[House Report 108-700]
[From the U.S. Government Publishing Office]



108th Congress                                                   Report
                        HOUSE OF REPRESENTATIVES
 2d Session                                                     108-700

======================================================================
 
              PIRACY DETERRENCE AND EDUCATION ACT OF 2004

                                _______
                                

 September 24, 2004.--Committed to the Committee of the Whole House on 
            the State of the Union and ordered to be printed

                                _______
                                

 Mr. Sensenbrenner, from the Committee on the Judiciary, submitted the 
                               following

                              R E P O R T

                             together with

                             MINORITY VIEWS

                        [To accompany H.R. 4077]

      [Including cost estimate of the Congressional Budget Office]

  The Committee on the Judiciary, to whom was referred the bill 
(H.R. 4077) to enhance criminal enforcement of the copyright 
laws, to educate the public about the application of copyright 
law to the Internet, and for other purposes, having considered 
the same, reports favorably thereon with an amendment and 
recommends that the bill as amended do pass.

                                CONTENTS

                                                                   Page
The Amendment....................................................     2
Purpose and Summary..............................................     7
Background and Need for the Legislation..........................     8
Hearings.........................................................    19
Committee Consideration..........................................    19
Vote of the Committee............................................    20
Committee Oversight Findings.....................................    20
New Budget Authority and Tax Expenditures........................    20
Congressional Budget Office Cost Estimate........................    20
Performance Goals and Objectives.................................    23
Constitutional Authority Statement...............................    23
Section-by-Section Analysis and Discussion.......................    23
Changes in Existing Law Made by the Bill, as Reported............    26
Markup Transcript................................................    32
Minority Views...................................................   109

                             The Amendment

    The amendment is as follows:
    Strike all after the enacting clause and insert the 
following:

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Piracy Deterrence and Education Act 
of 2004''.

SEC. 2. FINDINGS.

    The Congress finds as follows:
            (1) The Internet, while changing the way our society 
        communicates, has also changed the nature of many crimes, 
        including the theft of intellectual property.
            (2) Trafficking in infringing copyrighted works through 
        increasingly sophisticated electronic means, including peer-to-
        peer file trading networks, Internet chat rooms, and news 
        groups, threatens lost jobs, lost income for creators, lower 
        tax revenue, and higher prices for honest purchasers.
            (3) The most popular peer-to-peer file trading software 
        programs have been downloaded by computer users over 
        200,000,000 times. At any one time there are over 3,000,000 
        users simultaneously using just one of these services. Each 
        month, on average, over 2,300,000,000 digital-media files are 
        transferred among users of peer-to-peer systems.
            (4) Many computer users simply believe that they will not 
        be caught or prosecuted for their conduct.
            (5) The security and privacy threats posed by certain peer-
        to-peer networks extend beyond users inadvertently enabling a 
        hacker to access files. Millions of copies of one of the most 
        popular peer-to-peer networks contain software that could allow 
        an independent company to take over portions of users' 
        computers and Internet connections and has the capacity to keep 
        track of users' online habits.
            (6) In light of these considerations, Federal law 
        enforcement agencies should actively pursue criminals who steal 
        the copyrighted works of others, and prevent such activity 
        through enforcement and awareness. The public should be 
        educated about the security and privacy risks associated with 
        being connected to certain peer-to-peer networks.

SEC. 3. VOLUNTARY PROGRAM OF DEPARTMENT OF JUSTICE.

    (a) Voluntary Program.--The Attorney General is authorized to 
establish a program under which the Department of Justice, in cases 
where persons who are subscribers of Internet service providers appear 
to be engaging in copyright infringing conduct in the course of using 
that Internet service, would send to the Internet Service providers 
notices that warn such persons of the penalties for such copyright 
infringement. The Internet service providers may forward the notices to 
such persons.
    (b) Limitations on Program.--
            (1) Extent and length of program.--The program under 
        subsection (a) shall terminate at the end of the 18-month 
        period beginning on the date of the enactment of this Act and 
        shall be limited to not more than 10,000 notices.
            (2) Privacy protections.--No Internet service provider that 
        receives a notice from the Department of Justice under 
        subsection (a) may disclose to the Department any identifying 
        information about the subscriber that is the subject of the 
        notice except pursuant to court order or other applicable legal 
        process that requires such disclosure.
    (c) Reimbursement of Internet Service Providers.--The Department of 
Justice shall reimburse Internet Service providers for all reasonable 
costs incurred by such service providers in forwarding notices under 
subsection (a).
    (d) Reports to Congress.--The Attorney General shall submit to the 
Congress a report on the program established under subsection (a) both 
at the time the program is initiated and at the conclusion of the 
program.

SEC. 4. DESIGNATION AND TRAINING OF AGENTS IN COMPUTER HACKING AND 
                    INTELLECTUAL PROPERTY UNITS.

    (a) Designation of Agents in CHIPs Units.--The Attorney General 
shall ensure that any unit in the Department of Justice responsible for 
investigating computer hacking or responsible for investigating 
intellectual property crimes is assigned at least one agent to support 
such unit for the purpose of investigating crimes relating to the theft 
of intellectual property.
    (b) Training.--The Attorney General shall ensure that each agent 
assigned under subsection (a) has received training in the 
investigation and enforcement of intellectual property crimes.

SEC. 5. EDUCATION PROGRAM.

    (a) Establishment.--There shall be established within the Office of 
the Associate Attorney General of the United States an Internet Use 
Education Program.
    (b) Purpose.--The purpose of the Internet Use Education Program 
shall be to--
            (1) educate the general public concerning the value of 
        copyrighted works and the effects of the theft of such works on 
        those who create them; and
            (2) educate the general public concerning the privacy, 
        security, and other risks of using the Internet to obtain 
        illegal copies of copyrighted works.
    (c) Sector Specific Materials.--The Internet Use Educational 
Program shall, to the extent appropriate, develop materials appropriate 
to Internet users in different sectors of the general public where 
criminal copyright infringement is a concern. The Attorney General 
shall consult with appropriate interested parties in developing such 
sector-specific materials.
    (d) Consultations.--The Attorney General shall consult with the 
Register of Copyrights and the Secretary of Commerce in developing the 
Internet Use Education Program under this section.
    (e) Prohibition on Use of Certain Funds.--The program created under 
this section shall not use funds or resources of the Department of 
Justice allocated for criminal investigation or prosecution.
    (f) Additional Prohibition on the Use of Funds.--The program 
created under this section shall not use any funds or resources of the 
Department of Justice allocated for the Civil Rights Division of the 
Department, including any funds allocated for the enforcement of civil 
rights or the Voting Rights Act of 1965.

SEC. 6. ACTIONS BY THE GOVERNMENT OF THE UNITED STATES.

    Section 411(a) of title 17, United States Code, is amended in the 
first sentence by striking ``Except for'' and inserting ``Except for an 
action brought by the Government of the United States or by any agency 
or instrumentality thereof, or'' .

SEC. 7. AUTHORIZED APPROPRIATIONS.

    There are authorized to be appropriated to the Department of 
Justice for fiscal year 2005 not less than $15,000,000 for the 
investigation and prosecution of violations of title 17, United States 
Code.

SEC. 8. CRIMINAL PENALTIES FOR UNAUTHORIZED RECORDING OF MOTION 
                    PICTURES IN A MOTION PICTURE EXHIBITION FACILITY.

    (a) In General.--Chapter 113 of title 18, United States Code, is 
amended by adding after section 2319A the following new section:

``Sec. 2319B. Unauthorized recording of motion pictures in a motion 
                    picture exhibition facility

    ``(a) Offense.--Any person who, without the authorization of the 
copyright owner, knowingly uses or attempts to use an audiovisual 
recording device to transmit or make a copy of a motion picture or 
other audiovisual work protected under title 17, or any part thereof, 
from a performance of such work in a motion picture exhibition 
facility, shall--
            ``(1) be imprisoned for not more than 3 years, fined under 
        this title, or both; or
            ``(2) if the offense is a second or subsequent offense, be 
        imprisoned for no more than 6 years, fined under this title, or 
        both.
The possession by a person of an audiovisual recording device in a 
motion picture exhibition facility may be considered as evidence in any 
proceeding to determine whether that person committed an offense under 
this subsection, but shall not, by itself, be sufficient to support a 
conviction of that person for such offense.
    ``(b) Forfeiture and Destruction.--When a person is convicted of an 
offense under subsection (a), the court in its judgment of conviction 
shall, in addition to any penalty provided, order the forfeiture and 
destruction or other disposition of all unauthorized copies of motion 
pictures or other audiovisual works protected under title 17, or parts 
thereof, and any audiovisual recording devices or other equipment used 
in connection with the offense.
    ``(c) Authorized Activities.--This section does not prevent any 
lawfully authorized investigative, protective, or intelligence activity 
by an officer, agent, or employee of the United States, a State, or a 
political subdivision of a State, or by a person acting under a 
contract with the United States, a State, or a political subdivision of 
a State.
    ``(d) Immunity for Theaters and Authorized Persons.--With 
reasonable cause, the owner or lessee of a motion picture facility 
where a motion picture is being exhibited, the authorized agent or 
employee of such owner or lessee, the licensor of the motion picture 
being exhibited, or the agent or employee of such licensor--
            ``(1) may detain, in a reasonable manner and for a 
        reasonable time, any person suspected of committing an offense 
        under this section for the purpose of questioning that person 
        or summoning a law enforcement officer; and
            ``(2) shall not be held liable in any civil or criminal 
        action by reason of a detention under paragraph (1).
    ``(e) Victim Impact Statement.--
            ``(1) In general.--During the preparation of the 
        presentence report under rule 32(c) of the Federal Rules of 
        Criminal Procedure, victims of an offense under this section 
        shall be permitted to submit to the probation officer a victim 
        impact statement that identifies the victim of the offense and 
        the extent and scope of the injury and loss suffered by the 
        victim, including the estimated economic impact of the offense 
        on that victim.
            ``(2) Contents.--A victim impact statement submitted under 
        this subsection shall include--
                    ``(A) producers and sellers of legitimate works 
                affected by conduct involved in the offense;
                    ``(B) holders of intellectual property rights in 
                the works described in subparagraph (A); and
                    ``(C) the legal representatives of such producers, 
                sellers, and holders.
    ``(f) Definitions.--In this section:
            ``(1) Audiovisual work, copy, etc.--The terms `audiovisual 
        work', `copy', `copyright owner', `motion picture', and 
        `transmit' have, respectively, the meanings given those terms 
        in section 101 of title 17.
            ``(2) Audiovisual recording device.--The term `audiovisual 
        recording device' means a digital or analog photographic or 
        video camera, or any other technology or device capable of 
        enabling the recording or transmission of a copyrighted motion 
        picture or other audiovisual work, or any part thereof, 
        regardless of whether audiovisual recording is the sole or 
        primary purpose of the device.
            ``(3) Motion picture exhibition facility.--The term `motion 
        picture exhibition facility' means a movie theater, screening 
        room, or other venue that is being used primarily for the 
        exhibition of a copyrighted motion picture, if such exhibition 
        is open to the public or is made to an assembled group of 
        viewers outside of a normal circle of a family and its social 
        acquaintances.
    ``(g) State Law not Preempted.--Nothing in this section may be 
construed to annul or limit any rights or remedies under the laws of 
any State.''.
    (b) Clerical Amendment.--The table of sections at the beginning of 
chapter 113 of title 18, United States Code, is amended by inserting 
after the item relating to section 2319A the following:

``2319B. Unauthorized recording of motion pictures in a motion picture 
exhibition facility.''.

SEC. 9. SENSE OF THE CONGRESS ON NEED TO TAKE STEPS TO PREVENT ILLEGAL 
                    ACTIVITY ON PEER-TO-PEER SERVICES.

    (a) Findings.--The Congress finds as follows:
            (1) The most popular publicly accessible peer-to-peer file 
        sharing software programs combined have been downloaded 
        worldwide over 600,000,000 times.
            (2) The vast majority of software products, including peer-
        to-peer technology, do not pose an inherent risk. Responsible 
        persons making software products should be encouraged and 
        commended for the due diligence and reasonable care they take 
        including by providing instructions, relevant information in 
        the documentation, disseminating patches, updates, and other 
        appropriate modifications to the software.
            (3) Massive volumes of illegal activity, including the 
        distribution of child pornography, viruses, and confidential 
        personal information, and copyright infringement occur on 
        publicly accessible peer-to-peer file sharing services every 
        day. Some publicly accessible peer-to-peer file sharing 
        services expose consumers, particularly children, to serious 
        risks, including legal liability, loss of privacy, threats to 
        computer security, and exposure to illegal and inappropriate 
        material.
            (4) Several studies and reports demonstrate that 
        pornography, including child pornography, is prevalent on 
        publicly available peer-to-peer file sharing services, and 
        children are regularly exposed to pornography when using such 
        peer-to-peer file sharing services.
            (5) The full potential of peer-to-peer technology to 
        benefit consumers has yet to be realized and will not be 
        achieved until these problems are adequately addressed.
            (6) To date, the businesses that run publicly accessible 
        file-sharing services have refused or failed to voluntarily and 
        sufficiently address these problems.
            (7) Many users of publicly available peer-to-peer file-
        sharing services are drawn to these systems by the lure of 
        obtaining ``free'' music and movies.
            (8) While some users use parental controls to protect 
        children from pornography available on the Internet and search 
        engines, not all such controls work on publicly accessible 
        peer-to-peer networks.
            (9) Businesses that run publicly accessible peer-to-peer 
        file sharing services have openly acknowledged, and numerous 
        studies and reports have established, that these services 
        facilitate and profit from massive amounts of copyright 
        infringement, causing enormous damage to the economic well-
        being of the copyright industries whose works are being 
        illegally ``shared'' and downloaded.
            (10) The legitimate digital music marketplace offers 
        consumers a wide and growing array of choices for obtaining 
        music legally, without exposure to the risks posed by publicly 
        accessible peer-to-peer file sharing services.
            (11) The Federal Trade Commission issued a Consumer Alert 
        in July of 2003 warning consumers that some file-sharing 
        services contain damaging viruses and worms and, without the 
        computer user's knowledge or consent, install spyware to 
        monitor a user's browsing habits and send data to third parties 
        or automatically open network connections.
            (12) Publicly available peer-to-peer file-sharing services 
        can and should adopt reasonable business practices and use 
        technology in the marketplace to address the existing risks 
        posed to consumers by their services and facilitate the 
        legitimate use of peer-to-peer file sharing technology and 
        software.
    (b) Sense of Congress.--It is the sense of the Congress that--
            (1) responsible software developers should be commended, 
        recognized, and encouraged for their efforts to protect 
        consumers;
            (2) currently the level of ongoing and persistent illegal 
        and dangerous activity on publicly accessible peer-to-peer file 
        sharing services is harmful to consumers, minors, and the 
        economy; and
            (3) therefore, the Congress and the executive branch should 
        consider all appropriate measures to protect consumers and 
        children, and prevent such illegal activity.

SEC. 10. ENHANCEMENT OF CRIMINAL COPYRIGHT INFRINGEMENT.

    (a) Criminal Infringement.--Section 506 of title 17, United States 
Code, is amended--
            (1) by amending subsection (a) to read as follows:
    ``(a) Criminal Infringement.--Any person who--
            ``(1) infringes a copyright willfully and for purposes of 
        commercial advantage or private financial gain,
            ``(2) infringes a copyright willfully by the reproduction 
        or distribution, including by the offering for distribution to 
        the public by electronic means, during any 180-day period, of 1 
        or more copies or phonorecords of 1 or more copyrighted works, 
        which have a total retail value of more than $1,000, or
            ``(3) infringes a copyright by the knowing distribution, 
        including by the offering for distribution to the public by 
        electronic means, with reckless disregard of the risk of 
        further infringement, during any 180-day period, of--
                    ``(A) 1,000 or more copies or phonorecords of 1 or 
                more copyrighted works,
                    ``(B) 1 or more copies or phonorecords of 1 or more 
                copyrighted works with a total retail value of more 
                than $10,000, or
                    ``(C) 1 or more copies or phonorecords of 1 or more 
                copyrighted pre-release works,
shall be punished as provided under section 2319 of title 18. For 
purposes of this subsection, evidence of reproduction or distribution 
of a copyrighted work, by itself, shall not be sufficient to establish 
the necessary level of intent under this subsection.''; and
            (2) by adding at the end the following:
    ``(g) Limitation on Liability of Service Providers.--No legal 
entity shall be liable for a violation of subsection (a)(3) by reason 
of performing any function described in subsection (a), (b), (c), or 
(d) of section 512 if such legal entity would not be liable for 
monetary relief under section 512 by reason of performing such 
function. Except for purposes of determining whether an entity 
qualifies for the limitation on liability under subsection (a)(3) of 
this section, the legal conclusion of whether an entity qualifies for a 
limitation on liability under section 512 shall not be considered in a 
judicial determination of whether the entity violates subsection (a) of 
this section.
    ``(h) Definitions.--In this section:
            ``(1) Pre-release work.--The term `pre-release work' refers 
        to a work protected under this title which has a commercial and 
        economic value and which, at the time of the act of 
        infringement that is the basis for the offense under subsection 
        (a)(3), the defendant knew or should have known had not yet 
        been made available by the copyright owner to individual 
        members of the general public in copies or phonorecords for 
        sale, license, or rental.
            ``(2) Retail value.-- The `retail value' of a copyrighted 
        work is the retail price of that work in the market in which it 
        is sold. In the case of an infringement of a copyright by 
        distribution, if the retail price does not adequately reflect 
        the economic value of the infringement, then the retail value 
        may be determined using other factors, including but not 
        limited to suggested retail price, wholesale price, replacement 
        cost of the item, licensing, or distribution-related fees.''.
    (b) Penalties.--Section 2319 of title 18, United States Code, is 
amended--
            (1) by redesignating subsections (d) and (e) as subsections 
        (e) and (f), respectively;
            (2) by inserting after subsection (c) the following:
    ``(d) Any person who commits an offense under section 506(a)(3) of 
title 17--
            ``(1) shall be imprisoned not more than 3 years, or fined 
        in the amount set forth in this title, or both, or, if the 
        offense was committed for purposes of commercial advantage or 
        private financial gain, imprisoned for not more than 5 years, 
        or fined in the amount set forth in this title, or both; and
            ``(2) shall, if the offense is a second or subsequent 
        offense under paragraph (1), be imprisoned not more than 6 
        years, or fined in the amount set forth in this title, or both, 
        or, if the offense was committed for purposes of commercial 
        advantage or private financial gain, imprisoned for not more 
        than 10 years, or fined in the amount set forth in this title, 
        or both.''; and
            (3) in subsection (f), as so redesignated--
                    (A) in paragraph (1), by striking ``and'' after the 
                semicolon;
                    (B) in paragraph (2), by striking the period and 
                inserting ``; and''; and
                    (C) by adding at the end the following:
            ``(3) the term `financial gain' has the meaning given that 
        term in section 101 (relating to definitions) of title 17.''.
    (c) Civil Remedies for Infringement of a Commercial Pre-Release 
Copyrighted Work.--Section 504(b) of title 17, United States Code, is 
amended--
            (1) by striking ``The copyright owner'' and inserting the 
        following:
            ``(1) In general.--The copyright owner''; and
            (2) by adding at the end the following:
            ``(2) Damages for pre-release infringement.--
                    ``(A) In general.--In the case of any pre-release 
                work, actual damages shall be presumed conclusively to 
                be no less than $10,000 per infringement, if a person--
                            ``(i) distributes such work by making it 
                        available on a computer network accessible to 
                        members of the public; and
                            ``(ii) knew or should have known that the 
                        work was intended for commercial distribution.
                    ``(B) Definition.--For purposes of this subsection, 
                the term `pre-release work' has the meaning given that 
                term in section 506(h). ''.

SEC. 11. AMENDMENT OF FEDERAL SENTENCING GUIDELINES REGARDING THE 
                    INFRINGEMENT OF COPYRIGHTED WORKS AND RELATED 
                    CRIMES.

    (a) Amendment to the Sentencing Guidelines.--Pursuant to its 
authority under section 994 of title 28, United States Code, and in 
accordance with this section, the United States Sentencing Commission 
shall review and, if appropriate, amend the sentencing guidelines and 
policy statements applicable to persons convicted of intellectual 
property rights crimes, including sections 2318, 2319, 2319A, 2319B, 
2320 of title 18, United States Code, and sections 506, 1201, and 1202 
of title 17, United States Code.
    (b) Factors.--In carrying out this section, the Sentencing 
Commission shall--
            (1) take all appropriate measures to ensure that the 
        sentencing guidelines and policy statements applicable to the 
        offenses described in subsection (a) are sufficiently stringent 
        to deter and adequately reflect the nature of such offenses;
            (2) consider whether to provide a sentencing enhancement 
        for those convicted of the offenses described in subsection (a) 
        when the conduct involves the display, performance, 
        publication, reproduction, or distribution of a copyrighted 
        work before the time when the copyright owner has authorized 
        the display, performance, publication, reproduction, or 
        distribution of the original work, whether in the media format 
        used by the infringing good or in any other media format;
            (3) consider whether the definition of ``uploading'' 
        contained in Application Note 3 to Guideline 2B5.3 is adequate 
        to address the loss attributable to people broadly distributing 
        copyrighted works over the Internet without authorization; and
            (4) consider whether the sentencing guidelines and policy 
        statements applicable to the offenses described in subsection 
        (a) adequately reflect any harm to victims from infringement in 
        circumstances where law enforcement cannot determine how many 
        times copyrighted material is reproduced or distributed.
    (c) Promulgation.--The Commission may promulgate the guidelines or 
amendments under this section in accordance with the procedures set 
forth in section 21(a) of the Sentencing Act of 1987, as though the 
authority under that Act had not expired.

SEC. 12. EXEMPTION FROM INFRINGEMENT FOR SKIPPING AUDIO CONTENT IN 
                    MOTION PICTURES.

    (a) Short Title.--This section may be cited as the ``Family Movie 
Act of 2004''.
    (b) Exemption From Copyright and Trademark Infringement for 
Skipping of Audio or Video Content of Motion Pictures.--Section 110 of 
title 17, United States Code, is amended--
            (1) in paragraph (9), by striking ``and'' after the 
        semicolon at the end;
            (2) in paragraph (10), by striking the period at the end 
        and inserting ``; and''; and
            (3) by inserting after paragraph (10) the following:
            ``(11)(A) the making of limited portions of audio or video 
        content of a motion picture imperceptible by or for the owner 
        or other lawful possessor of an authorized copy of that motion 
        picture in the course of viewing of that work for private use 
        in a household, by means of consumer equipment or services 
        that--
                    ``(i) are operated by an individual in that 
                household;
                    ``(ii) serve only such household; and
                    ``(iii) do not create a fixed copy of the altered 
                version; and
            ``(B) the use of technology to make such audio or video 
        content imperceptible, that does not create a fixed copy of the 
        altered version.''.
    (c) Exemption From Trademark Infringement.--Section 32 of the 
Trademark Act of 1946 (15 U.S.C. 1114) is amended by adding at the end 
the following:
    ``(3)(A) Any person who engages in the conduct described in 
paragraph (11) of section 110 of title 17, United States Code, and who 
complies with the requirements set forth in that paragraph is not 
liable on account of such conduct for a violation of any right under 
this Act.
    ``(B) A manufacturer, licensee, or licensor of technology that 
enables the making of limited portions of audio or video content of a 
motion picture imperceptible that is authorized under subparagraph (A) 
is not liable on account of such manufacture or license for a violation 
of any right under this Act, if such manufacturer, licensee, or 
licensor ensures that the technology provides a clear and conspicuous 
notice that the performance of the motion picture is altered from the 
performance intended by the director or copyright holder of the motion 
picture.
    ``(C) Any manufacturer, licensee, or licensor of technology 
described in subparagraph (B) who fails to comply with the requirement 
under subparagraph (B) to provide notice with respect to a motion 
picture shall be liable in a civil action brought by the copyright 
owner of the motion picture that is modified by the technology in an 
amount not to exceed $1,000 for each such motion picture.
    ``(D) The requirement under subparagraph (B) to provide notice, and 
the provisions of subparagraph (C), shall apply only with respect to 
technology manufactured after the end of the 180-day period beginning 
on the date of the enactment of the Family Movie Act of 2004.''.
    (d) Definition.--In this section, the term ``Trademark Act of 
1946'' means the Act entitled ``An Act to provide for the registration 
and protection of trademarks used in commerce, to carry out the 
provisions of certain international conventions, and for other 
purposes'', approved July 5, 1946 (15 U.S.C. 1051 et seq.).

                          Purpose and Summary

    H.R. 4077 will educate the public about intellectual 
property law, create an alternative to litigation through a 
voluntary warning program, increase cooperation among Federal 
agencies and intellectual property owners concerning piracy, 
assist the Department of Justice in its efforts to prosecute 
intellectual property theft, and clarify the legal status of 
certain services and technologies that enable individuals to 
skip and mute content on certain works in the privacy of their 
own home.

                Background and Need for the Legislation

    Both Congressional testimony and recently issued Federal 
court rulings have noted that piracy continues to increase, 
particularly on certain, newly developed, peer-to-peer 
networks. The Copyright Act already provides civil and criminal 
remedies for traditional online intellectual property 
infringement. Federal law enforcement agencies have begun to 
pursue more cases of traditional online infringement, but they 
have been slower to bring cases involving peer-to-peer 
networks. Insufficient funding, ambiguity in the law, and 
untrained staff are the primary explanations offered for the 
lack of greater investigative and prosecutorial activity. H.R. 
4077 will address these problems in an effort to increase the 
ability of agencies to investigate and prosecute intellectual 
property crimes.
    The Committee is increasingly concerned with the 
development of new digital business models that promote online 
infringement. This Committee has long recognized the illegality 
of distributing stolen property to others, whether it occurs in 
the real or digital world. The Committee has previously updated 
the laws addressing online infringement when new methods of 
piracy appeared. The passage of the No Electronic Theft Act \1\ 
in 1997 was a response to the then developing practice of 
individuals giving away stolen intellectual property without 
remuneration. In this bill, the Committee is acting once again 
to address a new form of intellectual property theft. Portions 
of this legislation are targeted directly and indirectly at the 
online infringement occurring on certain peer-to-peer networks. 
The Committee has seen significant evidence that the amount of 
infringement occurring on such networks has grown significantly 
in the past few years as these networks continue to expand. The 
Committee is not concerned with the spread or use of peer-to-
peer technology in general since this technology appears to 
represent the future of computing. Nevertheless, the legal uses 
of peer-to-peer technology are being ignored as it is used to 
spread infringing material.
---------------------------------------------------------------------------
    \1\ Pub. L. No. 105-147.
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    Section 3 of the legislation creates a voluntary warning 
program administered by the Department of Justice. The 
Committee hopes that this provision represents a litigation 
alternative that will reduce online piracy levels by making 
online users aware of the penalties for copyright infringement. 
This program is designed to enable the Department to warn 
Internet users who appear to be engaging in illegal activity. 
Although the program may be used to combat other forms of 
piracy, the Committee anticipates that the majority of such 
warnings will be sent to those who apparently engage in 
infringing activity via peer-to-peer networks.
    Recent news stories indicate that minor children are 
indulging in illegal activity (e.g., copyright infringement) 
without the knowledge of their parents by using a account paid 
for by a parent. Inevitably, illegal activity ceases once 
discovered by a parent. A warning letter from the Department of 
Justice should get the attention of the parent who pays for an 
online account used for potentially illegal activity as well as 
that of the few adults that may not be aware of the illegal 
nature of their activity. For corporate accounts, businesses 
may also be unaware of the activities of an individual employee 
who is using employer resources to engage in potentially 
illegal activity. A similar warning letter from the Department 
of Justice should serve to educate the company and its 
employees about the penalties for copyright infringement.
    The Committee therefore endorses a pilot warning system 
administered by the Department of Justice that would issue up 
to 10,000 warning letters in an 18-month period to those who 
appear to be engaging in online infringement. Following a 
public comment period in which interested parties can comment 
on the process by which the program will operate, the 
Department should distribute warning letters to participating 
Internet Service Providers (``ISPs'') that would then forward 
them to those subscribers who appear to be engaging in illegal 
activity. These letters would contain some identification of 
the potentially illegal activity, such as the file name 
available at specific Internet Protocol (``IP'') addresses. 
Such letters would not issue in the absence of independent 
investigation conducted by the Department. Simply forwarding 
allegations made by private parties would not suffice. Warning 
letters would also contain more information about the potential 
civil and criminal penalties related to online infringement. 
The Department should include contact information for 
recipients of such warning letters to call in case the 
recipients wish to verify the authenticity of the warning along 
with a clear statement that the information that led to a 
letter being mailed was gathered without the assistance of 
their ISP.
    This program is designed to be voluntary; ISPs may opt out 
before or during the duration of the pilot program. ISPs can 
also opt back in at any point if they initially opted out. The 
Committee has noted the repeated expressions of interest by the 
ISP community in working with content owners to develop an 
alternative to litigation against those who appear to be 
undertaking online infringement. The willingness of ISPs to 
participate in this program would be an indication of their 
sincerity.
    In addition, the Committee does not believe that the 
receipt and forwarding of such warning letters by an ISP 
impacts the repeat infringer provisions of Sec. 512(i)(1)(A) 
since the warning letters only reflect what appears to the 
Department to be potential infringement.
    To receive the reimbursement of costs authorized under 
Sec. 3(c), the Department shall establish a system to receive 
from each participating ISP listings of the number of, and 
actual costs associated with, letters that the ISP spent in 
forwarding warning letters. The Department must reimburse the 
ISPs promptly. The costs of forwarding such warning letters is 
anticipated to include the direct costs of matching IP 
addresses to subscriber addresses as well as to the actual 
mailing costs. Unless the Department feels otherwise, the 
Committee does not anticipate that the Department should pay 
for indirect costs such as the pro-rata costs of electricity 
for running a computer to look up an IP address or the pro-rata 
costs of rent for the building in which the employee who 
conducts the search is employed. The Department shall maintain 
records for review by Congress of these costs and include 
summaries in the reports required under Sec. 3(d). A request 
for reimbursement by an ISP shall only be made after it has 
made a good faith effort to identify the subscriber in question 
and forward the warning letter to him or her. The ISP is not 
responsible for ensuring that the warning letter is received by 
their subscriber, is read, or ameliorates the problem. If the 
forwarded warning letter is returned to the ISP due to a bad 
address and the ISP is unable to contact the subscriber to 
update the address, the ISP may consider this in deciding 
whether the customer is using its networks for illegal activity 
in general, and not just for potential infringement.
    Responding to potential objections to the program, the 
Committee stipulates that its operation will not result in the 
transmission of personal subscriber information back to the 
Department of Justice. If the Department wishes to learn the 
identity of an online user, it can use existing legal authority 
to do so. Section 3 does not expand or restrict such authority. 
To ensure that the ISP does not learn of any new customer 
information that it is not already aware of from the routine 
operation of its networks, the Department shall ensure that the 
warning letters are sealed and marked in such a way that anyone 
other than the ISP subscriber is on notice that only the 
subscriber should open it. The Department shall provide a cover 
letter for the ISP to read that contains a description of this 
program and the IP address and date and time when the 
potentially infringing activity occurred that led to the 
decision of the Department to send a warning letter. This will 
allow the ISP to match the IP address on that date and time 
with a subscriber. Other information that the Department feels 
is necessary for this program to be successfully operated may 
also be included for the ISP to review.
    The ISP would then voluntarily forward the unopened warning 
letter without reviewing its contents, to the subscriber whose 
IP address matched. If there are general situations in which 
the ISP knows in advance that it cannot match a subscriber's 
identity to an IP address, such as IP logs that are maintained 
for only 30 days, the Committee hopes that ISPs are forthcoming 
about this information to ensure that the Department does not 
waste its resources sending warning letters to ISPs that cannot 
or will not be forwarded to subscribers.
    The legislation authorizes a specific number of warning 
letters--10,000. To count towards this limit, a warning letter 
must actually be forwarded to an ISP subscriber. Warning 
letters that cannot or will not be sent by an ISP to one of its 
subscribers do not count against the total number limit. To 
keep track of the overall number of warning letters meeting 
this limitation, the Department shall count the number of 
reimbursement requests that it has received from ISPs.
    Section 4 recognizes the benefits of having a dedicated 
agent in each of the computer hacking and intellectual property 
sections (``CHIPs'') and other similar units to support 
intellectual property theft investigations. CHIPs units have 
succeeded in increasing the number of intellectual property 
investigations. Recent announcements by the Department of the 
creation of new units will lead to even further prosecutions. 
The agents authorized by this program will be capable of 
assisting with the notice program authorized in Sec. 3.
    Section 5 creates an education program that the Committee 
feels is overdue. Consumer education is an important part of 
combating illegal activity. The government has long used public 
education campaigns to modify consumer behavior, such as 
boosting the use of seat belts and reducing the underpayment of 
Federal income taxes. A similar campaign to educate the public 
about the value of copyrighted works and the risks of using the 
Internet to obtain illegal copies of them will have similar 
positive impacts on reducing illegal activity on the Internet. 
Recipients of Sec. 3 notices who also see the education 
campaigns authorized by Sec. 5 will be even less likely to 
engage in illegal activity. To ensure that funding from other 
priority programs within the Department is not used to 
subsidize this activity, a prohibition on criminal 
investigation and civil rights funding earmarked for Sec. 5 
programs is included. Instead, the Committee expects funding 
for this program will primarily, if not entirely, come from 
resources used to fund other educational campaigns run by the 
Department. The Department is directed to consult with the 
Register of Copyrights in developing this program.
    Section 6 expressly authorizes the undertaking of actions 
by the United States government for infringements of copyright 
before registration has been made. The Committee has learned of 
situations in which intellectual property infringement occurs 
so quickly after a new work is released that pursuing those 
responsible for the infringement is prevented by existing law. 
The Committee is also aware of situations in the motion 
picture, music, publishing, games, and software industries, 
among others, in which stolen pre-release versions of works are 
made available for distribution. The pursuit of those 
responsible for the illegal activity is similarly hindered 
since pre-release versions of works are not typically 
registered with the Copyright Office at any point.
    Section 8 creates a new Sec. 2319B in Title 18 prohibiting 
the act of using or attempting to use an audiovisual recording 
device to transmit or make a copy of a motion picture or other 
audiovisual work in a motion picture exhibition facility. The 
new section is modeled after the existing ``anti-bootlegging'' 
statute found in Sec. 2319A of Title 18, which prohibits the 
unauthorized recording of and trafficking in sound recordings 
and music videos from live musical performances.
    This new provision deals with the very specific problem of 
illicit ``camcording'' of motion pictures. Typically, an 
offender attends a pre-opening ``screenings'' or a first-
weekend theatrical release, and uses sophisticated digital 
equipment to record the movie. This camcorded version is then 
sold to a local production factory or to an overseas producer 
where it is converted into DVDs or similar products and sold on 
the street for a few dollars per copy. This misuse of 
camcorders is a significant factor in the estimated $3.5 
billion per year of losses the movie industry suffers because 
of hard goods piracy.
    Even worse, these camcorded versions are posted on the 
Internet through certain peer-to-peer networks and made 
available for millions of users to download. According to 
studies by the Motion Picture Association of America 
(``MPAA''), camcorded versions of movies in theatrical release 
account for more than 90 percent of the first copies of motion 
pictures illegally distributed on the Internet. One goal of 
H.R. 4077 is to provide a potent weapon in the arsenal of 
prosecutors to stem the piracy of commercially valuable motion 
pictures at its source.
    The Act would not, and is not intended to, reach the 
conduct of a person who uses a camera, picture phone, or other 
photographic device to capture a still photo from an exhibition 
of a motion picture. It would reach the conduct of a person who 
uses an audiovisual recording device to capture or transmit a 
``series of related images that are intrinsically intended to 
be shown by the use of machines or devices such as projectors, 
viewers, or electronic equipment, together with accompanying 
sounds, if any.'' \2\
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    \2\ 17 U.S.C. Sec. 101.
---------------------------------------------------------------------------
    This does not, of course, suggest that taking photographs 
in a movie theater is in any way sanctioned by this bill. 
Engaging in such conduct could still subject a person to civil 
or criminal liability under the Copyright Act. But the 
provision is drafted narrowly to address the specific and 
pernicious problem of ``camcording'' of copyrighted motion 
pictures.
    In addition, the bill makes clear that ``possession of an 
audiovisual device in a motion picture exhibition facility may 
be considered as evidence in any proceeding involving this 
offense, but shall not, by itself, constitute sufficient 
evidence to support a conviction of this offense.'' The 
Committee recognizes that the fact that someone has brought an 
audiovisual device may be critical evidence in a case against 
that person under this section. For example, smuggling into a 
movie theater a high-quality miniature camera and recording 
equipment may be highly probative of the intent to camcord. The 
Committee is concerned, however, that the ``attempt'' language 
is not used to convict, for example, a tourist who ends a day 
of sightseeing by bringing his camcorder to a motion picture 
theater but does not attempt to use it to record or transmit a 
motion picture. This language is intended to guard against such 
an injustice occurring.
    Further, the bill is not intended to permit a prosecution 
of, for instance, a salesperson at a store who uses a camcorder 
to record some part of a movie playing to demonstrate the 
capabilities of a widescreen television. The offense is only 
applicable to transmitting or copying a movie in a motion 
picture exhibition facility, which has to be a movie theater or 
similar venue ``that is being used primarily for the exhibition 
of a copyrighted motion picture.'' In the example of the 
salesperson, the store is being used primarily to sell 
electronic equipment, not to exhibit motion pictures. (For the 
same reason, the statute would not cover a university student 
who records a short segment of a film being shown in film 
class, as the venue is being used primarily as a classroom, and 
not as a motion picture exhibition facility.)
    Moreover, H.R. 4077 is not intended to permit prosecution 
of individuals making camcorded copies of movies off their 
television screens. The definition of a motion picture 
exhibition facility includes the concept that the exhibition 
must be ``open to the public or is made to an assembled group 
of viewers outside of a normal circle of a family and its 
social acquaintances.'' This definition makes clear that 
someone recording from a television in his home does not meet 
that definition.
    It is important to emphasize that the clause ``open to the 
public'' applies specifically to the exhibition, not to the 
facility. An exhibition in a place open to the public that is 
itself not made to the public is not the subject of this bill. 
Thus, for example, a university film lab may be ``open to the 
public.'' However, a student who is watching a film in that lab 
for his or her own study or research would not be engaging in 
an exhibition that is ``open to the public.'' Thus, if that 
student copied an excerpt from such an exhibition, he or she 
would not be subject to liability under this section.
    The Committee trusts the Department to exercise appropriate 
prosecutorial discretion when using H.R. 4077. While ``fair 
use'' is not a defense against a Sec. 2319(B) violation, 
Federal prosecutors should use their discretion not to bring 
criminal prosecutions against activities within movie theaters 
that would constitute fair use under the copyright laws. 
Additionally, prosecutors should consider whether a potential 
defendant was on notice that camcording violated the law. The 
Committee appreciates the commitment by the National 
Association of Theatre Owners (``NATO'') and MPAA to make 
available to every motion picture theater in the United States 
a conspicuous sign informing patrons that camcording in the 
theater is punishable by criminal law. The Committee fully 
expects that NATO and the MPAA will abide by that commitment. 
Prosecutors should consider whether the theater from which the 
camcording took place had posted such a sign as an important 
factor in determining whether a prosecution under this statute 
would be appropriate.
    An immunity provision has been included for good faith 
efforts by theater owners and other associated individuals to 
detain in a reasonable manner those they suspect of 
camcordering. This provision and the reasonableness test should 
be viewed as a companion to shopkeeper privilege statutes found 
in all States. This section does not pre-empt any State laws.
    Section 9 reflects the view of Congress concerning the 
imperative to prevent illegal activity on peer-to-peer 
networks. The growth in peer-to-peer piracy continues and is a 
function of the activities of certain peer-to-peer network 
operators to design their systems in a way to shift all 
liability for infringement that occurs on their networks to 
their users.
    Section 10 reflects the need by the Department of Justice 
to have clearer authority to criminally pursue those who make 
available significant numbers of files for others to download. 
This section sets this threshold at either:

        1) 1,000 or more works, or

        2) L1 or more works having a total retail value of 
        $10,000 or more, or

        3) 1 or more pre-release works.

    The Committee believes that these thresholds will allow the 
Department to pursue criminal charges against those who 
knowingly distribute, with reckless disregard of the risk of 
further infringement, works in number equal to or higher than 
one of the three thresholds. In a real world comparison, the 
Committee views the activity made criminal under this provision 
as equivalent to someone who knowingly, without permission of 
the those who have a right of access to a house, distributes 
1,000 keys or more to the front door with reckless disregard 
that at least one of the key holders will enter the house 
without permission. Such activity is wrong in both the physical 
and digital worlds. The Committee notes the sentiment of those 
who feel that no economic harm has occurred as a result of such 
file sharing. Although the Committee has been provided with 
significant testimony and evidence to refute such statements 
from songwriters, record labels, and online music stores that 
are being forced to compete with sites and networks offering 
piratical versions for free, the point is not relevant. Someone 
who enters a house without the owner's permission using a key 
gained from a third party is criminally liable whether or not 
they chose to steal a physical compact disc containing music or 
a digital video disc containing a motion picture. The same is 
true for someone who uses a car without the permission of the 
owner and then replaces the gas and oil used during the 
unauthorized trip.
    Some have argued that Sec. 10 criminalizes wireless 
networks operated by individuals in their home or business that 
they use to access files or the Internet for their own benefit. 
In such cases, a typical user does not knowingly offer files 
for distribution to others except for himself and in a business 
setting, for employees. Those who access the network without 
permission to download files do not trigger the knowing test of 
Sec. 506(a)(3). Someone who deliberately makes known to others 
by advertising or other overt acts the presence of files 
available for download could fall under this Act if they meet 
one of the three threshold citeria.
    The Committee has set a lower threshold for pre-release 
works since the economic harm of pirated works is higher when 
the work has not been made available to the public for sale. 
The harm is even higher when the work has never been publicly 
performed. This issue is the same for all forms of copyrighted 
works--why pay for something that you can get for free? 
Although some Americans pay for bottled water, many more do not 
and get their water for near-free prices from their local water 
company. Some consumers may still pay to see or hear the public 
performance of a work that is available elsewhere for little or 
no cost; the majority will not.
    Since the Department of Justice is unlikely to have the 
resources to pursue every instance of pre-release works, the 
Committee has included a provision to allow for civil suits to 
recover damages. It is expected that more civil suits will be 
brought than criminal suits.
    In developing this provision, the Committee heard from 
several Internet companies and providers that they should not 
face liability under the new Sec. 506(a)(3) when they did not 
participate in the illegal conduct in the first place. The 
newly created Sec. 506(g) preempts any liability under the new 
Sec. 506(a)(3) for entities that would qualify for a limitation 
on monetary damages for civil copyright infringement with 
respect to a claimed infringement under 17 U.S.C. Sec. 512.
    The Committee believes that a service provider that 
performs the functions described in Sec. Sec. 512(a) through 
(d) in a manner that complies with the conditions set out in 
Sec. 512 should not be subject to criminal liability under 
Sec. 506(a)(3). Therefore, if an entity would not be liable for 
damages for civil copyright infringement when it undertakes one 
or more of the functions described in Sec. Sec. 512(a) through 
512(d), Sec. 506(g) ensures that it would not be subject to 
criminal sanctions under Sec. 506(a)(3). The obverse is not 
necessarily true, as the government is always required to prove 
beyond a reasonable doubt each of the elements of a criminal 
statute against any defendant, irrespective of the defendant's 
liability for civil damages for copyright infringement under 
the Copyright Act.
    There are several key points to this provision. First, the 
limitation on liability affects only potential criminal 
liability under subsection (a)(3). It is not meant to limit or 
expand in any way the ability of law enforcement to bring an 
action under subsection (a)(1) against a service provider that 
acts willfully and for purposes of commercial advantage or 
private financial gain, or to bring an action under subsection 
(a)(2) against a service provider that acts willfully and meets 
the corresponding numerical and retail value thresholds set 
forth in (a)(2).
    This does not mean that the facts and circumstances of a 
service provider's conduct and whether it was in accordance 
with the strictures of Sec. 512 are irrelevant to an action 
brought under Sec. 506(a)(1) or (a)(2). Rather, it means only 
that the legal conclusion that a service provider's conduct was 
exempt from prosecution under (a)(3) should not be considered 
in determining ``willfulness'' for purposes of subsections 
(a)(1) or (a)(2). Similarly, the fact that a service provider 
might fail to qualify for a limitation of liability under this 
subsection should not bear adversely upon a defense that the 
service provider's conduct is not infringing under this title, 
that it has not acted with reckless disregard for the risk of 
further infringement, or any other defense.
    In addition, the limitation applies only to a ``legal 
entity''--a firm, corporation, union or other organization 
which is organized under the laws of the United States; the 
laws of a State, district, commonwealth, territory, or 
possession of the United States; or the laws of a foreign 
country and which is capable of suing and being sued in a 
Federal District court of law. This provision is not intended 
to allow a natural person who might otherwise be subject to 
prosecution to claim that he or she performs the functions 
described in Sec. 512, and therefore cannot be prosecuted. 
Efforts by individuals to establish a ``legal entity'' simply 
to take advantage of this carve-out should be ignored by 
prosecutors and the courts.
    Finally, this provision is intended to address a narrow 
issue raised by the intersection of the limitation on liability 
contained in Sec. 512, the creation of a new and more objective 
intent standard from that which currently exists in Sec. 506, 
and the stated concern by service providers that, without this 
protection, their businesses could be subjected to prosecution 
in circumstances that would be unjust. Although the Committee 
is unaware of any criminal prosecutions of service providers 
under existing law and anticipates few, if any, such ISP 
prosecutions under Sec. 506(a)(3), this provision clarifies 
that engaging in behavior that meets the requirements set out 
in the Digital Millennium Copyright Act \3\ to avoid damages 
for monetary relief for civil copyright infringement is also 
sufficient to avoid criminal liability under Sec. 506(a)(3).
---------------------------------------------------------------------------
    \3\ Pub. L. No. 105-304.
---------------------------------------------------------------------------
    Section 11 of the legislation is a companion to Sec. 10 
which directs the United States Sentencing Commission to review 
and, if appropriate, amend several sentencing guidelines 
applicable to persons convicted of several sections of Titles 
17 and 18 of the U.S. Code. The Committee has given the 
Commission flexibility in making the determination for these 
sections. However, in the Committee's view, all of these 
sections need to be updated for the factors identified in this 
Section.
    The Committee has included the text of H.R. 4586, the 
``Family Movie Act of 2004,'' as a new Sec. 12 of the 
legislation. During the markup of H.R. 4077, Committee Members 
commented on the need to invigorate copyright enforcement while 
clarifying that copyright law cannot be used to limit a 
parent's right to control what their children watch in the 
privacy of their own home. H.R. 4586 was reported by the 
Committee on the Judiciary prior to the markup of H.R. 4077.\4\ 
The legislative language earlier reported by the Committee is 
included in Sec. 12, and a full description of that language 
may be found in the Committee's report on H.R. 4586.
---------------------------------------------------------------------------
    \4\ See H.R. Rept. No. 108-670.
---------------------------------------------------------------------------
    H.R. 4077, as reported, omitted several provisions that had 
been included in earlier versions due to commitments the 
Committee received from several Federal departments and 
agencies. As originally drafted in H.R. 2517, the predecessor 
to H.R. 4077, this bill would have amended Sec. Sec. 411, 602 
and 603 of Title 17 to provide that neither registration with 
the Copyright Office, nor recordation with, the Bureau of 
Customs and Border Protection of the Department of Homeland 
Security (hereinafter referred to as ``CBP'') was a 
prerequisite for the exclusion of piratical goods by CBP. Since 
then, representatives from this Committee have met with the 
Copyright Office and with CBP to discuss how such changes might 
impact their operations. Specifically, the Copyright Office 
expressed concern that the amendments could have the unintended 
consequences of reducing incentives to register copyrights and 
of imposing on CBP the duplicative burden of determining issues 
of copyrightability--without having the expertise of the 
Copyright Office to rely upon.
    Upon further consideration, and based on certain 
commitments made by CBP, the Committee has deleted the 
provisions of this bill that would have amended Sec. Sec. 411, 
602 and 603 relating to border enforcement because we are 
persuaded that these provisions are not necessary. In 
particular, we cite the CBP's draft amendments to its 
regulations that would provide a more flexible approach for 
certain categories of works where copyrightability is rarely at 
issue (e.g. sound recordings and audio-visual works), as well 
as for non-United States works. In those cases, pursuant to the 
draft amendments, CBP would permit the recordation with it of 
applications for registration, pending issuance of the 
certificate of copyright registration, or, in the case of non-
United States works, the recordation of an affidavit of 
ownership. The Memorandum of Understanding reached between CBP 
and the Recording Industry Association of America reflects this 
flexibility inherent in present laws to fashion modifications 
to certain procedures in order to effect better protection at 
the US border against the importation of piratical articles. We 
are satisfied that CBP has reached general agreement with 
industry on a regulatory framework that addresses the 
industry's, as well as this Committee's, concerns about 
preventing the importation of infringing materials into this 
country, and does so in an operationally sound manner. The 
Committee understands that issues relating to the Capitol 
Records v. Naxos decision in the Southern District of New York 
may remain unresolved for some interested parties. CBP is 
directed to consult with the Copyright Office on the merits of 
such concerns.
    Among law enforcement agencies, CBP is in a unique position 
to provide meaningful border protection for our copyright-based 
industries. Unless we increase the probability (and reality) of 
exclusion, our industries will lose the U.S. market so critical 
to their continued existence. Moreover, as established in 
hearings in our Committee and other Committees, copyright 
piracy's high profits and low risk have made it an appealing 
complement to narcotics and arms trafficking. Confirmed links 
between intellectual property crime, especially with respect to 
global trade in pirated CDs, and organized crime make the case 
that CBP must continue to take intellectual property violations 
seriously.\5\
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    \5\ Committee on the Judiciary Serial No. 9, March 13, 2003.
---------------------------------------------------------------------------
    The Committee has withdrawn the border enforcement related 
sections of this bill based on its understanding that CBP will 
promptly issue new interim regulations that will direct 
officers to detain articles embodying sound recordings 
suspected of infringement under Title 17, or that violate 18 
U.S.C. Sec. 2319A, regardless of whether such articles are 
recorded with CBP or registered with the Copyright Office at 
the time of detention, and will work with copyright owners to 
secure the recordation of information that will subject such 
infringing goods to seizure and forfeiture. The Committee is 
particularly concerned about the need to improve and streamline 
procedures in certain areas--namely with respect to foreign 
works, and with respect to sound recordings and audio-visual 
works in which the absolute number of works (in the case of the 
recording industry) or the need to enter information in the CBP 
database quickly (in the case of both record and film 
industries) necessitated flexibility in how CBP would accept 
recordations.
    Some parties have raised concerns with the Committee that 
because the detention and/or seizure of pre-1972 sound 
recordings takes place in the absence of a copyright 
registration, that CBP might take actions which could result in 
the improper detention and/or seizure of materials that are not 
subject to protection. It is the opinion of the Committee that 
CBP should ensure that it adopt and implement practices that 
will fully address such concerns.
    We are pleased that under this new framework, CBP has 
established procedures that will allow it to pursue an 
aggressive enforcement campaign against the importation of 
piratical sound recordings, audio-visual works and bootlegs. 
Central to this are the following elements:

        1. LMaking the detention, seizure and forfeiture of 
        infringing articles, including sound recordings, audio-
        visual works, and fixations of live performances a 
        priority.

        2. LProviding a streamlined and more efficient process 
        for the recordation of certain categories of works 
        where ``copyrightability'' is rarely an issue--namely 
        sound recordings and audio visual works--so that CBP 
        recordation can be effected by the submission by the 
        copyright owner of a copy of the application for 
        copyright registration filed with the Copyright Office.

        3. LDirecting field officers to detain articles 
        suspected of infringing sound recording copyrights, or 
        suspected of being unauthorized fixations of live 
        musical performances.

        4. LRequiring sound recording copyright owners to 
        furnish sufficient proof of ownership and proof of 
        infringement within 30 days of the detention of such 
        articles.

        5. LProviding for the seizure and destruction of all 
        phonorecords or other copies of sound recordings or 
        live musical performances included in shipments 
        containing copies of sound recordings or live musical 
        performances that CPB has determined to be infringing--
        unless the importer can demonstrate the non-infringing 
        nature of such other articles.

        6. LEnsuring that copyright owners are provided with 
        specific information related to the importation of 
        infringing articles, including the identity of the 
        parties and other relevant information.

    In addition to the discussions summarized above, 
representatives from this Committee, the CBP, the Copyright 
Office and the affected industries also met to discuss the 
amount and kind of information that Port Directors disclose to 
owners of intellectual property and their representatives when 
they seize infringing goods. The information currently 
disclosed is set forth in 19 C.F.R., Sec. 133.42(d). The 
Committee considered legislation to increase the amount and 
kind of information that Port Directors would disclose, but 
determined that such legislation was unnecessary upon the CBP's 
commitment to expand their disclosure authority through the 
issuance of interim regulations amending Sec. 133.42(d).
    Specifically, the CBP has agreed that it will promptly 
promulgate a proposed amendment to 19 C.F.R. Sec. 133.42 
(Infringing Copies or phonorecords) that:

        1. LExtends the list of information, if available, to 
        be disclosed by the port director to the owner of the 
        copyright under Sec. 133.42(d), to the extent legally 
        permissible, to include the following:

              (a) LInformation from available shipping 
        documents (such as manifests, airbills, and bills of 
        lading), including mode or method of shipping (such as 
        airline carrier and flight number) and the intended 
        final destination of the merchandise.

              (b) LThe name and address of the broker involved 
        in the transaction.

              (c) LInformation relating to previous completed 
        seizures of imported infringing copies or phonorecords 
        involving the same importer, manufacturer, exporter or 
        broker, provided that obtaining such information is not 
        unduly burdensome.

        2. LDirects the port directors, when providing 
        disclosure to the owner of the copyright under 19 
        C.F.R. Sec. 133.42(d), to provide such information as 
        expeditiously as possible in order to allow the owner 
        of the copyright to pursue avenues for relief and 
        deterrence beyond the seizure and forfeiture of 
        infringing materials, such as by seeking criminal 
        investigations at the local, state, Federal or 
        international level.

    In light of this commitment, the Committee has determined 
that no additional legislation in this area is necessary at 
this time.
    Finally, the Committee is aware of cooperative efforts 
between intellectual property owners and CBP to enable CBP to 
release information on seized devices which violate the anti-
circumvention provisions of the Digital Millennium Copyright 
Act. The information would be comparable to that released under 
19 C.F.R. Sec. 133.42(d). While the devices themselves may not 
contain infringing copyrighted material, they provide the 
capability for a user to remove technological protection 
measures from copyrighted works such as entertainment software. 
Since they allow a user to circumvent technological protection 
measures, they represent a critical step in enabling a user to 
make unauthorized copies of software titles which can then be 
uploaded to the Internet for free downloading across the globe.
    CBP has not released such information to copyright owners 
who may be harmed by such devices because the devices 
themselves do not contain infringing copyrighted material. The 
copyright owner thus has no means to learn important 
information solely within CBP's knowledge, such as the identity 
of the importer, even though CBP itself has determined that the 
devices violate the Digital Millennium Copyright Act. The 
copyright owner is then restricted from pursuing private or 
criminal enforcement actions in this country or work with 
foreign authorities to identify and shut down the manufacturing 
source of the devices.
    The Committee believes this gap in disclosure serves only 
to protect those who import illegal devices. The Committee 
recommends CBP close this loophole and provide information 
about illegal circumvention devices to copyright owners.

                                Hearings

    The Subcommittee on Courts, the Internet, and Intellectual 
Property conducted a hearing on related legislation, H.R. 2517, 
on July 17, 2003, with testimony received from four witnesses 
representing three organizations and one government agency.
    The Committee's Subcommittee on Courts, the Internet, and 
Intellectual Property held an oversight hearing on the issue 
involved in Sec. 12 of the legislation on May 20, 2004, with 
testimony received from five witnesses representing five 
organizations. The Subcommittee subsequently held a hearing on 
H.R. 4586 which is incorporated as Section 12 on June 17, 2004. 
Testimony was received from four witnesses representing four 
organizations.

                        Committee Consideration

    On March 31, 2004, the Subcommittee on Courts, the 
Internet, and Intellectual Property met in open session and 
ordered favorably the bill H.R. 4077 as amended by a voice 
vote, a quorum being present. On September 8, 2004, the full 
Committee met in open session and ordered favorably reported 
the bill H.R. 4077 with an amendment by a voice vote.
    As noted above, the Committee adopted an amendment to H.R. 
4077 that consisted of the text of H.R. 4586 as reported by the 
Committee. On July 8, 2004, the Subcommittee on Courts, the 
Internet, and Intellectual Property met in open session and 
ordered favorably reported the bill H.R. 4586, as amended, by a 
vote of 11 to 5, a quorum being present. On July 21, 2004, the 
Committee met in open session and ordered favorably reported 
the bill H.R. 4586 with an amendment by a vote of 18 to 9, a 
quorum being present.

                         Vote of the Committee

    In compliance with clause 3(b) of rule XIII of the Rules of 
the House of Representatives, the Committee notes that there 
were no recorded votes during the committee consideration of 
H.R. 4077.

                      Committee Oversight Findings

    In compliance with clause 3(c)(1) of rule XIII of the Rules 
of the House of Representatives, the Committee reports that the 
findings and recommendations of the Committee, based on 
oversight activities under clause 2(b)(1) of rule X of the 
Rules of the House of Representatives, are incorporated in the 
descriptive portions of this report.

               New Budget Authority and Tax Expenditures

    Clause 3(c)(2) of rule XIII of the Rules of the House of 
Representatives is inapplicable because this legislation does 
not provide new budgetary authority or increased tax 
expenditures.

               Congressional Budget Office Cost Estimate

    In compliance with clause 3(c)(3) of rule XIII of the Rules 
of the House of Representatives, the Committee sets forth, with 
respect to the bill, H.R. 4077, the following estimate and 
comparison prepared by the Director of the Congressional Budget 
Office under section 402 of the Congressional Budget Act of 
1974:

                                     U.S. Congress,
                               Congressional Budget Office,
                                Washington, DC, September 24, 2004.
Hon. F. James Sensenbrenner, Jr., Chairman,
Committee on the Judiciary,
House of Representatives, Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office has 
prepared the enclosed cost estimate for H.R. 4077, the ``Piracy 
Deterrence and Education Act of 2004.''
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contact is Mark 
Grabowicz, who can be reached at 226-2860.
            Sincerely,
                                       Douglas Holtz-Eakin.

Enclosure

cc:
        Honorable John Conyers, Jr.
        Ranking Member
H.R. 4077--Piracy Deterrence and Education Act of 2004.

                                SUMMARY

    H.R. 4077 would authorize the appropriation of $15 million 
for fiscal year 2005 for the Attorney General to enforce 
copyright laws. The bill would direct the Attorney General to 
establish the Internet Use Education Program to increase 
awareness of copyright infringement issues. H.R. 4077 also 
would specify that technology used to filter certain material 
out of movies for private viewing would not constitute a 
violation of copyright or trademark law. Finally, the bill 
would establish new federal crimes for the unauthorized 
recording of motion pictures in movie theaters or other venues 
and would provide for increased penalties for other acts 
relating to copyright infringement.
    Assuming appropriation of the necessary amounts, CBO 
estimates that implementing H.R. 4077 would cost $15 million 
over the 2005-2009 period. This legislation could affect direct 
spending and receipts, but we estimate that any such effects 
would be less than $500,000 annually.
    H.R. 4077 contains no intergovernmental mandates as defined 
in the Unfunded Mandates Reform Act (UMRA) and would not affect 
the budgets of State, local, or tribal governments.
    H.R. 4077 would impose private-sector mandates as defined 
in UMRA. CBO estimates that the direct cost of the mandates 
would fall well below the annual threshold established by UMRA 
for private-sector mandates ($120 million in 2004, adjusted 
annually for inflation).

                ESTIMATED COST TO THE FEDERAL GOVERNMENT

    The estimated budgetary impact of H.R. 4077 is shown in the 
following table. The costs of this legislation fall within 
budget function 750 (administration of justice).

                 By Fiscal Year, in Millions of Dollars
------------------------------------------------------------------------
                                        2005   2006   2007   2008   2009
------------------------------------------------------------------------
CHANGES IN SPENDING SUBJECT TO APPROPRIATION
Authorization Level                       15      0      0      0      0
Estimated Outlays                         13      2      0      0      0
------------------------------------------------------------------------

                           BASIS OF ESTIMATE

    For this estimate, CBO assumes that the bill will be 
enacted near the start of fiscal year 2005. CBO assumes that 
the amount authorized for enforcement of copyright laws will be 
appropriated near the beginning of fiscal year 2005 and that 
outlays will follow the historical rate of spending for this 
activity. Based on information from the Department of Justice, 
CBO estimates that it would cost less than $500,000 annually to 
establish and operate the Internet Use Education Program.
    Section 12 of the bill would provide that technology used 
to filter certain material out of movies for private viewing 
would not constitute a violation of copyright or trademark law. 
CBO estimates that implementing section 12 would have no effect 
on federal spending.
    Because those prosecuted and convicted under H.R. 4077 
could be subject to criminal fines, the federal government 
might collect additional fines if the legislation is enacted. 
Collections of such fines are recorded in the budget as 
revenues (i.e., governmental receipts), which are deposited in 
the Crime Victims Fund and later spent. CBO expects that any 
additional revenues and direct spending would be less than 
$500,000 annually because of the relatively small number of 
cases likely to be affected.

        ESTIMATED IMPACT ON STATE, LOCAL, AND TRIBAL GOVERNMENTS

    H.R. 4077 contains no intergovernmental mandates as defined 
in UMRA and would not affect the budgets of State, local, or 
tribal governments.

                 ESTIMATED IMPACT ON THE PRIVATE SECTOR

    H.R. 4077 would impose two private-sector mandates as 
defined in UMRA. CBO estimates that the direct cost of the 
mandates would fall well below the annual threshold established 
by UMRA for private-sector mandates ($120 million in 2004, 
adjusted annually for inflation).
    First, the bill would impose a private-sector mandate on 
copyright owners. Section 12 would limit the right of copyright 
owners to collect compensation under copyright law from persons 
using or manufacturing a technology that enables making limited 
changes to a motion picture for a private home viewing. 
According to testimony from the Patent and Trademark Office and 
other sources, no such compensation is currently received by 
copyright owners. Therefore, CBO estimates that the direct cost 
of the mandate, measured as net income forgone, would be small 
or zero.
    Second, section 12 also would impose a private-sector 
mandate on manufacturers, licensees, and licensors of 
technology that enables the making of limited portions of audio 
or video content of a motion picture imperceptible. Such 
manufacturers, licensees, or licensors would be required to 
ensure that the technology provides a clear and conspicuous 
notice that the performance of the motion picture is altered 
from the performance intended by the director or copyright 
holder of the motion picture. Complying with the mandate would 
exempt such manufacturers, licensees, or licensors from 
liability under section 32 of the Trademark Act of 1946. The 
direct cost of the mandate on those private-sector entities 
would be the total cost of providing the notice less the direct 
savings achieved by limiting their liability. CBO has no basis 
for determining the direct savings for the exemption from 
trademark liability. However, according to government and other 
sources, the technology to provide the required notice is 
readily available and is currently used by some manufacturers. 
Thus, CBO expects that the direct cost to comply with the 
mandate, if any, would be minimal.

                         PREVIOUS CBO ESTIMATES

    On May 18, 2004, CBO transmitted a cost estimate for S. 
1932, the Artists' Rights and Theft Prevention Act of 2004, as 
reported by the Senate Committee on the Judiciary on April 29, 
2004. In addition, on May 28, 2004, we transmitted a cost 
estimate for S. 1933, the Enhancing Federal Obscenity Reporting 
and Copyright Enforcement Act of 2004, as reported by the 
Senate Committee on the Judiciary on May 20, 2004. Both those 
bills would authorize the appropriation of $5 million for each 
of fiscal years 2005 through 2009 for the investigation and 
prosecution of intellectual property offenses, and we estimated 
that implementing each bill would cost $23 million over the 
2005-2009 period, assuming appropriation of the necessary 
amounts.
    On August 17, 2004, CBO transmitted a cost estimate for 
H.R. 4586, the Family Movie Act of 2004, as ordered reported by 
the House Committee on the Judiciary on July 21, 2004. Section 
12 of H.R. 4077 and H.R. 4586 are identical, as are the cost 
estimates. The private-sector mandates contained in section 12 
of H.R. 4077 are identical to the mandates in H.R. 4586 with 
direct costs well below UMRA's annual threshold for private-
sector mandates.

                         ESTIMATE PREPARED BY:

Federal Costs: Mark Grabowicz (226-2860)
Impact on State, Local, and Tribal Governments: Melissa Merrell 
    (225-3220)
Impact on the Private Sector: Paige Piper/Bach (226-2940)

                         ESTIMATE APPROVED BY:

Peter H. Fontaine
Deputy Assistant Director for Budget Analysis

                    Performance Goals and Objectives

    The Committee states that pursuant to clause 3(c)(4) of 
rule XIII of the Rules of the House of Representatives, H.R. 
4077 will educate the public about intellectual property law, 
create an alternative to litigation through a voluntary warning 
program, increase cooperation among Federal agencies and 
intellectual property owners concerning piracy, assist the 
Department of Justice in its efforts to prosecute intellectual 
property theft, and clarify the legal status of certain 
services and technologies that enable individuals to skip and 
mute content on certain works in the privacy of their own home. 
In general, this will lead to an increased number of criminal 
prosecutions brought by the Department of Justice and 
diminished of digital copyright theft.

                   Constitutional Authority Statement

    Pursuant to clause 3(d)(1) of rule XIII of the Rules of the 
House of Representatives, the Committee finds the authority for 
this legislation in Article I, Sec. 8, of the Constitution.

               Section-by-Section Analysis and Discussion

    The following discussion describes the bill as reported by 
the Committee.

Section 1. Short Title. This section states that the Act may be 
cited as the ``Piracy Deterrence and Education Act of 2004.''

Section 2. Findings. This section makes several findings 
regarding the nature of the Internet and online piracy.

Section 3. Voluntary Program of the Department of Justice. This 
section creates a voluntary program in which the Department of 
Justice would be authorized to send up to 10,000 warning 
letters in an 18-month period to those suspected of engaging in 
infringement. ISPs would voluntarily help to forward these 
notices to their subscribers while protecting the privacy of 
their customers and having their costs reimbursed.

Section 4. Designation and Training of Agents in Computer 
Hacking and Intellectual Property Units. This section requires 
each Computer Hacking and Intellectual Property Unit 
established by the Department of Justice to include not less 
than one agent per unit dedicated to investigating crimes 
related to intellectual property theft.

Section 5. Education Program. This section establishes within 
the Office of the Associate Attorney General of the United 
States an Internet Use Education Program. Funds from criminal 
investigations and prosecutions and from the Civil Rights 
Division may not be used to fund such programs. Authorization 
for such funding has already become law in other legislation. 
The Department is directed to consult with the Register of 
Copyrights in developing this program.

Section 6. Actions by the Government of the United States. This 
section authorizes the filing of actions by the United States 
against persons for their infringement of works before the work 
is registered with the Copyright Office. Currently, only the 
author of the work has the authority to do so. This section 
ensures that criminal charges can be brought by the United 
States Government against those who steal a pre-release version 
of a work and then distribute it to others.

Section 7. Authorization of Appropriations. This section 
authorizes $15 million in annual appropriations for 
investigations and prosecutions of violations of Title 17.

Section 8. Prevention of Surreptitious Recording in Motion 
Picture Theaters. This section creates a new felony penalty for 
the camcording of movies in a movie theater subject to several 
conditions.
    Subsection (a) of the new Sec. 2319B created by Sec. 8 sets 
forth the substantive elements of the offense. Under this 
subsection, a person violates the statute when he or she, 
without the authorization of the copyright owner, knowingly 
uses or attempts to use an audiovisual recording device in a 
motion picture exhibition facility to transmit or make a copy 
of a motion picture or other audiovisual work protected under 
Title 17 or any part thereof. The legislation creates a new 
definition for the term ``motion picture exhibition facility.'' 
Other terms used in the legislation are defined in Sec. 101 of 
Title 17.
    Subsection (d) creates an immunity from liability for 
theater owners and associated individuals for their good faith 
efforts to reasonably detain someone they suspect of violating 
this in their theater(s). This provision is modeled upon 
numerous shopkeeper privilege statutes that exist in state and 
local laws.
    Subsection (g) clarifies that States may regulate the use 
of audiovisual recording devices in specific locations through 
the use of their police powers without impermissibly 
interfering with Federal copyright policy. The Committee is 
aware that several states have enacted legislation with 
proscriptions similar to those in the Federal law against using 
or attempting to use the recording functions of a camcorder or 
similar device without the express consent of a theater 
owner.\6\
---------------------------------------------------------------------------
    \6\ See, e.g., Ariz. Rev. Stat. 13-3723(a); Cal. Penal Code 653z 
(a). Other states have added the copyright owner to the permission 
chain. See, e.g., Ohio Rev. Code Ann. 2913.07(A)(1) (requiring consent 
of the licensor).
---------------------------------------------------------------------------
    Preemption of State criminal statutes may occur under 
either Sec. 301 of Title 17 where the gravamen of the state 
cause of action contains an element in addition to an 
allegation of wrongful copying or under the doctrine of 
conflict preemption. The Committee believes that statutes such 
as those above are qualitatively different for purposes of the 
``extra element'' statutory preemption test under Sec. 301 of 
the Copyright Act. They contain the extra elements of operation 
or attempted operation of a device, which does not involve 
copying at all and, perhaps more importantly, the entry onto 
property to perform an act that is both unauthorized by the 
real property owner and harmful to the lawful use of that 
property. Nonetheless, the purpose of this section is to make 
it unequivocally clear that neither Sec. 301 nor the non-
statutory doctrine of conflict preemption precludes the 
enforcement of such statutes on the basis that they interfere 
with the express or implicit policies of the Copyright Act.

Section 9. Sense of Congress. Section 9 contains sense-of-the-
Congress language that details the harms caused by peer-to-peer 
piracy and the difficulty in prosecuting crimes that occur on 
such networks.

Section 10. Enhancement of Criminal Copyright Infringement. DOJ 
has stated that existing law makes it difficult, if not 
impossible, to bring actions against peer-to-peer file sharers 
for sharing pirated materials. Section 10 creates a new 17 
U.S.C. Sec. 506(a)(3) to criminalize conduct in which a person 
``infringes a copyright by the knowing distribution, including 
by the offering for distribution by the public by electronic 
means, with reckless disregard of the risk of further 
infringement, during any 180-day period 1,000 or more works, or 
works that have a retail value of $10,000, or 1 or more pre-
release works. ``Pre-release works'' and ``retail value'' are 
defined. A limitation on liability is created for legal 
entities that meet face no civil liability under Sec. 512 as 
listed civil and criminal penalties are created for the 
violation of the newly created 17 U.S.C. Sec. 506(a)(3).

Section 11. Amendment of Federal Sentencing Guidelines 
Regarding the Infringement of Copyrighted Works and Related 
Crimes. Section 11 amends the authority of the United States 
Sentencing Commission to review and update the sentencing 
guidelines and policy statements surrounding several 
intellectual property rights crimes.

Section 12. Exemption from Infringement for Skipping Audio or 
Video Content in Motion Pictures. Subsection 12(b) of the 
legislation creates a new subsection Sec. 110 (11) of Title 17. 
This new subsection ensures that U.S. copyright law sanctions 
the use of any filtering service or technology that mutes or 
skips content, provided the service or technology--

        1. is confined to private, in-home use,

        2. Lfor the household of the purchasing consumer only; 
        and

        3. Ldoes not create a fixed copy of the alternate 
        version.

    The Committee is aware of services and companies that 
create fixed derivative copies of motion pictures and believes 
that such practices are illegal under the Copyright Act.
    Subsection 12(c) of the legislation clarifies existing U.S. 
trademark law to ensure that it cannot be interpreted to 
proscribe the operation of services identified in Sec. 12(b) so 
long as they display a clear and conspicuous notice that the 
altered version is not the performance intended by the director 
or copyright holder of the motion picture.
    The Committee believes that an on-screen disclaimer in 
large font at the beginning of a performance of a particular 
work that is displayed for a length of time suitable for the 
average viewer to read the notice is sufficient. Such notice 
would be similar to the FBI anti-piracy warnings shown at the 
beginning of most major motion pictures. This requirement 
begins 180 days after the legislation becomes law. Since the 
manufacturer of a physical device complying with the 
requirements maintains control over the device before the 
retail purchase point, these requirements should not burden 
consumer electronics manufacturers.

         Changes in Existing Law Made by the Bill, as Reported

  In compliance with clause 3(e) of rule XIII of the Rules of 
the House of Representatives, changes in existing law made by 
the bill, as reported, are shown as follows (existing law 
proposed to be omitted is enclosed in black brackets, new 
matter is printed in italics, existing law in which no change 
is proposed is shown in roman):

                      TITLE 17, UNITED STATES CODE



           *       *       *       *       *       *       *
CHAPTER 1--SUBJECT MATTER AND SCOPE OF COPYRIGHT

           *       *       *       *       *       *       *


Sec. 110. Limitations on exclusive rights: Exemption of certain 
                    performances and displays

    Notwithstanding the provisions of section 106, the 
following are not infringements of copyright:
            (1) * * *

           *       *       *       *       *       *       *

            (9) performance on a single occasion of a dramatic 
        literary work published at least ten years before the 
        date of the performance, by or in the course of a 
        transmission specifically designed for and primarily 
        directed to blind or other handicapped persons who are 
        unable to read normal printed material as a result of 
        their handicap, if the performance is made without any 
        purpose of direct or indirect commercial advantage and 
        its transmission is made through the facilities of a 
        radio subcarrier authorization referred to in clause 
        (8)(iii), Provided, That the provisions of this clause 
        shall not be applicable to more than one performance of 
        the same work by the same performers or under the 
        auspices of the same organization; [and]
            (10) notwithstanding paragraph (4), the following 
        is not an infringement of copyright: performance of a 
        nondramatic literary or musical work in the course of a 
        social function which is organized and promoted by a 
        nonprofit veterans' organization or a nonprofit 
        fraternal organization to which the general public is 
        not invited, but not including the invitees of the 
        organizations, if the proceeds from the performance, 
        after deducting the reasonable costs of producing the 
        performance, are used exclusively for charitable 
        purposes and not for financial gain. For purposes of 
        this section the social functions of any college or 
        university fraternity or sorority shall not be included 
        unless the social function is held solely to raise 
        funds for a specific charitable purpose[.]; and
            (11)(A) the making of limited portions of audio or 
        video content of a motion picture imperceptible by or 
        for the owner or other lawful possessor of an 
        authorized copy of that motion picture in the course of 
        viewing of that work for private use in a household, by 
        means of consumer equipment or services that--
                    (i) are operated by an individual in that 
                household;
                    (ii) serve only such household; and
                    (iii) do not create a fixed copy of the 
                altered version; and
            (B) the use of technology to make such audio or 
        video content imperceptible, that does not create a 
        fixed copy of the altered version.

           *       *       *       *       *       *       *


CHAPTER 4--COPYRIGHT NOTICE, DEPOSIT, AND REGISTRATION

           *       *       *       *       *       *       *


Sec. 411. Registration and infringement actions

    (a) [Except for] Except for an action brought by the 
Government of the United States or by any agency or 
instrumentality thereof, or an action brought for a violation 
of the rights of the author under section 106A(a), and subject 
to the provisions of subsection (b), no action for infringement 
of the copyright in any United States work shall be instituted 
until registration of the copyright claim has been made in 
accordance with this title. In any case, however, where the 
deposit, application, and fee required for registration have 
been delivered to the Copyright Office in proper form and 
registration has been refused, the applicant is entitled to 
institute an action for infringement if notice thereof, with a 
copy of the complaint, is served on the Register of Copyrights. 
The Register may, at his or her option, become a party to the 
action with respect to the issue of registrability of the 
copyright claim by entering an appearance within sixty days 
after such service, but the Register's failure to become a 
party shall not deprive the court of jurisdiction to determine 
that issue.

           *       *       *       *       *       *       *


CHAPTER 5--COPYRIGHT INFRINGEMENT AND REMEDIES

           *       *       *       *       *       *       *


Sec. 504. Remedies for infringement: Damages and profits

    (a) * * *
    (b) Actual Damages and Profits.--[The copyright owner]
            (1) In general.--The copyright owner is entitled to 
        recover the actual damages suffered by him or her as a 
        result of the infringement, and any profits of the 
        infringer that are attributable to the infringement and 
        are not taken into account in computing the actual 
        damages. In establishing the infringer's profits, the 
        copyright owner is required to present proof only of 
        the infringer's gross revenue, and the infringer is 
        required to prove his or her deductible expenses and 
        the elements of profit attributable to factors other 
        than the copyrighted work.
            (2) Damages for pre-release infringement.--
                    (A) In general.--In the case of any pre-
                release work, actual damages shall be presumed 
                conclusively to be no less than $10,000 per 
                infringement, if a person--
                            (i) distributes such work by making 
                        it available on a computer network 
                        accessible to members of the public; 
                        and
                            (ii) knew or should have known that 
                        the work was intended for commercial 
                        distribution.
                    (B) Definition.--For purposes of this 
                subsection, the term ``pre-release work'' has 
                the meaning given that term in section 506(h).

           *       *       *       *       *       *       *


Sec. 506. Criminal offenses

    [(a) Criminal Infringement.--Any person who infringes a 
copyright willfully either--
            [(1) for purposes of commercial advantage or 
        private financial gain, or
            [(2) by the reproduction or distribution, including 
        by electronic means, during any 180-day period, of 1 or 
        more copies or phonorecords of 1 or more copyrighted 
        works, which have a total retail value of more than 
        $1,000,
shall be punished as provided under section 2319 of title 18, 
United States Code. For purposes of this subsection, evidence 
of reproduction or distribution of a copyrighted work, by 
itself, shall not be sufficient to establish willful 
infringement.]
    (a) Criminal Infringement.--Any person who--
            (1) infringes a copyright willfully and for 
        purposes of commercial advantage or private financial 
        gain,
            (2) infringes a copyright willfully by the 
        reproduction or distribution, including by the offering 
        for distribution to the public by electronic means, 
        during any 180-day period, of 1 or more copies or 
        phonorecords of 1 or more copyrighted works, which have 
        a total retail value of more than $1,000, or
            (3) infringes a copyright by the knowing 
        distribution, including by the offering for 
        distribution to the public by electronic means, with 
        reckless disregard of the risk of further infringement, 
        during any 180-day period, of--
                    (A) 1,000 or more copies or phonorecords of 
                1 or more copyrighted works,
                    (B) 1 or more copies or phonorecords of 1 
                or more copyrighted works with a total retail 
                value of more than $10,000, or
                    (C) 1 or more copies or phonorecords of 1 
                or more copyrighted pre-release works,
shall be punished as provided under section 2319 of title 18. 
For purposes of this subsection, evidence of reproduction or 
distribution of a copyrighted work, by itself, shall not be 
sufficient to establish the necessary level of intent under 
this subsection.

           *       *       *       *       *       *       *

    (g) Limitation on Liability of Service Providers.--No legal 
entity shall be liable for a violation of subsection (a)(3) by 
reason of performing any function described in subsection (a), 
(b), (c), or (d) of section 512 if such legal entity would not 
be liable for monetary relief under section 512 by reason of 
performing such function. Except for purposes of determining 
whether an entity qualifies for the limitation on liability 
under subsection (a)(3) of this section, the legal conclusion 
of whether an entity qualifies for a limitation on liability 
under section 512 shall not be considered in a judicial 
determination of whether the entity violates subsection (a) of 
this section.
    (h) Definitions.--In this section:
            (1) Pre-release work.--The term ``pre-release 
        work'' refers to a work protected under this title 
        which has a commercial and economic value and which, at 
        the time of the act of infringement that is the basis 
        for the offense under subsection (a)(3), the defendant 
        knew or should have known had not yet been made 
        available by the copyright owner to individual members 
        of the general public in copies or phonorecords for 
        sale, license, or rental.
            (2) Retail value.-- The ``retail value'' of a 
        copyrighted work is the retail price of that work in 
        the market in which it is sold. In the case of an 
        infringement of a copyright by distribution, if the 
        retail price does not adequately reflect the economic 
        value of the infringement, then the retail value may be 
        determined using other factors, including but not 
        limited to suggested retail price, wholesale price, 
        replacement cost of the item, licensing, or 
        distribution-related fees.

           *       *       *       *       *       *       *

                              ----------                              


              CHAPTER 113 OF TITLE 18, UNITED STATES CODE

                      CHAPTER 113--STOLEN PROPERTY

Sec.
2311.  Definitions.
     * * * * * * *
2319A.  Unauthorized fixation of and trafficking in sound recordings and 
          music videos of live musical performances.
2319B.  Unauthorized recording of motion pictures in a motion picture 
          exhibition facility.

           *       *       *       *       *       *       *


Sec. 2319. Criminal infringement of a copyright

    (a) * * *

           *       *       *       *       *       *       *

    (d) Any person who commits an offense under section 
506(a)(3) of title 17--
            (1) shall be imprisoned not more than 3 years, or 
        fined in the amount set forth in this title, or both, 
        or, if the offense was committed for purposes of 
        commercial advantage or private financial gain, 
        imprisoned for not more than 5 years, or fined in the 
        amount set forth in this title, or both; and
            (2) shall, if the offense is a second or subsequent 
        offense under paragraph (1), be imprisoned not more 
        than 6 years, or fined in the amount set forth in this 
        title, or both, or, if the offense was committed for 
        purposes of commercial advantage or private financial 
        gain, imprisoned for not more than 10 years, or fined 
        in the amount set forth in this title, or both.
    [(d)] (e)(1) During preparation of the presentence report 
pursuant to Rule 32(c) of the Federal Rules of Criminal 
Procedure, victims of the offense shall be permitted to submit, 
and the probation officer shall receive, a victim impact 
statement that identifies the victim of the offense and the 
extent and scope of the injury and loss suffered by the victim, 
including the estimated economic impact of the offense on that 
victim.

           *       *       *       *       *       *       *

    [(e)] (f) As used in this section--
            (1) the terms ``phonorecord'' and ``copies'' have, 
        respectively, the meanings set forth in section 101 
        (relating to definitions) of title 17; [and]
            (2) the terms ``reproduction'' and ``distribution'' 
        refer to the exclusive rights of a copyright owner 
        under clauses (1) and (3) respectively of section 106 
        (relating to exclusive rights in copyrighted works), as 
        limited by sections 107 through 122, of title 17[.]; 
        and
            (3) the term ``financial gain'' has the meaning 
        given that term in section 101 (relating to 
        definitions) of title 17.

           *       *       *       *       *       *       *


Sec. 2319B. Unauthorized recording of motion pictures in a motion 
                    picture exhibition facility

    (a) Offense.--Any person who, without the authorization of 
the copyright owner, knowingly uses or attempts to use an 
audiovisual recording device to transmit or make a copy of a 
motion picture or other audiovisual work protected under title 
17, or any part thereof, from a performance of such work in a 
motion picture exhibition facility, shall--
            (1) be imprisoned for not more than 3 years, fined 
        under this title, or both; or
            (2) if the offense is a second or subsequent 
        offense, be imprisoned for no more than 6 years, fined 
        under this title, or both.
The possession by a person of an audiovisual recording device 
in a motion picture exhibition facility may be considered as 
evidence in any proceeding to determine whether that person 
committed an offense under this subsection, but shall not, by 
itself, be sufficient to support a conviction of that person 
for such offense.
    (b) Forfeiture and Destruction.--When a person is convicted 
of an offense under subsection (a), the court in its judgment 
of conviction shall, in addition to any penalty provided, order 
the forfeiture and destruction or other disposition of all 
unauthorized copies of motion pictures or other audiovisual 
works protected under title 17, or parts thereof, and any 
audiovisual recording devices or other equipment used in 
connection with the offense.
    (c) Authorized Activities.--This section does not prevent 
any lawfully authorized investigative, protective, or 
intelligence activity by an officer, agent, or employee of the 
United States, a State, or a political subdivision of a State, 
or by a person acting under a contract with the United States, 
a State, or a political subdivision of a State.
    (d) Immunity for Theaters and Authorized Persons.--With 
reasonable cause, the owner or lessee of a motion picture 
facility where a motion picture is being exhibited, the 
authorized agent or employee of such owner or lessee, the 
licensor of the motion picture being exhibited, or the agent or 
employee of such licensor--
            (1) may detain, in a reasonable manner and for a 
        reasonable time, any person suspected of committing an 
        offense under this section for the purpose of 
        questioning that person or summoning a law enforcement 
        officer; and
            (2) shall not be held liable in any civil or 
        criminal action by reason of a detention under 
        paragraph (1).
    (e) Victim Impact Statement.--
            (1) In general.--During the preparation of the 
        presentence report under rule 32(c) of the Federal 
        Rules of Criminal Procedure, victims of an offense 
        under this section shall be permitted to submit to the 
        probation officer a victim impact statement that 
        identifies the victim of the offense and the extent and 
        scope of the injury and loss suffered by the victim, 
        including the estimated economic impact of the offense 
        on that victim.
            (2) Contents.--A victim impact statement submitted 
        under this subsection shall include--
                    (A) producers and sellers of legitimate 
                works affected by conduct involved in the 
                offense;
                    (B) holders of intellectual property rights 
                in the works described in subparagraph (A); and
                    (C) the legal representatives of such 
                producers, sellers, and holders.
    (f) Definitions.--In this section:
            (1) Audiovisual work, copy, etc.--The terms 
        ``audiovisual work'', ``copy'', ``copyright owner'', 
        ``motion picture'', and ``transmit'' have, 
        respectively, the meanings given those terms in section 
        101 of title 17.
            (2) Audiovisual recording device.--The term 
        ``audiovisual recording device'' means a digital or 
        analog photographic or video camera, or any other 
        technology or device capable of enabling the recording 
        or transmission of a copyrighted motion picture or 
        other audiovisual work, or any part thereof, regardless 
        of whether audiovisual recording is the sole or primary 
        purpose of the device.
            (3) Motion picture exhibition facility.--The term 
        ``motion picture exhibition facility'' means a movie 
        theater, screening room, or other venue that is being 
        used primarily for the exhibition of a copyrighted 
        motion picture, if such exhibition is open to the 
        public or is made to an assembled group of viewers 
        outside of a normal circle of a family and its social 
        acquaintances.
    (g) State Law not Preempted.--Nothing in this section may 
be construed to annul or limit any rights or remedies under the 
laws of any State.

           *       *       *       *       *       *       *

                              ----------                              


                SECTION 32 OF THE TRADEMARK ACT OF 1946

    Sec. 32. (1) * * *

           *       *       *       *       *       *       *

    (3)(A) Any person who engages in the conduct described in 
paragraph (11) of section 110 of title 17, United States Code, 
and who complies with the requirements set forth in that 
paragraph is not liable on account of such conduct for a 
violation of any right under this Act.
    (B) A manufacturer, licensee, or licensor of technology 
that enables the making of limited portions of audio or video 
content of a motion picture imperceptible that is authorized 
under subparagraph (A) is not liable on account of such 
manufacture or license for a violation of any right under this 
Act, if such manufacturer, licensee, or licensor ensures that 
the technology provides a clear and conspicuous notice that the 
performance of the motion picture is altered from the 
performance intended by the director or copyright holder of the 
motion picture.
    (C) Any manufacturer, licensee, or licensor of technology 
described in subparagraph (B) who fails to comply with the 
requirement under subparagraph (B) to provide notice with 
respect to a motion picture shall be liable in a civil action 
brought by the copyright owner of the motion picture that is 
modified by the technology in an amount not to exceed $1,000 
for each such motion picture.
    (D) The requirement under subparagraph (B) to provide 
notice, and the provisions of subparagraph (C), shall apply 
only with respect to technology manufactured after the end of 
the 180-day period beginning on the date of the enactment of 
the Family Movie Act of 2004.

                           Markup Transcript



                            BUSINESS MEETING

                      WEDNESDAY, SEPTEMBER 8, 2004

                  House of Representatives,
                                Committee on the Judiciary,
                                                    Washington, DC.
    The Committee met, pursuant to notice, at 10:00 a.m., in 
Room 2141, Rayburn House Office Building, Hon. F. James 
Sensenbrenner, Jr., [Chairman of the Committee] Presiding.
    [Intervening business.]
    Chairman Sensenbrenner. The next item on the agenda is H.R. 
4077, the ``Piracy Deterrence and Education Act of 2004.''
    The Chair recognizes the gentleman from Texas, Mr. Smith, 
the Chairman of the Subcommittee on Courts, the Internet, and 
Intellectual Property, for a motion.
    Mr. Smith. Mr. Chairman, the Subcommittee on Courts, the 
Internet, and Intellectual Property reports favorably the bill 
H.R. 4077 with a single amendment in the nature of a substitute 
and moves its favorable recommendation to the full House.
    Chairman Sensenbrenner. Without objection, the bill will be 
considered as read and open for amendment at any point.
    [The bill, H.R. 4077, follows:]
      
      

  


      
      

  


      
      

  


      
      

  


      
      

  


      
      

  


      
      

  


      
      

  


      
      

  


      
      

  


      
      

  


      
      

  


      
      

  


      
      

  


      
      

  


      
      

  


      
      

  


      
      

  


      
      

  


      
      

  


    Chairman Sensenbrenner. And the Subcommittee amendment in 
the nature of a substitute which the Members have before them 
will be considered as read, considered as the original text for 
purposes of amendment and open for amendment at any point.
    [The amendment follows:]
      
      

  


      
      

  


      
      

  


      
      

  


      
      

  


      
      

  


      
      

  


      
      

  


      
      

  


      
      

  


      
      

  


      
      

  


      
      

  


      
      

  


      
      

  


      
      

  


      
      

  


      
      

  


      
      

  


      
      

  


    Chairman Sensenbrenner. The Chair recognizes the gentleman 
from Texas, Mr. Smith, to strike the last word.
    Mr. Smith. Mr. Chairman, I move to strike the last word.
    Chairman Sensenbrenner. Gentleman's recognized for 5 
minutes.
    Mr. Smith. Thank you, Mr. Chairman.
    First of all, I would like to thank the gentleman from 
California, Mr. Berman, for his contributions to this piece of 
legislation. This has been genuinely a cooperative effort, and 
I appreciate his support of this bill and perhaps his grudging 
support of the combination of this bill with the Family Movie 
Act.
    I would also like to thank Representative Forbes, who was 
here a minute ago, for working with MPAA in helping to narrow 
the focus of the bill which I think also improved it.
    Mr. Chairman, piracy of intellectual property over the 
Internet, especially on peer-to-peer networks, has reached 
alarming levels. Millions of pirated movies, music, software, 
game and other copyrighted files are now available for free 
download via certain peer-to-peer networks. This piracy harms 
everyone, from those looking for legitimate sources of content 
to those who create it.
    I have heard from songwriters, video store owners, software 
publishers and games developers who feel the impact of such 
piracy every day. They have urged Congress to better educate 
the public about the harms of piracy while also warning and 
penalizing those who continue to steal from others. P-to-P 
technology is an essential development of our Nation's high-
tech economy. However, like all new technologies, it has been 
abused by those who want to commit crimes.
    This legislation addresses P-to-P piracy by better 
educating the public about copyright law, authorizing creation 
of a system to warn on-line users of potential infringement, 
increasing cooperation among Federal agencies and intellectual 
property owners, penalizing those who bring camcorders into 
movie theaters for the purpose of making pirated DVD, and 
assisting Federal law enforcement authorities in their efforts 
to investigate and prosecute intellectual property crimes.
    The Subcommittee on Courts, the Internet, and Intellectual 
Property reported this bill in March to the full Committee; and 
I will shortly offer a manager's amendment to H.R. 4077 to make 
changes that have resulted from an ongoing series of 
discussions with interested parties.
    The key components of legislation include the development 
of a voluntary system for DOJ to warn Internet users of 
potentially illegal activity while protecting their privacy and 
addressing ISP cost concerns; a designation of dedicated 
intellectual property crime agents within DOJ, computer hacking 
and intellectual property sections who prosecute cybercrimes; 
and the creation of criminal penalties for those who go into 
movie theaters with camcorders to record new movies in order to 
create pirated DVDs. Finally, it has the creation of a new 
criminal penalties for those who wrongly make available over 
1,000 copyrighted works for others to download.
    Mr. Chairman, the Internet has revolutionized how Americans 
locate information, shop, and communicate. We must not let new 
Internet technologies become a haven for criminals. H.R. 4077 
will accomplish this, and I would urge the Members of the 
Committee to support it, and I yield back the balance of my 
time.
    Chairman Sensenbrenner. Does the gentleman from California, 
Mr. Berman, wish to add to this discussion?
    Mr. Berman. I do, Mr. Chairman.
    Chairman Sensenbrenner. He is recognized for 5 minutes.
    Mr. Berman. Mr. Chairman, while I was proud to work with my 
friend, the Chairman of the Subcommittee, on H.R. 4077 as 
originally introduced and as passed by our Subcommittee, I have 
some reservations about the substitute which will be offered 
later in this markup. I will defer an explanation of these 
reservations until the substitute is offered, but I will ask my 
colleagues to reject the substitute and vote to report the bill 
as reported by the Subcommittee.
    Copyright piracy poses a grave threat to the livelihood of 
all copyright creators. On just one peer-to-peer file swapping 
network a relatively small number of people are at this very 
moment likely offering for distribution more than 850 million 
mostly infringing files to be downloaded by millions of 
strangers. Web sites, Internet relay chat channels, file 
transfer protocol sites remain havens for theft of pre-released 
movies music and software.
    In the case of pre-released movies, copies often originate 
with surreptitious camcorders in public theaters. One Yahoo-run 
affinity group alone hosts almost 50,000 pages of copyright-
infringing needlework designs.
    I think an objective view understands that the solution to 
copyright piracy involves many elements, most of which don't 
require congressional involvement. Customer, consumers must 
have convenient access to legal content, copyright owners must 
utilize technology both to protect their creations and thwart 
piracy. Copyright owners must continue to educate consumers 
about the importance of copyright protection and use civil 
suits to protect their legal rights.
    Criminal prosecutions also play an important role, 
particularly in deterring egregious infringements by otherwise 
judgment-proof infringers. While several piracy rings have 
recently been prosecuted, there has been no prosecutions 
against egregious uploaders on public P-to-P networks. In 
examining why, it has become clear that law enforcement 
authorities need additional resources, statutory authority and 
incentives to make them a productive participant in the anti-
piracy battle. H.R. 4077 is designed to fulfill these needs and 
therefore is one part of the overall solution to copyright 
piracy.
    I want to mention just a couple of its provisions.
    Section 10 insures that criminal copyright prosecutions can 
be brought against copyright infringers who knowingly 
distribute massive amounts of copyrighted works or enormously 
valuable copyrighted works with reckless disregard of the risk 
of future infringement. As a result of this provision, it will 
be clear that criminal prosecutions can be brought against an 
infringer who knowingly uploads onto public P-to-P networks 
1,000 or more copyrighted works, a copyrighted work worth more 
than $10,000, or a pre-released copyrighted work. The high 
threats are threshold and mens rea standards included in 
section 10 ensure that only the most egregious infringers are 
subject to criminal liability.
    Section 8 clarifies it is a felony to surreptitiously 
record a movie in the theater. Organized piracy rings 
distribute copies of these surreptitious recordings on-line or 
on the street as pirate DVDs, video disks or VHS tapes.
    Section 6, which enables criminal prosecution of copyright 
infringement involving unregistered works, is important to 
photographers and other individual copyright owners who cannot 
practically register their copyrights in those images. Without 
the threat of statutory damages, which they can't get with 
unregistered works, there is no credible deterrent to 
infringement. Criminal prosecution would help remedy this 
situation.
    And, finally, section 3 directs the FBI to develop a 
program to deter copyright infringement on-line and to 
facilitate sharing of information about on-line copyright 
infringements among law enforcement ISPs and copyright owners.
    Mr. Chairman, taken together, the provisions of H.R. 4077 
as reported by the Subcommittee advance important objectives 
and I encourage my colleagues to stick with this version and 
report it favorably. I yield back.
    Chairman Sensenbrenner. Without objection, all Members may 
put opening statements in the record at this point in time.
    The Chair recognizes the gentleman from Texas, Mr. Smith, 
for purposes of offering an amendment in the nature of a 
substitute.
    Mr. Smith. Mr. Chairman, I have an amendment at the desk.
    Chairman Sensenbrenner. The clerk will report the 
amendment.
    The Clerk. Amendment in the nature of a substitute to H.R. 
4077 offered by Mr. Smith of Texas.
    Chairman Sensenbrenner. Without objection, the amendment is 
considered as read and open for amendment at any point; and the 
gentleman from Texas, Mr. Smith, is recognized for 5 minutes.
    [The amendment follows:]
      
      

  


      
      

  


      
      

  


      
      

  


      
      

  


      
      

  


      
      

  


      
      

  


      
      

  


      
      

  


      
      

  


      
      

  


      
      

  


      
      

  


      
      

  


      
      

  


      
      

  


      
      

  


      
      

  


      
      

  


      
      

  


      
      

  


      
      

  


    Mr. Smith. Thank you, Mr. Chairman. This manager's 
amendment that I offer now incorporates changes developed over 
the past few months in consultation with a wide variety of 
individuals, groups and Government agencies. These changes 
reflect a balance between the right of users and owners of 
intellectual property while ensuring that the Federal 
Government is able to pursue those who steal intellectual 
property.
    The changes incorporated in my manager amendment include 
ensuring that the section 3 provisions that authorize the 
Department of Justice to send warnings of potential piracy are 
voluntary for ISPs to communicate, ensuring that the same 
section 3 provisions protect consumer privacy, conforming the 
camcording provisions in section 8 to a Senate companion bill 
clarifying the references to Government studies in the sense of 
Congress resolution in section 9, and adding a provision to 
section 10 to protect ISPs from facing criminal sanctions for 
their routine day-to-day activities.
    Mr. Chairman, I have also included in my manager's 
amendment H.R. 4586, the ``Family Movie Act of 2004,'' which 
this Committee reported out last July on a bipartisan vote. 
Copyright enforcement is just as important as clarifying that 
copyright law cannot be used to limit a parent's right to 
control what their children watch in the privacy of their own 
homes.
    I urge my colleagues to support this manager amendment, and 
I will yield back the balance of my time.
    Chairman Sensenbrenner. Are there second degree amendments 
to the amendment in the nature of a substitute offered by the 
gentleman from Texas?
    Mr. Berman. Mr. Chairman.
    Chairman Sensenbrenner. Gentleman from California, Mr. 
Berman.
    Mr. Berman. I move to strike the last word.
    Chairman Sensenbrenner. Gentleman is recognized for 5 
minutes.
    Mr. Berman. Mr. Chairman, I reluctantly oppose this 
amendment because it includes the text of H.R. 4586, sometimes 
referred to over here as the ``ClearPlay'' language. H.R. 4586 
wrongfully takes sides in a private lawsuit, interferes with 
marketplace negotiations, impinges on artistic freedom and 
rights and is unnecessarily overbroad.
    I am not going to go through all of the arguments because 
we--I made them in the last markup and I didn't prevail. But I 
do want to focus on one particular aspect--two particular 
aspects of the problem here. During the full Committee markup 
of the bill, H.R. 4586, the text of which is now included in 
this substitute amendment, the bill's sponsors argued that 
those reasons that I gave were not compelling. But I don't 
believe they ever responded to perhaps the most compelling 
argument; namely, the bill may accomplish the opposite of what 
they intend. H.R. 4586 only allows one movie filtering 
technology to go to market without fear of infringement 
liability. But it is not the technology that the bill's 
sponsors intend to protect.
    Nissan Corporation, not ClearPlay, claims to have a patent 
over ClearPlay type technology. Nissan has sued ClearPlay for 
patent infringement, and there is some indication of the 
likelihood of their prevailing. Nissan recently convinced the 
huge company Thompson Electronics to pull its ClearPlay enabled 
DVD players from the retail market. If H.R. 4586 were to become 
law, Nissan Corporation may be the only company ultimately 
benefited. So what is Nissan Corporation? Nissan distributes a 
technology, called CustomPlay, that allows movie viewers to 
either reduce or enhance the level of violence, sex and 
profanity in a movie. The Nissan Web sites state that using 
CustomPlay technology, and I will repeat myself here, an adult 
can play a version of an adult individual video that seamlessly 
excludes content inconsistent with the viewer's adult content 
preferences and that is presented at a level of explicitness 
preferred by the adult. Adult content categories are 
standardized and are organized into five groups, who, what, 
camera, position and fetish. In other words, H.R. 4586 
exclusively protects from liability a technology, that among 
other things, enables viewers of pornographic movies to filter 
out the nonpornographic scenes.
    Though titled the Family Movie Act, H.R. 4586 may end up 
being called the Pornography Enhancement Act. This outcome is 
the opposite of what I think the sponsors intend. Thus, I would 
urge they pull their support for H.R. 4586 or explain to the 
Committee why they believe their bill won't backfire on those 
they asked to vote for it.
    There is another reason to oppose H.R. 4586, and it 
involves the fact that despite its title it covers television 
programs as well as movies. This bill uses the definition of 
motion picture found in section 101 of the Copyright Act, and 
this definition clearly includes television programming. 
Serious consequences result from the fact that this bill covers 
television as well. One consequence is that the bill would 
imperil the future of free over the air television by enabling 
ad skipping. This bill allows a digital video recorder service 
like TiVo to develop a filter that strips all commercials 
during playback of TV shows.
    This is no far-fetched possibility. A DVR company called 
Replay TV was sued by owners of TV programming for providing an 
ad skipping feature in its DVR. Conversely, the bill protects 
from copyright liability a DVR service that replaces the 
original ads that came with the TV programming with its own 
advertisements. I understand that at least one DVR company may 
already be testing such technologies. What economic model will 
underwrite the creation of free broadcast programming if all 
commercials are stripped?
    Unfortunately, the inclusion of TV programs within the 
ambit of this bill does not appear to be an unintended 
consequence. The bill sponsors have refused the entreaties of 
both broadcasters and owners of TV programming to limit the 
applicability of the bill to pre-recorded movies. Apparently 
the bill sponsors want the bill to cover TV.
    What is next? Recorded and broadcast music, video games, on 
line magazines, photographs? This is a slippery slope that the 
sponsors appear intent to slide down.
    I ask my colleagues to vote against the substitute because 
it includes this unwise language.
    Chairman Sensenbrenner. Are there any second degree 
amendments to the amendment in the nature of a substitute 
offered by the gentleman from Texas? Gentlewoman from 
California, Ms. Lofgren.
    Ms. Lofgren. I move to strike the last word.
    Chairman Sensenbrenner. Gentlewoman is recognized for 5 
minutes.
    Ms. Lofgren. I will not consume the entire 5 minutes. I did 
want to address the voluntary program that is included in the 
manager's amendment. This was drafted late and I understand it 
was--the intent is to avoid the concern that was raised by the 
original draft and I appreciate that effort. However, in 
reaching out to the ISP world, there continues to be some 
concern about how this might in fact work. It is intended to be 
voluntary. If the ISP does not wish to forward the notices, 
they are under this act under no obligation to do so. But there 
is concern about this measure, and I am just hoping that 
between now and the floor that if we get additional comments or 
even suggestions that we might be open to considering them in 
the manager's amendment.
    I am not going to vote against the provision as a 
consequence. I just wanted to raise the issue and it may be 
that the concerns are misplaced. I, you know, have not had 
enough time to really thoroughly explore that.
    Mr. Smith. If the gentlewoman would yield.
    Ms. Lofgren. I would.
    Mr. Smith. I could go into greater detail but I will be 
happy to talk to you about that between now and the full floor. 
I think we can address all your concerns and hope to do so 
shortly.
    Ms. Lofgren. I would welcome that opportunity, and as I 
say, the concerns may be misplaced, but I would like to explore 
them a little further, and I yield back.
    Mr. Coble. Mr. Chairman.
    Chairman Sensenbrenner. The gentlewoman yield back? The 
gentleman from North Carolina, Mr. Coble.
    Mr. Coble. I thank the Chairman and I won't use the entire 
5 minutes, Mr. Chairman.
    Chairman Sensenbrenner. The gentleman is recognized for 5 
minutes.
    Mr. Coble. But some people I think are concerned that the 
Family Movie Act, which is included as part of the substitute 
to Chairman Smith's anti-piracy bill, could allow the use of 
technology to fast forward through publicly aired broadcasts, 
including commercial advertisements. I am going to probably go 
along the same trail that Mr. Berman charted earlier. 
Advertisements or commercials pay for many of these publicly 
aired broadcasts, and without these commercials I fear the 
broadcast would be obsolete or maybe even substandard. And I am 
concerned and I am going to put this to you, Mr. Smith, or to 
Mr. Berman, that the language in the Family Movie Act, would 
that--strike that. The language in the Family Movie Act should 
be amended to clarify that the publicly aired broadcast should 
not be changed by ClearPlay policy. Now what do you say to 
that?
    Mr. Smith. If the gentleman from North Carolina would 
yield, I am happy that he brought that subject up. I too have 
heard some concerns expressed just in the last day or two, but 
quite frankly I think those concerns are unfounded and the 
fears are being raised by certain organizations who oppose the 
bill regardless of whether that would be the case or not. Let 
me say that the technology that we are talking about in this 
legislation does not in any shape or form address, cover 
commercials or other kinds of broadcasting that you are 
concerned about. In this case we are talking about technology 
that is used by parents, as you well know, to filter out 
violence and sex and so forth in a certain predesignated way. 
This bill does represent a delicate balance, so I wouldn't want 
to see it amended. However, I would be happy to work with you 
as well as the gentleman from Florida, Mr. Feeney, on report 
language to reassure you all that that is not the intent of the 
Family Movie Act.
    Mr. Berman. Would the gentleman yield?
    Mr. Smith. It is not my time.
    Mr. Coble. Well, let me reclaim my time and then I will 
yield to Mr. Berman.
    Mr. Berman. Thank you. The language of the bill clearly 
applies. The language exempts from any copyright liability 
technology which seeks to make imperceptible portions of a 
filmed program. As I explained under section 101 of the 
Copyright Act, television programming is included in this 
definition. ``imperceptible'' doesn't just apply to sex or 
violence. It applies to any frame, including commercials. You 
may want--you may name it a bill to do these things, but you 
rejected every amendment to limit it to those things, and as it 
stands this bill clearly applies to scenes having nothing to do 
with sex or nudity or violence and certainly includes 
commercials. So just on a factual basis I understand 
disagreeing with me and saying we wanted to include TV 
programming, but I think it is wrong to create an impression 
which is not the fact that this cannot apply to making 
imperceptible TV.
    Mr. Coble. Let me reclaim my time to say this. Then I will 
yield to the gentleman. But let me say this first. I have a 
little discomfort right now. But Mr. Smith has very generously 
offered to work with Mr. Feeney, with me, I assume with Mr. 
Berman, Ms. Lofgren and others, prior to going to the floor. 
Did I read you correctly, Mr. Chairman?
    Mr. Smith. Would the gentleman from North Carolina yield?
    Mr. Coble. I will indeed.
    Mr. Smith. I first of all thank him for his support, and I 
will reemphasize that we will work together on report language. 
I thought it was interesting what the gentleman from California 
just said. A few minutes ago he described this bill as on our 
side we call it the ClearPlay bill. Well, as the gentleman well 
knows, ClearPlay technology only addressed itself to 
approximately 1,600 movies and those 1,600 movies in different 
configurations are in fact skipped over, their violent and 
offensive sexual parts are skipped over by ClearPlay. The 
gentleman himself said that that is what the nature of the bill 
did and it addressed it self on ClearPlay, which has nothing to 
do with the commercials or nothing to do with any other entity 
other than these particular movies. So I think the gentleman by 
his own words a while ago admitted that this legislation did 
not get into commercial.
    Mr. Coble. Well, I promised the Chairman of the full 
Committee that I would not exhaust 5 minutes, so I am coming 
close to that right now.
    Chairman Sensenbrenner. The gentleman gets a ``get out of 
jail free'' card.
    Mr. Coble. Well, I have got a couple of seconds to go.
    Mr. Berman. No one has suggested that ClearPlay is either 
trying to enhance pornographic scenes or obliterate 
commercials. But this bill is not a bill limited to ClearPlay. 
First of all, it is not even----
    Chairman Sensenbrenner. The gentleman's time has expired.
    Mr. Berman. I would ask unanimous consent that the 
gentleman have one additional minute.
    Chairman Sensenbrenner. Without objection.
    Mr. Berman. If the gentleman would continue to yield to me, 
today is today. Who knows what ClearPlay or some other company 
will do tomorrow if this bill were to become law, and given 
that there is a patent infringement suit against ClearPlay it 
is not even clear if ClearPlay will be able to market this 
technology in the future. The company that claims to own the 
patent wants to market it in a very different way. You have got 
to deal with the language of the bill. It doesn't limit it to 
violence, to sexual--to the sexual explicitness, or to nudity, 
or profanity. It is open ended. It simply says a technology 
which makes imperceptible these--any scenes from a movie is not 
a copyright violation. That can include when applied to TV 
programming the commercials. That is--I mean there really 
isn't--can't be any serious legal dispute about that. And if 
report language could overcome a statute, statutory language, I 
would feel much more comfortable. But report language can't 
overcome the very explicit clear language of the text. You are 
going to have to change the language to----
    Chairman Sensenbrenner. The gentleman's time has once again 
expired.
    Mr. Goodlatte. Mr. Chairman.
    Chairman Sensenbrenner. The gentleman from Virginia, Mr. 
Goodlatte.
    Mr. Goodlatte. Thank you, Mr. Chairman. I will try to be 
brief. First of all, I want to thank Chairman Smith and 
Congressman Forbes for their work on this legislation, which is 
important and I support it. During the Subcommittee markup of 
the legislation I asked that the Subcommittee work to address 
the concerns that many Internet service providers had that they 
would be liable under the bill for their routine practices, and 
I am pleased to say the legislation today includes a provision 
that addresses these concerns. And I applaud the efforts of 
Chairman Sensenbrenner and Chairman Smith to address the 
concerns, while ensuring that strong protection of intellectual 
property rights continues. I know that it hasn't addressed the 
concerns of everybody, and I hope that Chairman Smith will 
remain open to continue to work on that. But I think a lot of 
progress has been made and I am very appreciative of that.
    I do want to also thank Chairman Smith for his statement 
that he intends to make it clear that this bill will not allow 
for the addition of offensive content or other manipulation 
that would cause the films to be of that nature, and I hope 
that if there is a way to take care of it, either in report 
language or legislatively, we can continue to work on that 
subject, and I would be happy to yield to him if he wants to 
add anything more to this subject because I am supportive of 
his efforts to allow this type of work to be done.
    Ms. Lofgren. Would the gentleman yield?
    Mr. Goodlatte. I will yield to the gentlewoman from 
California.
    Ms. Lofgren. Just on that point, I don't think personally 
it is necessary to have such language because the--what we have 
talked about is not changing the fundamental copy protected 
work. What you are talking about, skipping, editing what is 
already there but not changing the fundamental copy protected 
work. And if you were to add material you would be altering the 
copy protected work. So I do think you can put it in, but I 
think it is superfluous. Really this is about--we have talked 
about pornography and the right of parents to protect. But I 
really see this as a much broader issue, the right of consumers 
to watch whatever they want and to use technology to assist you 
to watch whatever you want. And I don't want to repeat the 
hearings and markups that we had in Subcommittee, but I think 
that that is kind of the, you know, beer and sandwich rule. I 
mean, if you can leave the room to go to the refrigerator and 
skip the part that you are skipping through the technology, why 
couldn't you use technology to skip through it.
    So I just wanted to add, I understand the concern, but you 
would be altering the work if you were to add material and 
therefore, I think it is precluded under that. And I thank the 
gentleman for yielding.
    Mr. Goodlatte. I thank the gentlewoman for her comments and 
yield to the gentleman from Texas.
    Mr. Smith. I would like to--thank you. First of all, I 
would like to thank the gentleman from Virginia for his support 
and his comments on this legislation. And let me reiterate what 
I mentioned a while ago, that we will be happy to work you and 
I will enlarge the group to say Representative Lofgren on 
appropriate report language to try to satisfy your concerns. I 
thank you again for your support.
    Mr. Goodlatte. Mr. Chairman, I yield back.
    Chairman Sensenbrenner. Are there second degree amendments 
to the amendment in the nature of a substitute offered by the 
gentleman from Texas? If not, the question occurs on the Smith 
amendment in the nature of a substitute, as amended. All in 
favor will say aye. Opposed no. The ayes appear to have it. The 
ayes have it and the amendment in the nature of a substitute is 
agreed to.
    Without objection, the Subcommittee amendment in the nature 
of a substitute laid down as the base text, as amended by the 
Smith substitute, is adopted. Reporting quorum is present. The 
question occurs on the motion to report the bill H.R. 4----
    Mr. Berman. Mr. Chairman, move to strike the last word.
    Chairman Sensenbrenner. The gentleman is recognized for 5 
minutes.
    Mr. Berman. I congratulate the Chairman of the Subcommittee 
on the passage of his substitute amendment. He has truly found 
a way to put me between a rock and a hard place. I am going to 
vote for this bill because I think of the importance of the 
provisions that we have worked on together and some of the 
adjustments you have made along the lines that Ms. Lofgren 
talked about. I had hoped that your own reflected judgment on 
the issue of the impact of the ClearPlay language on television 
programming will cause you to make changes between now and the 
floor in that language, and that the Senate in its great wisdom 
will deal with the rest of the ClearPlay language.
    Chairman Sensenbrenner. The gentleman is given permission 
to revise and extend his remarks as it relates to the Senate. 
The gentleman yield back.
    Mr. Berman. I do.
    Chairman Sensenbrenner. The reporting quorum is still 
present. The question occurs on the motion to report the bill 
H.R. 4077 favorably, as amended. All in favor will say aye. 
Opposed no. The ayes appear to have it. The ayes have it and 
the motion to report favorably is agreed to.
    Without objection, the bill will be reported favorably to 
the House in the form of a single amendment in the nature of a 
substitute incorporating the amendments adopted here today.
    Without objection, the Chair is authorized to move to go to 
conference pursuant to House rules. Without objection, the 
staff is directed to make any technical and conforming changes 
and all Members will be given 2 days, as provided by House 
rules, in which to submit additional dissenting, supplemental 
or minority views.
                             Minority Views

    While we support the anti-piracy provisions of H.R. 4077, 
we oppose section 12 of the bill as reported. Section 12 adds 
to H.R. 4077 the text of H.R. 4586, the ``Family Movie Act of 
2004.'' \1\ With the purported goal of sanitizing undesired 
content in motion pictures, section 12 immunizes from copyright 
and trademark liability any for-profit companies that develop 
movie-editing software to make content imperceptible without 
permission from the movies' creators.\2\ Section 12 takes sides 
in a private lawsuit, interferes with marketplace negotiations, 
fails to achieve its goal, is unnecessary and overbroad, may 
increase the level of undesired content, and impinges on 
artistic freedom and rights.
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    \1\ H.R. 4586 was reported by the Committee on the Judiciary on 
September 8, 2004. H.R. Rep. No. 670, 108th Cong., 2d Sess. (2004).
    \2\ H.R. 4586, the ``Family Movie Act of 2004,'' 108th Cong., 2d 
Sess. (2004). The bill's proponents refer to movies that have been 
sanitized of what they consider to be offensive content as ``family 
friendly.''
---------------------------------------------------------------------------
    The bill's proponents would have us believe that this bill 
is about whether children should be forced to watch undesired 
content, but it is not. The issue in this debate is who should 
make editorial decisions about what movie content children see: 
parents or a for-profit company. Supporters of section 12 
believe companies should be allowed to do the editing for 
profit, and without permission of film creators, while 
opponents believe parents are the best qualified to know what 
their children should not see. The legislation would accomplish 
little beyond inflaming the debate over indecent content in 
popular media and interfering with marketplace solutions to 
parental concerns.
    That is why section 12 is opposed by: (1) entities 
concerned with the intellectual property and artistic rights of 
creators, including the Directors Guild of America,\3\ the 
Motion Picture Association of America,\4\ and the Dean of the 
UCLA Film School; \5\ and (2) experts on copyright law, such as 
the Register of Copyrights.\6\
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    \3\ See Derivative Rights, Moral Rights, and Movie Filtering 
Technology: Hearing Before the Subcomm. on Courts, the Internet, and 
Intellectual Property of the House Comm. on the Judiciary, 108th Cong., 
2d Sess. 86 (May 20, 2004) (written statement of Taylor Hackford, 
Directors Guild of America) [hereinafter May 20, 2004 Hearing].
    \4\ Family Movie Act of 2004: Hearing on H.R. 4586 Before the 
Subcomm. on Courts, the Internet, and Intellectual Property of the 
House Comm. on the Judiciary, 108th Cong., 2d Sess. 67-70 (June 17, 
2004) (statement of Jack Valenti, President and Chief Executive 
Officer, Motion Picture Ass'n of America) [hereinafter H.R. 4586 
Hearing].
    \5\ Declaration of Dean Robert Rosen In Support of the Director 
Parties' Opposition to ClearPlay, Inc.'s, Trilogy Studios, Inc.'s, and 
Family Shield Technologies, LLC's Motion for Summary Judgment, Huntsman 
v. Soderbergh (D. Colo.) (02-M-1662) [hereinafter Rosen Decl.].
    \6\ H.R. 4586 Hearing at 6 (statement of Marybeth Peters, Register 
of Copyrights).
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 A. SECTION 12 WOULD IMPROPERLY INTERFERE WITH PENDING LITIGATION AND 
  PREMATURELY TERMINATE MARKETPLACE NEGOTIATIONS TO SETTLE THE DISPUTE

    As a preliminary matter, the legislation is inappropriate 
because it not only addresses the primary issues in a pending 
lawsuit but also takes sides with one of the parties to that 
suit. The U.S. District Court for the District of Colorado 
currently has before it a case that began as an action brought 
by a company called Clean Flicks against directors of 
movies.\7\ Clean Flicks sought a declaratory judgment against 
several directors that its business practice of providing 
edited versions of movies to consumers does not violate the 
rights of those who own the copyrights and trademarks for the 
original movies.\8\
---------------------------------------------------------------------------
    \7\ Huntsman v. Soderbergh, No. 02-M-1662 (D. Colo. filed Aug. 29, 
2002). The parties are awaiting a ruling on a motion for summary 
judgment.
    \8\ Complaint and Jury Demand, Huntsman v. Soderbergh (D. Colo.) 
(No. 02-M-1662).
---------------------------------------------------------------------------
    In the course of litigation, the number of parties 
expanded. Because Clean Flicks claimed that its conduct was 
lawful under the Copyright Act, the directors sought to join 
the movie studios in the dispute. In addition, a Utah-based 
company known as ClearPlay joined on the side of Clean Flicks. 
ClearPlay employees view motion pictures and create software 
filters that tag scenes they find offensive in each movie; this 
editing is done without notice to or permission from the 
copyright owners (the movie studios) or movie directors.\9\ 
When downloaded to a specially-adapted DVD player, the 
ClearPlay software filter instructs the player to ``skip and 
mute'' the tagged content when the affiliated DVD movie is 
played. Consumers who play a DVD they have rented or purchased 
would thus not see or hear the scenes that ClearPlay has tagged 
for filtering.
---------------------------------------------------------------------------
    \9\ ClearPlay has fourteen filter settings: (1) strong action 
violence, (2) gory/brutal violence, (3) disturbing images (i.e., 
macabre and bloody images), (4) sensual content, (5) crude sexual 
content, (6) nudity (including art), (7) explicit sexual situations, 
(8) vain references to deity, (9) crude language and humor, (10) ethnic 
and racial slurs, (11) cursing, (12) strong profanity, (13) graphic 
vulgarity, and (14) explicit drug use.
---------------------------------------------------------------------------
    The bill directly addresses copyright and trademark issues 
raised in the case and inappropriately takes the side of one 
party. First, the content creators allege in the lawsuit that 
ClearPlay makes derivative works in violation of the Copyright 
Act; in particular, they argue ClearPlay's editing software 
violates their exclusive rights as movie copyright owners to 
make modifications or other derivations of the original 
movies.\10\
---------------------------------------------------------------------------
    \10\ See The Player Control Parties' Opening Brief in Support of 
Their Motion for Summary Judgment, Huntsman v. Soderbergh (D. Colo.) 
(No. 02-M-1662). Section 106(2) of title 17, United States Code, gives 
to authors the exclusive right to ``prepare derivative works based on 
the copyrighted work.'' The Copyright Act further defines a 
``derivative work'' as ``a work based upon one or more preexisting 
works, such as a translation, musical arrangement, dramatization, 
fictionalization, motion picture version, sound recording, art 
reproduction, abridgment, condensation, or any other form in which a 
work may be recast, transformed, or adapted. A work consisting of 
editorial revisions, annotations, elaborations, or other modifications, 
which, as a whole, represent an original work of authorship, is a 
`derivative work.' '' 17 U.S.C. Sec. 101.
---------------------------------------------------------------------------
  The Register of Copyrights has testified as to her opinion about the 
copyright issues involved in the case. The Register believes that 
infringement of the exclusive right under 17 U.S.C. Sec. 106(2) to make 
derivative works requires creation of a fixed copy of a derivative 
work. H.R. 4586 Hearing at 7. While the Register's opinion clearly 
bears much authority, it is neither binding on a court nor dispositive 
of the pending lawsuit. Due to the novelty of both the legal and 
technological issues involved, the court may very well reach a 
different conclusion from that drawn by the Register.
    Though no court has ruled on this issue, the bill would 
assist ClearPlay by preemptively vitiating this legal claim. It 
would amend the law to state that certain technology which 
makes portions of motion picture content imperceptible during 
playback does not violate copyright law. While not benefitting 
Clean Flicks and certain other defendants, the bill is 
specifically designed to legalize ClearPlay technology.
    Second, film directors claim that ClearPlay violates their 
trademark rights under section 43(a) of the Lanham Act.\11\ The 
directors allege that ClearPlay uses their trademarked names in 
a way that is likely to cause confusion as to the affiliation, 
connection, or association of ClearPlay with the director, or 
as to the origin, sponsorship, or approval of ClearPlay by the 
director.\12\ Their allegation is based on the fact that a 
ClearPlay-sanitized film still indicates the name of the 
director, making it incorrectly appear as if the director has 
approved the sanitized version.
---------------------------------------------------------------------------
    \11\ See The Player Control Parties' Opening Brief in Support of 
Their Motion for Summary Judgment, Huntsman v. Soderbergh (D. Colo.) 
(No. 02-M-1662).
    \12\ See 15 U.S.C. Sec. 1125(a)(1).
---------------------------------------------------------------------------
    As with the copyright claims against ClearPlay, the bill 
would usurp judicial consideration of the trademark claims 
against ClearPlay by legalizing the very conduct at issue in 
the pending litigation. The bill would make it legal under 
trademark law to sell a product that alters a work and then 
still attribute that work to the original's creator. The effect 
would again be to specifically benefit one party, ClearPlay, to 
the detriment of all others involved in pending litigation.
    In summary, the directors and movie studios have non-
frivolous legal claims against ClearPlay. Because the case has 
not proceeded past the most preliminary stages at the trial 
level, there has not been any statutory interpretation, let 
alone a problematic one, that would justify a legislative 
solution. In other words, the law has yet to be interpreted in 
this area, so there is no rational basis for Congress to pass 
legislation that eliminates certain copyright and trademark 
rights that are at issue between specific parties.
    Passage of this legislation is even more problematic 
considering that, over the past year, movie creators have 
negotiated in good faith to settle their dispute with 
ClearPlay. The movie creators had offered ClearPlay terms that 
would allow it to deploy its technology without fear of 
copyright or trademark liability.\13\ Unfortunately, due to the 
two hearings on this issue and the movement of this editing 
proposal, those negotiations have stalled; ClearPlay has been 
emboldened to present several new demands that represent a 
significant step back from its previous positions. The growing 
prospects for a legislative fix have caused ClearPlay to 
abandon good-faith negotiation and have made it less likely 
that consumers will have the choices the bill's proponents 
allegedly desire.
---------------------------------------------------------------------------
    \13\ Despite the extremely complicated nature of these 
negotiations, they had proceeded quite far. In December 2003, the DGA 
agreed not to object under its collective bargaining agreement if the 
studios offered ClearPlay a license to utilize the edits contained in 
television and airplane versions of movies. The DGA believed this 
compromise was tolerable because a film's director usually makes the 
necessary edits for television and airplane versions and is able to 
control the integrity of such edited versions. Over the course of the 
next several months, the studios conveyed an offer along these lines to 
ClearPlay.
---------------------------------------------------------------------------
  More recently, ClearPlay presented the studios with a counteroffer. 
The studios forwarded this counteroffer to the DGA for its response. In 
a May 29, 2004 response, the DGA relaxed certain limitations on a 
previous agreement to allow ClearPlay to license the television and 
airplane versions of movies. Rather than accept this offer, or present 
a good-faith counteroffer, ClearPlay apparently has enlarged its 
demands: (1) for movies where, no airplane or television version is 
available, it has sought the ability to edit them; and (2) with regard 
to films for which television or airplane versions have been made 
available, it is asking that it be able to make its own edits, rather 
than use the pre-existing edited versions.
    In short, fundamental fairness prohibits Congress from 
passing legislation to influence a pending case and private 
business negotiations. As a matter of equity, it is unfair to 
change the rules in the middle of the game, particularly to 
help one specific entity; if passed, section 12 would be an 
unfortunate example of such unfairness. For these reasons, 
section 12 should not be considered while litigation is 
pending.\14\
---------------------------------------------------------------------------
    \14\ See H.R. 4586 Hearing at 8 (statement of Marybeth Peters, 
Register of Copyrights) (``I do not believe that such legislation 
should be enacted--and certainly not at this time. As you know, 
litigation addressing whether the manufacture and distribution of such 
software violates the copyright law and the Lanham Act is currently 
pending in the United States District Court for the District of 
Colorado. A summary judgment motion is pending. The court has not yet 
ruled on the merits. Nor has a preliminary injunction been issued--or 
even sought.'').
---------------------------------------------------------------------------

                      B. SECTION 12 IS UNNECESSARY

    Regardless of the outcome of the pending litigation, this 
legislation should not be brought before the House because it 
is unnecessary. Its supposed rationale is to make it easier for 
parents and children to avoid watching motion pictures with 
undesired content, but parents and children already have such 
options.
    At the outset, there is an obvious marketplace solution to 
undesired content in that consumers can merely elect not to 
view it. As the Register of Copyrights testified at a hearing 
on the bill underlying the amendment:

        I cannot accept the proposition that not to permit 
        parents to use such products means that they are 
        somehow forced to expose their children (or themselves) 
        to unwanted depictions of violence, sex and profanity. 
        There is an obvious choice--one which any parent can 
        and should make: don't let your children watch a movie 
        unless you approve of the content of the entire 
        movie.\15\
---------------------------------------------------------------------------
    \15\ H.R. 4586 Hearing at 9 (written statement of Marybeth Peters) 
(emphasis added).

    The motion picture industry has even enhanced the ability 
of consumers to exercise this choice. For decades and on a 
voluntary basis, it has implemented a rating system for its 
products that indicates the level of sexual or violent content 
and the target audience age.\16\ Each and every major motion 
picture released in theaters or on DVD or VHS bears such a 
rating. Such ratings effectively enable parents to steer their 
children away from movies they consider inappropriate.
---------------------------------------------------------------------------
    \16\ Motion Picture Ass'n of America, Movie Rating System 
Celebrates 34th Anniversary with Overwhelming Parental Support (Oct. 
31, 2002) (press release). The industry has five rating categories: G 
for General Audiences, PG for Parental Guidance Suggested, PG-13 for 
Parental Caution Suggested for children under 13, R for Restricted 
(parent or guardian required for children under 17), and NC-17 for No 
Children 17 and under admitted.
---------------------------------------------------------------------------
    Most importantly, the film rating system enable parents to 
identify movies that they consider appropriate for their 
children, and the industry has acted to make this choice 
meaningful. The industry annually releases dozens of films 
geared toward audiences who do not wish to see sexual, violent, 
or profane content.\17\ As a result, it is clear that the movie 
industry provides parents with abundant opportunity to find 
films they will consider appropriate for their children. The 
movie industry has, therefore, already met the request of an 
H.R. 4586 supporter who looked forward to a day when ``the 
industry will get around to issue us age-appropriate 
products.'' \18\
---------------------------------------------------------------------------
    \17\ In 1999, filmmakers released 14 G-rated and 24 PG-rated major 
motion pictures. In 2000, there were 16 G-rated and 27 PG-rated films. 
In 2001, 8 G-rated and 27 PG-rated movies were released. In 2002, 12 G-
rated and 50 PG-rated pictures were distributed. Finally, in 2003, 11 
G-rated and 34 PG-rated motion pictures were released.
    \18\ H.R. 4586 Hearing at 15 (statement of Amitai Etzioni, Founder 
and Director, The Institute for Communitarian Policy Studies, George 
Washington University).
---------------------------------------------------------------------------
    While some of the bill's supporters say these choices are 
meaningless on the grounds that the entertainment industry 
markets violent and sexual content to youth,\19\ that claim is 
false according to the most recent and objective report. The 
Federal Trade Commission conducted the most recent study on 
this issue and concluded the following:
---------------------------------------------------------------------------
    \19\ May 20, 2004 Hearing at 20 (statement of Jeff J. McIntyre, 
Senior Legislative and Federal Affairs Officer, American Psychological 
Ass'n).

        On the whole, the motion picture industry has continued 
        to comply with its pledge not to specifically target 
        children under 17 when advertising films rated R for 
        violence. In addition, the studios generally are 
        providing clear and conspicuous ratings and rating 
        information in advertisements for their R- and PG-13 
        rated films.\20\
---------------------------------------------------------------------------
    \20\ Federal Trade Comm'n, Marketing Violent Entertainment to 
Children: A Fourth Follow-up Review of Industry Practices in the Motion 
Picture, Music Recording & Electronic Game Industries 10 (July 2004).

The industry is, therefore, doing its part to keep undesired 
content away from children.
    The facts demonstrate that parents have the information and 
tools necessary to make and enforce informed choices about the 
media their children experience and have plenty of wholesome 
media alternatives to offer their children.

   C. SECTION 12 WOULD LEGALIZE EDITING THAT IS INCOMPREHENSIBLE AND 
      OVERBROAD AND WOULD LEAD TO AN INCREASE IN UNDESIRED CONTENT

    Section 12 would lead to editing that is inconsistent, 
overbroad, and counterproductive. First, ClearPlay does not 
screen out the content it purportedly is designed to filter. 
The New York Times found that ClearPlay's editing does not 
conform to its own standards:

        For starters, its editors are wildly inconsistent. They 
        duly mute every ``Oh my God,'' ``You bastard,'' and 
        ``We're gonna have a helluva time'' (meaning sex). But 
        they leave intact various examples of crude teen slang 
        and a term for the male anatomy.

        In ``Pirates of the Caribbean,'' ``God-forsaken 
        island'' is bleeped, but ``heathen gods'' slips 
        through.\21\
---------------------------------------------------------------------------
    \21\ David Pogue, Add ``Cut'' and ``Bleep'' to a DVD's Options, 
N.Y. Times, May 27, 2004, at G1.

In this regard, ClearPlay is seemingly ineffective, and the 
legislation would be, as well.
    Second, the legislation is overbroad and would go beyond 
its allegedly intended effects of legalizing tools for 
sanitizing movies of sex, violence, and profanity. In fact, 
section 12 would legalize a far wider and less desirable 
universe of filters for profit than its sponsors have 
disclosed. Filters could be based on social, political, and 
professional prejudices and could edit more than just movies.
    For instance, because the bill is not explicitly limited to 
the deletion of sex, violence, and profanity, it would legalize 
socially-undesirable editing, such as:

         LA filter that edits out racial conflict 
        between law enforcement and minorities in The 
        Hurricane, conflict that sets the context for how the 
        minorities later react to the police; \22\
---------------------------------------------------------------------------
    \22\ ClearPlay actually has made such edits. ``In its alterations 
of the film, ClearPlay chooses to omit the racist language [used by 
white police officers against a young Rubin Carter] that is integral to 
our understanding of the story. . . . ClearPlay skips these lines in 
full, choosing to fast-forward its version of the movie to a later part 
of the interrogation scene. However, it is via this racist and 
threatening language that the audience connects with the intimidation 
that the young Carter must feel and the racism he is encountering at 
the very center of law enforcement.'' Rosen Decl., supra note 4, at 6-
7.

         LA filter that skips over the nude scenes from 
        Schindler's List, scenes that are critical to conveying 
        the debasement and dehumanization suffered by 
---------------------------------------------------------------------------
        concentration camp prisoners;

         LA filter that strips Jungle Fever of scenes 
        showing interracial romance and leaves only those 
        scenes depicting interracial conflict; and

         LA filter marketed by Holocaust revisionists 
        that removes from World War II documentaries any 
        footage of concentration camp.

    The legislation also would immunize products that filter 
political or business content based on the opinions of the 
creator, including:

         LA filter that skips over political 
        advertisements contrary to the positions of the 
        developer's beliefs;

         LA filter that cleanses news stories, such as 
        by editing out comments in support of or in opposition 
        to government policies; and

         LA filter that deletes television stories 
        either helpful to the filter developer's competitor or 
        critical of the developer's corporate parent.

    We would hope that none of the bill's proponents would 
condone such malicious editing. Unfortunately, at the full 
Committee markup of the legislation, the sponsors rejected an 
effort to limit the proposal to its purported scope of profane, 
sexual, and violent content.\23\ If enacted, section 12 could 
lead to the editing of artistic works based upon racial, 
religious, social, political, and business biases.
---------------------------------------------------------------------------
    \23\ See Markup of H.R. 4586 Before the House Comm. on the 
Judiciary, 108th Cong., 2d Sess. (July 21, 2004) (amendment offered by 
Rep. Adam Schiff (D-CA) to limit editing to profane, sexual, and 
violent content) [hereinafter H.R. 4586 Markup]. The amendment was 
defeated by voice vote. Id.
---------------------------------------------------------------------------
    Moreover, the bill would permit the editing of works other 
than movies. While the bill's author argues that its purpose is 
to sanitize movies,\24\ a close reading of the legislation 
shows that it would permit the editing of broadcast television 
programming, as well. More specifically, section 12 permits the 
``making of limited portions of audio or video content of a 
motion picture imperceptible.'' \25\ The copyright law defines 
``motion pictures'' as ``audiovisual works consisting of a 
series of related images which, when shown in succession, 
impart an impression of motion, together with accompanying 
sounds, if any.'' \26\ Because this definition includes 
television programs,\27\ the legislation would permit editing 
of broadcast television.
---------------------------------------------------------------------------
    \24\ H.R. 4586 Markup (statement of Rep. Lamar Smith (R-TX)).
    \25\ H.R. 4586.
    \26\ 17 U.S.C. Sec. 101.
    \27\ H.R. Rep. No. 1476, 94th Cong., 2d Sess. (1976) (House report 
on the 1976 Copyright Act).
---------------------------------------------------------------------------
    As a result, the bill would legalize a filter that skips, 
for instance, all commercial advertisements during playback of 
free, over-the-air broadcast television programming. The 
revenues that broadcast television companies generate from 
selling commercial advertisement time is the sole means by 
which television programming is financed.\28\ Permitting 
television commercials to be deleted would reduce the ability 
of television programmers to sell ad time and thus make it 
financially difficult for television stations to remain in 
business. Consumers across the country would thus be deprived 
of a prime and free source of news, entertainment, and other 
information.
---------------------------------------------------------------------------
    \28\ In the Matter of Commission Seeks Public Comment on Spectrum 
Policy Task Force Report: Joint Reply Comments of the Association for 
Maximum Service Television, Inc. and the National Association of 
Broadcasters Before the Federal Communications Comm'n, ET Docket No. 
02-135 13 (Feb. 28, 2003).
---------------------------------------------------------------------------
    Finally, the legislation could lead to increased violence 
and sexual content in entertainment. Just as section 12 allows 
nudity to be edited out, it allows everything except nudity to 
be deleted. This concern is not merely hypothetical. Nissim 
Corporation has patented a technology called CustomPlay that, 
among other things, enables viewers of pornographic movies to 
filter out the non-pornographic scenes and ``enhance'' the 
adult-viewing experience.\29\
---------------------------------------------------------------------------
    \29\ Using CustomPlay, ``[a]n adult can play a version of an adult 
video that seamlessly excludes content inconsistent with the viewer's 
adult content preferences, and that is presented at a level of 
explicitness preferred by the adult. Adult content categories are 
standardized and are organized into five groups Who, What, Camera, 
Position, and Fetish.'' CustomPlay, Content Preferences (visited Aug. 
24, 2004) .
---------------------------------------------------------------------------
    Additionally, because section12 only protects technology 
developers like ClearPlay from liability for copyright and 
trademark infringement, Nissim may cause the bill to backfire 
on its sponsors. Nissim has sued ClearPlay for patent 
infringement, claiming to have a patent on ClearPlay-type film-
editing technology.\30\ If Nissim's claims are valid, then only 
Nissim could distribute such film-editing software.\31\ Thus, 
contrary to its stated purpose, section12 could succeed in 
legalizing only Nissam's technology, which enables users to 
increase the proportion of sex or violence in a movie.
---------------------------------------------------------------------------
    \30\ Nissim Corp. v. ClearPlay, No. 04-21140 (S.D. Fla. filed May 
13, 2004).
    \31\ In response to a cease-and-desist letter from Nissim, a 
manufacturer of DVD players, Thomson, pulled ClearPlay-enabled players 
from the retail market.
---------------------------------------------------------------------------

       D. SECTION 12 WOULD IMPAIR ARTISTIC FREEDOM AND INTEGRITY

    The problems with this legislation are compounded by the 
fact that it violates principles of artistic freedom and 
expression. The concept of protecting artistic freedom is well 
recognized.\32\ The National Endowment for the Arts states 
``[a]rtistic work and freedom of expression are a vital part of 
any democratic society.'' \33\ For this reason, the NEA seeks 
to preserve works of art,\34\ and an important part of 
preservation is to ensure artists are involved in how their 
creations are portrayed.
---------------------------------------------------------------------------
    \32\ Sam Ricketson, The Berne Convention: 1886-1986 456 (1997) 
(``Any author, whether he writes, paints, or composes, embodies some 
part of himself--his thoughts, ideas, sentiments and feelings--in his 
work, and this gives rise to an interest as deserving of protection as 
any of the other personal interests protected by the institutions of 
positive law, such as reputation, bodily integrity, and confidences. 
The interest in question here relates to the way in which the author 
presents his work to the world, and the way in which his identification 
with the work is maintained.'').
    \33\ National Endowment for the Arts, Strategic Plan: FY2003-2008 3 
(Feb. 2003).
    \34\ Id. at 8.
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    This principle, commonly referred to as a ``moral right,'' 
is so important that it is required by international agreements 
and is codified in U.S. law. For instance, the Berne Convention 
for the Protection of Literary and Artistic Works grants 
creators the right to object to ``any distortion, mutilation, 
or other modification of, or other derogatory action in 
relation to, the said work, which would be prejudicial to his 
honor or reputation.'' \35\ The United States, recognizing the 
importance of this right, subsequently enacted it into both 
copyright law \36\ and trademark law.\37\
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    \35\ Berne Convention for the Protection of Literary and Artistic 
Works, art. 6bis, 1971.
    \36\ 17 U.S.C. Sec. 106A.
    \37\ 15 U.S.C. Sec. 1125.
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    While moral rights protection for U.S. creators is far 
weaker than the protection afforded European creators, a 
certain level of protection for the moral rights of U.S. 
creators does exist. The ability of creators to bring claims 
under the Lanham Act, just as directors have done against 
ClearPlay, does provide creators with an important ability to 
protect their moral rights. In fact, the availability of 
section 43(a) was one of the specific reasons Congress decided, 
during adoption of the Berne Convention Implementation Act, 
that U.S. law met the moral rights obligations contained in the 
Berne Convention.\38\ By limiting the availability of Lanham 
Act suits, section12 would limit the moral rights of directors 
in a way that conflicts with U.S. obligations under the Berne 
Convention.
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    \38\ 133 Cong. Rec. H1293 (daily ed. Mar. 16, 1987) (statement of 
Rep. Robert Kastenmeier).
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    Contrary to our laws and international obligations, section 
12 does not require that filtering be done with the permission 
of the content creator or owner, but rather creates an 
exemption from copyright and trademark liability for filtering. 
As the Register of Copyrights stated before the Subcommittee:

        I have serious reservations about enacting legislation 
        that permits persons other than the creators or 
        authorized distributors of a motion picture to make a 
        profit by selling adaptations of somebody else's motion 
        picture. It's one thing to say that an individual, in 
        the privacy of his or her home, should be able to 
        filter out undesired scenes or [dialogue] from his or 
        her private home viewing of a movie. It's another 
        matter to say that a for-profit company should be able 
        to commercially market a product that alters a 
        director's artistic vision.\39\
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    \39\ H.R. 4586 Hearing at 10 (written statement of Marybeth 
Peters).

    It is clear, therefore, that the legislation violates an 
artist's right to his or her artistic integrity. To permit 
editing of a creation without the permission of the creator is 
to encourage censorship and to vitiate freedom of expression.
    In conclusion, section 12 is ill-conceived, poorly-drafted 
legislation. Beyond its patent assault on intellectual property 
rights, the bill inappropriately involves Congress in a private 
business dispute and would lead to socially undesirable editing 
and actually permit the distribution of technology that makes 
pornography even more pornographic. Finally, it encourages 
unwarranted intrusions into artistic freedom.

                                   John Conyers, Jr.
                                   Howard L. Berman.
                                   Robert C. Scott.
                                   Melvin L. Watt.
                                   Sheila Jackson Lee.
                                   Maxine Waters.
                                   Robert Wexler.
                                   Tammy Baldwin.
                                   Linda T. Sanchez.

                                  
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