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


 
    CONTENT PROTECTION IN THE DIGITAL AGE: THE BROADCAST FLAG, HIGH-
                 DEFINITION RADIO, AND THE ANALOG HOLE

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

                                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

                               __________

                            NOVEMBER 3, 2005

                               __________

                           Serial No. 109-80

                               __________

         Printed for the use of the Committee on the Judiciary


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



                                 ______

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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, General Counsel-Chief of Staff
               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

                              ----------                              

                            NOVEMBER 3, 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................     4

                               WITNESSES

The Honorable Dan Glickman, Chairman and Chief Executive Officer, 
  Motion Picture Association of America
  Oral Testimony.................................................     6
  Prepared Statement.............................................     8
Mr. Mitch Bainwol, Chairman and Chief Executive Officer, 
  Recording Industry Association of America
  Oral Testimony.................................................    11
  Prepared Statement.............................................    14
Ms. Gigi B. Sohn, President, Public Knowledge
  Oral Testimony.................................................    21
  Prepared Statement.............................................    23
Mr. Michael Petricone, Vice President of Government Affairs, 
  Consumer Electronics Association
  Oral Testimony.................................................    33
  Prepared Statement.............................................    36

                                APPENDIX
               Material Submitted for the Hearing Record

Statement of the Honorable Howard Berman, a Representative in 
  Congres from the State of California, and Ranking Member, 
  Subcommittee on Courts, the Internet, and Intellectual Property    73
Statement of the Honorable John Conyers, Jr., a Representative in 
  Congress from the State of Michigan............................    74
Statement of the Honorable Adam Schiff, a Representative in 
  Congress from the State of California..........................    75
Letter from Fred von Lohmann, Senior Staff Attorney for 
  Intellectual Property, Electronic Frontier Foundation..........    77
Statement of Broadcast Music, Inc................................    78
Letter from Thomas M. Bracken, Vice President, Worldwide 
  Marketing and Communications, Thomson Services SBU to the 
  Honorable Lamar Smith, a Representative in Congress from the 
  State of Texas, and Chairman, Subcommittee on Courts, the 
  Internet, and Intellectual Property............................    85
Statement of the National Association of Broadcasters............    86
American Library Association v. Federal Communications 
  Commission, 406 F.3d 689.......................................    89
Analog Hole Legislation Discussion Draft.........................   123
Analog Hole Legislation Summary..................................   136
Analog Hole Legislation Table W..................................   140
Broadcast Flag Discussion Draft..................................   141
HD Radio Discussion Draft........................................   142


    CONTENT PROTECTION IN THE DIGITAL AGE: THE BROADCAST FLAG, HIGH-
                 DEFINITION RADIO, AND THE ANALOG HOLE

                              ----------                              


                       THURSDAY, NOVEMBER 3, 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 2:49 p.m., in 
Room 2141, Rayburn House Office Building, the Honorable Lamar 
Smith (Chair of the Subcommittee) presiding.
    Mr. Smith. The Subcommittee on Courts, the Internet, and 
Intellectual Property will come to order.
    Let me make a couple of announcements at the outset. First 
of all, although maybe there is no need to say this, because we 
actually have a relatively good attendance already here, but 
there's also a bill on the House floor over which the Judiciary 
Committee has jurisdiction, and a lot of Members are over on 
the House floor. In fact, I just came from the House floor, and 
I'd say at least half the IP Subcommittee is still waiting to 
be heard on this particular piece of legislation. So that's 
where some folks are, but I do appreciate the attendance of the 
Members who are here already.
    The second is I am going to have to leave for about a half 
an hour or so after my opening statement. I don't want anybody 
to take personal offense that I am leaving so quickly but hope 
to be back in time for the question period. And in my absence, 
Congressman Jenkins will be chairing the IP Subcommittee.
    I will recognize myself for an opening statement then 
recognize the Ranking Member.
    Today, the Subcommittee turns its attention to the role of 
content protection in digital media. The days of analog content 
are dwindling. From televisions to music collections, content 
is increasingly digital from its original creation to consumer 
playback. This digital conversion has assured the consumer that 
they will consistently see and hear a high quality version of a 
song or movie.
    However, creators and content owners have been concerned 
that the digital transition will result in higher levels of 
piracy. To reduce the amount of piracy, content owners have 
used a variety of content protection measures on DVDs and MP3 
files. Although these measures do not stop or even hinder hard-
core pirates, they do seem to keep basically honest people 
honest. The most popular content delivery mechanisms, free over 
the air radio and television broadcasts, are becoming digital 
by choice and by Government mandate. Content owners believe 
that this transition will result in more satisfied consumers 
but also that the transition will increase piracy unless new 
content protection measures are adopted.
    Content owners have put forward these proposals. One, the 
broadcast flag to limit redistribution of over the air digital 
television signals; two, a high-definition radio proposal to 
limit redistribution of over the air digital radio signals; and 
three, the analog hole proposal, to address the conversion of 
analog signals into digital formats.
    Clearly, the broadcast flag is the most well-known of the 
three proposals. This Committee is interested in hearing from 
proponents and opponents of all three of these proposals, not 
only to understand the need for them but also the differences 
in support for them. There are valid issues on both sides of 
the content protection debate. There are legitimate piracy 
concerns just as there are legitimate consumer concerns. Not 
everyone is a pirate, and not everyone has a right to acquire 
content in any way they like.
    To me, content owners deserve the right to market their 
creations and to profit from them. Consumers have the right to 
use content within the bounds of the law but not an unfettered 
right. We hope to accomplish several things in the hearing 
today: one, learn about the need for such proposals; two, learn 
about the support for such proposals; three, learn about the 
impact of the proposals; and finally, if possible, understand 
where common ground may exist.
    By unanimous consent, all Members' opening statements will 
be made a part of the record, and the Gentleman from 
California, Mr. Berman, is recognized for his opening 
statement.





    Mr. Berman. Well, thank you very much, Mr. Chairman, and 
thank you for holding this hearing.
    There have been many positive developments in the copyright 
context during the past year. The Family Entertainment 
Copyright Act was signed into law. Well, that's mostly 
positive, but to provide better tools to prevent unauthorized 
distribution of content, the Supreme Court in the Grokster 
decision held that those that facilitate copyright infringement 
will be held directly accountable for their actions, and in 
response to judicial and legislative action, testimony at our 
hearing confirms that universities are adopting antipiracy 
technologies and instituting file sharing education programs 
that are greatly reducing the amount of illegal file sharing 
that takes place on campuses.
    But even with these many advances, the fact that mass, 
indiscriminate distribution of unauthorized copies is still an 
option allows piracy to remain a potent force.
    I'm not going to take the Subcommittee's time to go over 
the statistics on the balance of payments and for core 
copyright industries, how important it is to our economy, how 
many jobs it has, and the threat of piracy to copyright 
creators. What I do believe many fail to realize is that strong 
protection of intellectual property is also necessary to 
benefit the consumer. Without adequate safeguards for content, 
it is easier for those in the creative chain to fall prey to 
piracy, and this jeopardizes the authors' and creators' ability 
to continue engaging in additional and new creative endeavors 
and content creation. It just seems to me that what it's hard 
to penetrate into a lot of people's consciousness is very 
obviously true: with fewer original projects in the end, the 
consumer will have less choices.
    Our goal is to provide consumers with a first rate, rich, 
abundant selection of music and movies in any format at any 
time and at any place. This kind of accessibility to music and 
movies, however, creates a tension for content owners, who 
though they want to widely distribute their works also need to 
protect the content of their works from unauthorized copying 
and distribution.
    Content owners do need to rely on the development of new 
and inventive technologies for distribution in order to provide 
the consumer with superior selection and accessibility. We 
must, therefore, be careful to not allow consumer 
considerations or considerations thrown out in the name of 
consumers and technology inventors to simply trump any concerns 
for creators and vice versa. There must be an appropriate 
balance which fosters creativity of new expression, innovation 
of new products, and accessibility to creative works. However, 
with the seemingly daily advances in technology, the much 
needed equilibrium is off kilter, leaning away from creators.
    This hearing is much different than previous discussions of 
piracy. Many of the issues surrounding peer-to-peer file 
sharing involve clearly bad actors. Here, I believe we are 
trying to bring the good guys into the process. We all 
generally agree that creators must be adequately compensated 
for the value of their works. I suppose the question today is 
how? Truly adequate compensation would probably involve 
providing a full performance right for sound recordings. Truly 
adequate protection measures would also prevent abusive use of 
technology when redistributing copies in both the digital or 
analog realm.
    The passage of time and design of new functionalities and 
devices has compelled us to reexamine the patchwork in the 
Copyright Act to determine whether some of the provisions need 
to be altered to address lack of suitable copy protection or 
the need for limitations on retransmission mechanisms. Ideally, 
content protection systems will be developed that are both 
secure for distribution but are not intrusive to the legitimate 
expectation of consumers.
    However, as technologies become more sophisticated and gain 
more interactive functionalities, this balance may have to be 
recalibrated. We also need, in this Committee, to engage 
additional partners outside this Committee to help us.
    The market is an exciting place right now. New technologies 
are emerging to help bring the consumer many additional options 
for how they receive their content. HD radio devices are being 
installed in cars. XM Satellite is a new service. Many 
television sets contain broadcast flag technology, and a number 
of players are currently in the market which can reconvert the 
analog signal to digital content.
    We must ensure that as each of these technologies is rolled 
out, they are complying with the spirit of the copyright law, 
which at its core demands rightful compensation and adequate 
protection for the creator. I look forward to hearing from this 
distinguished panel of witnesses, and I yield back, Mr. 
Chairman.
    Mr. Jenkins (presiding). We have on our panel of witnesses 
today the Hon. Dan Glickman, who is Chairman and Chief 
Executive Officer of the Motion Picture Association of America; 
Mr. Mitch Bainwol, who is Chairman and Chief Executive Officer 
of the Recording Industry Association of America; Gigi Sohn, 
who is President of Public Knowledge; and Mr. Michael 
Petricone, who is Vice President of Government Affairs, 
Consumer Electronics Association, and he is here on behalf of 
CEA and the Home Recording Rights Coalition.
    And we will hear from Mr. Glickman first.

  TESTIMONY OF THE HONORABLE DAN GLICKMAN, CHAIRMAN AND CHIEF 
    EXECUTIVE OFFICER, MOTION PICTURE ASSOCIATION OF AMERICA

    Mr. Glickman. Thank you, Mr. Chairman. If I may be indulged 
a moment of nostalgia, I was on this Committee, as you know, 
for about 11 years. I sat in Mr. Issa's seat; I sat in Mr. 
Cannon's seat. I didn't probably fill those positions as 
greatly as they did. And I, of course, served with Mr. Berman 
for many years, and this is a terrific Committee. I'm looking 
at the pictures on the wall, and Mr. Hyde, Mr. Sensenbrenner, 
Mr. Rodino, and Mr. Brooks were all either my Chairman or 
Ranking Members during those years, so it is a great honor to 
be back here, back home.
    Mr. Berman. You weren't around for Manny Seller?
    Mr. Glickman. I look like I should have been. There is not 
much hair here. But no, I wasn't.
    Let me just make a couple of comment. One is that as Mr. 
Berman indicated in his remarks, the content industries--music, 
movies, software, publishing and similar industries--are 
critically important to the future of America. They are one of 
the few industries that America still has an undisputed 
leadership role in the world, and they're important in terms of 
job protection as well, and they're an area where we have a 
balance of payments surplus. So underlying all of this is an 
important industry both for America as well as our leadership 
in the world.
    Number two, in this transformation to the digital world 
that we are in, there are gaps, there are holes that need to be 
filled. Otherwise, they present an enormous opportunity for 
massive amounts of piracy. And I think almost everybody here 
agrees that there are holes to be filled, and we're here to try 
to fill, at least in my testimony, two of these holes.
    The first one is the broadcast flag, which refers to 
regulations already adopted by the FCC that enables owners of 
high value content broadcast by digital TV stations to prevent 
the indiscriminate redistribution of that material over the 
Internet. The ability to control such redistribution of 
satellite and cable programming already exists through 
contractual agreements.
    There is a gaping hole when you come to broadcast over the 
air television. Legislation is needed to allow the FCC, which 
has already approved these regs, to implement them and place 
free, off-air broadcasters on a level playing field with cable 
and satellite distribution systems.
    The second issue is the analog hole. That refers to the 
problem created by the conversion of digital material protected 
by digital rights management systems to an analog format, which 
most of our television sets in this country are right now, and 
then back to digital. The process of this conversion process is 
to strip away the digital rights management protections, 
leaving the content in the clear and vulnerable to illicit 
reproduction and redistribution.
    Some consumer devices are being specifically designed to 
take advice of this analog hole, which impedes our ability to 
offer legitimate viewing choices and delays the digital 
transition. Legislation is needed to require that devices which 
convert analog material to a digital format recognize and 
respond to digital rights management information.
    The analog hole is like a car washer. But instead of 
washing off the dirt, it washes off all the content protections 
and then makes it vulnerable to massive infringement. And this 
is not an idle threat. Devices that can easily exploit the 
analog hole are already in the marketplace. So these are two of 
the items that I am talking about. Mr. Bainwol, of course, will 
have an additional item to talk about.
    The third item I want to mention is I think Congress needs 
to play a leadership role, and private industry will work 
together with the Congress to try to come up with some help in 
this area. The Government and the Congress has gotten involved 
in areas such as closed captioning, the V-chip, serial copy 
management, Macrovision, a whole variety of things where the 
standards were necessary to be set so that the marketplace 
could then work effectively. And I think that coming here and 
asking for Congressional help and leadership is something that 
has been done many, many times before, not to take advantage of 
the marketplace but to provide some clear rules.
    We do believe that the marketplace will ultimately 
determine the success of all of our products, but we want a 
free marketplace, not a black marketplace. And what's happening 
with these unprotected areas is that we cannot participate 
fully in giving the consumers the access and the choices nor 
the work product that they need because a whole lot of the 
ability to do so is impeded by this gaping hole of unprotected 
content. So as we go into the digital era, we want to be able 
to provide that protection, which we think leads to common 
sense rules of the road, and that's where we want to look for 
you in that regard.
    Finally, Mr. Chairman, we are in a period of amazing and 
rapid change, and I want to state that I believe our industry 
is a technological innovator, and we're not only not scared of 
change; we're leading the effort. We led the effort to create 
the DVD world, which has changed the way consumers watch movies 
and television. The IPod, MP3, all sorts of items that are out 
there have been the results of ours and related industries.
    And it's not just delivery systems. Tomorrow, a movie opens 
called Chicken Little. Some of you or your kids or grandkids or 
maybe you personally will want to go see this movie, using a 
new form of digital content to create new three-dimensional 
images on the movie screen. I think of movies like Polar 
Express or Star Wars, where digital technology was created by 
our industry to give consumers a whole array of viewing 
entertainment and choices that they did not have before. And 
whatever we've done in the past, the future is just 
extraordinarily open to even much greater changes and 
improvements in what consumers will see.
    So our purpose in coming here is to say to you that we want 
to work together with you; we want to work together with our 
colleagues here at this table to come up with ways to fill this 
gap so that the digital content is adequately protected so that 
we can continue to offer these extraordinary opportunities for 
the American people to enjoy movies, television, movies, and 
other things, and thank you very much, Mr. Chairman.
    [The prepared statement of Mr. Glickman follows:]

            Prepared Statement of the Honorable Dan Glickman
    Chairman Smith, Ranking Member Berman, members of the Subcommittee:

    On behalf of the member companies of the Motion Picture Association 
of America, I thank you for the opportunity to talk to you about the 
future of an important American industry as it transitions into the 
digital age.
    As a former member of the Judiciary Committee, I know what it is 
like to be on your side of the table. As members of this esteemed 
Committee, you all have to make important judgments about what the laws 
of the land should be. And sometimes, you have to make tough calls.
    Chairman Smith, you have called this hearing at a critical time for 
our industry, but also at a critical time for this nation.
    Protecting intellectual property will become a resounding theme for 
our economy in the decades to come. This nation will prosper or it will 
fail in large part by how we protect our nation's greatest assets . . . 
the skill, ingenuity and creativity of our people.
    The American film industry, like all of the creative industries, 
combines capital and talent to produce intellectual property. It is not 
easy to create a movie. It requires lots of money, lots of skilled 
workers, and lots of hard work. In fact, four out of ten movies don't 
make back their investment. So the movie industry is fraught with risk. 
Despite these hurdles, the American film industry is the most 
successful in the world. It is one of our most important exports. It is 
one of our best job creators.
    The member companies of the MPAA are excited about the future. They 
are working hard to make a successful transition to the digital world. 
They want people around the globe to see their product in a no-hassle, 
convenient and low cost way.
    But while the industry embraces the many opportunities of the 
future, it also faces the distressing reality of piracy.
    The pilfering of our films costs our industry approximately $3.5 
billion dollars a year in hard goods piracy (DVD, VCD) alone. On the 
Internet front, it has been estimated that as much as two-thirds of 
Internet bandwidth in this country is consumed by peer-to-peer traffic, 
with much of that volume attributable to movie theft.
    And it is only getting worse. Pirating DVD's is more lucrative than 
selling heroin or crack cocaine for many criminal gangs. New digital 
technology enables criminals to download movies, burn them onto DVD 
discs, and then sell them on the streets or through a global storefront 
on the Internet with amazing speed.
    The MPAA is doing its part to fight back. Using the legal tools 
that in many cases this Subcommittee fashioned, we work very 
effectively with the U.S. Department of Justice, the FBI, Customs and 
local law enforcement to crack down on these gangs. We also are 
providing more and more legal alternatives
    for on-line movies. We are working to help our schools teach kids 
that stealing on the Internet is as wrong as stealing from a store. We 
are investing in the future to find cutting-edge technologies that will 
get movies to consumers while protecting copyrights. And we are working 
with our colleagues in the consumer electronics, computer and online 
service provider industries on the development and implementation of 
digital rights management (``DRM'') technologies to offer consumers a 
wider array of choices for enjoying the content we produce.
    But commercial piracy is not the only challenge we face in the new 
digital environment. We also must develop secure delivery systems so we 
can offer consumers the viewing options they desire while maintaining a 
sound fiscal base to sustain our industry. We are embracing DRM 
technologies so that we can offer consumers more choices at a greater 
variety of price points: one consumer may want to purchase a permanent 
copy of a movie while another may want to watch it only once--and at a 
lower price. To sustain the viability of this array of different 
offers, however, we must be able to maintain the distinction among 
them. Thus, we need to provide technical safeguards to discourage, for 
example, the copying of a ``view once'' option that has been selected 
by a consumer. In using the phrase ``technical safeguards'' I do not 
mean to imply that we seek absolute protection against unauthorized use 
of our movies. We understand that committed pirates will break any 
security measures we can devise and these pirates will have to be dealt 
with by way of criminal and civil legal remedies.
    However, we can, and must, implement basic technological measures 
to delineate for consumers the differences among our various content 
offerings and to discourage what I call ``casual misuse'' of our 
intellectual property. At the end of the day, the economic impact of a 
thousand otherwise law abiding citizens making an extra copy of a movie 
they purchased and ``sharing'' it with a friend has the same impact as 
a single commercial pirate selling a thousand copies of a movie on a 
street corner.
    In many cases, the DVD being a prime example, we have worked with 
the technology companies to develop and implement secure delivery 
systems supported by technical measures and voluntary contractual 
relationships. However, there are some areas where private sector 
solutions alone will not work. That's where we need your help.
    First, you can help us plug the analog hole.
    What is the analog hole?
    Let me try to explain it as simply as I can.
    While film content is increasingly arriving into American homes in 
protected digital form, such content must be converted into an analog 
format to be viewed on the overwhelming majority of television sets in 
U.S. households, which can only process and display an analog signal. 
When digital content protected by digital rights management technology 
is converted to analog form for viewing on existing analog television 
equipment, the content is stripped of all its protections. This analog 
content can then be redigitized ``in the clear,'' without any 
protections whatsoever. This redigitized and completely unprotected 
content can then be efficiently compressed, copied and redistributed 
without degradation. It can also readily be uploaded to the Internet 
for unauthorized copying and redistribution. Like a black hole, the 
analog hole sucks in all content protections, leading to two problems. 
First, it eliminates the ``lines'' or boundaries among the different 
viewing opportunities we are trying to bring to consumers and makes it 
difficult to sustain the choices for consumers that digital rights 
management technologies otherwise help facilitate. Second, it creates a 
significant loophole for our industry in the fight against piracy.
    This is not an idle concern. Already, several consumer electronics 
devices are being conceived and brought to market purely for the reason 
of exploiting the analog hole. Movie studios are actively engaged in 
developing and offering innovative new business models to give 
consumers greater flexibility and more choices for how and where they 
access and enjoy movies and television shows. All of these models 
depend, however, upon a secure environment which protects this high-
value content from rampant theft and redistribution. Devices that 
permit exploitation of the analog hole, whether by design or otherwise, 
undercut this framework and consequently limit the viewing choices that 
can be made available to consumers.
    Because of the ease with which it can be exploited, the analog hole 
creates a gaping hole in digital rights management protections, 
allowing high value content to be copied and re-transmitted without 
limit. Of particular significance is the fact that exploitation of the 
analog hole requires no act of circumvention nor any unauthorized 
circumvention devices prohibited by the Digital Millennium Copyright 
Act (DMCA.) Instead, the analog hole can be exploited solely through 
the use of general purpose home equipment. In some cases such equipment 
is specifically designed to permit people to take advantage of the 
analog hole to defeat digital rights management measures. In other 
cases, analog inputs and outputs serve a legitimate purpose and the 
analog hole is a byproduct. Closing the analog hole would place these 
analog devices on an equal footing with all-digital devices by 
maintaining the integrity of digital rights management measures.
    Legislation will be required to implement an analog hole solution 
to create a level playing field for device manufacturers. Legislation 
will help ensure that good actors are not disadvantaged by companies 
who do not play by the rules. Such legislation should be narrowly 
focused and targeted.
    The MPAA and its member companies have worked closely with 
representatives from the computer and consumer electronics industries 
to reach consensus on a technological solution for the analog hole. 
These talks have been productive and have shown positive movement. 
Virtually every major consumer electronics and information technology 
company as well as a number of self styled ``consumer'' groups, 
including the Electronic Frontier Foundation, participated in an Analog 
Conversion Working Group where a broad consensus was reached on the 
need to address the analog hole problem and on the attributes a 
solution should have.
    The discussion draft legislation released by the Subcommittee is 
consistent with that consensus. It provides for a robust analog rights 
signaling mechanism that does not interfere with a consumer's ability 
to fully enjoy the content they receive. Known as ``CGMS-A plus Veil,'' 
Analog Copy Generation Management System (CGMS-A) coupled with the Veil 
Technologies Rights Assertion Mark provides a practical degree of 
protection from unauthorized reproduction and redistribution while not 
diminishing a consumer's viewing experience.
    Second, Congress can help protect content by giving the Federal 
Communications Commission (FCC) authority to implement the broadcast 
flag regulations which it adopted over two years ago and that were to 
become effective last July. The marketplace has already anticipated 
that the broadcast flag will be required and many manufacturers of 
digital television devices are now producing equipment in compliance 
with the FCC broadcast flag regulations. Moreover, consumer equipment 
that renders high value cable and satellite programming will be 
required to prevent redistribution whether or not the FCC rules are 
reinstated. It is important to note that there has been no discernable 
consumer resistance to these broadcast flag compliant devices and no 
surge of consumer complaints.
    Why has most everyone, device manufacturers and consumers alike, 
accepted the broadcast flag? Because it makes eminent good sense.
    The broadcast flag protects free, over-the-air digital television 
programming from unauthorized redistribution over the Internet. It is 
the product of several years of negotiations among broadcasters, 
electronics manufacturers, computer technology and video content 
companies.
    The broadcast flag rule is targeted and narrowly focused on a 
single problem. The only activity affected by the broadcast flag is the 
indiscriminate redistribution of digital broadcast television content 
over the Internet. As long as one is not trying to redistribute flagged 
content over the Internet, a typical consumer will not know the 
broadcast flag exists. Under the rule adopted by the FCC, consumers are 
free to continue to time-shift over-the-air television. In fact, 
because the rule is targeted narrowly at unauthorized redistribution, 
and not consumer copying, it allows an unlimited number of copies to be 
made--even infringing ones--provided those copies are protected against 
further distribution over the Internet. Even Internet retransmission is 
not barred outright under the rule, provided it can be done in a way 
that protects against indiscriminate redistribution. Picture and sound 
quality are also unaffected.
    The protection provided by the broadcast flag will play an 
important role in successful transition to digital television. If 
program producers cannot be assured that programming licensed to 
broadcast television is protected as securely as programming licensed 
to cable and other subscription based outlets, these producers will 
inevitably move their programming over to such channels where 
protections are available through contractual arrangements. The 
broadcast flag is essential to a successful digital television 
transition and preservation of free, over-the-air digital television.
    It is essential that Congress act quickly to enact narrowly crafted 
legislation to reinstate the FCC's Broadcast Flag ruling, and such 
legislation should become effective immediately. As stated above, 
broadcast flag compliant equipment is already being produced and is in 
the marketplace. Delay will materially worsen the legacy equipment 
problem and is completely unnecessary.
    I want to emphasize that both the Analog Hole and the Broadcast 
Flag have been the subject of intense scrutiny by technology and 
content communities, as well as other interested parties, in open 
forums consuming literally thousands of man-hours of discussion. It is 
a documented fact that there is broad consensus that these are issues 
that need to be addressed. There is also broad consensus on the nature 
of the solutions that should be considered. I believe the discussion 
draft legislation released earlier this week is fully consistent with 
that consensus and should be swiftly enacted.
    Let me add one cautionary note. While we strongly support 
legislation that will plug the analog hole and implement the broadcast 
flag, we cannot support legislation that will do that at the expense of 
the anti-circumvention provisions of the DMCA. I would submit that 
efforts to include HR 1201, which would, as a practical matter, repeal 
Section 1201 of the DMCA, would do much more harm than good. It has 
been suggested by members of another committee that attaching HR 1201 
to a broadcast flag would make a good compromise. In my view, that type 
of legislation would simply compromise efforts to fight piracy and hurt 
an important American industry.
    Chairman Smith, Ranking Member Berman, members of the Committee, I 
appreciate this opportunity to discuss these matters of concern to our 
industry and I look forward to answering any questions you may have 
regarding what I have just discussed.

    Mr. Jenkins. Thank you, Mr. Glickman.
    Mr. Bainwol.

   TESTIMONY OF MITCH BAINWOL, CHAIRMAN AND CHIEF EXECUTIVE 
       OFFICER, RECORDING INDUSTRY ASSOCIATION OF AMERICA

    Mr. Bainwol. I'd like to thank the Subcommittee for this 
opportunity to testify. I come before you today as the CEO of 
the RIAA, but my testimony today reflects the breadth of the 
music community.
    Let me take a step back and provide some context. The sale 
of recorded music hit a high in 1999 before a variety of 
factors, chiefly, file sharing and unauthorized burning, 
triggered a massive slide. A recent study by Stan Liebowitz, a 
Texas economist, indicates that in the absence of file sharing, 
our revenues would have continued growing robustly. So our 
concern about digital theft isn't academic, and it's not 
paranoia. It's grounded in the painful experience of the last 6 
years.
    The Supreme Court's Grokster decision unanimously certainly 
helped, but we need to go further. That decision is catalyzing 
a transformation among the major P2P players to go straight and 
legal or to go straight into the dustbin of history. But the 
Grokster ruling is only part of the answer. In order for us to 
dig out of the hole and grow again, we need policies to protect 
the integrity of the digital marketplace.
    And a key part of that is the emergence of digital radio 
across platforms. The laws for radio presumed a passive 
listening experience and did not anticipate radio services 
becoming download or on demand subscription services, but 
that's what's happening.
    In 2003, there were virtually no digital revenues. But now, 
we're beginning to see significant revenue streams arise from 
download services like ITunes and Wal-Mart, from rental 
services like Rhapsody, Napster, and Yahoo, and from mobile 
music offerings, all of which will amount to billions of 
dollars by the end of this decade, that is, unless the emerging 
services, these services, are cannibalized by functionality 
that substitutes, substitutes for download sales and rentals 
without paying creators equivalently.
    Let me be clear: we are for technology; we are for cool 
devices; we're for new business models and new functionality, 
but we are not for clever ways to bypass fair compensation for 
creators. We are not for the exploitation of loopholes to rig 
the competitive landscape against these new business models. 
Radio has been a passive listening experience. Sure, people 
taped off the radio; they did it independently; they did it 
manually. The quality stunk. If you wanted a good copy, you had 
to go buy one. The radio service didn't provide the tool to 
automatically capture perfect quality songs and subsequently 
move them easily to play on your portable device on demand 
whenever and wherever you chose, until now.
    With the emerging transformation of digital radio over the 
air, on satellite, and on the Internet, we're seeing new 
devices that go way beyond time shifting, beyond manual 
recording, and beyond current consumer expectations. These 
devices effectively provide ownership, and it sounds 
attractive, and it is, unless you're a creator.
    Here's what we're not asking you to do: don't stop or delay 
the rollout of digital over-the-air services. Don't stop 
consumers from recording off the radio. Don't stop time 
shifting, and don't stop the invention of new recording 
features that allow a consumer to hit a record button when they 
hear a song they like.
    So what are we asking you to do? First, we urge this 
Committee to update section 114 to ensure parity for digital 
radio across all platforms: satellite, cable, and Internet. The 
law did not contemplate convergence. It creates arbitrary 
advantages between platforms, and it leaves creators holding 
the bag.
    Second, because over-the-air radio is not covered by 114, 
we ask that Congress grant authority to the FCC to also protect 
over-the-air digital radio. I would like to submit a resolution 
from a broad music coalition calling on Congress to do just 
that. Both of these necessary steps are contained in the 
discussion draft that was circulated by your staff. We urge you 
to introduce and pass legislation that accomplishes these 
goals.
    I would like to mention one other very significant point in 
closing: many of our friends in the CE community, the 
technology and broadcast communities, have stressed the need 
for us to come together for a solution before we come to you, 
the Congress. But we have tried, and we continue to try. But 
these efforts have failed. The market, the market does not 
work. Remember, unlike the motion picture studios, we have a 
market failure, because we have no performance right, as Mr. 
Berman pointed out, for over-the-air radio, and we are subject 
to compulsory license over the other platforms.
    Motion picture studios and broadcasters on the video side 
could hold back programming until they were comfortable with 
the content protection. We don't have that luxury. The digital 
marketplace offers enormous promise for fans, device 
manufacturers, broadcasters of all stripes, and creators. With 
your help, we can realize that promise. We are ready to go to 
work to get that job done quickly so devices get to market, but 
we want to make sure that creators get the compensation they 
deserve, that we deserve, at a time when we are struggling to 
create new art.
    Thank you again for this opportunity to testify.
    [The prepared statement of Mr. Bainwol follows:]

                  Prepared Statement of Mitch Bainwol



    Mr. Jenkins. Thank you, Mr. Bainwol.
    Ms. Sohn.

     TESTIMONY OF GIGI B. SOHN, PRESIDENT, PUBLIC KNOWLEDGE

    Ms. Sohn. Thank you, Mr. Chairman, Ranking Member Berman, 
and the Members of the Subcommittee for inviting me to testify 
today. For those of you who don't know what Public Knowledge 
is, we are a nonprofit public organization that seeks to 
represent the public in debates over copyright law and 
communications policy.
    We are living in a time of great technological innovation 
and artistic abundance, and consumers, your constituents, are 
the beneficiaries. Consumers have never had so much choice, so 
much flexibility, and so much opportunity to become creators 
themselves. IPods and other MP3 players provide a fun and 
convenient way to listen to music, books, and pod casts. TiVO, 
ITV and Slingbox allow you to watch your favorite TV shows when 
and where you want. New services like satellite digital radio 
and digital broadcast radio are giving consumers more 
opportunities to hear the music they love and the news and 
information they desire.
    As the DTV transition kicks into high gear, we will be able 
to choose from a multiplicity of program streams of high 
definition news, sports, and entertainment. The opportunities 
for the content industry to profit from these new digital 
services are increasing every day. Sales of DVDs are generating 
enormous revenues. ITunes just announced in just a few short 
weeks, it has sold 1 million programs for use on its new video 
IPod. And Mr. Bainwol said yesterday in an interview that he 
estimates that legitimate online song purchases could supplant 
CD retail losses by 2007.
    As the content industry has ramped up its online delivery 
of content, it has been testing a variety of protection 
measures that provide both security for the industry and 
flexibility for consumers. Despite all this exciting activity, 
however, we are here today to discuss three draft bills that 
could bring this technological and artistic renaissance to a 
grinding halt.
    The first bill would reinstate the FCC's vacated broadcast 
flag rule. This would give the agency unprecedented control 
over technological design. It would make them the arbiter of 
the rights of content owners and the public under copyright 
law. Ask yourselves: is it good policy to turn the Federal 
Communications Commission into the Federal Computer Commission 
or the Federal Copyright Commission? Should the FCC decide 
which technologies will succeed in the marketplace and which 
will fail?
    The flag scheme would prohibit lawful uses of content, not 
just indiscriminate redistribution, including use of broadcast 
TV excerpts online and distance learning; for example, the 
Parents' Television Council, a TV watchdog, makes available 
clips of its favorite and least favorite TV shows on its 
Website. The flag scheme would prevent this way of educating 
parents about the shows their children watch. Nor could Members 
of Congress email broadcast TV news appearances to their home 
offices. Moreover, the flag scheme will cause great consumer 
inconvenience, confusion, and cost, because different approved 
technologies are not compatible with each other.
    We have similar concerns about the second draft bill, which 
would place the FCC in the position of mandating content 
protection for digital satellite and broadcast radio. This 
legislation would permit the FCC to extinguish the long-
protected consumer right to record radio transmissions for 
personal use. Furthermore, because the draft bill would impose 
limits on digital broadcast radio technology that, unlike 
digital TV, consumers need not adopt, those limits may well 
kill this fledgling technology. Why would consumers buy an 
expensive new digital broadcast radio receiver when it would 
have less functionality than their analog receiver?
    Lastly, we must oppose the sweeping draft proposal to close 
the analog hole. Be assured there is no industry or other 
consensus on the CGMS-A plus veil technology mandated in the 
bill. Their prohibitions would require redesign of a whole 
range of currently legal consumer devices. Importantly, it 
would also restrict lawful uses of analog content. This is 
critical, because the content industry itself has touted the 
analog hole as a safety valve for making fair use of digital 
media products where the DMCA has rendered illegal the 
circumvention of technological locks.
    Should Congress close that hole without amending the DMCA 
to protect fair use, consumers' rights to access digital 
copyrighted works would be eroded even further. For this 
reason, if Congress should move forward with any of these 
proposals, they must be considered in conjunction with H.R. 
1201, which seeks to preserve consumers' rights under the DMCA.
    Now, just because Public Knowledge opposes the three draft 
bills does not mean we oppose all content protection efforts. 
There are far better alternatives to the heavy-handed 
technology mandates proposed today. They include a multipronged 
approach of consumer education, enforcement of copyright laws, 
and use of technological tools and new business models 
developed in the marketplace. The recent Grokster decision and 
the passage of the Family Entertainment and Copyright Act, 
spearheaded by Mr. Smith, are just two of the several new tools 
that the content industry has at its disposal to protect 
content.
    Members of the Subcommittee, these proposals are 
controversial and do not reflect consensus. I am confident that 
after careful deliberation and with input from the public, you 
will conclude that the marketplace, not the Government, is the 
best arbiter of what technologies succeed or fail and that 
Congress, and not the FCC, is the correct arbiter of the 
balance between content protection and consumer rights.
    Thank you.
    [The prepared statement of Ms. Sohn follows:]

                   Prepared Statement of Gigi B. Sohn



    Mr. Jenkins. Thank you, ma'am.
    Mr. Petricone.

 TESTIMONY OF MICHAEL PETRICONE, VICE PRESIDENT OF GOVERNMENT 
           AFFAIRS, CONSUMER ELECTRONICS ASSOCIATION

    Mr. Petricone. Good afternoon. On behalf of the Consumer 
Electronics Association and the Home Recording Rights 
Coalition, I appreciate the opportunity to appear today.
    Each proposal on today's agenda addresses unrelated issues, 
and each carries different concerns for our industry. Although 
we have worked constructively with the content industry on past 
legislation, the proposals before you reflect no prior effort 
to achieve consensus. Indeed, I read two of these bills for the 
first time when I checked my email during halftime of Monday 
night's football game. I received the third bill on Tuesday 
morning.
    First, the Broadcast Flag Authorization Act: this language 
is close to a reinstatement of what the FCC did in its order. 
We are concerned that it grants discretion to the FCC to change 
everything in the future. Also, we believe it is deficient in 
not addressing ways in which the flag could be misused. We urge 
the Committee to include narrow exceptions for local news and 
broadcast public affairs programming and allow schools and 
libraries to use broadcast excerpts for distance learning.
    If Congress is going to provide more protection to 
copyright holders, it should also safeguard the rights of 
consumers to enjoy works that they lawfully acquire. That is 
why should Congress move forward with any proposals discussed 
today, H.R. 1201 should be part of the package.
    Next, the Analog Content Protection Act: this draft is 
immensely broad, complicated, and confusing. After 48 hours, 
experts in our industry are still unsure of which products are 
covered and what key provisions mean. What is clear is that 
this bill would impose a massive Government design mandate on 
every product capable of digitizing analog video signals, not 
just PCs and televisions but those found on airplanes, 
automobiles, medical devices, and technical equipment.
    A key concern is that one of the required copy protection 
technologies is largely unknown as to its cost, operation, and 
licensing status. In addition, all key decisions will be left 
up to the Patent and Trademark Office. With due respect, it is 
unclear how the PTO could make these decisions or who would 
exercise oversight over its judgments.
    Regrettably, the analog hole bill is an incomprehensible 
and impractical proposal which the MPAA did not share with us, 
which I doubt not even Mr. Glickman can fully explain but which 
he would like you to adopt. We urge you to reject this half-
baked proposal.
    I say regrettably, because the fact is that the CE industry 
has long been prepared to address the analog hole issue. It has 
worked with MPAA members toward consensus solutions. But 
without consensus from all affected industries in an open and 
fair process, we cannot support this legislation.
    Finally, the HD content protection act: let me start by 
expressing my disappointment that Mr. Bainwol would 
characterize consumers of radio as pirates. We cannot 
understand how he can say that ordinary consumers sitting in 
the privacy of their homes can use new radios to, quote, boldly 
engage in piracy with little fear of detection, unquote.
    As Mr. Bainwol is well aware, recording radio programs for 
later enjoyment is a legitimate fair use activity that 
Americans have engaged in for decades. For this reason, the 
proposal to lock down free over-the-air radio is especially 
pernicious. Unlike the video flag, this proposal is aimed at 
stopping private, noncommercial recording of lawfully acquired 
content. The only apparent way to accomplish this is through 
encryption.
    Please understand that the rollout of terrestrial digital 
radio is well underway. Over 500 stations are broadcasting 
digitally. Over 25,000 radios will be on the market by year end 
with tens if not hundreds of thousands to follow in 2006. Since 
no encryption system currently exists, an encryption 
requirement would render both the transmission infrastructure 
and the initial radios obsolete, stopping the rollout of this 
exciting technology in its tracks.
    The satellite radio provision is equally damaging. This 
bill would destroy the utility of new consumer products that, 
like the VCR or the TiVO, will enhance Americans' lives and 
broaden the market for entertainment programming. A TiVO 
customer can disaggregate recordings. Why can't consumers 
wishing to record radio use similar technology?
    As you may know, XM and Sirius have announced new handheld 
devices that will allow their subscribers to enjoy music when 
they don't have access to a satellite signal, such as while at 
work or on an airplane. These products will be fully compliant 
with the Audio Home Recording Act, on which royalties will be 
paid to the music industry, and satellite companies will 
continue to pay additional millions in performance royalties. 
But that is apparently not enough for the RIAA, which would 
like to change section 114 to get even more money and limit the 
functionality of these products so that consumers will have 
little interest in them.
    In essence, the RIAA is trying to use this bill to leverage 
the satellite radio industry on the eve of negotiations for a 
new performance royalty, and without saying so, RIAA is trying 
to gut the Audio Home Recording Act written by this 
Subcommittee. As we have long feared, having been emboldened by 
a judicial victory against real pirates, the music industry now 
sets its sights on ordinary consumers.
    I respectfully urge you to reject the RIAA's efforts to 
vilify consumers and cajole the Subcommittee into repealing 
basic consumer rights established by the Audio Home Recording 
Act. In short, we see no justification to undo the provisions 
of the AHRA and the DMCA that were specifically enacted by 
Congress to address digital and satellite radio services. There 
is no reason for Congress to give further consideration to the 
third leg of this legislation.
    And as we consider these bills, please do not ignore the 
larger issue of U.S. competitiveness. While other countries are 
developing their technology industries to compete with America, 
we face a content industry campaign to suppress new 
technologies on arbitrary grounds. This is a trend that ought 
not to be considered.
    Thank you, Mr. Chairman, for the opportunity to appear 
today. We have worked collegially with the content industry 
when they have been willing to do so. We look forward to 
working with you and your staff on the important issues that 
have been raised today.
    [The prepared statement of Mr. Petricone follows:]

                Prepared Statement of Michael Petricone



    Mr. Jenkins. Thank you, sir.
    The Chair at this time will pass to the Ranking Member, the 
Gentleman from California, Mr. Berman, for questions.
    Mr. Berman. Thank you very much, Mr. Chairman.
    Mr. Petricone, your members led in forming the broadcast 
flag working group, so there, I take it you have a relative 
comfort in that flag technology. Would you favor a similar 
technology in the HD radio context?
    Mr. Petricone. Two things: first of all, our members, we 
are a large organization. We represent over 2,000 companies. 
Our members had differing views on the broadcast flag. As a 
result, we took no position before the FCC. As far as 
addressing digital radio, I can't give you an association 
position on that right now, but I can tell you that that would 
be much less intrusive to consumers than, for example, an 
encryption proposal that would require encryption at the 
source.
    Mr. Berman. To the extent you're thinking that a sort of 
voluntary negotiations in this area would be better than that 
proposal, what incentives do your Members have to sit at the 
table, given that the RIAA has no performance right and 
therefore no leverage? My thought is that you would not support 
us trying to prevent the rollout of new technologies during the 
time that you were trying to reach a deal on content 
protection; am I wrong about that?
    Mr. Petricone. The fact is there has been no overture by 
the RIAA to discuss, you know, anything of that sort with us. 
As a matter of fact, you know, the FCC has been considering the 
digital radio standard for a number of years. It was an open 
public standards proceeding, and, you know, at no time did the 
RIAA participate, as they easily could have, and raise the 
necessity for these issues. As you said, you know, the video 
broadcast flag was the result of a long, multi-industry process 
with consensus among the stakeholders. And there has been no 
similar process on the digital radio side.
    Mr. Berman. Ms. Sohn, you cite in your testimony the 
ability to use digital rights management tools as a reason not 
to support legislation to close the analog hole. But over in 
the Commerce Committee, you're supporting legislation that 
would legalize the manufacture and distribution of tools to 
defeat those very technologies. Isn't the entire point of the 
analog hole proposal that the fact that these digital rights 
management technologies are rendered completely ineffective 
when DRM-protected content is converted to analog for viewing 
on analog equipment? How is the existence of DRM an argument 
that nothing should be done on the analog hole?
    Ms. Sohn. Well, I think I need to clarify that. H.R. 1201 
does not permit the circumvention of DRM for unlawful uses. It 
only permits it for lawful uses. We do not support infringing 
activity. We only support the circumvention for lawful uses.
    Mr. Berman. Well, I mean, that's your interpretation of 
1201. I mean, sometimes, when I hear you and Public Knowledge 
and others who take the same position advocate, it is in order 
to protect legitimate copying, fair use activities, you create 
your own hole, digital or analog, to allow mass, indiscriminate 
redistribution of digital content.
    Ms. Sohn. Well, I believe that conduct should be punished 
through a multipronged approach, including strong enforcement 
of copyright laws. And Public Knowledge has been almost alone--
--
    Mr. Berman. Right now, the law has a fair use defense, and 
there's a copyright law. Why do you need a new law?
    Ms. Sohn. Well, because if you circumvent a technological 
lock for the purpose of making fair use, you're a criminal. And 
certainly, if you plug up the analog hole----
    Mr. Berman. My understanding of the DMCA is that it makes 
it quite clear that it doesn't seek to change fair use law.
    Ms. Sohn. Well, that's not its effect, unfortunately, and 
there have been several documented cases where somebody broke a 
technological lock so they could play a DVD that was tethered 
to a particular machine on another machine, and that was 
something that was found to be criminal under the DMCA.
    Mr. Berman. Well, 1201 has a provision which says it shall 
not be a violation of the Copyright Act to manufacturer or 
distribute a hardware or software product capable of 
substantial noninfringing uses, not limited to substantial 
noninfringing uses, not only substantial noninfringing uses but 
simply capable of. So in other words, it's okay to do this 
because you're going to protect some fair use, and the fact 
that the result of utilizing this technology is a mass, 
indiscriminate redistribution of copyrighted material is sort 
of beside the point.
    Ms. Sohn. It's not beside the point. What my organization 
really has a problem with and why we brought the case 
challenging the FCC's broadcast flag rules is that it's a one-
size-fits-all Government technology mandate. We do not oppose 
digital rights management technologies that come up in the 
marketplace. And there are lots of those technologies that are 
working right now. I mean, ITunes fair play obviously is the 
best example, but Movie Flix and Cinema Now, I mean, they're 
all over the place.
    Mr. Berman. I realize my time is up, Mr. Chairman, but just 
to say that as I understand the court decision, it did not 
conclude that the broadcast flag rule was arbitrary and 
capricious or anything else. It simply said without a 
legislative statement, the FCC didn't have the authority to 
promulgate that rule.
    Ms. Sohn. That is absolutely correct.
    Mr. Berman. So that court decision did not reach your 
conclusion on this issue.
    Ms. Sohn. Absolutely. It just decided on jurisdictional 
grounds, but I would urge that it would be very, very bad 
policy to put the FCC in the position of dictating 
technological design and essentially deciding what the 
copyright laws mean for the consumer.
    Mr. Berman. What if they just dictated technological 
standards, and any technology that met those standards would be 
okay.
    Ms. Sohn. That seems to me to be the exact same thing. I 
don't see the difference.
    Mr. Berman. Oh, it's not mandating a particular technology.
    Ms. Sohn. Well, but isn't that what the broadcast flag is? 
That's exactly what it is.
    Mr. Berman. And I ask you what if it took that approach?
    Ms. Sohn. I would have to see exactly what the proposal is. 
I really can't comment on it.
    Mr. Jenkins. The gentleman from California, Mr. Issa.
    Mr. Issa. Following up on that line of questioning, the 
FCC's job is to set standards, isn't it, basically, how we 
broadcast, where we broadcast, compatibility between the 
transmission and receivers? If not for the FCC, wouldn't we 
have both PAL and NTSC operating, you know, indiscriminately, 
each broadcaster deciding which TV type he wanted to lead to?
    So I really have to ask, isn't it a core responsibility of 
the FCC to set standards for technology that then foster the 
real use of the airwaves, which, of course, is both for 
entertainment and for information and for public information in 
times of distress, such as a hurricane, the deliverance of 
information? Isn't all of that consistent with the FCC's rule, 
and I would take it that you would all agree to that, wouldn't 
you? Can I find any disagreement here? Good.
    Ms. Sohn. Well, sir, certainly they have----
    Mr. Issa. I was pausing for that moment.
    Ms. Sohn. They certainly have the right to set standards 
for the actual transmissions, okay? They have the authority to 
regulate, you know, communication over wire and radio. And what 
the court found was that when it comes to, you know, dictating 
technological design after the transmission is captured, that 
was far more sweeping and far more far-reaching than the FCC 
had ever done before. So you're talking about regulating the 
standard of the transmission. They've always had the right to 
do that.
    Mr. Issa. Mr. Petricone, the companies you represent in 
fact make these receivers. I presume that the manufacturers of 
Sirius and XM Radio that are now downloading, storing, they're 
both making storage devices off of digital transmissions so 
that you can have--XM to Go, of course, is the better known of 
the two brands from the standpoint of storage. Isn't that 
critical that if they're going to store that that, in fact, be 
protected?
    Mr. Petricone. The devices that you're referring to, first 
of all, they comply with the Audio Home Recording Act, and 
second of all, my understanding is that there is no 
opportunity, there is no way to move a digital copy of the 
material off the device. And if I can go back to your previous 
question, you know, I think I share your view of the critical 
role of the FCC. But we strongly prefer that standards enacted 
by the FCC arise from open, fair industry consensus processes, 
you know, that were properly vetted and developed by industry 
and led by the private sector. You know, again, the broadcast 
flag is certainly an example of that, as is, for example, the 
DTV standard.
    Mr. Issa. Well, following up on that, at the present time, 
for audio, there seems to be a challenge between--I mean, NAB 
doesn't seem, on either standard, NAB is reluctant to do 
broadcast flag, and they're not represented at the table here.
    But ultimately, wouldn't you all say that a scheme, 
standard to protect illicit use of copyrighted material, even 
when broadcast, and when I say illicit, I'm saying outside of 
existing fair use statutes, including the Betamax case, isn't 
in fact that critical to the growth of digital over analog? 
Your company--the companies you represent manufacture those 
very new sets. They're moving toward digital. Isn't the success 
of digital in fact a higher quality product while maintaining 
the status quo under the laws?
    Mr. Petricone. Right, but I think our other concern is a 
scheme that would, in fact, make the new digital product less 
functional than the old analog product that would, of course, 
mitigate in the opposite direction.
    Mr. Issa. No, I appreciate it.
    Mr. Glickman, maybe flipping to the other side of the same 
coin, isn't the availability of content for digital broadcast 
dependent on--and I'll say it in anticipation of where we want 
this to end up, maintaining the status quo under Sony Betamax, 
that although there is a fair use established by the Supreme 
Court and I think kept and held by us that in fact, you do not 
want to have that taken to essentially original master quality 
suddenly available for rebroadcast?
    Mr. Glickman. That is correct, as modified by the Grokster 
decision, which I think has made, you know, some revisions to 
the Sony Betamax decision. But let me go back to your----
    Mr. Issa. I would say it didn't, because certainly, I have 
Sony videotape recorders, and I'm very comfortable that their 
marketing plan did not depend on stealing anything from anyone.
    Mr. Glickman. That is correct. You are correct. But it 
obviously created some additional standards on how you use----
    Mr. Issa. Grokster, to all of us on the dais, including 
your old seatmates here, very much has told us where the other 
side of the same standard now is.
    Mr. Glickman. If I may just respond two things: number one 
is if you look back at the FCC decision, notwithstanding the 
issue of whether they had the legal authority or not, the FCC 
decided because of the threat of mass indiscriminate 
redistribution that would happen that the harm that would be 
created out there was significant enough that it was an 
appropriate place for them to come in and set standards.
    And by the way, it's been set in the aftermarket before. 
The V-chip is a perfect example of that it. The other thing is 
that if you have the substantial redistribution, what is likely 
to happen is that all those millions of Americans who have 
regular television sets that get their programming over the 
air, they will find the likelihood that that programming will 
move much faster to cable, to satellite, and to the other 
things, because, I mean, that's frankly where the marketplace 
will be. And so, what the FCC was trying to do was to try to 
kind of slow that train until, in fact, we got to the digital 
world.
    Mr. Issa. Let me just ask one final question on this 
series. I started off with a red light, so I really don't know 
how much time I have.
    Mr. Jenkins. Without objection, the gentleman will be 
allowed one more question.
    Mr. Issa. Thank you, Mr. Chairman.
    For the record, when we talk about the analog hole today 
versus, for example, an analog cable transmission, aren't we 
talking--I'll ask it as a question, what quality are we really 
talking about? In other words, in my digital set top box with 
recording that I have from both coasts, I have one on both 
coasts from each of my providers, if I take an analog output to 
a TV, but instead of a TV; I output to a videotape recorder; 
again, my Sonys I've had for years. As a consumer, I see no 
difference in the quality of that output, low res output, 
analog, and the low res output I'd get if I never went through 
my cable box and simply went directly to my analog.
    For the consumer, isn't there an expectation that those two 
are equivalent and thus should be treated equivalent by the 
people on this dais for purposes of the prior standards we all 
dealt with for analog recording and time shifting and video 
tape recording and the like? Is that a fair assumption?
    Mr. Glickman. I'm not an expert, obviously, in the quality 
of the material, but I think consumers expect the quality 
regardless of whether they get it on analog or digital. But 
what we've got here is a situation where they're going to be 
run through the digital system material that is unprotected, 
and that is not in their interests at all.
    Mr. Issa. I certainly agree, and maybe Mr. Petricone, as 
the more technical on the machine side, the analog outputs, 
again, we clearly have, under the Digital Millennium Copyright 
Act, we clearly moved a little bit away from beta standard 
because it could be easily digitally recorded, copied 1,000 
times identically and redistributed. But on the analog output, 
which is part of what this hearing is today, how are we to view 
closing that, in other words, flagging it if, in fact, it's 
going to my--and I have to stick to the most basic I think my 
constituents understand--my Sony video tape recorder to be 
recorded and put in my briefcase and taken from Washington, 
where I have no time to watch it, to California where I might.
    Mr. Petricone. We have no objection to addressing the 
analog hole issue and in fact have worked extensively with the 
content industry in the past to do that.
    I think what our issue is with the current draft is the 
fact that it was not, you know, their version of working with 
us is apparently coming up with this immensely complex, 
incredibly, you know, nearly incomprehensible program, not 
sharing it with us and then running to you and asking you to 
enact it. You know, again, that is not the kind of private 
sector driven consensus based process that we would like to see 
here.
    Mr. Glickman. Mr. Issa, could I just add one comment?
    Mr. Issa. With the Chairman's indulgence, sure.
    Mr. Glickman. I just would mention that we have two 
companies--I think they're both members of Mr. Petricone's 
association; I'm not positive, but Thompson and IBM who have 
sent letters to the Chairman indicating their support for this 
legislation. I would like those to be part of the record.
    Mr. Smith [presiding]. Okay; without objection, they'll be 
made a part of the record.
    Mr. Issa. Thank you, Mr. Chairman.
    Mr. Smith. Thank you, Mr. Issa.
    The gentleman from Virginia, Mr. Boucher, is recognized for 
his questions.
    Mr. Boucher. Well, thank you very much, Mr. Chairman, and I 
can't resist the opportunity to welcome back to this Committee 
our former colleague, Dan Glickman, with whom we spent many 
years in productive pursuits here, and I hope this will be the 
first of many appearances that you will have.
    Mr. Glickman. We were together on many issues.
    Mr. Boucher. We were, and I'm looking for some opportunity 
for us to join forces again here.
    But I want to thank you very much and the other witnesses 
as well for sharing your views with us today. Let me just make 
several points, and these will kind of be a context for the 
questions I'll ask. First, I do not harbor hostility toward the 
broadcast flag. I understand the logic of it. I think it is 
important that high value programming be made available for 
over the air digital broadcast, and I perceive the problem that 
the motion picture studios have in making that content 
available for the over-the-air broadcast if there is no 
assurance that it is not going to be uploaded to the Internet.
    So I comprehend that argument, and I don't have basic 
hostility to the broadcast flag. I do, however, have a couple 
of views regarding it. The first of those is that it ought to 
be considered in the broader context of assuring the provision 
of fair use rights for the purchasers of digital media and 
ensuring, in fact, the right of consumers when they have 
purchased content lawfully to make use of that content as long 
as they're not infringing the copyright of the copyright 
holder.
    And H.R. 1201, which I've introduced, along with others, 
contains that set of guarantees. The position I have just 
announced, I can add, is the position of the Chairman of the 
Committee on Energy and Commerce, to which H.R. 1201 has been 
principally referred, and I assume the Committee at some point, 
perhaps next year, will begin a series of hearings on that set 
of issues.
    The second thing I would say about the broadcast flag is 
that it seems to me that there are certain kinds of programming 
that should not be flagged at all: news programming, in my 
view, should not be flagged. If someone wants to excerpt a 
small piece from a news program and put that on the Internet, 
send it to friends, if the rare occasion happens, and the local 
TV station covers me doing something, and it turns out to be 
particularly good, an even rarer event still, I might want to 
email that to my mother and say aren't you proud of me now? 
[Laughter.]
    And my 81-year-old mother uses e-mail, I am proud to say.
    But under a strict version of the broadcast flag, if that 
news program was flagged, I would not be able to upload that 
excerpt to the Internet.
    It seems to me also that public affairs programs generally 
should not be flagged and should be available for excerpts of 
it or perhaps all of it to be emailed, and there doesn't seem 
to me to be any particular harm to a content owner if we permit 
that. And Mr. Glickman, at the proper time, I'm going to ask 
you to respond to those recommendations.
    Point number two: I think this Subcommittee should take up 
and report a comprehensive reform of music licensing issues. We 
primarily need to be addressing section 115, but perhaps the 
section 114 problems Mr. Bainwol has suggested and others have 
recommended to us could also be considered in that broader 
context. And I know that Mr. Bainwol's association also would 
like to see us address the section 115 issues, as would others. 
And so, I would commend, Mr. Chairman, that idea to you, and 
hopefully, we can move forward with that legislation in the 
near term.
    The third point I would make is that the argument for the 
broadcast flag, which I have articulated perhaps not perfectly, 
in my view does not extend to digital radio. It seems to me 
that piracy from radio broadcasts are not the primary problem 
that you face. Peer-to-peer is probably a bigger concern, but 
perhaps the Supreme Court decision in Grokster will help you 
address that. I hope it does.
    The bigger problem might be if someone is intent on 
committing piracy that they would simply go and buy a CD, and 
they would use the CD for the same purpose that you're 
suggesting they might use a digital radio broadcast. The CD, 
after all, doesn't involve waiting. You can put it in your tray 
right away and go ahead and do whatever it is you're going to 
do with it. It's a better quality product than the digital 
broadcast, which has undergone compression, and probably would 
be better than MP3 but not CD quality.
    And it seems to me that most of the radio stations are just 
playing the same 20 songs over and over, and once you've 
recorded them, what are you going to do then? You go buy a CD 
in all likelihood. So, I mean, the CD really is the bigger 
issue, and so, I'm not sure the case has been made that we 
ought to embark on this notion of a broadcast flag for digital 
radio.
    I would also note that unlike the TV flag, which has the 
sole purpose of preventing uploading to the Internet, your 
proposal for a radio flag would dramatically affect the ability 
of the person at home who is receiving the broadcast to engage 
in copying. It's a dramatic assault on fair use.
    And so, as you may have detected from these remarks, I'm 
not quite sold on the idea yet. And I will ask you at the 
proper time for your comments on that.
    Mr. Smith. Would the Gentleman from Virginia like an extra 
minute?
    Mr. Boucher. Yes, would the Chairman be so kind as to grant 
an extra minute?
    Mr. Smith. Without objection, the Gentleman is recognized 
for an additional minute.
    Mr. Boucher. Thank you very much, Mr. Chairman.
    I would also note that the bill that has been put forward, 
Mr. Bainwol, would prevent the scrolling features on the new 
devices that XM and Sirius are getting ready to introduce from 
functioning. These are features that allow you to categorize by 
artist, by genre, et cetera, much the way that IPod does, and I 
think those devices would be rendered dead on arrival were your 
bill to become law. As I read section 8(b) of the bill, that 
information could not be used for scrolling purposes.
    Finally, let me say I have not had time to review and 
reflect on the analog hole bill. I just saw that yesterday. I 
am concerned that it is a far reaching technology mandate that 
would apply to any device that has the ability to convert an 
analog signal back to digital, including, by the way, a 
personal computer, and so, personal computers would have to 
contain this mandated technology, and I can assure you that 
before we get to the point of doing that, we're going to have 
to have a lot more conversation.
    Now, with those comments, let me give both Mr. Glickman and 
Mr. Bainwol an opportunity, if the Chairman permits, to comment 
on what I've said about the broadcast flag for television and 
the broadcast flag for radio.
    Mr. Smith. If you all would answer the question, and then, 
we will go to the next Member.
    Mr. Glickman. I enjoyed working with you, and while we 
disagree on some of these issues, you're a person that I feel 
comfortable working with, and we should continue to do that.
    First of all, broadcast flag: I think it's clear that what 
the FCC said is that broadcast flag in no way limits or 
prevents customers from making copies of digital broadcast 
television content. If you want to watch and use TiVO, TiVO has 
been certified as proper remote access, so that is protected 
under the flag.
    The issue here is that, as you know, that satellite and 
cable under contractual arrangements have a different ability 
in terms of redistribution than broadcast does. So what we are 
trying to do is to provide equal, fair, and balanced treatment, 
so they are all treated the same way. Now, that does not 
necessarily have to mean that your grandmother or aunt or 
sister, you cannot work out some sort of arrangement to, in 
fact, send--in fact, I would like to see your 15-second 
snippets from the House or anywhere else.
    But I am just saying that there's got to be relatively 
equal treatment here, because if there's not, I am telling you 
it will all move away from broadcast television, and that will 
be a dagger in the heart of an awful lot of people who don't 
have access to cable or satellite, including people who live in 
small towns in rural America, so that's my point there. But I 
appreciate your general support for the concept of it, and we 
want to, you know, continue to work with you on it.
    You know, on the issue of 1201, we strongly oppose your 
position on that for a lot of reasons. One is the circumvention 
provisions, particularly as it relates to the scientific area, 
which you put in there. It looked like they're wide enough to 
drive a Mack truck through, because there's a lot of ambiguity 
in that particular provision. And we've talked a lot about fair 
use before, and the fact is that under our laws, if you get 
one, you don't get another one for free in the world. You know, 
any kind of product that you buy, you don't get an extra 
product for free.
    But, look, I understand where you're coming from here and 
will continue to talk to you about it. I don't want to mislead 
you, however. You haven't persuaded me today about 1201.
    Mr. Bainwol. It's my turn. Just to clarify, my last name is 
Bainwol. I have been called worse things, though, so that's 
fine.
    Let me take a moment and kind of reframe where we are from 
a financial standpoint. Gigi characterized a story in the press 
that was a bit misleading. To put the context again, the sale 
of recorded music was about $14.6 billion in 1999. We're under 
$12 billion in physical. In 2005, we'll lose more on physical 
than we will gain from this wonderful marketplace that's 
arising on the digital side. So we're still sliding down. With 
a little luck, 2005 will be our down year, and we'll begin 
climbing out. And our future is predicated on having a rate of 
growth on the digital side that exceeds the rate of loss on the 
physical side.
    And we think we can get there, but we can get there only if 
the right policies are in place. We've got lots of problems. 
We're not short of problems. We've got, obviously, P2P, which 
we think we're beginning to get a handle on. We've got the 
physical piracy that we're dealing with. But along comes this 
new functionality.
    In the old days, you had radio, and you had ownership. Now, 
obviously, with 114, you've got satellite, you've got cable, 
you've got Internet. You have this convergence going on where 
basically, radio is going to be available on all of these 
platforms and over the air, and radio, on over-the-air, of 
course, we don't have a performance right, we don't get paid. 
All of a sudden, you've got this new device that in effect 
replicates what you can do on ITunes.
    So the consumer will have a choice: do I want to go on 
ITunes and spend 99 cents to buy a new track; you know, I saw 
Nine Inch Nails. Maybe that's it; maybe it's something else. Or 
do you go onto your new device and say gee, I can mark it, I 
can keep it, I can move it to my device, and I don't have to 
pay for it, and it's part of a playlist, and I've got it, I've 
got possession of the thing.
    The challenge is as radio converges across platforms, you 
end up with an ability to replace the sale. No sane human 
being, few sane human beings would go and choose to pay for 
something when they can replicate that experience for nothing.
    Our challenge now is to make sure that this functionality, 
which can cause enormous harm at a very difficult time for us 
is treated in a fashion where it's either licensed or 
compensated for fairly.
    Mr. Smith. Thank you, Mr. Boucher.
    Without objection, by the way, I'd like for the full 
introductions of the witnesses to be made a part of the record. 
And Mr. Glickman, let me address my first question to you and 
say at the outset, I may be at a slight disadvantage, because 
you may have already these questions, and if so, feel free to 
tell me, and I'll go to the next one.
    I was just curious, though, Mr. Glickman, how you thought 
the typical consumer felt about the broadcast flag and the 
analog hole, assuming they've thought about it at all, but 
let's assume an educated consumer, and are they for it, or are 
they opposed to it? What is your experience?
    Mr. Glickman. You know, I haven't done any survey research 
on this, but my guess would be is that since the bulk of 
consumers have analog television sets now, and they want to 
maintain high quality content, digital content that's coming 
down the road, that they would be upset to know that because of 
this analog hole, you could have massive redistribution of 
unprotected digital content. They wouldn't like that.
    I don't know whether they've thought about specifically 
this particular technology or not. But I think if they did 
think about it, they would probably worry about it, given all 
of the advances that are occurring in content, both television 
and movies.
    On the broadcast flag, my guess is that if consumers of 
over the air television, which there are millions of in this 
country, particularly in underserved areas would know that, the 
content providers and the distributors would likely shift to 
cable and satellite because the content can be massively 
redistributed. That would upset them very much, because they 
could end up with nothing, perhaps, except maybe public 
broadcasting or other kinds of channels that would not 
necessarily fit on those new mediums.
    So I think they would be concerned about it, and you know, 
that's my judgment right now.
    Mr. Smith. Okay; thank you, Mr. Glickman.
    Mr. Petricone, it's my understanding, I think I recall, 
that the membership of the Consumer Electronics Association 
either is neutral about or supports the broadcast flag. Is that 
a fair statement?
    Mr. Petricone. Mr. Chairman, again, we are a large 
association. We represent over 2,000 members, and we have 
members with differing views on the broadcast flag issue. When 
the issue was before the FCC, we took a neutral position.
    Mr. Smith. You're not going to go any farther than that? Do 
you want to say anything about a majority of the members or 
members you've talked to or anything like that?
    Mr. Petricone. You know, Mr. Chairman, it's sometimes being 
in a trade association is difficult, and sometimes, you have 
members, and it seems to happen more often than one would like, 
that have very strong positions on an important issue, and when 
that happens, the best thing to do is to generally stay out of 
it.
    Mr. Smith. It seems like you're a good politician, too. All 
right.
    Mr. Bainwol, what has been the reaction from the satellite 
and the broadcasters to your proposal? If they've had concerns, 
what are those concerns? And on the other side, who supports 
your proposal?
    Mr. Bainwol. Well, we've had discussions with the satellite 
folks and broadcasters. You know, if I die and come back, I'd 
love to be a broadcaster in the radio context. I get free 
spectrum; I get free content, and I have an ability here 
potentially to replicate what ITunes does and not have to pay 
for the product.
    So, you know, they're not terribly anxious to come to an 
arrangement here. Because we have no performance right, they 
don't have to pay us. There's no reason for them to come to the 
table. So we've reached out to them over the last two and a 
half years in a very aggressive fashion, but it's very hard to 
compel them to act.
    The satellite folks are in a similar situation. Of course, 
we have a performance right there, but that pays for the 
performance, not for distribution. What's going on here is the 
conversion of radio to a mechanism to take performance and turn 
it into a distribution to replace ownership. So the satellite 
folks also, they're engaged also. We're in reasonable 
discussions, but I don't know that we'll get across the finish 
line in terms of reaching an agreement.
    Satellite and over-the-air, they're fighting for market 
position, they're fighting to compete, and they want to use 
this functionality in this competition, and we're left out 
there holding the bag. All we want is compensation. We want to 
avoid harm. It's been a very difficult time for us in the last 
6 years, and this functionality is very cool and very 
meaningful. Fans deserve to have it but not at our expense. 
Let's find a way to make it work. We can't get them to the 
table, though, to come to a deal. That's why we need help.
    Mr. Smith. Okay; thank you, Mr. Bainwol.
    Ms. Sohn, let me ask you about three activities, and it's 
my understanding, I believe, that you have indicated support 
for them in your testimony, but let me just go through these 
three and see what you think about them, and I'm assuming that 
Public Knowledge does support them, but I just want to double-
check with you. First of all, suits against P2P users who 
upload and download copyrighted files.
    Ms. Sohn. If they do so on a massive scale, yes, a large 
scale.
    Mr. Smith. Well, how do you define large scale?
    Ms. Sohn. Well, certainly more than one, but, you know, 
hundreds of files. You know, it's basically--I have to say that 
both the recording industry and the motion picture industry 
actually have done a pretty good job of going after mass file--
--
    Mr. Smith. At the risk of making Mr. Boucher nervous, what 
about a dozen or two files?
    Ms. Sohn. You know, I really don't want to sort of parse 
numbers, but I don't think that that's necessarily a very good 
use of their resources.
    Mr. Smith. So you're talking about the real abusers.
    Ms. Sohn. The real pirates, yes, the real abusers, 
absolutely.
    Mr. Smith. What about the use of some DRM technologies like 
Apple's Fair Play?
    Ms. Sohn. Absolutely. As long as it comes up in the 
marketplace, we are for it. If it's Government-mandated, we're 
against it.
    Mr. Smith. Okay; what about the passing on of warning 
notices by ISPs?
    Ms. Sohn. Well, we actually put out a public statement 
applauding the agreement between Disney and Verizon to do so.
    Mr. Smith. Has Public Knowledge always supported those 
three actions?
    Ms. Sohn. Yes, since the very beginning.
    Mr. Smith. You have; okay. Thank you very much.
    Ms. Sohn. Could I just make one comment----
    Mr. Smith. Yes.
    Ms. Sohn.--about whether consumers care? Because I think 
this is really important. At the FCC alone, there were between 
5,000 and 7,000 consumer comments opposing the broadcast flag 
filed. So, you know, when you don't actually have digital 
television, Mr. Glickman is right. People don't really know 
what you might be missing. But certainly, of those who are tech 
savvy, they did weigh in. And I do know that in addition, tens 
of thousands of constituents have weighed in with their Members 
opposing the reinstatement of the broadcast flag over the last 
6 months.
    Mr. Smith. Okay; thank you, Ms. Sohn.
    The gentlewoman from California, Ms. Lofgren, is recognized 
for questions.
    Ms. Lofgren. Thank you, Mr. Chairman. And thanks to the 
witnesses for being here.
    It's great to hear your comments. As with my colleagues, I 
think it's important to put my questions in a context. I have 
been a Member of this Subcommittee for many years, and I think 
that there is unanimity among each Member that we should do 
what we can to support content owners from being ripped off. I 
mean, that is an important principle, and those rights need to 
be protected. I also have two other concerns when it comes to 
proposals, and I'll just state them.
    First, consumers have rights, too, and if in our efforts to 
protect content owners, we don't also acknowledge the rights of 
consumers, and that's a problem for me, and there's a second 
issue which is probably rooted in Silicon Valley, where I come 
from: if we, in outlining a scheme, have the impact of impeding 
the development of technology, then, that is a huge problem, 
because we wouldn't be here; we wouldn't have CDs; we wouldn't 
have a lot of things if we had impeded the development of 
technology, so I'm always on the lookout for that.
    Along getting to my first point or second point of 
consumers, I have some skepticism about the broadcast flag 
proposal, and it's not just about fair use; it's about lawful 
use. And I'm wondering both for RIAA and MPAA, how you would 
assure consumers that, say, for example, they have a right to 
take--we watch the Daily Show when I stay up that late with Jon 
Stewart where he will do a clip of one politician and then a 
clip of something else. I mean, theoretically, if you flag it, 
you couldn't do that.
    There's another issue which is not fair use which is just 
noninfringing use. I mean, there is material that is in the 
public domain. And theoretically, you could control, through 
technology, what you do not have the right to control through 
the law. I'm wondering how you would address those two issues 
if the broadcast flag were to go forward.
    Mr. Glickman. Well, thank you.
    First of all, I agree with you. These are questions of 
balance. I served on that row, and I know what it's like to try 
to bring folks together, and sometimes, you can't reach 
agreement as an industry, and that's why, you know, Congress 
has a leadership role on some of these issues, as you did in 
the V-chip and other kinds of things, where you came in and 
tried to deal with this issue.
    And in terms just mentioning impeding the development of 
technology, there are a multitude of technologies. There are 
technologies of delivery devices. There's also technologies of 
content, and people want to see the most modern and new ways of 
movies and television, and so, there's technology in that area 
as well. And so, I don't want to put just technology in a 
little box. It just depends on the delivery system. It also 
involves the content that's produced out there.
    The only thing I would tell you is that I would read from 
the FCC decision itself. They say, A, we wish to reemphasize 
that our action herein in no way limits or prevents consumers 
from making copies of digital broadcast television content. The 
goal will not interfere with or preclude consumers from copying 
broadcast program and using it or redistributing it within the 
home or similar personal environment as consistent with 
copyright law.
    So, I mean, that is from the FCC decision, and of course, 
that's basically the decision that we want to see you 
reauthorize, put into statute. And, you know, obviously, common 
sense has to be underlying anything that we do in this area, 
and, you know, we would hope to work with you to make sure that 
would be the case.
    Ms. Lofgren. Mr. Bainwol?
    Mr. Bainwol. Yes, I would simply add in terms of the 
technology by which we would solve this problem, we're 
agnostic. In a perfect world, in an ideal world, we'd do that 
with encryption at the source. We understand that's probably 
too late, so a flag approach or some other approach is probably 
fine.
    But the bottom line is I would echo Dan's words about 
common sense. We are perfectly fine to build in common sense 
adjustments to accommodate genuine fair use concerns. What 
we're not fine with is allowing radio to morph into an ITunes 
or a Rhapsody substitution where we get no payment.
    And let me just use this moment to put all this into 
context. I hear a lot of talk about AHRA, which was, you know, 
before I was involved in this business, but 1992; that was 
about serial copying. To give you a sense of context here, AHRA 
probably provides the music world a couple million bucks a 
year; I don't know if that's precisely right, but order of 
magnitude, that's right; a couple of million dollars a year, 
okay?
    Right now--two years ago, you had no download market. Right 
now, we're dealing with about 7 million downloads a week in the 
legitimate download market: ITunes, Wal-Mart, the other 
services. In that context, according to public reports, the 
music world gets somewhere between--about two-thirds. So in a 
given week, you can do the math: we do okay.
    The bottom line is in about 3 days, we capture what we 
would get under AHRA. So AHRA comes nowhere near approximating 
the loss of value. We are in a hole. Creators have suffered 
huge losses.
    Ms. Lofgren. If I may, and I know the red light is on, and 
the Chairman will allow the other two witnesses to answer, I'm 
sure, but----
    Mr. Smith. Without objection, the gentlewoman is yielded 
another minute.
    Ms. Lofgren. Are we having a second round of questions, Mr. 
Chairman, or not?
    Mr. Smith. Not necessarily.
    Ms. Lofgren. Then I will just state I have many questions 
that I perhaps can send to the witnesses. I'll just note that 
the mandating in the analog hole bill of particular technology 
is almost always a mistake to mandate, for the Government to 
decide a set of technologies. I mean, we should never vote to 
do that. I wonder if the other two witnesses could address the 
question. I thank the Chairman for the extra minute.
    Ms. Sohn. I'd like to address the part of your question I 
think to Mr. Glickman that talked about fair use and the 
broadcast flag, and I would just simply refer everybody to the 
CRS report for Congress entitled Copy Protection of Digital 
Television: the Broadcast Flag. And just indulge me for a 
second.
    It says current technological limitations have the 
potential to hinder some activities which might normally be 
considered fair use under existing copyright law. For example, 
a consumer who wished to record a program to watch at a later 
time or at a different location might be prevented when 
otherwise approved technologies do not allow for such 
activities or do not integrate with one another or with older 
legacy devices.
    So there is definitely--and Mr. Glickman did not answer--I 
don't remember whose question it was exactly; I think it was 
Mr. Boucher's question about exceptions for news programming. 
You're never going to package news programming for later sale 
on DVD. Nobody wants to see, you know, the DVD package of the 
nightly news. And I think it's important, we have troubles 
because of the FCC's involvement, I think the very least, you 
have to answer the question what's your objection to not 
flagging news and public affairs programming? I don't want to 
diss the broadcasters, but that's not the kind of high value 
programming that Mr. Glickman and his members are referring to.
    Mr. Petricone. If I can just address the issue of whether 
the AHRA applies in this context to these new technologies, you 
know, under the AHRA, the definition of a digital audio copied 
recording includes digital reproductions of digital musical 
recordings, whether that reproduction is made directly from 
another digital musical recording or indirectly from a 
transmission.
    As a matter of fact, Mr. Bainwol's predecessor told the 
Senate the AHRA will eliminate the legal uncertainty about 
audio home taping that has clouded the marketplace. The bill 
will bar copyright infringement lawsuits for both analog and 
digital audio home recording by consumers and for the sale of 
digital audio equipment by manufacturers and importers. It will 
thus allow consumer electronics manufacturers to introduce new 
audio technology into the market without fear of infringement 
lawsuits. So, you know, for the RIAA to come back now with its 
extraordinarily narrow reading of what the AHRA said is frankly 
revisionist history.
    If I can also add, Mr. Bainwol keeps saying that digital 
radio essentially turns radio into ITunes. What you get with 
digital radio is current radio, except it sounds somewhat 
better. In other words, the DJ talks over the first 10 seconds 
of the Led Zeppelin, and then, the last 10 seconds of the song 
fades into the ad for Pizza Hut.
    So, again, if that's what you're comfortable with, that's 
fine, but that's in no way replication of what you're getting 
from, say, an ITunes type service.
    Mr. Bainwol. Mr. Chairman, if I may, there are so many 
inaccuracies riddled in that statement. I'm not sure where to 
begin. I know we don't have a whole lot of time, but just on 
the functionality issue, you didn't say I could; may I proceed?
    Mr. Smith. Yes, Mr. Bainwol. Please. Actually, we're going 
to give the Gentlewoman from California an additional minute 
for you to respond.
    Mr. Bainwol. I'm just a touch overenthusiastic here, but, 
you know, what you can do with this device, the key thing is 
you don't have to listen to the song. You can see the tracks, 
and you can say I'm going to mark that track and store it into 
my device here along with my other stuff and create a playlist 
and listen to it whenever I want. It's essentially a tethered 
download. And it creates an incentive to keep the subscription 
going alive, because you only have it so long as you have the 
subscription.
    So this is not radio, you know, the disc jockey talking 
over the thing. You can amass a wonderful library that is a 
substitution for a purchase at a time where we can't afford to 
give our music away.
    Mr. Smith. Thank you, Mr. Bainwol. Thank you, Ms. Lofgren.
    This is what we wanted today was a healthy discussion. I 
don't know whether we're really getting to that fourth goal 
that I had for today's hearing about common ground yet, but 
we're working on that.
    The gentleman from Utah, Mr. Cannon, is recognized for his 
questions.
    Mr. Cannon. Thank you, Mr. Chairman.
    I would like to apologize to you and the other Members of 
the Committee and also our panel for not having been able to be 
here for the whole hearing. Mr. Issa pointed out this is the 
most fair panel we could have had on this issue just before he 
left, and I appreciate that, and I just want Mr. Petricone, who 
was very anxious to respond, if you would like to respond to 
Mr. Bainwol, you're welcome to do so on my time.
    Mr. Petricone. I just wanted to clarify, the digital radio, 
the terrestrial digital radio service is not a subscription 
service. It's free, over-the-air radio, again, like you're 
getting today, except that it sounds better.
    On the satellite end, which I know is also a concern of Mr. 
Bainwol's, you know, what Mr. Bainwol is referring to is an 
ongoing royalty dispute between his members and the satellite 
industry. And just last year, Congress created the Copyright 
Royalty Board to handle these types, these exact types of 
business disputes. And we suggest that the Copyright Royalty 
Board be allowed to do its work, do what you set it up to do 
and that consumers not be deprived of new products and digital 
technologies. Thank you.
    Mr. Cannon. Let me let Mr. Bainwol respond to that, but let 
me just ask a question, and if you could deal with the question 
and the process, I'd appreciate that, Mr. Bainwol, but 
certainly, you're welcome to respond to that on my time.
    But let me ask: the FCC's broadcast flag rules were very 
narrowly tailored to prevent unauthorized mass, indiscriminate 
redistribution of digital video content over the Internet, and 
the HD radio proposal would cover unauthorized redistribution 
over digital networks. Could this mean that it would sweep in 
wide area networks such as universities, local area networks 
such as offices, or home networks? In other words, does the 
term digital networks need to be explicitly defined in this 
legislation to move it forward?
    And if you could also respond to the fact that we've had 
lots and lots of institutional discussion about the broadcast 
flag on video, and those discussions have not been participated 
in. We haven't had the same discussion on audio. And could you 
discuss just briefly whether we don't need to go back and have 
some more extended discussions? And then, of course, you're 
welcome to respond to Mr. Petricone.
    Mr. Bainwol. Okay; I'm going to try to keep my wits about 
me, but I think I have three points to make. The first is 
Michael gets confused between a performance and a distribution. 
We don't get paid on over-the-air radio. We do get paid on 
satellite for a performance. We're not being paid to replicate 
an ITunes purchase, so that's a key distinction.
    Two, in terms of your concerns about universities and LANs, 
we're perfectly happy to work with drafters to make sure that 
the language captures only that which is necessary to capture 
to make sure that the piracy problem is not----
    Mr. Cannon. And here, you know, I'm torn about whether a 
kid in a dorm room can grab something and then put it on his 
local area network for a kid three dorms down. That's awkward. 
That may be the worst case, but in a home, if you're capturing 
and then replaying it, it seems to me that we need to have 
some----
    Mr. Bainwol. We're perfectly fine with flexibility to make 
sure that that home context is taken care of.
    That third piece here that I think I have to just drive 
home, because it separates the case of motion picture and video 
broadcast from us, there is a market failure. We do not have a 
performance right. We have a compulsory license on the 114 
side. There's nothing we can do to say if you don't give us the 
right protection, you don't get the programming.
    We're stuck, and because we're stuck, we need help. I wish 
it weren't the case. In a perfect world, if you could give us a 
grant of a performance right, I think we would be pretty 
thrilled, and so would a bunch of artists around this country. 
But that's going to take some time. In the meantime, we're 
trying to dig out of a hole, and if we don't get this thing 
right, we're going to have a huge impact on the creativity of 
this country.
    A third of the artists that were signed to labels were lost 
in the last 6 years. Now, it's time we do something to make 
sure that the investment in content and content innovation is 
protected.
    Mr. Cannon. But, I mean, there are a lot of problems behind 
that statement about losing your artists to signed contracts 
that go way beyond the legislation we're dealing with here.
    Mr. Bainwol. No, I'm making the point that the consequence 
of a failed decision here----
    Mr. Cannon. No, I understand the point. But there are a lot 
of failures, and I've been arguing with your industry for a 
very long time about some of the fundamental problems that are 
going on here, including how you generate creativity in the 
market as opposed to in the part that we control.
    So anyway. Thanks. We do need to work on, I think, 
language, and maybe we can come up with something, but Ms. 
Sohn, in your testimony you argue that if a Member of this 
Subcommittee wants to email a snippet of his appearance on 
national TV, and I hope this question hasn't been asked, but I 
actually would like to know that's off a broadcast flag scheme, 
that would prohibit him from doing so.
    Does the same concern extend to cable and satellite 
snippets? If so, what position do you take on the distribution 
through those media? So, would TiVO To Go service, which is 
certified as broadcast flag compliant, enable a Subcommittee 
Member enable himself to email himself a new snipped, or could 
future technologies to facilitate that activity be certified as 
broadcast compliant?
    Ms. Sohn. Let me see if I fully understand the question. 
All I can say is that the first part of your question, you 
know, under the broadcast flag rule, you would not be able to 
do that. You would not be able to email yourself a snippet. You 
can now email a cable or satellite program. That is not 
prohibited. Did I answer that
    sufficiently?
    Mr. Cannon. And in part because I see that my time has 
expired, and I apologize, Mr. Chairman, for going over and 
yield back if there were theoretically something to yield back.
    Mr. Smith. Thank you, Mr. Cannon.
    The gentleman from Massachusetts, Mr. Meehan, is recognized 
for his questions.
    Mr. Meehan. Thank you, Mr. Chairman.
    And Mr. Petricone, if you get a work-related email during 
the Monday Night Football game on Monday, I want you to know 
you're going to have the rest of the evening to work on that 
email, because the Patriots are going to be ahead of the Colts 
by four touchdowns. You don't have to watch the second half.
    Mr. Petricone. Congressman, I grew up in northwestern 
Connecticut. I'm a big Patriots fan, and I certainly hope 
you're right.
    Mr. Meehan. Mr. Glickman, it's great to have you back 
before the Committee. You were an outstanding Member of 
Congress. The MPAA seeks Congressional ratification of both the 
FCC's Broadcast Flag Order and its companion Digital Content 
Protection Technology Approval Order.
    Now, as you know, the technology approval order in that 
order, Chairman Martin expressed concern that the non-assert 
clause in some of the technological agreements could hinder 
competition and suppress innovation. I'm curious: do you 
believe from your perspective that licensing agreements issued 
pursuant to Government mandated rules, the essential purpose of 
which is to protect intellectual property should be permitted 
to contain provisions which expressly require licensees to 
surrender their own intellectual property as a prerequisite to 
enabling a Government mandated license?
    And I'm curious, it seems isn't such a provision completely 
inconsistent with protecting the intellectual property rights 
that is, in essence, the essence of the proposed legislation to 
fix the problem?
    Mr. Glickman. Well, to be honest with you, we have not 
taken a specific position on that, and I'm going to have to get 
back to you on that. As a general proposition, we don't think 
that the FCC's ruling is inconsistent with the flexibility that 
you talked about, but can't answer the question quite candidly 
right now.
    Mr. Meehan. Would anyone else like to comment on it?
    Mr. Glickman. I will get you an answer shortly.
    Mr. Meehan. Okay; thanks, Dan.
    Thank you, Mr. Chairman.
    Mr. Cannon [presiding]. The Gentleman yields back.
    Does the Gentleman from Florida have questions?
    Mr. Wexler is recognized for 5 minutes.
    Mr. Wexler. Thanks.
    First, I'd like to compliment all four witnesses, because I 
think each one of you has been an extremely effective analyst, 
spokesperson for your point of view, and even though you have 
differing points of view, I think the Subcommittee has learned 
a great deal from them.
    In the context of trying to figure out the equities or the 
balance in terms of the competing points of view, I would like, 
if I could, to ask Mr. Petricone: if I understand your position 
correctly, and obviously, you'll tell me if I don't, but if I 
understand your position correctly, you articulate that 
Congress should move forward with the broadcast flag 
legislation with any of the three proposals, including H.R. 
1201, which has been referred to and Mr. Boucher specifically 
talked about.
    If my analysis is correct, if that's what occurred, if 
that's what Congress did, then, in effect, we'd be passing 
legislation that collectively repealed the DMCA and then, 
depending on whose point of view you buy, either make it 
impossible to close the analog hole and implement the broadcast 
flag or at least make it more difficult to close the analog 
hole and implement the broadcast flag. So if we did that, and 
if this Subcommittee, if we were trying to balance the 
interests, why or how would that be a fair resolution?
    Mr. Petricone. Let me first start off by saying, you know, 
again, I represent the technology industry. We are an 
intellectual property industry. We invent things. That's what 
we do. So I'm keenly aware of the need for strong intellectual 
property protections. As far as H.R. 1201, clearly, we view it 
differently. It does not allow decryption for infringing 
purposes. Again, we believe that is entirely consistent with 
consumer fair use and the kind of fair use that ought to be 
protected.
    We believe that linking H.R. 1201 with the kind of narrow 
broadcast flag approach that I previously discussed, you know, 
would balance, again, protecting the copyright holders and 
giving them additional protections but also protecting 
consumers and allowing them to make use of content that they 
have lawfully acquired.
    Mr. Wexler. Would you agree that as it relates to the 
effect of 1201, on one hand, and I think Mr. Glickman said it 
from his point of view, the hole is so large you could drive a 
truck through, would you agree that--and you have a different 
point of view, obviously, but the net effect of 1201 has got to 
either be we entirely make it impossible to close the analog 
hole, or we make it a little bit more difficult to close it or 
somewhere in between. But clearly, there's no effect of 1201 
that makes it more likely to close the hole. Is that a fair 
statement?
    Mr. Petricone. Again, I think you're talking about a 
balance between perfect control of one's intellectual property, 
and, you know, on the other side, no control. And what we 
believe 1201 does is merely allows consumers, lawful consumers, 
to do with their works, with their lawfully acquired property, 
the things they ought to be able to do anyway.
    So does it move away from perfect control of IP, well, yes, 
it does. But it does it in a way that protects rights that 
consumers have and should have.
    Mr. Wexler. Thanks.
    Mr. Cannon. The gentleman yields back.
    Do you want to----
    Mr. Berman. Yes, Mr. Chairman, I'd ask unanimous consent 
that anyone who wants to ask an additional question preceded by 
a short statement be allowed to. [Laughter.]
    Mr. Cannon. With the reservation of an objection if the 
statement gets too long, without objection, so ordered.
    Mr. Berman. Yes; Mr. Chairman, if I may be recognized, I 
want to--we've touched on this, but I think it's so new, and 
it's so interesting, and it shows how something done for one 
purpose gets totally twisted to another purpose.
    And I want to go back to this issue of the satellite 
services. In effect, a wonderful new technology that provides 
an incredible diversity of music and programming, XM and 
Sirius, linked up with an interactive service that allows in 
the case of XM, I think it's Napster that allows people to buy 
what they've heard now is coming featured with a new device 
made by one of your member companies which in effect allows you 
never to listen to one piece of music that's coming on the 
satellite radio; to have it recorded 50 hours of programming, 
50 hours, about 750 songs, to get a list of those songs, and to 
decide which of those songs you now want to make copies of for 
your library, disaggregate, delete, save, without listening to 
the program, and for the price of your monthly subscription or 
the monthly service.
    This is not what was intended when we granted the license 
for satellite radios. That was a performance license, not a 
mechanical. It was not intended to be for, in effect, reduced 
by 98 percent per copy situation. The long-term consequences of 
that are going to end up not only killing the traditional sales 
models but the online services programs and the downloading and 
the ITunes and all of this other stuff.
    And so, there's a real problem out here which can't just be 
passed off. You're now replacing sales, whether they're the 
traditional kinds of sales or the online sales, with this kind 
of a mechanism. And my question is what do you say to that? No. 
[Laughter.]
    Mr. Petricone. Thank you.
    I think what you just described in audio terms is what I do 
with my TiVO on a daily basis. And I guess what I say is I 
think that's okay, you know.
    Mr. Berman. Your TiVO, to get your television programming, 
so you can watch it, right.
    Mr. Petricone. I index.
    Mr. Berman. Right.
    Mr. Petricone. I disaggregate. It gives me more control of 
my programming.
    Mr. Berman. So you have no reason to go to the retail store 
and buy TV programming.
    Mr. Petricone. As a matter of fact, I end up watching a lot 
more TV, and I think almost everybody would agree that the TiVO 
is a wonderful invention loved by millions of Americans.
    But I think, again, what I think you're talking about here 
is a licensing dispute between the satellite companies, XM and 
Sirius, and Mr. Bainwol and his members. And, you know, our 
approach, I guess, is to ensure that that licensing dispute is 
resolved through the mechanisms in part that you have set up. 
But the solution is not to deprive consumers of these new 
digital technologies and functionality which we think will 
expand the market for digital music.
    Mr. Berman. Just to respond, I am a little off the point of 
the specifics of this hearing, but it has come up in this 
context; it's indicative of a particular problem. I don't think 
this proposed legislation does it; Mr. Bainwol, though, did you 
want to make any comment about that?
    Mr. Bainwol. You know, there is a licensing process that we 
will go through as it relates to the performance, again, but 
this is not about the performance. And we keep on getting lost; 
let's be candid here: this is about substituting for a 
distribution, either a purchase of a CD or a rental from Yahoo 
or a purchase from an ITunes or a Wal-Mart. That's totally 
different.
    And our concern here is not just satellite. There's a 
convergence across platforms, over the air and then also across 
platforms under 114, where you're getting this radio 
functionality where you can do the substitution. When you 
aggregate that together, what that really means is a very major 
challenge in terms of these new models that are trying to get 
some traction. Those models are essential to our future, and if 
we blow them up, that is damaging not only to ITunes and to 
Yahoo and Rhapsody but to creators as well.
    Mr. Boucher. Mr. Chairman?
    Mr. Smith [presiding]. Thank you, Mr. Berman.
    Yes, Mr. Boucher.
    Mr. Boucher. I guess the question is who's next? 
[Laughter.]
    Mr. Smith. I can see some eagerness for additional 
questions.
    The Gentleman from Virginia is recognized.
    Mr. Boucher. Thank you very much, Mr. Chairman.
    Let me just comment on that conversation that the XM and 
Sirius signals can only be recorded on the XM and Sirius 
devices, and those devices presently and as they're being 
designed for the next generation, as I understand it, do not 
have digital outputs. And so, once the recording takes place, 
it's on that portable device, and that's where it stays.
    Mr. Bainwol. But it becomes your IPod substitute. You can 
move your other material into that device, take it with you. 
This is mine, which we think is a pretty cool thing. You put it 
into that device. You marry up those songs that you marked 
without listening to. It's not like the old days, when you 
pressed a button. You're not listening; you're marking the 
songs you want with metadata, and then, you're marrying it up 
in a consolidated library, taking that little portable device 
with you wherever you want.
    It's really cool. It's a fantastic little device. The 
problem is it's something that it really isn't, and that is it 
is radio becoming ITunes.
    Mr. Boucher. I have a limited period of time here. Let me 
just note this, and then, I'm going to pass to the real 
question I want to ask, which is to Mr. Glickman.
    Every time that music is transmitted by satellite by XM or 
Sirius, the compensation goes to the recording industry, to all 
copyright holders. This is all done pursuant to licensing. So 
if the compensation isn't right, and if people are making this 
greater use of it, I'm sure that's going to get reflected in 
the negotiations down the road. I need to leave this and go on 
to another subject.
    Mr. Glickman, I just want to give you an opportunity to 
respond to the question I asked earlier, which you gave a 
terrific answer. I listened to every word of it, but I didn't 
hear the answer to the real question. And so, let me phrase 
the----
    Mr. Glickman. Is this the answer you wanted or the real 
answer? [Laughter.]
    Mr. Boucher. No, it was just any answer you choose to give. 
But I'd like it addressed to the question, and the question is 
this: I see no reason why, if we're going to authorize a 
broadcast flag, we should allow the flag to be applied to news. 
Ms. Sohn said it very well: nobody packages news for later CD 
sales or DVD sales. And it should not be applied to public 
affairs programming.
    Let me give an example, just this example: I'm on the road. 
I'm a candidate for reelection. My opponent, clever as he is, 
well funded, as I am sure he will be, keeps producing these 
troublesome television ads, and because I'm constantly on the 
road with my laptop, my staff wants to be able to email these 
TV ads to me.
    Now, my opponent is not gracious enough to give us a hard 
copy of these things. We have to record them off the air. And 
so, what my staff does is record it off the air, convert that 
ad into an email, send me the email. Now, if that's flagged, 
they can't do that. So it's a public affairs program, this ad 
is, and I could cite many, many other examples.
    So my question to you is I don't think your industry is 
harmed if we authorize the broadcast flag and do it in a way 
that says that news and public affairs programming is not 
eligible to be flagged, and I would just like your response to 
that.
    Mr. Glickman. I'm willing to talk to you about it. I would 
say this, that again, I want to make sure there is parallel 
treatment between cable, satellite and over-the-air broadcast, 
because if there's not, then, nature abhors a vacuum, and the 
vacuum will come in there. Second of all, I would say that 
there are an awful lot of video news services now out in the 
marketplace, as I'm sure you're aware much more than when I was 
in this business.
    And so, the market has come in to fill that gap fairly 
adequately, but, you know, look: the heart of our position is 
we want nothing that will, in fact, cause the end of over the 
air television to occur during this time period.
    Mr. Boucher. Okay; so we'll talk about it.
    All right, thank you very much. Thank you, Mr. Chairman.
    Mr. Smith. Thank you, Mr. Boucher.
    Does the gentlewoman from California have an additional 
question? She is recognized.
    Ms. Lofgren. I referred to it just briefly before my time 
ran out on the first set of questions, but I'd like to ask the 
Mr. Petricone, is that how you pronounce it?
    Mr. Petricone. Petricone.
    Ms. Lofgren. Petricone.
    On the so-called analog hole, you know something, I really 
hate that. It's like we're in the analog world right now, and I 
don't feel that I'm in a hole, but I'll just state that.
    The bill refers to CGMS-A and veil technologies, and it 
also, in section 107, says the Patent and Trademark Office can 
adopt improvements to veil technology but that they shall be 
limited to adjustments or upgrades solely to the same 
underlying veil technology. Now, what strikes me about this is, 
number one, I don't know whether these technologies have been 
through some sort of industry standard setting process or how 
they arrive; whether this is just a Government mandate, and how 
we're going to envision technology innovation with this draft 
provision.
    Do you have a comment on that?
    Mr. Petricone. Sure; before I comment on that, I'd just 
like to comment on something Mr. Bainwol said. Mr. Bainwol and 
I agree on something, which is the MyFi device he has in front 
of him is an incredibly cool device. It was introduced last 
year at the Consumer Electronics Show. The consumer response 
has been terrific. There has been no indication of harm to the 
recording industry. It's a great product.
    Ms. Lofgren. Well, maybe he'll hold it up again, and we 
can----
    Mr. Bainwol. Time shifting is really cool. Distribution is 
not.
    Mr. Petricone. The down side, unfortunately, is that under 
this bill we're looking at today, that product would be 
illegal. Section A would permit recording only in increments of 
no less than 30 minutes' duration, and that records for longer 
than 30 minutes. And this is an issue our industry faces. Every 
time we try to introduced a product that allows consumers to 
use content in a new and more flexible way, like MyFi, like 
Slingbox and so on, we either face legislative hurdles or 
litigation, and frankly, it is becoming a very difficult 
environment for American innovators, and that is Exhibit A.
    As far as responding directly to your question, our 
concern, I think, is a slightly different concern, and that is 
CGMS-A is widely known within the technology industry. It's 
been talked about; we understand it. Veil is largely unknown. 
We're not sure how it operates. We're not sure what the impact 
would be on plain and ordinary and regular uses of devices. I 
guess most critically, we have no idea what the licensing and 
intellectual property situation is and where it would be used, 
who would require licenses. And that is one of our most 
significant reservations about this bill.
    Ms. Lofgren. You don't know who holds the patent, if 
anyone?
    Mr. Petricone. At this point, we do not know, so both from 
the patent side and the operational side, veil is a bit of a 
mystery to us.
    Mr. Glickman. May I disagree?
    Ms. Lofgren. Sure.
    Mr. Glickman. And not that I'm--there's more acronyms in 
this business than there are even in the Pentagon, but just so 
that you know, this didn't come out of the blue. There have 
been extensive discussions with a variety of working groups, 
technical working groups from the industry, and I'm talking 
about the technology industry, and as I've indicated, too, the 
largest companies, neither of whom, I understand, have an 
interest in these technologies; IBM and Thompson endorsed it as 
a way to try to deal with this problem.
    And then, but what we've done in the legislation is we have 
thought that the appropriate people to try to issue the regs 
were the Patent and Trademark Office.
    Ms. Lofgren. Well, it's a very unusual role for the Patent 
Office to play and one I would be very--given the state of 
pendency at the Patent Office and the other problems they have, 
I would be very reluctant to assign something like that to the 
Patent Office at this point.
    Mr. Glickman. But we would be willing to work with this 
Committee to massage this if necessary, but the idea was that 
through a long period of time, a lot of technology companies 
said this is a way to----
    Ms. Lofgren. If I may, and maybe people can give some 
thought to this, I think we almost always do better if there's 
private sector standard setting, and there can be a 
multiplicity of standards, and let the market select which 
standard works best. And you could, I guess, have somebody 
certify it, but so far, that process has served, you know, all 
of us pretty well, and I would recommend that we think through 
alternatives such as that.
    Mr. Glickman. If I just--I don't disagree with you, but in 
some cases, especially in this interface between technology and 
content, as you know, because you represent so much of this, 
it's very, very difficult to get people together. Mr. Bainwol 
has talked about this. And in certain cases, the Government and 
the Congress have engaged in the areas to try to get some 
standards involved. We think this is a case that's appropriate 
to do that, because we're not very sanguine that this is going 
to happen without it.
    Mr. Berman. Would the Gentlelady yield?
    Ms. Lofgren. Yes.
    Mr. Berman. It seems to me back early this year, we had 
this bill that mandated a technology that allowed certain 
technology users to filter out frames from----
    Ms. Lofgren. So parents could take the smut out of movies?
    Mr. Berman. I didn't vote for that legislation, offended by 
the idea of mandating a technology; I'm not sure that was the 
general position.
    Ms. Lofgren. It wasn't a mandate. It allowed the technology 
to be used, to correct the record.
    Mr. Berman. Yes, it said if you're going to do something, 
you've got to do it this way.
    Mr. Boucher. Parents had the option; isn't that correct?
    Ms. Lofgren. That is correct.
    I will just say we've got a long ways to go on all of this. 
I am more than eager to work with everybody for a solution that 
works. But I do think that if the Government is going to start 
micromanaging the technology, we're heading down a road that 
will probably not be pleasing to us several years from now and 
that there are ways that maybe we can work through incentives 
and disincentives in some ways that will be useful that private 
standard setting might actually be helpful. And I appreciate 
the Chairman's allowing the second questioning.
    Mr. Smith. Thank you, Ms. Lofgren.
    Thank you to all of the witnesses today as well. This has 
been very informative, obviously. There has been a little bit 
more difference of opinion on the part of the Members than is 
usual, just as there has been a difference of opinion on the 
part of the panelists as well, but it has all been informative, 
and we will move forward with your good expertise in mind.
    Thank you all for being here, and the Subcommittee stands 
adjourned.
    [Whereupon, at 4:37 p.m., the Subcommittee adjourned.]


                            A P P E N D I X

                              ----------                              


               Material Submitted for the Hearing Record

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

    There have been many positive developments in the copyright context 
during the past year. For example, The Family Entertainment Copyright 
Act was signed into law to provide better tools to prevent unauthorized 
distribution of content; the Supreme Court in the Grokster decision 
held that those that facilitate copyright infringement will be held 
directly accountable for their actions; and in response to judicial and 
legislative action, testimony at subcommittee hearing confirms that 
that universities are adopting anti-piracy technologies and instituting 
file-sharing education programs that are greatly reducing the amount of 
illegal file-sharing that takes place on campuses. But even with these 
many advances the fact that mass indiscriminate distribution of 
unauthorized copies is still an option allows piracy to remain a potent 
force.
    In addition to providing us with movies, sound recordings and 
television programs, the core copyright industry accounts for over six 
(6) percent of the U.S. gross domestic product - which translates into 
employing more then 5.48 million workers and over $626 billion dollars. 
As a result, allowing rampant piracy to continue has the potential to 
severely harm the American economy. It is already a grave threat to all 
copyright creators. Therefore, we need robust protection of creativity 
to support everyone--from the most famous artists, to the unrecognized 
set designer; from the shareholders and executives of studios and R&D 
record companies, to the many thousands of hourly wage earners who work 
for them.
    Perhaps what many fail to realize is that strong protection of 
intellectual property is also necessary to benefit the consumer. 
Without adequate safeguards for content, it is easier for those in the 
creative chain to fall prey to piracy, and this jeopardizes the 
authors' and creators' ability to continue engaging in additional and 
new creative endeavors and content creation. Clearly, with fewer 
original projects, in the end, the consumer will have less choices.
    Our goal is to provide consumers with a first rate, rich and 
abundant selection of music and movies, in any format, at any time and 
at any place. This kind of accessibility to music and movies, however, 
creates a tension for content owners, who though they want to widely 
distribute their works, also need to protect the content of their works 
from unauthorized copying and distribution. Content owners do need to 
rely on the development of new and inventive technologies for 
distribution in order to provide the consumer with superior selection 
and accessibility. We must, therefore, be careful to not allow consumer 
considerations and technology inventors to trump our concerns for 
creators, and vice versa. There must be an appropriate balance which 
fosters creativity of new expression, innovation of new products and 
accessibility to creative works. However, with the seemingly daily 
advances in technology, the much needed equilibrium is off-kilter, 
leaning away from creators.
    This hearing is much different that previous discussions of piracy. 
Many of the issues surrounding Peer-to-Peer file sharing involved 
clearly bad actors. But here, I believe, we are trying to bring the 
``good guys'' into the process.
    We all generally agree that creators must be adequately compensated 
for the value of their works. I suppose the question today is how. 
Truly adequate compensation would probably involve providing a full 
performance right for sound recordings. Truly adequate protection 
measures would also prevent abusive use of technology when 
redistributing copies in both the digital or analog realm.
    The passage of time and design of new functionalities in devices 
has compelled us to re-examine the patchwork in the Copyright Act to 
determine whether some of the provisions need to be altered to address 
lack of suitable copy protection or the need for limitations on 
retransmission mechanisms. Ideally content protection systems will be 
developed that are both secure for the distribution but are not 
intrusive to the legitimate expectation of consumers. However, as 
technologies become more sophisticated and gain more interactive 
functionalities, this balance may have to be recalibrated. We may also 
need to engage additional partners (Commerce) to help us.
    The market is an exciting place right now. New technologies are 
emerging to help bring the consumer many additional options for how 
they receive their content - HD radio devices are being installed in 
cars, XM Satellite has a new service, many television sets contain 
broadcast flag technology and a number of players are currently in the 
market which can re-convert the analog signal to digital content. We 
must ensure that as each of these technologies is rolled out they are 
complying with the spirit of the copyright law - which at its core 
demands rightful compensation and adequate protection for the creator.
    I look forward to hearing from the witnesses to describe the 
challenges they face - and the effect legislation would have on helping 
them meet those challenges.

                              ----------                              

   Statement of the Honorable John Conyers, Jr., a Representative in 
                  Congress from the State of Michigan

    A creator's right to their intellectual property would be 
meaningless without the ability to enforce it. It is Congress's job to 
make sure that copyright owners are able to protect their content from 
theft, whether it is in analog or digital form.
    It is worth repeating that copyrighted content serves as this 
nation's number one export. The sale of music, movies, games, books, 
and other media provides our economy with billions of dollars in annual 
revenues. Creators of such content depend on their ability to sell 
their work in order to employ thousands of artists, writers, and 
programmers in this country.
    Unfortunately, the same technologies that enhance our educational 
and entertainment experiences are being used to deprive creators of 
their livelihoods. Several software programs were written for the sole 
purpose of allowing free access to copyrighted content. The copyright 
laws, in general, and the Digital Millennium Copyright Act, in 
particular, have helped combat these acts of theft.
    While these laws have encouraged copyright owners to release their 
content in digital form, a new problem has arisen. Creators have 
developed technology to protect their work, but not all devices obey 
such technology. If creators cannot ensure the viability of their anti-
piracy efforts, they will be resistant to transitioning away from 
analog content and toward digital content. Such resistance would be 
unfortunate but understandable; that is why we must ensure there are no 
loopholes in copyright law.
    In closing, I would suggest that the need to plug loopholes in the 
law should not be used to trade on other proposals. Providing necessary 
content protection is directly related to the transition to digital; 
without such protection, there will be no digital content and no need 
for new electronic devices.

                              ----------                              

 Statement of the Honorable Adam Schiff, a Representative in Congress 
                      from the State of California



                              ----------                              

 Letter from Fred von Lohmann, Senior Staff Attorney for Intellectual 
                Property, Electronic Frontier Foundation



                              ----------                              

                   Statement of Broadcast Music, Inc.



                              ----------                              

Letter from Thomas M. Bracken, Vice President, Worldwide Marketing and 
 Communications, Thomson Services SBU to the Honorable Lamar Smith, a 
   Representative in Congress from the State of Texas, and Chairman, 
    Subcommittee on Courts, the Internet, and Intellectual Property



                              ----------                              

         Statement of the National Association of Broadcasters

    The National Association of Broadcasters hereby submits this 
statement to the House Judiciary Committee's Subcommittee On Courts, 
The Internet, and Intellectual Property. NAB supports the provisions of 
the discussion draft before the Subcommittee giving authority to the 
Federal Communications Commission to re-instate the DTV broadcast flag 
previously adopted by the Commission. In contrast, with regard to the 
portions of the draft related to copy protection for new digital audio 
broadcasts and receivers, NAB has reservations. As explained below, NAB 
is concerned that such anti-copying measures would almost certainly 
stall the digital radio transition without solving the unauthorized 
copying problems of the recording industry.

The DTV Broadcast Flag

    NAB supports Congress' providing the FCC with specific authority to 
re-instate its regulations implementing a broadcast flag for digital 
television adopted in 2003. The DTV broadcast flag mechanism was 
developed over many years of intense negotiations by scores of 
participants from a wide array of industry sectors. The purpose, 
concept and methodology of the DTV flag were then the subject of 
voluminous comments and reply comments from affected industry and 
consumer groups, companies and organizations. The FCC scrutinized these 
comments, heard in-person presentations from many interested parties 
and concluded that the purpose of preventing widespread indiscriminate 
re-distribution of digital video content over the Internet was worthy 
and that the methodology was sound and workable. Although the D.C. 
Circuit Court of Appeals ultimately decided that the FCC lacked 
authority to impose these regulations, the policy remains valid and 
should be implemented. This Subcommittee and the Congress as a whole 
should endorse legislation making the FCC's authority to promulgate 
regulations in this area clear.
    The DTV flag will help insure that high value digital video 
programming will not migrate off free, universal, over-the-air 
television to platforms that can assure protection for such programming 
against widespread, unauthorized and indiscriminate internet 
distribution. Without such protection, NAB fears that content owners 
will withhold high-value productions from broadcast television and thus 
that the television medium that is available for free to all in this 
country will be reduced to carrying second-rate shows rather than 
continuing to be the envy of the world as it is today. The flag can 
preserve, for the benefit of all viewers, the ability of free 
television to attract and broadcast high quality content. Consumers win 
when today's system of free broadcast television remains robust and of 
the highest quality.
    It is particularly important that the protection of the broadcast 
flag apply to all programming on broadcast stations, and thus NAB 
opposes any attempt to exempt local broadcasters' news or public 
affairs programs from the protection of the flag. While broadcasters 
freely and widely distribute their news and public affairs programming, 
they should retain the right to protect their copyrighted news and 
public affairs programs, which typically are the main or only product 
of local broadcasters. Unauthorized internet redistribution could well 
eviscerate the program exclusivity of news or public affairs programs 
of stations in local markets, as well as undermine the original 
broadcast and its accompanying revenue by re-distributing programs 
across time zones, thus allowing Internet viewing before the original 
show is seen on local stations in western U.S. markets. Such results 
would wreak havoc on stations' audience ratings and advertising 
revenues, not to mention their network relationships.
    It would be ironic indeed if the DTV broadcast programming that is 
produced in the new digital format (whose claim to fame is high 
quality) by DTV broadcasters (who will have spent billions to convert 
to DTV) could wind up degraded by compressed re-distribution and 
distributed to the detriment of those stations and networks.
    It is important to recognize that the DTV flag will not prevent 
consumers from copying broadcast footage for personal and family use. 
The flag is intended to prevent indiscriminate and widespread Internet 
distribution that could result in commercial copying and re-sale should 
not be facilitated by considering an exemption of broadcasters' news 
products from the protection of the broadcast flag.
    In sum, NAB also supports Congress' giving the FCC authority to re-
instate the DTV flag because the flag protects consumers' expectations 
about freely copying television content for personal use in the digital 
world.

Digital Radio and Copy Protection

    In contrast to our support of the DTV broadcast flag, NAB has 
concerns about current proposals for digital radio copy protection. At 
the outset, NAB wants to make clear that it opposes piracy in all 
shapes and forms. Broadcasters are, themselves, victims of piracy of 
their content and their signals and support efforts to protect both, 
and to prosecute violators.
    The Recording Industry Association of America's (RIAA) has 
expressed concerns regarding the possibility of indiscriminate 
recording and distribution of musical recordings from digital radio 
broadcasters. NAB here raises several points about RIAA's proposals. We 
see significant differences between the RIAA proposals and the DTV 
broadcast flag. We are concerned that these proposals could well slow 
new digital radio service yet fail to achieve meaningful benefit.
    NAB is greatly concerned that developing and implementing a 
technical system to provide copy protection, particularly one involving 
encryption of the broadcast signal, would have an inevitable negative 
impact on the digital radio transition currently being rolled out. 
Arriving at a consensus on a technical copy protection mechanism would 
not be a simple or swift matter.
    Most troubling is RIAA's suggestion of encrypting the digital radio 
signal. This is likely to risk stalling the digital radio transition by 
requiring a change in the technical digital radio broadcasting standard 
of such magnitude that a year's delay and likely more would be 
inevitable. Resulting uncertainty in the marketplace and potential loss 
of confidence and interest in IBOC by manufacturers now ready to roll 
out IBOC receivers would harm broadcasters and threaten the public's 
receiving the advantages of digital radio. There has been as of yet no 
investigation of what kind of encryption would be utilized, what copy 
control and re-distribution measures would be added (and acceptable to 
various stakeholders) and what features receivers can and cannot employ 
in terms of storage and replay.
    Encryption of IBOC transmissions, even at this early stage, would 
likely result in obsolescence of millions of units of IBOC components 
currently in the production pipeline, including receivers, integrated 
circuits and installed component parts in automobiles, thereby 
increasing manufacturers' and auto makers' frustration with deployment 
of IBOC products.
    Encryption and copyright protection considerations with regard to 
digital radio differ in important ways from the DTV broadcast flag. The 
DTV broadcast flag does not involve copy restrictions (as does RIAA's 
proposal for digital radio) but rather precludes only indiscriminate 
re-distribution of broadcast programming over the Internet. The DTV 
broadcast flag does not disable the existing base of ``legacy'' 
receivers, which will simply not ``read'' the flag and its instructions 
on re-distribution. As noted above encryption of IBOC signals would 
obsolete receivers now in the field as well as receivers and component 
parts currently in the production pipeline. With the DTV flag, there 
was an acknowledged problem and a consensus solution developed by a 
broad cross-section of industry participants; here there is neither.
    For the foregoing reasons, there remain serious questions about 
both the need for additional legislation to protect sound recordings 
with respect to over-the-air digital broadcasts and the methods by 
which that protection should be accomplished.

                              ----------                              

American Library Association v. Federal Communications Commission, 406 
                                F.3d 689



                Analog Hole Legislation Discussion Draft



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                    Analog Hole Legislation Summary



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                    Analog Hole Legislation Table W



                               
                                 
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