[House Hearing, 110 Congress]
[From the U.S. Government Publishing Office]



 
                     REFORMING SECTION 115 OF THE 
                   COPYRIGHT ACT FOR THE DIGITAL AGE

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


                                HEARING

                               BEFORE THE

                 SUBCOMMITTEE ON COURTS, THE INTERNET,
                       AND INTELLECTUAL PROPERTY

                                 OF THE

                       COMMITTEE ON THE JUDICIARY
                        HOUSE OF REPRESENTATIVES

                       ONE HUNDRED TENTH CONGRESS

                             FIRST SESSION

                               __________

                             MARCH 22, 2007

                               __________

                           Serial No. 110-33

                               __________

         Printed for the use of the Committee on the Judiciary


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


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                       COMMITTEE ON THE JUDICIARY

                 JOHN CONYERS, Jr., Michigan, Chairman
HOWARD L. BERMAN, California         LAMAR SMITH, Texas
RICK BOUCHER, Virginia               F. JAMES SENSENBRENNER, Jr., 
JERROLD NADLER, New York                 Wisconsin
ROBERT C. SCOTT, Virginia            HOWARD COBLE, North Carolina
MELVIN L. WATT, North Carolina       ELTON GALLEGLY, California
ZOE LOFGREN, California              BOB GOODLATTE, Virginia
SHEILA JACKSON LEE, Texas            STEVE CHABOT, Ohio
MAXINE WATERS, California            DANIEL E. LUNGREN, California
MARTIN T. MEEHAN, Massachusetts      CHRIS CANNON, Utah
WILLIAM D. DELAHUNT, Massachusetts   RIC KELLER, Florida
ROBERT WEXLER, Florida               DARRELL ISSA, California
LINDA T. SANCHEZ, California         MIKE PENCE, Indiana
STEVE COHEN, Tennessee               J. RANDY FORBES, Virginia
HANK JOHNSON, Georgia                STEVE KING, Iowa
LUIS V. GUTIERREZ, Illinois          TOM FEENEY, Florida
BRAD SHERMAN, California             TRENT FRANKS, Arizona
ANTHONY D. WEINER, New York          LOUIE GOHMERT, Texas
ADAM B. SCHIFF, California           JIM JORDAN, Ohio
ARTUR DAVIS, Alabama
DEBBIE WASSERMAN SCHULTZ, Florida
KEITH ELLISON, Minnesota
[Vacant]

            Perry Apelbaum, Staff Director and Chief Counsel
                 Joseph Gibson, Minority Chief Counsel
                                 ------                                

    Subcommittee on Courts, the Internet, and Intellectual Property

                 HOWARD L. BERMAN, California, Chairman

JOHN CONYERS, Jr., Michigan          HOWARD COBLE, North Carolina
RICK BOUCHER, Virginia               TOM FEENEY, Florida
MARTIN T. MEEHAN, Massachusetts      LAMAR SMITH, Texas
ROBERT WEXLER, Florida               F. JAMES SENSENBRENNER, Jr., 
MELVIN L. WATT, North Carolina       Wisconsin
SHEILA JACKSON LEE, Texas            ELTON GALLEGLY, California
STEVE COHEN, Tennessee               BOB GOODLATTE, Virginia
HANK JOHNSON, Georgia                STEVE CHABOT, Ohio
BRAD SHERMAN, California             CHRIS CANNON, Utah
ANTHONY D. WEINER, New York          RIC KELLER, Florida
ADAM B. SCHIFF, California           DARRELL ISSA, California
ZOE LOFGREN, California              MIKE PENCE, Indiana


                     Shanna Winters, Chief Counsel

                    Blaine Merritt, Minority Counsel


                            C O N T E N T S

                              ----------                              

                             MARCH 22, 2007

                           OPENING STATEMENT

                                                                   Page
The Honorable Howard L. Berman, a Representative in Congress from 
  the State of California, and Chairman, Subcommittee on Courts, 
  the Internet, and Intellectual Property........................     1
The Honorable Howard Coble, a Representative in Congress from the 
  State of North Carolina, and Ranking Member, Subcommittee on 
  Courts, the Internet, and Intellectual Property................     3
The Honorable Lamar Smith, a Representative in Congress from the 
  State of Texas, Ranking Member, Committee on the Judiciary, and 
  Member, Subcommittee on Courts, the Internet, and Intellectual 
  Property.......................................................    10

                                WITNESS

Ms. Marybeth Peters, Register of Copyrights, U.S. Register of 
  Copyrights, Washington, DC
  Oral Testimony.................................................    18
  Prepared Statement.............................................    21

          LETTERS, STATEMENTS, ETC., SUBMITTED FOR THE HEARING

Prepared Statement of the the Honorable Howard Coble, a 
  Representative in Congress from the State of North Carolina, 
  and Ranking Member, Subcommittee on Courts, the Internet, and 
  Intellectual Property..........................................     5
Prepared Statement of the the Honorable John Conyers, Jr., a 
  Representative in Congress from the State of Michigan, 
  Chairman, Committee on the Judiciary, and Member, Subcommittee 
  on Courts, the Internet, and Intellectual Property.............    10
Prepared Statement of the Honorable Lamar Smith, a Representative 
  in Congress from the State of Texas, Ranking Member, Committee 
  on the Judiciary, and Member, Subcommittee on Courts, the 
  Internet, and Intellectual Property............................    13

                                APPENDIX
               Material Submitted for the Hearing Record

Prepared Statement of the Honorable Sheila Jackson Lee, a 
  Representative in Congress from the State of Texas, and Member, 
  Subcommittee on Courts, the Internet, and Intellectual Property    60
Prepared Statement of the Honorable Steve Cohen, a Representative 
  in Congress from the State of Tennessee, and Member, 
  Subcommittee on Courts, the Internet, and Intellectual Property    65
Ethan Smith, Sales of Music, Long in Decline, Plunge Sharply, 
  Rise in Downloading Fails to Boost Industry: A Retailing 
  Shakeout, Wall Street Journal, March 21, 2007 at A1............    66
Statement released by SESAC, Inc. on ``Reforming Section 115 of 
  the Copyright Act for the Digital Age''........................    69
Joint statement released by the American Society of Authors, 
  Composers and Publishers and Broadcast Music, Inc. comments on 
  Reforming Section 116 of the Copyright Act for the Digital Age.    74


     REFORMING SECTION 115 OF THE COPYRIGHT ACT FOR THE DIGITAL AGE

                              ----------                              


                        THURSDAY, MARCH 22, 2007

                  House of Representatives,
              Subcommittee on Courts, the Internet,
                         and Intellectual Property,
                                Committee on the Judiciary,
                                                    Washington, DC.
    The Subcommittee met, pursuant to notice, at 10 a.m., in 
Room 2141, Rayburn House Office Building, the Honorable Howard 
Berman (Chairman of the Subcommittee) presiding.
    Present: Representatives Berman, Conyers, Boucher, Wexler, 
Watt, Cohen, Johnson, Schiff, Lofgren, Coble, Feeney, 
Goodlatte, Chabot, Cannon, Keller, Issa, Pence, and Smith.
    Staff present: Perry Apelbaum, Chief of Staff/General 
Counsel; Joseph Gibson, Minority Chief Counsel; Rosalind 
Jackson, Professional Staff Member; David Whitney, Minority 
Counsel; and Shanna Winters, Subcommittee Chief Counsel.
    Mr. Berman. Welcome. We will open the hearing now.
    The hearing of the Subcommittee on Courts, the Internet, 
and Intellectual Property will come to order.
    I will recognize myself for an opening statement.
    I would be remiss to begin any music licensing hearing 
without acknowledging that reforming section 115 may not be the 
top priority of many in this room. After all, small webcasters 
are scrambling to assess the viability of their current 
business models after the recent rate determination by the 
Copyright Royalty Board.
    In addition, the recent announcement of the XM-Sirius 
merger has exposed the glaring inequities of the Copyright Act 
in its application to different technologies: Internet, cable, 
satellite and, of course, the over-the-air broadcasters.
    This raises the question: Should I and interested 
colleagues reintroduce a version of the PERFORM Act, and is it 
finally time for a performance right to extend to rusty old 
radio?
    These developments highlight a quintessential issue for 
this Subcommittee: Should we proceed with comprehensive reform 
of music licensing or deal with it in a piecemeal fashion? For 
the sake of this hearing, the Subcommittee will limit its focus 
to section 115.
    Many times over the past several years, this Subcommittee 
has explored the need for reforming the section 115 compulsory 
license for musical works. All interested parties agree that it 
is broken and that the licensing structure that was developed 
to deal with the distribution of piano rolls, while updated, 
still does not provide a fluid mechanism for a new physical and 
digital music delivery models.
    Complaints about section 115 range from its administrative 
burdens relating to the complexities of the notice requirements 
to the legal ambiguities relating to the definition of digital 
phonorecord delivery, DPD, or more broad, where or if a 
performance ends and reproduction begins.
    However, no consensus exists for how to fix section 115. At 
the macro level, parties agree that rampant piracy over peer-
to-peer networks creates a dire need to address digital music 
licensing reform. In 2005, alone, nearly 20 billion illegal 
file swaps and downloads occurred.
    This piracy harms an industry that provides jobs in my 
district and throughout the country, and it hurts all the 
parties involved, from the songwriter, to the recording artist 
and to all the businesses that service the industry.
    In a post-Grokster environment, we have a unique 
opportunity to channel consumers away from illegal P2P 
networks, toward legitimate online music distribution services.
    But the window is closing. In 2006, digital music sales 
totaled $2 billion, up from $1.1 billion in 2005. Consumers 
downloaded an estimated 795 million songs, up 89 percent from 
the 2005 figures. Currently, there are 4 million tracks 
available for downloading, facilitated by 500 online music 
services, available in over 40 countries. Further fueling the 
growth of digital downloads, portable music player sales 
increased 43 percent, to $120 million in 2006. In addition, 
ringtones, once dismissed as nothing more than a passing fad, 
have become a $3 billion worldwide market.
    This is all good news. However, despite their meteoric 
growth, legal online music services still represent the 
equivalent of a fly on the back of the online piracy elephant. 
Yesterday's Wall Street Journal described how digital music has 
failed to compensate for lost sales of CDs and that according 
to BigChampagne, 1 billion songs a month are traded on illegal 
file-sharing networks. I will let you figure out what 
BigChampagne is.
    Therefore, since there is broad consensus that 
inefficiencies in section 115 hinder the rollout of new legal 
music offerings, we must turn our focus to the question of how 
to reform section 115. I fear that if we do not address 
particularly reforms to section 115 soon, legitimate music 
services will not be able to compete with free or provide 
consumers with their choice of music any time, any place and in 
any format, while at the same time ensuring that creators 
receive adequate compensation.
    There have been multiple suggestions for reforming the 
compulsory license, including, one, designating an agent to 
collectively manage reproduction and redistribution rights; 
two, collectively licensing performance, distribution and 
reproduction rights for a music rights organization; three, 
amending 115 to ease just the administrative burden and legal 
uncertainty; and, four, repealing section 115 and allowing the 
marketplace to regulate licensing.
    Last year, the former Chairman of this Subcommittee, 
Congressman Lamar Smith, made a valiant effort to resolve the 
issue. Perhaps back then the interested parties lacked the 
motivation to act. Clearly, all parties would benefit from 
section 115 reform.
    For example, the business survival of the digital media 
association members' depends on the success of legitimate 
online music services. In addition, the proliferation of 
additional legal music offerings will provide vital new sources 
of royalties for members of the National Music Publishers 
Association and songwriters. Finally, RIAA members will also 
benefit through the distribution of their works in secure, new 
formats.
    Since the Subcommittee last met on this issue, there have 
been several developments. First, the Copyright Office 
determined that ringtones fall within the scope of the 115 
license, though the determination is on appeal. Also, ASCAP and 
digital music services are facing off in a Federal court in New 
York over whether a download of a musical work implicates a 
public performance, and copyright royalty judges are about to 
set a discovery schedule in the section 115 rate proceeding.
    I don't deny that several obstacles seem to remain in the 
way of full-scale realization of music distribution 
possibilities. Whatever the outcome of the reforms we 
ultimately adopt, our focus needs to remain on facilitating the 
licensing of distribution and reproduction rights so that 
consumers can receive music in the manner they want, while at 
the same time providing rightful compensation to the creators 
of music.
    Rewards for innovation are hard enough to come by for the 
songwriters who are often the first to create but last to be 
paid.
    I look forward today to hearing from our witness, Marybeth 
Peters, and would now recognize our distinguished Ranking 
minority Member, my friend Howard Coble, for his opening 
statement.
    Mr. Coble. Thank you, Mr. Chairman.
    Mr. Chairman, as you know, because of term limits, I was 
removed from this Subcommittee for the past 4 years. It is 
indeed good to see old friends in the room today, including the 
distinguished Register and her able staff who is covering her 
back as we speak.
    Mr. Chairman, article 1, section 8 of the Constitution 
grants Congress this power: To promote the progress of science 
and useful arts by securing for limited times to authors and 
inventors the exclusive right to their respective writings and 
discoveries.
    In 1909, the 61st Congress decided to exercise this power 
by enacting a compulsory license that authorized anyone to 
reproduce and distribute piano rolls for use in the home 
entertainment centers of their day, player pianos, providing 
they paid a royalty of 2 cents to the owner of the copyright in 
the musical work, which typically was the songwriter or a music 
publisher.
    The antecedent of section 115 of the Copyright Act, which 
is the subject of our hearing today--this license was intended 
to balance the interests of copyright owners in controlling and 
receiving compensation from the use of their writings and the 
interests of consumers and music distributors who wanted to 
make available the widest variety of musical compositions at 
the lowest cost to the public.
    The development of new technologies and mediums for the 
physical distribution of music, such as phonographic records 
and cassette tapes, as well as a recognition of the woefully 
inadequate compensation provided to copyright owners by the 2-
cent statutory royalty, led to amendments to the law in 1976.
    In 1995, the Congress again revisited the license by 
enacting the Digital Performance Right in Sound Recordings Act, 
or DPRA. At that time, Congress sought to anticipate the 
transition from the physical distribution of products, such as 
albums, CDs, and tapes that contained music to the digital 
delivery of music files by computer and the Internet, by making 
clear that copyright owners were to benefit from the payment of 
royalties for digital deliveries of phonorecords.
    Notwithstanding these amendments, there is substantial 
evidence that section 115 is, in the words of our distinguished 
Register, Ms. Peters, dysfunctional. The Copyright Office 
reports that the license appears to be seldom used by licenses, 
the administration of the license is fraught with 
inefficiencies, ambiguities and difficulties and recommends the 
license needs to be structurally changed and amended to clarify 
which licensees are required for the transmission of music if 
Congress is to improve its operation.
    Indeed, the view that the license is dysfunctional is 
widely shared by those in the music publishing, reproduction 
and distribution industries. It is, furthermore, the opinion of 
the present and former leaders of this Subcommittee, who worked 
diligently and introduced the Section 115 Reform Act of 2006, 
which is commonly referred to as SIRA.
    Though marked up by the Subcommittee last June, you will 
recall, Mr. Chairman, several outstanding issues conspired to 
prevent that measure from being formally enacted prior to the 
adjournment of the Congress for that year.
    I believe the Members of this Subcommittee and the parties 
interested in modernizing the music licensing systems owe a 
debt and gratitude to our former Chairman, Representative 
Smith, the distinguished gentleman from Texas, and the current 
Chairman, Representative Berman, the distinguished gentleman 
from California, for their commitment and leadership in seeking 
to change or to make section 115 relevant in the age of digital 
music.
    Finally, while there is an Amen chorus that the license is 
broken and requires repair, the composers, music publishers, 
record companies, digital distributors and consumers, who all 
have a legitimate stake in rebalancing section 115, all sing 
different tunes about how precisely it should be accomplished. 
The process that led to the introduction and markup of the 
Section 115 Reform Act brought many of these parties closer 
together.
    I look forward to hearing the testimony from Ms. Peters 
today, Mr. Chairman, as you indicated, and to learning more 
about proposals to clarify the rights that need to be licensed, 
as well as approaches for streamlining the rights approval 
process.
    This concludes my remarks, and I thank the Chairman.
    [The prepared statement of Mr. Coble follows:]
Prepared Statement of the the Honorable Howard Coble, a Representative 
   in Congress from the State of North Carolina, and Ranking Member, 
    Subcommittee on Courts, the Internet, and Intellectual Property











    Mr. Berman. Thank you very much, Mr. Coble.
    Chairman Conyers?
    Mr. Conyers. After these two great descriptions of what we 
are here for, I will put my statement in the record.
    [The prepared statement of Mr. Conyers follows:]
Prepared Statement of the Honorable John Conyers, Jr., a Representative 
  in Congress from the State of Michigan, Chairman, Committee on the 
   Judiciary, and Member, Subcommittee on Courts, the Internet, and 
                         Intellectual Property
    Let me begin by thanking my good friend from California, the 
Chairman of the Subcommittee, for convening today's hearing. I'd also 
like to take this opportunity to recognize the presence of our sole 
witness, Marybeth Peters. I believe this is the third time that Ms. 
Peters has agreed to testify before the Subcommittee on this issue, in 
as many years. And, I'd just like to personally thank her for her 
continued willingness to help out, as we search for a solution to this 
difficult and complex problem.
    In just a few years, copyright holders have gone from being just 
victims of large-scale Internet piracy to embracing the Internet to 
market their works. Copyright owners, including record companies and 
songwriters, responded to consumer demands by working with Internet 
sites like iTunes to provide digital content to consumers. In essence, 
they are taking advantage of the very technology that threatens their 
livelihood.
    Despite this turnaround, though, we are still hearing that music is 
not widely available online and that the reason is the difficulty in 
getting licenses from music publishers over the musical compositions. 
Companies seeking the licenses claim the procedures are outdated and 
the law is not clear on which online music services require which 
licenses. There are even suggestions that Congress should alter the 
licensing scheme into a ``blanket'' license so that users of 
compositions pay royalties into a pool and the Copyright Office divvies 
up the money amongst the publishers.
    Let me state that I am one Member who would be concerned with 
proposals limiting the ability of songwriters and publishers to 
negotiate licenses for their compositions. Despite the fact that they 
actually create and write the songs we listen to, songwriters and 
publishers receive what appear to be the lowest royalties in the music 
industry.
    Publishers should not be penalized for protecting their property 
rights in the same way every other industry has done: the record 
companies have sued individuals for copyright infringement and file 
sharing companies have sued record companies and others for copyright 
violations.
    Simple economics would dictate that it is in the publishers' self-
interest to license their work to anyone who can protect it from piracy 
and who can pay the royalties. Simply put, music publishers and 
songwriters have no incentive to keep music off the Internet, but 
limiting their rights even further could create disincentives.
    In short, I hope we can let the market work before we introduce 
more regulations into an already heavily-regulated content industry. 
The last thing we want to do is create further obstacles to creativity.

    Mr. Berman. This is really a three-witness hearing, 
Marybeth Peters, the register, Mr. Coble and myself.
    And the Ranking Member of the Committee, Mr. Smith?
    Mr. Smith. Mr. Chairman, I do have an opening statement I 
would like to make.
    Mr. Berman. Yes, you are recognized.
    Mr. Smith. Mr. Chairman, first of all, I appreciated your 
comments a while ago about our efforts last year, and of course 
I hope those efforts will lead to results sometime soon this 
year.
    Mr. Chairman, thank you for convening this hearing on 
section 115 of the Copyright Act and the status of proposals to 
adapt it to the realities of today's digital marketplace.
    Last June, this Subcommittee began the process of bringing 
the law that governs the music industry, a multibillion dollar 
enterprise, into the digital age with the introduction and 
markup of the Section 115 Reform Act of 2006, or SIRA. Prior to 
the introduction of SIRA, the Subcommittee had conducted seven 
hearings over the past two Congresses on aspects of the 
copyright law that relate to music licensing and digital 
technology.
    SIRA was introduced to focus attention on the need to 
modernize the mechanical license that governs the making and 
distribution of phonorecords in the U.S. The need for a 
comprehensive rewrite of this compulsory license has been 
apparent for some time. Imperfect and in many ways 
anachronistic, the license is nevertheless one that has 
generally been accepted by those who have been engaged in 
composing, publishing or producing phonorecords for many years.
    In its current form, though, the license fails to 
adequately encourage the cultivation and development of a 
robust, legitimate, online digital music market, something that 
is necessary for the future health of composers, publishers, 
record companies, recording artists and consumers. The 
development of a legal marketplace will improve the consumer 
experience by enabling music lovers to purchase and enjoy music 
when and where they want.
    Tens of millions of American consumers already embrace 
technologies that enable them to enjoy music in new, exciting 
and previously unimaginable ways. As the number and variety of 
online music services expands, Congress has the responsibility 
to ensure the law is modernized in a manner that strikes the 
appropriate balance between the rights of copyright owners, the 
economic necessities of the marketplace and the interest of 
consumers.
    SIRA was an important first step in beginning this process. 
The requirement to update our Nation's music licensing laws 
grows more urgent every day.
    Mr. Chairman, as you noted a while ago, proof of this 
statement was on the front page of yesterday's Wall Street 
Journal, which published an article that described a ``seismic 
shift in the way consumers acquire music,'' and stated overall, 
``Sales of all music, digital and physical, are down 10 percent 
this year and that CD sales have plunged a startling 20 percent 
over the last year.''
    To be sure, there are a number of factors that have 
contributed to this dramatic decline. However, Congress and the 
music industry have the power to advance the adoption of a 
modern, sensible and efficient music licensing system that 
rewards creators and facilitates the ability of legitimate 
licensees to acquire the legal rights that they need to 
reproduce, distribute and perform music.
    I am encouraged that we have the opportunity to build on 
SIRA's foundation and hopefully succeed in enacting a 
bipartisan measure that updates and reforms our Nation's music 
licensing laws.
    The critical question that will need to be addressed by the 
music industry this Congress is whether it will find common 
ground and take the steps necessary for the development of a 
21st century music licensing system.
    In closing, Mr. Chairman, I want to thank you and the 
Ranking Member of this Subcommittee for your recognition of the 
importance of this issue and the decision to schedule this 
oversight hearing so early in the congressional session.
    Mr. Chairman, I ask unanimous consent that the Wall Street 
Journal article that you and I have referred to be made a part 
of the record.
    Mr. Berman. It will be so documented.
    [The information referred to is available in the Appendix.]
    Mr. Smith. And, furthermore, Mr. Chairman, I want to 
apologize for having to leave almost immediately in order to 
get to the House floor. As you know, the Judiciary Committee 
has a bill that is coming up, and I need to tend to that. But I 
know this is going to be an interesting hearing, and I look 
forward to reading Marybeth's testimony and to learning more 
about this subject.
    And I yield back the balance of my time.
    [The prepared statement of Mr. Smith follows:]
 Prepared Statement of the Honorable Lamar Smith, a Representative in 
  Congress from the State of Texas, Ranking Member, Committee on the 
   Judiciary, and Member, Subcommittee on Courts, the Internet, and 
                         Intellectual Property











    Mr. Berman. See, in the old days, we wouldn't have been 
able to continue while a Judiciary bill was going on on the 
House floor.
    Thank you very much, Mr. Smith.
    Do any other Members wish to make opening statements?
    Okay. Then I will introduce our witness, known to anybody 
who has been around here a while. She is Marybeth Peters, the 
register of copyrights. Ms. Peters has been register since 
1994. Previously, she served as the policy planning advisor to 
the former register.
    In addition to her leadership of the Copyright Office, Ms. 
Peters serves on the Intellectual Property Advisory Committees 
of several law schools and is a member of the Board of Trustees 
of the Copyright Society of the United States of America.
    Ms. Peters received her undergraduate degree from Rhode 
Island College and her law degree from George Washington 
University. She is not simply important because of her position 
but she is truly an expert on this subject.
    Ms. Peters, it is good to have you here again. Your written 
statement will be part of the record in its entirety, and we 
would appreciate you being able to summarize your testimony in 
around 5 minutes.
    We welcome you. Please begin.

  TESTIMONY OF MARYBETH PETERS, REGISTER OF COPYRIGHTS, U.S. 
             REGISTER OF COPYRIGHTS, WASHINGTON, DC

    Ms. Peters. Let me start by saying, Chairman Berman, 
Ranking Member Coble and Members of the Subcommittee, thank you 
for inviting me to testify on reforming the compulsory license 
dealing with the reproduction and distribution of non-dramatic 
musical works by means of physical phonorecords and digital 
phonorecord deliveries, section 115 of the Copyright Act, a 
topic that has been on the Subcommittee's agenda and my 
office's agenda for more than 3 years.
    During this period, I have testified four times, three of 
them before this Subcommittee, and I am going to use the same 
word that you used, Mr. Berman, that there have been valiant 
efforts by you and Mr. Smith and by the Subcommittee staff over 
the past 3 years, valiant efforts by the parties and even by my 
office to reach consensus on reform.
    Yes, we were close, but at the end of the day, legislation 
was not enacted. Today, my message is, the situation is worse, 
new issues are arising, and the likelihood of reaching 
consensus has lessened considerably, yet reform of section 115 
is urgent. So my focus today is on what potentially is 
achievable.
    Now, over the past 3 years, I have offered a number of 
solutions--at different times, different solutions. My 
preferred solution has always been abolition of the license. 
However, I am not advocating abolishing the license today. That 
would bring chaos. So whatever we do to reform needs to be 
achievable, and we can look at maybe the reform as transitional 
if in fact the goal, ultimately, and you agree, is to get rid 
of the license.
    Before going on, let me give a little bit of background, 
and you both referred to it, Mr. Coble and Mr. Berman, in your 
opening remarks. In 1995, the compulsory license was amended in 
anticipation of the introduction of digital music services. It 
was expanded to cover digital phonorecord deliveries. However, 
no one anticipated what would come. No one anticipated peer-to-
peer, Napster and the like. Nor could anyone foresee the issues 
that such technologies would raise.
    The Copyright Office, through its regulatory powers, has 
updated its regulations in response to industry petitions to 
make the compulsory license work better, and we may continue to 
do so, but regulatory action won't solve the problem. 
Substantive legislative reform is needed.
    I want to highlight two possible solutions. First, it could 
be wholesale sublicensing with a safe harbor provision for 
sublicensors or an amendment to section 115 to mirror the 
blanket compulsory license in section 114, which is the section 
which deals with digital performances of sound recordings.
    Under either option, however, the issue of clarifying the 
rights is essential. More about rights later.
    Let me start with sublicensing, which exists today in the 
marketplace. Online music companies can go to one entity, 
typically the record label, and receive all of the rights they 
need to operate a music service. Sublicensing works and with 
the addition of minimal statutory changes could work even 
better. I don't expect that every party will endorse additional 
sublicensing provisions, but this approach would solve the 
problem.
    Sublicensing makes sense from a practical perspective, 
because music services already have to deal with the record 
labels. So long as the record label passes on the proper 
royalty amount to the publisher that they have collected and 
the music services get the rights they need and money flows 
back in a timely fashion, then the parties will get the benefit 
of the compulsory license.
    The second legislative option is to adopt the 114 model in 
section 115. This would require greater changes in the law, but 
much of the language to create a 115 license already exists in 
114.
    Under the 114 framework today, one entity with respect to 
webcasters, SoundExchange, collects all the royalty income on 
behalf of all rights holders and then distributes that money to 
them. It is an efficient system that both licensees and 
licensors support, despite the outcry over the recent rate 
decision. It is not necessarily over the process, per se. It is 
the rate.
    As I have noted earlier, solving the rights issue is really 
necessarily, and the question here is, what is the problem with 
the rights. Licensing is divided into two separate markets. One 
is public performance; one is reproductions and distributions.
    This pits two different middlemen for the same copyright 
owner against each other. Each wants and each demands a piece 
of the action, whatever that action might be. But whether or 
not two or more separate rights are truly indicated and 
deserving of compensation is a question that is before a 
variety of bodies at this point.
    But on top of whether or not they are truly implicated, 
there is the belief that it is inefficient to require a 
licensee to seek out two separate licenses from two separate 
sources in order to compensate the same copyright owner for the 
right to engage in a single transmission of a single work. So 
clarification of what rights are implicated and whether those 
rights have liability is critical.
    If the goal, and I think this is the goal, is to shift 
users away from piratical services to legitimate services, we 
must have a statutory framework that enables music services to 
flourish. As I think all of us who have spoken this morning 
have said, the current framework for online services isn't just 
outdated, it is broken. It needs to be fixed.
    I look forward to working with all of you in trying to 
figure out a solution that will work for the digital 
marketplace, that will compensate songwriters, and that will 
compensate publishers. The key is not to deny rights holders 
the ability to get a fair bargain. It is really to enable music 
services so money will flow back.
    Thank you.
    [The prepared statement of Ms. Peters follows:]
                 Prepared Statement of Marybeth Peters


































    Mr. Berman. Thank you very much.
    I will recognize myself for 5 minutes for some questions, 
and then we will move ahead.
    I know the Copyright Office expressed unease about last 
year's bill. So if Congress were to pursue legislation similar 
to SIRA, what policy considerations should we be concerned 
with?
    Ms. Peters. I think we went on record with some of our 
concerns, and I will just outline one of them. One of them, 
actually, I think, is solvable. I think we actually even came 
forward with a way to do it, and it really deals with streaming 
and specifically whether or not when streams are involved there 
is in fact a distribution of a phonorecord.
    We believe that especially on-demand streams could well 
substitute for the sale of a phonorecord, and, therefore, the 
value of an on-demand stream is higher than pure streaming. So 
we agree that that is a compensable act that really has a high 
value.
    Our disagreement was calling it a distribution of a 
phonorecord. For us, it really was a public performance. So 
this issue was about terminology, and I think that that is 
fixable.
    There were some other issues that dealt with the 
administration of the license that get into the nitty-gritty of 
a designated agent and what the transparency of that 
organization is and how it runs. And we can give you further 
details if you want.
    Mr. Berman. So, basically, what you are saying really is, 
it is not a fight about so much--I mean, there will be 
differences of opinion about compensation, but it is a fight 
about how you analyze and the terminology used to describe it.
    Ms. Peters. Well, our concern was the way that it was 
described in that bill.
    Mr. Berman. Right.
    Ms. Peters. My issue about rights clarification, I think, 
has ratcheted up a little bit since SIRA basically was on the 
table. I think the proceeding in the rate court in the southern 
district of New York with regard to whether or not 
compensatable performances are involved in downloads is a big 
issue right now.
    Mr. Berman. Okay. One of the webcasters' concerns in the 
context of section 115 reform is how to treat ephemeral 
recordings used to facilitate the transmission of music. Here 
is what has been cited as your position on this issue.
    Ms. Peters. You are talking about a footnote.
    Mr. Berman. Footnote 434.
    Ms. Peters. Four-thirty-four.
    Mr. Berman. But I am only going to read part of it here.
    ``As we indicated in 1998 to the affected parties, we saw 
no justification for the disparate treatment of broadcasters 
and webcasters regarding the making of ephemeral recordings, 
nor did we see any justification for the imposition of a 
royalty obligation under a statutory license to make copies 
that have no independent economic value and are made solely to 
enable another use that is permitted under a separate 
compulsory license.''
    There is a lot of controversy about this footnote. What did 
the office mean to say in footnote 343 of your section 104 
report?
    Ms. Peters. As opposed to what we didn't mean.
    Mr. Berman. And maybe I beat Mr. Boucher to this question, 
I don't know.
    Ms. Peters. When we were doing what is known as the 104 
report, we were looking at various exemptions, and, really, 
this issue came up with respect to the fact that section 112(a) 
basically gave broadcasters a free ride. And so it came up in 
the context of 112(a). And then what we basically said is, in 
principle, we believe that people who perform like activities 
should be treated essentially the same way. And because the 
focus was on that broadcaster you shouldn't have to pay at all, 
we basically said, to equalize them, then maybe they shouldn't 
have to pay at all.
    However, what you really need to step back and say is, what 
is the value of those ephemeral copies. And it may be that 
there is value and you flip it the other way. But our main 
point, and I agree we took a position that said, don't pay at 
all. Basically, make E, which deals with webcasting and sound 
recordings, the equivalent of A, which deals with broadcasters 
and no liability, the same.
    I am here today to basically say, I can see the arguments 
with regard to server copies in some instances, and so the 
issue is one of value. If there is value and it should be 
licensed, there should be payment, but whoever is involved 
should be treated exactly the same way. Don't have disparity.
    Mr. Berman. I will restrain myself from getting into the 
issue of the free ride for broadcasters, and I will----
    Ms. Peters. So will I.
    Mr. Berman. This is a 115 hearing, and I will recognize the 
Ranking Member, Mr. Coble, for 5 minutes.
    Mr. Coble. Thank you.
    Thank you, Mr. Chairman and Ms. Peters. As has been said, 
it is good to have you with us this morning.
    Ms. Peters, the goal of the music industry is to increase 
its revenue at a time when sales of CDs are falling and 
consumers are choosing to acquire music by other means. Some 
might even believe that we are attempting to swim upstream 
against the tide here, but let me ask you this: Do you think 
that success in reforming section 115 will actually result in 
reversing these trends and growing the pie for those involved 
in creating, producing and distributing music?
    Ms. Peters. I believe that reform will help. Ultimately, it 
is the consuming public that makes the decision in the 
marketplace, but I do believe that the more legitimate services 
that you have, and that means enabling the digital music 
services to have as much music as possible to make available to 
consumers, moves us in the right direction. It is very 
difficult to compete against free.
    A second part of all of this is the consumer. We have to do 
a better job of explaining why promoting creativity, promoting 
songwriters, and promoting not only the people who write the 
songs but also the people who bring the songs to us. That has 
to be appreciated. So it is kind of a dual track, but this is 
certainly the first step.
    Mr. Coble. Let me put a simplified question to you that may 
not involve a simplified answer. What do you consider to be the 
chief obstacle or impediment to reform, A, and, B, how do we 
overcome it?
    Ms. Peters. The chief obstacle, in my view, is there are at 
least three major parties involved all of whom have their own--
and I understand it--issues and way they want to see this 
resolved. Trying to reach consensus isn't going to happen 
because their own interests differ significantly. So it really 
is, I think, Congress' responsibility to step back and say, 
what is the best balance?
    You cited the Constitution. What encourages creativity the 
most and distribution of product for the benefit of the 
American people? And I think there are some hard choices that 
you have to make. You are going to have to decide on what the 
path is and what a fair balance is.
    Obviously, if the answer were easy, we would have solved it 
3 years ago. And people in my office will smile, we have been 
meeting with various parties asking, what the situation is and 
where are you going. I had a reaction the other day. I went, 
``Ahh,'' I threw up my arms. I said, ``I don't know what to do. 
This is so complicated.''
    So it is difficult, but choose a path. Choose a 114 blanket 
license or choose the path and then keep that path narrow to 
accomplish ease of administration of the mechanical compulsory 
license so that digital music services can bring the largest 
amount of content to the people so that they can compete with 
free, unauthorized services.
    Mr. Coble. Well, it is easier to propound a simple 
question, and I think you responded as well as you could. I 
thank you for that.
    Ms. Peters, given that the 115 license is seldom used, that 
technology is moving faster than the legislative process and 
that industry stakeholders have been unable or unwilling to 
agree on one comprehensive reform proposal, should our 
Committee consider simply sunsetting the license just as the 
distant signal satellite license, the 119 license expires every 
5 years unless expressly reauthorized by the Congress? What say 
you to that?
    Ms. Peters. If what you are saying is, leave the license as 
it is and sunset it, I don't think it works. The problem is now 
you have got to enable music services now. You have got to 
figure out how to keep services in business and let them expand 
and grow to serve consumers' needs. So you can't leave it as it 
is.
    Actually, I was suggesting that if you fix it and do a 
short-term fix, and then sunset it. But I don't think a 
solution is leave it as it is and in 5 years sunset it. I 
support sunsetting it, but the experience with sunsets hasn't 
been good. They don't go away.
    Mr. Coble. And I see a red light. I see Mr. Berman is 
looking at me, so I yield back.
    Mr. Berman. So, basically, you are saying we are going to 
have to make tough decisions?
    Ms. Peters. I am saying that I think the time has come----
    Mr. Berman. I hate when that happens. [Laughter.]
    Ms. Peters. So do I.
    Mr. Berman. Although, I don't know, the sunset means we 
have to make tough decisions over and over again.
    Ms. Peters. That is exactly right.
    Mr. Berman. Since I don't know exactly where people came 
in, I am just going to go in the order of seniority and 
recognize the gentleman from Virginia, Mr. Boucher, for 5 
minutes.
    Mr. Boucher. Mr. Chairman, thank you very much.
    And, Ms. Peters, welcome back to the Subcommittee.
    Ms. Peters. Thank you.
    Mr. Boucher. We enjoy your biannual, it not annual, 
appearances here.
    I think that we all agree on the urgent need for section 
115 reform, and you have certainly well-stated that in your 
opening statement, and I thank you for that carefully prepared 
presentation.
    Last year, unfortunately, as we sought to process that 
reform, we had a consensus that was pretty close on most of the 
key provisions, as you also indicated in your statement. But 
then at the last minute, as the measure came to the 
Subcommittee for final consideration, there were added some 
extraneous and very controversial provisions, namely provisions 
that would have disabled the portable device that XM Satellite 
Radio is beginning to market and also a provision that would, 
as I recall, have added a digital audio broadcast flag.
    That latter provision is not mature and, frankly, has not 
been through the same kind of vetting process that the video 
broadcast flag went through with an independent group comprised 
of various stakeholder engineers making sure the standard was 
workable and efficient. That hasn't happened for the audio 
flag.
    And for the audio flag, it may not be necessary for 
Congress to act at all, because one company, essentially, 
controls the intellectual property, iBiquity, that is being 
used by the digital radio broadcasters. So, I mean, with an 
agreement with that company and all the external stakeholders, 
it could be implemented without Congress even having to act.
    All of that aside, my question to you is this: I very much 
hope that in the interest of getting an effective section 115 
reform passed in this Congress, that all of those who might be 
tempted to burden this bill with these extraneous and 
controversial provisions or other matters that would be 
controversial and might weigh it down would refrain from doing 
so. Because if we pass a section 115 reform, everybody who has 
a copyright interest is going to benefit. The labels benefit, 
the performers benefit, the songwriters and publishers benefit.
    And I think that Wall Street Journal article that 
Congressman Smith presented, which I also read yesterday, makes 
the case as clearly as any of us possibly can, that the lawful 
distribution by streams and downloads of music on the Internet 
has got to be made more feasible, and the legal underbrush that 
is causing that system, as you said, to be broken simply has 
got to be cleared away. We can do that pretty effectively with 
the 115 reform.
    So the first question I have for you is, do you have any 
comment on the appropriateness of let's don't burden this 
reform with some of these extraneous and controversial 
provisions that are really not necessary to reforming section 
115?
    Ms. Peters. The answer is, yes, don't burden with 
extraneous provisions. I guess the issue is, what is extraneous 
and what really is critical, and we may have some disagreement 
on some of that.
    But, no, that is----
    Mr. Boucher. Well, we don't need an audio flag for HD 
radio.
    Ms. Peters. No, I agree. We don't have to----
    Mr. Boucher. And we don't need to disable the portable 
devices that XM is putting out to do this, do we?
    Ms. Peters. Not through 115, but the question is----
    Mr. Boucher. Thank you. That pretty well answers----
    Ms. Peters. But the question is----
    Mr. Boucher. Thank you. That is a great answer. Why don't 
we leave it at that?
    Ms. Peters. No, no. I meant, the question is, what is 115 
going to cover? Activity is either an infringement or it isn't. 
Section 115 should focus on what kind of activity you want to 
promote through a compulsory license.
    Mr. Boucher. All right. Let's leave it with that.
    Now, my second question is this: I actually like that 
footnote a lot, and I am very familiar with that footnote, and 
I think you clearly got it right when you said that these 
incidental copies--the buffer copies, the cache copies, the 
ephemeral copies--that are necessary in order to effectuate a 
transmission that itself is licensed really have no independent 
value. You can't sell these for anything. They are only 
essentially made in the marketing of something for which 
copyright royalties are paid under another license.
    And so why not say that these items simply do not have 
independent value? It is hard for me to imagine that they do. 
And I, frankly, a little bit surprised this morning to hear you 
suggest that maybe they do after all and that your footnote was 
not properly stated.
    So tell me this: How can they possibly have independent 
value when they all do is effectuate a transmission that itself 
is licensed?
    Ms. Peters. I am not a guru in the marketplace. I stand by 
the statement with regard to incidental, temporary copies. The 
question that has come up, and where we actually have seen 
deals, we have seen contracts where there is separate money for 
a server copy, just raises for me a question on whether or not 
there is value.
    Mr. Boucher. Well, Ms. Peters, is it possible those deals 
were made because of the legal uncertainty with regard to 
whether or not this would be termed to be a copy unless we 
clearly declared that they had no independent value? I think 
the answer is, yes.
    Ms. Peters. It could be.
    Mr. Boucher. Thank you.
    Ms. Peters. I don't know the answer to that question.
    Mr. Boucher. Thank you, Mr. Chairman. I yield back.
    Mr. Berman. I recognize the gentleman from Florida, Mr. 
Feeney.
    Mr. Feeney. Well, thank you.
    And thanks for your testimony. My colleague asked questions 
and answered them for you, but I am a little new to this issue, 
so I am going to ask you for some advice.
    This is one of those areas where Congress tries to regulate 
an industry that technology is changing so dramatically that 
legislation is obsolete before it is effective. And would we be 
better off, given the state of things--I mean, nobody could 
have predicted 15 years ago, or for that matter 5, the status 
of BlackBerrys or iPods of downloading music on our computers, 
and given that we can assume that nobody can predict 5 or 15 
years from now what the technological opportunities for 
consumers will be, would we be better off, for example, going 
to a principles-based set of standards and letting the courts 
figure it out?
    Another alternative would be--you know, throughout states 
in this country we regulate utilities, for example, electric, 
water, sewer. Could we create a utility-type regulator of 
experts that would meet, if necessary, 5 days a week, 4 weeks a 
month to settle some of these issues that are rapidly changing?
    Would either of those be a better alternative than Congress 
trying to anticipate market technology changes?
    Ms. Peters. Let me start with the second. I would hate to 
see creative product treated as a utility. I would hate to see 
a song or motion picture or a piece of artwork treated as a 
utility. So I am not going to go down that road. I would not 
suggest that. I think these are efforts of some of the most 
talented people in the United States and throughout the world, 
and each one is different and each one has value.
    It is true that some of the difficulties that we have had 
with the law is when you use language that is very specific, 
sometimes to create certainly at a particular moment in time, 
that that language doesn't transition well toward change. And 
it is true that adopting basic principles whereby things like, 
if in fact a copy is made only to enable a licensed 
performance, then basically there should not be liability. That 
kind of a principle can adapt with change.
    And in fact in compulsory licenses, with regard to rate 
settings and terms, there already is a structure, a copyright 
royalty structure, and those people are equipped to deal with 
what are the services that are in the license and to set rates 
and terms. So I think that that is a better way to go. Stay 
away from copyright as a utility.
    Mr. Feeney. Well, I didn't mean to regulate----
    Ms. Peters. I am teasing. It is all right.
    Mr. Feeney [continuing]. The quality. But in terms of the--
--
    Ms. Peters. No, I know. I know what--actually, I have heard 
that many times, that everybody treats music like a utility.
    Mr. Feeney. The Securities and Exchange Commission for 80 
years in this country has regulated corporate governance 
without any serious long-term impact on freedom or capitalism 
or creativity, although we have some minor problems now and 
then, and that is a different Committee.
    You mentioned in your testimony the suggestion that we 
might create a music rights organization to combine both the 
mechanical and the performance rights, and you mentioned the 
benefits of one-stop shopping. But there are some potential 
harms with this approach too. Would you elaborate on what the 
downside or adverse consequences are?
    Ms. Peters. I mean, the truth of the matter is that that 
was a proposal that we, the Copyright Office, put forward. 
There was a hearing on that proposal where I was the only 
witness, and I can say that there was no support from anyone on 
that proposal.
    The downside is the reality of today's world, the reality 
that the way that music has traditionally been licensed has 
different organizations that do that. They are well-established 
and the thought of basically combining rights and having one 
organization handle both is not a welcomed thought to those 
organizations.
    Mr. Feeney. And, finally--well, I see my--I will yield back 
the balance of my time.
    Mr. Berman. I thank the gentleman.
    The gentleman from Florida, Mr. Wexler?
    Mr. Wexler. Mr. Chairman, I just got here after the----
    Mr. Berman. Okay. My problem is, I wasn't keeping track of 
when people got here.
    Mr. Wexler. I defer to whoever was here before me.
    Mr. Berman. Okay.
    Then Mr. Watt, the gentleman from North Carolina?
    Mr. Watt. Thank you, Mr. Chairman.
    Thank you for your testimony.
    I am new to the Subcommittee and we never got a shot at 
this issue the last time in the full Committee, so I have two 
questions that I would like to get your responses to.
    It sounds like you were very, very close to an agreement, 
at least that would have solved some of these issues, in the 
last term in Congress.
    Ms. Peters. I would say you were close to an agreement. It 
was Congress, not us.
    Mr. Watt. Then I will rephrase it to say, it sounds like we 
were close----
    Ms. Peters. You were, you were, yes. Okay. Yes.
    Mr. Watt [continuing]. To an agreement in--or they were 
close in the Subcommittee----
    Ms. Peters. Right. Yes. Yes.
    Mr. Watt [continuing]. To an agreement that would have 
resolved this. What changes in the marketplace have taken place 
since that near agreement that need to be taken into account, 
if any?
    And you, I think, indicated in your testimony that you 
perceive that it is more difficult to do it now than it was 
then. What are the things that make it more difficult from your 
perspective, and how might we work through those?
    And then, finally, what advice would you give a new Member 
of this Subcommittee about what role he might play in advancing 
this process to a conclusion?
    Ms. Peters. That is a good question. Let me start with----
    Mr. Berman. Go along with the Chairman is a good answer. 
[Laughter.]
    Ms. Peters. Well, you have your answer. Okay. Your Chairman 
has spoken.
    Mr. Berman. I am just kidding. I am just kidding.
    Mr. Watt. Sounds like I either need to follow the Chairman 
or follow Boucher, and neither one of those seems like a real 
good choice to me. [Laughter.]
    Ms. Peters. That is amazing.
    Mr. Berman. I can understand why.
    Ms. Peters. Let me start with what has changed. I am not 
sure what we heard, basically, is that our new business models 
that bring about a necessity to adjust the road that I 
basically suggested we go down, a blanket license or 
sublicensing. We heard that increasingly it is--a compulsory 
license kicks in after a copyright owner has authorized, so the 
copyright owner is in the driver's seat for the very first 
recording of a song.
    Mr. Watt. Was the sublicensing that you are talking about 
in the last legislation?
    Ms. Peters. It is actually in the 1995 legislation. But 
when this compulsory license kicks in is after there actually 
has been----
    Mr. Watt. You are talking to me about something--let me go 
back and maybe frame the question.
    Ms. Peters. Okay.
    Mr. Watt. If we were starting exactly where we left off the 
last time, not new things, what are the market changes that 
would create impediments to moving to conclusion, the changes 
that have taken place, and what change would you make from that 
basic structure?
    Ms. Peters. I don't think it is marketplace change, per se, 
but it is organizations who are dealing with the marketplace 
who believe that the existing marketplace is causing new 
difficulties in the licensing. And what I was getting at was 
this license never dealt with the first recording of a song. 
Now we are hearing that we really need to solve the problem of 
the first recording of a song.
    We have heard that although the law essentially allows one 
owner to license for all owners, that the practice is not to do 
that in the music area and that each owner is now only 
authorizing their piece. So the question is, how many owners 
are there. In the past, there may have been two, maybe three. 
We recently heard 17. When you get 17 owners and each one has 
to license the piece, if that is the trend, that makes it more 
difficult. So it is those kinds of things. It is really how the 
players are now dealing with transactions that are causing some 
of the strains.
    And I don't have advice on how you deal with it, other than 
to say that if you were dealing with two owners and now you are 
dealing with 17, it is more complicated. If you were dealing 
with subsequent recordings and now the issue is the initial 
one, it is a much bigger issue for a compulsory license.
    Mr. Berman. The gentleman's time has expired.
    The gentleman from Utah, Mr. Cannon?
    Mr. Cannon. Thank you, Mr. Chairman.
    And welcome back to the Committee, Ms. Peters.
    Ms. Peters. Thank you.
    Mr. Cannon. I don't want to be offensive to anybody else 
who is appearing before this or any other Subcommittee that I 
serve on, but you are my favorite witness, and it is amazing to 
me that you know so much and you have such breadth and depth on 
this subject.
    I apologize that I have been in and out and doing other 
things, and this has been asked, I think, perhaps in other 
ways, but you have been quoted historically as saying that 
getting rid of the compulsory license would cause chaos in the 
industry. Could that be done with a phase-out at 6 months or a 
1-year phase-out, and does that make sense to do?
    Ms. Peters. I am not the best person to answer that 
question. It really is----
    Mr. Cannon. You should leave that judgment up to us, Ms. 
Peters----
    Ms. Peters. Well, no, it is the part----
    Mr. Cannon [continuing]. About your qualifications, because 
you have already made it.
    Ms. Peters. Although we have said that the compulsory 
license is rarely used, that doesn't mean that it really 
doesn't form the backdrop of licensing activities. So when you 
take that backdrop away, what happens? And I have heard from 
the parties that it would create increased chaos, but I think 
that that is an area that you certainly could raise with the 
affected parties.
    Mr. Cannon. There are technologies out there that are 
emerging that would do a great deal more than what we are 
actually currently doing in practice. We have a bunch of high-
tech companies that are, among other things, using music for 
things that music has never been used for and, therefore, it is 
hard to say what the purpose is or how to charge that.
    So, for instance, if a company allows or creates for a 
family to put together a family album and that family may be 
five kids and two parents and grandparents and hopefully 
grandkids and great-grandkids, in Utah, that could actually be 
quite a number.
    Ms. Peters. Yes.
    Mr. Cannon. With everybody having a copy, the question is, 
how do you license that? And, currently, I am thinking of a 
particular company that does this, and if they had to license 
every song that they use, and in fact that is what they have 
been doing and they are very frustrated, they are in a world 
where there is no traditional model for licensing and so they 
have to negotiate them. And they are negotiating in the context 
of a model that nobody understands the scope of. Whereas, I 
think that----
    Ms. Peters. That is the issue.
    Mr. Cannon. Right. So do we help solve that issue by 
getting rid of the compulsory license and letting other models 
emerge that will be creative about how we license?
    Ms. Peters. I will tell you that I think the person who you 
are referring to, and certainly the Digital Media Association 
will tell you that the easiest way to sell it to them right now 
is a blanket license or sublicensing.
    Mr. Cannon. But the trouble with a blanket license is, how 
do you deal with the complexities of the ultimate use of the 
material?
    Ms. Peters. You let the copyright royalty judges set rates 
for the various types of uses.
    Mr. Cannon. Right. That will really enhance the rate at 
which we----
    Ms. Peters. And two of them are here, you know.
    Mr. Cannon. That would really enhance the rate at which we 
get new uses for licenses.
    Ms. Peters. It is very difficult in a world that changes 
this quickly. And the good news is that more and more music is 
being used in more and more ways.
    Mr. Cannon. And the people that create the music ought to 
get paid more and more money for it if we can figure out how to 
do that.
    Ms. Peters. Well, they certainly ought to get paid for it 
as it is being used, yes.
    Mr. Cannon. Right. But really, currently, there are huge 
chunks. I am not sure what the value of those chunks is right 
now, but over time, that value, I think, grows, becomes 
dominant, but we are not getting there because of the rigidity 
of the current system that we have.
    Ms. Peters. I agree.
    Mr. Cannon. Thank you. So does that mean that we should get 
rid of the compulsory license?
    Ms. Peters. I have always been an advocate of the 
marketplace and that when marketplace has to work, it does, and 
systems come into play. I am just not sure of an industry that 
has operated for so long in a particular fashion and their 
ability to transition over. However, I am aware that the 
predominant position of the music publisher, not the 
songwriters, who feel that they don't have enough bargaining 
power to come out well in this is to abolish the license.
    Mr. Cannon. Right. I just might note that the Wall Street 
Journal, as of March 21, has a headline, ``Sales of Music, Long 
in Decline, Plunge Sharply.''
    Ms. Peters. Plunge, yes.
    Mr. Cannon. This is maybe at the point where we actually 
have to do something about it.
    You are always a delight, and thank you.
    Mr. Chairman, I yield back.
    Ms. Peters. Thank you.
    Mr. Berman. I thank the gentleman. Russia, 1993, might be a 
good case study in quickly getting rid of something.
    The gentleman from Tennessee, Mr. Cohen?
    Mr. Cohen. Thank you, Mr. Chairman.
    Like Mr. Watt, I am new to the Committee and new to much of 
the subject matter. But unlike Mr. Watt, I feel a great 
deference and appreciation for the wisdom and sarcastity of the 
Chairman. [Laughter.]
    Mr. Berman. I can tell he is a freshman. [Laughter.]
    Mr. Cohen. But rising rapidly. [Laughter.]
    Mr. Berman. I will just sit here and bask. [Laughter.]
    Mr. Cohen. Help me with the difference. There is a 
definition of musical work and there is a definition of sound 
recording. Help me with those, the distinction.
    Ms. Peters. Okay. Musical work, there is a songwriter, 
there is a composer, there is somebody who basically today 
probably with electronic equipment can play the piano, they can 
basically capture digitally as an audio file or they could as 
the old composer, sit down with the music note taker and sketch 
out the song. The song, the notes, the lyrics that may 
accompany them, that is the musical composition. That is the 
foundation that starts it all.
    In today's world, the way you exploit a musical composition 
is by getting someone to make a recording of the former, and 
the fixation of the performance--the performer, the other 
musicians, the contributions of any sound engineers--that 
performance is, when it is fixed, is a sound recording.
    So think songwriter, music; performer, sound recording.
    They are two separate rights. Sound recordings came into 
the Federal copyright system in 1972. Before that, they weren't 
there. Music has been there since 1831.
    So it is the song and then the performance. There is one 
song, there are many different performances of that song. Each 
performance can result in a separate sound recording if it is 
fixed in a file.
    Mr. Cohen. I appreciate that. I understand the differences 
now. And the musical works are licensed right now for the over-
the-air broadcasters; is that right? They have to pay for that, 
but they don't have to pay for the recordings?
    Ms. Peters. The musical composition has a variety of 
rights. One stream is making these phonorecords, making CDs, 
MP3 files. That is the reproduction and distribution rights.
    The probably more important right in today's world, I will 
argue, where you make more of your money is every time a 
musical composition is publicly performed that means through 
the radio, through the television, in a bar, many bars, some 
bars--I want to clarify that--some restaurants, there is a 
payment for that public performance, ASCAP, BMI, SESAC licensed 
public performance. They license them on a blanket basis. That 
works well.
    On the delivery services, where you are authorizing 
downloads, like Apple iTunes, it is the reproduction 
distribution of phonorecord downloads. You are getting a 
physical object.
    I know, it is complicated.
    Mr. Cohen. It is complicated, but you are helping me a lot, 
and I have a kind of suggested question, which I think it is no 
secret we have these, that the musical works may be licensed to 
be performed by over-the-air broadcasters. Sound recordings do 
not have the opportunity to generate any licensing income from 
the use of recordings on the radio. And it may be what the 
Chairman----
    Ms. Peters. That is true.
    Mr. Cohen [continuing]. Was suggesting we not get into with 
the radio, but as we consider this, do you think we should 
consider granting a full performance right in sound recordings?
    Ms. Peters. I have always supported a full performance 
right in sound recordings. And when the law was changed in 1995 
to give them a limited sound recording performance right, I 
accepted it saying, ``God, we broke the barrier and there is a 
recognition,'' but was very upset that it wasn't broader.
    If you look at a performance, one of the key things is it 
performed. And if in fact you are not basically giving them the 
right to control performance, you are giving them less than 
totally valuable rights. So, of course, I support that.
    Mr. Cohen. Thank you.
    And seeing the red light is up and I have no longer time, I 
will yield the remainder of my time.
    Ms. Peters. Anything I can do to help you with----
    Mr. Berman. I thank the gentleman. I want to make it clear 
that I only suggested not getting into that issue at this 
hearing. I did not suggest not getting into that issue.
    Mr. Cohen. Next hearing.
    Mr. Berman. The gentleman from Florida who was here 
earlier, Mr. Keller?
    Mr. Keller. Well, thank you, Mr. Chairman.
    I want to thank you for coming before us again. You heard 
Chris Cannon say that you are his favorite witness, but you see 
it is the rest of us that are sticking around. Just point that 
out. [Laughter.]
    Mr. Berman. So this is everyone-savage-their-colleague 
week. [Laughter.]
    Mr. Keller. Just teasing.
    From time to time, this Subcommittee has received 
complaints about problems that music users have had in 
acquiring a license for subscription services, ringtones, DVDs 
or other new types of products and services, and these problems 
seem to arise because there are always questions about how 
section 115 should be applied to new technologies.
    As we look at section 115 reform, are there things that we 
can do to minimize these kinds of disputes in the future so 
that new kinds of products don't get delayed by legal 
uncertainty?
    Ms. Peters. Well, this really goes to my issue about 
clarifying rights. When there may be a right that is 
implicated, the question then is, which of those rights really 
need compensation and which of those rights might be exempt? I 
was suggesting earlier that if you adopted a basic principled 
approach, it may be easier to figure out whether new activities 
would be covered or not.
    For me, the biggest problem is, I will use the download 
situation. Today, I go into a store, if they are still around, 
and I buy a CD. It is very clear that what I have purchased is 
a CD and the rights that had to be cleared in order to produce 
that CD, the reproduction and the distribution right.
    If today, instead, I decide to go online to Apple iTunes to 
get the same CD, assuming I could do that, or to get tracks 
from that CD, in essence, I am going to end up with the same 
thing. I am going to end up with a physical thing--this time it 
is going to be a digital file--so that I can listen to that in 
my home whenever I want to.
    But what is different is there is a transmission, and the 
question is, the transmission that is the equivalent to my 
walking in the store, is that a public performance for which 
there should be compensation? That kind of issue needs to be 
clarified.
    Mr. Keller. Thank you. Some have asserted that section 115 
might require payment of twice the mechanical royalties if the 
same recording is included on one disc in two different 
formats, such as stereo and surround sound. Is that your view? 
And if so, and if the disc can't be sold for twice the price, 
is that something that we should be addressing?
    Ms. Peters. That was one of the issues that was on the 
original list of things that we were told needed to be 
resolved. That is more a physical object issue rather than an 
online purchase issue.
    If you start going down and solving all of those problems, 
I think you are going to not be able to get a bill through. 
There are a whole bunch of issues that are like that.
    Mr. Keller. You testified earlier that the reform of the 
digital music licensing system is the most important music 
issue currently before the Congress. How hopeful are you that 
this issue can finally be resolved this Congress? What specific 
steps do you think we should be taking? And then, finally, do 
you think we should move forward despite the lack of consensus 
right now in the music industry on a single reform proposal?
    Ms. Peters. Most people who know me know that I am the 
eternal optimist, so I will say that, in my typical fashion, I 
believe that it is achievable. Likely? I don't know. It 
certainly hasn't been solved in 3 years, but the focus in 3 
years was to get the parties to reach consensus.
    So the question is, do you have the stamina to basically 
say, ``This is something we want to do,'' and move it forward? 
I think it can be moved forward, but it really does take 
political will and it does take this Committee getting involved 
and deciding what it thinks is best, the Members think is best.
    Mr. Keller. Well, thank you.
    And, Mr. Chairman, I yield back the balance of my time.
    Mr. Berman. I thank the gentleman.
    And I recognize the gentleman from Georgia, Mr. Johnson.
    Mr. Johnson. Thank you, Mr. Chairman. I will decline, at 
this point, from exercising my power of wit. [Laughter.]
    And so I won't try to be a part-time comedian like I have 
heard some of the others doing today.
    That was not an insult, that was a joke. [Laughter.]
    Mr. Berman. It doesn't take much to exceed what has gone on 
before you. [Laughter.]
    Mr. Johnson. And I will take that as an insult. [Laughter.]
    Ms. Peters, the Copyright Act has, for decades, defined six 
separate rights within copyright, including the rights of 
performance, reproduction and distribution. One could read your 
testimony to suggest that some of these rights could be 
combined.
    For example, you suggest that the right of reproduction, 
which may be exploited by a company in order to perform the 
work, need not be separately licensed and compensated and 
instead, by law, it be licensed along with the performance 
right.
    Do we possibly diminish the value of each separate right, 
allowing them to be licensed together?
    Ms. Peters. I am not in any way suggesting that we should 
be, at this point, combining any rights. Each right is an 
important right. Each right should be licensed. The question is 
administration. The question is the way that you go about 
obtaining the necessary rights. And the point that I have made 
on a number of occasions is that music is more difficult than 
other types of works because of the historic way in which it 
has been licensed. And it worked well in the past, but right 
now we are feeling the strain.
    And so the goal was, is there a more efficient way to 
accomplish getting the licenses that you need for all of the 
rights, and the value of the product, you look at the product 
as a whole, and obviously it is based on getting rights, but 
the value should always be the full value of what the market 
will bear for the product. The goal is to simplify the getting 
of the rights. It is not dealing with the value. Authors, 
publishers need to get full market value.
    Mr. Johnson. So what exactly would you propose as far as 
changing the method of obtaining the rights to performance or 
reproduction? I assume you----
    Ms. Peters. Well, actually, the performance rights today, 
other than the question on whether or not they may be 
implicated, and the courts are looking at some of that, though 
I suggested that you could take a step in clarifying that, but 
the performance right, assuming that you need it, is very easy 
to clear. The three performing rights societies give blanket 
licenses, then negotiate it.
    The issue is on the reproduction and distribution of 
phonorecords, it is on digital delivery of phonorecords and the 
fact that we don't have the equivalent of these three 
performing rights societies to cover all songs and all of the 
rights holders.
    Mr. Johnson. Why hasn't the marketplace adapted to the 
changing times? I guess that is hard for you to answer, but 
apparently the marketplace which used so--I mean, you stated 
and I am also, I believe that the market responds and should 
respond, should have the freedom to respond to the changing 
realities, but apparently that has not occurred.
    Ms. Peters. Well, actually, the market is responding. The 
reality is that free got a big head start. Napster, which 
originally wasn't doing legal content, enabled huge 
unauthorized uploading. And now we are playing catch-up.
    But the problem for the digital music services is, in order 
to compete, because free has everything, they don't have to 
clear anything, is they can't have, like, some of the songs and 
compete. They have got to have almost all of the songs to 
compete.
    So the fact that you can clear 50 percent of the songs or 
70 percent of the songs is not good enough for them to compete. 
So how do we make it possible for them to do the things that 
the performing rights societies do today, which is essentially 
clear all rights and almost all the songs.
    Mr. Johnson. And the ability is there, we just don't have 
the law in place to enable the agency to capture 100 percent.
    Mr. Berman. I think the answer is, yes, we don't, and that 
is----
    Ms. Peters. Okay. I will leave it there.
    Mr. Berman. But the time of the gentleman has expired.
    The gentleman from California, Mr. Issa?
    Mr. Issa. I thank the Chairman from California.
    It is good to see you again.
    Ms. Peters. It is good to see you too.
    Mr. Issa. You are my favorite witness. [Laughter.]
    Ms. Peters. Well, I am happy. The people in front of me are 
doing better than the people behind me. [Laughter.]
    Mr. Issa. Now, whether this is the favorite subject of this 
Committee is a different story. This is not the first time we 
have brought this up, it won't be the last, but if I can use 
your presence here to characterize a point.
    I come from the patent side, even though I often say I have 
the Sunny Bono seat, because I am the non-lawyer but the 
intellectual property owner on the Committee, and in the patent 
world it is pretty easy for us to understand that anybody who 
invents, including a team of 10, if you don't have a contract, 
all 10 have individual rights; they can all sell the invention. 
They can all make, use or sell. And that is pretty cool. It is 
a little troublesome for a company that has 12 engineers and 
you have to get them all contracted or you will lose your 
rights, but at least it is clear.
    It certainly isn't clear here. I am sure if Sonny Bono were 
here today and we asked, ``Well, how did you make sure that the 
guy running the mikes and doing the mixing, who may have been 
doing it for cheap, free or just an opportunity to tour with 
the band, gave his rights to you,'' he would have an answer, 
and it worked for him.
    But it is very clear we don't have that same level of 
clarity in copyright.
    So what I am hearing here today, what I have heard in 
previous hearings is, we have a legacy problem. We have a 
problem we patchworked together from 1831--which, by the way, I 
wrote that down, because that is not a date I had in my notes--
from 1831 we have sort of patchworked together copyright and we 
have never had the simple clarity that I believe we enjoy in 
patents about what you get, how you get it, how you control it.
    So if I follow your logic--and do I get a straight head 
shake on that that it is a legacy problem?
    Ms. Peters. Yes. But the one thing I would disagree with 
is, it wasn't till new technologies came along. So 1831 until 
piano rolls wasn't such a big deal.
    Mr. Issa. Very true. And I got an opportunity to meet Hare 
Guttenberg the other day, I meet him regularly, he is a member 
of the European Union parliament. Until his family business got 
going, probably people who wrote songs didn't have to worry too 
much about whether they got money for duplications of it, 
because you could only handwrite it.
    But technology has been on a steady role for, oh, albeit a 
couple thousand years, and we are where we are, which is you 
have got broadcasters, if they are terrestrial, under one set 
of rules; you have the Internet, whether it is 802.11 and it is 
wireless and it is going through the air or whether it is more 
conventional wired, another set of rules.
    You have got the question of whether or not you are caching 
or storing on a hard drive in that process, whether you have 
got a copy or you are just transmitting it. One would say that 
even on my computer when I am streaming, am I in fact recording 
it for a period of time because I have to have a buffer.
    We can go through endlessly all that, but in the limited 
time, if I turn it around the other way and say, if this 
Committee sets its sights on bringing clarity and it says, 
``Look, you have to own it,'' and everybody in the mix owns 
what they produced until or less they sign it away, if they 
sign it away exclusively, under what contractual agreement, 
they have done that. If they don't sign it away exclusively, 
but non-exclusively, then they have the right to sell what they 
own. Well, what they sold is now in a package.
    If we set those principles with--that is one set of 
principles, then I will ask a second question. You are 
comfortable with that part, that we need to make it that 
simple.
    Ms. Peters. I think the law itself is pretty okay and 
simple. What we basically say is, all creators would jointly 
own, and be licensed by one. Combined the others are subject to 
a duty of account. What is happening is the opposite. It is 
subject to an agreement to the contrary. There are all these 
agreements to the contrary.
    Mr. Issa. And which I do appreciate that.
    The last part, though, is because we live in a world of 
compulsory licenses, don't we need to produce a uniform 
compulsory license act that essentially says that when you have 
a compulsory license it is 9.5 cents, hypothetically, but since 
9.5 cents doesn't get you to 2 cents for a cached copy, there 
has to be, in fact, some streamlining of that system to say, as 
you said, unless you otherwise do, but, in a sense, isn't there 
a mandate that we deal with that so that you can have that 
flexibility of pricing?
    Because it is very clear today that I can sell my song to 
Sirius or XM, in a sense, but I may or may not be paid or 
somebody can collect two-thirds of the royalty and say, ``Go 
sue for the other third,'' and that is happening as we speak.
    Ms. Peters. I guess I am not totally clear with what my 
answer would be. And it really comes down to compulsory 
licensing, per se.
    Our Constitution, basically, talks about exclusive rights 
and exercise of exclusive rights. Compulsory license cuts back 
on that exclusivity, and in an online environment, there is a 
push by a lot of people to just basically mandate compulsory 
licensing.
    My personal view is that if we go that route, we lose 
something very valuable. It may be that that is where we end 
up, but I certainly don't want to be there right now. And I 
would rather get rid of this license than basically expand it 
to say, as a compulsory license, it deals with all uses of 
everything.
    Mr. Berman. Did you want to just add a final point? The 
time of the gentleman has expired.
    Ms. Peters. Okay. Anyway----
    Mr. Issa. Your time is unlimited, though, isn't it, 
Chairman.
    Mr. Berman. You and I can sit here for the third and fourth 
rounds.
    Mr. Issa. Thank you, Chairman.
    Ms. Peters. Mr. Issa, I would like to think about it and 
maybe get back to you. I hadn't really thought all of that 
through at this point, and I think there are more nuances than 
I am willing to commit to at this point.
    Mr. Issa. Thank you for your candor.
    Thank you, Mr. Chairman.
    Mr. Berman. The gentleman from California, Mr. Schiff?
    Mr. Schiff. Thank you, Mr. Chairman.
    I want to ask you a couple questions. First, whether you 
can highlight any specific concerns or comments that you have 
with regard to last year's SIRA legislation. In particular, do 
you believe that the authority to set rates for a modified 
section 115 license should remain with the copyright royalty 
judges or do you support the proposed structure in last year's 
bill that provided for private sector negotiations first with 
arbitration procedures available if those failed?
    And the second question is, in discussing the rate-setting 
procedures, you indicate that it would be wise to provide the 
rate-setting body with the flexibility to set a schedule of 
rates depending on the services offered. As you know, some have 
argued that a per unit rate would be difficult to utilized and 
would prefer a percentage of revenue option instead. And I 
would love to get your thoughts on that as well.
    Ms. Peters. Rate and term setting for compulsory licenses 
are set by copyright royalty judges as the body that is going 
to do that. The license, basically, suggest that the parties 
negotiate, and if they can reach agreement, then that is the 
preferable way. So if they can reach agreement on what the rate 
should be, then normally that is blessed, and it is only when 
there is disagreement that you end up with the body setting 
rates.
    Now, certain parties----
    Mr. Schiff. So, in effect, you have a system of arbitration 
already?
    Ms. Peters. Well, no. I was basically saying you actually 
have a system that encourages voluntary negotiation against the 
parties, and if they reach the rates, then that is fine. And if 
there are parties who haven't reached agreement, then that body 
sets the compulsory license rates. So a compulsory license in 
nature is compulsory. The license is there, and the rates will 
be set by the judges, but there is always encouragement of 
voluntary licenses.
    With respect to whether or not you were going to do a 
percentage of revenue or a----
    Mr. Schiff. Well, yes, but still on that first point, are 
you saying then that you prefer to have the present system than 
have a negotiation followed by an arbitration?
    Ms. Peters. I hadn't really thought about it. I actually 
think that we have a new system. I think that a lot of work 
went into that new system, and I stand behind the fact that the 
system that is in place is a good one. And I hadn't really 
focused on that this really had an additional arbitration. I 
need to think about that.
    Mr. Schiff. And what are your thoughts in terms of per unit 
rate versus percentage of revenue option?
    Ms. Peters. I think it depends on the circumstance. I think 
that both options should--you need to, basically, have 
flexibility to figure out what is best under the particular 
circumstances. And it is really going to come down to what the 
proposals are and what the evidence is and what is provided for 
the royalty judges to decide what they think is the fairest 
approach. And there is a review process in the court of appeals 
for the D.C. circuit, but, actually, this new body basically 
has a reconsideration provision with respect to when they 
basically put out rates there is a period in which people can 
petition for reconsideration.
    So, I think that sometimes the per transaction rate is the 
appropriate option, sometimes a percentage of revenue, if you 
can clearly define what that percentage rate is going to be of.
    Mr. Schiff. In looking at the subscription music services, 
though, do you have a sense of what you think is more 
appropriate? I mean, that is the main context in which this is 
implicated, isn't it?
    Ms. Peters. I am not sure, but I really do not know what is 
the appropriate option--I haven't really considered what the 
evidence is or not. Thank God we are not in that business.
    But I have supported flexibility. I have supported that it 
can be either a penny rate, or it can be a percentage. It is 
really going to come down what is the best under the 
circumstances, what works. It is really what works.
    Mr. Schiff. Thank you, Mr. Chairman.
    Mr. Berman. Abusing, once again, the Chairman's 
prerogative, the question then comes is it iTunes revenues or 
is it iPods revenue, but never mind.
    Ms. Peters. No, that is----
    Mr. Berman. The gentlelady from California, Ms. Lofgren.
    Ms. Lofgren. Thank you.
    Mr. Berman. I am sorry, I am sorry.
    The gentleman from Ohio, Mr. Chabot?
    Mr. Chabot. Thank you very much, Mr. Chairman.
    First of all, let me apologize for not being here earlier 
in the hearing. I am the Ranking Member of the Small Business 
Committee, we have a hearing going on down there.
    I am new to this Subcommittee. I have been on the Judiciary 
for 13 years now but not the Subcommittee, and so I wanted to 
particularly thank you for coming this morning to educate us on 
this very important issue.
    As I was preparing for this hearing, by reading section 
115, I couldn't help---- [Laughter.]
    Well, my staff read it.
    Ms. Peters. All right.
    Mr. Chabot. I read most of it. I couldn't help but think to 
myself that this is a lawyer's and an infringer's dream 
statute. There were so many exceptions and references that it 
is difficult to keep straight what is legal and what is not. 
Moreover, I had just read in yesterday's Wall Street Journal 
about the continued plight of the music industry with declining 
sales in the range of 20 percent from last year.
    So my question--and I will keep it to just one question, 
because I have to get back to the Small Business Committee to 
make sure that the Democrats aren't running amuck down there, 
just kidding--what role has this statute played, if any, in the 
decline of the music industry, and how can we tighten this 
statute up to revitalize the music industry and push back 
against infringement, which has been such a scourge on the 
industry?
    Ms. Peters. I can make an argument that when a statute is, 
like you said, too complex and people can't figure out what you 
can do and what you can't, that is a problem. Here what we are 
really talking about is in order to have legitimate services 
functioning, they need the rights and they need all songs. And 
the current clearance process, even under the statutory 
license, doesn't work.
    So there is an impediment that needs to be fixed in order, 
at least with regard to people who want to use a statutory 
license that now is there, to make that workable. So there is a 
piece.
    Mr. Chabot. Thank you very much.
    Mr. Chairman, I will yield back my time in order to give 
Ms. Lofgren time.
    Mr. Berman. The gentlelady from California, Ms. Lofgren?
    Ms. Lofgren. Thank you very much, Mr. Chairman. I know the 
bells have rung for a vote, so I will be brief.
    I would like to thank the Chairman and Ranking Member for 
this hearing, and I think there is broad agreement that 115 
reform is important. And if you look at the headlines, ``Sales 
of Music, Long in Decline, Fall More Quickly,'' all the parties 
who have had tiffs and understandably trouble sorting this out 
have tremendous motivation to get this right.
    I agree with the Chairman, he and I have talked, and we 
always see eye to eye on every single item on copyright. There 
are issues and reasonable people can differ on the issue of how 
we deal with receivers on satellite radio, whether or not there 
should be broadcast flags. I am sure we, at some point, will 
get into it, but I am hopeful that we don't get into it in 115, 
because 115 needs to get done, and wherever people are on the 
whole argument about copyright, I think there is broad 
consensus there, and that is a piece of the good news.
    Just on cache copies, I want to associate myself with Mr. 
Boucher's remarks on the validity of your footnote comment. I 
mean, to charge separately for cached copies is kind of like 
instead of paying the cab driver for the ride, you are paying 
for every drop of oil in the engine. It is an impediment to 
making this thing go. We need to simplify this in a way that 
will allow people to be paid. And diverting ourselves in that 
way continues an impediment. We need to simplify, we need 
certainty so people know who to pay and how much to pay, and we 
need to have an ability to control ambitions on payment so that 
we don't eliminate the development of new markets.
    Ms. Peters. Well, SIRA would have actually answered those 
questions. I would really have covered all activity.
    Ms. Lofgren. I have a question. In your testimony, you 
admit with some candor that section 114 or the sublicensing 
solution that you talk about have impediments to enactment. Let 
me just ask you this, because there are actors who have 
business models that have grown up around the current situation 
that this would impact, and none of us are hostile to those 
associations, they have performed an important role.
    Can you envision a way for the existing actors to somehow 
have a role in what you suggested?
    Ms. Peters. I can't speak for them, but they are all----
    Ms. Lofgren. No, no. Don't speak for them, and you don't 
even have to do the details. Can you envision such a thing, and 
we can follow up later with the details if you can.
    Ms. Peters. The truth is, I am not sure. I really am not 
sure. I would hope the answer was yes, but I don't have a huge 
amount of comfort that it is yes.
    Ms. Lofgren. I do think that as we address the problems 
with the current digital music licensing situation, one of the 
things that we are never able to do on the Committee and that 
is true of me and I think every Member, is that we can't really 
imagine the next wave of innovation. And I remember some of the 
other issues we did and we are talking about Web sites and none 
of us thought about peer-to-peer.
    Ms. Peters. That is right.
    Ms. Lofgren. Maybe there was somebody in a lab who was 
thinking about it.
    So I am just wondering, do you think that we can develop 
principles that are less likely to impinge on the development 
of new technology that will still provide for compensation?
    Ms. Peters. Well, first of all, sublicensing does do that. 
There are people who really are opposed to that. As for a 
blanket license, I actually do think you get there and 
accomplish the same thing too. Because you get the license and 
you worry more about the niceties of it later.
    Ms. Lofgren. Mr. Chairman, my time is just about up. The 
bells are ringing again. Are we able to submit questions for 
the record?
    Mr. Berman. What I was going to say, because there are more 
issues, rather than have a second round now, I would like to 
suggest in addition to having an important position, a great 
deal of experience and a great deal of expertise, you are a 
great educator, and I am thinking of convening a more informal 
meeting with Members and you just to continue a little bit of 
this process of understanding this complicated mess called, 
music licensing----
    Ms. Peters. Whatever you want.
    Mr. Berman [continuing]. In the future, and certainly there 
will be a chance to submit questions, for the record, which we 
hope you answer.
    Ms. Peters. Oh, we will.
    Mr. Berman. And unless there is a compelling desire to come 
back for a second round, I think I would rather continue it in 
an informal basis.
    Mr. Watt. Would that be kind of like the president offering 
those people not being under oath---- [Laughter.]
    I will withdraw the question.
    Mr. Berman. With that, the hearing is now adjourned.
    [Whereupon, at 11:41 a.m., the Subcommittee was adjourned.]
                            A P P E N D I X

                              ----------                              


               Material Submitted for the Hearing Record

       Prepared Statement of the Honorable Sheila Jackson Lee, a 
    Representative in Congress from the State of Texas, and Member, 
    Subcommittee on Courts, the Internet, and Intellectual Property










 Prepared Statement of the Honorable Steve Cohen, a Representative in 
   Congress from the State of Tennessee, and Member, Subcommittee on 
            Courts, the Internet, and Intellectual Property


 Ethan Smith, Sales of Music, Long in Decline, Plunge Sharply, Rise in 
Downloading Fails to Boost Industry: A Retailing Shakeout, Wall Street 
                     Journal, March 21, 2007 at A1






  Statement released by SESAC, Inc. on ``Reforming Section 115 of the 
                  Copyright Act for the Digital Age''










Joint statement released by the American Society of Authors, Composers 
and Publishers and Broadcast Music, Inc. comments on Reforming Section 
              116 of the Copyright Act for the Digital Age
















                                 
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