 

be extended to other instances of clear fair use recording, as recommended in the 

Ashcroft-Boucher-Campbell bill. Otherwise, this issue will keep coming back and 

coming back in new guises. Accordingly, HRRC would prefer that the legislative solution be extended to the full scope of the provision in H.R. 3048 and S. 1146. 

EXTENSION OF SECTION 117 EXEMPTION

HRRC has long been and remains a champion of the rights of consumers to make 

responsible private, noncommercial use, including home recording, of material that 

is lawfully acquired. One might therefore have expected that HRRC would automatically endorse any expansion of an exemption from copyright liability. We might, 

if we were assured that we could draft the final version of such a provision. But 

we are, frankly, concerned about what each option suggested by the Copyright Office 

might look like once our friends in Hollywood and the recording industry have had 

an opportunity to interpret or ‘‘improve’’ them. 

The Copyright Office suggests modifying both the nature and the scope of Section 

117. HRRC sympathizes with the stated goal, which is to broaden this ‘‘back up’’ copying exemption so as to reflect the actual practices of IS administrators and consumers. However, we are concerned that an effort to tweak this provision could result in a narrowed interpretation of the more general fair use home recording right. 

First, we are uneasy with the basis upon which the Office rests this proposal. The 

Office acknowledges that a fair use defense remains available as to archival and 

other home recording. The Report suggests a need for legislation only because it 

suddenly anticipates that a defendant might, additionally, invoke a first sale defense for having given a lawfully-made fair use copy to someone else. Such a case 

has not yet arisen under the present Section 117. Apparently, the Office is concerned that it could arise once Section 117 has been amended to embrace additional 

types of content and media. According to this rationale, the perceived ‘‘problem’’ seems to exist only if the ‘‘solution’’ has already been enacted. (In other words, if 

archival copies were governed only by the existing Section 117, plus the doctrine of 

fair use, apparently the Office would see no need for legislation.) This Committee 

usually rests its enactments on more compelling arguments. 

Second, the Copyright Office proposes moving to a more code-like statement of the 

law, because it anticipates that additional types of content and media—not just computer programs—will be acquired online. Our dilemma is: if the new provisions explicitly or implicitly overlap with fair use jurisprudence, will fair use, in turn, be 

squeezed down to fit the confines of the new provision? The Copyright Office proposals, though well intentioned, seem laden with this possibility. We see a potential 

Trojan Horse, and we are looking it in the mouth. 

The Office suggests these options:

1. Amend section 109(a) to ensure that fair use copies are not subject to the 

first sale doctrine; or

2. create a new archival exemption that provides expressly that backup copies 

may not be distributed.

We worry about either approach. The first would amend the first sale provision, 

in a manner that could be read by courts as a congressional intention to scale back 

fair use generally. The temptation to guide judicial interpretation, by crafting a legislative history treatise as to fair use and home recording, could prove overwhelming. If Congress is to reconsider the scope of fair use, it should do so explicitly 

and only after intense study and advice. 

The second approach would seem flatly to circumscribe existing private, noncommercial home recording, by (1) including a vast range of home recorded material 

under the new definition of ‘‘backup’’ copies, and (2) declaring that such ‘‘backup’’

copies may not be given to others. In its discussion, the Office takes a view of private, noncommercial home recording that is intensely personal and self-centered, 

141

and with which we disagree strongly. It seems to give no consideration whatever 

to the fact that home recordings routinely are shared with the rest of the household, 

or with members of a family residing in different households. Surveys done by the 

Office of Technology Assessment and others have shown consistently that such 

home recording has a clear promotional effect on sales of prerecorded music. Congress should not even consider going down this road, making a fundamental abrogation of fair use, without a full airing of all such issues. 

We are also concerned that a code-like regime as to home recording would create 

more uncertainty, rather than less, for manufacturers such as CEA members who 

would wish to comply with the new law. We are glad that the Office has noted, with 

some concern, that manufacturers and their customers are increasingly subject to 

technical and license regimes imposing de facto limitations on product design. Adding a parallel, de jure regime drawing inflexible lines about what may be done with 

recordings may subject manufacturers, as well as consumers, to inconsistent regimes. 

In HRRC’s view, Congress’s first priority should be to proceed now with enacting 

relief as to temporary buffer copies, for which the case is clearly and urgently established. It should only address Section 117 if it is confident that it can do so without 

explicitly or implicitly impinging on the fair use doctrine. If the Congress is to study 

issues related to Section 117, it should start with the more cautious approach taken 

in the relevant part of the Boucher-Cannon ‘‘MOCA’’ bill, H.R. 2724. 

PREEMPTION OF STATE LAW PROVISIONS RE CONTRACTS

HRRC continues to support the Boucher-Campbell provision that would pre-empt 

UCITA, and other state laws that would reduce or eliminate rights granted to consumers under federal copyright law. 

On behalf of the HRRC I again thank the Committee for giving us the chance to 

present our views.

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Jaszi1A.eps
143


Jaszi1B.eps
144

Mr. COBLE. Lady and gentlemen, thank you all for your testimony. 

Not unlike many hearings on this Hill, the testimony and conclusions that we have heard this morning are subject to interpretation. Now, for what it is worth, at this juncture I remain unconvinced that additional legislation is needed. However, I hope many 

of you will agree that I am an easy dog to hunt with—or an easy 

dog with whom to hunt, to be grammatically correct, and therefore 

I am going to go into this open-mindedly. But that is for the record. 

When I said nothing needed, maybe with the possible exception of 

117, except for that I am not convinced yet, but I will hear you out. 


Jaszi1C.eps
145

Ms. Peters, I am told that Section 117 of the Copyright Act is 

being misused by website operators to make and distribute unauthorized copies of protected material under the guise of legitimacy. 

These websites claim to be selling backup copies which are permitted under Section 117 for personal archival use only. Do you 

agree that making and selling these unauthorized copies of software is illegal, A; and, B, how can we clarify the meaning of 117 

to prevent this piracy? 

Ms. PETERS. Yes. I would agree with you totally that the, quote, 

backup copies or archival copies that you see very prevalently on 

Internet sites are, in fact, pirated copies and that there is nothing 

in the language of Section 117 that would allow anything like that. 

117 is a very narrow exception. It applies only to copies of computer programs that are made by an owner of a copy, not a mere 

possessor, solely for archival purposes. You actually can only keep 

the archival copy as long as you have lawful use of that computer 

program, and there is no way that you can transfer it to anyone 

else unless you are transferring the copy of the computer program 

that you own. 

So, yes, it is a problem with regard to people taking that part 

of the law and saying it does something it does not, and to the extent that there is confusion we are more than happy to work with 

you to see what we can do to straighten that out. 

Mr. COBLE. Thank you. 

Mr. Berenson, how many DiMA members has BMI licensed—or 

approximately? 

Mr. BERENSON. BMI has licensed a—most of the majority of the 

DiMA members that are using music—and this was done through 

either negotiated agreements or basically they have—as I said in 

my testimony, they made an application to BMI, and they were instantaneously licensed, and we are negotiating rates. I would say 

the vast majority of those DiMA members that are performing 

music are licensed by BMI. 

Mr. COBLE. Thank you, sir. 

Mr. Potter, your statements suggest that both buffer copies and 

server copies should be exempt from infringement liability and, 

therefore, the obligation to pay any royalty to the music copyright 

owner. Are you suggesting that the public performance right and 

only the public performance right should be relevant for any service employing streaming technology? 

Mr. POTTER. What we are suggesting, Mr. Chairman, is that, to 

the extent that Internet providers are streaming music in a performance media, similar to the way broadcasters perform on the 

radio, that it is the performance right and only the performance 

right which is implicated. This Committee and the Congress exempted broadcasters from the ephemeral production right, their 

equivalent of a server copy, 25 years ago; and in the context of 

competing on-line radio with terrestrial radio we would argue for 

the exact same exemption or for an equivalent exemption which 

would—in our case would mean multiple copies, all of which, of 

course, are inaccessible to the consumer and which are merely to 

support the compensable public performances. 

I am confident that Mr. Berenson and BMI and his counterparts 

at ASCAP and SESAC can figure out the economics of any lost 

146

sales associated with on-demand streaming and can increase their 

royalties through the performance royalty system enough to offset 

lost revenues for their composers. 

We are in no way suggesting that composers and songwriters 

should not be paid or should not receive absolutely full value for 

their performance, and it may be a higher value for on-demand 

streaming than for preprogrammed streaming. We are suggesting, 

however, that it goes through the performance right folks rather 

than the reproduction right folks. 

Mr. COBLE. Thank you, sir. 

Let me beat the red light with a question to Mr. Klein. 

Mr. Klein, consumer access to copyrighted works and e-commerce 

have increased greatly since the passage of the Digital Millennium 

Copyright Act. How does that affect your position that the DMCA 

has harmed consumer use of the first sale doctrine and that only 

by expanding the doctrine to include digital transmissions will consumers benefit? 

Mr. KLEIN. Well, first, I would like to correct the premise. I 

mean, our position is that the first sale doctrine does apply to digital, because we see nothing in the legislation or judicially that has 

ever limited it. It’s a first sale doctrine. 

How does it harm—well, the content that has become available 

to consumers has certainly increased. Our concern is that, and the 

Copyright Office notice noted this in their report, that access control is being used to protect business models, as opposed to protecting copyrights, and that consumers are sometimes not getting 

what they think they are getting when they purchase something on 

line and then realize that they can’t do with it what they normally 

expect to be doing with it, including, for example, sending it within 

a home network if it is protected with some sort of technological 

measure that prevents that kind of transmission. 

Mr. COBLE. Thank you. 

I have to go to another meeting, and I am going to ask the gentleman from the Roanoke Valley to chair the hearing. I will try to 

return, Howard, but if I don’t I want to thank the panelists again 

and thank those of you attending the hearing. I will try to return, 

however. 

The gentleman from California. 

Mr. BERMAN. Thank you, Mr. Chairman. 

Ms. Peters, Mr. Potter states that the Copyright Office report 

suggested that Congress provide webcasters with an exemption 

from copyright royalties for all server and cache copies of musical 

works and sound recordings that are made in and limited to the 

furtherance of licensed performances and downloads. Did the Copyright Office make such a recommendation? 

Ms. PETERS. The Copyright Office made a recommendation with 

regard to audio files, and we did make a recommendation where 

the purpose of the use and the licensed purpose was to provide a 

public performance through a stream, and the only copy that arguably was made—we didn’t talk about the server copy per se and 

that recommendation—was that it was this transitory incidental 

copy that was required by the computer that, yes, that that copy 

should be subject to no additional liability. 

147

The server copy issue really went more to the ephemeral copy 

issue and the fact that the exemption that exists for broadcasters 

and the television medium is different than what exists for 

webcasters, and we note that had we thought that the analysis was 

the same for both and questioned the different treatment—— Mr. BERMAN. But in a footnote to the report, the Copyright Office 

suggests that server copies made in the furtherance of a performance allowed by a compulsory license should not incur a royalty obligation because they have no independent economic value and are 

made solely to enable another use that is permitted under a separate compulsory license. 

But webcasters make many server copies specifically because 

they do add value to the performance by allowing performances at 

different speeds and different formats and for more convenient locations. Isn’t the Office’s logic akin to saying that if the government creates a compulsory license governing one exclusive rights, 

it should take away all associated rights with no compensation? 

Ms. PETERS. No, we are not really saying that. What we analogized it to was the deal that was struck in 1976 with respect to 

broadcasters and the fact that when broadcasters were basically 

performing the work exceptions were made in Section 112 for the 

ephemeral copies that were necessary to carry out that particular 

public performance. All we were saying is that if you take that 

analysis, that which facilitates the licensed broadcast—then that 

should apply in the web casting environment. 

That was our take. Obviously, the law is different. We just—we 

noted that for us the analogies are similar. 

Mr. BERMAN. Well, I guess that is the question. 

Ms. PETERS. You see it differently, but I am just saying that we 

did see it that way. 

Mr. BERMAN. I am not sure what I see in these. It is very ephemeral. 

Also, Ms. Peters, section 106(3) gives copyright owners the exclusive right to distribute copies both by sale and by rental lease or 

lending. Aren’t time limited and tethered downloads more akin to 

rental and leasing of copies than sales? If so, is there any reason 

to believe that time limited or tethered downloads restrict or violate the first sale doctrine which I think you referred to in the context of Section 109 as a restriction, not as a consumer right but as 

a restriction on a copyright owner’s ability to control distribution 

after the first sale? 

And is there any reason to believe that these time limited or 

tethered downloads restrict or violate the first sale doctrine, which 

apparently requires a sale before it can be invoked if they are more 

analogous to some kind of leasing or rental arrangement? 

Ms. PETERS. It may be that much of the tethered downloads are 

subject to a license or are similar to the rentals. Some of them may 

not be. Certainly if it is tethered and we note this in our report, 

the intent of the first sale doctrine which is you can transfer it so 

somebody else can look at the content, you can argue that the philosophy behind first sale is subverted in that tethered situation. 

Mr. BERMAN. What about a time limited download? 

Ms. PETERS. Time limited download, actually, that is an issue 

with respect to musical compositions that currently is before the 

148

Office in a rule-making activity, and that is one that we have 

sought comment on. What is the nature of a limited download? Is 

it a digital phonorecord delivery? Is it an incidental phonorecord 

delivery? What is it? 

Clearly, the fact that it is limited in time with respect to—I 

guess you have to look at—what we say is if it is a pure download 

from one to the other, to the computer, first sale really isn’t implicated and the question really comes up in another context on what 

is it and what rights attach to it. It has really come up much more 

in the context of the 115 compulsory license and how do you characterize it and does it fall within it and, if it does fall within it, 

what is the rate for it. And it has come up on whether or not it 

really is a mechanical distribution, a DPD, or it is more in the nature of a rental, lease or lending, and we haven’t really come to 

grips with that. We are still in the process of that rulemaking. 

Mr. GOODLATTE. [Presiding.] Actually, the gentleman from California’s download has been time limited. 

I am going to pass my questions for a moment, and I am going 

to recognize the gentleman from Utah, Mr. Cannon. 

Mr. CANNON. Thank you, Mr. Chairman. 

I would like to say that, Ms. Register, that your comments are 

always cogent and illuminating, and I appreciate your insights. 

And, Mr. Potter, you expressed very well the issues before you; 

and if I could ask you a question. Others have testified yesterday, 

they argue that on-demand performances are different, that they 

potentially undermine sales of traditional physical media and thus 

that these performances are worthy of a reproduction right. Is 

there something about the law of performance rights that prevents 

the marketplace, the music publishers or ASCAP and BMI from 

modifying the performance right licensing or rate structure to account for any different nature of on-demand performances so that 

songwriters, composers and music publishers can be adequately 

compensated? 

Mr. POTTER. No. Frankly, I think Mr. Berenson should take a 

crack at that question. I agree 100 percent that there is risk that 

an on-demand transmissions, on-demand performances have the 

potential to reduce sales. I would also agree that the reduction in 

revenue that is associated with the reduction in sales is only a reduction in the reproduction rights revenue and there should be an 

offsetting increase in revenue through the performance royalty system and through the performance rights collectives. 

I don’t anticipate any inflexibility from ASCAP or BMI or SESAC 

or from publishers licensing directly when they sit down at the negotiating table to raise their rates on the performance royalty side 

appropriately so that the publishers get paid 100 percent of the full 

value of the economic act which in that case is the performance. 

Mr. CANNON. Thank you. 

Would you like to comment, Mr. Berenson, and then Ms. Peters——

Mr. BERENSON. Basically, in theory what Mr. Potter says may be 

true, but in practice it is not true. Mr. Potter is well aware since 

he has represented many clients in his prior law firm, Weil, 

Gotshal & Manges, that the minute the performing rights organization attempts to raise their fees we are in rate court before a judge, 

149

and ultimately we cannot unilaterally raise these fees. We would 

have to convince a judge to agree to what Mr. Potters says, and 

that is up in the air. 

We also administer a performing right, not a mechanical right. 

The fact that two different organizations in this country represent two different rights should not penalize the songwriter or 

the publisher, sir. You have situations in Europe where you have 

one organization representing both the mechanical and the performing right, and they are collecting both on downloads, the performing right and the mechanical. They allocate it to their members. There is no reason why, because of the way this industry developed over the years, that the songwriter and the music publisher should be penalized by saying we should only be able to collect once. 

There was a question of value. There is no question. When I testified before the Copyright Office part of my testimony—as Mr. Potter’s paper, he left out one part. He said, is it a public performance 

if no one hears it. Technically, under the law it is, yes, and it is 

a question of value. That is a marketplace decision or, if the parties 

cannot agree, a rate court decision. 

Thank you. 

Mr. CANNON. Thank you. 

Ms. Peters. 

Ms. PETERS. Certainly when both the reproduction right and the 

performance right are involved, we believe they should be licensed. 

Ms. PETERS. The position that we took was where you have a 

stream, it is a performance, and the only reproduction is the transient incidental copy that flows through the buffer in order to 

render that performance, we believe that that should be exempted. 

We agree with Mr. Potter in theory that with demand stream there 

is a potential loss, and it needs to be compensated. What we said 

was that we believe that it is inappropriate to hang on to that incidental transient copy as the mechanism for doing that. 

Now, there may be problems in coming up with what the appropriate performance right value is. We may have to deal with that. 

But I would basically stand by our recommendation and, in fact, 

note that under the European Union directive, that activity would 

be exempt from liability, and that is a mandated exemption. 

Mr. CANNON. Mr. Berenson, you obviously have something to respond. Would you like to do that? 

Mr. Chairman, I have other questions that I would like to submit 

to the panel. I ask unanimous consent that we be allowed to do so. 

Mr. GOODLATTE. We may do a second round, but we are going 

to stick by the time limit. We will see how it goes. 

Mr. BERENSON. I shook my head no to a portion of what Ms. Peters said. It may have—the directive may exempt these copies, as 

she said, but it certainly does not in any way exempt the public 

performing right in the musical work in downloads. 

Mr. CANNON. Mr. Chairman, I yield back, but let me point out 

I was not asking for additional time for questions, but rather unanimous consent to submit questions to the panel, written questions. 

Mr. GOODLATTE. I think that is very appropriate. Without objection, it is so ordered. 

[The information referred to follows:]

150

RESPONSES OF MARY BETH PETERS, REGISTER OF COPYRIGHTS, TO FOLLOW-UP

QUESTIONS OF REPRESENTATIVE CHRIS CANNON

1. Ms. Peters,

Madam Register, the Report states that:

‘‘the proposition that a digital download constitutes a public performance 

even when no contemporaneous performance takes place is an unsettled 

point of law that is subject to debate.’’ (P. 147)

First of all, your Report does not actually discuss the merits of whether 

or not a public performance occurs, you just note that it is an unsettled 

point of law without taking sides, correct? 

But the Report goes on to say that regardless of the fact that this is an 

unsettled point of law, it is your ‘‘view that no liability should result from 

such a technical ‘performance’ that takes place in the course of a 

download.’ (P. 148) 

The Copyright Act as I understand it provides statutory damages for 

copyright infringement of each work. What is the minimum amount of statutory damages that a court must award in case of a finding of infringment? 

So, if an Internet music service were to offer 100,000 songs, and a court 

were to disregard the Copyright Office Report and still find that this service committed a technical act of copyright infringement for those 100,000 

songs, what would the minimum statutory damages be? 

Is the threat of this type of high statutory damages one of the reasons 

why the Copyright Office supports legislation to clarify the legal status of 

server copies and buffer copies? 

If it is an unsettled point of law that is creating disruption in the marketplace, and your Office is of the belief that there should be no public performance liability for the download transmissions, then wouldn’t it be appropriate for Congress to enact legislation to clarify this point, just as you 

have recommended for temporary buffers? 

Or, would it be enough to eliminate this marketplace disruption for this 

Subcommittee to make a strong legislative policy statement supporting the 

conclusion in your Report?

It is correct that the Report does not take a position on whether a public performance occurs during a digital download even when no contemporaneous performance 

takes place, but concludes that if a public performance takes place under such circumstances, no liability should result from the performance if the download was authorized. 

Section 504 of the Copyright Act provides that the minimum award of statutory 

damages per work for copyright infringement is $750. Therefore, an internet music 

service offering downloads of recordings of 100,000 songs would face a potential minimum award of statutory damages in the amount of of $7,500,000 if a court concluded that the music service was making infringing public performances and if all 

100,000 songs had been timely registered. 

My recommendation of a legislative exemption for temporary buffer copies made 

in the course of authorized streaming was based in part on a concern that, notwithstanding my conclusion that the making of such buffer copies is fair use, a court 

might find a service engaged in streaming to be liable for the making of temporary 

buffer copies. Certainly the possibility that a court might make an award of substantial statutory damages for a possible public performance—a performance that 

my Report concludes should give rise to no liability—is one reason why I believe 

that an exemption is warranted. 

For similar reasons, I believe that it would be appropriate for Congress to enact 

legislation precluding any liability arising from the assertion of a copyright owner’s 

public performance right with respect to any technical performance that may take 

place as a necessary byproduct of an authorized download, so long as no audible performance actually takes place simultaneously with the download. If, on the other 

hand, an audible performance takes place along with the download, I believe that 

a compensable public performance results, for such a performance would be indistinguishable from, or at least tantamount to, a streaming transmission. 

If no such legislation is enacted, I believe that a court may heed a strong legislative policy statement supporting my conclusion that such ‘‘performances’’ are fair 

use. However, a court would not be required to give deference to such a statement.

2. Ms. Peters,

Mr. Ramos spends a great deal of time in his written testimony arguing 

that on-demand performances are different, that they potentially underVerDate Jan 17 2002 11:21 Mar 13, 2002 Jkt 000000 PO 00000 Frm 00154 Fmt 6601 Sfmt 6621 G:\WORK\COURTS\121201\76669.001 HJUD1 PsN: 76669
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mine sales of traditional physical media, and thus that these performances 

are worthy of a reproduction right. 

Is there something about the law of performance rights that prevents the 

marketplace—the music publishers or ASCAP and BMI—from modifying 

the performance right licensing or rate structure to account for any different nature of on-demand performances, so that songwriters, composers 

and music publishers can be adequately compensated? 

In your opinion, does the different nature of the on-demand performance 

suggest that there should be a reproduction right associated with it, or 

rather should the performance right owners and administrators be able to 

address the different nature of on-demand performances through their traditional performance systems?

I agree with Mr. Ramos that on-demand performances are likely to have adverse 

effects on the market for sales of phonorecords in traditional physical media. This 

effect, of course, results from the licensed performance, and not from the incidental 

copy. I understand music publishers’ concern that this will result in decreased income for composers and publishers. I do not believe that this has to be the case. 

On-demand performances of music must be licensed by the music publisher or its 

performing rights society, and the publisher should be able to insist upon higher license fees for on-demand streaming to reflect its impact on traditional record sales. 

Thus, any reduction in royalties for reproduction and distribution should, in theory, 

be made up in the form of increased performance royalties. 

Therefore, I do not believe a copyright owner should be able to assert the reproduction right with respect to an on-demand performance.

3. Ms. Peters,

My understanding is that in your Report you have made the following legislative recommendations:

—A tailored approach to exempt temporary buffer copies that are incidental to a licensed digital transmission;

—Repeal of Section 112(e) and the adoption of an appropriately-crafted 

ephemeral recording exemption for both sound recordings and musical 

works; and,

—An exemption for consumers to make a back-up copy of music files that 

they lawfully acquire from a music service.

I further understood from the Report that the reason for your recommendations was in large measure because of confusion in the marketplace over what the appropriate scope of rights is.

Did the marketplace change in response to your Report? For example, do 

you have an understanding whether the music publishers stopped demanding mechanical license payments for webcast streaming, or did the performing rights organizations stop demanding performance royalties for 

downloads? 

In your opinion, does the recent agreement between the RIAA and the 

Harry Fox Agency alleviate the need to address any of those points? 

In Footnote 434 on Page 144, you make a recommendation for legislation. 

Is there a reason this is in a footnote? Does it make it ‘‘less important’’ than 

others?

It is probably too soon to tell whether the marketplace has changed in response to 

the Report. However, since the Report was published, we have been advised by 

music publishers that they have no intention of asserting the reproduction right 

with respect to noninteractive streaming or of asserting performance rights with respect to ‘‘pure’’ downloads, i.e., downloads that result in the making of phonorecords 

that are not limited in terms of time or the number of permitted performances and 

that do not result in the making of audible performances simultaneously with the 

download. 

The recent agreement among the Recording Industry Association of America, the 

National Music Publishers’ Association, Inc. and the Harry Fox Agency, Inc. is certainly a major step forward in resolving some of the differences between music publishers and record companies that have hindered the development of the marketplace for online music. However, it has not caused me to reconsider the recommendations in the Report. 

The issue addressed in footnote 434 appears in a footnote because it is not squarely within the scope of the mandate set forth in section 104 of the Digital Millennium 

Copyright Act. But because my analysis of the buffer copy issue relied in part on 

an analogy to the ephemeral recording exemption found in section 112, it was necVerDate Jan 17 2002 11:21 Mar 13, 2002 Jkt 000000 PO 00000 Frm 00155 Fmt 6601 Sfmt 6621 G:\WORK\COURTS\121201\76669.001 HJUD1 PsN: 76669
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essary to point out that section 112 was amended in 1998 to provide for a compulsory license, rather than an exemption, for certain kinds of ‘‘ephemeral’’ copies relating to activities such as webcasting. Because the point of the analogy was that an 

exemption for buffer copies is appropriate for the same reasons that justify the 

ephemeral recording exemption, it was pertinent to mention that the most recent 

amendment to section 112 was inconsistent with the approach that I was endorsing, 

and to observe that I would favor repeal of that amendment and adoption of an exemption.

4. Ms. Peters,

In your report you describe at some length the ‘‘symmetrical’’ issue created 

by the performing rights organizations seeking performance royalties on 

music downloads. You note that this issue has not been settled by any 

court, and that in your opinion that no performance royalty should be due 

for the single economic act of making the music download. However, rather 

than recommending legislation to fix this problem, in your testimony today 

you state that ‘‘if courts rule’’ on this issue then Congress should step in 

. . . 

A. Given the music industry’s inclination to litigate (something I would 

very much like to see end, at least as it concerns Napster) and the risks 

of defending against litigation, including statutory damages that would 

apply to potentially hundreds of thousands of copyrights, wouldn’t it be 

prudent to fix this problem now?

As I stated above, I would support legislation precluding any liability arising from 

the assertion of a copyright owner’s public performance right with respect to any 

technical performance that may take place as a necessary byproduct of an authorized download, so long as no audible performance actually takes place simultaneously with the download.

B. Could we not ensure that temporary copies having no use other than 

for transmission be considered exempt under Section 117? It seems to me 

that we should not wait for litigation that will only slow down the advancement of well-intentioned, otherwise legal online music services. Do you 

have a specific fix in mind? Couldn’t Congress statutorily exempt such 

music downloads from the performance right?

I have recommended that legislation be enacted exempting temporary buffer copies made in the course of authorized streaming. I have not proposed specific legislative language, and it is not clear whether an amendment to section 117 would be 

the preferable way of accomplishing this goal.

5. Ms. Peters,

Approximately how many 115 mechanical licenses does the Copyright Office currently process each day? 

Is the Copyright Office ready to process 50,000 to 100,000 at any given 

time to enable the launch of a comprehensive online music service? 

What would be necessary to enable the Copyright Office to comply with 

the Paperwork Reduction Act or the E-government Initiative by allowing 

filing and processing of licenses to be done electronically?

In calendar year 2001, the Copyright Office received a little more than 400 notices 

of intention to obtain a compulsory license for making and distributing phonorecords 

of non-dramatic musical works pursuant to section 115. This relatively modest number of notices was, nevertheless, the largest number of notices received by the Office 

in recent years (and, we believe, since the enactment of section 115). The Office does 

not maintain statistics distinguishing between notices of intention to utilize the traditional section 115 mechanical license and notices of intention to utilize the new 

section 115 license to make and distribute phonorecords by means of digital phonorecord delivery, but we believe that all or almost all of the notices involved the traditional mechanical license. 

If the Office were to be inundated with 50,000 to 100,000 notices of intention, it 

would have great difficulty in processing them. Because of the low volume of notices 

filed with the Office, the Office has not had to devote substantial resources to process the notices. There has been a low volume of notices because a person wishing 

to use the compulsory license is authorized to file a notice of intention with the Office only if the Office’s registration and other public records do not identify the copyright owner and the copyright owner’s address, or if a notice of intention has been 

returned to the sender because the copyright owner no longer can be located at the 

address appearing in the Office’s public records. Therefore, it seems unlikely that 

the Office would receive 50,000 to 100,000 notices of intention. 

153

The Office is currently engaged in an information technology requirements analysis with the goal of permitting electronic filing, processing and retrieval of a variety of records. Because of the small number of notices of intention to use the section 

115 compulsory license that are (and that may be) filed with the Office, the Office 

has not considered it a high priority to establish a system that would accept electronic filings of those notices, but has focused on its major responsibilities such as 

copyright registration and recordation of transfers of copyright ownership. Therefore, at this time we do not know precisely what would be necessary to enable the 

Office to allow electronic filing and processing of notices of intention. If it appeared 

likely that the volume of notices of intention filed with the Office would increase 

significantly, the Office would have to commission a study of what would be required to establish a system for electronic filing. Such a study could be conducted 

as part of the Office’s ongoing business process reengineering efforts.

6. Ms. Peters,

Others who have testified yesterday and today argue that on-demand performances are different, that they potentially undermine sales of traditional physical media, and thus that these performances are worthy of a reproduction right. 

A. Is there something about the law of performance rights that prevents 

the marketplace—the music publishers or ASCAP and BMI—from modifying the performance right licensing or rate structure to account for any 

different nature of on-demand performances, so that songwriters, composers and music publishers can be adequately compensated? 

B. In your opinion, does the different nature of the on-demand performance suggest that there should be a reproduction right associated with it, 

or rather should the performance right owners and administrators be able 

to address the different nature of on-demand performances through their 

traditional performance systems?

Please see my response to question 2.

7. Ms. Peters,

Mr. Berenson testified that, in his view, the Section 104 Report conclusion 

that no compensable public performance occurred in the making of a digital phonorecord delivery that could not simultaneously be perceived by 

the recipient, was contrary to the ‘‘making available’’ right recognized in 

the WIPO Copyright Treaty. 

A. In your view would the United States be deemed in violation of the 

WIPO Copyright Treaty if Congress were to adopt all of the recommendations in your Section 104 Report? Would the adoption of your recommendations be consistent with our obligations under this treaty? Have any other 

governmental entities that have agreed to implement the WIPO Copyright 

Treaty adopted exceptions similar to those recommended by the Copyright 

Office?

The recommendations in the 104 Report are fully consistent with U.S. obligations 

under the WIPO Copyright Treaty (WCT). The WCT requires that each contracting 

party grant authors the exclusive right of making their works available to the public 

in such a way that members of the public may access them on demand, but does 

not specify how that right should be categorized in domestic implementing legislation. The obligation is fulfilled so long as one or more of the exclusive rights in a 

contracting party’s domestic copyright law covers the act of making a work available 

on demand. Since downloading a music file entails, at a minimum, an exercise of 

the copyright owner’s exclusive right of reproduction, exempting a technical performance that may take place as a result of the download would not alter the fact 

that the conduct is covered under the author’s exclusive rights. 

I am not aware of any WCT country that has adopted an exception from the public performance right for performances incidental to downloads. With respect to the 

recommendations in the Report concerning temporary copies, however, the European Union has adopted a Directive which requires the EU member states to enact 

a general exception for temporary acts of reproduction with no independent economic significance that are transient or incidental and an integral and essential 

part of a technological process and whose sole purpose is to enable a lawful use. 

A principal purpose of the Directive is to implement the WCT and its companion 

treaty, the WIPO Performances and Phonograms Treaty.

B. The WIPO Copyright Treaty provides separately for two distinct 

rights: a right of distribution, and a right of communication to the public. 

Is it your understanding that under United States copyright law the making of a digital phonorecord delivery would be consistent with the right of 

154

a distribution to the public as to which the reproduction right applies; and, 

separately, the making of a public performance would be consistent with 

the right of communication to the public?

The right of distribution in Article 6 of the WCT applies only to circulation of 

physical copies of works; the right of communication to the public (including the 

right of making available) in Article 8 of the WCT applies to the exploitation of 

works in intangible form by means of wired and wireless transmissions. As I mention in my response to question 7(A), while the WCT requires that the conduct covered in Article 8 be covered by exclusive rights, it does not specify how those rights 

must be categorized under the laws of a contracting party. Activities that would fall 

under Article 8, for example, may implicate the distribution right in the U.S. Copyright Act, which, unlike Article 6 of the WCT, is not limited to circulation of physical copies. 

Under the WCT, on-demand downloads, such as certain digital phonorecord deliveries, would fall under the communication to the public right and, more specifically, 

the making available right (in addition to the reproduction right). Under U.S. copyright law, on-demand downloads entail an exercise of, at a minimum, the distribution right and the reproduction right. Streaming, which would also fall under the 

WCT’s communication right, entails exercise of the public performance and (because 

of the buffer copy) reproduction rights under U.S. law.

C. Can you explain the nature of the term ‘‘making available’’ right in the 

WIPO Copyright Treaty? Was it intended to provide that a public performance right exists in a digital phonorecord delivery? Or, was it intended to 

more generally ensure that all signatory countries could protect all modes 

of digital dissemination of copyrighted works, pursuant to their respective 

copyright regimes?

In my view, the making available right in the WCT is intended to ensure that 

all contracting parties provide authors an exclusive right over intangible, on-demand dissemination of their works, while affording contracting parties with a degree of flexibility in the implementation of that exclusive right. Although the making available right is not limited to digital dissemination, it was the advent of digital networks that was the primary motivation for adopting this new right.

D. Article 10 of the WIPO Copyright Treaty permits countries to include 

in their national laws certain limitations and exceptions that ‘‘do not conflict with a normal exploitation of the work and do not unreasonably prejudice the legitimate interests of the author.’’ The Agreed Statement that accompanies the treaty further explains that signatory countries may carry 

forward and devise new exceptions and limitations to the rights provided 

in the treaty that are appropriate in the digital network environment. Is 

the reference in the Report to the absence of any independent economic 

value for buffers and certain server copies consistent with these criteria? 

Are the recommendations of the Copyright Office to exempt from royalty 

obligations these buffers and server copies consistent with these criteria?

The Copyright Office recommendations are consistent with the tripartite test set 

forth in Article 10 of the WCT. The absence of any independent economic value is 

an important factor both in our recommendations and in our conclusion that the recommendations pass muster under the WCT and other international instruments 

that incorporate the same standard, such as the Berne Convention and the WTO 

TRIPS Agreement.

RESPONSES OF CAREY RAMOS, NMPA, TO FOLLOW-UP QUESTIONS OF REPRESENTATIVE

CHRIS CANNON

1. Mr. Ramos, 

NMPA and RIAA have recently entered into an agreement to facilitate 

the development of business models such as PressPlay and MusicNet, 

which rely upon licensing the reproduction of a sound recording at 

home, and then timing out the consumer’s use of it after 30 days or 12 

plays unless the owner of the downloaded copy keeps paying for continued access. 

What interest does NMPA have in helping to restrict the number of 

times, or the length of time, that a consumer can listen to a lawfully 

made sound recording for their own private enjoyment?

NMPA has no such interest. NMPA’s members—music publishers which own or 

control copyrighted musical works—are subject to a compulsory license and 

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therefore are required to make their works available to any licensee who complies with the provisions of Section 115 of the Copyright Act. Music publishers, 

moreover, are not in the business of recording or distributing phonorecords of 

their musical works, and do not prescribe or restrict the manner in which those 

works are distributed. 

The marketplace for on-line music is in its infancy. There is widespread piracy, 

and no successful legitimate business model has yet emerged. The business models that have launched are evolving and in flux. NMPA’s members have issued 

mechanical licenses to a broad array of Internet services, offering consumers a 

diverse selection of music delivery services, including full downloads, limited 

downloads, on-demand streaming and locker services. These licenses necessarily 

conform to the distribution methods defined by the licensees.

Doesn’t that give you the ability to in fact meter completely private performances of the works?

No, because NMPA’s licensing affiliate, The Harry Fox Agency (‘‘HFA’’), does not 

license performances of music publishers’ works. Under Section 115, licensees 

must account, among other things, for the number of digital phonorecord deliveries they make (‘‘DPDs’’) just as they have long been required to account for 

the number of CDs and tapes (and prior to that vinyl records and 78’s) that they 

distribute containing licensed musical works. HFA has a legitimate interest in 

this information in order to assure that royalty payments are being made as required by section 115 of the Copyright Act. HFA has never sought personal information about specific consumers’ purchasing or listening habits or preferences.

Since consumers have right to sell or give away a CD onto which a song 

is legally downloaded, how does your agreement with RIAA ensure that 

the right to do so is not abridged?

The first sale right is prescribed by statute. NMPA’s agreement with RIAA does 

not purport to vary the law in this regard.

2. Mr. Ramos, 

The October 2001 agreement with the RIAA provides a license for on-demand streaming, as well as for digital phonorecord deliveries and limited downloads. In testimony submitted for this hearing, some Internet 

music services claim that they want mechanical licenses only to make 

digital phonorecord deliveries and limited downloads, but they contend 

that they do not need a mechanical license to engage in on-demand 

streaming. Would the NMPA and HFA be willing to give these Internet 

services the same license deal for just DPDs and limited downloads?

HFA is prepared to license any type of digital delivery that is subject to the compulsory license prescribed in Section 115 of the Copyright Act. Licensees may 

elect to take licenses for only certain types of delivery (e.g., full downloads or 

limited downloads). Such an agreement, however, would not cover any other type 

of DPD configuration for which a license is required under Section 115. 

NMPA and HFA encourage prospective licensees to negotiate terms for licensing any digital delivery of copyrighted musical works that is subject to compulsory licensing under Section 115. 

On February 6, 2002, NMPA, HFA and the Recording Industry Association of 

America (‘‘RIAA’’) jointly proposed that the Copyright Office adopt regulations to 

make available to all prospective licensees the licenses that HFA recently agreed 

to provide RIAA members to make or authorize the making of limited downloads 

and on-demand streams by subscription service. That proposal is currently pending before the Copyright Office.

Mr. GOODLATTE. We still may do a second round. 

The Chair at this time recognizes the gentleman from Michigan. 

Mr. CONYERS. Thank you, Mr. Chairman. 

Don’t you guys feel kind of bad beating up on the only lady on 

the panel? I mean, everybody has got exceptions. They don’t like 

this, they don’t like that. And Mr. Potter, you have done very well, 

I must say. Your reasonableness quotient is far higher than Mr. 

Klein’s, so comparing it—you know, in comparison, you are coming 

off as a very reasonable man. 

Now, if you download it and nobody hears it, Mr. Berenson, why 

do you get royalties? 

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Mr. BERENSON. The ultimate objective is that people do hear it. 

In my submission, sir, I indicate what a pure audio download 

would be. The criteria is set forth. Yes, in those instances we—we, 

meaning BMI and ASCAP—would not seek to be compensated for 

the performing right, although there would be a technical performance. But when you have business models that are changing by the 

hour, sir, that ultimately you can download a song and for a fee 

hear it three times or four times, then it magically disappears on 

your computer; you want to hear it again, you pay another $9.95 

or $4.95, you can hear it another four times or five times; the purpose of that is to hear the song as well as a copy being made so 

that you can hear it. 

And the concept here is, on the extreme, there is a continuum 

here. And no one, the NMPA, BMI and ASCAP, say, at the true 

end no one is asking for a fee. But when you get off the end of the 

continuum, there are business models which basically incur liability for the performing right and for the mechanical, for the reproduction right. 

And it is not unique that there are situations, sir, where you 

have a user paying for two rights, for the same basically, transmission. As an example, background music services pay a right to 

make a copy of the phonograph record. They also pay a performance right when it is shipped down to the consumer. Muzak is an 

example. They pay for two rights. There are situations where a 

broadcast entity, a network as an example, takes a signal, shoots 

it via satellite to a television station, an affiliated station; that is 

also a public performance. When the station then transmits it into 

your home, that is a public performance, although you as a consumer cannot hear the first public performance. 

Mr. CONYERS. Sure. Mr. Potter, reasonable, is it not, Mr. 

Berenson’s response? 

Mr. POTTER. When you go to Tower Records over by George 

Washington University and you purchase a CD, you are purchasing 

it with the ultimate objective of hearing it, in Mr. Berenson’s 

words. You do not pay a public performance royalty for the pleasure of going to Tower Records and purchasing the CD and bringing 

it home. If you went to Tower Records—if the United States had 

not eliminated the record rental rate—the record rental right several years ago, and had you gone to Tower Records and rented that 

record or that CD for 3 days and brought it home and played it 3 

times and then returned it or chose to rerent it for 3 more days, 

would you not have paid a public performance royalty? 

Mr. CONYERS. So, Mr. Berenson, why all the agitation over in 

your seat? 

Mr. BERENSON. Well, firstly, they are not doing business the 

same way. I mean, no one is saying if you sell records in Tower 

Records, or you go on the corner and sell them at a kiosk, you are 

not transmitting anything, you are not publicly performing it. You 

are selling it; you are distributing it. But they are using technology 

to distribute and ultimately publicly perform. Again, as in my 

statement, I gave criteria where there would be a pure audio only 

download where we feel the performing right would not incur. 

Mr. CONYERS. Now Mr. Potter is grimacing. Why? 

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Mr. POTTER. I am so appreciative of Mr. Berenson suggesting 

that we are using the Internet to distribute a public performance. 

There is a right of distribution, there is a right of reproduction, 

there is a right of public performance. In this context the fact is 

that the—your DSL line or your cable coaxial or fiber or satellite 

dish is a replacement for walking down the street to the corner and 

picking it up and bringing it home. There is no reason to impose 

a second right, and there is certainly no public performance. 

Mr. BERENSON. I guess we could go on for about a day on this, 

but truly there is a public performance. It is rendered. You do not 

have to hear it. According to the law, you don’t have to hear it, you 

don’t have to see it. It is a transmission to the public. That is a 

public performance. What the value is under those circumstances 

is a separate issue. 

And BMI and, I know, ASCAP has always said, talk to us, we 

will talk about value. It may be worth a lot, it may be worth a little, depending upon the usage. But we have a situation where certain entities don’t even want to talk to us about what this value 

is, and they are claiming they want an exemption. Well, it is nice 

to get an exemption whereby a songwriter foots the bill for these 

corporate entities. 

Mr. CONYERS. Ms. Peters, what do you think of this conversation? 

Ms. PETERS. We have been involved in this conversation for a 

long time. We took a position that where what is delivered from 

one place to another was a pure download and the transmission 

was not such that you could, not necessarily that you would, but 

you could not hear it as it was being delivered, and in that case 

it was the equivalent of the sale in the record store. 

So, if, in fact, at the point that it is being downloaded, you listen 

to it, we agree that there is a public performance, and there is also 

a download; but if, in fact, the technology is such that it is the total 

equivalent of going to the record store, it is downloaded, 

downloaded, you don’t have the capability of hearing it at all, then 

we would argue that, no, it is not a public performance. 

Mr. CONYERS. Now, is this a lean toward Berenson or Potter? 

Ms. PETERS. I am not sure. It is probably in the middle, but it 

may be closer to probably what Mr. Potter said. 

Mr. CONYERS. Thank you, Mr. Chairman. 

Mr. GOODLATTE. I thank the gentleman. 

I recognize myself for 5 minutes. 

Ms. Peters, Mr. Klein has submitted for the record a number of 

a letters from a number of law school professors criticizing your report. How do you respond to that criticism? 

Ms. PETERS. Actually when I read his testimony and saw a reference to it, we e-mailed him and we asked if we could have a copy 

of it, which we got yesterday afternoon. I have to say that I was 

extremely disappointed by the letter. I was disappointed in the 

analysis that is reflected in the letter of a certain number of intellectual property law professors. I could probably take the rest of 

the hearing time in telling you why I disagree with or have problems with the analysis, but I won’t do that. 

I will just—I could give you an example of the problems that I 

quickly saw as I looked at it last night. One of the examples is the 

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fact that they basically, in determining what the true congressional 

intent is for the first sale doctrine, rely on the statement of a single 

witness, not a Mr. Thomas Parkinson, but a Robert Parkinson who 

basically representd the ABA, when, in fact, we relied on the Committee reports. I can’t believe that congressional intent would really be based on what I would say. 

They characterize—— Mr. BERMAN. It isn’t even based on what we say. 

Ms. PETERS. Another example, they basically call the way that 

we analyze something as I think counterfactual and sophistic, and 

the example that they use is actually—I think comes—and basically is not an example of what the forward and delete model is, 

but, in fact, really is more an example of what the Napster model 

is where you forward it, but don’t delete it. And it really talks 

about e-mails. And, I think it really stands much more for the 

proposition that we made of the concern with regard to a digital 

first sale doctrine. When I do an e-mail, and I am not the most sophisticated person, I rarely delete my e-mail. 

So there are a number of issues that are in that letter that I find 

troubling and disturbing. 

Mr. GOODLATTE. Thank you. 

Mr. Klein, Mr. Coble asked a question earlier of Ms. Peters regarding the misrepresentation of section 117 on a number of 

Websites online, and I wonder if you would be willing to work with 

the Subcommittee on language if it considers legislation to address 

section 117? 

Mr. KLEIN. We would be very happy to work with the Subcommittee on drafting language with regard to 117 provided that 

it—it is carefully drafted so as not to arouse our concerns that it 

turn into some sort of, well, we are going to give you this, but we 

are actually going to wind up taking back more of fair use rights 

that consumers have. So we have worked with the Committee before, and we would be very happy to do so again. 

Mr. GOODLATTE. Do you agree with Ms. Peters’ interpretation 

that when they cited section 117, that they are indeed misrepresenting the law when they offer various downloads of online music? 

Mr. KLEIN. I would actually have to look into it. Specifically the 

law says that a copy lawfully acquired may, in fact, be given away, 

sold, whatever. That is what the first sale doctrine says. So the 

question then becomes was it a copy that was lawfully acquired. 

Mr. GOODLATTE. Does that mean it can could be given away to 

a million? 

Mr. KLEIN. No. No. No. No. No. If you are talking about digital 

retransmission over the Internet, we have always said that we will 

work with anyone to prevent that. We have been working to develop technology that will prevent that. 

Mr. GOODLATTE. Ms. Peters, do we need to amend section 117? 

Is there evidence of harm to consumers or to copyright owners as 

a result of these sites? 

Ms. PETERS. If you are talking about the fact that everybody 

backs their material that they have on a computer up at the moment, we said we didn’t really find any harm. The problem was— and it is not the way Mr. Klein characterized it—that we believe 

that you can have a digital reproduction that is a fair use, and you 

159

can, in fact, have a distribution that is fair use. But in each case, 

you do the fair use analysis for the reproduction, then you do the 

fair use separate analysis for the distribution. 

What we found out was if you read section 109 literally, fair use 

distribution, and you don’t stick to the fair use analysis of the reproduction, but instead you go to 109, you find you have a lawfully 

made copy, and now section 109 on its face, though I don’t think 

its intent, means you could basically transfer it. There is the concern. And one of the ways to handle this without going to 117, as 

we point out, is to simply amend section 109 to say lawfully made 

and lawfully distributed. 

Mr. GOODLATTE. Thank you. It is my pleasure to recognize the 

gentleman from Virginia, my neighbor Mr. Boucher. 

Mr. BOUCHER. Thank you very much, Mr. Chairman. 

Ms. Peters, I wanted again to thank you and your staff for all 

of the time and effort that you devoted to a rigorous study of the 

issues that are contained—and suggested that you study—in section 104 of the DMCA. As the author, along with Tom Campbell, 

of that provision, I think that you have done a generally commendable job. 

I find things in your report with which I agree; I find some other 

things with which I disagree. Let me start with something about 

which I agree, and that is your proper finding that archival copies 

qualify as fair use. You correctly point out that the common practice of backing up material that is on a hard drive is prudent and 

does no harm to copyright owners, and that the practice is fair use. 

Let me ask you what I think is a rather intriguing question, and 

that relates to the intersection of fair use and section 1201(a) of the 

Digital Millennium Copyright Act, which, as you may recall, punishes any act of circumvention of a technological protection measure which guards access to a copyrighted work. Let me cite a hypothetical. I would like your view of what the legal outcome would 

be in this circumstance. 

You have indicated that archival copying is fair use. Let’s suppose that a consumer purchases from a vendor a digital product 

that is protected by some regime of digital rights management. And 

let’s further presume that this particular purchaser has gone down 

to the local college book store and bought the T-shirt that has on 

it the code that enables him to get around this particular digital 

rights management. As we all know, all digital rights management 

will be published, and the code to get around will be published in 

T-shirt form sooner or later. He would like to exercise his fair use 

right to archive that digital media, but it is guarded by the password or whatever the digital rights management is. 

What happens if he chooses to exercise his fair use right by utilizing the code that enables him to circumvent, purely for the purpose of archiving, for no other purpose, whatever? 

Ms. PETERS. Are you specifically asking about the program that 

was found to be an infringement of section 1201? 

Mr. BOUCHER. I am just citing a hypothetical. Pick your own 

real-world example of this, if you like. But the hypothetical is very 

simple. I mean, the person acquires some data. He pays for it. It 

is his. It is protected by password. He knows how to get around the 

password or the other form of digital rights management. He wants 

160

to archive it. If he chooses to exercise that fair use right, which you 

have declared in this report, to archive it, what happens to him in 

view of the provisions of section 1201(a)? 

Ms. PETERS. The truth of the matter is that the question you 

asked is something that we face in the 1201 rulemaking that we 

get to do every 3 years. And as we determined in the 1201 last 

rulemaking, the issue with regard to the question that you raised 

really isn’t front and center. But with respect to archiving, it is not 

the access right that really is going to prevent you from making an 

archival copy of what you legitimately own. If I actually purchase 

a work that has an access control on it, obviously I have the access 

to it. And archive copying really is more prevented through a copy 

control, not an access control. 

So you know, the situation that was really presented to us with 

regard to archival copying wasn’t really with regard to access, it 

really was much more with regard to the copy control of all restrictive licenses. 

Mr. BOUCHER. Let me see if I can propound the question very directly. Is it a violation of section 1201(a) if that individual in the 

circumstance I have described utilizes his knowledge of how to circumvent the measure that guards access to the copyrighted work 

solely for the purpose of archiving; is that a violation of section 

1201(a)? 

Ms. PETERS. I would basically say it was a mismatch. You don’t 

circumvent an access control to make an archival copy. 

Mr. BOUCHER. So your answer is, no, it is not a violation. That 

would be very comforting to the people who might be inclined to 

do this. I appreciate that answer. I am sorry, did I misinterpret 

you? 

Ms. PETERS. I basically thought I was disagreeing with you. So 

if you think I was agreeing with you——

Mr. BOUCHER. Well, you said it was not a violation of section 

1201(a) in that particular instance, circumvent for the purpose of 

archiving. 

Ms. PETERS. No. I basically said it doesn’t arise in that context. 

Mr. BOUCHER. What doesn’t arise? 

Ms. PETERS. The only thing with archiving is to make an archival copy, it is making a copy, so the issue is the copy control, not 

the access control. So from my point of view, the issue of the access 

control does not arise. 

Mr. BOUCHER. Well, Ms. Peters, I think you have confounded everyone in the room with that particular statement. It is, I mean, 

a fairly straightforward question as to whether or not section 

1201(a) is violated in the instance that the person utilizes the 

knowledge that he has about how to circumvent this particular 

technological protection measure for the purpose of archiving. So I 

would simply ask you, yes or no, does he violate section 1201(a) if 

he circumvents for that purpose, or doesn’t he? 

Ms. PETERS. My answer is the same. It is that in making an archival copy, the issue is not the access control. The issue is the 

copy control. What you are doing is making a copy. You need to 

have legitimate access before you have a right and legitimate possession before you have a right. 

161

Mr. BOUCHER. So you are saying he does not have legitimate access——

Mr. GOODLATTE. Let me interrupt. The gentlemen has exceeded 

his time by about 2 minutes now. We are going to do a second 

round, so you can pursue it that way, or Ms. Peters might help everybody involved if she wanted to take the time after the hearing 

to put her answer to this question in writing. Would that—— Mr. BOUCHER. Mr. Chairman, I think we were about to get to the 

conclusion. Could I indulge the Committee for 30 more seconds on 

this? I have some other questions I would like to get to in a second 

round. 

Ms. Peters, what you are basically saying is that the access must 

be lawful before the fair use right arises; is that what you are saying? 

Ms. PETERS. What I am saying is that before you have a right 

to archive, you really have to have a copy that is lawfully made, 

and my presumption is that you should have lawful access. 

Mr. BOUCHER. The copy was lawfully made at the time it was 

purchased. It is lawfully on the hard drive. 

Mr. GOODLATTE. I don’t think we are going to get to this in 30 

seconds. You can come back on your second round, or we can get 

a further answer in writing. 

Mr. BOUCHER. Thank you, Mr. Chairman. 

Mr. GOODLATTE. The Chair takes notes of the arrival of the gentleman from Alabama, and I think he has graciously agreed to 

allow the gentleman from California to go next since he has been 

here the duration. We are pleased to recognize Mr. Issa. 

Mr. ISSA. Thank you, Mr. Chairman. 

Those of you who don’t know me, I sometimes am described as 

the person who got the Sonny Bono seat on Judiciary. I am not an 

attorney, but I have done fairly well with the intellectual property 

that I have been part of producing. So I have a great deal of respect for what I will read as a neophyte: ‘‘clause 8, the Congress 

shall have power to promote the progress of science and useful art 

by securing for a limited time to authors and inventors the exclusive right to their respective writings and discoveries.’’ . 

That is the entire authority. Obviously it has been modified on 

monopoly laws. That leads to all the discussion, I guess, we have 

been having here. 

I would like to limit my 5 minutes to something simpler, if I 

could, especially since Her Honor has gotten bottled in between 

right and law, which is a terrible place to be. You have my sympathy as someone who thinks that right should always trump law 

and that law should respect rights. And I think quite candidly you 

made it clear that law may not respect rights in this case. 

But going back to the original point that I would like comment 

on, if I sort of understand the history of this, and I think I got it 

out of testimony, we are arguing about laws because some of your 

clients are wanting to get more money in a digital era just as they 

got more money when CDs came out and became more popular. 

When we began playing tape and CD and 8-tracks even in cars, 

there has been a steady increase in the amounts of this music, particularly audio, that has been available, and we have bought more 

original copies. 

162

Now in a digital age suddenly everyone is saying, wait a second. 

What was already going on a little bit, and yet we made more 

money, more money than the year before, may go the wrong way 

and our clients may make less money, when, in fact, our goal, your 

goal, is to make them make more money. Is there anyone that sees 

that as absolutely wrong, that this isn’t about how do we get more 

revenue, not less revenue, and that that is really what these hearings degenerate to in lawmaking? 

Having heard none, I will reclaim my time. You got to be quick 

here. I told you I had the Bono slot. 

I would like to hear about how we preserve the consumer’s right 

without allowing a Napster-type rip-off to occur. And those who 

have solutions for this body, or proposals for this body, that we can 

codify in law and/or your industries can agree to, that is what I 

would like to hear, because I think all the other discussion is about 

how one group can get more or less money. And since I haven’t 

heard much from Mr. Klein, I will start with you and then probably back to the lady who seems to have most of the answers. 

Mr. KLEIN. Well, Mr. Issa, I have known you for a while. As you 

know, the industry that you were once a part of, when you talk 

about making money, the consumer electronics industry, they lose 

money on everything they sell, but they make it up in volume. It 

is the only industry where product prices keep coming down every 

year, add more features, and consumers get more value for their 

money. 

Our industry only makes money if we can sell product. We can 

only sell product if there is content available. We have a very symbiotic relationship with the content industry. 

Mr. ISSA. So you are happy if there is simply content available 

for your products. 

Mr. KLEIN. Content available for our products and consumers 

having the ability to use those products with the reasonable and 

customary expectations that they have come to expect in using the 

products, which includes a certain amount of fair use in terms of 

being able to take content that they have lawfully acquired, lawfully paid for, use them from one device to another device to another device, and hopefully our industry sells three devices as content gets transformed from one to another to another. 

Mr. ISSA. Okay. That is a simple enough position. 

Ms. Peters, if you could enlighten me about how we maintain the 

status quo as much as possible in light of the Constitution rather 

than shifting as some people would like to either for or against a 

given group? 

Ms. PETERS. I don’t think the goal is to maintain the status quo. 

The goal is to maintain an appropriate balance between rights of 

creators and the needs of users. 

Mr. ISSA. Yes. 

Ms. PETERS. I think that part of the problem that we have seen 

in the music industry is what we heard yesterday, is that the online services were mostly pirated services, and they were free, and 

people having a difficult time in trying to put together business 

models in which the composers and the lyricists and the music publishers and the recording artists and the record companies can all 

make money. 

163

But the truth is that when you go from an analog environment 

to a digital network environment, some of the models don’t work 

out exactly the way that they did. The question is what is the best 

way to transition to that model and make sure that the beneficiaries, the people in the Constitution that you talked about, that 

we were trying to encourage to create, and the people who disseminate those products, we want them to continue to disseminate 

them. How do we reach that balance, and how do we get there? As 

you are saying, it is not easy. 

Mr. GOODLATTE. The time of the gentleman has expired. 

The gentleman from Alabama is recognized for 5 minutes. 

Mr. BACHUS. I thank the Chairman. 

I am going to direct this question to Mr. Potter, Mr. Klein and 

Ms. Peters. The Copyright Act establishes a rather detailed legal 

framework for copyrights. It grants specific rights to the copyright 

owner. It also grants specific rights to the copyright user, or another way of saying copyright user, the consumer. 

Now, I want to direct you to one part of the report that you 

made, Ms. Peters, in the copyright thing, the testimony says—the 

copyright office states that the use of access control technology and 

non-negotiable contracts, quote, increases the likelihood that right 

owners—right holders and not the copyright policies established by 

Congress will determine the landscape of consumer privileges in 

the future. 

Now, let’s just say that copyright owners attempt to redistribute 

the balance of rights in their favor and away from consumers 

through contracts of adhesion, say, that prohibit consumers from 

exercising their rights. Would those contracts—number one, would 

they be illegal or void? And number two, would they be unenforceable because they would be against public policy? And I will start 

with Mr. Klein. 

Ms. PETERS. Oh, good. 

Mr. KLEIN. I thought I was here just to make him look reasonable. 

Mr. BACHUS. Maybe a short way of saying that we establish a 

legal framework. We said these are the rights of the respective parties, but the report tends to say that the marketplace not is—is 

going to—— Mr. KLEIN. That quote, Congressman, is one that we looked at, 

too. We think that is a legitimate concern, because the so-called 

click-through and user licensing agreements can, in fact, take away 

rights that consumers normally expect. In fact, there are CDs you 

can buy, bring home, put in your hard drive, and all of a sudden 

a license will pop up telling you that you cannot play this on any 

other device that you own in your home. You cannot give it to anyone else in your home. If you don’t agree with this license, simply 

put it back in the package, return to the record store. This is actually after you have already purchased it so you think you own it. 

The same thing can happen, obviously, when you are 

downloading, and the question is can—well, contractual rights and 

copyrights have existed for a long time. Most courts have, in fact, 

held that contractual—State courts have held that contractual 

rights will trump copyright law. And rather than use up all your 

time, I will let the others take a crack at it. 

164

Mr. POTTER. I can’t say I am an expert on the subject, especially 

of contract law and copyright. I did read, I thought, in the last couple of days a judicial decision that ruled that a click-through license did not—was not enforceable. I know this is a mess in the 

courts on the click-through licenses. And clearly the contract issues 

that are arising in the context of services and copyrights are something that we are going to be dealing with for a long time to come. 

Consumer expectations versus consumer rights is another issue, 

what has the consumer come to expect. And what the courts said 

that, therefore, is they actually have the 

right—or what the Congress has said, well, we are not going to 

limit the opportunity because they have come to expect it. I think 

it all comes back to what Ms. Peters said about balancing the law 

and balancing the policy. 

Mr. BACHUS. Ms. Peters. 

Ms. PETERS. The truth is that contract law always was available 

to the purchaser and the one who was selling, the seller, to modify 

what is in the copyright law. That is the American way. People can 

contract away what they otherwise own. 

The concern with regard to shrink-wrap licenses and clickthrough licenses that raised the issue of what you talked about, 

contracts of adhesion, that body is alive and well, and the issue is, 

is it a contract of adhesion, was there really a meeting of the 

minds. I think that that will be alive and well in the future. 

Obviously, if something is too much of a balance in the wrong 

way, so that there is no choice, there is a problem. So what we said 

was that if, in fact, something is offered a particular way, and everyone somehow gets together and says this is the only way we are 

all going to offer it, and that is against the policy balance, then 

there may be some concerns. But we ultimately kind of believe in 

the marketplace adjusting, and we are hopeful that the reactions 

of consumers and the needs of consumers get reflected in the licensing policies. 

Mr. GOODLATTE. The time of the gentleman has expired. We have 

about less than 7 minutes left on a vote on the floor, but the Committee will reconvene after a recess to vote. 

[Recess.] 

Mr. COBLE. [Presiding.] Ladies and gentlemen, I am told that we 

will have a vote in about 20 minutes, so I hope we can complete 

our second round prior to that time rather than hold you all here. 

That would preclude our having to come back. 

Mr. Berman, do you have second questions for the second round? 

Mr. BERMAN. Okay. 

Mr. COBLE. I recognize the gentleman from California. 

Mr. BERMAN. Well, to the extent that I can understand it, this 

is sort of an interesting discussion. Let me sure I understand one 

thing. 

Mr. Berenson, you, BMI, the performing rights societies, is it—

I read something that you guys put out as a joint statement about 

a month ago that said you have to see how these things are used 

to sort of know what rights are implicated. In the course it seemed 

like you conceded that a download that is not heard doesn’t implicate a performance right. Am I right about that? 

165

Mr. BERENSON. I think there was a commercial that said—not 

exactly. Not exactly. 

Mr. BERMAN. You agree with that? 

Ms. PETERS. Yes. 

Mr. BERMAN. I am going to find your statement. 

Mr. BERENSON. We basically—we set forth where we define and 

attempt to define a pure audio-only download and set forth criteria 

where we say at that particular juncture, if that download met 

those criteria, there would not be a fee requested by the performing 

rights organizations. 

Mr. BERMAN. Just 1 second here. What I remember is in this 

joint statement of ASCAP, BMI, and the music publishers, I believe 

you talked about two ends of the spectrum and said at each end 

there is a quite a consensus as to what rights are implicated and 

what rights aren’t. It is in the middle where you have all these 

complicated problems. That is what I am trying to get my hands 

on. 

I will spend all my 5 minutes ruminating here if I don’t move 

on, and Chairman Coble has not yet talked about a third round. 

So let me move to something else here. We will get back to 

that——

Mr. BERENSON. If you want, it is on——

Mr. BERMAN [continuing]. In the next 5 years. 

Mr. BERENSON. It is on page 3 of the addendum. It is footnote 

number 4. 

Mr. BERMAN. Oh, here it is. It is in your—yes, right. At opposite 

ends of the spectrum, for example, it can be said that the pure 

audio only downloads should not require payment for the public 

performing right. 

Are you making a distinction between a performance right, public performance right, being implicated and getting paid for it? 

Mr. BERENSON. We are saying that while there may be a public 

performing right implicated, we would not seek a fee for it under 

those criteria set forth in the footnote. 

Mr. BERMAN. All right. You won’t concede the right, just the remedy. 

So then I go to Mr. Potter, and I say, you talk about in these 

areas of on-demand inactive digital transmissions, it shouldn’t be 

viewed as a reproduction right, and we ought to adjust the way the 

public—the performance right is compensated. But if—why can’t 

the CARP ultimately be the decider of what the value is? Let—if 

there are copies, then there are rights, but if there are copies that 

have no particular inherent value, then CARP, in a sense—if the 

parties can’t negotiate this out, CARP can decide what they are 

worth. Why isn’t that as good a process for resolving this issue as 

asking us to try and legislate in what situations a copy is meaningful versus it isn’t meaningful? I mean, I am talking very simplistically here, but there is—you get the point of what I am trying to 

say? 

Mr. POTTER. Yes. First, I would propose to you that the Committee and the Congress has made these distinctions in several respects before, specifically in the broadest terrestrial broadcast environment. Broadcasters have enjoyed an exemption, a privilege, to 

166

make an ephemeral reproduction for the purposes of facilitating 

their broadcasts for 25 years. 

Our members compete with broadcasters. They perform music 

using the Internet instead of using towers. We need to compete on 

a level playing field. If this Committee would prefer to withdraw 

the exemption that it has granted to broadcasters 25 years ago, 

that is a whole other shooting match, and we would probably look 

forward to that process, but it would be long and ugly, and we all 

know that. 

In the second issue with respect to the CARP, I will tell you that 

we are now contacting the CARP for sound recording royalties in 

the context of Internet radio. It has gone on—it is a process that, 

including procedural motions, has gone on for 3 years. It has cost 

several million dollars on both sides. And to merely—to suggest, as 

some of the parties have, gee, we are willing to negotiate, perhaps, 

a very, very low royalty, but you are going to have to go to a several-million-dollar CARP in order to fight us for that royalty. Or if 

you are not really going to do a CARP, you are going to have to 

have the license we give you because ultimately that is the outcome. Or you have got over your head this bludgeon of statutory 

penalties and some court decisions which candidly have said quite 

firmly that a reproduction is a reproduction is a reproduction, and 

it is worthy, and it is an infringement if you make that reproduction. 

Judge Rakoff was very clear in his decision last year, and other 

judges have been the same. It is a question of business certainty, 

of investment environment, of building an industry that is essentially facing a set of laws which were reasonably developed for the 

existing technologies. And we are saying if you are in a competitive 

line of business doing essentially the same thing to the consumer, 

the consumer is agnostic as to whether he gets it over a pipe, or 

bounced off repeaters, or through a DSL line. The consumer thinks 

it is radio. Twenty-five years from now we won’t even talk about 

online radio versus terrestrial. It will just be radio. So what we are 

saying is provide the same rights and the same obligations. 

We are more than happy to pay Mr. Berenson’s folks a reasonable royalty based on the new value of the new technologies and 

the new services. 

Mr. BERMAN. Well, Mr. Chairman, my time is up. I will try to 

seduce you into a third round. 

Mr. COBLE. Mr. Boucher, let me make a proposal to the gentleman from Virginia. 

Rick, I have questions, but if you could ask your questions within 

the 5-minute time frame, I will yield to you. If you can’t, I will 

question then recognize you. That will be your call. 

Mr. BOUCHER. Thank you, Mr. Chairman. I will stay within 5 

minutes. 

Mr. COBLE. I recognize the gentleman from Virginia. 

Mr. BOUCHER. Mr. Potter, let me ask you if you would, to talk 

about the circumstance as we find it in light of the agreement that 

has now been entered into between the Recording Industry Association and parties who represent music publishers, slash, songwriters. We have some provisions in the Music Online Competition 

Act that relate to a means for the effective clearance of the pubVerDate Jan 17 2002 11:21 Mar 13, 2002 Jkt 000000 PO 00000 Frm 00170 Fmt 6601 Sfmt 6601 G:\WORK\COURTS\121201\76669.001 HJUD1 PsN: 76669
167

lisher and songwriter copyright interests. In view of the fact that 

there has been some historic difficulty in people who seek to use 

that material being able to identify who all of the owners of that 

copyright interest are, and in the absence of being able to identify 

who they are and give them notice of the fact that their material 

is to be used and satisfactorily compensate them for it, the user of 

the material can be subject to suit and to statutory minimum damages. So there is a huge disincentive in the current law and an 

enormous inability to clear these interests which we respond to by 

a precise provision in the Music Online Competition Act. 

Now, since we introduced our measure in August, an agreement 

has been entered into between the recording industry on the one 

hand and parties representing publishers on the other. My simple 

question to you is where do we stand in light of that agreement? 

Is it satisfactory in and of itself as a means of clearing the publishing interests? Are there any flaws in it? Is there any incompleteness in the wake of that agreement that still would call for 

legislation that addresses the means of clearing the songwriter and 

publisher interest? 

Mr. POTTER. It is an excellent question, Mr. Boucher. If I can 

refer to Ms. Peters’ comment yesterday, she made two separate 

comments. Her first was in her testimony where she said that the 

Harry Fox-RIAA-NMPA agreement does nothing to change the 

copyright office analysis in the section 104 report. So we start from 

that premise. 

Secondarily, Mr. Sherman from the recording industry flat out 

said that they are still having trouble clearing licenses for current 

songs, which are specifically the songs that consumers want to 

hear. So, in fact, the new services—and we are thrilled that new 

services are launching and that they have the opportunity to deliver to the consumers real innovation as well as delivering to the 

creators real money. But if you can’t get the rights, even in the alleged marketplace agreement, then you can’t deliver the service, 

and you can’t pay the royalties. So the creators lose, and then they 

lose again. 

In the context of 115 reform, if the copyright office had ample 

budget authority or ample appropriation to create an electronic system such as has been posited by other Internet companies prior, 

long prior, to us that—so that you can do bulk licensing and deliver 

in a zip drive or download 100,000 tracks and get back who are the 

folks, pay the money, pay it right away, it is a win-win. Nobody 

loses in that context. The creators get the money; they get it faster. 

The services launch and then have the chance to build market 

share and deliver more money back to the creators. That is my understanding of the MOCA provision which relates to 115 that 

would require electronic filing. 

The second piece of that is that it would require there to be an 

escrow system so that if an Internet music company wanted to pay 

the copyright owner, but could not figure out who the copyright 

owner is or the administrator—and Lord knows, the record industry said yesterday they can’t figure it out even with this agreement—if we want to pay, let us write a check, let us put it aside, 

and let us then figure out later how—you know, how to find that 

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person, but make a good faith effort and actually pay the money 

into an escrow account. 

Mr. BOUCHER. I believe that a statutory provision is necessary in 

order to carry forward that kind of approach; is that correct? 

Mr. POTTER. Absolutely. 

Mr. BOUCHER. Thank you, Mr. Chairman. You will be pleased to 

note I have stayed within my time. 

Mr. COBLE. I commend the gentleman. He is true to his word. 

Well, I have not had my second round. I will be right with Mr. 

Bachus. I won’t take the 5 minutes. 

Mr. Potter, I was going to plow the same field that my friend Mr. 

Berman plowed. I was going to ask you to elaborate on your members’ need to be exempt from liability for server copies and how 

you—how they are similar or different from broadcasters. I think 

you responded to that. I would like to hear from Mr. Berenson on 

that, see if he has a take on it. 

Mr. BERENSON. Well, Mr. Chairman, I do have a take on this, obviously. We start with basics. Mr. Potter’s clients want to make 

money, want to go into commercial enterprise on the backs of songwriters, creations, the content. Without it, they don’t make any 

money. They are offering songs. 

And with respect to the performing right itself, sir, the United 

States is an adherent to the WIPO, World Intellectual Property Organization, copyright treaty. When that was developed in Geneva, 

there was a concern in the Internet world, the on-demand world, 

whether the public performance right should—public performing 

right should be implicated in these types of transmissions. 

In that treaty to which the United States is an adherent to, it 

says specifically when a work is ‘‘made available,’’ not performed, 

‘‘made available’’ on a server, it constitutes a communication to the 

public which translates to our public performing right. So, therefore, you don’t have to hear it, you don’t even have to play it, and 

there is a public performing right that is involved. 

We are saying that we have to protect the rights of individual 

songwriters in this Internet world so that when it is downloaded, 

when have you a download, as an example of one song into a black 

box, it is a compressed signal, black box, all you want to do is the 

minute you hear it, poof, it disappears; that is intended to be a 

public performance. And I am just saying that what is an exemption would be giving a free ride to Mr. Potter’s clients when they 

want to make money on the backs of the songwriters. 

Mr. COBLE. Mr. Berenson, are you all receiving more royalties 

from online licensing or traditional licensing? I would assume the 

latter, but——

Mr. BERENSON. Offline licensing basically is the huge, huge lion’s 

share of our revenues. I think in the last year with all the Internet 

transmissions, all the Internet licenses that we do have, we have 

basically taken in less than $1.5 million as opposed to $400—excuse me, $540 million. They are not walking up to the plate taking 

licenses. 

Mr. Potter’s clients, as I said in my opening statement, don’t 

even want to talk or negotiate value, if any, on a download. 

Mr. COBLE. Thank you, sir. 

169

Pardon my immodesty, I want to remind all that I was well within my 5-minute time frame. The gentleman from Alabama very 

generously agreed to forgo his questioning yesterday, so we will be 

liberal with you today. You are recognized. 

Mr. BACHUS. Appreciate that, Mr. Chairman. 

Ms. Peters, let me direct some questions to you. 

Mr. COBLE. If the gentlemen will suspend. The gentleman from 

California says he is a liberal, so he will be recognized subsequently. The gentleman from Alabama is not a liberal. He is recognized now. 

Mr. BACHUS. But I want to say I am a liberal if it gets me recognized now. 

You stated that the issue of contract preemption is outside the 

scope of the section 104 report, and you are saying that you are 

agreeing with that. However, the mandate of section 104 in part 

was, and I will quote, evaluate the effects of the development of 

electronic commerce and associated technology on the operation of 

the first sale document—doctrine. How do you square those two, 

your position with the mandate to consider it? 

Ms. PETERS. First sale, if—well, let me basically say that in looking at first sale, we were looking at the transfer of ownership of 

a copy. If what you are saying is that by contract, for example, 

owners of computer software don’t sell a copy per se and transfer 

the ownership, but rather by contract say that, in fact, it is not a 

sale, then maybe you can look at it that way. But the truth was 

that we basically were looking at the fact that from the beginning 

of the first sale doctrine, there were situations where there were 

rental, leases or lending by contract, and that was acknowledged. 

So we were just looking at what were considered sales. 

Ms. PETERS. And we were focusing on when you sell a work 

through a digital transmission, what effect that would have on first 

sale, not that the contract characterized that as the difference between a perceived rental or lease, or the contract basically said it 

was a sale. We just basically looked at the sales and we interpreted 

our mandate that way. 

Mr. BACHUS. But you agree the mandate was to consider the first 

sale doctrine? 

Ms. PETERS. Yes. 

Mr. BACHUS. And the effect of electronic commerce on that doctrine and maybe an erosion of copyright users’ rights under that 

doctrine? 

Ms. PETERS. The truth with regard to first sale—the difference 

with regard to contract or noncontract really isn’t necessarily an ecommerce issue, and we were focusing on what is different about 

e-commerce. The issue with regard to contracts and whether or not 

someone is an owner of a copy exists in the tangible world, and it 

exists today with tangible products of software. It exists with regard to tangible products of, you know, motion pictures. So we 

didn’t see it as an e-commerce issue. 

Mr. BACHUS. The Copyright Office says that the first sale provision of the Copyright Act is not a right but it is——

Ms. PETERS. No. It is an exception to a right. First sale is an exception to the distribution right. 

170

Mr. BACHUS. Well, I am just reading this footnote 41, but it is 

an unenforceable restriction on copyright owners. 

Ms. PETERS. It is a restriction on copyright owners. It exhausts 

their distribution right on a sale of a particular copy with respect 

to their control of further distribution of that particular copy. 

Mr. BACHUS. Does your interpretation of the first sale rights 

make those rights contingent on technological prowess or goodwill 

of the copyright owners? 

Ms. PETERS. It basically is triggered by whether copyright owners actually transfer the ownership of that copy. It goes to the distinction that is actually in section 202 of the law, which is there 

is a distinction between ownership of a physical object like a book 

and ownership of the copyright. And what it says is, when the 

copyright owner chooses to basically transfer the ownership of a 

physical object, his right to control any further distribution of that 

physical object is over. So it is triggered by how the copyright 

owner characterizes the transaction. So if the copyright owner basically is selling the object and transferring title to the physical object, his rights are——

Mr. BACHUS. So you are saying that the copyright owner, their 

characterization of it——

Ms. PETERS. It is the nature of the deal. This was always—this 

was an issue way back with regard to motion pictures. When motion pictures were made available and you had 35-millimeter prints 

that were being made available and they were cycled to theatres, 

was that in the nature of a sale and a transfer of ownership, or 

was it in the nature of a lease of the film print, with it coming 

back? So there have always been questions of is it a sale or isn’t 

it a sale. 

Mr. BACHUS. Well, let me ask you this, and maybe I will just 

sum up. Here is what I am thinking. The Copyright Act, or Congress—or we have bestowed on copyright owners some real protections. I mean without these protections today, somebody could get 

it off the airways, they could get a song or something or they could 

take something off TV and they could turn around and sell it many 

times over. Without a copyright, those who created it have very little protection, and that is not the marketplace. It is sort of like we 

are saying the marketplace electronic commerce, it overrides consumers’ rights under the Copyright Act, and that is just the marketplace. Well, couldn’t we say that same thing about copyright 

owners? If you are going to afford protection to copyright owners, 

it seems like those rights would be limited by what you bestow on 

copyright users or the consumers. I mean, am I wrong? 

Ms. PETERS. I would flip it the other way, which is if you go to 

the Constitution and you look at why we have copyright laws, you 

say it is to encourage creativity, which is in the public interest. 

And the way that you do that is by granting authors exclusive 

rights, and because authors need distributors, you actually grant 

rights through authors to distributors. In doing that because there 

is a public interest, you are balancing the rights that authors get 

against the rights, the needs, of users. You are drawing a balance 

on what do you believe is fair, what is it that you need in order 

to encourage creators to create, and what do you need in order to 

171

create publishers, distributors, people to make it available? Those 

are very critical people, and you draw the balance. 

What I was saying is with regard to first sale in the United 

States, in 1909 we followed what had been court cases saying that 

we believe that when a copyright owner has sold a copy of a work, 

he has parted with ownership of that copy. We believe the balance 

is such that the person who purchased it should be able to exercise 

dominium over that particular copy. 

Now, in international treaties, it is up to a different—a country 

to decide whether or not they wish to limit that distribution right 

that way or not. In the United States we always have, but even 

back in 1909 when we added it, the division was not that the copyright owner made the work available, it was that the copyright 

owner sold it. He basically chose to part company with that copy. 

And you can say that you should walk away from that as the dividing line, but I think then you have to go back and you have to do 

the analysis of how does that affect encouraging creativity and encouraging the dissemination of the works? In other words, you have 

to do the whole balance. 

Mr. BACHUS. Yes. I just get back to the fact that saying that contract preemption is outside the scope of this report I think is in 

error. I think it was anticipated by the Congress that you would 

look at excess control technology and whether that eroded rights of 

consumers and——

Ms. PETERS. If what you are saying is technical protection measures that, basically you can argue, enforce contracts, what we 

found—we did look at that, and what we found at this point in 

time, those technological protection measures, digital rights management systems, were not at this point in time affecting electronic 

commerce. 

Mr. BACHUS. You said that they may—— Ms. PETERS. They may; but we are saying at this point in time 

they did not. 

Mr. BACHUS. Thank you. 

Mr. COBLE. I thank the gentleman. The gentleman from California. 

Mr. BERMAN. Just on a couple of issues on what Mr. Bachus 

raises. I mean, he put it as should electronic commerce be allowed—should copyrights in the context of electronic commerce be 

allowed to trump the rights of consumers, in effect, or obliterate or 

substantially diminish them. You pointed out you can flip it 

around. The question is, should the existence of new technologies 

essentially wipe out and vitiate any value in copyright? And, I 

mean, that that sort of is what underlies this whole big fight. 

Everybody is very worried about what is going to happen. You 

go and you take a look at the first sale doctrine and you conclude 

in this new technology world there is still a first sale doctrine. By 

the way, it ain’t hugely important. Part of the reason why there 

was never a first sale doctrine is because it wouldn’t have much 

commercial consequence. But now, of course, in a world of digital 

transmissions, depending how you look at it, it could have a huge 

consequences. 

What people had with the first sale doctrine, they haven’t really 

lost much of. But, by the way, there are potentials for the original 

172

owners losing it. But the whole debate about ownership, I mean it 

is all—where you start is sort of where you end up. If you weren’t 

selling it, if you were licensing a use of software, then you weren’t 

selling the software. So the first sale doctrine never came into play 

and there is nothing that compels you to sell it rather than to license its use, it seems to me, so a lot of this I do—you can argue 

it both ways, on both sides. 

To Mr. Potter, when you negotiate licenses, your guys get licenses; you have gotten licenses from music publishers, right? 

Mr. POTTER. Some of our members have negotiated directly with 

the publishers. Some of our members have signed the licenses proffered by ASCAP or BMI or SESAC, and some of our members have 

merely requested a license which, as a matter of, law makes them 

licensed. And several of the members, the most sophisticated ones, 

frankly, have not signed these licenses which include the imposition of rights that really don’t exist or that should not exist. Instead, they have just requested the licenses and therefore become 

licensed as a matter of law. 

Mr. BERMAN. What are they paying you for those licenses? 

Mr. POTTER. I am not privy to what they are paying. If they requested it as a matter of law, then I presume they are engaged in 

negotiation and we don’t know the answers yet. 

Mr. BERMAN. Is there some separate line item for the buffered 

copy in these license agreements? 

Mr. POTTER. In the BMI license which is attached to your package it says, ‘‘This agreement shall only include public performances 

in the territory of musical works by transmissions over the Internet 

received by a personal computer or by means of other device, capable of receiving through the Internet through streaming technologies as well as those transmissions that are downloaded by persons on personal computers or otherwise.’’ ‘‘As well as.’’ the 

downloading has nothing to do with whether or not there is a simultaneous performance. 

So what you get off of the BMI Web site, it is the form license. 

In their definition of the grant of rights, they are saying you are 

being granted the right to download. A public performance royalty 

administration collective is granting me the right to something that 

they don’t have the authority to grant me. I would be happy to go 

to Harry Fox for that right to download. In fact, my guys do go to 

Harry Fox for that right to download. They don’t want go to Harry 

Fox for the right to stream. 

Mr. BERMAN. The fact that they granted you a right that you 

don’t think they have to grant you, having said that, so what? 

Mr. POTTER. If the marketplace were to accept the imposition of 

that right from that party and create a standard in the industry, 

a standard that could be used against one in a court of law, if 

someone chose not to take that right, if one was to accept the certain rights or try to negotiate out of that right, a publisher could 

sue based on the mere existence of it. 

It creates a legal liability, a legal uncertainty, by an arguably expert and longstanding respectable organization, and an uncertainty 

which is pervasive throughout the industry and which investors are 

quite knowledgeable about and which is used against us in negotiations when we want to get the royalty. If you cut a royalty deal on 

173

the rights you want, they say, well, you have to do it; but here is 

the license, and it includes the rights that you don’t want. I don’t 

want to pay for the rights that I don’t want and don’t need. I want 

to pay for everything that the creators do for the rights that I use. 

Mr. BERMAN. Mr. Berenson, you wanted to respond? 

Mr. BERENSON. One quick comment. The reference by Mr. Potter 

to the BMI license agreement does not in any way, shape, or form 

give his client a reproduction right in the download. It is what we 

maintain is a public performing right in the download. As I said, 

there is a spectrum. Each end of the spectrum is easy. When you 

get in the middle, we are saying there is a public performance right 

that is implicated in these downloads. That is what we are covering 

by this license agreement. 

Mr. POTTER. I agree. And the Register of Copyrights, the report 

says even if there is a legal technical performance under current 

law in a download, there shouldn’t be. And the Register of Copyrights proffered to Congress a recommendation that, yes, even if 

Mr. Berenson is right, he shouldn’t be right, and the law should be 

changed. And that we support emphatically. 

Mr. BERMAN. Well, I think you probably would like to close——

Mr. COBLE. I don’t want to cut you off. 

Mr. BERMAN. No. 

Mr. COBLE. Mr. Berenson, you were chomping at the bit, as we 

say in the rural South, and I will happy to let you chomp for a second or two. 

Mr. BERENSON. I think I am chomped out. Mr. Potter and I go 

back a few years, and we could go at this together, and it is really 

just an issue is there a public performing right. We say yes and he 

says no. As I said before, the WIPO treaty says there should be. 

And that is all—I don’t want to repeat over—— Mr. COBLE. Folks, this voyage will continue. We have not 

reached our port of call. We are still underway. 

Did you want to say one more thing? 

Mr. BERMAN. Would you indulge me one more time? 

Mr. COBLE. Sure. 

Mr. BERMAN. I forgot one thing I wanted to ask you. How do we 

compete with the broadcasters, you said, when we have got all this 

stuff and you have that preferential situation created by law for 

broadcasters and their right to make server copies; but in the real 

world isn’t everything going to go your way? Why, traditionally, 

you can have in Webcasting, you are not geographically limited, 

even in noninteractive Webcast you can have so many different 

channels, and I am told you even have the ability to monitor how 

somebody listens to music and what they listen to and almost to 

tailor their own personal portfolio based on what you think they 

might like. And you have all these things that traditional over-theair broadcasting doesn’t have, even when it is transmitted digitally, 

so shouldn’t you be a little more optimistic about the future instead 

of being so obsessed with this little provision, let us have them 

make server and backup copies? 

Mr. COBLE. We are getting ready to shut down, so brevity—— Mr. POTTER. I appreciate that, Mr. Chairman. I appreciate your 

prognostication and I hope it comes to happen. The single greatest 

threat to this industry is the inability to clear publishing licenses. 

174

It is, in fact, server copies that grabbed MP3.Com. It is server copies that grabbed Universal Music when they got sued by the music 

publishers. Those folks were paying performance royalties. 

So at the end of the day, the question is where are the inhibitions to the development of this potentially significant industry? 

And as this Committee heard from several members of the recording industry including, yesterday, Mr. Sherman, there is an inability to clear licenses to pay publishers, to pay creators. If ASCAP, 

BMI and Harry Fox want to merge and if the antitrust division 

and others want to give them the exemption that they need to do 

that, and we can create a unitary license and write one check, and 

let them decide who gets to administer which piece of that so it can 

go back to the same publisher, we are happy to have that occur. 

Mr. COBLE. I reiterate, the voyage continues. Folks, we have 

gone far afield up here and out there, and I have permitted that. 

There is nothing wrong that. 

But Mr. Potter had the final word, and I invite each of you, if 

you want to respond to his final word in writing, we will be happy 

to accept that. 

And in the spirit of the season, we are about to adjourn this road 

show. On behalf of Mr. Berman and the entire Subcommittee, I 

want to wish you a Happy Hanukkah, Merry Christmas, and good 

wishes for a happy and prosperous 2002. This concludes our second 

day of oversight hearings on the Digital Millennium Copyright Act 

Section 104 report. The record will remain open for 1 week. 

Thank you, and the Committee stands adjourned. 

[Whereupon, at 12:31 p.m., the Subcommittee was adjourned.] 

(175)

A P P E N D I X 

MATERIAL SUBMITTED FOR THE HEARING RECORD

PREPARED STATEMENT OF THE HONORABLE BOB GOODLATTE, A REPRESENTATIVE IN

CONGRESS FROM THE STATE OF VIRGINIA

Thank you Mr. Chairman for holding this very important hearing on the subject 

of the Copyright Office report provided to Congress pursuant to Section 104 of the 

Digital Millennium Copyright Act (DMCA). 

Over the past few years, we have seen the Internet explode into a revolutionary 

tool for business, communication, education, and commerce. Even so, the Internet 

is still in its infancy, and we are still struggling to determine how and when we 

should apply our existing laws to this new and growing medium. 

Intellectual property is the creative core of the information age. Ironically, the 

technology driving these advances now poses a threat to that very content. If we 

are not careful, the way the new technology is used could eliminate the innovation 

that is the source of so much excitement. 

Copyright protections have been central to America’s prosperity and economic development for centuries. American movies, books, computer software, television and 

music are among our most successful exports. They are our most powerful influence 

on the rest of the world. U.S. industries depending on copyright protection employ 

nearly 4 million workers, producing over $65 billion of our exports—more than agriculture and automobiles. Congress must stand firm in its commitment to ensuring 

that our copyright laws provide adequate incentive for copyright holders to distribute their works over the Internet. 

There is no question that the Internet provides great opportunities to consumers 

and the people who earn their livelihoods writing, performing and distributing copyrighted works. At the same time, the Internet poses enormous challenges because 

files can be copied and distributed around the world wide web at the touch of a button. 

The recognition of an author’s ownership of creative original work is one of our 

legal system’s core principles. If we allow people to take that work without paying 

for it, artists will no longer have any financial incentive to create new movies, software, video games, books and music. 

Adapting long-established law to new technologies is often difficult. The Digital 

Millennium Copyright Act was enacted 3 years ago. For the first time, copyright 

protections were effectively and explicitly extended to the web and digital content. 

The DMCA accomplished a number of important goals to take account of copyright 

protection in the digital era: it ensured legal protection and created legal remedies 

to address the circumvention of copyright protection measures. However, the DMCA 

is already being challenged by the onrushing pace of technology. That is why the 

Section 104 report of the Copyright Office is so crucial to providing some clarity to 

the application of the DMCA in this quickly evolving marketplace. 

I believe that Congress has an important role in monitoring the marketplace to 

ensure that new business models are developed in a timely manner to provide legitimate delivery systems that will meet the needs of consumers and still afford copyright protection to the author of that work. 

Recently we have seen a number of positive developments such as the agreement 

between the RIAA, the National Music Publishers Association and the Harry Fox 

Agency regarding a framework for licensing subscription music services. In addition, 

we have seen the launch of a number of new music delivery systems that offer consumers legitimate options for utilizing the Internet. 

However, while the Section 104 Copyright Office report concludes that our existing laws are working and that an overhaul of copyright law is not warranted at this 

time, Congress has a responsibility to carefully review the recommendations of the 

Copyright Office and to determine whether our copyright laws are keeping pace 

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with new technology. I look forward to the testimony of our witnesses over the next 

two days and to fully examining the conclusions of the Copyright Office as well as 

some issues that were not addressed by the Copyright Office in its Section 104 report.

PREPARED STATEMENT OF NATIONAL ASSOCIATION OF BROADCASTERS (NAB) 

INTRODUCTION

The National Association of Broadcasters (‘‘NAB’’) appreciates this opportunity to 

submit written testimony concerning issues affecting broadcasters that are addressed by the Copyright Office in its report required in compliance with Section 

104 of the Digital Millennium Copyright Act (‘‘DMCA’’). 

Hundreds of NAB’s members are or have ‘‘streamed’’ some or all of their broadcast 

signals over the internet. Streaming has been particularly prevalent among radio 

stations that have streamed their signals simultaneously with the over-the-air 

transmission of those signals. These streaming activities include, of course, the 

transmission of sound recordings and underlying musical works embedded in those 

sound recordings. Numerous copyright issues have arisen in connection with these 

streaming activities including, but not limited to, whether or to what extent additional copyright liability is, or should be, incurred by broadcasters with respect to 

various alleged public performance and reproduction rights, both in the sound recoding and the underlying musical works. Some of these issues, such as whether the 

simultaneous streaming of broadcast signals is subject to a performance right in 

sound recordings, and the rate music performing right organizations should receive 

for streaming of radio signals have been publicly and vigorously debated. (See Bonneville v. Peters (ED.PA); Radio and Records 11/29/01 ‘‘BMI Industry Groups Agree 

On Fees’’). Other issues, such as potential or alleged broadcaster liability to music 

composers and publishers for mechanical licenses for radio webcasting have, so far, 

remained relatively moribund. (See Testimony of Carey Ramos on behalf of the 

NMPA, December 12, 2001, at p. 2 ‘‘For radio-style webcasting, we have agreed not 

to seek mechanical licenses.’’). But individually and collectively, the uncertainty 

these issues have caused, and the potential liabilities they raise have, unquestionably, had a ‘‘chilling’’ effect on broadcasters’ ability and willingness to communicate 

with the audiences they were licensed to serve through the streaming of their signals. Having identified just some of the many copyright issues confronting broadcasters desiring to stream their signals, NAB realizes this hearing is neither the 

time nor the place to resolve them all. NAB will therefore limit its remarks to those 

issues impacted by the Copyright Office’s Section 104 Report. 

Temporary Incidental Copies of Sound Recordings and Musical Works Created As 

a Part of The Streaming Process Should Not Give Rise To Liability 

A. Background 

Twice in the past six years, the development of digital technologies has prompted 

Congress to revise the sections of the Copyright Act that govern rights in both musical works and sound recordings. Congress intended to effectuate these reforms 

‘‘without upsetting the long-standing business relationships among record producers 

and performers, music composers and publishers and broadcasters that have served 

all of these industries well for decades.’’ S. Rep. No. 104–128, at 13 (1995). 

Under these ‘‘long-standing relationships’’ broadcasters, historically and traditionally, have paid music composers and publishers for the right publicly to perform (by 

broadcasting) their works and have not incurred liability for the public performance 

of the sound recording. Since 1976, pursuant to Section 112 of the Copyright Act, 

broadcasters who are authorized to transmit to the public performances of these musical works have, upon compliance with certain conditions, been authorized to make 

‘‘ephemeral’’ copies and phonograms of works that were incidental to the licensed 

or otherwise authorized public performance of these works. In other words Congress 

has recognized that, having paid for, or otherwise obtained authorization to publicly 

perform these works, Congress determined that broadcasters should not have to pay 

again for reproductions that have no economic value independent of the public performance reproductions incidental and necessary for accomplishing those public performances. 

Turning now to the streaming of broadcast signals, the streaming technologies 

employed by FCC-licensed broadcasters generally involve the use of a temporary 

memory buffer to accumulate and correctly order data packets (each containing 

snippets of data) in order for the work to be performed in a continuous listening 

experience at the user’s computer. Notably, streaming software installed on the 

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user’s computer is not designed to enable the streamed content to be used or available to the user once the stream is completed. The user’s experience is not different 

than listening to a traditional radio broadcast. 

The streaming of their signals, and the performance of works they are otherwise 

authorized to publicly perform may also necessitate broadcasters to make ‘‘server copies.’’ Because there may be many listeners desiring to tune into a station’s streamed signal, the internet service providing the streaming may need to make 

multiple copies of the station’s signal, including works imbedded in the signal, to 

place on computer servers. As with the buffer copies, these server copies are merely 

incidental to the underlying reason why broadcasters license works—which is to 

publicly perform them by broadcasting. 

B. Copyright Office Report Recommendations on Temporary Copies 

1) Buffer Copies

In its Section 104 Report, the Copyright Office concluded that a ‘‘strong case’’ could be made that the making of buffer copies in the course of streaming was ‘‘fair use.’’ It also correctly concluded that ‘‘the case-by-case fair use defense is too uncertain a basis for making rational business decisions.’’ (p.141). Accordingly the Office 

recommended that:

‘‘Congress enact legislation amending the Copyright Act to preclude any liability 

arising from the assertion of a copyright owner’s reproduction right with respect 

to temporary buffer copies that are incidental to a licensed digital transmission 

of a public performance of a sound recording and any underlying musical work.’’ (Id., p. 142–143)

The Copyright Office’s rationale for this recommendation is compelling:

‘‘The economic value of licensed streaming is in the public performances of the 

musical work and the sound recording, both of which are paid for. The buffer 

copies have no independent economic significance. They are made solely to enable the performance of these works. The same copyright owners appear to be 

seeking a second compensation for the same activity merely because of the happenstance that the transmission technology replicates the reproduction right 

and the reproduction right of songwriters and music publishers is administered 

by a different collective than the public performance right.

The uncertainty of the present law potentially allows those who administer the 

reproduction right in musical works to prevent webcasting from taking place— to the detriment of other copyright owners, webcasters and consumers alike— or to extract an additional payment that is not justified by the economic value 

of the copies at issue.’’ Id. at p. 143

Indeed, the Copyright Office found a ‘‘close analogy’’ between the ‘‘present circumstances’’ relating to the proposed exemption for buffer copies and the historical 

broadcaster exemption for copies under Section 112:

‘‘Ephemeral recordings are copies that are made and used by a transmitting organization to facilitate its transmitting activities. Congress saw fit to exempt 

those copies when the transmission is either made under license (including the 

compulsory license for webcasting and subscription digital transmissions) or 

under an exemption from exclusive rights (as in the case of analog public performances of sound recordings). As with temporary buffer copies, ephemeral recordings are made for the sole purpose of carrying out a transmission. If they 

are used strictly in accordance with the restrictions set forth in Section 112, 

they have no economic value independent of the public performance that they 

enable.’’ Id. at p. 144.

2) Server Copies 

While not addressing directly the issue of server copies, the Copyright Office rationale for exempting buffer copies would apply with equal force to server copies. 

Like buffer copies, server copies are temporary, have no independent economic significance, and are incidental and made solely to enable the public performance of 

the works through broadcasting. Accordingly legislative clarification is also needed 

to exempt server copies from liability. 

Copyright Office and Digital Media Association (‘‘DiMA’’) Assertions That Congress 

Intended Webcasters and Broadcast Streamers To be Treated ‘‘Equally’’ Under 

The Copyright Laws Are Wrong: There Are Critical Distinctions Justifying A 

Broadcaster Exemption 

While NAB concurs with much of DiMA’s testimony on the reasons why temporary copies of musical works and sound recordings created as part of audio 

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streaming should not create additional copyright liability, we strongly disagree with 

DiMA’s premise that were Congress to decide to create exemptions just for broadcasters, there would be no sound basis for doing so. 

In its oral testimony, DiMA echoed a false and erroneous premise asserted by the 

Copyright Office to the effect that there is ‘‘no justification for the disparate treatment of broadcasters and webcasters regarding the making of ephemeral recordings’’

(Copyright Office Report at p. 144 n.434). There are, in fact, significant justifications 

for such disparate treatment and Congress itself has specifically recognized them. 

First, a fundamental premise—apparent on the face of the DMCA and from decades of legislative history—is that Congress has elected to maintain the mutuallybeneficial relationship among the radio broadcasting industry, the authors of music 

and the recording industry, a relationship whose benefits remain identical whether 

the FCC-licensed broadcaster transmits its programming over the air or over the 

internet. Internet-only retransmitters—who themselves are not subject to FCC licensing restrictions, who have not created the programming that is so beneficial to 

the recording industry and have not been part of the balance among these industries—stand on a different footing. 

The legislative history of the DPRA is replete with references to the desire of Congress not to adversely affect the historic symbiotic relationship between the record 

and radio broadcast industries, and reinforcement of that policy only as applied to 

broadcasters in what one will find in the DMCA legislative history. 

Why would Congress treat AM/FM radio streamers differently from internet-only 

webcasters? First, and foremost, the radio broadcast industry had a decades-long 

history of promoting record sales and no evidence of depleting sales from off air 

copying, whereas internet-only webcasting was a new industry with no proven track 

record as to its impact on record sales. Second, radio broadcasting is a highly regulated industry—whose programming must satisfy the detailed FCC requirements to 

serve the local communities in which they are licensed to broadcast over-the-air, 

whereas the internet-only webcasters are free to operate without any regulatory restraints. Third, AM/FM radio streamers have a very different product than 

webcasters. The former have a single channel whose programming—by FCC regulation—must include a number of elements geared to the local community in which 

they operate. Internet-only webcasters, on the other hand, typically operate numerous channels—in some cases more than 100 channels—presenting a very broad variety of discrete genres of music appealing to audiences literally world-wide. Thus, 

AM/FM radio broadcasters view streaming as simply another means of reaching 

their unique local audience, whereas internet-only webcasters target a much more 

diverse, national if not global market. 

In sum, AM/FM radio streamers and internet-only webcasters largely may be 

viewed as being in different businesses, albeit using similar technology to reach 

their consumers. Therefore, Congress could have every reason to see them as being 

distinct industries that do not require the same treatment under the Copyright Act. 

CONCLUSION

If copyright law is to move smoothly into the new Millennium and onto the internet, it must be construed in accordance with a common-sense view of economic reality. Historically, the bundle of copyright rights matched the different means by 

which a work could be exploited. Thus, the making of a public performance required 

a license to make the performance; the reproduction and distribution of copies required for licenses for those rights. In the rare cases where a single economic activity incidentally required the exercise of multiple rights, the law either provided an 

exemption (e.g., the section 112(a) ephemeral recording exemption for copies made 

solely to facilitate performances) or the existence of a single licensor and licensing 

regime obviated any inefficiency, and led to a unitary payment to a single payee. 

Such construction makes economic sense. When the economic activity is a performance—in other words, the transmission of a work in real time in order to provide a real-time listening experience for the recipient—and that performance is licensed, the copyright owner is fully compensated for the use of his or her work by 

the fees it receives for the performance. The mere fact that the technology chosen 

to make the performance, or the device that receives the performance, incidentally 

operates by making ‘‘copies’’ of all or parts of the performed work in order to effectuate the performance adds no value to the recipient or to the transmitter; it should 

not create added liability. Any other approach would cause mass confusion, inhibit 

the providing of new, desirable services to consumers, and result in unwarranted 

double-dipping by the same copyright owner for the same use of the same work. 

Nowhere are the problems of multiple rights and attempts to double dip more 

clear than in the case of recorded music. Any entity that wishes to create a service 

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based on the use of recorded music faces an inscrutable morass of multiple copyrighted works, multiple copyright owners, multiple agents authorized to license different rights in the same work on behalf of the same owner, and multiple, and often 

inconsistent, legal rules and systems governing the licensing of those rights. 

Any decision by Congress on the issues presented in this proceeding must take 

into account the economic purpose and technical realities of the conduct at issue. 

When a performance of a musical work or sound recording is licensed or otherwise 

authorized, the copyright owner receives full compensation for the use of his or her 

work in connection with that performance. That should end the matter.

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PREPARED STATEMENT OF DOUGLAS LOWENSTEIN

THE ENTERTAINMENT SOFTWARE INDUSTRY

The Interactive Digital Software Association (IDSA) is the trade association representing publishers of entertainment software for video game consoles (Microsoft’s 

X-Box, Nintendo’s Game Cube, and Sony’s PlayStation), personal computers, 

handheld devices (Game Boy) and the Internet. Our members’ products and businesses are vitally dependent on the strongest possible copyright protection and vigorous worldwide intellectual property enforcement. IDSA member companies collectively account for more than 90 percent of the $7 billion in entertainment software 

expected to be sold in the U.S. in 2001, and billions more in export sales of U.S.-

made entertainment software. A study released last year on the economic impact 

of the interactive entertainment software industry showed that demand for video 

games stimulated $10.5 billion in economic activity in 2000; on top of that, the industry generated employment for 219,600 persons in the U.S. alone, who earned 

wages of $7.2 billion and paid $1.7 billion in federal and state taxes. Wall Street 

analysts forecast that industry sales will approach $16 billion within five years, and 

a recent article at CNET News.com concluded, ‘‘No segment of technology expects 

more expansion in the near future than the game software industry.’’

IMPORTANCE OF STRONG COPYRIGHT PROTECTION

IDSA member companies depend upon strong copyright protection and enforcement for their works of authorship and they conduct active enforcement campaigns 

against the worldwide scourge of entertainment software piracy. Piracy in all its 

forms is the single greatest threat to the continued impressive economic expansion 

of the entertainment software industry, and to an even more robust world of online 

game content. Packaged goods piracy last year resulted in the loss of at least $2 

billion in sales on a worldwide basis, and the actual losses almost certainly exceed 

$3 billion. When you add the Internet to the mix, the numbers balloon even more, 

though by how much it is impossible to estimate. 

We do know that at any given moment, our member companies’ works are being 

made available illegally through thousands, perhaps even tens of thousands of 

websites, FTP sites, chat sessions, and through the use of file sharing utilities. 

By taking advantage of the tools provided by the DMCA, IDSA has succeeded in 

taking down over 5,000 pirate sites in the last year alone, and a recent electronic 

search has uncovered more than 3,000 sites offering counterfeit game products for 

download in just the last four weeks. As effective as these measures have been, they 

can only be applied on a case-by-case basis and after the fact—after infringing product has already been made available for unlawful distribution on a worldwide scale. 

Our industry has a huge and direct stake in any proposals to tinker with the 

DMCA, a law we rely on to stop the rampant piracy of our works. 

THE SECTION 104 STUDY

Section 104 of the DMCA called for the Copyright Office and NTIA (the National 

Telecommunications and Information Administration) to carry out a joint evaluation 

and report on the impact of certain kinds of legal and technological developments 

on the operation of two specified sections of the Copyright Act. In March, 2001, 


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NTIA released a report separate from the Copyright Office, concluding it would be 

‘‘premature to draw any conclusions or make any legislative recommendations at 

this time with respect to either Section 109 or 117.’’ In August, 2001, the Copyright Office released its report to Congress. IDSA 

strongly supports the conclusions of the Copyright Office with respect to anti-circumvention and digital first sale issues, and we appreciate the sound legal and policy analysis underlying them. On the other hand, we have shared with the Copyright Office our view that the report should have also addressed more definitively 

the most significant issue facing the video game industry: the rampant practice by 

online pirates of misquoting and misinterpreting the ‘‘archival copies’’ provision of 

copyright law (17 U.S.C. § 117) to legitimize the illegal business of making ‘‘back up’’ copies available to the public. While we believe this issue clearly falls within the 

boundaries of Congress’ request of the Copyright Office, the Copyright Office did not 

address its. And while the Copyright Office has indicated it shares our views on this 

particular Section 117 issue, the decision not to confront it directly in the Report 

compels us to ask Congress to take the necessary corrective steps. 

SECTION 117: BACKGROUND

The basic provisions of Section 117 were added to the Copyright Act in 1980, and 

provide a limited exception to the exclusive right of reproduction of a computer program. The exception to allow so-called archival or back-up copying of a computer 

program, without the permission of the copyright owner, is set forth in Section 117 

(a), which provides in relevant part—‘‘Notwithstanding the provisions of section 106, 

it is not an infringement for the owner of a copy of a computer program to make 

or authorize the making of another copy or adaptation of a computer program provided—

. . . (2) that such new copy or adaptation is for archival purposes only and that 

all archival copies are destroyed in the event that continued possession of the computer program should cease to be rightful.’’

It is clear that the creation of Section 117(a)(2), and the intention of Congress in 

enacting it into law, were greatly influenced by the state of computer technology at 

that time. In the late 1970s, the personal computer was in its infancy, and computer 

programs were embodied in media such as punched cards, open reel magnetic tape, 

and increasingly in the innovative magnetic disk format called a floppy disk. Hard 

disks were not yet widely in use, and so programs were run more-or-less directly 

from floppy disks—disks that were highly prone to electrical or mechanical failure, 

or to demagnetization from a number of sources. Computer systems were much 

more vulnerable to malfunctions than they are today, and the accidental erasure of 

a program was a real danger, especially when the computer was being operated by 

an inexperienced user. Hence the need for Section 117(a)(2), which enabled the 

owner of a copy of a program to make an archival copy of his original without having to seek the permission of the copyright owner. 

The technology-specific reasons underlying Section 117(a)(2) also account for the 

narrow scope of the exception it creates. Section 117 (b) provides that archival copies made pursuant to Section 117(a)(2) may only be transferred along with the master copy, and ‘‘only as part of the lease, sale or other transfer of all rights in the 

program.’’ Section 117(a)(2) itself requires that all archival copies be destroyed 

whenever ‘‘continued possession of the [original] computer program should cease to 

be rightful.’’

Put another way, the existence of a secondary market in so-called ‘‘back-up copies,’’ or in equipment or services purportedly intended to be used to make or to use 

such copies, is completely antithetical to the specific language of § 117(a)(2), and totally alien to the technological assumptions which underpinned its enactment. 

§ 117: THE CURRENT LANDSCAPE

Today, however, we encounter a much different reality than when Section 117 

(a)(2) was enacted. 

First, computer programs for the mass personal computer market are commonly 

distributed in formats such as CD-ROM which are themselves intended to serve as 

archival copies. The working copy, which is loaded onto the hard drive of the user’s 

PC, does not need to be refreshed or re-created each time the user wishes to run 

the program. When it is necessary to re-install the program, the CD-ROM or similar 

copy which the user acquired in the first place remains conveniently available to 

him or her. Furthermore, while the type of ‘‘mechanical or electrical failure’’ of the 

1970s—or its 21st century equivalent, the system crash—still occurs, the user does 

not need to make an archival copy in order to be ready to recover from it; the originally acquired copy serves that purpose. 

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In the case of game playing over the Internet, the technology often does not require that the end-user ever come into possession of a complete copy of the computer 

program in order to play the game. Thus, since the Section 117(a)(2) exception can 

only validly be exercised by (or at the direction of) the owner of a copy of a computer 

program, the essential factual predicate for its use is missing, and the exception 

may never apply at all. 

Secondly, by and large the courts have interpreted the boundaries of the Section 

117(a)(2) exception rather strictly. Although at least one court has taken a somewhat broader view of the range of risks against which the making of an archival 

copy may legitimately provide protection, none seem to have countenanced trafficking in so-called ‘‘archival copies’’ or in the tools for making them. 

Despite these developments, however, § 117(a)(2) is being widely claimed as a 

shield for copyright piracy, especially in a medium for the dissemination of copyrighted material (in both legitimate and pirate versions) which the drafters of 

§ 117(a)(2) could not have anticipated: the Internet. 

THE ENTERTAINMENT SOFTWARE INDUSTRY: FACING A ‘‘BACK-UP COPY’’ EPIDEMIC

Despite the historical mismatch between the current Section 117 and modern 

computing practice, and the lack of any judicial precedent for expanding the scope 

of Section 117(a)(2), the Internet is replete with sites purporting to offer ‘‘back-up 

copies’’ of videogames containing computer programs, or of the means for making 

them. Many of these sites specifically refer to Section 117 as providing a legal basis 

for their operations (please see Attachment 1) and actually reproduce the statutory 

language of Section 117, thus making the phrase ‘‘Section 117’’ or any suitable 

string of the statutory language an effective search term by which one can locate 

pirate sites on the Internet. 

Other sites (please see Attachment 2) purport to provide a legal ‘‘backup’’ service 

legitimized by proclamations such as ‘‘[b]y purchasing a backup you are claiming 

that you currently own the original cd. If you sell or lose the original cd you must 

destroy the backup . . . Do not inform me if you plan to use these CD-R backups 

illegally. By complying with these regulations, it allows me as a service provider to 

duplicate and you as a consumer to receive the right to use backups to protect your 

original software.’’

Still other sites depart even more incredibly from the letter and intent of the law 

to suggest the existence of a ‘‘backup trial period’’ authorized by Section 117 and 

the Copyright Act. The website in Attachment 3 suggests that ‘‘[i[f you do not own 

the Original you may purchase a Back-up for evaluation purposes. You have 24 

hours to Evaluate the game. In which time you may keep the Back-up Disc(s) if you 

go out and buy the original. If you don’t decide to Purchase the Original within that 

time period you may be breaking Copyright Laws in your Area, and must Destroy 

the Disc(s). ‘‘

Of course, the operators of these sites are not offering copies of which they are 

the rightful owners, nor are they offering to distribute the ‘‘back-up copies’’ along 

with the originals in an all-rights transaction, as Section 117(b) requires for any 

transfer of a copy made pursuant to Section 117(a)(2). Nor do these sites restrict 

themselves to the distribution of copies of computer programs, which are the only 

kind of copyrighted work affected by Section 117(a)(2); their inventory extends, for 

example, to audio-visual works embodied in videogames, to which the archival copying exception clearly has never applied. 

What these sites are offering, simply, is pirate copies of entertainment software 

and other products containing copyrighted computer programs. Some might say this 

conduct is so clearly illegal as to not be a cause for concern. However, pronouncements such as these are so prevalent that they take on a legitimacy as urban legend. Online sellers and traders refer to Section 117(a)(2) only to provide a patina 

of legitimacy to their operations, and to foster a false sense among users that a patently illicit transaction—a download of pirate product—might in fact somehow be 

lawful. They exploit the statute, in other words, not as a legitimate defense to infringement, but as an enticement to engage in piracy. 

LEGISLATIVE REMEDY REQUIRED FOR BACKUP COPY ABUSES

Despite evidence of widespread piracy utilizing the Section 117 loophole, piracy 

equating to billions of dollars in losses to the U.S. economy, the Copyright Office 

did not take advantage of the opportunity to use its bully pulpit to explicitly declare 

that the practices we cite are illegal, nor did it recommend legislative changes to 

make absolutely clear that the ‘‘backup copy’’ right does not include the activity we 

describe herein. 

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In our view, developments have made it clear that the impact of emergent and 

existing technology justified narrowing the language of Section 117(a)(2), such as by 

making it clear that the provision does not allow a free-standing market in so-called 

‘‘back-up copies,’’ and that it only covers the copying of computer programs to the 

extent required to prevent loss of use of the program when the original is damaged 

or destroyed due to electrical or mechanical failures. 

Such an adjustment would not only accurately reflect the changes wrought by two 

decades of technological advancement, but would also promote legitimate electronic 

commerce. Perhaps most importantly, it would eliminate much of the confusion created in the minds of some users by those who justify their piratical activities by 

reference to a supposed ‘‘right’’ to make ‘‘back-up copies’’ of entertainment software 

products. 

Additionally, in its review of Section 117, the Copyright Office raised a new concern by highlighting a possible expansion of the ‘‘fair use ‘‘ doctrine with respect to 

the distribution of back up copies. We have grave concerns with any interpretation 

of the Copyright Office’s analysis on this point that results in a video game pirate 

having the ability to make and distribute not one, or two, but an infinite number 

of back up copies, claiming ‘‘fair use.’’ The Report speaks to a possible fair use right 

to distribute ‘‘lawfully made’’ copies under Section 109, which would allow for wide 

spread distribution of not only back up copies, but to any copy that is permitted 

under the fair use doctrine. Should distribution under Section 109 be permitted in 

this manner, it would be harmful to our industry. This is especially troubling given 

the abuses we have discussed. It conjures up the frightening prospect of video game 

pirates not only making ‘‘backup’’ copies available, but claiming further the right to 

freely distribute pirate copies. This perverse outcome may seem farfetched to some, 

but given the stakes, our industry cannot afford to take a chance. 

The Copyright Office has recommended two possible legislative approaches to address this fair use ‘‘potential concern’’ it has identified. The IDSA urges the subcommittee to consider the two recommendations only if it first clarifies that current 

law doesn’t already forbid such widespread copying and distribution. 

THE REPORT’S RECOMMENDATION REGARDING BUFFER COPIES

With respect to the Copyright Office’s recommendation regarding buffer copies 

made in RAM in the course of licensed streaming audio, IDSA believes it is premature to enact legislative change at this time. While the recommendation concerning buffer copies in its present form appears narrowly tailored, an attempt by 

Congress to statutorily implement the recommendation will, as a matter of course, 

carry precedential value and have a spill-over effect on other industries, including 

the entertainment software industry, that deliver content over the Internet. In fact, 

one IDSA member recently announced that it will soon stream PC game content to 

users’ desktops. We cannot say for certain whether this practice will be economically 

viable, or whether it will become widespread, but that should be something consumers, game companies, and the market determine, not Congress. 

Thus, we do not believe this is an area of law where stopgap or quick solutions 

are warranted. Change should only be considered after the technologies employed 

by successful business models becomes more settled, and after all concerned parties, 

including those in our industry, have weighed in with respect to the actual impact 

on their businesses resulting from any proposed changes. We urge Congress to move 

with the utmost caution should it consider implementing the Copyright Office’s recommendation with respect to buffer copies. 

IDSA’S LEGISLATIVE RECOMMENDATION

As stated, while key findings of the Copyright Office are to be commended, to the 

entertainment software industry the report fell short where it could have succeeded 

most: in squarely and very strongly spelling out the proper boundaries of the exception to Section117 (a)(2). Specifically, if this Subcommittee drafts copyright legislation it should make clear that:

1. The ‘‘archival copying’’ exception applies only to computer programs. There 

is no exception to copyright protection to allow the creation of ‘‘back-up copies’’ of any other kind of work, including sound recordings, music, audio-visual works, or databases, except by libraries, archives, broadcasters, and 

other specifically identified institutions under circumstances defined by law. 

Anyone offering unauthorized copies of works other than computer programs 

as ‘‘back up copies’’ is in violation of the law.

2. The archival copying exception in Section 117(a)(2) is a narrow exception, 

and applies only to the extent that it is necessary to make a back-up copy 

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in order to protect the original copy against damage or destruction by mechanical or electrical failure. Thus it generally does not apply to contemporary PC, videogame console, or online gaming environments, where these 

threats are minimal and archival copying is not needed to prepare for them.

3. Only the legitimate owner of a copy of a computer program can make or authorize the making of an archival copy under § 117(a)(2), and only from a legitimate copy that he or she owns. A web site or other source offering ‘‘backup copies’’ for distribution to the public falls outside the exception and is 

committing copyright infringement.

4. The law forbids the transfer of an archival copy except in conjunction with 

the transfer of an original and the transfer of all rights in that original. Anyone offering to transfer ‘‘back up copies’’ in any other context is in violation 

of the law.

We welcome the opportunity to work with the members of this Subcommittee as 

it considers these important issues.

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ASCAP1A.eps
189


ASCAP1B.eps
190


ASCAP1C.eps
191


ASCAP1D.eps
192


ASCAP1E.eps
193

Æ


ASCAP1F.eps