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[Senate Hearing 109-580]
[From the U.S. Government Publishing Office]

                                                        S. Hrg. 109-580

                        BROADCAST AND AUDIO FLAG

=======================================================================

                                HEARING

                               before the

                         COMMITTEE ON COMMERCE,
                      SCIENCE, AND TRANSPORTATION
                          UNITED STATES SENATE

                       ONE HUNDRED NINTH CONGRESS

                             SECOND SESSION

                               __________

                            JANUARY 24, 2006

                               __________

    Printed for the use of the Committee on Commerce, Science, and 
                             Transportation

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                           WASHINGTON : 2006 
29-917 PDF

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       SENATE COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION

                       ONE HUNDRED NINTH CONGRESS

                             SECOND SESSION

                     TED STEVENS, Alaska, Chairman
JOHN McCAIN, Arizona                 DANIEL K. INOUYE, Hawaii, Co-
CONRAD BURNS, Montana                    Chairman
TRENT LOTT, Mississippi              JOHN D. ROCKEFELLER IV, West 
KAY BAILEY HUTCHISON, Texas              Virginia
OLYMPIA J. SNOWE, Maine              JOHN F. KERRY, Massachusetts
GORDON H. SMITH, Oregon              BYRON L. DORGAN, North Dakota
JOHN ENSIGN, Nevada                  BARBARA BOXER, California
GEORGE ALLEN, Virginia               BILL NELSON, Florida
JOHN E. SUNUNU, New Hampshire        MARIA CANTWELL, Washington
JIM DeMINT, South Carolina           FRANK R. LAUTENBERG, New Jersey
DAVID VITTER, Louisiana              E. BENJAMIN NELSON, Nebraska
                                     MARK PRYOR, Arkansas
             Lisa J. Sutherland, Republican Staff Director
        Christine Drager Kurth, Republican Deputy Staff Director
             Kenneth R. Nahigian, Republican Chief Counsel
   Margaret L. Cummisky, Democratic Staff Director and Chief Counsel
   Samuel E. Whitehorn, Democratic Deputy Staff Director and General 
                                Counsel
             Lila Harper Helms, Democratic Policy Director

                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on January 24, 2006.................................     1
Statement of Senator Burns.......................................     2
Statement of Senator Inouye......................................    31
    Prepared statement...........................................    31
    Letter and response, dated January 11-12, 2006, from David K. 
      Rehr, President/CEO, National Association of Broadcasters 
      to Mitch Bainwol...........................................    67
Statement of Senator E. Benjamin Nelson..........................    39
Statement of Senator Smith.......................................    36
Statement of Senator Stevens.....................................     1
Statement of Senator Sununu......................................    41

                               Witnesses

Bainwol, Mitch, Chairman/CEO, Recording Industry Association of 
  America........................................................    44
    Prepared statement...........................................    46
Band, Jonathan, Counsel, American Library Association; on behalf 
  of the Library Copyright Alliance..............................     7
    Prepared statement...........................................     8
Harris, Leslie, Executive Director, Center for Democracy and 
  Technology.....................................................    25
    Prepared statement...........................................    26
Halyburton, Dan, Senior Vice President/General Manager, Group 
  Operations, Susquehanna Radio Corporation; Chairman, Audio Flag 
  Task Force, National Association of Broadcasters (NAB).........    59
    Prepared statement...........................................    60
    Prepared statement of Preston R. Padden, Executive Vice 
      President, Worldwide Government Relations, The Walt Disney 
      Company; Member, National Association of Broadcasters (NAB)    56
Patton, Thomas B., Corporate Vice President, Government 
  Relations, Philips Electronics North America Corporation.......    17
    Prepared statement...........................................    18
Setos, Andrew, President of Engineering, Fox Entertainment Group.     2
    Prepared statement...........................................     4
Shapiro, Gary J., President/CEO, Consumer Electronics Association    48
    Prepared statement...........................................    50

                                Appendix

Boxer, Hon. Barbara, U.S. Senator from California, prepared 
  statement......................................................    77
Broadcast Music, Inc. (BMI), prepared statement..................    78
Dorgan, Hon. Byron L., U.S. Senator from North Dakota, prepared 
  statement......................................................    77
Sohn, Gigi B., President, Public Knowledge, prepared statement 
  and attachment.................................................    81

 
                        BROADCAST AND AUDIO FLAG

                              ----------                              

                       TUESDAY, JANUARY 24, 2006

                               U.S. Senate,
        Committee on Commerce, Science, and Transportation,
                                                    Washington, DC.
    The Committee met, pursuant to notice, at 10 a.m. in room 
SD-562, Dirksen Senate Office Building, Hon. Ted Stevens, 
Chairman of the Committee, presiding.

            OPENING STATEMENT OF HON. TED STEVENS, 
                    U.S. SENATOR FROM ALASKA

    The Chairman. Good morning. Our Co-Chairman will be along 
in a few minutes, but he has asked that we start. So, let me 
thank you all for coming today.
    Some time ago, a group of us joined together and asked the 
FCC to deal with the issues before us now, and this broadcast 
flag was developed to protect over-air digital television 
programming from piracy. The FCC adopted that broadcast flag 
rule, which the consumer electronics industry had begun to 
implement by developing devices that complied with its 
requirements. But the court has struck down that regulation and 
held that Congress had not given the Commission authority to 
promulgate the rule. And that's what brings us here today, and 
we are trying to address the question of whether Congress 
should provide the FCC the authority to put the rule back in 
place.
    Groups like the American Library Association are concerned 
that if Congress gives the FCC the authority to enforce the 
broadcast flag, the rights of consumers and educators to copy, 
watch, and share programs the way VCR recordings are shared 
will be threatened. Likewise, some consumers want to make sure 
that they can continue to exercise their fair-use rights to 
record video programming for personal use.
    It's our task in this Committee to consider industry and 
fair-use concerns and to try to find the proper balance between 
them. Determining how to protect audio content in the age of 
digital radio and satellite has only recently gained greater 
attention. The FCC has not yet acted on that front.
    The creative-content side and the distribution side of the 
music industry should seek mutual ground that supports business 
models for both. Whether it is an audio flag or an alternative, 
we seek to balance between them and encourage innovative 
digital services that spur jobs, economic growth, and consumer 
options like the iPod against ensuring that the creative genius 
that brings us all the great pleasure to earn a return on 
creative investment is encouraged.
    Now, Senator Burns, do you have an opening statement?

                STATEMENT OF HON. CONRAD BURNS, 
                   U.S. SENATOR FROM MONTANA

    Senator Burns. I do not, Mr. Chairman, but I appreciate you 
having this hearing today, and your insight on this issue.
    With the advent of digital technology, what we thought 
would uncomplicate our world now is complicating it. Before, as 
you know, we always talked about a lot of things, but we tend 
to talk more about bandwidth than anything else when we went to 
digital, because we could do some things, but we couldn't 
identify signals. And now we are finding that ones and zeros 
are hard to identify, whether it's voice, data, or video, and 
now we're getting in a new era of really branding whose signal 
it is now, that is moving, rather than the technology.
    So, this is a timely hearing. It is something that the 
industry itself should come to some sort of a conclusion that 
would be of benefit to everybody, and with the consumers always 
in mind. But it seems as though that hasn't been done yet. And 
I would wonder, when government wanders into this area, there 
are always unintended consequences.
    And so, this hearing is timely, and I thank you for having 
it.
    The Chairman. Thank you very much.
    I should state that, coming from a State like Alaska, as I 
do come from Alaska, one-fifth the size of the United States, 
we have tried to implement our education system utilizing 
distance learning to the maximum extent possible. So, that's 
one of our greatest concerns in this hearing today.
    Our first panel is Andy Setos, President of Engineering, 
Fox Entertainment Group, Los Angeles; Jonathan Band, Counsel at 
the American Library Association; Thomas Patton, Corporate Vice 
President for Government Relations at Philips Electronics North 
America Corporation; and Leslie Harris, Executive Director for 
the Center of Democracy and Technology, in Washington.
    Mr. Setos, we'll call on you first.

   STATEMENT OF ANDREW SETOS, PRESIDENT OF ENGINEERING, FOX 
                      ENTERTAINMENT GROUP

    Mr. Setos. Good morning, Mr. Chairman and Members of the 
Committee. My name is Andrew G. Setos, and I am the President 
of Engineering of the Fox Entertainment Group and the co-
inventor of the broadcast flag. Thank you for inviting me to 
make a contribution to this hearing.
    As the great promise of the Internet blossomed several 
years ago, I became alarmed at the simultaneous phenomenon of 
abuse to copyrighted works. Digital works, such as music on 
CDs, that were, by necessity, distributed without the 
protection of encryption, were vulnerable to looting, on a 
global scale.
    The wisdom of protecting digital content with encryption is 
all around us--in such Internet appliances as Apple's iPod, 
Sony's PlayStation Portable, and the new RCA Lyra by Thomson. 
Traditional multichannel media, such as satellite and cable, 
and their new competitors from the telecom sector are also 
encrypting their digital transmissions. The reason is simple: 
the threat of piracy undermines every legitimate distribution 
business model.
    However, born in a more naive age, digital broadcast 
television had not contemplated such protection. This committee 
had already put the DTV transition in motion, and millions of 
consumers, such as myself, had started enjoying high-definition 
broadcasts of our favorite programs and sporting events. This 
was a dilemma of serious proportions. Here I was aggressively 
participating in the rollout of DTV within FOX, yet had come to 
realize that, as formulated, it had a fatal weakness.
    What to do? Changing the DTV standard to employ encryption 
was simply unthinkable, as it would introduce a dangerous delay 
in the DTV transition and disenfranchise the most fervent 
believers in high-definition television. However, without some 
technical form of content protection, we all would be guilty of 
unwittingly institutionalizing the slow demise of local TV 
broadcasting. The ultimate reason was clear in my mind. Without 
such protection, producers of high-value content would become 
leery of licensing to local digital TV broadcasters, and that 
would jeopardize the viability of this unique American 
institution.
    To meet this challenge, our goals were clear, if daunting. 
One, we could do nothing that would obsolete or change, in any 
way, the features of a single DTV product that had already been 
sold to consumers. Two, we could not interfere with the 
consumer's right to make time-shift recordings in their homes. 
Three, our approach could add virtually nothing to the real 
cost of the consumer product. Four, the proposal had to be 
flexible and efficient to stimulate innovative technologies and 
take advantage of existing commercial architectures. Five, it 
had to be flexible enough to embrace the Internet. And, 
finally, six, since government regulation would be needed, 
something that we always try to avoid, it had to be adequately 
focused to be practical.
    It took a month for my colleague Scott Hamilton and I to 
conceptualize and diagram our idea, but what ensued was a 5-
year odyssey that brings me here before you today. On the way, 
Intel made an important technical contribution. We built 
consensus, first, one on one with companies such as Thomson, 
IBM, Sony, and Panasonic. We petitioned the Advanced Television 
Systems Committee to standardize the technical details of the 
flag itself, which they did. The Broadcast Protection 
Discussion Group was formed, which I had the privilege of co-
chairing, along with representatives from Intel and Mitsubishi. 
This open forum attracted dozens of members from worldwide 
industry and other interested parties. I met, for over a year, 
with meetings lasting into the wee hours of the morning, and 
delivered a consensus document to the FCC for their 
consideration.
    At the FCC, an intensely public process of review 
transpired, which resulted in the FCC adopting the broadcast 
flag regulation. Unfortunately, the Federal court struck down 
the regulation, solely on jurisdictional grounds.
    Along the way, there have been many critics. Most of the 
concerns were due to misunderstandings. My favorite was that 
the flag would ban home recording of television. Of course, it 
does not. And to those who would say that high-definition 
content is too cumbersome to indiscriminately redistribute over 
the Internet, two points to ponder. Twelve years ago, it took 8 
hours to download a single song from the Internet. Now it takes 
but moments.
    And the CEO of Verizon, Ivan Seidenberg, recently declared 
his target vision for broadband into the homes of his 
subscribers is 100 megabits a second, a blinding speed that 
could download a looted one-hour high-definition episode of 
FOX's ``24'' in a convenient four-and-a-half minutes.
    The legislation we are seeking ratifies the billions of 
dollars that local TV broadcasters have spent to do their part 
to make the DTV transition successful. Local TV broadcasts, 
offered free to the consumer, deserve and need to have content 
protection in order to be competitive with the national pay-
television offerings, such as HBO, ESPN, video iTunes, and 
MovieLink.com, in obtaining high-value content.
    No other digital media has emerged that has dedicated 
itself to localism. Even those consumers that subscribe to pay 
television rely heavily on local TV broadcasts for their news 
of local events, local political races, and local high-school 
sports. Local television broadcasts are part of our heritage. 
They are uniquely American.
    It is essential that the television shows we transmit have 
protection against the indiscriminate redistribution across 
networks such as the Internet. The broadcast flag is the 
mechanism that will achieve that goal without any unwanted side 
effects.
    Thank you, once again, for the opportunity to address you 
on this important matter. I look forward to answering any 
questions you may have.
    [The prepared statement of Mr. Setos follows:]

   Prepared Statement of Andrew Setos, President of Engineering, Fox 
                          Entertainment Group
    Good morning, Chairmen and Members of the Committee. My name is 
Andrew Setos, and I am the President of Engineering of the Fox 
Entertainment Group. Thank you for inviting me to participate in this 
hearing.
    As this Committee is well aware, Congress will soon mandate that 
broadcast television stations abandon the analog spectrum and begin 
broadcasting exclusively in digital form by 2009. This final step in 
the DTV transition will bring many benefits to consumers, by 
eliminating the current confusion that is inevitable in a mixed analog/
digital world. However, the benefits of the digital transition will be 
meaningless to those same consumers unless we can also assure them that 
high-quality content will continue to be available to them on free 
over-the-air broadcast. This requires that DTV stations themselves be 
able to assure content providers of a reasonably equivalent level of 
protection to that provided by cable and satellite--and even the 
Internet. At the moment, DTV stations cannot provide this assurance, 
because DTV is legally obligated to broadcast content in-the-clear with 
no protection, while cable, satellite and Internet service providers 
offer content providers a wide variety of conditional access- and DRM-
based content protection systems. This imbalance places the long-term 
viability of free over-the-air digital television in doubt and is 
certainly not in the public interest.
    To correct this imbalance, it is essential that DTV stations be 
able to offer content providers some level of protection against 
indiscriminate redistribution across networks such as the Internet. The 
broadcast flag regulation promulgated by the FCC in 2003, after a 
years-long process of discussion and debate, is the one mechanism that 
can achieve that goal, and accordingly, we urge you to reinstate the 
regulation as soon as possible.
    The past decades have seen an explosion in consumers' options to 
enjoy audiovisual content. Focusing on television alone, where there 
were once just three broadcast television networks, we now have 
hundreds--if not thousands--of cable, satellite, cable-like and 
Internet-based services. It seems that every day there is news of a new 
and innovative way for consumers to enjoy television programming, such 
video-on-demand services (VOD), video iPod and even watching shows on 
cell phones.
    All of these ``television services'' compete by offering consumers 
something that they want to see. Unfortunately, the digital revolution 
has also created the opportunity for theft of that content on an 
unprecedented scale. Millions of users of so-called ``peer-to-peer 
file-sharing services'' upload and download copies of ad-free favorite 
television shows, like The Simpsons, House, American Idol, and 24, as 
well as popular sporting events, over the Internet. These programs are, 
of course, the lifeblood of over-the-air broadcast television stations, 
which rely on high quality content to attract viewers.
    Currently, digital free over-the-air broadcasts are legally 
required to be transmitted ``in the clear,'' with no protection 
whatsoever from being redistributed. The process to upload content to 
the Internet--formerly a process that could be performed only by a 
relatively sophisticated and motivated pirate--is far easier, and more 
accessible today than it was even a few years ago. And for those who 
point out--admittedly, correctly--that DTV signals take a long time to 
be captured, compressed and redistributed over the Internet today, here 
is a cautionary tale: Twelve years ago, it took eight hours to download 
a single song; today, an individual with no computer savvy can do it in 
less than a minute with a click of the mouse.
    Cable, satellite, ISP/telco, and other distributors of television 
programming have already recognized how important this issue is to 
ensure the digital future by voting with their dollars. These companies 
have spent millions on the design, deployment and maintenance of 
increasingly sophisticated content protection systems based on 
conditional-access, link protection or software DRM-based technologies. 
By contrast, DTV stations, at present, are legally barred, and from a 
practical standpoint are unable to offer content providers anything 
comparable. It is not hard to predict that without additional measures 
to safeguard high-value digital content, broadcast stations will soon 
find it difficult or even impossible to attract high-value programming. 
Sports leagues and entertainment programming producers will, naturally, 
choose to offer their programs on a service that can offer protection 
against indiscriminate redistribution.
    Although some so-called ``consumer groups'' state that the 
enactment of broadcast flag legislation would be detrimental to the 
viewing public, which we believe it does not, the real threat to 
consumers who currently enjoy and benefit from watching their local 
broadcast channels is the slow demise of free over-the-air broadcast. 
Without national content, local broadcast stations would struggle to 
attract viewers and ultimately to stay in business. For millions of 
Americans, local broadcast stations are the sole source of news and 
entertainment. But even for consumers who subscribe to a cable or 
satellite service, local broadcast stations are the only source of 
televised local news coverage and editorial content. They televise 
local sporting events, weather reports (including emergency weather 
reports), and traffic updates. They are the source of information about 
community issues and local political races. Local television broadcasts 
are part of our heritage. They are uniquely American, and they are 
democratic (small ``d'') at their essence.
    Foreseeing these challenges and understanding the value of local 
television, I, along with my engineering colleague, began to look at 
how we could protect in-the-clear digital broadcast. As we looked at 
possible solutions we set up a basic set of criteria:

        1. The regime should be invisible to the consumer.

        2. The regime should allow consumers to make time shifted-
        copies of free over-the-air television programs.

        3. The regime should be flexible enough to allow for the 
        competitive market place to develop innovative protection 
        technologies as well as allow for content to be transmitted 
        securely in a network environment.

        4. The regime should be of de minimis cost to the manufacturer 
        and thus to the consumer.

        5. The regime should work at the smallest component part of the 
        digital ATSC receiver to ensure that it had no impact on any 
        other component part of a computer or consumer electronic 
        device.

        6. The regime should not obsolete the digital television 
        receivers that were already in the market place and in 
        consumers' homes.

    After settling on a solution that met all of these goals that we 
now call the broadcast flag, we presented this regime to a group of CE 
and IT manufacturers. Thus began the long process which evolved into a 
large and more diverse group of consumer electronics, computer 
technology, and video content companies known as the Broadcast 
Protection Discussion Group.
    That conceptual framework developed by the Broadcast Protection 
Discussion group was the seed for the FCC's broadcast flag regulation. 
But it took time to get there, and it took a great deal of work--almost 
three years. Indeed, in preparing for this hearing, I was reminded that 
four years ago, the President and Chief Operating Officer of News 
Corporation, Peter Chernin, sat before this very Committee and 
expressed his hope that cross-industry negotiations would yield a 
solution acceptable to all of the participants. I am pleased to sit 
here today and report that they did. Over the years since Mr. Chernin's 
testimony in 2002, the members of the working group crafted the basic 
outline of the regulatory regime. Even so, the FCC didn't accept it 
whole cloth, but following still more discussion and debate--a process 
in which took into account the views of many consumer groups--
ultimately constructed a regulation that most of the parties to the 
negotiations viewed as an acceptable compromise of interests. Those 
that continued to disagree with substantive details of the regulation 
filed motions to reconsider and appeals. These were held in abeyance 
pending the outcome of an appeal based on a challenge to the FCC's 
jurisdiction.
    Unfortunately, in May of 2005, the D.C. Circuit ruled that the FCC 
lacked jurisdiction to enact the broadcast flag regulation. The Court 
did not offer any view on the substance of the flag, for that issue was 
not before it. Nor did the Court offer any view on the wisdom of the 
broadcast flag as a matter of policy, for that issue is not within its 
purview. Rather, the Court held merely that the FCC could enact such a 
regulation only if Congress authorized it to do so.
    The broadcast flag legislation that we support does just that: it 
reinstates the FCC's broadcast flag regulation, thereby reinstating the 
carefully crafted multi-industry pact. It also reinstates the pending 
motions to reconsider and the substantive appeals, leaving all parties 
exactly where they were before last May's ruling.
    Although the regulation has drawn criticism, that criticism is, in 
my view, misguided or misinformed. Much of it can be dispensed with by 
focusing on what the flag will not do:

   It will not restrict home recording of DTV.

   It will not restrict the movement of recorded DTV shows in 
        the personal digital network, no matter if you are upstairs at 
        home, in your car or boat, or at a permanent or temporary 
        vacation spot. The FCC has already approved some flag-compliant 
        technologies to enable that movement.

   It will not restrict the making of multiple physical copies. 
        It does not restrict the unending physical copying of those 
        copies. And it does not restrict where such physical copies may 
        be played or to whom they are lent or given.

   It will not render obsolete or change the feature set of 
        even one DTV product that has been sold to consumers to date. 
        Not one.

   It will not affect the viewers' experience as they view 
        their televisions or make their home recordings.

   It will not stifle innovation. Nor will it establish the FCC 
        as the ``Federal Computer Commission.'' The FCC's role under 
        the regulation is simple and narrow: to consider proposals for 
        specific protection methods for DTV content containing the 
        broadcast flag and to approve those that provide a reasonable 
        level of protection. Prior to the decision striking down the 
        regulation, the FCC has already proven its ability to ably 
        exercise this simple, well-defined role by approving 13 
        different protection methods--many of them developed precisely 
        for the purpose of protecting DTV. This is stimulation of 
        innovation--not stifling of it.

    Indeed, a broad range of digital devices, including digital 
recorders and personal digital networking devices, already comply with 
the flag's rules. Examples include PVRs, D-VHS, DVD recorders, and 
computers and related technologies. Many other devices that do not even 
exist yet can be made to comply with the flag's rules. Wired or 
wireless, software or hardware, any future innovation complying with 
the flag can receive, record and otherwise process digital television 
signals.
    Ultimately, the broadcast flag regulation will have little or no 
impact on consumers' legitimate consumption and enjoyment of free over-
the-air digital television. It will not interfere with a consumer 
making unlimited copies in a variety of media; it will facilitate a 
variety of home networking technologies and a variety of reasonable 
remote access technologies, as well as new technologies that have not 
yet even been conceived. In addition to protecting local broadcasting 
and helping to ensure the viability of the digital transition, the 
broadcast flag regulation will stimulate American technological prowess 
in content protection and management technologies.
    Thank you once again for the opportunity to address this important 
matter. I would be pleased to answer any questions.

    The Chairman. Thank you very much, Mr. Setos.
    Our next witness is Mr. Band, Counsel, American Library 
Association.

         STATEMENT OF JONATHAN BAND, COUNSEL, AMERICAN 
         LIBRARY ASSOCIATION; ON BEHALF OF THE LIBRARY 
                       COPYRIGHT ALLIANCE

    Mr. Band. Mr. Chairman, Members of the Committee, the 
Library Copyright Alliance, which includes the American Library 
Association, appreciates this opportunity to explain our 
concerns with the FCC's broadcast flag rule. We urge the 
Committee to address these concerns before adopting broadcast 
flag legislation.
    The five national library associations in the LCA were 
among the petitioners that successfully challenged the 
broadcast flag rule in the D.C. Circuit. The LCA believes that 
the rule would prevent a wide range of lawful uses of broadcast 
materials, to the detriment of the public.
    Whether we like it or not, television is part of the fabric 
of American life. It remains a major source of news, and both 
reflects and influences cultural trends in our society. 
Effective public discourse often requires the copying and 
redissemination of broadcast content. For example, a website 
seeking to demonstrate the disparate treatment by news programs 
of black ``looters'' and white ``foragers'' in the wake of 
Hurricane Katrina would need to include clips of television 
news broadcasts. The flag would interfere with these lawful 
uses.
    Libraries are most directly concerned that the flag would 
undermine the Technology, Education, and Copyright 
Harmonization Act passed by Congress in 2002 to enable distance 
education in the digital era. The TEACH Act permits educational 
institutions to use copyrighted works in distance-education 
courses conducted over the Internet.
    Unfortunately, the broadcast flag threatens the operation 
of the TEACH Act. Under the TEACH Act, an educator can include 
a clip of a television broadcast in distance-ed materials. For 
example, a course on criminal procedure could include a clip 
from ``Law & Order,'' where the detectives conduct a search 
claimed by the defendant to be unlawful. The broadcast flag, 
however, would prevent the educator from retransmitting that 
clip over the Internet.
    The FCC's rule made no accommodation for distance 
education. If Congress ultimately decides to authorize the FCC 
to adopt the flag rule, Congress should ensure that the rule 
includes appropriate exceptions for lawful uses. This could be 
achieved by prohibiting the flagging of certain kinds of 
content, such as public-domain materials, news and public-
affairs programs, and educational shows.
    Furthermore, libraries and educational institutions should 
have access to receiving devices that do not respond to the 
flag. We need this special TEACH Act exception in order to make 
legitimate uses of content that does not fall within the 
public-domain or public-affairs exceptions. The Committee 
should consider extending these exceptions to other uses 
permitted by the Copyright Act.
    Carefully drafted exceptions along these lines will not 
prejudice the legitimate interests of the copyright owners. 
Even if certain programs are not flagged, they typically will 
still be covered by copyright. And then, if a library abuses 
these exceptions, it can be sued for copyright infringement.
    We have reviewed the discussion draft circulated by Senator 
Smith. The exception for customary uses of broadcast content by 
consumers is a step in the right direction, but it does not go 
far enough for libraries. The exception applies to digital 
radio, but not digital television. It applies to consumers, but 
not to libraries or educational institutions. It is unclear 
whether the TEACH Act, passed in 2002, constitutes an historic 
use.
    Finally, the details of protecting fair use should not be 
delegated to any agency, let alone the FCC, which has no 
copyright experience.
    The Internet has the potential to dramatically expand 
distance education, providing special benefit to students in 
rural areas underserved by traditional forms of education. 
However, the broadcast flag could impede the development of 
robust distance-ed materials by preventing the use of the 
content most compelling to today's students: television 
programs. The flag rule allows an independent agency to 
overrule the clearly expressed rule of Congress with regard to 
distance-ed and other lawful uses.
    We look forward to working with the Committee to fashion 
modest exceptions to the rule. Thank you for your attention.
    [The prepared statement of Mr. Band follows:]

    Prepared Statement of Jonathan Band, Counsel, American Library 
        Association; on Behalf of the Library Copyright Alliance
    The Library Copyright Alliance (LCA) appreciates the opportunity to 
explain to the Committee our specific concerns with the Federal 
Communications Commission's (FCC) broadcast flag rule. We urge the 
Committee to address these concerns before adopting legislation 
authorizing the FCC to promulgate the rule.
    The LCA consists of five major library associations--the American 
Association of Law Libraries, the American Library Association, the 
Association of Research Libraries, the Medical Library Association, and 
the Special Libraries Association. These five associations collectively 
represent over 139,000 libraries in the United States employing 350,000 
librarians and other personnel. The five associations cooperate in the 
LCA to address copyright issues that have a significant effect on the 
information services libraries provide to their users. The LCA's 
mission is to foster global access to information for creative, 
research, and educational uses.
    The national library associations that constitute the LCA were 
among the petitioners that successfully challenged the FCC's broadcast 
flag rule. After the Motion Picture Association of America questioned 
the petitioners' standing to file suit, librarians at Vanderbilt 
University, North Carolina State University, University of California-
Los Angeles, and American University filed affidavits with the court 
explaining and illustrating how the broadcast flag, if it went into 
effect, would hamper their use of broadcast materials for teaching and 
scholarship. Copies of these affidavits are attached.
    The D.C. Circuit held that at least one of these librarians had 
standing, which in turn conferred standing to the organization of which 
the librarian was a member. On this basis, the court was able to reach 
the merits of the challenge. Although the court struck down the flag 
rule on the grounds that the FCC did not have the authority to issue 
it, the library concerns with the rule go far deeper than the proper 
scope of the FCC's jurisdiction. Specifically, the rule would prevent a 
wide range of lawful uses of broadcast materials, to the detriment of 
the public. For this reason, the LCA welcomes this opportunity to 
explain to the Committee how the rule will have this negative impact.
    Whether we like it or not, television is part of the fabric of 
American life. It remains a major source of news, and both reflects and 
influences cultural trends in our society. Effective public discourse 
often requires the copying and redissemination of broadcast content. 
For example, a website seeking to demonstrate the disparate treatment 
by news programs of black ``looters'' and white ``food liberators'' in 
the wake of Hurricane Katrina would need to include clips of television 
news broadcasts. Likewise, an organization dedicated to preserving 
traditional family values in American society might distribute over the 
Internet segments from Desperate Housewives and The O.C. to demonstrate 
the corrupting influence of television.
    The flag would interfere with these lawful uses. Libraries are most 
directly concerned that the flag would seriously undermine the 
Technology, Education and Copyright Harmonization (TEACH) Act passed by 
the 107th Congress to facilitate distance education in the digital era. 
The TEACH Act sets forth conditions under which government bodies and 
accredited nonprofit educational institutions can use copyrighted works 
in distance education courses conducted over the Internet. The Act 
contains a variety of procedural safeguards to ensure that the 
interests of the copyright owners are not harmed.
    Unfortunately, the broadcast flag threatens to frustrate the 
operation of the TEACH Act. Under the TEACH Act, an educator can 
include a clip of a television broadcast in distance education 
materials. For example, a course on criminal procedure could include a 
clip from Law & Order where the detectives conduct a search later 
claimed by the defendant to be unlawful. The broadcast flag, however, 
would prevent the educator from retransmitting that clip over the 
Internet. Contrary to the intent of Congress reflected in the TEACH 
Act, the broadcast flag will prevent the use of an entire category of 
works--high definition television programs--in distance education.
    The FCC made no accommodation for these lawful uses. If Congress 
ultimately agrees with the FCC that digital television broadcasts are 
vulnerable to widespread infringement, and that a broadcast flag is the 
best way to prevent such infringement, Congress should ensure that any 
flag regime includes appropriate exceptions for lawful uses. This could 
be achieved by prohibiting the flagging of certain kinds of content 
such as public domain material; news and public affairs programs; and 
programming designed to serve educational and informational needs.
    Furthermore, a governmental body or accredited nonprofit 
educational institution should be permitted to take actions as are 
reasonably necessary to make a transmission for distance education as 
authorized under the TEACH Act, including leasing or purchasing a 
device that does not detect or otherwise respond to the broadcast flag. 
It should also be legal to manufacture or import such a device solely 
for lease or sale to such a body or institution. Libraries and 
educational institutions need this special TEACH Act exception in order 
to make legitimate uses of content that does not fall within the public 
domain or public affairs exceptions. Additionally, the Committee should 
consider extending this exception to other educational and research 
uses permitted by the Copyright Act.
    Carefully drafted exceptions along the lines discussed above will 
not prejudice the legitimate interests of copyright owners. Even if 
certain programs are not flagged, they typically will still be covered 
by copyright; and if a library or educational institution abuses these 
exceptions, it can be sued for copyright infringement.
    The Internet has the potential of dramatically expanding the 
quantity and quality of distance education programs at the primary, 
secondary, and higher education levels. In recent years libraries and 
educational institutions have begun to tap into this potential, and 
students in rural areas underserved by traditional forms of education 
have been among the major beneficiaries. Unfortunately, the broadcast 
flag could impede the development of robust distance education 
curricula by preventing the use of the content most compelling to 
today's students: television programs. The flag rule in its current 
form allows an independent agency to overrule the clearly expressed 
will of Congress with regard to distance education and other lawful 
uses. Modest exceptions can address this serious concern.
    We look forward to working with the Committee on this important 
matter. I would be happy to answer any questions the Committee may 
have.

  United States Court of Appeals for the District of Columbia Circuit

     American Library Association, et al., Petitioners, v. Federal 
    Communications Commission, et al., Respondents. Case No. 04-1037

                      Affidavit of Paul M. Gherman

    My name is Paul M. Gherman. I am the University Librarian at 
Vanderbilt University in Nashville, Tennessee. It is my responsibility 
to oversee the Vanderbilt Television News Archive, which operates as a 
division of the Vanderbilt University Library. My business address is 
Vanderbilt University, 611 General Library Building, 419 21st Avenue 
South, Nashville, Tennessee 37215. I am over the age of eighteen and 
otherwise competent to testify.
    Among other harms, the Federal Communications Commission's 
broadcast flag regulation will prevent Vanderbilt University from 
streaming licensed broadcast news over the Internet to subscribers, as 
we do today for over 100 subscribers to our collection of certain 
network news programming. It will also preclude us from making our 
collection available to the Vanderbilt faculty and student body over 
the thirty-three computers that are currently able to electronically 
access the archive from the campus library.
The Vanderbilt Television News Archive
    The Television News Archive at Vanderbilt University (``Archive'') 
is the world's most extensive and complete archive of television news. 
The Archive's mission is to help preserve our nation's cultural 
heritage through the documentation of national television news 
coverage. The archive serves both as a permanent repository of national 
news programming and as an important resource for scholars, 
researchers, and journalists interested in contemporary history and 
television news journalism. Vanderbilt University Library is a member 
of the Association of Research Libraries (``ARL''), and as a unit of 
the library, the Archive is as well. ARL is a petitioner in this case, 
and an association to which we have belonged for more than twenty 
years. I am also a member of the American Library Association, another 
petitioner in this proceeding.
    The Archive's collections consist of television news programming 
recorded from broadcast and cable television signals. The Archive began 
off-air recording in 1968. The Archive records the nightly news 
broadcasts from all three major networks (ABC, CBS, and NBC). In 1995, 
the Archive began recording programming from the cable news network 
CNN. As of January 2005, the Archive also records programming from FOX 
news as well.
    In addition to recording nightly news coverage, the Archive also 
traces news coverage of major historical events in-depth. For example, 
the Archive includes complete, 24-hours-a-day, 7-days-a-week records of 
the news coverage for the Watergate scandal hearings, the 2000 
presidential election, and the tragedy of September 11, 2001. The 
Archive also includes extensive coverage of U.S. presidential 
campaigns, both wars in Iraq, the war in Afghanistan, and every 
Democratic and Republican National Convention and State of the Union 
address since 1968.
    Today, the Archive's collection holds over 40,000 hours of news 
broadcasts. The Archive indexes and abstracts each broadcast to the 
individual story level. The Archive's holdings also include all 
advertisements played during the captured news broadcasts. The Archive 
is the only publicly accessible, aggregate collection of television 
news in existence in the world today.
    Over 20,000 registered patrons located worldwide use the Archive 
for research, studies, and other personal uses. The Archive loans 
videotape copies of individual news segments, complete news programs, 
and compilations to its patrons, who return the copies for destruction 
following use. In addition, the Archive's entire collection is made 
available via video on thirty-three computer terminals physically 
located within the Archive and university library on campus. The 
Archive also has 140 library subscribers that are able to access our 
extensive collection of one network's programming over the Internet. 
The Archive is interested in developing similar arrangements with the 
networks.
The Archive's Operations
    To collect and preserve television news programming, the Archive 
uses a multi-step process. News programs are captured off-air using 
analog television tuner cards embedded within the Archive's computers. 
Archive staff then use encoding cards, also located within the 
computers, to convert the captured broadcast signal into MPEG video 
files. At this point, ``watermark'' data are added onto the MPEG files 
so that the date, time, name of the news network, and a running clock 
appear on the center of the screen when the program is viewed. These 
watermark data are also used for indexing and abstracting purposes.
    Once the broadcasts have been encoded and watermarked in MPEG form, 
the Archive staff begins the storage archival process. First, the staff 
uses in-house DVD burners to place the broadcasts onto physical discs 
for storage. These disks constitute our primary method of archival. 
They are also what we use to make copies we lend to our patrons upon 
request.
    Next, Archive staff periodically transfer the processed MPEG files 
of all captured newscasts onto high-volume removable disk drives. The 
Archive lends these disk drives to the Library of Congress in 
Washington, D.C., which then transfers the files to its own archival 
system and returns the disk drives to Vanderbilt.
    In addition to these two forms of storage, the Archive makes a 
reduced-resolution copy of the entire collection, which is stored on a 
computer server in a centralized location at the archive. When a patron 
accesses the collection in video from one of Vanderbilt's local 
computer terminals, it is this ``down-rezzed'' version of the 
broadcasts that the patron accesses.
Harm from the Broadcast Flag
    If it is allowed to remain in place, the FCC's broadcast flag rule 
will harm the Vanderbilt Television News Archive in a number of ways.
    To conduct our core function, news archiving, the Archive has 
invested well over $50,000 in recording, computer, and other electronic 
equipment to complete our primary recording studio--funds obtained 
largely from research and philanthropic grants and gifts. Currently, 
the Archive is in the process of constructing a redundant recording 
studio, at approximately the same cost. However, if the broadcast flag 
is allowed to remain in place, the Archive's substantial investment in 
its equipment will be jeopardized, because none of the digital 
equipment that the Archive currently owns is flag-compliant.
    For instance, none of the Archive's MPEG-encoding cards are 
designed to recognize or comply with the broadcast flag, nor are any of 
our multiple DVD burners. Likewise, none of the multiple local computer 
terminals, or the server where we store our streaming newscasts, will 
recognize the flag. Under the flag rule, however, broadcasters have 
sole discretion in deciding whether to embed the flag within broadcast 
programs. Consequently. if the flag rule is allowed to remain in 
effect, the Archive will be forced to replace our current equipment in 
order to conduct the same activities we do today. Because none of our 
digital video equipment is flag-compliant, we would not be able to use 
this equipment to store or copy digital television broadcasts that are 
embedded with the flag.
    We would thus be forced to buy entirely new equipment--not just new 
encoding cards and DVD burners, but also a brand new server and 
computer terminals for our local streaming operation, as well as new 
removable disk drives for use with the Library of Congress--in order to 
continue the Archive's operations as we conduct them today. This is 
because the broadcast flag will not allow a marked digital broadcast to 
be passed on to any ``downstream'' device that can read the digital 
television content but will not recognize and obey the flag. 
Consequently, all of the Archive's equipment would be rendered 
inoperable for their current uses. Particularly since the Archive 
acquired much of this equipment as recently as 2003 and 2004, being 
forced to replace what is essentially brand-new equipment that we 
acquired at a substantial cost would be an extremely onerous burden for 
a non-profit educational archive operating on a limited budget.
    Indeed, Congress has granted the Archive a specific exemption to 
the Copyright Act that allows us to ``reproduc[e] and distribute[e] by 
lending . . . a limited number of copies and excerpts'' of audiovisual 
news programs. 17 U.S.C. Sec. 108(0(3). By constraining how we carry 
out our mission of providing thousands of individuals access to the 
important cultural, political, and historical resource that we manage, 
the broadcast flag not only places a significant financial burden on 
the Archive, it conflicts with Congress' decision to extend this legal 
right.
    I declare under penalty of perjury that the foregoing is true and 
correct.
                                           Paul M. Gherman.
                                          Executed: March 23, 2005.

  United States Court of Appeals for the District of Columbia Circuit

     American Library Association, et al., Petitioners, v. Federal 
   Communications Commission, et al., Respondents.--Case No. 04-1037

                      Affidavit of Diana Vogelsong

    My name is Diana Vogelsong. I am the Associate University Librarian 
for Information Services at the American University (``AU'') in 
Washington, D.C. Both I and the American University Library are members 
of the American Library Association (``ALA''). The ALA is one of the 
petitioners in this proceeding. AU is an accredited non-profit 
educational institution as defined in 17 U.S.C. Sec. 110. My business 
address is American University Library, 4400 Massachusetts Ave, N.W., 
Washington DC, 20016-8046. I am over the age of eighteen and otherwise 
competent to testify.
    The broadcast flag rule, if permitted to take effect, will be 
harmful to the ability of our library to carry out its functions in two 
ways. First, the flag will force our library to replace DVD burners and 
players that do not comply with the flag's restrictions. These machine 
are used to record and play segments of broadcast television recorded 
off the air in classroom instruction. Second, the flag will preclude me 
from providing copies of broadcast clips over the Internet to the AU 
student body, through password protected courseware in conjunction with 
ongoing coursework.
Broadcast Use at AU
    I serve as the second-in-command librarian at the AU library. In 
this position, I coordinate the library's public services and 
associated collections, as well as supervise and coordinate with other 
library faculty and staff. The areas I am responsible for administering 
provide assistance to both undergraduate and graduate students with 
scholarly research, and aid faculty members in providing materials for 
their own research and courses. In particular, I supervise the division 
of the library that includes Media Services, which collects and loans 
digital, audiovisual, and other media resources to our student and 
faculty patrons.
    On a regular basis, we record broadcast programming off the air for 
use in classroom instruction at American University. Typically, we make 
these recordings in response to the request of an AU professor or other 
instructor teaching at the university. For instance in the past we have 
recorded presidential addresses and press conferences for government 
and public speaking classes, major news events for communications and 
history classes, PBS Frontlines (documentaries) for government and 
international affairs classes, and nightly news and sporting events for 
journalism classes.
    Recording this broadcast material for use in AU courses is an 
ongoing process. Because copyright law allows libraries to make only 
limited copies for specific educational uses, we destroy the copies we 
make after use. Typically, this is following display in-class or, if 
the professor requests that we keep the copy of the segment on reserve 
for viewing by students outside of normal class time, at completion of 
the semester.
    We have been making broadcast recordings available to our Faculty 
for 23 years, and plan to continue this valuable service indefinitely. 
The AU faculty consistently report that use of these broadcast 
materials in their courses enhances their ability to teach and enriches 
the students' experience, both by making classroom discussions more 
interactive and contemporary, and also by adding emerging information 
and a contemporary flair to the course material that often cannot be 
achieved with textbooks and scholarly articles alone.
    On occasion, we also assist AU faculty by converting videotape 
clips to a streaming video format for delivery to students, on a 
password-protected, class-specific basis, using Blackboard course 
software. Once a student has signed in to the appropriate page on AU's 
Blackboard site using her password, she can view the clip in 
``streaming'' format on the computer in her dorm room, at a campus 
computing center, or in the library itself. To date, we have done this 
only with video materials from our collection; however, we envision 
licensing content that we tape off-air for the same purpose.
The Broadcast Flag
    Currently, we record materials for our faculty using analog video 
cassette recorders (``VCRs''). The faculty then play the recorded 
broadcast segments in their classrooms using a VCR and television. 
However, we recently began converting our recording process from analog 
to digital, so that all broadcast materials we record for faculty 
members will be recorded, or ``burned,'' onto optical computer discs, 
or ``DVDs.'' We expect this transition process to be completed by the 
end of Summer 2005.
    Once we have completed the transition to digital recording, faculty 
members asking the library to record broadcast materials for classroom 
use will need to play their materials using machines capable of 
displaying digital audiovisual signals. AU currently owns nearly one 
hundred DVD players that can be used for this purpose, with no 
additional expense to the university.
    However, once the digital transition is complete, and if the 
broadcast flag takes effect, none of the DVD players that AU makes 
available to its faculty for classroom instruction will be able to work 
for the primary purpose we acquired them--teaching our students. Any 
broadcast flag-compliant digital tuner would not permit recording or 
playing of digitally broadcast television programming using the DVD-
burning or DVD-playback equipment that we now have, even though the 
uses that we make of the broadcast materials are clearly lawful uses of 
the material for educational purposes.
    Due to the broadcast flag rule, we will be forced to replace this 
instructional equipment that currently performs for the precise purpose 
we acquired it. The broadcast flag thus represents not just a financial 
burden on our library, but also an impending threat to our ability to 
carry out our mission to educate, and assist our faculty in educating, 
our student body.
    The broadcast flag also harms us in another way. While to date we 
have made only video that is owned by the library available for use by 
faculty to stream to students over the Internet, we believe the TEACH 
Act and the copyright law protect our ability to do the same thing with 
off-air recordings. Our faculty are making increasing use of broadcast 
television and the Internet in their courses. The broadcast flag, 
however, would require every computer on campus that has access to this 
material to be flag-compliant in order for students to be able to view 
these educational materials. Accordingly, because the broadcast flag 
would require us either to retrofit (assuming the proper technology 
were made available to allow such a retrofitting) or replace every 
computer on campus to comply with the flag's copy-protection/
redistribution requirements, we would be entirely foreclosed from 
taking advantage of this exciting new educational tool.
    I declare under penalty of perjury that the foregoing is true and 
correct.
                                           Diana Vogelsong.
                                          Executed: March 24, 2005.

  United States Court of Appeals for the District of Columbia Circuit

     American Library Association, et al., Petitioners, v. Federal 
   Communications Commission, et al., Respondents.--Case No. 04-1037

                      Affidavit of Rebecca Gordon

    I, Rebecca Gordon, hereby declare as follows: I have been a member 
of the American Library Association (``ALA'') since July 2003. My 
address is 2907 Hickory Street, Alexandria, Virginia 22305. I am over 
the age of eighteen and otherwise competent to testify.
    I have previously used brief clips of broadcast television video as 
part of the course material for college courses that I periodically 
teach. A critical component of my course on cyberculture, for example, 
is examining the ways that cyberculture is defined and portrayed by 
mainstream media. And for my audio technology fundamentals course, I 
likewise use material from the mainstream media to facilitate 
examination of issues such as copyright disputes and peer-to-peer 
networking. I had planned to begin making course materials, including 
digital copies of broadcast video clips, available to my students via 
the Internet to bring attention to fast-breaking media stories in an 
efficacious manner. The Federal Communications Commission (``FCC'')'s 
broadcast flag regime will preclude, or significantly impair, my 
ability to use the Internet to provide my students with these clips. I 
will be harmed as a consequence, because valuable opportunities for me 
to use broadcast video clips to timely illustrate, discuss and critique 
media portrayals of cyberculture will be lost, diminishing the 
effectiveness of my teaching material.
    I am a college professor and periodically teach courses in 
cyberculture and audio technology fundamentals at American University 
in Washington, D.C. My cyberculture course typically draws students 
from the computer science, anthropology, public affairs, and 
communications disciplines. A critical component of this course is 
examining the ways that cyberculture is defined and portrayed by 
mainstream media, particularly the way that various interests attempt 
to frame the debate over the legitimacy of peer-to-peer content sharing 
networks, such as Napster. For example, some media outlets are prone to 
characterize peer-to-peer content sharing as piracy, while others might 
characterize the activity as ``civil disobedience.'' The audio 
technology fundamentals course is a required course for audio 
technology and multimedia/game design students, and an elective course 
for computer and film students. It is particularly popular with 
students, and in fact was noted as one of the four ``coolest'' classes 
on campus in a recent American University science publication.
    The ability to capture clips from the broadcast television news, 
public affairs shows, and even talk shows for use in the classroom is 
essential for both courses. Given that video and multimedia forms of 
communication are very much at center stage, it would be difficult to 
teach students about how the media portrays cyberculture without 
showing students what the media does Similarly, these broadcast 
materials enhance discussion of copyright and other issues in the audio 
technology fundamentals class. I believe that the students relate 
particularly well to timely examples of the matters we discuss, and 
that the use of these contemporary and interactive materials has 
contributed to the popularity of this course.
    Although I am not currently teaching the cyberculture and audio 
technology courses, in past semesters I taped the clips I wanted to use 
with an analog VCR and then played the tapes on a VCR in the classroom. 
I have also located clips on the Internet using a computer and 
displayed them using a video and data projector in my classroom.
    My cyberculture course will be offered again in the Spring of 2006 
at American University or another school. For that course, I plan to 
use a digital video recorder (``DVR'') such as a Tivo to capture 
broadcast video clips. I will then transfer the clips to a computer 
file server that individual students can access via the Internet, and 
that I can access in the classroom via the Internet. I had planned to 
make my materials available via the Internet for a number of reasons, 
including the need to capture and distribute clips quickly to my 
students. Timeliness is especially key in a course that studies and 
critiques the media. For example, I may see video broadcast on a 
morning news show that is directly relevant to a topic being covered in 
a class later that day, and like to e-mail it to my students so they 
can quickly study it and be prepared to discuss it in class. Internet 
distribution is the only way to make this happen. While I could use 
slower methods of distribution, media coverage moves at lightning 
speed; if I wait to discuss the material a class or two later, the 
particular issue I wanted to address often gets stale or is superseded 
by another media development. One of my goals is to cover the media in 
as up-to-date a fashion as possible.
    It is also important that the media materials we examine, including 
the video clips, be readily available to my students for independent 
study and research. Availability over the Internet, or even a 
university's campus network, is the most efficacious way to ensure that 
students can study this material.
    I understand, however, that the broadcast flag regime will preclude 
the transfer of flagged broadcast television content over the Internet. 
If the broadcast flag rule is allowed to stand, I will not be able to 
use the Internet to provide my students with timely broadcast video 
material relevant to my courses as I had planned. The timeliness and 
effectiveness of my course material and my teaching will be diminished. 
I will consequently be harmed.
    I declare under penalty of perjury that the foregoing is true and 
correct.
                                            Rebecca Gordon.
                                          Executed: March 25, 2005.

  United States Court of Appeals for the District of Columbia Circuit

     American Library Association, et al., Petitioners, v. Federal 
   Communications Commission, et al., Respondents.--Case No. 04-1037

                       Affidavit of Peggy E. Hoon

    My name is Peggy Hoon, and I serve as the Scholarly Communication 
Librarian at the North Carolina State University (``NCSU'') Libraries 
in Raleigh, North Carolina. The NCSU Libraries is a member of the 
Association of Research Libraries (``ARL''), and has been since 1982. 
I, personally, am also a member of the American Library Association 
(``ALA''). Both the ARL and ALA are petitioners in this case. NCSU is 
an accredited non-profit educational institution within the meaning of 
that term as it is defined in 17 U.S.C. Sec. 110. My business address 
is 2126 D.H. Hill Library, East Wing Box 7111, North Carolina State 
University, Raleigh, North Carolina. I am over the age of eighteen and 
otherwise competent to testify.
    The ``broadcast flag'' rule ordered by the Federal Communications 
Commission will harm the NCSU Libraries and its librarians, including 
myself. Specifically, the broadcast flag rule will prevent the 
Libraries from assisting faculty members in using broadcast clips as 
part of their distance education learning courses, over the Internet. 
Currently, the Libraries assists NCSU faculty in this way pursuant to 
the ``TEACH Act,'' which is codified in 17 U.S.C. Sec. 110.
The NCSU Libraries and Distance Education
    In conjunction with the Distance Ed & Learning Technology Aps 
(``DELTA'') program here at the university, the NCSU Libraries assist 
professors and other faculty in accessing and obtaining audio, visual, 
and other media for use in their on- and off-campus courses. One of the 
Libraries' specific efforts in this regard is to assist NCSU faculty in 
using broadcast content taken off the air to use in their distance 
learning courses.
    The Libraries currently assists any NCSU faculty who would like to 
use video content in their distance learning courses. The Libraries 
plans to continue making this service available into the future. This 
assistance includes support that we provide for distance learning 
courses taught over the Internet, as well as for professors who wish to 
use broadcast clips in these courses.
    For instance, the Libraries recently has been assisting a faculty 
member in the Foreign Languages and Literatures Department at NCSU to 
use broadcast clips in his distance education courses for Spanish 
language instruction. This professor records five-minute and shorter 
clips of the television program, El Show De Cristina, which airs on the 
Univision network.
    El Show De Christina is a Spanish-language talk show that has been 
described as a mixture of the English-language talk shows Oprah! and 
Jerry Springer. The NCSU professor uses clips from Christina because 
they often include rapid exchange in Spanish among multiple 
participants appearing on the show, thus facilitating the teaching of 
the language to his students in a conversational manner that might not 
otherwise be possible through a distance learning course.
    After recording the Christina segments, the professor brings them 
to the Learning and Research Center for the Digital Age, located within 
the NCSU Libraries, to receive assistance in making the clips usable 
over the Internet. Specifically, librarians and other library staff 
within the Libraries' Digital Media Lab take the clips from the 
professor and digitally convert them so that they can be ``streamed'' 
over the Internet and viewed by the students in the professor's 
Spanish-language course.
    Consistent with the TEACH Act, the clips are provided through a 
technology called WebCT, which allows for the password protection of 
the materials. As a result, although the Internet is used for, and is 
essential to, making these clips available, the only individuals able 
to access them are registered students of the NCSU course.
Impact of the Broadcast Flag
    The NCSU Libraries currently makes this service available to all of 
its faculty that would like to use broadcast or other video materials 
available for their courses over the Internet, in a manner consistent 
with the TEACH Act. The Libraries consistently receives overwhelmingly 
positive feedback about this service (and other services) that the 
Libraries provides through the Digital Media Lab and the Learning and 
Resource Center for the Digital Age. Both faculty and students report 
that use of the kind of materials such as Christina significantly 
enhance the educational experience.
    Accordingly, the Libraries plans to continue providing these 
services. However, if the broadcast flag rule takes effect, the 
Libraries will be foreclosed from helping its faculty broadcast clips 
like Christina, and many other similar programs, in their distance 
learning courses, because the broadcast flag is designed to stop 
redistribution over the Internet. As a result, the very services that 
the TEACH Act allows and that we provide NCSU faculty today--assisting 
them with making broadcast clips usable for their students over the 
Internet to make their educational experience more realistic--will be 
foreclosed. The broadcast flag will have this effect regardless of 
whether we are assisting faculty to convert or record, because 
broadcasters will have sole discretion as to whether to ``flag'' a 
broadcast and because all broadcasts will be digital.
    The NCSU Libraries will also be harmed by the broadcast flag in 
another way. While today we are able to use our Digital Media Lab to 
help faculty with media they would like to use in their courses using 
the Media Lab's current equipment, the broadcast flag will force us to 
replace much of our expensive computer and other electronic equipment 
that is capable of reading and copying digital television signals. This 
is because much of the equipment that we currently have does not comply 
with the flag's technical requirements for protecting television 
content, and thus, that equipment would not be able to interoperate 
with new, flag-compliant digital television tuners and other 
technologies.
    I declare under penalty of perjury that the foregoing is true and 
correct.
                                             Peggy E. Hoon.
                                          Executed: March 29, 2005.

  United States Court of Appeals for the District of Columbia Circuit

     American Library Association, et al., Petitioners, v. Federal 
   Communications Commission, et al., Respondents.--Case No. 04-1037

                     Affidavit of Kris Kasianovitz

    My name is Kris Kasianovitz. I am employed by UCLA as the Young 
Research Library Collections, Research and Instructional Services 
Department Librarian for NGOs and State, Local & Canadian Government. 
UCLA is an accredited non-profit organization as defined in 17 U.S.C. 
Sec. 110. UCLA is a member of two petitioners to this case: the 
American Library Association (ALA), and the Association of Research 
Libraries (ARL). I am also an individual member of the ALA. My business 
address is UCLA, 11630 Research Library, Box 951575, Los Angeles, CA 
90095. I am over the age of eighteen and otherwise competent to 
testify.
    If the FCC's broadcast flag rule goes into effect, it will harm the 
UCLA Research Library by forcing the library to purchase new equipment 
in order to continue carrying out our educational mission. 
Specifically, because I often make use of video clips in my 
instructional classes and I intend to use broadcast clips for this 
purpose in the near future, the educational value of my instruction 
would be diminished unless the library replaced its current equipment 
with equipment that complies with the broadcast flag.
Use of Video Clips in UCLA Classes
    As part of my job as a librarian for UCLA, I often teach classes at 
the request of professors to university students on legislation and the 
legislative process. I teach these classes several times per year.
    In teaching these classes, I have found it useful to include video 
clips in my presentations to the students. For example, I have shown 
excerpts from C-SPAN to demonstrate the legislative process in action, 
as well as a video entitled ``America Rocks'' designed to explain the 
legislative process to students.
    To obtain video clips to show in my classes, I record the content 
onto DVDs and then use the university's computers and projector 
machines to present the video clips to the students during classes.
    I have many plans to use broadcast television clips too in my 
classroom presentations in the near future. As one example, I intend to 
show recent news coverage of Congress' intervention in the case of 
Terri Schiavo, the Florida woman who was the subject of a court order 
to be taken off a feeding tube. In addition, I also plan to show a 
series of news programs on law, demographics, and migration to 
California. I also plan to use similar television broadcast segments to 
help highlight my teaching points to the students.
    The use of television media, including broadcast media, in my 
instructional classes is important to me. It helps me to bring to life 
the subject of the legislative process for the students and to keep my 
presentations current by including the latest examples of the 
legislative process in action. The library has expended significant 
funds to invest in the equipment that allows me to carry out these 
purposes.
Harm from the Broadcast Flag
    If the broadcast flag rule is not struck down, it will harm the 
UCLA library by forcing it to either (1) expend funds to update the 
equipment I use in my classroom instruction, or (2) forego the use of 
valuable video enhancements to instructional presentations.
    The DVD players and computers that the library owns are not 
compliant with the broadcast flag. Therefore, once the digital 
transition is complete, and if the broadcast flag takes effect, none of 
the approximately two hundred computers that the UCLA library makes 
available to its faculty for instructional purposes will be capable of 
allowing me to record and transfer broadcast television content for use 
in my presentations. Any broadcast flag-compliant digital tuner would 
not permit recording or playing of digitally broadcast television 
programming using the DVD-burning or DVD-playback equipment that the 
library now has, even though the uses that I and other faculty would 
make of broadcast materials are lawful uses for educational purposes.
    In order for me to fulfill my intention of using broadcast video 
clips in my presentations in the near future, the library would need to 
purchase new DVD players and computers that would recognize and comply 
with the broadcast flag. Replacing the approximately two hundred 
computers that the library uses for instructional purposes would be a 
significant expenditure of resources for our library, which, as part of 
a state university supported by taxpayer funds, is always making 
difficult choices on how to allocate its limited resources.
    If the library is not able to allocate funds to purchase new 
equipment, I and other librarians will lose the ability to use 
broadcast video clips in the classes we teach. This would mean the loss 
of a valuable way to enhance our teaching by making our presentations 
lively and current through the use of recent broadcast television 
segments.
    I declare under penalty of perjury that the foregoing is true and 
correct.
                                          Kris Kasianovitz.
                                          Executed: March 26, 2005.

    The Chairman. Thank you very much.
    Mr. Patton, Corporate Vice President, Philips Electronics.

         STATEMENT OF THOMAS B. PATTON, CORPORATE VICE 
           PRESIDENT, GOVERNMENT RELATIONS, PHILIPS 
             ELECTRONICS NORTH AMERICA CORPORATION

    Mr. Patton. Thank you very much, Chairman Stevens, Co-
Chairman Inouye and Members of the Committee.
    My name is Tom Patton. I'm corporate Vice President for 
Government Relations with Philips Electronics North America 
Corporation. Philips thanks you for the opportunity to testify 
before the Committee today regarding protecting digital 
broadcast television programming from indiscriminate 
redistribution over the Internet.
    Philips is a leading technology company, expending 
approximately $3 billion a year on research and development. 
Philips is also a leading manufacturer of consumer products 
ranging from healthcare to video and audio entertainment.
    There are two principal points I wish to make today. First, 
Philips supports enactment by the Congress this year of 
narrowly limited and tailored legislation to ratify the Federal 
Communications Commission's broadcast flag rules and its 
technology approval order. Second, Philips believes any such 
legislation should require that licensing of approved broadcast 
flag technologies offered to the public must be on reasonable 
and nondiscriminatory terms. In so doing, Congress should 
clarify that non-assert obligations imposed upon licensees by 
licensors of a government-approved and mandated technology is 
inconsistent with reasonable and nondiscriminatory licensing.
    Today, Philips supports statutory ratification of those 
rules for one simple reason: the Commission basically got it 
right. The FCC established an open and fair process for 
selecting technologies, developed a set of objective criteria 
against which technologies would be judged, and required 
technology proponents to prove that they meet these criteria. 
It limited the scope of protection afforded by approved 
broadcast flag technologies to indiscriminate redistribution 
over the Internet while expressly preserving consumers' home-
recording capabilities. And it required that all approved 
broadcast flag technologies be licensed on reasonable and 
nondiscriminatory terms.
    The broadcast flag is not a perfect system, but it is a 
reasonable step on a longer path that balances appropriate 
content protection against consumer rights and product 
functionality.
    The broadcast flag rules impact two important markets: the 
emerging market for digital-content protection technologies and 
the mature and intensely competitive market for consumer 
electronics products. This Committee understands the critical 
importance for consumers of competitive markets where 
innovation is allowed to flourish: consumer choices multiply, 
prices decline, and product functionality increases. To ensure 
both marketplaces are competitive and innovative, Congress 
should require that any approved broadcast flag technology be 
licensed on reasonable and nondiscriminatory terms.
    In the broadcast flag context, a non-assert is a 
requirement that a licensee of a technology relinquish its 
rights to its own intellectual property as a condition of 
obtaining the license.
    Chairman Martin recognized the danger posed by non-assert 
obligations in the broadcast flag context. In his separate 
statement accompanying the Commission's technology approval 
order, he lamented that licensees might be forced to, ``choose 
between the lesser of two evils: either don't participate in 
the relevant product market or compete, but give up your 
intellectual property rights.'' Such a result, he posited, 
``may be anti-competitive, may discourage future investment in 
intellectual property, and may generally be counter to good 
public policy.'' We couldn't agree more. In fact, in this 
context, non-asserts can be compared with content piracy, 
inasmuch as they both take intellectual property belonging to 
others.
    Before concluding, permit me to comment briefly on Title I 
of Senator Smith's draft broadcast flag bill. We support the 
proposed ratification of the FCC's broadcast flag rules and 
technology approval order. As I've just indicated, we believe 
that the bill should address the anti-competitive effects of 
technology licenses that impose non-assert obligations on 
licensees. Moreover, expanding the scope of the rules, as the 
draft bill would do, to reach indiscriminate redistribution 
over digital networks may be a significant change, and, 
therefore, requires further consideration. Finally, any 
legislation will need to provide manufacturers with sufficient 
time to integrate broadcast flag technologies. We look forward 
to working with Senator Smith and all the Members of the 
Committee on this important legislation.
    The digital age presents a host of challenges and 
opportunities. Philips believes it is imperative to create a 
new global paradigm that fairly values digital-content 
protection technology, just as we value the content these 
technologies are designed to protect. Philips looks forward to 
the day when all stakeholders make clear that electronic 
infringement of copyrighted video content is wrong, when 
content owners recognize that innovation in digital-content 
protection technologies must be coupled with the availability 
of digital products that enable consumers to enjoy ever-more-
flexible uses of content, and when the innovators responsible 
for those technologies and digital devices are able to enjoy 
the fruits of their intellectual labor.
    Thank you very much for the opportunity to testify today. 
I'd be pleased to answer any questions you may have.
    [The prepared statement of Mr. Patton follows:]

   Prepared Statement of Thomas B. Patton, Corporate Vice President, 
  Government Relations, Philips Electronics North America Corporation
Introduction
    Co-Chairmen Stevens and Inouye and Members of the Committee, my 
name is Tom Patton, and I am Corporate Vice President for Government 
Relations with Philips Electronics North America Corporation. Philips 
greatly appreciates the opportunity to testify before the Committee 
today on the subject of the video Broadcast Flag.
    Philips believes that Congress should enact legislation this year 
to ratify the FCC's November 4, 2003 video broadcast flag rules as well 
as its August 4, 2004 Order approving thirteen digital broadcast 
content technologies under the fair and transparent process established 
under those rules, and that manufacturers should be given a 
commercially reasonable period of time to implement the new rules. 
Additionally, to better ensure a fully competitive, pro-innovation 
marketplace environment under those rules, such legislation also should 
require that any approved broadcast flag technology that is publicly 
offered be licensed on reasonable and non-discriminatory terms. Such a 
requirement entails, at a minimum, offering potential licensees with an 
IP interest an opportunity to license their own intellectual property 
on reasonable and nondiscriminatory terms and precludes the imposition 
of non-assert obligations on licensees.
    In that regard, Philips commends Senator Smith for his leadership 
on the video broadcast flag issue, which is reflected in Title I of his 
draft bill, and wishes to express our support for his proposed 
ratification of the FCC's November 4, 2003 Report and Order and its 
August 4, 2004 technology approval Order. Philips looks forward to 
working with Senator Smith and all of the Members of the Committee, as 
well as all affected stakeholders, to enact video broadcast flag 
legislation this year. While Senator Smith's draft legislation does not 
presently address the anticompetitive effects of technology licenses 
that impose non-assert obligations on licensees, and while we believe 
expanding the scope of the rules to reach ``indiscriminate 
redistribution over digital networks'' requires further consideration, 
we are optimistic that these and other issues that may arise can be 
addressed and resolved expeditiously and satisfactorily.
About Philips
    Philips is a diversified global technology company employing more 
than 160,000 people worldwide, including roughly 20,000 throughout the 
United States. Philips is a company focused on improving, through 
technological innovation, the lifestyle and physical and emotional 
well-being of consumers, manufacturing products as varied as home use 
defibrillators and medical diagnostic equipment such as MRI, CT and 
ultrasound scanning, electric toothbrushes, electric shavers, lighting 
products and a full range of video and audio entertainment products 
ranging from digital television receivers to the Jukebox MP3 player. 
Philips has been and continues to be a global leader in digital 
television technologies and products and related consumer electronics 
products, including DVD players and recorders, personal video 
recorders, and Direct Broadcast Satellite systems. It is also a leader 
in video compression, storage and optical products, as well as in 
semiconductor technology. Philips is well-known as the inventor of mass 
market entertainment standards, such as the Compact Disc and audio 
cassette, and Philips has been and continues to be a main contributor 
to many broadcast, disc, content distribution standards such as DVD 
and, more recently, Blu-ray.
    Philips also has been an active participant in the development of 
content protection technologies that serve both the needs of the 
content industry as well as the consumer. Philips invented the Serial 
Copy Management System, or SCMS, preventing the unauthorized 
reproduction of multiple generations of copies of digital audio works 
from a copyright-protected original (while permitting a single 
generation of copies). Philips continues to provide content protection 
systems for the industry such as: the Video Content Protection System, 
or VCPS, system to protect recordable DVDs; DisplayPort, a protected 
digital technology to replace existing analog systems; and forensic 
watermarking systems to find and prosecute those who provide content to 
illicit producers of DVDs.
    Philips is one of the largest users of the patent systems in the 
United States and other industrialized countries. In 2004, we filed 
U.S. patent applications for about three thousand new inventions. 
Scientists and engineers at our U.S. laboratories have made pioneering 
advances that revolutionized and revitalized the electronics industry 
with innovations that led to high definition television, optical CD and 
DVD recording, digital cellular telephones, medical imaging and digital 
rights management.
    Philips has been a constructive participant in inter-industry 
content protection activities, including the Broadcast Protection 
Discussion Group (BPDG), the Copy Protection Technical Working Group 
(CPTWG), the Secure Digital Music Initiative (SDMI), and, most 
recently, the Analog Reconversion Discussion Group (ARDG), co-chaired 
by one of Philips' most accomplished technologists.
Philips Supports Legislation Ratifying the FCC's Video Broadcast Flag 
        Rules and its Digital Content Protection Technologies Approval 
        Order
    As stated above, Philips supports legislation ratifying the FCC's 
November 4, 2003 video broadcast flag rules as well as its August 4, 
2004 technology approval order. Some observers who followed the FCC's 
video broadcast flag proceeding might be surprised that Philips now 
supports legislation ratifying the FCC's rules. They should not be.
    Throughout the FCC's rulemaking proceeding, Philips expressed 
several major concerns, which are discussed below. The type of narrowly 
tailored legislation we support today, together with the open, 
transparent, thoughtful and balanced rulemaking the FCC conducted, 
addresses all of them.
    So often, the Congress hears criticism of the FCC. In the broadcast 
flag rulemaking, the FCC got it right. And while virtually everyone 
recognizes that the broadcast flag is not a perfect system, it is a 
reasonable step along a longer path that balances appropriate content 
protection against consumer rights and product functionality, and helps 
to promote innovation and competition in the consumer electronics and 
digital content protection technology marketplaces. For these reasons, 
ratification of the FCC rules is an appropriate action for Congress to 
take.
FCC Authority
    The threshold concern Philips expressed was that the Commission 
lacked authority to impose a requirement that all digital television 
receivers, digital VCRs, DVD players/recorders, PVRs, and a host of 
other digital products recognize and respond to a set of digital bits 
transmitted by broadcasters, conveniently referred to as the video 
broadcast flag. Historically, because manufacturers of consumer 
electronics products are not licensees, the Commission's regulation of 
such devices has not been permitted absent an explicit grant of 
statutory power by the Congress. That was the case with the All Channel 
Receiver Act, the V-chip, and closed captioning. Such a targeted and 
tightly constrained approach to regulation of consumer electronics 
products has served the Nation well. The consumer electronics product 
market is perhaps the most competitive and innovative of all sectors of 
the American economy. A seemingly endless stream of new products and 
consistently falling consumer prices are the defining characteristics 
of this market.
    Philips believed that FCC regulation of all digital products 
containing demodulators--the partial list I just cited--without an 
express grant of authority by the Congress represented a dangerous and 
radical departure from wise policy and legal precedent militating 
against FCC regulation of consumer electronics products except where 
Congress required it.
    The reason we are assembled here today, of course, is that the 
United States Court of Appeals for the D.C. Circuit agreed with the 
position Philips and others took. It struck down the video broadcast 
flag rules solely on the ground that the FCC lacked the statutory 
authority to promulgate them.
    The type of legislation Philips supports today rectifies this 
problem. It is narrowly tailored to address a specific area of public 
policy concern following years of study and the open and fair public 
process conducted by the FCC. It reaffirms the proposition that the 
Commission's regulatory authority over television receiver 
manufacturers and other non-licensees is not plenary or inherent, but 
must derive from a specific grant from Congress.
Competition and Innovation
    The second major concern that Philips had when the FCC commenced 
its video broadcast flag rulemaking was that the issues were being 
framed too narrowly and the likely result would be a set of rules that 
would suppress rather than foster competition and innovation in the 
digital content protection technology marketplace. As discussed in 
greater detail below, Philips believes very strongly in the importance 
of creating a global mindset in which content protection is an integral 
part of the value proposition of the digital age for industry 
participants and consumers alike. For this concept to take root, 
however, the rules that apply to any government mandated or sanctioned 
digital content protection technology must not inhibit competition and 
innovation in this market.
    As a consequence of the vigorous participation of many diverse 
parties and the public and the extremely careful and insightful 
approach adopted by the FCC, the rules adopted by the Commission are, 
subject to one significant clarification discussed below, conducive to 
a competitive digital content protection technology marketplace. The 
Commission established an open and fair process for selecting 
technologies, yielding a set of objective criteria against which 
technologies would be judged and requiring technology proponents to 
prove that they fulfilled these criteria. In its August 4, 2004 Order, 
the Commission approved thirteen digital output and recording 
protection technologies, including a recording protection technology 
proposed jointly by Philips and Hewlett-Packard. Of course, even that 
number of approvals does not necessarily mean that there will be robust 
competition throughout this market; in certain instances there is only 
a single technology approved for a particular interface or format, and 
in other instances the need to interoperate effectively forces 
manufacturers to use certain technologies. But the process established 
by the Commission certainly is a promising start. That is why Philips 
also supports legislation that would expressly ratify the Commission's 
August 12, 2004 technology approval order.
Scope
    Finally, Philips was concerned about the potential scope of any 
video broadcast flag rules. Regulations that swept too broadly 
inevitably would undermine consumer acceptance of digital content 
protection technologies, the very opposite of the result sought by 
content providers. Once again, the FCC got it right. It defined the 
scope of its rules as being the prevention of indiscriminate 
redistribution of digital broadcast television over the Internet. The 
Commission elaborated:

        This goal will not (1) interfere with or preclude consumers 
        from copying broadcast programming and using or redistributing 
        it within the home or similar personal environment as 
        consistent with copyright law, or (2) foreclose use of the 
        Internet to send digital broadcast content where it can be 
        adequately protected from indiscriminate redistribution. (FCC 
        Report and Order, FCC 03-273, November 4, 2003, para. 10).

    This clearly defined and limited scope strikes the necessary and 
appropriate balance to encourage consumer-friendly innovation in the 
digital content protection technology marketplace. Indeed, it can be 
viewed as a precursor and a complement to the United States Supreme 
Court's Grokster decision last year that made clear that companies 
whose business model was predicated upon actively and intentionally 
inducing copyright violations, e.g., by facilitating indiscriminate 
redistribution of copyrighted works over the Internet, would be held 
liable for copyright violation. Just as the Court did nearly 16 months 
later, the Commission sought to strike a delicate balance that would 
safeguard copyrighted content without harming innovation in technology 
and digital consumer products.
Any Broadcast Flag Legislation Enacted by the Congress Should Require 
        That Licensing of the Technology Concerned Must Be on a 
        Reasonable and Non-discriminatory Basis, and Clarify That 
        Requiring Licensees to Give Away Their Intellectual Property 
        Without Compensation as a Condition of That License Is 
        Inconsistent With That Requirement
    Another key aspect of the FCC's video broadcast flag order was the 
reaffirmation of the Commission's policy, announced nearly 45 years 
ago, that licensing of technologies must be on reasonable and non-
discriminatory (``RAND'') terms and conditions. Specifically, the 
Commission, in describing the process and criteria by which it would 
review and approve digital broadcast content protection technologies, 
stated:

        Where a content protection technology or recording method is to 
        be publicly offered, we expect that it will be licensed on a 
        reasonable and non-discriminatory basis. We also expect that 
        publicly offered licenses will not be unreasonably withheld 
        from parties. (FCC Report and Order No. 03-273, November 4, 
        2003, para. 55)

    To implement that principle, the Commission required each 
technology proponent to submit a copy of its licensing terms and fees, 
as well as evidence ``demonstrating that the technology will be 
licensed on a reasonable, non-discriminatory basis.'' 47 CFR 
Sec. 73.9008(a)(4).
Non-assert Obligations Are Inconsistent With RAND Licensing
    Notwithstanding the clarity of the broad FCC requirement that 
licensing of these digital broadcast content protection technologies be 
on reasonable and non-discriminatory terms, a number of the 
technologies approved by the FCC impose so-called ``non-assert'' 
obligations on licensees. When included in a license agreement, a non-
assert obligation requires a licensee that may own patents or other 
intellectual property deemed ``essential'' to the technology being 
licensed (but sometimes non-essential technology, as well), to agree 
that it will not assert those IP rights against the licensors or any 
other licensee of the technology concerned, as a condition of taking 
that license. The result is that the licensee that owns IP must pay for 
the technology and the IP being licensed, but must forgo any 
compensation or other consideration--either from the licensors or other 
adopters--for its own IP. For reasons set out fully below, non-assert 
obligations on licensees are inherently inconsistent with the RAND 
requirement prescribed by the Commission. In fact, in Philips' view, it 
is hardly an exaggeration to qualify this as ``IP theft.''
    Now-FCC Chairman Martin succinctly captured the danger posed by 
non-assert obligations when the Commission adopted its August 4, 2004 
technology approval order. In a separate statement issued in connection 
with that Order, he wrote:

        First, I fear that the ``non-assert'' clause in the DTCP 
        adopter agreement could hinder competition and suppress 
        innovation. We acknowledge in the Order that DTCP is the only 
        publicly-offered output protection technology we approve that 
        permits copying, and is ``therefore likely to become the 
        primary'' standard for the foreseeable future. As a result, 
        anyone who wants to build products for this market must sign 
        the DTCP license. Yet, the license requires that companies give 
        up any intellectual property rights they have in the DTCP 
        technology before signing. Therefore a party may have to choose 
        between the lesser of two evils: either don't participate in 
        the relevant product market, or compete, but give up your 
        intellectual property rights. I am concerned this result may be 
        anti-competitive, may discourage future investment in 
        intellectual property, and may generally be counter to good 
        public policy. (Statement of Commissioner Kevin J. Martin in 
        FCC Order In the Matter of: Digital Output Protection 
        Technology and Recording Method Certification, FCC 04-193, 
        August 12, 2004).

    Chairman Martin was right on target. Non-assert obligations have no 
place in licenses for technologies to be used pursuant to government 
mandate such as the video broadcast flag rules. Although the rest of 
the Commission expressed similar concerns about the ``potential for 
anticompetitive or discriminatory conduct'' \1\ stemming from the use 
of non-assert obligations, it was not prepared to resolve the issue 
definitively. Congress should take this opportunity to clarify the law.
---------------------------------------------------------------------------
    \1\ In the Matter of Digital Output Protection Technology and 
Recording Method Certifications, Order, 19 FCC Rcd 15917(2004).
---------------------------------------------------------------------------
Non-assert Obligations, Particularly In Licenses Subject To A 
        Government Mandate, Are Not Reasonable
    The very essence of the constitutionally protected system of 
patents is the expectation that an individual or company that invests 
in research and development resulting in patents will be able to 
realize value from those patents in the form of reasonable royalties. 
As the Founders recognized, if that expectation is not realized, the 
incentive to innovate is destroyed. The effect of imposing a non-assert 
obligation on licensees, because it denies a licensee that owns IP from 
realizing the value of that IP, is essentially to suspend this core 
constitutional protection, making it unreasonable on its face.
    The irony is especially great here, where the entire purpose of the 
video broadcast flag rules is to protect the intellectual property of 
one party--a content creator--and yet the mechanism for doing so 
requires another party--a consumer electronics manufacturer that is 
also a technology innovator and contributes to the technology that 
enables content producers to protect its content--to surrender its own 
intellectual property rights in that technology and, often, in 
improvements. Particularly in this context, the notion that a non-
assert obligation is ``reasonable'' defies all common sense.
    The ``reasonable'' alternative to imposing a non-assert obligation 
on licensees is to subject licensees to the same obligation that the 
FCC seeks to impose on the technology proponent--an obligation to 
license its intellectual property on reasonable and non-discriminatory 
(``RAND'') terms. Under a RAND obligation, licensees agree not to use 
their IP to block the technology licensed, but are not required, in 
doing so, to sign away their own intellectual property without 
compensation. The reasonableness of a RAND obligation on licensees has 
made it commonplace in the technology marketplace. In fact, the entire 
consumer electronics industry rejected a non-assert obligation in favor 
of a RAND requirement in the DFAST license that is employed for 
licensing content protection technologies used with unidirectional 
digital cable-ready devices.
Non-Assert Obligations Are Discriminatory
    Non-assert obligations on licensees discriminate against certain 
classes of companies, particularly those companies that have invested 
extensively in research and development of content protection 
technology, and that themselves also develop or manufacture products 
that must use the licensed technologies that are commonly used by 
others in order to permit product interaction.
    Indeed, with a non-assert obligation, companies that undertake 
little or no R&D--often called ``imitators''--for whom the non-assert 
has no implications, are held harmless; whereas the very companies that 
drive new innovation through aggressive investment in R&D--companies 
such as Philips--may suffer substantial economic harm because their IP 
is used without compensation and may be rendered valueless. Put another 
way, a non-assert obligation requires those implementers with IP to 
``pay twice''--once for the technology being licensed, and once more 
for the loss of their IP; while others, potentially its competitors, 
pay only once. That is clearly discriminatory.
    It's worth noting, as well, that a non-assert obligation is 
powerless to prevent a third party who does not manufacture a product 
requiring a license, but who owns IP in that technology, from asserting 
their IP against all licensees.
Non-Assert Obligations Raise Fifth Amendment Concerns
    The coupling of a non-assert obligation on licensees with a 
technology subject to a government mandate raises very serious 
questions as to whether such action would constitute a taking under the 
Fifth Amendment for which the government would be liable to provide 
just and reasonable compensation. Especially in circumstances where a 
technology holds a monopoly or even duopoly position in the marketplace 
(as is the case with respect to several approved broadcast flag 
technologies), a regulatory mandate to take a license for that 
technology, coupled with a license requirement to surrender the value 
of one's IP that reads on that technology, would appear to fall within 
the prohibition of the Fifth Amendment's Takings Clause.
The Negative Public Policy Outcomes Flowing From the Use of Non-Assert 
        Obligations Make Them All The More Objectionable
    Not surprisingly, given their unreasonableness and discriminatory 
nature, non-assert obligations on licensees also have multiple and 
extremely negative implications for core public policy objectives of 
this Committee--most notably the need to foster innovation and robust 
competition in both digital content protection and consumer electronics 
technologies. These effects harm not only companies that invest 
aggressively in innovative technologies, but content owners and, most 
importantly, consumers.
Non-Assert Obligations Stifle Innovation and Competition
    One need not be a patent attorney to recognize how a non-assert 
obligation can dampen investment in new technologies. Because it forces 
licensees with intellectual property to forfeit the value of their IP 
as a condition of taking the license, it discourages investments in 
research and development, which in turn stifles further innovation. 
Again, the protection afforded patents in the Constitution says it all: 
those who cannot realize value for their innovations will lose their 
incentive to innovate.
    The anticompetitive effects of non-assert obligations on licensees 
become immediately apparent in cases where licensors and licensees of a 
particular technology are direct competitors and where there is no 
competitive alternative to that technology for the specific area of 
protection it covers. Such is the case with the broadcast flag, where 
several approved technologies that employ a non-assert in their license 
agreements, and for which there is no marketplace alternative, are 
controlled by direct competitors of Philips (both in the consumer 
electronics and digital content protection technology spaces). In such 
cases, non-assert obligations enable one competitor, the licensor--
backed by a government mandate--to dampen investment by its 
competitors, the licensees, that otherwise might result in bringing to 
market alternative, superior technologies (or improvements) and/or 
devices.
    Moreover, the anticompetitive effects of non-assert obligations on 
licensees are compounded in instances where the technology's license 
agreement also permits changes to that technology. In such cases, a 
non-assert obligation can expand to cover not just the original 
``essential'' IP that a licensee was required to forfeit, but future 
innovations the licensee might develop, as well.
    A simple example illustrates the alarmingly anti-competitive effect 
at work here. Suppose Philips signs a license, which includes a non-
assert obligation, to implement the only government-approved broadcast 
flag technology that protects content passed over Interface A. Let's 
call the technology ``RED.'' Philips then creates a competitive content 
protection system for Interface A, we'll call it ``GREEN,'' which 
includes a new, patented, feature that makes it more attractive than 
RED, both for content distributors and for consumers. One would expect 
this new and improved technology to be a successful competitor. 
However, the RED license expressly permits changes to that technology--
including the addition of the very new feature found in GREEN--and the 
non-assert obligation precludes Philips from suing for patent 
infringement. As a result, while GREEN can still be introduced as an 
alternative, it is left without any distinguishing superior feature, 
which makes its chances of competing effectively with RED virtually 
nil.
    This is extremely significant for Philips. Philips invests 
approximately $3 billion per year in research and development, 
including significant R&D programs in the area of digital content 
protection and Digital Rights Management (``DRM'') technologies and 
improvements. We simply cannot justify further investment of this kind 
or extent if we are deprived of the ability to receive reasonable 
compensation for our resulting innovations. And if we are deprived of 
the value of our IP, it directly harms our ability to compete.
    Imposing non-assert obligations on licensees of broadcast flag 
technologies should also concern the content industry. Just consider 
that, ironically, the very innovations that may be stifled by non-
assert obligations in broadcast flag technology licenses are new and 
improved digital content protection technologies or improvements in 
existing systems! For example, research projects to achieve advances in 
localization of protected content--a key goal of the content 
community--are directly implicated by the non-asserts in several of the 
content protection systems approved by the Commission. These and 
similar efforts could be put off or abandoned altogether if investments 
by companies seeking to innovate in these areas risk being stranded by 
non-asserts that preclude a return on those investments.
    Moreover, the prospect of having only one or two entities 
essentially controlling the methods and terms by which all protected 
digital broadcast content flows across and among virtually every 
digital television receiving device is distressing. That is hardly an 
environment in which further digital content protection innovation will 
be sparked, or where costs will remain competitive. In short, content 
owners should be equally--if not even more--concerned about the 
negative consequences--both from a technological and economic 
perspective--of non-assert obligations in the digital content 
protection technologies.
    Accordingly, any legislation enacted by Congress reinstating the 
video broadcast flag rules should expressly require that licensing of 
publicly-offered digital broadcast content protection technologies 
approved by the Commission pursuant to the rules must be on reasonable 
and non-discriminatory terms and conditions. Such a requirement 
entails, at a minimum, offering potential licensees of that technology 
who own essential IP, an opportunity to license that intellectual 
property on reasonable and nondiscriminatory terms. By requiring that a 
choice be offered, a choice unreasonably and discriminatorily denied by 
non-assert obligations, Congress will ensure that it is neither 
directly or indirectly depriving any person or entity of the ability to 
realize the value of their patented inventions.
Legislation Reinstating the Video Broadcast Flag Rules Could Serve as 
        the Foundation for a New Digital Content Protection Paradigm
    As the United States and the rest of the world migrate to digital 
broadcast transmissions and as broadband networks develop into the 
dominant means of distributing or accessing video content, there is an 
imperative to create a new paradigm that values digital content 
protection as an integral part of the digital video experience. We need 
a new way of thinking about digital content protection, one that can 
form the basis of a consensus among copyright holders, technology 
companies, consumer electronics manufacturers, and, most importantly, 
global consumers. The creation of this new paradigm will require 
unprecedented cooperation among parties that have frequently and 
historically been at loggerheads, reinforced, as needed, by government 
action.
    All stakeholders have a responsibility to underscore the 
fundamental message of the content community that electronic theft of 
copyrighted video content is wrong. Indeed, last year, Philips launched 
a consumer education campaign to highlight that most basic principle. 
Aggressive law enforcement targeted at the professional thieves who 
make a business out of copyright infringement is essential. Global 
acceptance of this proposition is a critical starting point. But it is 
not an ending point.
    The content community should understand that the creation, 
development, and deployment of evermore innovative and effective 
digital content protection technologies is indispensable to the 
creation of a new mindset that values more fully the IP rights in video 
content. This does not necessarily mean that studios must fund directly 
the development of such technologies, but they should support a digital 
content ecosystem that permits technology companies and consumer 
electronics manufacturers to realize a reasonable return on their own 
intellectual property research and development investments. Again, this 
is why RAND licensing is so critical (and why non-assert obligations 
are so harmful). Without RAND, more effective digital content 
protection technologies which also enable enhanced personal, non-
commercial use of the content by consumers simply will not come to 
market.
    The new value proposition supporting enhanced digital content 
protection succeeds, however, only if consumers have the opportunity to 
purchase new digital products that enable them to make more creative 
and satisfying uses of the digital content they receive than was true 
in the analog world. The enormous popularity of TiVo and similar home 
recording devices is an example of the investments that consumers will 
make if they believe that they are receiving tangible benefits in 
enjoying video content. Consumers view digital technology as 
liberating. They will only accept the fences that content producers may 
view as essential if they can be assured that they will be able to 
enjoy a richer experience within those boundaries.
    Philips views reinstatement of the video broadcast flag rules, with 
clarification of the requirement of RAND licensing, as a promising 
first step in creating this new digital content protection paradigm.
    I thank you again for the opportunity to testify. I would be 
pleased to answer any questions that you may wish to ask.

    The Chairman. Thank you very much.
    Our next witness is Leslie Harris, the Executive Director 
of the Center for Democracy and Technology.
    Ms. Harris.

  STATEMENT OF LESLIE HARRIS, EXECUTIVE DIRECTOR, CENTER FOR 
                    DEMOCRACY AND TECHNOLOGY

    Ms. Harris. Thank you.
    Mr. Chairman, Mr. Inouye, Members of the Committee, on 
behalf of the Center for Democracy and Technology, I appreciate 
the opportunity to testify today. CDT is a nonprofit public-
policy organization dedicated to promoting civil liberties and 
democratic values on the Internet. CDT strongly opposes piracy, 
and we support balanced policy approaches that protect 
copyright owners legitimate interest in being compensated 
without stifling innovation and the benefits of new technology.
    With respect to the broadcast flag, we would urge this 
Committee to take a fresh look and carefully weigh the risks 
and the benefits, because the risks to innovation and consumer 
interests are substantial. On balance, CDT believes that 
Congress should not proceed with flag legislation, but, if it 
does, we urge that it not give the FCC a blank check. 
Legislation must include carefully crafted limits and 
safeguards to help minimize the risks.
    I want to make three points:
    First, the broadcast flag regime involves significant 
government regulation of technology design. It's not a minor or 
technical proposal, would entail ongoing government involvement 
in technology design for any device that might be used to 
display, receive, or record digital television content. And as 
technology converges, this means not just televisions, but 
personal video recorders, computers, Internet-enabled mobile 
phones, iPods, and computer game consoles. In addition, a flag 
regime would make the FCC the gatekeeper for entry into the 
marketplace of new technologies not yet anticipated, because 
those new video-related devices and features would require FCC 
approval. We think the FCC is ill-equipped for such a role.
    Broadcast flag legislation would also set a precedent for 
additional technology design mandates, some of which are being 
discussed today. CDT generally opposes such mandates, because 
of their impact on innovation. But, as Congress considers 
whether to start down this path, it has to carefully consider 
whether, and how, it can draw a line.
    Second, the broadcast flag carries risks to innovation and 
legitimate consumer uses. A broadcast flag regime would make 
the FCC the final arbiter of which technologies make it to 
market, and when. Technology companies may decide to ``play it 
safe'' rather than seek approval for new features, particularly 
if the approval process lacks clear standards. This is exactly 
what happened during the FCC process. Several consumer 
electronics companies chose to remove innovative features, 
before the FCC even had a chance to rule on them, in order to 
avoid delay in the face of opposition.
    Another serious risk concerns the public's ability to use 
digital TV content in ways that constitute fair use. 
Individuals increasingly use clips of news or public affairs in 
online learning, in an online political commentary circulated 
for example, by blogs or e-mails. Application of a broadcast 
flag to news and public-affairs programming, for example, would 
undermine the potential of the Internet to enhance civic debate 
in this fashion.
    Finally, there is a risk of consumer confusion and 
frustration due to interoperability concerns, both with legacy 
devices and among different flag technologies.
    These serious concerns need to be weighed against the 
potential efficacy of the flag. Even the content industry 
concedes that regime is not likely to stop determined pirates, 
nor keep popular programs off of peer-to-peer networks 
entirely.
    Third, however, if Congress does choose to proceed with 
flag legislation, it must include clear limits and safeguards. 
First, any grant of authority must be narrow, only to the 
extent necessary to prevent flagged content from being 
redistributed indiscriminately on the Internet. Second, it 
should specify standards for the technology approval process to 
ensure that it is objective, predictable, timely, and 
transparent. Applicants should be permitted to self-certify 
compliance, and the burden of proof should lie on the party 
seeking to have a technology rejected. There needs to be an 
express statement in the legislation that certain reasonable 
consumer uses, including secure Internet transmission to a 
limited number of devices or Internet transmission of limited 
excerpts, will not be precluded. And, there needs to be a 
uniform time framework for approval. And, last, it should 
include provisions to reduce the risk to fair use. Certain 
content should not be eligible to be flagged, including 
material in the public domain, coverage of debates, political 
speeches, and news programming, the primary commercial value at 
which depends on timeliness.
    Finally, any broadcast flag legislation should call for 
fair disclosure to consumers about interoperability 
limitations. We understand that crafting these limitations 
require careful work, but they're essential to help minimize 
the risks posed by a flag regime.
    Thank you for the opportunity to testify. We stand ready to 
work constructively with this Committee as it continues to 
consider issues important to the future of the Internet.
    [The prepared statement of Ms. Harris follows:]

  Prepared Statement of Leslie Harris, Executive Director, Center for 
                        Democracy and Technology
    Mr. Chairman and Members of the Committee, on behalf of the Center 
for Democracy and Technology (CDT), I appreciate the opportunity to 
testify today. CDT is a nonprofit, public policy organization dedicated 
to promoting civil liberties and democratic values on the Internet.
    CDT takes piracy seriously. CDT is committed to the principles that 
copyrighted material should be protected from large-scale unauthorized 
copying. Denying compensation to creators and distributors of digital 
content undermines First Amendment values by stifling expression, 
threatening the growth of new media and e-commerce, and depriving 
consumers of a robust marketplace of content offerings. At the same 
time, resolving these issues should not come at the expense of 
reasonable consumer expectations regarding the use of copyrighted works 
and digital technologies. Nor should it come at the expense of the 
Internet and innovative new communications technologies that hold 
tremendous promise to promote free expression, economic growth and 
civic discourse.
    The key for policymakers is to find balanced policy approaches that 
protect copyright holders' legitimate interest in being compensated for 
their efforts, without stifling innovation and the great benefits new 
technologies offer. \1\
---------------------------------------------------------------------------
    \1\ CDT's approach to the broadcast flag is informed by a policy 
framework for digital copyright that the organization released last 
spring. Protecting Copyright and Internet Values: A Balanced Path 
Forward Version 1.0 (Spring 2005) http://www.cdt.org/copyright/
20050607framing.pdf.
---------------------------------------------------------------------------
    This Committee is being asked to decide whether to give the Federal 
Communications Commission the authority to impose the broadcast flag 
regime, an unprecedented government technology mandate--that a Federal 
court rejected last year. Before the Committee simply authorizes that 
action, ex post facto, we urge that you take a fresh and full look at 
the issue and carefully weigh the risks and benefits of such an 
approach. Protecting intellectual property is a very important goal, 
but it is uncertain at best whether imposing a flag regime would 
achieve that goal. The flag, moreover is not the only means to address 
the problem. On the other hand, the risks posed by the flag to 
technology innovation and consumer interests are considerable.
    On balance, CDT would not recommend that Congress proceed with flag 
legislation. But if it does, it is critical that it not give the FCC 
blank-check authority to implement the regime however the agency sees 
fit. Any grant of authority to the FCC should include carefully crafted 
limits and safeguards to help minimize the risks. We discuss those 
safeguards in more detail below.
1. The Broadcast Flag Regime Involves Significant Government Regulation 
        of Technology Design.
    The broadcast flag proposal is not a minor or technical proposal; 
it would entail ongoing government involvement in technology design for 
a wide range of devices, including computers and video enabled 
technologies not yet anticipated. It also could set a precedent for 
further government technology mandates, which CDT generally opposes. 
Government-dictated design requirements are unlikely to keep pace with 
innovation in the rapidly moving high tech environment, and may serve 
as roadblocks to new, unanticipated technologies and features.
    A broadcast flag regime would impose design requirements on a broad 
and growing range of devices. The ``broadcast flag'' itself is just a 
marker attached to a television program, signaling that the program 
should be protected against indiscriminate copying. It only has an 
impact if downstream devices recognize and respond to this marker. For 
this reason, the Federal Communications Commission's flag rules 
effectively required any device that might be used to display, receive, 
or record digital television content to incorporate an FCC-approved 
technology for protecting flagged programs.
    As technology converges, the range of devices capable of 
displaying, receiving, or recording flagged video content is growing 
very broad. People can now watch video programming not just on 
televisions, but on portable DVD players; on general purpose computers; 
on iPods; on Internet-enabled mobile phones; through personal video 
recorders like TiVo; and through computer game consoles.
    The FCC's flag rules would have had an impact on this entire range 
of technology products, and would give the FCC ongoing approval 
authority over the introduction of new video-capable technologies. An 
innovator seeking to develop a new and improved device would need to 
either license and incorporate a flag compliance technology already 
approved by the FCC, or, if the device involved features or functions 
not contemplated by existing technologies, apply to the FCC for 
approval of new technology. In effect, the FCC would serve as the 
gatekeeper for the entry of new technologies into the video 
marketplace.
    There is also the important question of the precedent that 
broadcast flag legislation would set. If the flag regime is enacted, 
other requests for technology mandates surely will follow. Already, the 
flag proposal has been joined by proposals for technology requirements 
to limit radio recording functionality and restrict analog-to-digital 
conversion. As Congress considers whether to start down the path of 
imposing design requirements on computer and communications technology, 
it should think carefully about whether and how it would draw the line.
2. The Broadcast Flag Carries Risks to Innovation and Legal Consumer 
        Uses of DTV.
    The broadcast flag proposal carries a number of significant risks 
to innovation and to legal consumer uses of digital television.
    If the FCC has the authority to sign off on new video enabled 
technologies, it may well be the final arbiter of which technologies 
make it to market and when. The FCC could delay approval of an upstart 
technology because of stiff opposition from business opponents, 
delaying it from getting to market at the same time as its nearest 
competitors. And if the FCC approval process is uncertain or 
unpredictable, innovators will have no clear guidepost to help 
determine what would likely win approval.
    These concerns are not merely hypothetical. Last fall, CDT released 
a paper which took a close look at the FCC's flag proceedings. \2\ 
While the FCC approved all thirteen proposed flag compliance 
technologies that it considered, final approval was only part of the 
story. Several consumer electronics companies chose to withdraw 
potentially valuable consumer features from their products before the 
FCC ever had a chance to rule on them because the approval standards 
were uncertain and there was strong opposition from certain parts of 
the content industry. To ensure success, the applicants played it safe 
and removed innovative features permitting users to transfer content in 
limited ways over the Internet. The lesson from the proceeding was 
clear: the FCC approval process can chill innovation, particularly if 
the process is too subjective or unpredictable.
---------------------------------------------------------------------------
    \2\ Lessons of the Broadcast Flag Process: Background for the 
Legislative Debate (September 2005) http://www.cdt.org/copyright/
20050919flaglessons.pdf.
---------------------------------------------------------------------------
    Another serious risk concerns the public's ability to use digital 
television content in ways that constitute ``fair use'' under copyright 
law. This consideration is especially serious with respect to news and 
public affairs programming which is of transient economic value to 
copyright holders but critical to informed public discourse. The 
Internet provides unprecedented ability for individual speakers to 
engage in political and civic discourse on a large scale. News and 
public affairs programming that is interesting, important, or satirical 
can spread quickly on blogs and through e-mail chains. \3\
---------------------------------------------------------------------------
    \3\ Broadcast Flag Authorization Legislation: Key Considerations 
for Congress, Version 1.1 (September 2005) www.cdt.org/copyright/
20050822broadcastflag.pdf.
---------------------------------------------------------------------------
    But applying the broadcast flag to news and public affairs 
programming could undermine the potential of the Internet to enhance 
debate in this fashion. Television continues to be a primary source of 
video footage concerning the top issues of the day. The flag regime 
could prevent a blogger from including a short excerpt from a broadcast 
debate between political candidates in her online blog. It could 
prevent a charity or a church from using broadcast news clips about a 
recent natural disaster to bolster an Internet-based appeal for relief 
assistance or a teacher from including such a clip in an on-line civics 
course.
    Finally, a broadcast flag regime carries a risk of consumer 
confusion and frustration due to interoperability problems. Consumers 
may be surprised to learn that their new, flag-compliant devices may 
not work with their older devices, or with devices using different flag 
compliance technology. For example, DVDs recorded using a new flag-
compliant DVD recorder would not play in an older DVD player.
    Any evaluation of flag legislation should weigh these risks against 
the potential benefits. The concerns of content providers about the 
long-term risk of widespread online copying of DTV programming are not 
without merit, and content providers clearly believe that a flag regime 
would offer them some protection against widespread Internet 
redistribution. But even the content industry concedes that the flag 
regime is not likely to stop determined pirates nor keep popular 
programs off the peer-to-peer networks entirely. Its main effect may be 
to keep ordinary consumers from uploading recorded programs to the 
Internet for legitimate purposes.
3. If Congress Proceeds With Broadcast Flag Legislation, It Should 
        Include Important Limitations and Safeguards.
    If Congress chooses to proceed with flag legislation, it is 
critical that it not give the FCC blank-check authority to implement 
the regime however the agency sees fit. Any grant of authority to the 
FCC should include carefully crafted limits and safeguards to help 
minimize the risks discussed above.
    First, any such legislation should clearly state the basic scope 
and limited purpose of the FCC's authority. Specifically, it should say 
that the FCC may adopt regulations only to the extent necessary to 
prevent flagged content from being redistributed indiscriminately on 
the Internet.
    Second, any such legislation should specify standards for the 
technology approval process, rather than leaving it all up to FCC 
discretion. The standards should be designed to ensure an objective, 
predictable, timely and transparent process. In particular:

   There should be a clear standard for technology approval: 
        Does the technology effectively frustrate an ordinary user from 
        engaging in indiscriminate redistribution of flagged content 
        over digital networks?

   Applicants should be permitted to self-certify compliance; 
        the burden of proof should lie on the party seeking to have a 
        technology rejected.

   There should be an express statement that certain reasonable 
        consumer uses, including secure Internet transmission to a 
        limited number of devices or Internet transmission of limited 
        excerpts, will not be precluded.

   There should be a uniform timeframe for approval decisions.

   There should be an oversight mechanism, such as an advisory 
        board, to help identify any problems or mission creep in the 
        technology approval process and consumers should be represented 
        in the oversight process.

    Third, any such legislation should include provisions to reduce the 
risks to ``fair use'' and civic discourse. One important safeguard 
would be to specify that certain content is not eligible to be flagged 
including material that is in the public domain; coverage of debates or 
political speeches; and news programming the primary commercial value 
of which depends on timeliness. For these types of programming, the 
flag's risk to legitimate, noncommercial consumer uses seems 
particularly high, while its benefit to the commercial interests of 
copyright holders seems relatively low. (These types of programs are 
not likely to depend on long-term ongoing revenue streams through DVD 
sales, cable reruns, and so forth). It is important to note that 
unflagged content would still be covered by copyright law; it simply 
would not receive the extra layer of technical protection offered by 
the flag.
    It is worth noting that in the rare instances when Congress has 
imposed technological mandates to address copyright concerns, it has 
balanced these provisions with language to protect specific types of 
copying that were considered fair use. The 1992 Audio Home Recording 
Act mandated use of ``Serial Copy Management System'' technology in 
digital audio recording devices--but it also said that consumers may 
record music for noncommercial purposes without risking infringement 
lawsuits. Section 1201(k) of the Digital Millennium Copyright Act 
required analog VCRs to respond to Macrovision copy control 
technology--but also specified that the technology could not be used to 
restrict consumers' ability to record ordinary television programming 
(including cable) for time-shifting purposes. An effort to address key 
fair use issues would be warranted in broadcast flag legislation as 
well.
    Finally, any broadcast flag legislation should call for fair 
disclosure to consumers about interoperability limitations stemming 
from the flag regime.
    Crafting these types of limitations in legislation would require 
careful work, but would be essential to help minimize the risks posed 
by the flag regime.
    Thank you again for the opportunity to testify today. CDT stands 
ready to work constructively with the Committee as it continues to 
consider issues important to the future of the Internet.

    The Chairman. Well, thank you very much. Those are very 
constructive comments.
    I, again, want to emphasize, though, that the FCC got into 
this because 11 Members of this Committee wrote and 
specifically asked them to address the subject. And the rule 
was in effect for some time before it was determined that--by 
the court, as I understand it--the FCC didn't have authority 
from Congress to participate in issuing such a regulation.
    So, I do think your comments are constructive, as I said, 
but let me just ask a couple of questions.
    Mr. Setos, Mr. Band, sitting beside you there, talked about 
the content concept, looking at the content of these 
transmissions. What's your response to what he was saying about 
this process?
    Mr. Setos. Well, I think you're referring to his concern 
that distance learning would be in some way affected by the 
broadcast flag. And I think that, if I've read the TEACH Act 
correctly, the TEACH Act requires the content going to students 
at distant locations via the Internet be protected in some way. 
And I think that comes right under the regime of the broadcast 
flag. So, in principle, I don't see the broadcast flag 
affecting distance learning in any way, and I would support any 
mechanism by which that would be made.
    The Chairman. And, Mr. Band, you spoke of libraries being 
involved in that distance-learning process. My understanding 
it's basically with educational institutions, like our 
university, that broadcasts programs all over the state to 
schools. Now, where do the libraries come in?
    Mr. Band. Well, if the university is engaged in a distance-
education program, the university library is a critical part of 
that process. Same thing at the high-school level, same thing 
at the primary-school level. Often an instructor will ask--will 
work with the library--with the school library or the 
university library--in putting together the distance-education 
programming.
    The Chairman. Mr. Patton, is there any concern that 
determining fair license fees for flag technology could 
complicate this protection?
    Mr. Patton. That--charging fees?
    The Chairman. Yes.
    Mr. Patton. No. In licensing regimes, on reasonable 
nondiscriminatory terms, there are fees associated with 
licenses. The primary issue which I have raised is not about 
the fee required to license a technology, but is about a 
provision that might prohibit us from asserting our own 
intellectual property that might read on that technology, for 
which we would be able to ask no fair price. The non-assert 
provision would prevent us from asking for that fair 
remuneration for the contribution that we would make to that 
technology.
    The Chairman. Ms. Harris, you mentioned the concern about 
FCC becoming a gatekeeper for technology. How would you address 
that concern? Obviously, someone's got to be a gatekeeper if 
we're going to put this rule back into effect. Now, what----
    Ms. Harris. Well, I think----
    The Chairman.--what process would you find acceptable for 
the FCC to use?
    Ms. Harris. I think, in the first instance, it's important 
for this body to state what ``permissible uses'' the FCC has to 
allow. In other words you're talking about distance learning, 
we're talking about news. You can make a lot of decisions--
these are policy decisions, so a decision about whether or not 
we should permit excerpts to go across the Internet, whether or 
not we allow content to go to secure devices across the 
Internet--I think that a lot of those decisions need to be made 
here. I don't think we want the FCC in the business of becoming 
an arbiter between incumbents with powerful interests and new 
entrants who are trying to bring something to market. I think 
it's--this is the fundamental problem with the flag regime, is 
that these things could get worked out in a private 
marketplace. I think once they become a matter in front of the 
FCC--the FCC does not have enormous expertise in this area. 
They're having----
    The Chairman. Your fear is about the technology--the 
development of new technology in this regard, is that right?
    Ms. Harris. Pardon?
    The Chairman. Your fear is about the development of new 
technology?
    Ms. Harris. I'm worried about the development and the 
deployment of those new technologies. The truth is, the FCC 
process--I am not going to say they got it 100 percent right, 
but they did a fairly good job. And, even in that process, you 
saw companies, who had developed technologies for secure 
transmission across the Internet to secure devices, withdraw 
those features, because they saw that they were going to get 
into a big fight, that it was going to slow down the process. 
And that's what our concern is. If you went to the consumer 
electronics show, you know, it was mindboggling about what is 
coming--what is potentially coming to market that we don't even 
understand yet. And what we don't want to do is wind up with a 
regime that locks things in place in a way that makes it 
difficult for those new technologies.
    The Chairman. Thank you.
    Senator Inouye?

              STATEMENT OF HON. DANIEL K. INOUYE, 
                    U.S. SENATOR FROM HAWAII

    Senator Inouye. Mr. Chairman, first of all, my apologies 
for being late.
    I'm here because I'm interested in the draft that was 
proposed by Senator Smith, and I'm hoping that the Members of 
this Committee will study that draft, and members of the 
industry would do likewise.
    Like most Americans, I'm concerned about the legitimate 
threat of piracy. The movie industry, I think, has been losing 
billions of dollars. The same can be said of the recording 
industry. At this time, the broadcast flag is not perfect, but 
it is about the most balanced solution we have. And since the 
court here has suggested that the Congress should get into the 
act to provide some authority, that's why we're gathered here. 
And we thank you very much for your help.
    Mr. Chairman, may I submit my statement, sir?
    The Chairman. Certainly.
    [The prepared statement of Senator Inouye follows:]

 Prepared Statement of Hon. Daniel K. Inouye, U.S. Senator from Hawaii
    Digital content producers are right to conclude that piracy is a 
legitimate threat to their long term success. The movie industry, one 
of the few American industries with a positive trade balance, loses an 
estimated $3.5 billion annually due to piracy.
    This amount, while already large, seems certain to grow as 
broadband proliferates, particularly if producers of content are unable 
to stop the indiscriminate distribution of their creative works.
    The Federal Communications Commission (FCC) jumped into this breach 
at the prodding of Congress. In adopting its Broadcast Flag Order, the 
FCC recognized that adopting a standard for the protection of digital, 
over-the-air, television content was necessary to give broadcasters the 
same ability to protect video content that currently exists on cable 
and satellite distribution platforms.
    Though far from perfect, the broadcast flag is the closest we have 
come to date to a balanced solution. With some refinement, it could 
provide sensible copyright protection without stifling the production 
of new, innovative consumer electronics.
    Despite the recent reversal of the FCC's broadcast flag order by 
the D.C. Circuit Court of Appeals, the method appears to be gaining 
favor, and it may very well be appropriate for Congress to explicitly 
grant the FCC the authority that, the Court contends, it lacks. The 
testimony provided today will help us make that determination.
    Today's hearing also affords us the opportunity to consider 
strategies designed to protect music and other audio content in a 
digital age--an industry that knows all too well the impact of online 
piracy. As a result, today's second panel will allow us to explore 
whether similar content protection strategies are warranted for digital 
audio content.
    I thank the witnesses for their participation in today's 
discussion.

    The Chairman. Do you have any questions, at this time, 
Senator?
    Senator Inouye. Yes.
    Mr. Setos, what would be the impact on the broadcast 
industry if all patent rights were taken away, if it was wide 
open?
    Mr. Setos. Well, it's--I liken it to--it would be quite 
devastating, obviously. We have--in this multi-hundred-channel 
universe of entertainment and information, the pay-television 
industry unilaterally can seek out any protections that it 
requires to feel that it can operate as a business. The music 
on iTunes, television shows on iTunes that can be downloaded to 
the iPod are protected by technologies. But if broadcasters--
local broadcasters can't assure the rights holders, whether 
they be sporting leagues or entertainment producers, that their 
content won't be indiscriminately redistributed, they simply 
won't be able to gain access to that programming, and local 
television as we know it today will wither and die for that one 
sole reason.
    Senator Inouye. I am well aware of the high-tech 
advancements being made in the industry. And possibly this law 
that we are considering may do some harm. Do you believe that 
these copyright holders have their rights, also?
    Mr. Setos. Well, the simple answer is, of course, yes. And 
I think that, while it's proper for everyone to be concerned 
about the unwitting harm that something might engender, I think 
we've worked very hard in building consensus with this--the 
consumer electronics industry, the information-technology 
industry, and others to make sure that there is literally zero 
harm, in any real sense. And certainly with distance learning 
we think there's no effect. And more--this is primarily just 
more discussion to ensure that all these uses that people would 
like to have can be made without harming the local broadcaster.
    Senator Inouye. So, industry is willing to sit down with 
the content producers.
    Mr. Setos. Yes.
    Senator Inouye. Because you believe that their copyrights 
are legitimate?
    Mr. Setos. Yes.
    Senator Inouye. And piracy is a legitimate threat.
    Mr. Setos. Yes, it is a very real threat.
    Senator Inouye. Thank you very much.
    The Chairman. Senator Burns?
    Senator Burns. As I understand it, the flag allows the 
receiver of any content, be it movie, music, or whatever, to 
record and keep that in his own private collection, but it does 
not allow it to be rebroadcast a second time. Is that a correct 
assumption?
    Mr. Setos. Yes, sir.
    Senator Burns. Mr. Band, in the libraries, are we treating 
electronic content different than print?
    Mr. Band. The flag would treat it differently.
    Senator Burns. Yes.
    Mr. Band. Under the existing copyright laws, you are 
allowed to engage in distance education, and an educational 
institution or a government agency is allowed to broadcast 
copyrighted material for distance-education purposes. So you're 
able to broadcast copyrighted material in limited degrees. And 
that would be considered a fair use, it's an exception within 
the Copyright Act. But the problem is, with the broadcast flag, 
the technology that you have, the receiving technology, would 
prohibit that retransmission. So that retransmission that can 
go on now in the analog world, and that is also, under the 
TEACH Act, allowed in the current digital world, would be 
prevented, going forward. And that's exactly our concern, is 
how do we make sure that the new technologies that would be 
responding to the flag--how would we still be able to 
retransmit the way we are able to retransmit right now with 
current digital technologies?
    Senator Burns. Rather than the government dictate a waiver 
for specific entities, such as libraries and educational 
institutions, do you think that the licensor would grant a 
waiver to those institutions without government requirement?
    Mr. Band. Well, if you're saying that an individual teacher 
or an individual institution pursue a license, there are two 
problems. One is cost. Right now the institution is able to do 
that retransmission, in essence, for free. But, under a license 
regime, if I were a content provider, I would ask to be paid. 
But, of course, we're talking about public schools, public 
libraries. And so, then you fellows would have to come up with 
the money for them to pay for that.
    Senator Burns. Do they pay for the books----
    Mr. Band. The----
    Senator Burns.--printed material?
    Mr. Band. The libraries now do pay for the books, that's 
right. But, of course, they would need a new license, on top of 
that, for the material that's broadcast. Now they are able to 
get that material for free off the air, and retransmit it for 
free. But under a flag regime where you then would have to have 
a license, you would have to presumably pay for that, so, 
there's a budgetary impact.
    The second problem is simply a timing impact. Often, a 
teacher who's putting together a distance-education program--
now the beauty of the Internet and the digital technologies, 
they are able to respond very quickly to current events. So, if 
a teacher wanted to retransmit something dealing with a Senate 
hearing that happened--this hearing, let's say--and they want 
to retransmit it tomorrow, they would be able to do it. But 
under a broadcast flag regime, especially if it had to be 
licensed, that timing, that ability to respond quickly in 
distance-education programming would just be impossible.
    Senator Burns. Why would we want to license that? Isn't it 
for public view, anyway?
    Mr. Band. Well, again, if I'm NBC news--and I have a news 
show, if a school wanted to rebroadcast it, maybe they would 
want a segment to be rebroadcast for free, or maybe they 
wouldn't. It would be up to them, under the flag regime. We 
think that at least with news broadcasts and other public-
affairs shows that are so important, that--especially given 
that Congress is mandating the flag--then you also should be 
carving out the exceptions. It doesn't make sense to us that 
you mandate the regime, but then let the content owners decide 
whether or not to allow the exceptions. That would be 
asymmetrical.
    Senator Burns. Ms. Harris----
    Ms. Harris. Yes, I----
    Senator Burns.--would you like to comment on that? We're 
trying to sort this----
    Ms. Harris. Right.
    Senator Burns.--thing out, where--you may comment.
    Ms. Harris. Right. I think the concern here is that the way 
the flag regime has been conceptualized, the content owners 
simply decide--can make a decision to flag everything. And, in 
flagging everything, they're not just affecting distance 
learning--and I--having worked on the TEACH Act, completely 
agree with Mr. Band on his point there--but first of all, 
things that are in the public domain, public-affairs and news 
programming, which have an important societal and civic value, 
and which are increasingly being used on the Internet in 
snippets and clips to enhance a public debate that's going on, 
a very important public debate. And as it's currently 
conceptualized, by giving a grant to the FCC and not saying, 
``Here are the exceptions. You can't flag news and public 
affairs, you have to allow technologies that permit excerpting, 
so that--so that all content that can be used now in a fair-use 
way, could be used, going forward,'' that somebody has to say 
what those exceptions are, if you're going forward. And our 
view is, those are policy decisions, and they ought to be set 
by Congress.
    The Chairman. Would you yield right there?
    Senator Burns. Sure.
    The Chairman. I'm informed the FCC took the position that 
the copyright laws specifically provide the exceptions for fair 
use in the case of nonprofit libraries, archives, educational 
institutions, and nothing in their order would interfere with 
those exceptions. Why wasn't that sufficient?
    Mr. Band. Because, again, the problem is the technology. 
The flag would require that all receiving devices prohibit the 
retransmission. So, even though technically you're not changing 
the copyright law, as a practical matter there is no device 
that a library could buy that would allow that retransmission. 
So, that's why a critical part of this is making sure that 
there would be devices on the market. What we're asking for is 
very narrow, that there would just be professional devices that 
would be available only to entities that can take advantage of 
the TEACH Act so that they would be able to have the devices 
that would be able to retransmit this content.
    The Chairman. Thank you very much.
    Mr. Setos. If I might say, there are products on the market 
that do that right now. The Commission did authorize the 
TiVoToGo technology that would allow the--a large number of 
locations to receive content, distribute it. And that could be 
done by a consumer or a library or a teaching institution. So, 
the Commission was open-minded toward this, and I think that--
--
    Senator Burns. Well, I guess I'm--I'm not confused, I'm 
saying--the technology does not allow them to grant a waiver, 
is that what I'm saying? Is there no technology that says--OK, 
you are a library. You are news. Can you make the decision to 
remove the flag, or is there technology to remove the flag once 
it's been transmitted?
    Mr. Band. No, that would be----
    Ms. Harris. No.
    Senator Burns. There's no----
    Mr. Setos. I don't think so.
    Senator Burns.--none.
    Mr. Band. That's right.
    Ms. Harris. No.
    Mr. Setos. No.
    Ms. Harris. Absolutely not.
    Mr. Setos. But even the TEACH Act requires that the content 
sent on the Internet to distant-learning centers or locations 
be protected using protection means.
    Mr. Band. Right, but that's after you retransmit it. The 
problem for the library is, it wouldn't be able to retransmit 
it in the first place. In the TiVo example, it allows some 
retransmission to a limited number of locations, but, for 
example, if--in the--I imagine, in the University of Montana, 
when it's doing a distance-ed class, it might have----
    Senator Burns. This concerns me, by the way----
    Mr. Band. Right.
    Senator Burns.--because----
    Mr. Band. No----
    Senator Burns.--not only the Senator from Alaska has worked 
on distance learning a long time, I have, too.
    Mr. Band. Right. But you might have 100 students, or 200 
students, or maybe 300 students enrolled in that class, and I 
don't think the technologies that Mr. Setos is describing would 
allow retransmission to 300 different students. It might allow 
retransmission to five students. So, if you were to conduct a 
seminar on the political process, that might fall within it, 
but if you were to be conducting a course on introductory 
economics, that wouldn't work.
    Mr. Setos. I do believe, though, that, in the context of 
the flag regulation, if a library or an institution brought a 
technology to the Commission and said, ``We would like to use 
this for distance learning,'' and it protected the content, 
that it could be authorized under the flag regime, as is. 
Certainly, we would support that.
    Ms. Harris. Mr. Burns?
    Senator Burns. Yes?
    Ms. Harris. While I support that entirely, it doesn't 
answer the problem of fair-use exercise for everybody else, 
which may not be transmitting in full, like you would in a 
library or distance-learning center, but certainly would be 
excerpting. And, I think that much of the value of what's going 
on, in terms of democratic debate on the Internet right now, is 
excerpting of news, public-affairs programming. Sometimes it's 
parody, sometimes it's serious. But that's already considered a 
reasonable consumer use, and we don't have technologies 
licensed, to my understanding, that would permit that 
excerpting.
    The Chairman. Thank you very much.
    Senator Smith? And, Senator Smith, we thank you very much 
for that draft you circulated. It really has started the 
dialogue off very well.

              STATEMENT OF HON. GORDON H. SMITH, 
                    U.S. SENATOR FROM OREGON

    Senator Smith. Thank you, Mr. Chairman. I appreciate you 
and Senator Inouye for holding this hearing. And the draft that 
I circulated is a draft. And all of your comments are welcome, 
and many of your suggestions have certainly illuminated this 
debate.
    I want you to know I am absolutely committed to getting 
this broadcast flag legislation through, but we want to do it 
in a way that balances consumer expectations, technology 
innovation, obviously copyright protection. So, there really is 
a community of interest. If we end up killing off creative 
activity in this country because it can't be compensated, a lot 
of these technologies and sharing really begin to wane in their 
value, or at least their volume.
    For the record, Mr. Chairman, what the draft says, that the 
Digital Content Protection Act of 2006 would authorize the FCC 
to adopt the digital television broadcast flag rules that were 
struck down by the court in 2005. The FCC would be granted 
narrow authority to implement rules that will discourage 
indiscriminate file sharing while allowing consumers to utilize 
new technologies, like TiVo. These rules are the culmination of 
a hard-fought compromise among broadcast movie and television 
equipment, manufacturing and information-technology industries. 
In addition, the bill would create a Federal advisory committee 
tasked with developing audio-flag technology to protect digital 
audio broadcasts by FCC licensees. If industry and consumer 
groups are unable to reach consensus with the Federal advisory 
committee, the FCC will initiate its own rulemaking. I believe 
that an industry-focused framework of this sort is absolutely 
essential to the development of fair and effective digital 
audio protection measures. But, again, we welcome all of your 
ideas, and I think many of them can be incorporated.
    Ms. Harris, you have testified, I believe, that public 
information has a transient value.
    Ms. Harris. Right, I had said news and public-affairs 
programs have more transient value than entertainment. I'm not 
going to suggest to you that it can't be, at some point, 
packaged for some other purpose, but it has an immediate value, 
yes.
    Senator Smith. Does it have any compensable value?
    Ms. Harris. Oh, yes, I'm sure that it does. I think that 
the question is the balance. We're an organization who believes 
strongly in the rights of content creators. The question is, in 
the narrow of area of news and public affairs, does copyright 
law itself protect--I mean, that'sthe basic way to protect 
copyright holders is the copyright law, which has been somewhat 
strengthened by the recent Grokster case. So, the question is, 
on balance, if you keep that unflagged so that the bloggers and 
the debaters on the Internet are able to use small portions of 
that, have you deprived the copyright holders of their 
interests? If somebody abuses that, then we have the 
protections of the copyright law, which are strong and, as I 
said, have been probably recently made somewhat stronger.
    The Chairman. Could I interrupt?
    Senator Smith. Yes.
    The Chairman. Are you talking about a one-time broadcast by 
a blogger, or are you talking a building up of a blogger's 
library?
    Ms. Harris. No, I'm not talking about a blogger's library. 
What I'm talking about is, you know if, today, this hearing was 
broadcast, as it is, on C-SPAN, and people on different sides 
of the debate on the Internet see some small portion that they, 
in their blog, want to comment on, and they want to put Senator 
Smith's statement about why he's doing this in today's blog, 
they can do that, right now. They can pull an excerpt. I don't 
think what we're suggesting here is that they have a right, in 
perpetuity, to use all of this material. What we're talking 
about is a fair-use right, and any use that gets used on the 
Internet, particularly in, sort of, snippets of news and public 
affairs, has to meet the fair-use test. If it fails to do so, 
then there are remedies under the copyright law.
    So, I think our point is a modest one, it's that there is 
some programming that probably should not be flagged, and other 
programming that we should seek to figure out ways, in the 
technology, and tell the FCC that they need to try to encourage 
these ways to allow excerpts and the basic tools that people 
need to exercise fair use, if you're going to proceed here.
    The Chairman. Isn't the test whether the originator--the 
entity that originated the program put it on the Internet in 
the first place? This is going on the Internet right now. 
Anybody can use this.
    Ms. Harris. I----
    The Chairman. And the same thing with any broadcast of a--
--
    Ms. Harris. Right.
    The Chairman.--of a network program. It----
    Ms. Harris. Well----
    The Chairman.--goes on the Internet. Anybody can use it. 
Now----
    Ms. Harris. I'm not sure----
    The Chairman.--what you're talking about is----
    Ms. Harris. I'm not----
    The Chairman.--developing technology that would store that 
stuff and make it available to someone else, for a fee.
    Ms. Harris. Well, that's not what I--that's not my intent, 
what I'm talking about, Senator. No.
    The Chairman. Thank you, Senator.
    Senator Smith. Mr. Band, I understand your arguments, and I 
have sympathy for what you're trying to make--preserve. But I 
understand that you made these arguments to the FCC, and that 
they rejected your arguments. Is that correct?
    Mr. Band. That's right.
    Senator Smith. Do you feel that they would reject them 
again if we put the broadcast flag rules into statute? Do you 
think you would fail again? And can you elaborate why they 
rejected them?
    Mr. Band. Well, it's an administrative process, so, 
comments were submitted, there were meetings, and then they 
simply didn't adopt some of the kinds of exceptions we were 
seeking.
    Senator Smith. Did they give you a reason why?
    Mr. Band. No. But I would submit that even if the kind of 
language that you've put in on the digital audio flag, if you 
still made it permissive language on the digital broadcast 
side, it's conceivable that the FCC, thinking about it, would 
do the right thing. Or maybe it wouldn't. Our point is that 
they're not elected officials. You are.
    Senator Smith. But your point----
    Mr. Band. You're responsible to----
    Senator Smith.--your point is that, when we pass this into 
statute, we'd better put in a marker so that they deal with 
this in a substantive way in----
    Mr. Band. Or I would go a step further. Not just the 
marker. I would say that you should set forth, these are 
important public-policy issues, and this is the right body, 
that's responsive to the people, to adopt those kinds of 
exceptions in specific fashion. And, again, we're talking about 
relatively narrow, modest exceptions. The FCC is an independent 
agency, it's not accountable to the voters, it's not ultimately 
the right body to make those kinds of policy decisions.
    Senator Smith. What--educate me on this. If we make this 
exception for you, and everything that goes to the Library of 
Congress, which is pretty much everything, if it is accepted, 
isn't this a tremendous loophole in copyright----
    Mr. Band. No, not at all, because there's two parts to what 
we're seeking. One is that certain kinds of content--this is 
very much what Ms. Harris is saying--certain kinds of content 
shouldn't be flagged. And we're willing to work and come up 
with relatively narrow kinds of content that simply should not 
be flagged. But, again, if an educational institution abuses 
that, and still is retransmitting far more than they should, or 
in the example she's giving, of bloggers who are retransmitting 
more than they should, that they're infringing on the Copyright 
Act, and they should be held liable.
    Senator Smith. Well, we'll----
    Mr. Band. And there's----
    Senator Smith.--we'll work with you on those----
    Mr. Band. Right.
    Senator Smith.--definitions. I think they need to be 
narrow, or else you can drive a truck through this thing and--
--
    Mr. Band. Right.
    Senator Smith. But----
    Mr. Band. That's right.
    Senator Smith. But I don't--and I know--I don't believe my 
colleagues, either, have any interest in stopping educational 
spreading of information. So--Mr. Setos, in your opinion, is 
there a more viable solution to the problem of an 
indiscriminate redistribution of digital TV than a broadcast 
flag? I mean, are there any other ideas out there?
    Mr. Setos. Well, as I said, we--my colleague and I came up 
with this idea about five and a half years ago, and we've been 
talking to people since then, talking to a lot of people. And, 
no, sir, nothing has come forth, neither in our imagination or 
in anyone else's.
    Senator Smith. And if we don't do something, we're just 
going to kill off creative copyrighted material, are----
    Mr. Setos. Well, we----
    Senator Smith.--we not?
    Mr. Setos.--we certainly won't see creative material on--
high-quality material on local broadcast stations. And that 
is--that is where this is really focused. It really isn't a 
copyright play, it's really in the interest of--because 
copyrights will go to pay television, Home Box Office, et 
cetera, and we simply won't have local broadcast stations able 
to compete in the marketplace. We're trying to simply give them 
a chance to compete in the digital future.
    Senator Smith. Mr. Patton, aren't all, or nearly all, new 
devices that contain digital tuners already compliant with the 
broadcast flag rule? Is a delay, as you have testified, in the 
effective date really necessary if manufacturers are already 
producing, or able to produce, compliant digital tuners?
    Mr. Patton. No, they are not all built with the flag. The 
court threw out the regime prior to the date by which the 
broadcast flag would have been effective. Also, many products 
that are on the market do not have digital outputs, so, 
therefore, would not have needed a broadcast flag. So, I think 
that with the uncertainty, currently, by virtue of the fact 
that it is not in place, manufacturers would need the time to 
integrate the broadcast flag circuitry into their sets, if they 
hadn't already done it. Certainly, it's fair to say that 
engineers have been preparing, but, again, did not have to 
integrate in all sets.
    Senator Smith. Mr. Chairman, my time's up. And I thank you, 
but I just want to emphasize to everyone here that we have to 
do something, and we want you to help us find the right 
balance.
    The Chairman. Thank you very much.
    Senator Nelson?

             STATEMENT OF HON. E. BENJAMIN NELSON, 
                   U.S. SENATOR FROM NEBRASKA

    Senator Ben Nelson. Thank you, Mr. Chairman. And I want to 
thank the panel for really enlightening what the issues seem to 
boil down to. One, it's a matter of technology, but it's also a 
matter of protecting, but providing certain exemptions.
    Ms. Harris, let me ask a question about your concerns about 
building into this language something that protects, or 
idolizes, if you will, the flagging of broadcasts. Is there an 
alternative to this? Is there a way to leave this open so, as 
technology continues to change, that there's still an 
opportunity to come in with another way of implementing the 
same kind of protection?
    Ms. Harris. You're saying an alternative to the flag, or an 
alternative to the current 13 that have been----
    Senator Ben Nelson. To the flag.
    Ms. Harris. I mean, the alternative to the flag is vigorous 
enforcement of the copyright laws, getting your content out in 
digital form early, which is a lesson, I think, to be learned 
from the music business. And it's a copyright issue with 
copyright responses. If the question is also, should we--
developing the flag so that new technologies that offer more 
features and devices for consumers can get approved later on, 
that we don't lock in a small set of technologies as the only 
flag technologies, I think that's critical. I mean, right now 
we have 13 technologies that were approved--don't allow 
excerpting, don't allow things that, in the future, we may 
consider reasonable. So, we have to have a process. If you 
proceed to create opportunities for people to develop, I would 
say more granular opportunities to use the content.
    Senator Ben Nelson. And that can either--that flexibility 
for future development could either be retained by Congress or 
could be delegated, to some extent, to the FTC.
    Now, I have to tell you, I have a healthy concern and a 
fear of alphabet agencies, so I don't like to empower them or 
authorize them with a free hand to be able to deal with this. 
But, in this particular situation, apparently we asked them to 
do it, they did it, the court said they didn't have the 
authority, so we are now where we----
    Ms. Harris. Right.
    Senator Ben Nelson.--find ourselves. We could probably 
provide some level of authorization for future development if 
we didn't want to retain that authority for ourselves. Is that 
accurate?
    Ms. Harris. Well, I think that's right, but I think it's 
important to understand that the FCC is a constantly changing 
body, and that the kinds of decisions that you're talking about 
are policy decisions. And so, I don't want to give them too 
much authority, and I want to give them a lot of guidance, 
because the Commission changes. They approved 13 technologies. 
The current chair of the Commission dissented for some of those 
technologies, and was not chair at that time, so----
    Senator Ben Nelson. Well, I agree with you. I said FTC--one 
alphabet agency, another alphabet agency. We have a lot of 
them. I agree that we ought not to give them too much to run 
with.
    Now, in terms of protecting both intellectual property and 
exempting certain uses, can't we identify what kind of 
retransmission is acceptable, and do that in this bill that 
becomes law?
    Mr. Band?
    Mr. Band. Well, I think that the Senate can do that, and 
the Congress can do that. Again, we were talking specifically 
about retransmission, in a very narrow range of circumstances. 
The TEACH Act already is extremely narrow. And so, we're only 
asking, at this point, for an exemption for that. Now, it could 
be other people are going to ask for other exemptions, but 
that's the exemption that has the most direct impact on 
libraries and educational institutions. It could very well be 
that other folks might come and be able to make the case for 
other similarly narrow exemptions.
    Senator Ben Nelson. So, we don't have to do anything in 
this legislation that would do violence to the kinds of 
protections or exemptions you'd like to see.
    Mr. Band. Not at all. I think there's a way to address our 
concerns, but, at the same time, not, in any way, harm the 
copyright owners.
    Mr. Patton. Senator, if I could add an observation to your 
line of questioning and refer back to some of the earlier 
questions, we tend to be struggling over some of the 
limitations of a technology that's been developed that isn't 
perfect. And I think we all recognize it isn't perfect. But I 
would suggest that, in terms of what technology can offer, you 
ought to fasten your seatbelts. We are entering the digital 
age, and a flood of new capabilities. And right now we have 
authentication, we have encryption, we have fingerprinting, we 
have watermarking, we have digital-rights management solutions 
that will continue to evolve. I mean, we don't have to think 
back too long ago to know that so much of what we're able to do 
today simply was not possible.
    The role of this Committee is critical to maintaining a 
healthy, robust, innovative, and competitive environment to 
continue to develop technologies to offer solutions. And we're 
not just talking about solutions for music and solutions for 
movies, we've got to move people's health records in a much 
more secure, safe way so we can reduce cost in the healthcare 
industry. We have to know where the terrorists are and when 
they enter our borders. And there are digital-rights management 
solutions that can give us opportunities through technology to 
pursue really important public-policy needs. A robust, healthy, 
competitive market is the message to send to all of the 
agencies with alphabets that have some responsibility for 
implementing your good public policy.
    And if I could just go back to the one issue which we 
considered central to our testimony, and that is that as we 
pursue the marketplace for content protection technologies, we 
don't allow any anti-competitive or anti-innovation aspects of 
that to exist. That would argue in favor of good public policy 
equaling reasonable and nondiscriminatory terms upon which 
technologies ought to be available to give effect to good 
public-policy objectives and goals. I appreciate the chance to 
add that.
    Senator Ben Nelson. Thank you.
    Thank you, Mr. Chairman.
    The Chairman. Thank you very much.
    Senator Sununu?

               STATEMENT OF HON. JOHN E. SUNUNU, 
                U.S. SENATOR FROM NEW HAMPSHIRE

    Senator Sununu. Thank you, Mr. Chairman.
    I really just have a couple of points that I would like to 
make.
    The Chairman. Could I interrupt?
    Anyone that had opening statements, we'll print them in the 
record automatically, yes.
    Go ahead.
    Senator Sununu. Thank you, Mr. Chairman.
    First, about the focus of this debate. And I think Senator 
Nelson made some good points, raised some important concerns, 
and I want to pursue them.
    Much of the discussion here has been about exceptions. What 
exceptions are we going to have to this broadcast flag? What 
loopholes are there going to be? And I would want to refocus it 
on the fundamental question of whether such a flag is even 
needed in the first place.
    Now, I think the broad argument for needing a broadcast 
flag is that we have these new technologies that are different, 
that represent some unprecedented threat to copyrighted 
material and to creativity. And I think it's worth questioning 
that basic premise, because we have seen--and some of us have 
seen more closely than others--but we have seen many similar 
periods of innovation and technology that change the way we 
deal with, receive, and enjoy copyrighted or otherwise 
protected material.
    And not to go too far back, but we had the advent of radio, 
and the threat that that presented to performers, music 
writers, composers; television; the advent of videotape, Beta 
and VHS, and the unprecedented threat that we thought that that 
would pose to creative work and content; cassette tape; cable 
television; satellite TV; CDs; DVDs. All of these represent 
enormous steps and transformation in the presentation, 
distribution, and dissemination of ideas, content material, 
much of which is protected, and rightly so, by different forms 
of copyright.
    But, in all cases, we didn't need to step in with a 
significant statutory, government-regulated mandate on 
technologies that consumers use to enjoy this material. There 
are a host of regulations, and many of them are designed to 
maximize the use and the enjoyment of this. But I don't know of 
a case where we were discussing such a dramatic step, where the 
government--the Federal Government would legislatively mandate 
a specific type of technology to be incorporated in all this 
material.
    I mean, you know, maybe the sky really is falling this 
time, but I think it is worth suggesting a little bit of 
skepticism. It's worth offering up a little bit of doubt before 
we--not just entertain this, but jump ahead to a discussion of 
what exceptions are required, as if it were a foreordained 
conclusion.
    I think we should, further, be discouraged from moving too 
fast by the fact that this conversation is so complex. Over the 
last half hour or so, I was watching about a half hour in my 
office, was here for 15 or 20 minutes--it's a very complex 
discussion about exceptions and loopholes and what should be 
considered, or not, or what exactly is fair use. And when you 
start entertaining these kinds of complexities and saying, 
``Well, we're going to incorporate this into legislation,'' 
that, alone, should act as a warning that what's being 
contemplated is very risky, could have a lot of unintended 
consequences that I think none of us seek, and none of us would 
enjoy, but we all have to recognize that would be there when 
we're talking about something that's this complex. It has 
inherent risks.
    That is one basic point I want to make, I want to impress 
on the panel, and certainly on the members, that we need to 
really question whether this is needed, and we have a whole 
history of similar technological innovation that has shown us 
that the market can react and can respond with its own ways of 
protecting artists and performers and copyrighted material, 
that's consistent with the law and consistent with the desire 
of the artist.
    Which brings me to a second broad point, which is the 
suggestion that underlies much of this debate, that if we don't 
do this, we'll be killing off creative activity. This will 
stifle creativity if we don't enact a specific legislative 
government mandate on these technologies. Well, I don't think 
I've come up with this on my own, but the very technologies 
that some seem to be afraid of are driving innovation and 
driving creativity as we sit here today. In fact, we have an 
unprecedented wave of creativity and product development and 
content development, some of which is very, very impressive, 
some of which is very, very dismaying, but it is an 
extraordinary wave of creativity, and also an extraordinary 
wave of development of new business models and new 
methodologies for distributing this content, good and 
dismayingly bad. And I think the history of government 
mandates--in this area, but in just about any area we can 
conceive of--the history of government mandates is that it 
always, always restricts innovation. And sometimes we, as 
regulators, want to do that. We want to restrict--maybe we want 
to restrict competition in certain areas, maybe we want to 
restrict corporations from doing certain things that would harm 
consumers. The whole idea behind government regulation and 
government legislation is to, in some ways, restrict activity. 
So, why would we think that, this one special time, we're going 
to impose a statutory government mandate on technology, but it 
will actually encourage innovation?
    Now, I could be wrong. This could be the one time that the 
sky is really falling and that the government mandate really 
won't restrict innovation. But I think, if we have this history 
to look at, we ought to at least be a little bit more skeptical 
than we have been so far.
    Thank you, Mr. Chairman.
    The Chairman. Well, let me just paraphrase the staff memo 
that was given to us, in order to, sort of, reestablish why 
we're here. Non-broadcast media, like cable and satellite 
television companies, are able to encrypt their signals. The 
FCC order rejected encryption at the source of digital 
television broadcasts, because of the cost that would be 
imposed on consumers by such a solution.
    Now, the FCC order required the adoption of this flag 
developed by industry groups to thwart the redistribution, but, 
nonetheless, allow consumers to copy programs and watch copies 
within the limits of their own home viewing networks. Now, 
we're talking about broadcast flag, not the whole concept of 
media distribution, and we're talking about what to do about 
the fact that, without some protection, the threat of piracy 
would place the broadcast media at a disadvantage, as compared 
to non-broadcast media, like cable and television. It is a 
subject that requires an act of Congress, in my opinion.
    Now, we'll thank you very much and call the next panel.
    Senator Smith. Mr. Chairman?
    The Chairman. Yes, sir?
    Senator Smith. I think Senator Sununu has given us a good 
history lesson, and I think his history is right. I think the 
reason there is a distinction now, the reason the sky may be 
falling, is simply digital versus analog.
    The Chairman. Thank you very much.
    Let's take a 5-minute break so that we can have a change in 
the panel's names and that sort of thing.
    [Recess.]
    The Chairman. If we could turn to the second panel, we're 
now going to deal with the audio flag.
    The need to protect audio content has increasingly gained 
attention as new digital distribution platforms grow in 
popularity. We're here now to listen to those who are concerned 
about the audio side of this problem.
    First would be Mitch Bainwol, Chairman and Chief Executive 
Officer of the Recording Industry Association of America; the 
next, Gary Shapiro, President and Chief Executive Officer of 
the Consumer Electronics Association; and then, Dan Halyburton, 
Senior Vice President and General Manager of Group Operations 
of Susquehanna Radio, in Dallas, Texas.
    We thank you all for coming. It's a very complex subject, 
and we're pleased to have your advice.
    The first witness will be Mitch Bainwol.

 STATEMENT OF MITCH BAINWOL, CHAIRMAN/CEO, RECORDING INDUSTRY 
                     ASSOCIATION OF AMERICA

    Mr. Bainwol. Chairman Stevens, Co-Chairman Inouye, Members 
of the Committee, thank you for this chance to testify.
    I'm going to jump right into this. I want to make four key 
points. One, investment in new music depends on the success of 
the emerging digital marketplace. Two, convergence is here; the 
current distinction between radio and downloading is 
disappearing. Three, there is a market failure in over-the-air 
terrestrial radio; our case for content protection is even 
stronger than the case of our video colleagues. Four, we stand 
ready to work with our partners--the broadcasters, IT, even 
Gary--to make sure the rollout of HD radio occurs 
expeditiously.
    That said, no amount of cooperation mitigates the need to 
grant the FCC the authority to implement the right solution. 
So, let's drill down.
    One, investment. In this country, uniquely, we're not paid 
when music is heard on terrestrial radio. We rely on sales to 
invest in the next generation of art. As you know, we're in the 
midst of a crucial transition period. Since the advent of file-
sharing--really, stealing--in 1999, sales are down about 30 
percent. The sky may not be falling, but sales are down 30 
percent. The result? Artist rosters are slashed by a third; 
songwriters out of business--some, forever; the discovery of 
new music and the diversity of new music, compromised. But we 
have pivoted hard to the new world, licensing over 2 million 
tracks for online sales and rentals to a wide range of models 
and platforms. We're innovating, and it's working.
    As recently as 2003, there were essentially no digital 
revenues. Today, we're generating significant revenues from 
download services like iTunes, from subscription services like 
Rhapsody, and from mobile music offerings, all of which will 
amount to billions of dollars a year by the end of this decade; 
that is, unless the emerging digital marketplace is 
cannibalized by functionality that substitutes for downloads 
without paying us, creators, comparably.
    Two, convergence. Radio has always been a passive listening 
experience. Sure, people taped off the radio. They did it 
independently and manually. The quality stunk and degraded over 
time. If you wanted a good copy, you bought it. The radio 
service didn't provide a tool to automatically capture perfect-
quality songs and subsequently move them effortlessly into your 
library of music to play on your portable device wherever and 
whenever you chose, until now. New devices are coming into the 
market that turn radio into download services. Going way beyond 
time-shifting and beyond current consumer expectations, these 
devices effectively provide free ownership.
    The problem, of course, is that these radio devices, unlike 
iTunes, cell phones, and music rental services, don't pay for 
product. The existence of millions of devices where a consumer 
can replicate a purchase, but bypass payment, would undercut 
our property right, undercut our ability to invest, and 
threaten the viability of the legitimate download market.
    Let me do a bit of show-and-tell. This is the famous iPod. 
This is a Verizon cell phone. This is a Creative Zen that hooks 
you up to Rhapsody, a rental service--all examples of the new 
marketplace that's emerging. This is a picture of the new XM 
device, from XM Satellite Radio. Note the ad, ``It's not a Pod, 
It's the Mothership.''
    [Laughter.]
    Mr. Bainwol. All of these are portable MP3 players. They 
store lots of music and allow personalization for fans so they 
can really enjoy their favorite tunes. And they're selling like 
hotcakes, 14 million iPods in the fourth quarter of last year 
alone. Most consumers rip their CDs into their iPods, or they 
buy from iTunes, paying 99 cents a song. Some of that comes 
back to the creators under marketplace licensing agreements. On 
the Verizon cell phone, they were likewise compensated. Same, 
too, with Rhapsody. But not on the new digital radio services. 
They'll allow consumers to download music without paying for 
it, a good deal if you're seeking to lure consumers to buy new 
receivers or to subscribe to your service, but not a good deal 
for us or for the platforms that they compete with unfairly.
    Three, market failure. Our circumstance is different from 
the video context discussed earlier.
    First, and most importantly, we don't get paid for product 
when it's broadcast over the air terrestrially. We're the only 
industrialized nation in the world where the artist and label 
do not enjoy a performance right. The motion-picture studios 
do.
    Second, we, therefore, can't withhold content from the 
broadcasters as equal leverage in the marketplace to achieve 
effective content protection. Video content owners can.
    Third, music is consumed differently. One might time-shift 
Desperate Housewives to watch it after it airs, or for a second 
time if you happen to be a big Eva Longoria fan, or a third 
time if you're obsessed. But a favorite song, whether it's 
``Stairway to Heaven,'' ``White Christmas,'' or ``Rocky Top,'' 
you listen to a thousand times. Uniquely in the United States, 
we have no market power to force the interested parties that 
come to the table to make sure our property rights are honored. 
We've been trying for years, and we can't get people to move. 
There is a market failure. Without intervention, the developing 
digital marketplace will be stymied.
    Four, moving forward. Satellite radio devices are being 
launched now. Over-the-air radio devices are expected next 
year. So, the time is ripe. Talking about talking is no 
substitute for action. Let me also be clear, we're agnostic 
about the technical solution deployed to provide the content 
protection that we deserve. While we agree with many in the IT 
sector that encryption at the source might be an effective 
approach, we understand it may not be a viable option, because 
it would render useless existing car and home radio receivers.
    The audio broadcast flag will work. As Senator Inouye says, 
``It's not perfect, but it will work.'' It's a good 
alternative, and it would not affect legacy devices. Therefore, 
we stand ready to work quickly with the NAB's new Audio Flag 
Task Force and other interested parties to implement such a 
flag.
    In the meantime, just as with the video flag, the FCC must 
be granted the necessary authority to implement an agreement. 
The current Smith-Boxer discussion draft reflects that 
approach. It's a great start.
    Wouldn't it be great if you could push a button when you 
hear a song on the radio, and buy it? A buy button. An audio 
flag will assure that possibility for consumers, and provide a 
return on investment for creators, for the broadcasters, for 
the device manufacturers, and all of the interested parties 
that bring new and exciting entertainment to market.
    Again, thank you for focusing on this important issue.
    [The prepared statement of Mr. Bainwol follows:]

 Prepared Statement of Mitch Bainwol, Chairman/CEO, Recording Industry 
                         Association of America
    Chairman Stevens, Co-Chairman Inouye, and Members of the Committee, 
I appreciate this opportunity to appear before you today to address 
emerging issues in the area of digital audio broadcast and the use of 
an audio flag for the protection of digital music.
    At the outset, let me stress that we are excited about the new 
opportunities digital radio will provide to expose new artists and 
offer consumers new choices in the way they get our music, and about 
the convergence of different platforms and distribution systems. The 
record industry is wholly supportive of this new platform and joins 
others in looking forward to its speedy and successful rollout.
    Our concern is not over the rollout of HD Radio itself, but rather 
the advent of new digital radio services and devices that will 
effectively turn radio into a music library, without paying the fair 
market price for licensing music that a download store or subscription 
service must pay. We have no issue with the convergence of radio and 
downloads, as long as they are licensed for that purpose. But when a 
radio service that is broadcast terrestrially over-the-air, or over 
satellite, uses free spectrum and its special treatment under the law 
to change its very nature, compete unfairly against download and on-
demand subscription services that need to obtain an appropriate 
license, and avoid paying creators of music, we object.
    New devices that effectively turn HD Radio into a music library 
should not come at the expense of those who create and provide the 
content upon which HD radio depends. New HD Radio services, and current 
satellite radio services, threaten to transform the intended passive 
listening experience of radio into an interactive one by enabling users 
to become owners and worldwide distributors of a personalized 
collection of recordings. What we are talking about here is not casual 
recording by listeners. It is not taping off the radio like we used to 
do. We are talking about allowing broadcast programs to be 
automatically captured and then disaggregated, song-by-song, into a 
massive library of music, neatly filed in a portable device's digital 
jukebox and organized by artist, song title, genre and any other 
classification imaginable in a manner that substitutes for a sale. 
Listeners will be able to automatically build entire collections of 
music without the need to ever purchase any of it; indeed, they won't 
even have to listen to the broadcast in order to build the library. 
This is not fair use. It is not time-shifting. And it's not radio.
    This transformation from a passive to an interactive listening 
experience without obtaining the proper license to pay the creator is 
especially troubling because record labels and artists receive 
absolutely no payment from the performance of their works on 
terrestrial over-the-air radio. This unfair situation means that 
revenue, if any, comes only from the ultimate sale of that music to 
listeners. Yet the librarying functionality that could become part of 
HD Radio--the equivalent of permanent digital downloads--would displace 
those sales by providing listeners with the same content for free. And 
it would be enabled ubiquitously in every car radio receiver and in 
every home. You can imagine why we want to get ahead of this problem.
    The resulting loss of sales threatens significant harm to an 
industry already hit hard by piracy. A recent letter to me from Dr. 
David K. Rehr, President and CEO of the National Association of 
Broadcasters (NAB), questioned the threat posed by piracy over HD Radio 
given the availability of unauthorized music on ``Peer-to-peer file 
sharing . . . iPod uploads and digital music on the Internet.'' While 
it is true that other opportunities for consumers to independently 
search for pirated music exist, making the free, automatic, selective 
downloading of music available over radios poses a piracy problem that 
threatens to surpass that of peer-to-peer (``P2P'') file-sharing. 
Unlike P2P, digital radio downloads will offer pristine copies of songs 
without the threat of viruses and spyware. The ubiquity and ease of use 
of radios outstrips that of computers, and the one-way method of 
communication allows individuals to boldly engage in piracy with little 
fear of detection. It will affect all age groups, and it will appear to 
be sanctioned.
    The harm from allowing these free digital downloads--as well as the 
ability to freely redistribute them over the Internet or on removable 
media--would also take away new market opportunities to provide 
consumers with convenient music purchases through ``buy buttons'' on 
radio receivers that would allow instant sales that produce new revenue 
streams for broadcasters, device manufacturers, and creators alike. 
And, of course, the potential loss of sales ultimately affects 
consumers, as companies are no longer able to invest in the production 
of new music.
    Let us be clear: we are absolutely fine with any and all new radio 
features that give consumers more flexibility. But when a radio service 
adds features to effectively become a download service, it should be 
required to pay the same marketplace price that download services pay. 
Exemption from such a license is unfair to the legitimate distribution 
services and retailers, and it is unfair to the copyright owners who 
deserve fair compensation.
    If the appropriate license is not obtained in the marketplace, we 
must ensure that features contained in free over-the-air radio do not 
allow it to tread into the realm of those download and interactive 
services that do pay such a license. This unfair competition threatens 
the stability of the digital marketplace and the value itself of 
copyrighted works. In order to accomplish this, we have proposed the 
implementation, through appropriate marketplace negotiation, of an 
audio flag that would allow for new consumer functionality for radio, 
including time-shifting, automatic recording by time, program, or 
channel, storage, digital read-outs, music purchase options, time-
shifting capabilities, and great new sound--but would disallow the type 
of cherry-picking of songs and librarying that would constitute 
automatic selective downloading.
    Why a flag? While we agree with many in the information technology 
industries that encryption at the source would be an effective and 
robust content protection method, we understand that, at this point, 
just as in the video context, it may not be a viable option. As I 
stated in my response to Dr. Rehr's letter, we are not insistent upon 
the use of encryption at the source. We remain agnostic as to the 
technology implemented to protect broadcast digital content. The 
broadcast flag will work, just as in the video context, it is a good 
alternative, and it offers an effective means of ensuring that music 
acquired through digital broadcasts is used appropriately. The use of a 
broadcast flag would in no way affect legacy devices and we understand 
from all relevant sectors that, once a technology is agreed upon, 
implementation is the easy part. The hard part is agreeing on the usage 
rules.
    But in seeking agreement on usage rules, it is again important to 
understand what we want and what we don't want. Specifically, we are 
only asking for protection against radio broadcasts becoming music 
libraries through slice and dice functionality, and for protection 
against redistribution of recordings onto the Internet, removable 
media, or to other devices. We are not seeking to stop or delay the 
rollout of HD Radio or other platforms. Nothing we are seeking would 
change consumer expectations about how they use radio. Listeners can 
still hit a record button when they hear a song they like, and can 
engage in time-shifting, and in Tivo-like recording by time, program or 
channel. We merely ask that the line be drawn at automatic searching, 
copying, and disaggregation features that exceed the experience they, 
the FCC, and Congress expect from over-the-air terrestrial and 
satellite radio.
    We feel strongly that a proper balance between music usage and 
protection can be found, and we would like to sit down with other 
industry players to find the appropriate solution. However, we have 
been unable to compel those other players to come to the table because 
of a fundamental lack of bargaining power. Again, artists and record 
labels have no leverage to withhold their music since they don't have a 
performance right at all for over-the-air terrestrial radio, and are 
limited to a compulsory right for satellite radio. This lack of a 
market solution requires that the FCC, the regulatory agency that 
controls the signal for over-the-air terrestrial radio, be granted the 
jurisdiction to address these issues and help guide industry 
participants to operate fairly. Senators Smith and Boxer have released 
a discussion draft with that goal in mind. We think it's a great start, 
and stand ready to meet with all the interested parties. (A direct 
Congressional grant of authority may be required since the United 
States Court of Appeals for the District of Columbia Circuit recently 
vacated the FCC's ruling on digital video broadcasts for lack of 
jurisdiction. Of course, any grant of authority should not be limited 
to digital video broadcasts, but should necessarily include digital 
radio broadcasts, a notion supported by FCC Chairman Martin in a recent 
letter to Senators Frist and Alexander.)
    The concerns we have regarding new HD Radio services are part of a 
broader desire to see all transmitters of digital content--whether 
terrestrial over-the-air, satellite, cable, or Internet--play by the 
same rules. For example, it is now clear that satellite radio, 
especially with proposed features allowing permanent copying and 
disaggregation, presents the same issues mentioned here, and should be 
treated the same. All new distributors of digital music--HD Radio, 
satellite radio, and Internet radio will be offering the same types of 
products to the same consumers. They should all follow the same rules 
so they compete fairly, and compensate creators fairly. By leveling the 
playing field, all of these platforms will have the chance to grow and 
compete, and new services will be encouraged to participate, creating 
more opportunities and choices for everyone.
    HD Radio and other digital platforms certainly have much to offer. 
Enticing new users through increased quality, range, and selection is 
perfectly appropriate; but encouraging such migration with the lure of 
free unauthorized downloads is not. Device makers for terrestrial over-
the-air radio (and satellite) broadcasts need to prevent the 
unrestricted redistribution of recordings and the ability to perform 
search-facilitated or automated copying so that individual recordings 
cannot be separated from surrounding content. We continue to encourage 
all interested parties to work with us to seek a mutually beneficial 
outcome. In the meantime, to guide the appropriate and responsible 
marketing of new HD Radio receivers, Congress should grant jurisdiction 
to the FCC to ensure that radio is radio, and that those who wish to 
effectively offer downloads, do so with a license.
    Thank you.

    The Chairman. Thank you very much.
    Our next witness is Gary Shapiro, President and Chief 
Executive Officer of the Consumer Electronics Association.

     STATEMENT OF GARY J. SHAPIRO, PRESIDENT/CEO, CONSUMER 
                    ELECTRONICS ASSOCIATION

    Mr. Shapiro. Thank you, Mr. Chairman, Mr. Co-Chairman, 
Members of the Committee.
    On behalf of the Consumer Electronics Association and the 
Home Recording Rights Coalition, I appreciate the opportunity 
to discuss these issues with you.
    Just a couple of weeks ago at the International CES in Las 
Vegas, the full genius of our industry was on public display. 
Over 150,000 trade attendees were dazzled by an array of new 
products and new services that allow Americans to experience 
content however, whenever, and wherever they wish. These new 
technologies have previously created, and will, create 
lucrative business models for the content and the technology 
industries, and generate immense benefits for our citizens and 
also for our economy.
    At the same time, this bright future depends upon two 
things. First is the right of innovators to bring products to 
market without restrictions, and second is the right of 
Americans to enjoy products for noncommercial purposes within 
their homes. Both subjects of today's agenda could diminish 
these rights and are of great concern for our industry.
    First, the television broadcast flag.
    Our 2,000 members have a range of views on this issue. I'd 
say many of them would agree with you, Senator Sununu. However, 
to the extent this committee opts to go forward with broadcast 
flag legislation, we urge that you restate, as closely as 
possible, the narrow language of what the FCC did in its 
existing order. We are concerned by the content-industry 
proposals, that go well beyond the FCC's mass indiscriminate 
redistribution standard and would constrain, actually, the use 
of networks within the home. In addition, we urge you to 
include narrow exceptions for local news and public-affairs 
programming in our schools and libraries to use broadcast 
excerpts for distance learning.
    Finally, if Congress is going to provide more protection to 
copyright holders, you should also safeguard the rights of 
consumers to enjoy the works that they lawfully have acquired. 
This, for example, would include the right to decrypt for 
noninfringing purposes. For example, to remove spyware that a 
CD has unknowingly placed on your computer.
    Now, as far as the audio flag, I'm not even sure what we're 
talking about, because when the RIAA refers to it, there's no 
such equivalent in audio, the way there is in video. The 
differences are vast. The video broadcast flag was developed on 
an open, voluntary basis, by technology and content companies. 
It took several years. It used a well-known technology. It was 
aimed simply at mass indiscriminate redistribution over the 
Internet, not private home recording. The difference goes 
outside the walls of the home and onto the Internet. That's 
what we were talking about in the first panel. This panel, what 
Mr. Bainwol was talking about, is stopping legitimate home 
recording in your house, not even going over the Internet.
    With respect to the audio flag, or so-called flag, there is 
no industry consensus or agreed-upon technology. No audio-flag 
proposal has been brought to a standards body or to CEA for 
discussion. Indeed, the Copyright Protection Technical Working 
Group, which was established many years ago by the RIAA, the 
MPAA, Mr. Valenti, myself, and the ITIC, the RIAA dropped out 
of it 7 years ago, and they haven't been back since.
    The flag proposals themselves are not even limited to 
addressing mass indiscriminate redistribution of music over the 
Internet. So, instead of merely replicating the broadcast flag, 
RIAA is trying to limit consumer use of HD radio and satellite 
radio services and totally limit new products coming to market. 
They want to stop Americans from recording free over-the-air 
radio in their private homes for later enjoyment. This is 
something that Congress has repeatedly discussed and recognized 
and protected. You can go back to legislative history and 
report language over and over again that Americans have the 
right to record off of radio. Indeed, after 7 years of FCC 
proceedings, all but ignored by the RIAA until recently, the 
rollout of digital radio, also known as HD radio, is just 
underway today. Any Congressional nod toward the RIAA limits 
could hurt the launch of this exciting new technology.
    And with respect to the national radio services, XM and 
Sirius, the content is already encrypted and cannot be 
redistributed over the Internet. Discussion of a flag in this 
context makes no sense at all.
    As you may know, XM and Sirius have announced new handheld 
devices to allow their subscribers to record and play back 
music that they have paid for, like a radio TiVo. And at CES, 
both these products won awards for innovation and for consumer-
friendliness. These products will be fully compliant with the 
Audio Home Recording Act, and royalties will be paid to the 
music industry. XM and Sirius will still pay additional 
millions in performance royalties. So, the music industry is 
already getting two streams of royalties from these devices and 
the music that's being recorded on them.
    Because of the Audio Home Recording Act, a law that the 
RIAA sought and promised would forever satisfy all their 
digital audio recording problems, all of these products are 
built so that copies cannot be made of the digital copies. 
Further, manufacturers have built these products so that 
digital content cannot be uploaded to the Internet.
    But the RIAA wants more. They want to kill new products and 
keep them out of the hands of consumers. It's simply not 
justifiable. Ordinary consumers are not pirates, and recording 
lawfully acquired content for private personal use is not 
piracy. That's exactly what these RIAA proposals seek to halt. 
We see no basis for Congressional or FCC interference with 
ongoing satellite radio service or with the HD radio services 
that are now being launched nationwide, nor do we see any basis 
for government to restrict what Americans can do with lawfully 
acquired content for noncommercial purposes within the privacy 
of their own homes. This includes activities like indexing, 
storing, compiling, and making playlists. This is what you do 
with your TiVo every day, and it's a popular product.
    A draft of the combined flag legislation, which we received 
late last week, purports to establish an audio flag modeled 
procedurally on the video flag, but, unlike the FCC broadcast 
flag order, this draft also potentially restricts private in-
home consumer recording. It would also freeze the fair-use 
rights offered by any new product at current historic use. 
Think about it. Had that been the law at the time, we would 
have no VCR, no TiVo, and no iPod. All these products were new 
definitions of fair use, new ways to use content.
    Finally, if industries, under this proposal, cannot agree 
on an audio flag, the bill mandates an anticopying technology 
that every digital device must use. We would oppose any 
legislation that proceeds on this basis. As we have feared, 
having been emboldened by a judicial victory against real 
pirates, the music industry now sets its sights on ordinary 
consumers. We respectfully urge you to reject the RIAA's 
efforts to vilify consumers and repeal basic consumer rights.
    Thank you, Mr. Chairman and Members of the Committee, for 
the opportunity to appear today. We have worked collegially 
with the content industries, when they have been willing to do 
so, and we look forward to working with them, and with you and 
your staff, on future issues.
    [The prepared statement of Mr. Shapiro follows:]

    Prepared Statement of Gary J. Shapiro, President/CEO, Consumer 
                        Electronics Association
    On behalf of the Home Recording Rights Coalition and the Consumer 
Electronics Association, I appreciate the Committee's invitation to 
appear today. At CEA, we have more than 2,000 members who contribute 
more than $125 billion to our economy and serve almost every household 
in the country. We thus believe it is vital to preserve the innovation, 
integrity and usefulness of the products that our members deliver to 
consumers. Any legislation that would impair the usefulness of lawful 
products is a threat to innovation, and to the satisfaction of our 
customers with us and with our political process.
    The Home Recording Rights Coalition was founded more than 25 years 
ago, in response to a court decision that said copyright proprietors 
could enjoin the distribution of a new and useful product--the VCR. 
This court decision was later reversed by the U.S. Supreme Court, and 
even the motion picture industry has admitted that it is glad that the 
VCR was allowed to come to market. But elements of the entertainment 
industry, after repeatedly suggesting that they want cooperative 
licensing and marketing initiatives rather than new legislation, keep 
returning to the Congress with unilateral proposals that would subject 
new and legitimate consumer products to prior restraints.
    We have been down this road before, but somehow enough is never 
enough. From 1989 through 1992, we worked with the Recording Industry 
Association of America and other rights holders to draft and propose 
the Audio Home Recording Act of 1992 (the ``AHRA''). The AHRA still 
produces revenue for the recording industry and music publishers, and 
protects them against serial copying on the latest generations of our 
industry's lawful and legitimate products. Yet except at royalty 
collection time, the music industry seems to want to forget that this 
law exists.
    We worked with the motion picture industry and with Members of 
Congress and their staff in developing Section 1201(k) of the Digital 
Millennium Copyright Act of 1998 (the ``DMCA''). This provision 
requires that certain analog home recorders must respond to a copy 
protection technology, but--and this is the key point for us--in 
return, it has ``Encoding Rules'' that protect consumers' reasonable 
and customary time-shift recording practices from interference by 
content providers. \1\
---------------------------------------------------------------------------
    \1\ The HRRC and many CEA members also helped launch the Copy 
Protection Technical Working Group (CPTWG), an open forum in which 
participants in the content, information technology, and consumer 
electronics industries have met regularly for almost 10 years. The 
CPTWG has had work groups on both the ``broadcast flag'' and the 
``analog hole,'' and CEA members served as co-chairs of each group. The 
RIAA was the fourth founder of this group, but withdrew its support and 
participation early on to concentrate on the ``Secure Digital Music 
Initiative,'' which went into permanent hiatus several years ago, and 
never returned to the CPTWG.
---------------------------------------------------------------------------
What is an ``Audio Flag''?
    I believe we can be excused, Mr. Chairman, for not knowing what the 
RIAA means when it uses the term ``Audio Flag.'' If it is meant to be 
something strictly limited and analogous to the video ``Broadcast 
Flag'' proposal that was the subject of a Federal Communications 
Commission regulation (since nullified by the courts), then this is 
something that to my knowledge has never been shared with us, formally 
or informally, as a proposed regulation, or in proposed legislation.
    The RIAA's first, and most specific iteration of a new constraint 
on digital radio surfaced at the FCC in 2004, and was nothing like the 
video ``Broadcast Flag,'' which did not and does not purport to limit 
the utility of consumer recording products inside the home. By 
contrast, the proposal that the RIAA made to the FCC aimed specifically 
at frustrating and impairing the long-accepted, reasonable private and 
noncommercial practices of consumers in the use of lawfully received 
content, inside their own homes. The RIAA admitted in its FCC filings 
that, even if not encrypted at the source, accomplishing this would 
involve some home encryption requirement that, in order to be 
effective, would make any new digital radio products severely non-
interoperable with existing home stereo systems. The RIAA never 
explained to the FCC, and has not explained in any public forum, 
specifically what it is trying to accomplish or how it could accomplish 
any of its objectives effectively yet in a non-intrusive manner. \2\
---------------------------------------------------------------------------
    \2\ Indeed, the FCC's Digital Audio Broadcast proceeding was begun 
by the Commission in 1999 and its initial emphasis was almost entirely 
technical. Nevertheless, neither the RIAA nor any other music industry 
interest ever made a single filing in that proceeding until 5 years 
later--and even then it did not disclose what specific technology would 
be imposed on consumers, and it still has not done so. But no matter 
what technology ultimately is chosen, it would be an unwarranted, 
unnecessary, and probably unworkable intrusion into consumer use, and 
into the very viability of the new digital radio format on which so 
many have worked so long and hard for so many years.
---------------------------------------------------------------------------
    More recent suggestions that the popular satellite radio services 
be locked down also came ``out of the blue.'' There is no indication 
that new devices now being rolled out, to make these services more 
portable and convenient \3\ for lawful subscribers, would depart from 
the requirements of the Audio Home Recording Act--most of which were 
drafted by the music industry itself. Nor is there any indication of 
any problems as a result of the wide consumer acceptance of these 
services. It seems that, as in the case of Digital Audio Broadcasts, 
the main objective of imposing new constraints on in-home use is to 
destroy the utility of new consumer products that, like the VCR, will 
likely have the effect of enhancing consumers' lives and broadening the 
market for entertainment programming.
---------------------------------------------------------------------------
    \3\ Eric A. Taub, ``Basics; Satellite Radio Leaves the Car To Go 
Home And on Walks,'' The New York Times, at C-9, January 12, 2006.
---------------------------------------------------------------------------
The In-Home Consumer Capabilities That RIAA now Wants to Constrain are 
        not new and Have Never Been Shown to be Harmful to the Music 
        Industry.
    There is no established basis whatsoever for Congressional or FCC 
meddling with the ongoing satellite radio services, or with the 
terrestrial digital audio broadcast services that are just being 
launched. Whatever consumers will be able to do with these services in 
the future--including the recording, indexing, storing, and compilation 
of playlists--it has been equally feasible for decades to do the same 
things with existing FM radio service, with comparable quality. Yet, 
every time the Congress has reformed the Copyright Act, the Congress 
has declined to grant phonorecord producers any right or control over 
home recording or even over whether albums are broadcast over the radio 
in the first place.
    There is no demonstrated problem, and there is no reason to take 
control of these services away from broadcasters and satellite radio 
providers, or to interfere with the customary enjoyment of these 
services by consumers, and put those controls solely in the hands of 
the record companies. The Congress has consistently declined to do so. 
\4\ As a result, the United States remains a world leader in developing 
new broadcast and consumer technologies and services.
---------------------------------------------------------------------------
    \4\ When Congress first granted copyright protection to sound 
recordings in the 1970s, it affirmed consumers' historical right to 
record radio transmissions: ``In approving the creation of a limited 
copyright in sound recordings it is the intention of the Committee that 
this limited copyright not grant any broader rights than are accorded 
to other copyright proprietors under the existing title 17. 
Specifically, it is not the intention of the Committee to restrain the 
home recording, from broadcasts or from tapes or records, of recorded 
performances, where the home recording is for private use and with no 
purpose of reproducing or otherwise capitalizing commercially on it. 
This practice is common and unrestrained today, and the record 
producers and performers would be in no different position from that of 
the owners of copyright in recorded musical compositions over the past 
20 years.'' House Judiciary Committee Report No. 92-487, 92nd Cong., 
1st Sess. at 7 (1971) (emphasis added).
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    The constraints now being sought by the recording industry pertain 
to the first copy a consumer might make inside his or her own home. 
But, at the behest of the RIAA, the Congress already addressed this 
issue in the AHRA. The AHRA provides for a royalty payment to the music 
industry on Digital Audio Recording devices and media. At the specific 
request of the RIAA and the National Music Publishers Association, the 
AHRA explicitly does not prevent consumers from making a first 
generation copy, but limits devices' ability to make digital copies 
from digital copies. In 1991, Jay Berman, then head of the RIAA and now 
head of the industry's umbrella organization, IFPI, told the Senate 
that the AHRA--

        ``. . . will eliminate the legal uncertainty about home audio 
        taping that has clouded the marketplace. The bill will bar 
        copyright infringement lawsuits for both analog and digital 
        audio home recording by consumers, and for the sale of audio 
        recording equipment by manufacturers and importers. It thus 
        will allow consumer electronics manufacturers to introduce new 
        audio technology into the market without fear of infringement 
        lawsuits . . .'' \5\
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    \5\ The Audio Home Recording Act of 1991: Hearing before the Senate 
Committee on the Judiciary, S. Hrg. 102-98 at 115, October 29, 1991, 
written statement of Jason S. Berman at 119. Mr. Berman, in fact, 
emphasized that the comprehensive compromise nature of the AHRA was a 
reason for the Congress to pass it: ``Moreover, enactment of this 
legislation will ratify the whole process of negotiation and compromise 
that Congress encouraged us to undertake.'' Id. at 120.

    Indeed, the AHRA provides explicitly that copyright infringement 
suits cannot be based on products that comply with the AHRA, or based 
on consumers' use of such devices or their media. And, don't believe 
RIAA's revisionist claims that the AHRA had a narrow, limited focus. 
When urging passage of the AHRA, RIAA was singing a different tune. 
Again, in Mr. Berman's own words: the AHRA ``is a generic solution that 
applies across the board to all forms of digital audio recording 
technology. Congress will not be in the position after enactment of 
this bill of having to enact subsequent bills to provide protection for 
new forms of digital audio recording technologies.'' \6\ Moreover, the 
AHRA was specifically intended to address recordings made from digital 
transmissions as well as from prerecorded media. \7\ We see no 
justification to undo the provisions of the AHRA that safeguard the 
right to manufacture, sell and use devices to record transmissions by 
digital and satellite radio services.
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    \6\ Id. at 111 (emphasis supplied).
    \7\ 17 U.S.C. Sec. 1001(1),(3) (digital audio recording devices 
include those primarily designed to copy from transmissions); S. Rep. 
No. 102-294, 102d Cong., 2d Sess. 65-66 (June 9, 1992) (rules allow one 
generation recordings of digital broadcast transmissions).
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There Is No Factual or Principled Basis to Constrain Consumers' Use of 
        These Lawful New Products.
    In addition to destroying Digital Audio Broadcasts in their 
infancy, the RIAA proposals seem aimed at destroying the utility of new 
consumer products that, like the VCR and TiVo, will enhance consumer 
enjoyment of music and broaden the market for entertainment 
programming. Sirius has already introduced a new hand-held device and 
XM has recently announced new hand-held devices that will allow their 
subscribers to record and playback content they already have paid for, 
much like a ``radio TiVo.'' At the just concluded International 
Consumer Electronics Show, both devices won awards for their innovation 
and consumer friendliness. Configured to meet the terms of the Audio 
Home Recording Act, the only outputs from the Sirius and XM devices are 
headphone jacks for listening. They do not permit songs or talk radio 
to be moved to another device in digital form, and thus block the very 
kind of P2P file sharing that the RIAA has fought in its program of 
lawsuits against individuals. And yet the music industry apparently 
wants to keep these award-winning listening devices out of the hands of 
consumers.
    The drive for legislation to constrain digital audio devices seems 
aimed at killing innovative new products, even though the music that 
these subscribers would record is music they have lawfully received via 
satellite and for which they have paid a fee, a portion of which goes 
to the very same record companies that want to kill these products. In 
addition, the manufacturers of these devices will make the royalty 
payments established by Congress in the Audio Home Recording Act to 
compensate for these recordings and will prevent serial copying as 
required by Congress under the AHRA. In short, even though the record 
companies already receive millions of dollars annually in royalty 
payments for the satellite radio transmissions and millions more for 
the recordings under the AHRA, the RIAA appears to be looking for 
double protection and triple compensation.
To be Analogous to the FCC's Prior Action, any ``Flag'' Proposal Would 
        be Aimed Solely at Mass, Indiscriminate Redistribution Over the 
        Internet by Means of a Known, Industry Standard Flag Technology 
        That Does not Hamper Interoperability Within the Home.
    A draft of combined ``flag'' legislation that was circulated late 
last week, but has not been introduced, would purport to establish an 
``audio flag'' modeled substantively and, to the extent possible 
procedurally, on the ``video'' flag. But this draft appears also to 
specifically invite impositions against in-home consumer recording, as 
well as explicit constraints on the in-home utility and 
interoperability of lawful consumer products. In our view this is not a 
``flag'' approach aimed, like the original, solely at mass, 
indiscriminate redistribution of content over the Internet to anonymous 
entities who have not lawfully acquired it.
    The ``video'' flag (1) referred to a known technical standard, 
already adopted by the Advanced Television Systems Committee (ATSC), a 
multi-industry standards-setting organization, (2) was limited in its 
purpose, in standards and later contexts, to addressing anonymous 
redistribution outside the home, and (3) underwent a massive and 
entirely voluntary vetting in the Copy Protection Technical Working 
Group (CPTWG). The proposal in the ``audio flag'' portion of the draft 
bill is none of these things. In fact, the RIAA has never approached 
any standards-setting organization with any ``flag'' proposal, nor, for 
the last 7 or 8 years, has RIAA shown up in the CPTWG at all.
    To date, no technical specifications have been developed to define 
an audio flag and there has been no effort by the RIAA to achieve 
consensus through any voluntary process. As a result, we now see that 
at least one legislative proposal would bring back the widely 
criticized procedure at the heart of S. 2048, introduced in the 107th 
Congress. \8\ That bill would have required every digital device of any 
kind to recognize a ``flag'' in the information it receives, and 
restrict copying. It would have given the force of law to a 
``consensus'' proposal from the entertainment and electronics 
industries. If the entertainment industry withheld its ``consensus,'' 
the bill authorized the FCC to mandate the anti-copying technology that 
all products must use.
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    \8\ See generally, http://www.wired.com/news/politics/
0,1283,51275,00.html.
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    Neither the consumer electronics industry nor the information 
technology industry has ever been willing to accept the idea of a 
technical mandate under such circumstances. All of the criticisms 
leveled at S. 2048 in the 107th Congress, from all quarters, should 
apply to any such approach, and we would oppose any legislation that 
proceeds on such a basis.
The Video ``Broadcast Flag''
    The proposals for a video ``broadcast flag'' emerged from two 
forums in which CEA, the HRRC, and various members have been very 
active--the ATSC, and the Copy Protection Technical Work Group. In ATSC 
committees, members of the content community for years pushed for a 
``descriptor'' for the purportedly limited purpose of marking content, 
for possible control over mass Internet transmission. Members of the 
consumer electronics industry were greatly concerned that such a 
``flag'' might be abused or used for other purposes, resulting in 
unwarranted control over consumer devices inside the home--something 
that had never been imposed on free, over-the-air commercial 
broadcasting. In response to these concerns, the content and 
broadcasting representatives agreed to clarify that the flag was meant 
to govern not transmission, but retransmission, outside the home.
    Our members led in forming a broadcast flag work group at the 
CPTWG, and in drafting a final report. While the concept of a passive 
``flag'' proved simple enough, the digital means of securing content, 
in response to such a flag, and the potential effect on consumers and 
their devices, proved controversial and contentious. The pros and cons 
finally were sorted out in the FCC Report & Order, which specified that 
the flag was meant solely to address ``mass, indiscriminate 
redistribution'' of content over the Internet. This is the Order that 
the Court of Appeals nullified on jurisdictional grounds. We understand 
that the sole purpose of any video broadcast flag legislation would be, 
or at least ought to be, to reinstate the FCC's authority to pursue the 
same course. \9\
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    \9\ Just as there have been superficial and misleading attempts to 
link the ``broadcast flag'' with a purported ``audio flag,'' we suspect 
that confusion may arise as to another commonly discussed issue, the 
``Analog Hole.'' As in the case of a purported ``audio flag,'' there is 
one overriding fundamental difference: The proposals we have seen to 
address the ``analog hole'' would restrict home copying, not just 
Internet retransmission. In a House hearing last year we expressed 
detailed concerns over drafts of such legislation.
---------------------------------------------------------------------------
    While our members have a variety of views on the FCC action, CEA 
and HRRC have a couple of very clear concerns:

   First, legislative language circulated and attributed to the 
        Motion Picture Association of America and its members would go 
        well beyond the FCC's ``mass, indiscriminate redistribution'' 
        standard, and could be interpreted as constraining distribution 
        on networks inside the home.

   Second, the flag regulations were invalidated before they 
        ever took effect. Accordingly, it should be clearly understood 
        that, if new legislation is enacted, manufacturers must be 
        given a commercially reasonable period of time to manufacture 
        and include the necessary circuitry in their devices.

   Third, we have been disappointed to see the ``ATSC 
        Descriptor'' show up in a number of standards proceedings, 
        proposed by the content industry for uses that go well beyond 
        those originally described to the ATSC.

    If the Congress is going to provide more protection to the media 
industry, it should, simultaneously, safeguard the rights of consumers 
to enjoy the copyright works that they lawfully acquire. Our testimony 
to the other body said that, should the Congress move forward with 
broadcast flag legislation, the text of H.R. 1201, the Digital Media 
Consumers Rights Act (Boucher-Doolittle-Barton) should be part of the 
package, and we commend this view to your Committee as well.
Constraining Lawful Devices Chills Innovation
    While we have voiced many specific concerns today about what some 
of this legislation would do to consumers and to the use and viability 
of legitimate consumer products, we must not ignore the overarching 
issue of technological progress and U.S. competitiveness. While other 
countries are busy developing their technology industries in order to 
compete more efficiently with the United States, we face proposals from 
the content community to suppress technological development on 
arbitrary or insufficient bases. This is a trend that ought not to be 
encouraged.
    Again, thank you, Mr. Chairman, for the opportunity to appear 
before the Commerce Committee to address these important issues. We 
appreciate being asked to be here, and look forward to working with you 
and your staff as you examine the important issues that have been 
raised for discussion today.

    The Chairman. Our next witness is Dan Halyburton, Senior 
Vice President and General Manager of Group Operations, 
Susquehanna Radio, in Dallas, Texas.
    Thank you, Mr. Halyburton.

  STATEMENT OF DAN HALYBURTON, SENIOR VICE PRESIDENT/GENERAL 
   MANAGER, GROUP OPERATIONS, SUSQUEHANNA RADIO CORPORATION; 
   CHAIRMAN, AUDIO FLAG TASK FORCE, NATIONAL ASSOCIATION OF 
                       BROADCASTERS (NAB)

    Mr. Halyburton. Thank you, Chairman Stevens, Co-Chairman 
Inouye, and Members of the Committee. I'm Dan Halyburton, the 
VP/GM for Susquehanna Radio's group operations. Our company 
owns 33 broadcast radio stations.
    I'm testifying today on behalf of the National Association 
of Broadcasters. The NAB is a trade association that advocates 
on behalf of more than 8,300 free local radio and television 
stations, and also broadcast networks, before Congress, the 
FCC, and the courts. I chair the NAB's recently formed Audio 
Broadcast Flag Task Force.
    Local broadcasters support legislative efforts to 
immediately codify the broadcast flag for video. We believe, 
however, that copy protections on the audio side merit further 
discussion.
    While I'm not an engineer, I'm a broadcaster who's been 
engaged in radio technology issues for a number of years. Our 
industry has commenced a massive rollout of digital broadcast 
transmissions, and increasingly affordable digital radio 
receivers are being put on the market and integrated into cars. 
Currently, 624 AM and FM digital stations are on the air, and 
that's triple from a year ago.
    Individually, broadcasters have committed to upgrading more 
than 2,000 digital HD radio technology stations, and major 
radio companies are engaged in a massive marketing campaign to 
promote digital radio to consumers. HD radio will provide 
innovative new services to listeners. HD's multicasting will 
offer listeners new, unique formats and greater programming 
variety.
    Just last week, several major radio companies announced the 
launch of new HD formats in 28 markets across the U.S. and more 
are coming. In digital, the listening experience for AM and FM 
is vastly improved. And HD will also enable enhanced data 
capabilities. All of these services will amplify radio's 
traditional strength: service to the local community. In short, 
the transition to HD radio is hitting on all cylinders.
    With that progress as a backdrop, let me comment on the 
audio broadcast flag.
    As a starting point, we should note that peer-to-peer file-
sharing and unauthorized distribution of music on the Internet 
all present larger and more immediate threats to copyright 
holders than does HD radio. Our over-the-air product, with DJ 
introductions, commercials, public-service elements, are unique 
to radio's local presentation. And, accordingly, we're simply 
not a good source for music piracy. That said, broadcasters, 
radio as well as television, are content producers, and we 
oppose piracy in all forms.
    The NAB has reached out to the recording industry to foster 
dialogue on the audio flag, and we were heartened in our most 
recent correspondence between our organizations. Mr. Bainwol 
wrote that ``encryption at the source is not a viable option.'' 
And we agree. No proposal should be allowed to derail the HD 
radio rollout by making obsolete thousands of receivers already 
on the market, as well as millions more in the manufacturing 
pipeline. Other proposals that would restrict listeners' 
ability to record free over-the-air broadcasts for personal use 
are problematic.
    These proposals differed in very important ways from the 
DTV broadcast flag. The TV flag does not involve copy 
restrictions, but only precludes indiscriminate redistribution 
of programming on the Internet. And the DTV flag would not 
scrap the existing DTV tuners in the market. Thus, the NAB 
enthusiastically supports legislation that would empower the 
FCC to implement the agreed-upon DTV broadcast flag.
    On that note, I've submitted, for the record, testimony 
from NAB board member Preston Padden, of ABC/Disney.
    [The information referred to follows:]

  Prepared Statement of Preston R. Padden, Executive Vice President, 
   Worldwide Government Relations, The Walt Disney Company; Member, 
               National Association of Broadcasters (NAB)
    My name is Preston Padden. I am Executive Vice President of The 
Walt Disney Company, which owns ten major market television stations, 
and I appear here today as a witness for the National Association of 
Broadcasters. The bottom line on the issue of the television Broadcast 
Flag is very easy to state. If digital cable and satellite 
transmissions are protected against unauthorized redistribution over 
the Internet, but digital broadcast transmissions are not, then the 
owners of high value content will quite reasonably choose to exhibit 
their programs on cable and satellite distribution platforms rather 
than through free over-the-air broadcasting. The ultimate victims would 
be the American viewers who rely on broadcast television for their 
entertainment and information. These millions of Americans would lose 
access to the highest value entertainment and information, and we 
simply cannot allow that to happen.
    The media business is in the midst of a compelling transformation 
from analog to digital. The new digital technology will create wondrous 
new opportunities for consumers and for those who produce and 
distribute entertainment and information content. However, piracy in 
the digital world is a much greater threat than existed in the analog 
world. In analog, each successive copy of a movie or television show 
degrades in quality. And, analog copies had to be physically 
transmitted to others by sending videotapes through the mail. The 
digital world is much different. Each digital copy is a pristine 
perfect replication of the original. Even more troubling is the 
capacity of the Internet to serve as a vehicle for instantaneous 
worldwide electronic transmission of these pristine prefect copies.
    The threat to television broadcasters is very real. Every day, 
millions of people use so-called peer-to-peer ``file-sharing'' networks 
illegally to download copyrighted works without permission from or 
payment to the copyright owners. Television shows are among the most 
popular files being downloaded on these networks, and the threat is 
only increasing. Take for example just one software application 
(Cybersky-TV), which is being promoted by its creators as providing 
``Global free television'' and allowing users to ``Share television 
channels in real time, peer-to-peer.'' See http://cybersky-TV. 
According to the Cybersky-TV website, a copy of which is attached to 
this testimony, this application allows users to stream live broadcast 
television with a 5 to 10-second delay (essentially ``real-time'') to 
an unlimited number of users anywhere in the world, thereby destroying 
the territorial exclusivity that is bargained for by broadcasters and 
that forms the backbone of the free-over-the-air broadcasting industry 
in this country.
    Recognizing the heightened threat of digital piracy, the major 
motion picture studios and the leading technology and consumers 
electronics companies negotiated through the 1990s to agree on 
technology to prevent unauthorized Internet transmission of digital 
video content. For a very long time the participants in the negotiation 
believed that the new anti-piracy technology would function only for 
encrypted cable and satellite digital transmissions. It was believed in 
good faith by all of the participants in this negotiation that free 
over-the-air digital broadcast content could not be protected against 
unauthorized Internet redistribution. The participants believed in good 
faith that the encryption of the cable and satellite transmission was a 
necessary prerequisite to preventing unauthorized Internet 
redistribution.
    On March 2, 2001, twelve members of the House and Senate sent a 
letter to the Chairman of the FCC, urging that digital broadcast 
signals be included in the new technological regime for preventing 
Internet redistribution. A copy of that letter is attached to this 
testimony. I would like to read just two sentences:

        ``Millions of American households, particularly those that 
        cannot afford subscription-based services like cable and 
        satellite, continue to rely on free, over-the-air television 
        for their entertainment and news information. If program 
        producers cannot be assured that programming licensed to 
        broadcast television is protected as securely as programming 
        licensed to cable and other subscription-based channels, these 
        producers will inevitably move their programming over to such 
        channels where protections are clearly stronger.''

    Simply stated, the message from these Congressional leaders was 
clear--don't leave free broadcasting and its viewers out of the new 
world of digital content protection.
    For quite some time the content, technology and CE companies 
wrestled with the technology challenge of trying to include 
broadcasting. Most participants continued to believe in good faith that 
there simply was no way to bring free broadcast programming within the 
framework of new content protection technologies. And then, Andrew 
Setos of FOX came up with the idea of the Broadcast Flag--a simple, 
single bit electronic indicator that the broadcast content should be 
protected against unauthorized Internet distribution. Miraculously, 
leading content, IT and CE companies, who normally can agree on almost 
nothing, came together and found common ground on the details to 
implement Mr. Setos's vision. The FCC conducted an open process to 
consider the Broadcast Flag recommendation.
    Ultimately the Commission adopted its Broadcast Flag rules with an 
ongoing process of technical certification to make sure that innovation 
could continue to move forward.
    The FCC's adoption of the Broadcast Flag was directly and 
specifically responsive to the March 2001 letter from Congressional 
leaders. It is critical to emphasize that the Broadcast Flag adopted by 
the FCC could not be used to prevent home copying by consumers. The 
only effect of the Broadcast Flag regulation is to control unauthorized 
Internet redistribution of digital broadcast content and thereby assure 
that broadcast viewers are not relegated to the status of second class 
citizens. The Broadcast Flag is also not a case of the government 
mandating technology. While manufacturers benefit from having a single 
standard used by broadcasters for signaling protection, the FCC's 
Broadcast Flag rule adopted a market-based certification process for 
implementing technologies. That certification process ensures that 
manufacturers in the IT and CE sectors are free to innovate new and 
better ways to deliver and manage content, consistent with a baseline 
set of compliance and robustness standards. The goal was to allow for 
as many different technologies as the market could support. In the end, 
every one of the 13 technologies that sought Broadcast Flag compliance 
certification received it, including one technology whose certification 
was opposed by the motion picture industry on grounds that it failed 
adequately to limit unauthorized distribution of digital television 
content.
    Unfortunately, the FCC's Broadcast Flag regulation was challenged 
and struck down by the D.C. Circuit, not because it was a bad idea or 
had untoward consequences, but rather because the court found that the 
FCC lacked the statutory authority to adopt the Flag. It is more than 
ironic that a regulation adopted directly in response to Congressional 
input was struck down on the grounds that Congress had not specifically 
authorized its adoption. There is a critical need for Congress to 
immediately pass legislation providing the FCC with authority to adopt 
the Broadcast Flag regulation. The enactment of such legislation is 
supported by a broad range of broadcasting, content and consumer 
electronics companies including the following:

        ABC Television Affiliates Association
        The ABC Television Network
        Association for Maximum Service Television Stations, Inc.
        CBS Television Network Affiliates Association
        CBS Television Network
        Fox Broadcasting Company
        Fox Television Affiliates Association
        Ladies Professional Golf Association (LPGA)
        LG Electronics
        Major League Baseball
        Motion Picture Association of America
        National Association for Stock Car Racing Association, Inc. 
        (NASCAR)
        National Association of Broadcasters
        National Basketball League
        National Collegiate Athletic Association
        National Football League
        National Hockey league
        NBC Television Affiliates Association
        NBC Universal, Inc.
        Philips Electronics North America Corporation
        PGA Tour
        Thomson Inc.
        UPN
        Women's National Basketball League

    America's television broadcasters have been an important lifeline 
for news, information and entertainment to millions of Americans. For 
that tradition to continue, it is imperative that broadcasting be 
included in the new digital technology framework to prevent 
unauthorized Internet redistribution of content.
    The number of major Sports leagues supporting the Flag is a clear 
indicator of the importance of the Flag to the future of sports on free 
broadcast TV. The same is true for all high value content. Consider for 
a moment a television program like ``Lost,'' which airs on ABC. It is 
also available for download through iTunes the day after it airs on 
ABC, and each season is available in its entirety on DVD. ABC would 
like to continue to air programs like ``Lost.'' The public has an 
interest in having access to such programs via free over-the-air 
television. It is our hope and intention to sell and license this film 
to future generations of viewers and to future generations of 
exhibition platforms. If ``Lost'' is licensed for exhibition on cable 
and satellite networks, it can be protected against unauthorized 
Internet redistribution, and the future marketing potential of this 
program via other channels, like iTunes or DVD sets, the film would be 
preserved. By contrast, in the absence of the Broadcast Flag, episodes 
of ``Lost'' are left wholly unprotected when distributed through 
digital broadcast exhibition, making possible the Internet 
retransmission of perfect, high-definition copies to millions and 
millions of consumers worldwide, seriously eroding the market for 
future sales and licensing.
    The same concern arises with respect to access to major motion 
pictures for free-to-air broadcast. If a studio is faced with the 
choice of licensing an incredibly valuable motion picture--say, for 
example, ``The Chronicles of Narnia: The Lion, the Witch and the 
Wardrobe''--for exhibition in high definition digital format via cable 
or satellite, where it will be protected, or unencrypted high 
definition digital broadcast television, where it will not be, it is 
not hard to see how broadcasters will be at a serious disadvantage in 
the race to acquire sought after content.
    As with any legislation, there are some who have criticized the 
proposal to grant the FCC the authority to reinstate its Broadcast Flag 
rule. Some, including some who appear before you today, would like to 
see certain aspects of the FCC's rule modified, whether it be to 
prohibit the use of the broadcast flag for certain types of content, to 
exempt certain kinds of users from the rule, or to modify the 
procedures for certification of compliant recording and output 
technologies. Let me say just a few words about these concerns you have 
heard expressed.
    First, each and every one of the concerns you have heard was raised 
at the FCC and considered in the course of the Broadcast Flag 
proceeding. That proceeding was a long and a difficult one in which all 
of these concerns were carefully weighed and a complex balancing of 
interests was performed. No one got everything they wanted, and nearly 
all participants had reason to be both pleased and disappointed with 
the result. But, at the end of the day, the result was fair and was one 
that promised meaningful protection in a way that sought to accommodate 
the concerns of all involved.
    Broadcasters, like everyone else, have a list of things we could 
ask Congress to change in the FCC rule. But ultimately that would not 
serve the public interest in promoting the long-term viability of free 
over-the-air television. Such an exercise would inevitably lead to 
delay and perhaps inaction. What we are asking is simply that Congress 
step in to restore the status quo ante. All the reconsiderations filed 
before the FCC will be preserved and can go forward. But the important 
thing is that we put the Broadcast Flag back on track and let the FCC 
consider those issues rather than creating a legacy of devices that 
fail to protect broadcast content while Congress debates more detailed 
and controversial legislation.
    Second, it needs to be made clear that what we are talking about 
here is nothing more than ensuring that broadcasters are able to take 
advantage of the very same protections as are available today to cable 
and satellite operators. The broadcast flag rule would not allow 
broadcasters to limit redistribution of their programming in any way 
that cable and satellite operators are not able to do today with 
existing technology and under existing FCC rules. To the extent 
proposals are being made to prohibit the use of the flag in certain 
circumstances or to provide exemptions in others, it must be recalled 
that doing so only creates a disparity between broadcast and cable/
satellite distribution of the sort the Broadcast Flag is meant to 
eliminate.
    Finally, you will hear from some a concern that they will be 
impeded by the Broadcast Flag in their ability to make certain uses of 
broadcast television. We do not believe the Broadcast Flag actually 
prevents any of the uses we have heard described. To the extent the 
Broadcast Flag causes any inconvenience in making some of those uses, 
we must weigh those inconveniences with the value derived from 
protecting free over-the-air broadcasting by providing a level playing 
field with cable and satellite. We submit that such an interest is a 
compelling one.
    On behalf of ABC and the National Association of Broadcasters, I 
urge you to please not leave broadcasting behind. Please don't relegate 
broadcast viewers to second class status. Please enact legislation to 
affirm the FCC's authority to adopt the Broadcast Flag regulations.

    While Congress should grant the FCC authority to implement 
the broadcast flag for video, there should be additional 
reflection and inter-industry dialogue regarding content 
protections for HD radio.
    Senator Smith has circulated the draft legislation aimed at 
promoting an industry-wide solution for the audio flag, and we 
think it's a step in the right direction. As evidenced by the 
progress made on the video flag, we believe that, in this 
context, legislation that promotes marketplace solutions and 
inter-industry agreements will produce the most positive 
result.
    We look forward to working with the RIAA, the other 
interested parties, and this Committee. And thank you for your 
time today.
    [The prepared statement of Mr. Halyburton follows:]

  Prepared Statement of Dan Halyburton, Senior Vice President/General 
  Manager, Group Operations, Susquehanna Radio Corporation; Chairman, 
   Audio Flag Task Force, National Association of Broadcasters (NAB)
    Chairman Stevens, Co-Chairman Inouye, and Members of the Committee. 
My name is Dan Halyburton. I am the Senior Vice President and General 
Manager for Group Operations for Susquehanna Radio Corp., which owns 33 
broadcast radio stations. I am also Chairman of NAB's Audio Flag Task 
Force. I am testifying today on behalf of the National Association of 
Broadcasters.
    At the outset, NAB wants to make clear that it opposes piracy in 
all shapes and forms. Broadcasters are, themselves, content owners and 
support efforts to protect both content owners and their signals from 
piracy and to prosecute violators. NAB, however, has concerns about 
current proposals with regard to copy protection for new digital audio 
broadcasts and receivers, in contrast to NAB's support for the digital 
television (DTV) broadcast flag. Specifically, NAB is concerned that 
any attempt to add anti-copying measures at this point should not stall 
the digital radio transition that promises to provide benefits to the 
public, broadcasters, music composers and publishers, and the recording 
industry alike, without solving the unauthorized copying problems 
raised by the recording industry.
    Radio in America is today at the beginning of a massive roll-out of 
digital broadcast transmissions and all-new digital radio receivers. 
Currently, 624 digital AM and FM stations are on the air--triple that 
of a year ago. New digital radio receivers have been launched in the 
marketplace across a range of product categories. The ability to 
broadcast multiple program streams has been demonstrated, and 
broadcasters are fast embracing this option to bring additional content 
to the listening public within stations' current spectrum. Major radio 
groups are engaged in a massive marketing campaign to promote digital 
radio to consumers. The U.S.-developed digital radio technology, that 
of iBiquity Digital, is now being tested in many countries around the 
world. And auto makers and after-market manufacturers are beginning to 
produce digital radio products for car sound systems. 2005 was an 
important year for the digital radio roll-out. 2006 promises to be even 
more important, with auto makers signing up for factory-installed 
radios and retail outlets prominently featuring many new digital radio 
products. Broadcasters have individually committed to upgrade more than 
2,000 stations to HD Radio technology. It is thus of paramount 
importance that any copy protection mechanism for digital radio must 
not impede the digital radio roll-out.
    NAB is greatly concerned that developing and implementing a 
technical system to provide copy protection for digital radio not have 
a negative impact on the digital radio transition. The DTV broadcast 
flag mechanism, for example, was developed over many years of intense 
negotiations by scores of participants from a wide array of industry 
sectors. The purpose, concept and methodology of the DTV flag were then 
the subject of voluminous comments and reply comments from affected 
industry and consumer groups, companies and organizations. The FCC 
scrutinized these comments, heard in-person presentations from many 
interested parties and concluded that the purpose of preventing 
widespread indiscriminate re-distribution of digital video content over 
the Internet was worthy and that the methodology was sound and 
workable.
    NAB has expressed its willingness to participate in developing and 
forging a consensus on a digital radio copy protection system so long 
as it would not interrupt the digital roll-out or create uncertainty 
that would lead to a slow down of adoption rates by manufacturers, 
consumers and even broadcasters. NAB does not believe that legislation 
is necessary at this time. The immediacy, reality, or scope of any 
threat to the recording industry from a scenario in which consumers 
make good quality recordings from digital broadcasts on their local 
radio stations remains to be demonstrated. Those desiring to obtain and 
listen to pure, uninterrupted performances of sound recordings in lieu 
of the radio, already have an abundant number of means to do so. 
Satellite and cable digital subscription services, hundreds of 
thousands of unencrypted compact discs, peer to peer file sharing, and 
hours of uninterrupted music that can be stored on recordable CDs and 
hard drives, are but a few such means. We see no incentive for 
consumers to seek out random digital audio broadcast (DAB) signals that 
may contain DJ patter over the recordings in order to create files to 
make copies of or distribute sound recordings.
    In addition, in any discussion of the extent to which copy 
protection should be accorded to digital audio recordings or 
transmissions, all parties must take into account Congress' long-
standing policy of protecting and preserving the public's right to make 
home recordings of sound recordings for personal use. The House Report 
accompanying the Sound Recording Act of 1971 stated:

        In approving the creation of a limited copyright in sound 
        recordings it is the intention of the Committee that this 
        limited copyright not grant any broader rights than are 
        accorded to other copyright proprietors under the existing 
        title 17. Specifically, it is not the intention of the 
        Committee to restrain the home recording, from broadcasts or 
        from tapes or records, of recorded performances, where the home 
        recording is for private use and with no purpose of reproducing 
        or otherwise capitalizing commercially on it. This practice is 
        common and unrestrained today, and the record producers and 
        performers would be in no different position from that of the 
        owners of copyright in recorded musical compositions over the 
        past 20 years. \1\

    \1\ H. Rept. 92-487, 92d Congress, 1st Sess. at 7 (Sept. 22, 1971) 
(emphasis added).
---------------------------------------------------------------------------
    Since that Act, Congress has expanded the sound recording right 
only sparingly, in careful response to specific and well-documented 
threats, all the while reiterating the importance of preserving the 
public's right to make home copies for personal use.
    In the Audio Home Recording Act of 1992 (``AHRA''), Congress 
definitively addressed the issue of home recording of sound recordings 
and musical works. This Act was intended to be comprehensive, forward-
looking legislation designed to end, once and for all, the 
``longstanding controversy'' surrounding the home recording of 
prerecorded music. \2\ Indeed, then-President of the Recording Industry 
Association of America (RIAA), Jay Berman, described the bill that 
became the AHRA as ``a generic solution that applies across the board 
to all forms of digital audio recording technology.'' \3\
---------------------------------------------------------------------------
    \2\ See S. Rep. No. 102-294, 102d Cong., 2d Sess. 30, 51 (June 9, 
1992).
    \3\ Hearing Before the Senate Subcommittee on Communications, S. 
Hrg. 102-908, Serial No. J-102-43, at 111 (Oct. 29, 1991) (statement of 
Jason Berman, President of RIAA) (emphasis added).
---------------------------------------------------------------------------
    The Senate Report that accompanied the AHRA opens its discussion of 
the bill with the assertion that ``[t]he purpose of S.1623 is to ensure 
the right of consumers to make analog or digital audio recordings of 
copyrighted music for their private noncommercial use.'' \4\ To this 
end, the provision of the AHRA providing the exemption for home 
copying, section 1008, was considered ``one of the cornerstones of the 
bill'' because it ``removes the legal cloud over home copying of 
prerecorded music in the most proconsumer way possible: It gives 
consumers a complete exemption for noncommercial home copying of both 
digital and analog music, even though the royalty obligations under the 
bill apply only to digitally formatted music.'' \5\ The Ninth Circuit 
confirmed this conclusion in Recording Industry Association of America  
v. Diamond Multimedia Systems, Inc. \6\
---------------------------------------------------------------------------
    \4\ S. Rep. No. 102-294, at 51.
    \5\ 138 Cong. Rec. H9029, H9033 (daily ed., Sept. 22, 1992) 
(statement of Rep. Hughes) (emphasis added).
    \6\ 180 F.3d 1072 (9th Cir. 1999).
---------------------------------------------------------------------------
Current Proposals for Audio Copy Protection Are Problematic
    One of the proposed solutions RIAA has advocated in the past for 
its copy protection concerns is to mandate that all radio broadcasters 
encrypt their digital content at the source. NAB strongly opposes this 
approach. Such a mandate would be antithetical to the concept of free, 
over-the-air broadcasting. No U.S. free, over-the-air broadcast 
service, analog or digital, has ever been required to encrypt its 
transmissions.
    Any encryption requirement would likely risk stalling the digital 
radio transition by requiring a change in the technical digital radio 
broadcasting standard of such magnitude that a year's delay and likely 
more would be inevitable. Resulting uncertainty in the marketplace and 
potential loss of confidence and interest in DAB by manufacturers now 
ready to roll out (DAB) receivers would harm broadcasters and threaten 
the public's receipt of digital radio. To date, there has been no 
investigation of what kind of encryption would be utilized, what copy 
control and re-distribution measures would be added (and acceptable to 
various stakeholders) and what features receivers can and cannot employ 
in terms of storage and replay.
    Required encryption of DAB transmissions, even at this early stage, 
would likely result in obsolescence of millions of units of DAB 
components currently in the production pipeline, including receivers, 
integrated circuits and installed component parts in automobiles, 
thereby increasing manufacturers' and auto makers' frustration with 
deployment of DAB products.
    Encryption and copyright protection considerations with regard to 
digital radio differ in important ways from the DTV broadcast flag. The 
DTV broadcast flag does not involve copy restrictions (as does RIAA's 
proposal for digital radio) but rather is designed to prevent only 
indiscriminate re-distribution of broadcast programming over the 
Internet. The DTV broadcast flag does not disable the existing base of 
``legacy'' receivers, which will simply not ``read'' the flag and its 
instructions on re-distribution. As noted, above encryption of DAB 
signals would obsolete receivers now in the field as well as receivers 
and component parts currently in the production pipeline. With the DTV 
flag, there was an acknowledged problem and a consensus solution 
developed by a broad cross-section of industry participants.
    As an alternative to encryption at the source, the RIAA has, in the 
past, proposed various recording function rules that would be imposed 
through mandatory audio protection flags. NAB opposes proposals that 
would severely restrict a listener's ability to make recordings of free 
over-the-air radio broadcasts, for example, by limiting ``pre-
programmed recordings'' to a minimum of 30 minutes duration, by 
prohibiting a listener's ability to subdivide a recorded segment after-
the-fact, and by allowing a listener to view the ID information for a 
particular recording (e.g., song title and artist) only while 
simultaneously listening to that recording. Digital radio receivers so 
restricted would present to consumers a stark contrast with the 
abilities of other devices, such as existing analog radios which 
incorporate recording features, or software applications that can be 
added to a computer.
    With regard to a proposed digital audio flag, RIAA has offered no 
clear definition of the problem that the flag is intended to solve, nor 
any indication of how the regime it proposes may solve that problem, 
particularly in light of the plethora of unencrypted digital copies of 
sound recordings available in the marketplace. Moreover, RIAA has 
provided no cost assessment to broadcasters for adoption of a mandatory 
audio protection flag.
The Committee Should Reject any Effort to Impose a Sound Recording 
        Performance Right in Digital Broadcasts
    NAB urges the Committee to recognize that granting a performance 
right will have no effect on the redistribution and copying issues 
raised here. Even in countries where a performance right in sound 
recording exists today, both for subscription and non-subscription 
transmissions, the right is almost universally subject to a statutory 
license. That license does not impose encryption obligations, bar 
encrypted digital outputs or analog outputs or even prohibit metadata-
based recording. Accordingly, even if there were a performance right in 
sound recordings, the sound recording industry would still be asking 
Congress for the imposition of additional copy protection. All that a 
new performance right would do is create a new revenue stream for the 
producers and performers of sound recordings at the expense of 
broadcasters for purported reasons having nothing to do with this 
hearing.
    Throughout the history of the debate over sound recording 
copyrights, Congress has consistently recognized that record companies 
reap huge promotional benefits from the exposure given their recordings 
by radio stations and that placing burdensome restrictions on 
performances could alter that relationship to the detriment of both 
industries. For that reason, in the 1920s and for five decades 
following, Congress regularly considered proposals to grant copyright 
rights in sound recordings but repeatedly rejected such proposals.
    When Congress did first afford limited copyright protection to 
sound recordings in 1971, it prohibited only unauthorized reproduction 
and distribution of records, but did not create a sound recording 
performance right. During the comprehensive revision of the Copyright 
Act in 1976, Congress again considered, and rejected, granting a sound 
recording performance right. As certain senators on the Judiciary 
Committee recognized in their (prevailing) minority views:

        For years, record companies have gratuitously provided records 
        to stations in hope of securing exposure by repeated play over 
        the air. The financial success of recording companies and 
        artists who contract with these companies is directly related 
        to the volume of record sales, which, in turn, depends in great 
        measure on the promotion efforts of broadcasters. \7\
---------------------------------------------------------------------------
    \7\ S. Rep. No. 93-983, at 225-26 (1974)(minority views of Messrs. 
Eastland, Ervin, Burdick, Hruska, Thurmond, and Gurney).
---------------------------------------------------------------------------
    Congress continued to refuse to provide any sound recording 
performance right for another twenty years. During that time, the 
record industry thrived, due in large measure to the promotional value 
of radio performances of their records.
    It was not until the Digital Performance Rights in Sound Recordings 
Act of 1995 (the ``DPRA'') that even a limited performance right in 
sound recordings was granted. In granting this limited right, Congress 
stated it: ``should do nothing to change or jeopardize the mutually 
beneficial economic relationship between the recording and traditional 
broadcasting industries.'' \8\ As explained in the Senate Report 
accompanying the DPRA, ``The underlying rationale for creation of this 
limited right is grounded in the way the market for prerecorded music 
has developed, and the potential impact on that market posed by 
subscriptions and interactive services--but not by broadcasting and 
related transmissions.'' \9\
---------------------------------------------------------------------------
    \8\ S. Rep. No. 104-129, at 15 (``1995 Senate Report''); accord, 
id. at 13 (Congress sought to ensure that extensions of copyright 
protection in favor of the recording industry did not ``upset[] the 
long-standing business relationships among record producers and 
performers, music composers and publishers and broadcasters that have 
served all of these industries well for decades.'').
    \9\ Id. at 17.
---------------------------------------------------------------------------
    Consistent with Congress' intent, the DPRA expressly exempted from 
sound recording performance right liability non-subscription, non-
interactive transmissions, including ``non-subscription broadcast 
transmission[s]''--transmission[s] made by FCC licensed radio 
broadcasters. \10\ Congress made clear that the purpose of this 
broadcast exemption was to preserve the historical, mutually beneficial 
relationship between record companies and radio stations:

    \10\ 17 U.S.C. Sec. 114(d)(1)(A). All statutory citations are to 
the Copyright Act, Title 17 of the United States Code, unless otherwise 
noted.
---------------------------------------------------------------------------
        The Committee, in reviewing the record before it and the goals 
        of this legislation, recognizes that the sale of many sound 
        recordings and careers of many performers have benefited 
        considerably from airplay and other promotional activities 
        provided by both noncommercial and advertiser-supported, free 
        over-the-air broadcasting. The Committee also recognizes that 
        the radio industry has grown and prospered with the 
        availability and use of prerecorded music. This legislation 
        should do nothing to change or jeopardize the mutually 
        beneficial economic relationship between the recording and 
        traditional broadcasting industries. \11\

    \11\ 1995 Senate Report, at 15.
---------------------------------------------------------------------------
    The Senate Report confirmed that ``[i]t is the Committee's intent 
to provide copyright holders of sound recordings with the ability to 
control the distribution of their product by digital transmissions, 
without hampering the arrival of new technologies, and without imposing 
new and unreasonable burdens on radio and television broadcasters, 
which often promote, and appear to pose no threat to, the distribution 
of sound recordings.'' \12\
---------------------------------------------------------------------------
    \12\ Id.
---------------------------------------------------------------------------
    This discussion is not intended to minimize whatever legitimate 
concerns the recording industry may have concerning the need for copy 
protection. Rather, it is intended to assist the Committee in 
understanding why a performance right for sound recordings is totally 
irrelevant to those concerns.
Conclusion
    NAB believes there is no need for legislation at this time. Rather, 
the parties should have the opportunity to explore options and attempt 
to come to consensus. It is of utmost importance not to disrupt the 
digital radio roll-out currently underway. NAB remains willing to 
discuss developments and mechanisms to afford some agreed-on protection 
for content owners that will not threaten the digital radio transition 
that has been so long in coming to America's radio listening public and 
America's broadcasters.
    Thank you for this opportunity to share our views.

    The Chairman. Well, thank you very much. I'd like to get to 
that first part of what we're talking about, in terms of the 
ability of the individual to download from the radio or from 
CDs. I've got to tell you, you know, I, for years, had my CDs 
in a little package. I carried it with me on the airplane, 
listening to CDs that represented songs I've liked for 8 
decades. All right? My daughters gave me an iPod, and they 
downloaded all of those. It took a lot of time to do that.
    You're--Mr. Bainwol, you're not talking about that, are 
you?
    Mr. Bainwol. No. We think that's great. The iPod is a 
phenomenal device, and if you move your own CDs onto the iPod, 
that's great. If you buy songs from iTunes individually, put 
them on the iPod, that's great, too. We're talking about 
something entirely different. We're talking about being able to 
replicate a purchase and not make a payment.
    The Chairman. OK. Now, then we come to Mr. Shapiro. You 
have some problems with that statement, as I understand it. You 
contradict him, sort of.
    Mr. Shapiro. Actually--of course.
    [Laughter.]
    Mr. Shapiro. We're talking about three services here, to 
conceptualize them. There are two national radio services--XM 
and Sirius--and they are paying royalties to Mr. Bainwol's 
people, and, plus, the manufacturers of devices, which do what 
Mr. Bainwol was talking about, are paying royalties to Mr. 
Bainwol's people. And, plus, those devices are already 
restricted by acts of Congress as to what they can do. So, 
there's two royalties and a restriction already that the 
copyrighter owners get. They're asking for a fourth total 
restriction now.
    There's also a local radio service, which is what the NAB 
is talking about. It's called HD radio, and it allows the local 
radio broadcaster to send out a digital signal. It's just 
started. It's taken--probably a dozen years in the making, 7 
years with the FCC. The RIAA was not present in any of those 
proceedings til just very recently. We've gone along, we've 
created a standard, the radios are being sold, and now the RIAA 
is talking about stopping them from recording to those devices.
    At the same time, Congress has considered, over and over 
again, whether you should have the right to record off of 
radio. And, every time, Congress has said, ``You should be able 
to record off of radio.'' And that's what these devices do, 
they allow you to record off of radio for product that you 
legitimately got. They don't allow you to send it over the 
Internet. What Mr. Bainwol is talking about is stopping private 
home recording, fair use of radio. That's what he's talking 
about.
    The Chairman. Is that right, Mr. Bainwol?
    Mr. Bainwol. No. And, you know, Gary's charming and 
compelling, but often very misleading. The----
    [Laughter.]
    Mr. Bainwol. It's a dangerous combination. When we were 
going through our issue with Grokster, Gary instructed us that 
we should just get over it, that P2P was part of life, that it 
was fair use. The court disagreed with him, nine-zero. He's got 
a fairly fringe perspective here when it comes to what he calls 
``recording rights.'' And he's applying that fringe perspective 
in this debate. And I want to clarify a number of things he 
said.
    First of all, fair use is not the right to take something 
and redistribute it, and it's not the right to replicate a 
purchase and steal a song. Fair use is the right to enjoy the 
product that you buy. So, if you buy a CD, you can put it on 
your iPod. We are the most permissive rights-holders of any of 
the content players.
    The Chairman. Don't stretch it out too long. I want to know 
do you disagree with what he said?
    Mr. Bainwol. Well, the----
    The Chairman. Are you----
    Mr. Bainwol.--the key thing----
    The Chairman. Are you----
    Mr. Bainwol.--in terms of recording, we don't want to do 
anything that's different than current consumer expectations. 
But if----
    The Chairman. But if I----
    Mr. Bainwol.--went to----
    The Chairman.--if I take something off one of these new 
radio stations----
    Mr. Bainwol. Right.
    The Chairman.--like Mr. Halyburton's got, and use it, and 
just use it in my own home, my own iPod, are you trying to 
restrict that?
    Mr. Bainwol. What we're trying to do is this. If you listen 
to the radio and manually record, as you can right now, and get 
it in that fashion, that's fine. If you want to timeshift a 
block of programming, that, too, is fine. But if you want to go 
in and program the device to automatically say, ``I want that 
Bruce Springsteen tune, and I'm going to automatically do that 
without listening to the programming when it's live,'' that's 
different than what--than a--the traditional taping off the 
radio.
    If that's your objective, that's exactly what you do when 
you go to iTunes when you make a purchase. You're saying, ``I 
want Bruce Springsteen's Born to Run. Give it to me now.'' You 
put it in your library, you cherrypicked it. That's not right. 
That emasculates the download model.
    Let me give you a consumer quote.
    The Chairman. I've got just limited time, and we've got to 
get through this----
    Senator Sununu. Mr. Chairman, can I ask a very specific 
question here that speaks directly to your point?
    The Chairman. Yes.
    Senator Sununu. Mr. Bainwol, if I'm listening to XM radio--
--
    Mr. Bainwol. Right.
    Senator Sununu.--and they play three songs in succession, 
and I record all three songs, what you are saying is, I can 
listen to all three of those songs in the order that they were 
played by XM, but what you object to is me listening to those 
songs one at a time over a span of, say, 3 hours. Is that 
correct?
    Mr. Bainwol. Here's what I'm saying. I'm saying that you 
can--as you're----
    Senator Sununu. That's a very clear question.
    Mr. Bainwol. Well----
    Senator Sununu. If I have recorded--it's a simple----
    Mr. Bainwol. Are you----
    Senator Sununu.--very simple----
    Mr. Bainwol. Are you----
    Senator Sununu.--hypothetical.
    Mr. Bainwol.--listening to the radio as this occurs?
    Senator Sununu. No. I've recorded three songs in 
succession.
    Mr. Bainwol. Right.
    Senator Sununu. Can I listen--do you object--do you 
oppose----
    Mr. Bainwol. The----
    Senator Sununu.--my right to listen to one of those songs 
at a particular time the following day?
    Mr. Bainwol. We have a concern about the disaggregation of 
a block of programming.
    Senator Sununu. Mr. Chairman, the answer to that question--
I think you understood the question--the answer to that 
question is, yes, I cannot listen----
    Mr. Bainwol. That's----
    Senator Sununu.--to those songs one at a time.
    The Chairman. And I followed Mr. Bainwol right down to the 
end, but if I set my television so I can record a particular 
program----
    Mr. Bainwol. Right.
    The Chairman.--that I'm not going to be able to see--all 
right?--a ball game----
    Mr. Bainwol. Right.
    The Chairman.--and now I come back and turn it on 2 days 
later and see it, now that's--there's nothing wrong with that, 
today.
    Mr. Bainwol. There is nothing wrong with that.
    The Chairman. What's wrong with what Senator Sununu said 
with regard to recording songs and listening to them later?
    Mr. Bainwol. There are a series of problems. One is, when 
that TV program is broadcast, the content owner is being paid. 
When the song is aired on the radio--not in the satellite 
context--in the HD context, the content owner is not being 
paid. So, that's the first thing that's wrong.
    Second, when you listen to White Christmas or Stairway to 
Heaven, you listen to it a thousand times. Desperate 
Housewives, you listen to, or you watch, twice. It is the 
pattern of consumption.
    Third, we have no leverage here.
    The Chairman. OK. I've got to move on. We have a 
disagreement here, I think.
    Mr. Halyburton, do you have any responsibility, as radio 
operators, to protect radio content--digital radio content?
    Mr. Halyburton. At this time, no.
    The Chairman. Ah. Are you willing to work for a solution as 
to content protection?
    Mr. Halyburton. Yes, as written in our written and our oral 
testimony, we're ready to sit down with the various players. 
There are more--obviously, a lot more people than just this 
table. But, you know, we have concerns about copyright. We are 
copyright owners. So, we think that there is an opportunity to 
sit down and have some dialogue, providing that dialogue and 
the approach is narrow in its attempts to try to accomplish 
something.
    The Chairman. Now, you've mentioned your digital 
transition, and I assume you have invested very substantially 
in that transition, right?
    Mr. Halyburton. Yes. All of the broadcast companies are 
spending tens of millions of dollars to make the transition to 
digital.
    The Chairman. Has that added to your revenue base?
    Mr. Halyburton. Not at this point. We're just really--as 
indicated, just really on the beginning of this. There is hopes 
down the road that this will improve revenues and 
profitabilities, but I think we're several years away from 
seeing revenues----
    The Chairman. I sort of take it you're walking a tightrope 
between these other two witnesses sitting beside you, right?
    Mr. Halyburton. Yes, it's kind of interesting. Usually, 
Mitch and I are more debating issues. I'm a little bit over on 
the side on this one, which is just fine.
    The Chairman. What would you have us do with this bill?
    Mr. Halyburton. Well, I think, as indicated, Senator 
Smith's suggestions are good ones, a step in the right 
direction. I think there is a lot of work to be done. You know, 
the TV broadcast flag was a long time in the making, but I 
think that if we can keep our approach contained and narrow so 
that we can kind of try to accomplish the things for all 
parties----
    The Chairman. You want us to----
    Mr. Halyburton.--you know, I think there are some areas to 
work on.
    The Chairman.--mandate an industry-government solution, 
right?
    Mr. Halyburton. We'd like to go back and work on it 
ourselves and see if we can't figure that out. I think there 
may be an approach in Senator Smith's bill that gives us a 
timetable. We can work along----
    The Chairman. That's my----
    Mr. Halyburton.--those lines.
    The Chairman.--that was going to be my last question. Do 
you accept the timetable on that?
    Mr. Halyburton. I think, again, providing we keep this 
discussion straightforward and limited, and we don't get too 
broad, and that we're aware of issues, like home recording 
and--et cetera, then I think we can get some things done.
    The Chairman. Senator Inouye?
    Senator Inouye. I thank you very much, Mr. Halyburton. You 
mentioned this dialogue that has been developed between you and 
the recording industry. I'd like to, for the record, place the 
letter of the president of the NAB and the response of Mr. 
Bainwol. This is dated January 11th; and response, January 
12th. I'd like to commend both of you for the steps taken.
    The Chairman. You want to put those in the record, right?
    Senator Inouye. Yes.
    [The information referred to follows:]

                                 ______
                                 
                       National Association of Broadcasters
                                   Washington, DC, January 11, 2006
Mr. Mitch Bainwol,
Chairman and CEO,
Recording Industry Association of America,
Washington, DC.

Dear Mitch:

    I am writing to express the broadcast industry's strong interest in 
collaborating to find a workable solution to content protection issues 
associated with terrestrial digital radio broadcasting. As you know, 
the transition to HD Radio is well underway and local radio 
broadcasters have a great deal invested in a timely and successful 
rollout of this new technology. The goal for our industry is to find a 
resolution that balances protection of copyrighted works against the 
important objective of ensuring the continued and rapid expansion of 
digital audio broadcasts. Such a balanced approach could, in fact, aid 
the HD Radio rollout by removing regulatory and legislative uncertainty 
from the marketplace.
    As a matter of initial discussion, NAB questions the degree to 
which HD Radio threatens copyright or will facilitate unauthorized, 
digital distribution of sound recordings. Those desiring to obtain and 
listen to pure, uninterrupted performances of sound recording in lieu 
of radio already have an abundant number of means to do so. Peer-to-
peer file sharing and the hours of uninterrupted music that can be 
stored on CDs and discs are but a few such means. iPod uploads and 
digital music on the Internet would seem to present much larger and 
more immediate threats to copyright holders.
    As such, NAB believes the scope of any piracy risk associated with 
HD Radio is likely more limited than RIAA has previously asserted. 
However, as content creators ourselves, radio broadcasters oppose 
piracy in all its forms and therefore hope that we can find an amicable 
solution to this issue.
    We understand from previous conversations that the RIAA has 
advocated a number of proposals that would set back the HD Radio 
rollout and be unacceptable to broadcasters. For instance, RIAA has 
previously suggested broadly empowering the FCC to mandate that all 
radio broadcasters encrypt their digital content at the source. This 
approach is antithetical to the concept of free, over-the-air 
broadcasting. No U.S. free, over-the-air broadcast service, analog or 
digital, has ever been required to encrypt its transmissions.
    An encryption proposal would also likely obsolete HD Radio units 
already on the market and millions more currently in the manufacturing 
pipeline. By making obsolete receivers already installed in 
automobiles, an encryption proposal could increase automakers' 
frustration and potentially imperil the future integration of HD Radio 
units into automobiles.
    Moreover, mandatory encryption could set back the hundreds of 
broadcasters who have already licensed and are deploying (or have 
deployed) HD Radio transmission equipment. An overly broad encryption 
system would risk making these stations' broadcast transmission 
equipment obsolete. Broadcasters simply cannot allow an overly broad 
encryption system to scuttle the progress made to date and turn back 
the clock on the digital radio revolution.
    Not only would encryption at the source have severe unintended 
consequences, such an approach would not reflect the careful balancing 
act that Congress has undertaken in considering copyright issues. In 
crafting the Digital Performance Right in Sound Recordings Act, 
Congress essentially established a three-tier system for protecting 
and/or compensating the copyright owners of sound recordings. This 
system was based, in large part, on the threat level Congress felt 
various services presented to copyright holders. Interactive services, 
perceived to present the greatest threat, were subjected to the most 
rigorous levels of protection.
    Other types of non-interactive subscription services were deemed to 
pose an intermediate threat level. Protection with respect to these 
services was provided through a compulsory license accompanied by 
numerous conditions such as a prohibition against pre-announcing music 
and limits on the consecutive cuts from one album or by one artist that 
could be performed.
    The third in the three-tier system of protection established in the 
Act related to analog and digital broadcasting. Congress found they 
``often promote, and appear to pose no threat, to the distribution of 
sound recordings.'' Accordingly, ``by contrast'' with the other types 
of services, Congress concluded ``not to include free over-the-air 
broadcasting in this legislation.''
    Legislation empowering the FCC with overly broad authority to 
create an ``encryption at the source'' standard would abandon this 
longstanding Congressional paradigm.
    For these many reasons, we believe that RIAA's encryption proposal 
is not viable and we strongly oppose such an initiative. However, 
despite our objections to encryption at the source approaches, we do 
believe that there are possibilities for technical solutions that would 
offer effective content protection without slowing digital radio's 
advancement.
    We hope to continue dialogue with you as the radio and recording 
industries keep working towards mutually acceptable resolution of this 
issue. We therefore think it would be beneficial for members of NAB's 
Audio Broadcast Flag Taskforce to meet with counterparts at the RIAA 
and in the recording industry. Such formal discussions could move the 
industries forward aggressively, rather than relying on a Congressional 
mandate. Should you have questions, please do not hesitate to contact 
me.
        Sincerely,
                                             David K. Rehr,
                                                 President and CEO.
                                 ______
                                 
                  Recording Industry Association of America
                                   Washington, DC, January 12, 2006
Dr. David K. Rehr,
President and CEO,
National Association of Broadcasters,
Washington, DC.

Dear David:

    Thank you for your letter expressing the broadcast industry's 
strong interest in collaborating with us and other interested parties 
to find a workable solution to content protection issues associated 
with over-the-air digital radio broadcasting.
    As you know, rampant digital piracy enabled by commercial operators 
has caused severe damage to thousands of songwriters, artists, labels 
and so many others in the music community over the past several years. 
Preventing such piracy over commercial HD Radio services is necessary 
to preserve the future of music for the health of both of our 
industries. This is a lesson we learned the hard way once before. We 
firmly believe a little prudence at this juncture would go a long way.
    I appreciate the concerns you raise over encrypting the digital 
content contained in radio broadcasts at the source. The RIAA has 
always been agnostic as to the technological method of protecting 
content contained in digital broadcasts. As stated in our FCC filing, 
while we agree with many in the information technology industry that 
encryption at the source provides robust protection, a broadcast flag 
technology similar to the solution you support in the video context 
would be adequate to meet our needs. We understand that for the reasons 
you mention in your letter, encryption at the source is not a 
technological solution that provides a viable option at this point and 
therefore support working with you to implement a broadcast flag 
solution for digital over-the-air radio.
    We look forward to working immediately with members of the NAB's 
Audio Broadcast Flag Task Force, along with other interested parties, 
to achieve a timely resolution that can be implemented industry-wide.
        Sincerely,
                                             Mitch Bainwol,
                                          Chairman and CEO.

    Senator Inouye. And I look forward to your solutions. So, 
it would be most helpful to the Committee if you could provide 
us with a--oh, an account of what you have produced from these 
meetings--say, once every three weeks--because it would be 
helpful, as we move along in the drafting of this legislation. 
And I suppose Senator Smith's bill will be the prime source. 
We'd like to see your recommendations.
    The Chairman. Can I give you a timetable, Mr. Chair, if I 
can jump in?
    Senator Inouye. Sure.
    The Chairman. We have a schedule here of 14 hearings. When 
they're over, we intend to start marking up all of these bills, 
hopefully get them done by the end of March. So, I think your 
timetable is absolutely right, no more than 3 weeks.
    Senator Inouye. So, I thank you very much, and I commend 
both segments of the industry. It may be the answer to the 
concerns of Senator Sununu. They may come up with a solution.
    Thank you very much.
    Mr. Halyburton. Thank you.
    The Chairman. Senator Smith?
    Senator Smith. Thank you, Mr. Chairman.
    Gary, my draft legislation requires the use of flag 
technology to prevent indiscriminate redistribution of 
copyrighted audio content. But if a consumer opts to share 
songs on their home networks, wouldn't such sharing be 
discriminate, not indiscriminate, and, therefore, permissible?
    Mr. Shapiro. Thank you, Senator. I would hope so. I'm not 
sure that distinction is clear to us when we read the bill. And 
frankly, we're focusing, in large part, on the RIAA proposals 
along the way.
    I think there are two major distinctions to be made here. 
One is the distinction between video and audio. And I think 
there's a--clearly, a much better case to be made for video, 
because it's a multi-year, private process that everyone was 
welcome to, including the recording industry, and they chose 
not to participate in it. Here, we're talking about something 
that's coming from the government, coming from the Congress, at 
the outset. And that is not the way to proceed, because you're 
talking--to get to this, you have to create a flag--you have to 
create a device with a way of detecting a flag. You have to 
then figure out what is inhibited and what is not. And that's a 
very, very long thing. And when I hear about the music industry 
getting together with broadcasters to talk about how our 
devices should be built, I get a little nervous.
    I think the way to do that is to use the established 
entity, which has already been built, the Copyright Protection 
Working Technical Group, which Andy Setos has been very much 
involved in, from FOX, and others, and go there, and say, 
``Here's an issue. Let's work on a consensus. Let's develop 
what is OK and what is not OK, and figure out a technical way 
of doing it,'' rather than have Congress step in and say, 
``Here is the mandate.''
    If you're agreeing with the basic principle, which I think 
you are, by your question, that in-home copying is OK and out 
of home is not, that's a great premise to work off of to go 
before the CPWTG and have them work it out and thrash and 
develop something which is workable.
    Senator Smith. Gary, I'm on the horns of two beliefs. One 
is, ``Thou shalt not steal.'' Another is that markets can best 
sort these things out. I appreciate what you're saying. And, 
frankly, though, my reading of the history on the video flag, 
the video broadcast flag was only developed--resisted by your 
industry and only developed after the FCC intervened. So, why 
should Congress have faith that a digital audio content 
protection system will be developed voluntarily, without 
specific Federal direction?
    Mr. Shapiro. I respectfully disagree with that. We were 
part of the development. As Mr. Setos would say, we worked 
closely, side by side, on the video broadcast flag. They were 
in standard-setting committees, which we probably equally 
populated. It was members of the consumer electronics industry, 
side by side. And, actually, Mr. Setos mentioned the names. We 
were there.
    Yes, there is some disagreement in our industry whether we 
aggressively advocate it as a government mandate, but there was 
no disagreement on the technical aspects and bringing it up to 
the FCC in that format.
    There are also--we have some concerns about the exceptions, 
as well. But the technical aspect and how that works was 
something we were side by side with the content community and 
working on.
    Jack Valenti and I set up that group to work it out with 
Mr. Bainwol's predecessor. The RIAA chose to walk away 7 years 
ago, and they've never been back.
    Senator Smith. So, you disagree with my understanding of 
the history.
    Mr. Shapiro. Yes.
    Senator Smith. And I--so, I appreciate you including that 
in the record.
    Mitch, do you have a comment on that?
    Mr. Bainwol. Well, you know, we have wanted to engage 
anybody and everybody to solve this problem. And it's been hard 
to get parties to the table. And that goes to the point of the 
market failure. We do not have a performance right. We cannot 
withhold content. The video players could do that. That brought 
everybody to the table. You know, we--we're stuck in a jam 
here, where we have real harm. Our future is predicated on the 
emerging digital marketplace. Here, you have a capacity to 
obtain--to replicate a purchase without making a purchase, and 
nobody will pay attention to us, because we have no market 
power.
    And so, the IT community says, ``Encryption at the source 
is the way to go, but, yes, we can protect content.'' The 
broadcasters say, ``OK, let's protect content, but let's do the 
flag.'' Gary really wants to do nothing, when you come down to 
it. And we're stuck having our property rights abridged. And if 
we have no property right, our ability to invest in new art 
will be damaged.
    Senator Smith. Mitch, isn't it also true that songwriters, 
in fact, are paid when their songs are played on the radio, but 
artists and record labels are not paid?
    Mr. Bainwol. It is true that songwriters and publishers are 
paid over the air, and it is also true that, in this country, 
uniquely, labels and artists are not.
    Senator Smith. And that's copyright law, is it not?
    Mr. Bainwol. That is copyright.
    Senator Smith. And isn't this the reason why an audio flag 
is needed?
    Mr. Bainwol. It's the reason why we need government to step 
in, to resolve a market failure.
    Senator Smith. Or at least to incentivize you guys getting 
together.
    Mr. Bainwol. Frankly, we'd love to do this at the market 
level and get everybody together around the table. It's hard to 
get them there when we have no leverage.
    Senator Smith. Well, Mr. Halyburton, if different 
technology could meet the needs of broadcasters without 
stranding legacy digital radio equipment, and without delaying 
the rollout of digital radio, would you be willing to consider 
such technology?
    Mr. Halyburton. Yes, we would. And we're ready to work on 
that.
    I'd also like to point out that Mitch continues to talk 
about this issue of royalty, but--and the U.S. system being 
unique. And it is unique. But it's a system that works. And for 
over 80 years--you know, we've got a strong system that works. 
Radio gives records free over-the-air exposure. It has been 
very much a synergistic combination that's built a lot of great 
careers for a lot of artists. So, there is revenue flowing 
there. It's coming in a different fashion. But I just wanted to 
point that out.
    But we are ready to sit down. We'll talk about broadcast 
flag. I think we need to be aware of keeping that narrow, so 
that we don't try to reach too far. I think we need to look to 
the other members that are part of this area, to get their 
input on it, so we can find something that can work.
    Senator Smith. I appreciate that. And so, you would agree 
with me that we should not foreclose consideration of any new 
technologies but the audio flag. We should allow for the 
development of these things.
    Mr. Halyburton. Yes.
    Senator Smith. Thanks, Mr. Chairman.
    The Chairman. Senator Sununu?
    Senator Sununu. Thank you, Mr. Chairman.
    I think that last line of questioning brought us into the 
area of a discussion of the performance right, which I 
recognize is something that Mr. Halyburton said ought not to be 
part of this hearing. But I think it is extremely important.
    The word, or phrase, ``market failure'' was just used, but 
it was used in reference to Federal copyright law that 
prohibits royalties for performers and grants them to 
songwriters. That's not a market failure. That's an unintended 
consequence of Federal regulation. And we need to understand 
the difference if we're going to make good decisions, whatever 
decision we make. So--and I think this is an important 
question.
    First, let me raise the issue with Mr. Halyburton, 
specifically with regard to HD radio. Do you believe that HD 
radio, when it comes, should obey and abide by the same royalty 
copyright requirements that we have imposed on satellite radio?
    Mr. Halyburton. No, I don't. I think that we should 
continue the system that's in place today. It's really an 
extension of how we operate today.
    Senator Sununu. That seems to me to be a little bit 
inconsistent, given the technologies that we're talking about, 
the fact that the distinction that seems to be so important is 
digital versus analog, and HD is going to be taking advantage 
of digital and other technologies to provide a product to 
consumers that looks similar to--not identical to, but similar 
to, in many respects, the satellite radio. And I think to say, 
``Yes, but they shouldn't have the same royalty requirements,'' 
is a little bit inconsistent.
    Mr. Bainwol, do you think that HD radio should have the 
same--ideally, have the same royalty requirements as satellite 
radio?
    Mr. Bainwol. I think you've just done a better job than I 
did of articulating that there's a problem with parity here. 
You have a convergence going on--the iPod, the phone, 
satellite, HD--with devices all able to do essentially the same 
thing--perform and provide a distribution. And the rule sets 
are different. That makes no sense.
    Senator Sununu. And the answer to my question is?
    [Laughter.]
    Mr. Bainwol. If this body were to grant us a performance 
right in HD, we would think that would be a good thing, sure.
    Senator Sununu. And do you think there should be a 
performance right for regular over-the-air radio, as well?
    Mr. Bainwol. We think that the fact that there's an 
anomaly, globally, in that this is the only place in the world, 
in industrialized nations, where that right is not afforded, is 
really problematic.
    Senator Sununu. And--I'm inclined to agree with you. It 
seems to me this is a more important area to look for 
consistency. Regardless of the specific technology that's being 
used to provide a product to consumers, it is a much more 
important issue to address, and a much more rational argument 
to make, than arguing that you want regulatory and legislative 
distinctions based on your viewing or listening patterns, and 
that suddenly Congress or some regulator has to make 
distinctions, ``Now, that's a Christmas song, so you're really 
only listening to that five times a year, as opposed to your 
Thelonius Monk recordings that you listen to all the time; or 
Desperate Housewives, which is an hour-long program, and 
everyone watches at least three times, but then it becomes 
tedious, versus a rerun of Seinfeld that you've all seen 50 
times and are going to watch another 50.'' A little bit 
dramatic, but I think the point is there. I don't want to be in 
the position of having to analyze listening or viewing 
patterns, especially in an age when the type of content is 
changing dramatically--blogs were talked about here, other 
people mix and sample different content--and to try to decide 
how it fits into the Federal regulatory pattern--or Federal 
regulatory framework of viewing or listening patterns.
    You don't have to respond. I----
    Mr. Bainwol. May I?
    Senator Sununu. Well, you may, certainly. And I understand, 
though, you wish to make a distinction between music and video, 
and argue that there's some difference here. But, please, go 
ahead, in your own words.
    Mr. Bainwol. I'm always hesitant to spar here, especially 
with you, but I think there is a clear line here that is 
evident, and it is not quite the ambiguous scenario that you 
painted.
    Versus video, we're obviously not being paid, so that's a 
very clear distinction. In the context of recording rights or 
recording opportunities, personal use, there's a very clear 
line. If you take those three songs you wanted, and you 
manually recorded that block, then you could disaggregate them, 
but if you're going to go and do what is effectively what 
you're doing on iTunes--if iTunes should pay for the content, 
then every other platform should pay for the content, too. If 
iTunes should provide a mechanism for the investor to be 
rewarded for the investment in content, then so should the 
other platforms.
    Senator Sununu. Well, the consumer, in the case of 
satellite radio, is paying for the service, and, equally 
important--maybe, in your opinion, more important--you are 
unrestricted in your ability to negotiate with those satellite 
providers over a fair and decent royalty for your artists and 
your performers and your songwriters. And I would argue you 
would be serving those artists and performers and songwriters 
much more effectively if you work to ensure a better copyright 
standard for whatever systems of distribution might be 
developed in the future----
    Mr. Bainwol. But, remember----
    Senator Sununu.--and whether it's over-the-air radio, HD 
radio, satellite radio, or something else.
    I do have a very specific question for you, in this 
context. If someone's music is used in a motion picture--I 
don't know the answer to this; I guess that's why I'm asking 
the question--do they not get a royalty, and do they not 
continue to get a royalty each time that motion picture is sold 
or performed or played in a venue?
    Mr. Bainwol. I believe so. But when you--if you were to 
TiVo that, you couldn't isolate that song from the show that 
you saw it on.
    Senator Sununu. Frankly, I don't think that is at all 
relevant. If you TiVo it, though, you're viewing it, you're 
TiVo'ing it from someone broadcasting it. There's a royalty 
being paid for the rights of that broadcast. So I think----
    Mr. Bainwol. And----
    Senator Sununu. And that is, important, being--that is a 
royalty that's negotiated----
    Mr. Bainwol. Right.
    Senator Sununu.--based on the power of the system of 
distribution.
    Mr. Bainwol. Let me----
    Senator Sununu. And----
    Mr. Bainwol. Let me clarify one thing. You are merging two 
different things going on. And it's an easy thing to do, 
because this stuff is really complicated. But you have a 
performance, for which we are paid, and you have a 
distribution, for which we're not really being paid. They're 
different. One is to listen, and the other is to obtain a copy 
for your personal library----
    Senator Sununu. I'm sorry, in which case are you--what are 
you speaking about here?
    Mr. Bainwol. In the beginning part of the prior question.
    Senator Sununu. Oh, I thought you were back--I thought you 
were talking about TiVo.
    Mr. Bainwol. I'm not talking about----
    Senator Sununu. We were on TiVo.
    Mr. Bainwol.--and stuff like that. I'm talking about the 
satellite radio case, where we are paid for a performance, 
unlike over the air, but we're not paid for the distribution.
    Senator Sununu. No, but you are being paid by the provider 
of the service in a way that is commensurate with the value of 
the service. And I fully believe----
    Mr. Bainwol. To--for it to be----
    Senator Sununu.--in the future----
    Mr. Bainwol.--for it to be heard, not for it to be owned.
    Senator Sununu. Well--this is a little glib, but it's the 
way the markets work. Renegotiate. OK? Set a new arrangement. 
You set that license in a free market, willing people, a buyer 
and a seller. Now, you would argue, ``Well, now you're doing 
different things that we didn't really foresee you doing,'' and 
I sympathize with that.
    Mr. Bainwol. There is a compulsory license, so we can 
negotiate on the performance with an arbitration, but on the 
distribution, it's a totally different story.
    Senator Sununu. And the compulsory nature of the license 
is, once again, pointing the finger back at Federal statute and 
Federal legislation, which is--my original question to you is 
this issue of parity and being allowed to----
    Mr. Bainwol. Right.
    Senator Sununu.--compete effectively in an environment 
where we have these many different mediums. This isn't 1920 or 
1930 or the 1940s, when the original performance restrictions 
were imposed; this is 2006, I suppose, and I think that this is 
an area that deserves a lot more investigation and a lot more 
discussion. And I understand fully reasons that the NAB may not 
be interested.
    Thank you very much, Mr. Chairman.
    Mr. Shapiro. Can I add to that, Mr. Chairman? May I add a 
comment on that?
    The Chairman. Yes.
    Mr. Shapiro. Thank you very much.
    Senator Sununu, I think you're absolutely right. I think 
what we have here is a situation where you have manufacturers 
paying a royalty to the recording industry, you have the 
satellite services paying a royalty to the recording industry, 
and you have perhaps a lack of parity with local broadcasters. 
Local broadcasters are turning around saying, ``Let's negotiate 
about this--how devices will be built.'' I don't think that's 
right, frankly.
    And I think my concern is, is there's a tremendous 
investment that manufacturers have already made in HD radio 
service. They're about to launch radios. And when they hear 
from Congress that we might change the design of those radios, 
they're going to pull back, just as they did in the DTV case, 
when Sinclair Broadcasting came in and said, ``We should stop 
the DTV standard, because it's not good enough.'' So, 
manufacturers started not putting tuners in television sets. 
They ended up selling a lot of monitors, and consumers liked 
them. And that's the situation it is today, and television 
broadcasters are a little frustrated over it.
    But the fact is, we could face the same thing now with the 
full, national rollout by many manufacturers of HD radio. And 
what you have is, you have a frustrating situation for the 
RIAA, because they're not getting the royalty they want. And a 
lot of what people think is going on here is the subterfuge to 
try to get that performance royalty.
    Mr. Bainwol. Let's be real here. OK?
    The Chairman. This is the last answer.
    [Laughter.]
    Mr. Bainwol. Thank you, Mr. Chairman, for indulging me--
there is no subterfuge going on here. We're not getting paid 
over the air, and now we're not going to get paid for the 
distribution. We're not going to get paid for anything. We work 
real hard to produce a product, if we're going to be denied our 
compensation, that investment in new product's going to dry up. 
That's a problem.
    Mr. Halyburton. Mr. Chairman, if I could just make one 
point, just on the radio side. You talk about parity, but there 
really are some differences. We are held to a higher standard, 
a public-service standard, that these other industries don't 
have to do. We don't have subscribers. We have listeners. And 
we have to serve that community, and then we have to go out and 
sell advertising to pay the bills and employ the people who 
work there.
    So, you--on one hand, you'd like to say they're all the 
same. But they're not all the same. And the system has worked 
well, it continues to work well. In the particular issue, 
because--and I'm not the guy--I'm not a copyright guy; I'm a 
radio broadcaster. And what we want to make sure you understand 
is, we're willing to sit down, talk with the RIAA, with the 
consumer electronics side, the other parts of this process, to 
try to find a way to help the record industry protect their 
copyrights from indiscriminate distribution.
    The Chairman. We thank you for that.
    Mr. Halyburton. Thank you.
    The Chairman. One of the reasons we're here is that there 
is not equal treatment of the media, as far as these fees are 
concerned. But we cannot follow up on your suggestion, Senator, 
because that fee is not subject to the jurisdiction of this 
Committee; it's Judiciary. But these media are subject to our--
--
    Senator Sununu. Are they busy right now? Is the Judiciary 
Committee----
    [Laughter.]
    The Chairman. A little busy. We might sit down and talk to 
them about letting us handle some of these things that are 
related to communications, so we can, you know, balance this 
out.
    But I do want to thank you all. I think we know that the 
broadcast flag area is going along. We hope that there will be 
an agreement with Mr. Band and the broadcasters. We hope that 
this concept that's in Senator Smith's bill will be acceptable.
    But let me remind you all that 25 to 30 bills that we 
worked on very diligently last year are still on the calendar. 
They were stopped by holds. One Senator can stop a bill. Now, 
we're working on some things that I think have to be pursued, 
and have to be accomplished during this year, but that is all 
the more reason for you all to get together and work something 
out, on an industry basis, as we thought we had worked out with 
the FCC on the broadcast flag to start with.
    So, I do hope we can find an agreement and we can get a 
bill that will not be held up, but that's totally 
problematical, I'm afraid.
    I do thank you all for what you've said here today and 
giving us your suggestions.
    Our next hearing will be on Tuesday, and we'll continue our 
series of hearings on telecommunications.
    Again, Senator Smith, we thank you for your draft, and, 
Senator Sununu, your suggestions. Maybe you should go talk to 
the Judiciary Committee chairman.
    [Laughter.]
    The Chairman. Thank you very much.
    [Whereupon, at 12:05 p.m., the hearing was adjourned.]
                            A P P E N D I X

              Prepared Statement of Hon. Byron L. Dorgan, 
                     U.S. Senator from North Dakota
    I want to emphasize that I think in the digital age, preventing 
piracy and promoting content protection are integral to achieving the 
full benefits of compelling content that will drive digital 
technologies.
    I especially feel that such protection is critical for making such 
content as widely distributed as possible, and available on the most 
common and widespread medium, over the air broadcasting and the 
Internet.
    I do not want to see a day where over the air consumers are 
disadvantaged to their satellite and cable subscribing brethren, 
because broadcasters cannot access compelling content because of piracy 
fears.
    Embracing technologies that protect content will drive content 
production.
    But it cannot come at the cost of stifling technology. Nor should 
it result in a sacrifice by consumers to freely use such content as 
they expect with their devices, or to engage in discourse that benefits 
the public interest. A balance must be found.
    As you know, I have been strongly concerned that the voices in our 
society are increasingly controlled by a small number of media 
conglomerates.
    If a broadcast flag would result in content being controlled so 
that for example, a consumer could not post a news clip in their 
Internet blog or send it to other concerned citizens, I think the 
public interest would be harmed.
    It would seem to me that there should be a different standard for 
news or political discourse that is broadcast.
    I would think content providers would be less worried about the 
profits lost by the potential distribution of such content, as opposed 
to, for example, the latest blockbuster.
    On the other hand, the value of making political or news content 
available for distribution to the public in order to promote free 
speech is of paramount value.
    Last, I think it is important to also take the equipment and 
technology manufacturers into account--any deadline that is imposed 
must be realistic so that we don't impose a time frame that cannot be 
met.
    We can and should give the FCC authority to regulate in this area--
the digital age requires it. But we should tread carefully when so many 
important issues are involved.
                                 ______
                                 
 Prepared Statement of Hon. Barbara Boxer, U.S. Senator from California
    California is home to two of the most exciting and fastest growing 
industries in America--the entertainment and high-technology 
industries. The strength of these industries lies in the development 
and protection of intellectual property.
    Unfortunately, that intellectual property--whether it is music, 
movies, software, or hardware--is far too easy to pirate. Illegal 
copies of the newest, most innovative products hit the street almost as 
fast as the original works. The theft of U.S. intellectual property 
harms the economy, results in untold job losses, and leads to higher 
prices for honest consumers.
    Movies and music are particular vulnerable to piracy. Illegal 
copies of movies currently in the theater, TV shows, and music are 
available on the streets of New York and Los Angeles as well as Moscow 
and Beijing.
    Moreover, the Internet, for all its virtues, has made the theft and 
distribution of pirated material much worse. Peer-to-peer networks such 
as Morpheus and offshore website operators have made illegal access to 
copyrighted material cheap and easy.
    As broadcasters move to digital television and digital radio (HD 
Radio), the impact of piracy will dramatically increase. Individuals 
will be able to record near perfect copies of movies, TV shows, and 
music using over-the-air receivers and illegally redistribute the 
programming over the Internet.
    To address this problem, Senator Smith and I are working on 
legislation that would establish protections for broadcast video and 
audio digital content.
    While the advent of digital TV and HD radio will bring new services 
and better quality to consumers, it should not be at the expense of the 
intellectual property rights holders. Technological solutions must be 
implemented that will help prevent piracy of digital broadcasts.
    In November 2003, the FCC issued an order adopting a content 
protection regime for digital TV broadcasts. The FCC required that all 
consumer electronics devices capable of receiving a broadcast digital 
TV signal must include protection technologies that would limit the 
redistribution of digital content that contain a digital ``broadcast 
flag'' marker.
    The appellate court struck down the ``broadcast flag order'' on 
jurisdictional grounds but the substance of the order was sound.
    The future of TV and radio broadcasting is digital but adequate 
content protection is the keystone to making that transition work. 
Unless people are sure their intellectual property will not be stolen, 
they will not want to supply their content to broadcasters.
    Senator Smith and I are considering legislation that would grant 
the FCC the authority to implement its broadcast flag order. The FCC 
also would be allowed to modify the order as necessary to address 
changes in technology and to ensure ``fair use'' of protected content.
    The broadcast flag order was the culmination of years of advice 
from both industry and public interest groups. It represents a fair 
balance between the interest of intellectual property right holders, 
technology companies, and consumers.
    Unfortunately, no similar compromise has been worked out on the 
digital audio side. For one reason or another, broadcasters, the high-
tech industry, content producers, and consumer groups have been unable 
or unwilling to reach a consensus on how broadcast digital audio 
content should be protected.
    Because no solution is developing in the marketplace, I believe 
that legislation is necessary to prevent the piracy of digital audio 
broadcasts.
    The framework for such a protection regime, however, should be the 
result of industry and consumer input and not an arbitrary government 
mandate.
    Under the Smith-Boxer proposal, the FCC would convene an advisory 
council consisting of industry and consumer groups. For a period of up 
to 18 months, the advisory council would work to develop a proposed 
broadcast digital audio content protection framework.
    If a consensus is reached, the FCC would implement the proposal. If 
no consensus is reached, then the FCC would initiate a rulemaking 
proceeding to examine the issue further.
    California is home to technology companies and consumer electronics 
manufactures as well as content producers. In addition, the interests 
of consumers are of paramount importance to me.
    While intellectual property piracy must be stopped, it is important 
that the concerns of all these groups be heard and addressed.
    By establishing a diverse advisory board, the ideas of interested 
parties can be vetted and the costs and benefits of different 
approaches analyzed. Through a collaborative effort, I hope a solution 
can be reached that works for everyone.
    As Senator Smith and I continue to develop our legislative 
proposal, I welcome advice from those testifying before the Committee 
as well as the public at large.
                                 ______
                                 
         Prepared Statement of the Broadcast Music, Inc. (BMI)
    Broadcast Music. Inc. (``BMI'') hereby submits this written 
statement for inclusion in the record for the hearing on ``Broadcast 
and Audio Flag'' held on January 24, 2006.
Executive Summary
    BMI is a music performing right licensing organization (``PRO'') 
whose business centers on the timely and accurate monitoring of public 
performances of musical works by digital and analog broadcasting 
entities, including, but not limited to, radio, broadcast television, 
cable, satellite and the Internet. BMI has invested significant 
resources in innovative new digital fingerprinting technologies that 
will enable BMI to harness the speed and power of computers to automate 
the monitoring of music airplay in ways that were unimaginable only a 
decade ago. BMI supports the interests of the Recording Industry 
Association of America (``RIAA'') and the Motion Picture Association of 
America (``MPAA'') in protecting copyrighted works from digital theft. 
BMI joined in support of the broadcast flag in the Federal 
Communications (``FCC'') rulemaking proceeding. However, BMI is 
concerned that such content protection legislation adopted by Congress 
(or rules adopted by the FCC) might unintentionally interfere with 
BMI's ability to perform its core business. Accordingly, BMI proposes 
that Congress legislatively protect PRO's monitoring activities from 
any laws or regulations that would otherwise inhibit this necessary 
function.
    Congress should mandate as part of any flag legislation that PROs 
have reasonable access to any content that is protected by content 
owners through broadcast flag and related technology used to control 
indiscriminate redistribution of their content by consumers. 
Songwriters' and music publishers' interests should not be overlooked 
in an effort to limit the technical ability of ordinary viewers to copy 
and/or retransmit broadcast broadcasting content. BMI believes that 
legislative protection of its monitoring activities is warranted 
because such activities are designed to enforce and license music 
copyrights, which are the same policy goals underpinning the 
legislation now before Congress. BMI is grateful to Senator Gordon 
Smith for including a provision on this point in the draft bill as to 
the audio flag.
Statement of BMI
    Mr. Chairman, BMI commends you for holding a hearing on 
technological measures for content protection in the digital age. BMI 
is a key player in the digital copyright licensing world. BMI's 
fundamental and lawful role is to license the ``public performing'' 
right in musical works on behalf of its affiliated songwriters, 
composers and music publishers. The majority of these songwriters are 
neither performers nor major recording artists and therefore do not 
receive income from making sound recordings of their own music, or from 
concert tours, television appearances, commercial endorsements, sales 
of souvenirs or any of the other activities enjoyed by recording 
artists. Needless to say, BMI's publishers also do not receive artist-
related income from touring and merchandising. As a result, the 
majority of BMI's affiliated songwriters and publishers are the 
consummate ``small businessmen and women'' who depend on their BMI 
royalties for a major portion of their income.
    Formed in 1939, BMI protects the intellectual property of its 
approximately 300,000 affiliated songwriters, composers and music 
publishers by ensuring that they are compensated for public 
performances of their musical works in the United States and abroad, 
giving the public access to a rich and diversified repertoire of 
outstanding American music. BMI licenses the public performing right in 
over 6.5 million musical works to a wide variety of businesses. 
including radio and television stations, broadcast and cable television 
networks, Internet websites, live concert venues, and recorded 
background music services. BMI also has reciprocal license agreements 
with more than 70 foreign performing right societies worldwide that 
permit BMI to license in the U.S. the public performing right in 
thousands of works by foreign songwriters and composers. Through these 
reciprocal agreements, BMI also collects royalties from those societies 
for performances of BMI musical works occurring overseas.
    BMI operates as a non-profit making business and does not retain 
earnings. Instead BMI returns all license fees collected, less 
operating expenses, as royalties to its affiliated songwriters, 
composers, and music publishers whose works are publicly performed. BMI 
is an acknowledged leader in developing cutting-edge royalty accounting 
and collection systems that operate internationally. BMI's technology 
prowess is entirely compatible with the digital age.
    BMI recently announced a new effort of collecting broadcast 
performance data that will be centered around the patented technology 
of monitoring musical performances through the technique of 
``fingerprinting.'' This technology, known as BlueArrow, SM 
creates a unique fingerprint for each sound recording using a 
sophisticated algorithm. The technology requires that each fingerprint 
be compared to a vast library of previously identified works for 
identification purposes on a real-time basis. The new identification 
systems for audio and video content will depend in part on the ability 
to make secure retransmission of broadcast programs which are not 
previously identified. However, this secure distribution function would 
be disabled by broadcast flag rules without provisions protecting this 
functionality. If BMI's monitoring systems are disabled, BMI will not 
be able to monitor digital broadcasts of musical works, or distribute 
royalties to songwriters, on the most cost-efficient basis in the 
digital age.
    In 2004 the RIAA asked the FCC to adopt digital audio broadcast 
content protection rules and proposed two specific content protection 
regimes for digital audio broadcasts that would comply with a set of 
``usage rules'' proposed by the RIAA. The RIAA said it was concerned 
that digital radio broadcasting will become a source of rampant piracy 
unless there are controls on the ability to record and redistribute 
digital broadcasts. In its testimony last week, the RIAA appeared to 
embrace legislation through which Congress will give the FCC specific 
authority to adopt audio flag rules similar to the broadcast flag rules 
adopted by the FCC for television broadcasting. The RIAA's request for 
content protection legislation thus parallels the request by the MPAA 
for legislation to give the FCC the necessary statutory authority to 
promulgate broadcast flag rules and to re-adopt the FCC's prior 
rulemaking.
    Both the broadcast flag and audio flag have the singular goal of 
preventing piracy by prohibiting the unauthorized copying and 
redistribution of copyrighted content that would otherwise be possible 
with existing and future digital broadcast receivers. BMI recognizes 
that the broadcasting industry is in the midst of a digital revolution, 
with content transmission systems migrating from analog to digital 
across many platforms. The transition to digital radio and digital 
television will doubtless be beneficial to all parties affected. 
especially music listeners. BMI fully supports the transition of the 
broadcast industry to digital transmissions and does not want to delay 
the process by any means.
    BMI appreciates that authors and copyright owners of music and 
video works are concerned about the impact the transition to digital 
broadcasting will have on the markets for their works absent suitable 
protection against piracy. BMI believes that it is in the mutual 
interests of the music industry, the broadcasting industry and the 
consumer electronics industry to cooperate in the development of 
appropriate standards and technologies to protect against piracy in the 
digital arena. However, these legal regimes may have an unintentional 
but nevertheless severe adverse impact on the business operations of 
PROs unless Congress protects the right of PROs to monitor the music 
contained in video and audio broadcasts. BMI accordingly reaffirms its 
positions before the FCC in its HD Radio and broadcast flag proceedings 
that any regimes adopted by Congress or the FCC to protect digital 
broadcast content must include provisions protecting the ability of 
performing right organizations to continue their mission of 
electronically monitoring public performances of the musical works they 
represent. This will ensure that songwriters. composers and music 
publishers are paid properly when their musical works are performed via 
digital audio broadcasting technologies.
    If Congress or the FCC adopts or approves content protection 
technology that mandates that broadcast receiving devices must respond 
to a digital rights management (``DRM'') method such as a broadcast 
flag (or to usage rules prohibiting redistribution), BMI should 
nevertheless be permitted to access protected programming in order to 
fulfill its longstanding role of monitoring performances of music for 
royalty collection and distribution, and policing unlicensed 
performances. BMI should also be guaranteed access on reasonable and 
nondiscriminatory license terms to the underlying technology used in 
these content protection processes for these purposes.
    BMI has engaged in negotiations with both the MPAA and the RIAA 
over reasonable legal and technical solutions to the problems presented 
by the regulatory regimes that they are both seeking here. We are 
pleased that all parties appear to reorganize the need for protection 
of the PRO's monitoring functions and we are grateful that Senator 
Smith's draft legislation contains a step in this direction for the 
audio flag. The landscape of technology is shifting so rapidly, 
however, that even if we can reach a private agreement on today's 
content protection technology, the costs of creating customized 
software/hardware applications for each succeeding generation of 
technology would be enormous. In the circumstances, a general statutory 
protection of PROs' activities should ensure the PROs have a basis for 
successful current and future negotiations and/or engineered solutions. 
We would be happy to work with the Committee on developing narrowly 
crafted provisions protecting these important rights for both the 
broadcast and audio flags.
Conclusion
    In sum, BMI is concerned that if Congress legislates in the areas 
of broadcast and audio flags, careful heed should be taken not to 
overlook or trample the ability of songwriters, composers and music 
publishers to license their copyrights and distribute royalties. 
Without statutory or regulatory protection, any audio and broadcast 
flag content protection regime that the FCC might adopt could hamper 
BMI's ability to monitor public performances and collect appropriate 
licensing royalties. Therefore, it is critical that any new statutes or 
regulations protect the ability of performing right organizations to 
monitor television and broadcasts protected by broadcast and audio 
flags so that such organizations may continue to protect and account 
for the public performing rights of their affiliated songwriters, 
composers and music publishers.
    Thank you, Mr. Chairman. for your leadership on these issues and 
for providing BMI with the opportunity to submit a written statement in 
the hearing record.
                                 ______
                                 
    Prepared Statement of Gigi B. Sohn, President, Public Knowledge
    Chairman Stevens, Co-Chairman Inouye and other Members of the 
Committee, my name is Gigi B. Sohn. I am the President of Public 
Knowledge, a nonprofit public interest organization that addresses the 
public's stake in the convergence of communications policy and 
intellectual property law. I want to thank the Committee for permitting 
me to submit this statement for the record on the broadcast flag and 
radio content protection. I specifically want to focus on the impact of 
these technological mandates on consumers.
    As some of you know, I served as counsel to the nine public 
interest and library groups that successfully challenged the Federal 
Communications Commission's (FCC) broadcast flag rules in the United 
States Court of Appeals for the District of Columbia Circuit. My 
organization financed and coordinated the case, which is titled 
American Library Association v. FCC, 406 F.3d 689 (D.C. Cir. 2005). I 
have attached a copy of the court's decision and a copy of petitioners' 
opening brief * in the case, and I respectfully request that they be 
placed into the record of this hearing.
---------------------------------------------------------------------------
    * The information referred to has been retained in Committee files.
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Introduction
    This hearing could not be more timely. Many of you and your staff 
members just returned from the International Consumer Electronics Show, 
an event that featured an amazing display of new innovative 
technologies and newly forged partnerships between technology companies 
and content companies. Here are just a few examples:

   Microsoft demonstrated new versions of its software that 
        enables the playback of a consumer's favorite media, whether on 
        the individual's home office monitor, living room television, 
        or PDA. The company has also developed a new music service in 
        conjunction with MTV, VH1, and CMT music channels.

   Innovators like DigitalDeck, NewSoft, SlingMedia, and Sony 
        each have developed competing technologies that allow consumers 
        to remotely watch the television playing in their living rooms 
        on a laptop, mobile phone, or portable gaming console.

   Yahoo! announced the development of software and services 
        that enable consumers to view, create, and share content 
        between their mobile phones, computers and living rooms, all 
        using the Internet.

   Google developed a distribution system to allow anyone to 
        provide videos for free or for sale, and allow others to 
        download that content to a computer, Apple iPod, or Sony Play 
        Station Portable (PSP). Google has already announced content 
        distribution agreements with large content providers like CBS 
        and the NBA. This follows the recent success of NBC, ABC, and 
        ESPN, which is distributing programming in partnership with 
        Apple's iTunes.

   TiVo displayed a soon-to-be-released software update that 
        makes it simple for consumers to watch their favorite 
        television shows on popular players like the iPod and PSP. And 
        soon, the next generation TiVo recorder will help consumers 
        record over-the-air high-definition television.

   Together, XM Radio and Pioneer developed an innovative 
        portable satellite radio player that allows consumers to 
        automatically record their favorite songs or shows while they 
        are being broadcast. A consumer's preferences are stored on the 
        radio, and when connected to a computer, XM's software helps 
        the consumer to find more information about the artists, 
        purchase music through the new Napster, and discover other 
        songs and shows by similar artists.

    The message of the Consumer Electronics Show is clear. The market 
for delivering content digitally over new technologies is working. 
Consumers can watch and listen to the content they purchase anytime and 
anywhere they want. Some of that content will be protected, and 
consumers can decide whether that protection is flexible enough. All of 
these great developments happened without government intervention.
    The public appetite for buying individual TV shows and songs online 
is growing by leaps and bounds. There are more ways than ever to watch 
TV and movies and listen to the radio. Sales of HDTV sets are 
skyrocketing.
    Yet even as innovators in the content industry promote these 
alternative distribution technologies, the very same content industry 
wants Congress to step in and give it protection from the vague threat 
of massive copyright infringement the industry says these new 
technologies could facilitate. Let us be clear. The content industry 
has not shown that any infringement has resulted from these 
technologies. And they certainly have not shown that government 
technology mandates will work to stop actual copyright pirates rather 
than prevent ordinary consumers from engaging in lawful activities.
    The content industry is asking Congress to impose three technology 
mandates: the broadcast flag, radio content protection and an end to 
the analog hole. Each mandate (1) injects government into technological 
design; (2) places limits on lawful consumer activities; and (3) 
increases consumer costs by making obsolete millions of digital 
devices. Once consumers start to purchase devices that are compliant 
with these technology mandates, the costs will be enormous. For 
example:

   A consumer would not be able to record over-the-air local 
        news on her broadcast-flag compliant digital video recorder in 
        her living room and play it back on a non-compliant player in 
        her bedroom (broadcast flag).

   A member of Congress could not e-mail a clip of his 
        appearance on the national news to his home office (broadcast 
        flag).

   A consumer would not be able to record analog home movies 
        using a digital camcorder and transfer them to a computer in 
        order to make a DVD (analog hole).

   A student would be prohibited from recording excerpts from a 
        DVD for a college Powerpoint presentation (analog hole).

   A consumer would be unable to record individual songs off 
        digital broadcast and satellite radio (radio content 
        protection).

   Current versions of TiVos (and other digital video 
        recorders), iPods (and other MP3 players), cellphones and play 
        station portables would not work with analog hole closing 
        compliant devices, rendering them virtually obsolete (analog 
        hole).

   A university could not use digital TV video clips for 
        distance learning classes (broadcast flag).

    I urge the Committee to think very long and hard about trying to 
fix what is not broken. Ask yourselves, in light of recent marketplace 
developments, is it good policy to turn the Federal Communications 
Commission into the Federal Computer Commission or the Federal 
Copyright Commission? Is it good policy to impose limits on a new 
technology like HD Radio (that unlike digital television, consumers 
need not adopt) that may well kill it? Is it good policy to impose a 
technological mandate (like the broadcast flag and closing the analog 
hole) that would result in consumers having to replace most of the new 
devices that they just purchased?
    There are better alternatives for protecting digital content than 
heavy-handed technology mandates. Those alternatives are a multi-
pronged approach of consumer education, enforcement of copyright laws, 
new business models for content distribution and the use of 
technological tools developed in the marketplace, not mandated by 
government. The recent Grokster decision and the passage of the Family 
Entertainment and Copyright Act are just two of several new tools that 
the content industry has at its disposal to protect its content.
Technology Mandates Harm Innovation and are Costly and Inconvenient for 
        Consumers
    For Public Knowledge, its members and its public interest allies, 
the impact of the D.C. Circuit's decision vacating the broadcast flag 
rules goes far beyond the ability of citizens to make non-infringing 
uses of copyrighted material that they receive on free over-the-air 
broadcast television. Equally as important, the case limited the power 
of a government agency that, in the court's own words, has never 
exercised such ``sweeping'' power over the design of a broad range of 
consumer electronics and computer devices. This hands-off approach has 
fostered a robust market place for electronic devices that has in turn 
made this country the leader in their development and manufacture.
    For this reason, any attempt to portray legislative reinstatement 
of the broadcast flag rules as ``narrow'' should be viewed with great 
skepticism. The rules put the FCC in the position of deciding the 
ultimate fate of every single device that can demodulate a television 
signal. The broadcast flag rules require the FCC to pre-approve 
television sets, computer software, digital video recorders, 
cellphones, game consoles, iPods and any other device that can receive 
a digital television signal. \1\ Thus, the broadcast flag scheme places 
the FCC in the position of dictating the marketplace for all kinds of 
electronics.
---------------------------------------------------------------------------
    \1\ D.C. Circuit Court Judge Harry Edwards noted this reach at oral 
argument when he said, ``You're beyond transmission . . . I mean you're 
out there in the whole world regulating . . . I mean, I suppose it will 
be washing machines next.'' ALA v. FCC, Oral Argument Transcript at 31.
---------------------------------------------------------------------------
    The agency has neither the resources nor the expertise to engage in 
this kind of determination. This type of government oversight of 
technology design will slow the rollout of new technologies and 
seriously compromise U.S. companies' competitiveness in the electronics 
marketplace.
    Some argue that the initial FCC certification process worked 
because all thirteen technologies submitted to the agency were 
approved. However, that is a very superficial view of that process. 
First, it is widely known that several manufacturers removed legal and 
consumer-friendly features of their devices before submitting them to 
the FCC, largely at the behest of the movie studios. Second, the 
changing nature of the FCC and its commissioners is likely to make for 
widely varying results. Given the fervor of then-Commissioner Martin's 
dissent to the Commission's approval of TiVo-To-Go, it is unlikely that 
such technology would be certified today under Chairman Martin's FCC. 
\2\
---------------------------------------------------------------------------
    \2\ For a detailed analysis of the flaws of the FCC's 
certifications process, see Center for Democracy and Technology, 
Lessons of the FCC Broadcast Flag Process (2005), found at http://
cdt.org/copyright/ 20050919flaglessons.pdf.
---------------------------------------------------------------------------
    The certification process also exacerbates equipment 
incompatibility problems caused by the broadcast flag scheme. Not only 
will the scheme prevent consumers from making copies of a TV show on 
one system and play it on another, none of the 13 different 
technologies approved by the FCC in its interim certification process 
work with each other. This means that a consumer who buys one Philips 
brand flag-compliant device must buy all Philips brand flag compliant 
devices. This raises consumer costs, and also raises serious questions 
about competition among and between digital device manufacturers. \3\
---------------------------------------------------------------------------
    \3\ For a detailed discussion of these issues, see http://
www.publicknowledge.org/content/presentations/ bflagpff.ppt.
---------------------------------------------------------------------------
    Proposals to mandate content protection for digital broadcast and 
satellite radio would similarly place the FCC in the position of 
mandating the design of new technologies. Draft legislation in the 
House gives the FCC the authority to adopt regulations governing all 
``digital audio receiving devices.'' \4\ In the case of so-called High 
Definition (or HD) Radio, \5\ this could destroy this new technology at 
birth. Digital broadcast radio benefits consumers through improved 
sound quality (particularly for AM radio) and gives radio broadcasters 
the capacity to provide additional program streams and metadata. Unlike 
digital television, however, consumers need not purchase digital 
broadcast receivers to continue receiving free over the air broadcast 
radio. Certainly, if digital radio receivers have less functionality 
than current analog radio receivers, consumers will reject them and the 
market for HD radio will die.
---------------------------------------------------------------------------
    \4\ See HD Radio Content Protection Act, found at http://
static.publicknowledge.org/pdf/20051103-hd-radiodraft.pdf.
    \5\ I say ``so called,'' because calling a digital radio broadcast 
signal ``High Definition'' is quite misleading. Whereas in the 
television context, High Definition connotes a far clearer and sharper 
picture, an HD radio signal simply raises the quality of AM radio to FM 
standards, and permits the reception of broadcast radio in places where 
an analog signal would get cut off, such as in a tunnel or at a traffic 
light. Indeed, an ``HD'' quality signal is not even a CD quality 
signal. See, Ken Kessler, Digital Radio Sucks, it's Official, found at 
http://www.stereophile.com/newsletters/.
---------------------------------------------------------------------------
    In the case of digital satellite radio, mandated radio content 
protection has the potential to cripple this increasingly popular, but 
still nascent, technology. XM Radio now has more than six million 
subscribers, and Sirius Radio last year passed the three million 
subscriber mark. Consumers are buying all types of receivers for those 
services, based in part on the new flexibility and features the 
equipment offers. \6\ The type of content protection the recording 
industry seeks would likely slow this incredible growth.
---------------------------------------------------------------------------
    \6\ For 2005, XM Radio forecasts a doubling of retail satellite 
radio receiver sales for both services to more than one billion 
dollars. See http://www.ce.org/press/CEA_pubs/861.asp.
---------------------------------------------------------------------------
The Content Industry Has Not Justified the Need for Technology Mandates
    Hollywood's core justification for imposition of the broadcast flag 
scheme can be paraphrased thusly: if the threat of indiscriminate 
redistribution of ``high value'' high definition television content is 
not reduced, broadcasters will not make that content available, thus 
slowing this country's transition to digital TV. \7\
---------------------------------------------------------------------------
    \7\ See In the Matter of Digital Broadcast Content Protection, FCC 
03-273, 18 FCC Rcd 23550, 23553 (November 4, 2003).
---------------------------------------------------------------------------
    One of the most vocal proponents of this argument was Viacom, which 
told the FCC in 2002 that ``if the broadcast flag is not implemented 
and enforced by next summer, CBS will cease providing any programming 
in high definition for the 2003-2004 television season. And without the 
security afforded by a broadcast flag, Paramount will have less 
enthusiasm to make digital content available.'' \8\
---------------------------------------------------------------------------
    \8\ See Comments of Viacom In the Matter of Digital Broadcast 
Content Protection, MM Docket No. 02-230 at 12 (December 6, 2002).
---------------------------------------------------------------------------
    Viacom never did carry out its threat to withhold HD programming, 
and the argument that the broadcast flag is necessary to encourage the 
broadcast of high value content and the orderly transition to digital 
TV transmission has been repudiated in the marketplace. \9\ First, 
broadcasters are making ``high value'' content available for HDTV or, 
``in HD''--50 percent \10\ of TV shows, including 66 percent \11\ of 
prime time programming, is broadcast in high definition. A number of 
``high value'' sports programming broadcasts, including Monday Night 
Football, the Super Bowl, the NBA Finals, the NCAA Final Four college 
basketball championship, Major League Baseball's All-Star Game and 
World Series games, all NBC NASCAR races, the U.S. Open golf 
tournament, and the Olympics, are broadcast in HD along with many other 
select sporting events throughout the year. \12\ Second, the country's 
transition to digital TV is accelerating, not slowing down, as sales of 
digital TV sets continue to increase. According to the Consumer 
Electronics Association, sales of digital TV sets grew 60 percent to 
$17 billion dollars. \13\ According to Forrester Research, 16 million 
American homes have digital television sets. In 2006, that number is 
expected to rise to 26 million, or one in four households. \14\ Indeed, 
the case could be made that rather than accelerate the DTV transition, 
the broadcast flag could slow the transition when consumers discover 
that expensive new television sets have less functionality than their 
current sets.
---------------------------------------------------------------------------
    \9\ D.C. Circuit Judge Edwards also rejected this argument. See ALA 
v. FCC Oral Argument Transcript at 32 (Judge Edwards: ``This in no 
way--what you do here or not in no way impairs the ability to . . . 
stay on the digital deadline . . . In no way.'')
    \10\ http://www.ati.com/products/hdtvwonder/.
    \11\ For the week of Jan. 19 to Jan. 25, ABC will broadcast 13 of 
32 prime-time shows in HD. During the same week, CBS will broadcast 31 
of 34 prime-time shows in HD; NBC will broadcast 32 of 50 prime-time 
shows in HD during the same period. For all 3 networks combined, 76 of 
116 (66 percent) prime-time shows will be broadcast in HD for one week 
in January 2006.
    \12\ http://www.cnet.com/4520-7874--1-5119938-1.html
    \13\ http://www.ce.org/Press/CurrentNews/
press_release_detail.asp?id=10913.
    \14\ See, http://biz.yahoo.com/prnews/051220/nytu017.html?.v=36.
---------------------------------------------------------------------------
    The recording industry has similarly not demonstrated that radio 
content protection is necessary. The industry does not cite to even one 
instance of a digital broadcast or satellite radio transmission being 
copied illegally or retransmitted over the Internet. Indeed, RIAA chief 
Mitch Bainwol's recent testimony and comments on the subject make clear 
that the real rationale for seeking radio content protection is not 
copyright infringement, but the recording industry's displeasure over 
the licensing fees it receives from broadcast and satellite radio 
broadcasters. \15\
---------------------------------------------------------------------------
    \15\ See testimony of Mitch Bainwol before House Committee on the 
Judiciary, Subcommittee on Courts, the Internet, and Intellectual 
Property for the hearing on ``Content Protection in the Digital Age: 
The Broadcast Flag, High-Definition Radio, and the Analog Hole,'' 
November 3, 2005 at 4, found at http:// judiciary.house.gov/media/pdfs/
bainwol110305.pdf; and Mitch Bainwol, Out P2P Paranoia, In: Platform 
Parity, Billboard Magazine, January 7, 2006 at 4.
---------------------------------------------------------------------------
Broadcast Flag and Radio Content Protection Schemes Will Transform the 
        Federal Communications Commission Into the Federal Copyright 
        Commission
    Despite the FCC's protestations to the contrary, the broadcast flag 
scheme and any radio copy protection scheme will necessarily involve 
the agency in shaping copyright law and the rights of content owners 
and consumers there under. Making copyright law and policy is not the 
FCC's job. It is Congress' job. Petitioners brief in ALA v. FCC, at 43-
50, lays out this argument in great detail.
    While it is true that the TV broadcast flag scheme does not 
completely bar a consumer from recording her favorite TV show, it does 
prevent consumers from engaging in other lawful activities under 
copyright law. For example, as the D.C. Circuit noted in ALA  v. FCC, 
the broadcast flag would limit the ability of libraries and other 
educators to use broadcast clips for distance learning via the Internet 
that is permitted pursuant to the TEACH Act, Pub. L. No. 107-273, 116 
Stat. 1758, Title III, Subtitle C, Sec. 13301, amending 17 U.S.C. 
Sec. Sec. 110, 112 & 882 (2002). See ALA v. FCC, 406 F.2d at 697.
    This and other examples highlight that while proponents of the flag 
may justify it as prohibiting only ``indiscriminate'' redistribution of 
content over the Internet, flag-compliant technologies actually 
prohibit any and all distribution, no matter how limited or legal. For 
example, if a member of this Committee wants to e-mail a snippet of his 
appearance on the national TV news to his home office, the broadcast 
flag scheme would prohibit him from doing so. Video bloggers and other 
TV watchdogs would similarly be unable to post broadcast TV clips on 
their blogs. For example, the Parents Television Council, which rates 
television programs according to how child friendly they are, would be 
prevented from posting clips from those programs for parents to see. 
\16\
---------------------------------------------------------------------------
    \16\ See www.parentstv.org.
---------------------------------------------------------------------------
    The fact that the broadcast flag will limit lawful uses of 
copyrighted content was detailed in the Congressional Research Service 
Report entitled Copy Protection of Digital Television: The Broadcast 
Flag (May 11, 2005). CRS concluded there that:

        While the broadcast flag is intended to ``prevent the 
        indiscriminate redistribution of [digital broadcast] content 
        over the Internet or through similar means,'' the goal of the 
        flag was not to impede a consumer's ability to copy or use 
        content lawfully in the home, nor was the policy intended to 
        ``foreclose use of the Internet to send digital broadcast 
        content where it can be adequately protected from 
        indiscriminate redistribution.'' However, current technological 
        limitations have the potential to hinder some activities which 
        might normally be considered ``fair use'' under existing 
        copyright law. For example, a consumer who wished to record a 
        program to watch at a later time, or at a different location 
        (time-shifting, and space-shifting, respectively), might be 
        prevented when otherwise approved technologies do not allow for 
        such activities, or do not integrate well with one another, or 
        with older, ``legacy'' devices. In addition, future fair or 
        reasonable uses may be precluded by these limitations. For 
        example, a student would be unable to e-mail herself a copy of 
        a project with digital video content because no current secure 
        system exists for e-mail transmission.

    CRS Report at 5.

    Proposals for digital radio content protection similarly, and 
perhaps even more directly, place the FCC in the position of 
determining consumers' rights under copyright law. For example, the 
draft House bill gives the FCC the authority to control the 
unauthorized copying and redistribution of digital audio content by or 
over digital reception devices, related equipment, and digital 
networks, including regulations governing permissible copying and 
redistribution of such audio content.
    Under this proposal, the FCC is placed in charge both of (1) 
determining the extent to which unauthorized copying (which is legal is 
some circumstances) of digital broadcast and satellite radio content is 
permitted; and (2) determining what kind of copying and redistribution 
of audio content is permissible.
    Not only does this language give the FCC power to set copyright 
law, it also directly conflicts with copyright law, specifically the 
Audio Home Recording Act--which explicitly gives consumers the right to 
record digital radio transmissions for noncommercial use. \17\
---------------------------------------------------------------------------
    \17\ 17 U.S.C. Sec. Sec. 1000-1010.
---------------------------------------------------------------------------
A Technology Mandate to Close the Analog Hole is Premature, Unnecessary 
        and Would Cause Great Consumer Confusion, Cost and 
        Inconvenience
    While this hearing does not specifically address the content 
industry's efforts to close the so-called analog hole through 
legislative means, those efforts are closely related to the broadcast 
flag and radio content protection initiatives, and are therefore worthy 
of mention.
    As many of you know, a bill was introduced in the House of 
Representatives last year \18\ that would mandate that all digital 
devices read and obey two specific technologies--an encryption 
technology called CGMS-A and a watermarking technology called VEIL. The 
content industry claims that both of these technologies are necessary 
to ensure that analog content cannot be captured and digitized for 
possible indiscriminate distribution over the Internet.
---------------------------------------------------------------------------
    \18\ H.R. 4569: The Digital Transition Content Security Act of 
2005, 109th Cong. 2005. Found at: / www.publicknowledge.org/
issues/hr4569>.
---------------------------------------------------------------------------
    Preliminarily, I would note that while the CGMS-A +VEIL technology 
was discussed at the Analog Hole Reconversion Discussion Group, a 
standards group with both industry and public interest participation, 
it was quickly dismissed as not worthy of further consideration. Thus, 
this technology has not been fully vetted by industry and public 
interest groups. If Congress feels it must do something about the 
analog hole, it should refer the technology back to industry and public 
interest groups so CGMS-A +VEIL can be thoroughly analyzed for its 
impact on consumers and the cost to technology companies. In the 
complete absence of any such review, the one-sided imposition of such a 
detailed technology mandated would be unprecedented.
    More importantly, the proposed analog hole fix suffers from a 
number of important substantive flaws. Here are just a few:

   The analog hole technology mandate would be more intrusive 
        than the broadcast flag: The content industry's proposal 
        mandates that each and every device with an analog connection 
        obey not one, but two copy protection schemes. Thus, while the 
        broadcast flag would put the FCC in charge of design control 
        just for technologies that demodulate a broadcast signal, the 
        proposal would mandate design for every device with an analog 
        connector, including printers, cellphones, camcorders, etc. 
        Like the broadcast flag, it sets in stone a copy protection 
        technology for technologies that are always changing.

   The analog hole mandate would obsolete millions of digital 
        devices. Popular portable video-playback devices like iPods, 
        PSPs, laptops, and cell phones are all analog hole non-
        compliant. Using these kinds of devices in conjunction with 
        analog video inputs is critical to the many innovative plans 
        introduced at the CES 2006. An analog hole mandate could 
        effectively obsolete newly purchased devices and the systems 
        with which they work, and would require redesign of these 
        devices.

   The analog hole mandate would impose a detailed set of 
        encoding rules that would restrict certain lawful uses of 
        content. The House bill includes tiered levels of restriction 
        based on the type of programming (e.g., pay-per-view, video on 
        demand) that limit lawful uses in a manner that ignores the 
        four fair use factors of 17 U.S.C. Sec. 107. This upsets the 
        balance established in copyright law between the needs of 
        copyright holders and the rights of the public by placing far 
        too much control over lawful uses in the hands of the content 
        producers.

   The mandate would eliminate the DMCA's safety valve. This 
        Committee has been the leader in ensuring that the anti-
        circumvention provisions of the Digital Millennium Copyright 
        Act do not unintentionally impinge on fair use. One of the 
        common justifications for limitations on fair use imposed by 
        the DMCA is that the analog hole is available for individuals 
        who, for example want to make a snippet of a DVD using a video 
        camera held up to a video screen or connected to analog outputs 
        on a TV set. \19\ An analog hole mandate would eliminate this 
        safety valve.

    \19\ See Testimony of Dean Marks, Senior Counsel Intellectual 
Property, Time Warner, Inc., and Steve Metalitz, Representing Content 
Industry Joint Commenters, before the Copyright Office in Rulemaking 
Hearing: Exemptions From Prohibitions On Circumvention Of Technological 
Measures That Control Access To Copyrighted Works, May 13, 2003 at 60-
61: ``I think the best example I can give is the demonstration that Mr. 
Attaway [MPAA Executive Vice President for Government Relations and 
Washington General Counsel] gave for you [Marybeth Peters, Registrar of 
Copyrights] earlier this month in Washington in which he demonstrated 
that he used a digital camcorder viewing the screen on which a DVD was 
playing to make a excerpt from a DVD film and have a digital copy that 
could then be used for all the fair use purposes . . . '' (Mr. Metaliz 
at 60.) ``I agree with everything Steve has just said about fair use 
copying or taking clips . . . with digital camcorders and analog 
camcorders being widely available . . . '' (Mr. Marks at 61).
---------------------------------------------------------------------------
The Proper Balance Between Content Protection and Consumer Rights 
        Should Be Set by Copyright Law and Marketplace Initiatives
    I am often asked the following question: if Public Knowledge 
opposes the broadcast flag, radio content protection and closing the 
analog hole, what are better alternatives to protect digital television 
and radio content from infringing uses? The best approach to protecting 
rights holders' interests is a multi-pronged approach: by better 
educating the public, using the legal tools that the content industry 
already has at its disposal, and the technological tools that are being 
developed and tested in the marketplace every day. In the past year 
alone, the content industry has used and won several important new 
tools to protect content, including:

   The Supreme Court's decision in MGM v. Grokster and its 
        aftermath. The Supreme Court gave content owners a powerful 
        tool against infringement when it held that manufacturers and 
        distributors of technologies that are used to infringe could be 
        held liable for that infringement if they actively encourage 
        illegal activity. The result has been that a number of 
        commercial P2P distributors have gone out of business, moved 
        out of the U.S., or sold their assets to copyright holders.

   Lawsuits against mass infringers using P2P networks. Both 
        the RIAA and the MPAA continue to sue individuals who are 
        engaged in massive infringement over peer-to-peer (P2P) 
        networks. By their own admission, these lawsuits have had both 
        a deterrent and educative effect.

   Passage of the Family Entertainment and Copyright Act. The 
        FECA gave copyright holders a new cause of action to help limit 
        leaks of pre-release works and made explicit the illegality of 
        bringing a camcorder into a movie theatre. It also provided for 
        the appointment of an intellectual property ``czar'' to better 
        enforce copyright laws.

   Agreements by ISPs to pass on warning notices. The war 
        between Internet Service Providers and content companies has 
        begun to cool. Last month, Verizon and Disney entered into an 
        agreement by which Verizon will warn alleged copyright 
        infringers using its networks, but will not give up their 
        personal information to Disney.

   Increased use of copy protection and other digital rights 
        management tools in the marketplace. There are numerous 
        instances of the use of digital rights management tools in the 
        marketplace. iTunes Fairplay DRM is perhaps the most well 
        known, but other services that use DRM include MSN music and 
        video, Napster, Yahoo Music, Wal-Mart, Movielink, CinemaNow and 
        MovieFlix. The success of some of these business models are a 
        testament to the fact that if content companies make their 
        catalogues available in an easily accessible manner, with 
        flexibility and at a reasonable price, those models will 
        succeed in the marketplace, without government intervention.

    These tools are in addition to the strict penalties of current 
copyright law, including the DMCA. To the extent that the content 
industries are looking for a ``speed bump'' to keep ``honest people 
honest,'' I would contend that many such speed bumps already exist, 
while more are being developed every day without government technology 
mandates.
    Finally, by far the most effective means of preventing massive 
copyright infringement involves the content industry doing what it took 
the music industry far too long to do \20\--satisfy market demand by 
allowing consumers to enjoy fair and flexible access to content at 
reasonable prices (inevitably produced in a free market). DVDs are the 
best example of the market working. There, a government mandate--the 
Digital Video Recording Act--was rejected and an industry-agreed upon 
fairly weak ``keep honest people honest'' protection system was 
adopted. Despite the fact that the protection system was defeated long 
ago, the DVD market has grown at an astounding rate--from zero in 1997 
to $25,000,000,000 in sales and rentals last year. Moreover as I noted 
above, many other new digital music and video distribution models, 
developed with content industry support and industry-agreed upon 
content protection, are emerging in the market. We believe that these 
efforts make government intervention in the free market unnecessary.
---------------------------------------------------------------------------
    \20\ See Keynote Address of Edgar Bronfman, Chairman and CEO of 
Warner Music at http:// www.tvworldwide.com/events/pff/050821/
agenda.htm. ``The Music Industry, like almost every industry faced with 
massive and rapid transformation first reacted too slowly and 
moderately, inhibited by an instinctive and reflexive reaction to 
protect our current business and business models.''
---------------------------------------------------------------------------
Conclusion
    The Consumer Electronics Show demonstrated that the content and 
technology industries are moving forward, together, to provide the 
digital content and the digital machinery that consumers are buying and 
enjoying. Technology mandates like the broadcast flag and radio content 
protection are a step backward from this progress, limiting both 
innovation and consumer choice while increasing costs to innovators and 
consumers. I urge the Committee to look at recent marketplace 
developments and consider whether government action here would do far 
more harm than good. Thank you.
                                 ______
                                 

  United States Court of Appeals for the District of Columbia Circuit

     American Library Association, et al., Petitioners, v. Federal 
 Communications Commission and United States of America, Respondents; 
    Motion Picture Association of America, Inc., et al., Intervenors

    Case No. 04-1037--Argued February 22, 2005--Decided May 6, 2005

        On Petition for Review of an Order of the Federal 
        Communications Commission

    Pantelis Michalopoulos argued the cause for petitioners. With him 
on the briefs were Cynthia L. Quarterman, Rhonda M. Bolton, Lincoln L. 
Davies, and Gigi B. Sohn.
    Jacob M. Lewis, Attorney, Federal Communications Commission, argued 
the cause for respondents. With him on the brief were R. Hewitt Pate, 
Assistant Attorney General, Catherine G. O'Sullivan and James J. 
Fredricks, Attorneys, John A. Rogovin, General Counsel, Federal 
Communications Commission, Austin C. Schlick, Deputy General Counsel, 
Daniel M. Armstrong, Associate General Counsel, and C. Grey Pash, Jr., 
Counsel.
    Christopher Wolf, Bruce E. Boyden, Mace J. Rosenstein, and 
Catherine E. Stetson were on the brief for intervenor Motion Picture 
Association of America, Inc.
    Before: Edwards, Sentelle, and Rogers, Circuit Judges.
    Opinion for the Court filed by Circuit Judge Edwards.
    Edwards, Circuit Judge: It is axiomatic that administrative 
agencies may issue regulations only pursuant to authority delegated to 
them by Congress. The principal question presented by this case is 
whether Congress delegated authority to the Federal Communications 
Commission (``Commission'' or ``FCC'') in the Communications Act of 
1934, 47 U.S.C. Sec. 151 et seq. (2000) (``Communications Act'' or 
``Act''), to regulate apparatus that can receive television broadcasts 
when those apparatus are not engaged in the process of receiving a 
broadcast transmission. In the seven decades of its existence, the FCC 
has never before asserted such sweeping authority. Indeed, in the past, 
the FCC has informed Congress that it lacked any such authority. In our 
view, nothing has changed to give the FCC the authority that it now 
claims.
    This case arises out of events related to the nation's transition 
from analog to digital television service (``DTV''). Since the 1940s, 
broadcast television stations have transmitted their programs over the 
air using an analog standard. DTV is a technological breakthrough that 
permits broadcasters to transmit more information over a channel of 
electromagnetic spectrum than is possible through analog broadcasting. 
Consumer Elecs. Ass'n  v. FCC, 347 F.3d 291, 293 (D.C. Cir. 2003). 
Congress has set December 31, 2006, as the target date for the 
replacement of analog television service with DTV. See 47 U.S.C. Sec.  
309(j)(14).
    In August 2002, in conjunction with its consideration of the 
technological challenges related to the transition from analog service 
to DTV, the Commission issued a notice of proposed rulemaking to 
inquire, inter alia, whether rules were needed to prevent the 
unauthorized copying and redistribution of digital television 
programming. See Digital Broadcast Copy Protection, 17 F.C.C.R. 16,027, 
16,028 (2002) (``NPRM''). Thousands of comments were filed in response 
to the agency's NPRM. Owners of digital content and television 
broadcasters urged the Commission to require DTV reception equipment to 
be manufactured with the capability to prevent unauthorized 
redistributions of digital content. Numerous other commenters voiced 
strong objections to any such regulations, contending that the FCC had 
no authority to control how broadcast content is used after it has been 
received. In November 2003, the Commission adopted ``broadcast flag'' 
regulations, requiring that digital television receivers and other 
devices capable of receiving digital television broadcast signals, 
manufactured on or after July 1, 2005, include technology allowing them 
to recognize the broadcast flag. See Digital Broadcast Content 
Protection, 18 F.C.C.R. 23,550 (2003) (codified at 47 CFR pts. 73, 76). 
The broadcast flag is a digital code embedded in a DTV broadcasting 
stream, which prevents digital television reception equipment from 
redistributing broadcast content. The broadcast flag affects receiver 
devices only after a broadcast transmission is complete. The American 
Library Association, et al. (``American Library'' or ``petitioners''), 
nine organizations representing a large number of libraries and 
consumers, filed the present petition for review challenging these 
rules.
    In adopting the broadcast flag rules, the FCC cited no specific 
statutory provision giving the agency authority to regulate consumers' 
use of television receiver apparatus after the completion of a 
broadcast transmission. Rather, the Commission relied exclusively on 
its ancillary jurisdiction under Title I of the Communications Act of 
1934.
    The Commission recognized that it may exercise ancillary 
jurisdiction only when two conditions are satisfied: (1) the 
Commission's general jurisdictional grant under Title I covers the 
regulated subject and (2) the regulations are reasonably ancillary to 
the Commission's effective performance of its statutorily mandated 
responsibilities. See 18 F.C.C.R. at 23,563. The Commission's general 
jurisdictional grant under Title I plainly encompasses the regulation 
of apparatus that can receive television broadcast content, but only 
while those apparatus are engaged in the process of receiving a 
television broadcast. Title I does not authorize the Commission to 
regulate receiver apparatus after a transmission is complete. As a 
result, the FCC's purported exercise of ancillary authority founders on 
the first condition. There is no statutory foundation for the broadcast 
flag rules, and consequently the rules are ancillary to nothing. 
Therefore, we hold that the Commission acted outside the scope of its 
delegated authority when it adopted the disputed broadcast flag 
regulations.
    The result that we reach in this case finds support in the All 
Channel Receiver Act of 1962 and the Communications Amendments Act of 
1982. These two statutory enactments confirm that Congress never 
conferred authority on the FCC to regulate consumers' use of television 
receiver apparatus after the completion of broadcast transmissions.
    As petitioners point out, ``the broadcast flag rules do not 
regulate interstate `radio communications' as defined by Title I, 
because the Flag is not needed to make a DTV transmission, does not 
change whether DTV signals can be received, and has no effect until 
after the DTV transmission is complete.'' Petitioners' Br. at 23. We 
agree. Because the Commission overstepped the limits of its delegated 
authority, we grant the petition for review.
I. Background
    The Communications Act of 1934 was ``implemented for the purpose of 
consolidating Federal authority over communications in a single agency 
to assure `an adequate communication system for this country.''' Motion 
Picture Ass'n of Am., Inc. v. FCC, 309 F.3d 796, 804 (D.C. Cir. 2002) 
(quoting S. REP. NO. 73-781, at 3 (1934)). Title I of the Act creates 
the Commission ``[f]or the purpose of regulating interstate and foreign 
commerce in communication by wire and radio so as to make available, so 
far as possible, to all the people of the United States . . . a rapid, 
efficient, Nation-wide, and world-wide wire and radio communication 
service with adequate facilities at reasonable charges.'' 47 U.S.C. 
Sec. 151. Title I further provides that the Commission ``shall execute 
and enforce the provisions'' of the Act, id., and states that the Act's 
provisions ``shall apply to all interstate and foreign communication by 
wire or radio,'' id. Sec. 152(a).
    The FCC may act either pursuant to express statutory authority to 
promulgate regulations addressing a variety of designated issues 
involving communications, see, e.g., 47 U.S.C. Sec. 303(f) (granting 
the Commission authority to prevent interference among radio and 
television broadcast stations), or pursuant to ancillary jurisdiction, 
see, e.g., 47 U.S.C. Sec. 154(i) (``[t]he Commission may perform any 
and all acts, make such rules and regulations, and issue such orders, 
not inconsistent with this chapter, as may be necessary in the 
execution of its functions'').
    Although somewhat amorphous, ancillary jurisdiction is nonetheless 
constrained. In order for the Commission to regulate under its 
ancillary jurisdiction, two conditions must be met. First, the subject 
of the regulation must be covered by the Commission's general grant of 
jurisdiction under Title I of the Communications Act, which, as noted 
above, encompasses ``all interstate and foreign communication by wire 
or radio.'' United States v. Southwestern Cable Co., 392 U.S. 157, 167 
(1968) (quoting 47 U.S.C. Sec. 152(a)). Second, the subject of the 
regulation must be ``reasonably ancillary to the effective performance 
of the Commission's various responsibilities.'' Id. at 178. Digital 
television is a technological breakthrough that allows broadcasters to 
transmit either an extremely high quality video programming signal 
(known as high definition television) or multiple streams of video, 
voice, and data simultaneously within the same frequency band 
traditionally used for a single analog television broadcast. See 
Advanced Television Systems and Their Impact Upon the Existing 
Television Broadcast Service, 11 F.C.C.R. 17,771, 17,774 (1996). In 
1997, the FCC set a target of 2006 for the cessation of analog service. 
See Advanced Television Systems and Their Impact Upon the Existing 
Television Broadcast Service, 12 F.C.C.R. 12,809, 12,850 (1997). 
Congress subsequently provided that television broadcast licenses 
authorizing analog service should not be renewed to authorize such 
service beyond December 31, 2006. See 47 U.S.C. Sec. 309(j)(14).
    In August 2002, the FCC issued a notice of proposed rulemaking 
regarding digital broadcast copy protection. See Digital Broadcast Copy 
Protection, 17 F.C.C.R. 16,027 (2002) (``NPRM''). The Commission sought 
comments on, among other things, whether to adopt broadcast flag 
technology to prevent the unauthorized copying and redistribution of 
digital media. See id. at 16,028-29. The broadcast flag, or 
Redistribution Control Descriptor, is a digital code embedded in a 
digital broadcasting stream, which prevents digital television 
reception equipment from redistributing digital broadcast content. See 
id. at 16,027. The effectiveness of the broadcast flag regime is 
dependent on programming being flagged and on devices capable of 
receiving broadcast DTV signals (collectively ``demodulator products'') 
being able to recognize and give effect to the flag. Under the rule, 
new demodulator products (e.g., televisions, computers, etc.) must 
include flag-recognition technology. This technology, in combination 
with broadcasters' use of the flag, would prevent redistribution of 
broadcast programming. The broadcast flag does not have any impact on a 
DTV broadcast transmission. The flag's only effect is to limit the 
capacity of receiver apparatus to redistribute broadcast content after 
a broadcast transmission is complete.
    The NPRM also sought comments on whether the Commission had the 
authority to mandate recognition of the broadcast flag in consumer 
electronics devices. Id. at 16,029-30. The Commission requested 
commenters to address whether ``this [is] an area in which the 
Commission could exercise its ancillary jurisdiction under Title I of 
the Act.'' Id. The FCC also asked ``commenters to identify any 
statutory provisions that might provide the Commission with more 
explicit authority to adopt digital broadcast copy protection rules,'' 
such as 47 U.S.C. Sec. 336(b)(4) and (b)(5), id., which authorize the 
Commission to regulate the issuance of licenses for digital television 
services, see 47 U.S.C. Sec. 336(a)-(b).
    Unsurprisingly, there was an enormous response to the NPRM. The 
Commission received comments from, among others, owners, producers, and 
distributors of broadcast television content; consumer electronics 
manufacturers; consumer interest groups; library associations; and 
individual consumers. Content owners and television broadcasters argued 
that, if DTV broadcast content was not protected from the threat of 
widespread unauthorized redistribution via networks such as the 
Internet, high value content would migrate from broadcast television to 
pay television services, which offer a more secure distribution 
channel. See Digital Broadcast Content Protection, 18 F.C.C.R. 23,550, 
23,553 (2003) (``Flag Order''); Joint Reply Comments of the Motion 
Picture Association of America, Inc., et al., 2/20/03, reprinted in 
Joint Appendix (``J.A.'') 1080, 1088. But there was also overwhelming 
opposition to the proposed broadcast flag rules. As Commissioner 
Adelstein noted: ``Thousands of people contacted us and urged us not to 
[adopt the broadcast flag regime]. Many consumers are concerned about 
the effect on their use and enjoyment of television, as well as their 
personal privacy.'' See Flag Order, 18 F.C.C.R. at 23,620 (statement of 
Commissioner Adelstein, approving in part, dissenting in part). 
Opponents of regulation argued that the threat from content 
redistribution was overstated in light of technological limitations to 
widespread Internet retransmission. See id. at 23,553. In addition, 
critics of the proposed rules expressed concerns about implementation 
costs and suggested that the broadcast flag both was an inadequate tool 
to protect content and would stifle innovation. Id. at 23,557.
    On the question of the Commission's authority to promulgate 
broadcast flag regulations, proponents pointed to 47 U.S.C. Sec. 336. 
See Flag Order, 18 F.C.C.R. at 23,562. Enacted as part of the 
Telecommunications Act of 1996, Pub. L. No. 104-104, Sec. 201, 110 
Stat. 56, 107, 47 U.S.C. Sec. 336 sets forth certain criteria pursuant 
to which the Commission may issue new licenses for advanced television 
services. Proponents also argued that, even if the Commission lacked 
express statutory authority under Sec. 336, the FCC was authorized to 
adopt broadcast flag rules pursuant to its ancillary jurisdiction. See 
Joint Comments of the Motion Picture Association of America, Inc., et 
al., 12/6/02, J.A. 760, 798-807.
    Opponents contended that the Commission lacked jurisdiction to 
implement broadcast flag rules. They pointed out that the plain text of 
Sec. 336 authorized the FCC to regulate only DTV broadcast licensees 
and the quality of the signal transmitted by such licensees. See, e.g., 
Reply Comments of Phillips Electronics North America Corp., 2/18/03, 
J.A. 1012, 1027-28. Critics also maintained that the Commission could 
not rely on its ancillary jurisdiction to adopt a broadcast flag 
regime. As one commenter noted:

        [The] unbounded view of FCC jurisdiction [advanced by flag 
        proponents] proves too much. Were it true, the FCC would have 
        plenary authority to regulate consumer electronics and computer 
        devices, and there would have been no need for Congress to 
        delegate authority to the FCC to implement its policy 
        objectives [in various laws authorizing the FCC to regulate 
        specific aspects of consumer electronics].

    Id., J.A. 1028-29.

    In November 2003, the FCC adopted regulations requiring demodulator 
products manufactured on or after July 1, 2005 to recognize and give 
effect to the broadcast flag. See Flag Order, 18 F.C.C.R. at 23,570, 
23,576, 23,590-91. The Commission explained:

        In this Report and Order, we conclude that the potential threat 
        of mass indiscriminate redistribution will deter content owners 
        from making high value digital content available through 
        broadcasting outlets absent some content protection mechanism. 
        Although the threat of widespread indiscriminate retransmission 
        of high value digital broadcast content is not imminent, it is 
        forthcoming and preemptive action is needed to forestall any 
        potential harm to the viability of over-the-air television. Of 
        the mechanisms available to us at this time, we believe that [a 
        broadcast flag] regime will provide content owners with 
        reasonable assurance that DTV broadcast content will not be 
        indiscriminately redistributed while protecting consumers' use 
        and enjoyment of broadcast video programming.

    Id. at 23,552. The Commission also adopted an interim policy for 
approving the technologies that could be employed by demodulator 
products to comply with the requirements of the Flag Order and issued a 
further notice of proposed rulemaking to address this and other issues. 
See id. at 23,574-79.
    In explaining the source of its authority to promulgate the 
broadcast flag rules, the Commission did not invoke 47 U.S.C. Sec. 336. 
Rather, the Commission purported to rely solely on its ancillary 
jurisdiction under Title I of the Communications Act of 1934. See id. 
at 23,563. The Commission found that (1) television receivers are 
covered by Title I's general jurisdictional grant even when those 
receivers are not engaged in the process of communication by wire or 
radio and (2) flag-based regulations are reasonably ancillary to the 
Commission's regulatory authority to foster a diverse range of 
broadcast television programs and promote the transition from analog 
service to DTV. See id. at 23,563-66. The Commission acknowledged that 
``this may be the first time the Commission exercises its ancillary 
jurisdiction over equipment manufacturers in this manner.'' Id. at 
23,566. The Commission nonetheless concluded that ``[t]he fact that the 
circumstances may not have warranted an exercise of such jurisdiction 
at earlier stages does not undermine our authority to exercise 
ancillary jurisdiction at this point in time.'' Id.
    Commissioner Abernathy issued a separate statement, in which she 
expressed her support for the Flag Order, but noted:

        I have previously expressed concerns about whether we have 
        jurisdiction to adopt a broadcast flag solution, or whether 
        this is an issue best left for Congress. As a general rule, the 
        Commission should be wary of adopting significant new 
        regulations where Congress has not spoken. On balance, though, 
        I believe that given the broad Congressional direction to 
        promote the transition to digital broadcasting, a critical part 
        of that obligation involves protection of content that is 
        transmitted via free over-the-air-broadcasting. I am hopeful 
        that any court review of this decision can occur before the 
        effective date of our rules.

    Id. at 23,614 (separate statement of Commissioner Abernathy). 
Commissioners Copps and Adelstein dissented in part from the issuance 
of the Flag Order. Commissioner Copps dissented ``because the 
[regulations did] not preclude the use of the flag for news or for 
content that is already in the public domain'' and ``because the 
criteria adopt[ed] for accepting digital content protection 
technologies fail to address . . . the impact . . . on personal 
privacy.'' Id. at 23,616-17 (Statement of Commissioner Copps). 
Commissioner Adelstein dissented because the regulations did ``not rule 
out the use of the flag for content that is in the public domain.'' Id. 
at 23,620 (Statement of Commissioner Adelstein).
    The instant petition for review, filed by nine organizations 
representing numerous libraries and consumers, challenges the FCC's 
Flag Order on three grounds: (1) the Commission lacks statutory 
authority to mandate that demodulator products recognize and give 
effect to the broadcast flag; (2) the broadcast flag regime 
impermissibly conflicts with copyright law; and (3) the Commission's 
decision is arbitrary and capricious for want of reasoned 
decisionmaking. The Motion Picture Association of America (``MPAA'') 
intervened in support of the Commission. In its brief to the court, 
MPAA also contested petitioners' Article III standing. After hearing 
oral argument, the court requested additional submissions from the 
parties on the question of standing. See Am. Library Ass'n v. FCC, 401 
F.3d 489 (D.C. Cir. 2005) (``Am. Library I'').
    As explained below, we are now satisfied that at least one member 
of one of the petitioner groups has standing to pursue this challenge 
to the FCC's broadcast flag rules. The court therefore has jurisdiction 
to consider the petition for review. On the merits, we hold that the 
FCC lacked statutory authority to impose the broadcast flag regime. 
Therefore, we grant the petition for review without reaching 
petitioners' other challenges to the Flag Order.
II. Analysis
A. Standing
    Before addressing the merits of petitioners' claims, we must first 
determine whether they have demonstrated that they have Article III 
standing, a prerequisite to Federal court jurisdiction. Am. Library I, 
401 F.3d at 492. Associations such as petitioners have representational 
standing under Article III if (1) at least one of their members has 
standing, (2) the interests the association seeks to protect are 
germane to its purpose, and (3) neither the claim asserted nor the 
relief requested requires the participation of an individual member in 
the lawsuit. Id. As we noted in American Library I, we have no reason 
to doubt that petitioners satisfy the latter two requirements, and 
neither the FCC nor intervenor MPAA has suggested otherwise. Therefore, 
the focus of our inquiry here is whether at least one member of a 
petitioner group has standing to sue in its own right. Id.
    In order to meet this first prong of the associational standing 
test, at least one member of a petitioning group must satisfy ``the 
three elements that form the `irreducible constitutional minimum of 
standing.''' Id. (quoting Lujan v. Defenders of Wildlife, 504 U.S. 555, 
560 (1992)). These elements are: (1) injury in fact, (2) causation, and 
(3) redressability. See id. at 492-93 (citing Defenders of Wildlife, 
504 U.S. at 560-61). The ``only thing at issue in this case is the 
injury-in-fact prong of Article III standing, for causation and 
redressability are obvious if petitioners can demonstrate injury.'' Id. 
at 493. Furthermore, as we have already made clear,

        [w]ith regard to the injury-in-fact prong of the standing test, 
        petitioners need not prove the merits of their case in order to 
        demonstrate that they have Article III standing. Rather, in 
        order to establish injury in fact, petitioners must show that 
        there is a substantial probability that the FCC's order will 
        harm the concrete and particularized interests of at least one 
        of their members.

    Id. (citations omitted).

    In response to our decision in American Library I, petitioners 
submitted a brief, accompanied by 13 affidavits from individual members 
and individuals representing their member organizations, to demonstrate 
their standing. These materials included an affidavit executed by Peggy 
Hoon, the Scholarly Communication Librarian at the North Carolina State 
University (``NCSU'') Libraries in Raleigh, North Carolina, a member of 
petitioner Association of Research Libraries. Affidavit of Peggy Hoon, 
3/29/05, para. 1. Ms. Hoon's affidavit asserts that the NCSU Libraries 
assist faculty members who would like to make broadcast materials 
available to students in distance learning courses via the Internet. 
The affidavit states that the NCSU Libraries currently assist a 
professor in the Foreign Languages and Literatures Department make 
short broadcast clips of the Univision network's program, El Show de 
Christina, available over the Internet on a password-protected basis 
for use in a distance-education Spanish language course. The affidavit 
alleges that Internet redistribution is essential to making such clips 
available. See id. para. para. 5-10. The FCC does not dispute that the 
NCSU Libraries' activities are lawful. And as petitioners point out, if 
the regulations implemented by the Flag Order take effect, there is a 
substantial probability that the NCSU Libraries would be prevented from 
assisting faculty to make broadcast clips available to students in 
their distance-learning courses via the Internet.
    At oral argument, counsel for the FCC stated explicitly that the 
Commission is not challenging petitioners' standing in this case. 
Recording of Oral Argument at 29:01-:18. In its supplemental brief, the 
Commission again does not raise a challenge to petitioners' standing. 
Instead, the Commission merely responds on the merits, taking issue 
with certain statements in petitioners' supplemental brief and 
affidavits about the breadth of the broadcast flag regime. See FCC 
Supp. Br. at 3.
    Intervenor MPAA, which does challenge petitioners' standing, argues 
that any injury suffered by the Libraries following the FCC's 
implementation of the broadcast flag regulations will be ``due solely 
to the independent . . . decisions of third parties not before this 
Court.'' MPAA Supp. Br. at 6. In other words, MPAA assumes that, 
because hardware manufacturers eventually might be able to gain 
approval for apparatus that allow for greater distribution of broadcast 
content in a manner that is consistent with the Flag Order, it will be 
the unavailability of this new technology and not the agency's 
enforcement of the broadcast flag rule that causes injury to 
petitioners. Thus, under MPAA's view, redress for petitioners must come 
from the hardware manufacturers, not the FCC. This is a specious 
argument.
    There is clearly a substantial probability that, if enforced, the 
Flag Order will immediately harm the concrete and particularized 
interests of the NCSU Libraries. Absent the Flag Order, the Libraries 
will continue to assist NCSU faculty members make broadcast clips 
available to students in distance-education courses via the Internet, 
but there is a substantial probability that the Libraries will be 
unable to do this if the Flag Order takes effect. It is also beyond 
dispute that, if this court vacates the Flag Order, the Libraries will 
be able to continue to assist faculty members lawfully redistribute 
broadcast clips to their students.
    In short, it is clear that, on this record, the NCSU Libraries have 
satisfied the requisite elements of Article III standing: injury in 
fact, causation, and redressability. Therefore, the Association of 
Research Libraries also has standing. See Am. Library I, 401 F.3d at 
492. Because only one member of a petitioning organization must have 
standing in order for the court to have jurisdiction over a petition 
for review, see Nuclear Energy Inst., Inc.  v. EPA, 373 F.3d 1251, 1266 
(D.C. Cir. 2004), it is unnecessary for us to consider any of the other 
grounds offered by petitioners to demonstrate their standing. We 
therefore move to the question of whether the Commission acted in 
excess of its statutory authority in promulgating the Flag Order.
B. The Limits of the FCC's Delegated Authority Under the Communications 
        Act
    In defending the Flag Order and the broadcast flag regulations 
contained therein, the Commission contends that it

        reasonably interpreted the Communications Act as granting it 
        jurisdiction to establish technical requirements for television 
        receiving equipment in order to fulfill its responsibility of 
        implementing the transition to digital television. Sections 1 
        and 2(a) of the Act, 47 U.S.C. 151, 152(a), confer on the 
        agency regulatory jurisdiction over all interstate radio and 
        wire communication. Under the definitional provisions of 
        section 3, 47 U.S.C. 153, those communications include not only 
        the transmission of signals through the air or wires, but also 
        ``all instrumentalities, facilities, [and] apparatus'' 
        associated with the overall circuit of messages sent and 
        received--such as digital television receiving equipment.
         . . . 
         . . . [T]he Commission has the authority to promulgate 
        regulations to effectuate the goals and provisions of the Act 
        even in the absence of an explicit grant of regulatory 
        authority, if the regulations are reasonably ancillary to the 
        Commission's specific statutory powers and responsibilities.

    FCC Br. at 17, 23-24.

    Petitioners counter that

        [t]he FCC has asserted jurisdiction it does not have . . . The 
        FCC claims no specific statutory authority allowing it to 
        meddle so radically in the nation's processes of technological 
        innovation, but instead cites to its latent ``ancillary'' 
        jurisdiction, which the FCC astonishingly contends is boundless 
        unless Congress specifically acts to limit it.
         . . . [I]n no circumstance can the FCC regulate an activity 
        that is not an interstate ``communication'' by radio or wire, 
        and the broadcast flag rules regulate neither. The broadcast 
        flag does not dictate how DTV transmissions are made, but 
        simply controls how the transmitted content can be treated 
        after it is received . . . [T]he Communications Act is clear 
        that, unless specified elsewhere, it gives the FCC authority 
        over receipt ``services,'' not the receipt ``apparatuses'' the 
        agency now attempts to regulate.

    Petitioners' Br. at 19-20.

    As noted above, the principal issue in this case is whether the 
Commission acted outside the scope of its delegated authority when it 
adopted the disputed broadcast flag regulations. The FCC, like other 
Federal agencies, ``literally has no power to act . . . unless and 
until Congress confers power upon it.'' La. Pub. Serv. Comm'n  v. FCC, 
476 U.S. 355, 374 (1986). The Commission ``has no constitutional or 
common law existence or authority, but only those authorities conferred 
upon it by Congress.'' Michigan  v. EPA, 268 F.3d 1075, 1081 (D.C. Cir. 
2001). Hence, the FCC's power to promulgate legislative regulations is 
limited to the scope of the authority Congress has delegated to it. Id. 
(citing Bowen  v. Georgetown Univ. Hosp., 488 U.S. 204, 208 (1988)).
1. The Applicable Standard of Review
    In assessing whether the Commission's Flag Order exceeds the 
agency's delegated authority, we apply the familiar standards of review 
enunciated by the Supreme Court in Chevron U.S.A. Inc.  v. Natural 
Resources Defense Council, Inc., 467 U.S. 837 (1984), and United States 
 v. Mead Corp., 533 U.S. 218, 226-27 (2001). In reviewing agency action 
under Chevron, ``if the intent of Congress is clear,'' the court ``must 
give effect to [that] unambiguously expressed intent.'' Chevron, 467 
U.S. at 842-43 (``Chevron Step One''). If ``Congress has not directly 
addressed the precise question at issue,'' and the agency has acted 
pursuant to an express or implied delegation of authority, the agency's 
statutory interpretation is entitled to deference, as long as it is 
reasonable. Id. at 843-44 (``Chevron Step Two''). The FCC argues here 
that the court should defer to the agency's interpretation of its 
ancillary jurisdiction under Chevron, because, in its view, the 
regulations promulgated in the Flag Order reflect a reasonable 
application of the agency's ancillary authority under the 
Communications Act. The agency's self-serving invocation of Chevron 
leaves out a crucial threshold consideration, i.e., whether the agency 
acted pursuant to delegated authority.
    As the court explained in Motion Picture Ass'n of America, Inc.  v. 
FCC, 309 F.3d 796, 801 (D.C. Cir. 2002) (``MPAA''), an ``agency's 
interpretation of [a] statute is not entitled to deference absent a 
delegation of authority from Congress to regulate in the areas at 
issue.'' The court observed that the Supreme Court's decision in Mead 
``reinforces'' the command in Chevron that ``deference to an agency's 
interpretation of a statute is due only when the agency acts pursuant 
to `delegated authority.''' Id. (quoting Mead, 533 U.S. at 226). See 
also Cal. Indep. Sys. Operator Corp.  v. FERC, 372 F.3d 395, 399 (D.C. 
Cir. 2004); Bluewater Network  v. EPA, 370 F.3d 1, 11 (D.C. Cir. 2004); 
AT&T Corp.  v. FCC, 323 F.3d 1081, 1086 (D.C. Cir. 2003); Ry. Labor 
Executives' Ass'n  v. Nat'l Mediation Bd., 29 F.3d 655, 670-71 (D.C. 
Cir. 1994) (en banc).
    In Aid Ass'n for Lutherans  v. United States Postal Serv., 321 F.3d 
1166 (D.C. Cir. 2003), the court explained:

        ``Chevron is principally concerned with whether an agency has 
        authority to act under a statute.'' Arent  v. Shalala, 70 F.3d 
        610, 615 (D.C. Cir. 1995). Chevron analysis ``is focused on 
        discerning the boundaries of Congress' delegation of authority 
        to the agency; and as long as the agency stays within that 
        delegation, it is free to make policy choices in interpreting 
        the statute, and such interpretations are entitled to 
        deference.'' Id.; see also Mead, 533 U.S. at 226-27 (holding 
        that Chevron deference is due only when the agency acts 
        pursuant to ``delegated authority'').

         . . . 

        An agency construction of a statute cannot survive judicial 
        review if a contested regulation reflects an action that 
        exceeds the agency's authority. It does not matter whether the 
        unlawful action arises because the disputed regulation defies 
        the plain language of a statute or because the agency's 
        construction is utterly unreasonable and thus impermissible.

    Id. at 1174.

    Petitioners' principal claim here is that the challenged broadcast 
flag regulations emanated from an ultra vires action by the FCC. We 
agree. This being the case, the regulations cannot survive judicial 
review under Chevron/Mead. Our judgment is the same whether we analyze 
the FCC's action under the first or second step of Chevron. ``In either 
situation, the agency's interpretation of the statute is not entitled 
to deference absent a delegation of authority from Congress to regulate 
in the areas at issue.'' MPAA, 309 F.3d at 801 (citing Ry. Labor 
Executives, 29 F.3d at 671). In this case, as explained below, the 
FCC's interpretation of its ancillary jurisdiction reaches well beyond 
the agency's delegated authority under the Communications Act. We 
therefore hold that the broadcast flag regulations exceed the agency's 
delegated authority under the statute.
2. Ancillary Jurisdiction Under the Communications Act of 1934
    As explained above, the only basis advanced by the Commission as a 
source for its authority to adopt the broadcast flag regime was its 
ancillary jurisdiction under Title I of the Communications Act of 1934. 
See Flag Order, 18 F.C.C.R. at 23,563-64. As the Commission recognized, 
its ancillary jurisdiction is limited to circumstances where: (1) the 
Commission's general jurisdictional grant under Title I covers the 
subject of the regulations and (2) the regulations are reasonably 
ancillary to the Commission's effective performance of its statutorily 
mandated responsibilities. See id. at 23,563 (citing Southwestern 
Cable, 392 U.S. at 177-78).
    The insurmountable hurdle facing the FCC in this case is that the 
agency's general jurisdictional grant does not encompass the regulation 
of consumer electronics products that can be used for receipt of wire 
or radio communication when those devices are not engaged in the 
process of radio or wire transmission. Because the Flag Order does not 
require demodulator products to give effect to the broadcast flag until 
after the DTV broadcast has been completed, the regulations adopted in 
the Flag Order do not fall within the scope of the Commission's general 
jurisdictional grant. Therefore, the Commission cannot satisfy the 
first precondition to its assertion of ancillary jurisdiction.
    The Supreme Court has delineated the parameters of the Commission's 
ancillary jurisdiction in three cases: United States v. Southwestern 
Cable Co., 392 U.S. 157 (1968), United States  v. Midwest Video Corp., 
406 U.S. 649 (1972) (``Midwest Video I''), and FCC  v. Midwest Video 
Corp., 440 U.S. 689 (1979) (``Midwest Video II''). In Southwestern 
Cable and Midwest Video I, the Court upheld the Commission's regulation 
of cable television systems as a valid exercise of its ancillary 
jurisdiction, but also made clear that the Commission's ancillary 
authority has limits. In Midwest Video II, the Court found that the 
Commission had overstepped those limits. Because Southwestern Cable, 
Midwest Video I, and Midwest Video II are central to our analysis of 
whether the Commission lawfully exercised its ancillary jurisdiction in 
this case, we discuss these cases in some detail.
    In Southwestern Cable, the Supreme Court recognized that the 
Communications Act confers a sphere of ancillary jurisdiction on the 
FCC. See 392 U.S. at 177-78. The principal question presented was 
whether the FCC had the authority to regulate cable television systems 
(``CATV''), absent any express Congressional grant of authority to the 
FCC to regulate in this area. See id. at 164-67. The Court's conclusion 
that the FCC did have such authority rested on two factors. First, it 
was beyond doubt that CATV systems involved interstate ``communication 
by wire or radio,'' id. at 168 (quoting 47 U.S.C. Sec. 152(a)), and, 
thus, were covered by Title I's general jurisdictional grant. Second, 
the Court concluded that at least some level of CATV regulation was 
``reasonably ancillary to the effective performance of the Commission's 
various responsibilities [delegated to it by Congress] for the 
regulation of television broadcasting.'' Id. at 178. Because these two 
conditions were satisfied, the Court held that, to the degree it was in 
fact reasonably ancillary to the Commission's responsibilities over 
broadcast, the FCC had the power to regulate cable television as 
``public convenience, interest or necessity requires,'' so long as the 
regulations were ``not inconsistent with law.'' Id. (quoting 47 U.S.C. 
Sec. 303(r)).
    Four years later, the Court applied the two-part test enunciated in 
Southwestern Cable to review a rule adopted by the FCC providing that 
no CATV system with 3,500 or more subscribers could carry the signal of 
any television broadcast station unless the system distributed 
programming that had originated from a source other than the broadcast 
signals and the system had facilities for local program production. See 
Midwest Video I, 406 U.S. at 653-54 & n.6. The regulation was designed 
to increase the number of outlets for community self-expression and the 
programming choices available to the public. See id. at 654.
    A closely divided Court held that the Commission's rule was a valid 
exercise of its ancillary jurisdiction. In an opinion by Justice 
Brennan, a plurality of the Court began its analysis by recognizing the 
two requirements for the Commission's exercise of ancillary 
jurisdiction: (1) that the regulation must cover interstate or foreign 
communication by wire or radio and (2) that the regulation must be 
reasonably ancillary to the Commission's effective performance of its 
statutorily mandated responsibilities. See id. at 662-63. The parties 
before the Court in Midwest Video I did not dispute that the first 
precondition was met. See id. at 662. Furthermore, the plurality 
concluded that the regulation was reasonably ancillary to the 
Commission's responsibilities for the regulation of broadcast 
television, because the Commission reasonably concluded that the rule 
would ``further the achievement of long-established regulatory goals in 
the field of television broadcasting by increasing the number of 
outlets for community self-expression and augmenting the public's 
choice of programs and types of services.'' Id. at 667-68 (quoting 
Commission report accompanying the disputed regulation).
    Chief Justice Burger provided the fifth vote to sustain the 
regulation at issue in Midwest Video I, but he concurred only in the 
judgment. Chief Justice Burger agreed that, in light of the ``pervasive 
powers'' conferred upon the Commission and its ``generations of 
experience,'' the Court should sustain the Commission's authority to 
impose the regulation at issue. Id. at 676 (Burger, C.J., concurring in 
the result). Nonetheless, he noted: ``Candor requires acknowledgment, 
for me at least, that the Commission's position strains the outer 
limits of even the open-ended and pervasive jurisdiction that has 
evolved by decisions of the Commission and the courts.'' Id.
    Seven years later, in Midwest Video II, the Court considered 
whether another FCC effort to regulate cable television was a 
permissible exercise of the Commission's ancillary jurisdiction. This 
time the Court decided that the Commission had gone too far. The rules 
at issue required that cable television systems carrying broadcast 
signals and having at least 3,500 subscribers develop at least a 20-
channel capacity, make certain channels available for third-party 
access, and furnish equipment for access purposes. 440 U.S. at 691. The 
Court held that the rules exceeded the Commission's authority. Id. at 
708-09. Specifically, because the Communications Act explicitly 
directed the Commission not to treat broadcasters as common carriers, 
the Court concluded that it was not reasonably ancillary to the 
Commission's effective performance of its responsibilities relating to 
broadcast television for the Commission to impose common-carrier 
obligations on cable television systems. See id. at 702-05, 708-09. 
While the Court recognized that the statutory bar on treating 
broadcasters as common carriers did not apply explicitly to cable 
systems, the Court explained that, ``without reference to the 
provisions of the Act directly governing broadcasting, the Commission's 
jurisdiction under [Title I] would be unbounded.'' Id. at 706. The 
Court refused to countenance such a boundless view of the Commission's 
jurisdiction, noting that, ``[t]hough afforded wide latitude in its 
supervision over communication by wire, the Commission was not 
delegated unrestrained authority.'' Id. As the Commission correctly 
explained in the Flag Order, Midwest Video II stands for the 
proposition that ``if the basis for jurisdiction over cable is that the 
authority is ancillary to the regulation of broadcasting, the cable 
regulation cannot be antithetical to a basic regulatory parameter 
established for broadcast.'' Flag Order, 18 F.C.C.R. at 23,563 n.70.
    The Court's decisions in Southwestern Cable, Midwest Video I, and 
Midwest Video II were principally focused on the second prong of the 
ancillary jurisdiction test. This is unsurprising, because the subject 
matter of the regulations at issue in those cases--cable television--
constituted interstate communication by wire or radio, and thus fell 
within the scope of the Commission's general jurisdictional grant under 
Title I of the Communications Act. However, these cases leave no doubt 
that the Commission may not invoke its ancillary jurisdiction under 
Title I to regulate matters outside of the compass of communication by 
wire or radio. As we have explained:

    While the Supreme Court has described the jurisdictional powers of 
the FCC as . . . expansive, there are limits to those powers. No case 
has ever permitted, and the Commission has never, to our knowledge, 
asserted jurisdiction over an entity not engaged in ``communication by 
wire or radio.''

    Accuracy in Media, Inc.  v. FCC, 521 F.2d 288, 293 (D.C. Cir. 1975) 
(additional internal quotation marks omitted) (citing Nat'l Broad. Co.  
v. United States, 319 U.S. 190, 219 (1943)); see also id. at 294 
(``Jurisdiction over CATV [in Southwestern Cable] was expressly 
predicated upon a finding that the transmission of video and aural 
signals via the cable was `interstate . . . communication by wire or 
radio.''' (quoting Southwestern Cable, 392 U.S. at 168)); Midwest Video 
I, 406 U.S. at 662 (making clear that the Commission's jurisdiction is 
limited to activities involving communication by wire or radio). This 
principle is crucial, because the issue here is precisely whether the 
Flag Order asserts jurisdiction over matters that are beyond the 
compass of wire or radio communication.
    Southwestern Cable, Midwest Video I, and Midwest Video II are also 
relevant to the present controversy for a second reason. In each of 
these decisions, the Court followed a very cautious approach in 
deciding whether the Commission had validly invoked its ancillary 
jurisdiction, even when the regulations under review clearly addressed 
``communication by wire or radio.'' As the Seventh Circuit has noted: 
``The Court [in Southwestern Cable] appeared to be treading lightly 
even where the activity at issue'' involved cable television, which 
``easily falls within'' Title I's general jurisdictional grant. Ill. 
Citizens Comm. for Broad.  v. FCC, 467 F.2d 1397, 1400 (7th Cir. 1972). 
The Seventh Circuit's characterization is equally apt with respect to 
the Court's opinions in Midwest Video I and Midwest Video II.
    We think that the Supreme Court's cautionary approach in applying 
the second prong of the ancillary jurisdiction test suggests that we 
should be at least as cautious in this case. Great caution is warranted 
here, because the disputed broadcast flag regulations rest on no 
apparent statutory foundation and, thus, appear to be ancillary to 
nothing. Just as the Supreme Court refused to countenance an 
interpretation of the second prong of the ancillary jurisdiction test 
that would confer ``unbounded'' jurisdiction on the Commission, Midwest 
Video II, 440 U. S. at 706, we will not construe the first prong in a 
manner that imposes no meaningful limits on the scope of the FCC's 
general jurisdictional grant.
    In light of the parameters of the Commission's ancillary 
jurisdiction established by Southwestern Cable, Midwest Video I, and 
Midwest Video II, this case turns on one simple fact: the Flag Order 
does not require demodulator products to give effect to the broadcast 
flag until after the DTV broadcast is complete. The Flag Order does not 
regulate the actual transmission of the DTV broadcast. In other words, 
the Flag Order imposes regulations on devices that receive 
communications after those communications have occurred; it does not 
regulate the communications themselves. Because the demodulator 
products are not engaged in ``communication by wire or radio'' when 
they are subject to regulation under the Flag Order, the Commission 
plainly exceeded the scope of its general jurisdictional grant under 
Title I in this case.
    In seeking to justify its assertion of jurisdiction in the Flag 
Order, the Commission relies on the fact that the Communications Act 
defines ``radio communication'' and ``wire communication'' to include 
not only the ``transmission of . . . writing, signs, signals, pictures, 
and sounds'' by aid of wire or radio, but also ``all instrumentalities, 
facilities, apparatus, and services (among other things, the receipt, 
forwarding, and delivery of communications) incidental to such 
transmission.'' 47 U.S.C. Sec. 153(33) (defining ``radio 
communication''); id. Sec. 153(52) (defining ``wire communication''). 
The Flag Order asserts: ``Based on this language, [the Commission 
finds] that television receivers are covered by the statutory 
definitions and therefore come within the scope of the Commission's 
general authority outlined in [Title I] of the Communications Act.'' 18 
F.C.C.R. at 23,563-64. The Commission thus apparently believed that, 
given the definitions of ``wire communication'' and ``radio 
communication'' in Title I, it could assert jurisdiction over 
television receivers even when those receivers were not engaged in 
broadcast transmission simply because they are apparatus used for the 
receipt of communications. See also FCC Br. at 26. We reject this 
position, for it rests on a completely implausible construction of the 
Communications Act.
    The statute does not give the FCC authority to regulate any 
``apparatus'' that is associated with television broadcasts. Rather, 
the statutory language cited by the FCC refers only to ``apparatus'' 
that are ``incidental to . . . transmission.'' In other words, the 
language of Sec. 153(33) and (52) plainly does not indicate that 
Congress intended for the Commission to have general jurisdiction over 
devices that can be used for receipt of wire or radio communication 
when those devices are not engaged in the process of radio or wire 
transmission.
    The language relied upon by the Commission in the statutory 
definitions of ``wire communication'' and ``radio communication'' was 
part of the original Communications Act of 1934. See Pub. L. No. 73-
416, Sec. 3(a)-(b), 48 Stat. 1064, 1065; see also Southwestern Cable, 
392 U.S. at 168 (quoting this language). The Commission acknowledges 
that, in the more than 70 years that the Act has been in existence, it 
has never previously sought to exercise ancillary jurisdiction over 
reception equipment after the transmission of communication is 
complete. See Recording of Oral Argument at 34:45-35:23. This is not 
surprising, since the Commission's current interpretation of the 
statute's definitional language would render step one of the Supreme 
Court's two-part test for determining whether a subject is within the 
Commission's ancillary jurisdiction essentially meaningless.
    We can find nothing in the statute, its legislative history, the 
applicable case law, or agency practice indicating that Congress meant 
to provide the sweeping authority the FCC now claims over receiver 
apparatus. And the agency's strained and implausible interpretations of 
the definitional provisions of the Communications Act of 1934 do not 
lend credence to its position. As the Supreme Court has reminded us, 
Congress ``does not . . . hide elephants in mouseholes.'' Whitman  v. 
Am. Trucking Ass'n, 531 U.S. 457, 468 (2001). In sum, we hold that, at 
most, the Commission only has general authority under Title I to 
regulate apparatus used for the receipt of radio or wire communication 
while those apparatus are engaged in communication.
    Our holding is consistent with the Seventh Circuit's well-reasoned 
decision in Illinois Citizens, which concluded that the FCC may not 
lawfully exercise jurisdiction over activities that do not constitute 
communication by wire or radio. See 467 F.2d at 1399-1400. In that 
case, the Illinois Citizens Committee for Broadcasting filed a 
complaint with the FCC, alleging that the proposed construction of the 
Sears Tower in Chicago ``would throw `multiple ghost images' on 
television receivers in many areas of the Greater Chicago Metropolitan 
Area.'' Id. at 1398. The petitioners called upon the FCC to take steps 
to prevent this interference, including, if necessary, ordering Sears, 
Roebuck & Co. to cease construction of the tower until the company had 
taken measures to ensure that television viewers would continue to 
receive an adequate signal. The Commission denied the requested relief 
on the ground that it lacked jurisdiction over the construction of the 
Sears Tower, and the Illinois Citizens Committee sought review by the 
Seventh Circuit. See id. at 1398-99.
    The Illinois Citizens Committee argued that, in light of 
Southwestern Cable, the FCC had the power to regulate ``all activities 
which `substantially affect communications.''' Id. at 1399. The Seventh 
Circuit flatly rejected this argument as unsupported by the 
Communications Act or judicial decisions interpreting the Act:

        While we appreciate the need for a flexible approach to FCC 
        jurisdiction, we believe the scope advanced by petitioners is 
        far too broad. The ``affecting communications'' concept would 
        result in expanding the FCC's already substantial 
        responsibilities to include a wide range of activities, whether 
        or not actually involving the transmission of radio or 
        television signals much less being remotely electronic in 
        nature. Nothing before us supports this extension.

    Id. at 1400 (footnote omitted).

    In Motion Picture Ass'n, this court concluded that the Commission 
lacked authority under Title I of the Communications Act to promulgate 
regulations that significantly implicated program content. Focusing 
specifically on 47 U.S.C. Sec. 151, which is part of Title I and which 
the FCC conceded was the only possible source of authority that could 
justify its adoption of the video description rules at issue in the 
case, we explained:

        Under [ Sec. 151], Congress delegated authority to the FCC to 
        expand radio and wire transmissions, so that they would be 
        available to all U.S. citizens. Section [151] does not address 
        the content of the programs with respect to which accessibility 
        is to be ensured. In other words, the FCC's authority under [ 
        Sec. 151] is broad, but not without limits.

    309 F.3d at 804 (full citations omitted) (citing Midwest Video I, 
406 U.S. at 667-68, and Southwestern Cable, 392 U.S. at 172). Just as 
no provision in Title I addresses program content, no provision in 
Title I addresses requirements for demodulator products not engaged in 
communication by wire or radio.
    In sum, because the rules promulgated by the Flag Order regulate 
demodulator products after the transmission of a DTV broadcast is 
complete, these regulations exceed the scope of authority Congress 
delegated to the FCC. And because the Commission can only issue 
regulations on subjects over which it has been delegated authority by 
Congress, the rules adopted by the Flag Order are invalid at the 
threshold jurisdictional inquiry. As was true in Aid Ass'n for 
Lutherans, ``our judgment in this case is the same whether we analyze 
the agency's statutory interpretation under Chevron Step One or Step 
Two. `In either situation, the agency's interpretation of the statute 
is not entitled to deference absent a delegation of authority from 
Congress to regulate in the areas at issue.''' 321 F.3d at 1175 
(quoting MPAA, 309 F.3d at 801). ``An agency construction of a statute 
cannot survive judicial review if a contested regulation reflects an 
action that exceeds the agency's authority.'' Id. at 1174. It does not 
matter whether the unlawful action arises because the regulations at 
issue are ``contrary to clear Congressional intent'' as ascertained 
through use of the ``traditional tools of statutory construction,'' 
Chevron, 467 U.S. at 843 n.9, or ``utterly unreasonable and thus 
impermissible.'' Aid Ass'n for Lutherans, 321 F.3d at 1174. The FCC has 
no Congressionally delegated authority to regulate receiver apparatus 
after a transmission is complete. We therefore hold that the broadcast 
flag regulations exceed the agency's delegated authority under the 
statute.
3. Subsequent Congressional Legislation
    We think that, for the reasons discussed above, the FCC never has 
possessed ancillary jurisdiction under the Communications Act of 1934 
to regulate consumer electronic devices that can be used for receipt of 
wire or radio communication when those devices are not engaged in the 
process of radio or wire transmission. Indeed, in the more than 70 
years of the Act's existence, the Commission has neither claimed such 
authority nor purported to exercise its ancillary jurisdiction in such 
a far-reaching way. See Flag Order, 18 F.C.C.R. at 23,566 (``We 
recognize that the Commission's assertion of jurisdiction over 
manufacturers of equipment in the past has typically been tied to 
specific statutory provisions and that this is the first time the 
Commission has exercised ancillary jurisdiction over consumer equipment 
manufacturers in this manner.'')
    The Commission weakly attempts to dismiss this history by 
suggesting that ``Congressional admonitions and past Commission 
assurances of a narrow exercise of authority over manufacturers (such 
as those reflected in the [All Channel Receiver Act] and its 
legislative history) are properly limited to the context of those 
explicit authorizations. The regulations here do not fall within the 
subject matter of those explicit authorizations.'' Id. (footnote 
omitted). This cryptic statement surely cannot justify the FCC's 
overreaching for regulatory authority that Congress has never granted. 
As we held in Aid Ass'n for Lutherans:

        In this case, the [agency]'s position seems to be that the 
        disputed regulations are permissible because the statute does 
        not expressly foreclose the construction advanced by the 
        agency. We reject this position as entirely untenable under 
        well-established case law. See Ry. Labor Executives' Ass'n  v. 
        Nat'l Mediation Bd., 29 F.3d 655, 671 (D.C. Cir. 1994) (en 
        banc) (``Were courts to presume a delegation of power absent an 
        express withholding of such power, agencies would enjoy 
        virtually limitless hegemony, a result plainly out of keeping 
        with Chevron and quite likely with the Constitution as well.'') 
        (emphasis in original); see also Halverson  v. Slater, 129 F.3d 
        180, 187 (D.C. Cir. 1997) (quoting Ry. Labor Executives, 29 
        F.3d at 671); Oil, Chem. & Atomic Workers Int'l Union  v. NLRB, 
        46 F.3d 82, 90 (D.C. Cir. 1995) (same); Ethyl Corp.  v. EPA, 51 
        F.3d 1053, 1060 (D.C. Cir. 1995) (``We refuse . . . to presume 
        a delegation of power merely because Congress has not expressly 
        withheld such power.''); Natural Res. Def. Council  v. Reilly, 
        983 F.2d 259, 266 (D.C. Cir. 1993) (``[I]t is only legislative 
        intent to delegate such authority that entitles an agency to 
        advance its own statutory construction for review under the 
        deferential second prong of Chevron.'') (alteration in 
        original) (quoting Kansas City  v. Dep't of Hous. & Urban Dev., 
        923 F.2d 188, 191-92 (D.C. Cir. 1991)).

    321 F.3d at 1174-75.

    It is enough here for us to find that the Communications Act of 
1934 does not indicate a legislative intent to delegate authority to 
the Commission to regulate consumer electronic devices that can be used 
for receipt of wire or radio communication when those devices are not 
engaged in the process of radio or wire transmission. That is the end 
of the matter. It turns out, however, that subsequent legislation 
enacted by Congress confirms the limited scope of the agency's 
ancillary jurisdiction and makes it clear that the broadcast flag 
regulations exceed the agency's delegated authority under the statute.
    The first such Congressional enactment of note is the All Channel 
Receiver Act (``ACRA''), Pub. L. No. 87-529, 76 Stat. 150 (codified at 
47 U.S.C. Sec. Sec. (s), 330(a)). Enacted in 1962, the ACRA granted the 
Commission authority to require that televisions sold in interstate 
commerce are ``capable of adequately receiving all frequencies 
allocated by the Commission to television broadcasting.'' 47 U.S.C. 
Sec. 303(s). See Elec. Indus. Ass'n Consumer Elecs. Groups  v. FCC, 636 
F.2d 689 (D.C. Cir. 1980) (``EIA'') (offering an extensive review of 
the legislative history of the ACRA). The original version of the All 
Channel Receiver Act ``would have given the Commission the authority to 
set `minimum performance standards' for all television receivers 
shipped in interstate commerce.'' Id. at 694 (quoting S. REP. NO. 87-
1526, at 7 (1962)). However, in response to criticism about giving the 
FCC such broad authority over television receiver design, the ``minimum 
performance standards'' language was deleted before the bill passed the 
House. The version that passed the House would have instead given the 
Commission the authority to require that television sets ``be capable 
of receiving all frequencies allocated by the Commission to television 
broadcasting.'' Id. (quoting H.R. REP. NO. 87-1559, at 1 (1962)). FCC 
Chairman Newton Minnow then wrote the chair of the Senate Subcommittee 
on Communications expressing his concern that under the House version, 
``we may be powerless to prevent the shipment . . . of all-channel sets 
having only the barest capability for receiving UHF signals, and which 
therefore would not permit satisfactory and usable reception of such 
signals in a great many instances.'' Id. at 695 (alteration in 
original) (quoting the letter). The Senate amended the bill, and the 
version that was ultimately enacted allowed the FCC to require 
television receivers sold in interstate commerce to be ``capable of 
adequately receiving all frequencies allocated by the Commission to 
television broadcasting.'' 47 U.S.C. Sec. 303(s) (emphasis added).
    It is clear, however, that, in enacting the ACRA, Congress did not 
``give the Commission unbridled authority'' to regulate receiving 
apparatus. EIA, 636 F.2d at 696. This was confirmed when the Commission 
attempted to set a standard requiring television manufacturers to take 
steps to improve the quality of UHF reception beyond what could be 
attained with then-existing technology. On review, this court ruled 
that the Commission overstepped its delegated authority and vacated the 
Commission's action. See id. at 698. The court held that, while the 
ACRA granted the Commission ``limited . . . authority to ensur[e] that 
all sets `be capable of adequately receiving' all television 
frequencies,'' Congress had intentionally restricted this 
jurisdictional grant to preclude wide-ranging FCC ``receiver design 
regulation.'' Id. at 695, 696.
    The All Channel Receiver Act's limited and explicit grant of 
authority to the Commission over receiver equipment clearly indicates 
that neither Congress nor the Commission assumed that the agency could 
find this authority in its ancillary jurisdiction. It also confirms the 
Commission's absence of authority to regulate receiver apparatus as 
proposed by the broadcast flag regulations in the Flag Order. If the 
Commission had no ancillary jurisdiction to regulate the quality of UHF 
reception, it cannot be doubted that the agency has no ancillary 
authority to regulate consumer electronic devices that can be used for 
receipt of wire or radio communication when those devices are not 
engaged in the process of radio or wire transmission.
    A second Congressional enactment that confirms the limited scope of 
the agency's ancillary jurisdiction is the Communications Amendments 
Act of 1982, Pub. L. No. 97-259, Sec. 108, 96 Stat. 1087, 1091-92. As 
part of the Communications Amendments Act of 1982, Congress authorized 
the Commission to impose performance standards on household consumer 
electronics to ensure that they can withstand radio interference. See 
47 U.S.C. Sec. 302a(a). The legislative history of 47 U.S.C. Sec. 302a 
demonstrates that this enactment was intended by Congress to give the 
Commission authority it did not previously possess over receiver 
equipment. Specifically, the Conference Report stated that, because 
industry attempts to solve the interference problem voluntarily had not 
always been successful, ``the Conferees believe that Commission 
authority to impose appropriate regulations on home electronic 
equipment and systems is now necessary to insure that consumers' home 
electronic equipment and systems will not be subject to malfunction due 
to [radio frequency interference].'' H.R. CONF. REP. NO. 97-765, at 32 
(1982) (emphasis added).
    The Commission argues that the legislative history of Sec. 302a 
indicates that the legislation's purpose was to preclude state and 
local regulation of radio interference. However, it is not until 
several paragraphs after the portion of the Conference Report quoted 
above that the Report noted that the legislation was ``further intended 
to clarify the reservation of exclusive jurisdiction to the Federal 
Communications Commission over matters involving [radio frequency 
interference].'' Id. at 33 (emphasis added). Congress's principal 
purpose in enacting 47 U.S.C. Sec. 302a was clearly to expand the 
Commission's authority beyond the scope of its then-existing 
jurisdiction, which is inconsistent with the FCC's current view that it 
always has had sweeping jurisdiction over receiver apparatus under 
Title I of the Communications Act.
III. Conclusion
    The FCC argues that the Commission has ``discretion'' to exercise 
``broad authority'' over equipment used in connection with radio and 
wire transmissions, ``when the need arises, even if it has not 
previously regulated in a particular area.'' FCC Br. at 17. This is an 
extraordinary proposition. ``The [Commission's] position in this case 
amounts to the bare suggestion that it possesses plenary authority to 
act within a given area simply because Congress has endowed it with 
some authority to act in that area. We categorically reject that 
suggestion. Agencies owe their capacity to act to the delegation of 
authority'' from Congress. See Ry. Labor Executives' Ass'n, 29 F.3d at 
670. The FCC, like other Federal agencies, ``literally has no power to 
act . . . unless and until Congress confers power upon it.'' La. Pub. 
Serv. Comm'n  v. FCC, 476 U.S. 355, 374 (1986). In this case, all 
relevant materials concerning the FCC's jurisdiction--including the 
words of the Communications Act of 1934, its legislative history, 
subsequent legislation, relevant case law, and Commission practice--
confirm that the FCC has no authority to regulate consumer electronic 
devices that can be used for receipt of wire or radio communication 
when those devices are not engaged in the process of radio or wire 
transmission.
    Because the Commission exceeded the scope of its delegated 
authority, we grant the petition for review, and reverse and vacate the 
Flag Order insofar as it requires demodulator products manufactured on 
or after July 1, 2005 to recognize and give effect to the broadcast 
flag.
    So ordered.

                                  
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