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90–239 PDF 2004

S. Hrg. 108–275

PRIVACY AND PIRACY: THE PARADOX OF

ILLEGAL FILE SHARING ON PEER-TO-PEER

NETWORKS AND THE IMPACT OF TECHNOLOGY ON THE ENTERTAINMENT INDUSTRY

HEARING

BEFORE THE

PERMANENT SUBCOMMITTEE ON INVESTIGATIONS

OF THE

COMMITTEE ON 

GOVERNMENTAL AFFAIRS 

UNITED STATES SENATE

ONE HUNDRED EIGHTH CONGRESS

FIRST SESSION

SEPTEMBER 30, 2003

Printed for the use of the Committee on Governmental Affairs

(

(II)

COMMITTEE ON GOVERNMENTAL AFFAIRS 

SUSAN M. COLLINS, Maine, Chairman 

TED STEVENS, Alaska 

GEORGE V. VOINOVICH, Ohio 

NORM COLEMAN, Minnesota 

ARLEN SPECTER, Pennsylvania 

ROBERT F. BENNETT, Utah 

PETER G. FITZGERALD, Illinois 

JOHN E. SUNUNU, New Hampshire 

RICHARD C. SHELBY, Alabama 

JOSEPH I. LIEBERMAN, Connecticut 

CARL LEVIN, Michigan 

DANIEL K. AKAKA, Hawaii 

RICHARD J. DURBIN, Illinois 

THOMAS R. CARPER, Delaware 

MARK DAYTON, Minnesota 

FRANK LAUTENBERG, New Jersey 

MARK PRYOR, Arkansas

MICHAEL D. BOPP, Staff Director and Chief Counsel 

JOYCE RECHTSCHAFFEN, Minority Staff Director and Counsel 

AMY B. NEWHOUSE, Chief Clerk

PERMANENT COMMITTEE ON INVESTIGATIONS 

NORM COLEMAN, Minnesota, Chairman 

TED STEVENS, Alaska 

GEORGE V. VOINOVICH, Ohio 

ARLEN SPECTER, Pennsylvania 

ROBERT F. BENNETT, Utah 

PETER G. FITZGERALD, Illinois 

JOHN E. SUNUNU, New Hampshire 

RICHARD C. SHELBY, Alabama 

CARL LEVIN, Michigan 

DANIEL K. AKAKA, Hawaii 

RICHARD J. DURBIN, Illinois 

THOMAS R. CARPER, Delaware 

MARK DAYTON, Minnesota 

FRANK LAUTENBERG, New Jersey 

MARK PRYOR, Arkansas

RAYMOND V. SHEPHERD, III, Staff Director and Chief Counsel 

JOSEPH V. KENNEDY, General Counsel 

ELISE J. BEAN, Minority Staff Director and Chief Counsel 

MARY D. ROBERTSON, Chief Clerk 

(III)

C O N T E N T S 

Opening statements: Page 

Senator Coleman .............................................................................................. 4

Senator Levin .................................................................................................... 10

Senator Sununu ................................................................................................ 27

Senator Pryor .................................................................................................... 30

Senator Collins ................................................................................................. 35

Prepared statements: 

Senator Coleman .............................................................................................. 7

Senator Levin .................................................................................................... 12

Senator Pryor .................................................................................................... 31

Senator Collins ................................................................................................. 36

Senator Carper ................................................................................................. 71

Senator Lautenberg .......................................................................................... 72

Senator Durbin ................................................................................................. 75

WITNESSES 

TUESDAY, SEPTEMBER 30, 2003

Hon. Barbara Boxer, a U.S. Senator from the State of California ...................... 1

Mitch Bainwol, Chairman and Chief Executive Officer, Recording Industry 

Association of America, Washington, DC ........................................................... 15

Jack Valenti, President and Chief Executive Officer, Motion Picture Association of America, Washington, DC ....................................................................... 17

L.L. Cool J, Recording Artist, New York, New York ............................................ 19

Mike Negra, President, Mike’s Video, Inc., State College, Pennsylvania ........... 20

Alan Morris, Executive Vice President, Sharman Networks Limited, Australia/England/Vanuatu ....................................................................................... 43

Derek S. Broes, Executive Vice President of Worldwide Operations, Altnet, 

Woodland Hills, California .................................................................................. 45

Chris Gladwin, Founder and Chief Operating Officer, FullAudio, Inc., Chicago, Illinois .......................................................................................................... 47

Lorraine Sullivan, New York, New York ............................................................... 49

Chuck D, Record Artist, Author, Activist, Los Angeles, California ..................... 51

Jonathan D. Moreno, Director, Center for Biomedical Ethics, University of 

Virginia, Charlottesville, Virginia ...................................................................... 63

James V. DeLong, Senior Fellow and Director, Center for the Study of Digital 

Property, The Progress and Freedom Foundation, Washington, DC ............... 65

ALPHABETICAL LIST OF WITNESSES

Bainwol, Mitch: 

Testimony .......................................................................................................... 15

Prepared statement .......................................................................................... 78

Boxer, Hon. Barbara: 

Testimony .......................................................................................................... 1

Broes, Derek S.: 

Testimony .......................................................................................................... 45

Prepared statement .......................................................................................... 115

Chuck D: 

Testimony .......................................................................................................... 51

Cool J, L.L.: 

Testimony .......................................................................................................... 19

DeLong, James V.: 

Testimony .......................................................................................................... 65

Prepared statement with an attachment ....................................................... 136

Page

IV

Gladwin, Chris: 

Testimony .......................................................................................................... 47

Prepared statement .......................................................................................... 123

Moreno, Jonathan D.: 

Testimony .......................................................................................................... 63

Prepared statement .......................................................................................... 134

Morris, Alan: 

Testimony .......................................................................................................... 43

Prepared statement .......................................................................................... 103

Negra, Mike: 

Testimony .......................................................................................................... 20

Prepared statement .......................................................................................... 99

Sullivan, Lorraine: 

Testimony .......................................................................................................... 49

Prepared statement .......................................................................................... 130

Valenti, Jack: 

Testimony .......................................................................................................... 17

Prepared statement .......................................................................................... 88

APPENDIX 

EXHIBITS

1. Statement for the Record from Steve Wiley, President, Hoodlums New 

and Used Music & DVDs ................................................................................... 145

2. Responses to supplemental questions and for the record submitted to 

Mitch Bainwol, Chairman and CEO of the Recording Industry Association 

of America (RIAA) ............................................................................................... 148

3. Responses to supplemental questions and for the record submitted to Jack 

Valenti, President and CEO of the Motion Picture Association (MPA) ......... 157

4. Responses to supplemental questions and for the record submitted to Alan 

Morris, Executive Vice President, Sharman Networks Limited (Parent 

Company of KaZaA) ............................................................................................ 158

5. Responses to supplemental questions and for the record submitted to Chris 

Gladwin, Founder and Chief Operating Officer of FullAudio Corporation .... 162

6. Charts submitted by Senator Barbara Boxer: 

a. ‘‘Shared Folder’’ chart .............................................................................. 164

b. ‘‘Beatles’’ search generates ‘‘teen porn file’’ chart ................................. 165

(1)

PRIVACY AND PIRACY: THE PARADOX OF 

ILLEGAL FILE SHARING ON PEER-TO-PEER 

NETWORKS AND THE IMPACT OF TECHNOLOGY ON THE ENTERTAINMENT INDUSTRY 

TUESDAY, SEPTEMBER 30, 2003

U.S. SENATE, 

PERMANENT SUBCOMMITTEE ON INVESTIGATIONS,

OF THE COMMITTEE ON GOVERNMENTAL AFFAIRS, 

Washington, DC. 

The Subcommittee met, pursuant to notice, at 10:08 a.m., in 

room SD–G50, Dirksen Senate Office Building, Hon. Norm Coleman, Chairman of the Subcommittee, presiding. 

Present: Senators Coleman, Levin, Collins, Sununu, Levin, Carper, and Pryor. 

Staff Present: Raymond V. Shepherd, III, Staff Director and 

Chief Counsel; Joseph V. Kennedy, General Counsel; Mary D. Robertson, Chief Clerk; Katherine English, Counsel; Mark Greenblatt, 

Counsel; Kristin Meyer, Staff Assistant; Elise J. Bean, Democratic 

Staff Director and Chief Counsel; Rob Owen (Senator Collins); Joe 

Bryan and Mike Kuiken (Senator Levin); John Kilvington (Senator 

Carper); Tate Heuer and Gita Uppal (Senator Pryor); Juria Jones 

(Senator Specter); Mark Keam (Senator Durbin); and Adam Sedgwick (Senator Lieberman). 

Senator COLEMAN. We are going to call to order this hearing of 

the Permanent Subcommittee on Investigations, ‘‘Privacy and Privacy: The Paradox of Illegal File Sharing on Peer-to-Peer Networks 

and the Impact of Technology on the Entertainment Industry.’’

We have with us my colleague, the distinguished Senator from 

California, Barbara Boxer. Senator Boxer, I know you wanted to 

make an introductory statement. What I’m going to do, as an 

accomodation to your schedule, is give you an opportunity to make 

your statement now before we begin our formal statements. 

TESTIMONY OF HON. BARBARA BOXER, A U.S. SENATOR FROM 

THE STATE OF CALIFORNIA 

Senator BOXER. Senator, thank you so much, Senator Coleman, 

Senator Carper, and others who will come, for giving me this opportunity. We had a hearing on this subject at which you testified, 

my friend, Senator Coleman, so this is my second round in putting 

out some of my thoughts, and I will try to keep this as closely knit 

as I can. 

First of all, I have four points to make. The first point is that 

downloading copyrighted works is theft, and I think if there is anyVerDate 0ct 09 2002 08:04 Jan 30, 2004 Jkt 090239 PO 00000 Frm 00005 Fmt 6633 Sfmt 6633 C:\DOCS\90239.TXT SAFFAIRS PsN: PHOGAN
2

thing else coming out of this hearing other than that, it is a real 

problem. 

Senator Levin, I was just saying that I have four points to make 

that I hope you will keep in mind. First, that downloading copyrighted works is theft, plain and simple. Second, it is not a 

victimless crime, as you will find out today. Third, the file-sharing 

networks themselves constitute a threat to privacy. And fourth, 

these networks are no place for children. Those are the four points 

and I will go quickly through them. 

First, the issue of theft. Peer-to-peer sharing is fine, but not if 

they are copyrighted works. That is just the fact. You can’t have 

a law without being able to enforce it or no one will pay any attention to it. 

We know it is legal, again, to share non-copyrighted work, but 

if it is copyrighted, it is stealing, and whether you are stealing it 

from the store or on the Internet, there has to be consequences, I 

believe. Otherwise, it will continue. 

Now, we all know about the 1998 Digital Millennium Copyright 

Act. A lot of us were involved in putting it together. And in the 

course of that, the Internet service providers said, look, we don’t 

want to be responsible for this illegal downloading. So we will support turning over the records to—I don’t mean—I should say, turning over the information to the record companies as an exchange 

for us not being liable. 

So I think that for them now to say that they won’t cooperate is 

just going against what they agreed to do. That is not right. The 

one thing I have learned about this business that we are in is that 

you give a handshake, you give your word, and you stick with it. 

That is important. 

Now, the second point. Stealing copyrighted work is not a 

victimless crime. It threatens our creative industries and our artists, and there is an artist here today, and I assume a lot of people 

are here because of that. I thought it was us—— [Laughter.] 

But then I realized, my staff said, no. So the fact is, we have victims. 

As visual proof, there is a chart that shows photographs taken 

by the Nashville Song Writers Association of a series of buildings 

now for lease that once housed music publishing companies on 

Nashville’s famous Music Row. Each of these closed businesses represents jobs lost, and Mr. Chairman, regardless of our party, we 

are in it to fight for jobs for our people. We are losing jobs. 

Two song writers who have written for famous artists, Kerry 

Chader and his wife, Lynn Gillespie Chader—I hope I said it 

right—wrote to me last week, and they wrote, ‘‘Our income fell over 

60 percent from 2000 to 2002. In 2001, we were forced to declare 

bankruptcy. After more than 100 songs recorded between my husband and myself, we were forced to seek outside employment. In 

2002, we were expecting a check for royalties in the neighborhood 

of $5,000. When the check came and we opened it up, it was 

$17.53,’’ she writes. What a shock. And they attribute their losses 

to illegal downloading, which they refer to as ‘‘downlooting.’’

So according to the Record Association, the industry has lost 25 

percent in sales over the last 3 years. It has gone from a worldwide 

$40 billion industry in 2000 to a $26 billion industry in 2002. 

3

1See Exhibit 6a. which appears in the Appendix on page 164. 

2See Exhibit 6b. which appears in the Appendix on page 165. 

My third point is that file-sharing networks themselves pose a 

great threat to privacy. Most users have no idea that they are frequently sharing their private documents with everyone else on the 

network, and you can see this, and since my time is running short, 

I hope you will take a look at this. 

This is a chart 1 that essentially says—it highlights that you will 

share files that are in your, ‘‘shared folder.’’ It allows you to add 

any other folder you wish. Users often make sensitive files available unwittingly to everyone on the network by putting those files 

in the wrong folder. In a search of one peer-to-peer network, a 

House committee report found 2,500 Microsoft Money backup files. 

Each of these files stores a user’s personal financial records and all 

were readily available for download. 

I will complete this in less than a minute, if I might. 

So here we have a situation where we are worried about the privacy of the people who are illegally downloading, although I have 

to say, and no one likes these lawsuits, it is awful, but if someone 

came in and had a mask on, as they have done, they still do, to 

a store and they were anonymous, they are still a thief, even 

though you have got to find out who they are. 

So the fact of the matter is, let us not just say we are trying to 

protect—hopefully, we are not saying we are trying to protect privacy of people who are stealing. As unpleasant as it is, believe me, 

it is very unpleasant. 

The fourth issue, we must address how these networks expose 

children to pornography. Children don’t belong on these networks. 

According to the General Accounting Office, ‘‘Juvenile users of 

peer-to-peer networks are at significant risk of inadvertent exposure to pornography, including child pornography,’’ and this is another chart 2 from Kazaa. You can see on this chart the user has 

put in a search for the Beatles. That search then generates a series 

of files, and highlighted on the chart, you see when the user selects 

Beatles, a title that says ‘‘Drunk Teen Sex 2,’’ which is a teen porn 

file. So this means your child could think she is downloading a 

Beatles song and be downloading pornography, and I think parents 

need to know about this. There are other unintended consequences 

of this. 

In conclusion, I believe—and you can play a major role in this—

that coming out of this hearing as well as the Commerce hearing, 

we should bring out these points. Clearly, it is wrong, what is happening. This is a crime. There are real victims. Inadvertently, people are losing their privacy, and inadvertently, youngsters are 

being exposed to pornography. 

So for all those reasons, I hope that the message out of this hearing will be, let us find ways we can all work together so that we 

can solve this problem. Instead of just saying, let us open up the 

Digital Millennium Copyright Act, rewrite it and stop what I think 

is the first thing that is making an impact, which is enforcing this 

law. It is actually making an impact. Teens are saying, gee, maybe 

this was wrong. I never saw it before as stealing. 

4

I thank you so much for giving me this privilege to open up this 

hearing. As you know, this is very important to my State of California and the millions of people who live there and, I think, to 

people all over the country. Thank you. 

Senator COLEMAN. Thank you, Senator Boxer. I appreciate your 

passion and perspective on this issue and I look forward to working 

with you on it. 

Do my colleagues have anything that they would like to ask Senator Boxer? 

Senator LEVIN. Just to thank Senator Boxer. Thank you, Senator 

Boxer. Thank you for your total commitment to the State of California and to the jobs that are impacted by what is going on 

through this downloading process. We thank you for your very 

strong statement. 

Senator BOXER. I appreciate it. 

Senator COLEMAN. Thank you. 

OPENING STATEMENT OF CHAIRMAN COLEMAN 

Senator COLEMAN. Before I begin with the first full panel, I will 

deliver my opening statement. I am pleased to be joined with my 

colleague and distinguished Ranking Member, Senator Levin. 

On September 8, the Recording Industry Association of America 

(RIAA) fired its first volley of copyright infringement lawsuits in its 

battle against illegal downloading. The industry promised to ‘‘approach these suits in a fair and equitable manner,’’ and that it is 

initially focusing on ‘‘egregious offenders who are engaging in substantial amounts of illegal activity.’’

I am grateful that the documents provided to this Subcommittee 

substantiate that claim. However, there is nothing under current 

law that requires the RIAA to target only ‘‘egregious’’ offenders in 

the future. There is nothing in the current law that restricts the 

scope of the RIAA’s use of subpoenas to ferret out unlawful 

downloaders. 

It has been these developments that led to my concern about the 

use of subpoenas to combat the illegal taking of copyrighted music 

files online—and the potential for abuse of the legal process. However, I am also troubled by the use of the DMCA subpoena procedure and lawsuits to spear the registered owner of the computer 

rather than perhaps the actual user of a P2P operation like Kazaa. 

The Subcommittee has been in contact with numerous individuals 

whose family members, friends, or roommates use the Kazaa service. Unfortunately, these unsuspecting individuals are now the targets of subpoenas and lawsuits. 

Recently, I had the honor of providing a brief statement to Senator Brownback’s hearing before the Commerce Committee on 

‘‘Cyber Identity, Privacy, and Copyright Protection.’’ It was the 

hearing in which Senator Boxer participated. There, I stated the 

principles that are the basis for our hearing today. 

On the matter of subpoenas, I am concerned about the scope and 

the impact of the broad powers extended to the RIAA and other 

copyright holders to issue these subpoenas. Is it possible for innocent people to get caught in the legal web that the RIAA is trying 

to create to stop illegal piracy? 

5

I believe we must review the potential civil and criminal penalties needed to ward off the theft of copyrighted materials, and determine if such measures will work. 

As it relates to the use of technology in general, I am troubled 

by the growing use of systems and devices to reach into our online 

lives and pluck out information about us with or without our 

knowledge. This is particularly relevant here, since technology is 

being used not only to steal the work of artists—but to prove that 

someone has, indeed, stolen it. 

In addition, part of our continuing inquiry will address why P2P 

networks do not proactively prevent this illegal activity from occurring initially and how P2P networks like Kazaa envision moving 

from a business model predicated upon illegally trading songs to a 

legitimate business model that derives revenues from licensed 

copyrighted intellectual property. 

There is more at issue here than just subpoenas—and the impact 

of the use of the power of subpoena and threat of legal action to 

compel consumers to cease and desist. 

I believe the very future of the American music and motion picture industry is at stake—and, with it, a major contributor to our 

Nation’s economic stability. 

I am pleased to have two leaders of the entertainment industry 

here with us today—Mitch Bainwol, CEO and Chairman of the Recording Industry Association of America, and Jack Valenti, President and CEO of the Motion Picture Industry Association of America. 

As Mr. Valenti has previously noted, the movie industry alone 

accounts for 5 percent of our Nation’s economic output. And, as 

both Mr. Bainwol and Mr. Valenti have made clear, the act of 

downloading the work of their members without their permission 

is illegal—and, is contributing to a significant economic decline in 

their respective industries. 

I think we can all agree that the growth of current, and future, 

technologies bodes well for improving the quality of our lives and 

productivity, . . . but, we must also accept that it also could spell 

economic doom for the entertainment industry. 

In just a short time, it will be possible to download a full-length 

motion picture movie in minutes, and to distribute that movie 

across the world before it makes its cinematic debut. 

I believe we have the capacity to preserve the economic, artistic, 

and cultural integrity of our arts and entertainment industry in 

America. It will take a concerted, cooperative effort among all involved to make it work. 

With us today are others who are impacted by those changes in 

technology—those who own the brick-and-mortar retail outlets that 

are suffering from a decrease in the over-the-counter sales of CDs 

and other music products. 

And, I want to thank another witness, Lorraine Sullivan, who is 

the recipient of one of the subpoenas issued by the RIAA. Her testimony will help our broader understanding and discussion today 

about the impact of such suits against music lovers—and what the 

potential ramifications may be for future customers of the industry. 

We have other issues that must be addressed today. 

6

Those who facilitate illegal file-sharing are also here with us this 

morning to present their side of the story. 

Kazaa has over 60 million individuals who download. Yet, they 

have been accused of aiding and abetting those who willfully violate copyright laws. There are a number of compelling issues that 

must be addressed. Kazaa asserts they do not condone illegal filesharing and that they want to move toward a legitimate business 

model. This raises some important questions. Such as, if the financial viability of the Kazaas of the world is based upon illegally 

trading files, what incentives do they or consumers have to change 

their behavior? What prevents them from more boldly and openly 

informing their users about illegal activity? 

We also have with us today two artists, L.L. Cool J and Chuck 

D, who I hope can shed some light from an artist’s perspective, on 

what they see to be the changing nature of the music industry—

and for them what has been the solution to the intricate balance 

between artistic integrity—and, quite frankly, making a living. 

Finally, we will end our hearing today with a discussion of the 

ethics of downloading and the potential need for new business models. Have we inadvertently created a culture today that encourages 

the very behavior that today we feel needs to be corrected? Let me 

be clear. Downloading someone else’s property without their permission is illegal, period. Yet today, there are 60 to 90 million people who use P2P networks, and I believe that is just in the United 

States, who use P2P networks to illegally trade copyrighted material. 

Many of these users are teenagers or younger. This generation 

of kids needs to be made aware that they are engaging in illegal 

behavior. I do not believe, however, that aggressively suing egregious offenders will be sufficient to deter the conduct of an entire 

generation of kids. 

As a former prosecutor, I am troubled by a strategy that uses law 

to threaten people into submission. Yet, as a former prosecutor, I 

am also troubled by a prevailing attitude that says because technology makes it free and easy, it is OK to do. 

I believe solving this problem will require a way of thinking that 

allows the industry to protect its rights, but to do it in a way that 

creates new consumers by intellectually and financially investing 

in creative methods of delivering of music to fans. 

Technology and the Internet offer great hope for a brighter future, but with it comes with great concern over how they are used 

and how property rights are protected. It is clear today that the 

law, technology, and ethics are out of sync. They are woefully out 

of step with one another. Hopefully, the dialogue that we engage 

in here today will be the factual and intellectual foundation upon 

which we can engineer some thoughtful and practical solutions for 

the future. 

The prepared opening statement of Senator Coleman follows:

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Senator COLEMAN. With that, I would like to turn the podium 

over to my distinguished Ranking Member, the Senator from 

Michigan, Senator Levin. 

OPENING STATEMENT OF SENATOR LEVIN 

Senator LEVIN. Thank you, Mr. Chairman. Thank you very much 

for calling this hearing. It is a very critically important hearing for 

the reasons that you gave and Senator Boxer gave and your leadership is going to be critically important in trying to find a resolution 

to the issues which you describe. 

Today, we face a collision of two worlds. One is the world of copyright law. The other is the real world, where new Internet technologies like file sharing are enabling hundreds of millions of people to instantly exchange movies, music, and other copyrighted 

works online for free. In the world of copyright law, taking someone’s intellectual property is a serious offense, punishable by large 

fines. In the real world, violations of copyright law over the Internet are so widespread and easy to accomplish that many participants seem to consider it equivalent to jaywalking—illegal but no 

big deal. 

But it is a big deal. Under U.S. law, stealing intellectual property 

is just that—stealing. It hurts artists, the music industry, the 

movie industry, and others involved in creative work. And it is unfortunate that the software being used—called ‘‘file sharing,’’ as if 

it were simply enabling friends to share recipes, is helping create 

a generation of Americans who don’t see the harm. 

The Internet and related technologies, if used properly, have the 

potential to expose millions of people to creative work that would 

otherwise not be seen or heard. The question is whether their potential will be realized at the expense of artists, authors, software 

developers, scientists, and others who rely on copyright protection 

to earn a living. 

The issue we will be struggling with today is what to do about 

what I hope is acknowledged to be a problem. How do we instill 

in people that downloading a song or a movie off the Internet, without permission, is like stealing a CD from a store? If the recording 

industry’s approach—filing lawsuits against alleged infringers—is 

not the right answer, what is the right answer? Is it technologically 

feasible for software developers to take steps to prevent their software from being misused to steal copyright works? If so, are they 

willing to take these steps voluntarily or must we require them to 

do so? 

Our copyright laws were designed to protect a person’s intellectual property—a song, an invention, a work of art, a novel. But the 

use of new file-sharing software is growing so rapidly that the law 

has badly lagged behind. 

The Subcommittee obtained copies of more than 1,000 RIAA subpoena requests and subjected them to a general review as well as 

subjecting 42 randomly selected requests to a more detailed investigation. The Subcommittee’s detailed review of the 42 subpoenas 

found that the Internet user with the fewest number of songs had 

made available about 600 songs for others to copy, while the Internet user with the highest number exceeded 2,100 songs. Many had 

made over 1,000 songs available for copying on the Internet. There 

11

was no evidence, in this survey at least, of subpoenas directed to 

users who had made available only a few songs. 

Software providers will play a key role in determining whether 

their file-sharing technologies evolve into tools that promote respect for creative work or instead promote copyright infringement. 

Certain developments so far have not inspired confidence. 

With regard to protecting copyrights, the largest software provider apparently failed to incorporate some elements that could 

help fight infringement and that company has taken steps that 

hinder rather than facilitate timely reminders from copyright holders to file sharers that the unauthorized sharing of copyrighted materials violates U.S. law. While people who download copyrighted 

works and make them available for others to copy should be held 

accountable for their actions, those providing the underlying software should also take reasonably available steps to protect copyrights. 

Internet technologies are changing how many Americans find, 

listen to, and buy music and movies. Trips to record stores are giving way to sessions on the Internet. Movie videos are increasingly 

online and available to those with Internet know-how. We must 

search for ways to accommodate the reasonable and appropriate 

use of these new technologies while also maintaining the integrity 

of copyright laws critical to protecting and encouraging creative 

work. 

Again, I thank you, Mr. Chairman, for calling this hearing and 

for your leadership in this area. 

The prepared opening statement of Senator Levin follows:

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1The prepared statement of Mr. Bainwol appears in the Appendix on page 78. 

Senator COLEMAN. Thank you, Senator Levin. 

With that, I would now like to welcome the first panel of witnesses at today’s important hearing. Mitch Bainwol is the Chairman and CEO of the Recording Industry Association of America. 

Jack Valenti is the President and CEO of the Motion Picture Association of America. L.L. Cool J is a renowned recording artist. And 

finally, Mike Negra, President of Mike’s Video. 

I thank you all for your attendance at today’s hearing and look 

forward to hearing from each of you. 

Before we begin, pursuant to Rule VI, all witnesses who testify 

before this Subcommittee are required to be sworn in. At this time, 

I would ask you to please stand and raise your right hand. 

Do you swear the testimony you will give before this Subcommittee will be the truth, the whole truth, and nothing but the 

truth, so help you, God? 

Mr. BAINWOL. I do. 

Mr. VALENTI. I do. 

Mr. COOL J. I do. 

Mr. NEGRA. I do. 

Senator COLEMAN. Thank you very much. 

With that, Mr. Bainwol, we will go first with your testimony. We 

will hear then from Mr. Valenti, followed by L.L. Cool J, and finish 

up with Mr. Negra. Gentlemen, I would like you to keep your oral 

testimony to 5 minutes. There may be written testimony and we 

will, at your request, enter that into the permanent record. But if 

we do 5 minutes, and I will hold you to that, that will then give 

an opportunity for my colleagues to be able to submit questions. 

With that, Mr. Bainwol, you may begin. 

TESTIMONY OF MITCH BAINWOL,1 CHAIRMAN AND CHIEF EXECUTIVE OFFICER, RECORDING INDUSTRY ASSOCIATION OF 

AMERICA, WASHINGTON, DC 

Mr. BAINWOL. Thank you, Senator Coleman. I appreciate that. 

Chairman Coleman, Senator Levin, and Members of the Subcommittee, my name is Mitch Bainwol. I am Chairman and CEO 

of the RIAA. Having spent much of the last 15 years working for 

this institution and for Members of the Senate, it is a special privilege for me to be here today, but I have got to say, I am more comfortable on the other side of the dais. [Laughter.] 

It is also an honor to share this witness table with Jack Valenti, 

who has done this a time or two, and with Mike Negra and the incomparable L.L. Cool J. 

Over these last 4 years, domestic revenues in the music industry 

have plummeted from $15 billion to $11 billion. The slide on the 

global side has been even worse. The primary cause: Piracy. The 

consequence: Lost American jobs, about 4,000 jobs directly in the 

previous 2 years alone. That does not include the enormous retail 

losses that Mr. Negra will address shortly. He is the human face 

of piracy. Everyone in the magical chain that brings music to consumers is affected. They are the human toll—song writers, artists, 

backup musicians, clerks, truck drivers, everyone. 

16

The scope of the piracy problem is made clear when you note 

that the number one downloaded site in America is Kazaa software, which has been on the top 50 list for 74 weeks. At least four 

other P2P systems are also on the top 50 list. There are tens of 

millions of Americans, as you have noted, Mr. Chairman, who 

download music for free, most of it illegally. At any given point, 

three to five million people are on the Internet downloading music, 

violating U.S. copyright law. 

Any individual downloader may feel pretty innocent taking intellectual property off the Internet, presuming a victimless crime. But 

when you aggregate the universe of downloaders, you find a piracy 

problem of enormous dimension, and that produces an unacceptable human toll, victims in the creative community. 

The law is clear, yet the understanding of the law is not clear. 

Why? In large part, it is because the file-sharing networks like 

Kazaa deliberately induce people to break the law. A recent independent study by Palisades suggests that 99 percent of all the 

audio files on the Internet were copyrighted, and 97 percent of all 

files were either copyrighted or pornographic. These networks, the 

Kazaas of the world, functionally are illegitimate platforms. They 

are cannibalizing a great American industry. 

The RIAA embarked on a campaign to get the message out years 

ago—paid print, broadcast ad, op-eds, websites, instant messages 

to P2P users until Kazaa turned off the IM function. But we found 

that P2P activity continued, so we took the next step, enforcement. 

It has been painful and it has been difficult. It was a last resort, 

but it is building awareness rapidly. 

From December of last year through early June of this year, public opinion on the legality of trading held constant. About a third 

said it was illegal. After announcing our intent to enforce our 

rights, but before the lawsuits were actually filed, that number 

soared to about 60 percent, and about 15 percent say it is now illegal. We are building awareness rapidly and it is a function of enforcement. 

Our legal actions have, in fact, triggered a national debate. That 

is a good thing. This is a matter that will be settled over the kitchen table, not in the courtroom. Yet we do recognize that legal action is not a panacea. While we will vigilantly defend our property 

rights—we have no choice but to do so—we also intend to do so in 

a fashion that is consistent with common sense, decency, and fairness. We would much rather make music in the studio than arguments in the courtroom. 

A brighter future is evolving—that is the good news—and there 

are three legs to the stool. First, the foundation must be a broad 

societal understanding of the law and what is right and wrong. 

That is being accomplished. 

Second, the current market for legal downloads must become 

even more vibrant and competitive. We are watching that marketplace explode right now—Apple iTunes, Rhapsody, BuyMusic.com, 

MusicMatch, to name a few. Technology giants Amazon, Dell, 

Microsoft are all getting into this in the next few weeks and 

months. 

Finally, the file-sharing business must become responsible corporate citizens, moving beyond rhetoric and beyond excuses. The 

17

1The prepared statement of Mr. Valenti appears in the Appendix on page 88. 

systems can no longer induce music fans to break the law, to diminish their computer privacy, disregard privacy, or to compromise 

integrity of content. 

This brighter future is just around the corner if the Kazaas of 

the world voluntarily implement three common sense reforms. If 

they do so, losses can be avoided, the record industry will be 

healthier, there will be more jobs, consumers will get the music 

how they want it, and they will respect property rights. Here is 

what it takes. 

One, Kazaa and the other file-sharing systems must change the 

default systems—the default settings for the users so that American kids, teenagers, and others, are automatically and unwittingly 

uploading the music from the hard drive. 

Two, these systems must institute meaningful disclosure. Clearly 

notifying the users that uploading and downloading music, copyrighted materials, without permission is, in fact, illegal. Disclosure 

needs to be made perfectly clear. 

And third, most importantly, the P2P systems must filter out 

copyrighted protected works. Again, 99 percent of the materials, 

the audio files on Kazaa under Palisades were copyrighted materials. That stuff should be filtered out. No more excuses. 

Mr. Chairman, Members of the Subcommittee, I thank you for 

this opportunity. We have a bright future ahead of us with technology. The answer is technology, but there is a right way to do it, 

there is an American way to do it, and that is you pay for what 

you get. Thank you very much. 

Senator COLEMAN. Thank you, Mr. Bainwol. Mr. Valenti. 

TESTIMONY OF JACK VALENTI,1 PRESIDENT AND CHIEF EXECUTIVE OFFICER, MOTION PICTURE ASSOCIATION OF AMERICA, WASHINGTON, DC 

Mr. VALENTI. Thank you, Mr. Chairman. I must say, before I 

begin, I heartily endorse what Mr. Bainwol has said. These Kazaas 

and Neutellas and Morpheus and the rest of them are outlaw sites 

who do nothing but offer illegal music and movies and the most 

sordid pornography that your mind can ever comprehend. 

But I am very glad to be here. Let me start with a story. It is 

said in World War I, Marshall Foach, who was a French General, 

later to become the Supreme Allied Commander, was in a furious 

battle with the Germans and he wired back to military headquarters, ‘‘My left is falling back. My right is collapsing. My center 

cannot hold. I shall attack.’’

Some people say this is an apocryphal story, but I want to believe it is true because that is precisely the way I feel in confronting the assault on American movies and these file-stealing 

groups all over the country whose mantra is, as you pointed out 

earlier, Mr. Chairman, ‘‘I have the technological power to do as I 

see fit and I will use that power to upload and download movies 

that I don’t own, but I don’t care who owns them because I don’t 

care about ownership.’’ And that is what is going on. 

I think that this Subcommittee has to understand that we are 

under attack, and I think this Subcommittee understands that we 

18

have to use all the resolve and imagination we can summon to battle this piracy. 

Now, this is not a peculiar Hollywood problem. This is a national 

issue, Mr. Chairman, because intellectual property, which consists 

of movies and home video and TV programs and books and music 

and computer software—that is the family of intellectual property—is America’s greatest trade export and an awesome engine of 

economic growth. We comprise more than 5 percent of the GDP of 

this country. We are creating new jobs, not minimum-wage jobs, 

new jobs at three times the rate of the rest of the economy. We 

bring in more international revenues than agriculture, than aircraft, than automobiles and auto parts. And the movie industry 

alone has a surplus balance of trade with every single country in 

the world. I don’t believe any other American enterprise can make 

that statement at a time, all of you Senators know, when this Nation is hemorrhaging from a $400 billion deficit balance of trade. 

And, by the way, we have almost one million men and women 

who work in some aspect of the movie industry. These are ordinary 

people with families to feed and kids to send to colleges and mortgages to pay and their livelihoods are put to peril by the onslaught 

of this piracy. 

Now, let me go to my second thing. If we just stopped right now, 

if the world just stopped, we would be doing fine because we could 

survive it. But to stand mute and inert and casually attend the ascending piracy that is ahead of us would be a blunder of the dumbest kind. 

On October 2, I am going to Cal Tech to deliver the Lee DeBridge 

Lecture and I am going to visit their lab. Their lab several months 

ago announced a new experiment called FAST. FAST can download 

a DVD high-quality movie in five seconds. Internet II, which is a 

consortium of scientists in this country headed by Dr. Molly Broad, 

the President of the University of North Carolina, had an experiment several months ago in which they sent 6.7 gigabytes—6.7 billion bytes, which is about two-thirds larger than a movie—halfway 

around the world, 12,500 miles, in 1 minute. Now I am told that 

Internet II has another experiment going which will make the previous triumph seem like a slow freight train. 

So what are we doing? We are trying, Mr. Chairman, to fight this 

in the best way we can. First, we have embarked upon a public 

persuasion and education campaign with TV, public service announcements, trailers in theaters, and an alliance with Junior 

Achievement with one million kids in grades five through nine 

studying what copyright means and how it is of benefit to this 

country, and to take something that doesn’t belong to you is wrong, 

and that no Nation long endures unless it sits on a rostrum of a 

moral imperative, and that is being shattered, as you pointed out. 

There is a whole generation of people growing up that think there 

is nothing wrong with that. 

Now, we are also intensifying a new program of law enforcement, 

working with the FBI and also constabularies all over the world. 

We are doing technological research we hope will have some benefit 

to us in the future. 

19

And I might add, Mr. Chairman, that we believe that it is important to use every tool at our disposal, because if we don’t, we are 

not going to beat this. 

I am quite fascinated with what I am saying up here—— [Laughter.] 

But I think I will stop right now and thank you for letting me 

deliver this sermon. 

Senator COLEMAN. Thank you very much, Mr. Valenti. Mr. Cool 

J. 

TESTIMONY OF L.L. COOL J, RECORDING ARTIST, NEW YORK, 

NEW YORK 

Mr. COOL J. Beautiful. First of all, let me say that I am very 

honored to be here. It is a very special moment in my life. 

Do people in the entertainment industry have the same rights as 

other Americans to fair pay for fair work? When you do something, 

should you be compensated for it? 

My question is, if a contractor builds a building, should people 

be allowed to move into it for free just because he is successful? 

Should they be able to live in this building for free? That is how 

I feel when I create an album or if I make a film and it is shooting 

around the planet for free. 

Just because, if I go to Tiffany’s and steal a diamond necklace 

and put a picture of it on the Internet and promote it, does that 

mean I didn’t steal, because Tiffany’s became more well known 

after I stole their necklace? See, some of the arguments make no 

sense. 

I don’t want to attack fans because, obviously, the fans are what 

make us. I mean, the reason I am able to sit here right now and 

speak to you guys, you gentlemen, is because of the fans and the 

love and the support that they have shown me. 

I know that coming from where I come from and seeing the 

things that I have seen, as an African American in America, the 

entertainment industry has provided an opportunity for me that I 

probably would have never gotten if the same climate that exists 

now existed when I first started. I have seen a gradual decline of 

my record sales, even though I have had some of the largest hits 

of my career recently. 

People say, well, L.L., are you going to sue the fans? A journalist 

asked me that, and I am not trying to take a shot at journalists. 

I am just saying a journalist asked me. L.L., are you going to sue 

the fans? My question to him is, when you use your creativity and 

you interview people, do you write for your paper for free? Do you 

do what you do for free? 

Do the farmers in our country—can you just go down to the farm 

and grab a bushel of corn and just walk away? Can you just grab 

up some wheat and say, bye. It is OK, because they have these new 

airplanes that fly around and they go by the farms and scoop up 

the wheat, so because they exist, these model airplanes that scoop 

up the wheat exist, I can just have your wheat, because it is possible. 

A lot of things are possible. It doesn’t make it right. If they left 

all of the money in the bank sitting out in the open, is L.L. Cool 

20

1The prepared statement of Mr. Negra appears in the Appendix on page 99. 

J able to go in and scoop up a half-a-million dollars because it is 

there and it is possible? 

I don’t want to attack children. We have to protect the kids. I 

don’t want to attack fans who love the music. I know there are 

issues, yes. Some of the CDs, maybe they were expensive. In business, sometimes things have to be adjusted and you have to make 

adjustments and make things right on certain levels. But at the 

same time, now I understand that there are sites available where 

you can download music for 99 cents. Some of the artists may only 

see a nickel out of the 99 cents. Can we at least see that? Is it all 

right for us to make a living as Americans? 

Should Steven Spielberg not have the right to get compensated 

when he does a movie like ‘‘Schindler’s List’’ or he does a movie 

like ‘‘Jurassic Park’’? Should I not have the right? Should Elvis 

Presley’s estate not be compensated for the work that he did as an 

entertainer? Should the Beatles’ estate and the Beatles’ catalog not 

be worth anything anymore after all of the work that they did in 

entertainment? 

Artists are a huge, an extremely important part of American culture. We are the dreamers. We don’t write the laws like you guys. 

We don’t necessarily have the power on certain levels that you guys 

have, but we are the dreamers. This is like we are the guys who 

make the movies and create the scenarios where the American guy 

goes in and wins and the rest of the world sees it and says, hmm, 

America is not so bad. 

We need protection. We need help. A lot of people will say, well, 

I will take care of myself. Don’t worry about me. And there are 

other artists who feel differently and I understand that. I don’t feel 

like anyone shouldn’t have the right to their own opinion. I just 

know that when you have producers, you have the drummer who 

is just a session drummer, he is not L.L. He is not getting the big 

check and doing the movie thing and all the talk show stuff that 

I do, but he is on the drums. He is making a living. Or if you have 

a producer, a keyboardist, a song writer, these people can’t live. 

The entertainment industry, are we just going to give it away? 

We are just going to say, OK, now it is free. It is OK. And that 

is it? 

In my opinion, I just think it is anti-American. I think the thing 

that makes America great is that we can make money and create 

jobs in all of these different ways. I am not against the Internet. 

Senator COLEMAN. Mr. Cool J, I am going to ask you if you can 

just sum up. 

Mr. COOL J. Yes. I will just say that I am not against technology. 

I am not against the Internet. I just wish that these things could 

be done—music could be downloaded legitimately. Thank you. 

Senator COLEMAN. Thank you, Mr. Cool J. Mr. Negra. 

TESTIMONY OF MIKE NEGRA,1 PRESIDENT, MIKE’S VIDEO, 

INC., STATE COLLEGE, PENNSYLVANIA 

Mr. NEGRA. Chairman Coleman and Senator Levin, distinguished 

Senators, I am the President and founder of Mike’s Video, Inc., a 

small chain of four movie rental and music software stores in State 

21

College, Pennsylvania. I would like to thank you for allowing me 

the opportunity to tell my story, which has been mirrored all over 

the country these past 3 years. 

I am here to support the RIAA’s efforts and here is why. In 1999, 

our business was fantastic. That year, with five locations in two 

college towns, we eclipsed $3 million in music sales, ranking us in 

the top 50 accounts with some major suppliers. We were experiencing a rapid growth, due in large part to the market we were 

serving, college students. 

That all changed abruptly in August 2000 when Penn State and 

Virginia Tech students returned for their fall semester. In both locations, sales fell dramatically. In State College, our downtown student-oriented store saw sales drop 29 percent, while in Blacksburg, 

Virginia, sales decreased by 25 percent. The slide continued for the 

rest of 2000, decreasing by 23 percent company-wide. 

As you know, 2000 was the year of Napster, and college students 

with access to broadband Internet connections provided by the universities were among the first heavy users of P2P software. As a 

result, college town record stores like mine were the first to feel the 

brunt of lost sales. Underground retail stores sprung up in dorms 

and apartment buildings. Students were downloading new music 

before it was available in my stores and selling illegal copies to 

friends. 

The downslide has continued ever since. In 2001, sales fell 24 

percent in State College and we were forced to sell our store in 

Blacksburg, Virginia, due to disappointing sales. Last year, as 

Kazaa and other P2P services expanded, our sales continued to decline, falling another 22 percent. Finally this year, we consolidated 

our inventory, leaving only one music store left in our chain. What 

was once the cornerstone of the music buying public, college students, has now almost completely disappeared. We just couldn’t 

compete with free. Mike’s Movies and Music will sell $1.8 million less music this 

year versus 3 years ago, a 70 percent reduction in sales. The trickle-down effect is enormous. For example, the State of Pennsylvania 

has lost $108,000 in potential sales tax revenue from my store 

alone. Music-related jobs and community-wide benefits, from a general manager to buyers to store managers and clerks have been 

eliminated at Mike’s. Wages were frozen throughout the company 

as we struggled to overcome the revenue loss. We were forced to 

sell our corporate offices and relocate to makeshift offices in various stores. Major capital expenditures have been delayed. Advertising has been cut back, travel and organizational dues eliminated, and on and on. 

P2P services that exist for the purpose of stealing music and 

movies have decimated small businesses around the country like 

mine, small businesses that make America work. Only 3 years 

after the first sign of the effects of online thievery appeared, hundreds of stores just like mine are gone and are still struggling to 

stay alive, while at the same time struggling with the public’s suggestion that file stealing is OK and no victims lie in its wake. 

I can’t tell you the amount of frustration we feel as we watch our 

business being stolen from us. In fact, the future looks even 

bleaker, as another mainstay of my business, movie rentals and 

22

sales, becomes the next battleground. We have conversations with 

customers who comment proudly about their ‘‘ownership’’ of 

downloaded movies. Our student-oriented store in downtown State 

College has seen revenue decrease by double digits, while stores 

outside the student influence increase. 

Finally this year, because of enforcement and deterrence efforts, 

I can say people are starting to get it. The Category 5 level of destruction left upon the landscape of the music industry and approaching the movie industry has people like yourselves and organizations like the RIAA and Penn State at least searching for answers. It has been allowed to continue without fear of repercussion 

for too long. 

The lawsuits recently filed by the RIAA are timely, and unfortunately, are a required addition to the educational approach used for 

the last couple of years. Without that deterrent, as has been proven 

in my little corner of the world, things will only get worse. 

People have no more right, no more entitlement to steal music 

or movies or any other copyrighted product in a digital form than 

they do in a physical world. The same rules apply. The RIAA is 

just enforcing them. 

I prosecute shoplifters in my store. If I didn’t and word got out, 

I would have no inventory. Online shoplifting will only be stopped 

by aggressive enforcement that creates a deterrent effect. Please 

help the copyright owners protect their property. Our industries depend upon it. My fellow retailers depend upon it. Our employees 

and their families depend upon it. Thank you. 

Senator COLEMAN. Thank you, Mr. Negra. 

I know that some of my colleagues have opening statements, but 

in the interest of time, I wanted to forgo that and hear from the 

witnesses. What we will do is 7-minute rounds of questions and 

hopefully that will give my colleagues a chance to do a preliminary 

statement. Of course, the full statements will be entered for the 

record. 

Let me begin. Mr. Bainwol, are you concerned that the decision 

to sue hundreds of music lovers could have a negative effect on fan 

loyalty and could harden consumer resistance to legitimate online 

sites? 

Mr. BAINWOL. Concern? You can’t take a decision like this lightly. The decision to move forward with the legal action was a last 

resort. We simply had no choice. It is the end product of a campaign that involved paid advertising plus lots and lots of free media 

interviews. We have tried to get the message out. The market has 

just fallen apart when you are competing against free, and this was 

the last thing we had in our quiver. 

So we had to do it, and the good news is that it stimulated a national debate. Parents are going home, having that conversation 

with their kids over the dining room table. That is exactly what we 

hope to stimulate. The answer isn’t lawsuits. The answer is kids 

learning the difference between right and wrong and technology 

that offers a legal way to get the music fans want. 

Senator COLEMAN. There are those who are involved on the P2P 

side that say that the recording industry is a tough industry to 

deal with. They are tough to negotiate with, and if we could just 

sit down, we could sort this out. Do you think there is a possibility 

23

of figuring out a way to sort this out where, in fact, you can protect 

copyright interests and others can engage in the business of legal 

file sharing? 

Mr. BAINWOL. Until the P2P folks get legitimate, it is an awfully 

tough thing to do. The reality is, 99 percent of the traffic on those 

networks is illegal downloading. Maybe it is 90 percent, maybe it 

is 95. One study said 99. It is a totally illegitimate platform. It is 

Jesse James wanting to be hired at the bank. It is just silly. 

Senator COLEMAN. But if we were to do something that would 

somehow force those involved in illegal file sharing today, they 

might say yes, we have changed our ways, and we now installed 

the filtering technology. We are doing all the things you are talking 

about. But, what would stop someone else from doing it? What 

stops somebody else from just setting up a similar operation? How 

do you get your arms around something that is global in nature 

and is subject to the flow of technology? 

Mr. BAINWOL. Nobody says it is going to be easy. This is tough. 

But what we have to do is we have the leaders and parents send 

a message that taking copyrighted materials is wrong. There is an 

education piece to it, and we have got to find a way to foster the 

technology. There is no magic wand that you can wave and solve 

this problem. It is education. It is conversations at home. It is legal 

alternatives. And it is putting pressure on the P2P guys to conform 

to basic common decency and corporate governance standards. 

Senator COLEMAN. Mr. Valenti, I know you have looked at this 

problem for a while, and perhaps the movie industry is in the 

somewhat enviable position of being able to kind of watch as this 

technology develops. The fast stuff isn’t here yet, but it is coming. 

The Internet II stuff isn’t here yet, but it is coming. 

Can you help us a little bit in terms of what you think could be 

done from a software and hardware side that could have some impact? Is there something? We don’t have the Dells and the 

Microsofts and others at the table today, and that may be another 

hearing. Can you tell me, do you have a vision as to what can be 

done on the software and hardware side that can help us solve this 

problem? 

Mr. VALENTI. Mr. Chairman, I think that one of the aspects of 

a possible solution, because there is no single silver bullet, has to 

be technological research. Technology is what brought on this problem and technology may be the salvaging of this problem. 

We are working hard on that right now. I am going to be attending a meeting in 2 days where the member companies of the association, the studios, are looking at technological research to begin 

that. We are already in conversation, deep conversations with the 

Microsofts of the world and the IBMs to see what can be done. 

There are a number of independent fine minds in the high-tech industry working on this. 

But there has to be something else, too. There has to be an 

awareness on the part of the American public that this kind of 

scramble, taking things for free that belong to somebody else, has 

to be stopped. We are squandering in this country a whole moral 

platform that has been built, and I worry about that. I would think 

that this Senate and you and the rest of your Subcommittee would 

24

be worried about that. It is a larger problem. But it is inherent in 

the solutions that we are looking for. 

Senator COLEMAN. Mr. Cool J, first of all, you talked about fans’ 

love and support. I do want you to know that you have that in this 

building. On the way over, I heard the folks who run the elevators 

in the Senate and the Capitol really want you to come by and say 

hello, so there is a lot of love and support out there. [Laughter.] 

Mr. COOL J. Thank you. 

Senator COLEMAN. There are those who suggest that the honor 

of online record and music distribution gives more power to the artist, and somehow takes it away from the record executives and 

gives you more power. Can you respond to that? 

Mr. COOL J. I understand what you are saying. I think it is two 

separate issues. I think that the deal that you negotiate with your 

record company and your music being given away for free are two 

separate issues. 

Yes, OK, maybe if you don’t have a contract and you just started 

and you put your record on the Internet and people like it, you can 

get attention. But that was your choice. You made that choice. If 

another artist decides to come here today and say, hey, I choose to 

upload my music for free and the rest of the world can have access 

to it for free, that is their choice. That is their right. 

But I think that from my relationship and the friends that I have 

in the entertainment industry, on both sides, music and film, I 

know that the majority of artists—the majority—want to be compensated for what they do. And ultimately, like I said before, because you are exposed, because you gain more notoriety by being 

shot throughout cyberspace does not make up for the crime. It 

doesn’t change the fact that it was stolen. 

Senator COLEMAN. You have already had a very successful career 

and I suspect there is a lot more to come. What advice—talking 

about choice—what advice would you give to an up-and-coming artist as to how to navigate their way through this system where you 

have technology offering all this opportunity. 

Mr. COOL J. I think that, obviously, America is a country where 

the entrepreneurial spirit is everywhere, in every corner. Having 

your own business is always a wonderful option. Having your own 

label, having your own things, these are all wonderful options, but 

ultimately, it is great to have a great partner who can invest in you 

and help you to expose your product to more people all around the 

planet. 

My advice would be to make great work, choose and figure out 

the business model that you want to utilize to get that work, to disseminate that work to the public, to get it out there to the public, 

but ultimately, either you want to be compensated or you don’t. 

You understand what I am saying? It is whether you are anti-big 

industry or anti-big label and you feel you should be on a small 

label or you should be independent and you don’t want to be associated with any of the larger companies, that is your choice. But the 

real question is should you be compensated for your work or not? 

I, for one, believe that in America, when people work, they like to 

be compensated. 

Senator COLEMAN. Thank you. Thank you, Mr. Cool J. 

25

My time is up, but Mr. Negra, I have one question and may come 

back on a second round. Do the universities have any responsibility 

to step out in front, and have you as an individual entrepreneur 

been involved in discussions with them about this problem? 

Mr. NEGRA. My discussions with Penn State go back to 2001 

about it. I think that they were limited in their ability of, I guess, 

controlling what was happening on their servers back in 2001. I 

think that they have some responsibility, yes, and I continue to 

have discussions with the university. 

Mr. VALENTI. Mr. Chairman, can I break in a moment on that 

very subject? 

Senator COLEMAN. Very briefly, because I know that my colleague, the Ranking Member, has another commitment and I do 

want to get to him. 

Mr. VALENTI. Let me withhold that question. 

Senator COLEMAN. Thank you. With that, I will turn to Senator 

Levin. 

Senator LEVIN. Thank you, Mr. Chairman. I would ask that my 

entire opening statement be made part of the record, also. 

Senator COLEMAN. Without objection. 

Senator LEVIN. First, let me thank each member of this panel. 

I just wish everybody could have heard this testimony, everybody 

who thinks that it is OK to download or upload copyrighted material. I wish they could have heard the clarity, the moral clarity 

with which you speak. 

The question that I have is whether or not the message which 

you have provided and which we are attempting to provide needs 

to be reinforced by any changes in law. Are there things that we 

should do that would require, for instance, technological capabilities to be inserted in this software which would notify people that 

they are downloading or uploading copyrighted material? I think 

that is technologically feasible now. It is not incorporated in some 

of these companies’ software. Should we require that it be incorporated? I am just throwing out one possibility. 

But my question is, I think the message is so compelling, does 

it need to be reinforced by any changes in law, in your judgment? 

Now, you may not be in a position where you are able to answer 

that, but if you are, I would welcome your comments. 

Mr. BAINWOL. I would make two quick comments. The first is 

that our natural inclination would not be to support mandates on 

technologies. What we need to do is have an opportunity to enforce 

the law and to send signals that the law matters. 

We are a Nation of laws. We are in a situation where an industry 

is being ravaged. And what we need to do is send signals that, in 

fact, it is appropriate to enforce, and when people get that message, 

the education campaign will be complete and we are on the way 

to a solution. 

Senator LEVIN. Mr. Valenti, I understand, and I am not a technology expert, that it is technologically feasible to require file-sharing software to include features that would discourage copyright 

violations, pop-up warnings, for instance. Now, if that is technologically feasible, which I understand it is, should we mandate 

that? 

26

Mr. VALENTI. Senator, the movie industry has been in long years’ 

conversation with the high-tech industry, the IT and consumer 

electronics industries, the computer makers, chip makers, and the 

consumer people. We have been meeting with them, trying to find 

some middle ground, some concord that then we could come to Congress and mandate. 

I lament the fact that we have not been able to make the kind 

of progress that I hope for, but one of the solutions, one of the bullets—not all—will, in my judgment, be at some point some kind of 

a mandate that would be technologically feasible, possible, easy, 

and inexpensive, because in the long run, it is the American consumer, Senator Levin, that is going to be denied high-value programming. We want to put thousands and thousands of titles on 

the Internet, deploy those, dispatch them to homes all over the 

world at fair and reasonable prices, which is a definition to be defined by the consumer and not by the distributor. That is our aim. 

Mr. NEGRA. You are insinuating that people don’t know that it 

is wrong and that it is copyrighted material, and I believe——

Senator LEVIN. No, I am suggesting that they need to be reminded every time they do it. 

Mr. NEGRA. Well, I think that Penn State students, for example, 

are relatively intelligent and they know that it is not—that it is 

wrong to do and that it is copyrighted material, and yes, I guess 

another line of defense per se wouldn’t hurt, but I think they know 

it ahead of time. I just don’t think they care and I think that they 

have this entitlement feeling, that if it is on the Internet, it must 

be OK. It is mine. 

Mr. BAINWOL. If I could just add one thought, the folks from the 

P2P community will be here. Ask them if they would voluntarily 

have these pop-ups that tell you that you are violating the U.S. 

law——

Senator LEVIN. I intend to do that if I can get back here. If they 

say that they are not going to do it voluntarily, the question is 

whether it should be mandated or not. 

Mr. COOL J. Yes. 

Mr. VALENTI. The answer is, at some point, we probably have to 

do that. 

Mr. COOL J. Ultimately, sir, I think that people are well aware, 

the general public is well aware, and the only thing that will really 

be a true deterrent are laws that are fairly strict and deter you 

from wanting to engage in this type of activity. I mean, it is like 

anything else. If you guys with the power don’t say, hey, you can’t 

do this, it is wrong and if you do it, this is what happens——

Senator LEVIN. We have already said that. 

Mr. COOL J. Yes, sir. 

Senator LEVIN. It is already against the law to do it. The question is, does the law need to be in some way strengthened to use 

new technologies in some way to fight this pirating. We fight the 

piracy when it occurs in other countries. We negotiate trade agreements with other countries trying to protect our intellectual property. Some of them continue that piracy unabated, despite those efforts. But here, if there is a technology which could be effective, 

should we mandate its use? That is the question which I think we 

need to struggle with, if it is not voluntarily used. 

27

Mr. BAINWOL. If, in fact, the P2P community does not respond 

voluntarily, then they should be subject to mandates. 

Senator LEVIN. The last question for this panel, and that has to 

do with this subpoena question. The current law does not require 

notice to the person whose identification information is being subpoenaed, and the question that I have is, isn’t it to your advantage 

that person be notified that there is a subpoena that has been 

issued or requested, because you may be able to achieve voluntary 

compliance. 

In other words, there is a change in law which it seems to me 

might be consistent with fairness that is to notify somebody that, 

hey, there is a subpoena out now for information relative to you. 

This isn’t like notifying somebody who is engaged in money laundering that there is a subpoena issued, because that person might 

then run and try to hide the money or move the money. This is a 

different issue. That person is not going anywhere. Wouldn’t notice 

of the issuance of a subpoena be consistent with fairness, but from 

your perspective, also lead perhaps to quick and voluntary compliance? That is my question. Mr. Cool J. 

Mr. COOL J. I agree. I think that is very fair and I think it 

sounds very smart and it is a really creative idea and I think it 

is the right way to go. I definitely think it is the right direction. 

Senator LEVIN. I really welcome that endorsement. I hope you 

will also endorse my records, by the way. [Laughter.] 

Thank you all. You have been a great panel. 

Mr. COOL J. Thank you very much, sir. 

Senator COLEMAN. Thank you. I would note the presence of the 

distinguished Chairman of the Committee on Governmental Affairs. That is Senator Collins. Welcome. With that, Senator 

Sununu. 

OPENING STATEMENT OF SENATOR SUNUNU 

Senator SUNUNU. Thank you, Mr. Chairman. I have no records. 

I have no intention of producing records. Everyone can breathe a 

sigh of relief. [Laughter.] 

I appreciate, Mr. Chairman, you holding this hearing. This is, obviously, an extremely important subject and one in which I take 

great interest. I appreciate all of the panelists, their statements, 

and want to reiterate the statement by Senator Levin. 

The degree to which this is an important issue hinges on our respect for private property rights. I think you will find everyone on 

the panel committed to supporting individual property rights and 

sharing the belief that copyrights are part of that individual property right history that, in many ways, makes our country unique. 

It drives commerce. It drives business. It drives industry, whether 

you are in the entertainment industry or writing or producing any 

kind of intellectual property. 

Second, I think it is important to acknowledge the right of those 

who are engaged in business, whether you are a recording artist or 

you own a business, your right to use the legal tools at your disposal to protect your property rights, your copyright. I think that 

is legitimate, that is fair, and has to be acknowledged, because if 

we don’t acknowledge that, we are sending the wrong message. 

28

There are a number of concerns here, though, and when we talk 

about technology and we talk about the text of the laws we write, 

we begin getting into slightly grayer areas. Concerns for me are, 

one, the very nature of the subpoena power that has been written 

into the MCA, the Millennium Copyright Act, and specifically the 

5(12)(h) subpoena. This is a new kind of subpoena power. We need 

to acknowledge that. Whether we think it is a good idea or a bad 

idea, we have given unique new subpoena powers to copyright holders, a type of subpoena power that no other individual or entity 

that I know of is given, and we want to make sure it is used in 

an appropriate way. We want to examine the question of whether 

or not it is used in a way that intrudes on privacy. 

And certainly a second concern is probably much greater on that 

side of the dais, is the way in which these technologies are going 

to change, one, the business models that you incorporate; two, the 

way these technologies are going to facilitate ever-greater volumes 

and ease of file sharing, and Mr. Valenti, as usual, addressed that 

in a very eloquent way; and finally, the way in which these new 

technologies, technologies that are going to come around in 5 years 

or 10 years, are going to make enforcement even more challenging. 

We can certainly hold out the hope that we will identify some technologies that make enforcement easier, but I think the history, the 

evolution of the Internet and processing capability and distributed 

networking, show that it makes enforcement, in many cases, much 

more challenging. 

So those are the concerns that I have and I hope to explore with 

this panel and the next panel. 

Let me begin with Mr. Bainwol, welcome. In the material we 

have, it noted that there were 2.6 billion downloads a month. Try 

as you may, you can’t sue them all. I don’t think that is your goal. 

We could probably find some lawyers that would be more than willing to try to sue them all—— [Laughter.] 

But I don’t think that is realistic. So in that light, can you talk 

a little bit about the goals of your legal strategy, the subpoenas and 

the lawsuits that you have pressed forward. What are the goals, 

and as quantitatively as possible, how will you know when you 

have achieved your goal? 

Mr. BAINWOL. Our objective, again, is not to file lawsuits. Our 

objective is to create an environment in which legal alternatives 

can flourish. If there is a free competitor, that makes it awfully difficult to establish an economic model that can work. 

But we are engaged in lawsuits. Again, it is done as a last resort. 

We will do it as long as necessary to get the message out and to 

establish the proper deterrent. Laws are there in order to defend 

property and we have got to enforce that law to get the message 

out and we will continue to do so. 

Senator SUNUNU. How do you know when the message is out, 

though? How do you know when you have sort of achieved the 

goals of this legal strategy? 

Mr. BAINWOL. We will know it when we see these legal offerings 

flourishing. We are not operating in a situation where we expect 

a zero tolerance on downloading. What we are looking to do is to 

create a marketplace that can operate, that can take hold, and my 

hope is, in 6 months from now, we are going to be talking about 

29

the whiz-bang offerings that are already out there that are getting 

better and better and better. Kids, as a result of conversations with 

their parents, know that instead of going to Kazaa, they are going 

to go to BuyMusic.com, they are going to go to iTunes, they are 

going to go to MusicMatch, and they are going to find a legal way 

to get done what they want, which is to enjoy music. 

Senator SUNUNU. Do you think the poor performance of legal options that are out there has been driven solely by the existence of 

peer-to-peer? 

Mr. BAINWOL. One, I would not accept the premise that the performance is not good. I think if you go on some of these sites, they 

are outstanding. Go on MusicMatch. They opened up yesterday. I 

went last night. Go on iTunes. It is amazing. 

But, I will say this. P2P makes it much tougher. If you are a kid 

and you can go out there and get it for free, why would you go to 

iTunes? And unless this Congress enforces our right and enforces 

the law and—we are going to have a tough time making that sell. 

Senator SUNUNU. Mr. Valenti, you had wanted to make a comment earlier. Let me ask you a question, and if you want to stick 

in the comment you had missed, by all means, and that is sort of 

the second concern and you began to touch on it in your testimony. 

How will the new technologies or emerging technologies or even 

existing technologies today change business models used by the entertainment industry and the motion picture industry? 

Mr. VALENTI. Let me answer that by saying President Kennedy 

used to tell a story about a French General in Algeria who told his 

gardener that he wanted to plant a certain species of trees along 

his pebble drive to his chateau, and the gardener said, but General, 

this tree takes 50 years to really bloom. And the General says, my 

God, we don’t have a moment to lose. Plant it today. 

We are trying to put in place right now, Senator Sununu, Bathel 

plates to the future. We have been sort of relieved right now because it takes so long to bring down a movie, but I told you what 

is going on in Cal Tech and Internet II, what is experiment today 

will be in the marketplace 3 to 4 years. So we are looking 3 to 4 

years in advance. 

I believe that technology is going to play a large role in dealing 

with this, but along with that there has to be an understanding by 

the public that this is wrong. 

What I was going to say earlier to the Chairman was, we have 

been working very closely with a group of universities, Rick Levin, 

the President of Yale, Graham Spanier, the President of Penn 

State, John Hennessy, the President of Stanford, Charles Phelps, 

the Provost of Rochester, and Molly Broad, the President of the 

University of North Carolina. As these students came back this 

year, a lot of universities gave them a code of conduct saying this 

is wrong and if you persist in doing this, there are penalties. They 

vary in substance and in heft. But they are trying to explain to students that there is a price to pay. 

What the RIAA, and I am not speaking for them because I don’t 

know their overall strategy, is trying to say is ‘‘it is wrong and this 

is not risk-free. There is a penalty to be paid.’’ If we did not have 

the IRS auditing at least 2 percent of the income taxes in this 

30

country, who would pay income taxes? Nobody, because it is riskfree. 

And so what we are trying to do is to point out that there is a 

risk for this. On the other side, we are going to try to use technology to see if that will also be one of the silver bullets that we 

can use. 

Senator SUNUNU. Thank you very much, Mr. Chairman. 

Senator COLEMAN. Thank you. Senator Pryor. 

OPENING STATEMENT OF SENATOR PRYOR 

Senator PRYOR. Thank you, Mr. Chairman, and I would like to 

thank you for your leadership on having this hearing today. 

And also, I need to acknowledge Senator Boxer, who was here a 

few moments ago. She and I have talked about this subject privately on more than one occasion, and so I just want you all to 

know, the people in this room, that she is not just here when the 

microphones are on and the cameras are on. She is very vigilant 

about this issue, is very concerned about this issue and wants to 

make sure that everyone’s rights are protected. 

What Senator Levin said a few moments ago—he talked about 

different forces colliding, and I agree with him on that. And another way to look at that, I think, is you have the one traditional 

American force that is foundational to American law, and that is 

that this country, from the foundations of our Nation, made the 

commitment that we are going to protect intellectual property 

rights. We did that through the patent law initially and we have 

had a strong history of doing that for the last 200-plus years. I 

think that is one of the reasons why our economy has historically 

continued to grow and continued to be as strong as it is, and that 

is because people in this country who are creative and who are industrious know that their rights will be protected here in America. 

But at the same time, there is this other great force and it is the 

information age or the Internet, and it really is a revolution. It is 

changing the way business is done in this country. It is changing 

our law. It is changing people’s ability to function in this country. 

It is something that I know the music industry has been struggling 

with in the last few years to try to get a handle on this. My hat 

is off to the ones who are trying and trying to protect the legitimate rights of the industry. 

Another thing that, Mr. Chairman, I just wanted to say is that 

I have some concerns, just general concerns, about the concept of 

file sharing. I am not opposed to that concept. I understand how 

it can be a very positive thing, a very constructive thing, a very 

good thing, but I am very concerned that we need to build in more 

consumer safeguards with regard to file sharing. 

There is a lot of inappropriate content out on the Internet. There 

are a lot of young people and others who come across inappropriate 

content that they really don’t want to see, they don’t have any desire to view, but nonetheless it is out there and file sharing adds 

to that. 

There is also the problem that was mentioned in someone’s opening statement about the unwanted access to your personal files. If 

you are not careful, you are opening all of your personal files to 

people who you don’t know and you don’t intend to do that. 

31

Of course, a third thing about file sharing is the piracy aspect 

of that, which concerns me greatly. 

The prepared statement of Senator Pryor follows:


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90239.008
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90239.009
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Senator PRYOR. Mr. Valenti, let me start with you, if I may, and 

it is great to see you here in the Subcommittee today. I know that 

your industry is, in many ways, related to the recording industry. 

There is a lot of cross-pollination there and there is a lot of overlap 

there. What has the movie industry learned from the battles that 

you have seen the recording industry go through and is the movie 

industry changing its business model or what steps is the movie industry taking to prepare itself? 

Mr. VALENTI. To paraphrase Mr. Churchill, I didn’t become head 

of the Motion Picture Association to preside over a decaying industry. And when I see the pillaging that is going on in the music industry, and L.L. Cool J has explained why the artists are worried 

about this, I have a few Maalox moments when I do that. [Laughter.] 

We are following very closely, Senator Pryor, what is going on in 

the music industry right now. I have great sympathy and compassion for what they are going through, because you can bring down 

a song in real time, 2 or 3 minutes. One of L.L. Cool J’s recordings, 

3 or 4 minutes, bango, you have got it. 

So we are trying to put in place a lot of things. Ultimately, Senator Pryor, our aim is to benefit the consumer. That is what this 

is all about. When somebody said to me, why don’t you Hollywood 

guys stop whining and get a new business model, and I said, ‘‘boy, 

that is a great idea, why didn’t I think of that,’’ except there is no 

business model ever struck off by the hand and brain of man that 

can compete with free. That is an absolute truth. 

So we are working with technology, we are working with the colleges, we are doing public persuasion, upping our law enforcement, 

all of these converging elements in order to put in place something 

that is going to help us survive 3 to 4 years from now when you 

can bring down these movies in minutes and seconds. 

Senator PRYOR. Mr. Bainwol, let me ask you, if I may, there have 

been some press accounts of sort of innocent bystanders, so to 

speak, being dragged into this litigation. What safeguards are in 

place or should be put in place to make sure that innocent people 

don’t get dragged into this? 

Mr. BAINWOL. Great question, Senator. There are a number of 

safeguards that we do, in fact, employ, and more on the way. 

Let me first say that we focus on the most egregious offenders. 

The average number of uploaded files in the 261 folks who were 

sued was over 1,000. I have had these CDs here for a reason and 

I have waited for the moment to pop them out and tell you why. 

It wasn’t to hide my face. It is to make the point in a visual way 

that this is roughly the amount of material that was taken from 

the artists, from the L.L. Cool J’s of the world. This is their work 

product. This is their dream. This is their future. This is what they 

have been compensated for. And this is what, on an average basis, 

what was taken down from the Internet. 

It seems awfully innocent for any individual that does it, but 

when you aggregate it by the millions, you are killing an industry, 

a great American industry. That is one. 

Two, based on the law and based on technology, what we do is 

we seek information from the ISPs on an IP account. We don’t 

know who the individual is. What we know is, when you go on P2P, 

35

you are offering your files up to the world. There is no privacy 

there. You are exposing it literally to the entire world. 

We go in, we get a snapshot of that, and we are able to determine what files are out there and the IP address. That is what we 

send over to the ISP. They give us the name. What we get is the 

name, the E-mail account, the address, and the phone number. 

That is it. It is very limited. It is the same information that some 

ISPs sell to marketing partners. 

Senator PRYOR. Mr. Chairman, that is all I have. Thank you. 

Senator COLEMAN. Thank you, Senator Pryor. Chairman Collins. 

OPENING STATEMENT OF CHAIRMAN COLLINS 

Chairman COLLINS. Thank you very much, Mr. Chairman. I have 

an opening statement that I would like to have inserted in the 

record. 

Senator COLEMAN. Without objection. 

The prepared statement of Senator Collins follows:

36


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Chairman COLLINS. I want to commend you for tackling this very 

interesting and difficult subject. I think you have said it well when 

you said that the law, ethics, and technology are not in sync and 

it is our job to try to deal with these very complex issues. 

Mr. Bainwol, in your testimony, you said that the music industry 

has for a number of years undertaken a massive campaign to educate consumers regarding the illegality of unauthorized distribution 

of copyrighted music online. Do you think that that campaign has 

been a success? Do you think that the average consumer who is 

downloading music from a peer-to-peer network realizes that they 

are committing essentially a theft? 

Mr. BAINWOL. The campaign was necessary, but not sufficient. 

There is no question. What we have seen is that as much as you 

tell folks, until you demonstrate that there is a consequence, the 

behavior is not going to change. 

But we also had to tell people and reach more people and penetrate with the message that downloading is wrong. The lawsuits 

have, in fact, done that. Earlier, I noted that we have public opinion data that suggests until June, prior to the launch of the subpoenas, that the number of folks who understood that it was illegal 

to download copyrighted materials was around a third. That number has doubled to about 60 percent. So the legal action is a piece 

of an education campaign that happens to be profoundly effective. 

Chairman COLLINS. I think the lawsuits have certainly gotten everyone’s attention. I would agree with you on that. I don’t think the 

educational campaign has been successful. There is still a widespread misperception that if it is on the Internet, it is free, it is 

OK to use. An individual who would never think of going into Mr. 

Negra’s store and stealing CDs sees nothing wrong with 

downloading the exact same music from the Internet. I think until 

we change how people perceive the Internet, that we are not really 

going to solve the root of this problem. 

I am also not sure that lawsuits are the answer, and Mr. Negra, 

I want to ask you how you feel about the lawsuits that have been 

filed. I have read your testimony where you say that you think 

they were required, but as a small business person, how do you feel 

about solving this problem through litigation? 

Mr. NEGRA. Well, my feeling is that something has to be done, 

and as a deterrent, a deterrent has to be present, very similar to 

Mr. Valenti’s analogy to income tax. I absolutely agree with that. 

The entitlement issue that our customers feel, that they can go online and take that without consequence, has been the destructive 

force to my business and a lot of other businesses. So I am all in 

favor of the efforts of the RIAA towards this as long as obvious 

safeguards are taken. 

Chairman COLLINS. Mr. Bainwol, I want to go back to you on the 

issue of CD prices. One of your member companies, Universal 

Music Group, recently announced it was going to cut the wholesale 

price of its CDs by three dollars. Some experts believe that this 

move would help reduce the pirating of music from the Internet. 

Is that why the prices were cut? Is this an attempt to make music 

at the retail level more affordable? 

Mr. BAINWOL. It is difficult for me, as an association chief, to 

speak to the pricing practices of member companies. As a conVerDate 0ct 09 2002 08:04 Jan 30, 2004 Jkt 090239 PO 00000 Frm 00042 Fmt 6633 Sfmt 6602 C:\DOCS\90239.TXT SAFFAIRS PsN: PHOGAN
39

sumer, lower prices certainly are attractive and I think I would 

leave it there. 

I do want to add one other thought, though, related to your first 

question, if I could. We try to get a message out, and in the absence of conflict, sometimes penetration is very difficult. The legal 

action stimulated coverage like you would never believe. Let me 

read three headlines. Newsweek: ‘‘There is One More Talk You 

Need to Have.’’ New York Times: ‘‘New Parent-to-Child Chat: Do 

You Download Music?’’ USA Today: ‘‘Parents Have a Hand in Song 

Swap Debate. The Kids All Do It, So Experts Say It is Up to Mom 

and Dad to Lay Down the Law.’’

The legal action is about setting up a deterrent, but it is also 

about making sure that parents do their duty and have that conversation. 

Mr. NEGRA. May I respond to the pricing issue? 

Chairman COLLINS. I was just going to turn to you for that, so 

please do. 

Mr. NEGRA. I don’t believe that the idea of CDs being over-priced 

was ever a concern or a conversation until ‘‘free’’ was the option. 

I have been in the business long enough to know that the value of 

CDs was considered, or the value of music, going back to vinyl, was 

fine. People responded to it, and obviously my business was strong 

and the business as a whole was strong until that option of ‘‘free’’ 

was out there. 

And so, yes, I mean, I am very glad that Universal is reducing the price, but still, paying $9.99 for a new release versus getting 

it for free on the Internet is still a no-brainer to most kids. 

Chairman COLLINS. That is why I am curious about the action 

taken by Universal. Again, I was going to ask you whether you 

think it will reduce the pirating from the Internet, because I personally don’t think it will have any impact because, as you just 

said, you are comparing it to getting it for free. 

Mr. NEGRA. Well, I think it is all part of the puzzle. I think that 

along with the RIAA’s efforts towards deterrent and as far as reducing pricing and showing more value, including a DVD extra or 

whatever it takes to get people back into the stores, and I also believe that is one of the ways that we are going to determine whether the lawsuits are effective or not is increased traffic in physical 

stores as well as increased traffic on legitimate downloaded sites. 

I think that it is all part of pieces of the puzzle and that it can’t 

be just one thing. There are a number of things, and lowering the 

prices is certainly a move in the right direction. 

Chairman COLLINS. Mr. Chairman, I will say, as someone who 

has no idea how to download music, that I am pleased to see the 

price cut. So it will make some of us who are older happy. Thank 

you, Mr. Chairman. 

Senator COLEMAN. Thank you, Madam Chairman. 

We do have two more distinguished panels, however. What I am 

going to do is provide an opportunity for one more 2-minute round. 

I think there are some follow-up questions that my colleagues have, 

and actually, I have two of them. 

Mr. Bainwol, Senator Levin had raised the issue of fairness and 

notification. In the present system, subpoenas are issued to the 

ISP. The individual doesn’t know that they are subject to any inVerDate 0ct 09 2002 08:04 Jan 30, 2004 Jkt 090239 PO 00000 Frm 00043 Fmt 6633 Sfmt 6602 C:\DOCS\90239.TXT SAFFAIRS PsN: PHOGAN
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vestigation. The individual, in fact, may not be the person who was 

actually using it, and that is some of the problems that we are seeing, moms and dads, 12-year-olds, whatever, folks who said, ‘‘It 

may not be me, it may be my brother or my friend.’’ Do we need 

to—is there something that the Recording Industry can do voluntarily to provide more fairness? 

Mr. BAINWOL. Yes, Mr. Chairman. As I noted in my testimony, 

there are two standards that we are living by as we go through this 

exercise. One is to vigorously advance our rights and the second is 

to try to do it in a reasonable, smart, and decent way. And toward 

that end, we would like to add one level to the process. 

Currently, before we go to the ISP, we do provide the ISP a notice that we are going to serve them a subpoena, we are going to 

issue a subpoena. So they have got that and they certainly have 

the right, if they choose, to notify the user. 

But what we are going to do in advance of filing the lawsuit 

against an infringer, and again, we are focusing on the egregious 

infringers who have downloaded something akin to what you see 

before me, but what we are going to do is we are going to notify 

folks that in a period of time, we will commence legal action. That 

gives them the opportunity to settle in advance of that legal action. 

It gives them the opportunity to make a case that we ought not, 

if that is their opinion. The idea is to be reasonable. We want to 

advance our rights and advance respect for property, but we want 

to do it in a fashion that is fair. 

Senator COLEMAN. My concern about the settlement are the penalties that individuals face. And by the way, many of these laws 

were passed, in the DMCA, the Digital Millennium Copyright Act, 

before the advent of peer-to-peer. 

I have two concerns about that. You have an individual, the little 

guy, a little person coming up and talking about the impact of 

being sued and they are being told that they face a penalty of up 

to $150,000 per song. Don’t you think that is excessive? 

Mr. BAINWOL. The $150,000 is law, and it is certainly not what 

we seek. What we do is leave it to the court to decide. 

But let me just make a point. If you are to go out and buy CDs, 

say they are all on sale and you got them for $9.99, you get 120 

of them, that is a lot of money. That is $1,200, roughly. Many of 

these settlements are not much beyond that. And I think one could 

argue that if we are trying to establish a deterrent, and that is 

something we should do to be serious about a law, that, in fact, the 

penalties could be even higher. But nobody is talking about 

$150,000. 

Senator COLEMAN. But I think you have that threat and I am 

concerned about the excessive nature, and we talked about bringing things to people’s attention. Public floggings would get people’s 

attention, but we don’t do that. I think there have got to be some 

limitations. 

Mr. BAINWOL. But public flogging is not part of law. The $150,000 is. 

Senator COLEMAN. The last comment, though, as you indicated 

that you would know it is successful when the legal offerings are 

flourishing. I think it is fair to say that one of the problems is the 

legal offerings are coming back way after the P2Ps took hold. I 

41

mean, would it be fair to admit that the recording industry had not 

been quick enough to put on the table the kind of legal offerings 

that now we are talking about, and so we still haven’t seen the impact of that. What I am hearing is promising, but P2Ps took hold 

way before the recording industry decided there should be legal offerings. 

Mr. BAINWOL. The timing of this, I think, is subject to some debate. There is no question that it has been tough to get these offerings to flourish, but it is tough to compete with free. If you try to 

amass capital and raise money for a business proposition, it is very 

tough when you can go out there and download from Kazaa for 

free. So I have a pretty good understanding of the way marketplaces work. That is a tough thing to accomplish. 

Once you begin to enforce, once we begin to set an expectation 

with the Kazaas of the world, then these offerings have a real live 

chance to flourish. 

Senator COLEMAN. Senator Pryor, do you want to have any follow-up? 

Senator PRYOR. I just had one quick follow-up, if I may, Mr. 

Bainwol, and that is I have heard the term, and I am not sure I 

understand how it works, but the clean state program? 

Mr. BAINWOL. Clean slate. 

Senator PRYOR. I am sorry, clean slate program. I can’t read my 

own writing. Could you run through that very quickly with the 

Subcommittee, please? 

Mr. BAINWOL. Sure. If somebody does not want to worry about 

subject to legal action, they can simply stop downloading and 

uploading illegally. That is all you have got to do, and you, in effect, got your own clean slate program. 

There were some people who came to us and said, we would like 

a piece of paper, a sense of certification that we can sleep at night. 

We want something that says we are OK. And so we made available a clean slate program that gave them the piece of paper, the 

sense of comfort, and it is at their request. 

There have been about 1,000 people who filed for that. Obviously, 

that is about four times the number of folks who have been sued 

so far. But I would suggest that there are probably hundreds of 

thousands, certainly tens of thousands of folks who have done the 

amnesty thing the old-fashioned way by stopping the illegal activity. 

Senator COLEMAN. Senator Sununu. 

Senator SUNUNU. Thank you, Mr. Chairman. I want to associate 

myself with your concerns, the remarks regarding the balance of 

the penalty. I don’t hold the RIAA responsible for setting the 

$150,000 penalty, but it is important that we have in statute penalties that are commensurate with infractions, because if we don’t, 

then they could be subject to abuse, although I don’t know that 

anyone is suggesting at this point that RIAA has grossly misused 

the statute. 

Mr. Bainwol, let us stipulate that the scenario we have been 

talking about comes to pass, that your legal strategy succeeds, that 

we have dramatically reduced, if not totally eliminated, the incidence of illegal downloading on peer-to-peer networks. Your offerings, as impressive as they are today, improve even further so that 

42

your public offerings, for sale offerings of peer-to-peer downloads of 

the best the music industry has to offer is thriving and utilized by 

countless music lovers across the country and across the world. 

Doesn’t that still leave Mr. Negra without a livelihood? 

Mr. BAINWOL. The future of music is both going to be in CD form 

and online, and that is the nature of life. If you are 22 and under, 

some studies suggest that half of your music comes from the Internet. If you are over 23, most of it comes from plastic. So there is 

a marketplace for both. 

Senator SUNUNU. But in the scenario I described, the downturn 

in sales, the erosion of his business profile would be just the same, 

if not even more dramatic, would it not? 

Mr. BAINWOL. I am not sure I follow that question. 

Senator SUNUNU. We are talking about a scenario where all the 

illegal downloading of music is replaced by legal downloading of 

music, unless you believe that someone would rather, instead of 

download it legally at the same or a cheaper price, actually go out 

of their home. So if you replace all the illegal downloading with 

legal downloading, you are still going to see an erosion of the business model and an erosion of the business that has sustained Mr. 

Negra and his family profitably for a number of years. 

Mr. BAINWOL. There is an impact on the bricks-and-mortar side 

of the business if the legitimate businesses do flourish. 

Senator SUNUNU. Mr. Negra, your thoughts about that prospect? 

Mr. NEGRA. I can live with it. If there is a legitimate alternative, 

Mike’s Movies and Music can move into an online service just as 

anybody else can. Things change. 

Mr. BAINWOL. And I would add to that, a great Minnesota company, Best Buy, is, in fact, doing exactly that. Businesses are modifying their strategies so that they can take advantage of bricksand-mortar, which is how some consumers want it, and online, 

which is how others, typically younger consumers, want it. The 

idea here is to get music that folks want, how they want it. 

Senator SUNUNU. Mr. Valenti, a number of different ideas were 

mentioned to deal with the illegal downloading on peer-to-peer, a 

change in the default settings, filtering copyrighted materials, and 

disclosure. I think that was the third one. How do you get an offshore entity like Kazaa, which is the one we always talk about, to 

comply with those kinds of mandates? 

Mr. VALENTI. The answer is very difficult, and that is the problem. By the way, Senator, $150,000—I can’t speak for music, but 

for the movie industry, where the average movie made by the 

major studios to make and market costs $90 million, and only one 

out of ten pictures ever get their money back from theatrical exhibition, and that is how they become prey to the infestation of these 

peer-to-peer networks. 

I think at some point there is going to have to be some kind of 

legislation that will allow this country to be able to deal with people who get on some obscure island in the South Pacific and thumb 

their noses at legitimacy, and there has to be some way to deal 

with that. I am not prepared at this time to tell you how, but I 

think that is absolutely essential if we are going to have any kind 

of order in this country. 

43

1The prepared statement of Mr. Morris appears in the Appendix on page 103. 

But I think the question, going back to the Chairman, Senator 

Coleman, I think that you need to ask the Kazaas of the world. Incidentally, the interesting thing is, you go to business school and 

they tell you how you fix a profit. First, you have got to get cost 

of goods sold. Kazaa has a zero cost of goods sold and they are just 

rife with advertisements, and that is how they make a lot of 

money. I am ashamed to say that some segments of the U.S. Government advertise on Kazaa, which I think is shameful. 

Senator SUNUNU. I appreciate that. I am not aware of that, and 

I think that is something that would be cause for concern. 

Thank you, Mr. Chairman, and thank you for your directness, 

Mr. Valenti. 

Senator COLEMAN. Thank you, Senator Sununu. Chairman Collins. 

Chairman COLLINS. Thank you, Mr. Chairman. I have no further 

questions. 

Senator COLEMAN. With that, thank you to the panel. We are 

very appreciative. 

We will call the next panel, Alan Morris, the Executive Vice 

President of Sharman Networks Limited, the parent company of 

Kazaa, a peer-to-peer network; Derek Broes, the Executive Vice 

President of Altnet, an online business which sells recordings; 

Chris Gladwin, the founder and Chief Operating Officer of 

FullAudio Corporation; Lorraine Sullivan, the recipient of a RIAA 

subpoena and one of the targets of an RIAA lawsuit; and finally, 

another noted artist, Mr. Chuck D. 

Pursuant to Rule 6, all witnesses testifying before this Subcommittee are required to be sworn. At this time, I would ask the 

panel to all stand and raise your right hand. 

Do you swear that the testimony you will give before the Subcommittee will be the truth, the whole truth, and nothing but the 

truth, so help you, God? 

Mr. MORRIS. I do. 

Mr. BROES. I do. 

Mr. GLADWIN. I do. 

Ms. SULLIVAN. I do. 

Mr. D. I do. 

Senator COLEMAN. Thank you very much. 

Again, we will stick to 5-minute statements by the witnesses and 

then we will do a round of questioning. 

With that, we will start with Mr. Morris. 

TESTIMONY OF ALAN MORRIS,1 EXECUTIVE VICE PRESIDENT, 

SHARMAN NETWORKS LIMITED, AUSTRALIA/ENGLAND/

VANUATU 

Mr. MORRIS. Thank you very much, Senator Coleman. Thank you 

very much indeed for your leadership and the timely nature of this 

inquiry. 

I note also holding it in this august chamber, where there has 

been very much drama, and we have just seen a bit of drama now. 

I have not recognized what I just heard. I think the notion that we 

acquired Kazaa at the beginning of 2002 just to make a quick buck 

44

from advertising is both offensive and naive. I used to run a major 

advertising agency network and there are much easier ways of 

doing that. 

Now, when we acquired the asset, the first thing we did was remove anything at all which implied, suggested or condoned infringement. Second, we changed a lot of the settings so that people 

wouldn’t be inadvertently sharing files. 

More importantly, we engaged straightaway with Altnet, sitting 

here, to fulfill our goal. Our goal was very simple when we acquired the asset, and that was to become the world’s largest and 

most effective online distributor of licensed content, and we have 

achieved that. We distribute more DRM-licensed files than anybody 

else in the world. Along with Altnet, we have been responsible for 

making new artists become successful, artists successful in some 

countries becoming successful in other countries. We have been embraced by the video games industry. They distribute massive files 

very successfully through the Altnet network. 

And what we have recognized is that as licensed files are available, then people will use them. I think it is patronizing and unkind to say of the 60 million people worldwide that use Kazaa, over 

two-thirds of whom, by the way, are over the age of majority, that 

they would go out and steal. 

There is infringement, and let me be clear, we do not condone infringement. We do not condone breach of copyright. I have run a 

pay-TV company. I have worked with copyrights all my life. The 

issue here doesn’t seem to be about copyrights. It seems to be about 

the control of the Internet, the control of online distribution. 

We approached the major labels and major studios back in May 

last year with a workable solution, the ability to effectively and efficiently distribute files online. We are not talking about an e-commerce website. We are talking about the mechanism which is 

regarded by consumer electronics companies, the computing industries, and academics everywhere as the most effective way of distributing content. And they refused to do business. 

Now, it shows my age, but I was around in the age, at the time 

of the VCR. I was advising the MPAA at the time. It is like deja 

vu for me, because then I heard about the fact that advertising on 

TV would die, that broadcast TV would wither on the vine. That 

didn’t happen. What we saw happening, and it is a lesson that 

maybe they can learn from, was they reduced the windows for exposure. Because, initially, you had to wait 5 years before you put 

a video out. They reduced the price and gradually they capitalized, 

and once a critical mass had been achieved, the motion picture industry adopted the VCR as the most profitable way of moving forward. 

You have raised the issue of subpoenas, and we think they are 

most unfortunate. We think that rather than serving subpoenas, 

they should address the paradox in your title. Why sue the people 

who are your customers? 

The reason the public has chosen peer-to-peer isn’t this naive notion that they are all criminals. I really don’t subscribe to that. 

Sixty million people are not criminals. Thirty million in the United 

States are not criminals. The reason is that it allows them to access files in the most effective way. 

45

1The prepared statement of Mr. Broes appears in the Appendix on page 115. 

We promote independent artists. We distribute the material from 

upcoming bands worldwide, and these are the gold files that are at 

issue. People find that the peer-to-peer mechanism as opposed to 

the website mechanism is the most effective. There is a 95 percent 

efficiency in terms of distribution. Mr. Valenti talked about 4 years 

hence, being able to download large files using new technologies. 

We can offer those efficiencies today. 

So I would ask the industry, why don’t they license to us? It is 

my firm belief that this notion of copyright, important as it is, is 

a smokescreen. They sought to control the distribution of video material. They have demonstrated, the RIAA and the MPAA, and not 

necessarily the entrepreneurial heads of labels, they have always 

sought to control. And maybe this is the one technology they feel 

they can’t. 

Is there anybody in this room that honestly believes that peerto-peer will go away? I could say their worst nightmare would be 

that responsible companies like ourselves and Altnet cease to operate, because then people would be driven to the darknets. These 

are the encrypted networks that are very difficult to detect. Or they 

would use the other means of the Internet, which they do anyway, 

for accessing infringing material. People have talked about 

downloading from the Internet, and that is true. It is not just about 

peer-to-peer. 

So we would say very simply to the entertainment industry: 

Serve consumers, not subpoenas. Why litigate when they could and 

prepared to license to us? They were prepared to license to Altnet. 

Their attorneys told them not to. 

Senator COLEMAN. Thank you, Mr. Morris. Mr. Broes. 

TESTIMONY OF DEREK S. BROES,1 EXECUTIVE VICE PRESIDENT OF WORLDWIDE OPERATIONS, ALTNET, WOODLAND 

HILLS, CALIFORNIA 

Mr. BROES. Thank you. I would like to submit my written testimony into the record. 

Senator COLEMAN. It will be entered in its entirety, without objection. 

Mr. BROES. Thank you. First, I would like to start by saying that 

we do not condone copyright infringement. It is illegal. 

I am a copyright owner. I have managed an Academy Awardwinning actor and produced multi-million dollar films. As a technologist, I have worked for the RIAA and the MPAA on this very 

subject. 

I would like to read you a quote. ‘‘It is not in our national interest to ban what you cannot see, to prohibit what you do not know, 

to turn your back on what you cannot measure.’’ Those are the 

words of a man who cares deeply for copyrighted intellectual property. They are the words of Jack Valenti’s recent testimony before 

a Congressional Committee earlier this month. The words are profound. They do not, however, reflect his industry’s actions. 

A closed mind is so intent on salvaging the status quo that it 

fails to embrace the potential of change. Our Nation is founded on 

the principles of accepting change, and having vision is one of our 

46

Nation’s greatest attributes, whether it is a black student entering 

an all-white school and breaking the status quo for a great America, or our Nation’s vision that space exploration is critical to future global needs. I fear, what kind of Nation would we be if we 

neglected to see the potential of desegregation or if we thought the 

moon was too far away and offered us nothing more than dust and 

rocks. 

It is both vision and an open mind that brings me here today. 

It is the love of creative works that fuels Mr. Valenti’s argument, 

and I don’t think anyone can argue with that. We agree that copyright is in peril and we agree that something must be done. 

Both the film and the recorded industry are building a business 

around peer-to-peer. They are inserting files into P2P networks in 

order to displace illicit files being traded. They are gathering information about users’ appetite for specific artists so they can exploit 

that knowledge and guide marketing dollars in the right direction. 

They are evaluating technology, with great attention paid to the 

viral aspects of its users and their ability to distribute a single file 

to millions of users across the world without much cost at all, or 

effort. 

The facts that they have discovered should be an encouraging 

sign of future business growth. I am certain that creative executives that run the entertainment companies are excited at the 

thought of a larger distribution platform, and I am also equally certain that the attorneys managing these companies are fearful of 

losing control of distribution rather than entrusting technology and 

users to provide their new global channels. 

I can tell you with great confidence that the entire entertainment 

industry believes that peer-to-peer is the single most powerful distribution tool they have ever seen. The MPAA states that 400,000 

to 600,000 films are being distributed every day on peer-to-peer. 

How much would it cost to distribute that many DVDs and could 

you do it in a day? 

With the industry’s cooperation, Altnet could exceed that number 

and provide it securely and in a manner where we would assure 

that all parties were fairly compensated. If you can imagine a few 

years from now a blossoming music industry and a growing film 

market in line with other historical technological adoption, both 

would be exceeding past revenues. Can you imagine that? L.L. said 

they are dreamers. We are dreamers. 

The MPAA has urged Congress not to close the legislative door 

on any new technological magic that has the capacity to combat 

digital thievery. I would argue the same. I would ask Congress to 

encourage the industry to explore all sources of technological magic 

to combat the issue. I would ask Congress to encourage the industry to explore an open mind, including the solution that has been 

proven to increase revenue, mitigate piracy, displace illegal pornographic material, and proven to empower the industry and artists 

alike. 

Altnet’s technology easily enables any content owner from the 

music, software, film, game industry to publish their content into 

Altnet’s secure distribution platform. These files are displayed in a 

prioritized listing in the top slots of the user’s returning search results. Any illicit file being traded will be pushed deeper into the 

47

1The prepared statement of Mr. Gladwin appears in the Appendix on page 123. 

system, since the licensed file is now taking up a very valuable slot 

in that system. Once downloaded, the user attempts to play the 

file. The digital rights management reaches out to deliver a license. 

The content owner maintains how they license and the rules surrounding a specific piece of content. 

As you will read in my written testimony, Altnet is leveraging its 

role as a market leader by spearheading efforts to establish a viable business model for peer-to-peer providers, content owners, and 

users, while at the same time having the highest regard and respect for the rights of each of the parties concerned. It is very effective. 

If the industry is truly enlisting the greatest technological minds 

to find a means to battle piracy technologically, we are right here. 

We are even in the same room. 

Ignoring the solution just because you don’t understand it is a 

disservice to those almost one million men and women that work 

to create movies and music. They are counting on the MPAA and 

the RIAA to find a solution. 

Senator COLEMAN. I would have you sum up, Mr. Broes. Your 

time is up. 

Mr. BROES. Yes. If the industry truly wants to find a solution to 

piracy and as not just a way to control the vast distribution networks of the future, they would not ban what they cannot see. 

They would not prohibit what they do not know. And they would 

not turn their backs on what they cannot measure. Thank you. 

Senator COLEMAN. Thank you, Mr. Broes. Mr. Gladwin. 

TESTIMONY OF CHRIS GLADWIN,1 FOUNDER AND CHIEF 

OPERATING OFFICER, FULLAUDIO, INC., CHICAGO, ILLINOIS 

Mr. GLADWIN. Good morning. I am Chris Gladwin, founder and 

Chief Operating Officer of FullAudio, the company behind the 

MusicNow digital music service. I would like to thank the Subcommittee for scheduling this hearing and taking the time to address some important issues in the future of digital entertainment. 

I started MusicNow 5 years ago with the purpose of creating an 

Internet-based music service that would improve the way people 

explore and enjoy music. MusicNow is an independent company 

without any financial support from record labels or traditional 

music industry executives. In our 5 years, we have worked through 

many difficult issues with major labels and music publishers to create the first licenses for interactive music services and to build a 

service that consumers are willing to pay for. 

We have always expected this business would be a challenge, but 

we never expected to be challenged by competition from black market networks that confuse consumers about intellectual property 

rights, that takes money from music fans without compensating 

creators, and that seem to thrive in the absence of law enforcement. In this challenging environment, MusicNow absolutely supports the recording industry’s aggressive action in defense of its intellectual property. 

Other witnesses will testify, and are testifying, that copyright 

and music licensing laws are so outdated that the only reasonable 

48

alternative is a compulsory license that strips from creators their 

ability to manage their own creative works. MusicNow believes otherwise, that the basic foundation of copyright law is sound and that 

though some of the rights and technologies are complex, these complexities should not cloud the reality of how our industry must collectively proceed in a legitimate manner. 

Other witnesses will tell you that the record labels illegally or 

unreasonably withhold licenses. I will tell you a different story, 

that the recording industry and the companies in it have been slow 

to recognize the change in technology and consumer behavior 

around us, that the recording companies tried for several years to 

control the future of technology and consumer behaviors, and that 

as a result, they are exceedingly difficult to negotiate with at a 

time when MusicNow and several legitimate companies are trying 

to help them reach consumers with viable services. 

But speaking as one independently funded music service provider 

who is in the market of selling services, it is possible, although 

very difficult, to license digital music. Apple, RealNetworks, the 

new Napster, MusicMatch, BuyMusic.com, AOL, Dell, Amazon, and 

others offer or will soon offer digital music services that compete 

with MusicNow. MusicNow and several competitors have licensed 

interactive digital distribution rights from all five major labels, 

major publishers, as well as several independent labels and publishers. Using these licenses, MusicNow has developed Internetbased music services that enable consumers to play music on demand, to play Internet radio stations, to subscribe to music, and to 

buy music that could be burned onto a CD or transferred to a portable device. 

Black market network companies that complain that they 

haven’t received licenses from music owners haven’t worked hard 

enough to establish sensible business models nor to establish themselves as reputable business partners by not facilitating piracy. 

Another issue raised by this Subcommittee and by advocates is 

whether the RIAA’s anti-piracy enforcement efforts have been overaggressive or anti-consumer. Rather, I would suggest your concern 

should be whether these enforcement efforts may be too little, too 

late, whether they are adequately supported by Federal law enforcement, and whether the consumer education efforts behind this 

anti-piracy campaign are sufficient. 

Enforcement is valuable for a specific deterrence of bad behavior, 

but it is perhaps more important as a public education tool. The 

public needs to clearly understand that so-called, ‘‘peer-to-peer 

sharing’’ of music is stealing and it is wrong and it will be prosecuted. The public also needs to be aware that several legal alternatives exist for acquiring digital music. We call on the RIAA, Congress, music companies, musicians, and the press to at least match 

the attention they have given to black market networks with an 

equal level of attention and support for legal services. 

Congress must also do its part. Two years ago, the U.S. Copyright Office reported to Congress suggesting changes in copyright 

law for digital online music, but neither the House nor the Senate 

has acted. We urge the Congress to consider these recommendations and to modernize our copyright laws for a digital age. 

49

1The prepared statement of Ms. Sullivan appears in the Appendix on page 130. 

MusicNow and other legitimate Internet music companies have 

built great services which offer hundreds of thousands of songs, including new releases and back catalog. Collectively, we have several hundred thousand paying customers who demonstrate that 

there are viable alternatives to stealing music online. 

I believe in the inherent ethics of the American people, and we 

prove that every day by signing up paying customers. However, in 

order for the United States to enjoy the benefits of our cultural creators and of a vibrant and healthy digital media industry in the 

21st Century, we must establish and enforce property rights for 

digital media just as we did for manufactured goods in the 20th 

Century. Thank you. 

Senator COLEMAN. Thank you, Mr. Gladwin. Ms. Sullivan. 

TESTIMONY OF LORRAINE SULLIVAN,1 NEW YORK, NEW YORK 

Ms. SULLIVAN. Good afternoon, Mr. Chairman and Senators. In 

August 2003, I was sent a very confusing letter by my cable provider alerting me that they had been subpoenaed by the Recording 

Industry Association of America for my personal information for 

copyright infringement. I immediately called the phone numbers 

listed on the subpoena for the RIAA and the lawyers, but wasn’t 

able to reach anyone. My customer service from the cable provider 

told me not to worry about the matter, that I would probably just 

receive a cease and desist order. However, that turned out not to 

be the case. 

On September 9, 2003, I came home to four messages on my answering machine from reporters asking me for statements in response to being sued by the RIAA. After recovering from that 

shock, I immediately tried to contact the RIAA and the person I 

reached explained the charges and that they could range between 

$750 and $150,000 per song. He followed that up saying that the 

goal of the RIAA was not to ruin your life and make you bankruptcy. 

Actually, it felt like that. He said a letter would come with the 

summons. It would explain how I could settle the case out of court. 

He said a settlement would be in the low thousands and it would 

probably be worth it to put it all behind me and get on with my 

life. He referred me to Pat Benson and advised me not to seek her 

advice, as she was not my attorney. 

I phoned Pat Benson. She told me that if I settled, I would get 

settlement papers detailing a mutually agreed upon monetary settlement. I then asked the exact number and she quoted between 

$3,000 and $4,000. She said I probably heard about a 12-year-old 

who had settled for $2,000, but informed me that that had been a 

special case, since Brianna’s mother was on public assistance. This 

particularly upset me, because I thought since I worked so hard for 

many years and waited until my mid-20’s to go to college and I am 

not on public assistance, my case is different. I couldn’t understand 

that implication. I asked if the settlement had to be paid in one 

lump sum. She said yes, accepting increments would not be feasible. 

50

At this point, I was crying and told her that all I had was $1,500 

to my name. I explained that I was already in debt, a full-time student. I also explained I had taken out student loans, but they had 

almost all gone to my tuition and expenses. She asked me if I could 

ask my parents for money, to which I replied no. She asked if there 

was anyone else I could go to and I said no. She asked if I had 

credit cards at that point. I told her I did, but they were pretty 

close to their limits, but perhaps I could inquire about cash advances. 

I was explaining to her that this was all pretty stressful and she 

said that nobody likes to be the heavy. She said she would go to 

her clients to see if they would be willing to accept less than $3,500 

from me. 

Two days later, she told me that they had accepted the sum of 

$2,500. I had come up with $2,100 at that point. She told me that 

the paperwork would be sent out. I would have a week to look it 

over and send it back with a certified check. I created my website 

seeking advice or help from the 60 million or so other download 

users. It helped me raise $600 in donations towards my settlement. 

I actually received my summons on September 18, 2003, when they 

were hand-delivered to my address. 

I feel that I have been misled as a consumer of music. Particularly misleading is the advertising that Sony has for their minidisks. In the commercial, you see a blue-headed alien encouraging 

a couple hundred friends to copy the play list he has created. Is it 

any wonder why other consumers such as me found and actually 

still continue to find it confusing? I mistakenly imagined that since 

Kazaa was still up and running, while Napster had been forced to 

close down, that the downloading I was personally responsible for 

was OK. 

I compared my actions to recorded songs on the radio. As far as 

I was concerned, the music I downloaded was for home personal 

use. I in no way financially benefited from nor intended to make 

a profit from this music. To me, copyright infringement actually 

pertained to the people in Chinatown who were hawking 

bootlegged and fake CDs on the street corner. 

I have taken responsibility for my part in all this. I fully realize 

that ‘‘I didn’t know what I was doing’’ is certainly not a valid defense. Still, I am very upset with the way that the RIAA, and their 

unfairness in handling the subpoenas and lawsuits. Where is the 

due process of law? 

I resent the invasion of my privacy, being named publicly without any warning whatsoever and also being unfairly targeted and 

having to choose between paying a settlement I can barely afford 

or to deal with the stress of litigation and potentially being held 

responsible for a couple million dollars in damages. 

The RIAA manner of investigating is severely lacking. They may 

not seem to care how responsible the person listed on the IP address actually is for the crime they are accused of. They go through 

all the trouble to make press statements, but do not follow up on 

actually researching how egregious each user is. They could have 

at least informally gotten in touch with me before knowingly 

unleashing a media storm upon my head. 

51

Supposedly, though I never actually read one, the RIAA sent out 

instant messages of warnings to people. This doesn’t make sense to 

me. If I am not the one who is actually on Kazaa at the time, how 

can they ever be sure it got to me? With all the people who have 

come and stayed at my apartment, including subletters, roommates, family members that I have had, it would be nearly impossible to monitor everyone and everything, and I wonder why they 

didn’t send a letter in my name to address me personally and make 

me aware of their intentions. I would have ceased and desisted on 

the spot. I would have made sure all my household members did 

the same. Surely, a courteous letter would bring about a much 

quicker result than a complaint filed in court, but they never gave 

me that chance to protect my privacy. 

I have been a music fan all my life and until recently had still 

bought CDs of the artists I love because I do wish to support them. 

But until the RIAA stops targeting unwitting victims, I am not 

going to buy any more CDs and I know many consumers feel the 

same. The personal invasion of privacy, the financial punishment 

and personal stress I have suffered seem a very hefty price to pay. 

I settled my lawsuit, gained a whole education of what is really 

at stake here, and now my main concern is that this situation not 

happen to other people. It is not fair to anybody not to be duly 

warned nor to have a chance to answer the charges against them. 

We need to change the system without creating new victims, and 

I hope that change starts here. 

Senator COLEMAN. Thank you, Ms. Sullivan. Thank you for your 

courage to come forward today. Mr. D. 

TESTIMONY OF CHUCK D, RECORDING ARTIST, AUTHOR, 

ACTIVIST, LOS ANGELES, CALIFORNIA 

Mr. D. Good afternoon. I see there is less of an audience than 

the first panel. Maybe they are getting their picture taken and 

autographs. 

I repeatedly come to you as an artist, a fan, a father, and a technology buff. I feel that we should go forward, that we want to go 

forward, that as technology prevails, it giveth and it taketh away, 

and the industry knows this. The horseshoe makers probably got 

upset at the train manufacturers because it took away their transport dominance, just as the train manufacturing business probably 

got mad at the airline industry. 

I think this expands artistry and it is about adjustments. And if 

the Internet reaches the world, then maybe we should think about 

becoming more worldly, and if P2P reaches the world, we should 

think the same. We shouldn’t just detach ourselves from the planet 

for the sake of just having American business. 

As this pertains to the music, the industry has lost sense of its 

humbly beginnings while being hypocritical at the same time. The 

fans have gotten hold of the technology before the industry. Just 

like once upon a time the photography business thought they could 

make a killing on the exclusivity, and all of a sudden, portable 

cameras came out. We still have a viable photography industry. 

People still take their pictures. They make a living. Maybe they 

don’t make a killing. Maybe that should be the theme of American 

business. 

52

Companies digitized. Record companies digitized in the late 

1970’s and the early 1980’s and they let the genie out of the bottle 

then, and they knew it was an unprotected format, digitizing signals and waves so they could raise the prices as hardware and software companies merged. And so it is difficult to define the crime 

alongside the technological innovations that move faster than the 

domestic legal corralling of that industry. 

I speak at many colleges. They know it is a crumbling economy. 

Increasing tuition. The college student would rather have Wendy’s 

and lunch than try to buy an expensive CD. 

The collusion of five record companies and four radio networks 

and TV outlets is becoming issues of the FCC, and as it pertains 

to artists, it stifles the growth of grassroots businesses from the 

bottom up to the top. I think this is a great way to expose across 

the planet. I call it a new accessible radio. In fairness, performance 

fees might have to take place of the mechanical fees that companies and artists seem to think that they miss. 

As an artist representing an 80-year period of black musicianship, I never felt that my copyrights were protected anyway. I 

would sign a contract and my lawyer would tell me, this goes out 

to the world and the universe. So that means when I get to Venus, 

why should Universal get the rights when they can’t be there 

themselves? If I could get to the Ukraine with my copyrights, then 

it should be up to me with my flexible business plan. 

I have been spending most of my career ducking lawyers, accountants, business executives who have basically been more blasphemous than file sharing and P2P. I trust the consumer more 

than I trust the people that have been at the helm of these companies. 

I have been told by Universal themselves that, Chuck, you have 

sold millions of records for us, but you will never receive a dime 

from us again in lieu of spending money on my behalf and marketing and promotional fees that had to clear the high hurdle that 

the collusion formed in the first place. So they say it costs money 

to promote, but they create the standard that costs so much for the 

artist to get exposure to the marketplace. That is what got me involved with file sharing in the first place. It is controlled and the 

usual names and suspects want to maintain it. 

In all fairness to my friend, L.L. Cool J and Leo Cohen, I was 

there at rap music and we know the beginnings of it, with the machinery, the turn tables, the drum machines, and the hypocrisy of 

the contracts and what built the damn thing in the first place is 

forgotten since some people have become the haves looking at everybody else like they are the have-nots. They used music that was 

previously copywritten music in the first place to make the music 

that form the companies that makes this guy sell his company for 

$160 million. Music was sold and exchanged at swap meets, flea 

markets. Illegal tapes were sold to build and promote the music in 

the first place in the 1980’s and in the 1990’s. 

And as far as rock and roll, blues licks were taken from the Mississippi Delta without authorization so people could spend $180 to 

check out the Rolling Stones do it all over again. So the record industry is hypocritical and the domination has to be shared. 

53

P2P to me means power to the people, and let us get this to a 

balance, and that is what we are talking about. 

Senator COLEMAN. Thank you, Mr. D. 

I am going to come back in reverse order and come right back 

to you, Mr. D. I asked L.L. Cool J about the new artist, somebody 

coming up. You have the recording industry and you have technology that is offering these new opportunities out there, but at 

some risk. What advice do you give somebody coming up? 

Mr. D. To learn all of the above, to at least have control of their 

business model and make sure it is flexible, and to be able to use 

these exposures to the best of their ability. You have to reach the 

fans, and in the businesses in both film and music have gotten 

away from the people. I mean, people wouldn’t use it if it wasn’t 

out there in the first place. When it comes down to it, blank CDs—

CDs are still selling. They are just blank. 

And it all brings us back to the table. This is the same bullet and 

gun as the K–Mart argument. Best Buy sells computers and blank 

CDs. So the consumers come in and say, wow, this is a technology 

that the music business and the film industry did not come up with 

in the first place. We came up with it. What do you expect them 

to do? 

Senator COLEMAN. What about the artist who is taking the other 

path? Don’t they have a right to do that and don’t they stand to 

lose? 

Mr. D. What other path? 

Senator COLEMAN. The path of saying, I am working with a recording company. This is the way I am going. I have got a copyright. I produced something. I should get paid for that. 

Mr. D. If there was honesty in that neo-plantationistic attitude 

of a company telling the artist exactly, like you signed a worldwide 

contract, but we can’t sell CDs in Africa. We can’t sell CDs in the 

Ukraine. Then it should just be a domestic contract. The problem 

is, is that the lawyer that negotiates for the artist many times is 

on the same side as the record company and they flip back and 

forth. So the artist never, ever knows the truth. So their trust in 

the companies has been defaulted for the last 80 years anyway. 

What other choice for innovative artists do we have? 

And what other choice does a new artist—I will tell you what is 

going on, because it is also combined with the FCC. If an artist 

comes out of Phoenix and wants to get played on Phoenix radio, 

they have got to get signed by the major companies in order to get 

played back in Phoenix to their demographic. That is crazy. 

Senator COLEMAN. Thank you, Mr. D. 

Ms. Sullivan, when you were first notified that you were being 

sued and you had a conversation with the folks from the RIAA, or 

at least directed to them, and you were told there was a potential 

of a $150,000 penalty, what did you feel? 

Ms. SULLIVAN. I was horrified, because the first thing I thought 

of was, well, that is it. My life is over. I will have to file bankruptcy. I won’t be able to get a house. I mean, those were the fears 

that immediately came into my mind. 

Senator COLEMAN. Before this, you talked a little bit about 

Napster and that it is gone, and that Kazaa is still there. You figured this may be legal. You go into the store and you see the CDs 

54

that are available. Had you seen anything from the RIAA, anything 

from the recording industry about the evils of downloading? 

Ms. SULLIVAN. No, I haven’t, but I don’t watch a lot of television. 

I listen to CDs that I buy. I don’t really listen to the radio. So no, 

I really hadn’t seen anything that they had put out there, I guess. 

Senator COLEMAN. What do your friends say now? How did they 

react? Do you know folks who still download, and have they been 

moved one way or the other? 

Ms. SULLIVAN. Not my close friends and family. As soon as I told 

them, they all immediately put a stop to what they were doing, and 

most of them feel the same way I do, which is that they don’t want 

to buy CDs anymore. They feel like this is so unfair, that until it 

changes we are not going to keep buying the music or the product. 

Senator COLEMAN. Thank you, and again, thank you for your 

courage in coming forward. 

This question, I am going to put to all three of the gentlemen 

there. I am trying to understand whether this thing is solvable, 

whether, in fact, you can work with the recording industry to approach a workable solution. I got a sense from Mr. Gladwin saying, 

yes, I am going to work with the industry. We have got that 

worked out. Mr. Broes and Mr. Morris, you have got a different 

perspective. 

Can you help me understand the division here? What is missing, 

and in your own words, why is it easier for Mr. Gladwin to do what 

he is doing, but Mr. Broes and Mr. Morris, you still see some difficulty in reaching that workable solution. 

Mr. BROES. Well, I think that there are two issues here. There 

is about commercializing the Internet from a film and a music industry point of view. This is about maintaining their existing relationships and distribution channels. I understand that is a very 

delicate balance. They have to maintain their relationships with 

Best Buy and they have to appease those and I understand that. 

But we also have an issue of peer-to-peer networks and it is precisely why I got involved in it in the first place. I was hired to investigate peer-to-peer networks on behalf of the RIAA and the 

MPAA. In fact, I was hired to investigate Kazaa, which I did. When 

I saw the technology, I saw how powerful it was, I encouraged 

them to exploit that technology, and the approach, the only solution from a technology standpoint that I saw was commercializing 

that in the same way that Yahoo and Google has commercialized 

their search results. 

When you type in ‘‘Tom Cruise,’’ you get 20,000 sites that were 

essentially pirating Tom Cruise’s name, and they would be pornography sites and such. They started selling those search results and 

pushing those illigal results deeper. They are still there, and they 

are still as illegal as they ever were, but they are just very difficult 

to get to. 

And so as far as from a technology standpoint, the solution is 

commercializing peer-to-peer networks. It is not colluding with the 

enemy, and that has been our goal from day one. 

Mr. GLADWIN. With all due respect, I think there is some misunderstanding of what the real issue is. The real issue is not peerto-peer technology. We have technology that we actually think is 

better than peer-to-peer. There are other companies like us that 

55

offer licensed, legitimate digital music on the Internet that have 

similar approaches. 

We don’t have a problem figuring out how to distribute hundreds 

of thousands or tens of millions of legal songs. That is not the problem that the industry is looking for a solution for. The issue here 

is copyright law and compensating owners for their works. 

FullAudio and similar companies approached the music industry 

and said, look, we would like to work out an arrangement where 

we fairly compensate owners and copyright owners. And by taking 

that approach, we have been able to get those licenses. 

Mr. MORRIS. You talked about paradox. Derek is responsible for 

negotiations in the USA and I am responsible for negotiations in 

the rest of the world, and we have companies in India’s 

‘‘Bollywood,’’ a major distributor of films outside the United States. 

We have independent artists and companies in the UK. We have 

30,000 emerging artists. 

You asked Chuck D how should a new artist go. Thirty-thousand 

emerging bands have distributed license content through Altnet. 

You can go to Altnet and for $99 you can distribute your content 

in a licensed way on KMD. That is how easy it is to do it. So the 

paradox I have is when everybody else recognizes—and I think it 

is reasonable to presume, also, that, as Derek said, many people in 

Hollywood recognize that this is the best method in terms of efficiencies and in terms of being a chosen method for distributing. 

Why won’t they license the content? I know it is hard to negotiate. We have no difficulty with that; we were set up to do that. 

There has got to be another reason, and people have always said 

this is probably about control. 

Senator COLEMAN. Thank you, Mr. Morris. 

Senator Pryor, you have been here. I am going to recogize the 

presence of the distinguished Ranking Member, but I will defer to 

you for your questions first. 

Senator PRYOR. Go ahead. 

Senator LEVIN. You have been here consistently. You go ahead. 

Senator PRYOR. All right. Well, let me run through my questions 

because I certainly want to hear from Senator Levin, as well. He 

always has great questions. 

Mr. Morris, you mentioned a couple of times, I believe, in your 

statement and in answering questions that this is, at least today, 

the most efficient and effective way to distribute music. Tell me 

about your traffic count, so to speak. Are you increasing or decreasing in the number of people who are using your site? 

Mr. MORRIS. Are you talking about in the last month or two? 

Senator PRYOR. Yes, just in the last, say, 6 months or so. 

Mr. MORRIS. Data would indicate that there has been the normal 

seasonal drop. As I say, I used to run a TV company. We all know 

what happens in the summer, and there was a drop at the beginning of the holiday period; there always is. It looks as though it is 

coming back, so we don’t see significant reductions or changes 

other than those we would expect. 

Given, also, that the growth of P2P has been nearly exponential 

over the last 3 years, even though I am a statistician by background, projecting what it would be this year isn’t a perfect science. 

56

But it doesn’t look as though there has been a massive reduction. 

That is my best guess. 

Senator PRYOR. You seem to be kind of on track with where you 

thought you might be? Is that fair? 

Mr. MORRIS. Well, we might be in terms of number of instances 

of the application downloaded, yes; in terms of the critical mass of 

users, yes; in terms of having licenses so that those users can access the content they want, no. 

Senator PRYOR. I am not as familiar with your site as maybe I 

should be, but when someone comes on your site, they have different choices. One thing they can do is they can download your 

software. Is that right? 

Mr. MORRIS. Yes. I will very briefly talk you through it. People 

are referred by friends or they go on to one of the portal sites or 

whatever. If they go to CNET Download, which is one of the major 

sources, they will be given the option of downloading. The 

applicaiton will be described in a standard way in terms of size, 

etc. The application is downloaded. There is a very full disclosure 

then, and as I testified at another place in this building, we work 

very hard to make sure that it is very difficult for anybody to share 

that which they don’t wish to share. 

So all the defaults are set basically with big yellow signs saying 

‘‘Do you want to share this?’’ So the application is then installed 

on the computer in the way in which any application would be, and 

then it is used. So the site is purely a way by which people obtain 

the application. 

Senator PRYOR. Now, that application you are talking about—is 

that software that you have created? 

Mr. MORRIS. There are two aspects to the software. One is the 

underlying protocol. Just as HTTP is the protocol used on the 

Internet, there is a peer-to-peer protocol, and we have the graphic 

user interface which plugs onto that. So we have acquired that. 

The user interface is ours. 

Senator PRYOR. Now, is that software that you have copyrighted 

or protected in some way? 

Mr. MORRIS. It is, indeed. 

Senator PRYOR. Let me ask you this question. Does anyone pay 

for music on your site? 

Mr. MORRIS. Yes. 

Senator PRYOR. OK, and how does that work? 

Mr. MORRIS. That works through Altnet. 

Senator PRYOR. Some do, some don’t, or is that by the artist, or 

how do you know? 

Mr. MORRIS. The Altnet mechanism—and I will just explain it 

very briefly, if I may—is that when somebody searches for content 

and there is a DRM-protected and licensed file, that file, as Derek 

says, will be displayed first. The content owner then has complete 

control over the terms under which that file is then licensed. 

They may well say somebody can play it for 3 days. They may 

well say you have to pay straightaway. They may well say this is 

promotional. I should say that the upcoming software release—the 

things that we are doing in terms of making it even more creative 

and more effective for users are increasing even more. 

57

So that file has allowed the content owner, in negotiation with 

Altnet, to set their own terms. If you go to the Altnet site, you can 

actually do a click-through. For $99, you can put your own material 

up there, and it will say what level of security do you want, what 

licenses do you want, etc. 

The important issue, of course, is—and this is where the efficiency of P2P comes in—that gold file sits in somebody’s shared 

folder and we have a program with Altnet which encourages, like 

a frequent-flyer program, the sharing of these gold files, something 

which Altnet funds. 

If somebody then searches that file and finds it from a peer and 

downloads it, that file is still protected. The DRM still works. So 

that file will again go back to the DRM server and say what are 

the terms for me to see this? That is why P2P is so efficient. Instead of downloading each one each time, the distribution is dealt 

with by the network. 

Senator PRYOR. Well, they are downloading it each time, but are 

they paying for it each time? 

Mr. MORRIS. Yes, they are. 

Senator PRYOR. Can you tell us how that works? 

Mr. BROES. They pay through a payment gateway that we have 

provided, so I will give you just a very basic scenario. If you 

download one of our files or you type in an artist’s name, you double-click the file and you download it. When you open that to play, 

a window will pop up and say, this is the artist, and say it is 99 

cents or 49 cents, or whatever the price that the content owner has 

set. 

You enter your credit card, or we have other systems that allow 

you to receive a telephone call. It will be a recording of the artist 

on the line saying thanks for downloading my product, press 1 to 

confirm your purchase. The license is acquired. Now, that file is 

free for them to play. 

In the interest of paying, I think it is important to note that we 

are distributing close to 35 million licenses of legal content, of licensed content, every single month, and that is without having the 

major labels’ content. We also do this for the game industry, as 

well, and do the same function for software. We distribute up to 

30,000 licensed games right now, including many games from some 

of the major gaming companies like Atari. 

They understand how this mechanism works and they are ecstatic that they can provide the game on our company’s peer-topeer network in the same fashion that they do in the stores, but 

without having to pay for the packaging and the wrapping, and 

they sell it. These are big files; these are one-gigabyte files and 

they sell for $50, and people put their credit cards across the line. 

And let’s keep in mind, I am also competing with free. So if I can 

compete with free and succeed, then the industry certainly can. 

Senator PRYOR. But are you saying that every single person that 

accesses your site is actually paying in some way or is entering into 

a licensing agreement in some way with musicians? 

Mr. BROES. There is a choice that individuals make. When they 

see a gold file, they choose to purchase it. When they download 

that gold file, they choose to purchase that file. 

Senator PRYOR. Yes, but is every single person doing that? 

58

Mr. BROES. Well, if every single person were doing that, I would 

be distributing more than 35 million files a month. Let me put it 

this way: If I can put the industry’s content—if the labels licensed 

me their content as they have licensed iTunes and BuyMusic.com—

if they license me that music and I put it into the system in a secure fashion, I guarantee you that every single one of those users 

will purchase those files. Some won’t, and maybe then that is the 

time for the stick approach. We are saying that there is a carrotand-stick approach for the solution. 

Senator PRYOR. That is all I have, Mr. Chairman. Thank you. 

Senator COLEMAN. Thank you, Senator Pryor. Senator Levin. 

Senator LEVIN. Thank you, Mr. Chairman. 

First, a question for Mr. Gladwin. I am trying to understand 

some of the technology, also, here. Is it technologically possible for 

a software developer to include in online software the capacity to 

block a person who has downloaded the software from subsequently 

using it, like a turn-off switch? 

Mr. GLADWIN. Yes. That is not only technically possible, but it 

is standard industry practice. There have been a number of instances where AOL, Prodigy, and other services 5 or 10 years ago 

started that practice. 

Senator LEVIN. Now, Mr. Morris, let me ask you whether or not 

your company can cut off people who are violating your end user 

agreement’s prohibition against downloading copyrighted material. 

Mr. MORRIS. We have no knowledge and control over users, in 

the same way that Microsoft doesn’t know who has a copy of Outlook or whatever. So, technically, it isn’t possible. 

Senator LEVIN. So you disagree with Mr. Gladwin’s answer? 

Mr. MORRIS. Yes. 

Mr. BROES. I would like to add a piece of this, because prior to 

Altnet I was the CEO of Vidius, which I said had done some work 

for the MPAA and the RIAA on peer-to-peer, specifically Kazaa. We 

practiced interdiction. We invented many of the technologies that 

they use today—interdiction, blocking the files. We also were involved in spoofing files, putting files out there to try to disguise 

them in certain ways. 

What I found was it is not impossible. It is certainly possible 

from an outsider’s standpoint, when you can recognize someone 

sharing. The difference is we have a real issue identifying, without 

question, that the file that they have is specifically the one—for instance, I don’t want some 15-year-old or some 12-year-old boy to 

make a movie in his backyard called ‘‘Gladiator’’ and I start interdicting and blocking that file because of the name, that it is called 

‘‘Gladiator.’’ So the process to verify those files is very extensive 

and it is not cost-effective when you are looking at trying to prevent the piracy. 

Senator LEVIN. You have the ability to do it, though? 

Mr. BROES. Do we have the ability? 

Senator LEVIN. Technologically, the ability is there? 

Mr. BROES. Sure. The ISP can shut down that individual user if 

you notify them. Of course, they can. 

Senator LEVIN. Do you disagree with Mr. Morris’ answer that 

they cannot technologically do that? 

Mr. MORRIS. I think we are answering two different questions. 

59

Senator LEVIN. Well, I asked a question of Mr. Gladwin and he 

answered the question yes. I asked the same question of you and 

you answered no. So I tried to ask the same question. 

Mr. MORRIS. My understanding of your question, Senator, is you 

asked, if a person had downloaded the Kazaa Media Desktop application—that having happened, was there any way in which we 

could technically stop that person from using the application. 

Derek, you would agree that that is impossible? 

Mr. BROES. Yes. 

Mr. MORRIS. I think you are answering a slightly different question. 

Mr. BROES. Yes. I was answering the question, is interdiction 

possible. 

Senator LEVIN. Here is my question. I will repeat it. Is it technologically possible for a software developer to include in online software the capacity to block a person who has downloaded the software from subsequently using it, like a turn-off switch? Mr. 

Gladwin’s answer was yes. 

Your answer, Mr. Morris? 

Mr. MORRIS. No. 

Senator LEVIN. Now, it is the same question, Mr. Broes. So we 

don’t have a problem of answering different questions. We have a 

problem of answering the same question the opposite way. I don’t 

want to argue which is correct. 

Mr. BROES. Sure, I understand. 

Senator LEVIN. But in any event, if you could have that capability, would you use it, Mr. Morris? 

Mr. MORRIS. That is a hypothetical question. 

Senator LEVIN. It sure is. 

Mr. MORRIS. I mean, first, we don’t. Second, to Derek’s point, I 

think that there is a myth around that somehow you can identify 

what a file is. There are many promotional files out there. There 

are files that are misnamed. The provenance of a file is very difficult to identify. 

So there are two problems in my answering your question. First, 

could we be certain that people were infringing? Second, could we 

switch them off? And the answer to both is no. 

Senator LEVIN. So you would not use that technology even if it 

were technologically possible? 

Mr. MORRIS. If it were technologically possible, which is bounded 

by the laws of physics rather than anything else, then in answer 

to the first question, I don’t know if we would use because we 

would have to be certain if we were to use it that the files could 

actually be identified. So I can’t answer the question, sir. 

Senator LEVIN. How do you enforce your prohibition that is in 

your agreement against users infringing on copyrights? 

Mr. MORRIS. My understanding—and you must know I am not 

an attorney—is that EULA, which is pretty standard——

Senator LEVIN. That what? 

Mr. MORRIS. Yes. EULA, the end user license agreement—sorry 

I slipped into jargon there—is a permissive one. What it says—this 

is the interpretation of our attorneys—is that if people carry out 

the permitted acts, then they are licensed. They are not licensed 

when they carry out non-permitted acts. So it isn’t a matter of reVerDate 0ct 09 2002 08:04 Jan 30, 2004 Jkt 090239 PO 00000 Frm 00063 Fmt 6633 Sfmt 6602 C:\DOCS\90239.TXT SAFFAIRS PsN: PHOGAN
60

voking the license. The license doesn’t exist if they carry out prohibited acts. 

Senator LEVIN. Let me read you your agreement, your EULA. 

‘‘Your rights under this license will terminate immediately and 

without prior notice if you violated any terms of this license. . . .’’ 

It sounds to me like it is going to terminate, which is not what you 

just described. 

Mr. MORRIS. I am advised by our attorneys—and I don’t know, 

Senator, if you are an attorney. 

Senator LEVIN. Well, I am an attorney, but I also am just reading your agreement. I mean, the fact that I am an attorney isn’t 

relevant to my question. The agreement is very clear that the 

agreement will terminate. ‘‘Your rights under this license will terminate immediately and without prior notice if you violate any 

terms of this license, including violating any applicable laws or 

rights of any third party, including the intellectual property rights 

of any such third party,’’ which is very different from what you just 

said. 

Mr. MORRIS. These honor agreements are common. 

Senator LEVIN. These what? 

Mr. MORRIS. Honor agreements. 

Senator LEVIN. This isn’t a real agreement? This is an honor 

agreement? 

Mr. MORRIS. These are honor agreements. 

Senator LEVIN. Which means——

Mr. MORRIS. They are common throughout the Internet. They are 

click-wrap agreements. Because we don’t know who the users are, 

because we can’t technically control them, they are called honor 

agreements. 

Senator LEVIN. Which means they are not worth the paper they 

are written on? 

Mr. MORRIS. I wouldn’t say that, sir. 

Senator LEVIN. Well, what would you say if they are honor agreements? 

Mr. MORRIS. I would say that honor is respected. 

Senator LEVIN. They are not enforceable, though? 

Mr. MORRIS. It is not enforceable. I don’t believe that because 

something is not enforceable, it shouldn’t be set down. 

Senator LEVIN. If you had the power to enforce it, would you? 

Mr. MORRIS. So what you are saying, if I may paraphrase, is if 

a court of due competence judged that somebody was in breach of 

a law or an obligation—Is this what you are saying? 

Senator LEVIN. No. I am asking a question. If you could enforce 

it, would you? 

Mr. MORRIS. If we could enforce it, would we? My answer is if 

the court of due competence stated that there had been an infringement, then we would certainly look at it. 

Senator LEVIN. My time is up. Thanks. 

Senator COLEMAN. I want to follow up with a couple-minute follow-up. I sense that there are some follow-up questions that Subcommittee Members would like to ask. 

Mr. Morris, let me raise the question with you about notifying 

users that copyrighted material is illegal. One of the concerns that 

61

has been raised is when one goes on Kazaa, the notice that this is 

illegal is not prominently displayed. 

Is there a reason why you wouldn’t want to more prominently 

display that? Is there any thought about doing that? 

Mr. MORRIS. As I said, when we acquired www.kazaa.com and 

the Kazaa Media Desktop, the first thing we did was to take it all 

offline, strip it down, change the EULA to which your colleagues 

refers, and put in those prominent notices. 

You are saying, could they be larger? I suspect that there is a 

debate with designers about how large something has to be. We 

would certainly consider making it more prominent if that will be 

beneficial, but there is no magic in the size. 

Senator COLEMAN. Mr. Broes, do you want to respond? 

Mr. BROES. Yes. I think I can do one better than just notifying 

those users. I would like that when they type in ‘‘Eminem’’ to find 

licensed songs that they can purchase from Eminem, and to replace 

that and let them know right away that this is a legal file and displace all those illegal files. I think that is more powerful than you 

are doing the wrong thing. 

Senator COLEMAN. We are getting to whether we can get longterm solutions here, which is licensed material online. 

Mr. BROES. Yes, absolutely. 

Senator COLEMAN. And let me ask just one other kind of technical question. Mr. Morris, apparently there are updated versions 

of Kazaa, which I think are actually better in terms of identifying 

this stuff. But I have been told that penetration is still pretty light, 

that folks aren’t transferring over. How do you get folks to transfer 

over to an updated version? What kind of penetration do you have? 

Mr. MORRIS. Again, because we don’t know specifically, it is anecdotal, but the evidence seems to be from our technical director that 

over a relatively short space of time—we are only talking about 

months—that about 90 percent of people will upgrade. The reason 

the application is so popular is that we worked very hard on it. It 

is smooth. It works very well. We put a lot of features in there. 

And particularly since the relationship with Altnet, by including 

things like the channels—there is a hip-hop channel, the emerging 

artist channel, which I mentioned—there are major incentives to 

people to upgrade. 

So we can’t make people upgrade, but all the evidence suggests 

that, over a relatively short space of time, most do. Some will not, 

because some people always stick with what they are with, but 

over time, that tends to be a small proportion. 

Senator COLEMAN. Great. Thank you. Senator Pryor. 

Senator PRYOR. Mr. Chairman, if it is OK, I would like to allow 

Senator Levin to proceed with his questions and his follow-ups and 

I may have a few follow-ups after that. 

Senator COLEMAN. Senator Levin. 

Senator LEVIN. I am just curious about—we are trying to find out 

more about your company. It is normal for most companies and corporations that are incorporated in the United States, for us to get 

a feel as to who these folks are and it is public information. You 

are incorporated, or your parent is incorporated in Vanuatu? 

Mr. MORRIS. Indeed, yes. 

62

Senator LEVIN. We have got a lot of experience with that particular jurisdiction, not particularly positive. When I say ‘‘we,’’ I 

mean the Subcommittee. It is a very secretive jurisdiction, incorporates companies within 24 hours of request. It allows companies 

to set up websites to conduct business without requiring residency, 

directors, shareholders, or a registered office in the country, according to our State Department. It has been named by our State Department as a country of money laundering concern—that is a 

State Department issue—due to the excessive secrecy laws, weak 

anti-money laundering enforcement, other problems. It licenses offshore shell banks. 

This is a problem with Vanuatu that we have had as we have 

gone through some investigations. It characterizes itself as a tax 

haven, one of seven countries on an international list up until a 

few months ago of uncooperative tax havens. It has been removed 

from that list after promising to increase transparency. 

I am just curious why you are incorporated there. What is your—

I am trying to figure out who owns your company. Most of that information should be public, if it were an American corporation, but 

why Vanuatu? 

Mr. MORRIS. I think there is a perception in the States—this is 

my observation—that offshore is somehow something——

Senator LEVIN. No, Vanuatu specifically. Why Vanuatu? 

Mr. MORRIS. Because it is the closest island to Australia and that 

is where we are——

Senator LEVIN. Why not Australia? 

Mr. MORRIS. We are registered in Australia. The service company 

is registered in Australia. 

Senator LEVIN. Your parent company, the beneficiaries, the trust, 

the owners could be——

Mr. MORRIS. No, that is incorporated in Vanuatu. 

Senator LEVIN. Why not Australia? 

Mr. MORRIS. Sir, the same reason that major banks, media companies, and others are—Australian companies are incorporated in 

Vanuatu, for tax savings. 

Senator LEVIN. They are tax havens. 

Mr. MORRIS. Yes. 

Senator LEVIN. Are you——

Mr. MORRIS. Major banks, major companies do exactly the same 

thing. It is a much more common thing than it is in the States. It 

is the same way that people register in Delaware. 

Senator LEVIN. Are you able or willing to share with us the ownership of your company, your parent company? 

Mr. MORRIS. The ownership of the company is a matter of record 

in Federal deposition. 

Senator LEVIN. The trust beneficiaries who truly own the company, is that a matter of public record? 

Mr. MORRIS. Sir, it is a matter of record in deposition. I am not 

an owner or shareholder of that company, so I cannot speak on behalf of the company. 

Senator LEVIN. The information you make reference to in depositions is under seal. Would you be willing to make that public? 

Mr. MORRIS. Without advice, I can’t do that. This is a subject——

Senator LEVIN. Would you let us know? 

63

1The prepared statement of Mr. Moreno appears in the Appendix on page 134. 

Mr. MORRIS. It is a subject of litigation, as you know, by a particularly aggressive foe, so I would need to take advisement. 

Senator LEVIN. Would you let the Subcommittee know whether 

you would be willing to do that, for the record? 

Mr. MORRIS. Yes, certainly. I will liaise with the relevant staff. 

Senator LEVIN. And the balance of my questions, I will save for 

the record in light of the time. Thank you, Mr. Chairman. I thank 

all of our witnesses. 

Senator COLEMAN. Thanks, Senator Levin. The panel is excused. 

Thank you very much. 

Senator COLEMAN. The final panel is Dr. Jonathan D. Moreno, 

Director of the Center for Biomedical Ethics, University of Virginia, 

Charlottesville, Virginia, and James DeLong, Senior Fellow and Director, Center for the Study of Digital Property, The Progress and 

Freedom Foundation in Washington. 

Pursuant to Rule VI, all witnesses before the Subcommittee are 

required to be sworn, and gentlemen, will you please stand. I ask 

you to raise your right hand and repeat after me. 

Do you swear the testimony you give before the Subcommittee 

will be the truth, the whole truth, and nothing but the truth, so 

help you, God? 

Mr. MORENO. I do. 

Mr. DELONG. I do. 

Senator COLEMAN. Thank you. You can sit down. 

There are no rock stars at this panel, but the discussion, I am 

sure, will be very worthwhile. 

Mr. Moreno, it is a pleasure to see you. You may proceed. 

TESTIMONY OF JONATHAN D. MORENO,1 DIRECTOR, CENTER 

FOR BIOMEDICAL ETHICS, UNIVERSITY OF VIRGINIA, CHARLOTTESVILLE, VIRGINIA 

Mr. MORENO. Thank you, Senator. Good to see you. This has 

been a fascinating colloquy this morning. I spend most of my time 

worrying about matters of life and death and the paradoxes and 

contradictions of taking care of people under extreme circumstances when moral values are in conflict. Although this is not 

specifically perhaps a matter of life and death, it is obviously of 

grave concern to people who make their living. 

I am reminded, in thinking about analogies for the ways in 

which ethical change is created by technological change, of my 

mother’s situation 46 years ago. My mother was diagnosed with a 

chondrosarcoma when she was in her late 40’s. Her arm was amputated. She lives to this day, I am happy to say. She is 86 years old. 

But she was not told her prognosis by her doctor, and that was 

very common 50 years ago for cancer patients not to be told their 

prognosis. 

As the technology changed and we began to have more control 

over the course of a disease, the consumer, the patient, insisted on 

having control over information. So we have an interesting analogy 

here of the way that in health care, technological change has created moral change. Fifty years ago, it was thought that doctors 

64

would be unethical to tell a cancer patient their prognosis. Today, 

we clearly don’t feel that is the case, and just the opposite. 

Having said that, today, I come before you not as a bioethicist 

but as a social ethicist. In one sense, the question before us in social ethics is straightforward. As has been said this morning, to intentionally take that which does not belong to you is to violate the 

social contract. Intellectual property is a form of property and intellectual theft is a form of theft. 

Yet if our goal is not merely to be punitive but to craft an effective public policy, as we know, the law is a notoriously blunt instrument. There are many social behaviors in which the rigid application of the law is not only ineffective in solving the underlying 

problem, but may actually aggravate the problem by encouraging 

offenders to find ingenious new ways to use technology, in this 

case, to evade authorities or decrease their buying of legitimate 

CDs. 

Prosecution may also be disproportionate to the value of its loss, 

up to $150,000 in fines in this case. It may be seemingly arbitrary 

in its selection of targets. Making an example of a few people for 

the sake of deterrence makes many Americans uncomfortable. Or 

the prosecution may be erroneous. Files may be misidentified by 

ISPs. 

Furthermore, if powerful and distant entities that control a highly-valued item, like music, institute legal measures that are widely 

perceived as draconian, they may encourage disrespect for law, especially among young people. Still more complex situations like 

this in which the culture itself is evolving in tandem with technological change. 

Here is the underlying problem. Many people with otherwise 

healthy moral intuitions fail to see Internet file sharing as theft, 

or if they do, they do not perceive it as wrong, or at least not very 

wrong. I have spoken to a lot of my students about this in the last 

few days and I can tell you this is the case. 

The lawsuits themselves may not, in fact, send a moral message. 

They may teach people that this is theft, but they may not teach 

them that it is wrong. And it may not teach them—the lawsuits 

may not teach them that this is not worth the risk of prosecution. 

Of course, we have heard that the pricing structure of compact 

disks is widely resented because the blank CD is so inexpensive. 

I went to Office Depot yesterday and I looked at blank CDs for 50 

cents or less. And downloading can be accomplished with ease. But 

these facts don’t explain the moral psychology underlying this phenomenon. What is the psychology of guilt-free file sharers when 

they know that it is theft and when these are not evil people? 

I think there are a number of explanations. First, and this is a 

complex phenomenon, those who are victimized are moral strangers. They are not known to us. They are distant. They are unknown to us as individuals. The engineer, the janitor in the factory, 

the studio musician, the record store clerk, they are not known to 

us. Harms to moral strangers don’t easily excite our guilt. 

Second, consumers have become accustomed to the portability 

and transferability of music, partly because of successful marketing 

by the industry. 

65

1The prepared statement of Mr. DeLong with an attachment appears in the Appendix on page 

136. 

Third, as someone alluded to, unlike familiar forms of copying a 

record, as in the case of bootleg audio tapes, a copy never needs 

to be a physical object. It doesn’t need even to be put on a CD but 

can remain in electronic form. Physical associations with theft may 

be absent. 

Now, the very term file sharing, fourth, file sharing is an interesting term. It connotes altruism and community. In particular, 

many adolescents find a sense of community more easily in the 

World Wide Web than in the rest of their lives. In this case, what 

seems to be an impersonal, wealthy, and imperious industry places 

itself in opposition to this otherwise positive value. 

Now, these factors don’t justify theft. File sharing, though, is 

misunderstood as simply an attack on a concept of private property. It is primarily a demand for access to a highly-valued social 

commodity, a demand triggered and facilitated by technology. 

A new interpretation of the social contract in this area, Mr. 

Chairman, may be emerging, and industry and the law must take 

note. Thank you. 

Senator COLEMAN. Thank you, Mr. Moreno, and Mr. Moreno, 

your full statement will be entered into the record without objection. Thank you. Mr. DeLong. 

TESTIMONY OF JAMES V. DeLONG,1 SENIOR FELLOW AND DIRECTOR, CENTER FOR THE STUDY OF DIGITAL PROPERTY, 

THE PROGRESS AND FREEDOM FOUNDATION, WASHINGTON, 

DC 

Mr. DELONG. Thank you, Senator. It is a pleasure to be here 

today, particularly with Dr. Moreno, because I think the ethical dimensions of this whole issue are absolutely fascinating, and endless, I might add. 

I would like to emphasize just one point here, and that is that 

this is a class of problems called prisoner’s dilemma, in which, obviously, the interest of each individual consumer is in free-riding and 

getting music for free. But, equally obviously, everyone cannot freeride and get music for free. And so the collective interest is in having functioning markets, functioning property rights that deliver 

the music and other intellectual products as efficiently and as 

cheaply as possible. 

Now, there is a tension between those two because everyone, in 

pursuing their individual interest of getting it for free, then tends 

to destroy the social system. We have all sorts of ways of compensating for prisoner’s dilemma problems. The social contract analogy 

was used by Dr. Moreno, and I think that is very applicable. And 

what we use primarily are markets and property rights and then 

some enforcement as a way of doing this. 

But this highlights, I think, a fundamental point, and that is a 

great deal of what I read somehow seems to assume that there is 

a conflict here between producers and consumers and that consumers have some right to get things for free and that in some 

way, when you make them pay, you are inhibiting their interests. 

It isn’t so. My interest as a consumer is in making my voice, my 

66

pocketbook, felt in the marketplace in buying things and in giving 

the incentives to producers to actually make the things that I want 

to buy. If I don’t have any way of buying something, of actually giving money to the producers for it, obviously they don’t do it, and 

you and I do without. 

So at the moment, what is going on is that we have this huge 

backlog of music that can be looted because it is already there. But 

if you think about it in terms of not even very long—in terms simply of a couple of years down the road, it is rather obvious this 

can’t go on very long because there will no longer be the production. 

Starting from there, it is fairly clear where we want to get on 

this. The difficulty is in figuring out how to get there and the outlines of a solution. 

There must be legitimate online services that wring the unnecessary transaction costs out of the deal. You can send bits over fiber 

optic cable very cheaply. It is much more expensive to put them on 

plastic and send them around the country by truck. So inevitably, 

the prices have to come down, legitimate services have to be there, 

and the people have to perceive it as being fair. 

If I were a student and a downloader, I might well take the position that it was up to the industry to get these services online. 

Once they did get them online, I would be glad to pay for it. Until 

that time, there is this firehose of stuff going by and I am going 

to drink from it. That is exactly the attitude of some college students I have talked to, mostly children of acquaintances and such. 

This is both good news and bad news. They can be brought 

around to a paid system, once it is there, and they can see their 

ethical obligation to support the industry. Some of them, in fact, 

even make a point of downloading some things and then going out 

and buying some CDs to sort of make the moral balance proper. 

The second thing, there must be digital rights management control over the downloading so that you can allow people to pay for 

different levels of use, so people can pay for a single use, multi use, 

or put it in their library. 

There has to be education, not just in the form of saying 

downloading is wrong, but education in the form of saying, that 

this whole system depends on the market and on reciprocity. I 

know I am showing my age, but I remember when you could walk 

down the street in Boston or Chicago, walk by a newsstand, and 

there would be a pile of newspapers with a cigar box on it. You 

took a paper, tossed your money in, and then eventually the operator would come around and pick up the money. I haven’t seen that 

in some time. That is a form of social reciprocity that works, or did 

work. 

And then, finally, there has got to be some enforcement, and I 

know the RIAA people here are obviously not happy with what 

they have been forced into, but they have to do it to send a message to the downloaders, to send a message to people who want to 

invest in the legitimate services, and also to disrupt the system. 

They are trying to get the downloaders to get themselves into a position where they are willing to download but not upload, because 

that will destroy the system. If people think, well, I will take, but 

not give, it won’t last very long. 

67

So I think the solution is in prospect, but it may take some time 

and pain to get there and I certainly hope this body helps us do 

it. Thank you. 

Senator COLEMAN. Thank you, Mr. DeLong. 

I actually would have hoped that this panel may have preceded 

the other panels. It is, I think for me, very worthwhile to hear 

what I am hearing, which is that in the long run, we can work it 

out, there is a solution here. Our challenge, it appears to be, in the 

short run, is whether the strategies being employed or strategies 

in effect generate any change in behavior. 

One of the witnesses talked about the dark net and there are 

other variations of technology that could push this stuff further 

and further away. I am a parent and I have a 17-year-old and a 

13-year-old and it is a place I don’t want them to go, so how do 

we deal with that? 

So the question that remains is certainly the short term. Let me 

just kind of throw it out to both of you. One of the witnesses, Lorraine who is the subject of a subpoena and a suit, talked about facing $150,000—someone telling her, you can face a $150,000 penalty. I presume that has got to be pretty daunting to somebody who 

is struggling to make ends meet. Understanding the RIAA had to 

do something, and I think, by the way, they got great benefit out 

of this discussion. A lot of discussion. A lot of people who knew before, or who may not have known at all—know now that there is 

a problem. 

But I still worry about that kind of heavy hand—that penalty sitting out there. How do lawmakers try to figure out what is the 

right balance? How do we, sitting up here—I don’t know whether 

it is $150 a song, or $150,000. Is there a way to get a better sense 

of what kind of balance, what kind of authority can you give somebody to enforce their interests but not let it be too heavy-handed? 

Mr. MORENO. Well, I think that a psychologist would probably 

tell you that you don’t need a $150,000 threat in this case to give 

somebody a disincentive. You can get just as much bang for your 

buck, as it were, with a lot less bucks involved. So there probably 

is some recrafting of the law, the copyright law, required for this 

kind of situation. My guess is, again, that much of it—this is a disincentive that is really horrifying and it seems to strike fear into 

the heart of anybody that thinks about it and just seems to be way 

out of proportion. 

Senator COLEMAN. Mr. DeLong. 

Mr. DELONG. Yes. I think, clearly, the lack of proportionality is 

a problem and the penalty was set for other circumstances than 

this. It was set for people engaging in mass piracy. 

Senator COLEMAN. Right. 

Mr. DELONG. But I notice that there has been a scaling down by 

the RIAA itself, and I think certainly by the courts. They figure 

they aren’t going to get anything except—I think what Mitch 

Bainwol said was the price of the CD. 

I might add, generally, there has been a huge increase in criminalization in this country, just one offense after another made into 

very hefty criminal penalties, and I think this is something, in general, that this body should look at very closely. It is getting to be 

a severe problem in a number of areas. 

68

Mr. MORENO. Can I add, Senator, also, that there was a little 

discussion earlier about the carrot approach as well as the stick. 

It strikes me, as a consumer, I have only seen one instance in 

which one of these public service announcements was used, and it 

was in a movie theater about a couple of weeks ago with my wife, 

I saw it. 

Mr. DELONG. Yes. 

Mr. MORENO. It was pretty effective. They had a recording engineer who said, ‘‘I am a working guy and I am afraid of losing my 

job.’’ But I haven’t seen the industry use its ingenuity and its resources that it uses to sell its products and develop them in the 

same way to create this public education campaign. I just haven’t 

seen it. 

Senator COLEMAN. Do you think that kind of public education 

campaign can be effective when you have a generation of kids who 

don’t think that they are doing anything wrong? 

Mr. MORENO. Yes. 

Senator COLEMAN. I am trying to get into the mindset of that 13-

year-old, or think that—and maybe it is not—you made a distinction, I have got to get it, between—what was it——

Mr. MORENO. Realizing it is theft but not thinking it is wrong? 

Senator COLEMAN. Right. Help me understand that. 

Mr. MORENO. Well——

Senator COLEMAN. And in understanding that, talk to me then 

about things that would actually flip the switch that says, hey, I 

shouldn’t be doing what I am doing. 

Mr. MORENO. I think the key is the concept of the moral stranger. The recording engineer, I thought was pretty effective, a regular 

guy. But what about the recording engineer’s 13-year-old? What if 

you put the recording engineer’s child on the screen—and this kid 

said, ‘‘My dad came home the other day and said he might lose his 

job because my friends in school are downloading and file sharing.’’ 

That would be a very powerful message, and I am sure it is happening. 

But I think, somehow, we have to use these images to make a 

connection, a living connection, to the experience of people who are 

affected, not the industry CEOs and the rock stars, but the actual 

folks. I think the industry is smart enough and creative enough to 

do this, but I think they haven’t done it yet. 

Mr. DELONG. I think, also, you see a tremendous amount of demonization of the movie industry and the recording industry in 

particular. As far as I know, they are just normal, good, greedy 

American industries trying to make money and have fun at the 

same time, and they are no worse or better than anybody else, or 

than any other institution. 

But it is like there has been almost—the academic left is a bit 

opposed to property rights generally, including intellectual property 

rights, and it is like there is an effort to give people license to rip 

these people off because they are nasty people and, therefore, go 

ahead. It seems to me that in educating if you can get across this 

point that you are injuring your fellow consumers by not doing 

your share, because you are not helping to pay for this and not 

helping to produce it, that is an important educational message. 

69

Senator COLEMAN. But, Dr. Moreno, following up on that point, 

your last comment in your oral testimony, not your prepared testimony, was the note of a new interpretation of the social contract 

is emerging and the industry and law must take note. I don’t know 

whether you are part of that academic left or anything, but—— 

[Laughter.] 

Mr. DELONG. Present company excepted. [Laughter.] 

Senator COLEMAN. Is there a sense that perhaps our notion of 

what our property rights, traditional property rights may, in fact, 

be changing? Should they be changing? Talk to me a little about 

that. 

Mr. MORENO. Actually, that comment was only addressed at the 

instant case, namely the music industry, and I actually, with due 

respect to one of the Senators who is not here, I am not persuaded 

that this is the first step in a slippery slope, an attack on the concept of copyright or private property. I don’t think that is what is 

going on here, and I actually think that music itself is a different 

case from film. 

Film takes 90 minutes to 2 hours to watch. You can’t walk 

around on the street watching a movie unless you want to bump 

into things. Music is different. We can walk around. We can take 

a minute, 2 minutes to listen to a song. 

So I actually think that the social contract that I am referring 

to is really about access to music and the transformation of musical 

imagery, auditory images into digitization. That is what I am talking about. 

Mr. DELONG. I think that is a very interesting point. I think 

music is somewhat special, although the movies are getting 

downloaded. The video game industry has been quite successful at 

maintaining a sense of community and hasn’t been hit as hard. 

Now, part of that may be simply downloading time, but it is very 

interesting to talk to them about it. They have some interesting 

ideas. 

Mr. MORENO. And in that case—this is a good example. My son, 

years ago, even when he was in middle school, would play these 

video games with other kids online. He had a community of friends 

online that he would play these—and he still does, with anonymous 

people playing chess. The file sharing business in music is analogous, I think, in some respects. 

Senator COLEMAN. Both of your testimonies indicated a prospect 

for this thing being resolved down the road. Any sense of how long 

it will take the market to kind of sort all this thing out? And—I 

will leave it at that. Any best guess as to how long it takes to bring 

these sides together, the peer-to-peer folks saying, hey, we are 

ready to step this forward. We want to make this happen. The 

music industry says, we are ready to step forward, ready to make 

it happen. Obviously, that hasn’t happened and the focus today are 

12-year-old kids or 71-year-old grandmas or Lorraine who was 

here. So what is your best guess of how long that takes? 

Mr. DELONG. I am optimistic. I think with iTune coming on and 

MusicMatch and the others, they are getting their act together on 

that and the downloading services is the biggest piece of the puzzle. I would say a couple of years. 

70

Mr. MORENO. I was going to say within 5 years. Capitalism is 

about innovation, and innovation is stimulated by losing money. 

[Laughter.] 

So I think this is going to move along pretty well. I was going 

to say 5 years, but I will take 2 years. 

Senator COLEMAN. We will put that in an envelope and we will 

open it up in 2 years. 

Mr. MORENO. Oh, oh. [Laughter.] 

Senator COLEMAN. I want to thank you both very much for your 

presence here. Your full testimony will be entered into the record 

as part of the record. 

We will keep the record open for 3 weeks for additional questions 

from other Senators on the Subcommittee. 

So with that, this hearing is adjourned. 

[Whereupon, at 1:08 p.m., the Subcommittee was adjourned.] 

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