[House Hearing, 112 Congress]
[From the U.S. Government Publishing Office]






 PROMOTING INVESTMENT AND PROTECTING COMMERCE ONLINE: THE ART ACT, THE 
                     NET ACT AND ILLEGAL STREAMING

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

                                HEARING

                               BEFORE THE

                            SUBCOMMITTEE ON
                         INTELLECTUAL PROPERTY,
                     COMPETITION, AND THE INTERNET

                                 OF THE

                       COMMITTEE ON THE JUDICIARY
                        HOUSE OF REPRESENTATIVES

                      ONE HUNDRED TWELFTH CONGRESS

                             FIRST SESSION

                               __________

                              JUNE 1, 2011

                               __________

                           Serial No. 112-77

                               __________

         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

                      LAMAR SMITH, Texas, Chairman
F. JAMES SENSENBRENNER, Jr.,         JOHN CONYERS, Jr., Michigan
    Wisconsin                        HOWARD L. BERMAN, California
HOWARD COBLE, North Carolina         JERROLD NADLER, New York
ELTON GALLEGLY, California           ROBERT C. ``BOBBY'' SCOTT, 
BOB GOODLATTE, Virginia                  Virginia
DANIEL E. LUNGREN, California        MELVIN L. WATT, North Carolina
STEVE CHABOT, Ohio                   ZOE LOFGREN, California
DARRELL E. ISSA, California          SHEILA JACKSON LEE, Texas
MIKE PENCE, Indiana                  MAXINE WATERS, California
J. RANDY FORBES, Virginia            STEVE COHEN, Tennessee
STEVE KING, Iowa                     HENRY C. ``HANK'' JOHNSON, Jr.,
TRENT FRANKS, Arizona                  Georgia
LOUIE GOHMERT, Texas                 PEDRO R. PIERLUISI, Puerto Rico
JIM JORDAN, Ohio                     MIKE QUIGLEY, Illinois
TED POE, Texas                       JUDY CHU, California
JASON CHAFFETZ, Utah                 TED DEUTCH, Florida
TIM GRIFFIN, Arkansas                LINDA T. SANCHEZ, California
TOM MARINO, Pennsylvania             DEBBIE WASSERMAN SCHULTZ, Florida
TREY GOWDY, South Carolina
DENNIS ROSS, Florida
SANDY ADAMS, Florida
BEN QUAYLE, Arizona
[Vacant]

      Sean McLaughlin, Majority Chief of Staff and General Counsel
       Perry Apelbaum, Minority Staff Director and Chief Counsel
                                 ------                                

  Subcommittee on Intellectual Property, Competition, and the Internet

                   BOB GOODLATTE, Virginia, Chairman

                   BEN QUAYLE, Arizona, Vice-Chairman

F. JAMES SENSENBRENNER, Jr.,         MELVIN L. WATT, North Carolina
Wisconsin                            JOHN CONYERS, Jr., Michigan
HOWARD COBLE, North Carolina         HOWARD L. BERMAN, California
STEVE CHABOT, Ohio                   JUDY CHU, California
DARRELL E. ISSA, California          TED DEUTCH, Florida
MIKE PENCE, Indiana                  LINDA T. SANCHEZ, California
JIM JORDAN, Ohio                     JERROLD NADLER, New York
TED POE, Texas                       ZOE LOFGREN, California
JASON CHAFFETZ, Utah                 SHEILA JACKSON LEE, Texas
TIM GRIFFIN, Arkansas                MAXINE WATERS, California
TOM MARINO, Pennsylvania             DEBBIE WASSERMAN SCHULTZ, Florida
SANDY ADAMS, Florida
[Vacant]

                     Blaine Merritt, Chief Counsel

                   Stephanie Moore, Minority Counsel















                            C O N T E N T S

                              ----------                              

                              JUNE 1, 2011

                                                                   Page

                           OPENING STATEMENTS

The Honorable Bob Goodlatte, a Representative in Congress from 
  the State of Virginia, and Chairman, Subcommittee on 
  Intellectual Property, Competition, and the Internet...........     1
The Honorable Melvin L. Watt, a Representative in Congress from 
  the State of North Carolina, and Ranking Member, Subcommittee 
  on Intellectual Property, Competition, and the Internet........     5

                               WITNESSES

The Honorable Maria A. Pallante, Register, U.S. Copyright Office
  Oral Testimony.................................................     8
  Prepared Statement.............................................    10
Sandra Aistars, Executive Director, Copyright Alliance
  Oral Testimony.................................................    22
  Prepared Statement.............................................    25
Michael P. O'Leary, Executive Vice President, Government Affairs, 
  Motion Picture Association of America
  Oral Testimony.................................................    36
  Prepared Statement.............................................    39

          LETTERS, STATEMENTS, ETC., SUBMITTED FOR THE HEARING

Material submitted by the Honorable Bob Goodlatte, a 
  Representative in Congress from the State of Virginia, and 
  Chairman, Subcommittee on Intellectual Property, Competition, 
  and the Internet...............................................     3
Prepared Statement of the Honorable John Conyers, Jr., a 
  Representative in Congress from the State of Michigan, Ranking 
  Member, Committee on the Judiciary, and Member, Subcommittee on 
  Intellectual Property, Competition, and the Internet...........     5

 
 PROMOTING INVESTMENT AND PROTECTING COMMERCE ONLINE: THE ART ACT, THE 
                     NET ACT AND ILLEGAL STREAMING

                              ----------                              


                        WEDNESDAY, JUNE 1, 2011

              House of Representatives,    
         Subcommittee on Intellectual Property,    
                     Competition, and the Internet,
                                Committee on the Judiciary,
                                                    Washington, DC.

    The Subcommittee met, pursuant to call, at 2:05 p.m., in 
room 2141, Rayburn Office Building, the Honorable Bob Goodlatte 
(Chairman of the Subcommittee) presiding.
    Present: Representatives Goodlatte, Quayle, Sensenbrenner, 
Coble, Chabot, Marino, Watt, Conyers, Berman, Chu, and Lofgren.
    Staff present: (Majority) David Whitney, Counsel; Olivia 
Lee, Clerk; and Stephanie Moore, Minority Counsel.
    Mr. Goodlatte. Good afternoon. The Subcommittee on 
Intellectual Property, Competition, and the Internet will come 
to order.
    I have an opening statement.
    To advance progress and effectively secure the exclusive 
rights of authors for a limited time as the drafters of our 
Constitution intended, Congress must, from time to time, 
revisit existing authorities and assess their efficacy. When 
authorities are found wanting, we have a responsibility to take 
action to update the law to ensure it properly accounts for 
changed circumstances and anticipates reasonably foreseeable 
developments.
    With the enactment of the No Electronic Theft Act, or NET 
Act, in 1997 and the Artists Rights and Theft Prevention Act, 
or ART Act, in 2005, Congress exercised this responsibility in 
the context of online infringement. In both instances, we took 
decisive action to update the criminal copyright infringement 
provisions of Federal law to better secure the rights of 
authors.
    The NET Act was enacted in direct response to the 1994 U.S. 
district court decision in U.S. v. LaMacchia. In that case, the 
court dismissed an indictment against the defendant because the 
law did not provide criminal penalties for someone who 
willfully engaged in large-scale copyright infringement unless 
there was also evidence they acted with a commercial motive or 
had benefitted financially. The NET Act closed this loophole 
and made additional improvements to the criminal code and 
related provisions to the Copyright Act to better protect 
copyrighted works online. Its unanimous passage affirmed the 
belief that intellectual property is no less valuable than 
physical property.
    Several years later, the predecessor to this Subcommittee, 
acting under the leadership of Chairman Smith, developed the 
ART Act. That measure sought to protect pre-release works by 
targeting infringers who knowingly distributed unauthorized 
copies prior to their commercial distribution to the public. 
The ART Act recognized that copyright owners are 
disproportionately harmed by theft that occurs during these 
windows and provided prosecutors with an important new tool to 
deter the reproduction and distribution of such works.
    Notwithstanding these authorities, technological advances 
in recent years have enabled infringers to employ new ways to 
misuse the Internet in the delivery of unauthorized content. 
Their success undermines investments by copyright owners and 
has an outsized impact on independent artists and creators as 
we will soon hear in more detail from Ms. Aistars of the 
Copyright Alliance.
    Contrary to some beliefs, their success also undercuts 
innovative companies like Netflix, a licensed provider that 
developed proprietary technology that allows subscribers to 
instantly watch movies and TV programs streamed over the 
Internet to their computers and TV's.
    Without objection, I ask that I be permitted to place a May 
30, 2011 letter from Netflix to myself and the Ranking Member 
into the hearing record. Without objection, so ordered.
    [The information referred to follows:]
    
    
    
                               __________

    Mr. Goodlatte. Similar streaming technologies are employed 
by other services and websites not to generate legal revenue 
that is used to license existing works and incentivize the 
creation of new works, but instead to undercut legitimate 
producers and undermine the legal marketplace. Quite simply, 
when the NET and ART Acts were under development in this 
Committee, the technology and infrastructure needed to promote 
large-scale illicit streaming either didn't exist or wasn't 
deployed. If it had, we would have provided appropriate 
authorities at that time. As a result, the amendments to the 
criminal copyright infringement statutes that were adopted were 
confined to technologies that impacted the exclusive rights of 
reproduction and distribution, not the public performance 
right, which is impacted by streaming.
    As infringers have moved to adapt technology to more 
efficiently deliver unlicensed content online and evade 
prosecution, it is incumbent on Congress to review the law and 
to adapt it in a manner that permits contemporary prosecutors 
to meaningfully pursue and deter today's copyright criminals.
    My view is that Congress adopted the right policies when it 
enacted the NET and ART Acts. What is needed is for us to 
extend these policies to illicit streaming in a similar fashion 
and to ensure our prosecutors are provided with the necessary 
tools to meaningfully enforce the law. Going forward, I want to 
work with interested colleagues to accomplish these purposes.
    But for now, I look forward to welcoming our witnesses and 
hearing their specific thoughts on how we should best approach 
this matter.
    It is now my pleasure to recognize the Ranking Member of 
the Subcommittee, the gentleman from North Carolina, Mr. Watt.
    Mr. Watt. Thank you, Mr. Chairman. I thank the Chairman for 
holding the hearing.
    I share the Chairman's views that we need to get aggressive 
on this issue, and I look forward to the witnesses' testimony 
to help us figure out how best to do that.
    With that, I yield back the balance of my time.
    Mr. Goodlatte. That is about as succinct as can be.
    I now see that the Ranking Member of the full Committee, 
Mr. Conyers, is here. Would you like to be recognized for an 
opening statement?
    Mr. Conyers. No. I will submit my statement.
    [The prepared statement of Mr. Conyers follows:]
Prepared Statement of the Honorable John Conyers, Jr., a Representative 
 in Congress from the State of Michigan, Ranking Member, Committee on 
   the Judiciary, and Member, Subcommittee on Intellectual Property, 
                     Competition, and the Internet
    Copyright owners face unique challenges to enforcing their rights 
on the Internet. Today, our Subcommittee will consider streaming 
technology--a subject the Full Committee began consideration of last 
Congress on December 16, 2009.
    More and more of our media--the music we listen to, the TV shows we 
tune into, and the sports we watch--is moving to the Internet.
    Piracy has increasingly injured artists and intellectual property 
owners as individual consumers have access to faster, more powerful 
Internet connections.
    There is a loophole in current law that makes illegal streaming a 
misdemeanor instead of a felony and fails to capture all of the bad 
actors, and I expect that this Committee will begin consideration of 
what I hope will be bipartisan legislation to solve this problem.
    I want to make clear at this point that I am not talking about 
directing the Justice Department to go after every individual who takes 
part in illegal streaming with this legislative effort, like college 
students downloading unauthorized music. We need to first go after the 
people who profit from these illegal activities; the Justice Department 
needs to be able to prosecute those who commercially gain from illegal 
streaming as felons.
    As Internet connections become standard features for TV sets and 
people watch their favorite TV shows from their cell phones, content 
creators are having to rely more and more on the Internet to market and 
broadcast their property. The ``Information Superhighway'' is not just 
for information; it is a one-stop-shop for every form of media and 
entertainment.
    For content owners and broadcasters, this means new and expanding 
fan bases, but it also leaves the value of their product vulnerable to 
piracy.
    In a study by the research organization Envisional, it was found 
that one-quarter of all global Internet traffic is already devoted to 
video streaming, and it is the fastest growing category of traffic. 
Unfortunately, as streaming traffic grows, so does the streaming 
traffic dedicated to infringement.
    As we will hear from representatives from the Motion Picture 
Association and the Copyright Alliance, millions of dollars are lost to 
the U.S. economy because of streaming and other online piracy.
    The copyright and criminal code unfortunately contains a gaping 
loophole--not because Congress intended to create a carve-out, but 
because when laws like the ART Act and the NET Act were enacted in this 
arena, no one anticipated that streaming technology would become such a 
dominant source of disseminating information.
    Because felony penalties require a ``reproduction'' or 
``distribution''--as codified in Title 18 Section 2319(b)(1)--federal 
law has unwittingly overlooked streaming-related infringement.
    As the Intellectual Property Enforcement Coordinator, Victoria 
Espinel, noted in her legislative recommendations to Congress, we 
should update the copyright code to reflect technology and ensure 
parity in enforcement provisions.
    I would applaud Senator Klobuchar for her efforts in this arena, 
although I am sensitive to the fact that the concerns of some 
industries--including making sure that music is adequately covered--
should be addressed in a House effort.
    I would yield back and thank the Chairman and Ranking Member for 
this important hearing.
                               __________

    Mr. Goodlatte. I thank the gentleman.
    Without objection, all other Members' opening statements 
will be made a part of the record.
    And we will now turn to our witnesses. We have a very 
distinguished panel of witnesses today. All of your written 
statements will be entered into the record in their entirety. 
And I ask that each witness summarize their testimony in 5 
minutes or less. To help you stay within that time, there is a 
timing light on your table. When the light switches from green 
to yellow, you will have 1 minute to conclude your testimony. 
When the light turns red, you are done.
    Before I introduce our witnesses, I ask them to stand and 
be sworn, as is the custom of this Committee.
    [Witnesses sworn.]
    Mr. Goodlatte. Thank you and please be seated.
    Our first witness is Maria Pallante, the 12th appointed 
Register of Copyrights in the history of the United States. 
Perhaps I should allow that to sink in for a moment. For those 
of you who haven't heard the news. The Librarian of Congress, 
Dr. James H. Billington, formally appointed Ms. Pallante as 
Register in a permanent capacity today. Ms. Pallante takes over 
leadership of the office at a time of great challenge and 
transition. Her immediate predecessor, Marybeth Peters, served 
as Register for 16 years and devoted more than 45 years to 
public service. We are pleased to share this momentous day with 
Ms. Pallante and honored that one of her first public acts as 
Register will be to continue the tradition of having the 
Register serve as the principal advisor to the Congress on 
matters of copyright policy.
    Mr. Conyers. Mr. Chairman, can we give her a round of 
applause for that?
    Mr. Goodlatte. Absolutely. [Applause.]
    Now, to tell you more about the person you just applauded, 
Ms. Pallante has spent much of her career in the office where 
she previously served as the Associate Register for Policy and 
International Affairs, Deputy General Counsel and Policy 
Adviser. In addition, Ms. Pallante spent nearly a decade as 
Intellectual Property Counsel and Director of Licensing for the 
Guggenheim Museums in New York. She earned her J.D. from George 
Washington University and her bachelor's degree from 
Misericordia University where she was also awarded an honorary 
degree of humane letters.
    Given the significance of today's news and if there is no 
objection, then I offer Ms. Pallante a moment to address the 
Subcommittee before introducing our two remaining distinguished 
witnesses. Ms. Pallante?
    Ms. Pallante. Thank you very much, Mr. Chairman. I am 
deeply honored by Dr. Billington's appointment today and it is 
a privilege to begin my tenure as Register by appearing before 
this Subcommittee.
    Marybeth Peters left behind a tremendous legacy, and it is 
my goal to continue her work and to build the premier copyright 
registration system for the United States and one that is the 
envy of the world.
    I also believe that the role of my office is increasingly 
important--perhaps more important than ever before--in policy 
and international affairs, and I feel very fortunate to have a 
talented staff and a diverse and vibrant stakeholder community 
to draw upon for assistance.
    Thank you again, Mr. Chairman, and I look forward to 
supporting the work of this Subcommittee.
    Mr. Goodlatte. Thank you, Ms. Pallante, and we look forward 
to working with you as well to advance the interests of authors 
and the public.
    Our second witness is Ms. Sandra Aistars. Am I pronouncing 
that correctly? The Executive Director of the Copyright 
Alliance, a nonprofit organization established in 2006. Ms. 
Aistars took over leadership of the alliance in January of 
2011. Immediately prior, Ms. Aistars spent 7 years with Time 
Warner where she served in a variety of positions. These 
included Vice President and Associate General Counsel. While 
there, she coordinated the company's intellectual property 
strategies, which included taking advantage of new 
opportunities and responding to the challenges associated with 
emerging digital technologies.
    Before moving to Time Warner, Ms. Aistars spent 12 years as 
an attorney in private practice here in Washington. She 
acquired her J.D. from the University of Baltimore School of 
Law and earned her B.A. in political science, history and 
philosophy at Bard College.
    Our final witness is Michael O'Leary, the Executive Vice 
President of Government Relations at the Motion Picture 
Association of America. In that position, Mr. O'Leary is 
responsible for overseeing all Federal and State legislative 
and regulatory strategies for MPAA. Before moving to MPAA, Mr. 
O'Leary served more than a dozen years at the Department of 
Justice where he worked on legislative, intellectual property, 
and enforcement issues. During his tenure there, he served as 
the Deputy Chief of the Computer Crime and Intellectual 
Property Section where he prosecuted and supervised some of the 
most significant domestic and international criminal and IP 
cases ever undertaken by the Department. Before joining the 
Department of Justice, Mr. O'Leary spent 5 years serving as 
counsel to the Senate Judiciary Committee. He grew up in 
Montana and is a graduate of Arizona State University and the 
University of Arizona School of Law.
    We welcome all of our witnesses to the Subcommittee, and we 
will begin with the Register's opening statement.

 TESTIMONY OF THE HONORABLE MARIA A. PALLANTE, REGISTER, U.S. 
                        COPYRIGHT OFFICE

    Ms. Pallante. Thank you, Mr. Chairman and Ranking Members 
Watt and Conyers, for this hearing and also for your attention 
to copyright enforcement these past few months.
    At the outset, I just want to underscore that our 
conversation today is about criminal conduct. In the context of 
copyright law, this means willful, large-scale, and egregious, 
and it is the type of activity that does not happen by accident 
and which inflicts serious economic harm.
    Criminal provisions are necessarily stronger than civil 
provisions, and they are not a recent development. We have had 
criminal provisions in copyright law since 1897.
    As described in your opening remarks, Mr. Chairman, the 
Internet has brought new challenges for copyright enforcement, 
and as you noted, Congress has amended the criminal law twice 
in the past 15 years directly responding to copyright theft 
online, albeit it for the rights of reproduction and 
distribution. If I may make an obvious statement, such work is 
a necessary but never-ending task for Congress. Copyright 
policy will never be static because technology will always 
create new business models for authors and new opportunities 
for infringers.
    So against this backdrop, I would like to make three brief 
points.
    First, streaming implicates the exclusive right of public 
performance, which is fundamentally important to authors of 
certain kinds of works, for example, movies, television 
programming, live sporting events, and music. And thanks to 
improved bandwidth and innovative business models, it is of 
growing importance in the marketplace.
    Second, there is a disparity in how the law treats criminal 
violations of the exclusive rights of reproduction and 
distribution on the one hand and infringement of the exclusive 
right of public performance on the other. The disparity was 
once appropriate, but it is now outdated.
    Third, there are important policy reasons to give 
prosecutors the necessary tools to combat illegal streaming, 
allowing them in their discretion to bring felony charges.
    So starting with my first point, today authors and other 
copyright owners license streaming of all kinds of creative 
content, often directly to consumers. Performances can be pre-
recorded and streamed to customers on demand or streams can 
provide access to live content such as basketball and football 
games on a subscription or a pay-per-view basis including from 
websites. Customers can also store licensed content or content 
they have created themselves in the cloud and access it through 
their smart phones and video game consoles.
    So all of this suggests that new products and platforms 
relying on streaming are a growing segment of the information 
and entertainment markets and, therefore, of increasing 
consequence for copyright owners. Indeed, according to one 
recent study, which I cite in my written testimony, video 
streaming traffic accounts for more than one-quarter of all 
Internet traffic.
    Turning to the disparity under current law, in our 
analysis, current law is insufficient to provide a basis for 
prosecutions in cases where the primary cause of action is 
infringement of the exclusive right of public performance. This 
is because an unauthorized public performance is at most a 
misdemeanor under current law, even where the conduct is 
undertaken purposely and with a profit motive.
    So what are the policy issues for Congress? Simply put, the 
disparity in treatment requires attention. Illegal streaming--
just like illegal downloading and copying and distribution--has 
the capacity to ruin the economic market for a copyrighted 
work. Recognizing that, as a practical matter, prosecutors have 
little incentive to file charges for a misdemeanor, we believe 
the Department of Justice should always have the tools 
necessary to file felony charges against infringers when 
infringement meets the standards of criminal conduct and causes 
great harm to copyright owners and to the global marketplace 
that is so important to the United States.
    To be clear, the Copyright Office is not offering an 
opinion on when it might or might not be appropriate for the 
Department of Justice to bring criminal felony charges under 
any particular set of circumstances. Rather, we are 
underscoring the fact that prosecutors have a handicap when 
pursuing egregious cases of unauthorized streaming. Moreover, 
Congress may have a chance here to get in front of the issue of 
illegal streaming before it proliferates further.
    Thank you, Mr. Chairman.
    [The prepared statement of Ms. Pallante follows:]
    
    
    
                               __________

    Mr. Goodlatte. Thank you.
    Ms. Aistars, welcome.

  TESTIMONY OF SANDRA AISTARS, EXECUTIVE DIRECTOR, COPYRIGHT 
                            ALLIANCE

    Ms. Aistars. Thank you. Chairman Goodlatte, Ranking Member 
Watt and Ranking Member Conyers and Members of the 
Subcommittee, it is an honor to appear before you today on 
behalf of the Copyright Alliance to discuss illegal streaming 
and its impact on the creative community.
    The Copyright Alliance is a public interest and educational 
organization supported by more than 40 entities comprised of 
individual artists and creators, as well as the associations, 
guilds, and corporations that support and invest in them. 
Besides these institutional members, we have more than 7,000 
individual, one-voice artist advocates who give their personal 
time and creativity to support our work.
    To be specific, we support harmonizing the laws applicable 
to criminal streaming of copyrighted works with those 
applicable to criminal reproduction and distribution of 
copyrighted works. This is an issue of great importance to many 
of our members, including independent filmmakers, songwriters 
and composers, sports leagues and creators of live events, 
sound recording artists, and unions and guilds in the creative 
community.
    In truth, making illegal streaming a felony crime is simply 
a technical clarification. Illegally disseminating other 
people's works without their permission should be punished the 
same way under law regardless of the technology used.
    On a grander scale, however, this issue is another phase in 
the battle between creators and lawful distributors of 
copyrighted works on the one hand and parasitic websites on the 
other. Operators of these websites expropriate the property of 
creators, diminish the compensation and benefits of creators 
and workers and harm communities across the United States by 
depriving them of jobs and of tax revenues.
    The Copyright Alliance represents the copyright holder next 
door. Our members are living and working in all 50 States and 
include, among others, the independent filmmakers who self-
finance films that tell as-yet-untold stories, the talented 
crafts people who are behind every television show and motion 
picture you enjoy, the tens of thousands of professional 
photographers and videographers across the country who run 
their own studios, employ a handful of workers, and contract 
with a dozen more, and there are people working in unexpected 
places on extraordinary projects, like a music producer living 
in Wrightsville, North Carolina, who is working from his home 
studio with musicians as far away as Glasgow and as recognized 
as Neil Young.
    Copyright Alliance members unreservedly embrace the 
technologies that enable our works to be seen and heard by our 
audiences. Nevertheless we are daily faced with an ever-
changing parade of unlawful website operators who stream our 
members' works, yet stand little risk of criminal prosecution 
under today's laws.
    Just like the legitimate marketplace, which has embraced 
streaming technology, illegitimate distributors are 
increasingly turning to streaming because it is faster, 
cheaper, and more convenient for the consumer.
    Enacting legislation to ensure that such sites can't avoid 
criminal prosecution based purely on their choice of technology 
is critical. Bringing penalties for illegal streaming online 
with other forms of infringement would send a message that 
operators of and large-scale contributors to rogue streaming 
sites are not immune from serious prosecution. It would also 
provide the Justice Department the same tools to battle 
infringing streaming sites as they use to battle physical or 
download operations.
    When considering issues of copyright infringement, the 
public often thinks about large copyright owners and 
distributors, but digital theft, regardless of the methods that 
are employed to accomplish it, affects all creators and it has 
an outsized impact on independent artists and creators.
    The experience of Copyright Alliance member, Ellen Seidler, 
is representative of the experiences of other independent 
artists and is instructive. Ms. Seidler is the director and 
creator of the film ``And Then Came Lola.'' She and her co-
director financed the film by taking loans from their families, 
by putting liens on their homes, and by borrowing against their 
retirement savings. While the total budget for the movie would 
be considered small in terms of major Hollywood productions, 
the $250,000 of personal capital invested by Ms. Seidler and 
her colleague is a huge amount for an individual creator to put 
at risk for a single project. Ms. Seidler released the movie 
approximately 1 year ago and it was very popular. Within a few 
days, illegal copies began circulating online and within a 
couple of months, Ms. Seidler had counted 35,000 illegal 
streams and downloads, and she was overwhelmed and stopped 
counting.
    The film could be viewed legally for less than the cost of 
a latte, and Ms. Seidler had spared no effort to ensure that it 
was available conveniently in multiple languages and formats. 
Yet, the film popped up on illegal streaming sites in the U.S. 
and throughout the world. She counted the film on one Chinese 
streaming site which claimed 300,000 views and on another site 
in Spain claiming more than 60,000 views. Often the sites that 
were streaming her works were monetizing her work by selling 
advertising against the streams, and ironically on one of the 
sites, Google's AdSense program was placing ads for legitimate 
streaming services including Netflix, a legitimate distributor 
of her film.
    When she contacted the sites and the advertising networks 
that were placing ads on them, she got very dismissive 
responses. One website in Russia basically responded your laws 
don't apply here, and she is still involved in an unresolved 
exchange with Google about the use of AdSense by such sites.
    Ms. Seidler describes the remedies available to her and to 
other independent artists as the equivalent of being handed an 
umbrella and being told to stand under Niagara Falls.
    Despite the diligent efforts of creators to police against 
illegal streaming of their works, the problem is only growing, 
in part, because the risk to operators of such sites is so low. 
Law enforcement agencies don't readily take on such cases 
because with limited resources, misdemeanor crimes are just not 
a priority.
    So we applaud the Subcommittee for its focus on harmonizing 
the penalties applicable to illegal streaming with those 
applicable to other forms of infringements, and we stand ready 
to assist you in your work.
    [The prepared statement of Ms. Aistars follows:]
    
    
    
                               __________

    Mr. Goodlatte. Thank you.
    Mr. O'Leary, welcome.

  TESTIMONY OF MICHAEL P. O'LEARY, EXECUTIVE VICE PRESIDENT, 
   GOVERNMENT AFFAIRS, MOTION PICTURE ASSOCIATION OF AMERICA

    Mr. O'Leary. Thank you. Mr. Chairman, Ranking Member Watt, 
Members of the Subcommittee, I appreciate the opportunity to 
testify today on behalf of the Motion Picture Association of 
America and our member companies regarding online streaming and 
the role that it plays in global theft.
    The U.S. motion picture industry plays a unique role in 
today's American economic infrastructure. We provide high-
paying jobs to workers in all 50 States. We fuel small business 
growth. We inject capital at the State and local level, and we 
are one of the few industries in the United States that has a 
consistently positive balance of trade around the globe.
    High-speed broadband networks present tremendous 
opportunities for exchanging information and ideas. 
Unfortunately, as you have heard today, the laws and 
regulations put in place to protect consumers and innovation in 
the physical marketplace have not kept pace with the growth of 
illegal conduct online. As a result, a key foundation of 
American industry, the expectation that hard work and 
innovation is rewarded, is imperiled by thieves that steal 
America's creative products and enrich themselves along the 
way.
    Currently the most pernicious forms of digital theft occur 
through the use of so-called rogue websites. These are 
increasingly sophisticated websites that look to the untrained 
eye to be legitimate. They use legitimate payment processors 
like Visa and MasterCard and PayPal, and they run legitimate 
advertising. Frequently they offer reward programs for frequent 
buyers who purchase their illegal wares. Streaming technology 
is rapidly becoming the most popular mechanism for transmitting 
stolen content on these rogue sites.
    I want to be very clear at the outset, that the subject 
that we are here to talk about today is not a debate between 
technology and innovation and the creation of content. The 
issue before us today is about crafting a policy that favors 
legitimacy over theft, about promoting and preserving 
creativity and production and punishing people that seek to 
profit through stealing the hard work of others.
    Streaming technology is an emerging way to deliver content 
and information to consumers the world over, and it is a 
technology being used and embraced by our industry. There are 
more than 35 legitimate business ventures such as Hulu, 
Crackle, Netflix, and HBO GO using streaming to deliver their 
products today.
    In December of 2009, the full Judiciary Committee held a 
hearing on this very issue in the context of live sporting 
events. In the year and a half since that hearing, the problem 
has gotten worse. And it is a problem that doesn't just affect 
live sports events but all forms of audiovisual entertainment 
from live transmission of television programming to streaming 
of major motion pictures.
    In preparation for today's hearing, I visited one of the 
websites that I was talking about. If you go to that website, 
you will see a number of interesting things. For example, there 
were a number of comments by users that are waiting in 
anticipation for an illegal copy of a movie that will be 
released this coming Friday. It is not in the theaters until 
Friday, but they anticipate that they will be able to see an 
illegal copy in the next 24 to 48 hours.
    It also had the top three box office films from last week 
available, Hangover II, Kung Fu Panda, and Pirates of the 
Caribbean. There is really something for everybody in that 
trio. And they were all available from multiple links to other 
sites where you could watch any of those movies.
    What was particularly interesting was a ``coming soon'' 
page which detailed the movies that will be available in the 
coming days. It listed four blockbusters which will be released 
in the United States between June 10th and July 1st of this 
year. There are over 800 people who have put comments on the 
site saying that they can't wait to see those movies. Those are 
movies that won't even be out for 3 or 4 weeks and people are 
already queuing up to see an illegal copy.
    A recent review of this very same site found that 33 
percent of all traffic generated from the search query ``free 
streaming movies'' ended up on this site. This site and the 
people who run it are not engaged in innovation in any way, 
shape, or form. What they are engaged in is theft. And this is 
just one example of the types of criminal infringement we 
confront every day.
    As you have heard through the other witnesses and through 
the Chairman's statement, the law in this area in the past has 
gone through different changes. We have typically focused on 
distribution and reproduction. There was the NET Act which was 
very important, and there was also the ART Act which was very 
important. But today, as copyrighted content is increasingly 
streamed online, uncertainty remains whether Internet streaming 
can be prosecuted as a felony. This results in a significant 
gap in the enforcement of this Nation's intellectual property 
laws which must be addressed legislatively.
    This point was made clear earlier this year by the U.S. 
Intellectual Property Enforcement Coordinator when she 
recommended that the Congress clarify that infringement by 
streaming or by other means of similar technology is a felony 
or should be made a felony in appropriate circumstances. This 
is a real problem with real consequences for American creators 
and workers. And we applaud the Committee's decision to address 
this threat.
    If we fail to address this problem now, in addition to 
leaving a sizeable gap in the U.S. law, we will promote 
additional theft of America's creative work by allowing 
emerging means of illegal distribution to persist without 
remedy.
    We will permit an unjustified technology-specific disparity 
between the forms of infringement that have increasingly 
similar commercially destructive impacts.
    Third, we will ensure that very few, if any, Federal 
prosecutions, even for the most blatant and notorious global 
intellectual property criminals, will go forward as Federal 
prosecutors and investigative agencies will be unlikely to 
devote limited resources to cases that will net, at most, a 
misdemeanor conviction.
    Fourth, failure to act will harm America's long-held role 
as a world leader in protecting and promoting creativity by 
signaling to the rest of the world that our products are not 
protected in the online world in the same manner that they are 
in the physical world. The failure of the United States to move 
against criminals engaged in streaming will undoubtedly result 
in less enforcement around the world, and that will be 
particularly true in cases where you have an American victim.
    Fifth, the failure to move forward at this time will stifle 
innovation and creativity by allowing thieves that utilize 
streaming to continue to have an advantage in the online 
marketplace. We must set policies that favor legitimate 
business models over theft.
    These are consequences which are all avoidable if we work 
to fashion a comprehensive and focused legislative response. We 
look forward to working with this Committee to achieve this 
critically important goal.
    Again, I want to thank the Committee on behalf of the 
members that I represent for holding this hearing and for 
allowing us to testify today.
    [The prepared statement of Mr. O'Leary follows:]
    
    
    
                               __________

    Mr. Goodlatte. Thank you, Mr. O'Leary.
    I will begin the questioning with a general one directed to 
all of you.
    Do you agree with the principles and policies embodied in 
the NET Act and ART Act. And specifically, do you agree that a 
prosecutor should have discretion to pursue a felony indictment 
in a streaming case where the evidence shows a violator 
willfully committed large-scale infringement but there is no 
evidence of a commercial motive?
    Ms. Pallante, we will start with you.
    Ms. Pallante. Yes, thank you for the question.
    I do. I think the NET Act and the ART Act were quite 
responsive to evidence of online infringement in 1997 and 2005, 
respectively. But today we know that streaming is a primary and 
growing market for copyright owners. And I will say as a person 
who has young teenagers in my house, not everybody thinks in 
terms of copies anymore. Streaming is a major way of receiving 
content and only likely to get bigger.
    So as a pure policy issue, it is a question of parity. We 
have certain tools available to prosecutors for reproduction 
and distribution which once were the primary means of 
exploitation. We don't have the same tools available for the 
right of public performance.
    Mr. Goodlatte. Thank you.
    Ms. Aistars?
    Ms. Aistars. Yes. Thank you, Mr. Chairman.
    I agree with Ms. Pallante's comments and I would also add 
that I think that the ART Act and the NET Act were both 
motivated by very important policy considerations and that the 
Committee was very thoughtful in crafting a solution to those 
policy questions.
    I know from our experience that there are definitely hard 
core uploaders, hard core opponents of copyright issues who 
sometimes work in organized release groups to upload content 
for purposes of notoriety or who otherwise aren't necessarily 
motivated by private commercial gain. And those sorts of 
uploads and distribution by streaming by these rogue websites 
are equally harmful to creators like Ms. Seidler and 
independent creators throughout this country who don't have the 
resources to go after those sites and don't have the ability to 
be taken seriously by those sites when they raise their 
concerns with them.
    Mr. Goodlatte. Indeed, those were the facts in the 
LaMacchia case that motivated the NET Act, which I introduced 
almost 15 years ago.
    Mr. O'Leary?
    Mr. O'Leary. I would answer yes to both of your questions. 
The policy base that went into both the decision to pass the 
NET Act and the ART Act were sound at the time, and they are 
still sound today.
    Mr. Goodlatte. Let me direct another question to all three 
of you.
    Are you satisfied that the pre-release provision in current 
law clearly addresses unauthorized streaming of live 
performances such as live pay-per-view sporting events? If not, 
how would that provision need to be amended in order to 
encompass infringement occurring simultaneously with the live 
performance, and do you think it should be clear that these 
types of performances should be covered?
    We will start with you.
    Mr. O'Leary. Mr. Chairman, I think that it should be made 
clear that those types of performances should be covered. I 
think that the ART Act is very effective at protecting products 
which will have a subsequent distribution to the public like a 
motion picture, but when you are dealing with live sporting 
events and also with television programming, it has proven to 
be perhaps less effective.
    And so I would encourage this Committee in your 
deliberations to look very closely at both of those factors and 
see if there are not amendments necessary to fulfill the full 
intent of the ART Act and cover those types of activities. Your 
hearing in 2009 focused on the harm caused to live sports. It 
is also a problem caused for people that create television, and 
we would welcome the Committee looking at that issue.
    Mr. Goodlatte. Thank you.
    Ms. Aistars?
    Ms. Aistars. I don't have much to add to Mr. O'Leary's 
response other than to note the probably obvious to the 
Committee point that with respect to a sporting event or other 
live events--it is very hard to have a pre-release of that sort 
of an activity since you have got to wait for the event to 
begin in order to stream it.
    Mr. Goodlatte. Quite right.
    Ms. Pallante?
    Ms. Pallante. Yes, I completely agree. The current law is 
focused on distribution of copies as the intended marketplace, 
and as we know, that is not always the case for some kinds of 
works.
    Mr. Goodlatte. Further to you, what exclusive rights under 
copyright are implicated by the streaming of copyrighted works? 
What protected rights are infringed by illegal streaming?
    Ms. Pallante. Thank you for the question.
    Potentially three exclusive rights could be infringed but 
in different ways and potentially with different outcomes under 
the law.
    Starting with perhaps the major right for most streaming, 
we are almost always going to have the exclusive right of 
public performance at issue. Beyond that, it is also possible 
that the right of reproduction could be implicated. For 
example, there could be a copy on the sender's server. There 
could be a buffer copy implicated. And it is possible also, 
though not likely, with the distribution right that perhaps a 
file is being sent through the stream that resides on the 
receiving person's computer.
    The issue, though, is does Congress want prosecutors to be 
able to address these kinds of issues, illegal streaming, 
through the back door or the front door. In other words, even 
if prosecutors could cobble together a case focused on the 
reproduction and distribution right, which personally I think 
is very difficult, is that really the right policy outcome?
    Mr. Goodlatte. Thank you.
    And one last question. Mr. O'Leary, you noted in your 
testimony that illegal streaming is a problem that affects not 
just sports but all forms of audiovisual entertainment from 
live retransmission of television programming to streaming of 
major motion pictures. What industries in particular are 
impacted by illegal streaming and have these industries taken 
any action on their own to address the issue such as civil 
litigation or non-litigation enforcement such as notice and 
takedown?
    Mr. O'Leary. Absolutely, Mr. Chairman. The industry that I 
represent, the American motion picture and television 
production industry--we frequently avail ourselves of civil 
remedies. In fact, we are frequently criticized for doing that. 
But we believe that it is an important part of the IP 
enforcement regime.
    It is important to state up front that what we are talking 
about today is the criminal enforcement. Criminal enforcement 
is a very small piece of a much larger IP enforcement regime, 
and we take our responsibility under the civil part of that 
very seriously. We have moved against a number of sites that 
are engaged in this type of activity in different types of 
civil settings, and we would be happy to provide the Committee 
with further specifics on that following the hearing.
    I think that, as I mentioned in my previous answer, this 
implicates not just motion pictures. It implicates sports. It 
implicates television. Television has a significant problem, 
frankly, with this type of thing. You can have a situation 
where you could be sitting in your home in Virginia watching a 
show and it could be streaming to someone on the West Coast 
before it is even aired on the West Coast, and that has a 
significant impact.
    And so I think also another factor to look at is it is not 
just the major studios that I represent. This has a significant 
impact on independents and smaller creators as well, a number 
of whom Sandra identified in her opening remarks. So there 
really is no part of the creative community that is immune from 
the harm of streaming.
    Mr. Goodlatte. Thank you.
    I now recognize the gentleman from North Carolina, Mr. 
Watt.
    Mr. Watt. Thank you, Mr. Chairman.
    I think I started to develop a reputation on this Committee 
as one who tries to get diverse views, and we had trouble 
getting diverse views on this issue, as the panel seems to be 
all in one location, one position. Even when I disagree with 
the folks who are on one side or the other, I think the purpose 
of these hearings is to educate ourselves and understand. But 
all of you seem to be saying the same thing.
    Is there somebody out there who is not a crook who would be 
saying something different I have asked myself, and I haven't 
come up with an answer, although there seems to be some 
mounting objection to a Senate bill that prohibits streaming as 
a public performance by electronic means. I am advised--this is 
secondhand, so I apologize to the cable people if I am 
misrepresenting their position. But they seem to be arguing 
that public performance by electronic means is too broad a 
language.
    Mr. O'Leary, can you give me your perspective on that? They 
seem to be saying that it would allow criminal prosecutions of 
executive managers of companies which are in commercial 
licensing disputes with programmers. Does that have any 
credibility? Or am I misunderstanding what they are saying?
    Mr. O'Leary. Mr. Watt, I don't want to characterize what 
they are saying. From my perspective, you are not 
misunderstanding what they are saying. From the perspective 
that I look at this, I do not believe that that is a legitimate 
concern for a number of reasons.
    First of all, if you look at the current situation in the 
law, there are any number of commercial disputes between 
producers and distributors of content. And those inevitably 
always take the form of some type of civil dispute. There are 
disagreements over what the contract says, what the license 
says, those types of arrangements. Under the current law, for 
reproduction and distribution, to my knowledge there has not 
been one cable company executive prosecuted as a result of 
anything that was going on in regard to those disputes.
    Looking at the streaming issue, this is, as you have heard 
from the other witnesses, just the logical extension of the 
existing law.
    Mr. Watt. Well, I can't say that I disagree with you. I 
just wanted to make sure I understood. And had I known prior to 
scheduling all the witnesses, I would have invited whoever has 
a different position to come and state that position. I am just 
trying to understand it.
    The more important question, it seems to me, is how we get 
to foreign culprits. Can I have each one of you give me your 
thoughts on how we do that? Because a lot of this stuff that is 
going on offshore or by websites or through electronic means 
that are offshore are very, very difficult to get to.
    Mr. O'Leary. Mr. Chairman, I think you raise a very 
important point. This is a global problem and we need to deal 
with it in a global way. I think there is a number of things 
that we can do.
    One, this country has historically been a leader in strong 
enforcement of intellectual property rights. Setting the right 
precedent here, making it clear to the rest of the world that 
in the United States we take this seriously and we protect 
creative works will allow the Administration, any 
Administration, to go around the world and to spread that 
message and to get other nations to put similar laws in place.
    I also think--and this is based on my experience at the 
Justice Department--having these laws in place is an 
enforcement tool that allows our Justice Department to work 
with their contemporaries in other countries. When I was at the 
Justice Department, we did one case that involved police 
activity in 12 nations dealing with an organization which was 
global----
    Mr. Watt. But is there any way we can do this statutorily 
here? Anybody have any suggestions on that? We are having that 
problem in a number of different contexts it seems. Is there 
anything we can do domestically to really get at this?
    Mr. O'Leary. As a practical matter, Mr. Chairman, if you 
don't have the law in place here, there is virtually no chance 
that a foreign law enforcement agency will even have a 
discussion with you. So that would be the first step I would 
think.
    Mr. Watt. Any other ideas from either of the other two 
witnesses?
    Ms. Pallante. Well, I would just say as a kind of global 
issue that the rogue websites discussions that this Committee 
has already had this session and this streaming issue are 
related and to some degree overlap, but they are both 
important. So for streaming, even if the streaming is happening 
abroad, keep in mind that it is often U.S. programming that we 
are talking about.
    I don't want to prejudge the issue of unintended 
consequences and whether there should be carve-outs, for 
example. But my impression is that they are not necessary 
because, again, we are in the criminal code and we have two 
safeguards. We have the requirement that the behavior be 
willful and we have the discretion given to the Department of 
Justice.
    Mr. Watt. I am out of time, but I want to clarify. I am 
just advised that NCTA was invited to be a part of this hearing 
and they declined our invitation. I would just say to them 
publicly if they want me to understand what they are saying, 
they better come and talk to me because I don't think it has 
much credibility right about now with me. Maybe I just don't 
understand it. So I am sending that shot over the bow and 
publicly right now.
    I yield back, Mr. Chairman.
    Mr. Goodlatte. I thank the gentleman.
    And to clarify further, I share the gentleman's interest in 
hearing other perspectives on this. A number of other major 
companies, cable, satellite, and so on were invited and all 
declined.
    We have a vote on with just 3 minutes remaining, and the 
Committee will stand in recess until the completion of the 
votes. We will resume as soon as the votes are over.
    [Recess.]
    Mr. Goodlatte. The Committee will reconvene.
    And the Chair recognizes the Vice-Chairman of the 
Subcommittee, the gentleman from Arizona, Mr. Quayle.
    Mr. Quayle. Thank you, Mr. Chairman, and thank you for 
holding this hearing.
    Ms. Aistars, we have had a couple of hearings on this 
matter, and a lot of times we were dealing with the large 
economic implications that affect a lot of U.S. companies. And 
they are huge and they are broad that happen because of these 
parasitic websites. But the one thing that you brought up and I 
wanted to kind of go into a little further is if we don't do 
anything right now in terms of increasing the penalties, what 
happens in the future to the creativity that occurs in this 
process? Because like you said, it is not just the large 
companies, the large motion picture studios, it is also the 
individual creators that are getting hit by this because it 
seems like it will be creating a disincentive for them to 
actually create things because they won't be properly rewarded 
for their efforts.
    Ms. Aistars. Thank you for the question, Mr. Quayle.
    I think you have outlined it exactly correctly. You can 
look at the independent artists and creators as the canary in 
the coal mine for the rest of the creative community. They are 
the ones that are going to be hit first by any infringement. 
They are the ones that have the lowest level of resources to 
combat infringement by these sites.
    I know in my past experience I have worked with large teams 
at big corporate entities that pursue online infringements of 
copyrighted works, and the resources that those entities devote 
are astounding in terms of pursuing notice and takedown 
processes, cease and desist letters, negotiations with sites, 
and so forth.
    If you are an independent artist or creator, you don't have 
those resources at your disposal. You don't usually have the 
money to hire a lawyer to help you through the process. And 
more importantly, these people make their living by actually 
creating. So if you are spending your whole day on the phone 
and on the computer trying to knock down these illegal 
streaming sites, then you are not doing what you are trained to 
do. So you are exactly right. It will impact creativity in the 
United States.
    I would also note, for instance, Ms. Seidler's example is a 
very good one, and it is instructive about the impacts of 
illegal piracy, streaming by rogue websites on the creative 
community as a whole. Oftentimes that is where independent 
artists and creators get their start in these small, 
independent projects. They cut their teeth on this work and 
they move on to bigger projects and have more resources to 
devote to them. So if you cut them off at the very beginning 
stages of their career, you are also depriving our community 
across the country of those voices. They just won't be heard.
    Mr. Quayle. Thank you.
    Mr. O'Leary, a lot of the young people right now have come 
up in an age where they can get pirated music, pirated movies 
at their fingertips. They don't really realize that there is a 
place where you are supposed to be paying for them.
    Now, if you are going to have felony penalties put on this, 
how does that actually help dissuade those young people? And 
actually on the demand side, will it have the effect necessary 
to actually be able to make a dent in the piracy that is going 
on right now?
    Mr. O'Leary. It is a good question, Mr. Quayle. I think 
that we don't look at felony penalties as a silver bullet. They 
are part of a larger effort to deal with this problem.
    You are exactly right when you talk about the problem of 
young people wanting things now, wanting them for free. I have 
two young boys. They have grown up in that environment. And as 
a parent, obviously, you do the best you can and you tell them 
not to steal. But there are a lot more temptations perhaps than 
there were when I was a kid.
    But what this deals with is kind of a different part of the 
same issue, and that has to do with people that are putting 
massive amounts of illegal content into the environment which 
people can then ultimately see. So you would take different 
approaches in regard to both of the groups that are in your 
question.
    Obviously, dealing with the criminal element, there is 
probably no amount of education in the world that is going to 
stop a rogue website operator from being one. He is in it for 
the profit and trying to do the different things that he is 
trying to do to make money off of other people's hard work.
    With young people, I think you are starting to see a 
recognition that there--a part of our responsibility and it is 
something we take very seriously is educating kids at a younger 
age and teaching the difference between right from wrong and 
showing them that there are legitimate alternatives out there. 
In my testimony, I mentioned that there are at least 35 
legitimate sites in our industry alone that are now using 
streaming. We have a responsibility to get that message out 
there so that kids have someplace else to go and that they can 
actually get things in a legitimate fashion.
    So these are all part of a large puzzle that we are trying 
to deal with. The felony piece that we are talking about today 
is very important, but so is the educational piece that your 
question references.
    Mr. Quayle. This isn't about streaming, but do you see any 
other technological advances that we should be addressing with 
this coming up on the horizon? We are dealing with streaming 
now and technology advances very quickly, but do you see any 
other mode of transmission that we should be taking notice of?
    Mr. O'Leary. Well, I would suspect that right now somewhere 
in the city there is probably a 14- or 15-year-old who has 
already got the next iteration in his head and it is bouncing 
around and probably 6 or 7 years from now he will be a multi-
millionaire because he is able to bring that to fruition.
    But I think that your question evidences an important part 
of this debate which is that if we do deal with this problem, 
it is important to maintain kind of the tech-neutrality 
approach that the copyright code has because if you don't do 
that, then in 5 or 6 years, when there is the next version of 
streaming, we will be right back in this room trying to deal 
with that, and 5 years after that, the next iteration. So I 
suspect that there are smarter people out there than me who can 
tell you what the next version will be. I think from a policy 
perspective, we need to put down kind of a broad imprint that 
allows us to deal with whatever that is.
    Again, we are not against technology. We support 
technology. This is not a debate between us and the technology 
industry. This is a debate between the creators and the people 
who are stealing from the creators.
    Mr. Quayle. Thank you.
    Thank you, Mr. Chairman. I yield back.
    Mr. Goodlatte. I thank the gentleman.
    The Chair recognizes the gentleman from California, Mr. 
Berman, for 5 minutes.
    Mr. Berman. Since I came late, if it is all right, I would 
yield to my--without waiving my----
    Mr. Goodlatte. We will come back to you.
    Ms. Chu, are you also going to defer down to Ms. Lofgren? 
She was here before you, but I was instructed to go by 
seniority on your side of the aisle. It is your choice.
    We are going to recognize the gentlewoman from California, 
Ms. Lofgren, for 5 minutes.
    Ms. Lofgren. I just want to make it clear I would be happy 
to go in seniority order, but I appreciate being recognized.
    Professor Seidler has been mentioned. I had a chance to 
meet with her for an extended period of time in my district 
office which was very helpful. And what happened to her was 
completely wrong. It is just not right what happened to her. 
There is no question about it.
    In our extensive conversations, it is clear to me, given 
what happened to her, if this had been the law, it wouldn't 
have kept that from happening to her. And really, we got into a 
big discussion about the need to follow the money really. That 
is the answer. You follow the money. You are not going to 
prevent all crime through criminal law statutes. I mean, we 
know that from everything else. But if you follow the money, 
that is our best chance I think to get ahead of this whole 
situation.
    I have a couple of questions, and I am going to direct them 
all to the Register because she is the neutral party. And that 
is not negative about the other witnesses. They are advocates. 
They have every right to be advocates. But the Register is the 
neutral party here.
    I wanted to explore potential for collateral damage on 
innovation. It has been suggested--and I agree--that we do not 
want to deter creators. We also do not want to deter 
innovators. And so here is the question about how the statute 
could play out. I am going to go where the Ranking Member did 
not. There are two cases that I know of--there may be others--
where there is an argument about whether something is 
infringing or not.
    In one case, Viacom sued Time Warner Cable over its iPad 
app. Now, Time Warner Cable thinks that this just allows their 
own cable customers to watch their cable content on the iPad. 
Viacom says no. And they are in court, and that will be settled 
in court hopefully, whatever the proper way is. I don't have a 
side in that litigation.
    The other has to do with the MPAA has sued a company called 
Zediva. Zediva has come up with a novel way to stream movies, 
and it is based on the ability to rent an individual DVD. And 
what they have done, apparently from the press reports is they 
have bought physical DVD's and they have a whole bunch of 
machines, and they are streaming them. And they think that that 
fits within the copyright law. MPAA disagrees. And again, that 
is in court. It will be settled there.
    Here is the question. The companies that are engaging in 
these activities are certainly doing it willfully. They know 
what they are doing, but they don't believe that they are 
infringing. I don't want to just trust the prosecutors. I want 
to make sure that we have some protections in here so that 
people who believe in good faith that they are pursuing a 
lawful business model don't get caught up in the criminal 
justice system when really it is a civil dispute. It needs to 
be settled civilly.
    I also have concerns about liability for people who are not 
directly infringing, and let me give you an example. YouTube 
has lots of stuff, and I think they do--it has been 
acknowledged by other witnesses on other panels. They are 
making an aggressive effort to try and get infringing content 
off of their site. However, they get lots of notice and 
takedown notices, and they comply readily. The volume of notice 
and takedown really is an indicator of knowledge, and the 
question is with that level of knowledge, could they be 
prosecuted because they did not successfully remove all 
content.
    And the reason why I am asking this question is that John 
Morton, the Director of ICE, in a letter to me said they 
completely disregard the DMCA in the prosecution of crime. And 
the fact that a technology company has made every effort to 
stem infringement is meaningless to them, they are going to 
prosecute them anyhow. And so the question is on innovation, if 
you know that somebody might be using your site--say you are 
Facebook or Twitter or Google or YouTube--that there could be 
infringing sites despite your best efforts, you are going to be 
afraid to innovate. You are going to be afraid to have that new 
technology.
    So do we need a safe harbor here as we did in DMCA? Do we 
need to closely define--because you can't just say we will 
trust the prosecutors, they would never do a bad thing because 
the chilling aspect is the possibility of criminal obligation. 
And it is not just that the individuals who are largely like 23 
years old might be deterred but they will never get venture 
capital to actually build the business. And so you could end up 
destroying tech innovation even though I am absolutely sure 
that is not the motivation of any party here.
    Could you address those issues?
    Ms. Pallante. Yes, thank you, Congresswoman Lofgren.
    Those are very important questions, particularly the issue 
of unintended consequences, and that is why we are having this 
discussion.
    But let me maybe step back and at the risk of sounding like 
a copyright lawyer start again with what we are looking at as a 
matter of statutory law. So nobody is suggesting that the 
Department of Justice should, even if they were inclined to and 
had the resources, start going after actors who, as part of 
their business model, inadvertently may implicate the right of 
public performance and, for that matter, already may implicate 
the rights of reproduction and distribution.
    There are two threshold prongs. One is willfulness and that 
is not defined in the Copyright Act, but I can read to you for 
some peace of mind from Nimmer on Copyrights. It is in my view 
a pretty high standard. So willfulness in terms of copyright 
infringement is voluntary, intentional violation of a known 
legal duty, not accidental, not inadvertent.
    Ms. Lofgren. Could I interrupt? If I may indulge the 
Chairman, on the duty part, if you could address that issue 
because this is a new frontier in some of these areas. And I 
think it is still an unknown issue. ICE and the DOJ--well, ICE 
went after--I don't know that the prosecution has occurred--
search engines. Nobody ever thought search engines had any 
liability, and yet there was a law enforcement action. So what 
is the duty there? Because we had a whole different scheme that 
we put in place in the DMCA when we acted in the 1990's.
    And I am sorry for interrupting, but if you could address 
that as well, it would be very helpful.
    Ms. Pallante. Certainly. And yes, the standard for civil 
infringement is very different from the standard for criminal 
prosecution.
    But in addition to willfulness and understanding that there 
is a clear duty, say, in this instance to obtain permission 
before streaming because it implicates the copyright interest 
that is the public performance right--under current law. Let me 
do it in reverse.
    Under current law, even if you are implicating the public 
performance right and you are doing it for commercial advantage 
and with a profit motive, at most that is a misdemeanor, and 
that is at odds with the law for the same activity with respect 
to reproduction and distribution. So I really do see it as a 
parity issue. I see it as an extension of the work begun with 
the NET Act in 1997 and the ART Act in 2005, and it is timely 
now because streaming is----
    Ms. Lofgren. I understand that. And I actually supported 
those measures as you may or may not recall.
    But what is new here is prosecution for activity that no 
one ever thought was a violation of law.
    Mr. Goodlatte. The time of the gentlewoman has expired.
    The Chair recognizes the gentleman from North Carolina, Mr. 
Coble, for 5 minutes.
    Mr. Coble. Thank you, Mr. Chairman.
    Ms. Aistars, you refer in your testimony to an outsized 
impact on independent artists and creators. Elaborate on that, 
if you will, in a little bit more detail.
    Ms. Aistars. Sure. As I was referring to in my testimony, 
Ms. Seidler is a very good example of what independent artists 
across the country face when dealing with these companies and 
websites that stream their works. It is an outsized impact on 
these independent creators because of the lack of resources 
they have to pursue these bad actors civilly and because of the 
lack of attention that these types of websites are willing to 
afford them as independent creators.
    It is also an outsized impact on creativity in this country 
generally because these independent projects are where creators 
kind of get their start and hone their skills and their craft.
    These are also the projects that are difficult to fund. 
They are self-funded. They are independent voices that probably 
wouldn't be heard in a big studio environment perhaps. So if 
those voices disappear from our culture and our communities, we 
will all be the poorer for it.
    Mr. Coble. Thank you.
    Mr. O'Leary, piracy has a chilling effect on innovation. 
Can you predict any consequences that we should expect if 
illegal streaming continues unabated?
    Mr. O'Leary. Thank you, Mr. Coble.
    I think certainly one of the consequences if it continues 
unabated is that you will see a dramatic--the shift is already 
happening. People engaged in content theft are shifting to 
streaming, and that will become probably the primary and the 
most often used means for engaging in this type of piracy not 
just in the United States but on a global basis.
    I think that the amount of resources that are put into 
trying to deal with content theft right now, certainly for the 
studios that I represent, is an enormous number, and that is 
money that is not going into production. That is money that is 
not going into innovation. One of the things that we like to 
talk to people about--you are talking about the impact of 
content theft. It doesn't impact the names you see on the 
marquis when you walk into the theater, but if you sit through 
the movie and you watch the credits at the end, that long list 
of people that you have never heard of that go by, they are the 
ones who feel the pinch because there is less production. There 
is less opportunity to work. A lot of those people work project 
to project. They may string together six or eight projects a 
year. If a studio has to cut back because they are not having a 
chance to recoup their investment, those are the people who are 
going to feel it the most acutely. So that is going to be the 
impact overall.
    Mr. Coble. I thank you, sir.
    Finally, Ms. Pallante, what exclusive rights under 
copyright are implicated by the streaming of copyrighted works, 
and what protected rights are infringed by illegal streaming?
    Ms. Pallante. Thank you, Mr. Coble.
    Three exclusive rights. In the context of streaming, we are 
talking about one that is of growing importance for certain 
kinds of works, and that is the public performance right. That 
is very important to works, for example, like the movies that 
Ms. Aistars is describing and Mr. O'Leary, as well as music, as 
well as television programming, and live sporting events. They 
are streamed. That implicates the public performance right.
    It is also possible that the reproduction right is 
implicated and it is conceivable that the distribution right 
could be implicated, but probably not in the ways that Congress 
intended. So, for example, current law talks a lot about the 
reproduction and distribution of copies of works because that 
is the way that copyright owners primarily exploited their 
copyright interest in the past. Today when we talk about 
illegal streaming, we are talking about buffer copies. We are 
talking about copies left on servers, not the copies that are 
out in the marketplace doing damage. The damage isn't coming 
from the copies. The damage is coming from the streaming.
    Mr. Coble. I thank you.
    I yield back, Mr. Chairman.
    Mr. Goodlatte. Thank you, Mr. Chairman.
    The Chair will again turn to the gentleman from California, 
Mr. Berman, and ask if he would like to be recognized for 5 
minutes.
    Mr. Berman. On behalf of the Ranking Member's desire, I 
will.
    Ms. Lofgren and I have had discussions around these issues 
for many, many years, and I throw out a different scenario. We 
want to incentivize creators but not necessarily creators of 
pornography or materials on how to make nuclear weapons. We 
want to incentivize innovators, but not necessarily all--I 
mean, our whole export control laws and a lot of other 
regulations we have are to discourage and disincentivize 
certain kinds of innovators. So I am not so sure the sweeping 
generalization will necessarily decide the issue.
    On this issue of civil liability under DMCA versus criminal 
liability, it seems to me--well, first of all, the fact that 
there is a safe harbor in DMCA done at a certain time, given a 
certain technology, may not mean that is the exact, correct 
safe harbor 10 or 20 years later based on the advances in 
technology. I just throw that out. This issue isn't coming up 
in this hearing.
    But secondly, hypothetically what if someone was marketing 
a process by which people would put--encouraging people to put 
infringing material on their site, saying then, oh, and we will 
comply with the notice and takedown, but they had a willful 
intent to disseminate copyright protected material. Why under 
criminal law couldn't that under the right circumstances meet 
the test of a criminal violation without--why should Customs 
automatically assume that any conduct should--if you comply 
with notice and takedown, you have a safe harbor from any of 
your conduct, even if it has nothing to do with getting a 
notice and taking it down. I throw that out perhaps to the 
Copyright Office.
    And then just to pursue a line of questioning that I think 
Mr. Watt got into.
    Streaming, by the way, is not exempt from copyright law as 
Ms. Pallante said. Its offense is a misdemeanor offense.
    As we try to make consistent the application of law over 
different technologies, whether they are viewed as a 
reproduction, a distribution, or a public performance, what 
would the person who was against that say here to say there 
should be a difference between streaming as a public 
performance--and even that, of course, is a matter under some 
discussion--versus a reproduction and distribution? The witness 
who isn't on the panel--what would they give as their most 
compelling argument?
    And is there something--as we draft legislation, if we 
decide to try and get a consistent approach, are there things 
we need to be careful of in drafting the legislation?
    Ms. Pallante. Thank you, Mr. Berman. I will start.
    I suppose that a person not on this panel might say there 
is a reason that the public performance right has been treated 
differently since 1897 under criminal law. That is because the 
greatest harm to copyright owners occurs through reproduction 
and distribution. And I think our answer is the time has come 
for Congress to be reasonably out in front of this issue, and I 
say that knowing that the content owners next to me do not 
believe that we are in front of this issue, but I think 
relatively speaking, it shouldn't be the case that we wait 
until the illegal streaming activity has so terribly 
proliferated that we can hardly make a dent.
    They might also say that there haven't been any 
prosecutions for illegal streaming. There haven't been any 
attempts that at least we know about. Again, I think that is 
not a symptom that it isn't an issue so much as it is not easy 
to get the attention of the Department of Justice to go after 
illegal streaming and to expend resources when the most that 
they can do is bring misdemeanor charges.
    Ms. Aistars. Congressman Berman, in answer to the beginning 
part of your question where you raised the possibility of a 
site actually going out there and incentivizing people to 
contribute copyrighted materials to an illegal rogue site, I 
would just like to comment that those sites actually do exist 
today. I put an example of one of them in my testimony which 
was streaming Ms. Seidler's work, as well as the work of many, 
many other copyright owners. This is only one of numerous such 
sites. But this particular site was offering cash rewards for 
people who were uploading the most popular files. So if you got 
1,000 streams of a particular file that you had uploaded, you 
would get a cash incentive from that company. So it shows that 
you are, in fact, correct, that these sorts of risks do exist 
today and that there are companies out there that are 
incentivizing people to aid in their piracy.
    Mr. O'Leary. Mr. Berman, I think that your hypothetical 
that you posited at the beginning of your question highlights 
the significant drawbacks to creating exceptions to the 
criminal law. I think as was alluded to earlier in the hearing, 
there are a number of safeguards in place that will protect 
legitimate businesses that are in legitimate business disputes 
from prosecution. The willfulness standard has been mentioned. 
There are a number of activities that lawful businesses engage 
in.
    And I think having sat in those conversations where you are 
making charging decisions, I can also tell you that Federal 
prosecutors do not make decisions rashly and they do not make 
decisions without looking at all the evidence.
    One of the things which I think is important to note is if 
you look at the website of the Computer Crime and Intellectual 
Property Section, there is a victim referral sheet that they 
would ideally like everyone coming forward with a criminal 
claim to fill out. Among the list of questions on that sheet 
are is this part of a civil dispute or do you anticipate this 
becoming a civil dispute. The reality of it is, most 
prosecutors--if you answer yes to either of those questions, it 
is a big red flag and you are not going to get embroiled in 
something like that.
    The hypothetical you were talking about would be that 
instance where someone maybe is engaging in some type of sham 
or something. They are actually engaged in a criminal act but 
they are trying to avail themselves of kind of the patina of 
legitimacy that a legitimate company would have in order to 
avoid prosecution. The way the criminal law in this country 
works is the prosecutors are vested--Congress writes the laws, 
obviously, and then prosecutors have the discretion to enforce 
those. The scenario that you are talking about where someone 
has set up kind of a fraudulent scenario to pretend they are a 
legitimate company--there is no policy reason that should not 
be prosecuted if the evidence is there. And that means meeting 
the elements of the crime: willfulness, commercial or private 
financial gain, and commercial scale impact, those types of 
things. So to answer that question, you have highlighted the 
very problem when we start to carve people out of the criminal 
law.
    I also think to highlight the point that Ms. Pallante made, 
as a practical matter, having been in these discussions, 
investigative agencies and prosecutors are just not going to 
spend resources on cases that are going to yield at best a 
misdemeanor. It just doesn't get the attention. There is a ton 
of pressure on law enforcement and they are not going to have 
the time or the resources to do it. It is not a criticism of 
them. It is kind of a fact of the world we live in particularly 
in the last decade. They are given more and more things to do 
every year and it just doesn't fit with the current approach to 
things.
    Mr. Goodlatte. The time of the gentleman has expired.
    The Chair recognizes the gentleman from Pennsylvania, Mr. 
Marino, for 5 minutes. The gentleman has no questions.
    The gentlewoman from California, Ms. Chu, is recognized for 
5 minutes.
    Ms. Chu. Thank you, Mr. Chair.
    Ms. Aistars and Mr. O'Leary, you both talked about 
cyberlockers and the fact that it is one of the new places for 
hosting and disseminating illegal content. And there are 
companies like SideReel that claim that they are nothing more 
than a specialized search engine. They claim that they only 
link to content that they think users would find relevant, 
including legitimate sources like Amazon.com, iTunes, and Hulu. 
Any illegal content on their sites is hosted by other sources. 
More commonly they link to cyberlockers such as Megavideo which 
actually hosts the streaming video files, some legal and some 
not. SideReel claimed that they immediately remove links 
whenever they receive notice that it is directing people to 
infringing content.
    So based on your experience, what is the best way to tackle 
sites that provide the links to the illegal content?
    Ms. Aistars. Is your question what is the best way to 
handle the sites that provide links you mentioned out to some 
legal sites, and some sites that aren't legal?
    Ms. Chu. Yes, that they are providing the link to some 
legal sites, but then also to the illegal sites.
    Ms. Aistars. I mean, I guess I would say to begin with that 
I think the Judiciary Committee as a whole and this 
Subcommittee in particular has done an excellent job in setting 
out the criminal penalties that are applicable to all manner of 
websites in terms of addressing the policy considerations that 
one looks at to determine whether you should be bringing a 
prosecution or not, whether someone has met the threshold for 
being held criminally liable. And what we are looking to adjust 
here is simply a technical fix that one should not determine 
that a site is either in or out based on the fact that they are 
using streaming versus reproduction and distribution of a work.
    So I guess I would want to think this through a bit more 
closely and discuss this a little further, but my initial 
impression would be that one way to address these issues would 
simply be by adding the public performance right to all of the 
currently existing criminal provisions and then you would have 
the benefit of the protections that are already built into the 
ART Act and the NET Act that ensure that these are truly large-
scale illegal reproduction operations and the infringers are 
acting willfully and there are commercial motives and that sort 
of thing.
    Ms. Chu. Mr. O'Leary, and then I would like to hear from 
Ms. Pallante on this.
    Mr. O'Leary. I agree with what Ms. Aistars has said. There 
are instances out there, hypotheticals and different instances 
that arise, that are rarely black and white. And that is part 
of the process.
    As I said earlier, the vast majority of enforcement takes 
place on kind of the civil plane. When we reach out to sites 
and ask them to stop, the ones that are trying to do the right 
thing stop. Some don't. Now, that may be a situation where we 
would proceed against them civilly, and in many cases, if not 
most cases, that resolves the problem in some fashion, assuming 
that you can actually get civil jurisdiction over them.
    When we make a referral to the Justice Department for 
criminal prosecution, it is not uncommon--and I did this when I 
was there and they do it now, as they should, but they will 
look at a case and say this doesn't meet the requirements for 
bringing us a criminal case. You should handle this civilly or 
we are not going to take it. It is not as though the simple 
referral of a case to the Justice Department will result in it 
being prosecuted. In fact, I think you would find in a lot of 
cases there are probably as many cases denied as are accepted, 
if not more. So I think that depending on the facts and the 
circumstances, it is kind of a holistic approach to dealing 
with different facts and different types of activity. Again, 
though, the vast majority of it is going to be handled civilly.
    What we are really talking about here is the willful, 
massive, clearly criminal type of activity, and that is the 
distinction that has to be made looking at the specific facts 
of the specific case.
    Ms. Pallante. Thank you.
    I will just add to that by saying cyberlockers are, in my 
opinion, the most difficult issue at play in general with 
online enforcement. They have a lot of very legitimate uses. A 
lot of people are very excited by the multiple things they can 
do and the multiple ways they can be used. It is possible that 
in the rogue website legislation in the follow-the-money 
approach, depending on the definition of a rogue website, you 
can get to them that way, at least the ones that, for example, 
may offer rewards programs to encourage the downloading and 
sharing of files that are found to be unauthorized. And it is 
possible in the criminal context that you could get to some 
kind of aiding and abetting if the providing of links itself is 
not sufficient for a cause of action. That is kind of the 
general answer. But it is an extremely difficult issue.
    Ms. Chu. Thank you. I see my time is up. I yield back.
    Mr. Goodlatte. I thank the gentlewoman.
    Mr. O'Leary, I think you may have been wanting to respond 
to Ms. Lofgren's question regarding the knowledge of 
infringement based upon receipt of DMCA notices.
    Mr. O'Leary. Thank you, Mr. Chairman. I think it is a 
legitimate question and one that is worthy of discussion. I am 
not familiar with Mr. Morton's letter, so I am not going to 
address that. I would note that it is the prosecutor who will 
ultimately make the charging decision, not the investigative 
agency, and that is true in any case.
    At the same time, I think again we keep going back to the 
fact that there are----
    Ms. Lofgren. Could the gentleman yield on that point? And I 
will be happy to make a copy of Mr. Morton's letter available 
to you.
    But the point I am making is that if there is an 
enforcement action, somebody is arrested, that is sufficient to 
deter. I mean, even if there is no prosecution, that is 
definitely going to have a chilling effect on people engaging 
in that activity and certain chill venture financing for a 
technology developer.
    Mr. O'Leary. Again, your question is well taken. I am not 
quarreling with your point.
    One thing I will say is there has been this notion that has 
been bandied about that people are going to be arrested. Most 
of these cases will not result in an arrest. It will be handled 
in a different way.
    But having said that, I think the important thing is within 
the criminal statutes, within the criminal code that we have 
now, there are safeguards built in. Ms. Pallante talked about 
them. They are the elements of the crime, their willfulness. If 
you have a legitimate business that is truly involved in a 
legitimate dispute with another legitimate business, as a first 
principle that is going to send up a red flag with 99 percent 
of the prosecutors, if not all of them out there.
    The second part of it is--let's take the YouTube example 
that you mentioned. YouTube does a number of things. And I am 
speaking generally, not in regard to any specific case, and I 
am not speaking to the case they are involved in. But they do a 
number of things that go directly to the state of mind of that 
organization. For example, they are not members of the UGC 
principles but they adhere with them, which basically is a 
process whereby if they are notified that something infringing 
is there, they take it down. They utilize filters. They utilize 
notice and takedown. These are all steps that go to their state 
of mind.
    I suppose it is possible that there is a hypothetical that 
you could somehow ignore all of those facts and say that they 
are willfully violating a known legal duty and somehow engaging 
in some type of commercial-scale infringement. I just think it 
is very unlikely, and I think that that risk exists for them 
right now, to the extent it exists at all, under reproduction 
and distribution. That is my only point. I don't know that 
there is anything new going on here frankly. I think this is 
just a variation on the same theme that has been in place for 
decades.
    Ms. Lofgren. Could I do just a quick follow-up on that, Mr. 
Chairman?
    Mr. Goodlatte. Sure.
    Ms. Lofgren. YouTube--I mean, they have evolved. I mean, 
there was a time when they didn't do those things. Now they are 
doing all kinds of things, filtering and the like.
    Facebook doesn't do any of that. I don't know, but I assume 
there is a lot of infringing material on people's Facebook 
websites. But they don't do filtering. Twitter does a lot of 
notice and takedown. I don't know how that has really worked 
with Facebook.
    I just think when the next Facebook comes along, you don't 
want to deter that innovation by chilling the whole tech 
development environment. By their state of mind, they are not 
doing any of the things that YouTube is doing now, and so what 
would their intent be?
    Mr. O'Leary. I don't disagree with anything you just said. 
I don't want to deter the next Facebook. I would like them to 
play by the rules, though. That is my point.
    Mr. Goodlatte. I thank the panel and the witnesses because 
this has been a great discussion and very helpful as we craft 
this component of legislation that will be forthcoming.
    Without objection, all Members will have 5 legislative days 
to submit to the Chair additional written questions for the 
witnesses which we will forward and ask the witnesses to 
respond as promptly as they can so that their answers can be 
made a part of the record.
    Without objection, all Members will have 5 legislative days 
to submit any additional materials for inclusion in the record.
    And with that, I again thank our witnesses and congratulate 
our new Register of Copyrights and declare the hearing 
adjourned.
    [Whereupon, at 4:22 p.m., the Subcommittee was adjourned.]

                                 
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