[House Hearing, 109 Congress]
[From the U.S. Government Publishing Office]



                       COPYRIGHT OFFICE VIEWS ON 
                         MUSIC LICENSING REFORM

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

                                HEARING

                               BEFORE THE

                 SUBCOMMITTEE ON COURTS, THE INTERNET,
                       AND INTELLECTUAL PROPERTY

                                 OF THE

                       COMMITTEE ON THE JUDICIARY
                        HOUSE OF REPRESENTATIVES

                       ONE HUNDRED NINTH CONGRESS

                             FIRST SESSION

                               __________

                             JUNE 21, 2005

                               __________

                           Serial No. 109-28

                               __________

         Printed for the use of the Committee on the Judiciary


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


                                 ______

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                       COMMITTEE ON THE JUDICIARY

            F. JAMES SENSENBRENNER, Jr., Wisconsin, Chairman
HENRY J. HYDE, Illinois              JOHN CONYERS, Jr., Michigan
HOWARD COBLE, North Carolina         HOWARD L. BERMAN, California
LAMAR SMITH, Texas                   RICK BOUCHER, Virginia
ELTON GALLEGLY, California           JERROLD NADLER, New York
BOB GOODLATTE, Virginia              ROBERT C. SCOTT, Virginia
STEVE CHABOT, Ohio                   MELVIN L. WATT, North Carolina
DANIEL E. LUNGREN, California        ZOE LOFGREN, California
WILLIAM L. JENKINS, Tennessee        SHEILA JACKSON LEE, Texas
CHRIS CANNON, Utah                   MAXINE WATERS, California
SPENCER BACHUS, Alabama              MARTIN T. MEEHAN, Massachusetts
BOB INGLIS, South Carolina           WILLIAM D. DELAHUNT, Massachusetts
JOHN N. HOSTETTLER, Indiana          ROBERT WEXLER, Florida
MARK GREEN, Wisconsin                ANTHONY D. WEINER, New York
RIC KELLER, Florida                  ADAM B. SCHIFF, California
DARRELL ISSA, California             LINDA T. SANCHEZ, California
JEFF FLAKE, Arizona                  CHRIS VAN HOLLEN, Maryland
MIKE PENCE, Indiana                  DEBBIE WASSERMAN SCHULTZ, Florida
J. RANDY FORBES, Virginia
STEVE KING, Iowa
TOM FEENEY, Florida
TRENT FRANKS, Arizona
LOUIE GOHMERT, Texas

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

    Subcommittee on Courts, the Internet, and Intellectual Property

                      LAMAR SMITH, Texas, Chairman

HENRY J. HYDE, Illinois              HOWARD L. BERMAN, California
ELTON GALLEGLY, California           JOHN CONYERS, Jr., Michigan
BOB GOODLATTE, Virginia              RICK BOUCHER, Virginia
WILLIAM L. JENKINS, Tennessee        ZOE LOFGREN, California
SPENCER BACHUS, Alabama              MAXINE WATERS, California
BOB INGLIS, South Carolina           MARTIN T. MEEHAN, Massachusetts
RIC KELLER, Florida                  ROBERT WEXLER, Florida
DARRELL ISSA, California             ANTHONY D. WEINER, New York
CHRIS CANNON, Utah                   ADAM B. SCHIFF, California
MIKE PENCE, Indiana                  LINDA T. SANCHEZ, California
J. RANDY FORBES, Virginia

                     Blaine Merritt, Chief Counsel

                         David Whitney, Counsel

                          Joe Keeley, Counsel

                          Ryan Visco, Counsel

                    Shanna Winters, Minority Counsel


                            C O N T E N T S

                              ----------                              

                             JUNE 21, 2005

                           OPENING STATEMENT

                                                                   Page
The Honorable Lamar Smith, a Representative in Congress from the 
  State of Texas, and Chairman, Subcommittee on Courts, the 
  Internet, and Intellectual Property............................     1
The Honorable Howard L. Berman, a Representative in Congress from 
  the State of California, and Ranking Member, Subcommittee on 
  Courts, the Internet, and Intellectual Property................     2
The Honorable John Conyers, Jr., a Representative in Congress 
  from the State of Michigan, and Ranking Member, Committee on 
  the Judiciary..................................................     3

                               WITNESSES

The Honorable Marybeth Peters, Register of Copyrights, Copyright 
  Office of the United States, the Library of Congress
  Oral Testimony.................................................     4
  Prepared Statement.............................................     7

                                APPENDIX
               Material Submitted for the Hearing Record

Prepared Statement of the Honorable Howard Berman, a 
  Representative in Congress from the State of California, and 
  Ranking Member, Subcommittee on Courts, the Internet, and 
  Intellectual Property..........................................    52
Prepared Statement of John Conyers, Jr. a Representative in 
  Congress from the State of Michigan and Ranking Member of the 
  Committee on the Judiciary.....................................    55
Letter from Jonathan Potter, Executive Director, Digital Media 
  Association to the HonorableLamar Smith, a Representative on 
  Congress from the State of Texas, and Chairman, Subcommittee on 
  Courts, the Internet, and Intellectual Property................    56
Letter from Steven M. Marks, Recording Industry Association of 
  America to the Honorable Lamar Smith, a Representative in 
  Congress from the State of Texas, and Chairman, Subcommittee on 
  Courts, the Internet, and Intellectual Property................    59
Response from the National Music Publishers' Association, Inc. in 
  response to the testimony of the Honorable Marybeth Peters, 
  Register of Copyrights.........................................    62
Statement of Major Songwriting Organizations, the Songwriters 
  Guild of America and the Nashville Songwriters Association 
  International in response to the testimony of the Honorable 
  Marybeth Peters, Register of Copyrights........................    65
Statement of the Local Radio Internet Coalition in response to 
  the testimony of the Honorable Marybeth Peters, Register of 
  Copyrights.....................................................    69
Statement of the Recording Artists' Coalition in response to the 
  testimony of the Honorable Marybeth Peters, Register of 
  Copyrights.....................................................    84
Statement of the Television Music License Committee and the Radio 
  Music License Committee in response to the testimony of the 
  Honorable Marybeth Peters, Register of Copyrights..............    86
Letter to the Lamar Smith, a Representative in Congress from the 
  State of Texas, and Chairman, Subcommittee on Courts, the 
  Internet, and Intellectual Property and to the Honorable 
  Howardd Berman, a Rrepresentative in Congress from the State of 
  California and Ranking Member on the Subcommittee on Courts, 
  the Internet, and Intellectual Property from Del R. Bryant, 
  Broadcast Music Inc............................................    88
Statement of SESAC, Inc. in response to the testimony of the 
  Honorable Marybeth Peters, Register of Copyrights..............    93
Comments of the American Society of Composers, Authors and 
  Publishers in response to the testimony of the Honorable 
  Marybeth Peters, Register of Copyrights........................    98
Letter from the Honorable Marybeth Peters, Register of Copyrights 
  to the Honorable Lamar Smith, Chairman, Subcommittee on Courts, 
  the Internet, and Intellectual Property, submitted July 19, 
  2005...........................................................   101

 
                       COPYRIGHT OFFICE VIEWS ON 
                         MUSIC LICENSING REFORM

                              ----------                              


                         TUESDAY, JUNE 21, 2005

                  House of Representatives,
              Subcommittee on Courts, the Internet,
                         and Intellectual Property,
                                Committee on the Judiciary,
                                                    Washington, DC.
    The Subcommittee met, pursuant to notice, at 10:04 a.m., in 
Room 2141, Rayburn House Office Building, the Honorable Lamar 
Smith (Chair of the Subcommittee) presiding.
    Mr. Smith. The Subcommittee on the Courts, the Internet, 
and Intellectual Property will come to order. I am going to 
recognize myself for an opening statement, then the Ranking 
Member, then the Ranking Member of the full Committee.
    This is a wonderful turnout this morning. It's nice to see 
a lot of familiar faces and a lot of new faces, as well, which 
is an indication, I think, of how important the subject at hand 
is. Let me recognize myself for an opening statement.
    Today, the Subcommittee continues its inquiry into issues 
surrounding music licensing. However, instead of identifying 
the problems in the music industry, you will hear about a 
possible solution that has been suggested by the Copyright 
Office.
    The music industry has evolved from simple business models 
focused around either the distribution of physical items, such 
as compact disks or broadcasts on the radio, to a dynamic 
digital marketplace where new business models evolve rapidly. 
The laws that set out the framework for the licensing of 
musical rights in this industry are outdated, and some say 
beyond repair. The Copyright Office's idea, therefore, 
represents a creative way for how mechanical and performing 
rights would be administered in this country.
    Since the draft focuses on what the Copyright Office feels 
is the best approach to music licensing laws, it does not 
address any of the issues that would accompany the transition 
to such a system nor does it address the operation of the music 
industry before the enactment of such legislation, if that were 
to occur. The Copyright Office has not addressed such issues 
because it is more important to first determine whether the 
system suggested by the Copyright Office is worth considering 
than determining how best to accomplish the required 
transition.
    Some issues that the Subcommittee would need to resolve but 
that are not included in the draft include how to handle any 
rate disputes that may arise. Should copyright royalty judges' 
decisions or other similar processes be used to settle rate 
disputes, or should a pure free market approach rule? We have 
already seen this issue arise in the context of the Television 
Music Licensing Committee's dispute with SESAC that was debated 
during the Subcommittee's Public Performing Rights Organization 
oversight hearing last month.
    Members of this Subcommittee have an open mind on how to 
reform American music licensing laws, but not on the need to do 
so. Music licensing reform is essential. If legal services are 
going to be able to compete with free, they must be able to 
quickly offer legal music. That does not mean that the music 
licensing laws should be written for the sole benefit of online 
services.
    For example, some music groups have suggested the creation 
of one super-agency to handle all music licensing. Others have 
suggested a direct negotiations approach. Whether or not it 
makes sense to create new entities will be considered as a part 
of the process of developing legislation.
    Finally, I would note that for the interested parties, 
following the testimony today, that there are seven calendar 
days to submit written testimony for the record commenting on 
the Copyright Office's draft and their testimony given today 
and we very much encourage those comments just so we'll have a 
feel for how everyone thinks about the subject.
    With that, I'll recognize the Ranking Member, Mr. Berman, 
for his opening statement.
    Mr. Berman. Thank you very much, Mr. Chairman. Thank you 
for scheduling this hearing on what my at least preliminary 
look at is a very bold initiative by the Copyright Office. The 
Copyright Office continues to serve as a valuable resource on 
many different copyright issues, including section 115, and I'm 
especially interested in hearing its opinions on improving our 
current system of music licensing.
    In anticipation of the Grokster decision, I think it's 
important to recognize that a problem of--the problem of 
rampant piracy over peer-to-peer networks serves as a reminder 
of the dire need to address digital music licensing reform. 
Piracy harms an industry that provides jobs throughout the 
country, including my district, from the recording artist to 
the sound engineer to the many businesses that support the full 
range of musical arts. In order to enable legitimate online 
music distributors to compete with the choice and ease of so-
called free music provided by Internet pirates, we need to give 
users the ability to receive their share of music anytime, 
anyplace, and in any format while ensuring that the creator 
receives his or her rightful compensation.
    According to reports of the NDP group, legal online music 
sources have gained a solid foothold against file sharing 
networks. Though proliferation and success of new digital music 
services, such as the Apple iTunes download service, the recent 
launch of Rhapsody and Yahoo portable subscription services, 
and the recent success of new physical formats, such as dual-
disk CD/DVD all speak to innovation in the distribution 
mechanisms for music content. However a fundamental question 
remains as to whether the current licensing system or the one 
being proposed gives these new music products and services a 
realistic opportunity to compete and overcome the free 
alternatives provided by the peer-to-peer networks.
    Rewards for innovation are hard enough to come by for the 
songwriters who oftentimes are the first to create but the last 
to be paid. But the unfettered distribution of music content 
over file swapping services prevents them from receiving a 
major source of potential revenue. Our focus must remain on 
providing rightful compensation to those that provide our 
music.
    Philosophically, the idea of repealing any of the 
compulsory licenses, 114 or 115, has great appeal and is, 
pardon the expression, music to my ears. The idea that the 
market would be required to yield fair value for a musical work 
has long been the hope of many copyright owners. However, at 
the same time, we need to be mindful of the consequences that a 
free marketplace may have on online music distribution 
services. They compete in a marketplace where the market price 
of the pirated music is free. Therefore, we must facilitate 
legitimate digital online music services in order to combat the 
pirates and reclaim the treasure.
    I look forward to hearing from the Register of Copyrights 
to provide further details of how this draft would address some 
of the practical issues, such as a transition period and 
creation of a fluid marketplace to begin leveling the playing 
field for music services with those of Grokster and Kazaa.
    Thank you very much, Mr. Chairman. I yield back.
    Mr. Smith. Thank you, Mr. Berman.
    The gentleman from Michigan, Mr. Conyers, the Ranking 
Member of the Judiciary Committee, is recognized for an opening 
statement.
    Mr. Conyers. Thank you, Mr. Chairman. I am happy to be here 
and to see our Register of Copyrights with us to make a major 
presentation this morning.
    I look out in the audience and the gang's all here. This 
could be a potentially significant discussion that we have 
amongst ourselves, and so I'm happy you're doing this.
    Could I just indicate for the record that I'm weighing in 
on the side of a narrow redrafting of section 115. It seems to 
me that the larger the proposals around this bill get, the more 
dangerous this is going to become to some of those who are in 
the music business.
    I raise a small flag of recognition to the songwriters in 
this music industry who are paid less than anybody else I know 
for their creative works and I am hoping that we will be able 
to retain the ability of these writers to negotiate a fair rate 
for their musical content. While a rate court would appease 
some seeking a quick resolution of royalty disputes, it seems 
to me that private negotiations are still the most appropriate 
forum for these circumstances, and so I am happy to add these 
comments and look forward to the witness's contribution. Thank 
you.
    Mr. Smith. Thank you, Mr. Conyers.
    With that introduction, other Members' opening statements 
will be made a part of the record, and may I ask our witness to 
stand and be sworn in, please. Would you please raise your 
right hand.
    Do you swear that the testimony you are about to give is 
the truth, the whole truth, and nothing but the truth, so help 
you, God?
    Ms. Peters. I do.
    Mr. Smith. Thank you. Please be seated.
    Marybeth Peters became the United States Register of 
Copyrights in August 1994. From 1983 to 1994, she held the 
position of Policy Planning Advisor to the Register. She has 
also served as Acting General Counsel at the Copyright Office. 
Previously, Ms. Peters, from 1986 to 1995, was a lecturer in 
the Communications Law Institute of the Catholic University of 
America's Law School, and previously served as Adjunct 
Professor of Copyright Law at the University of Miami School of 
Law and at the Georgetown University Law Center.
    Ms. Peters is the author of the General Guide to the 
Copyright Act of 1976. Ms. Peters received her undergraduate 
degree from Rhode Island College and her law degree with honors 
from the George Washington University Law School.
    Ms. Peters, we welcome you today. We look forward to your 
testimony, and as we discussed previously, because you are the 
only witness, please feel free to take more than the 5 minutes. 
We understand you'll be somewhere between five and ten. That'll 
be great. Whatever time you need, we're interested to hear what 
you have to say, and please proceed.

    TESTIMONY OF THE HONORABLE MARYBETH PETERS, REGISTER OF 
COPYRIGHTS, COPYRIGHT OFFICE OF THE UNITED STATES, THE LIBRARY 
                          OF CONGRESS

    Ms. Peters. Mr. Chairman, Mr. Berman, Members of the 
Subcommittee, thank you for asking me to testify on my 
recommendations on how to facilitate the licensing of music by 
reforming section 115 of the Copyright Act, the compulsory 
license for the making and distribution of physical 
phonorecords and digital phonorecord deliveries of nondramatic 
musical compositions.
    Let me start by contrasting how public performance rights 
and the reproduction and distribution rights of music are 
licensed. Songwriters and music publishers license public 
performances through three Performing Rights Organizations, 
PROs--ASCAP, BMI, and SESAC. Virtually every song that anyone 
could ever wish to license is in its repertoire, in the 
repertoire of one of the three, which offer blanket licenses 
for public performances of all of the songs in their 
repertoires.
    In contrast, a record company or digital music service that 
wishes to obtain a license to reproduce and distribute 
phonorecords of a musical work must obtain a separate license 
for each musical work it wishes to license. The license must be 
obtained directly from the music publisher or, in many cases, 
the agent, the Harry Fox Agency.
    Harry Fox claims that it licenses over 90 percent of the 
commercially significant music distributed in the United 
States, but the Digital Music Association claims that Harry Fox 
licenses only about 65 percent of, quote, ``available music.'' 
Whatever the figure may be, it seems clear that the Harry Fox 
Agency can license only a fraction of the works licensed by the 
PROs.
    Last year in its testimony, the National Music Publishers 
Association stated that Harry Fox's available catalog is well 
in the hundreds of thousands of musical works. In contrast, at 
a hearing last month, BMI stated that it oversees a repertoire 
of more than 6.4 million musical works. ASCAP testified that 
there are millions of millions and millions of works in its 
repertoire.
    Thus, it's relatively easy for a digital music service to 
clear the rights to publicly perform any and all nondramatic 
musical works. It's not quite one-stop shopping, but it 
literally is three-stop shopping.
    In contrast, it's virtually impossible to clear the 
reproduction rights for all such works, no matter how many 
stops you make. Unlike the public performance right, the 
reproduction and distribution rights are subject to section 
115's compulsory license. As a practical matter, section 115 
simply sets a ceiling on the rates that can be charged for the 
making and distribution of phonorecords and licenses are 
actually obtained from the music publisher, Harry Fox or 
another agent.
    These differences in the licensing regimes for public 
performances and for reproduction and distribution have only 
recently created difficulties due to the rise of digital music 
services, which aspire to be celestial jukeboxes that can 
provide you with performances or copies of any song you may 
wish to hear. Digital music services need to clear reproduction 
rights for all songs. While they can fairly easily obtain 
blanket licenses from PROs, obtaining the reproduction and 
distribution rights has proved to be extremely difficult.
    The second major hindrance to music licensing for digital 
transmission is that almost all--almost any kind of digital 
transmission of music involves the implication of both rights. 
PROs will assert a right to license and receive royalties for 
the performance right, and Harry Fox and music publishers will 
assert a right to license and receive royalties for the 
reproduction and distribution rights. And in many cases, both 
rights are, in fact, implicated.
    This is a problem because licensing of music is today 
divided into two separate markets, one for public performance, 
one for reproductions and distribution. This pits two different 
middlemen who represent the same copyright owner against each 
other. Each wants and demands a piece of the action. But 
whether or not two or more separate rights are truly implicated 
and deserving of compensation, it seems inefficient and unfair 
to require a licensee to seek out two separate licenses from 
two separate sources in order to compensate the same copyright 
owner for the right to engage in a single transmission of a 
single work.
    There are no such difficulties when it comes to the 
licensing of rights in sound recordings embodying the same 
musical work, and that's because record companies, unlike music 
publishers, have not split up the rights and engaged separate 
middlemen to exploit separate rights. They issue a single 
license to cover everything.
    Because of this, section 115 needs to be reformed to ensure 
that our music industry can continue to flourish in the digital 
age. The question is not whether to reform section 115, but 
how.
    One solution would involve expansion of the compulsory 
license to cover all the rights necessary to make digital 
transmissions, and that is still worth exploring. But I am 
convinced that I was right last year when I told you that, as a 
matter of principle, I believe that the section 115 license 
should be repealed and that licensing of rights should be left 
to the marketplace, most likely by means of collective 
administration.
    The Copyright Office has long held that statutory licenses 
should be enacted only in exceptional cases, when the 
marketplace is incapable of working, and it is worth noting 
that the United States is virtually alone in having a 
compulsory license for phonorecords. The rest of the world has 
managed to resolve music licensing issues without compulsory 
licenses, and most frequently by collective licensing.
    We should do the same. We should let the licensing of 
reproduction and distribution rights take place, for the first 
time in our history, in the marketplace. We should do so by 
building on the strong record that our PROs have built in 
issuing blanket licenses for performance rights and allow the 
PROs to do the same for the reproduction and distribution 
rights.
    I don't have time to describe all of the details in our 
proposal, but in my written testimony and in the accompanying 
draft legislative text with its section-by-section analysis, 
the details are provided.
    In a nutshell, my proposal would convert the PROs to MROs, 
Music Rights Organizations, and give them the right to license 
the reproduction and distribution rights. It would require them 
to offer what is, in effect, a uni-license, a unified license, 
a single blanket license for digital transmissions that cover 
all three rights--public performance, reproduction, and 
distribution of phonorecords.
    Thank you.
    Mr. Smith. Thank you, Ms. Peters.
    [The prepared statement of Ms. Peters follows:]

                 Prepared Statement of Marybeth Peters



    Mr. Smith. I'll recognize myself for some questions, and 
the first--and maybe I should comment, this is a wonderful 
turnout on the part of Members, as well. That's how important 
the subject is and how much we appreciate your testimony.
    Ms. Peters, some of the industry groups have recommended or 
advocated some type of a super-agency instead of your proposal. 
How efficient would that be or not be, in your opinion?
    Ms. Peters. Well, I would actually oppose that at this 
point in time. The one thing it does do is it would allow one-
stop shopping, but it would impose another layer of 
administration and perhaps another layer of transaction costs, 
and I think there would be an antitrust concern. It could 
reduce competition. So at this point in time, I would not 
necessarily favor going that way.
    Mr. Smith. Okay. Suppose our goal was to have high revenue 
and low overhead. What would be the most efficient licensing 
system that you would recommend, the one--go on.
    Ms. Peters. I would suggest that it's the one that I 
propose. [Laughter.]
    Mr. Smith. Okay. Why would that increase revenue and reduce 
overhead?
    Ms. Peters. Because you would be able to license all works, 
and because all users of digital music would have PROs to go 
to, or MROs to go to and get what they needed, I think it would 
enable a lot more legitimate use of music and bring in more 
revenue.
    Mr. Smith. Okay. Speaking of MROs, under your proposal, how 
many MROs do you think would exist? Would it be four or would 
it be 40?
    Ms. Peters. Let's put it this way. It is possible that 
there could be many MROs, but I would suggest that it would be 
unlikely. There are expenses in setting up an MRO. In fact, 
today, other MROs or PROs could have, in fact, developed, but 
they haven't. In the performing rights area, it went from 1914 
until 1939 before a second one showed up in the form of BMI. So 
I think that it's unlikely.
    In the mechanical rights area, technically, there may be 
several, but there's only one predominant or Collective 
Licensing Organization, the Harry Fox Agency. So I have no 
reason to believe that we would have a proliferation of MROs.
    Mr. Smith. Ms. Peters, what do you think we need to learn 
from what other countries' experiences have been with music 
licensing? What has worked in other countries, what has not 
worked, and does that influence your recommendation?
    Ms. Peters. A number of countries actually have--the PROs 
have combined the reproduction right with, in fact, the 
performance right. That is a plus. I do have to say that in 
other countries, they have different problems that they are 
struggling with. But with regard to administering both rights, 
there are many who actually do administer both rights.
    Mr. Smith. One further question. This gets into a subject 
that is still contentious to a lot, and that is royalty rates. 
If royalty rates cannot be established by private negotiations, 
I know you favor some form of binding arbitration, but why 
would that be the recommendation?
    Ms. Peters. Well, actually, I think what we would basically 
feel is that the marketplace should--that we should attempt to 
use the marketplace, and if, in fact, it turns out that there's 
a problem, then maybe you turn to, you know, a consent decree 
with a rate court. But I don't think that you leap there. And 
there are alternatives. There's the copyright royalty judge 
system that you could look at if, in fact, a problem developed. 
But at this point in time, I would actually favor letting the 
marketplace try to work.
    Mr. Smith. I was just going to say, when it comes to 
royalty rates, you still prefer the free market approach, 
letting that be negotiated rather than imposed by the 
Government----
    Ms. Peters. Yes.
    Mr. Smith. --or by other entities? Okay.
    Last question. You made a curious statement that I thought 
was a valid statement in your written testimony. You said that 
you thought the current system, which is to say section 115, 
quote, ``inhibits the music industry's ability to combat 
piracy.'' I thought it would be interesting to hear why you 
thought that was the case.
    Ms. Peters. It actually goes back to my first answer to--
the answer to the first question. If it's too difficult to 
obtain the license, then people might use the works without 
permission and that actually increases unauthorized 
distribution of musical compositions. So for me, in order to 
decrease piracy or to take away the excuse that, well, I 
couldn't get a license, you need an efficient system in place.
    Mr. Smith. Okay. Thank you, Ms. Peters.
    The gentleman from Michigan, Mr. Conyers, is recognized for 
his questions.
    Mr. Conyers. Thank you, Mr. Chairman, and thank you for 
being with us today, Ms. Peters.
    Where does the--in your view, the concept of remuneration 
come in and how would it be affected by the proposal in the 
draft that you have before us for songwriters?
    Ms. Peters. My perspective would be a blanket license that 
would be negotiated in the marketplace. The piece that we have 
been very critical of over the years is that the existing 
section 115 sets a ceiling and people bargain down from the 
ceiling. I don't like seeing a ceiling. I notice that the 
songwriters said, well, they would like a floor. You can't go 
below a particular level. Well, that may be true, but the 
ceiling, in fact, is a problem.
    Mr. Conyers. You dislike ceilings, but not--you don't feel 
too bad about floors.
    Ms. Peters. Well, basically, the songwriters were saying, 
no matter what, we should make sure that we have a decent 
royalty rate. I care about songwriters. It's the creator that 
we have to make sure that we take care of, and I thought my 
proposal was, in fact, increasing the ability of songwriters to 
get additional money. We know that songwriters make more money 
through the performance right and from PROs than they do from 
the administration of the mechanical compulsory license.
    Mr. Conyers. Is the proposal you have a narrower group of 
changes as opposed to some of the other proposals out? I notice 
that some of my colleagues on the Committee have weighed in on 
115 in earlier times.
    Ms. Peters. If you are not going to abolish the compulsory 
license and your choice is to reform it, then I strongly 
recommend reforming it on a blanket license-type basis. I think 
there was agreement when we were overseeing discussions last 
summer that the 114 blanket license worked much more 
efficiently than the title-by-title, music publisher-by-music 
publisher system.
    Mr. Conyers. I would like to just thank you very much for 
moving us along in this direction and ask the Chairman, I 
assume that we are going to have additional hearings and you 
will be hearing from the ASCAP, BMI, SESACs of the world on 
this same subject, Mr. Chairman?
    Mr. Smith. Mr. Conyers, if you would yield, we have had two 
hearings involving the witnesses whom you have just mentioned 
and I am sure there will not only be additional hearings, but 
discussions on the subject, as well.
    Mr. Conyers. All right. Thank you very much.
    Mr. Smith. The gentleman from Virginia, Mr. Goodlatte, is 
recognized for his questions.
    Mr. Goodlatte. Thank you, Mr. Chairman.
    Ms. Peters, welcome. Do you believe that providing for 
courts to resolve disputes over royalty rates for public 
performances has worked to decide those rates when the private 
parties cannot agree?
    Ms. Peters. You're talking about the rate courts and the 
consent decrees?
    Mr. Goodlatte. Right.
    Ms. Peters. Yes.
    Mr. Goodlatte. If Congress adopted your idea to allow MROs 
to license reproduction and distribution rights for 
phonorecords, do you believe that applying such a rate dispute 
mechanism would be useful for those licenses, as well?
    Ms. Peters. It may be. We actually have had a short time to 
talk to the parties, but if there's one thing that they 
vehemently disagree about, it's that issue. So I guess for me, 
I would like to see if, in fact, there was a problem that 
developed and if, in fact, it did develop and the Antitrust 
Division of the Department of Justice felt the remedy was, in 
fact, an expansion of the consent decrees to cover rate courts 
in this area. Then that would be the way to go.
    Mr. Goodlatte. How would that--would you then have to come 
back to the Congress for additional legislation----
    Ms. Peters. No----
    Mr. Goodlatte. --or would we be looking at a court 
expanding its own jurisdiction?
    Ms. Peters. Yes. You would be looking at an expansion of 
the existing consent decrees if, in fact, it turned out that 
there was a problem with regard to monopolistic practices.
    Mr. Goodlatte. All right. In order for providers to offer 
legitimate online music services and new physical music 
products to compete with illegal services, these providers need 
certainty that they will be able to license the reproduction 
and distribution rights to all music with greater ease. What 
provisions in your plan would create more certainty that these 
licenses would be more readily available to these legitimate 
music services and products?
    Ms. Peters. Actually, we chose the PRO model because they 
serve all comers and you have the license no matter what. You 
work out the details later. I think that was the model that we 
wanted. All people who wanted licenses could get them. The 
details, you know, might come later, but you still could, in 
fact, use the work.
    Mr. Goodlatte. And you think that would be easy enough, and 
you testified to the Chairman that you don't envision having 
too many of these organizations?
    Ms. Peters. Right. That is my anticipation. I will just 
cite that I was on the website of some of the PROs and they've 
got licenses for podcasting in many of the new forms of making 
works available on the Internet, so I have faith that that 
would be handled.
    Mr. Goodlatte. Do any of the provisions of the consent 
decrees operating in the performance rights realm help to 
create this kind of certainty for the licensing of performance 
rights?
    Ms. Peters. I have to say I'm not an expert on the consent 
decrees and I'm really--we can look into that answer and get 
back to you on it, but I don't feel comfortable answering it 
right now.
    Mr. Goodlatte. Well, that would be fine, Mr. Chairman, if 
she could be allowed to do that. I would certainly be 
interested in having your additional thoughts on that subject. 
Thank you, Mr. Chairman.
    Mr. Smith. Thank you, Mr. Goodlatte.
    The gentleman from California, Mr. Berman, is recognized 
for his questions.
    Mr. Berman. Well, Ms. Peters, thank you very much for your 
very bold proposal. I think it's--in a way, I like the idea of 
starting off with the, almost the revolutionary and then, 
unlike Iraq, try to see what the consequences are beforehand.
    I want to press you. I guess both the Chairman and Mr. 
Goodlatte raised this issue. But why in the world that you are 
proposing will the MROs look more like the Performance Rights 
Organizations, three, using blanket licenses----
    Ms. Peters. Right.
    Mr. Berman. --than--I mean, nothing in your proposal would 
require, would put a limit on the number, and nothing in your 
proposal would require blanket licensing, as I understand it.
    Ms. Peters. That's right.
    Mr. Berman. Why would it look more like the PROs than like 
the situation we now have with the mechanical license? What I 
mean is just--I mean, the PROs developed in a non-digital 
world.
    Ms. Peters. That is right, but they've adapted to a digital 
world.
    Mr. Berman. Yes. Why wouldn't we be more likely to see a 
proliferation of publishers who decide to be their own MRO, in 
effect?
    Ms. Peters. Let me start with, yes, they could. Our 
proposal doesn't necessarily require that in the end there will 
be a blanket license, but a blanket license must be offered in 
our proposal. So from my perspective, if you look at what has 
happened----
    Mr. Berman. A blanket license----
    Ms. Peters. Must be offered----
    Mr. Berman. To----
    Ms. Peters. Any----
    Mr. Berman. --for a licensee to utilize the reproduction--
--
    Ms. Peters. Yes.
    Mr. Berman. --performance----
    Ms. Peters. Yes.
    Mr. Berman. --the whole bundle of rights----
    Ms. Peters. Yes.
    Mr. Berman. --must be offered----
    Ms. Peters. It must be offered.
    Mr. Berman. --at a rate determined through negotiations 
between the license----
    Ms. Peters. Right.
    Mr. Berman. --between the MRO and the licensee----
    Ms. Peters. Right. And it's possible, just like today----
    Mr. Berman. --and if they haven't negotiated it, with a 
dispute resolution mechanism to essentially set the price, the 
fair price.
    Ms. Peters. Right.
    Mr. Berman. Okay. Go on now.
    Ms. Peters. What I was actually going to say is based on 
the experience of the PROs, it is much cheaper to administer a 
blanket license, and although they are required to do program 
licenses, those are administratively difficult. So it would 
seem to me--now, you have to know my entire career is in the 
Government, so I have never worked in the real live business 
world, but it would seem that the blanket licensing would be 
the most efficient way. PROs, and I think even the Harry Fox 
Agency, try to give the composer and the music publisher as 
much of the money as they possibly can. The problem with HFA is 
it's a title by title. So it seems to me not to make much sense 
to think that a PRO, if they have this, would, in fact, choose 
not to, in essence, push the blanket license.
    Mr. Berman. And again on the notion of why, in the context 
of now having the--why will songwriters and publishers--I guess 
they think the answer would be they get a better deal this way. 
That's why they would----
    Ms. Peters. Hopefully, yes, and----
    Mr. Berman. --rather than become their own MRO----
    Ms. Peters. Right, and in the PRO scenario, there is, in 
fact, a direct payment to songwriters. It's 50 percent to 
publishers, 50 percent direct payment to songwriters.
    Mr. Berman. All right. Now, talk about this issue of the 
consent decree, that is, if they're still allowed after--no, 
never mind. [Laughter.]
    Every 4 years, we'll be back. Explain a little more slowly 
for me where the consent decree comes into this as opposed to 
us legislating an alternative dispute resolution mechanism.
    Ms. Peters. Two of the PROs are currently subject to a 
consent decree----
    Mr. Berman. Right.
    Ms. Peters. --with regard to the performance right, and the 
question is what happens vis-a-vis that consent decree? Should 
you add these additional rights to what they can do? And we 
actually tried to start a conversation with the Justice 
Department, but we only were able to contact the Antitrust 
Division in the last few days. So we're not sure how all of 
this would come out, but we think that--or we hope that the 
Antitrust Division would be persuaded that our proposal does 
not raise serious antitrust concerns and there really wouldn't 
need to be an adjustment at this point in time. But if, in 
fact, it turned out that, in practice, then you could expand 
the consent decree to cover the additional rights.
    Mr. Berman. And what do we do during the transition period?
    Ms. Peters. The transition period----
    Mr. Berman. From the passage of the legislation to----
    Ms. Peters. Until the point where you realize it's broken? 
I'm hoping it's not broken. I'm actually----
    Mr. Berman. Well, the parties don't come together. You get 
relatively little privately negotiated and now you have to deal 
with the mechanism for setting a rate. What happens during that 
interim period?
    Mr. Smith. The gentleman from California is recognized for 
an additional minute.
    Ms. Peters. I'm not totally sure. Maybe there are dispute 
resolution clauses that could be put in the contracts, or as 
this is happening the Antitrust Division could start talking 
with the parties. I don't have the ultimate answer.
    Mr. Berman. And actually, you could, if you knew the way it 
was going to be settled--well, the problem is you don't, but if 
you knew how this was going to be settled, the obligations 
could accrue and then the amount of money owed could be 
determined later. That's done a lot of times----
    Ms. Peters. Well, I was assuming that, that you can always 
get the license and worry about what you owe later. But for 
people, that doesn't give much comfort, not knowing what 
they're going to owe.
    Mr. Smith. Thank you, Mr. Berman.
    The gentleman from Florida, Mr. Keller, is recognized for 
his questions.
    Mr. Keller. Well, thank you, Mr. Chairman, and thank you, 
Ms. Peters, for being here today. I have read your complete 
testimony and I've also read various memos and other items from 
industry members and I'm reminded of the many media reports of 
identical twins who speak their own language which they 
understand but nobody else knows what the hell they're talking 
about. [Laughter.]
    Ms. Peters. I understand that.
    Mr. Keller. So I'm going to simplify things and walk you 
through. Let me tell you what I do know about children, as 
someone who has two kids in elementary school. This is what I 
know about 10-year-olds in fourth grade. They don't want to pay 
$18 for a CD that has one hit song and 11 crappy songs. They 
don't want to break the law by illegally downloading because 
they've heard that you could be sued or even sent to jail. And 
they kind of like MTV videos.
    So with that in mind, the ideal situation for that 10-year-
old and fourth grader would be a DVD/CD, one on one side, one 
on the other, that has the top 12 songs of the current top 40 
along with the music videos for their songs. That, I think, may 
be the future for these kids.
    So some creative entrepreneur comes around and he wants to 
distribute this DVD/CD combination and play by the rules. He 
wants it in all the record stores and Wal-Marts throughout 
America. He wants to do it in a way that is legal and quick and 
that fairly compensates the copyright owners. Under this 
scenario, I want to see how he would go about doing that under 
existing law versus your proposal.
    So let's start with the CD side of it. He wants to get the 
rights to these 12 songs on the CD. Under existing law, I would 
imagine his first stop would be with the Harry Fox Agency, 
since you've testified they have 65 to 90 percent of the market 
share, is that right?
    Ms. Peters. Yes, and if it's the top ten or 12, they 
probably have it.
    Mr. Keller. Okay. And----
    Ms. Peters. So they would go to Harry Fox to get the 
reproduction and distribution right, and at that point, if all 
he's doing is making the CD----
    Mr. Keller. Right.
    Ms. Peters. --the question would be, where is he getting it 
from? If he's downloading it from an online service, or did he 
buy the CD, whether the performance right is implicated depends 
on how he gets----
    Mr. Keller. Okay. Let's say it's just the mechanical 
licensing rights we're talking about----
    Ms. Peters. Okay, we----
    Mr. Keller. --and let's say that ten of the 12 songs, we 
can get from Harry Fox under the existing scenario. He has to 
track down the other two licensors of music publisher rights?
    Ms. Peters. Right.
    Mr. Keller. And that could take a while?
    Ms. Peters. It depends. If they're top songs, I would think 
that the name of the publisher would be on the album or it 
would--the data would be available and they could contact the 
publisher.
    Mr. Keller. Under your proposal, would it make it any 
easier to track down those licensors other than Harry Fox, or 
would that essentially stay the same?
    Ms. Peters. Well, if it's a blanket license, there would be 
several places that you would go to clear for all of the songs. 
The whole purpose is that in the PROs, if you get the three 
licenses, you're essentially covered for everything, Even if, 
in fact, you can't find the copyright owner. The way it is 
today, you could use the statutory license by coming to the 
Copyright Office, looking up the records to see whether or not 
it was registered. If it was registered, then you would serve 
or you could contact that publisher. But you also have to deal 
with the record company, for the rights in the sound 
recordings.
    Mr. Keller. But let me go on because I have got some 
follow-ups.
    Ms. Peters. Okay.
    Mr. Keller. So we've managed to now track down the 
appropriate people, the licensors of all these 12 songs. Under 
existing law, there's a compulsory license. So in other words, 
as long as I pay the appropriate amount of money, I can use 
that song.
    Ms. Peters. If you follow the terms and conditions----
    Mr. Keller. Right.
    Ms. Peters. --in the statute or you get a modified license 
from the publisher.
    Mr. Keller. Now, under your proposal, you are talking about 
possibly doing away with the compulsory licenses----
    Ms. Peters. Right.
    Mr. Keller. --so the songwriter may say, you know what? I 
don't want my song listed on that compilation CD, is that 
right?
    Ms. Peters. If, in fact, it were part of a PRO, no, they 
couldn't, because it would be required to be offered on a 
blanket basis.
    Mr. Keller. So as many licenses would still be available?
    Ms. Peters. The truth is, in certain circumstances, maybe 
the songwriter could say no. But most songwriters want to make 
money, so most songwriters want to license.
    Mr. Keller. Okay. So tracking down all these people and 
making sure they're appropriately paid, do you think your 
proposal would make that process on the CD side any quicker 
than it exists right now?
    Ms. Peters. Personally, yes.
    Mr. Keller. And that's because of the blanket licensing 
issue when you----
    Ms. Peters. And going to one place.
    Mr. Keller. Okay. Now let's flip over the CD to the DVD 
side----
    Ms. Peters. The truth is, if it were a mechanical and Harry 
Fox did, in fact, represent all those people----
    Mr. Keller. Right.
    Ms. Peters. --it could be one-stop shopping with Harry Fox, 
too.
    Mr. Keller. Which would be ideal. Now, let me ask, as a 
follow-up to that, let's say Harry Fox has it all, let's say 
100 percent of all these songs, and we do away with the 
compulsory license. What's to keep them from charging whatever 
they want to charge?
    Ms. Peters. The marketplace.
    Mr. Keller. But there's no competitor. They have 100 
percent of the songs. I mean, what's to keep them from saying, 
you know what? I'm going to charge you three times that or take 
a walk.
    Ms. Peters. They could try. I mean, it's really like, as 
ASCAP and BMI and SESAC negotiate with the broadcasters, they 
have all the music.
    Mr. Keller. Okay. Just one final question, Mr. Chairman.
    Mr. Smith. Without objection, the gentleman is recognized 
for an additional minute.
    Mr. Keller. And I'm sorry, this is a harder question, but 
you flip over that CD. Now we're on the DVD side and you want 
to get the rights to those corresponding music videos. Tell me 
how, if any, there would be a difference between existing law 
and your new proposal.
    Ms. Peters. Actually, we don't address music videos. Those 
are audio-visual works, not just musical compositions. There 
are sync rights, synchronization rights, that are involved 
that--they are handled by music publishers. So there is more 
licensing involved when you're making a music video, separate 
licenses.
    Mr. Keller. And whatever those complications are, and I 
understand there are many, are not going to be affected by what 
you are suggesting?
    Ms. Peters. No.
    Mr. Keller. Okay. Thank you, Mr. Chairman.
    Mr. Smith. Thank you, Mr. Keller.
    The gentleman from Virginia, Mr. Boucher, is recognized for 
his questions.
    Mr. Boucher. Mr. Chairman, thank you very much, and I want 
to commend you for your persistence in holding a series of 
hearings and giving in-depth consideration to the need for 
legislation that will remove the barriers that currently 
inhibit the ability of digital media companies to use the 
Internet in order to compete very successfully with peer-to-
peer file sharing, and I think we all acknowledge that need. 
And I'm very impressed with the efforts you've undertaken, Mr. 
Chairman, to help us achieve that goal.
    And Ms. Peters, I want to commend you for your longstanding 
work in this area also and what I think is a very thoughtful 
report. You've done a first-rate job with this. I want to ask 
you just a couple of questions about some of your 
recommendations.
    I have listened very carefully to the conversation 
regarding your preferred alternative, which is that section 115 
be repealed and that we basically trust the market in order to 
agglomerate the various songwriter-publisher interests, and 
that we also trust the market in order to set a fair rate. And 
I have some concerns about both of those components. I am a 
little bit worried that, notwithstanding your projection, that 
what we would see is a small number of Music Rights 
Organizations arise in order to agglomerate and license these 
rights, that what we might end up seeing is dozens of them, and 
if that were to happen, the digital media companies would be 
placed at a severe disadvantage in order to have to negotiate 
separately with dozens of agencies, some of which would have 
some songs, some of which would have others.
    I guess there is no way to know at this juncture whether 
your projection is right--we would hope that it is--or whether 
the eventuality might prove that dozens of these rights 
organizations arise. And so, Mr. Chairman, I would simply note 
a concern with regard to that and recommend that at some future 
hearing on the subject, we invite all of the various externally 
interested parties and get their opinion on how they think that 
particular part of the market would arise.
    The other concern I would note, Ms. Peters, relates to the 
rate. Mr. Berman engaged you in a very thorough discussion of 
that subject. I won't reprise that except to note that I really 
don't share your confidence on several points.
    First of all, I have some real doubts that the Department 
of Justice would, in fact, seek to extend the consent decrees 
in order to provide a rate backstop. I think it would be better 
if we considered providing that backstop directly through the 
legislation and I would be very interested in hearing what 
other witnesses will have to say at future hearings concerning 
that possibility, and I know you've acknowledged the potential 
for doing all of this in your testimony.
    So let me depart from section 115 and take just a moment to 
talk about a few other things also within the general sphere of 
effective music licensing that will make it easier for the 
lawful companies to compete with the unlawful. You performed 
another valuable public service several years ago when in 
response to section 104 of the Digital Millennium Copyright 
Act, your office studied a number of questions. And then you 
published what I thought was a thoughtful and highly 
constructive report that made a number of recommendations.
    One of those recommendations is that server copies, 
including buffer copies and other ephemeral copies that are 
made in very large numbers through the act of streaming online 
and digital webcasting be declared to be fair use. Your 
interpretation of the 104 report is that those ephemeral 
copies, buffer copies, et cetera, are, in fact, fair use, but I 
think you suggested at the same time that we codify that 
principle just to make sure that the ultimate interpretation by 
the courts and others was consistent with your view. Do you 
still make that recommendation to us?
    Ms. Peters. Actually, we looked at it with respect to 115 
and we certainly said that if you are amending section 115, 
which is the compulsory license, that all of that activity 
should be encompassed within the compulsory license and in 
certain areas that when, in fact, what you have is a licensed 
download and that the performance is simply to accomplish that 
download, we didn't see any separate economic value. One of the 
things that----
    Mr. Boucher. In the ephemeral copy or the buffer----
    Ms. Peters. In the ephemeral copies.
    Mr. Boucher. Right.
    Ms. Peters. Now, one of the things about our proposal is 
that we can argue long and hard about the value of those and 
whether they are implicated and we should pay for them. By 
putting the rights together, it really takes away that stress. 
But yes, in general, we stick with our thought that when you 
have a licensed activity and you have copies that are made or 
incidental performances--you can argue whether they're public 
or not--that those should not necessarily be separately 
compensable events.
    Mr. Boucher. All right. Thank you very much.
    Mr. Chairman, I ask unanimous consent for an additional 
minute.
    Mr. Smith. Without objection, the gentleman is recognized 
for an additional minute.
    Mr. Boucher. And Ms. Peters, I have two other questions. I 
am going to ask these in a block and you can answer in a block, 
if you would like. I would hope you would separately address 
each.
    You also suggested in your section 104 report that in order 
to make the purchase of legal music on the web more attractive 
to the consumer, that the right of the consumer to back up the 
music that he has lawfully acquired be recognized as a fair 
use. I would be very interested in acknowledging that in 
whatever statute we report from this Committee. Do you continue 
to make that recommendation to us, also?
    Ms. Peters. When you have, yes, legally purchased material, 
we basically said that everybody was, in fact, doing it and we 
might as well acknowledge it.
    Mr. Boucher. Okay, thank you. I forgot to ask this other 
question at the same time. I have always thought that we should 
equate webcasting with the rights and privileges that inure 
within the record store, within the physical record store, with 
respect to the ability to sample for 20 seconds or 30 seconds 
the music before the decision is made to purchase it.
    And so you acknowledged also in your 104 report that these 
samples, it would be appropriate to equalize treatment with 
regard to these, and so I would ask you if you would recommend 
to us that we allow the web 20-second or 30-second sample to be 
given the same license-free status that presently applies to 
the in-store sales.
    Ms. Peters. You are talking about section 110(7)?
    Mr. Boucher. That's correct.
    Ms. Peters. We think that certainly there's a reasonable 
argument that using a snippet for the purpose of selling music, 
so that people can listen, do I want to buy it or not, is 
something that we could support. But the question is, how much 
is the snippet, and there have been talk of 30 seconds and 60 
seconds. I am of he view that 60 seconds may be too long.
    Mr. Boucher. Sixty seconds may be too long?
    Ms. Peters. Right.
    Mr. Boucher. Well, thank you. Those were very helpful 
answers, and again, thank you for the good job you have done 
with this.
    Thank you, Mr. Chairman.
    Mr. Smith. Thank you, Mr. Boucher.
    The gentleman from Utah, Mr. Cannon, is recognized for his 
questions.
    Mr. Cannon. Thank you, Mr. Chairman.
    It's always a pleasure to have you with us, Ms. Peters. To 
follow up on Mr. Keller's comment, in a world where we have 
twins or triplets or quadruplets or however many people out 
there speaking this special language, you've always been very 
clear with the Committee and very helpful to me.
    Following up also on one of the things that Mr. Keller was 
saying, I take it from where you are headed that you believe 
that these--that your proposal is going to help legal royalty 
paying online kinds of services compete against piracy. Is that 
the case, and if so, how will that work?
    Ms. Peters. I was essentially saying that if, in fact, it 
is easy to get a license and license all of the things that you 
need to do, then, in fact, I thought that that would encourage 
legitimate music services, and the more music services that we 
have providing product and competing with each other, that is a 
good thing.
    I do think that many people in the United States would 
prefer to help songwriters and would buy the legitimate version 
if, in fact, it was a viable option to the free.
    Mr. Cannon. Because of the efficiencies your system would 
have, it would--the system would be cheaper and therefore you 
could compete at a lower price, I take it, with free.
    Ms. Peters. And the people who had these services were able 
to acquire the entire music repertoire, not just parts of it.
    Mr. Cannon. So is the point of your legislation to combine 
the system so that the mechanical side of the equation 
functions like the PROs?
    Ms. Peters. Yes.
    Mr. Cannon. Thank you. One reason we have decided to review 
the issue of music licensing is because today, customers are 
not able to access all of the new products they want to buy in 
the marketplace. So it is my understanding that DVD audio disks 
and other new formats cannot break into the marketplace to meet 
consumer demand. Under your proposal, would these types of 
formats automatically be able to be licensed and available to 
consumers?
    Ms. Peters. If you're talking about DVD audio, it may have 
an audio-visual component that I haven't addressed.
    Mr. Cannon. So----
    Ms. Peters. So I only addressed the music part, so it may 
not.
    Mr. Cannon. So where do we go? I mean, obviously, the world 
doesn't make the nice distinctions we have historically drawn 
here. How do we get to the next phase?
    Ms. Peters. In our proposal, we actually looked at what the 
problems seemed to be, which was the right to get the music. If 
it's a broader problem and it's true some of the parties have 
identified broader problems--lyrics, video, synchronization 
rights--then it's appropriate for the Committee to look at 
those things and determine what the scope of any activity, 
remedial activity it wants to make should be made.
    Mr. Cannon. Thank you again for your very clear thoughts 
and I yield back, Mr. Chairman.
    Mr. Smith. Thank you, Mr. Cannon.
    The gentleman from Florida, Mr. Wexler, is recognized for 
his questions.
    Mr. Wexler. Thank you, Mr. Chairman.
    I would first like to just associate myself with the 
remarks of Mr. Boucher regarding the thoughtfulness, obviously, 
that your plan was prepared.
    If I could ask you, just in terms of the theory of where 
you think you're headed, in previous hearings, we've heard the 
predictions of the variety, and Mr. Keller spoke to them a bit, 
about the new type of products that would be offered, the music 
videos, the concert footage, the lyrics and so forth. Are you 
confident that the proposed changes that you have associated 
yourself with, that if we make them, that the licenses to all 
of these works will be at least as available as they are today? 
Can you assure us that that will be the case?
    Ms. Peters. There are no assurances.
    Mr. Wexler. In your view?
    Ms. Peters. It's my view that they would be, but it's only 
my view. I don't have a crystal ball and--I just think that 
people don't make money unless they license works. I mean, I 
have never heard a copyright owner--well, there's a few recluse 
authors, but most of the time, people want their works to be 
licensed and they want it licensed about the world so that they 
can be paid.
    Mr. Wexler. Would you agree that the net result of the 
proposed changes are that the works are less available than 
they are today, then the changes have not been successful?
    Ms. Peters. That would be bad. Yes, I agree. I mean, the 
whole goal is more availability, so anything less than more 
availability is not a good thing.
    Mr. Wexler. I'm done, Mr. Chairman. Thank you very much.
    Mr. Smith. Thank you, Mr. Wexler.
    Ms. Peters, thank you very much for your testimony. This 
has been most helpful and most informative.
    If there are no further questions, we stand adjourned. 
Thank you.
    [Whereupon, at 11:03 a.m., the Subcommittee was adjourned.]


                            A P P E N D I X

                              ----------                              


               Material Submitted for the Hearing Record

Prepared Statement of the Honorable Howard Berman, a Representative in 
Congress from the State of California, and Ranking Member, Subcommittee 
           on Courts, the Internet, and Intellectual Property



                              ----------                              

         Prepared Statement of the Honorable John Conyers, Jr.

    As I have stated before, I have serious reservations with proposals 
that limit the rights of content creators to negotiate a fair rate for 
their creativity.
    I understand that there are broad proposals to revamp the music 
licensing system. Many of the proposals, however, appear to impact only 
the songwriters, the lowest-paid content owners there are. This process 
should not be thought of by anyone as an opportunity to extract further 
concessions from creators who already are the most heavily-regulated 
and restricted in the music industry.
    Further, considering that all of the interested parties agree that 
the administration of the section 115 mechanical license should be 
streamlined, I believe that is where this Subcommittee should direct 
its energy. If we do that, we could pass a non-controversial bill very 
quickly. If, however, we pursue a broad approach that negatively 
impacts some groups in favor of others, it is likely that nothing will 
be accomplished except for alienating the actual creators of content.
    Finally, we must retain the ability of songwriters to negotiate a 
far rate for their musical content. While a rate court would appease 
some parties seeking a quick resolution to royalty disputes, private 
negotiations would be the most appropriate forum for such 
conversations.

                              ----------                              

    Letter from Jonathan Potter, Executive Director, Digital Media 
 Association to the HonorableLamar Smith, a Representative on Congress 
  from the State of Texas, and Chairman, Subcommittee on Courts, the 
                  Internet, and Intellectual Property



                              ----------                              

Letter from Steven M. Marks, Recording Industry Association of America 
  to the Honorable Lamar Smith, a Representative in Congress from the 
State of Texas, and Chairman, Subcommittee on Courts, the Internet, and 
                         Intellectual Property



                              ----------                              

   Response from the National Music Publishers' Association, Inc. In 
 Response to the Testimony of Marybeth Peters, Register of Copyrights, 
                        Submitted June 28, 2005

    National Music Publishers Association (``NMPA'') respectfully 
submits its testimony in response to the legislative proposal drafted 
by the Copyright Office. We thank the Chairman, Ranking Member, and the 
Subcommittee for their attention to matters instrumental to the 
livelihood of songwriters and music publishers. We also appreciate the 
time and effort invested in drafting the draft legislation; however we 
are unable to support this proposal.
    First, we believe the Copyright Office proposal is fatally flawed 
and would be harmful to songwriters and music publishers. Second, we 
believe the unilicense proposal submitted by NMPA, the American Society 
of Composers, Authors, and Publishers (``ASCAP''), Broadcast Music, 
Inc. (``BMI''), Nashville Songwriters Association International, and 
the Songwriters Guild of America is a superior proposal and would 
better address the needs of the marketplace while protecting the owners 
of copyrights. And third, we strongly believe if Congress chooses to 
change the laws regarding music licensing, it should embrace a free 
market approach rather than the more intrusive government role proposed 
by the Copyright Office
    Initially, we believe the Copyright Office proposal would impose 
more government control over the music industry and would not result in 
a free marketplace system. At the Courts, the Internet, and 
Intellectual Property Subcommittee hearing on June 21, 2005, the 
Register of Copyrights, stated in her written testimony, ``I believe 
that the preferable solution is to phase out the compulsory license to 
allow for truly free market negotiations.'' The Copyright Office 
proposal would indeed eliminate Section 115 of the Copyright Act; 
however, the Copyright Office proposal does not allow for free market 
negotiations. Instead, the Copyright Office proposal forces new Music 
Rights Organizations (``MROs'') to be subjected to rate courts, unlike 
record labels, which have no rate setting mechanism and are allowed to 
operate in a free market. A true marketplace system would allow all 
parties to negotiate on the same level without any ``backstop.'' By 
mandating that Performing Rights Organizations (``PROs'') become MROs 
and tasking these new MROs with administering both performance and 
mechanical rights, the Copyright Office proposal may subject mechanical 
rights to the same rate courts outlined in consent decrees, which 
govern some PROs. The Copyright Office proposal does not clearly 
address whether the rate courts that currently apply to some performing 
rights rate negotiations would apply to mechanical rate negotiations. 
More than likely, mechanical rate negotiations would be subjected to 
these same rate courts, resulting in more government control over 
negotiations rather than less. Merging mechanical and performance 
rights into one rate proceeding will reduce the small amount of 
bargaining power that the songwriters have. Record companies currently 
do not have a rate court imposed on them, so they are free to negotiate 
as they please without regulation. This proposal does nothing to level 
the playing field.
    Additionally, the Copyright Office proposal would put the Harry Fox 
Agency (``HFA''), the primary mechanical licensing agency, at a severe 
competitive disadvantage since it would take away a substantial section 
of its business, administering mechanical royalties in the digital 
world, and forcibly give it to PROs by statute. For HFA to compete, it 
would have to convince writers and publishers to grant expressly both 
mechanical and performance rights to HFA and then build a performance 
right infrastructure, which would take a considerable and potentially 
prohibitive amount of effort and expense. The most likely result of the 
Copyright Office proposal is that HFA will be left with only licensing 
mechanical rights in the physical world, threatening its viability all 
together.
    The Copyright Office proposal would have major financial 
repercussions on the industry as well. The PROs would be forced to 
build a mechanical rights licensing, collection and distribution 
infrastructure, which would involve a large capital cost and additional 
operational overhead, thereby reducing royalty payments to writers and 
publishers. Likewise, as stated earlier, for HFA to continue to 
function, it would have to build a performance rights infrastructure 
which would be almost impossible. There are many other complications, 
such as splits that can differ between performance and mechanical 
royalties. The proposal also devalues mechanical rights by combining 
them with performance rights, thereby reducing royalty payments to 
writers and publishers.
    The Copyright Office proposal would create more confusion than the 
current system. It was the Copyright Office's intent to create one (or 
three) stop shopping for the digital media companies who sell the 
property of songwriters and artists. However, it is entirely 
conceivable that several MROs could emerge and complicate things even 
more. The publishers, especially large multinational publishers, may 
decide it is more economical to create their own MROs and license 
directly.
    We are also concerned that the Copyright Office proposal does not 
address the transition from the current system to this new MRO system. 
When asked about the transition at the subcommittee hearing on June 21, 
2005, the Register confessed that the Copyright Office proposal does 
not provide for such a transition.
    Second, we believe our unilicense proposal is a superior solution 
to the Copyright Office proposal that would balance the needs of the 
marketplace with the interests of copyright owners. The goal sought by 
the Copyright Office--to have one place to obtain the performance and 
mechanical rights needed for a single price - is achieved in the 
unilicense proposal.
    The unilicense addresses the areas of most critical need raised by 
digital media providers--access. The unilicense would create a Super 
Agency. Digital companies would go to the Super Agency and obtain a 
blanket license covering both performing and mechanical rights and pay 
a percentage of their revenue. The digital companies would then have a 
license for all recorded songs, and it would be the responsibility of 
the mechanical designated agent and performance designated agents to 
administer the royalties and distribute them to the appropriate 
writers/publishers.
    Finally, we believe any Congressional action regarding music 
licensing should move toward a free market.
    NMPA supports eliminating Section 115 of the Copyright Act and 
truly allowing the marketplace to govern the music industry. We support 
eliminating controlled compositions, which is not addressed in the 
Copyright Office proposal even though there has been receptivity to 
this in some congressional quarters. We support ending 96 years of 
compulsory licensing of songwriter effort. We support ending the 
government choosing the rates at which songwriters are compensated. We 
support keeping the government out of dictating the amounts songwriters 
and publishers are paid. If Congress acts, we respectfully request it 
act consistently with free market principles.
    Again, we appreciate the opportunity to respond to the Copyright 
Office draft legislation and testimony. We will continue to meet with 
other parties in the industry and are hopeful that the marketplace can 
address many of these concerns without government intervention.

                              ----------                              

Statement of Major Songwriting Organizations, the Songwriters Guild of 
  America and the Nashville Songwriters Association International in 
response to the testimony of the Honorable Marybeth Peters, Register of 
                               Copyrights



                              ----------                              

Prepared Statement of the Local Radio Internet Coalition in response to 
 the testimony of the Honorable Marybeth Peters, Register of Copyrights



                              ----------                              

   Statement of the Recording Artists' Coalition in Response to the 
  testimony of the Honorable Marybeth Peters, Register of Copyrights, 
                        Submitted June 28, 2005

    Mr. Chairman, Mr. Berman, and distinguished Members of the 
Subcommittee,
    Thank you for the opportunity to present our views to the 
Subcommittee on the proposed 21st Century Music Licensing Reform Act, 
and the Statement of Marybeth Peters, Register of Copyrights, before 
this Subcommittee on June 21, 2005.
    The Recording Artist Coalition is a non-profit recording artist 
advocacy group comprised of numerous well-known featured recording 
artists, including Don Henley, Sheryl Crow, Jimmy Buffet, Natalie 
Maines, Billy Joel, Stevie Nicks, Bonnie Raitt and Bruce Springsteen.
    In her testimony, Register Peters identified numerous problems 
relating to music licensing on the Internet. A number of her 
suggestions have merit and should be considered. However, her proposal 
to abolish the Section 115 compulsory license for all ``physical'' 
delivery of mechanical reproductions of sound recordings 
(``phonorecords'') is not desirable. RAC favors some reform of the 
licensing system for ``digital'' delivery of phonorecords, but strongly 
urges caution when applying this solution to ``physical'' phonorecords.
    Contrary to the assertions made by the Register, the Section 115 
compulsory license for ``physical'' product remains vital to the 
business model used by the vast majority of the recording industry. 
Repeal of the compulsory license will most assuredly bring greater 
uncertainty, unintended consequences, increased transactional costs 
and, most likely, a decrease in royalties for most songwriters.
    The Register states in her testimony that ``. . .the use of the 
Section 115 compulsory license has steadily declined to an almost non-
existent level. It primarily serves today as merely a ceiling for the 
royalty rate in privately negotiated licenses.''
    In our estimation, when applied to the sale of physical 
phonorecords, the compulsory license does much more than that. 
Recording artists, record labels, songwriters, and publishers have 
embraced the compulsory license system as a ``backdrop.'' For example, 
while it is true few record labels or recording artists seek a 
Copyright Office compulsory license, the copyright owners and 
prospective licensees understand that, if direct negotiations fail, a 
license may be secured from the Copyright Office. This is why the rate 
offered by the Harry Fox Agency is almost invariably set at ``a full 
statutory rate,'' and controlled composition clauses of the vast 
majority of recording artist/songwriter contracts provide for a ``full 
statutory rate,'' ``seventy-five percent statutory rate,'' or something 
in between. The industry has accepted the compulsory license rate, 
which increases every few years, and other terms of the compulsory 
license as a benchmark.
    The compulsory license was originally intended to prevent or stifle 
monopolistic practices. Abolishing the compulsory license for physical 
phonorecords, however, will adversely affect many parties and will 
create the exact monopolistic, anti-competitive tendencies in the music 
industry the compulsory license was created to prevent.
    In a totally unregulated free market, the major labels could pay 
highly coveted songwriters advances and/or a rate well above the 
present statutory rate. Mid-level or new songwriters (the vast majority 
of the songwriter community) will most likely have to settle for a 
fraction of the compulsory rate. They will be unable to compete with 
established songwriters. Those surviving will earn less, and those 
unable to survive may stop writing. Major labels may even seek 
exclusive licenses over highly coveted songs, thus preventing their 
competition from recording a ``cover version'' of the same song - a 
practice impossible to impose under the present system.
    Major record labels will also have a distinct advantage over 
independent and start-up record labels. They will be able to exert 
unprecedented control over the top songwriters and songs. They could 
offer songwriters advances and other benefits on particular songs - a 
practice which independent and start-up labels could not afford. 
Independents and start-ups would be cut off from the best songwriters 
and songs.
    Repeal of the compulsory license would also adversely affect the 
recording process. Without the certainty of the compulsory license, 
recording artists would opt for recording more of their own songs 
because they would not know how the inclusion of a third party ``cover 
song'' would affect their controlled composition rate. This would 
certainly result in fewer recordings of ``cover songs.'' For recording 
artists dependent on third party songs, the situation will be even more 
dire. The cost associated with ``cover songs'' will most likely 
skyrocket.
    Furthermore, since almost every recording contract references the 
compulsory license to the controlled composition clause, the repeal of 
the compulsory license will result in contractual chaos, even if the 
repeal was prospective only. Most recording artists enter into long 
term recording agreements.
    Repeal of the compulsory license will also increase transactional 
costs. Record labels, recording artists, managers, publishers, and 
songwriters will all have to devote more time and incur greater cost to 
clear the songs for release. Music licensing reform was not supposed to 
result in increased transactional costs.
    Register Peters suggests that collective licensing, perhaps based 
on a European model, would work better. We believe there is merit in 
considering a system keying the rate to a percentage of the wholesale 
or retail price of the product. However, beyond that change, there is 
little the European system offers. RAC is not opposed to consideration 
of a collective licensing system so long as the rate is uniform, it 
applies to all equally, and there is no opportunity to reject the 
request for a license. Only under these conditions will the process 
benefit all.
    The European licensing system, however, does have one provision 
that should be adopted immediately. In Europe, and most of the world, 
performers receive a royalty for analog-based, public performances 
(i.e., radio). Performing artists enjoy such a right for digital 
transmissions in the United States, but not for analog use. Equity and 
comity demand an extension of that right in the United States to cover 
analog performances.
    Regarding the proposed changes to the digital delivery of music, 
RAC is in favor of the principle of streamlining the licensing 
procedure and much of what Register Peters suggests is worthy of 
consideration and debate. However, the proposal to create multiple, 
unlimited music rights organizations (MRO) should be reconsidered. 
Creation of a new collection agency receiving notices and paying 
songwriters directly would be preferable.
    As previously mentioned by Register Peters, the compulsory license 
system is rarely used in its present form. We believe that is because 
the accounting and payment system is monthly instead of quarterly, and 
mechanicals must be paid on all phonorecords manufactured and 
distributed, not merely sold. These are two of the most important 
differences between the Harry Fox Agency licensing system and the 
compulsory license system offered by the Copyright Office. If the 
compulsory license provision were amended to include quarterly payments 
and an allowance for ``free goods,'' most likely the Copyright Office 
system would become very appealing.
    We thank you again for this opportunity to provide the Subcommittee 
with our comments.

                              ----------                              

Statement of the Television Music License Committee and the Radio Music 
    License Committee in response to the testimony of the Honorable 
                Marybeth Peters, Register of Copyrights



                              ----------                              

Letter to the Honorable Lamar Smith, a Representative in Congress from 
the State of Texas, and Chairman, Subcommittee on Courts, the Internet, 
    and Intellectual Property and to the Honorable Howard Berman, a 
 Representative in Congress from the State of California, and Ranking 
Member, Subcommittee on Courts, the Internet, and Intellectual Property 
                from Del R. Bryant, Broadcast Music Inc.




                              ----------                              

                   Prepared Statement of SESAC, INC.

    SESAC appreciates the opportunity to present this statement in 
light of the written and oral testimony presented by MaryBeth Peters, 
the Register of Copyrights, at the June 21, 2005 hearing in connection 
with the proposed revision of Section 115 of the Copyright Act and the 
draft of her proposed ``21st Century Music Licensing Reform Act'' and 
related comments. SESAC also appreciates the efforts of the Register of 
Copyrights to update the statutory framework for the licensing of 
nondramatic musical works.
    The Register's proposal would transform the performing rights 
organizations (``PROs'') into, and perhaps have other entities become, 
Musical Rights Organizations (``MROs''). Of the four entities that 
presently license musical rights on a collective basis - SESAC, ASCAP, 
BMI, and the Harry Fox Agency (``HFA''), only SESAC has any experience 
in licensing both performance and mechanical rights, as the proposed 
MROs would be authorized to do. Although SESAC historically has engaged 
in a limited amount of mechanical licensing as an accommodation to some 
of its affiliates, SESAC has not decided at this time whether it wants 
to engage more extensively in that marketplace. Given its on-going 
struggle to compete effectively in the highly competitive performing 
rights marketplace against two dominant competitors (one of which, 
ASCAP, contrary to its recent testimony, has raised ever greater 
hurdles for songwriters wishing to leave and, in any event, requires 
their compositions to stay in the ASCAP repertory), SESAC is opposed to 
being required by legislation to undertake a substantial new business 
function that it might choose to forgo.
    Unlike ASCAP and BMI, SESAC is not subject to Department of Justice 
Consent Decrees or their specific remedial restrictions, such as rate 
court proceedings. Those provisions are not free marketplace mechanisms 
but, rather, are punitive and remedial requirements placed upon ASCAP 
and BMI. In any proposed legislative reworking of the musical rights 
licensing marketplace, including the Register's proposal concerning 
MROs, SESAC strongly believes that the corrective measures imposed upon 
ASCAP and BMI by the Department of Justice should not be foisted by 
legislative fiat upon other MROs whose marketplace behavior does not 
otherwise require Department of Justice sanctions.
    Although SESAC generally finds the Register's proposal concerning 
the creation of MROs interesting and worthy of further discussion, 
SESAC has the following comments and concerns regarding the Register's 
testimony and the specific provisions of her draft legislation and 
accompanying commentary:

        A.  The Testimony

                1.  SESAC agrees with the Register's position (a) that 
                the free marketplace and private negotiations should be 
                permitted to dictate the economics of music licensing 
                (at least for those entities who do not exercise undue 
                market power in an anticompetitive way), (b) that ever 
                more efficiency and effectiveness should be brought to 
                the process of music licensing (but not as an excuse 
                for de facto devaluation of copyright owners' property 
                rights), and (c) that the present collective licensing 
                system utilized by the PROs is working (subject to 
                continued Department of Justice antitrust oversight of 
                ASCAP and BMI).

                2.  The Register, however, appears to further indicate 
                that, if Section 115 were expanded to encompass a 
                blanket license, she ``would not be disappointed to 
                see'' rates for such a license ``established by a 
                mechanism similar to that which is employed with the 
                other statutory licenses.'' To the extent that the 
                Register appears to be endorsing Copyright Office 
                arbitration proceedings for fee disputes between music 
                users and MROs concerning Section 115 blanket licenses, 
                such statutorily imposed third party arbitration would 
                be contrary to, and effectively would trump, free 
                market negotiations. SESAC is opposed to being 
                subjected to such a punitive mechanism for its 
                performance and mechanical licensing as an MRO. 
                Although such statutory Copyright Office arbitration 
                proceedings are mandated for fee-setting under certain 
                compulsory statutory licenses (as for cable and 
                satellite retransmissions under Sections 111 and 119, 
                respectively), statutorily mandated arbitration has 
                never been the rule in musical performing rights 
                licensing; it would be an expansion, not a reduction, 
                of regulatory oversight in place of a free market 
                negotiations, (particularly as to SESAC, which 
                represents only approximately five percent of the 
                performance rights marketplace).
                By the same token, to the extent that any other form of 
                ``rate court'' or other third-party fee-setting 
                oversight is contemplated, SESAC is strongly opposed. 
                Rate court proceedings are a Consent Decree remedy 
                imposed by the Department of Justice upon ASCAP and 
                BMI, and SESAC or any other potential MRO should not be 
                statutorily and automatically hobbled with such 
                mechanisms. Any rate court, arbitration, or other 
                third-party oversight of fee-setting imposed upon 
                SESAC, or upon any other MRO representing a small 
                proportion of copyrights, would be ``free market'' in 
                name only; in fact, it would be the antithesis of a 
                free marketplace and a ``fix'' for a ``problem'' that 
                has not been found to exist.

                3.  SESAC does not accept the proposition that there is 
                any ``double-dipping'' in the licensing of musical 
                rights for digital transmissions. SESAC takes the 
                position that all such transmissions implicate the 
                public performance right, regardless of what other 
                rights might be implicated. See U.S.C. Sec.  101.(``To 
                perform . . . a work `publicly' means . . . to transmit 
                or otherwise communicate a performance . . . of a work 
                . . . to the public, by means of any device or process, 
                whether the members of the public capable of receiving 
                the performance . . . receive it in the same place or 
                in separate places and at the same time or at different 
                times.'').
                Moreover, although SESAC is generally in favor of 
                legislative efforts to seek greater efficiencies in the 
                present system of music licensing, it does not agree 
                that the existence of PROs to license public 
                performance rights, on the one hand, and the licensing 
                by others of the mechanical rights, on the other hand, 
                necessarily constitutes ``an impediment that should be 
                removed because it does not serve the interests'' of 
                music owners and users. SESAC does not believe that the 
                performing rights side of music licensing, as opposed 
                to mechanical licensing, as it presently functions 
                needs to be legislatively ``fixed'' in any way. The 
                mechanism to encourage a mechanical rights organization 
                (be it the HFA or some other entity) to embrace more 
                efficient licensing practices can be achieved by 
                eliminating the compulsory license and statutory rate 
                under the present Section 115 and permitting that 
                entity to operate freely in the marketplace, perhaps by 
                issuing blanket licenses.

                4.  SESAC is particularly troubled by the Register's 
                suggestion that ``there is no reason why an MRO could 
                not issue a license subject to subsequent agreement on 
                what the rate would be, perhaps with some dispute 
                resolution provision.'' Beyond SESAC's concerns about 
                having ``dispute resolution'' mechanisms imposed upon 
                itself or any other entity representing a small 
                proportion of copyrights, this suggestion of 
                ``automatic'' licensing subject to later fee-setting 
                again is based upon provisions of the ASCAP and BMI 
                Consent Decrees, to which SESAC has never been subject 
                because its business practices would not warrant such a 
                requirement. The imposition of this provision upon 
                SESAC or any other small MRO would be ``free market'' 
                in name only. By the same token, SESAC would not expect 
                any record company or digital music provider, not 
                otherwise subject to Department of Justice Consent 
                Decrees, to accept the ``automatic'' sale of CDs or 
                instant provision of on-line music services upon 
                consumer request, with the prices of such transactions 
                to be set sometime in the future.

    As SESAC has stated in previous testimony before this Subcommittee, 
such a provision would be injurious to SESAC's business. Taken to its 
logical extreme, a music user could obtain an ``automatic'' license and 
dispute even the most reasonable fee, thus avoiding payment 
indefinitely while ``negotiating,'' while already having obtained the 
benefit of the bargain. In that event, SESAC's only practical recourse 
would appear to be (a) avoiding the expense of further negotiation or 
litigation by essentially permitting a ``free'' license, or (b) 
submitting to a fee dictated by some third party after having already 
been compelled to permit the use of its affiliates' intellectual 
property. Such ``automatic'' licensing might be an effective tool under 
the ASCAP and BMI Consent Decrees, but it should not be imposed across-
the-board upon SESAC or any other MROs under the banner of efficiency.

        B.  Draft Legislation and Comments

                1.  In the Register's comments to her draft legislation 
                (the ``Bill'') concerning the proposed revision of 
                Section 101 discussing the definition of an MRO, she 
                indicates that SESAC, ASCAP and BMI, and perhaps the 
                HFA, would transform into MROs. Although the Register 
                indicates that other entities might also become MROs 
                (or, presumably, simply opt out and conduct their own 
                music licensing), in her oral testimony she has further 
                indicated that she does not find a proliferation of 
                MROs likely under her proposal. To the extent, however, 
                that the perceived impediment of prohibitory start up 
                costs is less substantial than suggested, the Bill 
                certainly provides for the possibility of a large 
                number of MROs each representing a relatively small 
                proportion of copyrights, an outcome that might be 
                viewed as no more efficient - and perhaps less 
                efficient - than the present system, at least from the 
                perspective of music users.

                2.  Proposed Section 115(a)(2) would require that a 
                license from an MRO to publicly perform a musical work 
                by means of a digital audio transmission also include a 
                non-exclusive mechanical license in the work, ``to the 
                extent that the exercise of such rights facilitates the 
                public performance of the musical work.'' SESAC would 
                propose that, in order to narrow the ambit of this 
                provision to its purported purpose, the language be 
                changed to read ``to the extent that the exercise of 
                such rights is necessary to facilitate the public 
                performance of the musical work.'' (Emphasis added.)

                3.  Proposed Section 115(a)(4) would provide that, in 
                order for an MRO to recover statutory damages for 
                copyright infringement of a musical work, that work 
                must have been included on a publicly available list 
                ``at the time the infringement commenced.'' Because, 
                under the current Copyright Act, an infringer of a 
                single work can only be liable for a single award of 
                statutory damages no matter how many separate acts of 
                infringement, over a period of time, are involved in 
                the action, see U.S.C. Sec.  504(c)(1), this proposed 
                language could permit a scenario under which the work 
                is included on the list at some point after the 
                infringement ``commenced'' but long before it 
                concluded, in which event the later unauthorized uses 
                might nevertheless be immune from liability because the 
                infringement began before the listing. (For example, a 
                radio station's repeated unauthorized performance of a 
                given popular song could be legally considered only one 
                infringement for purposes of statutory damages.)
                SESAC would propose that the language be changed to 
                clearly indicate that, once the work is listed, any 
                later acts of unauthorized use would be subject to 
                infringement liability, regardless of whether the 
                infringement of that work legally ``commenced'' before 
                the listing. Again, the Register's ``safe harbor'' 
                proposal is rooted in the provisions of the ASCAP and 
                BMI Consent Decrees imposed by the Department of 
                Justice, and is a provision that has never been 
                judicially or statutorily imposed upon SESAC, nor would 
                SESAC's market power or behavior warrant such a 
                sanction. SESAC's proposed change to the language more 
                closely comports with the general principle of 
                copyright law that it behooves the copyright user to 
                obtain authorization before exploiting the owner's 
                intellectual property, and that it is not the copyright 
                owner's duty, in the first instance, to seek out 
                potential users to notify them of copyright 
                requirements. In this regard, SESAC believes that the 
                citation to Section 412, concerning the requirement of 
                copyright registration as a prerequisite to statutory 
                damages, is inapposite.

                4.  The comments to proposed Section 115(a)(5) 
                recognize that ASCAP and BMI are presently subject to 
                Department of Justice Consent Decrees, which may 
                prohibit their licensing of both performance and 
                mechanical rights, and state that the proposed 
                statutory language would abrogate those restrictions 
                without abrogating the other provisions of the ASCAP 
                and BMI Consent Decrees, such as the rate court 
                provisions. SESAC is concerned, however, that the 
                language of proposed Section 115(a)(5) is ambiguous and 
                could easily be read to suggest that, once ASCAP and 
                BMI become MROs, they are no longer subject to ``the 
                antitrust laws or any judicial order'' presently 
                restricting their activities in public performance 
                licensing. SESAC proposes that this language be changed 
                to simply and clearly state that ASCAP and BMI would no 
                longer be prohibited from mechanical licensing by 
                virtue of the antitrust laws or any judicial order then 
                in effect. The language of the comment itself could be 
                the source of revised statutory language. Additionally, 
                as the Register of Copyrights anticipates in her 
                comments to this proposed subsection, SESAC believes 
                that, if the provision in the ASCAP Consent Decree 
                which prohibits it from mechanical licensing were 
                abrogated, all of the other provisions of that Consent 
                Decree (and of the BMI Consent Decree) should remain in 
                place. On the issue of whether the Consent Decrees 
                should be modified to cover ASCAP's and BMI's new 
                mechanical licensing activities as MROs, SESAC presumes 
                that a careful review by the Department of Justice 
                would be in order.

    As a general matter, the creation of MROs presents substantial 
logistical issues that would have to be addressed. For example, any MRO 
other than a music publisher would be required to negotiate and execute 
a massive number of new agreements with their affiliated copyright 
owners (hundreds of thousands, in the case of ASCAP, BMI, and HFA), 
which could result in a total realignment of the music licensing system 
which, at least from the perspective of performing rights, does not 
appear to be malfunctioning. In reality, ASCAP, BMI, and the HFA are 
not knowledgeable or experienced in licensing rights that they 
currently do not represent. The concern is that, by entrusting such 
valuable rights to unproven, inexperienced, and ill-prepared 
organizations could create a less efficient marketplace that would 
lower the value of music licensing fees.
    Additionally, each of the present PROs has reciprocal agreements 
with numerous foreign performing rights organizations under which the 
foreign entities monitor and collect and remit payment for foreign 
performances of U.S. works, while the U.S. entities likewise monitor 
and collect and remit payment for domestic performances of foreign 
works. The creation of MROs that also license mechanical rights would 
necessarily require significant contract revision among the many 
parties to address whether , and how, those mechanical rights would be 
administered reciprocally for both U.S. and non-U.S. works. Moreover, 
as acknowledged in the commentary to the Bill, in the case of a so-
called ``split copyrights'' co-written by songwriters who are not 
affiliated with the same MRO, true ``one stop'' licensing for that 
musical work simply would not be possible because more than one MRO 
would be licensing the right to use that work.
    SESAC would note that it has presented an alternative proposal to 
amend Section 115 - to the extent any amendment is necessary - that 
also would eliminate the compulsory license in favor of a so-called 
``unilicense'' under an enhanced collective licensing system, as 
suggested by the Register. Although SESAC's proposal is in line with a 
similar unilicense proposal submitted jointly by ASCAP, BMI, and the 
HFA, SESAC cannot agree to their further proposal that such a 
unilicense be administered by a SoundExchange-like ``superagency'' in 
which SESAC would be inexplicably excluded from having an equal voice 
in its administration. If, as suggested by those entities, such a 
superagency would be merely a ``lockbox'' mechanism for collecting and 
disbursing licensing fees, then they should have no objection to 
SESAC's equal participation. If, on the other hand, such a superagency 
would, in the guise of merely clerical decisions, be making substantive 
determinations concerning the rights involved, (such as determining 
what constitutes a ``pure'' download or stream, setting or adjusting 
the price and terms of licenses, setting the reporting requirements of 
licensees, determining what proportion of a unilicense fee is 
attributable to performance rights, determining what proportion of 
performance fees are attributable to SESAC, the terms and conditions of 
licenses, and the amount of overhead charges and administrative fees), 
then SESAC should have, and in fact deserves, equal participation in 
the administration for at least two reasons.
    First, it is a simply illogical and unfair that, of the four 
principal entities that collectively license rights in musical works, 
only one of them - SESAC - would be excluded. Second, SESAC's presence, 
more than that of any of the other entities - would provide the 
expertise and efficiency to see that such a superagency run efficiently 
and effectively. In this regard, SESAC alone has experience in the 
licensing of both performance and mechanical rights. Moreover, unlike 
the other three, SESAC, as a for-profit entity is required to 
constantly create and employ marketplace efficiencies to operate 
successfully. For example, as the only for-profit entity among the 
four, SESAC assuredly has a keener regard for minimizing overhead in 
the operation of such a superagency. In this light, SESAC has at least 
an equally valid claim to full and equal participation in such a 
superagency.
    In particular, the arrogance of ASCAP and BMI in proposing that 
SESAC be ``specifically excluded'' from administration of such a 
superagency, and their proposal that they alone control the purse 
strings for license fees attributable to (their smaller competitor) 
SESAC, are striking but not unexpected. Just as ASCAP and BMI dominate 
the performing rights industry, they now propose without hesitation 
that they alone control the functioning of this superagency's musical 
rights licensing - a dominance that they would exercise throughout the 
entire musical rights licensing industry. Clearly, although these 
entities' anticompetitive tendencies have been circumscribed, they have 
not been fully cured by the intervention of the Department of Justice. 
Expanding the field to include mechanical licensing would not be in the 
best interests of competition or of the economic development of a free 
marketplace for musical rights in new and developing media.
    In the end, it is no more fair or logical to prohibit SESAC's equal 
participation in a superagency than to propose, for example, that ASCAP 
be excluded, given its anticompetitive nature and lack of experience in 
mechanical licensing. It is no more fair or logical to propose, 
alternatively, that ASCAP and BMI share or alternate one ``seat at the 
table'' designated to represent the dominant not-for-profit PROs, given 
the fact that they both lack mechanical licensing experience and both 
are in agreement concerning the superagency's functioning, as evidenced 
by their joint proposal. In fact, it would be no less fair or logical 
to propose that SESAC - the only PRO that is not under Department of 
Justice oversight and the only PRO with mechanical licensing experience 
- be the entity designated to represent all PROs in this superagency.
    Despite all of these possible scenarios which would be at least as 
fair and logical as the ASCAP/BMI/HFA proposed domination of a 
superagency, SESAC has merely proposed that either the Copyright Office 
administer such a unilicense for digital audio transmissions, along the 
lines of its administration of cable, satellite and DART compulsory 
licenses or, alternatively, that SESAC - for reasons of fairness and 
expertise - have at least an equal voice in the administration of any 
proposed superagency to administer such a unilicense
    In conclusion, any legislative reworking of the music licensing 
system, through the creation of MROs, a unilicense, a superagency, or 
some other means, should recognize SESAC's unique and beneficial role 
in this marketplace; it cannot support any proposal that it determines 
would lead (in the course of correcting problems created by others) to 
the imposition of punitive, remedial, or exclusionary constraints upon 
it. SESAC stands ready to work with all interested parties in exploring 
any legislative initiative to improve the efficiency and effectiveness 
of music licensing, so long as the interests of fairness to all parties 
are preserved.

                              ----------                              

 COMMENTS OF THE AMERICAN SOCIETY OF COMPOSERS, AUTHORS AND PUBLISHERS
                                SUMMARY
    ASCAP submits these comments in response to the testimony of the 
Register of Copyrights and accompanying draft legislation submitted to 
the Subcommittee on June 21, 2005. ASCAP applauds the efforts of the 
Subcommittee, the Chairman and Ranking Member, in addressing issues 
vital to the well-being of songwriters and music publishers. ASCAP also 
applauds the goals of the Copyright Office's effort, as stated by the 
Register in her testimony. Unfortunately, the legislative proposal 
offered by the Copyright Office with the best of intentions does not 
further these laudable goals. The Copyright Office proposal, well-
intentioned though it is, is fatally flawed throughout and will likely 
harm, rather than help, songwriters and music publishers. Our 
unilicense proposal, however, achieves the same goals as the Copyright 
Office proposal, without any of the attendant dislocations and 
concerns.

                                COMMENTS

    The American Society of Composers, Authors and Publishers (ASCAP) 
submits these comments in response to the testimony of the Register of 
Copyrights and accompanying draft legislation submitted to the 
Subcommittee on June 21, 2005. As the Subcommittee is familiar with 
ASCAP, we simply attach a brief description of the Society and its 
operations for the record.
    ASCAP applauds the efforts of the Subcommittee, the Chairman and 
Ranking Member, in addressing issues vital to the well-being of 
songwriters and music publishers.
    ASCAP applauds the goals of the Copyright Office's effort, as 
stated by the Register in her testimony. The Register made several 
points in her testimony that bear repeating, and which we fully 
endorse:

        1)   The Register advocated a solution to the pending issues 
        ``that comports with the Copyright Office's longstanding policy 
        preference against statutory licensing for copyrighted works 
        and our preference that licensing be determined in the 
        marketplace where copyright owners exercise their exclusive 
        rights.'' (Written test., 6.) We agree.

        2)   The Register said that the time had come to phase out the 
        mechanical compulsory license and allow for truly free market 
        negotiations. We agree.

        3)   The Register said that Section 115 should be modernized to 
        deal with licensing of copyrighted works in the digital age. We 
        agree.

        4)   The Register advocated collective administration as a 
        means of achieving that end. We agree.

        5)   The Register recognized that separate rights in 
        copyrighted musical compositions - the mechanical right and the 
        performing right - were involved in digital uses, and that 
        payment to creators and copyright owners for both rights was 
        proper and was not ``double dipping.'' We agree.

        6)   The Register advocated enabling a single licensing regime 
        which would encompass both rights, and thus benefit users 
        administratively. We agree.

        7)   The Register noted that facilitating legal uses, for which 
        creators and copyright owners were paid, was necessary to 
        combat piracy. We agree.

        8)   The Register noted that our model of licensing the 
        performing right ``works very well.'' (Written test., 14.) We, 
        of course, agree.

        9)   Most importantly, the Register said that, ``As always, my 
        focus is primarily on the author. The author should be fairly 
        compensated for all non-privileged uses of his work. 
        Intermediaries who assist the author in licensing the use of 
        the work serve a useful function. But in determining public 
        policy and legislative change, it is the author - and not the 
        middlemen - whose interests should be protected.'' (Written 
        test., 15.) As a membership association owned and run by and 
        for composers, authors and music publishers - in which the 
        interests of songwriters and music publishers coincide fully - 
        we agree.

    Unfortunately, the legislative proposal offered by the Copyright 
Office with the best of intentions does not further these laudable 
goals. Here are some reasons why:
    The Copyright Office's proposal to unify mechanical and performing 
rights licensing in Music Licensing Organizations (MROs) would defeat 
the very purpose it ostensibly seeks to achieve.
    First, instead of the ``one-stop shop'' advocated by the Register, 
the proposal would result in a proliferation of MROs. Instead of 
dealing with one, or even three, licensing organizations, digital users 
would have to deal with far more than they now do.
    Second, the proposal would severely harm, rather than help, 
authors. The efficiency of collective licensing through the existing 
performing rights organizations (ASCAP, BMI and SESAC), which was so 
lauded by the Register, would be destroyed, as members or affiliates of 
the organizations could well withdraw (by resignation) from the 
organizations and put their rights into smaller MROs, fragmenting the 
market and exacerbating the unequal bargaining power the PROs now face 
in dealing with huge user entities. The result could be the destruction 
of the PROs' efficiency. And those fragmented MROs might not be run by 
and for songwriters in partnership with their music publishers, as 
ASCAP is.
    Third, ASCAP and BMI, transformed into MROs, would still be subject 
to the strictures of the consent decrees which, for example, make their 
rates subject to court determination. While we have lived comfortably 
under the consent decree in the licensing of performing rights for over 
fifty years, the Copyright Office proposal is unfair for several 
reasons: It would impose court rate determination on mechanical rights, 
where it has never been before. It flies in the face of the stated goal 
of freeing mechanical rights from compulsory licensing and allowing the 
free marketplace to work, and would reduce the bargaining power that 
songwriters and their publishers have. And, if MROs other than ASCAP 
and BMI arise (which we believe is a virtual certainty), there would be 
an unequal playing field - they would not be subject to any rate 
determination mechanism, while our writer and publisher members and 
BMI's affiliates would be for both performing and mechanical rights. 
That is patently unfair.
    Fourth, ASCAP and BMI do not have any administrative structure in 
place to deal with mechanical rights. The proposal thus would penalize 
songwriters and publishers, who would have to pay the costs of creating 
and administering such a structure.
    Fifth, our experience has shown that when the rights of 
reproduction, distribution and performance are combined on a compulsory 
basis - which would be the case with the Copyright Office's proposal - 
the license fees received by songwriters, composers and their 
publishers go down, and not just because administrative cost savings 
(if any) are passed along to users. Such was the result when, fifty 
years ago, the synchronization and performing rights were compulsorily 
``merged'' for theatrical exhibitions of motion pictures in the United 
States - our writers and publishers receive far less than do their 
colleagues in other countries where those rights are not compulsorily 
merged.
    Sixth, there are many concerns regarding both digital and physical 
goods mechanical licensing. ASCAP does not license and has never 
licensed these rights - indeed, our consent decree forbids us from 
doing so - and hence defers to the expertise of the National Music 
Publishers Association and the Harry Fox Agency on these matters.
    In sum, the Copyright Office proposal, well-intentioned though it 
is, is fatally flawed throughout.
    Our unilicense proposal, however, achieves the same goals as the 
Copyright Office proposal, without any of the attendant dislocations 
and concerns.
    Our unilicense proposal works because: 1) it provides digital users 
with a true ``one-stop shop'' where they can get all the rights in 
musical compositions that they need; 2) it keeps existing licensing 
structures, thus eliminating any additional administrative expenses of 
any significance, while reaping the benefits of many decades of 
licensing experience and expertise; 3) it prevents the utter chaos in 
the music industry that would result from the Copyright Office 
proposal; and 4) it does not impose any compulsory licensing regime, 
and allows the marketplace to function without governmental 
interference.
    We greatly appreciate the leadership shown by the Chairman and 
Ranking Member in dealing with this issue, and also commend the 
Register for the laudable goals she set forth in her testimony. We 
pledge our full efforts to achieve a workable solution which is 
beneficial for songwriters, for the music publishers who invest in and 
facilitate their creativity for the benefit of the public, and for the 
users of music as well.

                              ABOUT ASCAP

    The American Society of Composers, Authors and Publishers is the 
United States' oldest and largest performing rights licensing 
organization. ASCAP was founded in 1914 by songwriters including Victor 
Herbert and John Phillip Sousa, for the purpose of licensing the right 
of nondramatic public performance in the copyrighted musical works they 
created.
    ASCAP is the only true American performing rights society - it is 
an unincorporated membership association, whose members (now numbering 
over 210,000 active writers and publishers) are exclusively composers, 
lyricists and music publishers. ASCAP is run by a 24-person Board of 
Directors consisting of 12 writers and 12 publishers; the writer 
Directors are elected by the writer members of ASCAP and the publisher 
Directors by the publisher members. The current Chairman of the Board 
is the noted, multiple award-winning lyricist Marilyn Bergman.
    The ASCAP repertory consists of millions upon millions of musical 
works in all genres and types - pop, rock, alternative, country, R&B, 
rap, hip-hop, Latin, film and television music, folk, roots, blues, 
jazz, reggae, gospel, contemporary Christian, new age, theater, 
cabaret, dance, electronic, symphonic, chamber, choral, band, concert, 
educational and children's music - the entire musical spectrum.
    ASCAP is home to the greatest names in American music, past and 
present, as well as thousands of writers in the early stages of their 
careers. ASCAP members include Cole Porter, Aaron Copland, Stevie 
Wonder, Bruce Springsteen, Leonard Bernstein, Madonna, Wynton Marsalis, 
Stephen Sondheim, Dr. Dre, Mary J. Blige, Duke Ellington, Rogers and 
Hammerstein, Garth Brooks, Tito Puente, Dave Matthews, Destiny's Child, 
and Henry Mancini, just to name a few. In addition, through affiliation 
agreements with foreign performing rights societies, ASCAP licenses the 
music of hundreds of thousands of their members in the USA.
    ASCAP's licenses allow music users to perform any and every work in 
the ASCAP repertory, upon payment of one license fee. ASCAP's hundreds 
of thousands of licensees include Internet sites and wireless services, 
restaurants, nightclubs, hotels and motels, cable and television 
networks, radio and television stations, conventions and expositions, 
background/foreground music services, shopping malls, dance schools, 
concert promoters, and retail businesses. Those who perform music find 
ASCAP's licensing model highly efficient, for, with one transaction, 
they are able to perform whatever they want in the enormous ASCAP 
repertory.
    ASCAP deducts only its operating expenses from the licensing fees 
it receives (in 2004, operating expenses were 13.5% - lower than any 
other American performing rights organization, and among the lowest in 
the world). The remainder is split 50-50 between writers and 
publishers. Each member's royalty distribution is based on a survey of 
what is actually performed in the various licensed media. ASCAP royalty 
distributions make up the largest single source of income for 
songwriters, enabling them to make a living, pay their rent and feed 
their families. ASCAP thus fulfills the Constitutional purpose of 
copyright, allowing songwriters - who are the smallest of small 
businessmen and women - to earn a fair return on the use of their 
property and so use their creativity to enrich America's culture.

                              ----------                              

 Letter from the Honorable Marybeth Peters, Register of Copyrights to 
   the Honorable Lamar Smith, Chairman, Subcommittee on Courts, the 
      Internet, and Intellectual Property, submitted July 19, 2005




                                 
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