[House Hearing, 108 Congress]
[From the U.S. Government Publishing Office]



 
                PIRACY PREVENTION AND THE BROADCAST FLAG
=======================================================================





                                HEARING

                               BEFORE THE

                 SUBCOMMITTEE ON COURTS, THE INTERNET,
                       AND INTELLECTUAL PROPERTY

                                 OF THE

                       COMMITTEE ON THE JUDICIARY
                        HOUSE OF REPRESENTATIVES

                      ONE HUNDRED EIGHTH CONGRESS

                             FIRST SESSION

                               __________

                             MARCH 6, 2003

                               __________

                              Serial No. 5

                               __________

         Printed for the use of the Committee on the Judiciary


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

                                 ________

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                       COMMITTEE ON THE JUDICIARY

            F. JAMES SENSENBRENNER, Jr., Wisconsin, Chairman
HENRY J. HYDE, Illinois              JOHN CONYERS, Jr., Michigan
HOWARD COBLE, North Carolina         HOWARD L. BERMAN, California
LAMAR SMITH, Texas                   RICK BOUCHER, Virginia
ELTON GALLEGLY, California           JERROLD NADLER, New York
BOB GOODLATTE, Virginia              ROBERT C. SCOTT, Virginia
STEVE CHABOT, Ohio                   MELVIN L. WATT, North Carolina
WILLIAM L. JENKINS, Tennessee        ZOE LOFGREN, California
CHRIS CANNON, Utah                   SHEILA JACKSON LEE, Texas
SPENCER BACHUS, Alabama              MAXINE WATERS, California
JOHN N. HOSTETTLER, Indiana          MARTIN T. MEEHAN, Massachusetts
MARK GREEN, Wisconsin                WILLIAM D. DELAHUNT, Massachusetts
RIC KELLER, Florida                  ROBERT WEXLER, Florida
MELISSA A. HART, Pennsylvania        TAMMY BALDWIN, Wisconsin
JEFF FLAKE, Arizona                  ANTHONY D. WEINER, New York
MIKE PENCE, Indiana                  ADAM B. SCHIFF, California
J. RANDY FORBES, Virginia            LINDA T. SANCHEZ, California
STEVE KING, Iowa
JOHN R. CARTER, Texas
TOM FEENEY, Florida
MARSHA BLACKBURN, Tennessee

             Philip G. Kiko, Chief of Staff-General Counsel
               Perry H. Apelbaum, Minority Chief Counsel
                                 ------                                

    Subcommittee on Courts, the Internet, and Intellectual Property

                      LAMAR SMITH, Texas, Chairman

HENRY J. HYDE, Illinois              HOWARD L. BERMAN, California
ELTON GALLEGLY, California           JOHN CONYERS, Jr., Michigan
BOB GOODLATTE, Virginia              RICK BOUCHER, Virginia
WILLIAM L. JENKINS, Tennessee        ZOE LOFGREN, California
SPENCER BACHUS, Alabama              MAXINE WATERS, California
MARK GREEN, Wisconsin                MARTIN T. MEEHAN, Massachusetts
RIC KELLER, Florida                  WILLIAM D. DELAHUNT, Massachusetts
MELISSA A. HART, Pennsylvania        ROBERT WEXLER, Florida
MIKE PENCE, Indiana                  TAMMY BALDWIN, Wisconsin
J. RANDY FORBES, Virginia            ANTHONY D. WEINER, New York
JOHN R. CARTER, Texas

                     Blaine Merritt, Chief Counsel
                          Debra Rose, Counsel
              Melissa L. McDonald, Full Committee Counsel
                     Alec French, Minority Counsel




















                            C O N T E N T S

                              ----------                              

                             MARCH 6, 2003

                           OPENING STATEMENT

                                                                   Page
The Honorable Lamar Smith, a Representative in Congress From the 
  State of Texas, and Chairman, Subcommittee on Courts, the 
  Internet, and Intellectual Property............................     1
The Honorable Howard L. Berman, a Representative in Congress From 
  the State of California, and Ranking Member, Subcommittee on 
  Courts, the Internet, and Intellectual Property................     2

                               WITNESSES

The Honorable Marybeth Peters, Register of Copyrights, Copyright 
  Office of the United States, The Library of Congress
  Oral Testimony.................................................     8
  Prepared Statement.............................................    10
Mr. W. Kenneth Ferree, Bureau Chief, Media Bureau, Federal 
  Communications Commission
  Oral Testimony.................................................    16
  Prepared Statement.............................................    18
Mr. Fritz E. Attaway, Executive Vice President Government 
  Relations and Washington General Counsel, Motion Picture 
  Association of America (MPAA)
  Oral Testimony.................................................    45
  Prepared Statement.............................................    46
Mr. Edward J. Black, President and Chief Executive Officer, 
  Computer and Communications Industry Association (CCIA)
  Oral Testimony.................................................    49
  Prepared Statement.............................................    51

           LETTERS, STATEMENTS, ETC. SUBMITTED FOR THE RECORD

Letter from John S. Orlando, Senior Vice President, External 
  Relations, National Association of Broadcasters................     5
Letter from Jonthan Zuck, President, Association for Competitive 
  Technology.....................................................     6
Chart made by Philips Electronics North America Corp. to the 
  Federal Communications Commission..............................    69

                                APPENDIX
               Material Submitted for the Hearing Record

The Honorable John Conyers, a Representative in Congress From the 
  State of Michigan..............................................    71
The Honorable Bob Goodlatte, a Representative in Congress From 
  the State of Virginia..........................................    72
The Honorable Zoe Lofgren, a Representative in Congress From the 
  State of California............................................    72
The Honorable Robert Wexler, a Representative in Congress From 
  the State of Florida...........................................    73
Letter from Gigi B. Sohn, President, Public Knowledge, and 
  Christopher Murray, Legislative Counsel, Consumers Union with 
  attachments....................................................    74
Prepared Statement of the Office of the Commissioner of Baseball.   140















                       PIRACY PREVENTION AND THE
                             BROADCAST FLAG

                              ----------                              


                        THURSDAY, MARCH 6, 2003

                  House of Representatives,
              Subcommittee on Courts, the Internet,
                         and Intellectual Property,
                                Committee on the Judiciary,
                                                    Washington, DC.
    The Subcommittee met, pursuant to notice, at 10:08 a.m., in 
Room 2237, Rayburn House Office Building, Hon. Lamar S. Smith 
[Chairman of the Subcommittee] presiding.
    Mr. Smith. The Subcommittee on Courts, the Internet, and 
Intellectual Property will come to order. It is nice to see how 
many people are interested in the subject at hand, and that 
includes, of course, Members who are here at the hearing, as 
well.
    We will begin with opening statements and then move 
immediately to hear from our witnesses, and I will recognize 
myself for an opening statement.
    Today, the Subcommittee will explore the complexity of the 
broadcast flag issue and also how it is connected to copyright 
law and the jurisdiction of the Subcommittee. On one level, we 
are ensuring that new technologies designed to prevent piracy 
do not limit the public's ability to make fair use of 
copyrighted works. On another level, we are continuing our 
efforts to support private industry efforts to curb piracy of 
their products.
    We are in the midst of a transition to DTV. As early as 
2006, all broadcasts must be aired in digital format. This 
presents opportunities for American consumers, businesses, and 
copyright owners. As with many technological advantages, the 
DTV transition has been frustrated by both technological and 
legal hurdles. There is a great danger of massive piracy of 
unprotected broadcasts once the transition to DTV is complete. 
Pirates can easily copy and redistribute millions of digital 
files in a matter of seconds. In the absence of protection 
against unauthorized redistribution, it is unlikely that 
content owners will make high-value programming available to 
broadcasters.
    The broadcast flag is one solution supported by copyright 
owners and broadcasters. The broadcast flag is a sequence of 
digital bits embedded in a television program that signals that 
the program must be protected from unauthorized redistribution.
    Since 1996, an inter-industry group called the Copy 
Protection Technical Working Group has been meeting regularly 
to discuss general copy protection issues. The Broadcast 
Protection Discussion Subgroup was formed specifically to 
address digital broadcast copy protection. Representatives from 
the consumer electronics, information technology, motion 
picture, cable, and broadcast industries participated. The 
group announced its consensus on the use of a broadcast flag 
standard for digital broadcast copy protection. Unfortunately, 
final agreement could not be reached on a set of compliance and 
robustness requirements.
    Last August, the Federal Communications Commission adopted 
a Notice of Proposed Rulemaking on digital broadcast copy 
protection. This Subcommittee has great interest in the FCC's 
action because the agency might issue rules that impact the 
Copyright Act and, therefore, involve this Subcommittee's 
jurisdiction.
    Controversy continues over what the broadcast flag will and 
will not do and whether it will have an adverse effect on the 
ability of consumers to make fair use of copyrighted broadcast 
television. Fair use is a defense that may limit the copyright 
owner's exclusive rights. Section 107 of the Copyright Act 
states that fair use of a copyrighted work for purposes such as 
criticism, comment, news reporting, teaching, scholarship, or 
research does not constitute infringement. Fair use, of course, 
is determined on a case-by-case basis. For example, in Sony 
Corporation v. Universal City Studios, the Supreme Court held 
that the practice of taping free television broadcasting for 
later viewing was a fair use.
    It is important that the transition to DTV and any 
implementation of rules requiring the use of the broadcast flag 
technology does not have an adverse impact on how consumers may 
legitimately use lawfully acquired entertainment products. At 
some point, this Subcommittee will decide whether to salute the 
broadcast flag or whether to lower it. For the time being, we 
are going to leave it at half mast.
    That concludes my opening statement, and the gentleman from 
California, Mr. Berman, is recognized for his.
    Mr. Berman. What about pledging allegiance to it? 
[Laughter.]
    Mr. Chairman, I am grateful for your calling this hearing 
today. This is an issue that has some clear implications for 
copyright law and I think it is appropriate that the 
Subcommittee scrutinize the issue.
    I understand that as part of its broadcast flag rulemaking, 
the FCC is currently deciding whether it even has statutory 
authority to implement the broadcast flag. I am absolutely no 
expert on FCC jurisdictional statutes and precedent and I don't 
presume to tell the FCC whether it has authority to implement a 
broadcast flag through a rulemaking and I don't intend to try 
and lecture the FCC about the appropriate parameters of a 
broadcast flag technology.
    I have no problem with the FCC on a policy basis mandating 
use of the broadcast flag technology. While I am generally 
opposed to broad Government mandates on technology, I have long 
considered it appropriate in limited circumstances for the 
Government to order the use of certain technologies around 
which a marketplace consensus has emerged.
    For instance, I supported the Macrovision mandate codified 
in section 1201(k) of the Copyright Act. I authored a bill to 
do that 10 years before it finally passed. Through 1201(k), 
Congress required the use of Macrovision's copy prevention 
technologies in certain videocassette recorders, camcorders, 
and other devices. I supported provisions of the Audio Home 
Recording Act of 1992 that required digital audio recording 
devices to utilize the serial copy management system.
    So I don't object to the concept that the FCC might require 
incorporation of broadcast flag technology into appropriate 
hardware technologies and devices. That being said, I do have 
some concerns about the broadcast flag rulemaking, in 
particular, what some parties are asking the FCC to do.
    Numerous comments have been filed asking the FCC to ensure 
that any broadcast flag technology allows consumers to make 
various uses of the digital TV programming it protects. These 
commentators purport to cite various copyright law doctrines, 
including first use, as the Chairman discussed, and first sale, 
as guaranteeing consumer utilization of copyrighted TV 
programming in the ways they hope to protect.
    It is these claims about copyright law and the role of the 
FCC in analyzing them that gives me pause about the broadcast 
flag rulemaking. I am unaware of any precedent for the FCC 
interpreting the Copyright Act as part of an FCC rulemaking or 
in any other capacity, nor am I aware, for that matter, of the 
FCC ever mandating that copyright owners surrender any of their 
exclusive rights to consumers.
    Congress itself has limited the rights of copyright owners 
when mandating the uses of technologies to protect copyright 
owners. In mandating use of the Macrovision technology, 
Congress ensured that it could not be used to prohibit the 
copying of most analog over-the-air television broadcasts. In 
mandating the use of the serial copy management system, 
Congress ensured that it could only be used to prohibit copying 
from copies, but not to prohibit copying an original video 
digital audio recording.
    At least in part, Congress decided to limit these 
technology mandates in these ways so as to protect the 
traditional ability of consumers to make certain uses of the 
copyrighted works at issue. When Congress itself has placed 
limitations on the exclusive rights of copyright owners in the 
course of mandating certain technologies, I am unaware of any 
precedent for a Federal agency doing so.
    About the closest precedent involves the Copyright Office, 
not the FCC. In the course of its triennial rulemaking under 
sections 1201(a)(1)(c), the Copyright Office is empowered to 
analyze whether the anti-circumvention provisions of the DMCA 
are adversely affecting non-infringing uses of copyrighted 
works. If the Copyright Office finds such adverse effects, it 
is empowered to create limited exemptions from the anti-
circumvention provisions to protect the adversely-affected non-
infringing uses.
    But the Copyright Office has expertise in this whole area. 
The FCC doesn't have expertise in this particular area, and so 
I am opposed to the FCC attempting to interpret, regulate, or 
otherwise limit the exclusive rights of copyright owners in the 
course of its broadcast flag rulemaking.
    As I stated before, the FCC may well have jurisdiction to 
mandate a broadcast flag technology, to establish rules 
regarding the implementation of that technology as part of its 
authority to facilitate the digital television transition. 
Under the same authority, the FCC may be able to mandate that 
the broadcast flag technology provides only limited protection 
to digital television broadcasts. My point is simply that the 
FCC should not attempt to interpret copyright law in the course 
of its rulemaking, nor to encapsulate copyright law doctrines 
in any technology it mandates. That, I think, is a prerogative 
of the Congress, and to the extent it delegates it, to the 
Copyright Office.
    Thank you, Mr. Chairman.
    Mr. Smith. Thank you, Mr. Berman.
    Without objection, other Members' opening statements will 
be made a part of the record, as will all the witnesses' 
complete statements, as will two items that I have been given, 
one from the National Association of Broadcasters and one from 
the Association for Competitive Technology. All that will be 
made a part of the record.
    [The material referred to follows:]
    
    
    
    
    
    
    Mr. Smith. Let me introduce our witnesses, and our first 
witness is the Honorable Marybeth Peters, the Register of 
Copyrights for the United States. She also has served as Acting 
General Counsel of the Copyright Office and as Chief of both 
the Examining and Information and Reference Divisions. She 
authored the ``General Guide to the Copyright Office of 1976.''
    The next witness is W. Kenneth Ferree, who was appointed 
Chief of the Cable Service Bureau at the Federal Communications 
Commission in May 2002. The Cable Service Bureau was combined 
with the Mass Media Bureau, and Mr. Ferree was named Chief of 
the newly created Media Bureau. He provides legal, policy, and 
regulatory advice to the FCC Chairman as well as the other FCC 
Commissioners.
    Our next witness is Fritz Attaway, Executive Vice President 
for Congressional Relations and General Counsel of the Motion 
Picture Association of America. Before joining MPAA, Mr. 
Attaway served as attorney advisor in the Cable Television 
Bureau of the Federal Communications Commission.
    Our last witness is Edward J. Black, President and Chief 
Executive Officer of the Computer and Communications Industry 
Association. He has overall responsibility for the Association, 
which includes leading the effort on a wide range of 
legislative, policy, and regulatory areas for CCIA and its 
member companies.
    Before we begin, I understand the gentlewoman from 
California, Ms. Lofgren, would like to say something about one 
of the witnesses.
    Ms. Lofgren. Thank you, Mr. Chairman. I just wanted to 
especially thank Mr. Black for being here. I know that it was 
not easy for him to appear before the Subcommittee. He has 
served his country well as the Chairman of the State 
Department's Advisory Committee on International Communications 
and Information Policy and is an expert in international law 
and copyright matters and I just thank him for making the extra 
effort to be here today.
    Mr. Smith. Thank you, Ms. Lofgren.
    Let me remind our witnesses that we do have a 5-minute rule 
and we would like for you to summarize your complete testimony 
so that we can stay within that limit, and we will begin, Ms. 
Peters, with your testimony.

  STATEMENT OF HON. MARYBETH PETERS, REGISTER OF COPYRIGHTS, 
 COPYRIGHT OFFICE OF THE UNITED STATES, THE LIBRARY OF CONGRESS

    Ms. Peters. Mr. Chairman, Congressman Berman, Members of 
the Subcommittee, I am pleased to be here today to discuss the 
copyright issues raised by the broadcast flag proposal.
    Let me begin by offering my congratulations to you, Mr. 
Chairman. I look forward to working with you on this and many 
other copyright-related issues. You are off to a strong start, 
and those in the copyright field are really encouraged.
    As you know, the FCC's Notice of Proposed Rulemaking 
solicited comments on whether it was desirable to adopt a 
regulatory protection regime as part of the transition to 
digital broadcast television, and if so, how such a regime 
should be put in place. While the subject matter of the 
broadcast flag is technological, many of the comments arguing 
both for and against its adoption are rooted in copyright law.
    The purpose of my testimony is twofold. First, I want to 
explain the relationship between the broadcast flag proposal 
and important principles of copyright law. Second, I hope to 
provide some clarity on the fair use and first sale doctrines 
and their role in the broadcast flag discussions.
    While I have no positions on the merits of the broadcast 
proposal at this time, I do believe that producers of 
television programming have ample ground to feel that the 
transition to digital broadcasting may make them subject to 
massive piracy in much the same way that music copyright owners 
have suffered from the phenomena of Napster and its progeny. 
Thus, they have good reason to insist that something be done to 
prevent such infringement.
    I also don't take a position with regard to what users 
ought to be allowed to do in a broadcast flag regime. However, 
a number of FCC comments recommend that broad uses of 
copyrighted works be accommodated within the broadcast flag, 
some of which go beyond fair use. If copyright owners all agree 
to these broad uses, I see no problem. If there is no agreement 
and if instead it is determined that what is to be allowed is 
any activity that falls within fair use in the first sale 
doctrine, then it is important that there is an accurate and 
complete understanding of these copyright doctrines.
    My concern is that many of the comments are predicated on 
various interpretations and applications of the 1984 Supreme 
Court's five-four decision in Sony Corporation v. Universal 
Studios. In Sony, motion picture copyright owners brought an 
infringement action against the manufacturer of the Betamax 
VCR. The claim was asserted under theory of secondary liability 
based on consumers' use of the VCR to record free over-the-air 
television broadcasts.
    The Court held that making reproductions of free over-the-
air television programs for the purposes of time shifting, in 
other words, watching the show at a later time, is a fair use. 
That finding was largely based on the Court's analysis of the 
fourth factor in section 107, namely whether time shifting 
adversely affects the market for or value of the copyrighted 
works at issue. The Court concluded, among other things, that 
the copyright owners had not provided sufficient evidence that 
time shifting would cause any likelihood of non-minimal harm to 
the potential market for or value of their copyrighted works.
    Due to the nature of today's technologies, application of 
fair use to digital broadcasts would be significantly different 
than the Sony analysis. Some comments submitted to the FCC 
suggest that the Sony decision requires that fair use must 
vindicate consumer expectations as to the functionality of 
their home electronics devices. This claim with regard to 
consumer expectations misstates the nature of fair use. 
Consumer expectations are typically asserted and vindicated in 
the marketplace, not through fair use. The Sony decision is not 
based on whether time shifting met consumer expectations about 
what they could do with their VCRs, but rather it met the 
criteria for fair use codified in section 107.
    The proper fair use inquiry would include an assessment of 
whether the consumer's activities, if permitted on a widespread 
basis, would provide benefits to the public without undermining 
the incentive for the creation and distribution of copyrighted 
works, that is, the ability of authors to receive compensation 
for dissemination of their works. Consumer expectations are not 
particularly relevant to this question.
    To be clear, I don't disagree that legitimate consumer 
expectations should play an important role in consideration of 
the broadcast flag proposal. My concern is that the important 
policy goals of copyright should not be undermined in the costs 
of adopting any regulatory framework that purports to be 
accommodating fair use when, in reality, it permits far more 
than fair use.
    Additionally, some have suggested that the first sale 
doctrine, a limitation on copyright owners' distribution 
rights, requires that the broadcast flag permit certain 
retransmissions of copies of digital broadcasts. The Copyright 
Office in its DMCA section 104 report to Congress engaged in a 
thorough analysis of this issue, especially as it related to 
emerging technologies. Many who participated in that study had 
argued that first sale principles should apply to digital 
transmissions. We concluded then and continue to believe that 
there are fundamental differences between digital copies 
transmitted in a network environment and the physical copies 
covered by the existing first sale doctrine, and those 
differences argued against recognizing a new form of first sale 
for digital transmissions.
    In closing, I would like to thank you for giving me the 
opportunity to testify today. As always, the Copyright Office 
would be pleased to assist the Subcommittee in its 
consideration of these important issues and we will continue 
our analysis of the broadcast flag proposal.
    I would be pleased to answer any questions you may have.
    Mr. Smith. Thank you, Ms. Peters.
    [The prepared statement of Ms. Peters follows:]
                 Prepared Statement of Marybeth Peters
    Mr. Chairman, Congressman Berman, Members of the Subcommittee, 
thank you for inviting me to appear before the Subcommittee today to 
discuss the copyright issues raised by measures for the protection of 
digital broadcast television signals, commonly referred to as the 
``broadcast flag'' proposal. Let me offer my congratulations to you, 
Mr. Chairman. I look forward to working with you on this and many other 
copyright-related issues. You are off to a strong start and it is very 
encouraging to those of us in the copyright field.
    As you know, in August 2002 the Federal Communications Commission 
issued a Notice of Proposed Rulemaking soliciting comments from 
interested parties on whether it was desirable to adopt a regulatory 
protection regime as part of the transition to digital broadcast 
television, and if so, how such a regime should be put into place.\1\ 
While the subject matter of the broadcast flag proposal is 
technological, many of the comments submitted to the FCC arguing both 
for and against its adoption are rooted in copyright law.\2\ As 
Congress has recognized, the Copyright Office has a long history of 
providing expert advice and assistance on these types of issues.\3\
---------------------------------------------------------------------------
    \1\ 67 Fed. Reg. 53,903 (Aug. 20, 2002).
    \2\ See generally Initial Joint Comments of Motion Picture 
Association of America (MPAA), et al.; Initial Comments of Consumer 
Electronics Association (CEA); Initial Comments of Computer & 
Communications Industry Association (CCIA); Initial Comments of Home 
Recording Rights Coalition (HRRC).
    \3\ See 17 U.S.C. Sec. 701(b).
---------------------------------------------------------------------------
    The purpose of my testimony is twofold. First, I want to explain 
the relationship between the broadcast flag proposal and important 
principles of copyright law, such as the reproduction right, the 
distribution right and the doctrines of ``fair use'' and ``first 
sale.'' I believe that as consideration of the broadcast flag proposal 
moves forward, a clear understanding of copyright law is necessary so 
that important copyright principles and policy are not undermined by 
the establishment of any regulatory scheme. Second, to this end, I hope 
to provide some clarity on the ``fair use'' and ``first sale'' 
doctrines and their role in the broadcast flag discussions.
    While I have no position on the broadcast flag proposal at this 
time, I believe that producers of television programming have ample 
ground to fear that in the transition to digital broadcasting and with 
the advent of new consumer electronic devices that permit recipients of 
broadcasts to reproduce television programs and retransmit them on the 
Internet, they may encounter massive piracy in much the same way that 
record companies, recording artists, composers and musicians have 
suffered from phenomena such as Napster and its progeny. They have good 
reason to insist that something must be done to prevent such 
infringement. It may well be that the broadcast flag proposal is the 
best available solution. I do not have sufficient mastery of the 
technical details to venture an opinion at this time.
    I also do not take a position with regard to what uses ought to be 
allowed by a broadcast flag, should that proposal be adopted. It is my 
understanding that many of the commenters in the FCC proceeding have 
insisted that implementation of the broadcast flag be done in a way 
that permits consumers to engage in acts of fair use. It is also my 
understanding that some proponents of the broadcast flag have taken the 
position that any technological measures that are adopted as part of 
the broadcast flag proposal should or at least could permit a number of 
practices that consumers desire to engage in even though they are 
beyond the scope of fair use. Copyright owners of broadcast programming 
may simply be willing to forego having technological measures prohibit 
those uses, while retaining their right to assert that some or all of 
those uses are infringing.
    If there is consensus among copyright owners of broadcast 
programming that implementation of the broadcast flag should permit 
conduct by consumers that goes beyond fair use, I see no reason why 
such conduct should not be permitted. In other words, the conduct 
permitted by the broadcast flag need not necessarily be coextensive 
with fair use. If, on the other hand, the ultimate determination is to 
permit acts beyond those permitted by fair use and beyond those for 
which there is a consensus among the pertinent copyright owners, then 
there will be serious copyright implications which this Subcommittee 
will want to examine.
    In any event, the fact remains that the FCC has been presented with 
a number of arguments asserting that the broadcast flag proposal must 
accommodate fair use and the first sale doctrine, and that the people 
making those arguments have asserted that certain kinds of conduct must 
be accommodated because it falls within those doctrines. If these 
arguments are to be made and considered, it is important that they be 
done so with an accurate understanding of the fair use and first sale 
doctrines.
 the broadcast flag debate raises important issues related to copyright
    As the first paragraph of the FCC's notice indicates, digital 
broadcast copy protection has been offered as a way to address the 
concern that ``[i]n the absence of a copy protection scheme for digital 
broadcast television, content providers have asserted that they will 
not permit high quality programming to be broadcast digitally.'' \4\ 
The reason for this reticence is concern about infringing downstream 
uses of digital broadcasts. This Subcommittee has become quite familiar 
with the characteristics of digital technology and the Internet. While 
those technologies provide enhanced quality of content and expanded 
opportunities for marketing, they also dramatically increase the ease 
and reach of copyright piracy.\5\
---------------------------------------------------------------------------
    \4\ 67 Fed. Reg. 53,904.
    \5\ For a more in-depth discussion of some of the differences 
between analog and digital technology, see Copyright Office, Copyright 
Office DMCA Section 104 Report (2001), at 82-85. The results of this 
study were reported to Congress on August 29, 2001 and are available 
at: www.copyright.gov/reports/studies/dmca/dmca--study.html.
---------------------------------------------------------------------------
    As we understand it, the ``broadcast flag'' is one solution for 
placing certain limits on how digital broadcasts can be redistributed 
after receipt by a consumer, so as to prevent harm to the economic 
value of that programming. In many ways, this dilemma is simply a 
specific example of the problem addressed by copyright law generally--
how much protection is necessary to provide an incentive for authors to 
create and disseminate works to public for their use and enjoyment. Not 
surprisingly, therefore, many of the comments submitted to the FCC 
focus on questions of copyright law, such as to what extent personal 
copying and distribution of broadcast programming are governed by the 
fair use or first sale doctrines in copyright law, and how the Supreme 
Court's 1984 decision in Sony Corp. v. Universal City Studios, Inc. 
should be applied in creating a regulatory regime like the broadcast 
flag.
    In addition, implementation of the broadcast flag may provide some 
precedent for how other activity involving digital technology and 
copyrighted works will be addressed under fair use and other provisions 
of the Copyright Act. As a result, the broadcast flag proposal cannot 
be considered in a vacuum, without regard to important aspects of 
copyright law and the use of copyrighted works. Moreover, the issues 
involved in the broadcast flag debate may have ramifications in the 
international copyright system.
                 fair use and the sony betamax decision
    In the next part of my testimony I hope to provide background on 
the fair use doctrine, the Sony decision and the first sale doctrine, 
and how they might relate to the broadcast flag. As I noted, many of 
the comments submitted on the broadcast flag proposal raised important 
questions of copyright law, such as the doctrine of ``fair use.'' \6\ A 
correct and complete understanding of fair use will assist in an 
evaluation of those comments. My testimony today is intended in part to 
provide a concise explanation of the fair use doctrine, and its 
application by the Supreme Court in the Sony case (often referred to as 
the Betamax decision) \7\--the central case around which much of this 
debate revolves.
---------------------------------------------------------------------------
    \6\ See note 2.
    \7\ Sony Corp. v. Universal City Studios, Inc., 464 U.S. 417 
(1984).
---------------------------------------------------------------------------
    Fair use is often described as an ``equitable rule of reason,'' for 
which ``no generally applicable definition is possible, and each case 
raising the question must be decided on its own facts.'' \8\ It was a 
common law doctrine until 1976, when Congress first codified it in 
Section 107 of the Copyright Act as part of the general revision to 
copyright law it enacted that year.\9\ The statutory text does not 
define fair use--rather, it provides guidelines for such a 
determination in the form of a list of four nonexclusive factors that 
must be applied to the entire circumstances of a particular case. In 
addition, the preamble to the section sets forth examples of uses that 
traditionally have been found to be fair uses, such as criticism, 
comment, news reporting and teaching. While this list is not 
determinative of the fair use issue, it was intended to provide 
additional guidance to courts as to the types of uses that had been 
ruled fair prior to the 1976 Act.\10\
---------------------------------------------------------------------------
    \8\ H.R. Rep. 94-1476, 94th Cong., 2d Sess., at 65 (1976).
    \9\ 17 U.S.C. Sec. 107. The text of the section provides:

      Notwithstanding the provisions of sections 106 and 106A, 
      the fair use of a copyrighted work, including such use by 
      reproduction in copies or phonorecords or by any other 
      means specified by that section, for purposes such as 
      criticism, comment, news reporting, teaching (including 
      multiple copies for classroom use), scholarship, or 
      research, is not an infringement of copyright. In 
      determining whether the use made of a work in any 
      particular case is a fair use the factors to be considered 
---------------------------------------------------------------------------
      shall include-

        (1) Gthe purpose and character of the use, including 
      whether such use is of a commercial nature or is for 
      nonprofit educational purposes;

        (2) Gthe nature of the copyrighted work;

        (3) Gthe amount and substantiality of the portion used in 
      relation to the copyrighted work as a whole; and

        (4) Gthe effect of the use upon the potential market for 
      or value of the copyrighted work.

      The fact that a work is unpublished shall not itself bar a 
      finding of fair use if such finding is made upon 
      consideration of all the above factors.
---------------------------------------------------------------------------
    \10\ See H.R. Rep. 94-1476, at 66. The Judiciary Committee made 
clear that pre-1976 fair use precedent remained in effect, as Section 
107 was to ``restate the present judicial doctrine of fair use, not to 
change, narrow, or enlarge it in any way.''
---------------------------------------------------------------------------
    There is no question that fair use is a fundamental component of 
U.S. copyright law, as it provides an essential safeguard to ensure 
that copyright does not stifle uses of works that enrich the public, 
such as ``criticism, comment, news reporting, teaching--scholarship, or 
research.'' \11\ Along with other doctrines like the first sale 
doctrine (which I discuss below) and the idea/expression dichotomy, 
fair use provides necessary ``breathing room'' in copyright and helps 
achieve the proper balance between protection of copyrighted works and 
their use and enjoyment. As the Supreme Court recently explained in the 
Eldred case, fair use is also one of copyright law's important First 
Amendment accommodations.\12\
---------------------------------------------------------------------------
    \11\ 17 U.S.C. Sec. 107.
    \12\ Eldred v. Ashcroft, 123 S. Ct. 769 (2003).
---------------------------------------------------------------------------
    Many of the comments in the FCC proceeding, however, misstate the 
nature of fair use and its role in our copyright system. Much of this 
confusion stems from a misreading of the Supreme Court's opinion in 
Sony Corp. v. Universal City Studios,\13\ the first opinion in which 
the Supreme Court addressed fair use.\14\
---------------------------------------------------------------------------
    \13\ 464 U.S. 417 (1984).
    \14\ Sony was the first case in which the Supreme Court interpreted 
the 1976 Copyright Act and its codification of fair use in Section 107. 
Before the 1976 Act, the Supreme Court heard two cases that raised fair 
use issues, but did not issue an opinion in either of them. See Sony, 
464 U.S. at 476 (dissenting opinion) (citing Williams & Wilkins Co. v. 
United States, 487 F.2d 1345 (1978), aff'd by an equally divided court, 
420 U.S. 376 (1975) & Benny v. Loew's Inc., 239 F.2d 532 (9th Cir. 
1956), aff'd by an equally divided court sub nom. Columbia Broadcasting 
System, Inc. v. Loew's Inc., 356 U.S. 43 (1958)).
---------------------------------------------------------------------------
    In Sony, motion picture copyright owners brought a copyright 
infringement action against the manufacturer of the Betamax VCR. The 
claim was asserted under a theory of secondary liability, based on the 
consumers' use of the VCR to record television programs broadcast free 
over the air. The Court's 5-4 opinion addressed two issues: first, 
borrowing from the ``staple article of commerce'' doctrine in patent 
law, it ruled that secondary copyright liability could not be imposed 
based solely on the manufacture of copying equipment like the VCR where 
the device at issue ``is capable of substantial noninfringing uses.'' 
\15\ Second, it found that the VCR had ``substantial non-infringing 
uses,'' including making reproductions of broadcast television programs 
for purposes of ``time-shifting,'' that is, watching a show at a time 
later than when it is broadcast.\16\
---------------------------------------------------------------------------
    \15\ 464 U.S. 442.
    \16\ Id. at 442-456.
---------------------------------------------------------------------------
    The Court's finding that ``time-shifting'' of broadcast television 
programs was fair use was based predominantly on its analysis of the 
first and fourth factors in Section 107--namely, whether time-shifting 
adversely affects the market for or value of the copyrighted works at 
issue. The court concluded that ``time-shifting merely enables a viewer 
to see such a work which he had been invited to see free of charge'' 
and that therefore it was a ``non-commercial'' use.\17\ It also found 
that the copyright owners had not provided sufficient evidence ``that 
time-shifting would cause any likelihood of nonminimal harm to the 
potential market for, or the value of, their copyrighted works.'' \18\
---------------------------------------------------------------------------
    \17\ Id. at 449.
    \18\ Id. at 451.
---------------------------------------------------------------------------
    Having found that ``time-shifting'' was a ``substantial non-
infringing use'' of the VCR, the Court did not consider whether other 
activity related to home taping of broadcasts--such as creating a 
library of recorded shows, making further copies from the initial 
recording or distributing recorded shows to friends or others--would 
qualify as fair use. Nor did the Court rule, as one commenter suggests, 
that recognizing ``time-shifting'' as fair use was based on First 
Amendment concerns.\19\ Thus, the suggestion that the Sony decision 
established a fair use ``right'' for individuals to engage in a wide 
variety of reproduction and distribution activities is simply 
incorrect.\20\
---------------------------------------------------------------------------
    \19\ See Initial Comments of CCIA, at 17.
    \20\ The phrase ``fair use rights'' is a misnomer. It is not true, 
as some commenters have argued, that consumers have a vested, 
enforceable right to make uses of a copyrighted work that may be deemed 
``fair'' under the fair use doctrine. Rather, if such a use is made, 
fair use protects the otherwise infringer from liability. The structure 
and language of Section 107 make clear that fair use is not a right, 
but merely an affirmative defense to potential copyright infringement. 
Compare 17 U.S.C. Sec. 106 (enumerating specific rights granted by 
copyright) with 17 U.S.C. Sec. 107 (beginning ``Notwithstanding the 
provisions of Sections 106 and 106A, the fair use of a copyrighted 
work--is not an infringement of copyright.'') Courts have recognized 
this technical but important distinction in limiting the ability of 
commercial services to rely on the purported ``fair use rights'' of 
their customers to excuse reproduction and distribution of copyrighted 
works. See William F. Patry, The Fair Use Privilege in Copyright Law 
(2d ed.1995) at 432-33; see, e.g., Pacific & Southern Co.* v. Duncan, 
744. F.2d 1490 (11 th Cir. 1984). cert. denied, 741 U.S. 1004 (1985), 
on remand, 618 F. Supp. 469 (N.D. Ga. 1985), aff'd 792 F.2d 1013 (11th 
Cir. 1986); Basic Books, Inc. v. Kinko's Graphic Corp., 785 F.Supp. 
1522 (S.D.N.Y. 1991) (copy shop found not to be acting as agent of 
colleges where professors provided materials for copying); RCA/Ariola 
Int'l, Inc. v. Thomas Grayston Co., 845 F.2d 773, 782 (8th Cir. 1988) 
(fair use claim by manufacturer of machines permitting customers of 
retail stores to duplicate tapes rejected); cf. Princeton University 
Press v. Michigan Document Services,
---------------------------------------------------------------------------
    74 F.3d 1512 (6th Cir. 1996).
    Moreover, because fair use is a case-by-case, fact-specific 
determination, one must consider the circumstances of the Sony case 
when attempting to apply it to today's environment. In the early 1980s, 
there was very little the typical consumer could do with the analog 
tape recording of a television show made with a VCR--further 
reproduction and distribution were subject to substantial physical 
constraints. The 1980s consumer did not have access to personal 
computers with hard drives, recordable DVD players, wireless home 
networks, websites, peer-to-peer software applications and high-speed 
Internet connections, all of which make acquisition, reproduction and 
distribution of recorded broadcasts (in high-quality digital form) easy 
and inexpensive.
    In today's digital world, the ``private'' and ``non-commercial'' 
use of works can quickly and easily become public distribution of 
copies that has a substantial harmful effect on the commercial value of 
copyrighted works. As my predecessor as Register of Copyrights observed 
nearly 40 years ago, ``a particular use which may seem to have little 
or no economic impact on the author's rights today can assume 
tremendous importance in times to come.'' \21\ We have all watched over 
the past few years as Napster and other peer-to-peer software 
applications transformed private hard drives and individual, person-to-
person exchanges of digital files into a major distribution network of 
unauthorized copies of works. Indeed, this Subcommittee held a hearing 
on precisely that topic last week. That activity has undercut the 
ability of legitimate, revenue-generating distribution services on the 
Internet to develop and flourish. Indeed, the Ninth Circuit Court of 
Appeals recognized this situation in the Napster case when it 
distinguished Sony in analyzing the potential market harm caused by 
individuals' distribution of copyrighted music files over the Napster 
service.\22\
---------------------------------------------------------------------------
    \21\ Copyright law revision, 89th Cong., 1st Sess., supplementary 
report of the register of copyrights on the general revision of the 
u.s. copyright law, part 6, at 14 (Comm. Print 1965). See also S. Rep. 
94-473, 94th Cong., 1st Sess., at 65 (1975) (``Isolated instances of 
minor infringements become in the aggregate a major inroad on copyright 
that must be prevented.'').
    \22\ A&M Records, Inc. v. Napster, Inc., 239 F.3d 1004, 1016-17 & 
1019 (9th Cir. 2001).
---------------------------------------------------------------------------
    Other commenters suggest that the Sony decision requires that fair 
use must vindicate ``consumer expectations'' as to the functionality of 
their home electronics devices. This claim, too, misstates the nature 
of fair use. Consumer expectations are typically asserted and 
vindicated in the marketplace, not through fair use. Recent history 
shows that to the extent copyright owners offer a product in a format 
that consumers find unattractive and limiting, it will be rejected.\23\ 
The Sony decision is not based on whether time-shifting met ``consumer 
expectations'' about what they could do with their VCRs, but rather 
whether it met the criteria for fair use in Section 107, including 
principally whether the activity harmed the market for copyrighted 
works.\24\
---------------------------------------------------------------------------
    \23\ See e.g., Michael Liedtke, H&R Block Jabs at TurboTax 
Software, Assoc. Press, March 4, 2003; Stephanie Stoughton, Circuit 
City's Slipped Disc; Firm Concedes Defeat; Abandons Divx Technology, 
Wash. Post, June 17, 1999; Associated Press, Circuit City, Partner Let 
Divx Expire Lack of Industry Support Cited, Daily Press, June 17, 1999.
    \24\ That is not to say that in determining whether to implement a 
broadcast flag proposal, legitimate consumer expectations should not be 
taken into account. But if they are, it should not be because they 
purportedly are equivalent to fair use.
---------------------------------------------------------------------------
    The proper fair use inquiry would include an assessment of whether 
the consumer's activity, if permitted on a widespread basis, will 
provide benefits to the public without undermining the incentive for 
the creation and distribution of works--that is, the ability of authors 
to receive compensation for the dissemination of their works. Consumer 
expectations in and of themselves are not particularly relevant to this 
question. Indeed, users of peer-to-peer services like Napster are 
becoming accustomed to the notion that creative works should be 
provided free without any restrictions on further copying and 
distribution. Such ``consumer expectations'' are not only inconsistent 
with traditional fair use jurisprudence, they are destructive to 
copyright's principles and purpose.
    To be clear, we do not disagree that legitimate consumer 
expectations should play an important role in consideration of the 
broadcast flag proposal. It appears that consumer expectations have 
been a driving force behind the proposal, as the proposed regime would 
permit unlimited copies for personal use, largely unrestricted use in 
the home network environment, and the potential for use outside a home 
network environment. Many broadcasters and copyright owners apparently 
recognize that even a mandated solution like the broadcast flag must 
meet the needs and desires of consumers or they will not embrace 
digital television.\25\ Our concern is that the important policy goals 
of copyright should not be undermined in the course of adopting any 
regulatory framework that purports to be protecting fair use, when in 
reality it permits far more than fair use.
---------------------------------------------------------------------------
    \25\ See Initial Comments of National Broadcasting Company, Inc. 
(NBC), at 4.
---------------------------------------------------------------------------
              the first sale doctrine and digital content
    Some have also suggested that the ``first sale'' doctrine of 
copyright law requires that the broadcast flag proposal permit certain 
activity with respect to copies of digital broadcasts.\26\ As this 
Subcommittee knows, the Copyright Office, pursuant to Section 104 of 
the Digital Millennium Copyright Act (``DMCA'') of 1998, recently 
engaged in a comprehensive study of the relationship between the first 
sale doctrine and existing and emergent technology.\27\ The Copyright 
Office issued its report in August 2001 and I testified before this 
Subcommittee at the end of that year about our findings and 
recommendations in that report.
---------------------------------------------------------------------------
    \26\ See Initial Comments of CEA, at 6.
    \27\ Copyright Office DMCA Section 104 Report (2001).
---------------------------------------------------------------------------
    The ``first sale'' issues raised with respect to the broadcast flag 
appear very similar to those raised in the DMCA Section 104 Report: 
whether the first sale doctrine as it currently exists would permit 
certain activities related to digital transmission of copyrighted 
works. Some have suggested that the first sale doctrine requires that 
individuals be permitted to transmit digital copies of broadcasts to a 
circle of family or friends and inside and outside the home. As with 
the fair use issue, the Copyright Office believes that consideration of 
the broadcast flag should not be made based upon an incorrect or 
incomplete understanding of the first sale doctrine. I would like to 
provide a brief description of that doctrine and our conclusions from 
the DMCA study, which remain unchanged today.
    The common-law roots of the first sale doctrine allowed the 
legitimate owner of a particular copy of a work to dispose of that 
copy. This judicial doctrine was grounded in the common-law principle 
that restraints on the alienation of tangible property are to be 
avoided in the absence of clear congressional intent to abrogate this 
principle. This doctrine was first codified as section 27 of the 
Copyright Act of 1909 and now appears in section 109 of the Copyright 
Act of 1976. Section 109(a) specifies that notwithstanding a copyright 
owner's exclusive distribution right under section 106, the owner of a 
particular copy or phonorecord that was lawfully made under Title 17 is 
entitled to sell or further dispose of the possession of that copy or 
phonorecord.
    The first sale doctrine is a limitation on the copyright owner's 
exclusive right of distribution. It does not limit the exclusive right 
of reproduction. While the sale or other disposition of a purchased VHS 
tape or book would only implicate the distribution right, the 
transmission of an electronic copy of the same work from one device to 
another would typically result in the making of a reproduction. This 
activity therefore entails an exercise of an exclusive right that is 
not covered by section 109. In other words, there is nothing in the 
first sale doctrine as it currently exists which would authorize the 
type of activity that some have proposed that the broadcast flag should 
permit.
    In the deliberations leading up to the DMCA Section 104 Report, 
several participants argued that first sale principles should apply to 
digital transmissions, notwithstanding that such transmissions 
typically involve the reproduction right.\28\ It appears that a similar 
suggestion is being made in the broadcast flag proceeding. We concluded 
then, and continue to believe, that there are fundamental differences 
between digital copies transmitted in a networked environment and the 
physical copies covered by the existing first sale doctrine, and that 
those differences argue against recognizing a new form of first sale 
for digital copies.
---------------------------------------------------------------------------
    \28\ See Copyright Office DMCA Section 104 Report (2001), at 44-48, 
80-105 for a summary and analysis of the proposals for a digital first 
sale doctrine based on a ``forward and delete'' model.
---------------------------------------------------------------------------
                               conclusion
    In closing, Mr. Chairman, the Copyright Office has only begun its 
analysis of the broadcast flag proposal, and therefore at this time is 
taking no position on whether the broadcast flag proposal should be 
adopted or whether it should be changed in any way to reflect any 
aspect of existing copyright law, such as the fair use or the first 
sale doctrines. Let me be clear though, the appropriate balance between 
copyright owners, broadcasters, equipment manufacturers and consumers 
is fundamental to our support of any effort to devise a regulatory 
scheme governing digital broadcasts. Such a compromise, and the debate 
leading to it, should not be based on an incorrect understanding of 
copyright law and policy.
    I want to thank the Subcommittee again for giving me the 
opportunity to testify today. The Copyright Office would be pleased to 
assist the Subcommittee in its consideration of these important issues 
and I am happy to answer any questions you may have.

    Mr. Smith. Mr. Ferree?

  STATEMENT OF W. KENNETH FERREE, BUREAU CHIEF, MEDIA BUREAU, 
               FEDERAL COMMUNICATIONS COMMISSION

    Mr. Ferree. Good morning, Chairman Smith, Congressman 
Berman, and Members of the Subcommittee. I am Ken Ferree, Chief 
of the FCC's Media Bureau, and I am pleased to be here today to 
talk to you about our proceeding on broadcast copy protection.
    The digital television transition, which is part of a 
larger technological revolution affecting every industry the 
FCC regulates, is a complex undertaking. It will affect 
virtually every segment of the television industry and every 
American who watches television. Unlike some technology 
advances, however, the DTV transition is not purely a 
marketplace phenomenon. Congress and the FCC have been involved 
in the transition from the beginning. We now are entering into 
a critical stage of that transition. It is apparent that our 
efforts over the next 2 years may well set the course for 
television broadcasting in the 21st century.
    Perhaps the key piece of the DTV puzzle is content. 
Consumers will invest in digital television only when they see 
content that is significantly better than that which is 
available in analog. The content could be high-definition, it 
could be multicasting, it could be interactive, but it must be 
significantly better than analog and there must be enough of it 
to make their investment worthwhile.
    Over the last year, the amount of high-definition 
programming has grown dramatically. Indeed, the amount of HD 
programming during broadcast prime time is up about 50 percent 
over a year ago. Many sporting events now are broadcast in high 
definition, and this year, the NBA finals and ``Monday Night 
Football'' will be added to the mix.
    Content providers, however, say that we are living on 
borrowed time. When there are enough DTV receivers and fast 
broadband connections to permit unauthorized redistribution of 
broadcast DTV content over the Internet, they argue, high-value 
content will be made available only on protected platforms like 
cable or satellite.
    This is how the Commission became involved in these issues. 
We have no desire to duplicate the work of the Copyright 
Office, but the Commission does have an interest in keeping the 
DTV transition on track. So when content providers, Members of 
Congress, and others warn that we may be on the verge of losing 
compelling broadcast content, these claims are taken seriously.
    In late 2001, an inter-industry working group attempted to 
develop a technical solution to the problem, specifically 
focusing on the broadcast flag. The working group did not, 
however, reach consensus on all issues, and in August of 2002, 
the FCC issued its Notice of Proposed Rulemaking on digital 
broadcast copy protection.
    The notice takes nothing for granted. Indeed, the first 
issue raised is whether a DTV copy protection regime is even 
necessary, that is, whether piracy concerns will cause content 
providers to withhold certain content from broadcast channels 
and whether the lack of such content will impair the DTV 
transition. If a problem does exist, we ask whether the FCC 
should adopt a copy protection mechanism, how such a system 
would work, how it would be enforced, whether compliance and 
robustness rules would be required, and how such a system might 
impact consumers.
    Importantly, the Commission also sought comment on its 
authority in this area.
    The comment period is now closed and our staff is reviewing 
the record and beginning the process of developing a 
recommendation for the full Commission's consideration. At this 
point, we have drawn no conclusions as to whether a broadcast 
flag system is necessary or appropriate or whether the 
Commission has jurisdiction to adopt such a system. 
Nevertheless, it is entirely fitting and proper that the 
Commission undertake this examination. The transition to 
digital television is a national priority. If content 
protection concerns could be impeding that transition, the 
Commission is obliged to examine the issue. We will, of course, 
keep this Committee apprised of important developments as we 
proceed.
    Thank you for the opportunity to testify today and I will 
be happy to answer any questions you may have.
    Mr. Smith. Thank you, Mr. Ferree.
    [The prepared statement of Mr. Ferree follows:]
                Prepared Statement of W. Kenneth Ferree






















































    Mr. Smith. Mr. Attaway?

    STATEMENT OF FRITZ E. ATTAWAY, EXECUTIVE VICE PRESIDENT 
  GOVERNMENT RELATIONS AND WASHINGTON GENERAL COUNSEL, MOTION 
             PICTURE ASSOCIATION OF AMERICA (MPAA)

    Mr. Attaway. Mr. Chairman, Mr. Berman, Members of the 
Committee, thank you very much for allowing me to appear before 
you today.
    I am incapable of describing the issue of the broadcast 
flag and certainly in 5 minutes, so we have a visual 
demonstration for you today that I will try to run through very 
quickly. This is something we did yesterday on the Internet. I 
have seen Bill Gates try to do a live Internet demonstration 
and fail, so I wasn't about to risk that today. But this is 
something that we did yesterday to demonstrate the broadcast 
flag issue.
    You can find unauthorized copies of all your favorite 
television shows even today by simply going to one of the many 
popular so-called P2P file trading networks, like KaAaA in this 
case. KaZaA boasts 195 million users worldwide. In this 
particular search, we found that 4.2 million users were online 
at the moment that we were online and they were trading 875 
million files.
    To begin the search, we simply clicked the ``search'' 
button. We selected video files of the type that we are looking 
for. If we want episodes of ``The Simpsons,'' we simply type in 
``The Simpsons'' in the search field, click the ``search now'' 
button, and wait a minute. In this case, 197 files became 
available on the first pass. Now, we could have done other 
passes and found additional files of ``The Simpsons,'' but 
there were 197 files available on the first pass, some of them 
in non-English versions, particularly the French. [Laughter.]
    Mr. Attaway. The French seem to like ``The Simpsons.''
    Also, if you want to access the popular ABC program 
``Alias,'' you simply type in ``Alias'' in the search field, 
click the ``search'' button, and wait a minute, and we found 
139 files available for download, again, on the first pass.
    If you are interested in the Fox popular program ``24,'' 
you can also easily find that. In our session yesterday, we had 
to search through a great deal of hard-core pornography and 
advertisements for free condoms before we could get to ``24,'' 
but we eventually found it.
    To download it, you simply click the ``download'' button 
and you will see in a second what you get.
    Now, these are shows that do not recoup their production 
cost on network exhibition. They have to go into syndication. 
They have to go into the foreign marketplace in order to recoup 
their cost and for the studio to make a profit. What you are 
seeing is activity that preempts those sequential markets and 
makes it--eventually will make it impossible for these shows to 
break even, much less make a profit.
    Well, that is the show. In the few seconds I have left, let 
me make three very brief points. First of all, as you have just 
seen, there is a problem. This is not a theoretical issue. This 
is not something that we are worried about in the future. This 
is something that exists today. As band width gets larger, as 
compression technology improves, this problem will get much 
worse.
    The second point is that the broadcast flag that we are 
talking about does one thing and one thing only: It prevents 
redistribution over wide-area networks like the Internet. It 
does not prevent copying in any way, manner, shape, or form. It 
will have absolutely no effect on non-protected content like 
home movies.
    And finally, the flag's impact on technology will be 
negligible. Consumer devices already will have protected inputs 
and outputs to be able to render protected content on cable, 
satellite, Internet, and from other protected sources. What the 
broadcast flag really means is that digital television content 
will be directed through those protected inputs rather than 
unprotected inputs.
    The issue here is not whether high-quality broadcast 
television will be available for redistribution. The issue is 
whether high-value broadcast television will be available at 
all over the air or whether it will be forced to migrate to 
protected distribution sources like cable and satellite. Thank 
you very much.
    Mr. Smith. Thank you, Mr. Attaway.
    [The prepared statement of Mr. Attaway follows:]
                 Prepared Statement of Fritz E. Attaway
    Mr. Chairman, members of the Subcommittee, thank you for giving me 
this opportunity to appear at this very important hearing.
    American consumers, and indeed consumers around the world, are 
entering a golden age of access to audiovisual content. Never before 
have consumers had so much choice in terms of the movies available to 
them, and the means by which they are delivered--theaters, VHS, DVD, 
cable, satellite, broadcast TV, Internet, advertiser supported, 
subscription, pay-per-view, video-on-demand--the list is long and 
growing. The same is true with regard to television programming.
    The engine that is driving us into this golden age of consumer 
choice is technology. The motion picture industry has embraced 
technology, as witnessed by the DVD, to create new markets and bring 
new choices to consumers. However, technology brings challenges as well 
as opportunities. The greatest challenge is to maintain control over 
the distribution of movies and TV shows in order to recoup the cost of 
production and spur investment in new projects.
    Fortunately, technology itself is a big part of the solution to 
illegal distribution. Digital rights management technology is being 
developed that will enable secure delivery of movies and TV shows to 
consumers and exponentially expand consumer choice. The high-tech 
industry is our partner in this endeavor. Contrary to the perception of 
some, the high-tech and movie industries are not enemies. To the 
contrary, we share a common interest in providing consumers new viewing 
opportunities, which will create vast new markets for both consumer 
technology and content.
    That is not to say that the movie and high-tech industries are 
always in total agreement. We have different perspectives, which often 
result in conflicting ideas on how to achieve common goals. We are 
working together on a number of fronts to develop consensus solutions 
to content protection problems, some of which may require legislative 
implementation.
    The greatest challenge facing the motion picture industry today is 
the widespread trafficking of movies and television shows on the 
Internet, mostly through so-called peer-to-peer ``file sharing.'' The 
term ``file sharing'' is a popular euphemism for copying, which in the 
case of copyrighted motion pictures and TV programming, is stealing. 
The sound recording industry is being decimated by this insidious 
practice.
    DRM technology is now being employed by movie distributors to 
prevent unauthorized reproduction and redistribution of digital works. 
However no DRM technology is available 100% of the time, or 100% 
effective when it is available. Some leakage is inevitable. And therein 
lies the problem. When movies leak out of a protected environment, 
whether through hacking of DRM measures, theft of unprotected copies, 
camcording off theater screens, or other means, they can be instantly 
made available to literally tens of millions of people over the 
Internet, instantaneously and with little or no degradation of quality.
    Movie studios are actively engaged in finding ways to stem this 
leakage, such as by providing greater security for prints and 
promotional screeners, and use of more sophisticated DRM measures. They 
are also heavily involved in enforcement of their rights under the 
copyright law, not only through infringement actions, but through 
consumer education and working with colleges and universities to 
develop codes of conduct for students using digital networks.
    One source of leakage that will continue to grow if not addressed 
is digital broadcast television. Because it is transmitted in the 
clear, digital broadcast television programming is subject to an 
extraordinarily high risk of unauthorized redistribution over digital 
networks such as the Internet. The threat of such wide-scale piracy, 
will lead content creators to cease making their high-value programming 
available for distribution over digital broadcast television. Because 
the DTV transition would be seriously threatened by such a development, 
with consequent harm to consumers, the Federal Communications 
Commission has initiated a proceeding aimed at adopting narrowly-
targeted regulations mandating protection of digital broadcast 
television. These proposed regulations are based upon a cross-industry 
consensus developed by the Broadcast Protection Discussion Group, an 
informal, open forum created for the purpose of finding a solution to 
the broadcast redistribution problem.
    The BPDG proposed implementation of a Broadcast Flag as the most 
appropriate and efficient solution for the protection of digital 
broadcast television. Use of the Flag would allow broadcasters to offer 
content creators the same protection against Internet redistribution 
that conditional access systems like cable and satellite can provide. 
The Broadcast Flag would not be required to be embedded in content, in 
the event that a content provider wishes to make its broadcast content 
available for wide redistribution.
    The Broadcast Flag solution regulates a minimum number of products. 
Only consumer products containing modulators or demodulators would be 
directly subject to FCC requirements necessary for the protection of 
unencrypted digital terrestrial broadcast content against unauthorized 
redistribution. These devices include DTV receivers and demodulator 
cards for PCs. Other ``downstream'' devices would have to substantially 
comply with the terms of license agreements with authorized digital 
output technology. Demodulators are the most appropriate gateway to 
commence protection, because prior to demodulation the content is not 
in usable form; after demodulation, the content may be in usable form. 
Regulation of modulators is necessary in order to prevent other content 
protection systems from being undermined by the very rules necessary to 
protect digital broadcast television content. The FCC would also 
regulate a limited number of products that are capable of receiving 
protected but unprocessed content, or digital broadcast content passed 
in a certain way within a computer. Equipment used by satellite, cable, 
and other professional retransmitters of digital broadcast content 
would be exempt from the requirements. However, such retransmitters 
would be required to ensure that retransmitted digital broadcast 
content is protected once received by the consumer's set-top box.
    The Commission would authorize a list of specified protection 
technologies, known as ``Table A,'' for use with digital broadcast 
content. Without such a list, manufacturers would lack guidance 
concerning implementation of the requirements and disputes over their 
implementation would inevitably arise. Given the ever-changing nature 
of technology, narrow criteria drafted today specifying certain 
features for protection technologies may quickly become obsolete. Thus, 
we have asked the Commission to adopt flexible, market-based criteria 
for Table A technologies, to be administered by the Commission.
    Contrary to what has been argued by some Broadcast Flag opponents, 
the Broadcast Flag solution will not prevent consumers from making an 
unlimited number of physical recordings of DTV programs, or from 
distributing protected digital broadcast content within the personal 
digital network environment, defined as the home or similar local 
environment. And the Flag WILL NOT intrude in any way on consumer 
privacy. Furthermore, implementation of the Broadcast Flag solution 
will have no impact on existing consumer equipment. The cost impact on 
affected equipment going forward will be insignificant.
    Given the fact that protection of digital broadcast content is 
necessary to implement a robust DTV transition, the Commission has 
ample authority to act under existing legislation. The Commission has 
express statutory authority under 47 U.S.C. Sec. 336 to adopt rules to 
prevent unauthorized redistribution of digital terrestrial broadcast 
television programming. Furthermore, the Commission has ancillary 
jurisdiction to adopt such rules under Titles I and III of the 
Communications Act.
    Although there is a high level of consensus within the content, 
consumer electronics and information technology (computer) industries 
on the need for a Broadcast Flag, there are disagreements on the 
details of its implementation and in a few cases opposition to the Flag 
in principle. Much of the opposition to the Flag in principle is based 
on misconceptions of what it would do, like restrict home copying. (As 
stated earlier, the Flag would not hinder physical copying and 
enjoyment in the home in any way.) Other concerns address such issues 
as timing and standards for implementation. MPAA and a host of other 
Broadcast Flag supporters, including broadcasters, labor and 
professional organizations, advertisers and sports interests, recently 
addressed these concerns in reply comments to the FCC, pointing out 
that:

         1. LThe current availability of the highest quality 
        programming for free over-the-air broadcast is not sustainable 
        if adequate protections are not adopted in parallel with the 
        rapid expansion in broadband connections and DTV equipment.

         2. LWithout the Broadcast Flag, the market will respond to the 
        increasing threat of unauthorized redistribution by migrating 
        high-quality programming away from broadcast television to 
        other, protected distribution channels.

         3. LIllegal file trafficking in audiovisual works is currently 
        like illegal trafficking in music was six years ago; but as 
        technology improves, television programming will be as 
        susceptible to piracy as music is now, unless a solution is 
        already in place.

         4. LThe threat of unauthorized redistribution over wide area 
        networks is qualitatively different from that of any other 
        previous technology, such as the VCR; networks such as the 
        Internet allow the instantaneous, effortless, and costless 
        worldwide distribution of copies with none of the restrictions 
        or effort that applied to VCRs or other, physical recording 
        technologies.

         5. LThose who are interested in negotiating a solution on this 
        particular topic have already done so, and further delay is 
        unnecessary; indeed, delay will allow device manufacturers to 
        create a huge legacy of non-compliant products that may stymie 
        the Broadcast Flag.

         6. LThe Broadcast Flag is the only solution that preserves 
        high-quality programming on broadcast television.

         7. LExisting equipment in consumer's homes will not be 
        affected by the implementation of the Broadcast Flag.

         8. LAdopting the Broadcast Flag would not inaugurate a new 
        regime of content protection, but rather would afford digital 
        broadcaster the same ability to protect content that other 
        distribution channels enjoy.

         9. LThe criteria for Table A in the Joint Proposal are more 
        objective than those proposed by any other party.

        10. LThe Broadcast Flag does not at all restrict the number of 
        copies a consumer may make of broadcast television.

        11. LClaims that the Broadcast Flag would prevent such uses as 
        the transfer of content within the home, or the incorporation 
        of broadcast content into a school project, or would require 
        content owner approval for any such actions, are simply 
        mistaken.

        12. LThe Broadcast Flag does not apply to every device, and 
        does not apply to the equipment of Internet Service Providers; 
        it applies only to DTV receivers, DTV modulators, and a very 
        limited number of related DTV consumer products.

        13. LThe Broadcast Flag achieves the minimum level of 
        restrictions necessary to prevent worldwide unauthorized 
        redistribution of broadcast content.

        14. LThe Broadcast Flag regulation would not pose any challenge 
        to open source developers not already posed by the very concept 
        of secure applications generally.

    Implementation of the Broadcast Flag is a necessary, but by no 
means complete, solution to the problem of Internet trafficking in 
infringing movies and other copyrighted material. Another key component 
of this problem is analog reconversion, which refers to the conversion 
of protected digital content to analog, and its reconversion to 
digital, which wipes out all known digital rights management 
technologies.
    As stated earlier, we are working with the high tech community to 
find mutually agreeable solutions, and some of these solutions, like 
analog reconversion, will probably require legislative implementation. 
However time is of the essence. Consumers are anxious to take advantage 
of new viewing opportunities that require very substantial investment 
by content suppliers in new business models that cannot succeed in an 
environment of unbridled piracy. We urge the Congress to take an active 
interest in solving these problems, to encourage all parties to find 
practical solutions, and where purely marketplace solutions are not 
effective or cannot be implemented, to adopt such legislation as is 
necessary to achieve a golden age of consumer choice.
    Again, I thank you for this opportunity to present the views of the 
motion picture industry.

    Mr. Smith. Mr. Black?

  STATEMENT OF EDWARD J. BLACK, PRESIDENT AND CHIEF EXECUTIVE 
   OFFICER, COMPUTER AND COMMUNICATIONS INDUSTRY ASSOCIATION 
                             (CCIA)

    Mr. Black. Mr. Chairman, Mr. Berman, Members of the 
Subcommittee, thank you for the opportunity to testify today. I 
look forward to working with you in the future on these very 
many important issues that are important to our industry that 
are the jurisdiction of the Subcommittee.
    CCIA represents a diverse group of companies, including 
hardware, software services companies from many parts of the 
computer, communications and Internet sectors. Our member 
companies have annual revenues of approximately $300 billion a 
year. Intellectual property and copyright have played an 
integral role in the development and success of our industry. 
Our members support strong copyright protection.
    Copyright is a useful, but not sufficient, tool to 
accomplish one of our industry's more fundamental goals, 
preserving the vitality of a dynamic, innovative industry 
capable of providing the public with great products and 
services. CCIA has long understood that the greatest benefits 
flow from a balanced copyright system that ensures that the 
legitimate interests of all parties in our techno-ecosystem are 
respected, including the customer and end user.
    We recognize that many different parts of industry also 
have diverse interests and needs. We recognize that all of us 
who are content creators face challenges and opportunities in 
the rapidly changing world in which we live. We believe very 
real problems of illegal copying exist and need to be 
addressed.
    Looking at piracy alone, however, and especially at one 
aspect of it reminds us of the parable of the wise man and the 
elephant. We have come to realize that some of our copyright 
and piracy problems are subsets of the larger challenge facing 
us all: The recalibration of our systems, laws, business 
models, and thinking to ensure that in a very rapidly changing 
digital world, legitimate interests of all relevant interests 
and parties receive a reasonable and fair place in a new 
equilibrium. In trying to reach this new equilibrium, a few of 
the other values that must be considered along with copyright 
and the First Amendment are the preservation of competition, 
the innovative process, efficiency, deregulation, cost-benefit 
equity, consumer welfare, and productivity.
    One of these values is embodied in DMCA section 12(c)(3). 
That section reflects a policy and decision by the Congress 
that consumer electronics and computer products not be required 
to respond to particular technological measures. This was a 
correct decision by the Congress and one that should not be 
overturned. It should certainly not be overturned by a grant of 
jurisdiction to the FCC and then subsequently, in essence, a 
retransfer of jurisdiction from the FCC to a small group of 
industry players.
    We believe strongly in the value of the marketplace as a 
determinant of which technology and which business models will 
succeed. We believe in an open private sector consensus 
standards process. We do not think creating a whole new regime 
is necessary or desirable, and we do not think centralized 
planning in the area of technology is the preferred course. We 
fear not just the growth of industrial policy in this area per 
se, but of a lopsided industrial policy that gives control over 
a large innovative industry to a smaller, important, but 
vulnerable, one in the name of hypothetical benefits.
    We are concerned that under the guise of piracy protection, 
this power may be used for anti-competitive purposes. The 
proponents of the broadcast flag argue that because the flag is 
intended to limit retransmission rather than copying, the flag 
does not implicate fair use. Fair use, however, is not only 
limitation of the copyright owner's reproduction right, it is a 
limitation on all of the copyright owner's exclusive rights 
under section 106, including the distribution right, the 
performance right, and the display right. Thus, fair use could 
be implemented when the consumer is technologically prevented 
from retransmitting digital content.
    In short, there is more to fair use than time shifting. 
There also is space shifting and a host of transformative uses 
that involve both time shifting and space shifting. At CCIA, we 
are particularly concerned about preserving these transformed 
abuses. One of the great virtues of digital technology is the 
ability it gives consumers to become content providers and 
content distributors, and just like the established 
entertainment companies, these consumers incorporate elements 
of preexisting works in their content. This creativity by 
consumers should be welcomed and encouraged by Congress. It 
makes the populus more literate and computer savvy. 
Unfortunately, the broadcast flag restricts this creativity.
    The entertainment industry has already conceded that the 
broadcast flag by itself will not stop retransmission of 
digital television over the Internet. Accordingly, they have 
initiated industry discussions concerning the so-called analog 
hole, which presumably will lead to even more proposed 
legislation.
    Moreover, the broadcast protection discussion group itself 
has already demonstrated mission creep. It was formed to 
address the protection of feature film and broadcast on 
television, yet now, it is concerned with protecting revenue 
streams and syndication rights for regular television programs.
    Significantly, fair use has a First Amendment dimension. 
Less than 2 months ago, the U.S. Supreme Court stated that fair 
use was one of the copyright law's ``built in First Amendment 
accommodations.'' Thus, any statute or regulation that has the 
effect of limiting fair use treads on constitutionally suspect 
ground.
    We believe that in addition to the enormous technological 
and competitive issues raised, the BPDG proposal would create 
huge costs, both economically and otherwise, for consumers and 
for the technology industry. We, therefore, urge the FCC to 
reject this proposal. We would urge the Congress to proceed 
very carefully in this area.
    Thank you very much for the opportunity to testify today.
    Mr. Smith. Thank you, Mr. Black.
    [The prepared statement of Mr. Black follows:]
                 Prepared Statement of Edward J. Black
                              introduction
    The Computer & Communications Industry Association is a group of 
large, small and mid-sized technology companies committed to the 
proposition that open markets, open systems and open networks are 
critical to an efficient marketplace.
    Over the years, we have been strong supporters of pro-competitive 
measures such as the Federal Communications Commission's Computer II 
ruling. From our beginnings as active participants in proceedings 
against AT&T and IBM, through our current role as an appellant in U.S. 
v. Microsoft and intervenor in the case against Microsoft at the 
European Commission, we have recognized that technical regulation can 
be the monopolist's favorite cudgel. The ability to control industry 
standards--especially those mandated by government--assures that those 
who cannot otherwise prevail in the marketplace can capture and 
maintain a dominant position. We therefore have profound concerns over 
the proceeding at the FCC, which implicates standards setting 
processes, technology development, and copyright.
    Copyright is, by definition, a balance of the rights of creators 
and freedom of expression protected by the First Amendment. Copyrights 
and patents are state grants of limited monopoly. They are justified 
under U.S. law only so long as they ``promote the progress of science 
and useful arts, by securing for limited times to authors and inventors 
the exclusive right to their respective writings and discoveries.'' 
(emphasis added) Copyright and its limitations--traditionally matters 
beyond the purview of the Federal Communications Commission--are the 
very heart of the matter now before the Commission.
    Copyright, patent and trademark law are central to the computer and 
telecommunications industry. Our members retain countless intellectual 
property rights, and benefit from the creativity and inventions of 
others. Thus, we have participated in a large number of proceedings at 
the intersection of information technology and copyright, including the 
seminal Sega Enterprises v. Accolade, which affirmed the right of 
software makers to reverse engineer others' works for the purposes of 
developing interoperable products. In more recent years, we have 
remained deeply enmeshed in issues surrounding intellectual property. 
We, along with a handful of other industry organizations, helped 
negotiate key sections of the 1996 World Intellectual Property 
Organization (WIPO) treaty on online copyright in Geneva, as well as 
the Digital Millennium Copyright Act of 1998 (DMCA), which implemented 
the treaty in the United States. In addition to our work in copyright, 
we recently helped fight for--and win--the elimination of virtually all 
controls over the export of encryption technology. Encryption is vital 
to all widely deployed copy-control technologies in current use, 
including those technologies that make up the broadcast-flag proposal 
now before the Commission.
    Given the knowledge we have gained from past and present endeavors, 
we oppose any attempt to enshrine into law the broadcast flag proposal, 
including any effort to promulgate the proposed Compliance and 
Robustness rules, which have been proposed to govern the flag's 
implementation. As we outline below, the proposed rules will distort 
the professed purpose of the marker, frustrate consumer rights and 
expectations and further delay an already troubled transition to 
digital broadcast television. Worse still, the proposal will fail to 
prevent the illegal copying its backers say it can stop.
                           the broadcast flag
Origins of the Broadcast Protection Discussion Group's broadcast flag 
        proposal
    Content providers claim to have put forth this controversial 
proposal chiefly to avoid indiscriminate copying and redistribution of 
their works over the Internet. That remains part of the report's goals. 
Unfortunately, the co-chairs, together with certain members of the 
content industry, have permitted many other objectives to creep into 
this proposal. In reality, the proposals found in the Compliance and 
Robustness Requirements document would effectively ban any 
retransmission not approved by the major motion picture studios. While 
the studios might desire such a regime, this unprecedented degree of 
control is a denial of consumers' rights and expectations, in conflict 
with fundamental First Amendment rights, and ultimately a futile 
endeavor.
What the Flag Does
    The ``broadcast flag'' as such is no more than a few bytes of 
information appended to a digital-television signal. It performs no 
work, contains no ``intelligence.'' It is simply notice that tells a 
compliant device that the broadcast is copyrighted. The flag indicates 
the creator's wishes as to whether it may be copied, and how it may be 
used. There is no controversy as to the form or essential function of 
this flag, and the flag is already part of the ATSC standards for 
digital television. The controversy, rather, revolves around over the 
controls Hollywood wishes to assert over devices and content through 
this flag, and how these controls will function
    In discussions before the Broadcast Protection Discussion Group, 
Hollywood's representatives argued that all devices capable of 
receiving content containing the flag should be restricted so that 
leakage to the Internet would be impossible, or nearly so. Content 
owners assert, via analogy to current controversies over file sharing, 
that piracy of free, over-the-air digital television programs will be 
sufficiently rampant as to justify the reworking of essentially all 
consumer electronics that can handle a digital-television signal or 
convert analog to digital. We outline below why this analogy is 
inappropriate, and why such a proposal makes little sense from the 
viewpoint of law, technology or economics.
      legal impediments to adoption of the broadcast flag proposal
The proposed broadcast flag abridges First Amendment rights
    The proponents of the broadcast flag argue that because the flag is 
intended to limit retransmission rather than copying, the flag does not 
implicate Fair Use. Fair Use, however, is not only a limitation on the 
copyright owner's reproduction right. It is a limitation on all of the 
copyright owner's exclusive rights under Section 106, including the 
distribution right, the performance right, and the display right. Thus, 
Fair Use could be implicated when a consumer is technologically 
prevented from retransmitting digital content.
    Many high school students, for example, have been taught in their 
schools how to put together very sophisticated power point 
presentations, including video clips. Their homework assignments 
sometimes require them to create such presentations at home or in the 
school library, and then to present them in class to the teacher and 
their fellow students. Imagine that a student wanted to create a 
presentation on how television situation comedies portray the 
relationship between parents and children, including clips from popular 
situation comedies and television dramas. The broadcast flag would not 
interfere with the creation of such a presentation on a home computer. 
But how would the student get the presentation to school? The broadcast 
flag presumably would prevent her from e-mailing it to her teacher, or 
burning a CD. If she had a laptop she might be able to bring the laptop 
to school, but this option would not be available if she only had a 
desktop.
    In short, there is more to Fair Use than time shifting. There also 
is space shifting, and a host of transformative uses that involve both 
time shifting and space shifting. At CCIA, we are particularly 
concerned about preserving these transformative uses, like the student 
project described above. One of the great virtues of digital technology 
is the ability it gives consumers to become content providers and 
content distributors. And just like the established entertainment 
companies, these consumers incorporate elements of pre-existing works 
in their content. This creativity by consumers should be welcomed and 
encouraged by Congress. It makes the populace more literate and 
computer savvy. Unfortunately, the broadcast flag restricts this 
creativity.
    Proponents of the broadcast flag assert that their proposal is so 
limited that it will not unduly restrict consumer creativity. But the 
history of intellectual property laws in general, and copyright law in 
particular, teach us that this is just the first step. Today the 
entertainment companies seek restrictions on retransmission outside the 
home network. Tomorrow they will seek limitations on retransmission 
within the home network. And the day after tomorrow they will demand 
prohibitions on fast-forwarding through commercials on taped TV shows. 
Indeed, the entertainment industry has already conceded that the 
broadcast flag by itself will not stop retransmission of digital 
television over the Internet. Accordingly, they have initiated industry 
discussions concerning the so-called ``analog hole,'' which presumably 
will lead to more proposed legislation. Moreover, the Broadcast 
Protection Discussion Group itself has already demonstrated ``mission 
creep.'' It was formed to address the protection of feature films 
broadcast on television, yet now it is concerned with protecting the 
revenue stream from syndication rights for regular television programs.
    Fair Use is often disparaged in these chambers as either a quaint 
legacy of a bygone era, or a form of disguised piracy. It is neither. 
To be sure, many infringers claim that their copying was permitted 
under the Fair Use doctrine, but courts have quickly dismissed these 
frivolous arguments. In fact, Fair Use is as important today as it was 
before the advent of the computer, and it is as important to businesses 
as it is to consumers. Congress itself couldn't function without Fair 
Use. Everyday, Congressional offices make thousands of photocopies of 
newspaper articles. Fair Use permits this. Everyday, Congressional 
offices download copyrighted material from the Internet. Once again, 
Fair Use permits this. Indeed, the simple act of replying to an email 
could be an infringement, but for Fair Use.
    Significantly, Fair Use has a First Amendment dimension. Less than 
two months ago, the U.S. Supreme Court stated that Fair Use was one of 
the copyright law's ``built-in First Amendment accommodations.'' Thus, 
any statute or regulation that has the effect of limiting fair use 
treads on constitutionally suspect ground.
The American tradition, innovation and common sense argue against 
        heavy-handed regulation of the Internet
    For years, the Commission, the White House, Congress, and even the 
Supreme Court have noted that information technology and the Internet 
are simply too young--and fast moving--to be tied down by strict 
government regulation. Time and time again, federal officials have 
rejected the idea that the Internet can be closely regulated. Yet, this 
is precisely the direction in which some would have the FCC and 
Congress head.
    CCIA, therefore, has urged the FCC to act with caution during their 
proceeding on the broadcast flag, and would urge the Subcommittee and 
Congress to proceed in a similar fashion. The mere existence or even 
approval of the multi-bit signal known as the broadcast flag is not at 
issue before the FCC or Congress. Rather, the Commission is being asked 
to decide what, if anything, devices must do when confronted with such 
a flag.
    If the FCC or Congress decides to act on the proposal, we believe 
it should limit its action to recognizing the ATSC flag as a national 
standard for signaling a work's status under copyright law, but no 
more. Were the policymakers to follow the wishes of the content 
community's most extreme proponents and require certain technologies to 
respond to this flag in a certain way, it would severely skew a nascent 
marketplace. Such a broadcast flag standard would freeze innovation, 
and grant control of a vital standard to a handful of companies in the 
content industry. Such an action would be anticonsumer, antibusiness, 
anticompetitive and fundamentally at odds with the policy objectives 
set forth by Congress in promoting the advancement of HDTV.
    We believe the FCC and Congress should uphold the most basic tenets 
of the Constitution, and trust the market to produce solutions at least 
as good as those that a handful of motion picture studios would seek to 
impose upon the rest of society.
The Broadcast Flag violates the balance that Congress has struck
    The Broadcast Flag is merely the beginning of Hollywood's efforts 
to unravel the careful balance achieved by Congress just four years ago 
in the DMCA. This legislation was the highest priority of the content 
industry during the 105th Congress, and Hollywood executives and 
lobbyists exerted tremendous pressure to push the legislation through. 
CCIA and others in the technology and consumer electronics industry 
were reluctant to grant such broad new powers to copyright owners, but 
entered into good-faith negotiations to seek a workable balance of 
interests.
    A key compromise reached during DMCA negotiations was 
Sec. 1201(c)(3) of the Act, the ``no mandate'' provision, which 
specifies that equipment manufacturers are not required to design new 
digital telecommunications equipment, consumer electronics and 
computing products to respond to any particular copy protection 
technology. Implementation of the BPDG co-chairs' proposal would renege 
on this critical agreement, and fundamentally alter the balance 
Congress sought in the DMCA. The BPDG co-chairs' report would require a 
broad mandate upon demodulators, modulators, and, through the mandatory 
license agreements of the ``approved technologies'' all electronic 
devices, computer hardware, components and software used to process, 
record and view high-definition television content. Any such mandate 
should be based on a genuine, broad consensus achieved following a 
careful examination of all of the practical consequences and public 
policy repercussions. The current proposal fails to satisfy any of 
these requirements.
Government action must be fair and equitable
    Over the years, various interest groups have attempted to control 
the Internet. From those who would seek to ban from the network 
anything someone could call ``indecent,'' to overreaching law 
enforcement agencies that have tried to limit online privacy and 
anonymity, more than a few groups have determined that their parochial 
interests outweighed the interests of society as a whole.
    The Supreme Court cited just such interests in its groundbreaking 
ruling in Reno vs. ACLU. Confronting a section of the 
Telecommunications Act of 1996 that attempted to ban all public display 
of indecency from the Internet, the Court ruled swiftly and surely. 
Congress, the Court found, could not convert the entirety of the World 
Wide Web into something suitable for children. The First Amendment, the 
Court found, forbade such restrictions on the rights of the rest of 
society.
    The threat to free speech is not as sweeping in this instance, but 
nonetheless, questions of balance are vital. As we note above, the 
Robustness and Compliance Requirements of the Co-Chairs proposal have 
failed to protect Fair Use and invite only more interference with it 
via futile attempts to ``fix'' the so-called analog hole and 
constraints on peer-to-peer technologies.
                 historical experience of copy controls
The music industry's experience is largely irrelevant to HDTV
    Proponents of the Co-Chairs' report assert that DTV will soon be 
``Napsterized,'' or plagued with the same problems of widespread 
copying now faced by record companies. While it is simple to find some 
parallels between MP3 files and HDTV broadcasts, the analogy breaks 
down under examination. The basic properties of MP3s vs. those of High-
Definition television govern basic laws of the marketplace and consumer 
behavior.
    MP3 files, like the music one buys on a Compact Disc at a record 
store, are digital. But those same files occupy a tiny proportion of 
the space needed by conventional CD recordings. Even the highest-
quality (and thus least compact) MP3 files average a mere four 
megabytes per three-minute song, or roughly 60 megabytes per 15-song 
album. A conventional audio CD, by contrast, consumes roughly 10 times 
as much space, or 600 megabytes per album. The difference between the 
two capacities is fundamental and grounded in a basic reality: the vast 
majority of consumers have neither time, opportunity, hard-disk space 
nor bandwidth to download music--legally or not--when a full album 
would take up nearly a half a gigabyte. Thus, they must use MP3 file 
formats to compress the data into a manageable size.
    But as with all compression, this ease of use comes at a price. MP3 
sound quality is significantly lower than that of full-fidelity CDs. 
Thus, we believe it is misleading to assert that digital technology 
offers ``perfect'' reproduction of audio and video works. Rather, 
digital technology offers perfect reproduction only of the version of 
the recording that is placed on the network in the first place.
    The 10-to-1 compression of MP3 is impressive, but ultimately 
results in significant loss of sound quality readily apparent to anyone 
with a stereo of even middling quality. For this reason, MP3 players 
now available on the market are overwhelmingly aimed at portable 
devices and not at the home stereo market; the sound quality is simply 
too low for more serious uses. The low quality of MP3 recordings puts 
into jeopardy the proposition that widespread file sharing poses an 
immediate threat to all recordings sold at retail. Likewise, the 
laborious chore of downloading files from peer-to-peer networks 
(connections often fail), checking their quality (``pirate'' MP3s are 
often badly compressed, or compressed far beyond the limits of good 
sound quality), assembling those files and then burning them to disk 
(the process can take an hour or more) puts a real limit on the number 
of people who would rather undertake this onerous task than buy the 
recording.
    We know that the record industry asserts that illegal copying of 
their wares accounts for their falling sales. Others suggest that there 
are other possible causes, including the current economic slowdown, the 
industry's release of far fewer titles and their elimination of 
singles, the end of cassette production, broadcast media consolidation, 
and less grooming of new talent. A full examination of the recording 
industry's woes is beyond the scope of this hearing. Nonetheless, the 
supposed causes of the record studios' financial slump--MP3 
reproduction--is only partially relevant in the face of staggering 
bandwidth requirements of digital television. Thus, we question in the 
first place the aptness of comparing the real problems of the slumping 
record industry to the supposed difficulties of movie studios that are 
recently concluded their largest and most profitable sales year in 
history.
The Broadcast Flag proposal ignores our industry's 25-year history of 
        combating illegal copying.
    Finally--and perhaps most importantly--we would like to refer to 
the decades of experience our industry has had with illegal duplication 
of software. We learned long ago that we can create some impediments to 
unauthorized copying. But we also learned that modern DRM technology is 
mostly successful in keeping honest people honest. We also have learned 
that the more we restrict how our customers can use our products, the 
more likely they are to be annoyed. Indeed, our earlier attempts at 
copy control chiefly taught hackers how to crack inherently insecure 
systems. The result was an ``arms race'' of software developer vs. 
hacker.
    That arms race at first did little more than deny users the ability 
to make back-up copies or perform other innocuous tasks. Later, it 
taught good hackers how to be better ones. With time, there arose a 
particularly corrosive attitude among consumers. Some users began to 
think that stealing software was somehow permissible, since--in their 
mind--producers treated customers poorly and interfered with their 
expected use of the products. It is small wonder, then, that the vast 
majority of software makers dropped the fight.
    Today, software developers and their representatives routinely 
pursue, litigate against and assist in the prosecution of commercial 
infringers. Although illegal copying imposes costs on all software 
users, swift legal action puts a damper on such activity. At the same 
time, we know that illegal copying is largely a crime of opportunity. 
When given the chance to buy software at reasonable prices through 
convenient online kiosks or stores, consumers will generally purchase 
software products through legal, authorized distribution channels. The 
software business, like all businesses, eventually comes down to 
trusting the vast majority of customers.
    The co-chairs and those who agree with them--Hollywood, in 
particular--have chosen not to trust consumers. They now threaten not 
to make their goods generally available without onerous copy protection 
measures. The record companies, in particular, have refused to make 
their goods available online at prices that reflect the vastly lower 
costs of online distribution, or in places consumers find convenient. 
They have also refused to ``unbundle'' their content to allow consumers 
to purchase a single song at a proportionate price rather than an 
entire album. Consumers are now also faced with purchasing music and 
visual media embedded with draconian DRM technology that, threatens to 
become obsolete, and restrict their rights and expectations with 
regards to time- and space-shifting. As a result, many otherwise honest 
consumers have gravitated towards the flexible reproduction and 
distribution offered by online file-sharing networks.
    Now, alarmed by the record industry's own, predictable failure to 
stop unauthorized copying, Hollywood comes to the FCC and Congress for 
the blessing of still another ill-conceived copy-control scheme. The 
studios believe that, all evidence to the contrary, the broadcast flag 
will stop copyright infringement from occurring this time around. The 
Commission and Congress should reject this argument as a basis for 
implementation of the Broadcast Flag proposal, notwithstanding the many 
adverse consequences that would clearly result from the plan.
  shortcomings of the broadcast flag proposal as a technology standard
    Compounding this tension is another problem: The BPDG, despite its 
long efforts, produced no actual technology standard for the 
implementation of the broadcast flag. The prospect of adapting 
technologies approved by the MPAA and a handful of others to devices 
outside the local-area-network topology, for instance, remains only a 
dream. The FCC, therefore, is being told it must treat a mere wish list 
as though it were technological fact.
    The Fair Use that was so crucial in Sega and other forms of lawful 
use of copyrighted works cannot be regulated by a mathematical 
algorithm or technological device. Fair Use is that use which is not 
authorized by the creator but it nonetheless legal as determined by the 
courts. These determinations are inherently subjective, and often 
controversial, and must normally be resolved on a case-by-case basis. 
Any solution that does not allow for consumers' continued enjoyment of 
the full range of uses permitted under existing precedent--as well as 
those uses that come to fall under the protection of copyright law--
will diminish the rights of copyright users and upset the careful 
balance that has existed for hundreds of years.
    This matter is obviously important for consumers, and their need to 
access legally the body of other works for personal use is clear. Ph.D. 
candidates who need to use copyrighted HDTV footage for a thesis on 
popular culture, proud parents who want to e-mail digital video of 
their child's soccer game, or corporate executives who want to watch 
video stored on an office computer while traveling, consumers, 
governments, and businesses alike need access to these works for their 
personal, non-commercial use. None of these things would be possible 
under the Co-Chairs proposal. And while proponents will argue that none 
of these things is expressly forbidden, the reality is we see no viable 
technology that can both allow these actions and comply with the 
proposal.
    Fair Use is not just a right enjoyed by consumers. Neither is it 
limited to rival software developers who want to produce game 
cartridges for other companies' players. Fair Use is intended to 
benefit the entirety of society. Fair Use, far from being a plaything 
of the ivory tower, is a concept that has run through our entire system 
of copyright since the time that it was established by the Founders. 
The more we limit fair use, the less likely we will enjoy the benefits 
of the creativity and innovation that are now possible under our 
intellectual property system. The more we dictate standards, the less 
room we have for broad accommodation and market-based solutions. 
Indeed, the broadcast flag proposal seems destined to create a cartel 
of content and technology producers that will decide who may prosper 
and who will not.
                               conclusion
    As representatives of some of America's largest producers of 
copyrighted material, we know first hand the importance of protecting 
what one owns. But our experience and knowledge of the law tell us that 
there are limits to the control we may expect over copyrighted 
materials. As a matter of technology and law, the Broadcast Flag 
proposal is fatally flawed.
    The digitization of increasing amounts of our cultural heritage 
follows precisely the revolution through which the rest of society has 
passed. We as a society have responded to that change by creating new 
ways of doing business, of governing and living, of buying and selling 
copyrighted materials.
    Not all are happy with this change. Like so many established 
powers, they now want to enlist the government in fighting a rear-guard 
action against the future. We urge the Members of the Subcommittee to 
reject this call to arms.

    Mr. Smith. Ms. Peters, let me direct my first question to 
you, but on the way there, say that I felt like your written 
testimony read like it was written by a judge, and I actually 
mean that as a compliment. [Laughter.]
    Mr. Smith. It was a very good analysis of the case at hand.
    Ms. Peters. Thank you very much.
    Mr. Smith. You obviously believe, as a lot of people do, 
that content providers have a legitimate concern. You also 
think we need to accommodate fair use, and I don't disagree 
with that. But you spoke generally a few minutes ago, as well 
as in your written statement, about generalities. Can you be 
more specific? Can you give us examples of, for instance, some 
unauthorized redistribution activities that you feel would go 
beyond fair use?
    Ms. Peters. I just want to correct one thing. I really 
didn't say that the broadcast flag proposal had to accommodate 
fair use. What I said is----
    Mr. Smith. You said the solutions need to accommodate fair 
use.
    Ms. Peters. Right. If the solution was there, then you have 
to make sure you get it right.
    Mr. Smith. Right.
    Ms. Peters. The problem with fair use is there is no exact 
answer, and that is actually the beauty of it. Usually, when 
you know the limits of what is going to be an exception, for 
example, performance of a work in a classroom, you actually 
exempt that out. What fair use does is on a case-by-case basis 
that may change over time, you apply the factors. So I actually 
think it is very difficult to build fair use----
    Mr. Smith. Let me ask you, then, a specific question. 
Suppose a consumer made a copy of a TV broadcast and physically 
mailed it to a friend. That would be permissible, I assume?
    Ms. Peters. Technically, under the Sony decision, the 
making of a copy for time shifting purposes is okay. What you 
seem to be going to is a personal copy, but then the personal 
copy goes to the friend.
    Mr. Smith. Right.
    Ms. Peters. I would say that it is not that clear that it 
is, in fact, fair. It is probably clear that copyright owners 
would not challenge that with regard to a particular----
    Mr. Smith. What if it was e-mailed to a friend?
    Ms. Peters. E-mailed to a friend, one friend? The bottom 
line for me is I think it is technically an infringement, but 
it is one that would not be enforced.
    Mr. Smith. Not be enforced, okay. Fair enough. Thank you, 
Ms. Peters.
    Mr. Ferree, let me ask you a technical question, and it is 
this. Do you think it is possible for the FCC to arrive at a 
limited broadcast flag solution that does not impact copyright 
law and that takes into consideration concerns of consumer 
electronics industries that a broadcast flag will stifle 
competition?
    Mr. Ferree. Yes.
    Mr. Smith. Okay, that is fairly reassuring. [Laughter.]
    Mr. Smith. I am not going to ask you any more. I am glad 
for the short answer.
    Mr. Ferree. No, I----
    Mr. Smith. Really, I am serious.
    Mr. Ferree. Okay.
    Mr. Smith. That was a good answer. The comment period ended 
a couple of weeks ago, a little over 2 weeks ago. When do you 
expect--I am not going to presume you are issuing rules, but 
when do you expect to reach a decision whether or not to make a 
ruling?
    Mr. Ferree. Well, that is hard to predict, Mr. Chairman. We 
have just begun to go through the record. It is quite an 
extensive record. We received something over 6,000 comments in 
that proceeding alone, and they do--the comments----
    Mr. Smith. What is the average period of time you generally 
wait between when the comment period is closed and when you 
would decide whether to issue a ruling or not?
    Mr. Ferree. Oh, that can vary greatly.
    Mr. Smith. You are just going to give a specific answer.
    Mr. Ferree. I will give you as specific answer as I can 
get. I would think if the FCC decided to go forward with a flag 
implementation of some sort, without commenting on what that 
might look like, I would think it would be done this year.
    Mr. Smith. Okay. How about the next 3 months? Six months? 
You can't even be that specific?
    Mr. Ferree. I--I would not hazard a guess. I am sorry.
    Mr. Smith. If you can't, you can't. Thank you, Mr. Ferree.
    Mr. Attaway, do you think that there are other options 
besides the broadcast flag, watermarking and encryption at the 
source that might work or work as well? Do you believe the 
broadcast flag is the only practical solution, then, or----
    Mr. Attaway. We believe it is the only practical solution. 
The only other way of dealing with this problem that we are 
aware of is for broadcasts to encrypt their signals, which has 
enormous legacy problems for consumers, legacy equipment 
problem. The broadcast flag solution that we have recommended 
eliminates any legacy equipment problems for consumers. The 
legacy risk is all placed on us, and that is why it is so 
important that the FCC act quickly, because every day, more 
legacy devices are coming into the marketplace that will not 
recognize the flag, and so the retransmission problem will 
continue until those legacy devices transition out of the 
marketplace.
    Mr. Smith. Mr. Attaway and Mr. Black, I have some 
additional questions in a few minutes and we will get to those 
a little bit later on.
    The gentleman from California, Mr. Berman, is recognized 
for his questions.
    Mr. Berman. Thank you, Mr. Chairman.
    Mr. Attaway, Mr. Black's testimony as well as the CCIA's 
FCC submission keeps talking about Hollywood and Hollywood and 
I thought they were going to break out into song in a moment. 
But you seem to think that only the Hollywood studios support 
the broadcast flag, that this notion of trying to develop some 
form of a consensus is not present in the effect to get the 
broadcast flag. Is that true or do you have allies on this?
    Mr. Attaway. It is not true, and if you see the comments 
filed with the FCC, you see that everyone involved in the free 
over-the-air broadcast business, from content suppliers to 
television stations to advertisers to guilds, everyone involved 
in this activity supports the broadcast flag because everyone 
realizes that without the flag, high-value content is going to 
migrate to protected delivery systems like cable and satellite 
and free over-the-air television as we know it today will be a 
thing of the past.
    Mr. Berman. In your written testimony, you state that the 
broadcast flag wouldn't prevent the incorporation of broadcast 
content into a school project. Mr. Black seems to disagree with 
you. He states that the broadcast flag would effectively 
prevent a child from using clips of DTV programming in a school 
project because it would prevent the child from e-mailing that 
project or burning it onto a CD. Could you reconcile your 
comments with his?
    Mr. Attaway. Well, the broadcast flag would certainly not 
prevent Mr. Black's child from burning a copy of the project 
containing elements of television shows onto a CD. The 
broadcast flag does not prevent copying at all, as I stated 
earlier.
    With today's technology, it would prevent the student from 
e-mailing that project because a secure system does not yet 
exist for e-mailing. But as soon as that technology is 
developed, and I believe it will be, then that would be made 
possible, as well. The only thing that the flag is designed to 
do is to prevent the mass redistribution of television programs 
on wide-area networks like the Internet.
    Mr. Berman. Mr. Black, you note that many of your members 
have strong IP interests of their own and support IP 
protection. One of CCIA's members is Streamcast Networks, the 
corporate owner of the peer-to-peer file trafficking service 
Morpheus. Streamcast Networks is clearly concerned about 
protecting its own IP, as it copyrights its website and it has 
many trademarks, including one on the Morpheus logo.
    At the same time, Morpheus software has enabled and 
continues to enable its users to commit literally billions of 
copyright infringements, including massive copyright 
infringement of TV programming. Even though Morpheus could 
reengineer its software to disable copyright infringements, it 
has refused to do so. So while your members protect their own 
IP, it appears that at least a couple of them actually profit 
from the infringement of copyrights and TV programming. Doesn't 
this lead to the conclusion that some of your members are not 
really concerned about protecting copyrighted DTV programming?
    Mr. Black. Mr. Berman, if any members of mine are found in 
a judicial process--and there is a lawsuit going on right now--
to have as a core part of their business practice the violation 
of law, they will not be members of mine. As a matter of fact, 
Microsoft at the moment is not a member of mine, given their 
anti-competitive behavior across a wide range. We will not----
    Mr. Berman. Do they want to be?
    Mr. Black. Probably not at the moment. [Laughter.]
    Mr. Black. But we basically--I stand by our statement. Our 
companies are a wide range of companies. If--you are making 
presumptions about conduct which will be--is being litigated. 
When it is litigated, we will respond accordingly. We do not 
try to look at every company and every practice, and I think 
there are a lot of companies in various parts of the 
entertainment industry that at times have been found in 
violation of some aspect of law or are under consent decrees, 
et cetera. So a trade association does not try to do that. 
However, like I say, if there was a formal finding, we would 
act.
    Mr. Berman. My point wasn't about who or who shouldn't be 
in your association, nor was I trying to be the jailer. I was 
simply trying to point out that some people who talk about 
desiring to protect IP, at least as the facts appear to me, 
live by trying to violate intellectual property protections. 
That was my only point.
    Mr. Black. I am sure that is right, and I think some people 
who talk a lot about fair use aren't very committed to helping 
fair use along, either.
    Mr. Berman. I am sure that is true.
    Mr. Smith. Thank you, Mr. Berman.
    The gentleman from Florida, Mr. Keller, is recognized for 
his questions.
    Mr. Keller. Thank you, Mr. Chairman, and Mr. Attaway, let 
me start by asking you a few questions about this broadcast 
flag. Do you have any reason to believe that the broadcast flag 
is going to make TV sets or DVD players more expensive?
    Mr. Attaway. No. The broadcast flag technology itself is 
just a bit which is freely available. There is no patent on it. 
So there is no cost at all for using the broadcast flag bit. 
Now, complying with the flag will require a technology to be 
added to devices that receive and demodulate DTV broadcasts, 
but that technology, we are talking about pennies.
    Mr. Keller. Will this broadcast flag restrict the home 
recording of DTV?
    Mr. Attaway. Absolutely not, in no way.
    Mr. Keller. Do you think the broadcast flag ultimately will 
benefit consumers, and if you think that, tell me why.
    Mr. Attaway. Absolutely, it will benefit consumers because 
it will allow free over-the-air broadcast television stations 
to continue to have access to high-value content, content where 
the owners of that content must protect it against 
redistribution in order to maintain its value. The broadcast 
flag will prevent this content from migrating to secure 
delivery systems like cable, satellite, and eventually the 
Internet. It simply levels the playing field for free over-the-
air broadcasts.
    Mr. Keller. Okay, thank you.
    Mr. Black, let me turn to you. Now, as I understand it, 
there are many P2P developers who already advertise filters for 
pornography and viruses and bogus files. I assume that P2P, 
peer-to-peer developers like Streamcast could, without any 
Government regulation, also design software to limit 
trafficking in unauthorized copyrighted works, including TV 
programs. Do you believe they should?
    Mr. Black. Peer-to-peer is a fascinating technology, and I 
think there are some misunderstandings about it. The reality is 
that the original Internet backbone is P2P technology. It is 
used widely for instant messaging, ICQ, video conferencing, 
Telnet, which is very important remote log-on capability used 
in TCP/IP networks, a lot of intra-corporate file transfers, 
data storage----
    Mr. Keller. But rather than a history of it, do you think 
they have the ability to develop their own software to limit 
trafficking in authorized copyrighted works, and if they do, do 
you think they should?
    Mr. Black. I believe--certainly. We do not try to limit 
what software people develop. If there is a market for that and 
it is desirable, I have no problem developing software that 
does not violate any existing laws and computer security, et 
cetera. That would be fine. Our goal is really not to tell 
companies where to go invest in research and build products. 
What we are trying to preserve is exactly that vitality that 
the companies have the capability and the freedom to innovate.
    Mr. Keller. Well, let me get at a question that I think Mr. 
Berman was trying to get at. If most users go on Morpheus to 
download pirated versions of movies and music and TV shows, et 
cetera, isn't it fair for us to assume that the CCIA has a 
vested interest in opposing the flag and, indeed, any other 
solutions to peer-to-peer privacy?
    Mr. Black. Well, we certainly have a vested interest in 
opposing the flag on behalf of all of the companies that have 
$300 billion worth of revenue, which does not come from 
Morpheus. Yes, there are very many legitimate reasons that all 
of my companies have some questions about the flag. Some may 
have more than others. But it is a position, and Morpheus is a 
company that joined only last year. It is a small member. It 
plays a very--in fact, our position on these issues were 
developed prior to that membership. So the assumption, I think, 
that maybe you are trying to get at is not accurate.
    I should point out that in terms of the 6,000 comments 
received, the overwhelming number of those have serious 
criticisms, if not outright opposition to the flag, and in 
almost all of the other high-tech trade associations in the 
industry have likewise weighed in with very serious questions 
about this proposal, again, if not outright opposition----
    Mr. Keller. Did you say $300 million or $300 billion? What 
would you say the revenue is that your guys are getting?
    Mr. Black. About $300 billion a year annual revenues.
    Mr. Keller. Okay. Mr. Attaway, what do you think about that 
response? Do you think there is a $300 billion reason that they 
are opposing the broadcast flag and any other solutions to 
peer-to-peer privacy?
    Mr. Attaway. I do not, and quite frankly, I can't give you 
a good explanation of why they are so steadfastly opposing the 
flag. Getting back to your earlier question about cost, this is 
not an issue of whether television receiving devices are going 
to have to incorporate new technology. These devices already 
are incorporating the kind of technology that will respond to 
the flag, like the so-called 5(c) technology, and that is 
because cable, satellite, Internet, other delivery systems are 
providing protection to content that must be reacted to by 
consumer devices in order for those consumers to watch the 
programs on cable, satellite, et cetera.
    The real difference here--the real issue here is whether 
over-the-air broadcast content should be directed through 
secure inputs or unsecure inputs, and obviously, our position 
is that it should be the former.
    Mr. Keller. Thank you. My time has expired, Mr. Chairman.
    Mr. Smith. Thank you, Mr. Keller.
    The gentlewoman from Texas, Ms. Lofgren, is recognized.
    Ms. Lofgren. Not from Texas.
    Mr. Smith. Oh, I am sorry---- [Laughter.]
    Mr. Smith.--the gentlewoman from California.
    Ms. Lofgren. It is the other nation state.
    Mr. Smith. We will be happy to claim you, however.
    Ms. Lofgren. Thank you. [Laughter.]
    Ms. Lofgren. First, let me thank you, Mr. Chairman, and 
also Mr. Berman, for holding this hearing. I think it is useful 
and I think it is an important subject.
    Clearly, as envisioned, the broadcast flag is just a piece 
of information. It doesn't itself protect anything. So the real 
question is, what happens next and what kind of controls will 
be put in place by the devices that catch signals? Will we 
control innovation of devices? Will consumers be allowed to 
skip commercials in shows they record, just like they can go to 
the bathroom and not have to watch those commercials today?
    I think, also, this is not really before us, but I was 
interested to see your presentation, Mr. Attaway, and what I 
heard, 190 million users online at the day you went in. I did 
mention to counsel here that if we had a compulsory license, 
your industry would be rolling in dough, more than you would 
ever dream of making if that were in place. [Laughter.]
    Ms. Lofgren. But that is not before us. I was grateful that 
you did not show us the free condom ads and the other non-
copywritten material that you found there. [Laughter.]
    Ms. Lofgren. You know, I have an interest--there are 
copyright issues, fair use issues that have been identified, 
but I think there are innovation issues that we would be remiss 
in not identifying, and I noted, Mr. Attaway, in your written 
testimony, you talk about the FCC to authorize a list of 
protection technologies known as Table A.
    What that makes me wonder is whether new technologies that 
are invented, that are not on Table A, would need to seek some 
kind of authorization from presumably the FCC before they would 
be allowed to be marketed, and who would decide whether new 
technologies would be allowed to be invented and to be 
marketed, and what kind of objective criteria would be applied 
to the technology world in sort of Government control of 
invention relative to Table A? Have you given that thought?
    Mr. Attaway. Absolutely. There are a number of avenues to 
become--to get on Table A, to be an accepted technology. 
Several of them are marketplace standards. One of them is the 
standard of being equally effective in protecting the content. 
Some people criticize that standard as being too vague. We 
think it is an appropriate standard because it does exactly 
what you are suggesting should be done, and that is leaving the 
field open to develop new technology and to be as flexible as 
possible. So we think that is the appropriate standard and 
because it is so broad and open, we do not think it will have 
any negative impact on the development of new technology.
    Ms. Lofgren. Could I turn on that same subject, then, to 
Mr. Black? I know several comments have been directed your way 
relative--I didn't realize that Morpheus was actually a member 
of your association because the members I know are like Sun 
Microsystems and people who are huge employers and developers 
of technology in America. What are the implications, in your 
judgment, for the innovations, technology innovations that buoy 
the signal of your sector of the economy, relative to the 
comments of Mr. Attaway as well as his written testimony and 
the proposal?
    Mr. Black. Certainly, Congresswoman. Under the broadcast 
flag proposal that has been submitted, there are--there is a 
great deal of control that is vested into a certain small group 
of entities. There are four ways in which new technology can be 
approved under Table A. I won't go into all the details, but 
the three of them basically are major studios and some small 
number of electronics companies being required to give 
approval.
    The one that Fritz often uses, or Mr. Attaway uses to say, 
oh, but that is--it is not all under our control, basically 
requires a bureaucratic process of review. The standards are 
vague and unclear. The process is likely to be quite lengthy 
and we do not see how that is a reasonable option for 
developing new technology. In addition, the 5c proposal, the 
broadcast flag proposal, allows companies who are in a really 
dominant position here to have subsidiary licensing agreement, 
the terms of which are private, and we are talking about 
proprietary technologies here which are sealed.
    And so if you are a new player trying to get into this 
game, you do not know the standards by which you will be 
judged. That is not an open entry mechanism. That does not 
encourage it. And on top of that, you go through a process, 
most of the avenues of which are controlled by your competitors 
or a small group of cartels and players who may have very 
limited business relationships. This is very unlikely to 
create, foster the kind of investment in innovative energy that 
we have come to rely on in our industry.
    Mr. Smith. Thank you, Ms. Lofgren.
    The gentlewoman from Pennsylvania, Ms. Hart, is recognized 
for her questions.
    Ms. Hart. Thank you, Mr. Chairman. I am sorry I keep 
running in and out of the hearing.
    I guess my question still has to do with what is seen as 
fair use, and I am especially interested in Ms. Peters. In your 
testimony, you refer to consumer expectations as having been a 
driving force behind the broadcast flag proposal since the 
proposed regime would permit unlimited copies for personal use, 
both inside and outside the home network. Would you see these 
consumer expectations as beyond, though, the scope of fair use?
    Ms. Peters. Absolutely. They actually have no limit on the 
number of copies that can be made. We don't have a personal use 
exemption in this country. In Europe, where they have more 
personal use exemptions, they also have levies that compensate 
copyright owners.
    One thing that wasn't clear to me is whether or not you 
transfer the copy of--the question that was asked earlier by 
your Chairman was, what if I make a copy and I e-mail it to my 
friend, and technically, I don't think that if you are talking 
about a digital copy, so now you have a digital copy that you 
have, your friend has, and you go down the line, and 
personally, I don't think that that falls within fair use, but 
no court has exactly looked at that case.
    Ms. Hart. Okay. You make the case about the digital copy 
versus another kind of copy----
    Ms. Peters. Analog.
    Ms. Hart.--and is it because it is so easy to have a 
perfect copy in the digital format that that is of a concern?
    Ms. Peters. That is part of it. It is also part of it that 
you can send it throughout the world instantaneously so that 
millions and millions of people can also have it. That is one 
copy, but then that friend can send it to his friend, and 
around the world it goes.
    Ms. Hart. Thanks. Is there a--go ahead.
    Ms. Peters. and that is without any compensation to the 
copyright owner.
    Ms. Hart. Right, and that is a problem.
    Ms. Peters. Well, if one person does it, it is fine. If 
everybody does it, then it wipes out the market.
    Ms. Hart. But if you do what I have been doing, which is 
taking random polls of random young interns throughout the 
Capitol and asking them, when was the last time they bought a 
CD----
    Ms. Peters. Oh, I have no doubt----
    Ms. Hart.--the answer is they don't know where the CD store 
is, so----
    Ms. Peters. I am aware of that. I just came from UC-
Berkeley. [Laughter.]
    Ms. Hart. That is a good point. Does anybody else want to 
comment on that particular issue? Yes, Mr. Black?
    Mr. Black. We are using some terms in ways that haven't 
been clearly defined. The focus of broadcast flag and all the 
discussion motivating it has been high-definition television 
and bringing that on board. Digital, I can take a home movie 
and digitize it. I can take an analog and digitize it. We have 
got to be careful about using digital TV as an acronym. What we 
are talking about, the presentation we saw here was not 
connected to the Internet. Had that been--and don't use me, use 
the testimony submitted to the FCC from the MIT Media Labs 
person--that in order to have a 2-hour movie transmitted, we 
are talking 36 hours in high-definition over high-speed cable 
network connection. This is not a problem that is on our plate 
today.
    Ms. Hart. Okay.
    Mr. Black. There are several assumptions that have been 
made about what--oh, well, technology is going to fix it, and 
they are talking about compression, they are talking about band 
width, they are talking about various solutions that we are 
going to deal with some of the portability issues. Well, they 
are saying there is going to be some technological solution 
that is going to deal with these, but right now, you can't do 
what they say they are being hurt by. They don't have evidence 
that it is, in fact, taking place.
    Nobody can predict the future, but our best guess--not of 
high-definition television. High-definition programming is 
not--we have seen no evidence and none in the record of a 
problem that is there. Is there a lot of transmission of low-
definition analog programming? Absolutely, and there is a 
problem there. The broadcast flag isn't focused on that. That 
is not what it is designed to deal with. And in testimony that 
has been given and speeches I have heard they don't maintain 
that the broadcast flag solves all the problems that I am 
pointing to. It does not, and they have not maintained that.
    Ms. Hart. Let me give Mr. Attaway a quick rebuttal there 
before I run out of time.
    Mr. Attaway. I can certainly agree with Mr. Black's last 
statement. The broadcast flag does not solve everything, but it 
does solve one aspect of the overall problem, and just because 
it is not 100 percent effective is certainly no reason not to 
adopt it.
    And going back to your initial question about fair use, the 
broadcast flag is not intended to replicate the copyright law 
or even be a substitute for the copyright law. The broadcast 
flag is being proposed as appropriate communications policy to 
preserve over-the-air broadcast television, not unlike the 
1970's when the FCC adopted redistribution regulations for 
cable television, signal carriage and syndicated exclusivity. 
Certainly copyright implications, no question about that, but 
the basic policy was to preserve free over-the-air 
broadcasting. The same exists today.
    Ms. Hart. Okay, thank you. I see I am out of time. Thank 
you, Mr. Chairman.
    Mr. Smith. Thank you, Ms. Hart.
    The gentleman from Virginia, Mr. Boucher, is recognized for 
his questions.
    Mr. Boucher. Thank you very much, Mr. Chairman. I want to 
begin by complimenting you on scheduling a timely and 
interesting hearing on very pertinent subject matter. I think 
it is highly appropriate for this Committee to be examining the 
issues, particularly copyright issues and fair use questions 
that are associated with the possible implementation of the 
broadcast flag.
    I have not taken a position on this matter yet and I am 
still in search of answers to a number of questions, and 
perhaps the witnesses who are here today can help provide some 
of those answers.
    Mr. Black, let me begin with you. We have heard Mr. Attaway 
say that in the absence of a broadcast flag, the producers of 
high-value digital content probably would make that content 
cable and satellite exclusive and would not make it available 
for over-the-air television broadcast in the fear that, in the 
absence of the broadcast flag, someone could take that program 
in the home and upload it to the Internet and then distribute 
it to people around the country or around the world, and so 
there's a real fear of piracy on the part of the Motion Picture 
Association and its member companies and they are basically 
saying that if they don't have the broadcast flag, people who 
depend on over-the-air TV are not going to get high-value 
digital programming.
    I represent a rural area. I have 27 counties and cities in 
the Western part of Virginia. Most of my constituents, unlike 
the American public generally, do not have access to cable 
television. Some, very wisely, I might add, have decided to 
subscribe to satellite television, but probably a majority of 
my constituents still depend upon over-the-air TV in order to 
get their programming. I think nationwide, the number may be 
something like 20 percent or even less, but in my district, it 
is a far higher number.
    And so the argument that Mr. Attaway is making has real 
resonance with someone like me, assuming that it is accurate, 
but I want to try to get some clarification about whether or 
not it is truly accurate. I think you might have a view about 
this and I would be interested to hear it. Is his argument 
accurate? Would over-the-air television be denied high-value 
content in the absence of a broadcast flag?
    Mr. Black. Well, I am not going to try to overly 
specifically predict the behavior of certain companies, but 
there is a multi--there are tens of millions of people out 
there with broadcast TV desires and I believe that there will 
be content produced, that there are business models that will 
work for that. I do not see it at all probable, in fact, that 
the content would not move. In fact, we have seen in recent 
years an increase, a substantial increase in high-quality 
television programs being developed, and if there is a problem, 
which I guess I do dispute, it certainly hasn't seemed to have 
stopped the increase in those numbers today.
    But I think it is important to look, when we talk about the 
impact, that this is Hollywood's most profitable year, and yet 
we have a situation where DVDs--everybody understands the DVD 
code has been compromised. The security is available. Yes, they 
are available on the Internet. Nevertheless, we are at record 
numbers of sales of DVDs. Maybe not everybody is doing it, but 
there is a trade-off between opportunity which the Internet and 
the entire infrastructure of the Internet provides. It is a 
massive expansion of marketing opportunity.
    Are there going to be some parallel costs to that? There 
will be an increase in fair use as a result of that. There 
unfortunately will also be an increase in unfair use piracy. 
But it is net that we are looking at and the issue being raised 
is, is this a threat, and so far, at the moment, DVD sales are 
record numbers and Hollywood is at its best year ever.
    And from the technology standpoint, which you notice Fritz 
did not try to rebut my 36 hours and the MIT statement, and if 
you look at the FCC record, many people in the technology 
industry, major companies, Philips, other trade associations, 
have all also done tests and show those kind of huge numbers 
for downloading--and frankly, the problems in transmission 
infrastructure are huge--the idea of staying online for 36 
hours.
    So the threat is certainly nowhere--it is years out if it 
is real. Only if certainly technological developments increase 
substantially----
    Mr. Boucher. So you don't see it as being an immediate 
problem?
    Mr. Black. I really don't. I think it is a threat. I think 
it is----
    Mr. Boucher. If it is a problem at all, it is longer term.
    Let me ask one other question. Mr. Attaway, we have heard 
discussion here today about the e-mailing of broadcast 
programming, and the question was posed, if you e-mail to a 
friend or someone outside your immediately family, is that a 
fair use application? Should that be permitted under the 
broadcast flag? Frankly, I have doubts that it is fair use. I 
agree with Ms. Peters. In all likelihood, if the case were ever 
squarely put, I think probably sharing copyrighted programming 
without the consent of the copyright owner with someone outside 
of your immediate home setting probably would be found not to 
be fair use.
    But suppose that that is not the example. Suppose that you 
are e-mailing that information to yourself. Suppose that you 
have taken the broadcast and you are sending it to your office, 
where you might need that programming for some business 
application. You are e-mailing that to yourself. That, I think, 
unequivocally would be found to be fair use, and my question to 
you is, in the proposal that you have put forth for a broadcast 
flag, as I understand it, that kind of application would not be 
permitted because the device that searches for the broadcast 
flag as it approaches the Internet would not permit that 
content to go forward onto the Internet. So I think your 
proposal would not permit it.
    My question to you is, why not? Why should this not be 
structured in such a way as to accommodate the unequivocally 
legitimate fair use applications that people may have?
    Mr. Attaway. Congressman Boucher, I have to disagree with 
you. Under our proposal, it would be permitted as soon as 
technology exists to permit it to be done securely. This is a 
technological issue, not a policy issue. I don't agree with 
your policy--I don't disagree with your policy position, and I 
expect that technology will enable that to be done fairly 
quickly.
    Mr. Boucher. So would you agree, then, that as the 
broadcast flag proposal goes forward, if it does go forward, 
that legitimate fair use applications, including those that 
involve use of the Internet, should be permitted?
    Mr. Attaway. The broadcast flag is intended to prevent the 
widespread redistribution of content. If technology exists to 
permit secure delivery of that content to your summer home or 
to your office, that is not something that the broadcast flag 
is intended to prevent, and presumably, it will not.
    Mr. Boucher. Thank you. Mr. Black, do you want to just say 
a word?
    Mr. Black. I mean, I think what we just heard with a very 
articulate----
    Mr. Smith. Mr. Boucher, let me say we have three votes 
coming up. The first is 15, the second is five, the third is a 
15, and we have a couple more items to take care of before we 
leave, so if you could give a very quick response.
    Mr. Black. I think you had a very subtle way of--and 
articulate way that Fritz described collateral damage, and 
there is substantial collateral damage in the broadcast flag 
proposal on costs, on consumers, on innovation. Thank you.
    Mr. Smith. Thank you, Mr. Boucher. Actually, I am going to 
follow up on your last question and I would like to squeeze in 
a couple more questions before we go vote.
    Mr. Attaway, I would like to read to you an excerpt from 
Mr. Black's prepared testimony in which he gives these examples 
that he says would be prohibited by broadcast flag: Ph.D. 
candidates who need to use copyrighted high-definition TV 
footage for a thesis on popular culture, proud parents who want 
to e-mail digital video of their child's soccer game, or 
corporate executives who want to watch video stored on an 
office computer while traveling for their personal non-
commercial use. Do you agree that those things would not be 
possible?
    Mr. Attaway. Absolutely not. None of the----
    Mr. Smith. It depends on the technology, is that what you 
are saying? Mr. Black, hold on. Let him answer the question, 
please.
    Mr. Attaway. None of that content is digital television 
content, so it is totally--the broadcast flag is totally 
inapplicable to that kind of content. The broadcast flag would 
have no effect over it because it is not broadcast content.
    Mr. Smith. Let me ask another question. Mr. Black, you can 
answer this one, as well. Mr. Attaway, do you feel that you are 
using all the tools that you have available to you in the way 
of enforcement to stop the unauthorized distribution activities 
that you fear?
    Mr. Attaway. Yes. We are trying----
    Mr. Smith. In other words, if that is the case, why aren't 
you suing individuals, things like that? It seems to me that 
there are a lot of enforcement tools you could be using you are 
not using, but please respond.
    Mr. Attaway. Well, Mr. Black was correct in that like the 
content scramble system for DVDs, the broadcast flag will not 
be 100 percent effective. What it will do is it will keep 
honest people honest. It will provide a curb where people know 
if they step over that curb, they are doing something illegal. 
For those people who insist on doing it anyway, we will have to 
exercise our rights under the law, under particularly the DMCA 
to identify these people and to take appropriate legal action.
    Mr. Smith. Okay. Mr. Black, do you feel that DMCA, other 
laws are being utilized to their utmost, or is there more that 
could be done?
    Mr. Black. No, I don't. I think what we have seen is a 
series of proposals put forth that have a similar theme, and 
the theme is, basically, let a variety of other players, 
including consumers and other industries, the 
telecommunications industry in some cases, computer industry, 
consumer electronics, let you all bear the costs. We propose 
new proposals and new legislation for you to do it. Frankly, 
you be the heavy guy with our customer. We don't necessarily 
want to alienate our customers, so we are going to create a 
structure where you become the one who has to pass on costs or 
interfere with their privacy, and that is a problem we have.
    Mr. Smith. Okay, Mr. Black. Mr. Attaway, let me ask you to 
respond to something that Mr. Black said on page five of his 
written testimony. We got into it a little bit a while ago, but 
I still want you to respond. He says, only consumer--excuse me, 
it is Mr. Black and it is page five of Mr. Attaway's testimony. 
Only consumer products containing modulators or demodulators 
would be directly subject to FCC requirements necessary for the 
protection of unencrypted digital terrestrial broadcast content 
against unauthorized redistribution. It sounds easy. It sounds 
simple. It doesn't sound very expensive. Why is that such a 
burden, and Mr. Attaway, if you will respond, too.
    Mr. Black. Well, first of all, it is not accurate, and with 
the Clerk's permission, we have a submission that was made by 
Philips to the FCC which lists--I will read them off--but a 
number of the products that----
    Mr. Smith. Do you want those made a part of the record? Is 
that what you are asking?
    Mr. Black. Yes, please.
    Mr. Smith. Without objection, they will be.
    [The material referred to follows:]
    
    
    Mr. Black. Thank you. I will read off some of the devices 
which we believe will be affected as downstream products in 
modulation: Integrated DTV sets; DTV monitors; cable set-top 
boxes; DBS receivers; personal video recorders, such as TiVo 
and Replay; advanced PVRs incorporating twin-tuning, video 
editing, and other capabilities; DVD players; DVD recorders; D-
VHS recorders; computer with DTV tuner card; a computer without 
DTV tuner card; network routers and switchers. This is--I would 
recommend Philips' testimony in this area as a company that has 
detailed out what they see. We see----
    Mr. Smith. Mr. Black, we have to go. Let me ask Mr. Attaway 
to respond very quickly and then we will need to adjourn.
    Mr. Attaway. Well, I think Mr. Black is correct. All of 
these devices will have to respond to the flag, but they are 
going to do that--have that capability anyway because they are 
being built with secure inputs and outputs in order to handle 
protected cable and satellite programming. The only devices 
that the flag will have an impact on are devices that are 
manufactured and sold only to render over-the-air broadcast 
television, and I think that is a very small number of devices 
because most consumers want to get cable and satellite and 
other protected content. So those devices will already have the 
technology in it.
    Mr. Smith. Thank you, Mr. Attaway.
    Mr. Ferree, and let me make this the final comment, I hope 
you have got the clear signal that there is bipartisan concern 
about the FCC's infringing upon the jurisdiction of the 
Committee, and I am sure you won't overstep your bounds and I 
am reassured by the answer you gave to one of the questions 
that I asked you. When it comes to transmission, that is one 
thing. When it comes to use, that is another, and I hope the 
FCC will respect our jurisdiction in that regard.
    Mr. Ferree. We will endeavor to do so, sir.
    Mr. Smith. Okay. Well, I hope you will not only endeavor, I 
hope you will actually do it. [Laughter.]
    Mr. Smith. Thank you, Mr. Ferree.
    Thank you all for your contributions today. They are very, 
very helpful. As I say, this is an issue we are going to be 
looking at in coming weeks and months and all your 
participation is very appreciated. Thank you all.
    We stand adjourned.
    [Whereupon, at 11:25 a.m., the Subcommittee was adjourned.]
                            A P P E N D I X

                              ----------                              


               Material Submitted for the Hearing Record

Prepared Statement of the Honorable John Conyers, Jr., a Representative 
                 in Congress From the State of Michigan
    Copyright piracy is one of the most serious economic problems 
facing this committee. As the whole world knows by now, we have 
absolutely rampant piracy over the Internet. Last year, consumers 
swapped over 5 billion music files over peer-to-peer networks; an 
astonishing 58 percent of the American population between the ages of 
12-21 has downloaded MP3's over the Internet in the past two years. 
Consumers have grown accustomed to free music on the Web; and movies 
and video games are a close second.
    This is why we are at a crossroads in the media business. The 
decisions made in Congress, the state legislatures, and the courts will 
impact the future of the content industry, and whether we will even 
have a viable content industry in the future. We cannot continue to let 
the content industry and its employees operate in an environment where 
consumers feel entitled to content for free.
    There have been two basic sides on this problem. The content 
industry was discouraged from putting its music and movies out in 
digital form unless the computers, television, and handheld electronics 
used to access them would obey digital rights management (DRM), the 
electronic tools used to stop piracy. The high-tech companies wanted 
the marketplace to be the judge; they wanted consumers to have access 
to content and electronics without restrictions.
    Fortunately, there is a middle ground that is working. The parties 
will negotiate and the government will step in to either (1) get the 
negotiations moving if they stall or (2) implement a resulting 
agreement. This approach has seen its first success, the technical 
standard for a broadcast flag. The flag is the digital watermark that 
would be put on over-the-air digital television broadcasts to indicate 
the presence of DRM. The parties reached an agreement on a technical 
standard so that the content industry will make flags and the high-tech 
industry will make devices that work with each other. Now, the FCC is 
in a rule-making to implement that agreement.
    I support this approach because it offers the best of both worlds: 
letting the market work while ensuring that the government can assert 
its prerogative to set policy. But we cannot stop now because there are 
at least three outstanding issues.
    First, the FCC's broadcast flag rule must follow both the letter 
and the spirit of the agreement; it should not be filled with loopholes 
that make flags useless and allow piracy. Content companies will not be 
able to transition to digital unless they can be assured that they will 
not have to compete with Internet sites that offer copyrighted content 
for free. Second, the flag is just one step in addressing piracy. The 
parties must negotiate in good faith and reach agreement on the next 
issue, the analog hole or reconversion issue. This refers to closing 
the loophole that would be created if a digital broadcast with a 
watermark is converted to analog, thereby erasing the watermark, and 
then back to digital so it can be pirated. Finally, the parties must 
work toward solving the peer-to-peer piracy problem, which this 
Subcommittee considered at a hearing last week.
    I can only hope that there will be fruitful discussions on these 
issues; otherwise, we will reconvene this Subcommittee and solve the 
problems with legislation.
Prepared Statement of the Honorable Bob Goodlatte, a Representative in 
                  Congress From the State of Virginia
    Mr. Chairman, thank you for holding this important oversight 
hearing on piracy prevention and the broadcast flag.
    Our Constitution grants Congress the power to award inventors and 
creators, for limited amounts of time, exclusive rights to their works. 
The founding fathers realized that this type of incentive was crucial 
to ensure that America would become the world's leader in innovation 
and technology. This principle is still applicable today. As our nation 
continues its transition toward digital broadcasting, it is crucial 
that we continue to work to protect the rights of the content 
providers. There will only be a variety of programming options when 
content providers can calculate the expected benefits they will receive 
from their works and make informed business decisions accordingly.
    The debate surrounding the appropriate methods that should be 
employed to prevent the unauthorized redistribution of digital content 
is an important piece of the larger digital piracy debate. I am 
encouraged by the fact that the private sector has acted to develop 
solutions to this redistribution problem. Over a year ago, the content, 
entertainment and technology industries sat down to discuss this 
problem and developed the proposed ``broadcast flag'' solution, which 
is an embedded digital message within the program that signals that the 
program must be protected from unauthorized redistribution. The 
potential benefits of the broadcast flag include the fact that it would 
ensure competition among the various delivery methods of digital 
content.
    I am eager to listen to the testimonies of our well-informed 
witnesses and hear their opinions about how the government can help 
private industry solve the unauthorized redistribution problem. I am 
also eager to hear these experts describe the potential benefits that 
the broadcast flag can offer consumers and content providers alike. For 
example, is it true that the flag will protect over-the-air content 
without preventing consumers from enjoying that content in ways they 
always have in their homes, such as taping programs to view later?
    Again, thank you, Mr. Chairman, for holding this important hearing.

                              ----------                              

 Prepared Statement of the Honorable Zoe Lofgren, a Representative in 
                 Congress From the State of California
    I want to thank Chairman Smith and Congressman Berman for holding 
this important hearing today.
    As currently envisioned, the broadcast flag is nothing more than 
information embedded in a television signal. The flag itself does not 
protect anything. It merely signals to compliant televisions and other 
devices that the broadcast is copyrighted.
    The real issue, then, is not the existence of the flag; it is the 
controls that the flag triggers. What will those controls look like? 
Will people be allowed to freely record digital broadcasts for personal 
use? Can they share those broadcasts with family and friends? Can they 
skip commercials in shows they record? Will they be able to transfer 
recorded shows to other digital devices? Which devices will be allowed? 
And most importantly, who gets to answer these questions?
    My concern with the flag, like other digital rights management 
proposals, is that it has the potential to further erode the delicate 
balance between copyright owners and society. I recognize that digital 
broadcasts must be protected from mass copying. But copyright law does 
not give broadcasters, or any other copyright owner, absolute control 
over how consumers use their content. I do not think technology should 
either.
    This week, I introduced a bill to address these exact concerns. The 
BALANCE Act of 2003 will ensure that future digital rights management 
technologies, like the flag, do not chill competition or destroy the 
principles of fair use and first sale. I urge the parties involved in 
the broadcast flag debate to carefully examine my proposal in the 
spirit it was offered. The BALANCE Act does not seek to destroy the 
protections of the DMCA. It seeks to focus those protections on 
preventing piracy without harming competition.
    I want to remind the parties that digital technology is a nascent 
industry. The FCC, as well as content owners and IT companies, should 
proceed with utmost caution. Whatever solution is ultimately agreed to, 
it should be based on objective criteria that do not chill competition 
or unduly restrict consumer uses.
Prepared Statement of the Honorable Robert Wexler, a Representative in 
                   Congress From the State of Florida
    Mr. Chairman:
    Thank you for convening this important hearing on piracy and 
copyright law implications of the broadcast flag. I am glad to have the 
opportunity here today to discuss the growing problem of broadcast 
television piracy. Particularly as we proceed with the transition to 
digital broadcasting, it is imperative to establish strong anti-piracy 
measures to protect this newly accessible type of intellectual 
property.
    While I am concerned about Congress legislating technology, it 
should be clear to any observer that something must be done to prevent 
piracy of copyrighted digital television broadcasts. It is not the 
place of Congress, and certainly not the Subcommittee on Intellectual 
Property, to stifle innovation. Technology and innovation have long 
been a cornerstone of America's economy and will certainly have a 
significant role to play as we recover from our current economic 
troubles. At the same time, inaction in the face of copyright 
infringement of such a tremendous magnitude today could do even more to 
stifle innovation and growth in the future.
    It is my hope that this so-called broadcast flag could provide the 
appropriate protection for copyrighted broadcasts without impeding 
technological growth and development or preventing lawful consumer fair 
use. I am deeply concerned with the possibility of broadcast content 
migrating to cable and satellite, which already have content 
protection, to prevent this kind of piracy. Without valuable high-
definition content to support them, broadcast stations will certainly 
be harmed, as will consumers who will then be forced to subscribe to 
cable and satellite companies to enjoy the high-quality content 
broadband used to offer. There can be no question that consumers will 
ultimately be the ones to pay the price without broadband content 
protections; therefore, it is in the best interest of consumers to 
support the continuation of broadcast programming with copyright 
protections, provided the protection does not limit legitimate consumer 
use. It is my understanding that the addition of the flag to digital 
television broadcasts would not place any restrictions on the fair use 
of consumers and would prevent the kind of rampant, indiscriminate 
redistribution of broadcasting that is an affront to all copyright 
owners.
    Opponents of broadcast flag have yet to provide an alternate 
solution to prevent the theft of perfect digital copies of television 
broadcasts. If the broadcast flag is the only solution anyone can 
present, it is the solution we must embrace if we are to continue the 
mandated digital transmission of broadcast television in the interests 
of the consumer, artists, and property law. I am glad that we are able 
to hear testimony regarding the copyright components of the broadcast 
flag issue before this subcommittee, and I look forward to continuing 
this important copyright debate.




































































































































      Prepared Statement of Office of the Commissioner of Baseball
    The Office of the Commissioner of Baseball (``Baseball'') 
respectfully requests that the Subcommittee include the following 
comments into the record of the hearing conducted by the Subcommittee 
on March 6, 2003. That hearing concerned the copyright issues raised by 
the electronic measures for protecting digital broadcast television 
signals, which is generally known as the ``broadcast flag.''
        progress and problems represented by digital broadcasts
    Baseball has a long history of making league games available both 
nationally and regionally through over-the-air telecasts. More games of 
Major League Baseball are available through over-the-air broadcast 
television each year than those of any other professional sport. Each 
of Baseball's most popular and widely-viewed games--the All-Star Game 
and the World Series games--is televised by a national, over-the-air 
broadcast network.
    The quality of telecasting has grown steadily since the first 
broadcast of a Major League Baseball game (between the Brooklyn Dodgers 
and Cincinnati Reds) in 1939. We have seen the introduction of color 
television, instant replay, and other innovations such as the ``catcher 
cam.'' However, the introduction of digital telecasts in high 
definition format represents a real leap forward for baseball fans--
when a batter hits, a viewer can read the trademark on his bat; as an 
infielder takes a grounder, a viewer can see the stitches on the ball. 
In short, digital broadcasts in high definition can make viewers feel 
as though they are at the ballpark.
    Baseball is excited by the prospects of having its games telecast 
in high-definition by digital broadcast television stations. Baseball 
was proud to be the first major league sport in America to be broadcast 
digitally in high definition when a game between the Cleveland Indians 
and Baltimore Orioles from Oriole Park at Camden Yards was telecast on 
September 16, 1997.
    However exciting this may be, the reality of high definition 
broadcasts is that they are made digitally. While digital broadcasting 
permits unprecedented clarity for viewers, it also presents pirates 
with the unprecedented ability to make unlimited, perfect copies of the 
telecasts of baseball games and to distribute them worldwide via the 
Internet without the consent of Baseball or any Major League club. In 
the future, it is likely that such copies could be distributed on 
nearly a real-time basis with the actual live telecast of a Major 
League game.\1\
---------------------------------------------------------------------------
    \1\ As recently as last week scientists testing the next generation 
Internet transmitted the equivalent of two full-length, digital-quality 
movies over 6,800 miles in less than a minute. See Jeordan Legon, 
``Internet Speed Record Smashed,'' CNN.com (March 7, 2003), available 
at http://www.cnn.com/2003/TECH/internet/03/07/speed.record/ 
index.html. That speed is more than sufficient to be able to re-
transmit a live telecast with no more than a minimal delay.
---------------------------------------------------------------------------
    The potential availability of such high-quality, nearly real-time 
unauthorized copies threatens the marketplace for over-the-air 
broadcasts of Major League Baseball games. Pirated versions of Major 
League broadcasts by necessity compete with the legitimate broadcasts 
that are the subject of marketplace negotiations. As the experience of 
the recording industry with the Napster and KaZaA file-sharing services 
suggests, it is difficult to make the marketplace for copyrighted 
content work when the same content is made available for free by 
pirates over the Internet. In the face of such piracy, the marketplace 
might create incentives for Baseball and individual clubs to move high 
definition telecasts from digital broadcast stations to conditional-
access programming suppliers such as satellite and cable providers. 
Moreover, the same reasons suggest that such piracy will impair the 
growth of the efforts by Baseball and other professional leagues to 
make their telecasts available over the Internet.
  the broadcast flag limits piracy and creates incentives for making 
               content available for digital broadcasting
    Because of these concerns, Baseball supports the introduction of a 
robust and comprehensive mechanism to prevent widespread unauthorized 
distribution of digital broadcast television signals. To this end, a 
``broadcast flag''--whether in the form proposed in the context of the 
recent FCC rulemaking or some other form--would be a helpful 
technological tool to prevent the marketplace harms described above. A 
broadcast flag can be used to instruct the device receiving the digital 
broadcast (either the television itself or a set-top box) to limit the 
copying of the program being broadcast to lawful uses. By allowing 
copyright owners the right to protect their programs that are being 
broadcast digitally, the broadcast flag re-establishes the marketplace 
incentives for copyright owners to make their programming available to 
digital broadcasters.
    The broadcast flag therefore not only protects copyrighted 
telecasts, but it re-establishes the marketplace incentives for 
Baseball and other copyright owners to make their content available to 
digital broadcast stations. To the extent that consumers need a reason 
to buy television sets that can receive digital broadcasts and high-
definition content, the availability of Major League games on digital 
broadcast television will help to provide a reason. Thus, the existence 
of the broadcast flag, by making copyright owners more willing to make 
their programming available for digital broadcasts, will also speed the 
adoption of digital broadcast television.
          the broadcast flag is consistent with copyright law
    The concept of the broadcast flag also fits comfortably within 
existing copyright law. It is fully consistent with the fair use 
doctrine. Beyond the use of copyrighted works for legitimate academic, 
scholarly, editorial or satirical purposes, the sole ``fair use'' of 
copyrighted broadcasts recognized by federal courts is the ``time-
shifting'' of those telecasts for later viewing.\2\ To Baseball's 
knowledge, no copyright owner or group of copyright owners proposes 
that the broadcast flag eliminate the ability of consumers to time-
shift the broadcast programs they enjoy. Instead, the broadcast flag 
will serve as a technological brake on the unlimited, unauthorized and 
illegal reproduction and retransmission of digital broadcasts. There 
simply is no ``fair use'' in making copies of copyrighted telecasts and 
making them available on the Internet; there is only theft.
---------------------------------------------------------------------------
    \2\ Sony Corp. v. Universal City Studios, Inc., 464 U.S. 417 
(1984).
---------------------------------------------------------------------------
    Moreover, the broadcast flag's limitations on the technological 
ability of receiving devices to make unlimited digital copies for 
archiving or retransmission does not implicate the first-sale doctrine 
of 17 U.S.C. Sec. 109. The first-sale doctrine allows the owners of 
legitimate copies of works to dispose of those copies in the way that 
they choose. However, the Copyright Act and its legislative history 
indicate that the broadcast of a copyrighted work to television viewers 
should not result in the creation of a copy, thus removing the first-
sale doctrine as an issue.\3\
---------------------------------------------------------------------------
    \3\ See 17 U.S.C. Sec. 101 (definition of ``copies'' and 
``fixed''); H.R. Rep. 94-1476 at 53 (noting that the display of a 
telecast on a television screen does not constitute a copy).
---------------------------------------------------------------------------
                               conclusion
    High definition digital broadcasting represents a substantial leap 
forward in the way baseball fans may enjoy Major League Baseball games. 
However, with the advantages that digital broadcast technology brings, 
it raises the possibility of significant disruption to the marketplace 
for broadcast programming. The broadcast flag would serve to protect 
the existing marketplace and to provide incentives for copyright owners 
to make their content available for high definition digital broadcast, 
thus speeding the transition to digital programming.

                                   - 
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