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



            THE DIGITAL MEDIA CONSUMERS' RIGHTS ACT OF 2003

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

                                HEARING

                               before the

                            SUBCOMMITTEE ON
                COMMERCE, TRADE, AND CONSUMER PROTECTION

                                 of the

                    COMMITTEE ON ENERGY AND COMMERCE
                        HOUSE OF REPRESENTATIVES

                      ONE HUNDRED EIGHTH CONGRESS

                             SECOND SESSION

                                   on

                                H.R. 107

                               __________

                              MAY 12, 2004

                               __________

                           Serial No. 108-109

                               __________

      Printed for the use of the Committee on Energy and Commerce


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


                               __________

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                    ------------------------------  
                    COMMITTEE ON ENERGY AND COMMERCE

                      JOE BARTON, Texas, Chairman

W.J. ``BILLY'' TAUZIN, Louisiana     JOHN D. DINGELL, Michigan
RALPH M. HALL, Texas                   Ranking Member
MICHAEL BILIRAKIS, Florida           HENRY A. WAXMAN, California
FRED UPTON, Michigan                 EDWARD J. MARKEY, Massachusetts
CLIFF STEARNS, Florida               RICK BOUCHER, Virginia
PAUL E. GILLMOR, Ohio                EDOLPHUS TOWNS, New York
JAMES C. GREENWOOD, Pennsylvania     FRANK PALLONE, Jr., New Jersey
CHRISTOPHER COX, California          SHERROD BROWN, Ohio
NATHAN DEAL, Georgia                 BART GORDON, Tennessee
RICHARD BURR, North Carolina         PETER DEUTSCH, Florida
ED WHITFIELD, Kentucky               BOBBY L. RUSH, Illinois
CHARLIE NORWOOD, Georgia             ANNA G. ESHOO, California
BARBARA CUBIN, Wyoming               BART STUPAK, Michigan
JOHN SHIMKUS, Illinois               ELIOT L. ENGEL, New York
HEATHER WILSON, New Mexico           ALBERT R. WYNN, Maryland
JOHN B. SHADEGG, Arizona             GENE GREEN, Texas
CHARLES W. ``CHIP'' PICKERING,       KAREN McCARTHY, Missouri
Mississippi, Vice Chairman           TED STRICKLAND, Ohio
VITO FOSSELLA, New York              DIANA DeGETTE, Colorado
STEVE BUYER, Indiana                 LOIS CAPPS, California
GEORGE RADANOVICH, California        MICHAEL F. DOYLE, Pennsylvania
CHARLES F. BASS, New Hampshire       CHRISTOPHER JOHN, Louisiana
JOSEPH R. PITTS, Pennsylvania        TOM ALLEN, Maine
MARY BONO, California                JIM DAVIS, Florida
GREG WALDEN, Oregon                  JANICE D. SCHAKOWSKY, Illinois
LEE TERRY, Nebraska                  HILDA L. SOLIS, California
MIKE FERGUSON, New Jersey            CHARLES A. GONZALEZ, Texas
MIKE ROGERS, Michigan
DARRELL E. ISSA, California
C.L. ``BUTCH'' OTTER, Idaho
JOHN SULLIVAN, Oklahoma

                      Bud Albright, Staff Director

                   James D. Barnette, General Counsel

      Reid P.F. Stuntz, Minority Staff Director and Chief Counsel

                                 ______

        Subcommittee on Commerce, Trade, and Consumer Protection

                    CLIFF STEARNS, Florida, Chairman

FRED UPTON, Michigan                 JANICE D. SCHAKOWSKY, Illinois
ED WHITFIELD, Kentucky                 Ranking Member
BARBARA CUBIN, Wyoming               CHARLES A. GONZALEZ, Texas
JOHN SHIMKUS, Illinois               EDOLPHUS TOWNS, New York
JOHN B. SHADEGG, Arizona             SHERROD BROWN, Ohio
  Vice Chairman                      PETER DEUTSCH, Florida
GEORGE RADANOVICH, California        BOBBY L. RUSH, Illinois
CHARLES F. BASS, New Hampshire       BART STUPAK, Michigan
JOSEPH R. PITTS, Pennsylvania        GENE GREEN, Texas
MARY BONO, California                KAREN McCARTHY, Missouri
LEE TERRY, Nebraska                  TED STRICKLAND, Ohio
MIKE FERGUSON, New Jersey            DIANA DeGETTE, Colorado
DARRELL E. ISSA, California          JIM DAVIS, Florida
C.L. ``BUTCH'' OTTER, Idaho          JOHN D. DINGELL, Michigan,
JOHN SULLIVAN, Oklahoma                (Ex Officio)
JOE BARTON, Texas,
  (Ex Officio)

                                  (ii)
?



                            C O N T E N T S

                               __________
                                                                   Page

Testimony of:
    Boucher, Hon. Rick, a Representative in Congress from the 
      State of Virginia..........................................    10
    Doolittle, Hon. John T., a Representative in Congress from 
      the State of California....................................    13
    Holleyman, Robert W., President and Chief Executive Officer, 
      Business Software Alliance.................................    34
    Jaszi, Peter, Professor of Law, Washington College of Law, 
      American University........................................    85
    Lessig, Lawrence, Professor of Law, Stanford Law School......    15
    Moore, Robert, Chief Executive Officer, 321 Studios..........   110
    Murray, Chris, Legislative Counsel, Consumers Union with Gigi 
      B. Sohn, President, Public Knowledge.......................    99
    Nisbet, Miriam M., Legislative Counsel, American Library 
      Association................................................    41
    Rose, Debra, Senior Legislative Counsel, the Entertainment 
      Software Association.......................................    93
    Shapiro, Gary J., President and Chief Executive Officer, 
      Consumer Electronics Association...........................    22
    Sherman, Cary, President, Recording Industry Association of 
      America....................................................    80
    Swift, Hon. Al, Colling Murphy...............................    38
    Valenti, Jack, President and Chief Executive Officer, Motion 
      Picture Association of America.............................    29
Additional material submitted for the record:
    Entertainment Software Association, response for the record..   123
    Holleyman, Robert W., President and Chief Executive Officer, 
      Business Software Alliance, response for the record........   125
    Jaszi, Peter, et al, letter dated June 10, 2004, enclosing 
      response for the record....................................   139
    Lessig, Lawrence, Professor of Law, Stanford Law School, 
      letter dated June 11, 2004, enclosing response for the 
      record.....................................................   129
    McCormick, Walter B., Jr., President and Chief Executive 
      Officer, United States Telecom Association, prepared 
      statement of...............................................   127
    321 Studios, response for the record.........................   143

                                 (iii)

  

 
            THE DIGITAL MEDIA CONSUMERS' RIGHTS ACT OF 2003

                              ----------                              


                        WEDNESDAY, MAY 12, 2004

              House of Representatives,    
              Committee on Energy and Commerce,    
                       Subcommittee on Commerce, Trade,    
                                   and Consumer Protection,
                                                    Washington, DC.
    The subcommittee met, pursuant to notice, at 10 a.m., in 
room 2123, Rayburn House Office Building, Hon. Cliff Stearns 
(chairman) presiding.
    Members present: Representatives Stearns, Upton, Whitfield, 
Shimkus, Shadegg, Radanovich, Pitts, Bono, Terry, Ferguson, 
Issa, Otter, Barton (ex officio), Schakowsky, Gonzalez, Towns, 
Rush, Stupak, Green, McCarthy, Strickland, and Davis.
    Also present: Representative Boucher.
    Staff present: David Cavicke, majority counsel; Chris 
Leahy, majority counsel and policy coordinator; Shannon 
Jacquot, majority counsel; Brian McCullough, majority 
professional staff; William Carty, legislative clerk; Jonathan 
Cordone, minority counsel; and Ashley Groesbeck, minority staff 
assistant.
    Mr. Stearns. Good morning, everybody. I'm pleased to 
welcome all of you to the Commerce, Trade, and Consumer 
Protection Subcommittee hearing on H.R. 107, the Digital media 
Consumers' Rights Act of 2003.
    We are particularly grateful to our guests from the content 
and technology communities, consumer groups, academic groups 
for allowing us to present a balanced hearing on the issues and 
the challenges facing the copyright field in an era of rapid 
technological innovation.
    I can't remember when this subcommittee last had three 
panels of so many distinguished experts. So obviously we're 
anticipating a very interesting, insightful examination of 
these issues and they're very important.
    In yesterday's analog world, the centuries old concept of 
``fair use'' established that some previously unauthorized use 
of copyrighted works by individuals should be allowed because 
their value to society outweighs the costs to the copyright 
holder. This is based on the belief that not all copying should 
be banned. The Copyright Act, which codified the ``fair use'' 
doctrine, specifically allowed the use of copyrighted material 
for ``purposes such as criticism, comment, news reporting, 
teaching, scholarship, or research'' while it strictly 
prohibited all unauthorized commercial sales of a copyrighted 
material. In short, the history of ``fair use'' has been a 
history of maintaining the balance between the public interest 
in free speech with the rights of copyright holders to 
obviously protect their works.
    In today's digital world, the explosive growth of digital 
media, the universal nature of the internet as a distribution 
network, and the ease of flawless digital reproduction, have 
made the time-tested ``fair use'' doctrine much more nuanced. 
Daily computer tasks such as browsing, linking, and viewing 
streaming audio and video have challenged this doctrine in ways 
that we could not have imagined when we passed the 1996 Telcom 
Act. The issues created by just making a ``backup'' copy of a 
CD or DVD have made the cases posed by the player piano, 
photocopying machine, and videocassette recorder seem simple by 
comparison. Even so, the balance between the consumer's need 
for free and open information and the rights of the copyright 
holders continues to be the dynamic, even in a constantly 
changing digital world.
    My colleagues, to help address these new complexities and 
the new and novel threats to copyrighted works, the Congress 
passed the Digital Millennium Copyright Act, DMCA, in 1998. In 
particular, the DMCA created civil and criminal penalties for 
individuals who circumvent encryption or other technological 
anti-tampering measures known as digital rights management or 
``DRM.'' The DMCA also extends these anti-tampering 
prohibitions to those who seek to sell or trade in technologies 
designed to break encryption technology or circumvent it. 
Basically, the DMCA makes picking the lock or finding a way 
through the back door illegal to protect the contents of the 
house, regardless of whether the intruder has a right to use 
this content. The DMCA also contains certain exceptions.
    In order to further refine the DMCA and maintain a fair and 
balanced approach to copyright protection, our colleague, Mr. 
Boucher from Virginia, has introduced H.R. 107, ``The Digital 
Media Consumers' Rights Act of 2003.'' Mr. Boucher's bill would 
establish a ``fair use'' defense for circumvention and allow 
consumers, in effect, to unlock encryption or DRM technology to 
make ``fair use'' of the copyrighted work.
    Supporters of H.R. 107 point out that the Digital 
Millennium Copyright Act prevents consumers from making fair 
use of encrypted materials. As a practical matter this means 
that a consumer cannot make a copy of a DVD for his or her own 
``fair use.''
    In contrast now, those opposed to H.R. 107 contend that 
without the prohibition against breaking encryption, the 
protection for copyrighted works under current law would be 
weakened. They also hold that allowing persons the ability to 
``unlock'' anti-tampering technology, encryption, and access 
the copyrighted material would quickly spur piracy gadgets and 
technology that would quickly devalue their product and put 
them frankly out of business. In their words, buying a DVD 
doesn't mean, ``buy one and get as many as you like free.''
    As we have seen in trade hearings in the subcommittee, 
piracy of copyrighted material is a massive global problem that 
threatens a large part of the United States economy. Given the 
urgency of the issue, its effects on U.S. consumers and the 
economy, as well as the negative impact the abuse of copyright 
protection can have on consumer choice, it is my sincere hope 
that we can further examine these important issues to see if a 
bipartisan consensus can be reached on this bill.
    In conclusion, I support fair and balanced intellectual 
property rights and laws. I also realize that the rest of the 
world sometimes does not play by our rules. Protecting the 
consumer by offering choice in the marketplace while vigorously 
safeguarding intellectual property and encouraging innovation 
are foremost concerns of the subcommittee. With that in mind, I 
believe today's hearing will help us further define the issues 
and challenges involved as well as explore ways to continue to 
maintain the careful balance between the public's right of 
``fair use'' and a copyright holder's right to protect their 
intellectual property.
    I look forward to our witnesses and with that, I welcome 
the distinguished ranking member, Ms. Schakowsky.
    Ms. Schakowsky. Thank you, Chairman Stearns for holding 
today's hearing on our colleagues' bill, Representatives 
Boucher and Doolittle, H.R. 107, the Digital Media Consumers' 
Rights Act. Once again, technological innovations have thrust 
our subcommittee into legislative arenas that could not have 
been anticipated. We find ourselves needing to update laws that 
are now ineffective or perhaps too stifling because of changing 
technologies.
    When we propose legislative responses to outdated laws, w 
must remain vigilant about the consequences our proposals could 
have on the spectrum of affected parties. H.R. 107 focuses our 
attention on how the digitizing copyrighted materials affect 
artists, consumers, researchers, librarians and a host of 
industries.
    In 1998, before I came to Congress, with the passing of the 
Digital Millennium Copyright Act, or the DMCA, my colleagues 
made an important attempt at contending with new challenges 
that technology brought to copyright laws. The DMCA was meant 
to stop copyright infringement on new digital mediums. 
Unfortunately, by trying to predict where the ever evasive 
nature of technology would take us, the DMCA was drafted with 
such broad strokes that it swept away the fair use provisions 
of the copyright law and now is being abused by those who want 
to squelch competition in areas wholly unrelated to copyright.
    For example, manufacturers of garage door openers and toner 
cartridges have used the DMCA to try and prevent their 
competitors from developing alternative and cheaper models. 
However, the competition's efforts to provide a better product 
to consumers are challenged under the DMCA. Remember, they are 
not infringing on a copyright or violating any patents.
    Make no mistake about it, copyright needs to be protected 
and artists need to be compensated for their work. However, 
when a law pits artists against consumers, the source of pay 
for artists when companies can use the DMCA, I suppose 
copyright protection to stop new products coming on the market, 
when libraries may have to charge for services they 
traditionally have provided for free, then the law needs to be 
fixed.
    Although there are some issues that still need to be 
addressed, in my view, and some language that needs to be 
tightened, Congressman Boucher's bill is a step in the 
direction we need to take so that we can rein in over reaching 
applications of the DMCA.
    I have been talking with artists' groups, consumer groups 
and technology developers and Congressman Boucher and truly 
believe that we can work together to craft a remedy to the DMCA 
that would protect artists' copyrights, consumer rights, 
competition and technological innovation. This is an exciting 
time. We're at a technological crossroad that is changing how 
we think about commerce, art distribution and traditional 
consumer protections.
    It is our responsibility as lawmakers to make sure that all 
voices are heard in this debate. That's why I'm so glad we are 
here today, including our former colleague in the House of 
Representatives with so many people who are affected by the 
decisions we will be making in the near future.
    Thank you, Mr. Chairman.
    Mr. Stearns. I thank my colleague. The Chairman of the 
Energy and Commerce Committee, the distinguished gentleman from 
Texas, Mr. Barton.
    Chairman Barton. Thank you, Mr. Stearns. I want to commend 
you for holding this hearing. I want to welcome my two 
colleagues, Mr. Boucher, a member of the committee and Mr. 
Doolittle, a senior Member of the House and former Congressman, 
Al Swift, who is going to testify later, a former nember of 
this committee and a former subcommittee chairman of this 
committee. So we welcome you to this important hearing.
    I want to start off by saying that I'm very proud to be a 
co-sponsor of the legislation that's being considered today, 
H.R. 107, the Digital Media Consumers' Act, sponsored by Mr. 
Boucher and Mr. Doolittle. Two weeks ago during a hearing 
before this same subcommittee, I made my feelings and 
intentions explicitly clear regarding the issue of spyware. I 
object strongly to any company invading my computer uninvited 
and planting software or other tracking devices to spy on me. 
My computer is my property, no different than my home. I 
determine who I permit to enter, how long they can stay, what 
they can do while they're in my home. Anyone who enters my 
house uninvited and without my knowledge is trespassing at the 
least and possibly breaking and entering.
    Similarly, after I buy a music video or a movie CD, it is 
mine once I leave the store. Does that mean that I am under the 
impression that I have unlimited rights? Of course not. I 
understand that I'm limited under existing law to activities 
that are not commercial and I want to emphasize that, not 
commercial, or would come into competition with the 
manufacturer of that product. Currently law provides that I am 
liable for anything that I do that amounts to copyright 
infringement under Section 106 of the Copyright Act. It is 
illegal, as it should be, to buy a CD and to make multiple 
copies for the purpose of selling them for a profit.
    However, we have a long history of copyright law that 
permits so-called ``fair use'' of copyrighted material. This 
allows me to make a copy of music to play in my car, to make a 
compilation of my favorite songs from my CDs to keep at home. 
Technology has facilitated the ability to make personal copies 
that are of commercial quality. Unfortunately, this has posed 
many piracy problems for the content providers and for those of 
you that represent those interests I have very, very deep 
sympathy for the problems that you're facing against commercial 
piracy.
    The Digital Millennium Copyright Act, or DMCA, sought to 
provide meaningful protection for the content providers while 
at the same time balancing the consumers' rights to fair use. 
The anti-circumvention provision was intended to be consistent 
with the protections afforded under Section 106 and to provide 
content providers the ability to use technology to prevent 
illegal copying. We're now beginning to understand that some of 
the fair use by consumers are no longer protected because of 
the anti-circumvention provision. The intent of the legislation 
that we're holding the hearing on today, H.R. 107, is to 
restore the ability of consumers to use copyrighted material 
lawfully. It would permit consumers the ability to circumvent 
copy protection technology as long as it is consistent with 
fair use. At the same time, H.R. 107 maintains the protections 
for copyright producers to use copy protection technology 
against illegal piracy. The balance between consumer rights and 
producer rights over copyright material needs to be restored to 
ensure our society progresses and does not regress.
    This legislation accomplishes that goal and I support it. 
Having said that, and this is very important, this hearing is 
being held to give all sides of this debate a fair hearing to 
see if we can find a fair compromise that allows for fair use.
    With that, Mr. Chairman, I yield back my time.
    Mr. Stearns. I thank the gentleman. The gentlelady from 
Missouri, Ms. McCarthy.
    Ms. McCarthy. Thank you, Mr. Chairman. I'm going to put my 
extended remarks into the record. I'm very grateful for this 
hearing----
    Mr. Stearns. We have a large number, we have three panels, 
so as much as possible, if members could limit their opening 
statements or put it in the record, it would be very helpful.
    Ms. McCarthy. Yes, I'm very grateful to everyone who is a 
part of this, to the panelists, to my colleagues. I think this 
is a very important issue and I'm going to put my remarks int 
he record so we have more time to hear from them and to ask 
them questions. With that, I yield back.
    Mr. Stearns. And I thank the gentlelady. Mr. Ferguson, Mr. 
Issa?
    Mr. Issa. Thank you, Mr. Chairman, and I too will revise 
and extend and be very, very brief. I'd like to thank you, Mr. 
Chairman for holding this hearing. I'd like to thank my 
colleagues for authoring and co-authoring this legislation.
    I am not a co-sponsor of it, but I am deeply interested in 
the issue and believe that it is this committee's 
responsibility in concern, of course, with the Judiciary 
Committee to find real, viable solutions that will restore the 
historic fair use, will at the same time protecting that which 
is right now not protected. We've already seen the considerable 
loss of revenue and if you will, the wanton piracy of music in 
this country. We cannot afford to have our movie industry 
destroyed by an open protocol for commercial quality DVD and 
then beyond for that matter, the broadcast high definition that 
is beginning to emerge.
    I would only say, Mr. Chairman, that it is unusual for this 
committee which is often accused of having solutions in search 
of a problem, it is unusual to have such an obvious problem. A 
Federal Court has already enjoined a company, Studio 321, and 
we will be hearing from their CEO shortly, that made a good 
faith effort to somehow bridge the difference between these two 
competing interests. They may or may not have succeeded. Their 
solution may or may not be correct, but that wasn't decided in 
the Federal Court. What was decided was that circumvention 
preempts fair use.
    We need to define how we can, in fact, continue to have 
what we have historically had, fair use, while at the time we 
absolutely must protect not just the movie industry, but our 
broadcast television and all of the other intellectual property 
produced in this country. And we have to find a way to have 
that allow a path for digital music to again enjoy a reasonable 
modicum of protection.
    I would say, Mr. Chairman, in closing, for me it's unusual 
to say that there must be a lose-lose in order to be a win-win. 
In fact, in order to have the win of new products and new 
services, those who think that copying other people's 
intellectual property should be laissez-faire and the 
government should stay out of it, we're going to lose because 
we're not going to stay out of it. And those who believe that 
the government intervening should be a monopoly and a lock on 
how things were done in the past are going to have to lose. And 
we're going to have to, as a committee, help craft some in 
between that is allowing the win-win to go forward and we hope 
to move that along today.
    Thanks, Mr. Chairman, I yield back.
    Mr. Stearns. I thank the gentleman. The gentleman from 
Texas, Mr. Green.
    Mr. Green. Thank you, Mr. Chairman. I'd like to have my 
full statement placed in the record.
    Mr. Stearns. By unanimous consent, so ordered.
    [The prepared statement of Hon. Gene Green follows:]

  Prepared Statement of Hon. Gene Green, a Representative in Congress 
                        from the State of Texas

    Mr. Chairman, thank you for holding this hearing on my friend and 
colleague Mr. Boucher's legislation, H.R. 107.
    This bill does strike to the heart of one of the most significant 
debates for the future of the digital economy--the regulation of 
intellectual property.
    With all of its promise, the digital age has also brought a 
tremendous amount of intellectual property piracy--the software 
industry reports losing $11 billion a year to software piracy, the 
motion picture industry another $3-4 billion, and the recording 
industry $4.2 billion.
    What is scary to people who make software, movies, and music is 
that those are the figures only the ones they can calculate. Even more 
losses from online piracy exist, but are very difficult to calculate.
    Numerous studies support the theory that many producers have been 
severely hurt by online piracy. And this is one of the few industries 
that has a positive balance of trade, reducing our trade deficit.
    The question before us today is: how can rampant piracy crimes be 
stopped or contained while society's beneficial fair use rights are 
preserved?
    While H.R. 107 raises important issues, as a piece of legislation, 
I do not believe that H.R. 107 properly hits that balance.
    I supported the Digital Millennium Copyright Act when Congress 
approved it, so I do get concerned when I hear reports of the DMCA 
being used to eliminate after-markets for a variety of replacement 
parts.
    But H.R. 107 completely eliminates the major tool that intellectual 
property holders have to protect their property.
    What is the point of having digital rights management at all, if 
someone can create software to hack it, post his hacking software on 
the Internet, and software pirates in China download it and start 
cranking out bootleg copies of The Alamo all in one day?
    Consumers may be right to complain that they cannot fast forward 
through previews on their DVDs. But if the software that allows them to 
fast forward could also allow piracy, I do not think that is the proper 
balance.
    As a final note, I would like to mention one section of this bill 
which falls directly under our jurisdiction--FTC labels for copy-
protected compact discs.
    I think the recording industry knows that sufficiently informing 
the public of any changes to the CD format is the right thing to do in 
the first place.
    The recording industry certainly has a right to copy-protect their 
products, but Americans have been buying CDs for well over a decade now 
and have come to expect their CDs will work in all CD drives and 
players.
    If new copy-protected compact discs do not work in consumers' CD 
players, the consumer reaction is likely to be very negative.
    I hope the parties involved can work together to avoid such 
situations.
    Mr. Chairman, thank you for holding this important hearing on the 
future of digital intellectual property protection.

    Mr. Green. I know we have very ambitious panels today and 
first I want to welcome my good friend and committee member, 
Rick Boucher and say that the bill, the legislation that came 
out of Judiciary Committee, I hope our committee takes a good 
look at because it's interesting. One of the few balance of 
trade surpluses we've had in our country over the last few 
years has been the creativity of motion pictures, software and 
recordings. And I know we need to strike a balance because I 
want to be able to copy something I buy and give to my 
children. I just don't want them to be able to print out a 
million copies. And so we have to strike that balance, but I 
also know that we don't want to throw out the baby with the 
bath water, as we say in Texas, and lose the creativity we have 
in our own country.
    And with that, I yield back my time and look forward in 
participating.
    Mr. Stearns. Thank you. Mr. Shimkus.
    Mr. Shimkus. I'll defer my opening remarks.
    Mr. Stearns. I thank you very much. The gentleman, Mr. 
Davis?
    Mr. Davis. Pass.
    Mr. Stearns. Thank you very much. And Mr. Pitts.
    Mr. Pitts. I'll waive.
    Mr. Stearns. Waive. All right. And then we have Mr. Towns, 
the gentleman from new York.
    Mr. Towns. Mr. Chairman, I'd like to place my entire 
statement in the record.
    Mr. Stearns. By unanimous consent, so ordered.
    [The prepared statement of Hon. Edolphus Towns follows:]

Prepared Statement of Hon. Edolphus Towns, a Representative in Congress 
                       from the State of New York

    Let me begin by thanking you Mr. Chairman for holding this 
important hearing today. In 1998, Congress passed the Digital 
Millennium Copyright Act (DMCA), which at the time was landmark 
legislation in setting a regulatory framework for the use and 
dissemination of digital content. Congress crafted a delicate balance 
that sought to ensure the protection of valuable creative materials 
while providing consumers access to new burgeoning technology.
    Since that time, two things have occurred which seem very clear to 
me and I believe are not disputable. First, there has been an explosion 
in the type and amount of available digital content. Second, piracy and 
theft of copyrighted material has grown rampant.
    While admittedly the creative industries were slow to embrace new 
technologies, that is no longer the case. Consumers can get digital 
movies through video on demand, they can rent or buy DVDs, and they can 
increasingly access digital formats through the Internet. Similarly, 
there are numerous formats and options for consumers to buy, download 
or stream digital music. Consumers can now portably access thousands of 
songs in digital format in a device smaller than the size of a wallet.
    At the same time, several content companies are facing a 
significant challenge to prevent copyrighted material from being 
stolen. Movies are available on-line or on the street in pirated DVDs 
days after or even before a movie is released. A whole generation has 
grown up under the assumption that it is OK to steal music. I should 
note that many of these same circumstances apply to software as well.
    Given these two factors at work, it does not make sense to me to 
increase consumers' ability to circumvent copyrighted material 
protections. While some will argue that this is a consumer issue, I 
would respond that this is a jobs issue. Although stars get the 
coverage, the creative works industry supports thousands of people who 
work behind the scenes. These jobs are put in jeopardy if investment in 
creative material is undermined by piracy.
    Further, the DMCA provides a mechanism for the automatic review of 
the act to ensure that consumers have appropriate access to digital 
content. The tri-annual reviews by the copyright office is already 
working and this process can accommodate future changes as they become 
necessary.
    I look forward to hearing from today's witnesses about their views 
on H.R. 107 and the current state of digital content. Thank you Mr. 
Chairman and I yield back the balance of my time.

    Mr. Towns. And only comment that I'm happy that you're 
having this hearing and some will argue that this is a consumer 
issue. And I would respond that this is a job issue. And we 
must not forget that.
    On that note, Mr. Chairman, I yield back.
    Mr. Stearns. All right, thank you. Mr. Terry?
    Mr. Terry. Waive.
    Mr. Stearns. Waive. All right. I think at this point we 
have--Mr. Gonzalez?
    Mr. Gonzalez. I'll waive.
    [Additional statements submitted for the record follow:]

Prepared Statement of Hon. Barbara Cubin, a Representative in Congress 
                       from the State of Wyoming

    Thank you, Mr. Chairman, for holding this hearing today. It is my 
hope that this will be a valuable forum for debate and discussion 
regarding this bi-partisan legislation offered by Mr. Boucher.
    I would also like to extend my thanks to the many distinguished 
witnesses who have agreed to appear today. We have been joined by an 
exceptionally large number of experts representing the views of both 
the content community and leading advocates for consumer rights. I feel 
the tremendous interest in witness participation is a true indication 
of the timeliness of this hearing, and I look forward to learning more 
about the complexities surrounding the issue of fair use from these 
specialized experts.
    When Congress passed the Digital Millennium Copyright Act (DMCA) in 
1998, we could not possibly have foreseen the rapid advances in 
technology which would ensue in just a few short years. Litigation 
regarding the ``anti-circumvention'' clause of the DMCA has 
successfully limited the rights of consumers to circumvent 
technologically protected works, and also prohibited the production and 
availability of circumvention technology. We have arrived at a historic 
juncture between the rights of consumers to exercise the fair use of 
legitimately purchased products and the rights of the content industry 
to restrain the reproduction and distribution of their copyright 
protected material.
    Congress has now been called upon to redefine what measures and 
technologies are protected by copyright law, and we must treat this 
matter delicately. I look forward to today's hearing to discover if 
H.R. 107 will be the proper legislative path to follow in the 
redefining of fair use.
    I thank the Chairman again and yield back the remainder of my time.

                                 ______
                                 
 Prepared Statement of Hon. Joseph Pitts, a Representative in Congress 
                     from the State of Pennsylvania

    Mr. Chairman, thank you for convening this hearing today to discuss 
the Digital Media Consumers' Rights Act.
    While H.R. 107 may be well-intentioned, it will ultimately 
discourage creation of intellectual property. Why create when you can 
copy?
    With this in mind, I oppose this legislation.
    Today, more Americans have more access than ever before to more of 
the fruits of American creativity. This includes music, movies, games, 
computer software, and even books.
    The advancement of technology has made it easier to create and 
easier obtain material that is the product of the creative mind.
    Yet while access to intellectual property has increased, so have 
efforts to copy and pirate this valuable material.
    Piracy is not just a problem here in America. Travel to the black 
markets of China and you can buy just about anything you want. American 
intellectual property worldwide is illegally copied, bought and sold.
    American creativity is a hallmark of this great country. We must 
protect it. It is easy to see the damage done when our copyright laws 
here and abroad are violated.
    Congress addressed this problem in 1998 with the Digital Millennium 
Copyright Act (DMCA). This is a good law. It should not be undone.
    Unfortunately, that is what H.R. 107 does. It legalizes hacking to 
circumvent protective encryption for any purpose and it undermines 
efforts to fight piracy and promote respect for copyright worldwide.
    Proponents of this bill say that sharing of intellectual property--
the product of American creativity--should not be hindered. It should 
be a light that is passed on to one another.
    I agree to a point. But the purpose of passing on that light is to 
inspire the imagination to greater levels of creativity. There is 
nothing inspiring about pirating creativity.
    The laws we have in place today, not the least of which is the 
Digital Millennium Copyright Act, are there to ensure that intellectual 
property is shared with one another, but in a way that benefits 
everyone.
    Do we have perfect copyright laws? No. But H.R. 107 goes too far 
and opens a Pandora's box.
    I urge my colleagues to oppose this legislation. We must protect 
American creativity.
    Thank you, and I yield back the balance of my time.

                                 ______
                                 
    Prepared Statement of Hon. John D. Dingell, a Representative in 
                  Congress from the State of Michigan

    The Digital Millennium Copyright Act (DMCA) is vitally important to 
the livelihoods of authors, musicians, filmakers, software developers, 
and countless other creators of copyrighted works. The digital age has 
vastly improved the quality of these works, and a limitless number of 
digital copies can now be made with virtually no distortion and no 
reduction in quality.
    While developments in digital technology provide many benefits to 
content producers and consumers, this new medium also provides fertile 
ground for pirates to steal these protected works. The DMCA was passed 
to provide copyright owners with additional protections and tools to 
help prevent their works from being stolen and illegally distributed, 
and it appears thus far to be successful in achieving that objective.
    There is, however, another important side to this issue. When the 
Committee on Energy and Commerce first considered the DMCA in 1998, I 
was concerned that certain provisions in the legislation were overly 
broad and could make it illegal for anyone to circumvent a copyright 
protection measure, even if the circumvention was performed for an 
otherwise legal purpose. For example, if a school or library copied a 
portion of an article for educational use, that copy would be permitted 
under the ``fair use'' doctrine of copyright law. If that article was 
in electronic or digital form, however, the school or library may not 
be able to copy any portion of it without first circumventing a 
copyright protection measure. The act of circumvention itself would be 
a crime, even though it was undertaken for a perfectly legal purpose: 
that is, to make ``fair use'' of the underlying materials.
    Such a result could seriously undermine the careful balance between 
the rights of copyright owners to be compensated for their works, and 
the rights of educators, researchers, and others to freely use portions 
of these works to enhance knowledge and understanding for the common 
good. Restrictive provisions such as these had the potential to stifle 
innovations in digital commerce, impeding the development of new 
hardware, software, and encryption technologies. Many members of this 
Committee and I sought to preserve a balance among these vitally 
important interests, and we were hopeful that such a balance had been 
achieved when we supported the Conference Report for the DMCA.
    It has now been six years since the DMCA became law, and it is 
important for this Committee to review its progress. These hearings 
will allow us to explore whether the DMCA has achieved a proper balance 
after all, or whether further action is required. The Committee on 
Energy and Commerce should closely examine the current system to find 
the appropriate balance that protects scholarship, research, and 
innovation while protecting the legitimate interests of copyright 
owners.
    I look forward to continuing this important work and hope that all 
sides of this issue will work closely with us in this endeavor.

    Mr. Stearns. Thank you. I thank my colleagues and with that 
we welcome our two colleagues, Mr. Boucher and Mr. Doolittle 
and we look forward to your opening statement.

 STATEMENTS OF HON. RICK BOUCHER, A REPRESENTATIVE IN CONGRESS 
   FROM THE STATE OF VIRGINIA; AND HON. JOHN T. DOOLITTLE, A 
    REPRESENTATIVE IN CONGRESS FROM THE STATE OF CALIFORNIA

    Mr. Boucher. You'd think after serving on this committee 
for 22 years, I would have learned that.
    I've always been challenged by technology.
    Thank you very much, Chairman Stearns for conducting this 
hearing today. I want to extend my thanks to you, to Ranking 
Member Schakowsky, to Chairman Barton of the full committee and 
to the members of your subcommittee for the interest that 
you're expressing by having this hearing today and assuring 
that we have appropriate balance in our copyright laws between 
the rights of the users of intellectual property and the rights 
of those who create it.
    I also appreciate your interest in examining the possible 
need for changes in the 1998 statute, the Digital Millennium 
Copyright Act.
    I want to say thank you to my friend and colleague from 
California, Congressman John Doolittle. My staff and I have 
worked very closely with John and his staff as we structured 
the measure that is before you and I want to thank Congressman 
Doolittle for his strong advocacy of the changes that we're 
seeking to make.
    I would also like to say a special word of welcome this 
morning to our former colleague on this committee, a former 
distinguished Member of the U.S. Congress, Congressman Al 
Swift, who is here to testify in support of H.R. 107.
    And I'm very pleased to see the broad range of witnesses 
who you have assembled today, possessing a tremendous amount of 
expertise on intellectual property and commercial issues. I am 
very pleased to see both the proponents and the opponents of 
H.R. 107, although I'll have to confess that I'm a bit more 
pleased to see the proponents.
    In the 1990's, the entertainment industry came to the 
Congress and basically made an appealing claim. The 
entertainment industry said digital is different and there are 
twin threats simultaneously arriving that dramatically enhance 
the potential for the piracy of intellectual property. Those 
twin threats were identified as first of all, the arrive of 
digital media through which a copy of a copy of a copy has the 
same clarity and integrity as the original of the work. The 
other threat that arrived at the same time was the internet, 
beginning to be used as a mass communication medium and through 
the internet thousands of copies can be transmitted around the 
globe with the click of a mouse.
    That was an appealing claim. The industry said we have a 
threat coming from these two sources of enhanced piracy and 
Congress should provide greater protection to those who create 
intellectual property. I thought that the industry needed 
greater protection. In the end, I voted for the Digital 
Millennium Copyright Act. But during the course of hearings and 
debate in both of the committees that considered the bill, the 
House Judiciary Committee and this committee, I expressed 
concern about the over reaching nature of the DMCA as it was 
being debated. I offered amendments that were very similar to 
those that we are recommended for enactment by this committee 
in H.R. 107.
    We've now had 6 years of experience since the passage of 
the DMCA and many people who I think did not perceive that user 
rights were being threatened by the very broad nature of that 
statute, are now convinced that user rights have been eroded.
    In 1998, most of the technology community was uninterested 
in this debate. We did not have computer manufacturers actively 
involved. The home recording rights industry was involved and 
was effective in the debate, but the broader technology 
community was not. Today, that broader technology community is 
supportive of H.R. 107 and very interested in seeing these 
changes made. We have computer manufacturers such as Gateway, 
Sun Microsystems, component manufacturers such as Intel. We 
have all of the major local telephone companies and their trade 
association, the U.S. Telecom Association, strongly endorsing 
and urging the passage of this bill. These were parties not 
involved in the debate in 1998.
    We also have a broad and deeply interested public interest 
community, comprised of librarians, universities, the two 
largest consumer organizations in the nature. We have public 
knowledge, the Electronic Frontier Foundation and others on the 
public interest side expressing their concern about the 
experience that we had with the DMCA since 1998 and urging that 
the changes contained within H.R. 107 be adopted.
    The bill that we've put forward addresses four principal 
problems. Let me briefly describe what each of those is and 
what our proposed remedy is and he's saying very briefly.
    The first principal problem that we have is that as 
Chairman Barton indicated in his opening statement, the current 
law says that it is a Federal offense to bypass technical 
protection guarding access to a copyrighted work, even though 
the purpose of the bypass is innocent. And so if a person is 
bypassing for the purpose of exercising a fair use right, that 
person is guilty of a Federal crime. If you're bypassing for 
the purpose of getting beyond the commercials that are on the 
front end of a DVD, that you have gone to the store and rented, 
if you want to bypass in order to fast forward through material 
that's on the DVD that you think is inappropriate for your 
children to see, you have committed a Federal offense if you 
engage in that act of bypass, even though the purpose of the 
bypass is innocent.
    We are proposing as our first provision that bypass of 
technical protection is legitimate as long as the purpose of 
the bypass is itself legitimate. So if a person is bypassing to 
exercise a fair use right that act of bypass would not be 
punishable under the law. I would stress that a person who 
bypasses under our bill for the purpose of infringing the 
copyright and the work would be just as guilty of a Federal 
crime as he is today under the current law. In fact, he would 
be guilty of two violations, the act of bypass itself and the 
act of infringing the copyright in the work. And that is the 
same penalty, the same substantive violation that he would 
encounter under current law. And so this provision is not a 
charter for pirates. It would punish pirates just as severely 
as under current law.
    Second, we are proposing that devices that can facilitate 
circumvention for legitimate purposes be authorized. The 
Supreme Court in its Betamax decision in the middle 1980's set 
forth a very sound legal principle that provided a foundation 
of legal certainty upon which the home recording industry has 
been based and that industry has flourished and significantly 
enriched the American economy and improved the quality of life 
of millions of Americans. That legal foundation was a very 
simple test and that is that the only question you have to ask 
when you're determining whether or not technology is legitimate 
is whether or not the technology is capable of substantial 
noninfringing use. And if it is, the manufacturer will not be 
held accountable for contributory infringement. We are 
proposing to reinsert that valuable and time tested principle 
as the test for determining whether or not circumvention 
technology can be provided.
    Two other provisions, very briefly stated. First of all, if 
you go to the store and you buy a copy protected CD, you should 
notice of the fact that it's copy protected, that you may not 
be able to take it home and create your own play list on your 
computer or create your own CD with music organized in 
precisely the fashion in which you want to hear it. You should 
have notice of that fact so it requires appropriate labeling.
    The second provision says that the existing exemption for 
encryption research would be broadened to include scientific 
research on technical protection measures. And this provision 
responds to a recommendation made by Richard Clark when he was 
the cyber security head in the White House and to many others 
who would like to have people who want to consume technical 
protection measures be given the legal certainty that they are 
robust, that they are durable, that they are functional and 
only independent research can guarantee that. Independent 
research cannot be conducted today because of the narrow scope 
of the existing exemption.
    These are our four provisions.
    Mr. Chairman, I think they are modest amendments indeed. 
They are broadly supported by the organizations that have 
participated in their formulation and are urging the passage of 
this bill, as well as by a bipartisan group of Members of the 
House. And I very much hope it will be the privilege of the 
pleasure of this subcommittee to act affirmatively on them.
    And I thank you very much for giving the time to speak.
    Mr. Stearns. And I thank the gentleman.
    And our colleague from California, Mr. Doolittle, welcome.

              STATEMENT OF HON. JOHN T. DOOLITTLE

    Mr. Doolittle. Thank you, Mr. Chairman, and distinguished 
members. I very much appreciate your affording us the 
opportunity to air these issues and have a hearing on this 
bill. I commend Mr. Boucher who has studied this over a number 
of years and who is somewhat of an authority, really, on these 
issues as you can see from listening to description of the 
legislation. And I'm very grateful that we have this bipartisan 
opportunity to address what I think is a very, very significant 
issue.
    A couple of years ago I yielded to the ads because I was 
curious to see what these were about. This is an Apple iPod and 
now we have a number of MP3 players like this. This is a very 
interesting device. You can take your entire CD collection put 
it on your computer and download it from there onto this. You 
can also take books on CD and download them onto this. At least 
you can for now. Until the copyright holders may decide through 
technology they may desire to employ to prevent that use, the 
DMCA would give them that right. Increasingly, we're having a 
number of CDs now that are coming out with encryption.
    I paid for this. I bought the material that I'm downloading 
onto it, but I may be prevented at some point from being able 
to take advantage of what is a very convenient technology. It's 
very portable. It's like a little portable hard drive and you 
know, I'm sorry to say, unlike Ms. Schakowsky, who wasn't here 
in 1998, I was. And I didn't grasp what the real issues were at 
stake in this DMCA at the time that it came before the House.
    I have a better handle on it now and I think we went way 
overboard as a Congress in enacting that legislation. It needs 
to be corrected. There is always going to be, as I understand 
it, a dynamic tension between the copyright law and new 
technologies. Fair use represents the interface, as some have 
written, between those two major interests. Fair use has been 
severely disadvantaged by the present DMCA.
    I'm sure we've all heard about the high definition 
television and many of us no doubt have experienced what that 
actually is. And as good as the picture used to be, now that 
you've seen the high definition picture, there's a radical 
difference between the quality of the two. Increasingly, we 
will be moving more and more in the direction of high 
definition images. And many of you no doubt have experienced 
the digital video recorders or PVRs such as TiVo or ReplayTV 
and going well beyond what a VCR can do. Now this is like a 
hard drive. You can record these things and without trying to 
find where on the videotape this thing is, you can go right to 
it with a very convenient menu.
    One would hope that we would be able to do such things with 
high definition, but that's all up to the good will of the 
copyright holders as to whether they're going to allow us to do 
that. And indeed schemes are being proposed that might allow 
you to record on some sort of a personal video recorder, the 
high definition image, but if you seek to create, free up space 
in your hard drive by downloading it to a disk, you may be 
prescribed from doing it. You'll just have to view it at the 
regular DVD quality, not at the high definition quality that 
technology is going to be capable of producing.
    Well, as we move forward, it doesn't seem like any big deal 
perhaps, because this isn't that widespread, but once you're 
thoroughly accustomed to the resolution and the quality of high 
definition television and then to be limited by this technology 
and forced by the power of the government through the DMCA, it 
will be--there will be an increasing disparity when you will 
wish you could save this onto a disk and free up that space for 
further recording, but you will not be able to do it at the 
quality that you would like and the technology would allow 
because of the DMCA.
    Mr. Boucher's bill, which he has introduced, will help set 
the balance where it needs to be. You're never going to get rid 
of the tension, as I understand it, between the copyright law 
and new technologies. This is a tension that's inherent in a 
free society and it balances the interest and you're going to 
move forward and new technologies are going to come and Courts 
and ultimately the Congress are going to draw the line as to 
what's fair use and what isn't.
    Right now that line has been drawn way over in favor of the 
copyright holder. Let me just say if the DMCA, as I understand 
it, had been law at the time the VCR was invented in the middle 
or late 1970's, middle, I guess, you probably would have--we 
wouldn't have the ability that we've come to appreciate because 
they would have been able to insist that a chip be inserted in 
the VCR which in fact they did, the plaintiffs in that suit did 
ask for that from the Court and that would have prevented the 
VCR from even recording movies or TV programs that had the 
signal contained that said you could not record it. So the 
public would never have even known this. And that's the failure 
of the DMCA to allow these new technologies, let the Courts 
decide where the balance is and ultimately the Congress gets to 
draw the line after this experimentation process has continued.
    I fully support the right of property owners to get their 
due. I have never detracted from that. But there also the 
rights of the public through fair use and I think these have 
been severely circumscribed by the present law and this bill 
represents the first tangible opportunity to begin to redress 
the wrongs that were done in 1998 when the DMCA was enacted 
into law. I thank you very much for this chance to address you 
and I look forward to the hearing.
    Mr. Stearns. I thank both of my colleagues for their very 
fine testimony and we're going to go directly to the second 
panel. We have two panels after you and we have a long list of 
people so I know they'll advocate for and against what you have 
already proposed. So with that, my colleagues, we'll bring up 
Mr. Lawrence Lessig who is Professor of Law at Stanford Law 
School; Mr. Gary Shapiro, President and Chief Executive Officer 
of Consumer Electronics Association; Mr. Jack Valenti, 
President and Chief Executive Officer of the Motion Picture 
Association of America; Mr. Robert W. Holleyman, President and 
Chief Executive Officer, Business Software Alliance; our former 
colleague, Congressman Allan Swift from Colling Murphy; and Ms. 
Miriam M. Nisbet, Legislative Counsel, the American Library 
Association.
    Let me welcome all of you and we'll start with you, Mr. 
Lessig for your opening statement.

 STATEMENTS OF LAWRENCE LESSIG, PROFESSOR OF LAW, STANFORD LAW 
SCHOOL; GARY J. SHAPIRO, PRESIDENT AND CHIEF EXECUTIVE OFFICER, 
 CONSUMER ELECTRONICS ASSOCIATION; JACK VALENTI, PRESIDENT AND 
CHIEF EXECUTIVE OFFICER, MOTION PICTURE ASSOCIATION OF AMERICA; 
  ROBERT W. HOLLEYMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER, 
BUSINESS SOFTWARE ALLIANCE; HON. AL SWIFT, COLLING MURPHY; AND 
    MIRIAM M. NISBET, LEGISLATIVE COUNSEL, AMERICAN LIBRARY 
                          ASSOCIATION

    Mr. Lessig. Thank you, Mr. Chairman. There are members of 
this committee who have criticized the IRS, but who believe 
that in a civilized society individuals must pay taxes. There 
are members of this committee who have criticized particular 
regulations of EPA, but who believe that the government has an 
important obligation to protect our environment.
    I am critical of our copyright system, but I fundamentally 
believe in the critical role that copyright must play in 
protecting creators and supporting creative industries. I 
believe commercial piracy is wrong. I believe it is just as 
wrong to substitute a purchase of a Britney Spears' CD by 
stealing it from Tower Records or to download it from a peer-
to-peer network, not to mention what it says about your taste 
in music. I believe in copyright.
    But I also believe that copyright law is broken. Copyright 
law regulates too much. It regulates too inefficiently. It 
often regulates precisely the wrong kind of creative activity. 
The law was crafted against a background radically different 
technologies for producing and sharing content. In its present 
form, it often hinders more than it helps and like any massive 
system of Federal regulation, the law is often a tool that the 
dominant industry uses to protect itself against competition.
    There has never been a time in the history of our Nation or 
of any free nation when the monopoly that we call copyright has 
reached as broadly, as extensively for as long as inefficiently 
or as punitively. The regulatory process that controls 
creativity in America today is massively overly extended. But 
paradoxically, it's also my view that relatively small changes 
in the law of copyright can restore the balance that 
historically has defined Congress' treatment of this important 
aspect of Federal regulation. And I particularly believe that 
the bill that you're considering today, H.R. 107, is an 
extraordinarily important first step in restoring the balance 
in copyright law that Congress has the primary obligation to 
seek.
    Now as Congressman Boucher has described there are four 
important parts of that bill. I want to focus on just one. This 
is the amendment to the DMCA that essentially establishes that 
if the use of the underlying copyrighted material would be fair 
under copyright law, then it's not a crime to circumvent the 
technology to enable that use. Now the second time I had the 
privilege of debating Jack Valenti, Jack Valenti stood before 
the audience and like a student having discovered his key case, 
held in his hands a decision of the Second Circuit Court of 
Appeals which he interpreted to say that fair use was not a 
constitutional requirement under our system of free speech. He 
was excited because that meant that it was possible for 
Congress to remove fair use if they wanted and if the DMCA did 
that, then so much the worse for fair use.
    Well, I'm privileged to be able to sit before you today and 
hold in my hand a decision from the United States Supreme Court 
which stands above the Second Circuit Court of Appeals, a case 
which I argued before the Supreme Court and which I lost before 
the Supreme Court, but which has one line of silver lining in 
its decision which it says that fair use is a traditional 
contour of copyright and if Congress removes it, then it raises 
a fundamental first amendment problem, that Congress cannot 
directly remove fair use and I think the fair implication of 
that is it cannot indirectly remove fair use because indirectly 
removing fair use also creates a free speech problem.
    Now as Congressman Boucher has established and as this bill 
addresses, the effect of these regulations is to remove fair 
use in many important contexts. Now I understand the content 
industry feels that it's fighting a war. In fact, Jack Valenti 
has called this his own terrorist war where our children are 
apparently the terrorists. And I understand there are many who 
believe that fundamental rights should stand aside in the 
context of the war, especially a terrorist war. But our 
Constitution means something different here. It means that the 
rights of free speech trump and the fundamental right of free 
speech protected by fair use must be respected by Congress and 
will be respected by the Courts. And this small change in the 
scope of the DMCA, whatever problems it creates for industry is 
creating problems because of our fundamental commitment to a 
system of free speech. Fair use is a part of that system.
    Thank you very much.
    [The prepared statement of Lawrence Lessig follows:]
 Prepared Statement of Lawrence Lessig, Professor, Stanford Law School.
    Mr. Chairman, and Members of the Committee: I am the John A. Wilson 
Distinguished Scholar, and a Professor of Law at Stanford Law School. I 
have written extensively about new technologies and legal policy. As a 
lawyer, I have been involved in a wide range of litigation involving 
copyright and the Internet. I am Chairman of the Board of Creative 
Commons, and a member of the boards of Public Knowledge, the Public 
Library of Science, EFF and the Free Software Foundation. I direct the 
Stanford Center for Internet and Society.
    I am grateful for the opportunity to testify before you today, and 
offer the following to help your deliberations.
    Copyright law is an essential protection for authors and creators. 
It is a necessary protection for creative industries and commerce. 
Innovation and creativity depend upon adequate and reliable copyright 
protection. Commercial piracy is therefore an important threat that the 
government rightly should address.
    Yet in its eagerness to staunch commercial piracy, the law must not 
lose sight of the crucial balance in copyright that has also been at 
the core of our tradition. These limits in the United States have 
historically guaranteed that the benefits of copyright regulation do 
not outweigh its costs. A poorly crafted copyright law--a law that 
either creates too much uncertainty, or a law that extends its reach 
beyond its legitimate purpose--can stifle progress rather than promote 
it.
    ``Fair use'' is one important limitation upon the regulation of 
copyright. Historically, it has neither been the most important or most 
familiar. The efforts of this Committee to consider whether fair use is 
adequately protected in the digital age is an important first step in 
striking the right balance in the regulation of copyright.
    But it is only a first step. In my view, Congress's zealous efforts 
to attack ``piracy'' have had the unintended collateral effect of 
destroying a crucial balance in copyright law. Never in the history of 
our nation has the law of copyright regulated as broadly; never has it 
regulated as extensively. And in light of the creative and commercial 
potential of digital technologies, never has the law burdened creative 
work as directly or pervasively. If copyright litigation promises to 
become the ``asbestos litigation for the Internet Age,'' as Stewart 
Baker recently wrote in the Wall Street Journal,1 then the 
actual law of copyright promises to become the IRS code of the creative 
class. The direct beneficiaries of this massive change in legal 
regulation are existing, highly concentrated, copyright industries, and 
lawyers. Those burdened by this regulation are increasingly creators 
and innovators, both commercial and noncommercial.
---------------------------------------------------------------------------
    \1\ Stewart Baker, Review, Wall Street Journal, W6, March 26, 2004.
---------------------------------------------------------------------------
    In my view, Congress should systematically reconsider the scope of 
federal regulation governing the creative process. It should 
reevaluate, in light of the massive changes that digital technology 
produces, the best way to protect the legitimate interests of creators. 
Rules that made sense even just 30 years ago are highly questionable 
today. Congress's objective must be to guarantee that the regulation of 
creative work continues to serve the single constitutional purpose of 
that regulation: to ``promote the Progress of Science.''
    I know from personal experience that the position I mean to advance 
before this Committee is apparently difficult for many to understand. 
No doubt that failure is in part due to the rhetoric of some of us on 
this side of the debate. So let me state as simply and clearly as I 
can: My argument is for balance in copyright regulation. Yet many hear 
such an argument as an argument against copyright. A kind of ``IP 
McCarthyism'' seems to govern this debate. The rhetoric from both 
extremes makes it sound as if the only choices were between two 
extremes.
    This view is a profoundly costly mistake for both commerce and 
innovation generally. Congress must begin to recognize the radical 
change in the scope and reach of copyright regulation in just the past 
twenty years. In part that change is the product of legislation; in 
part it is the unintended consequence of copyright law applied to 
vastly different technologies. As I have tried to demonstrate in my own 
work,2 the consequences of these changes together are to 
burden creativity, and stifle commercial innovation. Neither effect is 
a necessary consequence of a well-crafted copyright law.
---------------------------------------------------------------------------
    \2\ The Future of Ideas (2001); Free Culture (2004).
---------------------------------------------------------------------------
    Just as one can criticize the tax code without criticizing the idea 
that in a civilized society, citizens must pay taxes, and just as one 
can criticize the regulations of OSHA without believing that business 
should be free from safety regulation, so too can one criticize the 
extremism that copyright law has become without criticizing the idea 
that copyright is essential to creative work, and to creative 
industries. That it is essential is my view; that it has become too 
costly and inefficient is also my view.
    It is for this reason too that it is extremely important that these 
issues be considered by this Committee. The history of regulation being 
used as a tool to stifle competition is long. And as this Committee 
knows well, only a careful and consistent monitoring of regulation can 
assure that the law not become a tool that industries use to protect 
themselves from new competition. Every generation will view the 
innovations of the next generation as troubling and threatening. But 
those same innovations keep competition vigorous. As Adam Smith 
famously remarked, competitors are always seeking ways to stifle 
competition. Federal monopolies, which copyrights are, are often the 
most effective tool. Copyrights are no doubt important. But the 
Constitution gives Congress the power not to grant copyrights, but to 
``promote the Progress of Science.''
    In the testimony that follows, I briefly outline the historical 
balance that copyright law struck. I then consider the current position 
of ``fair use,'' in light of the changes that I describe. Against this 
background, I argue that H.R. 107 is an important step in restoring 
balance to copyright. And finally, I conclude with other efforts 
Congress might consider to further balance copyright law in light of 
new technologies.

                  THE HISTORICAL BALANCE OF COPYRIGHT

    As the Supreme Court has repeated, and as the late Professor Lyman 
Ray Patterson made clear,3 copyright ``has never accorded 
the copyright owner complete control over all possible uses of his 
work.'' 4 Its purpose instead is to secure a limited 
monopoly over certain ways in which creative work is exploited, so as 
to give authors an incentive to create, and thus, in turn, to ``promote 
the Progress of Science.''
---------------------------------------------------------------------------
    \3\ See Lyman Ray Patterson, Free Speech, Copyright, and Fair Use, 
40 Vand. L. Rev. 1, 46 (1987).
    \4\ Sony v. Universal City Studios, 464 U.S. 417, 432 (1984).
---------------------------------------------------------------------------
    Originally, the trigger for that protection was the act of 
``publishing'' a work. The first Copyright Act secured an exclusive 
right to the authors over the publication of ``maps, charts, and 
books.'' 5 In 1909, the scope of that right was expanded to 
give authors an exclusive right over ``copies.'' 6 Against 
the background of the technology extant in 1909, that change was 
probably not intended as a substantive change in the reach of the law, 
and in any case, was not significant: For printed texts, the 
technologies of ``copying'' were essentially the same as the 
technologies of ``publishing.''
---------------------------------------------------------------------------
    \5\ Act of May 31, 1790, 1 Stat. 124.
    \6\ Patterson, supra, at 12.
---------------------------------------------------------------------------
    Before digital technologies, this pattern of regulation meant that 
while some ``uses'' of copyrighted material were plainly regulated 
under the law--publishing a book, or reprinting a chapter--many uses 
were unregulated under the law. Reading a physical book, for example, 
is an unregulated use under the law, since reading a book does not 
produce a copy. Giving someone a book is an unregulated use, since 
giving someone a book does not produce a copy. These uses are thus 
independent of the regulation of copyright. And these unregulated uses 
support many important commercial activities, including used bookstores 
and libraries.
    Unregulated uses are not the same as ``fair use.'' ``Fair use'' is 
a privileged use of a copyrighted work that otherwise would have 
infringed an exclusive right. It is, in other words, a copy that the 
user is privileged to make regardless of the desire of the copyright 
owner. Thus, reading a book is an unregulated act under copyright law. 
But quoting a book in a critical review is a presumptively regulated 
use (because a quote is a copy), yet privileged under the law of fair 
use.
    The traditional contours of copyright law thus secured to authors 
exclusive rights over just some uses of their creative work. But it 
secured to consumers and the public unregulated access to that creative 
work for most ordinary uses. And it privileged the public for some uses 
that would otherwise have infringed the exclusive right to copy.
    This traditional balance has been changed in the context of digital 
technologies. For it is in the nature of digital technologies that 
every use of a digital object produces a copy. Thus every use of a 
digital object is presumptively within the scope of copyright law's 
regulation. And that in turn means many ordinary uses must now either 
seek permission first, or rely upon the doctrine of ``fair use'' to 
excuse what otherwise would be an infringement.
    For example, the ordinary use of reading a book--unregulated by 
copyright law for a physical book--is now regulated by copyright law on 
a digital network: as any act on a digital network, produces a copy, so 
too does merely reading a book. The same with ``lending'' a book, or 
selling a book--all these produce copies; all these are regulated on a 
digital network; none of these would have been regulated outside of a 
digital network.
    These changes are the unintended consequence of the interaction 
between digital networks and a form of copyright law that triggers 
liability upon the making of copies. Their consequence is that the law 
now reaches far more broadly than it ever did before. And when tied to 
the unconditional reach of copyright after the abandonment of copyright 
formalities, they mean that the burden of copyright applies in a vast 
range of contexts in which it does not also provide any copyright 
related benefits.

                   THE CURRENT INADEQUACY OF FAIR USE

    There are many who believe that ``fair use'' is an adequate balance 
within copyright law. I believe that at present, this view is mistaken 
for three related reasons.
    First, as the history just sketched suggests, the doctrine of 
``fair use'' has not historically been relied upon to free ordinary 
uses of copyrighted material from the regulation of the law. Instead, 
ordinary uses were free of regulation because copyright law did not 
cover those uses. ``Fair use'' originally regulated uses by competitors 
to the copyright owner.7 It didn't regulate uses by 
consumers. Yet given the fundamental shift of copyright's reach, it is 
now the rights of consumers to use content in ordinary ways that must 
be defended through the doctrine of ``fair use.''
---------------------------------------------------------------------------
    \7\ Id.
---------------------------------------------------------------------------
    Second, as any practical understanding of the law reveals, ``fair 
use'' is an extraordinarily uncertain freedom. The test is crafted as a 
balancing test, with no single factor as determinative. This means that 
ex ante, it is extremely hard for creators and publishers to know 
precisely what freedom the law allows. This either forces publishers to 
impose rules that are far more strict than fair use,8 or it 
forces creators to clear permissions upfront. And when that permission 
cannot be secured, it forces the creator into an extremely difficult 
choice: whether to risk substantial exposure for copyright liability, 
or to remove the speech from the creator's work.
---------------------------------------------------------------------------
    \8\ See William F. Patry and Richard Posner, Fair Use and Statutory 
Reform in the Wake of Eldred, California Law Review (forthcoming 2004).
---------------------------------------------------------------------------
    A recent example involving NBC makes this hypothetical more 
salient. Cinema Libre intends to distribute an award-winning 
documentary about the Iraq War by film director and producer Robert 
Greenwald, titled ``Uncovered.'' In preparing the extended version of 
the film, Greenwald wanted to include a one-minute clip from NBC's 
``Meet the Press'' interview with the President. Greenwald was denied 
permission. The agent informing Greenwald's agent of the decision 
stated, ``unofficially, we don't believe it makes the President look 
good.'' And thus Greenwald and Cinema Libre are now confronted with a 
stark and odd choice for a democracy protected by the First Amendment: 
Should they risk substantial liability simply to repeat the words the 
President of the United States?
    These costs of fair use are significant both to commercial and 
creative potential. Though some naively believe the costs of seeking 
permission are slight, in fact those costs are prohibitively high for 
all but a few commercial creators. Indeed, because the costs of giving 
permission are often higher than any possible revenue from that 
permission, many rights owners adopt a simple presumption against 
giving permission. Transaction costs thus bury creative work under a 
system of uncertain fair and free use.
    Finally, and most directly related to the issues before this 
Committee today, ``fair use'' is effectively erased by technical 
measures that block ordinary or fair uses of creative material, and by 
legal rules that render illegal technologies that might help evade 
those restrictions. Thus, technologies that restrict the ability to 
capture a clip from a DVD for educational purposes, or that restrict 
the ability of consumers to backup digital media, interfere with uses 
that would, under the law of copyright, be deemed fair. And under the 
DMCA, efforts to evade those restrictions are prohibited.
    These three reasons together suggest that ``fair use'' in its 
current state will not suffice to secure a balance between the control 
copyright regulation secures, and the access that copyright is meant to 
guarantee. It is therefore crucial that Congress consider a range of 
measures to update fair use in the digital age. H.R. 107 is an 
important beginning, as I describe below. But I would not let it be the 
last.
    Fair use has been a central aspect of American copyright law. It is 
less familiar within other legal traditions. Indeed, this difference 
may well account for the relatively anemic understanding of fair use 
offered by trade associations, including the RIAA. As every major label 
in that trade organization is now owned by foreign corporations, it is 
not surprising that those labels find our tradition to be alien. ``Fair 
use,'' as a senior executive at one of the major labels recently put 
it, ``is the last refuge of scoundrels.'' I understand how that may be 
the view of some in the world. But within our tradition, fair use is a 
core freedom.
    In its current state, however, fair use does not effectively 
protect consumers and creators in their transformative use of creative 
material. That in turn increasingly stifles commerce as well as 
creativity.
    One useful example of this consequence is the litigation 
surrounding MP3.COM. MP3.COM designed a technology to enable consumers 
to verify to a computer that they owned or possessed a CD. Once that 
fact was verified, the company gave the consumer access to the content 
on that CD from any computer on the network. These password protected 
accounts served to validate and protect the selected music. And they 
were supported by MP3.COM's purchasing and copying 50,000 CDs onto 
MP3.COM's servers.
    Because the company was simply giving customers access to music 
they had already presumptively purchased, and because the service in 
fact made the music that people had purchased more valuable, MP3.COM 
believed its business model was protected by ``fair use.'' Some 
recording labels and artists disagreed, and sued MP3.COM. Months later, 
a court found the company liable, and fined the company over 
$120,000,000, and effectively forced the company into bankruptcy. When 
one of the labels suing MP3.COM purchased the company, it then filed a 
lawsuit against MP3.COM's lawyers, charging them with malpractice in 
advising MP3.COM the company that its business model was legal.
    That case has subsequently been criticized by Judge Richard 
Posner.9 But my point here is not to take sides in the 
matter (although I agree with Judge Posner). It is instead to make the 
obvious point that a committee on Commerce would well understand: if 
the doctrine of fair use is so uncertain that senior and respected 
judges would apply it differently in the same case, and yet exposes 
innovators to such severe liability, we can expect (as we have observed 
in Silicon Valley) that this legal uncertainty will chill business 
investment.
---------------------------------------------------------------------------
    \9\ William M. Landes & Richard A. Posner, The Economic Structure 
of Intellectual Property Law 120-21 (2003).
---------------------------------------------------------------------------
                                H.R. 107

    H.R. 107 is an important first step in restriking a balance in 
copyright law. The bill would make two significant changes. It would 
first, and least controversially, require adequate labeling of copy-
protected CDs. And second, it would eliminate anti-circumvention 
regulation in contexts in which there is no underlying copyright 
interest at stake.
(1) Labeling
    As this Committee is well aware, technologists have been working 
for many years to find a technological way to control how CDs are used 
by consumers. In particular, they have sought a technological way to 
assure that a CD could be played, but that its content could not be 
copied.
    Such a technology, given the open implementation of CD protocols, 
is extraordinarily difficult to perfect. And hence the risk that any 
particular technology will not work on a particular machine is high.
    ``Not work'' however can mean much more than simply not playing. In 
some reported cases, copy-protection technologies have actually 
destroyed data on the consumer's computer. That loss can be extremely 
costly.
    This risk is more significant on less-mainstream computers. Any 
copy-protection technology is likely to have been tested on the most 
popular systems. It is economically impossible for these technologies 
to be tested on every system. Thus, it is certain that some users of 
these copy-protected technologies will use the technology on a machine 
for which it has not been tested. And no doubt, some will suffer 
significant costs from that use.
    These costs from copy-protection technologies must be considered in 
light of an obvious fact: that the ordinary use restricted by these 
technologies is not, ordinarily, a copyright infringement. A consumer 
who purchases a CD, and then shifts the content of that CD to his 
computer so that he can listen to music, engages in a ``fair use'' of 
that content. No doubt some might not be protected by fair use--a user 
who systematically copies CDs borrowed from the library to build his 
own library of music, for example. But the vast majority of users would 
be using purchased content in a totally legal way.
    In this context, a labeling requirement is an obvious and valuable 
regulation for both consumers and producers of content and computers. 
The benefit to consumers is obvious: they can avoid protected content 
if they have reason to be concerned that the technology used to protect 
the content might interfere with their machine.
    But there is also a benefit to content producers and technologists: 
To the extent stories about harm caused by copy-protected technologies 
become more common, they will create an uncertainty among computer 
users. That will reduce the demand for CDs by those users. Eliminating 
that uncertainty will counteract that dampening of demand. And 
likewise, producers of competing, but not-yet mainstream, technologies 
will not face the barrier to entry created by consumer fear--namely, 
that their technology might interact badly with copy-protected CDs. If 
there's no way to know whether a CD will destroy data on a non-Windows 
based computer, that will, on the margin, make it less likely that one 
would purchase a non-Windows based computer.
    Adding information into the market will thus improve competition 
within the market. And while in the short term, such labels may drive 
consumers away from copy-protected CDs, they will also create a strong 
incentive for CD manufacturers to support certifying organizations that 
can verify that the technologies cause no harm. The label would thus 
create an incentive for better cross-platform certification, which 
again would benefit consumers and competition generally.
(2) Non-infringing use exception from anti-circumvention regulation
    The more controversial aspects of H.R. 107 are the portions aiming 
to exempt from DMCA liability technologies that circumvent copyright 
protection technologies for privileged uses. The bill both privileges 
circumvention if the underlying use of the copyrighted work would be 
privileged, and privileges technologies ``capable of enabling 
significant non-infringing use of a copyrighted work.''
    This correction to the DMCA is long overdue. It is necessitated 
first by the limited authority granted to Congress under the Copyright 
and Patent Clause. As the Supreme Court has repeatedly affirmed, 
Congress's power under the Copyright & Patent Clause is limited. Graham 
v. John Deere Co., 383 U.S. 1, 5 (1966) (clause ``both a grant of power 
and a limitation''). As it has recently indicated in Eldred v. 
Ashcroft, among those limits is ``fair use.'' Slip Op. at 30. Yet the 
DMCA, as interpreted, plainly interferes with the effective exercise of 
``fair use.'' And if Congress is restrained by the First Amendment to 
include ``fair use'' in the Copyright Act, it is constrained by the 
First Amendment not to exclude it through other copyright-related 
rules.
    No doubt, content owners who rely upon copy-control technologies 
will worry that this exception will swallow the DMCA-rule: that by 
allowing technologies that, e.g., enable back-ups of DVDs, Congress 
will be allowing technologies that enable ``piracy.'' But there is 
absolutely no independent economic showing of harm caused by the 
ability to circumvent copy-protection technologies for non-infringing 
uses. It is possible, of course, that such an exception will create a 
problem in the future. But rather than destroying a tradition of 
consumer rights because of a fear, Congress should predicate additional 
legal regulation only upon an actual showing of harm from such 
technologies.
    That showing, moreover, must be precisely focused upon the 
copyright related interest in controlling circumvention. The question 
of harm is whether the existence of a technology (a) cannibalized a 
market (by enabling some to get the content without paying for it) more 
than it (b) expanded the market (by making the underlying content more 
valuable). That harm must then be discounted by the constitutionally 
required ``fair use'' enabled by that technology.

                         OTHER NECESSARY STEPS

    As I have indicated, this important legislation is just the first 
step in a series of actions that Congress should consider to assure 
that copyright law continues to function in the balanced way that is 
our tradition. In addition to this change, I would urge this Committee 
to recommend the establishment of a serious and balanced study, perhaps 
chaired by former Congressman Robert Kastenmeier, to consider fully how 
best to adjust the protections of copyright to the digital age. 
Kastenmeier's tenure chairing the Subcommittee on Courts was defined by 
a constant appreciation of the balance the law needs to strike in light 
of changes in technology. A commission focused on precisely this sort 
of balance could provide a map for Congress in a range of areas.
    Such a map would reveal, I suspect, the great value that could be 
produced by rules designed to re-formalize much of copyright law. One 
unintended consequence of Congress's changes in the law in the 1976 Act 
was to eliminate many traditional copyright formalities. That in turn 
has massively increased the unproductive burden of copyright 
regulation--both making it more difficult to track down copyright 
owners, and extending copyright protection to works having no 
continuing copyright-related interest. Rules for more clearly 
identifying owners and content requiring protection would improve the 
creative process generally.
    No doubt some of this work can be done by the private sector. I am 
Chairman of Creative Commons, , a non-
profit corporation that builds and gives away technologies that enable 
authors and creators to more simply signal the freedoms they intend to 
run with their content. Thus a musician can use these tools to signal 
her desire that others share her music for non-commercial purposes. Or 
an author may use these tools to signal his desire that others use his 
work for any purpose so long as attribution is given. As a recent 
feature article in Business 2.0 describes,10 this strategy 
is increasingly used by artists and authors to enable their own 
commercial success, by lowering the transaction costs imposed by the 
law on the ability of others to reuse and share content.
---------------------------------------------------------------------------
    \10\ Andy Raskin, Giving it Away (For Fun and For Profit), Business 
2.0 (May 2004).
---------------------------------------------------------------------------
    I am proud of the work that Creative Commons has done to enable 
creators to make their work more easily available. And following a 
recent grant, I am eager to expand that work into the domain of 
science. But this work signals the need for a more extensive 
reconsideration about how copyright law currently functions. It is not 
a substitute.

                               CONCLUSION

    As the Supreme Court has indicated repeatedly, it is primarily 
Congress's job to ``defin[e] the scope of the limited monopoly that 
should be granted to authors or to inventors.'' 11 But in 
executing that task, it is crucial that Congress not be captured by any 
single set of interests. While I believe historically that Congress has 
done a good job in balancing technologies and protection, there is an 
important and valid criticism made by many that Congress has crafted 
copyright policy to conform to the interests of current creators, while 
ignoring the interests of future creativity, and businesses that build 
on their work.
---------------------------------------------------------------------------
    \11\ Sony, supra, 464 U.S., at 429.
---------------------------------------------------------------------------
    My concern is that this dynamic precisely is happening just now. In 
the heat of the debate about ``piracy,'' I believe that Congress is 
losing sight of other important values. And in particular, in the 
burdensome regulations that have been enacted to fight ``piracy,'' my 
concern is that a great deal of the potential commerce and creativity 
that digital technologies might enable will be lost.

    Mr. Stearns. I thank the gentleman.
    Mr. Shapiro.

                  STATEMENT OF GARY J. SHAPIRO

    Mr. Shapiro. Thank you, Mr. Chairman, members of the 
subcommittee. My name is Gary Shapiro and I'm President of the 
Consumer Electronics Association. It's a national trade 
association representing some 1500 companies, high tech 
companies. I'm also Chairman of the Home Recording Rights 
Coalition which has been before this committee and the 
Judiciary Committee many times over the last 20 years, always 
on the defense, always trying to say let's not expand the 
copyright laws further, they're broad enough.
    We have failed most of those occasions, but I'm happy to be 
here today to urge you to restore some balance in the copyright 
laws and to report favorably H.R. 107.
    Coming from the electronics industry, I have to say, 
believe it or not, intellectual property is also our life 
blood. Each year our members invent and create new technologies 
and they bring these products to the marketplace. But let me 
make things--one thing very clear. We favor vigorous 
enforcement of fair and balance IP laws. Indeed, our members do 
work closely with companies in the content communities to build 
technologies that protect content and safeguard reasonable and 
customary consumer expectations.
    What has happened recently, however, is a radical departure 
from the balanced approach to copyright law that our 
Constitution calls for and our public interest indeed requires. 
Let me give you some examples of problems that Americans now 
face. Americans buy new copy protected CDs, totally unaware 
that they may not play in their personal computers or on their 
automobile CD players. Innovators are being blocked from 
bringing legitimate competitive products to the market, even 
where there is no exploitation of a copyrighted work. And 
indeed, it's gotten so serious that the funding for this type 
of products has dried up because the funders are in danger of 
being sued. Indeed, they have been sued under the DMCA.
    Scientists have been threatened with prosecution if they 
publish their research on digital encryption issues and 
families are prohibited, as I'm sure many in this room have 
been frustrated, from fast-forwarding through the 
advertisements at the beginning of DVDs that you bought and 
that you already own, but you must watch the advertisements.
    H.R. 107 does take necessary steps to restore that balance 
that now leans so heavily against consumers, innovators and 
educators. Now 20 years ago Hollywood asked the Supreme Court 
in the Betamax case to ban a product, based on the presumption 
that its predominant use would be to infringe copyright. The 
Supreme Court refused to do so, thankfully by just one vote. It 
declared that such a rule would choke the wheels of commerce. 
And thankfully for us, our country and even Hollywood itself, 
the Supreme Court decision came.
    Those principles need to be reaffirmed one more time when 
you mark up H.R. 107 because even today some argue that the 
freedom to innovate that the Betamax established should apply 
only to one product and that is the analog VCR and that it has 
absolutely no application at all in the digital age. Actually, 
I think the digital age the opposite is true. Consumers and 
innovators still need the Betamax protection and it should be 
strengthened, not weakened. Many of you have heard of or some 
of you have traveled to the International Consumer Electronics 
Show. It's the largest show in the country and there 2500 
different companies show the latest and greatest products. 
Those products, many of them would not be shown there, those 
companies would not be in existence today, but for the Betamax 
holding. It's made a difference not only for these companies, 
but for the products that Americans now have in their living 
rooms or homes and their cars. They need the ability to get 
entertainment, information, educational content and be able to 
shift it around their home and use it anywhere. For the sake of 
technological growth, as well as the rights of consumers, we 
urge you to codify the Betamax decision, not narrow it, as was 
done with the DMCA.
    H.R. 107 also confirms that individuals can unlock digital 
media they own and they would not be liable under the DMCA so 
long as they did not infringe underlying work. You've heard 
about that from the Congressman and Professor Lessig.
    H.R. 107 also provides an exemption for activity solely in 
furtherance of scientific research and technological protection 
measures. This makes sense. The law should not be used as a 
selective sword and shield to invite comments from some corners 
and punish comments from others.
    Finally, there is a warning label required on anti-copy 
CDs. The FTC has asked to be given jurisdiction to enforce 
this. The challenge we face, consumers buy a CD, they expect it 
to work in their products. When it doesn't work, they get very 
frustrated. They blame the manufacturer of the product. Their 
expectations are not being met.
    Mr. Chairman, please let me make one final point. I 
understand that individuals representing the content industry 
have told this committee that H.R. 107 would somehow provide a 
haven for those who engage in piracy. This is absurd. H.R. 107 
only authorizes consumers to circumvent a technological 
protection measure in those instances where they do not 
infringe a copyright. H.R. 107 takes away no intellectual 
property rights. It merely realigns the DMCA with historic 
copyright law by ensuring that there can be no liability 
without copyright infringement liability.
    Now after the Betamax and before the Betamax decision, 
throughout the last 20 years you've heard claims of doom and 
gloom over and over again. You've heard it before the DMCA. You 
heard it with the introduction of the VCR. You've heard it from 
the same people in this room. I urge you to go back to that 
testimony. When that DMCA was passed, what I called it then was 
``a bill named Sue.'' And that's what it has become. I urge you 
to take those claims, revisit them and to pass H.R. 107.
    Thank you for your time.
    [The prepared statement of Gary J. Shapiro follows:]

  Prepared Statement of Gary J. Shapiro, Chairman, The Home Recording 
                            Rights Coalition

    Mr. Chairman and Members of the Subcommittee: On behalf of the Home 
Recording Rights Coalition (HRRC), I thank you for inviting me to 
discuss H.R. 107, the ``Digital Media Consumers'' Rights Act of 2003.''
    This vital, bipartisan bill would restore some balance to a 
copyright system that has recently been tilted to elevate the interests 
of media giants over those of ordinary people.
    We therefore urge you to favorably report H.R. 107, reverse this 
recent and harmful trend and restore the balanced copyright law that 
our nation has enjoyed for most of its history.
    In addition to my Chairmanship of the HRRC, I am also President and 
CEO of the Consumer Electronics Association (CEA), the premiere 
association representing the American technology industry.
    Intellectual property is our lifeblood. Each year, my members 
invent and introduce new and brilliant products into the marketplace. 
Innovation is the catalyst for growth in our industry. So let me make 
one thing clear: we hate piracy, and we hate pirates. We are all in 
favor of the vigorous enforcement of fair and balanced intellectual 
property laws.
    What has happened recently, however, is a radical departure from 
the balanced approach that our Constitution calls for and our public 
interest requires.
    Over the last few years, entertainment and media industry giants 
have persuaded Congress to restrict private and public use of books, 
music, and other material when it is in digital form.
    And now they are working through the Courts to change the laws and 
limit our freedoms even further.
    Many of these problems are a result of the 1998 enactment by 
Congress of the Digital Millennium Copyright Act or DMCA. The DMCA 
includes ``anti-circumvention provisions'' intended by Congress to 
prevent copyright pirates from defeating anti-piracy protections on 
copyrighted works, or getting hold of ``black box'' devices used for 
this purpose.
    Unfortunately, these anticircumvention provisions have proven 
overly broad, and are not being used as Congress intended. Instead of 
targeting pirates, they are being directed against consumers, as well 
as scientists, and business competitors engaged in a range of legal 
activities.
    Here are some of the problems Americans face as a result of today's 
new unbalanced copyright environment:

 Consumers buy new ``copy-protected'' Compact Discs unaware they may 
        not play in their PCs or automobile CD players.
 Innovators are blocked from bringing legitimate competitive products 
        to the market, even where no exploitation of a copyrighted work 
        is involved. Competitors eager to keep less expensive 
        alternatives away from consumers have sued manufacturers of 
        generic garage door openers and printer cartridges under the 
        DMCA.
 Venture capitalists refuse to fund legal and innovative technologies 
        for fear of DMCA lawsuits.
 Scientists have been threatened with prosecution if they publish 
        their research on digital encryption issues.
 Families are prohibited from fast-forwarding through the 
        advertisements at the beginning of DVDs that they bought and 
        own.
 Libraries and universities are unsure of whether or how they can 
        archive and use the digital materials they have acquired.
 Viewers who own HDTV television receivers may lose their viewing and 
        recording rights because of the unilateral use of ``down 
        resolution'' and ``Selectable Output Controls''--by giant media 
        companies.
 Americans' fundamental rights to buy legal products such as VCRs and 
        digital video recorders are in jeopardy as media giants have 
        declared war on the Supreme Court's landmark Betamax ruling.
    H.R. 107 cannot and does not address all of these harms in a single 
bill. It does, however, take necessary steps to restore the balance 
that now leans so heavily against consumers, innovators, and educators. 
Here is what H.R. 107 would do:

1. H.R. 107 would re-affirm that the Supreme Court's holding in the 
        Betamax case is the law of the land;
2. H.R. 107 would protect consumers, inventors, educators, librarians, 
        and product designers from prosecution or suit for 
        ``circumvention'' unless their activity also infringes the 
        copyrighted work in question;
3. H.R. 107 would protect legitimate research from being suppressed via 
        suit under the DMCA; and
4. H.R. 107 would require explicit warning labels on ``anti-copy CDs.''
    Let me explain why, in our view, each of these areas needs to be 
addressed by the Congress.
    First, H.R. 107 ensures that the Supreme Court's Betamax decision 
will remain the law of the land. Betamax is the legal cornerstone of 
our industry's ability to innovate and bring new products to consumers.
    H.R. 107 provides:
          ``It shall not be a violation of this title to manufacture, 
        distribute, or make noninfringing use of a hardware or software 
        product capable of enabling significant noninfringing use of a 
        copyrighted work.''
    This provision embodies the Supreme Court's classic formulation in 
its 1984 Betamax holding.
    Media giants now are running a well-funded campaign to persuade the 
public, the Courts, and the Congress that the Betamax doctrine 
safeguarding all products having significant non-infringing uses should 
now be confined to one product--the analog VCR--and that it has no 
application in the digital age.
    Actually, the opposite is true--in the digital age consumers and 
innovators need the Betamax protection to be strengthened, not 
weakened. Some of you have visited or heard of our annual International 
Consumer Electronics Show or CES. Without the Betamax holding, many of 
the products on display at CES would simply not exist. Indeed, many of 
the exciting new digital products American consumers are enjoying in 
their living rooms today would not exist.
    Twenty years ago, Hollywood asked the Supreme Court in the Betamax 
case to ban a product from the marketplace, based on a projection that 
its predominant use would be to infringe copyright. The Supreme Court 
declined to do so. Instead, it ruled that so long as any significant 
non-infringing use of the product could be identified, the product 
deserved its place in the market.
    We all know, now, that this decision allowed the creation of an 
entirely new market--home video--that no one had anticipated. Even in 
Hollywood's record-setting box office year of 2003, home video 
generated significantly more revenue than theatrical releases.
    But the Betamax decision unleashed more than a single new market. 
It represented a turning point in American cultural and economic life. 
The recording and processing power of devices, long available to 
industry, was just starting to become available on an affordable basis 
to consumers, educators, and libraries. This frightened some powerful 
groups. The litigation against the VCR was the first shot in their 
effort to keep this power out of the hands of consumers. The Supreme 
Court changed history by resisting this over-reaching offensive.
    The plaintiff movie studios asked the Courts for nothing less than 
an injunction, to keep VCRs off the market, unless the copyright holder 
granted permission for the product to be marketed, and set the terms 
and conditions under which it might be configured and sold.
    The Supreme Court refused to do this. The Court observed that, were 
it to do so, it would be including the innovative new product in 
somebody else's existing monopoly. In the patent law, this would mean 
that a patentee would effectively gain monopoly control over any other 
product that might contribute to infringement of the patent.
    The Court said that such a rule would ``choke the wheels of 
commerce.'' It said the same would be true in the case of a copyright 
owner asking for the power to keep a new device off the market. The 
Court said that such power should not be granted, even if the primary 
purpose of the new device is to infringe copyright, so long as the 
device has a significant use that is non-infringing.
    This outcome, in favor of a new consumer device coming to market 
without the necessity for a specific license from copyright owners, was 
not inevitable--it was the product of a vigorously argued, 5-4 
decision. We can see now, with hindsight, that a contrary decision 
would probably have choked the wheels not only of commerce, but also of 
e-commerce. Without the establishment of Betamax principles, a number 
of common Internet applications--and perhaps the Internet itself--would 
have been vulnerable to legal challenge.
    The Betamax principles must be affirmed when you mark up H.R. 107 
because, even today, it is being argued that the freedom to innovate 
that was established therein should apply only very narrowly--that it 
was OK for analog products, but is simply too dangerous for digital 
products. That it was OK for hardware, but too dangerous for software. 
Such thinking in the digital era would be a serious blow to American 
technical leadership, as well as to the rights of consumers. These 
rights should be confirmed, not circumscribed any further.
    Second, H.R. 107 would confirm that individuals ``unlocking'' 
digital media they own would not be liable under the DMCA so long as 
they did not infringe the underlying work. The bill would do so with 
the following language:
          ``It is not a violation of this section to circumvent a 
        technological measure in connection with access to, or the use 
        of, a work if such circumvention does not result in an 
        infringement of the copyright in the work.''
    One of the central failings of the DMCA is that it preserved fair 
use as a defense to copyright infringement, but more perniciously 
created the new crime of circumvention without a fair use defense. As a 
result, even if no infringement occurs when a consumer simply unlocks 
something he or she owns, he or she could be held liable under the 
DMCA. The Boucher-Doolittle bill would bring the two statutes into 
harmony by imposing liability under the DMCA only when it also exists 
under the Copyright Act.
    American copyright law, unlike some in Europe, provides that those 
who purchase material have an unencumbered right to make private, 
personal or family use of it--such as simply watching or listening--
without any obligation to the content owner. Yet the erosion of this 
important principle in the digital age has been profound.
    Indeed, it would be hard to go out on the street today and find a 
consumer who is not a home entertainment ``licensee'' many times over, 
even if that consumer owns no recording device at all. The same could 
not have been said 50 years ago, or even 20 years ago, at the time that 
the Betamax case was decided.
    The DMCA has severely and unnecessarily aggravated this situation. 
The consequences are extensive, and they range from the minor to the 
profound.
    The DMCA, for example, makes it unlawful for a parent to ``unlock'' 
a DVD to fast-forward through the multiple ads at the beginning of it. 
This has nothing to do with protecting copyrighted material from 
reproduction or public display. Under the Copyright Act, a grade school 
child has a fair use right to record a short excerpt from a movie on 
VHS for use in a school project, but has no such right under the DMCA. 
The Boucher-Doolittle bill would rectify this situation by providing 
families with the same legal right under the DMCA.
    But the problems go beyond the use of technology and media by 
families at home. It has now become routine for competitors to cite the 
DMCA in attempts to suppress competitive products.
    When the DMCA was passed, what Member of Congress could have 
imagined that it would be used by companies to sue legitimate 
competitors marketing universal garage door openers or generic printer 
cartridges?
    These competitors are not accused of infringing any intellectual 
property laws--not copyright, patent, trademarks, or trade secrets. The 
only offense they are accused of committing is reverse engineering--or 
``decrypting''--their competitors' products for compatibility purposes, 
thus arguably violating the DMCA.
    And in the future, we can expect to see more abuse of the DMCA to 
forestall legitimate competition. For example, CEA represents 
manufacturers of aftermarket consumer electronics for automobiles. If 
automobile manufacturers were to put ``authentication chips'' in their 
cars, makers of aftermarket products such as car stereos or car alarms 
could face suit for reverse engineering the chips merely to ensure 
compatibility of aftermarket products. The entire automobile 
aftermarket could disappear, courtesy of the DMCA.
    And in a world where chips are becoming cheaper and more 
ubiquitous, you could apply that scenario to nearly any other industry. 
Just imagine the destructive effect on the economy and innovation. 
Surely this was not the intent of the DMCA.
    In the unclear and hyper-litigious environment created by the DMCA, 
it is little wonder that venture capitalists are increasingly refusing 
to fund new and innovative technologies. Due to the DMCA, technology 
companies now routinely pay for lawyers to sit in on product design 
meetings. We can only guess what extraordinary products today's 
consumers will never get to see because of the expense and litigation 
caused by the DMCA.
    This situation cannot be allowed to stand. The impact on innovation 
and the economy will be increasingly severe and harmful. H.R. 107's 
remedy is to require a linkage between interference with a technical 
measure ``protecting'' a copyrighted work, and infringement of the 
copyright in the work.
    Without this protection, a new and vague form of legal 
``protection'' may be drummed up toward whatever advantage the 
proponent of a technological measure has in mind, resulting in the 
creation, unintended by the Congress, of a new and unmanageable form of 
industrial property protection. This is exactly what the Supreme Court 
said in the Betamax case that it needed to guard against--so as not to 
``choke'' commerce.
    I was one of several witnesses who warned of this potential 
consequence when the DMCA was pending; but back then we were not as 
creative as some lawyers have proven to be, so we could not dream up 
the range of abuses that have now come to pass.
    I also must note, Mr. Chairman, the dedicated efforts of many 
companies in our industry to create content protection technologies 
that safeguard commonly accepted consumer fair use practices. Following 
Congress's lead, our industry has insisted that protection technologies 
be accompanied by ``encoding rules'' such as those in Section 1201(k) 
of the DMCA, that respect consumers' legitimate expectations in the 
recording of broadcast and subscription video content.
    We do not anticipate that H.R. 107 will interfere with these 
efforts to create enforceable and more flexible DRM technologies. 
Notwithstanding, even the best of today's DRM technologies' and our 
companies constantly strive to improve them, because they do have an 
important place in the marketplace--can only approximate, but not fully 
accommodate, fair use.
    So, in the interests of both families and innovators, the DMCA's 
lack of any tie to copyright infringement--indeed, its circumlocution 
in defining what it does protect--needs to be reformed. H.R. 107 
provides a means to do so. I urge the Subcommittee to address itself to 
this task when it moves this legislation forward.
    Third, H.R. 107 provides an exemption for activities ``solely in 
furtherance of scientific research into technological protection 
measures.'' The last few years have been full of instances where 
copyright holders attempted to silence and intimidate academic 
researchers by brandishing the DMCA--the case of Princeton Professor Ed 
Felton is perhaps the most notorious. It is now clear that the DMCA's 
existing provisions are too narrowly drafted to avoid the intimidation 
of scholars and researchers.1
---------------------------------------------------------------------------
    \1\ See, National Academy of Sciences, The Digital Dilemma, 
Appendix G (National Academy Press, 2000).
---------------------------------------------------------------------------
    The HRRC has more than a decade's experience in working with 
content owners and distributors, to try to find balanced technical 
solutions that meet their needs, yet recognize and preserve the 
reasonable and customary practices and expectations of consumers.
    HRRC is a charter participant in the Copy Protection Technical 
Working Group (``CPTWG''), which is now entering its ninth year of 
meetings that bring people together to discuss these issues in an open 
technical forum. One thing we have learned is that technical measures 
must be tested as to the reliability of intended outcomes, and 
vulnerability to unintended outcomes.
    Public comment by researchers, both invited and uninvited, is 
vital. The DMCA should not be used as a selective sword and shield, to 
invite comment from some quarters but not from others.
    Finally, H.R. 107 requires a specific warning label on ``anti-
copy'' CDs, with the Federal Trade Commission given jurisdiction to 
enforce compliance. The emergence of common products, like a Compact 
Disc, that suddenly will not play back in common and clearly lawful 
products such as automotive players, boom boxes and PCs, illustrates a 
problem in the digital revolution that is little remarked on: as 
sophisticated as digital techniques may be, they are often very blunt 
instruments.
    The primary ``copy control'' technique in the digital world is 
still to deny access. When access to the program material is denied, 
the user loses it not just for purposes of copying, but also for 
ordinary viewing and listening, as well.
    The DMCA does not address this problem; it aggravates it. Except 
for section 1201(k), which addresses an analog technology, it provides 
no tools to enhance consumer use, yet new obstacles may be imposed 
unilaterally and without warning.
    In the case of Compact Discs, some of the access denial measures 
are so crude--for example, simply introducing errors into the digital 
coding, so as to fool the types of circuitry used in some players--the 
HRRC does not regard them as ``effective measures'' under the DMCA at 
all.2
---------------------------------------------------------------------------
    \2\ See Schwartz and Turner, ``When Is A Technological Measure 
Effective?'' www.HRRC.org. See also, id., pp. 9-10.
---------------------------------------------------------------------------
    But whether or not circumvention is prohibited by the DMCA, the 
consumer who buys an ordinary Compact Disc that is copy-protected is 
buying a potential problem. The CD format has been stable for twenty 
years; consumers have invested in hundreds of millions of players, and 
in sound systems designed to work with those players.
    Consumers are entitled to know when they are buying a disc that may 
not be playable, or that, if playable, the disc may not be used in the 
ways to which consumers have become accustomed. And they are entitled 
to know these things right away, at the store, before they bring their 
purchase home.
    Some Members of this Committee will recall that the HRRC was 
involved in the negotiation and enactment of the Audio Home Recording 
Act of 1992 (AHRA), which was an effort to enact forward-looking 
legislation to deal with recording from Compact Discs in the digital 
age.
    The AHRA imposed very specific technical and royalty obligations 
that are still in place on consumer electronics digital audio recorders 
and media, in exchange for some specific consumer protections. The 
music industry may now take a different view of its current needs and 
objectives, but we have not forgotten about the AHRA. Thus far, we are 
not aware that any of the technical restraints imposed on copy-
protected CDs would infringe on the particular recording functions that 
the AHRA assures to consumers--but we will continue to be vigilant on 
this subject.
    The Compact Disc labeling provisions protect consumers by ensuring 
that they know when they are being offered products that, as a result 
of added ``copy protection'' measures, might not play on some standard 
CD or DVD players and may not be recordable on a personal computer. 
Consumers have a right to know this. They have a right to know if the 
disc might not play on one of their products. They have a right to know 
whether they can make a home recording for private, noncommercial 
purposes, and if they can, what strings may now be attached to their 
ability to do so. Then they can make an informed choice.
    Mr. Chairman, let me make one final point. I understand that 
individuals representing the entertainment industry have told this 
Committee that H.R. 107 would somehow provide a haven for those who 
engage in piracy. That is absurd.
    H.R. 107 only authorizes consumers to circumvent a technological 
protection measure in those instances where they do not infringe a 
copyright. H.R. 107 takes away no intellectual property rights. It 
merely re-aligns the DMCA with historic copyright law by ensuring that 
there can be no DMCA liability without copyright infringement 
liability.
    I understand that some also have accused this bill of undermining 
digital rights management copy protection systems. This too is absurd. 
Our industry recognizes and supports the need for reasonable measures 
to protect against widespread piracy such as those outlined in the so-
called plug-and-play agreement reached between our industry and cable 
operators last year. We simply argue that these systems must be 
balanced against the equally important and well-established fair use 
and home recording rights of consumers.
    Twenty years ago, the same entertainment representatives told you 
that the VCR would mean the death of the American movie industry. They 
were spectacularly wrong.
    Now, they make the identical claim about the impact of H.R. 107. I 
believe history shows you have every good reason to be skeptical.
    Clearly, Mr. Chairman, H.R. 107 addresses a number of pressing 
problems that were not specifically foreseen as recently as six years 
ago. As I said at the outset, H.R. 107 cannot address all of them, but 
it is a crucial start.
    On behalf of the HRRC, and our efforts since 1981 to achieve 
balance in U.S. law, I urge this Subcommittee to work on these problems 
so as to enable fair use outcomes for consumers, and to move this 
legislation forward to the full Committee.
    In the continuing copyright dialog between the Congress and the 
Courts, it is time for the Congress to restore a historic balance that 
protects consumers, researchers, educators, and librarians and allows 
consumer electronics manufacturers to continue to bring exciting, 
innovative and legal products to market. Thank you again for having 
invited us to participate today.

    Mr. Stearns. I thank the gentleman.
    Mr. Valenti, welcome.

                    STATEMENT OF JACK VALENTI

    Mr. Valenti. Thank you, Mr. Chairman. First, I want to 
reply to my dear friend, Larry Lessig, who quoted me most 
eloquently and most persuasively, except there is scarcely a 
word that he said was true. The DMCA does not extol fair use. 
As a matter of fact, all of the catalog of fair use which you 
enunciated, Mr. Chairman, in your opening statement is very 
much intact in the DMCA today.
    No. 2, to my dear friend, Gary Shapiro, let me point out I 
have a letter which I think has been delivered to this 
committee yesterday. I don't know how many of you have seen it. 
This letter is from the DVD CCA, Copy Control Association. Let 
me tell you who is in this Copy Control Association. The 
membership encompasses many small companies, as well as every 
major consumer electronic company in the world, all of whom are 
in Mr. Shapiro's association. Most of the major computer 
companies, virtually all electronic component manufacturers, 
all of them oppose 107 for the reasons that I'll give you 
today.
    I want to make just four points, but I want to preface it 
with a question. I am very respectful of Members of Congress 
because you won public approval from your voters. I never have 
and nobody at this table except my dear friend, Al Swift, has. 
So every time you confront an issue in this Congress, you must 
ask yourself one question. What is the public interest in this 
bill? How is the national interest served by this? And then you 
vote accordingly.
    Let me make four points. The first point is that the 
central flaw which is unfixable in 107 is that it legalizes 
hacking. Hacking is described as circumventing an encrypted 
device or computer or anything. That's what hacking is. It now 
legalizes it. And allows you to make a copy or many copies. And 
the thousandth copy of a DVD, Mr. Chairman, is as pure and 
pristine as the original. That's point one.
    Point two and this is very, very important because it goes 
to the very core of what the proponents of H.R. 107 are saying. 
Right now, I want to quote from--well, first, when you break an 
encryption, there is no known technological device alive today 
that can restrict it to one copy. I know 321 is saying they can 
do that, but let me show you, Mr. Chairman. Here is an illegal 
copy of ``The Runaway Jury.'' It was purchased by one of my 
associates in Chinatown, here in Washington. And when you play 
this DVD what comes up is this and I'm going to read you one 
line. It says ``DVD backup. You are now viewing an archival 
backup copy of a DVD created solely for the private and 
personal use of the owner of the DVD.'' And by the way, we ask 
you to respect the rights of copyright holders which is the 
ultimately chutzpah, I might add. And it's from 321 Studios. So 
there's a classic every day real life example that you can't 
restrict it to one backup copy.
    In a symposium held recently, Professor Samuelson, a 
distinguished member of the academic community that Professor 
Lessig knows very well, posed this question. Whether it is 
possible to develop technologies that would allow circumvention 
for fair uses without opening a Pandora's box so that allowing 
these technologies means you are essentially repealing the 
anti-circumvention laws. The question was answered by one of 
the most influential and respected computer scientists in the 
world, Professor Ed Felton of Princeton. He said, ``I think 
this is one of the most important technical questions 
surrounding DRM, digital rights management, today whether we 
know, whether we can figure out how to accommodate fair use and 
other lawful use without opening a big loophole. The answer, I 
think right now, is that we do not know how to do that.''
    When you take a 321 and you make a so-called backup copy of 
an encrypted DVD, Mr. Chairman, you strip away all the 
protected clothing of that DVD and now make it naked and alone 
to make a thousand or how many copies that you want.
    Now point three and then I'm almost done here. I think it's 
important for Congress to understand what we're dealing with 
here. Intellectual property, computer software, music, movies, 
television, home video, represent America's greatest trade 
export price. We comprise more than 5 percent of the gross 
domestic product of this country. We bring in more 
international revenues than agriculture, than aircraft, than 
automobiles and auto parts, and most important, we are creating 
new jobs at three times the rate of the rest of the economy and 
these are not minimum wage jobs.
    And finally, the movie industry alone has a surplus balance 
of trade with every single country in the world. I don't 
believe any other American enterprise could make that 
statement. And just today, I heard NPR say that we have now 
announced the largest deficit balance in payments in trade in 
our history.
    So I'm saying to you the question is is it in the national 
interest to put to hazard the possibility of a shrinkage of 
this awesome engine of economic growth? That's the question 
that you have to answer.
    Finally, we have striven, the computer software industry, 
the music industry and movies, home video and television, 
working with our government in bilateral trade agreements and 
in free trade agreements to make sure that other countries have 
the same resolve and the same copyright laws that protect our 
property over there which is anti-circumvention.
    If we pass H.R. 107, every country in the world is going to 
say wait a minute, we better repeal all our laws. Why in the 
hell should we be protecting your property in our country where 
you don't protect them in your own?
    So I'm saying to you, Mr. Chairman, fair use is alive and 
well, but no Court in the land and Mr. Lessig, Professor 
Lessig, I pray would approve of this, he may not, but the 
record is there. No Court in the land has to this hour said 
that copying an entire movie represents fair use.
    I leave this in your hands, hoping that question is this in 
the national interest has to be answered and I thank you very, 
very much.
    [The prepared statement of Jack Valenti follows:]

 Prepared Statement of Jack Valenti, President and CEO, Motion Picture 
                         Association of America

 WHY H.R. 107 IS A PRIME HAZARD TO THE FUTURE OF AMERICAN INTELLECTUAL 
                                PROPERTY

    1. H.R. 107 has one unfixable defect: It will legalize the hacking 
of copy protection measures, which in turn will make it impossible to 
truly protect valuable creative property.
    We must remember that tapes copied on a VCR become progressively 
unwatchable after the first few generations. Not so in the digital 
format. The 1000th copy of a digital movie or piece of computer 
software is as pure and pristine as the original.
    If H.R. 107 becomes law, it then becomes legal to sell machines 
that circumvent, or hack, the copy protections on a movie, whether 
distributed as a DVD or online, so long as the device is ``capable of 
enabling significant noninfringing use of the copyright work.'' This 
would devastate the home sale market, as anyone could use these 
products to ``rent, rip, and return'' DVDs borrowed from video stores. 
In addition, it will greatly diminish the incentive for investment in 
new and innovative distribution mechanisms for digital content, such as 
distributing movies online. All legitimate digital distribution of 
movies depends on encryption and digital rights management technologies 
to control unbridled distribution. If breaking this encryption is 
legalized, why would movie studios invest in the infrastructure to 
deliver their products digitally when devices to strip the content of 
protection are legal and commonplace?
    2. Keep in mind that, once copy protection is circumvented, there 
is no known technology that can limit the number of copies that can be 
produced from the original. In a recent symposium on the DMCA, 
Professor Samuelson of UC Berkeley posed the question: ``whether it was 
possible to develop technologies that would allow . . . circumvention 
for fair uses without opening up the Pandora's Box so that allowing 
these technologies means that you're essentially repealing the anti-
circumvention laws.''
    The question was answered by the prominent computer scientist and 
outspoken opponent of the DMCA, Professor Ed Felton of Princeton: ``I 
think this is one of the most important technical questions surrounding 
DRM--whether we know, whether we can figure out how to accommodate fair 
use and other lawful use without opening up a big loophole. The answer, 
I think, right now, is that we don't know how to do that. Not 
effectively.''
    Moreover, there is no known device that can distinguish between a 
``fair use'' circumvention and an infringing one. Allowing copy 
protection measures to be circumvented will inevitably result in 
allowing anyone to make hundreds of copies--thousands--thereby 
devastating the home video market for movies. Some 40 percent of all 
revenues to the movie studios come from home video. If this marketplace 
decays, it will cripple the ability of copyright owners to retrieve 
their investment, and result in fewer and less interesting choices at 
the movie theater.
    3. It is important for the Congress to understand that intellectual 
property is America's greatest export prize which comprises more than 
five percent of the GDP--brings in more international revenues than 
agriculture, aircraft, automobiles and auto parts--and is creating NEW 
jobs at three times the rate of the rest of the economy. Why is it in 
the national interest to put to risk this engine of economic growth? 
Why?
    4. Moreover if Congress creates this enormous loophole in the DMCA 
by passing H.R. 107, every nation in the world will immediately revise 
its own copyright rules to do the same. American intellectual property 
protections will be un-done, not only here but around the world. Why 
should other countries protect our property in their land if we don't 
do the same here?
    5. H.R. 107 language was proposed in 1998 and was soundly defeated 
by the Congress.
    My colleagues from the Business Software Alliance and the Recording 
Industry Association of America will elaborate on a number of these 
points. They will also talk about the ``labelling'' requirements 
proposed by the bill, and I want to make sure that the MPAA is clear 
that we support voluntary, not mandatory labelling. I want to focus the 
remainder of my testimony on one of the underlying issues driving this 
debate at this time: the issue of ``back-up copies.''
    There are three reasons why the legislation to permit ``backing 
up'' DVDs is unsuitable for passage. Making back-up copies of DVDs:

 Is not legal.
 Is not necessary.
 And allows ``hacking'' of encrypted creative material, which in turn 
        puts to peril the future home video market.
    First, back-up copies are not legal. The Copyright Act does NOT say 
``buy one movie, get one free.'' There is no more a ``right'' to a 
back-up copy of a DVD than a back-up DVD player, lawn mower or set of 
wine glasses. (Indeed, Congress included language in the DMCA that 
mandated that VCRs include technology to block the copying of 
prerecorded movies.) What H.R. 107 really says is ``it's okay to make 
extra copies, and it's okay to circumvent encryption to do it.''
    Second, and more fundamentally, back-up copies of DVDs are not 
necessary. As said earlier, an encrypted DVD is well nigh 
indestructible. Most people I know, and I include myself, take a 
favorite DVD with them when they travel. It is highly portable. 
Moreover, an encrypted DVD can be watched over and again, hundreds of 
times without any degrading of sight, sound and color. And if by some 
very rare happening a DVD should malfunction, another can be bought at 
ever-lowering prices.
    Let's remind ourselves about what has happened since 1998, when 
this proposal was last placed before--and rejected by--this Committee 
and the Congress. What has happened is the most immediately successful 
innovations in the history of how we as a nation enjoy audio-visual 
entertainment. The American consumer has adopted the encrypted DVD 
faster and more completely than any previous new consumer electronics 
product. This DVD revolution has been the key fact of life for making 
the American movie industry so hospitably received in countries all 
over the world.
    The Copyright Office looked at this entire issue in great detail in 
last year's DMCA rulemaking proceeding and, for the second time since 
the DMCA was enacted, denied an exemption for making backup copies of 
DVDs. Their analysis is correct. There's no reason to reverse the 
course the Congress set in 1998: to bring the benefits of digital 
dissemination of copyrighted materials to the American consumer by 
encouraging the use of technological controls on access and use of 
those materials.
    As you are aware, ``321,'' before being enjoined by two federal 
courts from carrying on its illegal business, was one of the leading 
purveyors of hacking technology targeting our DVDs. 321's machines 
automatically labelled the copy of the DVD ``for back-up use only.'' 
Yet our investigators and law enforcement officials have found 
unauthorized copies with that very label being sold in the pirate 
marketplace.
    We return to this one incontrovertible point: there is no way to 
know, at the moment that protection is stripped away, what use will be 
made of the resulting immaculate but unauthorized copy. Once the hacker 
has done his work, the protection is gone forever. The adverse impact 
of the hacking on the men and women who have invested their time, toil 
and talent to make the movie in question could be minimal--but it could 
equally be monumental. There is simply no way of telling in advance.
    So let's be frank about the impact of enacting H.R. 107. This is 
not just about facilitating back-up copies, illegal and unnecessary 
though they may be. It's not even about enabling consumers to make 
their own extra copies, rather than to pay for them in the normal 
channels of commerce. It's about opening a Pandora's Box that our 
present technological capabilities are powerless to close.
    Let me address one final point. This discussion has been about 
DVDs. But looming much larger is the issue of digital distribution.
    Today our ability to digitally distribute movies legally--and the 
pirates' ability to digitally distribute them illegally--is subject to 
limits of speed. But there are experiments now going on that will 
reshape and enlarge the ease and speed of delivery. Cal Tech reported 
one experiment called ``FAST,'' which can download a quality DVD movie 
in five seconds! Another experiment, ``Internet-2,'' has dispatched 6.7 
gigabytes halfway around the world in one minute! (An uncompressed DVD-
movie contains some 4.6 gigabytes.)
    With this kind of lightning-fast speeds just around the corner, our 
dream and our plan is to develop digital distribution systems that will 
allow you to select and watch any movie ever made from the comfort of 
your own home. Consumer-friendly choices are promoted by providing 
consumers with legitimate market-driven alternatives for renting,--
purchasing or even copying.-- But these options will never come to pass 
if the circumvention of technology that provides these consumer choices 
is legalized by this legislation.
    Development of these options all depend on copy protection--
encryption schemes--and digital rights management to work. Under H.R. 
107, someone will legally be able to develop, manufacture, sell, and 
use hacking tools. There is no point investing in expensive 
technologies to safely distribute our products digitally if we know 
that in moments they will be stripped of their protection. If this bill 
is enacted, the digital dream will turn into a digital nightmare.
    H.R. 107 is not just bad for copyright owners; it's bad for 
consumers. We urge that this bill be rejected.

    [The letter from the DVD Copy Control Association follows:]

                       DVD Copy Control Association
                                            Morgan Hill, CA
                                                       May 11, 2004
The Honorable Cliff Stearns
Chairman
Subcommittee on Commerce, Trade and Consumer Protection
Committee on Energy and Commerce
U.S. House of Representatives
Washington, DC 20515
    Dear Chairman Stearns: The DVD Copy Control Association, Inc. 
(``DVD CCA'') submits this letter with respect to the hearing to be 
held on May 12, 2004, by the Subcommittee on Commerce, Trade, and 
Consumer Protection (``Subcommittee'') on H.R. 107, the Digital Media 
Consumers' Rights Act of 2003, and, more specifically, in relation to 
the comments made in the context of consideration of that legislation 
by representatives of 321 Studios, Inc. (``321'').\1\ We appreciate the 
opportunity to submit this letter for the record of the hearings on 
this legislation and provide it in advance of the hearings for the 
Subcommittee's use in conducting the May 12 hearing. To the extent that 
representatives of 321 make statements at the hearing that require our 
response, we anticipate sending a further communication to the 
Subcommittee.
---------------------------------------------------------------------------
    \1\ See Jim Snyder, ``Company Takes on MPAA Copyright Fights'' The 
Hill, April 2 1, 2004, on-line version at http://www.thehill.com/
business/042104 mpaa.aspx; Judy Sarasohn, ``Special Interests'' The 
Washington Post, April 29, 2004 at A23.
---------------------------------------------------------------------------
    We write as an association that has offered technology--the Content 
Scramble System (``CSS'')--to protect against unauthorized consumer 
copying of DVD video content. The availability of our technology has 
been critical to making DVD videos available to consumers and making 
the DVD business the fastest growing consumer electronics business in 
history. Our technology has been found in multiple legal proceedings to 
be an effective technological measure protected by the anti-
circumvention provisions of the Digital Millennium Copyright Act 
(``DMCA''). We urge the Subcommittee to avoid endorsing any legislative 
change that would undermine these DMCA protections for CSS technology 
or that would give 321 or others with similar DVD copying products any 
basis to argue that the DMCA's protections do not apply to CSS 
technology. Further, no suggestion or implication should be made that 
this Subcommittee or the Congress more generally endorses actions by 
321 or others who would defeat CSS protections.
    DVD CCA is a non-profit trade association composed of the over 261 
licensees of CSS for the protection of DVD Video content against 
unauthorized access and use. CSS was developed and deployed beginning 
in 1996, in order to encourage the motion picture industry to put its 
highly valuable movie content on DVD Video discs and, thereby, 
facilitate the development of a new industry to provide high-quality, 
exciting products and content for the enjoyment of consumers. DVD CCA's 
membership encompasses many small companies, as well as every major 
consumer electronics company in the world, most major computer 
companies, virtually all electronic component manufacturers, and 
several major motion picture companies. The multi-industry governance 
structure of DVD CCA provides a carefully balanced decision-making 
process. The key governing bodies of DVD CCA--the board of directors, 
the Content Protection Advisory Council, and the functional categories 
of licensees--operate to ensure that all licensees participate in the 
critical decisions of the organization and that no one industry 
dominates the decision-making process.
    The success of CSS in enabling the development of the DVD video 
business was already underway when Congress passed the DMCA in 1998. 
CSS was well-known to the Committees and Members of Congress who were 
making the decisions on the provisions of the legislation that became 
the DMCA. Indeed, CSS was widely understood to be precisely the kind of 
``effective technological measure'' that was to be protected by the 
anti-circumvention provisions of the DMCA.
    In addition, we have the following additional specific 
observations.
          First, 321's products have made and, to our knowledge, 
        continue to make use of DVD CCA's proprietary technology 
        without license. For that reason, DVD CCA has sued 321 for 
        infringement of claims in two particular patents for CSS 
        technology. We expect to prevail in that litigation later this 
        year.
          Second, the specifications, usage and compliance rules 
        associated with CSS make clear that the technology and 
        licensing system have been deployed to prevent consumer copying 
        of the content that is protected using CSS. 321's products have 
        been manufactured and distributed in direct violation of these 
        rules. Indeed, 321 has clearly recognized this fact in that, 
        (i) prior to DVD CCA's patent infringement suit against it, 321 
        never sought a license from DVD CCA to use the CSS technology; 
        and (ii) in proceedings last year before the Copyright Office, 
        it sought an exemption from the circumvention prohibitions of 
        the DMCA for consumers using its technology to defeat the 
        protections provided by CSS.
          Third, to our knowledge, no court has ever found that making 
        a complete copy of a copyrighted audio-visual work that is 
        distributed in prerecorded packaged media form is ``fair use'' 
        under the Copyright Act.
          Last, in Section 1201(k) of the DMCA, Congress expressly 
        permitted content owners to use technology (``Macrovision'') to 
        protect audio-visual works distributed in prerecorded packaged 
        media format from being copied by consumers. That is precisely 
        what CSS does in relation to CSS-protected video content 
        distributed on prerecorded DVD discs.
    In relation to the relatively few consumers who seek to defeat CSS 
and make copies of protected DVD movie content, DMCA's anti-
circumvention provisions have been an important legal deterrent to the 
distribution of technologies to enable such copying. We believe that it 
is essential that the legal tools provided by the DMCA continue to be 
available for DVD CCA and those whose copyrighted content is protected 
using CSS.
    Again, DVD CCA appreciates this opportunity to provide its views to 
the Subcommittee, and we look forward to working with you and your 
colleagues on these important issues in the future.
            Respectfully submitted,
                                                   John Hoy
                      President, DVD Copy Control Association, Inc.

    Mr. Stearns. I ask you whether you would like to put the 
Copy Control Association's letter as part of the record, I'd be 
very glad to do that. I have this here. You were reading from 
it earlier.
    Mr. Valenti. Yes, I was. I presume there's no legal 
reason--the answer is yes.
    Mr. Stearns. By unanimous consent, so ordered. I think that 
will also be in your benefit.
    Mr. Holleyman, welcome.

                STATEMENT OF ROBERT W. HOLLEYMAN

    Mr. Holleyman. Thank you, Mr. Chairman. Good morning to you 
and members of the subcommittee. I'm Robert Holleyman and I'm 
President and CEO of the Business Software Alliance. We're an 
association of the world's leading software companies and their 
principal hardware partners. Our members create approximately 
90 percent of the office productivity software in use in the 
U.S. and around the world. Indeed, I would echo Mr. Valenti's 
commenting in noting that for the computer software industry, 
this is truly one of America's premiere industries and we too 
have a surplus balance of trade in productivity software with 
every country around the world.
    I'd like to thank the subcommittee for the opportunity to 
testify today. As an industry, the software industry has a 
strong interest in effective, balanced approach to legal 
protections against the circumvention of encryption and other 
technologies that are used to protect copyrighted works.
    We believe that a balanced, effective outcome was achieved 
6 years ago when Congress with the substantial input of this 
committee, enacted the Digital Millennium Copyright Act. Our 
association therefore opposes H.R. 107 which we believe would 
fundamentally alter the effective balance of interest embodied 
in the DMCA.
    I'd like to make a couple of quick comments about the 
provisions of the bill dealing with labeling certain audio CDs. 
Although directed specifically at the music industry, it 
touches on a broader issue of mandatory labeling for all 
content. For our industry in software, we've been voluntarily 
labeling our products for 20 years. Our companies believe that 
the public should know information about things such as 
playability and systems requirements and that it's essentially 
to satisfied customers and is a good business practice. But we 
label our products because it's the right thing to do, not 
because we've been mandated to do that. And we think that 
remains the best approach and the right model for other 
industries.
    I'd like to address the provisions of the bill dealing with 
the research exception. H.R. 107 would create a broad 
scientific research exception. We view this as unnecessarily 
and dangerously over broad. Our members are in the business of 
building secure computing. The advancement of the art of on is 
the life blood of not only our industry but the life blood of 
many of the specific core businesses of our members. At the 
time Congress enacted the DMCA, BSA was a leading proponent of 
the encryption research exception. And it is the real world 
experience of our member companies that this provision has 
worked as intended. We welcome Congress' continued monitoring 
of the provision, but at this time we are aware of no evidence 
that the DMCA stood in the way of the advancement of legitimate 
encryption technology.
    Even if changes were made, we feel that there needs to be a 
balance and what we need to do is ensure that we do not shield 
the type of activity of hacking activity that 1201 was designed 
to prohibit.
    Let me specifically address the issue of non-infringing use 
in H.R. 107. It creates a new non-infringing use exception to 
the DMCA. This is precisely the same provision that Congress 
rejected in 1998 and this subcommittee should reject now. When 
the subcommittee considered the DMCA in 1998, it responded to 
concerns about potential adverse effects of the legislation by 
creating a fail-safe mechanism and that mechanism was put into 
place by this committee. Congress directed NTIA and the 
Copyright Office to conduct a rulemaking every 3 years. That 
process has worked well in both 2000 and most recently in 
October of 2003. We believe that that is the most effective 
means of addressing this issue.
    The central problem we have with the overall proposal is 
that it would allow any device that can circumvent a 
technological measure for a non-infringing use to also be used 
as a means to circumvent for purposes of piracy. H.R. 107 would 
effectively leave no circumvention device subject to the DMCA. 
In the long term, this would create a huge disincentive for our 
industry to develop measures to protect digital content.
    In the short term, broad availability of circumvention 
tools will lead to an increase in software piracy. Our industry 
is suffering from nearly $13 billion annual losses due to 
software piracy of which $2 billion of those are in the U.S. 
One key element of our company's efforts to prevent those 
losses is the use of new product activation and other access 
control technologies that are simple, consumer friendly and 
they help ensure that each copy of software is properly 
licensed. These simple, easy to use tools would be directly 
stymied by the broad availability of circumvention products 
that H.R. 107 would make legal.
    As a result, it would require great reliance on litigation 
to protect our rights and also greater reliance on government 
resources in the fight against piracy. Congress had a goal in 
1998 to encourage the development of activation and other 
technologies to make it possible for the promise of the 
internet, as a distribution channel, to become a reality. We 
share that goal. In the 6 years since the DMCA was enacted, 
more software and other copyrighted works are available to more 
consumers in a greater variety of ways than ever before. This 
progress should be allowed to continue.
    Thank you for the opportunity to testify.
    [The prepared statement of Robert W. Holleyman follows:]

  Prepared Statement of Robert Holleyman, President and CEO, Business 
                           Software Alliance

    Good morning. My name is Robert Holleyman. I am the President and 
CEO of the Business Software Alliance.1 The Business 
Software Alliance is an association of the world's leading software 
companies. BSA's members create approximately 90% of the office 
productivity software in use in the U.S. and around the world.
---------------------------------------------------------------------------
    \1\ The Business Software Alliance (www.bsa.org) is the foremost 
organization dedicated to promoting a safe and legal digital world. BSA 
is the voice of the world's commercial software industry and its 
hardware partners before governments and in the international 
marketplace. Its members represent one of the fastest growing 
industries in the world. BSA programs foster technology innovation 
through education and policy initiatives that promote copyright 
protection, cyber security, trade and e-commerce. BSA members include 
Adobe, Apple, Autodesk, Avid, Bentley Systems, Borland, Cisco Systems, 
CNC Software/Mastercam, HP, IBM, Intel, Internet Security Systems, 
Macromedia, Microsoft, Network Associates, RSA Security, SolidWorks, 
Sybase, Symantec, UGS PLM Solutions and VERITAS Software.
---------------------------------------------------------------------------
    I thank the subcommittee for the opportunity to testify here today. 
The software industry has a strong interest in an effective and 
balanced approach to legal protections against the circumvention of 
encryption and other technologies that are used to protect copyrighted 
works. We believe that a balanced and effective outcome was achieved 
six years ago when Congress, with the substantial input and leadership 
of the House Commerce Committee, enacted the Digital Millennium 
Copyright Act. Our industry therefore opposes H.R. 107, which we 
believe would fundamentally alter the effective balance of interests 
embodied in the DMCA.
Labeling Requirements
    Before discussing section 5 of the bill, I would like to make a few 
comments on the provisions of the bill concerning the labeling of 
certain audio CDs. Although this provision is directed specifically to 
the music industry, it touches on the broader issue of mandatory 
labeling for the entire range of content.
    The software industry has been labeling its products for twenty 
years. Our companies believe that informing the public about such 
matters as playability and system requirements is essential to keeping 
satisfied customers and a good business practice. The industry labels 
its products because it is the right thing to do--not because 
government regulators have mandated it.
    We believe that this is an appropriate model for the content 
industries generally. Vendors should inform the public about 
playability and related matters, and they should do it voluntarily. 
Government mandates should be avoided as long as market forces are 
working. As technological progress drives innovation on how systems 
operate, and how DRMs are used, labeling requirements must also change 
to reflect these developments. We fear that mandated labeling may well 
delay prompt action by companies to keep consumers informed.
Research Exception
    Section 5 (a) of the bill would exempt from the DMCA's 
antitrafficking provisions anything that that is done ``solely in 
furtherance of scientific research into technological protection 
measures.'' We view this exception as unnecessary and dangerously 
overbroad.
    BSA's member companies are the industry leaders in the business of 
secure computing. They engage routinely in encryption research in the 
course of developing their products. The advancement of the state of 
the art of encryption is the lifeblood of this segment of our industry.
    At the time Congress enacted the DMCA, BSA was a leading proponent 
of the encryption research exception that is embodied in section 
1201(g) of the DMCA. This exception was calibrated by Congress to 
ensure that encryption technology could advance unimpeded, while 
avoiding the trap of creating a safe harbor for bad actors. It is the 
real world experience of our member companies that this provision has 
worked as intended: the science of encryption continues to evolve 
rapidly. This scientific progress continues to yield new and better 
technologies. These technologies make an essential contribution to our 
national security and economic welfare, especially in the current 
heightened security environment.
    If section 1201 were to have an adverse effect on encryption 
research our industry would be among the first seeking changes to the 
encryption research exception. We welcome Congress' continued 
monitoring of this provision. We are aware of no evidence that section 
1201 has stood in the way of the advancement of the state of the art in 
encryption or other protective technologies. To the contrary, the 
proliferation of these technologies in the marketplace attests that the 
opposite is true. No change is needed at this time.
    Even if change were necessary, the exception proposed in section 
5(a) is overbroad. The existing exception in section 1201(g) is narrow, 
focused, and clearly-defined as to the scope of permitted conduct and 
the parties who are eligible. By contrast, section 5(a) of the bill 
proposes an exception in very broad terms. It would create a 
substantial danger of shielding, not legitimate research, but the very 
activity that section 1201 was designed to prohibit.
Exceptions for Noninfringing Use
    Section 5(b) of the bill would create two new exceptions to section 
1201. First, it would exempt any act of circumvention unless it results 
in a copyright infringement. Second, it would exempt the manufacture 
and distribution of circumvention tools that are capable of enabling 
``significant noninfringing use of a copyrighted work.'' Together, 
these exceptions would swallow the rule; they would effectively nullify 
section 1201. Congress rejected this proposal in 1998, and this 
subcommittee should reject it now.
    When this subcommittee considered the DMCA in 1998, it heard a 
great deal of concern about the potential adverse effects that the 
anticircumvention provision might have on noninfringing uses of 
copyrighted works. Through the leadership of this Committee, Congress 
responded to this concern by creating a failsafe mechanism which 
directs NTIA and the Copyright Office to conduct a rulemaking every 
three years to determine whether there is, or is likely to be any 
adverse impact on the ability of people to engage in noninfringing uses 
of copyrighted works. After examining the evidence, these agencies 
report their findings and recommendations to the Librarian of Congress, 
who is empowered to create exceptions to permit those specific 
noninfringing uses.
    This process has now taken place twice--in 2000 and just six months 
ago in October 2003. Each time, an entire year was consumed in 
evidence-gathering and deliberation. Hearings were held in Washington 
and in other cities across the country. Multiple rounds of written 
comments were accepted and considered. At the end of the process 
exceptions were adopted to address specific instances where the 
evidence supported a conclusion that section 1201 was, or was likely to 
impede noninfringing use of copyrighted works.
    I would like to offer four observations about this rulemaking 
process:
    First, the process has functioned exactly as Congress intended it 
to function. Where there have been claims that section 1201 is 
adversely affecting noninfringing use, and those claims are supported 
by evidence, the rulemaking has resulted in the creation of new 
exceptions. In the most recent rulemaking NTIA and the Copyright Office 
recommended four specific exceptions, and those exceptions were adopted 
by the Librarian.
    Second, the rulemaking process crafted by this Committee is a far 
better mechanism for addressing the question of noninfringing use than 
the categorical exemption proposed in H.R. 107. It can rectify specific 
instances where the protections of section 1201 are having an undesired 
effect, in a precise, focused way. It does so without the same degree 
of risk as a broad, one-size-fits-all exemption.
    Third, the existence and proper functioning of the rulemaking 
process renders a broad noninfringing use exception unnecessary. With a 
working safety valve in place, there is no need to open the floodgates.
    Fourth, and finally, variations of the broad noninfringing use 
exception proposed in H.R. 107 were proffered in both rulemakings. In 
2000, and again six months ago, these proposals were rejected for lack 
of evidence. Nowhere in the voluminous record of the year-long 
proceeding was there sufficient factual support to recommend a general 
noninfringing use exception.
    Not only is section 5(b) of the bill unnecessary, but we believe it 
would be extremely harmful.
    Removing the technological protections from a work in digital form, 
even if it's done for a noninfringing purpose, leaves the work 
vulnerable to infringing use.
    This problem is magnified many times if the means to remove 
technological protections are permitted into the stream of commerce. 
H.R. 107 would allow any device than can circumvent a technological 
measure for a noninfringing use. But circumvention devices cannot 
distinguish between infringing and noninfringing use. That is the 
conclusion reached by Professor Edward Felten, a computer scientist at 
Princeton and a vocal opponent of the DMCA, when questioned at 
conference at Berkeley last year.
    Consequently, any device that can circumvent a technological 
measure for a noninfringing use can also be used to circumvent in order 
to infringe. By the same token, any device that can circumvent to 
enable infringing use, can also enable noninfringing use. In effect, 
then, no circumvention device would remain subject to section 1201's 
prohibitions.
    In the long term, this would create a huge disincentive for our 
industry to develop the technological protection measures that content 
providers need in order to make their intellectual property available 
in digital form on the Internet. Ultimately that would reduce the 
quantity and variety of materials available in that form.
    In the short term, broad availability of circumvention tools will 
lead to copyright piracy. Each of the copyright industries suffers from 
this problem today. Each is looking to a variety of technologies to 
make infringing use more difficult, and legitimate use easier.
    The software industry lost nearly $2 billion to piracy in the U.S. 
and more than $13 billion worldwide in 2002. Most of these losses were 
due to unauthorized copying of software in a business setting. One of 
the key elements of our companies' efforts to prevent these losses is 
the use of product activation and other access-control technologies to 
ensure that each working copy of their software in the workplace is 
licensed and paid for. These simple self-help efforts would be stymied 
by the broad availability of circumvention tools that H.R. 107 would 
make legal. H.R. 107 would increase our reliance upon litigation and 
governmental resources to reduce piracy.
    Congress' goal in 1998 was to encourage the development of 
activation and other technologies to make it possible for the promise 
of the Internet as a distribution channel to become a reality. We share 
that goal. In the six years since the DMCA was enacted, more 
copyrighted works have become available to more consumers in a greater 
variety of ways than ever before. This progress should be allowed to 
continue.
    Thank you, Mr. Chairman, for inviting me to testify today. I'd be 
happy to answer any questions the Members of the subcommittee may have.

    Mr. Stearns. I thank the gentleman. Welcome our former 
colleague, the Honorable Al Swift and I had the opportunity to 
serve with you before you retired.

                   STATEMENT OF HON. AL SWIFT

    Mr. Swift. Thank you very much. It's good to be back in 
this room. It's even better to be on this side of the dais. I 
get my weekends with my family.
    Before I was in Congress, I was a broadcaster. I was a disk 
jockey so long ago that we didn't even shout at our listeners 
in those days.
    Today, I'm a lobbyist with the firm of Colling Murphy Swift 
Hynes Seldridge. Our firm has no client on any side of this 
issue. I am testifying as an interested private citizen with a 
background in communications. I had great interest in these 
matters when I was on the committee and I continue that 
interest today.
    I think I was in my first year of high school when I bought 
with money that I earned working at a hardware store after 
school my first tape machine. It was a reel to reel machine. It 
was supposed to be portable although it weighed a ton and all I 
had to record on to it was 78 rpm records, the 45 wasn't 
distributed generally until I was in college. As near as I can 
figure, I've been home recordist for 54 years. In that time, I 
have given friends many tapes, cassettes and now CDs containing 
programs, collections that I create out of my own collection of 
CDs and LPs. In that time, I have never once made a straight 
duplicate of a record for anyone. If they asked me, I politely 
tell them where the nearest record store it. And in that time, 
I have never charged a person a penny, even for the cost of the 
raw cassette or the CD blank. This is just my hobby.
    Furthermore, I respect our copyright laws. I don't believe 
that anyone should be allowed to use copyrighted material for 
profit without appropriate permission, license and payment. I 
think the industry is right to protect itself against piracy. 
But one of the things I noticed serving in Congress on this 
committee is that some people have a remarkable ability to 
carry a good idea to a bad extreme. Look at the history of the 
recording industry. They have always distrusted new technology. 
If Hollywood had been given its way with videotapes and DVDs, 
two things from which they now earn a huge portion of their 
profits, those technologies would have been smothered in their 
bassinet.
    And the industry, in an effort to prevent pirates from 
duplicating their products have persuaded Congress to adopt 
statutes that prevent home recordists like me and millions of 
others who aren't quite as fixated on it as I am, from making 
duplicates without severe restrictions. If you want to make a 
copy for your car and one for your wife's car, and one for the 
boat and one for the cab and one for the playroom downstairs, 
that's hard to do because of technical restrictions the 
industry wanted and Congress gave them.
    When I buy a CD or a DVD, that content should be wholly 
mine to do with as I please so long as I am in no way selling 
its content or profiting from it. As for equipment, I recently 
bought a dual CD burner that was touted as being able to make 
copies in a quarter of the time, 15 minutes instead of an hour. 
I installed it and tried to make a quick copy of one of the CDs 
that I had produced. It wouldn't do it. I called the company to 
ask what I was doing wrong and I was told that under the law 
they cannot let me fast duplicate anything except original 
recordings. Now when that happens someone put their hand in my 
pocket and took money away from me and justified it on the 
basis that they were protecting themselves from theft.
    Furthermore, the present statute does not grant the 
American consumer what anyone brought up on a criminal charge 
is entitled to, namely, the presumption of innocence. Present 
law is predicated on the assumption that consumers will rip off 
copyright holders. The vast majority of the consumers are 
innocent of that assumption, but all are treated as guilty. 
Congressmen Boucher and Doolittle have offered a sound and 
modest correction.
    Modern technology clearly poses real problems for 
protecting intellectual property in the traditional ways. It is 
unclear, at least to me, how we can make the transition to a 
different form of protection that solves the problems that 
technology has created, but taking hammers to the weaving 
machines did not save the looms at the beginning of the 
Industrial Age. And taking a hammer to consumers now will not 
in the end resolve this matter either.
    So I would comment H.R. 107 to this committee. This is a 
clear opportunity to draw a balance between protecting the 
legitimate copyright interests of the industry involved and the 
legitimate rights of the average American consumer who, let us 
remember, is not in the wholesale pirating business. Others do 
that. The American consumer is no threat to these industries. 
Instead, they are the industries' source of wealth. I own 3,000 
CDs. At an average price of say conservatively $13 each, you do 
the math. You will find not only that my hobby spending is 
entirely out of control, you will find that I am, like other 
American consumers, a profit setter for these businesses and 
it's about time they treated us with a little respect.
    Thank you very much.
    [The prepared statement of Hon. Al Swift follows:]

                  Prepared Statement of Hon. Al Swift

    My name is Al Swift. I spent sixteen rewarding, and I hope 
productive years, serving on this Committee. It is good to be back in 
this room, even if only for a little while. Before Congress I was a 
broadcaster. I was a disc jockey so long ago we did not even yell at 
our listeners. Today I am a lobbyist for the firm of Colling Murphy 
Swift Hynes Selfridge. Our firm has no clients on any side of the issue 
in question today. I am testifying as an informed private citizen, with 
a background in communications. I had a great interest in these matters 
while on the Committee and continue that interest today.
    I think I was in my first year of high school when I bought--with 
money I earned after school working in a hardware store--my first tape 
machine. It was a reel-to-reel machine. It was supposed to be a 
portable, but it weighed a ton. And all I had to record onto it were 78 
rpm records. The 45 didn't show up until I was in college. I've been a 
home recordist for about 54 years. In that time, I have given friends 
many tapes, cassettes and now CDs containing ``programs'' I have 
created from my own collection of LPs and CDs. In that time, I have 
never made a straight duplicate of a record for anyone. If they ask me 
to, I tell them politely how easy is it to buy it on the Internet. In 
that time I have never charged a person a penny--even for the cost of 
the raw cassette or CD blank. It is just my hobby.
    I respect our copyright laws. I do not believe that anyone should 
be allowed to use copyrighted material for profit without appropriate 
permission, license and payment. I think the industry is right to 
protect itself against piracy.
    But, one of the things I noticed serving in Congress on this 
Committee is that some people have a remarkable ability to carry a good 
idea to a bad extreme. Look at the history of the recording industries. 
They have always distrusted new technology. If Hollywood had been given 
its way the video tapes and DVDs, from which they now make a great 
percentage of their profits, would have been smothered in their 
bassinettes. This Committee reported out a perfectly absurd bill that--
the industry claimed--was essential to prevent the Digital Audio Tape 
(DAT) machines from destroying the recording industry. Now you can 
hardly find a DAT machine--except for commercial purposes.
    And the industry--in an effort to prevent pirates from duplicating 
their products--have persuaded Congress to adopt statutes that prevent 
home recordists like me--and millions who are not quite so fixated on 
the process as I am--from making duplicates without severe 
restrictions. If you want to make a copy for your car and one for your 
wife's and one for the boat and another for the cabin--that is hard to 
do because of technical restrictions the industry wanted and Congress 
gave to them.
    When I buy a CD or a DVD, that content should be wholly mine to do 
with as I please as long as I am in no way selling its contents or 
profiting from it. As for equipment: I recently bought a dual CD burner 
that was touted as making a copy in a quarter of real time--in 15 
minutes instead of one hour. I installed it and tried to make a quick 
copy of one of the CDs I had produced. It wouldn't do it. Calling the 
company to ask what I was doing wrong, I was told that I was doing 
nothing wrong. Under the law, they could not let me fast-duplicate 
anything except an original recording. Someone had just put their hand 
in my pocket and taken some money from me--all in the name of 
protecting themselves from theft.
    That is not a fair resolution of their problem. What the recording 
industries apparently want is so broad that it goes way beyond their 
legitimate interests and intrudes well into the legitimate interests of 
millions of consumers. In America we do not normally right a wrong for 
one group by transferring the wrong to another group. But that is what 
has happened on this issue.
    Furthermore, the present statute does not grant the American 
consumer what anyone brought up on a criminal charge is entitled to: 
the presumption of innocence. Present law is predicated on the 
assumption that consumers will rip-off copyright holders. The vast 
majority are innocent of that assumption, but all are treated as 
guilty.
    Congressmen Boucher and Doolittle have offered a sound and modest 
correction. I say ``modest'' because I would be inclined to go further. 
But this bill is no doubt more prudent than I would be and--in the long 
run--prudence usually produces better law.
    Modern technology clearly poses real problems for protecting 
intellectual property in the traditional ways. It is unclear how we can 
make the transition to a different form of protection that solves the 
problems technology has created. But taking hammers to the weaving 
machines did not save the looms at the beginning of the industrial age. 
And statutes that hammer the consumer now, will, in the end, not 
resolve this matter. In fact, I would be willing to bet that--at this 
very moment--someone is developing technological innovation that will 
make the legal strictures now in place useless to the proponents as 
well as irritating to the consumers.
    So I would commend this bill to this Committee. This is a clear 
opportunity to draw a balance between protecting the legitimate 
copyright interests of the industries involved and the legitimate 
rights of the average American consumer--who, let us remember, is not 
in the wholesale pirating business. Others do that. The American 
consumer is no threat to these industries. Instead, they are the 
industries' source of wealth. I own 3,000 CDs at an average price of 
say--conservatively--$13 each. You do the math. You will find not only 
that my hobby spending is out of control. You will also find that I 
am--like other American consumers--a profit center for these 
businesses. It is about time they treated us with a little respect.

    Mr. Stearns. I thank my colleague.
    Ms. Nisbet, welcome.

                 STATEMENT OF MIRIAM M. NISBET

    Ms. Nisbet. Good morning. Thank you. My name is Miriam 
Nisbet and I speak today for the library community. 
Collectively, our five associations represent over 85,000 
librarians and thousands of libraries across the country. As 
one of the largest, single consumer groups of digital products, 
probably about $2 billion a year, we urge you to support H.R. 
107.
    Libraries play a critical role in our country, serving as 
access points to their collections and services and as 
preservers of current and historical information. Our country's 
copyright law traditionally has aimed for a balance that 
accommodates both the ability of the country's copyright 
exploit his or her work commercially and the societal need to 
use those works for education, research, and public knowledge. 
Accordingly, the law provides that in some circumstances there 
are some uses of copyrighted works that do not require a 
permission slip from the copyright owner.
    These statutory provisions besides fair use, include First 
Sale, which allows us to lend books in our collections; special 
library exceptions, which permit copying of copyrighted works 
by libraries for preservation and inter-library loan purposes; 
the TEACH Act, which permits limited performances or displays 
by non-profit educational institutions for distance education 
over the internet, for example.
    When Congress passed the DMCA in 1998, it provided 
additional protections for copyright owners, but as others have 
vividly described, it omitted corresponding allowances for fair 
use and these other exceptions. Libraries believe that H.R. 107 
is needed to restore a proper balance in copyright law between 
the rights of copyright users and the rights of copyright 
owners, a balance that is essential to the future conduct of 
research and education in the digital age.
    Let me give you just a few examples:
    H.R. 107 would make it possible for libraries to go around 
copy protection mechanisms in DVDs or CD-ROMs to make a copy 
for preservation or archiving. Remember that libraries and 
archives must be able to make such preservation copies well 
into the future, as digital storage formats become obsolete. 
Preservation of knowledge is a core mission of libraries.
    H.R. 107 would permit foreign language teachers to 
circumvent technological access controls so that digital works 
purchased abroad can be used on electronic devices purchased in 
this country.
    H.R. 107 would enable a librarian to unlock a technological 
measure, to make a copy of a work for inter-library loan 
purposes, something that all of you have probably used from 
time to time.
    None of these activities are currently allowed under the 
DMCA, yet each of the examples involves a copy paid for by a 
library and a use otherwise permitted under the Copyright Act. 
And since many library and educational institutions are 
publicly funded, these examples demonstrate that H.R. 107 would 
allow taxpayers to receive the full benefit of their 
significant investment in copyrighted products.
    The DMCA does include an exemption to its prohibition on 
circumventing a technological work--a technological lock on a 
copyrighted work, but unfortunately, this exemption in Section 
1201(d) directed at nonprofit libraries, archives and 
educational institutions has proved to be meaningless.
    The DMCA also includes a rulemaking procedure by which the 
Librarian of Congress, every 3 years, can adopt additional 
exceptions. The library community has actively participated in 
the two rulemaking cycles so far, but the statutory standards 
have been interpreted in such a way as to ensure the denial of 
almost all of the exemptions requested. Further, while the 
statutory scheme of the exemption process may permit exemptions 
for acts of circumvention, it does not permit exemptions for 
the manufacture and distribution of circumvention tools. Thus, 
you may obtain an exemption, but you will not be able to obtain 
a tool that allows you to use the exemption.
    In sum, the DMCA is broken and it needs to be fixed. 
Libraries fear that they are spending hundreds of millions, if 
not billions of dollars a year for products that they might not 
be able to use. They worry that they may not be able to share 
those products fully with the millions of patrons for whom they 
were bought. They worry that they are unable, through 
restrictions in law and through technological measures, to make 
preservation copies of their digital resources. Some fear that 
the law combined with technological locks will lead to ``pay 
per view'' as the way of the future, that ``metered use'' will 
be imposed upon all digital materials. Such a scenario is not 
acceptable in a society such as ours, which is founded upon the 
principle that ``information is the currency of democracy.''
    Thank you.
    [The prepared statement of Miriam M. Nisbet follows:]

 Prepared Statement of Miriam M. Nisbet, Legislative Counsel, American 
   Library Association On Behalf of the American Association of Law 
   Libraries, American Library Association, Association of Research 
     Libraries, Medical Library Association, and Special Libraries 
                              Association

    I am speaking today on behalf of the American Association of Law 
Libraries, the American Library Association, the Association of 
Research Libraries, the Medical Library Association and the Special 
Libraries Association. Collectively, our five national associations 
represent over 85,000 librarians and thousands of libraries across the 
country. Our Nation's libraries spend hundreds of millions of dollars 
each year on all forms of digital information and thus rank as one of 
the largest single consumer groups of digital products. We urge you to 
support HR 107, the Digital Media Consumers' Rights Act.
    Libraries have played and continue to play a critical role in our 
country, serving as access points to their collections and services and 
as preservers of current and historical information. Our country's 
copyright law traditionally has aimed for a balance that accommodates 
both the ability of the copyright owner to exploit his or her works 
commercially and the societal need to use those works for education, 
research, and public knowledge. Accordingly, there are some 
circumstances where the law provides for certain uses of copyrighted 
works without permission from the copyright holder.
    These provisions--for libraries and schools--include:
Fair Use, which allows us--or anyone--to copy portions of works for 
        teaching, criticism, and reporting.
First Sale, which allows us to lend books in our collections to 
        patrons.Special library exceptions, which permit copying of 
        copyrighted works by libraries for preservation and inter-
        library loan purposes.

The TEACH Act, which permits limited performances or displays by non-
        profit educational institutions for distance education.
    These statutory provisions reflect two fundamental values that 
underlie our copyright system: fairness and freedom. Fairness, in that 
a person who buys a copy of work should be able to use the work fully; 
and freedom, in that the freedom of expression protected by the First 
Amendment can exist only if copyright does not shackle the 
dissemination of information.
    When Congress passed the Digital Millennium Copyright Act in 1998, 
it provided additional protections for copyright owners, but it omitted 
corresponding allowances for fair use and other exceptions. Professor 
Peter Jaszi in his testimony today has vividly described the effects of 
these legal changes. Libraries believe that the Digital Media 
Consumers' Rights Act is needed to redress those changes--to restore a 
proper balance in copyright law between the rights of copyright users 
and the rights of copyright owners--a balance that is essential to the 
future conduct of research and education in the digital age.
    Let me give you just a few examples:
    H.R. 107 would make it possible for libraries to go around copy 
protection mechanisms in DVDs or CD-ROMs to make a copy for 
preservation or archiving. Remember that libraries and archives must be 
able to make such preservation copies well into the future, as digital 
storage formats become obsolete. Preservation of knowledge is a core 
mission of libraries.
    H.R. 107 would permit foreign language teachers to circumvent 
technological access controls so that digital works purchased abroad 
can be played on electronic devices purchased in this country.
    H.R. 107 would allow a university professor to bypass a digital 
lock on an e-book so that she can perform a computerized content 
analysis on the text.
    H.R. 107 would enable a librarian to unlock a technological measure 
to make a copy for a library patron or for inter-library loan or 
electronic reserve purposes.
    Significantly, each of the examples involves a copy paid for by a 
library and a use otherwise permitted by the Copyright Act. And since 
many library and educational institutions are publicly funded, these 
examples demonstrate that H.R. 107 would allow taxpayers to receive the 
full benefit of their significant investment in copyrighted products.
    The DMCA does include an exemption, 17 U.S.C. Section 1201(d), 
directed at nonprofit libraries, archives, and educational 
institutions. Unfortunately, this exemption is so narrow as to be 
meaningless. It allows a library to circumvent a technological access 
control for the sole purpose of determining whether the library wants 
to acquire a copy of the work. The library and educational community 
never identified this as a problem and never requested this exemption. 
I suspect that it was inserted for the purpose of permitting certain 
proponents of the DMCA to argue that library concerns had been 
addressed.
    Further, the DMCA includes a rulemaking procedure by which the 
Librarian of Congress, every three years, can adopt additional 
exceptions to the anti-circumvention provision. The library community 
has actively participated in the two rule-making cycles, and concurs 
with all the problems identified by Professor Jaszi in his testimony. 
The Copyright Office, charged with recommending the exemptions to be 
adopted, has interpreted and applied the standards set forth in the 
statute so narrowly as to ensure the denial of almost all the 
exemptions requested. The Copyright Office places on the proponents of 
an exemption a far heavier evidentiary burden than Congress required of 
the proponents of the DMCA prior to its enactment. Further, the 
statutory scheme of the exemption process is flawed because while it 
permits exemptions for acts of circumvention, it does not permit 
exemptions for the manufacture and distribution of circumvention tools. 
Thus, even if a person obtains an exemption, he or she will not be able 
to obtain a tool that allows the exemption to be used. The rulemaking 
procedure is impractical and ineffective.
    In sum, the DMCA is broken, and it needs to be fixed. Libraries 
fear that they are spending hundreds of millions of dollars a year for 
products that they might not be able to use. They worry that they may 
not be able to share those products fully with the millions of patrons 
for whom they were bought. They worry that they are unable, through 
restrictions in law and through technological measures, to make 
preservation copies of their digital resources. Moreover, some fear 
that the law combined with technological locks will lead to ``pay per 
view'' as the way of the future, that ``metered use'' will be imposed 
upon all digital materials, that the ``digital divide'' will widen even 
more. Such a scenario is not acceptable in a society such as ours, 
which is founded upon the principle that ``information is the currency 
of democracy.''
    The American Association of Law Libraries (AALL) is a nonprofit 
educational organization with over 5,000 members nationwide. AALL's 
mission is to promote and enhance the value of law libraries to the 
legal and public communities, to foster the profession of law 
librarianship, and to provide leadership in the field of legal 
information and information policy. Contact: Mary Alice Baish (202-662-
9200)
    The American Library Association (ALA) is a nonprofit educational 
organization of over 65,000 librarians, library trustees, and other 
friends of libraries dedicated to improving library services and 
promoting the public interest in a free and open information society. 
Contact: Miriam Nisbet (202-628-8410)
    The Association of Research Libraries (ARL) is a nonprofit 
organization of 123 research libraries in North America. ARL's members 
include university libraries, public libraries, government and national 
libraries. Its mission is to shape and influence forces affecting the 
future of research libraries in the process of scholarly communication. 
ARL programs and services promote equitable access to and effective 
uses of recorded knowledge in support of teaching, research, 
scholarship and community service. Contact: Prue Adler (202-296-2296)
    The Medical Library Association (MLA), is a nonprofit, educational 
organization, comprised of health sciences information professionals 
with more than 4,700 members worldwide. Through its programs and 
services, MLA provides lifelong educational opportunities, supports a 
knowledgebase of health information research, and works with a global 
network of partners to promote the importance of quality information 
for improved health to the health care community and the public. 
Contact: Carla Funk (312-419-9094 x.14)
    The Special Libraries Association (SLA) is a nonprofit global 
organization for innovative information professionals and their 
strategic partners. SLA serves more than 12,000 members in 83 countries 
in the information profession, including corporate, academic and 
government information specialists. SLA promotes and strengthens its 
members through learning, advocacy and networking initiatives. Contact: 
Doug Newcomb (202-939-3676)

    Mr. Stearns. I thank the gentlelady, thank you. It's my 
privilege to start with the questions for the first panel.
    I would start with just a question for Mr. Lessig and Mr. 
Valenti and just a yes or no on this.
    Professor Lessig----
    Mr. Valenti. Impossible.
    Mr. Stearns. Does the consumer have the right to make a 
single copy of a DVD and a CD for his own fair use, yes or no?
    Mr. Lessig. Can I say ``absolutely yes''?
    Mr. Stearns. All right. And let me just ask Mr. Valenti the 
same question. Does a consumer, if he purchased a product, have 
a right to make a single copy of his DVD, CD?
    Mr. Valenti. No, he does not under the law.
    Mr. Stearns. For his use. He cannot, in your opinion, make 
even one copy for his own fair use, is that your position?
    Mr. Valenti. I have to say that's my opinion, Mr. Chairman. 
I wish you could give me one sentence after that.
    Mr. Stearns. Go ahead, go ahead. No, certainly, certainly.
    Mr. Valenti. No machine can tell whether you're making just 
one copy or a thousand copies, that's the reason.
    Mr. Stearns. Okay. But I can go home and make a copy of my 
CD and give it to my wife and come to Washington and bring the 
original with me. Why can't I do that with a DVD?
    Mr. Valenti. I can't speak for the music industry. There 
are people here to do that. It's because if you do that, once 
you allow one person to break circumvention, you must allow 
everyone to break circumvention and not everybody is honest 
like you and Al Swift and me.
    Mr. Stearns. I understand. Mr. Lessig, Mr. Valenti showed 
you ``The Runaway Jury'' that they purchased right here in 
Washington, D.C. It's a copy on a 321. He held it up and as we 
know in the medical profession ``do no harm'' is what they talk 
about. And I'm not sure you would want to rely on the person 
who bought that ``Runaway Jury'' not to make another copy. Mr. 
Valenti and the people who are against this bill say once you 
put that camel's nose under the tent, 321 cannot stop somebody 
from making another copy. So what do you say to that argument 
that the ``Runaway Jury'' he bought here in Washington, D.C. 
and it could be as we speak copies being made and sent anywhere 
and everywhere, not to mention we have global economy and cross 
border fraud is rampant.
    Mr. Lessig. I would say that that copying for purposes 
beyond what would be considered fair use is wrong and it should 
be prosecuted as such. But we should be clear that the 
tradition that says that the copyright owner gets to control 
every use of their copyrighted material has never been the 
tradition in the United States. Under the CD example that you 
gave, in fact, the Audio Home Recording Act explicitly says 
that a consumer has a right to make a copy, a home copy of a 
CD. You haven't around to the question of the DVD, but I can't 
see why there would be a difference.
    Mr. Stearns. Any difference.
    Mr. Lessig. Except if you believe that they get a perfect 
right to control every use of creative material. Now that's not 
our tradition. I know other countries might see it as their 
tradition. I see that might be one reason why the recording 
industry, for example, which is owned by primarily foreign 
countries, doesn't understand our fair use tradition, but in 
our fair use tradition, the consumer has a right against the 
copyright owner's right and it's the job of Congress to balance 
those.
    Mr. Stearns. Okay, Mr. Valenti, you heard from the 
Professor and he argued before the Supreme Court. And his case 
held that I guess you were arguing for a shorter term for 
copyright and you lost the case, or lost that part. You said 
there was a silver lining. As I understand you, you said the 
silver lining was that the Motion Picture Association or 
Recording Industry cannot deny the right of consumers to make 
fair use of copy.
    Now we have the Supreme Court arguing that case. So I ask 
you, Mr. Valenti, if the Supreme Court has ruled that the right 
of the consumer to make a fair use of his own copies is there, 
why would you deny that right, if the Supreme Court has ruled 
that?
    Mr. Valenti. I think the Supreme Court said that fair use 
was alive and well. And I agree with that. Fair use is alive 
and well under the catalog of the uses which you said in your 
opening statement, Mr. Chairman.
    Mr. Stearns. But am I interpreting, Professor, the silver 
lining of the Supreme Court decision was?
    Mr. Lessig. Yes.
    Mr. Stearns. So if that is correct, as a Congressman I 
would say it appears to me the Supreme Court saying it's okay 
for me to record a DVD from my own home use. .
    Is that wrong?
    Mr. Valenti. I heard Mr. Lessig speak and he did very well. 
But the only possibility that he lost.
    But I'm not aware of the language and I'd have to plead 
ignorant. I've got lawyers back of me.
    Mr. Stearns. I'll give you a few moments. The former 
colleague, Mr. Swift, you know here, we have to make decisions 
here, as you know, but sometimes the decision comes down as Mr. 
Valenti said on national security here. I mean, you can make it 
on the technical, you can make it on this and that, but 
sometimes in the bottom of your heart, you say the United 
States has one industry in which we have a surplus and it's our 
intellectual property rights because of the creativity of the 
Motion Picture Association.
    And if we allow and we say we allow somebody to record one, 
can we trust that we might lose some national security revenue 
of creating all these jobs of an industry that we are the 
leader on. We lost the TV debate. We lost the VCR debate. 
Everybody is moving overseas to manufacture, but we have 
something here that is very precious. Shouldn't, as a 
Congressman, we take into the argument that national security 
is important and to protect the intellectual property rights by 
maybe making exception here?
    Mr. Swift. Of course, we should be careful that we do 
something here that wouldn't hurt the national security. On the 
other hand, this is not the only way to deal with this problem.
    Mr. Stearns. Yes.
    Mr. Swift. This is a solution that is designed to take the 
problem out of the industry's pocket and put it in the pocket 
of the American consumer. That's not fair.
    On the other hand, in the vast majority of the really big 
pirating, goes on not in this country. It's not American 
consumers. What can be done. What can Congress help the trade 
negotiator do? What can be done to enforce the law better 
there? What can be done to enforce the law better in this 
country where we catch people doing this for commercial 
purposes?
    I've been informed, but I haven't checked this out 
personally, but that our law enforcement agencies simply don't 
put a very high priority on this kind of crime because they're 
off doing other kinds of crime.
    Well, Congress can help rearrange the priorities. In short, 
I am not suggesting we do nothing. I'm saying don't do this, 
okay?
    Mr. Stearns. Do you want to have a reply? I'm all done. My 
time has expired. Is there anything you'd like to add?
    Mr. Valenti. I'd like to ask Professor Lessig to read that 
part where it says you can make a full length copy of a motion 
picture.
    Mr. Stearns. It's not in the ruling, but it's his 
interpretation.
    My time has expired. The ranking member, Ms. Schakowsky.
    Ms. Schakowsky. Thank you, Mr. Chairman. Mr. Valenti, you 
asked the right question. You said we should in every case when 
we pass legislation here, the asking is in the public interest 
or is it not.
    But I find it, I find myself hard pressed having listened 
to Congressman Swift's testimony about his personal experience 
and perhaps even more generally, Ms. Nisbet's testimony about 
the impact on libraries, on archiving information, if that's 
the right word and just the free exchange of information for 
the general public, how do you justify then using such a broad 
brush in areas where in my view, what I've heard, clearly is 
excluding areas which are in the public interest?
    Mr. Valenti. Well, about libraries. I've plundered every 
library that I've been associated with. And I love them. As a 
matter of fact, in 1998, the Library Association was one of the 
people in the room, along with the internet service providers, 
computer manufacturers, music, business software and movies in 
which we together came back to the Chairman of both the 
Judiciary Committee and the House and the Senate with our 
concept of how this bill ought to be formed.
    Ms. Schakowsky. Excuse me, but Mr. Boucher himself 
testified that he voted for that legislation, so it is in the 
subsequent 6 years in the new development of technologies that 
we're back here now reconsidering.
    And you, Mr. Valenti, also did testify against VCR 
technologies, as I understand it.
    Mr. Valenti. No, I did not.
    Ms. Schakowsky. Well, your industry was not in favor or----
    Mr. Valenti. My industry did not do that. What we were 
seeking, Madam Congressman, and this is where they don't quote 
something else that I said. We wanted a copyright royalty fee, 
not to abolish the VCR. That is an absolute canard. We wanted a 
copyright royalty fee placed on blank videocassettes much as 
they do in Europe today, with the proceeds of that small levy 
going back to copyright holders to compensate them partially 
for piracy which I predicted would be immense and we do lose 
today in analog and hard goods piracy, over $3 billion a year.
    We never wanted to admit it. Not on the library side, the 
libraries today are replete, I think. Ms. Nisbet, I can't speak 
for you----
    Ms. Schakowsky. I would ask her to respond.
    Mr. Valenti. The libraries have CDs, DVDs, videocassettes 
where you can walk into a library today and take out a DVD of a 
movie you want to see at home, watch it several times and bring 
it back to the library. That's there. You don't need 107 to 
help the consumers use those DVDs.
    Ms. Schakowsky. And Ms. Nisbet, what would the budgets of 
libraries be if, in terms of doing the kinds of business that 
you want to do if you had to buy a new DVD every time or 
explain to me why this would be so burdensome, is so burdensome 
for libraries.
    Ms. Nisbe. Well, of course, it is very complicated. First 
of all let me make very clear that libraries do, from the get 
go, pay more money as institutions to enable their patrons to 
be able to use materials.
    Ms. Schakowsky. Right.
    Ms. Nisbe. So we're not--we're expending a fee that greatly 
exceeds what an individual would. What we fear is not being 
able to use the exceptions that are already in the law in other 
places of the copyright law that allow us to do certain things 
such as inter-library loan or special kinds of lending 
including DVDs, art work, maps, everything you can imagine, 
because of technological measures that now under 1201(a) we are 
not allowed to circumvent.
    Ms. Schakowsky. Is there no way, I don't know if it's Mr. 
Shapiro--is there no way to develop a kind of technology that 
would somehow allow both for the legal purposes and somehow 
prevent the mass illegal distribution. Is there such a thing?
    Mr. Shapiro. Technology can be done, can be created to do 
almost anything. Indeed, some of the fixes with the broadcast 
flag, the Audio Home Recording Act and others, a very specific 
narrow technology under a very specific defined product.
    The challenges we're facing with this legislation is it's 
very broad and includes everything. In essence, there's three 
laws at issue there. There's the copyright law. There's the 
DMCA and there's the law of unintended consequences. And we're 
dealing with tremendous consequences from that including--
what's being used by competitors, essentially, to block out 
other competitors and you gave the example of the garage door 
openers and the printer cartridges.
    But what we think is--like, for example, Congress has not 
decided that the car should be regulated in terms of its speed. 
Instead, it's been the conduct itself is what's been regulated. 
And rather than regulating the technology and when you're not 
regulatory when health and safety and people's lives are at 
stake, here you're focusing on something, intellectual 
property, which has less rights than real property and always 
has under our Constitution and our set of laws, and you've 
given it greater rights, if you will, than real property.
    Yet, when we're talking about the harm that Mr. Holleyman 
and Mr. Valenti talk about, loss from alleged piracy, what they 
do is they count every time there's a recording or copy made as 
a loss sale and they come up with billions and billions of 
dollars. And especially with the music industry case, the fact 
is the studies show that the losses there are not what--people 
are not going to go out and buy these products if they can't 
copy them. They're getting a use of them, but it's not a 
physical copy that's bene taken. So yes, technology is 
available to do different things, but it has to be 
extraordinarily narrow and it has to be very careful and the 
conduct should be the focus, not the technology. Otherwise, Mr. 
Valenti's--people actually did seek an injunction of the VCR. 
That is what the Sony Betamax case is about. And a Court did 
hold and did grant that injunction. And that's when it went up 
to the Supreme Court, it was to stop the sale of the VCR.
    Ms. Schakowsky. I thank you. My time is expired, but I 
would like, Mr. Chairman, to enter into the record the 
statement of the Ranking Democrat, Mr. Dingell.
    Mr. Stearns. By unanimous consent, Mr. Dingell's statement 
is put in the record.
    Mr. Ferguson.
    Mr. Ferguson. Thank you, Mr. Chairman. Thank you for 
holding this hearing. I have a couple of questions for Mr. 
Lessig, Professor Lessig.
    I'm not a constitutional lawyer. I'm not an intellectual 
property lawyer. I'm not a lawyer at all, in fact.
    Which maybe today puts me at a disadvantage, but gosh, I'm 
usually pretty glad about that. There are obvious folks in this 
room who are more experts on this subject and issue than I am, 
but just help me walk through this a little bit from my own 
intellectual standpoint.
    You believe that someone who buys a DVD in a store should 
be able to make a copy of that for their own personal use?
    Is that correct? That's what you said before?
    Mr. Lessig. That's right.
    Mr. Ferguson. How is this different from say another 
product? If I go to the store and I buy a bag of apples and I'm 
on my way home and I drop them or lose them or they break. I 
can't go back to the store and get another free bag of apples. 
If I go and buy a car, I don't get a second car for my own use 
because I might be in Washington and my family might be in New 
Jersey and since we can't both use it at the same time I get 
two cars to--for my own personal use. It's not for--it's not to 
sell to somebody. It's not to rent out to somebody, but I don't 
get a second car.
    And it's maybe because I don't understand the intellectual 
property laws and all the Supreme Court decisions and what not. 
But just help me out. How is this different and if, in fact, 
someone said well, you actually can get a second car if you buy 
one, if there were no constraints on that dealer making sure 
that Ellen got only my second car, what if there was no way to 
know if I could go get a third car and a fourth car? Wouldn't 
the car folks be out of business pretty fast?
    Mr. Lessig. It is a great question, and I will confess long 
after I was a lawyer and even after I was a law professor I had 
exactly the same question when I first started thinking about 
intellectual property. But the fact is our framers, from the 
very beginning of our republic, understood there are very 
different principles that apply to what Jack Valenti, I think, 
beautifully calls creative property and ordinary property.
    And one obvious reason is that if you have an apple and I 
eat your apple, you cannot eat your apple, too. But if I have a 
poem and you consume my poem, I have the same poem. I can enjoy 
it just as much as you can.
    Jefferson saw that. He turned it into poetry. ``He who 
lights his light from mine gets light without darkening me.'' 
That is the concept of intellectual property. It is different 
from ordinary property.
    Now, for 200 years, the United States has developed a very 
nuance, and I think for 186 of those years fundamentally 
correct, balance in the context of intellectual property that 
is different from real property. You have a car. You do not 
have to turn that car over to the public domain after a, quote, 
limited time, but the copyright clause says after you get a 
copyright, after a limited time it passes into the public 
domain and you get no compensation. It is a fundamentally 
different regime.
    What this issue is about is we have a law that has 
fundamental balances built into it. Copyright law has balances 
called fair use built into it.
    Technologists come along, and they say to the movie 
industry, ``We have technologies to effectively remove those 
balances so that effectively a consumer does not have the fair 
use right that the copyright law would have given him.'' Now, I 
do not argue that they could not be allowed to deploy their 
technology, but the contrary to that is that consumers ought to 
be allowed to deploy a technology to allow them to engage in 
fair use of copyrighted material just like they are allowed to 
deploy a technology to remove the effective fair use from 
copyright material.
    Mr. Ferguson. Is there technology today that would allow 
someone to make one copy of a DVD and only one?
    Mr. Lessig. Well, I agree that----
    Mr. Ferguson. Does it exist?
    Mr. Lessig. Yes, it does exist.
    Mr. Ferguson. Do we know?
    Mr. Lessig. The technology does not easily map under the 
complexity of the law, and that, we could go on forever about 
how disastrously complex fair use law is, and I think that is a 
very important problem that Congress needs to address.
    But given the law and the Supreme Court's statement that it 
is a First Amendment reason that we have fair use law built 
into the copyright regime, the only issue I think you have to 
consider is should the law back up a technology that gives them 
the power to remove that fair use right, and I do not think 
there is a constitutional bound----
    Mr. Ferguson. Your poem, if you copyright a poem, I cannot 
profit from that.
    Mr. Lessig. Absolutely not, and you should not be allowed 
to profit from it, especially my poetry, but I would be happy 
if somebody profited.
    [Laughter.]
    Mr. Ferguson. But my question is if the technology does not 
exist, I have not heard anyone say it does. Am I wrong?
    Mr. Lessig. It does not exist.
    Mr. Valenti. It does not exist.
    Mr. Ferguson. How do we keep someone from profiting from 
someone else's copyrighted intellectual property?
    Mr. Lessig. But can I just suggest I think former 
Congressman Swift has given us the map about this. The fact 
that the technology doesn't force people to obey the law does 
not mean that people, all people, average people, ordinary 
people will break the law.
    What former Congressman Swift shows is, I think, what 
ordinary consumers do. They obey the law when given an easy way 
to obey the law. Now, some people do not, and you should be 
prosecuting people who do not. You should be passing strong 
laws against people who do not.
    But the point is the fair use rights have always given 
people an opportunity to violate the law. It has always been 
that right, and the question is whether that right should be 
removed.
    Mr. Ferguson. Mr. Chairman, my time is up. Mr. Valenti is 
chomping at the bit to say something.
    Mr. Valenti. I am. I think there is a disreputable 
plausibility about what Professor Lessig is saying here, and 
that is he is saying correctly I have no problem with Al Swift 
making a backup copy because I know exactly what he is going to 
do with it. It is his personal collection.
    But this 107 is so broad it says anyone, anyone can hack. 
You legalize hacking for everybody. Now, Professor Lessig will 
probably confirm there is not single machine in the world today 
that can distinguish between an honest Al Swift and a fellow 
who is determined to make 1,000 copies.
    Therein lies the plausibility that falls apart, which very 
seldom happens, I imagine with Professor Lessig, but you make 
this available to everybody, Mr. Congressman. How do you know 
who is doing it the Al Swift way and how do you know who is 
doing it the other way?
    Mr. Stearns. The gentleman's time has expired.
    The gentlelady from Missouri.
    Ms. McCarthy. Thank you, Mr. Chairman, and thank you, 
panelists. And I do think, Mr. Valenti, that, indeed, the 
intent of the legislation is ahead of the ability of technology 
to carry out what would appear to be a reasonable request.
    My overarching concern remains the question of how we lost 
respect for creative property in this country and in this 
world. I have two teenage nephews, and we go round and round on 
this issue. I have tried getting them gift certificates to 
their favorite record stores for their records and CDs, you 
know, the Best Buys of the world for their movies, but there 
seems to me, particularly in the younger generation, a sense 
that creative works are not owned by another.
    And that is a moral issue I think no legislation can 
necessarily address, but the creative work is owned by the 
person who created it, sharing it. I was a high school English 
teacher. I know the importance of being able to share that, you 
know, in a learning environment.
    But if a student sat and borrowed material off of a fellow 
student's test during a test setting, that would be cheating. 
That is the creative work of one student taken by and used by 
another, and that is something we do not uphold or have not 
upheld It is a creative issue because whether it is music or 
literature or art or invention, it is that artist's or creative 
individual's ownership. So, Congressman Swift, you are reading 
a good book and you are going to your lake home for the 
weekend. What are you going to do, Xerox the book so that you 
do not have to take the book with you to enjoy and finish at 
the lake?
    But if you can own a lake home, why can't you buy a second 
copy if you do not want to haul the first?
    I mean, last night I had the good fortune of going to Blues 
Alley and hearing a great jazz group. I liked their work so 
much I acquired two CDs that night because I wanted to have it 
here to enjoy and in my district, in my home in Kansas City. Am 
I a dying breed?
    I do not know.
    Mr. Swift. You ask a very----
    Ms. McCarthy. Economic issues are, indeed, very real. You 
know, besides the moral issues and the creative issues, it is 
an economic issue, and all of those have to be addressed. 
Again, I don't think we ever make a perfect law or rarely in 
this world. So there are times to readdress it, but I think 
currently the intent of what you are proposing today is ahead 
of the technology that could control it and make it a realistic 
approach.
    But I would welcome any response from the panelists 
briefly.
    Mr. Swift. Well, the initial question you asked is 
interesting because my granddaughter, who would not go into a 
grocery store and steal an apple, had this huge debate with me. 
My good friend Jack Valenti would have been proud of me in 
arguing with her that it is inappropriate to just rip things 
from the Internet without paying for them.
    But part of the answer to your question may be what the 
professors said. What he just said is the first time I have 
ever understood the specific difference between intellectual 
property and real property. And I think what the kids are not 
understanding, those that would not steal real property, but 
they do not understand the value of something that is so 
ephemeral, and maybe we need to do a better job of making that 
distinction for society as a whole an for our young people.
    As to whether or not I could afford to buy another CD for 
the home in the country, I think I probably bought enough CDs 
in my life.
    Mr. Lessig. Congresswoman, may I respond? I agree----
    Ms. McCarthy. Let me ask the permission of the Chair 
because we have gone over, but I would love to hear your 
response, Professor.
    May I have an extended--yes, please.
    Mr. Lessig. It is an economic issue, but I think we should 
understand there are more than one sector of the economy 
involved here. There is the content industry, which I think is 
extraordinarily important and vital to especially our balance 
of trade, but there is also the technology industry which is 
providing devices that enable people to do all sorts of new 
things with the technology, not every use of which they have to 
seek permission first.
    The whole issue in this case is whether the content 
industry has a right to block technologies that do not give 
them perfect control over their content. So here is a 
technology, the Xerox machine. Does the Xerox machine guarantee 
that nobody can use it to violate copyright law? Absolutely 
not.
    What we do, as former Congressman Swift rightly points out, 
is we have lots of systems to make sure people do not use the 
technology in an illegal way, and as libraries demonstrate, 
they have lots of ways to make sure people do not use the 
technology in a library in an illegal way.
    But the technology itself is not banned, but effectively 
what is happening here is because there are people who violate 
the law, we are saying the technology that would enable people 
to do legal things under the law should be banned. That is the 
first time in our history we would ever have done that, and I 
think it would be a mistake.
    Mr. Stearns. I thank the gentlelady.
    The rules of the committee are that if you waived your 
opening statement, you get 3 minutes additional time. So you 
get 8 minutes. If you showed up after we started our opening 
statements and what we're hearing from the panel, you would not 
get that because you did not have an opportunity to waive your 
opening statement.
    But I would urge the members to try and keep it under 5 
minutes. I think one of our witnesses, possibly another one, 
would like to leave a little after 12. So to give the benefit 
for everybody to get an opportunity to ask everybody a 
question, I just hope you can keep it within five, but 
obviously the rule allow you to go to eight if you waive your 
opening statement.
    The gentleman from California.
    Mr. Valenti. Mr. Chairman, may I interrupt?
    Mr. Stearns. Yes.
    Mr. Valenti. I do have to be at City Hall at 12 noon.
    Mr. Stearns. Okay.
    Mr. Valenti. I think you told the staff about this earlier.
    Mr. Stearns. I know. That is why I sort of tried to urge 
the members here, knowing that you have to leave around 12, 
that we could----
    Mr. Valenti. Well, I have to unfortunately. The mayor has 
summoned me there at 12 noon, and I hope I do not have to break 
some speed limits in order to make it.
    Mr. Stearns. So you would like to excuse yourself?
    Mr. Valenti. May I do that, sir?
    Mr. Stearns. Absolutely, absolutely. We thank you for your 
attendance, and we will continue on.
    Mr. Boucher. Mr. Valenti, can I ask you to be 1 second late 
for that?
    Mr. Valenti. Yes, sir. I never say no to a Congressman, 
particularly on a sitting committee like this.
    Mr. Boucher. Jack, you never said no to me when we were 
just having Christmas dinner and I wasn't a Congressman.
    I will be very, very brief on your question. You talked 
about the Sony Betamax days and how the desire was to have, if 
you will, a royalty on recordable material. Putting you on the 
spot here, if we had a new technology with a new disc that 
could make recordable material--for a moment, let's assume that 
we're talking music on one type of disk and video on another--
and there was a $1 specific fee that went onto that new 
recordable media because it was the only one that you could 
copy a DVD to and you had to buy that and pay that extra 
dollar--would that be consistent with what your thinking was 
then and what your thinking is now, that there has to be some 
sort of an offset for the loss of revenue by people some of 
whom are exercising fair use and some of whom are not?
    Mr. Valenti. I'm not going to get into the price structure 
because it is violating antitrust laws.
    Mr. Boucher. We know the dollar is arbitrary. So just in 
general.
    Mr. Valenti. Right now all of our companies are working on 
trying to work with the best minds in the consumer electronics 
industry and the information technology industry to find a 
secure environment. If we had a secure environment, ``secure'' 
meaning you could protect that particular movie, I think backup 
copies of all of that would be certainly in order, if you could 
find a secure environment.
    I am saying that as Jack Valenti. I am not speaking for any 
of the companies in the contest industry. But right now that 
secure environment does not exist. The difference between 
analogue, Mr. Congressman--I do not have to tell you. You are 
an expert--and digital is the difference between lightning and 
the lightning bug. It's just a vast chasm there.
    And the minute that the Internet came into being, which we 
think is the greatest distribution system ever struck off by 
the hand and brain of man, and we want to use it to have 
thousands of films up there in a secure environment beamed down 
to every home, to be used when they wanted it, the kind of 
movie they wanted to see. That is what we are struggling to do.
    In the interim though, you have to protect. i think it is 
in the national interest to protect this extraordinary engine 
of economic growth that business software and music and movies 
are for this country, what we do for this country. In this 
interim, as we begin to move more and more into the digital 
era, which is digital, mobile, and virtual, that is what the 
future is all about.
    Therefore, you have to make sure that this valuable 
creative property is protected until the technology that 
Professor Lessig and I think Al Swift and others are talk about 
can be put into place. But you cannot walk away and let 
everybody break these encryption codes and the honest people 
will do right, but the dishonest people will not do right. And 
in the digital age, that will be a devastation I don't even 
want to comprehend.
    Mr. Boucher. Thank you, Mr. Valenti.
    Mr. Stearns. If you have counsel that you would like to 
have participate in your substitution, it would be acceptable 
to have him----
    Mr. Valenti. David Green.
    Mr. Stearns. [continuing] come to the table, and then we 
still would have the opportunity to have your point of view 
expressed in all fairness. So I would be very glad to offer 
that invitation.
    Mr. Valenti. David has the additional asset that he is a 
lawyer.
    Mr. Stearns. So, David, if you would just give your full 
name so that we have it.
    Mr. David Green. Yes. It is David Green. I am Vice 
President and counsel with the MPAA.
    Mr. Stearns. Okay, fine.
    Mr. Boucher. Thank you, Mr. Chairman.
    Continuing along without a break, Mr. Swift, you know, I 
listened to what you had to say about your 3,000 records, and I 
listened actually to Mr. Green on the other side, and I was 
concerned because I think one of the problems this panel has to 
deal with is what is fair use, and I realize the library has a 
unique fair use arrangement historically and in the law, but 
I'm trying to understand something. When you make copies and 
give them to your grandchildren or you make less than a full 
copy, but you cut several songs here and several songs there, 
do you think that's fair use, or putting it another way, having 
been someone who paid for several Harvard degrees by hiring 
lawyers for too many years, isn't each song an individual 
copyrighted piece? And if you take one song, not an album, but 
each individual song and you simply create duplicates and send 
them off to unrelated parties, that is not written within the 
statute as fair use. You are creating a new copy no different 
than if I buy one sheet of music and give a copy to everyone in 
the choir at church.
    Mr. Swift. What I believe I am doing is creating something 
new. CDs will typically have a single artist singing a variety 
of songs. Maybe there is a theme to it. I will create a 
different theme and from my collection pick a whole variety of 
records that work out that theme. So that from my standpoint I 
have created something new.
    I have had people who have listened to those and say, 
``Hey, I like cut four. What is the name of that?'' And I will 
give them the information, and they will go out and buy the CD 
because they want the whole thing.
    So I think it is under fair use, and I certainly think that 
it is not just a series of individual recordings that I am 
putting together. It is a whole new program that I am putting 
together.
    Mr. Boucher. Well, and I appreciate that.
    Mr. Stearns. The gentleman's time has expired.
    Mr. Boucher. Mr. Chairman, just one follow-up on my sort of 
stolen time.
    Because I do disagree with that, and we will get back to 
what really the copyrighted material was because I think that 
is going to be important in the next round.
    But, Mr. Shapiro, the difference between a patent and a 
copyright, patents having no fair use, if you will, and a 
copyright, could you just explain to us why you would view that 
differently?
    Mr. Shapiro. Absolutely. A patent has a very limited term. 
It is under 20 years. A copyright by acts of Congress, which 
Mr. Lessig tried to challenge in the Supreme Court, has gone on 
virtually forever.
    And I will go to my grave regretting the fact that 
industries did not oppose those extensions of copyright because 
I would like to respond also to your question or--I am sorry--
your colleague's question about the ethics involved in this.
    The reason there is changing ethics involving copyright as 
opposed to perhaps patents is I think there is a sense of 
unfairness in the American people. They see copyright extending 
forever. They do not see public domain available stuff.
    I think the motion picture industry in a sense has done it 
right. A DVD can be had for just about the cost of a CD. So 
when it comes to music they are ready to copy. when it comes to 
movies, I think there is a moral reason not to. I think that is 
how people are perceiving it.
    Mr. Stearns. The gentleman's time has expired.
    Mr. Davis, you are recognized.
    Mr. Davis. Thank you, Mr. Chairman.
    I would like to start with Professor Lessig. One of the 
issues here seems to be the extent to which you and your side 
is willing to acknowledge the magnitude of the potential harm. 
Would you acknowledge that if the fair use notion that you're 
advocating were adopted, that there would be instances of 
substantial harms in terms of extra copying and proliferation 
of digitized material on the Internet?
    Mr. Lessig. Yes.
    Mr. Davis. Okay. You have also suggested in instances of 
wrong like that that prosecution should proceed, but wouldn't 
you also knowledge, given the magnitude of the damages here 
that there is a substantial risk that prosecution will be an 
inadequate remedy in terms of restitution and potentially 
deterrence?
    Mr. Lessig. I agree it is possible, but if I can follow up 
on that, there are, as former Congressman Swift suggested, lots 
of ways to make sure people obey the law. The question here is 
whether perfect control through technology should be allowed, 
given the constitutional requirement of fair use.
    So I would beg to differ with Congressman Issa. The 
question before this committee is not what fair use is because 
that has been decided by the courts and by Congress. Fair use 
has been decided. The only issue that this statute raises is 
whether you should have fair use despite the fact somebody has 
used a technology to take it away.
    Mr. Davis. But I agree with you the perfect is the enemy of 
the good almost always. But isn't it fair to say that criminal 
prosecution--and we are not just talking about possibilities. 
Let's talk about practicalities--criminal prosecution in plenty 
of instances may be a terribly inadequate source of 
restitution, given the potential magnitude of harm here.
    Mr. Lessig. That is right, and so I do not think criminal 
prosecution is the best alternative. In fact, I would endorse 
in the context of music exactly what Jack Valenti was talking 
about in the context of VCRs in 1976, which is finding a way to 
raise money to compensate artists without destroying the 
technology.
    So in the context of the Internet we could find ways, and 
there have been bills proposed, that would compensate artists 
without breaking the Internet so that people can distribute 
content.
    Mr. Davis. So if we moved from your bill to a middle 
ground, you would advocate that we focus on a compensation 
model as opposed to a prevention model?
    Mr. Lessig. All that I am saying is that there are 
techniques which could be compensation, or it could be 
prevention which are alternatives available instead of the 
criminal prosecution that you were raising.
    Mr. Davis. Have you seen a model that you would commend to 
us to consider?
    Mr. Lessig. Congressman, I cannot stop writing books about 
them. So, yes, I have lots of alternatives and I have written 
in long length about some of these alternatives. My most recent 
book, in fact, outlines a way to get from here to a place where 
we can more effectively----
    Mr. Davis. Well, is your side of this issue having any 
conversations with the other side on the plausibility of some 
compensation model?
    Mr. Lessig. Yes, we are. And, in fact, there have been very 
important conferences, one recently held at Harvard, about 
exactly that suggestion of finding a compensation model to deal 
with this problem rather than criminal prosecution or breaking 
the technology.
    But, again, that's a separate issue, it seems to me, from 
the very narrow and reasonable position being put by this bill, 
which is whatever compensation models there are, given fair use 
is a right under our system. It should still be a right even if 
technology is trying to take it away.
    Mr. Davis. So I appreciate your candor, I think, in 
acknowledging that there are genuine problems associated with 
restitution in a criminal prosecution.
    Now, the same question with respect to a civil matter. 
Given the potential magnitude of harm, couldn't we encounter 
plenty of instances in which the civil remedy could easily be 
inadequate, given the magnitude of the harm, the assets, 
solvency?
    Mr. Lessig. Absolutely could be.
    Mr. Davis. So perhaps the even more difficult model here 
than the compensation model you have described is the 
prevention model. Because I think neither you nor others--and 
again, I appreciate your candor--I do not think that you all 
have tried to say that the technology exists today that would 
allow for only one copy.
    As a matter of fact, I have not heard anybody say that 
given the wealth of resources and intelligence out there 
anybody is on the verge of developing that technology.
    I would like you to talk about the extent to which you 
think there is self-interest on the part of the people that 
oppose this bill to developing a business model that utilizes 
that technology, and is that part of the problem here? You are 
afraid that they are not interested in developing that, and 
then in the absence of some political pressure, the development 
and deployment of that business model is too far down the road?
    Mr. Lessig. Yes, that is a great question. Let's just be 
sure we are clear on the baseline though. Before we get to DVDs 
and we deal with CDs, it is not the argument that there is a 
fair use right to make a copy of the CD. The Audio Home 
Recording Act gives an explicit right to a consumer to make a 
copy of that CD not because of some interpretation of the 
courts, but because of the law.
    So we have already built into the law an explicit 
permission in the contest of CDs. Now the question is whether 
the digital changes eliminate the rights.
    Now, I do think if you look at the string of litigation 
that has occurred since the beginning of the Internet, 
litigation against what I think of as new business models that 
have tried to find different ways to produce and distribute 
content.
    There is a significant competitive concern that this 
committee ought to have about whether people are using these 
monopoly rights not just to protect creators, but also to 
create a particular business model. In my testimony, I wrote 
about the MP3.com case, which I think is the easiest case, but 
Replay TV litigation, which was essentially trying to stop the 
equivalent of a VCR in the context of a digital VCR is another 
example of that. I think 321 is another example of that.
    There are many instances where businesses are attempting to 
start a different way of distributing content. We do not have 
to talk about Napster. Other businesses that I think all of us 
would think of as legitimate face the extraordinary burden of 
the complexity of copyright law, and essentially, as one of my 
colleagues in California now describes it, there is a nuclear 
pall that sits on top of Silicon Valley stopping investment in 
this area because they know investment will be stopped so long 
as it does not have the approval of a very narrow set of 
commercial interests.
    Mr. Davis. I would like to give Mr. Green, on behalf of Mr. 
Valenti, or anyone else who is an opponent of the bill to 
comment on the point about the extent to which there is self-
interest on the part of the industries you are representing to 
as expeditiously as possible develop some form of business 
model that would allow for what I guess we are calling the 
elusive, only one copy technology.
    Mr. David Green. Well, absolutely, and that is something we 
are working toward and Mr. Valenti testified about. I mean, we 
have a vision that you will be able to download almost any 
movie ever made and do so digitally, that you could get one 
copy, that you could watch it once or using technologies, you 
could make a copy if that is something that you would be 
agreeable to.
    All of these depend on DRM. All of these depend on 
encryption schemes that enable you to protect these copies, and 
that is what we are working so hard to allow.
    But if this bill becomes law, those DRM schemes, those 
encryption schemes can be circumvented legally for fair use 
purposes, removing the incentive to create them.
    Mr. Davis. I do not think you are asking for absolute 
control in terms of the technology. You would be satisfied with 
some form of technology that significantly minimized the risk 
of extra copies, but it does not have to be technology that 
guarantees there would not be any extra copies beyond the one 
fair use copy.
    Mr. David Green. We recognize that no----
    Mr. Stearns. The gentleman's time has expired.
    Mr. Davis. Mr. Chairman, could he answer the question?
    Mr. Stearns. Absolutely.
    Mr. Davis. And Mr. Holleyman is trying to speak.
    Mr. David Green. We recognize that no system is perfect, 
and the idea is to try to minimize the amount of piracy that 
emerges from this, but the model, and we have seen 
advertisements for not 321, but other ripping software was 
never buy a DVD again. Rent, rip, and return, and that is, I 
think, what would happen if this becomes law.
    Mr. Shapiro. You asked a very specific question, and I 
think I would like to clarify. There is technology that does 
exist in many cases which can only allow one copy. The 
challenge is it does often not allow for the fair use rights to 
be exercised.
    That technology though is enforceable under present law 
involving patents. Indeed, the letter that Mr. Valenti read 
from the DVD Copyright Association, their rights are 
enforceable through patents, and that is not a trade 
association, I might add, and for Mr. Valenti to say that the 
consumer electronics industry supports that position is 
extreme.
    I might add the MPA is a member of ours, but I would never 
represent myself as representing Mr. Valenti.
    Mr. Stearns. And the time of the gentleman has expired.
    Mr. Shimkus.
    Mr. Shimkus. Thank you, Mr. Chairman.
    This is a great hearing, and I was meeting with members 
from the Army War College. So I apologize if I am following up 
on some line of thought, but this is tough sledding.
    I know that 321 Studios is located close to my home town. I 
am from Collinsville. They are in St. Louis. So I have got 
folks in the metropolitan area of St. Louis who have been 
affected because of job loss because of this.
    I have had a chance to go to the communication electronics 
show years ago, and I was amazed at how the performance 
industry, movies, and music really drive technology change. I 
guess that is the thing that surprised me the most, 
understanding it is really consumer driven desire for new 
gadgets so you can do all of these neat things for 
entertainment.
    So sometimes we are fighting against each other. The 
communication electronics folks need the entertainment industry 
and each other because they are helpful in this.
    We have worked hard on another subcommittee, that 
Telecommunications Subcommittee, in addressing indecency and 
stuff, and my Kids.US bill, we are continuing to have hearings 
and pushing for implementation on a child safe location for 
kids to search for information, protecting them from 
hyperlinks, protecting them from instant messaging and the 
like. And we are moving positively, I think, as a Nation to 
have that.
    This whole debate also brings up a technology that is being 
sold currently from ClearPlay, purchasing in some stores for 
$79 that would allow editing of smut and violence and nudity in 
movies. If I bought the movie, then I think the technology 
would be such that this piece of equipment would edit that out.
    For me having a family with small boys, that is a good 
deal, and I think I would like to have that ability to do that.
    My question for the panelists, and why don't we just go 
down the line with Mr. Lessig, and as sort as possible: should 
the public have the opportunity if we purchase, you know, an 
over-the-counter movie; should we have the ability to edit it 
for the taste of our own family.
    Mr. Lessig. Absolutely, and the point is if the technology 
locks up that content, then there is no right for technology 
companies to circumvent that for this legitimate use, then you 
your ability to edit the movie to exclude scenes that you don't 
want in that movie will be restricted.
    Mr. Shimkus. Everyone is going to get a chance, but would 
this legislation proposed help us in order to do that?
    Mr. Lessig. Absolutely. This legislation would guarantee 
that companies that develop technology, that allow you, for 
example, to exclude smut from a movie would be able to sell 
that technology to a consumer so that a consumer in his or her 
own home could run the movie and exclude that type of content.
    Mr. Shimkus. Thank you.
    Mr. Shapiro. Of course you should be allowed to have that 
technology, and the copyright on this would say you should not. 
It is just like a fork. A fork could be used to eat food, but a 
fork could be used to kill people. It is the conduct that 
matters.
    You should not make forks illegal because they could be 
used to kill people, and that is what is going on here. 
Technology is being made to be illegal because it might be able 
to do something which could potentially be illegal, and that is 
what we have to stop.
    The technology is not bad, but the use of it could be. In 
this case, obviously the use of it should not be, but the 
copyright monopoly is so strong at this point by acts of 
Congress that, indeed, even if the technology is legal, it 
could be argued that what happens there could be held to be 
illegal.
    Mr. Shimkus. Mr. Green.
    Mr. David Green. This bill has nothing to do with the 
example that you are talking about. The example that you are 
talking about is a way of fast forwarding not breaking the 
encryption.
    Mr. Shimkus. So let me ask you a question then. Is it the 
Motion Picture Association's opinion that if I were to, as an 
individual consumer, alter a movie so that my children would 
not be exposed to things I feel that would be harmful, would 
that be breaking the copyright law?
    Mr. David Green. There is an issue under the copyright law 
of making derivative works. That said, our companies--and this 
is something the MPAA cannot do--our companies are talking to 
those companies, and there is every effort to make family 
friendly versions available, and we are moving toward that.
    Mr. Shimkus. But making family friendly versions available 
is different than the individual consumer being able to do that 
themselves; is that correct?
    Mr. David Green. And there is certainly nothing wrong with 
an individual consumer fast forwarding through any portion that 
they do not want to see to the extent that there are----
    Mr. Shimkus. But you would have to see it before you could 
fast forward it, which may give some adults some reason to 
accept that proposal, but.
    Mr. David Green. To the extent companies are offering 
software, I know our companies are talking to them. It is on an 
individual matter, and it is not something the motion industry 
can talk about as a collective for antitrust reasons.
    Mr. Shimkus. Mr. Holleyman.
    Mr. Holleyman. Mr. Shimkus, this is not an issue that the 
business software industry has been involved in. I would like, 
however, to make one point that came up in several other 
questions, which you know, this bill really creates an 
exception that swallows the rule.
    And there have been a lot of discussions today about 
ability to make a back-up copy, and what we are saying is that 
this goes far beyond that, and the software industry is 
deploying very simple activation tools because of the DMCA that 
can be deployed in under 30 seconds by the Internet or in a 
couple of minutes by a telephone call----
    Mr. Shimkus. Okay. I hear you. Let me go to Mr. Swift, 
please.
    Mr. Swift. Yes.
    Mr. Shimkus. Thank you.
    [Laughter.]
    Mr. Shimkus. And of course, from the American Library 
Association.
    Ms. Nisbet. Thank you, Mr. Shimkus.
    We would just say whether you are talking about the kind of 
technology that you are talking about or technology that is 
aimed toward helping libraries and educational institutions to 
do what they need to do in terms of dealing with digital 
products, we believe that H.R. 107 would certainly help that 
effort, and we would support it.
    Mr. Shimkus. Great. Thank you, Mr. Chairman.
    Mr. Stearns. I thank my colleague.
    I think what we are going to do is let Mr. Gonzalez go, and 
then we will go vote, and we will take a recess until 1:15. We 
have five votes on the floor. That is 25 minutes-plus. It will 
give us a chance to have lunch, and then we will come back.
    And, Mr. Gonzalez, what I would like to do is suggest that 
you have your entire 8 minutes, but if you took five, we could 
do it now, but if you did the full 8 minutes we would not make 
our vote. So I am asking you would you like to have your 5 
minutes now?
    Mr. Gonzalez. I hear you clearly.
    Mr. Stearns. Or would you like to come back?
    Mr. Gonzalez. Actually just let me get this out of the way.
    Mr. Stearns. Okay. You are recognized.
    Mr. Gonzalez. It will take just a couple of minutes.
    Mr. Stearns. You are recognized.
    Mr. Gonzalez. Thank you very much.
    I guess in trying to interpret Mr. Valenti's testimony and 
getting right down to it and not making it real complicated, it 
seems to me he is talking about a secure environment, which you 
are never going to have because it goes way beyond the 
abilities of technology. You are talking about human nature.
    When we can legislate and take care of avarice and greed 
and everything else, then we will be fine. But it is not going 
to happen. So in the meantime, let's go ahead and try to 
regulate and govern human behavior that is practical in nature, 
and then we will be effective.
    The troublesome part of the testimony from the content 
community is simply where we are today and where we are going 
to be tomorrow. In the statement by Mr. Valenti, it says that 
in the recent symposium on DMCA, Professor Samuelson of U.C.-
Berkeley posed the question whether it was possible to develop 
technologies that would allow circumvention for fair uses 
without opening up the Pandora's box so that allowing these 
technologies means that you are essentially repealing the anti-
circumvention laws.
    Mr. Valenti in answering the Chairman's question says 
presently you cannot make a copy of the DVD. You just would not 
be able. There is no fair use right now. There is just no fair 
use under the present scheme in the interpretation of this 
statute, and that is why we have H.R. 107.
    Prospectively you go and you make reference to this 
professor, and he says it may not even be possible. So what are 
we looking to in the future? What is a good regulatory scheme 
that protects all of the interests and goes back to the 
overriding issues that it has taken this country 100, 150 years 
in developing, as the professor has already pointed out? There 
has to be that balance.
    The last thing that came out of Pandora's box, if you 
remember the tale and the fable, was hope. The position you all 
are taking seems to tell me that is hopeless, that we are never 
going to arrive at that state of technology and human behavior.
    So why don't we do something that is practical, 
enforceable, and tries to protect the rights of obviously the 
copyright holder, but also still acknowledges something that is 
so fundamental to the way that we conduct our society and that 
is fair use?
    Doesn't it make more sense for us to go over to wherever 
the vendor was where you purchased that video, the parted 
video, and prosecute?
    I mean we have a tool, don't we? And it is available. So 
why aren't we doing that?
    Mr. David Green. Absolutely, and that is one of the things 
we are doing. But we do have a system that is not perfect, the 
DVD. The DVD is encrypted. It is made to be read by players 
that understand that encryption that Mr. Shapiro's folks sell.
    Can that encryption be broken? Yes, there are ways to break 
that encryption.
    Does the average person break that encryption to make 
multiple copies of the movie or to go to the library, borrow a 
DVD and keep it? No, because there are encryption systems and 
because companies that make systems, like 321, that are 
designed to break that encryption and come up with a copy are 
held to violate the DMCA.
    The system is working. The DVDs are----
    Mr. Gonzalez. The system is working because there is no 
fair use. I mean, if that is what you mean by the system is 
working, then we have got problems.
    Mr. Lessig. Can I follow up on that?
    One reason why people break the encryption on DVDs is the 
play it on a computer system like the Gnu Linux operating 
system, for which there are no licensed players. So there is 
somebody who buys a CD or DVD and wants to play it on their 
computer but cannot, and that is one reason they circumvent.
    But I want to make a point related to your comment about 
Professor Samuelson. Pam and I both wrote, joint authored an 
op.ed. in the Washington Post the very day that the DMCA was 
passed where we said there was exactly this problem that 
Congressman Boucher and Doolittle have identified; that it 
reaches beyond what copyright law precisely reaches beyond and 
does not protect fair use.
    But when she was saying that there is no way to build a 
technology that would perfectly mirror fair use, it wasn't so 
much a comment about technology's potential. It was a comment 
about the complexity of analyzing fair use.
    Fair use is a doctrine that is designed for humans to 
interpret against the background of understanding of context 
and what people's motives are, and to build a technology to do 
that is extremely hard. But the hope that ends the pulling out 
of a Pandora's box is that we can begin to talk about other 
ways to protect legitimate freedoms that consumers ought to 
have that might not be the mess that fair use is.
    So these are other ways to protect freedom that would be 
beyond fair use.
    Now, I think Pam would certainly agree that there are the 
possibilities of building technology to do that.
    Mr. Stearns. We certainly can continue this discussion when 
we come back.
    Mr. Gonzalez. That is all. Thank you very much, Mr. 
Chairman.
    Mr. Holleyman. Can I make a quick comment?
    Whenever I deal with the U.S. Attorney General or Chief 
Justice officials in other countries, the first question that I 
talk about is enforcement of the piracy problem for software.
    The first question I am asked is: what is your industry 
doing to try to help yourself? And the type of simple 
activation tools that we have now been able to deploy because 
of this DMCA is the first clear sign that there are things 
apart from litigation and Federal enforcement that will help 
reduce the $13 billion piracy problem.
    We want to retain that right.
    Mr. Stearns. On that we will tell all of the members to 
come back. We have the recording industry on the second panel, 
and 321, the corporation.
    So with that, the committee will reconvene at 1:15.
    [Whereupon, at 12:16 p.m., the committee was recessed for 
lunch, to reconvene at 1:15 p.m., the same day.]
    Mr. Stearns. The committee will come to order. I think we 
have everybody in place and we have a member, Mr. Otter, here.
    Mr. Otter. Thank you, Mr. Chairman. I thank the panel for 
their rather robust discussion of the subject which we are 
working on today. Professor Lessig, you are the author of 
several books relative to the public right to copyrighted 
material?
    Mr. Lessig. That is right.
    Mr. Otter. Did you copyright those books when you wrote 
them?
    Mr. Lessig. I did.
    Mr. Otter. Why did you copyright them?
    Mr. Lessig. Because I believe a copyright owner and author 
should have the right to earn back----
    Mr. Otter. So if somebody duplicated your book without you 
getting a royalty from it, that would be theft?
    Mr. Lessig. Actually it wouldn't be theft.
    Mr. Otter. It would be?
    Mr. Lessig. No, it would not be theft.
    Mr. Otter. Oh, it would not be.
    Mr. Lessig. As the Supreme Court articulated in the Sony 
case, it is not technical theft. My third book is offered free 
online under creative commons license. It allows people to, in 
fact, copy it so long as they don't engage in commercial use. I 
think the underlying drive of your question I just want to be 
very clear about. I fundamentally believe in copyright. I think 
it ought to be a right for people to control the distribution 
of work within the bounds of the law and our tradition has 
struck a very good balance, I think.
    Mr. Otter. Well, we discussed that earlier. I think you 
have answered my question. You are still a professor at 
Stanford Law School?
    Mr. Lessig. Yes.
    Mr. Otter. Do you charge just one of the students in the 
front row or are all the students in your classroom charged the 
same amount of money for having participated in the exercise of 
being instructed on the law by yourself? Is everyone of those 
students charged or just one?
    Mr. Lessig. Everyone is charged.
    Mr. Otter. Well, see, the reason I bring that up is because 
I am interested in your use and I think misuse of Jefferson's 
statement relative to the candle because if you spoke to just 
one student in the classroom, they would all benefit from it 
without diminishing from the illumination on law of that one 
student. Isn't that right?
    Mr. Lessig. It is right.
    Mr. Otter. Mr. Shapiro, 1,700 organizations belong to your 
organization?
    Mr. Shapiro. Approximately. More like 1,500.
    Mr. Otter. And you are here representing them?
    Mr. Shapiro. Yes, I am.
    Mr. Otter. Did everyone of them pay into your organization?
    Mr. Shapiro. In one form or another, yes.
    Mr. Otter. If you were only representing one, why wouldn't 
they all have benefited from that same--why do you collect from 
everyone of them that you represent instead of just the one?
    Mr. Shapiro. The fact is there is 2,500 exhibitors in our 
show, consumer electronics exhibitors. We represent 1,500 but 
those other thousand are benefiting from my testimony today, I 
hope.
    Mr. Otter. Um-hum. Are you going to charge, though?
    Mr. Shapiro. No, I am not.
    Mr. Otter. Would you charge them if you could?
    Mr. Shapiro. I highly doubt it.
    Mr. Otter. Then why charge all but one? Why not charge one 
person?
    Mr. Shapiro. I think I know where you are going and the 
reality is this is a bigger question and the question really is 
is copyright intellectual property law going to be something 
where there is two purposes. One is to reward the authors and 
the other is to allow the public good. Or is it going, and this 
is the vision that the copyright owners have, to a pay for 
every play society where every use is compensated. I don't 
think that is what our founders envisioned. We have taken step 
by step by step to get that pay for every use.
    Mr. Otter. That is a pretty good stretch to suggest that 
even Jefferson, as brilliant as I believe he was, that he 
suspected that there would be some day a computer and a CD and 
all that. Anyway, I think you have answered my question. My 
point in bringing this up is theft is theft and property is 
property and I don't care whether you are talking about dirt in 
Idaho or if you are talking about somebody's creative genius 
that they have sold into the market place.
    If somebody is stealing it, it is still theft and I see no 
difference. I haven't gotten the convenience of a learned law 
degree as you do, Professor, but I now probably understand why 
more and more lawyers have a problem understanding the Fifth 
Amendment.
    I do know that, let me say for instance, when we were 
debating rather heavily Medicare bill and it was suggested that 
what we ought to be doing is perhaps letting the Government 
under the Fifth Amendment buy out some of the patent rights and 
copy rights on medicines. Rather than going the full 17 years 
or 16 years, why don't we buy up some of those? Because we 
recognize in Government there is no difference between the 
creative genius in the entertainment field, in the films, in 
music or anything else than there is in dirt.
    If we can have a restrictive covenant on any property that 
I would buy, there is a restrictive covenant put there either 
by the Government or the former owner. I don't see any reason 
why anybody participating in this business couldn't have a 
restrictive covenant on that as well which means you are 
limited to one.
    I would finalize only by saying I suspect our librarian 
also makes sure everybody has got a library card and not just 
one person who may use that book the first time. There is a 
reason for that, because you are providing a service and you 
should be paid for it. I agree with that. The problem of it is 
I can't differentiate between property rights simply because it 
is the result of one's creative genius or because it is dirt.
    Thank you, Mr. Chairman. I yield back.
    Mr. Stearns. Thank you gentlemen. The gentleman from 
Arizona.
    Mr. Shadegg. Thank you, Mr. Chairman.
    Professor Lessig, I am confused. I think the word fair use 
is being horrendously misused in this hearing. Mr. Gonzalez in 
his questioning seemed to imply that it is, of course, a fair 
use for an individual to make a copy of a DVD for himself or 
herself. You seem to be embracing that definition of fair use. 
Yet, it seems to me that your written testimony specifically 
says fair use doesn't cover this. Do you contend that it is a 
fair use for me as a purchaser of a DVD to make myself one 
copy?
    Mr. Lessig. I do.
    Mr. Shadegg. Do you contend that it is a fair use for me to 
make a duplicate copy in case I destroy the first one? It is 
fair use to make a copy for my wife?
    Mr. Lessig. I am not----
    Mr. Shadegg. Is it fair use for me to make a copy for my 
two kids?
    Mr. Lessig. Within the same household for noncommercial 
purposes I believe it would be.
    Mr. Shadegg. Okay. So I can make a copy for my wife, copies 
for my two kids, a copy to backup. Can I make a copy for my 
boat?
    Mr. Lessig. No, your boat doesn't get one, no.
    Mr. Shadegg. Oh, my boat doesn't get one. How about my 
cabin?
    Mr. Lessig. This is the problem with fair use, Congressman. 
It is the problem of drawing the line of fair use that the 
courts have historically had to struggle with. But that is not 
the question before this committee.
    Mr. Shadegg. That is very much the question before this 
committee because you are using in this hearing the term fair 
use to say it is absolutely okay for someone to make one copy 
and now you are saying a copy for their wife and their kids. 
Yet, I can find no way to fit that concept within the 
definition of fair use that we are given.
    The definition of fair use says you can make a copy for 
criticism, comment, news, reporting, teaching, scholarship, or 
research. Well, my wife's use of a DVD just to view it and 
enjoy it, or my kids' use of a DVD for any of those purposes, 
they are not using it for criticism or comment or news or 
reporting or teaching or scholarship or research. They are 
using it for fun.
    There is a four-factor test which says you look at these 
four factors. One of the factors says if you copy the whole 
work, that may not be permissible, but the one that you might 
fit this into says nonprofit educational purposes. It doesn't 
say all nonprofit purposes. It says all nonprofit educational 
purposes. How do you apply that to my wife's second copy or my 
kids' copy? I make a copy of a DVD for my daughter to take to 
college with her so she can watch the movie over there, how is 
that a nonprofit educational purpose if it is just 
entertainment?
    Mr. Lessig. My point is whatever fair use is, and we could 
and would have a long argument about that, and courts do. 
Whatever fair use is, this bill is not attempting to modify 
that.
    Mr. Shadegg. This bill is going at the technology and what 
this bill says is you want to repeal the technology currently 
in place that the MPAA and the producers can have where they 
can encrypt their product to stop people from pirating it. You 
now want the Congress to step in and say even though they have 
the ability to encrypt that, you want Congress to legalize 
equipment that circumvents their encryption.
    Mr. Lessig. For the purpose of fair use so that you have--
--
    Mr. Shadegg. It is for the purpose of fair use, but you 
have just acknowledged that the use you want to defend here, 
which is use by someone you can't define, it is fair use to 
make a copy for my wife or my kids but not okay for my boat or 
my cabin.
    Mr. Lessig. What I am saying is whatever the definition of 
fair use you want to adopt. Maybe you want to adopt one that 
says you can't make a copy for yourself or your kid. Whatever 
that definition is, this is not changing that definition. This 
is saying whatever that definition is technology can't take it 
away.
    Mr. Shadegg. Then I have a serious problem with your 
testimony because your written testimony before this committee 
says that, in fact, fair use is not adequate right now and you 
say Congress should consider a range of measures--I am reading 
from page 13 of your testimony--to update fair use in the 
digital age.
    You say H.R. 107 is the way to do that. What you are really 
saying is we need to pass a law to change, I guess, two things, 
quite frankly, to take away the right of MPAA to successfully 
encrypt its material so that somebody can make a fair use copy, 
but you also want to update in your words the ``doctrine of 
fair use.''
    Mr. Lessig. Right. I think Congress should consider fair 
use. That is not what 107 is about. I think the law----
    Mr. Shadegg. That is not what your testimony says. I 
apologize. I have very little time.
    I would like to ask all of the panelists if, in fact--first 
of all, I don't understand why if the MPAA can create 
technology that makes it impossible for someone to steal their 
product, why it is a matter of fair use to allow, that is, to 
authorize technology that eviscerates the purpose of that.
    Mr. Lessig. Congressman, may I respond to that?
    Mr. Shadegg. What I would like you to comment on, and I 
have only a few seconds left, is why isn't this problem easily 
solved by the market place by the producers of a DVD simply 
saying, ``Look, we produced a DVD. We will sell it to you. If 
you want to take it with a restriction so you can't copy it, it 
is X dollars. If you want to be able to make multiple copies of 
it, it is three times that.''
    I guess the second question I have is if the fair use 
doctrine so clearly allows you to make one copy for your own 
use, why did we pass the Audio Recording Act specifically 
saying that you could make a copy of that? It seems to me the 
fair use doctrine doesn't embrace what you say it embraces 
because we had to write a law for audio recordings to allow 
people to do that. I guess I would like each of the witnesses 
to comment on those if the Chairman will allow.
    Mr. Stearns. Absolutely. Go ahead.
    Mr. Lessig. So if you have a fair use right to do something 
with someone's content----
    Mr. Shadegg. Well----
    Mr. Lessig. Can I just please answer the question? If you 
have a fair use right to do something with someone's content, 
it is not stealing to do that with----
    Mr. Shadegg. Absolutely. So you----
    Mr. Lessig. I am sorry. I am still not finished.
    Mr. Shadegg. Well, let me just make a point. If it is for 
educational purposes or research purposes, you can contact the 
MPAA and say, ``I want to have a fair use use of this document. 
I want to use it for the definition of for criticism or comment 
or news or reporting or teaching or scholarship or research.''
    But what you want to do is to allow technology that says 
they can't encrypt it forcing you to ask permission, forcing 
someone who wants to use it for fair use to even ask 
permission.
    Mr. Lessig. If you have a fair use right, why should you be 
forced to ask permission to exercise that right? The point I 
want to just make clear----
    Mr. Shadegg. Yes, because you are in this room saying the 
fair use right is anything you want to do.
    Mr. Lessig. No, I didn't say that.
    Mr. Stearns. The gentleman's time has expired. I think what 
we can do is just let him finish up and let the people answer 
the question you asked.
    Mr. Lessig. So it is extremely important. I misspoke to 
Congressman Otter if he understood me to say that one has the 
right to steal. All that I am saying is you don't have the 
right to infringe a copyright. The Supreme Court has said that 
is not called theft. It is a stupid law professor's 
distinction. I apologize for embarrassing the committee with 
such a distinction. I don't mean to say you have a right to 
engage in copyright infringement.
    It is immoral to do that and I think it is wrong and should 
be prosecuted. All that I am saying, though, is if you are 
engaging in a fair use right, a right that the law protects as 
fair use, and we are going to have an argument about what that 
is, but if that is what you are doing, then it is not theft for 
you to do it.
    The only thing at issue in this bill is should technology 
steal that fair use right from the consumer. I think it is 
wrong that technology steals that right from the consumer and 
people ought to have the right to exercise the fair use right 
despite the technology.
    Mr. Stearns. The gentleman's time has expired. The full 
Chairman is going to take the next series of questions and with 
his time you certainly might want to amplify.
    Chairman Barton. Thank you, Chairman Stearns. I want to 
start out by making a statement that what we apparently have 
because of the technological revolution in trying to protect 
the copyright holders, we have a situation where in trying to 
do that not only do we not have fair use, we have no use. You 
can't make a copy today. You can be hauled into court.
    The manufacturer of the copying machine can be hauled into 
court. The person who made the copy, even one copy, technically 
could be hauled into court for violating one law or various 
other laws. All we are trying to do today in this hearing is 
get on the record if there is a way we can balance technology 
and copyright and fair use. That is all. We are not trying to 
allow commercial powers here or anything like that.
    My question to the professor down at the end of the table 
to my far left, is this really a debate about the number of 
copies or the intended use of even one copy? If I make a copy 
for resale, that is illegal.
    Mr. Lessig. Absolutely.
    Chairman Barton. If I make a small number, and we can 
disagree on what small number is, but if I make two or three 
copies for personal use, that should fall under the doctrine of 
fair use. Isn't that correct?
    Mr. Lessig. I would argue it would but the reality is, and 
this is what the first part of my testimony tried to address, 
the cost of adjudicating that are extremely high. Jack Valenti 
was absolutely right, we have no case saying you can copy a 
DVD, but that is because the cost of bringing and litigating 
that issue all the way to a judgment is extremely high. That is 
a problem with the fair use system as we have it right now. 
That, I think, is independent from this bill. Your bill is 
saying whatever fair use is, that right should not be taken 
from the consumer through technology.
    Chairman Barton. Now, I want to ask Mr. Shapiro, you are 
here, for lack of a better term, representing the electronics 
industry and some of your associations make equipment or 
devices that can make copies. Is that correct?
    Mr. Shapiro. Absolutely.
    Chairman Barton. Is it your opinion that it is 
technologically possible to make a device that would allow some 
small number of copies to be made without making it possible 
for that same equipment to replicate a large number of so-
called perfect copies that could be used for resale for 
commercial purposes. In other words, can the doctrine of fair 
use be made technologically compatible so that in the digital 
age we do protect the commercial rights of the copyright 
holder? Is it technologically possible to do that?
    Mr. Shapiro. The Audio Home Recording Act is a good example 
of where we address the very narrow area of digital audio 
recording. We agreed and the Congress agreed that it would make 
sense to allow an unlimited number of original copies but no 
copies of the copies. In other words, the chain was broken and 
that was agreed in addition to royalties being paid.
    Now, you could argue whether that was a good law or bad 
law, but technologically it has worked. I haven't heard any 
allegations that it is broken. Similarly, with the DVD, for 
example, you have a system in place which works fairly well. 
The motion picture and the consumer electronics industry got 
together and agreed on the standard. There is some disagreement 
now whether this legislation is necessary.
    Indeed, Mr. Valenti referred to a letter from the DVD Copy 
Control Association. I have been asked by the counsel for that 
association to clarify they are not opposing this legislation. 
Indeed, they just have some specific comments on it. Indeed, a 
lot of their efforts are supported by patent enforcement. Many 
of these things can be done by patent enforcement.
    This new DMC, Digital Media Copyright Act, is something 
which would be very, very positive in the sense that you can 
come up with specific technical fixes but as Professor Lessig 
has said, it is not that you are changing copyright law. It is 
that you are allowing consumers to exercise their fair use 
rights and that is all we are trying to do here today.
    Chairman Barton. I understand Mr. Valenti has to leave. I 
know your face but I don't know your name.
    Mr. David Green. David Green. I apologize Mr. Valenti had 
to leave but I am going to try to fill his large shoes.
    Chairman Barton. If you want to answer that question but I 
have another question specifically for you.
    Mr. David Green. Just a couple of very quick points. One, 
fair use is alive and well. There is absolutely a right. For 
example, if Professor Lessig wants to show a couple minute clip 
to his class, he can take a DVD and he can show it to his 
class.
    Fair use does not mean that he gets to necessarily make a 
copy of that and there is no right, not only in our opinion but 
in the opinion of the courts and the copyright act to make a 
full-fledged copy of DVD for backup purposes or to give to your 
kids, use as Christmas gifts, or whatever. Even though you are 
not selling it, establishing such a right could be devastating 
for the----
    Chairman Barton. So your association doesn't even accept 
that you could make one copy for personal use?
    Mr. David Green. It is not only our association but I think 
that is what the law is.
    Chairman Barton. So you disagree with what the Professor 
said in his testimony, and I quote from page 8, ``The late 
Professor Lyman Ray Patterson made clear copyright has never 
accorded the copyright owner complete control over all possible 
uses of his work.'' You disagree with that?
    Mr. David Green. There is no right to make a full backup 
copy. That is what the Copyright office has said. That is what 
the courts have said and there is no right to make a backup or 
personal use copy of a DVD.
    Chairman Barton. Well, I disagree with that. That is my 
opinion. Is it MPAA's official position that you will accept 
no--there is no way to find a compromise on this issue? You all 
are going to hop in the Alamo and hope somebody arrives but if 
you are going to go down fighting, you are going to die for 
MPAA and the Alamo no matter how many troops are marshalled 
against you and how many arguments?
    Mr. David Green. I am not sure we necessarily----
    Chairman Barton. I don't mean literally die.
    Mr. David Green. We see ourselves on the side of right on 
this. We are, of course, looking for ways of making things 
clear but we do think there is a reasonable compromise, that 
the DMCA establish that compromise, and that it does allow for 
the full flowering of fair use in universities and everything 
and not to allow this whole system to come to a crash to allow 
people to de-encrypt at will the encryption systems. I think 
that will end up with less consumer choice, not more consumer 
choice.
    Chairman Barton. Well, my time has expired. I want to ask 
one question of Mr. Swift as a former member of this committee, 
former subcommittee Chairman of this committee, do you agree 
with Mr. Green that you have no rights to make any copy of 
anything at any time?
    Mr. Swift. No. I believe what has happened is that when the 
digital age came we all panicked and we rushed in and provided 
draconian protections unlike virtually any other protections we 
provide anybody else for anything. We normally punish behavior. 
What we have done here is to provide a mechanism by which you 
just say having the mechanism is what we do and you cannot play 
around with the mechanism. I think that is wholly 
inappropriate. There are other ills in our society.
    For example, let us just take a kind of exaggerated 
example. Shoplifting is a very expensive drain on our economy. 
Retailers suffer enormously from shoplifting. We could probably 
eliminate shoplifting if we simply allowed every retailer to 
put handcuffs on every customer that came to the door. They 
could nod at what they wanted, they would pay for it, take the 
handcuffs off, and they could go home.
    That is an exaggerated analogy but I think it is really 
analogous to the way in which we have sought to provide 
protections for the recording industries. Clearly they need the 
protection. I don't think there is anybody here arguing that 
they shouldn't have protections. It is the way in which we have 
sought to do it.
    One of the things I have noticed here today is we are all 
focused as though this is the only way to provide protections. 
Earlier we talked about some other things. Trade negotiations. 
We talked about trying to change and increase the enforcement 
for the laws that already exist for misuse and abuse of 
copyrights. So this is not a this way or no way kind of way of 
dealing with their legitimate concerns about piracy. You have 
got to get off that and start looking for ways that give them 
the protection they need that doesn't intrude so massively on 
the American consumer. That is all I am saying.
    Chairman Barton. My time has expired.
    Mr. Stearns. Mr. Stupak.
    Mr. Stupak. Well, thank you. It has been an interesting 
discussion to say the least this morning. If we legalize this 
legislation, circumvention for noninfringing uses of 
copyrighted work, it is my understanding there is no technology 
out there that could prevent like you make your one personal 
copy you want to make and that is it, right? I mean, you can 
just keep making those copies, DVDs, CD, or whatever it is, 
right?
    Mr. David Green. Let me just clarify. There are encryption 
schemes that would allow you to make one copy. If you allow 
hacking, if you allow circumvention, you have striped the 
encryption scheme.
    Mr. Stupak. So you would be in favor of encryption with one 
copy?
    Mr. David Green. There are all sorts of options that we are 
working on that would allow one copy legally with the 
permission of the copyright owner.
    Mr. Stupak. Okay. Encryption is what, just DVD, right?
    Mr. David Green. Well, no. Encryption would also be on 
digital distribution where if you decide, ``I want to download 
a movie. I want to watch it once,'' we could build into this 
and this is what the music industry has done and what we are 
certainly looking to do. If you want to make a copy----
    Mr. Stearns. Mr. Green, I just need you to pull your 
microphone up a little closer so we can hear you better.
    Mr. Stupak. So technology does exist then that you can do 
one copy?
    Mr. David Green. We are developing encryption technology.
    Mr. Stupak. But it is not there yet?
    Mr. David Green. We are not there yet.
    Mr. Stupak. When will it occur?
    Mr. David Green. The incentive to do it is as long as we 
can protect that encryption technology from de-encryption from 
circumvention. There is a huge economic incentive. We are doing 
it as fast as we possibly can. We are working with our friends 
in the CE and the IT community to make this happen and this 
stands as a dagger at that effort.
    Mr. Stupak. I don't agree with the sense of the dagger. I 
don't want to get into the dagger. What I want to get into is 
is the technology there where we can do one copy and then let 
it go at that? That is what I am hearing from everybody.
    Mr. David Green. No system is perfect. It keeps honest 
people honest and that is the goal here. Keep in mind if they 
do allow one copy, they usually want to be paid for that 
additional copy.
    Mr. Stupak. Well, yeah. Okay. There is some value in that 
work. Whether it is one copy you get it at half price or 
whatever.
    Professor, you want to jump in there?
    Mr. Lessig. I agree that there is technology that can 
enable one copy. What I don't think that does is guarantee fair 
use because, for example, fair use might include if you are 
reading my book and you want to take a chapter out of my book 
and include it in a criticism on my book, that is fair use.
    Mr. Stupak. Sure it is.
    Mr. Lessig. If I am watching a movie and doing another 
demonstration and take a section out of it, I can't necessarily 
do that. Or as CleanFlicks, for example, does, if I want to 
enable people to skip the parts of the movie that I don't want 
my children to watch and they build the technology to stop me 
from doing that, I have no right to circumvent that under the 
DMCA as it is now.
    Mr. Stupak. You are basically saying technology has to be 
able to address all the fair use needs of everyone who wants to 
use it?
    Mr. Lessig. Right. And that is why Pam Samuelson and Ed 
Felton agreed that there is no simple technology that can do 
that but that is because of the complexity of fair use.
    Mr. Stupak. I guess the point I am trying to get with, I 
believe these things have to be protected. We have sat through 
many hearings about piracy, China in particular where they are 
using about $18 billion a year on intellectual property rights. 
They have factories there that reproduce these things and there 
is no seeming negotiation or enforcement, whatever you want to 
say, other than administration saying they will get to it.
    Mr. Swift, when you said you went to do your CD and you 
tried to make a quick copy to get it produced and it wouldn't 
do it, you called and said, ``Hey, what am I doing wrong?'' 
They said, ``No, you can't make a copy of it.'' Shouldn't the 
store who sold you that CD burner tell you you can't do it? I 
think they sort of robbed you of your money.
    Mr. Swift. I think that they probably were assuming that I 
was more well informed than I am in the details of this 
Draconian law. What I don't think they are responsible for is 
setting up the rule in the first place which I disagree with.
    Mr. Stupak. Right, I agree. They are selling you technology 
now to make copies, if you will, and knowing darn well that, in 
your case a CD, that you can't make a copy of it. I am always 
hearing we should have enforcement and education and we 
wouldn't have to worry about this piracy and it would go away.
    Mr. Swift. It is true that if----
    Mr. Stupak. Even when you buy a product it educates you.
    Mr. Swift. It is true that if they had made that clear I 
wouldn't have bought it because I can already make copies in 
real time. What I have is another machine that will make copies 
in real time and they are switched from digital to analog which 
is fine with me because I don't intend to make a thousand 
copies of these things. It is not that it changes it from 
digital to analog and you can't make copies of the copy.
    I could care less about that. It is the fact that I can't 
make a high-speed copy of my original one. All it does is it 
doesn't give an ounce of protection to the industry. It just 
take me four times as long to make the copy. Why should they 
inconvenience me in that way if, in fact, they get no benefit 
from it?
    Mr. Stupak. But don't you think that everyone they sell 
they do get benefit from? Every CD, right?
    Mr. Swift. No.
    Mr. Stupak. If I am an artist, every CD that I sell I get a 
benefit from it, right?
    Mr. Swift. Of course, but the kind of thing I am doing is 
not making copies of their album. I am doing something entirely 
differently.
    Mr. Stupak. Back to the question that the Professor said 
everybody wants their own exception to the exception.
    Mr. Swift. My fundamental point is that if I can do what I 
want to do in real time, why advantage is the industry getting 
from----
    Mr. Stupak. But if you open it up, the person sitting next 
to you might say, ``I want to do something different than Mr. 
Swift on my own terms and my own conditions.'' How do you 
protect the product then? Everybody wants their own exception.
    Mr. Swift. But my concern is with the consumer and I ask 
again, what advantage is the industry getting by making me 
simply have to handle equipment more inconveniently? I end up 
with exactly the same product, a copy of my copy.
    Mr. Stearns. The gentleman's time has expired. The 
gentlelady from California.
    Ms. Bono. Mr. Swift, I didn't serve with you but, first of 
all, you are violating multiple copyrights when you do that. In 
this day and age I don't know what equipment you have but it 
takes me probably 4 seconds to download a 6-minute song, 4 
seconds to download that onto my computer.
    To the question of do we have the technology? The answer is 
yes. That is why we are here. This bill, which I oppose 
completely, throws away the technology and makes it completely 
useless. We have DRM. We have come a long way. Years ago, I 
believe, the recording industry and the motion picture 
association were well behind where they should have been.
    Yes, they tried to stem the tide of technology, but I 
believe they have been working very, very hard at catching up 
and those people in this industry know that the greatest tool 
you all have is the enter key for the first time. We are there. 
We have DRM. We have things like MagicGate. Now we are saying 
how about iTunes which on their website, currently just 
expanded, you can download to multiple iPods.
    iPods is a new term. We are not talking about LPs and vinyl 
78s and 45s. We are talking about iPods. It is a new world. You 
can download to multiple iPods, to unlimited iPods, but you can 
only copy to five different PCs or Macs. And those PCs and Macs 
can share the information over a LAN. We have come a long way. 
In my view this bill, with its good intentions and all of my 
respect to its authors, is not a good bill. It is going to 
entirely undo where we have come so far to this point. That is 
not a question, is it? It is a statement.
    Mr. Swift. I have done that.
    Ms. Bono. Mr. Green, just a yes or no if you could. I 
understand that the Walt Disney Company lists a 1-800 number on 
each of its DVDs that says if you break the DVD you can send 
the broken disk to a listed address and they will send you a 
brand new copy at no cost. Is that true?
    Mr. David Green. That is absolutely right. Other companies 
are also looking at the same deal.
    Ms. Bono. So that kind of maybe addresses a little bit of 
the fair use issue? I think the market place is trying to be 
fair and the motion picture companies are.
    Mr. David Green. They will send it back with no profit to 
themselves.
    Ms. Bono. Thank you. Then also, Mr. Lessig, it is a 
pleasure to see you again, Professor. I enjoyed your work in 
front of the Supreme Court arguing against the Sonny Bono 
Copyright Act. I am glad that the Supreme Court in their 
infinite wisdom ruled with Sonny.
    In any event, there are wonderful artists out there, Omar 
Liebert is one, who chooses to put his music on the web and to 
not copyright it. Artists can do that. There is something with 
software, shareware. People can put their technology, their 
ones and zeros, out there in a way that can be disseminated 
freely. Why not? And is your book copyrighted?
    Mr. Lessig. Again, yes, my book is copyrighted. But, in 
fact, when artists put their music up on the web, it is not 
copyrighted. It still is copyrighted.
    Ms. Bono. Correct.
    Mr. Lessig. And the ability to use it still depends on 
getting permission first. Now, that is a general problem. The 
particular issue here is, as came out of the exchange with 
Congressman Otter, should you have to get permission to do what 
the law already gives you the right to do, namely, a fair use 
right. Again, we could argue.
    Ms. Bono. Professor, I am going to jump on this because I 
think I did make you repeat yourself but, again, with an iPod, 
for example, I have a 40 gigabyte hard drive in my drive that 
is barely much larger than a cassette tape any longer. 40 
gigabytes. That is thousands and thousands of songs that I can 
carry with me in my purse, I can carry it on a plane, I can put 
it in my car.
    I guarantee you very shortly there will be adapters in a 
car to put your 40 gigabyte hard drive in there and you have 
got your whole library. This issue of fair use you have kind of 
antiquated. And when you talk about the Xerox machine, I think 
that is entirely disingenuous. A Xerox machine is not making a 
master copy of a master copy. You have used the Xerox copy 
analogy here and I think that is entire disingenuous.
    Mr. Swift, one last question to you. When you make these 
CDs, which in your mind are master compilations of copyrighted 
works, you mean it is not worth the 99 cents that would go not 
to big business but to perhaps artists and people who have 
struggled and spent their entire life? You enjoy their work so 
much that you are willing to make copies to give to your 
friends or speeches, whatever you are copying.
    It is not worth saying for 99 cents go to iTunes, go to 
MusicNet, go to even Napster now and buy the song? It means so 
much to you that you spend that time making copies but you are 
not willing to tell your friends to go spend the money to 
support the artist who created that work. Why is that?
    Mr. Swift. I make a program and I give it to a friend. They 
are supposed to pay me for that?
    Ms. Bono. No, no. You are supposed to pay the people.
    Mr. Swift. I am supposed to pay. I have paid. I mean, I may 
have----
    Ms. Bono. Okay.
    Mr. Swift. I may have 30 CDs.
    Ms. Bono. Okay, so they are supposed to pay the creator of 
the content. They can go to the Internet----
    Mr. Swift. I give them a gift and they are supposed to 
pay----
    Ms. Bono. That is not a gift. The copyrighted work is not a 
gift.
    Mr. Swift. But if I give them that and they have to pay 
somebody, it would seem to me that the only way that would work 
is they would have to pay me.
    Ms. Bono. No, they could go----
    Mr. Swift. That is a violation of the copyright right 
there.
    Ms. Bono. No, they wouldn't have to pay you. They could go 
to the record store. You could give them a list of your very 
favorite songs or they could go to a website and support these 
industries who have worked so hard at developing this.
    Mr. Swift. No, no. I could say that you might really enjoy 
it if you bought these 30 CDs and you put these cuts together 
in this order.
    Ms. Bono. You can post your list on the web. That is a very 
common procedure. You can post you----
    Mr. Swift. Why would I want to do that?
    Ms. Bono. My question exactly.
    Mr. Swift. I want to make a program. I do lap fades, cross 
fades. I use portions of----
    Ms. Bono. Which sampling is also suspect to me here.
    Mr. Swift. My point is that what you are suggesting I do 
doesn't do what I want to do.
    Ms. Bono. Well, sir, with all due respect, and I am sorry--
--
    Mr. Swift. You are saying that I shouldn't be able to----
    Ms. Bono. I plan to take your words today and hack them and 
butch them and put them on the Internet and do with them what I 
wanted to do and disseminate them but because--you say you take 
portions of copyrighted work and just send the portions out.
    Mr. Swift. What I take is recordings I have paid for.
    Ms. Bono. And?
    Mr. Swift. And I put together different kinds of things for 
personal use. I don't do it for money. I don't sell these. I 
don't make a lot of copies because, among other things, it is a 
lot of work. Just creating the labels and sticking them on the 
blanks is a lot of work so I just don't. I have never done, I 
don't think, more than 10 of these. Okay? I am not a huge 
threat to this industry and----
    Ms. Bono. Okay. But let us----
    Mr. Stearns. The gentlelady's time has expired.
    Ms. Bono. Thank you, Mr. Chairman.
    Mr. Stearns. The gentleman from Texas.
    Mr. Green. Thank you, Mr. Chairman. It is interesting 
because I have two minds on this because I can understand the 
need. Like I said, if I buy a CD for $17 and I tell my kids I 
want to burn one for them, that is different than what we are 
seeing in the massive piracy. That is what I am concerned 
about.
    Let me ask Mr. Shapiro because looking at what we have now, 
when the DMCA was originally passed the rulemaking process 
involved a copyright office and the Library of Congress was 
established to identify certain exemptions under the DMCA anti-
circumvention that would be in the public interest. While 
people may complain that there are only a few exceptions that 
have been granted, some have been granted in proving that there 
is a process. Can you envision a scenario where a rulemaking 
process possibly somewhat different would address the consumer 
electronics concern with the potential liability of the DMCA 
but still have the protection from the original artist or the 
creators of these works?
    Mr. Shapiro. I think by most accounts that process has not 
worked. My understanding is there was only one exemption 
granted and it was for a group of the blind. It was fought 
every step of the way by the motion picture industry and it 
still doesn't allow the blind even that exemption to do what 
they want. The administration has made clear that process is 
not good and should be changed.
    I don't think a technology creator should have to consult 
lawyers and go through an exemption process to produce 
technology. It is very dangerous. If we had that when the VCR 
was invented, then the VCR and so many other industries would 
not exist today. Blockbusters would not exist. A whole bunch of 
other industries would not be selling what they are selling.
    The growth of technology is something that we can't predict 
what way it is going to go. The most dangerous thing about the 
way the copyright law has evolved over time is that it is 
focused on one half of the equation and that is compensating 
authors and artists and protecting that monopoly. The other 
half of the equation, the broad public access which the Supreme 
Court has repeatedly said is part of that constitutional 
provision, has been totally ignored. To the extent that 
technology allows broad public access, that is important.
    Now, there are a bunch of studies which have been done 
focusing on technology and focusing on harm to copyright 
owners. In some areas there is harm to copyright owners. 
Certainly the radio put creators out of business. They put 
musicians out of business. The talking film put pianists out of 
business in motion picture theaters. I think even now it is a 
matter of debate whether downloading now is hurting the 
recording industry. The studies are split on that very point 
including one that just came out from Harvard.
    Mr. Green. Well, I don't know if I agree that is on the 
level of abolishing buggy whips. We lost jobs back then, too. I 
think we have to protect both not only the innovation of the 
technology but also the innovation of whatever work is being 
done. Again, we are looking for that kind of balance.
    Mr. Holleyman, your association represents both software 
manufacturers who have much to lose from online piracy, and 
also hardware manufacturers who traditionally oppose digital 
rights management mandates. Can you give us your insight? 
Because obviously you have to deal with that within your agency 
in some opportunities for the private sector, collaborative 
solutions to the digital rights management and piracy. You 
could satisfy both content but also the hardware producers.
    Mr. Holleyman. Well, I would like to think that our 
association represents both content and hardware producers 
because we do. We were very involved in the compromises that 
were struck in 1998 and feel that reasonable balance has worked 
well. What we have been able to deploy through that are very 
simple mechanisms that can be used with software and with PCs 
that will allow a consumer within 30 seconds with Internet 
access to authenticate their program.
    It eliminates the biggest form of piracy of software which 
is not the piracy of software to sell in the commercial market 
place, but where legitimate customers may acquire one license 
but then they copy it for multiple PCs in their work place. 
That simple technology is the merger is what can be done with 
the PC with a simple Internet connection. It is not burdensome 
and it is what we have been able to do to help reduce piracy 
because of the DMCA.
    Mr. Green. Is that same paradigm available for motion 
pictures and recordings? I am trying to think of how we could 
do that.
    Mr. Holleyman. The DMCA contrary to ads that I think Mr. 
Shapiro's group and others were running at the time in 1998 
which said that if the DMCA passed, it would outlaw PCs and 
VCRs. What we have seen since that time is that there has been 
a proliferation of content and digital devices unlike any other 
time in our history.
    General purpose devices that can make copies like PCs have 
grown and can be used. It simply says that a special purpose 
device for purposes of circumvention has such a nefarious 
purpose and so little public interest that Congress would 
outlaw those special purpose devices. We think it has worked 
well.
    Mr. Shapiro. Garage door openers?
    Mr. Green. I am sorry. I couldn't hear.
    Mr. Shapiro. I said garage door openers and printer 
cartridges are nefarious devices?
    Mr. Holleyman. I think some of those cases involve issues 
unrelated to the DMCA provisions but other traditional 
copyright issues. I am not representing garage door and other 
device manufacturers.
    Mr. Stearns. The time of the gentleman has expired and I 
thank the panel. We have one more member. He is not a member of 
the subcommittee but generally we offer members of the full 
committee the opportunity to ask questions. The author of the 
bill, Mr. Boucher.
    Mr. Boucher. Well, thank you very much, Mr. Chairman. I 
want to thank these witnesses for their perseverance here and 
their patients and for their enlightening us with their views.
    First of all, let me simply note for the record that the 
Copyright Office has issued an opinion weighing the various 
factors that determine whether or not a particular application 
is fair use and has issued the opinion that making an archival 
copy is fair use. That was contained in the Section 104 report 
issued by the Copyright Office 2 years ago. We can say that 
based upon that opinion of the Copyright Office, you get to 
make at least the one copy for archival or backup purposes.
    I think we would all agree that being able to excerpt small 
quantities of work from a copyrighted work to place in a school 
report or in a research paper, a video version of such, would 
be a fair use. Simply using this material in a way that does 
not impact the commercial market that is purely to enhance 
personal convenience or further education is indisputably a 
fair use.
    Mr. Lessig, let me ask a couple of questions of you. Are 
you concerned that the Digital Millennium Copyright Act holds 
the potential for the extinguishment of fair use in the digital 
era?
    Mr. Lessig. Absolutely. Especially if one thinks beyond the 
questions we have been focusing on which might be thought of as 
the free bite of the apple questions, your extra copy 
questions. More fundamentally, the ability to use the 
technology to mix and excerpt and express content in a way that 
the copyright owner might not necessarily want you to do.
    This is a problem, frankly, that fair use has independent 
of technology. In my testimony I spoke of a case where Robert 
Greenwald, a film maker, wants to take a 1-minute clip from the 
President's Meet the Press interview. NBC has banned him from 
doing this and he now has to face the very difficult choice of 
whether to risk copyright infringement for what I think all of 
us in this context would think should be fair.
    Mr. Boucher. So what the law basically does is say that the 
creator of the content can lock that content behind a technical 
protection measure and then prohibit access to it except on 
whatever terms the content creator finds acceptable. That could 
be the making of a micropayment or something else.
    Mr. Lessig. The micropayment or terms that say you can't 
criticize in certain ways or you can't excerpt in certain ways, 
all of those are the type of freedoms that the law guarantees 
under fair use which are being removed by technological 
protection measures.
    Mr. Boucher. Thank you. The fair use doctrine is a uniquely 
American doctrine. It was originated a little more than a 
century ago by the courts in the United States as a way to give 
expression to the rights of the users of intellectual property. 
The European community has never embraced this principal. It is 
really an American concept.
    Do you see, Professor Lessig, any connection between the 
doctrine of fair use as practiced in this country and the lack 
of it in Europe and much of the rest of the world and the 
tremendous technological advances that we as a society have 
been able to make? Has fair use contributed to that?
    Mr. Lessig. Absolutely, for exactly the reasons that Mr. 
Shapiro was suggesting. The opportunity for businesses to build 
without getting permission first has driven an extraordinary 
amount of innovation and growth. I think people around the 
world in good faith are puzzled by the American doctrine of 
fair use. They are puzzled. They don't understand it. I don't 
think they are evil. I just think they don't have the same 
tradition. I think one of the ways to understand the resistance 
in the United States comes from the changing ownership of major 
media organizations. The RIAA, the major organizations 
represented by the RIAA, are all foreign organizations right 
now.
    I have all the respect in the world for them but when one 
of the leaders, for example, from Universal, Larry Kinswell, 
says as far as fair use is concern, ``It is the last refuge of 
scoundrels,'' that strikes me as someone who doesn't understand 
the American tradition and the values that fair use has served.
    Mr. Boucher. Thank you. Ms. Nisbet, let me direct several 
questions to you. As a representative of libraries, are you 
concerned that the Digital Millennium Copyright Act could lead 
to a paper use society where things that are available for free 
on the library shelf today when delivered in future years in 
digital format would only be available to library patrons if 
they are willing to pay a fee in order to access the work every 
time? Are you worried about that?
    Ms. Nisbet. Indeed we are. Let me just say that is one of 
the reasons that we strongly support H.R. 107 because it will 
not only ensure that we continue to have fair use, but also 
that we are able to exercise the other exceptions in copy law 
that are there to ensure that we are able to use the products 
that we buy so that for our patrons they are free and are able 
to use fully in many different ways, particularly to support 
research and education.
    Mr. Boucher. One final question.
    Chairman Barton. Mr. Chairman.
    Mr. Stearns. Yes.
    Chairman Barton. I would ask unanimous consent that since 
Mr. Boucher is the author of this legislation, although he is 
not a member of the subcommittee, that he be given an 
additional 5 minutes for questions of this panel.
    Mr. Stearns. Without objection so ordered.
    Mr. Boucher. Thank you very much, Mr. Chairman. Both Mr. 
Chairman.
    Ms. Nisbet, we have heard from the content owning community 
that the rulemaking process at the Copyright Office, which was 
inserted through amendments offered in this committee, as a 
matter of fact at the time that the DMCA was passed, is 
sufficient to protect fair use. We now have 6 years of 
experience with that rulemaking process at the Copyright 
Office. My sense is that it has proven to be all but unless in 
terms of protecting fair use rights.
    I wonder what the librarian's position on the adequacy of 
that rulemaking process as the protector of fair use rights is? 
I would also ask you this. I know that a library community and 
the university community have made numerous requests to the 
Copyright Office under this rulemaking procedure for exemptions 
to protect fair use rights in association with what your 
patrons and university students and professors need to do with 
copyrighted material.
    Have you ever been supported in any of those various 
applications to the Copyright Office for exemptions to protect 
fair use by the MPAA, by the RIAA, or by the Business Software 
Alliance? Have you gotten support from any of these groups with 
respect to that rulemaking process?
    Ms. Nisbet. We've gotten opposition. No support. I might 
add the libraries have been very disappointed in the rulemaking 
process but you don't need to look just to the libraries for 
criticism of that. The Librarian of Congress himself, as well 
as two Assistant Secretaries of Commerce have expressed 
concerns with the evidentiary standard for that rulemaking and 
have expressed concerns about how well it works. We would agree 
with your assessment.
    Mr. Boucher. Thank you very much.
    Mr. Shapiro, members of this committee have had the 
opportunity to attend on various occasions the Consumer 
Electronics Show which is a showcase of American and, to some 
extent, foreign technological innovation. The world 
demonstrates its technological advances at that annual event.
    Tell me this. How different do you think that show would 
look in the event that the DMCA can be used by individuals who 
are seeking not to protect their copyrights so much as to 
thwart competition coming from some other market participant? I 
have in mind the use of the DMCA to block competitive garage 
door openers, to block competitive toner cartridges for 
printers, and even to block making modifications for your own 
use in the robotic dog that you've purchased. In all of these 
instances the DMCA has been invoked. How different would your 
show look if the DMCA can run its course and be used in order 
to thwart legitimate competition?
    Mr. Shapiro. Well, the DMCA is being used for that purpose. 
I am somewhat embarrassed because none of my own members are 
using it for that purpose. They are suing potential 
competitors. They don't want competitive products. The DMCA 
allows them to do that and that is one of the reasons we are 
asking it should be changed. Actually as an industry we support 
vigorous competition among different technologies.
    The show would be a lot smaller. Indeed, it is somewhat 
smaller. ReplayTV, for example, was litigated out of existence 
under the DMCA. Now, as Professor Lessig noted, was that a 
valid lawsuit? We will never know because the reality is it 
cost so much to defend against one of these lawsuits that you 
can't go to logical extreme and even protect your fair use 
rights. To the extent that attorneys are starting to run the 
technology world, if that is a good thing, then we shouldn't 
support this legislation.
    Mr. Boucher. Thank you. That is all the questions that I 
have of this panel. I want to thank you very much for your 
participation here today. We will be having further discussions 
with each of you as we further consider this matter.
    Mr. Stearns. I thank the gentleman and Panel 2 is excused. 
I want to thank you very much. You have been in the hotseat 
here. I appreciate your forbearance here and now we call up 
Panel 3: Mr. Gary Sherman, President of the Recording Industry 
Association of America; Mr. Peter Jaszi, Professor of Law, 
Washington College of Law, American University; Debra Rose, 
Senior Legislative Council, the Entertainment Software 
Association; Mr. Chris Murray, Legislative Counsel, Consumers 
Union with Ms. Gigi B. Sohn, President, Public Knowledge; last 
Mr. Robert Moore, Chief Executive Officer, 321 Studios.
    I want to thank Panel 3 for your patience. We are eager to 
hear your opening statements. If you will come to the table and 
we will start with Mr. Sherman on my left and just go straight 
across. Each of you have an opportunity to give us your 
statement.
    Mr. Sherman, if you are ready, we will start. Just make 
sure your speaker is on.

   STATEMENTS OF CARY SHERMAN, PRESIDENT, RECORDING INDUSTRY 
    ASSOCIATION OF AMERICA; PETER JASZI, PROFESSOR OF LAW, 
  WASHINGTON COLLEGE OF LAW, AMERICAN UNIVERSITY; DEBRA ROSE, 
    SENIOR LEGISLATIVE COUNSEL, THE ENTERTAINMENT SOFTWARE 
ASSOCIATION; CHRIS MURRAY, LEGISLATIVE COUNSEL, CONSUMERS UNION 
  WITH GIGI B. SOHN, PRESIDENT, PUBLIC KNOWLEDGE; AND ROBERT 
          MOORE, CHIEF EXECUTIVE OFFICER, 321 STUDIOS

    Mr. Sherman. Thank you, Mr. Chairman. My name is Cary 
Sherman. I am President of the Recording Industry Association 
of America. If you don't mind, I would like to chuck my oral 
statement which was a summation of my written statement and 
just----
    Mr. Stearns. You probably heard a lot today.
    Mr. Sherman. I have heard a lot.
    Mr. Stearns. I can see a lot of you are a little frustrated 
but it has been a very intellectually challenging debate so, 
yes, sir. By unanimous consent your entire opening statement 
will be part of the record.
    Mr. Sherman. Thank you. I would just like to make a handful 
of key points that I think are important less they get missed. 
First, the DMCA has been largely characterized today as being 
anticonsumer. I really feel that the experience is very much 
the contrary.
    The fact is new technologies weren't being taken advantage 
of before by creators for fear that they would be pirated out 
of business and the DMCA fixed that. They said if you use 
technology to protect your content, it will be illegal to 
manufacture and sell devices to hack through the protection. 
They are just doing what the Congress did back in the 1980's 
with cable box legislation saying it would be illegal to 
manufacture black boxes that would descramble cable signals.
    Nobody worried about a fair use exemption that somebody was 
going to use a movie that was going to be downloaded but they 
couldn't get access to it because it was scrambled. There have 
been no complaints and the cable industry has grown. The 
process has worked well.
    If you look at the results of the DMCA in the music 
industry today we've got iTunes from Apple, we've got Rhapsody 
from Real, we've got Napster 2.0 from Roxio, MusicMatch, Wal-
Mart, Best Buy. It goes on and on. In the future we still have 
coming Dell, Amazon, MTV. We now have Sony. Microsoft is 
getting into this business.
    If you want to talk about proconsumer, think about DVDs. 
The fastest growing consumer product in history. It was made 
possible because technical protection measures were worked out 
between the consumer electronics industry and the motion 
picture industry. If H.R. 107 were law, that protection 
technology would have been pointless and you wouldn't have DVDs 
today.
    That is why I have trouble understanding Mr. Shapiro's 
position. It was his members who reached an agreement with the 
motion picture studios on how they could jointly put this new 
consumer product into the market place which consumers have 
loved. The record industry negotiated a similar arrangement 
with consumer electronics companies and it allows for some 
copying, CD quality copies of DVD audio disks, but it was a 
negotiated agreement that has facilitated new formats.
    It was a very good deal for the consumer electronics 
companies. They have sold scads of DVD players. Is Mr. Shapiro 
now saying that the agreement his company reached on DVD 
standard should now be breached so that those same companies 
can now sell the devices that strip away the very protection 
they agreed to respect? I certainly hope now. I think the DMCA 
has vastly benefited consumers and will continue to do so.
    Second, there has been an impression created that the DMCA 
disallows fair use. In fact, it allows consumers who legally 
acquire a copy to make a fair use copy and you have a triennial 
review process to provide even further assurance that fair use 
rights are not lost.
    The DMCA only prohibits companies from selling black boxes 
to strip away content protection for any purpose. The fair use 
issue was very well understood back in 1998 and was much 
discussed, but everyone recognized that an exception allowing 
black boxes for fair use would not just be a loop hole, it 
would swallow the rule.
    This bill is not going to benefit consumers but the 
companies who want to sell hacking tools. I think we all know 
how those tools will be used which brings me to my third point. 
Everyone has made their obligatory statements about how they 
are against commercial piracy and commercial piracy is a 
serious and growing problem.
    Let's be honest, the issue we are facing nowadays is not 
just commercial piracy. It is consumer copying, downloading and 
burning. Ordinary consumers have become worldwide distributors 
of our content. I respect Mr. Swift's personal perspective but 
it assumes that everyone is like him and we have learned the 
hard way that they are not. Our sales are down 31 percent in 4 
years.
    Four years from the time that peer-to-peer networks began 
and CD burners became common place. Everybody has been talking 
about all the changes since 1998 when the DMCA was enacted. 
What has happened to the music industry is an extraordinarily 
profound change and imagine what it would have been if H.R. 107 
had provided even less protection for us.
    Everyone is relying on misconceived and incorrect 
interpretations of fair use to justify their behavior. These 
consumers who are downloading and burning think it's buy one 
and get one free, or worse buy one and get 100 for everyone 
else, everybody in the class. That's why H.R. 107 is so 
misleading, because under the rubric of fair use, which has 
been vastly exaggerated as you seen from the discussion in the 
earlier panel, almost anything is okay.
    By the way, I think that explains the quote that Mr. Lessig 
gave from a record company executive out of context about fair 
use being the refuge of scoundrels because it is constantly 
being distorted in order to routinely justify infringement by 
companies like Napster and Aimster and Grokster and KaZaA and 
so on and so forth. H.R. 107 is really about getting creative 
content for nothing and that, unfortunately, is the reality.
    Finally, no one has talked about the market place, yet that 
is why all these claims and issues have to be resolved, not by 
Government regulation. As far as record companies are 
concerned, all that matters is how they appeal to consumers, 
how they give them what they want so they will buy our product 
instead of take it.
    That is why record companies allow extra copies to be 
burned. All of the discussion this morning about no copies can 
be made, that just has no application in the music industry 
whatsoever. CDs are being burned beyond belief.
    Download services allow copying. They allow copying to 
multiple computers. They allow transfers to portable devices. 
They allow burning to CDs. This is the market place at work and 
that is where the solution really lies. The DMCA is enabling 
consumers to pay different prices for different uses of 
entertainment.
    From purchasing complete CDs to downloading singles to 
monthly subscription services, the market place is addressing 
what consumers want and expect. Not everybody wants to own 
their music and not everybody should have to pay for what H.R. 
107 thinks everybody should have. I think that is exactly the 
point that Mr. Shadegg was just making before.
    Consumers are benefited by options, not an abstract and 
misguided guarantee of a technical ability to make unlimited 
copies. Those options have been and should continue to be 
created by the legitimate market place, not by Government 
regulation. Thank you very much.
    [The prepared statement of Cary Sherman follows:]

   Prepared Statement of Cary Sherman, President, Recording industry 
                         Association of America

    Chairman Stearns, Ranking Democratic Member Schakowsky, and Members 
of the Subcommittee, my name is Cary Sherman, and I am President of the 
Recording Industry Association of America (RIAA). Thank you for 
inviting me here today to discuss H.R. 107 and its potential effects on 
the development of and investment in sound recordings in the United 
States. RIAA is the trade group that represents the U.S. recording 
industry. Our mission is to foster a business and legal climate that 
supports and promotes our members' creative and financial vitality. Our 
members are the record companies that comprise the most vibrant 
national music industry in the world. RIAA members create, manufacture 
and/or distribute approximately 90% of all legitimate sound recordings 
produced and sold in the United States. They employ thousands of 
people, including singers, musicians, producers, sound engineers, 
talent scouts, graphic designers and retail salespersons, to name only 
a few.
    Music is the world's universal form of communication. It touches 
every person of every culture on the globe, and the U.S. recording 
industry accounts for fully one-third of that world market. Exports and 
other foreign sales account for over fifty percent of the revenues of 
the U.S. record industry. This strong export base sustains American 
jobs.
    In this respect, the protection of our intellectual property rights 
is vital to promoting America's competitive advantages in world 
commerce. As our trade deficit has soared, the contributions of 
America's copyright industries to the U.S. economy has become even more 
important.
    An important part of our nation's competitive strength lies in the 
creation of knowledge-intensive intellectual property-based goods and 
services. This is one of those economic activities that Americans do 
better than the people of any other nation. The ``core'' U.S. copyright 
industries account for more than five percent of US GDP. Employment in 
our industries has doubled over the past 20 years, growing three times 
as fast as the annual growth rate of the U.S. economy as a whole. The 
foreign sales and exports of U.S. copyright industries were nearly $90 
billion in 2001, an amount greater than almost any other industry 
sector, including automobiles and auto parts, agriculture and aircraft.
    In a sense, the intellectual property of the United States is like 
a warehouse of ideas and creativity. For people to disregard 
intellectual property rights is no more tolerable than to allow the 
theft of physical goods.
    The theft of music is almost as old as the music industry itself, 
but the advent of the compact disc radically altered the nature of 
music piracy--providing the pirate producer with the opportunity to 
produce near perfect copies of any recording. We already suffer from 
massive trafficking in illegal CDs; the proliferation of cheap 
recorders and recordable optical discs (CD-Rs) in recent years has 
served to create an easy and hard-to-detect means of mass duplication.
    Annual world-wide pirate sales approach 2 billion units, worth an 
estimated $4-$5 billion. Globally, 2 in 5 recordings are pirate copies. 
Total optical disc manufacturing capacity (video/audio CDs, CD-ROMs and 
DVDs)--stands at well over 20 billion units, having quadrupled in the 
past five years, and greatly exceeds legitimate demand. You can see why 
allowing the manufacture and distribution of machines that strip away 
copy protection and permit the making of unlimited copies poses risks 
for mass duplication that would make the piracy problem even worse.
    With the enactment of the DMCA in 1998, Congress went to great 
lengths to balance the interests of copyright owners and users of their 
works. The DMCA encourages copyright owners to make products available 
to consumers in the digital environment by prohibiting the trafficking 
in hacking tools that disable the technical protection measures 
copyright owners rely on to prevent the mass reproduction of their 
creative works. On the other hand, to ensure that legal uses of 
copyrighted works (such as uses that stem from First Amendment 
protection) are not adversely affected by access controls that are too 
limiting, the DMCA imposes a continuous three-year review process by 
the Librarian of Congress and the National Telecommunications and 
Information Administration (NTIA).
    HR 107 destroys this balance of interests and the protections 
Congress so carefully crafted. The amendments contained in this bill 
create not merely a loophole, but an exception that swallows the rule, 
leaving copyright holders and content providers with no way to protect 
the works they create.
    Because of the DMCA, we now have new legitimate Internet music 
services such as Apple's iTunes, Real's Rhapsody, MusicMatch, Roxio's 
Napster 2.0, Wal-Mart's service backed by Liquid Audio, Sony's Direct 
Connect, Music Now, Best Buy, buymusic.com and other services, with 
plans for many more such online businesses from competitors like 
Amazon.com, MTV, Dell, Hewlitt-Packard and Microsoft--all of which use 
Digital Rights Management, or technological protection measures, to 
protect the delivery of the music. All of these businesses are meeting 
consumer expectations in the marketplace in different ways, allowing 
flexibility while preventing mass infringement. This is the 
marketplace, and competition, at work.
    HR 107 would allow the sale of hacking tools that would bust 
through the Digital Rights Management of iTunes and other services if 
the hacker is using the copies for ``non-infringing purposes.'' There 
are two glaring problems with this proposal:
    First, there is no way to assure that the tool ONLY makes non-
infringing copies. The only way to do so--and even that would not 
guarantee success--is to impose a tech mandate for copy controls, which 
HR 107 does not contain.
    This leads to the second problem--Enforcement. It is impossible to 
monitor private copying to assure that copies are made only for non-
infringing uses. A technology or tool which provides circumvention for 
``non-infringing'' purposes necessarily provides circumvention for any 
use, including blatantly illegal ones. There is simply no way to 
control how the means to circumvent is used once the tool is in the 
hands of a user. In fact, Rep. Boucher conceded this fact when he 
introduced H.R. 107. He said:
          ``I recognize that because the determination of whether or 
        not a particular use is considered a ``fair use'' depends on a 
        highly fact specific inquiry, it is not an easy concept to 
        translate into a technological implementation.''
Cong. Rec. E 21 (Jan. 8, 2003).
    Unfortunately, Rep. Boucher drastically understated the problem. It 
is not only ``not easy'' to create a technology that will permit ``fair 
uses'' while prohibiting other uses; it is, at present, impossible.
    It is important to distinguish between ``fair use'' and ``free 
access.'' It is not a defense to copyright infringement to illegally 
gain access to a work, whatever the motivation. You cannot steal a CD 
from a record store in order to make a fair use copy of a portion of 
it. You cannot break into a library to make fair use of a book. HR 107 
would blur this distinction and allow the use of devices to circumvent 
controls that regulate original access to a copyrighted work.
    While this bill is proposed under the banner of consumer rights, 
consumers will, in fact, be hurt if it were enacted. Members of the 
music community strive to provide consumers with many different ways of 
accessing our content. Allowing ``free-riders'' access to our music by 
enabling circumvention will raise the costs to honest consumers, and 
limit the incentive and ability of providers to invest in, and offer, 
new technology and digital media alternatives.
    The DMCA is enabling consumers to pay different prices for 
different uses of entertainment. Not all consumers desire to pay for 
complete access to material. Some may want to access entertainment only 
one time, or for a week or a month. In the case of music, some may want 
a subscription that allows them access when they desire it without the 
burden or cost of acquiring a permanent copy.
    Currently, download music services provide for permanent copies on 
a track by track basis or an album basis; the ability to share the song 
with some other computers; the ability to burn a copy onto a CD-R; and 
the ability to transfer the song to portable digital music players. In 
other words, the marketplace is addressing what consumers want and 
expect, and that's how it should be.
    Consumers are benefited by options, not an abstract and misguided 
application of the ability to make numerous copies. Those options have 
been, and should continue to be, created by the legitimate 
marketplace--not by government regulation.
    H.R. 107 is a solution in search of a problem. Our own success 
depends upon the ability of our consumers to access and enjoy our 
music. If consumers don't think a product at its price point offers 
enough value--and one of the ways consumers measure value these days is 
the flexibility they get to use the product in different ways--then the 
product will not sell.
    The labeling provisions of H.R. 107 likewise pose a solution in 
search of a problem. Record companies are committed to giving consumers 
the information they want and need before buying a copy-protected CD, 
DVD-A, SACD, or other optical disc product. Just over a dozen copy-
protected CDs have been released commercially to the public in the 
United States. The typical copy-protected CD contains a prominent label 
that informs the consumer about the copy protection. In this case, just 
as in the case of meeting consumer expectations with regard to 
flexibility on digital services, consumers will measure value by how 
well they are able to use the product in different ways. The 
marketplace is once again working, just as it should.
    We continue to work with technology providers to give consumers 
more choices and greater control over how they access and use digital 
content and we are committed to providing information to consumers 
about these products. But our continued ability to offer choices and 
personal control relies upon the protection afforded by digital 
technologies. By allowing unimpeded circumvention of these protections 
with the empty and unenforceable directive to only make non-infringing 
copies, HR 107 lays waste to the effective--and balanced--DMCA.
    We are suffering from piracy. This bill goes in the wrong direction 
by promoting it. We urge you to oppose it.
    Thank you.

    Ms. Bono. Thank you, Mr. Sherman.
    Mr. Jaszi.

                    STATEMENT OF PETER JASZI

    Mr. Jaszi. I teach domestic and international----
    Ms. Bono. Please remember the microphone.
    Mr. Jaszi. I teach domestic and international copyright law 
but I am testifying today for the Digital Future Coalition, a 
group of 39 trade associations, nongovernmental organizations 
and learned societies that I helped organize almost a decade 
ago.
    Our constituents make and use copyrighted works so they 
support both strong intellectual property protection and fair 
use. The DFC strongly endorses H.R. 17 because it would protect 
citizen's freedom of expression and right to make personal use 
of digital material. I have five main points.
    First, this is not a debate about peer-to-peer file 
sharing. It is a debate about freedom and fairness. Back in 
1988 with the intent to provide new protection against digital 
piracy and black box devices which are specifically designed or 
marketed to facilitate piracy, Congress temporarily lost sight 
of the historic values of American copyright law.
    To an extent, no one foresaw the DMCA was a radical 
departure from norms established over 200 years of legal 
tradition. Rather than just cracking down on piracy, the anti-
circumvention provisions of the DMCA overrode fair use and the 
other time-honored limitations on copyright effectively 
damaging the freedom of consumers to engage in otherwise legal 
activities.
    Today it would be illegal, as we heard, for a parent to use 
circumvention technology to edit out unsuitable material from a 
child's DVD. It would be unlawful for a child to take a brief 
excerpt from a copy protected electronic encyclopedia to 
include in a multi-media school report. And it would be a 
violation of Section 1201 for a computer science class to test 
scrambling technology meant to block terrorists from accessing 
first responder communications.
    Contrary to the expectations of many, Section 1201's saving 
clause and the Library of Congress rulemaking it provides for 
have done nothing to bring fairness back to our copy right 
system. H.R. 107 represents the best and possibly the last 
chance that Congress will have to repair the unintended damage 
done by the DMCA and to help restore public respect for 
copyright which this overreaching legislation has done so much 
to undermine.
    Second, the traditional norms of copyright law from which 
the DMCA departs so notably have served the country well. 
Copying for fair use has long been essential to the growth of 
our society both commercially and culturally, although it is 
easy and sometimes convenient to forget Hollywood owes much of 
its long record of classic motion picture productions to fair 
use.
    Without fair use our high tech industry could never have 
become the envy of the world. Without fair use and the other 
exceptions in the copyright act, none of us in this room would 
have had the chance to learn through the use of books and other 
materials made available in libraries, schools, and 
universities.
    American copyright has succeeded in promoting the progress 
of science and useful arts precisely because along with strong 
protection it also provides for limitations and exceptions in 
favor of users. In 1998 we lost sight of the essential place of 
fair use including personal use which is the historic heart of 
the doctrine.
    H.R. 107 would correct this lapse by providing if one of 
your constituents like the parent or the school child I just 
described avoids a technological protection measure to make an 
otherwise lawful use he or she would have no civil or criminal 
liability. Meanwhile, those who circumvent in order to infringe 
would be subject to the full range of enhanced penalties 
provided in the DMCA and this is only fair.
    Third, H.R. 107 will promote electronic commerce for the 
benefit of all content owners, the vice manufacturers and every 
other group represented in this room today. The DMCA works to 
benefit only a few industries under H.R. 107 in the world of 
fair use and strong intellectual property protection society as 
a whole will benefit.
    You have heard from other witnesses that you must choose 
between the promotion of information commerce and fairness to 
information consumers but the choice is a false one. Thus, for 
example, H.R. 107 assures that consumers will not be mislead 
into buying digital products that will not permit the full 
range of use as otherwise allowed in copyright law again. This 
is only fair.
    Fourth, enactment of H.R. 107 will guarantee your 
constituent's freedom to make lawful use of media products that 
they own. The bill will enhance their ability to move the 
materials they have lawfully acquired among digital devices in 
the extended home environment. When consumers can use digital 
products more flexibly, they will place greater value in this 
new medium and as the value of digital products increases, the 
market for them will expand to the benefit of all parties 
including the creators of music, video, and text.
    H.R. 107 will assure that what consumers are theoretically 
permitted to do will be practically possible by making sure 
that end users can get the tools they need to engage in 
permitted practices. By incorporating the Supreme Court's time 
tested Sony Betamax standard this part of the bill gives courts 
the tools they need to make sure that vendors of true black 
boxes that were the intended target of the DMCA cannot avoid 
the full weight of the law. This, too, is only fair.
    Fifth, cybersecurity is more important today than ever 
before. When the DMCA was enacted Congress clearly tipped the 
scales toward protection. After 9/11 we need to eliminate 
obstacles to the research and testing so important to our 
collective security. H.R. 107 carefully calibrates the balance 
of intellectual property----
    Ms. Bono. Excuse me. Can you sum up in about 15 seconds?
    Mr. Jaszi. [continuing] to allow additional research 
without unduly compromising protection. Congress should seize 
the opportunity presented by H.R. 107 to restore the historic 
balance founded on freedom and fairness that the DMCA has 
disturbed.
    Madam Chairman and members of the subcommittee, the 
constitution defends our freedom to read and share books, 
magazines, music, and other materials in 2004 just as it did in 
1904. Today we are asking Congress to defend the consumer's use 
of educational and cultural materials in the best interest of 
the public. Thank you.
    [The prepared statement of Peter Jaszi follows:]
      Prepared Statement of Peter Jaszi, Digital Future Coalition
    On behalf of the Digital Future Coalition, I thank you for giving 
me the opportunity to express our support for H.R. 107. For 25 years, I 
have taught copyright at the law school of American University here in 
Washington, D.C. At the outset, I wish to stress that I am not speaking 
today on behalf of AU, but rather am testifying in my personal capacity 
and for the DFC, which I helped found nearly a decade ago.
    The DFC is a coalition of 39 trade associations, non-governmental 
organizations and learned societies that was organized during the run-
up to the Digital Millennium Copyright Act of 1998. (A list is attached 
to this testimony.) Its members represent a broad cross-section of the 
educational, high-tech and consumer communities in the United States, 
The constituents of the DFC are creators and users of text, images and 
music, so they understand first-hand the importance of laws that 
achieve a balance between rightsholders' legitimate interests in strong 
protection and the public's interest in reasonable access to 
copyrighted works. Our members support both fair use and intellectual 
property protection. Thus, the DFC strongly endorses H.R. 107, 
introduced by Mr. Boucher and Mr. Doolittle, because it would enhance 
consumer freedom and choice by restoring balance to our copyright laws.
    Before talking in detail about how we got to where we are today, I 
would like to make five points for your consideration.
    First, H.R. 107 presents Congress with the best and possibly last 
clear chance--before it is too late--to reverse the unintended damage 
done to our copyright system by the enactment of Section 1201 of the 
DMCA.
    Second, for over a century and a half, the ``fair use'' of 
copyrighted materials has been essential to the growth of our society 
both commercially and culturally. Without fair use, Disney could never 
have made all the great movies that draw on modern retellings of 
classic fairy tales. Without fair use, our high tech-industry could 
never have become the envy of the world. And without fair use and other 
exceptions in the Copyright Act none of us in this room would have had 
the chance to learn through the use of books and other materials made 
available in libraries, schools and universities throughout the Nation.
    Third, this Committee can promote electronic commerce for the 
benefit of everyone--content owners, device manufacturers, and every 
other industry group sitting in this room today--by properly balancing 
the rights of both copyright owners and information consumers. In a 
world of fair use and strong intellectual property protection, society 
as a whole will benefit.
    Fourth, enactment of H.R. 107 will ensure fairness to your 
constituents by guaranteeing their freedom to make lawful use of media 
products they own. The DMCRA will enhance their ability to move the 
materials they have lawfully acquired among digital devices in the home 
and in the extended home environment, including their cars and vacation 
houses. When consumers can use these digital products more flexibly, 
they will place greater value in this new medium. And as the value of 
digital products increases, the market for them will expand to the 
benefit of all parties, including the creators of music, video and 
text.
    Fifth and finally, in a post-9/11 world, our priorities must 
change. Cyber-security is more important today than ever before. I'm 
not suggesting that we abandon intellectual property protection 
altogether. But the balance must be recalibrated. Prior to 9/11, when 
the DMCA was enacted, Congress clearly tipped the scales towards 
protection. But now, post 9/11, we need to eliminate obstacles to the 
research and testing so important to our collective security. H.R. 107 
carefully recalibrates the balance to allow additional research without 
unduly compromising intellectual property protection.
                the special genius of u.s. copyright law
    Let me begin by describing some of the important characteristics of 
our copyright system as it stood before October 1998. First and 
foremost, that system had been extraordinarily successful in furthering 
the goal the Constitution sets for it: the promotion of ``progress'' in 
``Science and useful Arts.'' In the two centuries following the 
enactment of the first Copyright Act in 1790, the United States enjoyed 
an unequaled and unbroken record of progress that gave us, on the one 
hand, educational institutions and research facilities that are 
preeminent in the modern world, and on the other, entertainment and 
information industries that dominate the global marketplace. Schools, 
libraries and archives benefitted from the operation of our copyright 
system, and the public reaped the reward; likewise, expanding American 
publishing, motion picture, music and software businesses generated not 
only wealth but also less tangible forms of public good. And this was 
as it should be. From its inception, the copyright system has operated 
both as a force for cultural development and as an engine of economic 
growth.
    The success of traditional U.S. copyright law was not due only to 
the extremely high levels of protection it has afforded to works 
falling within its coverage. That success also stemmed from the fact 
that strong protection consistently has been balanced against use 
privileges operating in favor of teachers, students, consumers, 
creators and innovators who need access to copyrighted material in 
order to make--or prepare to make--their own contributions to cultural 
and economic progress. To put the point more simply, the various 
limitations and exceptions on rights that traditionally have been a 
part of the fabric of copyright are not results of legislative or 
judicial inattention; rather, these apparent ``gaps'' in protection 
actually are essential features of the overall design. As the Supreme 
Court observed more than a decade ago, in its Feist decision, the 
limiting doctrines of copyright law are not `` `. . . unforseen 
byproduct[s] of a statutory scheme . . .' ''; in fulfilling its 
constitutional objective, copyright ``assures authors the right to 
their original expression but encourages others to build free upon'' 
preexisting works. And, as the Court recently has reaffirmed in Eldred 
v. Ashcroft, these limiting doctrines are the mechanism by which 
copyright law recognizes and implements the values of free expression 
codified in the First Amendment.
    Over the years, U.S. copyright law has built up a catalogue of 
limitations and exceptions to copyright protection, including:

 The ``idea/expression'' distinction, which assures (among other 
        things) that copyright protection does not attach to the 
        factual contents of protected works;
 The ``first sale'' principle, codified in 17 U.S.C. Sec. 109(a) , 
        which assures that (as a general matter) purchasers of 
        information products from books to musical recordings can sell 
        or lend their copies to others;
 A variety of specific exemptions for educational, charitable and 
        other positive public uses; and, most importantly,
 The ``fair use'' doctrine, found in Sec. 107, which provides--in 
        essence--that some other unauthorized uses of copyrighted 
        works, not specifically covered by the limitations just 
        summarized, should be permitted rather than punished because 
        their cultural and economic benefits outweigh the costs they 
        might impose on copyright owners.
    This particular idea of ``fair use'' has been a central and 
unquestioned feature of U.S. copyright law since 1841, when Joseph 
Story announced the doctrine in the case of Folsom v. Marsh. In a less 
technical sense, of course, all uses authorized under any of the 
limiting doctrines are ``fair'' ones in the collective judgement of two 
centuries of judges and legislators about how to strike the balance in 
copyright law. H.R. 107 would restore the vitality of all of these 
traditional doctrines, which currently are impaired or threatened by 
the anti-circumvention provisions of the DMCA. By restoring the freedom 
of consumers and other information users to make reasonable uses of 
purchased copies of works in digital formats, H.R. 107 would 
reestablish fundamental fairness in our intellectual property law.

                        8THE BENEFITS OF BALANCE

    Before describing more fully the threat that Sec. 1201 of the DMCA 
poses to freedom and fairness--and how H.R. 107 addresses it--it may be 
useful to provide some more specific illustrations of how balance in 
copyright law has served the twin goals of cultural and economic 
progress. It is common to note the self-evident proposition that the 
non-profit educational and library sector depends on limiting doctrines 
for many essential functions. Although schools and libraries are among 
the largest purchasers of copyrighted materials in the United States, 
their most typical and beneficial activities, from classroom teaching 
and scholarly research to the lending of books and other materials, 
would not be possible without the built-in fairness safeguards that 
limitations and exceptions to copyright provide.
    It is less frequently noted that such major information industries 
as motion pictures and computer software came into being not despite 
the fact that filmmakers and programmers were free to copy important 
elements of their predecessors' work, but because of it, and that they 
have continued to prosper under these conditions; likewise, is critical 
to a wide range of practices within the publishing and music 
industries. It would not be going too far to say that the creativity 
and innovation that copyright exists to promote are fueled as much by 
the ``gaps'' in the law as they are by its strong protections; this is 
a point that individual creative artists understand well from direct 
personal experience--even though large copyright-owning media companies 
sometimes lose sight of it. Although the entertainment industries are 
legitimately concerned about ``piracy'' of copyright works, it is 
important not to confuse the activities they rightly condemn with the 
ordinary, lawful exercise of use privileges conferred by the Copyright 
Act itself.
    Equally important, limitations and exceptions to copyright law 
operate to the direct and immediate benefit of consumers. It is because 
of these limiting doctrines that we all can make a broad range of 
personal uses of the contents of information products we purchase, 
without fear of legal liability. Thus, to cite only a few obvious 
examples, students can copy texts or images from published sources to 
enhance a term paper or homework assignment; book buyers can dispose of 
unwanted volumes at a charity sale; and music fans can combine 
selections from their personal record collections to make ``mixes'' for 
a family member's birthday or anniversary celebration, without any 
concern that by doing so they will violate traditional copyright 
principles. Nor is this all. Ultimately, it is the freedom to read, 
listen and view information products assured by these limiting 
doctrines that enables many consumers of copyrighted content to become 
producers--to move from absorbing and repeating the words, images and 
notes of others to making their own creative contributions to the 
general fund of cultural resources.

         THE BACKGROUND OF THE DMCA--PIRACY AND ``BLACK BOXES''

    In the debates leading up to the Digital Millennium Copyright Act 
of 1998, Congress heard that copyright piracy was a growing domestic 
and international threat, and that digital technology exacerbated that 
threat. It heard, too, that copyright industries were beginning to use 
technological measures to protect themselves against piracy--something 
that they had and have every right to do. And it heard that there are 
different reasons why someone might want to avoid or ``circumvent'' 
such technological protections: bad reasons, like the large-scale 
unauthorized redistribution of copyrighted works, and good reasons, 
like discovering the structure of a dangerous computer virus, or making 
public the text of a password protected file detailing corporate 
wrongdoing, or commenting on an encrypted text in a work of 
scholarship, or making electronic texts available to library patrons 
who live far from a bricks and mortar branch--all the latter being 
otherwise lawful activities and as far as can be from ``piracy,'' 
however that term is defined. The record shows that Congress acted on 
the understanding that it was cracking down specifically on 
circumvention in aid of piracy and on what might be called ``bad 
faith'' circumvention devices--that is, ``black boxes'' designed and 
marketed specifically to facilitate copyright infringement, whether 
offered to the public as such or under some justifying pretext.
    In fact, the Congress did much more, creating a new legal 
environment in which many traditional and intentional ``gaps'' in the 
copyright system can be effectively filled by legally-enabled 
technological measures. For example, if encryption prevented a student 
from taking a single digital image from an article to use in an 
electronic term paper, the DMCA would effectively bar circumvention for 
that purpose, even though it would represent a core in conventional 
copyright analysis. Even if we could imagine a device that would have 
the sole and specific purpose of avoiding technological measures to 
enable this kind of core ``fair use,'' Sec. 1201(b) would make it 
unavailable; in banning technologies, that section asks only whether 
they are made available for circumvention purposes--not whether they 
abet ``good'' circumvention or ``bad'' circumvention.

                         THE IMPACT OF THE DMCA

    The anti-circumvention provisions of the DMCA are a blunt 
instrument. Today, for example, it would be illegal for a mother to use 
circumvention technology to skip past promotions for other movies at 
the beginning of a DVD, whether because she deems them inappropriate 
for her young children or after she herself has been forced to see the 
same ads over and over. It would be unlawful for a child to make a one-
minute digital excerpt from a copy-protected electronic encyclopedia to 
include in a multimedia project for a school music class. Similarly, it 
would be a violation of Sec. 1201 for a professor of computer science 
to work with his class to test scrambling technology meant to block 
terrorists from accessing sensitive first-responder communications.
    In the anti-circumvention provisions of the DMCA, Congress put 200 
years of legal, cultural and economic achievement at risk. Rather than 
promoting long-term security for copyright owners, the DMCA has 
actually done the opposite. Its enactment has helped to trigger a 
disastrous public decline in the public respect for copyright on which 
the success of our system depends. H.R. 107 would undo this misstep--
preserving the essential features of Sec. 1201 while correcting its 
excesses.
    It is notable that, in the last five years, most of the publicized 
invocations of Sec.1201 have had nothing whatsoever to do with 
copyright piracy. Instead, we have seen the anti-circumvention 
provisions used (or their use threatened) to restrict ordinary 
consumers' abilities to do with lawful digital copies of works in 
analog media the same things they are accustomed to doing with analog 
copies: to prevent them from copying recordings of music for personal 
use, playing European video games in the U.S., skipping offensive 
portions of a recorded movie in the course of playback, or even reading 
a book when and where the reader likes--if it happens to be an e-book. 
Perhaps most remarkably, the DMCA has been invoked in an effort to keep 
a small company from bringing a universal garage door opener to market 
and another company from offering consumers a cheaper cartridge for 
their home printers. This should be of great importance to this 
Committee. A wide range of products, from toaster ovens to jet 
aircraft, contain software embedded in microchips. How the courts apply 
the DMCA in these cases will have an enormous impact on competition in 
the aftermarket for all these products.
    Likewise, the DMCA has been invoked to suppress important research 
and critical commentary on computer security systems and other 
software. This is no trivial matter. Although the DMCA includes narrow 
exceptions for security testing and encryption research, the world of 
2004 is very different from the world of 1998. We now have a far 
greater understanding of the importance of cyber-security, and of the 
danger we all face from cyber-terrorism. Regardless of what one thinks 
of Richard Clark's recent book, it is significant that while still in 
the White House he recognized the inadequacy of the DMCA's exceptions 
and called for an amendment to the DMCA precisely because of its 
harmful unintended impact on cyber-security research and development.
    Even farther afield from piracy, the act's provisions have been 
manipulated in efforts to create de facto monopolies in computing 
hardware and a general purpose prohibition on computer network access. 
In sum, far from promoting the cultural and economic progress that 
intellectual property laws exist to foster, most invocations of the 
DMCA have had just the opposite effect.
    It is crucial that in our anti-circumvention legislation we now 
attempt to find our way back to the basic values of American copyright. 
If we do not, we can only expect further excesses in the use of Sec. 
1201: to prevent journalists from publishing copy-protected documents 
obtained from whistle-blowers, or consumer advocates from investigating 
the efficacy or safety of new products incorporating computer programs; 
to undermine the ability of teachers to make otherwise lawful use of 
digital works in network-based lessons; to exact license fees from 
students quoting electronic content in their schoolwork; or to put 
high-tech bars around non-copyrighted facts that the Supreme Court has 
said should be free for all--this last perverse result being possible 
because current law bars the circumvention of technological measures 
applied to protected works as a whole, even those containing mainly 
unprotected facts with a small amount of original commentary. Under 
existing Sec. 1201, technological measures could even be used to ration 
the availability of electronic books to young people in rural 
communities, for whom library websites on the Internet are likely to 
become an important information lifeline.
    The last example is not a far-fetched one. If our goal is to 
preserve fair use and the other important use rights in copyright law, 
we cannot do so simply by safeguarding existing practices. In 1970, few 
could have foreseen how new decompilers would empower software 
development; in 1980, most of us could not have guessed at the 
importance of time-shifting using home video-recorders; and in 1990, 
the use of thumbnail images on the web--the display of which was 
recently determined by the Ninth Circuit Court of Appeals to be a --was 
unknown. Sweeping, general anti-circumvention legislation threatens the 
development of new--as yet unimagined-- ways for students, consumers, 
innovators and others to share fully in the fruits of the information 
revolution. Eliminating this threat is not a matter of expanding users' 
rights, but of carrying them forward into a new technological setting.

                THE INADEQUACY OF THE DMCA'S SAFEGUARDS

    From the legislative history of the DMCA, it appears clearly that 
not only did members of Congress in general --and the Energy and 
Commerce Committee in particular--understand that by enacting Sec. 1201 
they were striking a blow against piracy and black boxes, but also that 
they shared a general concern about the fate of fair use under the new 
anti-circumvention regime. At that time, many members (as well as a 
number of academic observers of intellectual property legislation) 
believed that the ``savings'' provision of Sec. 1201(c) would operate 
to preserve traditional copyright values in this new context.
    Unfortunately, this has not proved to be the case. Authoritative 
judicial interpretations have made it abundantly clear that there is no 
fair use exception to Sec.1201, and that the savings provision actually 
saves nothing of real significance; properly understood, it merely 
states the truism that this ``paracopyright'' legislation (as anti-
circumvention rules sometimes are termed) does not have a direct effect 
on the operation of the underlying copyright law itself. As has already 
been indicated, however, the real cause for concern is the indirect 
effect of the legislation on the traditional use privileges that it 
makes difficult or impossible for consumers to exercise in practice. 
Likewise, the narrowly defined exceptions to the anti-circumvention 
regime provided in Secs. 1201(d)-(j), although they provide adequately 
a few specific areas of traditional fair use (such as decompilation for 
reverse engineering in computer software development) are largely 
unavailing for most information consumers and innovators.
    Moreover, the periodic Library of Congress rule-making provided for 
in Sec. 1201(a)(1) has proven wholly inadequate as a mechanism to 
counter the threats that anti-circumvention laws pose to traditional 
use privileges. This rule-making procedure is marked by several major 
shortcomings. First, as interpreted by the Copyright Office, the grant 
of authority to craft new exceptions applies only to descriptive 
categories of works (like encyclopedias, or computer operating system 
programs, or popular novels) rather than functional ones (like works 
important to scientific research, or subject to ``thin'' rather than 
``thick'' copyright protection). This constraint alone makes the task 
of crafting meaningful exceptions difficult or impossible.
    Were this not enough, where the issue of harm is concerned the 
Copyright Office's interpretation of the statutory grant imposes an 
exceptionally high standard of concrete proof on the proponent of any 
new exception. In an environment of rapid technological and commercial 
change, the practical effect of this standard is crippling. This 
problem is so acute that in October 2000, following the first rule-
making, the Librarian of Congress wrote to ask Congress ``to consider 
developing more appropriate criteria for assessing the harm that could 
be done to American creativity by the anti-circumvention provision . . 
.,'' stating that ``[a]s presently crafted, the statute places 
considerable burdens on the scholarly, academic, and library 
communities to demonstrate and even to measure the required adverse 
impacts on users.'' Similarly, the Assistant Secretary of Commerce, 
with whom the Copyright Office must consult concerning the rule-making, 
wrote in August 2003 that the standard employed by the Copyright Office 
``imposes a significantly heightened burden on proponents of an 
exemption, and is therefore inconsistent with the opportunity that 
Congress intended to afford the user community.'' It is noteworthy, 
therefore, that although numerous instances of harm from anti-
circumvention were presented to the second rule-making proceeding, 
completed in 2003, only one very limited new exception (for e-book 
editions programmed to exclude literally all uses by disabled readers) 
emerged from the lengthy and carefully conducted process.
    Finally--and perhaps most significantly--any exceptions to Sec. 
1201(a)(1) allowed by the Librarian are likely to be hollow promises, 
because other provisions of the DMCA (not subject to the rule-making) 
still make the technology to implement them unavailable. The modest 
carve-out for the circumvention of obsolete technological measures in 
the year 2000 rule, for example, is of no value to anyone who cannot 
build the necessary circumvention tools for himself or herself.

                  THE ALTERNATIVE APPROACH OF H.R. 107

    Because it takes the dynamism of information use practices and 
information technology fully into account, the approach of H.R. 107 can 
succeed where other ways of making space for consumers and competitors 
within an anti-circumvention regime inevitably will fail. As has 
previously been noted, Congress intended in 1998 to crack down on 
copyright piracy and the market in black boxes. As revised by H.R. 107, 
Sec. 1201 would continue to be tough on both. But the bill also would 
restore the balance of copyright by assuring that tomorrow's consumers 
and innovators can employ the best technology to read, view, listened 
to and learn from material created by others. It accomplishes this in 
four straightforward provisions:

 The CD labeling language assures that consumers will not be misled 
        into buying digital products that will not permit the full 
        range of uses otherwise allowed in copyright law. (Proper 
        labeling actually would diminish a consumer's need to 
        circumvent. If a consumer purchases a product only to discover 
        that it will not play on his computer, that consumer might 
        consider circumventing the technological protection in order to 
        get his money's worth. However, if the product were properly 
        labeled, the consumer would not buy it in the first place.) 
        Alone, however, this is not enough. Thus, other provisions of 
        the bill would modify Sec. 1201 itself.
    Sec. 1201 now applies civil and criminal penalties to circumvention 
for any and all purposes, good or bad, unless they are covered by a few 
narrowly defined exceptions. Thus, H.R. 107 also includes:

 A new exemption for computer security research that is broad enough 
        to cover a wide range of activities crucial to the progress of 
        science--and the national defense;
 Amendments to Sec. 1201(a)(1) assuring that consumers will never be 
        sued or prosecuted for making other lawful use of a CD, e-book, 
        or digitized image; and
 Provisions making certain that what is theoretically permitted also 
        will be practically possible, by ensuring that end-users can 
        get the tools they need to engage in permitted practices. By 
        incorporating the Supreme Court's time-tested Sony ``Betamax'' 
        standard, this part of the bill gives courts the tools they 
        need to make sure that vendors of true black boxes--i.e. 
        devices with limited purposes other than to enable wrongful 
        circumvention--cannot avoid the full weight of the law.
    Importantly, H.R. 107 would do nothing to diminish copyright 
owners' ability to prosecute infringers for copyright infringement. The 
content industries may assert that without sweeping, general anti-
circumvention legislation they cannot protect their rights in the 
Internet environment. The record suggests otherwise--as, for example, 
the recording industries' current enforcement campaign against 
individual participants in P2P networks demonstrates the continued 
vitality of traditional copyright enforcement. In fact, the same 
digital technologies that enable unauthorized trafficking in copies of 
protected works also facilitate the tracking of the individuals who 
engage in such trafficking. H.R. 107 would give copyright owners still 
more tools to use in pursuing and punishing bad actors, without 
burdening the rest of the American public. If there are, and there well 
may be, specific contexts in which still more protections are required 
to assure the security of particular kinds of content, these situations 
can be dealt with through specific legislative and regulatory 
provisions. Such a targeted approach to enhanced anti-circumvention 
protection has the virtue of addressing problem areas in which there 
are real, demonstrated needs while leaving consumers and competitors 
generally free to engage in otherwise lawful practices.

               CONCLUSION: THE INTERNATIONAL PERSPECTIVE

    In closing I would note that not only should Congress seize the 
opportunity presented by H.R. 107 to restore the historic balance 
founded on freedom and fairness that the DMCA has disturbed, but that 
it clearly possesses the authority to do so consistent with the 
international obligations of the United States. The only multilateral 
agreements dealing with the issue of anti-circumvention are the WIPO 
Copyright Treaty and WIPO Performances and Phonograms Treaties of 1996. 
Clearly, those treaties do not require the rigid and inflexible 
approach adopted in Sec. 1201of the DMCA. Indeed, these relevant 
provisions of the treaties directly contemplate exceptions to national 
anti-circumvention legislation for uses that are the subject of 
exceptions and limitations to copyright itself. As the foremost experts 
on the treaties have put it, they ``contain[] no obligation to protect 
technological measures in areas where . . . limitations or exceptions 
to the rights exist under domestic law and thus have `permitted by law' 
the use of the protected works.'' [Jorge Reinbothe and Silke von 
Lewinski, The WIPO Treaties--1996 146 (2002).]
    In fact, when the legislation that became the DMCA was pending, Mr. 
Boucher put this question to the Commissioner of the Patent and 
Trademark Office, the lead official for the Administration in 
negotiating the treaties and then selling the implementing legislation 
to Congress:
          Mr. Boucher. ``Within the confines of the treaty and its 
        legal requirements, assuming that we ratify it, could we meet 
        those requirements by adopting a conduct oriented approach as 
        opposed to a device oriented approach?
          Mr. Lehman. In my personal view--it has not been cleared 
        through the whole Administration, the Department of Justice and 
        so forth--In my personal view, the answer is yes . . .
[H.R. 2281, WIPO Copyright Treaties Implementation Act and H.R. 2180, 
Online Copyright Liability Limitiation Act, Hearing before the 
Subcommittee on Courts and Intellectual Property, 105th Cong., 2d Sess. 
62 (1997).]
    As the same experts I quoted previously have candidly acknowledged, 
it is not clear how the treaties foresee prohibitions against the 
manufacture and distribution of circumvention technologies being 
adapted to accommodate limitations and exceptions under domestic law. 
On this issue, the solution offered by H.R. 107--that of transposing 
the Sony standard into the context of anti-circumvention legislation--
represents a creative approach that, in my opinion, is fully defensible 
within the scheme of existing international law.
    In sum, H.R. 107 deserves enthusiastic and general support. We urge 
you to work with your colleagues to enact this vitally important 
bipartisan legislation into law.
    Thank you for this opportunity to share my views, and those of the 
Digital Future Coalition, with the Subcommittee.

    Ms. Bono. Thank you very much. I understand we have a 
former counsel who has worked with us quite a bit. Welcome 
back.
    Ms. Rose, you have your 5 minutes, please.

                     STATEMENT OF DEBRA ROSE

    Ms. Rose. Thank you. Madam Chairman, I appreciate the 
opportunity to testify on behalf of the Entertainment Software 
Association regarding H.R. 107, the Digital Media Consumers' 
Rights Act. ESA strongly opposes H.R. 107 because it will 
substantially harm the entertainment software industry in two 
ways.
    It eliminates the measures Congress put in place in the 
DMCA which video game publishers rely on to help protect their 
products against unauthorized use. Two, it will stifle the 
growth of the industry through unnecessary Government 
regulation of the labeling of media products instead of 
allowing private industry to inform consumers of the 
permissible uses of their products.
    ESA members publish video and computer games including 
games for video game consoles, personal computers, handheld 
devices, and the Internet. ESA members produce more than 90 
percent of the $7 billion in entertainment software sold in the 
United States in 2003. With worldwide video game revenue now 
exceeding $25 billion the industry is one of the fastest 
growing of all entertainment sectors.
    This industry has more than doubled in size since the mid-
1990's generating thousands of highly skilled jobs in the 
creative and technology fields. Our industry makes a tremendous 
investment in its intellectual property. A typical video game 
now takes 2 or 3 years to create at a cost of $5 to $10 million 
and sometimes double that.
    Unlike most other entertainment products, video games enjoy 
a very short commercial window in which to produce a return on 
these investments. As a result, only a small percentage of game 
titles actually achieve profitability. In this market 
environment it is easy to understand how devastating piracy and 
added Government regulation would be to this industry siphoning 
revenue required to sustain the enormously high cost necessary 
to continue producing video games.
    The digital environment allows users of electronic media to 
copy, send, and retrieve perfect reproductions of copyrighted 
material easily and nearly instantaneously to or from locations 
around the world. In response Congress ought to make digital 
networks safe places to disseminate copyrighted works for the 
benefit of consumers and copyright owners.
    In 1998 Congress enacted the DMCA which prohibits the 
circumvention of technological measures that effectively 
control access to copyrighted work and the manufacturer's sale 
of devices that permits such circumvention. The protections 
afforded by the DMCA are essential to the vitality and 
continued growth of the entertainment software industry.
    Game products are produced and exist only in digital format 
and are used exclusively on electronic media devices. Given the 
existing levels of hard goods and Internet piracy game 
publishers use an array of technological protection measures to 
regulate unauthorized access and use of the game content.
    H.R. 107 eliminates the protections of the DMCA and opens 
the floodgates for massive piracy of video games and other 
copyrighted works. H.R. 107 would permit the circumvention of 
access controls if it does not result in infringement and the 
manufacture and sale of circumvention devices that are capable 
of enabling significant noninfringing use of a copyrighted 
work.
    This seemingly innocuous proposal undermines the 
protections of the DMCA and renders it meaningless. H.R. 107 
legalizes trafficking and hacking tools. The stark reality is 
that no technology exist to ensure that circumvention is only 
done for legitimate noninfringing uses. Any technology or 
device capable of enabling significant noninfringing use is 
also capable of permitting rampant piracy.
    Once the technological protection measure protecting a 
video game is circumvented, that game is unprotected or in the 
clear. The single copy envisioned by the proponents of H.R. 107 
will quickly become thousands of equally high quality copies 
distributed instantly around the world. H.R. 107 would legalize 
circumvention devices and allow pirate game product to grow 
beyond the already billions of dollars worth available in 
worldwide markets today.
    H.R. 107 will undo the carefully balanced resolution which 
Congress under the guidance of this committee enacted in the 
DMCA to address the issue of fair use. Congress considered and 
rejected this same proposal several times during the debate on 
the DMCA. Instead Congress balanced the new protections by 
creating a triennial rulemaking process conducted by the 
Librarian of Congress to evaluate the impact of circumvention 
prohibitions on consumers' ability to make noninfringing uses 
of copyrighted works and to issue exemptions as necessary.
    Since the enactment of the DMCA the Librarian has conducted 
two rulemakings and in both did not find any evidence to 
warrant a blanket exemption from the DMCA for circumvention 
devices that allow consumers to make noninfringing uses.
    Let me be clear. This well-designed rulemaking enacted by 
Congress is working. Consumer interests are protected. H.R. 107 
would render it useless to video game publishers because 
trafficking in circumvention devices to commit video game 
piracy would be legal and the entertainment software industry 
would enter a very, very dark age.
    H.R. 107 also includes an onerous labeling requirement for 
music CDs. While it does not seek to regulate labeling of video 
games, it does set an unwise precedent which could lead to 
burdening this industry with new regulatory requirements that 
do not provide added benefit to our consumers.
    The entertainment software industry has a strong and 
proactive track record of voluntarily providing information 
about our products and the permissible uses to its customers. 
Our industry's consumers know and understand the nature of our 
games and the devices on which they are played. Private 
industry is in the best position to determine legitimate 
consumer expectations, not the Federal Government.
    In conclusion, ESA urges this subcommittee to reject the 
proposals in H.R. 107 once and for all. Both the video game 
industry and its consumers have benefited from the DMCA because 
more digital entertainment products are being made available to 
the public in user-friendly formats.
    If H.R. 107 were to be enacted, everyone loses. Thank you.
    [The prepared statement of Debra Rose follows:]

   Prepared Statement of Debra Rose, Senior Legislative Counsel, The 
                   Entertainment Software Association

    Thank you Mr. Chairman for the opportunity to discuss H.R. 107, the 
``Digital Media Consumers' Rights Act.'' I appear on behalf of the 
Entertainment Software Association (ESA). I joined ESA in January of 
this year, after serving as counsel on the House Judiciary Committee, 
Subcommittee on Courts, the Internet, and Intellectual Property for the 
past seven years. It is an honor to testify before you, Chairman 
Stearns, Ranking Member Schakowsky, and Members of the Subcommittee, on 
these important issues.
    ESA strongly opposes H.R. 107 because it will substantially harm 
the entertainment software industry in two ways: 1) it eliminates the 
protections created by Congress in the ``Digital Millennium Copyright 
Act (DMCA)'' for technological measures which video game publishers use 
to protect their products against unauthorized use; and 2) it will 
stifle the growth of the digital marketplace through unnecessary 
government regulation of the labeling of media products instead of 
allowing private industry to inform consumers of the permissible uses 
of their products.
    The ESA serves the business and public affairs interests of 
companies that publish video and computer games, including games for 
video game consoles, personal computers, handheld devices, and the 
Internet. ESA members produced more than 90 percent of the $7 billion 
in entertainment software sold in the United States in 2003. In 
addition, ESA's member companies generated billions more in exports of 
American-made entertainment software, helping to power the $20 billion 
global game software market. The entertainment software industry is one 
of the nation's fastest growing economic sectors, more than doubling in 
size since the mid-1990's and in so doing, has generated thousands of 
highly skilled jobs in the creative and technology fields.
    Our industry makes a tremendous investment in its intellectual 
property. For an ESA member company to bring a top game to market, it 
often requires a team of 20 to 30 professionals--sometimes twice that 
number--working for two to three years to fuse together the work of 
writers, animators, musicians, sound engineers, software engineers, and 
programmers into an end-product which, unlike other entertainment 
products, is interactive. On top of these research and development 
costs, publishers will invest at least $5 to $10 million to market and 
distribute the game. The reality of the marketplace is that games enjoy 
a very short commercial window in which to produce a return on these 
investments as the vast majority of a game's sale occurs within the 
first two months after the game is released. As a result, only a small 
percentage of game titles actually achieve profitability, and many more 
never recover their front-end R&D costs. In this market environment, it 
is easy to understand how devastating piracy and added government 
regulation can be, siphoning revenue required to sustain the enormously 
high creative costs necessary to produce commercially profitable video 
games. It is also the reason why technological protection measures play 
such a vital role in game publishers' efforts to protect their 
products' commercial viability.

                              I. THE DMCA

    The digital environment allows users of electronic media to copy, 
send, and retrieve perfect reproductions of copyrighted material easily 
and nearly instantaneously, to or from locations around the world. In 
response, the DMCA sought to make digital networks safe places to 
disseminate copyrighted works for the benefit of consumers and 
copyright owners.
    The DMCA was the foundation of an effort by Congress to implement 
United States treaty obligations and to move the nation's copyright law 
into the digital age. The DMCA implements two 1996 World Intellectual 
Property Organization (WIPO) treaties: the WIPO Copyright Treaty and 
the WIPO Performances and Phonograms Treaty.
    Specifically, the treaties require legal prohibitions against 
circumvention of technological protection measures employed by 
copyright owners to protect their works. Congress determined that 
current law did not adequately protect digital works and that to 
promote electronic commerce and the distribution of digital works, it 
was necessary to provide copyright owners with legal tools to prevent 
widespread piracy. As a result, Title I of the DMCA implements the 
treaty obligations by creating a new prohibition in the Copyright Act 
on circumvention of technological protection measures.
    Title I of the DMCA added a new chapter 12 to the Copyright Act. 
Section 1201 divides technological measures into two categories: 
measures that prevent unauthorized access to a copyrighted work and 
measures that prevent unauthorized copying of a copyrighted work. 
1201(a) prohibits the act of circumventing access controls and the 
manufacture or sale of devices that permit such circumvention. 1201(b) 
prohibits the manufacture or sale of devices that circumvent copy 
controls.
    Congress balanced these new protections by ensuring consumers would 
continue to have the ability to make certain legitimate uses of 
copyrighted works in the digital environment. Congress created a tri-
annual rule-making process conducted by the Librarian of Congress to 
evaluate the impact of the circumvention prohibitions on consumers' 
ability to make fair use of copyrighted works and to issue exemptions 
as necessary. Since the enactment of the DMCA, two such rule-makings 
have been successfully conducted by the Librarian.
    The protections afforded by the DMCA are essential to the vitality 
and continued growth of the entertainment software industry. Game 
products are produced and exist only in digital format and are used 
exclusively on electronic media devices. Given the rampant hard goods 
and Internet piracy--with piracy levels that reach as high as 80% and 
95% in some markets--game publishers must utilize technological 
measures to have a chance at recouping the tremendous investment that 
is required today to bring a successful game to market.
    The entertainment software industry uses an array of technological 
protection measures (TPMs) on its various products, including those for 
personal computer, console, and handheld games. For example, video game 
consoles have built-in access controls designed to prevent the playing 
of counterfeit versions of the games. These self-help protection 
methods act as ``digital locks,'' that regulate unauthorized access to 
the game content.
    Video game consumers consistently report a high level of 
satisfaction with their purchase and use of game products. In other 
words, the use of TPM's has not interfered with the entertainment 
software industry's ability to meet consumer expectations with regard 
to access, play, portability, and ability to make full use of a game 
title.
    The DMCA ensures that game publishers have legal recourse against 
those who circumvent protection measures or manufacture and distribute 
products that enable circumvention. Without this protection, 
development and digital distribution of new products becomes an 
exceedingly risky proposition because publishers place at considerable 
risk the tens of millions of dollars spent in developing and marketing 
game products. On the other hand, as has been shown during in the two 
1201 rulemakings, both copyright owners and consumers have benefited 
from the DMCA because more digital entertainment products are being 
made available to the public in user-friendly formats.

 II. H.R. 107 ELIMINATES DMCA PROTECTIONS AND LEGALIZES CIRCUMVENTION 
                                DEVICES

    Under the misleading title of ``Fair Use Amendments,'' section 5 of 
H.R. 107 eliminates the protections of the DMCA and opens the flood 
gates for massive piracy of copyrighted works.
H.R. 107 Legalizes Trafficking in ``Hacking'' Tools
    Section 5(b)(1) amends Title 17 to state that it is not a violation 
of law to circumvent a technological measure that controls access to a 
copyrighted work, if the circumvention does not result in an 
infringement of the work. Section 5(b)(2) further states that it is not 
a violation of law to manufacture, distribute, or make non-infringing 
use of a hardware or software product capable of enabling significant 
non-infringing use of a work.
    While these proposals are described as reasonable and necessary by 
the supporters of H.R. 107, the stark reality is that no technology 
exists to ensure that circumvention is only done for legitimate fair 
use purposes. Any technology or device capable of ``enabling 
significant non-infringing use'' is also capable of permitting rampant 
piracy. In fact, at a recent Digital Rights Management Conference, 
Professor and leading DMCA-critic Edward Felten acknowledged, ``The 
answer, I think, right now, is that we don't know how to do that. Not 
effectively,'' in response to the question of whether it was possible 
to develop technologies that would allow circumvention for fair uses 
without opening up the Pandora's box and essentially repealing the 
anti-circumvention laws.
    In addition, once a TPM is circumvented, the game is unprotected or 
in the clear. The resulting copy is a perfect copy that can be 
available for any purpose, not just fair use. In the digital world of 
today, the ``single copy'' envisioned by supporters of H.R. 107 will 
quickly become hundreds, or thousands, of equally high-quality copies 
distributed instantly around the world. As ESA's President, Doug 
Lowenstein, recently testified in a Senate Subcommittee hearing on 
international and domestic enforcement of intellectual property laws, 
``Billions of dollars worth of pirated entertainment software products 
are present in worldwide markets today.'' Today, there are illegal 
devices such as ``mod chips'' and ``game copiers'' which circumvent 
access controls and allow for play of counterfeit games. H.R. 107 would 
legalize these devices and pave the way for uncontrollable and massive 
piracy.
    The use of TPMs reflects a technological attempt by rights holders 
to prevent the illegal use and copying of their products. When they are 
not hacked and work effectively, TPMs save the games industry millions 
of dollars per year in losses to piracy. Game companies spend 
substantial sums for the use of TPMs in protecting their games. Some 
game companies have gone even further and have developed their own 
proprietary TPMs to protect their product. All of the industry 
expenditures on preventative measures not only protect industry from 
the financial damages caused by piracy but also save taxpayers and law 
enforcement millions of dollars by protecting such legitimate commerce 
from criminal activity and also benefit consumers by encouraging 
widespread dissemination of copyrighted materials through legitimate 
channels.
    The DMCA anti-circumvention provisions were enacted to help 
incentivize such private sector expenditures on and investment in 
preventative measures by providing remedies against devices that 
undermine such measures. H.R. 107 would vitiate such incentives and 
thereby foster a greater reliance on law enforcement and government 
resources to address the resulting increase in the volume of illegal 
products. Courts and law enforcement would be additionally burdened 
wile commerce in legitimate products would be reduced in the face of 
competition with illegal counterparts, resulting in additional losses 
to taxpayers.

H.R. 107 Undoes what Congress Accomplished in 1998
    H.R. 107 will undo the carefully balanced resolution which Congress 
enacted in the DMCA to address the issue of ``fair use.'' Because it is 
impossible to limit the use of circumvention devices to only ``fair 
uses,'' Congress rejected this same proposal, several times in fact, 
when considering the DMCA in 1998. Representative Boucher advocated the 
so-called ``fair use'' exemption in both the Commerce and Judiciary 
Committees and both Committees rejected it. Instead, to ensure 
consumers the continued ability to make fair use of copyrighted works 
in the digital environment, Congress, under the leadership of the 
Commerce Committee, created a ``failsafe'' procedure.
    Every three years, the Librarian of Congress, in conjunction with 
the Copyright Office and the Commerce Department, initiates a review of 
whether public access to copyrighted materials is being harmed or 
threatened as a result of the circumvention prohibition in the DMCA. 
If, after holding hearings and reviewing testimony, there is evidence 
to support the claim that users are not able to make non-infringing use 
of a class of works, the Librarian may exempt persons who engage in 
noninfringing uses of works in that class from the prohibition against 
circumvention of access controls.
    Since the enactment of the DMCA, the Librarian has conducted two 
rulemakings and issued significant exemptions. In both rulemakings, and 
particularly the most recent which was completed just last year, the 
Librarian considered and rejected the broad proposals contained in 
section 5 of H.R. 107. The Librarian did not find any evidence to 
warrant a blanket exemption from the DMCA for circumvention devices 
that allow consumers to make noninfringing uses.
    To get directly to the point, the well-designed rulemaking enacted 
by Congress in 1998 is working. H.R. 107 would render it useless 
because all circumvention devices would be legal. Trafficking in of 
such circumvention devices to commit video game piracy would 
essentially be legal and the entertainment software industry would 
enter a very, very dark age.

   III. H.R. 107 CREATES UNNECESSARY GOVERNMENT REGULATION OVER THE 
       LABELING OF MEDIA PRODUCTS, STIFLING DIGITAL MARKET PLACE

    H.R. 107 would require every copy-protected music CD to include in 
its labeling a notice prescribed by the Federal Trade Commission (FTC) 
informing consumers of the restrictions on the CD's playability and 
recordability. While H.R. 107 currently pertains only to music CDs, 
legislation in the Senate would apply similar onerous labeling 
requirements on all digital content.
    The entertainment software industry has a strong and proactive 
track record in voluntarily providing information about our products to 
customers. Consumers of video games have known and accepted for years 
that video game hardware systems and computer and video game software 
are copy-protected in various ways. For example, there is no legitimate 
expectation on the part of consumers to copy a PlayStation game for use 
on a GameCube or an Xbox, or to copy a PC game for use on a dedicated 
game console. Our industry's consumers know that the games they 
purchase are embedded with certain technological restrictions.
    Under the bill, the FTC would be given sweeping new regulatory 
powers to promulgate new labeling requirements on an annual basis. A 
rulemaking by an agency unfamiliar with multiple emerging digital 
protective technologies and consumer expectations is unwise and likely 
to lead to misguided regulation--consumer expectations can vary 
tremendously by product type--expectations about music and other 
copyrighted products are often very different than those concerning 
video games. Indeed, in its 2001 report to Congress, the U.S. Copyright 
Office said, ``In any event, these issues of consumer expectations and 
the growth of electronic commerce are precisely what should be left to 
the marketplace to determine.''
    We oppose mandated labeling proposals because we believe they are 
unnecessary, they impose government into private sector business 
licensing practices, and they assume that the federal government is 
better able to determine ``legitimate consumer expectations'' than the 
free market.
    The marketplace, not Congress or the FTC, is where legitimate 
consumer expectations over product use or access should be mediated. 
The computer and video game industry is a perfect example of this 
marketplace success--an industry whose products have always included 
protection from unauthorized copying and distribution, whose consumers 
have accepted and understood these use and access restrictions, and 
whose relationship with these consumers has made us the fastest growing 
segment of the entertainment industry. Our industry's consumers know 
our products and their uses because of the unique nature of our games 
and the devices on which they are played. Burdening this industry with 
new regulatory requirements would provide no added benefit for our 
consumers, and is a classic example of trying to ``fix something that 
isn't broken.''

    Ms. Bono. Thank you very much. I understand the next two 
panelists are going to share your testimony.
    Mr. Murray and Ms. Sohn, you have 5 minutes to share 
amongst you.

                     STATEMENT OF GIGI SOHN

    Ms. Sohn. My name is Gigi Sohn and I am President of Public 
Knowledge. Thank you, Madam Chairwoman, and other distinguished 
members of the subcommittee. Chris Murray, Legislative Counsel 
for Consumers Union, joins me. We are presenting this testimony 
on behalf of our organizations and the Consumer Federation of 
America. We want to thank the subcommittee for giving us this 
opportunity to give a consumer perspective on H.R. 107.
    We strongly support H.R. 107 because it is a narrowly 
tailored bill that corrects some of the major imbalances in our 
copyright law that were unintentionally created by the DMCA. 
These balances have done great damage to long recognized rights 
of consumers to make lawful uses of copyrighted content.
    I just have to add that I think it is kind of sad to hear 
the recording industry and the motion picture industry refer to 
consumers, their customers, as criminals. Digital technology 
allows content to be more easily available, mobile, and 
transferrable to a range of innovative devices. It is ironic 
then that a law that was intended to move consumers into an age 
of technological abundance has actually taken technology out of 
their hands.
    H.R. 107 protects consumers in two ways. First, it requires 
labeling on copy-protected compact disks so that consumers can 
make informed choices about the digital media they buy. The 
market place works best when consumers have more information, 
not less.
    Second, H.R. 107 clarifies and reinstates the original 
intention of Congress that the anti-circumvention provisions of 
the DMCA not override the consumer's right to make lawful uses 
of digital content. There has been a lot of focus today about 
making backup DVD copies. What about being able to play the 
digital media that you buy on your device of choice or the 
ability to fast-forward through advertisements? That has 
nothing to do with piracy.
    It was the Commerce Committee that was the most concerned 
about the effect this prohibition would have on consumer's 
rights and technological innovation. Two sections of the DMCA 
were intended to protect consumer rights. Section 1201(c), 
which preserves the fair use protections of the Copyright Act 
and Section 1201(a)(1) which requires the Copyright Office to 
conduct a proceeding to determine whether exemptions from the 
anti-circumvention provisions are necessary.
    As Chris will discuss, these protections have been a 
failure in practice. The inability to distinguish between a 
copy control and access control has rendered the fair use 
protection virtually worthless and the Copyright Office has 
interpreted the burden of proof for an exemption so narrowly 
that only four exemptions have been granted in 6 years. This 
fail-safe mechanism has failed.
    You have heard dire predictions today that should H.R. 107 
pass, the content industry would suffer irreparable damage. You 
will hear them again I assure you just as you heard dire 
predictions about audio tapes and the VCR. But history suggests 
that our copyright system is not quite so fragile as the 
doomsayers would have you believe. All H.R. 107 would do is 
restore the balance to the DMCA that Congress originally 
intended and thereby also restore the balance that has been 
part of our copyright system for over two centuries. Thank you 
again.

                    STATEMENT OF CHRIS MURRAY

    Mr. Murray. Madam Chairman, thank you for having me before 
your committee again. I am here to represent Consumer Reports, 
or rather Consumers' Union, the nonprofit publisher of Consumer 
Reports magazine. We operate the largest paid subscriber base 
on the Internet ahead of the Wall Street Journal last February 
which I am excited about.
    We make a living based on copyright on protection of our 
content. I couldn't be here before you today but for the 
protection that copyright affords. What I would like to do, 
though, is wrestle us just briefly out of the discussion about 
backup copies and media and talk a little bit about what has 
been referenced a few times, garage door openers and printer 
cartridges and auto parts aftermarkets. What do these things 
have to do with copyright?
    The answer is that in every instance we have seen the 
Digital Millennium Copyright Act used anti-competitively to 
stifle innovation in each of those contacts where entrepreneurs 
who are building better mousetraps are not able to bring those 
products to market, or rather once they bring them to market, 
they face fairly severe litigation that forced them to either 
withdraw projects or have the effect of chilling investment in 
these new products.
    I would submit that the question today is not whether or 
not the anti-circumvention provisions of the DMCA are broken, 
but rather what is the appropriate fix. I would urge the 
committee to consider H.R. 107 as an appropriate fix.
    I will touch briefly on labeling. I assume my time is 
extremely short? 60 seconds? Okay. To touch briefly on 
labeling, increasingly companies are putting products in the 
market place that don't have the full functionalities that 
consumers expect and it is completely within the rights of 
companies to do that.
    The question is in an age where we know that also 
increasingly 46 percent of households are using their computers 
to play music and DVDs according to 2003 Forrester Research 
Survey. What should be the expectations of those consumers 
about the information that they get about what is on their 
products. I submit that a voluntary labeling scheme simply will 
not do when it runs rather counter to the incentives of 
companies of companies to provide the full range of disclosures 
that consumers need.
    The final thing that this bill does which I strongly 
encourage this committee to adopt is that it enshrines the 
sensible pro-innovation, pro-entrepreneur balance that is the 
Sony Betamax division into law. We should remember that this is 
a case that the American Motion Picture Association said it was 
happy to lose because, as a result, the VCR was permitted to 
exist in full. It is, I believe, about 40 percent of the 
revenue base currently. It is one of the most lucrative slices 
of their copyright pie.
    The Betamax decision didn't strangle the industry as we 
were told that it would. Instead, it has been one of the 
greatest success stories in our economy and it has allowed the 
consumer electronics industry of the last 20 years to be the 
strong engine of economic growth that it has been.
    I assume that my time is up but, in closing, I will just 
urge the committee to please consider Representative Boucher's 
excellent bill.
    [The prepared statement of Gigi B. Sohn and Chris Murray 
follows:]

  Prepared Statement of Gigi B. Sohn, President, Public Knowledge and 
Chris Murray, Legislative Counsel, Consumers Union, Consumer Federation 
                               of America

    Chairman Stearns, ranking member Schakowsky, and distinguished 
members of the subcommittee, this testimony is being submitted on 
behalf of Public Knowledge, Consumers Union, and the Consumer 
Federation of America. We want to thank the subcommittee for giving us 
this opportunity to give a consumer perspective on the Digital Media 
Consumers' Rights Act of 2003 (H.R. 107). We thank Rep. Boucher and 
Rep. Doolittle for introducing H.R. 107 and Chairman Barton for co-
sponsoring the bill. We strongly support H.R. 107 because we believe it 
is a narrowly tailored bill that corrects some of the major imbalances 
in our copyright law that were unintentionally created by the Digital 
Millennium Copyright Act of 1998 (DMCA).
    The digital transition represents an extraordinary technological 
advance for consumers. Improved audio and video quality through digital 
broadcasts and recording, combined with new integration of consumer 
electronics devices mean that consumers will be able to experience 
news, information and entertainment in ways as never before. In this 
new digital society, content is mobile and easily transferable to a 
whole range of devices, especially those within one's own personal 
network. We are moving toward a world of seamless interoperable systems 
where our content--our movies, music, documents, photographs--can be 
called up at anytime, anywhere.
    The American consumer is driving the digital transition. But 
protection of consumers' rights is essential to this transition both as 
a matter of principle and as a matter of encouraging a market climate 
that supports technological innovation and economic vibrancy. H.R. 107 
provides an opportunity to make needed changes to the DMCA in ways that 
preserve the rights of consumers.

                              INTRODUCTION

    When Congress was considering the DMCA during the 105th Congress, 
many nonprofit, consumer, and industry groups, including some of the 
groups that are testifying today, testified before this committee in 
opposition to the Act. At that time, these groups said that no drastic 
changes to our copyright framework were necessary to protect the rights 
of copyright holders. They further argued that new legislation such as 
the DMCA could limit a citizen's access to information and stifle legal 
uses of content. In addition, they argued that the DMCA would constrain 
creativity and the ability to innovate and, worse, would put a price 
tag on non-infringing legal uses of digital content.
    The Commerce Committee and the Congress heard these arguments, and 
attempted to preserve some of the core principles underlying copyright 
law in the plain text of the DMCA. First, Congress sought to protect 
fair use in 17 U.S.C.  1201(c), stating that nothing in the DMCA 
``shall affect rights, remedies, limitations, or defenses to copyright 
infringement, including fair use, under this title.'' Second, and 
critically, in 17 U.S.C.  1201(a)(1)(C), Congress provided for the 
copyright office to conduct a ``triennial review'' to ensure that 
people seeking to make non-infringing uses of copyrighted works were 
not prohibited from doing so by the restrictions on circumvention of 
so-called ``access controls'' placed on digital copyrighted works.
    Almost six years later and contrary to the express intent of 
Congress, these protections have been virtually ignored. The DMCA has 
gone from being a law that was intended to protect digital copyright 
material against unlawful infringement to one that chills free speech, 
stifles research and innovation, harms competition in markets having 
nothing to do with copyright, places undue burdens on law abiding 
consumers, and protects particular business models at the expense of 
fair use and other lawful uses of copyrighted works.
    There are several reasons why the DMCA has morphed into a law that 
almost categorically prohibits fair use. First, the line between what 
is a ``copy control,'' which can be circumvented under the DMCA, and 
what is an ``access control,'' which cannot, has been blurred to the 
point of meaninglessness. Is the Content Scrambling System (CSS) on a 
DVD an access control or a copy control? How about the FCC's newly 
adopted broadcast flag?
    Second, the U.S. Copyright Office has defied the express will of 
Congress that the triennial review process be a ``fail-safe mechanism'' 
1 that would ``ensure that access [to digital copyrighted 
materials] for lawful purposes is not unjustifiably diminished.'' 
2 In the six years since the DMCA was passed, the Copyright 
Office has conducted two triennial reviews, consisting of hundreds of 
exemption requests and thousands of pages of written submissions and 
oral testimony, and has granted only four, extremely narrow exemptions. 
The small number and miniscule scope of the exemptions can be 
attributed largely to the Copyright Office-created burden of proof, 
which has no basis in the plain language of the DMCA. Indeed, the 
Assistant Secretary of Commerce for Communications and Information, who 
is tasked with assisting the Register with the rulemaking, has both 
times raised concerns with the Copyright Office's excessively narrow 
interpretation of the statute.
---------------------------------------------------------------------------
    \1\ Report of the House Committee on Commerce on the Digital 
Millennium Copyright Act of 1998, H.R. Rep. No. 105-551, at 36 (1998) 
[hereinafter Report of House Comm. on Commerce].
    \2\ Id.
---------------------------------------------------------------------------
    Fortunately, many of these problems can be corrected by the 
narrowly tailored legislation that is the subject of today's hearing. 
H.R. 107, the Digital Media Consumer Right Act (DMCRA), can play a 
central rule in this refinement of the DMCA by ensuring that fair use 
principles apply to Section 1201 of the Copyright Act. Moreover, the 
bill would ensure that consumers will have the information they need 
when deciding whether to purchase copy protected compact discs.

 I. H.R. 107 IS A NARROWLY TAILORED BILL THAT REINSTATES AND CLARIFIES 
 THE INTENT OF CONGRESS TO PRESERVE FAIR USE IN THE DIGITAL MILLENIUM 
                             COPYRIGHT ACT.

    As discussed below the DMCA, as currently applied and interpreted 
is having a detrimental effect on free speech, consumers' rights, fair 
use, and innovation. Moreover, the Copyright Office's triennial 
rulemaking process, has not functioned as the safeguard it was intended 
to be. Fortunately, Congress now has a bill before it that addresses 
these issues--H.R. 107--``The Digital Media Consumer's Rights Act of 
2003'' (DMCRA).
    First, the DMCRA's labeling provision will ensure that consumers 
are fully aware of the limitations and restrictions they may encounter 
when purchasing copy-protected compact discs (CDs). Currently, 
manufacturers of copy-protected CDs are not obligated to place notices 
on packaging. Unbeknownst to many consumers, copy-protected CDs may not 
play on personal computers and other non-compatible CD players due to 
copy protection technologies. The DMCRA does not prohibit the sale of 
copy-protected CDs; instead it requires that the Federal Trade 
Commission provide guidelines so that these CDs have adequate labels 
notifying purchasers of possible limitations of their use of purchased 
digital media. This approach will enable consumers to make informed 
purchasing decisions and eliminate the confusion created by seemingly 
``defective'' CDs that do not play on all devices.
    Labeling will become increasingly important as copy-protected CDs 
and other digital media become more common as a means to prohibit and 
limit unwanted use and unauthorized distribution of music, movies, and 
other digital content. The DMCRA ensures that new CD formats do not 
enter the marketplace without providing consumers notice of their 
limitations. The market may or may not accept CDs with more limited 
functionality, but it is imperative that consumers receive complete and 
accurate information regarding the CDs they may purchase. No consumer 
should purchase a CD only to be surprised that it does not play on his 
or her computer or CD player. The DMCRA will create an informed 
marketplace where competition among new CD formats can prosper without 
consumer confusion.
    Even more important than the Act's labeling requirement is the 
DMCRA's fair use exemption, which will ensure that legal, non-
infringing uses of digital copyrighted works are not prohibited by the 
DMCA. Furthermore, the DMCRA encourages scientific research into 
technological protections. It ensures that activities solely for the 
purpose of research into technological protection measures are 
permitted.
    This committee will inevitably be told that to permit a fair use 
exemption to Section 1201(a) is to undermine the effectiveness of the 
entire DMCA. This is simply not true. One of this bill's virtues is 
that it does not weaken the effectiveness of technological controls. 
Instead, it ensures that the controls function solely as intended--to 
stop illegal activity and infringement. Infringers will still face the 
same penalties, but the DMCRA enables people who have legally obtained 
access to digital content to exercise legal uses without fear of 
criminal punishment.

  II. CONGRESS INTENDED TO PRESERVE FAIR USE WHEN IT PASSED THE DMCA.

    As this Subcommittee knows, information is a building block of 
democracy, which is why the public's ability to access information was 
built into our Constitution. Specifically, as a means of encouraging 
innovation and the widespread dissemination of information, the 
Constitution allows Congress to grant a limited monopoly to a creator. 
Nevertheless, this power granted to Congress is aimed primarily at 
benefiting the general public; ``[t]he copyright law, like the patent 
statutes, makes reward to the owner a secondary consideration.'' 
3 Congress, of course, was well aware of this when drafting 
the Digital Millennium Copyright Act (DMCA), and it is also clear that 
the DMCA's drafters intended to protect fair use
---------------------------------------------------------------------------
    \3\ Sony Corporation v. Universal City Studios, Inc., 464 U.S. 417, 
429 (1984)
---------------------------------------------------------------------------
    As noted above, Congress heard from a number of interested parties, 
including the consumer electronics industry, libraries, and consumer 
advocates, about the DMCA's potential effect on the doctrine of fair 
use. When the final report was written, the Commerce Committee 
expressed a deep understanding of fair use's impact on education, 
research, and free speech:
        The principle of fair use involves a balancing process, whereby 
        the exclusive interests of copyright owners are balanced 
        against the competing needs of users of information . . . Fair 
        use, thus, provides the basis for many of the most important 
        day-to-day activities in libraries, as well as in scholarship 
        and education. It also is critical to advancing the personal 
        interests of consumers.4
---------------------------------------------------------------------------
    \4\ Report of House Comm. on Commerce at 25.
---------------------------------------------------------------------------
    The Commerce Committee also recognized the role fair use would play 
with respect to digital commerce:
        [Fair use] is no less vital to American industries, which lead 
        the world in technological innovation. As more and more 
        industries migrate to electronic commerce, fair use becomes 
        critical to promoting a robust electronic 
        marketplace.5
---------------------------------------------------------------------------
    \5\ Id. at 26.
---------------------------------------------------------------------------
    Thus, the Committee was keenly aware that access to information is 
the centerpiece of a well-functioning marketplace, and expressed 
concern that the DMCA's potential to create a legal framework for the 
lock-down of information in a ``pay-per-use society'' could contravene 
that goal.6 To alleviate this concern, Congress placed two 
express directives in the DMCA: that nothing in the law ``shall affect 
rights, remedies, limitations, or defenses to copyright infringement, 
including fair use, under this title;'' 7 and it established 
a triennial rulemaking procedure requiring the Copyright Office to 
examine the DMCA's adverse effects on the lawful use of digital 
copyrighted works.
---------------------------------------------------------------------------
    \6\ Id. ``. . . The Committee on Commerce felt compelled to address 
these risks, including the risk that enactment of the bill could 
establish the legal framework that would inexorably create a `pay-per-
use' society.'' Id.
    \7\ 17 U.S.C.  1201(c)(1).
---------------------------------------------------------------------------
III. CONTRARY TO THE EXPRESS INTENT OF CONGRESS, THE DMCA IS BEING USED 
     TO PROHIBIT THE EXERCISE OF MANY FAIR USES OF DIGITAL CONTENT.

    Although the DMCA was designed to protect digital content from acts 
of copyright infringement, it has also had a negative impact on 
legitimate and legal uses of content, in spite of Congress's efforts to 
build balance into the Act. Digital content should provide more 
flexible consumer use, but the rise of overly restrictive content 
protection measures, coupled with the unintended consequences of the 
DMCA, has lead to the erosion of rights and personal uses consumers 
have come to expect with digital media. Consumers Union foresaw this 
outcome in its testimony in 1998 when it warned:
        It would be ironic if the great popularization of access to 
        information, which is the promise of the electronic age, will 
        be short-changed by legislation that purports to promote this 
        promise, but in reality puts a monopoly stranglehold on 
        information.8
---------------------------------------------------------------------------
    \8\ Id., citing Letter from Consumer's Union to House Committee on 
Commerce (June 4, 1998).
---------------------------------------------------------------------------
    Digital technology makes content more available and flexible for 
the public to use; the application and interpretation of the DMCA has 
effectively prohibited the exercise of many uses of digital content, 
however, including those lawful uses Congress intended to preserve. In 
our opinion, the primary reason for this is the complete lack of any 
real distinction in the DMCA between so-called ``copy controls'' and 
so-called ``access controls.'' Under the DMCA, a user of digital 
content can circumvent copy control mechanisms without penalty, but 
circumvention of an access control mechanism is illegal. But the 
reality is that there is no difference between the two mechanisms, and 
if you ask a content creator, he or she will inevitably claim that 
their technological protection measure is the more highly protected 
access control. In any event, even if a technological protection 
measure is technically a copy control mechanism, the Section 1201(a)(2) 
prohibition on the manufacture, importation and trafficking in devices 
that would allow such circumvention for all intents and purposes 
renders the ability to make fair uses of digital content unattainable 
to all but the most sophisticated users.
    Below are some specific examples of how the incoherent distinction 
between copy controls and access controls, as well as other novel 
interpretations of the DMCA, have eroded and will continue to erode 
fair use protections:
A. The DVD
    The DVD format has been a great success for both the content and 
consumer electronic industries.9 However, a consumer can do 
far less with this digital format as compared to analog formats, 
despite digital formats' potentially greater flexibility. This is not 
because of a technical limitation of the DVD. The situation is 
attributable instead to controls placed on consumers by content 
providers, and the DMCA has been interpreted as prohibiting consumers 
from getting around the controls, even in pursuit of lawful uses of the 
underlying copyrighted work.
---------------------------------------------------------------------------
    \9\ See Video Games: Technology Titans Battle Over Format Of DVD 
Successor, Wall St. J., at A1 (Mar. 15, 2004).
---------------------------------------------------------------------------
    The content on a DVD is protected by CSS--the Content Scrambling 
System--that two federal courts have ruled is both an ``access 
control'' and a copy control under the DMCA.10 Moreover, 
only authorized DVD players are permitted legal access to a DVD's 
content under the law. Thus, a consumer who gains access to her legally 
purchased DVD with her own software tools has violated the DMCA--even 
if the reason is for non-commercial purposes, including personal use or 
fair uses.
---------------------------------------------------------------------------
    \10\ 321 Studios v. MGM Studios, Inc., et. al., 307 F.Supp.2d 1085 
(N.D. Cal. 2004); Universal City Studios, Inc. v. Corley, 273 F.3d 429 
(2nd Cir.2001).
---------------------------------------------------------------------------
    What this means is that if a consumer wants to make a backup of her 
favorite movie so she can watch it while traveling without fear that 
the disc will get scratched or lost, the consumer would be prohibited 
by the DMCA from doing so. If a student is creating a multimedia 
presentation and needs to digitally ``cut and paste'' from DVDs, she 
would be legally prohibited because of the DMCA.11 Both 
backing-up and taking a digital excerpt from a DVD for the purposes of 
critique and comment are traditional fair uses, but are prohibited 
under the DMCA.12
---------------------------------------------------------------------------
    \11\ This also has implications on software tools, discussed below.
    \12\ The tools that give consumers the ability to circumvent a 
DVD's access control measures have existed since shortly after the 
video format was created. Today, these tools are widely available on 
the Internet; many computer applications use the code to make fair uses 
of DVD content--none of which is likely legal under the DMCA. Despite 
this ability to ``break'' access controls and / or copy protection, the 
sales and profits of DVDs continue to increase yearly. This should 
signify to Congress that fair uses and content industry profits can 
live side-by-side.
---------------------------------------------------------------------------
    Other non-infringing uses are being eroded as well:

 Many users are prevented from fast-forwarding through DVD 
        advertisements;
 DVDs are region coded--so a DVD bought on a European vacation will 
        not play when the consumer gets home;
 DVDs cannot legally be played at all on increasingly popular computer 
        platforms.
    Again, none of these is a technical limitation of the DVD. None is 
associated with infringement. Instead, they are controls placed on 
consumers by the content providers, and the DMCA arguably makes it 
illegal to get around the controls.
B. Tools that Enable Non-infringing Uses
    The DMCA not only detrimentally affects the consumer who wants to 
make a fair use of digital content, but it also harms those 
entrepreneurial small businesses who capitalize on the market for 
software tools designed for noninfringing uses.
    In February of this year, a United States District Court enjoined 
321 Studios from selling the most popular DVD back-up software because, 
the court found, it violates the DMCA.13 While the court 
acknowledged that the exercise of fair use is made difficult by the 
DMCA, if not outright impossible in regards to protected digital media, 
it stated that the legal use of purchased copyright materials was not a 
defense to 321 Studios violation of the DMCA.14
---------------------------------------------------------------------------
    \13\ 321 Studios v. MGM Studios, Inc., et. al., 307 F.Supp. 2d 1085 
(N.D. Cal. 2004)
    \14\ Id.
---------------------------------------------------------------------------
    According to the decision in 321 Studios,15 even if the 
act of making a backup copy is lawful, it is nevertheless illegal under 
the DMCA to provide a tool to conduct a legal act. This case 
illustrates how the DMCA, by outlawing the tools of fair use, limits 
the consumer's ability to make a fair use.16
---------------------------------------------------------------------------
    \15\ See also Universal City Studios, Inc. v. Reimerdes, 111 
F.Supp.2d 346 (S.D.N.Y.2000); Universal City Studios, Inc. v. Corley, 
273 F.3d 429 (2nd Cir.2001); United States v. Elcom Ltd., 203 F.Supp.2d 
1111 (N.D.Cal.2002).
    \16\ The content industry's response to making backup copies of 
scratched or otherwise damaged disks--that the consumer must purchase a 
new one--is breathtakingly anticonsumer. ``Jack Valenti, head of the 
Motion Picture Association of America, has suggested that consumers 
have no legitimate need for such software, telling The Associated Press 
in November, `If you buy a DVD you have a copy. If you want a backup 
copy you buy another one.'' DVD-copy program tweaked after court order, 
CNN.com, Feb. 23, 2004, available http://www.cnn.com/2004/TECH/ptech/
02/23/dvd.suit.ap/index.html.
---------------------------------------------------------------------------
C. Copy Protected CDs
    Copy-protected CDs use technology designed to prevent the ripping 
or copying function of a personal computer in the hopes of preventing 
unauthorized file trading. However, when these CDs are inserted into 
certain modern CD drives, they often fail to play 
entirely.17 The purchaser of these products is left with a 
CD that is inaccessible and unplayable on one or more playback devices. 
In fact, an executive with one of the companies who produces copy 
protected CDs admitted that perfect protection and perfect playability 
can never be achieved.18
---------------------------------------------------------------------------
    \17\ Bryan Chaffin, Apple Addresses Problems With Copy-Protected 
CDs In AppleCare Support Article, Macobserver (May 10, 2002) 
(describing instructions issued by Apple Computer to address copy-
protected CDs that were not playable on Macintosh computers), at 
www.macobserver.com/article/2002/05/10.10.shtml; Chris Oakes, Copy 
Protected CDs Taken Back, Wired News, Feb. 3, 2000 (3 to 4 percent of 
German customers returned protected CDs introduced by BMG after they 
would not play in various CD players), at www.wired.com/news/
technology/0,1282,33921,00.html.
    \18\ See John Borland, Labels Loosening Up on CD Copy Locks, CNET 
News, Sept. 3, 2002, at http://news.com.com/2100-1023-956069.html.
---------------------------------------------------------------------------
    Copy-protected CDs already appear to be commonplace in many parts 
of Europe and Asia and the protection technology vendors have announced 
that their technologies have already been included in tens of millions 
of CDs.19 Although announcements of copy-protected titles 
have fallen off in the U.S., no major record label has renounced the 
use of protection technologies on music CDs in the U.S. market. It is 
safe to assume that additional titles will be released in the U.S. 
market and that the protection technologies used will result in 
malfunctions that deny access to consumers on at least some players 
that would otherwise have access to the audio tracks.
---------------------------------------------------------------------------
    \19\ See Midbar Tech Press Release, Aug. 26, 2002 (stating that 
over 30 million CDs protected by Cactus Data Shield have been 
distributed, including over 10 million in Japan), at http://
www.midbartech.com/pr/26082002.html; Jon Iverson, A Universal CD 
Problem?, Stereophile, Feb. 11, 2002 (reporting that Sony has announced 
distribution of 11 million key2audio-protected CDs in Europe), at 
http://www.stereophile.com/shownews.cgi?1261.
---------------------------------------------------------------------------
    Because most consumers are as yet unaware that this technology even 
exists, we can only imagine the outrage that will ensue once most 
consumers discover that they are unable to create mix-discs from their 
favorite legally purchased albums, or that they are unable to transfer 
music from their CD to their iPod. Unfortunately the DMCA does not 
focus on the few bad actors who break copy-protected CDs to infringe 
copyright over peer-to-peer file trading networks. Instead, the law 
makes it illegal to provide the tools that permit consumers to playback 
CDs on their device of choice.
D. The Broadcast Flag
    The broadcast-flag scheme is a content protection mechanism for 
digital broadcast television originally proposed by Hollywood and 
recently adopted by the Federal Communications Commission.20 
The broadcast-flag scheme currently does not prohibit all copying of 
over the air digital television, but it does promote technologies that 
will inhibit current and future fair use. Technologies pending approval 
before the FCC restrict a range of non-infringing uses.21 
Sidestepping these use restrictions, even when doing so is non-
infringing, is illegal or practically impossible under the DMCA. 
22 This means that current uses of broadcast content with 
analog technology will likely be limited in the digital world under the 
broadcast flag reinforced by the DMCA.
---------------------------------------------------------------------------
    \20\ In the Matter of Digital Broadcast Content Protection, MB 
Docket 02-230, Report and Order and Further Notice of Proposed 
Rulemaking, FCC 03-273, (Nov. 4, 2003).
    \21\ See e.g., In the Matter of Digital Output Protection 
Technology and Recording Method Certifications, Certification 
Applications, MB Dockets 04-60, 04-61, 04-62, 04-64 (Mar. 17, 2004).
    \22\ Evidence of this can be found the affirmative response of 
Fritz Attaway of the MPAA, when asked if the broadcast flag was an 
effective technology measure under the DMCA:
    Audience: Since the ATSC broadcast live descriptor is not 
encrypted, but just signals that this is to be projected content, is 
the first person who shows how to avoid the descriptor going to be 
guilty of a Digital Millennium Copyright Act violation for affording 
access to an effectively protected work?
    Fritz Attaway: I certainly hope so. If that should happen, I would 
expect a DMCA lawsuit against that person and I would hope and indeed 
even expect that the courts would find that person guilty of violating 
the DMCA, because I think that the broadcast flag, now that it has been 
implemented in FCC regulations, is an effective technological measure. 
Standing alone, just that bit in the broadcast stream, without any 
underlying FCC requirement that devices respond to that flag, is not an 
effective measure. But now that the Commission has adopted the 
regulations, I think it is. I think the DMCA is applicable and we'll 
find out, no doubt, when this gets to the courts.'' The Progress & 
Freedom Foundation, Copyright Protection and the Broadcast Flag, 
available at http://www.pff.org/publications/ip/
pop10.26broadcastflagsemi-nar.pdf.
---------------------------------------------------------------------------
E. Closing the ``Analog Hole''
    When faced with digital content that does not allow fair use, the 
courts and Copyright Office have asserted that access to analog content 
suffices as a viable alternative.23 However, it is 
impractical and insufficient to hold out analog technology as the only 
method for making fair uses of digital content, particularly as the 
availability of analog formats continues to diminish.
---------------------------------------------------------------------------
    \23\ See Library of Congress, Copyright Office, Recommendation of 
the Register of Copyrights in RM 2002-4; Rulemaking on Exemptions from 
Prohibition on Circumvention of Copyright Protection Systems for Access 
Control Technologies, at 116 (Oct. 27, 2003) [hereinafter Copyright 
Office Rec.], available at http://www.copyright.gov/1201/docs/
registers-recommendation.pdf.
---------------------------------------------------------------------------
    For example, digital DVD is replacing analog VHS tape, and movie 
studios increasingly are refusing to provide their content in multiple 
formats. Additionally, there is an industry push to close the so-called 
``analog hole.'' This is evidenced by the creation of an industry 
``Analog Reconversion Discussion Group'' and industry requests for 
government-mandated ``selectable output control,'' which would allow 
copyright holders to embed signals in digital content that would 
prevent certain outputs, including analog outputs, from functioning 
normally.
    For the consumer, this means that fair use will end with analog 
distribution formats. In an all-digital world, there will be no way to 
legally exercise fair use. Because the software and hardware tools for 
fair use will be prohibited, access to the content will be prohibited 
as well.24
---------------------------------------------------------------------------
    \24\ Teachers, librarians, and others seeking to take excerpts from 
DVDs for fair use purposes have been told that the way to do so is to 
hold a camcorder up to a TV screen. See Copyright Office Rec., at 116. 
However, several pending state laws could make that act illegal as 
well. See State Legislative Status Report, Consumer Electronic 
Association, www.ce.org/members_only/public_policy/slsr/
slsr_report.asp#HOME_RECORDING_RIGHTS.
---------------------------------------------------------------------------
F. Aftermarket Products
    The DMCA has also been abused by companies seeking to gain a market 
advantage with regard to products that have nothing to do with 
intellectual property or copyright infringement. As has been well 
documented, the strict language of the DMCA enabled a manufacturer of 
garage door openers and a printer manufacturer to make a claim against 
competitive interoperable replacement parts for their 
products.25
---------------------------------------------------------------------------
    \25\ Chamberlain Group, Inc. v. Skylink Technologies, Inc., 292 
F.Supp.2d 1040 (N.D.Ill., 2003); Lexmark Intern., Inc. v. Static 
Control Components, Inc., 253 F.Supp.2d 943 (E.D.Ky., 2003).
---------------------------------------------------------------------------
IV. THE TRIENNIAL REVIEW IS AN INADEQUATE SAFEGUARD FOR NON-INFRINGING 
                       USES OF COPYRIGHTED WORKS.

    Because Congress was concerned about the potential unintended 
consequences of the DMCA and its impact on non-infringing uses of 
digital content, it gave the Register of Copyrights and the Librarian 
of Congress the primary responsibility to assess whether the 
implementation of access control measures diminished the ability of 
individuals to use copyrighted works in ways that are otherwise 
lawful.26 In response to some criticisms of the DMCA, it has 
been argued that the proper venue for remedying imbalances in, and the 
application of, the DMCA should be Copyright Office's triennial review 
rulemaking process. Unfortunately, in the two times it has been 
conducted since the DMCA was passed, this rulemaking proceeding has 
largely failed to protect noninfringing uses. Instead, just four narrow 
exemptions have been granted despite hundreds of legitimate requests 
and thousands of pages of written submissions and oral testimony.
---------------------------------------------------------------------------
    \26\ Report of House Comm. on Commerce at 37.
---------------------------------------------------------------------------
    The reason for this stinginess has been the Copyright Office's 
constricted interpretation of the standard one must meet to acquire an 
exemption. As discussed below, that interpretation is contrary to the 
plain language of Sections 1201(a)(1)(C) and 1201 (a)(1)(D) of the 
DMCA.

A. The Copyright Office's Burden of Proof for an Exemption Contravenes 
        the Express Language of the DMCA.
    When the Copyright Office established its rules for the triennial 
rulemaking, it developed a standard for the burden of proof that 
petitioners must meet to demonstrate their ``diminished ability to use 
copyrighted works.'' 27 That standard clearly departs from 
the expressed intent of Congress. Any reasonable reading of the plain 
language of the DMCA shows that the burden of proof that the Copyright 
Office has set for obtaining an exemption is too high for the process 
to amount to an adequate safeguard of lawful uses.
---------------------------------------------------------------------------
    \27\ Report of House Comm. on Commerce at 37.
---------------------------------------------------------------------------
    The plain language of Section 1201(a)(1)(C) of the DMCA requires 
that when engaging in the triennial rulemaking, that the Librarian of 
Congress must determine:
        . . . whether persons who are users of a copyrighted work are, 
        or are likely to be in the succeeding 3-year period, adversely 
        affected by the prohibition under subparagraph (A) in their 
        ability to make noninfringing uses under this title of a 
        particular class of copyrighted works. In conducting such 
        rulemaking, the Librarian shall examine--
          (i) the availability for use of copyrighted works;
          (ii) the availability for use of works for nonprofit 
        archival, preservation, and educational purposes;
          (iii) the impact that the prohibition on the circumvention of 
        technological measures applied to copyrighted works has on 
        criticism, comment, news reporting, teaching, scholarship, or 
        research;
          (iv) the effect of circumvention of technological measures on 
        the market for or value of copyrighted works; and
          (v) such other factors as the Librarian considers 
        appropriate.28
---------------------------------------------------------------------------
    \28\ 17 U.S.C.  1201 (a)(1)(C).
---------------------------------------------------------------------------
    Despite this clear and detailed directive, the Copyright Office has 
required that proponents of an exemption show by a preponderance of the 
evidence that there has been or is likely to be a ``substantial'' 
adverse affect on a non-infringing use. Moreover, the proponent of an 
exemption must satisfy this burden with ``actual instances of 
verifiable problems occurring in the marketplace,'' and ``first hand 
knowledge of such problems.''
    This burden of proof is nowhere in the plain language of the Act. 
Indeed, the former Assistant Secretary of Commerce, which is mandated 
by Section 1201(a)(1)(C) to consult with the Register on the triennial 
rulemaking, protested to the Register that
        . . . the standard set forth in the Notice of Inquiry (the 
        ``NOI'') imposes a significantly heightened burden on 
        proponents of an exemption, and is therefore inconsistent with 
        the opportunity that Congress intended to afford the user 
        community.
          As a threshold matter, the plain language of the statute does 
        not support incorporation of the qualifier ``substantial'' to 
        define the level of harm to be demonstrated by such proponents 
        . . . The term ``substantial,'' however, does not appear in the 
        text of Section 1201(a)(1) of the Act. The NOI's arguably more 
        stringent requirement thus appears to add a significant new 
        term to the express language of the statute. Given the clarity 
        of Section 1201(a), no basis exists to justify insertion of a 
        material modifier into its text.29
---------------------------------------------------------------------------
    \29\ Letter from Nancy J. Victory, Assistant Secretary of Commerce 
to Ms. Marybeth Peters Register of Copyrights, (Aug. 11,2003), 
available at www.ntia.doc.gov/ntiahome/occ/dmca/dmca2003/
dmcaletter_08112003.html (footnotes omitted).
---------------------------------------------------------------------------
    While de minimis or isolated harms may not be enough to meet the 
burden of proof, there clearly is a zone between speculative statements 
of de minimis harms on the one hand and ``actual instances of 
verifiable problems'' by those with ``first hand knowledge'' on the 
other. But the Copyright Office recognizes no such zone.
    Finally, the Copyright Office sets an unattainable standard for 
showing ``future harms.'' Proponents of an exemption must provide 
``evidence either that actual harm exists or that it is `likely' to 
occur in the ensuing 3-year period,'' by showing ``actual instances of 
verifiable problems occurring in the marketplace'' in order to ``to 
satisfy the burden with respect to actual harm.'' Moreover, ``a 
compelling case will be based on first-hand knowledge of such 
problems.'' 30 But common sense dictates that it is 
impossible for anyone to have ``first-hand knowledge'' of a future 
event. And nowhere in the statute does it indicate that Congress 
intended the standard for future harms should be higher than that for 
present harms.
---------------------------------------------------------------------------
    \30\ Notice of Inquiry, Exemption to Prohibition on Circumvention 
on Copyright Systems for Access Control Technologies, Copyright Office, 
Library of Congress, 67 Fed. Reg. at 63579 (Oct. 15, 2002).
---------------------------------------------------------------------------
    The then-Assistant Secretary of Commerce expressed similar concerns 
to the Register of Copyrights:
        [T]he NOI's requirement to provide ``actual,'' ``first-hand'' 
        instances of problems is not articulated in the plain language 
        of Section 1201(a)(1) of the Act. Moreover, as drafted, this 
        requirement cannot logically be applied prospectively, as the 
        refinement would mandate ``first-hand knowledge'' of future 
        problems in order to sustain a ``compelling case'' for an 
        exemption. Given these concerns, NTIA believes that the NOI's 
        ``refinement'' should be abandoned and a standard more 
        consistent with the statutory language should be adopted.
          Crafting the proper standard for the burden of proof is 
        equally important when examining possible future harms as 
        contemplated by the statute. Section 1201(a)(1) of the DMCA 
        does not ground a finding of ``likely adverse impacts'' in a 
        showing of ``extraordinary circumstances in which the evidence 
        of likelihood is highly specific, strong and persuasive,'' as 
        the NOI seems to suggest. Rather, Congressional intent would 
        appear to impose no more of a showing for ``likely adverse 
        effects'' than for ``actual adverse effects.'' Although NTIA 
        agrees that mere conjecture is insufficient to support a 
        finding of ``likely adverse effect,'' the NOI's implied 
        supplemental and exacting requirements are contrary to the 
        language of the statutory provision.31
---------------------------------------------------------------------------
    \31\ Letter from Nancy J. Victory, Assistant Secretary of Commerce 
to Ms. Marybeth Peters Register of Copyrights, (Aug. 11, 2003), 
available at www.ntia.doc.gov/ntiahome/occ/dmca/dmca2003/
dmcaletter_08112003.html (footnotes omitted).
---------------------------------------------------------------------------
    We agree. The Copyright Office has created a burden of proof for 
the 1201(a)(1)(C) exemption that ensures, and will continue to ensure, 
that few, if any exemptions are ever granted, and that those that are 
granted are extremely narrow.
  B. The Copyright Office Has Construed the Term ``Class of Works'' Too 
        Narrowly
    In the two triennial rulemakings since the DMCA was passed, 
numerous proponents for exemptions have asked the Copyright Office, 
when determining the ``class of copyrighted'' works to be exempted 
under Section 1201(a)(1)(D) to also consider the types of uses that are 
made with the copyrighted work. Indeed, such an examination is fully 
consistent with the plain language of that Section, which states in its 
entirety:
          (D) The Librarian shall publish any class of copyrighted 
        works for which the Librarian has determined, pursuant to the 
        rulemaking conducted under subparagraph (C), that noninfringing 
        uses by persons who are users of a copyrighted work are, or are 
        likely to be, adversely affected, and the prohibition contained 
        in subparagraph (A) shall not apply to such users with respect 
        to such class of works for the ensuing 3-year 
        period.32
---------------------------------------------------------------------------
    \32\ 17 U.S.C.  1201 (a)(1)(D).
---------------------------------------------------------------------------
    Despite this language, which explicitly refers to ``noninfringing 
uses,'' and the complete absence of any other Congressional intent that 
the types of uses of copyrighted works be absent from the exemption 
process, the Copyright Office has steadfastly refused to consider them, 
stating that ``it is not permissible to classify a work by reference to 
the type of user or use . . .'' 33 This narrow 
interpretation of Section 1201(a)(1)(D) makes little sense in light of 
the fact that the Copyright Office asks proponents of an exemption to 
make ``first-hand'' actual experience a top priority.
---------------------------------------------------------------------------
    \33\ Copyright Office Rec., at 13.
---------------------------------------------------------------------------
    We believe that the approach that is more consistent with 
Congressional intent is that suggested by the former Assistant 
Secretary of Commerce in his September 29, 2000 letter commenting on 
the first triennial rulemaking--that ``the definition of classes of 
works is not bounded by limitations imposed by Section 102(a) of the 
Copyright Act, but incorporates an examination of `noninfringing uses' 
of the copyrighted materials.'' 34
---------------------------------------------------------------------------
    \34\ Former Assistant Secretary of Commerce Nancy Victory voiced 
the same concerns in her letter to the Register of Copyrights. There, 
she stated that ``NTIA believes that it would be beneficial to further 
define the scope or boundaries of the ``class of works'' so that 
targeted exemptions can be crafted that would not only provide specific 
guidance to both content creator and use, but also remedy the 
particular harm to noninfringing uses identified in the rulemaking. For 
example, in some circumstances, the intended use of the work or the 
attributes of the user are critical to a determination whether to allow 
circumvention of a technological access control.'' Letter from Nancy J. 
Victory, Assistant Secretary of Commerce to Ms. Marybeth Peters 
Register of Copyrights, (Aug. 11,2003), available at www.ntia.doc.gov/
ntiahome/occ/dmca/dmca2003/dmcaletter_08112003.html.
---------------------------------------------------------------------------
C. The Copyright Office's Reliance on Analog Conversions to Satisfy 
        Fair Use Principles is Impractical and Doomed to Obsolesence.
    The Copyright Office has consistently argued in denying Section 
1201(a)(1) exemption requests that a device's analog outputs are the 
best avenues for fair use.35 This essentially requires a 
consumer to take digital content, translate it to analog, and then 
convert the analog version back to a digital format, to make any lawful 
digital fair use under the DMCA. Requiring citizens to engage in this 
cumbersome series of conversions in order to exercise their fair is no 
way to ensure that those rights remain vital and accessible to ordinary 
people. Moreover, as discussed above at pp. 12-13, efforts to close the 
so-called analog hole may make this ``solution'' impossible in the near 
future.
---------------------------------------------------------------------------
    \35\ ``Because users have means of making analog copies of the 
material on DVDs without circumventing access controls (and of 
redigitizing those analog copies), there is no need to permit them to 
circumvent. The desire to make a digital-to-digital copy, while 
understandable, does not support an exemption in this case. Existing 
case law is clear that fair use does not guarantee copying by the 
optimum method or in the identical format of the original.'' Copyright 
Office; Exemption to Prohibition on Circumvention of Copyright 
Protection Systems for Access Control Technologies, 68 Fed. Reg. 62,016 
(Oct. 31, 2003).
---------------------------------------------------------------------------
  D. The Copyright Office Has Favored Particular Business Models Over 
                Fair Use in Denying Exemption Requests.
    Contrary to the express intent of Congress, the triennial 
rulemaking proceeding has become one that primarily functions to 
protect particular business models. In the most recent rulemaking, 
there are a number of instances in which the Copyright Office has 
apparently favored those business models over fair use principles. For 
example, faced with a request to exempt the use of ancillary 
audiovisual works on DVDs the Copyright Office found that
        On balance, an exemption, which would permit circumvention of 
        CSS, could have an adverse effect on the availability of such 
        works on DVDs to the public, since the motion picture 
        industry's willingness to make audiovisual works available in 
        digital form on DVDs is based in part on the confidence it has 
        that CSS will protect it against massive 
        infringement.36
---------------------------------------------------------------------------
    \36\ Id.
---------------------------------------------------------------------------
    Similar instances of the Copyright Office favoring the DVD as a 
business model over fair use include its decision to deny an exemption 
to permit consumers to circumventing DVD region coding, despite 
recognizing that the technology is neither a copy control or an access 
control, but a mere marketing tool.37 It also denied an 
exemption to permit viewers to fast-forward through DVD movie previews 
and advertisements.38
---------------------------------------------------------------------------
    \37\ ``When DVD was being considered, the decision was made to 
incorporate regional coding in order to provide the motion picture 
companies the ability to maintain that regional marketing practice.''' 
Library of Congress, Copyright Office, Rulemaking Hearing, May 2, 2003, 
Panel 1 Witnesses, 130-1, (Statement of Fritz Attaway, Motion Picture 
Association of America) available at www.copyright.gov/1201/2003/
hearings/transcript-may2.pdf.
    \38\ Copyright Office Rec., at 109.
---------------------------------------------------------------------------
    Perhaps the most egregious example of how the Copyright Office has 
used the DMCA to protect business models involved a the request for an 
exemption for a class of works ``consisting of motion pictures on DVDs 
tethered to particular operating system, e.g., the Windows or Macintosh 
environment,'' 39 to permit consumers to view legally 
purchased content on his computer platform of choice--specifically 
platforms that use the increasingly popular Linux and other ``open 
source'' operating systems.
---------------------------------------------------------------------------
    \39\ Copyright Office Rec., at 142.
---------------------------------------------------------------------------
    While the Register of Copyrights conceded that the proponents of an 
exemption had successfully identified a ``particular class of works'' 
and identified an access control that prevents noninfringing uses, the 
Register denied the request, stating that
        While it is unfortunate that persons wishing to play CSS-
        protected DVDs on computers have few options, the fact remains 
        that that they have the same options that other consumers have. 
        The Register concludes, as she concluded three years ago, that 
        the harm to such persons is de minimis, amounting to no more 
        than an inconvenience.40
---------------------------------------------------------------------------
    \40\ Copyright Office Rec., at 145.
---------------------------------------------------------------------------
    The message to Linux and other open source users is clear: buy a 
device that is compliant with the current DVD business model and 
proprietary, closed computer operating systems. The Register's decision 
ensures that newer, innovative, but less popular technological devices 
that are not so compliant will not succeed in the marketplace, because 
they cannot be used for lawful purposes. As discussed above at p. 6, 
this is exactly what Congress, and in particular the Commerce 
Committee, feared when it provided for the triennial review--Congress 
did not want the DMCA to be used to slow or prohibit technological 
innovation.41
---------------------------------------------------------------------------
    \41\ See Report of House Comm. on Commerce at 26.
---------------------------------------------------------------------------
    These examples illustrate the extent to which the Copyright 
office's stewardship of the DMCA needs further guidance from Congress. 
H.R. 107 would alleviate many of these concerns by eliminating the need 
for exemptions for fair uses of digital content.
                               conclusion
    We would like to again thank the subcommittee for providing us the 
opportunity to testify on this important bill. We are encouraged that 
this Committee is addressing consumer rights and fair uses in digital 
media. It is vital for consumers, the public interest, and future 
digital markets that Congress protects lawful and legitimate uses of 
copyright works. Passage of the DMCRA will ensure that fair use, 
consumer notice, and the legitimate tools that enable non-infringing 
use are not forgotten in the digital world.

    Mr. Stearns. Okay. Mr. Moore, last but not least. You 
probably have the most technical expertise on the technology 
side so we appreciate your patience and you are welcome with 
your opening statement.

                    STATEMENT OF ROBERT MOORE

    Mr. Moore. Thank you, Chairman. Chairman Stearns and other 
distinguished members of the subcommittee, my name is Robert 
Moore, and I am the Founder and President of 321 Studios. This 
is a software company that was started in St. Louis, Missouri, 
by me and my wife and my son. Basically, as I said, we are a 
software company. We have provided more than 1 million DVD 
consumers with a convenient way to make backup copies of their 
DVD collections. Our software is designed with many anti-piracy 
features. It does not affect audio CDs.
    In 3 years we created almost 400 jobs and we are on track 
to achieve $100 million in sales this year. Today, I appear for 
my family and the fewer then 60 remaining employees of a 
company on the brink of annihilation. We are caught with our 
customers in a nightmarish ``Catch-22'' created by the courts' 
incomplete reading of the 1998 Digital Millennium Copyright 
Act.
    Mr. Stearns. I just want you to pull a little closer. 
Sometimes when your voice goes low we don't hear it all.
    Mr. Moore. I am most grateful to be here, Chairman.
    However, NOT to tell 321 Studios' story for its own sake. 
Instead, I offer it today as one example among many of why H.R. 
107, the Digital Media Consumers' Rights Act, is such vital 
legislation.
    I want to especially thank Reps. Boucher and Doolittle for 
their tireless dedication to consumers' rights under copyright 
law, and Chairman Barton and you, Chairman Stearns, for this 
forum, and ask that my prepared statement and exhibits be 
included in the Record. Today, I ask the subcommittee and all 
Members of Congress to consider three key points:
    (1) Our 1 million plus customers--like American consumers 
in general--are people, not pirates, and we should strike a 
balance in copyright law for them.
    (2) H.R. 107 is needed if the protection for fair use and 
consumer rights that Congress deliberately wrote into the DMCA 
is to have any practical meaning in a digital age of content 
encryption.
    (3) Our product is virtually impossible and certainly 
infeasible to use for real piracy as distinct from reasonable 
consumer use of copyrighted works. Let me take these points in 
order.
    First of all, our customers are ordinary and honest 
Americans. They are moms and dads, artists and educators, 
librarians and movie buffs just like myself. These customers 
just want to keep their expensive collections safe so they can 
enjoy them for years to come. They collectively have paid 
Hollywood billions of dollars for DVDs that, as widely reported 
recently, we now know to physically rot and degrade in a short 
period of time and to be easily damaged by toddlers, teens or 
harsh conditions of all kinds. A copy of those reports is 
attached for the record, as well.
    Our customers tell us that they want and need to make 
backup copies of their DVDs for several reasons. (1) To protect 
their investment from loss, damage or theft. (2) To play in 
their minivans and on airplanes when they are on travel to 
ensure they will have a copy even when the original goes out of 
print.
    Also so they don't have to replace an entire box set of 
multi DVDs if one of these disks is damaged. Our customers have 
also explained this to Congress directly and I would like to 
submit for the record a disk containing brief electronic copies 
of more than 175,000 individual communications made to Congress 
in just the last year in support of 321 Studios advocacy on 
this issue.
    Mr. Stearns. By unanimous consent so ordered.
    Mr. Moore. Pardon me, Chairman?
    Mr. Stearns. By unanimous consent so ordered. It will be 
part of the record.
    Mr. Moore. Thank you, sir. The second point. The issue 
raised by H.R. 107 and squarely before the subcommittee today 
is not whether piracy is bad or the industry deserves to be 
protected from it. I will be the first one to say absolutely 
yes on both counts.
    The real, practical and very pressing question dramatically 
highlighted by the experience of 321 Studios is simply this: If 
consumers can make a personal copy of an audio CD they've 
bought to put on their iPod or play in their automobile, if 
consumers can use a VCR or TiVO or even a Replay which was, as 
we found out today, recently put out of business through 
litigation, if consumers can use these tools to make a digital 
copy of a movie on broadcast or cable--I hope I can still say 
digital--if consumers can use conventional and digital 
photocopiers and digital scanners to reproduce pages from a 
book, and if consumers can make backup copy of a computer 
program like Windows, how can it be that consumers are 
criminals for making a backup copy of a DVD they bought and 
paid for? Why is our company, indeed any technology company, 
criminal for selling them the digital tools that they must have 
to make these rights real?
    The third and final point, we at 321 Studios also are 
honest, hardworking, middle American folks who love movies and 
respect copyright. That is not a disingenuous statement, 
Chairman. To begin with, we did not hide offshore from 
Hollywood or wait to get sued.
    Long before any action was filed against us 321 Studios 
actually asked a Federal judge in California to issue a 
declaratory ruling that consumers had a fair use or another 
personal right to make a backup copy of DVDs under the DMCA 
and, therefore, that our product was legal. Incredibly the 
court did not reach the question of what the DMCA's explicit 
consumer protection clause meant. Never even got there.
    Judge us now by how we designed and marketed our software. 
Frankly, anyone who tries to use it to mass produce bootleg 
DVDs would immediately become a strong contender for dumbest 
criminal of the year in my opinion. I say this confidently for 
a host of reasons.
    Our software can only make backup copies one at a time. It 
typically takes an hour or more to copy a single DVD. Moreover, 
we block the user from making a copy from a copy. Thus, high 
speed mass production is literally impossible with our product.
    Two, every copy of our software must be registered to be 
usable and every backup DVD is invisibly watermarked throughout 
the copy so that if it is improperly distributed or sold, it 
can be traced back to the person that is using this product.
    Third, the software actively eliminates any digital copy of 
the original DVD from the computer during the process of making 
the backup copy so there is literally nothing on the computer 
to upload to the Internet. Make no mistake, Chairman, this 
issue is not about Napster. It is not about peer-to-peer file 
sharing.
    Finally, I will close with this. 321 repeatedly has offered 
to work with movie-makers consistently over and over so that 
the back-up copies made by our product also would be encrypted 
or further rights included on the backup. They have 
consistently not only refused us, they have turned a deaf ear 
every single time.
    We are at a watershed moment, Mr. Chairman. As 321 Studio's 
story makes all too clear, H.R. 107 is critical to rescuing the 
public from this DMCA ``Catch-22'' never intended by Congress. 
For my family, for my company, for millions of consumers who 
simply want to make a personal backup copy of a DVD without 
fear of persecution or prosecution, I implore this committee 
and all Members of Congress to cosponsor and pass H.R. 107. 
Thank you, Mr. Chairman.
    [The prepared statement of Robert Moore follows:]
  Prepared Statement of Robert Moore, Founder & President, 321 Studios
    Chairman Barton, Chairman Stearns, Representatives Dingell, 
Schakowsky, and Members of the Subcommittee: My name is Robert Moore, 
and I am the Founder and President of 321 Studios of St. Charles, 
Missouri--a company started in my basement with 3 family members in 
2001. 321 Studios is a software company. We have provided more than 1 
million DVD consumers with a convenient way to make backup copies of 
their DVD collections. Our software is designed with many anti-piracy 
features. It does not affect audio CDs.
    In three years we created almost 400 jobs and achieved 100 million 
dollars in sales. Today, I appear for my family and the fewer then 40 
remaining employees of a company on the brink of annihilation, caught 
with our customers in a nightmarish ``Catch-22'' created by the courts' 
incomplete reading of the 1998 Digital Millennium Copyright Act.
    I am most grateful to be here, however, NOT to tell 321 Studios' 
story for its own sake. Instead, I offer it today as a surreal example 
among many of why H.R. 107, the Digital Media Consumers' Rights Act, is 
such vital legislation.
    I want to especially thank Reps. Boucher and Doolittle for their 
tireless dedication to consumers' rights under copyright law, and 
Chairman Barton and Chairman Stearns for this forum, and ask that my 
prepared statement and exhibits be included in the Record. Today, I ask 
the Subcommittee and all Members of Congress to consider three key 
points:

 ONE: 321 Studios 1 million plus customers--like American consumers in 
        general--are people, not pirates, and we should strike a 
        balance in copyright law for them.
 TWO: Our product is virtually impossible to use for real ``piracy''--
        high-speed volume bootlegging and internet distribution--as 
        distinct from reasonable consumer use of copyrighted works.
 THREE: H.R. 107 is needed if the protection for fair use and consumer 
        rights that Congress deliberately wrote into the DMCA is to 
        have any practical meaning in a digital age of content 
        encryption. Let me take these points in order . . .

                               POINT ONE

    Our customers are ordinary and honest Americans: moms and dads, 
artists and educators, librarians and movie buffs. These customers just 
want to keep their expensive collections safe so they can enjoy them 
for years to come and they expect to be able to use DVDs like they use 
other legally obtained unencrypted media. They collectively have paid 
Hollywood billions of dollars for DVDs that--as CNN and the Associated 
Press reported just yesterday and last week--we now know to physically 
rot and degrade, and to be easily damaged by toddlers, teens or harsh 
conditions of all kinds. A copy of those reports is attached for the 
record, as well.
    Our customers tell us that they also use our software to assure 
their ongoing access to titles they've bought that later go out of 
distribution, and to restore single disks included in expensive boxed 
sets that cannot be purchased individually.
    Please allow me to submit for the record a disk containing brief 
statements, entirely in their own words, from just five of the 
literally thousands of testimonials our customers have taken the time 
to provide to us. A transcript is also attached.
    I would also like to submit for the record a disk containing 
electronic copies of the more than 160,000 communications made to 
Congress in support of 321 Studios advocacy on this issue since we 
launched our website in December of 2002.

                               POINT TWO

    We at 321 Studios also are honest, hard-working, middle-American 
folks who love movies and who respect copyright. To begin with, we 
didn't hide offshore from Hollywood or wait to get sued.
    Long before any action was filed against us, 321 Studios actually 
asked a federal judge to issue a declaratory ruling that consumers had 
a fair use or other right to make a backup copy of encrypted DVDs under 
the DMCA and, therefore, that our product was legal.
    Incredibly, the court didn't reach the question of what the DMCA's 
fair use ``savings clause'' meant. It just mechanically ruled our 
software to be an illegal ``circumvention'' tool and didn't address the 
question we had asked. Sued later by Hollywood, we were enjoined from 
marketing 321 Studios' software and consumers were cut off from our 
product: one they need in an encrypted marketplace to make their fair 
use rights real.
    Judge us also, please, by how we designed and marketed our 
software. Frankly, anyone who tries to use it to mass produce bootleg 
DVDs would immediately become a strong contender for ``Dumbest Criminal 
of the Year.'' I say this confidently for a host of reasons:

1. Our software can only make backup copies one at a time and it 
        typically takes an hour or two to copy a single DVD. Moreover, 
        we block the user from making a copy from a copy. Thus, high-
        speed mass production is literally impossible with 321 Studios' 
        product.
2. The encryption placed on the original DVD by a movie studio is 
        wholly unaffected by 321 Studio's software;
3. Every copy of our software must be registered to be useable and 
        every backup DVD is invisibly ``watermarked'' throughout the 
        copy so that--if improperly distributed or sold--it can be 
        traced back to the person misusing the software to violate 
        copyright law.
4. The software actively eliminates any digital copy of the original 
        DVD from the computer during the process of making the backup 
        copy so there is literally nothing on the computer to 
        ``upload'' to the Internet. Make no mistake: this issue is not 
        about Napster or peer-to-peer file-sharing.
5. Finally in this regard, 321 Studios repeatedly has offered to work 
        with movie-makers so that the back-up copies made by our 
        product also would be encrypted. They consistently have 
        refused, preferring to argue that we are ``pirates'' because 
        the backup DVDs that our software helps consumers make are 
        unencrypted!

                              POINT THREE

    The issue raised by HR 107 and squarely before the Subcommittee 
today is not whether piracy is bad or the industry deserves to be 
protected from it. The answer to those questions is clearly ``yes'' on 
both counts.
    The real, practical and very pressing question dramatically 
highlighted by the experience of 321 Studios is simply this:
    ``If consumers can make a personal copy of an audio CD they've 
bought to put on their iPod or play in their car . . .
    ``If consumers can use a VCR or TiVO to make a tape or digital copy 
of a movie on broadcast or cable TV . . .
    ``If consumers can use conventional and digital photocopiers, and 
digital scanners, to reproduce pages from a book . . .
    ``If consumers can make a backup copy of a computer program like 
Windows . . .
    ``Then, how can it be that consumers are criminals for making a 
backup copy of a DVD they've bought and paid for and why is our 
company--indeed any technology company--criminal for selling them the 
digital tools that they must have to make their rights real?

                               CONCLUSION

    We are at a watershed moment, Mr. Chairman. As 321 Studio's story 
makes all too clear, H.R. 107 is critical to rescuing the public from 
this DMCA ``Catch-22'' never intended by Congress.
    For my family, for my company, for millions of consumers who simply 
want to make a personal backup copy of a DVD without fear of 
persecution or prosecution . . . I implore this Committee and all 
Members of Congress to cosponsor and pass H.R. 107.
    Thank you, Mr. Chairman. I look forward to your questions.

    Mr. Stearns. I thank you and I will start with my 
questions. Mr. Moore, I think you make a very good case for 
allowing families or individuals to make one backup copy. You 
mention there is a watermark that you could identify. You say 
it is almost impossible to use your technology for piracy 
because who is going to spend all that fripping time if it 
takes so long to use your software to do one copy. I think you 
have given a lot of reasons why real piracy is not going to 
come from your technology.
    Let me ask you about GamesXCopy product. You have also 
received challenge from the content community for that. Explain 
to me what the problem is there.
    Mr. Moore. I am not ware of any challenge to that 
particular product. GamesXCopy is----
    Mr. Stearns. Hold on 1 second. Just wait. This is a vote, I 
think. Go ahead.
    Mr. Moore. For lack of a better term, it is a virtual CD 
drive for a person's computer. They don't have to physically 
have the game CD in their drive in order to use it. As our 
customers have found out, this wears out the CD very quickly. 
We don't have to bypass any technical protection measure in 
order to make that happen so GamesXCopy we believe is clearly 
delineated by Section 117 of the consumer having the right to 
make a backup copy of a software.
    Mr. Stearns. So you have had no challenges on that?
    Ms. Rose. Well, actually----
    Mr. Stearns. Ms. Rose.
    Ms. Rose. There have been no formal challenges to that and 
the ESA member companies are analyzing the product and keeping 
their options open with regard to what strategies they may like 
to pursue in the future.
    Mr. Stearns. So at this point you haven't ruled out the 
possibility that you could challenge it?
    Ms. Rose. Correct.
    Mr. Stearns. Okay. Mr. Moore, do you support restoration of 
the Sony decision?
    Mr. Moore. To the extent that it absolutely reinforces the 
consumers have a personal use of property that they lawfully 
acquired, absolutely.
    Mr. Stearns. Okay. Mr. Murray, won't removing the barriers 
to accessing protected materials do a disservice to customers, 
consumers, because companies will be less inclined to use 
insecure formats for distributing their protected material?
    I mean, I heard that earlier on the second panel. They made 
this big argument that, you know, one of the reasons why we are 
successful with intellectual property and we are so creative is 
because we have this protection and the companies feel very 
secure that they can go ahead and give their creativity and 
their products will be protected. I guess the question is 
wouldn't that create insecure formats for distributing these 
protected material?
    Mr. Murray. Well, I think there are two questions there. 
One is what is wrong with the DMCA as it stands? What I was 
trying to get out by talking about printer cartridges and 
garage door openers is the fact that companies are asserting 
when there would not be a copyright that would allow them 
normally to say, ``Hey, you can't copy this material.''
    Like in the case of a garage door opener when you send an 
access code, they are allowing people to sue companies because 
they are circumventing something where copyright can't sort of 
hold in the first instance. What I am concerned about is the 
anti-competitive effects for entrepreneurs who want to bring 
products to market when copyright wouldn't normally be in play 
they are now getting challenged through the anti-circumvention 
provisions.
    But to address your question more directly, these systems 
will never be 100 percent secure. We are not suggesting that 
companies can't employ DRM in the market place. The status quo 
for consumers right now is even though the law says, ``Hey, you 
have fair use rights. You have certain things you can do with 
content,'' technology has left consumers short. The status quo 
is that rights that the law affords are simply not present.
    I guess what I am saying is I see technology coming to 
market rights management solutions that allow one copy, five 
copies, etc. Forgive me if I am exceeding my time but I think 
that these technologies that are coming to market--forgive me 
for losing my train of thought.
    Mr. Stearns. Let me keep going on here. Mr. Sherman, you 
heard Mr. Moore talk about you can't use his technology to 
develop a large number of copies. A couple of members asked is 
it possible, is there technology that would in effect allow one 
copy to be made and that would be it? Mr. Moore has indicated 
there is. He has this. Isn't that true, Mr. Moore?
    Mr. Moore. Yes.
    Mr. Stearns. Let us be very clear in this hearing that Mr. 
Moore is saying we have arrived, we have the technology and we 
will do this. We will allow one copy. There will be a 
watermark. We can trace if somebody pirates this and uses it 
for something else. Isn't it possible we could reach a 
compromise with him and allow him to sell this product? I mean, 
is there no compromise you see based upon what you hear?
    Mr. Sherman. Well, the fact that technologies are available 
to limit the number of copies makes perfect sense and is an 
obvious area to work things out in ways that meet consumer 
expectations.
    I think the problem with Mr. Moore's product is that in 
order to make that one copy, he strips out the encryptions so 
that people can then use that copy to make other copies so you 
need to be able to make a secure copy so that itself cannot be 
copied endlessly. I was impressed to find that Jack Valenti 
held up a copy that obviously was a pirate copy being sold. 
Maybe that was the dumbest criminal that wins the award but 
somebody was selling in Chinatown in Washington a pirate copy 
of a movie----
    Mr. Stearns. Without the encryption. A Run-Away Jury.
    Mr. Sherman. 321, yeah.
    Mr. Stearns. What do you say, Mr. Moore, to that? You strip 
off the encryption and, bingo, there we are.
    Mr. Moore. Let me address both of these things in sequence. 
First of all----
    Mr. Stearns. And then I will conclude.
    Mr. Moore. With respect to the fact that the backup copy 
doesn't have the encryption, Mr. Sherman is absolutely aware 
that is an impossible task given the current technology that is 
available to our company. Through a combined effort of working 
with technology companies like ourselves, a solution could 
quite easily be reached that would satisfy that concern. I can 
address that in more detail if the subcommittee would like, but 
I would just like to say for the record that the technology 
absolutely exist to re-encrypt this content in such a way that 
would satisfy that concern.
    The second thing I would like to say with respect to this 
Run-Away Jury video that Mr. Valenti held up this morning and 
said that he had purchased in Chinatown and I don't doubt that 
he did. I don't doubt that----
    Mr. Stearns. It had 321 on it.
    Mr. Moore. That is exactly right. I don't doubt that 
someone has now come to our attention that has used the 
software for an illicit purpose. That would make the second 
time in the last 3 years out of a million customers that this 
has been brought to out attention.
    I would also like to point out that because of the anti-
piracy features that we built in to that product voluntarily 
because we do respect the rights of copyright holders, they 
were able to identify, No. 1, that it was indeed a backup made 
with our software and not perhaps 50 other pieces of software 
that currently circulate on the Internet and don't show the 
same respect for copyright holders.
    No. 2, if they had come to us and asked, we would have 
clearly pointed out that there is other forensic evidence in 
that video stream that would clearly identify the perpetrator 
and the person who was doing that. We want to work with the 
content community to find a way to satisfy these concerns. We 
have been shut out.
    Mr. Stearns. My time has expired. Let me ask the gentleman 
from California, we have about 7\1/2\ minutes left. You are 
welcome to go if it is a short event, or we will recess the 
committee and come right back. We only have one vote so we are 
moving to the end of this if you will be patient. Would you 
like to have maybe 2 minutes or do you want to come back and 
get a full 5 minutes? I think we will recess and come back 
right after the vote.
    [Whereupon, the subcommittee went off the record at 2:57 
p.m.]
    Mr. Stearns. The subcommittee will reconvene.
    Mr. Otter, you are up for questions.
    And I also want to thank the third panel for their patience 
and forbearance.
    Mr. Otter. Thank you, Mr. Chairman.
    I apologize for having absented myself from the hearing, 
and so if I ask a couple of questions here that are redundant 
from earlier questions perhaps asked by the committee, I 
apologize for that.
    Mr. Moore, does 321 studios encrypt or take other measures 
to protect the software that you make?
    Mr. Moore. Yes, Congressman, we do.
    Mr. Otter. Why?
    Mr. Moore. We do it for the purposes of insuring that our 
anti-piracy measures that we have built into our product have 
some teeth.
    Mr. Otter. You do not do it to protect your own invention, 
your own creation?
    Mr. Moore. To some extent, I would say yes, but in large 
part, I would say that the majority reason there is because we 
want to give teeth to our anti-piracy features. In fact, we 
allow multiple copies of our product to be installed on a 
number of computers by our customers.
    Mr. Otter. If 107 were to pass, would that also take the 
encryption off of your software?
    Mr. Moore. Congressman, it is my understanding that H.R. 
107 is not about removing encryption from DVDs; that it is 
about whether or not consumers have the right to bypass the 
technological protection measure in order to avail themselves 
of a fair use.
    Mr. Otter. All right. Let me ask that in a different way 
then. Would you have a problem if 107 included being able to 
bypass the encryption on 321 Studio encryption?
    Mr. Moore. Well, I would assume that you mean for a non-
infringing use, and, no, sir, I would not have a problem with 
that.
    Mr. Otter. So you would----
    Mr. Moore. In fact, that happens right now with our 
software.
    Mr. Otter. Could I use right now your software and 
duplicate your software so that I would have a backup system in 
case anything went wrong?
    Mr. Moore. Yes, sir, you could. You could most certainly 
make a backup copy of our software.
    Mr. Otter. How many times could I duplicate that?
    Mr. Moore. Multiple times.
    Mr. Otter. Could I? Well, so you don't believe then that 
there is any need for you to protect your software.
    Mr. Moore. Well, as I stated before, the primary reason 
that we include the activation feature in our software that we 
do is to give teeth to the anti-piracy measures that we 
included. They are not disingenuous in nature.
    But further to your question, we want to have some control 
over the people that are using our software is we felt that we 
had a responsibility as honest American consumers to do the 
right thing, and that is the right thing, in our opinion, is to 
keep some control over it so that people are using it for its 
intended purpose.
    Mr. Otter. Well, don't you think though that that is what 
the entertainment business is doing, is keeping some control 
over the distribution and use of their creative efforts on 
DVDs, on music, on movies, on whatever?
    Mr. Moore. As I testified before, Mr. Otter, I absolutely 
agree with the studio's position and always have, that they 
have a right to protect their intellectual property. They have 
a right to be wary of piracy and problems that are currently in 
the marketplace. And I see those as tools of distribution that 
could absolutely hamper their efforts to make a profit, to make 
a fair return on their investment.
    However, I believe that ends at tools of consumption where 
consumers use a tool specifically for their own personal use 
and do not impact the rights of the copyright holder from a 
distribution standpoint is where I firmly believe the consumer 
has the right to do so.
    Mr. Otter. Well, then why bother with encryption at all?
    Mr. Moore. Are you asking me why the studios encrypted DVD?
    Mr. Otter. Yeah.
    Mr. Moore. I am not aware that all DVDs are encrypted with 
CSS. I am not sure what their reasoning is for encrypting the 
DVDs with CSS since the massive tools of piracy do not rely on 
circumventing CSS at all in order to actually reproduce and 
manufacture fraudulent copies of DVDs overseas right now.
    So you would need to ask the studios why they encrypted 
with CSS. I cannot answer for them.
    Mr. Otter. Did you hear Mr. Valenti's testimony earlier?
    Mr. Moore. Yes, sir.
    Mr. Otter. Do you agree with his conclusion that if we were 
to take off the certain controls that we have now through 
encryption, it would adversely affect not only our trading 
agreements, but our balance of trade? Do you agree or----
    Mr. Moore. I did hear him say that, and, no, I do not agree 
with that statement.
    Mr. Otter. You do not agree with it?
    Mr. Moore. No, sir, I do not.
    Mr. Otter. So you know, the fact that the employment has 
dropped, as I read in the testimony, down to 40 from an all 
time high of was it 400? I apologize.
    Mr. Moore. It was 400 employees, yes, sir.
    Mr. Otter. You do not think something similar would happen 
in the entertainment industry if we were to remove the controls 
that the industry has over itself right now?
    Mr. Moore. Sir, you are asking me to hypothesize, and I do 
not need to hypothesize. We have a million consumers. Our 
product has been the No. 1 seller on retail shelves for the 
last 3 years, and we have uncovered, I believe, one or two 
cases now of people using our product for a copyright 
infringement.
    There is no reason to hypothesize here. No, I do not 
believe that it will cause any harm as evidenced by the 
statistical history of what has happened.
    Mr. Otter. Well, I would jus conclude, Mr. Moore, by saying 
do not ask this committee to hypothesize either that you know 
every one of those customers.
    Mr. Moore. Congressman, I am not asking you to hypothesize. 
I am asking this committee to look at H.R. 107 and give the 
benefit of doubt to American consumers. We are part of a 
democracy where the underlying principles of our country are 
that we presume innocence before guilt.
    And what the DMCA has done in its interpretation of the 
DMCA is it has presumed guilt before innocence, and that is the 
problem that I have with it. That is the problem that my 
customers have it.
    Will some people use this product for an infringing 
purpose? Absolutely. I would be foolish to tell you otherwise. 
Will people run red lights? Absolutely. People do that every 
single day.
    We do not put steel spikes in front of red light 
intersections because that happens. We expect most people to 
obey the law, and most people do. Most people respect the 
rights of copyright holders, and I can speak very firmly for my 
customers who absolutely believe in the rights of copyright 
holders.
    But they also believe they have a right to their own 
property; that they have taken money out of their own wallet 
and pay for.
    Mr. Stearns. The time of the gentleman has expired.
    Mr. Otter. Thank you, Mr. Chairman.
    Mr. Stearns. The gentleman from California.
    Mr. Issa. Thank you, Mr. Chairman.
    And I realize that this is now the third panel. So 
sometimes the questions are being asked to a certain extent 
because I didn't get to ask it to the other guy. So please 
forgive me, but, Mr. Moore, I'll probably concentrate a little 
bit on your here.
    Mr. Moore. I will try and take that as a compliment.
    Mr. Issa. Well, you know, you are kind of the reason for 
this. Do you know what tokenism is? Sometimes it is a good 
thing, and you are it. You are the case where it appears as 
though you did make a good faith effort to make the 
circumvention less than a Napster, to try to bring some order 
to the business of backup copies.
    But I have to ask you a series of questions.
    Mr. Moore. yes, sir.
    Mr. Issa. One of them is you heard Mr. Swift, former 
congressman earlier today, and you heard him describe--now, 
this was music, not DVDs--you heard him describe that he owns 
licenses and that he owns copies of CDs, and he takes a cutoff 
this record and a cutoff that record. I'm sorry. I'm showing my 
age with the word ``record.''
    But he takes a digital record off of each of these that 
happens to be a song, and he puts it into a new piece of art, 
which he thinks he has created, and he gives it out to friends 
and family.
    If your product allowed for people to do that or if they 
made part of a movie or if DVDs some day had four movies and 
they did one of the four and then another one from a different 
DVD and put it together and gave it out to their friends, would 
they be in your opinion, because you do look at the copyright 
laws and not exceeding fair use, do you think that that exceeds 
fair use? That that is wrong, that is taking of a property?
    Mr. Moore. Let me preface my opinion with a simple 
disclaimer, if I may, Congressman. I'm not a lawyer. I'm not a 
copyright lawyer. I am----
    Mr. Issa. These are all good things.
    Mr. Moore. I am strictly a layman from that perspective. I 
would not even begin to insinuate that I have a right to come 
here and lecture this body on the rights and wrongs of 
copyrights.
    For me personally, the copyrights and ``copywrongs,'' as I 
have called them, simply boil down to either one or two things, 
and that is it's either an act of distribution or it is an act 
of consumption. For me personally, speaking only for myself and 
for no other person in this room, I believe that an act of 
consumption is pretty much self-defining.
    Mr. Issa. Okay.
    Mr. Moore. You consume a product that you own in a way that 
is personally evident to you, perhaps your immediate family 
members. That is an act of consumption.
    To the extent that you distribute a product----
    Mr. Issa. Sure. Following up on that, if I buy a book, a 
book by historic definite, only one person can read it at a 
given second unless you are reading, you know, literally 
reading to your children, but if I make a copy of a DVD using 
your product and then I make an additional copy and I give one 
to my son and one to my wife and I have one, and for whatever 
reason all three of us are in different rooms watching at the 
same time, isn't that beyond the scope of a single license? And 
isn't that one of the problems that you presently have with 
your product, is it does allow for the potential that people 
would take one product, one right and turn it into three 
simultaneous requests?
    Mr. Moore. Speaking as someone from the software industry, 
you are presupposing that the DVD is sold to me as a consumer 
under the guise of a license. I am aware of no such license.
    When I purchase software, there is an end user license 
agreement that is wrapped around the software, and in many 
cases it does limit my rights in terms of how many places I can 
use that. DVD does not do that.
    Mr. Issa. Okay, but let me switch maybe to one other 
direction, and again, I apologize to the rest of you. You are 
not chopped liver, but I am focusing on one member here in my 
limited time.
    If you had the ability to modify your product to include 
checking with each of the studios that own the right to that 
copyright, if you were interfacing with a data base, and if 
your product would only allow for one copy per licensed 
original user and per a given machine, one, is this something 
that you have envisioned being able to do and, two, do you 
believe that your product would still sell just as well if you 
did that?
    Mr. Moore. Well, I believe that there are technological 
restrictions that could be placed even further on the product 
than we have in concert with the entertainment companies that 
would absolutely address those issues, and yes, I believe that 
provided that the product is not absolutely drowning in 
digitalized management, that it would continue to sell just as 
well because there is clearly a market demand for this product.
    But, again, I am not a copyright lawyer, and one of the 
thing that I believe I understand about H.R. 107 to begin with, 
and excuse me, Congressman Boucher if I am speaking out of turn 
here, but I believe your bill states that fair use is not 
something that we need to determine now or that H.R. 107 is 
determining, but courts of competent jurisdiction down the road 
would then be able to determine whether or not something was a 
fair use based upon whether somebody was actually committing 
copyright infringement or not, and that that would be the 
determination as to whether or not someone was violating a 
technological protection measure.
    Mr. Issa. Mr. Chairman, if I can just make a quick 
statement for the record, for what it is worth, I do believe 
that this committee has a role to play in more thoroughly 
having the public understand fair use because I think this 
morning a former member of this committee, an honorable man, 
told us he was doing something which he believed was right and 
which I believe is exactly what fair use was not intended to 
mean.
    You cannot, in my opinion, just make unlimited copies and 
give them out slightly different and say it is fair use just 
because you are not charging for them. It is the core of one of 
the things that Congress has to help put into law if we are, in 
fact, going to insure the rights of intellectual property.
    Thank you, Mr. Chairman.
    Mr. Stearns. The gentleman's time has expired.
    And we have finished with the members of the subcommittee. 
And now as a courtesy, we will give the author of the bill the 
final questions before we conclude the subcommittee hearing.
    Mr. Boucher.
    Mr. Boucher. Well, thank you very much, Mr. Chairman, and I 
want to thank you for permitting a member of the full committee 
who is not a member of this subcommittee to take part in your 
hearing from the perspective of questioning witnesses.
    Mr. Jaszi and Ms. Sohn, let's give you an opportunity to 
take part in this conversation. We heard earlier from Professor 
Lessig that in his opinion, the DMCA potentially can extinguish 
fair use in the digital era. I would assume that both of you 
would agree that there is that potential. Just a one-word 
answer would be satisfactory.
    Ms. Jaszi. Yes.
    Ms. Sohn. Yes.
    Mr. Boucher. Thank you.
    In response to that, the creative community says not to 
worry. We have a process at the Copyright Office that is 
designed to protect fair use, and that process has now been 
functioning for 6 years, and that is really all the protection 
that fair use needs with respect to the DMCA.
    Would you, Professor Jaszi and Ms. Sohn, agree with that 
statement?
    Professor Jaszi, Ms. Sohn.
    Ms. Sohn. Well, I am happy to answer that unqualifiedly no, 
and I would like to give several reasons for that.
    Mr. Boucher. Please.
    Ms. Sohn. The first is that in our opinion the Copyright 
Office has really raised the burden of proof for an exemption 
to an extent that is not in the plain language of the statute. 
they are asking for proponents of an exemption to show that 
there is substantial harm to their noninfringing uses, and that 
word is not in the statute.
    Second the Copyright Office does not look at the types of 
uses that people make with the digital media that they are 
trying to get an exemption for. And, in fact, what is 
interesting is that the Assistant Secretary of Commerce for 
Communications and Information in the two triennial reviews 
that have been had in the 6 years has written letters to the 
Register of Copyrights protesting the burden of proof saying 
that it was contrary, in very strong language, contrary to 
plain language of the DMC and the exemption provision and also 
protesting the fact that the Copyright Office does not look at 
the type of uses that people make with digital media.
    Mr. Boucher. Thank you.
    Professor Jaszi, would you care to comment?
    Mr. Jaszi. I just would add that there is a structural 
problem with the rulemaking which is, I think, a function of 
the statutory design itself, and that is that although the 
rulemaking holds out the promise of a possible exception for 
circumvention conduct, an exception that individuals or 
institutions might be able to avail themselves of were they 
able to satisfy the standard that the rulemaking applies; that 
exception is only with respect to circumvention conduct and not 
in any sense related to devices or technologies.
    So that the promise of the rulemaking, however great or 
small, is in that respect a false promise since the best, the 
individual or the institution that has successfully prosecuted 
their claim for an exception has a theoretical right to use, 
but in all likelihood no ability to take advantage of that 
right.
    Mr. Boucher. All right. Thank you both for those answers.
    Let me simply note that over the 6-year timeframe that this 
process has been in effect, only four exemptions have been 
granted. Many multiples of that number have been requested. In 
fact, 25 entire groups of requests limited together have been 
rejected.
    The Librarian of Congress said the following. This is in 
writing, quote: ``As presently written, the statute places 
considerable burdens on the scholarly, academic, and library 
communities to demonstrate and even to measure the required 
adverse impacts on users.''
    And the Librarian of Congress has recommended to the 
Congress that the statute be changed so as to make the process 
more available and more useful.
    The Assistant Secretary of Commerce also said that the 
standard employed, and I quote, imposes a significantly 
heightened burden on proponents of an exception and is, 
therefore, inconsistent with the opportunity Congress intended 
to afford the user community.
    So both of the principles who are charged with 
administering this process have essentially given it a failing 
grade and have said to the Congress if you want this to be a 
usable process, you are going to have to change it.
    And, Mr. Chairman, I think that information belongs in the 
record, and I appreciate your giving me the opportunity to 
pursue this line of questioning.
    It has been a very long day. I have a lot of other things I 
would like to discuss with these witnesses, but I am going to 
forebear, and I trust that we will have further opportunities 
in this committee to consider these various measures.
    Thank you very much, Mr. Chairman.
    Mr. Stearns. Yes, and I just want to thank the author of 
the bill for his contribution. I want to thank the third panel 
for waiting for us for the conclusion of our votes.
    By unanimous consent, members will have 5 days to submit 
questions for the record, and with that, the subcommittee is 
adjourned.
    [Whereupon, at 4:26 p.m., the subcommittee meeting was 
adjourned.]
    [Additional material submitted for the record follows:]

 Response for the Record of The Entertainment Software Association to 
                Follow-up Questions of Hon. John Shadegg

 Based on the nature of the questions, ESA will provide a joint answer 
                           to Questions 1-12.

    QUESTION 1: Do you contend that under the ``fair use'' doctrine or 
the ``right of fair use,'' an individual may make a back-up copy of a 
CD, a DVD, or software?
    QUESTION 2: If so, provide the legal basis for your opinion.
    QUESTION 3: Do you contend that under the ``fair use'' doctrine or 
the ``right of fair use,'' an individual may make a back-up copy of a 
CD, a DVD, or software for their spouse?
    QUESTION 4: If so, provide the legal basis for your opinion.
    QUESTION 5: Do you contend that under the ``fair use'' doctrine or 
the ``right of fair use,'' an individual may make a back-up copy of a 
CD, a DVD, or software for their children?
    QUESTION 6: If so, provide the legal basis for your opinion.
    QUESTION 7: Do you contend that under the ``fair use'' doctrine or 
the ``right of fair use,'' an individual may make a back-up copy of a 
CD, a DVD, or software for any other family member?
    QUESTION 8: If so, provide the legal basis for your opinion.
    QUESTION 9: Do you contend that under the ``fair use'' doctrine or 
the ``right of fair use,'' an individual may make a back-up copy of a 
CD, a DVD, or software for a friend?
    QUESTION 10: If so, provide the legal basis for your opinion.
    QUESTION 11: Do you contend that under the ``fair use'' doctrine or 
the ``right of fair use,'' an individual may make a back-up copy of a 
CD, a DVD, or software for use in a second location, such as a car or a 
boat?
    QUESTION 12: If so, provide the legal basis for your opinion.
    RESPONSE TO QUESTIONS 1-12: ESA does not believe that the ``fair 
use'' doctrine, as codified in Section 107 of the Copyright Act, 
categorically authorizes any of the acts of copying described in 
Questions 1-12.
    The U.S. Supreme Court has called fair use an ``equitable rule of 
reason,'' and has held that ``each case raising the question must be 
decided on its own facts.'' Sony Corp. of Am. v. Universal City 
Studios, Inc., 464 U.S. 417, 448 and n. 31 (1984) (citing H. Rept. 94-
1476, the House Report on the 1976 Copyright Act, at 65.) The 
codification of the doctrine identifies four factors to be considered 
by the courts, although this is not an exhaustive list.
    Some of these factors would weigh against recognizing a fair use 
privilege to make copies in the scenarios identified in Questions 1-12. 
For example, copying a work in its entirety is disfavored under the 
third statutory factor (``the amount and substantiality of the portion 
used in relation to the copyrighted work as a whole''), and copying 
alone is generally not considered a ``transformative'' use, which is a 
key test that courts apply in evaluating the first statutory factor 
(``purpose and character of the use''). See generally Campbell v. 
Acuff-Rose Music, Inc., 510 U.S. 569 (1994).
    In its 1984 decision in the Sony case, cited above, the Supreme 
Court ruled 5-4 that making a copy of a free over-the-air television 
broadcast for the purpose of time-shifting (later viewing) was a fair 
use. However, the scenarios in Questions 1-12 are all distinguishable 
from the facts in the Sony case--for example, in Questions 3, 5, 7, and 
9 the hypothetical copies were made for the purpose of transferring it 
to another person while retaining the original. In contrast, the Sony 
Court specifically noted that its ruling did not apply to ``the 
transfer of tapes to other persons.'' Sony, 464 U.S. at 425. We are not 
aware of any authoritative judicial precedent that has found a fair use 
privilege to make copies in any of these circumstances.
 Based on the nature of the questions, ESA will provide a joint answer 
                        to Questions 13 and 14.
    QUESTION 13: If you believe that under the ``fair use'' doctrine or 
the ``right of fair use,'' an individual may make a copy of a CD, a 
DVD, or software for any of the above-named individuals or purposes, do 
you believe that Congress should allow by statute such copies to be 
made?
    QUESTION 14: If so, for what individuals or purposes?
    RESPONSE TO QUESTIONS 13 and 14: ESA does not support amending the 
Copyright Act to allow for unauthorized copying of copyrighted 
materials in the circumstances outlined in Questions 1-12. We support 
the courts' continued application of existing law--including the 
codification of the fair use doctrine in Section 107--to the cases that 
come before them.
    QUESTION 15: The Home Recording Act of 1992 makes it a non-
infringing act to make a copy of an audio recording for personal use. 
If such recordings are covered by the ``doctrine'' or ``right'' of 
``fair use,'' why did Congress explicitly have to grant that right in 
1992?
    RESPONSE TO QUESTION 15: ESA agrees that, to the extent that the 
activities covered by the Audio Home Recording Act already benefited 
from the fair use privilege, it would not have been necessary for 
Congress to prohibit any infringement actions from being brought 
against consumers who engage in these activities.
    QUESTION 16: If you contend the doctrine of ``fair use'' covers the 
making of a copy--for backup, family, friends, etc., would it be a 
violation of ``fair use'' to require people to secure permission from 
the producer of a creative work before making the copy?
    Question 16 is not applicable.
    QUESTION 17: If so, provide the legal basis for your opinion
    Question 17 is not applicable.
    QUESTION 18: Is there any device that can reliably distinguish 
between ``fair use'' and any other use? If not, wouldn't enactment of 
H.R. 107 inevitably make it easier to infringe copyright--even if it 
also made it easier to carry out some ``fair uses?'' Why should 
copyright infringement be facilitated and encouraged?
    RESPONSE TO QUESTION 18: ESA believes the record is clear: there is 
at present no device that can reliably permit fair uses while 
preventing unlawful uses that do not qualify under the fair use 
doctrine. Accordingly, we agree that enactment of H.R. 107 would have 
the substantial effect of facilitating copyright infringement, even 
though it may also facilitate some non-infringing uses. We do not 
believe that copyright infringements should be facilitated or 
encouraged.
    QUESTION 19: If no software or technology exists to distinguish 
between ``fair use'' and any other use, how do you propose that 
producers protect their rights over their creative products and protect 
such products from being copied multiple times?
    RESPONSE TO QUESTION 19: Producers should use the tools currently 
provided by the Copyright Act and other provisions of federal law, 
including the DMCA. In ESA's view, enactment of H.R. 107 would 
significantly undermine the ability of producers of copyrighted 
materials to protect their rights and to prevent widespread multiple 
unauthorized copying for the reasons stated above.

 Based on the nature of the questions, ESA will provide a joint answer 
                          to Questions 20-24.

    QUESTION 20: If you believe that the doctrine of ``fair use'' gives 
users the right to make one backup copy, or if you believe Congress 
should grant such a right, would this right be satisfied if the artist 
or producer of the intellectual property provided two encrypted copies 
of a CD, DVD, or software product, neither of which could be 
duplicated, instead of permitting technology that allows users to make 
duplicate copies independently?
    QUESTION 21: If not, why?
    QUESTION 22: If you believe that the doctrine of ``fair use'' gives 
users the right to make multiple copies (for backup, family, friends, 
alternate location, etc.) or if you believe Congress should grant such 
a right, would this right be satisfied if the artist or producer of 
intellectual property provided multiple encrypted copies of a CD, DVD, 
or software product, none of which could be duplicated, instead of 
permitting technology that allows users to make duplicate copies 
independently?
    QUESTION 23: If not, why?
    QUESTION 24: If you do not believe that the ``fair use'' right of 
individuals would be satisfied if artists or producers of intellectual 
property provided two or more copies of the creative work to the 
purchaser, and instead believe that technology which circumvents 
encryption is the only means to secure copies under the ``fair use'' 
doctrine, provide the legal basis for your opinion.
    RESPONSE TO QUESTIONS 20-24: While these questions are inapplicable 
to ESA because of our views on the current doctrine of fair use (See 
answers to questions 1-12 supra) and on the inadvisability of 
Congressional enactment of an exception to copyright in this area (See 
answers to questions 13-14 supra), we believe that the decision to 
provide or not to provide consumers with extra encrypted copies of 
copyrighted products should be resolved in the marketplace. Of course, 
consumers are already free to buy additional legitimate copies for 
family, friends, and additional locations.
    QUESTION 25: Please indicate whether you would agree or disagree 
that this problem could be solved by the marketplace with a disclosure 
on CDs, DVDs, and software products stating that the product may not be 
duplicated unless the purchaser is willing to pay a higher price for a 
copy of the work that can be duplicated.
    RESPONSE TO QUESTION 25: ESA agrees that these issues are best 
resolved in the marketplace, not by legislative fiat. ESA member 
companies are actively engaged in educational efforts to inform 
consumers about permitted and prohibited uses of our products and are 
constantly striving to improve our performance in this regard. We 
believe that decisions on whether or not to offer versions of 
copyrighted products without technological protections, and if so, at 
what price point, should be left to marketplace forces, and that there 
is no justification, at this point, for a legislative mandate on the 
use or non-use of technological protections in this area. Indeed, such 
a mandate could hamper the further development of flexible 
technological protection measures that respond to market demands.

                                 ______
                                 
 Robert W. Holleyman, President and Chief Executive Officer, Business 
                           Software Alliance

                    RESPONSE TO FOLLOW-UP QUESTIONS

    Question 1. Do you contend that under the ``fair use'' doctrine or 
the ``right of fair use'' an individual may make a ``backup'' copy of a 
CD, a DVD, or software?
    Answer. Section 117 of the Copyright Acts permits the making of 
backup copies of software. The law permits the owner of a copy to make 
a copy of a computer program for two specific circumstances: the copy 
is created either as an essential step in the utilization of the 
computer program in conjunction with a machine and that it is used in 
no other manner, or for archival (backup) purposes. To guard against 
abuse of this provision by person claiming to make ``backup'' copies 
when they are in fact pirating, the law prohibits any transfer of a 
copy made under this exception unless the original is transferred with 
it.
    Question 2. If so, provide the legal basis for your opinion.
    Answer. See answer to Question 1, and 17 U.S.C.  117
    Question 3. Do you contend that under the ``fair use'' doctrine or 
the ``right of fair use'' an individual may make a copy of a CD, a DVD, 
or software for their spouse?
    Answer. The fair use doctrine does not generally permit copies of 
entire works. Fair use permits copying of works to be done when there 
is a recognized public interest purpose. Among the purposes noted in 17 
U.S.C.  107 are teaching, research, news reporting and criticism. As 
noted above, section 117 of the Copyright Act does not permit a person 
to transfer a copy made under the exception.
    Question 4. If so, provide the legal basis for your opinion.
    Question 5. Do you contend that under the ``fair use'' doctrine or 
the ``right of fair use'' an individual may make a copy of a CD, a DVD, 
or software for their children?
    Answer. See answers above to question #3.
    Question 6. If so, provide the legal basis for your opinion.
    Answer. See answers above to question #3.
    Question 7. Do you contend that under the ``fair use'' doctrine or 
the ``right of fair use'' an individual may make a copy of a CD, a DVD, 
or software for any other family member?
    Answer. See answers above to question #3.
    Question 8. If so, provide the legal basis for your opinion.
    Answer. See answers above to question #3.
    Question 9. Do you contend that under the ``fair use'' doctrine or 
the ``right of fair use'' an individual may make a copy of a CD, a DVD, 
or software for a friend?
    Answer. See answers above to question #3.
    Question 10. If so, provide the legal basis for your opinion.
    Answer. See answers above to question #3.
    Question 11. Do you contend that under the ``fair use'' doctrine or 
the ``right of fair use'' an individual may make a copy of a CD, a DVD, 
or software for use in a second location, such as a car or a boat?
    Answer. A second copy of a computer program can be made under the 
terms and conditions of Section 117 of the Copyright Act. See answer to 
question #1.
    Question 12. If so, provide the legal basis for your opinion.
    Answer. 17 U.S.C.  117.
    Question 13. If you do not believe that under the ``fair use'' 
doctrine or the ``right of fair use'' an individual may make a copy of 
a CD, a DVD, or software for any of the above named individuals or 
purposes, do you believe that Congress should allow by statute such 
copies to be made?
    Answer. The law already permits certain backup copies of software. 
See answer to question #1.
    Question 14. If so, for which individuals or purposes?
    Question 15. The Home Audio Recording Act of 1992 makes it a non-
infringing act to make a copy of an audio recording for personal use. 
If such recordings are covered by the ``doctrine'' or ``right'' of 
``fair use,'' why did Congress explicitly have to grant that right in 
1992?
    Answer. The Audio Home Recording Act is not relevant to the 
software industry.
    Question 16. If you contend the doctrine of ``fair use'' covers the 
making of a copy--for backup, family, friends, etc.--would it be a 
violation of ``fair use'' to require people to secure permission from 
the producer of the creative work before making a copy?
    Answer. See answers to questions #1 and 3 above.
    Question 17. If so, provide the legal basis for your opinion.
    Question 18. Is there any device that can reliably distinguish 
between ``fair use'' and any other use? If not, wouldn't enactment of 
H.R. 107 inevitably make it easier to infringe copyright even if it 
also made it easier to carry out some ``fair uses?'' Why should 
copyright infringement be facilitated and encouraged?
    Answer. It is our understanding that devices are not now available 
which would be able to distinguish between copies based on an analysis 
of the applicable law. In particular, the availability of the fair use 
defense under the Copyright Act is to be done case bay case based on 
the specific facts of the case. A device would have to be able to make 
determinations which are now reserved for courts. As we stated in our 
testimony, we believe that enactment of H.R. 107 would make it easier 
to infringe copyright.
    Question 19. If no software or technology exists to distinguish 
between ``fair use'' and any other use, how do you propose that 
producers protect their rights over their creative products and protect 
such products from being copied multiple times?
    Answer. We believe the DMCA establishes a fair balance in this 
regard and that further changes in the law are not needed at this time.
    Question 20. If you believe that the doctrine of ``fair use'' gives 
users the right to make one backup copy, or if you believe Congress 
should grant such a right, would this right be satisfied if the artist 
or producer of the intellectual property provided two encrypted copies 
of a CD, DVD, or software product, neither of which could be 
duplicated, instead of permitting technology that allows users to make 
duplicate copies independently?
    Answer. See answer to question #1.
    Question 21. If not, why not?
    Question 22. If you believe that the doctrine of ``fair use'' gives 
users the right to make multiple copies (for backup, family, friends, 
alternate location, etc.), or if you believe Congress should grant such 
a right, would this right be satisfied if the artist or producer of 
intellectual property provided multiple encrypted copies of a CD, DVD, 
or software product, none of which could be duplicated, instead of 
permitting technology that allows users to make duplicate copies 
independently?
    Answer. See answer to question #1.
    Question 23. If not, why not?
    Question 24. If you do not believe that the ``fair use'' right of 
individuals would be satisfied if artists or producers of intellectual 
property provided two or more copies of the creative work to the 
purchaser, and instead believe that technology which circumvents 
encryption is the only means to secure copies under the ``fair use'' 
doctrine, provide the legal basis for your opinion.
    Answer. See answer to question #1.
    Question 25. Please indicate whether you would agree that this 
problem could be solved by the marketplace with a disclosure on CD, 
DVDs, and software products stating that the product may not be 
duplicated unless the purchaser is willing to pay a higher price for a 
copy of work, which can be duplicated?
    Answer. Software vendors already disclose substantial information 
about the playability and system requirements needed to use their 
software. In addition, software companies disclose the DRMs they use on 
their works. Finally, business software products are most often 
licensed based on specific users needs, and priced to reflect this.

                                 ______
                                 
  Prepared Statement of Walter B. McCormick, Jr., President and Chief 
          Executive Officer, United States Telecom Association

    Chairman Stearns, ranking member Schakowsky, and distinguished 
members of the subcommittee, USTA is pleased support H.R. 107, the 
bipartisan Digital Media Consumers' Rights Act. USTA is the premier 
trade association representing service providers and suppliers for the 
telecom industry. USTA's 1200 member companies offer a wide range of 
services, including local exchange, long distance, wireless, Internet 
and cable television services. As the voice of the converged 
telecommunications industry in Washington, USTA advocates for the 
industry's critical issues and provides a common ground where telecom 
carriers of all sizes and businesses can advance industry's concerns.
    USTA members have long served an intermediary role in the copyright 
debate as providers of the Internet access and broadband services 
consumers enjoy and demand. Although the U.S. originally led the 
technology boom in the 1990s, we are now lagging far behind countries 
like Canada, Germany, Italy, South Korea and Japan in high-speed 
broadband deployment. Our consumers cannot benefit from the new 
``killer apps'' because of the outdated regulatory burdens hindering 
rapid broadband deployment. Similarly, while certain content companies 
have made great strides in entering the new world of digital content 
distribution services, consumers will not fully benefit from the new 
era of broadband services without a balanced copyright framework in 
place. Consumers need assurances that they can make the same 
reasonable, personal uses of online works that they currently enjoy in 
the physical world.
    Although many digital bills have recently been introduced under the 
auspices of benefiting the consumer, Congressman Boucher and Chairman 
Barton should be commended for introducing and co-sponsoring a truly 
pro-consumer bill. H.R. 107 ensures the public that they can enjoy 
personal uses of digital media and obtain the necessary warnings when a 
use is not permitted.
    Unfortunately, the reasonable expectations of consumers for the use 
of new products and services in the emerging broadband world are in 
serious jeopardy. The balance that has always existed in copyright law 
has steadily eroded since the passage of the DMCA. Section 1201 of the 
DMCA is one of the clearest examples. Section 1201 was originally 
drafted to prohibit those who circumvent technological protection 
measures in order to infringe copyright or traffic in so-called ``black 
boxes.'' The notion of ``black box'' has now morphed into a ``black 
hole'' of fathomless and absurd litigation. The DMCA is being misused 
by parties to go after competitors in ways never anticipated by 
Congress at time of the DMCA's enactment. Given the overly broad terms 
of Section 1201, litigators now enjoy a sharp sword to go after alleged 
``circumventers,'' who range from producers of robotic pet dogs, to 
manufacturers of universal garage door openers and refillable PC 
printer cartridges. The fact that this law criminalizes the act of 
circumvention, even when the defendant is not infringing copyright and 
can be exercising his or her legally protected fair use rights, bucks 
against fundamental notions of common sense. As another example of DMCA 
distortion, who could imagine that the Recording Industry (supported by 
the pornography industry in their role as copyright owner) would take a 
narrow subpoena provision of the DMCA and use it to engage in an 
unsupervised digital dragnet to collect thousands of Americans' names, 
addresses and phone numbers using a court clerk without judicial 
supervision? Fortunately, the D.C. Court of Appeals, in RIAA v. 
Verizon, unanimously struck down this dangerous distortion of the DMCA 
and forced content owners to follow the proper legal process, restoring 
balance--at least for now--into the Copyright Act.
    H.R. 107 reestablishes this critical balance in several ways. 
First, the bill protects consumers from deceptive practices in the 
labeling of copy-protected compact disks. A narrow labeling provision 
is neither burdensome nor offensive to basic copyright principles. It 
simply requires record companies to indicate on labels when CDs are 
copy protected and warn consumers when they will not play on certain 
devices, such as a personal computer. This is not a new concept. 
Emerging music services, such as I-Tunes, currently inform consumers of 
the permitted and prohibited uses of music in their terms of service. 
Narrow labeling of this sort is critical to prevent consumer confusion 
and avoid consumer backlash against new digital products and services.
    As discussed above, H.R. 107 clarifies that the anti-circumvention 
provisions of Section 1201 make non-infringement a defense to 
circumvention liability. Unlike what some may say, the provision is not 
soft on piracy or bad for consumers. It does not say that consumers are 
automatically free to circumvent for a fair use purposes, but it does 
establish that fair use is a defense. The bill would also benefit 
national cyber-security and future R&D activities, by clarifying the 
exemption for those involved solely in furtherance of scientific 
research into technological protection measures. This narrow 
clarification removes the chilling effect that the law has imposed to 
date on R&D and scholarship activities from threatened and actual 
litigation brought under the DMCA. Finally, H.R. 107 codifies the long-
established principles in the Supreme Court's Sony Betamax case by 
ensuring that companies that produce hardware or software products 
capable of significant non-infringing uses will not be subject to 1201 
claims. The Betamax decision has spurred the creation of many new 
devices from the originally challenged VCR to the wide array of new 
digital devices and services consumers enjoy today. The potential 
chilling effect to the development of new broadband products and 
services would be significant if those industries faced the same 
threats of absurd litigation under Section 1201 as those against the 
universal garage door openers and PC printer cartridge manufacturers.
    H.R. 107 is a welcome message from Congress that assures the 
digital consumer that they are not the enemy. Balanced copyright laws 
ultimately benefit copyright owners, consumers and the providers of the 
emerging technologies of tomorrow.

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