[Senate Hearing 109-1041]
[From the U.S. Government Publishing Office]
S. Hrg. 109-1041
PROTECTING COPYRIGHT AND INNOVATION IN A POST-GROKSTER WORLD
=======================================================================
HEARING
before the
COMMITTEE ON THE JUDICIARY
UNITED STATES SENATE
ONE HUNDRED NINTH CONGRESS
FIRST SESSION
__________
SEPTEMBER 28, 2005
__________
Serial No. J-109-40
__________
Printed for the use of the Committee on the Judiciary
----------
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Washington, DC 20402-0001
COMMITTEE ON THE JUDICIARY
ARLEN SPECTER, Pennsylvania, Chairman
ORRIN G. HATCH, Utah PATRICK J. LEAHY, Vermont
CHARLES E. GRASSLEY, Iowa EDWARD M. KENNEDY, Massachusetts
JON KYL, Arizona JOSEPH R. BIDEN, Jr., Delaware
MIKE DeWINE, Ohio HERBERT KOHL, Wisconsin
JEFF SESSIONS, Alabama DIANNE FEINSTEIN, California
LINDSEY O. GRAHAM, South Carolina RUSSELL D. FEINGOLD, Wisconsin
JOHN CORNYN, Texas CHARLES E. SCHUMER, New York
SAM BROWNBACK, Kansas RICHARD J. DURBIN, Illinois
TOM COBURN, Oklahoma
David Brog, Staff Director
Michael O'Neill, Chief Counsel
Bruce A. Cohen, Democratic Chief Counsel and Staff Director
C O N T E N T S
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STATEMENTS OF COMMITTEE MEMBERS
Page
Cornyn, Hon. John, a U.S. Senator from the State of Texas........ 4
prepared statement........................................... 88
Feinstein, Hon. Dianne, a U.S. Senator from the State of
California..................................................... 13
prepared statement........................................... 90
Leahy, Hon. Patrick J., a U.S. Senator from the State of Vermont. 2
prepared statement........................................... 93
Specter, Hon. Arlen, a U.S. Senator from the State of
Pennsylvania................................................... 1
WITNESSES
Aydar, Ali, Chief Operating Officer, SNOCAP, Inc., San Francisco,
California..................................................... 24
Lemley, Mark A., William H. Neukom Professor of Law, Stanford
University Law School, and Director, Stanford Program in Law,
Science and Technology, Stanford, California................... 22
Peters, Marybeth, Register of Copyrights, Library of Congress,
U.S. Copyright Office, Washington, D.C......................... 5
Roe, Marty, Lead Singer, Diamond Rio, Nashville, Tennessee....... 16
Shapiro, Gary J., President and Chief Executive Officer, Consumer
Electronics Association, Arlington, Virginia................... 20
Sherman, Cary, President, Recording Industry Association of
America, Washington, D.C....................................... 18
Yagan, Sam, President, MetaMachine, Inc., New York, New York..... 25
Yang, Debra Wong, United States Attorney, Central District of
California, and Chair, Attorney General's Advisory Committee on
Cyber/Intellectual Property, Los Angeles, California........... 7
QUESTIONS AND ANSWERS
Responses of Ali Aydar to questions submitted by Senator Specter. 33
Responses of Mark A. Lemley to questions submitted by Senators
Specter, Leahy and Kennedy..................................... 34
Responses of Marybeth Peters to questions submitted by Senators
Specter and Leahy.............................................. 38
Responses of Gary Shapiro to questions submitted by Senator
Specter........................................................ 46
Responses of Cary Sherman to questions submitted by Senator
Specter and Leahy.............................................. 48
Responses of Sam Yagan to questions submitted by Senator Specter
and Leahy...................................................... 53
Responses of Debra Wong Yang to questions submitted by Senator
Specter and Leahy.............................................. 64
Questions submitted by Senator Leahy to Gary J. Shapiro (Note:
Responses to the questions were not available at the time of
printing.)..................................................... 77
SUBMISSIONS FOR THE RECORD
Aydar, Ali, Chief Operating Officer, SNOCAP, Inc., San Francisco,
California, statement.......................................... 78
Center for Democracy and Technology, Washington, D.C., statement. 83
Lemley, Mark A., William H. Neukom Professor of Law, Stanford
University Law School, and Director, Stanford Program in Law,
Science and Technology, Stanford, California, statement........ 95
Peters, Marybeth, Register of Copyrights, Library of Congress,
U.S. Copyright Office, Washington, D.C., statement............. 101
Roe, Marty, Lead Singer, Diamond Rio, Nashville, Tennessee,
statement...................................................... 122
Scudieri, Scooter, Artist, Internet's First Rock Star, Shepherds
Town, West Virginia, statement................................. 125
Shapiro, Gary J., President and Chief Executive Officer, Consumer
Electronics Association, Arlington, Virginia, statement........ 127
Sherman, Cary, President, Recording Industry Association of
America, Washington, D.C., statement........................... 141
Yagan, Sam, President, MetaMachine, Inc., New York, New York,
statement...................................................... 147
Yang, Debra Wong, United States Attorney, Central District of
California, and Chair, Attorney General's Advisory Committee on
Cyber/Intellectual Property, Los Angeles, California, statement 157
PROTECTING COPYRIGHT AND INNOVATION IN A POST-GROKSTER WORLD
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WEDNESDAY, SEPTEMBER 28, 2005
United States Senate,
Committee on the Judiciary,
Washington, DC.
The Committee met, pursuant to notice, at 9:30 a.m., in
room SD-226, Dirksen Senate Office Building, Hon. Arlen
Specter, Chairman of the Committee, presiding.
Present: Senators Specter, Cornyn, Leahy and Feinstein.
OPENING STATEMENT OF HON. ARLEN SPECTER, A U.S SENATOR FROM THE
STATE OF PENNSYLVANIA
Chairman Specter. With all this quiet in the Judiciary
Committee hearing room, without even the pounding of the gavel,
it must signify that you are ready to begin this hearing. I
haven't heard such an orderly assemblage in the 25 years I have
been here before the Chairman signifies the start, but you saw
it was 9:30 and recognized that, by precedent, this hearing is
underway.
Our hearing today focuses on the recent Supreme Court
decision in the case of MGM v. Grokster, and as articulated by
the Court, the subject is the, quote, ``tension between the
competing values of supporting creativity through copyright
protection and promoting technological innovation by limiting
infringement liability.''
The subject of copyright infringement and the promotion of
creative and artistic endeavors was the focus of the Founding
Fathers in Article 1, section 8, of the Constitution, where
Congress was explicitly granted the power to regulate
copyrights and patents for the promotion of exclusive rights to
authors' creative activities on literary, dramatic, musical,
artistic or intellectual works.
The Congress has not acted on the issue of the Internet and
copyright infringement and secondary liability, but has really
left it up to the court, which, candidly, is a major concern of
mine. Congress has much more capabilities to deal in this field
than does the court. We have the capacity to hold hearings, to
make fact-findings, to listen to the competing complex issues
on all sides, contrasted with the more limited approach of the
court in the judicial proceedings.
But so often, as is the case, the Congress abdicates or
defers to the court. We had the hearings on Guantanamo several
weeks ago where, notwithstanding the express Congressional
responsibility, nothing was done and the court came down with a
series of opinions in June of 2004 and we are really on the
sidelines, although we ought to be front and center.
So this is a very important hearing, and in the absence of
a constitutional issue, which we really don't have, Congress
really ought to be making the judgment here. It goes without
saying that we are very, very busy on many, many items. I don't
have to enumerate them for this erudite group, but that is not
a sufficient explanation as to why we await the judicial
decisions.
I can recall back in the early 1980's on the VCRs, before
we had the decision in Sony v. Universal, giants of the
industry on both sides were camping outside of all the
Judiciary Committee doors. I had a small hideaway on the west
wing and had the multi-zillionaires seated on the steps outside
the hideaway.
I am filibustering, Patrick.
Senator Leahy. I appreciate that. You know how.
[Laughter.]
Chairman Specter. Only in hearings, not in confirmation
proceedings.
[Laughter.]
Chairman Specter. Commenting back about the days of the
Betamax, and I am sure you will remember how much in demand
Judiciary Committee members were, with all the moguls of the
industries competing. I had a small hideaway. Senator Leahy had
a lot more seniority, so he was in some lofty perch somewhere.
But they were sitting on the steps and I was a newly elected
Senator and was sort of luxuriating in the power. All these big
wheels were seated on the steps waiting to talk to me, and I
didn't know anything about this subject anyway.
But we didn't act at that time and the Supreme Court came
down with the decision, and now we have in the Grokster case
the finding of secondary liability where there is a
distribution, quote, ``with the objective for promoting its use
to infringe copyright, as shown by the clear expression or
other affirmative steps taken to foster infringement,'' and
that establishes the liability.
But, as usual, the concurring opinions throw some doubt as
to what the standards are. Justice Breyer's definition of,
quote, ``substantial non-infringing uses,'' close quote, is
measured by using a prospective analysis of future non-
infringing uses of the product rather than a pure comparison of
current infringing and non-infringing uses. Justice Ginsburg
has a narrower view, saying substantial would depend on the
consideration of the actual relative uses to come to an
estimate of the infringing and non-infringing uses of the
product.
I am hopeful that a new Chief Justice will stop the
proliferation of concurring opinions so we have a better idea
as to what the law is, but there is another illustration of the
important role Congress could play.
I limit my 5 minutes, Senator Leahy, to the time when you
arrived. So the red light has been on, unusually, for a minute
and 14 seconds, and now I yield to you.
STATEMENT OF HON. PATRICK J. LEAHY, A U.S. SENATOR FROM THE
STATE OF VERMONT
Senator Leahy. Mr. Chairman, you can take all the time you
want. You know that.
In talking about Betamax, I do recall that time, and Ms.
Peters does very well, I am sure. She is our go-to expert up
here. You know, there was so much of the debate that went on at
that time. There was also the debate--and the Senator from
Texas may recall reading about this, too--the movie industry
was very upset about the ability to tape movies and said you
have to do something to stop this kind of thing.
Well, of course, there is not a single movie that is made
today without planning what they can do--probably not so much
VHS tapes anymore; it is all DVD--what can they do in after-
sales. In fact, many movies that are kind of clunkers at the
box office make more in DVDs. I made the mistake of renting one
the other night. God, it stunk, and I won't mention which one
it was.
Peer-to-peer technology, of course, revolutionized the way
we share all sorts of information. But, like any technology, it
can be abused, and unfortunately it has been. And as with any
technology, those who abuse it effectively prevent the
technology from reaching its highest potential.
More than 5 years ago, we held our first hearing on peer-
to-peer, beginning an important dialog with many of the people
in the community about this. I have long been a champion of
innovation. I have long deplored the fact that a few rogue
peer-to-peer companies have hijacked the enormous potential of
this technology.
I have high hopes as someone who loves music, as someone
who is fascinated by technology and as someone who represents a
State full of music and technology fans, that the emerging
market for legitimate online music sales will prosper. I hope
it does so quickly.
If you look in my library, it goes from Puccini to the
Grateful Dead. It is eclectic in its ability to pick up
anything I want anywhere. But my concern is that unless the
problems of piracy and privacy are addressed, peer-to-peer will
never realize its enormous potential to build online
communities, to enhance network learning, and to make
unprecedented amounts of material, both educational and
entertaining--it is not just entertaining, but it is the
educational ones--available worldwide.
I remain concerned about the privacy and security issues.
Since the Supreme Court's decision in the Grokster case, the
industry players have certainly had incentive to find ways to
provide online music without promoting the theft of music
online.
Last June, as the Chairman has mentioned, the Supreme Court
unanimously held that someone who distributes a device for the
purpose of promoting its use for infringing copyrights will be
just as liable for the infringement as the third parties who do
the actual, direct infringing. They emphasized that Grokster's
unlawful purpose was abundantly obvious.
We should all remember that it is people using technology
who infringe copyrights. Technology itself is not the problem,
and neither is technology alone the solution. Our goal has to
be the responsible use of technology and the respectful
treatment of intellectual property rights.
Our technologies may evolve, but the central principle of
respect for rights and promotion for innovation has to remain
constant. The balance between these is critical to maintaining
our Nation's status as the world leader in intellectual
property.
We have all heard a great deal about peer-to-peer networks.
Now, we are hearing more about Web casting and satellite radio.
We want consumers to enjoy the great diversity in music
available. We just have to ensure they do it legally.
So I thank the witnesses who are here to herald this
beginning in the world of online music. The potential is
fascinating. We are not Luddites on this Committee. We want it
to expand, but we also--and I can't emphasize enough I want to
protect people's legitimate rights. Those who produce the
material and have done the work and the innovation, oftentimes
genius, deserve to have their rights protected.
[The prepared statement of Senator Leahy appears as a
submission for the record.]
Thank you, Mr. Chairman.
Chairman Specter. Thank you very much, Senator Leahy.
Senator Cornyn, would you care to make an opening comment?
STATEMENT OF HON. JOHN CORNYN, A U.S. SENATOR FROM THE STATE OF
TEXAS
Senator Cornyn. Thank you, Mr. Chairman. I will be brief. I
want to express my gratitude to you for scheduling this
important hearing. Like the hearing that you held last week
regarding the decision of the Supreme Court in Kelo v. City of
New London, this hearing focuses on the important issue of
property rights, only this time the property right doesn't
involve a home, but rather the property interests of artists
and those who invested so much money to produce their artistic
works so that we can all enjoy them.
One of the good things about this hearing is I learned that
Senator Leahy, our distinguished Ranking Member, listens to the
Grateful Dead. We learn more everyday about each other in this
body.
Senator Leahy. I might say I think I know the lyrics of
almost all of the songs, and I have got to tell you at some of
the concerts the lyrics tended to change, depending upon the
mood of the Dead.
Senator Cornyn. I see the Ranking Member in a different
light now than I did before.
[Laughter.]
Senator Cornyn. I appreciate him even more.
Unfortunately, as you know, Mr. Chairman and Senator Leahy,
everyday literally millions of dollars in copyrighted materials
are stolen online. This theft is no less wrong because it
happens in cyberspace. Rather, it is putting thousands of
Americans out of work and damaging one of the most important
and vibrant sectors of the United States economy.
As the Court said in the Grokster case, because well over
100 million copies of the software in question are known to
have been downloaded and billions of files are shared across
networks each month, the probable scope of copyright
infringement is staggering. Grokster and StreamCast are not,
however, merely passive recipients of information about
infringing use.
This is an issue that really we have addressed before,
similar issues, on a bipartisan basis, and I am sure we will
continue to do that in this difficult area to try to strike the
right balance. Senator Feinstein and I were proud to cosponsor
the Artists Rights and Theft Prevention Act, which we passed in
the 108th Congress, which had to do with piracy of films,
movies and other copyrighted materials even before copyright
owners have had the opportunity to market their products. With
the help of Senators Hatch and Leahy, that bill became law
earlier this year as part of the Family Entertainment and
Copyright Act. I am also pleased to be working with Senator
Leahy, our Ranking Member, and other colleagues on additional
legislation that will protect against rampant counterfeiting.
In closing, Mr. Chairman, let me just say that as we
consider additional legislative measures and as we observe the
implications of the Court's ruling in MGM v. Grokster, we must
ensure that the advent of the Internet and the expansion of
innovative technologies do not set aside the basic principles
that theft is wrong and that facilitation of theft is equally
wrong.
Thank you, Mr. Chairman.
[The prepared statement of Senator Cornyn appears as a
submission for the record.]
Chairman Specter. Thank you very much, Senator Cornyn.
We now turn to the United States Register of Copyrights,
Marybeth Peters, who has held that position since 1994, and for
11 years prior was the policy planning adviser to the Register.
So that is quite a distinguished tenure in that office.
She has been a lecturer at Catholic University and an
adjunct professor of copyright law at the University of Miami
School of Law and Georgetown Law. He has her undergraduate
degree from Rhode Island College and a law degree with honors
from G.W.
Thank you for joining us, Ms. Peters, and the floor is
yours.
STATEMENT OF MARYBETH PETERS, REGISTER OF COPYRIGHTS, LIBRARY
OF CONGRESS, U.S. COPYRIGHT OFFICE, WASHINGTON, D.C.
Ms. Peters. Chairman Specter, Senator Leahy, members of the
Committee, thank you for the opportunity to testify on
protecting copyright and innovation in a post-Grokster world.
The recent ruling in the Grokster case, one of the most
significant developments in copyright law in the past 20 years,
clarified that those who offer products and services in a way
that induces others to engage in copyright infringement can be
held secondarily liable for that infringement. That
clarification appears to have encouraged productive
negotiations and agreements within the music industry and
ultimately should make it easier to legitimately obtain music
online.
The Grokster ruling has also raised the public
consciousness as to the legal status of unauthorized peer-to-
peer file-sharing of copyrighted works. In Grokster, the Court
made clear that regardless of whether a product is capable of
substantial, non-infringing use, one who offers such as product
with an intent to induce to use it to infringe copyrights will
be liable for the resulting infringement.
As the Court put it, one who distributes a device with the
objective of promoting its use to infringe copyright, as shown
by clear expression or other affirmative steps taken to foster
infringement, is liable for resulting acts of infringement by
third parties. The Court made this ruling in a specific factual
and legal context that is worth noting.
Ever since the rise of Napster in the late 1990s, creators
and performers of music, motion pictures and other creative
works have faced an unprecedented threat to their livelihoods
as a series of so-called file-sharing services have risen to
create and serve a market from massive copyright infringement.
Millions and millions of people flocked to these peer-to-peer
services to get free music, free movies and free other creative
works, apparently without giving a thought to the fact that not
only were they engaging in copyright infringement, but they
were also undermining the very incentive for authors and
artists to create the works that they were so eager to obtain.
Grokster and StreamCast clearly knew what their services
were being used for, and as the litigation revealed, they
consciously set out to exploit the market for infringement and
to promote the use of their software for that purpose. But they
were able to assert a plausible legal defense by relying on the
Sony case involving the sale of VCRs, which was decided long
before the Internet made it possible to engage in massive,
instantaneous and virtually cost-free infringement.
In Sony, the Court held that there could be no liability
for contributory infringement based solely on the distribution
of a product that is capable of commercially significant non-
infringing uses. The peer-to-peer services, supported by others
in the consumer electronics and technology industries, asserted
all the way to the Supreme Court that because peer-to-peer
software is capable of substantial non-infringing uses, and
because even those particular peer-to-peer services could be
used for the reproduction and distribution of works in the
public domain or of copyrighted works with the permission of
the copyright owner, they were shielded from liability under
the Sony doctrine.
If their arguments had prevailed, the continued existence
of our creative industries, as well as our copyright law, would
have faced a potentially mortal threat. Fortunately, the Court
rejected such a drastic reading of Sony and made clear that
whether or not a product has substantial non-infringing uses,
one who distributes it with the intent that it be used to
infringe and who takes steps to promote its use to infringe
will be liable when infringement takes place.
Last year, Senators Hatch and Leahy introduced the Induce
Act which would have made it unlawful to intentionally induce
an act of copyright infringement. The Supreme Court's ruling
comes close to accomplishing the intent of that Act.
It may be that in a few years either copyright owners or
technology providers, or both, will conclude that Grokster did
not achieve the right balance or that further clarification of
the Sony rule is necessary. But we need to give lower courts
some time to digest this ruling and give the affected parties
time to see how clearly it offers guidance for both copyright
owners and technology providers, and how good that guidance
turns out to be. At this time, it is premature to consider the
need for any legislation on secondary liability.
You should, however, now reform Section 115 of the
Copyright Act, the compulsory license for reproducing and
distributing phonorecords of musical works. Grokster gives
copyright owners and legitimate music services a useful tool in
the fight against peer-to-peer piracy, but that battle will not
be won unless consumers are able to find the music they want
online from legitimate services that offer convenience,
security and reasonable prices. Section 115 is out of date and
little headway has been made during the past 2 years of
discussions about reform. Legislative action is needed now.
To conclude, first, I am hopeful that Grokster represents
the turning point where legitimate online delivery services can
supplant the illegal services that have dominated the online
music scene. Second, I urge you to make reform of Section 115
of the copyright law a legislative priority for the 109th
Congress, and I look forward to working with you to help that
come about.
Thank you.
[The prepared statement of Ms. Peters appears as a
submission for the record.]
Chairman Specter. Thank you very much, Ms. Peters.
Our next witness is the United States Attorney for the
Central District of California, Debra Wong Yang, the first
Asian-American woman to serve as a United States Attorney, and
has the largest office outside of Washington, D.C. She was
appointed by the Attorney General to Chair the Attorney
General's Advisory Committee on Cyber/Intellectual Property and
the Intellectual Property Task Force. She had been a California
State judge and an adjunct professor at USC. Her law degree is
from Boston College.
Thank you very much for coming in today, Ms. Yang, and we
look forward to your testimony.
STATEMENT OF HON. DEBRA WONG YANG, UNITED STATES ATTORNEY,
CENTRAL DISTRICT OF CALIFORNIA, AND CHAIR, ATTORNEY GENERAL'S
ADVISORY COMMITTEE ON CYBER/INTELLECTUAL PROPERTY, LOS ANGELES,
CALIFORNIA
Ms. Yang. Thank you, Chairman Specter, Ranking Member
Leahy, Senator Feinstein, Senator Cornyn, Good morning. Thank
you for the opportunity to discuss the Supreme Court's recent
decision in Grokster, and more broadly to talk about the
Justice Department's efforts in protecting intellectual
property.
Until relatively recently, protection of intellectual
property has largely been a civil matter. Congress has made
civil remedies available and left it to private parties to sue
one another for damages or equitable relief. Grokster involves
the reach of civil liability for copyright. There, the Court
held that a person could be secondarily liable for a third
person's copyright infringement, but only if he acted with the
intent to promote the unlawful infringement. What I would like
to discuss, however, is what the Justice Department is doing to
enforce the criminal laws protecting intellectual property.
Congress has created criminal penalties only recently.
Copyright and trademark infringement did not become felonies
until the 1980s, and theft of trade secrets was not criminal
until 1996. Patent infringement to this day is protected only
by civil liability. The resort to criminal sanctions has
paralleled the growing importance of intellectual property to
our economy.
In our mission to protect intellectual property, the
Justice Department has focused on three goals. First, we have
been using the tools that Congress has provided to halt the
supply of illegally obtained intellectual property. Second, we
have attempted to diminish the demand for pirated and stolen
intellectual property through educational and outreach
programs. And, lastly, we have trained and rely upon a group of
prosecutors who specialize in cyber and intellectual property
crimes.
In stemming the supply, we have investigated and prosecuted
the initial theft of intellectual property assets, as well as
their subsequent distribution. For example, we have identified
three ways in which movies not yet available in DVD format are
obtained. They are stolen from post-production facilities, they
are handed off by persons who screen movies for the Academy
Awards, or they are taped by camcorders. We have aggressively
prosecuted criminals who engage in all of these acts.
Just this year, Congress substantially aided our ability to
stop the supply of so-called pre-release movies by elevating
the acts of uploading and of camcording from misdemeanors to
felonies. U.S. Attorneys' offices across the Nation have
already started to use these new statutes.
We have also attacked the distribution networks used by
those who steal and pirate intellectual property. For those who
distribute using the Internet, we use the Digital Millennium
Copyright Act to prosecute individuals who dismantle the
copyright protection attached to intellectual property assets.
We have also conducted several long-term investigations
aimed at infiltrating and taking down groups that share pirated
software and movies over the Internet. For example, earlier
this year we had Operation Site Down. The Department of Justice
took aim at a so-called warez group that operated a centralized
data base containing more than $50 million in illegally copied
intellectual property assets.
We have also started to investigate and prosecute more
decentralized pirating organizations that use the peer-to-peer
networks to store and distribute illegally obtained
intellectual property. I have outlined several of these
examples in my written submission to this Committee.
We have also targeted groups that distribute intellectual
property in the real world by making hard copies of DVDs, CDs
and software, and selling those items at swap meets and on
street corners across the United States. Last year, for
instance, U.S. Attorneys' offices in California and the State
of Washington completed Operation Marauder and charged 12
people with copyright and trademark violations based on their
mass production and distribution of illegal software in several
different States in one of the largest seizures of counterfeit
software in United States history.
In addition to these prosecutions, the Department has
contributed to the administration's STOP program, which stands
for Strategy Targeting Organized Piracy. Working with the White
House, the Department of State and other departments within the
Government, the Justice Department has met with representatives
from other countries to halt the influx of pirated items into
the United States.
In addition to working to halt the supply, we have also
devoted substantial time and effort to diminishing the demand
for pirated intellectual property. Over the past year, we have
hosted several different outreach programs aimed at high school
students to educate them about why they should not download
illegally obtained music, games and movies. We will continue to
work on changing the attitudes about piracy through our
extensive educational efforts.
The Department's efforts in halting the supply and demand
for illegally pirated goods have been aided in large part by
the Department's commitment to developing specialized
prosecutors. The Department is now home to a 35-person attorney
unit called the Computer Crime and Intellectual Property
Section, known as CCIPS here at Main Justice, and have
specialized units known as CHIP units, which stand for Computer
Hacking and Intellectual Property units, that prosecute cyber
and intellectual property crimes in 18 United States Attorneys'
offices, as well as one CHIP prosecutor in each of the
remaining U.S. Attorneys' offices.
Last year, then-Attorney General Ashcroft commissioned an
Intellectual Property Task Force to conduct a comprehensive 6-
month review of the Department's efforts to protect
intellectual property. In October of last year, the task force
published its report, with several concrete proposals to
increase the Department's effectiveness in prosecuting these
types of crimes.
Attorney General Alberto Gonzales has reaffirmed the
Department's commitment to these issues when he recommissioned
the task force to implement the recommendations. The Department
has already put several of these recommendations into practice,
which are set forth also in my written testimony.
Finally, Attorney General Gonzales recently created a
subcommittee of United States Attorneys to examine what the
Department can do to improve its prosecutorial efforts in
protecting intellectual property. I have been asked to chair
this subcommittee. Our subcommittee is just beginning its work.
I am grateful for the opportunity to address this
cCommittee and I am hopeful that today marks the beginning of a
fruitful dialog between our new Committee and Congress as to
how to best combat the misuse of our Nation's intellectual
capital.
Thank you, and I would welcome any questions.
[The prepared statement of Ms. Yang appears as a submission
for the record.]
Chairman Specter. Thank you very much, Ms. Yang.
Without objection, Senator Cornyn's statement will be made
a part of the record, as will all other statements submitted,
including Senator Feinstein's, Senator Leahy's, mine, and all
of the witnesses'. Their statements will be made a part of the
record.
Ms. Peters, you have been in the Register's office now for
some 22 years. We would be interested in your views as to
whether the definition of secondary liability and
interpretation of the copyright laws generally might better be
the function of Congressional hearings and legislation than
Supreme Court decisions. What do you think?
Ms. Peters. Having had a good Supreme Court decision
recently--
Chairman Specter. How do you tell whether it is good or
not?
Ms. Peters. I know, I know. In this case, basically finding
that there was liability was a good decision, and finding that
those who consciously induce those others to infringe should be
liable is a good result.
Chairman Specter. OK, so it was a good decision. Could
Congress give you a better one? You know, we don't have
concurring opinions when we legislate.
Ms. Peters. I know, and we actually favor one of the
concurring opinions over the other. But as I mentioned,
Senators Leahy and Hatch last year did introduce the Induce
Act, and if you look at the provisions in their Act and you
look at what the Supreme Court did, they are remarkably
similar.
Chairman Specter. So the Court just copied Justice Leahy
and Justice Hatch?
[Laughter.]
Ms. Peters. Well, in many ways it is--I will use the words
``remarkably similar.''
Chairman Specter. You know, they haven't even been
confirmed.
[Laughter.]
Senator Leahy. And probably never could be.
Ms. Peters. I still believe that the common law system of
secondary liability, in general, has served copyright rather
well. And it may be that legislation should be enacted, but my
own preference would be to see how courts deal with this at
this point in time, and that could better inform any
legislative fix because ultimately what you are looking at is
the exact same thing that the Supreme Court did.
Chairman Specter. Well, I can understand your saying we
have a Supreme Court decision and let's see how it works out
now. But institutionally, isn't it really more of a
Congressional function than a judicial function?
Ms. Peters. I actually believe it is both. Because the
Copyright Office is totally governed by--
Chairman Specter. It is both, exactly the same, tied, not
more one than the other?
Ms. Peters. Certainly, if there is legislation that is a
clear intent of what the Constitution intended with regard to
the Constitution gives the power to Congress to determine the
scope of copyright protection. But that is not totally
exclusive, and even when Congress acts, the courts in a common
law system interpret that legislation. So it always is kind of
back and forth between the Congress and the courts, each one
basically supplementing the other in various situations.
Chairman Specter. Ms. Yang, in terms of the volume of the
piracy and the losses, how would you compare the copying of
cassette tapes and movie tapes, which had been the principal
lines of infringement in the past, with the infringement
available now with the technological advances and specifically
the Internet? Is it a great deal more now than before?
Ms. Yang. I would say so, Senator. With respect to the
volume, because of the availability and the access of sharing
on an Internet site, a warez site or on a peer-to-peer level,
it is astronomical as far as how much can get out there and how
quickly it can be done.
There is one small distinction, though. With respect to the
hard goods, the one difference is you actually exchange cash.
So there is somebody who is out there who is taking monies in
when it comes to hard goods. It is much more difficult for us
to quantify what that loss would be in sort of the peer-to-peer
or the Internet situation.
Chairman Specter. Ms. Yang, we have the concurring opinions
which are present in the Grokster case. Would it be important
for Congress to pick up at least the issues raised in those two
concurring opinions and consider them and to legislate in that
area so the district courts know what the law is and won't go
back and forth like a tennis ball between the concurring
opinions?
Ms. Yang. First, Senator, I would like to make the
distinction that Grokster relates solely to civil liabilities
and civil issues, and I am here to sort of address the criminal
aspects. But anytime you have an opinion where there are, I
guess, questions left for litigants and parties to have to
muddle through, it is always helpful to have legislation in
that regard, and especially in this particular area as we
course through rapidly changing times.
Chairman Specter. My red light went on in the middle of
your answer, so I yield now to my distinguished colleague,
Senator Leahy.
Senator Leahy. Thank you, Mr. Chairman.
Ms. Wong Yang, I am glad to have you here. Ms. Peters, of
course, probably has the record of having appeared before this
Committee more than virtually anybody else and, of course, has
testified on this subject before.
Could I ask you--I understand the various parties in the
music industry have been negotiating among themselves. Have you
taken part in those discussions?
Ms. Peters. We took part in the summer of 2004 and reported
to the House subcommittee on the results of those meetings. We
certainly have been aware of the discussions between the
private parties, and I did actually testify before the House
and people commented on my remarks.
At the moment, we have met with most of the players and
they seem to be at an impasse, but the bottom line is, yes, we
have been very actively involved. We don't have a stake
necessarily in a particular outcome. The goal is to make sure
that there is sufficient licensing so that legitimate services
can blossom and flourish.
Senator Leahy. What happens if we don't legislate a change
in Section 115?
Ms. Peters. Then you have the status quo. So to the extent
that there are people who are complaining that it is impossible
to use the compulsory license or that it is impossible to
license in the current environment, then that will continue.
Senator Leahy. What about those millions of people who have
still got that old software? There are millions of people out
there with the old software. They are still exchanging stuff.
What do you do about that?
Ms. Peters. I think that the Supreme Court--
Senator Leahy. Is that horse out of the barn?
Ms. Peters. There will always be people who disobey the
law. I do believe that because of the Supreme Court decision,
more people know that there is no question about the legality
of the various actions. So I do think those people who may have
been tricked into thinking that what they were doing was legal
know better. So I think ultimately it will be reduced, but it
will never go away.
Senator Leahy. Thank you.
Ms. Wong Yang, Senator Hatch and I introduced the Pirate
Act last year. That is sort of the civil side of the Justice
Department's criminal enforcement authority in the copyright
realm. Now, as I understand it, the Department did not support
the effort of Senator Hatch and myself. You have also suggested
very strongly that you believe the enforcement of intellectual
property rights in a civil context has to be left to private
parties. I am somewhat puzzled by this because the Federal
Government, especially this Justice Department, has no
hesitation in bringing civil cases in a lot of other areas
where they assume the public interest requires it.
Is there any reason why we should limit the Federal law
enforcement of copyright laws just to the most egregious
criminal cases? Couldn't civil litigation accomplish sometimes
quicker and better what you might want to do?
Ms. Yang. Certainly, Senator Leahy, I think that where you
have parties who can seek civil liabilities against each other,
that provides a certain amount of compensation for the loss.
What we try to do with our limited resources is try to attack
those who actually distribute or supply to a greater magnitude
and try to use our efforts to focus on, much as we do in drug
cases, those that are sort of in the chain and distributing it.
We can't necessarily get at all aspects of it and try to sort
of focus our efforts in that regard.
Senator Leahy. I can never fully understand just why the
Justice Department does some things they do. I know right after
9/11, a lot of us were concerned about ships coming into the
New Orleans port and the Department of Justice spent a lot of
money on a huge investigation down in New Orleans, and guess
what they found. Two houses of prostitution. I mean, who knew
in New Orleans, of all places?
[Laughter.]
Senator Leahy. I would think they could have gone to the
Yellow Pages and found them a lot faster.
[Laughter.]
Senator Leahy. How does the Department combat physical
piracy? How is it handling the problem overseas? What resources
are allocated to peer-to-peer prosecutions and how successful
have those prosecutions been?
Ms. Yang. Aside from the STOP program that I referred to
earlier, the Department actually in the Intellectual Property
Task Force report identified a number of things that we could
do in the future with respect to dealing with some of the
foreign problems.
One of them is to put a prosecutor located in Eastern
Europe and another one in Asia to help facilitate the
processing of more of those crimes, and we continue to do
outreach through various organizations into those countries.
Senator Leahy. Thank you. I think I will have some follow-
up questions. I will submit them in writing, though, on that.
Thank you very much, Ms. Wong Yang. Thank you, Ms. Peters.
Mr. Yang. Thank you, Senator.
Chairman Specter. Thank you, Senator Leahy.
Senator Feinstein.
STATEMENT OF HON. DIANNE FEINSTEIN, A U.S. SENATOR FROM THE
STATE OF CALIFORNIA
Senator Feinstein. Thank you very much, Mr. Chairman. As
you probably know, this is a major issue for my State. We have
all seven of the big movie companies, hundreds of independents,
a whole chain of companies that function legally.
I have watched for over half a decade now, beginning with
Jack Valenti coming before this Committee and urging us to do
something. We then asked Jack to go out and negotiate and there
was an attempt at negotiation, and then there was another
attempt at negotiation. Some companies, I believe, have
changed.
We now have a unanimous Supreme Court decision, and yet the
peer-to-peer networks are apparently increasing rather than
decreasing. To me, that is a signal, and the signal is that we
should enact a strong law to protect our copyright industries.
If these negotiations can't produce, then I think it is up to
the Congress to act.
I know that the United States Attorney here, Ms. Yang,
operates the largest U.S. Attorney office in the Nation in the
center of much of the intellectual property industries of
California.
If we were to legislate, Ms. Yang, what would you advise us
to do?
Ms. Yang. Senator, I can't answer that specifically today.
I will tell you that the legislation that you have provided to
us in the past with the Family Entertainment and Copyright Act
we have been using in the U.S. Attorneys' offices. One case was
filed--actually, all of them have been filed in your
jurisdiction. One was filed in San Jose, and just yesterday
down in Los Angeles we filed a case charging eight individuals
using that violation where they uploaded onto the Internet.
On the subcommittee that I just got named to chair, what we
hope to do is identify various holes and places where we see
things in our prosecutions that we could identify as being
areas where we could use the assistance from this Committee and
from the Senate.
Senator Feinstein. Well, you see, I would think in view of
a unanimous U.S. Supreme Court decision, which is actually
being followed in other countries--and we are constantly told
stop to piracy in China. Well, how can you stop piracy in China
when we can't stop it in our own country? We have got that
Supreme Court decision and still the illegality exists. I think
what is necessary is really forceful enforcement tools. If you
don't have them, I think we ought to give them to you.
Ms. Yang. Right. I mean, for example, when you increased
the penalties in camcording from misdemeanors and allowed us to
charge it as a felony, I think that sent a strong deterrent
message through the entertainment--
Senator Feinstein. Then why are these illegal networks
still out there if the message is so strong?
Ms. Yang. I think the message needs to come out even
stronger. We need to get out there with a unified voice. From
the Department's perspective, that is what we tried to identify
through the Intellectual Property Task Force and identify areas
that we could hit on. We have been charging cases in the peer-
to-peer area, but quite frankly there is only so much that we
can do in a limited amount of time.
Senator Feinstein. My point is, Mr. Chairman, whatever it
is, it is not enough. How can you have a U.S. Supreme Court
opinion which is unanimous which carries the full force of the
legal system in this country and yet it still goes on, and it
goes on to the extent of considerable loss to legitimate
companies with copyright rights? So my view is that whatever
the message that is going out there is, it isn't strong enough
and that this Congress needs to take some action.
I remember when Valenti first came before us and they
started the negotiations, and it has gone on and on and on
probably for close to a decade now. Yet, still the illegal
market is increasing, and there seems to be no sanction and no
deterrent that slows it down sufficiently.
Chairman Specter. Well, we have the United States Attorney
here from the Central District of California.
Senator Feinstein. Who is saying she does what she can when
she can do it. That is the way I interpret what you are saying,
and what I am saying back is it isn't enough. So what do we
need to do to give you the tools? That is what I want to know,
if you don't have the tools.
Ms. Yang. Senator, I would actually like to--I don't want
to speak off the cuff here. I would like to sort of caucus with
people back at Main Justice and see if there are things that we
can identify or make specific suggestions to you, because I
know that is what you are asking for.
I will tell you that the education that we have been doing
is a large component, and it is very dismaying for me to go
into the public among high school students, college students,
some of the places where I lecture to students, and ask them
how many of you download music or movies. I give them a 10-
second immunity to answer the question and almost always it is
a hundred percent of the people in the room. So I mean that is
part of the reason why we also have to educate our youth as to
why this is actually a theft.
Senator Feinstein. Just bottom line, we either have
copyright that we enforce, or because you have got this broad
young public that sees nothing wrong with illegal downloading,
you destroy every copyright industry, it seems to me. Every
industry that depends on copyright can't function in a country
as the high-tech services become such that you can't protect
copyright. And that is what I see happening now, and it will
spread to other areas, as well. So somehow we either get a
handle on it and stop it--and I think the only way to stop it
is through the peer-to-peer network by really sanctioning it in
a way that either it is going to be legal or it isn't going to
exist.
That is the difficult part. How do we give you the tools to
do that, because the market is going to remain, just as the
market for illegal products in China and all over the world is
going to remain? And it seems to me if we can't stop it on our
own shores, we can't tell other countries what to do or not do.
Ms. Yang. I agree.
Chairman Specter. Well, Ms. Yang, aren't there existing
criminal penalties available to go after those who are
secondarily liable?
Ms. Yang. There are. I mean, post-Grokster, we did one case
where we took down some peer-to-peer individuals and we
continue to do that. It is just that for us--
Chairman Specter. One case?
Ms. Yang. Yes, we have done one case.
Chairman Specter. How about more than one case?
Ms. Yang. Well, part of that, sir, has to do with the fact
that our mind set really is--and it is not to say that we
ignore that. That is not it at all, but our mind set is trying
to get at the people who directly distribute and supply the
goods. So we are still going at sort of, as you call it, the
first level. So for us to drop down to those who are, as we
call it, secondarily liable--you know, it falls within the
focus if it is of great magnitude, but quite frankly we are
still operating at the first level.
Senator Feinstein. I think--
Chairman Specter. Well, wait a minute. Why not operate at
both levels? How much consultation is necessary with Main
Justice? You have criminal liability under the statute. You
have a definition now by the Supreme Court as to secondary
liability. Why not get tough? That is what Senator Feinstein
wants you to do and I think she has got a pretty good idea.
Ms. Yang. I could do that if I could take, for example,
many more prosecutors and put them toward doing that.
Chairman Specter. So you need many more prosecutors? Tell
us what you need. That is the pending question by Senator
Feinstein.
Ms. Yang. Quite frankly, you know, the things where there
are resources involved, that would definitely help because, you
know, we are trying to manage, quite frankly, a lot of
different things right now. Terrorism is our Number one
priority, as well it should be, and unfortunately we have those
kinds of cases that actively go on in my district.
Chairman Specter. Is there any room for private prosecution
of the injured parties to go into criminal court?
Ms. Yang. Certainly, there could be cross-overs. I mean, we
would never want to be sort of, I guess, the hammer in a civil
lawsuit, so to speak. So where civil remedies are available and
they are adequate, that is fine.
Chairman Specter. I am not thinking about civil liability.
There are some provisions in the criminal law for private
prosecution. There was a very good analysis of that in the Yale
Law Review some years ago that I wrote.
[Laughter.]
Chairman Specter. Senator Feinstein.
Senator Feinstein. If I might just say something, the thing
that worries me is if we go out and arrest some high school
that is downloading--and I don't think any of us are supportive
of that, but you have got very smart, very sophisticated people
running these networks. They know what the liability is and
they take the chance, and I think, candidly speaking, it has
got to be either made legal or shut down.
What bothers me is the information I have received that it
is increasing, despite the Supreme Court decision, which
indicates to me that we have got a real problem on our hands
and that if we don't stop it, it is going to destroy these
intellectual property industries.
Chairman Specter. Well, you have your assignment, Ms. Yang:
off to Main Justice and report back this afternoon.
[Laughter.]
Chairman Specter. Ms. Peters, we could use some help from
you, too. With your 22 years' experience, you must have some
ideas. Consider the question to be submitted in writing within
a week: what active steps can Congress take to help law
enforcement with additional resources and what additional
legislation is necessary, if any, to enforce the laws.
Now, on to panel two. Our second panel consists of Mr.
Marty Roe, Mr. Cary Sherman, Mr. Gary Shapiro, Mr. Mark Lemley,
Mr. Ali Aydar and Mr. Sam Yagan.
Marty Roe is our first witness on panel two. He is the lead
singer and guitarist for the country music group Diamond Rio.
No. 1 hits include ``Meet in the Middle,'' ``Beautiful Mess,''
``One More Day,'' and ``How Your Love Makes Me Feel.'' The band
has won four country music awards and was inducted into the
Grand Ole Opry in 1998.
Thank you for joining us, Mr. Roe, and the floor is yours.
STATEMENT OF MARTY ROE, LEAD SINGER, DIAMOND RIO, NASHVILLE,
TENNESSEE
Mr. Roe. Thank you, Mr. Chairman, Senator Leahy and Members
of the Committee. Good morning. I am Marty Roe, with the group
Diamond Rio. I would like to introduce my band mates who are
here somewhere: Gene Johnson, who is from Pennsylvania; Dan
Truman, from Utah; and Dana Williams, who is from Tennessee.
Somehow or another, they elected me for this honor. We do
appreciate the opportunity to speak today to give you an
artist's perspective on the Supreme Court's recent Grokster
decision.
We have been signed to Arista Records since 1991 and are
blessed to have a career that has spanned well over a decade. I
am proud to say that we made history this year with our 15th
consecutive Country Music Association Vocal Group of the Year
nomination, and I am proud and honored to be here this morning
representing the music community.
Imagine going to your job 8 hours a day, 5 days a week, 50
weeks a year, working hard to produce a product that you are
proud of that adds value to society. Now, imagine that at the
end of that year, you receive no paycheck and no compensation
from the millions of people who use everyday that product that
you worked so hard to create. You would have walked off that
job long ago.
Unfortunately, that is exactly what has happened in the
music industry, not because of any lack of love for music, but
for the simple truth that artists and songwriters, like
everyone, need to make a living. Many peer-to-peer services
like Grokster have been the main culprit in preventing those
artists from making a living. By operating file-sharing
networks, encouraging and facilitating the free exchange of
millions of copyrighted works, these businesses have devalued
our music and created an entire generation of listeners who
believe that we don't deserve to be paid for our hard work and
creativity.
The result can be seen from Music Row to Hollywood as
artists, musicians and songwriters have closed up shop. Some
have estimated that the Nashville community has lost nearly
half of its songwriters, a huge number of whom have been forced
to go into other professions in this terrain.
The Supreme Court's decision in Grokster offered a unique
high note in this otherwise downbeat time. The highest court in
the land, in a unanimous decision, saw what we saw, what nearly
everyone who seriously considered this issue saw: this was
outright theft, and Grokster and other services like it were
making it happen. The decision gives new hope to a suffering
industry by making those services responsible for promoting the
theft of our creative work. It shines a spotlight on shady
businesses that have perfected the art of operating in the
shadows and blaming others for the resulting illegal activity.
Certainly, some bands have used peer-to-peer networks to
market themselves and reach a wider audience. If this has
worked for them, that is great, but this promotional device
should be a choice for each and every artist. No one should
decide for me or any other band that a song should be offered
for free.
Of course, Diamond Rio is excited to be a part of the
digital revolution. We embrace it. For instance, our music is
offered on the current Napster, iTunes, Music Match and many
more, but these services present a major distinction from
Grokster and its siblings. They value our music and encourage
others to value it as well. For a reasonable fee, the public
can get quality downloads without the threat of viruses and
spyware. Appropriate payment goes to us and the many people who
help us bring our music to you. The Grokster decision is
important in helping to continue to usher in legitimate online
music businesses and a vibrant, legitimate marketplace.
We are part of a large family, an interconnected network of
artists, songwriters, musicians, recording engineers and many
others who bring music to life. We have been proud to work in
Nashville, the heart of music-making in the country, and indeed
in the world. We want to see this family survive and grow, and
the Grokster decision has played a major part in that. The
Grokster decision was helpful because a unanimous Supreme Court
set the tone of intolerance for using piracy as a business tool
to make profits at the expense of artists.
Regardless of the medium, whether it be peer-to-peer,
radio, downloads, satellite, Internet or any other platform, we
hope that Congress will work vigilantly to maintain and assure
this tone of intolerance against businesses facilitating theft,
because by doing so you will be helping those of us who devote
our whole lives to making the music.
Thank you.
[The prepared statement of Mr. Roe appears as a submission
for the record.]
Chairman Specter. Thank you very much, Mr. Roe.
Our next witness is Mr. Cary Sherman, President of the
Recording Industry Association of America, 350 members. It
purportedly represents the interests of a $14 billion U.S.
sound recording industry. Prior to his current position, he was
a partner in Arnold and Porter, and a graduate of Cornell and
the Harvard Law School.
Thank you for coming in today, Mr. Sherman, and we look
forward to your testimony.
STATEMENT OF CARY SHERMAN, PRESIDENT, RECORDING INDUSTRY
ASSOCIATION OF AMERICA, WASHINGTON, D.C.
Mr. Sherman. Thank you, Mr. Chairman and Senator Leahy and
Senator Feinstein. I appreciate the opportunity to testify
today. I think that that must be an old bio because a $14
billion is now a $12 billion industry partly because of the
subject matter of today's hearing.
Clearly, the decision in Grokster was a defining moment for
the distribution of music and other creative content in the
digital age. In a rare unanimous decision, the Court recognized
that those who actively induce or encourage others to steal
copyrighted works may be held liable themselves for the
resulting infringement. And I would like to recognize this
Committee's leadership in helping forge the path taken by the
Supreme Court in the Grokster case. The language of the opinion
may be legalese to many, but the message was simple: theft in
any medium is unacceptable and those who facilitate it may be
held responsible.
The music industry has been hit particularly hard by the
massive theft occurring on illicit P2P file-sharing networks
like Grokster. Record companies are essentially venture
capitalists, with the revenue we earn from the sale of recorded
music plowed back into new music and new artists.
Unfortunately, there is a lot less money to invest these days.
SoundScan recently reported that through the week of September
of this year, album sales are down 8 1/2 percent versus the
same period for 2004, and this is on top of a 5-year decline of
some 30 percent on units shipped between 1999 and 2004. The
result is less money to invest in new artists and new music.
Thousands of individuals engaged in the music, film and
other entertainment industries have seen their jobs disappear,
and music stores across the country have had to close their
doors. Left unchecked, the networks that promoted this illicit
activity threaten to instill in an entire generation a culture
of lawlessness and a complete lack of respect for copyright and
the valuable works it protects.
The decision in Grokster helps to change all that,
clarifying that inducing and encouraging infringement are just
as much a part of copyright law as the doctrines of
contributory infringement and vicarious liability. This result
is completely consistent with and does nothing to change the
holding of the landmark Sony Betamax case, which the Court
noted was never meant to foreclose rules of fault-based
liability derived from the common law.
Simply, courts are not required to ignore evidence of
intent if there is such evidence, and there was plenty of
evidence of what Grokster intended. As the Court noted, the
unlawful objective is unmistakable. The Supreme Court injected
into copyright law some common sense based on centuries of
common law.
The Court was also careful to balance the interests of
content innovators and technology innovators. By focusing on
the behavior of Grokster and similar companies and not the
technology they used, the Court separated the good actors from
the bad and left intact the Sony Betamax standard that has
served creators, technology developers and consumers so well.
The clarity provided by the Court, rather than stifle
innovation, will increase it. Companies like iMesh, SNOCAP,
Mashboxx, Pier Impact and P2P Revolution, as well as new
technologies that operate within the law, will have a chance to
gain traction, attract investors and appeal to fans.
Within days of the decision, venture capital firms were
calling companies offering licensed P2P services, looking for
opportunities to invest. The Grokster decision ensures the
healthy growth of a legitimate market eagerly seeking support.
Apple's iTunes, Real Networks' Rhapsody, Napster, Ruckus,
Cdigix. Walmart, Yahoo and many others have worked hard to
build successful destinations for legitimate online music.
The growing interest in these services can be clearly seen
on the campuses of colleges and universities across the
country. Nearly 70 schools now have deals with a legitimate
service--a more than threefold increase from just last year.
The decision in Grokster has played a major role in this
growing trend, focusing attention on the issue of illegal file-
sharing and providing school administrators with undeniable
moral and legal clarity.
In fact, it has provided everyone with clarity. Those who
make the movies, music, software and other creative content we
love now know that their hard work will be protected. Consumers
can now look forward to more of these great works and know that
they can get them in a safe, secure, respectful and legal way.
Those who seek to bring us content in fresh and innovative ways
on new and old distribution platforms now know that they don't
have to compete with illicit free-riders offering the same
content for free.
Those who seek to support these exciting, new legitimate
products and services can now have renewed faith in their
investment. And those who have promoted the absurd notion that
somehow it is OK to take someone else's property just because
you can have been shown to be clearly wrong. And those who
choose to continue their businesses with a model based on theft
now know that there is no excuse. The time to go legit is now.
Thank you.
[The prepared statement of Mr. Sherman appears as a
submission for the record.]
Chairman Specter. Thank you very much, Mr. Sherman.
Our next witness is Mr. Gary Shapiro, President and CEO of
the Consumer Electronics Association and Chairman of the Home
Recording Rights Coalition. He led the manufacturers' legal and
legislative battle to preserve the legality of the recording
technology and consumer battle to protect fair use rights. He
had been associated with the Squires Sanders law firm, a Phi
Beta Kappa from the State University of New York and a law
degree from Georgetown.
The floor is yours, Mr. Shapiro.
STATEMENT OF GARY J. SHAPIRO, PRESIDENT AND CHIEF EXECUTIVE
OFFICER, CONSUMER ELECTRONICS ASSOCIATION, ARLINGTON, VIRGINIA
Mr. Shapiro. Thank you very much, Mr. Chairman, Senator
Leahy, Senator Feinstein. The Consumer Electronics Association
actually started in 1924 as the Radio Manufacturers
Association, and now we have grown to some 2,000 companies,
technology companies which employ hundreds of thousands of
Americans, over $120 billion in sales, and are actually leading
the economy and pulling it along through new technologies, many
of which are giving different ways for the content community to
reach their consumers.
I am also here as Chairman of the Home Recording Rights
Coalition, which as formed in 1981, the day after the Ninth
Circuit Court of Appeals ruled that motion picture companies
had the right to keep VCRs off the marketplace, which you were
referring to earlier.
While the Supreme Court in the Betamax case sparked a
phenomenal technological renaissance of creativity and
innovation that empowered consumers and created vast new
markets for content providers, today in the post-Grokster world
we are concerned that technological creativity and innovation
may be stifled by the fear of future litigation and over-
regulation.
The Grokster Supreme Court did not overturn Betamax, but
created a new template, an inducement doctrine based on
subjective intent. We are concerned about the future
interpretation of this doctrine in the lower courts, especially
in an environment where the media companies have expanding
legal tools to limit the lawful activities of consumers,
manufacturers and retailers.
Now, on any typical day the wired family sends news to
friends over the Internet, rips songs from CDs to portable
players, downloads information from the Web to be used in
school and business reports, and copies information from home
repair, cooking or shopping websites. Teenagers take images and
sounds and text and weave them together in unpredictably
creative and very innovative ways.
This use of technology to shift content in time, place,
form and structure is redefining our culture and it is spurring
new forms of creativity. Yet, all of these increasingly
commonplace activities involve conduct that an overly broad
interpretation of the Grokster case could prohibit.
We are at a crossroads today as we shift to a digital
society. With new technologies allowing every citizen to be a
creator, our national creativity can no longer be measured by
CD sales. With photo, video and music studios shifting to the
American home, with the Internet providing worldwide outlets
for distribution, with new technologies leaping forward, now is
not the time to chill American ingenuity. And yet Grokster has
certainly created that chill.
Before developing a product in the post-Grokster
environment, an innovator or entrepreneur will have to persuade
everyone, from its outsider bankers to its inside counsel, that
the product can be sold without risk of a lawsuit. Venture
capital migrates away from risky, litigation-prone areas. So
the chilling effect of content industry lawsuits against
entrepreneurs is not even an academic exercise at this point.
Consider the company Replay. That was a competitor to Tivo
in the personal video recording market. It was driven to
bankruptcy by litigation brought by MPAA members. Among the
claims in the complaint they filed was that Replay, which is
almost just like Tivo, induced the reproduction of copyright
material.
Well, one of today's hottest new products brought by a tiny
company is the sling box. It is an ingenious new product that
lets you watch a television signal from your home, cable or
satellite TV service on a laptop computer, no matter where you
are. There is no infringement here. No copies are being made
and you can only connect to one device at a time. Yet,
according to published reports, the MPAA has already threatened
the company with a lawsuit to stop the sale of the product.
Now, driving our concern as a technology industry is the
fact that over the last decade, copyright law that this
Congress and previous Congresses have passed has repeatedly
been changed to strengthen the rights of copyright owners,
while narrowing the rights of consumers and technology
entrepreneurs. Terms of copyright are much longer. Penalties
for infringement are much harsher. The DMCA made it illegal to
create, or arguably even to discuss technologies which
circumvent a copyright protection scheme.
Now, individually, each of these Acts passed by Congress
seems justifiable. But, cumulatively, they have totally tilted
the balance toward copyright owners and away from users and
technology companies. These new powers, fortified by the
Grokster decision, make it easier for content owners to
bottleneck innovation to the narrow paths approved by copyright
owners.
Indeed, just last week the motion picture industry
announced that it is forming an exclusive consortium called
MovieLabs to examine and license approved copy protection
technologies. Centralizing licensing in a body owned and
controlled solely by the movie industry is a powerful weapon in
the wake of Grokster. Sheer market power of these six studios
should be of interest to this Committee and to the Department
of Justice.
Despite winning the Grokster case, the content community is
seeking even more legislative tools. Right now, the recording
industry is approaching another Senate Committee with a
proposal to give the FCC broad power to impose design
requirements on new digital radios. And unlike the TV broadcast
flag, the RIAA is not aimed at mass, indiscriminate, anonymous
distribution of content over the Internet. The RIAA digital
radio proposal is aimed squarely at limiting non-commercial
recording entirely by a consumer in a private home. It would
work an enormous change to copyright law and fair use. Yet,
this proposal has never even been put to this Committee or to
Congress.
We do not believe that this is the time to hand new weapons
to copyright proprietors to use against new technologies and
inventors and entrepreneurs. But if the content community
insists that they need further protections under the law, then
we ask at a minimum that a clear statement of manufacturer and
consumer protections be part of the equation. That is why in
the House we support H.R. 1201, which would provide a clear
statement by codifying the Betamax doctrine.
Thank you.
[The prepared statement of Mr. Shapiro appears as a
submission for the record.]
Chairman Specter. Thank you, Mr. Shapiro. We now turn to
Professor Mark Lemley, Neukom Professor of Law at Stanford, and
director of the Program at Stanford in Law, Science and
Technology. He is the author of 6 books and 65 articles, has a
law degree from Boalt Hall and a bachelor's degree from
Stanford University. He is one of the top intellectual property
lawyers in California.
Thank you for coming in today, Professor Lemley, and the
floor is yours.
STATEMENT OF MARK A. LEMLEY, WILLIAM H. NEUKOM PROFESSOR OF
LAW, STANFORD UNIVERSITY LAW SCHOOL, AND DIRECTOR, STANFORD
PROGRAM IN LAW, SCIENCE AND TECHNOLOGY, STANFORD, CALIFORNIA
Mr. Lemley. Thank you, Mr. Chairman. I want to start by
saying that I am encouraged at the title of this hearing, which
is ``Protecting Copyright and Innovation in a Post-Grokster
World,'' because the message I want to bring to you is that
both protecting copyright and protecting innovation are
extraordinarily important. Copyright is good because it
encourages creativity. Innovation is good because it encourages
a variety of other activities, and indeed facilitates the use
and distribution of copyrighted works. The important thing is
not to promote one at the expense of the other, but instead to
try to find a balance.
Now, the problem is that there are abuses. There are, as
has been mentioned in this Committee already, undoubtedly
abuses of copyright by high school and college students, as
Senator Feinstein mentioned, who are downloading or uploading
without authorization. That is illegal and it should be
illegal. There are abuses by technology companies in rare cases
such as Napster, designed solely to facilitate those acts of
infringement.
But I want to make it clear that there are also abuses of
copyright law by copyright owners who are asserting rights
designed to go after the people who are infringing instead of
against legitimate technology companies. This isn't a ``may
happen''; this is an ``is happening.'' We have seen lawsuits
filed by copyright owners against the makers of consumer
electronics devices that play music, against the makers of
consumer electronics devices that allow you to record off of
the television, against Internet auction sites like eBay,
against Internet service providers, against search engines like
Google, against bookstores like Amazon.com, against the
telephone companies who own the wires over which data is
transmitted, against venture capitalists who fund companies
which in turn support infringement, and even against the law
firms who advise companies.
Now, this is a problem for the same reason that violation
of copyright law is a problem. We have got to have a balance
between copyright law and innovation. Grokster tries to
distinguish good from bad, tries to strike that balance by
saying we are going to create a legal tool that goes only after
the bad and not a legal tool that goes after the good.
Whether it succeeds or not, I think, remains to be seen. In
my written testimony, I talk about some uncertainties relating
to how the Court opinion will be interpreted. But because of
those uncertainties, I think it may be premature to legislate
to modify the opinion. Maybe Mr. Sherman is right and
everything will be fine there.
That doesn't mean, however, that the problem is going to go
away, either the problem of copyright infringement--as Senator
Feinstein acknowledged, it is still with us in the digital
environment--or the problem of threats to innovation. So what I
want to suggest outside of Grokster are some things we might
do, and also that we might not do, to address this problem.
What might we do? The first thing we ought to do, I think,
is make it easier to target the people who are actually
infringing, not perhaps in a criminal environment, although
that is possible. We don't necessarily want to put college
students in jail, though we have the legal tools now that would
allow us to do that, and it would send a signal.
I have proposed, along with Professor Tony Reese, a way of
using the Copyright Office and the copyright royalty judges
that this body created last year to try to create a cheap, easy
mechanism for findings of infringement against direct
infringers in ways that would impose a civil sanction that
would hopefully make it clear to those people that they are
infringing and deter them from doing so, and I have attached
that proposal to my testimony.
Second, I want to endorse Marybeth Peters's statement that
we have got to make it easier to clear digital rights. The
problem with legal music services is not just that you can't
compete with free; it is that they have been so far unable to
compete with ubiquity. People can get any song they want on an
illegal service. They have not been so far able to get any song
they want on a legal service, and that is because of the morass
of rights that have to be cleared from multiple different
owners in order to get rights in a digital environment. We have
got to cut through that morass.
Third, and finally, what I want to suggest is some things
that we ought not to do, and in particular that we ought not
try to impose technology mandates on innovative companies.
Technology is good. It can be used for bad purposes, but if we
give control over the design of a technology to one individual,
history has shown us time and time again we will get bad
innovation.
Remember the pre-AT&T breakup phones. We got a lot of
innovation in phone manufacturing once we let a whole bunch of
people innovate in the phone industry. We didn't have
innovation before that time. Innovation by committee,
innovation only at the sufferance of all copyright owners
collectively, would be even worse.
So what I want to suggest is that while this Committee
should target acts of direct infringement, while the Grokster
opinion does correctly target people who are engaged in acts of
inducement, this Committee ought to be very careful to avoid
targeting or giving copyright owners the tools to target
legitimate technology companies, because those legitimate
technology companies, as Mr. Shapiro suggested, are existing
right now in a state of fear. They have been sued. They
recognize that they will be sued again and we shouldn't make
the problem worse for them.
[The prepared statement of Mr. Lemley appears as a
submission for the record.]
Chairman Specter. Thank you very much, Professor Lemley.
Our next witness is Mr. Ali Aydar, Chief Operating Officer
for SNOCAP. Prior to joining SNOCAP, he was the Senior Director
of Technology at the original Napster. He has a mathematics/
computer degree with special concentration in technology-based
entrepreneurship from Carnegie Mellon.
We appreciate your being here and look forward to your
testimony.
STATEMENT OF ALI AYDAR, CHIEF OPERATING OFFICER, SNOCAP, INC.,
SAN FRANCISCO, CALIFORNIA
Mr. Aydar. Thank you, Mr. Chairman, Senator Feinstein, for
the opportunity to be here this morning. My name is Ali Aydar
and I am Chief Operating Officer of SNOCAP, a San Francisco-
based company working to create a digital music marketplace
that meets the needs of copyright owners, online retailers and
consumers.
SNOCAP's founder, Shawn Fanning, is very sorry that illness
prevents him from being here this morning. Six years ago, I
joined Shawn as the first employee of an unknown music file-
sharing service called Napster. Napster unleashed an appetite
for digital music that no one knew existed. When I joined
Napster, there were 40,000 registered users. When it shut down,
there were 85 million. At its peak, Napster users were
launching hundreds of thousands of searches every second.
The day after the company shut down, Napster's founders got
together. We understood the problems facing digital music and
felt compelled to fix them. We envisioned a technology-based
solution built upon what we learned from our experience. We had
learned that consumers want to listen to everything, not just
the record companies' active catalogs, but every song or
symphony ever recorded.
We had learned that it was not just about free; it was
about access, having whatever music you want whenever and
wherever you want it. Fans want music and they are willing to
pay for it. Artists and rights-holders want and deserve to be
compensated. There has been progress in meeting these
challenges. Roughly two million tracks are available for sale
and rights-holders are being compensated.
Yet, still, consumers aren't getting the music they want.
Authorized sellers offer far less than the over 25 million
tracks that can be found on P2Ps. Because there are literally
hundreds of thousands of copyright owners, in order to match
the number of tracks that existing P2Ps provide, each online
retailer would have to strike tens of thousands of deals--a
legal, economic and practical impossibility.
Consequently, retailers focus on what is considered most
popular, making it unlikely for consumers to find everything
they want on existing authorized services, whether it is an up-
and-coming local band or a classic radio hit from their youth.
But where some saw only a legal and practical mess, we saw a
technological opportunity and a market-based solution. SNOCAP
is our effort to provide that solution, a business-to-business
service that benefits rights-holders, online retailers,
including legitimate P2Ps that respect copyright, and
consumers.
SNOCAP acts as a one-stop registry and clearinghouse.
Copyright owners register their content with SNOCAP and set the
price in terms of distribution. SNOCAP also helps content
owners identify less well-known tracks that are being shared on
P2Ps and allows them to register and set terms on which these
tracks can be shared or block sharing altogether.
Retailers can access content through SNOCAP rather than
negotiating hundreds or thousands of separate deals. It allows
entrepreneurs to develop new business models and it gives
thousands of online communities, whether they are maintained by
non-profit organizations or giant corporations, the ability to
form their own P2P networks and share content, while ensuring
that rights-holders get paid. With SNOCAP, consumers legally
get access to much more music and the benefits of file-sharing
in an environment that works for everyone without the adware,
spyware viruses and spoof files that plague the P2Ps today.
This vision has been embraced by the industry. Major labels
and many independents are currently registering their content
with SNOCAP and progress continues. We expect that consumers
will be able to buy music online from a SNOCAP-enabled retailer
by early next year. It will be a dramatic step forward and it
is just the beginning.
SNOCAP has the potential to bring creators, retailers and
consumers together as a registering and clearinghouse for every
type of digital content, including film, television and books.
As media and technology continue to mature, SNOCAP will enable
rights-holders to efficiently move beyond the PC to new
channels, allowing the Internet to finally realize its most
fundamental promise--a medium where the world's information,
knowledge, art and science can be shared universally,
immediately and legally.
Thank you.
[The prepared statement of Mr. Aydar appears as a
submission for the record.]
Chairman Specter. Thank you very much, Mr. Aydar.
Our final witness is Mr. Sam Yagan, President of
MetaMachine, and developer of the file-share application
commonly known as e-Donkey. Prior to working there, he co-
founded the educational publishing company SparkNotes, now
known as Barnes and Noble. He has an applied math degree from
Harvard and an MBA from Stanford.
The floor is yours, Mr. Yagan.
STATEMENT OF SAM YAGAN, PRESIDENT, METAMACHINE, INC., NEW YORK,
NEW YORK
Mr. Yagan. Thank you, Chairman Specter, Senator Feinstein.
Thank you for inviting me to testify on this issue that will
undoubtedly have broad and lasting ramifications for both the
content and technology industries.
For the last 3 years, I have served as President of
MetaMachine, the developer and distributor of the peer-to-peer
file-sharing application e-Donkey. From my vantage point, I
have witnessed and participated on the front lines of the
confrontation between content and technology. I hope my
experience on this cutting edge will be valuable to your
Committee.
You might be curious to know what kind of person might run
a peer-to-peer company, so I would like to tell you a little
bit about myself. Prior to joining MetaMachine, I was co-
founder and CEO of an educational publishing company called
SparkNotes, which is now owned by Barnes and Noble. In that
role, I was a rights-owner and my job was to sell books, not so
different from the record label's job of selling CDs. I share
this background with you to give you comfort that I am not an
anarchist and I have no axe to grind with the owners of
intellectual property.
Before I get to the core of my opening statement, I would
like to make it clear to the Committee that we have replied to
the RIAA cease and desist letter and I have personally
committed to Mr. Sherman, which I reiterate today, that we are
in the process of complying with their request.
Therefore, I am not here as an active participant in the
future of P2P, but rather as one who has thrown in his towel,
and I hope not to replay past issues today. I hope that as a
result of my pending retirement from the P2P business, I can
speak with more candor and that you will accept my testimony
not as pushing any self-serving agenda, but merely as sharing
with you my views on the post-Grokster world.
I would like to comment on three elements of the Grokster
case. First, because the Grokster standards require divining a
company's intent, the Court's decision was essentially a call
to litigate. This is critical because most start-up companies
just don't have very much money. Whereas I could have managed
to pay for a summary judgment under Betamax, I simply couldn't
afford the protracted litigation I needed to prove my case in
court under Grokster. Without that financial ability, exiting
the business was our only option, despite my confidence that we
never induced infringement and that we would have prevailed
under the Grokster standard.
Second, the Court specifically cites that Grokster's
marketing to former Napster users indicated a principal, if not
exclusive intent to bring about infringement. Is this really
proof of intent to induce? Does that mean that every advertiser
that is advertised in the e-Donkey software also have a similar
intent to induce? I should hope not because last summer the
campaigns of both President Bush and Senator Kerry ran
advertisements on e-Donkey. Were they really both courting the
swing infringement vote, or could they have had some other
intent?
My final point on Grokster is that its inducement standard
is not sustainable as a long-term equilibrium. Imagine if since
e-Donkey's inception not only had we not made any statements
inducing infringement, but that we had made no statements at
all other than putting up a website that read ``e-Donkey is a
peer-to-peer file-sharing application.'' Those words alone seem
that they would not qualify as affirmatively and actively
inducing infringement.
If we had never made any other statements, would we be in
the clear right now? If so, new peer-to-peer applications will
inevitably spring up and easily satisfy Grokster in this way.
If we would not be in the clear, then the effect of Grokster
will go far beyond merely chilling innovation; it will almost
certainly freeze it in its tracks.
I would like to wrap up by humbly stepping well beyond my
area of expertise and making four observations that may be
beneficial as you continue your oversight on this issue.
First, I hope you will encourage a market solution. I don't
think anyone can predict how this will shake out, but I have
limitless trust in our free market system to generate numerous
new business models to take advantage of the tens of millions
of Americans who use P2P. Imagine if we could monetize just 1
percent of the estimated tens of billions of shared files.
There is a market solution to be found and it may well be one
that fits into the business model of the incumbent
entertainment industry, but it is not for us to decide. That is
best left to the market.
Second, on this issue I hope you will be especially aware
of unintended consequences. With many P2P applications offshore
or simply open-sourced, the entities that will end up being
most devastated by Grokster will be those like us that set up
shop in the U.S., abided by American laws, paid taxes, and at
least in our case tried to license content from the
entertainment industry. I fear that the winners in Grokster
will not be the labels and the studios, but rather the
offshore, underground rogue P2P developers who will have just
lost half a dozen of their most legitimate competitors.
Third, I hope you will consider the global context. As you
know, e-Bay recently acquired the P2P company Skype for more
than $2 billion. Skype was founded offshore, despite having
American investors. It would be a real tragedy and a blow to
our economy if our future technologists follow suit.
Finally, I have started a few companies in my career and if
I have one overriding passion, it is for entrepreneurship, the
driving force of our economy. I urge you to try to empathize
with entrepreneurs trying to innovate in nascent industries. I
hope you will do all that you can to nurture and encourage
entrepreneurs, and provide them with a legal environment in
which they can face the myriad challenges that startups do
without the additional burden of having to wonder how a judge
many years in the future will construe their every e-mail,
every phone call, and indeed every thought.
I am happy to take any questions.
[The prepared statement of Mr. Yagan appears as a
submission for the record.]
Chairman Specter. Thank you very much, Mr. Yagan.
Mr. Roe, Mr. Sherman, what remedies do you think can be
implemented to protect property rights short of criminal
prosecutions? I will start with you, Mr. Sherman.
Mr. Sherman. At this point, we are not seeking any
particular legislation with respect to the Grokster decision
itself.
Chairman Specter. I am not talking about legislation. I am
talking about enforcement. How do we implement enforcement to
protect property rights?
Mr. Sherman. Well, there was some legislation pending in
the last Congress that would have made it easier for the
Department of Justice to enforce rights dealing with issues
such as the number of files and the valuation of these kinds of
files. That was not enacted, but that is the sort of thing that
could be done that would make the job of the Department of
Justice easier.
The idea of giving the Justice Department an opportunity to
bring civil actions I always thought was a very good idea
because it meant that the punishment could be commensurate with
the violation, so that it wasn't a question of criminal
prosecutions. Half or more of the lawyers in the Justice
Department are on the civil side rather than on the criminal
side, so it would mean that a lot more attorneys would be
available to do something helpful on economic crimes.
Chairman Specter. There is limited time, so let me move to
Professor Lemley. Professor, you say that we ought not to
stifle legitimate technology. And, Mr. Shapiro, you are
worrying about chilling innovation.
I will start with you, Professor. How do you identify the
legitimate technologies and see to it that they are not
harassed, while still protecting property interests?
Mr. Lemley. Thank you, Mr. Chairman. Well, as Mr. Yagan
indicated, the intent standard is a difficult one to meet. So I
think the answer is a difficult one to understand; it is a
difficult one to know whether you comply with it. So I think
the answer has to have two parts. One is I would like to see
both private and governmental enforcement focus its attention
more closely on the people who are actually doing the
infringing rather than companies that provide software or
services that can be used to facilitate infringement. Targeting
direct infringers, I think, is helpful because there we are not
concerned about the impact on technology.
The second thing that I think you can do is to have legal
standards that are as clear as they can be and are as narrowly
circumscribed as they can possibly be to target only people in
the secondary liability space that really are bad actors. That
is hard to do, and I worry a little bit about how the Grokster
opinion will be interpreted in the lower courts, but for now it
might prove to be a workable standard.
Chairman Specter. Mr. Shapiro, you articulate very
important principles not to stifle technology or chill
innovation. How do you accomplish that and still protect the
property interests that Mr. Roe and Mr. Sherman are so
concerned about?
Mr. Shapiro. Mr. Chairman, I think you make it clear that
there is a balance. Right now, I think I am with most of the
other panelists and the prior ones that I would not encourage
Congress to do much of anything. I think this case has to be
sorted out a little bit. It set a very high bar. We are very
concerned about the intent standard because--
Chairman Specter. Congress should not do much of anything?
Mr. Shapiro. On this specific issue right now.
Chairman Specter. We are good at that.
[Laughter.]
Chairman Specter. Go ahead.
Mr. Shapiro. But if Congress is to act in the copyright
arena, I would have to say it has to also focus on what rights
consumers have, not just the copyright owners. I would also
redefine the Copyright Office, frankly, so it is just not
protecting copyright owners.
I am concerned about making the U.S. Government the law
firm for the RIAA and the MPAA. I don't think that is
appropriate, which some of the proposals have done. I think the
term of copyright should be reduced. Actually, Congress did
make a decision which helped the Supreme Court. Congress acted
to make it clear that downloading in the home is an illegal
activity, and because of that, the Supreme Court say that that
is an illegal activity. Therefore, it is inducing this illegal
activity. Also, the RIAA has sued some 10,000 Americans, some
10,000 teenagers, collected about $30 million to finance the
RIAA, according to published reports. So what you have is--
Chairman Specter. My time is almost up, but I want to--
Mr. Shapiro. I am sorry. You have done a lot already is
what I am saying.
Chairman Specter. I want to move to Mr. Yagan. You heard
Mr. Aydar's suggestion to bring all of these competing forces
together. Do you think it is a good idea?
Mr. Yagan. Mr. Chairman, I think my primary interest is in
promoting as many different marketplace solutions as possible.
So I am very excited about what SNOCAP is trying to do. I have
been meeting with Mr. Aydar for well over a year on this topic.
So I think it is a good idea, but I think we have to be very
concerned not only about what we are doing internally, but how
is the technology going to develop in an offshore environment.
I believe that the result of the Grokster case will be that
all of the existing peer-to-peer applications will be converted
or in some other way will cease operations, but that does not
mean that the file-sharing itself will necessarily stop. So I
think as we think about what the market solution is or what the
legislative solution is, we have to keep in mind the practical
consequence that just because companies like mine may no longer
exist, the technology still will.
Chairman Specter. Thank you, Mr. Yagan. The red light went
on during your answer, so I yield now to the new Ranking
Member, Senator Feinstein.
Mr. Sherman. Mr. Chairman, if I may just interject one
thing, I just want to correct the record. There is no truth to
the notion that the RIAA has collected anywhere near the amount
of money Mr. Shapiro thinks. I just want to make that clear.
Chairman Specter. Senator Feinstein.
Senator Feinstein. I have listened to this with great
interest and the position I am having the hardest time
understanding is yours, Mr. Shapiro.
Mr. Shapiro. I suspected that.
Senator Feinstein. Yes, because you represent patent
industries that want to protect their patents. In my book,
there is no difference between the patent and the copyright.
They are both protective mechanisms for people who have created
to be able to recover based on the creation. So in my view,
what is sauce for the goose is sauce for the gander. So should
we reduce patent?
Mr. Shapiro. I would be very comfortable reducing copyright
to the term of a patent, but now it is about five times the
term of a patent. It used to be very close together, and
Congress repeatedly expanded it at the request of copyright
owners. It now is so ridiculously long that there is very
little in the public domain that can be used in these new
systems.
Senator Feinstein. But you certainly don't want less
patentability for the companies you represent.
Mr. Shapiro. Well, we do represent most of the patent
owners in the non-medical area, and there is no question about
that. The patent law does have some challenges as well, but the
difference in a patented product, a physical product, and a
copyrighted product is that if I take your patented product
from you, you no longer have that product. If I use your
copyrighted product, you have not actually lost something
physical. In fact, you may have gained something and I may want
to buy more of your product.
Senator Feinstein. You lose your income.
Mr. Shapiro. You lose a potential source of a sale. Every
one of these estimates of lost sales actually may be an
estimate of what was taken, but not paid for. A lot of these
people would never pay for that, but there is some gain. They
do get exposed to artists, they learn about artists. It is not
all bad. It is arguable whether it is bad or good.
It clearly is wrong. I would agree that P2P--I do not
represent P2P companies. P2P is wrong. I am concerned about the
broader context of that ruling in how all new technology is
introduced because so much of new technology is shifting
content around in time and space and managing it.
Senator Feinstein. Thank you. I was very interested in what
Mr. Aydar said about SNOCAP. Now, that seems to me to be a very
good model.
Do you agree, Mr. Sherman?
Mr. Sherman. Absolutely. The record companies and the rest
of the music community are very excited about the offering. It
is an entire system that can make P2P legal. It would allow
non-infringing uses of it to continue, but it would enable you
to identify infringing transmissions and turn them into
legitimate sales with a back office function that provides
royalty payments to everybody. That is a beautiful model.
Senator Feinstein. Well, then, Mr. Yagan, why wouldn't we
want to see the SNOCAP model become the state-of-the-art for
the entire industry? It seems to me to be a fair outcome
whereby everybody gets basically what they need to survive.
Mr. Yagan. I support that fully and I wish SNOCAP the best
of luck, and we are in the process from an e-Donkey perspective
of determining what our technological solution will be as we
strive to convert the existing traffic we have into traffic
that will be in one of these closed environments.
At the end of the day, as much as I think it is a good idea
and everyone else on this panel may think it is a good idea, it
is at the end of the day up to the consumers, the 60, 70, 80
million consumers in America who are downplaying music on these
P2P applications, whether they are going to leave the existing
open environments and move over to a closed SNOCAP-type
environment. I have no idea if that is going to take place in
the market.
Senator Feinstein. I would just note that the solution
comes from San Francisco.
[Laughter.]
Senator Feinstein. Let me ask all of you, assuming that
models like SNOCAP are the solution, what do we do to promote
that solution? What is clear to me after so many years is just
staying out of it and letting the two sides go at each other
isn't going to solve it, and the only thing that is going to
happen is there is going to be a lot of litigation. So how
would you suggest that the Congress or someone would proceed
if, in fact, the SNOCAP model is a good solution?
Mr. Lemley. Well, let me start off, Senator Feinstein, by
suggesting that part of the difficulty that all of the peer-to-
peer file-sharing services have had in negotiating for rights--
and I think they have all tried to do so--is there are so many
different rights-holders, not only because there are lots of
different songwriters and there are lots of different recording
companies and movie companies and they have each got rights,
but because the rights have been divided according to a pre-
digital world, so that one group of companies ends up with the
rights to own publishing music and another group owns the
rights to public performances of music And, of course, a
digital broadcast is both.
So we need some way, whether it is in Section 115 or some
other way, to consolidate those interests so that there are a
relatively small number of people who can sit down at the table
and negotiate.
Mr. Sherman. I would echo Professor Lemley's remarks.
Licensing reform in Section 115 would help especially the new
business models where there are uncertainties about how the law
applies. We don't have dispute resolution mechanisms in place
to solve those problems and get new, innovative ideas to market
quickly.
Senator Feinstein. So let me ask this question. Is
everybody agreed, then, that a solution lies within 115?
Mr. Sherman. I certainly feel that way.
Senator Feinstein. Any dissenters? Oh, I knew it.
Mr. Shapiro. Well, I just can't say I agree with that, but
what I would say is that part of the problem is the difficulty
locating copyright owners. That is the biggest part of the
problem, and part of it is because the copyright term is so
gosh-darn long now. It is just impossible to use old stuff
anymore.
If there was a way of identifying copyright owners--and
there have been proposals where you have to register with a
dollar every 20 years or whatever it is just to say you are
still alive. There are some proposals out there which are very
reasonable and would allow a more central way of finding out
who owns what. But a DVD shouldn't cost the same price as a CD.
The motion picture industry has done it right. The music
industry has done it wrong, plus they have been saddled by all
these different rights and who owns what.
Mr. Sherman. The Section 115 reform that is being talked
about would create a blanket license system so that a filing of
a single paper would cover all of the copyright owners
identified or unidentified, which would address Mr. Shapiro's
problem.
Mr. Roe. If I could say one thing, just in the past 2 years
just the education of informing people of what they were doing
was illegal has actually deterred illegal downloading almost by
50 percent. So it has had some effect, the education, but I do
have a little bit of issue with the fact that Congress
shouldn't do anything at this moment.
I think in the early stages of any technology, whether it
be the automobile or the recording business in general, there
are times where we have to set the boundaries of how is this
new technology going to be handled. And I hope that the
information you have gathered here today will help you all do
what you are supposed to do here.
Chairman Specter. Thank you, Mr. Roe.
Senator Feinstein. Thank you. My time is expired.
Chairman Specter. Mr. Aydar, you haven't had a chance to
comment. We would be pleased to hear from you, although SNOCAP
has received lofty praise here.
Mr. Aydar. Well, in terms of legislation and whether
Congress should do anything, SNOCAP is out there promoting a
technology and a market-based solution. We believe that it
would be helpful to see where that market-based solution leads
us. We feel that we have built a solution that works within the
copyright law and will make the number of works that are
available on a legitimate service comparable to what is
available on a peer-to-peer network, thereby making those
services able to compete, thereby making those services
compelling and capturing the users that are using these P2Ps
today.
Chairman Specter. Well, thank you all very much for coming
in. I regret we do not have more members. You have come on a
very, very busy day. We are on the floor with the Roberts
nomination, which is occupying a great deal of attention. We
had scheduled at the same time a conference on what to do about
hurricane costs and offsets. So it is a very busy season.
But there is a great deal of concern for both sides of this
issue to promote artistic accomplishment and innovation on
technology. The Internet has been magnificent, the artistic
works have been magnificent, and these are issues of great
importance on both sides to America and to the world. So we
will continue to study them, and at least in the short term I
think we will carry out the wishes of those who would like to
see us do nothing, at which we are very good, until Senator
Feinstein tells us precisely what to do.
[Laughter.]
Chairman Specter. Thank you all very much.
[Whereupon, at 11:14 a.m., the Committee was adjourned.]
[Questions and answers and submissions for the record
follow.]
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