[Senate Hearing 109-580]
[From the U.S. Government Publishing Office]
S. Hrg. 109-580
BROADCAST AND AUDIO FLAG
=======================================================================
HEARING
before the
COMMITTEE ON COMMERCE,
SCIENCE, AND TRANSPORTATION
UNITED STATES SENATE
ONE HUNDRED NINTH CONGRESS
SECOND SESSION
__________
JANUARY 24, 2006
__________
Printed for the use of the Committee on Commerce, Science, and
Transportation
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WASHINGTON : 2006
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SENATE COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION
ONE HUNDRED NINTH CONGRESS
SECOND SESSION
TED STEVENS, Alaska, Chairman
JOHN McCAIN, Arizona DANIEL K. INOUYE, Hawaii, Co-
CONRAD BURNS, Montana Chairman
TRENT LOTT, Mississippi JOHN D. ROCKEFELLER IV, West
KAY BAILEY HUTCHISON, Texas Virginia
OLYMPIA J. SNOWE, Maine JOHN F. KERRY, Massachusetts
GORDON H. SMITH, Oregon BYRON L. DORGAN, North Dakota
JOHN ENSIGN, Nevada BARBARA BOXER, California
GEORGE ALLEN, Virginia BILL NELSON, Florida
JOHN E. SUNUNU, New Hampshire MARIA CANTWELL, Washington
JIM DeMINT, South Carolina FRANK R. LAUTENBERG, New Jersey
DAVID VITTER, Louisiana E. BENJAMIN NELSON, Nebraska
MARK PRYOR, Arkansas
Lisa J. Sutherland, Republican Staff Director
Christine Drager Kurth, Republican Deputy Staff Director
Kenneth R. Nahigian, Republican Chief Counsel
Margaret L. Cummisky, Democratic Staff Director and Chief Counsel
Samuel E. Whitehorn, Democratic Deputy Staff Director and General
Counsel
Lila Harper Helms, Democratic Policy Director
C O N T E N T S
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Page
Hearing held on January 24, 2006................................. 1
Statement of Senator Burns....................................... 2
Statement of Senator Inouye...................................... 31
Prepared statement........................................... 31
Letter and response, dated January 11-12, 2006, from David K.
Rehr, President/CEO, National Association of Broadcasters
to Mitch Bainwol........................................... 67
Statement of Senator E. Benjamin Nelson.......................... 39
Statement of Senator Smith....................................... 36
Statement of Senator Stevens..................................... 1
Statement of Senator Sununu...................................... 41
Witnesses
Bainwol, Mitch, Chairman/CEO, Recording Industry Association of
America........................................................ 44
Prepared statement........................................... 46
Band, Jonathan, Counsel, American Library Association; on behalf
of the Library Copyright Alliance.............................. 7
Prepared statement........................................... 8
Harris, Leslie, Executive Director, Center for Democracy and
Technology..................................................... 25
Prepared statement........................................... 26
Halyburton, Dan, Senior Vice President/General Manager, Group
Operations, Susquehanna Radio Corporation; Chairman, Audio Flag
Task Force, National Association of Broadcasters (NAB)......... 59
Prepared statement........................................... 60
Prepared statement of Preston R. Padden, Executive Vice
President, Worldwide Government Relations, The Walt Disney
Company; Member, National Association of Broadcasters (NAB) 56
Patton, Thomas B., Corporate Vice President, Government
Relations, Philips Electronics North America Corporation....... 17
Prepared statement........................................... 18
Setos, Andrew, President of Engineering, Fox Entertainment Group. 2
Prepared statement........................................... 4
Shapiro, Gary J., President/CEO, Consumer Electronics Association 48
Prepared statement........................................... 50
Appendix
Boxer, Hon. Barbara, U.S. Senator from California, prepared
statement...................................................... 77
Broadcast Music, Inc. (BMI), prepared statement.................. 78
Dorgan, Hon. Byron L., U.S. Senator from North Dakota, prepared
statement...................................................... 77
Sohn, Gigi B., President, Public Knowledge, prepared statement
and attachment................................................. 81
BROADCAST AND AUDIO FLAG
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TUESDAY, JANUARY 24, 2006
U.S. Senate,
Committee on Commerce, Science, and Transportation,
Washington, DC.
The Committee met, pursuant to notice, at 10 a.m. in room
SD-562, Dirksen Senate Office Building, Hon. Ted Stevens,
Chairman of the Committee, presiding.
OPENING STATEMENT OF HON. TED STEVENS,
U.S. SENATOR FROM ALASKA
The Chairman. Good morning. Our Co-Chairman will be along
in a few minutes, but he has asked that we start. So, let me
thank you all for coming today.
Some time ago, a group of us joined together and asked the
FCC to deal with the issues before us now, and this broadcast
flag was developed to protect over-air digital television
programming from piracy. The FCC adopted that broadcast flag
rule, which the consumer electronics industry had begun to
implement by developing devices that complied with its
requirements. But the court has struck down that regulation and
held that Congress had not given the Commission authority to
promulgate the rule. And that's what brings us here today, and
we are trying to address the question of whether Congress
should provide the FCC the authority to put the rule back in
place.
Groups like the American Library Association are concerned
that if Congress gives the FCC the authority to enforce the
broadcast flag, the rights of consumers and educators to copy,
watch, and share programs the way VCR recordings are shared
will be threatened. Likewise, some consumers want to make sure
that they can continue to exercise their fair-use rights to
record video programming for personal use.
It's our task in this Committee to consider industry and
fair-use concerns and to try to find the proper balance between
them. Determining how to protect audio content in the age of
digital radio and satellite has only recently gained greater
attention. The FCC has not yet acted on that front.
The creative-content side and the distribution side of the
music industry should seek mutual ground that supports business
models for both. Whether it is an audio flag or an alternative,
we seek to balance between them and encourage innovative
digital services that spur jobs, economic growth, and consumer
options like the iPod against ensuring that the creative genius
that brings us all the great pleasure to earn a return on
creative investment is encouraged.
Now, Senator Burns, do you have an opening statement?
STATEMENT OF HON. CONRAD BURNS,
U.S. SENATOR FROM MONTANA
Senator Burns. I do not, Mr. Chairman, but I appreciate you
having this hearing today, and your insight on this issue.
With the advent of digital technology, what we thought
would uncomplicate our world now is complicating it. Before, as
you know, we always talked about a lot of things, but we tend
to talk more about bandwidth than anything else when we went to
digital, because we could do some things, but we couldn't
identify signals. And now we are finding that ones and zeros
are hard to identify, whether it's voice, data, or video, and
now we're getting in a new era of really branding whose signal
it is now, that is moving, rather than the technology.
So, this is a timely hearing. It is something that the
industry itself should come to some sort of a conclusion that
would be of benefit to everybody, and with the consumers always
in mind. But it seems as though that hasn't been done yet. And
I would wonder, when government wanders into this area, there
are always unintended consequences.
And so, this hearing is timely, and I thank you for having
it.
The Chairman. Thank you very much.
I should state that, coming from a State like Alaska, as I
do come from Alaska, one-fifth the size of the United States,
we have tried to implement our education system utilizing
distance learning to the maximum extent possible. So, that's
one of our greatest concerns in this hearing today.
Our first panel is Andy Setos, President of Engineering,
Fox Entertainment Group, Los Angeles; Jonathan Band, Counsel at
the American Library Association; Thomas Patton, Corporate Vice
President for Government Relations at Philips Electronics North
America Corporation; and Leslie Harris, Executive Director for
the Center of Democracy and Technology, in Washington.
Mr. Setos, we'll call on you first.
STATEMENT OF ANDREW SETOS, PRESIDENT OF ENGINEERING, FOX
ENTERTAINMENT GROUP
Mr. Setos. Good morning, Mr. Chairman and Members of the
Committee. My name is Andrew G. Setos, and I am the President
of Engineering of the Fox Entertainment Group and the co-
inventor of the broadcast flag. Thank you for inviting me to
make a contribution to this hearing.
As the great promise of the Internet blossomed several
years ago, I became alarmed at the simultaneous phenomenon of
abuse to copyrighted works. Digital works, such as music on
CDs, that were, by necessity, distributed without the
protection of encryption, were vulnerable to looting, on a
global scale.
The wisdom of protecting digital content with encryption is
all around us--in such Internet appliances as Apple's iPod,
Sony's PlayStation Portable, and the new RCA Lyra by Thomson.
Traditional multichannel media, such as satellite and cable,
and their new competitors from the telecom sector are also
encrypting their digital transmissions. The reason is simple:
the threat of piracy undermines every legitimate distribution
business model.
However, born in a more naive age, digital broadcast
television had not contemplated such protection. This committee
had already put the DTV transition in motion, and millions of
consumers, such as myself, had started enjoying high-definition
broadcasts of our favorite programs and sporting events. This
was a dilemma of serious proportions. Here I was aggressively
participating in the rollout of DTV within FOX, yet had come to
realize that, as formulated, it had a fatal weakness.
What to do? Changing the DTV standard to employ encryption
was simply unthinkable, as it would introduce a dangerous delay
in the DTV transition and disenfranchise the most fervent
believers in high-definition television. However, without some
technical form of content protection, we all would be guilty of
unwittingly institutionalizing the slow demise of local TV
broadcasting. The ultimate reason was clear in my mind. Without
such protection, producers of high-value content would become
leery of licensing to local digital TV broadcasters, and that
would jeopardize the viability of this unique American
institution.
To meet this challenge, our goals were clear, if daunting.
One, we could do nothing that would obsolete or change, in any
way, the features of a single DTV product that had already been
sold to consumers. Two, we could not interfere with the
consumer's right to make time-shift recordings in their homes.
Three, our approach could add virtually nothing to the real
cost of the consumer product. Four, the proposal had to be
flexible and efficient to stimulate innovative technologies and
take advantage of existing commercial architectures. Five, it
had to be flexible enough to embrace the Internet. And,
finally, six, since government regulation would be needed,
something that we always try to avoid, it had to be adequately
focused to be practical.
It took a month for my colleague Scott Hamilton and I to
conceptualize and diagram our idea, but what ensued was a 5-
year odyssey that brings me here before you today. On the way,
Intel made an important technical contribution. We built
consensus, first, one on one with companies such as Thomson,
IBM, Sony, and Panasonic. We petitioned the Advanced Television
Systems Committee to standardize the technical details of the
flag itself, which they did. The Broadcast Protection
Discussion Group was formed, which I had the privilege of co-
chairing, along with representatives from Intel and Mitsubishi.
This open forum attracted dozens of members from worldwide
industry and other interested parties. I met, for over a year,
with meetings lasting into the wee hours of the morning, and
delivered a consensus document to the FCC for their
consideration.
At the FCC, an intensely public process of review
transpired, which resulted in the FCC adopting the broadcast
flag regulation. Unfortunately, the Federal court struck down
the regulation, solely on jurisdictional grounds.
Along the way, there have been many critics. Most of the
concerns were due to misunderstandings. My favorite was that
the flag would ban home recording of television. Of course, it
does not. And to those who would say that high-definition
content is too cumbersome to indiscriminately redistribute over
the Internet, two points to ponder. Twelve years ago, it took 8
hours to download a single song from the Internet. Now it takes
but moments.
And the CEO of Verizon, Ivan Seidenberg, recently declared
his target vision for broadband into the homes of his
subscribers is 100 megabits a second, a blinding speed that
could download a looted one-hour high-definition episode of
FOX's ``24'' in a convenient four-and-a-half minutes.
The legislation we are seeking ratifies the billions of
dollars that local TV broadcasters have spent to do their part
to make the DTV transition successful. Local TV broadcasts,
offered free to the consumer, deserve and need to have content
protection in order to be competitive with the national pay-
television offerings, such as HBO, ESPN, video iTunes, and
MovieLink.com, in obtaining high-value content.
No other digital media has emerged that has dedicated
itself to localism. Even those consumers that subscribe to pay
television rely heavily on local TV broadcasts for their news
of local events, local political races, and local high-school
sports. Local television broadcasts are part of our heritage.
They are uniquely American.
It is essential that the television shows we transmit have
protection against the indiscriminate redistribution across
networks such as the Internet. The broadcast flag is the
mechanism that will achieve that goal without any unwanted side
effects.
Thank you, once again, for the opportunity to address you
on this important matter. I look forward to answering any
questions you may have.
[The prepared statement of Mr. Setos follows:]
Prepared Statement of Andrew Setos, President of Engineering, Fox
Entertainment Group
Good morning, Chairmen and Members of the Committee. My name is
Andrew Setos, and I am the President of Engineering of the Fox
Entertainment Group. Thank you for inviting me to participate in this
hearing.
As this Committee is well aware, Congress will soon mandate that
broadcast television stations abandon the analog spectrum and begin
broadcasting exclusively in digital form by 2009. This final step in
the DTV transition will bring many benefits to consumers, by
eliminating the current confusion that is inevitable in a mixed analog/
digital world. However, the benefits of the digital transition will be
meaningless to those same consumers unless we can also assure them that
high-quality content will continue to be available to them on free
over-the-air broadcast. This requires that DTV stations themselves be
able to assure content providers of a reasonably equivalent level of
protection to that provided by cable and satellite--and even the
Internet. At the moment, DTV stations cannot provide this assurance,
because DTV is legally obligated to broadcast content in-the-clear with
no protection, while cable, satellite and Internet service providers
offer content providers a wide variety of conditional access- and DRM-
based content protection systems. This imbalance places the long-term
viability of free over-the-air digital television in doubt and is
certainly not in the public interest.
To correct this imbalance, it is essential that DTV stations be
able to offer content providers some level of protection against
indiscriminate redistribution across networks such as the Internet. The
broadcast flag regulation promulgated by the FCC in 2003, after a
years-long process of discussion and debate, is the one mechanism that
can achieve that goal, and accordingly, we urge you to reinstate the
regulation as soon as possible.
The past decades have seen an explosion in consumers' options to
enjoy audiovisual content. Focusing on television alone, where there
were once just three broadcast television networks, we now have
hundreds--if not thousands--of cable, satellite, cable-like and
Internet-based services. It seems that every day there is news of a new
and innovative way for consumers to enjoy television programming, such
video-on-demand services (VOD), video iPod and even watching shows on
cell phones.
All of these ``television services'' compete by offering consumers
something that they want to see. Unfortunately, the digital revolution
has also created the opportunity for theft of that content on an
unprecedented scale. Millions of users of so-called ``peer-to-peer
file-sharing services'' upload and download copies of ad-free favorite
television shows, like The Simpsons, House, American Idol, and 24, as
well as popular sporting events, over the Internet. These programs are,
of course, the lifeblood of over-the-air broadcast television stations,
which rely on high quality content to attract viewers.
Currently, digital free over-the-air broadcasts are legally
required to be transmitted ``in the clear,'' with no protection
whatsoever from being redistributed. The process to upload content to
the Internet--formerly a process that could be performed only by a
relatively sophisticated and motivated pirate--is far easier, and more
accessible today than it was even a few years ago. And for those who
point out--admittedly, correctly--that DTV signals take a long time to
be captured, compressed and redistributed over the Internet today, here
is a cautionary tale: Twelve years ago, it took eight hours to download
a single song; today, an individual with no computer savvy can do it in
less than a minute with a click of the mouse.
Cable, satellite, ISP/telco, and other distributors of television
programming have already recognized how important this issue is to
ensure the digital future by voting with their dollars. These companies
have spent millions on the design, deployment and maintenance of
increasingly sophisticated content protection systems based on
conditional-access, link protection or software DRM-based technologies.
By contrast, DTV stations, at present, are legally barred, and from a
practical standpoint are unable to offer content providers anything
comparable. It is not hard to predict that without additional measures
to safeguard high-value digital content, broadcast stations will soon
find it difficult or even impossible to attract high-value programming.
Sports leagues and entertainment programming producers will, naturally,
choose to offer their programs on a service that can offer protection
against indiscriminate redistribution.
Although some so-called ``consumer groups'' state that the
enactment of broadcast flag legislation would be detrimental to the
viewing public, which we believe it does not, the real threat to
consumers who currently enjoy and benefit from watching their local
broadcast channels is the slow demise of free over-the-air broadcast.
Without national content, local broadcast stations would struggle to
attract viewers and ultimately to stay in business. For millions of
Americans, local broadcast stations are the sole source of news and
entertainment. But even for consumers who subscribe to a cable or
satellite service, local broadcast stations are the only source of
televised local news coverage and editorial content. They televise
local sporting events, weather reports (including emergency weather
reports), and traffic updates. They are the source of information about
community issues and local political races. Local television broadcasts
are part of our heritage. They are uniquely American, and they are
democratic (small ``d'') at their essence.
Foreseeing these challenges and understanding the value of local
television, I, along with my engineering colleague, began to look at
how we could protect in-the-clear digital broadcast. As we looked at
possible solutions we set up a basic set of criteria:
1. The regime should be invisible to the consumer.
2. The regime should allow consumers to make time shifted-
copies of free over-the-air television programs.
3. The regime should be flexible enough to allow for the
competitive market place to develop innovative protection
technologies as well as allow for content to be transmitted
securely in a network environment.
4. The regime should be of de minimis cost to the manufacturer
and thus to the consumer.
5. The regime should work at the smallest component part of the
digital ATSC receiver to ensure that it had no impact on any
other component part of a computer or consumer electronic
device.
6. The regime should not obsolete the digital television
receivers that were already in the market place and in
consumers' homes.
After settling on a solution that met all of these goals that we
now call the broadcast flag, we presented this regime to a group of CE
and IT manufacturers. Thus began the long process which evolved into a
large and more diverse group of consumer electronics, computer
technology, and video content companies known as the Broadcast
Protection Discussion Group.
That conceptual framework developed by the Broadcast Protection
Discussion group was the seed for the FCC's broadcast flag regulation.
But it took time to get there, and it took a great deal of work--almost
three years. Indeed, in preparing for this hearing, I was reminded that
four years ago, the President and Chief Operating Officer of News
Corporation, Peter Chernin, sat before this very Committee and
expressed his hope that cross-industry negotiations would yield a
solution acceptable to all of the participants. I am pleased to sit
here today and report that they did. Over the years since Mr. Chernin's
testimony in 2002, the members of the working group crafted the basic
outline of the regulatory regime. Even so, the FCC didn't accept it
whole cloth, but following still more discussion and debate--a process
in which took into account the views of many consumer groups--
ultimately constructed a regulation that most of the parties to the
negotiations viewed as an acceptable compromise of interests. Those
that continued to disagree with substantive details of the regulation
filed motions to reconsider and appeals. These were held in abeyance
pending the outcome of an appeal based on a challenge to the FCC's
jurisdiction.
Unfortunately, in May of 2005, the D.C. Circuit ruled that the FCC
lacked jurisdiction to enact the broadcast flag regulation. The Court
did not offer any view on the substance of the flag, for that issue was
not before it. Nor did the Court offer any view on the wisdom of the
broadcast flag as a matter of policy, for that issue is not within its
purview. Rather, the Court held merely that the FCC could enact such a
regulation only if Congress authorized it to do so.
The broadcast flag legislation that we support does just that: it
reinstates the FCC's broadcast flag regulation, thereby reinstating the
carefully crafted multi-industry pact. It also reinstates the pending
motions to reconsider and the substantive appeals, leaving all parties
exactly where they were before last May's ruling.
Although the regulation has drawn criticism, that criticism is, in
my view, misguided or misinformed. Much of it can be dispensed with by
focusing on what the flag will not do:
It will not restrict home recording of DTV.
It will not restrict the movement of recorded DTV shows in
the personal digital network, no matter if you are upstairs at
home, in your car or boat, or at a permanent or temporary
vacation spot. The FCC has already approved some flag-compliant
technologies to enable that movement.
It will not restrict the making of multiple physical copies.
It does not restrict the unending physical copying of those
copies. And it does not restrict where such physical copies may
be played or to whom they are lent or given.
It will not render obsolete or change the feature set of
even one DTV product that has been sold to consumers to date.
Not one.
It will not affect the viewers' experience as they view
their televisions or make their home recordings.
It will not stifle innovation. Nor will it establish the FCC
as the ``Federal Computer Commission.'' The FCC's role under
the regulation is simple and narrow: to consider proposals for
specific protection methods for DTV content containing the
broadcast flag and to approve those that provide a reasonable
level of protection. Prior to the decision striking down the
regulation, the FCC has already proven its ability to ably
exercise this simple, well-defined role by approving 13
different protection methods--many of them developed precisely
for the purpose of protecting DTV. This is stimulation of
innovation--not stifling of it.
Indeed, a broad range of digital devices, including digital
recorders and personal digital networking devices, already comply with
the flag's rules. Examples include PVRs, D-VHS, DVD recorders, and
computers and related technologies. Many other devices that do not even
exist yet can be made to comply with the flag's rules. Wired or
wireless, software or hardware, any future innovation complying with
the flag can receive, record and otherwise process digital television
signals.
Ultimately, the broadcast flag regulation will have little or no
impact on consumers' legitimate consumption and enjoyment of free over-
the-air digital television. It will not interfere with a consumer
making unlimited copies in a variety of media; it will facilitate a
variety of home networking technologies and a variety of reasonable
remote access technologies, as well as new technologies that have not
yet even been conceived. In addition to protecting local broadcasting
and helping to ensure the viability of the digital transition, the
broadcast flag regulation will stimulate American technological prowess
in content protection and management technologies.
Thank you once again for the opportunity to address this important
matter. I would be pleased to answer any questions.
The Chairman. Thank you very much, Mr. Setos.
Our next witness is Mr. Band, Counsel, American Library
Association.
STATEMENT OF JONATHAN BAND, COUNSEL, AMERICAN
LIBRARY ASSOCIATION; ON BEHALF OF THE LIBRARY
COPYRIGHT ALLIANCE
Mr. Band. Mr. Chairman, Members of the Committee, the
Library Copyright Alliance, which includes the American Library
Association, appreciates this opportunity to explain our
concerns with the FCC's broadcast flag rule. We urge the
Committee to address these concerns before adopting broadcast
flag legislation.
The five national library associations in the LCA were
among the petitioners that successfully challenged the
broadcast flag rule in the D.C. Circuit. The LCA believes that
the rule would prevent a wide range of lawful uses of broadcast
materials, to the detriment of the public.
Whether we like it or not, television is part of the fabric
of American life. It remains a major source of news, and both
reflects and influences cultural trends in our society.
Effective public discourse often requires the copying and
redissemination of broadcast content. For example, a website
seeking to demonstrate the disparate treatment by news programs
of black ``looters'' and white ``foragers'' in the wake of
Hurricane Katrina would need to include clips of television
news broadcasts. The flag would interfere with these lawful
uses.
Libraries are most directly concerned that the flag would
undermine the Technology, Education, and Copyright
Harmonization Act passed by Congress in 2002 to enable distance
education in the digital era. The TEACH Act permits educational
institutions to use copyrighted works in distance-education
courses conducted over the Internet.
Unfortunately, the broadcast flag threatens the operation
of the TEACH Act. Under the TEACH Act, an educator can include
a clip of a television broadcast in distance-ed materials. For
example, a course on criminal procedure could include a clip
from ``Law & Order,'' where the detectives conduct a search
claimed by the defendant to be unlawful. The broadcast flag,
however, would prevent the educator from retransmitting that
clip over the Internet.
The FCC's rule made no accommodation for distance
education. If Congress ultimately decides to authorize the FCC
to adopt the flag rule, Congress should ensure that the rule
includes appropriate exceptions for lawful uses. This could be
achieved by prohibiting the flagging of certain kinds of
content, such as public-domain materials, news and public-
affairs programs, and educational shows.
Furthermore, libraries and educational institutions should
have access to receiving devices that do not respond to the
flag. We need this special TEACH Act exception in order to make
legitimate uses of content that does not fall within the
public-domain or public-affairs exceptions. The Committee
should consider extending these exceptions to other uses
permitted by the Copyright Act.
Carefully drafted exceptions along these lines will not
prejudice the legitimate interests of the copyright owners.
Even if certain programs are not flagged, they typically will
still be covered by copyright. And then, if a library abuses
these exceptions, it can be sued for copyright infringement.
We have reviewed the discussion draft circulated by Senator
Smith. The exception for customary uses of broadcast content by
consumers is a step in the right direction, but it does not go
far enough for libraries. The exception applies to digital
radio, but not digital television. It applies to consumers, but
not to libraries or educational institutions. It is unclear
whether the TEACH Act, passed in 2002, constitutes an historic
use.
Finally, the details of protecting fair use should not be
delegated to any agency, let alone the FCC, which has no
copyright experience.
The Internet has the potential to dramatically expand
distance education, providing special benefit to students in
rural areas underserved by traditional forms of education.
However, the broadcast flag could impede the development of
robust distance-ed materials by preventing the use of the
content most compelling to today's students: television
programs. The flag rule allows an independent agency to
overrule the clearly expressed rule of Congress with regard to
distance-ed and other lawful uses.
We look forward to working with the Committee to fashion
modest exceptions to the rule. Thank you for your attention.
[The prepared statement of Mr. Band follows:]
Prepared Statement of Jonathan Band, Counsel, American Library
Association; on Behalf of the Library Copyright Alliance
The Library Copyright Alliance (LCA) appreciates the opportunity to
explain to the Committee our specific concerns with the Federal
Communications Commission's (FCC) broadcast flag rule. We urge the
Committee to address these concerns before adopting legislation
authorizing the FCC to promulgate the rule.
The LCA consists of five major library associations--the American
Association of Law Libraries, the American Library Association, the
Association of Research Libraries, the Medical Library Association, and
the Special Libraries Association. These five associations collectively
represent over 139,000 libraries in the United States employing 350,000
librarians and other personnel. The five associations cooperate in the
LCA to address copyright issues that have a significant effect on the
information services libraries provide to their users. The LCA's
mission is to foster global access to information for creative,
research, and educational uses.
The national library associations that constitute the LCA were
among the petitioners that successfully challenged the FCC's broadcast
flag rule. After the Motion Picture Association of America questioned
the petitioners' standing to file suit, librarians at Vanderbilt
University, North Carolina State University, University of California-
Los Angeles, and American University filed affidavits with the court
explaining and illustrating how the broadcast flag, if it went into
effect, would hamper their use of broadcast materials for teaching and
scholarship. Copies of these affidavits are attached.
The D.C. Circuit held that at least one of these librarians had
standing, which in turn conferred standing to the organization of which
the librarian was a member. On this basis, the court was able to reach
the merits of the challenge. Although the court struck down the flag
rule on the grounds that the FCC did not have the authority to issue
it, the library concerns with the rule go far deeper than the proper
scope of the FCC's jurisdiction. Specifically, the rule would prevent a
wide range of lawful uses of broadcast materials, to the detriment of
the public. For this reason, the LCA welcomes this opportunity to
explain to the Committee how the rule will have this negative impact.
Whether we like it or not, television is part of the fabric of
American life. It remains a major source of news, and both reflects and
influences cultural trends in our society. Effective public discourse
often requires the copying and redissemination of broadcast content.
For example, a website seeking to demonstrate the disparate treatment
by news programs of black ``looters'' and white ``food liberators'' in
the wake of Hurricane Katrina would need to include clips of television
news broadcasts. Likewise, an organization dedicated to preserving
traditional family values in American society might distribute over the
Internet segments from Desperate Housewives and The O.C. to demonstrate
the corrupting influence of television.
The flag would interfere with these lawful uses. Libraries are most
directly concerned that the flag would seriously undermine the
Technology, Education and Copyright Harmonization (TEACH) Act passed by
the 107th Congress to facilitate distance education in the digital era.
The TEACH Act sets forth conditions under which government bodies and
accredited nonprofit educational institutions can use copyrighted works
in distance education courses conducted over the Internet. The Act
contains a variety of procedural safeguards to ensure that the
interests of the copyright owners are not harmed.
Unfortunately, the broadcast flag threatens to frustrate the
operation of the TEACH Act. Under the TEACH Act, an educator can
include a clip of a television broadcast in distance education
materials. For example, a course on criminal procedure could include a
clip from Law & Order where the detectives conduct a search later
claimed by the defendant to be unlawful. The broadcast flag, however,
would prevent the educator from retransmitting that clip over the
Internet. Contrary to the intent of Congress reflected in the TEACH
Act, the broadcast flag will prevent the use of an entire category of
works--high definition television programs--in distance education.
The FCC made no accommodation for these lawful uses. If Congress
ultimately agrees with the FCC that digital television broadcasts are
vulnerable to widespread infringement, and that a broadcast flag is the
best way to prevent such infringement, Congress should ensure that any
flag regime includes appropriate exceptions for lawful uses. This could
be achieved by prohibiting the flagging of certain kinds of content
such as public domain material; news and public affairs programs; and
programming designed to serve educational and informational needs.
Furthermore, a governmental body or accredited nonprofit
educational institution should be permitted to take actions as are
reasonably necessary to make a transmission for distance education as
authorized under the TEACH Act, including leasing or purchasing a
device that does not detect or otherwise respond to the broadcast flag.
It should also be legal to manufacture or import such a device solely
for lease or sale to such a body or institution. Libraries and
educational institutions need this special TEACH Act exception in order
to make legitimate uses of content that does not fall within the public
domain or public affairs exceptions. Additionally, the Committee should
consider extending this exception to other educational and research
uses permitted by the Copyright Act.
Carefully drafted exceptions along the lines discussed above will
not prejudice the legitimate interests of copyright owners. Even if
certain programs are not flagged, they typically will still be covered
by copyright; and if a library or educational institution abuses these
exceptions, it can be sued for copyright infringement.
The Internet has the potential of dramatically expanding the
quantity and quality of distance education programs at the primary,
secondary, and higher education levels. In recent years libraries and
educational institutions have begun to tap into this potential, and
students in rural areas underserved by traditional forms of education
have been among the major beneficiaries. Unfortunately, the broadcast
flag could impede the development of robust distance education
curricula by preventing the use of the content most compelling to
today's students: television programs. The flag rule in its current
form allows an independent agency to overrule the clearly expressed
will of Congress with regard to distance education and other lawful
uses. Modest exceptions can address this serious concern.
We look forward to working with the Committee on this important
matter. I would be happy to answer any questions the Committee may
have.
United States Court of Appeals for the District of Columbia Circuit
American Library Association, et al., Petitioners, v. Federal
Communications Commission, et al., Respondents. Case No. 04-1037
Affidavit of Paul M. Gherman
My name is Paul M. Gherman. I am the University Librarian at
Vanderbilt University in Nashville, Tennessee. It is my responsibility
to oversee the Vanderbilt Television News Archive, which operates as a
division of the Vanderbilt University Library. My business address is
Vanderbilt University, 611 General Library Building, 419 21st Avenue
South, Nashville, Tennessee 37215. I am over the age of eighteen and
otherwise competent to testify.
Among other harms, the Federal Communications Commission's
broadcast flag regulation will prevent Vanderbilt University from
streaming licensed broadcast news over the Internet to subscribers, as
we do today for over 100 subscribers to our collection of certain
network news programming. It will also preclude us from making our
collection available to the Vanderbilt faculty and student body over
the thirty-three computers that are currently able to electronically
access the archive from the campus library.
The Vanderbilt Television News Archive
The Television News Archive at Vanderbilt University (``Archive'')
is the world's most extensive and complete archive of television news.
The Archive's mission is to help preserve our nation's cultural
heritage through the documentation of national television news
coverage. The archive serves both as a permanent repository of national
news programming and as an important resource for scholars,
researchers, and journalists interested in contemporary history and
television news journalism. Vanderbilt University Library is a member
of the Association of Research Libraries (``ARL''), and as a unit of
the library, the Archive is as well. ARL is a petitioner in this case,
and an association to which we have belonged for more than twenty
years. I am also a member of the American Library Association, another
petitioner in this proceeding.
The Archive's collections consist of television news programming
recorded from broadcast and cable television signals. The Archive began
off-air recording in 1968. The Archive records the nightly news
broadcasts from all three major networks (ABC, CBS, and NBC). In 1995,
the Archive began recording programming from the cable news network
CNN. As of January 2005, the Archive also records programming from FOX
news as well.
In addition to recording nightly news coverage, the Archive also
traces news coverage of major historical events in-depth. For example,
the Archive includes complete, 24-hours-a-day, 7-days-a-week records of
the news coverage for the Watergate scandal hearings, the 2000
presidential election, and the tragedy of September 11, 2001. The
Archive also includes extensive coverage of U.S. presidential
campaigns, both wars in Iraq, the war in Afghanistan, and every
Democratic and Republican National Convention and State of the Union
address since 1968.
Today, the Archive's collection holds over 40,000 hours of news
broadcasts. The Archive indexes and abstracts each broadcast to the
individual story level. The Archive's holdings also include all
advertisements played during the captured news broadcasts. The Archive
is the only publicly accessible, aggregate collection of television
news in existence in the world today.
Over 20,000 registered patrons located worldwide use the Archive
for research, studies, and other personal uses. The Archive loans
videotape copies of individual news segments, complete news programs,
and compilations to its patrons, who return the copies for destruction
following use. In addition, the Archive's entire collection is made
available via video on thirty-three computer terminals physically
located within the Archive and university library on campus. The
Archive also has 140 library subscribers that are able to access our
extensive collection of one network's programming over the Internet.
The Archive is interested in developing similar arrangements with the
networks.
The Archive's Operations
To collect and preserve television news programming, the Archive
uses a multi-step process. News programs are captured off-air using
analog television tuner cards embedded within the Archive's computers.
Archive staff then use encoding cards, also located within the
computers, to convert the captured broadcast signal into MPEG video
files. At this point, ``watermark'' data are added onto the MPEG files
so that the date, time, name of the news network, and a running clock
appear on the center of the screen when the program is viewed. These
watermark data are also used for indexing and abstracting purposes.
Once the broadcasts have been encoded and watermarked in MPEG form,
the Archive staff begins the storage archival process. First, the staff
uses in-house DVD burners to place the broadcasts onto physical discs
for storage. These disks constitute our primary method of archival.
They are also what we use to make copies we lend to our patrons upon
request.
Next, Archive staff periodically transfer the processed MPEG files
of all captured newscasts onto high-volume removable disk drives. The
Archive lends these disk drives to the Library of Congress in
Washington, D.C., which then transfers the files to its own archival
system and returns the disk drives to Vanderbilt.
In addition to these two forms of storage, the Archive makes a
reduced-resolution copy of the entire collection, which is stored on a
computer server in a centralized location at the archive. When a patron
accesses the collection in video from one of Vanderbilt's local
computer terminals, it is this ``down-rezzed'' version of the
broadcasts that the patron accesses.
Harm from the Broadcast Flag
If it is allowed to remain in place, the FCC's broadcast flag rule
will harm the Vanderbilt Television News Archive in a number of ways.
To conduct our core function, news archiving, the Archive has
invested well over $50,000 in recording, computer, and other electronic
equipment to complete our primary recording studio--funds obtained
largely from research and philanthropic grants and gifts. Currently,
the Archive is in the process of constructing a redundant recording
studio, at approximately the same cost. However, if the broadcast flag
is allowed to remain in place, the Archive's substantial investment in
its equipment will be jeopardized, because none of the digital
equipment that the Archive currently owns is flag-compliant.
For instance, none of the Archive's MPEG-encoding cards are
designed to recognize or comply with the broadcast flag, nor are any of
our multiple DVD burners. Likewise, none of the multiple local computer
terminals, or the server where we store our streaming newscasts, will
recognize the flag. Under the flag rule, however, broadcasters have
sole discretion in deciding whether to embed the flag within broadcast
programs. Consequently. if the flag rule is allowed to remain in
effect, the Archive will be forced to replace our current equipment in
order to conduct the same activities we do today. Because none of our
digital video equipment is flag-compliant, we would not be able to use
this equipment to store or copy digital television broadcasts that are
embedded with the flag.
We would thus be forced to buy entirely new equipment--not just new
encoding cards and DVD burners, but also a brand new server and
computer terminals for our local streaming operation, as well as new
removable disk drives for use with the Library of Congress--in order to
continue the Archive's operations as we conduct them today. This is
because the broadcast flag will not allow a marked digital broadcast to
be passed on to any ``downstream'' device that can read the digital
television content but will not recognize and obey the flag.
Consequently, all of the Archive's equipment would be rendered
inoperable for their current uses. Particularly since the Archive
acquired much of this equipment as recently as 2003 and 2004, being
forced to replace what is essentially brand-new equipment that we
acquired at a substantial cost would be an extremely onerous burden for
a non-profit educational archive operating on a limited budget.
Indeed, Congress has granted the Archive a specific exemption to
the Copyright Act that allows us to ``reproduc[e] and distribute[e] by
lending . . . a limited number of copies and excerpts'' of audiovisual
news programs. 17 U.S.C. Sec. 108(0(3). By constraining how we carry
out our mission of providing thousands of individuals access to the
important cultural, political, and historical resource that we manage,
the broadcast flag not only places a significant financial burden on
the Archive, it conflicts with Congress' decision to extend this legal
right.
I declare under penalty of perjury that the foregoing is true and
correct.
Paul M. Gherman.
Executed: March 23, 2005.
United States Court of Appeals for the District of Columbia Circuit
American Library Association, et al., Petitioners, v. Federal
Communications Commission, et al., Respondents.--Case No. 04-1037
Affidavit of Diana Vogelsong
My name is Diana Vogelsong. I am the Associate University Librarian
for Information Services at the American University (``AU'') in
Washington, D.C. Both I and the American University Library are members
of the American Library Association (``ALA''). The ALA is one of the
petitioners in this proceeding. AU is an accredited non-profit
educational institution as defined in 17 U.S.C. Sec. 110. My business
address is American University Library, 4400 Massachusetts Ave, N.W.,
Washington DC, 20016-8046. I am over the age of eighteen and otherwise
competent to testify.
The broadcast flag rule, if permitted to take effect, will be
harmful to the ability of our library to carry out its functions in two
ways. First, the flag will force our library to replace DVD burners and
players that do not comply with the flag's restrictions. These machine
are used to record and play segments of broadcast television recorded
off the air in classroom instruction. Second, the flag will preclude me
from providing copies of broadcast clips over the Internet to the AU
student body, through password protected courseware in conjunction with
ongoing coursework.
Broadcast Use at AU
I serve as the second-in-command librarian at the AU library. In
this position, I coordinate the library's public services and
associated collections, as well as supervise and coordinate with other
library faculty and staff. The areas I am responsible for administering
provide assistance to both undergraduate and graduate students with
scholarly research, and aid faculty members in providing materials for
their own research and courses. In particular, I supervise the division
of the library that includes Media Services, which collects and loans
digital, audiovisual, and other media resources to our student and
faculty patrons.
On a regular basis, we record broadcast programming off the air for
use in classroom instruction at American University. Typically, we make
these recordings in response to the request of an AU professor or other
instructor teaching at the university. For instance in the past we have
recorded presidential addresses and press conferences for government
and public speaking classes, major news events for communications and
history classes, PBS Frontlines (documentaries) for government and
international affairs classes, and nightly news and sporting events for
journalism classes.
Recording this broadcast material for use in AU courses is an
ongoing process. Because copyright law allows libraries to make only
limited copies for specific educational uses, we destroy the copies we
make after use. Typically, this is following display in-class or, if
the professor requests that we keep the copy of the segment on reserve
for viewing by students outside of normal class time, at completion of
the semester.
We have been making broadcast recordings available to our Faculty
for 23 years, and plan to continue this valuable service indefinitely.
The AU faculty consistently report that use of these broadcast
materials in their courses enhances their ability to teach and enriches
the students' experience, both by making classroom discussions more
interactive and contemporary, and also by adding emerging information
and a contemporary flair to the course material that often cannot be
achieved with textbooks and scholarly articles alone.
On occasion, we also assist AU faculty by converting videotape
clips to a streaming video format for delivery to students, on a
password-protected, class-specific basis, using Blackboard course
software. Once a student has signed in to the appropriate page on AU's
Blackboard site using her password, she can view the clip in
``streaming'' format on the computer in her dorm room, at a campus
computing center, or in the library itself. To date, we have done this
only with video materials from our collection; however, we envision
licensing content that we tape off-air for the same purpose.
The Broadcast Flag
Currently, we record materials for our faculty using analog video
cassette recorders (``VCRs''). The faculty then play the recorded
broadcast segments in their classrooms using a VCR and television.
However, we recently began converting our recording process from analog
to digital, so that all broadcast materials we record for faculty
members will be recorded, or ``burned,'' onto optical computer discs,
or ``DVDs.'' We expect this transition process to be completed by the
end of Summer 2005.
Once we have completed the transition to digital recording, faculty
members asking the library to record broadcast materials for classroom
use will need to play their materials using machines capable of
displaying digital audiovisual signals. AU currently owns nearly one
hundred DVD players that can be used for this purpose, with no
additional expense to the university.
However, once the digital transition is complete, and if the
broadcast flag takes effect, none of the DVD players that AU makes
available to its faculty for classroom instruction will be able to work
for the primary purpose we acquired them--teaching our students. Any
broadcast flag-compliant digital tuner would not permit recording or
playing of digitally broadcast television programming using the DVD-
burning or DVD-playback equipment that we now have, even though the
uses that we make of the broadcast materials are clearly lawful uses of
the material for educational purposes.
Due to the broadcast flag rule, we will be forced to replace this
instructional equipment that currently performs for the precise purpose
we acquired it. The broadcast flag thus represents not just a financial
burden on our library, but also an impending threat to our ability to
carry out our mission to educate, and assist our faculty in educating,
our student body.
The broadcast flag also harms us in another way. While to date we
have made only video that is owned by the library available for use by
faculty to stream to students over the Internet, we believe the TEACH
Act and the copyright law protect our ability to do the same thing with
off-air recordings. Our faculty are making increasing use of broadcast
television and the Internet in their courses. The broadcast flag,
however, would require every computer on campus that has access to this
material to be flag-compliant in order for students to be able to view
these educational materials. Accordingly, because the broadcast flag
would require us either to retrofit (assuming the proper technology
were made available to allow such a retrofitting) or replace every
computer on campus to comply with the flag's copy-protection/
redistribution requirements, we would be entirely foreclosed from
taking advantage of this exciting new educational tool.
I declare under penalty of perjury that the foregoing is true and
correct.
Diana Vogelsong.
Executed: March 24, 2005.
United States Court of Appeals for the District of Columbia Circuit
American Library Association, et al., Petitioners, v. Federal
Communications Commission, et al., Respondents.--Case No. 04-1037
Affidavit of Rebecca Gordon
I, Rebecca Gordon, hereby declare as follows: I have been a member
of the American Library Association (``ALA'') since July 2003. My
address is 2907 Hickory Street, Alexandria, Virginia 22305. I am over
the age of eighteen and otherwise competent to testify.
I have previously used brief clips of broadcast television video as
part of the course material for college courses that I periodically
teach. A critical component of my course on cyberculture, for example,
is examining the ways that cyberculture is defined and portrayed by
mainstream media. And for my audio technology fundamentals course, I
likewise use material from the mainstream media to facilitate
examination of issues such as copyright disputes and peer-to-peer
networking. I had planned to begin making course materials, including
digital copies of broadcast video clips, available to my students via
the Internet to bring attention to fast-breaking media stories in an
efficacious manner. The Federal Communications Commission (``FCC'')'s
broadcast flag regime will preclude, or significantly impair, my
ability to use the Internet to provide my students with these clips. I
will be harmed as a consequence, because valuable opportunities for me
to use broadcast video clips to timely illustrate, discuss and critique
media portrayals of cyberculture will be lost, diminishing the
effectiveness of my teaching material.
I am a college professor and periodically teach courses in
cyberculture and audio technology fundamentals at American University
in Washington, D.C. My cyberculture course typically draws students
from the computer science, anthropology, public affairs, and
communications disciplines. A critical component of this course is
examining the ways that cyberculture is defined and portrayed by
mainstream media, particularly the way that various interests attempt
to frame the debate over the legitimacy of peer-to-peer content sharing
networks, such as Napster. For example, some media outlets are prone to
characterize peer-to-peer content sharing as piracy, while others might
characterize the activity as ``civil disobedience.'' The audio
technology fundamentals course is a required course for audio
technology and multimedia/game design students, and an elective course
for computer and film students. It is particularly popular with
students, and in fact was noted as one of the four ``coolest'' classes
on campus in a recent American University science publication.
The ability to capture clips from the broadcast television news,
public affairs shows, and even talk shows for use in the classroom is
essential for both courses. Given that video and multimedia forms of
communication are very much at center stage, it would be difficult to
teach students about how the media portrays cyberculture without
showing students what the media does Similarly, these broadcast
materials enhance discussion of copyright and other issues in the audio
technology fundamentals class. I believe that the students relate
particularly well to timely examples of the matters we discuss, and
that the use of these contemporary and interactive materials has
contributed to the popularity of this course.
Although I am not currently teaching the cyberculture and audio
technology courses, in past semesters I taped the clips I wanted to use
with an analog VCR and then played the tapes on a VCR in the classroom.
I have also located clips on the Internet using a computer and
displayed them using a video and data projector in my classroom.
My cyberculture course will be offered again in the Spring of 2006
at American University or another school. For that course, I plan to
use a digital video recorder (``DVR'') such as a Tivo to capture
broadcast video clips. I will then transfer the clips to a computer
file server that individual students can access via the Internet, and
that I can access in the classroom via the Internet. I had planned to
make my materials available via the Internet for a number of reasons,
including the need to capture and distribute clips quickly to my
students. Timeliness is especially key in a course that studies and
critiques the media. For example, I may see video broadcast on a
morning news show that is directly relevant to a topic being covered in
a class later that day, and like to e-mail it to my students so they
can quickly study it and be prepared to discuss it in class. Internet
distribution is the only way to make this happen. While I could use
slower methods of distribution, media coverage moves at lightning
speed; if I wait to discuss the material a class or two later, the
particular issue I wanted to address often gets stale or is superseded
by another media development. One of my goals is to cover the media in
as up-to-date a fashion as possible.
It is also important that the media materials we examine, including
the video clips, be readily available to my students for independent
study and research. Availability over the Internet, or even a
university's campus network, is the most efficacious way to ensure that
students can study this material.
I understand, however, that the broadcast flag regime will preclude
the transfer of flagged broadcast television content over the Internet.
If the broadcast flag rule is allowed to stand, I will not be able to
use the Internet to provide my students with timely broadcast video
material relevant to my courses as I had planned. The timeliness and
effectiveness of my course material and my teaching will be diminished.
I will consequently be harmed.
I declare under penalty of perjury that the foregoing is true and
correct.
Rebecca Gordon.
Executed: March 25, 2005.
United States Court of Appeals for the District of Columbia Circuit
American Library Association, et al., Petitioners, v. Federal
Communications Commission, et al., Respondents.--Case No. 04-1037
Affidavit of Peggy E. Hoon
My name is Peggy Hoon, and I serve as the Scholarly Communication
Librarian at the North Carolina State University (``NCSU'') Libraries
in Raleigh, North Carolina. The NCSU Libraries is a member of the
Association of Research Libraries (``ARL''), and has been since 1982.
I, personally, am also a member of the American Library Association
(``ALA''). Both the ARL and ALA are petitioners in this case. NCSU is
an accredited non-profit educational institution within the meaning of
that term as it is defined in 17 U.S.C. Sec. 110. My business address
is 2126 D.H. Hill Library, East Wing Box 7111, North Carolina State
University, Raleigh, North Carolina. I am over the age of eighteen and
otherwise competent to testify.
The ``broadcast flag'' rule ordered by the Federal Communications
Commission will harm the NCSU Libraries and its librarians, including
myself. Specifically, the broadcast flag rule will prevent the
Libraries from assisting faculty members in using broadcast clips as
part of their distance education learning courses, over the Internet.
Currently, the Libraries assists NCSU faculty in this way pursuant to
the ``TEACH Act,'' which is codified in 17 U.S.C. Sec. 110.
The NCSU Libraries and Distance Education
In conjunction with the Distance Ed & Learning Technology Aps
(``DELTA'') program here at the university, the NCSU Libraries assist
professors and other faculty in accessing and obtaining audio, visual,
and other media for use in their on- and off-campus courses. One of the
Libraries' specific efforts in this regard is to assist NCSU faculty in
using broadcast content taken off the air to use in their distance
learning courses.
The Libraries currently assists any NCSU faculty who would like to
use video content in their distance learning courses. The Libraries
plans to continue making this service available into the future. This
assistance includes support that we provide for distance learning
courses taught over the Internet, as well as for professors who wish to
use broadcast clips in these courses.
For instance, the Libraries recently has been assisting a faculty
member in the Foreign Languages and Literatures Department at NCSU to
use broadcast clips in his distance education courses for Spanish
language instruction. This professor records five-minute and shorter
clips of the television program, El Show De Cristina, which airs on the
Univision network.
El Show De Christina is a Spanish-language talk show that has been
described as a mixture of the English-language talk shows Oprah! and
Jerry Springer. The NCSU professor uses clips from Christina because
they often include rapid exchange in Spanish among multiple
participants appearing on the show, thus facilitating the teaching of
the language to his students in a conversational manner that might not
otherwise be possible through a distance learning course.
After recording the Christina segments, the professor brings them
to the Learning and Research Center for the Digital Age, located within
the NCSU Libraries, to receive assistance in making the clips usable
over the Internet. Specifically, librarians and other library staff
within the Libraries' Digital Media Lab take the clips from the
professor and digitally convert them so that they can be ``streamed''
over the Internet and viewed by the students in the professor's
Spanish-language course.
Consistent with the TEACH Act, the clips are provided through a
technology called WebCT, which allows for the password protection of
the materials. As a result, although the Internet is used for, and is
essential to, making these clips available, the only individuals able
to access them are registered students of the NCSU course.
Impact of the Broadcast Flag
The NCSU Libraries currently makes this service available to all of
its faculty that would like to use broadcast or other video materials
available for their courses over the Internet, in a manner consistent
with the TEACH Act. The Libraries consistently receives overwhelmingly
positive feedback about this service (and other services) that the
Libraries provides through the Digital Media Lab and the Learning and
Resource Center for the Digital Age. Both faculty and students report
that use of the kind of materials such as Christina significantly
enhance the educational experience.
Accordingly, the Libraries plans to continue providing these
services. However, if the broadcast flag rule takes effect, the
Libraries will be foreclosed from helping its faculty broadcast clips
like Christina, and many other similar programs, in their distance
learning courses, because the broadcast flag is designed to stop
redistribution over the Internet. As a result, the very services that
the TEACH Act allows and that we provide NCSU faculty today--assisting
them with making broadcast clips usable for their students over the
Internet to make their educational experience more realistic--will be
foreclosed. The broadcast flag will have this effect regardless of
whether we are assisting faculty to convert or record, because
broadcasters will have sole discretion as to whether to ``flag'' a
broadcast and because all broadcasts will be digital.
The NCSU Libraries will also be harmed by the broadcast flag in
another way. While today we are able to use our Digital Media Lab to
help faculty with media they would like to use in their courses using
the Media Lab's current equipment, the broadcast flag will force us to
replace much of our expensive computer and other electronic equipment
that is capable of reading and copying digital television signals. This
is because much of the equipment that we currently have does not comply
with the flag's technical requirements for protecting television
content, and thus, that equipment would not be able to interoperate
with new, flag-compliant digital television tuners and other
technologies.
I declare under penalty of perjury that the foregoing is true and
correct.
Peggy E. Hoon.
Executed: March 29, 2005.
United States Court of Appeals for the District of Columbia Circuit
American Library Association, et al., Petitioners, v. Federal
Communications Commission, et al., Respondents.--Case No. 04-1037
Affidavit of Kris Kasianovitz
My name is Kris Kasianovitz. I am employed by UCLA as the Young
Research Library Collections, Research and Instructional Services
Department Librarian for NGOs and State, Local & Canadian Government.
UCLA is an accredited non-profit organization as defined in 17 U.S.C.
Sec. 110. UCLA is a member of two petitioners to this case: the
American Library Association (ALA), and the Association of Research
Libraries (ARL). I am also an individual member of the ALA. My business
address is UCLA, 11630 Research Library, Box 951575, Los Angeles, CA
90095. I am over the age of eighteen and otherwise competent to
testify.
If the FCC's broadcast flag rule goes into effect, it will harm the
UCLA Research Library by forcing the library to purchase new equipment
in order to continue carrying out our educational mission.
Specifically, because I often make use of video clips in my
instructional classes and I intend to use broadcast clips for this
purpose in the near future, the educational value of my instruction
would be diminished unless the library replaced its current equipment
with equipment that complies with the broadcast flag.
Use of Video Clips in UCLA Classes
As part of my job as a librarian for UCLA, I often teach classes at
the request of professors to university students on legislation and the
legislative process. I teach these classes several times per year.
In teaching these classes, I have found it useful to include video
clips in my presentations to the students. For example, I have shown
excerpts from C-SPAN to demonstrate the legislative process in action,
as well as a video entitled ``America Rocks'' designed to explain the
legislative process to students.
To obtain video clips to show in my classes, I record the content
onto DVDs and then use the university's computers and projector
machines to present the video clips to the students during classes.
I have many plans to use broadcast television clips too in my
classroom presentations in the near future. As one example, I intend to
show recent news coverage of Congress' intervention in the case of
Terri Schiavo, the Florida woman who was the subject of a court order
to be taken off a feeding tube. In addition, I also plan to show a
series of news programs on law, demographics, and migration to
California. I also plan to use similar television broadcast segments to
help highlight my teaching points to the students.
The use of television media, including broadcast media, in my
instructional classes is important to me. It helps me to bring to life
the subject of the legislative process for the students and to keep my
presentations current by including the latest examples of the
legislative process in action. The library has expended significant
funds to invest in the equipment that allows me to carry out these
purposes.
Harm from the Broadcast Flag
If the broadcast flag rule is not struck down, it will harm the
UCLA library by forcing it to either (1) expend funds to update the
equipment I use in my classroom instruction, or (2) forego the use of
valuable video enhancements to instructional presentations.
The DVD players and computers that the library owns are not
compliant with the broadcast flag. Therefore, once the digital
transition is complete, and if the broadcast flag takes effect, none of
the approximately two hundred computers that the UCLA library makes
available to its faculty for instructional purposes will be capable of
allowing me to record and transfer broadcast television content for use
in my presentations. Any broadcast flag-compliant digital tuner would
not permit recording or playing of digitally broadcast television
programming using the DVD-burning or DVD-playback equipment that the
library now has, even though the uses that I and other faculty would
make of broadcast materials are lawful uses for educational purposes.
In order for me to fulfill my intention of using broadcast video
clips in my presentations in the near future, the library would need to
purchase new DVD players and computers that would recognize and comply
with the broadcast flag. Replacing the approximately two hundred
computers that the library uses for instructional purposes would be a
significant expenditure of resources for our library, which, as part of
a state university supported by taxpayer funds, is always making
difficult choices on how to allocate its limited resources.
If the library is not able to allocate funds to purchase new
equipment, I and other librarians will lose the ability to use
broadcast video clips in the classes we teach. This would mean the loss
of a valuable way to enhance our teaching by making our presentations
lively and current through the use of recent broadcast television
segments.
I declare under penalty of perjury that the foregoing is true and
correct.
Kris Kasianovitz.
Executed: March 26, 2005.
The Chairman. Thank you very much.
Mr. Patton, Corporate Vice President, Philips Electronics.
STATEMENT OF THOMAS B. PATTON, CORPORATE VICE
PRESIDENT, GOVERNMENT RELATIONS, PHILIPS
ELECTRONICS NORTH AMERICA CORPORATION
Mr. Patton. Thank you very much, Chairman Stevens, Co-
Chairman Inouye and Members of the Committee.
My name is Tom Patton. I'm corporate Vice President for
Government Relations with Philips Electronics North America
Corporation. Philips thanks you for the opportunity to testify
before the Committee today regarding protecting digital
broadcast television programming from indiscriminate
redistribution over the Internet.
Philips is a leading technology company, expending
approximately $3 billion a year on research and development.
Philips is also a leading manufacturer of consumer products
ranging from healthcare to video and audio entertainment.
There are two principal points I wish to make today. First,
Philips supports enactment by the Congress this year of
narrowly limited and tailored legislation to ratify the Federal
Communications Commission's broadcast flag rules and its
technology approval order. Second, Philips believes any such
legislation should require that licensing of approved broadcast
flag technologies offered to the public must be on reasonable
and nondiscriminatory terms. In so doing, Congress should
clarify that non-assert obligations imposed upon licensees by
licensors of a government-approved and mandated technology is
inconsistent with reasonable and nondiscriminatory licensing.
Today, Philips supports statutory ratification of those
rules for one simple reason: the Commission basically got it
right. The FCC established an open and fair process for
selecting technologies, developed a set of objective criteria
against which technologies would be judged, and required
technology proponents to prove that they meet these criteria.
It limited the scope of protection afforded by approved
broadcast flag technologies to indiscriminate redistribution
over the Internet while expressly preserving consumers' home-
recording capabilities. And it required that all approved
broadcast flag technologies be licensed on reasonable and
nondiscriminatory terms.
The broadcast flag is not a perfect system, but it is a
reasonable step on a longer path that balances appropriate
content protection against consumer rights and product
functionality.
The broadcast flag rules impact two important markets: the
emerging market for digital-content protection technologies and
the mature and intensely competitive market for consumer
electronics products. This Committee understands the critical
importance for consumers of competitive markets where
innovation is allowed to flourish: consumer choices multiply,
prices decline, and product functionality increases. To ensure
both marketplaces are competitive and innovative, Congress
should require that any approved broadcast flag technology be
licensed on reasonable and nondiscriminatory terms.
In the broadcast flag context, a non-assert is a
requirement that a licensee of a technology relinquish its
rights to its own intellectual property as a condition of
obtaining the license.
Chairman Martin recognized the danger posed by non-assert
obligations in the broadcast flag context. In his separate
statement accompanying the Commission's technology approval
order, he lamented that licensees might be forced to, ``choose
between the lesser of two evils: either don't participate in
the relevant product market or compete, but give up your
intellectual property rights.'' Such a result, he posited,
``may be anti-competitive, may discourage future investment in
intellectual property, and may generally be counter to good
public policy.'' We couldn't agree more. In fact, in this
context, non-asserts can be compared with content piracy,
inasmuch as they both take intellectual property belonging to
others.
Before concluding, permit me to comment briefly on Title I
of Senator Smith's draft broadcast flag bill. We support the
proposed ratification of the FCC's broadcast flag rules and
technology approval order. As I've just indicated, we believe
that the bill should address the anti-competitive effects of
technology licenses that impose non-assert obligations on
licensees. Moreover, expanding the scope of the rules, as the
draft bill would do, to reach indiscriminate redistribution
over digital networks may be a significant change, and,
therefore, requires further consideration. Finally, any
legislation will need to provide manufacturers with sufficient
time to integrate broadcast flag technologies. We look forward
to working with Senator Smith and all the Members of the
Committee on this important legislation.
The digital age presents a host of challenges and
opportunities. Philips believes it is imperative to create a
new global paradigm that fairly values digital-content
protection technology, just as we value the content these
technologies are designed to protect. Philips looks forward to
the day when all stakeholders make clear that electronic
infringement of copyrighted video content is wrong, when
content owners recognize that innovation in digital-content
protection technologies must be coupled with the availability
of digital products that enable consumers to enjoy ever-more-
flexible uses of content, and when the innovators responsible
for those technologies and digital devices are able to enjoy
the fruits of their intellectual labor.
Thank you very much for the opportunity to testify today.
I'd be pleased to answer any questions you may have.
[The prepared statement of Mr. Patton follows:]
Prepared Statement of Thomas B. Patton, Corporate Vice President,
Government Relations, Philips Electronics North America Corporation
Introduction
Co-Chairmen Stevens and Inouye and Members of the Committee, my
name is Tom Patton, and I am Corporate Vice President for Government
Relations with Philips Electronics North America Corporation. Philips
greatly appreciates the opportunity to testify before the Committee
today on the subject of the video Broadcast Flag.
Philips believes that Congress should enact legislation this year
to ratify the FCC's November 4, 2003 video broadcast flag rules as well
as its August 4, 2004 Order approving thirteen digital broadcast
content technologies under the fair and transparent process established
under those rules, and that manufacturers should be given a
commercially reasonable period of time to implement the new rules.
Additionally, to better ensure a fully competitive, pro-innovation
marketplace environment under those rules, such legislation also should
require that any approved broadcast flag technology that is publicly
offered be licensed on reasonable and non-discriminatory terms. Such a
requirement entails, at a minimum, offering potential licensees with an
IP interest an opportunity to license their own intellectual property
on reasonable and nondiscriminatory terms and precludes the imposition
of non-assert obligations on licensees.
In that regard, Philips commends Senator Smith for his leadership
on the video broadcast flag issue, which is reflected in Title I of his
draft bill, and wishes to express our support for his proposed
ratification of the FCC's November 4, 2003 Report and Order and its
August 4, 2004 technology approval Order. Philips looks forward to
working with Senator Smith and all of the Members of the Committee, as
well as all affected stakeholders, to enact video broadcast flag
legislation this year. While Senator Smith's draft legislation does not
presently address the anticompetitive effects of technology licenses
that impose non-assert obligations on licensees, and while we believe
expanding the scope of the rules to reach ``indiscriminate
redistribution over digital networks'' requires further consideration,
we are optimistic that these and other issues that may arise can be
addressed and resolved expeditiously and satisfactorily.
About Philips
Philips is a diversified global technology company employing more
than 160,000 people worldwide, including roughly 20,000 throughout the
United States. Philips is a company focused on improving, through
technological innovation, the lifestyle and physical and emotional
well-being of consumers, manufacturing products as varied as home use
defibrillators and medical diagnostic equipment such as MRI, CT and
ultrasound scanning, electric toothbrushes, electric shavers, lighting
products and a full range of video and audio entertainment products
ranging from digital television receivers to the Jukebox MP3 player.
Philips has been and continues to be a global leader in digital
television technologies and products and related consumer electronics
products, including DVD players and recorders, personal video
recorders, and Direct Broadcast Satellite systems. It is also a leader
in video compression, storage and optical products, as well as in
semiconductor technology. Philips is well-known as the inventor of mass
market entertainment standards, such as the Compact Disc and audio
cassette, and Philips has been and continues to be a main contributor
to many broadcast, disc, content distribution standards such as DVD
and, more recently, Blu-ray.
Philips also has been an active participant in the development of
content protection technologies that serve both the needs of the
content industry as well as the consumer. Philips invented the Serial
Copy Management System, or SCMS, preventing the unauthorized
reproduction of multiple generations of copies of digital audio works
from a copyright-protected original (while permitting a single
generation of copies). Philips continues to provide content protection
systems for the industry such as: the Video Content Protection System,
or VCPS, system to protect recordable DVDs; DisplayPort, a protected
digital technology to replace existing analog systems; and forensic
watermarking systems to find and prosecute those who provide content to
illicit producers of DVDs.
Philips is one of the largest users of the patent systems in the
United States and other industrialized countries. In 2004, we filed
U.S. patent applications for about three thousand new inventions.
Scientists and engineers at our U.S. laboratories have made pioneering
advances that revolutionized and revitalized the electronics industry
with innovations that led to high definition television, optical CD and
DVD recording, digital cellular telephones, medical imaging and digital
rights management.
Philips has been a constructive participant in inter-industry
content protection activities, including the Broadcast Protection
Discussion Group (BPDG), the Copy Protection Technical Working Group
(CPTWG), the Secure Digital Music Initiative (SDMI), and, most
recently, the Analog Reconversion Discussion Group (ARDG), co-chaired
by one of Philips' most accomplished technologists.
Philips Supports Legislation Ratifying the FCC's Video Broadcast Flag
Rules and its Digital Content Protection Technologies Approval
Order
As stated above, Philips supports legislation ratifying the FCC's
November 4, 2003 video broadcast flag rules as well as its August 4,
2004 technology approval order. Some observers who followed the FCC's
video broadcast flag proceeding might be surprised that Philips now
supports legislation ratifying the FCC's rules. They should not be.
Throughout the FCC's rulemaking proceeding, Philips expressed
several major concerns, which are discussed below. The type of narrowly
tailored legislation we support today, together with the open,
transparent, thoughtful and balanced rulemaking the FCC conducted,
addresses all of them.
So often, the Congress hears criticism of the FCC. In the broadcast
flag rulemaking, the FCC got it right. And while virtually everyone
recognizes that the broadcast flag is not a perfect system, it is a
reasonable step along a longer path that balances appropriate content
protection against consumer rights and product functionality, and helps
to promote innovation and competition in the consumer electronics and
digital content protection technology marketplaces. For these reasons,
ratification of the FCC rules is an appropriate action for Congress to
take.
FCC Authority
The threshold concern Philips expressed was that the Commission
lacked authority to impose a requirement that all digital television
receivers, digital VCRs, DVD players/recorders, PVRs, and a host of
other digital products recognize and respond to a set of digital bits
transmitted by broadcasters, conveniently referred to as the video
broadcast flag. Historically, because manufacturers of consumer
electronics products are not licensees, the Commission's regulation of
such devices has not been permitted absent an explicit grant of
statutory power by the Congress. That was the case with the All Channel
Receiver Act, the V-chip, and closed captioning. Such a targeted and
tightly constrained approach to regulation of consumer electronics
products has served the Nation well. The consumer electronics product
market is perhaps the most competitive and innovative of all sectors of
the American economy. A seemingly endless stream of new products and
consistently falling consumer prices are the defining characteristics
of this market.
Philips believed that FCC regulation of all digital products
containing demodulators--the partial list I just cited--without an
express grant of authority by the Congress represented a dangerous and
radical departure from wise policy and legal precedent militating
against FCC regulation of consumer electronics products except where
Congress required it.
The reason we are assembled here today, of course, is that the
United States Court of Appeals for the D.C. Circuit agreed with the
position Philips and others took. It struck down the video broadcast
flag rules solely on the ground that the FCC lacked the statutory
authority to promulgate them.
The type of legislation Philips supports today rectifies this
problem. It is narrowly tailored to address a specific area of public
policy concern following years of study and the open and fair public
process conducted by the FCC. It reaffirms the proposition that the
Commission's regulatory authority over television receiver
manufacturers and other non-licensees is not plenary or inherent, but
must derive from a specific grant from Congress.
Competition and Innovation
The second major concern that Philips had when the FCC commenced
its video broadcast flag rulemaking was that the issues were being
framed too narrowly and the likely result would be a set of rules that
would suppress rather than foster competition and innovation in the
digital content protection technology marketplace. As discussed in
greater detail below, Philips believes very strongly in the importance
of creating a global mindset in which content protection is an integral
part of the value proposition of the digital age for industry
participants and consumers alike. For this concept to take root,
however, the rules that apply to any government mandated or sanctioned
digital content protection technology must not inhibit competition and
innovation in this market.
As a consequence of the vigorous participation of many diverse
parties and the public and the extremely careful and insightful
approach adopted by the FCC, the rules adopted by the Commission are,
subject to one significant clarification discussed below, conducive to
a competitive digital content protection technology marketplace. The
Commission established an open and fair process for selecting
technologies, yielding a set of objective criteria against which
technologies would be judged and requiring technology proponents to
prove that they fulfilled these criteria. In its August 4, 2004 Order,
the Commission approved thirteen digital output and recording
protection technologies, including a recording protection technology
proposed jointly by Philips and Hewlett-Packard. Of course, even that
number of approvals does not necessarily mean that there will be robust
competition throughout this market; in certain instances there is only
a single technology approved for a particular interface or format, and
in other instances the need to interoperate effectively forces
manufacturers to use certain technologies. But the process established
by the Commission certainly is a promising start. That is why Philips
also supports legislation that would expressly ratify the Commission's
August 12, 2004 technology approval order.
Scope
Finally, Philips was concerned about the potential scope of any
video broadcast flag rules. Regulations that swept too broadly
inevitably would undermine consumer acceptance of digital content
protection technologies, the very opposite of the result sought by
content providers. Once again, the FCC got it right. It defined the
scope of its rules as being the prevention of indiscriminate
redistribution of digital broadcast television over the Internet. The
Commission elaborated:
This goal will not (1) interfere with or preclude consumers
from copying broadcast programming and using or redistributing
it within the home or similar personal environment as
consistent with copyright law, or (2) foreclose use of the
Internet to send digital broadcast content where it can be
adequately protected from indiscriminate redistribution. (FCC
Report and Order, FCC 03-273, November 4, 2003, para. 10).
This clearly defined and limited scope strikes the necessary and
appropriate balance to encourage consumer-friendly innovation in the
digital content protection technology marketplace. Indeed, it can be
viewed as a precursor and a complement to the United States Supreme
Court's Grokster decision last year that made clear that companies
whose business model was predicated upon actively and intentionally
inducing copyright violations, e.g., by facilitating indiscriminate
redistribution of copyrighted works over the Internet, would be held
liable for copyright violation. Just as the Court did nearly 16 months
later, the Commission sought to strike a delicate balance that would
safeguard copyrighted content without harming innovation in technology
and digital consumer products.
Any Broadcast Flag Legislation Enacted by the Congress Should Require
That Licensing of the Technology Concerned Must Be on a
Reasonable and Non-discriminatory Basis, and Clarify That
Requiring Licensees to Give Away Their Intellectual Property
Without Compensation as a Condition of That License Is
Inconsistent With That Requirement
Another key aspect of the FCC's video broadcast flag order was the
reaffirmation of the Commission's policy, announced nearly 45 years
ago, that licensing of technologies must be on reasonable and non-
discriminatory (``RAND'') terms and conditions. Specifically, the
Commission, in describing the process and criteria by which it would
review and approve digital broadcast content protection technologies,
stated:
Where a content protection technology or recording method is to
be publicly offered, we expect that it will be licensed on a
reasonable and non-discriminatory basis. We also expect that
publicly offered licenses will not be unreasonably withheld
from parties. (FCC Report and Order No. 03-273, November 4,
2003, para. 55)
To implement that principle, the Commission required each
technology proponent to submit a copy of its licensing terms and fees,
as well as evidence ``demonstrating that the technology will be
licensed on a reasonable, non-discriminatory basis.'' 47 CFR
Sec. 73.9008(a)(4).
Non-assert Obligations Are Inconsistent With RAND Licensing
Notwithstanding the clarity of the broad FCC requirement that
licensing of these digital broadcast content protection technologies be
on reasonable and non-discriminatory terms, a number of the
technologies approved by the FCC impose so-called ``non-assert''
obligations on licensees. When included in a license agreement, a non-
assert obligation requires a licensee that may own patents or other
intellectual property deemed ``essential'' to the technology being
licensed (but sometimes non-essential technology, as well), to agree
that it will not assert those IP rights against the licensors or any
other licensee of the technology concerned, as a condition of taking
that license. The result is that the licensee that owns IP must pay for
the technology and the IP being licensed, but must forgo any
compensation or other consideration--either from the licensors or other
adopters--for its own IP. For reasons set out fully below, non-assert
obligations on licensees are inherently inconsistent with the RAND
requirement prescribed by the Commission. In fact, in Philips' view, it
is hardly an exaggeration to qualify this as ``IP theft.''
Now-FCC Chairman Martin succinctly captured the danger posed by
non-assert obligations when the Commission adopted its August 4, 2004
technology approval order. In a separate statement issued in connection
with that Order, he wrote:
First, I fear that the ``non-assert'' clause in the DTCP
adopter agreement could hinder competition and suppress
innovation. We acknowledge in the Order that DTCP is the only
publicly-offered output protection technology we approve that
permits copying, and is ``therefore likely to become the
primary'' standard for the foreseeable future. As a result,
anyone who wants to build products for this market must sign
the DTCP license. Yet, the license requires that companies give
up any intellectual property rights they have in the DTCP
technology before signing. Therefore a party may have to choose
between the lesser of two evils: either don't participate in
the relevant product market, or compete, but give up your
intellectual property rights. I am concerned this result may be
anti-competitive, may discourage future investment in
intellectual property, and may generally be counter to good
public policy. (Statement of Commissioner Kevin J. Martin in
FCC Order In the Matter of: Digital Output Protection
Technology and Recording Method Certification, FCC 04-193,
August 12, 2004).
Chairman Martin was right on target. Non-assert obligations have no
place in licenses for technologies to be used pursuant to government
mandate such as the video broadcast flag rules. Although the rest of
the Commission expressed similar concerns about the ``potential for
anticompetitive or discriminatory conduct'' \1\ stemming from the use
of non-assert obligations, it was not prepared to resolve the issue
definitively. Congress should take this opportunity to clarify the law.
---------------------------------------------------------------------------
\1\ In the Matter of Digital Output Protection Technology and
Recording Method Certifications, Order, 19 FCC Rcd 15917(2004).
---------------------------------------------------------------------------
Non-assert Obligations, Particularly In Licenses Subject To A
Government Mandate, Are Not Reasonable
The very essence of the constitutionally protected system of
patents is the expectation that an individual or company that invests
in research and development resulting in patents will be able to
realize value from those patents in the form of reasonable royalties.
As the Founders recognized, if that expectation is not realized, the
incentive to innovate is destroyed. The effect of imposing a non-assert
obligation on licensees, because it denies a licensee that owns IP from
realizing the value of that IP, is essentially to suspend this core
constitutional protection, making it unreasonable on its face.
The irony is especially great here, where the entire purpose of the
video broadcast flag rules is to protect the intellectual property of
one party--a content creator--and yet the mechanism for doing so
requires another party--a consumer electronics manufacturer that is
also a technology innovator and contributes to the technology that
enables content producers to protect its content--to surrender its own
intellectual property rights in that technology and, often, in
improvements. Particularly in this context, the notion that a non-
assert obligation is ``reasonable'' defies all common sense.
The ``reasonable'' alternative to imposing a non-assert obligation
on licensees is to subject licensees to the same obligation that the
FCC seeks to impose on the technology proponent--an obligation to
license its intellectual property on reasonable and non-discriminatory
(``RAND'') terms. Under a RAND obligation, licensees agree not to use
their IP to block the technology licensed, but are not required, in
doing so, to sign away their own intellectual property without
compensation. The reasonableness of a RAND obligation on licensees has
made it commonplace in the technology marketplace. In fact, the entire
consumer electronics industry rejected a non-assert obligation in favor
of a RAND requirement in the DFAST license that is employed for
licensing content protection technologies used with unidirectional
digital cable-ready devices.
Non-Assert Obligations Are Discriminatory
Non-assert obligations on licensees discriminate against certain
classes of companies, particularly those companies that have invested
extensively in research and development of content protection
technology, and that themselves also develop or manufacture products
that must use the licensed technologies that are commonly used by
others in order to permit product interaction.
Indeed, with a non-assert obligation, companies that undertake
little or no R&D--often called ``imitators''--for whom the non-assert
has no implications, are held harmless; whereas the very companies that
drive new innovation through aggressive investment in R&D--companies
such as Philips--may suffer substantial economic harm because their IP
is used without compensation and may be rendered valueless. Put another
way, a non-assert obligation requires those implementers with IP to
``pay twice''--once for the technology being licensed, and once more
for the loss of their IP; while others, potentially its competitors,
pay only once. That is clearly discriminatory.
It's worth noting, as well, that a non-assert obligation is
powerless to prevent a third party who does not manufacture a product
requiring a license, but who owns IP in that technology, from asserting
their IP against all licensees.
Non-Assert Obligations Raise Fifth Amendment Concerns
The coupling of a non-assert obligation on licensees with a
technology subject to a government mandate raises very serious
questions as to whether such action would constitute a taking under the
Fifth Amendment for which the government would be liable to provide
just and reasonable compensation. Especially in circumstances where a
technology holds a monopoly or even duopoly position in the marketplace
(as is the case with respect to several approved broadcast flag
technologies), a regulatory mandate to take a license for that
technology, coupled with a license requirement to surrender the value
of one's IP that reads on that technology, would appear to fall within
the prohibition of the Fifth Amendment's Takings Clause.
The Negative Public Policy Outcomes Flowing From the Use of Non-Assert
Obligations Make Them All The More Objectionable
Not surprisingly, given their unreasonableness and discriminatory
nature, non-assert obligations on licensees also have multiple and
extremely negative implications for core public policy objectives of
this Committee--most notably the need to foster innovation and robust
competition in both digital content protection and consumer electronics
technologies. These effects harm not only companies that invest
aggressively in innovative technologies, but content owners and, most
importantly, consumers.
Non-Assert Obligations Stifle Innovation and Competition
One need not be a patent attorney to recognize how a non-assert
obligation can dampen investment in new technologies. Because it forces
licensees with intellectual property to forfeit the value of their IP
as a condition of taking the license, it discourages investments in
research and development, which in turn stifles further innovation.
Again, the protection afforded patents in the Constitution says it all:
those who cannot realize value for their innovations will lose their
incentive to innovate.
The anticompetitive effects of non-assert obligations on licensees
become immediately apparent in cases where licensors and licensees of a
particular technology are direct competitors and where there is no
competitive alternative to that technology for the specific area of
protection it covers. Such is the case with the broadcast flag, where
several approved technologies that employ a non-assert in their license
agreements, and for which there is no marketplace alternative, are
controlled by direct competitors of Philips (both in the consumer
electronics and digital content protection technology spaces). In such
cases, non-assert obligations enable one competitor, the licensor--
backed by a government mandate--to dampen investment by its
competitors, the licensees, that otherwise might result in bringing to
market alternative, superior technologies (or improvements) and/or
devices.
Moreover, the anticompetitive effects of non-assert obligations on
licensees are compounded in instances where the technology's license
agreement also permits changes to that technology. In such cases, a
non-assert obligation can expand to cover not just the original
``essential'' IP that a licensee was required to forfeit, but future
innovations the licensee might develop, as well.
A simple example illustrates the alarmingly anti-competitive effect
at work here. Suppose Philips signs a license, which includes a non-
assert obligation, to implement the only government-approved broadcast
flag technology that protects content passed over Interface A. Let's
call the technology ``RED.'' Philips then creates a competitive content
protection system for Interface A, we'll call it ``GREEN,'' which
includes a new, patented, feature that makes it more attractive than
RED, both for content distributors and for consumers. One would expect
this new and improved technology to be a successful competitor.
However, the RED license expressly permits changes to that technology--
including the addition of the very new feature found in GREEN--and the
non-assert obligation precludes Philips from suing for patent
infringement. As a result, while GREEN can still be introduced as an
alternative, it is left without any distinguishing superior feature,
which makes its chances of competing effectively with RED virtually
nil.
This is extremely significant for Philips. Philips invests
approximately $3 billion per year in research and development,
including significant R&D programs in the area of digital content
protection and Digital Rights Management (``DRM'') technologies and
improvements. We simply cannot justify further investment of this kind
or extent if we are deprived of the ability to receive reasonable
compensation for our resulting innovations. And if we are deprived of
the value of our IP, it directly harms our ability to compete.
Imposing non-assert obligations on licensees of broadcast flag
technologies should also concern the content industry. Just consider
that, ironically, the very innovations that may be stifled by non-
assert obligations in broadcast flag technology licenses are new and
improved digital content protection technologies or improvements in
existing systems! For example, research projects to achieve advances in
localization of protected content--a key goal of the content
community--are directly implicated by the non-asserts in several of the
content protection systems approved by the Commission. These and
similar efforts could be put off or abandoned altogether if investments
by companies seeking to innovate in these areas risk being stranded by
non-asserts that preclude a return on those investments.
Moreover, the prospect of having only one or two entities
essentially controlling the methods and terms by which all protected
digital broadcast content flows across and among virtually every
digital television receiving device is distressing. That is hardly an
environment in which further digital content protection innovation will
be sparked, or where costs will remain competitive. In short, content
owners should be equally--if not even more--concerned about the
negative consequences--both from a technological and economic
perspective--of non-assert obligations in the digital content
protection technologies.
Accordingly, any legislation enacted by Congress reinstating the
video broadcast flag rules should expressly require that licensing of
publicly-offered digital broadcast content protection technologies
approved by the Commission pursuant to the rules must be on reasonable
and non-discriminatory terms and conditions. Such a requirement
entails, at a minimum, offering potential licensees of that technology
who own essential IP, an opportunity to license that intellectual
property on reasonable and nondiscriminatory terms. By requiring that a
choice be offered, a choice unreasonably and discriminatorily denied by
non-assert obligations, Congress will ensure that it is neither
directly or indirectly depriving any person or entity of the ability to
realize the value of their patented inventions.
Legislation Reinstating the Video Broadcast Flag Rules Could Serve as
the Foundation for a New Digital Content Protection Paradigm
As the United States and the rest of the world migrate to digital
broadcast transmissions and as broadband networks develop into the
dominant means of distributing or accessing video content, there is an
imperative to create a new paradigm that values digital content
protection as an integral part of the digital video experience. We need
a new way of thinking about digital content protection, one that can
form the basis of a consensus among copyright holders, technology
companies, consumer electronics manufacturers, and, most importantly,
global consumers. The creation of this new paradigm will require
unprecedented cooperation among parties that have frequently and
historically been at loggerheads, reinforced, as needed, by government
action.
All stakeholders have a responsibility to underscore the
fundamental message of the content community that electronic theft of
copyrighted video content is wrong. Indeed, last year, Philips launched
a consumer education campaign to highlight that most basic principle.
Aggressive law enforcement targeted at the professional thieves who
make a business out of copyright infringement is essential. Global
acceptance of this proposition is a critical starting point. But it is
not an ending point.
The content community should understand that the creation,
development, and deployment of evermore innovative and effective
digital content protection technologies is indispensable to the
creation of a new mindset that values more fully the IP rights in video
content. This does not necessarily mean that studios must fund directly
the development of such technologies, but they should support a digital
content ecosystem that permits technology companies and consumer
electronics manufacturers to realize a reasonable return on their own
intellectual property research and development investments. Again, this
is why RAND licensing is so critical (and why non-assert obligations
are so harmful). Without RAND, more effective digital content
protection technologies which also enable enhanced personal, non-
commercial use of the content by consumers simply will not come to
market.
The new value proposition supporting enhanced digital content
protection succeeds, however, only if consumers have the opportunity to
purchase new digital products that enable them to make more creative
and satisfying uses of the digital content they receive than was true
in the analog world. The enormous popularity of TiVo and similar home
recording devices is an example of the investments that consumers will
make if they believe that they are receiving tangible benefits in
enjoying video content. Consumers view digital technology as
liberating. They will only accept the fences that content producers may
view as essential if they can be assured that they will be able to
enjoy a richer experience within those boundaries.
Philips views reinstatement of the video broadcast flag rules, with
clarification of the requirement of RAND licensing, as a promising
first step in creating this new digital content protection paradigm.
I thank you again for the opportunity to testify. I would be
pleased to answer any questions that you may wish to ask.
The Chairman. Thank you very much.
Our next witness is Leslie Harris, the Executive Director
of the Center for Democracy and Technology.
Ms. Harris.
STATEMENT OF LESLIE HARRIS, EXECUTIVE DIRECTOR, CENTER FOR
DEMOCRACY AND TECHNOLOGY
Ms. Harris. Thank you.
Mr. Chairman, Mr. Inouye, Members of the Committee, on
behalf of the Center for Democracy and Technology, I appreciate
the opportunity to testify today. CDT is a nonprofit public-
policy organization dedicated to promoting civil liberties and
democratic values on the Internet. CDT strongly opposes piracy,
and we support balanced policy approaches that protect
copyright owners legitimate interest in being compensated
without stifling innovation and the benefits of new technology.
With respect to the broadcast flag, we would urge this
Committee to take a fresh look and carefully weigh the risks
and the benefits, because the risks to innovation and consumer
interests are substantial. On balance, CDT believes that
Congress should not proceed with flag legislation, but, if it
does, we urge that it not give the FCC a blank check.
Legislation must include carefully crafted limits and
safeguards to help minimize the risks.
I want to make three points:
First, the broadcast flag regime involves significant
government regulation of technology design. It's not a minor or
technical proposal, would entail ongoing government involvement
in technology design for any device that might be used to
display, receive, or record digital television content. And as
technology converges, this means not just televisions, but
personal video recorders, computers, Internet-enabled mobile
phones, iPods, and computer game consoles. In addition, a flag
regime would make the FCC the gatekeeper for entry into the
marketplace of new technologies not yet anticipated, because
those new video-related devices and features would require FCC
approval. We think the FCC is ill-equipped for such a role.
Broadcast flag legislation would also set a precedent for
additional technology design mandates, some of which are being
discussed today. CDT generally opposes such mandates, because
of their impact on innovation. But, as Congress considers
whether to start down this path, it has to carefully consider
whether, and how, it can draw a line.
Second, the broadcast flag carries risks to innovation and
legitimate consumer uses. A broadcast flag regime would make
the FCC the final arbiter of which technologies make it to
market, and when. Technology companies may decide to ``play it
safe'' rather than seek approval for new features, particularly
if the approval process lacks clear standards. This is exactly
what happened during the FCC process. Several consumer
electronics companies chose to remove innovative features,
before the FCC even had a chance to rule on them, in order to
avoid delay in the face of opposition.
Another serious risk concerns the public's ability to use
digital TV content in ways that constitute fair use.
Individuals increasingly use clips of news or public affairs in
online learning, in an online political commentary circulated
for example, by blogs or e-mails. Application of a broadcast
flag to news and public-affairs programming, for example, would
undermine the potential of the Internet to enhance civic debate
in this fashion.
Finally, there is a risk of consumer confusion and
frustration due to interoperability concerns, both with legacy
devices and among different flag technologies.
These serious concerns need to be weighed against the
potential efficacy of the flag. Even the content industry
concedes that regime is not likely to stop determined pirates,
nor keep popular programs off of peer-to-peer networks
entirely.
Third, however, if Congress does choose to proceed with
flag legislation, it must include clear limits and safeguards.
First, any grant of authority must be narrow, only to the
extent necessary to prevent flagged content from being
redistributed indiscriminately on the Internet. Second, it
should specify standards for the technology approval process to
ensure that it is objective, predictable, timely, and
transparent. Applicants should be permitted to self-certify
compliance, and the burden of proof should lie on the party
seeking to have a technology rejected. There needs to be an
express statement in the legislation that certain reasonable
consumer uses, including secure Internet transmission to a
limited number of devices or Internet transmission of limited
excerpts, will not be precluded. And, there needs to be a
uniform time framework for approval. And, last, it should
include provisions to reduce the risk to fair use. Certain
content should not be eligible to be flagged, including
material in the public domain, coverage of debates, political
speeches, and news programming, the primary commercial value at
which depends on timeliness.
Finally, any broadcast flag legislation should call for
fair disclosure to consumers about interoperability
limitations. We understand that crafting these limitations
require careful work, but they're essential to help minimize
the risks posed by a flag regime.
Thank you for the opportunity to testify. We stand ready to
work constructively with this Committee as it continues to
consider issues important to the future of the Internet.
[The prepared statement of Ms. Harris follows:]
Prepared Statement of Leslie Harris, Executive Director, Center for
Democracy and Technology
Mr. Chairman and Members of the Committee, on behalf of the Center
for Democracy and Technology (CDT), I appreciate the opportunity to
testify today. CDT is a nonprofit, public policy organization dedicated
to promoting civil liberties and democratic values on the Internet.
CDT takes piracy seriously. CDT is committed to the principles that
copyrighted material should be protected from large-scale unauthorized
copying. Denying compensation to creators and distributors of digital
content undermines First Amendment values by stifling expression,
threatening the growth of new media and e-commerce, and depriving
consumers of a robust marketplace of content offerings. At the same
time, resolving these issues should not come at the expense of
reasonable consumer expectations regarding the use of copyrighted works
and digital technologies. Nor should it come at the expense of the
Internet and innovative new communications technologies that hold
tremendous promise to promote free expression, economic growth and
civic discourse.
The key for policymakers is to find balanced policy approaches that
protect copyright holders' legitimate interest in being compensated for
their efforts, without stifling innovation and the great benefits new
technologies offer. \1\
---------------------------------------------------------------------------
\1\ CDT's approach to the broadcast flag is informed by a policy
framework for digital copyright that the organization released last
spring. Protecting Copyright and Internet Values: A Balanced Path
Forward Version 1.0 (Spring 2005) http://www.cdt.org/copyright/
20050607framing.pdf.
---------------------------------------------------------------------------
This Committee is being asked to decide whether to give the Federal
Communications Commission the authority to impose the broadcast flag
regime, an unprecedented government technology mandate--that a Federal
court rejected last year. Before the Committee simply authorizes that
action, ex post facto, we urge that you take a fresh and full look at
the issue and carefully weigh the risks and benefits of such an
approach. Protecting intellectual property is a very important goal,
but it is uncertain at best whether imposing a flag regime would
achieve that goal. The flag, moreover is not the only means to address
the problem. On the other hand, the risks posed by the flag to
technology innovation and consumer interests are considerable.
On balance, CDT would not recommend that Congress proceed with flag
legislation. But if it does, it is critical that it not give the FCC
blank-check authority to implement the regime however the agency sees
fit. Any grant of authority to the FCC should include carefully crafted
limits and safeguards to help minimize the risks. We discuss those
safeguards in more detail below.
1. The Broadcast Flag Regime Involves Significant Government Regulation
of Technology Design.
The broadcast flag proposal is not a minor or technical proposal;
it would entail ongoing government involvement in technology design for
a wide range of devices, including computers and video enabled
technologies not yet anticipated. It also could set a precedent for
further government technology mandates, which CDT generally opposes.
Government-dictated design requirements are unlikely to keep pace with
innovation in the rapidly moving high tech environment, and may serve
as roadblocks to new, unanticipated technologies and features.
A broadcast flag regime would impose design requirements on a broad
and growing range of devices. The ``broadcast flag'' itself is just a
marker attached to a television program, signaling that the program
should be protected against indiscriminate copying. It only has an
impact if downstream devices recognize and respond to this marker. For
this reason, the Federal Communications Commission's flag rules
effectively required any device that might be used to display, receive,
or record digital television content to incorporate an FCC-approved
technology for protecting flagged programs.
As technology converges, the range of devices capable of
displaying, receiving, or recording flagged video content is growing
very broad. People can now watch video programming not just on
televisions, but on portable DVD players; on general purpose computers;
on iPods; on Internet-enabled mobile phones; through personal video
recorders like TiVo; and through computer game consoles.
The FCC's flag rules would have had an impact on this entire range
of technology products, and would give the FCC ongoing approval
authority over the introduction of new video-capable technologies. An
innovator seeking to develop a new and improved device would need to
either license and incorporate a flag compliance technology already
approved by the FCC, or, if the device involved features or functions
not contemplated by existing technologies, apply to the FCC for
approval of new technology. In effect, the FCC would serve as the
gatekeeper for the entry of new technologies into the video
marketplace.
There is also the important question of the precedent that
broadcast flag legislation would set. If the flag regime is enacted,
other requests for technology mandates surely will follow. Already, the
flag proposal has been joined by proposals for technology requirements
to limit radio recording functionality and restrict analog-to-digital
conversion. As Congress considers whether to start down the path of
imposing design requirements on computer and communications technology,
it should think carefully about whether and how it would draw the line.
2. The Broadcast Flag Carries Risks to Innovation and Legal Consumer
Uses of DTV.
The broadcast flag proposal carries a number of significant risks
to innovation and to legal consumer uses of digital television.
If the FCC has the authority to sign off on new video enabled
technologies, it may well be the final arbiter of which technologies
make it to market and when. The FCC could delay approval of an upstart
technology because of stiff opposition from business opponents,
delaying it from getting to market at the same time as its nearest
competitors. And if the FCC approval process is uncertain or
unpredictable, innovators will have no clear guidepost to help
determine what would likely win approval.
These concerns are not merely hypothetical. Last fall, CDT released
a paper which took a close look at the FCC's flag proceedings. \2\
While the FCC approved all thirteen proposed flag compliance
technologies that it considered, final approval was only part of the
story. Several consumer electronics companies chose to withdraw
potentially valuable consumer features from their products before the
FCC ever had a chance to rule on them because the approval standards
were uncertain and there was strong opposition from certain parts of
the content industry. To ensure success, the applicants played it safe
and removed innovative features permitting users to transfer content in
limited ways over the Internet. The lesson from the proceeding was
clear: the FCC approval process can chill innovation, particularly if
the process is too subjective or unpredictable.
---------------------------------------------------------------------------
\2\ Lessons of the Broadcast Flag Process: Background for the
Legislative Debate (September 2005) http://www.cdt.org/copyright/
20050919flaglessons.pdf.
---------------------------------------------------------------------------
Another serious risk concerns the public's ability to use digital
television content in ways that constitute ``fair use'' under copyright
law. This consideration is especially serious with respect to news and
public affairs programming which is of transient economic value to
copyright holders but critical to informed public discourse. The
Internet provides unprecedented ability for individual speakers to
engage in political and civic discourse on a large scale. News and
public affairs programming that is interesting, important, or satirical
can spread quickly on blogs and through e-mail chains. \3\
---------------------------------------------------------------------------
\3\ Broadcast Flag Authorization Legislation: Key Considerations
for Congress, Version 1.1 (September 2005) www.cdt.org/copyright/
20050822broadcastflag.pdf.
---------------------------------------------------------------------------
But applying the broadcast flag to news and public affairs
programming could undermine the potential of the Internet to enhance
debate in this fashion. Television continues to be a primary source of
video footage concerning the top issues of the day. The flag regime
could prevent a blogger from including a short excerpt from a broadcast
debate between political candidates in her online blog. It could
prevent a charity or a church from using broadcast news clips about a
recent natural disaster to bolster an Internet-based appeal for relief
assistance or a teacher from including such a clip in an on-line civics
course.
Finally, a broadcast flag regime carries a risk of consumer
confusion and frustration due to interoperability problems. Consumers
may be surprised to learn that their new, flag-compliant devices may
not work with their older devices, or with devices using different flag
compliance technology. For example, DVDs recorded using a new flag-
compliant DVD recorder would not play in an older DVD player.
Any evaluation of flag legislation should weigh these risks against
the potential benefits. The concerns of content providers about the
long-term risk of widespread online copying of DTV programming are not
without merit, and content providers clearly believe that a flag regime
would offer them some protection against widespread Internet
redistribution. But even the content industry concedes that the flag
regime is not likely to stop determined pirates nor keep popular
programs off the peer-to-peer networks entirely. Its main effect may be
to keep ordinary consumers from uploading recorded programs to the
Internet for legitimate purposes.
3. If Congress Proceeds With Broadcast Flag Legislation, It Should
Include Important Limitations and Safeguards.
If Congress chooses to proceed with flag legislation, it is
critical that it not give the FCC blank-check authority to implement
the regime however the agency sees fit. Any grant of authority to the
FCC should include carefully crafted limits and safeguards to help
minimize the risks discussed above.
First, any such legislation should clearly state the basic scope
and limited purpose of the FCC's authority. Specifically, it should say
that the FCC may adopt regulations only to the extent necessary to
prevent flagged content from being redistributed indiscriminately on
the Internet.
Second, any such legislation should specify standards for the
technology approval process, rather than leaving it all up to FCC
discretion. The standards should be designed to ensure an objective,
predictable, timely and transparent process. In particular:
There should be a clear standard for technology approval:
Does the technology effectively frustrate an ordinary user from
engaging in indiscriminate redistribution of flagged content
over digital networks?
Applicants should be permitted to self-certify compliance;
the burden of proof should lie on the party seeking to have a
technology rejected.
There should be an express statement that certain reasonable
consumer uses, including secure Internet transmission to a
limited number of devices or Internet transmission of limited
excerpts, will not be precluded.
There should be a uniform timeframe for approval decisions.
There should be an oversight mechanism, such as an advisory
board, to help identify any problems or mission creep in the
technology approval process and consumers should be represented
in the oversight process.
Third, any such legislation should include provisions to reduce the
risks to ``fair use'' and civic discourse. One important safeguard
would be to specify that certain content is not eligible to be flagged
including material that is in the public domain; coverage of debates or
political speeches; and news programming the primary commercial value
of which depends on timeliness. For these types of programming, the
flag's risk to legitimate, noncommercial consumer uses seems
particularly high, while its benefit to the commercial interests of
copyright holders seems relatively low. (These types of programs are
not likely to depend on long-term ongoing revenue streams through DVD
sales, cable reruns, and so forth). It is important to note that
unflagged content would still be covered by copyright law; it simply
would not receive the extra layer of technical protection offered by
the flag.
It is worth noting that in the rare instances when Congress has
imposed technological mandates to address copyright concerns, it has
balanced these provisions with language to protect specific types of
copying that were considered fair use. The 1992 Audio Home Recording
Act mandated use of ``Serial Copy Management System'' technology in
digital audio recording devices--but it also said that consumers may
record music for noncommercial purposes without risking infringement
lawsuits. Section 1201(k) of the Digital Millennium Copyright Act
required analog VCRs to respond to Macrovision copy control
technology--but also specified that the technology could not be used to
restrict consumers' ability to record ordinary television programming
(including cable) for time-shifting purposes. An effort to address key
fair use issues would be warranted in broadcast flag legislation as
well.
Finally, any broadcast flag legislation should call for fair
disclosure to consumers about interoperability limitations stemming
from the flag regime.
Crafting these types of limitations in legislation would require
careful work, but would be essential to help minimize the risks posed
by the flag regime.
Thank you again for the opportunity to testify today. CDT stands
ready to work constructively with the Committee as it continues to
consider issues important to the future of the Internet.
The Chairman. Well, thank you very much. Those are very
constructive comments.
I, again, want to emphasize, though, that the FCC got into
this because 11 Members of this Committee wrote and
specifically asked them to address the subject. And the rule
was in effect for some time before it was determined that--by
the court, as I understand it--the FCC didn't have authority
from Congress to participate in issuing such a regulation.
So, I do think your comments are constructive, as I said,
but let me just ask a couple of questions.
Mr. Setos, Mr. Band, sitting beside you there, talked about
the content concept, looking at the content of these
transmissions. What's your response to what he was saying about
this process?
Mr. Setos. Well, I think you're referring to his concern
that distance learning would be in some way affected by the
broadcast flag. And I think that, if I've read the TEACH Act
correctly, the TEACH Act requires the content going to students
at distant locations via the Internet be protected in some way.
And I think that comes right under the regime of the broadcast
flag. So, in principle, I don't see the broadcast flag
affecting distance learning in any way, and I would support any
mechanism by which that would be made.
The Chairman. And, Mr. Band, you spoke of libraries being
involved in that distance-learning process. My understanding
it's basically with educational institutions, like our
university, that broadcasts programs all over the state to
schools. Now, where do the libraries come in?
Mr. Band. Well, if the university is engaged in a distance-
education program, the university library is a critical part of
that process. Same thing at the high-school level, same thing
at the primary-school level. Often an instructor will ask--will
work with the library--with the school library or the
university library--in putting together the distance-education
programming.
The Chairman. Mr. Patton, is there any concern that
determining fair license fees for flag technology could
complicate this protection?
Mr. Patton. That--charging fees?
The Chairman. Yes.
Mr. Patton. No. In licensing regimes, on reasonable
nondiscriminatory terms, there are fees associated with
licenses. The primary issue which I have raised is not about
the fee required to license a technology, but is about a
provision that might prohibit us from asserting our own
intellectual property that might read on that technology, for
which we would be able to ask no fair price. The non-assert
provision would prevent us from asking for that fair
remuneration for the contribution that we would make to that
technology.
The Chairman. Ms. Harris, you mentioned the concern about
FCC becoming a gatekeeper for technology. How would you address
that concern? Obviously, someone's got to be a gatekeeper if
we're going to put this rule back into effect. Now, what----
Ms. Harris. Well, I think----
The Chairman.--what process would you find acceptable for
the FCC to use?
Ms. Harris. I think, in the first instance, it's important
for this body to state what ``permissible uses'' the FCC has to
allow. In other words you're talking about distance learning,
we're talking about news. You can make a lot of decisions--
these are policy decisions, so a decision about whether or not
we should permit excerpts to go across the Internet, whether or
not we allow content to go to secure devices across the
Internet--I think that a lot of those decisions need to be made
here. I don't think we want the FCC in the business of becoming
an arbiter between incumbents with powerful interests and new
entrants who are trying to bring something to market. I think
it's--this is the fundamental problem with the flag regime, is
that these things could get worked out in a private
marketplace. I think once they become a matter in front of the
FCC--the FCC does not have enormous expertise in this area.
They're having----
The Chairman. Your fear is about the technology--the
development of new technology in this regard, is that right?
Ms. Harris. Pardon?
The Chairman. Your fear is about the development of new
technology?
Ms. Harris. I'm worried about the development and the
deployment of those new technologies. The truth is, the FCC
process--I am not going to say they got it 100 percent right,
but they did a fairly good job. And, even in that process, you
saw companies, who had developed technologies for secure
transmission across the Internet to secure devices, withdraw
those features, because they saw that they were going to get
into a big fight, that it was going to slow down the process.
And that's what our concern is. If you went to the consumer
electronics show, you know, it was mindboggling about what is
coming--what is potentially coming to market that we don't even
understand yet. And what we don't want to do is wind up with a
regime that locks things in place in a way that makes it
difficult for those new technologies.
The Chairman. Thank you.
Senator Inouye?
STATEMENT OF HON. DANIEL K. INOUYE,
U.S. SENATOR FROM HAWAII
Senator Inouye. Mr. Chairman, first of all, my apologies
for being late.
I'm here because I'm interested in the draft that was
proposed by Senator Smith, and I'm hoping that the Members of
this Committee will study that draft, and members of the
industry would do likewise.
Like most Americans, I'm concerned about the legitimate
threat of piracy. The movie industry, I think, has been losing
billions of dollars. The same can be said of the recording
industry. At this time, the broadcast flag is not perfect, but
it is about the most balanced solution we have. And since the
court here has suggested that the Congress should get into the
act to provide some authority, that's why we're gathered here.
And we thank you very much for your help.
Mr. Chairman, may I submit my statement, sir?
The Chairman. Certainly.
[The prepared statement of Senator Inouye follows:]
Prepared Statement of Hon. Daniel K. Inouye, U.S. Senator from Hawaii
Digital content producers are right to conclude that piracy is a
legitimate threat to their long term success. The movie industry, one
of the few American industries with a positive trade balance, loses an
estimated $3.5 billion annually due to piracy.
This amount, while already large, seems certain to grow as
broadband proliferates, particularly if producers of content are unable
to stop the indiscriminate distribution of their creative works.
The Federal Communications Commission (FCC) jumped into this breach
at the prodding of Congress. In adopting its Broadcast Flag Order, the
FCC recognized that adopting a standard for the protection of digital,
over-the-air, television content was necessary to give broadcasters the
same ability to protect video content that currently exists on cable
and satellite distribution platforms.
Though far from perfect, the broadcast flag is the closest we have
come to date to a balanced solution. With some refinement, it could
provide sensible copyright protection without stifling the production
of new, innovative consumer electronics.
Despite the recent reversal of the FCC's broadcast flag order by
the D.C. Circuit Court of Appeals, the method appears to be gaining
favor, and it may very well be appropriate for Congress to explicitly
grant the FCC the authority that, the Court contends, it lacks. The
testimony provided today will help us make that determination.
Today's hearing also affords us the opportunity to consider
strategies designed to protect music and other audio content in a
digital age--an industry that knows all too well the impact of online
piracy. As a result, today's second panel will allow us to explore
whether similar content protection strategies are warranted for digital
audio content.
I thank the witnesses for their participation in today's
discussion.
The Chairman. Do you have any questions, at this time,
Senator?
Senator Inouye. Yes.
Mr. Setos, what would be the impact on the broadcast
industry if all patent rights were taken away, if it was wide
open?
Mr. Setos. Well, it's--I liken it to--it would be quite
devastating, obviously. We have--in this multi-hundred-channel
universe of entertainment and information, the pay-television
industry unilaterally can seek out any protections that it
requires to feel that it can operate as a business. The music
on iTunes, television shows on iTunes that can be downloaded to
the iPod are protected by technologies. But if broadcasters--
local broadcasters can't assure the rights holders, whether
they be sporting leagues or entertainment producers, that their
content won't be indiscriminately redistributed, they simply
won't be able to gain access to that programming, and local
television as we know it today will wither and die for that one
sole reason.
Senator Inouye. I am well aware of the high-tech
advancements being made in the industry. And possibly this law
that we are considering may do some harm. Do you believe that
these copyright holders have their rights, also?
Mr. Setos. Well, the simple answer is, of course, yes. And
I think that, while it's proper for everyone to be concerned
about the unwitting harm that something might engender, I think
we've worked very hard in building consensus with this--the
consumer electronics industry, the information-technology
industry, and others to make sure that there is literally zero
harm, in any real sense. And certainly with distance learning
we think there's no effect. And more--this is primarily just
more discussion to ensure that all these uses that people would
like to have can be made without harming the local broadcaster.
Senator Inouye. So, industry is willing to sit down with
the content producers.
Mr. Setos. Yes.
Senator Inouye. Because you believe that their copyrights
are legitimate?
Mr. Setos. Yes.
Senator Inouye. And piracy is a legitimate threat.
Mr. Setos. Yes, it is a very real threat.
Senator Inouye. Thank you very much.
The Chairman. Senator Burns?
Senator Burns. As I understand it, the flag allows the
receiver of any content, be it movie, music, or whatever, to
record and keep that in his own private collection, but it does
not allow it to be rebroadcast a second time. Is that a correct
assumption?
Mr. Setos. Yes, sir.
Senator Burns. Mr. Band, in the libraries, are we treating
electronic content different than print?
Mr. Band. The flag would treat it differently.
Senator Burns. Yes.
Mr. Band. Under the existing copyright laws, you are
allowed to engage in distance education, and an educational
institution or a government agency is allowed to broadcast
copyrighted material for distance-education purposes. So you're
able to broadcast copyrighted material in limited degrees. And
that would be considered a fair use, it's an exception within
the Copyright Act. But the problem is, with the broadcast flag,
the technology that you have, the receiving technology, would
prohibit that retransmission. So that retransmission that can
go on now in the analog world, and that is also, under the
TEACH Act, allowed in the current digital world, would be
prevented, going forward. And that's exactly our concern, is
how do we make sure that the new technologies that would be
responding to the flag--how would we still be able to
retransmit the way we are able to retransmit right now with
current digital technologies?
Senator Burns. Rather than the government dictate a waiver
for specific entities, such as libraries and educational
institutions, do you think that the licensor would grant a
waiver to those institutions without government requirement?
Mr. Band. Well, if you're saying that an individual teacher
or an individual institution pursue a license, there are two
problems. One is cost. Right now the institution is able to do
that retransmission, in essence, for free. But, under a license
regime, if I were a content provider, I would ask to be paid.
But, of course, we're talking about public schools, public
libraries. And so, then you fellows would have to come up with
the money for them to pay for that.
Senator Burns. Do they pay for the books----
Mr. Band. The----
Senator Burns.--printed material?
Mr. Band. The libraries now do pay for the books, that's
right. But, of course, they would need a new license, on top of
that, for the material that's broadcast. Now they are able to
get that material for free off the air, and retransmit it for
free. But under a flag regime where you then would have to have
a license, you would have to presumably pay for that, so,
there's a budgetary impact.
The second problem is simply a timing impact. Often, a
teacher who's putting together a distance-education program--
now the beauty of the Internet and the digital technologies,
they are able to respond very quickly to current events. So, if
a teacher wanted to retransmit something dealing with a Senate
hearing that happened--this hearing, let's say--and they want
to retransmit it tomorrow, they would be able to do it. But
under a broadcast flag regime, especially if it had to be
licensed, that timing, that ability to respond quickly in
distance-education programming would just be impossible.
Senator Burns. Why would we want to license that? Isn't it
for public view, anyway?
Mr. Band. Well, again, if I'm NBC news--and I have a news
show, if a school wanted to rebroadcast it, maybe they would
want a segment to be rebroadcast for free, or maybe they
wouldn't. It would be up to them, under the flag regime. We
think that at least with news broadcasts and other public-
affairs shows that are so important, that--especially given
that Congress is mandating the flag--then you also should be
carving out the exceptions. It doesn't make sense to us that
you mandate the regime, but then let the content owners decide
whether or not to allow the exceptions. That would be
asymmetrical.
Senator Burns. Ms. Harris----
Ms. Harris. Yes, I----
Senator Burns.--would you like to comment on that? We're
trying to sort this----
Ms. Harris. Right.
Senator Burns.--thing out, where--you may comment.
Ms. Harris. Right. I think the concern here is that the way
the flag regime has been conceptualized, the content owners
simply decide--can make a decision to flag everything. And, in
flagging everything, they're not just affecting distance
learning--and I--having worked on the TEACH Act, completely
agree with Mr. Band on his point there--but first of all,
things that are in the public domain, public-affairs and news
programming, which have an important societal and civic value,
and which are increasingly being used on the Internet in
snippets and clips to enhance a public debate that's going on,
a very important public debate. And as it's currently
conceptualized, by giving a grant to the FCC and not saying,
``Here are the exceptions. You can't flag news and public
affairs, you have to allow technologies that permit excerpting,
so that--so that all content that can be used now in a fair-use
way, could be used, going forward,'' that somebody has to say
what those exceptions are, if you're going forward. And our
view is, those are policy decisions, and they ought to be set
by Congress.
The Chairman. Would you yield right there?
Senator Burns. Sure.
The Chairman. I'm informed the FCC took the position that
the copyright laws specifically provide the exceptions for fair
use in the case of nonprofit libraries, archives, educational
institutions, and nothing in their order would interfere with
those exceptions. Why wasn't that sufficient?
Mr. Band. Because, again, the problem is the technology.
The flag would require that all receiving devices prohibit the
retransmission. So, even though technically you're not changing
the copyright law, as a practical matter there is no device
that a library could buy that would allow that retransmission.
So, that's why a critical part of this is making sure that
there would be devices on the market. What we're asking for is
very narrow, that there would just be professional devices that
would be available only to entities that can take advantage of
the TEACH Act so that they would be able to have the devices
that would be able to retransmit this content.
The Chairman. Thank you very much.
Mr. Setos. If I might say, there are products on the market
that do that right now. The Commission did authorize the
TiVoToGo technology that would allow the--a large number of
locations to receive content, distribute it. And that could be
done by a consumer or a library or a teaching institution. So,
the Commission was open-minded toward this, and I think that--
--
Senator Burns. Well, I guess I'm--I'm not confused, I'm
saying--the technology does not allow them to grant a waiver,
is that what I'm saying? Is there no technology that says--OK,
you are a library. You are news. Can you make the decision to
remove the flag, or is there technology to remove the flag once
it's been transmitted?
Mr. Band. No, that would be----
Ms. Harris. No.
Senator Burns. There's no----
Mr. Setos. I don't think so.
Senator Burns.--none.
Mr. Band. That's right.
Ms. Harris. No.
Mr. Setos. No.
Ms. Harris. Absolutely not.
Mr. Setos. But even the TEACH Act requires that the content
sent on the Internet to distant-learning centers or locations
be protected using protection means.
Mr. Band. Right, but that's after you retransmit it. The
problem for the library is, it wouldn't be able to retransmit
it in the first place. In the TiVo example, it allows some
retransmission to a limited number of locations, but, for
example, if--in the--I imagine, in the University of Montana,
when it's doing a distance-ed class, it might have----
Senator Burns. This concerns me, by the way----
Mr. Band. Right.
Senator Burns.--because----
Mr. Band. No----
Senator Burns.--not only the Senator from Alaska has worked
on distance learning a long time, I have, too.
Mr. Band. Right. But you might have 100 students, or 200
students, or maybe 300 students enrolled in that class, and I
don't think the technologies that Mr. Setos is describing would
allow retransmission to 300 different students. It might allow
retransmission to five students. So, if you were to conduct a
seminar on the political process, that might fall within it,
but if you were to be conducting a course on introductory
economics, that wouldn't work.
Mr. Setos. I do believe, though, that, in the context of
the flag regulation, if a library or an institution brought a
technology to the Commission and said, ``We would like to use
this for distance learning,'' and it protected the content,
that it could be authorized under the flag regime, as is.
Certainly, we would support that.
Ms. Harris. Mr. Burns?
Senator Burns. Yes?
Ms. Harris. While I support that entirely, it doesn't
answer the problem of fair-use exercise for everybody else,
which may not be transmitting in full, like you would in a
library or distance-learning center, but certainly would be
excerpting. And, I think that much of the value of what's going
on, in terms of democratic debate on the Internet right now, is
excerpting of news, public-affairs programming. Sometimes it's
parody, sometimes it's serious. But that's already considered a
reasonable consumer use, and we don't have technologies
licensed, to my understanding, that would permit that
excerpting.
The Chairman. Thank you very much.
Senator Smith? And, Senator Smith, we thank you very much
for that draft you circulated. It really has started the
dialogue off very well.
STATEMENT OF HON. GORDON H. SMITH,
U.S. SENATOR FROM OREGON
Senator Smith. Thank you, Mr. Chairman. I appreciate you
and Senator Inouye for holding this hearing. And the draft that
I circulated is a draft. And all of your comments are welcome,
and many of your suggestions have certainly illuminated this
debate.
I want you to know I am absolutely committed to getting
this broadcast flag legislation through, but we want to do it
in a way that balances consumer expectations, technology
innovation, obviously copyright protection. So, there really is
a community of interest. If we end up killing off creative
activity in this country because it can't be compensated, a lot
of these technologies and sharing really begin to wane in their
value, or at least their volume.
For the record, Mr. Chairman, what the draft says, that the
Digital Content Protection Act of 2006 would authorize the FCC
to adopt the digital television broadcast flag rules that were
struck down by the court in 2005. The FCC would be granted
narrow authority to implement rules that will discourage
indiscriminate file sharing while allowing consumers to utilize
new technologies, like TiVo. These rules are the culmination of
a hard-fought compromise among broadcast movie and television
equipment, manufacturing and information-technology industries.
In addition, the bill would create a Federal advisory committee
tasked with developing audio-flag technology to protect digital
audio broadcasts by FCC licensees. If industry and consumer
groups are unable to reach consensus with the Federal advisory
committee, the FCC will initiate its own rulemaking. I believe
that an industry-focused framework of this sort is absolutely
essential to the development of fair and effective digital
audio protection measures. But, again, we welcome all of your
ideas, and I think many of them can be incorporated.
Ms. Harris, you have testified, I believe, that public
information has a transient value.
Ms. Harris. Right, I had said news and public-affairs
programs have more transient value than entertainment. I'm not
going to suggest to you that it can't be, at some point,
packaged for some other purpose, but it has an immediate value,
yes.
Senator Smith. Does it have any compensable value?
Ms. Harris. Oh, yes, I'm sure that it does. I think that
the question is the balance. We're an organization who believes
strongly in the rights of content creators. The question is, in
the narrow of area of news and public affairs, does copyright
law itself protect--I mean, that'sthe basic way to protect
copyright holders is the copyright law, which has been somewhat
strengthened by the recent Grokster case. So, the question is,
on balance, if you keep that unflagged so that the bloggers and
the debaters on the Internet are able to use small portions of
that, have you deprived the copyright holders of their
interests? If somebody abuses that, then we have the
protections of the copyright law, which are strong and, as I
said, have been probably recently made somewhat stronger.
The Chairman. Could I interrupt?
Senator Smith. Yes.
The Chairman. Are you talking about a one-time broadcast by
a blogger, or are you talking a building up of a blogger's
library?
Ms. Harris. No, I'm not talking about a blogger's library.
What I'm talking about is, you know if, today, this hearing was
broadcast, as it is, on C-SPAN, and people on different sides
of the debate on the Internet see some small portion that they,
in their blog, want to comment on, and they want to put Senator
Smith's statement about why he's doing this in today's blog,
they can do that, right now. They can pull an excerpt. I don't
think what we're suggesting here is that they have a right, in
perpetuity, to use all of this material. What we're talking
about is a fair-use right, and any use that gets used on the
Internet, particularly in, sort of, snippets of news and public
affairs, has to meet the fair-use test. If it fails to do so,
then there are remedies under the copyright law.
So, I think our point is a modest one, it's that there is
some programming that probably should not be flagged, and other
programming that we should seek to figure out ways, in the
technology, and tell the FCC that they need to try to encourage
these ways to allow excerpts and the basic tools that people
need to exercise fair use, if you're going to proceed here.
The Chairman. Isn't the test whether the originator--the
entity that originated the program put it on the Internet in
the first place? This is going on the Internet right now.
Anybody can use this.
Ms. Harris. I----
The Chairman. And the same thing with any broadcast of a--
--
Ms. Harris. Right.
The Chairman.--of a network program. It----
Ms. Harris. Well----
The Chairman.--goes on the Internet. Anybody can use it.
Now----
Ms. Harris. I'm not sure----
The Chairman.--what you're talking about is----
Ms. Harris. I'm not----
The Chairman.--developing technology that would store that
stuff and make it available to someone else, for a fee.
Ms. Harris. Well, that's not what I--that's not my intent,
what I'm talking about, Senator. No.
The Chairman. Thank you, Senator.
Senator Smith. Mr. Band, I understand your arguments, and I
have sympathy for what you're trying to make--preserve. But I
understand that you made these arguments to the FCC, and that
they rejected your arguments. Is that correct?
Mr. Band. That's right.
Senator Smith. Do you feel that they would reject them
again if we put the broadcast flag rules into statute? Do you
think you would fail again? And can you elaborate why they
rejected them?
Mr. Band. Well, it's an administrative process, so,
comments were submitted, there were meetings, and then they
simply didn't adopt some of the kinds of exceptions we were
seeking.
Senator Smith. Did they give you a reason why?
Mr. Band. No. But I would submit that even if the kind of
language that you've put in on the digital audio flag, if you
still made it permissive language on the digital broadcast
side, it's conceivable that the FCC, thinking about it, would
do the right thing. Or maybe it wouldn't. Our point is that
they're not elected officials. You are.
Senator Smith. But your point----
Mr. Band. You're responsible to----
Senator Smith.--your point is that, when we pass this into
statute, we'd better put in a marker so that they deal with
this in a substantive way in----
Mr. Band. Or I would go a step further. Not just the
marker. I would say that you should set forth, these are
important public-policy issues, and this is the right body,
that's responsive to the people, to adopt those kinds of
exceptions in specific fashion. And, again, we're talking about
relatively narrow, modest exceptions. The FCC is an independent
agency, it's not accountable to the voters, it's not ultimately
the right body to make those kinds of policy decisions.
Senator Smith. What--educate me on this. If we make this
exception for you, and everything that goes to the Library of
Congress, which is pretty much everything, if it is accepted,
isn't this a tremendous loophole in copyright----
Mr. Band. No, not at all, because there's two parts to what
we're seeking. One is that certain kinds of content--this is
very much what Ms. Harris is saying--certain kinds of content
shouldn't be flagged. And we're willing to work and come up
with relatively narrow kinds of content that simply should not
be flagged. But, again, if an educational institution abuses
that, and still is retransmitting far more than they should, or
in the example she's giving, of bloggers who are retransmitting
more than they should, that they're infringing on the Copyright
Act, and they should be held liable.
Senator Smith. Well, we'll----
Mr. Band. And there's----
Senator Smith.--we'll work with you on those----
Mr. Band. Right.
Senator Smith.--definitions. I think they need to be
narrow, or else you can drive a truck through this thing and--
--
Mr. Band. Right.
Senator Smith. But----
Mr. Band. That's right.
Senator Smith. But I don't--and I know--I don't believe my
colleagues, either, have any interest in stopping educational
spreading of information. So--Mr. Setos, in your opinion, is
there a more viable solution to the problem of an
indiscriminate redistribution of digital TV than a broadcast
flag? I mean, are there any other ideas out there?
Mr. Setos. Well, as I said, we--my colleague and I came up
with this idea about five and a half years ago, and we've been
talking to people since then, talking to a lot of people. And,
no, sir, nothing has come forth, neither in our imagination or
in anyone else's.
Senator Smith. And if we don't do something, we're just
going to kill off creative copyrighted material, are----
Mr. Setos. Well, we----
Senator Smith.--we not?
Mr. Setos.--we certainly won't see creative material on--
high-quality material on local broadcast stations. And that
is--that is where this is really focused. It really isn't a
copyright play, it's really in the interest of--because
copyrights will go to pay television, Home Box Office, et
cetera, and we simply won't have local broadcast stations able
to compete in the marketplace. We're trying to simply give them
a chance to compete in the digital future.
Senator Smith. Mr. Patton, aren't all, or nearly all, new
devices that contain digital tuners already compliant with the
broadcast flag rule? Is a delay, as you have testified, in the
effective date really necessary if manufacturers are already
producing, or able to produce, compliant digital tuners?
Mr. Patton. No, they are not all built with the flag. The
court threw out the regime prior to the date by which the
broadcast flag would have been effective. Also, many products
that are on the market do not have digital outputs, so,
therefore, would not have needed a broadcast flag. So, I think
that with the uncertainty, currently, by virtue of the fact
that it is not in place, manufacturers would need the time to
integrate the broadcast flag circuitry into their sets, if they
hadn't already done it. Certainly, it's fair to say that
engineers have been preparing, but, again, did not have to
integrate in all sets.
Senator Smith. Mr. Chairman, my time's up. And I thank you,
but I just want to emphasize to everyone here that we have to
do something, and we want you to help us find the right
balance.
The Chairman. Thank you very much.
Senator Nelson?
STATEMENT OF HON. E. BENJAMIN NELSON,
U.S. SENATOR FROM NEBRASKA
Senator Ben Nelson. Thank you, Mr. Chairman. And I want to
thank the panel for really enlightening what the issues seem to
boil down to. One, it's a matter of technology, but it's also a
matter of protecting, but providing certain exemptions.
Ms. Harris, let me ask a question about your concerns about
building into this language something that protects, or
idolizes, if you will, the flagging of broadcasts. Is there an
alternative to this? Is there a way to leave this open so, as
technology continues to change, that there's still an
opportunity to come in with another way of implementing the
same kind of protection?
Ms. Harris. You're saying an alternative to the flag, or an
alternative to the current 13 that have been----
Senator Ben Nelson. To the flag.
Ms. Harris. I mean, the alternative to the flag is vigorous
enforcement of the copyright laws, getting your content out in
digital form early, which is a lesson, I think, to be learned
from the music business. And it's a copyright issue with
copyright responses. If the question is also, should we--
developing the flag so that new technologies that offer more
features and devices for consumers can get approved later on,
that we don't lock in a small set of technologies as the only
flag technologies, I think that's critical. I mean, right now
we have 13 technologies that were approved--don't allow
excerpting, don't allow things that, in the future, we may
consider reasonable. So, we have to have a process. If you
proceed to create opportunities for people to develop, I would
say more granular opportunities to use the content.
Senator Ben Nelson. And that can either--that flexibility
for future development could either be retained by Congress or
could be delegated, to some extent, to the FTC.
Now, I have to tell you, I have a healthy concern and a
fear of alphabet agencies, so I don't like to empower them or
authorize them with a free hand to be able to deal with this.
But, in this particular situation, apparently we asked them to
do it, they did it, the court said they didn't have the
authority, so we are now where we----
Ms. Harris. Right.
Senator Ben Nelson.--find ourselves. We could probably
provide some level of authorization for future development if
we didn't want to retain that authority for ourselves. Is that
accurate?
Ms. Harris. Well, I think that's right, but I think it's
important to understand that the FCC is a constantly changing
body, and that the kinds of decisions that you're talking about
are policy decisions. And so, I don't want to give them too
much authority, and I want to give them a lot of guidance,
because the Commission changes. They approved 13 technologies.
The current chair of the Commission dissented for some of those
technologies, and was not chair at that time, so----
Senator Ben Nelson. Well, I agree with you. I said FTC--one
alphabet agency, another alphabet agency. We have a lot of
them. I agree that we ought not to give them too much to run
with.
Now, in terms of protecting both intellectual property and
exempting certain uses, can't we identify what kind of
retransmission is acceptable, and do that in this bill that
becomes law?
Mr. Band?
Mr. Band. Well, I think that the Senate can do that, and
the Congress can do that. Again, we were talking specifically
about retransmission, in a very narrow range of circumstances.
The TEACH Act already is extremely narrow. And so, we're only
asking, at this point, for an exemption for that. Now, it could
be other people are going to ask for other exemptions, but
that's the exemption that has the most direct impact on
libraries and educational institutions. It could very well be
that other folks might come and be able to make the case for
other similarly narrow exemptions.
Senator Ben Nelson. So, we don't have to do anything in
this legislation that would do violence to the kinds of
protections or exemptions you'd like to see.
Mr. Band. Not at all. I think there's a way to address our
concerns, but, at the same time, not, in any way, harm the
copyright owners.
Mr. Patton. Senator, if I could add an observation to your
line of questioning and refer back to some of the earlier
questions, we tend to be struggling over some of the
limitations of a technology that's been developed that isn't
perfect. And I think we all recognize it isn't perfect. But I
would suggest that, in terms of what technology can offer, you
ought to fasten your seatbelts. We are entering the digital
age, and a flood of new capabilities. And right now we have
authentication, we have encryption, we have fingerprinting, we
have watermarking, we have digital-rights management solutions
that will continue to evolve. I mean, we don't have to think
back too long ago to know that so much of what we're able to do
today simply was not possible.
The role of this Committee is critical to maintaining a
healthy, robust, innovative, and competitive environment to
continue to develop technologies to offer solutions. And we're
not just talking about solutions for music and solutions for
movies, we've got to move people's health records in a much
more secure, safe way so we can reduce cost in the healthcare
industry. We have to know where the terrorists are and when
they enter our borders. And there are digital-rights management
solutions that can give us opportunities through technology to
pursue really important public-policy needs. A robust, healthy,
competitive market is the message to send to all of the
agencies with alphabets that have some responsibility for
implementing your good public policy.
And if I could just go back to the one issue which we
considered central to our testimony, and that is that as we
pursue the marketplace for content protection technologies, we
don't allow any anti-competitive or anti-innovation aspects of
that to exist. That would argue in favor of good public policy
equaling reasonable and nondiscriminatory terms upon which
technologies ought to be available to give effect to good
public-policy objectives and goals. I appreciate the chance to
add that.
Senator Ben Nelson. Thank you.
Thank you, Mr. Chairman.
The Chairman. Thank you very much.
Senator Sununu?
STATEMENT OF HON. JOHN E. SUNUNU,
U.S. SENATOR FROM NEW HAMPSHIRE
Senator Sununu. Thank you, Mr. Chairman.
I really just have a couple of points that I would like to
make.
The Chairman. Could I interrupt?
Anyone that had opening statements, we'll print them in the
record automatically, yes.
Go ahead.
Senator Sununu. Thank you, Mr. Chairman.
First, about the focus of this debate. And I think Senator
Nelson made some good points, raised some important concerns,
and I want to pursue them.
Much of the discussion here has been about exceptions. What
exceptions are we going to have to this broadcast flag? What
loopholes are there going to be? And I would want to refocus it
on the fundamental question of whether such a flag is even
needed in the first place.
Now, I think the broad argument for needing a broadcast
flag is that we have these new technologies that are different,
that represent some unprecedented threat to copyrighted
material and to creativity. And I think it's worth questioning
that basic premise, because we have seen--and some of us have
seen more closely than others--but we have seen many similar
periods of innovation and technology that change the way we
deal with, receive, and enjoy copyrighted or otherwise
protected material.
And not to go too far back, but we had the advent of radio,
and the threat that that presented to performers, music
writers, composers; television; the advent of videotape, Beta
and VHS, and the unprecedented threat that we thought that that
would pose to creative work and content; cassette tape; cable
television; satellite TV; CDs; DVDs. All of these represent
enormous steps and transformation in the presentation,
distribution, and dissemination of ideas, content material,
much of which is protected, and rightly so, by different forms
of copyright.
But, in all cases, we didn't need to step in with a
significant statutory, government-regulated mandate on
technologies that consumers use to enjoy this material. There
are a host of regulations, and many of them are designed to
maximize the use and the enjoyment of this. But I don't know of
a case where we were discussing such a dramatic step, where the
government--the Federal Government would legislatively mandate
a specific type of technology to be incorporated in all this
material.
I mean, you know, maybe the sky really is falling this
time, but I think it is worth suggesting a little bit of
skepticism. It's worth offering up a little bit of doubt before
we--not just entertain this, but jump ahead to a discussion of
what exceptions are required, as if it were a foreordained
conclusion.
I think we should, further, be discouraged from moving too
fast by the fact that this conversation is so complex. Over the
last half hour or so, I was watching about a half hour in my
office, was here for 15 or 20 minutes--it's a very complex
discussion about exceptions and loopholes and what should be
considered, or not, or what exactly is fair use. And when you
start entertaining these kinds of complexities and saying,
``Well, we're going to incorporate this into legislation,''
that, alone, should act as a warning that what's being
contemplated is very risky, could have a lot of unintended
consequences that I think none of us seek, and none of us would
enjoy, but we all have to recognize that would be there when
we're talking about something that's this complex. It has
inherent risks.
That is one basic point I want to make, I want to impress
on the panel, and certainly on the members, that we need to
really question whether this is needed, and we have a whole
history of similar technological innovation that has shown us
that the market can react and can respond with its own ways of
protecting artists and performers and copyrighted material,
that's consistent with the law and consistent with the desire
of the artist.
Which brings me to a second broad point, which is the
suggestion that underlies much of this debate, that if we don't
do this, we'll be killing off creative activity. This will
stifle creativity if we don't enact a specific legislative
government mandate on these technologies. Well, I don't think
I've come up with this on my own, but the very technologies
that some seem to be afraid of are driving innovation and
driving creativity as we sit here today. In fact, we have an
unprecedented wave of creativity and product development and
content development, some of which is very, very impressive,
some of which is very, very dismaying, but it is an
extraordinary wave of creativity, and also an extraordinary
wave of development of new business models and new
methodologies for distributing this content, good and
dismayingly bad. And I think the history of government
mandates--in this area, but in just about any area we can
conceive of--the history of government mandates is that it
always, always restricts innovation. And sometimes we, as
regulators, want to do that. We want to restrict--maybe we want
to restrict competition in certain areas, maybe we want to
restrict corporations from doing certain things that would harm
consumers. The whole idea behind government regulation and
government legislation is to, in some ways, restrict activity.
So, why would we think that, this one special time, we're going
to impose a statutory government mandate on technology, but it
will actually encourage innovation?
Now, I could be wrong. This could be the one time that the
sky is really falling and that the government mandate really
won't restrict innovation. But I think, if we have this history
to look at, we ought to at least be a little bit more skeptical
than we have been so far.
Thank you, Mr. Chairman.
The Chairman. Well, let me just paraphrase the staff memo
that was given to us, in order to, sort of, reestablish why
we're here. Non-broadcast media, like cable and satellite
television companies, are able to encrypt their signals. The
FCC order rejected encryption at the source of digital
television broadcasts, because of the cost that would be
imposed on consumers by such a solution.
Now, the FCC order required the adoption of this flag
developed by industry groups to thwart the redistribution, but,
nonetheless, allow consumers to copy programs and watch copies
within the limits of their own home viewing networks. Now,
we're talking about broadcast flag, not the whole concept of
media distribution, and we're talking about what to do about
the fact that, without some protection, the threat of piracy
would place the broadcast media at a disadvantage, as compared
to non-broadcast media, like cable and television. It is a
subject that requires an act of Congress, in my opinion.
Now, we'll thank you very much and call the next panel.
Senator Smith. Mr. Chairman?
The Chairman. Yes, sir?
Senator Smith. I think Senator Sununu has given us a good
history lesson, and I think his history is right. I think the
reason there is a distinction now, the reason the sky may be
falling, is simply digital versus analog.
The Chairman. Thank you very much.
Let's take a 5-minute break so that we can have a change in
the panel's names and that sort of thing.
[Recess.]
The Chairman. If we could turn to the second panel, we're
now going to deal with the audio flag.
The need to protect audio content has increasingly gained
attention as new digital distribution platforms grow in
popularity. We're here now to listen to those who are concerned
about the audio side of this problem.
First would be Mitch Bainwol, Chairman and Chief Executive
Officer of the Recording Industry Association of America; the
next, Gary Shapiro, President and Chief Executive Officer of
the Consumer Electronics Association; and then, Dan Halyburton,
Senior Vice President and General Manager of Group Operations
of Susquehanna Radio, in Dallas, Texas.
We thank you all for coming. It's a very complex subject,
and we're pleased to have your advice.
The first witness will be Mitch Bainwol.
STATEMENT OF MITCH BAINWOL, CHAIRMAN/CEO, RECORDING INDUSTRY
ASSOCIATION OF AMERICA
Mr. Bainwol. Chairman Stevens, Co-Chairman Inouye, Members
of the Committee, thank you for this chance to testify.
I'm going to jump right into this. I want to make four key
points. One, investment in new music depends on the success of
the emerging digital marketplace. Two, convergence is here; the
current distinction between radio and downloading is
disappearing. Three, there is a market failure in over-the-air
terrestrial radio; our case for content protection is even
stronger than the case of our video colleagues. Four, we stand
ready to work with our partners--the broadcasters, IT, even
Gary--to make sure the rollout of HD radio occurs
expeditiously.
That said, no amount of cooperation mitigates the need to
grant the FCC the authority to implement the right solution.
So, let's drill down.
One, investment. In this country, uniquely, we're not paid
when music is heard on terrestrial radio. We rely on sales to
invest in the next generation of art. As you know, we're in the
midst of a crucial transition period. Since the advent of file-
sharing--really, stealing--in 1999, sales are down about 30
percent. The sky may not be falling, but sales are down 30
percent. The result? Artist rosters are slashed by a third;
songwriters out of business--some, forever; the discovery of
new music and the diversity of new music, compromised. But we
have pivoted hard to the new world, licensing over 2 million
tracks for online sales and rentals to a wide range of models
and platforms. We're innovating, and it's working.
As recently as 2003, there were essentially no digital
revenues. Today, we're generating significant revenues from
download services like iTunes, from subscription services like
Rhapsody, and from mobile music offerings, all of which will
amount to billions of dollars a year by the end of this decade;
that is, unless the emerging digital marketplace is
cannibalized by functionality that substitutes for downloads
without paying us, creators, comparably.
Two, convergence. Radio has always been a passive listening
experience. Sure, people taped off the radio. They did it
independently and manually. The quality stunk and degraded over
time. If you wanted a good copy, you bought it. The radio
service didn't provide a tool to automatically capture perfect-
quality songs and subsequently move them effortlessly into your
library of music to play on your portable device wherever and
whenever you chose, until now. New devices are coming into the
market that turn radio into download services. Going way beyond
time-shifting and beyond current consumer expectations, these
devices effectively provide free ownership.
The problem, of course, is that these radio devices, unlike
iTunes, cell phones, and music rental services, don't pay for
product. The existence of millions of devices where a consumer
can replicate a purchase, but bypass payment, would undercut
our property right, undercut our ability to invest, and
threaten the viability of the legitimate download market.
Let me do a bit of show-and-tell. This is the famous iPod.
This is a Verizon cell phone. This is a Creative Zen that hooks
you up to Rhapsody, a rental service--all examples of the new
marketplace that's emerging. This is a picture of the new XM
device, from XM Satellite Radio. Note the ad, ``It's not a Pod,
It's the Mothership.''
[Laughter.]
Mr. Bainwol. All of these are portable MP3 players. They
store lots of music and allow personalization for fans so they
can really enjoy their favorite tunes. And they're selling like
hotcakes, 14 million iPods in the fourth quarter of last year
alone. Most consumers rip their CDs into their iPods, or they
buy from iTunes, paying 99 cents a song. Some of that comes
back to the creators under marketplace licensing agreements. On
the Verizon cell phone, they were likewise compensated. Same,
too, with Rhapsody. But not on the new digital radio services.
They'll allow consumers to download music without paying for
it, a good deal if you're seeking to lure consumers to buy new
receivers or to subscribe to your service, but not a good deal
for us or for the platforms that they compete with unfairly.
Three, market failure. Our circumstance is different from
the video context discussed earlier.
First, and most importantly, we don't get paid for product
when it's broadcast over the air terrestrially. We're the only
industrialized nation in the world where the artist and label
do not enjoy a performance right. The motion-picture studios
do.
Second, we, therefore, can't withhold content from the
broadcasters as equal leverage in the marketplace to achieve
effective content protection. Video content owners can.
Third, music is consumed differently. One might time-shift
Desperate Housewives to watch it after it airs, or for a second
time if you happen to be a big Eva Longoria fan, or a third
time if you're obsessed. But a favorite song, whether it's
``Stairway to Heaven,'' ``White Christmas,'' or ``Rocky Top,''
you listen to a thousand times. Uniquely in the United States,
we have no market power to force the interested parties that
come to the table to make sure our property rights are honored.
We've been trying for years, and we can't get people to move.
There is a market failure. Without intervention, the developing
digital marketplace will be stymied.
Four, moving forward. Satellite radio devices are being
launched now. Over-the-air radio devices are expected next
year. So, the time is ripe. Talking about talking is no
substitute for action. Let me also be clear, we're agnostic
about the technical solution deployed to provide the content
protection that we deserve. While we agree with many in the IT
sector that encryption at the source might be an effective
approach, we understand it may not be a viable option, because
it would render useless existing car and home radio receivers.
The audio broadcast flag will work. As Senator Inouye says,
``It's not perfect, but it will work.'' It's a good
alternative, and it would not affect legacy devices. Therefore,
we stand ready to work quickly with the NAB's new Audio Flag
Task Force and other interested parties to implement such a
flag.
In the meantime, just as with the video flag, the FCC must
be granted the necessary authority to implement an agreement.
The current Smith-Boxer discussion draft reflects that
approach. It's a great start.
Wouldn't it be great if you could push a button when you
hear a song on the radio, and buy it? A buy button. An audio
flag will assure that possibility for consumers, and provide a
return on investment for creators, for the broadcasters, for
the device manufacturers, and all of the interested parties
that bring new and exciting entertainment to market.
Again, thank you for focusing on this important issue.
[The prepared statement of Mr. Bainwol follows:]
Prepared Statement of Mitch Bainwol, Chairman/CEO, Recording Industry
Association of America
Chairman Stevens, Co-Chairman Inouye, and Members of the Committee,
I appreciate this opportunity to appear before you today to address
emerging issues in the area of digital audio broadcast and the use of
an audio flag for the protection of digital music.
At the outset, let me stress that we are excited about the new
opportunities digital radio will provide to expose new artists and
offer consumers new choices in the way they get our music, and about
the convergence of different platforms and distribution systems. The
record industry is wholly supportive of this new platform and joins
others in looking forward to its speedy and successful rollout.
Our concern is not over the rollout of HD Radio itself, but rather
the advent of new digital radio services and devices that will
effectively turn radio into a music library, without paying the fair
market price for licensing music that a download store or subscription
service must pay. We have no issue with the convergence of radio and
downloads, as long as they are licensed for that purpose. But when a
radio service that is broadcast terrestrially over-the-air, or over
satellite, uses free spectrum and its special treatment under the law
to change its very nature, compete unfairly against download and on-
demand subscription services that need to obtain an appropriate
license, and avoid paying creators of music, we object.
New devices that effectively turn HD Radio into a music library
should not come at the expense of those who create and provide the
content upon which HD radio depends. New HD Radio services, and current
satellite radio services, threaten to transform the intended passive
listening experience of radio into an interactive one by enabling users
to become owners and worldwide distributors of a personalized
collection of recordings. What we are talking about here is not casual
recording by listeners. It is not taping off the radio like we used to
do. We are talking about allowing broadcast programs to be
automatically captured and then disaggregated, song-by-song, into a
massive library of music, neatly filed in a portable device's digital
jukebox and organized by artist, song title, genre and any other
classification imaginable in a manner that substitutes for a sale.
Listeners will be able to automatically build entire collections of
music without the need to ever purchase any of it; indeed, they won't
even have to listen to the broadcast in order to build the library.
This is not fair use. It is not time-shifting. And it's not radio.
This transformation from a passive to an interactive listening
experience without obtaining the proper license to pay the creator is
especially troubling because record labels and artists receive
absolutely no payment from the performance of their works on
terrestrial over-the-air radio. This unfair situation means that
revenue, if any, comes only from the ultimate sale of that music to
listeners. Yet the librarying functionality that could become part of
HD Radio--the equivalent of permanent digital downloads--would displace
those sales by providing listeners with the same content for free. And
it would be enabled ubiquitously in every car radio receiver and in
every home. You can imagine why we want to get ahead of this problem.
The resulting loss of sales threatens significant harm to an
industry already hit hard by piracy. A recent letter to me from Dr.
David K. Rehr, President and CEO of the National Association of
Broadcasters (NAB), questioned the threat posed by piracy over HD Radio
given the availability of unauthorized music on ``Peer-to-peer file
sharing . . . iPod uploads and digital music on the Internet.'' While
it is true that other opportunities for consumers to independently
search for pirated music exist, making the free, automatic, selective
downloading of music available over radios poses a piracy problem that
threatens to surpass that of peer-to-peer (``P2P'') file-sharing.
Unlike P2P, digital radio downloads will offer pristine copies of songs
without the threat of viruses and spyware. The ubiquity and ease of use
of radios outstrips that of computers, and the one-way method of
communication allows individuals to boldly engage in piracy with little
fear of detection. It will affect all age groups, and it will appear to
be sanctioned.
The harm from allowing these free digital downloads--as well as the
ability to freely redistribute them over the Internet or on removable
media--would also take away new market opportunities to provide
consumers with convenient music purchases through ``buy buttons'' on
radio receivers that would allow instant sales that produce new revenue
streams for broadcasters, device manufacturers, and creators alike.
And, of course, the potential loss of sales ultimately affects
consumers, as companies are no longer able to invest in the production
of new music.
Let us be clear: we are absolutely fine with any and all new radio
features that give consumers more flexibility. But when a radio service
adds features to effectively become a download service, it should be
required to pay the same marketplace price that download services pay.
Exemption from such a license is unfair to the legitimate distribution
services and retailers, and it is unfair to the copyright owners who
deserve fair compensation.
If the appropriate license is not obtained in the marketplace, we
must ensure that features contained in free over-the-air radio do not
allow it to tread into the realm of those download and interactive
services that do pay such a license. This unfair competition threatens
the stability of the digital marketplace and the value itself of
copyrighted works. In order to accomplish this, we have proposed the
implementation, through appropriate marketplace negotiation, of an
audio flag that would allow for new consumer functionality for radio,
including time-shifting, automatic recording by time, program, or
channel, storage, digital read-outs, music purchase options, time-
shifting capabilities, and great new sound--but would disallow the type
of cherry-picking of songs and librarying that would constitute
automatic selective downloading.
Why a flag? While we agree with many in the information technology
industries that encryption at the source would be an effective and
robust content protection method, we understand that, at this point,
just as in the video context, it may not be a viable option. As I
stated in my response to Dr. Rehr's letter, we are not insistent upon
the use of encryption at the source. We remain agnostic as to the
technology implemented to protect broadcast digital content. The
broadcast flag will work, just as in the video context, it is a good
alternative, and it offers an effective means of ensuring that music
acquired through digital broadcasts is used appropriately. The use of a
broadcast flag would in no way affect legacy devices and we understand
from all relevant sectors that, once a technology is agreed upon,
implementation is the easy part. The hard part is agreeing on the usage
rules.
But in seeking agreement on usage rules, it is again important to
understand what we want and what we don't want. Specifically, we are
only asking for protection against radio broadcasts becoming music
libraries through slice and dice functionality, and for protection
against redistribution of recordings onto the Internet, removable
media, or to other devices. We are not seeking to stop or delay the
rollout of HD Radio or other platforms. Nothing we are seeking would
change consumer expectations about how they use radio. Listeners can
still hit a record button when they hear a song they like, and can
engage in time-shifting, and in Tivo-like recording by time, program or
channel. We merely ask that the line be drawn at automatic searching,
copying, and disaggregation features that exceed the experience they,
the FCC, and Congress expect from over-the-air terrestrial and
satellite radio.
We feel strongly that a proper balance between music usage and
protection can be found, and we would like to sit down with other
industry players to find the appropriate solution. However, we have
been unable to compel those other players to come to the table because
of a fundamental lack of bargaining power. Again, artists and record
labels have no leverage to withhold their music since they don't have a
performance right at all for over-the-air terrestrial radio, and are
limited to a compulsory right for satellite radio. This lack of a
market solution requires that the FCC, the regulatory agency that
controls the signal for over-the-air terrestrial radio, be granted the
jurisdiction to address these issues and help guide industry
participants to operate fairly. Senators Smith and Boxer have released
a discussion draft with that goal in mind. We think it's a great start,
and stand ready to meet with all the interested parties. (A direct
Congressional grant of authority may be required since the United
States Court of Appeals for the District of Columbia Circuit recently
vacated the FCC's ruling on digital video broadcasts for lack of
jurisdiction. Of course, any grant of authority should not be limited
to digital video broadcasts, but should necessarily include digital
radio broadcasts, a notion supported by FCC Chairman Martin in a recent
letter to Senators Frist and Alexander.)
The concerns we have regarding new HD Radio services are part of a
broader desire to see all transmitters of digital content--whether
terrestrial over-the-air, satellite, cable, or Internet--play by the
same rules. For example, it is now clear that satellite radio,
especially with proposed features allowing permanent copying and
disaggregation, presents the same issues mentioned here, and should be
treated the same. All new distributors of digital music--HD Radio,
satellite radio, and Internet radio will be offering the same types of
products to the same consumers. They should all follow the same rules
so they compete fairly, and compensate creators fairly. By leveling the
playing field, all of these platforms will have the chance to grow and
compete, and new services will be encouraged to participate, creating
more opportunities and choices for everyone.
HD Radio and other digital platforms certainly have much to offer.
Enticing new users through increased quality, range, and selection is
perfectly appropriate; but encouraging such migration with the lure of
free unauthorized downloads is not. Device makers for terrestrial over-
the-air radio (and satellite) broadcasts need to prevent the
unrestricted redistribution of recordings and the ability to perform
search-facilitated or automated copying so that individual recordings
cannot be separated from surrounding content. We continue to encourage
all interested parties to work with us to seek a mutually beneficial
outcome. In the meantime, to guide the appropriate and responsible
marketing of new HD Radio receivers, Congress should grant jurisdiction
to the FCC to ensure that radio is radio, and that those who wish to
effectively offer downloads, do so with a license.
Thank you.
The Chairman. Thank you very much.
Our next witness is Gary Shapiro, President and Chief
Executive Officer of the Consumer Electronics Association.
STATEMENT OF GARY J. SHAPIRO, PRESIDENT/CEO, CONSUMER
ELECTRONICS ASSOCIATION
Mr. Shapiro. Thank you, Mr. Chairman, Mr. Co-Chairman,
Members of the Committee.
On behalf of the Consumer Electronics Association and the
Home Recording Rights Coalition, I appreciate the opportunity
to discuss these issues with you.
Just a couple of weeks ago at the International CES in Las
Vegas, the full genius of our industry was on public display.
Over 150,000 trade attendees were dazzled by an array of new
products and new services that allow Americans to experience
content however, whenever, and wherever they wish. These new
technologies have previously created, and will, create
lucrative business models for the content and the technology
industries, and generate immense benefits for our citizens and
also for our economy.
At the same time, this bright future depends upon two
things. First is the right of innovators to bring products to
market without restrictions, and second is the right of
Americans to enjoy products for noncommercial purposes within
their homes. Both subjects of today's agenda could diminish
these rights and are of great concern for our industry.
First, the television broadcast flag.
Our 2,000 members have a range of views on this issue. I'd
say many of them would agree with you, Senator Sununu. However,
to the extent this committee opts to go forward with broadcast
flag legislation, we urge that you restate, as closely as
possible, the narrow language of what the FCC did in its
existing order. We are concerned by the content-industry
proposals, that go well beyond the FCC's mass indiscriminate
redistribution standard and would constrain, actually, the use
of networks within the home. In addition, we urge you to
include narrow exceptions for local news and public-affairs
programming in our schools and libraries to use broadcast
excerpts for distance learning.
Finally, if Congress is going to provide more protection to
copyright holders, you should also safeguard the rights of
consumers to enjoy the works that they lawfully have acquired.
This, for example, would include the right to decrypt for
noninfringing purposes. For example, to remove spyware that a
CD has unknowingly placed on your computer.
Now, as far as the audio flag, I'm not even sure what we're
talking about, because when the RIAA refers to it, there's no
such equivalent in audio, the way there is in video. The
differences are vast. The video broadcast flag was developed on
an open, voluntary basis, by technology and content companies.
It took several years. It used a well-known technology. It was
aimed simply at mass indiscriminate redistribution over the
Internet, not private home recording. The difference goes
outside the walls of the home and onto the Internet. That's
what we were talking about in the first panel. This panel, what
Mr. Bainwol was talking about, is stopping legitimate home
recording in your house, not even going over the Internet.
With respect to the audio flag, or so-called flag, there is
no industry consensus or agreed-upon technology. No audio-flag
proposal has been brought to a standards body or to CEA for
discussion. Indeed, the Copyright Protection Technical Working
Group, which was established many years ago by the RIAA, the
MPAA, Mr. Valenti, myself, and the ITIC, the RIAA dropped out
of it 7 years ago, and they haven't been back since.
The flag proposals themselves are not even limited to
addressing mass indiscriminate redistribution of music over the
Internet. So, instead of merely replicating the broadcast flag,
RIAA is trying to limit consumer use of HD radio and satellite
radio services and totally limit new products coming to market.
They want to stop Americans from recording free over-the-air
radio in their private homes for later enjoyment. This is
something that Congress has repeatedly discussed and recognized
and protected. You can go back to legislative history and
report language over and over again that Americans have the
right to record off of radio. Indeed, after 7 years of FCC
proceedings, all but ignored by the RIAA until recently, the
rollout of digital radio, also known as HD radio, is just
underway today. Any Congressional nod toward the RIAA limits
could hurt the launch of this exciting new technology.
And with respect to the national radio services, XM and
Sirius, the content is already encrypted and cannot be
redistributed over the Internet. Discussion of a flag in this
context makes no sense at all.
As you may know, XM and Sirius have announced new handheld
devices to allow their subscribers to record and play back
music that they have paid for, like a radio TiVo. And at CES,
both these products won awards for innovation and for consumer-
friendliness. These products will be fully compliant with the
Audio Home Recording Act, and royalties will be paid to the
music industry. XM and Sirius will still pay additional
millions in performance royalties. So, the music industry is
already getting two streams of royalties from these devices and
the music that's being recorded on them.
Because of the Audio Home Recording Act, a law that the
RIAA sought and promised would forever satisfy all their
digital audio recording problems, all of these products are
built so that copies cannot be made of the digital copies.
Further, manufacturers have built these products so that
digital content cannot be uploaded to the Internet.
But the RIAA wants more. They want to kill new products and
keep them out of the hands of consumers. It's simply not
justifiable. Ordinary consumers are not pirates, and recording
lawfully acquired content for private personal use is not
piracy. That's exactly what these RIAA proposals seek to halt.
We see no basis for Congressional or FCC interference with
ongoing satellite radio service or with the HD radio services
that are now being launched nationwide, nor do we see any basis
for government to restrict what Americans can do with lawfully
acquired content for noncommercial purposes within the privacy
of their own homes. This includes activities like indexing,
storing, compiling, and making playlists. This is what you do
with your TiVo every day, and it's a popular product.
A draft of the combined flag legislation, which we received
late last week, purports to establish an audio flag modeled
procedurally on the video flag, but, unlike the FCC broadcast
flag order, this draft also potentially restricts private in-
home consumer recording. It would also freeze the fair-use
rights offered by any new product at current historic use.
Think about it. Had that been the law at the time, we would
have no VCR, no TiVo, and no iPod. All these products were new
definitions of fair use, new ways to use content.
Finally, if industries, under this proposal, cannot agree
on an audio flag, the bill mandates an anticopying technology
that every digital device must use. We would oppose any
legislation that proceeds on this basis. As we have feared,
having been emboldened by a judicial victory against real
pirates, the music industry now sets its sights on ordinary
consumers. We respectfully urge you to reject the RIAA's
efforts to vilify consumers and repeal basic consumer rights.
Thank you, Mr. Chairman and Members of the Committee, for
the opportunity to appear today. We have worked collegially
with the content industries, when they have been willing to do
so, and we look forward to working with them, and with you and
your staff, on future issues.
[The prepared statement of Mr. Shapiro follows:]
Prepared Statement of Gary J. Shapiro, President/CEO, Consumer
Electronics Association
On behalf of the Home Recording Rights Coalition and the Consumer
Electronics Association, I appreciate the Committee's invitation to
appear today. At CEA, we have more than 2,000 members who contribute
more than $125 billion to our economy and serve almost every household
in the country. We thus believe it is vital to preserve the innovation,
integrity and usefulness of the products that our members deliver to
consumers. Any legislation that would impair the usefulness of lawful
products is a threat to innovation, and to the satisfaction of our
customers with us and with our political process.
The Home Recording Rights Coalition was founded more than 25 years
ago, in response to a court decision that said copyright proprietors
could enjoin the distribution of a new and useful product--the VCR.
This court decision was later reversed by the U.S. Supreme Court, and
even the motion picture industry has admitted that it is glad that the
VCR was allowed to come to market. But elements of the entertainment
industry, after repeatedly suggesting that they want cooperative
licensing and marketing initiatives rather than new legislation, keep
returning to the Congress with unilateral proposals that would subject
new and legitimate consumer products to prior restraints.
We have been down this road before, but somehow enough is never
enough. From 1989 through 1992, we worked with the Recording Industry
Association of America and other rights holders to draft and propose
the Audio Home Recording Act of 1992 (the ``AHRA''). The AHRA still
produces revenue for the recording industry and music publishers, and
protects them against serial copying on the latest generations of our
industry's lawful and legitimate products. Yet except at royalty
collection time, the music industry seems to want to forget that this
law exists.
We worked with the motion picture industry and with Members of
Congress and their staff in developing Section 1201(k) of the Digital
Millennium Copyright Act of 1998 (the ``DMCA''). This provision
requires that certain analog home recorders must respond to a copy
protection technology, but--and this is the key point for us--in
return, it has ``Encoding Rules'' that protect consumers' reasonable
and customary time-shift recording practices from interference by
content providers. \1\
---------------------------------------------------------------------------
\1\ The HRRC and many CEA members also helped launch the Copy
Protection Technical Working Group (CPTWG), an open forum in which
participants in the content, information technology, and consumer
electronics industries have met regularly for almost 10 years. The
CPTWG has had work groups on both the ``broadcast flag'' and the
``analog hole,'' and CEA members served as co-chairs of each group. The
RIAA was the fourth founder of this group, but withdrew its support and
participation early on to concentrate on the ``Secure Digital Music
Initiative,'' which went into permanent hiatus several years ago, and
never returned to the CPTWG.
---------------------------------------------------------------------------
What is an ``Audio Flag''?
I believe we can be excused, Mr. Chairman, for not knowing what the
RIAA means when it uses the term ``Audio Flag.'' If it is meant to be
something strictly limited and analogous to the video ``Broadcast
Flag'' proposal that was the subject of a Federal Communications
Commission regulation (since nullified by the courts), then this is
something that to my knowledge has never been shared with us, formally
or informally, as a proposed regulation, or in proposed legislation.
The RIAA's first, and most specific iteration of a new constraint
on digital radio surfaced at the FCC in 2004, and was nothing like the
video ``Broadcast Flag,'' which did not and does not purport to limit
the utility of consumer recording products inside the home. By
contrast, the proposal that the RIAA made to the FCC aimed specifically
at frustrating and impairing the long-accepted, reasonable private and
noncommercial practices of consumers in the use of lawfully received
content, inside their own homes. The RIAA admitted in its FCC filings
that, even if not encrypted at the source, accomplishing this would
involve some home encryption requirement that, in order to be
effective, would make any new digital radio products severely non-
interoperable with existing home stereo systems. The RIAA never
explained to the FCC, and has not explained in any public forum,
specifically what it is trying to accomplish or how it could accomplish
any of its objectives effectively yet in a non-intrusive manner. \2\
---------------------------------------------------------------------------
\2\ Indeed, the FCC's Digital Audio Broadcast proceeding was begun
by the Commission in 1999 and its initial emphasis was almost entirely
technical. Nevertheless, neither the RIAA nor any other music industry
interest ever made a single filing in that proceeding until 5 years
later--and even then it did not disclose what specific technology would
be imposed on consumers, and it still has not done so. But no matter
what technology ultimately is chosen, it would be an unwarranted,
unnecessary, and probably unworkable intrusion into consumer use, and
into the very viability of the new digital radio format on which so
many have worked so long and hard for so many years.
---------------------------------------------------------------------------
More recent suggestions that the popular satellite radio services
be locked down also came ``out of the blue.'' There is no indication
that new devices now being rolled out, to make these services more
portable and convenient \3\ for lawful subscribers, would depart from
the requirements of the Audio Home Recording Act--most of which were
drafted by the music industry itself. Nor is there any indication of
any problems as a result of the wide consumer acceptance of these
services. It seems that, as in the case of Digital Audio Broadcasts,
the main objective of imposing new constraints on in-home use is to
destroy the utility of new consumer products that, like the VCR, will
likely have the effect of enhancing consumers' lives and broadening the
market for entertainment programming.
---------------------------------------------------------------------------
\3\ Eric A. Taub, ``Basics; Satellite Radio Leaves the Car To Go
Home And on Walks,'' The New York Times, at C-9, January 12, 2006.
---------------------------------------------------------------------------
The In-Home Consumer Capabilities That RIAA now Wants to Constrain are
not new and Have Never Been Shown to be Harmful to the Music
Industry.
There is no established basis whatsoever for Congressional or FCC
meddling with the ongoing satellite radio services, or with the
terrestrial digital audio broadcast services that are just being
launched. Whatever consumers will be able to do with these services in
the future--including the recording, indexing, storing, and compilation
of playlists--it has been equally feasible for decades to do the same
things with existing FM radio service, with comparable quality. Yet,
every time the Congress has reformed the Copyright Act, the Congress
has declined to grant phonorecord producers any right or control over
home recording or even over whether albums are broadcast over the radio
in the first place.
There is no demonstrated problem, and there is no reason to take
control of these services away from broadcasters and satellite radio
providers, or to interfere with the customary enjoyment of these
services by consumers, and put those controls solely in the hands of
the record companies. The Congress has consistently declined to do so.
\4\ As a result, the United States remains a world leader in developing
new broadcast and consumer technologies and services.
---------------------------------------------------------------------------
\4\ When Congress first granted copyright protection to sound
recordings in the 1970s, it affirmed consumers' historical right to
record radio transmissions: ``In approving the creation of a limited
copyright in sound recordings it is the intention of the Committee that
this limited copyright not grant any broader rights than are accorded
to other copyright proprietors under the existing title 17.
Specifically, it is not the intention of the Committee to restrain the
home recording, from broadcasts or from tapes or records, of recorded
performances, where the home recording is for private use and with no
purpose of reproducing or otherwise capitalizing commercially on it.
This practice is common and unrestrained today, and the record
producers and performers would be in no different position from that of
the owners of copyright in recorded musical compositions over the past
20 years.'' House Judiciary Committee Report No. 92-487, 92nd Cong.,
1st Sess. at 7 (1971) (emphasis added).
---------------------------------------------------------------------------
The constraints now being sought by the recording industry pertain
to the first copy a consumer might make inside his or her own home.
But, at the behest of the RIAA, the Congress already addressed this
issue in the AHRA. The AHRA provides for a royalty payment to the music
industry on Digital Audio Recording devices and media. At the specific
request of the RIAA and the National Music Publishers Association, the
AHRA explicitly does not prevent consumers from making a first
generation copy, but limits devices' ability to make digital copies
from digital copies. In 1991, Jay Berman, then head of the RIAA and now
head of the industry's umbrella organization, IFPI, told the Senate
that the AHRA--
``. . . will eliminate the legal uncertainty about home audio
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 audio
recording equipment by manufacturers and importers. It thus
will allow consumer electronics manufacturers to introduce new
audio technology into the market without fear of infringement
lawsuits . . .'' \5\
---------------------------------------------------------------------------
\5\ The Audio Home Recording Act of 1991: Hearing before the Senate
Committee on the Judiciary, S. Hrg. 102-98 at 115, October 29, 1991,
written statement of Jason S. Berman at 119. Mr. Berman, in fact,
emphasized that the comprehensive compromise nature of the AHRA was a
reason for the Congress to pass it: ``Moreover, enactment of this
legislation will ratify the whole process of negotiation and compromise
that Congress encouraged us to undertake.'' Id. at 120.
Indeed, the AHRA provides explicitly that copyright infringement
suits cannot be based on products that comply with the AHRA, or based
on consumers' use of such devices or their media. And, don't believe
RIAA's revisionist claims that the AHRA had a narrow, limited focus.
When urging passage of the AHRA, RIAA was singing a different tune.
Again, in Mr. Berman's own words: the AHRA ``is a generic solution that
applies across the board to all forms of digital audio recording
technology. Congress will not be in the position after enactment of
this bill of having to enact subsequent bills to provide protection for
new forms of digital audio recording technologies.'' \6\ Moreover, the
AHRA was specifically intended to address recordings made from digital
transmissions as well as from prerecorded media. \7\ We see no
justification to undo the provisions of the AHRA that safeguard the
right to manufacture, sell and use devices to record transmissions by
digital and satellite radio services.
---------------------------------------------------------------------------
\6\ Id. at 111 (emphasis supplied).
\7\ 17 U.S.C. Sec. 1001(1),(3) (digital audio recording devices
include those primarily designed to copy from transmissions); S. Rep.
No. 102-294, 102d Cong., 2d Sess. 65-66 (June 9, 1992) (rules allow one
generation recordings of digital broadcast transmissions).
---------------------------------------------------------------------------
There Is No Factual or Principled Basis to Constrain Consumers' Use of
These Lawful New Products.
In addition to destroying Digital Audio Broadcasts in their
infancy, the RIAA proposals seem aimed at destroying the utility of new
consumer products that, like the VCR and TiVo, will enhance consumer
enjoyment of music and broaden the market for entertainment
programming. Sirius has already introduced a new hand-held device and
XM has recently announced new hand-held devices that will allow their
subscribers to record and playback content they already have paid for,
much like a ``radio TiVo.'' At the just concluded International
Consumer Electronics Show, both devices won awards for their innovation
and consumer friendliness. Configured to meet the terms of the Audio
Home Recording Act, the only outputs from the Sirius and XM devices are
headphone jacks for listening. They do not permit songs or talk radio
to be moved to another device in digital form, and thus block the very
kind of P2P file sharing that the RIAA has fought in its program of
lawsuits against individuals. And yet the music industry apparently
wants to keep these award-winning listening devices out of the hands of
consumers.
The drive for legislation to constrain digital audio devices seems
aimed at killing innovative new products, even though the music that
these subscribers would record is music they have lawfully received via
satellite and for which they have paid a fee, a portion of which goes
to the very same record companies that want to kill these products. In
addition, the manufacturers of these devices will make the royalty
payments established by Congress in the Audio Home Recording Act to
compensate for these recordings and will prevent serial copying as
required by Congress under the AHRA. In short, even though the record
companies already receive millions of dollars annually in royalty
payments for the satellite radio transmissions and millions more for
the recordings under the AHRA, the RIAA appears to be looking for
double protection and triple compensation.
To be Analogous to the FCC's Prior Action, any ``Flag'' Proposal Would
be Aimed Solely at Mass, Indiscriminate Redistribution Over the
Internet by Means of a Known, Industry Standard Flag Technology
That Does not Hamper Interoperability Within the Home.
A draft of combined ``flag'' legislation that was circulated late
last week, but has not been introduced, would purport to establish an
``audio flag'' modeled substantively and, to the extent possible
procedurally, on the ``video'' flag. But this draft appears also to
specifically invite impositions against in-home consumer recording, as
well as explicit constraints on the in-home utility and
interoperability of lawful consumer products. In our view this is not a
``flag'' approach aimed, like the original, solely at mass,
indiscriminate redistribution of content over the Internet to anonymous
entities who have not lawfully acquired it.
The ``video'' flag (1) referred to a known technical standard,
already adopted by the Advanced Television Systems Committee (ATSC), a
multi-industry standards-setting organization, (2) was limited in its
purpose, in standards and later contexts, to addressing anonymous
redistribution outside the home, and (3) underwent a massive and
entirely voluntary vetting in the Copy Protection Technical Working
Group (CPTWG). The proposal in the ``audio flag'' portion of the draft
bill is none of these things. In fact, the RIAA has never approached
any standards-setting organization with any ``flag'' proposal, nor, for
the last 7 or 8 years, has RIAA shown up in the CPTWG at all.
To date, no technical specifications have been developed to define
an audio flag and there has been no effort by the RIAA to achieve
consensus through any voluntary process. As a result, we now see that
at least one legislative proposal would bring back the widely
criticized procedure at the heart of S. 2048, introduced in the 107th
Congress. \8\ That bill would have required every digital device of any
kind to recognize a ``flag'' in the information it receives, and
restrict copying. It would have given the force of law to a
``consensus'' proposal from the entertainment and electronics
industries. If the entertainment industry withheld its ``consensus,''
the bill authorized the FCC to mandate the anti-copying technology that
all products must use.
---------------------------------------------------------------------------
\8\ See generally, http://www.wired.com/news/politics/
0,1283,51275,00.html.
---------------------------------------------------------------------------
Neither the consumer electronics industry nor the information
technology industry has ever been willing to accept the idea of a
technical mandate under such circumstances. All of the criticisms
leveled at S. 2048 in the 107th Congress, from all quarters, should
apply to any such approach, and we would oppose any legislation that
proceeds on such a basis.
The Video ``Broadcast Flag''
The proposals for a video ``broadcast flag'' emerged from two
forums in which CEA, the HRRC, and various members have been very
active--the ATSC, and the Copy Protection Technical Work Group. In ATSC
committees, members of the content community for years pushed for a
``descriptor'' for the purportedly limited purpose of marking content,
for possible control over mass Internet transmission. Members of the
consumer electronics industry were greatly concerned that such a
``flag'' might be abused or used for other purposes, resulting in
unwarranted control over consumer devices inside the home--something
that had never been imposed on free, over-the-air commercial
broadcasting. In response to these concerns, the content and
broadcasting representatives agreed to clarify that the flag was meant
to govern not transmission, but retransmission, outside the home.
Our members led in forming a broadcast flag work group at the
CPTWG, and in drafting a final report. While the concept of a passive
``flag'' proved simple enough, the digital means of securing content,
in response to such a flag, and the potential effect on consumers and
their devices, proved controversial and contentious. The pros and cons
finally were sorted out in the FCC Report & Order, which specified that
the flag was meant solely to address ``mass, indiscriminate
redistribution'' of content over the Internet. This is the Order that
the Court of Appeals nullified on jurisdictional grounds. We understand
that the sole purpose of any video broadcast flag legislation would be,
or at least ought to be, to reinstate the FCC's authority to pursue the
same course. \9\
---------------------------------------------------------------------------
\9\ Just as there have been superficial and misleading attempts to
link the ``broadcast flag'' with a purported ``audio flag,'' we suspect
that confusion may arise as to another commonly discussed issue, the
``Analog Hole.'' As in the case of a purported ``audio flag,'' there is
one overriding fundamental difference: The proposals we have seen to
address the ``analog hole'' would restrict home copying, not just
Internet retransmission. In a House hearing last year we expressed
detailed concerns over drafts of such legislation.
---------------------------------------------------------------------------
While our members have a variety of views on the FCC action, CEA
and HRRC have a couple of very clear concerns:
First, legislative language circulated and attributed to the
Motion Picture Association of America and its members would go
well beyond the FCC's ``mass, indiscriminate redistribution''
standard, and could be interpreted as constraining distribution
on networks inside the home.
Second, the flag regulations were invalidated before they
ever took effect. Accordingly, it should be clearly understood
that, if new legislation is enacted, manufacturers must be
given a commercially reasonable period of time to manufacture
and include the necessary circuitry in their devices.
Third, we have been disappointed to see the ``ATSC
Descriptor'' show up in a number of standards proceedings,
proposed by the content industry for uses that go well beyond
those originally described to the ATSC.
If the Congress is going to provide more protection to the media
industry, it should, simultaneously, safeguard the rights of consumers
to enjoy the copyright works that they lawfully acquire. Our testimony
to the other body said that, should the Congress move forward with
broadcast flag legislation, the text of H.R. 1201, the Digital Media
Consumers Rights Act (Boucher-Doolittle-Barton) should be part of the
package, and we commend this view to your Committee as well.
Constraining Lawful Devices Chills Innovation
While we have voiced many specific concerns today about what some
of this legislation would do to consumers and to the use and viability
of legitimate consumer products, we must not ignore the overarching
issue of technological progress and U.S. competitiveness. While other
countries are busy developing their technology industries in order to
compete more efficiently with the United States, we face proposals from
the content community to suppress technological development on
arbitrary or insufficient bases. This is a trend that ought not to be
encouraged.
Again, thank you, Mr. Chairman, for the opportunity to appear
before the Commerce Committee to address these important issues. We
appreciate being asked to be here, and look forward to working with you
and your staff as you examine the important issues that have been
raised for discussion today.
The Chairman. Our next witness is Dan Halyburton, Senior
Vice President and General Manager of Group Operations,
Susquehanna Radio, in Dallas, Texas.
Thank you, Mr. Halyburton.
STATEMENT OF DAN HALYBURTON, SENIOR VICE PRESIDENT/GENERAL
MANAGER, GROUP OPERATIONS, SUSQUEHANNA RADIO CORPORATION;
CHAIRMAN, AUDIO FLAG TASK FORCE, NATIONAL ASSOCIATION OF
BROADCASTERS (NAB)
Mr. Halyburton. Thank you, Chairman Stevens, Co-Chairman
Inouye, and Members of the Committee. I'm Dan Halyburton, the
VP/GM for Susquehanna Radio's group operations. Our company
owns 33 broadcast radio stations.
I'm testifying today on behalf of the National Association
of Broadcasters. The NAB is a trade association that advocates
on behalf of more than 8,300 free local radio and television
stations, and also broadcast networks, before Congress, the
FCC, and the courts. I chair the NAB's recently formed Audio
Broadcast Flag Task Force.
Local broadcasters support legislative efforts to
immediately codify the broadcast flag for video. We believe,
however, that copy protections on the audio side merit further
discussion.
While I'm not an engineer, I'm a broadcaster who's been
engaged in radio technology issues for a number of years. Our
industry has commenced a massive rollout of digital broadcast
transmissions, and increasingly affordable digital radio
receivers are being put on the market and integrated into cars.
Currently, 624 AM and FM digital stations are on the air, and
that's triple from a year ago.
Individually, broadcasters have committed to upgrading more
than 2,000 digital HD radio technology stations, and major
radio companies are engaged in a massive marketing campaign to
promote digital radio to consumers. HD radio will provide
innovative new services to listeners. HD's multicasting will
offer listeners new, unique formats and greater programming
variety.
Just last week, several major radio companies announced the
launch of new HD formats in 28 markets across the U.S. and more
are coming. In digital, the listening experience for AM and FM
is vastly improved. And HD will also enable enhanced data
capabilities. All of these services will amplify radio's
traditional strength: service to the local community. In short,
the transition to HD radio is hitting on all cylinders.
With that progress as a backdrop, let me comment on the
audio broadcast flag.
As a starting point, we should note that peer-to-peer file-
sharing and unauthorized distribution of music on the Internet
all present larger and more immediate threats to copyright
holders than does HD radio. Our over-the-air product, with DJ
introductions, commercials, public-service elements, are unique
to radio's local presentation. And, accordingly, we're simply
not a good source for music piracy. That said, broadcasters,
radio as well as television, are content producers, and we
oppose piracy in all forms.
The NAB has reached out to the recording industry to foster
dialogue on the audio flag, and we were heartened in our most
recent correspondence between our organizations. Mr. Bainwol
wrote that ``encryption at the source is not a viable option.''
And we agree. No proposal should be allowed to derail the HD
radio rollout by making obsolete thousands of receivers already
on the market, as well as millions more in the manufacturing
pipeline. Other proposals that would restrict listeners'
ability to record free over-the-air broadcasts for personal use
are problematic.
These proposals differed in very important ways from the
DTV broadcast flag. The TV flag does not involve copy
restrictions, but only precludes indiscriminate redistribution
of programming on the Internet. And the DTV flag would not
scrap the existing DTV tuners in the market. Thus, the NAB
enthusiastically supports legislation that would empower the
FCC to implement the agreed-upon DTV broadcast flag.
On that note, I've submitted, for the record, testimony
from NAB board member Preston Padden, of ABC/Disney.
[The information referred to follows:]
Prepared Statement of Preston R. Padden, Executive Vice President,
Worldwide Government Relations, The Walt Disney Company; Member,
National Association of Broadcasters (NAB)
My name is Preston Padden. I am Executive Vice President of The
Walt Disney Company, which owns ten major market television stations,
and I appear here today as a witness for the National Association of
Broadcasters. The bottom line on the issue of the television Broadcast
Flag is very easy to state. If digital cable and satellite
transmissions are protected against unauthorized redistribution over
the Internet, but digital broadcast transmissions are not, then the
owners of high value content will quite reasonably choose to exhibit
their programs on cable and satellite distribution platforms rather
than through free over-the-air broadcasting. The ultimate victims would
be the American viewers who rely on broadcast television for their
entertainment and information. These millions of Americans would lose
access to the highest value entertainment and information, and we
simply cannot allow that to happen.
The media business is in the midst of a compelling transformation
from analog to digital. The new digital technology will create wondrous
new opportunities for consumers and for those who produce and
distribute entertainment and information content. However, piracy in
the digital world is a much greater threat than existed in the analog
world. In analog, each successive copy of a movie or television show
degrades in quality. And, analog copies had to be physically
transmitted to others by sending videotapes through the mail. The
digital world is much different. Each digital copy is a pristine
perfect replication of the original. Even more troubling is the
capacity of the Internet to serve as a vehicle for instantaneous
worldwide electronic transmission of these pristine prefect copies.
The threat to television broadcasters is very real. Every day,
millions of people use so-called peer-to-peer ``file-sharing'' networks
illegally to download copyrighted works without permission from or
payment to the copyright owners. Television shows are among the most
popular files being downloaded on these networks, and the threat is
only increasing. Take for example just one software application
(Cybersky-TV), which is being promoted by its creators as providing
``Global free television'' and allowing users to ``Share television
channels in real time, peer-to-peer.'' See http://cybersky-TV.
According to the Cybersky-TV website, a copy of which is attached to
this testimony, this application allows users to stream live broadcast
television with a 5 to 10-second delay (essentially ``real-time'') to
an unlimited number of users anywhere in the world, thereby destroying
the territorial exclusivity that is bargained for by broadcasters and
that forms the backbone of the free-over-the-air broadcasting industry
in this country.
Recognizing the heightened threat of digital piracy, the major
motion picture studios and the leading technology and consumers
electronics companies negotiated through the 1990s to agree on
technology to prevent unauthorized Internet transmission of digital
video content. For a very long time the participants in the negotiation
believed that the new anti-piracy technology would function only for
encrypted cable and satellite digital transmissions. It was believed in
good faith by all of the participants in this negotiation that free
over-the-air digital broadcast content could not be protected against
unauthorized Internet redistribution. The participants believed in good
faith that the encryption of the cable and satellite transmission was a
necessary prerequisite to preventing unauthorized Internet
redistribution.
On March 2, 2001, twelve members of the House and Senate sent a
letter to the Chairman of the FCC, urging that digital broadcast
signals be included in the new technological regime for preventing
Internet redistribution. A copy of that letter is attached to this
testimony. I would like to read just two sentences:
``Millions of American households, particularly those that
cannot afford subscription-based services like cable and
satellite, continue to rely on free, over-the-air television
for their entertainment and news information. 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 channels, these
producers will inevitably move their programming over to such
channels where protections are clearly stronger.''
Simply stated, the message from these Congressional leaders was
clear--don't leave free broadcasting and its viewers out of the new
world of digital content protection.
For quite some time the content, technology and CE companies
wrestled with the technology challenge of trying to include
broadcasting. Most participants continued to believe in good faith that
there simply was no way to bring free broadcast programming within the
framework of new content protection technologies. And then, Andrew
Setos of FOX came up with the idea of the Broadcast Flag--a simple,
single bit electronic indicator that the broadcast content should be
protected against unauthorized Internet distribution. Miraculously,
leading content, IT and CE companies, who normally can agree on almost
nothing, came together and found common ground on the details to
implement Mr. Setos's vision. The FCC conducted an open process to
consider the Broadcast Flag recommendation.
Ultimately the Commission adopted its Broadcast Flag rules with an
ongoing process of technical certification to make sure that innovation
could continue to move forward.
The FCC's adoption of the Broadcast Flag was directly and
specifically responsive to the March 2001 letter from Congressional
leaders. It is critical to emphasize that the Broadcast Flag adopted by
the FCC could not be used to prevent home copying by consumers. The
only effect of the Broadcast Flag regulation is to control unauthorized
Internet redistribution of digital broadcast content and thereby assure
that broadcast viewers are not relegated to the status of second class
citizens. The Broadcast Flag is also not a case of the government
mandating technology. While manufacturers benefit from having a single
standard used by broadcasters for signaling protection, the FCC's
Broadcast Flag rule adopted a market-based certification process for
implementing technologies. That certification process ensures that
manufacturers in the IT and CE sectors are free to innovate new and
better ways to deliver and manage content, consistent with a baseline
set of compliance and robustness standards. The goal was to allow for
as many different technologies as the market could support. In the end,
every one of the 13 technologies that sought Broadcast Flag compliance
certification received it, including one technology whose certification
was opposed by the motion picture industry on grounds that it failed
adequately to limit unauthorized distribution of digital television
content.
Unfortunately, the FCC's Broadcast Flag regulation was challenged
and struck down by the D.C. Circuit, not because it was a bad idea or
had untoward consequences, but rather because the court found that the
FCC lacked the statutory authority to adopt the Flag. It is more than
ironic that a regulation adopted directly in response to Congressional
input was struck down on the grounds that Congress had not specifically
authorized its adoption. There is a critical need for Congress to
immediately pass legislation providing the FCC with authority to adopt
the Broadcast Flag regulation. The enactment of such legislation is
supported by a broad range of broadcasting, content and consumer
electronics companies including the following:
ABC Television Affiliates Association
The ABC Television Network
Association for Maximum Service Television Stations, Inc.
CBS Television Network Affiliates Association
CBS Television Network
Fox Broadcasting Company
Fox Television Affiliates Association
Ladies Professional Golf Association (LPGA)
LG Electronics
Major League Baseball
Motion Picture Association of America
National Association for Stock Car Racing Association, Inc.
(NASCAR)
National Association of Broadcasters
National Basketball League
National Collegiate Athletic Association
National Football League
National Hockey league
NBC Television Affiliates Association
NBC Universal, Inc.
Philips Electronics North America Corporation
PGA Tour
Thomson Inc.
UPN
Women's National Basketball League
America's television broadcasters have been an important lifeline
for news, information and entertainment to millions of Americans. For
that tradition to continue, it is imperative that broadcasting be
included in the new digital technology framework to prevent
unauthorized Internet redistribution of content.
The number of major Sports leagues supporting the Flag is a clear
indicator of the importance of the Flag to the future of sports on free
broadcast TV. The same is true for all high value content. Consider for
a moment a television program like ``Lost,'' which airs on ABC. It is
also available for download through iTunes the day after it airs on
ABC, and each season is available in its entirety on DVD. ABC would
like to continue to air programs like ``Lost.'' The public has an
interest in having access to such programs via free over-the-air
television. It is our hope and intention to sell and license this film
to future generations of viewers and to future generations of
exhibition platforms. If ``Lost'' is licensed for exhibition on cable
and satellite networks, it can be protected against unauthorized
Internet redistribution, and the future marketing potential of this
program via other channels, like iTunes or DVD sets, the film would be
preserved. By contrast, in the absence of the Broadcast Flag, episodes
of ``Lost'' are left wholly unprotected when distributed through
digital broadcast exhibition, making possible the Internet
retransmission of perfect, high-definition copies to millions and
millions of consumers worldwide, seriously eroding the market for
future sales and licensing.
The same concern arises with respect to access to major motion
pictures for free-to-air broadcast. If a studio is faced with the
choice of licensing an incredibly valuable motion picture--say, for
example, ``The Chronicles of Narnia: The Lion, the Witch and the
Wardrobe''--for exhibition in high definition digital format via cable
or satellite, where it will be protected, or unencrypted high
definition digital broadcast television, where it will not be, it is
not hard to see how broadcasters will be at a serious disadvantage in
the race to acquire sought after content.
As with any legislation, there are some who have criticized the
proposal to grant the FCC the authority to reinstate its Broadcast Flag
rule. Some, including some who appear before you today, would like to
see certain aspects of the FCC's rule modified, whether it be to
prohibit the use of the broadcast flag for certain types of content, to
exempt certain kinds of users from the rule, or to modify the
procedures for certification of compliant recording and output
technologies. Let me say just a few words about these concerns you have
heard expressed.
First, each and every one of the concerns you have heard was raised
at the FCC and considered in the course of the Broadcast Flag
proceeding. That proceeding was a long and a difficult one in which all
of these concerns were carefully weighed and a complex balancing of
interests was performed. No one got everything they wanted, and nearly
all participants had reason to be both pleased and disappointed with
the result. But, at the end of the day, the result was fair and was one
that promised meaningful protection in a way that sought to accommodate
the concerns of all involved.
Broadcasters, like everyone else, have a list of things we could
ask Congress to change in the FCC rule. But ultimately that would not
serve the public interest in promoting the long-term viability of free
over-the-air television. Such an exercise would inevitably lead to
delay and perhaps inaction. What we are asking is simply that Congress
step in to restore the status quo ante. All the reconsiderations filed
before the FCC will be preserved and can go forward. But the important
thing is that we put the Broadcast Flag back on track and let the FCC
consider those issues rather than creating a legacy of devices that
fail to protect broadcast content while Congress debates more detailed
and controversial legislation.
Second, it needs to be made clear that what we are talking about
here is nothing more than ensuring that broadcasters are able to take
advantage of the very same protections as are available today to cable
and satellite operators. The broadcast flag rule would not allow
broadcasters to limit redistribution of their programming in any way
that cable and satellite operators are not able to do today with
existing technology and under existing FCC rules. To the extent
proposals are being made to prohibit the use of the flag in certain
circumstances or to provide exemptions in others, it must be recalled
that doing so only creates a disparity between broadcast and cable/
satellite distribution of the sort the Broadcast Flag is meant to
eliminate.
Finally, you will hear from some a concern that they will be
impeded by the Broadcast Flag in their ability to make certain uses of
broadcast television. We do not believe the Broadcast Flag actually
prevents any of the uses we have heard described. To the extent the
Broadcast Flag causes any inconvenience in making some of those uses,
we must weigh those inconveniences with the value derived from
protecting free over-the-air broadcasting by providing a level playing
field with cable and satellite. We submit that such an interest is a
compelling one.
On behalf of ABC and the National Association of Broadcasters, I
urge you to please not leave broadcasting behind. Please don't relegate
broadcast viewers to second class status. Please enact legislation to
affirm the FCC's authority to adopt the Broadcast Flag regulations.
While Congress should grant the FCC authority to implement
the broadcast flag for video, there should be additional
reflection and inter-industry dialogue regarding content
protections for HD radio.
Senator Smith has circulated the draft legislation aimed at
promoting an industry-wide solution for the audio flag, and we
think it's a step in the right direction. As evidenced by the
progress made on the video flag, we believe that, in this
context, legislation that promotes marketplace solutions and
inter-industry agreements will produce the most positive
result.
We look forward to working with the RIAA, the other
interested parties, and this Committee. And thank you for your
time today.
[The prepared statement of Mr. Halyburton follows:]
Prepared Statement of Dan Halyburton, Senior Vice President/General
Manager, Group Operations, Susquehanna Radio Corporation; Chairman,
Audio Flag Task Force, National Association of Broadcasters (NAB)
Chairman Stevens, Co-Chairman Inouye, and Members of the Committee.
My name is Dan Halyburton. I am the Senior Vice President and General
Manager for Group Operations for Susquehanna Radio Corp., which owns 33
broadcast radio stations. I am also Chairman of NAB's Audio Flag Task
Force. I am testifying today on behalf of the National Association of
Broadcasters.
At the outset, NAB wants to make clear that it opposes piracy in
all shapes and forms. Broadcasters are, themselves, content owners and
support efforts to protect both content owners and their signals from
piracy and to prosecute violators. NAB, however, has concerns about
current proposals with regard to copy protection for new digital audio
broadcasts and receivers, in contrast to NAB's support for the digital
television (DTV) broadcast flag. Specifically, NAB is concerned that
any attempt to add anti-copying measures at this point should not stall
the digital radio transition that promises to provide benefits to the
public, broadcasters, music composers and publishers, and the recording
industry alike, without solving the unauthorized copying problems
raised by the recording industry.
Radio in America is today at the beginning of a massive roll-out of
digital broadcast transmissions and all-new digital radio receivers.
Currently, 624 digital AM and FM stations are on the air--triple that
of a year ago. New digital radio receivers have been launched in the
marketplace across a range of product categories. The ability to
broadcast multiple program streams has been demonstrated, and
broadcasters are fast embracing this option to bring additional content
to the listening public within stations' current spectrum. Major radio
groups are engaged in a massive marketing campaign to promote digital
radio to consumers. The U.S.-developed digital radio technology, that
of iBiquity Digital, is now being tested in many countries around the
world. And auto makers and after-market manufacturers are beginning to
produce digital radio products for car sound systems. 2005 was an
important year for the digital radio roll-out. 2006 promises to be even
more important, with auto makers signing up for factory-installed
radios and retail outlets prominently featuring many new digital radio
products. Broadcasters have individually committed to upgrade more than
2,000 stations to HD Radio technology. It is thus of paramount
importance that any copy protection mechanism for digital radio must
not impede the digital radio roll-out.
NAB is greatly concerned that developing and implementing a
technical system to provide copy protection for digital radio not have
a negative impact on the digital radio transition. The DTV broadcast
flag mechanism, for example, 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.
NAB has expressed its willingness to participate in developing and
forging a consensus on a digital radio copy protection system so long
as it would not interrupt the digital roll-out or create uncertainty
that would lead to a slow down of adoption rates by manufacturers,
consumers and even broadcasters. NAB does not believe that legislation
is necessary at this time. The immediacy, reality, or scope of any
threat to the recording industry from a scenario in which consumers
make good quality recordings from digital broadcasts on their local
radio stations remains to be demonstrated. Those desiring to obtain and
listen to pure, uninterrupted performances of sound recordings in lieu
of the radio, already have an abundant number of means to do so.
Satellite and cable digital subscription services, hundreds of
thousands of unencrypted compact discs, peer to peer file sharing, and
hours of uninterrupted music that can be stored on recordable CDs and
hard drives, are but a few such means. We see no incentive for
consumers to seek out random digital audio broadcast (DAB) signals that
may contain DJ patter over the recordings in order to create files to
make copies of or distribute sound recordings.
In addition, in any discussion of the extent to which copy
protection should be accorded to digital audio recordings or
transmissions, all parties must take into account Congress' long-
standing policy of protecting and preserving the public's right to make
home recordings of sound recordings for personal use. The House Report
accompanying the Sound Recording Act of 1971 stated:
In approving the creation of a limited copyright in sound
recordings it is the intention of the Committee that this
limited copyright not grant any broader rights than are
accorded to other copyright proprietors under the existing
title 17. Specifically, it is not the intention of the
Committee to restrain the home recording, from broadcasts or
from tapes or records, of recorded performances, where the home
recording is for private use and with no purpose of reproducing
or otherwise capitalizing commercially on it. This practice is
common and unrestrained today, and the record producers and
performers would be in no different position from that of the
owners of copyright in recorded musical compositions over the
past 20 years. \1\
\1\ H. Rept. 92-487, 92d Congress, 1st Sess. at 7 (Sept. 22, 1971)
(emphasis added).
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Since that Act, Congress has expanded the sound recording right
only sparingly, in careful response to specific and well-documented
threats, all the while reiterating the importance of preserving the
public's right to make home copies for personal use.
In the Audio Home Recording Act of 1992 (``AHRA''), Congress
definitively addressed the issue of home recording of sound recordings
and musical works. This Act was intended to be comprehensive, forward-
looking legislation designed to end, once and for all, the
``longstanding controversy'' surrounding the home recording of
prerecorded music. \2\ Indeed, then-President of the Recording Industry
Association of America (RIAA), Jay Berman, described the bill that
became the AHRA as ``a generic solution that applies across the board
to all forms of digital audio recording technology.'' \3\
---------------------------------------------------------------------------
\2\ See S. Rep. No. 102-294, 102d Cong., 2d Sess. 30, 51 (June 9,
1992).
\3\ Hearing Before the Senate Subcommittee on Communications, S.
Hrg. 102-908, Serial No. J-102-43, at 111 (Oct. 29, 1991) (statement of
Jason Berman, President of RIAA) (emphasis added).
---------------------------------------------------------------------------
The Senate Report that accompanied the AHRA opens its discussion of
the bill with the assertion that ``[t]he purpose of S.1623 is to ensure
the right of consumers to make analog or digital audio recordings of
copyrighted music for their private noncommercial use.'' \4\ To this
end, the provision of the AHRA providing the exemption for home
copying, section 1008, was considered ``one of the cornerstones of the
bill'' because it ``removes the legal cloud over home copying of
prerecorded music in the most proconsumer way possible: It gives
consumers a complete exemption for noncommercial home copying of both
digital and analog music, even though the royalty obligations under the
bill apply only to digitally formatted music.'' \5\ The Ninth Circuit
confirmed this conclusion in Recording Industry Association of America
v. Diamond Multimedia Systems, Inc. \6\
---------------------------------------------------------------------------
\4\ S. Rep. No. 102-294, at 51.
\5\ 138 Cong. Rec. H9029, H9033 (daily ed., Sept. 22, 1992)
(statement of Rep. Hughes) (emphasis added).
\6\ 180 F.3d 1072 (9th Cir. 1999).
---------------------------------------------------------------------------
Current Proposals for Audio Copy Protection Are Problematic
One of the proposed solutions RIAA has advocated in the past for
its copy protection concerns is to mandate that all radio broadcasters
encrypt their digital content at the source. NAB strongly opposes this
approach. Such a mandate would be antithetical to the concept of free,
over-the-air broadcasting. No U.S. free, over-the-air broadcast
service, analog or digital, has ever been required to encrypt its
transmissions.
Any encryption requirement would likely 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 DAB by manufacturers now
ready to roll out (DAB) receivers would harm broadcasters and threaten
the public's receipt of digital radio. To date, there has been 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.
Required encryption of DAB transmissions, even at this early stage,
would likely result in obsolescence of millions of units of DAB
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 DAB 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 is designed to prevent 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 DAB
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.
As an alternative to encryption at the source, the RIAA has, in the
past, proposed various recording function rules that would be imposed
through mandatory audio protection flags. NAB opposes proposals that
would severely restrict a listener's ability to make recordings of free
over-the-air radio broadcasts, for example, by limiting ``pre-
programmed recordings'' to a minimum of 30 minutes duration, by
prohibiting a listener's ability to subdivide a recorded segment after-
the-fact, and by allowing a listener to view the ID information for a
particular recording (e.g., song title and artist) only while
simultaneously listening to that recording. Digital radio receivers so
restricted would present to consumers a stark contrast with the
abilities of other devices, such as existing analog radios which
incorporate recording features, or software applications that can be
added to a computer.
With regard to a proposed digital audio flag, RIAA has offered no
clear definition of the problem that the flag is intended to solve, nor
any indication of how the regime it proposes may solve that problem,
particularly in light of the plethora of unencrypted digital copies of
sound recordings available in the marketplace. Moreover, RIAA has
provided no cost assessment to broadcasters for adoption of a mandatory
audio protection flag.
The Committee Should Reject any Effort to Impose a Sound Recording
Performance Right in Digital Broadcasts
NAB urges the Committee to recognize that granting a performance
right will have no effect on the redistribution and copying issues
raised here. Even in countries where a performance right in sound
recording exists today, both for subscription and non-subscription
transmissions, the right is almost universally subject to a statutory
license. That license does not impose encryption obligations, bar
encrypted digital outputs or analog outputs or even prohibit metadata-
based recording. Accordingly, even if there were a performance right in
sound recordings, the sound recording industry would still be asking
Congress for the imposition of additional copy protection. All that a
new performance right would do is create a new revenue stream for the
producers and performers of sound recordings at the expense of
broadcasters for purported reasons having nothing to do with this
hearing.
Throughout the history of the debate over sound recording
copyrights, Congress has consistently recognized that record companies
reap huge promotional benefits from the exposure given their recordings
by radio stations and that placing burdensome restrictions on
performances could alter that relationship to the detriment of both
industries. For that reason, in the 1920s and for five decades
following, Congress regularly considered proposals to grant copyright
rights in sound recordings but repeatedly rejected such proposals.
When Congress did first afford limited copyright protection to
sound recordings in 1971, it prohibited only unauthorized reproduction
and distribution of records, but did not create a sound recording
performance right. During the comprehensive revision of the Copyright
Act in 1976, Congress again considered, and rejected, granting a sound
recording performance right. As certain senators on the Judiciary
Committee recognized in their (prevailing) minority views:
For years, record companies have gratuitously provided records
to stations in hope of securing exposure by repeated play over
the air. The financial success of recording companies and
artists who contract with these companies is directly related
to the volume of record sales, which, in turn, depends in great
measure on the promotion efforts of broadcasters. \7\
---------------------------------------------------------------------------
\7\ S. Rep. No. 93-983, at 225-26 (1974)(minority views of Messrs.
Eastland, Ervin, Burdick, Hruska, Thurmond, and Gurney).
---------------------------------------------------------------------------
Congress continued to refuse to provide any sound recording
performance right for another twenty years. During that time, the
record industry thrived, due in large measure to the promotional value
of radio performances of their records.
It was not until the Digital Performance Rights in Sound Recordings
Act of 1995 (the ``DPRA'') that even a limited performance right in
sound recordings was granted. In granting this limited right, Congress
stated it: ``should do nothing to change or jeopardize the mutually
beneficial economic relationship between the recording and traditional
broadcasting industries.'' \8\ As explained in the Senate Report
accompanying the DPRA, ``The underlying rationale for creation of this
limited right is grounded in the way the market for prerecorded music
has developed, and the potential impact on that market posed by
subscriptions and interactive services--but not by broadcasting and
related transmissions.'' \9\
---------------------------------------------------------------------------
\8\ S. Rep. No. 104-129, at 15 (``1995 Senate Report''); accord,
id. at 13 (Congress sought to ensure that extensions of copyright
protection in favor of the recording industry did not ``upset[] the
long-standing business relationships among record producers and
performers, music composers and publishers and broadcasters that have
served all of these industries well for decades.'').
\9\ Id. at 17.
---------------------------------------------------------------------------
Consistent with Congress' intent, the DPRA expressly exempted from
sound recording performance right liability non-subscription, non-
interactive transmissions, including ``non-subscription broadcast
transmission[s]''--transmission[s] made by FCC licensed radio
broadcasters. \10\ Congress made clear that the purpose of this
broadcast exemption was to preserve the historical, mutually beneficial
relationship between record companies and radio stations:
\10\ 17 U.S.C. Sec. 114(d)(1)(A). All statutory citations are to
the Copyright Act, Title 17 of the United States Code, unless otherwise
noted.
---------------------------------------------------------------------------
The Committee, in reviewing the record before it and the goals
of this legislation, recognizes that the sale of many sound
recordings and careers of many performers have benefited
considerably from airplay and other promotional activities
provided by both noncommercial and advertiser-supported, free
over-the-air broadcasting. The Committee also recognizes that
the radio industry has grown and prospered with the
availability and use of prerecorded music. This legislation
should do nothing to change or jeopardize the mutually
beneficial economic relationship between the recording and
traditional broadcasting industries. \11\
\11\ 1995 Senate Report, at 15.
---------------------------------------------------------------------------
The Senate Report confirmed that ``[i]t is the Committee's intent
to provide copyright holders of sound recordings with the ability to
control the distribution of their product by digital transmissions,
without hampering the arrival of new technologies, and without imposing
new and unreasonable burdens on radio and television broadcasters,
which often promote, and appear to pose no threat to, the distribution
of sound recordings.'' \12\
---------------------------------------------------------------------------
\12\ Id.
---------------------------------------------------------------------------
This discussion is not intended to minimize whatever legitimate
concerns the recording industry may have concerning the need for copy
protection. Rather, it is intended to assist the Committee in
understanding why a performance right for sound recordings is totally
irrelevant to those concerns.
Conclusion
NAB believes there is no need for legislation at this time. Rather,
the parties should have the opportunity to explore options and attempt
to come to consensus. It is of utmost importance not to disrupt the
digital radio roll-out currently underway. NAB remains willing to
discuss developments and mechanisms to afford some agreed-on protection
for content owners that will not threaten the digital radio transition
that has been so long in coming to America's radio listening public and
America's broadcasters.
Thank you for this opportunity to share our views.
The Chairman. Well, thank you very much. I'd like to get to
that first part of what we're talking about, in terms of the
ability of the individual to download from the radio or from
CDs. I've got to tell you, you know, I, for years, had my CDs
in a little package. I carried it with me on the airplane,
listening to CDs that represented songs I've liked for 8
decades. All right? My daughters gave me an iPod, and they
downloaded all of those. It took a lot of time to do that.
You're--Mr. Bainwol, you're not talking about that, are
you?
Mr. Bainwol. No. We think that's great. The iPod is a
phenomenal device, and if you move your own CDs onto the iPod,
that's great. If you buy songs from iTunes individually, put
them on the iPod, that's great, too. We're talking about
something entirely different. We're talking about being able to
replicate a purchase and not make a payment.
The Chairman. OK. Now, then we come to Mr. Shapiro. You
have some problems with that statement, as I understand it. You
contradict him, sort of.
Mr. Shapiro. Actually--of course.
[Laughter.]
Mr. Shapiro. We're talking about three services here, to
conceptualize them. There are two national radio services--XM
and Sirius--and they are paying royalties to Mr. Bainwol's
people, and, plus, the manufacturers of devices, which do what
Mr. Bainwol was talking about, are paying royalties to Mr.
Bainwol's people. And, plus, those devices are already
restricted by acts of Congress as to what they can do. So,
there's two royalties and a restriction already that the
copyrighter owners get. They're asking for a fourth total
restriction now.
There's also a local radio service, which is what the NAB
is talking about. It's called HD radio, and it allows the local
radio broadcaster to send out a digital signal. It's just
started. It's taken--probably a dozen years in the making, 7
years with the FCC. The RIAA was not present in any of those
proceedings til just very recently. We've gone along, we've
created a standard, the radios are being sold, and now the RIAA
is talking about stopping them from recording to those devices.
At the same time, Congress has considered, over and over
again, whether you should have the right to record off of
radio. And, every time, Congress has said, ``You should be able
to record off of radio.'' And that's what these devices do,
they allow you to record off of radio for product that you
legitimately got. They don't allow you to send it over the
Internet. What Mr. Bainwol is talking about is stopping private
home recording, fair use of radio. That's what he's talking
about.
The Chairman. Is that right, Mr. Bainwol?
Mr. Bainwol. No. And, you know, Gary's charming and
compelling, but often very misleading. The----
[Laughter.]
Mr. Bainwol. It's a dangerous combination. When we were
going through our issue with Grokster, Gary instructed us that
we should just get over it, that P2P was part of life, that it
was fair use. The court disagreed with him, nine-zero. He's got
a fairly fringe perspective here when it comes to what he calls
``recording rights.'' And he's applying that fringe perspective
in this debate. And I want to clarify a number of things he
said.
First of all, fair use is not the right to take something
and redistribute it, and it's not the right to replicate a
purchase and steal a song. Fair use is the right to enjoy the
product that you buy. So, if you buy a CD, you can put it on
your iPod. We are the most permissive rights-holders of any of
the content players.
The Chairman. Don't stretch it out too long. I want to know
do you disagree with what he said?
Mr. Bainwol. Well, the----
The Chairman. Are you----
Mr. Bainwol.--the key thing----
The Chairman. Are you----
Mr. Bainwol.--in terms of recording, we don't want to do
anything that's different than current consumer expectations.
But if----
The Chairman. But if I----
Mr. Bainwol.--went to----
The Chairman.--if I take something off one of these new
radio stations----
Mr. Bainwol. Right.
The Chairman.--like Mr. Halyburton's got, and use it, and
just use it in my own home, my own iPod, are you trying to
restrict that?
Mr. Bainwol. What we're trying to do is this. If you listen
to the radio and manually record, as you can right now, and get
it in that fashion, that's fine. If you want to timeshift a
block of programming, that, too, is fine. But if you want to go
in and program the device to automatically say, ``I want that
Bruce Springsteen tune, and I'm going to automatically do that
without listening to the programming when it's live,'' that's
different than what--than a--the traditional taping off the
radio.
If that's your objective, that's exactly what you do when
you go to iTunes when you make a purchase. You're saying, ``I
want Bruce Springsteen's Born to Run. Give it to me now.'' You
put it in your library, you cherrypicked it. That's not right.
That emasculates the download model.
Let me give you a consumer quote.
The Chairman. I've got just limited time, and we've got to
get through this----
Senator Sununu. Mr. Chairman, can I ask a very specific
question here that speaks directly to your point?
The Chairman. Yes.
Senator Sununu. Mr. Bainwol, if I'm listening to XM radio--
--
Mr. Bainwol. Right.
Senator Sununu.--and they play three songs in succession,
and I record all three songs, what you are saying is, I can
listen to all three of those songs in the order that they were
played by XM, but what you object to is me listening to those
songs one at a time over a span of, say, 3 hours. Is that
correct?
Mr. Bainwol. Here's what I'm saying. I'm saying that you
can--as you're----
Senator Sununu. That's a very clear question.
Mr. Bainwol. Well----
Senator Sununu. If I have recorded--it's a simple----
Mr. Bainwol. Are you----
Senator Sununu.--very simple----
Mr. Bainwol. Are you----
Senator Sununu.--hypothetical.
Mr. Bainwol.--listening to the radio as this occurs?
Senator Sununu. No. I've recorded three songs in
succession.
Mr. Bainwol. Right.
Senator Sununu. Can I listen--do you object--do you
oppose----
Mr. Bainwol. The----
Senator Sununu.--my right to listen to one of those songs
at a particular time the following day?
Mr. Bainwol. We have a concern about the disaggregation of
a block of programming.
Senator Sununu. Mr. Chairman, the answer to that question--
I think you understood the question--the answer to that
question is, yes, I cannot listen----
Mr. Bainwol. That's----
Senator Sununu.--to those songs one at a time.
The Chairman. And I followed Mr. Bainwol right down to the
end, but if I set my television so I can record a particular
program----
Mr. Bainwol. Right.
The Chairman.--that I'm not going to be able to see--all
right?--a ball game----
Mr. Bainwol. Right.
The Chairman.--and now I come back and turn it on 2 days
later and see it, now that's--there's nothing wrong with that,
today.
Mr. Bainwol. There is nothing wrong with that.
The Chairman. What's wrong with what Senator Sununu said
with regard to recording songs and listening to them later?
Mr. Bainwol. There are a series of problems. One is, when
that TV program is broadcast, the content owner is being paid.
When the song is aired on the radio--not in the satellite
context--in the HD context, the content owner is not being
paid. So, that's the first thing that's wrong.
Second, when you listen to White Christmas or Stairway to
Heaven, you listen to it a thousand times. Desperate
Housewives, you listen to, or you watch, twice. It is the
pattern of consumption.
Third, we have no leverage here.
The Chairman. OK. I've got to move on. We have a
disagreement here, I think.
Mr. Halyburton, do you have any responsibility, as radio
operators, to protect radio content--digital radio content?
Mr. Halyburton. At this time, no.
The Chairman. Ah. Are you willing to work for a solution as
to content protection?
Mr. Halyburton. Yes, as written in our written and our oral
testimony, we're ready to sit down with the various players.
There are more--obviously, a lot more people than just this
table. But, you know, we have concerns about copyright. We are
copyright owners. So, we think that there is an opportunity to
sit down and have some dialogue, providing that dialogue and
the approach is narrow in its attempts to try to accomplish
something.
The Chairman. Now, you've mentioned your digital
transition, and I assume you have invested very substantially
in that transition, right?
Mr. Halyburton. Yes. All of the broadcast companies are
spending tens of millions of dollars to make the transition to
digital.
The Chairman. Has that added to your revenue base?
Mr. Halyburton. Not at this point. We're just really--as
indicated, just really on the beginning of this. There is hopes
down the road that this will improve revenues and
profitabilities, but I think we're several years away from
seeing revenues----
The Chairman. I sort of take it you're walking a tightrope
between these other two witnesses sitting beside you, right?
Mr. Halyburton. Yes, it's kind of interesting. Usually,
Mitch and I are more debating issues. I'm a little bit over on
the side on this one, which is just fine.
The Chairman. What would you have us do with this bill?
Mr. Halyburton. Well, I think, as indicated, Senator
Smith's suggestions are good ones, a step in the right
direction. I think there is a lot of work to be done. You know,
the TV broadcast flag was a long time in the making, but I
think that if we can keep our approach contained and narrow so
that we can kind of try to accomplish the things for all
parties----
The Chairman. You want us to----
Mr. Halyburton.--you know, I think there are some areas to
work on.
The Chairman.--mandate an industry-government solution,
right?
Mr. Halyburton. We'd like to go back and work on it
ourselves and see if we can't figure that out. I think there
may be an approach in Senator Smith's bill that gives us a
timetable. We can work along----
The Chairman. That's my----
Mr. Halyburton.--those lines.
The Chairman.--that was going to be my last question. Do
you accept the timetable on that?
Mr. Halyburton. I think, again, providing we keep this
discussion straightforward and limited, and we don't get too
broad, and that we're aware of issues, like home recording
and--et cetera, then I think we can get some things done.
The Chairman. Senator Inouye?
Senator Inouye. I thank you very much, Mr. Halyburton. You
mentioned this dialogue that has been developed between you and
the recording industry. I'd like to, for the record, place the
letter of the president of the NAB and the response of Mr.
Bainwol. This is dated January 11th; and response, January
12th. I'd like to commend both of you for the steps taken.
The Chairman. You want to put those in the record, right?
Senator Inouye. Yes.
[The information referred to follows:]
______
National Association of Broadcasters
Washington, DC, January 11, 2006
Mr. Mitch Bainwol,
Chairman and CEO,
Recording Industry Association of America,
Washington, DC.
Dear Mitch:
I am writing to express the broadcast industry's strong interest in
collaborating to find a workable solution to content protection issues
associated with terrestrial digital radio broadcasting. As you know,
the transition to HD Radio is well underway and local radio
broadcasters have a great deal invested in a timely and successful
rollout of this new technology. The goal for our industry is to find a
resolution that balances protection of copyrighted works against the
important objective of ensuring the continued and rapid expansion of
digital audio broadcasts. Such a balanced approach could, in fact, aid
the HD Radio rollout by removing regulatory and legislative uncertainty
from the marketplace.
As a matter of initial discussion, NAB questions the degree to
which HD Radio threatens copyright or will facilitate unauthorized,
digital distribution of sound recordings. Those desiring to obtain and
listen to pure, uninterrupted performances of sound recording in lieu
of radio already have an abundant number of means to do so. Peer-to-
peer file sharing and the hours of uninterrupted music that can be
stored on CDs and discs are but a few such means. iPod uploads and
digital music on the Internet would seem to present much larger and
more immediate threats to copyright holders.
As such, NAB believes the scope of any piracy risk associated with
HD Radio is likely more limited than RIAA has previously asserted.
However, as content creators ourselves, radio broadcasters oppose
piracy in all its forms and therefore hope that we can find an amicable
solution to this issue.
We understand from previous conversations that the RIAA has
advocated a number of proposals that would set back the HD Radio
rollout and be unacceptable to broadcasters. For instance, RIAA has
previously suggested broadly empowering the FCC to mandate that all
radio broadcasters encrypt their digital content at the source. This
approach is antithetical to the concept of free, over-the-air
broadcasting. No U.S. free, over-the-air broadcast service, analog or
digital, has ever been required to encrypt its transmissions.
An encryption proposal would also likely obsolete HD Radio units
already on the market and millions more currently in the manufacturing
pipeline. By making obsolete receivers already installed in
automobiles, an encryption proposal could increase automakers'
frustration and potentially imperil the future integration of HD Radio
units into automobiles.
Moreover, mandatory encryption could set back the hundreds of
broadcasters who have already licensed and are deploying (or have
deployed) HD Radio transmission equipment. An overly broad encryption
system would risk making these stations' broadcast transmission
equipment obsolete. Broadcasters simply cannot allow an overly broad
encryption system to scuttle the progress made to date and turn back
the clock on the digital radio revolution.
Not only would encryption at the source have severe unintended
consequences, such an approach would not reflect the careful balancing
act that Congress has undertaken in considering copyright issues. In
crafting the Digital Performance Right in Sound Recordings Act,
Congress essentially established a three-tier system for protecting
and/or compensating the copyright owners of sound recordings. This
system was based, in large part, on the threat level Congress felt
various services presented to copyright holders. Interactive services,
perceived to present the greatest threat, were subjected to the most
rigorous levels of protection.
Other types of non-interactive subscription services were deemed to
pose an intermediate threat level. Protection with respect to these
services was provided through a compulsory license accompanied by
numerous conditions such as a prohibition against pre-announcing music
and limits on the consecutive cuts from one album or by one artist that
could be performed.
The third in the three-tier system of protection established in the
Act related to analog and digital broadcasting. Congress found they
``often promote, and appear to pose no threat, to the distribution of
sound recordings.'' Accordingly, ``by contrast'' with the other types
of services, Congress concluded ``not to include free over-the-air
broadcasting in this legislation.''
Legislation empowering the FCC with overly broad authority to
create an ``encryption at the source'' standard would abandon this
longstanding Congressional paradigm.
For these many reasons, we believe that RIAA's encryption proposal
is not viable and we strongly oppose such an initiative. However,
despite our objections to encryption at the source approaches, we do
believe that there are possibilities for technical solutions that would
offer effective content protection without slowing digital radio's
advancement.
We hope to continue dialogue with you as the radio and recording
industries keep working towards mutually acceptable resolution of this
issue. We therefore think it would be beneficial for members of NAB's
Audio Broadcast Flag Taskforce to meet with counterparts at the RIAA
and in the recording industry. Such formal discussions could move the
industries forward aggressively, rather than relying on a Congressional
mandate. Should you have questions, please do not hesitate to contact
me.
Sincerely,
David K. Rehr,
President and CEO.
______
Recording Industry Association of America
Washington, DC, January 12, 2006
Dr. David K. Rehr,
President and CEO,
National Association of Broadcasters,
Washington, DC.
Dear David:
Thank you for your letter expressing the broadcast industry's
strong interest in collaborating with us and other interested parties
to find a workable solution to content protection issues associated
with over-the-air digital radio broadcasting.
As you know, rampant digital piracy enabled by commercial operators
has caused severe damage to thousands of songwriters, artists, labels
and so many others in the music community over the past several years.
Preventing such piracy over commercial HD Radio services is necessary
to preserve the future of music for the health of both of our
industries. This is a lesson we learned the hard way once before. We
firmly believe a little prudence at this juncture would go a long way.
I appreciate the concerns you raise over encrypting the digital
content contained in radio broadcasts at the source. The RIAA has
always been agnostic as to the technological method of protecting
content contained in digital broadcasts. As stated in our FCC filing,
while we agree with many in the information technology industry that
encryption at the source provides robust protection, a broadcast flag
technology similar to the solution you support in the video context
would be adequate to meet our needs. We understand that for the reasons
you mention in your letter, encryption at the source is not a
technological solution that provides a viable option at this point and
therefore support working with you to implement a broadcast flag
solution for digital over-the-air radio.
We look forward to working immediately with members of the NAB's
Audio Broadcast Flag Task Force, along with other interested parties,
to achieve a timely resolution that can be implemented industry-wide.
Sincerely,
Mitch Bainwol,
Chairman and CEO.
Senator Inouye. And I look forward to your solutions. So,
it would be most helpful to the Committee if you could provide
us with a--oh, an account of what you have produced from these
meetings--say, once every three weeks--because it would be
helpful, as we move along in the drafting of this legislation.
And I suppose Senator Smith's bill will be the prime source.
We'd like to see your recommendations.
The Chairman. Can I give you a timetable, Mr. Chair, if I
can jump in?
Senator Inouye. Sure.
The Chairman. We have a schedule here of 14 hearings. When
they're over, we intend to start marking up all of these bills,
hopefully get them done by the end of March. So, I think your
timetable is absolutely right, no more than 3 weeks.
Senator Inouye. So, I thank you very much, and I commend
both segments of the industry. It may be the answer to the
concerns of Senator Sununu. They may come up with a solution.
Thank you very much.
Mr. Halyburton. Thank you.
The Chairman. Senator Smith?
Senator Smith. Thank you, Mr. Chairman.
Gary, my draft legislation requires the use of flag
technology to prevent indiscriminate redistribution of
copyrighted audio content. But if a consumer opts to share
songs on their home networks, wouldn't such sharing be
discriminate, not indiscriminate, and, therefore, permissible?
Mr. Shapiro. Thank you, Senator. I would hope so. I'm not
sure that distinction is clear to us when we read the bill. And
frankly, we're focusing, in large part, on the RIAA proposals
along the way.
I think there are two major distinctions to be made here.
One is the distinction between video and audio. And I think
there's a--clearly, a much better case to be made for video,
because it's a multi-year, private process that everyone was
welcome to, including the recording industry, and they chose
not to participate in it. Here, we're talking about something
that's coming from the government, coming from the Congress, at
the outset. And that is not the way to proceed, because you're
talking--to get to this, you have to create a flag--you have to
create a device with a way of detecting a flag. You have to
then figure out what is inhibited and what is not. And that's a
very, very long thing. And when I hear about the music industry
getting together with broadcasters to talk about how our
devices should be built, I get a little nervous.
I think the way to do that is to use the established
entity, which has already been built, the Copyright Protection
Working Technical Group, which Andy Setos has been very much
involved in, from FOX, and others, and go there, and say,
``Here's an issue. Let's work on a consensus. Let's develop
what is OK and what is not OK, and figure out a technical way
of doing it,'' rather than have Congress step in and say,
``Here is the mandate.''
If you're agreeing with the basic principle, which I think
you are, by your question, that in-home copying is OK and out
of home is not, that's a great premise to work off of to go
before the CPWTG and have them work it out and thrash and
develop something which is workable.
Senator Smith. Gary, I'm on the horns of two beliefs. One
is, ``Thou shalt not steal.'' Another is that markets can best
sort these things out. I appreciate what you're saying. And,
frankly, though, my reading of the history on the video flag,
the video broadcast flag was only developed--resisted by your
industry and only developed after the FCC intervened. So, why
should Congress have faith that a digital audio content
protection system will be developed voluntarily, without
specific Federal direction?
Mr. Shapiro. I respectfully disagree with that. We were
part of the development. As Mr. Setos would say, we worked
closely, side by side, on the video broadcast flag. They were
in standard-setting committees, which we probably equally
populated. It was members of the consumer electronics industry,
side by side. And, actually, Mr. Setos mentioned the names. We
were there.
Yes, there is some disagreement in our industry whether we
aggressively advocate it as a government mandate, but there was
no disagreement on the technical aspects and bringing it up to
the FCC in that format.
There are also--we have some concerns about the exceptions,
as well. But the technical aspect and how that works was
something we were side by side with the content community and
working on.
Jack Valenti and I set up that group to work it out with
Mr. Bainwol's predecessor. The RIAA chose to walk away 7 years
ago, and they've never been back.
Senator Smith. So, you disagree with my understanding of
the history.
Mr. Shapiro. Yes.
Senator Smith. And I--so, I appreciate you including that
in the record.
Mitch, do you have a comment on that?
Mr. Bainwol. Well, you know, we have wanted to engage
anybody and everybody to solve this problem. And it's been hard
to get parties to the table. And that goes to the point of the
market failure. We do not have a performance right. We cannot
withhold content. The video players could do that. That brought
everybody to the table. You know, we--we're stuck in a jam
here, where we have real harm. Our future is predicated on the
emerging digital marketplace. Here, you have a capacity to
obtain--to replicate a purchase without making a purchase, and
nobody will pay attention to us, because we have no market
power.
And so, the IT community says, ``Encryption at the source
is the way to go, but, yes, we can protect content.'' The
broadcasters say, ``OK, let's protect content, but let's do the
flag.'' Gary really wants to do nothing, when you come down to
it. And we're stuck having our property rights abridged. And if
we have no property right, our ability to invest in new art
will be damaged.
Senator Smith. Mitch, isn't it also true that songwriters,
in fact, are paid when their songs are played on the radio, but
artists and record labels are not paid?
Mr. Bainwol. It is true that songwriters and publishers are
paid over the air, and it is also true that, in this country,
uniquely, labels and artists are not.
Senator Smith. And that's copyright law, is it not?
Mr. Bainwol. That is copyright.
Senator Smith. And isn't this the reason why an audio flag
is needed?
Mr. Bainwol. It's the reason why we need government to step
in, to resolve a market failure.
Senator Smith. Or at least to incentivize you guys getting
together.
Mr. Bainwol. Frankly, we'd love to do this at the market
level and get everybody together around the table. It's hard to
get them there when we have no leverage.
Senator Smith. Well, Mr. Halyburton, if different
technology could meet the needs of broadcasters without
stranding legacy digital radio equipment, and without delaying
the rollout of digital radio, would you be willing to consider
such technology?
Mr. Halyburton. Yes, we would. And we're ready to work on
that.
I'd also like to point out that Mitch continues to talk
about this issue of royalty, but--and the U.S. system being
unique. And it is unique. But it's a system that works. And for
over 80 years--you know, we've got a strong system that works.
Radio gives records free over-the-air exposure. It has been
very much a synergistic combination that's built a lot of great
careers for a lot of artists. So, there is revenue flowing
there. It's coming in a different fashion. But I just wanted to
point that out.
But we are ready to sit down. We'll talk about broadcast
flag. I think we need to be aware of keeping that narrow, so
that we don't try to reach too far. I think we need to look to
the other members that are part of this area, to get their
input on it, so we can find something that can work.
Senator Smith. I appreciate that. And so, you would agree
with me that we should not foreclose consideration of any new
technologies but the audio flag. We should allow for the
development of these things.
Mr. Halyburton. Yes.
Senator Smith. Thanks, Mr. Chairman.
The Chairman. Senator Sununu?
Senator Sununu. Thank you, Mr. Chairman.
I think that last line of questioning brought us into the
area of a discussion of the performance right, which I
recognize is something that Mr. Halyburton said ought not to be
part of this hearing. But I think it is extremely important.
The word, or phrase, ``market failure'' was just used, but
it was used in reference to Federal copyright law that
prohibits royalties for performers and grants them to
songwriters. That's not a market failure. That's an unintended
consequence of Federal regulation. And we need to understand
the difference if we're going to make good decisions, whatever
decision we make. So--and I think this is an important
question.
First, let me raise the issue with Mr. Halyburton,
specifically with regard to HD radio. Do you believe that HD
radio, when it comes, should obey and abide by the same royalty
copyright requirements that we have imposed on satellite radio?
Mr. Halyburton. No, I don't. I think that we should
continue the system that's in place today. It's really an
extension of how we operate today.
Senator Sununu. That seems to me to be a little bit
inconsistent, given the technologies that we're talking about,
the fact that the distinction that seems to be so important is
digital versus analog, and HD is going to be taking advantage
of digital and other technologies to provide a product to
consumers that looks similar to--not identical to, but similar
to, in many respects, the satellite radio. And I think to say,
``Yes, but they shouldn't have the same royalty requirements,''
is a little bit inconsistent.
Mr. Bainwol, do you think that HD radio should have the
same--ideally, have the same royalty requirements as satellite
radio?
Mr. Bainwol. I think you've just done a better job than I
did of articulating that there's a problem with parity here.
You have a convergence going on--the iPod, the phone,
satellite, HD--with devices all able to do essentially the same
thing--perform and provide a distribution. And the rule sets
are different. That makes no sense.
Senator Sununu. And the answer to my question is?
[Laughter.]
Mr. Bainwol. If this body were to grant us a performance
right in HD, we would think that would be a good thing, sure.
Senator Sununu. And do you think there should be a
performance right for regular over-the-air radio, as well?
Mr. Bainwol. We think that the fact that there's an
anomaly, globally, in that this is the only place in the world,
in industrialized nations, where that right is not afforded, is
really problematic.
Senator Sununu. And--I'm inclined to agree with you. It
seems to me this is a more important area to look for
consistency. Regardless of the specific technology that's being
used to provide a product to consumers, it is a much more
important issue to address, and a much more rational argument
to make, than arguing that you want regulatory and legislative
distinctions based on your viewing or listening patterns, and
that suddenly Congress or some regulator has to make
distinctions, ``Now, that's a Christmas song, so you're really
only listening to that five times a year, as opposed to your
Thelonius Monk recordings that you listen to all the time; or
Desperate Housewives, which is an hour-long program, and
everyone watches at least three times, but then it becomes
tedious, versus a rerun of Seinfeld that you've all seen 50
times and are going to watch another 50.'' A little bit
dramatic, but I think the point is there. I don't want to be in
the position of having to analyze listening or viewing
patterns, especially in an age when the type of content is
changing dramatically--blogs were talked about here, other
people mix and sample different content--and to try to decide
how it fits into the Federal regulatory pattern--or Federal
regulatory framework of viewing or listening patterns.
You don't have to respond. I----
Mr. Bainwol. May I?
Senator Sununu. Well, you may, certainly. And I understand,
though, you wish to make a distinction between music and video,
and argue that there's some difference here. But, please, go
ahead, in your own words.
Mr. Bainwol. I'm always hesitant to spar here, especially
with you, but I think there is a clear line here that is
evident, and it is not quite the ambiguous scenario that you
painted.
Versus video, we're obviously not being paid, so that's a
very clear distinction. In the context of recording rights or
recording opportunities, personal use, there's a very clear
line. If you take those three songs you wanted, and you
manually recorded that block, then you could disaggregate them,
but if you're going to go and do what is effectively what
you're doing on iTunes--if iTunes should pay for the content,
then every other platform should pay for the content, too. If
iTunes should provide a mechanism for the investor to be
rewarded for the investment in content, then so should the
other platforms.
Senator Sununu. Well, the consumer, in the case of
satellite radio, is paying for the service, and, equally
important--maybe, in your opinion, more important--you are
unrestricted in your ability to negotiate with those satellite
providers over a fair and decent royalty for your artists and
your performers and your songwriters. And I would argue you
would be serving those artists and performers and songwriters
much more effectively if you work to ensure a better copyright
standard for whatever systems of distribution might be
developed in the future----
Mr. Bainwol. But, remember----
Senator Sununu.--and whether it's over-the-air radio, HD
radio, satellite radio, or something else.
I do have a very specific question for you, in this
context. If someone's music is used in a motion picture--I
don't know the answer to this; I guess that's why I'm asking
the question--do they not get a royalty, and do they not
continue to get a royalty each time that motion picture is sold
or performed or played in a venue?
Mr. Bainwol. I believe so. But when you--if you were to
TiVo that, you couldn't isolate that song from the show that
you saw it on.
Senator Sununu. Frankly, I don't think that is at all
relevant. If you TiVo it, though, you're viewing it, you're
TiVo'ing it from someone broadcasting it. There's a royalty
being paid for the rights of that broadcast. So I think----
Mr. Bainwol. And----
Senator Sununu. And that is, important, being--that is a
royalty that's negotiated----
Mr. Bainwol. Right.
Senator Sununu.--based on the power of the system of
distribution.
Mr. Bainwol. Let me----
Senator Sununu. And----
Mr. Bainwol. Let me clarify one thing. You are merging two
different things going on. And it's an easy thing to do,
because this stuff is really complicated. But you have a
performance, for which we are paid, and you have a
distribution, for which we're not really being paid. They're
different. One is to listen, and the other is to obtain a copy
for your personal library----
Senator Sununu. I'm sorry, in which case are you--what are
you speaking about here?
Mr. Bainwol. In the beginning part of the prior question.
Senator Sununu. Oh, I thought you were back--I thought you
were talking about TiVo.
Mr. Bainwol. I'm not talking about----
Senator Sununu. We were on TiVo.
Mr. Bainwol.--and stuff like that. I'm talking about the
satellite radio case, where we are paid for a performance,
unlike over the air, but we're not paid for the distribution.
Senator Sununu. No, but you are being paid by the provider
of the service in a way that is commensurate with the value of
the service. And I fully believe----
Mr. Bainwol. To--for it to be----
Senator Sununu.--in the future----
Mr. Bainwol.--for it to be heard, not for it to be owned.
Senator Sununu. Well--this is a little glib, but it's the
way the markets work. Renegotiate. OK? Set a new arrangement.
You set that license in a free market, willing people, a buyer
and a seller. Now, you would argue, ``Well, now you're doing
different things that we didn't really foresee you doing,'' and
I sympathize with that.
Mr. Bainwol. There is a compulsory license, so we can
negotiate on the performance with an arbitration, but on the
distribution, it's a totally different story.
Senator Sununu. And the compulsory nature of the license
is, once again, pointing the finger back at Federal statute and
Federal legislation, which is--my original question to you is
this issue of parity and being allowed to----
Mr. Bainwol. Right.
Senator Sununu.--compete effectively in an environment
where we have these many different mediums. This isn't 1920 or
1930 or the 1940s, when the original performance restrictions
were imposed; this is 2006, I suppose, and I think that this is
an area that deserves a lot more investigation and a lot more
discussion. And I understand fully reasons that the NAB may not
be interested.
Thank you very much, Mr. Chairman.
Mr. Shapiro. Can I add to that, Mr. Chairman? May I add a
comment on that?
The Chairman. Yes.
Mr. Shapiro. Thank you very much.
Senator Sununu, I think you're absolutely right. I think
what we have here is a situation where you have manufacturers
paying a royalty to the recording industry, you have the
satellite services paying a royalty to the recording industry,
and you have perhaps a lack of parity with local broadcasters.
Local broadcasters are turning around saying, ``Let's negotiate
about this--how devices will be built.'' I don't think that's
right, frankly.
And I think my concern is, is there's a tremendous
investment that manufacturers have already made in HD radio
service. They're about to launch radios. And when they hear
from Congress that we might change the design of those radios,
they're going to pull back, just as they did in the DTV case,
when Sinclair Broadcasting came in and said, ``We should stop
the DTV standard, because it's not good enough.'' So,
manufacturers started not putting tuners in television sets.
They ended up selling a lot of monitors, and consumers liked
them. And that's the situation it is today, and television
broadcasters are a little frustrated over it.
But the fact is, we could face the same thing now with the
full, national rollout by many manufacturers of HD radio. And
what you have is, you have a frustrating situation for the
RIAA, because they're not getting the royalty they want. And a
lot of what people think is going on here is the subterfuge to
try to get that performance royalty.
Mr. Bainwol. Let's be real here. OK?
The Chairman. This is the last answer.
[Laughter.]
Mr. Bainwol. Thank you, Mr. Chairman, for indulging me--
there is no subterfuge going on here. We're not getting paid
over the air, and now we're not going to get paid for the
distribution. We're not going to get paid for anything. We work
real hard to produce a product, if we're going to be denied our
compensation, that investment in new product's going to dry up.
That's a problem.
Mr. Halyburton. Mr. Chairman, if I could just make one
point, just on the radio side. You talk about parity, but there
really are some differences. We are held to a higher standard,
a public-service standard, that these other industries don't
have to do. We don't have subscribers. We have listeners. And
we have to serve that community, and then we have to go out and
sell advertising to pay the bills and employ the people who
work there.
So, you--on one hand, you'd like to say they're all the
same. But they're not all the same. And the system has worked
well, it continues to work well. In the particular issue,
because--and I'm not the guy--I'm not a copyright guy; I'm a
radio broadcaster. And what we want to make sure you understand
is, we're willing to sit down, talk with the RIAA, with the
consumer electronics side, the other parts of this process, to
try to find a way to help the record industry protect their
copyrights from indiscriminate distribution.
The Chairman. We thank you for that.
Mr. Halyburton. Thank you.
The Chairman. One of the reasons we're here is that there
is not equal treatment of the media, as far as these fees are
concerned. But we cannot follow up on your suggestion, Senator,
because that fee is not subject to the jurisdiction of this
Committee; it's Judiciary. But these media are subject to our--
--
Senator Sununu. Are they busy right now? Is the Judiciary
Committee----
[Laughter.]
The Chairman. A little busy. We might sit down and talk to
them about letting us handle some of these things that are
related to communications, so we can, you know, balance this
out.
But I do want to thank you all. I think we know that the
broadcast flag area is going along. We hope that there will be
an agreement with Mr. Band and the broadcasters. We hope that
this concept that's in Senator Smith's bill will be acceptable.
But let me remind you all that 25 to 30 bills that we
worked on very diligently last year are still on the calendar.
They were stopped by holds. One Senator can stop a bill. Now,
we're working on some things that I think have to be pursued,
and have to be accomplished during this year, but that is all
the more reason for you all to get together and work something
out, on an industry basis, as we thought we had worked out with
the FCC on the broadcast flag to start with.
So, I do hope we can find an agreement and we can get a
bill that will not be held up, but that's totally
problematical, I'm afraid.
I do thank you all for what you've said here today and
giving us your suggestions.
Our next hearing will be on Tuesday, and we'll continue our
series of hearings on telecommunications.
Again, Senator Smith, we thank you for your draft, and,
Senator Sununu, your suggestions. Maybe you should go talk to
the Judiciary Committee chairman.
[Laughter.]
The Chairman. Thank you very much.
[Whereupon, at 12:05 p.m., the hearing was adjourned.]
A P P E N D I X
Prepared Statement of Hon. Byron L. Dorgan,
U.S. Senator from North Dakota
I want to emphasize that I think in the digital age, preventing
piracy and promoting content protection are integral to achieving the
full benefits of compelling content that will drive digital
technologies.
I especially feel that such protection is critical for making such
content as widely distributed as possible, and available on the most
common and widespread medium, over the air broadcasting and the
Internet.
I do not want to see a day where over the air consumers are
disadvantaged to their satellite and cable subscribing brethren,
because broadcasters cannot access compelling content because of piracy
fears.
Embracing technologies that protect content will drive content
production.
But it cannot come at the cost of stifling technology. Nor should
it result in a sacrifice by consumers to freely use such content as
they expect with their devices, or to engage in discourse that benefits
the public interest. A balance must be found.
As you know, I have been strongly concerned that the voices in our
society are increasingly controlled by a small number of media
conglomerates.
If a broadcast flag would result in content being controlled so
that for example, a consumer could not post a news clip in their
Internet blog or send it to other concerned citizens, I think the
public interest would be harmed.
It would seem to me that there should be a different standard for
news or political discourse that is broadcast.
I would think content providers would be less worried about the
profits lost by the potential distribution of such content, as opposed
to, for example, the latest blockbuster.
On the other hand, the value of making political or news content
available for distribution to the public in order to promote free
speech is of paramount value.
Last, I think it is important to also take the equipment and
technology manufacturers into account--any deadline that is imposed
must be realistic so that we don't impose a time frame that cannot be
met.
We can and should give the FCC authority to regulate in this area--
the digital age requires it. But we should tread carefully when so many
important issues are involved.
______
Prepared Statement of Hon. Barbara Boxer, U.S. Senator from California
California is home to two of the most exciting and fastest growing
industries in America--the entertainment and high-technology
industries. The strength of these industries lies in the development
and protection of intellectual property.
Unfortunately, that intellectual property--whether it is music,
movies, software, or hardware--is far too easy to pirate. Illegal
copies of the newest, most innovative products hit the street almost as
fast as the original works. The theft of U.S. intellectual property
harms the economy, results in untold job losses, and leads to higher
prices for honest consumers.
Movies and music are particular vulnerable to piracy. Illegal
copies of movies currently in the theater, TV shows, and music are
available on the streets of New York and Los Angeles as well as Moscow
and Beijing.
Moreover, the Internet, for all its virtues, has made the theft and
distribution of pirated material much worse. Peer-to-peer networks such
as Morpheus and offshore website operators have made illegal access to
copyrighted material cheap and easy.
As broadcasters move to digital television and digital radio (HD
Radio), the impact of piracy will dramatically increase. Individuals
will be able to record near perfect copies of movies, TV shows, and
music using over-the-air receivers and illegally redistribute the
programming over the Internet.
To address this problem, Senator Smith and I are working on
legislation that would establish protections for broadcast video and
audio digital content.
While the advent of digital TV and HD radio will bring new services
and better quality to consumers, it should not be at the expense of the
intellectual property rights holders. Technological solutions must be
implemented that will help prevent piracy of digital broadcasts.
In November 2003, the FCC issued an order adopting a content
protection regime for digital TV broadcasts. The FCC required that all
consumer electronics devices capable of receiving a broadcast digital
TV signal must include protection technologies that would limit the
redistribution of digital content that contain a digital ``broadcast
flag'' marker.
The appellate court struck down the ``broadcast flag order'' on
jurisdictional grounds but the substance of the order was sound.
The future of TV and radio broadcasting is digital but adequate
content protection is the keystone to making that transition work.
Unless people are sure their intellectual property will not be stolen,
they will not want to supply their content to broadcasters.
Senator Smith and I are considering legislation that would grant
the FCC the authority to implement its broadcast flag order. The FCC
also would be allowed to modify the order as necessary to address
changes in technology and to ensure ``fair use'' of protected content.
The broadcast flag order was the culmination of years of advice
from both industry and public interest groups. It represents a fair
balance between the interest of intellectual property right holders,
technology companies, and consumers.
Unfortunately, no similar compromise has been worked out on the
digital audio side. For one reason or another, broadcasters, the high-
tech industry, content producers, and consumer groups have been unable
or unwilling to reach a consensus on how broadcast digital audio
content should be protected.
Because no solution is developing in the marketplace, I believe
that legislation is necessary to prevent the piracy of digital audio
broadcasts.
The framework for such a protection regime, however, should be the
result of industry and consumer input and not an arbitrary government
mandate.
Under the Smith-Boxer proposal, the FCC would convene an advisory
council consisting of industry and consumer groups. For a period of up
to 18 months, the advisory council would work to develop a proposed
broadcast digital audio content protection framework.
If a consensus is reached, the FCC would implement the proposal. If
no consensus is reached, then the FCC would initiate a rulemaking
proceeding to examine the issue further.
California is home to technology companies and consumer electronics
manufactures as well as content producers. In addition, the interests
of consumers are of paramount importance to me.
While intellectual property piracy must be stopped, it is important
that the concerns of all these groups be heard and addressed.
By establishing a diverse advisory board, the ideas of interested
parties can be vetted and the costs and benefits of different
approaches analyzed. Through a collaborative effort, I hope a solution
can be reached that works for everyone.
As Senator Smith and I continue to develop our legislative
proposal, I welcome advice from those testifying before the Committee
as well as the public at large.
______
Prepared Statement of the Broadcast Music, Inc. (BMI)
Broadcast Music. Inc. (``BMI'') hereby submits this written
statement for inclusion in the record for the hearing on ``Broadcast
and Audio Flag'' held on January 24, 2006.
Executive Summary
BMI is a music performing right licensing organization (``PRO'')
whose business centers on the timely and accurate monitoring of public
performances of musical works by digital and analog broadcasting
entities, including, but not limited to, radio, broadcast television,
cable, satellite and the Internet. BMI has invested significant
resources in innovative new digital fingerprinting technologies that
will enable BMI to harness the speed and power of computers to automate
the monitoring of music airplay in ways that were unimaginable only a
decade ago. BMI supports the interests of the Recording Industry
Association of America (``RIAA'') and the Motion Picture Association of
America (``MPAA'') in protecting copyrighted works from digital theft.
BMI joined in support of the broadcast flag in the Federal
Communications (``FCC'') rulemaking proceeding. However, BMI is
concerned that such content protection legislation adopted by Congress
(or rules adopted by the FCC) might unintentionally interfere with
BMI's ability to perform its core business. Accordingly, BMI proposes
that Congress legislatively protect PRO's monitoring activities from
any laws or regulations that would otherwise inhibit this necessary
function.
Congress should mandate as part of any flag legislation that PROs
have reasonable access to any content that is protected by content
owners through broadcast flag and related technology used to control
indiscriminate redistribution of their content by consumers.
Songwriters' and music publishers' interests should not be overlooked
in an effort to limit the technical ability of ordinary viewers to copy
and/or retransmit broadcast broadcasting content. BMI believes that
legislative protection of its monitoring activities is warranted
because such activities are designed to enforce and license music
copyrights, which are the same policy goals underpinning the
legislation now before Congress. BMI is grateful to Senator Gordon
Smith for including a provision on this point in the draft bill as to
the audio flag.
Statement of BMI
Mr. Chairman, BMI commends you for holding a hearing on
technological measures for content protection in the digital age. BMI
is a key player in the digital copyright licensing world. BMI's
fundamental and lawful role is to license the ``public performing''
right in musical works on behalf of its affiliated songwriters,
composers and music publishers. The majority of these songwriters are
neither performers nor major recording artists and therefore do not
receive income from making sound recordings of their own music, or from
concert tours, television appearances, commercial endorsements, sales
of souvenirs or any of the other activities enjoyed by recording
artists. Needless to say, BMI's publishers also do not receive artist-
related income from touring and merchandising. As a result, the
majority of BMI's affiliated songwriters and publishers are the
consummate ``small businessmen and women'' who depend on their BMI
royalties for a major portion of their income.
Formed in 1939, BMI protects the intellectual property of its
approximately 300,000 affiliated songwriters, composers and music
publishers by ensuring that they are compensated for public
performances of their musical works in the United States and abroad,
giving the public access to a rich and diversified repertoire of
outstanding American music. BMI licenses the public performing right in
over 6.5 million musical works to a wide variety of businesses.
including radio and television stations, broadcast and cable television
networks, Internet websites, live concert venues, and recorded
background music services. BMI also has reciprocal license agreements
with more than 70 foreign performing right societies worldwide that
permit BMI to license in the U.S. the public performing right in
thousands of works by foreign songwriters and composers. Through these
reciprocal agreements, BMI also collects royalties from those societies
for performances of BMI musical works occurring overseas.
BMI operates as a non-profit making business and does not retain
earnings. Instead BMI returns all license fees collected, less
operating expenses, as royalties to its affiliated songwriters,
composers, and music publishers whose works are publicly performed. BMI
is an acknowledged leader in developing cutting-edge royalty accounting
and collection systems that operate internationally. BMI's technology
prowess is entirely compatible with the digital age.
BMI recently announced a new effort of collecting broadcast
performance data that will be centered around the patented technology
of monitoring musical performances through the technique of
``fingerprinting.'' This technology, known as BlueArrow, SM
creates a unique fingerprint for each sound recording using a
sophisticated algorithm. The technology requires that each fingerprint
be compared to a vast library of previously identified works for
identification purposes on a real-time basis. The new identification
systems for audio and video content will depend in part on the ability
to make secure retransmission of broadcast programs which are not
previously identified. However, this secure distribution function would
be disabled by broadcast flag rules without provisions protecting this
functionality. If BMI's monitoring systems are disabled, BMI will not
be able to monitor digital broadcasts of musical works, or distribute
royalties to songwriters, on the most cost-efficient basis in the
digital age.
In 2004 the RIAA asked the FCC to adopt digital audio broadcast
content protection rules and proposed two specific content protection
regimes for digital audio broadcasts that would comply with a set of
``usage rules'' proposed by the RIAA. The RIAA said it was concerned
that digital radio broadcasting will become a source of rampant piracy
unless there are controls on the ability to record and redistribute
digital broadcasts. In its testimony last week, the RIAA appeared to
embrace legislation through which Congress will give the FCC specific
authority to adopt audio flag rules similar to the broadcast flag rules
adopted by the FCC for television broadcasting. The RIAA's request for
content protection legislation thus parallels the request by the MPAA
for legislation to give the FCC the necessary statutory authority to
promulgate broadcast flag rules and to re-adopt the FCC's prior
rulemaking.
Both the broadcast flag and audio flag have the singular goal of
preventing piracy by prohibiting the unauthorized copying and
redistribution of copyrighted content that would otherwise be possible
with existing and future digital broadcast receivers. BMI recognizes
that the broadcasting industry is in the midst of a digital revolution,
with content transmission systems migrating from analog to digital
across many platforms. The transition to digital radio and digital
television will doubtless be beneficial to all parties affected.
especially music listeners. BMI fully supports the transition of the
broadcast industry to digital transmissions and does not want to delay
the process by any means.
BMI appreciates that authors and copyright owners of music and
video works are concerned about the impact the transition to digital
broadcasting will have on the markets for their works absent suitable
protection against piracy. BMI believes that it is in the mutual
interests of the music industry, the broadcasting industry and the
consumer electronics industry to cooperate in the development of
appropriate standards and technologies to protect against piracy in the
digital arena. However, these legal regimes may have an unintentional
but nevertheless severe adverse impact on the business operations of
PROs unless Congress protects the right of PROs to monitor the music
contained in video and audio broadcasts. BMI accordingly reaffirms its
positions before the FCC in its HD Radio and broadcast flag proceedings
that any regimes adopted by Congress or the FCC to protect digital
broadcast content must include provisions protecting the ability of
performing right organizations to continue their mission of
electronically monitoring public performances of the musical works they
represent. This will ensure that songwriters. composers and music
publishers are paid properly when their musical works are performed via
digital audio broadcasting technologies.
If Congress or the FCC adopts or approves content protection
technology that mandates that broadcast receiving devices must respond
to a digital rights management (``DRM'') method such as a broadcast
flag (or to usage rules prohibiting redistribution), BMI should
nevertheless be permitted to access protected programming in order to
fulfill its longstanding role of monitoring performances of music for
royalty collection and distribution, and policing unlicensed
performances. BMI should also be guaranteed access on reasonable and
nondiscriminatory license terms to the underlying technology used in
these content protection processes for these purposes.
BMI has engaged in negotiations with both the MPAA and the RIAA
over reasonable legal and technical solutions to the problems presented
by the regulatory regimes that they are both seeking here. We are
pleased that all parties appear to reorganize the need for protection
of the PRO's monitoring functions and we are grateful that Senator
Smith's draft legislation contains a step in this direction for the
audio flag. The landscape of technology is shifting so rapidly,
however, that even if we can reach a private agreement on today's
content protection technology, the costs of creating customized
software/hardware applications for each succeeding generation of
technology would be enormous. In the circumstances, a general statutory
protection of PROs' activities should ensure the PROs have a basis for
successful current and future negotiations and/or engineered solutions.
We would be happy to work with the Committee on developing narrowly
crafted provisions protecting these important rights for both the
broadcast and audio flags.
Conclusion
In sum, BMI is concerned that if Congress legislates in the areas
of broadcast and audio flags, careful heed should be taken not to
overlook or trample the ability of songwriters, composers and music
publishers to license their copyrights and distribute royalties.
Without statutory or regulatory protection, any audio and broadcast
flag content protection regime that the FCC might adopt could hamper
BMI's ability to monitor public performances and collect appropriate
licensing royalties. Therefore, it is critical that any new statutes or
regulations protect the ability of performing right organizations to
monitor television and broadcasts protected by broadcast and audio
flags so that such organizations may continue to protect and account
for the public performing rights of their affiliated songwriters,
composers and music publishers.
Thank you, Mr. Chairman. for your leadership on these issues and
for providing BMI with the opportunity to submit a written statement in
the hearing record.
______
Prepared Statement of Gigi B. Sohn, President, Public Knowledge
Chairman Stevens, Co-Chairman Inouye and other Members of the
Committee, my name is Gigi B. Sohn. I am the President of Public
Knowledge, a nonprofit public interest organization that addresses the
public's stake in the convergence of communications policy and
intellectual property law. I want to thank the Committee for permitting
me to submit this statement for the record on the broadcast flag and
radio content protection. I specifically want to focus on the impact of
these technological mandates on consumers.
As some of you know, I served as counsel to the nine public
interest and library groups that successfully challenged the Federal
Communications Commission's (FCC) broadcast flag rules in the United
States Court of Appeals for the District of Columbia Circuit. My
organization financed and coordinated the case, which is titled
American Library Association v. FCC, 406 F.3d 689 (D.C. Cir. 2005). I
have attached a copy of the court's decision and a copy of petitioners'
opening brief * in the case, and I respectfully request that they be
placed into the record of this hearing.
---------------------------------------------------------------------------
* The information referred to has been retained in Committee files.
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Introduction
This hearing could not be more timely. Many of you and your staff
members just returned from the International Consumer Electronics Show,
an event that featured an amazing display of new innovative
technologies and newly forged partnerships between technology companies
and content companies. Here are just a few examples:
Microsoft demonstrated new versions of its software that
enables the playback of a consumer's favorite media, whether on
the individual's home office monitor, living room television,
or PDA. The company has also developed a new music service in
conjunction with MTV, VH1, and CMT music channels.
Innovators like DigitalDeck, NewSoft, SlingMedia, and Sony
each have developed competing technologies that allow consumers
to remotely watch the television playing in their living rooms
on a laptop, mobile phone, or portable gaming console.
Yahoo! announced the development of software and services
that enable consumers to view, create, and share content
between their mobile phones, computers and living rooms, all
using the Internet.
Google developed a distribution system to allow anyone to
provide videos for free or for sale, and allow others to
download that content to a computer, Apple iPod, or Sony Play
Station Portable (PSP). Google has already announced content
distribution agreements with large content providers like CBS
and the NBA. This follows the recent success of NBC, ABC, and
ESPN, which is distributing programming in partnership with
Apple's iTunes.
TiVo displayed a soon-to-be-released software update that
makes it simple for consumers to watch their favorite
television shows on popular players like the iPod and PSP. And
soon, the next generation TiVo recorder will help consumers
record over-the-air high-definition television.
Together, XM Radio and Pioneer developed an innovative
portable satellite radio player that allows consumers to
automatically record their favorite songs or shows while they
are being broadcast. A consumer's preferences are stored on the
radio, and when connected to a computer, XM's software helps
the consumer to find more information about the artists,
purchase music through the new Napster, and discover other
songs and shows by similar artists.
The message of the Consumer Electronics Show is clear. The market
for delivering content digitally over new technologies is working.
Consumers can watch and listen to the content they purchase anytime and
anywhere they want. Some of that content will be protected, and
consumers can decide whether that protection is flexible enough. All of
these great developments happened without government intervention.
The public appetite for buying individual TV shows and songs online
is growing by leaps and bounds. There are more ways than ever to watch
TV and movies and listen to the radio. Sales of HDTV sets are
skyrocketing.
Yet even as innovators in the content industry promote these
alternative distribution technologies, the very same content industry
wants Congress to step in and give it protection from the vague threat
of massive copyright infringement the industry says these new
technologies could facilitate. Let us be clear. The content industry
has not shown that any infringement has resulted from these
technologies. And they certainly have not shown that government
technology mandates will work to stop actual copyright pirates rather
than prevent ordinary consumers from engaging in lawful activities.
The content industry is asking Congress to impose three technology
mandates: the broadcast flag, radio content protection and an end to
the analog hole. Each mandate (1) injects government into technological
design; (2) places limits on lawful consumer activities; and (3)
increases consumer costs by making obsolete millions of digital
devices. Once consumers start to purchase devices that are compliant
with these technology mandates, the costs will be enormous. For
example:
A consumer would not be able to record over-the-air local
news on her broadcast-flag compliant digital video recorder in
her living room and play it back on a non-compliant player in
her bedroom (broadcast flag).
A member of Congress could not e-mail a clip of his
appearance on the national news to his home office (broadcast
flag).
A consumer would not be able to record analog home movies
using a digital camcorder and transfer them to a computer in
order to make a DVD (analog hole).
A student would be prohibited from recording excerpts from a
DVD for a college Powerpoint presentation (analog hole).
A consumer would be unable to record individual songs off
digital broadcast and satellite radio (radio content
protection).
Current versions of TiVos (and other digital video
recorders), iPods (and other MP3 players), cellphones and play
station portables would not work with analog hole closing
compliant devices, rendering them virtually obsolete (analog
hole).
A university could not use digital TV video clips for
distance learning classes (broadcast flag).
I urge the Committee to think very long and hard about trying to
fix what is not broken. Ask yourselves, in light of recent marketplace
developments, is it good policy to turn the Federal Communications
Commission into the Federal Computer Commission or the Federal
Copyright Commission? Is it good policy to impose limits on a new
technology like HD Radio (that unlike digital television, consumers
need not adopt) that may well kill it? Is it good policy to impose a
technological mandate (like the broadcast flag and closing the analog
hole) that would result in consumers having to replace most of the new
devices that they just purchased?
There are better alternatives for protecting digital content than
heavy-handed technology mandates. Those alternatives are a multi-
pronged approach of consumer education, enforcement of copyright laws,
new business models for content distribution and the use of
technological tools developed in the marketplace, not mandated by
government. The recent Grokster decision and the passage of the Family
Entertainment and Copyright Act are just two of several new tools that
the content industry has at its disposal to protect its content.
Technology Mandates Harm Innovation and are Costly and Inconvenient for
Consumers
For Public Knowledge, its members and its public interest allies,
the impact of the D.C. Circuit's decision vacating the broadcast flag
rules goes far beyond the ability of citizens to make non-infringing
uses of copyrighted material that they receive on free over-the-air
broadcast television. Equally as important, the case limited the power
of a government agency that, in the court's own words, has never
exercised such ``sweeping'' power over the design of a broad range of
consumer electronics and computer devices. This hands-off approach has
fostered a robust market place for electronic devices that has in turn
made this country the leader in their development and manufacture.
For this reason, any attempt to portray legislative reinstatement
of the broadcast flag rules as ``narrow'' should be viewed with great
skepticism. The rules put the FCC in the position of deciding the
ultimate fate of every single device that can demodulate a television
signal. The broadcast flag rules require the FCC to pre-approve
television sets, computer software, digital video recorders,
cellphones, game consoles, iPods and any other device that can receive
a digital television signal. \1\ Thus, the broadcast flag scheme places
the FCC in the position of dictating the marketplace for all kinds of
electronics.
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\1\ D.C. Circuit Court Judge Harry Edwards noted this reach at oral
argument when he said, ``You're beyond transmission . . . I mean you're
out there in the whole world regulating . . . I mean, I suppose it will
be washing machines next.'' ALA v. FCC, Oral Argument Transcript at 31.
---------------------------------------------------------------------------
The agency has neither the resources nor the expertise to engage in
this kind of determination. This type of government oversight of
technology design will slow the rollout of new technologies and
seriously compromise U.S. companies' competitiveness in the electronics
marketplace.
Some argue that the initial FCC certification process worked
because all thirteen technologies submitted to the agency were
approved. However, that is a very superficial view of that process.
First, it is widely known that several manufacturers removed legal and
consumer-friendly features of their devices before submitting them to
the FCC, largely at the behest of the movie studios. Second, the
changing nature of the FCC and its commissioners is likely to make for
widely varying results. Given the fervor of then-Commissioner Martin's
dissent to the Commission's approval of TiVo-To-Go, it is unlikely that
such technology would be certified today under Chairman Martin's FCC.
\2\
---------------------------------------------------------------------------
\2\ For a detailed analysis of the flaws of the FCC's
certifications process, see Center for Democracy and Technology,
Lessons of the FCC Broadcast Flag Process (2005), found at http://
cdt.org/copyright/ 20050919flaglessons.pdf.
---------------------------------------------------------------------------
The certification process also exacerbates equipment
incompatibility problems caused by the broadcast flag scheme. Not only
will the scheme prevent consumers from making copies of a TV show on
one system and play it on another, none of the 13 different
technologies approved by the FCC in its interim certification process
work with each other. This means that a consumer who buys one Philips
brand flag-compliant device must buy all Philips brand flag compliant
devices. This raises consumer costs, and also raises serious questions
about competition among and between digital device manufacturers. \3\
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\3\ For a detailed discussion of these issues, see http://
www.publicknowledge.org/content/presentations/ bflagpff.ppt.
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Proposals to mandate content protection for digital broadcast and
satellite radio would similarly place the FCC in the position of
mandating the design of new technologies. Draft legislation in the
House gives the FCC the authority to adopt regulations governing all
``digital audio receiving devices.'' \4\ In the case of so-called High
Definition (or HD) Radio, \5\ this could destroy this new technology at
birth. Digital broadcast radio benefits consumers through improved
sound quality (particularly for AM radio) and gives radio broadcasters
the capacity to provide additional program streams and metadata. Unlike
digital television, however, consumers need not purchase digital
broadcast receivers to continue receiving free over the air broadcast
radio. Certainly, if digital radio receivers have less functionality
than current analog radio receivers, consumers will reject them and the
market for HD radio will die.
---------------------------------------------------------------------------
\4\ See HD Radio Content Protection Act, found at http://
static.publicknowledge.org/pdf/20051103-hd-radiodraft.pdf.
\5\ I say ``so called,'' because calling a digital radio broadcast
signal ``High Definition'' is quite misleading. Whereas in the
television context, High Definition connotes a far clearer and sharper
picture, an HD radio signal simply raises the quality of AM radio to FM
standards, and permits the reception of broadcast radio in places where
an analog signal would get cut off, such as in a tunnel or at a traffic
light. Indeed, an ``HD'' quality signal is not even a CD quality
signal. See, Ken Kessler, Digital Radio Sucks, it's Official, found at
http://www.stereophile.com/newsletters/.
---------------------------------------------------------------------------
In the case of digital satellite radio, mandated radio content
protection has the potential to cripple this increasingly popular, but
still nascent, technology. XM Radio now has more than six million
subscribers, and Sirius Radio last year passed the three million
subscriber mark. Consumers are buying all types of receivers for those
services, based in part on the new flexibility and features the
equipment offers. \6\ The type of content protection the recording
industry seeks would likely slow this incredible growth.
---------------------------------------------------------------------------
\6\ For 2005, XM Radio forecasts a doubling of retail satellite
radio receiver sales for both services to more than one billion
dollars. See http://www.ce.org/press/CEA_pubs/861.asp.
---------------------------------------------------------------------------
The Content Industry Has Not Justified the Need for Technology Mandates
Hollywood's core justification for imposition of the broadcast flag
scheme can be paraphrased thusly: if the threat of indiscriminate
redistribution of ``high value'' high definition television content is
not reduced, broadcasters will not make that content available, thus
slowing this country's transition to digital TV. \7\
---------------------------------------------------------------------------
\7\ See In the Matter of Digital Broadcast Content Protection, FCC
03-273, 18 FCC Rcd 23550, 23553 (November 4, 2003).
---------------------------------------------------------------------------
One of the most vocal proponents of this argument was Viacom, which
told the FCC in 2002 that ``if the broadcast flag is not implemented
and enforced by next summer, CBS will cease providing any programming
in high definition for the 2003-2004 television season. And without the
security afforded by a broadcast flag, Paramount will have less
enthusiasm to make digital content available.'' \8\
---------------------------------------------------------------------------
\8\ See Comments of Viacom In the Matter of Digital Broadcast
Content Protection, MM Docket No. 02-230 at 12 (December 6, 2002).
---------------------------------------------------------------------------
Viacom never did carry out its threat to withhold HD programming,
and the argument that the broadcast flag is necessary to encourage the
broadcast of high value content and the orderly transition to digital
TV transmission has been repudiated in the marketplace. \9\ First,
broadcasters are making ``high value'' content available for HDTV or,
``in HD''--50 percent \10\ of TV shows, including 66 percent \11\ of
prime time programming, is broadcast in high definition. A number of
``high value'' sports programming broadcasts, including Monday Night
Football, the Super Bowl, the NBA Finals, the NCAA Final Four college
basketball championship, Major League Baseball's All-Star Game and
World Series games, all NBC NASCAR races, the U.S. Open golf
tournament, and the Olympics, are broadcast in HD along with many other
select sporting events throughout the year. \12\ Second, the country's
transition to digital TV is accelerating, not slowing down, as sales of
digital TV sets continue to increase. According to the Consumer
Electronics Association, sales of digital TV sets grew 60 percent to
$17 billion dollars. \13\ According to Forrester Research, 16 million
American homes have digital television sets. In 2006, that number is
expected to rise to 26 million, or one in four households. \14\ Indeed,
the case could be made that rather than accelerate the DTV transition,
the broadcast flag could slow the transition when consumers discover
that expensive new television sets have less functionality than their
current sets.
---------------------------------------------------------------------------
\9\ D.C. Circuit Judge Edwards also rejected this argument. See ALA
v. FCC Oral Argument Transcript at 32 (Judge Edwards: ``This in no
way--what you do here or not in no way impairs the ability to . . .
stay on the digital deadline . . . In no way.'')
\10\ http://www.ati.com/products/hdtvwonder/.
\11\ For the week of Jan. 19 to Jan. 25, ABC will broadcast 13 of
32 prime-time shows in HD. During the same week, CBS will broadcast 31
of 34 prime-time shows in HD; NBC will broadcast 32 of 50 prime-time
shows in HD during the same period. For all 3 networks combined, 76 of
116 (66 percent) prime-time shows will be broadcast in HD for one week
in January 2006.
\12\ http://www.cnet.com/4520-7874--1-5119938-1.html
\13\ http://www.ce.org/Press/CurrentNews/
press_release_detail.asp?id=10913.
\14\ See, http://biz.yahoo.com/prnews/051220/nytu017.html?.v=36.
---------------------------------------------------------------------------
The recording industry has similarly not demonstrated that radio
content protection is necessary. The industry does not cite to even one
instance of a digital broadcast or satellite radio transmission being
copied illegally or retransmitted over the Internet. Indeed, RIAA chief
Mitch Bainwol's recent testimony and comments on the subject make clear
that the real rationale for seeking radio content protection is not
copyright infringement, but the recording industry's displeasure over
the licensing fees it receives from broadcast and satellite radio
broadcasters. \15\
---------------------------------------------------------------------------
\15\ See testimony of Mitch Bainwol before House Committee on the
Judiciary, Subcommittee on Courts, the Internet, and Intellectual
Property for the hearing on ``Content Protection in the Digital Age:
The Broadcast Flag, High-Definition Radio, and the Analog Hole,''
November 3, 2005 at 4, found at http:// judiciary.house.gov/media/pdfs/
bainwol110305.pdf; and Mitch Bainwol, Out P2P Paranoia, In: Platform
Parity, Billboard Magazine, January 7, 2006 at 4.
---------------------------------------------------------------------------
Broadcast Flag and Radio Content Protection Schemes Will Transform the
Federal Communications Commission Into the Federal Copyright
Commission
Despite the FCC's protestations to the contrary, the broadcast flag
scheme and any radio copy protection scheme will necessarily involve
the agency in shaping copyright law and the rights of content owners
and consumers there under. Making copyright law and policy is not the
FCC's job. It is Congress' job. Petitioners brief in ALA v. FCC, at 43-
50, lays out this argument in great detail.
While it is true that the TV broadcast flag scheme does not
completely bar a consumer from recording her favorite TV show, it does
prevent consumers from engaging in other lawful activities under
copyright law. For example, as the D.C. Circuit noted in ALA v. FCC,
the broadcast flag would limit the ability of libraries and other
educators to use broadcast clips for distance learning via the Internet
that is permitted pursuant to the TEACH Act, Pub. L. No. 107-273, 116
Stat. 1758, Title III, Subtitle C, Sec. 13301, amending 17 U.S.C.
Sec. Sec. 110, 112 & 882 (2002). See ALA v. FCC, 406 F.2d at 697.
This and other examples highlight that while proponents of the flag
may justify it as prohibiting only ``indiscriminate'' redistribution of
content over the Internet, flag-compliant technologies actually
prohibit any and all distribution, no matter how limited or legal. For
example, if a member of this Committee wants to e-mail a snippet of his
appearance on the national TV news to his home office, the broadcast
flag scheme would prohibit him from doing so. Video bloggers and other
TV watchdogs would similarly be unable to post broadcast TV clips on
their blogs. For example, the Parents Television Council, which rates
television programs according to how child friendly they are, would be
prevented from posting clips from those programs for parents to see.
\16\
---------------------------------------------------------------------------
\16\ See www.parentstv.org.
---------------------------------------------------------------------------
The fact that the broadcast flag will limit lawful uses of
copyrighted content was detailed in the Congressional Research Service
Report entitled Copy Protection of Digital Television: The Broadcast
Flag (May 11, 2005). CRS concluded there that:
While the broadcast flag is intended to ``prevent the
indiscriminate redistribution of [digital broadcast] content
over the Internet or through similar means,'' the goal of the
flag was not to impede a consumer's ability to copy or use
content lawfully in the home, nor was the policy intended to
``foreclose use of the Internet to send digital broadcast
content where it can be adequately protected from
indiscriminate redistribution.'' However, 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
(time-shifting, and space-shifting, respectively), might be
prevented when otherwise approved technologies do not allow for
such activities, or do not integrate well with one another, or
with older, ``legacy'' devices. In addition, future fair or
reasonable uses may be precluded by these limitations. For
example, a student would be unable to e-mail herself a copy of
a project with digital video content because no current secure
system exists for e-mail transmission.
CRS Report at 5.
Proposals for digital radio content protection similarly, and
perhaps even more directly, place the FCC in the position of
determining consumers' rights under copyright law. For example, the
draft House bill gives the FCC the authority to control the
unauthorized copying and redistribution of digital audio content by or
over digital reception devices, related equipment, and digital
networks, including regulations governing permissible copying and
redistribution of such audio content.
Under this proposal, the FCC is placed in charge both of (1)
determining the extent to which unauthorized copying (which is legal is
some circumstances) of digital broadcast and satellite radio content is
permitted; and (2) determining what kind of copying and redistribution
of audio content is permissible.
Not only does this language give the FCC power to set copyright
law, it also directly conflicts with copyright law, specifically the
Audio Home Recording Act--which explicitly gives consumers the right to
record digital radio transmissions for noncommercial use. \17\
---------------------------------------------------------------------------
\17\ 17 U.S.C. Sec. Sec. 1000-1010.
---------------------------------------------------------------------------
A Technology Mandate to Close the Analog Hole is Premature, Unnecessary
and Would Cause Great Consumer Confusion, Cost and
Inconvenience
While this hearing does not specifically address the content
industry's efforts to close the so-called analog hole through
legislative means, those efforts are closely related to the broadcast
flag and radio content protection initiatives, and are therefore worthy
of mention.
As many of you know, a bill was introduced in the House of
Representatives last year \18\ that would mandate that all digital
devices read and obey two specific technologies--an encryption
technology called CGMS-A and a watermarking technology called VEIL. The
content industry claims that both of these technologies are necessary
to ensure that analog content cannot be captured and digitized for
possible indiscriminate distribution over the Internet.
---------------------------------------------------------------------------
\18\ H.R. 4569: The Digital Transition Content Security Act of
2005, 109th Cong. 2005. Found at: .
---------------------------------------------------------------------------
Preliminarily, I would note that while the CGMS-A +VEIL technology
was discussed at the Analog Hole Reconversion Discussion Group, a
standards group with both industry and public interest participation,
it was quickly dismissed as not worthy of further consideration. Thus,
this technology has not been fully vetted by industry and public
interest groups. If Congress feels it must do something about the
analog hole, it should refer the technology back to industry and public
interest groups so CGMS-A +VEIL can be thoroughly analyzed for its
impact on consumers and the cost to technology companies. In the
complete absence of any such review, the one-sided imposition of such a
detailed technology mandated would be unprecedented.
More importantly, the proposed analog hole fix suffers from a
number of important substantive flaws. Here are just a few:
The analog hole technology mandate would be more intrusive
than the broadcast flag: The content industry's proposal
mandates that each and every device with an analog connection
obey not one, but two copy protection schemes. Thus, while the
broadcast flag would put the FCC in charge of design control
just for technologies that demodulate a broadcast signal, the
proposal would mandate design for every device with an analog
connector, including printers, cellphones, camcorders, etc.
Like the broadcast flag, it sets in stone a copy protection
technology for technologies that are always changing.
The analog hole mandate would obsolete millions of digital
devices. Popular portable video-playback devices like iPods,
PSPs, laptops, and cell phones are all analog hole non-
compliant. Using these kinds of devices in conjunction with
analog video inputs is critical to the many innovative plans
introduced at the CES 2006. An analog hole mandate could
effectively obsolete newly purchased devices and the systems
with which they work, and would require redesign of these
devices.
The analog hole mandate would impose a detailed set of
encoding rules that would restrict certain lawful uses of
content. The House bill includes tiered levels of restriction
based on the type of programming (e.g., pay-per-view, video on
demand) that limit lawful uses in a manner that ignores the
four fair use factors of 17 U.S.C. Sec. 107. This upsets the
balance established in copyright law between the needs of
copyright holders and the rights of the public by placing far
too much control over lawful uses in the hands of the content
producers.
The mandate would eliminate the DMCA's safety valve. This
Committee has been the leader in ensuring that the anti-
circumvention provisions of the Digital Millennium Copyright
Act do not unintentionally impinge on fair use. One of the
common justifications for limitations on fair use imposed by
the DMCA is that the analog hole is available for individuals
who, for example want to make a snippet of a DVD using a video
camera held up to a video screen or connected to analog outputs
on a TV set. \19\ An analog hole mandate would eliminate this
safety valve.
\19\ See Testimony of Dean Marks, Senior Counsel Intellectual
Property, Time Warner, Inc., and Steve Metalitz, Representing Content
Industry Joint Commenters, before the Copyright Office in Rulemaking
Hearing: Exemptions From Prohibitions On Circumvention Of Technological
Measures That Control Access To Copyrighted Works, May 13, 2003 at 60-
61: ``I think the best example I can give is the demonstration that Mr.
Attaway [MPAA Executive Vice President for Government Relations and
Washington General Counsel] gave for you [Marybeth Peters, Registrar of
Copyrights] earlier this month in Washington in which he demonstrated
that he used a digital camcorder viewing the screen on which a DVD was
playing to make a excerpt from a DVD film and have a digital copy that
could then be used for all the fair use purposes . . . '' (Mr. Metaliz
at 60.) ``I agree with everything Steve has just said about fair use
copying or taking clips . . . with digital camcorders and analog
camcorders being widely available . . . '' (Mr. Marks at 61).
---------------------------------------------------------------------------
The Proper Balance Between Content Protection and Consumer Rights
Should Be Set by Copyright Law and Marketplace Initiatives
I am often asked the following question: if Public Knowledge
opposes the broadcast flag, radio content protection and closing the
analog hole, what are better alternatives to protect digital television
and radio content from infringing uses? The best approach to protecting
rights holders' interests is a multi-pronged approach: by better
educating the public, using the legal tools that the content industry
already has at its disposal, and the technological tools that are being
developed and tested in the marketplace every day. In the past year
alone, the content industry has used and won several important new
tools to protect content, including:
The Supreme Court's decision in MGM v. Grokster and its
aftermath. The Supreme Court gave content owners a powerful
tool against infringement when it held that manufacturers and
distributors of technologies that are used to infringe could be
held liable for that infringement if they actively encourage
illegal activity. The result has been that a number of
commercial P2P distributors have gone out of business, moved
out of the U.S., or sold their assets to copyright holders.
Lawsuits against mass infringers using P2P networks. Both
the RIAA and the MPAA continue to sue individuals who are
engaged in massive infringement over peer-to-peer (P2P)
networks. By their own admission, these lawsuits have had both
a deterrent and educative effect.
Passage of the Family Entertainment and Copyright Act. The
FECA gave copyright holders a new cause of action to help limit
leaks of pre-release works and made explicit the illegality of
bringing a camcorder into a movie theatre. It also provided for
the appointment of an intellectual property ``czar'' to better
enforce copyright laws.
Agreements by ISPs to pass on warning notices. The war
between Internet Service Providers and content companies has
begun to cool. Last month, Verizon and Disney entered into an
agreement by which Verizon will warn alleged copyright
infringers using its networks, but will not give up their
personal information to Disney.
Increased use of copy protection and other digital rights
management tools in the marketplace. There are numerous
instances of the use of digital rights management tools in the
marketplace. iTunes Fairplay DRM is perhaps the most well
known, but other services that use DRM include MSN music and
video, Napster, Yahoo Music, Wal-Mart, Movielink, CinemaNow and
MovieFlix. The success of some of these business models are a
testament to the fact that if content companies make their
catalogues available in an easily accessible manner, with
flexibility and at a reasonable price, those models will
succeed in the marketplace, without government intervention.
These tools are in addition to the strict penalties of current
copyright law, including the DMCA. To the extent that the content
industries are looking for a ``speed bump'' to keep ``honest people
honest,'' I would contend that many such speed bumps already exist,
while more are being developed every day without government technology
mandates.
Finally, by far the most effective means of preventing massive
copyright infringement involves the content industry doing what it took
the music industry far too long to do \20\--satisfy market demand by
allowing consumers to enjoy fair and flexible access to content at
reasonable prices (inevitably produced in a free market). DVDs are the
best example of the market working. There, a government mandate--the
Digital Video Recording Act--was rejected and an industry-agreed upon
fairly weak ``keep honest people honest'' protection system was
adopted. Despite the fact that the protection system was defeated long
ago, the DVD market has grown at an astounding rate--from zero in 1997
to $25,000,000,000 in sales and rentals last year. Moreover as I noted
above, many other new digital music and video distribution models,
developed with content industry support and industry-agreed upon
content protection, are emerging in the market. We believe that these
efforts make government intervention in the free market unnecessary.
---------------------------------------------------------------------------
\20\ See Keynote Address of Edgar Bronfman, Chairman and CEO of
Warner Music at http:// www.tvworldwide.com/events/pff/050821/
agenda.htm. ``The Music Industry, like almost every industry faced with
massive and rapid transformation first reacted too slowly and
moderately, inhibited by an instinctive and reflexive reaction to
protect our current business and business models.''
---------------------------------------------------------------------------
Conclusion
The Consumer Electronics Show demonstrated that the content and
technology industries are moving forward, together, to provide the
digital content and the digital machinery that consumers are buying and
enjoying. Technology mandates like the broadcast flag and radio content
protection are a step backward from this progress, limiting both
innovation and consumer choice while increasing costs to innovators and
consumers. I urge the Committee to look at recent marketplace
developments and consider whether government action here would do far
more harm than good. Thank you.
______
United States Court of Appeals for the District of Columbia Circuit
American Library Association, et al., Petitioners, v. Federal
Communications Commission and United States of America, Respondents;
Motion Picture Association of America, Inc., et al., Intervenors
Case No. 04-1037--Argued February 22, 2005--Decided May 6, 2005
On Petition for Review of an Order of the Federal
Communications Commission
Pantelis Michalopoulos argued the cause for petitioners. With him
on the briefs were Cynthia L. Quarterman, Rhonda M. Bolton, Lincoln L.
Davies, and Gigi B. Sohn.
Jacob M. Lewis, Attorney, Federal Communications Commission, argued
the cause for respondents. With him on the brief were R. Hewitt Pate,
Assistant Attorney General, Catherine G. O'Sullivan and James J.
Fredricks, Attorneys, John A. Rogovin, General Counsel, Federal
Communications Commission, Austin C. Schlick, Deputy General Counsel,
Daniel M. Armstrong, Associate General Counsel, and C. Grey Pash, Jr.,
Counsel.
Christopher Wolf, Bruce E. Boyden, Mace J. Rosenstein, and
Catherine E. Stetson were on the brief for intervenor Motion Picture
Association of America, Inc.
Before: Edwards, Sentelle, and Rogers, Circuit Judges.
Opinion for the Court filed by Circuit Judge Edwards.
Edwards, Circuit Judge: It is axiomatic that administrative
agencies may issue regulations only pursuant to authority delegated to
them by Congress. The principal question presented by this case is
whether Congress delegated authority to the Federal Communications
Commission (``Commission'' or ``FCC'') in the Communications Act of
1934, 47 U.S.C. Sec. 151 et seq. (2000) (``Communications Act'' or
``Act''), to regulate apparatus that can receive television broadcasts
when those apparatus are not engaged in the process of receiving a
broadcast transmission. In the seven decades of its existence, the FCC
has never before asserted such sweeping authority. Indeed, in the past,
the FCC has informed Congress that it lacked any such authority. In our
view, nothing has changed to give the FCC the authority that it now
claims.
This case arises out of events related to the nation's transition
from analog to digital television service (``DTV''). Since the 1940s,
broadcast television stations have transmitted their programs over the
air using an analog standard. DTV is a technological breakthrough that
permits broadcasters to transmit more information over a channel of
electromagnetic spectrum than is possible through analog broadcasting.
Consumer Elecs. Ass'n v. FCC, 347 F.3d 291, 293 (D.C. Cir. 2003).
Congress has set December 31, 2006, as the target date for the
replacement of analog television service with DTV. See 47 U.S.C. Sec.
309(j)(14).
In August 2002, in conjunction with its consideration of the
technological challenges related to the transition from analog service
to DTV, the Commission issued a notice of proposed rulemaking to
inquire, inter alia, whether rules were needed to prevent the
unauthorized copying and redistribution of digital television
programming. See Digital Broadcast Copy Protection, 17 F.C.C.R. 16,027,
16,028 (2002) (``NPRM''). Thousands of comments were filed in response
to the agency's NPRM. Owners of digital content and television
broadcasters urged the Commission to require DTV reception equipment to
be manufactured with the capability to prevent unauthorized
redistributions of digital content. Numerous other commenters voiced
strong objections to any such regulations, contending that the FCC had
no authority to control how broadcast content is used after it has been
received. In November 2003, the Commission adopted ``broadcast flag''
regulations, requiring that digital television receivers and other
devices capable of receiving digital television broadcast signals,
manufactured on or after July 1, 2005, include technology allowing them
to recognize the broadcast flag. See Digital Broadcast Content
Protection, 18 F.C.C.R. 23,550 (2003) (codified at 47 CFR pts. 73, 76).
The broadcast flag is a digital code embedded in a DTV broadcasting
stream, which prevents digital television reception equipment from
redistributing broadcast content. The broadcast flag affects receiver
devices only after a broadcast transmission is complete. The American
Library Association, et al. (``American Library'' or ``petitioners''),
nine organizations representing a large number of libraries and
consumers, filed the present petition for review challenging these
rules.
In adopting the broadcast flag rules, the FCC cited no specific
statutory provision giving the agency authority to regulate consumers'
use of television receiver apparatus after the completion of a
broadcast transmission. Rather, the Commission relied exclusively on
its ancillary jurisdiction under Title I of the Communications Act of
1934.
The Commission recognized that it may exercise ancillary
jurisdiction only when two conditions are satisfied: (1) the
Commission's general jurisdictional grant under Title I covers the
regulated subject and (2) the regulations are reasonably ancillary to
the Commission's effective performance of its statutorily mandated
responsibilities. See 18 F.C.C.R. at 23,563. The Commission's general
jurisdictional grant under Title I plainly encompasses the regulation
of apparatus that can receive television broadcast content, but only
while those apparatus are engaged in the process of receiving a
television broadcast. Title I does not authorize the Commission to
regulate receiver apparatus after a transmission is complete. As a
result, the FCC's purported exercise of ancillary authority founders on
the first condition. There is no statutory foundation for the broadcast
flag rules, and consequently the rules are ancillary to nothing.
Therefore, we hold that the Commission acted outside the scope of its
delegated authority when it adopted the disputed broadcast flag
regulations.
The result that we reach in this case finds support in the All
Channel Receiver Act of 1962 and the Communications Amendments Act of
1982. These two statutory enactments confirm that Congress never
conferred authority on the FCC to regulate consumers' use of television
receiver apparatus after the completion of broadcast transmissions.
As petitioners point out, ``the broadcast flag rules do not
regulate interstate `radio communications' as defined by Title I,
because the Flag is not needed to make a DTV transmission, does not
change whether DTV signals can be received, and has no effect until
after the DTV transmission is complete.'' Petitioners' Br. at 23. We
agree. Because the Commission overstepped the limits of its delegated
authority, we grant the petition for review.
I. Background
The Communications Act of 1934 was ``implemented for the purpose of
consolidating Federal authority over communications in a single agency
to assure `an adequate communication system for this country.''' Motion
Picture Ass'n of Am., Inc. v. FCC, 309 F.3d 796, 804 (D.C. Cir. 2002)
(quoting S. REP. NO. 73-781, at 3 (1934)). Title I of the Act creates
the Commission ``[f]or the purpose of regulating interstate and foreign
commerce in communication by wire and radio so as to make available, so
far as possible, to all the people of the United States . . . a rapid,
efficient, Nation-wide, and world-wide wire and radio communication
service with adequate facilities at reasonable charges.'' 47 U.S.C.
Sec. 151. Title I further provides that the Commission ``shall execute
and enforce the provisions'' of the Act, id., and states that the Act's
provisions ``shall apply to all interstate and foreign communication by
wire or radio,'' id. Sec. 152(a).
The FCC may act either pursuant to express statutory authority to
promulgate regulations addressing a variety of designated issues
involving communications, see, e.g., 47 U.S.C. Sec. 303(f) (granting
the Commission authority to prevent interference among radio and
television broadcast stations), or pursuant to ancillary jurisdiction,
see, e.g., 47 U.S.C. Sec. 154(i) (``[t]he Commission may perform any
and all acts, make such rules and regulations, and issue such orders,
not inconsistent with this chapter, as may be necessary in the
execution of its functions'').
Although somewhat amorphous, ancillary jurisdiction is nonetheless
constrained. In order for the Commission to regulate under its
ancillary jurisdiction, two conditions must be met. First, the subject
of the regulation must be covered by the Commission's general grant of
jurisdiction under Title I of the Communications Act, which, as noted
above, encompasses ``all interstate and foreign communication by wire
or radio.'' United States v. Southwestern Cable Co., 392 U.S. 157, 167
(1968) (quoting 47 U.S.C. Sec. 152(a)). Second, the subject of the
regulation must be ``reasonably ancillary to the effective performance
of the Commission's various responsibilities.'' Id. at 178. Digital
television is a technological breakthrough that allows broadcasters to
transmit either an extremely high quality video programming signal
(known as high definition television) or multiple streams of video,
voice, and data simultaneously within the same frequency band
traditionally used for a single analog television broadcast. See
Advanced Television Systems and Their Impact Upon the Existing
Television Broadcast Service, 11 F.C.C.R. 17,771, 17,774 (1996). In
1997, the FCC set a target of 2006 for the cessation of analog service.
See Advanced Television Systems and Their Impact Upon the Existing
Television Broadcast Service, 12 F.C.C.R. 12,809, 12,850 (1997).
Congress subsequently provided that television broadcast licenses
authorizing analog service should not be renewed to authorize such
service beyond December 31, 2006. See 47 U.S.C. Sec. 309(j)(14).
In August 2002, the FCC issued a notice of proposed rulemaking
regarding digital broadcast copy protection. See Digital Broadcast Copy
Protection, 17 F.C.C.R. 16,027 (2002) (``NPRM''). The Commission sought
comments on, among other things, whether to adopt broadcast flag
technology to prevent the unauthorized copying and redistribution of
digital media. See id. at 16,028-29. The broadcast flag, or
Redistribution Control Descriptor, is a digital code embedded in a
digital broadcasting stream, which prevents digital television
reception equipment from redistributing digital broadcast content. See
id. at 16,027. The effectiveness of the broadcast flag regime is
dependent on programming being flagged and on devices capable of
receiving broadcast DTV signals (collectively ``demodulator products'')
being able to recognize and give effect to the flag. Under the rule,
new demodulator products (e.g., televisions, computers, etc.) must
include flag-recognition technology. This technology, in combination
with broadcasters' use of the flag, would prevent redistribution of
broadcast programming. The broadcast flag does not have any impact on a
DTV broadcast transmission. The flag's only effect is to limit the
capacity of receiver apparatus to redistribute broadcast content after
a broadcast transmission is complete.
The NPRM also sought comments on whether the Commission had the
authority to mandate recognition of the broadcast flag in consumer
electronics devices. Id. at 16,029-30. The Commission requested
commenters to address whether ``this [is] an area in which the
Commission could exercise its ancillary jurisdiction under Title I of
the Act.'' Id. The FCC also asked ``commenters to identify any
statutory provisions that might provide the Commission with more
explicit authority to adopt digital broadcast copy protection rules,''
such as 47 U.S.C. Sec. 336(b)(4) and (b)(5), id., which authorize the
Commission to regulate the issuance of licenses for digital television
services, see 47 U.S.C. Sec. 336(a)-(b).
Unsurprisingly, there was an enormous response to the NPRM. The
Commission received comments from, among others, owners, producers, and
distributors of broadcast television content; consumer electronics
manufacturers; consumer interest groups; library associations; and
individual consumers. Content owners and television broadcasters argued
that, if DTV broadcast content was not protected from the threat of
widespread unauthorized redistribution via networks such as the
Internet, high value content would migrate from broadcast television to
pay television services, which offer a more secure distribution
channel. See Digital Broadcast Content Protection, 18 F.C.C.R. 23,550,
23,553 (2003) (``Flag Order''); Joint Reply Comments of the Motion
Picture Association of America, Inc., et al., 2/20/03, reprinted in
Joint Appendix (``J.A.'') 1080, 1088. But there was also overwhelming
opposition to the proposed broadcast flag rules. As Commissioner
Adelstein noted: ``Thousands of people contacted us and urged us not to
[adopt the broadcast flag regime]. Many consumers are concerned about
the effect on their use and enjoyment of television, as well as their
personal privacy.'' See Flag Order, 18 F.C.C.R. at 23,620 (statement of
Commissioner Adelstein, approving in part, dissenting in part).
Opponents of regulation argued that the threat from content
redistribution was overstated in light of technological limitations to
widespread Internet retransmission. See id. at 23,553. In addition,
critics of the proposed rules expressed concerns about implementation
costs and suggested that the broadcast flag both was an inadequate tool
to protect content and would stifle innovation. Id. at 23,557.
On the question of the Commission's authority to promulgate
broadcast flag regulations, proponents pointed to 47 U.S.C. Sec. 336.
See Flag Order, 18 F.C.C.R. at 23,562. Enacted as part of the
Telecommunications Act of 1996, Pub. L. No. 104-104, Sec. 201, 110
Stat. 56, 107, 47 U.S.C. Sec. 336 sets forth certain criteria pursuant
to which the Commission may issue new licenses for advanced television
services. Proponents also argued that, even if the Commission lacked
express statutory authority under Sec. 336, the FCC was authorized to
adopt broadcast flag rules pursuant to its ancillary jurisdiction. See
Joint Comments of the Motion Picture Association of America, Inc., et
al., 12/6/02, J.A. 760, 798-807.
Opponents contended that the Commission lacked jurisdiction to
implement broadcast flag rules. They pointed out that the plain text of
Sec. 336 authorized the FCC to regulate only DTV broadcast licensees
and the quality of the signal transmitted by such licensees. See, e.g.,
Reply Comments of Phillips Electronics North America Corp., 2/18/03,
J.A. 1012, 1027-28. Critics also maintained that the Commission could
not rely on its ancillary jurisdiction to adopt a broadcast flag
regime. As one commenter noted:
[The] unbounded view of FCC jurisdiction [advanced by flag
proponents] proves too much. Were it true, the FCC would have
plenary authority to regulate consumer electronics and computer
devices, and there would have been no need for Congress to
delegate authority to the FCC to implement its policy
objectives [in various laws authorizing the FCC to regulate
specific aspects of consumer electronics].
Id., J.A. 1028-29.
In November 2003, the FCC adopted regulations requiring demodulator
products manufactured on or after July 1, 2005 to recognize and give
effect to the broadcast flag. See Flag Order, 18 F.C.C.R. at 23,570,
23,576, 23,590-91. The Commission explained:
In this Report and Order, we conclude that the potential threat
of mass indiscriminate redistribution will deter content owners
from making high value digital content available through
broadcasting outlets absent some content protection mechanism.
Although the threat of widespread indiscriminate retransmission
of high value digital broadcast content is not imminent, it is
forthcoming and preemptive action is needed to forestall any
potential harm to the viability of over-the-air television. Of
the mechanisms available to us at this time, we believe that [a
broadcast flag] regime will provide content owners with
reasonable assurance that DTV broadcast content will not be
indiscriminately redistributed while protecting consumers' use
and enjoyment of broadcast video programming.
Id. at 23,552. The Commission also adopted an interim policy for
approving the technologies that could be employed by demodulator
products to comply with the requirements of the Flag Order and issued a
further notice of proposed rulemaking to address this and other issues.
See id. at 23,574-79.
In explaining the source of its authority to promulgate the
broadcast flag rules, the Commission did not invoke 47 U.S.C. Sec. 336.
Rather, the Commission purported to rely solely on its ancillary
jurisdiction under Title I of the Communications Act of 1934. See id.
at 23,563. The Commission found that (1) television receivers are
covered by Title I's general jurisdictional grant even when those
receivers are not engaged in the process of communication by wire or
radio and (2) flag-based regulations are reasonably ancillary to the
Commission's regulatory authority to foster a diverse range of
broadcast television programs and promote the transition from analog
service to DTV. See id. at 23,563-66. The Commission acknowledged that
``this may be the first time the Commission exercises its ancillary
jurisdiction over equipment manufacturers in this manner.'' Id. at
23,566. The Commission nonetheless concluded that ``[t]he fact that the
circumstances may not have warranted an exercise of such jurisdiction
at earlier stages does not undermine our authority to exercise
ancillary jurisdiction at this point in time.'' Id.
Commissioner Abernathy issued a separate statement, in which she
expressed her support for the Flag Order, but noted:
I have previously expressed concerns about whether we have
jurisdiction to adopt a broadcast flag solution, or whether
this is an issue best left for Congress. As a general rule, the
Commission should be wary of adopting significant new
regulations where Congress has not spoken. On balance, though,
I believe that given the broad Congressional direction to
promote the transition to digital broadcasting, a critical part
of that obligation involves protection of content that is
transmitted via free over-the-air-broadcasting. I am hopeful
that any court review of this decision can occur before the
effective date of our rules.
Id. at 23,614 (separate statement of Commissioner Abernathy).
Commissioners Copps and Adelstein dissented in part from the issuance
of the Flag Order. Commissioner Copps dissented ``because the
[regulations did] not preclude the use of the flag for news or for
content that is already in the public domain'' and ``because the
criteria adopt[ed] for accepting digital content protection
technologies fail to address . . . the impact . . . on personal
privacy.'' Id. at 23,616-17 (Statement of Commissioner Copps).
Commissioner Adelstein dissented because the regulations did ``not rule
out the use of the flag for content that is in the public domain.'' Id.
at 23,620 (Statement of Commissioner Adelstein).
The instant petition for review, filed by nine organizations
representing numerous libraries and consumers, challenges the FCC's
Flag Order on three grounds: (1) the Commission lacks statutory
authority to mandate that demodulator products recognize and give
effect to the broadcast flag; (2) the broadcast flag regime
impermissibly conflicts with copyright law; and (3) the Commission's
decision is arbitrary and capricious for want of reasoned
decisionmaking. The Motion Picture Association of America (``MPAA'')
intervened in support of the Commission. In its brief to the court,
MPAA also contested petitioners' Article III standing. After hearing
oral argument, the court requested additional submissions from the
parties on the question of standing. See Am. Library Ass'n v. FCC, 401
F.3d 489 (D.C. Cir. 2005) (``Am. Library I'').
As explained below, we are now satisfied that at least one member
of one of the petitioner groups has standing to pursue this challenge
to the FCC's broadcast flag rules. The court therefore has jurisdiction
to consider the petition for review. On the merits, we hold that the
FCC lacked statutory authority to impose the broadcast flag regime.
Therefore, we grant the petition for review without reaching
petitioners' other challenges to the Flag Order.
II. Analysis
A. Standing
Before addressing the merits of petitioners' claims, we must first
determine whether they have demonstrated that they have Article III
standing, a prerequisite to Federal court jurisdiction. Am. Library I,
401 F.3d at 492. Associations such as petitioners have representational
standing under Article III if (1) at least one of their members has
standing, (2) the interests the association seeks to protect are
germane to its purpose, and (3) neither the claim asserted nor the
relief requested requires the participation of an individual member in
the lawsuit. Id. As we noted in American Library I, we have no reason
to doubt that petitioners satisfy the latter two requirements, and
neither the FCC nor intervenor MPAA has suggested otherwise. Therefore,
the focus of our inquiry here is whether at least one member of a
petitioner group has standing to sue in its own right. Id.
In order to meet this first prong of the associational standing
test, at least one member of a petitioning group must satisfy ``the
three elements that form the `irreducible constitutional minimum of
standing.''' Id. (quoting Lujan v. Defenders of Wildlife, 504 U.S. 555,
560 (1992)). These elements are: (1) injury in fact, (2) causation, and
(3) redressability. See id. at 492-93 (citing Defenders of Wildlife,
504 U.S. at 560-61). The ``only thing at issue in this case is the
injury-in-fact prong of Article III standing, for causation and
redressability are obvious if petitioners can demonstrate injury.'' Id.
at 493. Furthermore, as we have already made clear,
[w]ith regard to the injury-in-fact prong of the standing test,
petitioners need not prove the merits of their case in order to
demonstrate that they have Article III standing. Rather, in
order to establish injury in fact, petitioners must show that
there is a substantial probability that the FCC's order will
harm the concrete and particularized interests of at least one
of their members.
Id. (citations omitted).
In response to our decision in American Library I, petitioners
submitted a brief, accompanied by 13 affidavits from individual members
and individuals representing their member organizations, to demonstrate
their standing. These materials included an affidavit executed by Peggy
Hoon, the Scholarly Communication Librarian at the North Carolina State
University (``NCSU'') Libraries in Raleigh, North Carolina, a member of
petitioner Association of Research Libraries. Affidavit of Peggy Hoon,
3/29/05, para. 1. Ms. Hoon's affidavit asserts that the NCSU Libraries
assist faculty members who would like to make broadcast materials
available to students in distance learning courses via the Internet.
The affidavit states that the NCSU Libraries currently assist a
professor in the Foreign Languages and Literatures Department make
short broadcast clips of the Univision network's program, El Show de
Christina, available over the Internet on a password-protected basis
for use in a distance-education Spanish language course. The affidavit
alleges that Internet redistribution is essential to making such clips
available. See id. para. para. 5-10. The FCC does not dispute that the
NCSU Libraries' activities are lawful. And as petitioners point out, if
the regulations implemented by the Flag Order take effect, there is a
substantial probability that the NCSU Libraries would be prevented from
assisting faculty to make broadcast clips available to students in
their distance-learning courses via the Internet.
At oral argument, counsel for the FCC stated explicitly that the
Commission is not challenging petitioners' standing in this case.
Recording of Oral Argument at 29:01-:18. In its supplemental brief, the
Commission again does not raise a challenge to petitioners' standing.
Instead, the Commission merely responds on the merits, taking issue
with certain statements in petitioners' supplemental brief and
affidavits about the breadth of the broadcast flag regime. See FCC
Supp. Br. at 3.
Intervenor MPAA, which does challenge petitioners' standing, argues
that any injury suffered by the Libraries following the FCC's
implementation of the broadcast flag regulations will be ``due solely
to the independent . . . decisions of third parties not before this
Court.'' MPAA Supp. Br. at 6. In other words, MPAA assumes that,
because hardware manufacturers eventually might be able to gain
approval for apparatus that allow for greater distribution of broadcast
content in a manner that is consistent with the Flag Order, it will be
the unavailability of this new technology and not the agency's
enforcement of the broadcast flag rule that causes injury to
petitioners. Thus, under MPAA's view, redress for petitioners must come
from the hardware manufacturers, not the FCC. This is a specious
argument.
There is clearly a substantial probability that, if enforced, the
Flag Order will immediately harm the concrete and particularized
interests of the NCSU Libraries. Absent the Flag Order, the Libraries
will continue to assist NCSU faculty members make broadcast clips
available to students in distance-education courses via the Internet,
but there is a substantial probability that the Libraries will be
unable to do this if the Flag Order takes effect. It is also beyond
dispute that, if this court vacates the Flag Order, the Libraries will
be able to continue to assist faculty members lawfully redistribute
broadcast clips to their students.
In short, it is clear that, on this record, the NCSU Libraries have
satisfied the requisite elements of Article III standing: injury in
fact, causation, and redressability. Therefore, the Association of
Research Libraries also has standing. See Am. Library I, 401 F.3d at
492. Because only one member of a petitioning organization must have
standing in order for the court to have jurisdiction over a petition
for review, see Nuclear Energy Inst., Inc. v. EPA, 373 F.3d 1251, 1266
(D.C. Cir. 2004), it is unnecessary for us to consider any of the other
grounds offered by petitioners to demonstrate their standing. We
therefore move to the question of whether the Commission acted in
excess of its statutory authority in promulgating the Flag Order.
B. The Limits of the FCC's Delegated Authority Under the Communications
Act
In defending the Flag Order and the broadcast flag regulations
contained therein, the Commission contends that it
reasonably interpreted the Communications Act as granting it
jurisdiction to establish technical requirements for television
receiving equipment in order to fulfill its responsibility of
implementing the transition to digital television. Sections 1
and 2(a) of the Act, 47 U.S.C. 151, 152(a), confer on the
agency regulatory jurisdiction over all interstate radio and
wire communication. Under the definitional provisions of
section 3, 47 U.S.C. 153, those communications include not only
the transmission of signals through the air or wires, but also
``all instrumentalities, facilities, [and] apparatus''
associated with the overall circuit of messages sent and
received--such as digital television receiving equipment.
. . .
. . . [T]he Commission has the authority to promulgate
regulations to effectuate the goals and provisions of the Act
even in the absence of an explicit grant of regulatory
authority, if the regulations are reasonably ancillary to the
Commission's specific statutory powers and responsibilities.
FCC Br. at 17, 23-24.
Petitioners counter that
[t]he FCC has asserted jurisdiction it does not have . . . The
FCC claims no specific statutory authority allowing it to
meddle so radically in the nation's processes of technological
innovation, but instead cites to its latent ``ancillary''
jurisdiction, which the FCC astonishingly contends is boundless
unless Congress specifically acts to limit it.
. . . [I]n no circumstance can the FCC regulate an activity
that is not an interstate ``communication'' by radio or wire,
and the broadcast flag rules regulate neither. The broadcast
flag does not dictate how DTV transmissions are made, but
simply controls how the transmitted content can be treated
after it is received . . . [T]he Communications Act is clear
that, unless specified elsewhere, it gives the FCC authority
over receipt ``services,'' not the receipt ``apparatuses'' the
agency now attempts to regulate.
Petitioners' Br. at 19-20.
As noted above, the principal issue in this case is whether the
Commission acted outside the scope of its delegated authority when it
adopted the disputed broadcast flag regulations. The FCC, like other
Federal agencies, ``literally has no power to act . . . unless and
until Congress confers power upon it.'' La. Pub. Serv. Comm'n v. FCC,
476 U.S. 355, 374 (1986). The Commission ``has no constitutional or
common law existence or authority, but only those authorities conferred
upon it by Congress.'' Michigan v. EPA, 268 F.3d 1075, 1081 (D.C. Cir.
2001). Hence, the FCC's power to promulgate legislative regulations is
limited to the scope of the authority Congress has delegated to it. Id.
(citing Bowen v. Georgetown Univ. Hosp., 488 U.S. 204, 208 (1988)).
1. The Applicable Standard of Review
In assessing whether the Commission's Flag Order exceeds the
agency's delegated authority, we apply the familiar standards of review
enunciated by the Supreme Court in Chevron U.S.A. Inc. v. Natural
Resources Defense Council, Inc., 467 U.S. 837 (1984), and United States
v. Mead Corp., 533 U.S. 218, 226-27 (2001). In reviewing agency action
under Chevron, ``if the intent of Congress is clear,'' the court ``must
give effect to [that] unambiguously expressed intent.'' Chevron, 467
U.S. at 842-43 (``Chevron Step One''). If ``Congress has not directly
addressed the precise question at issue,'' and the agency has acted
pursuant to an express or implied delegation of authority, the agency's
statutory interpretation is entitled to deference, as long as it is
reasonable. Id. at 843-44 (``Chevron Step Two''). The FCC argues here
that the court should defer to the agency's interpretation of its
ancillary jurisdiction under Chevron, because, in its view, the
regulations promulgated in the Flag Order reflect a reasonable
application of the agency's ancillary authority under the
Communications Act. The agency's self-serving invocation of Chevron
leaves out a crucial threshold consideration, i.e., whether the agency
acted pursuant to delegated authority.
As the court explained in Motion Picture Ass'n of America, Inc. v.
FCC, 309 F.3d 796, 801 (D.C. Cir. 2002) (``MPAA''), an ``agency's
interpretation of [a] statute is not entitled to deference absent a
delegation of authority from Congress to regulate in the areas at
issue.'' The court observed that the Supreme Court's decision in Mead
``reinforces'' the command in Chevron that ``deference to an agency's
interpretation of a statute is due only when the agency acts pursuant
to `delegated authority.''' Id. (quoting Mead, 533 U.S. at 226). See
also Cal. Indep. Sys. Operator Corp. v. FERC, 372 F.3d 395, 399 (D.C.
Cir. 2004); Bluewater Network v. EPA, 370 F.3d 1, 11 (D.C. Cir. 2004);
AT&T Corp. v. FCC, 323 F.3d 1081, 1086 (D.C. Cir. 2003); Ry. Labor
Executives' Ass'n v. Nat'l Mediation Bd., 29 F.3d 655, 670-71 (D.C.
Cir. 1994) (en banc).
In Aid Ass'n for Lutherans v. United States Postal Serv., 321 F.3d
1166 (D.C. Cir. 2003), the court explained:
``Chevron is principally concerned with whether an agency has
authority to act under a statute.'' Arent v. Shalala, 70 F.3d
610, 615 (D.C. Cir. 1995). Chevron analysis ``is focused on
discerning the boundaries of Congress' delegation of authority
to the agency; and as long as the agency stays within that
delegation, it is free to make policy choices in interpreting
the statute, and such interpretations are entitled to
deference.'' Id.; see also Mead, 533 U.S. at 226-27 (holding
that Chevron deference is due only when the agency acts
pursuant to ``delegated authority'').
. . .
An agency construction of a statute cannot survive judicial
review if a contested regulation reflects an action that
exceeds the agency's authority. It does not matter whether the
unlawful action arises because the disputed regulation defies
the plain language of a statute or because the agency's
construction is utterly unreasonable and thus impermissible.
Id. at 1174.
Petitioners' principal claim here is that the challenged broadcast
flag regulations emanated from an ultra vires action by the FCC. We
agree. This being the case, the regulations cannot survive judicial
review under Chevron/Mead. Our judgment is the same whether we analyze
the FCC's action under the first or second step of Chevron. ``In either
situation, the agency's interpretation of the statute is not entitled
to deference absent a delegation of authority from Congress to regulate
in the areas at issue.'' MPAA, 309 F.3d at 801 (citing Ry. Labor
Executives, 29 F.3d at 671). In this case, as explained below, the
FCC's interpretation of its ancillary jurisdiction reaches well beyond
the agency's delegated authority under the Communications Act. We
therefore hold that the broadcast flag regulations exceed the agency's
delegated authority under the statute.
2. Ancillary Jurisdiction Under the Communications Act of 1934
As explained above, the only basis advanced by the Commission as a
source for its authority to adopt the broadcast flag regime was its
ancillary jurisdiction under Title I of the Communications Act of 1934.
See Flag Order, 18 F.C.C.R. at 23,563-64. As the Commission recognized,
its ancillary jurisdiction is limited to circumstances where: (1) the
Commission's general jurisdictional grant under Title I covers the
subject of the regulations and (2) the regulations are reasonably
ancillary to the Commission's effective performance of its statutorily
mandated responsibilities. See id. at 23,563 (citing Southwestern
Cable, 392 U.S. at 177-78).
The insurmountable hurdle facing the FCC in this case is that the
agency's general jurisdictional grant does not encompass the regulation
of consumer electronics products that can be used for receipt of wire
or radio communication when those devices are not engaged in the
process of radio or wire transmission. Because the Flag Order does not
require demodulator products to give effect to the broadcast flag until
after the DTV broadcast has been completed, the regulations adopted in
the Flag Order do not fall within the scope of the Commission's general
jurisdictional grant. Therefore, the Commission cannot satisfy the
first precondition to its assertion of ancillary jurisdiction.
The Supreme Court has delineated the parameters of the Commission's
ancillary jurisdiction in three cases: United States v. Southwestern
Cable Co., 392 U.S. 157 (1968), United States v. Midwest Video Corp.,
406 U.S. 649 (1972) (``Midwest Video I''), and FCC v. Midwest Video
Corp., 440 U.S. 689 (1979) (``Midwest Video II''). In Southwestern
Cable and Midwest Video I, the Court upheld the Commission's regulation
of cable television systems as a valid exercise of its ancillary
jurisdiction, but also made clear that the Commission's ancillary
authority has limits. In Midwest Video II, the Court found that the
Commission had overstepped those limits. Because Southwestern Cable,
Midwest Video I, and Midwest Video II are central to our analysis of
whether the Commission lawfully exercised its ancillary jurisdiction in
this case, we discuss these cases in some detail.
In Southwestern Cable, the Supreme Court recognized that the
Communications Act confers a sphere of ancillary jurisdiction on the
FCC. See 392 U.S. at 177-78. The principal question presented was
whether the FCC had the authority to regulate cable television systems
(``CATV''), absent any express Congressional grant of authority to the
FCC to regulate in this area. See id. at 164-67. The Court's conclusion
that the FCC did have such authority rested on two factors. First, it
was beyond doubt that CATV systems involved interstate ``communication
by wire or radio,'' id. at 168 (quoting 47 U.S.C. Sec. 152(a)), and,
thus, were covered by Title I's general jurisdictional grant. Second,
the Court concluded that at least some level of CATV regulation was
``reasonably ancillary to the effective performance of the Commission's
various responsibilities [delegated to it by Congress] for the
regulation of television broadcasting.'' Id. at 178. Because these two
conditions were satisfied, the Court held that, to the degree it was in
fact reasonably ancillary to the Commission's responsibilities over
broadcast, the FCC had the power to regulate cable television as
``public convenience, interest or necessity requires,'' so long as the
regulations were ``not inconsistent with law.'' Id. (quoting 47 U.S.C.
Sec. 303(r)).
Four years later, the Court applied the two-part test enunciated in
Southwestern Cable to review a rule adopted by the FCC providing that
no CATV system with 3,500 or more subscribers could carry the signal of
any television broadcast station unless the system distributed
programming that had originated from a source other than the broadcast
signals and the system had facilities for local program production. See
Midwest Video I, 406 U.S. at 653-54 & n.6. The regulation was designed
to increase the number of outlets for community self-expression and the
programming choices available to the public. See id. at 654.
A closely divided Court held that the Commission's rule was a valid
exercise of its ancillary jurisdiction. In an opinion by Justice
Brennan, a plurality of the Court began its analysis by recognizing the
two requirements for the Commission's exercise of ancillary
jurisdiction: (1) that the regulation must cover interstate or foreign
communication by wire or radio and (2) that the regulation must be
reasonably ancillary to the Commission's effective performance of its
statutorily mandated responsibilities. See id. at 662-63. The parties
before the Court in Midwest Video I did not dispute that the first
precondition was met. See id. at 662. Furthermore, the plurality
concluded that the regulation was reasonably ancillary to the
Commission's responsibilities for the regulation of broadcast
television, because the Commission reasonably concluded that the rule
would ``further the achievement of long-established regulatory goals in
the field of television broadcasting by increasing the number of
outlets for community self-expression and augmenting the public's
choice of programs and types of services.'' Id. at 667-68 (quoting
Commission report accompanying the disputed regulation).
Chief Justice Burger provided the fifth vote to sustain the
regulation at issue in Midwest Video I, but he concurred only in the
judgment. Chief Justice Burger agreed that, in light of the ``pervasive
powers'' conferred upon the Commission and its ``generations of
experience,'' the Court should sustain the Commission's authority to
impose the regulation at issue. Id. at 676 (Burger, C.J., concurring in
the result). Nonetheless, he noted: ``Candor requires acknowledgment,
for me at least, that the Commission's position strains the outer
limits of even the open-ended and pervasive jurisdiction that has
evolved by decisions of the Commission and the courts.'' Id.
Seven years later, in Midwest Video II, the Court considered
whether another FCC effort to regulate cable television was a
permissible exercise of the Commission's ancillary jurisdiction. This
time the Court decided that the Commission had gone too far. The rules
at issue required that cable television systems carrying broadcast
signals and having at least 3,500 subscribers develop at least a 20-
channel capacity, make certain channels available for third-party
access, and furnish equipment for access purposes. 440 U.S. at 691. The
Court held that the rules exceeded the Commission's authority. Id. at
708-09. Specifically, because the Communications Act explicitly
directed the Commission not to treat broadcasters as common carriers,
the Court concluded that it was not reasonably ancillary to the
Commission's effective performance of its responsibilities relating to
broadcast television for the Commission to impose common-carrier
obligations on cable television systems. See id. at 702-05, 708-09.
While the Court recognized that the statutory bar on treating
broadcasters as common carriers did not apply explicitly to cable
systems, the Court explained that, ``without reference to the
provisions of the Act directly governing broadcasting, the Commission's
jurisdiction under [Title I] would be unbounded.'' Id. at 706. The
Court refused to countenance such a boundless view of the Commission's
jurisdiction, noting that, ``[t]hough afforded wide latitude in its
supervision over communication by wire, the Commission was not
delegated unrestrained authority.'' Id. As the Commission correctly
explained in the Flag Order, Midwest Video II stands for the
proposition that ``if the basis for jurisdiction over cable is that the
authority is ancillary to the regulation of broadcasting, the cable
regulation cannot be antithetical to a basic regulatory parameter
established for broadcast.'' Flag Order, 18 F.C.C.R. at 23,563 n.70.
The Court's decisions in Southwestern Cable, Midwest Video I, and
Midwest Video II were principally focused on the second prong of the
ancillary jurisdiction test. This is unsurprising, because the subject
matter of the regulations at issue in those cases--cable television--
constituted interstate communication by wire or radio, and thus fell
within the scope of the Commission's general jurisdictional grant under
Title I of the Communications Act. However, these cases leave no doubt
that the Commission may not invoke its ancillary jurisdiction under
Title I to regulate matters outside of the compass of communication by
wire or radio. As we have explained:
While the Supreme Court has described the jurisdictional powers of
the FCC as . . . expansive, there are limits to those powers. No case
has ever permitted, and the Commission has never, to our knowledge,
asserted jurisdiction over an entity not engaged in ``communication by
wire or radio.''
Accuracy in Media, Inc. v. FCC, 521 F.2d 288, 293 (D.C. Cir. 1975)
(additional internal quotation marks omitted) (citing Nat'l Broad. Co.
v. United States, 319 U.S. 190, 219 (1943)); see also id. at 294
(``Jurisdiction over CATV [in Southwestern Cable] was expressly
predicated upon a finding that the transmission of video and aural
signals via the cable was `interstate . . . communication by wire or
radio.''' (quoting Southwestern Cable, 392 U.S. at 168)); Midwest Video
I, 406 U.S. at 662 (making clear that the Commission's jurisdiction is
limited to activities involving communication by wire or radio). This
principle is crucial, because the issue here is precisely whether the
Flag Order asserts jurisdiction over matters that are beyond the
compass of wire or radio communication.
Southwestern Cable, Midwest Video I, and Midwest Video II are also
relevant to the present controversy for a second reason. In each of
these decisions, the Court followed a very cautious approach in
deciding whether the Commission had validly invoked its ancillary
jurisdiction, even when the regulations under review clearly addressed
``communication by wire or radio.'' As the Seventh Circuit has noted:
``The Court [in Southwestern Cable] appeared to be treading lightly
even where the activity at issue'' involved cable television, which
``easily falls within'' Title I's general jurisdictional grant. Ill.
Citizens Comm. for Broad. v. FCC, 467 F.2d 1397, 1400 (7th Cir. 1972).
The Seventh Circuit's characterization is equally apt with respect to
the Court's opinions in Midwest Video I and Midwest Video II.
We think that the Supreme Court's cautionary approach in applying
the second prong of the ancillary jurisdiction test suggests that we
should be at least as cautious in this case. Great caution is warranted
here, because the disputed broadcast flag regulations rest on no
apparent statutory foundation and, thus, appear to be ancillary to
nothing. Just as the Supreme Court refused to countenance an
interpretation of the second prong of the ancillary jurisdiction test
that would confer ``unbounded'' jurisdiction on the Commission, Midwest
Video II, 440 U. S. at 706, we will not construe the first prong in a
manner that imposes no meaningful limits on the scope of the FCC's
general jurisdictional grant.
In light of the parameters of the Commission's ancillary
jurisdiction established by Southwestern Cable, Midwest Video I, and
Midwest Video II, this case turns on one simple fact: the Flag Order
does not require demodulator products to give effect to the broadcast
flag until after the DTV broadcast is complete. The Flag Order does not
regulate the actual transmission of the DTV broadcast. In other words,
the Flag Order imposes regulations on devices that receive
communications after those communications have occurred; it does not
regulate the communications themselves. Because the demodulator
products are not engaged in ``communication by wire or radio'' when
they are subject to regulation under the Flag Order, the Commission
plainly exceeded the scope of its general jurisdictional grant under
Title I in this case.
In seeking to justify its assertion of jurisdiction in the Flag
Order, the Commission relies on the fact that the Communications Act
defines ``radio communication'' and ``wire communication'' to include
not only the ``transmission of . . . writing, signs, signals, pictures,
and sounds'' by aid of wire or radio, but also ``all instrumentalities,
facilities, apparatus, and services (among other things, the receipt,
forwarding, and delivery of communications) incidental to such
transmission.'' 47 U.S.C. Sec. 153(33) (defining ``radio
communication''); id. Sec. 153(52) (defining ``wire communication'').
The Flag Order asserts: ``Based on this language, [the Commission
finds] that television receivers are covered by the statutory
definitions and therefore come within the scope of the Commission's
general authority outlined in [Title I] of the Communications Act.'' 18
F.C.C.R. at 23,563-64. The Commission thus apparently believed that,
given the definitions of ``wire communication'' and ``radio
communication'' in Title I, it could assert jurisdiction over
television receivers even when those receivers were not engaged in
broadcast transmission simply because they are apparatus used for the
receipt of communications. See also FCC Br. at 26. We reject this
position, for it rests on a completely implausible construction of the
Communications Act.
The statute does not give the FCC authority to regulate any
``apparatus'' that is associated with television broadcasts. Rather,
the statutory language cited by the FCC refers only to ``apparatus''
that are ``incidental to . . . transmission.'' In other words, the
language of Sec. 153(33) and (52) plainly does not indicate that
Congress intended for the Commission to have general jurisdiction over
devices that can be used for receipt of wire or radio communication
when those devices are not engaged in the process of radio or wire
transmission.
The language relied upon by the Commission in the statutory
definitions of ``wire communication'' and ``radio communication'' was
part of the original Communications Act of 1934. See Pub. L. No. 73-
416, Sec. 3(a)-(b), 48 Stat. 1064, 1065; see also Southwestern Cable,
392 U.S. at 168 (quoting this language). The Commission acknowledges
that, in the more than 70 years that the Act has been in existence, it
has never previously sought to exercise ancillary jurisdiction over
reception equipment after the transmission of communication is
complete. See Recording of Oral Argument at 34:45-35:23. This is not
surprising, since the Commission's current interpretation of the
statute's definitional language would render step one of the Supreme
Court's two-part test for determining whether a subject is within the
Commission's ancillary jurisdiction essentially meaningless.
We can find nothing in the statute, its legislative history, the
applicable case law, or agency practice indicating that Congress meant
to provide the sweeping authority the FCC now claims over receiver
apparatus. And the agency's strained and implausible interpretations of
the definitional provisions of the Communications Act of 1934 do not
lend credence to its position. As the Supreme Court has reminded us,
Congress ``does not . . . hide elephants in mouseholes.'' Whitman v.
Am. Trucking Ass'n, 531 U.S. 457, 468 (2001). In sum, we hold that, at
most, the Commission only has general authority under Title I to
regulate apparatus used for the receipt of radio or wire communication
while those apparatus are engaged in communication.
Our holding is consistent with the Seventh Circuit's well-reasoned
decision in Illinois Citizens, which concluded that the FCC may not
lawfully exercise jurisdiction over activities that do not constitute
communication by wire or radio. See 467 F.2d at 1399-1400. In that
case, the Illinois Citizens Committee for Broadcasting filed a
complaint with the FCC, alleging that the proposed construction of the
Sears Tower in Chicago ``would throw `multiple ghost images' on
television receivers in many areas of the Greater Chicago Metropolitan
Area.'' Id. at 1398. The petitioners called upon the FCC to take steps
to prevent this interference, including, if necessary, ordering Sears,
Roebuck & Co. to cease construction of the tower until the company had
taken measures to ensure that television viewers would continue to
receive an adequate signal. The Commission denied the requested relief
on the ground that it lacked jurisdiction over the construction of the
Sears Tower, and the Illinois Citizens Committee sought review by the
Seventh Circuit. See id. at 1398-99.
The Illinois Citizens Committee argued that, in light of
Southwestern Cable, the FCC had the power to regulate ``all activities
which `substantially affect communications.''' Id. at 1399. The Seventh
Circuit flatly rejected this argument as unsupported by the
Communications Act or judicial decisions interpreting the Act:
While we appreciate the need for a flexible approach to FCC
jurisdiction, we believe the scope advanced by petitioners is
far too broad. The ``affecting communications'' concept would
result in expanding the FCC's already substantial
responsibilities to include a wide range of activities, whether
or not actually involving the transmission of radio or
television signals much less being remotely electronic in
nature. Nothing before us supports this extension.
Id. at 1400 (footnote omitted).
In Motion Picture Ass'n, this court concluded that the Commission
lacked authority under Title I of the Communications Act to promulgate
regulations that significantly implicated program content. Focusing
specifically on 47 U.S.C. Sec. 151, which is part of Title I and which
the FCC conceded was the only possible source of authority that could
justify its adoption of the video description rules at issue in the
case, we explained:
Under [ Sec. 151], Congress delegated authority to the FCC to
expand radio and wire transmissions, so that they would be
available to all U.S. citizens. Section [151] does not address
the content of the programs with respect to which accessibility
is to be ensured. In other words, the FCC's authority under [
Sec. 151] is broad, but not without limits.
309 F.3d at 804 (full citations omitted) (citing Midwest Video I,
406 U.S. at 667-68, and Southwestern Cable, 392 U.S. at 172). Just as
no provision in Title I addresses program content, no provision in
Title I addresses requirements for demodulator products not engaged in
communication by wire or radio.
In sum, because the rules promulgated by the Flag Order regulate
demodulator products after the transmission of a DTV broadcast is
complete, these regulations exceed the scope of authority Congress
delegated to the FCC. And because the Commission can only issue
regulations on subjects over which it has been delegated authority by
Congress, the rules adopted by the Flag Order are invalid at the
threshold jurisdictional inquiry. As was true in Aid Ass'n for
Lutherans, ``our judgment in this case is the same whether we analyze
the agency's statutory interpretation under Chevron Step One or Step
Two. `In either situation, the agency's interpretation of the statute
is not entitled to deference absent a delegation of authority from
Congress to regulate in the areas at issue.''' 321 F.3d at 1175
(quoting MPAA, 309 F.3d at 801). ``An agency construction of a statute
cannot survive judicial review if a contested regulation reflects an
action that exceeds the agency's authority.'' Id. at 1174. It does not
matter whether the unlawful action arises because the regulations at
issue are ``contrary to clear Congressional intent'' as ascertained
through use of the ``traditional tools of statutory construction,''
Chevron, 467 U.S. at 843 n.9, or ``utterly unreasonable and thus
impermissible.'' Aid Ass'n for Lutherans, 321 F.3d at 1174. The FCC has
no Congressionally delegated authority to regulate receiver apparatus
after a transmission is complete. We therefore hold that the broadcast
flag regulations exceed the agency's delegated authority under the
statute.
3. Subsequent Congressional Legislation
We think that, for the reasons discussed above, the FCC never has
possessed ancillary jurisdiction under the Communications Act of 1934
to regulate consumer electronic devices that can be used for receipt of
wire or radio communication when those devices are not engaged in the
process of radio or wire transmission. Indeed, in the more than 70
years of the Act's existence, the Commission has neither claimed such
authority nor purported to exercise its ancillary jurisdiction in such
a far-reaching way. See Flag Order, 18 F.C.C.R. at 23,566 (``We
recognize that the Commission's assertion of jurisdiction over
manufacturers of equipment in the past has typically been tied to
specific statutory provisions and that this is the first time the
Commission has exercised ancillary jurisdiction over consumer equipment
manufacturers in this manner.'')
The Commission weakly attempts to dismiss this history by
suggesting that ``Congressional admonitions and past Commission
assurances of a narrow exercise of authority over manufacturers (such
as those reflected in the [All Channel Receiver Act] and its
legislative history) are properly limited to the context of those
explicit authorizations. The regulations here do not fall within the
subject matter of those explicit authorizations.'' Id. (footnote
omitted). This cryptic statement surely cannot justify the FCC's
overreaching for regulatory authority that Congress has never granted.
As we held in Aid Ass'n for Lutherans:
In this case, the [agency]'s position seems to be that the
disputed regulations are permissible because the statute does
not expressly foreclose the construction advanced by the
agency. We reject this position as entirely untenable under
well-established case law. See Ry. Labor Executives' Ass'n v.
Nat'l Mediation Bd., 29 F.3d 655, 671 (D.C. Cir. 1994) (en
banc) (``Were courts to presume a delegation of power absent an
express withholding of such power, agencies would enjoy
virtually limitless hegemony, a result plainly out of keeping
with Chevron and quite likely with the Constitution as well.'')
(emphasis in original); see also Halverson v. Slater, 129 F.3d
180, 187 (D.C. Cir. 1997) (quoting Ry. Labor Executives, 29
F.3d at 671); Oil, Chem. & Atomic Workers Int'l Union v. NLRB,
46 F.3d 82, 90 (D.C. Cir. 1995) (same); Ethyl Corp. v. EPA, 51
F.3d 1053, 1060 (D.C. Cir. 1995) (``We refuse . . . to presume
a delegation of power merely because Congress has not expressly
withheld such power.''); Natural Res. Def. Council v. Reilly,
983 F.2d 259, 266 (D.C. Cir. 1993) (``[I]t is only legislative
intent to delegate such authority that entitles an agency to
advance its own statutory construction for review under the
deferential second prong of Chevron.'') (alteration in
original) (quoting Kansas City v. Dep't of Hous. & Urban Dev.,
923 F.2d 188, 191-92 (D.C. Cir. 1991)).
321 F.3d at 1174-75.
It is enough here for us to find that the Communications Act of
1934 does not indicate a legislative intent to delegate authority to
the Commission to regulate consumer electronic devices that can be used
for receipt of wire or radio communication when those devices are not
engaged in the process of radio or wire transmission. That is the end
of the matter. It turns out, however, that subsequent legislation
enacted by Congress confirms the limited scope of the agency's
ancillary jurisdiction and makes it clear that the broadcast flag
regulations exceed the agency's delegated authority under the statute.
The first such Congressional enactment of note is the All Channel
Receiver Act (``ACRA''), Pub. L. No. 87-529, 76 Stat. 150 (codified at
47 U.S.C. Sec. Sec. (s), 330(a)). Enacted in 1962, the ACRA granted the
Commission authority to require that televisions sold in interstate
commerce are ``capable of adequately receiving all frequencies
allocated by the Commission to television broadcasting.'' 47 U.S.C.
Sec. 303(s). See Elec. Indus. Ass'n Consumer Elecs. Groups v. FCC, 636
F.2d 689 (D.C. Cir. 1980) (``EIA'') (offering an extensive review of
the legislative history of the ACRA). The original version of the All
Channel Receiver Act ``would have given the Commission the authority to
set `minimum performance standards' for all television receivers
shipped in interstate commerce.'' Id. at 694 (quoting S. REP. NO. 87-
1526, at 7 (1962)). However, in response to criticism about giving the
FCC such broad authority over television receiver design, the ``minimum
performance standards'' language was deleted before the bill passed the
House. The version that passed the House would have instead given the
Commission the authority to require that television sets ``be capable
of receiving all frequencies allocated by the Commission to television
broadcasting.'' Id. (quoting H.R. REP. NO. 87-1559, at 1 (1962)). FCC
Chairman Newton Minnow then wrote the chair of the Senate Subcommittee
on Communications expressing his concern that under the House version,
``we may be powerless to prevent the shipment . . . of all-channel sets
having only the barest capability for receiving UHF signals, and which
therefore would not permit satisfactory and usable reception of such
signals in a great many instances.'' Id. at 695 (alteration in
original) (quoting the letter). The Senate amended the bill, and the
version that was ultimately enacted allowed the FCC to require
television receivers sold in interstate commerce to be ``capable of
adequately receiving all frequencies allocated by the Commission to
television broadcasting.'' 47 U.S.C. Sec. 303(s) (emphasis added).
It is clear, however, that, in enacting the ACRA, Congress did not
``give the Commission unbridled authority'' to regulate receiving
apparatus. EIA, 636 F.2d at 696. This was confirmed when the Commission
attempted to set a standard requiring television manufacturers to take
steps to improve the quality of UHF reception beyond what could be
attained with then-existing technology. On review, this court ruled
that the Commission overstepped its delegated authority and vacated the
Commission's action. See id. at 698. The court held that, while the
ACRA granted the Commission ``limited . . . authority to ensur[e] that
all sets `be capable of adequately receiving' all television
frequencies,'' Congress had intentionally restricted this
jurisdictional grant to preclude wide-ranging FCC ``receiver design
regulation.'' Id. at 695, 696.
The All Channel Receiver Act's limited and explicit grant of
authority to the Commission over receiver equipment clearly indicates
that neither Congress nor the Commission assumed that the agency could
find this authority in its ancillary jurisdiction. It also confirms the
Commission's absence of authority to regulate receiver apparatus as
proposed by the broadcast flag regulations in the Flag Order. If the
Commission had no ancillary jurisdiction to regulate the quality of UHF
reception, it cannot be doubted that the agency has no ancillary
authority to regulate consumer electronic devices that can be used for
receipt of wire or radio communication when those devices are not
engaged in the process of radio or wire transmission.
A second Congressional enactment that confirms the limited scope of
the agency's ancillary jurisdiction is the Communications Amendments
Act of 1982, Pub. L. No. 97-259, Sec. 108, 96 Stat. 1087, 1091-92. As
part of the Communications Amendments Act of 1982, Congress authorized
the Commission to impose performance standards on household consumer
electronics to ensure that they can withstand radio interference. See
47 U.S.C. Sec. 302a(a). The legislative history of 47 U.S.C. Sec. 302a
demonstrates that this enactment was intended by Congress to give the
Commission authority it did not previously possess over receiver
equipment. Specifically, the Conference Report stated that, because
industry attempts to solve the interference problem voluntarily had not
always been successful, ``the Conferees believe that Commission
authority to impose appropriate regulations on home electronic
equipment and systems is now necessary to insure that consumers' home
electronic equipment and systems will not be subject to malfunction due
to [radio frequency interference].'' H.R. CONF. REP. NO. 97-765, at 32
(1982) (emphasis added).
The Commission argues that the legislative history of Sec. 302a
indicates that the legislation's purpose was to preclude state and
local regulation of radio interference. However, it is not until
several paragraphs after the portion of the Conference Report quoted
above that the Report noted that the legislation was ``further intended
to clarify the reservation of exclusive jurisdiction to the Federal
Communications Commission over matters involving [radio frequency
interference].'' Id. at 33 (emphasis added). Congress's principal
purpose in enacting 47 U.S.C. Sec. 302a was clearly to expand the
Commission's authority beyond the scope of its then-existing
jurisdiction, which is inconsistent with the FCC's current view that it
always has had sweeping jurisdiction over receiver apparatus under
Title I of the Communications Act.
III. Conclusion
The FCC argues that the Commission has ``discretion'' to exercise
``broad authority'' over equipment used in connection with radio and
wire transmissions, ``when the need arises, even if it has not
previously regulated in a particular area.'' FCC Br. at 17. This is an
extraordinary proposition. ``The [Commission's] position in this case
amounts to the bare suggestion that it possesses plenary authority to
act within a given area simply because Congress has endowed it with
some authority to act in that area. We categorically reject that
suggestion. Agencies owe their capacity to act to the delegation of
authority'' from Congress. See Ry. Labor Executives' Ass'n, 29 F.3d at
670. The FCC, like other Federal agencies, ``literally has no power to
act . . . unless and until Congress confers power upon it.'' La. Pub.
Serv. Comm'n v. FCC, 476 U.S. 355, 374 (1986). In this case, all
relevant materials concerning the FCC's jurisdiction--including the
words of the Communications Act of 1934, its legislative history,
subsequent legislation, relevant case law, and Commission practice--
confirm that the FCC has no authority to regulate consumer electronic
devices that can be used for receipt of wire or radio communication
when those devices are not engaged in the process of radio or wire
transmission.
Because the Commission exceeded the scope of its delegated
authority, we grant the petition for review, and reverse and vacate the
Flag Order insofar as it requires demodulator products manufactured on
or after July 1, 2005 to recognize and give effect to the broadcast
flag.
So ordered.