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96–396 PDF 2006

S. HRG. 108–912

PROTECTING INNOVATION AND ART WHILE

PREVENTING PIRACY

HEARING

BEFORE THE

COMMITTEE ON THE JUDICIARY 

UNITED STATES SENATE

ONE HUNDRED EIGHTH CONGRESS

SECOND SESSION

JULY 22, 2004

Serial No. J–108–91

Printed for the use of the Committee on the Judiciary

(

(II)

COMMITTEE ON THE JUDICIARY 

ORRIN G. HATCH, Utah, Chairman 

CHARLES E. GRASSLEY, Iowa 

ARLEN SPECTER, Pennsylvania 

JON KYL, Arizona 

MIKE DEWINE, Ohio 

JEFF SESSIONS, Alabama 

LINDSEY O. GRAHAM, South Carolina 

LARRY E. CRAIG, Idaho 

SAXBY CHAMBLISS, Georgia 

JOHN CORNYN, Texas 

PATRICK J. LEAHY, Vermont 

EDWARD M. KENNEDY, Massachusetts 

JOSEPH R. BIDEN, JR., Delaware 

HERBERT KOHL, Wisconsin 

DIANNE FEINSTEIN, California 

RUSSELL D. FEINGOLD, Wisconsin 

CHARLES E. SCHUMER, New York 

RICHARD J. DURBIN, Illinois 

JOHN EDWARDS, North Carolina 

BRUCE ARTIM, Chief Counsel and Staff Director 

BRUCE A. COHEN, Democratic Chief Counsel and Staff Director 

(III)

C O N T E N T S 

STATEMENTS OF COMMITTEE MEMBERS 

Page

Hatch, Hon. Orrin G., a U.S. Senator from the State of Utah ............................ 1

prepared statement .......................................................................................... 102

Leahy, Hon. Patrick J., a U.S. Senator from the State of Vermont .................... 3

prepared statement .......................................................................................... 114

WITNESSES 

Bainwol, Mitch, Chairman and Chief Executive Officer, Recording Industry 

Association of America, Washington, D.C. ......................................................... 17

Greenberg, Andrew C., Vice Chairman, Intellectual Property Committee, Institute of Electrical and Electronics Engineers, Washington, D.C. .................. 13

Holleyman, Robert, President and Chief Executive Officer, Business Software 

Alliance, Washington, D.C. .................................................................................. 12

McGuiness, Kevin S., Executive Director, NetCoalition, Washington, D.C. ....... 15

Peters, Marybeth, Register of Copyrights, Copyright Office, Washington, D.C. 5

Shapiro, Gary J., Chief Executive Officer, Consumer Electronics Association, 

Arlington, Virginia ............................................................................................... 9

QUESTIONS AND ANSWERS 

Responses of Mitch Bainwol to questions submitted by Senators Leahy and 

Cornyn ................................................................................................................... 33

Responses of Andrew C. Greenberg to questions submitted by Senator Leahy . 39

Responses of Robert Holleyman to questions submitted by Senator Leahy ....... 48

Responses of Kevin S. McGuiness to questions submitted by Senators Leahy 

and Cornyn ........................................................................................................... 51

Responses of Marybeth Peters to questions submitted by Senators Leahy 

and Cornyn ........................................................................................................... 56

Responses of Gary J. Shapiro to questions submitted by Senators Leahy 

and Cornyn ........................................................................................................... 63

SUBMISSIONS FOR THE RECORD 

Bainwol, Mitch, Chairman and Chief Executive Officer, Recording Industry 

Association of America, Washington, D.C., prepared statement ...................... 70

Black, Ed, Computer & Communications Industry Association, Washington, 

D.C., statement .................................................................................................... 75

Directors Guild of America, Washington, D.C., statement .................................. 79

Greenberg, Andrew C., Vice Chairman, Intellectual Property Committee, Institute of Electrical and Electronics Engineers, Washington, D.C., prepared 

statement .............................................................................................................. 82

Holleyman, Robert, President and Chief Executive Officer, Business Software 

Alliance, Washington, D.C., prepared statement .............................................. 107

McGuiness, Kevin S., Executive Director, NetCoalition, Washington, D.C., 

prepared statement .............................................................................................. 116

P2P United, Adam M. Eisgrau, Executive Director, Washington, D.C., letter .. 129

Peters, Marybeth, Register of Copyrights, Copyright Office, Washington, D.C., 

prepared statement .............................................................................................. 134

Portnow, Neil, President, National Academy of Recording Arts & Sciences, 

Santa Monica, California, statement .................................................................. 155

Shapiro, Gary J., Chief Executive Officer, Consumer Electronics Association, 

Arlington, Virginia, prepared statement ............................................................ 157

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PROTECTING INNOVATION AND ART WHILE 

PREVENTING PIRACY 

THURSDAY, JULY 22, 2004 

UNITED STATES SENATE, 

COMMITTEE ON THE JUDICIARY, 

Washington, DC. 

The Committee met, pursuant to notice, at 2:07 p.m., in room 

SD–226, Dirksen Senate Office Building, Hon. Orrin G. Hatch, 

Chairman of the Committee, presiding. 

Present: Senators Hatch and Leahy. 

OPENING STATEMENT OF HON. ORRIN G. HATCH, A U.S. 

SENATOR FROM THE STATE OF UTAH 

Chairman HATCH. Well, we are happy to welcome you all here. 

At this hearing, leading experts on the intersection of copyright law 

and technology will share their views on how this Committee can 

best restore the ability of copyright-holders to challenge the large, 

for-profit global piracy rings that threaten the future of today’s cinema and recording industries. 

Research now suggests that these piracy rings will create billions 

of infringing copies this year alone. The architects of this file-sharing piracy make millions of dollars, while attempting to avoid any 

personal risk of the severest criminal and civil penalties for copyright infringement. 

I think all here today would agree that these pernicious schemes 

to encourage others—and unfortunately these are mostly kids—to 

break Federal law allows these pirates to collect huge revenues, 

while subjecting users to the risk of prison or crippling damage 

awards. 

To implement their schemes, the architects of file-sharing piracy 

must encourage users to infringe copyrights by either downloading 

infringing copies of works—an easy task—or by uploading files for 

distribution to millions of strangers—a more difficult task, with the 

sole reward being a risk of prosecution. 

There can be no doubt that automating redistribution induces 

mass infringement that would otherwise never occur. The design of 

some file-sharing software enables its distributors to automate, induce and profit from copyright piracy. Unfortunately, as recent 

court decisions have made abundantly clear, Congress must act to 

resolve this situation. 

Let me make clear that our aim is to stop the for-profit commercial piracy operations that threaten the future of artists, legal commerce, and all but their most cautious and expert users. I also unVerDate 0ct 09 2002 11:18 Oct 31, 2006 Jkt 030496 PO 00000 Frm 00005 Fmt 6633 Sfmt 6633 S:\GPO\HEARINGS\96396.TXT SJUD4 PsN: CMORC
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derscore that our goal is not to subject law-abiding technology interests to undue legal exposure. 

To address this problem, Senator Leahy and I introduced S. 

2560, the Inducing Infringement of Copyrights Act. The Act provides that the courts can impose secondary liability upon those who 

intend to induce copyright infringement. We developed this approach with the help and support of leading technology companies. 

We want to continue to work with interested parties to make refinements that will help us to achieve the bill’s intent. 

The approach taken in S. 2560 is intended to have three key attributes. First, S. 2560 is technology-neutral. It does not single out 

peer-to-peer networking technology for punitive regulation just because a few bad actors have misused it. 

Secondly, S. 2560 uses a proven model for structuring secondary 

liability that can address cases of intent to induce infringement 

that were explicitly not covered or addressed by the Supreme Court 

in the famous Sony v. Betamax case. 

And, third, it our intent that S. 2560 change the law of contributory liability only for a very narrow class of defendants. It is our 

expectation that most defendants will never be affected by S. 2560 

because they already face broader liability for inducing copyright 

infringement. Nor do we intend to affect defendants for whom Congress or courts have narrowed the general rule of secondary liability for knowing inducement. It is also our intent that the bill not 

affect distributors of copying devices who merely know that their 

devices can be or are being used by others to make infringing copies. 

As our hearing today will show, some technology companies have 

expressed concerns to Senator Leahy and me that claims for intentional inducement might be misused against companies that merely 

sell copying devices. We do not believe that is the case, but we are 

willing to enter into a constructive dialogue to ensure that the language is drawn as tightly as possible. 

I want to continue working with technology industries to resolve 

any concerns about possible abuse of liability for intentional inducement. If there are alternative ideas, let’s discuss them. Just as 

the Sony court never intended to allow the substantial non-infringing use rule to be misused as a license to enter the copyright piracy 

business, I don’t believe Senator Leahy and I intend to allow S. 

2560 to be misused against legitimate distributors of copying devices. 

I have a longer statement that I will submit for the record, but 

this is an important hearing. It involves billions and billions of dollars in the future, and we need to resolve this problem and we 

would appreciate all the help that each of you can give who are experts in this field and who have particular interests in this field. 

We will count on you helping us to know how to do this in the very 

best possible way. Nobody has a desire to hurt anybody by this 

type of legislation. We just want it to work and to help to preserve 

all of these interests that deserve to be preserved. 

[The prepared statement of Chairman Hatch appears as a submission for the record.] 

Chairman HATCH. Senator Leahy, we will turn to you. 

3

STATEMENT OF HON. PATRICK J. LEAHY, A U.S. SENATOR 

FROM THE STATE OF VERMONT 

Senator LEAHY. Thank you, Mr. Chairman. I thank you for holding this hearing today and, of course, thank the witnesses who 

have come here, who are probably like many in counting the moments for the Congress to get out of town because while most of 

you, of course, live for these appearances and the days and times 

of being sent up here, you may actually have things to do, like a 

life. 

I hope you all have a good August. I am willing to show great 

dedication and am even willing to spend the whole month of August in the State of Vermont, a very difficult assignment, as you 

can imagine. 

I am glad you are here and I am glad we can discuss the Inducing Infringement of Copyrights Act, with legitimately an eye toward moving the legislation in the fall. The issues facing the copyright and technology communities in the digital age are daunting, 

as so many of you know. And I see so many familiar faces here in 

all branches of this industry, so you know how daunting it is. 

I think Congress has a role in trying to bring the various communities together. Senator Hatch and I recognize that legislating in 

such an area is going to be tense and intense, certainly from the 

e-mails I have gotten from many of you telling me that is the case. 

But we are committed to building the consensus that is the hallmark of successful and useful legislation. We are going to make 

sure that our commitment results in law. 

I am glad to hear from the Register of Copyrights, Marybeth Peters. I think we Americans are fortunate that she is there. She is 

going to testify about the need for this bill and about how it clarifies longstanding principles of contributory copyright liability without targeting technology. I would encourage other witnesses to 

study her statement. 

Mr. Bainwol says that while technology is not to blame, we need 

to target those who have hijacked technology and undermined the 

rights of copyright-holders. I agree. Mr. Holleyman declares that 

mere knowledge of a given technology’s potential to be used to infringe another’s copyright should not by itself constitute inducement. I agree, and I wish to offer the Business Software Association my sincere thanks for bringing open-minded cooperation and 

considerable expertise to the earlier drafting stages of this bill. 

I am heartened even by the testimony of those who are skeptical 

of the bill. Mr. Shapiro says that the Sony-Betamax is good law. I 

agree. Mr. Greenberg and Mr. McGuiness urge Congress to craft 

our intellectual property laws so that they promote technological 

growth. I agree, and I believe we have done this with our bill. 

Just as Senator Hatch and I have worked to promote the great 

possibilities of the Internet and the technologies that capitalize on 

its potential, one problem consistently appears, and I hear this 

from my State where we use the Internet a great, great deal in 

commerce, as well as in pleasure. The copyright-holders often fear 

these very same new and exciting technologies. 

We have a lot of people who are in the creative community in my 

State and their reticence is not without merit. Our copyright industries lose billions of dollars each year to copyright piracy, and just 

4

as importantly our artists lose the rights to their own works. By 

clarifying the longstanding principle of secondary copyright liability, this bill can give copyright-holders reason to embrace new technologies. 

While the legal principle is an old one, the problems of inducement for copyright are a relatively new product of the digital age, 

an age in which it is easy and, for some, very profitable to induce 

others to violate copyrights through illegal downloading from the 

Internet. 

The 1976 Copyright Act codified the principle that copyrightholders not only have exclusive rights inherent in their copyrights, 

but that only they can authorize others to exercise those rights, 

such as the right to distribute and the right to make copies of their 

works. Since the advent of the Internet, some have harnessed peerto-peer technology to run roughshod over those rights. 

The courts have grappled, and are still grappling with how to 

apply existing common law principles to the resulting legal cases. 

At the same time, the courts are asking the Congress to give guidance. I hope this bill does that by reaffirming Congress’ intent in 

the 1976 Act. 

The Patent Code already provides liability for inducing infringement, and our experience there shows us that such provisions 

work. Over the years, the number of patents has steadily grown 

and patent-related industries continue to thrive. But while it has 

long been simple and economically worthwhile to induce patent infringement, only recently has the ability to illegally download 

music and books and software and films made it necessary for Congress to clarify that the principle also applies to copyrights. 

Of course, there are significant differences between patents and 

copyrights. We are not transplanting one liability regime to another part of the code, but we have learned some useful things in 

the patent realm and we want to use them. 

I apologize for the length of this statement, but I want to make 

sure everybody understands what we are doing. 

In making this clarification, our bill does not undermine the 

Sony-Betamax decision. It does not undermine the fair use doctrine. 

It does not target or penalize any technology. In fact, our bill will 

help companies like Apple, who, through their iToons service and 

iPod devices, offer legitimate alternatives to illegal downloading. I 

want all these companies to thrive because the competition is going 

to help consumers. Our bill will protect our copyright-holders. It is 

going to spur innovation. 

Finally, I would like to draw attention to a letter sent by Mr. 

McGuiness and some others in the consumer electronics industry 

to the Committee on July 6. It states, quote, ‘‘We agree with the 

need to penalize those who intentionally cause copyright infringement,’’ close quote. Well, that is precisely what 2560 does. 

I understand that some have concerns with the specifics of our 

legislation. Then work with us on these. We are going to have time. 

No one wants to undermine the iPod or any other piece of technology out there, but we have to understand that some people use 

peer-to-peer technology in ways that are wrong and illegal. Every 

single person in this room knows that. 

5

So I appreciate your coming. Mr. Chairman, I appreciate you 

having this hearing. Give us some ideas. We will work on them. I 

actually have Internet at my farm house in Vermont. I have mail, 

but it takes on an average a little over a week to get a letter all 

the way from Washington to there. I am not sure how it is sent, 

but I do get e-mail. 

Thank you. 

Chairman HATCH. Well, thank you, Senator. 

Our panels for this hearing are well qualified to assist the Committee in reviewing S. 2560 and any alternative solutions that may 

be proposed. We are really interested in getting it right, so one 

great reason for this hearing. 

Our first panel consists of one witness, who is more than adequate to take up the role of many witnesses—Marybeth Peters, the 

Register of Copyrights. She appears today as the Federal Government’s leading expert on the interaction of copyright law and technology. 

We have always appreciated your appearances before this Committee. You have always been so cooperative and you have really 

helped us through the years with a lot of these very difficult problems. So we look forward to further help from you today, if we can. 

STATEMENT OF MARYBETH PETERS, REGISTER OF COPYRIGHTS, UNITED STATES COPYRIGHT OFFICE, WASHINGTON, D.C. 

Ms. PETERS. Mr. Chairman and Senator Leahy, I am pleased to 

be here. Let me begin by thanking both of you for your leadership 

and efforts over the past several years in addressing important 

copyright issues related to our digital environment. 

I would like to also congratulate both of you on your exceptional 

staffs. The Copyright Office is most appreciative of their dedication 

and hard work. 

Today, we are here today to discuss S. 2560, the Intentional Inducement of Copyright Infringements Act, which addresses the 

most important issue facing our copyright system today—new services that employ peer-to-peer technology create vast global networks of copyright infringement. There should be no question that 

such services are liable for copyright infringement they encourage 

and profit from. The Copyright Office supports S. 2560 because it 

addresses this problem and will hold those services responsible. 

The legal controversy here revolves around secondary liability for 

copyright infringement. For decades, copyright law has recognized 

that those who encourage and foster infringement can be held liable, just as those who commit infringing acts. 

Courts have developed, as you mentioned, two doctrines—contributory infringement and vicarious liability—to address those 

who help others infringe. These concepts are critical to the effectiveness functioning of copyright because they allow copyright owners to enforce their rights against entities that are involved in the 

infringement and have the resources and ability to satisfy a judgment or to enter into a license. 

In the Betamax case, the court analyzed these doctrines in assessing whether the manufacturer of a VCR could be held liable for 

the infringement committed by its customers. It held that secVerDate 0ct 09 2002 11:18 Oct 31, 2006 Jkt 030496 PO 00000 Frm 00009 Fmt 6633 Sfmt 6633 S:\GPO\HEARINGS\96396.TXT SJUD4 PsN: CMORC
6

ondary liability could not be imposed on Sony because the VCR is 

capable of substantial non-infringing uses, namely time-shifting of 

broadcast television programming, which the court found to be fair 

use. 

Courts have struggled to apply these doctrines and the Sony case 

to peer-to-peer services that have created networks of massive 

copyright infringement. The early versions of these services, 

Napster and Aimster, were found liable by the Ninth and Seventh 

Circuits, but they applied different interpretations of Sony and the 

secondary liability doctrines. 

Last year, a California district court found the Morpheus and 

Grokster services not liable for copyright infringement they encourage, based in large part on the Sony decision. I think the Grokster 

decision is wrong as a matter of copyright law. In my view, the 

court applied a needlessly cramped and unprecedented interpretation of secondary liability doctrines. As a matter of policy, the decision is flawed. 

By letting peer-to-peer services off the hook, the court has left 

copyright owners with little recourse but to sue individuals for 

copyright infringement. It would be much more efficient and make 

much more sense if the companies at the center of these infringements whose businesses depend on infringements were held responsible for it. 

S. 2560 would help bring about this result. It makes it clear that 

when someone intentionally induces another to commit infringement, he will be held liable for that infringement. It recognizes 

that someone’s state of mind often cannot be shown by direct evidence, and therefore it allows a court to look at and examine the 

conduct of a defendant to determine such intent. The standard is 

appropriately technology-neutral. It doesn’t look at the technology 

employed. It looks at the action of the defendant in the context of 

all of the circumstances. 

Some have criticized the bill as over-broad. They say it potentially could make someone liable for merely selling a device like a 

portable music player. In my view, these concerns are unfounded. 

The bill requires specific intent—a very high standard for state of 

mind. In my written testimony, I detail facts from peer-to-peer contexts that would constitute evidence of intentional inducement. 

These go far beyond the mere provision of copying technology. 

The current peer-to-peer services make it almost inevitable that 

users become infringers merely by turning on the software, at 

which point they immediately become distributors of all they have 

downloaded, and more. This is essential to their business model. 

They must attract new users to their networks to increase their advertising revenue. This is clearly evidence of inducement. 

Critics of the bill also assert that it would overturn Sony. I disagree. By focusing on inducement and the behavior of the defendant, S. 2560 addresses factual circumstances not before the Supreme Court in Sony which acknowledge that the defendant did not 

induce its customers to infringe. 

I also reject the comparison between the current peer-to-peer 

services and a manufacturer of the VCR. If the VCR had been designed so that when a user simply turned it on, all of the programs 

he had recorded immediately became available to all other VCRs 

7

in the world, I am confident the Sony case would have come out 

the opposite way. While I believe that the bill does not raise the 

concerns mentioned, if the Committee thinks language clarifying 

these points would be helpful, the Copyright Office would be 

pleased to assist you. 

Finally, I am concerned that future generations of technologybased pirates may devise a way around this bill. In the future, the 

Committee may wish to consider additional legislative approaches 

that will provide guidance to courts in such situations. While the 

approach taken here is careful and preserves the Supreme Court’s 

decision in Sony, to the extent the Sony decision is an impediment 

against enforcement against future companies that enable massive 

infringements, eventually this Committee may want to look at replacing the Sony decision with a more appropriate rule for the digital age, one that better balances effective copyright protection with 

the development of new technologies. As the Supreme Court noted, 

copyright protection need not be merely symbolic in the face of new 

technology. 

Thank you. 

Chairman HATCH. Well, thank you. 

Ms. Peters, as you know, some members of the copyright community are concerned that rights-holders could file abusive or 

harassing claims for intentional inducement. I want to address 

those concerns, and given that this type of liability can and should 

be recognized under existing law, it seems that the legislative process should provide the best means to evaluate and resolve such 

concerns. 

During the August recess, I would like your office, if it can, to 

assist this Committee in coordinating efforts to identify and resolve 

potential concerns about potential abuses of domestic and intentional inducement liability. 

Could we count on you to help us with that? 

Ms. PETERS. Absolutely. I just identified this as the most important question in copyright today. We would be more than happy to 

assist the Committee in facilitating and bringing about hopefully a 

result that could work. 

Chairman HATCH. I had heard that, so I was just making sure 

that you would agree to work with us. 

Ms. PETERS. We would never say no to you. 

Chairman HATCH. Well, that is an interesting comment. 

[Laughter.] 

Senator LEAHY. It is sort of the attitude of all of the Senators up 

here. 

Chairman HATCH. Don’t worry. Your sterling reputation is intact. 

I just want you to know that. 

We will turn to Senator Leahy, if he has any questions. 

Senator LEAHY. I am too flustered, Mr. Chairman. 

We are delighted, Ms. Peters, that you are here. You have been 

an enormous help to this Committee. I cannot think of a time that 

any member of the Committee, either Republican or Democratic, 

has asked for help from you or your office and hasn’t gotten it. 

Ms. PETERS. Thank you. 

8

Senator LEAHY. You are the mark of the type of people in our 

Government that makes our Government work well. I mean that 

as a compliment. You really are. 

Ms. PETERS. Thank you very much. 

Senator LEAHY. One of the concerns I have is the failure of the 

Grokster court to correctly impose secondary liability, as the copyright-holders have had to resort to infringement suits against individuals rather than the companies that encourage and profit from 

that infringement. 

Do you think our Act would be effective in shifting legal attention from the individuals to those companies that are the real 

cause of infringement? 

Ms. PETERS. I certainly would hope so. As I stated, I think that 

even under existing law today, which doesn’t have the intent standard but still has an induce standard, they could get there. But if 

they don’t, yes, this would be an enormous help. 

Senator LEAHY. This, I assume, would be a policy that you would 

prefer to see? 

Ms. PETERS. Yes. 

Senator LEAHY. You have reminded us that the 1976 Copyright 

Act included very specific language meant to encourage the free development in the courts of the doctrine of secondary liability for 

copyright infringement. The 1976 Act makes clear that the holder 

of a copyright has the exclusive right to authorize anyone else to 

make use of the rights of a copyright-holder. If technology changes, 

then the threat posed by the middleman changes, too. In 1976, 

none of us could have envisioned what is going on. 

Does the language of the 1976 Act give the courts the power to 

address changing situations created by the new technology? 

Ms. PETERS. I believe it does, I believe it does. 

Senator LEAHY. I have long supported the Sony case. It has been 

a cornerstone of technological growth. I believe because of that, the 

court wisely created the kind of flexibility that you need for new 

technology. Obviously, at the time they decided it, they couldn’t 

have seen far enough over the horizon to see what kind of technologies we have. 

But your testimony noted that courts have had a hard time applying the Sony case to the situation of peer-to-peer networks. The 

case obviously didn’t expressly address the situation we have here 

where someone intentionally induces another to commit copyright 

infringement. Some believe we should take this opportunity to codify Betamax. 

Should we codify Sony, and if we do, are there any dangers to 

that? 

Ms. PETERS. Well, I basically said I thought maybe you might 

want to look at the future, whether or not the standard that is 

there was the correct one. Although it worked fine in 1984 when 

the court decided the case with the VCR, the technology at the 

time and the use that was made of it, making copies off the air and 

time-shifting of programming that they otherwise would have gotten, the language ‘‘merely capable of substantial non-infringing 

uses’’—and I am underlying the word ‘‘capable’’—I cannot think of 

any technology today that doesn’t have a ‘‘merely capable’’ aspect 

of a non-infringing use to it. In fact, it can be specifically designed 

9

to have just one little non-infringing use that is of substance. So 

I think it would be helpful before codifying it to reexamine it. 

Senator LEAHY. Thank you. 

I have other questions, Mr. Chairman, but we have a lot of witnesses and I will submit them for the record. 

Chairman HATCH. Well, that will be fine. 

We want to thank you once again, Ms. Peters, for being here. 

You have always been so helpful to the Committee and to us personally, and we just really appreciate you. 

Ms. PETERS. Okay, thanks very much. 

Chairman HATCH. Thanks for taking the time, and we are so 

glad you agree with us. 

Senator LEAHY. He says that to me once every three to 4 years. 

Chairman HATCH. Not that often. 

[Laughter.] 

Chairman HATCH. Thank you again. We really appreciate you 

coming over. 

[The prepared statement of Ms. Peters appears as a submission 

for the record.] 

Chairman HATCH. Our second panel consists of five private sector witnesses who can provide an array of perspectives on solving 

the file-sharing problem. 

Gary Shapiro is the president and CEO of the Consumer Electronics Association, and Chairman of the Home Recording Rights 

Coalition. Robert Holleyman is the president and CEO of the Business Software Alliance. Andrew Greenberg represents the Institute 

of Electrical and Electronics Engineers-USA. Kevin McGuiness is 

the director of NetCoalition, an association of Internet-based companies, including Google and C–NET. Mitch Bainwol is the CEO of 

the Recording Industry Association of America. 

All of them are excellent people who have helped us in the past, 

and we are really looking forward to getting your advice here 

today. So if you will take your seats at the table, we would appreciate it. 

Mr. Shapiro, we will proceed with you first and then go right 

across the table. 

STATEMENT OF GARY J. SHAPIRO, CHIEF EXECUTIVE OFFICER, CONSUMER ELECTRONIC ASSOCIATION, ARLINGTON, 

VIRGINIA 

Mr. SHAPIRO. Mr. Chairman, Senator Leahy, thank you for holding this hearing. Based on what you said, Chairman Hatch, I guess 

I represent the law-abiding technology interests. I am president of 

the Consumer Electronics Association, and I am also Chairman of 

the Home Recording Rights Coalition. Moreover, my written statement has been endorsed by the Digital Futures Coalition, the Computer and Communications Industry Association, as well as the 

consumer group Public Knowledge and the Electronic Frontier 

Foundation. S. 2560 has united the technology industry. 

Mr. Chairman, you said that it was developed with the support 

of leading technology companies. I cannot find one technology company that supports this legislation as it is written. Indeed, companies are extremely concerned about how it could block the introduction of valuable new technology. 

10

This is a very broad bill which targets more than P2P companies. 

If this bill was the law, Americans would not be able to enjoy many 

devices, from the VCR to the Tivo, from the iPod to the photocopier. It is even more dangerous because of the age we are entering now. We are entering a growth age in technology. It is an age 

where consumers can easily create, manipulate and shift content 

around to different devices they own. Because of this new freedom 

to create and be your own music and movie producer, we are seeing 

a renaissance of creativity, of studios at home, of content creation 

by millions of Americans. 

This bill is by far the biggest threat to personal creativity, new 

technology and innovation in 20 years. I urge you to consider the 

harm that it will engender. It will certainly unleash litigation over 

every new development in technology which allows content to be 

moved from one form to another, from one transmission medium to 

another. 

Twenty years ago, the Supreme Court rejected Hollywood’s efforts to have VCRs banned as illegal products. The court sided with 

innovation. It set forth a clear bright-line standard. A manufacturer is not liable for infringing copyright if the product that they 

are selling has any commercially significant non-infringing use. 

The Betamax case is definitely our magna carta. It gave a green 

light to inventors and venture capitalists, ensuring that they can 

go forward without the fear of liability. Many of my members did 

not even exist 20 years ago. We had only 80 members then. Today, 

we have 1,700 corporations that are in the technology industry 

thriving today because of the protections offered by the Betamax

decision. 

This bill would reverse and rewind Betamax. An intent standard 

radically shifts the copyright law and voids the Supreme Court’s 

bright-line objective test and replaces it with what is a very subjective test. The concept of inducement under the bill is so broad as 

to apply not only to innovators who build products, but also to venture capitalists who fund them, and even journalists who write 

about or review them. 

Intel’s co-founder, Les Vasquez, pointed this out in an editorial 

opposing this legislation in yesterday’s Wall Street Journal. He 

said, ‘‘The chilling effect that a law like this would have on innovation cannot be underestimated. If this bill is enacted, many new opportunities will migrate outside the United States. Others will 

never happen.’’ That is why the entire consumer technology industry, Internet portals, financial services companies, telecommunications industry, ISP, venture capitalists and consumer groups, are 

all concerned about this bill. 

We understand and we hear you that you say you did not intend 

to undermine the Betamax holding, but there is no way the Supreme Court objective test and the bill’s subjective test can coexist. 

Betamax objectively assesses a product’s capabilities. This bill relies on a subjective evaluation going to business and investment 

records, or on circumstantial evidence on what someone had in 

mind in bringing a product to market. Unfortunately, there is no 

way at all that investors can predictably make this determination 

before they are sued. 

11

The result of this legal uncertainty will be the creation of massive new liability, as innocent products and services are targeted 

for litigation. Given your leadership on class action reform, we hope 

you recognize how this subjective standard will invite litigation. 

Even if a defendant eventually proves that it did not intend to induce infringement, the bill’s mandate that intent requires a consideration of all circumstances means that suits will not easily be dismissed on summary judgment. Defendants will be tied up in court 

and spend massive sums to prove that they did not intend to induce. Consumers will lose as venture capitalists back away, innovation is chilled, and new products never come to market. 

Since virtually every American is a copyright-holder, it does not 

take any imagination at all to see the creative uses the trial bar 

will put to this broad, new cause of action. Indeed, motion picture 

studios recently claimed in court that standard features on personal video recorders like Tivo are, quote—and this was in the complaint—‘‘inducements,’’ end of quote, to copyright violation. 

Media giants have already challenged lawful technologies such as 

MP3 players, personal video recorders and the clear play content 

filtering system. This legislation gives them a deadly new tool to 

stop any technology at all that they don’t like. 

Let me give you another example. Recently, a well-funded pornographer sued Visa and Mastercard, accusing them of inducing 

people to infringe their copyrighted pornographic images by providing online payment systems. This legislation would hand a powerful new statutory weapon for pornographers and others to engage 

in similar nuisance legislation. 

We believe that there is a hard choice. It is called personal responsibility, and it is a better approach than putting product innovation and lawful use in jeopardy. In this Congress, we worked 

with Congressional staff and the Motion Picture Association to 

craft legislative history for the ART Act, as provisions in State law 

that would assure that the use of camcorders in movie theaters 

could be prosecuted, but not endangering their use or demonstration in homes or retail stores. 

Mr. Chairman and Senator Leahy, we share your concerns about 

commercial piracy and we pledge our cooperation. In return, we 

hope that you share our conviction that painting a massive liability 

bull’s eye on the technology and venture capital industry is not in 

our country’s interests. Your staff has been very generous with 

their time and courtesy in soliciting and receiving our views, and 

we look forward to cooperating with them and with the Committee 

in the legislative process. 

Thank you for giving us this opportunity and listening to our 

views. 

Chairman HATCH. Thank you, Mr. Shapiro. I take it you don’t 

like this bill very much. 

[Laughter.] 

Mr. SHAPIRO. Well, I held back a little bit. I could keep going if 

you would like. 

Chairman HATCH. I figured you were being your usual laid-back 

self, I will tell you. But we are very interested in how we can improve the bill and how you can help us to do so. I acknowledge that 

if your concerns have validity to them, then all of us have to be 

12

concerned about them. So we will look forward to having you help 

us, but that means positive help because we haven’t had much help 

from the industry people. 

Go ahead. 

Mr. SHAPIRO. We first saw this bill just a few weeks ago and our 

responses were very clear and very quick. So here we are. 

Chairman HATCH. Well, that is one reason for this hearing. 

[The prepared statement of Mr. Shapiro appears as a submission 

for the record.] 

Chairman HATCH. Mr. Holleyman, we will turn to you. 

STATEMENT OF ROBERT HOLLEYMAN, PRESIDENT AND CHIEF 

EXECUTIVE OFFICER, BUSINESS SOFTWARE ALLIANCE, 

WASHINGTON, D.C. 

Mr. HOLLEYMAN. Good afternoon, Mr. Chairman and Senator 

Leahy. My name is Robert Holleyman. I am president and CEO of 

the Business Software Alliance. The BSA wishes to commend you, 

Mr. Chairman and Senator Leahy, for bringing focus to bear on the 

problem of online piracy of copyrighted materials. 

In my testimony this afternoon, I would like to focus on two key 

points. Number one, piracy is a matter of great concern to BSA 

member companies, who are themselves often the targets of such 

illegal activity. BSA believes that many of the best ways to address 

the problem do not require new laws. Number two, any new law 

must ensure that it will not encumber the development and distribution of legitimate, innovative technologies. 

This Committee has embraced the challenge of crafting a law 

that deters bad actors without stifling technological advancement. 

This is not an easy task and we remain committed to working with 

you to achieve that goal. We believe that new legislation, properly 

balanced, should be viewed as only one of several elements in finding a solution to the problem of P2P piracy. 

First, the BSA believes that the most effective way to address 

the harm done by operators of illicit P2P networks is through the 

marketplace by providing consumers with legal alternatives. 

Secondly, the Justice Department should prosecute the operators 

of illicit file-sharing networks under existing laws in appropriate 

cases. Third, we believe it is also vitally important to educate all 

Internet users about safe and legal ways to harness the power of 

this important resource. Finally, technology can play an important 

role in protecting digital content through secure distribution. 

If the Committee determines that legislation is needed, we urge 

that any new law be properly balanced to avoid unintended consequences for legitimate technology companies. BSA members 

themselves are the leading developers of computers, software, security and networking technologies. To meet customer needs, these 

products are designed and intended to be multi-purpose. By their 

very nature, many of these products are freely programmable and 

can be modified by the user. 

We recognize that you do not mean to impose specific constraints 

on the design of general purpose technology products or the functions that they include. As noted in your statement, Mr. Chairman, 

these decisions should be left to the marketplace and engineers. 

13

To make certain this is the case, key elements of existing law 

and jurisprudence should be spelled out in any legislation. Unfortunately, we realize that certain bad actors intentionally design their 

services to make piracy almost unavoidable. And to distinguish bad 

actors from good, we believe that there are five key areas that need 

to be addressed in specific legislation. 

First, it should make clear that technology products used for significant legitimate purposes are not subject to copyright infringement liability. To this end, the bill should state clearly that the Supreme Court’s decision in the Betamax case is unaffected. 

Second, it should be made clear that to meet the required intent 

standard, an actor must be shown to have engaged in conscious, recurring, persistent and deliberate acts demonstrated to have 

caused another person to commit infringement. 

Third, the language should state explicitly that the mere knowledge by a technology provider of the infringing acts of another person does not demonstrate intent to induce copyright infringement. 

Fourth, it should be made clear that the bill does not create liability based on advertising or providing support to users. This language should cover manual or handbooks, as well as providing assistance for using products through a company’s online help system 

or telephone help services. Lastly, a mechanism needs to be included to effectively deter weak, harassing or frivolous lawsuits. 

Today’s solutions must leave intact the important contributions 

computing technologies bring to our daily lives and allow these 

technologies to make even greater contributions in the future. 

Mr. Chairman, we commend you, Senator Leahy and the members of this Committee for your substantial long-term commitment 

to combatting piracy. We fully support your efforts. We look forward to working with you as you continue to address piracy challenges, while preserving an environment in which BSA members 

and all technology companies can continue to innovate, which is 

what they do best. 

Thank you very much. 

[The prepared statement of Mr. Holleyman appears as a submission for the record.] 

Chairman HATCH. Well, thank you, Mr. Holleyman. 

Mr. Greenberg, we will take your testimony. 

STATEMENT OF ANDREW C. GREENBERG, VICE CHAIRMAN, INTELLECTUAL PROPERTY COMMITTEE, INSTITUTE OF ELECTRICAL AND ELECTRONICS ENGINEERS-UNITED STATES OF 

AMERICA, WASHINGTON, D.C. 

Mr. GREENBERG. Mr. Chairman, Senator Leahy, I must say I 

stand in awe of anyone, to paraphrase Sony, who has the mere capacity to make the Register of Copyrights blush. 

Chairman HATCH. I do that with regularity, I want to tell you. 

[Laughter.] 

Mr. GREENBERG. IEEE–USA advances the public good and promotes the careers and public policy interests of more than 225,000 

technology professionals who are its U.S. members. I should add 

that I also have a personal interest in this bill. I am not only an 

intellectual property lawyer, but also a software engineer who created the Wizardry series and other computer games. 

14

We engineers are on the front line of the copyright system. We 

create copyrighted content, as well as the technology to create and 

deliver that content. While other witnesses today will give eloquent 

accounts of their constituents’ interests, we are here to stand for 

the proposition that our intellectual property framework must be 

about the balancing of those interests. 

We have significant concern that neither the status quo nor Senate 2560, as written, adequately balances those interests today. 

This is why we have proposed a substitute that should achieve the 

aims of the bill’s supporters while maintaining that balance. 

We are mindful that new technologies may be misused to infringe a copyrighted work, and some will promote that to their own 

benefit. At the same time, we are concerned that the Copyright Act 

must not be changed in ways that would inhibit research and novel 

technologies before their social value can be fully demonstrated. 

IEEE–USA believes that copyright owners must not be permitted 

to restrict the sale of technology having non-infringing uses unless 

the seller has independently and actively induced a copyright infringement. In Senate 2560 as introduced, the proposed definition 

of intentional inducement represents a significant and perhaps unbalanced departure from standard secondary liability principles. It 

creates a practical uncertainty over the law’s scope and application 

that may well chill innovation. 

In any case, using untested standards for determining inducement instead of, for example, the well-tested standards of inducement under the Patent Act could have far-reaching and unintended 

consequences. Imagine a vendor who is sued by a content company 

after selling a technology known to have both infringing and noninfringing uses. We find it difficult to imagine how, under Senate 

2560 as drafted, the defendant could ever prevail in a motion to 

dismiss or summary judgment. 

It is unclear whether the court would have achieved the same result in the Sony case under this rule. For nascent technologies, 

such uncertainty is the practical equivalent of a rule barring innovation. Copyright inducement applies to all copyrighted works and 

all technologies, and not just to file-sharing. Our members create 

and use hardware and software tools that create, tools that adapt, 

and tools that modify hardware designs, programs and content. 

Virtually every general-purpose computer and technology tool 

has features that manipulate, control and display content, including copyrighted content. Reuse and reverse-engineering are not 

dirty words to us; they are terms of art for essential engineering 

paradigms. And after 2560, each could be potential sources of copyright infringement. 

Whatever the test for secondary liability is used, those tests 

should be simple, clear, predictable and objective. Our proposal 

codifies Sony and provides express definitions drawn from existing 

law, well-tested for contribution, vicarious liability and inducement. 

It makes clear that ordinary marketing of a technology having noninfringing uses is never in and of itself an actionable inducement. 

We offer our substitute proposal to illustrate how a more balanced framework has been achieved in the past and how this might 

be applied in the case of copyright. Even so, we recognize that this 

15

is a very difficult problem that requires careful and comprehensive 

deliberation before we step off into the new and untrodden ground. 

Mr. Chairman, you are the guardians and the architects of the 

balance that is built into the Copyright Act. Should you determine 

it needs rebuilding, we respectfully suggest that you measure twice 

and cut once. 

[The prepared statement of Mr. Greenberg appears as a submission for the record.] 

Chairman HATCH. This is a very interesting hearing, is all I can 

say. It is great. 

[Laughter.] 

Chairman HATCH. Mr. McGuiness, we are happy to welcome you 

back to the Committee and to the Senate. We appreciate all the 

service you have given in the past. 

STATEMENT OF KEVIN S. MCGUINESS, EXECUTIVE DIRECTOR, 

NETCOALITION, WASHINGTON, D.C. 

Mr. MCGUINESS. Thank you, Senator, and it is very different, 

after working for you all those years and having the opportunity 

to sit behind you for over a decade, to now sit down here. I clearly 

have a much different perspective of this process. 

Chairman HATCH. I can hardly wait to get that. 

Mr. MCGUINESS. Off to the traditional role already. 

Senator Hatch, Senator Leahy, my name is Kevin McGuiness. I 

am the executive director of NetCoalition, and on behalf of my organization and other interested parties in the Internet community, 

thank you for holding today’s hearing and providing us the opportunity to testify. 

I would like to make four general points, if I could. First, the 

members of NetCoalition agree with the intent behind the legislation to ensure that copyright owners can seek relief from those who 

unlawfully download and distribute their creative work. As creative 

people in our own right, we fully appreciate the emotional anguish 

and economic consequences when one’s work is misappropriated. 

Second, it is important to remember when discussing proposals 

to restrict or ban online copying that the Internet is basically one 

big copying machine. Consequently, any legislative proposal such 

as the one before us today which would regulate or prohibit copying 

hardware devices or software, unless fashioned extremely carefully, 

can jeopardize the essential architecture of the Internet. 

Consider, if you would, the following hypothetical example. Let’s 

assume, Chairman Hatch and Senator Leahy, that you were back 

in the private sector. Let’s assume that the next Bill Gates walks 

into your office. He has developed a new form of instant messaging 

that automatically transfers audio and video. He believes most people will use his product lawfully, but realizes some might use it to 

download copyrighted content, and he asks you whether he will be 

sued if he goes to market. 

Under current law, you could tell him with great confidence to 

go innovate. Because of the Betamax decision, he has nothing to 

fear, since his product is capable of substantial non-infringing uses. 

You can also indicate that if he does get sued, in all probability he 

can quickly have that suit dismissed. 

16

If S. 2560 is enacted, however, you would have to give a much 

different answer. The bill allows any copyright-holder to sue him, 

or literally anyone associated with his product, for an intentional 

inducement. There is no exception for products capable of substantial non-infringing use. There is no requirement that a plaintiff 

demonstrate that there were active steps beyond the sale or manufacture to encourage direct infringement. There will be no quick 

dismissal. The case will undoubtedly go to trial and he will be 

cross-examined about his state of mind when developing his technology. 

Instead of financing his invention, he will need to finance his 

legal defense. In fact, the only way he could accurately determine 

the extent of his legal vulnerability would probably be to meet in 

advance with the lawyers at Warner and EMI or Death Row to see 

how they feel about his product. And if he somehow survives the 

recording industry, he would then have to meet with the lawyers 

at Paramount and Universal and Disney, and so on. 

Third, the legislation really puts the entertainment industry in 

a very enviable legal position. Since the bill allows them to sue 

anyone they assert is aiding, abetting, procuring or inducing, the 

potential pool of targets could include venture capitalists, credit 

card companies, common carriers, even entities providing nothing 

more than editorial reviews of products. If the entertainment industry gains this kind of leverage over domestic technologies, online innovation undoubtedly will travel to more hospitable environments overseas. 

Fourth, Mr. Chairman, we suggest that the Committee may want 

to consider along the lines of the testimony already given the following principles as it considers whether or not new legislation is 

needed or how it should be fashioned. 

First, the legislation must codify the Supreme Court’s ruling in 

Betamax, as well as protections afforded under patent law. Second, 

the legislation should target unlawful behavior, not platforms or 

technologies. Third, the legislation must provide a bright line between lawful and unlawful conduct which is absolutely critical for 

the next generation of innovation. Finally, the legislation should 

ensure that entities that provide product reviews that simply demonstrate how a product can be used are not swept into the scope 

of possible defendants. 

Mr. Chairman, Senator Leahy, throughout your careers you have 

been extremely sensitive to the needs of both the online world and 

the entertainment community. Consequently, I hope you will agree 

with us that this issue will never be resolved satisfactorily if the 

solution does nothing more than forces one to choose between the 

creative community and the tech community. 

The members of NetCoalition stand ready to work with you and 

the other members of the Committee to find the right solution, one 

that prohibits unlawful online copying without putting at risk the 

promise and potential of the Internet. 

Thank you. 

[The prepared statement of Mr. McGuiness appears as a submission for the record.] 

Chairman HATCH. Well, thank you, Mr. McGuiness. 

Mr. Bainwol, we will take your testimony. 

17

STATEMENT OF MITCH BAINWOL, CHAIRMAN AND CHIEF EXECUTIVE OFFICER, RECORDING INDUSTRY ASSOCIATION OF 

AMERICA, WASHINGTON, D.C. 

Mr. BAINWOL. I am Mitch Bainwol, the CEO of the RIAA. Let me 

start by saying— 

Chairman HATCH. You are supposed to hold up your end. This 

other end has been— 

Mr. BAINWOL. I want to say that I appreciate the staff’s humor 

putting Bainwol on the far left and Shapiro on the far right. 

[Laughter.] 

Mr. BAINWOL. My testimony today reflects the uniform view of 

the American music community—labels, artists, songwriters and 

publishers, from pop, country, Latin, gospel, from Hollywood to 

Motown to Nashville to the Big Apple. We are united, and we are 

united because the U.S. music family has been decimated by piracy, with online piracy by way of file-sharing on peer-to-peer networks, otherwise known as P2P, the most significant source of our 

economic decline. 

From the advent of the first illegal P2P service in 1999 through 

last year, our sales plummeted by more than 30 percent. Our concern is not academic. The consequence: thousands of job losses and 

slashed artist rosters at record labels, both majors and indies. 

Fewer artists are finding the venture capital necessary to finance 

their dreams. The richness of their art is lost forever. 

The scope of the P2P problem is mind-boggling: about a billion 

downloads—that is billion with a ‘‘b’’—every month. Four of the top 

ten applications on the Internet are P2P programs, popular for 

sure, but law-breaking nonetheless. Some say P2P has great potential. We don’t disagree. That is one of the reasons we were pleased 

with the IMAX settlement announced earlier this week. 

But let’s strip out the technological mumbo-jumbo and the 

rationalizing rhetoric, and instead look at the facts. Ninety-seven 

percent of the transactions on the P2P networks currently are the 

taking of property created by artists in this country and developed 

and financed by our member companies—97 percent. 

These P2P services hide behind the veil of technology, but it is 

easy to pierce that veil and see their scam, and a scam it is. They 

make money by selling advertising and bundling other software, including spyware, in with their applications. They use our music as 

a lure to draw eyeballs and to pad their advertising profits. Consumers come to share so-called free music. 

The P2P companies don’t pay for that music. Instead, they provide a mechanism for high-tech theft. They offload the liability on 

American kids. They provide nothing remotely close to conspicuous 

warnings about the law. They make a total mockery of property 

rights. They thumb their nose at this Congress and they laugh all 

the way to the bank. In short—and this is important—their business model is predicated on the taking of property. There is nothing legitimate about it at all. 

Along the way, in addition to inducing kids to break the law, 

these P2P companies provide havens for pornographers to inject 

their filth into homes. They compromise computer security and 

they facilitate unintended disclosure of personal information—tax, 

medical and other records. No objective review of these services can 

18

possibly conclude that they have any pretense of legitimacy. These 

networks don’t compensate artists or songwriters or the labels. 

They don’t invest in new art. They are technological parasites. 

My industry continued to sue users, many of them kids, to establish deterrence and to educate the public. The lawsuits have had 

phenomenal education value. But the real villains are not the kids. 

The villains are these profiteers who are gaming the gap in American law. Wouldn’t it be better to put these bad actors in the vise 

of the law? Isn’t it time to stand up for the fundamental American 

value of property? 

That is exactly what your bill does, and we commend you both, 

Senator Hatch and Senator Leahy, and the leaders of the parties, 

Senators Frist and Daschle, and Senator Boxer and Senator 

Graham, for introducing this bill. You have properly focused the 

spotlight exactly where it needs to be placed on the bad actors that 

hijacked neutral technology. 

Even the critics of the bill, who I believe are more worried than 

necessary about the reach, note that they concur with the fundamental objective underlying this legislation. They wrote, quote, ‘‘We 

agree with the need to penalize those who intentionally cause copyright infringement.’’ I have got to say that again: ‘‘We agree with 

the need to penalize those who intentionally cause copyright infringement.’’ And so you should. 

There is a canyon separating the behavior of good companies like 

Apple and other legitimate businesses from the behavior of the 

likes of Kazaa. I love the iPod. I have got one. Mine holds my entire family’s CD collection. When I bought it, I ripped off the sticker that says ‘‘don’t steal music.’’ I ripped all my CDs into the hard 

drive and downloaded it. It is part of our life. It is great. 

But there is a huge difference between my iPod and the P2P 

services like Kazaa. Apple doesn’t intentionally induce people to 

steal, even though people can put stolen music on the iPod, and it 

doesn’t depend on infringement to thrive or even to survive. Looking at all the evidence, I can’t imagine a reasonable person concluding that Apple intentionally induces infringement. 

Kazaa, like the other major P2Ps, is a totally different story. If 

you use the product as designed, you are infringing. The default is 

rigged so that the user automatically uploads to millions of people. 

We use their instant messaging function to try to alert users to infringement. They turn the function off. We try to frustrate the system with dummy files; they try to filter them out. 

The bottom line: You take away infringement and the business 

model of Kazaa and these other nefarious actors collapses. There 

is nothing to it once you take out the infringement. That, Senators, 

is the critical difference. 

Some have suggested that the language of the bill may be too 

broad. I don’t think it is, though you and your staff can make a 

better assessment of that. But if the bill is deemed to be too broad, 

let’s not let a technical question about definition derail a vitally important and overdue effort to give our community a chance for a 

robust future. 

We are suffering harm. The source of that harm has been pinpointed and now it is time for Congress to give us the tools necessary to defend our property rights. Let’s find a way to get to 

19

‘‘yes.’’ We will commit to that process. Let’s not find a way and excuses to get to ‘‘no.’’ 

We thank you for your interest and for holding this hearing. 

[The prepared statement of Mr. Bainwol appears as a submission 

for the record.] 

Chairman HATCH. Well, thank you. I think all of you have done 

a good job in expressing yourselves about your respective opinions 

here. 

Let me start with you, Mr. Shapiro. You are on record as saying 

you are deeply concerned about copyright piracy. Yet, I really can’t 

recall a single instance when you have been before this Committee 

that you haven’t vigorously opposed legislation to address this 

problem. I also recall months ago you filed a brief telling the Ninth 

Circuit Court of Appeals that only Congress and this Committee 

have the institutional competence to adjust the standards for contributory liability in order to address the problems of file-sharing 

networks. 

Now, I guess my question is what have you done since then to 

help this Committee identify the best way to address this serious 

problem. I would like to have that great mind of yours helping us 

on this problem rather than just criticizing. I don’t mind the criticism. I think that is legitimate to be able to criticize, but I would 

like some substantive suggestions on how we change this bill so 

that it meets the concerns that you have, if they are truly worthwhile concerns. 

Mr. SHAPIRO. I think your very question actually makes the point 

on the induce bill. When we filed that brief, we didn’t intend to induce you into introducing legislation like this, but yet somehow it 

is read as that. 

Chairman HATCH. We didn’t read it that way either. 

Mr. SHAPIRO. We filed the brief as a neutral party and we were 

just saying this is the Sony-Betamax doctrine and we hope you 

apply it. Indeed, if you read the actual court order in that case—

and I am questioning the need for this legislation, as well, and here 

is why. There are three cases that are at issue here. Two of them 

have been decided exactly the way the RIAA wanted them to be. 

The third one is now on appeal and it hasn’t been ruled on. 

The district court judge said to the content owners who brought 

the lawsuit in his order sending it up for emergency appeal that 

they refused to address the controlling law in the Betamax case. I 

am not sure they litigated that case right, but let’s see what the 

Ninth Circuit says. What is the rush? So far, the Sony-Betamax

case has served well for at least two out of three, and a third is 

still on appeal. 

In terms of what we have done, as I said in my testimony, we 

were up here with the MPAA on the ART Act coming to a very reasonable, clear compromise. We worked on the Home Recording Act. 

We are very reluctant, obviously, to have technology restricted because we don’t know the ramifications for the future, but sometimes it is necessary and it should be extremely narrow; it should 

be clear. The rights and responsibilities must be laid out and it 

must be a clear and compelling reason that benefits both the content owners and the technology community. 

20

What we have here is a frontal attack on the technology community, and that is how it is being taken. It was surprising to hear 

the Register of Copyrights and others who don’t have to counsel 

people as to whether to introduce products and don’t have to put 

their money at risk as to whether or not they go forward with 

something. 

We have the most exciting, dynamic technology economy in the 

world and we are producing a phenomenal array of new products 

and there is a lot more coming. The uncertainty of going to an induce standard of intent is so chilling and so broad that the ramifications—I have never seen a response to legislation like this in 

three weeks. 

When we had Senator Hollings’s legislation a couple of years ago, 

it took almost 8 months before the technology community responded even half as much. Here, there is a real response and the 

reason is because when you go to someone’s intent, especially a 

company, it is a long, lengthy, expensive lawsuit which especially 

the smallest companies will definitely avoid. 

So, first, is there a problem? I don’t know if there is a problem. 

I do know that there are at least two studies out there which say 

that music industry sales benefit from P2P, including one by Harvard, and also one by Forester. I do know I have heard the music 

industry say they can’t compete with free. Well, you know, someone 

does compete with free, and although I heard that you represent 

the entire music industry, the fact is that there are literally thousands of artists that want to have their products on P2P sharing 

and they are doing very well from it, and it drives people to sharing. 

The way I look at this time in history is it is the same time as 

when we were shifting from the horse and buggy to the car. Now, 

if the horse and buggy industry was as powerful as the content industry, I suspect we would still be behind horses now. We wouldn’t 

have gone to automobiles. 

We have shifted dramatically in technology as a country, and 

every new technology that has come along has been opposed by the 

content community and they have been wrong every time. So I 

don’t know if the harm has been proven yet. I know there is a lot 

of downloading. I know that every download is equated to a lost 

sale, and I think that is mistaken. I think BSA’s consultant was 

quoted in the New York Times this week as saying, well, yes, there 

is a ten-fold exaggeration there in terms of piracy because not 

every download and not every copy is a lost sale. 

So I think the copyright balance has shifted so much in favor of 

the copyright community that we are off kilter. As Professor Lessig 

has pointed out, the penalty for stealing for a CD—when you take 

a CD from a store and steal it, it is almost nothing compared to 

the penalty for downloading that CD; it is 10 or 25 times as much. 

Intellectual property used to be less than real property, and somehow now it is much more than real property. And I think the balance is out of kilter. 

But, yes, we oppose commercial piracy, and we have supported 

every statutory increase in the penalties. But the balance is so out 

of kilter that we have to put our foot down and say this is not the 

right approach. 

21

Chairman HATCH. Well, you are pushing me back to blowing up 

their sets, you know. I had more e-mails on that than any other 

thing I have ever said, and I was just joking. You should see when 

I get serious. 

Let me just ask you to review this quote. 

Senator LEAHY. You mean you are really going to blow them up 

now? 

Chairman HATCH. Sure. He wants the privilege of expanding 

technology. That may be where we are headed. You never know. 

Again, I am just being humorous, I hope. 

Let me just have you review this quote from Nikki Hemming, the 

CEO of Sharman Networks, and please assume, as I do, that Kazaa 

is capable of substantial non-infringing uses and that this quote 

shows that Kazaa was redesigned to help infringing users avoid 

spoofed files that the recording industry places to thwart infringing 

uses of Kazaa. 

It basically says, ‘‘We have given users better opinions and more 

tools than ever before,’’ said Sharman Networks CEO Nikki Hemming, ‘‘including an option to filter bogus music and video files designed to help users avoid misnamed or incomplete files that may 

have been uploaded by record labels and copyright owners trying 

to frustrate file-sharing.’’ 

Now, do you believe that Sony presently allowed Sharman to 

avoid liability for redesigning its product to facilitate its infringing 

use by showing that it is still capable of a substantial non-infringing use? 

Mr. SHAPIRO. Well, I certainly applaud the RIAA and the recording industry for going forward and trying an approach like that. It 

makes perfect sense to me. It is a free marketplace. 

Again, there have been three courts that have looked at these 

issues. Two have come out exactly the way the music industry 

wanted and one court is still under consideration. I don’t think that 

has gone to court yet. I am not a judge and I am not going to pretend I know all the facts of what else they are used for. I do know 

that even with that Sony-Betamax standard, which the Register of 

Copyrights wants changed, two of those services have been held to 

be illegal. It is possible that that one would be held illegal as well. 

Chairman HATCH. Well, let me reframe the question as a pure 

hypothetical. Maybe I can do that. Suppose I were shown that the 

distributor of a copyrighted device had redesigned that device specifically to facilitate and encourage clearly infringing uses of the 

device. Now, based on existing law as you interpret it, could that 

distributor avoid liability by showing that the copying device redesigned to facilitate infringing uses was still capable of substantial 

non-infringing uses? 

Mr. SHAPIRO. It goes to the facts of the case. Again, there have 

been two courts which have held that those types of similar products are illegal under the Sony-Betamax standard. I would imagine 

in that case, it is possible as well, but that is why the Sony- Betamax standard is good. It has worked in at least two out of 

three instances, and the third one is still under review. 

Chairman HATCH. Well, let me go to Mr. Bainwol. 

Mr. Bainwol, there are concerns that the recording industry 

would bring claims under S. 2560, broad claims against any party 

22

that might distribute copying devices that might be used to infringe. 

Do you believe that this Act lets you sue distributors of portable 

MP3 players, CD burners or personal video recorders simply because those devices can be used to infringe? 

Mr. BAINWOL. The short answer is no. I am not an attorney. My 

mom wishes I was, but I am not. As I read the bill, it seems very 

highly targeted, and I think everybody here that is criticizing the 

bill ought to go ahead and read the thing. ‘‘Nothing in this subsection shall enlarge or diminish the doctrines of vicarious and contributory liability.’’ This is very tight. 

‘‘Intent may be shown by acts from which a reasonable person 

would find intent to induce infringement based upon all relevant 

information, including whether the activity relies on infringement 

for its commercial liability.’’ I think that is the anchor of this thing. 

When I talked about these P2P services, 97 percent of these 

transactions are infringement. You know, it is a amazing to me 

that, as a practical matter, we get lost in kind of legal theories 

here. Let’s forget about the law for a second. Let’s just look at the 

fundamental reality. Ninety-seven percent of these transactions are 

illegal and we are quibbling about definitions. 

I understand definitions are important, but there is a major 

harm going on here. And for Gary to suggest that P2P helps sales, 

I think, is ludicrous. Look at this chart, Top Ten Hits. I can filibuster as well as Shapiro. 

Chairman HATCH. I am not sure about that. 

[Laughter.] 

Chairman HATCH. Let’s give it a rip here. 

Mr. BAINWOL. Well, let me practice some. I am practicing. 

Top ten hits in 2000 sold 60 million units. File-sharing kicks in 

and Top Ten Hits in 2003 sold 33 million. Where P2P really gets 

us is not on catalog; it is on the new hits. The pattern is as clear 

as night and day. The Harvard study gives Harvard an awfully bad 

name. 

Look at this, the number of units that the top ten units sold. In 

2000, four of the top ten hits sold more than 6 million units; in 

2003, 1 million. None of the top ten units sold less than 3 million 

units in 2000. In 2003, five of the top ten were under 3 million. 

This has decimated the hits. The hits are the source of the investment capital of this industry. It is destroying the investment base. 

We are all committed to free markets, we are all committed to innovation, but the notion that we can just eviscerate property 

rights—we need to deal with that. 

Chairman HATCH. Well, let me go to you, Mr. McGuiness. Certainly, I am going to turn to Senator Leahy. 

Senator LEAHY. That is all right. Go ahead. I am enjoying this. 

I think it is worthwhile. 

Chairman HATCH. I am going to ask you a question, but go 

ahead. If you have a comment, go ahead. 

Mr. MCGUINESS. First of all, I always think it is a little disconcerting for those of us especially in the Internet community to 

sit idly by watching legislation go forward based upon the presumption of good intentions forever on behalf of lawyers for the enVerDate 0ct 09 2002 11:18 Oct 31, 2006 Jkt 030496 PO 00000 Frm 00026 Fmt 6633 Sfmt 6633 S:\GPO\HEARINGS\96396.TXT SJUD4 PsN: CMORC
23

tertainment community. It is a little bit troubling that may never, 

ever, ever use this statute for economic benefit. 

Chairman HATCH. This is a wonderful panel. I really enjoy it, I 

will tell you. 

Mr. MCGUINESS. Two years ago, we were talking about Napster. 

Last year, we were talking about Aimster. This year, we are talking about Grokster. Next year, we could be up to Earth Station 5, 

or my personal favorite, e-donkey 2000. 

The question we have to ask is if Mr. Bainwol’s organization won 

all of its cases, which it still may well do, would that cure the problem for them? Would that be sufficient? If this law was passed, 

would that stop illegal fire-sharing and downloading? The answer 

is no. 

We have to at some point give a little consideration to the reality 

that there is a new medium that is being used for music to share 

music and to obtain music. And instead of ignoring it or litigating 

against it, it may be time to embrace it. 

When the VCR arrived, Hollywood, in my book, initially focused 

exclusively on the record button. A couple of years later, they decided to focus on the play button, and as a result they now sell 

more DVDs, if I understand correctly, than tickets in theaters. At 

some point, the recording industry is going to need to come to 

terms with the fact that if they really want to protect their copyrights, they are going to have to focus on education and legal relief. 

But they also are going to have to step forward and start providing 

a delivery system comparable to what is going on on the Internet 

today that they find illegal. 

Mr. BAINWOL. If I may, it is not that we find it to be illegal. It 

is 97-percent per se illegal. And let me say we are doing exactly 

what you want us to do. The only way the iToons of the world and 

the Wal-Marts of the world have a chance to prosper, and for the 

legal system on the Internet to work, is if we establish that the illegal system won’t be tolerated. That is what is going on here. 

The only way to give a vibrant marketplace a chance to grow and 

to have our industry have a fighting chance for the future is to separate illegal and illegitimate from legal and legitimate. I don’t 

know why in the world, just because we are in the technological 

space, we abandon the notion of property. That is an absurd notion. 

The only way we get the marketplace to work is if we say that 

theft is unacceptable. 

Chairman HATCH. Senator Leahy, we will go to you, and then I 

have some more questions after. But Senator Leahy may have to 

leave. 

Senator LEAHY. Well, prompted by that last exchange, I will ask 

this question of everybody on the panel, except Mr. Greenberg. And 

I will explain why. I don’t want you to feel lonely or unloved. I 

think we have all felt the love in the room this afternoon. 

[Laughter.] 

Mr. GREENBERG. Virginia is for lovers, yes? 

Senator LEAHY. Look at how well the Chairman and I are getting 

along. If we got along any better, they would think we are heading 

to Vermont. 

[Laughter.] 

24

Senator LEAHY. Or worse yet, Massachusetts. But, anyway, moving right along— 

Chairman HATCH. This is a banner day, is all I can say. 

[Laughter.] 

Senator LEAHY. My mother would be so proud. 

Let me say this. The Copyright Office supports S. 2560, as does 

Mr. Bainwol. Even those who question the language of it support 

the idea. Mr. McGuiness said, and I think I am quoting him right, 

‘‘unlawful peer-to-peer file-sharing of copyrighted materials is 

wrong. Also, users and companies that engage in these activities 

should not be allowed to operate beyond the reach of the law.’’ But 

only Mr. Greenberg and the IEEE have provided concrete legislative language laying out their concerns. 

So let me ask each one of you, will you provide us with legislative language that you would support? Mr. Shapiro? 

Mr. SHAPIRO. Yes. I think there have been actually some good 

suggestions on the panel. I mean, this is a relatively novel concept 

that all of a sudden we are liable for a new cause of action called 

‘‘induce.’’ But, certainly, we would support a codification of the 

Sony-Betamax principles. We clearly support that. 

Senator LEAHY. When will you show us that? 

Mr. SHAPIRO. The codification of the Sony-Betamax principles? 

We could do that in a few weeks. 

Senator LEAHY. Okay. Mr. Holleyman, what about you? 

Mr. HOLLEYMAN. I outlined in my testimony five key principles 

that we feel need to be addressed. We will proceed to work with 

you and the Committee about possible language that might reflect 

those and other concerns. 

Senator LEAHY. Mr. McGuiness? 

Mr. MCGUINESS. Senator Leahy, we would love the opportunity 

to work with you, and regret that we were not afforded that opportunity when you were drafting the bill. 

Senator LEAHY. Well, that is why we are having these hearings. 

Mr. MCGUINESS. Great. 

Senator LEAHY. So you will supply— 

Mr. MCGUINESS. Yes, sir. 

Senator LEAHY. When? 

Mr. MCGUINESS. The next couple of weeks. Of course, we would 

have to run it by our members, but clearly in the next couple of 

weeks. 

Senator LEAHY. I understand that. I was just trying to get some 

general idea. 

Mr. BAINWOL. I would simply suggest that we don’t believe—we 

like the bill as it is, but our objective is to go after bad actors and 

if there is another way to get there, we are happy to sit down with 

responsible players here in a reasonable way and try to find a solution. Again, we want to get to ‘‘yes,’’ and we can’t afford paralysis 

here; we need action. 

Senator LEAHY. Mr. Shapiro, you said in your testimony and in 

answers to questions that you agree that we need legislation that 

targets bad actors. I assume that some will determine bad actors 

in different ways. 

25

Mr. Holleyman, you offer support to the Committee in crafting a 

law that deters bad actors who use technology to intentionally 

cause others to infringe. 

Mr. Greenberg, in your testimony you offer support for the concept of the bill you have offered that has specific suggested 

changes. 

Mr. McGuiness, you state that the law must enable copyright 

owners to seek relief from those who unlawfully download and distribute their work. 

Mr. Bainwol offers support for S. 2560 specifically, but also in 

general for legislation that targets unlawful behavior rather than 

technology. Of course, as one of the sponsors of this bill, that is 

what I see as the purpose of the bill. 

Now, have I quoted all of you accurately? Mr. Shapiro says I 

haven’t quoted him accurately. Go ahead, here is your shot. 

Mr. SHAPIRO. I don’t think we are advocating legislation. I think 

what we are talking about is personal responsibility. I think technology changes quickly. Although it is a natural Congressional desire often to legislate very quickly and try to stay ahead of technology, I think that is almost impossible. I think you really have 

to prove some harm and see where technology is going. 

As was said earlier, I can’t even imagine what legislation you 

would come up with, even if it was what was proposed today, which 

would— 

Senator LEAHY. So you see no need for legislation? 

Mr. SHAPIRO. What I am saying is the legislation today would 

not do what you want it to do because it wouldn’t stop that Internet site in Palestine or anywhere else in the world from doing it. 

I think the reality is that Congress can’t legislate against everything. 

I think what you are doing here is you are burning the carpet 

to kill the spider. The whole concept of ‘‘induce’’ is something which 

really doesn’t fit into the copyright context, and that is what we are 

concerned about. If you want to come up with a different approach 

on legislation that says peer-to-peer sites aimed at children and 

pornography are somehow illegal, you should take that approach. 

But peer-to-peer doesn’t appear in the legislation. 

Senator LEAHY. Excuse me. I apologize for interrupting you while 

you were interrupting my earlier question. 

Mr. SHAPIRO. That is all right. I was interrupting you. 

Senator LEAHY. I want to make sure I understand. Earlier, I understood you to say that you were going to offer within the next 

few weeks some legislation. Now, you seem to be saying we don’t 

need legislation. I am just a small-town lawyer. You deal in the 

big-time world. Do we or don’t we need any legislation? 

Mr. SHAPIRO. I think it is fair to say that there may be legislation necessary to codify the Sony-Betamax case because at least the 

Register of Copyrights is interpreting it extraordinarily narrowly. 

But it is good law; it stands. It has served us for 20 years. The 

copyright industries have survived. It has allowed technology to 

thrive. 

I would say even with those charts that you have shown, the 

music industry and the motion picture industry and the entire content industry has grown many-fold. Even music industry sales are 

26

up this year. Things have a way of working themselves out. Hits 

are cyclical. That is just a fact. Again, the are a lot more artists 

now that there were 20 years ago, and that is because of technology. 

So, yes, we are willing to offer legislation to codify the Supreme 

Court’s Sony-Betamax case. But I don’t think right now legislation 

is necessary because the harm is so much greater than any benefit 

that will be derived. 

Senator LEAHY. Mr. Holleyman, do you agree with the way I 

characterized your testimony? 

Mr. HOLLEYMAN. Senator, I think you fairly characterized my 

testimony. The two points I would make are that the problem of 

piracy is significant and online piracy is growing across all copyright industries. The valuable part of the intent of your legislation 

was to try to address bad actors and avoid technology mandates, 

and that is an important principle to maintain. 

Senator LEAHY. Mr. Greenberg, am I correct that you are offering 

support for the concept of the bill, but you also offer specific suggested changes? 

Mr. GREENBERG. Indeed, our view is that the status quo is both 

too much and not enough protection to adequately give clarity to 

the actors to know what they can and what they cannot do. This 

is a great opportunity to bring things together and make clear for 

the entire community to show how secondary liability is to be balanced against the interests of the various constituents. 

Senator LEAHY. Mr. McGuiness, am I correct that you say that 

the law of this country has to enable copyright owners to seek relief from those who unlawfully download their works? 

Mr. MCGUINESS. Yes, sir, I said that. 

Senator LEAHY. Mr. Bainwol, you have offered support for it, but 

also in general for legislation that targets unlawful behavior rather 

than technology? 

Mr. BAINWOL. That is correct. 

Senator LEAHY. In that regard, I would think in some ways we 

all agree because none of us could anticipate—I mean, if the Congress gave Senator Hatch and myself—and on these issues we tend 

to think very much alike—if they gave us the right and ability to 

write legislation for all time anticipating all technology, of course, 

we couldn’t do that. 

I mean, just the way technology changes, I think, extraordinarily, 

fascinatingly, and the fact that I can e-mail photographs of my 

grandchildren back and forth and that we can get pictures—I was 

mentioning to somebody today that during the early part of the 

current war, the commander of our fleet in the Persian Gulf was 

from Vermont, Admiral Costello. I was going down to a meeting at 

the White House and I e-mailed Admiral Costello as I was leaving 

my office. 

As I walked into the meeting with the President, my Blackberry 

vibrated and there was a response from him. Fortunately, he said 

all the rights things, so I could show it to the President. But the 

point is who would have thought of this? I mean, who would have 

thought even a few years ago that you could be doing this? 

I will have other questions and, as the Chairman said, I am 

going to have to leave. I am going to submit some to you for the 

27

record, whether it is how you import parts of the patent law into 

the copyright law. But just so you understand, we are trying to protect people who own these copyrights, people who have worked and 

put their own talent and genius into what it is. 

Mr. Bainwol, some artists sell and some don’t. If you have got 

somebody who really does a bad job or they don’t have any appeal 

or, at best, a niche appeal, the market will take care of that. But 

even those who have the niche appeal ought to be able to get the 

value from that niche, whatever it might be. And the Internet is 

a wonderful way to give more exposure to a lot of these artists, 

some of them being able to step out way beyond the control of individual companies, individual management, to get their own work 

out there. I think that is wonderful, but they should be protected 

in what they have. 

Now, I don’t care if we have 20 different online companies selling 

movies and music and everything else, provided their copyrights 

are protected, because the more you have out there, the more the 

competition is going to be and the better off the people who buy, 

like myself, are going to be. But we have to find some way to grapple at least with the basic copyright laws in a way that will reflect 

as this changes. 

I will close with this, Mr. Chairman. I mean, we could write a 

piece of legislation today that would be specific to the mechanics, 

specific to the state of the art, whether on the Internet or anything 

else. We could do that, and I guarantee you within a very, very 

short time, somebody would devise a way around that. In the same 

way that, whether it is Microsoft or anybody else, put patches in 

their computers or in their software to stop hackers, within a few 

weeks somebody else was trying a new way to hack in. So the legislation has got to speak not to the mechanics, but to the intent, and 

we will figure out a way to do it. 

Mr. Chairman, thank you very much. I am encouraged—and I 

hope you are, too—I am encouraged by at least the expressed willingness of everybody here to continue to work with us to find an 

answer that we can agree on. 

Chairman HATCH. Well, thank you, Senator Leahy. 

I just have a couple of more questions to ask and then we will 

finish this. This has been a very stimulating hearing as far as I am 

concerned. I have really enjoyed it. I have enjoyed each of you. You 

are real experts in your fields, and we would appreciate all the 

help you can give. 

Mr. Holleyman, I haven’t had a chance to really talk with you 

about this, but the type of pernicious adware and spyware distributed with file-sharing software is driving demand for the so-called 

spyware laws both here in Congress and even in my home State 

of Utah. I know your organization worries that such laws are overbroad, but the threats to privacy and Internet commerce that they 

seek to address seem to me to be real, and I think most people 

would say they are real. 

I wonder whether you can discuss whether our legitimate technology industries can continue to allow the bad actors that everybody has been talking about here who distribute certain file-sharing software to drive debates ranging from spyware to copyright piracy. 

28

For example, if the Grokster decision is upheld by the Ninth Circuit, there will be a split between the Ninth and the Seventh Circuits that could force the Supreme Court to reconsider the scope 

and propriety of its ruling in the Sony-Betamax case. Do any of us 

benefit from forcing a Supreme Court reexamination of Sony that 

must focus on the likes of Kazaa and Morpheus, just to mention 

a few, and the viruses, spyware and mislabeled pornography that 

are probably just side effects of their attempts to design around the 

Napster ruling? 

Mr. HOLLEYMAN. Mr. Chairman, you correctly point out that the 

bad actors are driving much of this debate. We think that these are 

issues that Congress should look at. It should not always have to 

play out in the courts with differing decisions in different circuits 

and a lengthy period of time before there may ultimately be a Supreme Court review. 

It is correct, as Mr. Bainwol earlier indicated, that many of the 

P2P systems that are being designed now disguise the infringement. They are, however, premised on infringement, sustained by 

substantial ad revenues are also the type of spyware that is now 

calling for legislation not only in your home State, but legislation 

that has been reported out of the House Energy and Commerce 

Committee and legislation that Senate Commerce is reviewing. 

We would rather deal with this issue by coming directly to Congress, talking about specific, narrow proposals that will address the 

problem. Hopefully, by dealing with the piracy problem, we are also 

better able to reduce the level of spyware that is out there. The key 

in both is to focus on the bad actors and to try to avoid technologyspecific mandates. 

Chairman HATCH. Mr. Greenberg, I don’t want to leave yo without some sort of comment here, but I want to thank IEEE–USA for 

its thoughtful analysis and its political courage in actually presenting the public with a written proposal intended to address the 

problems of contributory liability in the online world. 

I am sure that you knew that anyone who dared to put pen to 

paper and tried to resolve this problem was going to suffer from 

criticism. As this Committee looks at the analysis of S. 2560 and 

the IEEE proposal and any alternatives proposed by others, I just 

want to know whether IEEE can agree to continue providing input 

on all these proposals for us, because I suspect that we are going 

to try and resolve this over the month of August. That means I am 

going to ask all of you to participate, but in particular I would like 

to ask you if you would do that. 

Mr. GREENBERG. Senator, it would be our pleasure to assist in 

any way we can. We are kind of used to sitting in the center and 

proposing something as an alternative. That was the position we 

took in the Festow case when the Supreme Court faced another 

balancing of interests on the question of the doctrine of equivalence. 

There, I recall Justice O’Connor’s first question to one party was 

what did you think of the IEEE amicus? And Judge Bork responded, arguing for the plaintiff, it was awful, worse than what 

the Federal Circuit had done. The same question was asked of the 

attorney representing the defendant and he said the same thing. 

We were pretty sure then we had gotten it right. 

29

Chairman HATCH. Well, I would like to just ask this last question 

of all of the panelists, and we will start with Mr. Shapiro. I would 

like you to address this final question that I have. 

As I indicated in my written statement, I believe that addressing 

the resolution of the file-sharing problem has been too long delayed 

by the parties. They tell the courts that we must defer to Congress. 

I think it is time for us to do that, just as they expect us to defer 

to them. 

This situation now endangers artists, consumers, legitimate 

Internet commerce, and even the continued vitality of the important Sony-Betamax case. At least that is my view. That ruling is 

an important ruling, as we all know. I really intend to find a solution to it that protects both copyrights and technological innovation. I believe that we can and must find such a solution during 

this session of Congress, and I would appreciate the sincere efforts 

of every one of you to help us to get there. I don’t have any pride 

of authorship on these matters. We would like to get it right. 

I would just like to ask each of you, can each of you commit to 

work with this Committee over the next seven weeks, while we will 

be out because of the recess and also the conventions, to identify 

the approach that best protects both copyrights and technology? 

Mr. Shapiro? 

Mr. SHAPIRO. Mr. Chairman, first of all, thank you very much for 

your sincerity and your willingness to hold the hearing and hear 

our views. You obviously do want to take an approach which won’t 

hurt technology companies, as well as support the copyright industry. We would be happy to do everything we can to help move this 

process along. We obviously want to see something which works for 

everybody. 

Chairman HATCH. And I think you really should put some real 

time in it because we are going to do this. We are going to get this 

done, and it would be nice if it was something that at least tended 

to please the technology side of this industry, as well, because I 

agree with Mr. Bainwol that it is a dog-gone catastrophe to these 

artists and creative people what is happening. 

There is no question in my mind that that business has been cut 

about in half and it has been because of illegal file-sharing. I am 

sure there are illustrations that can be made that would show that 

it is not all illegal file-sharing, but I know that the vast majority 

of it is. Whether it is 97 percent or not, I believe it probably is that 

high, but the fact of the matter is it is a catastrophe and it has 

got the potential of really hurting our innovative people and our 

artists and our creative writers, and so forth, and those who have 

to invest and promulgate their materials, and I think in the end 

will really hurt technology as well. So this is something that is 

worthwhile doing. 

Mr. Holleyman. 

Mr. SHAPIRO. Could I just add something? 

Chairman HATCH. Sure. 

Mr. SHAPIRO. I don’t represent Kazaa and I have like thousands 

of hours of frustration of how they screwed up my computer. So I 

have no problem doing something which would shut down some of 

those services. 

Chairman HATCH. This is your chance to get even. 

30

Mr. SHAPIRO. Not that I have ever downloaded anything. 

Chairman HATCH. I am glad to have that confession. 

Mr. HOLLEYMAN. Mr. Chairman, I can reaffirm our commitment 

to continue to work with you to find the proper balance. 

Chairman HATCH. You have really been a major source of help 

to us over the years. As I work in this area—and I like this area; 

this is one of my favorite areas in all of the Congress because what 

you folks do is really remarkable and wonderful, and it has kept 

our country at the technological and software cusp of leadership 

throughout the whole world and it is really important to us. So it 

is important that we get it right. I have to admit we never quite 

get it right, but if we can substantially get it right, I hope that you 

will all cooperate in helping us to do that. 

Mr. Greenberg. 

Mr. GREENBERG. Senator Hatch, I think the key observation is 

there is no silver bullet. This is a balancing of competing interests 

that are in some senses inherently irreconcilable. This is not to say 

that we do not act or that we act precipitously, but it is to say that 

we must act with care. 

Absolutely, the content people need to have adequate capacity to 

enforce their rights, but it must be understood that secondary liability by its definition is asserting intellectual property rights 

against somebody who has not infringed those rights. Therefore, 

when we define this, we must be mindful particularly when the defendant is a technology company selling a technology, that we do 

not give to the copyright owners who have written this song the effective patent-like protection over an unpatented product for something that the songwriter did not invent. 

There is where we feel a line clearly needs to be drawn between 

the scope of their capacity as a plaintiff to demand technology mandates either de facto or in the language of the statute itself. And 

we would be pleased to work with you to the extent we can to help 

that along. 

Chairman HATCH. We have appreciated your willingness to work. 

Mr. McGuiness. 

Mr. MCGUINESS. Chairman Hatch, we appreciate the opportunity 

to work with you. We also greatly appreciate your interest in finding the right balance. I hope you will give some thought, though, 

to the observation I made earlier that the ultimate solution to this 

problem may be broader than just new legislation. 

Chairman HATCH. We will be interested in listening to you. You 

have represented your group very well here today. 

Mr. Bainwol. 

Mr. BAINWOL. I have made the observation a few times that 97 

percent of the transactions on these P2P services are illegal, and 

I am going to give Gary the benefit of the doubt that he is in the 

3 percent. 

Chairman HATCH. That was very gracious of you. 

[Laughter.] 

Mr. BAINWOL. I am a nice guy. 

That said, the objective that I think your staff and the staff of 

Senator Leahy began this exercise with was to target bad actors 

and not to get good actors into the net. That is what we support. 

That is our objective, as well, and we are fully committed to workVerDate 0ct 09 2002 11:18 Oct 31, 2006 Jkt 030496 PO 00000 Frm 00034 Fmt 6633 Sfmt 6633 S:\GPO\HEARINGS\96396.TXT SJUD4 PsN: CMORC
31

ing with you and your team and the staff of this Committee to get 

that job done. 

There is a sense of urgency for us. I know Gary does not see the 

harm, but I can tell you there are songwriters on the streets of 

Nashville who are not writing songs and there are a lot of folks 

who are just out of the creative business. That is a disaster for the 

country economically and artistically, so we have got to solve this 

problem. 

Thank you, sir. 

Chairman HATCH. There are some of us writing songs that aren’t 

getting cut, too, because of this terrible dilemma that we are all 

facing here. 

[Laughter.] 

Chairman HATCH. I have really appreciated this panel. It has 

been a wide-ranging panel. You all have contributed greatly. In the 

end, I am just going to do what Marybeth Peters tells me to do 

anyway. You all know that. 

[Laughter.] 

Chairman HATCH. Shapiro almost passed out right there on the 

spot. 

Let me just say this. This is a very brilliant panel. You folks can 

help us here, and you know what I am saying. If you will help us, 

we just might get it right. But if you don’t, we are going to do it 

because something has to be done here. So I would suggest you 

really pitch in and do it. 

Frankly, these are tough issues. They are not easy to explain and 

they are not easy to understand for many of us here in Congress. 

So we can use your help. But in the end, I hope that there will also 

be some element of cooperation and compromise because there is 

no way you can solve these problems so that everybody is totally 

pleased. 

I do share your view—and I thought it was a dirty dig to bring 

up the class action bill at the beginning of this. That was supposed 

to be humorous, but it apparently didn’t go over very well. 

[Laughter.] 

Chairman HATCH. You are right. I think we have far too much 

litigation and I think we have far too much stifling of our economy 

because of, I think, intemperate litigation, and we have to find 

some way around that. I don’t want this to result in improper litigation that would stifle creativity in the technological world. On 

the other hand, sometimes having the law so that everybody understands what it is and that it really means business helps everybody 

to pay attention to the law and pay attention to doing what is 

right. 

I will tell you one thing. I do want to solve this problem for the 

recording industry and the movie industry and the book industry. 

You name any copyright industry there is and they are getting very 

badly treated because of the technological innovations of some who 

don’t give a damn about copyright. Well, we have to give a damn 

about copyright because copyright has been one of the most important principles that has made this country the greatest country in 

the world. A lot of people don’t realize that, but it has. 

32

So I just want to thank all of you for being here. It has been a 

stimulating meeting to me. I usually hate hearings, but I have enjoyed this one very much. Thank you so much. 

We will recess until further notice. 

[Whereupon, at 3:47 p.m., the Committee was adjourned.] 

[Questions and answers and submissions for the record follow.]

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