[Senate Hearing 109-539]
[From the U.S. Government Publishing Office]



                                                        S. Hrg. 109-539
 
THE ANALOG HOLE: CAN CONGRESS PROTECT COPYRIGHT AND PROMOTE INNOVATION?

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

                                HEARING

                               before the

                       COMMITTEE ON THE JUDICIARY
                          UNITED STATES SENATE

                       ONE HUNDRED NINTH CONGRESS

                             SECOND SESSION

                               __________

                             JUNE 21, 2006

                               __________

                          Serial No. J-109-86

                               __________

         Printed for the use of the Committee on the Judiciary














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                       COMMITTEE ON THE JUDICIARY

                 ARLEN SPECTER, Pennsylvania, Chairman
ORRIN G. HATCH, Utah                 PATRICK J. LEAHY, Vermont
CHARLES E. GRASSLEY, Iowa            EDWARD M. KENNEDY, Massachusetts
JON KYL, Arizona                     JOSEPH R. BIDEN, Jr., Delaware
MIKE DeWINE, Ohio                    HERBERT KOHL, Wisconsin
JEFF SESSIONS, Alabama               DIANNE FEINSTEIN, California
LINDSEY O. GRAHAM, South Carolina    RUSSELL D. FEINGOLD, Wisconsin
JOHN CORNYN, Texas                   CHARLES E. SCHUMER, New York
SAM BROWNBACK, Kansas                RICHARD J. DURBIN, Illinois
TOM COBURN, Oklahoma
           Michael O'Neill, Chief Counsel and Staff Director
      Bruce A. Cohen, Democratic Chief Counsel and Staff Director





















                            C O N T E N T S

                              ----------                              

                    STATEMENTS OF COMMITTEE MEMBERS

                                                                   Page

Hatch, Hon. Orrin G., a U.S. Senator from the State of Utah......     2
Leahy, Hon. Patrick J., a U.S. Senator from the State of Vermont.     4
    prepared statement...........................................    96
Specter, Hon. Arlen, a U.S. Senator from the State of 
  Pennsylvania...................................................     1
    prepared statement...........................................   129

                               WITNESSES

Burton, LeVar, National Board Member, Directors Guild of America, 
  Los Angeles, California........................................     2
Cookson, Chris, President of Technical Operations and Chief 
  Technology Officer, Warner Brothers Entertainment Inc., 
  Burbank, California............................................    10
Glickman, Dan, Chairman and Chief Executive Officer, Motion 
  Picture Association of America, Washington, D.C................     6
Shapiro, Gary J., President and Chief Executive Officer, Consumer 
  Electronics Association, Washington, D.C.......................     8
Sohn, Gigi B., President, Public Knowledge, Washington, D.C......    14
Zinn, Matthew, Vice President, General Counsel and Chief Privacy 
  Officer, TiVo Inc., Alviso, California.........................    12

                         QUESTIONS AND ANSWERS

Responses of LeVar Burton to questions submitted by Senator 
  Specter........................................................    26
Responses of Charis Cookson to questions submitted by Senator 
  Specter........................................................    35
Responses of Dan Glickman to questions submitted by Senator 
  Specter........................................................    39
Responses of Gary Shapiro to questions submitted by Senator 
  Specter........................................................    46
Responses of Gigi Sohn to questions submitted by Senator Specter.    54
Responses of Matt Zinn to questions submitted by Senator Specter.    61

                       SUBMISSIONS FOR THE RECORD

Burton, LeVar, National Board Member, Directors Guild of America, 
  Los Angeles, California, prepared statement....................    74
Cookson, Chris, President of Technical Operations and Chief 
  Technology Officer, Warner Brothers Entertainment Inc., 
  Burbank, California, prepared statement........................    80
Glickman, Dan, Chairman and Chief Executive Officer, Motion 
  Picture Association of America, Washington, D.C., prepared 
  statement......................................................    90
Miller, Scott P., Executive Vice President, Veil Interactive 
  Technologies, St. Louis, Missouri, prepared statement..........    97
Shapiro, Gary J., President and Chief Executive Officer, Consumer 
  Electronics Association, Washington, D.C., prepared statement..   105
Sohn, Gigi B., President, Public Knowledge, Washington, D.C., 
  prepared statement.............................................   114
Zinn, Matthew, Vice President, General Counsel and Chief Privacy 
  Officer, TiVo Inc., Alviso, California, prepared statement.....   131
































THE ANALOG HOLE: CAN CONGRESS PROTECT COPYRIGHT AND PROMOTE INNOVATION?

                              ----------                              


                        WEDNESDAY, JUNE 21, 2006

                                       U.S. Senate,
                                Committee on the Judiciary,
                                                    Washington, DC.
    The Committee met, pursuant to notice, at 9:34 a.m., in 
room SD-226, Dirksen Senate Office Building, Hon. Arlen 
Specter, Chairman of the Committee, presiding.
    Present: Senators Specter, Hatch, and Leahy.

 OPENING STATEMENT OF HON. ARLEN SPECTER, A U.S. SENATOR FROM 
                   THE STATE OF PENNSYLVANIA

    Chairman Specter. Good morning, ladies and gentlemen. Now 
that our witnesses are all here, we will proceed. We had heard 
there was a traffic problem in Washington. Shocking development 
that that would occur to delay witnesses, but we are all here 
now so we will proceed with this hearing on the inherent 
tension between protecting copyrights and stimulating 
technology.
    This is the third hearing conducted by the Committee on 
this issue. Last April, we had a hearing on the digital radio 
issue, in September on Grokster, and today's is the third 
hearing. We will take up the question of the so-called analog 
hole, which is the technological loophole that could allow 
intellectual property thieves to illegally duplicate digitally 
protected movies, video programming, and other visual creations 
that are viewed in the home.
    Content owners have incorporated anti-copying features, but 
they are not foolproof. So the object is to see to it that we 
can protect property rights and we can also do without 
curtailing innovative ideas in a very fast-moving field.
    I hosted a roundtable earlier this month on June 6th with 
the interested parties to see if we could find some area of 
compromise. When you deal in an issue of this sort with giants 
on both sides, my experience has been that it is preferable to 
see if the parties cannot find a solution among themselves as 
opposed to relying on Congress. Legislation is full of 
unintended consequences. It does not have too many intended 
consequences. So that if it can be worked out to the 
satisfaction of the people who are interested and know the most 
about it, that is the preferable course.
    Without objection, my full statement will be made a part of 
the record.
    [The prepared statement of Chairman Specter appears as a 
submission for the record.]
    Chairman Specter. Let me yield now to my distinguished 
colleague, Senator Hatch, for an opening statement.

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

    Senator Hatch. Well, we are just happy to have all of you 
here. I am more interested in listening to you and seeing what 
you feel about these matters. Of course, we want to do what is 
right, and I appreciate the Chairman holding this hearing. I 
appreciate his leadership in this matter, and I appreciate all 
of you for being here.
    That is all I have to say. I am going to listen as 
carefully as I can. Thanks, Mr. Chairman.
    Chairman Specter. Thank you very much, Senator Hatch.
    Our first witness is Mr. LeVar Burton, a National Board 
Member of the Directors Guild of America; well-known for his 
performance in the role of Lieutenant Commander Geordi La Forge 
in the television series ``Star Trek;'' also a director on such 
television programs as ``Charmed,'' ``JAG,'' ``Star Trek;'' a 
graduate of the University of California School of Theater. 
Thank you very much for joining us, Mr. Burton, and we look 
forward to your testimony.
    As you note from the time clock, we have a 5-minute rule, 
and we will start the clock back at 5.

  STATEMENT OF LEVAR BURTON, NATIONAL BOARD MEMBER, DIRECTORS 
           GUILD OF AMERICA, LOS ANGELES, CALIFORNIA

    Mr. Burton. I will get right to it then.
    Chairman Specter. Thank you.
    Mr. Burton. Thank you, Mr. Chairman, Senator Hatch, very 
much for the invitation to discuss this problem posed by the 
technology gap that you referred to earlier as the ``analog 
hole.''
    As you stated, I am here today on behalf of the Directors 
Guild of America, and I am a National Board Member, and the 
Directors Guild today represents over 13,500 directors and 
members of the directorial team who work in feature film, 
television, commercials, documentaries, and news. The DGA's 
mission is to protect the economic and creative rights of 
directors and the directorial team, and we are working to 
advance our artistic freedom and to ensure fair compensation 
for our work.
    Now, during the making of a film, directors are actually 
running a multi-million-dollar business--a business involving 
hundreds of people and a myriad of details and decisions that 
have to be made each day to keep the production on schedule and 
on budget. Whether it is the crafting of a single scene or the 
visual creation of a character from the written page, the 
director is always working to tell the story. That is what we 
do. This is not an effort we take lightly, and it is not 
uncommon for a director to put years of work into a single 
production.
    We want you to know that the DGA places the highest 
priority on the prevention of widespread pirating of movies, 
television programs, and other creative works. And, indeed, the 
entire film production industry--from studios to independent 
production companies, directors, writers, actors, and the tens 
of thousands of below-the-line workers, both skilled and 
unskilled--has a tremendous stake in the ever-growing problem 
of piracy.
    Now, when the film industry is mentioned, what first and 
foremost comes to people's minds is generally the popular image 
of glitz and glamour and the wealth of Hollywood. But like that 
proverbial iceberg, that is just a small part of the picture.
    Yes, our industry is concentrated in Los Angeles and New 
York, but, in fact, the film industry exists in every State in 
the country. And, yes, there are some luminaries known the 
world over who are fabulously wealthy. But, in fact, most 
directors and others who work in our industry are very much 
unknown to the public. We work behind the camera, and the 
overwhelming majority of jobs in our industry are held by what 
we call ``below-the-line workers''--the people whose names 
scroll by at the conclusion of a film. These are the set 
designers, the carpenters, sound technicians, painters, 
drivers, lighting technicians, make-up artists, seamstresses, 
and so many other jobs, often amounting to hundreds of hours of 
work on a film. And they are no different than workers in other 
industries whose jobs are understandably important to you 
Members of Congress.
    And those are just the employees of the production company. 
The filming of a movie and a TV program also generates 
substantial employment for scores of small businesses that 
provide supporting services and equipment for the filming of a 
movie, from highly skilled computer technicians and artists at 
special effects companies, to caterers, dry cleaners, security 
personnel, and others who work for the companies that support 
film production.
    For directors, writers, actors, and the many craftspeople 
we work with, film and television production involves years of 
creative effort and hard work to put a vision on the screen. 
For the studios and the investors, it involves tens, if not 
hundreds, of millions of dollars to make that vision a reality. 
Today, the average studio film costs, believe or not, nearly 
$100 million to make and market.
    Obviously, this involves a high risk for almost everyone 
involved, and it means that it is never easy to get a film 
financed--a reality faced by every one of us who is in this 
business. I want you to consider that many films do not 
actually retrieve their investment from theatrical 
distribution.
    Most films made for theatrical release require large 
capital investments, and these are highly risky investments 
since their return cannot be known at the outset. Yet today, 
theatrical receipts account for less than 30 percent of the 
income received from studio films, and that means that sales in 
ancillary markets--from DVDs to pay and free television, which 
are most at risk from unauthorized copying--are critical if 
films are to recoup their investments. Quite simply, without 
the revenue from these ancillary sales, pictures would just not 
get made today.
    Clearly, the willingness and capacity of producers to 
invest in film and digital television is undermined when our 
creative works are illegally copied, whether in analog or 
digital form, by casual users or mass-produced production 
facilities, over the Internet, or by hard disk. When a greater 
share of potential income is siphoned off--stolen as a result 
of piracy--risk rises, financing becomes more difficult, we are 
not able to make our films, and American jobs are lost. That is 
the bottom line.
    For directors and for the DGA, this is the fundamental 
concern with piracy: that the siphoning off of revenue from 
ancillary markets will result in fewer films being made, which 
means less opportunity for us, as creators, to make the films 
and television shows for the American public.
    I see that my time is ticking away. There is more I would 
love to say.
    Chairman Specter. It is not ticking away. It is up.
    Mr. Burton. It is up.
    [Laughter.]
    Chairman Specter. But if you have another thought to 
express, go ahead, Mr. Burton, and summarize.
    Mr. Burton. Well, just to summarize, Senator, obviously 
there are people in Hollywood who make a lot of money doing 
this, and there are many concerns that are expressed by both 
sides of this equation. We at the DGA want this Committee to 
know that we represent hundreds and thousands of working people 
who are doing their jobs every day, raising their families, and 
that the issue of piracy is one that is of great concern to us. 
And whatever help you can give on this issue, we are most 
appreciative, and thank you for your leadership on this 
problem. And good morning, Senator Leahy.
    Senator Leahy. Good morning.
    [The prepared statement of Mr. Burton appears as a 
submission for the record.]
    Chairman Specter. Thank you very much, Mr. Burton, and I 
now yield to our distinguished Ranking Member, Senator Leahy.

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

    Senator Leahy. Thank you, Mr. Chairman, and, Mr. Burton, 
thank you. I have read your testimony, I am glad I got in for 
this hearing, and it is good to see you again.
    Mr. Burton. It is good to see you, too, Senator.
    Senator Leahy. I was actually at a breakfast, Mr. Chairman, 
where this was the major discussion, and it went on a lot 
longer than I thought it was going to. That is why I am 
delayed.
    I am also glad to see Mr. Zinn, who is in the same class as 
my eldest son at UVM. We treat everybody fairly by mentioning 
he was with my eldest son at the University of Vermont.
    The so-called analog hole is a major issue, and content 
owners are concerned over this gap in copy protection of their 
digital works. The analog hole, as others will describe, opens 
up when digital input is converted into an unprotected analog 
form so it can be viewed clearly on the millions of analog TV 
sets in households across the country. It is something that 
people our age may not well understand, but our 12-year-old 
neighbors could very easily understand. That analog content, as 
Mr. Glickman knows, could then be reconverted into unprotected 
digital form and put on the Internet. And, of course, once it 
falls into that hole, it has lost all digital protection.
    The possibility that this digital-to-analog-back-to-digital 
transformation could facilitate indiscriminate redistribution 
of copyrighted video content is real. As we have learned from 
past experiences--the unfettered illegal sharing of content 
over peer-to-peer networks that cost the copyright industries 
millions of dollars--there are many reasons to work hard to end 
the infringement of copyrighted goods. The theft of goods--Mr. 
Burton mentioned the number of people employed who lose jobs, 
but also Congress just has an overall obligation to help ensure 
that copyrighted materials are protected.
    But the balance I have always had trouble with is this: I 
do not yield to anybody in my concern about copyright matters. 
Senator Hatch and I have worked over the years many, many times 
on this issue, as have Senator Specter and I. If somebody has 
got a copyrighted material and they have worked hard and they 
have done it, they ought to be able to profit by it. If nobody 
likes it, if nobody wants to buy it, that is fine. Then they do 
not make anything. On the other hand, if somebody really likes 
it, they ought to get compensated for that. Your business 
models may have to change in how you do things. None of you are 
going to be investing huge amounts of money into brick-and-
mortar stores to sell your product. But you are going to be 
investing a lot in trying to sell them in other ways.
    I worry that technology invariably moves faster than 
legislation, and many times you are far better equipped to know 
what is going to work and what consumers will buy. The inexpert 
hand of Government is not as effective as the relevant markets 
in moving assets and interests to their best uses.
    So we are trying to find the best thing. I think it is 
clear that we have to make sure that a copyright is a 
copyright. But we also have to make sure that we do not put a 
heavy Government brake on technology. We were asked to do that 
once years ago, I remember, on this Committee when the first 
VCRs were coming out, and we were afraid people might copy a 
movie off television. And we were told that a lot of the movie 
companies wanted to be able to sell their movies at $125 a 
copy. I said, ``Well, why don't you sell them at $10 a copy or 
$15?'' Now everybody knows, Mr. Glickman and others know that 
with every movie made, you have to think of what is the after-
sale on DVD.
    So let's find the best way, but also let's find the best 
way if somebody has a copyrighted material, it ought to mean 
that not only here, but my last point would be for those who 
may be listening, whoever is in the administration has got to 
do a tougher and better job around the world in getting other 
countries to respect this. You cannot have China just do a 
photo op when they are trying to get the Olympics in Beijing, a 
photo op of crushing pirated material, when out back of the 
same building they are selling five times more than they just 
destroyed.
    So, Mr. Chairman, this is very timely and I applaud you for 
having the hearing, and seeing my friend Senator Hatch here, he 
and I have sat through an awful lot of these hearings in the 
past.
    Chairman Specter. Thank you very much, Senator Leahy.
    We turn now to our second witness, Mr. Dan Glickman, 
Chairman and CEO of the Motion Picture Association of America; 
had been President Clinton's Secretary of Agriculture; 18 years 
in the House of Representatives; bachelor's degree from 
Michigan and a law degree from George Washington University. On 
his official resume, I do not see his most important attribute. 
He was born in Wichita, Kansas.
    Mr. Glickman, we are delighted to have you here. I might 
add by way of an addendum, at least in my view the most 
important attribute, I was also born in Wichita.
    Mr. Glickman. I heard that before I came to this hearing 
today.
    Chairman Specter. I left in 1942 to make room for Dan 
Glickman, who arrived in 1944.
    [Laughter.]
    Senator Leahy. And, Mr. Chairman, if I might--
    Chairman Specter. But I left on Highway 96, and he arrived 
at the Wesley Hospital.
    Senator Leahy. You do do backgrounds on these guys.
    [Laughter.]
    Senator Leahy. I might also mention that my youngest son is 
this week in Wichita in flight training. I mean, we get this--
anyway.
    Chairman Specter. Senator Hatch, what do you have to say 
about Wichita?
    [Laughter.]
    Senator Hatch. I look at this bunch of characters and they 
leave me dumbfounded, I tell you.

    STATEMENT OF DAN GLICKMAN, CHAIRMAN AND CHIEF EXECUTIVE 
  OFFICER, MOTION PICTURE ASSOCIATION OF AMERICA, WASHINGTON, 
                              D.C.

    Mr. Glickman. Well, we citizens of Wichita appreciate it, 
Senator, and thank you all for having this hearing. And I want 
to thank you for the opportunity to talk about the analog hole, 
which is a fairly obscure term, but, frankly, an avenue for 
massive infringement of copyrighted material protected under 
the law. We have a hole here that has the potential of massive 
leakage of copyrighted material. So the question is how we deal 
with this particular problem.
    My friend LeVar has talked a little bit about the impact on 
the copyrighted industries. The film industry has a positive 
balance of trade with virtually every country in the world. It 
is an enormous job creator. However, the viability of this 
creative output is reliant upon our ability to protect it from 
being devalued by theft, and this is where the problem occurs. 
We are in the digital future, as Senator Leahy talked about. 
That will allow viewers to watch virtually any movie at any 
time, at any place, at prices dictated by a competitive and 
thriving marketplace.
    In my statement, I talk about our studios and our companies 
are expanding their distribution channels to harness new 
technologies to deliver content in a variety of ways. I have 
listed Disney, Warner Brothers, NBC Universal, MTV Networks, 
Fox, and every one of our companies and others are taking 
advantage of this digital marketplace right now by offering all 
sorts of options.
    However, while the industry embraces the many opportunities 
of the future, it must deal with the ever present threat of 
theft.
    The pilfering of our films costs our industry approximately 
$6.1 billion a year. Noncommercial copying of movies for family 
and friends, which is a large part of what we are talking about 
here today, costs our members an estimated $1 to $1.5 billion 
each year. 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, much of which is attributable 
to movie theft.
    We are embracing digital rights management technologies so 
that we can offer consumers more choices at greater varieties 
of price points. People may want to purchase a permanent copy 
of a movie. Others may want to only watch it once and do it at 
a lower price. However, to maintain that distinction, we need 
to provide technical safeguards to ensure that the consumer who 
opts to take advantage of a time-limited viewing option at one 
price is not, in fact, getting the benefit of the sale option. 
Otherwise, the price of the time-limited model will naturally 
migrate toward the sale model, all of which is to the detriment 
of the honest consumer.
    In the DVD area, we have done this, and we have developed 
copy control mechanisms to ensure that, in fact, that content 
is protected. But there are some areas where private sector 
solutions have not worked. The analog hole is an example of an 
area where assistance is needed.
    When digital content protected by digital rights management 
technology is converted to analog form for viewing on legacy 
analog television equipment--that is, existing TVs, for the 
most part--the content is stripped of all its digital 
protections. This analog content then can be redigitized ``in 
the clear,'' without any protections whatsoever. The 
redigitized and completely unprotected content can then be 
efficiently compressed, copies, 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 
various problems--leading to the opportunity for massive 
copyright infringement of protected items.
    This is not an idle concern. Some manufacturers voluntarily 
design analog-to-digital conversion devices to respond to 
analog copy protection information, such as one called CGMS-A, 
other markets devices specifically designed to exploit the 
analog hole. I have one here. We will leave it with the 
Committee so you can take a look at it. This stripper is one 
example of a device specifically designed and marketed to take 
advantage of the analog hole. These bad actors are reaping a 
windfall at the expense of motion picture companies and 
ultimately consumers, and good actors are placed at a 
competitive disadvantage.
    Closing the analog hole would place analog-to-digital 
conversion devices on an equal footing with all digital devices 
by maintaining the integrity of digital rights management 
measures. My testimony talks about the bipartisan solution in 
the House sponsored by Congressmen Sensenbrenner and Conyers 
known as ``CGMS-A plus VEIL.'' It provides a practical degree 
of protection. It has been the subject of intense scrutiny by 
technology and content communities, as well as other interested 
parties, and there is a broad consensus on the nature of the 
selections that should be considered. Indeed, three major 
technology companies, I think all members, if I am not 
mistaken, of Mr. Shapiro's organization--IBM, Thomson, and 
Toshiba--have publicly endorsed the CGMS-A plus VEIL technical 
solution.
    So I appreciate the fact of coming here. I want to restate 
the problem again. Because of this hole, we have an avenue for 
massive copyright infringement which will negate the economic 
value and basis of the production of movies and other video 
content which will hurt not only Mr. Burton's clients and 
people he represents, but everybody in this industry.
    We look forward to working with you, as well as our 
colleagues here at this table, to find an appropriate solution, 
but we think that the legislative solution is warranted. And 
thank you very much, Mr. Chairman.
    [The prepared statement of Mr. Glickman appears as a 
submission for the record.]
    Chairman Specter. Thank you very much, Mr. Glickman.
    Our next witness is Mr. Gary Shapiro, President and CEO of 
the Consumer Electronics Association, also Chairman of the Home 
Recording Rights Coalition; was an assistant to Congressman 
Mickey Edwards; Phi Beta Kappa graduate from State University 
of New York, a double major--economics and psychology; and a 
law degree from Georgetown.
    We welcome you here, Mr. Shapiro, and the floor is yours.

  STATEMENT OF GARY J. SHAPIRO, PRESIDENT AND CHIEF EXECUTIVE 
  OFFICER, CONSUMER ELECTRONICS ASSOCIATION, WASHINGTON, D.C.

    Mr. Shapiro. Thank you for this opportunity to testify on 
the so-called analog hole. We understand the movie industry is 
concerned about what consumers may do with content that they 
have absolutely lawfully acquired. This concern has led to yet 
one more request to Congress to expand copyright law and even 
to dictate how products can be designed and used. We believe 
that this most recent request is a bad solution in search of a 
problem, and we ask you to consider that every time that 
Congress accedes to the content community request, someone else 
is paying the price, whether in terms of higher prices, 
unavailable products and features, or even higher litigation 
costs. Indeed, the historic vast expansion of copyright law 
these last few years was supposed to end with the inducement 
language of the Supreme Court, but that case appears to be just 
the beginning. The content community is aggressively pushing 
new legislation that would impose new design mandates on our 
products, and the analog hole mandate is just one of those 
proposals.
    Mr. Chairman, in your opening statement, you referred to 
intellectual property thieves, and I just heard my two 
colleagues talk about piracy and thieves and theft. But yet, as 
Mr. Cookson points out in his written statement, the analog 
hole mandate does not even address piracy. This is what he 
says: ``These technologies are not intended to resist 
determined commercial pirates. They are designed to provide 
normal consumers with a way to determine that they are crossing 
the line.''
    This is determined to frustrate consumers doing what they 
are supposed to be able to be doing in their home, which is 
shifting content around. Yet these technologies that they are 
advocating are complex, untested, and would cripple millions of 
consumer products and would have huge implications on many non-
consumer technologies.
    Let me tell you how the Hollywood community views this 
proposal. The industry magazine called Variety recently ran a 
story headlined, ``Biz Balks as MPAA Digs Hole for Itself.'' 
The sub-head says, ``Analog problem requires complex copyright 
protection scheme.'' The story describes how a motion picture 
industry audience responded with ``dubious groans'' when the 
MPAA's own top engineer described this so-called solution and 
that he expected it would be retailers who would be the ones 
who would have to explain it to disenfranchised consumers. The 
article states, ``The final question summed up the problem. 
This is a roomful of people whose living depends on this 
working. You are getting pushback to the point of hostility. If 
you can't sell it to us, how are you going to sell it to the 
target 16 to 45 demographic?''
    Yet the MPAA is pushing this complex, Rube Goldberg 
proposal which will distort devices to get at some theoretical 
harm. Where is the proof of harm? Where is the need for 
legislation? Indeed, there is no evidence at all that the 
analog hole is contributing to any motion picture industry 
problems. Don't believe me. Look at the evidence. MPAA's own 
website states that 90 percent of pirated copies come from 
handheld camcorders. And an independent AT&T study found that 
77 percent of movies on P2P networks were leaked by movie 
industry insiders. Which ever of these studies is correct, it 
does not have to do with the analog hole.
    And even if there were some real harm, the only proposal we 
have seen on this, H.R. 4569, is so broad and so unfocused that 
it would eliminate real products that served needs and hurt no 
one, like the great Slingbox, which I could talk more about 
later.
    In fact, this bill, the legislation, starts with the 
premise that the thing to be protected is something called ``a 
covered format.'' MPAA, in its inter-industry discussions, has 
had 10 years to figure out what the video resolution of such a 
format would be and to define it and how many semiconductor 
components and pieces of software would be covered. They have 
not. They want under this legislation to leave it to the Patent 
and Trademark Office after Congress has decided that a mandate 
should be put in place.
    This fundamental drafting hole suggests one of two things: 
either they are afraid to admit the breadth of the hardware and 
software to be covered, or the technology is changing so 
rapidly that they are afraid to put a definition in the bill.
    One key concern is there are two required copyright 
protection technologies. One is VEIL. Its cost and operation 
are unknown. You cannot even assess the VEIL technology unless 
you pay a $10,000 fee and promise not to talk about it. So how 
can Congress mandate a technology which is incapable of being 
discussed and reviewed? How can we even comment on it? But I do 
trust our member, Texas Instruments. They oppose this proposal 
and point out in documents attached to my written testimony 
that the VEIL own documents indicate the VRAM watermark does 
not work 42 percent of the time, and it actually caused a 
noticeable difference in 29 percent of the test clips. Asking 
Congress to mandate a secret technology which may affect visual 
performance and illegitimize many products is really quite an 
ask.
    Another unanswered question is VEIL's licensing status. I 
would like to conclude with this: Other countries are busy 
developing their technology industries to compete with ours, 
but we are here facing and fighting proposals and a massive 
amount of litigation which is bankrupting some of my own 
members under existing laws which suppress new technologies 
simply to preserve old business models. We have prospered 
recently as a country because of these same technologies. We 
are a nation of individual creators, and our creativity cannot 
and should not be solely defined by a handful of large 
companies. There are all sorts of things from the Internet--
mixing technology, blogging, mashing, and home video editing--
which have made millions of Americans creators and fostered 
websites like iTunes, YouTube, and others. If you want to block 
the hole, the analog hole, we are also blocking Americans from 
exercising their fair use rights and sampling--
    Chairman Specter. Mr. Shapiro, how much more time will you 
need?
    Mr. Shapiro. One minute. There is a new breed of Americans 
which are your constituents, and they are our consumers. They 
like to TiVo, timeshift, playshift, and manage their content, 
and I can't imagine they want the law changed to deny this 
right.
    Thank you for this opportunity. We want to work with you to 
continue this historic digital revolution and our Nation's 
leadership in content creation, entrepreneurship, and 
creativity.
    Thank you.
    [The prepared statement of Mr. Shapiro appears as a 
submission for the record.]
    Chairman Specter. Thank you, Mr. Shapiro.
    Our next witness is Mr. Chris Cookson, Chief Technology 
Officer and President of the Technical Operations at Warner 
Brothers; previously had been Vice President and General 
Manager of the Operations and Engineering Division of CBS, 10 
years at ABC; undergraduate degree and an MBA from Arizona 
State University.
    Thank you for coming in today, Mr. Cookson, and we look 
forward to your testimony.

 STATEMENT OF CHRIS COOKSON, PRESIDENT OF TECHNICAL OPERATIONS 
  AND CHIEF TECHNOLOGY OFFICER, WARNER BROTHERS ENTERTAINMENT 
                   INC., BURBANK, CALIFORNIA

    Mr. Cookson. Thank you, sir. Chairman Specter, Ranking 
Member Leahy, thank you for inviting me to testify today. In 
2002, Richard Parsons, our Chairman at Time Warner, testified 
before this Committee and identified that the analog hole was 
one of the challenges facing the audiovisual industry in its 
transition from the analog world to the digital world that 
could not be addressed purely in the marketplace but would 
require, in fact, some kind of Government intervention. Today, 
I would like to focus on three aspects of this issue: enabling 
consumer choice, respect for copyright, and the fact that this 
is a transitional issue that gets us from where we have been to 
where we are going.
    We are in transition from an analog world where we used to 
live to a digital world which faces us in the future. The 
analog world had order and structure that delineated the 
choices we had. For instance you could go and rent a VHS or you 
could buy a VHS. If you did not take it back, you knew you were 
going to pay more than if you just rented it.
    Unauthorized copies in that world degraded badly, and none 
of us really had the capability of transmitting content to 
other people.
    A fully digital world will also allow for this distinction 
between consumer choices. Technologies like encryption can be 
used to authorize access based on how a consumer wants to use 
content and the terms under which it is offered. For example, 
in the digital world you can choose to watch once. You can 
choose to have a copy to watch for a week. You could choose to 
keep a copy in a library and so on. The choices actually in the 
digital world can be unlimited. But the key thing is the 
consumer can decide which uses they want to make.
    The digital world also allows for unsecured content to be 
copied and transmitted quickly, inexpensively, easily, and 
endlessly, and with no loss of quality.
    Today, we are in the middle of that transition where 
content is delivered predominantly to our homes in digital 
form, and the problem is we mostly still have old analog TVs. 
And so the digital content that comes to us in digital form 
with rights management associated with it has to be descrambled 
and put into an analog form to get the last 3 feet from the top 
of the set to the back of the set. When that happens, all the 
protections are lost and the content can be easily redigitized, 
resulting in nearly perfect files, which can then be copied 
endlessly and retransmitted.
    Consumers need and deserve a clear understanding of the 
terms of an offer that they can accept and the bounds of the 
functionalities that they will receive. We expect that most 
consumers will respect copyrights when the offer is perceived 
as fair, when the offer is understandable and easy to use, when 
the quality of service meets their needs, and the outlines of 
what the agreed uses are are clear. A clear understanding when 
the attempted use crosses the lines then helps to make a better 
definition of the offer, and the consumer then understanding 
what they got.
    Our job is to figure out how to make appealing, fair, 
understandable choices available to consumers, and we are 
trying hard. Today, the products which analog inputs, such as 
some we have brought today, make it more difficult for 
consumers actually to understand what the deal is. If I can put 
a copy in my library when I take the offer that said view once 
and it is easy and it is done with things I bought in a regular 
on an open market, am I foolish if I pay the price to buy it to 
put into my library? And if the price for Pay-Per-View includes 
the ability to put it in my library, can I really get a cheaper 
price if I really say I really want to watch it only once? Or 
do we all have to pay the same price no matter what use we want 
to make?
    The misapprehensions of this approach that Mr. Shapiro 
mentioned actually come from, I think, a lot of 
misunderstanding and some bad information about what is 
included. I would be glad to go into more detail about what is 
included, but there is no implication here for F-16s, as I have 
seen said, or for toasters or for other devices. We are 
focusing narrowly and only on those devices which a consumer 
would buy that have the ability to digitize analog. And those 
devices and only those devices are involved.
    It will not eliminate my TiVo. I have several TiVos. I like 
my TiVos. They are fed directly from digital satellite. Most 
personal recorders in the TiVo class are fed directly by 
digital satellite or cable, and they are already subject to the 
kinds of controls we are suggesting that the analog hole 
measures would induce.
    The advantage of this approach is that it is very narrowly 
focused. It deals only with those devices which have the 
capability to digitize analog. Other people have suggested the 
answer is just banish analog outputs. We think that that is a 
flawed approach because it ends up hurting those who can least 
afford it. The people who have analog TV sets should be able to 
expect to receive a service life of those TV sets which they 
were designed to give when they were new.
    Thank you very much.
    [The prepared statement of Mr. Cookson appears as a 
submission for the record.]
    Chairman Specter. Thank you, Mr. Cookson.
    Our next witness is Mr. Matt Zinn, Vice President, General 
Counsel, and Chief Privacy Officer of TiVo Incorporated; 
previously had been a senior attorney of broadband law and 
policy for Media One; also had been corporate counsel for 
Continental Cablevision; bachelor's degree from the University 
of Vermont and a law degree from George Washington University.
    A thumbs up from Senator Leahy, Mr. Zinn, and we look 
forward to your testimony.
    Senator Leahy. And classmate of my son.
    [Laughter.]

STATEMENT OF MATTHEW ZINN, VICE PRESIDENT, GENERAL COUNSEL, AND 
      CHIEF PRIVACY OFFICER, TIVO INC., ALVISO, CALIFORNIA

    Mr. Zinn. Chairman Specter, Ranking Member Leahy, and 
Senator Hatch, thank you very much for the opportunity to 
present TiVo's concerns about this proposed legislation that we 
believe would inhibit innovation and have profound consequences 
for consumers' expectations as to how they can use lawfully 
acquired content. TiVo is a 400-person Silicon Valley company 
that makes products that allow consumers to have flexible use 
of lawfully acquired content such that they can watch what they 
want to watch, when they want to watch it, and where they want 
to watch it.
    We are very concerned about piracy. We think that is a 
laudable goal, and we take a lot of steps to make sure that 
content does not get pirated by using strong encryption. 
However, we are also very sensitive to the needs of consumers 
who want to have flexibility to make use of content for their 
own personal noncommercial uses, such as in the home.
    I am not sure what the problem is here because nobody has 
talked about an analog hole problem. Mr. Burton has talked 
about piracy, but there is no linkage between his testimony and 
the analog hole. Mr. Glickman has talked about the potential 
for massive infringement through the analog hole, yet nobody 
has demonstrated a dime of lost revenue due to the analog hole. 
So, you know, we need to identify what we are talking about 
here. Is it piracy? Is it indiscriminate redistribution of 
content over the Internet? We need to identify what the problem 
is.
    If it is piracy, analog to digital conversion is not what 
pirates use to copy DVDs and pirate content. They use digital-
to-digital conversion tools, such as the types of things that 
are discussed in Maximum PC magazine for this month. And if 
pirates were to even use the analog hole, then the combination 
of CGMS-A and VEIL would not stop a pirate. They are very easy 
to defeat by people who are determined to defeat those tools. 
So the only people who are affected by this legislation are 
ordinary, honest, law-abiding consumers who will have their 
rights stripped away so that Mr. Cookson can make more money by 
charging every time you play a show. Basically, Mr. Cookson is 
trying to remove the ``L'' from the ``Play'' button and make it 
a ``Pay'' button. Every time you watch something, you have got 
to pay.
    Now, the legislation mandates that we use a technology 
called VEIL, which is an untested technology, as Mr. Shapiro 
has said, and it is a technology that has been hand-picked by 
the studios. It seems crazy to me that Congress would mandate 
that consumer electronics companies have to use a technology 
that has not been vetted by the companies that would have to 
use it. And VEIL presents us from a patent perspective with a 
massive problem. I have to use a certain technology mandated in 
a certain way, and I have got no protection if I get sued for 
patent infringement. You only have to look at the BlackBerry 
settlement of a couple of months ago for $612 million to 
understand the kind of damages I am talking about here for 
using technology that I did not even ask to use. So that kind 
of exposure should be reason enough to question this kind of 
legislation, but that is not all. We have criminal and 
statutory penalties of $2,500 per device just to comply with 
the robustness rules, and the robustness rules require us to 
protect against hackers using ordinary tools.
    Now, I do not think consumer electronics companies can make 
a device that could withstand hackers. Hackers can pretty much 
hack any device today, and so this legislation would put me in 
jeopardy of Draconian penalties from day one because I cannot 
build a device that can withstand hackers.
    So at the end, I feel that this legislation is really not 
about piracy. It is about exerting control over consumers' uses 
of lawfully acquired content, and the types of things that 
would be prevented by this legislation would be I could not 
move a show from the living room to the bedroom if I get tired 
and I want to watch a show in the bedroom. Pat Reilly could not 
make a DVD of Dwyane Wade's latest moves in the last game so 
that he can watch the next game when he is on a plane. And I 
could not, you know, transfer a copy of ``The Crocodile 
Hunter'' from the Discovery Channel to my laptop so I can watch 
it at a place more convenient.
    I am not a pirate, and these are not piracy. The MPAA may 
think they are piracy, but these are fair uses. And I see no 
reason to change the balance of copyright law to prohibit these 
uses just so that the content industry can make more money for 
people watching content that they have already paid to watch.
    So, in summary, the analog hole is not the problem. We 
believe in protecting content from piracy, but this is not the 
problem. This is a solution in search of a problem. Copy 
controls on legitimate consumer use are different than piracy 
prevention. These are two different things we are talking 
about, and manufacturers should not have to bear the burdens 
and the liabilities, and consumers should not have their 
freedoms restricted for a problem that has not even been really 
vetted. So we urge the Congress and this Committee to take a 
hands-off approach to the analog hole and to let the affected 
industries deal with this problem.
    [The prepared statement of Mr. Zinn appears as a submission 
for the record.]
    Chairman Specter. Thank you very much, Mr. Zinn.
    Our final witness is Ms. Gigi Sohn, President and co-
founder of Public Knowledge, an intellectual property and 
technology public interest group; previously served as project 
analyst at the Ford Foundation's Media, Art, and Culture Unit; 
also was Executive Director of Media Access Project; summa cum 
laude graduate from Boston University with a degree in 
broadcasting and film, and a law degree from the University of 
Pennsylvania.
    Thank you very much for joining us today, Ms. Sohn, and the 
floor is yours.

    STATEMENT OF GIGI B. SOHN, PRESIDENT, PUBLIC KNOWLEDGE, 
                        WASHINGTON, D.C.

    Ms. Sohn. Thank you, Mr. Chairman, Ranking Member Leahy, 
and Senator Hatch. Thank you for inviting me to testify today.
    I want to focus on the impact of efforts to close the 
analog hole on consumers, so I bought a couple of props to 
help. Here is a video iPod. It is one of the most advanced 
personal digital devices available, but it has an analog 
connector right here on the underside. With a $20 analog cable, 
you could connect this to your television and watch your 
legally downloaded videos on your analog TV.
    Here is a DVD player, also equipped with analog connectors 
on the back. These multicolored video and audio outputs allow 
you to watch your legally purchased DVDs on your television. 
You have probably seen similar outputs on the back of your VCR, 
TV, digital video camera, TiVo, or video game consoles. These 
analog outputs are the analog holes that the content industry 
wants you to close.
    What would closing the analog hole mean for consumers? For 
one, it would restrict lawful uses of technology, like 
recording television shows onto a computer or moving recorded 
content from one device to another over a home network. These 
uses may not be authorized by the content industry, but they 
are 100 percent legal.
    Second, closing the analog hole could make obsolete 
hundreds of millions of consumer devices. Devices that are 
purchased before an analog hole mandate goes into effect may 
not work with devices purchased after. There is no transition 
period and no backward compatibility.
    Third, to the extent that such a mandate results in costs 
to device manufacturers, they will inevitably be passed on to 
the consumer.
    Fourth, closing the analog hole will restrict, if not 
eliminate, the making of fair-use excerpts of DVDs or other 
digital media for blogs, videos, or classroom use. This is 
because the DMCA makes it illegal to circumvent digital access 
controls for any reason, even if that use would be lawful under 
fair use.
    The analog hole is an important legal and technical 
solution to this problem. Indeed, both the Copyright Office and 
the MPAA have said that the analog hole should be the only way 
for consumers to be able to engage in fair use of protected 
digital media. By now asking Congress to close the analog hole, 
the content industry is playing a shell game that consumers 
will lose.
    Now, let me just say, for Mr. Cookson, I think consumers 
are smarter and they know what the limits of copyright are. 
But, in any event, those are limits that the law should set, 
not that Time Warner or Fox or Disney should set. The 
legislation introduced in the House would codify these consumer 
harms. I get into detail in my written testimony, but let me 
just say for those of you who have been involved in patent 
reform, this would impose duties on an inexperienced and 
overworked Patent and Trademark Office in an area where they 
have really no expertise and put them in charge of oversight of 
a vast number of consumer electronics and computer devices.
    I note that Hollywood has offered no real evidence that 
analog-to-digital conversion is being used for indiscriminate 
redistribution of copyrighted works. Indeed, much of the 
testimony submitted to you today focused on hard goods piracy 
and infringement resulting from the use of computers and 
digital networks. The way to fight these problems is not by 
removing an important means for consumers to lawfully use the 
digital media and technology they purchase. Instead, the 
content industry should use the many legal, technical, and 
marketplace tools at their disposal, including the Supreme 
Court's Grokster decision, which allows content owners to sue 
manufacturers and distributors of content who actively 
encourage illegal activity. This directly addresses Mr. 
Cookson's concern that some analog to digital device 
manufacturers encourage infringement.
    The Family Entertainment and Copyright Act, which makes it 
illegal to bring a camcorder into a theater or leak pre-release 
movies; lawsuits against individuals who engage in wholesale 
infringement over peer-to-peer networks; agreements between 
content companies and Internet service providers to crack down 
on piracy while protecting individual privacy; and digital 
rights management tools that are marketplace driven, not 
Government mandated.
    Of course, the best deterrent to widespread infringement 
are business models for online content delivery that are 
reasonably priced, easy to use, and flexible. To Hollywood's 
credit, it is starting to experiment with different business 
models. We believe that Congress should allow the market to 
work before it adopts a technology mandate that, on balance, 
will hurt consumers far more than it would help the industry.
    I would like to close with this thought. When Congress was 
considering the DMCA 8 years ago, the content industry assured 
legislators that this would be the last law that they would 
seek to limit consumers' lawful uses of digital media. But in 
that time, we have seen proposed law after proposed law 
intended to further limit consumer rights and which impose a 
variety of innovation taxes on the technology sector. In this 
Congress alone, no fewer than five bills in both Houses would 
tip the copyright balance even further toward the content 
industry. This is nothing more than a carefully planned, long-
term assault on honest consumers to make them pay multiple 
times for uses that the law still considers fair.
    Members of this Committee, legislation to close the analog 
hole would be profoundly anti-consumer and have no effect on 
piracy. I urge you to reject technology mandates and thereby 
preserve the careful balance inherent in our copyright laws. 
Thank you.
    [The prepared statement of Ms. Sohn appears as a submission 
for the record.]
    Chairman Specter. Ms. Sohn, do you think the Congress 
should take seriously any representation by anyone saying this 
is the last legislative fix we will ever ask you for?
    [Laughter.]
    Ms. Sohn. I think you answered your own question. We could 
go through the history. In fact, I don't know if you saw the ad 
that the CEA put in The Hill about the many times the content 
industry has come hat in hand to this body asking them 
essentially to preserve their old business models. Or they have 
gone to court.
    Chairman Specter. We have noticed they are coming, but not 
hat in hand.
    [Laughter.]
    Chairman Specter. Mr. Glickman, lots of information about 
piracy from you and from the Department of Justice, but can you 
quantify any direct connection between piracy and the analog 
hole?
    Mr. Glickman. We have just completed a major study called 
the LE case study which estimates that our companies lose about 
$6.1 billion a year in piracy, and as part of that--
    Chairman Specter. OK. I mean from analog--I have only got 5 
minutes.
    Mr. Glickman. OK, $1 to $1.5 billion in what we call 
noncommercial copying of movies for family and friends. We 
believe a big part of that is due to the analog hole.
    Chairman Specter. How do you arrive at the figure of $1.5 
billion?
    Mr. Glickman. The firm did worldwide and national piracy 
study focus groups. The methodology we considered to be quite 
good.
    Chairman Specter. Well, let me ask you to supplement your 
answer with the specifics as to how you come to that 
conclusion.
    Mr. Glickman. Sure, be glad to.
    Chairman Specter. We would like to see the methodology 
because before we really tackle the problem, we want to know--
before we really look for a solution, we would like to have a 
specification of the problem.
    Mr. Glickman. We will get you that, Senator.
    Chairman Specter. Mr. Shapiro, you have marvelous 
technology, phenomenal. With all of the technological advances 
and the ingenious devices, why not an answer to prevent 
duplication? Is as much time spent on trying to avoid 
duplication as is spent on these new devices, to sell these 
devices to the consumers? I enjoy them as much as anybody, but 
why not a real technological effort to find a way to prevent 
duplication?
    Mr. Shapiro. We believe that Americans believe and have the 
right under the Sony Betamax case to shift the content they 
have lawfully acquired in time and in place and to manage it. 
And that is a fundamental disagreement. This is not about 
piracy. This is about taking content that you have lawfully 
acquired and being able to use it elsewhere. What you heard 
from Mr. Cookson is they want to charge more every time you 
play a product. This is all about price discrimination.
    We have embraced CGMS-A. We have tested it out. It is even 
in a CEA standard. Actually, most of our manufacturers are 
using CGMS-A. They have tested it and are comfortable with it.
    This other thing called VEIL that no one has ever really 
seen or tested because you cannot talk about it and you have to 
pay a license fee is what concerns us most. But our products 
respond to Macrovision; our products respond to CGMS-A. We have 
worked very closely--we have developed a DVD standard with the 
motion picture industry that everyone is comfortable with.
    Chairman Specter. Well, you talk about products legally 
acquired. That is really sort of a rabbit in the hat. Mr. 
Cookson has sent up an SOS, and before recognizing his hand 
signals, I would like to pose a question to him. How do you 
respond to this point that Mr. Zinn is making and Mr. Shapiro 
just made again that it is legally acquired? And Mr. Shapiro 
pointedly said to you, Mr. Cookson, you want to charge more 
money every time they play one of those Warner Brothers films.
    Mr. Cookson. Well, one of the things that I wanted to 
address is that all three of the people surrounding me here 
have spoken about your ability to timeshift, to watch something 
later, to watch it in another room of your house, the ability 
to take a clip of a basketball game and--
    Chairman Specter. Come to grips with the issue on legally 
acquired. Has it been legally acquired and--
    Mr. Cookson. It is legally acquired, yes, sir, and the--
    Chairman Specter. And should there be a limit--it is 
legally acquired. Should there be a limit then as to its use?
    Mr. Cookson. There is no limit proposed to the use of those 
things they spoke about. What I wanted to say and the reason I 
gave the SOS is that there is a misunderstanding. There is no 
proposal to limit the ability to timeshift, the ability to take 
content from your living room to your bedroom, the ability to 
take something off of a basketball game and record it onto a 
disk and watch it on an airplane. Those are all preserved in 
the bill as proposed, because most content, in fact, is marked 
for copying one generation and marked for the use in 
timeshifting. Only in very special cases things like video on 
demand, Pay-Per-View, or recorded media where you can control 
when the watching takes place is there a copy-never provision.
    So it was not proposed by any of these that the things that 
they have mentioned would not be used in the way that they say 
it ought to be used.
    Chairman Specter. Mr. Zinn, you had an SOS. I cannot ask 
you a question because my red light is on, and I do not permit 
anybody to do it, including me. But if you want to followup on 
your hand signal, go ahead.
    Mr. Zinn. If copies are marked one generation and I copy it 
to my DVR, then I cannot make a DVD of it. I cannot transfer it 
from one DVR to another DVR, and I cannot transfer it from one 
DVR to a laptop to make flexible use of what is admittedly 
lawfully acquired content.
    Mr. Cookson. Here, again, this is a misunderstanding, sir. 
The technologies in the marketplace already that Mr. Shapiro's 
company has created and there are in place such as the 5C 
technology permit the copying to a DVR and then the moving to a 
DVD. So I think a lot of the opposition that you are seeing 
here today is really based on a lack of understanding of the 
technologies that have already come to market and the way that 
it is proposed that they be used.
    Chairman Specter. Have you fellows finished your private 
debate now without intervention by the Chair?
    Senator Leahy?
    Senator Leahy. I love the debate.
    Again, I go back to what I said. I do not want to step on 
technology. I want the people who produce these things to be 
able to get paid for it and the people who have a legitimate 
interest, a normal interest, whether it is a performer, a 
writer, a producer, whomever, whoever is involved in the 
copyright, whatever the entity doing the copyright negotiates 
with the people who are involved in there but must share the 
profits they get, and that is fine. Nobody here is going to 
dictate that. I just want to make sure you get it.
    Also, though, I think back to the days of the VCRs where if 
Congress had stepped in and basically put the brakes on 
technology, we could have been in a very serious area. So we 
have to have that balance. And there is nobody--you are 
probably the most knowledgeable people we could possibly have 
here, but none of you are going to be willing to tell me what 
the technology is going to be 10 years from now. You are 
working on what it is going to be a year from now or 2 years 
from now.
    I want to get back to the money part. Secretary Glickman, 
who is an old friend of all of ours, you talked in your answer 
maybe it is around $1.5 billion from your study. And, Mr. 
Burton, what do you think it is?
    Mr. Burton. You are asking me, Senator, what I think the 
annual loss of--
    Senator Leahy. The analog hole problem, what are the actual 
losses in your mind?
    Mr. Burton. Well, I do not pretend to have all of the 
statistics, but I do know that as Senator Specter mentioned in 
my introduction, one of the things I am most known for is 
``Star Trek.'' I have been in this business for a long time, 
almost 30 years.
    Senator Leahy. You had a pretty impressive role before 
``Star Trek,'' too, sir.
    Mr. Burton. Well, I do not mean to make any of us feel old, 
but next year we will celebrate the 30th anniversary of 
``Roots'' airing for the first time in this country, and there 
has been a lot of water under that bridge between then and now.
    But ``Star Trek,'' I think it is safe to say, is pretty 
popular worldwide, and its popularity is what makes it 
vulnerable to this kind of piracy. It was determined that in 
2005 that were over 57,000 worldwide auctionsites of DVDs of 
movies and television that were available for sale, but those 
DVDs had not been released to the public as yet.
    Senator Leahy. I understand that, and also with the time 
limitations here. Does anybody--I mean, can we put an actual 
handle on this? What I am worried about, if you have, for 
example, $6 billion in worldwide piracy, and if this is around 
$1 billion worth, do we have bigger areas that we should be 
looking at, for example, our treaties by other countries, the 
enforcement of those treaties?
    You are always going to have some form of piracy, just as 
you are going to have somebody come into a bookstore and 
shoplift a book. And we can create all kinds of penalties for 
piracy, but creating penalties or defining technology are two 
different things.
    Mr. Glickman. If I might--and we are going to get the 
Committee the information Senator Specter has requested. First 
of all, you are right, we are never going to be able to stop 
piracy. We have to stay ahead of it and control it through a 
myriad of ways, from enforcement and education and 
international treaties.
    There is no question you have leakage with the analog hole; 
that is, you have digitized content that goes through the whole 
and--
    Senator Leahy. But, Mr. Glickman, you also have leakage 
when some of your movie theaters do not keep strong enough 
controls. You are going to have leakage when you go into more 
digital projection in your movie theaters.
    Mr. Glickman. That is true. The question here is: Is the 
leakages going to be like the levees around New Orleans after 
Hurricane Katrina? That is, do we believe that this hole is so 
vulnerable that the leakage will become a flood or an 
avalanche? In our judgment, that is, in fact, the case.
    Senator Leahy. Now, I will go back. You and I will have 
more chance to discuss this, but my time is running out.
    Ms. Sohn, you say that there are other uses of the analog 
hole that have no adverse effect on the movie industry, like 
transferring old home movies to DVDs, something that, with the 
movies of my kids when they were little, now I am able to do, 
classroom use, and so on. If we bring up this legislation, how 
do we not stop that sort of thing?
    Ms. Sohn. Well, one of the things that I recommended in my 
testimony, which will sound familiar to all of you, I think, is 
some sort of environmental impact statement. I really think you 
have to take the balance of what the impact would be on honest 
consumers, and I really do think that conflating honest 
consumers who want to transfer their home movies or who want 
to, you know, do video blogs using an excerpt of a DVD using 
the analog hole, you have to consider that, I mean, 
particularly--and balance that against the harm, the alleged 
harm to the industry.
    I think we have made it pretty clear here that the things 
that the industry is complaining about are not going to be 
resolved by the analog hole. But it really, really needs to be 
balanced against what the consumers' harm is here. In my 
environmental impact statement, the harm to consumers would far 
outweigh the benefits to the industry here.
    Senator Leahy. Mr. Cookson had his arm up. He is the boss.
    Chairman Specter. You go ahead.
    Mr. Cookson. I just wanted to clear up one thing. The 
proposal that is on the table would have no impact at all on 
your ability to digitize and record and transmit or do anything 
you want to with your own personal content because you would 
not have marked the content with any of the marks that would 
suggest it would be controlled. So that is something that I 
think is one of those misunderstandings that was mentioned.
    Chairman Specter. Mr. Shapiro, you wanted to comment. Go 
ahead.
    Mr. Shapiro. I have a number of comments.
    First of all, there is an article, ``The Problem with the 
MPAA's Shocking Piracy Numbers.'' It points out that the 
methodology has not been released and, indeed, that they are 
inflated, and, in fact, it is inside the U.S. The U.S. is 
already the tightest country in the world in terms of fighting 
piracy. It is one of the few countries to make the 
circumvention of DVD access controls illegal. It is working out 
very well, and this would carry us into the extreme of the 
extreme in terms of getting every last drop, and it would hurt 
consumers.
    Second of all, again, the MPAA website says 90 percent of 
the piracy is people in camcorders in movie theaters, which 
Congress just made illegal. Now, Mr. Cookson keeps on saying 
that this would not affect any legitimate behavior of 
consumers. What it clearly would affect is their ability to use 
their own content in a way that they would wish, and at some 
point he is going to say exactly what it covers, what the 
legislation would cover, because the way we read the 
legislation, it covers absolutely every product with an analog 
output unless the Patent and Trademark Office says it does not, 
which includes literally thousands and thousands of products. 
And as Ms. Sohn said, you are talking about if this goes into 
effect, the products in people's homes downstream from that 
product would be rendered unusable. So if you just bought a new 
Yamaha Surround Sound processor, you spent $3,000 on it. 
Congress legislates, there is a mandate, you have a box which 
all of a sudden you cannot get your product in your TV set. And 
that is why the reaction of consumers to this proposal, if it 
is enacted, afterwards is going to--the retailers and the 
manufacturers are going to have to bear the burden of that, 
explaining why the products they sell just do not work.
    Chairman Specter. Mr. Cookson, if you have another 
rejoinder, would you please make it brief?
    Mr. Cookson. It is another misunderstanding, sir, and so I 
think that we need to clear up that there are no controls over 
analog outputs at all. Those are all handled through private 
contracts. It is only the devices that do the digitizing with 
the analog input that we are talking about. The numbers in the 
MPAA website refer to the early window theatrical piracy, which 
is 90 percent, from theatrical screens. That is before the DVD 
has come out to copy. The DVD then becomes the source of piracy 
as soon as people can replace the camcorder from the screen. 
And so the data is being misconstrued a bit, sir.
    Chairman Specter. Senator Hatch?
    Senator Hatch. Well, I want to thank all of you for being 
here. This has been an interesting hearing to me. But one 
frequent criticism I hear about the analog content protection 
legislation that was introduced in the House is that it covers 
virtually all devices that contain an analog-to-digital 
converter, including airplanes, cars, MRI machines, measurement 
equipment, and even some high-end toaster ovens.
    Mr. Cookson and Mr. Glickman, how do you respond to that 
type of criticism? And, additionally, should we consider having 
some sort of a primary purpose test to ensure that devices are 
not typically used to handle the conversion of commercial video 
content, that they are not covered by legislation in this area? 
And anybody else who would care to answer after Mr. Cookson and 
Mr. Glickman, I would be happy to--
    Mr. Cookson. Yes, sir, if I could. The necessity that we 
see is to focus as tightly as possible on the fewest possible 
devices, and there are analog-to-digital converters in F-16s 
and, you know, in toaster ovens and in automobiles, and those 
are not sold to consumers with the purpose of taking analog 
television and turning it into data.
    Products such as this, though, this product is a cute 
little thing that I think has a very legitimate use, as we 
mentioned, if you want to take your home movies and digitize 
them. This plugs into the front of your computer in the USB 
port. This product, though, we have no basis for dealing with 
in the contractual way that we deal with the manufacturers who 
do things like make DVD players and so on.
    So the products that are sold for the purpose of taking 
analog input video and turning it into data are the only 
products that we would seek to regulate.
    Mr. Glickman. I just would add to that. Three major 
consumer electronics manufacturers--Thomson, Toshiba, and IBM--
have basically endorsed the legislation, and I just would read 
to you from the Thomson letter: ``The hole allows for digital 
entertainment to be played in analog form and then redigitized. 
Thomson acknowledges that the analog hole is a problem that has 
not been readily solved by voluntary efforts.''
    So this is not an issue that pits the manufacturers and 
consumers and the content owners against each other. It is an 
issue that we ought to be able to embrace a legislative 
solution together.
    Mr. Shapiro. Oh, come on. Thomson is virtually out of the 
consumer electronics business. They own Technicolor, and this 
is their biggest customer sitting next to me. That is like 
saying someone from the motion picture industry has endorsed 
this legislation, congratulations.
    [Laughter.]
    Senator Hatch. I take it you smell something wrong here.
    Mr. Glickman. Would you say the same thing about Toshiba 
and IBM?
    Mr. Shapiro. First of all, IBM is not even in the 
electronics business for the most part anymore. I don't know 
what Toshiba is doing, but they did not endorse the 
legislation. What they said is they used CGMS-A as virtually 
every manufacturer does. There is not a manufacturer that you 
could show me that will embrace the VEIL technology because 
they have not seen it. And if they do see it, they are not 
allowed to talk about it. They have to pay, and they sign a 
nondisclosure agreement. So to have Congress come when this has 
not even been vetted with the industry and to say make this a 
law that has to be, you know, literally hundreds of millions of 
products, it is just--it is the biggest reach in copyright 
history.
    Senator Hatch. Mr. Zinn, I hope you can be short. I have 
one other question.
    Mr. Zinn. Just to pop up a little bit, we are getting a 
little in the weeds, but I think there is kind of a white 
elephant in the room here, and that is, we have not identified 
what the problem is. Is the problem piracy, stopping piracy? Or 
is the problem stopping indiscriminate redistribution of 
content over the Internet? Or is the problem that consumers 
have too much flexibility in the home and Mr. Cookson cannot 
make as much money as he wants from monetizing that concept?
    Senator Hatch. One of the problems is being able to 
digitize and then put it online, and that is what I think the 
movie industry is more concerned about. I don't think this is 
as big a problem as some think it is.
    Mr. Zinn. I would agree with you.
    Senator Hatch. Ms. Sohn, in your written testimony you 
assert that adopting legislation similar to what the movie 
industry has advocated would immediately ``make millions of 
consumer devices obsolete.'' Now, if the legislation merely 
contained--let's say we pass legislation that merely contains a 
prospective requirement that new devices recognize and respect 
the copy protection information, how does that make millions of 
legacy device obsolete? And won't digital converters and 
digital recorders simply continue to work as they do now?
    Ms. Sohn. Could you repeat the question one time?
    Senator Hatch. Sure. You are asserting that adopting this 
legislation, similar to what the movie industry has advocated, 
would make millions of devices obsolete. Now, if the 
legislation merely contains a prospective requirement that new 
devices recognize and respect the copy protection information, 
how does it make millions of legacy devices obsolete?
    Ms. Sohn. Well, I actually have some charts that I would 
like to submit for the record--
    Senator Hatch. Sure.
    Ms. Sohn.--with your indulgence that show exactly that. So 
here we have an example of--let's say we have analog hole-
compliant television set and a legacy Slingbox, OK? So what 
will happen is when the signal gets to the Slingbox, it will 
strip out the CGMS-A. That is what is indicated here by the 
lock. It will go to the Slingbox and out will come the VEIL 
signal, all right?
    Now, the default on the VEIL signal is copy never, so if 
you want to then see it on your mobile phone or on your 
computer, you cannot because VEIL tells you essentially that 
you can copy never. So this Slingbox, therefore, becomes 
completely and totally obsolete.
    Senator Hatch. OK. Mr. Cookson?
    Mr. Cookson. The misunderstanding in this case is that the 
VEIL presence always permits viewing. There is never a 
restriction on viewing anything. All content can always be 
displayed. The only question is whether or not it can be 
copied.
    Ms. Sohn. It is not viewing. It cannot record, so it says 
you cannot--the VEIL does not allow you to record it.
    Mr. Shapiro. If there are so many misunderstandings among 
the experts from the technology industry on this panel, I just 
cannot figure out how consumers are ever going to be able to 
deal with this and understand what occurs when they are 
frustrated. And who are they going to go to? Who is going to 
explain it? And that was the objection of the motion picture 
industry audience saying who is going to explain to consumers 
that they cannot do what they have always been doing and why 
they are not able to do that.
    Chairman Specter. Do you want to break tradition, Mr. 
Cookson, and seek recognition?
    [Laughter.]
    Mr. Cookson. I apologize, sir.
    Chairman Specter. No, no. It is the other way around. But 
you go ahead.
    Mr. Cookson. In terms of what consumers can do, as Mr. 
Shapiro pointed out--and I think it is worthy of appreciation 
on our part--many of his manufacturers do look for CGMS-A. In 
fact, there are many manufacturers who make DVD recorders that, 
if you plug into the analog input--you take the output of your 
analog, output of your DVD player, and plug it to your DVD 
recorder. The recorder will tell you it cannot copy this 
material because it is copyrighted.
    The issue we have is that that is a laudable thing for them 
to be doing, but there is no obligation to do so. Many of his 
members do that because they do recognize and respect 
copyright, and we appreciate it. There is no reason, though, 
that their competitors have to do the same thing, and we have 
seen some products come to market touting the ability to make 
back-up copies of your DVD. This product here is a product that 
does not do this.
    So a product made by one of his manufacturers that does 
look for the CGMS-A and does respond exactly as we are 
proposing today in the legislation is something consumers 
already have in the market. We are asking to level the playing 
field so that those who do not respect copyright and who do not 
look for the code would do the same as his many members today 
do do.
    Chairman Specter. Well, now we have two people seeking 
recognition. Like in the Senate, whoever sought it first. Go 
ahead, Mr. Shapiro.
    Mr. Shapiro. A brief response.
    Chairman Specter. Make it brief. We are running over time, 
but go ahead.
    Mr. Shapiro. The vast majority of companies--in fact, 
probably all of our members do have CGMS-A, and privately 
agreeing with the motion picture industry, this makes sense. If 
companies choose not to do that, and if those products are 
indeed being used in ways which violate the copyright law, then 
under the Supreme Court decision, the well-funded content 
industry can bring a lawsuit and put that company under even 
before it is determined, saying you are inducing a copyright 
violation.
    The point here is these are not copyright violations. These 
are activities that consumers are accustomed to doing. They 
want to manage. They want to TiVo. They want to shift their 
content in time and place. And that is what is being denied 
here.
    Chairman Specter. A rejoinder, Mr. Zinn, briefly.
    Mr. Zinn. Well, we keep coming back to the copying of DVDs, 
and DVDs are not copied under the analog hole. Sure, they can 
be, but that is not how you would do it. You would do it using 
DVD copying technology that is readily available on the 
Internet, and it is cheaper, and you do not need--
    Chairman Specter. And your hand is up again, Mr. Cookson?
    [Laughter.]
    Chairman Specter. Go ahead, but make it brief.
    Mr. Cookson. We are introducing new DVDs and Blu-ray disks, 
which are high definition. They have analog outputs on them. 
There is no hack. There is no way to record those things 
digitally.
    We are very concerned that we have seen new products that 
have come to market today costing as much as $1,500, but very 
soon in this price range, that digitize the high-definition 
outputs of the DVD or Blu-ray players. And there is no means 
that we can see to prevent that other than making strictly 
digital outputs for high-def and saying that the people who 
have analog outputs cannot see high-def, and I think that that 
is something we would like to avoid. And we think that if there 
is a means of getting reasonable protection from the 
digitization of the output of those high-definition signals 
other than denying high-definition to people with analog TV 
sets, that would be a better alternative.
    Chairman Specter. Well, thank you all very much. This has 
been an unusual hearing. I think that we might promote the 
quality of this hearing by having the Senators leave the room.
    [Laughter.]
    Chairman Specter. And after the Senators leave the room, 
you can continue the hearing.
    But on a very serious note, the idea of having you get 
together and try to hash it out is one which I think you ought 
to pursue. And we had a session in my office on June 6th, and I 
am prepared to do it again. But I think it would be useful if 
you met in the interim. And it may be that you ought to make a 
limitation. Senator Hatch points out the scope of the proposed 
legislation on so many lines. If you limit it to video or 
audio-video, something more narrowly focused, it might not be 
quite so complicated. Or if you are talking about patent 
infringements on mandated approaches, perhaps the legislation 
ought to provide immunity if you are doing something which the 
Government orders you to do. I am not saying that is 
necessarily going to be the result, but those are ideas you can 
come up with. You do not really need for us to do that. And if 
you find an answer jointly, you will be a lot happier with it 
than what is imposed by the Congress.
    Senator Hatch. Or the courts.
    Chairman Specter. Or the courts, right. And Senator Leahy 
notices the high-powered nature of the audience today. He was 
doing--well, you speak. He was doing a multiplication factor of 
the cost of this hearing to the principals of all those in 
attendance. It is high than when he practiced law, or I did, or 
Orrin did, on our hourly rates.
    Senator Leahy. It is about equal to the gross domestic 
product of the State of Vermont.
    [Laughter.]
    Chairman Specter. Well, thank you all very much for coming. 
This is a matter of great importance, and we want to know more 
precision about the losses. And we would like to see if 
somebody can come up with an idea as to technologically how to 
solve it. I think the great effort of technology is directed to 
finding a product that will sell on the market, and that is the 
American system, but there ought to be some efforts made to 
find a way to close the opportunities for property right 
infringements as you go along because of the serious concerns 
and the serious interests which are involved.
    Thank you all, and that concludes our hearing.
    [Whereupon, at 10:49 a.m., the Committee was adjourned.]
    [Questions and answers and submissions for the record 
follow.]


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