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93–981PDF 2004

THE DIGITAL MEDIA CONSUMERS’ RIGHTS ACT

OF 2003

HEARING

BEFORE THE

SUBCOMMITTEE ON

COMMERCE, TRADE, AND CONSUMER PROTECTION

OF THE

COMMITTEE ON ENERGY AND

COMMERCE

HOUSE OF REPRESENTATIVES

ONE HUNDRED EIGHTH CONGRESS

SECOND SESSION

ON

H.R. 107

MAY 12, 2004

Serial No. 108–109

Printed for the use of the Committee on Energy and Commerce

(

Available via the World Wide Web: http://www.access.gpo.gov/congress/house

COMMITTEE ON ENERGY AND COMMERCE

JOE BARTON, Texas, Chairman

W.J. ‘‘BILLY’’ TAUZIN, Louisiana

RALPH M. HALL, Texas

MICHAEL BILIRAKIS, Florida

FRED UPTON, Michigan

CLIFF STEARNS, Florida

PAUL E. GILLMOR, Ohio

JAMES C. GREENWOOD, Pennsylvania

CHRISTOPHER COX, California

NATHAN DEAL, Georgia

RICHARD BURR, North Carolina

ED WHITFIELD, Kentucky

CHARLIE NORWOOD, Georgia

BARBARA CUBIN, Wyoming

JOHN SHIMKUS, Illinois

HEATHER WILSON, New Mexico

JOHN B. SHADEGG, Arizona

CHARLES W. ‘‘CHIP’’ PICKERING,

Mississippi, Vice Chairman

VITO FOSSELLA, New York

STEVE BUYER, Indiana

GEORGE RADANOVICH, California

CHARLES F. BASS, New Hampshire

JOSEPH R. PITTS, Pennsylvania

MARY BONO, California

GREG WALDEN, Oregon

LEE TERRY, Nebraska

MIKE FERGUSON, New Jersey

MIKE ROGERS, Michigan

DARRELL E. ISSA, California

C.L. ‘‘BUTCH’’ OTTER, Idaho

JOHN SULLIVAN, Oklahoma

JOHN D. DINGELL, Michigan

Ranking Member

HENRY A. WAXMAN, California

EDWARD J. MARKEY, Massachusetts

RICK BOUCHER, Virginia

EDOLPHUS TOWNS, New York

FRANK PALLONE, Jr., New Jersey

SHERROD BROWN, Ohio

BART GORDON, Tennessee

PETER DEUTSCH, Florida

BOBBY L. RUSH, Illinois

ANNA G. ESHOO, California

BART STUPAK, Michigan

ELIOT L. ENGEL, New York

ALBERT R. WYNN, Maryland

GENE GREEN, Texas

KAREN MCCARTHY, Missouri

TED STRICKLAND, Ohio

DIANA DEGETTE, Colorado

LOIS CAPPS, California

MICHAEL F. DOYLE, Pennsylvania

CHRISTOPHER JOHN, Louisiana

TOM ALLEN, Maine

JIM DAVIS, Florida

JANICE D. SCHAKOWSKY, Illinois

HILDA L. SOLIS, California

CHARLES A. GONZALEZ, Texas

BUD ALBRIGHT, Staff Director

JAMES D. BARNETTE, General Counsel

REID P.F. STUNTZ, Minority Staff Director and Chief Counsel

SUBCOMMITTEE ON COMMERCE, TRADE, AND CONSUMER PROTECTION

CLIFF STEARNS, Florida, Chairman

FRED UPTON, Michigan

ED WHITFIELD, Kentucky

BARBARA CUBIN, Wyoming

JOHN SHIMKUS, Illinois

JOHN B. SHADEGG, Arizona

Vice Chairman

GEORGE RADANOVICH, California

CHARLES F. BASS, New Hampshire

JOSEPH R. PITTS, Pennsylvania

MARY BONO, California

LEE TERRY, Nebraska

MIKE FERGUSON, New Jersey

DARRELL E. ISSA, California

C.L. ‘‘BUTCH’’ OTTER, Idaho

JOHN SULLIVAN, Oklahoma

JOE BARTON, Texas,

(Ex Officio)

JANICE D. SCHAKOWSKY, Illinois

Ranking Member

CHARLES A. GONZALEZ, Texas

EDOLPHUS TOWNS, New York

SHERROD BROWN, Ohio

PETER DEUTSCH, Florida

BOBBY L. RUSH, Illinois

BART STUPAK, Michigan

GENE GREEN, Texas

KAREN MCCARTHY, Missouri

TED STRICKLAND, Ohio

DIANA DEGETTE, Colorado

JIM DAVIS, Florida

JOHN D. DINGELL, Michigan,

(Ex Officio)

(II)

C O N T E N T S

Page

Testimony of:

Boucher, Hon. Rick, a Representative in Congress from the State of

Virginia .......................................................................................................... 10

Doolittle, Hon. John T., a Representative in Congress from the State

of California ................................................................................................... 13

Holleyman, Robert W., President and Chief Executive Officer, Business

Software Alliance .......................................................................................... 34

Jaszi, Peter, Professor of Law, Washington College of Law, American

University ...................................................................................................... 85

Lessig, Lawrence, Professor of Law, Stanford Law School ........................... 15

Moore, Robert, Chief Executive Officer, 321 Studios .................................... 110

Murray, Chris, Legislative Counsel, Consumers Union with Gigi B. Sohn,

President, Public Knowledge ........................................................................ 99

Nisbet, Miriam M., Legislative Counsel, American Library Association ..... 41

Rose, Debra, Senior Legislative Counsel, the Entertainment Software

Association ..................................................................................................... 93

Shapiro, Gary J., President and Chief Executive Officer, Consumer Electronics Association ........................................................................................ 22

Sherman, Cary, President, Recording Industry Association of America ..... 80

Swift, Hon. Al, Colling Murphy ....................................................................... 38

Valenti, Jack, President and Chief Executive Officer, Motion Picture Association of America ...................................................................................... 29

Additional material submitted for the record:

Entertainment Software Association, response for the record ..................... 123

Holleyman, Robert W., President and Chief Executive Officer, Business

Software Alliance, response for the record ................................................. 125

Jaszi, Peter, et al, letter dated June 10, 2004, enclosing response for

the record ....................................................................................................... 139

Lessig, Lawrence, Professor of Law, Stanford Law School, letter dated

June 11, 2004, enclosing response for the record ....................................... 129

McCormick, Walter B., Jr., President and Chief Executive Officer, United

States Telecom Association, prepared statement of ................................... 127

321 Studios, response for the record ............................................................... 143

(III)

(1)

THE DIGITAL MEDIA CONSUMERS’ RIGHTS

ACT OF 2003

WEDNESDAY, MAY 12, 2004

HOUSE OF REPRESENTATIVES, COMMITTEE ON ENERGY AND COMMERCE, SUBCOMMITTEE ON COMMERCE, TRADE, AND CONSUMER PROTECTION, Washington, DC.

The subcommittee met, pursuant to notice, at 10 a.m., in room

2123, Rayburn House Office Building, Hon. Cliff Stearns (chairman) presiding.

Members present: Representatives Stearns, Upton, Whitfield,

Shimkus, Shadegg, Radanovich, Pitts, Bono, Terry, Ferguson, Issa,

Otter, Barton (ex officio), Schakowsky, Gonzalez, Towns, Rush, Stupak, Green, McCarthy, Strickland, and Davis.

Also present: Representative Boucher.

Staff present: David Cavicke, majority counsel; Chris Leahy, majority counsel and policy coordinator; Shannon Jacquot, majority

counsel; Brian McCullough, majority professional staff; William

Carty, legislative clerk; Jonathan Cordone, minority counsel; and

Ashley Groesbeck, minority staff assistant.

Mr. STEARNS. Good morning, everybody. I’m pleased to welcome

all of you to the Commerce, Trade, and Consumer Protection Subcommittee hearing on H.R. 107, the Digital media Consumers’

Rights Act of 2003.

We are particularly grateful to our guests from the content and

technology communities, consumer groups, academic groups for allowing us to present a balanced hearing on the issues and the challenges facing the copyright field in an era of rapid technological innovation.

I can’t remember when this subcommittee last had three panels

of so many distinguished experts. So obviously we’re anticipating

a very interesting, insightful examination of these issues and

they’re very important.

In yesterday’s analog world, the centuries old concept of ‘‘fair

use’’ established that some previously unauthorized use of copyrighted works by individuals should be allowed because their value

to society outweighs the costs to the copyright holder. This is based

on the belief that not all copying should be banned. The Copyright

Act, which codified the ‘‘fair use’’ doctrine, specifically allowed the

use of copyrighted material for ‘‘purposes such as criticism, comment, news reporting, teaching, scholarship, or research’’ while it

strictly prohibited all unauthorized commercial sales of a copyrighted material. In short, the history of ‘‘fair use’’ has been a hisVerDate 11-MAY-2000 09:16 Oct 20, 2004 Jkt 000000 PO 00000 Frm 00005 Fmt 6633 Sfmt 6633 93981.TXT HCOM1 PsN: HCOM1
2

tory of maintaining the balance between the public interest in free

speech with the rights of copyright holders to obviously protect

their works.

In today’s digital world, the explosive growth of digital media,

the universal nature of the internet as a distribution network, and

the ease of flawless digital reproduction, have made the time-tested

‘‘fair use’’ doctrine much more nuanced. Daily computer tasks such

as browsing, linking, and viewing streaming audio and video have

challenged this doctrine in ways that we could not have imagined

when we passed the 1996 Telcom Act. The issues created by just

making a ‘‘backup’’ copy of a CD or DVD have made the cases

posed by the player piano, photocopying machine, and videocassette

recorder seem simple by comparison. Even so, the balance between

the consumer’s need for free and open information and the rights

of the copyright holders continues to be the dynamic, even in a constantly changing digital world.

My colleagues, to help address these new complexities and the

new and novel threats to copyrighted works, the Congress passed

the Digital Millennium Copyright Act, DMCA, in 1998. In particular, the DMCA created civil and criminal penalties for individuals who circumvent encryption or other technological anti-tampering measures known as digital rights management or ‘‘DRM.’’

The DMCA also extends these anti-tampering prohibitions to those

who seek to sell or trade in technologies designed to break

encryption technology or circumvent it. Basically, the DMCA makes

picking the lock or finding a way through the back door illegal to

protect the contents of the house, regardless of whether the intruder has a right to use this content. The DMCA also contains certain exceptions.

In order to further refine the DMCA and maintain a fair and balanced approach to copyright protection, our colleague, Mr. Boucher

from Virginia, has introduced H.R. 107, ‘‘The Digital Media Consumers’ Rights Act of 2003.’’ Mr. Boucher’s bill would establish a

‘‘fair use’’ defense for circumvention and allow consumers, in effect,

to unlock encryption or DRM technology to make ‘‘fair use’’ of the

copyrighted work.

Supporters of H.R. 107 point out that the Digital Millennium

Copyright Act prevents consumers from making fair use of

encrypted materials. As a practical matter this means that a consumer cannot make a copy of a DVD for his or her own ‘‘fair use.’’

In contrast now, those opposed to H.R. 107 contend that without

the prohibition against breaking encryption, the protection for

copyrighted works under current law would be weakened. They

also hold that allowing persons the ability to ‘‘unlock’’ anti-tampering technology, encryption, and access the copyrighted material

would quickly spur piracy gadgets and technology that would

quickly devalue their product and put them frankly out of business.

In their words, buying a DVD doesn’t mean, ‘‘buy one and get as

many as you like free.’’

As we have seen in trade hearings in the subcommittee, piracy

of copyrighted material is a massive global problem that threatens

a large part of the United States economy. Given the urgency of

the issue, its effects on U.S. consumers and the economy, as well

as the negative impact the abuse of copyright protection can have

3

on consumer choice, it is my sincere hope that we can further examine these important issues to see if a bipartisan consensus can

be reached on this bill.

In conclusion, I support fair and balanced intellectual property

rights and laws. I also realize that the rest of the world sometimes

does not play by our rules. Protecting the consumer by offering

choice in the marketplace while vigorously safeguarding intellectual property and encouraging innovation are foremost concerns of

the subcommittee. With that in mind, I believe today’s hearing will

help us further define the issues and challenges involved as well

as explore ways to continue to maintain the careful balance between the public’s right of ‘‘fair use’’ and a copyright holder’s right

to protect their intellectual property.

I look forward to our witnesses and with that, I welcome the distinguished ranking member, Ms. Schakowsky.

Ms. SCHAKOWSKY. Thank you, Chairman Stearns for holding today’s hearing on our colleagues’ bill, Representatives Boucher and

Doolittle, H.R. 107, the Digital Media Consumers’ Rights Act. Once

again, technological innovations have thrust our subcommittee into

legislative arenas that could not have been anticipated. We find

ourselves needing to update laws that are now ineffective or perhaps too stifling because of changing technologies.

When we propose legislative responses to outdated laws, w must

remain vigilant about the consequences our proposals could have

on the spectrum of affected parties. H.R. 107 focuses our attention

on how the digitizing copyrighted materials affect artists, consumers, researchers, librarians and a host of industries.

In 1998, before I came to Congress, with the passing of the Digital Millennium Copyright Act, or the DMCA, my colleagues made

an important attempt at contending with new challenges that technology brought to copyright laws. The DMCA was meant to stop

copyright infringement on new digital mediums. Unfortunately, by

trying to predict where the ever evasive nature of technology would

take us, the DMCA was drafted with such broad strokes that it

swept away the fair use provisions of the copyright law and now

is being abused by those who want to squelch competition in areas

wholly unrelated to copyright.

For example, manufacturers of garage door openers and toner

cartridges have used the DMCA to try and prevent their competitors from developing alternative and cheaper models. However, the

competition’s efforts to provide a better product to consumers are

challenged under the DMCA. Remember, they are not infringing on

a copyright or violating any patents.

Make no mistake about it, copyright needs to be protected and

artists need to be compensated for their work. However, when a

law pits artists against consumers, the source of pay for artists

when companies can use the DMCA, I suppose copyright protection

to stop new products coming on the market, when libraries may

have to charge for services they traditionally have provided for

free, then the law needs to be fixed.

Although there are some issues that still need to be addressed,

in my view, and some language that needs to be tightened, Congressman Boucher’s bill is a step in the direction we need to take

so that we can rein in over reaching applications of the DMCA.

4

I have been talking with artists’ groups, consumer groups and

technology developers and Congressman Boucher and truly believe

that we can work together to craft a remedy to the DMCA that

would protect artists’ copyrights, consumer rights, competition and

technological innovation. This is an exciting time. We’re at a technological crossroad that is changing how we think about commerce,

art distribution and traditional consumer protections.

It is our responsibility as lawmakers to make sure that all voices

are heard in this debate. That’s why I’m so glad we are here today,

including our former colleague in the House of Representatives

with so many people who are affected by the decisions we will be

making in the near future.

Thank you, Mr. Chairman.

Mr. STEARNS. I thank my colleague. The Chairman of the Energy

and Commerce Committee, the distinguished gentleman from

Texas, Mr. Barton.

Chairman BARTON. Thank you, Mr. Stearns. I want to commend

you for holding this hearing. I want to welcome my two colleagues,

Mr. Boucher, a member of the committee and Mr. Doolittle, a senior Member of the House and former Congressman, Al Swift, who

is going to testify later, a former nember of this committee and a

former subcommittee chairman of this committee. So we welcome

you to this important hearing.

I want to start off by saying that I’m very proud to be a co-sponsor of the legislation that’s being considered today, H.R. 107, the

Digital Media Consumers’ Act, sponsored by Mr. Boucher and Mr.

Doolittle. Two weeks ago during a hearing before this same subcommittee, I made my feelings and intentions explicitly clear regarding the issue of spyware. I object strongly to any company invading my computer uninvited and planting software or other

tracking devices to spy on me. My computer is my property, no different than my home. I determine who I permit to enter, how long

they can stay, what they can do while they’re in my home. Anyone

who enters my house uninvited and without my knowledge is trespassing at the least and possibly breaking and entering.

Similarly, after I buy a music video or a movie CD, it is mine

once I leave the store. Does that mean that I am under the impression that I have unlimited rights? Of course not. I understand that

I’m limited under existing law to activities that are not commercial

and I want to emphasize that, not commercial, or would come into

competition with the manufacturer of that product. Currently law

provides that I am liable for anything that I do that amounts to

copyright infringement under Section 106 of the Copyright Act. It

is illegal, as it should be, to buy a CD and to make multiple copies

for the purpose of selling them for a profit.

However, we have a long history of copyright law that permits

so-called ‘‘fair use’’ of copyrighted material. This allows me to make

a copy of music to play in my car, to make a compilation of my favorite songs from my CDs to keep at home. Technology has facilitated the ability to make personal copies that are of commercial

quality. Unfortunately, this has posed many piracy problems for

the content providers and for those of you that represent those interests I have very, very deep sympathy for the problems that

you’re facing against commercial piracy.

5

The Digital Millennium Copyright Act, or DMCA, sought to provide meaningful protection for the content providers while at the

same time balancing the consumers’ rights to fair use. The anti-circumvention provision was intended to be consistent with the protections afforded under Section 106 and to provide content providers the ability to use technology to prevent illegal copying. We’re

now beginning to understand that some of the fair use by consumers are no longer protected because of the anti-circumvention

provision. The intent of the legislation that we’re holding the hearing on today, H.R. 107, is to restore the ability of consumers to use

copyrighted material lawfully. It would permit consumers the ability to circumvent copy protection technology as long as it is consistent with fair use. At the same time, H.R. 107 maintains the

protections for copyright producers to use copy protection technology against illegal piracy. The balance between consumer rights

and producer rights over copyright material needs to be restored to

ensure our society progresses and does not regress.

This legislation accomplishes that goal and I support it. Having

said that, and this is very important, this hearing is being held to

give all sides of this debate a fair hearing to see if we can find a

fair compromise that allows for fair use.

With that, Mr. Chairman, I yield back my time.

Mr. STEARNS. I thank the gentleman. The gentlelady from Missouri, Ms. McCarthy.

Ms. MCCARTHY. Thank you, Mr. Chairman. I’m going to put my

extended remarks into the record. I’m very grateful for this

hearing——

Mr. STEARNS. We have a large number, we have three panels, so

as much as possible, if members could limit their opening statements or put it in the record, it would be very helpful.

Ms. MCCARTHY. Yes, I’m very grateful to everyone who is a part

of this, to the panelists, to my colleagues. I think this is a very important issue and I’m going to put my remarks int he record so we

have more time to hear from them and to ask them questions. With

that, I yield back.

Mr. STEARNS. And I thank the gentlelady. Mr. Ferguson, Mr.

Issa?

Mr. ISSA. Thank you, Mr. Chairman, and I too will revise and extend and be very, very brief. I’d like to thank you, Mr. Chairman

for holding this hearing. I’d like to thank my colleagues for authoring and co-authoring this legislation.

I am not a co-sponsor of it, but I am deeply interested in the

issue and believe that it is this committee’s responsibility in concern, of course, with the Judiciary Committee to find real, viable

solutions that will restore the historic fair use, will at the same

time protecting that which is right now not protected. We’ve already seen the considerable loss of revenue and if you will, the

wanton piracy of music in this country. We cannot afford to have

our movie industry destroyed by an open protocol for commercial

quality DVD and then beyond for that matter, the broadcast high

definition that is beginning to emerge.

I would only say, Mr. Chairman, that it is unusual for this committee which is often accused of having solutions in search of a

problem, it is unusual to have such an obvious problem. A Federal

6

Court has already enjoined a company, Studio 321, and we will be

hearing from their CEO shortly, that made a good faith effort to

somehow bridge the difference between these two competing interests. They may or may not have succeeded. Their solution may or

may not be correct, but that wasn’t decided in the Federal Court.

What was decided was that circumvention preempts fair use.

We need to define how we can, in fact, continue to have what we

have historically had, fair use, while at the time we absolutely

must protect not just the movie industry, but our broadcast television and all of the other intellectual property produced in this

country. And we have to find a way to have that allow a path for

digital music to again enjoy a reasonable modicum of protection.

I would say, Mr. Chairman, in closing, for me it’s unusual to say

that there must be a lose-lose in order to be a win-win. In fact, in

order to have the win of new products and new services, those who

think that copying other people’s intellectual property should be

laissez-faire and the government should stay out of it, we’re going

to lose because we’re not going to stay out of it. And those who believe that the government intervening should be a monopoly and a

lock on how things were done in the past are going to have to lose.

And we’re going to have to, as a committee, help craft some in between that is allowing the win-win to go forward and we hope to

move that along today.

Thanks, Mr. Chairman, I yield back.

Mr. STEARNS. I thank the gentleman. The gentleman from Texas,

Mr. Green.

Mr. GREEN. Thank you, Mr. Chairman. I’d like to have my full

statement placed in the record.

Mr. STEARNS. By unanimous consent, so ordered.

[The prepared statement of Hon. Gene Green follows:]

PREPARED STATEMENT OF HON. GENE GREEN, A REPRESENTATIVE IN CONGRESS FROM

THE STATE OF TEXAS

Mr. Chairman, thank you for holding this hearing on my friend and colleague Mr.

Boucher’s legislation, H.R. 107.

This bill does strike to the heart of one of the most significant debates for the

future of the digital economy—the regulation of intellectual property.

With all of its promise, the digital age has also brought a tremendous amount of intellectual property piracy—the software industry reports losing $11 billion a year

to software piracy, the motion picture industry another $3-4 billion, and the recording industry $4.2 billion.

What is scary to people who make software, movies, and music is that those are

the figures only the ones they can calculate. Even more losses from online piracy

exist, but are very difficult to calculate.

Numerous studies support the theory that many producers have been severely

hurt by online piracy. And this is one of the few industries that has a positive balance of trade, reducing our trade deficit.

The question before us today is: how can rampant piracy crimes be stopped or

contained while society’s beneficial fair use rights are preserved?

While H.R. 107 raises important issues, as a piece of legislation, I do not believe

that H.R. 107 properly hits that balance.

I supported the Digital Millennium Copyright Act when Congress approved it, so

I do get concerned when I hear reports of the DMCA being used to eliminate aftermarkets for a variety of replacement parts.

But H.R. 107 completely eliminates the major tool that intellectual property holders have to protect their property.

What is the point of having digital rights management at all, if someone can create software to hack it, post his hacking software on the Internet, and software pirates in China download it and start cranking out bootleg copies of The Alamo all

in one day?

7

Consumers may be right to complain that they cannot fast forward through previews on their DVDs. But if the software that allows them to fast forward could also

allow piracy, I do not think that is the proper balance.

As a final note, I would like to mention one section of this bill which falls directly

under our jurisdiction—FTC labels for copy-protected compact discs.

I think the recording industry knows that sufficiently informing the public of any

changes to the CD format is the right thing to do in the first place.

The recording industry certainly has a right to copy-protect their products, but

Americans have been buying CDs for well over a decade now and have come to expect their CDs will work in all CD drives and players.

If new copy-protected compact discs do not work in consumers’ CD players, the

consumer reaction is likely to be very negative.

I hope the parties involved can work together to avoid such situations.

Mr. Chairman, thank you for holding this important hearing on the future of digital intellectual property protection.

Mr. GREEN. I know we have very ambitious panels today and

first I want to welcome my good friend and committee member,

Rick Boucher and say that the bill, the legislation that came out

of Judiciary Committee, I hope our committee takes a good look at

because it’s interesting. One of the few balance of trade surpluses

we’ve had in our country over the last few years has been the creativity of motion pictures, software and recordings. And I know we

need to strike a balance because I want to be able to copy something I buy and give to my children. I just don’t want them to be

able to print out a million copies. And so we have to strike that

balance, but I also know that we don’t want to throw out the baby

with the bath water, as we say in Texas, and lose the creativity we

have in our own country.

And with that, I yield back my time and look forward in participating.

Mr. STEARNS. Thank you. Mr. Shimkus.

Mr. SHIMKUS. I’ll defer my opening remarks.

Mr. STEARNS. I thank you very much. The gentleman, Mr. Davis?

Mr. DAVIS. Pass.

Mr. STEARNS. Thank you very much. And Mr. Pitts.

Mr. PITTS. I’ll waive.

Mr. STEARNS. Waive. All right. And then we have Mr. Towns, the

gentleman from new York.

Mr. TOWNS. Mr. Chairman, I’d like to place my entire statement

in the record.

Mr. STEARNS. By unanimous consent, so ordered.

[The prepared statement of Hon. Edolphus Towns follows:]

PREPARED STATEMENT OF HON. EDOLPHUS TOWNS, A REPRESENTATIVE IN CONGRESS

FROM THE STATE OF NEW YORK

Let me begin by thanking you Mr. Chairman for holding this important hearing

today. In 1998, Congress passed the Digital Millennium Copyright Act (DMCA),

which at the time was landmark legislation in setting a regulatory framework for

the use and dissemination of digital content. Congress crafted a delicate balance

that sought to ensure the protection of valuable creative materials while providing

consumers access to new burgeoning technology.

Since that time, two things have occurred which seem very clear to me and I believe are not disputable. First, there has been an explosion in the type and amount

of available digital content. Second, piracy and theft of copyrighted material has

grown rampant.

While admittedly the creative industries were slow to embrace new technologies,

that is no longer the case. Consumers can get digital movies through video on demand, they can rent or buy DVDs, and they can increasingly access digital formats

through the Internet. Similarly, there are numerous formats and options for consumers to buy, download or stream digital music. Consumers can now portably acVerDate 11-MAY-2000 09:16 Oct 20, 2004 Jkt 000000 PO 00000 Frm 00011 Fmt 6633 Sfmt 6621 93981.TXT HCOM1 PsN: HCOM1
8

cess thousands of songs in digital format in a device smaller than the size of a wallet.

At the same time, several content companies are facing a significant challenge to

prevent copyrighted material from being stolen. Movies are available on-line or on

the street in pirated DVDs days after or even before a movie is released. A whole

generation has grown up under the assumption that it is OK to steal music. I

should note that many of these same circumstances apply to software as well.

Given these two factors at work, it does not make sense to me to increase consumers’ ability to circumvent copyrighted material protections. While some will

argue that this is a consumer issue, I would respond that this is a jobs issue. Although stars get the coverage, the creative works industry supports thousands of

people who work behind the scenes. These jobs are put in jeopardy if investment

in creative material is undermined by piracy.

Further, the DMCA provides a mechanism for the automatic review of the act to

ensure that consumers have appropriate access to digital content. The tri-annual reviews by the copyright office is already working and this process can accommodate

future changes as they become necessary.

I look forward to hearing from today’s witnesses about their views on H.R. 107

and the current state of digital content. Thank you Mr. Chairman and I yield back

the balance of my time.

Mr. TOWNS. And only comment that I’m happy that you’re having

this hearing and some will argue that this is a consumer issue.

And I would respond that this is a job issue. And we must not forget that.

On that note, Mr. Chairman, I yield back.

Mr. STEARNS. All right, thank you. Mr. Terry?

Mr. TERRY. Waive.

Mr. STEARNS. Waive. All right. I think at this point we have—

Mr. Gonzalez?

Mr. GONZALEZ. I’ll waive.

[Additional statements submitted for the record follow:]

PREPARED STATEMENT OF HON. BARBARA CUBIN, A REPRESENTATIVE IN CONGRESS

FROM THE STATE OF WYOMING

Thank you, Mr. Chairman, for holding this hearing today. It is my hope that this

will be a valuable forum for debate and discussion regarding this bi-partisan legislation offered by Mr. Boucher.

I would also like to extend my thanks to the many distinguished witnesses who

have agreed to appear today. We have been joined by an exceptionally large number

of experts representing the views of both the content community and leading advocates for consumer rights. I feel the tremendous interest in witness participation is

a true indication of the timeliness of this hearing, and I look forward to learning

more about the complexities surrounding the issue of fair use from these specialized

experts.

When Congress passed the Digital Millennium Copyright Act (DMCA) in 1998, we

could not possibly have foreseen the rapid advances in technology which would

ensue in just a few short years. Litigation regarding the ‘‘anti-circumvention’’ clause

of the DMCA has successfully limited the rights of consumers to circumvent technologically protected works, and also prohibited the production and availability of circumvention technology. We have arrived at a historic juncture between the rights

of consumers to exercise the fair use of legitimately purchased products and the

rights of the content industry to restrain the reproduction and distribution of their

copyright protected material.

Congress has now been called upon to redefine what measures and technologies

are protected by copyright law, and we must treat this matter delicately. I look forward to today’s hearing to discover if H.R. 107 will be the proper legislative path

to follow in the redefining of fair use.

I thank the Chairman again and yield back the remainder of my time.

9

PREPARED STATEMENT OF HON. JOSEPH PITTS, A REPRESENTATIVE IN CONGRESS

FROM THE STATE OF PENNSYLVANIA

Mr. Chairman, thank you for convening this hearing today to discuss the Digital

Media Consumers’ Rights Act.

While H.R. 107 may be well-intentioned, it will ultimately discourage creation of

intellectual property. Why create when you can copy?

With this in mind, I oppose this legislation.

Today, more Americans have more access than ever before to more of the fruits

of American creativity. This includes music, movies, games, computer software, and

even books.

The advancement of technology has made it easier to create and easier obtain material that is the product of the creative mind.

Yet while access to intellectual property has increased, so have efforts to copy and

pirate this valuable material.

Piracy is not just a problem here in America. Travel to the black markets of

China and you can buy just about anything you want. American intellectual property worldwide is illegally copied, bought and sold.

American creativity is a hallmark of this great country. We must protect it. It is

easy to see the damage done when our copyright laws here and abroad are violated.

Congress addressed this problem in 1998 with the Digital Millennium Copyright

Act (DMCA). This is a good law. It should not be undone.

Unfortunately, that is what H.R. 107 does. It legalizes hacking to circumvent protective encryption for any purpose and it undermines efforts to fight piracy and promote respect for copyright worldwide.

Proponents of this bill say that sharing of intellectual property—the product of

American creativity—should not be hindered. It should be a light that is passed on

to one another.

I agree to a point. But the purpose of passing on that light is to inspire the imagination to greater levels of creativity. There is nothing inspiring about pirating creativity.

The laws we have in place today, not the least of which is the Digital Millennium

Copyright Act, are there to ensure that intellectual property is shared with one another, but in a way that benefits everyone.

Do we have perfect copyright laws? No. But H.R. 107 goes too far and opens a

Pandora’s box.

I urge my colleagues to oppose this legislation. We must protect American creativity.

Thank you, and I yield back the balance of my time.

PREPARED STATEMENT OF HON. JOHN D. DINGELL, A REPRESENTATIVE IN CONGRESS

FROM THE STATE OF MICHIGAN

The Digital Millennium Copyright Act (DMCA) is vitally important to the livelihoods of authors, musicians, filmakers, software developers, and countless other creators of copyrighted works. The digital age has vastly improved the quality of these

works, and a limitless number of digital copies can now be made with virtually no

distortion and no reduction in quality.

While developments in digital technology provide many benefits to content producers and consumers, this new medium also provides fertile ground for pirates to

steal these protected works. The DMCA was passed to provide copyright owners

with additional protections and tools to help prevent their works from being stolen

and illegally distributed, and it appears thus far to be successful in achieving that

objective.

There is, however, another important side to this issue. When the Committee on

Energy and Commerce first considered the DMCA in 1998, I was concerned that certain provisions in the legislation were overly broad and could make it illegal for anyone to circumvent a copyright protection measure, even if the circumvention was

performed for an otherwise legal purpose. For example, if a school or library copied

a portion of an article for educational use, that copy would be permitted under the

‘‘fair use’’ doctrine of copyright law. If that article was in electronic or digital form,

however, the school or library may not be able to copy any portion of it without first

circumventing a copyright protection measure. The act of circumvention itself would

be a crime, even though it was undertaken for a perfectly legal purpose: that is, to

make ‘‘fair use’’ of the underlying materials.

Such a result could seriously undermine the careful balance between the rights

of copyright owners to be compensated for their works, and the rights of educators,

researchers, and others to freely use portions of these works to enhance knowledge

10

and understanding for the common good. Restrictive provisions such as these had

the potential to stifle innovations in digital commerce, impeding the development of

new hardware, software, and encryption technologies. Many members of this Committee and I sought to preserve a balance among these vitally important interests,

and we were hopeful that such a balance had been achieved when we supported the

Conference Report for the DMCA.

It has now been six years since the DMCA became law, and it is important for

this Committee to review its progress. These hearings will allow us to explore

whether the DMCA has achieved a proper balance after all, or whether further action is required. The Committee on Energy and Commerce should closely examine

the current system to find the appropriate balance that protects scholarship, research, and innovation while protecting the legitimate interests of copyright owners.

I look forward to continuing this important work and hope that all sides of this

issue will work closely with us in this endeavor.

Mr. STEARNS. Thank you. I thank my colleagues and with that

we welcome our two colleagues, Mr. Boucher and Mr. Doolittle and

we look forward to your opening statement.

STATEMENTS OF HON. RICK BOUCHER, A REPRESENTATIVE

IN CONGRESS FROM THE STATE OF VIRGINIA; AND HON.

JOHN T. DOOLITTLE, A REPRESENTATIVE IN CONGRESS

FROM THE STATE OF CALIFORNIA

Mr. BOUCHER. You’d think after serving on this committee for 22

years, I would have learned that.

I’ve always been challenged by technology.

Thank you very much, Chairman Stearns for conducting this

hearing today. I want to extend my thanks to you, to Ranking

Member Schakowsky, to Chairman Barton of the full committee

and to the members of your subcommittee for the interest that

you’re expressing by having this hearing today and assuring that

we have appropriate balance in our copyright laws between the

rights of the users of intellectual property and the rights of those

who create it.

I also appreciate your interest in examining the possible need for

changes in the 1998 statute, the Digital Millennium Copyright Act.

I want to say thank you to my friend and colleague from California, Congressman John Doolittle. My staff and I have worked

very closely with John and his staff as we structured the measure

that is before you and I want to thank Congressman Doolittle for

his strong advocacy of the changes that we’re seeking to make.

I would also like to say a special word of welcome this morning

to our former colleague on this committee, a former distinguished

Member of the U.S. Congress, Congressman Al Swift, who is here

to testify in support of H.R. 107.

And I’m very pleased to see the broad range of witnesses who

you have assembled today, possessing a tremendous amount of expertise on intellectual property and commercial issues. I am very

pleased to see both the proponents and the opponents of H.R. 107,

although I’ll have to confess that I’m a bit more pleased to see the

proponents.

In the 1990’s, the entertainment industry came to the Congress

and basically made an appealing claim. The entertainment industry said digital is different and there are twin threats simultaneously arriving that dramatically enhance the potential for the piracy of intellectual property. Those twin threats were identified as

first of all, the arrive of digital media through which a copy of a

11

copy of a copy has the same clarity and integrity as the original

of the work. The other threat that arrived at the same time was

the internet, beginning to be used as a mass communication medium and through the internet thousands of copies can be transmitted around the globe with the click of a mouse.

That was an appealing claim. The industry said we have a threat

coming from these two sources of enhanced piracy and Congress

should provide greater protection to those who create intellectual

property. I thought that the industry needed greater protection. In

the end, I voted for the Digital Millennium Copyright Act. But during the course of hearings and debate in both of the committees

that considered the bill, the House Judiciary Committee and this

committee, I expressed concern about the over reaching nature of

the DMCA as it was being debated. I offered amendments that

were very similar to those that we are recommended for enactment

by this committee in H.R. 107.

We’ve now had 6 years of experience since the passage of the

DMCA and many people who I think did not perceive that user

rights were being threatened by the very broad nature of that statute, are now convinced that user rights have been eroded.

In 1998, most of the technology community was uninterested in

this debate. We did not have computer manufacturers actively involved. The home recording rights industry was involved and was

effective in the debate, but the broader technology community was

not. Today, that broader technology community is supportive of

H.R. 107 and very interested in seeing these changes made. We

have computer manufacturers such as Gateway, Sun Microsystems,

component manufacturers such as Intel. We have all of the major

local telephone companies and their trade association, the U.S.

Telecom Association, strongly endorsing and urging the passage of

this bill. These were parties not involved in the debate in 1998.

We also have a broad and deeply interested public interest community, comprised of librarians, universities, the two largest consumer organizations in the nature. We have public knowledge, the

Electronic Frontier Foundation and others on the public interest

side expressing their concern about the experience that we had

with the DMCA since 1998 and urging that the changes contained

within H.R. 107 be adopted.

The bill that we’ve put forward addresses four principal problems. Let me briefly describe what each of those is and what our

proposed remedy is and he’s saying very briefly.

The first principal problem that we have is that as Chairman

Barton indicated in his opening statement, the current law says

that it is a Federal offense to bypass technical protection guarding

access to a copyrighted work, even though the purpose of the bypass is innocent. And so if a person is bypassing for the purpose

of exercising a fair use right, that person is guilty of a Federal

crime. If you’re bypassing for the purpose of getting beyond the

commercials that are on the front end of a DVD, that you have

gone to the store and rented, if you want to bypass in order to fast

forward through material that’s on the DVD that you think is inappropriate for your children to see, you have committed a Federal

offense if you engage in that act of bypass, even though the purpose of the bypass is innocent.

12

We are proposing as our first provision that bypass of technical

protection is legitimate as long as the purpose of the bypass is

itself legitimate. So if a person is bypassing to exercise a fair use

right that act of bypass would not be punishable under the law. I

would stress that a person who bypasses under our bill for the purpose of infringing the copyright and the work would be just as

guilty of a Federal crime as he is today under the current law. In

fact, he would be guilty of two violations, the act of bypass itself

and the act of infringing the copyright in the work. And that is the

same penalty, the same substantive violation that he would encounter under current law. And so this provision is not a charter

for pirates. It would punish pirates just as severely as under current law.

Second, we are proposing that devices that can facilitate circumvention for legitimate purposes be authorized. The Supreme

Court in its Betamax decision in the middle 1980’s set forth a very

sound legal principle that provided a foundation of legal certainty

upon which the home recording industry has been based and that

industry has flourished and significantly enriched the American

economy and improved the quality of life of millions of Americans.

That legal foundation was a very simple test and that is that the

only question you have to ask when you’re determining whether or

not technology is legitimate is whether or not the technology is capable of substantial noninfringing use. And if it is, the manufacturer will not be held accountable for contributory infringement.

We are proposing to reinsert that valuable and time tested principle as the test for determining whether or not circumvention

technology can be provided.

Two other provisions, very briefly stated. First of all, if you go

to the store and you buy a copy protected CD, you should notice

of the fact that it’s copy protected, that you may not be able to take

it home and create your own play list on your computer or create

your own CD with music organized in precisely the fashion in

which you want to hear it. You should have notice of that fact so

it requires appropriate labeling.

The second provision says that the existing exemption for

encryption research would be broadened to include scientific research on technical protection measures. And this provision responds to a recommendation made by Richard Clark when he was

the cyber security head in the White House and to many others

who would like to have people who want to consume technical protection measures be given the legal certainty that they are robust,

that they are durable, that they are functional and only independent research can guarantee that. Independent research cannot

be conducted today because of the narrow scope of the existing exemption.

These are our four provisions.

Mr. Chairman, I think they are modest amendments indeed.

They are broadly supported by the organizations that have participated in their formulation and are urging the passage of this bill,

as well as by a bipartisan group of Members of the House. And I

very much hope it will be the privilege of the pleasure of this subcommittee to act affirmatively on them.

And I thank you very much for giving the time to speak.

13

Mr. STEARNS. And I thank the gentleman.

And our colleague from California, Mr. Doolittle, welcome.

STATEMENT OF HON. JOHN T. DOOLITTLE

Mr. DOOLITTLE. Thank you, Mr. Chairman, and distinguished

members. I very much appreciate your affording us the opportunity

to air these issues and have a hearing on this bill. I commend Mr.

Boucher who has studied this over a number of years and who is

somewhat of an authority, really, on these issues as you can see

from listening to description of the legislation. And I’m very grateful that we have this bipartisan opportunity to address what I

think is a very, very significant issue.

A couple of years ago I yielded to the ads because I was curious

to see what these were about. This is an Apple iPod and now we

have a number of MP3 players like this. This is a very interesting

device. You can take your entire CD collection put it on your computer and download it from there onto this. You can also take

books on CD and download them onto this. At least you can for

now. Until the copyright holders may decide through technology

they may desire to employ to prevent that use, the DMCA would

give them that right. Increasingly, we’re having a number of CDs

now that are coming out with encryption.

I paid for this. I bought the material that I’m downloading onto

it, but I may be prevented at some point from being able to take

advantage of what is a very convenient technology. It’s very portable. It’s like a little portable hard drive and you know, I’m sorry

to say, unlike Ms. Schakowsky, who wasn’t here in 1998, I was.

And I didn’t grasp what the real issues were at stake in this

DMCA at the time that it came before the House.

I have a better handle on it now and I think we went way overboard as a Congress in enacting that legislation. It needs to be corrected. There is always going to be, as I understand it, a dynamic

tension between the copyright law and new technologies. Fair use

represents the interface, as some have written, between those two

major interests. Fair use has been severely disadvantaged by the

present DMCA.

I’m sure we’ve all heard about the high definition television and

many of us no doubt have experienced what that actually is. And

as good as the picture used to be, now that you’ve seen the high

definition picture, there’s a radical difference between the quality

of the two. Increasingly, we will be moving more and more in the

direction of high definition images. And many of you no doubt have

experienced the digital video recorders or PVRs such as TiVo or

ReplayTV and going well beyond what a VCR can do. Now this is

like a hard drive. You can record these things and without trying

to find where on the videotape this thing is, you can go right to

it with a very convenient menu.

One would hope that we would be able to do such things with

high definition, but that’s all up to the good will of the copyright

holders as to whether they’re going to allow us to do that. And indeed schemes are being proposed that might allow you to record on

some sort of a personal video recorder, the high definition image,

but if you seek to create, free up space in your hard drive by

downloading it to a disk, you may be prescribed from doing it.

14

You’ll just have to view it at the regular DVD quality, not at the

high definition quality that technology is going to be capable of producing.

Well, as we move forward, it doesn’t seem like any big deal perhaps, because this isn’t that widespread, but once you’re thoroughly accustomed to the resolution and the quality of high definition television and then to be limited by this technology and forced

by the power of the government through the DMCA, it will be—

there will be an increasing disparity when you will wish you could

save this onto a disk and free up that space for further recording,

but you will not be able to do it at the quality that you would like

and the technology would allow because of the DMCA.

Mr. Boucher’s bill, which he has introduced, will help set the balance where it needs to be. You’re never going to get rid of the tension, as I understand it, between the copyright law and new technologies. This is a tension that’s inherent in a free society and it

balances the interest and you’re going to move forward and new

technologies are going to come and Courts and ultimately the Congress are going to draw the line as to what’s fair use and what

isn’t.

Right now that line has been drawn way over in favor of the

copyright holder. Let me just say if the DMCA, as I understand it,

had been law at the time the VCR was invented in the middle or

late 1970’s, middle, I guess, you probably would have—we wouldn’t

have the ability that we’ve come to appreciate because they would

have been able to insist that a chip be inserted in the VCR which

in fact they did, the plaintiffs in that suit did ask for that from the

Court and that would have prevented the VCR from even recording

movies or TV programs that had the signal contained that said you

could not record it. So the public would never have even known

this. And that’s the failure of the DMCA to allow these new technologies, let the Courts decide where the balance is and ultimately

the Congress gets to draw the line after this experimentation process has continued.

I fully support the right of property owners to get their due. I

have never detracted from that. But there also the rights of the

public through fair use and I think these have been severely circumscribed by the present law and this bill represents the first

tangible opportunity to begin to redress the wrongs that were done

in 1998 when the DMCA was enacted into law. I thank you very

much for this chance to address you and I look forward to the hearing.

Mr. STEARNS. I thank both of my colleagues for their very fine

testimony and we’re going to go directly to the second panel. We

have two panels after you and we have a long list of people so I

know they’ll advocate for and against what you have already proposed. So with that, my colleagues, we’ll bring up Mr. Lawrence

Lessig who is Professor of Law at Stanford Law School; Mr. Gary

Shapiro, President and Chief Executive Officer of Consumer Electronics Association; Mr. Jack Valenti, President and Chief Executive Officer of the Motion Picture Association of America; Mr. Robert W. Holleyman, President and Chief Executive Officer, Business

Software Alliance; our former colleague, Congressman Allan Swift

15

from Colling Murphy; and Ms. Miriam M. Nisbet, Legislative Counsel, the American Library Association.

Let me welcome all of you and we’ll start with you, Mr. Lessig

for your opening statement.

STATEMENTS OF LAWRENCE LESSIG, PROFESSOR OF LAW,

STANFORD LAW SCHOOL; GARY J. SHAPIRO, PRESIDENT

AND CHIEF EXECUTIVE OFFICER, CONSUMER ELECTRONICS

ASSOCIATION; JACK VALENTI, PRESIDENT AND CHIEF EXECUTIVE OFFICER, MOTION PICTURE ASSOCIATION OF AMERICA; ROBERT W. HOLLEYMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER, BUSINESS SOFTWARE ALLIANCE; HON. AL

SWIFT, COLLING MURPHY; AND MIRIAM M. NISBET, LEGISLATIVE COUNSEL, AMERICAN LIBRARY ASSOCIATION

Mr. LESSIG. Thank you, Mr. Chairman. There are members of

this committee who have criticized the IRS, but who believe that

in a civilized society individuals must pay taxes. There are members of this committee who have criticized particular regulations of

EPA, but who believe that the government has an important obligation to protect our environment.

I am critical of our copyright system, but I fundamentally believe

in the critical role that copyright must play in protecting creators

and supporting creative industries. I believe commercial piracy is

wrong. I believe it is just as wrong to substitute a purchase of a

Britney Spears’ CD by stealing it from Tower Records or to

download it from a peer-to-peer network, not to mention what it

says about your taste in music. I believe in copyright.

But I also believe that copyright law is broken. Copyright law

regulates too much. It regulates too inefficiently. It often regulates

precisely the wrong kind of creative activity. The law was crafted

against a background radically different technologies for producing

and sharing content. In its present form, it often hinders more than

it helps and like any massive system of Federal regulation, the law

is often a tool that the dominant industry uses to protect itself

against competition.

There has never been a time in the history of our Nation or of

any free nation when the monopoly that we call copyright has

reached as broadly, as extensively for as long as inefficiently or as

punitively. The regulatory process that controls creativity in America today is massively overly extended. But paradoxically, it’s also

my view that relatively small changes in the law of copyright can

restore the balance that historically has defined Congress’ treatment of this important aspect of Federal regulation. And I particularly believe that the bill that you’re considering today, H.R. 107,

is an extraordinarily important first step in restoring the balance

in copyright law that Congress has the primary obligation to seek.

Now as Congressman Boucher has described there are four important parts of that bill. I want to focus on just one. This is the

amendment to the DMCA that essentially establishes that if the

use of the underlying copyrighted material would be fair under

copyright law, then it’s not a crime to circumvent the technology

to enable that use. Now the second time I had the privilege of debating Jack Valenti, Jack Valenti stood before the audience and

like a student having discovered his key case, held in his hands a

16

decision of the Second Circuit Court of Appeals which he interpreted to say that fair use was not a constitutional requirement

under our system of free speech. He was excited because that

meant that it was possible for Congress to remove fair use if they

wanted and if the DMCA did that, then so much the worse for fair

use.

Well, I’m privileged to be able to sit before you today and hold

in my hand a decision from the United States Supreme Court

which stands above the Second Circuit Court of Appeals, a case

which I argued before the Supreme Court and which I lost before

the Supreme Court, but which has one line of silver lining in its

decision which it says that fair use is a traditional contour of copyright and if Congress removes it, then it raises a fundamental first

amendment problem, that Congress cannot directly remove fair use

and I think the fair implication of that is it cannot indirectly remove fair use because indirectly removing fair use also creates a

free speech problem.

Now as Congressman Boucher has established and as this bill

addresses, the effect of these regulations is to remove fair use in

many important contexts. Now I understand the content industry

feels that it’s fighting a war. In fact, Jack Valenti has called this

his own terrorist war where our children are apparently the terrorists. And I understand there are many who believe that fundamental rights should stand aside in the context of the war, especially a terrorist war. But our Constitution means something different here. It means that the rights of free speech trump and the

fundamental right of free speech protected by fair use must be respected by Congress and will be respected by the Courts. And this

small change in the scope of the DMCA, whatever problems it creates for industry is creating problems because of our fundamental

commitment to a system of free speech. Fair use is a part of that

system.

Thank you very much.

[The prepared statement of Lawrence Lessig follows:]

PREPARED STATEMENT OF LAWRENCE LESSIG, PROFESSOR, STANFORD LAW SCHOOL.

Mr. Chairman, and Members of the Committee: I am the John A. Wilson Distinguished Scholar, and a Professor of Law at Stanford Law School. I have written extensively about new technologies and legal policy. As a lawyer, I have been involved

in a wide range of litigation involving copyright and the Internet. I am Chairman

of the Board of Creative Commons, and a member of the boards of Public Knowledge, the Public Library of Science, EFF and the Free Software Foundation. I direct

the Stanford Center for Internet and Society.

I am grateful for the opportunity to testify before you today, and offer the following to help your deliberations.

Copyright law is an essential protection for authors and creators. It is a necessary

protection for creative industries and commerce. Innovation and creativity depend

upon adequate and reliable copyright protection. Commercial piracy is therefore an

important threat that the government rightly should address.

Yet in its eagerness to staunch commercial piracy, the law must not lose sight

of the crucial balance in copyright that has also been at the core of our tradition.

These limits in the United States have historically guaranteed that the benefits of

copyright regulation do not outweigh its costs. A poorly crafted copyright law—a law

that either creates too much uncertainty, or a law that extends its reach beyond its

legitimate purpose—can stifle progress rather than promote it.

‘‘Fair use’’ is one important limitation upon the regulation of copyright. Historically, it has neither been the most important or most familiar. The efforts of this

Committee to consider whether fair use is adequately protected in the digital age

is an important first step in striking the right balance in the regulation of copyright.

17

1Stewart Baker, Review, Wall Street Journal, W6, March 26, 2004.

2The Future of Ideas (2001); Free Culture (2004).

3See Lyman Ray Patterson, Free Speech, Copyright, and Fair Use, 40 Vand. L. Rev. 1, 46

(1987).

But it is only a first step. In my view, Congress’s zealous efforts to attack ‘‘piracy’’

have had the unintended collateral effect of destroying a crucial balance in copyright

law. Never in the history of our nation has the law of copyright regulated as broadly; never has it regulated as extensively. And in light of the creative and commercial

potential of digital technologies, never has the law burdened creative work as directly or pervasively. If copyright litigation promises to become the ‘‘asbestos litigation for the Internet Age,’’ as Stewart Baker recently wrote in the Wall Street Journal,1 then the actual law of copyright promises to become the IRS code of the creative class. The direct beneficiaries of this massive change in legal regulation are

existing, highly concentrated, copyright industries, and lawyers. Those burdened by

this regulation are increasingly creators and innovators, both commercial and noncommercial.

In my view, Congress should systematically reconsider the scope of federal regulation governing the creative process. It should reevaluate, in light of the massive

changes that digital technology produces, the best way to protect the legitimate interests of creators. Rules that made sense even just 30 years ago are highly questionable today. Congress’s objective must be to guarantee that the regulation of creative work continues to serve the single constitutional purpose of that regulation:

to ‘‘promote the Progress of Science.’’

I know from personal experience that the position I mean to advance before this

Committee is apparently difficult for many to understand. No doubt that failure is

in part due to the rhetoric of some of us on this side of the debate. So let me state

as simply and clearly as I can: My argument is for balance in copyright regulation.

Yet many hear such an argument as an argument against copyright. A kind of ‘‘IP

McCarthyism’’ seems to govern this debate. The rhetoric from both extremes makes

it sound as if the only choices were between two extremes.

This view is a profoundly costly mistake for both commerce and innovation generally. Congress must begin to recognize the radical change in the scope and reach

of copyright regulation in just the past twenty years. In part that change is the

product of legislation; in part it is the unintended consequence of copyright law applied to vastly different technologies. As I have tried to demonstrate in my own

work,2 the consequences of these changes together are to burden creativity, and stifle commercial innovation. Neither effect is a necessary consequence of a well-crafted copyright law.

Just as one can criticize the tax code without criticizing the idea that in a civilized

society, citizens must pay taxes, and just as one can criticize the regulations of

OSHA without believing that business should be free from safety regulation, so too

can one criticize the extremism that copyright law has become without criticizing

the idea that copyright is essential to creative work, and to creative industries. That

it is essential is my view; that it has become too costly and inefficient is also my

view.

It is for this reason too that it is extremely important that these issues be considered by this Committee. The history of regulation being used as a tool to stifle competition is long. And as this Committee knows well, only a careful and consistent

monitoring of regulation can assure that the law not become a tool that industries

use to protect themselves from new competition. Every generation will view the innovations of the next generation as troubling and threatening. But those same innovations keep competition vigorous. As Adam Smith famously remarked, competitors

are always seeking ways to stifle competition. Federal monopolies, which copyrights

are, are often the most effective tool. Copyrights are no doubt important. But the

Constitution gives Congress the power not to grant copyrights, but to ‘‘promote the

Progress of Science.’’

In the testimony that follows, I briefly outline the historical balance that copyright law struck. I then consider the current position of ‘‘fair use,’’ in light of the

changes that I describe. Against this background, I argue that H.R. 107 is an important step in restoring balance to copyright. And finally, I conclude with other efforts

Congress might consider to further balance copyright law in light of new technologies.

THE HISTORICAL BALANCE OF COPYRIGHT

As the Supreme Court has repeated, and as the late Professor Lyman Ray Patterson made clear,3 copyright ‘‘has never accorded the copyright owner complete control

18

4Sony v. Universal City Studios, 464 U.S. 417, 432 (1984).

5 Act of May 31, 1790, 1 Stat. 124.

6Patterson, supra, at 12.

7 Id.

over all possible uses of his work.’’ 4 Its purpose instead is to secure a limited monopoly over certain ways in which creative work is exploited, so as to give authors

an incentive to create, and thus, in turn, to ‘‘promote the Progress of Science.’’

Originally, the trigger for that protection was the act of ‘‘publishing’’ a work. The

first Copyright Act secured an exclusive right to the authors over the publication

of ‘‘maps, charts, and books.’’ 5 In 1909, the scope of that right was expanded to give

authors an exclusive right over ‘‘copies.’’ 6 Against the background of the technology

extant in 1909, that change was probably not intended as a substantive change in

the reach of the law, and in any case, was not significant: For printed texts, the

technologies of ‘‘copying’’ were essentially the same as the technologies of ‘‘publishing.’’

Before digital technologies, this pattern of regulation meant that while some

‘‘uses’’ of copyrighted material were plainly regulated under the law—publishing a

book, or reprinting a chapter—many uses were unregulated under the law. Reading

a physical book, for example, is an unregulated use under the law, since reading

a book does not produce a copy. Giving someone a book is an unregulated use, since

giving someone a book does not produce a copy. These uses are thus independent

of the regulation of copyright. And these unregulated uses support many important

commercial activities, including used bookstores and libraries.

Unregulated uses are not the same as ‘‘fair use.’’ ‘‘Fair use’’ is a privileged use

of a copyrighted work that otherwise would have infringed an exclusive right. It is,

in other words, a copy that the user is privileged to make regardless of the desire

of the copyright owner. Thus, reading a book is an unregulated act under copyright

law. But quoting a book in a critical review is a presumptively regulated use (because a quote is a copy), yet privileged under the law of fair use.

The traditional contours of copyright law thus secured to authors exclusive rights

over just some uses of their creative work. But it secured to consumers and the public unregulated access to that creative work for most ordinary uses. And it privileged

the public for some uses that would otherwise have infringed the exclusive right to

copy.

This traditional balance has been changed in the context of digital technologies.

For it is in the nature of digital technologies that every use of a digital object produces a copy. Thus every use of a digital object is presumptively within the scope

of copyright law’s regulation. And that in turn means many ordinary uses must now

either seek permission first, or rely upon the doctrine of ‘‘fair use’’ to excuse what

otherwise would be an infringement.

For example, the ordinary use of reading a book—unregulated by copyright law

for a physical book—is now regulated by copyright law on a digital network: as any

act on a digital network, produces a copy, so too does merely reading a book. The

same with ‘‘lending’’ a book, or selling a book—all these produce copies; all these

are regulated on a digital network; none of these would have been regulated outside

of a digital network.

These changes are the unintended consequence of the interaction between digital

networks and a form of copyright law that triggers liability upon the making of copies. Their consequence is that the law now reaches far more broadly than it ever

did before. And when tied to the unconditional reach of copyright after the abandonment of copyright formalities, they mean that the burden of copyright applies in a

vast range of contexts in which it does not also provide any copyright related benefits.

THE CURRENT INADEQUACY OF FAIR USE

There are many who believe that ‘‘fair use’’ is an adequate balance within copyright law. I believe that at present, this view is mistaken for three related reasons.

First, as the history just sketched suggests, the doctrine of ‘‘fair use’’ has not historically been relied upon to free ordinary uses of copyrighted material from the regulation of the law. Instead, ordinary uses were free of regulation because copyright

law did not cover those uses. ‘‘Fair use’’ originally regulated uses by competitors to

the copyright owner.7 It didn’t regulate uses by consumers. Yet given the fundamental shift of copyright’s reach, it is now the rights of consumers to use content

in ordinary ways that must be defended through the doctrine of ‘‘fair use.’’

Second, as any practical understanding of the law reveals, ‘‘fair use’’ is an extraordinarily uncertain freedom. The test is crafted as a balancing test, with no single

19

8See William F. Patry and Richard Posner, Fair Use and Statutory Reform in the Wake of

Eldred, California Law Review (forthcoming 2004).

factor as determinative. This means that ex ante, it is extremely hard for creators

and publishers to know precisely what freedom the law allows. This either forces

publishers to impose rules that are far more strict than fair use,8 or it forces creators to clear permissions upfront. And when that permission cannot be secured, it

forces the creator into an extremely difficult choice: whether to risk substantial exposure for copyright liability, or to remove the speech from the creator’s work.

A recent example involving NBC makes this hypothetical more salient. Cinema

Libre intends to distribute an award-winning documentary about the Iraq War by

film director and producer Robert Greenwald, titled ‘‘Uncovered.’’ In preparing the

extended version of the film, Greenwald wanted to include a one-minute clip from

NBC’s ‘‘Meet the Press’’ interview with the President. Greenwald was denied permission. The agent informing Greenwald’s agent of the decision stated, ‘‘unofficially,

we don’t believe it makes the President look good.’’ And thus Greenwald and Cinema Libre are now confronted with a stark and odd choice for a democracy protected

by the First Amendment: Should they risk substantial liability simply to repeat the

words the President of the United States?

These costs of fair use are significant both to commercial and creative potential.

Though some naively believe the costs of seeking permission are slight, in fact those

costs are prohibitively high for all but a few commercial creators. Indeed, because

the costs of giving permission are often higher than any possible revenue from that

permission, many rights owners adopt a simple presumption against giving permission. Transaction costs thus bury creative work under a system of uncertain fair and

free use.

Finally, and most directly related to the issues before this Committee today, ‘‘fair

use’’ is effectively erased by technical measures that block ordinary or fair uses of

creative material, and by legal rules that render illegal technologies that might help

evade those restrictions. Thus, technologies that restrict the ability to capture a clip

from a DVD for educational purposes, or that restrict the ability of consumers to

backup digital media, interfere with uses that would, under the law of copyright,

be deemed fair. And under the DMCA, efforts to evade those restrictions are prohibited.

These three reasons together suggest that ‘‘fair use’’ in its current state will not

suffice to secure a balance between the control copyright regulation secures, and the

access that copyright is meant to guarantee. It is therefore crucial that Congress

consider a range of measures to update fair use in the digital age. H.R. 107 is an

important beginning, as I describe below. But I would not let it be the last.

Fair use has been a central aspect of American copyright law. It is less familiar

within other legal traditions. Indeed, this difference may well account for the relatively anemic understanding of fair use offered by trade associations, including the

RIAA. As every major label in that trade organization is now owned by foreign corporations, it is not surprising that those labels find our tradition to be alien. ‘‘Fair

use,’’ as a senior executive at one of the major labels recently put it, ‘‘is the last

refuge of scoundrels.’’ I understand how that may be the view of some in the world.

But within our tradition, fair use is a core freedom.

In its current state, however, fair use does not effectively protect consumers and

creators in their transformative use of creative material. That in turn increasingly

stifles commerce as well as creativity.

One useful example of this consequence is the litigation surrounding MP3.COM.

MP3.COM designed a technology to enable consumers to verify to a computer that

they owned or possessed a CD. Once that fact was verified, the company gave the

consumer access to the content on that CD from any computer on the network.

These password protected accounts served to validate and protect the selected

music. And they were supported by MP3.COM’s purchasing and copying 50,000 CDs

onto MP3.COM’s servers.

Because the company was simply giving customers access to music they had already presumptively purchased, and because the service in fact made the music that

people had purchased more valuable, MP3.COM believed its business model was

protected by ‘‘fair use.’’ Some recording labels and artists disagreed, and sued

MP3.COM. Months later, a court found the company liable, and fined the company

over $120,000,000, and effectively forced the company into bankruptcy. When one

of the labels suing MP3.COM purchased the company, it then filed a lawsuit against

MP3.COM’s lawyers, charging them with malpractice in advising MP3.COM the

company that its business model was legal.

20

9William M. Landes & Richard A. Posner, The Economic Structure of Intellectual Property

Law 120-21 (2003).

That case has subsequently been criticized by Judge Richard Posner.9 But my

point here is not to take sides in the matter (although I agree with Judge Posner).

It is instead to make the obvious point that a committee on Commerce would well

understand: if the doctrine of fair use is so uncertain that senior and respected

judges would apply it differently in the same case, and yet exposes innovators to

such severe liability, we can expect (as we have observed in Silicon Valley) that this

legal uncertainty will chill business investment.

H.R. 107

H.R. 107 is an important first step in restriking a balance in copyright law. The

bill would make two significant changes. It would first, and least controversially, require adequate labeling of copy-protected CDs. And second, it would eliminate anticircumvention regulation in contexts in which there is no underlying copyright interest at stake.

(1) Labeling

As this Committee is well aware, technologists have been working for many years

to find a technological way to control how CDs are used by consumers. In particular,

they have sought a technological way to assure that a CD could be played, but that

its content could not be copied.

Such a technology, given the open implementation of CD protocols, is extraordinarily difficult to perfect. And hence the risk that any particular technology will

not work on a particular machine is high.

‘‘Not work’’ however can mean much more than simply not playing. In some reported cases, copy-protection technologies have actually destroyed data on the consumer’s computer. That loss can be extremely costly.

This risk is more significant on less-mainstream computers. Any copy-protection

technology is likely to have been tested on the most popular systems. It is economically impossible for these technologies to be tested on every system. Thus, it is certain that some users of these copy-protected technologies will use the technology on

a machine for which it has not been tested. And no doubt, some will suffer significant costs from that use.

These costs from copy-protection technologies must be considered in light of an

obvious fact: that the ordinary use restricted by these technologies is not, ordinarily,

a copyright infringement. A consumer who purchases a CD, and then shifts the content of that CD to his computer so that he can listen to music, engages in a ‘‘fair

use’’ of that content. No doubt some might not be protected by fair use—a user who

systematically copies CDs borrowed from the library to build his own library of

music, for example. But the vast majority of users would be using purchased content

in a totally legal way.

In this context, a labeling requirement is an obvious and valuable regulation for

both consumers and producers of content and computers. The benefit to consumers

is obvious: they can avoid protected content if they have reason to be concerned that

the technology used to protect the content might interfere with their machine.

But there is also a benefit to content producers and technologists: To the extent

stories about harm caused by copy-protected technologies become more common,

they will create an uncertainty among computer users. That will reduce the demand

for CDs by those users. Eliminating that uncertainty will counteract that dampening of demand. And likewise, producers of competing, but not-yet mainstream,

technologies will not face the barrier to entry created by consumer fear—namely,

that their technology might interact badly with copy-protected CDs. If there’s no

way to know whether a CD will destroy data on a non-Windows based computer,

that will, on the margin, make it less likely that one would purchase a non-Windows

based computer.

Adding information into the market will thus improve competition within the

market. And while in the short term, such labels may drive consumers away from

copy-protected CDs, they will also create a strong incentive for CD manufacturers

to support certifying organizations that can verify that the technologies cause no

harm. The label would thus create an incentive for better cross-platform certification, which again would benefit consumers and competition generally.

(2) Non-infringing use exception from anti-circumvention regulation

The more controversial aspects of H.R. 107 are the portions aiming to exempt

from DMCA liability technologies that circumvent copyright protection technologies

for privileged uses. The bill both privileges circumvention if the underlying use of

21

10 Andy Raskin, Giving it Away (For Fun and For Profit), Business 2.0 (May 2004).

the copyrighted work would be privileged, and privileges technologies ‘‘capable of enabling significant non-infringing use of a copyrighted work.’’

This correction to the DMCA is long overdue. It is necessitated first by the limited

authority granted to Congress under the Copyright and Patent Clause. As the Supreme Court has repeatedly affirmed, Congress’s power under the Copyright & Patent Clause is limited. Graham v. John Deere Co., 383 U.S. 1, 5 (1966) (clause ‘‘both

a grant of power and a limitation’’). As it has recently indicated in Eldred v.

Ashcroft, among those limits is ‘‘fair use.’’ Slip Op. at 30. Yet the DMCA, as interpreted, plainly interferes with the effective exercise of ‘‘fair use.’’ And if Congress

is restrained by the First Amendment to include ‘‘fair use’’ in the Copyright Act, it

is constrained by the First Amendment not to exclude it through other copyrightrelated rules.

No doubt, content owners who rely upon copy-control technologies will worry that

this exception will swallow the DMCA-rule: that by allowing technologies that, e.g.,

enable back-ups of DVDs, Congress will be allowing technologies that enable ‘‘piracy.’’ But there is absolutely no independent economic showing of harm caused by

the ability to circumvent copy-protection technologies for non-infringing uses. It is

possible, of course, that such an exception will create a problem in the future. But

rather than destroying a tradition of consumer rights because of a fear, Congress

should predicate additional legal regulation only upon an actual showing of harm

from such technologies.

That showing, moreover, must be precisely focused upon the copyright related interest in controlling circumvention. The question of harm is whether the existence

of a technology (a) cannibalized a market (by enabling some to get the content without paying for it) more than it (b) expanded the market (by making the underlying

content more valuable). That harm must then be discounted by the constitutionally

required ‘‘fair use’’ enabled by that technology.

OTHER NECESSARY STEPS

As I have indicated, this important legislation is just the first step in a series of

actions that Congress should consider to assure that copyright law continues to

function in the balanced way that is our tradition. In addition to this change, I

would urge this Committee to recommend the establishment of a serious and balanced study, perhaps chaired by former Congressman Robert Kastenmeier, to consider fully how best to adjust the protections of copyright to the digital age. Kastenmeier’s tenure chairing the Subcommittee on Courts was defined by a constant appreciation of the balance the law needs to strike in light of changes in technology.

A commission focused on precisely this sort of balance could provide a map for Congress in a range of areas.

Such a map would reveal, I suspect, the great value that could be produced by

rules designed to re-formalize much of copyright law. One unintended consequence

of Congress’s changes in the law in the 1976 Act was to eliminate many traditional

copyright formalities. That in turn has massively increased the unproductive burden

of copyright regulation—both making it more difficult to track down copyright owners, and extending copyright protection to works having no continuing copyright-related interest. Rules for more clearly identifying owners and content requiring protection would improve the creative process generally.

No doubt some of this work can be done by the private sector. I am Chairman

of Creative Commons, <http://creativecommons. org>, a non-profit corporation that

builds and gives away technologies that enable authors and creators to more simply

signal the freedoms they intend to run with their content. Thus a musician can use

these tools to signal her desire that others share her music for non-commercial purposes. Or an author may use these tools to signal his desire that others use his work

for any purpose so long as attribution is given. As a recent feature article in Business 2.0 describes,10 this strategy is increasingly used by artists and authors to enable their own commercial success, by lowering the transaction costs imposed by the

law on the ability of others to reuse and share content.

I am proud of the work that Creative Commons has done to enable creators to

make their work more easily available. And following a recent grant, I am eager

to expand that work into the domain of science. But this work signals the need for

a more extensive reconsideration about how copyright law currently functions. It is

not a substitute.

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11Sony, supra, 464 U.S., at 429.

CONCLUSION

As the Supreme Court has indicated repeatedly, it is primarily Congress’s job to

‘‘defin[e] the scope of the limited monopoly that should be granted to authors or to

inventors.’’ 11 But in executing that task, it is crucial that Congress not be captured

by any single set of interests. While I believe historically that Congress has done

a good job in balancing technologies and protection, there is an important and valid

criticism made by many that Congress has crafted copyright policy to conform to the

interests of current creators, while ignoring the interests of future creativity, and

businesses that build on their work.

My concern is that this dynamic precisely is happening just now. In the heat of

the debate about ‘‘piracy,’’ I believe that Congress is losing sight of other important

values. And in particular, in the burdensome regulations that have been enacted to

fight ‘‘piracy,’’ my concern is that a great deal of the potential commerce and creativity that digital technologies might enable will be lost.

Mr. STEARNS. I thank the gentleman.

Mr. Shapiro.

STATEMENT OF GARY J. SHAPIRO

Mr. SHAPIRO. Thank you, Mr. Chairman, members of the subcommittee. My name is Gary Shapiro and I’m President of the Consumer Electronics Association. It’s a national trade association representing some 1500 companies, high tech companies. I’m also

Chairman of the Home Recording Rights Coalition which has been

before this committee and the Judiciary Committee many times

over the last 20 years, always on the defense, always trying to say

let’s not expand the copyright laws further, they’re broad enough.

We have failed most of those occasions, but I’m happy to be here

today to urge you to restore some balance in the copyright laws and

to report favorably H.R. 107.

Coming from the electronics industry, I have to say, believe it or

not, intellectual property is also our life blood. Each year our members invent and create new technologies and they bring these products to the marketplace. But let me make things—one thing very

clear. We favor vigorous enforcement of fair and balance IP laws.

Indeed, our members do work closely with companies in the content communities to build technologies that protect content and

safeguard reasonable and customary consumer expectations.

What has happened recently, however, is a radical departure

from the balanced approach to copyright law that our Constitution

calls for and our public interest indeed requires. Let me give you

some examples of problems that Americans now face. Americans

buy new copy protected CDs, totally unaware that they may not

play in their personal computers or on their automobile CD players. Innovators are being blocked from bringing legitimate competitive products to the market, even where there is no exploitation of

a copyrighted work. And indeed, it’s gotten so serious that the

funding for this type of products has dried up because the funders

are in danger of being sued. Indeed, they have been sued under the

DMCA.

Scientists have been threatened with prosecution if they publish

their research on digital encryption issues and families are prohibited, as I’m sure many in this room have been frustrated, from fastforwarding through the advertisements at the beginning of DVDs

23

that you bought and that you already own, but you must watch the

advertisements.

H.R. 107 does take necessary steps to restore that balance that

now leans so heavily against consumers, innovators and educators.

Now 20 years ago Hollywood asked the Supreme Court in the

Betamax case to ban a product, based on the presumption that its

predominant use would be to infringe copyright. The Supreme

Court refused to do so, thankfully by just one vote. It declared that

such a rule would choke the wheels of commerce. And thankfully

for us, our country and even Hollywood itself, the Supreme Court

decision came.

Those principles need to be reaffirmed one more time when you

mark up H.R. 107 because even today some argue that the freedom

to innovate that the Betamax established should apply only to one

product and that is the analog VCR and that it has absolutely no

application at all in the digital age. Actually, I think the digital age

the opposite is true. Consumers and innovators still need the

Betamax protection and it should be strengthened, not weakened.

Many of you have heard of or some of you have traveled to the

International Consumer Electronics Show. It’s the largest show in

the country and there 2500 different companies show the latest and

greatest products. Those products, many of them would not be

shown there, those companies would not be in existence today, but

for the Betamax holding. It’s made a difference not only for these

companies, but for the products that Americans now have in their

living rooms or homes and their cars. They need the ability to get

entertainment, information, educational content and be able to

shift it around their home and use it anywhere. For the sake of

technological growth, as well as the rights of consumers, we urge

you to codify the Betamax decision, not narrow it, as was done with

the DMCA.

H.R. 107 also confirms that individuals can unlock digital media

they own and they would not be liable under the DMCA so long

as they did not infringe underlying work. You’ve heard about that

from the Congressman and Professor Lessig.

H.R. 107 also provides an exemption for activity solely in furtherance of scientific research and technological protection measures.

This makes sense. The law should not be used as a selective sword

and shield to invite comments from some corners and punish comments from others.

Finally, there is a warning label required on anti-copy CDs. The

FTC has asked to be given jurisdiction to enforce this. The challenge we face, consumers buy a CD, they expect it to work in their

products. When it doesn’t work, they get very frustrated. They

blame the manufacturer of the product. Their expectations are not

being met.

Mr. Chairman, please let me make one final point. I understand

that individuals representing the content industry have told this

committee that H.R. 107 would somehow provide a haven for those

who engage in piracy. This is absurd. H.R. 107 only authorizes consumers to circumvent a technological protection measure in those

instances where they do not infringe a copyright. H.R. 107 takes

away no intellectual property rights. It merely realigns the DMCA

24

with historic copyright law by ensuring that there can be no liability without copyright infringement liability.

Now after the Betamax and before the Betamax decision,

throughout the last 20 years you’ve heard claims of doom and

gloom over and over again. You’ve heard it before the DMCA. You

heard it with the introduction of the VCR. You’ve heard it from the

same people in this room. I urge you to go back to that testimony.

When that DMCA was passed, what I called it then was ‘‘a bill

named Sue.’’ And that’s what it has become. I urge you to take

those claims, revisit them and to pass H.R. 107.

Thank you for your time.

[The prepared statement of Gary J. Shapiro follows:]

PREPARED STATEMENT OF GARY J. SHAPIRO, CHAIRMAN, THE HOME RECORDING

RIGHTS COALITION

Mr. Chairman and Members of the Subcommittee: On behalf of the Home Recording Rights Coalition (HRRC), I thank you for inviting me to discuss H.R. 107, the

‘‘Digital Media Consumers’’ Rights Act of 2003.’’

This vital, bipartisan bill would restore some balance to a copyright system that

has recently been tilted to elevate the interests of media giants over those of ordinary people.

We therefore urge you to favorably report H.R. 107, reverse this recent and harmful trend and restore the balanced copyright law that our nation has enjoyed for

most of its history.

In addition to my Chairmanship of the HRRC, I am also President and CEO of

the Consumer Electronics Association (CEA), the premiere association representing

the American technology industry.

Intellectual property is our lifeblood. Each year, my members invent and introduce new and brilliant products into the marketplace. Innovation is the catalyst for

growth in our industry. So let me make one thing clear: we hate piracy, and we hate

pirates. We are all in favor of the vigorous enforcement of fair and balanced intellectual property laws.

What has happened recently, however, is a radical departure from the balanced

approach that our Constitution calls for and our public interest requires.

Over the last few years, entertainment and media industry giants have persuaded

Congress to restrict private and public use of books, music, and other material when

it is in digital form.

And now they are working through the Courts to change the laws and limit our

freedoms even further.

Many of these problems are a result of the 1998 enactment by Congress of the

Digital Millennium Copyright Act or DMCA. The DMCA includes ‘‘anticircumvention provisions’’ intended by Congress to prevent copyright pirates from

defeating anti-piracy protections on copyrighted works, or getting hold of ‘‘black box’’

devices used for this purpose.

Unfortunately, these anticircumvention provisions have proven overly broad, and

are not being used as Congress intended. Instead of targeting pirates, they are being

directed against consumers, as well as scientists, and business competitors engaged

in a range of legal activities.

Here are some of the problems Americans face as a result of today’s new unbalanced copyright environment:

• Consumers buy new ‘‘copy-protected’’ Compact Discs unaware they may not play

in their PCs or automobile CD players.

• Innovators are blocked from bringing legitimate competitive products to the market, even where no exploitation of a copyrighted work is involved. Competitors

eager to keep less expensive alternatives away from consumers have sued manufacturers of generic garage door openers and printer cartridges under the

DMCA.

• Venture capitalists refuse to fund legal and innovative technologies for fear of

DMCA lawsuits.

• Scientists have been threatened with prosecution if they publish their research on

digital encryption issues.

• Families are prohibited from fast-forwarding through the advertisements at the

beginning of DVDs that they bought and own.

25

• Libraries and universities are unsure of whether or how they can archive and use

the digital materials they have acquired. • Viewers who own HDTV television receivers may lose their viewing and recording

rights because of the unilateral use of ‘‘down resolution’’ and ‘‘Selectable Output

Controls’’—by giant media companies. • Americans’ fundamental rights to buy legal products such as VCRs and digital

video recorders are in jeopardy as media giants have declared war on the Supreme Court’s landmark Betamax ruling.

H.R. 107 cannot and does not address all of these harms in a single bill. It does,

however, take necessary steps to restore the balance that now leans so heavily

against consumers, innovators, and educators. Here is what H.R. 107 would do:

1. H.R. 107 would re-affirm that the Supreme Court’s holding in the Betamax case

is the law of the land;

2. H.R. 107 would protect consumers, inventors, educators, librarians, and product

designers from prosecution or suit for ‘‘circumvention’’ unless their activity also

infringes the copyrighted work in question;

3. H.R. 107 would protect legitimate research from being suppressed via suit under

the DMCA; and

4. H.R. 107 would require explicit warning labels on ‘‘anti-copy CDs.’’

Let me explain why, in our view, each of these areas needs to be addressed by

the Congress.

First, H.R. 107 ensures that the Supreme Court’s Betamax decision will remain

the law of the land. Betamax is the legal cornerstone of our industry’s ability to innovate and bring new products to consumers.

H.R. 107 provides:

‘‘It shall not be a violation of this title to manufacture, distribute, or make

noninfringing use of a hardware or software product capable of enabling significant noninfringing use of a copyrighted work.’’

This provision embodies the Supreme Court’s classic formulation in its 1984

Betamax holding.

Media giants now are running a well-funded campaign to persuade the public, the

Courts, and the Congress that the Betamax doctrine safeguarding all products having significant non-infringing uses should now be confined to one product—the analog VCR—and that it has no application in the digital age.

Actually, the opposite is true—in the digital age consumers and innovators need

the Betamax protection to be strengthened, not weakened. Some of you have visited

or heard of our annual International Consumer Electronics Show or CES. Without

the Betamax holding, many of the products on display at CES would simply not

exist. Indeed, many of the exciting new digital products American consumers are enjoying in their living rooms today would not exist.

Twenty years ago, Hollywood asked the Supreme Court in the Betamax case to

ban a product from the marketplace, based on a projection that its predominant use

would be to infringe copyright. The Supreme Court declined to do so. Instead, it

ruled that so long as any significant non-infringing use of the product could be identified, the product deserved its place in the market.

We all know, now, that this decision allowed the creation of an entirely new market—home video—that no one had anticipated. Even in Hollywood’s record-setting

box office year of 2003, home video generated significantly more revenue than theatrical releases.

But the Betamax decision unleashed more than a single new market. It represented a turning point in American cultural and economic life. The recording and

processing power of devices, long available to industry, was just starting to become

available on an affordable basis to consumers, educators, and libraries. This frightened some powerful groups. The litigation against the VCR was the first shot in

their effort to keep this power out of the hands of consumers. The Supreme Court

changed history by resisting this over-reaching offensive.

The plaintiff movie studios asked the Courts for nothing less than an injunction,

to keep VCRs off the market, unless the copyright holder granted permission for the

product to be marketed, and set the terms and conditions under which it might be

configured and sold.

The Supreme Court refused to do this. The Court observed that, were it to do so,

it would be including the innovative new product in somebody else’s existing monopoly. In the patent law, this would mean that a patentee would effectively gain monopoly control over any other product that might contribute to infringement of the

patent.

The Court said that such a rule would ‘‘choke the wheels of commerce.’’ It said the

same would be true in the case of a copyright owner asking for the power to keep

a new device off the market. The Court said that such power should not be granted,

26

even if the primary purpose of the new device is to infringe copyright, so long as

the device has a significant use that is non-infringing.

This outcome, in favor of a new consumer device coming to market without the

necessity for a specific license from copyright owners, was not inevitable—it was the

product of a vigorously argued, 5-4 decision. We can see now, with hindsight, that

a contrary decision would probably have choked the wheels not only of commerce,

but also of e-commerce. Without the establishment of Betamax principles, a number

of common Internet applications—and perhaps the Internet itself—would have been

vulnerable to legal challenge.

The Betamax principles must be affirmed when you mark up H.R. 107 because,

even today, it is being argued that the freedom to innovate that was established

therein should apply only very narrowly—that it was OK for analog products, but

is simply too dangerous for digital products. That it was OK for hardware, but too

dangerous for software. Such thinking in the digital era would be a serious blow

to American technical leadership, as well as to the rights of consumers. These rights

should be confirmed, not circumscribed any further.

Second, H.R. 107 would confirm that individuals ‘‘unlocking’’ digital media they

own would not be liable under the DMCA so long as they did not infringe the underlying work. The bill would do so with the following language:

‘‘It is not a violation of this section to circumvent a technological measure in

connection with access to, or the use of, a work if such circumvention does not

result in an infringement of the copyright in the work.’’

One of the central failings of the DMCA is that it preserved fair use as a defense

to copyright infringement, but more perniciously created the new crime of circumvention without a fair use defense. As a result, even if no infringement occurs

when a consumer simply unlocks something he or she owns, he or she could be held

liable under the DMCA. The Boucher-Doolittle bill would bring the two statutes into

harmony by imposing liability under the DMCA only when it also exists under the

Copyright Act.

American copyright law, unlike some in Europe, provides that those who purchase

material have an unencumbered right to make private, personal or family use of it—

such as simply watching or listening—without any obligation to the content owner.

Yet the erosion of this important principle in the digital age has been profound.

Indeed, it would be hard to go out on the street today and find a consumer who

is not a home entertainment ‘‘licensee’’ many times over, even if that consumer owns

no recording device at all. The same could not have been said 50 years ago, or even

20 years ago, at the time that the Betamax case was decided.

The DMCA has severely and unnecessarily aggravated this situation. The consequences are extensive, and they range from the minor to the profound.

The DMCA, for example, makes it unlawful for a parent to ‘‘unlock’’ a DVD to

fast-forward through the multiple ads at the beginning of it. This has nothing to

do with protecting copyrighted material from reproduction or public display. Under

the Copyright Act, a grade school child has a fair use right to record a short excerpt

from a movie on VHS for use in a school project, but has no such right under the

DMCA. The Boucher-Doolittle bill would rectify this situation by providing families

with the same legal right under the DMCA.

But the problems go beyond the use of technology and media by families at home.

It has now become routine for competitors to cite the DMCA in attempts to suppress

competitive products.

When the DMCA was passed, what Member of Congress could have imagined that

it would be used by companies to sue legitimate competitors marketing universal

garage door openers or generic printer cartridges?

These competitors are not accused of infringing any intellectual property laws—

not copyright, patent, trademarks, or trade secrets. The only offense they are accused of committing is reverse engineering—or ‘‘decrypting’’—their competitors’

products for compatibility purposes, thus arguably violating the DMCA.

And in the future, we can expect to see more abuse of the DMCA to forestall legitimate competition. For example, CEA represents manufacturers of aftermarket

consumer electronics for automobiles. If automobile manufacturers were to put ‘‘authentication chips’’ in their cars, makers of aftermarket products such as car stereos

or car alarms could face suit for reverse engineering the chips merely to ensure compatibility of aftermarket products. The entire automobile aftermarket could disappear, courtesy of the DMCA.

And in a world where chips are becoming cheaper and more ubiquitous, you could

apply that scenario to nearly any other industry. Just imagine the destructive effect

on the economy and innovation. Surely this was not the intent of the DMCA.

In the unclear and hyper-litigious environment created by the DMCA, it is little

wonder that venture capitalists are increasingly refusing to fund new and innovaVerDate 11-MAY-2000 09:16 Oct 20, 2004 Jkt 000000 PO 00000 Frm 00030 Fmt 6633 Sfmt 6621 93981.TXT HCOM1 PsN: HCOM1
27

1See, National Academy of Sciences, The Digital Dilemma, Appendix G (National Academy

Press, 2000).

tive technologies. Due to the DMCA, technology companies now routinely pay for

lawyers to sit in on product design meetings. We can only guess what extraordinary

products today’s consumers will never get to see because of the expense and litigation caused by the DMCA.

This situation cannot be allowed to stand. The impact on innovation and the economy will be increasingly severe and harmful. H.R. 107’s remedy is to require a linkage between interference with a technical measure ‘‘protecting’’ a copyrighted work,

and infringement of the copyright in the work.

Without this protection, a new and vague form of legal ‘‘protection’’ may be

drummed up toward whatever advantage the proponent of a technological measure

has in mind, resulting in the creation, unintended by the Congress, of a new and

unmanageable form of industrial property protection. This is exactly what the Supreme Court said in the Betamax case that it needed to guard against—so as not

to ‘‘choke’’ commerce.

I was one of several witnesses who warned of this potential consequence when the

DMCA was pending; but back then we were not as creative as some lawyers have

proven to be, so we could not dream up the range of abuses that have now come

to pass.

I also must note, Mr. Chairman, the dedicated efforts of many companies in our

industry to create content protection technologies that safeguard commonly accepted

consumer fair use practices. Following Congress’s lead, our industry has insisted

that protection technologies be accompanied by ‘‘encoding rules’’ such as those in

Section 1201(k) of the DMCA, that respect consumers’ legitimate expectations in the

recording of broadcast and subscription video content.

We do not anticipate that H.R. 107 will interfere with these efforts to create enforceable and more flexible DRM technologies. Notwithstanding, even the best of today’s DRM technologies’ and our companies constantly strive to improve them, because they do have an important place in the marketplace—can only approximate,

but not fully accommodate, fair use.

So, in the interests of both families and innovators, the DMCA’s lack of any tie

to copyright infringement—indeed, its circumlocution in defining what it does protect—needs to be reformed. H.R. 107 provides a means to do so. I urge the Subcommittee to address itself to this task when it moves this legislation forward.

Third, H.R. 107 provides an exemption for activities ‘‘solely in furtherance of

scientific research into technological protection measures.’’ The last few

years have been full of instances where copyright holders attempted to silence and

intimidate academic researchers by brandishing the DMCA—the case of Princeton

Professor Ed Felton is perhaps the most notorious. It is now clear that the DMCA’s

existing provisions are too narrowly drafted to avoid the intimidation of scholars

and researchers.1

The HRRC has more than a decade’s experience in working with content owners

and distributors, to try to find balanced technical solutions that meet their needs,

yet recognize and preserve the reasonable and customary practices and expectations

of consumers.

HRRC is a charter participant in the Copy Protection Technical Working Group

(‘‘CPTWG’’), which is now entering its ninth year of meetings that bring people together to discuss these issues in an open technical forum. One thing we have

learned is that technical measures must be tested as to the reliability of intended

outcomes, and vulnerability to unintended outcomes.

Public comment by researchers, both invited and uninvited, is vital. The DMCA

should not be used as a selective sword and shield, to invite comment from some

quarters but not from others.

Finally, H.R. 107 requires a specific warning label on ‘‘anti-copy’’ CDs, with

the Federal Trade Commission given jurisdiction to enforce compliance.

The emergence of common products, like a Compact Disc, that suddenly will not

play back in common and clearly lawful products such as automotive players, boom

boxes and PCs, illustrates a problem in the digital revolution that is little remarked

on: as sophisticated as digital techniques may be, they are often very blunt instruments.

The primary ‘‘copy control’’ technique in the digital world is still to deny access.

When access to the program material is denied, the user loses it not just for purposes of copying, but also for ordinary viewing and listening, as well.

The DMCA does not address this problem; it aggravates it. Except for section

1201(k), which addresses an analog technology, it provides no tools to enhance consumer use, yet new obstacles may be imposed unilaterally and without warning.

28

2See Schwartz and Turner, ‘‘When Is A Technological Measure Effective?’’ www.HRRC.org.

See also, id., pp. 9-10.

In the case of Compact Discs, some of the access denial measures are so crude—

for example, simply introducing errors into the digital coding, so as to fool the types

of circuitry used in some players—the HRRC does not regard them as ‘‘effective

measures’’ under the DMCA at all.2

But whether or not circumvention is prohibited by the DMCA, the consumer who

buys an ordinary Compact Disc that is copy-protected is buying a potential problem.

The CD format has been stable for twenty years; consumers have invested in hundreds of millions of players, and in sound systems designed to work with those players.Consumers are entitled to know when they are buying a disc that may not be

playable, or that, if playable, the disc may not be used in the ways to which consumers have become accustomed. And they are entitled to know these things right

away, at the store, before they bring their purchase home.

Some Members of this Committee will recall that the HRRC was involved in the

negotiation and enactment of the Audio Home Recording Act of 1992 (AHRA), which

was an effort to enact forward-looking legislation to deal with recording from Compact Discs in the digital age.

The AHRA imposed very specific technical and royalty obligations that are still

in place on consumer electronics digital audio recorders and media, in exchange for

some specific consumer protections. The music industry may now take a different

view of its current needs and objectives, but we have not forgotten about the AHRA.

Thus far, we are not aware that any of the technical restraints imposed on copyprotected CDs would infringe on the particular recording functions that the AHRA

assures to consumers—but we will continue to be vigilant on this subject.

The Compact Disc labeling provisions protect consumers by ensuring that they

know when they are being offered products that, as a result of added ‘‘copy protection’’ measures, might not play on some standard CD or DVD players and may not

be recordable on a personal computer. Consumers have a right to know this. They

have a right to know if the disc might not play on one of their products. They have

a right to know whether they can make a home recording for private, noncommercial purposes, and if they can, what strings may now be attached to their ability

to do so. Then they can make an informed choice.

Mr. Chairman, let me make one final point. I understand that individuals representing the entertainment industry have told this Committee that H.R. 107 would

somehow provide a haven for those who engage in piracy. That is absurd.

H.R. 107 only authorizes consumers to circumvent a technological protection measure in those instances where they do not infringe a copyright. H.R. 107 takes

away no intellectual property rights. It merely re-aligns the DMCA with historic

copyright law by ensuring that there can be no DMCA liability without copyright

infringement liability.

I understand that some also have accused this bill of undermining digital rights

management copy protection systems. This too is absurd. Our industry recognizes

and supports the need for reasonable measures to protect against widespread piracy

such as those outlined in the so-called plug-and-play agreement reached between

our industry and cable operators last year. We simply argue that these systems

must be balanced against the equally important and well-established fair use and

home recording rights of consumers.

Twenty years ago, the same entertainment representatives told you that the VCR

would mean the death of the American movie industry. They were spectacularly

wrong.

Now, they make the identical claim about the impact of H.R. 107. I believe history

shows you have every good reason to be skeptical.

Clearly, Mr. Chairman, H.R. 107 addresses a number of pressing problems that

were not specifically foreseen as recently as six years ago. As I said at the outset,

H.R. 107 cannot address all of them, but it is a crucial start.

On behalf of the HRRC, and our efforts since 1981 to achieve balance in U.S. law,

I urge this Subcommittee to work on these problems so as to enable fair use outcomes for consumers, and to move this legislation forward to the full Committee.

In the continuing copyright dialog between the Congress and the Courts, it is time

for the Congress to restore a historic balance that protects consumers, researchers,

educators, and librarians and allows consumer electronics manufacturers to continue to bring exciting, innovative and legal products to market. Thank you again

for having invited us to participate today.

Mr. STEARNS. I thank the gentleman.

29

Mr. Valenti, welcome.

STATEMENT OF JACK VALENTI

Mr. VALENTI. Thank you, Mr. Chairman. First, I want to reply

to my dear friend, Larry Lessig, who quoted me most eloquently

and most persuasively, except there is scarcely a word that he said

was true. The DMCA does not extol fair use. As a matter of fact,

all of the catalog of fair use which you enunciated, Mr. Chairman,

in your opening statement is very much intact in the DMCA today.

No. 2, to my dear friend, Gary Shapiro, let me point out I have

a letter which I think has been delivered to this committee yesterday. I don’t know how many of you have seen it. This letter is from

the DVD CCA, Copy Control Association. Let me tell you who is

in this Copy Control Association. The membership encompasses

many small companies, as well as every major consumer electronic

company in the world, all of whom are in Mr. Shapiro’s association.

Most of the major computer companies, virtually all electronic component manufacturers, all of them oppose 107 for the reasons that

I’ll give you today.

I want to make just four points, but I want to preface it with a

question. I am very respectful of Members of Congress because you

won public approval from your voters. I never have and nobody at

this table except my dear friend, Al Swift, has. So every time you

confront an issue in this Congress, you must ask yourself one question. What is the public interest in this bill? How is the national

interest served by this? And then you vote accordingly.

Let me make four points. The first point is that the central flaw

which is unfixable in 107 is that it legalizes hacking. Hacking is

described as circumventing an encrypted device or computer or

anything. That’s what hacking is. It now legalizes it. And allows

you to make a copy or many copies. And the thousandth copy of

a DVD, Mr. Chairman, is as pure and pristine as the original.

That’s point one.

Point two and this is very, very important because it goes to the

very core of what the proponents of H.R. 107 are saying. Right

now, I want to quote from—well, first, when you break an

encryption, there is no known technological device alive today that

can restrict it to one copy. I know 321 is saying they can do that,

but let me show you, Mr. Chairman. Here is an illegal copy of ‘‘The

Runaway Jury.’’ It was purchased by one of my associates in

Chinatown, here in Washington. And when you play this DVD

what comes up is this and I’m going to read you one line. It says

‘‘DVD backup. You are now viewing an archival backup copy of a

DVD created solely for the private and personal use of the owner

of the DVD.’’ And by the way, we ask you to respect the rights of

copyright holders which is the ultimately chutzpah, I might add.

And it’s from 321 Studios. So there’s a classic every day real life

example that you can’t restrict it to one backup copy.

In a symposium held recently, Professor Samuelson, a distinguished member of the academic community that Professor Lessig

knows very well, posed this question. Whether it is possible to develop technologies that would allow circumvention for fair uses

without opening a Pandora’s box so that allowing these technologies means you are essentially repealing the anti-circumvenVerDate 11-MAY-2000 09:16 Oct 20, 2004 Jkt 000000 PO 00000 Frm 00033 Fmt 6633 Sfmt 6602 93981.TXT HCOM1 PsN: HCOM1
30

tion laws. The question was answered by one of the most influential and respected computer scientists in the world, Professor Ed

Felton of Princeton. He said, ‘‘I think this is one of the most important technical questions surrounding DRM, digital rights management, today whether we know, whether we can figure out how to

accommodate fair use and other lawful use without opening a big

loophole. The answer, I think right now, is that we do not know

how to do that.’’

When you take a 321 and you make a so-called backup copy of

an encrypted DVD, Mr. Chairman, you strip away all the protected

clothing of that DVD and now make it naked and alone to make

a thousand or how many copies that you want.

Now point three and then I’m almost done here. I think it’s important for Congress to understand what we’re dealing with here.

Intellectual property, computer software, music, movies, television,

home video, represent America’s greatest trade export price. We

comprise more than 5 percent of the gross domestic product of this

country. We bring in more international revenues than agriculture,

than aircraft, than automobiles and auto parts, and most important, we are creating new jobs at three times the rate of the rest

of the economy and these are not minimum wage jobs.

And finally, the movie industry alone has a surplus balance of

trade with every single country in the world. I don’t believe any

other American enterprise could make that statement. And just

today, I heard NPR say that we have now announced the largest

deficit balance in payments in trade in our history.

So I’m saying to you the question is is it in the national interest

to put to hazard the possibility of a shrinkage of this awesome engine of economic growth? That’s the question that you have to answer.

Finally, we have striven, the computer software industry, the

music industry and movies, home video and television, working

with our government in bilateral trade agreements and in free

trade agreements to make sure that other countries have the same

resolve and the same copyright laws that protect our property over

there which is anti-circumvention.

If we pass H.R. 107, every country in the world is going to say

wait a minute, we better repeal all our laws. Why in the hell

should we be protecting your property in our country where you

don’t protect them in your own?

So I’m saying to you, Mr. Chairman, fair use is alive and well,

but no Court in the land and Mr. Lessig, Professor Lessig, I pray

would approve of this, he may not, but the record is there. No

Court in the land has to this hour said that copying an entire

movie represents fair use.

I leave this in your hands, hoping that question is this in the national interest has to be answered and I thank you very, very

much.

[The prepared statement of Jack Valenti follows:]

31

PREPARED STATEMENT OF JACK VALENTI, PRESIDENT AND CEO, MOTION PICTURE

ASSOCIATION OF AMERICA

WHY H.R. 107 IS A PRIME HAZARD TO THE FUTURE OF AMERICAN INTELLECTUAL

PROPERTY

1. H.R. 107 has one unfixable defect: It will legalize the hacking of copy protection

measures, which in turn will make it impossible to truly protect valuable creative

property.

We must remember that tapes copied on a VCR become progressively

unwatchable after the first few generations. Not so in the digital format. The 1000th

copy of a digital movie or piece of computer software is as pure and pristine as the

original.

If H.R. 107 becomes law, it then becomes legal to sell machines that circumvent,

or hack, the copy protections on a movie, whether distributed as a DVD or online,

so long as the device is ‘‘capable of enabling significant noninfringing use of the

copyright work.’’ This would devastate the home sale market, as anyone could use

these products to ‘‘rent, rip, and return’’ DVDs borrowed from video stores. In addition, it will greatly diminish the incentive for investment in new and innovative distribution mechanisms for digital content, such as distributing movies online. All legitimate digital distribution of movies depends on encryption and digital rights

management technologies to control unbridled distribution. If breaking this

encryption is legalized, why would movie studios invest in the infrastructure to deliver their products digitally when devices to strip the content of protection are legal

and commonplace?

2. Keep in mind that, once copy protection is circumvented, there is no known

technology that can limit the number of copies that can be produced from the original. In a recent symposium on the DMCA, Professor Samuelson of UC Berkeley

posed the question: ‘‘whether it was possible to develop technologies that would

allow... circumvention for fair uses without opening up the Pandora’s Box so that

allowing these technologies means that you’re essentially repealing the anti-circumvention laws.’’

The question was answered by the prominent computer scientist and outspoken

opponent of the DMCA, Professor Ed Felton of Princeton: ‘‘I think this is one of the

most important technical questions surrounding DRM—whether we know, whether

we can figure out how to accommodate fair use and other lawful use without opening up a big loophole. The answer, I think, right now, is that we don’t know how

to do that. Not effectively.’’

Moreover, there is no known device that can distinguish between a ‘‘fair use’’ circumvention and an infringing one. Allowing copy protection measures to be circumvented will inevitably result in allowing anyone to make hundreds of copies—

thousands—thereby devastating the home video market for movies. Some 40 percent

of all revenues to the movie studios come from home video. If this marketplace decays, it will cripple the ability of copyright owners to retrieve their investment, and

result in fewer and less interesting choices at the movie theater.

3. It is important for the Congress to understand that intellectual property is

America’s greatest export prize which comprises more than five percent of the

GDP—brings in more international revenues than agriculture, aircraft, automobiles

and auto parts—and is creating NEW jobs at three times the rate of the rest of the

economy. Why is it in the national interest to put to risk this engine of economic

growth? Why?

4. Moreover if Congress creates this enormous loophole in the DMCA by passing

H.R. 107, every nation in the world will immediately revise its own copyright rules

to do the same. American intellectual property protections will be un-done, not only

here but around the world. Why should other countries protect our property in their

land if we don’t do the same here?

5. H.R. 107 language was proposed in 1998 and was soundly defeated by the Congress.

My colleagues from the Business Software Alliance and the Recording Industry

Association of America will elaborate on a number of these points. They will also

talk about the ‘‘labelling’’ requirements proposed by the bill, and I want to make

sure that the MPAA is clear that we support voluntary, not mandatory labelling.

I want to focus the remainder of my testimony on one of the underlying issues driving this debate at this time: the issue of ‘‘back-up copies.’’

There are three reasons why the legislation to permit ‘‘backing up’’ DVDs is unsuitable for passage. Making back-up copies of DVDs:

• Is not legal.

• Is not necessary.

32

• And allows ‘‘hacking’’ of encrypted creative material, which in turn puts to peril

the future home video market.

First, back-up copies are not legal. The Copyright Act does NOT say ‘‘buy one

movie, get one free.’’ There is no more a ‘‘right’’ to a back-up copy of a DVD than

a back-up DVD player, lawn mower or set of wine glasses. (Indeed, Congress included language in the DMCA that mandated that VCRs include technology to block

the copying of prerecorded movies.) What H.R. 107 really says is ‘‘it’s okay to make

extra copies, and it’s okay to circumvent encryption to do it.’’

Second, and more fundamentally, back-up copies of DVDs are not necessary. As

said earlier, an encrypted DVD is well nigh indestructible. Most people I know, and

I include myself, take a favorite DVD with them when they travel. It is highly portable. Moreover, an encrypted DVD can be watched over and again, hundreds of

times without any degrading of sight, sound and color. And if by some very rare

happening a DVD should malfunction, another can be bought at ever-lowering

prices.

Let’s remind ourselves about what has happened since 1998, when this proposal

was last placed before—and rejected by—this Committee and the Congress. What

has happened is the most immediately successful innovations in the history of how

we as a nation enjoy audio-visual entertainment. The American consumer has

adopted the encrypted DVD faster and more completely than any previous new consumer electronics product. This DVD revolution has been the key fact of life for

making the American movie industry so hospitably received in countries all over the

world.

The Copyright Office looked at this entire issue in great detail in last year’s

DMCA rulemaking proceeding and, for the second time since the DMCA was enacted, denied an exemption for making backup copies of DVDs. Their analysis is correct. There’s no reason to reverse the course the Congress set in 1998: to bring the

benefits of digital dissemination of copyrighted materials to the American consumer

by encouraging the use of technological controls on access and use of those materials.

As you are aware, ‘‘321,’’ before being enjoined by two federal courts from carrying

on its illegal business, was one of the leading purveyors of hacking technology targeting our DVDs. 321’s machines automatically labelled the copy of the DVD ‘‘for

back-up use only.’’ Yet our investigators and law enforcement officials have found

unauthorized copies with that very label being sold in the pirate marketplace.

We return to this one incontrovertible point: there is no way to know, at the moment that protection is stripped away, what use will be made of the resulting immaculate but unauthorized copy. Once the hacker has done his work, the protection

is gone forever. The adverse impact of the hacking on the men and women who have

invested their time, toil and talent to make the movie in question could be minimal—but it could equally be monumental. There is simply no way of telling in advance.

So let’s be frank about the impact of enacting H.R. 107. This is not just about

facilitating back-up copies, illegal and unnecessary though they may be. It’s not

even about enabling consumers to make their own extra copies, rather than to pay

for them in the normal channels of commerce. It’s about opening a Pandora’s Box

that our present technological capabilities are powerless to close.

Let me address one final point. This discussion has been about DVDs. But looming much larger is the issue of digital distribution.

Today our ability to digitally distribute movies legally—and the pirates’ ability to

digitally distribute them illegally—is subject to limits of speed. But there are experiments now going on that will reshape and enlarge the ease and speed of delivery.

Cal Tech reported one experiment called ‘‘FAST,’’ which can download a quality

DVD movie in five seconds! Another experiment, ‘‘Internet-2,’’ has dispatched 6.7

gigabytes halfway around the world in one minute! (An uncompressed DVD-movie

contains some 4.6 gigabytes.)

With this kind of lightning-fast speeds just around the corner, our dream and our

plan is to develop digital distribution systems that will allow you to select and

watch any movie ever made from the comfort of your own home. Consumer-friendly

choices are promoted by providing consumers with legitimate market-driven alternatives for renting,—purchasing or even copying.— But these options will never

come to pass if the circumvention of technology that provides these consumer

choices is legalized by this legislation.

Development of these options all depend on copy protection—encryption

schemes—and digital rights management to work. Under H.R. 107, someone will legally be able to develop, manufacture, sell, and use hacking tools. There is no point

investing in expensive technologies to safely distribute our products digitally if we

33

1See Jim Snyder, ‘‘Company Takes on MPAA Copyright Fights’’ The Hill, April 2 1, 2004, online version at http://www.thehill.com/business/042104 mpaa.aspx; Judy Sarasohn, ‘‘Special Interests’’ The Washington Post, April 29, 2004 at A23.

know that in moments they will be stripped of their protection. If this bill is enacted, the digital dream will turn into a digital nightmare.

H.R. 107 is not just bad for copyright owners; it’s bad for consumers. We urge that

this bill be rejected.

[The letter from the DVD Copy Control Association follows:]

DVD COPY CONTROL ASSOCIATION

MORGAN HILL, CA

May 11, 2004

The Honorable CLIFF STEARNS

Chairman

Subcommittee on Commerce, Trade and Consumer Protection

Committee on Energy and Commerce

U.S. House of Representatives

Washington, DC 20515

DEAR CHAIRMAN STEARNS: The DVD Copy Control Association, Inc. (‘‘DVD CCA’’)

submits this letter with respect to the hearing to be held on May 12, 2004, by the

Subcommittee on Commerce, Trade, and Consumer Protection (‘‘Subcommittee’’) on

H.R. 107, the Digital Media Consumers’ Rights Act of 2003, and, more specifically,

in relation to the comments made in the context of consideration of that legislation

by representatives of 321 Studios, Inc. (‘‘321’’).1 We appreciate the opportunity to

submit this letter for the record of the hearings on this legislation and provide it

in advance of the hearings for the Subcommittee’s use in conducting the May 12

hearing. To the extent that representatives of 321 make statements at the hearing

that require our response, we anticipate sending a further communication to the

Subcommittee.

We write as an association that has offered technology—the Content Scramble

System (‘‘CSS’’)—to protect against unauthorized consumer copying of DVD video

content. The availability of our technology has been critical to making DVD videos

available to consumers and making the DVD business the fastest growing consumer

electronics business in history. Our technology has been found in multiple legal proceedings to be an effective technological measure protected by the anti-circumvention provisions of the Digital Millennium Copyright Act (‘‘DMCA’’). We urge the

Subcommittee to avoid endorsing any legislative change that would undermine

these DMCA protections for CSS technology or that would give 321 or others with

similar DVD copying products any basis to argue that the DMCA’s protections do

not apply to CSS technology. Further, no suggestion or implication should be made

that this Subcommittee or the Congress more generally endorses actions by 321 or

others who would defeat CSS protections.

DVD CCA is a non-profit trade association composed of the over 261 licensees of

CSS for the protection of DVD Video content against unauthorized access and use.

CSS was developed and deployed beginning in 1996, in order to encourage the motion picture industry to put its highly valuable movie content on DVD Video discs

and, thereby, facilitate the development of a new industry to provide high-quality,

exciting products and content for the enjoyment of consumers. DVD CCA’s membership encompasses many small companies, as well as every major consumer electronics company in the world, most major computer companies, virtually all electronic component manufacturers, and several major motion picture companies. The

multi-industry governance structure of DVD CCA provides a carefully balanced decision-making process. The key governing bodies of DVD CCA—the board of directors,

the Content Protection Advisory Council, and the functional categories of licensees—

operate to ensure that all licensees participate in the critical decisions of the organization and that no one industry dominates the decision-making process.

The success of CSS in enabling the development of the DVD video business was

already underway when Congress passed the DMCA in 1998. CSS was well-known

to the Committees and Members of Congress who were making the decisions on the

provisions of the legislation that became the DMCA. Indeed, CSS was widely understood to be precisely the kind of ‘‘effective technological measure’’ that was to be protected by the anti-circumvention provisions of the DMCA.

In addition, we have the following additional specific observations.

First, 321’s products have made and, to our knowledge, continue to make use

of DVD CCA’s proprietary technology without license. For that reason, DVD

34

CCA has sued 321 for infringement of claims in two particular patents for CSS

technology. We expect to prevail in that litigation later this year.

Second, the specifications, usage and compliance rules associated with CSS

make clear that the technology and licensing system have been deployed to prevent consumer copying of the content that is protected using CSS. 321’s products have been manufactured and distributed in direct violation of these rules.

Indeed, 321 has clearly recognized this fact in that, (i) prior to DVD CCA’s patent infringement suit against it, 321 never sought a license from DVD CCA to

use the CSS technology; and (ii) in proceedings last year before the Copyright

Office, it sought an exemption from the circumvention prohibitions of the

DMCA for consumers using its technology to defeat the protections provided by

CSS.

Third, to our knowledge, no court has ever found that making a complete copy

of a copyrighted audio-visual work that is distributed in prerecorded packaged

media form is ‘‘fair use’’ under the Copyright Act.

Last, in Section 1201(k) of the DMCA, Congress expressly permitted content

owners to use technology (‘‘Macrovision’’) to protect audio-visual works distributed in prerecorded packaged media format from being copied by consumers.

That is precisely what CSS does in relation to CSS-protected video content distributed on prerecorded DVD discs.

In relation to the relatively few consumers who seek to defeat CSS and make copies of protected DVD movie content, DMCA’s anti-circumvention provisions have

been an important legal deterrent to the distribution of technologies to enable such

copying. We believe that it is essential that the legal tools provided by the DMCA

continue to be available for DVD CCA and those whose copyrighted content is protected using CSS.

Again, DVD CCA appreciates this opportunity to provide its views to the Subcommittee, and we look forward to working with you and your colleagues on these

important issues in the future.

Respectfully submitted,

JOHN HOY

President, DVD Copy Control Association, Inc.

Mr. STEARNS. I ask you whether you would like to put the Copy

Control Association’s letter as part of the record, I’d be very glad

to do that. I have this here. You were reading from it earlier.

Mr. VALENTI. Yes, I was. I presume there’s no legal reason—the

answer is yes.

Mr. STEARNS. By unanimous consent, so ordered. I think that

will also be in your benefit.

Mr. Holleyman, welcome.

STATEMENT OF ROBERT W. HOLLEYMAN

Mr. HOLLEYMAN. Thank you, Mr. Chairman. Good morning to

you and members of the subcommittee. I’m Robert Holleyman and

I’m President and CEO of the Business Software Alliance. We’re an

association of the world’s leading software companies and their

principal hardware partners. Our members create approximately

90 percent of the office productivity software in use in the U.S. and

around the world. Indeed, I would echo Mr. Valenti’s commenting

in noting that for the computer software industry, this is truly one

of America’s premiere industries and we too have a surplus balance

of trade in productivity software with every country around the

world.

I’d like to thank the subcommittee for the opportunity to testify

today. As an industry, the software industry has a strong interest

in effective, balanced approach to legal protections against the circumvention of encryption and other technologies that are used to

protect copyrighted works.

We believe that a balanced, effective outcome was achieved 6

years ago when Congress with the substantial input of this comVerDate 11-MAY-2000 09:16 Oct 20, 2004 Jkt 000000 PO 00000 Frm 00038 Fmt 6633 Sfmt 6602 93981.TXT HCOM1 PsN: HCOM1
35

mittee, enacted the Digital Millennium Copyright Act. Our association therefore opposes H.R. 107 which we believe would fundamentally alter the effective balance of interest embodied in the DMCA.

I’d like to make a couple of quick comments about the provisions

of the bill dealing with labeling certain audio CDs. Although directed specifically at the music industry, it touches on a broader

issue of mandatory labeling for all content. For our industry in

software, we’ve been voluntarily labeling our products for 20 years.

Our companies believe that the public should know information

about things such as playability and systems requirements and

that it’s essentially to satisfied customers and is a good business

practice. But we label our products because it’s the right thing to

do, not because we’ve been mandated to do that. And we think that

remains the best approach and the right model for other industries.

I’d like to address the provisions of the bill dealing with the research exception. H.R. 107 would create a broad scientific research

exception. We view this as unnecessarily and dangerously over

broad. Our members are in the business of building secure computing. The advancement of the art of on is the life blood of not

only our industry but the life blood of many of the specific core

businesses of our members. At the time Congress enacted the

DMCA, BSA was a leading proponent of the encryption research

exception. And it is the real world experience of our member companies that this provision has worked as intended. We welcome

Congress’ continued monitoring of the provision, but at this time

we are aware of no evidence that the DMCA stood in the way of

the advancement of legitimate encryption technology.

Even if changes were made, we feel that there needs to be a balance and what we need to do is ensure that we do not shield the

type of activity of hacking activity that 1201 was designed to prohibit.

Let me specifically address the issue of non-infringing use in

H.R. 107. It creates a new non-infringing use exception to the

DMCA. This is precisely the same provision that Congress rejected

in 1998 and this subcommittee should reject now. When the subcommittee considered the DMCA in 1998, it responded to concerns

about potential adverse effects of the legislation by creating a failsafe mechanism and that mechanism was put into place by this

committee. Congress directed NTIA and the Copyright Office to

conduct a rulemaking every 3 years. That process has worked well

in both 2000 and most recently in October of 2003. We believe that

that is the most effective means of addressing this issue.

The central problem we have with the overall proposal is that it

would allow any device that can circumvent a technological measure for a non-infringing use to also be used as a means to circumvent for purposes of piracy. H.R. 107 would effectively leave no

circumvention device subject to the DMCA. In the long term, this

would create a huge disincentive for our industry to develop measures to protect digital content.

In the short term, broad availability of circumvention tools will

lead to an increase in software piracy. Our industry is suffering

from nearly $13 billion annual losses due to software piracy of

which $2 billion of those are in the U.S. One key element of our

company’s efforts to prevent those losses is the use of new product

36

1The Business Software Alliance (www.bsa.org) is the foremost organization dedicated to promoting a safe and legal digital world. BSA is the voice of the world’s commercial software industry and its hardware partners before governments and in the international marketplace. Its

members represent one of the fastest growing industries in the world. BSA programs foster technology innovation through education and policy initiatives that promote copyright protection,

cyber security, trade and e-commerce. BSA members include Adobe, Apple, Autodesk, Avid,

Bentley Systems, Borland, Cisco Systems, CNC Software/Mastercam, HP, IBM, Intel, Internet

Security Systems, Macromedia, Microsoft, Network Associates, RSA Security, SolidWorks,

Sybase, Symantec, UGS PLM Solutions and VERITAS Software.

activation and other access control technologies that are simple,

consumer friendly and they help ensure that each copy of software

is properly licensed. These simple, easy to use tools would be directly stymied by the broad availability of circumvention products

that H.R. 107 would make legal.

As a result, it would require great reliance on litigation to protect our rights and also greater reliance on government resources

in the fight against piracy. Congress had a goal in 1998 to encourage the development of activation and other technologies to make

it possible for the promise of the internet, as a distribution channel, to become a reality. We share that goal. In the 6 years since

the DMCA was enacted, more software and other copyrighted

works are available to more consumers in a greater variety of ways

than ever before. This progress should be allowed to continue.

Thank you for the opportunity to testify.

[The prepared statement of Robert W. Holleyman follows:]

PREPARED STATEMENT OF ROBERT HOLLEYMAN, PRESIDENT AND CEO, BUSINESS

SOFTWARE ALLIANCE

Good morning. My name is Robert Holleyman. I am the President and CEO of

the Business Software Alliance.1 The Business Software Alliance is an association

of the world’s leading software companies. BSA’s members create approximately

90% of the office productivity software in use in the U.S. and around the world.

I thank the subcommittee for the opportunity to testify here today. The software

industry has a strong interest in an effective and balanced approach to legal protections against the circumvention of encryption and other technologies that are used

to protect copyrighted works. We believe that a balanced and effective outcome was

achieved six years ago when Congress, with the substantial input and leadership

of the House Commerce Committee, enacted the Digital Millennium Copyright Act.

Our industry therefore opposes H.R. 107, which we believe would fundamentally

alter the effective balance of interests embodied in the DMCA.

Labeling Requirements

Before discussing section 5 of the bill, I would like to make a few comments on

the provisions of the bill concerning the labeling of certain audio CDs. Although this

provision is directed specifically to the music industry, it touches on the broader

issue of mandatory labeling for the entire range of content.

The software industry has been labeling its products for twenty years. Our companies believe that informing the public about such matters as playability and system

requirements is essential to keeping satisfied customers and a good business practice. The industry labels its products because it is the right thing to do—not because

government regulators have mandated it.

We believe that this is an appropriate model for the content industries generally.

Vendors should inform the public about playability and related matters, and they

should do it voluntarily. Government mandates should be avoided as long as market

forces are working. As technological progress drives innovation on how systems operate, and how DRMs are used, labeling requirements must also change to reflect

these developments. We fear that mandated labeling may well delay prompt action

by companies to keep consumers informed.

Research Exception

Section 5 (a) of the bill would exempt from the DMCA’s antitrafficking provisions

anything that that is done ‘‘solely in furtherance of scientific research into technoVerDate 11-MAY-2000 09:16 Oct 20, 2004 Jkt 000000 PO 00000 Frm 00040 Fmt 6633 Sfmt 6621 93981.TXT HCOM1 PsN: HCOM1
37

logical protection measures.’’ We view this exception as unnecessary and dangerously overbroad.

BSA’s member companies are the industry leaders in the business of secure computing. They engage routinely in encryption research in the course of developing

their products. The advancement of the state of the art of encryption is the lifeblood

of this segment of our industry.

At the time Congress enacted the DMCA, BSA was a leading proponent of the

encryption research exception that is embodied in section 1201(g) of the DMCA. This

exception was calibrated by Congress to ensure that encryption technology could advance unimpeded, while avoiding the trap of creating a safe harbor for bad actors.

It is the real world experience of our member companies that this provision has

worked as intended: the science of encryption continues to evolve rapidly. This scientific progress continues to yield new and better technologies. These technologies

make an essential contribution to our national security and economic welfare, especially in the current heightened security environment.

If section 1201 were to have an adverse effect on encryption research our industry

would be among the first seeking changes to the encryption research exception. We

welcome Congress’ continued monitoring of this provision. We are aware of no evidence that section 1201 has stood in the way of the advancement of the state of the

art in encryption or other protective technologies. To the contrary, the proliferation

of these technologies in the marketplace attests that the opposite is true. No change

is needed at this time.

Even if change were necessary, the exception proposed in section 5(a) is

overbroad. The existing exception in section 1201(g) is narrow, focused, and clearlydefined as to the scope of permitted conduct and the parties who are eligible. By

contrast, section 5(a) of the bill proposes an exception in very broad terms. It would

create a substantial danger of shielding, not legitimate research, but the very activity that section 1201 was designed to prohibit.

Exceptions for Noninfringing Use

Section 5(b) of the bill would create two new exceptions to section 1201. First, it

would exempt any act of circumvention unless it results in a copyright infringement.

Second, it would exempt the manufacture and distribution of circumvention tools

that are capable of enabling ‘‘significant noninfringing use of a copyrighted work.’’

Together, these exceptions would swallow the rule; they would effectively nullify

section 1201. Congress rejected this proposal in 1998, and this subcommittee should

reject it now.

When this subcommittee considered the DMCA in 1998, it heard a great deal of

concern about the potential adverse effects that the anticircumvention provision

might have on noninfringing uses of copyrighted works. Through the leadership of

this Committee, Congress responded to this concern by creating a failsafe mechanism which directs NTIA and the Copyright Office to conduct a rulemaking every

three years to determine whether there is, or is likely to be any adverse impact on

the ability of people to engage in noninfringing uses of copyrighted works. After examining the evidence, these agencies report their findings and recommendations to

the Librarian of Congress, who is empowered to create exceptions to permit those

specific noninfringing uses.

This process has now taken place twice—in 2000 and just six months ago in October 2003. Each time, an entire year was consumed in evidence-gathering and deliberation. Hearings were held in Washington and in other cities across the country.

Multiple rounds of written comments were accepted and considered. At the end of

the process exceptions were adopted to address specific instances where the evidence

supported a conclusion that section 1201 was, or was likely to impede noninfringing

use of copyrighted works.

I would like to offer four observations about this rulemaking process:

First, the process has functioned exactly as Congress intended it to function.

Where there have been claims that section 1201 is adversely affecting noninfringing

use, and those claims are supported by evidence, the rulemaking has resulted in the

creation of new exceptions. In the most recent rulemaking NTIA and the Copyright

Office recommended four specific exceptions, and those exceptions were adopted by

the Librarian.

Second, the rulemaking process crafted by this Committee is a far better mechanism for addressing the question of noninfringing use than the categorical exemption proposed in H.R. 107. It can rectify specific instances where the protections of

section 1201 are having an undesired effect, in a precise, focused way. It does so

without the same degree of risk as a broad, one-size-fits-all exemption.

38

Third, the existence and proper functioning of the rulemaking process renders a

broad noninfringing use exception unnecessary. With a working safety valve in

place, there is no need to open the floodgates.

Fourth, and finally, variations of the broad noninfringing use exception proposed

in H.R. 107 were proffered in both rulemakings. In 2000, and again six months ago,

these proposals were rejected for lack of evidence. Nowhere in the voluminous

record of the year-long proceeding was there sufficient factual support to recommend

a general noninfringing use exception.

Not only is section 5(b) of the bill unnecessary, but we believe it would be extremely harmful.

Removing the technological protections from a work in digital form, even if it’s

done for a noninfringing purpose, leaves the work vulnerable to infringing use.

This problem is magnified many times if the means to remove technological protections are permitted into the stream of commerce. H.R. 107 would allow any device than can circumvent a technological measure for a noninfringing use. But circumvention devices cannot distinguish between infringing and noninfringing use.

That is the conclusion reached by Professor Edward Felten, a computer scientist at

Princeton and a vocal opponent of the DMCA, when questioned at conference at

Berkeley last year.

Consequently, any device that can circumvent a technological measure for a noninfringing use can also be used to circumvent in order to infringe. By the same

token, any device that can circumvent to enable infringing use, can also enable noninfringing use. In effect, then, no circumvention device would remain subject to section 1201’s prohibitions.

In the long term, this would create a huge disincentive for our industry to develop

the technological protection measures that content providers need in order to make

their intellectual property available in digital form on the Internet. Ultimately that

would reduce the quantity and variety of materials available in that form.

In the short term, broad availability of circumvention tools will lead to copyright

piracy. Each of the copyright industries suffers from this problem today. Each is

looking to a variety of technologies to make infringing use more difficult, and legitimate use easier.

The software industry lost nearly $2 billion to piracy in the U.S. and more than

$13 billion worldwide in 2002. Most of these losses were due to unauthorized copying of software in a business setting. One of the key elements of our companies’ efforts to prevent these losses is the use of product activation and other access-control

technologies to ensure that each working copy of their software in the workplace is

licensed and paid for. These simple self-help efforts would be stymied by the broad

availability of circumvention tools that H.R. 107 would make legal. H.R. 107 would

increase our reliance upon litigation and governmental resources to reduce piracy.

Congress’ goal in 1998 was to encourage the development of activation and other

technologies to make it possible for the promise of the Internet as a distribution

channel to become a reality. We share that goal. In the six years since the DMCA

was enacted, more copyrighted works have become available to more consumers in

a greater variety of ways than ever before. This progress should be allowed to continue.

Thank you, Mr. Chairman, for inviting me to testify today. I’d be happy to answer

any questions the Members of the subcommittee may have.

Mr. STEARNS. I thank the gentleman. Welcome our former colleague, the Honorable Al Swift and I had the opportunity to serve

with you before you retired.

STATEMENT OF HON. AL SWIFT

Mr. SWIFT. Thank you very much. It’s good to be back in this

room. It’s even better to be on this side of the dais. I get my weekends with my family.

Before I was in Congress, I was a broadcaster. I was a disk jockey so long ago that we didn’t even shout at our listeners in those

days.

Today, I’m a lobbyist with the firm of Colling Murphy Swift

Hynes Seldridge. Our firm has no client on any side of this issue.

I am testifying as an interested private citizen with a background

39

in communications. I had great interest in these matters when I

was on the committee and I continue that interest today.

I think I was in my first year of high school when I bought with

money that I earned working at a hardware store after school my

first tape machine. It was a reel to reel machine. It was supposed

to be portable although it weighed a ton and all I had to record on

to it was 78 rpm records, the 45 wasn’t distributed generally until

I was in college. As near as I can figure, I’ve been home recordist

for 54 years. In that time, I have given friends many tapes, cassettes and now CDs containing programs, collections that I create

out of my own collection of CDs and LPs. In that time, I have never

once made a straight duplicate of a record for anyone. If they asked

me, I politely tell them where the nearest record store it. And in

that time, I have never charged a person a penny, even for the cost

of the raw cassette or the CD blank. This is just my hobby.

Furthermore, I respect our copyright laws. I don’t believe that

anyone should be allowed to use copyrighted material for profit

without appropriate permission, license and payment. I think the

industry is right to protect itself against piracy. But one of the

things I noticed serving in Congress on this committee is that some

people have a remarkable ability to carry a good idea to a bad extreme. Look at the history of the recording industry. They have always distrusted new technology. If Hollywood had been given its

way with videotapes and DVDs, two things from which they now

earn a huge portion of their profits, those technologies would have

been smothered in their bassinet.

And the industry, in an effort to prevent pirates from duplicating

their products have persuaded Congress to adopt statutes that prevent home recordists like me and millions of others who aren’t

quite as fixated on it as I am, from making duplicates without severe restrictions. If you want to make a copy for your car and one

for your wife’s car, and one for the boat and one for the cab and

one for the playroom downstairs, that’s hard to do because of technical restrictions the industry wanted and Congress gave them.

When I buy a CD or a DVD, that content should be wholly mine

to do with as I please so long as I am in no way selling its content

or profiting from it. As for equipment, I recently bought a dual CD

burner that was touted as being able to make copies in a quarter

of the time, 15 minutes instead of an hour. I installed it and tried

to make a quick copy of one of the CDs that I had produced. It

wouldn’t do it. I called the company to ask what I was doing wrong

and I was told that under the law they cannot let me fast duplicate

anything except original recordings. Now when that happens someone put their hand in my pocket and took money away from me

and justified it on the basis that they were protecting themselves

from theft.

Furthermore, the present statute does not grant the American

consumer what anyone brought up on a criminal charge is entitled

to, namely, the presumption of innocence. Present law is predicated

on the assumption that consumers will rip off copyright holders.

The vast majority of the consumers are innocent of that assumption, but all are treated as guilty. Congressmen Boucher and Doolittle have offered a sound and modest correction.

40

Modern technology clearly poses real problems for protecting intellectual property in the traditional ways. It is unclear, at least to

me, how we can make the transition to a different form of protection that solves the problems that technology has created, but taking hammers to the weaving machines did not save the looms at

the beginning of the Industrial Age. And taking a hammer to consumers now will not in the end resolve this matter either.

So I would comment H.R. 107 to this committee. This is a clear

opportunity to draw a balance between protecting the legitimate

copyright interests of the industry involved and the legitimate

rights of the average American consumer who, let us remember, is

not in the wholesale pirating business. Others do that. The American consumer is no threat to these industries. Instead, they are

the industries’ source of wealth. I own 3,000 CDs. At an average

price of say conservatively $13 each, you do the math. You will find

not only that my hobby spending is entirely out of control, you will

find that I am, like other American consumers, a profit setter for

these businesses and it’s about time they treated us with a little

respect.

Thank you very much.

[The prepared statement of Hon. Al Swift follows:]

PREPARED STATEMENT OF HON. AL SWIFT

My name is Al Swift. I spent sixteen rewarding, and I hope productive years, serving on this Committee. It is good to be back in this room, even if only for a little

while. Before Congress I was a broadcaster. I was a disc jockey so long ago we did

not even yell at our listeners. Today I am a lobbyist for the firm of Colling Murphy

Swift Hynes Selfridge. Our firm has no clients on any side of the issue in question

today. I am testifying as an informed private citizen, with a background in communications. I had a great interest in these matters while on the Committee and continue that interest today.

I think I was in my first year of high school when I bought—with money I earned

after school working in a hardware store—my first tape machine. It was a reel-toreel machine. It was supposed to be a portable, but it weighed a ton. And all I had

to record onto it were 78 rpm records. The 45 didn’t show up until I was in college.

I’ve been a home recordist for about 54 years. In that time, I have given friends

many tapes, cassettes and now CDs containing ‘‘programs’’ I have created from my

own collection of LPs and CDs. In that time, I have never made a straight duplicate

of a record for anyone. If they ask me to, I tell them politely how easy is it to buy

it on the Internet. In that time I have never charged a person a penny—even for

the cost of the raw cassette or CD blank. It is just my hobby.

I respect our copyright laws. I do not believe that anyone should be allowed to

use copyrighted material for profit without appropriate permission, license and payment. I think the industry is right to protect itself against piracy.

But, one of the things I noticed serving in Congress on this Committee is that

some people have a remarkable ability to carry a good idea to a bad extreme. Look

at the history of the recording industries. They have always distrusted new technology. If Hollywood had been given its way the video tapes and DVDs, from which

they now make a great percentage of their profits, would have been smothered in

their bassinettes. This Committee reported out a perfectly absurd bill that—the industry claimed—was essential to prevent the Digital Audio Tape (DAT) machines

from destroying the recording industry. Now you can hardly find a DAT machine—

except for commercial purposes.

And the industry—in an effort to prevent pirates from duplicating their products—have persuaded Congress to adopt statutes that prevent home recordists like

me—and millions who are not quite so fixated on the process as I am—from making

duplicates without severe restrictions. If you want to make a copy for your car and

one for your wife’s and one for the boat and another for the cabin—that is hard to

do because of technical restrictions the industry wanted and Congress gave to them.

When I buy a CD or a DVD, that content should be wholly mine to do with as

I please as long as I am in no way selling its contents or profiting from it. As for

equipment: I recently bought a dual CD burner that was touted as making a copy

41

in a quarter of real time—in 15 minutes instead of one hour. I installed it and tried

to make a quick copy of one of the CDs I had produced. It wouldn’t do it. Calling

the company to ask what I was doing wrong, I was told that I was doing nothing

wrong. Under the law, they could not let me fast-duplicate anything except an original recording. Someone had just put their hand in my pocket and taken some money

from me—all in the name of protecting themselves from theft.

That is not a fair resolution of their problem. What the recording industries apparently want is so broad that it goes way beyond their legitimate interests and intrudes well into the legitimate interests of millions of consumers. In America we do

not normally right a wrong for one group by transferring the wrong to another

group. But that is what has happened on this issue.

Furthermore, the present statute does not grant the American consumer what

anyone brought up on a criminal charge is entitled to: the presumption of innocence.

Present law is predicated on the assumption that consumers will rip-off copyright

holders. The vast majority are innocent of that assumption, but all are treated as

guilty.

Congressmen Boucher and Doolittle have offered a sound and modest correction.

I say ‘‘modest’’ because I would be inclined to go further. But this bill is no doubt

more prudent than I would be and—in the long run—prudence usually produces better law.

Modern technology clearly poses real problems for protecting intellectual property

in the traditional ways. It is unclear how we can make the transition to a different

form of protection that solves the problems technology has created. But taking hammers to the weaving machines did not save the looms at the beginning of the industrial age. And statutes that hammer the consumer now, will, in the end, not resolve

this matter. In fact, I would be willing to bet that—at this very moment—someone

is developing technological innovation that will make the legal strictures now in

place useless to the proponents as well as irritating to the consumers.

So I would commend this bill to this Committee. This is a clear opportunity to

draw a balance between protecting the legitimate copyright interests of the industries involved and the legitimate rights of the average American consumer—who, let

us remember, is not in the wholesale pirating business. Others do that. The American consumer is no threat to these industries. Instead, they are the industries’

source of wealth. I own 3,000 CDs at an average price of say—conservatively—$13

each. You do the math. You will find not only that my hobby spending is out of control. You will also find that I am—like other American consumers—a profit center

for these businesses. It is about time they treated us with a little respect.

Mr. STEARNS. I thank my colleague.

Ms. Nisbet, welcome.

STATEMENT OF MIRIAM M. NISBET

Ms. NISBET. Good morning. Thank you. My name is Miriam

Nisbet and I speak today for the library community. Collectively,

our five associations represent over 85,000 librarians and thousands of libraries across the country. As one of the largest, single

consumer groups of digital products, probably about $2 billion a

year, we urge you to support H.R. 107.

Libraries play a critical role in our country, serving as access

points to their collections and services and as preservers of current

and historical information. Our country’s copyright law traditionally has aimed for a balance that accommodates both the ability of

the country’s copyright exploit his or her work commercially and

the societal need to use those works for education, research, and

public knowledge. Accordingly, the law provides that in some circumstances there are some uses of copyrighted works that do not

require a permission slip from the copyright owner.

These statutory provisions besides fair use, include First Sale,

which allows us to lend books in our collections; special library exceptions, which permit copying of copyrighted works by libraries for

preservation and inter-library loan purposes; the TEACH Act,

which permits limited performances or displays by non-profit eduVerDate 11-MAY-2000 09:16 Oct 20, 2004 Jkt 000000 PO 00000 Frm 00045 Fmt 6633 Sfmt 6602 93981.TXT HCOM1 PsN: HCOM1
42

cational institutions for distance education over the internet, for

example.

When Congress passed the DMCA in 1998, it provided additional

protections for copyright owners, but as others have vividly described, it omitted corresponding allowances for fair use and these

other exceptions. Libraries believe that H.R. 107 is needed to restore a proper balance in copyright law between the rights of copyright users and the rights of copyright owners, a balance that is essential to the future conduct of research and education in the digital age.

Let me give you just a few examples:

H.R. 107 would make it possible for libraries to go around copy

protection mechanisms in DVDs or CD-ROMs to make a copy for

preservation or archiving. Remember that libraries and archives

must be able to make such preservation copies well into the future,

as digital storage formats become obsolete. Preservation of knowledge is a core mission of libraries.

H.R. 107 would permit foreign language teachers to circumvent

technological access controls so that digital works purchased

abroad can be used on electronic devices purchased in this country.

H.R. 107 would enable a librarian to unlock a technological

measure, to make a copy of a work for inter-library loan purposes,

something that all of you have probably used from time to time.

None of these activities are currently allowed under the DMCA,

yet each of the examples involves a copy paid for by a library and

a use otherwise permitted under the Copyright Act. And since

many library and educational institutions are publicly funded,

these examples demonstrate that H.R. 107 would allow taxpayers

to receive the full benefit of their significant investment in copyrighted products.

The DMCA does include an exemption to its prohibition on circumventing a technological work—a technological lock on a copyrighted work, but unfortunately, this exemption in Section 1201(d)

directed at nonprofit libraries, archives and educational institutions has proved to be meaningless.

The DMCA also includes a rulemaking procedure by which the

Librarian of Congress, every 3 years, can adopt additional exceptions. The library community has actively participated in the two

rulemaking cycles so far, but the statutory standards have been interpreted in such a way as to ensure the denial of almost all of the

exemptions requested. Further, while the statutory scheme of the

exemption process may permit exemptions for acts of circumvention, it does not permit exemptions for the manufacture and distribution of circumvention tools. Thus, you may obtain an exemption, but you will not be able to obtain a tool that allows you to

use the exemption.

In sum, the DMCA is broken and it needs to be fixed. Libraries

fear that they are spending hundreds of millions, if not billions of

dollars a year for products that they might not be able to use. They

worry that they may not be able to share those products fully with

the millions of patrons for whom they were bought. They worry

that they are unable, through restrictions in law and through technological measures, to make preservation copies of their digital resources. Some fear that the law combined with technological locks

43

will lead to ‘‘pay per view’’ as the way of the future, that ‘‘metered

use’’ will be imposed upon all digital materials. Such a scenario is

not acceptable in a society such as ours, which is founded upon the

principle that ‘‘information is the currency of democracy.’’

Thank you.

[The prepared statement of Miriam M. Nisbet follows:]

PREPARED STATEMENT OF MIRIAM M. NISBET, LEGISLATIVE COUNSEL, AMERICAN LI- BRARY ASSOCIATION ON BEHALF OF THE AMERICAN ASSOCIATION OF LAW LIBRAR- IES, AMERICAN LIBRARY ASSOCIATION, ASSOCIATION OF RESEARCH LIBRARIES, MED- ICAL LIBRARY ASSOCIATION, AND SPECIAL LIBRARIES ASSOCIATION

I am speaking today on behalf of the American Association of Law Libraries, the

American Library Association, the Association of Research Libraries, the Medical Library Association and the Special Libraries Association. Collectively, our five national associations represent over 85,000 librarians and thousands of libraries across

the country. Our Nation’s libraries spend hundreds of millions of dollars each year

on all forms of digital information and thus rank as one of the largest single consumer groups of digital products. We urge you to support HR 107, the Digital Media

Consumers’ Rights Act.

Libraries have played and continue to play a critical role in our country, serving

as access points to their collections and services and as preservers of current and

historical information. Our country’s copyright law traditionally has aimed for a balance that accommodates both the ability of the copyright owner to exploit his or her

works commercially and the societal need to use those works for education, research, and public knowledge. Accordingly, there are some circumstances where the

law provides for certain uses of copyrighted works without permission from the

copyright holder.

These provisions—for libraries and schools—include:

Fair Use, which allows us—or anyone—to copy portions of works for teaching, criticism, and reporting.

First Sale, which allows us to lend books in our collections to patrons.Special library

exceptions, which permit copying of copyrighted works by libraries for preservation and inter-library loan purposes.

The TEACH Act, which permits limited performances or displays by non-profit educational institutions for distance education.

These statutory provisions reflect two fundamental values that underlie our copyright system: fairness and freedom. Fairness, in that a person who buys a copy of

work should be able to use the work fully; and freedom, in that the freedom of expression protected by the First Amendment can exist only if copyright does not

shackle the dissemination of information.

When Congress passed the Digital Millennium Copyright Act in 1998, it provided

additional protections for copyright owners, but it omitted corresponding allowances

for fair use and other exceptions. Professor Peter Jaszi in his testimony today has

vividly described the effects of these legal changes. Libraries believe that the Digital

Media Consumers’ Rights Act is needed to redress those changes—to restore a proper balance in copyright law between the rights of copyright users and the rights of

copyright owners—a balance that is essential to the future conduct of research and

education in the digital age.

Let me give you just a few examples:

H.R. 107 would make it possible for libraries to go around copy protection mechanisms in DVDs or CD-ROMs to make a copy for preservation or archiving. Remember that libraries and archives must be able to make such preservation copies well

into the future, as digital storage formats become obsolete. Preservation of knowledge is a core mission of libraries.

H.R. 107 would permit foreign language teachers to circumvent technological access controls so that digital works purchased abroad can be played on electronic devices purchased in this country.

H.R. 107 would allow a university professor to bypass a digital lock on an e-book

so that she can perform a computerized content analysis on the text.

H.R. 107 would enable a librarian to unlock a technological measure to make a

copy for a library patron or for inter-library loan or electronic reserve purposes.

Significantly, each of the examples involves a copy paid for by a library and a use

otherwise permitted by the Copyright Act. And since many library and educational

institutions are publicly funded, these examples demonstrate that H.R. 107 would

allow taxpayers to receive the full benefit of their significant investment in copyrighted products.

44

The DMCA does include an exemption, 17 U.S.C. Section 1201(d), directed at nonprofit libraries, archives, and educational institutions. Unfortunately, this exemption is so narrow as to be meaningless. It allows a library to circumvent a technological access control for the sole purpose of determining whether the library wants

to acquire a copy of the work. The library and educational community never identified this as a problem and never requested this exemption. I suspect that it was

inserted for the purpose of permitting certain proponents of the DMCA to argue that

library concerns had been addressed.

Further, the DMCA includes a rulemaking procedure by which the Librarian of

Congress, every three years, can adopt additional exceptions to the anti-circumvention provision. The library community has actively participated in the two rule-making cycles, and concurs with all the problems identified by Professor Jaszi in his testimony. The Copyright Office, charged with recommending the exemptions to be

adopted, has interpreted and applied the standards set forth in the statute so narrowly as to ensure the denial of almost all the exemptions requested. The Copyright

Office places on the proponents of an exemption a far heavier evidentiary burden

than Congress required of the proponents of the DMCA prior to its enactment. Further, the statutory scheme of the exemption process is flawed because while it permits exemptions for acts of circumvention, it does not permit exemptions for the

manufacture and distribution of circumvention tools. Thus, even if a person obtains

an exemption, he or she will not be able to obtain a tool that allows the exemption

to be used. The rulemaking procedure is impractical and ineffective.

In sum, the DMCA is broken, and it needs to be fixed. Libraries fear that they

are spending hundreds of millions of dollars a year for products that they might not

be able to use. They worry that they may not be able to share those products fully

with the millions of patrons for whom they were bought. They worry that they are

unable, through restrictions in law and through technological measures, to make

preservation copies of their digital resources. Moreover, some fear that the law combined with technological locks will lead to ‘‘pay per view’’ as the way of the future,

that ‘‘metered use’’ will be imposed upon all digital materials, that the ‘‘digital divide’’ will widen even more. Such a scenario is not acceptable in a society such as

ours, which is founded upon the principle that ‘‘information is the currency of democracy.’’

The American Association of Law Libraries (AALL) is a nonprofit educational organization with over 5,000 members nationwide. AALL’s mission is to promote and

enhance the value of law libraries to the legal and public communities, to foster the

profession of law librarianship, and to provide leadership in the field of legal information and information policy. Contact: Mary Alice Baish (202-662-9200)

The American Library Association (ALA) is a nonprofit educational organization

of over 65,000 librarians, library trustees, and other friends of libraries dedicated

to improving library services and promoting the public interest in a free and open

information society. Contact: Miriam Nisbet (202-628-8410)

The Association of Research Libraries (ARL) is a nonprofit organization of 123 research libraries in North America. ARL’s members include university libraries, public libraries, government and national libraries. Its mission is to shape and influence

forces affecting the future of research libraries in the process of scholarly communication. ARL programs and services promote equitable access to and effective uses

of recorded knowledge in support of teaching, research, scholarship and community

service. Contact: Prue Adler (202-296-2296)

The Medical Library Association (MLA), is a nonprofit, educational organization,

comprised of health sciences information professionals with more than 4,700 members worldwide. Through its programs and services, MLA provides lifelong educational opportunities, supports a knowledgebase of health information research,

and works with a global network of partners to promote the importance of quality

information for improved health to the health care community and the public. Contact: Carla Funk (312-419-9094 x.14)

The Special Libraries Association (SLA) is a nonprofit global organization for innovative information professionals and their strategic partners. SLA serves more

than 12,000 members in 83 countries in the information profession, including corporate, academic and government information specialists. SLA promotes and

strengthens its members through learning, advocacy and networking initiatives.

Contact: Doug Newcomb (202-939-3676)

Mr. STEARNS. I thank the gentlelady, thank you. It’s my privilege

to start with the questions for the first panel.

I would start with just a question for Mr. Lessig and Mr. Valenti

and just a yes or no on this.

45

Professor Lessig——

Mr. VALENTI. Impossible.

Mr. STEARNS. Does the consumer have the right to make a single

copy of a DVD and a CD for his own fair use, yes or no?

Mr. LESSIG. Can I say ‘‘absolutely yes’’?

Mr. STEARNS. All right. And let me just ask Mr. Valenti the same

question. Does a consumer, if he purchased a product, have a right

to make a single copy of his DVD, CD?

Mr. VALENTI. No, he does not under the law.

Mr. STEARNS. For his use. He cannot, in your opinion, make even

one copy for his own fair use, is that your position?

Mr. VALENTI. I have to say that’s my opinion, Mr. Chairman. I

wish you could give me one sentence after that.

Mr. STEARNS. Go ahead, go ahead. No, certainly, certainly.

Mr. VALENTI. No machine can tell whether you’re making just

one copy or a thousand copies, that’s the reason.

Mr. STEARNS. Okay. But I can go home and make a copy of my

CD and give it to my wife and come to Washington and bring the

original with me. Why can’t I do that with a DVD?

Mr. VALENTI. I can’t speak for the music industry. There are people here to do that. It’s because if you do that, once you allow one

person to break circumvention, you must allow everyone to break

circumvention and not everybody is honest like you and Al Swift

and me.

Mr. STEARNS. I understand. Mr. Lessig, Mr. Valenti showed you

‘‘The Runaway Jury’’ that they purchased right here in Washington, D.C. It’s a copy on a 321. He held it up and as we know

in the medical profession ‘‘do no harm’’ is what they talk about.

And I’m not sure you would want to rely on the person who bought

that ‘‘Runaway Jury’’ not to make another copy. Mr. Valenti and

the people who are against this bill say once you put that camel’s

nose under the tent, 321 cannot stop somebody from making another copy. So what do you say to that argument that the ‘‘Runaway Jury’’ he bought here in Washington, D.C. and it could be as

we speak copies being made and sent anywhere and everywhere,

not to mention we have global economy and cross border fraud is

rampant.

Mr. LESSIG. I would say that that copying for purposes beyond

what would be considered fair use is wrong and it should be prosecuted as such. But we should be clear that the tradition that says

that the copyright owner gets to control every use of their copyrighted material has never been the tradition in the United States.

Under the CD example that you gave, in fact, the Audio Home Recording Act explicitly says that a consumer has a right to make a

copy, a home copy of a CD. You haven’t around to the question of

the DVD, but I can’t see why there would be a difference.

Mr. STEARNS. Any difference.

Mr. LESSIG. Except if you believe that they get a perfect right to

control every use of creative material. Now that’s not our tradition.

I know other countries might see it as their tradition. I see that

might be one reason why the recording industry, for example,

which is owned by primarily foreign countries, doesn’t understand

our fair use tradition, but in our fair use tradition, the consumer

46

has a right against the copyright owner’s right and it’s the job of

Congress to balance those.

Mr. STEARNS. Okay, Mr. Valenti, you heard from the Professor

and he argued before the Supreme Court. And his case held that

I guess you were arguing for a shorter term for copyright and you

lost the case, or lost that part. You said there was a silver lining.

As I understand you, you said the silver lining was that the Motion

Picture Association or Recording Industry cannot deny the right of

consumers to make fair use of copy.

Now we have the Supreme Court arguing that case. So I ask you,

Mr. Valenti, if the Supreme Court has ruled that the right of the

consumer to make a fair use of his own copies is there, why would

you deny that right, if the Supreme Court has ruled that?

Mr. VALENTI. I think the Supreme Court said that fair use was

alive and well. And I agree with that. Fair use is alive and well

under the catalog of the uses which you said in your opening statement, Mr. Chairman.

Mr. STEARNS. But am I interpreting, Professor, the silver lining

of the Supreme Court decision was?

Mr. LESSIG. Yes.

Mr. STEARNS. So if that is correct, as a Congressman I would say

it appears to me the Supreme Court saying it’s okay for me to

record a DVD from my own home use. .

Is that wrong?

Mr. VALENTI. I heard Mr. Lessig speak and he did very well. But

the only possibility that he lost.

But I’m not aware of the language and I’d have to plead ignorant. I’ve got lawyers back of me.

Mr. STEARNS. I’ll give you a few moments. The former colleague,

Mr. Swift, you know here, we have to make decisions here, as you

know, but sometimes the decision comes down as Mr. Valenti said

on national security here. I mean, you can make it on the technical,

you can make it on this and that, but sometimes in the bottom of

your heart, you say the United States has one industry in which

we have a surplus and it’s our intellectual property rights because

of the creativity of the Motion Picture Association.

And if we allow and we say we allow somebody to record one, can

we trust that we might lose some national security revenue of creating all these jobs of an industry that we are the leader on. We

lost the TV debate. We lost the VCR debate. Everybody is moving

overseas to manufacture, but we have something here that is very

precious. Shouldn’t, as a Congressman, we take into the argument

that national security is important and to protect the intellectual

property rights by maybe making exception here?

Mr. SWIFT. Of course, we should be careful that we do something

here that wouldn’t hurt the national security. On the other hand,

this is not the only way to deal with this problem.

Mr. STEARNS. Yes.

Mr. SWIFT. This is a solution that is designed to take the problem out of the industry’s pocket and put it in the pocket of the

American consumer. That’s not fair.

On the other hand, in the vast majority of the really big pirating,

goes on not in this country. It’s not American consumers. What can

be done. What can Congress help the trade negotiator do? What

47

can be done to enforce the law better there? What can be done to

enforce the law better in this country where we catch people doing

this for commercial purposes?

I’ve been informed, but I haven’t checked this out personally, but

that our law enforcement agencies simply don’t put a very high priority on this kind of crime because they’re off doing other kinds of

crime.

Well, Congress can help rearrange the priorities. In short, I am

not suggesting we do nothing. I’m saying don’t do this, okay?

Mr. STEARNS. Do you want to have a reply? I’m all done. My time

has expired. Is there anything you’d like to add?

Mr. VALENTI. I’d like to ask Professor Lessig to read that part

where it says you can make a full length copy of a motion picture.

Mr. STEARNS. It’s not in the ruling, but it’s his interpretation.

My time has expired. The ranking member, Ms. Schakowsky.

Ms. SCHAKOWSKY. Thank you, Mr. Chairman. Mr. Valenti, you

asked the right question. You said we should in every case when

we pass legislation here, the asking is in the public interest or is

it not.

But I find it, I find myself hard pressed having listened to Congressman Swift’s testimony about his personal experience and perhaps even more generally, Ms. Nisbet’s testimony about the impact

on libraries, on archiving information, if that’s the right word and

just the free exchange of information for the general public, how do

you justify then using such a broad brush in areas where in my

view, what I’ve heard, clearly is excluding areas which are in the

public interest?

Mr. VALENTI. Well, about libraries. I’ve plundered every library

that I’ve been associated with. And I love them. As a matter of fact,

in 1998, the Library Association was one of the people in the room,

along with the internet service providers, computer manufacturers,

music, business software and movies in which we together came

back to the Chairman of both the Judiciary Committee and the

House and the Senate with our concept of how this bill ought to

be formed.

Ms. SCHAKOWSKY. Excuse me, but Mr. Boucher himself testified

that he voted for that legislation, so it is in the subsequent 6 years

in the new development of technologies that we’re back here now

reconsidering.

And you, Mr. Valenti, also did testify against VCR technologies,

as I understand it.

Mr. VALENTI. No, I did not.

Ms. SCHAKOWSKY. Well, your industry was not in favor or——

Mr. VALENTI. My industry did not do that. What we were seeking, Madam Congressman, and this is where they don’t quote

something else that I said. We wanted a copyright royalty fee, not

to abolish the VCR. That is an absolute canard. We wanted a copyright royalty fee placed on blank videocassettes much as they do

in Europe today, with the proceeds of that small levy going back

to copyright holders to compensate them partially for piracy which

I predicted would be immense and we do lose today in analog and

hard goods piracy, over $3 billion a year.

We never wanted to admit it. Not on the library side, the libraries today are replete, I think. Ms. Nisbet, I can’t speak for you——

48

Ms. SCHAKOWSKY. I would ask her to respond.

Mr. VALENTI. The libraries have CDs, DVDs, videocassettes

where you can walk into a library today and take out a DVD of a

movie you want to see at home, watch it several times and bring

it back to the library. That’s there. You don’t need 107 to help the

consumers use those DVDs.

Ms. SCHAKOWSKY. And Ms. Nisbet, what would the budgets of libraries be if, in terms of doing the kinds of business that you want

to do if you had to buy a new DVD every time or explain to me

why this would be so burdensome, is so burdensome for libraries.

Ms. NISBE. Well, of course, it is very complicated. First of all let

me make very clear that libraries do, from the get go, pay more

money as institutions to enable their patrons to be able to use materials.

Ms. SCHAKOWSKY. Right.

Ms. NISBE. So we’re not—we’re expending a fee that greatly exceeds what an individual would. What we fear is not being able to

use the exceptions that are already in the law in other places of

the copyright law that allow us to do certain things such as interlibrary loan or special kinds of lending including DVDs, art work,

maps, everything you can imagine, because of technological measures that now under 1201(a) we are not allowed to circumvent.

Ms. SCHAKOWSKY. Is there no way, I don’t know if it’s Mr. Shapiro—is there no way to develop a kind of technology that would

somehow allow both for the legal purposes and somehow prevent

the mass illegal distribution. Is there such a thing?

Mr. SHAPIRO. Technology can be done, can be created to do almost anything. Indeed, some of the fixes with the broadcast flag,

the Audio Home Recording Act and others, a very specific narrow

technology under a very specific defined product.

The challenges we’re facing with this legislation is it’s very broad

and includes everything. In essence, there’s three laws at issue

there. There’s the copyright law. There’s the DMCA and there’s the

law of unintended consequences. And we’re dealing with tremendous consequences from that including—what’s being used by competitors, essentially, to block out other competitors and you gave

the example of the garage door openers and the printer cartridges.

But what we think is—like, for example, Congress has not decided that the car should be regulated in terms of its speed. Instead, it’s been the conduct itself is what’s been regulated. And

rather than regulating the technology and when you’re not regulatory when health and safety and people’s lives are at stake, here

you’re focusing on something, intellectual property, which has less

rights than real property and always has under our Constitution

and our set of laws, and you’ve given it greater rights, if you will,

than real property.

Yet, when we’re talking about the harm that Mr. Holleyman and

Mr. Valenti talk about, loss from alleged piracy, what they do is

they count every time there’s a recording or copy made as a loss

sale and they come up with billions and billions of dollars. And especially with the music industry case, the fact is the studies show

that the losses there are not what—people are not going to go out

and buy these products if they can’t copy them. They’re getting a

use of them, but it’s not a physical copy that’s bene taken. So yes,

49

technology is available to do different things, but it has to be extraordinarily narrow and it has to be very careful and the conduct

should be the focus, not the technology. Otherwise, Mr. Valenti’s—

people actually did seek an injunction of the VCR. That is what the

Sony Betamax case is about. And a Court did hold and did grant

that injunction. And that’s when it went up to the Supreme Court,

it was to stop the sale of the VCR.

Ms. SCHAKOWSKY. I thank you. My time is expired, but I would

like, Mr. Chairman, to enter into the record the statement of the

Ranking Democrat, Mr. Dingell.

Mr. STEARNS. By unanimous consent, Mr. Dingell’s statement is

put in the record.

Mr. Ferguson.

Mr. FERGUSON. Thank you, Mr. Chairman. Thank you for holding this hearing. I have a couple of questions for Mr. Lessig, Professor Lessig.

I’m not a constitutional lawyer. I’m not an intellectual property

lawyer. I’m not a lawyer at all, in fact.

Which maybe today puts me at a disadvantage, but gosh, I’m

usually pretty glad about that. There are obvious folks in this room

who are more experts on this subject and issue than I am, but just

help me walk through this a little bit from my own intellectual

standpoint.

You believe that someone who buys a DVD in a store should be

able to make a copy of that for their own personal use?

Is that correct? That’s what you said before?

Mr. LESSIG. That’s right.

Mr. FERGUSON. How is this different from say another product?

If I go to the store and I buy a bag of apples and I’m on my way

home and I drop them or lose them or they break. I can’t go back

to the store and get another free bag of apples. If I go and buy a

car, I don’t get a second car for my own use because I might be

in Washington and my family might be in New Jersey and since

we can’t both use it at the same time I get two cars to—for my own

personal use. It’s not for—it’s not to sell to somebody. It’s not to

rent out to somebody, but I don’t get a second car.

And it’s maybe because I don’t understand the intellectual property laws and all the Supreme Court decisions and what not. But

just help me out. How is this different and if, in fact, someone said

well, you actually can get a second car if you buy one, if there were

no constraints on that dealer making sure that Ellen got only my

second car, what if there was no way to know if I could go get a

third car and a fourth car? Wouldn’t the car folks be out of business pretty fast?

Mr. LESSIG. It is a great question, and I will confess long after

I was a lawyer and even after I was a law professor I had exactly

the same question when I first started thinking about intellectual

property. But the fact is our framers, from the very beginning of

our republic, understood there are very different principles that

apply to what Jack Valenti, I think, beautifully calls creative property and ordinary property.

And one obvious reason is that if you have an apple and I eat

your apple, you cannot eat your apple, too. But if I have a poem

50

and you consume my poem, I have the same poem. I can enjoy it

just as much as you can.

Jefferson saw that. He turned it into poetry. ‘‘He who lights his

light from mine gets light without darkening me.’’ That is the concept of intellectual property. It is different from ordinary property.

Now, for 200 years, the United States has developed a very nuance, and I think for 186 of those years fundamentally correct, balance in the context of intellectual property that is different from

real property. You have a car. You do not have to turn that car

over to the public domain after a, quote, limited time, but the copyright clause says after you get a copyright, after a limited time it

passes into the public domain and you get no compensation. It is

a fundamentally different regime.

What this issue is about is we have a law that has fundamental

balances built into it. Copyright law has balances called fair use

built into it.

Technologists come along, and they say to the movie industry,

‘‘We have technologies to effectively remove those balances so that

effectively a consumer does not have the fair use right that the

copyright law would have given him.’’ Now, I do not argue that

they could not be allowed to deploy their technology, but the contrary to that is that consumers ought to be allowed to deploy a

technology to allow them to engage in fair use of copyrighted material just like they are allowed to deploy a technology to remove the

effective fair use from copyright material.

Mr. FERGUSON. Is there technology today that would allow someone to make one copy of a DVD and only one?

Mr. LESSIG. Well, I agree that——

Mr. FERGUSON. Does it exist?

Mr. LESSIG. Yes, it does exist.

Mr. FERGUSON. Do we know?

Mr. LESSIG. The technology does not easily map under the complexity of the law, and that, we could go on forever about how disastrously complex fair use law is, and I think that is a very important problem that Congress needs to address.

But given the law and the Supreme Court’s statement that it is

a First Amendment reason that we have fair use law built into the

copyright regime, the only issue I think you have to consider is

should the law back up a technology that gives them the power to

remove that fair use right, and I do not think there is a constitutional bound——

Mr. FERGUSON. Your poem, if you copyright a poem, I cannot

profit from that.

Mr. LESSIG. Absolutely not, and you should not be allowed to

profit from it, especially my poetry, but I would be happy if somebody profited.

[Laughter.]

Mr. FERGUSON. But my question is if the technology does not

exist, I have not heard anyone say it does. Am I wrong?

Mr. LESSIG. It does not exist.

Mr. VALENTI. It does not exist.

Mr. FERGUSON. How do we keep someone from profiting from

someone else’s copyrighted intellectual property?

51

Mr. LESSIG. But can I just suggest I think former Congressman

Swift has given us the map about this. The fact that the technology

doesn’t force people to obey the law does not mean that people, all

people, average people, ordinary people will break the law.

What former Congressman Swift shows is, I think, what ordinary

consumers do. They obey the law when given an easy way to obey

the law. Now, some people do not, and you should be prosecuting

people who do not. You should be passing strong laws against people who do not.

But the point is the fair use rights have always given people an

opportunity to violate the law. It has always been that right, and

the question is whether that right should be removed.

Mr. FERGUSON. Mr. Chairman, my time is up. Mr. Valenti is

chomping at the bit to say something.

Mr. VALENTI. I am. I think there is a disreputable plausibility

about what Professor Lessig is saying here, and that is he is saying

correctly I have no problem with Al Swift making a backup copy

because I know exactly what he is going to do with it. It is his personal collection.

But this 107 is so broad it says anyone, anyone can hack. You

legalize hacking for everybody. Now, Professor Lessig will probably

confirm there is not single machine in the world today that can distinguish between an honest Al Swift and a fellow who is determined to make 1,000 copies.

Therein lies the plausibility that falls apart, which very seldom

happens, I imagine with Professor Lessig, but you make this available to everybody, Mr. Congressman. How do you know who is

doing it the Al Swift way and how do you know who is doing it the

other way?

Mr. STEARNS. The gentleman’s time has expired.

The gentlelady from Missouri.

Ms. MCCARTHY. Thank you, Mr. Chairman, and thank you, panelists. And I do think, Mr. Valenti, that, indeed, the intent of the

legislation is ahead of the ability of technology to carry out what

would appear to be a reasonable request.

My overarching concern remains the question of how we lost respect for creative property in this country and in this world. I have

two teenage nephews, and we go round and round on this issue. I

have tried getting them gift certificates to their favorite record

stores for their records and CDs, you know, the Best Buys of the

world for their movies, but there seems to me, particularly in the

younger generation, a sense that creative works are not owned by

another.

And that is a moral issue I think no legislation can necessarily

address, but the creative work is owned by the person who created

it, sharing it. I was a high school English teacher. I know the importance of being able to share that, you know, in a learning environment.

But if a student sat and borrowed material off of a fellow student’s test during a test setting, that would be cheating. That is

the creative work of one student taken by and used by another, and

that is something we do not uphold or have not upheld It is a creative issue because whether it is music or literature or art or invention, it is that artist’s or creative individual’s ownership. So,

52

Congressman Swift, you are reading a good book and you are going

to your lake home for the weekend. What are you going to do,

Xerox the book so that you do not have to take the book with you

to enjoy and finish at the lake?

But if you can own a lake home, why can’t you buy a second copy

if you do not want to haul the first?

I mean, last night I had the good fortune of going to Blues Alley

and hearing a great jazz group. I liked their work so much I acquired two CDs that night because I wanted to have it here to

enjoy and in my district, in my home in Kansas City. Am I a dying

breed?

I do not know.

Mr. SWIFT. You ask a very——

Ms. MCCARTHY. Economic issues are, indeed, very real. You

know, besides the moral issues and the creative issues, it is an economic issue, and all of those have to be addressed. Again, I don’t

think we ever make a perfect law or rarely in this world. So there

are times to readdress it, but I think currently the intent of what

you are proposing today is ahead of the technology that could control it and make it a realistic approach.

But I would welcome any response from the panelists briefly.

Mr. SWIFT. Well, the initial question you asked is interesting because my granddaughter, who would not go into a grocery store

and steal an apple, had this huge debate with me. My good friend

Jack Valenti would have been proud of me in arguing with her that

it is inappropriate to just rip things from the Internet without paying for them.

But part of the answer to your question may be what the professors said. What he just said is the first time I have ever understood

the specific difference between intellectual property and real property. And I think what the kids are not understanding, those that

would not steal real property, but they do not understand the value

of something that is so ephemeral, and maybe we need to do a better job of making that distinction for society as a whole an for our

young people.

As to whether or not I could afford to buy another CD for the

home in the country, I think I probably bought enough CDs in my

life.

Mr. LESSIG. Congresswoman, may I respond? I agree——

Ms. MCCARTHY. Let me ask the permission of the Chair because

we have gone over, but I would love to hear your response, Professor.

May I have an extended—yes, please.

Mr. LESSIG. It is an economic issue, but I think we should understand there are more than one sector of the economy involved here.

There is the content industry, which I think is extraordinarily important and vital to especially our balance of trade, but there is

also the technology industry which is providing devices that enable

people to do all sorts of new things with the technology, not every

use of which they have to seek permission first.

The whole issue in this case is whether the content industry has

a right to block technologies that do not give them perfect control

over their content. So here is a technology, the Xerox machine.

53

Does the Xerox machine guarantee that nobody can use it to violate

copyright law? Absolutely not.

What we do, as former Congressman Swift rightly points out, is

we have lots of systems to make sure people do not use the technology in an illegal way, and as libraries demonstrate, they have

lots of ways to make sure people do not use the technology in a library in an illegal way.

But the technology itself is not banned, but effectively what is

happening here is because there are people who violate the law, we

are saying the technology that would enable people to do legal

things under the law should be banned. That is the first time in

our history we would ever have done that, and I think it would be

a mistake.

Mr. STEARNS. I thank the gentlelady.

The rules of the committee are that if you waived your opening

statement, you get 3 minutes additional time. So you get 8 minutes. If you showed up after we started our opening statements and

what we’re hearing from the panel, you would not get that because

you did not have an opportunity to waive your opening statement.

But I would urge the members to try and keep it under 5 minutes. I think one of our witnesses, possibly another one, would like

to leave a little after 12. So to give the benefit for everybody to get

an opportunity to ask everybody a question, I just hope you can

keep it within five, but obviously the rule allow you to go to eight

if you waive your opening statement.

The gentleman from California.

Mr. VALENTI. Mr. Chairman, may I interrupt?

Mr. STEARNS. Yes.

Mr. VALENTI. I do have to be at City Hall at 12 noon.

Mr. STEARNS. Okay.

Mr. VALENTI. I think you told the staff about this earlier.

Mr. STEARNS. I know. That is why I sort of tried to urge the

members here, knowing that you have to leave around 12, that we

could——

Mr. VALENTI. Well, I have to unfortunately. The mayor has summoned me there at 12 noon, and I hope I do not have to break

some speed limits in order to make it.

Mr. STEARNS. So you would like to excuse yourself?

Mr. VALENTI. May I do that, sir?

Mr. STEARNS. Absolutely, absolutely. We thank you for your attendance, and we will continue on.

Mr. BOUCHER. Mr. Valenti, can I ask you to be 1 second late for

that?

Mr. VALENTI. Yes, sir. I never say no to a Congressman, particularly on a sitting committee like this.

Mr. BOUCHER. Jack, you never said no to me when we were just

having Christmas dinner and I wasn’t a Congressman.

I will be very, very brief on your question. You talked about the

Sony Betamax days and how the desire was to have, if you will,

a royalty on recordable material. Putting you on the spot here, if

we had a new technology with a new disc that could make recordable material—for a moment, let’s assume that we’re talking music

on one type of disk and video on another—and there was a $1 specific fee that went onto that new recordable media because it was

54

the only one that you could copy a DVD to and you had to buy that

and pay that extra dollar—would that be consistent with what your

thinking was then and what your thinking is now, that there has

to be some sort of an offset for the loss of revenue by people some

of whom are exercising fair use and some of whom are not?

Mr. VALENTI. I’m not going to get into the price structure because it is violating antitrust laws.

Mr. BOUCHER. We know the dollar is arbitrary. So just in general.

Mr. VALENTI. Right now all of our companies are working on trying to work with the best minds in the consumer electronics industry and the information technology industry to find a secure environment. If we had a secure environment, ‘‘secure’’ meaning you

could protect that particular movie, I think backup copies of all of

that would be certainly in order, if you could find a secure environment.

I am saying that as Jack Valenti. I am not speaking for any of

the companies in the contest industry. But right now that secure

environment does not exist. The difference between analogue, Mr.

Congressman—I do not have to tell you. You are an expert—and

digital is the difference between lightning and the lightning bug.

It’s just a vast chasm there.

And the minute that the Internet came into being, which we

think is the greatest distribution system ever struck off by the

hand and brain of man, and we want to use it to have thousands

of films up there in a secure environment beamed down to every

home, to be used when they wanted it, the kind of movie they

wanted to see. That is what we are struggling to do.

In the interim though, you have to protect. i think it is in the

national interest to protect this extraordinary engine of economic

growth that business software and music and movies are for this

country, what we do for this country. In this interim, as we begin

to move more and more into the digital era, which is digital, mobile, and virtual, that is what the future is all about.

Therefore, you have to make sure that this valuable creative

property is protected until the technology that Professor Lessig and

I think Al Swift and others are talk about can be put into place.

But you cannot walk away and let everybody break these

encryption codes and the honest people will do right, but the dishonest people will not do right. And in the digital age, that will be

a devastation I don’t even want to comprehend.

Mr. BOUCHER. Thank you, Mr. Valenti.

Mr. STEARNS. If you have counsel that you would like to have

participate in your substitution, it would be acceptable to have

him——

Mr. VALENTI. David Green.

Mr. STEARNS. [continuing] come to the table, and then we still

would have the opportunity to have your point of view expressed

in all fairness. So I would be very glad to offer that invitation.

Mr. VALENTI. David has the additional asset that he is a lawyer.

Mr. STEARNS. So, David, if you would just give your full name

so that we have it.

Mr. David GREEN. Yes. It is David Green. I am Vice President

and counsel with the MPAA.

55

Mr. STEARNS. Okay, fine.

Mr. BOUCHER. Thank you, Mr. Chairman.

Continuing along without a break, Mr. Swift, you know, I listened to what you had to say about your 3,000 records, and I listened actually to Mr. Green on the other side, and I was concerned

because I think one of the problems this panel has to deal with is

what is fair use, and I realize the library has a unique fair use arrangement historically and in the law, but I’m trying to understand

something. When you make copies and give them to your grandchildren or you make less than a full copy, but you cut several

songs here and several songs there, do you think that’s fair use, or

putting it another way, having been someone who paid for several

Harvard degrees by hiring lawyers for too many years, isn’t each

song an individual copyrighted piece? And if you take one song, not

an album, but each individual song and you simply create duplicates and send them off to unrelated parties, that is not written

within the statute as fair use. You are creating a new copy no different than if I buy one sheet of music and give a copy to everyone

in the choir at church.

Mr. SWIFT. What I believe I am doing is creating something new.

CDs will typically have a single artist singing a variety of songs.

Maybe there is a theme to it. I will create a different theme and

from my collection pick a whole variety of records that work out

that theme. So that from my standpoint I have created something

new.

I have had people who have listened to those and say, ‘‘Hey, I

like cut four. What is the name of that?’’ And I will give them the

information, and they will go out and buy the CD because they

want the whole thing.

So I think it is under fair use, and I certainly think that it is

not just a series of individual recordings that I am putting together. It is a whole new program that I am putting together.

Mr. BOUCHER. Well, and I appreciate that.

Mr. STEARNS. The gentleman’s time has expired.

Mr. BOUCHER. Mr. Chairman, just one follow-up on my sort of

stolen time.

Because I do disagree with that, and we will get back to what

really the copyrighted material was because I think that is going

to be important in the next round.

But, Mr. Shapiro, the difference between a patent and a copyright, patents having no fair use, if you will, and a copyright, could

you just explain to us why you would view that differently?

Mr. SHAPIRO. Absolutely. A patent has a very limited term. It is

under 20 years. A copyright by acts of Congress, which Mr. Lessig

tried to challenge in the Supreme Court, has gone on virtually forever.

And I will go to my grave regretting the fact that industries did

not oppose those extensions of copyright because I would like to respond also to your question or—I am sorry—your colleague’s question about the ethics involved in this.

The reason there is changing ethics involving copyright as opposed to perhaps patents is I think there is a sense of unfairness

in the American people. They see copyright extending forever. They

do not see public domain available stuff.

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I think the motion picture industry in a sense has done it right.

A DVD can be had for just about the cost of a CD. So when it

comes to music they are ready to copy. when it comes to movies,

I think there is a moral reason not to. I think that is how people

are perceiving it.

Mr. STEARNS. The gentleman’s time has expired.

Mr. Davis, you are recognized.

Mr. DAVIS. Thank you, Mr. Chairman.

I would like to start with Professor Lessig. One of the issues here

seems to be the extent to which you and your side is willing to acknowledge the magnitude of the potential harm. Would you acknowledge that if the fair use notion that you’re advocating were

adopted, that there would be instances of substantial harms in

terms of extra copying and proliferation of digitized material on the

Internet?

Mr. LESSIG. Yes.

Mr. DAVIS. Okay. You have also suggested in instances of wrong

like that that prosecution should proceed, but wouldn’t you also

knowledge, given the magnitude of the damages here that there is

a substantial risk that prosecution will be an inadequate remedy

in terms of restitution and potentially deterrence?

Mr. LESSIG. I agree it is possible, but if I can follow up on that,

there are, as former Congressman Swift suggested, lots of ways to

make sure people obey the law. The question here is whether perfect control through technology should be allowed, given the constitutional requirement of fair use.

So I would beg to differ with Congressman Issa. The question before this committee is not what fair use is because that has been

decided by the courts and by Congress. Fair use has been decided.

The only issue that this statute raises is whether you should have

fair use despite the fact somebody has used a technology to take

it away.

Mr. DAVIS. But I agree with you the perfect is the enemy of the

good almost always. But isn’t it fair to say that criminal prosecution—and we are not just talking about possibilities. Let’s talk

about practicalities—criminal prosecution in plenty of instances

may be a terribly inadequate source of restitution, given the potential magnitude of harm here.

Mr. LESSIG. That is right, and so I do not think criminal prosecution is the best alternative. In fact, I would endorse in the context

of music exactly what Jack Valenti was talking about in the context of VCRs in 1976, which is finding a way to raise money to

compensate artists without destroying the technology.

So in the context of the Internet we could find ways, and there

have been bills proposed, that would compensate artists without

breaking the Internet so that people can distribute content.

Mr. DAVIS. So if we moved from your bill to a middle ground, you

would advocate that we focus on a compensation model as opposed

to a prevention model?

Mr. LESSIG. All that I am saying is that there are techniques

which could be compensation, or it could be prevention which are

alternatives available instead of the criminal prosecution that you

were raising.

57

Mr. DAVIS. Have you seen a model that you would commend to

us to consider?

Mr. LESSIG. Congressman, I cannot stop writing books about

them. So, yes, I have lots of alternatives and I have written in long

length about some of these alternatives. My most recent book, in

fact, outlines a way to get from here to a place where we can more

effectively——

Mr. DAVIS. Well, is your side of this issue having any conversations with the other side on the plausibility of some compensation

model?

Mr. LESSIG. Yes, we are. And, in fact, there have been very important conferences, one recently held at Harvard, about exactly

that suggestion of finding a compensation model to deal with this

problem rather than criminal prosecution or breaking the technology.

But, again, that’s a separate issue, it seems to me, from the very

narrow and reasonable position being put by this bill, which is

whatever compensation models there are, given fair use is a right

under our system. It should still be a right even if technology is

trying to take it away.

Mr. DAVIS. So I appreciate your candor, I think, in acknowledging that there are genuine problems associated with restitution

in a criminal prosecution.

Now, the same question with respect to a civil matter. Given the

potential magnitude of harm, couldn’t we encounter plenty of instances in which the civil remedy could easily be inadequate, given

the magnitude of the harm, the assets, solvency?

Mr. LESSIG. Absolutely could be.

Mr. DAVIS. So perhaps the even more difficult model here than

the compensation model you have described is the prevention

model. Because I think neither you nor others—and again, I appreciate your candor—I do not think that you all have tried to say

that the technology exists today that would allow for only one copy.

As a matter of fact, I have not heard anybody say that given the

wealth of resources and intelligence out there anybody is on the

verge of developing that technology.

I would like you to talk about the extent to which you think

there is self-interest on the part of the people that oppose this bill

to developing a business model that utilizes that technology, and

is that part of the problem here? You are afraid that they are not

interested in developing that, and then in the absence of some political pressure, the development and deployment of that business

model is too far down the road?

Mr. LESSIG. Yes, that is a great question. Let’s just be sure we

are clear on the baseline though. Before we get to DVDs and we

deal with CDs, it is not the argument that there is a fair use right

to make a copy of the CD. The Audio Home Recording Act gives

an explicit right to a consumer to make a copy of that CD not because of some interpretation of the courts, but because of the law.

So we have already built into the law an explicit permission in

the contest of CDs. Now the question is whether the digital

changes eliminate the rights.

Now, I do think if you look at the string of litigation that has

occurred since the beginning of the Internet, litigation against

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what I think of as new business models that have tried to find different ways to produce and distribute content.

There is a significant competitive concern that this committee

ought to have about whether people are using these monopoly

rights not just to protect creators, but also to create a particular

business model. In my testimony, I wrote about the MP3.com case,

which I think is the easiest case, but Replay TV litigation, which

was essentially trying to stop the equivalent of a VCR in the context of a digital VCR is another example of that. I think 321 is another example of that.

There are many instances where businesses are attempting to

start a different way of distributing content. We do not have to talk

about Napster. Other businesses that I think all of us would think

of as legitimate face the extraordinary burden of the complexity of

copyright law, and essentially, as one of my colleagues in California

now describes it, there is a nuclear pall that sits on top of Silicon

Valley stopping investment in this area because they know investment will be stopped so long as it does not have the approval of

a very narrow set of commercial interests.

Mr. DAVIS. I would like to give Mr. Green, on behalf of Mr. Valenti, or anyone else who is an opponent of the bill to comment on

the point about the extent to which there is self-interest on the

part of the industries you are representing to as expeditiously as

possible develop some form of business model that would allow for

what I guess we are calling the elusive, only one copy technology.

Mr. David GREEN. Well, absolutely, and that is something we are

working toward and Mr. Valenti testified about. I mean, we have

a vision that you will be able to download almost any movie ever

made and do so digitally, that you could get one copy, that you

could watch it once or using technologies, you could make a copy

if that is something that you would be agreeable to.

All of these depend on DRM. All of these depend on encryption

schemes that enable you to protect these copies, and that is what

we are working so hard to allow.

But if this bill becomes law, those DRM schemes, those

encryption schemes can be circumvented legally for fair use purposes, removing the incentive to create them.

Mr. DAVIS. I do not think you are asking for absolute control in

terms of the technology. You would be satisfied with some form of

technology that significantly minimized the risk of extra copies, but

it does not have to be technology that guarantees there would not

be any extra copies beyond the one fair use copy.

Mr. David GREEN. We recognize that no——

Mr. STEARNS. The gentleman’s time has expired.

Mr. DAVIS. Mr. Chairman, could he answer the question?

Mr. STEARNS. Absolutely.

Mr. DAVIS. And Mr. Holleyman is trying to speak.

Mr. David GREEN. We recognize that no system is perfect, and

the idea is to try to minimize the amount of piracy that emerges

from this, but the model, and we have seen advertisements for not

321, but other ripping software was never buy a DVD again. Rent,

rip, and return, and that is, I think, what would happen if this becomes law.

59

Mr. SHAPIRO. You asked a very specific question, and I think I

would like to clarify. There is technology that does exist in many

cases which can only allow one copy. The challenge is it does often

not allow for the fair use rights to be exercised.

That technology though is enforceable under present law involving patents. Indeed, the letter that Mr. Valenti read from the DVD

Copyright Association, their rights are enforceable through patents,

and that is not a trade association, I might add, and for Mr. Valenti to say that the consumer electronics industry supports that

position is extreme.

I might add the MPA is a member of ours, but I would never represent myself as representing Mr. Valenti.

Mr. STEARNS. And the time of the gentleman has expired.

Mr. Shimkus.

Mr. SHIMKUS. Thank you, Mr. Chairman.

This is a great hearing, and I was meeting with members from

the Army War College. So I apologize if I am following up on some

line of thought, but this is tough sledding.

I know that 321 Studios is located close to my home town. I am

from Collinsville. They are in St. Louis. So I have got folks in the

metropolitan area of St. Louis who have been affected because of

job loss because of this.

I have had a chance to go to the communication electronics show

years ago, and I was amazed at how the performance industry,

movies, and music really drive technology change. I guess that is

the thing that surprised me the most, understanding it is really

consumer driven desire for new gadgets so you can do all of these

neat things for entertainment.

So sometimes we are fighting against each other. The communication electronics folks need the entertainment industry and each

other because they are helpful in this.

We have worked hard on another subcommittee, that Telecommunications Subcommittee, in addressing indecency and stuff,

and my Kids.US bill, we are continuing to have hearings and pushing for implementation on a child safe location for kids to search

for information, protecting them from hyperlinks, protecting them

from instant messaging and the like. And we are moving positively,

I think, as a Nation to have that.

This whole debate also brings up a technology that is being sold

currently from ClearPlay, purchasing in some stores for $79 that

would allow editing of smut and violence and nudity in movies. If

I bought the movie, then I think the technology would be such that

this piece of equipment would edit that out.

For me having a family with small boys, that is a good deal, and

I think I would like to have that ability to do that.

My question for the panelists, and why don’t we just go down the

line with Mr. Lessig, and as sort as possible: should the public

have the opportunity if we purchase, you know, an over-the-counter

movie; should we have the ability to edit it for the taste of our own

family.

Mr. LESSIG. Absolutely, and the point is if the technology locks

up that content, then there is no right for technology companies to

circumvent that for this legitimate use, then you your ability to

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edit the movie to exclude scenes that you don’t want in that movie

will be restricted.

Mr. SHIMKUS. Everyone is going to get a chance, but would this

legislation proposed help us in order to do that?

Mr. LESSIG. Absolutely. This legislation would guarantee that

companies that develop technology, that allow you, for example, to

exclude smut from a movie would be able to sell that technology

to a consumer so that a consumer in his or her own home could

run the movie and exclude that type of content.

Mr. SHIMKUS. Thank you.

Mr. SHAPIRO. Of course you should be allowed to have that technology, and the copyright on this would say you should not. It is

just like a fork. A fork could be used to eat food, but a fork could

be used to kill people. It is the conduct that matters.

You should not make forks illegal because they could be used to

kill people, and that is what is going on here. Technology is being

made to be illegal because it might be able to do something which

could potentially be illegal, and that is what we have to stop.

The technology is not bad, but the use of it could be. In this case,

obviously the use of it should not be, but the copyright monopoly

is so strong at this point by acts of Congress that, indeed, even if

the technology is legal, it could be argued that what happens there

could be held to be illegal.

Mr. SHIMKUS. Mr. Green.

Mr. David GREEN. This bill has nothing to do with the example

that you are talking about. The example that you are talking about

is a way of fast forwarding not breaking the encryption.

Mr. SHIMKUS. So let me ask you a question then. Is it the Motion

Picture Association’s opinion that if I were to, as an individual consumer, alter a movie so that my children would not be exposed to

things I feel that would be harmful, would that be breaking the

copyright law?

Mr. David GREEN. There is an issue under the copyright law of

making derivative works. That said, our companies—and this is

something the MPAA cannot do—our companies are talking to

those companies, and there is every effort to make family friendly

versions available, and we are moving toward that.

Mr. SHIMKUS. But making family friendly versions available is

different than the individual consumer being able to do that themselves; is that correct?

Mr. David GREEN. And there is certainly nothing wrong with an

individual consumer fast forwarding through any portion that they

do not want to see to the extent that there are——

Mr. SHIMKUS. But you would have to see it before you could fast

forward it, which may give some adults some reason to accept that

proposal, but.

Mr. David GREEN. To the extent companies are offering software,

I know our companies are talking to them. It is on an individual

matter, and it is not something the motion industry can talk about

as a collective for antitrust reasons.

Mr. SHIMKUS. Mr. Holleyman.

Mr. HOLLEYMAN. Mr. Shimkus, this is not an issue that the business software industry has been involved in. I would like, however,

to make one point that came up in several other questions, which

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you know, this bill really creates an exception that swallows the

rule.

And there have been a lot of discussions today about ability to

make a back-up copy, and what we are saying is that this goes far

beyond that, and the software industry is deploying very simple activation tools because of the DMCA that can be deployed in under

30 seconds by the Internet or in a couple of minutes by a telephone

call——

Mr. SHIMKUS. Okay. I hear you. Let me go to Mr. Swift, please.

Mr. SWIFT. Yes.

Mr. SHIMKUS. Thank you.

[Laughter.]

Mr. SHIMKUS. And of course, from the American Library Association.

Ms. NISBET. Thank you, Mr. Shimkus.

We would just say whether you are talking about the kind of

technology that you are talking about or technology that is aimed

toward helping libraries and educational institutions to do what

they need to do in terms of dealing with digital products, we believe that H.R. 107 would certainly help that effort, and we would

support it.

Mr. SHIMKUS. Great. Thank you, Mr. Chairman.

Mr. STEARNS. I thank my colleague.

I think what we are going to do is let Mr. Gonzalez go, and then

we will go vote, and we will take a recess until 1:15. We have five

votes on the floor. That is 25 minutes-plus. It will give us a chance

to have lunch, and then we will come back.

And, Mr. Gonzalez, what I would like to do is suggest that you

have your entire 8 minutes, but if you took five, we could do it now,

but if you did the full 8 minutes we would not make our vote. So

I am asking you would you like to have your 5 minutes now?

Mr. GONZALEZ. I hear you clearly.

Mr. STEARNS. Or would you like to come back?

Mr. GONZALEZ. Actually just let me get this out of the way.

Mr. STEARNS. Okay. You are recognized.

Mr. GONZALEZ. It will take just a couple of minutes.

Mr. STEARNS. You are recognized.

Mr. GONZALEZ. Thank you very much.

I guess in trying to interpret Mr. Valenti’s testimony and getting

right down to it and not making it real complicated, it seems to me

he is talking about a secure environment, which you are never

going to have because it goes way beyond the abilities of technology. You are talking about human nature.

When we can legislate and take care of avarice and greed and

everything else, then we will be fine. But it is not going to happen.

So in the meantime, let’s go ahead and try to regulate and govern

human behavior that is practical in nature, and then we will be effective.

The troublesome part of the testimony from the content community is simply where we are today and where we are going to be

tomorrow. In the statement by Mr. Valenti, it says that in the recent symposium on DMCA, Professor Samuelson of U.C.-Berkeley

posed the question whether it was possible to develop technologies

that would allow circumvention for fair uses without opening up

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the Pandora’s box so that allowing these technologies means that

you are essentially repealing the anti-circumvention laws.

Mr. Valenti in answering the Chairman’s question says presently

you cannot make a copy of the DVD. You just would not be able.

There is no fair use right now. There is just no fair use under the

present scheme in the interpretation of this statute, and that is

why we have H.R. 107.

Prospectively you go and you make reference to this professor,

and he says it may not even be possible. So what are we looking

to in the future? What is a good regulatory scheme that protects

all of the interests and goes back to the overriding issues that it

has taken this country 100, 150 years in developing, as the professor has already pointed out? There has to be that balance.

The last thing that came out of Pandora’s box, if you remember

the tale and the fable, was hope. The position you all are taking

seems to tell me that is hopeless, that we are never going to arrive

at that state of technology and human behavior.

So why don’t we do something that is practical, enforceable, and

tries to protect the rights of obviously the copyright holder, but also

still acknowledges something that is so fundamental to the way

that we conduct our society and that is fair use?

Doesn’t it make more sense for us to go over to wherever the vendor was where you purchased that video, the parted video, and

prosecute?

I mean we have a tool, don’t we? And it is available. So why

aren’t we doing that?

Mr. David GREEN. Absolutely, and that is one of the things we

are doing. But we do have a system that is not perfect, the DVD.

The DVD is encrypted. It is made to be read by players that understand that encryption that Mr. Shapiro’s folks sell.

Can that encryption be broken? Yes, there are ways to break that

encryption.

Does the average person break that encryption to make multiple

copies of the movie or to go to the library, borrow a DVD and keep

it? No, because there are encryption systems and because companies that make systems, like 321, that are designed to break that

encryption and come up with a copy are held to violate the DMCA.

The system is working. The DVDs are——

Mr. GONZALEZ. The system is working because there is no fair

use. I mean, if that is what you mean by the system is working,

then we have got problems.

Mr. LESSIG. Can I follow up on that?

One reason why people break the encryption on DVDs is the play

it on a computer system like the Gnu Linux operating system, for

which there are no licensed players. So there is somebody who buys

a CD or DVD and wants to play it on their computer but cannot,

and that is one reason they circumvent.

But I want to make a point related to your comment about Professor Samuelson. Pam and I both wrote, joint authored an op.ed.

in the Washington Post the very day that the DMCA was passed

where we said there was exactly this problem that Congressman

Boucher and Doolittle have identified; that it reaches beyond what

copyright law precisely reaches beyond and does not protect fair

use.

63

But when she was saying that there is no way to build a technology that would perfectly mirror fair use, it wasn’t so much a

comment about technology’s potential. It was a comment about the

complexity of analyzing fair use.

Fair use is a doctrine that is designed for humans to interpret

against the background of understanding of context and what people’s motives are, and to build a technology to do that is extremely

hard. But the hope that ends the pulling out of a Pandora’s box is

that we can begin to talk about other ways to protect legitimate

freedoms that consumers ought to have that might not be the mess

that fair use is.

So these are other ways to protect freedom that would be beyond

fair use.

Now, I think Pam would certainly agree that there are the possibilities of building technology to do that.

Mr. STEARNS. We certainly can continue this discussion when we

come back.

Mr. GONZALEZ. That is all. Thank you very much, Mr. Chairman.

Mr. HOLLEYMAN. Can I make a quick comment?

Whenever I deal with the U.S. Attorney General or Chief Justice

officials in other countries, the first question that I talk about is

enforcement of the piracy problem for software.

The first question I am asked is: what is your industry doing to

try to help yourself? And the type of simple activation tools that

we have now been able to deploy because of this DMCA is the first

clear sign that there are things apart from litigation and Federal

enforcement that will help reduce the $13 billion piracy problem.

We want to retain that right.

Mr. STEARNS. On that we will tell all of the members to come

back. We have the recording industry on the second panel, and 321,

the corporation.

So with that, the committee will reconvene at 1:15.

[Whereupon, at 12:16 p.m., the committee was recessed for lunch,

to reconvene at 1:15 p.m., the same day.]

Mr. STEARNS. The committee will come to order. I think we have

everybody in place and we have a member, Mr. Otter, here.

Mr. OTTER. Thank you, Mr. Chairman. I thank the panel for

their rather robust discussion of the subject which we are working

on today. Professor Lessig, you are the author of several books relative to the public right to copyrighted material?

Mr. LESSIG. That is right.

Mr. OTTER. Did you copyright those books when you wrote them?

Mr. LESSIG. I did.

Mr. OTTER. Why did you copyright them?

Mr. LESSIG. Because I believe a copyright owner and author

should have the right to earn back——

Mr. OTTER. So if somebody duplicated your book without you getting a royalty from it, that would be theft?

Mr. LESSIG. Actually it wouldn’t be theft.

Mr. OTTER. It would be?

Mr. LESSIG. No, it would not be theft.

Mr. OTTER. Oh, it would not be.

Mr. LESSIG. As the Supreme Court articulated in the Sony case,

it is not technical theft. My third book is offered free online under

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creative commons license. It allows people to, in fact, copy it so

long as they don’t engage in commercial use. I think the underlying

drive of your question I just want to be very clear about. I fundamentally believe in copyright. I think it ought to be a right for

people to control the distribution of work within the bounds of the

law and our tradition has struck a very good balance, I think.

Mr. OTTER. Well, we discussed that earlier. I think you have answered my question. You are still a professor at Stanford Law

School?

Mr. LESSIG. Yes.

Mr. OTTER. Do you charge just one of the students in the front

row or are all the students in your classroom charged the same

amount of money for having participated in the exercise of being

instructed on the law by yourself? Is everyone of those students

charged or just one?

Mr. LESSIG. Everyone is charged.

Mr. OTTER. Well, see, the reason I bring that up is because I am

interested in your use and I think misuse of Jefferson’s statement

relative to the candle because if you spoke to just one student in

the classroom, they would all benefit from it without diminishing

from the illumination on law of that one student. Isn’t that right?

Mr. LESSIG. It is right.

Mr. OTTER. Mr. Shapiro, 1,700 organizations belong to your organization?

Mr. SHAPIRO. Approximately. More like 1,500.

Mr. OTTER. And you are here representing them?

Mr. SHAPIRO. Yes, I am.

Mr. OTTER. Did everyone of them pay into your organization?

Mr. SHAPIRO. In one form or another, yes.

Mr. OTTER. If you were only representing one, why wouldn’t they

all have benefited from that same—why do you collect from everyone of them that you represent instead of just the one?

Mr. SHAPIRO. The fact is there is 2,500 exhibitors in our show,

consumer electronics exhibitors. We represent 1,500 but those

other thousand are benefiting from my testimony today, I hope.

Mr. OTTER. Um-hum. Are you going to charge, though?

Mr. SHAPIRO. No, I am not.

Mr. OTTER. Would you charge them if you could?

Mr. SHAPIRO. I highly doubt it.

Mr. OTTER. Then why charge all but one? Why not charge one

person?

Mr. SHAPIRO. I think I know where you are going and the reality

is this is a bigger question and the question really is is copyright

intellectual property law going to be something where there is two

purposes. One is to reward the authors and the other is to allow

the public good. Or is it going, and this is the vision that the copyright owners have, to a pay for every play society where every use

is compensated. I don’t think that is what our founders envisioned.

We have taken step by step by step to get that pay for every use.

Mr. OTTER. That is a pretty good stretch to suggest that even

Jefferson, as brilliant as I believe he was, that he suspected that

there would be some day a computer and a CD and all that. Anyway, I think you have answered my question. My point in bringing

this up is theft is theft and property is property and I don’t care

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whether you are talking about dirt in Idaho or if you are talking

about somebody’s creative genius that they have sold into the market place.

If somebody is stealing it, it is still theft and I see no difference.

I haven’t gotten the convenience of a learned law degree as you do,

Professor, but I now probably understand why more and more lawyers have a problem understanding the Fifth Amendment.

I do know that, let me say for instance, when we were debating

rather heavily Medicare bill and it was suggested that what we

ought to be doing is perhaps letting the Government under the

Fifth Amendment buy out some of the patent rights and copy

rights on medicines. Rather than going the full 17 years or 16

years, why don’t we buy up some of those? Because we recognize

in Government there is no difference between the creative genius

in the entertainment field, in the films, in music or anything else

than there is in dirt.

If we can have a restrictive covenant on any property that I

would buy, there is a restrictive covenant put there either by the

Government or the former owner. I don’t see any reason why anybody participating in this business couldn’t have a restrictive covenant on that as well which means you are limited to one.

I would finalize only by saying I suspect our librarian also makes

sure everybody has got a library card and not just one person who

may use that book the first time. There is a reason for that, because you are providing a service and you should be paid for it. I

agree with that. The problem of it is I can’t differentiate between

property rights simply because it is the result of one’s creative genius or because it is dirt.

Thank you, Mr. Chairman. I yield back.

Mr. STEARNS. Thank you gentlemen. The gentleman from Arizona.

Mr. SHADEGG. Thank you, Mr. Chairman.

Professor Lessig, I am confused. I think the word fair use is

being horrendously misused in this hearing. Mr. Gonzalez in his

questioning seemed to imply that it is, of course, a fair use for an

individual to make a copy of a DVD for himself or herself. You

seem to be embracing that definition of fair use. Yet, it seems to

me that your written testimony specifically says fair use doesn’t

cover this. Do you contend that it is a fair use for me as a purchaser of a DVD to make myself one copy?

Mr. LESSIG. I do.

Mr. SHADEGG. Do you contend that it is a fair use for me to make

a duplicate copy in case I destroy the first one? It is fair use to

make a copy for my wife?

Mr. LESSIG. I am not——

Mr. SHADEGG. Is it fair use for me to make a copy for my two

kids?

Mr. LESSIG. Within the same household for noncommercial purposes I believe it would be.

Mr. SHADEGG. Okay. So I can make a copy for my wife, copies

for my two kids, a copy to backup. Can I make a copy for my boat?

Mr. LESSIG. No, your boat doesn’t get one, no.

Mr. SHADEGG. Oh, my boat doesn’t get one. How about my cabin?

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Mr. LESSIG. This is the problem with fair use, Congressman. It

is the problem of drawing the line of fair use that the courts have

historically had to struggle with. But that is not the question before this committee.

Mr. SHADEGG. That is very much the question before this committee because you are using in this hearing the term fair use to

say it is absolutely okay for someone to make one copy and now

you are saying a copy for their wife and their kids. Yet, I can find

no way to fit that concept within the definition of fair use that we

are given.

The definition of fair use says you can make a copy for criticism,

comment, news, reporting, teaching, scholarship, or research. Well,

my wife’s use of a DVD just to view it and enjoy it, or my kids’

use of a DVD for any of those purposes, they are not using it for

criticism or comment or news or reporting or teaching or scholarship or research. They are using it for fun.

There is a four-factor test which says you look at these four factors. One of the factors says if you copy the whole work, that may

not be permissible, but the one that you might fit this into says

nonprofit educational purposes. It doesn’t say all nonprofit purposes. It says all nonprofit educational purposes. How do you apply

that to my wife’s second copy or my kids’ copy? I make a copy of

a DVD for my daughter to take to college with her so she can

watch the movie over there, how is that a nonprofit educational

purpose if it is just entertainment?

Mr. LESSIG. My point is whatever fair use is, and we could and

would have a long argument about that, and courts do. Whatever

fair use is, this bill is not attempting to modify that.

Mr. SHADEGG. This bill is going at the technology and what this

bill says is you want to repeal the technology currently in place

that the MPAA and the producers can have where they can encrypt

their product to stop people from pirating it. You now want the

Congress to step in and say even though they have the ability to

encrypt that, you want Congress to legalize equipment that circumvents their encryption.

Mr. LESSIG. For the purpose of fair use so that you have——

Mr. SHADEGG. It is for the purpose of fair use, but you have just

acknowledged that the use you want to defend here, which is use

by someone you can’t define, it is fair use to make a copy for my

wife or my kids but not okay for my boat or my cabin.

Mr. LESSIG. What I am saying is whatever the definition of fair

use you want to adopt. Maybe you want to adopt one that says you

can’t make a copy for yourself or your kid. Whatever that definition

is, this is not changing that definition. This is saying whatever that

definition is technology can’t take it away.

Mr. SHADEGG. Then I have a serious problem with your testimony because your written testimony before this committee says

that, in fact, fair use is not adequate right now and you say Congress should consider a range of measures—I am reading from

page 13 of your testimony—to update fair use in the digital age.

You say H.R. 107 is the way to do that. What you are really saying is we need to pass a law to change, I guess, two things, quite

frankly, to take away the right of MPAA to successfully encrypt its

67

material so that somebody can make a fair use copy, but you also

want to update in your words the ‘‘doctrine of fair use.’’

Mr. LESSIG. Right. I think Congress should consider fair use.

That is not what 107 is about. I think the law——

Mr. SHADEGG. That is not what your testimony says. I apologize.

I have very little time.

I would like to ask all of the panelists if, in fact—first of all, I

don’t understand why if the MPAA can create technology that

makes it impossible for someone to steal their product, why it is

a matter of fair use to allow, that is, to authorize technology that

eviscerates the purpose of that.

Mr. LESSIG. Congressman, may I respond to that?

Mr. SHADEGG. What I would like you to comment on, and I have

only a few seconds left, is why isn’t this problem easily solved by

the market place by the producers of a DVD simply saying, ‘‘Look,

we produced a DVD. We will sell it to you. If you want to take it

with a restriction so you can’t copy it, it is X dollars. If you want

to be able to make multiple copies of it, it is three times that.’’

I guess the second question I have is if the fair use doctrine so

clearly allows you to make one copy for your own use, why did we

pass the Audio Recording Act specifically saying that you could

make a copy of that? It seems to me the fair use doctrine doesn’t

embrace what you say it embraces because we had to write a law

for audio recordings to allow people to do that. I guess I would like

each of the witnesses to comment on those if the Chairman will

allow.

Mr. STEARNS. Absolutely. Go ahead.

Mr. LESSIG. So if you have a fair use right to do something with

someone’s content——

Mr. SHADEGG. Well——

Mr. LESSIG. Can I just please answer the question? If you have

a fair use right to do something with someone’s content, it is not

stealing to do that with——

Mr. SHADEGG. Absolutely. So you——

Mr. LESSIG. I am sorry. I am still not finished.

Mr. SHADEGG. Well, let me just make a point. If it is for educational purposes or research purposes, you can contact the MPAA

and say, ‘‘I want to have a fair use use of this document. I want

to use it for the definition of for criticism or comment or news or

reporting or teaching or scholarship or research.’’

But what you want to do is to allow technology that says they

can’t encrypt it forcing you to ask permission, forcing someone who

wants to use it for fair use to even ask permission.

Mr. LESSIG. If you have a fair use right, why should you be

forced to ask permission to exercise that right? The point I want

to just make clear——

Mr. SHADEGG. Yes, because you are in this room saying the fair

use right is anything you want to do.

Mr. LESSIG. No, I didn’t say that.

Mr. STEARNS. The gentleman’s time has expired. I think what we

can do is just let him finish up and let the people answer the question you asked.

Mr. LESSIG. So it is extremely important. I misspoke to Congressman Otter if he understood me to say that one has the right to

68

steal. All that I am saying is you don’t have the right to infringe

a copyright. The Supreme Court has said that is not called theft.

It is a stupid law professor’s distinction. I apologize for embarrassing the committee with such a distinction. I don’t mean to say

you have a right to engage in copyright infringement.

It is immoral to do that and I think it is wrong and should be

prosecuted. All that I am saying, though, is if you are engaging in

a fair use right, a right that the law protects as fair use, and we

are going to have an argument about what that is, but if that is

what you are doing, then it is not theft for you to do it.

The only thing at issue in this bill is should technology steal that

fair use right from the consumer. I think it is wrong that technology steals that right from the consumer and people ought to

have the right to exercise the fair use right despite the technology.

Mr. STEARNS. The gentleman’s time has expired. The full Chairman is going to take the next series of questions and with his time

you certainly might want to amplify.

Chairman BARTON. Thank you, Chairman Stearns. I want to

start out by making a statement that what we apparently have because of the technological revolution in trying to protect the copyright holders, we have a situation where in trying to do that not

only do we not have fair use, we have no use. You can’t make a

copy today. You can be hauled into court.

The manufacturer of the copying machine can be hauled into

court. The person who made the copy, even one copy, technically

could be hauled into court for violating one law or various other

laws. All we are trying to do today in this hearing is get on the

record if there is a way we can balance technology and copyright

and fair use. That is all. We are not trying to allow commercial

powers here or anything like that.

My question to the professor down at the end of the table to my

far left, is this really a debate about the number of copies or the

intended use of even one copy? If I make a copy for resale, that is

illegal.

Mr. LESSIG. Absolutely.

Chairman BARTON. If I make a small number, and we can disagree on what small number is, but if I make two or three copies

for personal use, that should fall under the doctrine of fair use.

Isn’t that correct?

Mr. LESSIG. I would argue it would but the reality is, and this

is what the first part of my testimony tried to address, the cost of

adjudicating that are extremely high. Jack Valenti was absolutely

right, we have no case saying you can copy a DVD, but that is because the cost of bringing and litigating that issue all the way to

a judgment is extremely high. That is a problem with the fair use

system as we have it right now. That, I think, is independent from

this bill. Your bill is saying whatever fair use is, that right should

not be taken from the consumer through technology.

Chairman BARTON. Now, I want to ask Mr. Shapiro, you are

here, for lack of a better term, representing the electronics industry

and some of your associations make equipment or devices that can

make copies. Is that correct?

Mr. SHAPIRO. Absolutely.

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Chairman BARTON. Is it your opinion that it is technologically

possible to make a device that would allow some small number of

copies to be made without making it possible for that same equipment to replicate a large number of so-called perfect copies that

could be used for resale for commercial purposes. In other words,

can the doctrine of fair use be made technologically compatible so

that in the digital age we do protect the commercial rights of the

copyright holder? Is it technologically possible to do that?

Mr. SHAPIRO. The Audio Home Recording Act is a good example

of where we address the very narrow area of digital audio recording. We agreed and the Congress agreed that it would make sense

to allow an unlimited number of original copies but no copies of the

copies. In other words, the chain was broken and that was agreed

in addition to royalties being paid.

Now, you could argue whether that was a good law or bad law,

but technologically it has worked. I haven’t heard any allegations

that it is broken. Similarly, with the DVD, for example, you have

a system in place which works fairly well. The motion picture and

the consumer electronics industry got together and agreed on the

standard. There is some disagreement now whether this legislation

is necessary.

Indeed, Mr. Valenti referred to a letter from the DVD Copy Control Association. I have been asked by the counsel for that association to clarify they are not opposing this legislation. Indeed, they

just have some specific comments on it. Indeed, a lot of their efforts

are supported by patent enforcement. Many of these things can be

done by patent enforcement.

This new DMC, Digital Media Copyright Act, is something which

would be very, very positive in the sense that you can come up

with specific technical fixes but as Professor Lessig has said, it is

not that you are changing copyright law. It is that you are allowing

consumers to exercise their fair use rights and that is all we are

trying to do here today.

Chairman BARTON. I understand Mr. Valenti has to leave. I

know your face but I don’t know your name.

Mr. DAVID GREEN. David Green. I apologize Mr. Valenti had to

leave but I am going to try to fill his large shoes.

Chairman BARTON. If you want to answer that question but I

have another question specifically for you.

Mr. DAVID GREEN. Just a couple of very quick points. One, fair

use is alive and well. There is absolutely a right. For example, if

Professor Lessig wants to show a couple minute clip to his class,

he can take a DVD and he can show it to his class.

Fair use does not mean that he gets to necessarily make a copy

of that and there is no right, not only in our opinion but in the

opinion of the courts and the copyright act to make a full-fledged

copy of DVD for backup purposes or to give to your kids, use as

Christmas gifts, or whatever. Even though you are not selling it,

establishing such a right could be devastating for the——

Chairman BARTON. So your association doesn’t even accept that

you could make one copy for personal use?

Mr. DAVID GREEN. It is not only our association but I think that

is what the law is.

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Chairman BARTON. So you disagree with what the Professor said

in his testimony, and I quote from page 8, ‘‘The late Professor

Lyman Ray Patterson made clear copyright has never accorded the

copyright owner complete control over all possible uses of his

work.’’ You disagree with that?

Mr. DAVID GREEN. There is no right to make a full backup copy.

That is what the Copyright office has said. That is what the courts

have said and there is no right to make a backup or personal use

copy of a DVD.

Chairman BARTON. Well, I disagree with that. That is my opinion. Is it MPAA’s official position that you will accept no—there is

no way to find a compromise on this issue? You all are going to hop

in the Alamo and hope somebody arrives but if you are going to go

down fighting, you are going to die for MPAA and the Alamo no

matter how many troops are marshalled against you and how

many arguments?

Mr. DAVID GREEN. I am not sure we necessarily——

Chairman BARTON. I don’t mean literally die.

Mr. DAVID GREEN. We see ourselves on the side of right on this.

We are, of course, looking for ways of making things clear but we

do think there is a reasonable compromise, that the DMCA establish that compromise, and that it does allow for the full flowering

of fair use in universities and everything and not to allow this

whole system to come to a crash to allow people to de-encrypt at

will the encryption systems. I think that will end up with less consumer choice, not more consumer choice.

Chairman BARTON. Well, my time has expired. I want to ask one

question of Mr. Swift as a former member of this committee, former

subcommittee Chairman of this committee, do you agree with Mr.

Green that you have no rights to make any copy of anything at any

time?

Mr. SWIFT. No. I believe what has happened is that when the

digital age came we all panicked and we rushed in and provided

draconian protections unlike virtually any other protections we provide anybody else for anything. We normally punish behavior.

What we have done here is to provide a mechanism by which you

just say having the mechanism is what we do and you cannot play

around with the mechanism. I think that is wholly inappropriate.

There are other ills in our society.

For example, let us just take a kind of exaggerated example.

Shoplifting is a very expensive drain on our economy. Retailers suffer enormously from shoplifting. We could probably eliminate shoplifting if we simply allowed every retailer to put handcuffs on every

customer that came to the door. They could nod at what they wanted, they would pay for it, take the handcuffs off, and they could go

home.

That is an exaggerated analogy but I think it is really analogous

to the way in which we have sought to provide protections for the

recording industries. Clearly they need the protection. I don’t think

there is anybody here arguing that they shouldn’t have protections.

It is the way in which we have sought to do it.

One of the things I have noticed here today is we are all focused

as though this is the only way to provide protections. Earlier we

talked about some other things. Trade negotiations. We talked

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about trying to change and increase the enforcement for the laws

that already exist for misuse and abuse of copyrights. So this is not

a this way or no way kind of way of dealing with their legitimate

concerns about piracy. You have got to get off that and start looking for ways that give them the protection they need that doesn’t

intrude so massively on the American consumer. That is all I am

saying.

Chairman BARTON. My time has expired.

Mr. STEARNS. Mr. Stupak.

Mr. STUPAK. Well, thank you. It has been an interesting discussion to say the least this morning. If we legalize this legislation,

circumvention for noninfringing uses of copyrighted work, it is my

understanding there is no technology out there that could prevent

like you make your one personal copy you want to make and that

is it, right? I mean, you can just keep making those copies, DVDs,

CD, or whatever it is, right?

Mr. DAVID GREEN. Let me just clarify. There are encryption

schemes that would allow you to make one copy. If you allow hacking, if you allow circumvention, you have striped the encryption

scheme.

Mr. STUPAK. So you would be in favor of encryption with one

copy?

Mr. DAVID GREEN. There are all sorts of options that we are

working on that would allow one copy legally with the permission

of the copyright owner.

Mr. STUPAK. Okay. Encryption is what, just DVD, right?

Mr. DAVID GREEN. Well, no. Encryption would also be on digital

distribution where if you decide, ‘‘I want to download a movie. I

want to watch it once,’’ we could build into this and this is what

the music industry has done and what we are certainly looking to

do. If you want to make a copy——

Mr. STEARNS. Mr. Green, I just need you to pull your microphone

up a little closer so we can hear you better.

Mr. STUPAK. So technology does exist then that you can do one

copy?

Mr. DAVID GREEN. We are developing encryption technology.

Mr. STUPAK. But it is not there yet?

Mr. DAVID GREEN. We are not there yet.

Mr. STUPAK. When will it occur?

Mr. DAVID GREEN. The incentive to do it is as long as we can protect that encryption technology from de-encryption from circumvention. There is a huge economic incentive. We are doing it as fast

as we possibly can. We are working with our friends in the CE and

the IT community to make this happen and this stands as a dagger

at that effort.

Mr. STUPAK. I don’t agree with the sense of the dagger. I don’t

want to get into the dagger. What I want to get into is is the technology there where we can do one copy and then let it go at that?

That is what I am hearing from everybody.

Mr. DAVID GREEN. No system is perfect. It keeps honest people

honest and that is the goal here. Keep in mind if they do allow one

copy, they usually want to be paid for that additional copy.

Mr. STUPAK. Well, yeah. Okay. There is some value in that work.

Whether it is one copy you get it at half price or whatever.

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Professor, you want to jump in there?

Mr. LESSIG. I agree that there is technology that can enable one

copy. What I don’t think that does is guarantee fair use because,

for example, fair use might include if you are reading my book and

you want to take a chapter out of my book and include it in a criticism on my book, that is fair use.

Mr. STUPAK. Sure it is.

Mr. LESSIG. If I am watching a movie and doing another demonstration and take a section out of it, I can’t necessarily do that.

Or as CleanFlicks, for example, does, if I want to enable people to

skip the parts of the movie that I don’t want my children to watch

and they build the technology to stop me from doing that, I have

no right to circumvent that under the DMCA as it is now.

Mr. STUPAK. You are basically saying technology has to be able

to address all the fair use needs of everyone who wants to use it?

Mr. LESSIG. Right. And that is why Pam Samuelson and Ed

Felton agreed that there is no simple technology that can do that

but that is because of the complexity of fair use.

Mr. STUPAK. I guess the point I am trying to get with, I believe

these things have to be protected. We have sat through many hearings about piracy, China in particular where they are using about

$18 billion a year on intellectual property rights. They have factories there that reproduce these things and there is no seeming

negotiation or enforcement, whatever you want to say, other than

administration saying they will get to it.

Mr. Swift, when you said you went to do your CD and you tried

to make a quick copy to get it produced and it wouldn’t do it, you

called and said, ‘‘Hey, what am I doing wrong?’’ They said, ‘‘No, you

can’t make a copy of it.’’ Shouldn’t the store who sold you that CD

burner tell you you can’t do it? I think they sort of robbed you of

your money.

Mr. SWIFT. I think that they probably were assuming that I was

more well informed than I am in the details of this Draconian law.

What I don’t think they are responsible for is setting up the rule

in the first place which I disagree with.

Mr. STUPAK. Right, I agree. They are selling you technology now

to make copies, if you will, and knowing darn well that, in your

case a CD, that you can’t make a copy of it. I am always hearing

we should have enforcement and education and we wouldn’t have

to worry about this piracy and it would go away.

Mr. SWIFT. It is true that if——

Mr. STUPAK. Even when you buy a product it educates you.

Mr. SWIFT. It is true that if they had made that clear I wouldn’t

have bought it because I can already make copies in real time.

What I have is another machine that will make copies in real time

and they are switched from digital to analog which is fine with me

because I don’t intend to make a thousand copies of these things.

It is not that it changes it from digital to analog and you can’t

make copies of the copy.

I could care less about that. It is the fact that I can’t make a

high-speed copy of my original one. All it does is it doesn’t give an

ounce of protection to the industry. It just take me four times as

long to make the copy. Why should they inconvenience me in that

way if, in fact, they get no benefit from it?

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Mr. STUPAK. But don’t you think that everyone they sell they do

get benefit from? Every CD, right?

Mr. SWIFT. No.

Mr. STUPAK. If I am an artist, every CD that I sell I get a benefit

from it, right?

Mr. SWIFT. Of course, but the kind of thing I am doing is not

making copies of their album. I am doing something entirely differently.

Mr. STUPAK. Back to the question that the Professor said everybody wants their own exception to the exception.

Mr. SWIFT. My fundamental point is that if I can do what I want

to do in real time, why advantage is the industry getting from——

Mr. STUPAK. But if you open it up, the person sitting next to you

might say, ‘‘I want to do something different than Mr. Swift on my

own terms and my own conditions.’’ How do you protect the product

then? Everybody wants their own exception.

Mr. SWIFT. But my concern is with the consumer and I ask

again, what advantage is the industry getting by making me simply have to handle equipment more inconveniently? I end up with

exactly the same product, a copy of my copy.

Mr. STEARNS. The gentleman’s time has expired. The gentlelady

from California.

Ms. BONO. Mr. Swift, I didn’t serve with you but, first of all, you

are violating multiple copyrights when you do that. In this day and

age I don’t know what equipment you have but it takes me probably 4 seconds to download a 6-minute song, 4 seconds to download

that onto my computer.

To the question of do we have the technology? The answer is yes.

That is why we are here. This bill, which I oppose completely,

throws away the technology and makes it completely useless. We

have DRM. We have come a long way. Years ago, I believe, the recording industry and the motion picture association were well behind where they should have been.

Yes, they tried to stem the tide of technology, but I believe they

have been working very, very hard at catching up and those people

in this industry know that the greatest tool you all have is the

enter key for the first time. We are there. We have DRM. We have

things like MagicGate. Now we are saying how about iTunes which

on their website, currently just expanded, you can download to

multiple iPods.

iPods is a new term. We are not talking about LPs and vinyl 78s

and 45s. We are talking about iPods. It is a new world. You can

download to multiple iPods, to unlimited iPods, but you can only

copy to five different PCs or Macs. And those PCs and Macs can

share the information over a LAN. We have come a long way. In

my view this bill, with its good intentions and all of my respect to

its authors, is not a good bill. It is going to entirely undo where

we have come so far to this point. That is not a question, is it? It

is a statement.

Mr. SWIFT. I have done that.

Ms. BONO. Mr. Green, just a yes or no if you could. I understand

that the Walt Disney Company lists a 1-800 number on each of its

DVDs that says if you break the DVD you can send the broken disk

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to a listed address and they will send you a brand new copy at no

cost. Is that true?

Mr. DAVID GREEN. That is absolutely right. Other companies are

also looking at the same deal.

Ms. BONO. So that kind of maybe addresses a little bit of the fair

use issue? I think the market place is trying to be fair and the motion picture companies are.

Mr. DAVID GREEN. They will send it back with no profit to themselves.

Ms. BONO. Thank you. Then also, Mr. Lessig, it is a pleasure to

see you again, Professor. I enjoyed your work in front of the Supreme Court arguing against the Sonny Bono Copyright Act. I am

glad that the Supreme Court in their infinite wisdom ruled with

Sonny.

In any event, there are wonderful artists out there, Omar Liebert

is one, who chooses to put his music on the web and to not copyright it. Artists can do that. There is something with software,

shareware. People can put their technology, their ones and zeros,

out there in a way that can be disseminated freely. Why not? And

is your book copyrighted?

Mr. LESSIG. Again, yes, my book is copyrighted. But, in fact,

when artists put their music up on the web, it is not copyrighted.

It still is copyrighted.

Ms. BONO. Correct.

Mr. LESSIG. And the ability to use it still depends on getting permission first. Now, that is a general problem. The particular issue

here is, as came out of the exchange with Congressman Otter,

should you have to get permission to do what the law already gives

you the right to do, namely, a fair use right. Again, we could argue.

Ms. BONO. Professor, I am going to jump on this because I think

I did make you repeat yourself but, again, with an iPod, for example, I have a 40 gigabyte hard drive in my drive that is barely

much larger than a cassette tape any longer. 40 gigabytes. That is

thousands and thousands of songs that I can carry with me in my

purse, I can carry it on a plane, I can put it in my car.

I guarantee you very shortly there will be adapters in a car to

put your 40 gigabyte hard drive in there and you have got your

whole library. This issue of fair use you have kind of antiquated.

And when you talk about the Xerox machine, I think that is entirely disingenuous. A Xerox machine is not making a master copy

of a master copy. You have used the Xerox copy analogy here and

I think that is entire disingenuous.

Mr. Swift, one last question to you. When you make these CDs,

which in your mind are master compilations of copyrighted works,

you mean it is not worth the 99 cents that would go not to big business but to perhaps artists and people who have struggled and

spent their entire life? You enjoy their work so much that you are

willing to make copies to give to your friends or speeches, whatever

you are copying.

It is not worth saying for 99 cents go to iTunes, go to MusicNet,

go to even Napster now and buy the song? It means so much to

you that you spend that time making copies but you are not willing

to tell your friends to go spend the money to support the artist who

created that work. Why is that?

75

Mr. SWIFT. I make a program and I give it to a friend. They are

supposed to pay me for that?

Ms. BONO. No, no. You are supposed to pay the people.

Mr. SWIFT. I am supposed to pay. I have paid. I mean, I may

have——

Ms. BONO. Okay.

Mr. SWIFT. I may have 30 CDs.

Ms. BONO. Okay, so they are supposed to pay the creator of the

content. They can go to the Internet——

Mr. SWIFT. I give them a gift and they are supposed to pay——

Ms. BONO. That is not a gift. The copyrighted work is not a gift.

Mr. SWIFT. But if I give them that and they have to pay somebody, it would seem to me that the only way that would work is

they would have to pay me.

Ms. BONO. No, they could go——

Mr. SWIFT. That is a violation of the copyright right there.

Ms. BONO. No, they wouldn’t have to pay you. They could go to

the record store. You could give them a list of your very favorite

songs or they could go to a website and support these industries

who have worked so hard at developing this.

Mr. SWIFT. No, no. I could say that you might really enjoy it if

you bought these 30 CDs and you put these cuts together in this

order.

Ms. BONO. You can post your list on the web. That is a very common procedure. You can post you——

Mr. SWIFT. Why would I want to do that?

Ms. BONO. My question exactly.

Mr. SWIFT. I want to make a program. I do lap fades, cross fades.

I use portions of——

Ms. BONO. Which sampling is also suspect to me here.

Mr. SWIFT. My point is that what you are suggesting I do doesn’t

do what I want to do.

Ms. BONO. Well, sir, with all due respect, and I am sorry——

Mr. SWIFT. You are saying that I shouldn’t be able to——

Ms. BONO. I plan to take your words today and hack them and

butch them and put them on the Internet and do with them what

I wanted to do and disseminate them but because—you say you

take portions of copyrighted work and just send the portions out.

Mr. SWIFT. What I take is recordings I have paid for.

Ms. BONO. And?

Mr. SWIFT. And I put together different kinds of things for personal use. I don’t do it for money. I don’t sell these. I don’t make

a lot of copies because, among other things, it is a lot of work. Just

creating the labels and sticking them on the blanks is a lot of work

so I just don’t. I have never done, I don’t think, more than 10 of

these. Okay? I am not a huge threat to this industry and——

Ms. BONO. Okay. But let us——

Mr. STEARNS. The gentlelady’s time has expired.

Ms. BONO. Thank you, Mr. Chairman.

Mr. STEARNS. The gentleman from Texas.

Mr. GREEN. Thank you, Mr. Chairman. It is interesting because

I have two minds on this because I can understand the need. Like

I said, if I buy a CD for $17 and I tell my kids I want to burn one

76

for them, that is different than what we are seeing in the massive

piracy. That is what I am concerned about.

Let me ask Mr. Shapiro because looking at what we have now,

when the DMCA was originally passed the rulemaking process involved a copyright office and the Library of Congress was established to identify certain exemptions under the DMCA anti-circumvention that would be in the public interest. While people may

complain that there are only a few exceptions that have been

granted, some have been granted in proving that there is a process.

Can you envision a scenario where a rulemaking process possibly

somewhat different would address the consumer electronics concern

with the potential liability of the DMCA but still have the protection from the original artist or the creators of these works?

Mr. SHAPIRO. I think by most accounts that process has not

worked. My understanding is there was only one exemption granted and it was for a group of the blind. It was fought every step of

the way by the motion picture industry and it still doesn’t allow the

blind even that exemption to do what they want. The administration has made clear that process is not good and should be

changed.

I don’t think a technology creator should have to consult lawyers

and go through an exemption process to produce technology. It is

very dangerous. If we had that when the VCR was invented, then

the VCR and so many other industries would not exist today.

Blockbusters would not exist. A whole bunch of other industries

would not be selling what they are selling.

The growth of technology is something that we can’t predict what

way it is going to go. The most dangerous thing about the way the

copyright law has evolved over time is that it is focused on one half

of the equation and that is compensating authors and artists and

protecting that monopoly. The other half of the equation, the broad

public access which the Supreme Court has repeatedly said is part

of that constitutional provision, has been totally ignored. To the extent that technology allows broad public access, that is important.

Now, there are a bunch of studies which have been done focusing

on technology and focusing on harm to copyright owners. In some

areas there is harm to copyright owners. Certainly the radio put

creators out of business. They put musicians out of business. The

talking film put pianists out of business in motion picture theaters.

I think even now it is a matter of debate whether downloading now

is hurting the recording industry. The studies are split on that very

point including one that just came out from Harvard.

Mr. GREEN. Well, I don’t know if I agree that is on the level of

abolishing buggy whips. We lost jobs back then, too. I think we

have to protect both not only the innovation of the technology but

also the innovation of whatever work is being done. Again, we are

looking for that kind of balance.

Mr. Holleyman, your association represents both software manufacturers who have much to lose from online piracy, and also hardware manufacturers who traditionally oppose digital rights management mandates. Can you give us your insight? Because obviously you have to deal with that within your agency in some opportunities for the private sector, collaborative solutions to the digital

77

rights management and piracy. You could satisfy both content but

also the hardware producers.

Mr. HOLLEYMAN. Well, I would like to think that our association

represents both content and hardware producers because we do.

We were very involved in the compromises that were struck in

1998 and feel that reasonable balance has worked well. What we

have been able to deploy through that are very simple mechanisms

that can be used with software and with PCs that will allow a consumer within 30 seconds with Internet access to authenticate their

program.

It eliminates the biggest form of piracy of software which is not

the piracy of software to sell in the commercial market place, but

where legitimate customers may acquire one license but then they

copy it for multiple PCs in their work place. That simple technology is the merger is what can be done with the PC with a simple Internet connection. It is not burdensome and it is what we

have been able to do to help reduce piracy because of the DMCA.

Mr. GREEN. Is that same paradigm available for motion pictures

and recordings? I am trying to think of how we could do that.

Mr. HOLLEYMAN. The DMCA contrary to ads that I think Mr.

Shapiro’s group and others were running at the time in 1998 which

said that if the DMCA passed, it would outlaw PCs and VCRs.

What we have seen since that time is that there has been a proliferation of content and digital devices unlike any other time in

our history.

General purpose devices that can make copies like PCs have

grown and can be used. It simply says that a special purpose device

for purposes of circumvention has such a nefarious purpose and so

little public interest that Congress would outlaw those special purpose devices. We think it has worked well.

Mr. SHAPIRO. Garage door openers?

Mr. GREEN. I am sorry. I couldn’t hear.

Mr. SHAPIRO. I said garage door openers and printer cartridges

are nefarious devices?

Mr. HOLLEYMAN. I think some of those cases involve issues unrelated to the DMCA provisions but other traditional copyright

issues. I am not representing garage door and other device manufacturers.

Mr. STEARNS. The time of the gentleman has expired and I thank

the panel. We have one more member. He is not a member of the

subcommittee but generally we offer members of the full committee

the opportunity to ask questions. The author of the bill, Mr. Boucher.

Mr. BOUCHER. Well, thank you very much, Mr. Chairman. I want

to thank these witnesses for their perseverance here and their patients and for their enlightening us with their views.

First of all, let me simply note for the record that the Copyright

Office has issued an opinion weighing the various factors that determine whether or not a particular application is fair use and has

issued the opinion that making an archival copy is fair use. That

was contained in the Section 104 report issued by the Copyright

Office 2 years ago. We can say that based upon that opinion of the

Copyright Office, you get to make at least the one copy for archival

or backup purposes.

78

I think we would all agree that being able to excerpt small quantities of work from a copyrighted work to place in a school report

or in a research paper, a video version of such, would be a fair use.

Simply using this material in a way that does not impact the commercial market that is purely to enhance personal convenience or

further education is indisputably a fair use.

Mr. Lessig, let me ask a couple of questions of you. Are you concerned that the Digital Millennium Copyright Act holds the potential for the extinguishment of fair use in the digital era?

Mr. LESSIG. Absolutely. Especially if one thinks beyond the questions we have been focusing on which might be thought of as the

free bite of the apple questions, your extra copy questions. More

fundamentally, the ability to use the technology to mix and excerpt

and express content in a way that the copyright owner might not

necessarily want you to do.

This is a problem, frankly, that fair use has independent of technology. In my testimony I spoke of a case where Robert Greenwald,

a film maker, wants to take a 1-minute clip from the President’s

Meet the Press interview. NBC has banned him from doing this

and he now has to face the very difficult choice of whether to risk

copyright infringement for what I think all of us in this context

would think should be fair.

Mr. BOUCHER. So what the law basically does is say that the creator of the content can lock that content behind a technical protection measure and then prohibit access to it except on whatever

terms the content creator finds acceptable. That could be the making of a micropayment or something else.

Mr. LESSIG. The micropayment or terms that say you can’t criticize in certain ways or you can’t excerpt in certain ways, all of

those are the type of freedoms that the law guarantees under fair

use which are being removed by technological protection measures.

Mr. BOUCHER. Thank you. The fair use doctrine is a uniquely

American doctrine. It was originated a little more than a century

ago by the courts in the United States as a way to give expression

to the rights of the users of intellectual property. The European

community has never embraced this principal. It is really an American concept.

Do you see, Professor Lessig, any connection between the doctrine of fair use as practiced in this country and the lack of it in

Europe and much of the rest of the world and the tremendous technological advances that we as a society have been able to make?

Has fair use contributed to that?

Mr. LESSIG. Absolutely, for exactly the reasons that Mr. Shapiro

was suggesting. The opportunity for businesses to build without

getting permission first has driven an extraordinary amount of innovation and growth. I think people around the world in good faith

are puzzled by the American doctrine of fair use. They are puzzled.

They don’t understand it. I don’t think they are evil. I just think

they don’t have the same tradition. I think one of the ways to understand the resistance in the United States comes from the changing ownership of major media organizations. The RIAA, the major

organizations represented by the RIAA, are all foreign organizations right now.

79

I have all the respect in the world for them but when one of the

leaders, for example, from Universal, Larry Kinswell, says as far

as fair use is concern, ‘‘It is the last refuge of scoundrels,’’ that

strikes me as someone who doesn’t understand the American tradition and the values that fair use has served.

Mr. BOUCHER. Thank you. Ms. Nisbet, let me direct several questions to you. As a representative of libraries, are you concerned

that the Digital Millennium Copyright Act could lead to a paper

use society where things that are available for free on the library

shelf today when delivered in future years in digital format would

only be available to library patrons if they are willing to pay a fee

in order to access the work every time? Are you worried about

that?

Ms. NISBET. Indeed we are. Let me just say that is one of the

reasons that we strongly support H.R. 107 because it will not only

ensure that we continue to have fair use, but also that we are able

to exercise the other exceptions in copy law that are there to ensure that we are able to use the products that we buy so that for

our patrons they are free and are able to use fully in many different ways, particularly to support research and education.

Mr. BOUCHER. One final question.

Chairman BARTON. Mr. Chairman.

Mr. STEARNS. Yes.

Chairman BARTON. I would ask unanimous consent that since

Mr. Boucher is the author of this legislation, although he is not a

member of the subcommittee, that he be given an additional 5 minutes for questions of this panel.

Mr. STEARNS. Without objection so ordered.

Mr. BOUCHER. Thank you very much, Mr. Chairman. Both Mr.

Chairman.

Ms. Nisbet, we have heard from the content owning community

that the rulemaking process at the Copyright Office, which was inserted through amendments offered in this committee, as a matter

of fact at the time that the DMCA was passed, is sufficient to protect fair use. We now have 6 years of experience with that rulemaking process at the Copyright Office. My sense is that it has

proven to be all but unless in terms of protecting fair use rights.

I wonder what the librarian’s position on the adequacy of that

rulemaking process as the protector of fair use rights is? I would

also ask you this. I know that a library community and the university community have made numerous requests to the Copyright Office under this rulemaking procedure for exemptions to protect fair

use rights in association with what your patrons and university

students and professors need to do with copyrighted material.

Have you ever been supported in any of those various applications to the Copyright Office for exemptions to protect fair use by

the MPAA, by the RIAA, or by the Business Software Alliance?

Have you gotten support from any of these groups with respect to

that rulemaking process?

Ms. NISBET. We’ve gotten opposition. No support. I might add the

libraries have been very disappointed in the rulemaking process

but you don’t need to look just to the libraries for criticism of that.

The Librarian of Congress himself, as well as two Assistant Secretaries of Commerce have expressed concerns with the evidentiary

80

standard for that rulemaking and have expressed concerns about

how well it works. We would agree with your assessment.

Mr. BOUCHER. Thank you very much.

Mr. Shapiro, members of this committee have had the opportunity to attend on various occasions the Consumer Electronics

Show which is a showcase of American and, to some extent, foreign

technological innovation. The world demonstrates its technological

advances at that annual event.

Tell me this. How different do you think that show would look

in the event that the DMCA can be used by individuals who are

seeking not to protect their copyrights so much as to thwart competition coming from some other market participant? I have in

mind the use of the DMCA to block competitive garage door openers, to block competitive toner cartridges for printers, and even to

block making modifications for your own use in the robotic dog that

you’ve purchased. In all of these instances the DMCA has been invoked. How different would your show look if the DMCA can run

its course and be used in order to thwart legitimate competition?

Mr. SHAPIRO. Well, the DMCA is being used for that purpose. I

am somewhat embarrassed because none of my own members are

using it for that purpose. They are suing potential competitors.

They don’t want competitive products. The DMCA allows them to

do that and that is one of the reasons we are asking it should be

changed. Actually as an industry we support vigorous competition

among different technologies.

The show would be a lot smaller. Indeed, it is somewhat smaller.

ReplayTV, for example, was litigated out of existence under the

DMCA. Now, as Professor Lessig noted, was that a valid lawsuit?

We will never know because the reality is it cost so much to defend

against one of these lawsuits that you can’t go to logical extreme

and even protect your fair use rights. To the extent that attorneys

are starting to run the technology world, if that is a good thing,

then we shouldn’t support this legislation.

Mr. BOUCHER. Thank you. That is all the questions that I have

of this panel. I want to thank you very much for your participation

here today. We will be having further discussions with each of you

as we further consider this matter.

Mr. STEARNS. I thank the gentleman and Panel 2 is excused. I

want to thank you very much. You have been in the hotseat here.

I appreciate your forbearance here and now we call up Panel 3: Mr.

Gary Sherman, President of the Recording Industry Association of

America; Mr. Peter Jaszi, Professor of Law, Washington College of

Law, American University; Debra Rose, Senior Legislative Council,

the Entertainment Software Association; Mr. Chris Murray, Legislative Counsel, Consumers Union with Ms. Gigi B. Sohn, President,

Public Knowledge; last Mr. Robert Moore, Chief Executive Officer,

321 Studios.

I want to thank Panel 3 for your patience. We are eager to hear

your opening statements. If you will come to the table and we will

start with Mr. Sherman on my left and just go straight across.

Each of you have an opportunity to give us your statement.

Mr. Sherman, if you are ready, we will start. Just make sure

your speaker is on.

81

STATEMENTS OF CARY SHERMAN, PRESIDENT, RECORDING

INDUSTRY ASSOCIATION OF AMERICA; PETER JASZI, PROFESSOR OF LAW, WASHINGTON COLLEGE OF LAW, AMERICAN UNIVERSITY; DEBRA ROSE, SENIOR LEGISLATIVE

COUNSEL, THE ENTERTAINMENT SOFTWARE ASSOCIATION;

CHRIS MURRAY, LEGISLATIVE COUNSEL, CONSUMERS

UNION WITH GIGI B. SOHN, PRESIDENT, PUBLIC KNOWLEDGE; AND ROBERT MOORE, CHIEF EXECUTIVE OFFICER,

321 STUDIOS

Mr. SHERMAN. Thank you, Mr. Chairman. My name is Cary

Sherman. I am President of the Recording Industry Association of

America. If you don’t mind, I would like to chuck my oral statement which was a summation of my written statement and

just——

Mr. STEARNS. You probably heard a lot today.

Mr. SHERMAN. I have heard a lot.

Mr. STEARNS. I can see a lot of you are a little frustrated but it

has been a very intellectually challenging debate so, yes, sir. By

unanimous consent your entire opening statement will be part of

the record.

Mr. SHERMAN. Thank you. I would just like to make a handful

of key points that I think are important less they get missed. First,

the DMCA has been largely characterized today as being

anticonsumer. I really feel that the experience is very much the

contrary.

The fact is new technologies weren’t being taken advantage of before by creators for fear that they would be pirated out of business

and the DMCA fixed that. They said if you use technology to protect your content, it will be illegal to manufacture and sell devices

to hack through the protection. They are just doing what the Congress did back in the 1980’s with cable box legislation saying it

would be illegal to manufacture black boxes that would descramble

cable signals.

Nobody worried about a fair use exemption that somebody was

going to use a movie that was going to be downloaded but they

couldn’t get access to it because it was scrambled. There have been

no complaints and the cable industry has grown. The process has

worked well.

If you look at the results of the DMCA in the music industry

today we’ve got iTunes from Apple, we’ve got Rhapsody from Real,

we’ve got Napster 2.0 from Roxio, MusicMatch, Wal-Mart, Best

Buy. It goes on and on. In the future we still have coming Dell,

Amazon, MTV. We now have Sony. Microsoft is getting into this

business.

If you want to talk about proconsumer, think about DVDs. The

fastest growing consumer product in history. It was made possible

because technical protection measures were worked out between

the consumer electronics industry and the motion picture industry.

If H.R. 107 were law, that protection technology would have been

pointless and you wouldn’t have DVDs today.

That is why I have trouble understanding Mr. Shapiro’s position.

It was his members who reached an agreement with the motion

picture studios on how they could jointly put this new consumer

product into the market place which consumers have loved. The

82

record industry negotiated a similar arrangement with consumer

electronics companies and it allows for some copying, CD quality

copies of DVD audio disks, but it was a negotiated agreement that

has facilitated new formats.

It was a very good deal for the consumer electronics companies.

They have sold scads of DVD players. Is Mr. Shapiro now saying

that the agreement his company reached on DVD standard should

now be breached so that those same companies can now sell the devices that strip away the very protection they agreed to respect? I

certainly hope now. I think the DMCA has vastly benefited consumers and will continue to do so.

Second, there has been an impression created that the DMCA

disallows fair use. In fact, it allows consumers who legally acquire

a copy to make a fair use copy and you have a triennial review

process to provide even further assurance that fair use rights are

not lost.

The DMCA only prohibits companies from selling black boxes to

strip away content protection for any purpose. The fair use issue

was very well understood back in 1998 and was much discussed,

but everyone recognized that an exception allowing black boxes for

fair use would not just be a loop hole, it would swallow the rule.

This bill is not going to benefit consumers but the companies who

want to sell hacking tools. I think we all know how those tools will

be used which brings me to my third point. Everyone has made

their obligatory statements about how they are against commercial

piracy and commercial piracy is a serious and growing problem.

Let’s be honest, the issue we are facing nowadays is not just commercial piracy. It is consumer copying, downloading and burning.

Ordinary consumers have become worldwide distributors of our

content. I respect Mr. Swift’s personal perspective but it assumes

that everyone is like him and we have learned the hard way that

they are not. Our sales are down 31 percent in 4 years.

Four years from the time that peer-to-peer networks began and

CD burners became common place. Everybody has been talking

about all the changes since 1998 when the DMCA was enacted.

What has happened to the music industry is an extraordinarily

profound change and imagine what it would have been if H.R. 107

had provided even less protection for us.

Everyone is relying on misconceived and incorrect interpretations

of fair use to justify their behavior. These consumers who are

downloading and burning think it’s buy one and get one free, or

worse buy one and get 100 for everyone else, everybody in the

class. That’s why H.R. 107 is so misleading, because under the rubric of fair use, which has been vastly exaggerated as you seen

from the discussion in the earlier panel, almost anything is okay.

By the way, I think that explains the quote that Mr. Lessig gave

from a record company executive out of context about fair use being

the refuge of scoundrels because it is constantly being distorted in

order to routinely justify infringement by companies like Napster

and Aimster and Grokster and KaZaA and so on and so forth. H.R.

107 is really about getting creative content for nothing and that,

unfortunately, is the reality.

Finally, no one has talked about the market place, yet that is

why all these claims and issues have to be resolved, not by GovernVerDate 11-MAY-2000 09:16 Oct 20, 2004 Jkt 000000 PO 00000 Frm 00086 Fmt 6633 Sfmt 6602 93981.TXT HCOM1 PsN: HCOM1
83

ment regulation. As far as record companies are concerned, all that

matters is how they appeal to consumers, how they give them what

they want so they will buy our product instead of take it.

That is why record companies allow extra copies to be burned.

All of the discussion this morning about no copies can be made,

that just has no application in the music industry whatsoever. CDs

are being burned beyond belief.

Download services allow copying. They allow copying to multiple

computers. They allow transfers to portable devices. They allow

burning to CDs. This is the market place at work and that is where

the solution really lies. The DMCA is enabling consumers to pay

different prices for different uses of entertainment.

From purchasing complete CDs to downloading singles to monthly subscription services, the market place is addressing what consumers want and expect. Not everybody wants to own their music

and not everybody should have to pay for what H.R. 107 thinks everybody should have. I think that is exactly the point that Mr.

Shadegg was just making before.

Consumers are benefited by options, not an abstract and misguided guarantee of a technical ability to make unlimited copies.

Those options have been and should continue to be created by the

legitimate market place, not by Government regulation. Thank you

very much.

[The prepared statement of Cary Sherman follows:]

PREPARED STATEMENT OF CARY SHERMAN, PRESIDENT, RECORDING INDUSTRY

ASSOCIATION OF AMERICA

Chairman Stearns, Ranking Democratic Member Schakowsky, and Members of

the Subcommittee, my name is Cary Sherman, and I am President of the Recording

Industry Association of America (RIAA). Thank you for inviting me here today to

discuss H.R. 107 and its potential effects on the development of and investment in

sound recordings in the United States. RIAA is the trade group that represents the

U.S. recording industry. Our mission is to foster a business and legal climate that

supports and promotes our members’ creative and financial vitality. Our members

are the record companies that comprise the most vibrant national music industry

in the world. RIAA members create, manufacture and/or distribute approximately

90% of all legitimate sound recordings produced and sold in the United States. They

employ thousands of people, including singers, musicians, producers, sound engineers, talent scouts, graphic designers and retail salespersons, to name only a few.

Music is the world’s universal form of communication. It touches every person of

every culture on the globe, and the U.S. recording industry accounts for fully onethird of that world market. Exports and other foreign sales account for over fifty

percent of the revenues of the U.S. record industry. This strong export base sustains

American jobs.

In this respect, the protection of our intellectual property rights is vital to promoting America’s competitive advantages in world commerce. As our trade deficit

has soared, the contributions of America’s copyright industries to the U.S. economy

has become even more important.

An important part of our nation’s competitive strength lies in the creation of

knowledge-intensive intellectual property-based goods and services. This is one of

those economic activities that Americans do better than the people of any other nation. The ‘‘core’’ U.S. copyright industries account for more than five percent of US

GDP. Employment in our industries has doubled over the past 20 years, growing

three times as fast as the annual growth rate of the U.S. economy as a whole. The

foreign sales and exports of U.S. copyright industries were nearly $90 billion in

2001, an amount greater than almost any other industry sector, including automobiles and auto parts, agriculture and aircraft.

In a sense, the intellectual property of the United States is like a warehouse of

ideas and creativity. For people to disregard intellectual property rights is no more

tolerable than to allow the theft of physical goods.

84

The theft of music is almost as old as the music industry itself, but the advent

of the compact disc radically altered the nature of music piracy—providing the pirate producer with the opportunity to produce near perfect copies of any recording.

We already suffer from massive trafficking in illegal CDs; the proliferation of cheap

recorders and recordable optical discs (CD-Rs) in recent years has served to create

an easy and hard-to-detect means of mass duplication. Annual world-wide pirate sales approach 2 billion units, worth an estimated $4- $5 billion. Globally, 2 in 5 recordings are pirate copies. Total optical disc manufacturing capacity (video/audio CDs, CD-ROMs and DVDs)—stands at well over 20 billion units, having quadrupled in the past five years, and greatly exceeds legitimate

demand. You can see why allowing the manufacture and distribution of machines

that strip away copy protection and permit the making of unlimited copies poses

risks for mass duplication that would make the piracy problem even worse.

With the enactment of the DMCA in 1998, Congress went to great lengths to balance the interests of copyright owners and users of their works. The DMCA encourages copyright owners to make products available to consumers in the digital environment by prohibiting the trafficking in hacking tools that disable the technical

protection measures copyright owners rely on to prevent the mass reproduction of

their creative works. On the other hand, to ensure that legal uses of copyrighted

works (such as uses that stem from First Amendment protection) are not adversely

affected by access controls that are too limiting, the DMCA imposes a continuous

three-year review process by the Librarian of Congress and the National Telecommunications and Information Administration (NTIA).

HR 107 destroys this balance of interests and the protections Congress so carefully crafted. The amendments contained in this bill create not merely a loophole,

but an exception that swallows the rule, leaving copyright holders and content providers with no way to protect the works they create.

Because of the DMCA, we now have new legitimate Internet music services such

as Apple’s iTunes, Real’s Rhapsody, MusicMatch, Roxio’s Napster 2.0, Wal-Mart’s

service backed by Liquid Audio, Sony’s Direct Connect, Music Now, Best Buy,

buymusic.com and other services, with plans for many more such online businesses

from competitors like Amazon.com, MTV, Dell, Hewlitt-Packard and Microsoft—all

of which use Digital Rights Management, or technological protection measures, to

protect the delivery of the music. All of these businesses are meeting consumer expectations in the marketplace in different ways, allowing flexibility while preventing

mass infringement. This is the marketplace, and competition, at work.

HR 107 would allow the sale of hacking tools that would bust through the Digital

Rights Management of iTunes and other services if the hacker is using the copies

for ‘‘non-infringing purposes.’’ There are two glaring problems with this proposal:

First, there is no way to assure that the tool ONLY makes non-infringing copies.

The only way to do so—and even that would not guarantee success—is to impose

a tech mandate for copy controls, which HR 107 does not contain.

This leads to the second problem—Enforcement. It is impossible to monitor private copying to assure that copies are made only for non-infringing uses. A technology or tool which provides circumvention for ‘‘non-infringing’’ purposes necessarily provides circumvention for any use, including blatantly illegal ones. There

is simply no way to control how the means to circumvent is used once the tool is

in the hands of a user. In fact, Rep. Boucher conceded this fact when he introduced

H.R. 107. He said:

‘‘I recognize that because the determination of whether or not a particular use

is considered a ‘‘fair use’’ depends on a highly fact specific inquiry, it is not an

easy concept to translate into a technological implementation.’’

Cong. Rec. E 21 (Jan. 8, 2003).

Unfortunately, Rep. Boucher drastically understated the problem. It is not only

‘‘not easy’’ to create a technology that will permit ‘‘fair uses’’ while prohibiting other

uses; it is, at present, impossible.

It is important to distinguish between ‘‘fair use’’ and ‘‘free access.’’ It is not a defense to copyright infringement to illegally gain access to a work, whatever the motivation. You cannot steal a CD from a record store in order to make a fair use copy

of a portion of it. You cannot break into a library to make fair use of a book. HR

107 would blur this distinction and allow the use of devices to circumvent controls

that regulate original access to a copyrighted work.

While this bill is proposed under the banner of consumer rights, consumers will,

in fact, be hurt if it were enacted. Members of the music community strive to provide consumers with many different ways of accessing our content. Allowing ‘‘freeriders’’ access to our music by enabling circumvention will raise the costs to honest

consumers, and limit the incentive and ability of providers to invest in, and offer,

new technology and digital media alternatives.

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The DMCA is enabling consumers to pay different prices for different uses of entertainment. Not all consumers desire to pay for complete access to material. Some

may want to access entertainment only one time, or for a week or a month. In the

case of music, some may want a subscription that allows them access when they

desire it without the burden or cost of acquiring a permanent copy.

Currently, download music services provide for permanent copies on a track by

track basis or an album basis; the ability to share the song with some other computers; the ability to burn a copy onto a CD-R; and the ability to transfer the song

to portable digital music players. In other words, the marketplace is addressing

what consumers want and expect, and that’s how it should be.

Consumers are benefited by options, not an abstract and misguided application

of the ability to make numerous copies. Those options have been, and should continue to be, created by the legitimate marketplace—not by government regulation.

H.R. 107 is a solution in search of a problem. Our own success depends upon the

ability of our consumers to access and enjoy our music. If consumers don’t think a

product at its price point offers enough value—and one of the ways consumers measure value these days is the flexibility they get to use the product in different ways—

then the product will not sell.

The labeling provisions of H.R. 107 likewise pose a solution in search of a problem. Record companies are committed to giving consumers the information they

want and need before buying a copy-protected CD, DVD-A, SACD, or other optical

disc product. Just over a dozen copy-protected CDs have been released commercially

to the public in the United States. The typical copy-protected CD contains a prominent label that informs the consumer about the copy protection. In this case, just

as in the case of meeting consumer expectations with regard to flexibility on digital

services, consumers will measure value by how well they are able to use the product

in different ways. The marketplace is once again working, just as it should.

We continue to work with technology providers to give consumers more choices

and greater control over how they access and use digital content and we are committed to providing information to consumers about these products. But our continued ability to offer choices and personal control relies upon the protection afforded

by digital technologies. By allowing unimpeded circumvention of these protections

with the empty and unenforceable directive to only make non-infringing copies, HR

107 lays waste to the effective—and balanced—DMCA.

We are suffering from piracy. This bill goes in the wrong direction by promoting

it. We urge you to oppose it.

Thank you.

Ms. BONO. Thank you, Mr. Sherman.

Mr. Jaszi.

STATEMENT OF PETER JASZI

Mr. JASZI. I teach domestic and international——

Ms. BONO. Please remember the microphone.

Mr. JASZI. I teach domestic and international copyright law but

I am testifying today for the Digital Future Coalition, a group of

39 trade associations, nongovernmental organizations and learned

societies that I helped organize almost a decade ago.

Our constituents make and use copyrighted works so they support both strong intellectual property protection and fair use. The

DFC strongly endorses H.R. 17 because it would protect citizen’s

freedom of expression and right to make personal use of digital material. I have five main points.

First, this is not a debate about peer-to-peer file sharing. It is a

debate about freedom and fairness. Back in 1988 with the intent

to provide new protection against digital piracy and black box devices which are specifically designed or marketed to facilitate piracy, Congress temporarily lost sight of the historic values of American copyright law.

To an extent, no one foresaw the DMCA was a radical departure

from norms established over 200 years of legal tradition. Rather

than just cracking down on piracy, the anti-circumvention proviVerDate 11-MAY-2000 09:16 Oct 20, 2004 Jkt 000000 PO 00000 Frm 00089 Fmt 6633 Sfmt 6602 93981.TXT HCOM1 PsN: HCOM1
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sions of the DMCA overrode fair use and the other time-honored

limitations on copyright effectively damaging the freedom of consumers to engage in otherwise legal activities.

Today it would be illegal, as we heard, for a parent to use circumvention technology to edit out unsuitable material from a

child’s DVD. It would be unlawful for a child to take a brief excerpt

from a copy protected electronic encyclopedia to include in a multimedia school report. And it would be a violation of Section 1201 for

a computer science class to test scrambling technology meant to

block terrorists from accessing first responder communications.

Contrary to the expectations of many, Section 1201’s saving

clause and the Library of Congress rulemaking it provides for have

done nothing to bring fairness back to our copy right system. H.R.

107 represents the best and possibly the last chance that Congress

will have to repair the unintended damage done by the DMCA and

to help restore public respect for copyright which this overreaching

legislation has done so much to undermine.

Second, the traditional norms of copyright law from which the

DMCA departs so notably have served the country well. Copying

for fair use has long been essential to the growth of our society

both commercially and culturally, although it is easy and sometimes convenient to forget Hollywood owes much of its long record

of classic motion picture productions to fair use.

Without fair use our high tech industry could never have become

the envy of the world. Without fair use and the other exceptions

in the copyright act, none of us in this room would have had the

chance to learn through the use of books and other materials made

available in libraries, schools, and universities.

American copyright has succeeded in promoting the progress of

science and useful arts precisely because along with strong protection it also provides for limitations and exceptions in favor of users.

In 1998 we lost sight of the essential place of fair use including

personal use which is the historic heart of the doctrine.

H.R. 107 would correct this lapse by providing if one of your constituents like the parent or the school child I just described avoids

a technological protection measure to make an otherwise lawful use

he or she would have no civil or criminal liability. Meanwhile,

those who circumvent in order to infringe would be subject to the

full range of enhanced penalties provided in the DMCA and this is

only fair.

Third, H.R. 107 will promote electronic commerce for the benefit

of all content owners, the vice manufacturers and every other

group represented in this room today. The DMCA works to benefit

only a few industries under H.R. 107 in the world of fair use and

strong intellectual property protection society as a whole will benefit.

You have heard from other witnesses that you must choose between the promotion of information commerce and fairness to information consumers but the choice is a false one. Thus, for example,

H.R. 107 assures that consumers will not be mislead into buying

digital products that will not permit the full range of use as otherwise allowed in copyright law again. This is only fair.

Fourth, enactment of H.R. 107 will guarantee your constituent’s

freedom to make lawful use of media products that they own. The

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bill will enhance their ability to move the materials they have lawfully acquired among digital devices in the extended home environment. When consumers can use digital products more flexibly, they

will place greater value in this new medium and as the value of

digital products increases, the market for them will expand to the

benefit of all parties including the creators of music, video, and

text.

H.R. 107 will assure that what consumers are theoretically permitted to do will be practically possible by making sure that end

users can get the tools they need to engage in permitted practices.

By incorporating the Supreme Court’s time tested Sony Betamax

standard this part of the bill gives courts the tools they need to

make sure that vendors of true black boxes that were the intended

target of the DMCA cannot avoid the full weight of the law. This,

too, is only fair.

Fifth, cybersecurity is more important today than ever before.

When the DMCA was enacted Congress clearly tipped the scales toward protection. After 9/11 we need to eliminate obstacles to the

research and testing so important to our collective security. H.R.

107 carefully calibrates the balance of intellectual property——

Ms. BONO. Excuse me. Can you sum up in about 15 seconds?

Mr. JASZI. [continuing] to allow additional research without unduly compromising protection. Congress should seize the opportunity presented by H.R. 107 to restore the historic balance founded on freedom and fairness that the DMCA has disturbed.

Madam Chairman and members of the subcommittee, the constitution defends our freedom to read and share books, magazines,

music, and other materials in 2004 just as it did in 1904. Today

we are asking Congress to defend the consumer’s use of educational

and cultural materials in the best interest of the public. Thank

you.

[The prepared statement of Peter Jaszi follows:]

PREPARED STATEMENT OF PETER JASZI, DIGITAL FUTURE COALITION

On behalf of the Digital Future Coalition, I thank you for giving me the opportunity to express our support for H.R. 107. For 25 years, I have taught copyright

at the law school of American University here in Washington, D.C. At the outset,

I wish to stress that I am not speaking today on behalf of AU, but rather am testifying in my personal capacity and for the DFC, which I helped found nearly a decade ago.

The DFC is a coalition of 39 trade associations, non-governmental organizations

and learned societies that was organized during the run-up to the Digital Millennium Copyright Act of 1998. (A list is attached to this testimony.) Its members represent a broad cross-section of the educational, high-tech and consumer communities

in the United States, The constituents of the DFC are creators and users of text,

images and music, so they understand first-hand the importance of laws that

achieve a balance between rightsholders’ legitimate interests in strong protection

and the public’s interest in reasonable access to copyrighted works. Our members

support both fair use and intellectual property protection. Thus, the DFC strongly

endorses H.R. 107, introduced by Mr. Boucher and Mr. Doolittle, because it would

enhance consumer freedom and choice by restoring balance to our copyright laws.

Before talking in detail about how we got to where we are today, I would like to

make five points for your consideration.

First, H.R. 107 presents Congress with the best and possibly last clear chance—

before it is too late—to reverse the unintended damage done to our copyright system

by the enactment of Section 1201 of the DMCA.

Second, for over a century and a half, the ‘‘fair use’’ of copyrighted materials has

been essential to the growth of our society both commercially and culturally. Without fair use, Disney could never have made all the great movies that draw on modVerDate 11-MAY-2000 09:16 Oct 20, 2004 Jkt 000000 PO 00000 Frm 00091 Fmt 6633 Sfmt 6621 93981.TXT HCOM1 PsN: HCOM1
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ern retellings of classic fairy tales. Without fair use, our high tech-industry could

never have become the envy of the world. And without fair use and other exceptions

in the Copyright Act none of us in this room would have had the chance to learn

through the use of books and other materials made available in libraries, schools

and universities throughout the Nation.

Third, this Committee can promote electronic commerce for the benefit of everyone—content owners, device manufacturers, and every other industry group sitting

in this room today—by properly balancing the rights of both copyright owners and

information consumers. In a world of fair use and strong intellectual property protection, society as a whole will benefit.

Fourth, enactment of H.R. 107 will ensure fairness to your constituents by guaranteeing their freedom to make lawful use of media products they own. The DMCRA

will enhance their ability to move the materials they have lawfully acquired among

digital devices in the home and in the extended home environment, including their

cars and vacation houses. When consumers can use these digital products more

flexibly, they will place greater value in this new medium. And as the value of digital products increases, the market for them will expand to the benefit of all parties,

including the creators of music, video and text.

Fifth and finally, in a post-9/11 world, our priorities must change. Cyber-security

is more important today than ever before. I’m not suggesting that we abandon intellectual property protection altogether. But the balance must be recalibrated. Prior

to 9/11, when the DMCA was enacted, Congress clearly tipped the scales towards

protection. But now, post 9/11, we need to eliminate obstacles to the research and

testing so important to our collective security. H.R. 107 carefully recalibrates the

balance to allow additional research without unduly compromising intellectual property protection.

THE SPECIAL GENIUS OF U.S. COPYRIGHT LAW

Let me begin by describing some of the important characteristics of our copyright

system as it stood before October 1998. First and foremost, that system had been

extraordinarily successful in furthering the goal the Constitution sets for it: the promotion of ‘‘progress’’ in ‘‘Science and useful Arts.’’ In the two centuries following the

enactment of the first Copyright Act in 1790, the United States enjoyed an unequaled and unbroken record of progress that gave us, on the one hand, educational

institutions and research facilities that are preeminent in the modern world, and

on the other, entertainment and information industries that dominate the global

marketplace. Schools, libraries and archives benefitted from the operation of our

copyright system, and the public reaped the reward; likewise, expanding American

publishing, motion picture, music and software businesses generated not only

wealth but also less tangible forms of public good. And this was as it should be.

From its inception, the copyright system has operated both as a force for cultural

development and as an engine of economic growth.

The success of traditional U.S. copyright law was not due only to the extremely

high levels of protection it has afforded to works falling within its coverage. That

success also stemmed from the fact that strong protection consistently has been balanced against use privileges operating in favor of teachers, students, consumers,

creators and innovators who need access to copyrighted material in order to make—

or prepare to make—their own contributions to cultural and economic progress. To

put the point more simply, the various limitations and exceptions on rights that traditionally have been a part of the fabric of copyright are not results of legislative

or judicial inattention; rather, these apparent ‘‘gaps’’ in protection actually are essential features of the overall design. As the Supreme Court observed more than a

decade ago, in its Feist decision, the limiting doctrines of copyright law are not

‘‘ ‘. . . unforseen byproduct[s] of a statutory scheme . . .’ ’’; in fulfilling its constitutional

objective, copyright ‘‘assures authors the right to their original expression but encourages others to build free upon’’ preexisting works. And, as the Court recently

has reaffirmed in Eldred v. Ashcroft, these limiting doctrines are the mechanism by

which copyright law recognizes and implements the values of free expression codified in the First Amendment.

Over the years, U.S. copyright law has built up a catalogue of limitations and exceptions to copyright protection, including:

• The ‘‘idea/expression’’ distinction, which assures (among other things) that copyright protection does not attach to the factual contents of protected works;

• The ‘‘first sale’’ principle, codified in 17 U.S.C. Sec. 109(a) , which assures that

(as a general matter) purchasers of information products from books to musical

recordings can sell or lend their copies to others;

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• A variety of specific exemptions for educational, charitable and other positive public uses; and, most importantly, • The ‘‘fair use’’ doctrine, found in Sec. 107, which provides—in essence—that some

other unauthorized uses of copyrighted works, not specifically covered by the

limitations just summarized, should be permitted rather than punished because

their cultural and economic benefits outweigh the costs they might impose on

copyright owners.

This particular idea of ‘‘fair use’’ has been a central and unquestioned feature of

U.S. copyright law since 1841, when Joseph Story announced the doctrine in the

case of Folsom v. Marsh. In a less technical sense, of course, all uses authorized

under any of the limiting doctrines are ‘‘fair’’ ones in the collective judgement of two

centuries of judges and legislators about how to strike the balance in copyright law.

H.R. 107 would restore the vitality of all of these traditional doctrines, which currently are impaired or threatened by the anti-circumvention provisions of the

DMCA. By restoring the freedom of consumers and other information users to make

reasonable uses of purchased copies of works in digital formats, H.R. 107 would reestablish fundamental fairness in our intellectual property law.

8THE BENEFITS OF BALANCE

Before describing more fully the threat that Sec. 1201 of the DMCA poses to freedom and fairness—and how H.R. 107 addresses it—it may be useful to provide some

more specific illustrations of how balance in copyright law has served the twin goals

of cultural and economic progress. It is common to note the self-evident proposition

that the non-profit educational and library sector depends on limiting doctrines for

many essential functions. Although schools and libraries are among the largest purchasers of copyrighted materials in the United States, their most typical and beneficial activities, from classroom teaching and scholarly research to the lending of

books and other materials, would not be possible without the built-in fairness safeguards that limitations and exceptions to copyright provide.

It is less frequently noted that such major information industries as motion pictures and computer software came into being not despite the fact that filmmakers

and programmers were free to copy important elements of their predecessors’ work,

but because of it, and that they have continued to prosper under these conditions;

likewise, is critical to a wide range of practices within the publishing and music industries. It would not be going too far to say that the creativity and innovation that

copyright exists to promote are fueled as much by the ‘‘gaps’’ in the law as they are

by its strong protections; this is a point that individual creative artists understand

well from direct personal experience—even though large copyright-owning media

companies sometimes lose sight of it. Although the entertainment industries are legitimately concerned about ‘‘piracy’’ of copyright works, it is important not to confuse the activities they rightly condemn with the ordinary, lawful exercise of use

privileges conferred by the Copyright Act itself.

Equally important, limitations and exceptions to copyright law operate to the direct and immediate benefit of consumers. It is because of these limiting doctrines

that we all can make a broad range of personal uses of the contents of information

products we purchase, without fear of legal liability. Thus, to cite only a few obvious

examples, students can copy texts or images from published sources to enhance a

term paper or homework assignment; book buyers can dispose of unwanted volumes

at a charity sale; and music fans can combine selections from their personal record

collections to make ‘‘mixes’’ for a family member’s birthday or anniversary celebration, without any concern that by doing so they will violate traditional copyright

principles. Nor is this all. Ultimately, it is the freedom to read, listen and view information products assured by these limiting doctrines that enables many consumers of copyrighted content to become producers—to move from absorbing and repeating the words, images and notes of others to making their own creative contributions to the general fund of cultural resources.

THE BACKGROUND OF THE DMCA—PIRACY AND ‘‘BLACK BOXES’’

In the debates leading up to the Digital Millennium Copyright Act of 1998, Congress heard that copyright piracy was a growing domestic and international threat,

and that digital technology exacerbated that threat. It heard, too, that copyright industries were beginning to use technological measures to protect themselves against

piracy—something that they had and have every right to do. And it heard that there

are different reasons why someone might want to avoid or ‘‘circumvent’’ such technological protections: bad reasons, like the large-scale unauthorized redistribution

of copyrighted works, and good reasons, like discovering the structure of a dangerous computer virus, or making public the text of a password protected file detailVerDate 11-MAY-2000 09:16 Oct 20, 2004 Jkt 000000 PO 00000 Frm 00093 Fmt 6633 Sfmt 6621 93981.TXT HCOM1 PsN: HCOM1
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ing corporate wrongdoing, or commenting on an encrypted text in a work of scholarship, or making electronic texts available to library patrons who live far from a

bricks and mortar branch—all the latter being otherwise lawful activities and as far

as can be from ‘‘piracy,’’ however that term is defined. The record shows that Congress acted on the understanding that it was cracking down specifically on circumvention in aid of piracy and on what might be called ‘‘bad faith’’ circumvention

devices—that is, ‘‘black boxes’’ designed and marketed specifically to facilitate copyright infringement, whether offered to the public as such or under some justifying

pretext.

In fact, the Congress did much more, creating a new legal environment in which

many traditional and intentional ‘‘gaps’’ in the copyright system can be effectively

filled by legally-enabled technological measures. For example, if encryption prevented a student from taking a single digital image from an article to use in an electronic term paper, the DMCA would effectively bar circumvention for that purpose,

even though it would represent a core in conventional copyright analysis. Even if

we could imagine a device that would have the sole and specific purpose of avoiding

technological measures to enable this kind of core ‘‘fair use,’’ Sec. 1201(b) would

make it unavailable; in banning technologies, that section asks only whether they

are made available for circumvention purposes—not whether they abet ‘‘good’’ circumvention or ‘‘bad’’ circumvention.

THE IMPACT OF THE DMCA

The anti-circumvention provisions of the DMCA are a blunt instrument. Today,

for example, it would be illegal for a mother to use circumvention technology to skip

past promotions for other movies at the beginning of a DVD, whether because she

deems them inappropriate for her young children or after she herself has been

forced to see the same ads over and over. It would be unlawful for a child to make

a one-minute digital excerpt from a copy-protected electronic encyclopedia to include

in a multimedia project for a school music class. Similarly, it would be a violation

of Sec. 1201 for a professor of computer science to work with his class to test scrambling technology meant to block terrorists from accessing sensitive first-responder

communications.

In the anti-circumvention provisions of the DMCA, Congress put 200 years of

legal, cultural and economic achievement at risk. Rather than promoting long-term

security for copyright owners, the DMCA has actually done the opposite. Its enactment has helped to trigger a disastrous public decline in the public respect for copyright on which the success of our system depends. H.R. 107 would undo this

misstep—preserving the essential features of Sec. 1201 while correcting its excesses.

It is notable that, in the last five years, most of the publicized invocations of

Sec.1201 have had nothing whatsoever to do with copyright piracy. Instead, we have

seen the anti-circumvention provisions used (or their use threatened) to restrict ordinary consumers’ abilities to do with lawful digital copies of works in analog media

the same things they are accustomed to doing with analog copies: to prevent them

from copying recordings of music for personal use, playing European video games

in the U.S., skipping offensive portions of a recorded movie in the course of playback, or even reading a book when and where the reader likes—if it happens to be

an e-book. Perhaps most remarkably, the DMCA has been invoked in an effort to

keep a small company from bringing a universal garage door opener to market and

another company from offering consumers a cheaper cartridge for their home printers. This should be of great importance to this Committee. A wide range of products,

from toaster ovens to jet aircraft, contain software embedded in microchips. How the

courts apply the DMCA in these cases will have an enormous impact on competition

in the aftermarket for all these products.

Likewise, the DMCA has been invoked to suppress important research and critical

commentary on computer security systems and other software. This is no trivial

matter. Although the DMCA includes narrow exceptions for security testing and

encryption research, the world of 2004 is very different from the world of 1998. We

now have a far greater understanding of the importance of cyber-security, and of

the danger we all face from cyber-terrorism. Regardless of what one thinks of Richard Clark’s recent book, it is significant that while still in the White House he recognized the inadequacy of the DMCA’s exceptions and called for an amendment to the

DMCA precisely because of its harmful unintended impact on cyber-security research and development.

Even farther afield from piracy, the act’s provisions have been manipulated in efforts to create de facto monopolies in computing hardware and a general purpose

prohibition on computer network access. In sum, far from promoting the cultural

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and economic progress that intellectual property laws exist to foster, most invocations of the DMCA have had just the opposite effect.

It is crucial that in our anti-circumvention legislation we now attempt to find our

way back to the basic values of American copyright. If we do not, we can only expect

further excesses in the use of Sec. 1201: to prevent journalists from publishing copyprotected documents obtained from whistle-blowers, or consumer advocates from investigating the efficacy or safety of new products incorporating computer programs;

to undermine the ability of teachers to make otherwise lawful use of digital works

in network-based lessons; to exact license fees from students quoting electronic content in their schoolwork; or to put high-tech bars around non-copyrighted facts that

the Supreme Court has said should be free for all—this last perverse result being

possible because current law bars the circumvention of technological measures applied to protected works as a whole, even those containing mainly unprotected facts

with a small amount of original commentary. Under existing Sec. 1201, technological measures could even be used to ration the availability of electronic books to

young people in rural communities, for whom library websites on the Internet are

likely to become an important information lifeline.

The last example is not a far-fetched one. If our goal is to preserve fair use and

the other important use rights in copyright law, we cannot do so simply by safeguarding existing practices. In 1970, few could have foreseen how new decompilers

would empower software development; in 1980, most of us could not have guessed

at the importance of time-shifting using home video-recorders; and in 1990, the use

of thumbnail images on the web—the display of which was recently determined by

the Ninth Circuit Court of Appeals to be a —was unknown. Sweeping, general anticircumvention legislation threatens the development of new—as yet unimagined—

ways for students, consumers, innovators and others to share fully in the fruits of

the information revolution. Eliminating this threat is not a matter of expanding

users’ rights, but of carrying them forward into a new technological setting.

THE INADEQUACY OF THE DMCA’S SAFEGUARDS

From the legislative history of the DMCA, it appears clearly that not only did

members of Congress in general —and the Energy and Commerce Committee in

particular—understand that by enacting Sec. 1201 they were striking a blow against

piracy and black boxes, but also that they shared a general concern about the fate

of fair use under the new anti-circumvention regime. At that time, many members

(as well as a number of academic observers of intellectual property legislation) believed that the ‘‘savings’’ provision of Sec. 1201(c) would operate to preserve traditional copyright values in this new context.

Unfortunately, this has not proved to be the case. Authoritative judicial interpretations have made it abundantly clear that there is no fair use exception to

Sec.1201, and that the savings provision actually saves nothing of real significance;

properly understood, it merely states the truism that this ‘‘paracopyright’’ legislation

(as anti-circumvention rules sometimes are termed) does not have a direct effect on

the operation of the underlying copyright law itself. As has already been indicated,

however, the real cause for concern is the indirect effect of the legislation on the

traditional use privileges that it makes difficult or impossible for consumers to exercise in practice. Likewise, the narrowly defined exceptions to the anti-circumvention

regime provided in Secs. 1201(d)-(j), although they provide adequately a few specific

areas of traditional fair use (such as decompilation for reverse engineering in computer software development) are largely unavailing for most information consumers

and innovators.

Moreover, the periodic Library of Congress rule-making provided for in Sec.

1201(a)(1) has proven wholly inadequate as a mechanism to counter the threats that

anti-circumvention laws pose to traditional use privileges. This rule-making procedure is marked by several major shortcomings. First, as interpreted by the Copyright Office, the grant of authority to craft new exceptions applies only to descriptive categories of works (like encyclopedias, or computer operating system programs,

or popular novels) rather than functional ones (like works important to scientific research, or subject to ‘‘thin’’ rather than ‘‘thick’’ copyright protection). This constraint

alone makes the task of crafting meaningful exceptions difficult or impossible.

Were this not enough, where the issue of harm is concerned the Copyright Office’s

interpretation of the statutory grant imposes an exceptionally high standard of concrete proof on the proponent of any new exception. In an environment of rapid technological and commercial change, the practical effect of this standard is crippling.

This problem is so acute that in October 2000, following the first rule-making, the

Librarian of Congress wrote to ask Congress ‘‘to consider developing more appropriate criteria for assessing the harm that could be done to American creativity by

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the anti-circumvention provision . . .,’’ stating that ‘‘[a]s presently crafted, the statute

places considerable burdens on the scholarly, academic, and library communities to

demonstrate and even to measure the required adverse impacts on users.’’ Similarly,

the Assistant Secretary of Commerce, with whom the Copyright Office must consult

concerning the rule-making, wrote in August 2003 that the standard employed by

the Copyright Office ‘‘imposes a significantly heightened burden on proponents of an

exemption, and is therefore inconsistent with the opportunity that Congress intended to afford the user community.’’ It is noteworthy, therefore, that although numerous instances of harm from anti-circumvention were presented to the second

rule-making proceeding, completed in 2003, only one very limited new exception (for

e-book editions programmed to exclude literally all uses by disabled readers)

emerged from the lengthy and carefully conducted process.

Finally—and perhaps most significantly—any exceptions to Sec. 1201(a)(1) allowed by the Librarian are likely to be hollow promises, because other provisions

of the DMCA (not subject to the rule-making) still make the technology to implement them unavailable. The modest carve-out for the circumvention of obsolete technological measures in the year 2000 rule, for example, is of no value to anyone who

cannot build the necessary circumvention tools for himself or herself.

THE ALTERNATIVE APPROACH OF H.R. 107

Because it takes the dynamism of information use practices and information technology fully into account, the approach of H.R. 107 can succeed where other ways

of making space for consumers and competitors within an anti-circumvention regime

inevitably will fail. As has previously been noted, Congress intended in 1998 to

crack down on copyright piracy and the market in black boxes. As revised by H.R.

107, Sec. 1201 would continue to be tough on both. But the bill also would restore

the balance of copyright by assuring that tomorrow’s consumers and innovators can

employ the best technology to read, view, listened to and learn from material created by others. It accomplishes this in four straightforward provisions:

• The CD labeling language assures that consumers will not be misled into buying

digital products that will not permit the full range of uses otherwise allowed

in copyright law. (Proper labeling actually would diminish a consumer’s need

to circumvent. If a consumer purchases a product only to discover that it will

not play on his computer, that consumer might consider circumventing the technological protection in order to get his money’s worth. However, if the product

were properly labeled, the consumer would not buy it in the first place.) Alone,

however, this is not enough. Thus, other provisions of the bill would modify Sec.

1201 itself.

Sec. 1201 now applies civil and criminal penalties to circumvention for any and

all purposes, good or bad, unless they are covered by a few narrowly defined exceptions. Thus, H.R. 107 also includes:

• A new exemption for computer security research that is broad enough to cover a

wide range of activities crucial to the progress of science—and the national defense;

• Amendments to Sec. 1201(a)(1) assuring that consumers will never be sued or

prosecuted for making other lawful use of a CD, e-book, or digitized image; and

• Provisions making certain that what is theoretically permitted also will be practically possible, by ensuring that end-users can get the tools they need to engage

in permitted practices. By incorporating the Supreme Court’s time-tested Sony

‘‘Betamax’’ standard, this part of the bill gives courts the tools they need to

make sure that vendors of true black boxes—i.e. devices with limited purposes

other than to enable wrongful circumvention—cannot avoid the full weight of

the law.

Importantly, H.R. 107 would do nothing to diminish copyright owners’ ability to

prosecute infringers for copyright infringement. The content industries may assert

that without sweeping, general anti-circumvention legislation they cannot protect

their rights in the Internet environment. The record suggests otherwise—as, for example, the recording industries’ current enforcement campaign against individual

participants in P2P networks demonstrates the continued vitality of traditional

copyright enforcement. In fact, the same digital technologies that enable unauthorized trafficking in copies of protected works also facilitate the tracking of the individuals who engage in such trafficking. H.R. 107 would give copyright owners still

more tools to use in pursuing and punishing bad actors, without burdening the rest

of the American public. If there are, and there well may be, specific contexts in

which still more protections are required to assure the security of particular kinds

of content, these situations can be dealt with through specific legislative and regulatory provisions. Such a targeted approach to enhanced anti-circumvention protecVerDate 11-MAY-2000 09:16 Oct 20, 2004 Jkt 000000 PO 00000 Frm 00096 Fmt 6633 Sfmt 6621 93981.TXT HCOM1 PsN: HCOM1
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tion has the virtue of addressing problem areas in which there are real, demonstrated needs while leaving consumers and competitors generally free to engage

in otherwise lawful practices.

CONCLUSION: THE INTERNATIONAL PERSPECTIVE

In closing I would note that not only should Congress seize the opportunity presented by H.R. 107 to restore the historic balance founded on freedom and fairness

that the DMCA has disturbed, but that it clearly possesses the authority to do so

consistent with the international obligations of the United States. The only multilateral agreements dealing with the issue of anti-circumvention are the WIPO Copyright Treaty and WIPO Performances and Phonograms Treaties of 1996. Clearly,

those treaties do not require the rigid and inflexible approach adopted in Sec. 1201of

the DMCA. Indeed, these relevant provisions of the treaties directly contemplate exceptions to national anti-circumvention legislation for uses that are the subject of

exceptions and limitations to copyright itself. As the foremost experts on the treaties

have put it, they ‘‘contain[] no obligation to protect technological measures in areas

where... limitations or exceptions to the rights exist under domestic law and thus

have ‘permitted by law’ the use of the protected works.’’ [Jorge Reinbothe and Silke

von Lewinski, The WIPO Treaties—1996 146 (2002).]

In fact, when the legislation that became the DMCA was pending, Mr. Boucher

put this question to the Commissioner of the Patent and Trademark Office, the lead

official for the Administration in negotiating the treaties and then selling the implementing legislation to Congress:

Mr. BOUCHER. ‘‘Within the confines of the treaty and its legal requirements,

assuming that we ratify it, could we meet those requirements by adopting a

conduct oriented approach as opposed to a device oriented approach?

Mr. LEHMAN. In my personal view—it has not been cleared through the whole

Administration, the Department of Justice and so forth—In my personal view,

the answer is yes...

[H.R. 2281, WIPO Copyright Treaties Implementation Act and H.R. 2180, Online

Copyright Liability Limitiation Act, Hearing before the Subcommittee on Courts and

Intellectual Property, 105th Cong., 2d Sess. 62 (1997).]

As the same experts I quoted previously have candidly acknowledged, it is not

clear how the treaties foresee prohibitions against the manufacture and distribution

of circumvention technologies being adapted to accommodate limitations and exceptions under domestic law. On this issue, the solution offered by H.R. 107—that of

transposing the Sony standard into the context of anti-circumvention legislation—

represents a creative approach that, in my opinion, is fully defensible within the

scheme of existing international law.

In sum, H.R. 107 deserves enthusiastic and general support. We urge you to work

with your colleagues to enact this vitally important bipartisan legislation into law.

Thank you for this opportunity to share my views, and those of the Digital Future

Coalition, with the Subcommittee.

Ms. BONO. Thank you very much. I understand we have a former

counsel who has worked with us quite a bit. Welcome back.

Ms. Rose, you have your 5 minutes, please.

STATEMENT OF DEBRA ROSE

Ms. ROSE. Thank you. Madam Chairman, I appreciate the opportunity to testify on behalf of the Entertainment Software Association regarding H.R. 107, the Digital Media Consumers’ Rights Act.

ESA strongly opposes H.R. 107 because it will substantially harm

the entertainment software industry in two ways.

It eliminates the measures Congress put in place in the DMCA

which video game publishers rely on to help protect their products

against unauthorized use. Two, it will stifle the growth of the industry through unnecessary Government regulation of the labeling

of media products instead of allowing private industry to inform

consumers of the permissible uses of their products.

ESA members publish video and computer games including

games for video game consoles, personal computers, handheld devices, and the Internet. ESA members produce more than 90 perVerDate 11-MAY-2000 09:16 Oct 20, 2004 Jkt 000000 PO 00000 Frm 00097 Fmt 6633 Sfmt 6602 93981.TXT HCOM1 PsN: HCOM1
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cent of the $7 billion in entertainment software sold in the United

States in 2003. With worldwide video game revenue now exceeding

$25 billion the industry is one of the fastest growing of all entertainment sectors.

This industry has more than doubled in size since the mid-1990’s

generating thousands of highly skilled jobs in the creative and

technology fields. Our industry makes a tremendous investment in

its intellectual property. A typical video game now takes 2 or 3

years to create at a cost of $5 to $10 million and sometimes double

that.

Unlike most other entertainment products, video games enjoy a

very short commercial window in which to produce a return on

these investments. As a result, only a small percentage of game titles actually achieve profitability. In this market environment it is

easy to understand how devastating piracy and added Government

regulation would be to this industry siphoning revenue required to

sustain the enormously high cost necessary to continue producing

video games.

The digital environment allows users of electronic media to copy,

send, and retrieve perfect reproductions of copyrighted material

easily and nearly instantaneously to or from locations around the

world. In response Congress ought to make digital networks safe

places to disseminate copyrighted works for the benefit of consumers and copyright owners.

In 1998 Congress enacted the DMCA which prohibits the circumvention of technological measures that effectively control access

to copyrighted work and the manufacturer’s sale of devices that

permits such circumvention. The protections afforded by the DMCA

are essential to the vitality and continued growth of the entertainment software industry.

Game products are produced and exist only in digital format and

are used exclusively on electronic media devices. Given the existing

levels of hard goods and Internet piracy game publishers use an

array of technological protection measures to regulate unauthorized

access and use of the game content.

H.R. 107 eliminates the protections of the DMCA and opens the

floodgates for massive piracy of video games and other copyrighted

works. H.R. 107 would permit the circumvention of access controls

if it does not result in infringement and the manufacture and sale

of circumvention devices that are capable of enabling significant

noninfringing use of a copyrighted work.

This seemingly innocuous proposal undermines the protections of

the DMCA and renders it meaningless. H.R. 107 legalizes trafficking and hacking tools. The stark reality is that no technology

exist to ensure that circumvention is only done for legitimate noninfringing uses. Any technology or device capable of enabling significant noninfringing use is also capable of permitting rampant piracy.

Once the technological protection measure protecting a video

game is circumvented, that game is unprotected or in the clear.

The single copy envisioned by the proponents of H.R. 107 will

quickly become thousands of equally high quality copies distributed

instantly around the world. H.R. 107 would legalize circumvention

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devices and allow pirate game product to grow beyond the already

billions of dollars worth available in worldwide markets today.

H.R. 107 will undo the carefully balanced resolution which Congress under the guidance of this committee enacted in the DMCA

to address the issue of fair use. Congress considered and rejected

this same proposal several times during the debate on the DMCA.

Instead Congress balanced the new protections by creating a triennial rulemaking process conducted by the Librarian of Congress

to evaluate the impact of circumvention prohibitions on consumers’

ability to make noninfringing uses of copyrighted works and to

issue exemptions as necessary.

Since the enactment of the DMCA the Librarian has conducted

two rulemakings and in both did not find any evidence to warrant

a blanket exemption from the DMCA for circumvention devices

that allow consumers to make noninfringing uses.

Let me be clear. This well-designed rulemaking enacted by Congress is working. Consumer interests are protected. H.R. 107 would

render it useless to video game publishers because trafficking in

circumvention devices to commit video game piracy would be legal

and the entertainment software industry would enter a very, very

dark age.

H.R. 107 also includes an onerous labeling requirement for music

CDs. While it does not seek to regulate labeling of video games, it

does set an unwise precedent which could lead to burdening this

industry with new regulatory requirements that do not provide

added benefit to our consumers.

The entertainment software industry has a strong and proactive

track record of voluntarily providing information about our products and the permissible uses to its customers. Our industry’s consumers know and understand the nature of our games and the devices on which they are played. Private industry is in the best position to determine legitimate consumer expectations, not the Federal Government.

In conclusion, ESA urges this subcommittee to reject the proposals in H.R. 107 once and for all. Both the video game industry

and its consumers have benefited from the DMCA because more

digital entertainment products are being made available to the

public in user-friendly formats.

If H.R. 107 were to be enacted, everyone loses. Thank you.

[The prepared statement of Debra Rose follows:]

PREPARED STATEMENT OF DEBRA ROSE, SENIOR LEGISLATIVE COUNSEL, THE

ENTERTAINMENT SOFTWARE ASSOCIATION

Thank you Mr. Chairman for the opportunity to discuss H.R. 107, the ‘‘Digital

Media Consumers’ Rights Act.’’ I appear on behalf of the Entertainment Software

Association (ESA). I joined ESA in January of this year, after serving as counsel

on the House Judiciary Committee, Subcommittee on Courts, the Internet, and Intellectual Property for the past seven years. It is an honor to testify before you,

Chairman Stearns, Ranking Member Schakowsky, and Members of the Subcommittee, on these important issues.

ESA strongly opposes H.R. 107 because it will substantially harm the entertainment software industry in two ways: 1) it eliminates the protections created by Congress in the ‘‘Digital Millennium Copyright Act (DMCA)’’ for technological measures

which video game publishers use to protect their products against unauthorized use;

and 2) it will stifle the growth of the digital marketplace through unnecessary government regulation of the labeling of media products instead of allowing private industry to inform consumers of the permissible uses of their products.

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The ESA serves the business and public affairs interests of companies that publish video and computer games, including games for video game consoles, personal

computers, handheld devices, and the Internet. ESA members produced more than

90 percent of the $7 billion in entertainment software sold in the United States in

2003. In addition, ESA’s member companies generated billions more in exports of

American-made entertainment software, helping to power the $20 billion global

game software market. The entertainment software industry is one of the nation’s

fastest growing economic sectors, more than doubling in size since the mid-1990’s

and in so doing, has generated thousands of highly skilled jobs in the creative and

technology fields.

Our industry makes a tremendous investment in its intellectual property. For an

ESA member company to bring a top game to market, it often requires a team of

20 to 30 professionals—sometimes twice that number—working for two to three

years to fuse together the work of writers, animators, musicians, sound engineers,

software engineers, and programmers into an end-product which, unlike other entertainment products, is interactive. On top of these research and development costs,

publishers will invest at least $5 to $10 million to market and distribute the game.

The reality of the marketplace is that games enjoy a very short commercial window

in which to produce a return on these investments as the vast majority of a game’s

sale occurs within the first two months after the game is released. As a result, only

a small percentage of game titles actually achieve profitability, and many more

never recover their front-end R&D costs. In this market environment, it is easy to

understand how devastating piracy and added government regulation can be, siphoning revenue required to sustain the enormously high creative costs necessary

to produce commercially profitable video games. It is also the reason why technological protection measures play such a vital role in game publishers’ efforts to protect their products’ commercial viability.

I. THE DMCA

The digital environment allows users of electronic media to copy, send, and retrieve perfect reproductions of copyrighted material easily and nearly instantaneously, to or from locations around the world. In response, the DMCA sought to

make digital networks safe places to disseminate copyrighted works for the benefit

of consumers and copyright owners.

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.

The DMCA implements two 1996 World Intellectual Property Organization (WIPO)

treaties: the WIPO Copyright Treaty and the WIPO Performances and Phonograms

Treaty.

Specifically, the treaties require legal prohibitions against circumvention of technological protection measures employed by copyright owners to protect their works.

Congress determined that current law did not adequately protect digital works and

that to promote electronic commerce and the distribution of digital works, it was

necessary to provide copyright owners with legal tools to prevent widespread piracy.

As a result, Title I of the DMCA implements the treaty obligations by creating a

new prohibition in the Copyright Act on circumvention of technological protection

measures.

Title I of the DMCA added a new chapter 12 to the Copyright Act. Section 1201

divides technological measures into two categories: measures that prevent unauthorized access to a copyrighted work and measures that prevent unauthorized copying

of a copyrighted work. 1201(a) prohibits the act of circumventing access controls and

the manufacture or sale of devices that permit such circumvention. 1201(b) prohibits

the manufacture or sale of devices that circumvent copy controls.

Congress balanced these new protections by ensuring consumers would continue

to have the ability to make certain legitimate uses of copyrighted works in the digital environment. Congress created a tri-annual rule-making process conducted by

the Librarian of Congress to evaluate the impact of the circumvention prohibitions

on consumers’ ability to make fair use of copyrighted works and to issue exemptions

as necessary. Since the enactment of the DMCA, two such rule-makings have been

successfully conducted by the Librarian.

The protections afforded by the DMCA are essential to the vitality and continued

growth of the entertainment software industry. Game products are produced and

exist only in digital format and are used exclusively on electronic media devices.

Given the rampant hard goods and Internet piracy—with piracy levels that reach

as high as 80% and 95% in some markets—game publishers must utilize technological measures to have a chance at recouping the tremendous investment that is

required today to bring a successful game to market.

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The entertainment software industry uses an array of technological protection

measures (TPMs) on its various products, including those for personal computer,

console, and handheld games. For example, video game consoles have built-in access

controls designed to prevent the playing of counterfeit versions of the games. These

self-help protection methods act as ‘‘digital locks,’’ that regulate unauthorized access

to the game content.

Video game consumers consistently report a high level of satisfaction with their

purchase and use of game products. In other words, the use of TPM’s has not interfered with the entertainment software industry’s ability to meet consumer expectations with regard to access, play, portability, and ability to make full use of a game

title.

The DMCA ensures that game publishers have legal recourse against those who

circumvent protection measures or manufacture and distribute products that enable

circumvention. Without this protection, development and digital distribution of new

products becomes an exceedingly risky proposition because publishers place at considerable risk the tens of millions of dollars spent in developing and marketing

game products. On the other hand, as has been shown during in the two 1201

rulemakings, both copyright owners and consumers have benefited from the DMCA

because more digital entertainment products are being made available to the public

in user-friendly formats.

II. H.R. 107 ELIMINATES DMCA PROTECTIONS AND LEGALIZES CIRCUMVENTION DEVICES

Under the misleading title of ‘‘Fair Use Amendments,’’ section 5 of H.R. 107 eliminates the protections of the DMCA and opens the flood gates for massive piracy of

copyrighted works.

H.R. 107 Legalizes Trafficking in ‘‘Hacking’’ Tools

Section 5(b)(1) amends Title 17 to state that it is not a violation of law to circumvent a technological measure that controls access to a copyrighted work, if the

circumvention does not result in an infringement of the work. Section 5(b)(2) further

states that it is not a violation of law to manufacture, distribute, or make non-infringing use of a hardware or software product capable of enabling significant noninfringing use of a work.

While these proposals are described as reasonable and necessary by the supporters of H.R. 107, the stark reality is that no technology exists to ensure that circumvention is only done for legitimate fair use purposes. Any technology or device

capable of ‘‘enabling significant non-infringing use’’ is also capable of permitting

rampant piracy. In fact, at a recent Digital Rights Management Conference, Professor and leading DMCA-critic Edward Felten acknowledged, ‘‘The answer, I think,

right now, is that we don’t know how to do that. Not effectively,’’ in response to the

question of whether it was possible to develop technologies that would allow circumvention for fair uses without opening up the Pandora’s box and essentially repealing the anti-circumvention laws.

In addition, once a TPM is circumvented, the game is unprotected or in the clear.

The resulting copy is a perfect copy that can be available for any purpose, not just

fair use. In the digital world of today, the ‘‘single copy’’ envisioned by supporters

of H.R. 107 will quickly become hundreds, or thousands, of equally high-quality copies distributed instantly around the world. As ESA’s President, Doug Lowenstein,

recently testified in a Senate Subcommittee hearing on international and domestic

enforcement of intellectual property laws, ‘‘Billions of dollars worth of pirated entertainment software products are present in worldwide markets today.’’ Today, there

are illegal devices such as ‘‘mod chips’’ and ‘‘game copiers’’ which circumvent access

controls and allow for play of counterfeit games. H.R. 107 would legalize these devices and pave the way for uncontrollable and massive piracy.

The use of TPMs reflects a technological attempt by rights holders to prevent the

illegal use and copying of their products. When they are not hacked and work effectively, TPMs save the games industry millions of dollars per year in losses to piracy.

Game companies spend substantial sums for the use of TPMs in protecting their

games. Some game companies have gone even further and have developed their own

proprietary TPMs to protect their product. All of the industry expenditures on preventative measures not only protect industry from the financial damages caused by

piracy but also save taxpayers and law enforcement millions of dollars by protecting

such legitimate commerce from criminal activity and also benefit consumers by encouraging widespread dissemination of copyrighted materials through legitimate

channels.

The DMCA anti-circumvention provisions were enacted to help incentivize such

private sector expenditures on and investment in preventative measures by providing remedies against devices that undermine such measures. H.R. 107 would vitiVerDate 11-MAY-2000 09:16 Oct 20, 2004 Jkt 000000 PO 00000 Frm 00101 Fmt 6633 Sfmt 6621 93981.TXT HCOM1 PsN: HCOM1
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ate such incentives and thereby foster a greater reliance on law enforcement and

government resources to address the resulting increase in the volume of illegal products. Courts and law enforcement would be additionally burdened wile commerce in

legitimate products would be reduced in the face of competition with illegal counterparts, resulting in additional losses to taxpayers.

H.R. 107 Undoes what Congress Accomplished in 1998

H.R. 107 will undo the carefully balanced resolution which Congress enacted in

the DMCA to address the issue of ‘‘fair use.’’ Because it is impossible to limit the

use of circumvention devices to only ‘‘fair uses,’’ Congress rejected this same proposal, several times in fact, when considering the DMCA in 1998. Representative

Boucher advocated the so-called ‘‘fair use’’ exemption in both the Commerce and Judiciary Committees and both Committees rejected it. Instead, to ensure consumers

the continued ability to make fair use of copyrighted works in the digital environment, Congress, under the leadership of the Commerce Committee, created a

‘‘failsafe’’ procedure.

Every three years, the Librarian of Congress, in conjunction with the Copyright

Office and the Commerce Department, initiates a review of whether public access

to copyrighted materials is being harmed or threatened as a result of the circumvention prohibition in the DMCA. If, after holding hearings and reviewing testimony,

there is evidence to support the claim that users are not able to make non-infringing

use of a class of works, the Librarian may exempt persons who engage in noninfringing uses of works in that class from the prohibition against circumvention of

access controls.

Since the enactment of the DMCA, the Librarian has conducted two rulemakings

and issued significant exemptions. In both rulemakings, and particularly the most

recent which was completed just last year, the Librarian considered and rejected the

broad proposals contained in section 5 of H.R. 107. The Librarian did not find any

evidence to warrant a blanket exemption from the DMCA for circumvention devices

that allow consumers to make noninfringing uses.

To get directly to the point, the well-designed rulemaking enacted by Congress in

1998 is working. H.R. 107 would render it useless because all circumvention devices

would be legal. Trafficking in of such circumvention devices to commit video game

piracy would essentially be legal and the entertainment software industry would

enter a very, very dark age.

III. H.R. 107 CREATES UNNECESSARY GOVERNMENT REGULATION OVER THE LABELING OF

MEDIA PRODUCTS, STIFLING DIGITAL MARKET PLACE

H.R. 107 would require every copy-protected music CD to include in its labeling

a notice prescribed by the Federal Trade Commission (FTC) informing consumers

of the restrictions on the CD’s playability and recordability. While H.R. 107 currently pertains only to music CDs, legislation in the Senate would apply similar onerous labeling requirements on all digital content.

The entertainment software industry has a strong and proactive track record in

voluntarily providing information about our products to customers. Consumers of

video games have known and accepted for years that video game hardware systems

and computer and video game software are copy-protected in various ways. For example, there is no legitimate expectation on the part of consumers to copy a

PlayStation game for use on a GameCube or an Xbox, or to copy a PC game for

use on a dedicated game console. Our industry’s consumers know that the games

they purchase are embedded with certain technological restrictions.

Under the bill, the FTC would be given sweeping new regulatory powers to promulgate new labeling requirements on an annual basis. A rulemaking by an agency

unfamiliar with multiple emerging digital protective technologies and consumer expectations is unwise and likely to lead to misguided regulation—consumer expectations can vary tremendously by product type—expectations about music and other

copyrighted products are often very different than those concerning video games. Indeed, in its 2001 report to Congress, the U.S. Copyright Office said, ‘‘In any event,

these issues of consumer expectations and the growth of electronic commerce are

precisely what should be left to the marketplace to determine.’’

We oppose mandated labeling proposals because we believe they are unnecessary,

they impose government into private sector business licensing practices, and they

assume that the federal government is better able to determine ‘‘legitimate consumer expectations’’ than the free market.

The marketplace, not Congress or the FTC, is where legitimate consumer expectations over product use or access should be mediated. The computer and video game

industry is a perfect example of this marketplace success—an industry whose products have always included protection from unauthorized copying and distribution,

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whose consumers have accepted and understood these use and access restrictions,

and whose relationship with these consumers has made us the fastest growing segment of the entertainment industry. Our industry’s consumers know our products

and their uses because of the unique nature of our games and the devices on which

they are played. Burdening this industry with new regulatory requirements would

provide no added benefit for our consumers, and is a classic example of trying to

‘‘fix something that isn’t broken.’’

Ms. BONO. Thank you very much. I understand the next two panelists are going to share your testimony.

Mr. Murray and Ms. Sohn, you have 5 minutes to share amongst

you.

STATEMENT OF GIGI SOHN

Ms. SOHN. My name is Gigi Sohn and I am President of Public

Knowledge. Thank you, Madam Chairwoman, and other distinguished members of the subcommittee. Chris Murray, Legislative

Counsel for Consumers Union, joins me. We are presenting this

testimony on behalf of our organizations and the Consumer Federation of America. We want to thank the subcommittee for giving us

this opportunity to give a consumer perspective on H.R. 107.

We strongly support H.R. 107 because it is a narrowly tailored

bill that corrects some of the major imbalances in our copyright law

that were unintentionally created by the DMCA. These balances

have done great damage to long recognized rights of consumers to

make lawful uses of copyrighted content.

I just have to add that I think it is kind of sad to hear the recording industry and the motion picture industry refer to consumers, their customers, as criminals. Digital technology allows

content to be more easily available, mobile, and transferrable to a

range of innovative devices. It is ironic then that a law that was

intended to move consumers into an age of technological abundance

has actually taken technology out of their hands.

H.R. 107 protects consumers in two ways. First, it requires labeling on copy-protected compact disks so that consumers can make

informed choices about the digital media they buy. The market

place works best when consumers have more information, not less.

Second, H.R. 107 clarifies and reinstates the original intention of

Congress that the anti-circumvention provisions of the DMCA not

override the consumer’s right to make lawful uses of digital content. There has been a lot of focus today about making backup

DVD copies. What about being able to play the digital media that

you buy on your device of choice or the ability to fast-forward

through advertisements? That has nothing to do with piracy.

It was the Commerce Committee that was the most concerned

about the effect this prohibition would have on consumer’s rights

and technological innovation. Two sections of the DMCA were intended to protect consumer rights. Section 1201(c), which preserves

the fair use protections of the Copyright Act and Section 1201(a)(1)

which requires the Copyright Office to conduct a proceeding to determine whether exemptions from the anti-circumvention provisions are necessary.

As Chris will discuss, these protections have been a failure in

practice. The inability to distinguish between a copy control and access control has rendered the fair use protection virtually worthless

and the Copyright Office has interpreted the burden of proof for an

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exemption so narrowly that only four exemptions have been granted in 6 years. This fail-safe mechanism has failed.

You have heard dire predictions today that should H.R. 107 pass,

the content industry would suffer irreparable damage. You will

hear them again I assure you just as you heard dire predictions

about audio tapes and the VCR. But history suggests that our copyright system is not quite so fragile as the doomsayers would have

you believe. All H.R. 107 would do is restore the balance to the

DMCA that Congress originally intended and thereby also restore

the balance that has been part of our copyright system for over two

centuries. Thank you again.

STATEMENT OF CHRIS MURRAY

Mr. MURRAY. Madam Chairman, thank you for having me before

your committee again. I am here to represent Consumer Reports,

or rather Consumers’ Union, the nonprofit publisher of Consumer

Reports magazine. We operate the largest paid subscriber base on

the Internet ahead of the Wall Street Journal last February which

I am excited about.

We make a living based on copyright on protection of our content. I couldn’t be here before you today but for the protection that

copyright affords. What I would like to do, though, is wrestle us

just briefly out of the discussion about backup copies and media

and talk a little bit about what has been referenced a few times,

garage door openers and printer cartridges and auto parts

aftermarkets. What do these things have to do with copyright?

The answer is that in every instance we have seen the Digital

Millennium Copyright Act used anti-competitively to stifle innovation in each of those contacts where entrepreneurs who are building better mousetraps are not able to bring those products to market, or rather once they bring them to market, they face fairly severe litigation that forced them to either withdraw projects or have

the effect of chilling investment in these new products.

I would submit that the question today is not whether or not the

anti-circumvention provisions of the DMCA are broken, but rather

what is the appropriate fix. I would urge the committee to consider

H.R. 107 as an appropriate fix.

I will touch briefly on labeling. I assume my time is extremely

short? 60 seconds? Okay. To touch briefly on labeling, increasingly

companies are putting products in the market place that don’t have

the full functionalities that consumers expect and it is completely

within the rights of companies to do that.

The question is in an age where we know that also increasingly

46 percent of households are using their computers to play music

and DVDs according to 2003 Forrester Research Survey. What

should be the expectations of those consumers about the information that they get about what is on their products. I submit that

a voluntary labeling scheme simply will not do when it runs rather

counter to the incentives of companies of companies to provide the

full range of disclosures that consumers need.

The final thing that this bill does which I strongly encourage this

committee to adopt is that it enshrines the sensible pro-innovation,

pro-entrepreneur balance that is the Sony Betamax division into

law. We should remember that this is a case that the American

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Motion Picture Association said it was happy to lose because, as a

result, the VCR was permitted to exist in full. It is, I believe, about

40 percent of the revenue base currently. It is one of the most lucrative slices of their copyright pie.

The Betamax decision didn’t strangle the industry as we were

told that it would. Instead, it has been one of the greatest success

stories in our economy and it has allowed the consumer electronics

industry of the last 20 years to be the strong engine of economic

growth that it has been.

I assume that my time is up but, in closing, I will just urge the

committee to please consider Representative Boucher’s excellent

bill.

[The prepared statement of Gigi B. Sohn and Chris Murray follows:]

PREPARED STATEMENT OF GIGI B. SOHN, PRESIDENT, PUBLIC KNOWLEDGE AND CHRIS

MURRAY, LEGISLATIVE COUNSEL, CONSUMERS UNION, CONSUMER FEDERATION OF

AMERICA

Chairman Stearns, ranking member Schakowsky, and distinguished members of

the subcommittee, this testimony is being submitted on behalf of Public Knowledge,

Consumers Union, and the Consumer Federation of America. We want to thank the

subcommittee for giving us this opportunity to give a consumer perspective on the

Digital Media Consumers’ Rights Act of 2003 (H.R. 107). We thank Rep. Boucher

and Rep. Doolittle for introducing H.R. 107 and Chairman Barton for co-sponsoring

the bill. We strongly support H.R. 107 because we believe it is a narrowly tailored

bill that corrects some of the major imbalances in our copyright law that were unintentionally created by the Digital Millennium Copyright Act of 1998 (DMCA).

The digital transition represents an extraordinary technological advance for consumers. Improved audio and video quality through digital broadcasts and recording,

combined with new integration of consumer electronics devices mean that consumers will be able to experience news, information and entertainment in ways as

never before. In this new digital society, content is mobile and easily transferable

to a whole range of devices, especially those within one’s own personal network. We

are moving toward a world of seamless interoperable systems where our content—

our movies, music, documents, photographs—can be called up at anytime, anywhere.

The American consumer is driving the digital transition. But protection of consumers’ rights is essential to this transition both as a matter of principle and as

a matter of encouraging a market climate that supports technological innovation

and economic vibrancy. H.R. 107 provides an opportunity to make needed changes

to the DMCA in ways that preserve the rights of consumers.

INTRODUCTION

When Congress was considering the DMCA during the 105th Congress, many

nonprofit, consumer, and industry groups, including some of the groups that are testifying today, testified before this committee in opposition to the Act. At that time,

these groups said that no drastic changes to our copyright framework were necessary to protect the rights of copyright holders. They further argued that new legislation such as the DMCA could limit a citizen’s access to information and stifle legal

uses of content. In addition, they argued that the DMCA would constrain creativity

and the ability to innovate and, worse, would put a price tag on non-infringing legal

uses of digital content.

The Commerce Committee and the Congress heard these arguments, and attempted to preserve some of the core principles underlying copyright law in the

plain text of the DMCA. First, Congress sought to protect fair use in 17 U.S.C.

§ 1201(c), stating that nothing in the DMCA ‘‘shall affect rights, remedies, limitations, or defenses to copyright infringement, including fair use, under this title.’’

Second, and critically, in 17 U.S.C. § 1201(a)(1)(C), Congress provided for the copyright office to conduct a ‘‘triennial review’’ to ensure that people seeking to make

non-infringing uses of copyrighted works were not prohibited from doing so by the

restrictions on circumvention of so-called ‘‘access controls’’ placed on digital copyrighted works.

Almost six years later and contrary to the express intent of Congress, these protections have been virtually ignored. The DMCA has gone from being a law that was

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1 Report of the House Committee on Commerce on the Digital Millennium Copyright Act of

1998, H.R. Rep. No. 105-551, at 36 (1998) [hereinafter Report of House Comm. on Commerce]. 2 Id.

intended to protect digital copyright material against unlawful infringement to one

that chills free speech, stifles research and innovation, harms competition in markets having nothing to do with copyright, places undue burdens on law abiding consumers, and protects particular business models at the expense of fair use and other

lawful uses of copyrighted works.

There are several reasons why the DMCA has morphed into a law that almost

categorically prohibits fair use. First, the line between what is a ‘‘copy control,’’

which can be circumvented under the DMCA, and what is an ‘‘access control,’’ which

cannot, has been blurred to the point of meaninglessness. Is the Content Scrambling

System (CSS) on a DVD an access control or a copy control? How about the FCC’s

newly adopted broadcast flag?

Second, the U.S. Copyright Office has defied the express will of Congress that the

triennial review process be a ‘‘fail-safe mechanism’’ 1 that would ‘‘ensure that access

[to digital copyrighted materials] for lawful purposes is not unjustifiably diminished.’’ 2 In the six years since the DMCA was passed, the Copyright Office has conducted two triennial reviews, consisting of hundreds of exemption requests and

thousands of pages of written submissions and oral testimony, and has granted only

four, extremely narrow exemptions. The small number and miniscule scope of the

exemptions can be attributed largely to the Copyright Office-created burden of proof,

which has no basis in the plain language of the DMCA. Indeed, the Assistant Secretary of Commerce for Communications and Information, who is tasked with assisting the Register with the rulemaking, has both times raised concerns with the Copyright Office’s excessively narrow interpretation of the statute.

Fortunately, many of these problems can be corrected by the narrowly tailored

legislation that is the subject of today’s hearing. H.R. 107, the Digital Media Consumer Right Act (DMCRA), can play a central rule in this refinement of the DMCA

by ensuring that fair use principles apply to Section 1201 of the Copyright Act.

Moreover, the bill would ensure that consumers will have the information they need

when deciding whether to purchase copy protected compact discs.

I. H.R. 107 IS A NARROWLY TAILORED BILL THAT REINSTATES AND CLARIFIES THE INTENT OF CONGRESS TO PRESERVE FAIR USE IN THE DIGITAL MILLENIUM COPYRIGHT

ACT.

As discussed below the DMCA, as currently applied and interpreted is having a

detrimental effect on free speech, consumers’ rights, fair use, and innovation. Moreover, the Copyright Office’s triennial rulemaking process, has not functioned as the

safeguard it was intended to be. Fortunately, Congress now has a bill before it that

addresses these issues—H.R. 107—‘‘The Digital Media Consumer’s Rights Act of

2003’’ (DMCRA).

First, the DMCRA’s labeling provision will ensure that consumers are fully aware

of the limitations and restrictions they may encounter when purchasing copy-protected compact discs (CDs). Currently, manufacturers of copy-protected CDs are not

obligated to place notices on packaging. Unbeknownst to many consumers, copy-protected CDs may not play on personal computers and other non-compatible CD players due to copy protection technologies. The DMCRA does not prohibit the sale of

copy-protected CDs; instead it requires that the Federal Trade Commission provide

guidelines so that these CDs have adequate labels notifying purchasers of possible

limitations of their use of purchased digital media. This approach will enable consumers to make informed purchasing decisions and eliminate the confusion created

by seemingly ‘‘defective’’ CDs that do not play on all devices.

Labeling will become increasingly important as copy-protected CDs and other digital media become more common as a means to prohibit and limit unwanted use and

unauthorized distribution of music, movies, and other digital content. The DMCRA

ensures that new CD formats do not enter the marketplace without providing consumers notice of their limitations. The market may or may not accept CDs with

more limited functionality, but it is imperative that consumers receive complete and

accurate information regarding the CDs they may purchase. No consumer should

purchase a CD only to be surprised that it does not play on his or her computer

or CD player. The DMCRA will create an informed marketplace where competition

among new CD formats can prosper without consumer confusion.

Even more important than the Act’s labeling requirement is the DMCRA’s fair use

exemption, which will ensure that legal, non-infringing uses of digital copyrighted

works are not prohibited by the DMCA. Furthermore, the DMCRA encourages sciVerDate 11-MAY-2000 09:16 Oct 20, 2004 Jkt 000000 PO 00000 Frm 00106 Fmt 6633 Sfmt 6621 93981.TXT HCOM1 PsN: HCOM1
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3Sony Corporation v. Universal City Studios, Inc., 464 U.S. 417, 429 (1984) 4 Report of House Comm. on Commerce at 25.

5 Id. at 26. 6 Id. ‘‘. . . The Committee on Commerce felt compelled to address these risks, including the risk

that enactment of the bill could establish the legal framework that would inexorably create a

‘pay-per-use’ society.’’ Id. 7 17 U.S.C. § 1201(c)(1).

entific research into technological protections. It ensures that activities solely for the

purpose of research into technological protection measures are permitted.

This committee will inevitably be told that to permit a fair use exemption to Section 1201(a) is to undermine the effectiveness of the entire DMCA. This is simply

not true. One of this bill’s virtues is that it does not weaken the effectiveness of

technological controls. Instead, it ensures that the controls function solely as intended—to stop illegal activity and infringement. Infringers will still face the same

penalties, but the DMCRA enables people who have legally obtained access to digital content to exercise legal uses without fear of criminal punishment.

II. CONGRESS INTENDED TO PRESERVE FAIR USE WHEN IT PASSED THE DMCA.

As this Subcommittee knows, information is a building block of democracy, which

is why the public’s ability to access information was built into our Constitution. Specifically, as a means of encouraging innovation and the widespread dissemination

of information, the Constitution allows Congress to grant a limited monopoly to a

creator. Nevertheless, this power granted to Congress is aimed primarily at benefiting the general public; ‘‘[t]he copyright law, like the patent statutes, makes reward to the owner a secondary consideration.’’ 3 Congress, of course, was well aware

of this when drafting the Digital Millennium Copyright Act (DMCA), and it is also

clear that the DMCA’s drafters intended to protect fair use

As noted above, Congress heard from a number of interested parties, including

the consumer electronics industry, libraries, and consumer advocates, about the

DMCA’s potential effect on the doctrine of fair use. When the final report was written, the Commerce Committee expressed a deep understanding of fair use’s impact

on education, research, and free speech:

The principle of fair use involves a balancing process, whereby the exclusive interests of copyright owners are balanced against the competing needs of users

of information...Fair use, thus, provides the basis for many of the most important day-to-day activities in libraries, as well as in scholarship and education.

It also is critical to advancing the personal interests of consumers.4

The Commerce Committee also recognized the role fair use would play with respect to digital commerce:

[Fair use] is no less vital to American industries, which lead the world in technological innovation. As more and more industries migrate to electronic commerce, fair use becomes critical to promoting a robust electronic marketplace.5

Thus, the Committee was keenly aware that access to information is the centerpiece of a well-functioning marketplace, and expressed concern that the DMCA’s potential to create a legal framework for the lock-down of information in a ‘‘pay-peruse society’’ could contravene that goal.6 To alleviate this concern, Congress placed

two express directives in the DMCA: that nothing in the law ‘‘shall affect rights,

remedies, limitations, or defenses to copyright infringement, including fair use,

under this title;’’ 7 and it established a triennial rulemaking procedure requiring the

Copyright Office to examine the DMCA’s adverse effects on the lawful use of digital

copyrighted works.

III. CONTRARY TO THE EXPRESS INTENT OF CONGRESS, THE DMCA IS BEING USED TO

PROHIBIT THE EXERCISE OF MANY FAIR USES OF DIGITAL CONTENT.

Although the DMCA was designed to protect digital content from acts of copyright

infringement, it has also had a negative impact on legitimate and legal uses of content, in spite of Congress’s efforts to build balance into the Act. Digital content

should provide more flexible consumer use, but the rise of overly restrictive content

protection measures, coupled with the unintended consequences of the DMCA, has

lead to the erosion of rights and personal uses consumers have come to expect with

digital media. Consumers Union foresaw this outcome in its testimony in 1998 when

it warned:

It would be ironic if the great popularization of access to information, which is

the promise of the electronic age, will be short-changed by legislation that purVerDate 11-MAY-2000 09:16 Oct 20, 2004 Jkt 000000 PO 00000 Frm 00107 Fmt 6633 Sfmt 6621 93981.TXT HCOM1 PsN: HCOM1
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8 Id., citing Letter from Consumer’s Union to House Committee on Commerce (June 4, 1998). 9See Video Games: Technology Titans Battle Over Format Of DVD Successor, Wall St. J., at

A1 (Mar. 15, 2004). 10 321 Studios v. MGM Studios, Inc., et. al., 307 F.Supp.2d 1085 (N.D. Cal. 2004); Universal

City Studios, Inc. v. Corley, 273 F.3d 429 (2nd Cir.2001). 11This also has implications on software tools, discussed below. 12The tools that give consumers the ability to circumvent a DVD’s access control measures

have existed since shortly after the video format was created. Today, these tools are widely

available on the Internet; many computer applications use the code to make fair uses of DVD

content—none of which is likely legal under the DMCA. Despite this ability to ‘‘break’’ access

controls and / or copy protection, the sales and profits of DVDs continue to increase yearly. This

should signify to Congress that fair uses and content industry profits can live side-by-side.

ports to promote this promise, but in reality puts a monopoly stranglehold on

information.8

Digital technology makes content more available and flexible for the public to use;

the application and interpretation of the DMCA has effectively prohibited the exercise of many uses of digital content, however, including those lawful uses Congress

intended to preserve. In our opinion, the primary reason for this is the complete

lack of any real distinction in the DMCA between so-called ‘‘copy controls’’ and socalled ‘‘access controls.’’ Under the DMCA, a user of digital content can circumvent

copy control mechanisms without penalty, but circumvention of an access control

mechanism is illegal. But the reality is that there is no difference between the two

mechanisms, and if you ask a content creator, he or she will inevitably claim that

their technological protection measure is the more highly protected access control.

In any event, even if a technological protection measure is technically a copy control

mechanism, the Section 1201(a)(2) prohibition on the manufacture, importation and

trafficking in devices that would allow such circumvention for all intents and purposes renders the ability to make fair uses of digital content unattainable to all but

the most sophisticated users.

Below are some specific examples of how the incoherent distinction between copy

controls and access controls, as well as other novel interpretations of the DMCA,

have eroded and will continue to erode fair use protections:

A. The DVD

The DVD format has been a great success for both the content and consumer electronic industries.9 However, a consumer can do far less with this digital format as

compared to analog formats, despite digital formats’ potentially greater flexibility.

This is not because of a technical limitation of the DVD. The situation is attributable instead to controls placed on consumers by content providers, and the DMCA

has been interpreted as prohibiting consumers from getting around the controls,

even in pursuit of lawful uses of the underlying copyrighted work.

The content on a DVD is protected by CSS—the Content Scrambling System—

that two federal courts have ruled is both an ‘‘access control’’ and a copy control

under the DMCA.10 Moreover, only authorized DVD players are permitted legal access to a DVD’s content under the law. Thus, a consumer who gains access to her

legally purchased DVD with her own software tools has violated the DMCA—even

if the reason is for non-commercial purposes, including personal use or fair uses.

What this means is that if a consumer wants to make a backup of her favorite

movie so she can watch it while traveling without fear that the disc will get

scratched or lost, the consumer would be prohibited by the DMCA from doing so.

If a student is creating a multimedia presentation and needs to digitally ‘‘cut and

paste’’ from DVDs, she would be legally prohibited because of the DMCA.11 Both

backing-up and taking a digital excerpt from a DVD for the purposes of critique and

comment are traditional fair uses, but are prohibited under the DMCA.12

Other non-infringing uses are being eroded as well:

• Many users are prevented from fast-forwarding through DVD advertisements;

• DVDs are region coded—so a DVD bought on a European vacation will not play

when the consumer gets home;

• DVDs cannot legally be played at all on increasingly popular computer platforms.

Again, none of these is a technical limitation of the DVD. None is associated with

infringement. Instead, they are controls placed on consumers by the content providers, and the DMCA arguably makes it illegal to get around the controls.

B. Tools that Enable Non-infringing Uses

The DMCA not only detrimentally affects the consumer who wants to make a fair

use of digital content, but it also harms those entrepreneurial small businesses who

capitalize on the market for software tools designed for noninfringing uses.

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13 321 Studios v. MGM Studios, Inc., et. al., 307 F.Supp. 2d 1085 (N.D. Cal. 2004) 14 Id. 15See also Universal City Studios, Inc. v. Reimerdes, 111 F.Supp.2d 346 (S.D.N.Y.2000); Universal City Studios, Inc. v. Corley, 273 F.3d 429 (2nd Cir.2001); United States v. Elcom Ltd.,

203 F.Supp.2d 1111 (N.D.Cal.2002). 16The content industry’s response to making backup copies of scratched or otherwise damaged

disks—that the consumer must purchase a new one—is breathtakingly anticonsumer. ‘‘Jack Valenti, head of the Motion Picture Association of America, has suggested that consumers have

no legitimate need for such software, telling The Associated Press in November, ‘If you buy a

DVD you have a copy. If you want a backup copy you buy another one.’’ DVD-copy program

tweaked after court order, CNN.com, Feb. 23, 2004, available http://www.cnn.com/2004/TECH/

ptech/02/23/dvd.suit.ap/index.html. 17 Bryan Chaffin, Apple Addresses Problems With Copy-Protected CDs In AppleCare Support

Article, Macobserver (May 10, 2002) (describing instructions issued by Apple Computer to address copy-protected CDs that were not playable on Macintosh computers), at www.macobserver.com/article/2002/05/10.10.shtml; Chris Oakes, Copy Protected CDs Taken

Back, Wired News, Feb. 3, 2000 (3 to 4 percent of German customers returned protected CDs

introduced by BMG after they would not play in various CD players), at www.wired.com/news/

technology/0,1282,33921,00.html. 18See John Borland, Labels Loosening Up on CD Copy Locks, CNET News, Sept. 3, 2002, at

http://news.com.com/2100-1023-956069.html. 19See Midbar Tech Press Release, Aug. 26, 2002 (stating that over 30 million CDs protected

by Cactus Data Shield have been distributed, including over 10 million in Japan), at http://

www.midbartech.com/pr/26082002.html; Jon Iverson, A Universal CD Problem?, Stereophile,

Feb. 11, 2002 (reporting that Sony has announced distribution of 11 million key2audio-protected

CDs in Europe), at http://www.stereophile.com/shownews.cgi?1261. 20 In the Matter of Digital Broadcast Content Protection, MB Docket 02-230, Report and Order

and Further Notice of Proposed Rulemaking, FCC 03-273, (Nov. 4, 2003).

In February of this year, a United States District Court enjoined 321 Studios from

selling the most popular DVD back-up software because, the court found, it violates

the DMCA.13 While the court acknowledged that the exercise of fair use is made difficult by the DMCA, if not outright impossible in regards to protected digital media,

it stated that the legal use of purchased copyright materials was not a defense to

321 Studios violation of the DMCA.14

According to the decision in 321 Studios,15 even if the act of making a backup

copy is lawful, it is nevertheless illegal under the DMCA to provide a tool to conduct

a legal act. This case illustrates how the DMCA, by outlawing the tools of fair use,

limits the consumer’s ability to make a fair use.16

C. Copy Protected CDs

Copy-protected CDs use technology designed to prevent the ripping or copying

function of a personal computer in the hopes of preventing unauthorized file trading. However, when these CDs are inserted into certain modern CD drives, they

often fail to play entirely.17 The purchaser of these products is left with a CD that

is inaccessible and unplayable on one or more playback devices. In fact, an executive

with one of the companies who produces copy protected CDs admitted that perfect

protection and perfect playability can never be achieved.18

Copy-protected CDs already appear to be commonplace in many parts of Europe

and Asia and the protection technology vendors have announced that their technologies have already been included in tens of millions of CDs.19 Although announcements of copy-protected titles have fallen off in the U.S., no major record

label has renounced the use of protection technologies on music CDs in the U.S.

market. It is safe to assume that additional titles will be released in the U.S. market and that the protection technologies used will result in malfunctions that deny

access to consumers on at least some players that would otherwise have access to

the audio tracks.

Because most consumers are as yet unaware that this technology even exists, we

can only imagine the outrage that will ensue once most consumers discover that

they are unable to create mix-discs from their favorite legally purchased albums, or

that they are unable to transfer music from their CD to their iPod. Unfortunately

the DMCA does not focus on the few bad actors who break copy-protected CDs to

infringe copyright over peer-to-peer file trading networks. Instead, the law makes

it illegal to provide the tools that permit consumers to playback CDs on their device

of choice.

D. The Broadcast Flag

The broadcast-flag scheme is a content protection mechanism for digital broadcast

television originally proposed by Hollywood and recently adopted by the Federal

Communications Commission.20 The broadcast-flag scheme currently does not prohibit all copying of over the air digital television, but it does promote technologies

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21See e.g., In the Matter of Digital Output Protection Technology and Recording Method Certifications, Certification Applications, MB Dockets 04-60, 04-61, 04-62, 04-64 (Mar. 17, 2004). 22 Evidence of this can be found the affirmative response of Fritz Attaway of the MPAA, when

asked if the broadcast flag was an effective technology measure under the DMCA:

AUDIENCE: Since the ATSC broadcast live descriptor is not encrypted, but just signals that

this is to be projected content, is the first person who shows how to avoid the descriptor going

to be guilty of a Digital Millennium Copyright Act violation for affording access to an effectively

protected work?

FRITZ ATTAWAY: I certainly hope so. If that should happen, I would expect a DMCA lawsuit

against that person and I would hope and indeed even expect that the courts would find that

person guilty of violating the DMCA, because I think that the broadcast flag, now that it has

been implemented in FCC regulations, is an effective technological measure. Standing alone,

just that bit in the broadcast stream, without any underlying FCC requirement that devices respond to that flag, is not an effective measure. But now that the Commission has adopted the

regulations, I think it is. I think the DMCA is applicable and we’ll find out, no doubt, when

this gets to the courts.’’ The Progress & Freedom Foundation, Copyright Protection and the

Broadcast Flag, available at http://www.pff.org/publications/ip/pop10.26broadcastflagseminar.pdf. 23See Library of Congress, Copyright Office, Recommendation of the Register of Copyrights

in RM 2002-4; Rulemaking on Exemptions from Prohibition on Circumvention of Copyright Protection Systems for Access Control Technologies, at 116 (Oct. 27, 2003) [hereinafter Copyright

Office Rec.], available at http://www.copyright.gov/1201/docs/registers-recommendation.pdf. 24Teachers, librarians, and others seeking to take excerpts from DVDs for fair use purposes

have been told that the way to do so is to hold a camcorder up to a TV screen. See Copyright

Office Rec., at 116. However, several pending state laws could make that act illegal as well. See

State Legislative Status Report, Consumer Electronic Association, www.ce.org/memberslonly/

publiclpolicy/slsr/slsrlreport.asp#HOMElRECORDINGlRIGHTS. 25 Chamberlain Group, Inc. v. Skylink Technologies, Inc., 292 F.Supp.2d 1040 (N.D.Ill., 2003);

Lexmark Intern., Inc. v. Static Control Components, Inc., 253 F.Supp.2d 943 (E.D.Ky., 2003). 26 Report of House Comm. on Commerce at 37.

that will inhibit current and future fair use. Technologies pending approval before

the FCC restrict a range of non-infringing uses.21 Sidestepping these use restrictions, even when doing so is non-infringing, is illegal or practically impossible under

the DMCA. 22 This means that current uses of broadcast content with analog technology will likely be limited in the digital world under the broadcast flag reinforced

by the DMCA.

E. Closing the ‘‘Analog Hole’’

When faced with digital content that does not allow fair use, the courts and Copyright Office have asserted that access to analog content suffices as a viable alternative.23 However, it is impractical and insufficient to hold out analog technology

as the only method for making fair uses of digital content, particularly as the availability of analog formats continues to diminish.

For example, digital DVD is replacing analog VHS tape, and movie studios increasingly are refusing to provide their content in multiple formats. Additionally,

there is an industry push to close the so-called ‘‘analog hole.’’ This is evidenced by

the creation of an industry ‘‘Analog Reconversion Discussion Group’’ and industry

requests for government-mandated ‘‘selectable output control,’’ which would allow

copyright holders to embed signals in digital content that would prevent certain outputs, including analog outputs, from functioning normally.

For the consumer, this means that fair use will end with analog distribution formats. In an all-digital world, there will be no way to legally exercise fair use. Because the software and hardware tools for fair use will be prohibited, access to the

content will be prohibited as well.24

F. Aftermarket Products

The DMCA has also been abused by companies seeking to gain a market advantage with regard to products that have nothing to do with intellectual property or

copyright infringement. As has been well documented, the strict language of the

DMCA enabled a manufacturer of garage door openers and a printer manufacturer

to make a claim against competitive interoperable replacement parts for their products.25

IV. THE TRIENNIAL REVIEW IS AN INADEQUATE SAFEGUARD FOR NON-INFRINGING USES

OF COPYRIGHTED WORKS.

Because Congress was concerned about the potential unintended consequences of

the DMCA and its impact on non-infringing uses of digital content, it gave the Register of Copyrights and the Librarian of Congress the primary responsibility to assess whether the implementation of access control measures diminished the ability

of individuals to use copyrighted works in ways that are otherwise lawful.26 In reVerDate 11-MAY-2000 09:16 Oct 20, 2004 Jkt 000000 PO 00000 Frm 00110 Fmt 6633 Sfmt 6621 93981.TXT HCOM1 PsN: HCOM1
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27 Report of House Comm. on Commerce at 37. 28 17 U.S.C. § 1201 (a)(1)(C). 29Letter from Nancy J. Victory, Assistant Secretary of Commerce to Ms. Marybeth Peters Register of Copyrights, (Aug. 11,2003), available at www.ntia.doc.gov/ntiahome/occ/dmca/dmca2003/

dmcaletterl08112003.html (footnotes omitted).

sponse to some criticisms of the DMCA, it has been argued that the proper venue

for remedying imbalances in, and the application of, the DMCA should be Copyright

Office’s triennial review rulemaking process. Unfortunately, in the two times it has

been conducted since the DMCA was passed, this rulemaking proceeding has largely

failed to protect noninfringing uses. Instead, just four narrow exemptions have been

granted despite hundreds of legitimate requests and thousands of pages of written

submissions and oral testimony.

The reason for this stinginess has been the Copyright Office’s constricted interpretation of the standard one must meet to acquire an exemption. As discussed below,

that interpretation is contrary to the plain language of Sections 1201(a)(1)(C) and

1201 (a)(1)(D) of the DMCA.

A. The Copyright Office’s Burden of Proof for an Exemption Contravenes

the Express Language of the DMCA.

When the Copyright Office established its rules for the triennial rulemaking, it

developed a standard for the burden of proof that petitioners must meet to demonstrate their ‘‘diminished ability to use copyrighted works.’’ 27 That standard clearly departs from the expressed intent of Congress. Any reasonable reading of the

plain language of the DMCA shows that the burden of proof that the Copyright Office has set for obtaining an exemption is too high for the process to amount to an

adequate safeguard of lawful uses.

The plain language of Section 1201(a)(1)(C) of the DMCA requires that when engaging in the triennial rulemaking, that the Librarian of Congress must determine:

. . . whether persons who are users of a copyrighted work are, or are likely to

be in the succeeding 3-year period, adversely affected by the prohibition under

subparagraph (A) in their ability to make noninfringing uses under this title of

a particular class of copyrighted works. In conducting such rulemaking, the Librarian shall examine—

(i) the availability for use of copyrighted works;

(ii) the availability for use of works for nonprofit archival, preservation, and

educational purposes;

(iii) the impact that the prohibition on the circumvention of technological

measures applied to copyrighted works has on criticism, comment, news reporting, teaching, scholarship, or research;

(iv) the effect of circumvention of technological measures on the market for

or value of copyrighted works; and

(v) such other factors as the Librarian considers appropriate.28

Despite this clear and detailed directive, the Copyright Office has required that

proponents of an exemption show by a preponderance of the evidence that there has

been or is likely to be a ‘‘substantial’’ adverse affect on a non-infringing use. Moreover, the proponent of an exemption must satisfy this burden with ‘‘actual instances

of verifiable problems occurring in the marketplace,’’ and ‘‘first hand knowledge of

such problems.’’

This burden of proof is nowhere in the plain language of the Act. Indeed, the

former Assistant Secretary of Commerce, which is mandated by Section

1201(a)(1)(C) to consult with the Register on the triennial rulemaking, protested to

the Register that

. . . the standard set forth in the Notice of Inquiry (the ‘‘NOI’’) imposes a significantly heightened burden on proponents of an exemption, and is therefore inconsistent with the opportunity that Congress intended to afford the user community.

As a threshold matter, the plain language of the statute does not support incorporation of the qualifier ‘‘substantial’’ to define the level of harm to be demonstrated by such proponents...The term ‘‘substantial,’’ however, does not appear in the text of Section 1201(a)(1) of the Act. The NOI’s arguably more stringent requirement thus appears to add a significant new term to the express language of the statute. Given the clarity of Section 1201(a), no basis exists to justify insertion of a material modifier into its text.29

While de minimis or isolated harms may not be enough to meet the burden of

proof, there clearly is a zone between speculative statements of de minimis harms

on the one hand and ‘‘actual instances of verifiable problems’’ by those with ‘‘first

hand knowledge’’ on the other. But the Copyright Office recognizes no such zone.

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30 Notice of Inquiry, Exemption to Prohibition on Circumvention on Copyright Systems for Access Control Technologies, Copyright Office, Library of Congress, 67 Fed. Reg. at 63579 (Oct.

15, 2002). 31Letter from Nancy J. Victory, Assistant Secretary of Commerce to Ms. Marybeth Peters Register of Copyrights, (Aug. 11, 2003), available at www.ntia.doc.gov/ntiahome/occ/dmca/dmca2003/

dmcaletterl08112003.html (footnotes omitted). 32 17 U.S.C. § 1201 (a)(1)(D). 33 Copyright Office Rec., at 13. 34Former Assistant Secretary of Commerce Nancy Victory voiced the same concerns in her

letter to the Register of Copyrights. There, she stated that ‘‘NTIA believes that it would be beneFinally, the Copyright Office sets an unattainable standard for showing ‘‘future

harms.’’ Proponents of an exemption must provide ‘‘evidence either that actual harm

exists or that it is ‘likely’ to occur in the ensuing 3-year period,’’ by showing ‘‘actual

instances of verifiable problems occurring in the marketplace’’ in order to ‘‘to satisfy

the burden with respect to actual harm.’’ Moreover, ‘‘a compelling case will be based

on first-hand knowledge of such problems.’’ 30 But common sense dictates that it is

impossible for anyone to have ‘‘first-hand knowledge’’ of a future event. And nowhere in the statute does it indicate that Congress intended the standard for future

harms should be higher than that for present harms.

The then-Assistant Secretary of Commerce expressed similar concerns to the Register of Copyrights:

[T]he NOI’s requirement to provide ‘‘actual,’’ ‘‘first-hand’’ instances of problems

is not articulated in the plain language of Section 1201(a)(1) of the Act. Moreover, as drafted, this requirement cannot logically be applied prospectively, as

the refinement would mandate ‘‘first-hand knowledge’’ of future problems in

order to sustain a ‘‘compelling case’’ for an exemption. Given these concerns,

NTIA believes that the NOI’s ‘‘refinement’’ should be abandoned and a standard

more consistent with the statutory language should be adopted.

Crafting the proper standard for the burden of proof is equally important

when examining possible future harms as contemplated by the statute. Section

1201(a)(1) of the DMCA does not ground a finding of ‘‘likely adverse impacts’’

in a showing of ‘‘extraordinary circumstances in which the evidence of likelihood

is highly specific, strong and persuasive,’’ as the NOI seems to suggest. Rather,

Congressional intent would appear to impose no more of a showing for ‘‘likely

adverse effects’’ than for ‘‘actual adverse effects.’’ Although NTIA agrees that

mere conjecture is insufficient to support a finding of ‘‘likely adverse effect,’’ the

NOI’s implied supplemental and exacting requirements are contrary to the language of the statutory provision.31

We agree. The Copyright Office has created a burden of proof for the 1201(a)(1)(C)

exemption that ensures, and will continue to ensure, that few, if any exemptions

are ever granted, and that those that are granted are extremely narrow.

B. The Copyright Office Has Construed the Term ‘‘Class of Works’’ Too Narrowly

In the two triennial rulemakings since the DMCA was passed, numerous proponents for exemptions have asked the Copyright Office, when determining the

‘‘class of copyrighted’’ works to be exempted under Section 1201(a)(1)(D) to also consider the types of uses that are made with the copyrighted work. Indeed, such an

examination is fully consistent with the plain language of that Section, which states

in its entirety:

(D) The Librarian shall publish any class of copyrighted works for which the

Librarian has determined, pursuant to the rulemaking conducted under subparagraph (C), that noninfringing uses by persons who are users of a copyrighted work are, or are likely to be, adversely affected, and the prohibition contained in subparagraph (A) shall not apply to such users with respect to such

class of works for the ensuing 3-year period.32

Despite this language, which explicitly refers to ‘‘noninfringing uses,’’ and the

complete absence of any other Congressional intent that the types of uses of copyrighted works be absent from the exemption process, the Copyright Office has steadfastly refused to consider them, stating that ‘‘it is not permissible to classify a work

by reference to the type of user or use . . .’’ 33 This narrow interpretation of Section

1201(a)(1)(D) makes little sense in light of the fact that the Copyright Office asks

proponents of an exemption to make ‘‘first-hand’’ actual experience a top priority.

We believe that the approach that is more consistent with Congressional intent

is that suggested by the former Assistant Secretary of Commerce in his September

29, 2000 letter commenting on the first triennial rulemaking—that ‘‘the definition

of classes of works is not bounded by limitations imposed by Section 102(a) of the

Copyright Act, but incorporates an examination of ‘noninfringing uses’ of the copyrighted materials.’’ 34

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ficial to further define the scope or boundaries of the ‘‘class of works’’ so that targeted exemptions can be crafted that would not only provide specific guidance to both content creator and

use, but also remedy the particular harm to noninfringing uses identified in the rulemaking.

For example, in some circumstances, the intended use of the work or the attributes of the user

are critical to a determination whether to allow circumvention of a technological access control.’’

Letter from Nancy J. Victory, Assistant Secretary of Commerce to Ms. Marybeth Peters Register

of Copyrights, (Aug. 11,2003), available at www.ntia.doc.gov/ntiahome/occ/dmca/dmca2003/

dmcaletterl08112003.html. 35 ‘‘Because users have means of making analog copies of the material on DVDs without circumventing access controls (and of redigitizing those analog copies), there is no need to permit

them to circumvent. The desire to make a digital-to-digital copy, while understandable, does not

support an exemption in this case. Existing case law is clear that fair use does not guarantee

copying by the optimum method or in the identical format of the original.’’ Copyright Office; Exemption to Prohibition on Circumvention of Copyright Protection Systems for Access Control

Technologies, 68 Fed. Reg. 62,016 (Oct. 31, 2003). 36 Id. 37 ‘‘When DVD was being considered, the decision was made to incorporate regional coding in

order to provide the motion picture companies the ability to maintain that regional marketing

practice.’’’ Library of Congress, Copyright Office, Rulemaking Hearing, May 2, 2003, Panel 1

Witnesses, 130-1, (Statement of Fritz Attaway, Motion Picture Association of America) available

at www.copyright.gov/1201/2003/hearings/transcript-may2.pdf.

38 Copyright Office Rec., at 109. 39 Copyright Office Rec., at 142.

C. The Copyright Office’s Reliance on Analog Conversions to Satisfy Fair

Use Principles is Impractical and Doomed to Obsolesence.

The Copyright Office has consistently argued in denying Section 1201(a)(1) exemption requests that a device’s analog outputs are the best avenues for fair use.35

This essentially requires a consumer to take digital content, translate it to analog,

and then convert the analog version back to a digital format, to make any lawful

digital fair use under the DMCA. Requiring citizens to engage in this cumbersome

series of conversions in order to exercise their fair is no way to ensure that those

rights remain vital and accessible to ordinary people. Moreover, as discussed above

at pp. 12-13, efforts to close the so-called analog hole may make this ‘‘solution’’ impossible in the near future.

D. The Copyright Office Has Favored Particular Business Models Over Fair

Use in Denying Exemption Requests.

Contrary to the express intent of Congress, the triennial rulemaking proceeding

has become one that primarily functions to protect particular business models. In

the most recent rulemaking, there are a number of instances in which the Copyright

Office has apparently favored those business models over fair use principles. For example, faced with a request to exempt the use of ancillary audiovisual works on

DVDs the Copyright Office found that

On balance, an exemption, which would permit circumvention of CSS, could

have an adverse effect on the availability of such works on DVDs to the public,

since the motion picture industry’s willingness to make audiovisual works available in digital form on DVDs is based in part on the confidence it has that CSS

will protect it against massive infringement.36

Similar instances of the Copyright Office favoring the DVD as a business model

over fair use include its decision to deny an exemption to permit consumers to circumventing DVD region coding, despite recognizing that the technology is neither

a copy control or an access control, but a mere marketing tool.37 It also denied an

exemption to permit viewers to fast-forward through DVD movie previews and advertisements.38

Perhaps the most egregious example of how the Copyright Office has used the

DMCA to protect business models involved a the request for an exemption for a

class of works ‘‘consisting of motion pictures on DVDs tethered to particular operating system, e.g., the Windows or Macintosh environment,’’ 39 to permit consumers

to view legally purchased content on his computer platform of choice—specifically

platforms that use the increasingly popular Linux and other ‘‘open source’’ operating

systems.

While the Register of Copyrights conceded that the proponents of an exemption

had successfully identified a ‘‘particular class of works’’ and identified an access control that prevents noninfringing uses, the Register denied the request, stating that

While it is unfortunate that persons wishing to play CSS-protected DVDs on

computers have few options, the fact remains that that they have the same options that other consumers have. The Register concludes, as she concluded three

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40 Copyright Office Rec., at 145. 41See Report of House Comm. on Commerce at 26.

years ago, that the harm to such persons is de minimis, amounting to no more

than an inconvenience.40

The message to Linux and other open source users is clear: buy a device that is

compliant with the current DVD business model and proprietary, closed computer

operating systems. The Register’s decision ensures that newer, innovative, but less

popular technological devices that are not so compliant will not succeed in the marketplace, because they cannot be used for lawful purposes. As discussed above at

p. 6, this is exactly what Congress, and in particular the Commerce Committee,

feared when it provided for the triennial review—Congress did not want the DMCA

to be used to slow or prohibit technological innovation.41

These examples illustrate the extent to which the Copyright office’s stewardship

of the DMCA needs further guidance from Congress. H.R. 107 would alleviate many

of these concerns by eliminating the need for exemptions for fair uses of digital content.

CONCLUSION

We would like to again thank the subcommittee for providing us the opportunity

to testify on this important bill. We are encouraged that this Committee is addressing consumer rights and fair uses in digital media. It is vital for consumers, the

public interest, and future digital markets that Congress protects lawful and legitimate uses of copyright works. Passage of the DMCRA will ensure that fair use, consumer notice, and the legitimate tools that enable non-infringing use are not forgotten in the digital world.

Mr. STEARNS. Okay. Mr. Moore, last but not least. You probably

have the most technical expertise on the technology side so we appreciate your patience and you are welcome with your opening

statement.

STATEMENT OF ROBERT MOORE

Mr. MOORE. Thank you, Chairman. Chairman Stearns and other

distinguished members of the subcommittee, my name is Robert

Moore, and I am the Founder and President of 321 Studios. This

is a software company that was started in St. Louis, Missouri, by

me and my wife and my son. Basically, as I said, we are a software

company. We have provided more than 1 million DVD consumers

with a convenient way to make backup copies of their DVD collections. Our software is designed with many anti-piracy features. It

does not affect audio CDs.

In 3 years we created almost 400 jobs and we are on track to

achieve $100 million in sales this year. Today, I appear for my family and the fewer then 60 remaining employees of a company on

the brink of annihilation. We are caught with our customers in a

nightmarish ‘‘Catch-22’’ created by the courts’ incomplete reading

of the 1998 Digital Millennium Copyright Act.

Mr. STEARNS. I just want you to pull a little closer. Sometimes

when your voice goes low we don’t hear it all.

Mr. MOORE. I am most grateful to be here, Chairman.

However, NOT to tell 321 Studios’ story for its own sake. Instead, I offer it today as one example among many of why H.R.

107, the Digital Media Consumers’ Rights Act, is such vital legislation.

I want to especially thank Reps. Boucher and Doolittle for their

tireless dedication to consumers’ rights under copyright law, and

Chairman Barton and you, Chairman Stearns, for this forum, and

ask that my prepared statement and exhibits be included in the

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Record. Today, I ask the subcommittee and all Members of Congress to consider three key points:

(1) Our 1 million plus customers—like American consumers in

general—are people, not pirates, and we should strike a balance in

copyright law for them.

(2) H.R. 107 is needed if the protection for fair use and consumer

rights that Congress deliberately wrote into the DMCA is to have

any practical meaning in a digital age of content encryption.

(3) Our product is virtually impossible and certainly infeasible to

use for real piracy as distinct from reasonable consumer use of

copyrighted works. Let me take these points in order.

First of all, our customers are ordinary and honest Americans.

They are moms and dads, artists and educators, librarians and

movie buffs just like myself. These customers just want to keep

their expensive collections safe so they can enjoy them for years to

come. They collectively have paid Hollywood billions of dollars for

DVDs that, as widely reported recently, we now know to physically

rot and degrade in a short period of time and to be easily damaged

by toddlers, teens or harsh conditions of all kinds. A copy of those

reports is attached for the record, as well.

Our customers tell us that they want and need to make backup

copies of their DVDs for several reasons. (1) To protect their investment from loss, damage or theft. (2) To play in their minivans and

on airplanes when they are on travel to ensure they will have a

copy even when the original goes out of print.

Also so they don’t have to replace an entire box set of multi

DVDs if one of these disks is damaged. Our customers have also

explained this to Congress directly and I would like to submit for

the record a disk containing brief electronic copies of more than

175,000 individual communications made to Congress in just the

last year in support of 321 Studios advocacy on this issue.

Mr. STEARNS. By unanimous consent so ordered.

Mr. MOORE. Pardon me, Chairman?

Mr. STEARNS. By unanimous consent so ordered. It will be part

of the record.

Mr. MOORE. Thank you, sir. The second point. The issue raised

by H.R. 107 and squarely before the subcommittee today is not

whether piracy is bad or the industry deserves to be protected from

it. I will be the first one to say absolutely yes on both counts.

The real, practical and very pressing question dramatically highlighted by the experience of 321 Studios is simply this: If consumers can make a personal copy of an audio CD they’ve bought

to put on their iPod or play in their automobile, if consumers can

use a VCR or TiVO or even a Replay which was, as we found out

today, recently put out of business through litigation, if consumers

can use these tools to make a digital copy of a movie on broadcast

or cable—I hope I can still say digital—if consumers can use conventional and digital photocopiers and digital scanners to reproduce pages from a book, and if consumers can make backup copy

of a computer program like Windows, how can it be that consumers

are criminals for making a backup copy of a DVD they bought and

paid for? Why is our company, indeed any technology company,

criminal for selling them the digital tools that they must have to

make these rights real?

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The third and final point, we at 321 Studios also are honest,

hardworking, middle American folks who love movies and respect

copyright. That is not a disingenuous statement, Chairman. To

begin with, we did not hide offshore from Hollywood or wait to get

sued.

Long before any action was filed against us 321 Studios actually

asked a Federal judge in California to issue a declaratory ruling

that consumers had a fair use or another personal right to make

a backup copy of DVDs under the DMCA and, therefore, that our

product was legal. Incredibly the court did not reach the question

of what the DMCA’s explicit consumer protection clause meant.

Never even got there.

Judge us now by how we designed and marketed our software.

Frankly, anyone who tries to use it to mass produce bootleg DVDs

would immediately become a strong contender for dumbest criminal of the year in my opinion. I say this confidently for a host of

reasons.

Our software can only make backup copies one at a time. It typically takes an hour or more to copy a single DVD. Moreover, we

block the user from making a copy from a copy. Thus, high speed

mass production is literally impossible with our product.

Two, every copy of our software must be registered to be usable

and every backup DVD is invisibly watermarked throughout the

copy so that if it is improperly distributed or sold, it can be traced

back to the person that is using this product.

Third, the software actively eliminates any digital copy of the

original DVD from the computer during the process of making the

backup copy so there is literally nothing on the computer to upload

to the Internet. Make no mistake, Chairman, this issue is not

about Napster. It is not about peer-to-peer file sharing.

Finally, I will close with this. 321 repeatedly has offered to work

with movie-makers consistently over and over so that the back-up

copies made by our product also would be encrypted or further

rights included on the backup. They have consistently not only refused us, they have turned a deaf ear every single time.

We are at a watershed moment, Mr. Chairman. As 321 Studio’s

story makes all too clear, H.R. 107 is critical to rescuing the public

from this DMCA ‘‘Catch-22’’ never intended by Congress. For my

family, for my company, for millions of consumers who simply want

to make a personal backup copy of a DVD without fear of persecution or prosecution, I implore this committee and all Members of

Congress to cosponsor and pass H.R. 107. Thank you, Mr. Chairman.

[The prepared statement of Robert Moore follows:]

PREPARED STATEMENT OF ROBERT MOORE, FOUNDER & PRESIDENT, 321 STUDIOS

Chairman Barton, Chairman Stearns, Representatives Dingell, Schakowsky, and

Members of the Subcommittee: My name is Robert Moore, and I am the Founder

and President of 321 Studios of St. Charles, Missouri—a company started in my

basement with 3 family members in 2001. 321 Studios is a software company. We

have provided more than 1 million DVD consumers with a convenient way to make

backup copies of their DVD collections. Our software is designed with many antipiracy features. It does not affect audio CDs.

In three years we created almost 400 jobs and achieved 100 million dollars in

sales. Today, I appear for my family and the fewer then 40 remaining employees

of a company on the brink of annihilation, caught with our customers in a nightVerDate 11-MAY-2000 09:16 Oct 20, 2004 Jkt 000000 PO 00000 Frm 00116 Fmt 6633 Sfmt 6621 93981.TXT HCOM1 PsN: HCOM1
113

marish ‘‘Catch-22’’ created by the courts’ incomplete reading of the 1998 Digital Millennium Copyright Act.

I am most grateful to be here, however, NOT to tell 321 Studios’ story for its own

sake. Instead, I offer it today as a surreal example among many of why H.R. 107,

the Digital Media Consumers’ Rights Act, is such vital legislation.

I want to especially thank Reps. Boucher and Doolittle for their tireless dedication

to consumers’ rights under copyright law, and Chairman Barton and Chairman

Stearns for this forum, and ask that my prepared statement and exhibits be included in the Record. Today, I ask the Subcommittee and all Members of Congress

to consider three key points:

• ONE: 321 Studios 1 million plus customers—like American consumers in general—are people, not pirates, and we should strike a balance in copyright law

for them. • TWO: Our product is virtually impossible to use for real ‘‘piracy’’—high-speed volume bootlegging and internet distribution—as distinct from reasonable consumer use of copyrighted works. • THREE: H.R. 107 is needed if the protection for fair use and consumer rights that

Congress deliberately wrote into the DMCA is to have any practical meaning

in a digital age of content encryption. Let me take these points in order...

POINT ONE

Our customers are ordinary and honest Americans: moms and dads, artists and

educators, librarians and movie buffs. These customers just want to keep their expensive collections safe so they can enjoy them for years to come and they expect

to be able to use DVDs like they use other legally obtained unencrypted media.

They collectively have paid Hollywood billions of dollars for DVDs that—as CNN

and the Associated Press reported just yesterday and last week—we now know to

physically rot and degrade, and to be easily damaged by toddlers, teens or harsh

conditions of all kinds. A copy of those reports is attached for the record, as well.

Our customers tell us that they also use our software to assure their ongoing access to titles they’ve bought that later go out of distribution, and to restore single

disks included in expensive boxed sets that cannot be purchased individually.

Please allow me to submit for the record a disk containing brief statements, entirely in their own words, from just five of the literally thousands of testimonials

our customers have taken the time to provide to us. A transcript is also attached.

I would also like to submit for the record a disk containing electronic copies of

the more than 160,000 communications made to Congress in support of 321 Studios

advocacy on this issue since we launched our website in December of 2002.

POINT TWO

We at 321 Studios also are honest, hard-working, middle-American folks who love

movies and who respect copyright. To begin with, we didn’t hide offshore from Hollywood or wait to get sued.

Long before any action was filed against us, 321 Studios actually asked a federal

judge to issue a declaratory ruling that consumers had a fair use or other right to

make a backup copy of encrypted DVDs under the DMCA and, therefore, that our

product was legal.

Incredibly, the court didn’t reach the question of what the DMCA’s fair use ‘‘savings clause’’ meant. It just mechanically ruled our software to be an illegal ‘‘circumvention’’ tool and didn’t address the question we had asked. Sued later by Hollywood, we were enjoined from marketing 321 Studios’ software and consumers were

cut off from our product: one they need in an encrypted marketplace to make their

fair use rights real.

Judge us also, please, by how we designed and marketed our software. Frankly,

anyone who tries to use it to mass produce bootleg DVDs would immediately become

a strong contender for ‘‘Dumbest Criminal of the Year.’’ I say this confidently for

a host of reasons:

1. Our software can only make backup copies one at a time and it typically takes

an hour or two to copy a single DVD. Moreover, we block the user from making

a copy from a copy. Thus, high-speed mass production is literally impossible

with 321 Studios’ product.

2. The encryption placed on the original DVD by a movie studio is wholly unaffected

by 321 Studio’s software;

3. Every copy of our software must be registered to be useable and every backup

DVD is invisibly ‘‘watermarked’’ throughout the copy so that—if improperly distributed or sold—it can be traced back to the person misusing the software to

violate copyright law.

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4. The software actively eliminates any digital copy of the original DVD from the

computer during the process of making the backup copy so there is literally

nothing on the computer to ‘‘upload’’ to the Internet. Make no mistake: this

issue is not about Napster or peer-to-peer file-sharing.

5. Finally in this regard, 321 Studios repeatedly has offered to work with moviemakers so that the back-up copies made by our product also would be

encrypted. They consistently have refused, preferring to argue that we are ‘‘pirates’’ because the backup DVDs that our software helps consumers make are

unencrypted!

POINT THREE

The issue raised by HR 107 and squarely before the Subcommittee today is not

whether piracy is bad or the industry deserves to be protected from it. The answer

to those questions is clearly ‘‘yes’’ on both counts.

The real, practical and very pressing question dramatically highlighted by the experience of 321 Studios is simply this:

‘‘If consumers can make a personal copy of an audio CD they’ve bought to put on

their iPod or play in their car...

‘‘If consumers can use a VCR or TiVO to make a tape or digital copy of a movie

on broadcast or cable TV...

‘‘If consumers can use conventional and digital photocopiers, and digital scanners,

to reproduce pages from a book...

‘‘If consumers can make a backup copy of a computer program like Windows...

‘‘Then, how can it be that consumers are criminals for making a backup copy of

a DVD they’ve bought and paid for and why is our company—indeed any technology

company—criminal for selling them the digital tools that they must have to make

their rights real?

CONCLUSION

We are at a watershed moment, Mr. Chairman. As 321 Studio’s story makes all

too clear, H.R. 107 is critical to rescuing the public from this DMCA ‘‘Catch-22’’

never intended by Congress.

For my family, for my company, for millions of consumers who simply want to

make a personal backup copy of a DVD without fear of persecution or prosecution . . . I implore this Committee and all Members of Congress to cosponsor and pass

H.R. 107.

Thank you, Mr. Chairman. I look forward to your questions.

Mr. STEARNS. I thank you and I will start with my questions. Mr.

Moore, I think you make a very good case for allowing families or

individuals to make one backup copy. You mention there is a watermark that you could identify. You say it is almost impossible to

use your technology for piracy because who is going to spend all

that fripping time if it takes so long to use your software to do one

copy. I think you have given a lot of reasons why real piracy is not

going to come from your technology.

Let me ask you about GamesXCopy product. You have also received challenge from the content community for that. Explain to

me what the problem is there.

Mr. MOORE. I am not ware of any challenge to that particular

product. GamesXCopy is——

Mr. STEARNS. Hold on 1 second. Just wait. This is a vote, I think.

Go ahead.

Mr. MOORE. For lack of a better term, it is a virtual CD drive

for a person’s computer. They don’t have to physically have the

game CD in their drive in order to use it. As our customers have

found out, this wears out the CD very quickly. We don’t have to

bypass any technical protection measure in order to make that happen so GamesXCopy we believe is clearly delineated by Section 117

of the consumer having the right to make a backup copy of a software.

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Mr. STEARNS. So you have had no challenges on that?

Ms. ROSE. Well, actually——

Mr. STEARNS. Ms. Rose.

Ms. ROSE. There have been no formal challenges to that and the

ESA member companies are analyzing the product and keeping

their options open with regard to what strategies they may like to

pursue in the future.

Mr. STEARNS. So at this point you haven’t ruled out the possibility that you could challenge it?

Ms. ROSE. Correct.

Mr. STEARNS. Okay. Mr. Moore, do you support restoration of the

Sony decision?

Mr. MOORE. To the extent that it absolutely reinforces the consumers have a personal use of property that they lawfully acquired,

absolutely.

Mr. STEARNS. Okay. Mr. Murray, won’t removing the barriers to

accessing protected materials do a disservice to customers, consumers, because companies will be less inclined to use insecure formats for distributing their protected material?

I mean, I heard that earlier on the second panel. They made this

big argument that, you know, one of the reasons why we are successful with intellectual property and we are so creative is because

we have this protection and the companies feel very secure that

they can go ahead and give their creativity and their products will

be protected. I guess the question is wouldn’t that create insecure

formats for distributing these protected material?

Mr. MURRAY. Well, I think there are two questions there. One is

what is wrong with the DMCA as it stands? What I was trying to

get out by talking about printer cartridges and garage door openers

is the fact that companies are asserting when there would not be

a copyright that would allow them normally to say, ‘‘Hey, you can’t

copy this material.’’

Like in the case of a garage door opener when you send an access

code, they are allowing people to sue companies because they are

circumventing something where copyright can’t sort of hold in the

first instance. What I am concerned about is the anti-competitive

effects for entrepreneurs who want to bring products to market

when copyright wouldn’t normally be in play they are now getting

challenged through the anti-circumvention provisions.

But to address your question more directly, these systems will

never be 100 percent secure. We are not suggesting that companies

can’t employ DRM in the market place. The status quo for consumers right now is even though the law says, ‘‘Hey, you have fair

use rights. You have certain things you can do with content,’’ technology has left consumers short. The status quo is that rights that

the law affords are simply not present.

I guess what I am saying is I see technology coming to market

rights management solutions that allow one copy, five copies, etc.

Forgive me if I am exceeding my time but I think that these technologies that are coming to market—forgive me for losing my train

of thought.

Mr. STEARNS. Let me keep going on here. Mr. Sherman, you

heard Mr. Moore talk about you can’t use his technology to develop

a large number of copies. A couple of members asked is it possible,

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is there technology that would in effect allow one copy to be made

and that would be it? Mr. Moore has indicated there is. He has

this. Isn’t that true, Mr. Moore?

Mr. MOORE. Yes.

Mr. STEARNS. Let us be very clear in this hearing that Mr. Moore

is saying we have arrived, we have the technology and we will do

this. We will allow one copy. There will be a watermark. We can

trace if somebody pirates this and uses it for something else. Isn’t

it possible we could reach a compromise with him and allow him

to sell this product? I mean, is there no compromise you see based

upon what you hear?

Mr. SHERMAN. Well, the fact that technologies are available to

limit the number of copies makes perfect sense and is an obvious

area to work things out in ways that meet consumer expectations.

I think the problem with Mr. Moore’s product is that in order to

make that one copy, he strips out the encryptions so that people

can then use that copy to make other copies so you need to be able

to make a secure copy so that itself cannot be copied endlessly. I

was impressed to find that Jack Valenti held up a copy that obviously was a pirate copy being sold. Maybe that was the dumbest

criminal that wins the award but somebody was selling in Chinatown in Washington a pirate copy of a movie——

Mr. STEARNS. Without the encryption. A Run-Away Jury.

Mr. SHERMAN. 321, yeah.

Mr. STEARNS. What do you say, Mr. Moore, to that? You strip off

the encryption and, bingo, there we are.

Mr. MOORE. Let me address both of these things in sequence.

First of all——

Mr. STEARNS. And then I will conclude.

Mr. MOORE. With respect to the fact that the backup copy doesn’t

have the encryption, Mr. Sherman is absolutely aware that is an

impossible task given the current technology that is available to

our company. Through a combined effort of working with technology companies like ourselves, a solution could quite easily be

reached that would satisfy that concern. I can address that in more

detail if the subcommittee would like, but I would just like to say

for the record that the technology absolutely exist to re-encrypt this

content in such a way that would satisfy that concern.

The second thing I would like to say with respect to this RunAway Jury video that Mr. Valenti held up this morning and said

that he had purchased in Chinatown and I don’t doubt that he did.

I don’t doubt that——

Mr. STEARNS. It had 321 on it.

Mr. MOORE. That is exactly right. I don’t doubt that someone has

now come to our attention that has used the software for an illicit

purpose. That would make the second time in the last 3 years out

of a million customers that this has been brought to out attention.

I would also like to point out that because of the anti-piracy features that we built in to that product voluntarily because we do respect the rights of copyright holders, they were able to identify, No.

1, that it was indeed a backup made with our software and not perhaps 50 other pieces of software that currently circulate on the

Internet and don’t show the same respect for copyright holders.

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No. 2, if they had come to us and asked, we would have clearly

pointed out that there is other forensic evidence in that video

stream that would clearly identify the perpetrator and the person

who was doing that. We want to work with the content community

to find a way to satisfy these concerns. We have been shut out.

Mr. STEARNS. My time has expired. Let me ask the gentleman

from California, we have about 71⁄2 minutes left. You are welcome

to go if it is a short event, or we will recess the committee and

come right back. We only have one vote so we are moving to the

end of this if you will be patient. Would you like to have maybe

2 minutes or do you want to come back and get a full 5 minutes?

I think we will recess and come back right after the vote.

[Whereupon, the subcommittee went off the record at 2:57 p.m.]

Mr. STEARNS. The subcommittee will reconvene.

Mr. Otter, you are up for questions.

And I also want to thank the third panel for their patience and

forbearance.

Mr. OTTER. Thank you, Mr. Chairman.

I apologize for having absented myself from the hearing, and so

if I ask a couple of questions here that are redundant from earlier

questions perhaps asked by the committee, I apologize for that.

Mr. Moore, does 321 studios encrypt or take other measures to

protect the software that you make?

Mr. MOORE. Yes, Congressman, we do.

Mr. OTTER. Why?

Mr. MOORE. We do it for the purposes of insuring that our antipiracy measures that we have built into our product have some

teeth.

Mr. OTTER. You do not do it to protect your own invention, your

own creation?

Mr. MOORE. To some extent, I would say yes, but in large part,

I would say that the majority reason there is because we want to

give teeth to our anti-piracy features. In fact, we allow multiple

copies of our product to be installed on a number of computers by

our customers.

Mr. OTTER. If 107 were to pass, would that also take the

encryption off of your software?

Mr. MOORE. Congressman, it is my understanding that H.R. 107

is not about removing encryption from DVDs; that it is about

whether or not consumers have the right to bypass the technological protection measure in order to avail themselves of a fair

use.

Mr. OTTER. All right. Let me ask that in a different way then.

Would you have a problem if 107 included being able to bypass the

encryption on 321 Studio encryption?

Mr. MOORE. Well, I would assume that you mean for a non-infringing use, and, no, sir, I would not have a problem with that.

Mr. OTTER. So you would——

Mr. MOORE. In fact, that happens right now with our software.

Mr. OTTER. Could I use right now your software and duplicate

your software so that I would have a backup system in case anything went wrong?

Mr. MOORE. Yes, sir, you could. You could most certainly make

a backup copy of our software.

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Mr. OTTER. How many times could I duplicate that?

Mr. MOORE. Multiple times.

Mr. OTTER. Could I? Well, so you don’t believe then that there

is any need for you to protect your software.

Mr. MOORE. Well, as I stated before, the primary reason that we

include the activation feature in our software that we do is to give

teeth to the anti-piracy measures that we included. They are not

disingenuous in nature.

But further to your question, we want to have some control over

the people that are using our software is we felt that we had a responsibility as honest American consumers to do the right thing,

and that is the right thing, in our opinion, is to keep some control

over it so that people are using it for its intended purpose.

Mr. OTTER. Well, don’t you think though that that is what the

entertainment business is doing, is keeping some control over the

distribution and use of their creative efforts on DVDs, on music, on

movies, on whatever?

Mr. MOORE. As I testified before, Mr. Otter, I absolutely agree

with the studio’s position and always have, that they have a right

to protect their intellectual property. They have a right to be wary

of piracy and problems that are currently in the marketplace. And

I see those as tools of distribution that could absolutely hamper

their efforts to make a profit, to make a fair return on their investment.

However, I believe that ends at tools of consumption where consumers use a tool specifically for their own personal use and do not

impact the rights of the copyright holder from a distribution standpoint is where I firmly believe the consumer has the right to do so.

Mr. OTTER. Well, then why bother with encryption at all?

Mr. MOORE. Are you asking me why the studios encrypted DVD?

Mr. OTTER. Yeah.

Mr. MOORE. I am not aware that all DVDs are encrypted with

CSS. I am not sure what their reasoning is for encrypting the

DVDs with CSS since the massive tools of piracy do not rely on circumventing CSS at all in order to actually reproduce and manufacture fraudulent copies of DVDs overseas right now.

So you would need to ask the studios why they encrypted with

CSS. I cannot answer for them.

Mr. OTTER. Did you hear Mr. Valenti’s testimony earlier?

Mr. MOORE. Yes, sir.

Mr. OTTER. Do you agree with his conclusion that if we were to

take off the certain controls that we have now through encryption,

it would adversely affect not only our trading agreements, but our

balance of trade? Do you agree or——

Mr. MOORE. I did hear him say that, and, no, I do not agree with

that statement.

Mr. OTTER. You do not agree with it?

Mr. MOORE. No, sir, I do not.

Mr. OTTER. So you know, the fact that the employment has

dropped, as I read in the testimony, down to 40 from an all time

high of was it 400? I apologize.

Mr. MOORE. It was 400 employees, yes, sir.

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Mr. OTTER. You do not think something similar would happen in

the entertainment industry if we were to remove the controls that

the industry has over itself right now?

Mr. MOORE. Sir, you are asking me to hypothesize, and I do not

need to hypothesize. We have a million consumers. Our product

has been the No. 1 seller on retail shelves for the last 3 years, and

we have uncovered, I believe, one or two cases now of people using

our product for a copyright infringement.

There is no reason to hypothesize here. No, I do not believe that

it will cause any harm as evidenced by the statistical history of

what has happened.

Mr. OTTER. Well, I would jus conclude, Mr. Moore, by saying do

not ask this committee to hypothesize either that you know every

one of those customers.

Mr. MOORE. Congressman, I am not asking you to hypothesize.

I am asking this committee to look at H.R. 107 and give the benefit

of doubt to American consumers. We are part of a democracy where

the underlying principles of our country are that we presume innocence before guilt.

And what the DMCA has done in its interpretation of the DMCA

is it has presumed guilt before innocence, and that is the problem

that I have with it. That is the problem that my customers have

it.

Will some people use this product for an infringing purpose? Absolutely. I would be foolish to tell you otherwise. Will people run

red lights? Absolutely. People do that every single day.

We do not put steel spikes in front of red light intersections because that happens. We expect most people to obey the law, and

most people do. Most people respect the rights of copyright holders,

and I can speak very firmly for my customers who absolutely believe in the rights of copyright holders.

But they also believe they have a right to their own property;

that they have taken money out of their own wallet and pay for.

Mr. STEARNS. The time of the gentleman has expired.

Mr. OTTER. Thank you, Mr. Chairman.

Mr. STEARNS. The gentleman from California.

Mr. ISSA. Thank you, Mr. Chairman.

And I realize that this is now the third panel. So sometimes the

questions are being asked to a certain extent because I didn’t get

to ask it to the other guy. So please forgive me, but, Mr. Moore,

I’ll probably concentrate a little bit on your here.

Mr. MOORE. I will try and take that as a compliment.

Mr. ISSA. Well, you know, you are kind of the reason for this. Do

you know what tokenism is? Sometimes it is a good thing, and you

are it. You are the case where it appears as though you did make

a good faith effort to make the circumvention less than a Napster,

to try to bring some order to the business of backup copies.

But I have to ask you a series of questions.

Mr. MOORE. yes, sir.

Mr. ISSA. One of them is you heard Mr. Swift, former congressman earlier today, and you heard him describe—now, this was

music, not DVDs—you heard him describe that he owns licenses

and that he owns copies of CDs, and he takes a cutoff this record

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and a cutoff that record. I’m sorry. I’m showing my age with the

word ‘‘record.’’

But he takes a digital record off of each of these that happens

to be a song, and he puts it into a new piece of art, which he thinks

he has created, and he gives it out to friends and family.

If your product allowed for people to do that or if they made part

of a movie or if DVDs some day had four movies and they did one

of the four and then another one from a different DVD and put it

together and gave it out to their friends, would they be in your

opinion, because you do look at the copyright laws and not exceeding fair use, do you think that that exceeds fair use? That that is

wrong, that is taking of a property?

Mr. MOORE. Let me preface my opinion with a simple disclaimer,

if I may, Congressman. I’m not a lawyer. I’m not a copyright lawyer. I am——

Mr. ISSA. These are all good things.

Mr. MOORE. I am strictly a layman from that perspective. I

would not even begin to insinuate that I have a right to come here

and lecture this body on the rights and wrongs of copyrights.

For me personally, the copyrights and ‘‘copywrongs,’’ as I have

called them, simply boil down to either one or two things, and that

is it’s either an act of distribution or it is an act of consumption.

For me personally, speaking only for myself and for no other person in this room, I believe that an act of consumption is pretty

much self-defining.

Mr. ISSA. Okay.

Mr. MOORE. You consume a product that you own in a way that

is personally evident to you, perhaps your immediate family members. That is an act of consumption.

To the extent that you distribute a product——

Mr. ISSA. Sure. Following up on that, if I buy a book, a book by

historic definite, only one person can read it at a given second unless you are reading, you know, literally reading to your children,

but if I make a copy of a DVD using your product and then I make

an additional copy and I give one to my son and one to my wife

and I have one, and for whatever reason all three of us are in different rooms watching at the same time, isn’t that beyond the

scope of a single license? And isn’t that one of the problems that

you presently have with your product, is it does allow for the potential that people would take one product, one right and turn it

into three simultaneous requests?

Mr. MOORE. Speaking as someone from the software industry,

you are presupposing that the DVD is sold to me as a consumer

under the guise of a license. I am aware of no such license.

When I purchase software, there is an end user license agreement that is wrapped around the software, and in many cases it

does limit my rights in terms of how many places I can use that.

DVD does not do that.

Mr. ISSA. Okay, but let me switch maybe to one other direction,

and again, I apologize to the rest of you. You are not chopped liver,

but I am focusing on one member here in my limited time.

If you had the ability to modify your product to include checking

with each of the studios that own the right to that copyright, if you

were interfacing with a data base, and if your product would only

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allow for one copy per licensed original user and per a given machine, one, is this something that you have envisioned being able

to do and, two, do you believe that your product would still sell just

as well if you did that?

Mr. MOORE. Well, I believe that there are technological restrictions that could be placed even further on the product than we

have in concert with the entertainment companies that would absolutely address those issues, and yes, I believe that provided that

the product is not absolutely drowning in digitalized management,

that it would continue to sell just as well because there is clearly

a market demand for this product.

But, again, I am not a copyright lawyer, and one of the thing

that I believe I understand about H.R. 107 to begin with, and excuse me, Congressman Boucher if I am speaking out of turn here,

but I believe your bill states that fair use is not something that we

need to determine now or that H.R. 107 is determining, but courts

of competent jurisdiction down the road would then be able to determine whether or not something was a fair use based upon

whether somebody was actually committing copyright infringement

or not, and that that would be the determination as to whether or

not someone was violating a technological protection measure.

Mr. ISSA. Mr. Chairman, if I can just make a quick statement for

the record, for what it is worth, I do believe that this committee

has a role to play in more thoroughly having the public understand

fair use because I think this morning a former member of this committee, an honorable man, told us he was doing something which

he believed was right and which I believe is exactly what fair use

was not intended to mean.

You cannot, in my opinion, just make unlimited copies and give

them out slightly different and say it is fair use just because you

are not charging for them. It is the core of one of the things that

Congress has to help put into law if we are, in fact, going to insure

the rights of intellectual property.

Thank you, Mr. Chairman.

Mr. STEARNS. The gentleman’s time has expired.

And we have finished with the members of the subcommittee.

And now as a courtesy, we will give the author of the bill the final

questions before we conclude the subcommittee hearing.

Mr. Boucher.

Mr. BOUCHER. Well, thank you very much, Mr. Chairman, and

I want to thank you for permitting a member of the full committee

who is not a member of this subcommittee to take part in your

hearing from the perspective of questioning witnesses.

Mr. Jaszi and Ms. Sohn, let’s give you an opportunity to take

part in this conversation. We heard earlier from Professor Lessig

that in his opinion, the DMCA potentially can extinguish fair use

in the digital era. I would assume that both of you would agree

that there is that potential. Just a one-word answer would be satisfactory.

Ms. JASZI. Yes.

Ms. SOHN. Yes.

Mr. BOUCHER. Thank you.

In response to that, the creative community says not to worry.

We have a process at the Copyright Office that is designed to proVerDate 11-MAY-2000 09:16 Oct 20, 2004 Jkt 000000 PO 00000 Frm 00125 Fmt 6633 Sfmt 6602 93981.TXT HCOM1 PsN: HCOM1
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tect fair use, and that process has now been functioning for 6

years, and that is really all the protection that fair use needs with

respect to the DMCA.

Would you, Professor Jaszi and Ms. Sohn, agree with that statement?

Professor Jaszi, Ms. Sohn.

Ms. SOHN. Well, I am happy to answer that unqualifiedly no, and

I would like to give several reasons for that.

Mr. BOUCHER. Please.

Ms. SOHN. The first is that in our opinion the Copyright Office

has really raised the burden of proof for an exemption to an extent

that is not in the plain language of the statute. they are asking for

proponents of an exemption to show that there is substantial harm

to their noninfringing uses, and that word is not in the statute.

Second the Copyright Office does not look at the types of uses

that people make with the digital media that they are trying to get

an exemption for. And, in fact, what is interesting is that the Assistant Secretary of Commerce for Communications and Information in the two triennial reviews that have been had in the 6 years

has written letters to the Register of Copyrights protesting the burden of proof saying that it was contrary, in very strong language,

contrary to plain language of the DMC and the exemption provision

and also protesting the fact that the Copyright Office does not look

at the type of uses that people make with digital media.

Mr. BOUCHER. Thank you.

Professor Jaszi, would you care to comment?

Mr. JASZI. I just would add that there is a structural problem

with the rulemaking which is, I think, a function of the statutory

design itself, and that is that although the rulemaking holds out

the promise of a possible exception for circumvention conduct, an

exception that individuals or institutions might be able to avail

themselves of were they able to satisfy the standard that the rulemaking applies; that exception is only with respect to circumvention conduct and not in any sense related to devices or technologies.

So that the promise of the rulemaking, however great or small,

is in that respect a false promise since the best, the individual or

the institution that has successfully prosecuted their claim for an

exception has a theoretical right to use, but in all likelihood no

ability to take advantage of that right.

Mr. BOUCHER. All right. Thank you both for those answers.

Let me simply note that over the 6-year timeframe that this

process has been in effect, only four exemptions have been granted.

Many multiples of that number have been requested. In fact, 25 entire groups of requests limited together have been rejected.

The Librarian of Congress said the following. This is in writing,

quote: ‘‘As presently written, the statute places considerable burdens on the scholarly, academic, and library communities to demonstrate and even to measure the required adverse impacts on

users.’’

And the Librarian of Congress has recommended to the Congress

that the statute be changed so as to make the process more available and more useful.

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The Assistant Secretary of Commerce also said that the standard

employed, and I quote, imposes a significantly heightened burden

on proponents of an exception and is, therefore, inconsistent with

the opportunity Congress intended to afford the user community.

So both of the principles who are charged with administering

this process have essentially given it a failing grade and have said

to the Congress if you want this to be a usable process, you are

going to have to change it.

And, Mr. Chairman, I think that information belongs in the

record, and I appreciate your giving me the opportunity to pursue

this line of questioning.

It has been a very long day. I have a lot of other things I would

like to discuss with these witnesses, but I am going to forebear,

and I trust that we will have further opportunities in this committee to consider these various measures.

Thank you very much, Mr. Chairman.

Mr. STEARNS. Yes, and I just want to thank the author of the bill

for his contribution. I want to thank the third panel for waiting for

us for the conclusion of our votes.

By unanimous consent, members will have 5 days to submit

questions for the record, and with that, the subcommittee is adjourned.

[Whereupon, at 4:26 p.m., the subcommittee meeting was adjourned.]

[Additional material submitted for the record follows:]

RESPONSE FOR THE RECORD OF THE ENTERTAINMENT SOFTWARE ASSOCIATION TO

FOLLOW-UP QUESTIONS OF HON. JOHN SHADEGG

Based on the nature of the questions, ESA will provide a joint answer to Questions

1-12.

QUESTION 1: Do you contend that under the ‘‘fair use’’ doctrine or the ‘‘right of

fair use,’’ an individual may make a back-up copy of a CD, a DVD, or software?

QUESTION 2: If so, provide the legal basis for your opinion.

QUESTION 3: Do you contend that under the ‘‘fair use’’ doctrine or the ‘‘right of

fair use,’’ an individual may make a back-up copy of a CD, a DVD, or software for

their spouse?

QUESTION 4: If so, provide the legal basis for your opinion.

QUESTION 5: Do you contend that under the ‘‘fair use’’ doctrine or the ‘‘right of

fair use,’’ an individual may make a back-up copy of a CD, a DVD, or software for

their children?

QUESTION 6: If so, provide the legal basis for your opinion.

QUESTION 7: Do you contend that under the ‘‘fair use’’ doctrine or the ‘‘right of

fair use,’’ an individual may make a back-up copy of a CD, a DVD, or software for

any other family member?

QUESTION 8: If so, provide the legal basis for your opinion.

QUESTION 9: Do you contend that under the ‘‘fair use’’ doctrine or the ‘‘right of

fair use,’’ an individual may make a back-up copy of a CD, a DVD, or software for

a friend?

QUESTION 10: If so, provide the legal basis for your opinion.

QUESTION 11: Do you contend that under the ‘‘fair use’’ doctrine or the ‘‘right

of fair use,’’ an individual may make a back-up copy of a CD, a DVD, or software

for use in a second location, such as a car or a boat?

QUESTION 12: If so, provide the legal basis for your opinion.

RESPONSE TO QUESTIONS 1-12: ESA does not believe that the ‘‘fair use’’ doctrine, as codified in Section 107 of the Copyright Act, categorically authorizes any

of the acts of copying described in Questions 1-12.

The U.S. Supreme Court has called fair use an ‘‘equitable rule of reason,’’ and has

held that ‘‘each case raising the question must be decided on its own facts.’’ Sony

Corp. of Am. v. Universal City Studios, Inc., 464 U.S. 417, 448 and n. 31 (1984) (citing H. Rept. 94-1476, the House Report on the 1976 Copyright Act, at 65.) The codiVerDate 11-MAY-2000 09:16 Oct 20, 2004 Jkt 000000 PO 00000 Frm 00127 Fmt 6633 Sfmt 6621 93981.TXT HCOM1 PsN: HCOM1
124

fication of the doctrine identifies four factors to be considered by the courts, although this is not an exhaustive list.

Some of these factors would weigh against recognizing a fair use privilege to make

copies in the scenarios identified in Questions 1-12. For example, copying a work

in its entirety is disfavored under the third statutory factor (‘‘the amount and substantiality of the portion used in relation to the copyrighted work as a whole’’), and

copying alone is generally not considered a ‘‘transformative’’ use, which is a key test

that courts apply in evaluating the first statutory factor (‘‘purpose and character of

the use’’). See generally Campbell v. Acuff-Rose Music, Inc., 510 U.S. 569 (1994).

In its 1984 decision in the Sony case, cited above, the Supreme Court ruled 5-

4 that making a copy of a free over-the-air television broadcast for the purpose of

time-shifting (later viewing) was a fair use. However, the scenarios in Questions 1-

12 are all distinguishable from the facts in the Sony case—for example, in Questions

3, 5, 7, and 9 the hypothetical copies were made for the purpose of transferring it

to another person while retaining the original. In contrast, the Sony Court specifically noted that its ruling did not apply to ‘‘the transfer of tapes to other persons.’’

Sony, 464 U.S. at 425. We are not aware of any authoritative judicial precedent that

has found a fair use privilege to make copies in any of these circumstances.

Based on the nature of the questions, ESA will provide a joint answer to Questions

13 and 14.

QUESTION 13: If you believe that under the ‘‘fair use’’ doctrine or the ‘‘right of

fair use,’’ an individual may make a copy of a CD, a DVD, or software for any of

the above-named individuals or purposes, do you believe that Congress should allow

by statute such copies to be made?

QUESTION 14: If so, for what individuals or purposes?

RESPONSE TO QUESTIONS 13 and 14: ESA does not support amending the

Copyright Act to allow for unauthorized copying of copyrighted materials in the circumstances outlined in Questions 1-12. We support the courts’ continued application

of existing law—including the codification of the fair use doctrine in Section 107—

to the cases that come before them.

QUESTION 15: The Home Recording Act of 1992 makes it a non-infringing act

to make a copy of an audio recording for personal use. If such recordings are covered

by the ‘‘doctrine’’ or ‘‘right’’ of ‘‘fair use,’’ why did Congress explicitly have to grant

that right in 1992?

RESPONSE TO QUESTION 15: ESA agrees that, to the extent that the activities

covered by the Audio Home Recording Act already benefited from the fair use privilege, it would not have been necessary for Congress to prohibit any infringement

actions from being brought against consumers who engage in these activities.

QUESTION 16: If you contend the doctrine of ‘‘fair use’’ covers the making of a

copy—for backup, family, friends, etc., would it be a violation of ‘‘fair use’’ to require

people to secure permission from the producer of a creative work before making the

copy?

Question 16 is not applicable.

QUESTION 17: If so, provide the legal basis for your opinion

Question 17 is not applicable.

QUESTION 18: Is there any device that can reliably distinguish between ‘‘fair

use’’ and any other use? If not, wouldn’t enactment of H.R. 107 inevitably make it

easier to infringe copyright—even if it also made it easier to carry out some ‘‘fair

uses?’’ Why should copyright infringement be facilitated and encouraged?

RESPONSE TO QUESTION 18: ESA believes the record is clear: there is at

present no device that can reliably permit fair uses while preventing unlawful uses

that do not qualify under the fair use doctrine. Accordingly, we agree that enactment of H.R. 107 would have the substantial effect of facilitating copyright infringement, even though it may also facilitate some non-infringing uses. We do not believe

that copyright infringements should be facilitated or encouraged.

QUESTION 19: If no software or technology exists to distinguish between ‘‘fair

use’’ and any other use, how do you propose that producers protect their rights over

their creative products and protect such products from being copied multiple times?

RESPONSE TO QUESTION 19: Producers should use the tools currently provided

by the Copyright Act and other provisions of federal law, including the DMCA. In

ESA’s view, enactment of H.R. 107 would significantly undermine the ability of producers of copyrighted materials to protect their rights and to prevent widespread

multiple unauthorized copying for the reasons stated above.

125

Based on the nature of the questions, ESA will provide a joint answer to Questions

20-24.

QUESTION 20: If you believe that the doctrine of ‘‘fair use’’ gives users the right

to make one backup copy, or if you believe Congress should grant such a right,

would this right be satisfied if the artist or producer of the intellectual property provided two encrypted copies of a CD, DVD, or software product, neither of which

could be duplicated, instead of permitting technology that allows users to make duplicate copies independently?

QUESTION 21: If not, why?

QUESTION 22: If you believe that the doctrine of ‘‘fair use’’ gives users the right

to make multiple copies (for backup, family, friends, alternate location, etc.) or if you

believe Congress should grant such a right, would this right be satisfied if the artist

or producer of intellectual property provided multiple encrypted copies of a CD,

DVD, or software product, none of which could be duplicated, instead of permitting

technology that allows users to make duplicate copies independently?

QUESTION 23: If not, why?

QUESTION 24: If you do not believe that the ‘‘fair use’’ right of individuals would

be satisfied if artists or producers of intellectual property provided two or more copies of the creative work to the purchaser, and instead believe that technology which

circumvents encryption is the only means to secure copies under the ‘‘fair use’’ doctrine, provide the legal basis for your opinion.

RESPONSE TO QUESTIONS 20-24: While these questions are inapplicable to

ESA because of our views on the current doctrine of fair use (See answers to questions 1-12 supra) and on the inadvisability of Congressional enactment of an exception to copyright in this area (See answers to questions 13-14 supra), we believe

that the decision to provide or not to provide consumers with extra encrypted copies

of copyrighted products should be resolved in the marketplace. Of course, consumers

are already free to buy additional legitimate copies for family, friends, and additional locations.

QUESTION 25: Please indicate whether you would agree or disagree that this

problem could be solved by the marketplace with a disclosure on CDs, DVDs, and

software products stating that the product may not be duplicated unless the purchaser is willing to pay a higher price for a copy of the work that can be duplicated.

RESPONSE TO QUESTION 25: ESA agrees that these issues are best resolved

in the marketplace, not by legislative fiat. ESA member companies are actively engaged in educational efforts to inform consumers about permitted and prohibited

uses of our products and are constantly striving to improve our performance in this

regard. We believe that decisions on whether or not to offer versions of copyrighted

products without technological protections, and if so, at what price point, should be

left to marketplace forces, and that there is no justification, at this point, for a legislative mandate on the use or non-use of technological protections in this area. Indeed, such a mandate could hamper the further development of flexible technological protection measures that respond to market demands.

ROBERT W. HOLLEYMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER, BUSINESS

SOFTWARE ALLIANCE

RESPONSE TO FOLLOW-UP QUESTIONS

Question 1. Do you contend that under the ‘‘fair use’’ doctrine or the ‘‘right of fair

use’’ an individual may make a ‘‘backup’’ copy of a CD, a DVD, or software?

Answer. Section 117 of the Copyright Acts permits the making of backup copies

of software. The law permits the owner of a copy to make a copy of a computer program for two specific circumstances: the copy is created either as an essential step

in the utilization of the computer program in conjunction with a machine and that

it is used in no other manner, or for archival (backup) purposes. To guard against

abuse of this provision by person claiming to make ‘‘backup’’ copies when they are

in fact pirating, the law prohibits any transfer of a copy made under this exception

unless the original is transferred with it.

Question 2. If so, provide the legal basis for your opinion.

Answer. See answer to Question 1, and 17 U.S.C. § 117

Question 3. Do you contend that under the ‘‘fair use’’ doctrine or the ‘‘right of fair

use’’ an individual may make a copy of a CD, a DVD, or software for their spouse?

Answer. The fair use doctrine does not generally permit copies of entire works.

Fair use permits copying of works to be done when there is a recognized public interest purpose. Among the purposes noted in 17 U.S.C. § 107 are teaching, research,

126

news reporting and criticism. As noted above, section 117 of the Copyright Act does

not permit a person to transfer a copy made under the exception.

Question 4. If so, provide the legal basis for your opinion.

Question 5. Do you contend that under the ‘‘fair use’’ doctrine or the ‘‘right of fair

use’’ an individual may make a copy of a CD, a DVD, or software for their children?

Answer. See answers above to question #3.

Question 6. If so, provide the legal basis for your opinion.

Answer. See answers above to question #3.

Question 7. Do you contend that under the ‘‘fair use’’ doctrine or the ‘‘right of fair

use’’ an individual may make a copy of a CD, a DVD, or software for any other family member?

Answer. See answers above to question #3.

Question 8. If so, provide the legal basis for your opinion.

Answer. See answers above to question #3.

Question 9. Do you contend that under the ‘‘fair use’’ doctrine or the ‘‘right of fair

use’’ an individual may make a copy of a CD, a DVD, or software for a friend?

Answer. See answers above to question #3.

Question 10. If so, provide the legal basis for your opinion.

Answer. See answers above to question #3.

Question 11. Do you contend that under the ‘‘fair use’’ doctrine or the ‘‘right of

fair use’’ an individual may make a copy of a CD, a DVD, or software for use in

a second location, such as a car or a boat?

Answer. A second copy of a computer program can be made under the terms and

conditions of Section 117 of the Copyright Act. See answer to question #1.

Question 12. If so, provide the legal basis for your opinion.

Answer. 17 U.S.C. § 117.

Question 13. If you do not believe that under the ‘‘fair use’’ doctrine or the ‘‘right

of fair use’’ an individual may make a copy of a CD, a DVD, or software for any

of the above named individuals or purposes, do you believe that Congress should

allow by statute such copies to be made?

Answer. The law already permits certain backup copies of software. See answer

to question #1.

Question 14. If so, for which individuals or purposes?

Question 15. The Home Audio Recording Act of 1992 makes it a non-infringing

act to make a copy of an audio recording for personal use. If such recordings are

covered by the ‘‘doctrine’’ or ‘‘right’’ of ‘‘fair use,’’ why did Congress explicitly have

to grant that right in 1992?

Answer. The Audio Home Recording Act is not relevant to the software industry.

Question 16. If you contend the doctrine of ‘‘fair use’’ covers the making of a

copy—for backup, family, friends, etc.—would it be a violation of ‘‘fair use’’ to require people to secure permission from the producer of the creative work before

making a copy?

Answer. See answers to questions #1 and 3 above.

Question 17. If so, provide the legal basis for your opinion.

Question 18. Is there any device that can reliably distinguish between ‘‘fair use’’

and any other use? If not, wouldn’t enactment of H.R. 107 inevitably make it easier

to infringe copyright even if it also made it easier to carry out some ‘‘fair uses?’’

Why should copyright infringement be facilitated and encouraged?

Answer. It is our understanding that devices are not now available which would

be able to distinguish between copies based on an analysis of the applicable law.

In particular, the availability of the fair use defense under the Copyright Act is to

be done case bay case based on the specific facts of the case. A device would have

to be able to make determinations which are now reserved for courts. As we stated

in our testimony, we believe that enactment of H.R. 107 would make it easier to

infringe copyright.

Question 19. If no software or technology exists to distinguish between ‘‘fair use’’

and any other use, how do you propose that producers protect their rights over their

creative products and protect such products from being copied multiple times?

Answer. We believe the DMCA establishes a fair balance in this regard and that

further changes in the law are not needed at this time.

Question 20. If you believe that the doctrine of ‘‘fair use’’ gives users the right to

make one backup copy, or if you believe Congress should grant such a right, would

this right be satisfied if the artist or producer of the intellectual property provided

two encrypted copies of a CD, DVD, or software product, neither of which could be

duplicated, instead of permitting technology that allows users to make duplicate

copies independently?

Answer. See answer to question #1.

Question 21. If not, why not?

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Question 22. If you believe that the doctrine of ‘‘fair use’’ gives users the right to

make multiple copies (for backup, family, friends, alternate location, etc.), or if you

believe Congress should grant such a right, would this right be satisfied if the artist

or producer of intellectual property provided multiple encrypted copies of a CD,

DVD, or software product, none of which could be duplicated, instead of permitting

technology that allows users to make duplicate copies independently?

Answer. See answer to question #1.

Question 23. If not, why not?

Question 24. If you do not believe that the ‘‘fair use’’ right of individuals would

be satisfied if artists or producers of intellectual property provided two or more copies of the creative work to the purchaser, and instead believe that technology which

circumvents encryption is the only means to secure copies under the ‘‘fair use’’ doctrine, provide the legal basis for your opinion.

Answer. See answer to question #1.

Question 25. Please indicate whether you would agree that this problem could be

solved by the marketplace with a disclosure on CD, DVDs, and software products

stating that the product may not be duplicated unless the purchaser is willing to

pay a higher price for a copy of work, which can be duplicated?

Answer. Software vendors already disclose substantial information about the

playability and system requirements needed to use their software. In addition, software companies disclose the DRMs they use on their works. Finally, business software products are most often licensed based on specific users needs, and priced to

reflect this.

PREPARED STATEMENT OF WALTER B. MCCORMICK, JR., PRESIDENT AND CHIEF

EXECUTIVE OFFICER, UNITED STATES TELECOM ASSOCIATION

Chairman Stearns, ranking member Schakowsky, and distinguished members of

the subcommittee, USTA is pleased support H.R. 107, the bipartisan Digital Media

Consumers’ Rights Act. USTA is the premier trade association representing service

providers and suppliers for the telecom industry. USTA’s 1200 member companies

offer a wide range of services, including local exchange, long distance, wireless,

Internet and cable television services. As the voice of the converged telecommunications industry in Washington, USTA advocates for the industry’s critical issues

and provides a common ground where telecom carriers of all sizes and businesses

can advance industry’s concerns.

USTA members have long served an intermediary role in the copyright debate as

providers of the Internet access and broadband services consumers enjoy and demand. Although the U.S. originally led the technology boom in the 1990s, we are

now lagging far behind countries like Canada, Germany, Italy, South Korea and

Japan in high-speed broadband deployment. Our consumers cannot benefit from the

new ‘‘killer apps’’ because of the outdated regulatory burdens hindering rapid

broadband deployment. Similarly, while certain content companies have made great

strides in entering the new world of digital content distribution services, consumers

will not fully benefit from the new era of broadband services without a balanced

copyright framework in place. Consumers need assurances that they can make the

same reasonable, personal uses of online works that they currently enjoy in the

physical world.

Although many digital bills have recently been introduced under the auspices of

benefiting the consumer, Congressman Boucher and Chairman Barton should be

commended for introducing and co-sponsoring a truly pro-consumer bill. H.R. 107

ensures the public that they can enjoy personal uses of digital media and obtain the

necessary warnings when a use is not permitted.

Unfortunately, the reasonable expectations of consumers for the use of new products and services in the emerging broadband world are in serious jeopardy. The balance that has always existed in copyright law has steadily eroded since the passage

of the DMCA. Section 1201 of the DMCA is one of the clearest examples. Section

1201 was originally drafted to prohibit those who circumvent technological protection measures in order to infringe copyright or traffic in so-called ‘‘black boxes.’’ The

notion of ‘‘black box’’ has now morphed into a ‘‘black hole’’ of fathomless and absurd

litigation. The DMCA is being misused by parties to go after competitors in ways

never anticipated by Congress at time of the DMCA’s enactment. Given the overly

broad terms of Section 1201, litigators now enjoy a sharp sword to go after alleged

‘‘circumventers,’’ who range from producers of robotic pet dogs, to manufacturers of

universal garage door openers and refillable PC printer cartridges. The fact that

this law criminalizes the act of circumvention, even when the defendant is not infringing copyright and can be exercising his or her legally protected fair use rights,

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bucks against fundamental notions of common sense. As another example of DMCA

distortion, who could imagine that the Recording Industry (supported by the pornography industry in their role as copyright owner) would take a narrow subpoena provision of the DMCA and use it to engage in an unsupervised digital dragnet to collect thousands of Americans’ names, addresses and phone numbers using a court

clerk without judicial supervision? Fortunately, the D.C. Court of Appeals, in RIAA

v. Verizon, unanimously struck down this dangerous distortion of the DMCA and

forced content owners to follow the proper legal process, restoring balance—at least

for now—into the Copyright Act.

H.R. 107 reestablishes this critical balance in several ways. First, the bill protects

consumers from deceptive practices in the labeling of copy-protected compact disks.

A narrow labeling provision is neither burdensome nor offensive to basic copyright

principles. It simply requires record companies to indicate on labels when CDs are

copy protected and warn consumers when they will not play on certain devices, such

as a personal computer. This is not a new concept. Emerging music services, such

as I-Tunes, currently inform consumers of the permitted and prohibited uses of

music in their terms of service. Narrow labeling of this sort is critical to prevent

consumer confusion and avoid consumer backlash against new digital products and

services.

As discussed above, H.R. 107 clarifies that the anti-circumvention provisions of

Section 1201 make non-infringement a defense to circumvention liability. Unlike

what some may say, the provision is not soft on piracy or bad for consumers. It does

not say that consumers are automatically free to circumvent for a fair use purposes,

but it does establish that fair use is a defense. The bill would also benefit national

cyber-security and future R&D activities, by clarifying the exemption for those involved solely in furtherance of scientific research into technological protection measures. This narrow clarification removes the chilling effect that the law has imposed

to date on R&D and scholarship activities from threatened and actual litigation

brought under the DMCA. Finally, H.R. 107 codifies the long-established principles

in the Supreme Court’s Sony Betamax case by ensuring that companies that

produce hardware or software products capable of significant non-infringing uses

will not be subject to 1201 claims. The Betamax decision has spurred the creation

of many new devices from the originally challenged VCR to the wide array of new

digital devices and services consumers enjoy today. The potential chilling effect to

the development of new broadband products and services would be significant if

those industries faced the same threats of absurd litigation under Section 1201 as

those against the universal garage door openers and PC printer cartridge manufacturers.

H.R. 107 is a welcome message from Congress that assures the digital consumer

that they are not the enemy. Balanced copyright laws ultimately benefit copyright

owners, consumers and the providers of the emerging technologies of tomorrow.

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