[House Hearing, 113 Congress]
[From the U.S. Government Publishing Office]




                           COPYRIGHT REMEDIES

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

                                HEARING

                               BEFORE THE

                            SUBCOMMITTEE ON
                     COURTS, INTELLECTUAL PROPERTY,
                            AND THE INTERNET

                                 OF THE

                       COMMITTEE ON THE JUDICIARY
                        HOUSE OF REPRESENTATIVES

                    ONE HUNDRED THIRTEENTH CONGRESS

                             SECOND SESSION

                               __________

                             JULY 24, 2014

                               __________

                           Serial No. 113-107

                               __________

         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

                   BOB GOODLATTE, Virginia, Chairman
F. JAMES SENSENBRENNER, Jr.,         JOHN CONYERS, Jr., Michigan
    Wisconsin                        JERROLD NADLER, New York
HOWARD COBLE, North Carolina         ROBERT C. ``BOBBY'' SCOTT, 
LAMAR SMITH, Texas                       Virginia
STEVE CHABOT, Ohio                   ZOE LOFGREN, California
SPENCER BACHUS, Alabama              SHEILA JACKSON LEE, Texas
DARRELL E. ISSA, California          STEVE COHEN, Tennessee
J. RANDY FORBES, Virginia            HENRY C. ``HANK'' JOHNSON, Jr.,
STEVE KING, Iowa                       Georgia
TRENT FRANKS, Arizona                PEDRO R. PIERLUISI, Puerto Rico
LOUIE GOHMERT, Texas                 JUDY CHU, California
JIM JORDAN, Ohio                     TED DEUTCH, Florida
TED POE, Texas                       LUIS V. GUTIERREZ, Illinois
JASON CHAFFETZ, Utah                 KAREN BASS, California
TOM MARINO, Pennsylvania             CEDRIC RICHMOND, Louisiana
TREY GOWDY, South Carolina           SUZAN DelBENE, Washington
RAUL LABRADOR, Idaho                 JOE GARCIA, Florida
BLAKE FARENTHOLD, Texas              HAKEEM JEFFRIES, New York
GEORGE HOLDING, North Carolina       DAVID N. CICILLINE, Rhode Island
DOUG COLLINS, Georgia
RON DeSANTIS, Florida
JASON T. SMITH, Missouri
[Vacant]

           Shelley Husband, Chief of Staff & General Counsel
        Perry Apelbaum, Minority Staff Director & Chief Counsel
                                 ------                                

    Subcommittee on Courts, Intellectual Property, and the Internet

                 HOWARD COBLE, North Carolina, Chairman

                TOM MARINO, Pennsylvania, Vice-Chairman

F. JAMES SENSENBRENNER, Jr.,         JERROLD NADLER, New York
Wisconsin                            JOHN CONYERS, Jr., Michigan
LAMAR SMITH, Texas                   JUDY CHU, California
STEVE CHABOT, Ohio                   TED DEUTCH, Florida
DARRELL E. ISSA, California          KAREN BASS, California
TED POE, Texas                       CEDRIC RICHMOND, Louisiana
JASON CHAFFETZ, Utah                 SUZAN DelBENE, Washington
BLAKE FARENTHOLD, Texas              HAKEEM JEFFRIES, New York
GEORGE HOLDING, North Carolina       DAVID N. CICILLINE, Rhode Island
DOUG COLLINS, Georgia                ZOE LOFGREN, California
RON DeSANTIS, Florida                SHEILA JACKSON LEE, Texas
JASON T. SMITH, Missouri             STEVE COHEN, Tennessee
[Vacant]

                       Joe Keeley, Chief Counsel

                    Heather Sawyer, Minority Counsel
                    
                    
                            C O N T E N T S

                              ----------                              

                             JULY 24, 2014

                                                                   Page

                           OPENING STATEMENTS

The Honorable Howard Coble, a Representative in Congress from the 
  State of North Carolina, and Chairman, Subcommittee on Courts, 
  Intellectual Property, and the Internet........................     1
The Honorable Jerrold Nadler, a Representative in Congress from 
  the State of New York, and Ranking Member, Subcommittee on 
  Courts, Intellectual Property, and the Internet................     2
The Honorable John Conyers, Jr. a Representative in Congress from 
  the State of Michigan, Ranking Member, Committee on the 
  Judiciary, and Member, Subcommittee on Courts, Intellectual 
  Property, and the Internet.....................................     4

                               WITNESSES

David Bitkower, Acting Deputy Assistant Attorney General, 
  Criminal Division, U.S. Department of Justice
  Oral Testimony.................................................    15
  Prepared Statement.............................................    17
Steven Tepp, President and CEO, Sentinel Worldwide
  Oral Testimony.................................................    28
  Prepared Statement.............................................    30
Matt Schruers, Vice President for Law and Policy, Computer & 
  Communications Industry Association
  Oral Testimony.................................................    51
  Prepared Statement.............................................    53
Sherwin Siy, Vice President, Legal Affairs, Public Knowledge
  Oral Testimony.................................................    65
  Prepared Statement.............................................    67
Nancy E. Wolff, Partner, Cowan Debaets Abrahams & Sheppard
  Oral Testimony.................................................    75
  Prepared Statement.............................................    76

          LETTERS, STATEMENTS, ETC., SUBMITTED FOR THE HEARING

Prepared Statement of the Honorable John Conyers, Jr. a 
  Representative in Congress from the State of Michigan, and 
  Ranking Member, Committee on the Judiciary.....................     6
Material submitted by the Honorable Zoe Lofgren, a Representative 
  in Congress from the State of California, and Member, 
  Subcommittee on Courts, Intellectual Property, and the Internet    89

                                APPENDIX
               Material Submitted for the Hearing Record

Prepared Statement of the Association of American Publishers 
  (AAP)..........................................................   108
Prepared Statement of Sandra Aistars, Chief Executive Officers, 
  Copyright Alliance (CA)........................................   116
Prepared Statement of the Library Copyright Alliance.............   125
Letter from Pat O'Conner, President and Chief Operating Officer, 
  Minor League Baseball..........................................   128

 
                           COPYRIGHT REMEDIES

                              ----------                              


                        THURSDAY, JULY 24, 2014

                        House of Representatives

            Subcommittee on Courts, Intellectual Property, 
                            and the Internet

                       Committee on the Judiciary

                            Washington, DC.

    The Subcommittee met, pursuant to call, at 1:31 p.m., in 
room 2141, Rayburn Office Building, the Honorable Howard Coble, 
(Chairman of the Subcommittee) presiding.
    Present: Representatives Coble, Marino, Chabot, Farenthold, 
Holding, Collins, DeSantis, Nadler, Conyers, Chu, Deutch, 
DelBene, Jeffries, Cicilline, and Lofgren.
    Staff Present: (Majority) Joe Keeley, Chief Counsel; Olivia 
Lee, Clerk; (Minoity) Jason Everett, Counsel; and Norberto 
Salinas, Counsel.
    Mr. Coble. Good afternoon, ladies and gentlemen. The 
Subcommittee on Courts, Intellectual Property, and the Internet 
will come to order.
    Without objection, the Chair is authorized to declare 
recesses of the Subcommittee at any time.
    We welcome all the witnesses and those in the audience as 
well. Folks, we are going to have a battle on our hands with 
votes on the floor. We are going to have votes that will 
interrupt us imminently. I am thinking maybe within 30 minutes. 
We will do the best we can.
    Mr. Nadler, how are you?
    Mr. Nadler. All right.
    Mr. Coble. By traditional, we always administer the oath, 
so if you all would please stand and let me administer the oath 
to you.
    [Witnesses sworn.]
    Mr. Coble. Let the record show that all responded in the 
affirmative.
    I welcome you again, and I apologize in advance because of 
the interruption. But the interruption is going to be 
inevitable, I can promise you that. But we will do the best we 
can.
    As the cochair of the Creative Rights Caucus, I am well 
aware of having rights without the ability to enforce them is 
the same as having no rights at all.
    Remedies for copyright infringement may include seizure of 
infringing goods, injunctive relief, awards of damages and 
profits, attorneys' fees and costs, or statutory damages.
    Our witness from the Department of Justice can speak to the 
effort that they have taken to fight criminal piracy in the 
United States and abroad. I am pleased to see their efforts, 
but I am the first to recognize that as one pirate site is 
taken down, another will inevitably pop up.
    Since the Department of Justice can go after only the worst 
pirates, civil enforcement allows copyright owners to help 
protect their own property from theft by creating strong 
financial disincentives to stealing.
    However, just like erecting fences around your cattle takes 
time and money, so does your intellectual property, and most of 
us would declare that lawyers cost more than fences. And I 
would probably sign up on that side of the argument.
    If you are a large copyright owner, you can work within the 
civil system to file lawsuits, and many of them do that. 
However, it does seem to be an endless effort.
    As much as larger copyright owners find the civil 
litigation system expensive, smaller copyright owners find it 
not worth their time or money. Having to choose to go out and 
earn income by working or staying home to consider contracting 
an attorney to file a lawsuit on their behalf that they cannot 
afford in the first place is not much of a choice at all.
    Several years ago, the Copyright Office agreed that smaller 
copyright owners were at a significant disadvantage when it 
came to protecting their rights and recommended the creation of 
a small claims system. This system would allow plaintiff and 
defendants a potentially quicker, cheaper, less expensive way 
of resolving disputes.
    I look forward to learning more about these issues, and 
thanks to all of our witnesses again for making time to be with 
us today.
    I am now pleased to recognize the distinguished gentleman 
from New York, the Ranking Member of the Subcommittee, Mr. 
Jerry Nadler.
    Mr. Nadler. Thank you, Mr. Chairman.
    Today, we consider ways in which our copyright laws are 
enforced, and the relief available to copyright holders should 
someone infringe upon their copyrighted material.
    Along with all of my colleagues on the Subcommittee, I 
recognize the importance of ensuring that copyright owners have 
sufficient remedies when their works are infringed. We know 
that infringements not only damage the financial interests of 
copyright owners, but our Nation's economy as well. And as the 
legal maxim goes, there is no right without a remedy.
    I welcome this opportunity to hear from our witnesses about 
whether our current copyright infringement remedies are 
effective, and whether or not any changes may be necessary and 
appropriate at this time.
    As we know, copyright infringement occurs when someone does 
not obtain authorization or does not have a license to lawfully 
use copyrighted material and violates one of the exclusive 
rights given to a copyright owner.
    There are two basic principles that should guide our 
consideration of copyright infringement remedies. First, the 
remedy should serve to deter potential infringers and, when 
warranted, to penalize criminal infringement efforts. Second, 
they should compensate the copyright owner for losses resulting 
from infringement.
    Federal law, which governs copyright infringement claims, 
requires such claims to be brought in Federal court. To prevail 
on an infringement claim, a copyright owner must prove actual 
ownership over the alleged infringed material and that at least 
one exclusive right granted to a copyright holder has been 
violated.
    Current copyright law provides various criminal and civil 
remedies for copyright infringement, including preliminary and 
permanent injunctions as well as statutory damages. The 
Copyright Act, for example, authorizes statutory damages of 
$750 to $30,000 per infringed work. Willful infringement, 
however, may authorize the award of damages as high as $150,000 
per work. Innocent infringement, on the other hand, may result 
in the award of damages as low as $200.
    The issue of damages also includes the possible award of 
attorney's fees and expenses to the prevailing party, when the 
court finds such awards to be appropriate. In addition, the 
copyright owner may ask the court to enjoin further 
infringement, either temporarily or permanently.
    If a copyright owner elects to pursue statutory damages, 
the copyrighted work must have been registered with the 
Copyright Office before the violation started, or, if it is a 
published work, within 3 months of publication.
    As we examine these issues, we should study whether the 
penalties for copyright infringement are sufficient. We should 
consider today whether there is a need to clarify that felony 
infringement includes infringement by streaming. Felony 
penalties for copyright infringement are currently only 
available for reproduction or distribution of copyrighted 
material.
    About 3 years ago, the Office of U.S. Intellectual Property 
Office Enforcement Coordinator issued a report making several 
recommendations to Congress that would increase intellectual 
property protection. Included among these recommendations was a 
suggestion that the criminal law should be clarified to make 
infringement by streaming a felony.
    For example, downloading a copy of the movie Captain 
America illegally is a felony. But if you were to simply stream 
the same movie illegally, it would only be a misdemeanor. Does 
this distinction make sense?
    Accordingly, I look forward to hearing the witnesses 
discuss their thoughts about whether we should amend the law to 
make it clear that streaming is a distribution of copyrighted 
works and, thereby, a felony.
    In addition, I understand that some of the witnesses today 
will argue that the Copyright Act's statutory damage provisions 
adequately reflect the two basic principles of deterrence and 
just compensation.
    Yet other witnesses will likely say that statutory damages 
have grown to an unreasonably high level in copyright cases and 
have a chilling effect on innovation.
    Another factor involved in the pursuit of statutory damages 
is the oftentimes prohibitive costs of asserting a claim for 
copyright infringement, which can entail extensive litigation. 
We must ascertain whether the cost to access justice is just 
too high.
    Individual copyright owners such as authors, photographers, 
graphic artists, and illustrators complain that even when their 
works are clearly and repeatedly infringed, they simply lack 
the financial means to fund such litigation.
    These concerns may warrant consideration of whether there 
should be a streamlined judicial or administrative process to 
determine infringement claims below certain dollar thresholds. 
I look forward to hearing from the witnesses about how this 
process might work.
    Additionally, some have argued that the registration 
requirement needed to assert statutory damages places 
individuals and smaller entities at a disadvantage, because it 
is difficult and burdensome for them to meet the statutory 
requirement for timely registration. Again, I would like to 
hear from the witnesses about changes we should consider 
regarding the registration requirement.
    Whether or not we decide to make changes to statutory 
damages, to increase the penalties for streaming, or to set up 
new administrative processes to handle small copyright 
infringement claims depends in part on what we hear from our 
witnesses today.
    We have excellent panel before us, and I look forward to 
their testimony.
    I thank you, and I yield back the balance of my time.
    Mr. Coble. I thank the gentleman from New York.
    The Chair now recognizes the distinguished gentleman from 
Michigan, Mr. Conyers, the Ranking Member of the full 
Committee.
    Mr. Conyers. Thank you, Mr. Chairman. I am happy to join 
you and our distinguished witnesses today.
    The question that comes to mind is how we improve the 
system for resolving modest-sized copyright infringement 
claims, especially for individual creators with limited 
resources. Attorney Nancy Wolff has done a lot on that, but I 
want to hear from the other four of you as well.
    We often hear about large damage awards or settlements. 
Yet, many claims for copyright infringement seek much smaller 
damages. Any discussion on available remedies must include how 
the current system impacts small copyright holders.
    The estimated median cost for a party to litigate a 
copyright infringement lawsuit with less than $1 million at 
stake through appeal can normally average out to $350,000. Such 
costs are obviously much more than what many individuals can 
afford to invest in a lawsuit that may or may not be 
successful.
    In fact, the costs may well exceed any potential recovery 
that any individual copyright holder could obtain in a 
relatively modest infringement case.
    These factors may deter small owners from pursuing 
legitimate infringement claims.
    In September of last year, the Copyright Office released a 
report focusing on this issue, observing that most 
infringements will never be prosecuted because they are 
economically infeasible. The report also noted that because the 
potential for recovery of damages is limited, small copyright 
holders have difficulty finding counsel willing to take the 
case on.
    So the Copyright Office has recommended the option of 
addressing small claims by streamlined adjudication processes, 
in which the parties can participate by consent. I hope that 
helps.
    And then we come to the whole issue of examining whether 
current law regarding remedies for copyright infringement is 
sufficient or effective. I know that we are here meeting on a 
moving target. Every 6 months, something new comes out. But we 
would like to get your views on how efficient these remedies 
for infringement are, in fact, and how we can make them as 
effective as possible. And so, statutory and actual damages, 
injunctions and impoundments, court costs and attorneys fees, 
all add up.
    And some contend that these remedies, especially the threat 
of high statutory damages, have chilled the creation of 
innovative services. I would like to see where you stand on 
that.
    Mr. Chairman, I will submit the rest of my statement for 
the record. Thank you for this opportunity.
    Mr. Coble. Without objection.
    [The prepared statement of Mr. Conyers follows:]
    
    
    
                                   __________
                                   
    Mr. Coble. And without objection, the statements from other 
Members will also be made a part of the record.
    Our first witness today is Mr. David Bitkower, Acting 
Deputy Assistant Attorney General in the Criminal Division of 
the United States Department of Justice. Mr. Bitkower 
supervises the division's investigations and prosecutions 
involving computer crime and intellectual property. Mr. 
Bitkower received his J.D. from Harvard Law School and his B.S. 
from Yale University.
    Mr. Bitkower, good to have you with us.
    Our second witness is Mr. Stephen Tepp, President and Chief 
Executive Officer for Sentinel Worldwide, where he counsels 
clients on protecting intellectual property. Prior to forming 
Sentinel Worldwide, Mr. Tepp was Chief Intellectual Property 
Counsel for the Global Intellectual Property Center of the 
United States Chamber of Commerce. He received his J.D. from 
American University Washington College of Law, and his 
undergraduate degree from Colgate University.
    Mr. Tepp, good to have you with us.
    Our third witness is Mr. Matt Schruers, Vice President for 
Law and Policy for the Computer & Communications Industry 
Association. Mr. Schruers also served as Adjunct Professor 
teaching intellectual property courses at Georgetown University 
Law Center. He received his J.D. from the University of 
Virginia School of Law and his B.A. from Duke University.
    Mr. Schruers, I studied law 9 miles from your school, and 
the spirited rivalry is still alive. I am sure you know that. 
Good to have you with us as well.
    The fourth witness is Mr. Sherwood Siy, Vice President of 
Legal Affairs at Public Knowledge. Before joining Public 
Knowledge, he served as Staff Counsel for the Electronic Policy 
Information Center, working on consumer and communications 
issues. He received his J.D. from the University of California-
Berkeley Boalt Hall School of Law and his B.A. from Stanford 
University.
    Good to have you with us, Mr. Siy, as well.
    Our final witness is Ms. Nancy Wolff, Partner in Cowan, 
DeBaets, Abrahams & Sheppard LLP. In her position, Ms. Wolff 
advises traditional and new media clients in copyright, 
trademark, and digital media law. She received her J.D. from 
Rutgers School of Law and her B.S. in business management from 
the University of Maryland.
    Good to have you with us as well, Ms. Wolff.
    Mr. Bitkower, we will let you be the leadoff today.
    Folks, we try to comply with the 5-minute rule. When the 
light goes from green to amber, that is your notice that you 
have 1 minute remaining. You won't be severely punished if you 
violate that, but if you can wrap it up on or about 5 minutes, 
we would appreciate that.
    I have also been advised that the vote that was initially 
scheduled for 2 o'clock probably will come later than that, so 
maybe the gods are shining on us.
    Mr. Bitkower, you are recognized for 5 minutes.

 TESTIMONY OF DAVID BITKOWER, ACTING DEPUTY ASSISTANT ATTORNEY 
     GENERAL, CRIMINAL DIVISION, U.S. DEPARTMENT OF JUSTICE

    Mr. Bitkower. Thank you. Good afternoon, Chairman Coble, 
Ranking Member Nadler, Ranking Member Conyers. Thank you for 
the opportunity to discuss criminal copyright enforcement with 
you here today.
    Criminal enforcement of copyright law plays an essential 
role in preserving the rights of American authors, artists, and 
creators. Protecting those rights adds to our Nation's 
artistic, literary, and musical culture, and our scientific and 
technical knowledge. It also protects a vital segment of our 
Nation's economy, given the increasing prominence of 
copyrighted works, ranging from books and music, to movies and 
computer software.
    Although copyright protection predates our country's 
founding and is rooted in the Constitution, Congress has 
repeatedly updated our laws to keep pace with new technology 
and new methods of intellectual property theft. For example, a 
century ago, Congress responded to a Supreme Court decision 
involving player pianos by passing the Copyright Act of 1909, 
which created the first compulsory license scheme for 
mechanical reproduction of music.
    Decades later, as commercial radio and sound recording 
technology gained popularity, Congress again updated laws to 
protect popular music recordings from unlawful duplication with 
the Copyright Act of 1976.
    And, more recently, as Internet usage became widespread, 
the copying and distribution of digital content made large-
scale Internet piracy far cheaper than physically manufacturing 
pirated discs. To combat the emergence of Internet piracy, 
Congress enacted the No Electronic Theft Act of 1987, which 
broadened criminal penalties to encompass certain cases of 
piracy not conducted for financial gain.
    The Department of Justice, through its Computer Crime and 
Intellectual Property Section, or CCIPS, U.S. Attorneys Offices 
around the country, and the Federal Bureau of Investigation, 
and in partnership with other agencies, most prominently, 
Immigration and Customs Enforcement's Homeland Security 
Investigations, has successfully used the tools and resources 
already provided by Congress to develop a focused but robust 
criminal enforcement program.
    To highlight just one example, in January 2012, the 
department unsealed charges against members of a worldwide 
criminal organization, the Mega Conspiracy, who are alleged to 
have engaged in criminal copyright infringement with estimated 
criminal proceeds of more than $175 million and harm to rights-
holders in excess of half a billion dollars.
    We are currently seeking to extradite these defendants to 
the Eastern District of Virginia to face the charges against 
them.
    The indictment alleges that Megaupload.com reproduced and 
distributed unauthorized copies of copyrighted content on a 
massive scale, including the latest movies, music, video games, 
and other computer software, and boasted more than 1 billion 
page visits.
    The case against the Mega Conspiracy highlights our 
commitment to combating large-scale international copyright 
infringement. The case also highlights two trends in copyright 
infringement that have created challenges for criminal 
enforcement.
    First, we have seen Internet streaming emerge as the 
preferred means of disseminating many types of copyrighted 
content online. Reports indicate that the amount of bandwidth 
devoted to infringing video streaming grew by more than 470 
percent between 2010 and 2012. Nevertheless, under our current 
laws, infringing streaming, even where conducted for financial 
gain, is not clearly punishable as a felony.
    To deter pirate streaming Web sites from illegally 
profiting from copyrighted works of others, we recommend that 
Congress amend the law to create a felony penalty for 
unauthorized Internet streaming. We would welcome the 
opportunity to address this issue with Congress.
    A second fundamental development is the globalization of 
the intellectual property market. The same commercial and 
technological changes that have broadened the legitimate market 
for creative works have also facilitated the globalization of 
intellectual property crime. The department works to disrupt 
foreign-based infringement through American prosecutions and 
forfeitures, where appropriate, but also through diplomatic and 
trade-based pressure, training and support for foreign partners 
to promote enforcement in other countries, and increasing 
public awareness about the harms of copyright piracy.
    Our Intellectual Property Law Enforcement Coordinator 
program, essential to these efforts, has allowed us to put 
specialized prosecutors on the ground in Bangkok, Thailand, and 
in Eastern Europe. We know that this program gets results.
    To further these efforts, the department proposes the 
creation of additional positions to broaden our reach abroad. 
The program would permit the department to address legal and 
operational hurdles to effective international intellectual 
property enforcement.
    Thank you for the opportunity to discuss the department's 
work in this area, and I look forward to answering any 
questions that you might have.

    [The prepared statement of Mr. Bitkower follows:]
    
    
    
                                   __________
                                   
                                   
    Mr. Coble. Thank you, Mr. Bitkower. You ought to be 
commended. You beat the illuminating red light.
    I failed to tell you, ladies and gentlemen, that timers on 
your desk keep you advised when that illumination occurs.
    Thank you, Mr. Bitkower.
    Mr. Bitkower. Thank you.
    Mr. Coble. Mr. Tepp?

TESTIMONY OF STEVEN TEPP, PRESIDENT AND CEO, SENTINEL WORLDWIDE

    Mr. Tepp. Thank you, Chairman Coble, Ranking Member Nadler, 
Ranking Member Conyers, Members of the Subcommittee. Thank you 
for the opportunity to appear before you today to discuss 
copyright remedies as part of your ongoing review of the 
American copyright system.
    My name is Steven Tepp. I am President and CEO of Sentinel 
Worldwide. Previously, I enjoyed a career of 15 years of 
government service to your counterpart in the Senate and to the 
U.S. Copyright Office. I now provide intellectual property 
counsel to companies and associations with interests in 
protecting and enforcing intellectual property rights, 
including the Global Intellectual Property Center of the U.S. 
Chamber of Commerce.
    I am also a professorial lecturer in law at the George 
Washington University Law School. Previously, I also taught at 
George Mason University Law School and the Georgetown 
University Law Center.
    Today, however, I am here before you in my personal 
capacity as an expert in copyright. The views expressed are my 
own and not necessarily reflective of the views of any client 
or employer.
    Copyright is a property right. Those who apply their 
talents to produce creative, tangible expression earn their 
copyright. Infringement of that right is a distortion of the 
marketplace incentives to create and distribute copyrightable 
works that must be addressed if our copyright system to be 
maintained as an engine of economic growth, job creation, 
innovation, and creative expression.
    It is axiomatic that property rights that exist only on 
paper and cannot be effectively enforced are no rights at all.
    The copyright review hearings this Subcommittee has 
conducted thus far have presented nuanced issues of the scope 
and duration of exclusive rights, and the scope and application 
of exceptions and limitations.
    Today's hearing is different. Most remedies are available 
only after a court has resolved all the nuances of copyright 
law and found the defendant to have infringed.
    The subject of today's hearing is the appropriate redress 
for violations of the law.
    Effective enforcement of copyright entails three 
fundamental goals: compensation to the injured right holder; 
deterrence against future infringement; and in the most 
egregious cases, punitive measures against the infringer.
    The Copyright Act is designed to achieve these through the 
availability of a variety of civil remedies and criminal 
penalties. My written testimony offers a brief overview of the 
history of the various remedies available for copyright 
infringement, including injunctions, seizure and destruction of 
infringing copies, monetary damages, awards of costs and 
attorney's fees, as well as criminal enforcement and 
enforcement at the border.
    For the remainder of my time, I would like to focus on 
statutory damages for copyright infringement as they have been 
critiqued in some of my fellow panelists' testimony.
    Statutory damages for civil copyright infringement are 
among the most venerable aspects of American copyright law. 
Even prior to the ratification of the Constitution, several 
State copyright statutes provided for statutory damages, and 
they have been part of the Federal Copyright Act since the 
first Congress enacted the Copyright Act of 1790.
    They are a needed aspect of a complete remedy system, 
because so often, actual copyright damages are difficult or 
even impossible to prove. That is truer than ever in today's 
digital network environment.
    Over the decades, and, indeed, centuries, Congress has 
repeatedly and carefully reassessed and revised our statutory 
damages system to ensure it meets its goal of compensation and 
deterrence while avoiding excessive awards. It does so by 
trusting courts with a wide range of discretion to do what is 
just in a given case.
    The level of statutory damages today is lower than it has 
been in at least a century, comparing it to the initial levels 
of the 1909 act and the 1976 act, adjusted for inflation.
    Again, today's statutory damages are lower than they have 
been in a century, compared to the initial levels of 1909 and 
1976, adjusted for inflation rate.
    If the potential for large statutory damages awards is 
great today than in the past, it says more about the scope and 
volume of infringements today than it does about the statute.
    The undeniable reality is that copyright infringement is a 
massive problem. Efforts to address that must surely be 
multifaceted, but it is equally certain that effective legal 
remedies must be among those facets. If anything, this 
Subcommittee should be looking for ways to improve the 
effectiveness of copyright remedies in terms of compensation, 
and especially deterrence. The very last thing that you should 
consider is weakening them.
    Thank you for the opportunity to present my views and 
participate in this historic copyright review process. It is my 
hope that it demonstrates to you the longstanding and 
thoughtful place that remedies have in making the Copyright Act 
the success it has been to date.
    It would be my pleasure to assist the Committee in any 
other way that I am able.
    In closing, Mr. Chairman, I would like to add it has been a 
privilege to work with you and your staff over the many years 
that I have been working on copyright, and to observe the 
gentlemanly and capable way in which you have run this 
Subcommittee. The field of intellectual property law and policy 
is much better for your efforts, and you will be missed after 
your retirement. Thank you.

    [The prepared statement of Mr. Tepp follows:]
    
    
    
    
                               __________
    Mr. Coble. I thank you for that, Mr. Tepp.
    I will give you 5 additional minutes. [Laughter.]
    Mr. Tepp. I will reserve those for later, sir.
    Mr. Coble. But I appreciate that.
    Ms. Schruers, you are recognized.

TESTIMONY OF MATT SCHRUERS, VICE PRESIDENT FOR LAW AND POLICY, 
         COMPUTER & COMMUNICATIONS INDUSTRY ASSOCIATION

    Mr. Schruers. Thank you, Mr. Chairman, Ranking Member, 
Members of the Committee. My name is Matt Schruers. I am VP for 
Law and Policy at CCIA. I appreciate the opportunity to speak 
with you today.
    Your initial remarks adequately identified many of the 
remedies available in copyright--injunctions, actual damages, 
defendants' profits, attorneys' fees, criminal penalties.
    I would like to focus today on statutory damages, which, as 
was mentioned, can range between $750 and $30,000 per work 
infringed, requiring no proof of injury or harm, and in cases 
of willfulness, up $150,000 per work infringed.
    Unfortunately, these high statutory awards disconnected 
from any requirement to prove injury or harm caused two 
problems. They incentivize copyright trolls, and they 
discourage investment. So first, let me focus on trolls.
    We are seeing predatory copyright litigation as a business 
model in which shell entities indiscriminately sue many 
individuals at once demanding settlements. These shotgun-style 
suits now comprise the majority of copyright cases in over 20 
percent of Federal trial courts.
    So many involve adult content plaintiffs that over a third 
of the entire Federal copyright caseload now involves 
pornography.
    But not all trolling is about adult content. In fact, an 
entity known as Righthaven pioneered the model using news, 
harassing blogs or Web sites who copied or quoted news, in some 
cases, as few as five sentences. Its victims included a U.S. 
Senate candidate, who was posting news about herself to our her 
campaign Web site; a former assistant U.S. attorney, whose Web 
site collected information on unsolved murders; and a decorated 
veteran, who posted a column while participating in Internet 
debate about public employee pensions.
    But Righthaven is not unique. Several Federal judges have 
sanctioned and even asked for criminal action against trolls 
who were ``seeking to outmaneuver the legal system.''
    So the second issue: deterring investment. Today's civil 
copyright disputes involving digital technologies often 
implicate thousands of works. Thousands of users with large, 
lawfully acquired media libraries using services to store 
content in the cloud, to devices to time and place shift in the 
home, thousands of users multiplied by thousands of works, even 
at the smallest statutory damage, can still reach astronomical 
levels. And these risks deter investment.
    Consider the case of Veoh, a promising startup that offered 
user-generated content alongside licensed content from major 
media companies. They were sued. Three years of litigation 
grounded Veoh into bankruptcy.
    This did not end the case. The plaintiffs renewed their 
claim against Veoh's investors, seeking to hold the investors 
responsible for what the company's customers had allegedly 
done.
    Now, ultimately, Veoh and its investors were exonerated, 
but not before Veoh went broke. These lawsuits against 
investors, founders, officers in their personal capacity are 
not uncommon, and they are extraordinarily chilling.
    I know of no other place in Federal law where plaintiffs 
receive an aggregating statutory award on a strict liability 
basis, requiring no proof of injury or harm, against investors 
in companies where the companies themselves were only 
indirectly liable for the actions at issue.
    So given that, what might we do? My written testimony is a 
lot more specific, but some ideas could include reassessing the 
minimum, the $750 minimum, or the maximum amounts, and whether 
to allow those amounts to aggregate indefinitely.
    Just like in tort, these jackpot judgments that we hear 
about tax the perceived legitimacy of the IP system, which all 
rights holders depend on since the IP laws largely require 
voluntary compliance to succeed.
    We could also provide courts with guidance, ensure some 
predictability in secondary liability cases. We could cap 
awards or we could limit them to only intentional cases.
    Now, if in any case there is a limit, and the plaintiff's 
injury exceeds that limit, they should always have the 
opportunity to pursue actual damages and the defendant's 
profits.
    So in conclusion, copyright is an essential tool in the 
innovation toolbox. I am a copyright lawyer. I love it. I think 
it is great. I also think you can have too much of a good 
thing, and it might be time to recalibrate the system.
    Thanks for your time, and I look for to your questions.
    [The prepared statement of Mr. Schruers follows:]
    
    
    
                               __________
    Mr. Coble. Thank you, Mr. Schruers.
    Mr. Siy?

           TESTIMONY OF SHERWIN SIY, VICE PRESIDENT, 
                LEGAL AFFAIRS, PUBLIC KNOWLEDGE

    Mr. Siy. Thank you, Chairman Coble, Ranking Member Nadler, 
Members of the Subcommittee, Ranking Member Conyers. Thank you 
for inviting me to discuss copyright remedies today.
    Today, I would like to address the issue of statutory 
damages and preliminary injunctions. My written testimony 
briefly touches upon certain issues raised by seizures and 
forfeitures.
    Whenever I introduce copyright law to a new audience, two 
things tend to shock them: the length of copyright terms and 
the magnitude of statutory damages.
    Statutory damages for copyright infringement are 
extraordinarily high. Damage awards can quickly reach millions 
of dollars in cases where the retail value of the infringing 
copy is less than the cost of a couple of hamburgers. 
Furthermore, there is no requirement that statutory damages 
awarded bear any resemblance to the actual harm caused.
    Also, the wide range of values available also increase 
uncertainty and makes the mere risk of litigation a much bigger 
threat than it should be.
    This not only affects large technology companies, it 
affects individuals going about their daily lives. Uploading a 
home video to YouTube could expose a user to $150,000 in 
damages or potentially just $750 at a basic minimum.
    A mash-up that used 10 different tracks could thus lead to 
$1.5 million in exposure, all for creating a new work that is 
likely but still debatably a fair use.
    Such high awards suggest that statutory damages are 
exceeding their intended purpose. Large damages beyond a 
certain size don't increase deterrence. An amount I can't 
afford is still an amount I can't afford, whether it is in the 
thousands of dollars or millions.
    Furthermore, even a low risk of such a large award can 
chill free speech, the legitimate creation of fair use works, 
and contribute to the problem of orphan works.
    The threat of large-damage awards can also be abused by 
copyright trolls, who will threaten litigation backed by large 
awards in order to extract smaller settlement payments from 
defendants, even those who might have legitimate defenses. 
Those smaller payments, though, can range from $2,000 to 
$10,000 apiece.
    So reform is necessary in this area, and there are a number 
of different forms that might take.
    First, there are existing reductions in damages available 
in the statute for certain good faith attempts at fair use. 
These could be expanded to include other types of users.
    Secondly, similar limitations on damages could be applied 
to noncommercial uses.
    Third, Congress could re-examine the criteria used to 
calculate statutory damages and perhaps place caps in certain 
instances where the number of works and the number of copies 
fit particular criteria.
    Fourth, some basic evidence of harm could be asked of 
plaintiffs when they bring suit, with maximum damages being 
scaled on the statutory side to some multiplier of actual harm.
    And finally, Congress could simply add guidelines to the 
statute for the application of this wide range of values, 
reducing uncertainty for the parties, but also for judges and 
juries who are asked to apply them.
    One area where I believe the law is headed in the right 
direction, though, is that of preliminary injunctions. In 2006, 
the Supreme Court held that courts dealing with intellectual 
property cases should, as they do with other types of cases, 
engage in a true balancing of four critical factors before 
issuing a preliminary injunction. Whereas in the past, a number 
of courts had basically assumed that preliminary injunctions 
should issue automatically in copyright case--the 2006 decision 
of eBay v. MercExchange corrected that longstanding error.
    Three critical features of eBay and the decisions that 
followed it produced this shift. First was the recognition that 
instead of requiring an injunction, many plaintiffs can be made 
whole through the payment of damages, especially for ordinary 
commercial uses of commercial works.
    Second was the recognition that in balancing the potential 
harms of issuing or not issuing an injunction, a court must not 
presume that the defendant's actions are infringing. In other 
words, the court must balance the potential harms of getting a 
decision wrong in either direction, balancing the risk of 
ongoing infringement against the risk of limiting First 
Amendment legitimate speech.
    Third, the public interest in a copyright case is not 
merely in enforcing copyright law for meritorious plaintiffs, 
but also meritorious defendants. Even more than that, though, 
is the important recognition of the public interest in a court 
case stretches beyond the parties in suit and can affect the 
public at large by allowing or restricting speech, or affecting 
the interests of a defendant's good faith clients and 
consumers.
    Some district courts will occasionally site pre-eBay 
derived precedent in issuing automatic injunctions, but the 
number of these cases appears to be diminishing. The 
rebalancing of the preliminary injunction standard highlights 
just how important due process can be in the application of 
remedies.
    Remedies may seem to belong to the time after a trial, but 
they affect litigation from its very beginning, or even before 
that litigation begins.
    So I ask you to consider that as you continue your review. 
Thank you for your time, and I look forward to your questions.
    [The prepared statement of Mr. Siy follows:]
    
    
    
                                   __________
    Mr. Coble. Thank you, Mr. Siy. Good to have you with us.
    Ms. Wolff?

             TESTIMONY OF NANCY E. WOLFF, PARTNER, 
               COWAN DEBAETS ABRAHAMS & SHEPPARD

    Ms. Wolff. Good afternoon, Chairman Coble, Ranking Member 
Nadler, Chairman Goodlatte, Ranking Member Conyers, Members of 
the Subcommittee. I appreciate this opportunity to come here to 
speak to you today about remedies in your ongoing review of the 
American copyright system.
    I have had over 30 years' experience now representing 
individual creators, whether they are visual artists, 
illustrators, graphic designers, trade associations 
representing the interests of professional creators, as well as 
organizations such as PLUS that is trying to help both users 
and creators license images more efficiently and effectively.
    I am here today on behalf of five separate organizations, 
collectively among them they represent the professional imagery 
that you see every day, whether you are reading your Washington 
Post, looking at your smart phone, or reading something on a 
tablet.
    These creators and their licensing entities rely on a 
copyright system where copyright is encouraged and that there 
is a true ability to enforce rights when rights are not 
licensed properly.
    These are small businesses, whether they are individuals or 
companies that are involved with aggregating and licensing 
images, and the lifeblood is copyright and the ability to 
license.
    It is ironic that now that so much is displayed online, 
that images and visual imagery are used more and more, because 
everyone wants to have text enhanced with images. It is very 
boring just to read words.
    On the other hand, it seems like less and less of the 
content is actually licensed from these professionals. It is so 
easy to right-click, which I call a right-click license, where 
work is not licensed but, rather, infringed. And the inability 
to have an affordable and efficient way to actually enforce 
license fees, which have a relatively low value compared to 
many of the large cases that are battled out between the big 
corporations, just makes enforcing copyright in Federal court 
impractical and impossible. Almost on a daily basis, someone 
comes to me with a legitimate case of infringement.
    Maybe I will take one moment and talk about the word 
``troll.'' I think, unfortunately, the word ``troll'' is often 
used when someone is legitimately trying to enforce a copyright 
claim, and I think it should not be used in that context. When 
you look at the cost of even an index number, which is $400, 
and that many images can be licensed for online use for 
blogging and other things for as low as $250 or less, in some 
instances, you can see how impossible it is to enforce a 
copyright when it costs more to have the key to the courthouse 
than you would ever get in recovery.
    There has been a lot of mention of statutory damages at 
this table. Statutory damages are critically important. In many 
instances, however, the visual artists don't even have the 
benefit of statutory damages, because they, as a group of 
creators, create such a volume of work compared to others, such 
as a musician, a film writer, a writer, that often the burden 
and expense of registration is too large of a hurdle.
    So most of these creators are faced with only actual 
damages, because they have not had the benefit of registration 
before infringement. And when your actual damages can be in 
hundreds to a few thousand dollars, you really need an 
alternate system.
    Federal court is wonderful. It has very robust rules and a 
great discovery system. But for these type of cases, it is like 
giving an artist a sledgehammer when all you really need is a 
flyswatter.
    There really does need to be a way to encourage licensing 
rather than infringement. It is so easy to make a judgment call 
when you are a user and assume that you can just use an image 
because if you are caught, what are the consequences? If 
someone contacts you, you can just ignore them, which I find is 
often the case, because it just costs too much to go to court.
    These references to extraordinary damages in my years of 
experience I just have not seen them. Everyone comes to me all 
excited that they could get up to $150,000 for willful 
infringement, but the courts don't do that. It is so rare.
    What happens when you have statutory damages is it gets you 
a phone call from the other side. It allows you to come to a 
reasonable resolution that affords the creator some type of 
license fee because they realize they can go to court. So it 
actually encourages settlement.
    There are so few cases that end up going to trial because 
it is so expensive.
    So all the organizations I am here speaking for have been 
responding to inquiries from the Copyright Office, and we 
really do support the study on small copyright claims that the 
Copyright Office published in September 2013.
    As you rightly said, if you have a right without a remedy, 
you have no right. And it really does cause a great economic 
harm to these businesses and individuals who make a living out 
of legitimately creating works and attempting to earn license 
fees.
    I am very pleased to be here today and answer any further 
questions you have.
    [The prepared statement of Ms. Wolff follows:]
            Prepared Statement of Nancy E. Wolff, Partner, 
                   Cowan DeBaets Abrahams & Sheppard
    Chairman Coble, Ranking Member Nadler, Chairman Goodlatte, Ranking 
Member Conyers, and Members of the Subcommittee, thank you for the 
opportunity to appear before you today to discuss copyright remedies as 
a part of your ongoing review of the American copyright system.
                     i. introduction and background
    My name is Nancy Wolff and I am a Partner at Cowan DeBaets Abrahams 
and Sheppard, LLP. In my practice, I represent numerous visual artists, 
content licensing companies and counsel trade associations, such as 
PACA/Digital Media Licensing Association and PLUS, an organization 
aimed to create standardization amongst licensing to make it easier for 
both creators and users to license images. Clients come to me with 
potentially infringing matters on almost a daily basis.
    These comments are submitted on behalf of myself, as well as a 
number of visual arts trade associations, including PACA, Digital Media 
Licensing Association (``PACA''), American Society of Media 
Photographers (``ASMP''), National Press Photographers Association 
(``NPPA''), Graphic Artists Guild (``GAG''), North American Nature 
Photography Association (``NANPA'') and Professional Photographers of 
America (``PPA'') (collectively the ``Organizations''). Collectively 
these organizations represent the creators of most of the visual 
content that enrich your life every day, as well as the licensing 
entities that aggregate, distribute and make the content of these 
professional artists available to the media and others for licensing. 
This includes illustrators, graphic designers, videographers, 
photojournalists, press photographers, advertising photographers, 
portraiture, wedding and event photographers and nature photographers. 
When you read the Washington Post, your favorite blog on an iPad or 
other tablet, or keep up with news and events on a smart phone, the 
content is enhanced with illustrations, photographs and videos created 
by members of these organizations. Visual images document history, 
illuminate our world, and give us insights into our world that cannot 
be adequately expressed by the written word.
    These professionals are small business owners throughout America. 
Their livelihood depends on the ability to license content and receive 
fair compensation for the works they create. The underpinning of their 
business is a robust copyright system, including the ability to enforce 
their rights in the event users choose to use their works without 
obtaining a license. To have a right, without a remedy is an empty 
right. In my experience, federal court litigation, the exclusive venue 
for copyright infringement claims, is simply too expensive given the 
relatively lower monetary value of many image claims. Online 
infringement claims, in particular, do not justify the high cost of 
litigation that can exceed a $100,000. As a consequence, many online 
uses that should be licensed with payments going to the creator and/or 
their licensing representatives are used without payment or license, 
based on the calculated risk that there will be no consequence. While 
their exists many options for legitimately licensing images for 
reasonable license fees, too many users simply forgo the license and 
assume that anything on the internet is available for free.
    While infringement of content made available for licensing has 
always been present, even before digital photography when we lived in a 
predominantly print world, the frequency and ease with which images now 
can be redistributed and used without obtaining any license or paying a 
license fee is causing measurable economic harm to the individual 
creators and their licensing organizations.
    The reality for more than a decade now is that most images 
displayed on websites are not authorized or licensed. A few years ago, 
PicScout, a company known for its image recognition technology and 
ability to search the Internet for the use of images and compile 
reports, did a study of a sampling of commercial websites to determine 
whether the images displayed were licensed or not. The study results 
confirm that approximately 90% of the images on the commercial websites 
sampled were not properly licensed. The knowledge that most 
infringements will not be enforced by the copyright owner contributes 
to such a high rate of infringing uses.
               ii. challenges in the current legal system
A. Registration
    The ability for visual artists to use the federal court system to 
redress the harm is limited for several reasons, including: the 
difficulty of effectively registering large volumes of images, the 
relative smaller value of the claims and the resources and effort 
involved in bringing a claim in federal court. The first challenge to 
effective copyright enforcement is copyright registration. 
Photographers and other visual content creators are among the most 
prolific of creators, and in sheer numbers create more copyrightable 
works than musicians, writers, filmmakers and most other authors whose 
works are protected by copyright. The burden on resources, both 
financial and human, in registering large collections of works 
discourages these creators from taking advantage of the voluntary 
copyright registration system, when faced with the day to day 
challenges of making a living, and the understanding that under the 
current Copyright Act a work is protected from the moment of creation. 
While this is accurate, a U.S. author cannot commence an action unless 
the work is registered, and if the work is not registered before the 
infringement or within three months of publication, statutory damages 
and the ability to seek attorneys' fees are unavailable, leaving the 
visual artist only with the opportunity to seek actual damages, often a 
relatively nominal amount. See 17 U.S.C. Sec. Sec. 411,412. 
Consequently, the great majority of visual content creators do not hold 
the keys to the courthouse, even if they discover clearly infringing 
uses. The cost of an expedited copyright registration may often far 
exceed the value of the licensee fee that could be obtained. While the 
Copyright Office has worked with the photography community over the 
years in developing group registration solutions that take into 
consideration the large number of images that can be uploaded on a 
daily basis, the process still provides hurdles to most visual artists 
with the practical result that many works of visual arts are not 
registered. Reviewing ways in which visual artists can more effectively 
register their works and working with the Copyright Office in creating 
the 21st century registration system that can accommodate the 
submission of digital files as part of a photographer's daily workflow 
will certainly improve this challenge.
B. Alternate Tribunal for Smaller Claims
    In order to continue to obtain license fees for the use of images 
on behalf of the copyright owners, there needs to be an efficient, 
effective and viable means for image creators and licensors to enforce 
their rights. Otherwise, there is no incentive to license images and 
visual artists will always be competing against the use of images 
obtained by infringement for free. The Organizations' members take 
seriously the responsibilities of enforcing copyright in the imagery 
they represent and many licensing companies have departments dedicated 
to copyright compliance in order to resolve infringements and secure 
licensing fees on behalf of copyright holders. Indeed, visual artists' 
economic livelihood depends on a robust copyright system. As such, many 
artists, as well as the Organizations, have had to enter into the 
business of tracking down infringers to enforce their copyright. While 
the first step is to resolve claims without resorting to litigation, 
some claims cannot be resolved, either because the infringer refuses to 
respond, believes that simply removing the infringing content is 
sufficient, or refuses to pay adequate licensing fees.
    Statutory damages remain an important remedy to visual artists and 
their representatives. Without statutory damages, it is often difficult 
to establish actual damages. Frequently however, because many works are 
not registered for the infringing use, visual artists are only able to 
seek actual damages as a remedy, often limited to the amount of the 
license fee. Moreover, they cannot seek attorneys' fees, which can have 
the effect of encouraging claims to settle early, often without 
resorting to litigation. If the claim cannot be resolved informally, a 
decision must be made as to whether an infringement action is 
warranted. The current system fails when the relief sought is actual 
damages because standard license fees for many noncommercial uses on 
the Internet are relatively low, in the hundreds of dollars, and even 
commercial uses may only be in the thousands of dollars. Using federal 
court to try to enforce copyright infringement on many of the online 
abuses is like using a sledgehammer, when a flyswatter is all that is 
needed. The high cost of filing and prosecuting a copyright claim in 
federal court often forces copyright owners to greatly increase their 
demands to cover the cost of litigation and to cover the cost of 
attorneys' fees. This places undue pressure on all sides of the matter, 
including the judicial system, causing more funds and energy to be 
expended than necessary. In most instances, it does not make commercial 
sense to pursue an action unless there are numerous registered images 
infringed by a single infringer. As a result, individual artists and 
smaller companies are at a disadvantage because they do not have the 
same capabilities and resources that larger corporations possess to 
prevent their works from being taken advantage of. Unfortunately, the 
inability to enforce copyrights only encourages infringement and 
disrespect for copyright in general and, absent a practical remedy, 
deprives visual artists of their rights.
    In addition to the obvious financial deterrents in bringing an 
action, including attorneys' fees and other costs, such as obtaining a 
court filing index number (a fee that may itself exceed the license 
value of an image use), expert fees, document production and deposition 
costs, it is often difficult to finding attorneys throughout the 
country who are willing to handle these type of actions, where the 
economic value, even with the of availability of statutory damages and/
or attorneys' fees, may be relatively low. Even if a copyright owner 
has the benefit of an in-house lawyer or a local lawyer that is willing 
to work with them, strict jurisdictional requirements may prevent the 
company from being able to bring a claim in its local federal district. 
This is an additional deterrent to pursuing claims against a defendant 
who resides at a distance to the copyright owner, adding additional 
costs and inconvenience, particularly in the case of the individual who 
may not be able to afford the costs of, or to take the time off to, 
travel. In some cases, the inconvenience of litigation is enough to 
prevent an individual copyright owner from bringing a lawsuit, as it 
detracts too greatly from the artists' ability to work and create. 
Further, there is a risk that the copyright owner could lose based on 
defenses such as fair use, an area of the law for which it is very 
difficult to predict outcomes. The small copyright owner often cannot 
take the risk that the defendant might prevail and be faced with the 
possibility of paying the defendant's attorney's fees.
    On almost a daily basis, we counsel clients as to the risk of 
bringing a copyright action and, in most instances, the client is 
deterred based on the cost of litigation and the risk of fees.
      iii. support of the copyright office report on small claims 
                            recommendations
    The Organizations collectively favor a system that would enable 
rights holders to elect to bring a copyright infringement claim using a 
form of alternate dispute resolution and support the Copyright Office 
Study on Remedies for Copyright Small Claims. Each of the organizations 
have provided comments to the United States Copyright Office in 
connection with their study on remedies for copyright small claims and 
support the United States Copyright Office Report On Copyright Small 
Claims published in September 2013. While each of the Organizations 
submitted individual responses, the issue of effective remedies for 
copyright infringement is a priority, and the Organizations have met 
over the years to collectively discuss and respond to questions posed 
by the Copyright Office. Specifically, the Organizations support an 
alternate dispute resolution system that would provide:

          The ability to bring a small claim without the need 
        of legal representation;

          A forum and procedures that are cost effective and do 
        not require expensive travel, costs or expert fees;

          The ability to have a claim adjudicated timely by a 
        tribunal that is knowledgeable about copyright;

          A resolution that offers finality and ease of 
        enforcement of any judgment; and

          Incentives to avoid having the defendant's rejecting 
        the forum and demanding that the claim be brought in a federal 
        court of general jurisdiction.

    The submissions of the various Organizations to the Copyright 
Office in response to three separate notices of inquiry regarding 
copyright small claims and remedies provide greater detail as to the 
complex issues that arise when considering an alternate system than 
federal court. Some highlights of submission on behalf of PACA/the 
Digital Media Licensing Association may be helpful in framing the 
issues.
Nature of the Process
    We envision the process of submitting a claim under a small 
copyright claims system as an alternative dispute process with guidance 
and oversight from the Copyright Office. The adjudicators should have 
copyright law experience and some training in dispute resolution. The 
process should be virtual, meaning that claims should be submitted 
electronically without the need for any party to travel to any location 
in order to testify or to provide other evidence. The award should be 
timely, and, absent abuse, should not be entitled to an appeal.
Voluntary Versus Mandatory
    We acknowledge that any alternative tribunal to federal court will 
most likely be voluntary. In order for the system to be successful, 
participants should be offered a cost effective and streamlined dispute 
resolution process. There should be incentives to encourage the use of 
the system, to discourage more well-healed infringers from refusing to 
participate in the hopes that the claimant would not have the financial 
means to bring any claim, thereby avoiding any risk of paying damages 
for infringing activity. Possible incentives could include an increase 
in the prevailing plaintiff's damages if the defendant rejects the 
plaintiff's election to proceed in the small copyright claim forum and 
the plaintiff prevails in the general federal system. In this event, 
the plaintiff should be entitled to costs and attorneys' fees, 
regardless of whether attorneys' fees would be available under Section 
412 of the Copyright Act.
Permissible Claim Amount
    We support the Copyright Office recommendation that the 
jurisdictional limit for a small copyright claims system be up to 
$30,000. This amount is consistent with the statutory limit of damages 
for non-willful infringement under the Copyright Act. In addition, this 
amount would cover many cases that are not brought because the recovery 
is too low, such that claimants are not able to find representation and 
are not able to navigate the federal system without an attorney. The 
American Bar Association Section of Intellectual Property Law conducted 
a poll of its members in connection the with the Copyright Office 
Notice Of Inquiry on Remedies for Small Claims Copyright Claims and 
only one third of the attorneys polled stated they would accept an 
uncomplicated case with a likely recovery of less than $30,000.
Representation
    In the spirit of an affordable, less formal process, the parties 
should not be required to retain an attorney. Whether one is entitled 
to retain an attorney should be at the election of the party, but not 
prohibited, whether the party is either an individual or an entity. 
Rules regarding whether a corporation or business entity may appear 
without legal counsel should be relaxed for small copyright claims, 
similar to arbitration proceedings in which a corporate officer or 
employee may appear and represent the corporation.
Discovery
    In order to have a less expensive, streamlined and quicker 
resolution, discovery and other procedures will necessarily be limited.
Damages
    Apart from establishing a jurisdictional limit, the Organizations 
do not recommend altering existing law and policy on recoverable 
damages. Both actual damages if proven and statutory damages and 
attorneys' fee should be allowed, subject to the jurisdictional cap.
Effect of Adjudication
    Similar to an arbitration award, the award of the adjudicator in a 
small copyright claim forum should be final and enforceable. Decisions 
should not be published or carry any precedential weight and should be 
limited to the specific activities in question.
Enforceability of Judgment
    Congress may want to consider the model for enforcing arbitration 
awards with respect to awards rendered in a small copyright claim 
tribunal. If a party is awarded damages, that party should have 30 days 
to pay. If the party does not pay, the award may be converted into a 
judgment and any applicable court with jurisdiction will enforce any 
award if payment has not been made.
Limitations on Relief Offered
    Whether damages other than monetary damages should be part of the 
small copyright claims system should be considered carefully. An 
injunction to prevent the continued infringement or to enforce the 
removal of content online may be appropriate if a work is not so 
incorporated within another creative work that it would cause 
disproportionate economic harm to the new work. If, however, the 
infringing work is merely displayed on a website, in addition to 
damages, it would be appropriate in order to enjoin continued use of 
the infringing work by the defendant, to avoid multiple claims for the 
same use by a plaintiff against the same party. This would address a 
problem that is rampant with notice and takedown under Section 512 of 
the Copyright Act, where works may be taken down after notice to the 
service provider, but are then immediately reposted by users, requiring 
copyright owners to repeatedly send notice and takedown letters for the 
same infringing content.
                             iv. conclusion
    The Organizations support the efforts of the Copyright Office in 
its study of a Copyright Small Claims Court. They actively participated 
in the Office's study by responding to inquiries on this issue. More 
details regarding the Organizations' recommendations can be found on 
the Copyright Office's website at: http://www.copyright.gov/docs/
smallclaims. We encourage Congress to implement the recommendations 
summarized here and described in the comments filed by the 
Organizations. These proposed solutions will create a vastly more 
suitable venue for small claims for both statutory and actual damages 
and will benefit users, copyright owners, licensing agencies, and 
visual artists (especially those who earn a substantial portion of 
their livelihood from licensing fees) alike. Without an effective 
remedy, visual artists do not have a right, and infringement will 
continue in an unconstrained manner.
    Thank you for inviting me to testify today. We look forward to 
assisting the Subcommittee as it continues to consider this issue and 
the overall process of copyright review.
                               __________

    Mr. Coble. Good to have you with us, Ms. Wolff.
    The entire Subcommittee Members thank you all for being 
here and for not abusing the 5-minute rule.
    We try to comply with the 5-minute rule as well, so, if you 
will respond tersely, we will appreciate that.
    Mr. Bitkower, does the lack of a provision providing for 
felony infringement of a right of public performances deter law 
enforcement from bringing actions for illegal streaming? And 
who needs this provision to protect their works?
    Mr. Bitkower. Thank you, Chairman Coble. The short answer 
to your question is yes. We have seen over the preceding years 
a trend toward streaming and away from simple downloads as the 
preferred method of infringing many types of online content. 
And it has already been said, by both you and Ranking Member 
Nadler, the streaming of digital content, because it most 
clearly implicates the public performance right, is currently 
clearly prosecuted only as a misdemeanor.
    Misdemeanor penalties are real, but when you look at the 
massive profits that infringing Web sites can make from 
streaming media, misdemeanor penalties are simply not 
sufficient to deter those large-scale infringers. So we do 
think it would be very helpful to have a felony penalty for 
streaming.
    Mr. Coble. Thank you, sir.
    Mr. Tepp, in contrast to the early days of the Internet, in 
your opinion, how many Americans today believe that anything 
they find on the Internet is available to use for free and that 
they should not be held accountable for situations in which 
fair use does not apply?
    Mr. Tepp. Sir, I fear that too many don't give copyright 
the respect that it deserves.
    Mr. Coble. I would concur with that.
    Mr. Tepp. And I fear that too many think that they either 
won't get caught, or if they do get caught, the remedies will 
be too small.
    That is, I might add, the precise rationale that this 
Committee applied when it passed the NET Act, the No Electronic 
Theft Act, in 1997. I think the remedies have improved with 
that enactment, but we still have a significant challenge in 
front of us, in terms of piracy in the modern age.
    Mr. Coble. I thank you, sir.
    I would like to hear from each one of you, and I will start 
with you, Mr. Tepp. What are your views on the Copyright Office 
recommendation for a small copyright claims system?
    Mr. Tepp, if you will start us off?
    Mr. Tepp. Sure. I think the Copyright Office did a very 
nice job analyzing those issues. I think it is important to 
have a small claims process for precisely the reasons that Ms. 
Wolff has mentioned. It really is financially difficult for 
individual creators to proceed.
    There are two things that I think are important to have in 
that process. One, it should be entirely voluntary for both 
parties to participate. And two, it should be based on the size 
of the claim, not on the size of the claimant.
    Mr. Coble. Thank you, Mr. Tepp.
    Mr. Schruers?
    Mr. Schruers. So a few observations on the small claims 
issue. I think, first, it shows that current statutory damages 
aren't working. The motivation for statutory damages, the $750 
up to $150,000, was precisely intended to empower individual 
artists to bring cases and, as well, to provide a deterrent. 
But the idea that providing a floor would ensure that people 
could come to court was something that, certainly, motivates 
the statutory minimum. And notwithstanding the fact that we are 
also hearing that the system doesn't work. So I think we can 
learn from that.
    Additionally, with respect to that approach, there are also 
small defendants. While I don't represent them, I do see that 
many individuals are the subject of these troll actions. And I 
find myself wondering why smaller plaintiffs should be entitled 
to recourse in a lower-cost system that smaller defendants 
should not.
    So I think the structure of a small claims system is 
something worthy to consider. It is likely to have a lot of 
cascading implications across the act, and so I think its 
ultimate efficacy would depend a lot on how it is designed.
    Mr. Coble. Thank you, sir.
    Mr. Siy?
    Mr. Siy. Thank you, Mr. Chairman. I think that a small 
claims court can be an excellent idea. I think as many people 
have pointed out, litigation is expensive, both for the 
plaintiff and for the defendant. I think a careful balancing 
needs to occur in terms of providing a more efficient, more 
streamlined process versus making sure that the rights of all 
the parties involved are protected.
    Mr. Coble. Thank you, Mr. Siy.
    Ms. Wolff?
    Ms. Wolff. Yes, I am very grateful for the Copyright Office 
for putting such a detailed report together. I think it 
addresses a lot of the concerns that the smaller copyright 
owners have. I think it would benefit defendants as well as 
plaintiffs, because there would be a forum that would cost less 
for both sides, and there would be a cap on the amount of 
damages, which would solve a lot of the problems that were 
presented at this table.
    But there are many legitimate claims that just can never 
reach the system the way it is designed now. I think for it to 
work, though, being voluntary, there would have to be teeth, 
that if a defendant simply refused to participate, thinking 
that it would cost more to try to enforce any type of smaller 
claim amount, that there would have to be some kind of 
incentive and additional damages that could be awarded to a 
plaintiff, if they are forced to have the expense of going the 
Federal copyright route.
    Mr. Coble. Thank you, ma'am.
    Mr. Bitkower?
    Mr. Bitkower. Thank you, sir. The department does not have 
a formal position on small claims court for civil enforcement.
    Mr. Coble. I see my time has expired. Thank you all again.
    The gentleman from New York?
    Mr. Nadler. Thank you, Mr. Chairman.
    Mr. Tepp, could you please explain why statutory damages 
for civil copyright infringement are structured the way they 
are, and also explain the per infringed work framework 
applicable to all copyrightable works?
    Mr. Tepp. Certainly, sir.
    Congress has very carefully and repeatedly over time 
reviewed and considered whether statutory damages need to be 
recalibrated or adjusted.
    In 1790, as you alluded, the statutory damages were per 
infringing copy, so if you make 20 infringing copies, you pay 
20 times the statutory amount. Back then, it was $.50, half of 
which went to the copyright owner, half of which was available 
to the government. So even then, there was both a compensation 
and deterrence element.
    Those numbers were adjusted over time for inflation. 
Additional numbers were put in for different types of works, 
reflecting the different value for different works.
    There was also eventually an added minimum and maximum cap 
for statutory damages. I believe it was in 1897.
    In 1976, in the general revision of the Copyright Act, it 
was changed to a per infringed work standard. So you make one 
infringing copy of a work, make 100 infringing copies of a 
work, you still pay one time the statutory damages range.
    Of course, in so doing, Congress provided a wide range, so 
that it could accommodate different types of facts. One 
infringing copy is less likely to generate a large number 
within the range, and vice versa. Large numbers of 
infringements, more harmful infringements, willful 
infringements, are likely to bring a court to award a higher 
number within the statutory range.
    Mr. Nadler. Now, your written testimony illustrates that 
after adjustments for inflation, statutory damages are actually 
lower now than at any point in the last century, and also that 
Congress saw the need to increase statutory damages in 1999 in 
response to the increased threat of digital piracy.
    So even though we increased damages in 1999, they are still 
at their lowest level they have been at in a century.
    Mr. Tepp. That is correct, sir.
    Mr. Nadler. Do you think they are at a proper level, or 
should we raise it at this point?
    Mr. Tepp. I am not asking for this Subcommittee to consider 
raising it at this point. I think the system is working 
reasonably well.
    We can always imagine scenarios where it would be hard-
pressed--for example, the infringement of a pre-release high-
profile, large-budget, copyrightable work. That is a single 
work infringement. The maximum statutory damages would be 
$150,000. That work might have generated millions, but for that 
infringement.
    So in spite of that, though, I think the current range of 
damages is basically getting the job done.
    Mr. Nadler. Now, I understand that the current copyright 
structure has led to numerous tech innovations and, we have all 
seen this, legitimate services, whereby consumers can access 
movies and music on multiple legal sites, whether it be iTunes, 
Pandora, Netflix, HBO GO, or whatever. Now if it were not for 
the statutory damages and enforcement by the Department of 
Justice, is it possible that these services might be more 
threatened by illegal downloading and streaming sites like 
Napster and illegal movie sites?
    Mr. Tepp. Thank you very much for that question. I think 
the argument about chilling effects really misses the point: At 
the macro level, innovation and copyright protection are 
complementary. They produce and develop works and markets that 
they each benefit from.
    And the online services that are licensed and legitimate 
have the most to lose from online services that are 
undercutting them, because they are getting their copyrighted 
works that attract so many people without paying for them.
    Mr. Nadler. Thank you.
    Mr. Bitkower, you recommend the creation of legislation to 
establish a felony charge for infringement for unauthorized 
public performances conducted for commercial advantage or 
private financial gain. Did you not recommend that?
    Mr. Bitkower. We do recommend the creation of felony 
penalties. We have not endorsed particular text at this point, 
but that is, certainly, one option.
    Mr. Nadler. Okay. Now, why is it the case that in most 
cases infringing streaming can be prosecuted only as a 
misdemeanor, even when sites are willfully streaming pirated 
content to a large number of users and turning huge profits 
through advertising revenue and subscriptions? That is a 
situation where you are recommending a felony. Why is the law 
only a misdemeanor now?
    Mr. Bitkower. Thank you, Ranking Member. The reason that 
the current law only clearly provides for misdemeanor penalties 
is because the way courts and treatises and experts have 
approached the streaming question----
    Mr. Nadler. Say that again? I just didn't catch it. Say 
that again?
    Mr. Bitkower. The reason that the current law only is read 
to provide most clearly misdemeanor penalties is because the 
way the courts and treatises have approached the streaming 
problem is more as one of public performance than of 
reproduction or distribution.
    Because it does not invoke those rights that have felony 
penalties attached to them, the only current way to approach 
those through criminal law most clearly is as a misdemeanor.
    There are ways that we could address that in different 
fashions, in terms of creating a felony penalty. One might be 
to address more narrowly streaming. One might more broadly 
address public performances in general.
    Mr. Nadler. Thank you.
    Ms. Wolff, the last question, how does the current remedies 
regime impact individual creators? And do you think that a 
small claims system with a reduced range of statutory damages 
would benefit individual creators?
    Ms. Wolff. I think it would benefit them very much because 
many of these individual creators haven't taken advantage of 
registration because it is very expensive for them to do that. 
And even when they do, to have one work infringed, it is a 
range from $750 to $30,000, and courts generally don't hand out 
large awards. So it is very difficult to go to court and have 
to pay attorney's fees.
    But I think having effective enforcement actually 
encourages licensing and will encourage the legitimate online 
licensing offerings that frankly offer very reasonable license 
fees to use images in many of the situations where they are 
being used without permission.
    So I think having an enforcement scheme will benefit the 
individual authors and also increase licensing of these images 
rather than encourage right-click and stealing.
    Mr. Nadler. And could we make it cheaper to register?
    Ms. Wolff. I think that would be helpful and also easier if 
it was done within the flow and process of creation.
    Mr. Nadler. Thank you very much.
    My time is expired, so I yield back.
    Mr. Coble. I thank the gentleman.
    The gentleman from Pennsylvania?
    Mr. Marino. Thank you, Chairman.
    Mr. Bitkower, could you please tell me what, if any, 
prosecutions are taking place with China, with Russia, that 
doesn't involve China's or Russia's intellectual property, more 
so what involves our intellectual property, because I have the 
feeling--we were just talking about this a moment ago--that the 
Olympics, as long as it wasn't a Chinese infringement, then 
nothing was done about it.
    Mr. Bitkower. Thank you, sir.
    And the question very accurately gets to the point that we 
have a very serious concern with intellectual property 
infringement from China, and that is across-the-board, not just 
in copyright but also in counterfeit goods--intellectual 
property, trade secret theft, et cetera.
    And in fact, I think the number is over 90 percent of 
seizures by Customs and Border Protection for counterfeit goods 
are goods coming from China. So we do have a multipronged 
approach to that problem. We are not going to prosecute our way 
out of it, certainly. So we rely on public and private 
pressure.
    We also rely on bilateral cooperation with China. That 
cooperation has varying levels of success, depending on the 
type of intellectual property you are talking about. We have 
had better success in areas that involve health and safety 
products like counterfeit airbags, for example, than we have 
with copyrighted goods.
    But we do take a variety of approaches, and that includes 
prosecution. And I do highlight in my testimony one example 
where we did prosecute an individual who was pirating millions 
of dollars, $100 million worth of software, from China, who was 
arrested and prosecuted after coming to the United States to 
make an undercover sale.
    Mr. Marino. So that was done here in the United States. He 
was apprehended here in the U.S.
    Mr. Bitkower. That is correct. He was based in China, but 
he did step foot here to engage in a sale and was arrested upon 
making that sale.
    Mr. Marino. Did China have any response or any comment on 
that?
    Mr. Bitkower. I am not aware of any official response China 
has had, sir.
    Mr. Marino. Okay.
    Ms. Wolff, you have represented artists and individuals 
across the board. Can you tell me on how many occasions, 
roughly, what percentage of your cases do end up in trial? And 
I am sure you petition the court for attorney's fees. What is 
the success rate there?
    Ms. Wolff. I would say, in a copyright infringement case, I 
have had no case go to trial. When you are in Federal court, 
the first thing the judge will try to do is try to get the case 
off the docket, and when you are in Federal court with RICO, 
tax invaders and everything else, and you are complaining 
someone has been using my photograph and not paying for it, you 
are going to be put in a room with a magistrate, and you are 
going to try to get to some resolution. Or they will try to get 
summary judgment to at least narrow the issue, so a case can 
resolve more effectively.
    So the issue of petitioning for attorney's fees doesn't 
occur because you don't usually get to do that until you go all 
the way through trial.
    Mr. Marino. Thank you.
    Mr. Bitkower, again, I like the department's position on 
increasing the penalty from a misdemeanor to a felony. What 
impact, if any, do you think that is going to have on pirating?
    Mr. Bitkower. I think it will have an impact, sir. I think 
it will have an impact today, because there are streaming sites 
that are not, I think, being adequately deterred by the 
available penalties now. And I think when you look at the 
trends that we are seeing in online infringement, there will be 
an even greater shift toward streaming and away from 
downloading.
    And in that case, it will be more important in the future 
than it is even today.
    Mr. Marino. Anyone on the panel, particularly the three 
gentlemen that I have not asked a question, give me your 
comments on when a case gets to trial, there is an award, if it 
is a jury, there is an award by jury, tell me your pros and 
cons on the amount of awards. Do you think that courts are just 
allowing juries to award unbelievable amounts for injury or not 
enough?
    Mr. Tepp?
    Mr. Tepp. The statute is designed to give the courts wide 
discretion. We trust the courts to get it right. I think, by 
and large, they do.
    There are a couple cases that people like to cite because 
they seem like big numbers. Complaints about a particular jury 
verdict within the wide discretion don't prove there is 
anything wrong with the system. They prove that people don't 
like that particular jury verdict.
    For the two cases you hear most often, when you actually 
look under the hood, those defendants were found to have 
willfully infringed by four separate juries of their peers. In 
fact, one of them even destroyed evidence and lied about it on 
the stand, so they weren't particularly sympathetic.
    Mr. Marino. Thank you.
    I see my time has expired. I yield back.
    Mr. Coble. I thank the gentleman.
    The gentleman from Michigan?
    Mr. Conyers. Thank you, sir.
    Mr. Assistant Attorney General, what else can we do besides 
addressing the felony streaming issue? It seems to me like 
there is an under-prosecution. Normally, I come to the 
Committee complaining about overcriminalization. And now I find 
myself in the awkward position of saying let's make a felony of 
some of these misdemeanors.
    Can you give me some comfort in some way?
    Mr. Bitkower. Thank you, Ranking Member Conyers.
    I certainly would prefer to be on a Committee where you are 
recommending increases than the contrary.
    I think I can give you comfort, because I think there are a 
number of ways that we can craft a felony penalty for streaming 
that is narrowly tailored to address the problem that we are 
seeing without sweeping too broadly into activities that should 
not be criminally prosecuted, and are best addressed in other 
ways.
    One of those ways might be to craft a penalty that does not 
criminalize any new conduct that is not already currently 
criminal, and merely makes felony penalties for conduct that is 
already illegal and can be criminally prosecuted as a 
misdemeanor.
    In other words, we would simply be increasing the maximum 
penalty that a judge could impose after hearing all of the 
facts upon conviction.
    So that is one way we can certainly keep it narrow, and 
there are other ways that we could do that as well.
    Mr. Conyers. Now that I found out where you stand on 
overcriminalization, are there other things that we might be 
thinking about? Do all of you here think that we are making 
this a little too easy for plaintiffs to jump on the litigation 
bandwagon, and that we have to find some ways to make it more 
difficult?
    Ms. Wolff. I don't think anything is easy for plaintiffs to 
jump on the litigation bandwagon. I think statutory damages are 
very critical to the individual creators, because it empowers 
them to actually enforce the copyright and go to court. But 
what that empowers them also to do is to make a reasonable 
settlement.
    But I think that for the individual, there are way too many 
hurdles, and it isn't simple enough.
    Mr. Conyers. We need to give the plaintiffs more assurance, 
small claims plaintiffs.
    Ms. Wolff. For the claims of relatively smaller value, 
there needs to be a more streamlined, efficient, less cost 
consuming way to go to court. You can't spend up to $1 million, 
if you go to trial, or hundreds of thousands of dollars just 
getting through discovery and summary judgment, when you are 
trying to collect $10,000, $20,000, or even $5,000.
    And attorney's fees aren't automatic, either, so there is 
never a guarantee you will get that.
    Mr. Siy. Mr. Ranking Member?
    Mr. Conyers. Mr. Siy?
    Mr. Siy. I think when we talk about what is or isn't easy 
for plaintiffs, it is a mistake to lump all plaintiffs into the 
same boat, just as it is a mistake to lump all defendants into 
the same boat. There are plaintiffs for whom the current system 
makes the incentive to litigation a little too tempting to 
advance nonmeritorious claims.
    I don't think that we are advocating eliminating statutory 
damages, but simply that the system adopts a one-size-fits-all 
approach to all sorts of different types of plaintiffs and 
defendants.
    Mr. Conyers. Mr. Bitkower, how do you think the Department 
of Justice is doing in keeping pace with these various 
technological advances and the international scale of copyright 
infringement? Most of it is international.
    Mr. Bitkower. That is absolutely correct, sir. And that is 
a result both of changes to the way we do business on the 
legitimate side, as well as the increasing Internet basis of 
copyright piracy. We are doing the best we can, certainly.
    There are narrow areas where we would like to see some 
additional tools. And as I have also highlighted in the 
testimony, there are areas where additional resources could 
help us make better use of the tools we already have. I am 
referring there particularly to the value of placing additional 
prosecutors overseas in high-impact areas.
    Mr. Conyers. Thank you, Chairman Coble.
    Mr. Coble. I thank the gentleman from Michigan.
    We have a vote on, but the gentlelady from California has a 
unanimous consent request, and is recognized therefore.
    Ms. Lofgren. I appreciate that Mr. Chairman. I would like 
to ask unanimous consent to place in the record a statement on 
this topic from the Electronic Frontier Foundation.
    Mr. Coble. Without objection.
    
    [The information referred to follows:]
    
    
    
                                   __________
    Mr. Coble. Folks, we have a vote. If you all will stand 
easy, I hope to be back within approximately 45 minutes to 1 
hour.
    [Recess.]
    Mr. Coble. Pardon the delay, folks. We had a vote, as I 
told you earlier. Hopefully, we will finish before additional 
interruptions.
    The Chair recognizes the gentlelady from California, Ms. 
Chu.
    Ms. Chu. Thank you, Mr. Chairman.
    As the cochair of the Creative Rights Caucus, I am very 
supportive of creating a small claims court, as a way for 
smaller and independent artists to have access to a real and 
affordable copyright enforcement remedy for when their works 
are stolen online, which often happens repeatedly, like a death 
by a thousand cuts.
    This would especially help creators like photographers and 
songwriters, who are often the smallest of business owners.
    The most important thing to keep in mind is that although 
we use the term ``small claims,'' often, really, these claims 
are not small to the individual creator whose livelihood is 
being threatened by the theft of their work and property. That 
is why creating such a remedy is so important and necessary. 
And I look forward to working with Ranking Member Nadler on 
this.
    Let me start off with a question to Mr. Bitkower. In your 
testimony, you state that DOJ works in close coordination with 
enforcement partners and especially with Intellectual Property 
Enforcement Coordinator, IPEC, in the Office of the President 
to develop policy and legislative proposals that preserve your 
ability to enforce IP rights through criminal law.
    So not only does this position play an intricate role in 
overseeing volunteer agreements amongst stakeholders in the 
digital ecosystem, it also plays an important role in ensuring 
copyright enforcement is actually effective.
    As of next month, the position will have been vacant for an 
entire year. What kind of accomplishments have you seen this 
office make? And how important is it to DOJ that this position 
get filled as quickly as possible? Has your enforcement 
coordination with IPEC been impacted by this vacancy?
    Mr. Bitkower. Thank you, Congresswoman.
    Our coordination with the IP Enforcement Coordinator has 
been a very good one, since the position was created by 
statute. And as you have remarked, we do coordinate closely on 
issues of policy and legislation.
    There has, of course, been an acting coordinator since Ms. 
Espinel left the position. So we have continued to work closely 
with them.
    But certainly, the attention that it has brought to 
copyright issues, and, in particular, the 2011 white paper with 
legislative recommendations have been helpful to us.
    Ms. Chu. Okay, thank you for that.
    I would like to ask a question to both Mr. Schruers and Mr. 
Tepp. It is pertaining to the idea that statutory damages chill 
innovation.
    Mr. Schruers, you state that under existing law, there is 
no situation in which a copyright holder can be 
undercompensated, and that the threat of high statutory damages 
chill the creation of innovative services.
    Under our current copyright regime, however, we do see new 
innovative models like Netflix, which has been very successful 
in their businesses. And also under the current copyright 
regime, venture capital invested in media and entertainment 
sectors grew by over 50 percent. Investment in online music 
companies alone topped over $1 billion in 2011 and 2012.
    Also, by the time that statutory damages are considered in 
the legal process, the court would have determined that 
infringement did occur. So if you are a business that plays by 
the rules and did not infringe on someone's property, you 
wouldn't have to worry about the calculation of statutory 
damages.
    So what evidence do you have in making the argument that 
statutory damages chill innovation?
    First Mr. Schruers, and then Mr. Tepp.
    Mr. Schruers. Sure. So, it is always difficult when your 
lawyer tells you if you are not doing anything wrong, you don't 
have anything to worry about. In an environment where we have 
very vague boundaries, abstractions inherent in the copyright 
system create a lot of uncertainties both around existing safe 
harbors in the statue, limitations and exceptions. We see cases 
litigated for a very long time, such as Veoh, which I mentioned 
earlier, where ultimately the parties were exonerated, but not 
before bankruptcy.
    So there are a number of other examples in my testimony 
that identify cases, interviews with investors and 
entrepreneurs, who very clearly indicate that there is a lack 
of willingness to either invest or pursue projects that touch 
content because of the exposure.
    It is true that we have innovation occurring today, that 
there are new and interesting services out there. The fact that 
they exist does not mean that we would not have more if these 
concerns did not prevail in the industry.
    Ms. Chu. Mr. Tepp?
    Mr. Tepp. Thank you very much. Empirically, we, certainly, 
do have no obvious shortage of new and innovative services. I 
think it is interesting to hear that the issue raised is about 
the substantive aspects of copyright law, and there are parts 
that are not 100 percent clear and fair use is one of them. I 
know that is something that some of the people at this table 
think is a very important part of fair use, probably all of the 
people at this table do.
    But that is not what statutory damages is. So I would 
suggest that the answer to questions of substantive copyright 
law ought not dictate a lowering of the remedies for when 
copyright has been found to infringe.
    Ms. Chu. And on the question of chilling innovation?
    Mr. Tepp. On that question, from a practical standpoint, I 
think it is a question of who bears the risk. If a service 
starts up making use of copyrighted works without a license, 
maybe with a touch and go fair use claim, and maybe they do or 
don't get the safe harbor protection under Section 512, if they 
win, the copyright owner gets nothing. That is the way the law 
works.
    If they lose, and they didn't have a license and it is not 
fair use and they are not protected by the safe harbors, then 
it doesn't seem to me it is fair to shave the copyright owner's 
compensation because of that.
    Ms. Chu. Thank you. I yield back.
    Mr. Coble. I thank the gentlelady.
    The gentleman from Texas, Mr. Farenthold.
    Mr. Farenthold. Thank you very much. I kind of want to 
follow up on that same line of questioning.
    Historically, to infringe on a copyright, it has taken 
expensive equipment. You had to have a Betamax or you had to 
invent a Betamax, or you had to have a printing press or a 
copier, which back when a lot of these laws were written, it 
made copyright infringement on any large scale by an individual 
user virtually impossible. So we set high damages to deter 
people with resources from infringing.
    Today, pretty much every home in the United States has a 
computer capable of making a perfect copy of a digital image. 
And we are seeing cases now with statutory damages, as we are 
seeing some of the cases from the RIAA work their way up, a 
$1.5 million damage award for 24 songs on Kazaa.
    I mean, at the time, there were all these excesses, I 
think, where grandmothers were getting sued for what school-age 
children were doing on the computer without their knowledge.
    So I guess my question is, if we were to go to some form of 
lower statutory damages with a small claims court, if you will, 
for copyright, don't you think that tens of thousands of 
dollars or hundreds of thousands of dollars in damage is more 
appropriate than millions of dollars in damages against a 
noncorporate or individual infringer? And I will just open that 
up to anybody on the panel.
    Mr. Schruers. If I may, I think that is very true, that the 
extraordinarily large judgments we see often appear 
inappropriate. And as I said, I think that undermines the 
perceived legitimacy of the IP rights system.
    A way where the damages seemed more proportional to the 
injury that is being caused would help not only ensure the 
perceived legitimacy of copyright, but remove the potential due 
process concerns that are sometimes associated with this.
    It is true that as technology is widely available and the 
statutory damages in the colonies were initially set, the only 
people who were likely to violate those were printers who owned 
printing presses. Now that technology is accessible to all of 
us.
    It is necessary to tune our system appropriately.
    Mr. Siy. One of the things that I thought was really 
interesting about the history of statutory damages is the 
movement from a per copy penalty to a per work penalty. 
Apparently, that was at the request of broadcasters in the film 
industry because as technology changed, it became easier for 
them to be found liable for these sorts of multiplying 
statutory damages, even if it was an inadvertent infringement. 
The idea being that you wouldn't have that sort of unjust 
multiplication, as technology had changed in the intervening 
years.
    I think that points us in a direction that we do want to 
take into account the fact that whereas before it was much 
easier to have multiple copies of a single work being made, 
these days, it is actually incredibly easy for individuals to 
have single copies of multiple works, inadvertently or in good 
faith.
    Mr. Farenthold. Ms. Wolff?
    Ms. Wolff. I think we are almost in a way conflating two 
things, the need for small claims court and the amount of 
statutory damages now. I think statutory damages are still very 
relevant, and the ability to seek statutory damages for 
individual creators is important because there are oftentimes 
when it is very difficult to establish actual damages.
    Mr. Farenthold. Let me get to Mr. Tepp, and maybe I will 
have time for one more question.
    Mr. Tepp. I agree with what Ms. Wolff just said. Certainly, 
small claims court is an appropriate avenue for qualifying 
claims. Some claims are larger and deserve the full 
availability of the range of statutory damages.
    The cases you cited, we had four juries that determined, 
the two cases combined, that the defendants had infringed 
willfully. In fact, one of them lied on the stand about 
destroying evidence.
    To the extent that anyone thinks those individual jury 
verdicts were not appropriate, they could have been lower under 
statute. They could have been higher under the statute. I think 
what is important for this Committee to keep in mind is that 
the range in the statute is not the issue, if the complaint is 
about where the jury fell in that range.
    Mr. Farenthold. I see you have successfully exhausted my 
time.
    Thank you very much.
    Mr. Coble. I thank the gentleman.
    The distinguished gentleman from New York, Mr. Jeffries, is 
recognized.
    Mr. Jeffries. Thank you, Mr. Chair.
    And let me thank the witnesses for your presence and for 
your testimony here today.
    Let me start with Mr. Bitkower. I wanted to re-explore the 
issue of streaming and the applicable penalty in some greater 
detail. I know it has been covered to some degree in the 
hearing today.
    Now, under current law, unlawful reproduction and 
distribution we know to be a felony. And is that punishable 
between 3 and 10 years imprisonment?
    Mr. Bitkower. That is correct, sir.
    Mr. Jeffries. Okay. Now, streaming, of course, under 
copyright----
    Mr. Bitkower. I am sorry. I didn't mean to interrupt, but 
it is between zero and 10 years, depending on various other 
factors.
    Mr. Jeffries. Zero and 10 years.
    Mr. Bitkower. Yes.
    Mr. Jeffries. Okay. In your experience, what is the average 
penalty to the extent those prosecutions took place or are 
continuing to take place?
    Mr. Bitkower. Sir, it is very hard to estimate an average 
penalty over, obviously, a broad array of cases. Certainly, 
within the zero- to 5-year range is the vast bulk of them. 
There could certainly be cases that fall above that where there 
is large-scale harm.
    Mr. Jeffries. But there are instances where individuals who 
are found guilty, or plead guilty, are subject to a term of 
imprisonment and actually serve time in prison?
    Mr. Bitkower. Yes, sir.
    Mr. Jeffries. Okay.
    Now, streaming under copyright law constitutes a public 
performance. You pointed that out earlier, correct?
    Mr. Bitkower. Yes, probably.
    Mr. Jeffries. At least it has been interpreted in that way, 
by courts and treatises, as you have indicated.
    Mr. Bitkower. Yes, and, of course, depending on the facts 
of any given case.
    Mr. Jeffries. Okay. Under Section 506(a)(1) of the 
Copyright Act, DOJ has jurisdiction to pursue unlawful public 
performances that occur, correct?
    Mr. Bitkower. That is correct.
    Mr. Jeffries. Now, if someone is convicted of illegal 
streaming and unlawful public performance, they are subjected 
to no greater than a misdemeanor penalty. That is right?
    Mr. Bitkower. That is correct.
    Mr. Jeffries. Okay. And what is the maximum time punishable 
under law connected to illegal streaming?
    Mr. Bitkower. The maximum penalty of imprisonment for the 
misdemeanor offense under 506 is 1 year in prison.
    Mr. Jeffries. Okay. And have there been instances where DOJ 
has pursued prosecution for illegal streaming, notwithstanding 
the fact that the maximum penalty is only a misdemeanor?
    Mr. Bitkower. There have been a few cases where we have 
brought charges related to illegal streaming. One of them was 
resolved as a misdemeanor offense.
    Mr. Jeffries. And what was the outcome, in terms of either 
a fine or a term of imprisonment connected to that particular 
case you reference?
    Mr. Bitkower. I don't remember particularly what the 
sentence in that case was.
    Mr. Jeffries. Okay. Now, does the Justice Department have 
any recommendations as it relates to the penalty range, to the 
extent that Congress determines, as I support, that illegal 
streaming should be punishable as a felony? Does the Justice 
Department have any recommendation as to what the sentencing 
range should be in order to ensure maximum deterrence?
    Mr. Bitkower. At this time, we don't have a particular text 
with particular numbers in it. We would be happy to work with 
the Subcommittee on that question. And I certainly think it is 
something that would be commensurate with the other penalties 
that we have in the statute.
    Mr. Jeffries. Because it seems to me that the objective, to 
the extent that you would make that determination that this 
type of unlawful conduct should be subjected to the higher 
felony category, which I believe is in fact the case, that 
obviously the punishment that is on the books should be 
designed to deter the conduct from occurring, and then 
appropriately punish the actor thereafter.
    Mr. Bitkower. I think that is exactly right. I think the 
key point of our proposal is that streaming or infringement by 
streaming can be just as serious and, in fact, potentially even 
more serious than an equivalent case involving infringement by 
downloading, and the penalty should reflect that.
    Mr. Jeffries. Where do things stand with the Mega 
Conspiracy prosecution at this point?
    Mr. Bitkower. Currently, the defendants have been indicted, 
as you know. Four of them are pending extradition from New 
Zealand.
    Mr. Jeffries. Okay. What should this Committee consider in 
the context of the growing international nature of content 
piracy that is taking place? We have the technological 
challenge, that it is not as frequent as illegal reproduction 
and distribution. It is streaming. But we also have sort of the 
geographic challenge, that it is increasingly international in 
nature.
    What should we be considering to deal with that second 
aspect of what we face as piracy challenges in the present day?
    Mr. Bitkower. I really appreciate the question, 
Congressman.
    I think when it comes to the international challenge, as 
distinguished from the technological challenge, and, of course, 
those two are wrapped up together, but one of the most 
effective things we have found in that context is putting boots 
on the ground. Putting prosecutors in the high-impact regions 
to work with their local counterparts, either to bring local 
prosecutions where we can't act, to help us with our own cases, 
or simply to create a local capacity to deal with copyright and 
other intellectual property violations in those countries. I 
think that has been our greatest point of leverage, and we 
would like to see that expanded.
    Mr. Marino [presiding]. The gentleman's time has expired.
    Mr. Jeffries. Thank you.
    Mr. Marino. The Chair now recognizes Mr. Collins.
    Mr. Collins. Thank you, Mr. Chairman.
    Before I ask the question, I have been listening and, Mr. 
Schruers, one of the things you just said a moment ago, it was 
in the midst of damages, and the amount of damages and awards. 
You made a comment, and I would like to get a little 
clarification, because I do believe that strong copyright 
protection is not a hindrance to innovation, but actually an 
encouragement to innovation. You made a statement that really, 
I want to make sure that we are perceiving this right.
    You said it affects the perceived legitimacy of copyright. 
There is no ``perceived legitimacy.'' Copyright is legitimate. 
And I don't think that a damage award should take away--or 
putting it in those terms, that seems to go away from the very 
fact that copyright exists. There is no ``perceived.'' There is 
no ``legitimacy.'' Copyright exists.
    So I want to make sure that when we use these terms, we are 
not taking remedy or damage to try to sort of backdoor imply 
that copyright is any less powerful or needed simply because 
there may have been judgments that seem to be out of place.
    Is that a fair statement of what you are meaning to say or 
what came out?
    Mr. Schruers. Forgive me for not entirely understanding the 
restatement of what I had said. If I could repeat what I said 
perhaps more clearly, my comment was that the perception among 
the public of how legitimate IP rights are will be affected by 
whether or not the individual judgments that issue under the 
system seems subjectively just.
    Mr. Collins. We are not going to have enough time in the 5 
minutes, but to actually make the public agree that there is a 
copyright is part of the very problem we are in right now.
    And I think to say, well, because there are bad judgments, 
that is about like saying all tort law is bad because you have 
juries in Arkansas or anywhere else that give outrageous tort 
judgments.
    I am going to leave it there for just a moment, because I 
do want to go back to something that has been talked about a 
lot, and that is the small claims process, and more 
specifically, a voluntary test program. I understand that 
probably the Department of Justice won't have an issue here, 
but the copyright, especially with a small claims issue, would 
be supporting a move--I would support a move forward 
potentially starting out with a pilot program for this and 
looking at it before fully implementing a small claims process. 
I do believe there are two separate issues here, the remedy and 
small claims.
    In order for such a pilot to work, it seems the proper 
structure and incentives would need to be in place. I want you 
to give me your thoughts on specific elements that would need 
to be addressed.
    First, do you think a voluntary pilot program is a good 
idea? Good idea, bad idea, sort of quickly, because I want to 
move to some other questions as well.
    Ms. Wolff?
    Ms. Wolff. I agree it is good idea. And some of our 
associations recommended that we do try this. I know the U.K. 
has already implemented a copyright small claims, and I believe 
it has been successful, so I do agree.
    Mr. Collins. Mr. Siy?
    Mr. Siy. Yes, I think a voluntary pilot program would be a 
good idea.
    Mr. Schruers. I don't think CCIA has a position on it.
    Mr. Collins. Okay.
    Mr. Tepp. As long as the funding is there to stand it up, 
absolutely.
    Mr. Collins. I would agree.
    What about limiting the pilot program to, say, a subset of 
copyright infringement claims, sort of narrowing it a little 
bit, say to music? If we limited in that way to music, what 
about something like that? So again, we can get at least a look 
at it from maybe a subset instead of saying to everything at 
one time?
    I will start at this end this time.
    I know DOJ says, thank goodness I don't have to answer.
    Mr. Tepp. There are, I think, a wide range of creators who 
might make use of a claims system, visual arts, photography.
    Mr. Collins. But from a pilot program perspective, because 
we may or may not be able to get the whole thing, so I am 
wondering, would it be beneficial that we could see things in 
maybe a smaller form and then ramp up to a larger kind of 
process?
    Mr. Tepp. Ideally, it would be nice to have copyright 
owners across the spectrum be able to use it and see if there 
is a difference in different categories of works in terms of 
its use.
    Mr. Collins. Okay.
    Mr. Schruers. Acknowledging that there is no position on 
this, that we have no position, I would just say, when you say 
music, that does open a lot of questions, such as are we 
talking about compositions or sound recordings, and so on.
    Mr. Collins. And that could be narrowed as the focus goes. 
Thank you.
    Mr. Siy. Limiting it could help in sort of framing it as an 
experiment. On the other hand, I would want to ensure that 
characteristics that are specific to one particular type of 
copyrights aren't assumed to be overgeneralizable to the entire 
spectrum.
    Ms. Wolff. Well, I know the visual arts community is 
desperately seeking a way to try to enforce rights, if you 
would want to include them in a pilot.
    But again, the sampling may be different. If it could be 
open to all individual copyright authors, I think that would be 
helpful, whether they are authors, musicians, visual artists.
    Mr. Collins. Just in closing, and I think going back to 
where I originally started this, is one of the things that we 
have to, whether it is legitimacy or illegitimacy, whatever, is 
that when we get back to understand the copyright, no matter 
the art form, visual art, movie, music, whatever, when we get 
back to actually seeing that as thought streams and ideas, and 
we stop putting it in these categories of sort of music stream, 
download, then we can have an honest discussion that there is 
value to the copyright. And that is something we need.
    Mr. Chairman, I yield back.
    Mr. Marino. Thank you.
    Seeing no other Congressmen or Congresswomen here on the 
panel to ask questions, this concludes today's hearing.
    Thanks to all of our witnesses for attending. Thanks to the 
public for being here.
    Without objection, all Members will have 5 legislative days 
to submit additional written questions for the witnesses or 
additional material for the record.
    Mr. Marino. This hearing is adjourned.
    
    [Whereupon, at 4:20 p.m., the Subcommittee was adjourned.]
    
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