[Senate Executive Report 105-25]
[From the U.S. Government Publishing Office]



105th Congress                                              Exec. Rept.
                                 SENATE

 2d Session                                                      105-25
_______________________________________________________________________


 
      WIPO COPYRIGHT TREATY (WCT) (1996) AND WIPO PERFORMANCES AND 
                    PHONOGRAMS TREATY (WPPT) (1996)

                                _______
                                

 October 14 (legislative day, October 2), 1998.--Ordered to be printed

_______________________________________________________________________


   Mr. Helms, from the Committee on Foreign Relations, submitted the 
                               following

                              R E P O R T

                   [To accompany Treaty Doc. 105-17]

    The Committee on Foreign Relations, to which was referred 
the World Intellectual Property Organization Copyright Treaty 
and the World Intellectual Property Organization Performances 
and Phonograms Treaty, done at Geneva on December 20, 1996, and 
signed by the United States on April 12, 1997, having 
considered the same, reports favorably thereon with one 
reservation, two declarations and three provisos, and 
recommends that the Senate give its advice and consent to the 
ratification thereof as set forth in this report and the 
accompanying resolution of ratification.

                                CONTENTS
                                                                   Page
  I. Purpose..........................................................1
 II. Background.......................................................2
III. Summary..........................................................3
 IV. Entry Into Force and Termination................................16
  V. Committee Action................................................16
 VI. Committee Comments..............................................16
VII. Explanation of Proposed Convention..............................18
VIII.Text of the Resolution of Ratification..........................18

 IX. Appendix........................................................21

                               I. Purpose

    The World Intellectual Property Organization (WIPO) 
Copyright Treaty is intended to provide copyright protection 
for computer programs, databases as intellectual works, and 
digital communications, including transmission of copyrighted 
works over the world-wide Internet and other computer networks.
    The second treaty--the WIPO Performances and Phonograms 
Treaty--is intended to provide protection for performers of 
audio 
works and producers of phonograms (i.e., sound recordings), 
usually under ``related'' or ``neighboring rights'' theories of 
legal protection. (A country like the United States, however, 
that protects sound recordings under copyright law, may 
continue to use copyright law to satisfy the obligations of the 
Performances-Phonograms Treaty.)

                             II. Background

    The World Intellectual Property Organization (WIPO)--a 
specialized agency of the United Nations which administers most 
of the international treaties in the field of intellectual 
property (patents, trademarks, and copyrights)--convened a 
diplomatic conference from December 2-20, 1996, in Geneva, 
Switzerland, to consider three draft treaties in the field of 
intellectual property. Delegates representing more than 160 
countries participated in the conference, which ultimately 
adopted two new intellectual property treaties (and postponed 
consideration of the third draft treaty on database 
protection).
    The President in July 1997 submitted the WIPO Copyright 
Treaty and the WIPO Performances and Phonograms Treaty to the 
Senate for its advice and consent to ratification of the 
treaties by the United States, accompanied by recommendations 
for implementing legislation.
    The WIPO Copyright Treaty originated in a WIPO work program 
to update the major international copyright treaty, the Berne 
Convention for the Protection of Literary and Artistic Works 
(``Berne Convention''). This work program started in 1989 and 
included discussion of the relevant copyright issues by seven 
Committees of Experts. This process was known as the ``Berne 
Protocol,'' since it was conceived as a mechanism to modernize 
the Berne Convention (last revised in 1971) without engaging in 
a full revision of the Convention. The original purpose was to 
make explicit in the Berne Convention that computer programs 
and databases are protected as copyright subject matter, and 
generally to update the Convention concerning use of 
copyrighted works in digital, electronic environments.
    Initially, the United States sought to have updated 
protection for sound recordings included in the ``Berne 
Protocol'' process. The European Union and many other countries 
strenuously resisted inclusion of sound recording protection 
because sound recordings are not copyright subject matter under 
their laws nor, they insisted, under the Berne Convention. The 
majority of countries protect sound recordings under so-called 
``neighboring'' or ``related'' rights. The principal 
neighboring rights convention is the International Convention 
for the Protection of Performers, Producers of Phonograms and 
Broadcasting Organizations (known as the ``1961 Rome 
Convention'' or the ``Neighboring Rights Convention''). The 
United States is not a member of the 1961 Rome Convention on 
neighboring rights. The United States adheres to a more narrow 
sound recording treaty--the Convention for the Protection of 
Producers of Phonograms against Unauthorized Duplication of 
their Phonograms (``Geneva Phonograms Treaty'') (Geneva, 1971).
    The European Union's viewpoint prevailed: the Berne 
Convention could not be the vehicle for improved international 
protection for sound recordings since a majority of Berne 
States do not protect sound recordings under copyright law. 
These countries were unwilling to change their theoretical 
basis for protecting sound recordings or agree to an optional 
interpretation that sound recordings are copyright subject 
matter under the Berne Convention.
    Consequently, in 1992 a decision was made to split the 
Berne Protocol process into two phases: an update of copyright 
provisions, and the preparation of a possible ``new 
instrument'' (i.e., treaty) on the protection of the rights of 
performers and producers of phonograms. (``Phonograms'' is the 
international term commonly used to refer to protection of 
sound recordings). The issues relating to the ``new 
instrument'' were considered by six Committees of Experts. This 
dual copyright and ``new instrument'' work program culminated 
in adoption of two new treaties.

                              III. Summary

                      a. the wipo copyright treaty

    The WIPO Copyright Treaty is a special copyright agreement 
updating the Berne Convention. The treaty does not specify 
under which intellectual property law protection must be 
extended. Countries are free to legislate protection under 
copyright, neighboring rights, or possibly misappropriation 
theories of law.
    The major policy issues that arose at the 1996 Diplomatic 
Conference in the case of the Copyright Treaty were: 1) the 
liability of on-line service providers and other communications 
entities that provide access to the Internet; and 2) the scope 
of the reproduction right as applied to copying of data 
transmitted over the Internet.
    The Copyright Treaty issues were resolved by two, separate 
``agreed statements'' of the participating States: 1) that mere 
provision of communications-Internet physical facilities (i.e., 
wires, telephone lines, modems, and other communications 
devices) does not constitute infringement; and 2) that existing 
Article 9 of the Berne Convention--the reproduction right--
applies to the use of works in digital form and that storage of 
a protected work in digital form in an electronic medium 
constitutes a reproduction. However, as part of a compromise, 
the actual article on the reproduction right was dropped from 
the Copyright Treaty.
    The WIPO Copyright Treaty is a new treaty, but it also 
effectively updates the 1971 Paris version of the Berne 
Convention by providing strong links to the Berne Convention 
and by incorporating Berne articles by reference.
    For countries already bound by the Berne Convention, the 
new Copyright Treaty is in the nature of a special agreement 
within the meaning of Article 20 of Berne. Under Article 20, 
such special agreements are permitted provided they improve 
protection for authors of copyrighted works or contain 
provisions not inconsistent with Berne obligations. The WIPO 
Copyright Treaty increases protection for authors.
    Non-Berne countries may adhere to the new treaty only by 
agreeing to comply with the substantive articles of the 1971 
Paris version of Berne, i.e., Articles 1-21 and the Appendix 
for Developing Countries. In effect, the WIPO Copyright Treaty 
legally binds non- Berne adhering countries to apply the Berne 
Convention, but such countries do not become dues-paying, 
voting members of the Berne Union.
    In addition to requiring the adherents to comply with 
Berne's substantive articles, Article 3 of the new treaty 
explicitly incorporates Berne Articles 2-6 \1\ and requires 
application of Article 18. Berne Article 18 essentially 
requires some form of retroactive protection (perhaps pursuant 
to a bilateral agreement) for works that entered the public 
domain of a new member before adherence to the Berne 
Convention, but remain under copyright in the country of 
origin.
---------------------------------------------------------------------------
    \1\ Berne Article 2 specifies the subject matter protected 
(``literary and artistic works'' in general; specific categories of 
works are listed). Berne Article 2bis allows national legislation to 
exclude protection for political and legal speeches, and to allow fair 
use of lectures, addresses and similar works by the press and media, 
subject to the right of the author to copyright a collection of these 
works. Berne Article 3 establishes the highly important rules 
concerning eligibility to claim protection under the Convention, 
usually based on nationality of the author or place of first 
publication (so-called ``points of attachment''). Berne Article 4 
establishes special eligibility rules for cinematographic works 
(usually the place where the author's production facilities are 
headquartered or the author's habitual residence in a member country) 
and works of architecture (the Berne country where the building is 
located). Berne Article 5 prohibits formalities on the enjoyment or 
exercise of rights, establishes that protection must be extended to 
eligible foreigners based on the principle of national treatment, and 
establishes rules defining the ``country of origin'' and provides that 
protection in the ``country of origin'' is ordinarily governed by 
national law (i.e., the rights granted authors by the Berne Convention 
do not have to be applied in the country of origin). Berne Article 6 
permits members to retaliate against (i.e., deny protection for works 
of) nationals of non-members who fail to provide adequate protection 
for works of Berne member nationals, even though the work is first 
published in a Berne member country and would otherwise be eligible for 
protection under the Convention.
---------------------------------------------------------------------------

1. Subject Matter Provisions

    Computer programs. The treaty makes clear that computer 
programs are protected as literary works under Article 2 of the 
Berne Convention, whatever may be the mode or form of their 
expression (Art. 4).
    Databases. The treaty makes clear that the parties must 
accord copyright protection to databases that constitute 
``intellectual creations,'' i.e., works in which the selection 
or arrangement of the content is the result of intellectual 
effort. The compilation of the content (or data) is protected 
as copyright subject matter, but protection does not extend to 
the content itself (unless the content is independently a work 
of the intellect, in which case it enjoys a separate copyright) 
(Art. 5).

2. New or Clarified Exclusive Rights

    Reproduction right: No new Treaty article. The most 
contentious copyright issue at the WIPO Diplomatic Conference 
related to a draft article dealing with the reproduction right 
and its application to digital or electronic formats. Internet 
service providers, telephone companies, and other 
telecommunications entities generally objected to application 
of the reproduction right to indirect or temporary copying by 
computers transferring files on the Internet and other computer 
networks. In the end, draft Article 7 on the reproduction right 
was dropped entirely from the text of the Copyright Treaty. The 
Diplomatic Conference, however, adopted an ``agreed statement'' 
concerning the existing Article 9 of Berne.
    Public distribution right. Authors enjoy the exclusive 
right of authorizing the making available to the public of 
copies of their works (Art. 6(1)). The Treaty permits, but does 
not obligate, the parties to limit the public distribution 
right by the ``first sale'' or ``exhaustion of rights'' 
doctrines.
    Rental right. Authors of computer programs, cinematographic 
works, and works embodied in phonograms (which works are 
determined by national law in the case of phonograms) enjoy a 
generally exclusive right of authorizing the commercial rental 
of these works (Art. 7(1)).
    There are three exceptions to the exclusive right. (i) In 
the case of computer programs, the right does not apply where 
the program itself is not the essential object of the 
commercial rental. (ii) In the case of cinematographic works, 
the right does not apply unless commercial rental in a given 
country has led to widespread unauthorized reproduction of 
copies, which materially impairs the right of reproduction. 
(iii) As a concession to Japan, if a country's law in effect on 
April 15, 1994 (the date the GATT Agreement was adopted) 
provides only a right of equitable remuneration for rental of 
works in phonograms, that remuneration right satisfies the 
Treaty obligation as long as there is no ``material 
impairment'' of the exclusive right of reproduction.
    Public communication right. Authors enjoy the exclusive 
right generally of authorizing any communication to the public 
by wire or wireless means, if the public can access the 
communication at different times and places (Art. 8). In 
effect, this amounts to a transmission right, which extends to 
digital on-line and interactive communications, as well as 
analog communications. The reference to individual choice of 
reception is intended to exclude broadcasting, a right which 
remains governed by the existing Berne Convention. Also, the 
public communication right of the new Treaty explicitly cannot 
prejudice the existing public performance, broadcasting, and 
communication rights of authors as set out in Berne Articles 
11(1)(ii), 11bis(1)(i) and (ii), 11ter(1)(ii), 14(1)(ii) and 
14bis(1).

3. Limitations on Rights

    In addition to the limitations to the exclusive rights 
expressed in the grant of the right, the Copyright Treaty 
permits two general limitations on the rights.
    Article 2 provides that ``[c]opyright protection extends to 
expressions and not to ideas, procedures, methods of operation 
or mathematical concepts as such.'' This limitation on the 
scope of copyright reflects the well-settled principle known as 
the ``idea-expression dichotomy''--copyright protects against 
copying of original expressions but does not inhibit copying of 
the ideas, concepts, methods, etc. embodied in the expression 
of the idea, concept, or method.
    Article 10 allows each Contracting Party to legislate 
limitations or exceptions to the Treaty rights ``in certain 
special cases that do not conflict with a normal exploitation 
of the work and do not unreasonably prejudice the legitimate 
interests of the author.'' This general limitation would 
presumably justify the limitations and exceptions of existing 
United States law and would permit additional limitations or 
exceptions that do not conflict with the normal market for a 
work and do not ``unreasonably'' harm the interests of the 
author.
    The Diplomatic Conference also adopted an ``agreed 
statement'' concerning Article 10 that has three main points. 
Contracting Parties may extend into the digital environment any 
existing limitations and exceptions that have been considered 
acceptable under the Berne Convention. They may also devise new 
exceptions and limitations ``that are appropriate in the 
digital network environment.'' Finally, the Conference 
expressed an ``understanding'' that Article 10(2) of the 
Copyright Treaty ``neither reduces nor extends the scope of 
applicability of the limitations and exceptions permitted by 
the Berne Convention.''

4. Term of Protection for Photographs

    Only one article of the Copyright Treaty deals with 
duration of protection. Article 9 obligates a Contracting Party 
generally to apply the standard term of life of the author plus 
50 years to protection for photographic works. (The term of 
copyright for works other than photographs would remain 
controlled by Article 7 of the Berne Convention. The standard 
term is life of the author plus 50 years after his or her 
death.) This provision improves the protection accorded 
photographs under the Berne Convention, which permits a term as 
short as 25 years.

5. Enforcement of Rights

    The Berne Copyright Convention traditionally has not 
included detailed provisions regarding enforcement of rights. 
The 1996 Diplomatic Conference considered proposals to include 
detailed enforcement provisions in the Copyright Treaty, either 
as an Annex to the treaty or by reference to the enforcement 
articles of the 1994 GATT Agreement on Trade-Related Aspects of 
Intellectual Property (TRIPS Agreement). In the end, the 
Diplomatic Conference rejected both proposals in favor of a 
brief enforcement article that makes no reference to the 
provisions of the TRIPS Agreement.
    Article 14 requires Treaty adherents to ensure that 
enforcement procedures exist under domestic law to permit 
``effective action against any act of infringement of rights 
covered by this Treaty, including expeditious remedies'' to 
deter future infringements. Paragraph (1) of Article 14 
expresses the general obligation of Contracting Parties ``to 
undertake to adopt ... the measures necessary to ensure the 
application of this Treaty.''

6. Retroactive Application

    Article 13 of the Copyright Treaty binds adherents to apply 
the provisions of Article 18 of the Berne Convention, which, in 
essence, requires some form of retroactive protection for works 
that might have fallen into the public domain of the new member 
of the Treaty but remain under copyright in the country of 
origin.

7. Technological Measures

    The Copyright Treaty in Article 11 establishes a new kind 
of legal protection for authors. Treaty adherents shall provide 
``adequate and effective legal protection and effective legal 
remedies against the circumvention of effective technological 
measures'' (that is, protection against devices or services 
that defeat anti-copying technologies). The obligation is 
expressed in general language and leaves the details of 
protection to national law.

8. Rights Management Information

    Pursuant to Article 12, Treaty adherents must provide 
``adequate and effective legal remedies against any person 
knowingly performing'' prohibited acts relating to the removal 
or alteration of electronic rights management information.
    This obligation extends only to rights management 
information in electronic form. By implication, the remedies 
could be criminal or civil. In the case of civil remedies, 
protection should apply against someone who has reasonable 
grounds to know that he or she has engaged in a prohibited act.
    ``Rights management information'' (RMI) means information 
that identifies the work, the author, the rights holder, or 
discloses terms and conditions concerning use of the work. The 
intent is to facilitate widespread use of this information by 
rights holders in order to make licensing of works, or 
permission to use works, more readily available to the public.
    The Diplomatic Conference adopted an ``agreed statement'' 
concerning the interpretation of Article 12. First, the 
Conference expressed an ``understanding'' that the reference to 
``infringement of any right covered by this Treaty or the Berne 
Convention'' encompasses both exclusive rights and rights of 
remuneration. As a second ``understanding,'' the Conference 
stated the Contracting Parties will not use Article 12 to 
devise or implement RMI systems that would have the effect of 
imposing formalities, prohibiting the free movement of goods, 
or impeding the enjoyment of rights under the Treaty.

9. Administrative Provisions

    Any member State of the World Intellectual Property 
Organization may become a party to the Copyright Treaty (Art. 
17). The Treaty enters into force three months after 30 States 
ratify or accede to it (Art. 20). No reservations are 
permitted, that is, a country must accept the obligations of 
the entire treaty and cannot decline to be bound by certain 
provisions (Art. 22).
    Article 15 establishes an ``Assembly'' of the member States 
that provides some organizational structure for dealing with 
future questions about maintenance, development, or revision of 
the Treaty (Art. 15). The Assembly meets in regular session 
once every two years upon convocation by the Director General 
of WIPO.
    The International Bureau of WIPO performs any 
administrative tasks concerning the Treaty (Art. 16).

             b. the wipo performances and phonograms treaty

    The WIPO Performances and Phonograms Treaty is a new 
treaty, which has a few links to the existing 1961 Rome 
Convention. In contrast, however, to the approach taken in the 
WIPO Copyright Treaty (where adherents must apply the 
substantive articles of the 1971 Paris Act of the Berne 
Convention), adherents to the Performances-Phonograms Treaty 
are not required to apply the 1961 Rome Convention, unless they 
are already members of that convention.
    Adherents to the Performances-Phonograms Treaty are 
required to promise that its provisions ``shall in no way 
affect the protection of copyright in literary and artistic 
works,'' (Art. 1(2)) nor have any connection with or prejudice 
any rights and obligations under any other treaties (Art. 
1(3)).
    The Diplomatic Conference also adopted an agreed 
interpretation with reference to Article 1 concerning the 
relationship between rights in phonograms under the Treaty and 
copyright in works embodied in the phonograms. The States 
agreed that where permission to use a phonogram is needed from 
both the author of a work embodied therein and a performer or 
producer, the need to obtain the author's permission does not 
cease to exist because permission is also required from the 
performer/producer, and vice-versa. This interpretative 
understanding merely confirms that copyright rights and related 
rights are separate and may be held by different rights 
holders. Where there are different rights holders, permission 
from one is not sufficient to authorize use of the phonogram.
    The Performances-Phonograms Treaty creates new rights for 
performers and producers of sound recordings without specifying 
the theory of law under which the rights are enjoyed. That is, 
a country may provide the protection specified in the Treaty 
under ``related'' or ``neighboring'' rights, under copyright, 
or a sui generis law.
    If existing patterns of protection for sound recordings are 
maintained, the majority of the countries will extend 
protection through related rights laws. The United States 
presumably will continue to rely upon copyright law as the 
primary vehicle for sound recording protection, supplemented by 
criminal penalties for knowing infringements for purposes of 
commercial gain. In addition to federal law, the United States 
may rely in part on state statutory and common law protection 
to satisfy some treaty obligations.

1. National Treatment

    Article 4 of the Treaty obliges a Party to accord the same 
treatment to foreigners that the Party accords to its own 
nationals with regard to the exclusive rights specifically 
granted and the right to equitable remuneration provided by 
Article 15, except where a reservation is made concerning the 
remuneration right of Article 15. In that case, other countries 
are not bound to grant a right of equitable remuneration for 
the broadcast or communication to the public of phonograms (in 
essence, the public performance of sound recordings) to the 
nationals of the country invoking the reservation. Other than 
in the case of this exception, foreigners must be granted the 
same rights as citizens (nationals).
    The national treatment article represents an enhanced level 
of international protection for sound recordings since the 1961 
Rome Convention permitted several reservations rather than just 
one reservation.

2. Beneficiaries of Protection

    Performers and producers of phonograms who are nationals of 
other Parties to the Treaty must be accorded the protection 
granted by the Treaty (Art. 3(1)).
    The term ``national'' means those phonogram performers/
producers who meet the eligibility criteria of the 1961 Rome 
Convention based on the legal fiction that all members of the 
Performances-Phonograms Treaty are also members of the 1961 
Rome Convention (Art. 3(2)). If a reservation has been made 
under Rome Article 5(3) that a State will not apply either the 
criterion of publication or the criterion of fixation to 
establish eligibility of a producer, then Article 3(3) of the 
Performances and Phonograms Treaty permits a similar 
declaration for purposes of this Treaty. The Executive 
requested such a reservation for the United Sates.

3. Term of protection

    The rights of performers and producers of phonograms must 
be protected generally for a minimum of 50 years computed from 
first fixation of the sounds in a phonogram (Art. 17).
    The fixation criterion always applies in computing the term 
for performers (because a primary right of a performer is to 
authorize the first fixation of the performance in a 
phonogram).
    In the case of producers, the 50-year term is computed from 
the year of publication, if the phonogram is published. If the 
phonogram is not published, the 50-year term for producers is 
computed from first fixation.

4. Exclusive rights

    Performers and producers of phonograms generally enjoy the 
same exclusive rights under the Performances-Phonograms Treaty 
except that i) performers are granted moral rights and rights 
in unfixed performances but producers are not, and ii) 
technically speaking, performers are granted rights in their 
performances and producers are granted rights in their 
phonogram, that is, in the fixation of the sounds.
    For clarity's sake, the Treaty sets forth performers' moral 
rights, their right in unfixed performances, and performers' 
rights of reproduction, public distribution, commercial rental, 
and making available to the public of fixed performances by 
wire or wireless means, in a separate Chapter II of the Treaty 
(comprising Articles 5 through 10 inclusive).
    Producers are not granted moral rights or rights in unfixed 
performances. Producers' rights of reproduction, public 
distribution, commercial rental, and making available to the 
public of a phonogram by wire or wireless means, are set forth 
in a separate Chapter III of the Treaty (comprising Articles 11 
through 14 inclusive).
    These above-mentioned rights may be exercised separately by 
performers and producers. Permission from both the performer 
and the producer must be obtained for a third-party to 
reproduce, distribute, rent, or make available a phonogram 
(subject of course to any limitations on these rights 
legislated pursuant to Article 16).
    Moral rights of performers. Independent of their economic 
rights, performers must be accorded the ``moral rights'' 
generally to be named as the performer and to object to any 
distortion or other modification of the performance that 
prejudices the performer's reputation (Art. 5).
    The moral right applies both to live performances and to 
performances fixed in a phonogram.
    After the death of the performer, the moral right must 
generally be maintained at least until expiration of the 
performer's economic rights. The post mortem moral rights can 
be exercised by persons or institutions authorized by the 
national law of the country where protection is claimed. As an 
exception, however, those States, whose law at the time of 
ratification or accession to the Treaty does not maintain all 
of the moral rights after the death of the performer, are 
permitted to terminate some of the rights on the death of the 
performer (Art. 5(2)).
    The details of moral rights protection are left to the 
national law of the country where protection is claimed (Art. 
5(3)). This deference to national law may allow the United 
States to rely upon a patchwork of existing state laws and the 
federal trademark law as the legal basis for satisfying the 
Treaty obligation, without enacting new federal legislation.
    Performers' right in unfixed performances. Performers, but 
not producers, are granted rights under the Treaty in ``unfixed 
performances.'' This economic right basically means that 
performers have the right to authorize the first fixation of 
their performances. They also have the right to authorize the 
first broadcast or communication to the public of their unfixed 
performances (Art. 6).
    This right is in addition to the qualified remuneration 
right of Article 15 to share in payments for the broadcast or 
public communication of ``commercially published'' phonograms.
    The remaining exclusive rights apply to performances 
``fixed'' in phonograms. Performers and producers have separate 
rights of reproduction, public distribution, commercial rental, 
and making available to the public by wire or wireless means.
    Reproduction right. The reproduction right applies to 
direct or indirect reproduction in any manner or form of the 
fixed performance or the phonogram.
    The Diplomatic Conference adopted an agreed interpretation 
of the reproduction right in Article 7 (performer's right) and 
Article 11 (producer's right), and of the limitations permitted 
by Article 16. The statement says that the Treaty's 
reproduction rights ``fully apply in the digital environment, 
in particular to the use of performances and phonograms in 
digital form. It is understood that the storage of a protected 
performance or phonogram in digital form in an electronic 
medium constitutes a reproduction within the meaning of these 
Articles.''
    Public distribution right. Performers and producers enjoy 
the exclusive right of authorizing the making available to the 
public of copies (Arts. 8(1) and 12(1)). Like the WIPO 
Copyright Treaty, the Performances-Phonograms Treaty permits, 
but does not require, the States to limit the distribution 
right by the ``first sale'' or ``exhaustion of right'' 
doctrines (Art. 8(2)).
    The Diplomatic Conference adopted an agreed interpretation 
concerning the word ``copies'' and the phrase ``original and 
copies'' where they appear in Articles 2(e) (definition of 
``publication''); Articles 8 and 12 (distribution rights); and 
Articles 9 and 13 (rental rights). ``As used in these Articles, 
the expressions `copies' and `original and copies,' being 
subject to the right of distribution and the right of rental 
under the said Articles, refer exclusively to fixed copies that 
can be put into circulation as tangible copies.'' (Agreed 
Statement Concerning Articles 2(e), 8, 9, 12, and 13).
    Commercial rental right. Performers and producers enjoy a 
generally exclusive right of authorizing the commercial rental 
of phonograms (Arts. 9(1) and 13(1)). This right, however, is 
subject to qualification as a mere right of remuneration if on 
April 15, 1994, (the date the Uruguay Round Agreements under 
the 1994 General Agreement on Tariffs and Trade (GATT) were 
adopted) a country granted only a remuneration right for 
phonogram rentals (Art. 9(2)).
    The possibility of a mere remuneration right for rentals is 
a concession to Japan, primarily, because their national law 
provides only a right of remuneration for rental of phonograms. 
The Treaty contains the further condition that such a country 
may maintain the remuneration right provided there is no 
``material impairment'' of the reproduction right.
    Making available right. Performers and producers enjoy the 
exclusive right of authorizing ``the making available to the 
public'' of phonograms ``by wire or wireless means, in such a 
way that members of the public may access them from a place and 
at a time individually chosen by them.'' (Arts. 10 and 14).
    This ``public availability'' right is in essence an 
interactive, on-demand public transmission right. It will apply 
to interactive and subscription methods of transmitting 
phonograms to the public, including dissemination via computer 
networks and other electronic means. A principal difference 
between the Articles 10 and 14 ``public availability'' right 
and the Articles 8 and 12 ``public distribution'' right is that 
the latter applies to distribution of copies of phonograms; the 
former applies to transmissions.
    The existence of these separate articles, together with the 
somewhat ambiguous statement of the reproduction right, is 
arguably consistent with a view that, at the international 
level, public transmission of phonograms via computer networks 
does not amount to a public distribution of the phonograms. The 
validity of this viewpoint will be tested by the consensus that 
may develop on the meaning and legal force of the agreed 
statement concerning the reproduction right of Articles 7 and 
11. In its domestic copyright proposals relating to the 
transmission of copyrighted works on computer networks, the 
Clinton Administration has taken the position that United 
States copyright law should be amended to equate public 
transmission with public distribution.

5. Remuneration Right for Broadcasts and Communications to the Public

    Two other Treaty rights are set forth in Chapter IV of the 
Performances-Phonograms Treaty, which is denominated ``common 
provisions.'' These are the rights of broadcasting and 
communication to the public for the direct or indirect use of 
phonograms published commercially. These rights are not 
strictly ``exclusive'' rights because they are subject to a 
mere right of equitable remuneration (Article 15(1)). That is, 
the rights holders cannot prohibit the use; the rights holders 
are at best entitled to compensation. Moreover, unlike the 
exclusive rights, these rights are subject to a single payment. 
The performers and producers share in the single payment, but 
have no separate rights to payment.
    ``Broadcasting'' is defined as the wireless transmission 
for public reception of sounds or images and sounds, including 
transmission by satellite. The term also includes transmission 
of encrypted signals where the broadcasting organization 
provides, or consents to the provision of, decryption devices 
to the public (Art. 2(f)). The definition applies both to 
television and radio broadcasts.
    ``Communication to the public'' means transmission to the 
public of sounds by any medium other than broadcasting (Art. 
2(g)).
    National law may provide that either the performer, the 
producer, or both may claim the payment. In the absence of a 
contractual agreement between the performers and the producers, 
the national law may regulate the terms for sharing the single 
payment (Art. 15(2)).
    Also, in a provision that permits a reservation on 
broadcasting-public communication rights, the Treaty allows a 
party to declare by notification to the Director General of 
WIPO that it will extend these rights i) ``only in respect of 
certain uses,'' ii) ``that it will limit their application in 
some other way,'' or iii) ``that it will not apply these 
provisions at all.'' (Art. 15(3)). In his Transmittal Message 
to the Senate, the President has requested that the Senate give 
its consent to United States ratification of the WIPO 
Performances and Phonograms Treaty, while invoking the 
permissible reservation to the broadcasting right. If this 
reservation is invoked, the member State has the freedom to 
apply these rights to narrowly defined uses, to establish a 
compulsory licensing mechanism, or not grant any rights 
concerning broadcasts and communications to the public of 
phonograms.
    The Treaty specifies that where phonograms are made 
available to the public by wire or wireless means in a way that 
permits individual access, those phonograms ``shall be 
considered as if they had been published for commercial 
purposes.'' (Art. 15(4)).
    Although a reservation is possible on the broadcasting-
public communication rights, no reservation is possible on the 
``public availability'' right of Articles 10 and 14. This means 
member States must provide exclusive rights where the 
transmission is made available on an interactive or on-demand 
basis. The States can elect, however, not to extend any rights 
to traditional broadcasts or to non-interactive public 
performances of phonograms (subject to the right of the 
performer under Article 6 to authorize the broadcast or public 
communication of unfixed performances). That is, the Treaty 
requires protection of performers against unauthorized 
broadcast of a live performance, but does not require 
protection for performers or producers against non-interactive 
broadcasts of phonograms (sound recordings).
    The Diplomatic Conference adopted two agreed statements 
concerning Article 15. One statement simply recognizes the 
reality that the delegations to the Conference ``were unable to 
achieve consensus on differing proposals . . . without the 
possibility of reservations, and have therefore left the issue 
to future resolution.'' The second statement expresses an 
understanding that, even though Article 15 ordinarily applies 
only to commercially published phonograms, member States are 
not prevented from granting broadcasting-public communication 
rights in recordings of folklore where the phonograms have not 
been published for commercial gain.

6. Limitations on Rights

    The Performances-Phonograms Treaty permits limitations to 
the rights granted on the same basis as the WIPO Copyright 
Treaty. Any limitations or exceptions applied to copyright 
owners of literary and artistic works may be applied to 
performers and producers of phonograms (Art. 16(1)).
    Member States may also legislate limitations or exceptions 
to the Treaty rights in ``certain special cases which do not 
conflict with a normal exploitation of the performance or 
phonogram and do not unreasonably prejudice the legitimate 
interests of the performer or of the producer of phonograms.'' 
(Art. 16(2)).
    The Diplomatic Conference also adopted an agreed statement 
to Article 16 that incorporates the Copyright Treaty's agreed 
statement interpreting its Article 10. This is done by stating 
that Article 10 of the Copyright Treaty applies mutatis 
mutandis (that is, in the same way) also to Article 16 of the 
Performances-Phonograms Treaty. The statement has three main 
points: (i) Member States may extend into the digital 
environment any existing limitations and exceptions that have 
been considered acceptable under the Berne Copyright 
Convention; (ii) the States may also devise new exceptions and 
limitations appropriate to the digital network environment; and 
(iii) Article 10(2) of the Copyright Treaty neither reduces nor 
extends the scope of limitations permitted by the Berne 
Copyright Convention.

7. Enforcement of Rights

    The international copyright and related rights conventions 
have not traditionally included detailed provisions regarding 
enforcement of rights. The 1996 Diplomatic Conference 
considered proposals to include detailed enforcement provisions 
in the WIPO Copyright and Performances-Phonongrams treaties, 
either as an Annex or by reference to the enforcement articles 
of the 1994 GATT Agreement on Trade-Related Aspects of 
Intellectual Property (``TRIPS Agreement'').
    In the end, the Diplomatic Conference rejected both of the 
detailed proposals in favor of a brief enforcement article that 
makes no reference to the TRIPS enforcement provisions.
    Article 23 requires Treaty adherents to ensure that 
enforcement procedures exist under domestic law to permit 
``effective action against any act of infringement of rights 
covered by this Treaty, including expeditious remedies'' to 
deter future infringements (Art. 23(2)). Paragraph (1) of 
Article 23 expresses the general obligation to ``undertake to 
adopt . . . the measures necessary to ensure the application of 
this Treaty.''

8. Retroactive Application

    Adherents to the Performances-Phonograms Treaty are bound 
to apply Article 18 of the Berne Convention, mutatis mutandis, 
to extend retroactive protection to the rights of performers 
and producers of phonograms (Art. 22(1)), except that a Member 
State can elect not to extend retroactive protection to the 
moral rights of performers for performances which occur before 
the State becomes bound by the Treaty (Art. 22(2)).
    This incorporation by reference of Berne Article 18 means, 
in essence, that Member States must provide some form of 
retroactive protection for performances and phonograms that 
were unprotected by the new Member before it joined the Treaty, 
but remain under protection in the country of origin.

9. Formalities Prohibited

    Article 20 requires that the ``enjoyment and exercise of 
the rights provided for in this Treaty shall not be subject to 
any formality.'' This means that no conditions such as 
publication in a certain country, use of a notice to claim 
rights, or similar requirements may be imposed in order to 
enjoy or exercise the rights granted by the Treaty.

10. Technological Measures

    The Performances-Phonograms Treaty in Article 18 
establishes a new kind of legal protection for performers and 
producers of phonograms. Treaty adherents shall provide 
``adequate and effective legal protection and effective legal 
remedies against the circumvention of effective technological 
measures'' (that is, protection against devices or services 
that defeat anti-copying technologies). The obligation is 
expressed in general language and leaves the details of 
protection to national law.

11. Rights Management Information

    Pursuant to Article 19, Treaty adherents must provide 
``adequate and effective legal remedies against any person 
knowingly performing'' prohibited acts relating to the removal 
or alteration of electronic rights management information.
    This obligation extends only to rights management 
information in electronic form. By implication, the remedies 
could be criminal or civil. In the case of civil remedies, 
protection should apply against someone who has reasonable 
grounds to know that he or she has engaged in a prohibited act.
    ``Rights management information'' (RMI) means information 
that identifies the performer, the performance of the 
performer, the producer of the phonogram, the phonogram, the 
owner of any right in the performance or phonogram, or 
discloses the terms and conditions of use. The intent is to 
facilitate widespread dissemination of this information by 
rights holders in order to make licensing of performers' or 
producers' rights more readily available to the public.
    In another incorporation by reference from the WIPO 
Copyright Treaty, the Diplomatic Conference adopted the 
Copyright Treaty's agreed statement concerning its rights 
management article. That is, the agreed statement concerning 
Article 12 of the Copyright Treaty applies mutatis mutandis 
also to Article 19 of the Performances-Phonograms Treaty. The 
agreed statement includes two understandings. First, the 
reference to ``infringement of any right covered by this 
Treaty'' encompasses both exclusive rights and rights of 
remuneration. Second, the Member States will not use Article 19 
to devise or implement RMI systems that would have the effect 
of imposing formalities, prohibiting the free movement of 
goods, or impeding the enjoyment of Treaty rights.

12. Audiovisual Performances Excluded

    The major policy controversy concerning the Performances-
Phonograms Treaty at the 1996 Diplomatic Conference was whether 
or not to extend rights to performances in audiovisual works 
such as motion pictures. The United States argued strongly 
against coverage of audiovisual performances, and this 
viewpoint prevailed at this time.
    WIPO will convene a new series of meetings to explore 
protection of audiovisual performances. In order to create a 
treaty obligation in respect of audiovisual performances, a new 
diplomatic conference would have to be convened. The 1996 
Diplomatic Conference adopted a Resolution Concerning 
Audiovisual Performances which recommends development of a 
Protocol to the WIPO Performances-Phonograms Treaty concerning 
audiovisual performances, with a view to adoption of a Protocol 
by the end of 1998.
    The definition of ``phonogram'' embodies the decision to 
exclude audiovisual performances. ``Phonogram'' means the 
fixation of sounds (or a representation of sounds) other than 
in the form of a fixation incorporated in a cinematographic or 
other audiovisual work (Art. 2(b)). An agreed statement of the 
Diplomatic Conference clarifies that rights in a protected 
phonogram (a fixation of sounds) are not affected in any way, 
however, by incorporation of that phonogram in the soundtrack 
of a motion picture or other audiovisual work (Agreed Statement 
concerning Article 2(b)). That is, if a pre-existing sound 
recording is re-recorded on the soundtrack of a motion picture, 
the rights of the performers and producers of the sound 
recording (phonogram) remain protected by the Treaty, even 
though the Treaty otherwise excludes protection for 
performances in audiovisual works.

13. Administrative Provisions

    Any WIPO member may become a party to the Performances and 
Phonograms Treaty (Art. 26(1)). No reservations are permitted, 
except for a reservation concerning the remuneration right for 
broadcasting and public communications (Art. 21). In addition 
to the Article 15(3) reservation, however, the possible 
reservations concerning the publication and fixation 
eligibility criteria of the 1961 Rome Convention are carried 
over into the Performances-Phonograms Treaty pursuant to 
Article 3(3). Subject to this one exception, a country must 
accept the obligations of the entire Treaty and cannot decline 
to be bound by certain provisions (Art. 27).
    Article 24 establishes an ``Assembly'' of the member States 
in order to provide some organizational structure for dealing 
with future questions about maintenance, development, or 
revision of the Treaty (Art. 24(2)). The Assembly meets in 
regular session once every two years, upon convocation by the 
Director General of WIPO (Art. 24(4)). The International Bureau 
of WIPO performs any administrative tasks concerning the Treaty 
(Art. 35).

                  IV. Entry into Force and Termination

                          a. entry into force

    Both Conventions enter into force three months after 30 
instruments of ratification have been deposited with the 
Director General of WIPO.

                             b. termination

    Both Conventions permit for withdrawal by written 
notification to the Director General of WIPO. Withdrawal shall 
be effective one year after the date of such notification is 
received by the Director General.

                          V. Committee Action

    The Committee on Foreign Relations held a public hearing on 
the proposed treaties on September 10, 1998 (a transcript of 
the hearing can be found in the annex to this report). The 
Committee considered the proposed Treaties on October 14, 1998 
and ordered the proposed Treaties favorably reported with the 
recommendation that the Senate give its advice and consent to 
the ratification of the proposed Convention subject to one 
reservation, two declarations, and three provisos.

                         VI. Committee Comments

    The Committee on Foreign Relations recommends favorably the 
proposed Treaties. On balance, the Committee believes that the 
proposed Treaties are in the interest of the United States and 
urges the Senate to act promptly to give its advice and consent 
to ratification, subject to the conditions contained in the 
resolution of ratification. Several issues did arise in the 
course of the Committee's consideration of the Treaties, and 
the Committee believes that the following comments may be 
useful to Senate in its consideration of the proposed Treaties 
and to the State Department.

                a. relation to implementing legislation

    According to testimony before the Committee by Alan P. 
Larson, the Assistant Secretary of State for Economic Affairs, 
the United States core copyright industry (including the motion 
picture industry, publishers, software producers, and the music 
and recording industry) now accounts for as much as 3.6 percent 
of the nation's gross domestic product. Industry statistics 
indicate that some 3.5 million Americans are employed in this 
sector. An increasing portion of this economic activity is a 
result of foreign sales and exports. In 1996 foreign sales and 
exports accounted for $60.18 billion according to industry 
statistics. The impact of weak foreign copyright laws that 
result in piracy and other copyright infringements is not 
insignificant.
    These Treaties provide for broad-based principles that 
attempt to standardize intellectual property protections 
relating to digital communications worldwide. Establishment and 
enforcement of clear rules for commerce in this area will 
facilitate and perhaps stimulate the further development of 
U.S. computer and digital communication industry.
    In order to start this process the Administration, the 
Congress, and various interested sectors of the economy have 
engaged in negotiations resulting in comprehensive copyright 
legislation (H.R. 2281) during the past year. The bill was 
passed by the House and Senate and a conference has been 
approved by both bodies and is awaiting the President's 
signature. The negotiations commenced when consensus was 
reached that simply ratifying these Treaties without a 
simultaneous review and redrafting of U.S. law in this area 
would not advance fair and comprehensive intellectual property 
protections that balanced the interests of various sectors of 
this growing copyright industry.
    This need for such clarification was anticipated during the 
Diplomatic Conference that adopted the WIPO Treaties. The 
Conference adopted an ``agreed statement'' regarding Article 8 
of the WIPO Copyright Treaty, which states that Internet 
service providers (ISPs) should not be held liable when they 
merely provide ``physical facilities for enabling or making a 
communication.'' In order to address this issue, the WIPO 
Treaties implementing legislation (H.R. 2281) has embodied 
within it a compromise regarding the issue of copyright 
infringement liability for ISPs. The legislation establishes a 
clear legal framework for the rights and responsibilities of 
ISPs, telephone companies and copyright holders.
    In order to ensure that the Treaties are directly linked to 
this legislation, the Committee's resolution of ratification 
contains a proviso that prohibits the United States from taking 
the final step in the ratification process--the deposit of 
instruments of ratification for these Treaties--until the 
President has signed into law a bill that implements the 
Treaties. The proviso stipulates that a bill implementing the 
Treaties must include clarifications to United States law 
regarding infringement liability for on-line service providers, 
such as contained in H.R. 2281.
    The Committee urges the Executive to promote this 
compromise legislation as a model for domestic legislation by 
other Parties to the WIPO Treaties. The Committee's resolution 
of ratification therefore requires the President to report 
annually on U.S. efforts to encourage enactment of such 
legislation as part of the Treaty ratification and 
implementation process.

           b. implementation and enforcement of the treaties

    The Committee is concerned in general that once 
ratification and entry into force of any treaty is secured, 
there is little interest in ensuring full enforcement of treaty 
commitments. Likewise, the Committee believes that simply 
ratifying the proposed Treaties will do little to curb piracy 
of copyrighted material unles there is also a serious 
commitment to enforce the obligations contained in the 
Treaties. The impact of the Treaties therefore will depend on 
whether the Parties implement and enforce fully their 
obligations under the Treaties.
    The Committee therefore supports ratification of the 
Treaties, but cautions this act will be largely symbolic unless 
Parties to the Convention both enact and enforce domestic laws 
that fully implement the requirements contained in the 
Treaties. In addition, these Treaties will do little to 
encourage copyright protection in countries that are not 
Parties to the Treaties, such as the People's Republic of 
China.
    In order to better monitor progress of other Parties to the 
Treaties, the Committee has included a reporting requirement in 
the resolution of ratification. As a condition of ratification 
the President must inform the Committee annually of the status 
of ratification by other countries, domestic legislation 
enacted by other countries, enforcement of this legislation, 
any future negotiations, and efforts by the United States to 
expand membership in the Treaties. The Committee expects that 
the Administration will take this reporting requirement 
seriously and respond to each provision of the reporting 
requirement directly.

                       c. no reservations clauses

    Article 22 of the Copyright Treaty prohibits reservations 
to the Treaty and Article 21 of the Performances and Phonograms 
Treaty prohibits reservations except in one narrow context. 
While the Committee recognizes that an abuse of reservations 
can be detrimental to enforcement of the conditions agreed to 
during a treaty negotiation, the Committee continues to be 
concerned by the increasingly common practice of agreeing to 
such ``no reservations'' clauses, which impinge upon the 
Senate's prerogatives. The Committee questions whether there is 
any substantive evidence that other Parties would place 
numerous or burdensome reservations on the treaty so as to 
undermine U.S. interests.
    The Committee's recommended Resolution of Ratification 
contains a declaration that it is the Sense of the Senate that 
such ``no reservations'' and ``limited reservations'' 
provisions can inhibit the Senate in its Constitutional 
obligation of providing advice and consent, and approval of 
this Treaty should not be read as a precedent for approval of 
other treaties containing such a provision.
    Although the Committee has determined that this treaty is 
beneficial to the interests of the United States and should be 
approved notwithstanding these provisions, the Committee will 
continue to object to the inclusion of such provisions in U.S. 
Treaties. The Committee repeatedly has expressed in report 
language its concern that such ``no reservations'' provisions 
are problematic to Senate ratification, yet there has been no 
apparent decline in the inclusion of such provisions in 
treaties signed by the United States, nor any attempt to 
consult with the Committee prior to the inclusion of such 
provisions.

                VII. Explanation of Proposed Convention

    For a detailed article-by-article analysis of the proposed 
Convention, see the letter of submittal from the Secretary of 
State, which is set forth at pages V-X of Treaty Doc. 105-17.

              VIII. Text of the Resolution of Ratification

    Resolved, (two-thirds of the Senators present concurring 
therein), That the Senate advise and consent to the 
ratification of the World Intellectual Property Organization 
Copyright Treaty and the World Intellectual Property 
Organization Performances and Phonograms Treaty, done at Geneva 
on December 20, 1996, and signed by the United States on April 
12, 1997 (Treaty Doc. 105-17), subject to the reservation of 
subsection (a), the declarations of subsection (b), and the 
provisos of subsection (c).
    (a) RESERVATION.--The advice and consent of the Senate to 
the WIPO Performances and Phonograms Treaty is subject to the 
following reservation, which shall be included in the 
instrument of ratification and shall be binding on the 
President:
      REMUNERATION RIGHT LIMITATION.--Pursuant to Article 15(3) 
        of the WIPO Performances and Phonograms Treaty, the 
        United States will apply the provisions of Article 
        15(1) of the WIPO Performances and Phonograms Treaty 
        only in respect of certain acts of broadcasting and 
        communication to the public by digital means for which 
        a direct or indirect fee is charged for reception, and 
        for other retransmissions and digital phonorecord 
        deliveries, as provided under the United States law.
    (b) DECLARATIONS.--The advice and consent of the Senate is 
subject to the following declaration:
      (1) LIMITED RESERVATIONS PROVISIONS.--It is the Sense of 
        the Senate that a ``limited reservations'' provision, 
        such as that contained in Article 21 of the 
        Performances and Phonograms Treaty, and a ``no 
        reservations'' provision, such as that contained in 
        Article 22 of the Copyright Treaty, have the effect of 
        inhibiting the Senate in its exercise of its 
        constitutional duty to give advice and consent to 
        ratification of a treaty, and the Senate's approval of 
        these treaties should not be construed as a precedent 
        for acquiescence to future treaties containing such 
        provisions.
      (2) TREATY INTERPRETATION.--The Senate affirms the 
        applicability to all treaties of the constitutionally 
        based principles of treaty interpretation set forth in 
        Condition (1) of the resolution of ratification of the 
        INF Treaty, approved by the Senate on May 27, 1988, and 
        Condition (8) of the resolution of ratification of the 
        Document Agreed Among the States Parties to the Treaty 
        on Conventional Armed Forces in Europe, approved by the 
        Senate on May 14, 1997.
    (c) PROVISOS.--The advice and consent of the Senate is 
subject to the following provisos:
      (1) CONDITION FOR RATIFICATION.--The United States shall 
        not deposit the instruments of ratification for these 
        Treaties until such time as the President signs into 
        law a bill that implements the Treaties, and that 
        includes clarifications to United States law regarding 
        infringement liability for on-line service providers, 
        such as contained in H.R. 2281.
      (2) REPORT.--On October 1, 1999, and annually thereafter 
        for five years, unless extended by an Act of Congress, 
        the President shall submit to the Committee on Foreign 
        Relations of the Senate, and the Speaker of the House 
        of Representatives, a report that sets out:
                  (A) RATIFICATION.--a list of the countries 
                that have ratified the Treaties, the dates of 
                ratification and entry into force for each 
                country, and a detailed account of U.S. efforts 
                to encourage other nations that are signatories 
                to the Treaties to ratify and implement them.
                  (B) DOMESTIC LEGISLATION IMPLEMENTING THE 
                CONVENTION.--a description of the domestic laws 
                enacted by each Party to the Treaties that 
                implement commitments under the Treaties, and 
                an assessment of the compatibility of the laws 
                of each country with the requirements of the 
                Treaties.
                  (C) ENFORCEMENT.--an assessment of the 
                measures taken by each Party to fulfill its 
                obligations under the Treaties, and to advance 
                its object and purpose, during the previous 
                year. This shall include an assessment of the 
                enforcement by each Party of its domestic laws 
                implementing the obligations of the Treaties, 
                including its efforts to:
                          (i) investigate and prosecute cases 
                        of piracy;
                          (ii) provide sufficient resources to 
                        enforce its obligations under the 
                        Treaties;
                          (iii) provide adequate and effective 
                        legal remedies against circumvention of 
                        effective technological measures that 
                        are used by copyright owners in 
                        connection with the exercise of their 
                        rights under the Treaties or the Berne 
                        Convention and that restrict acts, in 
                        respect of their works, which are not 
                        authorized by the copyright owners 
                        concerned or permitted by law.
                  (D) FUTURE NEGOTIATIONS.--a description of 
                the future work of the Parties to the Treaties, 
                including work on any new treaties related to 
                copyright or phonogram protection.
                  (E) EXPANDED MEMBERSHIP.--a description of 
                U.S. efforts to encourage other non-signatory 
                countries to sign, ratify, implement, and 
                enforce the Treaties, including efforts to 
                encourage the clarification of laws regarding 
                Internet service provider liability.
    (3) SUPREMACY OF THE CONSTITUTION.--Nothing in the 
Convention requires or authorizes legislation or other action 
by the United States of America that is prohibited by the 
Constitution of the United States as interpreted by the United 
States.



                            A P P E N D I X

                    THE WORLD INTELLECTUAL PROPERTY

                   ORGANIZATION COPYRIGHT TREATY AND

                WORLD INTELLECTUAL PROPERTY ORGANIZATION

                  PERFORMANCES AND PHONOGRAMS TREATY; 

                          (TREATY DOC. 105-17)



                            C O N T E N T S
                              ----------                              
                                                                   Page
Byrne, Christopher, Director of Intellectual Property, Silicon 
  Graphics, Inc. on Behalf of the Information Technology Industry 
  Council........................................................    51
Jaszi, Peter, Professor of Law, Washington College of Law, the 
  American University, on Behalf of the Digital Future Coalition.    43
Larson, Alan P., Assistant Secretary of State for Economic and 
  Business Affairs...............................................    27
Neel, Roy M., President and Chief Executive Officer, United 
  States Telephone Association...................................    37
Valenti, Jack, Chairman and Chief Executive Officer, Motion 
  Picture Association of America.................................    34



THE WORLD INTELLECTUAL PROPERTY ORGANIZATION COPYRIGHT TREATY AND WORLD 
   INTELLECTUAL PROPERTY ORGANIZATION PERFORMANCES AND PHONO- GRAMS 
                       TREATY; TREATY DOC. 105-17

                              ----------                              


                      THURSDAY, SEPTEMBER 10, 1998

                                       U.S. Senate,
                            Committee on Foreign Relations,
                                                    Washington, DC.
    The committee met, pursuant to notice, at 10:05 a.m., in 
room 419, the Dirksen Senate Office Building, Hon. Chuck Hagel, 
presiding.
    Present: Senators Hagel, Sarbanes and Feinstein.
    Senator Hagel. Good morning. The Foreign Relations 
Committee meets today to consider two Intellectual Property 
Treaties negotiated under the auspices of the World 
Intellectual Property Organization, known as WIPO, in December 
1996.
    Both treaties were submitted to the Senate as a package in 
July 1997 and were referred to the Foreign Relations Committee. 
Legislation that would amend U.S. Law to bring the United 
States fully into compliance with the treaties and resolve a 
number of related copyright issues that have arisen in the new 
digital environment was passed unanimously by the Senate and is 
now pending in the House of Representatives.
    The first treaty, the WIPO Copyright Treaty, updates 
existing international copyright obligations and covers 
copyright protection for computer programs, data bases, and 
digital communications, including copyrighted works of the 
worldwide Internet and other computer networks.
    The second treaty, the WIPO Performances and Phonograms 
Treaty, mandates new protections for performers of audio works 
and producers of sound recordings. Although the United States 
will continue to provide protection for performers and 
producers under U.S. Copyright law, the treaty permits 
countries to fulfill their treaty obligations under different 
legal theories.
    As I suspect the witnesses today will testify, support for 
the treaties has been generally positive. Given that the United 
States copyright industry now employs some 3.5 million 
Americans with foreign sales and exports in 1996 totaling $60 
billion, the impact of copyright infringement is quite 
significant.
    These treaties attempt to standardize intellectual property 
protections relating to digital communications worldwide. 
Establishment and enforcement of clear rules for commerce in 
this area will facilitate the further development of the U.S. 
Computer and digital communication industry.
    As with other investment treaties, both treaties are based 
on national treatment principles which require parties to 
protect foreign works just as they would domestic works.
    This last year of negotiations between the administration, 
the Congress, and the affected sectors of the economy to pass 
comprehensive legislation has shown that simply ratifying these 
treaties without a simultaneous review and redrafting of U.S. 
Law in this area will not advance fair and comprehensive 
intellectual property protections that balance the interests of 
various sectors of this growing industry.
    For this reason, the committee has delayed consideration of 
the treaties while the implementing legislation has worked its 
way through both the Senate and the House. Rather than leave 
these issues for judicial review, which often takes too long 
and is fraught with uncertainty for conducing Internet 
business, the pending legislation attempts to provide clear 
legislative interpretation of existing protections and of 
potential treaty commitments.
    In fact, ratification of the treaties without amending U.S. 
Law on issues such as the scope of rights and limitations on 
the rights would leave the courts with only the treaty language 
to determine the outcome of cases and could be an obstacle to 
enactment of future legislation in this area.
    Such an outcome would turn the treaty-making process on its 
head and leave the executive branch, not the Congress, in the 
position of determining U.S. Law in this very important area.
    Given the progress toward enactment of this legislation, 
the committee is commencing its consideration of these treaties 
today and will hear from both the administration and affected 
industries and academics regarding a range of issues, including 
the need for advanced protection of U.S. Intellectual property 
exported abroad; the impact of the treaties without adherence 
by countries like China, India, and Russia, which have long 
been major sources of pirating and have not signed the 
treaties; the prospects for ratification and enforcement of the 
treaties by signatories to the treaties; the means by which 
U.S. Industry will be able to enforce their rights under the 
treaties in other countries; clarification of liability for 
copyright infringement on the Internet; the penalties for anti-
circumvention of technology designed to prevent copyright 
infringement; and new rights extended to producers and 
performers of sound recording and the compatibility of U.S. 
Legal protections for those individuals through copyright law 
with other countries' legal theories.
    Senator Hagel. On the first panel, Assistant Secretary of 
State Alan P. Larson will testify for the administration. 
Secretary Larson will be followed by a second panel, including 
Mr. Jack Valenti, President and Chief Executive Officer of the 
Motion Picture Association of America; Mr. Roy M. Neel, 
President and Chief Executive Office of the United States 
Telephone Association; Mr. Peter Jaszi, an Associate Professor 
of Law at the Washington College of Law of American University; 
and Mr. Christopher Byrne, the Director of Intellectual 
Property for Silicon Graphics.
    Welcome, Gentlemen. We are pleased to have you here. We 
appreciate your time and your commitment. Before we begin the 
official proceedings this morning, let me express on behalf of 
our Committee our sympathy and express our condolences to the 
families, friends, and colleagues of the WIPO commissioners who 
were killed last week in the tragic crash of Swiss Air Flight 
111.
    With that, Mr. Larson, please proceed.

 STATEMENT OF ALAN P. LARSON, ASSISTANT SECRETARY OF STATE FOR 
                 ECONOMIC AND BUSINESS AFFAIRS

    Mr. Larson. Thank you very much, Mr. Chairman. Mr. 
Chairman, I have a written statement which, with your 
permission, I would like to submit for the record. And also, 
with your permission, I would like to summarize the main points 
of that statement.
    Senator Hagel. They will be included in the record, Mr. 
Larson.
    Mr. Larson. Thank you.
    Mr. Chairman, we do appreciate this opportunity to put 
forward the views of the administration and the Department of 
State on these two WIPO treaties. Let me begin with a concise 
declaration: the administration and the Department of State 
unequivocally endorse the WIPO Copyright Treaty and the WIPO 
Performances and Phonograms treaty.
    These two treaties support two very important goals of 
American commercial diplomacy: first, adequate protection of 
intellectual property rights and, second, greater openness in 
the exchange of ideas, goods, and services among all nations. 
My testimony today is limited to the ratification of the WIPO 
treaties.
    The Administration has submitted previously its views on 
aspects regarding the implementation legislation to the 
relevant committees, and we will work closely with the 
conference committee.
    The WIPO treaties will be critical to ensuring that 
copyright regimes in all major countries adequately protect the 
original and creative works that enrich our cultures, broaden 
our scientific and technical knowledge, and inform and educate 
and entertain our citizens. The WIPO treaties come as close as 
possible to achieving an optimal balance in providing 
incentives for creative effort without unduly burdening the 
free exchange of ideas, information, or scientific research.
    The need for refinement of copyright standards was 
recognized several years before the convening of the 1996 WIPO 
Diplomatic Conference in Geneva. The pace of technology was 
accelerating beyond the point where the courts easily could 
adapt traditional copyright concepts to new challenges created 
by the emerging digital medium.
    This is not to suggest that traditional copyright concepts 
were inadequate, but only that there needed to be clarification 
and refinement of how they would apply in the digital age.
    Emerging digital technology is a two-edged sword for 
copyright holders. The Internet and other new communications 
technologies are opening new avenues for rapid and cost-
efficient dissemination of creative works. The same digital 
technology, however, provides intellectual property pirates 
with new tools for copying and distributing works without the 
authorization of the creators and owners. The primary goal of 
the WIPO treaties is to fill in the gaps created by digital 
technology in the field of copyright protection.
    Maximizing the potential of the Internet and other 
innovative communication technologies will require that the 
creators of new works in the arts and sciences be protected 
from copyright piracy. Without clear rules provided by the WIPO 
treaties, the opportunities for exchange of ideas and pursuit 
of knowledge will in practice be considerably reduced.
    Promoting the dissemination of creative works, of course, 
adds to a nation's store of knowledge, and that is a laudable 
objective in and of itself. But there are also very direct and 
important commercial advantages for the United States.
    As you indicated, Mr. Chairman, by any measure, U.S. 
Copyright-based industries comprise a considerable share of out 
output. Taken together, the motion picture industry, the 
publishers and software producers, the music recording 
industry, the so-called core copyright industries, in recent 
years have accounted for as much as 3.6 percent of our national 
output.
    And, according to the same sources, the total contribution 
of all copyright industries approached 5.7 percent of national 
output as recently as 1996.
    The copyright-based sector is one of our economy's most 
dynamic sectors. The value added in this sector has increased 
consistently since 1997. And by one recent estimate, the annual 
growth rate in these core copyright industries has been twice 
the average for the economy as a whole. As you indicated, 
employment growth in these industries is very important.
    We think that it has grown at three times the rate of the 
economy as a whole. And, of course, the U.S. Is the world's 
largest exporter of copyright-based products.
    So the continued vitality of the U.S. Copyright sector will 
depend on whether other countries adopt standards that deal 
with the copyright challenges that are posed by digital 
technology.
    The Copyright Treaty provides protection for computer 
software. It protects the distribution of copyright materials 
though electronic networks. And it imposes legal standards for 
the circumvention of copyright protection technology.
    The WIPO Performances and Producers Treaty brings copyright 
protection of sound recordings closer to the protection given 
other creative works such as books, films, and software.
    Most of these protections are already afforded by U.S. Law. 
What the U.S. Needs to do is ensure that other countries 
provide such protection as well. But the adoption by those 
countries of the WIPO treaties is not likely if the U.S. Is not 
in a position to lead by example. And that is why we would urge 
the committee to do everything possible to ensure that the U.S. 
Quickly ratifies these WIPO treaties.
    Thank you very much, Mr. Chairman. I would be happy to 
respond to your questions.
    Senator Hagel. Mr. Secretary, thank you. And your complete 
statement will be included in the record.
    [The prepared statement of Mr. Larson follows:]

                  Prepared Statement of Alan P. Larson

    Mr. Chairman and Members of the Committee, thank you for this 
opportunity to discuss with you the views of the Department of State 
concerning two treaties negotiated within the World Intellectual 
Property Organization, or WIPO--the WIPO Copyright Treaty and the WIPO 
Performances and Phonograms Treaty.
    Let me begin with a concise declaration: the Department of State 
unequivocally endorses the WIPO Copyright Treaty and the WIPO 
Performances and Phonograms Treaty. The two WIPO treaties support two 
of the Department's major goals of commercial diplomacy: adequate 
protection of intellectual property protection and greater openness in 
the exchange of ideas, goods, and services among all nations. My 
testimony today is limited to the ratification of the WIPO treaties. 
The Administration has previously submitted its views on aspects of the 
implementing legislation to the relevant committees, and will work 
closely with the conference committee.
    The protection of intellectual property rights is one of the 
Administration's top priorities in the field of commercial diplomacy. 
The WIPO treaties will be critical to ensuring that copyright regimes 
in all countries adequately protect the original and creative works 
that enrich our cultures, broaden our scientific and technical 
knowledge, and inform, educate and entertain our citizens. The WIPO 
treaties are the result of extensive negotiations and are based on the 
information and views receivedfrom legal scholars, representatives of 
various industries, and various government agencies from around the 
World. Their efforts have not been in vain. The WIPO treaties come as 
close as possible to achieving & optimal balance in providing 
incentives for creative effort without unduly burdening the free 
exchange of ideas and information or scientific research. Indeed, for 
reasons that I will address shortly, the opportunities for exchange of 
ideas and the pursuit of knowledge will be considerably lessened if the 
WIPO treaties are not adopted.
    As already noted by others, the need for a refinement of copyright 
standards was recognized several years before the convening of the 1996 
WIPO Diplomatic Conference in Geneva. The pace of technology was 
accelerating beyond the point in which courts could adapt traditional 
copyright concepts to new challenges created by the emerging digital 
medium. This is not to suggest that traditional copyright concepts were 
inadequate, but only that there needed to be clarification and 
refinement of how they would apply in the digital age.
    Emerging digital technology is a two-edged sword for copyright 
holders. The Internet and other new communications technology are 
opening new avenues for rapid and cost-efficient dissemination of 
creative works. The same digital technology, however, provides 
intellectual property (IP) pirates with new tools for copying and 
distributing works without the creators'/owners' authorization. The 
primary goal of the WIPO treaties is to fill in the gaps created by 
digital technology in copyright protection.
    The expansion of digital technology throughout all regions of the 
World will provide new opportunities for commercial exchange while 
simultaneously making it more difficult to combat intellectual property 
piracy. We need other countries to adopt and be required to enforce the 
copyright standards set forth in the WIPO treaties. The WIPO treaties 
are the best standards for addressing the concerns for copyright 
protection that have arisen with the advent of digital technology.
    As I have said, digital technology will open new avenues for the 
dissemination of creative works. But maximizing the potential of the 
Internet and other innovative communication technologies will require 
that the creators of new works in the arts and sciences be protected 
fromcopyright piracy. Without the clear rules provided by the WIPO 
treaties, the opportunities for exchange of ideas and the pursuit of 
knowledge will in practice be considerably reduced.
    Promoting the dissemination of creative works that enrich cultures 
and add to a nation's store of knowledge is a laudable objective in and 
of itself. But there are direct commercial advantages for the U.S., 
especially in terms of exports and employment, that warrant U.S. 
support for the WIPO treaties. By any measure, U.S. copyright-based 
industries comprise a considerable share of the U.S. economy's output. 
Taken together, the motion picture industry, publishers, software 
producers, and the music and recording industry-the so-called ``core'' 
copyright industries-in recent years have accounted for as much as 3.6% 
of the nation's GDP, according to some industry studies. According to 
the same sources, the total contribution of all copyright industries 
approached 5.7% of GDP as recently as 1996.
    But even more important, similar reports suggest that the 
copyright-based sector is one the U.S. economy's most dynamic. Value 
added measurements for the copyright sector have increased consistently 
since 1977. By one recent estimate, the real annual growth rate of the 
core copyright industries has been more than twice the rate of the 
overall U.S. economy; while the estimated compound annual growth rate 
of the entire economy was 2.6% over the last twenty years, the rate for 
the core copyright industries was 5.5%. Similarly, according to the 
same report, copyright industries have continued to increase employment 
during the same period. Employment growth in the core copyright 
industries was nearly three times the rate for the economy as a whole.
    The continued vitality of the U.S. copyright sector will depend on 
whether countries adopt standards that deal with the copyright 
challenges posed by digital technology. As already pointed out, the 
WIPO treaties are crucial for setting copyright standards in the 
digital age. The WIPO Copyright Treaty provides protection for computer 
software. It protects the distribution of copyright materials via 
electronic networks. And it imposes legal standards for the 
circumvention of copyright-protection technology. The WIPO Performances 
and Producers Treaty brings copyright protection of sound recordings 
closer to the protection given other creative works, such as books, 
films, and software. Most of these are protections already affordedby 
U.S. law. The U.S. needs to ensure that other countries provide such 
protection as well.
    The U.S. has an unprecedented opportunity to help establish minimum 
international copyright standards. Standards which are critical for the 
continued vitality of U.S. copyright-based industries seeking to sell 
in markets overseas. But adoption of the WIPO treaties in other 
countries is not likely if the U.S. fails to lead by example. 
Therefore, I urge the Committee, in the strongest terms, to do all 
possible to ensure that the U.S. adopts the WIPO treaties.
    I thank the Committee for providing me this opportunity to give the 
Department of State's views on the WIPO treaties.

    Senator Hagel. Mr. Larson, let me ask a few questions. And 
the questions that we do not get to this morning and questions 
that my colleagues might have will be sent over to your office. 
And we will keep the record open for a few days to allow all of 
my colleagues to respond as they wish.
    Mr. Secretary, originally the administration had requested 
legislation that would just simply make minor changes to U.S. 
Law and would not address the question of liability for 
Internet copyright infringement by customers of on-line 
services and access providers. As you know, the pending 
legislation addresses these issues.
    Two questions: Do you support those additional changes, 
proposals, in both the Senate Bill, which we have passed, as 
you know, and the House Bill, HR-2281, is pending with respect 
to the copyright liability of on-line service providers.
    Mr. Larson. Mr. Chairman, as I mentioned at the outset, we 
have been submitting our views into the committees that are 
working on the implementing legislation.
    As you pointed out, as that implementing legislation has 
moved forward, the interested parties, the interested 
constituencies in the United States have been working through 
to refine the approaches that we take in our implementing 
legislation to the questions of balance that arise when you are 
trying to at the same time protect copyright owners and also 
provide for the free flow of information.
    I think one important point is that the treaties themselves 
are providing a framework that allows us through the 
implementing legislation to sort out some of these details in a 
way that is consistent with our interests and with our 
traditions in the copyright area. We are very comfortable with 
the way that that process is moving forward.
    As a formal matter, there is not an Administration position 
today on the precise text of the legislation that you referred 
to. But we are, as I said, very comfortable with the way that 
this dialog has moved forward as the implementing legislation 
has advanced.
    Senator Hagel. The second part of that, Mr. Secretary, is, 
aside from the formal, official position the administration 
might or might not take on the verbiage and the specifics, are 
you satisfied that the bills adequately deal with the 
application of traditional limitations on the rights, rights 
such as the free fair use first sale doctrine? In your opinion, 
what you know of that language, is it adequate?
    Mr. Larson. What I am very certain of, Mr. Chairman, is 
that the treaties themselves, which I testified on today, give 
us all of the latitude that we need to protect our traditional 
legal approaches to fair use doctrine.
    I, unfortunately, am not the right person, nor am I in a 
position to give you an expert assessment on the implementing 
legislation itself that is working its way through the 
Congress. We are comfortable with the direction that that is 
going. But I do not want to be unresponsive to your questions. 
I am just not the right person to give you an authoritative 
answer.
    Senator Hagel. This will be one of those questions that 
your people can give a little focus to when we sent the 
questions over and round out the rough edges.
    Mr. Larson. Sure.
    Senator Hagel. Let me ask a more political question. And I 
am going to refer back to your statement.
    In your statement you highlighted the growing problems of 
intellectual property pirates, of which we are aware. 
Obviously, that is why we have some urgency here to deal with 
the issue.
    You mentioned that the treaty is an effort to increase 
protections to copyright owners. However, for any treaty to be 
effective, as you well know, it must be backed by strong 
political will and a commitment to enforce its provisions.
    My question is this, Mr. Secretary: What efforts are being 
made now and will be made by the State Department to enforce 
existing protections internationally?
    Mr. Larson. We are very committed to enforcing existing 
protections. I think, with respect to the new obligations that 
are created by this treaty, what we want to do is to be in a 
position. Through our own ratification and implementation of 
the treaty commitments, to be able to put strong pressure on 
other countries to move quickly as well. Our sense is that the 
major industrial countries share our commitment to move 
forward.
    We will want to work with them to make sure that they 
implement quickly. We also want to make sure that other 
countries that have signed this treaty--I understand there are 
some 50 who have signed these treaties--move forward in this 
process as quickly in addition.
    There are countries, like India, which is going to be a 
member of this arrangement, which has an emerging film 
industry, and where it is going to be very important for us, 
for the protection of our copyright holders, to make sure that 
the disciplines of this agreement are enforced through law.
    Needless to say, we are going to have to continue to 
monitor these issues all around the world. We are committed to 
the active and aggressive use of all of our tools, including 
our domestic trade laws, to enforce the rights of our copyright 
holders around the world.
    Senator Hagel. Mr. Secretary, from your perspective, do you 
believe there has been an increase, a decrease, or about the 
same in the incidence of pirating?
    Mr. Larson. I think that there is a growing appreciation 
that property rights protection is in the interest of countries 
around the world, that it is part of a sensible policy of 
economic development. It is important for any country that 
wants to attract foreign investment to have a strong property 
rights regime domestically.
    One of the things that we are finding, Mr. Chairman, is 
that we have more success now than we have sometimes had in the 
past using diplomatic and persuasive strategies, together with 
some of the harder-edged strategies, to persuade countries of 
their own national interest in adopting and enforcing strong 
protection of intellectual property rights.
    It is interesting that some 50 countries saw it in their 
interest to pursue this WIPO copyright process. I have 
commented on other opportunities before this committee on some 
of the progress that we have made, led by Ambassador Barchesky, 
with China on copyright issues. It is never easy.
    But I think the important thing is that there is progress 
on the international regimes, these types of WIPO treaties and 
so forth. And there is, I think, a growing appreciation by many 
countries that they have a stake, a very strong stake 
themselves, in doing a better job. At the State Department, we 
are trying to use our own diplomatic resources and the skills 
of our Ambassadors to bring this message home in new ways.
    Senator Hagel. Mr. Secretary, the WIPO Copyright Treaty 
recognizes, I believe for the first time, that computer 
programs are covered by the Berne Convention and incorporates 
these protections by reference. However, parties made an 
official statement, I believe, that the existing reproduction 
right of the Berne Convention will fully apply to the digital 
environment.
    And the question is this: Why did the parties choose to 
address this issue as a statement rather than put it in the 
treaty text?
    Mr. Larson. Mr. Chairman, it is my understanding that in 
the negotiating process it proved to be too difficult and 
controversial to get a substantive--get a provision in the text 
of the treaty itself on this.
    But our negotiators were able to get a footnote reference 
that we believe fully protects our position on this. And that, 
you know, after the appropriate analysis, we decided to go 
forward on that basis.
    Senator Hagel. Mr. Secretary, let me now ask our friend and 
colleague, the distinguished senior Senator from California, 
Senator Feinstein, who has joined us, if she has a statement.
    And please proceed, Senator. It is nice to have you.
    Senator Feinstein. Thank you very much, Mr. Chairman. It is 
nice to be here.
    I just want to indicate my full support for this treaty. I 
think the intellectual property industries are really the 
growing mainstay of the American economy. And certainly for my 
State, California, it is an extraordinarily important industry.
    I think most people perhaps do not understand how easy it 
is to violate copyright protection. And copyright protection is 
afforded in this country, but it is not in other countries, or 
countries like Argentina, that do not believe that such a thing 
should exist.
    Well, passage of WIPO, the World Intellectual Properties 
Treaty, will in effect guarantee that the copyright protection 
that we afford to our record breaking industries in this nation 
is afforded to them throughout the world.
    Our American creative industries have grown twice as fast 
as the rest of the United States economy from 1987 to 1994. 
Employment in these copyright industries has more than doubled. 
About 3.5 million Americans today are employed in copyright-
related industries.
    And the rate of employment growth is three times that of 
the economy as a whole. So the copyright employment now 
accounts for about 5.2 percent of the entire United States work 
force.
    Our exports were more than $60 billion in 1996. That is a 
13 percent gain over 1995. This outstrips foreign sales and 
exports of our agricultural sector and of the combined 
automobile and automobile parts industries. And the business 
software alliance reports that 50 to 60 percent of its revenues 
today come from overseas.
    I am delighted to welcome Jack Valenti to this hearing. The 
entertainment industry, of which he has become a mainstay, 
generates employment for more than 450,000 Californians. And 
from 1992 to 1996, the industry's payrolls in California have 
increased 62 percent to $12 billion.
    And purchases of goods and services in entertainment 
production add up to another $15.5 billion. I say these things 
not to be a compendium, but simply to indicate how important 
protection of copyright is throughout the world.
    We are now in a global economy. You cannot be in a global 
economy unless we all play by the same rules. So protection of 
copyright industries, the IPR protection, is extraordinarily 
important.
    As you know, Mr. Chairman, I also sit on the Judiciary 
Committee. We have looked at this treaty. I think the bugs in 
it have been worked out. Chairman Hatch and others have spent a 
great deal of time reconciling divergent points of view. And I 
think that we have a treaty that will stand the test of time 
and will provide the kind of world protection to intellectual 
property industries that is both warranted and deserved.
    I thank you for that opportunity. And I have no questions 
of the distinguished Secretary.
    Senator Hagel. Senator Feinstein, thank you very much. We 
are trying to persuade Mr. Valenti, Senator, to look at 
Nebraska more favorably for movie making. It is tough.
    Senator Feinstein. Actually, I think all of his energies 
are taken up in California.
    Senator Hagel. Mr. Secretary, I have additional questions. 
But in the interest of time--I know you have other things to 
do. And we have a full panel behind you. I would move to submit 
the additional questions I have for the record. You and your 
staff can answer those, send those back up. And as I suggested, 
some of our colleagues may have questions, which we will keep 
the record open for. And they may submit them as well.
    For your interest, I think it is the intent of the Chairman 
to try and move this at our, we believe, our final committee 
meeting mark-up later this month. As you know, in this town 
news does not stay fresh very long. We are hour to hour. So I 
do not know if we will have one or more meetings yet before we 
adjourn. But it is the intent of the chairman to move on this 
quickly.
    I think, as well, he feels, as I said in my opening 
statement, that implementing legislation should accompany the 
treaty. And if the House can accomplish what it needs to 
accomplish here, then I am rather confident that we can get 
this out and get the Senate to pass it.
    Mr. Larson. Mr. Chairman, thank you very much for that. We 
will work very hard with you and the committees staff to get 
quick answers to any questions that members of the committee 
may have so that you can stick to your timetable.
    And if I could just say one last comment, picking up on 
something that Senator Feinstein said. I do think that here the 
big picture is that we are achieving through these treaties the 
internationalization of American standards on copyright 
protection.
    We are the world's largest exporter of copyright-based 
products. We have a huge commercial interest in this. And so, 
while there are some very important issues with respect to the 
domestic legislation, our sense is the same as Senator 
Feinstein's, that those are being worked out and that the big 
picture here is that we are basically internationalizing U.S. 
Concepts, U.S. Approaches, and U.S. Legal concepts of copyright 
protection to the rest of the world, which is very much in our 
interest. Thank you.
    Senator Hagel. Senator Feinstein, any additional comments?
    Senator Feinstein. None. Thank you, Mr. Chairman.
    Senator Hagel. Mr. Secretary, thank you.
    If the second panel will come forward, we will get started. 
[Pause.]
    Senator Hagel. Mr. Valenti, we will begin with you. 
Welcome, again, Jack. It is nice to have you.

    STATEMENT OF JACK VALENTI, CHAIRMAN AND CHIEF EXECUTIVE 
         OFFICER, MOTION PICTURE ASSOCIATION OF AMERICA

    Mr. Valenti. Thank you, Senator Hagel. And thank you, 
Senator Feinstein, for being here. I am grateful to you.
    When Abraham Lincoln ran for Congress, in his first speech 
to his constituency he said, My politics is short and sweet, 
like the old woman's dance. So is my testimony. Because this is 
not a very complicated issue. You understand what the treaty is 
all about.
    I consider this copyright treaty, Mr. Chairman, to be an 
anti-theft, anti-crime treaty, because it is going to commit 
all of those who sign the treaty to lift the level of their 
copyright protection for intellectual property, which is 
private property which belongs to those who finance it and 
create it.
    There is no question that the United States is the great 
electee of this treaty, because as has been said, we have 
market supremacy in intellectual property all over the world. 
Now, there are those in many parts of the world though, thieves 
who with shameless zest steal this private property. And they 
do it knowing that it is a high reward, low risk enterprise. I 
am hopeful that this treaty will begin to turn that felonious 
design on its head.
    Now, the question is, why should those of us who live in 
this free and loving land count this treaty to be important? I 
think Senator Feinstein has catalogued it beautifully. Because, 
today, intellectual property, movies, television programs, 
books, music, and computer software are the largest 
contributors to the health of this economy. And she set forth 
all of the figures.
    And I will not repeat them, though I would like to etch 
them on my forehead so that everyone who greeted me on the 
street would find for easy reading what this intellectual 
property does not just to California, though it is a great boon 
to that great State, but for this country as a whole.
    One of the things Senator Feinstein said was that 
intellectual property is creating jobs at three times the 
national rate of this economy. And she pointed out what it 
means to California. But these jobs are being created all over 
this country. And these are not minimum wage jobs.
    These are fairly--I would say substantially paying jobs. 
But the one fact which is the most congenial and the most 
cheerful fiscal fact that ought to be relevant to this 
committee is, to follow on with Senator Feinstein's numbers, 
for the first time intellectual property has now gathered in 
more international revenues than any single American industry 
in this country.
    More than aircraft, more than automobiles and auto parts, 
and more than agriculture. I think that can be summed up by 
saying that intellectual property is America's grandest trade 
prize, a triumphant economic and creative achievement that is 
worthy of the support and the protection of this Congress.
    Now, the American film industry is, of course, the largest 
in the world, singularly successful on all continents. And we 
confront thievery every day. Every day we have to be vigilant, 
because, like virtue, we are every day besieged. And this war 
that has been going on, it is raging. Sometimes we make some 
headway, sometimes we fall back. But what I am saying to you 
now, unless protective shields are put in place to protect 
intellectual piracy in the digital age, all of the grand 
promise for the future for this industry is put to hazard.
    Emerson's doctrine says that for every loss there is a gain 
and for every gain there is a loss. It was never more alive 
than in this issue. The gain is that the magical new digital 
technology has unbelievable benefits for those who use it. It 
is a wondrous thing to behold. That is the gain.
    But the loss is the dark, corrosive underside to digital 
technology in that it makes thievery far easier and far easier 
to copy. And that is why, unless we are able to find some way 
to balance the losses and the gains and to protect this private 
property, this intellectual property when it moves in the 
digital world, then we are in peril.
    I hope that this committee and the Senate will pass this 
treaty quickly and feel the sure and I like to believe 
illuminating pride that comes to any lawmaker when you put your 
imprint on something which benefits so many citizens in this 
country.
    Now, I am quite fascinated with what I am saying up here. 
But I think the best thing I can do is tell you this is the 
short and sweet testimony that I promised. Thank you.
    Senator Hagel. Mr. Valenti, thank you.
    [The prepared statement of Mr. Valenti follows:]

                   Prepared Statement of Jack Valenti

    On December of 1996, representatives from over 160 nations gathered 
in Geneva and out of the babel of so many varying opinions, they all 
agreed to the World Intellectual Property Organization Treaties.
    One treaty dealt with phonogram performers and audio performers' 
rights. The other treaty lifts the level of copyright protection in 
every country signing the treaty. In short, it obligates signatory 
countries to update national copyright laws to cope with the digital 
environment. And more importantly, it compels them to enforce those 
laws by efficiently and swiftly prosecuting digital thieves who pilfer 
the creative works of others. Not surprisingly the largest beneficiary 
of this WIPO document is the United States, the most dominant force in 
intellectual property throughout the world.
    In May of this year, the U.S. Senate passed the Digital Millennium 
Copyright Act, implementing the WIPO treaties by a 99 to 0 vote. On 
July 29, the House unanimously passed a companion measure after careful 
study and approval by both the Judiciary and Commerce Committees. This 
legislative action by both Senate and House now moves to Conference to 
shape the final design.
    Now, the Senate Foreign Relations Committee has the responsibility 
to ratify the treaty, completing the journey of the WIPO treaty through 
the Congress of the United States, thereby offering intellectual 
property the full weaponry of the law to protect its voyages in 
cyberspace from thieves who have previously determined that stealing 
creative works is very rewarding and very low risk. We aim to turn that 
felonious design on its head.
    First the numbers. The core copyright industries, and by that I 
mean motion pictures, television programs, home video, music, books, 
and computer software are immense contributors to our nation's economy.
    In 1996, these industries contributed an estimated $278.4 billion 
to the U.S. economy, accounting for 3.65% of the Gross Domestic 
Product.
    The real annual growth of the copyright industries has been more 
than double the growth rate of the economy as a whole.
    From 1977 to 1996, the job growth in the copyright industries was 
nearly three times the employment growth for the economy as a whole.
    And surely the most impressive array of fiscal arithmetic is 
located in this fact: This nation's copyright industries have gathered 
foreign sales and exports of $60.18 billion. More than agriculture. 
More than automobiles and auto parts. More than aircraft. It can all be 
summed up in one simple sentence: Intellectual property is America's 
grandest trade pnze. a triumphant economic and creative achievement 
worthy of the enduring support and protection of this nation.
    Why is it necessary to act now in both the passage of implementing 
legislation and ratifying the treaty? Because we are grazing the outer 
entering edge to a new world. filled with instant information and 
entertainment: The exploration of the Internet and digital horizons 
which, at this moment, appear to be limitless.
    Like Emerson's doctrine that ``for every gain there is a loss and 
for every loss there is a gain,'' within the glittering potential of 
the Internet lies the darker forms of thieves who, armed with magical 
new technology, are capable of breaking-and-entering conventional 
barriers to steal copyrighted material borne to the Internet by just 
about anybody with a working computer. Without protective sinews in 
place, without rules of the game enforced by law, America's largest 
economic asset would be put to peril, blighted by new technology so 
beneficial, and yet so corrosive if copyright owners are unable to 
protect their private property. That is not an acceptable road to the 
future. That is the central and most commanding reason why this 
Committee should ratify the treaty. Updated international standards for 
copyright protection, as the WIPO treaties provide, are part of the 
solution to this problem.
    While ratification requires only minimum changes to U.S. existing 
law, it compels nations around the world to raise their minimum 
standards to meet those of the United States. Stated simply, clearly, 
this is an anti-crime, anti-theft treaty.
    We must not forget that the Geneva assembly placed a two-year 
deadline during which at least 30 nations must ratify the treaties. The 
world is watching and waiting to see what the U.S. does. If we, with so 
much at stake, do not move to ratify, what possible incentive do other 
nations have for taking similar action?
    The U.S. film industry, the most successful on this planet, 
currently confronts ceaseless thievery around the globe. We have made 
great headway but the war rages on. Our successes come primarily 
because the pirates today must cope with formidable distribution 
problems. Physical copies of a film must be obtained and then smuggled 
across borders and parceled out to distributors before reaching the 
ultimate consumer.
    But digital networking will make today's piracy problems seem 
almost saintly. A pirate master will be digitized, posted on the Web, 
and made available to users of the Internet all over the world. Or the 
master can be used to make an infinite number of pristine copies (take 
note: the 1,000th digital copy is as pure in quality as the first copy, 
which is not so in analog where copying degrades quality). A single 
thief in an unprotected digital environment can be a big-time, full-
fledged distributor of illegal filmed product. This is not simply a 
question of domestic theft. Entrepreneurial criminals around the globe 
are shamelessly excited by the prospect of enlarging riches, ready for 
the next technological advance that enables easy transfer of digitized 
movies. Even with today's Internet, which will look positively 
primitive in the years to come, I have seen pirated copies of films as 
current as ``Mulan'' and Steven Spielberg's landmark epic ``Saving 
Private Ryan,'' available for downloading. The transition to cyberspace 
ought not and must not collapse and destroy the basic American value of 
private property. You will be pleased to note that within the 
implementing legislation are special protections for libraries, 
schools, and other nonprofit institutions. ``Fair use'' remains 
unchanged. Legitimate devices are unaffected; the language focuses 
specifically on illegitimate devices aimed at circumventing 
technologies used to protect creative works online.
    I hope that this Committee will feel the sure pride that comes to 
lawmakers when they put their legislative imprint on something with so 
much benefit to America's advance into the digital age.

    Senator Hagel. Let me reintroduce our panel as I introduce 
each for their statements. As you know, I introduced everyone 
at the beginning. But next we will hear from Mr. Neel, Roy 
Neel, the President and CEO of the United States Telephone 
Association. Mr. Neel, welcome.

    STATEMENT OF ROY M. NEEL, PRESIDENT AND CHIEF EXECUTIVE 
          OFFICER, UNITED STATES TELEPHONE ASSOCIATION

    Mr. Neel. Thank you, Mr. Chairman, Senator Feinstein.
    Jack said it very well in terms of the need for this treaty 
internationally and protecting of U.S. Property against piracy.
    I represent not only more than 1,000 local telephone 
companies, literally hundreds in both Nebraska and California 
and throughout the country, but also the ad hoc Copyright 
Coalition, which includes virtually the entire Internet service 
provider community, which includes many of our traditional 
competitors such as AT&T and MCI, and now America On-Line, and 
the Commercial Internet Exchange, which represents hundreds of 
very small Internet service providers.
    So I am here speaking on behalf of the entire carrier 
community, if you will, that is building and developing the 
Internet.
    In addition to being carriers of copyrighted property and 
all manner of telecommunications, almost all of our members 
also own substantial intellectual property, software, data 
bases, directories, and so on.
    So we have a stake in both sides of the issue of liability 
as it applies to the evolution of the Internet and to the 
policing of the unauthorized theft of copyrighted property. We 
have a real stake in making sure there are anti-theft measures 
in place.
    But we also have a real stake in making sure that carriers 
and providers of Internet services are not unduly exposed to 
third party lawsuits simply because they move intellectual 
property down pikes, whether they repackage it or whatever.
    This industry, and the broader service provider industry, 
was facing immense liability from lawsuits which would have--
and I do not believe this is an idle threat--would have 
virtually shut down the future development of the Internet. And 
without going into platitudes about the Internet and the 
importance to the economy of this country and to democracy 
worldwide, I think we all understand the implication of 
literally bringing the investment in that new technology to a 
halt.
    We have been arguing and fighting about these issues about 
liability for years now. And it was enormously satisfying to 
all of us that Jack and I and Hillary Rosen with the recording 
industry, the Internet service community, all of the major--the 
content community, the carrier community, the service providers 
were able to link arms and agree on a progressive compromise.
    It is virtually historic to get ahead of a technological 
curve like this and avoid the kind of protracted, expensive and 
miserable legal battles that have faced these kinds of 
technologies in the past. So it is very rewarding that we have 
been able to do that, that we have completed that process, and 
virtually everyone has accepted this. The legislation passed 
the Senate 99-0 and the House by a voice vote. So this is 
really important.
    This community needs protection from inappropriate 
liability challenges, lawsuits that, as I said, could shut down 
the entire evolution of the network. That, obviously, is going 
to benefit consumers. Not only those who use the Internet 
extensively right now, but everyone in the education community, 
everyone who is now exploiting this growing technology, this 
growing network.
    And the fact that the content community and service 
providers have been able to agree on this, with the help of 
this committee, of the Judiciary Committee, and all of those 
who have been involved in this process in the House and the 
Senate, the administration, I think, is really a tribute to 
your leadership in this area.
    More particularly, thank you for your opening comments that 
there must be linkage between the implementation legislation 
and this treaty. We will not get this done if it is not done 
this year. It is critical that this treaty be enacted.
    It is critical that the implementation legislation be 
enacted, and that they be done together. Because the reality of 
this is that if the treaty moves and the implementation 
legislation bogs down, dies for whatever reason, narrow or 
broad, it could be years before we could come together on this 
again. And we would leave the entire U.S. Economy, the 
telecommunications economy, and certainly the Internet economy, 
in serious jeopardy.
    And as I said, it is historic not only that we have been 
able to reach agreement on these liability questions in the 
U.S., but that these industries, the motion picture industry, 
the record industry, the software publishers, the 
telecommunications carriers and others are able to advance this 
as a worldwide model, because this technology is not a domestic 
medium.
    In its best form we see all manner of folks bringing down 
dictatorships, bringing democracy into places where we have 
severe problems, Burma and so on, by use of the Internet. It is 
an international medium not only for democracy but for 
commerce.
    So this should be the model. The implementation legislation 
in the U.S. Should and can be the model throughout this world 
which will undoubtedly help the U.S. Content community and 
others developing Internet services worldwide. It is absolutely 
critical.
    And I am very pleased that Jack and the motion picture 
industry, the recording industry, and the software publishers 
have agreed to lock arms and take this as a model worldwide.
    I will stop there. You have my testimony for the record. 
Again, we want to thank you for holding this hearing and, in 
particular, thank you for emphasizing the key element of 
linkage between these two bills. It is absolutely critical. It 
is not just process, it is substance. And it is the whole 
future of the Internet economy. Thank you.
    Senator Hagel. Mr. Neel, thank you.
    [The prepared statement of Mr. Neel follows:]

                     Prepared Statement of Roy Neel

    Thank you Mr. Chairman.
    My name is Roy Neel and I am here testifying on behalf of the 
United States Telephone Association (USTA). USTA represents over 1400 
telephone companies, virtually every one of these 1400 local companies 
is also an Internet service provider.
    I appreciate the opportunity to testify about the WIPO Treaties and 
the importance of providing legal certainty to the Internet service 
providers (``ISPs'') that provide Internet access to millions of people 
everyday. The WIPO Treaties provide a framework to protect copyrighted 
works in the digital age and the implementing legislation provides 
complementary protection for ISPs. Telco ISPs invariably are both 
content owners and service providers. In virtually every case we own 
valuable intellectual property such as directories that are vulnerable 
to Internet Piracy today. At the same time, as service providers, the 
current law in the U.S. and many other countries subjects us to the 
risk of unreasonable claims of liability that could stifle this new and 
expanding medium. In light of this dual role, USTA members are uniquely 
situated to appreciate both sides of the critical copyright liability 
issues before Congress today.
    We support ratification of the WIPO Treaties in conjunction with 
legislation that implements reasonable protection from excessive 
copyright infringement liability for ISPs. This legislation is 
necessary since the WIPO Treaties do not specifically address the ISP 
liability issue. Statements agreed to by the delegates to WIPO, 
however, do contemplate that ISPs should be protected from liability 
when they provide facilities and services that are used by others to 
infringe. The U.S. Congress, after much debate, is poised to pass 
legislation (H.R. 2281) to implement a compromise regarding ISP 
liability that was agreed to and is supported by the content and 
service provider industries.
    The bill was passed by the House by a unanimous voice vote. A 
virtually identical bill passed the Senate 99-0. This important 
compromise will provide ISPs with much needed liability protection in 
the United States. USTA believes it is critical that this legislation 
be passed by Congress and signed by the President before the WIPO 
treaties are ratified.
    However, even if the compromise legislation provides ISPs a measure 
of legal certainty in this country, telephone companies and ISPs still 
face grave uncertainty in the international legal arena. The delicate 
balance reached in the U.S. and embodied in the WIPO implementing 
legislation will be for naught if Telcos and ISPs can still be held 
liable overseas for copyright infringements arising from material that 
users send across their systems.
    It is crucial that this Committee and this Congress send a very 
strong signal to our international partners that ISPs must be protected 
from such potentially stifling lawsuits. The legislation that Congress 
is expected to pass should serve as model legislation for other 
countries of the world as they ratify the WIPO Treaties. We urge the 
Committee to reference this model legislation as you ratify the 
Treaties.
     Just as Jack Valenti and MPAA want to promote the export of U.S. 
movies, our telephone companies want to promote the export of this U.S. 
model legislation that ensures fair ground rules for ISPs.
Internet Promotes Free Markets
    We are just beginning to appreciate the multitude of benefits 
provided by the Internet. Some have said that the Internet is to the 
20th century what the Gutenberg press was to the 15th century: a 
technological breakthrough that has unleashed the power of information. 
The explosive growth in the Internet is dramatically reshaping 
economies and political institutions worldwide.
    At the end of 1997, there were over 100 million Internet users 
around the world. According to the director of the MIT Media Lab, 
Nicholas Negroponte, the number of worldwide Internet users could soar 
to perhaps 1 billion by the end of the decade. Internet traffic will 
probably exceed voice telephony by the year 2000. With more than 175 
countries connected to the Internet, the Internet has truly become a 
global system.
    Companies large and small are taking advantage of affordable 
electronic commerce to communicate with worldwide suppliers and 
customers, reduce costs, conduct research, and streamline logistics. 
According to a report by the Commerce Department, on-line transactions 
between businesses have grown significantly and are expected to exceed 
$300 billion by the year 2002.
    Today, consumers can order a wide range of goods and services 
through their home PC, including books, airline tickets, music, 
clothing, securities, and software programs. They can even buy a car 
without leaving their homes. The Commerce Department predicts that 
other services will be increasingly available through the Internet, 
including banking, insurance, entertainment, health care, education, 
and consulting.
The Internet Promotes Democracy and Ideas
    The Internet is not just about the exchange of goods and services, 
but also ideas. Nowhere is this medium more valuable than in the 
struggle to promote democracies and market economies in closed 
societies. Ratifying the WIPO Treaties and passing the compromise 
legislation will help to promote these vital interests by removing 
impediments to the further deployment of Internet access. This new tool 
is being used effectively by activists around the globe to expose 
abuses, promote change, and build alliances. Its importance has been 
compared by the United States Institute of Peace to a ``crowbar that 
pries open the very closed, highly secretive and tightly controlled 
nation by creating an information-rich highway to the world.''
    In Burma, where all forms of media are controlled by the military, 
the opposition has effectively used the Internet to distribute 
information inside and outside the country about the abuses of the 
military government. Democracy and human rights activists have kept the 
world informed of developments in Burma by posting up-to-the-minute 
reports in English on the Internet or through e-mail.
    Chinese activists also are tapping into the power of the Internet 
to reduce the dependency on government information and to build bridges 
to the outside world. Since 1997, an underground group has secretly 
published on the Internet a Chinese-language journal called the 
``Tunnel'' with the declared intention to ``break through the present 
lock on information and controls of expression.'' The democracy journal 
is filled with stories about sensitive subjects such as Tiananmen 
Square and the collapse of communism in Eastern Europe.
    There are also numerous examples of how the Internet can be used to 
promote market-based values in China, the former Soviet Republics, and 
many developing countries in the Middle East, and Latin America. The 
U.S. Chamber of Commerce's Center for International Private Enterprise, 
for instance, is disseminating public information through the Internet 
about private property, free trade, and other market-based concepts.
    In light of its numerous advantages, it's not surprising that the 
Internet is rapidly becoming the medium of choice for promoting 
democracy and market economies around the world. If fax machines and 
information can contribute to the collapse of the Iron Curtain and the 
Berlin Wall, imagine what the Internet can do.
Summary of the WIPO Treaties
    From December 2-20, 1996, the World Intellectual Property 
Organization convened the first Diplomatic Conference in 25 years to 
consider several treaties to update copyright laws for the digital age. 
Delegates from more than 125 countries attended, as did representatives 
from some 90 nongovernmental organizations, including USTA. The 
Diplomatic Conference debated and subsequently adopted two treaties (1) 
the WIPO Copyright Treaty, which addressed certain copyright issues 
pertaining to computer programs, databases and digital environment, and 
(2) the ``WIPO Performances and Phonograms Treaty,'' which addresses 
certain rights for the performers and producers of sound recordings. 
The treaties create significant rights for copyright owners, performers 
and record companies.
    The issue of ISP liability was the subject of much debate at the 
Diplomatic Conference that adopted the two treaties. It is important to 
note that the Conference did adopt language in an ``agreed statement'' 
indicating its support for the proposition that an ISP that merely 
provides facilities for communications should not be deemed thereby to 
be an infringer. The Conference decided that the specifics regarding 
legal parameters for ISP liability was properly left for national laws, 
rather than to the treaties.
    Just as it is important for copyright owners that their rights be 
harmonized throughout the world, it is critical to Internet service 
providers that the rules governing liability be consistent throughout 
the world. The compromise reached by the interested parties in H.R. 
2281 should serve as a model for these rules.
Threat of Lawsuits and The Need for Congressional Action
    A consensus has developed in the industry and the Congress that the 
issue of ISP liability for copyright liability must be addressed. The 
almost unanimous votes in both Houses of Congress are a clear 
indication of this overwhelming consensus. This consensus results from 
the potentially devastating liability that can be imposed under 
copyright law. Liability for direct infringement has been interpreted 
to be a strict liability doctrine that will attach to anyone who 
copies, distributes or performs a copyrighted work, without regard to 
their knowledge or intent. At least one court held a bulletin board 
operator strictly liable simply on the basis of the actions of his 
bulletin board system, which responded to commands from users.
    In addition, copyright law includes doctrines of contributory and 
vicarious liability that have been construed by some courts to be very 
broad. Clear limitations need to be placed on these doctrines in the 
digital online environment when systems are used by third-party users.
    USTA supports taking action against the actual infringes through 
the courts. But the suits that been filed and threatened by others 
could create a chilling effect on the provision of Internet service 
unless promptly addressed by Congress.
    Furthermore, before the parties worked out the proposed compromise, 
copyright owners had at times threatened to make ISPs the Internet 
copyright police. For example, in 1995, the Church of Scientology filed 
two lawsuits against small to mid-sized ISPs because third-party 
infringers had used their Internet access services and posted material 
that allegedly violated a copyright.
    In 1996 the Software Publishers' Association (SPA) independently 
filed a series of at least five lawsuits against ISPs regardless of 
whether they had any knowledge of or control over an infringement. SPA 
claimed that ISPs are liable as infringers of copyrighted works simply 
by virtue of the fact that subscribers lease server space and Internet 
services from an ISP, or provide a mere hyperlink to infringing 
materials that exist at another location.
    The 1997 SPA Report on Global Piracy warns ``This case serves as a 
warning to Internet users . . . and to the ISP condoning the illegal 
activity.'' The June 10, 1997 edition of Variety reports on a series of 
lawsuits filed by the Recording Industry Association of America. 
Although the specific suits filed by RIAA do not name ISPs, RIAA Vice 
President Frank Creighton left no doubt that suits against ISPs were 
coming. ``The fight about third party liability will be resolved in 
future litigation,'' he told Variety. Fortunately, with the passage of 
H.R. 2281, we are hopeful that the days of litigation are over and the 
days of cooperation are near.
International Examples
    There is still a concern with the legal uncertainty that we face in 
many countries. Under current copyright law in many countries, ISPs 
risk being held liable for damages for copyright infringement 
perpetrated by individuals without the knowledge of the ISP. There have 
been cases in several countries were ISPs have been sued for merely 
providing access to a site that contains infringing material.
    Furthermore, this issue is being debated in various parts of the 
world: the European Commission (EC) is in the process of preparing a 
proposal to clarify various legal concepts in cyberspace, including the 
liability issue. The ISP liability issue is under consideration in many 
parliaments and legislatures around the world. Countries are looking to 
this Congress for leadership.
    USTA members are committed to the Internet, but the threat of 
copyright lawsuits is becoming an increasingly salient consideration in 
offering Internet service whether in rural markets or international 
markets.
The Blueprint for a Model Legal Structure
    Before discussing the specifics of the compromise legislation, I 
would like to tell you why we believe Congress should pass legislation 
regarding ISP liability. First, information travels through the local 
exchange backbone and trunk lines as well as network components such as 
routers, connectors and servers in digital packets of ones and zeros. 
Hence, monitoring by the service provider will ultimately fail to 
protect intellectual property. While this content is moving through the 
network in computer code, there should be no liability.
    Furthermore, even if monitoring were feasible, an ISP has no way of 
ascertaining whether a particular song or article or computer program 
is an authorized version or a pirated, illegal version. The copyrighted 
material could be a licensed use that resulted from a vast chain of 
contracts that only months of research could uncover. For example, the 
famous Beatles' song, ``Yellow Submarine'' provides a good example: 
Paul McCartney, one would assume, owns the rights to this Beatles' 
song, but he does not--Michael Jackson does.
    Second, when information becomes available to the human eye, such 
as when it resides on a web site, a cooperative system of ``notice and 
take down'' should be established. Under a cooperative system, the 
content owner has the responsibility to identify infringements and the 
service provider must act responsibly to act on that notification.
    It is critical to understand that only Congress can enact this sort 
of solution. It is unrealistic to expect that the courts, acting on a 
piecemeal case by case basis, could develop the ultimate solution. 
Likewise, in other countries, the legislatures or parliaments should 
address this issue of copyright liability for ISPs.
A Model Approach: The Pending ISP Legislation
    First, we congratulate and commend members of the Senate and House 
for passing legislation to clarify the confusion created by the 
inconsistent case law on service provider liability. We are very 
appreciative of the efforts of Senators Hatch, Leahy and Kohl as well 
as Congressmen Coble, Goodlatte, Hyde and Bliley. We are especially 
grateful to Senator Ashcroft who introduced one of the early bills on 
ISP liability protection. We need a legislative solution to this 
problem and we need it in the Congress.
    After weeks of negotiations, the various stakeholders were able to 
reach a compromise on legislation to address our concerns regarding ISP 
liability. The agreement provides that copyright owners and ISPs should 
share responsibility for protecting intellectual property on the 
Internet. When copyright owners discover infringement on-line, they 
should notify the ISP whose servers access the infringing material. 
When ISP's acquire actual knowledge or detect a red flag that their 
services are being misused for infringing purposes, they would be 
obligated to take reasonable steps to halt further abuse.
    The U.S. compromise can be distilled to three key elements. It 
provides:

  1. Clear, unconditional protection for conduit (carriage) activities.
  2. Protection from liability for caching, which is essential to the 
        efficient functioning of the Internet.
  3. A ``notice and take down'' regime for material residing on the 
        provider's system, coupled with a new, carefully negotiated 
        actual knowledge and ``red-flag'' standard in the absence of 
        notice.

    The legislation provides that in response to appropriate notice 
from the copyright owner, ISPs would be obligated to prevent their 
services from being used to access infringing material. If, however, an 
ISP has neither received notice of infringement nor otherwise has 
actual or ``red flag'' knowledge that it is occurring, then it would 
not be held responsible for the acts of third parties. We believe this 
proposal allocates responsibility for protecting intellectual property 
fairly and efficiently.
Rational for this Model Legislation
    There are several fundamental reasons why a ``notice and take-
down'' structure is an appropriate legislative model to solve this 
complex matter. First, the concept of holding ISPs liable for copyright 
infringement when the ISP does not have actual knowledge would raise 
grave privacy concerns. It is impossible for ISPs to monitor every 
customer's transfer of electronic data. We, as a society, do not want 
ISPs to initiate such a massive invasion of privacy.
    Second, if ISPs were required to employ an army of snoops to pick 
through every user's e-mail and Usenet postings, the enormous cost 
ultimately would be passed on to customers. The consequence would be to 
convert a convenient and democratic medium into an expensive and elite 
one.
    Finally and more importantly, even if ISPs could investigate every 
corner of the expanding online universe, ISPs would have no way of 
knowing whether the material they encounter is authorized by the 
current copyright owner or not.
    We believe that the task of ferreting out copyright infringement on 
the Internet should fall to the copyright owner. Today, copyright 
owners have access to a large array of Internet search engines and 
``spiders'' to sniff out material they know belongs to them. Once 
copyright owners discover infringement, they can bring it to the 
attention of the ISPs. It is at this point that the ISPs can act and 
would be required to act by the compromise legislation.
    The ``notice and take-down'' regime that is proposed is one of 
joint responsibility between copyright owners and ISPs. USTA strongly 
supports the implementing legislation that spells out the obligations 
of the ISPs and copyright owners.
Conclusion
    USTA strongly supports protection for copyright and other legal 
interests on the Internet. USTA member telephone companies provide 
Internet access services, but they are also owners of vast holdings of 
intellectual property. Our members have powerful incentives to preserve 
the value of their copyright portfolios through the protection of our 
nation's intellectual property laws.
    The ``notice and take-down'' concept set forth in the compromise 
legislation implements a commonsense approach. Content owners identify 
the infringements and then contact the ISP that can assist them in 
fighting piracy by taking the offending material down: This legislation 
should serve as a model for countries around the world that must 
resolve the complex issues surrounding the Internet and ISP liability. 
In order to protect the valuable resource of the Internet, it is 
important to secure similar legislative protection in other countries. 
Those who are building the Net itself need fair and predictable ground 
rules. I urge this Committee to use this opportunity to promote this 
common-sense solution to our international partners.
    As the Supreme Court wrote recently, ``The Internet is a unique and 
wholly new medium of worldwide human communication.'' Reno, et al. v. 
ACLU, 117 5. Ct. 2329 (1997). The Internet has no owner. It knows no 
national boundaries.
    We look forward to working with the Committee as you consider the 
WIPO Treaties.

    Senator Hagel. Let me reintroduce Professor Jaszi, who is 
an Associate Professor of Law at the Washington School of Law, 
American University. Is that correct?
    Mr. Jaszi. A full professor, actually.
    Senator Hagel. All right. Fire away. It is nice to have 
you.

STATEMENT OF PETER JASZI, PROFESSOR OF LAW, WASHINGTON COLLEGE 
   OF LAW, THE AMERICAN UNIVERSITY, ON BEHALF OF THE DIGITAL 
                        FUTURE COALITION

    Mr. Jaszi. As a professor of domestic and international 
copyright law, Mr. Chairman, Senator Feinstein, Senator 
Sarbanes, I am honored to appear before you today on behalf of 
the Digital Future Coalition, which includes 43 national 
organizations representing millions of educators, librarians, 
high tech innovators, creators, and electronic information 
consumers.
    Our members own and use copyrighted works, and they depend 
on a legal regime which assures both strong proprietary rights 
and reasonable opportunities for public access. We welcome this 
chance to make three principal points about ratification and 
implementation of the WIPO Copyright Treaty and the WIPO 
Performances and Phonograms Treaty.
    First, as we have emphasized throughout the 105th Congress, 
the DFC strongly supports ratification of the WIPO treaties in 
connection with the enactment of balanced implementing 
legislation of appropriate scope. Our members would welcome the 
additional protection abroad which the treaties could bring. 
But foreign protection should be secured at the expense of the 
American public.
    Second, neither S-2037, the Senate-passed implementing 
bill, or HR-2281 adopted in the House yet strikes the necessary 
balance in domestic law. The Senate bill does not do enough to 
preserve fair use, while the House bill includes a host of 
controversial and extraneous provisions which would overturn 
the effect of three recent Supreme Court decisions.
    Third, and finally, we therefore urge the committee to put 
its own stamp on the implementation process by delaying action 
on a resolution of ratification until Congress has passed 
legislation which maintains copyrights historic balance between 
owners' rights and users' privileges.
    Here, I would note two important statements by the 
delegates to the 1997 WIPO Diplomatic Conference. In a gesture 
without precedent in international law, the preambles to the 
new treaties specifically acknowledge the need to maintain a 
balance between the rights of authors, performers, and 
producers and the larger public interest, particularly 
education, research, and access to information.
    Moreover, at the urging of the United States delegation, 
the texts of both treaties are qualified by an agreed statement 
making it clear that nations may carry forward and 
appropriately extend into the digital environment limitations 
and exceptions in their national laws.
    These statements mean, for example, that the United States 
may carry forward the centuries-old fair use doctrine, which we 
take for granted in the analog world. Because of it you may 
photocopy a newspaper article, quote from a book, or make 
limited use of another's work without advanced permission.
    All Americans would benefit if implementing legislation 
assured the continued vitality of fair use and of the other 
limitations and exceptions that have helped to make our 
national copyright system the most successful in the world.
    Unfortunately, S-2037 would effectively gut fair use by 
giving copyright owners broad new authority to block what are 
now lawful acts. Under Section 1201(a)(1) of that bill it would 
be a criminal offense for a student to circumvent a 
technological protection measure to include a map in a 
multimedia school report.
    It could become illegal to use the next generation of VCRs 
to record an over-the-air broadcast program, a privilege 
specifically recognized by the Supreme Court in its Beta Max 
decision. It would even be unlawful for your staff to destroy a 
copy protected computer virus that had infected your office 
information system.
    In addition, S-2037 would stifle the development of new 
technology by potentially banning a host of useful consumer 
products under the guise of regulating so-called black boxes. 
Like everyone on the panel, our members are quite prepared to 
outlaw black boxes. But we want to be certain that in doing so 
Congress does not enact legislation that would outlaw perfectly 
legitimate devices with substantial non-infringing uses.
    HR-2281 does the bare minimum necessary to maintain some 
semblance of balance. It includes a no mandate provision making 
it clear that makers of consumer electronics, 
telecommunications, and computing products are not required to 
design their devices to respond to any particular technological 
protection measure.
    Moreover, the House bill permits encryption research and 
provides strong protections for the privacy of information 
consumers. And it establishes a procedure to ensure public 
access to categories of copyrighted works if certain findings 
are made by the Secretary of Commerce.
    In our view, still more should be done to achieve balance. 
As demonstrated in an analysis which is attached to my written 
statement, the Senate could preserve a strong fair use doctrine 
and still meet our WIPO treaty obligations by dropping Section 
1201(a)(1) entirely.
    If Section 1201(a)(1) remains, the exceptions to its 
prohibitions on circumvention conduct must be broadened. 
Discussions are underway, for example, to ensure that 
legitimate companies continue to engage in security systems 
testing.
    Although it moves toward balance in some respects, the 
House bill unfortunately includes many controversial provisions 
substantially unrelated to the treaties. Perhaps most 
troubling, the bill would provide an extraordinary new form of 
protection for collections of information, hampering the 
development of electronic commerce and imposing new costs on 
libraries, universities, and individual consumers. Its effect 
could be to award some data base proprietors a perpetual 
exclusive right in simple facts, subject to few if any 
meaningful exceptions.
    No hearings have been held on this radical proposal in the 
Senate, and yet the House apparently expects the Senate to 
exceed to this extraordinary power grab benefiting a few 
wealthy information owners.
    Attached to my written testimony is a copy of a memo from 
the Office of Legal Counsel of the Department of Justice 
strongly questioning the constitutionality of such data base 
legislation. And with your permission, Mr. Chairman, I would 
also like to include in the record a letter signed by 38 
national organizations spelling out their concerns. And I would 
emphasize that data base legislation is not called for by the 
WIPO treaties.
    In fact, the 1996 Diplomatic Conference specifically 
declined to act on proposals to create new international norms 
for data protection.
    Your committee can play an important role by making clear 
that implementing legislation should be limited to just that, 
implementing the treaties, while leaving for another day a 
resolution of controversial extraneous matters added by the 
House without debate. In short, Mr. Chairman, while we support 
ratification of the treaties, the DFC continues to have serious 
reservations about the scope and balance of implementing 
legislation.
    Thank you.
    Senator Hagel. Professor Jaszi, thank you.
    [The prepared statement of Mr. Jaszi follows:]

                   Prepared Statement of Peter Jaszi

    Mr. Chairman, I want to thank you and the members of the Committee 
for the opportunity to testify on behalf of the Digital Future 
Coalition, which includes 43 national organizations collectively 
committed to the appropriate application of intellectual property laws 
in the emerging networked digital information environment. Organized in 
October 1995, the DFC includes members representing millions of 
educators, librarians, high-technology innovators, creators, and 
electronic information consumers. Significantly, DFC represents many 
individuals and entities which both own and use copyrighted works, and 
thus depend in their daily activities on the existence of a legal 
regime which assures both strong proprietary rights for protected works 
and reasonable opportunities for public access to those works. Over the 
past three years, we have been involved at every stage of the so-called 
``digital copyright'' debate, and today we welcome this chance to 
present our views on the ratification of the two treaties--the WIPO 
Copyright Treaty and the WIPO Performances and Phonograms Treaty--which 
were concluded at the December 1996 Diplomatic Conference of the World 
Intellectual Property Organization. As we repeatedly have stated, the 
DFC strongly supports ratification of the WIPO treaties in connection 
with the enactment of balanced domestic law provisions to implement 
these new international norms.
Background to the WIPO Treaties
    In the Fall 1996, the DFC concluded that the draft treaties, (or 
``Basic Proposals'') submitted by the Chairman of the WIPO Committee of 
Experts, as a blueprint for the work of the Diplomatic Conference 
represented a less-than-balanced approach to harmonizing owners' and 
users' interests in the digital environment. In the months leading up 
to the Diplomatic Conference, the DFC was active in advocating the 
inclusion of provisions in the final treaties which would adequately 
recognize the stakes of information consumers in the development of new 
digital intellectual property norms, and would allow countries adhering 
to the final treaties sufficient flexibility to implement those new 
norms in ways consistent with their traditional domestic copyright 
systems.
    Going into the final phase of the WIPO treaty process, it was our 
belief that these objectives were of particular importance in 
safeguarding the national interests of the United States. Most 
countries of the world do not recognize limitations and exceptions to 
copyright protection which even approximate in breadth those codified 
in the Sec. 107 ``fair use'' provision of the 1976 Copyright Act, or in 
various other sections of that act (including Secs. 110 and 117) which 
provide for specific exemptions from liability. The United States is 
not a leader in international information commerce despite the balanced 
character of our traditional copyright law, but because of it. Indeed, 
it is the compromise of interests struck in U.S. law, by means of the 
cited provisions and others, that has enabled our country's artistic, 
scientific, and educational achievements, and provided the basis for 
the emergence of our internationally dominant copyright and high 
technology industries. To maintain the United States' leadership 
position in the global information economy, we must protect and 
preserve the unique and valuable features of our highly successful 
domestic copyright system, even as we adapt it to the challenges of new 
technology.
    With this in mind, the DFC and its member organizations took an 
active part in the final preparations for the Geneva Diplomatic 
Conference. Individuals associated with the DFC participated in the 
United States delegation to the Conference, and others were present in 
Geneva as observers. Here at home, the DFC continued to make its views 
about the issues at stake in the Conference known to the 
Administration.
The WIPO Treaties
    The final product of the Diplomatic Conference held in December 
1996 represented substantial improvements over the original drafts in 
several respects. In a gesture without precedent in the history of 
international intellectual property treaties, their preambles 
specifically acknowledge ``the need to maintain a balance between the 
rights of [authors, performers, and producers] and the larger public 
interest, particularly education, research and access to information, 
as reflected in the Berne Convention.''
    Moreover, at the specific urging of the U.S. delegation to the 
Conference, the texts of both treaties are qualified by a so-called 
``Agreed Statement'' (with special weight as an aid to interpretation 
under the terms of the Vienna Convention on the Law of Treaties), to 
the effect that:

        [C]ontracting Parties [may] carry forward and appropriately 
        extend into the digital environment limitations and exceptions 
        in their national laws which have been considered acceptable 
        under the Berne Convention. Similarly, these provisions should 
        be understood to permit Contracting Parties to devise new 
        exceptions and limitations that are appropriate in the digital 
        network environment.

    In contrast to the more limiting formulation of the proposed draft 
treaties, the final provisions concerning ``Obligations Concerning 
Technological Measures'' guarantee parties flexibility with respect to 
the implementation of new ``anticircumvention'' rules, stating that:

        Contracting Parties shall provide adequate legal protection and 
        effective legal remedies against the circumvention of effective 
        technological measures that are used by [authors, producers or 
        performers of phonograms] in connection with the exercise of 
        their rights under [these Treaties or the Berne Convention] and 
        that restrict acts, in respect of their works, which are not 
        authorized by the [authors, producers or performers of 
        phonograms] concerned or permitted by law.

    On the highly controversial issue of database protection, which had 
been the subject of a third draft treaty proposed by the Chairman of 
the WIPO Committees of Experts, the Diplomatic Conference concluded 
that significant work remained to be done before this subject could be 
considered ripe for any consideration within the WIPO framework.
    As already noted, as a matter of general principle the DFC strongly 
supports ratification of the new WIPO treaties in their present form. 
The many groups of copyright owners represented within the DFC would 
welcome the additional protection abroad which the coming into force of 
the treaties would afford to their valuable creative assets. At the 
same time, however, all the members of the DFC are united in their 
conviction that the benefits of such foreign protection for U.S. 
copyright owners should not be secured at the cost of domestic U.S. 
information consumers, as would be the case were the treaties to be 
implemented through less-than-balanced legislation here at home. Thus, 
we would respectfully urge the Committee to follow the practice of 
reserving any final recommendation on the issue of ratification until 
such time as implementing legislation is in place which adequately 
addresses to concerns of all affected domestic groups, and which 
maintains the historic balance between owners' rights and users' 
privileges represented by U.S. copyright law.
Outstanding issues relating to implementation of the WIPO Treaties
    In a letter dated August 24, 1998, a copy of which is attached to 
this testimony, the DFC informed the members of the Senate of the full 
range of its current concerns with Senate and House bills (S. 2037 and 
H.R. 2281, respectively) designed to implement the WIPO treaties. 
Rather than reviewing those concerns exhaustively in this testimony, I 
will highlight here some of the most urgent and important, putting 
particular emphasis on the ways in which outstanding proposals for 
implementation do (or do not) relate to the mandates of the treaties 
themselves.
Provisions relating to ``black boxes''
    From its inception, the Digital Future Coalition has maintained 
that new legislation designed to combat ``piracy'' in the digital 
network environment must be crafted to give continuing effect to the 
landmark Supreme Court decision in Universal v. Sony, 454 U.S. 417 
(1981), which ruled that because consumer use of home video recording 
equipment for ``time-shifting'' constituted a ``fair use,'' copyright 
law could not be employed to restrict the manufacture, sale or 
importation of consumer electronic devices which had this ``substantial 
noninfringing use.'' Specifically, we have argued that to preserve the 
availability of multi-purpose consumer electronic devices (such as 
VCR's and PC's) it is essential that prohibitions on technology 
contained in any new digital intellectual property legislation should 
be limited to those devices which are specifically designed or marketed 
to defeat owners' efforts at technology self-help. The overbreadth of 
the technology regulations contained in ``digital copyright'' bills 
introduced in the 104th Congress, prior to the conclusion WIPO 
treaties, was a principle basis of DFC's opposition to those proposals.
    It is generally acknowledged that the WIPO Treaties' provisions on 
``Obligations Concerning Technological Measures'' make it necessary for 
contracting states to take steps under national law to discourage and 
penalize trafficking in devices which are intended specifically to 
avoid or override technological protection measures (such as encryption 
and secure passwords) applied by owners of intellectual property to 
safeguard material in digital form against unauthorized duplication and 
distribution. It is also the opinion of many experts that enactment of 
adequate and effective measures against special-purpose ``black boxes'' 
would, in itself, be sufficient to satisfy a contracting nation's 
obligations in this regard. This position is set out more fully in a 
recent letter from 19 law teachers to the Senate Judiciary Committee, 
dated September 2, a copy of which is attached to this testimony.
    Although ground for controversy remains as to whether any new 
legislation is required to bring United States law into compliance with 
the mandates of the treaties in this respect, the DFC does not oppose 
additional legislation tailored to deal with the problem of ``black 
box'' technology (and equivalent services). We continue to be 
concerned, however, that in the name of regulating ``black boxes,'' 
legislation may be enacted which limits the availability of useful 
multi-purpose consumer electronic devices. In this regard, neither the 
House nor the Senate version of the Digital Millennium Copyright Act, 
as the bills to implement the WIPO treaties are known, is ideal. 
Neither, for example, contains a clear definition of what constitutes a 
qualifying ``technological protection measure,'' and neither deals 
adequately with the authority or manufactures, retailers, and ordinary 
consumers to make product adjustments to address ``playability'' 
problems. Having said that, we were heartened that the Senate included 
in its bill a ``no mandate'' provision (however circular in its 
drafting) that seemed to confirm that nothing in S. 2037 could be 
interpreted as a mandate on product manufacturers to design 
telecommunications, consumer electronics, and computing products so as 
to affirmatively respond to or accommodate technological protection 
measures that copyright owners might use to deny access to or the 
copying of their works. The House Commerce Committee made an important 
contribution by eliminating the potential for misinterpretation of the 
``no mandate'' provision of the final House bill, H.R. 2281. This 
provision, which we believe should be preserved in any final 
implementing legislation, has the effect of assuring that, in practice, 
the emphasis in the enforcement of the device-oriented anti-
circumvention provisions will be on true ``black boxes''--just as the 
WIPO treaties require.
Provisions relating to ``fair use'' and other consumer use privileges
    Both the Senate and House bills contain provisions which would 
impose civil and criminal liability on individual information consumers 
who engage in unauthorized ``circumvention'' of technological 
protection measures applied by proprietors to protected material in 
digital formats. As the September 2 law professors' letter demonstrates 
at length, such provisions are not required to implement the WIPO 
treaties, and the DFC believes that, as a matter of information policy, 
the inclusion of such provisions in any legislation at this time would 
be unwise.
    The reasoning behind this conclusion is simple: Because 
prohibitions against ``circumvention'' (although codified in Title 17 
of the U.S. Code) would not be part of the Copyright Act, they would 
not be subject to the various limitations and exceptions to copyright 
which the Act incorporates. Thus, for example, a software vendor could 
use technological protection measures to prevent purchasers from making 
``backup copies'' of its products, and any consumer who nonetheless did 
so could be successfully sued or prosecuted--even though 17 U.S.C. Sec. 
117 specifically authorizes the making of such archival copies as a 
matter of copyright law itself. In the same vein, an electronic 
information vendor who wished to restrict the ability of readers, 
viewers and listeners to comment negatively on its products could use 
technological protection measures backed up with the threat of legal 
sanctions against circumvention to frustrate such criticism, even 
though the copyright doctrine of ``fair use'' authorizes the use of 
quotations from protected works for this purpose. Likewise, providers 
could use technological safeguards to compel consumers--whether home 
users of the Internet or library patrons--to pay again and again in 
order to receive electronic access to the same items of electronic 
information.
    The House and Senate bills incorporate some potentially 
significant, although narrowly drawn, exceptions to their broadly 
worded prohibitions against consumer circumvention. The Senate bill 
permits circumvention for law enforcement uses and certain forms of 
reverse engineering. The House bill also permits circumvention for 
encryption research and for the protection of personal privacy. 
Crucially, however, neither bill includes any provisions that would 
explicitly reach any of the potential abuses cited in the previous 
paragraph, or (to cite another example) that would clearly exempt from 
liability the activities of firms and individuals engaged in crucial 
and otherwise lawful computer security testing.
    In one respect, however, the two bills differ markedly. While the 
``anticircumvention'' provisions of S. 2037 are qualified only by a 
handful of specific exemptions, H.R. 2281 adopts an alternative to the 
Senate version of this so called Sec. 1201 (a)(1) that would authorize 
the Secretary of Commerce to selectively waive the prohibition against 
the act of circumvention to prevent a diminution in the availability to 
individual users of a particular category of copyrighted materials. 
Under the compromise embodied in the House version of the bill, the 
Secretary of Commerce would have authority to address the concerns of 
libraries, educational institutions, and others potentially threatened 
with a denial of access to categories of works in circumstances that 
otherwise would be lawful today.
    The DFC cannot support WIPO implementing legislation that does not 
contain at least this level of protection for the public interest in 
access to protected materials. Nor can we support treaty ratification 
unless implementing legislation incorporates at least these minimum 
safeguards against the establishment a ubiquitous ``pay per use'' 
information regime in the digital environment.
Extraneous provisions in proposed implementing legislation
    To summarize the foregoing, the DFC believes that H.R. 2281, 
incorporating as it does the results of further efforts to harmonize 
conflicting interests which were undertaken after the passage of S. 
2037 in May, offers a preferable blueprint for legislation to fulfill 
the commitments which the United States would undertake upon 
ratification of the new WIPO treaties. As our letter of August 24 
details, however, we have profound concerns about other provisions of 
H.R. 2281, many of them inserted at literally the last minute. None of 
these provisions has been the subject of hearings in the Senate, and 
many were never debated or discussed in the House itself. Moreover, 
some of these provisions are extremely far-reaching; among other 
things, they would effectively overturn three recent opinions of the 
United States Supreme Court: Feist Publications. Inc. v. Rural 
Telephone Service Corp., 499 U.S. 340 (1991); Bonito Boats v. Thunder 
Craft Boats. Inc., 489 U.S. 141 (1989); and Quality King Distributors. 
Inc. v. L'anza Research International, Inc., 118 S.Ct. 1125 (1998). 
Most crucially, all of them are wholly unrelated to the mandates of the 
new WIPO treaties. Instead, they represent an effort to capture the 
WIPO implementation process for the advancement of various specialized 
private agendas in the field of intellectual property law. In the 
interests of space, I will focus here on just two of these sets of 
provisions--Sec. 414 and Title V of H.R. 2281.
Section 414: A mischievous revision of the ``fair use'' provision
    Sec. 414 would strip the language referring to use ``by 
reproduction in copies or phonorecords or by another other means'' out 
of Sec. 107 of the Copyright Act of 1976. But the effect of this 
ostensibly clarifying change could be to gut the protections for 
educators and consumers that were built into the statutory formulation 
of the ``fair use'' doctrine back in 1976, following years of 
deliberation and hard bargaining among the affected parties. The House 
Report (No. 94-1465) accompanying the 1976 Copyright Act states that 
this reference ``is mainly intended to make clear that the doctrine has 
as much application to photocopying or taping as to older forms of use. 
. . . In deleting the referenced phrase, H.R. 2281 would confuse rather 
than clarify the law relating to the scope of this important doctrine. 
As a result, copyright owners would be given new legal tools to use 
against schools engaging in educational photocopying and against both 
individuals who tape broadcast programs for personal use and companies 
which supply hardware for non-commercial home taping.
    This potentially drastic revision to the ``fair use'' doctrine has 
not previously been considered by the Senate. Nor, to our knowledge, 
has it been the subject of any hearings in the House of 
Representatives. It appeared for the first time as part of the final 
version of H.R. 2281 submitted to the House for action on the 
suspension calendar, and even on that occasion no reference was made to 
it in any of the floor statements of the legislation's sponsors.
Title V: Database protection
    As already noted, the December 1996 WIPO Diplomatic Conference 
pointedly declined to act on a third proposed international agreement, 
concerning protection for databases and other compilations of 
information. Thus, I would emphasize again, implementation of the new 
WIPO treaties does not require any action on this difficult issue.
    In this country, proposals for database protection have proved 
highly controversial over the past two years, in part because enacting 
such legislation would ignore the wisdom of the Supreme Court's 1991 
Feist decision, which unanimously concluded that there were compelling 
constitutional and policy reasons not to extend copyright protection to 
facts as such. Some large international database conglomerates, such as 
Canadian-based Thompson Corp. and the Anglo Dutch Reed-Elsivier, Inc., 
favor strong database protection, as do certain smaller firms based in 
the United States. The U.S. science, research, library and educational 
communities are united in opposition to legislation which would create 
a ``quasi-property'' right in compiled information, and they are joined 
by many domestic firms which produce ``value-added'' data products for 
the national and international markets, such as Dun & Bradstreet, 
Bloomberg, and Charles Schwab & Co.
    The DFC does not categorically oppose database protection. Its 
members recognize that predatory commercial competition among database 
proprietors may in fact be a problem of some significance. In that 
case, however, a true federal misappropriation legislation of limited 
scope would presumably be a sufficient cure. However, Title V of H.R. 
2281, which apparently sets forth the views of the House Judiciary 
Committee on how best to provide legal protection against 
misappropriation of collections of information such as databases, is 
too much, too soon. In the misleading guise of a ``misappropriation'' 
provision, Title V would amount, in practice, to a new form of 
intellectual property protection applicable to the previously 
unprotected items of information which make up the contents of the 
``collections of information'' to which it would apply. Though 
nominally limited to 15 years in duration, the new rights which Title V 
would create could be effectively perpetual. Moreover, as drafted, 
Title V includes no effective exceptions for teaching, research or 
study uses, nor does it recognize the public interest in reasonable 
access to sole source databases or private databases compiled using 
government information.
    We note that, to date, the Senate has neither debated nor held 
hearings on the necessity and proper scope of database protection. 
Under the circumstances, we believe that the premature enactment of 
Title V of H.R. 2281 as part of any final WIPO treaty implementation 
legislation would represent a miscarriage of the legislative process. 
Nor is there any clear urgent reason to act now in this difficult and 
conflicted area. Although proponents of database protection cite the 
need to harmonize U.S. law with new European legislation on the 
subject, in order to obtain reciprocal protection for U.S. data 
products in countries of the European Community, this argument ignores 
at least three important factors: First, that the process of 
implementing the 1996 EC Directive on Databases is still incomplete in 
Europe; second, that there is no guarantee that enactment of the Title 
V provisions by the United States would be sufficient to persuade 
European authorities; and third, that their current refusal to protect 
U.S. data products on the basis of ``national treatment'' may well 
constitute a violation of international law. U.S.-European relations 
with regard to databases present an international political issue, 
rather than a legal one. That issue is likely to be resolved only by 
high-level political negotiations, and it should not be the occasion 
for the premature enactment of domestic legislation which may severely 
disadvantage many domestic information consumers and producers.
    The DFC and other critics of H.R. 2652, the House bill on which 
Title V is based, have expressed strong reservations about the 
measure's overbreadth and its potential deleterious effects on science, 
education, and information commerce. The Administration also has 
expressed serious concerns about the breadth and potential impact of 
the bill. In a recent letter, the General Counsel of the Department of 
Commerce said in part:

        Any database misappropriation regime should provide exceptions 
        analogous to ``fair use'' principles of copyright law; in 
        particular, any effects on non-commercial research should be de 
        minimis.
                                 * * *
        The Department of Justice has serious constitutional concerns 
        that the First Amendment restricts Congress's ability to enact 
        legislation such as H.R. 2652, and that the Intellectual 
        Property Clause also may impose some constraints on legislation 
        of this sort. We note that those constitutional concerns are 
        closely related, in many instances, to some of the points 
        described above, particularly fair use, the effects on 
        potential markets and transformative uses of data.

    These concerns are reflected in a July 28, 1998, memorandum 
prepared by the Department of Justice's Office of Legal Counsel, a copy 
of that memorandum is attached to this testimony, follows other critics 
of H.R. 2652 in questioning whether the bill may not create a 
prohibited new form of intellectual property protection. The Congress 
should proceed with special caution in an area so fraught with 
constitutional perils.
Conclusion
    In conclusion, I would urge the members of the Committee to assure 
that the new WIPO treaties are implemented in a manner which accurately 
and completely reflects the new international obligations which the 
United States would undertake upon their ratification. In particular, I 
would urge you to reject the extraneous provisions of H.R. 2281, while 
embracing its approach to core treaty implementation issues. The great 
accomplishment of the 1996 WIPO Diplomatic Conference, attributable in 
no small part to the work of the United States delegation, was the 
articulation of a balanced framework for the introduction of greater 
intellectual property discipline in the networked digital environment 
worldwide. In our efforts at implementation, we should act in a manner 
true to the spirit of those treaties. This is so not as a matter of 
principle, but because the collective interests of all the participants 
in our prodigiously successful national information economy individual 
creators, technology innovators, teachers, students, and consumers, as 
well as companies with investments in information production and 
distribution will be best served thereby.
    Thank you for your attention.

    Senator Hagel. Mr. Byrne, welcome. Mr. Christopher Byrne, 
Director of Intellectual Property at Silicon Graphics. Please 
proceed.

   STATEMENT OF CHRISTOPHER BYRNE, DIRECTOR OF INTELLECTUAL 
 PROPERTY, SILICON GRAPHICS, INC. ON BEHALF OF THE INFORMATION 
                  TECHNOLOGY INDUSTRY COUNCIL

    Mr. Byrne. Thank you. Good morning. It is a privilege to be 
here today.
    I am Christopher Byrne, Director of Intellectual Property 
for Silicon Graphics. As a lawyer, an electrical engineer, and 
a registered patent attorney, it is my job to make sure that 
Silicon Graphic's intellectual property is properly protected. 
I also serve as Chair of the Intellectual Property Committee 
for the Information Technology Industry Council.
    And I am here today on behalf of ITI, which includes the 
nation's leading information technology industry companies, 
everybody from Apple to Xerox and all of the letters in 
between. In the most recent fiscal years the revenues of our 
member companies totaled practically $500 billion. We employ 
over 1 million United States employees in the highest paying 
jobs. And we devote a substantial portion of our revenues to 
R&D.
    I want to emphasize two points today. First of all is ITI's 
belief in the importance of the WIPO treaty, but also the 
importance of a balanced implementation in the United States 
based on wide-angle view of intellectual property.
    The importance of the WIPO treaty is that it is a global 
acknowledgment of the value of intellectual property, and in 
particular that copyright law should apply in the networked 
digital regime. The United States should truly lead the world 
in this effort. However, our leadership should be through a 
balanced wide-angle understanding of the nature and the value 
of innovation and creativity in our economy.
    In the past, our economy was grounded in the value of 
physical assets: land, natural resources, manufacturing plant 
and equipment.
    Today, and even more so tomorrow, the assets of highest 
economic value are those human and intellectual assets: ideas, 
knowledge, information, creativity, and the ability to 
innovate. In a phrase, intellectual capital. Hence, the ability 
to exercise creativity and to innovate is critical. Innovation 
is how ITI member companies breathe. It is essential to our 
health and growth, and ultimately to the health and growth of 
our economy.
    And ITI members are indeed innovative. Our innovations have 
included the solid state transistor, the integrated circuit, 
the microprocessor, the personal computer, the engineering 
workstation, the super computer and digital animation, wired 
and wireless telecommunications technology, consumer 
electronics, and all of the software necessary to run and 
network these devices. Our commitment to innovation is measured 
by our yearly private R&D investments, which average, again, 
approximately 10 percent of our revenues, or nearly $50 billion 
a year.
    Finally, the benefits to our economy of our R&D investments 
are multiplicative, because these innovations result in 
products and technologies which improve the efficiency and the 
productivity of working Americans.
    Indeed, our economy is in large measure driven by ITI 
member companies' ability to continue to innovate and deliver 
higher performance technological goods and services at lower 
prices. But today the price and the pace of R&D and innovation 
has never been higher.
    For this reason, we are ever mindful of obstacles to our 
ability to innovate. Our need to innovate motivated the 
modifications which we advocated in the implementation of the 
WIPO treaty bills.
    At this point we believe the approach is balanced such that 
it will protect intellectual property, thwart digital piracy, 
and preserve and promote our ability to innovate. But we really 
want to emphasize some critical points. First of all, we must 
at all costs maintain the so-called no mandate provision.
    It must be clear that developers and manufacturers of 
legitimate technology should not be bound by law to respond to 
each and every specific technological protection measure which 
may be created to protect copyrighted material. We urge 
adoption of the House version of the no mandate provision.
    Second, we very much urge a clearer definition of an 
effective technological protection measure. If certain devices 
are to be outlawed because of their ability to circumvent an 
effective technological protection measure, then we need clear, 
workable definitions of such measures. Legal analysis and 
statutory construction should not have to be a research and 
development skill. Clearer definition here is a must. Hence, we 
encourage inclusion of language defining an effective 
technological protection measure and drawing distinctions 
between active and passive measures.
    Finally, we urge you to remember that the interests of all 
of the players in this debate are synergistic and symbiotic, 
and ultimately a balanced approach is most sound.
    From our perspective it is historically compelling that the 
birthplace of Silicon Valley, a true center of technological 
innovation, is the garage in Palo Alto, California where Dave 
Packard and Bill Hewlett build their very first product, an 
audio-oscillator which they sold to Walt Disney for the making 
of the movie Fantasia.
    Our interests were symbiotic and synergistic then, and they 
are even more so today. We urge you to strike the balance which 
will preserve and promote this synergy.
    Thank you.
    Senator Hagel. Mr. Byrne, thank you.
    [The prepared statement of Mr. Byrne follows:]

                   Prepared Statement of Chris Byrne

I. Introduction
    My name is Chris Byrne. I am appearing today on behalf of the 
Information Technology Industry Council (``ITI''), for which I serve as 
chair of the Intellectual Property Committee. I am also the Director of 
Intellectual Property for Silicon Graphics, Inc., the world leader in 
high performance and visual computing, based in the heart of Silicon 
Valley. As an electrical engineer and registered patent attorney, I am 
responsible for making sure Silicon Graphics' valuable intellectual 
property is adequately developed and well protected.
    ITI applauds your efforts, Mr. Chairman, in bringing to bear the 
collective expertise of this Committee on the question of whether to 
ratify the WIPO Copyright Treaty and the WIPO Performances and 
Phonograms Treaty. Ratification of these Treaties, as well as balanced 
implementation of their obligations in the U.S. and other countries, 
are crucial steps to ensuring proper protection for intellectual 
property in the digital age. ITI wholeheartedly supports the Treaties' 
ratification and implementation. As producers of our own intellectual 
property, ITI's members believe that strong intellectual property 
protection is an indispensable element of the expansion of electronic 
commerce.
    Thus far, the House and the Senate have each passed legislation to 
implement the WIPO treaties. While the two versions differ slightly and 
must be reconciled before enactment, leaders in both chambers have 
worked hard to write balanced and thoughtful implementing bills. This 
is especially important because the United States is poised to become 
one of the first countries to ratify the new treaties and governments 
around the world will be watching closely to see how our government 
implements its obligations under the Treaties.
    I will make several recommendations today on how to complete the 
important work of implementing these treaties. Most importantly, 
though, I will emphasize the importance of ratifying the treaties and 
enacting the implementing legislation as one of the most important 
tasks of the 105th Congress.
II. Contributions of the Information Technology Industry
    ITI represents this nation's leading providers of information 
technology (``IT'') products and services. In fact, the United States 
IT industry is the key to this nation's technological leadership and a 
primary engine for national economic growth. In 1997, ITI's members had 
worldwide revenues of over $420 billion and employed more than 1.2 
million people in the U.S. Revenues for the broader U.S. IT industry 
exceeded $804 billion, which amounted to 80 percent of the total 
worldwide IT market. ITI member companies are responsible for more than 
16% of all U.S. industrially-funded research and development and over 
50% of all IT research and engineering.
    The IT industry is responsible for some of our economy's most 
valuable inventions, which have improved productivity, efficiency and 
quality of life, such as the solid state transistor, the integrated 
circuit, the personal computer, computer animation, the microprocessor, 
the cellular phone, the compact disc and the digital versatile disc 
(DVD). Through our investments in research and innovation, we drive the 
development of technologies that make the Internet possible and improve 
the quality of life at all levels.
III. The Significance of the WIPO Copyright Treaties
    The WIPO Copyright Treaties underscore the importance and value of 
intellectual property in the new global economy. The fact that more 
than 70 countries signed the Treaties in December 1996 is extremely 
significant as a worldwide recognition of the economic value of 
creativity, innovation and intellectual capital as the essential 
foundations of the digital economy. By taking a leadership role in 
ratifying the Treaties and advocating their adoption by other 
countries, the United States will help the digital revolution reach its 
full potential.
    ITI's primary interest in the Treaties themselves and the 
implementing legislation is in promoting the right balance--inherent in 
all intellectual property law--that will provide the greatest incentive 
for innovation. It is historically compelling that the birth place of 
Silicon Valley in Palo Alto, California is the garage where Dave 
Packard and Bill Hewlett made their first product in 1938: an audio 
oscillator which they sold to Walt Disney to be used in making the 
animated movie Fantasia. This is one of the first of many examples of 
the long symbiotic relationship between the content industries that 
produce movies, sound recordings, software, etc. and the information 
technology industry that builds products to create, deliver and extend 
the capabilities of such content.
    A truly wide-angled perspective on the nature of creativity and 
innovation will recognize the need to preserve the relationship and 
balance between these two industries. One of the major purposes of the 
Treaties is to facilitate the use of technological solutions to address 
digital piracy on the Internet and in other fora.
    Such technological solutions will inevitably involve the 
cooperation of the technology providers themselves--the IT industry. In 
pursuing this new approach, there is a delicate balance to be 
maintained because it is actually possible, in the worst of 
circumstances, to make innovation in one sector difficult through our 
efforts to protect intellectual property in another sector. In other 
words, our good faith efforts to protect movies, recordings and similar 
copyrighted material must not have the unintended effect of actually 
restricting innovation in the IT industry.
    The U.S. Constitution, in Article 1, Section 8, gives Congress the 
power to create intellectual property in the following way:

        To promote the progress of science and useful arts, by securing 
        for limited times to authors and inventors the exclusive right 
        to their respective writings and discoveries;

    Note that the goal of the Framers was to promote progress. As 
technology advances and the assumptions of previous laws must be 
reexamined and adjusted to the exigencies of the digital age, it is not 
always immediately clear which policies will best promote that 
progress. Striking the right balance is particularly important to ITI 
and its members because most of our member companies create both 
``content'' in the form of software and other works of authorship as 
well as the ``hardware'' to deliver that content. In wrestling with 
these complex issues, ITI has developed the following principles that 
we believe should govern any legislation implementing the WIPO 
Copyright Treaties:

  1. Intellectual property should be strongly protected domestically 
        and internationally.
  2. Whenever possible, rely on strong enforcement of existing 
        copyright laws.
  3. Regulate behavior, not technology. Legislation should focus on the 
        intent to infringe, not on the provision of technology that 
        could be used to infringe.
  4. Do not harm the IT innovation engine, which is a key building 
        block for economic growth and provides the tools and 
        infrastructure that makes the GII possible.
  5. Promote, rather than stifle, innovation.
  6. Maintain the proper balance, inherent in the Constitution, between 
        the protection of intellectual property and the promotion of 
        innovation.
  7. View technology as an opportunity, not a threat. Technology not 
        only provides mechanisms for distributing content and 
        generating revenues, it enables creative and effective 
        solutions to protect intellectual property.
  8. Remember, IT companies are content providers as well as technology 
        providers. There are many synergies to be gained from working 
        with content providers to develop mutually beneficial 
        solutions. In fact, there are so many synergies that some 
        companies have both content divisions and IT divisions, a 
        convergence that is likely to grow.

IV. WIPO Implementation in the United States
    For the IT industry, the most important choice the U.S. Congress 
will make with regard to these Treaties is how to implement Article 11 
of the WIPO Copyright Treaty, which states:

        Contracting Parties shall provide adequate legal protection and 
        effective legal remedies against the circumvention of effective 
        technological measures that are used by authors in connection 
        with the exercise of their rights under this Treaty of the 
        Berne Convention and that restrict acts, in respect of their 
        works, which are not authorized by the authors concerned or 
        permitted by law.

    Happily, the vast majority of work towards a balanced 
implementation of Article 11 has already taken place. The House and 
Senate have already passed implementing bills that need only be 
reconciled and resubmitted before sending the bill to the President for 
his approval and both recognize the importance of a balanced 
implementation of Article 11.
    As ITI's principles indicate, our member companies were originally 
opposed to an implementation that restricted, not only the act of 
circumvention, but also products, devices and technologies that could 
be used to circumvent the ``effective technological measures'' referred 
to in Article 11. We believed that designating certain technologies as 
``good'' or ``bad'' was inappropriate because it could stifle 
innovation and unfairly target multi-use computers and other legitimate 
products that were never designed to aid infringement. Additionally, 
such an approach would resonate around the world as other governments 
looked to the U.S. for guidance in implementing Article 11.
    As these bills have moved through Congress, however, this 
association agreed to significant compromises to accommodate the 
concerns of the copyright industries. Our current position is not to 
oppose the technology-based implementation of Article 11, but to 
identify the essential elements to a balanced implementation if the 
legislation must focus on technology. Specifically, we believe the anti 
circumvention provisions of the Digital Millennium Copyright Act must 
contain the following elements:
1. The ``no mandate'' provision
    The ``no mandate'' has already been included in H.R. 2281 and S. 
2037 to modify the ``anti-circumvention'' provisions and make clear 
that manufacturers of legitimate information technology and consumer 
electronics devices will not be bound by law to respond to each and 
every specific technological protection measure created to protect 
copyrighted materials.
    This provision is significant because the managers of ITI's member 
companies are loathe to tell their engineers and scientists that, 
rather than seeking to build the fastest, most powerful and consumer-
responsive products possible, they must instead design the next 
generation of products with lawyers at their side, carefully responding 
to burdensome technological measures from a myriad of content industry 
niches. Such an environment would draw energy away from true innovation 
and create the continual possibility of liability for failure to 
respond to unknown technological protection measures.
    ITI specifically urges the conference committee on the implementing 
legislation to adopt the House version of the ``no mandate'' provision, 
which we believe states the Congressional intention clearly without 
prejudicing the interests of movie studios, recording companies or 
other copyright industries.
2. Definition of ``effective technological protection measures''
    If certain devices are to be outlawed because of their capability 
to circumvent ``effective'' technological protection measures, it is 
only fair to define ``effective'' measures by specifying that they must 
be strong, ``active'' measures, such as encryption or scrambling, which 
obscure the content itself. If ``passive'' technological protection 
measures, such as ``don't copy'' messages, were covered, IT products 
would then have to look for these messages, in all their various 
permutations, in every file or program. The IT industry has determined 
that it is extremely difficult from an engineering and technology 
standpoint to implement these types of ``passive response'' schemes in 
personal computers without significant performance degradation. These 
systems are also simple for users to bypass.
    Implementing legislation that did not draw a clear distinction 
between ``effective'' technological protection measures and all others 
would leave us with a Hobbesian choice of producing slow, ``legal'' 
computers or fast, ``illegal'' computers. For this reason, ITI urges 
the conference committee to include language in its report that 
explains the term ``effective technological protection measures'' and 
draws the distinction between ``active'' and ``passive'' measures.
3. Computer Security
    There is some danger that, as the implementing legislation is 
currently drafted, traditional computer security measures, such as 
``firewalls'' or password protection, could be construed to be 
technological protection measures under the bill's anti-circumvention 
provisions. If this happened, the potential liability could chill 
legitimate computer security testing and the security of all computer 
systems would ultimately suffer. For this reason, ITI supports a 
clarification in the conference committee report that says the anti-
circumvention provisions of the Treaties and implementing legislation 
do not apply to traditional computer security measures.
4. Technological protection measure terminology
    The House and Senate versions currently differ in the term they use 
to refer to technological means used by copyright owners to protect 
their material. The Senate version refers to ``technological protection 
measures,'' while the House version refers to ``technological 
measures.'' Between these two, ITI believes the Senate term provides 
more clarification and guidance to a court that must apply the 
legislation to a specific set of facts. In reconciling the House and 
Senate versions, we would urge Congress to adopt the Senate version.
V. Conclusion
    ITI strongly supports ratification of the WIPO Copyright Treaty and 
the WIPO Performances and Phonograms Treaty as well as swift enactment 
of the Digital Millennium Copyright Act to implement this country's 
obligations under the treaties. We urge the Foreign Relations Committee 
to recommend prompt ratification by the full Senate. We also urge the 
leaders of both chambers and the members of the conference committee, 
should one be appointed, to quickly adopt a balanced implementing bill. 
By updating intellectual property law around the world for the digital 
revolution, the WIPO Copyright Treaties will lay a strong foundation 
for electronic commerce and ultimately improve the economies of this 
nation and the world. Thank you for considering our views on this 
important issue.

    Senator Hagel. Let me now introduce the senior Senator from 
Maryland, our colleague Senator Sarbanes. Welcome.
    Senator Sarbanes. Well, thank you very much, Mr. Chairman. 
Unfortunately, I am confronted with the usual conflicts and I 
am not going to be able to stay.
    But, first of all, I want to commend you for holding this 
hearing. I think this is a very important issue. And I want to 
thank the panel for their testimony. I will just make a couple 
of observations.
    First of all, this effort to strike a proper balance 
between the rights of the creative artists, the authors, and 
the performers, without whom there would be no products--I 
mean, they are, as it were, the originators of it all. And, 
obviously, their efforts need to be protected and rewarded.
    And at the same time to make it possible for libraries and 
schools and other similar institutions to make appropriate use 
of this without being, in effect, hamstrung or undergoing an 
impossible financial burden. It is always a difficult question 
on these issues.
    Obviously, there are some important matters to work through 
here. I am a little puzzled that since everyone supports the 
treaties--as I understand it, both the holders and the users of 
copyrights are in support of the treaties. So the treaties have 
obviously struck what people are prepared to accept as an 
appropriate balance, weighing all of these interests.
    I have a little difficulty in understanding then why were 
are not able to develop implementing legislation for the 
treaties on which everyone agrees that are within the 
parameters of the treaties rather than apparently going outside 
those parameters.
    If there was not agreement on the treaties, it would be a 
more complicated problem. But since apparently there is 
agreement on the treaties--everyone says Well, the treaties are 
OK. We ought to approve and ratify the treaties. So, obviously, 
that negotiating process arrived at a package that people 
perceive as acceptable.
    Now, just as a matter of deduction, so to speak, if we keep 
the implementing legislation within the parameters of the 
treaties, we ought to be able to have implementing legislation 
which everyone says, Well, yes, that implements the treaties 
and, therefore, since we are for the treaties, we are for the 
implementing legislation.
    Now, apparently we do not find ourselves in that situation. 
It seems to me that is the challenge that we have to address. 
And I gather--I have not had a chance to look carefully at the 
House revisions, but I gather some of them wander--I mean, are 
not even essentially on the same playing field or, if so, only 
remotely related.
    So I think this is an important hearing. And I do not know 
what the time constraints are on us on whether we are going to 
be able to work through it. But I think if we come at it that 
way, we might be able to reach a solution that is generally 
acceptable.
    Thank you, Mr. Chairman.
    Senator Hagel. Senator Sarbanes, thank you.
    Why do we not do this, since I think you have touched on 
some of the key issues here, I might, Senator Feinstein, if it 
is all right, just roll on down to you. Because you were 
involved, I suspect, in some of these issues on the Judiciary 
Committee and might well wrap some of this together.
    Because I think you are right, Paul, and I said before you 
go there that the Chairman, Chairman Helms, would like to move 
on this, but he does not want to get this out ahead of the 
implementing legislation. So without implementing legislation I 
do not think we will be able to move on this. That is what I 
think the Chairman's baseline is here.
    Thank you. Senator.
    Senator Feinstein. Thank you very much, Mr. Chairman.
    As I indicated in my opening comments, with respect to the 
implementing legislation, I had thought some of these problems 
had been worked out. As the Professor testified, I gather the 
problems center around the fair use and the data base 
protection acts inclusion in the implementing legislation.
    I just received a copy of a letter sent to Chairman Hatch, 
with a copy to ranking member Leahy, dated today, which 
contains the signatures of 38 corporations and organizations 
which are the consumers and producers of data bases.
    And, essentially, what they say is--and the problem is with 
the implementing legislation. I would be hopeful that the 
treaty could go ahead and that we could solve some of these 
remaining problems.
    They point out that the concern is the inclusion of the 
data base protection legislation as Title Five of the Digital 
Millennium Copyright Act. And they also say that--I had thought 
that there had been some consensus reached in the discussions 
which were really lead by Senator Hatchs staff and took some 35 
hours.
    They say there was no consensus and that they are 
essentially far apart. Some of the parties are present in the 
audience that I had convened in Los Angeles between the 
American Library Association and the universities and the phone 
companies. But, essentially, what they are urging Chairman 
Hatch to do is eliminate any new form of data base protection 
and defer Judiciary Committee consideration of S-2291 or data 
base protection until the 106th Congress, to request a GAO 
assessment of the economic impact of 2291, and to schedule at 
least one Judiciary Committee hearing on this issue prior to 
marking up any data base protection legislation until next 
year.
    Let me just begin by asking the Professor, and perhaps Mr. 
Byrne, do you see, if that were to be sort of the modus 
operandi, any objection to proceeding with ratification of the 
treaty right now in this session?
    Mr. Jaszi. With respect to data base, I think that 
deferring consideration of that very difficult and highly 
contested issue to the next Congress when it could be given a 
full hearing would be an optimal solution.
    As I testified earlier, the Digital Future Coalition has 
other concerns with the implementing legislation. There are 
additional extraneous provisions in the House legislation 
beyond the data base provisions, which we describe at somewhat 
greater length in a letter that was sent a few weeks ago to all 
members of the Senate and a copy of which is attached to my 
statement.
    But, as you yourself pointed out, we also have deep 
concerns about the failure of the Senate version of the 
implementing legislation to deal adequately with the 
preservation of balance and the maintenance of a strong and 
vital fair use doctrine.
    We believe that modifications need to be made in Section 
1201(a)(1), which deals with individual circumvention conduct, 
and that, in addition, the approach of the House-passed HR-2281 
to the regulation of devices capable of being employed for 
circumvention purposes represents a desirable approach, in the 
regard especially that Chris pointed out, that is contains an 
absolutely unambiguous version of the so-called no mandate 
provision.
    Senator Feinstein. Mr. Byrne, do you want to add to that, 
or do you agree?
    Mr. Byrne. Well----
    Senator Feinstein. And do you think we could ratify this 
treaty and then deal with the implementing legislation 
separately?
    Mr. Byrne. I can give you the ITI position on that, and 
that is--I would like to qualify it a little bit. And I think 
if ITI had to have a sign of the zodiac, it would probably be 
Libra.
    And the reason for that is because the nature of our 
membership is such that we are very sympathetic to the issues 
of all the parties at the table. And to address in some 
respects the concerns of the previous gentleman who was 
questioning why, if we all agree to the treaty as a good thing, 
are we having problems implementing it. And I think it just has 
to do with the altitude at which the treaty was written versus 
the altitude at which we are going to have to implement this 
thing.
    And ITI's concerned with the approach has been, 
fundamentally, that we are going at this as if technology was a 
problem, technology was a threat to our intellectual property. 
And what we would like to believe is that technology is in fact 
probably neutral, and ultimately a very positive opportunity.
    But at the same time, we are very cognizant of the value of 
intellectual property and we support protecting it. So, at this 
time, we are very much in favor of ratification of the treaty.
    And we understand how complicated it is to implement this 
thing. But given all of the work that has gone into it and the 
balance that we have been able to achieve to-date, I think ITI 
would be remorseful if we could not make progress in moving 
forward.
    Senator Feinstein. Thank you. Mr. Neel, do you have a 
comment on this point?
    Mr. Neel. Well, two points, Senator. One, the ad hoc 
Copyright Coalition, which includes all the carriers, the 
telephone companies, the long distance and local companies, the 
Internet service providers, on-line and so on, we would 
strongly object to the decoupling of the implementation 
legislation and the treaty. That would represent a disaster for 
the evolution of the Internet economy.
    I will also point out that the companies----
    Senator Feinstein. Could you clarify that? When you use the 
word decoupling----
    Mr. Neel. Title One and Title Two.
    Senator Feinstein.--are you saying you do not want us to 
ratify the treaty now?
    Mr. Neel. Without enacting Title Two, which is the 
implementing legislation that deals with service provider 
liability issues which are absolutely critical.
    Of course, we want the treaty ratified. But it must be 
connected to Title Two of this legislation. It is absolutely 
critical. It is a very important issue. The Chairman spoke of 
this in his opening statement. And I think it is exactly the 
right way to go.
    The objection to the data base provision that you have 
referred to and has been discussed here is Title Five----
    Senator Feinstein. Right.
    Mr. Neel:--that you are dealing with. Most of the companies 
that expressed their opposition to Title Five have no objection 
to Title Two and, in fact, support Title Two, and support the 
linkage of the two. I would not want to speak for everyone 
personally.
    But that is our point in this. We have no dog in that fight 
on data base in Title Five. But we would strongly encourage the 
linkage of Title One and Title Two and would fight with every 
tool we have to decouple Title One and Title Two, because they 
ultimately could take down the entire process.
    Senator Feinstein. You know, we might want to consider--I 
wrote a letter to Chairman Hatch earlier urging that we have a 
hearing on the data base and Title Five effort. That hearing 
did not take place, as has been pointed out.
    I would really think we should go ahead with the treaty if 
there is a way of separating out from the implementing 
legislation Title Five, having the hearing, doing it in the 
next session, and moving ahead with the other titles in this 
session. Perhaps we should consider that. If I could just ask 
you to reflect on that suggestion, as to what you think about 
it, I would appreciate it.
    Mr. Neel. Senator, not to be presumptuous, the others have 
a bigger stake in that. But you are suggesting taking out Title 
Five. That is a part of the implementing legislation. Is that 
right?
    Senator Feinstein. Well, if we just delay it until we can 
have the hearing----
    Mr. Neel. Title Five.
    Senator Feinstein.--and make any necessary refinements, 
because there has not been a hearing.
    Mr. Valenti. Mr. Chairman, may I just say something? This 
is not the forum to debate the implementing legislation. It is 
horrifyingly complex. I cannot tell you of the hundreds of 
hours that I and my colleagues, Roy and others, have been 
involved in negotiating with various groups. It is an enigma 
wrapped in a mystery inside a phantom. And there is no way you 
can deal with it in this forum.
    Senator Feinstein says let us simplify this. The treaty 
ought to be ratified now. Why? Because we are the largest 
beneficiary. If we do not ratify, why on earth should any other 
country in the world ratify? We are the legatee of all of its 
benefits. We dominate the world. And if we are pussyfooting 
around on ratifying this treaty, that sends the wrong signal 
around the world.
    But the entrails of the treaty do not go into effect until 
implementing legislation takes place. Let us not complicate 
this thing, Mr. Chairman. I do not want to get involved with 
any of the things with some of my compatriots at this table, 
because this is not the forum.
    There is no way that this committee is going to understand 
all of the squiggly little things that go into make up the 
body, a final compromise that has been made. The Judiciary 
Committee has the expertise in both Houses to do this. A 
conference is now being assembled. They are going to work this 
thing out.
    If data base is held over--as Roy says, I do not have a dog 
in that fight either. If it is held over, the world will not 
come to an end. But what is singularly important, Mr. Chairman, 
please do not delay the ratification of this treaty. It is 
sending the wrong message to the world.
    Senator Feinstein. I think Jack is right. This is not the 
place to do it. And it is very difficult. And I saw that 
firsthand in trying to reconcile some of these interests. I do 
not know whether it can be done in conference or not, Mr. 
Chairman.
    But I strongly feel that Mr. Valenti is correct, that we 
have to move ahead and ratify this treaty. And I certainly 
offer, you know, to work and try to reconcile the concerns with 
the hope that it can be done in conference. If not, I think the 
way I suggested earlier, moving with some of the implementing 
legislation and not the whole thing right now might be the way.
    Mr. Valenti. If I may say one thing.
    Senator Hagel. Mr. Valenti.
    Mr. Valenti. I think process and procedure is sacred in the 
Congress. You cannot function any other way. Procedure says the 
Judiciary Committees have supremacy in this matter. In the 
House, the Commerce Committee took a sequential referral on 
this.
    It has been debated. It has been examined. It has been 
prayed over. And we have even had witch doctors called in to 
tell us which way to pray on that particular day.
    But the Judiciary Committees have the authority and the 
mandate from the Congress to work this out. This is their turf. 
And let the process and the procedure work its way. What this 
committee can do, and I pray Mr. Chairman, ought to do, is 
ratify this treaty.
    The ratification does not do anything except we accept the 
premises of the treaty. Now it is the duty of the Congress, 
through their Judiciary Committees, to work out how that treaty 
can be inserted into U.S. Law. There is a marvelous simplicity 
about that. And it ought to be followed.
    But, again, I urge you, please do not delay the 
ratification of this treaty, else it halts the whole advance 
forward of world ratification of this treaty.
    Mr. Jaszi. Mr. Chairman, if I may.
    Senator Hagel. Professor Jaszi.
    Mr. Jaszi. In Geneva, in December 1996, it was possible for 
the nations of the world to arrive at the remarkable consensus 
that they achieved and to which Senator Sarbanes referred 
earlier precisely because the mandates of the treaty are 
general and permissive in nature, and because the treaties 
clearly incorporate and recognize, as I mentioned in my 
statement earlier, the principle of balance.
    I think for that reason that we need to recognize that 
there is real domestic dispute about the meaning of those 
treaty mandates as they will be localized in U.S. Law, a 
dispute that has to some extent been reflected in the testimony 
today.
    I think, for that reason, that it is essential to maintain 
a linkage between ratification and implementation. Because if 
we ratify before we implement these treaties, we will do so, in 
effect, without any knowledge of what that ratification means 
for domestic information producers, and especially domestic 
information consumers.
    The treaties look forward to ratification, and I think this 
committee has a serious and important role to play in assuring 
that the implementing legislation is undertaken in a way that 
is consistent with the spirit of those treaties.
    Senator Hagel. Mr. Byrne, did you have an additional 
comment?
    Mr. Byrne. I think we just wanted to reiterate that I think 
the opportunity and the mandate for U.S. Leadership here is 
very evident. And we would like to think that that leadership 
will manifest itself both in terms of ratification and in 
balanced implementation ideally.
    Senator Hagel. Mr. Neel.
    Mr. Neel. The only thing I can say is the obvious, to 
reaffirm what you said in your opening statement, that Title 
One and Title Two must be linked. We must pass them both. There 
is total agreement on Title Two. There appears to be virtually 
total agreement on Title One, which is the ratification of the 
treaty. It is critical.
    If we do not get it done this year, in the last days of 
this Congress, it is hard to imagine when we can get this done 
next year.
    Senator Hagel. Well, we have an amazing consensus here, do 
you think, Senator?
    Senator Feinstein. Yes.
    Senator Hagel. In fact, we were just speaking briefly. 
Senator Feinstein has, as you have heard, had the unique 
perspective of coming at this both from a member of the 
Judiciary Committee as well as a member of this committee.
    I think until we have a chance to discuss this with 
Chairman Helms and Senator Biden and other members of the 
committee, which we will do--and, obviously, what we have heard 
this morning has added an important dimension to this.
    We understand the timeliness. We understand the 
complications. I think the point has been made rather clearly, 
as Senator Feinstein said, that this is a complicated process. 
Jack Valenti said it well. If you start to unravel this, we may 
never find the end of the string here. And, certainly, this 
committee is not in a position to do this, nor this forum.
    Let me suggest this. As I stated, we will take back to our 
ranking members, Senator Biden and Chairman Helms, the 
information that has been offered today, the concerns that you 
have, which are real. And I think it is in the best interest of 
our country, as expressed by each of you and by the Senators 
here today, that we get this done. But we have to do it the 
right way, obviously, and protect the interests of everyone 
here in our country first.
    Senator Feinstein, do you have any final comments on this? 
I do not know if there is any point really in going through the 
mechanism of some of the more general questions. I think we 
have really hit on the real issue here as to what has to happen 
in order to move forward.
    Are there any last comments? Jack, would you like to offer 
anything, or Roy, or anybody else?
    Mr. Valenti. No. I hope I have made clear what my position 
is.
    Senator Hagel. Rather plainly, Jack. It is that Texas 
directive. Thank you.
    Mr. Neel, is there anything else? Professor?
    Mr. Jaszi. Only to say, as I omitted to before, that the 
Digital Future Coalition is strongly in support of the Title 
Two OSP provisions and feels, as does Mr. Neel and his 
organization, that it is extremely important that those 
provisions be incorporated in any implementing legislation.
    Senator Hagel. Mr. Byrne.
    Mr. Byrne. It is just a privilege to be here, and we 
appreciate your help.
    Senator Hagel. Well, thank you all for your contributions. 
They have been important. And we will work mightily to get this 
done. Thank you.
    [Whereupon, at 11:25 a.m., the hearing was adjourned.]

                                
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