[Senate Hearing 108-912]
[From the U.S. Government Publishing Office]



                                                        S. Hrg. 108-912

         PROTECTING INNOVATION AND ART WHILE PREVENTING PIRACY

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

                                HEARING

                               before the

                       COMMITTEE ON THE JUDICIARY
                          UNITED STATES SENATE

                      ONE HUNDRED EIGHTH CONGRESS

                             SECOND SESSION

                               __________

                             JULY 22, 2004

                               __________

                          Serial No. J-108-91

                               __________

         Printed for the use of the Committee on the Judiciary




                                 _____

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                       COMMITTEE ON THE JUDICIARY

                     ORRIN G. HATCH, Utah, Chairman
CHARLES E. GRASSLEY, Iowa            PATRICK J. LEAHY, Vermont
ARLEN SPECTER, Pennsylvania          EDWARD M. KENNEDY, Massachusetts
JON KYL, Arizona                     JOSEPH R. BIDEN, Jr., Delaware
MIKE DeWINE, Ohio                    HERBERT KOHL, Wisconsin
JEFF SESSIONS, Alabama               DIANNE FEINSTEIN, California
LINDSEY O. GRAHAM, South Carolina    RUSSELL D. FEINGOLD, Wisconsin
LARRY E. CRAIG, Idaho                CHARLES E. SCHUMER, New York
SAXBY CHAMBLISS, Georgia             RICHARD J. DURBIN, Illinois
JOHN CORNYN, Texas                   JOHN EDWARDS, North Carolina
             Bruce Artim, Chief Counsel and Staff Director
      Bruce A. Cohen, Democratic Chief Counsel and Staff Director
























                            C O N T E N T S

                              ----------                              

                    STATEMENTS OF COMMITTEE MEMBERS

                                                                   Page

Hatch, Hon. Orrin G., a U.S. Senator from the State of Utah......     1
    prepared statement...........................................   102
Leahy, Hon. Patrick J., a U.S. Senator from the State of Vermont.     3
    prepared statement...........................................   114

                               WITNESSES

Bainwol, Mitch, Chairman and Chief Executive Officer, Recording 
  Industry Association of America, Washington, D.C...............    17
Greenberg, Andrew C., Vice Chairman, Intellectual Property 
  Committee, Institute of Electrical and Electronics Engineers, 
  Washington, D.C................................................    13
Holleyman, Robert, President and Chief Executive Officer, 
  Business Software Alliance, Washington, D.C....................    12
McGuiness, Kevin S., Executive Director, NetCoalition, 
  Washington, D.C................................................    15
Peters, Marybeth, Register of Copyrights, Copyright Office, 
  Washington, D.C................................................     5
Shapiro, Gary J., Chief Executive Officer, Consumer Electronics 
  Association, Arlington, Virginia...............................     9

                         QUESTIONS AND ANSWERS

Responses of Mitch Bainwol to questions submitted by Senators 
  Leahy and Cornyn...............................................    33
Responses of Andrew C. Greenberg to questions submitted by 
  Senator Leahy..................................................    39
Responses of Robert Holleyman to questions submitted by Senator 
  Leahy..........................................................    48
Responses of Kevin S. McGuiness to questions submitted by 
  Senators Leahy and Cornyn......................................    51
Responses of Marybeth Peters to questions submitted by Senators 
  Leahy and Cornyn...............................................    56
Responses of Gary J. Shapiro to questions submitted by Senators 
  Leahy and Cornyn...............................................    63

                       SUBMISSIONS FOR THE RECORD

Bainwol, Mitch, Chairman and Chief Executive Officer, Recording 
  Industry Association of America, Washington, D.C., prepared 
  statement......................................................    70
Black, Ed, Computer & Communications Industry Association, 
  Washington, D.C., statement....................................    75
Directors Guild of America, Washington, D.C., statement..........    79
Greenberg, Andrew C., Vice Chairman, Intellectual Property 
  Committee, Institute of Electrical and Electronics Engineers, 
  Washington, D.C., prepared statement...........................    82
Holleyman, Robert, President and Chief Executive Officer, 
  Business Software Alliance, Washington, D.C., prepared 
  statement......................................................   107
McGuiness, Kevin S., Executive Director, NetCoalition, 
  Washington, D.C., prepared statement...........................   116
P2P United, Adam M. Eisgrau, Executive Director, Washington, 
  D.C., letter...................................................   129
Peters, Marybeth, Register of Copyrights, Copyright Office, 
  Washington, D.C., prepared statement...........................   134
Portnow, Neil, President, National Academy of Recording Arts & 
  Sciences, Santa Monica, California, statement..................   155
Shapiro, Gary J., Chief Executive Officer, Consumer Electronics 
  Association, Arlington, Virginia, prepared statement...........   157



















 
         PROTECTING INNOVATION AND ART WHILE PREVENTING PIRACY

                              ----------                              


                        THURSDAY, JULY 22, 2004

                              United States Senate,
                                Committee on the Judiciary,
                                                    Washington, DC.
    The Committee met, pursuant to notice, at 2:07 p.m., in 
room SD-226, Dirksen Senate Office Building, Hon. Orrin G. 
Hatch, Chairman of the Committee, presiding.
    Present: Senators Hatch and Leahy.

 OPENING STATEMENT OF HON. ORRIN G. HATCH, A U.S. SENATOR FROM 
                       THE STATE OF UTAH

    Chairman Hatch. Well, we are happy to welcome you all here. 
At this hearing, leading experts on the intersection of 
copyright law and technology will share their views on how this 
Committee can best restore the ability of copyright-holders to 
challenge the large, for-profit global piracy rings that 
threaten the future of today's cinema and recording industries.
    Research now suggests that these piracy rings will create 
billions of infringing copies this year alone. The architects 
of this file-sharing piracy make millions of dollars, while 
attempting to avoid any personal risk of the severest criminal 
and civil penalties for copyright infringement.
    I think all here today would agree that these pernicious 
schemes to encourage others--and unfortunately these are mostly 
kids--to break Federal law allows these pirates to collect huge 
revenues, while subjecting users to the risk of prison or 
crippling damage awards.
    To implement their schemes, the architects of file-sharing 
piracy must encourage users to infringe copyrights by either 
downloading infringing copies of works--an easy task--or by 
uploading files for distribution to millions of strangers--a 
more difficult task, with the sole reward being a risk of 
prosecution.
    There can be no doubt that automating redistribution 
induces mass infringement that would otherwise never occur. The 
design of some file-sharing software enables its distributors 
to automate, induce and profit from copyright piracy. 
Unfortunately, as recent court decisions have made abundantly 
clear, Congress must act to resolve this situation.
    Let me make clear that our aim is to stop the for-profit 
commercial piracy operations that threaten the future of 
artists, legal commerce, and all but their most cautious and 
expert users. I also underscore that our goal is not to subject 
law-abiding technology interests to undue legal exposure.
    To address this problem, Senator Leahy and I introduced S. 
2560, the Inducing Infringement of Copyrights Act. The Act 
provides that the courts can impose secondary liability upon 
those who intend to induce copyright infringement. We developed 
this approach with the help and support of leading technology 
companies. We want to continue to work with interested parties 
to make refinements that will help us to achieve the bill's 
intent.
    The approach taken in S. 2560 is intended to have three key 
attributes. First, S. 2560 is technology-neutral. It does not 
single out peer-to-peer networking technology for punitive 
regulation just because a few bad actors have misused it.
    Secondly, S. 2560 uses a proven model for structuring 
secondary liability that can address cases of intent to induce 
infringement that were explicitly not covered or addressed by 
the Supreme Court in the famous Sony v. Betamax case.
    And, third, it our intent that S. 2560 change the law of 
contributory liability only for a very narrow class of 
defendants. It is our expectation that most defendants will 
never be affected by S. 2560 because they already face broader 
liability for inducing copyright infringement. Nor do we intend 
to affect defendants for whom Congress or courts have narrowed 
the general rule of secondary liability for knowing inducement. 
It is also our intent that the bill not affect distributors of 
copying devices who merely know that their devices can be or 
are being used by others to make infringing copies.
    As our hearing today will show, some technology companies 
have expressed concerns to Senator Leahy and me that claims for 
intentional inducement might be misused against companies that 
merely sell copying devices. We do not believe that is the 
case, but we are willing to enter into a constructive dialogue 
to ensure that the language is drawn as tightly as possible.
    I want to continue working with technology industries to 
resolve any concerns about possible abuse of liability for 
intentional inducement. If there are alternative ideas, let's 
discuss them. Just as the Sony court never intended to allow 
the substantial non-infringing use rule to be misused as a 
license to enter the copyright piracy business, I don't believe 
Senator Leahy and I intend to allow S. 2560 to be misused 
against legitimate distributors of copying devices.
    I have a longer statement that I will submit for the 
record, but this is an important hearing. It involves billions 
and billions of dollars in the future, and we need to resolve 
this problem and we would appreciate all the help that each of 
you can give who are experts in this field and who have 
particular interests in this field. We will count on you 
helping us to know how to do this in the very best possible 
way. Nobody has a desire to hurt anybody by this type of 
legislation. We just want it to work and to help to preserve 
all of these interests that deserve to be preserved.
    [The prepared statement of Chairman Hatch appears as a 
submission for the record.]
    Chairman Hatch. Senator Leahy, we will turn to you.

  STATEMENT OF HON. PATRICK J. LEAHY, A U.S. SENATOR FROM THE 
                        STATE OF VERMONT

    Senator Leahy. Thank you, Mr. Chairman. I thank you for 
holding this hearing today and, of course, thank the witnesses 
who have come here, who are probably like many in counting the 
moments for the Congress to get out of town because while most 
of you, of course, live for these appearances and the days and 
times of being sent up here, you may actually have things to 
do, like a life.
    I hope you all have a good August. I am willing to show 
great dedication and am even willing to spend the whole month 
of August in the State of Vermont, a very difficult assignment, 
as you can imagine.
    I am glad you are here and I am glad we can discuss the 
Inducing Infringement of Copyrights Act, with legitimately an 
eye toward moving the legislation in the fall. The issues 
facing the copyright and technology communities in the digital 
age are daunting, as so many of you know. And I see so many 
familiar faces here in all branches of this industry, so you 
know how daunting it is.
    I think Congress has a role in trying to bring the various 
communities together. Senator Hatch and I recognize that 
legislating in such an area is going to be tense and intense, 
certainly from the e-mails I have gotten from many of you 
telling me that is the case. But we are committed to building 
the consensus that is the hallmark of successful and useful 
legislation. We are going to make sure that our commitment 
results in law.
    I am glad to hear from the Register of Copyrights, Marybeth 
Peters. I think we Americans are fortunate that she is there. 
She is going to testify about the need for this bill and about 
how it clarifies longstanding principles of contributory 
copyright liability without targeting technology. I would 
encourage other witnesses to study her statement.
    Mr. Bainwol says that while technology is not to blame, we 
need to target those who have hijacked technology and 
undermined the rights of copyright-holders. I agree. Mr. 
Holleyman declares that mere knowledge of a given technology's 
potential to be used to infringe another's copyright should not 
by itself constitute inducement. I agree, and I wish to offer 
the Business Software Association my sincere thanks for 
bringing open-minded cooperation and considerable expertise to 
the earlier drafting stages of this bill.
    I am heartened even by the testimony of those who are 
skeptical of the bill. Mr. Shapiro says that the Sony-Betamax 
is good law. I agree. Mr. Greenberg and Mr. McGuiness urge 
Congress to craft our intellectual property laws so that they 
promote technological growth. I agree, and I believe we have 
done this with our bill.
    Just as Senator Hatch and I have worked to promote the 
great possibilities of the Internet and the technologies that 
capitalize on its potential, one problem consistently appears, 
and I hear this from my State where we use the Internet a 
great, great deal in commerce, as well as in pleasure. The 
copyright-holders often fear these very same new and exciting 
technologies.
    We have a lot of people who are in the creative community 
in my State and their reticence is not without merit. Our 
copyright industries lose billions of dollars each year to 
copyright piracy, and just as importantly our artists lose the 
rights to their own works. By clarifying the longstanding 
principle of secondary copyright liability, this bill can give 
copyright-holders reason to embrace new technologies.
    While the legal principle is an old one, the problems of 
inducement for copyright are a relatively new product of the 
digital age, an age in which it is easy and, for some, very 
profitable to induce others to violate copyrights through 
illegal downloading from the Internet.
    The 1976 Copyright Act codified the principle that 
copyright-holders not only have exclusive rights inherent in 
their copyrights, but that only they can authorize others to 
exercise those rights, such as the right to distribute and the 
right to make copies of their works. Since the advent of the 
Internet, some have harnessed peer-to-peer technology to run 
roughshod over those rights.
    The courts have grappled, and are still grappling with how 
to apply existing common law principles to the resulting legal 
cases. At the same time, the courts are asking the Congress to 
give guidance. I hope this bill does that by reaffirming 
Congress' intent in the 1976 Act.
    The Patent Code already provides liability for inducing 
infringement, and our experience there shows us that such 
provisions work. Over the years, the number of patents has 
steadily grown and patent-related industries continue to 
thrive. But while it has long been simple and economically 
worthwhile to induce patent infringement, only recently has the 
ability to illegally download music and books and software and 
films made it necessary for Congress to clarify that the 
principle also applies to copyrights.
    Of course, there are significant differences between 
patents and copyrights. We are not transplanting one liability 
regime to another part of the code, but we have learned some 
useful things in the patent realm and we want to use them.
    I apologize for the length of this statement, but I want to 
make sure everybody understands what we are doing.
    In making this clarification, our bill does not undermine 
the Sony-Betamax decision. It does not undermine the fair use 
doctrine. It does not target or penalize any technology. In 
fact, our bill will help companies like Apple, who, through 
their iToons service and iPod devices, offer legitimate 
alternatives to illegal downloading. I want all these companies 
to thrive because the competition is going to help consumers. 
Our bill will protect our copyright-holders. It is going to 
spur innovation.
    Finally, I would like to draw attention to a letter sent by 
Mr. McGuiness and some others in the consumer electronics 
industry to the Committee on July 6. It states, quote, ``We 
agree with the need to penalize those who intentionally cause 
copyright infringement,'' close quote. Well, that is precisely 
what 2560 does.
    I understand that some have concerns with the specifics of 
our legislation. Then work with us on these. We are going to 
have time. No one wants to undermine the iPod or any other 
piece of technology out there, but we have to understand that 
some people use peer-to-peer technology in ways that are wrong 
and illegal. Every single person in this room knows that.
    So I appreciate your coming. Mr. Chairman, I appreciate you 
having this hearing. Give us some ideas. We will work on them. 
I actually have Internet at my farm house in Vermont. I have 
mail, but it takes on an average a little over a week to get a 
letter all the way from Washington to there. I am not sure how 
it is sent, but I do get e-mail.
    Thank you.
    Chairman Hatch. Well, thank you, Senator.
    Our panels for this hearing are well qualified to assist 
the Committee in reviewing S. 2560 and any alternative 
solutions that may be proposed. We are really interested in 
getting it right, so one great reason for this hearing.
    Our first panel consists of one witness, who is more than 
adequate to take up the role of many witnesses--Marybeth 
Peters, the Register of Copyrights. She appears today as the 
Federal Government's leading expert on the interaction of 
copyright law and technology.
    We have always appreciated your appearances before this 
Committee. You have always been so cooperative and you have 
really helped us through the years with a lot of these very 
difficult problems. So we look forward to further help from you 
today, if we can.

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

    Ms. Peters. Mr. Chairman and Senator Leahy, I am pleased to 
be here. Let me begin by thanking both of you for your 
leadership and efforts over the past several years in 
addressing important copyright issues related to our digital 
environment.
    I would like to also congratulate both of you on your 
exceptional staffs. The Copyright Office is most appreciative 
of their dedication and hard work.
    Today, we are here today to discuss S. 2560, the 
Intentional Inducement of Copyright Infringements Act, which 
addresses the most important issue facing our copyright system 
today--new services that employ peer-to-peer technology create 
vast global networks of copyright infringement. There should be 
no question that such services are liable for copyright 
infringement they encourage and profit from. The Copyright 
Office supports S. 2560 because it addresses this problem and 
will hold those services responsible.
    The legal controversy here revolves around secondary 
liability for copyright infringement. For decades, copyright 
law has recognized that those who encourage and foster 
infringement can be held liable, just as those who commit 
infringing acts.
    Courts have developed, as you mentioned, two doctrines--
contributory infringement and vicarious liability--to address 
those who help others infringe. These concepts are critical to 
the effectiveness functioning of copyright because they allow 
copyright owners to enforce their rights against entities that 
are involved in the infringement and have the resources and 
ability to satisfy a judgment or to enter into a license.
    In the Betamax case, the court analyzed these doctrines in 
assessing whether the manufacturer of a VCR could be held 
liable for the infringement committed by its customers. It held 
that secondary liability could not be imposed on Sony because 
the VCR is capable of substantial non-infringing uses, namely 
time-shifting of broadcast television programming, which the 
court found to be fair use.
    Courts have struggled to apply these doctrines and the Sony 
case to peer-to-peer services that have created networks of 
massive copyright infringement. The early versions of these 
services, Napster and Aimster, were found liable by the Ninth 
and Seventh Circuits, but they applied different 
interpretations of Sony and the secondary liability doctrines.
    Last year, a California district court found the Morpheus 
and Grokster services not liable for copyright infringement 
they encourage, based in large part on the Sony decision. I 
think the Grokster decision is wrong as a matter of copyright 
law. In my view, the court applied a needlessly cramped and 
unprecedented interpretation of secondary liability doctrines. 
As a matter of policy, the decision is flawed.
    By letting peer-to-peer services off the hook, the court 
has left copyright owners with little recourse but to sue 
individuals for copyright infringement. It would be much more 
efficient and make much more sense if the companies at the 
center of these infringements whose businesses depend on 
infringements were held responsible for it.
    S. 2560 would help bring about this result. It makes it 
clear that when someone intentionally induces another to commit 
infringement, he will be held liable for that infringement. It 
recognizes that someone's state of mind often cannot be shown 
by direct evidence, and therefore it allows a court to look at 
and examine the conduct of a defendant to determine such 
intent. The standard is appropriately technology-neutral. It 
doesn't look at the technology employed. It looks at the action 
of the defendant in the context of all of the circumstances.
    Some have criticized the bill as over-broad. They say it 
potentially could make someone liable for merely selling a 
device like a portable music player. In my view, these concerns 
are unfounded. The bill requires specific intent--a very high 
standard for state of mind. In my written testimony, I detail 
facts from peer-to-peer contexts that would constitute evidence 
of intentional inducement. These go far beyond the mere 
provision of copying technology.
    The current peer-to-peer services make it almost inevitable 
that users become infringers merely by turning on the software, 
at which point they immediately become distributors of all they 
have downloaded, and more. This is essential to their business 
model. They must attract new users to their networks to 
increase their advertising revenue. This is clearly evidence of 
inducement.
    Critics of the bill also assert that it would overturn 
Sony. I disagree. By focusing on inducement and the behavior of 
the defendant, S. 2560 addresses factual circumstances not 
before the Supreme Court in Sony which acknowledge that the 
defendant did not induce its customers to infringe.
    I also reject the comparison between the current peer-to-
peer services and a manufacturer of the VCR. If the VCR had 
been designed so that when a user simply turned it on, all of 
the programs he had recorded immediately became available to 
all other VCRs in the world, I am confident the Sony case would 
have come out the opposite way. While I believe that the bill 
does not raise the concerns mentioned, if the Committee thinks 
language clarifying these points would be helpful, the 
Copyright Office would be pleased to assist you.
    Finally, I am concerned that future generations of 
technology-based pirates may devise a way around this bill. In 
the future, the Committee may wish to consider additional 
legislative approaches that will provide guidance to courts in 
such situations. While the approach taken here is careful and 
preserves the Supreme Court's decision in Sony, to the extent 
the Sony decision is an impediment against enforcement against 
future companies that enable massive infringements, eventually 
this Committee may want to look at replacing the Sony decision 
with a more appropriate rule for the digital age, one that 
better balances effective copyright protection with the 
development of new technologies. As the Supreme Court noted, 
copyright protection need not be merely symbolic in the face of 
new technology.
    Thank you.
    Chairman Hatch. Well, thank you.
    Ms. Peters, as you know, some members of the copyright 
community are concerned that rights-holders could file abusive 
or harassing claims for intentional inducement. I want to 
address those concerns, and given that this type of liability 
can and should be recognized under existing law, it seems that 
the legislative process should provide the best means to 
evaluate and resolve such concerns.
    During the August recess, I would like your office, if it 
can, to assist this Committee in coordinating efforts to 
identify and resolve potential concerns about potential abuses 
of domestic and intentional inducement liability.
    Could we count on you to help us with that?
    Ms. Peters. Absolutely. I just identified this as the most 
important question in copyright today. We would be more than 
happy to assist the Committee in facilitating and bringing 
about hopefully a result that could work.
    Chairman Hatch. I had heard that, so I was just making sure 
that you would agree to work with us.
    Ms. Peters. We would never say no to you.
    Chairman Hatch. Well, that is an interesting comment.
    [Laughter.]
    Senator Leahy. It is sort of the attitude of all of the 
Senators up here.
    Chairman Hatch. Don't worry. Your sterling reputation is 
intact. I just want you to know that.
    We will turn to Senator Leahy, if he has any questions.
    Senator Leahy. I am too flustered, Mr. Chairman.
    We are delighted, Ms. Peters, that you are here. You have 
been an enormous help to this Committee. I cannot think of a 
time that any member of the Committee, either Republican or 
Democratic, has asked for help from you or your office and 
hasn't gotten it.
    Ms. Peters. Thank you.
    Senator Leahy. You are the mark of the type of people in 
our Government that makes our Government work well. I mean that 
as a compliment. You really are.
    Ms. Peters. Thank you very much.
    Senator Leahy. One of the concerns I have is the failure of 
the Grokster court to correctly impose secondary liability, as 
the copyright-holders have had to resort to infringement suits 
against individuals rather than the companies that encourage 
and profit from that infringement.
    Do you think our Act would be effective in shifting legal 
attention from the individuals to those companies that are the 
real cause of infringement?
    Ms. Peters. I certainly would hope so. As I stated, I think 
that even under existing law today, which doesn't have the 
intent standard but still has an induce standard, they could 
get there. But if they don't, yes, this would be an enormous 
help.
    Senator Leahy. This, I assume, would be a policy that you 
would prefer to see?
    Ms. Peters. Yes.
    Senator Leahy. You have reminded us that the 1976 Copyright 
Act included very specific language meant to encourage the free 
development in the courts of the doctrine of secondary 
liability for copyright infringement. The 1976 Act makes clear 
that the holder of a copyright has the exclusive right to 
authorize anyone else to make use of the rights of a copyright-
holder. If technology changes, then the threat posed by the 
middleman changes, too. In 1976, none of us could have 
envisioned what is going on.
    Does the language of the 1976 Act give the courts the power 
to address changing situations created by the new technology?
    Ms. Peters. I believe it does, I believe it does.
    Senator Leahy. I have long supported the Sony case. It has 
been a cornerstone of technological growth. I believe because 
of that, the court wisely created the kind of flexibility that 
you need for new technology. Obviously, at the time they 
decided it, they couldn't have seen far enough over the horizon 
to see what kind of technologies we have.
    But your testimony noted that courts have had a hard time 
applying the Sony case to the situation of peer-to-peer 
networks. The case obviously didn't expressly address the 
situation we have here where someone intentionally induces 
another to commit copyright infringement. Some believe we 
should take this opportunity to codify Betamax.
    Should we codify Sony, and if we do, are there any dangers 
to that?
    Ms. Peters. Well, I basically said I thought maybe you 
might want to look at the future, whether or not the standard 
that is there was the correct one. Although it worked fine in 
1984 when the court decided the case with the VCR, the 
technology at the time and the use that was made of it, making 
copies off the air and time-shifting of programming that they 
otherwise would have gotten, the language ``merely capable of 
substantial non-infringing uses''--and I am underlying the word 
``capable''--I cannot think of any technology today that 
doesn't have a ``merely capable'' aspect of a non-infringing 
use to it. In fact, it can be specifically designed to have 
just one little non-infringing use that is of substance. So I 
think it would be helpful before codifying it to reexamine it.
    Senator Leahy. Thank you.
    I have other questions, Mr. Chairman, but we have a lot of 
witnesses and I will submit them for the record.
    Chairman Hatch. Well, that will be fine.
    We want to thank you once again, Ms. Peters, for being 
here. You have always been so helpful to the Committee and to 
us personally, and we just really appreciate you.
    Ms. Peters. Okay, thanks very much.
    Chairman Hatch. Thanks for taking the time, and we are so 
glad you agree with us.
    Senator Leahy. He says that to me once every three to 4 
years.
    Chairman Hatch. Not that often.
    [Laughter.]
    Chairman Hatch. Thank you again. We really appreciate you 
coming over.
    [The prepared statement of Ms. Peters appears as a 
submission for the record.]
    Chairman Hatch. Our second panel consists of five private 
sector witnesses who can provide an array of perspectives on 
solving the file-sharing problem.
    Gary Shapiro is the president and CEO of the Consumer 
Electronics Association, and Chairman of the Home Recording 
Rights Coalition. Robert Holleyman is the president and CEO of 
the Business Software Alliance. Andrew Greenberg represents the 
Institute of Electrical and Electronics Engineers-USA. Kevin 
McGuiness is the director of NetCoalition, an association of 
Internet-based companies, including Google and C-NET. Mitch 
Bainwol is the CEO of the Recording Industry Association of 
America.
    All of them are excellent people who have helped us in the 
past, and we are really looking forward to getting your advice 
here today. So if you will take your seats at the table, we 
would appreciate it.
    Mr. Shapiro, we will proceed with you first and then go 
right across the table.

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

    Mr. Shapiro. Mr. Chairman, Senator Leahy, thank you for 
holding this hearing. Based on what you said, Chairman Hatch, I 
guess I represent the law-abiding technology interests. I am 
president of the Consumer Electronics Association, and I am 
also Chairman of the Home Recording Rights Coalition. Moreover, 
my written statement has been endorsed by the Digital Futures 
Coalition, the Computer and Communications Industry 
Association, as well as the consumer group Public Knowledge and 
the Electronic Frontier Foundation. S. 2560 has united the 
technology industry.
    Mr. Chairman, you said that it was developed with the 
support of leading technology companies. I cannot find one 
technology company that supports this legislation as it is 
written. Indeed, companies are extremely concerned about how it 
could block the introduction of valuable new technology.
    This is a very broad bill which targets more than P2P 
companies. If this bill was the law, Americans would not be 
able to enjoy many devices, from the VCR to the Tivo, from the 
iPod to the photocopier. It is even more dangerous because of 
the age we are entering now. We are entering a growth age in 
technology. It is an age where consumers can easily create, 
manipulate and shift content around to different devices they 
own. Because of this new freedom to create and be your own 
music and movie producer, we are seeing a renaissance of 
creativity, of studios at home, of content creation by millions 
of Americans.
    This bill is by far the biggest threat to personal 
creativity, new technology and innovation in 20 years. I urge 
you to consider the harm that it will engender. It will 
certainly unleash litigation over every new development in 
technology which allows content to be moved from one form to 
another, from one transmission medium to another.
    Twenty years ago, the Supreme Court rejected Hollywood's 
efforts to have VCRs banned as illegal products. The court 
sided with innovation. It set forth a clear bright-line 
standard. A manufacturer is not liable for infringing copyright 
if the product that they are selling has any commercially 
significant non-infringing use.
    The Betamax case is definitely our magna carta. It gave a 
green light to inventors and venture capitalists, ensuring that 
they can go forward without the fear of liability. Many of my 
members did not even exist 20 years ago. We had only 80 members 
then. Today, we have 1,700 corporations that are in the 
technology industry thriving today because of the protections 
offered by the Betamax decision.
    This bill would reverse and rewind Betamax. An intent 
standard radically shifts the copyright law and voids the 
Supreme Court's bright-line objective test and replaces it with 
what is a very subjective test. The concept of inducement under 
the bill is so broad as to apply not only to innovators who 
build products, but also to venture capitalists who fund them, 
and even journalists who write about or review them.
    Intel's co-founder, Les Vasquez, pointed this out in an 
editorial opposing this legislation in yesterday's Wall Street 
Journal. He said, ``The chilling effect that a law like this 
would have on innovation cannot be underestimated. If this bill 
is enacted, many new opportunities will migrate outside the 
United States. Others will never happen.'' That is why the 
entire consumer technology industry, Internet portals, 
financial services companies, telecommunications industry, ISP, 
venture capitalists and consumer groups, are all concerned 
about this bill.
    We understand and we hear you that you say you did not 
intend to undermine the Betamax holding, but there is no way 
the Supreme Court objective test and the bill's subjective test 
can coexist. Betamax objectively assesses a product's 
capabilities. This bill relies on a subjective evaluation going 
to business and investment records, or on circumstantial 
evidence on what someone had in mind in bringing a product to 
market. Unfortunately, there is no way at all that investors 
can predictably make this determination before they are sued.
    The result of this legal uncertainty will be the creation 
of massive new liability, as innocent products and services are 
targeted for litigation. Given your leadership on class action 
reform, we hope you recognize how this subjective standard will 
invite litigation. Even if a defendant eventually proves that 
it did not intend to induce infringement, the bill's mandate 
that intent requires a consideration of all circumstances means 
that suits will not easily be dismissed on summary judgment. 
Defendants will be tied up in court and spend massive sums to 
prove that they did not intend to induce. Consumers will lose 
as venture capitalists back away, innovation is chilled, and 
new products never come to market.
    Since virtually every American is a copyright-holder, it 
does not take any imagination at all to see the creative uses 
the trial bar will put to this broad, new cause of action. 
Indeed, motion picture studios recently claimed in court that 
standard features on personal video recorders like Tivo are, 
quote--and this was in the complaint--``inducements,'' end of 
quote, to copyright violation.
    Media giants have already challenged lawful technologies 
such as MP3 players, personal video recorders and the clear 
play content filtering system. This legislation gives them a 
deadly new tool to stop any technology at all that they don't 
like.
    Let me give you another example. Recently, a well-funded 
pornographer sued Visa and Mastercard, accusing them of 
inducing people to infringe their copyrighted pornographic 
images by providing online payment systems. This legislation 
would hand a powerful new statutory weapon for pornographers 
and others to engage in similar nuisance legislation.
    We believe that there is a hard choice. It is called 
personal responsibility, and it is a better approach than 
putting product innovation and lawful use in jeopardy. In this 
Congress, we worked with Congressional staff and the Motion 
Picture Association to craft legislative history for the ART 
Act, as provisions in State law that would assure that the use 
of camcorders in movie theaters could be prosecuted, but not 
endangering their use or demonstration in homes or retail 
stores.
    Mr. Chairman and Senator Leahy, we share your concerns 
about commercial piracy and we pledge our cooperation. In 
return, we hope that you share our conviction that painting a 
massive liability bull's eye on the technology and venture 
capital industry is not in our country's interests. Your staff 
has been very generous with their time and courtesy in 
soliciting and receiving our views, and we look forward to 
cooperating with them and with the Committee in the legislative 
process.
    Thank you for giving us this opportunity and listening to 
our views.
    Chairman Hatch. Thank you, Mr. Shapiro. I take it you don't 
like this bill very much.
    [Laughter.]
    Mr. Shapiro. Well, I held back a little bit. I could keep 
going if you would like.
    Chairman Hatch. I figured you were being your usual laid-
back self, I will tell you. But we are very interested in how 
we can improve the bill and how you can help us to do so. I 
acknowledge that if your concerns have validity to them, then 
all of us have to be concerned about them. So we will look 
forward to having you help us, but that means positive help 
because we haven't had much help from the industry people.
    Go ahead.
    Mr. Shapiro. We first saw this bill just a few weeks ago 
and our responses were very clear and very quick. So here we 
are.
    Chairman Hatch. Well, that is one reason for this hearing.
    [The prepared statement of Mr. Shapiro appears as a 
submission for the record.]
    Chairman Hatch. Mr. Holleyman, we will turn to you.

 STATEMENT OF ROBERT HOLLEYMAN, PRESIDENT AND CHIEF EXECUTIVE 
     OFFICER, BUSINESS SOFTWARE ALLIANCE, WASHINGTON, D.C.

    Mr. Holleyman. Good afternoon, Mr. Chairman and Senator 
Leahy. My name is Robert Holleyman. I am president and CEO of 
the Business Software Alliance. The BSA wishes to commend you, 
Mr. Chairman and Senator Leahy, for bringing focus to bear on 
the problem of online piracy of copyrighted materials.
    In my testimony this afternoon, I would like to focus on 
two key points. Number one, piracy is a matter of great concern 
to BSA member companies, who are themselves often the targets 
of such illegal activity. BSA believes that many of the best 
ways to address the problem do not require new laws. Number 
two, any new law must ensure that it will not encumber the 
development and distribution of legitimate, innovative 
technologies.
    This Committee has embraced the challenge of crafting a law 
that deters bad actors without stifling technological 
advancement. This is not an easy task and we remain committed 
to working with you to achieve that goal. We believe that new 
legislation, properly balanced, should be viewed as only one of 
several elements in finding a solution to the problem of P2P 
piracy.
    First, the BSA believes that the most effective way to 
address the harm done by operators of illicit P2P networks is 
through the marketplace by providing consumers with legal 
alternatives.
    Secondly, the Justice Department should prosecute the 
operators of illicit file-sharing networks under existing laws 
in appropriate cases. Third, we believe it is also vitally 
important to educate all Internet users about safe and legal 
ways to harness the power of this important resource. Finally, 
technology can play an important role in protecting digital 
content through secure distribution.
    If the Committee determines that legislation is needed, we 
urge that any new law be properly balanced to avoid unintended 
consequences for legitimate technology companies. BSA members 
themselves are the leading developers of computers, software, 
security and networking technologies. To meet customer needs, 
these products are designed and intended to be multi-purpose. 
By their very nature, many of these products are freely 
programmable and can be modified by the user.
    We recognize that you do not mean to impose specific 
constraints on the design of general purpose technology 
products or the functions that they include. As noted in your 
statement, Mr. Chairman, these decisions should be left to the 
marketplace and engineers.
    To make certain this is the case, key elements of existing 
law and jurisprudence should be spelled out in any legislation. 
Unfortunately, we realize that certain bad actors intentionally 
design their services to make piracy almost unavoidable. And to 
distinguish bad actors from good, we believe that there are 
five key areas that need to be addressed in specific 
legislation.
    First, it should make clear that technology products used 
for significant legitimate purposes are not subject to 
copyright infringement liability. To this end, the bill should 
state clearly that the Supreme Court's decision in the Betamax 
case is unaffected.
    Second, it should be made clear that to meet the required 
intent standard, an actor must be shown to have engaged in 
conscious, recurring, persistent and deliberate acts 
demonstrated to have caused another person to commit 
infringement.
    Third, the language should state explicitly that the mere 
knowledge by a technology provider of the infringing acts of 
another person does not demonstrate intent to induce copyright 
infringement.
    Fourth, it should be made clear that the bill does not 
create liability based on advertising or providing support to 
users. This language should cover manual or handbooks, as well 
as providing assistance for using products through a company's 
online help system or telephone help services. Lastly, a 
mechanism needs to be included to effectively deter weak, 
harassing or frivolous lawsuits.
    Today's solutions must leave intact the important 
contributions computing technologies bring to our daily lives 
and allow these technologies to make even greater contributions 
in the future.
    Mr. Chairman, we commend you, Senator Leahy and the members 
of this Committee for your substantial long-term commitment to 
combatting piracy. We fully support your efforts. We look 
forward to working with you as you continue to address piracy 
challenges, while preserving an environment in which BSA 
members and all technology companies can continue to innovate, 
which is what they do best.
    Thank you very much.
    [The prepared statement of Mr. Holleyman appears as a 
submission for the record.]
    Chairman Hatch. Well, thank you, Mr. Holleyman.
    Mr. Greenberg, we will take your testimony.

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

    Mr. Greenberg. Mr. Chairman, Senator Leahy, I must say I 
stand in awe of anyone, to paraphrase Sony, who has the mere 
capacity to make the Register of Copyrights blush.
    Chairman Hatch. I do that with regularity, I want to tell 
you.
    [Laughter.]
    Mr. Greenberg. IEEE-USA advances the public good and 
promotes the careers and public policy interests of more than 
225,000 technology professionals who are its U.S. members. I 
should add that I also have a personal interest in this bill. I 
am not only an intellectual property lawyer, but also a 
software engineer who created the Wizardry series and other 
computer games.
    We engineers are on the front line of the copyright system. 
We create copyrighted content, as well as the technology to 
create and deliver that content. While other witnesses today 
will give eloquent accounts of their constituents' interests, 
we are here to stand for the proposition that our intellectual 
property framework must be about the balancing of those 
interests.
    We have significant concern that neither the status quo nor 
Senate 2560, as written, adequately balances those interests 
today. This is why we have proposed a substitute that should 
achieve the aims of the bill's supporters while maintaining 
that balance.
    We are mindful that new technologies may be misused to 
infringe a copyrighted work, and some will promote that to 
their own benefit. At the same time, we are concerned that the 
Copyright Act must not be changed in ways that would inhibit 
research and novel technologies before their social value can 
be fully demonstrated.
    IEEE-USA believes that copyright owners must not be 
permitted to restrict the sale of technology having non-
infringing uses unless the seller has independently and 
actively induced a copyright infringement. In Senate 2560 as 
introduced, the proposed definition of intentional inducement 
represents a significant and perhaps unbalanced departure from 
standard secondary liability principles. It creates a practical 
uncertainty over the law's scope and application that may well 
chill innovation.
    In any case, using untested standards for determining 
inducement instead of, for example, the well-tested standards 
of inducement under the Patent Act could have far-reaching and 
unintended consequences. Imagine a vendor who is sued by a 
content company after selling a technology known to have both 
infringing and non-infringing uses. We find it difficult to 
imagine how, under Senate 2560 as drafted, the defendant could 
ever prevail in a motion to dismiss or summary judgment.
    It is unclear whether the court would have achieved the 
same result in the Sony case under this rule. For nascent 
technologies, such uncertainty is the practical equivalent of a 
rule barring innovation. Copyright inducement applies to all 
copyrighted works and all technologies, and not just to file-
sharing. Our members create and use hardware and software tools 
that create, tools that adapt, and tools that modify hardware 
designs, programs and content.
    Virtually every general-purpose computer and technology 
tool has features that manipulate, control and display content, 
including copyrighted content. Reuse and reverse-engineering 
are not dirty words to us; they are terms of art for essential 
engineering paradigms. And after 2560, each could be potential 
sources of copyright infringement.
    Whatever the test for secondary liability is used, those 
tests should be simple, clear, predictable and objective. Our 
proposal codifies Sony and provides express definitions drawn 
from existing law, well-tested for contribution, vicarious 
liability and inducement. It makes clear that ordinary 
marketing of a technology having non-infringing uses is never 
in and of itself an actionable inducement.
    We offer our substitute proposal to illustrate how a more 
balanced framework has been achieved in the past and how this 
might be applied in the case of copyright. Even so, we 
recognize that this is a very difficult problem that requires 
careful and comprehensive deliberation before we step off into 
the new and untrodden ground.
    Mr. Chairman, you are the guardians and the architects of 
the balance that is built into the Copyright Act. Should you 
determine it needs rebuilding, we respectfully suggest that you 
measure twice and cut once.
    [The prepared statement of Mr. Greenberg appears as a 
submission for the record.]
    Chairman Hatch. This is a very interesting hearing, is all 
I can say. It is great.
    [Laughter.]
    Chairman Hatch. Mr. McGuiness, we are happy to welcome you 
back to the Committee and to the Senate. We appreciate all the 
service you have given in the past.

     STATEMENT OF KEVIN S. MCGUINESS, EXECUTIVE DIRECTOR, 
                 NETCOALITION, WASHINGTON, D.C.

    Mr. McGuiness. Thank you, Senator, and it is very 
different, after working for you all those years and having the 
opportunity to sit behind you for over a decade, to now sit 
down here. I clearly have a much different perspective of this 
process.
    Chairman Hatch. I can hardly wait to get that.
    Mr. McGuiness. Off to the traditional role already.
    Senator Hatch, Senator Leahy, my name is Kevin McGuiness. I 
am the executive director of NetCoalition, and on behalf of my 
organization and other interested parties in the Internet 
community, thank you for holding today's hearing and providing 
us the opportunity to testify.
    I would like to make four general points, if I could. 
First, the members of NetCoalition agree with the intent behind 
the legislation to ensure that copyright owners can seek relief 
from those who unlawfully download and distribute their 
creative work. As creative people in our own right, we fully 
appreciate the emotional anguish and economic consequences when 
one's work is misappropriated.
    Second, it is important to remember when discussing 
proposals to restrict or ban online copying that the Internet 
is basically one big copying machine. Consequently, any 
legislative proposal such as the one before us today which 
would regulate or prohibit copying hardware devices or 
software, unless fashioned extremely carefully, can jeopardize 
the essential architecture of the Internet.
    Consider, if you would, the following hypothetical example. 
Let's assume, Chairman Hatch and Senator Leahy, that you were 
back in the private sector. Let's assume that the next Bill 
Gates walks into your office. He has developed a new form of 
instant messaging that automatically transfers audio and video. 
He believes most people will use his product lawfully, but 
realizes some might use it to download copyrighted content, and 
he asks you whether he will be sued if he goes to market.
    Under current law, you could tell him with great confidence 
to go innovate. Because of the Betamax decision, he has nothing 
to fear, since his product is capable of substantial non-
infringing uses. You can also indicate that if he does get 
sued, in all probability he can quickly have that suit 
dismissed.
    If S. 2560 is enacted, however, you would have to give a 
much different answer. The bill allows any copyright-holder to 
sue him, or literally anyone associated with his product, for 
an intentional inducement. There is no exception for products 
capable of substantial non-infringing use. There is no 
requirement that a plaintiff demonstrate that there were active 
steps beyond the sale or manufacture to encourage direct 
infringement. There will be no quick dismissal. The case will 
undoubtedly go to trial and he will be cross-examined about his 
state of mind when developing his technology.
    Instead of financing his invention, he will need to finance 
his legal defense. In fact, the only way he could accurately 
determine the extent of his legal vulnerability would probably 
be to meet in advance with the lawyers at Warner and EMI or 
Death Row to see how they feel about his product. And if he 
somehow survives the recording industry, he would then have to 
meet with the lawyers at Paramount and Universal and Disney, 
and so on.
    Third, the legislation really puts the entertainment 
industry in a very enviable legal position. Since the bill 
allows them to sue anyone they assert is aiding, abetting, 
procuring or inducing, the potential pool of targets could 
include venture capitalists, credit card companies, common 
carriers, even entities providing nothing more than editorial 
reviews of products. If the entertainment industry gains this 
kind of leverage over domestic technologies, online innovation 
undoubtedly will travel to more hospitable environments 
overseas.
    Fourth, Mr. Chairman, we suggest that the Committee may 
want to consider along the lines of the testimony already given 
the following principles as it considers whether or not new 
legislation is needed or how it should be fashioned.
    First, the legislation must codify the Supreme Court's 
ruling in Betamax, as well as protections afforded under patent 
law. Second, the legislation should target unlawful behavior, 
not platforms or technologies. Third, the legislation must 
provide a bright line between lawful and unlawful conduct which 
is absolutely critical for the next generation of innovation. 
Finally, the legislation should ensure that entities that 
provide product reviews that simply demonstrate how a product 
can be used are not swept into the scope of possible 
defendants.
    Mr. Chairman, Senator Leahy, throughout your careers you 
have been extremely sensitive to the needs of both the online 
world and the entertainment community. Consequently, I hope you 
will agree with us that this issue will never be resolved 
satisfactorily if the solution does nothing more than forces 
one to choose between the creative community and the tech 
community.
    The members of NetCoalition stand ready to work with you 
and the other members of the Committee to find the right 
solution, one that prohibits unlawful online copying without 
putting at risk the promise and potential of the Internet.
    Thank you.
    [The prepared statement of Mr. McGuiness appears as a 
submission for the record.]
    Chairman Hatch. Well, thank you, Mr. McGuiness.
    Mr. Bainwol, we will take your testimony.

   STATEMENT OF MITCH BAINWOL, CHAIRMAN AND CHIEF EXECUTIVE 
OFFICER, RECORDING INDUSTRY ASSOCIATION OF AMERICA, WASHINGTON, 
                              D.C.

    Mr. Bainwol. I am Mitch Bainwol, the CEO of the RIAA. Let 
me start by saying--
    Chairman Hatch. You are supposed to hold up your end. This 
other end has been--
    Mr. Bainwol. I want to say that I appreciate the staff's 
humor putting Bainwol on the far left and Shapiro on the far 
right.
    [Laughter.]
    Mr. Bainwol. My testimony today reflects the uniform view 
of the American music community--labels, artists, songwriters 
and publishers, from pop, country, Latin, gospel, from 
Hollywood to Motown to Nashville to the Big Apple. We are 
united, and we are united because the U.S. music family has 
been decimated by piracy, with online piracy by way of file-
sharing on peer-to-peer networks, otherwise known as P2P, the 
most significant source of our economic decline.
    From the advent of the first illegal P2P service in 1999 
through last year, our sales plummeted by more than 30 percent. 
Our concern is not academic. The consequence: thousands of job 
losses and slashed artist rosters at record labels, both majors 
and indies. Fewer artists are finding the venture capital 
necessary to finance their dreams. The richness of their art is 
lost forever.
    The scope of the P2P problem is mind-boggling: about a 
billion downloads--that is billion with a ``b''--every month. 
Four of the top ten applications on the Internet are P2P 
programs, popular for sure, but law-breaking nonetheless. Some 
say P2P has great potential. We don't disagree. That is one of 
the reasons we were pleased with the IMAX settlement announced 
earlier this week.
    But let's strip out the technological mumbo-jumbo and the 
rationalizing rhetoric, and instead look at the facts. Ninety-
seven percent of the transactions on the P2P networks currently 
are the taking of property created by artists in this country 
and developed and financed by our member companies--97 percent.
    These P2P services hide behind the veil of technology, but 
it is easy to pierce that veil and see their scam, and a scam 
it is. They make money by selling advertising and bundling 
other software, including spyware, in with their applications. 
They use our music as a lure to draw eyeballs and to pad their 
advertising profits. Consumers come to share so-called free 
music.
    The P2P companies don't pay for that music. Instead, they 
provide a mechanism for high-tech theft. They offload the 
liability on American kids. They provide nothing remotely close 
to conspicuous warnings about the law. They make a total 
mockery of property rights. They thumb their nose at this 
Congress and they laugh all the way to the bank. In short--and 
this is important--their business model is predicated on the 
taking of property. There is nothing legitimate about it at 
all.
    Along the way, in addition to inducing kids to break the 
law, these P2P companies provide havens for pornographers to 
inject their filth into homes. They compromise computer 
security and they facilitate unintended disclosure of personal 
information--tax, medical and other records. No objective 
review of these services can possibly conclude that they have 
any pretense of legitimacy. These networks don't compensate 
artists or songwriters or the labels. They don't invest in new 
art. They are technological parasites.
    My industry continued to sue users, many of them kids, to 
establish deterrence and to educate the public. The lawsuits 
have had phenomenal education value. But the real villains are 
not the kids. The villains are these profiteers who are gaming 
the gap in American law. Wouldn't it be better to put these bad 
actors in the vise of the law? Isn't it time to stand up for 
the fundamental American value of property?
    That is exactly what your bill does, and we commend you 
both, Senator Hatch and Senator Leahy, and the leaders of the 
parties, Senators Frist and Daschle, and Senator Boxer and 
Senator Graham, for introducing this bill. You have properly 
focused the spotlight exactly where it needs to be placed on 
the bad actors that hijacked neutral technology.
    Even the critics of the bill, who I believe are more 
worried than necessary about the reach, note that they concur 
with the fundamental objective underlying this legislation. 
They wrote, quote, ``We agree with the need to penalize those 
who intentionally cause copyright infringement.'' I have got to 
say that again: ``We agree with the need to penalize those who 
intentionally cause copyright infringement.'' And so you 
should.
    There is a canyon separating the behavior of good companies 
like Apple and other legitimate businesses from the behavior of 
the likes of Kazaa. I love the iPod. I have got one. Mine holds 
my entire family's CD collection. When I bought it, I ripped 
off the sticker that says ``don't steal music.'' I ripped all 
my CDs into the hard drive and downloaded it. It is part of our 
life. It is great.
    But there is a huge difference between my iPod and the P2P 
services like Kazaa. Apple doesn't intentionally induce people 
to steal, even though people can put stolen music on the iPod, 
and it doesn't depend on infringement to thrive or even to 
survive. Looking at all the evidence, I can't imagine a 
reasonable person concluding that Apple intentionally induces 
infringement.
    Kazaa, like the other major P2Ps, is a totally different 
story. If you use the product as designed, you are infringing. 
The default is rigged so that the user automatically uploads to 
millions of people. We use their instant messaging function to 
try to alert users to infringement. They turn the function off. 
We try to frustrate the system with dummy files; they try to 
filter them out.
    The bottom line: You take away infringement and the 
business model of Kazaa and these other nefarious actors 
collapses. There is nothing to it once you take out the 
infringement. That, Senators, is the critical difference.
    Some have suggested that the language of the bill may be 
too broad. I don't think it is, though you and your staff can 
make a better assessment of that. But if the bill is deemed to 
be too broad, let's not let a technical question about 
definition derail a vitally important and overdue effort to 
give our community a chance for a robust future.
    We are suffering harm. The source of that harm has been 
pinpointed and now it is time for Congress to give us the tools 
necessary to defend our property rights. Let's find a way to 
get to ``yes.'' We will commit to that process. Let's not find 
a way and excuses to get to ``no.''
    We thank you for your interest and for holding this 
hearing.
    [The prepared statement of Mr. Bainwol appears as a 
submission for the record.]
    Chairman Hatch. Well, thank you. I think all of you have 
done a good job in expressing yourselves about your respective 
opinions here.
    Let me start with you, Mr. Shapiro. You are on record as 
saying you are deeply concerned about copyright piracy. Yet, I 
really can't recall a single instance when you have been before 
this Committee that you haven't vigorously opposed legislation 
to address this problem. I also recall months ago you filed a 
brief telling the Ninth Circuit Court of Appeals that only 
Congress and this Committee have the institutional competence 
to adjust the standards for contributory liability in order to 
address the problems of file-sharing networks.
    Now, I guess my question is what have you done since then 
to help this Committee identify the best way to address this 
serious problem. I would like to have that great mind of yours 
helping us on this problem rather than just criticizing. I 
don't mind the criticism. I think that is legitimate to be able 
to criticize, but I would like some substantive suggestions on 
how we change this bill so that it meets the concerns that you 
have, if they are truly worthwhile concerns.
    Mr. Shapiro. I think your very question actually makes the 
point on the induce bill. When we filed that brief, we didn't 
intend to induce you into introducing legislation like this, 
but yet somehow it is read as that.
    Chairman Hatch. We didn't read it that way either.
    Mr. Shapiro. We filed the brief as a neutral party and we 
were just saying this is the Sony-Betamax doctrine and we hope 
you apply it. Indeed, if you read the actual court order in 
that case--and I am questioning the need for this legislation, 
as well, and here is why. There are three cases that are at 
issue here. Two of them have been decided exactly the way the 
RIAA wanted them to be. The third one is now on appeal and it 
hasn't been ruled on.
    The district court judge said to the content owners who 
brought the lawsuit in his order sending it up for emergency 
appeal that they refused to address the controlling law in the 
Betamax case. I am not sure they litigated that case right, but 
let's see what the Ninth Circuit says. What is the rush? So 
far, the Sony-Betamax case has served well for at least two out 
of three, and a third is still on appeal.
    In terms of what we have done, as I said in my testimony, 
we were up here with the MPAA on the ART Act coming to a very 
reasonable, clear compromise. We worked on the Home Recording 
Act. We are very reluctant, obviously, to have technology 
restricted because we don't know the ramifications for the 
future, but sometimes it is necessary and it should be 
extremely narrow; it should be clear. The rights and 
responsibilities must be laid out and it must be a clear and 
compelling reason that benefits both the content owners and the 
technology community.
    What we have here is a frontal attack on the technology 
community, and that is how it is being taken. It was surprising 
to hear the Register of Copyrights and others who don't have to 
counsel people as to whether to introduce products and don't 
have to put their money at risk as to whether or not they go 
forward with something.
    We have the most exciting, dynamic technology economy in 
the world and we are producing a phenomenal array of new 
products and there is a lot more coming. The uncertainty of 
going to an induce standard of intent is so chilling and so 
broad that the ramifications--I have never seen a response to 
legislation like this in three weeks.
    When we had Senator Hollings's legislation a couple of 
years ago, it took almost 8 months before the technology 
community responded even half as much. Here, there is a real 
response and the reason is because when you go to someone's 
intent, especially a company, it is a long, lengthy, expensive 
lawsuit which especially the smallest companies will definitely 
avoid.
    So, first, is there a problem? I don't know if there is a 
problem. I do know that there are at least two studies out 
there which say that music industry sales benefit from P2P, 
including one by Harvard, and also one by Forester. I do know I 
have heard the music industry say they can't compete with free. 
Well, you know, someone does compete with free, and although I 
heard that you represent the entire music industry, the fact is 
that there are literally thousands of artists that want to have 
their products on P2P sharing and they are doing very well from 
it, and it drives people to sharing.
    The way I look at this time in history is it is the same 
time as when we were shifting from the horse and buggy to the 
car. Now, if the horse and buggy industry was as powerful as 
the content industry, I suspect we would still be behind horses 
now. We wouldn't have gone to automobiles.
    We have shifted dramatically in technology as a country, 
and every new technology that has come along has been opposed 
by the content community and they have been wrong every time. 
So I don't know if the harm has been proven yet. I know there 
is a lot of downloading. I know that every download is equated 
to a lost sale, and I think that is mistaken. I think BSA's 
consultant was quoted in the New York Times this week as 
saying, well, yes, there is a ten-fold exaggeration there in 
terms of piracy because not every download and not every copy 
is a lost sale.
    So I think the copyright balance has shifted so much in 
favor of the copyright community that we are off kilter. As 
Professor Lessig has pointed out, the penalty for stealing for 
a CD--when you take a CD from a store and steal it, it is 
almost nothing compared to the penalty for downloading that CD; 
it is 10 or 25 times as much. Intellectual property used to be 
less than real property, and somehow now it is much more than 
real property. And I think the balance is out of kilter.
    But, yes, we oppose commercial piracy, and we have 
supported every statutory increase in the penalties. But the 
balance is so out of kilter that we have to put our foot down 
and say this is not the right approach.
    Chairman Hatch. Well, you are pushing me back to blowing up 
their sets, you know. I had more e-mails on that than any other 
thing I have ever said, and I was just joking. You should see 
when I get serious.
    Let me just ask you to review this quote.
    Senator Leahy. You mean you are really going to blow them 
up now?
    Chairman Hatch. Sure. He wants the privilege of expanding 
technology. That may be where we are headed. You never know. 
Again, I am just being humorous, I hope.
    Let me just have you review this quote from Nikki Hemming, 
the CEO of Sharman Networks, and please assume, as I do, that 
Kazaa is capable of substantial non-infringing uses and that 
this quote shows that Kazaa was redesigned to help infringing 
users avoid spoofed files that the recording industry places to 
thwart infringing uses of Kazaa.
    It basically says, ``We have given users better opinions 
and more tools than ever before,'' said Sharman Networks CEO 
Nikki Hemming, ``including an option to filter bogus music and 
video files designed to help users avoid misnamed or incomplete 
files that may have been uploaded by record labels and 
copyright owners trying to frustrate file-sharing.''
    Now, do you believe that Sony presently allowed Sharman to 
avoid liability for redesigning its product to facilitate its 
infringing use by showing that it is still capable of a 
substantial non-infringing use?
    Mr. Shapiro. Well, I certainly applaud the RIAA and the 
recording industry for going forward and trying an approach 
like that. It makes perfect sense to me. It is a free 
marketplace.
    Again, there have been three courts that have looked at 
these issues. Two have come out exactly the way the music 
industry wanted and one court is still under consideration. I 
don't think that has gone to court yet. I am not a judge and I 
am not going to pretend I know all the facts of what else they 
are used for. I do know that even with that Sony-Betamax 
standard, which the Register of Copyrights wants changed, two 
of those services have been held to be illegal. It is possible 
that that one would be held illegal as well.
    Chairman Hatch. Well, let me reframe the question as a pure 
hypothetical. Maybe I can do that. Suppose I were shown that 
the distributor of a copyrighted device had redesigned that 
device specifically to facilitate and encourage clearly 
infringing uses of the device. Now, based on existing law as 
you interpret it, could that distributor avoid liability by 
showing that the copying device redesigned to facilitate 
infringing uses was still capable of substantial non-infringing 
uses?
    Mr. Shapiro. It goes to the facts of the case. Again, there 
have been two courts which have held that those types of 
similar products are illegal under the Sony-Betamax standard. I 
would imagine in that case, it is possible as well, but that is 
why the Sony-Betamax standard is good. It has worked in at 
least two out of three instances, and the third one is still 
under review.
    Chairman Hatch. Well, let me go to Mr. Bainwol.
    Mr. Bainwol, there are concerns that the recording industry 
would bring claims under S. 2560, broad claims against any 
party that might distribute copying devices that might be used 
to infringe.
    Do you believe that this Act lets you sue distributors of 
portable MP3 players, CD burners or personal video recorders 
simply because those devices can be used to infringe?
    Mr. Bainwol. The short answer is no. I am not an attorney. 
My mom wishes I was, but I am not. As I read the bill, it seems 
very highly targeted, and I think everybody here that is 
criticizing the bill ought to go ahead and read the thing. 
``Nothing in this subsection shall enlarge or diminish the 
doctrines of vicarious and contributory liability.'' This is 
very tight.
    ``Intent may be shown by acts from which a reasonable 
person would find intent to induce infringement based upon all 
relevant information, including whether the activity relies on 
infringement for its commercial liability.'' I think that is 
the anchor of this thing.
    When I talked about these P2P services, 97 percent of these 
transactions are infringement. You know, it is a amazing to me 
that, as a practical matter, we get lost in kind of legal 
theories here. Let's forget about the law for a second. Let's 
just look at the fundamental reality. Ninety-seven percent of 
these transactions are illegal and we are quibbling about 
definitions.
    I understand definitions are important, but there is a 
major harm going on here. And for Gary to suggest that P2P 
helps sales, I think, is ludicrous. Look at this chart, Top Ten 
Hits. I can filibuster as well as Shapiro.
    Chairman Hatch. I am not sure about that.
    [Laughter.]
    Chairman Hatch. Let's give it a rip here.
    Mr. Bainwol. Well, let me practice some. I am practicing.
    Top ten hits in 2000 sold 60 million units. File-sharing 
kicks in and Top Ten Hits in 2003 sold 33 million. Where P2P 
really gets us is not on catalog; it is on the new hits. The 
pattern is as clear as night and day. The Harvard study gives 
Harvard an awfully bad name.
    Look at this, the number of units that the top ten units 
sold. In 2000, four of the top ten hits sold more than 6 
million units; in 2003, 1 million. None of the top ten units 
sold less than 3 million units in 2000. In 2003, five of the 
top ten were under 3 million. This has decimated the hits. The 
hits are the source of the investment capital of this industry. 
It is destroying the investment base. We are all committed to 
free markets, we are all committed to innovation, but the 
notion that we can just eviscerate property rights--we need to 
deal with that.
    Chairman Hatch. Well, let me go to you, Mr. McGuiness. 
Certainly, I am going to turn to Senator Leahy.
    Senator Leahy. That is all right. Go ahead. I am enjoying 
this. I think it is worthwhile.
    Chairman Hatch. I am going to ask you a question, but go 
ahead. If you have a comment, go ahead.
    Mr. McGuiness. First of all, I always think it is a little 
disconcerting for those of us especially in the Internet 
community to sit idly by watching legislation go forward based 
upon the presumption of good intentions forever on behalf of 
lawyers for the entertainment community. It is a little bit 
troubling that may never, ever, ever use this statute for 
economic benefit.
    Chairman Hatch. This is a wonderful panel. I really enjoy 
it, I will tell you.
    Mr. McGuiness. Two years ago, we were talking about 
Napster. Last year, we were talking about Aimster. This year, 
we are talking about Grokster. Next year, we could be up to 
Earth Station 5, or my personal favorite, e-donkey 2000.
    The question we have to ask is if Mr. Bainwol's 
organization won all of its cases, which it still may well do, 
would that cure the problem for them? Would that be sufficient? 
If this law was passed, would that stop illegal fire-sharing 
and downloading? The answer is no.
    We have to at some point give a little consideration to the 
reality that there is a new medium that is being used for music 
to share music and to obtain music. And instead of ignoring it 
or litigating against it, it may be time to embrace it.
    When the VCR arrived, Hollywood, in my book, initially 
focused exclusively on the record button. A couple of years 
later, they decided to focus on the play button, and as a 
result they now sell more DVDs, if I understand correctly, than 
tickets in theaters. At some point, the recording industry is 
going to need to come to terms with the fact that if they 
really want to protect their copyrights, they are going to have 
to focus on education and legal relief. But they also are going 
to have to step forward and start providing a delivery system 
comparable to what is going on on the Internet today that they 
find illegal.
    Mr. Bainwol. If I may, it is not that we find it to be 
illegal. It is 97-percent per se illegal. And let me say we are 
doing exactly what you want us to do. The only way the iToons 
of the world and the Wal-Marts of the world have a chance to 
prosper, and for the legal system on the Internet to work, is 
if we establish that the illegal system won't be tolerated. 
That is what is going on here.
    The only way to give a vibrant marketplace a chance to grow 
and to have our industry have a fighting chance for the future 
is to separate illegal and illegitimate from legal and 
legitimate. I don't know why in the world, just because we are 
in the technological space, we abandon the notion of property. 
That is an absurd notion. The only way we get the marketplace 
to work is if we say that theft is unacceptable.
    Chairman Hatch. Senator Leahy, we will go to you, and then 
I have some more questions after. But Senator Leahy may have to 
leave.
    Senator Leahy. Well, prompted by that last exchange, I will 
ask this question of everybody on the panel, except Mr. 
Greenberg. And I will explain why. I don't want you to feel 
lonely or unloved. I think we have all felt the love in the 
room this afternoon.
    [Laughter.]
    Mr. Greenberg. Virginia is for lovers, yes?
    Senator Leahy. Look at how well the Chairman and I are 
getting along. If we got along any better, they would think we 
are heading to Vermont.
    [Laughter.]
    Senator Leahy. Or worse yet, Massachusetts. But, anyway, 
moving right along--
    Chairman Hatch. This is a banner day, is all I can say.
    [Laughter.]
    Senator Leahy. My mother would be so proud.
    Let me say this. The Copyright Office supports S. 2560, as 
does Mr. Bainwol. Even those who question the language of it 
support the idea. Mr. McGuiness said, and I think I am quoting 
him right, ``unlawful peer-to-peer file-sharing of copyrighted 
materials is wrong. Also, users and companies that engage in 
these activities should not be allowed to operate beyond the 
reach of the law.'' But only Mr. Greenberg and the IEEE have 
provided concrete legislative language laying out their 
concerns.
    So let me ask each one of you, will you provide us with 
legislative language that you would support? Mr. Shapiro?
    Mr. Shapiro. Yes. I think there have been actually some 
good suggestions on the panel. I mean, this is a relatively 
novel concept that all of a sudden we are liable for a new 
cause of action called ``induce.'' But, certainly, we would 
support a codification of the Sony-Betamax principles. We 
clearly support that.
    Senator Leahy. When will you show us that?
    Mr. Shapiro. The codification of the Sony-Betamax 
principles? We could do that in a few weeks.
    Senator Leahy. Okay. Mr. Holleyman, what about you?
    Mr. Holleyman. I outlined in my testimony five key 
principles that we feel need to be addressed. We will proceed 
to work with you and the Committee about possible language that 
might reflect those and other concerns.
    Senator Leahy. Mr. McGuiness?
    Mr. McGuiness. Senator Leahy, we would love the opportunity 
to work with you, and regret that we were not afforded that 
opportunity when you were drafting the bill.
    Senator Leahy. Well, that is why we are having these 
hearings.
    Mr. McGuiness. Great.
    Senator Leahy. So you will supply--
    Mr. McGuiness. Yes, sir.
    Senator Leahy. When?
    Mr. McGuiness. The next couple of weeks. Of course, we 
would have to run it by our members, but clearly in the next 
couple of weeks.
    Senator Leahy. I understand that. I was just trying to get 
some general idea.
    Mr. Bainwol. I would simply suggest that we don't believe--
we like the bill as it is, but our objective is to go after bad 
actors and if there is another way to get there, we are happy 
to sit down with responsible players here in a reasonable way 
and try to find a solution. Again, we want to get to ``yes,'' 
and we can't afford paralysis here; we need action.
    Senator Leahy. Mr. Shapiro, you said in your testimony and 
in answers to questions that you agree that we need legislation 
that targets bad actors. I assume that some will determine bad 
actors in different ways.
    Mr. Holleyman, you offer support to the Committee in 
crafting a law that deters bad actors who use technology to 
intentionally cause others to infringe.
    Mr. Greenberg, in your testimony you offer support for the 
concept of the bill you have offered that has specific 
suggested changes.
    Mr. McGuiness, you state that the law must enable copyright 
owners to seek relief from those who unlawfully download and 
distribute their work.
    Mr. Bainwol offers support for S. 2560 specifically, but 
also in general for legislation that targets unlawful behavior 
rather than technology. Of course, as one of the sponsors of 
this bill, that is what I see as the purpose of the bill.
    Now, have I quoted all of you accurately? Mr. Shapiro says 
I haven't quoted him accurately. Go ahead, here is your shot.
    Mr. Shapiro. I don't think we are advocating legislation. I 
think what we are talking about is personal responsibility. I 
think technology changes quickly. Although it is a natural 
Congressional desire often to legislate very quickly and try to 
stay ahead of technology, I think that is almost impossible. I 
think you really have to prove some harm and see where 
technology is going.
    As was said earlier, I can't even imagine what legislation 
you would come up with, even if it was what was proposed today, 
which would--
    Senator Leahy. So you see no need for legislation?
    Mr. Shapiro. What I am saying is the legislation today 
would not do what you want it to do because it wouldn't stop 
that Internet site in Palestine or anywhere else in the world 
from doing it. I think the reality is that Congress can't 
legislate against everything.
    I think what you are doing here is you are burning the 
carpet to kill the spider. The whole concept of ``induce'' is 
something which really doesn't fit into the copyright context, 
and that is what we are concerned about. If you want to come up 
with a different approach on legislation that says peer-to-peer 
sites aimed at children and pornography are somehow illegal, 
you should take that approach. But peer-to-peer doesn't appear 
in the legislation.
    Senator Leahy. Excuse me. I apologize for interrupting you 
while you were interrupting my earlier question.
    Mr. Shapiro. That is all right. I was interrupting you.
    Senator Leahy. I want to make sure I understand. Earlier, I 
understood you to say that you were going to offer within the 
next few weeks some legislation. Now, you seem to be saying we 
don't need legislation. I am just a small-town lawyer. You deal 
in the big-time world. Do we or don't we need any legislation?
    Mr. Shapiro. I think it is fair to say that there may be 
legislation necessary to codify the Sony-Betamax case because 
at least the Register of Copyrights is interpreting it 
extraordinarily narrowly. But it is good law; it stands. It has 
served us for 20 years. The copyright industries have survived. 
It has allowed technology to thrive.
    I would say even with those charts that you have shown, the 
music industry and the motion picture industry and the entire 
content industry has grown many-fold. Even music industry sales 
are up this year. Things have a way of working themselves out. 
Hits are cyclical. That is just a fact. Again, the are a lot 
more artists now that there were 20 years ago, and that is 
because of technology.
    So, yes, we are willing to offer legislation to codify the 
Supreme Court's Sony-Betamax case. But I don't think right now 
legislation is necessary because the harm is so much greater 
than any benefit that will be derived.
    Senator Leahy. Mr. Holleyman, do you agree with the way I 
characterized your testimony?
    Mr. Holleyman. Senator, I think you fairly characterized my 
testimony. The two points I would make are that the problem of 
piracy is significant and online piracy is growing across all 
copyright industries. The valuable part of the intent of your 
legislation was to try to address bad actors and avoid 
technology mandates, and that is an important principle to 
maintain.
    Senator Leahy. Mr. Greenberg, am I correct that you are 
offering support for the concept of the bill, but you also 
offer specific suggested changes?
    Mr. Greenberg. Indeed, our view is that the status quo is 
both too much and not enough protection to adequately give 
clarity to the actors to know what they can and what they 
cannot do. This is a great opportunity to bring things together 
and make clear for the entire community to show how secondary 
liability is to be balanced against the interests of the 
various constituents.
    Senator Leahy. Mr. McGuiness, am I correct that you say 
that the law of this country has to enable copyright owners to 
seek relief from those who unlawfully download their works?
    Mr. McGuiness. Yes, sir, I said that.
    Senator Leahy. Mr. Bainwol, you have offered support for 
it, but also in general for legislation that targets unlawful 
behavior rather than technology?
    Mr. Bainwol. That is correct.
    Senator Leahy. In that regard, I would think in some ways 
we all agree because none of us could anticipate--I mean, if 
the Congress gave Senator Hatch and myself--and on these issues 
we tend to think very much alike--if they gave us the right and 
ability to write legislation for all time anticipating all 
technology, of course, we couldn't do that.
    I mean, just the way technology changes, I think, 
extraordinarily, fascinatingly, and the fact that I can e-mail 
photographs of my grandchildren back and forth and that we can 
get pictures--I was mentioning to somebody today that during 
the early part of the current war, the commander of our fleet 
in the Persian Gulf was from Vermont, Admiral Costello. I was 
going down to a meeting at the White House and I e-mailed 
Admiral Costello as I was leaving my office.
    As I walked into the meeting with the President, my 
Blackberry vibrated and there was a response from him. 
Fortunately, he said all the rights things, so I could show it 
to the President. But the point is who would have thought of 
this? I mean, who would have thought even a few years ago that 
you could be doing this?
    I will have other questions and, as the Chairman said, I am 
going to have to leave. I am going to submit some to you for 
the record, whether it is how you import parts of the patent 
law into the copyright law. But just so you understand, we are 
trying to protect people who own these copyrights, people who 
have worked and put their own talent and genius into what it 
is.
    Mr. Bainwol, some artists sell and some don't. If you have 
got somebody who really does a bad job or they don't have any 
appeal or, at best, a niche appeal, the market will take care 
of that. But even those who have the niche appeal ought to be 
able to get the value from that niche, whatever it might be. 
And the Internet is a wonderful way to give more exposure to a 
lot of these artists, some of them being able to step out way 
beyond the control of individual companies, individual 
management, to get their own work out there. I think that is 
wonderful, but they should be protected in what they have.
    Now, I don't care if we have 20 different online companies 
selling movies and music and everything else, provided their 
copyrights are protected, because the more you have out there, 
the more the competition is going to be and the better off the 
people who buy, like myself, are going to be. But we have to 
find some way to grapple at least with the basic copyright laws 
in a way that will reflect as this changes.
    I will close with this, Mr. Chairman. I mean, we could 
write a piece of legislation today that would be specific to 
the mechanics, specific to the state of the art, whether on the 
Internet or anything else. We could do that, and I guarantee 
you within a very, very short time, somebody would devise a way 
around that. In the same way that, whether it is Microsoft or 
anybody else, put patches in their computers or in their 
software to stop hackers, within a few weeks somebody else was 
trying a new way to hack in. So the legislation has got to 
speak not to the mechanics, but to the intent, and we will 
figure out a way to do it.
    Mr. Chairman, thank you very much. I am encouraged--and I 
hope you are, too--I am encouraged by at least the expressed 
willingness of everybody here to continue to work with us to 
find an answer that we can agree on.
    Chairman Hatch. Well, thank you, Senator Leahy.
    I just have a couple of more questions to ask and then we 
will finish this. This has been a very stimulating hearing as 
far as I am concerned. I have really enjoyed it. I have enjoyed 
each of you. You are real experts in your fields, and we would 
appreciate all the help you can give.
    Mr. Holleyman, I haven't had a chance to really talk with 
you about this, but the type of pernicious adware and spyware 
distributed with file-sharing software is driving demand for 
the so-called spyware laws both here in Congress and even in my 
home State of Utah. I know your organization worries that such 
laws are over-broad, but the threats to privacy and Internet 
commerce that they seek to address seem to me to be real, and I 
think most people would say they are real.
    I wonder whether you can discuss whether our legitimate 
technology industries can continue to allow the bad actors that 
everybody has been talking about here who distribute certain 
file-sharing software to drive debates ranging from spyware to 
copyright piracy.
    For example, if the Grokster decision is upheld by the 
Ninth Circuit, there will be a split between the Ninth and the 
Seventh Circuits that could force the Supreme Court to 
reconsider the scope and propriety of its ruling in the Sony-
Betamax case. Do any of us benefit from forcing a Supreme Court 
reexamination of Sony that must focus on the likes of Kazaa and 
Morpheus, just to mention a few, and the viruses, spyware and 
mislabeled pornography that are probably just side effects of 
their attempts to design around the Napster ruling?
    Mr. Holleyman. Mr. Chairman, you correctly point out that 
the bad actors are driving much of this debate. We think that 
these are issues that Congress should look at. It should not 
always have to play out in the courts with differing decisions 
in different circuits and a lengthy period of time before there 
may ultimately be a Supreme Court review.
    It is correct, as Mr. Bainwol earlier indicated, that many 
of the P2P systems that are being designed now disguise the 
infringement. They are, however, premised on infringement, 
sustained by substantial ad revenues are also the type of 
spyware that is now calling for legislation not only in your 
home State, but legislation that has been reported out of the 
House Energy and Commerce Committee and legislation that Senate 
Commerce is reviewing.
    We would rather deal with this issue by coming directly to 
Congress, talking about specific, narrow proposals that will 
address the problem. Hopefully, by dealing with the piracy 
problem, we are also better able to reduce the level of spyware 
that is out there. The key in both is to focus on the bad 
actors and to try to avoid technology-specific mandates.
    Chairman Hatch. Mr. Greenberg, I don't want to leave yo 
without some sort of comment here, but I want to thank IEEE-USA 
for its thoughtful analysis and its political courage in 
actually presenting the public with a written proposal intended 
to address the problems of contributory liability in the online 
world.
    I am sure that you knew that anyone who dared to put pen to 
paper and tried to resolve this problem was going to suffer 
from criticism. As this Committee looks at the analysis of S. 
2560 and the IEEE proposal and any alternatives proposed by 
others, I just want to know whether IEEE can agree to continue 
providing input on all these proposals for us, because I 
suspect that we are going to try and resolve this over the 
month of August. That means I am going to ask all of you to 
participate, but in particular I would like to ask you if you 
would do that.
    Mr. Greenberg. Senator, it would be our pleasure to assist 
in any way we can. We are kind of used to sitting in the center 
and proposing something as an alternative. That was the 
position we took in the Festow case when the Supreme Court 
faced another balancing of interests on the question of the 
doctrine of equivalence.
    There, I recall Justice O'Connor's first question to one 
party was what did you think of the IEEE amicus? And Judge Bork 
responded, arguing for the plaintiff, it was awful, worse than 
what the Federal Circuit had done. The same question was asked 
of the attorney representing the defendant and he said the same 
thing. We were pretty sure then we had gotten it right.
    Chairman Hatch. Well, I would like to just ask this last 
question of all of the panelists, and we will start with Mr. 
Shapiro. I would like you to address this final question that I 
have.
    As I indicated in my written statement, I believe that 
addressing the resolution of the file-sharing problem has been 
too long delayed by the parties. They tell the courts that we 
must defer to Congress. I think it is time for us to do that, 
just as they expect us to defer to them.
    This situation now endangers artists, consumers, legitimate 
Internet commerce, and even the continued vitality of the 
important Sony-Betamax case. At least that is my view. That 
ruling is an important ruling, as we all know. I really intend 
to find a solution to it that protects both copyrights and 
technological innovation. I believe that we can and must find 
such a solution during this session of Congress, and I would 
appreciate the sincere efforts of every one of you to help us 
to get there. I don't have any pride of authorship on these 
matters. We would like to get it right.
    I would just like to ask each of you, can each of you 
commit to work with this Committee over the next seven weeks, 
while we will be out because of the recess and also the 
conventions, to identify the approach that best protects both 
copyrights and technology?
    Mr. Shapiro?
    Mr. Shapiro. Mr. Chairman, first of all, thank you very 
much for your sincerity and your willingness to hold the 
hearing and hear our views. You obviously do want to take an 
approach which won't hurt technology companies, as well as 
support the copyright industry. We would be happy to do 
everything we can to help move this process along. We obviously 
want to see something which works for everybody.
    Chairman Hatch. And I think you really should put some real 
time in it because we are going to do this. We are going to get 
this done, and it would be nice if it was something that at 
least tended to please the technology side of this industry, as 
well, because I agree with Mr. Bainwol that it is a dog-gone 
catastrophe to these artists and creative people what is 
happening.
    There is no question in my mind that that business has been 
cut about in half and it has been because of illegal file-
sharing. I am sure there are illustrations that can be made 
that would show that it is not all illegal file-sharing, but I 
know that the vast majority of it is. Whether it is 97 percent 
or not, I believe it probably is that high, but the fact of the 
matter is it is a catastrophe and it has got the potential of 
really hurting our innovative people and our artists and our 
creative writers, and so forth, and those who have to invest 
and promulgate their materials, and I think in the end will 
really hurt technology as well. So this is something that is 
worthwhile doing.
    Mr. Holleyman.
    Mr. Shapiro. Could I just add something?
    Chairman Hatch. Sure.
    Mr. Shapiro. I don't represent Kazaa and I have like 
thousands of hours of frustration of how they screwed up my 
computer. So I have no problem doing something which would shut 
down some of those services.
    Chairman Hatch. This is your chance to get even.
    Mr. Shapiro. Not that I have ever downloaded anything.
    Chairman Hatch. I am glad to have that confession.
    Mr. Holleyman. Mr. Chairman, I can reaffirm our commitment 
to continue to work with you to find the proper balance.
    Chairman Hatch. You have really been a major source of help 
to us over the years. As I work in this area--and I like this 
area; this is one of my favorite areas in all of the Congress 
because what you folks do is really remarkable and wonderful, 
and it has kept our country at the technological and software 
cusp of leadership throughout the whole world and it is really 
important to us. So it is important that we get it right. I 
have to admit we never quite get it right, but if we can 
substantially get it right, I hope that you will all cooperate 
in helping us to do that.
    Mr. Greenberg.
    Mr. Greenberg. Senator Hatch, I think the key observation 
is there is no silver bullet. This is a balancing of competing 
interests that are in some senses inherently irreconcilable. 
This is not to say that we do not act or that we act 
precipitously, but it is to say that we must act with care.
    Absolutely, the content people need to have adequate 
capacity to enforce their rights, but it must be understood 
that secondary liability by its definition is asserting 
intellectual property rights against somebody who has not 
infringed those rights. Therefore, when we define this, we must 
be mindful particularly when the defendant is a technology 
company selling a technology, that we do not give to the 
copyright owners who have written this song the effective 
patent-like protection over an unpatented product for something 
that the songwriter did not invent.
    There is where we feel a line clearly needs to be drawn 
between the scope of their capacity as a plaintiff to demand 
technology mandates either de facto or in the language of the 
statute itself. And we would be pleased to work with you to the 
extent we can to help that along.
    Chairman Hatch. We have appreciated your willingness to 
work.
    Mr. McGuiness.
    Mr. McGuiness. Chairman Hatch, we appreciate the 
opportunity to work with you. We also greatly appreciate your 
interest in finding the right balance. I hope you will give 
some thought, though, to the observation I made earlier that 
the ultimate solution to this problem may be broader than just 
new legislation.
    Chairman Hatch. We will be interested in listening to you. 
You have represented your group very well here today.
    Mr. Bainwol.
    Mr. Bainwol. I have made the observation a few times that 
97 percent of the transactions on these P2P services are 
illegal, and I am going to give Gary the benefit of the doubt 
that he is in the 3 percent.
    Chairman Hatch. That was very gracious of you.
    [Laughter.]
    Mr. Bainwol. I am a nice guy.
    That said, the objective that I think your staff and the 
staff of Senator Leahy began this exercise with was to target 
bad actors and not to get good actors into the net. That is 
what we support. That is our objective, as well, and we are 
fully committed to working with you and your team and the staff 
of this Committee to get that job done.
    There is a sense of urgency for us. I know Gary does not 
see the harm, but I can tell you there are songwriters on the 
streets of Nashville who are not writing songs and there are a 
lot of folks who are just out of the creative business. That is 
a disaster for the country economically and artistically, so we 
have got to solve this problem.
    Thank you, sir.
    Chairman Hatch. There are some of us writing songs that 
aren't getting cut, too, because of this terrible dilemma that 
we are all facing here.
    [Laughter.]
    Chairman Hatch. I have really appreciated this panel. It 
has been a wide-ranging panel. You all have contributed 
greatly. In the end, I am just going to do what Marybeth Peters 
tells me to do anyway. You all know that.
    [Laughter.]
    Chairman Hatch. Shapiro almost passed out right there on 
the spot.
    Let me just say this. This is a very brilliant panel. You 
folks can help us here, and you know what I am saying. If you 
will help us, we just might get it right. But if you don't, we 
are going to do it because something has to be done here. So I 
would suggest you really pitch in and do it.
    Frankly, these are tough issues. They are not easy to 
explain and they are not easy to understand for many of us here 
in Congress. So we can use your help. But in the end, I hope 
that there will also be some element of cooperation and 
compromise because there is no way you can solve these problems 
so that everybody is totally pleased.
    I do share your view--and I thought it was a dirty dig to 
bring up the class action bill at the beginning of this. That 
was supposed to be humorous, but it apparently didn't go over 
very well.
    [Laughter.]
    Chairman Hatch. You are right. I think we have far too much 
litigation and I think we have far too much stifling of our 
economy because of, I think, intemperate litigation, and we 
have to find some way around that. I don't want this to result 
in improper litigation that would stifle creativity in the 
technological world. On the other hand, sometimes having the 
law so that everybody understands what it is and that it really 
means business helps everybody to pay attention to the law and 
pay attention to doing what is right.
    I will tell you one thing. I do want to solve this problem 
for the recording industry and the movie industry and the book 
industry. You name any copyright industry there is and they are 
getting very badly treated because of the technological 
innovations of some who don't give a damn about copyright. 
Well, we have to give a damn about copyright because copyright 
has been one of the most important principles that has made 
this country the greatest country in the world. A lot of people 
don't realize that, but it has.
    So I just want to thank all of you for being here. It has 
been a stimulating meeting to me. I usually hate hearings, but 
I have enjoyed this one very much. Thank you so much.
    We will recess until further notice.
    [Whereupon, at 3:47 p.m., the Committee was adjourned.]
    [Questions and answers and submissions for the record 
follow.]



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