Page 1       TOP OF DOC
85–490 PDF








MARCH 6, 2003

Serial No. 5

Printed for the use of the Committee on the Judiciary
 Page 2       PREV PAGE       TOP OF DOC

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

F. JAMES SENSENBRENNER, Jr., Wisconsin, Chairman
HENRY J. HYDE, Illinois
HOWARD COBLE, North Carolina
MARK GREEN, Wisconsin
MELISSA A. HART, Pennsylvania
 Page 3       PREV PAGE       TOP OF DOC

JOHN CONYERS, Jr., Michigan
HOWARD L. BERMAN, California
MELVIN L. WATT, North Carolina
ZOE LOFGREN, California
MARTIN T. MEEHAN, Massachusetts
WILLIAM D. DELAHUNT, Massachusetts
ADAM B. SCHIFF, California
LINDA T. SÁNCHEZ, California

PHILIP G. KIKO, Chief of Staff-General Counsel
PERRY H. APELBAUM, Minority Chief Counsel

Subcommittee on Courts, the Internet, and Intellectual Property
LAMAR SMITH, Texas, Chairman
HENRY J. HYDE, Illinois
 Page 4       PREV PAGE       TOP OF DOC
MARK GREEN, Wisconsin
MELISSA A. HART, Pennsylvania

HOWARD L. BERMAN, California
JOHN CONYERS, Jr., Michigan
ZOE LOFGREN, California
MARTIN T. MEEHAN, Massachusetts
WILLIAM D. DELAHUNT, Massachusetts

MELISSA L. MCDONALD, Full Committee Counsel
ALEC FRENCH, Minority Counsel
 Page 5       PREV PAGE       TOP OF DOC


MARCH 6, 2003

    The Honorable Lamar Smith, a Representative in Congress From the State of Texas, and Chairman, Subcommittee on Courts, the Internet, and Intellectual Property

    The Honorable Howard L. Berman, a Representative in Congress From the State of California, and Ranking Member, Subcommittee on Courts, the Internet, and Intellectual Property


The Honorable Marybeth Peters, Register of Copyrights, Copyright Office of the United States, The Library of Congress
Oral Testimony
Prepared Statement

Mr. W. Kenneth Ferree, Bureau Chief, Media Bureau, Federal Communications Commission
Oral Testimony
Prepared Statement

Mr. Fritz E. Attaway, Executive Vice President Government Relations and Washington General Counsel, Motion Picture Association of America (MPAA)
 Page 6       PREV PAGE       TOP OF DOC
Oral Testimony
Prepared Statement

Mr. Edward J. Black, President and Chief Executive Officer, Computer and Communications Industry Association (CCIA)
Oral Testimony
Prepared Statement


    Letter from John S. Orlando, Senior Vice President, External Relations, National Association of Broadcasters

    Letter from Jonthan Zuck, President, Association for Competitive Technology

    Chart made by Philips Electronics North America Corp. to the Federal Communications Commission


Material Submitted for the Hearing Record

    The Honorable John Conyers, a Representative in Congress From the State of Michigan
 Page 7       PREV PAGE       TOP OF DOC

    The Honorable Bob Goodlatte, a Representative in Congress From the State of Virginia

    The Honorable Zoe Lofgren, a Representative in Congress From the State of California

    The Honorable Robert Wexler, a Representative in Congress From the State of Florida

    Letter from Gigi B. Sohn, President, Public Knowledge, and Christopher Murray, Legislative Counsel, Consumers Union with attachments

    Prepared Statement of the Office of the Commissioner of Baseball



House of Representatives,
Subcommittee on Courts, the Internet,
and Intellectual Property,
Committee on the Judiciary,
Washington, DC.
 Page 8       PREV PAGE       TOP OF DOC

    The Subcommittee met, pursuant to notice, at 10:08 a.m., in Room 2237, Rayburn House Office Building, Hon. Lamar S. Smith [Chairman of the Subcommittee] presiding.

    Mr. SMITH. The Subcommittee on Courts, the Internet, and Intellectual Property will come to order. It is nice to see how many people are interested in the subject at hand, and that includes, of course, Members who are here at the hearing, as well.

    We will begin with opening statements and then move immediately to hear from our witnesses, and I will recognize myself for an opening statement.

    Today, the Subcommittee will explore the complexity of the broadcast flag issue and also how it is connected to copyright law and the jurisdiction of the Subcommittee. On one level, we are ensuring that new technologies designed to prevent piracy do not limit the public's ability to make fair use of copyrighted works. On another level, we are continuing our efforts to support private industry efforts to curb piracy of their products.

    We are in the midst of a transition to DTV. As early as 2006, all broadcasts must be aired in digital format. This presents opportunities for American consumers, businesses, and copyright owners. As with many technological advantages, the DTV transition has been frustrated by both technological and legal hurdles. There is a great danger of massive piracy of unprotected broadcasts once the transition to DTV is complete. Pirates can easily copy and redistribute millions of digital files in a matter of seconds. In the absence of protection against unauthorized redistribution, it is unlikely that content owners will make high-value programming available to broadcasters.
 Page 9       PREV PAGE       TOP OF DOC

    The broadcast flag is one solution supported by copyright owners and broadcasters. The broadcast flag is a sequence of digital bits embedded in a television program that signals that the program must be protected from unauthorized redistribution.

    Since 1996, an inter-industry group called the Copy Protection Technical Working Group has been meeting regularly to discuss general copy protection issues. The Broadcast Protection Discussion Subgroup was formed specifically to address digital broadcast copy protection. Representatives from the consumer electronics, information technology, motion picture, cable, and broadcast industries participated. The group announced its consensus on the use of a broadcast flag standard for digital broadcast copy protection. Unfortunately, final agreement could not be reached on a set of compliance and robustness requirements.

    Last August, the Federal Communications Commission adopted a Notice of Proposed Rulemaking on digital broadcast copy protection. This Subcommittee has great interest in the FCC's action because the agency might issue rules that impact the Copyright Act and, therefore, involve this Subcommittee's jurisdiction.

    Controversy continues over what the broadcast flag will and will not do and whether it will have an adverse effect on the ability of consumers to make fair use of copyrighted broadcast television. Fair use is a defense that may limit the copyright owner's exclusive rights. Section 107 of the Copyright Act states that fair use of a copyrighted work for purposes such as criticism, comment, news reporting, teaching, scholarship, or research does not constitute infringement. Fair use, of course, is determined on a case-by-case basis. For example, in Sony Corporation v. Universal City Studios, the Supreme Court held that the practice of taping free television broadcasting for later viewing was a fair use.
 Page 10       PREV PAGE       TOP OF DOC

    It is important that the transition to DTV and any implementation of rules requiring the use of the broadcast flag technology does not have an adverse impact on how consumers may legitimately use lawfully acquired entertainment products. At some point, this Subcommittee will decide whether to salute the broadcast flag or whether to lower it. For the time being, we are going to leave it at half mast.

    That concludes my opening statement, and the gentleman from California, Mr. Berman, is recognized for his.

    Mr. BERMAN. What about pledging allegiance to it? [Laughter.]

    Mr. Chairman, I am grateful for your calling this hearing today. This is an issue that has some clear implications for copyright law and I think it is appropriate that the Subcommittee scrutinize the issue.

    I understand that as part of its broadcast flag rulemaking, the FCC is currently deciding whether it even has statutory authority to implement the broadcast flag. I am absolutely no expert on FCC jurisdictional statutes and precedent and I don't presume to tell the FCC whether it has authority to implement a broadcast flag through a rulemaking and I don't intend to try and lecture the FCC about the appropriate parameters of a broadcast flag technology.

    I have no problem with the FCC on a policy basis mandating use of the broadcast flag technology. While I am generally opposed to broad Government mandates on technology, I have long considered it appropriate in limited circumstances for the Government to order the use of certain technologies around which a marketplace consensus has emerged.
 Page 11       PREV PAGE       TOP OF DOC

    For instance, I supported the Macrovision mandate codified in section 1201(k) of the Copyright Act. I authored a bill to do that 10 years before it finally passed. Through 1201(k), Congress required the use of Macrovision's copy prevention technologies in certain videocassette recorders, camcorders, and other devices. I supported provisions of the Audio Home Recording Act of 1992 that required digital audio recording devices to utilize the serial copy management system.

    So I don't object to the concept that the FCC might require incorporation of broadcast flag technology into appropriate hardware technologies and devices. That being said, I do have some concerns about the broadcast flag rulemaking, in particular, what some parties are asking the FCC to do.

    Numerous comments have been filed asking the FCC to ensure that any broadcast flag technology allows consumers to make various uses of the digital TV programming it protects. These commentators purport to cite various copyright law doctrines, including first use, as the Chairman discussed, and first sale, as guaranteeing consumer utilization of copyrighted TV programming in the ways they hope to protect.

    It is these claims about copyright law and the role of the FCC in analyzing them that gives me pause about the broadcast flag rulemaking. I am unaware of any precedent for the FCC interpreting the Copyright Act as part of an FCC rulemaking or in any other capacity, nor am I aware, for that matter, of the FCC ever mandating that copyright owners surrender any of their exclusive rights to consumers.

 Page 12       PREV PAGE       TOP OF DOC
    Congress itself has limited the rights of copyright owners when mandating the uses of technologies to protect copyright owners. In mandating use of the Macrovision technology, Congress ensured that it could not be used to prohibit the copying of most analog over-the-air television broadcasts. In mandating the use of the serial copy management system, Congress ensured that it could only be used to prohibit copying from copies, but not to prohibit copying an original video digital audio recording.

    At least in part, Congress decided to limit these technology mandates in these ways so as to protect the traditional ability of consumers to make certain uses of the copyrighted works at issue. When Congress itself has placed limitations on the exclusive rights of copyright owners in the course of mandating certain technologies, I am unaware of any precedent for a Federal agency doing so.

    About the closest precedent involves the Copyright Office, not the FCC. In the course of its triennial rulemaking under sections 1201(a)(1)(c), the Copyright Office is empowered to analyze whether the anti-circumvention provisions of the DMCA are adversely affecting non-infringing uses of copyrighted works. If the Copyright Office finds such adverse effects, it is empowered to create limited exemptions from the anti-circumvention provisions to protect the adversely-affected non-infringing uses.

    But the Copyright Office has expertise in this whole area. The FCC doesn't have expertise in this particular area, and so I am opposed to the FCC attempting to interpret, regulate, or otherwise limit the exclusive rights of copyright owners in the course of its broadcast flag rulemaking.

 Page 13       PREV PAGE       TOP OF DOC
    As I stated before, the FCC may well have jurisdiction to mandate a broadcast flag technology, to establish rules regarding the implementation of that technology as part of its authority to facilitate the digital television transition. Under the same authority, the FCC may be able to mandate that the broadcast flag technology provides only limited protection to digital television broadcasts. My point is simply that the FCC should not attempt to interpret copyright law in the course of its rulemaking, nor to encapsulate copyright law doctrines in any technology it mandates. That, I think, is a prerogative of the Congress, and to the extent it delegates it, to the Copyright Office.

    Thank you, Mr. Chairman.

    Mr. SMITH. Thank you, Mr. Berman.

    Without objection, other Members' opening statements will be made a part of the record, as will all the witnesses' complete statements, as will two items that I have been given, one from the National Association of Broadcasters and one from the Association for Competitive Technology. All that will be made a part of the record.

    [The material referred to follows:]



    Mr. SMITH. Let me introduce our witnesses, and our first witness is the Honorable Marybeth Peters, the Register of Copyrights for the United States. She also has served as Acting General Counsel of the Copyright Office and as Chief of both the Examining and Information and Reference Divisions. She authored the ''General Guide to the Copyright Office of 1976.''
 Page 14       PREV PAGE       TOP OF DOC

    The next witness is W. Kenneth Ferree, who was appointed Chief of the Cable Service Bureau at the Federal Communications Commission in May 2002. The Cable Service Bureau was combined with the Mass Media Bureau, and Mr. Ferree was named Chief of the newly created Media Bureau. He provides legal, policy, and regulatory advice to the FCC Chairman as well as the other FCC Commissioners.

    Our next witness is Fritz Attaway, Executive Vice President for Congressional Relations and General Counsel of the Motion Picture Association of America. Before joining MPAA, Mr. Attaway served as attorney advisor in the Cable Television Bureau of the Federal Communications Commission.

    Our last witness is Edward J. Black, President and Chief Executive Officer of the Computer and Communications Industry Association. He has overall responsibility for the Association, which includes leading the effort on a wide range of legislative, policy, and regulatory areas for CCIA and its member companies.

    Before we begin, I understand the gentlewoman from California, Ms. Lofgren, would like to say something about one of the witnesses.

    Ms. LOFGREN. Thank you, Mr. Chairman. I just wanted to especially thank Mr. Black for being here. I know that it was not easy for him to appear before the Subcommittee. He has served his country well as the Chairman of the State Department's Advisory Committee on International Communications and Information Policy and is an expert in international law and copyright matters and I just thank him for making the extra effort to be here today.
 Page 15       PREV PAGE       TOP OF DOC

    Mr. SMITH. Thank you, Ms. Lofgren.

    Let me remind our witnesses that we do have a 5-minute rule and we would like for you to summarize your complete testimony so that we can stay within that limit, and we will begin, Ms. Peters, with your testimony.


    Ms. PETERS. Mr. Chairman, Congressman Berman, Members of the Subcommittee, I am pleased to be here today to discuss the copyright issues raised by the broadcast flag proposal.

    Let me begin by offering my congratulations to you, Mr. Chairman. I look forward to working with you on this and many other copyright-related issues. You are off to a strong start, and those in the copyright field are really encouraged.

    As you know, the FCC's Notice of Proposed Rulemaking solicited comments on whether it was desirable to adopt a regulatory protection regime as part of the transition to digital broadcast television, and if so, how such a regime should be put in place. While the subject matter of the broadcast flag is technological, many of the comments arguing both for and against its adoption are rooted in copyright law.

 Page 16       PREV PAGE       TOP OF DOC
    The purpose of my testimony is twofold. First, I want to explain the relationship between the broadcast flag proposal and important principles of copyright law. Second, I hope to provide some clarity on the fair use and first sale doctrines and their role in the broadcast flag discussions.

    While I have no positions on the merits of the broadcast proposal at this time, I do believe that producers of television programming have ample ground to feel that the transition to digital broadcasting may make them subject to massive piracy in much the same way that music copyright owners have suffered from the phenomena of Napster and its progeny. Thus, they have good reason to insist that something be done to prevent such infringement.

    I also don't take a position with regard to what users ought to be allowed to do in a broadcast flag regime. However, a number of FCC comments recommend that broad uses of copyrighted works be accommodated within the broadcast flag, some of which go beyond fair use. If copyright owners all agree to these broad uses, I see no problem. If there is no agreement and if instead it is determined that what is to be allowed is any activity that falls within fair use in the first sale doctrine, then it is important that there is an accurate and complete understanding of these copyright doctrines.

    My concern is that many of the comments are predicated on various interpretations and applications of the 1984 Supreme Court's five-four decision in Sony Corporation v. Universal Studios. In Sony, motion picture copyright owners brought an infringement action against the manufacturer of the Betamax VCR. The claim was asserted under theory of secondary liability based on consumers' use of the VCR to record free over-the-air television broadcasts.
 Page 17       PREV PAGE       TOP OF DOC

    The Court held that making reproductions of free over-the-air television programs for the purposes of time shifting, in other words, watching the show at a later time, is a fair use. That finding was largely based on the Court's analysis of the fourth factor in section 107, namely whether time shifting adversely affects the market for or value of the copyrighted works at issue. The Court concluded, among other things, that the copyright owners had not provided sufficient evidence that time shifting would cause any likelihood of non-minimal harm to the potential market for or value of their copyrighted works.

    Due to the nature of today's technologies, application of fair use to digital broadcasts would be significantly different than the Sony analysis. Some comments submitted to the FCC suggest that the Sony decision requires that fair use must vindicate consumer expectations as to the functionality of their home electronics devices. This claim with regard to consumer expectations misstates the nature of fair use. Consumer expectations are typically asserted and vindicated in the marketplace, not through fair use. The Sony decision is not based on whether time shifting met consumer expectations about what they could do with their VCRs, but rather it met the criteria for fair use codified in section 107.

    The proper fair use inquiry would include an assessment of whether the consumer's activities, if permitted on a widespread basis, would provide benefits to the public without undermining the incentive for the creation and distribution of copyrighted works, that is, the ability of authors to receive compensation for dissemination of their works. Consumer expectations are not particularly relevant to this question.

    To be clear, I don't disagree that legitimate consumer expectations should play an important role in consideration of the broadcast flag proposal. My concern is that the important policy goals of copyright should not be undermined in the costs of adopting any regulatory framework that purports to be accommodating fair use when, in reality, it permits far more than fair use.
 Page 18       PREV PAGE       TOP OF DOC

    Additionally, some have suggested that the first sale doctrine, a limitation on copyright owners' distribution rights, requires that the broadcast flag permit certain retransmissions of copies of digital broadcasts. The Copyright Office in its DMCA section 104 report to Congress engaged in a thorough analysis of this issue, especially as it related to emerging technologies. Many who participated in that study had argued that first sale principles should apply to digital transmissions. We concluded then and continue to believe that there are fundamental differences between digital copies transmitted in a network environment and the physical copies covered by the existing first sale doctrine, and those differences argued against recognizing a new form of first sale for digital transmissions.

    In closing, I would like to thank you for giving me the opportunity to testify today. As always, the Copyright Office would be pleased to assist the Subcommittee in its consideration of these important issues and we will continue our analysis of the broadcast flag proposal.

    I would be pleased to answer any questions you may have.

    Mr. SMITH. Thank you, Ms. Peters.

    [The prepared statement of Ms. Peters follows:]


    Mr. Chairman, Congressman Berman, Members of the Subcommittee, thank you for inviting me to appear before the Subcommittee today to discuss the copyright issues raised by measures for the protection of digital broadcast television signals, commonly referred to as the ''broadcast flag'' proposal. Let me offer my congratulations to you, Mr. Chairman. I look forward to working with you on this and many other copyright-related issues. You are off to a strong start and it is very encouraging to those of us in the copyright field.
 Page 19       PREV PAGE       TOP OF DOC

    As you know, in August 2002 the Federal Communications Commission issued a Notice of Proposed Rulemaking soliciting comments from interested parties on whether it was desirable to adopt a regulatory protection regime as part of the transition to digital broadcast television, and if so, how such a regime should be put into place.(see footnote 1) While the subject matter of the broadcast flag proposal is technological, many of the comments submitted to the FCC arguing both for and against its adoption are rooted in copyright law.(see footnote 2) As Congress has recognized, the Copyright Office has a long history of providing expert advice and assistance on these types of issues.(see footnote 3)

    The purpose of my testimony is twofold. First, I want to explain the relationship between the broadcast flag proposal and important principles of copyright law, such as the reproduction right, the distribution right and the doctrines of ''fair use'' and ''first sale.'' I believe that as consideration of the broadcast flag proposal moves forward, a clear understanding of copyright law is necessary so that important copyright principles and policy are not undermined by the establishment of any regulatory scheme. Second, to this end, I hope to provide some clarity on the ''fair use'' and ''first sale'' doctrines and their role in the broadcast flag discussions.

    While I have no position on the broadcast flag proposal at this time, I believe that producers of television programming have ample ground to fear that in the transition to digital broadcasting and with the advent of new consumer electronic devices that permit recipients of broadcasts to reproduce television programs and retransmit them on the Internet, they may encounter massive piracy in much the same way that record companies, recording artists, composers and musicians have suffered from phenomena such as Napster and its progeny. They have good reason to insist that something must be done to prevent such infringement. It may well be that the broadcast flag proposal is the best available solution. I do not have sufficient mastery of the technical details to venture an opinion at this time.
 Page 20       PREV PAGE       TOP OF DOC

    I also do not take a position with regard to what uses ought to be allowed by a broadcast flag, should that proposal be adopted. It is my understanding that many of the commenters in the FCC proceeding have insisted that implementation of the broadcast flag be done in a way that permits consumers to engage in acts of fair use. It is also my understanding that some proponents of the broadcast flag have taken the position that any technological measures that are adopted as part of the broadcast flag proposal should or at least could permit a number of practices that consumers desire to engage in even though they are beyond the scope of fair use. Copyright owners of broadcast programming may simply be willing to forego having technological measures prohibit those uses, while retaining their right to assert that some or all of those uses are infringing.

    If there is consensus among copyright owners of broadcast programming that implementation of the broadcast flag should permit conduct by consumers that goes beyond fair use, I see no reason why such conduct should not be permitted. In other words, the conduct permitted by the broadcast flag need not necessarily be coextensive with fair use. If, on the other hand, the ultimate determination is to permit acts beyond those permitted by fair use and beyond those for which there is a consensus among the pertinent copyright owners, then there will be serious copyright implications which this Subcommittee will want to examine.

    In any event, the fact remains that the FCC has been presented with a number of arguments asserting that the broadcast flag proposal must accommodate fair use and the first sale doctrine, and that the people making those arguments have asserted that certain kinds of conduct must be accommodated because it falls within those doctrines. If these arguments are to be made and considered, it is important that they be done so with an accurate understanding of the fair use and first sale doctrines.
 Page 21       PREV PAGE       TOP OF DOC


    As the first paragraph of the FCC's notice indicates, digital broadcast copy protection has been offered as a way to address the concern that ''[i]n the absence of a copy protection scheme for digital broadcast television, content providers have asserted that they will not permit high quality programming to be broadcast digitally.''(see footnote 4) The reason for this reticence is concern about infringing downstream uses of digital broadcasts. This Subcommittee has become quite familiar with the characteristics of digital technology and the Internet. While those technologies provide enhanced quality of content and expanded opportunities for marketing, they also dramatically increase the ease and reach of copyright piracy.(see footnote 5)

    As we understand it, the ''broadcast flag'' is one solution for placing certain limits on how digital broadcasts can be redistributed after receipt by a consumer, so as to prevent harm to the economic value of that programming. In many ways, this dilemma is simply a specific example of the problem addressed by copyright law generally—how much protection is necessary to provide an incentive for authors to create and disseminate works to public for their use and enjoyment. Not surprisingly, therefore, many of the comments submitted to the FCC focus on questions of copyright law, such as to what extent personal copying and distribution of broadcast programming are governed by the fair use or first sale doctrines in copyright law, and how the Supreme Court's 1984 decision in Sony Corp. v. Universal City Studios, Inc. should be applied in creating a regulatory regime like the broadcast flag.

    In addition, implementation of the broadcast flag may provide some precedent for how other activity involving digital technology and copyrighted works will be addressed under fair use and other provisions of the Copyright Act. As a result, the broadcast flag proposal cannot be considered in a vacuum, without regard to important aspects of copyright law and the use of copyrighted works. Moreover, the issues involved in the broadcast flag debate may have ramifications in the international copyright system.
 Page 22       PREV PAGE       TOP OF DOC

FAIR USE AND THE SONY Betamax Decision

    In the next part of my testimony I hope to provide background on the fair use doctrine, the Sony decision and the first sale doctrine, and how they might relate to the broadcast flag. As I noted, many of the comments submitted on the broadcast flag proposal raised important questions of copyright law, such as the doctrine of ''fair use.''(see footnote 6) A correct and complete understanding of fair use will assist in an evaluation of those comments. My testimony today is intended in part to provide a concise explanation of the fair use doctrine, and its application by the Supreme Court in the Sony case (often referred to as the Betamax decision)(see footnote 7)—the central case around which much of this debate revolves.

    Fair use is often described as an ''equitable rule of reason,'' for which ''no generally applicable definition is possible, and each case raising the question must be decided on its own facts.''(see footnote 8) It was a common law doctrine until 1976, when Congress first codified it in Section 107 of the Copyright Act as part of the general revision to copyright law it enacted that year.(see footnote 9) The statutory text does not define fair use—rather, it provides guidelines for such a determination in the form of a list of four nonexclusive factors that must be applied to the entire circumstances of a particular case. In addition, the preamble to the section sets forth examples of uses that traditionally have been found to be fair uses, such as criticism, comment, news reporting and teaching. While this list is not determinative of the fair use issue, it was intended to provide additional guidance to courts as to the types of uses that had been ruled fair prior to the 1976 Act.(see footnote 10)
 Page 23       PREV PAGE       TOP OF DOC

Notwithstanding the provisions of sections 106 and 106A, the fair use of a copyrighted work, including such use by reproduction in copies or phonorecords or by any other means specified by that section, for purposes such as criticism, comment, news reporting, teaching (including multiple copies for classroom use), scholarship, or research, is not an infringement of copyright. In determining whether the use made of a work in any particular case is a fair use the factors to be considered shall include-

  (1) the purpose and character of the use, including whether such use is of a commercial nature or is for nonprofit educational purposes;

  (2) the nature of the copyrighted work;

  (3) the amount and substantiality of the portion used in relation to the copyrighted work as a whole; and

  (4) the effect of the use upon the potential market for or value of the copyrighted work.

The fact that a work is unpublished shall not itself bar a finding of fair use if such finding is made upon consideration of all the above factors.

    There is no question that fair use is a fundamental component of U.S. copyright law, as it provides an essential safeguard to ensure that copyright does not stifle uses of works that enrich the public, such as ''criticism, comment, news reporting, teaching—scholarship, or research.''(see footnote 11) Along with other doctrines like the first sale doctrine (which I discuss below) and the idea/expression dichotomy, fair use provides necessary ''breathing room'' in copyright and helps achieve the proper balance between protection of copyrighted works and their use and enjoyment. As the Supreme Court recently explained in the Eldred case, fair use is also one of copyright law's important First Amendment accommodations.(see footnote 12)
 Page 24       PREV PAGE       TOP OF DOC

    Many of the comments in the FCC proceeding, however, misstate the nature of fair use and its role in our copyright system. Much of this confusion stems from a misreading of the Supreme Court's opinion in Sony Corp. v. Universal City Studios,(see footnote 13) the first opinion in which the Supreme Court addressed fair use.(see footnote 14)

    In Sony, motion picture copyright owners brought a copyright infringement action against the manufacturer of the Betamax VCR. The claim was asserted under a theory of secondary liability, based on the consumers' use of the VCR to record television programs broadcast free over the air. The Court's 5–4 opinion addressed two issues: first, borrowing from the ''staple article of commerce'' doctrine in patent law, it ruled that secondary copyright liability could not be imposed based solely on the manufacture of copying equipment like the VCR where the device at issue ''is capable of substantial noninfringing uses.''(see footnote 15) Second, it found that the VCR had ''substantial non-infringing uses,'' including making reproductions of broadcast television programs for purposes of ''time-shifting,'' that is, watching a show at a time later than when it is broadcast.(see footnote 16)

    The Court's finding that ''time-shifting'' of broadcast television programs was fair use was based predominantly on its analysis of the first and fourth factors in Section 107—namely, whether time-shifting adversely affects the market for or value of the copyrighted works at issue. The court concluded that ''time-shifting merely enables a viewer to see such a work which he had been invited to see free of charge'' and that therefore it was a ''non-commercial'' use.(see footnote 17) It also found that the copyright owners had not provided sufficient evidence ''that time-shifting would cause any likelihood of nonminimal harm to the potential market for, or the value of, their copyrighted works.''(see footnote 18)
 Page 25       PREV PAGE       TOP OF DOC

    Having found that ''time-shifting'' was a ''substantial non-infringing use'' of the VCR, the Court did not consider whether other activity related to home taping of broadcasts—such as creating a library of recorded shows, making further copies from the initial recording or distributing recorded shows to friends or others—would qualify as fair use. Nor did the Court rule, as one commenter suggests, that recognizing ''time-shifting'' as fair use was based on First Amendment concerns.(see footnote 19) Thus, the suggestion that the Sony decision established a fair use ''right'' for individuals to engage in a wide variety of reproduction and distribution activities is simply incorrect.(see footnote 20)

    74 F.3d 1512 (6th Cir. 1996).

    Moreover, because fair use is a case-by-case, fact-specific determination, one must consider the circumstances of the Sony case when attempting to apply it to today's environment. In the early 1980s, there was very little the typical consumer could do with the analog tape recording of a television show made with a VCR—further reproduction and distribution were subject to substantial physical constraints. The 1980s consumer did not have access to personal computers with hard drives, recordable DVD players, wireless home networks, websites, peer-to-peer software applications and high-speed Internet connections, all of which make acquisition, reproduction and distribution of recorded broadcasts (in high-quality digital form) easy and inexpensive.

    In today's digital world, the ''private'' and ''non-commercial'' use of works can quickly and easily become public distribution of copies that has a substantial harmful effect on the commercial value of copyrighted works. As my predecessor as Register of Copyrights observed nearly 40 years ago, ''a particular use which may seem to have little or no economic impact on the author's rights today can assume tremendous importance in times to come.''(see footnote 21) We have all watched over the past few years as Napster and other peer-to-peer software applications transformed private hard drives and individual, person-to-person exchanges of digital files into a major distribution network of unauthorized copies of works. Indeed, this Subcommittee held a hearing on precisely that topic last week. That activity has undercut the ability of legitimate, revenue-generating distribution services on the Internet to develop and flourish. Indeed, the Ninth Circuit Court of Appeals recognized this situation in the Napster case when it distinguished Sony in analyzing the potential market harm caused by individuals' distribution of copyrighted music files over the Napster service.(see footnote 22)
 Page 26       PREV PAGE       TOP OF DOC


    Other commenters suggest that the Sony decision requires that fair use must vindicate ''consumer expectations'' as to the functionality of their home electronics devices. This claim, too, misstates the nature of fair use. Consumer expectations are typically asserted and vindicated in the marketplace, not through fair use. Recent history shows that to the extent copyright owners offer a product in a format that consumers find unattractive and limiting, it will be rejected.(see footnote 23) The Sony decision is not based on whether time-shifting met ''consumer expectations'' about what they could do with their VCRs, but rather whether it met the criteria for fair use in Section 107, including principally whether the activity harmed the market for copyrighted works.(see footnote 24)

    The proper fair use inquiry would include an assessment of whether the consumer's activity, if permitted on a widespread basis, will provide benefits to the public without undermining the incentive for the creation and distribution of works—that is, the ability of authors to receive compensation for the dissemination of their works. Consumer expectations in and of themselves are not particularly relevant to this question. Indeed, users of peer-to-peer services like Napster are becoming accustomed to the notion that creative works should be provided free without any restrictions on further copying and distribution. Such ''consumer expectations'' are not only inconsistent with traditional fair use jurisprudence, they are destructive to copyright's principles and purpose.
 Page 27       PREV PAGE       TOP OF DOC

    To be clear, we do not disagree that legitimate consumer expectations should play an important role in consideration of the broadcast flag proposal. It appears that consumer expectations have been a driving force behind the proposal, as the proposed regime would permit unlimited copies for personal use, largely unrestricted use in the home network environment, and the potential for use outside a home network environment. Many broadcasters and copyright owners apparently recognize that even a mandated solution like the broadcast flag must meet the needs and desires of consumers or they will not embrace digital television.(see footnote 25) Our concern is that the important policy goals of copyright should not be undermined in the course of adopting any regulatory framework that purports to be protecting fair use, when in reality it permits far more than fair use.


    Some have also suggested that the ''first sale'' doctrine of copyright law requires that the broadcast flag proposal permit certain activity with respect to copies of digital broadcasts.(see footnote 26) As this Subcommittee knows, the Copyright Office, pursuant to Section 104 of the Digital Millennium Copyright Act (''DMCA'') of 1998, recently engaged in a comprehensive study of the relationship between the first sale doctrine and existing and emergent technology.(see footnote 27) The Copyright Office issued its report in August 2001 and I testified before this Subcommittee at the end of that year about our findings and recommendations in that report.

    The ''first sale'' issues raised with respect to the broadcast flag appear very similar to those raised in the DMCA Section 104 Report: whether the first sale doctrine as it currently exists would permit certain activities related to digital transmission of copyrighted works. Some have suggested that the first sale doctrine requires that individuals be permitted to transmit digital copies of broadcasts to a circle of family or friends and inside and outside the home. As with the fair use issue, the Copyright Office believes that consideration of the broadcast flag should not be made based upon an incorrect or incomplete understanding of the first sale doctrine. I would like to provide a brief description of that doctrine and our conclusions from the DMCA study, which remain unchanged today.
 Page 28       PREV PAGE       TOP OF DOC

    The common-law roots of the first sale doctrine allowed the legitimate owner of a particular copy of a work to dispose of that copy. This judicial doctrine was grounded in the common-law principle that restraints on the alienation of tangible property are to be avoided in the absence of clear congressional intent to abrogate this principle. This doctrine was first codified as section 27 of the Copyright Act of 1909 and now appears in section 109 of the Copyright Act of 1976. Section 109(a) specifies that notwithstanding a copyright owner's exclusive distribution right under section 106, the owner of a particular copy or phonorecord that was lawfully made under Title 17 is entitled to sell or further dispose of the possession of that copy or phonorecord.

    The first sale doctrine is a limitation on the copyright owner's exclusive right of distribution. It does not limit the exclusive right of reproduction. While the sale or other disposition of a purchased VHS tape or book would only implicate the distribution right, the transmission of an electronic copy of the same work from one device to another would typically result in the making of a reproduction. This activity therefore entails an exercise of an exclusive right that is not covered by section 109. In other words, there is nothing in the first sale doctrine as it currently exists which would authorize the type of activity that some have proposed that the broadcast flag should permit.

    In the deliberations leading up to the DMCA Section 104 Report, several participants argued that first sale principles should apply to digital transmissions, notwithstanding that such transmissions typically involve the reproduction right.(see footnote 28) It appears that a similar suggestion is being made in the broadcast flag proceeding. We concluded then, and continue to believe, that there are fundamental differences between digital copies transmitted in a networked environment and the physical copies covered by the existing first sale doctrine, and that those differences argue against recognizing a new form of first sale for digital copies.
 Page 29       PREV PAGE       TOP OF DOC


    In closing, Mr. Chairman, the Copyright Office has only begun its analysis of the broadcast flag proposal, and therefore at this time is taking no position on whether the broadcast flag proposal should be adopted or whether it should be changed in any way to reflect any aspect of existing copyright law, such as the fair use or the first sale doctrines. Let me be clear though, the appropriate balance between copyright owners, broadcasters, equipment manufacturers and consumers is fundamental to our support of any effort to devise a regulatory scheme governing digital broadcasts. Such a compromise, and the debate leading to it, should not be based on an incorrect understanding of copyright law and policy.

    I want to thank the Subcommittee again for giving me the opportunity to testify today. The Copyright Office would be pleased to assist the Subcommittee in its consideration of these important issues and I am happy to answer any questions you may have.

    Mr. SMITH. Mr. Ferree?


    Mr. FERREE. Good morning, Chairman Smith, Congressman Berman, and Members of the Subcommittee. I am Ken Ferree, Chief of the FCC's Media Bureau, and I am pleased to be here today to talk to you about our proceeding on broadcast copy protection.

 Page 30       PREV PAGE       TOP OF DOC
    The digital television transition, which is part of a larger technological revolution affecting every industry the FCC regulates, is a complex undertaking. It will affect virtually every segment of the television industry and every American who watches television. Unlike some technology advances, however, the DTV transition is not purely a marketplace phenomenon. Congress and the FCC have been involved in the transition from the beginning. We now are entering into a critical stage of that transition. It is apparent that our efforts over the next 2 years may well set the course for television broadcasting in the 21st century.

    Perhaps the key piece of the DTV puzzle is content. Consumers will invest in digital television only when they see content that is significantly better than that which is available in analog. The content could be high-definition, it could be multicasting, it could be interactive, but it must be significantly better than analog and there must be enough of it to make their investment worthwhile.

    Over the last year, the amount of high-definition programming has grown dramatically. Indeed, the amount of HD programming during broadcast prime time is up about 50 percent over a year ago. Many sporting events now are broadcast in high definition, and this year, the NBA finals and ''Monday Night Football'' will be added to the mix.

    Content providers, however, say that we are living on borrowed time. When there are enough DTV receivers and fast broadband connections to permit unauthorized redistribution of broadcast DTV content over the Internet, they argue, high-value content will be made available only on protected platforms like cable or satellite.

    This is how the Commission became involved in these issues. We have no desire to duplicate the work of the Copyright Office, but the Commission does have an interest in keeping the DTV transition on track. So when content providers, Members of Congress, and others warn that we may be on the verge of losing compelling broadcast content, these claims are taken seriously.
 Page 31       PREV PAGE       TOP OF DOC

    In late 2001, an inter-industry working group attempted to develop a technical solution to the problem, specifically focusing on the broadcast flag. The working group did not, however, reach consensus on all issues, and in August of 2002, the FCC issued its Notice of Proposed Rulemaking on digital broadcast copy protection.

    The notice takes nothing for granted. Indeed, the first issue raised is whether a DTV copy protection regime is even necessary, that is, whether piracy concerns will cause content providers to withhold certain content from broadcast channels and whether the lack of such content will impair the DTV transition. If a problem does exist, we ask whether the FCC should adopt a copy protection mechanism, how such a system would work, how it would be enforced, whether compliance and robustness rules would be required, and how such a system might impact consumers.

    Importantly, the Commission also sought comment on its authority in this area.

    The comment period is now closed and our staff is reviewing the record and beginning the process of developing a recommendation for the full Commission's consideration. At this point, we have drawn no conclusions as to whether a broadcast flag system is necessary or appropriate or whether the Commission has jurisdiction to adopt such a system. Nevertheless, it is entirely fitting and proper that the Commission undertake this examination. The transition to digital television is a national priority. If content protection concerns could be impeding that transition, the Commission is obliged to examine the issue. We will, of course, keep this Committee apprised of important developments as we proceed.
 Page 32       PREV PAGE       TOP OF DOC

    Thank you for the opportunity to testify today and I will be happy to answer any questions you may have.

    Mr. SMITH. Thank you, Mr. Ferree.

    [The prepared statement of Mr. Ferree follows:]









 Page 33       PREV PAGE       TOP OF DOC











    Mr. SMITH. Mr. Attaway?

 Page 34       PREV PAGE       TOP OF DOC

    Mr. ATTAWAY. Mr. Chairman, Mr. Berman, Members of the Committee, thank you very much for allowing me to appear before you today.

    I am incapable of describing the issue of the broadcast flag and certainly in 5 minutes, so we have a visual demonstration for you today that I will try to run through very quickly. This is something we did yesterday on the Internet. I have seen Bill Gates try to do a live Internet demonstration and fail, so I wasn't about to risk that today. But this is something that we did yesterday to demonstrate the broadcast flag issue.

    You can find unauthorized copies of all your favorite television shows even today by simply going to one of the many popular so-called P2P file trading networks, like KaAaA in this case. KaZaA boasts 195 million users worldwide. In this particular search, we found that 4.2 million users were online at the moment that we were online and they were trading 875 million files.

    To begin the search, we simply clicked the ''search'' button. We selected video files of the type that we are looking for. If we want episodes of ''The Simpsons,'' we simply type in ''The Simpsons'' in the search field, click the ''search now'' button, and wait a minute. In this case, 197 files became available on the first pass. Now, we could have done other passes and found additional files of ''The Simpsons,'' but there were 197 files available on the first pass, some of them in non-English versions, particularly the French. [Laughter.]

    Mr. ATTAWAY. The French seem to like ''The Simpsons.''

 Page 35       PREV PAGE       TOP OF DOC
    Also, if you want to access the popular ABC program ''Alias,'' you simply type in ''Alias'' in the search field, click the ''search'' button, and wait a minute, and we found 139 files available for download, again, on the first pass.

    If you are interested in the Fox popular program ''24,'' you can also easily find that. In our session yesterday, we had to search through a great deal of hard-core pornography and advertisements for free condoms before we could get to ''24,'' but we eventually found it.

    To download it, you simply click the ''download'' button and you will see in a second what you get.

    Now, these are shows that do not recoup their production cost on network exhibition. They have to go into syndication. They have to go into the foreign marketplace in order to recoup their cost and for the studio to make a profit. What you are seeing is activity that preempts those sequential markets and makes it—eventually will make it impossible for these shows to break even, much less make a profit.

    Well, that is the show. In the few seconds I have left, let me make three very brief points. First of all, as you have just seen, there is a problem. This is not a theoretical issue. This is not something that we are worried about in the future. This is something that exists today. As band width gets larger, as compression technology improves, this problem will get much worse.

    The second point is that the broadcast flag that we are talking about does one thing and one thing only: It prevents redistribution over wide-area networks like the Internet. It does not prevent copying in any way, manner, shape, or form. It will have absolutely no effect on non-protected content like home movies.
 Page 36       PREV PAGE       TOP OF DOC

    And finally, the flag's impact on technology will be negligible. Consumer devices already will have protected inputs and outputs to be able to render protected content on cable, satellite, Internet, and from other protected sources. What the broadcast flag really means is that digital television content will be directed through those protected inputs rather than unprotected inputs.

    The issue here is not whether high-quality broadcast television will be available for redistribution. The issue is whether high-value broadcast television will be available at all over the air or whether it will be forced to migrate to protected distribution sources like cable and satellite. Thank you very much.

    Mr. SMITH. Thank you, Mr. Attaway.

    [The prepared statement of Mr. Attaway follows:]


    Mr. Chairman, members of the Subcommittee, thank you for giving me this opportunity to appear at this very important hearing.

    American consumers, and indeed consumers around the world, are entering a golden age of access to audiovisual content. Never before have consumers had so much choice in terms of the movies available to them, and the means by which they are delivered—theaters, VHS, DVD, cable, satellite, broadcast TV, Internet, advertiser supported, subscription, pay-per-view, video-on-demand—the list is long and growing. The same is true with regard to television programming.
 Page 37       PREV PAGE       TOP OF DOC

    The engine that is driving us into this golden age of consumer choice is technology. The motion picture industry has embraced technology, as witnessed by the DVD, to create new markets and bring new choices to consumers. However, technology brings challenges as well as opportunities. The greatest challenge is to maintain control over the distribution of movies and TV shows in order to recoup the cost of production and spur investment in new projects.

    Fortunately, technology itself is a big part of the solution to illegal distribution. Digital rights management technology is being developed that will enable secure delivery of movies and TV shows to consumers and exponentially expand consumer choice. The high-tech industry is our partner in this endeavor. Contrary to the perception of some, the high-tech and movie industries are not enemies. To the contrary, we share a common interest in providing consumers new viewing opportunities, which will create vast new markets for both consumer technology and content.

    That is not to say that the movie and high-tech industries are always in total agreement. We have different perspectives, which often result in conflicting ideas on how to achieve common goals. We are working together on a number of fronts to develop consensus solutions to content protection problems, some of which may require legislative implementation.

    The greatest challenge facing the motion picture industry today is the widespread trafficking of movies and television shows on the Internet, mostly through so-called peer-to-peer ''file sharing.'' The term ''file sharing'' is a popular euphemism for copying, which in the case of copyrighted motion pictures and TV programming, is stealing. The sound recording industry is being decimated by this insidious practice.
 Page 38       PREV PAGE       TOP OF DOC

    DRM technology is now being employed by movie distributors to prevent unauthorized reproduction and redistribution of digital works. However no DRM technology is available 100% of the time, or 100% effective when it is available. Some leakage is inevitable. And therein lies the problem. When movies leak out of a protected environment, whether through hacking of DRM measures, theft of unprotected copies, camcording off theater screens, or other means, they can be instantly made available to literally tens of millions of people over the Internet, instantaneously and with little or no degradation of quality.

    Movie studios are actively engaged in finding ways to stem this leakage, such as by providing greater security for prints and promotional screeners, and use of more sophisticated DRM measures. They are also heavily involved in enforcement of their rights under the copyright law, not only through infringement actions, but through consumer education and working with colleges and universities to develop codes of conduct for students using digital networks.

    One source of leakage that will continue to grow if not addressed is digital broadcast television. Because it is transmitted in the clear, digital broadcast television programming is subject to an extraordinarily high risk of unauthorized redistribution over digital networks such as the Internet. The threat of such wide-scale piracy, will lead content creators to cease making their high-value programming available for distribution over digital broadcast television. Because the DTV transition would be seriously threatened by such a development, with consequent harm to consumers, the Federal Communications Commission has initiated a proceeding aimed at adopting narrowly-targeted regulations mandating protection of digital broadcast television. These proposed regulations are based upon a cross-industry consensus developed by the Broadcast Protection Discussion Group, an informal, open forum created for the purpose of finding a solution to the broadcast redistribution problem.
 Page 39       PREV PAGE       TOP OF DOC

    The BPDG proposed implementation of a Broadcast Flag as the most appropriate and efficient solution for the protection of digital broadcast television. Use of the Flag would allow broadcasters to offer content creators the same protection against Internet redistribution that conditional access systems like cable and satellite can provide. The Broadcast Flag would not be required to be embedded in content, in the event that a content provider wishes to make its broadcast content available for wide redistribution.

    The Broadcast Flag solution regulates a minimum number of products. Only consumer products containing modulators or demodulators would be directly subject to FCC requirements necessary for the protection of unencrypted digital terrestrial broadcast content against unauthorized redistribution. These devices include DTV receivers and demodulator cards for PCs. Other ''downstream'' devices would have to substantially comply with the terms of license agreements with authorized digital output technology. Demodulators are the most appropriate gateway to commence protection, because prior to demodulation the content is not in usable form; after demodulation, the content may be in usable form. Regulation of modulators is necessary in order to prevent other content protection systems from being undermined by the very rules necessary to protect digital broadcast television content. The FCC would also regulate a limited number of products that are capable of receiving protected but unprocessed content, or digital broadcast content passed in a certain way within a computer. Equipment used by satellite, cable, and other professional retransmitters of digital broadcast content would be exempt from the requirements. However, such retransmitters would be required to ensure that retransmitted digital broadcast content is protected once received by the consumer's set-top box.

    The Commission would authorize a list of specified protection technologies, known as ''Table A,'' for use with digital broadcast content. Without such a list, manufacturers would lack guidance concerning implementation of the requirements and disputes over their implementation would inevitably arise. Given the ever-changing nature of technology, narrow criteria drafted today specifying certain features for protection technologies may quickly become obsolete. Thus, we have asked the Commission to adopt flexible, market-based criteria for Table A technologies, to be administered by the Commission.
 Page 40       PREV PAGE       TOP OF DOC

    Contrary to what has been argued by some Broadcast Flag opponents, the Broadcast Flag solution will not prevent consumers from making an unlimited number of physical recordings of DTV programs, or from distributing protected digital broadcast content within the personal digital network environment, defined as the home or similar local environment. And the Flag WILL NOT intrude in any way on consumer privacy. Furthermore, implementation of the Broadcast Flag solution will have no impact on existing consumer equipment. The cost impact on affected equipment going forward will be insignificant.

    Given the fact that protection of digital broadcast content is necessary to implement a robust DTV transition, the Commission has ample authority to act under existing legislation. The Commission has express statutory authority under 47 U.S.C. §336 to adopt rules to prevent unauthorized redistribution of digital terrestrial broadcast television programming. Furthermore, the Commission has ancillary jurisdiction to adopt such rules under Titles I and III of the Communications Act.

    Although there is a high level of consensus within the content, consumer electronics and information technology (computer) industries on the need for a Broadcast Flag, there are disagreements on the details of its implementation and in a few cases opposition to the Flag in principle. Much of the opposition to the Flag in principle is based on misconceptions of what it would do, like restrict home copying. (As stated earlier, the Flag would not hinder physical copying and enjoyment in the home in any way.) Other concerns address such issues as timing and standards for implementation. MPAA and a host of other Broadcast Flag supporters, including broadcasters, labor and professional organizations, advertisers and sports interests, recently addressed these concerns in reply comments to the FCC, pointing out that:
 Page 41       PREV PAGE       TOP OF DOC

 1. The current availability of the highest quality programming for free over-the-air broadcast is not sustainable if adequate protections are not adopted in parallel with the rapid expansion in broadband connections and DTV equipment.

 2. Without the Broadcast Flag, the market will respond to the increasing threat of unauthorized redistribution by migrating high-quality programming away from broadcast television to other, protected distribution channels.

 3. Illegal file trafficking in audiovisual works is currently like illegal trafficking in music was six years ago; but as technology improves, television programming will be as susceptible to piracy as music is now, unless a solution is already in place.

 4. The threat of unauthorized redistribution over wide area networks is qualitatively different from that of any other previous technology, such as the VCR; networks such as the Internet allow the instantaneous, effortless, and costless worldwide distribution of copies with none of the restrictions or effort that applied to VCRs or other, physical recording technologies.

 5. Those who are interested in negotiating a solution on this particular topic have already done so, and further delay is unnecessary; indeed, delay will allow device manufacturers to create a huge legacy of non-compliant products that may stymie the Broadcast Flag.

 6. The Broadcast Flag is the only solution that preserves high-quality programming on broadcast television.

 Page 42       PREV PAGE       TOP OF DOC
 7. Existing equipment in consumer's homes will not be affected by the implementation of the Broadcast Flag.

 8. Adopting the Broadcast Flag would not inaugurate a new regime of content protection, but rather would afford digital broadcaster the same ability to protect content that other distribution channels enjoy.

 9. The criteria for Table A in the Joint Proposal are more objective than those proposed by any other party.

10. The Broadcast Flag does not at all restrict the number of copies a consumer may make of broadcast television.

11. Claims that the Broadcast Flag would prevent such uses as the transfer of content within the home, or the incorporation of broadcast content into a school project, or would require content owner approval for any such actions, are simply mistaken.

12. The Broadcast Flag does not apply to every device, and does not apply to the equipment of Internet Service Providers; it applies only to DTV receivers, DTV modulators, and a very limited number of related DTV consumer products.

13. The Broadcast Flag achieves the minimum level of restrictions necessary to prevent worldwide unauthorized redistribution of broadcast content.

14. The Broadcast Flag regulation would not pose any challenge to open source developers not already posed by the very concept of secure applications generally.
 Page 43       PREV PAGE       TOP OF DOC

    Implementation of the Broadcast Flag is a necessary, but by no means complete, solution to the problem of Internet trafficking in infringing movies and other copyrighted material. Another key component of this problem is analog reconversion, which refers to the conversion of protected digital content to analog, and its reconversion to digital, which wipes out all known digital rights management technologies.

    As stated earlier, we are working with the high tech community to find mutually agreeable solutions, and some of these solutions, like analog reconversion, will probably require legislative implementation. However time is of the essence. Consumers are anxious to take advantage of new viewing opportunities that require very substantial investment by content suppliers in new business models that cannot succeed in an environment of unbridled piracy. We urge the Congress to take an active interest in solving these problems, to encourage all parties to find practical solutions, and where purely marketplace solutions are not effective or cannot be implemented, to adopt such legislation as is necessary to achieve a golden age of consumer choice.

    Again, I thank you for this opportunity to present the views of the motion picture industry.

    Mr. SMITH. Mr. Black?


 Page 44       PREV PAGE       TOP OF DOC
    Mr. BLACK. Mr. Chairman, Mr. Berman, Members of the Subcommittee, thank you for the opportunity to testify today. I look forward to working with you in the future on these very many important issues that are important to our industry that are the jurisdiction of the Subcommittee.

    CCIA represents a diverse group of companies, including hardware, software services companies from many parts of the computer, communications and Internet sectors. Our member companies have annual revenues of approximately $300 billion a year. Intellectual property and copyright have played an integral role in the development and success of our industry. Our members support strong copyright protection.

    Copyright is a useful, but not sufficient, tool to accomplish one of our industry's more fundamental goals, preserving the vitality of a dynamic, innovative industry capable of providing the public with great products and services. CCIA has long understood that the greatest benefits flow from a balanced copyright system that ensures that the legitimate interests of all parties in our techno-ecosystem are respected, including the customer and end user.

    We recognize that many different parts of industry also have diverse interests and needs. We recognize that all of us who are content creators face challenges and opportunities in the rapidly changing world in which we live. We believe very real problems of illegal copying exist and need to be addressed.

    Looking at piracy alone, however, and especially at one aspect of it reminds us of the parable of the wise man and the elephant. We have come to realize that some of our copyright and piracy problems are subsets of the larger challenge facing us all: The recalibration of our systems, laws, business models, and thinking to ensure that in a very rapidly changing digital world, legitimate interests of all relevant interests and parties receive a reasonable and fair place in a new equilibrium. In trying to reach this new equilibrium, a few of the other values that must be considered along with copyright and the First Amendment are the preservation of competition, the innovative process, efficiency, deregulation, cost-benefit equity, consumer welfare, and productivity.
 Page 45       PREV PAGE       TOP OF DOC

    One of these values is embodied in DMCA section 12(c)(3). That section reflects a policy and decision by the Congress that consumer electronics and computer products not be required to respond to particular technological measures. This was a correct decision by the Congress and one that should not be overturned. It should certainly not be overturned by a grant of jurisdiction to the FCC and then subsequently, in essence, a retransfer of jurisdiction from the FCC to a small group of industry players.

    We believe strongly in the value of the marketplace as a determinant of which technology and which business models will succeed. We believe in an open private sector consensus standards process. We do not think creating a whole new regime is necessary or desirable, and we do not think centralized planning in the area of technology is the preferred course. We fear not just the growth of industrial policy in this area per se, but of a lopsided industrial policy that gives control over a large innovative industry to a smaller, important, but vulnerable, one in the name of hypothetical benefits.

    We are concerned that under the guise of piracy protection, this power may be used for anti-competitive purposes. The proponents of the broadcast flag argue that because the flag is intended to limit retransmission rather than copying, the flag does not implicate fair use. Fair use, however, is not only limitation of the copyright owner's reproduction right, it is a limitation on all of the copyright owner's exclusive rights under section 106, including the distribution right, the performance right, and the display right. Thus, fair use could be implemented when the consumer is technologically prevented from retransmitting digital content.

    In short, there is more to fair use than time shifting. There also is space shifting and a host of transformative uses that involve both time shifting and space shifting. At CCIA, we are particularly concerned about preserving these transformed abuses. One of the great virtues of digital technology is the ability it gives consumers to become content providers and content distributors, and just like the established entertainment companies, these consumers incorporate elements of preexisting works in their content. This creativity by consumers should be welcomed and encouraged by Congress. It makes the populus more literate and computer savvy. Unfortunately, the broadcast flag restricts this creativity.
 Page 46       PREV PAGE       TOP OF DOC

    The entertainment industry has already conceded that the broadcast flag by itself will not stop retransmission of digital television over the Internet. Accordingly, they have initiated industry discussions concerning the so-called analog hole, which presumably will lead to even more proposed legislation.

    Moreover, the broadcast protection discussion group itself has already demonstrated mission creep. It was formed to address the protection of feature film and broadcast on television, yet now, it is concerned with protecting revenue streams and syndication rights for regular television programs.

    Significantly, fair use has a First Amendment dimension. Less than 2 months ago, the U.S. Supreme Court stated that fair use was one of the copyright law's ''built in First Amendment accommodations.'' Thus, any statute or regulation that has the effect of limiting fair use treads on constitutionally suspect ground.

    We believe that in addition to the enormous technological and competitive issues raised, the BPDG proposal would create huge costs, both economically and otherwise, for consumers and for the technology industry. We, therefore, urge the FCC to reject this proposal. We would urge the Congress to proceed very carefully in this area.

    Thank you very much for the opportunity to testify today.

    Mr. SMITH. Thank you, Mr. Black.

 Page 47       PREV PAGE       TOP OF DOC
    [The prepared statement of Mr. Black follows:]



    The Computer & Communications Industry Association is a group of large, small and mid-sized technology companies committed to the proposition that open markets, open systems and open networks are critical to an efficient marketplace.

    Over the years, we have been strong supporters of pro-competitive measures such as the Federal Communications Commission's Computer II ruling. From our beginnings as active participants in proceedings against AT&T and IBM, through our current role as an appellant in U.S. v. Microsoft and intervenor in the case against Microsoft at the European Commission, we have recognized that technical regulation can be the monopolist's favorite cudgel. The ability to control industry standards—especially those mandated by government—assures that those who cannot otherwise prevail in the marketplace can capture and maintain a dominant position. We therefore have profound concerns over the proceeding at the FCC, which implicates standards setting processes, technology development, and copyright.

    Copyright is, by definition, a balance of the rights of creators and freedom of expression protected by the First Amendment. Copyrights and patents are state grants of limited monopoly. They are justified under U.S. law only so long as they ''promote the progress of science and useful arts, by securing for limited times to authors and inventors the exclusive right to their respective writings and discoveries.'' (emphasis added) Copyright and its limitations—traditionally matters beyond the purview of the Federal Communications Commission—are the very heart of the matter now before the Commission.
 Page 48       PREV PAGE       TOP OF DOC

    Copyright, patent and trademark law are central to the computer and telecommunications industry. Our members retain countless intellectual property rights, and benefit from the creativity and inventions of others. Thus, we have participated in a large number of proceedings at the intersection of information technology and copyright, including the seminal Sega Enterprises v. Accolade, which affirmed the right of software makers to reverse engineer others' works for the purposes of developing interoperable products. In more recent years, we have remained deeply enmeshed in issues surrounding intellectual property. We, along with a handful of other industry organizations, helped negotiate key sections of the 1996 World Intellectual Property Organization (WIPO) treaty on online copyright in Geneva, as well as the Digital Millennium Copyright Act of 1998 (DMCA), which implemented the treaty in the United States. In addition to our work in copyright, we recently helped fight for—and win—the elimination of virtually all controls over the export of encryption technology. Encryption is vital to all widely deployed copy-control technologies in current use, including those technologies that make up the broadcast-flag proposal now before the Commission.

    Given the knowledge we have gained from past and present endeavors, we oppose any attempt to enshrine into law the broadcast flag proposal, including any effort to promulgate the proposed Compliance and Robustness rules, which have been proposed to govern the flag's implementation. As we outline below, the proposed rules will distort the professed purpose of the marker, frustrate consumer rights and expectations and further delay an already troubled transition to digital broadcast television. Worse still, the proposal will fail to prevent the illegal copying its backers say it can stop.

 Page 49       PREV PAGE       TOP OF DOC

Origins of the Broadcast Protection Discussion Group's broadcast flag proposal

    Content providers claim to have put forth this controversial proposal chiefly to avoid indiscriminate copying and redistribution of their works over the Internet. That remains part of the report's goals. Unfortunately, the co-chairs, together with certain members of the content industry, have permitted many other objectives to creep into this proposal. In reality, the proposals found in the Compliance and Robustness Requirements document would effectively ban any retransmission not approved by the major motion picture studios. While the studios might desire such a regime, this unprecedented degree of control is a denial of consumers' rights and expectations, in conflict with fundamental First Amendment rights, and ultimately a futile endeavor.

What the Flag Does

    The ''broadcast flag'' as such is no more than a few bytes of information appended to a digital-television signal. It performs no work, contains no ''intelligence.'' It is simply notice that tells a compliant device that the broadcast is copyrighted. The flag indicates the creator's wishes as to whether it may be copied, and how it may be used. There is no controversy as to the form or essential function of this flag, and the flag is already part of the ATSC standards for digital television. The controversy, rather, revolves around over the controls Hollywood wishes to assert over devices and content through this flag, and how these controls will function

    In discussions before the Broadcast Protection Discussion Group, Hollywood's representatives argued that all devices capable of receiving content containing the flag should be restricted so that leakage to the Internet would be impossible, or nearly so. Content owners assert, via analogy to current controversies over file sharing, that piracy of free, over-the-air digital television programs will be sufficiently rampant as to justify the reworking of essentially all consumer electronics that can handle a digital-television signal or convert analog to digital. We outline below why this analogy is inappropriate, and why such a proposal makes little sense from the viewpoint of law, technology or economics.
 Page 50       PREV PAGE       TOP OF DOC


The proposed broadcast flag abridges First Amendment rights

    The proponents of the broadcast flag argue that because the flag is intended to limit retransmission rather than copying, the flag does not implicate Fair Use. Fair Use, however, is not only a limitation on the copyright owner's reproduction right. It is a limitation on all of the copyright owner's exclusive rights under Section 106, including the distribution right, the performance right, and the display right. Thus, Fair Use could be implicated when a consumer is technologically prevented from retransmitting digital content.

    Many high school students, for example, have been taught in their schools how to put together very sophisticated power point presentations, including video clips. Their homework assignments sometimes require them to create such presentations at home or in the school library, and then to present them in class to the teacher and their fellow students. Imagine that a student wanted to create a presentation on how television situation comedies portray the relationship between parents and children, including clips from popular situation comedies and television dramas. The broadcast flag would not interfere with the creation of such a presentation on a home computer. But how would the student get the presentation to school? The broadcast flag presumably would prevent her from e-mailing it to her teacher, or burning a CD. If she had a laptop she might be able to bring the laptop to school, but this option would not be available if she only had a desktop.

    In short, there is more to Fair Use than time shifting. There also is space shifting, and a host of transformative uses that involve both time shifting and space shifting. At CCIA, we are particularly concerned about preserving these transformative uses, like the student project described above. One of the great virtues of digital technology is the ability it gives consumers to become content providers and content distributors. And just like the established entertainment companies, these consumers incorporate elements of pre-existing works in their content. This creativity by consumers should be welcomed and encouraged by Congress. It makes the populace more literate and computer savvy. Unfortunately, the broadcast flag restricts this creativity.
 Page 51       PREV PAGE       TOP OF DOC

    Proponents of the broadcast flag assert that their proposal is so limited that it will not unduly restrict consumer creativity. But the history of intellectual property laws in general, and copyright law in particular, teach us that this is just the first step. Today the entertainment companies seek restrictions on retransmission outside the home network. Tomorrow they will seek limitations on retransmission within the home network. And the day after tomorrow they will demand prohibitions on fast-forwarding through commercials on taped TV shows. Indeed, the entertainment industry has already conceded that the broadcast flag by itself will not stop retransmission of digital television over the Internet. Accordingly, they have initiated industry discussions concerning the so-called ''analog hole,'' which presumably will lead to more proposed legislation. Moreover, the Broadcast Protection Discussion Group itself has already demonstrated ''mission creep.'' It was formed to address the protection of feature films broadcast on television, yet now it is concerned with protecting the revenue stream from syndication rights for regular television programs.

    Fair Use is often disparaged in these chambers as either a quaint legacy of a bygone era, or a form of disguised piracy. It is neither. To be sure, many infringers claim that their copying was permitted under the Fair Use doctrine, but courts have quickly dismissed these frivolous arguments. In fact, Fair Use is as important today as it was before the advent of the computer, and it is as important to businesses as it is to consumers. Congress itself couldn't function without Fair Use. Everyday, Congressional offices make thousands of photocopies of newspaper articles. Fair Use permits this. Everyday, Congressional offices download copyrighted material from the Internet. Once again, Fair Use permits this. Indeed, the simple act of replying to an email could be an infringement, but for Fair Use.

 Page 52       PREV PAGE       TOP OF DOC
    Significantly, Fair Use has a First Amendment dimension. Less than two months ago, the U.S. Supreme Court stated that Fair Use was one of the copyright law's ''built-in First Amendment accommodations.'' Thus, any statute or regulation that has the effect of limiting fair use treads on constitutionally suspect ground.

The American tradition, innovation and common sense argue against heavy-handed regulation of the Internet

    For years, the Commission, the White House, Congress, and even the Supreme Court have noted that information technology and the Internet are simply too young—and fast moving—to be tied down by strict government regulation. Time and time again, federal officials have rejected the idea that the Internet can be closely regulated. Yet, this is precisely the direction in which some would have the FCC and Congress head.

    CCIA, therefore, has urged the FCC to act with caution during their proceeding on the broadcast flag, and would urge the Subcommittee and Congress to proceed in a similar fashion. The mere existence or even approval of the multi-bit signal known as the broadcast flag is not at issue before the FCC or Congress. Rather, the Commission is being asked to decide what, if anything, devices must do when confronted with such a flag.

    If the FCC or Congress decides to act on the proposal, we believe it should limit its action to recognizing the ATSC flag as a national standard for signaling a work's status under copyright law, but no more. Were the policymakers to follow the wishes of the content community's most extreme proponents and require certain technologies to respond to this flag in a certain way, it would severely skew a nascent marketplace. Such a broadcast flag standard would freeze innovation, and grant control of a vital standard to a handful of companies in the content industry. Such an action would be anticonsumer, antibusiness, anticompetitive and fundamentally at odds with the policy objectives set forth by Congress in promoting the advancement of HDTV.
 Page 53       PREV PAGE       TOP OF DOC

    We believe the FCC and Congress should uphold the most basic tenets of the Constitution, and trust the market to produce solutions at least as good as those that a handful of motion picture studios would seek to impose upon the rest of society.

The Broadcast Flag violates the balance that Congress has struck

    The Broadcast Flag is merely the beginning of Hollywood's efforts to unravel the careful balance achieved by Congress just four years ago in the DMCA. This legislation was the highest priority of the content industry during the 105th Congress, and Hollywood executives and lobbyists exerted tremendous pressure to push the legislation through. CCIA and others in the technology and consumer electronics industry were reluctant to grant such broad new powers to copyright owners, but entered into good-faith negotiations to seek a workable balance of interests.

    A key compromise reached during DMCA negotiations was §1201(c)(3) of the Act, the ''no mandate'' provision, which specifies that equipment manufacturers are not required to design new digital telecommunications equipment, consumer electronics and computing products to respond to any particular copy protection technology. Implementation of the BPDG co-chairs' proposal would renege on this critical agreement, and fundamentally alter the balance Congress sought in the DMCA. The BPDG co-chairs' report would require a broad mandate upon demodulators, modulators, and, through the mandatory license agreements of the ''approved technologies'' all electronic devices, computer hardware, components and software used to process, record and view high-definition television content. Any such mandate should be based on a genuine, broad consensus achieved following a careful examination of all of the practical consequences and public policy repercussions. The current proposal fails to satisfy any of these requirements.
 Page 54       PREV PAGE       TOP OF DOC

Government action must be fair and equitable

    Over the years, various interest groups have attempted to control the Internet. From those who would seek to ban from the network anything someone could call ''indecent,'' to overreaching law enforcement agencies that have tried to limit online privacy and anonymity, more than a few groups have determined that their parochial interests outweighed the interests of society as a whole.

    The Supreme Court cited just such interests in its groundbreaking ruling in Reno vs. ACLU. Confronting a section of the Telecommunications Act of 1996 that attempted to ban all public display of indecency from the Internet, the Court ruled swiftly and surely. Congress, the Court found, could not convert the entirety of the World Wide Web into something suitable for children. The First Amendment, the Court found, forbade such restrictions on the rights of the rest of society.

    The threat to free speech is not as sweeping in this instance, but nonetheless, questions of balance are vital. As we note above, the Robustness and Compliance Requirements of the Co-Chairs proposal have failed to protect Fair Use and invite only more interference with it via futile attempts to ''fix'' the so-called analog hole and constraints on peer-to-peer technologies.


The music industry's experience is largely irrelevant to HDTV
 Page 55       PREV PAGE       TOP OF DOC

    Proponents of the Co-Chairs' report assert that DTV will soon be ''Napsterized,'' or plagued with the same problems of widespread copying now faced by record companies. While it is simple to find some parallels between MP3 files and HDTV broadcasts, the analogy breaks down under examination. The basic properties of MP3s vs. those of High-Definition television govern basic laws of the marketplace and consumer behavior.

    MP3 files, like the music one buys on a Compact Disc at a record store, are digital. But those same files occupy a tiny proportion of the space needed by conventional CD recordings. Even the highest-quality (and thus least compact) MP3 files average a mere four megabytes per three-minute song, or roughly 60 megabytes per 15-song album. A conventional audio CD, by contrast, consumes roughly 10 times as much space, or 600 megabytes per album. The difference between the two capacities is fundamental and grounded in a basic reality: the vast majority of consumers have neither time, opportunity, hard-disk space nor bandwidth to download music—legally or not—when a full album would take up nearly a half a gigabyte. Thus, they must use MP3 file formats to compress the data into a manageable size.

    But as with all compression, this ease of use comes at a price. MP3 sound quality is significantly lower than that of full-fidelity CDs. Thus, we believe it is misleading to assert that digital technology offers ''perfect'' reproduction of audio and video works. Rather, digital technology offers perfect reproduction only of the version of the recording that is placed on the network in the first place.

    The 10-to-1 compression of MP3 is impressive, but ultimately results in significant loss of sound quality readily apparent to anyone with a stereo of even middling quality. For this reason, MP3 players now available on the market are overwhelmingly aimed at portable devices and not at the home stereo market; the sound quality is simply too low for more serious uses. The low quality of MP3 recordings puts into jeopardy the proposition that widespread file sharing poses an immediate threat to all recordings sold at retail. Likewise, the laborious chore of downloading files from peer-to-peer networks (connections often fail), checking their quality (''pirate'' MP3s are often badly compressed, or compressed far beyond the limits of good sound quality), assembling those files and then burning them to disk (the process can take an hour or more) puts a real limit on the number of people who would rather undertake this onerous task than buy the recording.
 Page 56       PREV PAGE       TOP OF DOC

    We know that the record industry asserts that illegal copying of their wares accounts for their falling sales. Others suggest that there are other possible causes, including the current economic slowdown, the industry's release of far fewer titles and their elimination of singles, the end of cassette production, broadcast media consolidation, and less grooming of new talent. A full examination of the recording industry's woes is beyond the scope of this hearing. Nonetheless, the supposed causes of the record studios' financial slump—MP3 reproduction—is only partially relevant in the face of staggering bandwidth requirements of digital television. Thus, we question in the first place the aptness of comparing the real problems of the slumping record industry to the supposed difficulties of movie studios that are recently concluded their largest and most profitable sales year in history.

The Broadcast Flag proposal ignores our industry's 25-year history of combating illegal copying.

    Finally—and perhaps most importantly—we would like to refer to the decades of experience our industry has had with illegal duplication of software. We learned long ago that we can create some impediments to unauthorized copying. But we also learned that modern DRM technology is mostly successful in keeping honest people honest. We also have learned that the more we restrict how our customers can use our products, the more likely they are to be annoyed. Indeed, our earlier attempts at copy control chiefly taught hackers how to crack inherently insecure systems. The result was an ''arms race'' of software developer vs. hacker.

    That arms race at first did little more than deny users the ability to make back-up copies or perform other innocuous tasks. Later, it taught good hackers how to be better ones. With time, there arose a particularly corrosive attitude among consumers. Some users began to think that stealing software was somehow permissible, since—in their mind—producers treated customers poorly and interfered with their expected use of the products. It is small wonder, then, that the vast majority of software makers dropped the fight.
 Page 57       PREV PAGE       TOP OF DOC

    Today, software developers and their representatives routinely pursue, litigate against and assist in the prosecution of commercial infringers. Although illegal copying imposes costs on all software users, swift legal action puts a damper on such activity. At the same time, we know that illegal copying is largely a crime of opportunity. When given the chance to buy software at reasonable prices through convenient online kiosks or stores, consumers will generally purchase software products through legal, authorized distribution channels. The software business, like all businesses, eventually comes down to trusting the vast majority of customers.

    The co-chairs and those who agree with them—Hollywood, in particular—have chosen not to trust consumers. They now threaten not to make their goods generally available without onerous copy protection measures. The record companies, in particular, have refused to make their goods available online at prices that reflect the vastly lower costs of online distribution, or in places consumers find convenient. They have also refused to ''unbundle'' their content to allow consumers to purchase a single song at a proportionate price rather than an entire album. Consumers are now also faced with purchasing music and visual media embedded with draconian DRM technology that, threatens to become obsolete, and restrict their rights and expectations with regards to time- and space-shifting. As a result, many otherwise honest consumers have gravitated towards the flexible reproduction and distribution offered by online file-sharing networks.

    Now, alarmed by the record industry's own, predictable failure to stop unauthorized copying, Hollywood comes to the FCC and Congress for the blessing of still another ill-conceived copy-control scheme. The studios believe that, all evidence to the contrary, the broadcast flag will stop copyright infringement from occurring this time around. The Commission and Congress should reject this argument as a basis for implementation of the Broadcast Flag proposal, notwithstanding the many adverse consequences that would clearly result from the plan.
 Page 58       PREV PAGE       TOP OF DOC


    Compounding this tension is another problem: The BPDG, despite its long efforts, produced no actual technology standard for the implementation of the broadcast flag. The prospect of adapting technologies approved by the MPAA and a handful of others to devices outside the local-area-network topology, for instance, remains only a dream. The FCC, therefore, is being told it must treat a mere wish list as though it were technological fact.

    The Fair Use that was so crucial in Sega and other forms of lawful use of copyrighted works cannot be regulated by a mathematical algorithm or technological device. Fair Use is that use which is not authorized by the creator but it nonetheless legal as determined by the courts. These determinations are inherently subjective, and often controversial, and must normally be resolved on a case-by-case basis. Any solution that does not allow for consumers' continued enjoyment of the full range of uses permitted under existing precedent—as well as those uses that come to fall under the protection of copyright law—will diminish the rights of copyright users and upset the careful balance that has existed for hundreds of years.

    This matter is obviously important for consumers, and their need to access legally the body of other works for personal use is clear. Ph.D. candidates who need to use copyrighted HDTV footage for a thesis on popular culture, proud parents who want to e-mail digital video of their child's soccer game, or corporate executives who want to watch video stored on an office computer while traveling, consumers, governments, and businesses alike need access to these works for their personal, non-commercial use. None of these things would be possible under the Co-Chairs proposal. And while proponents will argue that none of these things is expressly forbidden, the reality is we see no viable technology that can both allow these actions and comply with the proposal.
 Page 59       PREV PAGE       TOP OF DOC

    Fair Use is not just a right enjoyed by consumers. Neither is it limited to rival software developers who want to produce game cartridges for other companies' players. Fair Use is intended to benefit the entirety of society. Fair Use, far from being a plaything of the ivory tower, is a concept that has run through our entire system of copyright since the time that it was established by the Founders. The more we limit fair use, the less likely we will enjoy the benefits of the creativity and innovation that are now possible under our intellectual property system. The more we dictate standards, the less room we have for broad accommodation and market-based solutions. Indeed, the broadcast flag proposal seems destined to create a cartel of content and technology producers that will decide who may prosper and who will not.


    As representatives of some of America's largest producers of copyrighted material, we know first hand the importance of protecting what one owns. But our experience and knowledge of the law tell us that there are limits to the control we may expect over copyrighted materials. As a matter of technology and law, the Broadcast Flag proposal is fatally flawed.

    The digitization of increasing amounts of our cultural heritage follows precisely the revolution through which the rest of society has passed. We as a society have responded to that change by creating new ways of doing business, of governing and living, of buying and selling copyrighted materials.

    Not all are happy with this change. Like so many established powers, they now want to enlist the government in fighting a rear-guard action against the future. We urge the Members of the Subcommittee to reject this call to arms.
 Page 60       PREV PAGE       TOP OF DOC

    Mr. SMITH. Ms. Peters, let me direct my first question to you, but on the way there, say that I felt like your written testimony read like it was written by a judge, and I actually mean that as a compliment. [Laughter.]

    Mr. SMITH. It was a very good analysis of the case at hand.

    Ms. PETERS. Thank you very much.

    Mr. SMITH. You obviously believe, as a lot of people do, that content providers have a legitimate concern. You also think we need to accommodate fair use, and I don't disagree with that. But you spoke generally a few minutes ago, as well as in your written statement, about generalities. Can you be more specific? Can you give us examples of, for instance, some unauthorized redistribution activities that you feel would go beyond fair use?

    Ms. PETERS. I just want to correct one thing. I really didn't say that the broadcast flag proposal had to accommodate fair use. What I said is——

    Mr. SMITH. You said the solutions need to accommodate fair use.

    Ms. PETERS. Right. If the solution was there, then you have to make sure you get it right.

    Mr. SMITH. Right.

 Page 61       PREV PAGE       TOP OF DOC
    Ms. PETERS. The problem with fair use is there is no exact answer, and that is actually the beauty of it. Usually, when you know the limits of what is going to be an exception, for example, performance of a work in a classroom, you actually exempt that out. What fair use does is on a case-by-case basis that may change over time, you apply the factors. So I actually think it is very difficult to build fair use——

    Mr. SMITH. Let me ask you, then, a specific question. Suppose a consumer made a copy of a TV broadcast and physically mailed it to a friend. That would be permissible, I assume?

    Ms. PETERS. Technically, under the Sony decision, the making of a copy for time shifting purposes is okay. What you seem to be going to is a personal copy, but then the personal copy goes to the friend.

    Mr. SMITH. Right.

    Ms. PETERS. I would say that it is not that clear that it is, in fact, fair. It is probably clear that copyright owners would not challenge that with regard to a particular——

    Mr. SMITH. What if it was e-mailed to a friend?

    Ms. PETERS. E-mailed to a friend, one friend? The bottom line for me is I think it is technically an infringement, but it is one that would not be enforced.

 Page 62       PREV PAGE       TOP OF DOC
    Mr. SMITH. Not be enforced, okay. Fair enough. Thank you, Ms. Peters.

    Mr. Ferree, let me ask you a technical question, and it is this. Do you think it is possible for the FCC to arrive at a limited broadcast flag solution that does not impact copyright law and that takes into consideration concerns of consumer electronics industries that a broadcast flag will stifle competition?

    Mr. FERREE. Yes.

    Mr. SMITH. Okay, that is fairly reassuring. [Laughter.]

    Mr. SMITH. I am not going to ask you any more. I am glad for the short answer.

    Mr. FERREE. No, I——

    Mr. SMITH. Really, I am serious.

    Mr. FERREE. Okay.

    Mr. SMITH. That was a good answer. The comment period ended a couple of weeks ago, a little over 2 weeks ago. When do you expect—I am not going to presume you are issuing rules, but when do you expect to reach a decision whether or not to make a ruling?

 Page 63       PREV PAGE       TOP OF DOC
    Mr. FERREE. Well, that is hard to predict, Mr. Chairman. We have just begun to go through the record. It is quite an extensive record. We received something over 6,000 comments in that proceeding alone, and they do—the comments——

    Mr. SMITH. What is the average period of time you generally wait between when the comment period is closed and when you would decide whether to issue a ruling or not?

    Mr. FERREE. Oh, that can vary greatly.

    Mr. SMITH. You are just going to give a specific answer.

    Mr. FERREE. I will give you as specific answer as I can get. I would think if the FCC decided to go forward with a flag implementation of some sort, without commenting on what that might look like, I would think it would be done this year.

    Mr. SMITH. Okay. How about the next 3 months? Six months? You can't even be that specific?

    Mr. FERREE. I—I would not hazard a guess. I am sorry.

    Mr. SMITH. If you can't, you can't. Thank you, Mr. Ferree.

    Mr. Attaway, do you think that there are other options besides the broadcast flag, watermarking and encryption at the source that might work or work as well? Do you believe the broadcast flag is the only practical solution, then, or——
 Page 64       PREV PAGE       TOP OF DOC

    Mr. ATTAWAY. We believe it is the only practical solution. The only other way of dealing with this problem that we are aware of is for broadcasts to encrypt their signals, which has enormous legacy problems for consumers, legacy equipment problem. The broadcast flag solution that we have recommended eliminates any legacy equipment problems for consumers. The legacy risk is all placed on us, and that is why it is so important that the FCC act quickly, because every day, more legacy devices are coming into the marketplace that will not recognize the flag, and so the retransmission problem will continue until those legacy devices transition out of the marketplace.

    Mr. SMITH. Mr. Attaway and Mr. Black, I have some additional questions in a few minutes and we will get to those a little bit later on.

    The gentleman from California, Mr. Berman, is recognized for his questions.

    Mr. BERMAN. Thank you, Mr. Chairman.

    Mr. Attaway, Mr. Black's testimony as well as the CCIA's FCC submission keeps talking about Hollywood and Hollywood and I thought they were going to break out into song in a moment. But you seem to think that only the Hollywood studios support the broadcast flag, that this notion of trying to develop some form of a consensus is not present in the effect to get the broadcast flag. Is that true or do you have allies on this?

    Mr. ATTAWAY. It is not true, and if you see the comments filed with the FCC, you see that everyone involved in the free over-the-air broadcast business, from content suppliers to television stations to advertisers to guilds, everyone involved in this activity supports the broadcast flag because everyone realizes that without the flag, high-value content is going to migrate to protected delivery systems like cable and satellite and free over-the-air television as we know it today will be a thing of the past.
 Page 65       PREV PAGE       TOP OF DOC

    Mr. BERMAN. In your written testimony, you state that the broadcast flag wouldn't prevent the incorporation of broadcast content into a school project. Mr. Black seems to disagree with you. He states that the broadcast flag would effectively prevent a child from using clips of DTV programming in a school project because it would prevent the child from e-mailing that project or burning it onto a CD. Could you reconcile your comments with his?

    Mr. ATTAWAY. Well, the broadcast flag would certainly not prevent Mr. Black's child from burning a copy of the project containing elements of television shows onto a CD. The broadcast flag does not prevent copying at all, as I stated earlier.

    With today's technology, it would prevent the student from e-mailing that project because a secure system does not yet exist for e-mailing. But as soon as that technology is developed, and I believe it will be, then that would be made possible, as well. The only thing that the flag is designed to do is to prevent the mass redistribution of television programs on wide-area networks like the Internet.

    Mr. BERMAN. Mr. Black, you note that many of your members have strong IP interests of their own and support IP protection. One of CCIA's members is Streamcast Networks, the corporate owner of the peer-to-peer file trafficking service Morpheus. Streamcast Networks is clearly concerned about protecting its own IP, as it copyrights its website and it has many trademarks, including one on the Morpheus logo.

    At the same time, Morpheus software has enabled and continues to enable its users to commit literally billions of copyright infringements, including massive copyright infringement of TV programming. Even though Morpheus could reengineer its software to disable copyright infringements, it has refused to do so. So while your members protect their own IP, it appears that at least a couple of them actually profit from the infringement of copyrights and TV programming. Doesn't this lead to the conclusion that some of your members are not really concerned about protecting copyrighted DTV programming?
 Page 66       PREV PAGE       TOP OF DOC

    Mr. BLACK. Mr. Berman, if any members of mine are found in a judicial process—and there is a lawsuit going on right now—to have as a core part of their business practice the violation of law, they will not be members of mine. As a matter of fact, Microsoft at the moment is not a member of mine, given their anti-competitive behavior across a wide range. We will not——

    Mr. BERMAN. Do they want to be?

    Mr. BLACK. Probably not at the moment. [Laughter.]

    Mr. BLACK. But we basically—I stand by our statement. Our companies are a wide range of companies. If—you are making presumptions about conduct which will be—is being litigated. When it is litigated, we will respond accordingly. We do not try to look at every company and every practice, and I think there are a lot of companies in various parts of the entertainment industry that at times have been found in violation of some aspect of law or are under consent decrees, et cetera. So a trade association does not try to do that. However, like I say, if there was a formal finding, we would act.

    Mr. BERMAN. My point wasn't about who or who shouldn't be in your association, nor was I trying to be the jailer. I was simply trying to point out that some people who talk about desiring to protect IP, at least as the facts appear to me, live by trying to violate intellectual property protections. That was my only point.

    Mr. BLACK. I am sure that is right, and I think some people who talk a lot about fair use aren't very committed to helping fair use along, either.
 Page 67       PREV PAGE       TOP OF DOC

    Mr. BERMAN. I am sure that is true.

    Mr. SMITH. Thank you, Mr. Berman.

    The gentleman from Florida, Mr. Keller, is recognized for his questions.

    Mr. KELLER. Thank you, Mr. Chairman, and Mr. Attaway, let me start by asking you a few questions about this broadcast flag. Do you have any reason to believe that the broadcast flag is going to make TV sets or DVD players more expensive?

    Mr. ATTAWAY. No. The broadcast flag technology itself is just a bit which is freely available. There is no patent on it. So there is no cost at all for using the broadcast flag bit. Now, complying with the flag will require a technology to be added to devices that receive and demodulate DTV broadcasts, but that technology, we are talking about pennies.

    Mr. KELLER. Will this broadcast flag restrict the home recording of DTV?

    Mr. ATTAWAY. Absolutely not, in no way.

    Mr. KELLER. Do you think the broadcast flag ultimately will benefit consumers, and if you think that, tell me why.

    Mr. ATTAWAY. Absolutely, it will benefit consumers because it will allow free over-the-air broadcast television stations to continue to have access to high-value content, content where the owners of that content must protect it against redistribution in order to maintain its value. The broadcast flag will prevent this content from migrating to secure delivery systems like cable, satellite, and eventually the Internet. It simply levels the playing field for free over-the-air broadcasts.
 Page 68       PREV PAGE       TOP OF DOC

    Mr. KELLER. Okay, thank you.

    Mr. Black, let me turn to you. Now, as I understand it, there are many P2P developers who already advertise filters for pornography and viruses and bogus files. I assume that P2P, peer-to-peer developers like Streamcast could, without any Government regulation, also design software to limit trafficking in unauthorized copyrighted works, including TV programs. Do you believe they should?

    Mr. BLACK. Peer-to-peer is a fascinating technology, and I think there are some misunderstandings about it. The reality is that the original Internet backbone is P2P technology. It is used widely for instant messaging, ICQ, video conferencing, Telnet, which is very important remote log-on capability used in TCP/IP networks, a lot of intra-corporate file transfers, data storage——

    Mr. KELLER. But rather than a history of it, do you think they have the ability to develop their own software to limit trafficking in authorized copyrighted works, and if they do, do you think they should?

    Mr. BLACK. I believe—certainly. We do not try to limit what software people develop. If there is a market for that and it is desirable, I have no problem developing software that does not violate any existing laws and computer security, et cetera. That would be fine. Our goal is really not to tell companies where to go invest in research and build products. What we are trying to preserve is exactly that vitality that the companies have the capability and the freedom to innovate.
 Page 69       PREV PAGE       TOP OF DOC

    Mr. KELLER. Well, let me get at a question that I think Mr. Berman was trying to get at. If most users go on Morpheus to download pirated versions of movies and music and TV shows, et cetera, isn't it fair for us to assume that the CCIA has a vested interest in opposing the flag and, indeed, any other solutions to peer-to-peer privacy?

    Mr. BLACK. Well, we certainly have a vested interest in opposing the flag on behalf of all of the companies that have $300 billion worth of revenue, which does not come from Morpheus. Yes, there are very many legitimate reasons that all of my companies have some questions about the flag. Some may have more than others. But it is a position, and Morpheus is a company that joined only last year. It is a small member. It plays a very—in fact, our position on these issues were developed prior to that membership. So the assumption, I think, that maybe you are trying to get at is not accurate.

    I should point out that in terms of the 6,000 comments received, the overwhelming number of those have serious criticisms, if not outright opposition to the flag, and in almost all of the other high-tech trade associations in the industry have likewise weighed in with very serious questions about this proposal, again, if not outright opposition——

    Mr. KELLER. Did you say $300 million or $300 billion? What would you say the revenue is that your guys are getting?

    Mr. BLACK. About $300 billion a year annual revenues.

    Mr. KELLER. Okay. Mr. Attaway, what do you think about that response? Do you think there is a $300 billion reason that they are opposing the broadcast flag and any other solutions to peer-to-peer privacy?
 Page 70       PREV PAGE       TOP OF DOC

    Mr. ATTAWAY. I do not, and quite frankly, I can't give you a good explanation of why they are so steadfastly opposing the flag. Getting back to your earlier question about cost, this is not an issue of whether television receiving devices are going to have to incorporate new technology. These devices already are incorporating the kind of technology that will respond to the flag, like the so-called 5(c) technology, and that is because cable, satellite, Internet, other delivery systems are providing protection to content that must be reacted to by consumer devices in order for those consumers to watch the programs on cable, satellite, et cetera.

    The real difference here—the real issue here is whether over-the-air broadcast content should be directed through secure inputs or unsecure inputs, and obviously, our position is that it should be the former.

    Mr. KELLER. Thank you. My time has expired, Mr. Chairman.

    Mr. SMITH. Thank you, Mr. Keller.

    The gentlewoman from Texas, Ms. Lofgren, is recognized.

    Ms. LOFGREN. Not from Texas.

    Mr. SMITH. Oh, I am sorry—— [Laughter.]

    Mr. SMITH.—the gentlewoman from California.
 Page 71       PREV PAGE       TOP OF DOC

    Ms. LOFGREN. It is the other nation state.

    Mr. SMITH. We will be happy to claim you, however.

    Ms. LOFGREN. Thank you. [Laughter.]

    Ms. LOFGREN. First, let me thank you, Mr. Chairman, and also Mr. Berman, for holding this hearing. I think it is useful and I think it is an important subject.

    Clearly, as envisioned, the broadcast flag is just a piece of information. It doesn't itself protect anything. So the real question is, what happens next and what kind of controls will be put in place by the devices that catch signals? Will we control innovation of devices? Will consumers be allowed to skip commercials in shows they record, just like they can go to the bathroom and not have to watch those commercials today?

    I think, also, this is not really before us, but I was interested to see your presentation, Mr. Attaway, and what I heard, 190 million users online at the day you went in. I did mention to counsel here that if we had a compulsory license, your industry would be rolling in dough, more than you would ever dream of making if that were in place. [Laughter.]

    Ms. LOFGREN. But that is not before us. I was grateful that you did not show us the free condom ads and the other non-copywritten material that you found there. [Laughter.]

 Page 72       PREV PAGE       TOP OF DOC
    Ms. LOFGREN. You know, I have an interest—there are copyright issues, fair use issues that have been identified, but I think there are innovation issues that we would be remiss in not identifying, and I noted, Mr. Attaway, in your written testimony, you talk about the FCC to authorize a list of protection technologies known as Table A.

    What that makes me wonder is whether new technologies that are invented, that are not on Table A, would need to seek some kind of authorization from presumably the FCC before they would be allowed to be marketed, and who would decide whether new technologies would be allowed to be invented and to be marketed, and what kind of objective criteria would be applied to the technology world in sort of Government control of invention relative to Table A? Have you given that thought?

    Mr. ATTAWAY. Absolutely. There are a number of avenues to become—to get on Table A, to be an accepted technology. Several of them are marketplace standards. One of them is the standard of being equally effective in protecting the content. Some people criticize that standard as being too vague. We think it is an appropriate standard because it does exactly what you are suggesting should be done, and that is leaving the field open to develop new technology and to be as flexible as possible. So we think that is the appropriate standard and because it is so broad and open, we do not think it will have any negative impact on the development of new technology.

    Ms. LOFGREN. Could I turn on that same subject, then, to Mr. Black? I know several comments have been directed your way relative—I didn't realize that Morpheus was actually a member of your association because the members I know are like Sun Microsystems and people who are huge employers and developers of technology in America. What are the implications, in your judgment, for the innovations, technology innovations that buoy the signal of your sector of the economy, relative to the comments of Mr. Attaway as well as his written testimony and the proposal?
 Page 73       PREV PAGE       TOP OF DOC

    Mr. BLACK. Certainly, Congresswoman. Under the broadcast flag proposal that has been submitted, there are—there is a great deal of control that is vested into a certain small group of entities. There are four ways in which new technology can be approved under Table A. I won't go into all the details, but the three of them basically are major studios and some small number of electronics companies being required to give approval.

    The one that Fritz often uses, or Mr. Attaway uses to say, oh, but that is—it is not all under our control, basically requires a bureaucratic process of review. The standards are vague and unclear. The process is likely to be quite lengthy and we do not see how that is a reasonable option for developing new technology. In addition, the 5c proposal, the broadcast flag proposal, allows companies who are in a really dominant position here to have subsidiary licensing agreement, the terms of which are private, and we are talking about proprietary technologies here which are sealed.

    And so if you are a new player trying to get into this game, you do not know the standards by which you will be judged. That is not an open entry mechanism. That does not encourage it. And on top of that, you go through a process, most of the avenues of which are controlled by your competitors or a small group of cartels and players who may have very limited business relationships. This is very unlikely to create, foster the kind of investment in innovative energy that we have come to rely on in our industry.

    Mr. SMITH. Thank you, Ms. Lofgren.

    The gentlewoman from Pennsylvania, Ms. Hart, is recognized for her questions.
 Page 74       PREV PAGE       TOP OF DOC

    Ms. HART. Thank you, Mr. Chairman. I am sorry I keep running in and out of the hearing.

    I guess my question still has to do with what is seen as fair use, and I am especially interested in Ms. Peters. In your testimony, you refer to consumer expectations as having been a driving force behind the broadcast flag proposal since the proposed regime would permit unlimited copies for personal use, both inside and outside the home network. Would you see these consumer expectations as beyond, though, the scope of fair use?

    Ms. PETERS. Absolutely. They actually have no limit on the number of copies that can be made. We don't have a personal use exemption in this country. In Europe, where they have more personal use exemptions, they also have levies that compensate copyright owners.

    One thing that wasn't clear to me is whether or not you transfer the copy of—the question that was asked earlier by your Chairman was, what if I make a copy and I e-mail it to my friend, and technically, I don't think that if you are talking about a digital copy, so now you have a digital copy that you have, your friend has, and you go down the line, and personally, I don't think that that falls within fair use, but no court has exactly looked at that case.

    Ms. HART. Okay. You make the case about the digital copy versus another kind of copy——

 Page 75       PREV PAGE       TOP OF DOC
    Ms. PETERS. Analog.

    Ms. HART.—and is it because it is so easy to have a perfect copy in the digital format that that is of a concern?

    Ms. PETERS. That is part of it. It is also part of it that you can send it throughout the world instantaneously so that millions and millions of people can also have it. That is one copy, but then that friend can send it to his friend, and around the world it goes.

    Ms. HART. Thanks. Is there a—go ahead.

    Ms. PETERS. and that is without any compensation to the copyright owner.

    Ms. HART. Right, and that is a problem.

    Ms. PETERS. Well, if one person does it, it is fine. If everybody does it, then it wipes out the market.

    Ms. HART. But if you do what I have been doing, which is taking random polls of random young interns throughout the Capitol and asking them, when was the last time they bought a CD——

    Ms. PETERS. Oh, I have no doubt——
 Page 76       PREV PAGE       TOP OF DOC

    Ms. HART.—the answer is they don't know where the CD store is, so——

    Ms. PETERS. I am aware of that. I just came from UC-Berkeley. [Laughter.]

    Ms. HART. That is a good point. Does anybody else want to comment on that particular issue? Yes, Mr. Black?

    Mr. BLACK. We are using some terms in ways that haven't been clearly defined. The focus of broadcast flag and all the discussion motivating it has been high-definition television and bringing that on board. Digital, I can take a home movie and digitize it. I can take an analog and digitize it. We have got to be careful about using digital TV as an acronym. What we are talking about, the presentation we saw here was not connected to the Internet. Had that been—and don't use me, use the testimony submitted to the FCC from the MIT Media Labs person—that in order to have a 2-hour movie transmitted, we are talking 36 hours in high-definition over high-speed cable network connection. This is not a problem that is on our plate today.

    Ms. HART. Okay.

    Mr. BLACK. There are several assumptions that have been made about what—oh, well, technology is going to fix it, and they are talking about compression, they are talking about band width, they are talking about various solutions that we are going to deal with some of the portability issues. Well, they are saying there is going to be some technological solution that is going to deal with these, but right now, you can't do what they say they are being hurt by. They don't have evidence that it is, in fact, taking place.
 Page 77       PREV PAGE       TOP OF DOC

    Nobody can predict the future, but our best guess—not of high-definition television. High-definition programming is not—we have seen no evidence and none in the record of a problem that is there. Is there a lot of transmission of low-definition analog programming? Absolutely, and there is a problem there. The broadcast flag isn't focused on that. That is not what it is designed to deal with. And in testimony that has been given and speeches I have heard they don't maintain that the broadcast flag solves all the problems that I am pointing to. It does not, and they have not maintained that.

    Ms. HART. Let me give Mr. Attaway a quick rebuttal there before I run out of time.

    Mr. ATTAWAY. I can certainly agree with Mr. Black's last statement. The broadcast flag does not solve everything, but it does solve one aspect of the overall problem, and just because it is not 100 percent effective is certainly no reason not to adopt it.

    And going back to your initial question about fair use, the broadcast flag is not intended to replicate the copyright law or even be a substitute for the copyright law. The broadcast flag is being proposed as appropriate communications policy to preserve over-the-air broadcast television, not unlike the 1970's when the FCC adopted redistribution regulations for cable television, signal carriage and syndicated exclusivity. Certainly copyright implications, no question about that, but the basic policy was to preserve free over-the-air broadcasting. The same exists today.

 Page 78       PREV PAGE       TOP OF DOC
    Ms. HART. Okay, thank you. I see I am out of time. Thank you, Mr. Chairman.

    Mr. SMITH. Thank you, Ms. Hart.

    The gentleman from Virginia, Mr. Boucher, is recognized for his questions.

    Mr. BOUCHER. Thank you very much, Mr. Chairman. I want to begin by complimenting you on scheduling a timely and interesting hearing on very pertinent subject matter. I think it is highly appropriate for this Committee to be examining the issues, particularly copyright issues and fair use questions that are associated with the possible implementation of the broadcast flag.

    I have not taken a position on this matter yet and I am still in search of answers to a number of questions, and perhaps the witnesses who are here today can help provide some of those answers.

    Mr. Black, let me begin with you. We have heard Mr. Attaway say that in the absence of a broadcast flag, the producers of high-value digital content probably would make that content cable and satellite exclusive and would not make it available for over-the-air television broadcast in the fear that, in the absence of the broadcast flag, someone could take that program in the home and upload it to the Internet and then distribute it to people around the country or around the world, and so there's a real fear of piracy on the part of the Motion Picture Association and its member companies and they are basically saying that if they don't have the broadcast flag, people who depend on over-the-air TV are not going to get high-value digital programming.
 Page 79       PREV PAGE       TOP OF DOC

    I represent a rural area. I have 27 counties and cities in the Western part of Virginia. Most of my constituents, unlike the American public generally, do not have access to cable television. Some, very wisely, I might add, have decided to subscribe to satellite television, but probably a majority of my constituents still depend upon over-the-air TV in order to get their programming. I think nationwide, the number may be something like 20 percent or even less, but in my district, it is a far higher number.

    And so the argument that Mr. Attaway is making has real resonance with someone like me, assuming that it is accurate, but I want to try to get some clarification about whether or not it is truly accurate. I think you might have a view about this and I would be interested to hear it. Is his argument accurate? Would over-the-air television be denied high-value content in the absence of a broadcast flag?

    Mr. BLACK. Well, I am not going to try to overly specifically predict the behavior of certain companies, but there is a multi—there are tens of millions of people out there with broadcast TV desires and I believe that there will be content produced, that there are business models that will work for that. I do not see it at all probable, in fact, that the content would not move. In fact, we have seen in recent years an increase, a substantial increase in high-quality television programs being developed, and if there is a problem, which I guess I do dispute, it certainly hasn't seemed to have stopped the increase in those numbers today.

    But I think it is important to look, when we talk about the impact, that this is Hollywood's most profitable year, and yet we have a situation where DVDs—everybody understands the DVD code has been compromised. The security is available. Yes, they are available on the Internet. Nevertheless, we are at record numbers of sales of DVDs. Maybe not everybody is doing it, but there is a trade-off between opportunity which the Internet and the entire infrastructure of the Internet provides. It is a massive expansion of marketing opportunity.
 Page 80       PREV PAGE       TOP OF DOC

    Are there going to be some parallel costs to that? There will be an increase in fair use as a result of that. There unfortunately will also be an increase in unfair use piracy. But it is net that we are looking at and the issue being raised is, is this a threat, and so far, at the moment, DVD sales are record numbers and Hollywood is at its best year ever.

    And from the technology standpoint, which you notice Fritz did not try to rebut my 36 hours and the MIT statement, and if you look at the FCC record, many people in the technology industry, major companies, Philips, other trade associations, have all also done tests and show those kind of huge numbers for downloading—and frankly, the problems in transmission infrastructure are huge—the idea of staying online for 36 hours.

    So the threat is certainly nowhere—it is years out if it is real. Only if certainly technological developments increase substantially——

    Mr. BOUCHER. So you don't see it as being an immediate problem?

    Mr. BLACK. I really don't. I think it is a threat. I think it is——

    Mr. BOUCHER. If it is a problem at all, it is longer term.

    Let me ask one other question. Mr. Attaway, we have heard discussion here today about the e-mailing of broadcast programming, and the question was posed, if you e-mail to a friend or someone outside your immediately family, is that a fair use application? Should that be permitted under the broadcast flag? Frankly, I have doubts that it is fair use. I agree with Ms. Peters. In all likelihood, if the case were ever squarely put, I think probably sharing copyrighted programming without the consent of the copyright owner with someone outside of your immediate home setting probably would be found not to be fair use.
 Page 81       PREV PAGE       TOP OF DOC

    But suppose that that is not the example. Suppose that you are e-mailing that information to yourself. Suppose that you have taken the broadcast and you are sending it to your office, where you might need that programming for some business application. You are e-mailing that to yourself. That, I think, unequivocally would be found to be fair use, and my question to you is, in the proposal that you have put forth for a broadcast flag, as I understand it, that kind of application would not be permitted because the device that searches for the broadcast flag as it approaches the Internet would not permit that content to go forward onto the Internet. So I think your proposal would not permit it.

    My question to you is, why not? Why should this not be structured in such a way as to accommodate the unequivocally legitimate fair use applications that people may have?

    Mr. ATTAWAY. Congressman Boucher, I have to disagree with you. Under our proposal, it would be permitted as soon as technology exists to permit it to be done securely. This is a technological issue, not a policy issue. I don't agree with your policy—I don't disagree with your policy position, and I expect that technology will enable that to be done fairly quickly.

    Mr. BOUCHER. So would you agree, then, that as the broadcast flag proposal goes forward, if it does go forward, that legitimate fair use applications, including those that involve use of the Internet, should be permitted?

    Mr. ATTAWAY. The broadcast flag is intended to prevent the widespread redistribution of content. If technology exists to permit secure delivery of that content to your summer home or to your office, that is not something that the broadcast flag is intended to prevent, and presumably, it will not.
 Page 82       PREV PAGE       TOP OF DOC

    Mr. BOUCHER. Thank you. Mr. Black, do you want to just say a word?

    Mr. BLACK. I mean, I think what we just heard with a very articulate——

    Mr. SMITH. Mr. Boucher, let me say we have three votes coming up. The first is 15, the second is five, the third is a 15, and we have a couple more items to take care of before we leave, so if you could give a very quick response.

    Mr. BLACK. I think you had a very subtle way of—and articulate way that Fritz described collateral damage, and there is substantial collateral damage in the broadcast flag proposal on costs, on consumers, on innovation. Thank you.

    Mr. SMITH. Thank you, Mr. Boucher. Actually, I am going to follow up on your last question and I would like to squeeze in a couple more questions before we go vote.

    Mr. Attaway, I would like to read to you an excerpt from Mr. Black's prepared testimony in which he gives these examples that he says would be prohibited by broadcast flag: Ph.D. candidates who need to use copyrighted high-definition TV footage for a thesis on popular culture, proud parents who want to e-mail digital video of their child's soccer game, or corporate executives who want to watch video stored on an office computer while traveling for their personal non-commercial use. Do you agree that those things would not be possible?
 Page 83       PREV PAGE       TOP OF DOC

    Mr. ATTAWAY. Absolutely not. None of the——

    Mr. SMITH. It depends on the technology, is that what you are saying? Mr. Black, hold on. Let him answer the question, please.

    Mr. ATTAWAY. None of that content is digital television content, so it is totally—the broadcast flag is totally inapplicable to that kind of content. The broadcast flag would have no effect over it because it is not broadcast content.

    Mr. SMITH. Let me ask another question. Mr. Black, you can answer this one, as well. Mr. Attaway, do you feel that you are using all the tools that you have available to you in the way of enforcement to stop the unauthorized distribution activities that you fear?

    Mr. ATTAWAY. Yes. We are trying——

    Mr. SMITH. In other words, if that is the case, why aren't you suing individuals, things like that? It seems to me that there are a lot of enforcement tools you could be using you are not using, but please respond.

    Mr. ATTAWAY. Well, Mr. Black was correct in that like the content scramble system for DVDs, the broadcast flag will not be 100 percent effective. What it will do is it will keep honest people honest. It will provide a curb where people know if they step over that curb, they are doing something illegal. For those people who insist on doing it anyway, we will have to exercise our rights under the law, under particularly the DMCA to identify these people and to take appropriate legal action.
 Page 84       PREV PAGE       TOP OF DOC

    Mr. SMITH. Okay. Mr. Black, do you feel that DMCA, other laws are being utilized to their utmost, or is there more that could be done?

    Mr. BLACK. No, I don't. I think what we have seen is a series of proposals put forth that have a similar theme, and the theme is, basically, let a variety of other players, including consumers and other industries, the telecommunications industry in some cases, computer industry, consumer electronics, let you all bear the costs. We propose new proposals and new legislation for you to do it. Frankly, you be the heavy guy with our customer. We don't necessarily want to alienate our customers, so we are going to create a structure where you become the one who has to pass on costs or interfere with their privacy, and that is a problem we have.

    Mr. SMITH. Okay, Mr. Black. Mr. Attaway, let me ask you to respond to something that Mr. Black said on page five of his written testimony. We got into it a little bit a while ago, but I still want you to respond. He says, only consumer—excuse me, it is Mr. Black and it is page five of Mr. Attaway's testimony. Only consumer products containing modulators or demodulators would be directly subject to FCC requirements necessary for the protection of unencrypted digital terrestrial broadcast content against unauthorized redistribution. It sounds easy. It sounds simple. It doesn't sound very expensive. Why is that such a burden, and Mr. Attaway, if you will respond, too.

    Mr. BLACK. Well, first of all, it is not accurate, and with the Clerk's permission, we have a submission that was made by Philips to the FCC which lists—I will read them off—but a number of the products that——
 Page 85       PREV PAGE       TOP OF DOC

    Mr. SMITH. Do you want those made a part of the record? Is that what you are asking?

    Mr. BLACK. Yes, please.

    Mr. SMITH. Without objection, they will be.

    [The material referred to follows:]


    Mr. BLACK. Thank you. I will read off some of the devices which we believe will be affected as downstream products in modulation: Integrated DTV sets; DTV monitors; cable set-top boxes; DBS receivers; personal video recorders, such as TiVo and Replay; advanced PVRs incorporating twin-tuning, video editing, and other capabilities; DVD players; DVD recorders; D-VHS recorders; computer with DTV tuner card; a computer without DTV tuner card; network routers and switchers. This is—I would recommend Philips' testimony in this area as a company that has detailed out what they see. We see——

    Mr. SMITH. Mr. Black, we have to go. Let me ask Mr. Attaway to respond very quickly and then we will need to adjourn.

    Mr. ATTAWAY. Well, I think Mr. Black is correct. All of these devices will have to respond to the flag, but they are going to do that—have that capability anyway because they are being built with secure inputs and outputs in order to handle protected cable and satellite programming. The only devices that the flag will have an impact on are devices that are manufactured and sold only to render over-the-air broadcast television, and I think that is a very small number of devices because most consumers want to get cable and satellite and other protected content. So those devices will already have the technology in it.
 Page 86       PREV PAGE       TOP OF DOC

    Mr. SMITH. Thank you, Mr. Attaway.

    Mr. Ferree, and let me make this the final comment, I hope you have got the clear signal that there is bipartisan concern about the FCC's infringing upon the jurisdiction of the Committee, and I am sure you won't overstep your bounds and I am reassured by the answer you gave to one of the questions that I asked you. When it comes to transmission, that is one thing. When it comes to use, that is another, and I hope the FCC will respect our jurisdiction in that regard.

    Mr. FERREE. We will endeavor to do so, sir.

    Mr. SMITH. Okay. Well, I hope you will not only endeavor, I hope you will actually do it. [Laughter.]

    Mr. SMITH. Thank you, Mr. Ferree.

    Thank you all for your contributions today. They are very, very helpful. As I say, this is an issue we are going to be looking at in coming weeks and months and all your participation is very appreciated. Thank you all.

    We stand adjourned.

    [Whereupon, at 11:25 a.m., the Subcommittee was adjourned.]

 Page 87       PREV PAGE       TOP OF DOC

Material Submitted for the Hearing Record


    Copyright piracy is one of the most serious economic problems facing this committee. As the whole world knows by now, we have absolutely rampant piracy over the Internet. Last year, consumers swapped over 5 billion music files over peer-to-peer networks; an astonishing 58 percent of the American population between the ages of 12–21 has downloaded MP3's over the Internet in the past two years. Consumers have grown accustomed to free music on the Web; and movies and video games are a close second.

    This is why we are at a crossroads in the media business. The decisions made in Congress, the state legislatures, and the courts will impact the future of the content industry, and whether we will even have a viable content industry in the future. We cannot continue to let the content industry and its employees operate in an environment where consumers feel entitled to content for free.

    There have been two basic sides on this problem. The content industry was discouraged from putting its music and movies out in digital form unless the computers, television, and handheld electronics used to access them would obey digital rights management (DRM), the electronic tools used to stop piracy. The high-tech companies wanted the marketplace to be the judge; they wanted consumers to have access to content and electronics without restrictions.
 Page 88       PREV PAGE       TOP OF DOC

    Fortunately, there is a middle ground that is working. The parties will negotiate and the government will step in to either (1) get the negotiations moving if they stall or (2) implement a resulting agreement. This approach has seen its first success, the technical standard for a broadcast flag. The flag is the digital watermark that would be put on over-the-air digital television broadcasts to indicate the presence of DRM. The parties reached an agreement on a technical standard so that the content industry will make flags and the high-tech industry will make devices that work with each other. Now, the FCC is in a rule-making to implement that agreement.

    I support this approach because it offers the best of both worlds: letting the market work while ensuring that the government can assert its prerogative to set policy. But we cannot stop now because there are at least three outstanding issues.

    First, the FCC's broadcast flag rule must follow both the letter and the spirit of the agreement; it should not be filled with loopholes that make flags useless and allow piracy. Content companies will not be able to transition to digital unless they can be assured that they will not have to compete with Internet sites that offer copyrighted content for free. Second, the flag is just one step in addressing piracy. The parties must negotiate in good faith and reach agreement on the next issue, the analog hole or reconversion issue. This refers to closing the loophole that would be created if a digital broadcast with a watermark is converted to analog, thereby erasing the watermark, and then back to digital so it can be pirated. Finally, the parties must work toward solving the peer-to-peer piracy problem, which this Subcommittee considered at a hearing last week.

 Page 89       PREV PAGE       TOP OF DOC
    I can only hope that there will be fruitful discussions on these issues; otherwise, we will reconvene this Subcommittee and solve the problems with legislation.


    Mr. Chairman, thank you for holding this important oversight hearing on piracy prevention and the broadcast flag.

    Our Constitution grants Congress the power to award inventors and creators, for limited amounts of time, exclusive rights to their works. The founding fathers realized that this type of incentive was crucial to ensure that America would become the world's leader in innovation and technology. This principle is still applicable today. As our nation continues its transition toward digital broadcasting, it is crucial that we continue to work to protect the rights of the content providers. There will only be a variety of programming options when content providers can calculate the expected benefits they will receive from their works and make informed business decisions accordingly.

    The debate surrounding the appropriate methods that should be employed to prevent the unauthorized redistribution of digital content is an important piece of the larger digital piracy debate. I am encouraged by the fact that the private sector has acted to develop solutions to this redistribution problem. Over a year ago, the content, entertainment and technology industries sat down to discuss this problem and developed the proposed ''broadcast flag'' solution, which is an embedded digital message within the program that signals that the program must be protected from unauthorized redistribution. The potential benefits of the broadcast flag include the fact that it would ensure competition among the various delivery methods of digital content.
 Page 90       PREV PAGE       TOP OF DOC

    I am eager to listen to the testimonies of our well-informed witnesses and hear their opinions about how the government can help private industry solve the unauthorized redistribution problem. I am also eager to hear these experts describe the potential benefits that the broadcast flag can offer consumers and content providers alike. For example, is it true that the flag will protect over-the-air content without preventing consumers from enjoying that content in ways they always have in their homes, such as taping programs to view later?

    Again, thank you, Mr. Chairman, for holding this important hearing.



    I want to thank Chairman Smith and Congressman Berman for holding this important hearing today.

    As currently envisioned, the broadcast flag is nothing more than information embedded in a television signal. The flag itself does not protect anything. It merely signals to compliant televisions and other devices that the broadcast is copyrighted.

    The real issue, then, is not the existence of the flag; it is the controls that the flag triggers. What will those controls look like? Will people be allowed to freely record digital broadcasts for personal use? Can they share those broadcasts with family and friends? Can they skip commercials in shows they record? Will they be able to transfer recorded shows to other digital devices? Which devices will be allowed? And most importantly, who gets to answer these questions?
 Page 91       PREV PAGE       TOP OF DOC

    My concern with the flag, like other digital rights management proposals, is that it has the potential to further erode the delicate balance between copyright owners and society. I recognize that digital broadcasts must be protected from mass copying. But copyright law does not give broadcasters, or any other copyright owner, absolute control over how consumers use their content. I do not think technology should either.

    This week, I introduced a bill to address these exact concerns. The BALANCE Act of 2003 will ensure that future digital rights management technologies, like the flag, do not chill competition or destroy the principles of fair use and first sale. I urge the parties involved in the broadcast flag debate to carefully examine my proposal in the spirit it was offered. The BALANCE Act does not seek to destroy the protections of the DMCA. It seeks to focus those protections on preventing piracy without harming competition.

    I want to remind the parties that digital technology is a nascent industry. The FCC, as well as content owners and IT companies, should proceed with utmost caution. Whatever solution is ultimately agreed to, it should be based on objective criteria that do not chill competition or unduly restrict consumer uses.


    Mr. Chairman:

    Thank you for convening this important hearing on piracy and copyright law implications of the broadcast flag. I am glad to have the opportunity here today to discuss the growing problem of broadcast television piracy. Particularly as we proceed with the transition to digital broadcasting, it is imperative to establish strong anti-piracy measures to protect this newly accessible type of intellectual property.
 Page 92       PREV PAGE       TOP OF DOC

    While I am concerned about Congress legislating technology, it should be clear to any observer that something must be done to prevent piracy of copyrighted digital television broadcasts. It is not the place of Congress, and certainly not the Subcommittee on Intellectual Property, to stifle innovation. Technology and innovation have long been a cornerstone of America's economy and will certainly have a significant role to play as we recover from our current economic troubles. At the same time, inaction in the face of copyright infringement of such a tremendous magnitude today could do even more to stifle innovation and growth in the future.

    It is my hope that this so-called broadcast flag could provide the appropriate protection for copyrighted broadcasts without impeding technological growth and development or preventing lawful consumer fair use. I am deeply concerned with the possibility of broadcast content migrating to cable and satellite, which already have content protection, to prevent this kind of piracy. Without valuable high-definition content to support them, broadcast stations will certainly be harmed, as will consumers who will then be forced to subscribe to cable and satellite companies to enjoy the high-quality content broadband used to offer. There can be no question that consumers will ultimately be the ones to pay the price without broadband content protections; therefore, it is in the best interest of consumers to support the continuation of broadcast programming with copyright protections, provided the protection does not limit legitimate consumer use. It is my understanding that the addition of the flag to digital television broadcasts would not place any restrictions on the fair use of consumers and would prevent the kind of rampant, indiscriminate redistribution of broadcasting that is an affront to all copyright owners.

 Page 93       PREV PAGE       TOP OF DOC
    Opponents of broadcast flag have yet to provide an alternate solution to prevent the theft of perfect digital copies of television broadcasts. If the broadcast flag is the only solution anyone can present, it is the solution we must embrace if we are to continue the mandated digital transmission of broadcast television in the interests of the consumer, artists, and property law. I am glad that we are able to hear testimony regarding the copyright components of the broadcast flag issue before this subcommittee, and I look forward to continuing this important copyright debate.









 Page 94       PREV PAGE       TOP OF DOC













 Page 95       PREV PAGE       TOP OF DOC












 Page 96       PREV PAGE       TOP OF DOC













 Page 97       PREV PAGE       TOP OF DOC












 Page 98       PREV PAGE       TOP OF DOC








    The Office of the Commissioner of Baseball (''Baseball'') respectfully requests that the Subcommittee include the following comments into the record of the hearing conducted by the Subcommittee on March 6, 2003. That hearing concerned the copyright issues raised by the electronic measures for protecting digital broadcast television signals, which is generally known as the ''broadcast flag.''


    Baseball has a long history of making league games available both nationally and regionally through over-the-air telecasts. More games of Major League Baseball are available through over-the-air broadcast television each year than those of any other professional sport. Each of Baseball's most popular and widely-viewed games—the All-Star Game and the World Series games—is televised by a national, over-the-air broadcast network.
 Page 99       PREV PAGE       TOP OF DOC

    The quality of telecasting has grown steadily since the first broadcast of a Major League Baseball game (between the Brooklyn Dodgers and Cincinnati Reds) in 1939. We have seen the introduction of color television, instant replay, and other innovations such as the ''catcher cam.'' However, the introduction of digital telecasts in high definition format represents a real leap forward for baseball fans—when a batter hits, a viewer can read the trademark on his bat; as an infielder takes a grounder, a viewer can see the stitches on the ball. In short, digital broadcasts in high definition can make viewers feel as though they are at the ballpark.

    Baseball is excited by the prospects of having its games telecast in high-definition by digital broadcast television stations. Baseball was proud to be the first major league sport in America to be broadcast digitally in high definition when a game between the Cleveland Indians and Baltimore Orioles from Oriole Park at Camden Yards was telecast on September 16, 1997.

    However exciting this may be, the reality of high definition broadcasts is that they are made digitally. While digital broadcasting permits unprecedented clarity for viewers, it also presents pirates with the unprecedented ability to make unlimited, perfect copies of the telecasts of baseball games and to distribute them worldwide via the Internet without the consent of Baseball or any Major League club. In the future, it is likely that such copies could be distributed on nearly a real-time basis with the actual live telecast of a Major League game.(see footnote 29)

    The potential availability of such high-quality, nearly real-time unauthorized copies threatens the marketplace for over-the-air broadcasts of Major League Baseball games. Pirated versions of Major League broadcasts by necessity compete with the legitimate broadcasts that are the subject of marketplace negotiations. As the experience of the recording industry with the Napster and KaZaA file-sharing services suggests, it is difficult to make the marketplace for copyrighted content work when the same content is made available for free by pirates over the Internet. In the face of such piracy, the marketplace might create incentives for Baseball and individual clubs to move high definition telecasts from digital broadcast stations to conditional-access programming suppliers such as satellite and cable providers. Moreover, the same reasons suggest that such piracy will impair the growth of the efforts by Baseball and other professional leagues to make their telecasts available over the Internet.
 Page 100       PREV PAGE       TOP OF DOC


    Because of these concerns, Baseball supports the introduction of a robust and comprehensive mechanism to prevent widespread unauthorized distribution of digital broadcast television signals. To this end, a ''broadcast flag''—whether in the form proposed in the context of the recent FCC rulemaking or some other form—would be a helpful technological tool to prevent the marketplace harms described above. A broadcast flag can be used to instruct the device receiving the digital broadcast (either the television itself or a set-top box) to limit the copying of the program being broadcast to lawful uses. By allowing copyright owners the right to protect their programs that are being broadcast digitally, the broadcast flag re-establishes the marketplace incentives for copyright owners to make their programming available to digital broadcasters.

    The broadcast flag therefore not only protects copyrighted telecasts, but it re-establishes the marketplace incentives for Baseball and other copyright owners to make their content available to digital broadcast stations. To the extent that consumers need a reason to buy television sets that can receive digital broadcasts and high-definition content, the availability of Major League games on digital broadcast television will help to provide a reason. Thus, the existence of the broadcast flag, by making copyright owners more willing to make their programming available for digital broadcasts, will also speed the adoption of digital broadcast television.

 Page 101       PREV PAGE       TOP OF DOC

    The concept of the broadcast flag also fits comfortably within existing copyright law. It is fully consistent with the fair use doctrine. Beyond the use of copyrighted works for legitimate academic, scholarly, editorial or satirical purposes, the sole ''fair use'' of copyrighted broadcasts recognized by federal courts is the ''time-shifting'' of those telecasts for later viewing.(see footnote 30) To Baseball's knowledge, no copyright owner or group of copyright owners proposes that the broadcast flag eliminate the ability of consumers to time-shift the broadcast programs they enjoy. Instead, the broadcast flag will serve as a technological brake on the unlimited, unauthorized and illegal reproduction and retransmission of digital broadcasts. There simply is no ''fair use'' in making copies of copyrighted telecasts and making them available on the Internet; there is only theft.

    Moreover, the broadcast flag's limitations on the technological ability of receiving devices to make unlimited digital copies for archiving or retransmission does not implicate the first-sale doctrine of 17 U.S.C. §109. The first-sale doctrine allows the owners of legitimate copies of works to dispose of those copies in the way that they choose. However, the Copyright Act and its legislative history indicate that the broadcast of a copyrighted work to television viewers should not result in the creation of a copy, thus removing the first-sale doctrine as an issue.(see footnote 31)


    High definition digital broadcasting represents a substantial leap forward in the way baseball fans may enjoy Major League Baseball games. However, with the advantages that digital broadcast technology brings, it raises the possibility of significant disruption to the marketplace for broadcast programming. The broadcast flag would serve to protect the existing marketplace and to provide incentives for copyright owners to make their content available for high definition digital broadcast, thus speeding the transition to digital programming.
 Page 102       PREV PAGE       TOP OF DOC

(Footnote 1 return)
67 Fed. Reg. 53,903 (Aug. 20, 2002).

(Footnote 2 return)
See generally Initial Joint Comments of Motion Picture Association of America (MPAA), et al.; Initial Comments of Consumer Electronics Association (CEA); Initial Comments of Computer & Communications Industry Association (CCIA); Initial Comments of Home Recording Rights Coalition (HRRC).

(Footnote 3 return)
See 17 U.S.C. §701(b).

(Footnote 4 return)
67 Fed. Reg. 53,904.

(Footnote 5 return)
For a more in-depth discussion of some of the differences between analog and digital technology, see Copyright Office, Copyright Office DMCA Section 104 Report (2001), at 82–85. The results of this study were reported to Congress on August 29, 2001 and are available at: www.copyright.gov/reports/studies/dmca/dmca—study.html.

(Footnote 6 return)
See note 2.

(Footnote 7 return)
Sony Corp. v. Universal City Studios, Inc., 464 U.S. 417 (1984).

(Footnote 8 return)
H.R. Rep. 94–1476, 94th Cong., 2d Sess., at 65 (1976).

(Footnote 9 return)
17 U.S.C. §107. The text of the section provides:

(Footnote 10 return)
See H.R. Rep. 94–1476, at 66. The Judiciary Committee made clear that pre-1976 fair use precedent remained in effect, as Section 107 was to ''restate the present judicial doctrine of fair use, not to change, narrow, or enlarge it in any way.''

(Footnote 11 return)
17 U.S.C. §107.

(Footnote 12 return)
Eldred v. Ashcroft, 123 S. Ct. 769 (2003).

(Footnote 13 return)
464 U.S. 417 (1984).

(Footnote 14 return)
Sony was the first case in which the Supreme Court interpreted the 1976 Copyright Act and its codification of fair use in Section 107. Before the 1976 Act, the Supreme Court heard two cases that raised fair use issues, but did not issue an opinion in either of them. See Sony, 464 U.S. at 476 (dissenting opinion) (citing Williams & Wilkins Co. v. United States, 487 F.2d 1345 (1978), aff'd by an equally divided court, 420 U.S. 376 (1975) & Benny v. Loew's Inc., 239 F.2d 532 (9th Cir. 1956), aff'd by an equally divided court sub nom. Columbia Broadcasting System, Inc. v. Loew's Inc., 356 U.S. 43 (1958)).

(Footnote 15 return)
464 U.S. 442.

(Footnote 16 return)
Id. at 442–456.

(Footnote 17 return)
Id. at 449.

(Footnote 18 return)
Id. at 451.

(Footnote 19 return)
See Initial Comments of CCIA, at 17.

(Footnote 20 return)
The phrase ''fair use rights'' is a misnomer. It is not true, as some commenters have argued, that consumers have a vested, enforceable right to make uses of a copyrighted work that may be deemed ''fair'' under the fair use doctrine. Rather, if such a use is made, fair use protects the otherwise infringer from liability. The structure and language of Section 107 make clear that fair use is not a right, but merely an affirmative defense to potential copyright infringement. Compare 17 U.S.C. §106 (enumerating specific rights granted by copyright) with 17 U.S.C. §107 (beginning ''Notwithstanding the provisions of Sections 106 and 106A, the fair use of a copyrighted work—is not an infringement of copyright.'') Courts have recognized this technical but important distinction in limiting the ability of commercial services to rely on the purported ''fair use rights'' of their customers to excuse reproduction and distribution of copyrighted works. See William F. Patry, The Fair Use Privilege in Copyright Law (2d ed.1995) at 432–33; see, e.g., Pacific & Southern Co.* v. Duncan, 744. F.2d 1490 (11 th Cir. 1984). cert. denied, 741 U.S. 1004 (1985), on remand, 618 F. Supp. 469 (N.D. Ga. 1985), aff'd 792 F.2d 1013 (11th Cir. 1986); Basic Books, Inc. v. Kinko's Graphic Corp., 785 F.Supp. 1522 (S.D.N.Y. 1991) (copy shop found not to be acting as agent of colleges where professors provided materials for copying); RCA/Ariola Int'l, Inc. v. Thomas Grayston Co., 845 F.2d 773, 782 (8th Cir. 1988) (fair use claim by manufacturer of machines permitting customers of retail stores to duplicate tapes rejected); cf. Princeton University Press v. Michigan Document Services,

(Footnote 21 return)
Copyright law revision, 89th

(Footnote 22 return)
A&M Records, Inc. v. Napster, Inc., 239 F.3d 1004, 1016–17 & 1019 (9th Cir. 2001).

(Footnote 23 return)
See e.g., Michael Liedtke, H&R Block Jabs at TurboTax Software, Assoc. Press, March 4, 2003; Stephanie Stoughton, Circuit City's Slipped Disc; Firm Concedes Defeat; Abandons Divx Technology, Wash. Post, June 17, 1999; Associated Press, Circuit City, Partner Let Divx Expire Lack of Industry Support Cited, Daily Press, June 17, 1999.

(Footnote 24 return)
That is not to say that in determining whether to implement a broadcast flag proposal, legitimate consumer expectations should not be taken into account. But if they are, it should not be because they purportedly are equivalent to fair use.

(Footnote 25 return)
See Initial Comments of National Broadcasting Company, Inc. (NBC), at 4.

(Footnote 26 return)
See Initial Comments of CEA, at 6.

(Footnote 27 return)
Copyright Office DMCA Section 104 Report (2001).

(Footnote 28 return)
See Copyright Office DMCA Section 104 Report (2001), at 44–48, 80–105 for a summary and analysis of the proposals for a digital first sale doctrine based on a ''forward and delete'' model.

(Footnote 29 return)
As recently as last week scientists testing the next generation Internet transmitted the equivalent of two full-length, digital-quality movies over 6,800 miles in less than a minute. See Jeordan Legon, ''Internet Speed Record Smashed,'' CNN.com (March 7, 2003), available at http://www.cnn.com/2003/TECH/internet/03/07/speed.record/ index.html. That speed is more than sufficient to be able to re-transmit a live telecast with no more than a minimal delay.

(Footnote 30 return)
Sony Corp. v. Universal City Studios, Inc., 464 U.S. 417 (1984).

(Footnote 31 return)
See 17 U.S.C. §101 (definition of ''copies'' and ''fixed''); H.R. Rep. 94–1476 at 53 (noting that the display of a telecast on a television screen does not constitute a copy).