Title: NII Task Force Working Group on Intellectual Property Author: U.S. Patent and Trademark Office Document-date: Sep 22 1993 Posting-date: Sep 22 1993 Content-Type: text/ascii charset=US ASCII Length: 315011 UNITED STATES DEPARTMENT OF COMMERCE U. S. PATENT & TRADEMARK OFFICE NATIONAL INFORMATION INFRASTRUCTURE TASK FORCE WORKING GROUP ON INTELLECTUAL PROPERTY - - - - - - - - - - - - - - - - - -x : In the matter of: : : PUBLIC HEARING ON : : INTELLECTUAL PROPERTY ISSUES : INVOLVED IN THE NATIONAL : INFORMATION INFRASTRUCTURE : INITIATIVE : : - - - - - - - - - - - - - - - - - -x Thursday, November 18, 1993 Marriott Crystal Forum Marriott Hotel, Crystal City 1999 Jefferson Davis Highway Arlington, Virginia The PUBLIC HEARING ON INTELLECTUAL PROPERTY ISSUES INVOLVED IN THE NATIONAL INFORMATION INFRASTRUCTURE INITIATIVE was convened, pursuant to notice, at 9:12 a.m. APPEARANCES: Members of the Working Group on the Panel: BRUCE A. LEHMAN, Chairman Assistant Secretary of Commerce and Commissioner for Patents and Trademarks TERRI SOUTHWICK Office of Legislation and International Affairs, U.S. Patent & Trademark Office HOWARD LANGE Office of Intellectual Property Department of State APPEARANCES (Cont.) ALDEN ABBOTT Chief Counsel, National Telecommunications and Information Administration MICHAEL HOFFMAN Office of General Counsel U.S. Department of Energy WALTER McDERMID Information Resources Management Service General Services Administration JACK SAUNDERS Chief, Motion Picture Sound and Video Branch National Archives and Records Administration MAYA BERNSTEIN Office of Information and Regulatory Affairs Office of Management and Budget DAVID JORDAN Assistant Chief, Professions and Intellectual Property Section, Antitrust Division, U.S. Department of Justice JERRY LINN Associate Director, Computer Systems Laboratory, National Institute of Standards and Technology JOHN RAUBITSCHEK Technology Administration U.S. Department of Commerce DAVID LYTEL Office of Science and Technology Policy White House Additional Members of the Working Group in the audience: KEITH KUPFERSCHMID Office of Legislation and International Affairs, U.S. Patent and Trademark Office MIKE KEPLINGER U.S. Patent and Trademark Office APPEARANCES (Cont.) PHYLLIS HARTSOCK National Telecommunications and Information Administration Testimony by: STEVEN J. METALITZ, ESQ. Vice President and General Counsel Information Industry Association MARIA PALLANTE, ESQ. Executive Director National Writers Union STEPHEN L. HAYNES Manager - WESTLAW Research & Development West Publishing Company LISA FREEMAN Director and Chair, Association of American University Presses' Electronic Caucus University of Minnesota Press TIMOTHY B. KING Vice President, Planning and Development John Wiley & Sons, Inc. ROBERT L. OAKLEY Director of Law Library Georgetown University Law Center (On behalf of numerous library and education associations JOSEPH M. COSGROVE, ESQ. Department of Political Science King's College DENNIS L. BYBEE, Ph.D. Associate Executive Office, International Society for Technology in Education DAVID H. ROTHMAN DAVID PIERCE President, American Association of Community Colleges APPEARANCES (Cont.) FRITZ E. ATTAWAY, ESQ. Senior Vice President and General Counsel, Motion Picture Association of America, Inc. and BERNARD SORKIN Vice President and Senior Counsel Time Warner HILARY B. ROSEN Executive Vice President and EMIL TORICK Engineering Consultant Recording Industry Association of America LAWRENCE KENSWIL Vice President for Business & Legal Affairs MCA Music Entertainment Group RICHARD DUCEY, Ph.D. Senior Vice President NAB Research and Information Group and BENJAMIN F.P. IVINS, ESQ. Assistant General Counsel National Association of Broadcasters JOHN MASTEN Executive Vice-President The New York Public Library GARY N. GRISWOLD President, InfoLogic Software, Inc. ROBERT E. KAHN, Ph.D. President, Corporation for National Research Initiatives BRAD J. COX, Ph.D. Center for Electronic Markets RONALD S. LAURIE, ESQ. Weil, Gotshal & Manges HENRY H. PERRITT, JR. Professor of Law, Villanova University APPEARANCES (Cont.) RONALD J. PALENSKI, ESQ. Senior Vice President and General Counsel Information Technology Association of America MARK TRAPHAGEN, ESQ. Intellectual Property Counsel and IRENE ROSENTHAL, ESQ. General Counsel Software Publishers Association THOMAS M. LEMBERG, ESQ. Vice President and General Counsel Lotus Development Corporation (On behalf of Business Software Alliance and Alliance to Promote Software Innovation) BRIAN KAHIN, ESQ. General Counsel and Director, Interactive Property Project and PHILIP V.W. DODDS Executive Director Interactive Multimedia Association GARY J. SHAPIRO Group Vice President Consumer Electronics Group Electronic Industries Association DOUGLAS K. BROTZ, Ph.D. Principal Scientist Adobe Systems Incorporated FRANK W. CONNOLLY, Ph.D. Associate Professor, Department of Computer Science Information Systems The American University C O N T E N T S PAGE OPENING REMARKS, Bruce A. Lehman7 TESTIMONY BY: STEVEN J. METALITZ, ESQ.14 MARIA PALLANTE, ESQ.23 STEPHEN L. HAYNES31 LISA FREEMAN40 TIMOTHY B. KING50 ROBERT L. OAKLEY58 JOSEPH M. COSGROVE, ESQ.67 DENNIS L. BYBEE, Ph.D.75 DAVID H. ROTHMAN85 DAVID PIERCE92 FRITZ E. ATTAWAY, ESQ.99 HILARY B. ROSEN107 LAWRENCE KENSWIL121 RICHARD DUCEY, Ph.D., AND130 BENJAMIN F.P. IVINS, ESQ. JOHN MASTEN141 GARY N. GRISWOLD149 ROBERT E. KAHN, Ph.D.155 BRAD J. COX, Ph.D.171 RONALD S. LAURIE, ESQ.175 HENRY H. PERRITT, JR.181 RONALD J. PALENSKI, ESQ.193 MARK TRAPHAGEN, ESQ.201 THOMAS M. LEMBERG, ESQ.211 BRIAN KAHIN, ESQ.220 GARY J. SHAPIRO231 DOUGLAS K. BROTZ, Ph.D.241 FRANK W. CONNOLLY, Ph.D.250 CLOSING REMARKS, Bruce A. Lehman257 P R O C E E D I N G S (9:12 a.m.) OPENING REMARKS CHAIRMAN LEHMAN: May I have your attention, please. I think we'll get underway. My name is Bruce Lehman, and I'm Assistant Secretary of Commerce and Commissioner of Patent and Trademarks. I would welcome you here to the Patent and Trademark Office today. I'm also the Chair of the Working Group on Intellectual Property of the Information Committee of the National Information Infrastructure Task Force. Welcome to our pubic hearing today. The National Information Infrastructure is a system of high-speed telecommunication networks, databases, and advanced computer systems that will make the electronic information and entertainment products more widely available and accessible to the public than ever before. Hopefully that's an understatement. This increased availability and accessibility will dramatically affect the way information and entertainment products are created, marketed, distributed and received throughout the world. On February 22nd of this year, President Clinton announced his plan to create a White House Information Infrastructure Task Force to work with the Congress and the private sector to develop comprehensive telecommunications and information policies aimed at articulating and implementing the administration's vision for the NII. And I should say that as we all know, this is not going to be a federal public works project. It's really an attempt to turn the dials of public policy in such a way that an activity which is already underway, the development of this infrastructure, will really be all that it can be and that its potential will be maximized rather than limited. The Working Group on Intellectual Property which is a part of the Information Policy Committee, as I mentioned, was established to resolve issues of concern in the intellectual property area regarding the digital distribution of works of authorship. The commercial viability of digital networks hinges on implementing policies that not only assure that the owners of information and entertainment products retain sufficient control over these products to prevent unauthorized use, but also that assure the interest of users of that information and those products are adequately considered. Changes to intellectual property laws may be needed to prevent the proliferation of piracy and to protect the integrity of intellectual property while assuring broad public access to information. As noted in the October 19th Federal Register notice of this hearing, we have requested that all written commits be submitted by December 10th. We will encourage anyone with views on intellectual property implications of the NII to make those views known to the Working Group. Members of our Working Group, who are all from various agencies in the Federal Government, are here on the panel with me this morning. Because there are a quiet a few of them, not everybody may be able to have a seat right here at the panel, so the latecomers from our Working Group will be seated in the front row of the auditorium. At this time for the benefit of those who are here for the hearing and members of the public, I'd like to have the members of the Working Group that are here with us this morning to introduce themselves. Why don't we start down at that end of the table with Howard Lange. MR. LANGE: I'm Howard Lange. I'm with the Office of Intellectual Property at the Department of State. MR. ABBOTT: I'm Alden Abbott, Chief Counsel of the National Telecommunications and Information Administration, NTIA, in the Department of Commerce. MR. HOFFMAN: Michael Hoffman. I'm an Intellectual Property Attorney in the Office of General Counsel at the Department of Energy. MR. McDERMID: I'm Walt McDermid. I'm a policy analyst in the General Services Administration, Information Resources Management Service. MS. SOUTHWICK: I'm Terri Southwick, an attorney advisor in the Office of Legislation and International Affairs at the Patent and Trademark Office. MR. SAUNDERS: I'm Jack Saunders. I'm Chief of the Motion Picture Sound and Video Branch at the National Archives. MS. BERNSTEIN: I'm Maya Bernstein. I'm with the Office of Information and Regulatory Affairs at the Office of Management and Budget. MR. JORDAN: I'm David Jordan. I'm Assistant Chief of the Professions and Intellectual Property Section of the Antitrust Division at the Department of Justice. MR. LINN: Jerry Linn, Associate Director of Computer Systems Laboratory, National Institute of Standards and Technology. MR. RAUBITSCHEK: I'm John Raubitschek with the Technology Administration in the Department of Commerce. MR. LYTEL: David Lytel, Office of Science and Technology Policy in the White House. CHAIRMAN LEHMAN: I think we have some more of our people in the front row. MR. KUPFERSCHMID: Keith Kupferschmid with the Office of Legislation and International Affairs at the Patent and Trademark Office. MR. KEPLINGER: Mike Keplinger with the Patent and Trademark Office. MR. CZYINSKI: Jack Czyinski, Patent and Trademark Office, Office of the Commissioner. MS. HARTSOCK: Phyllis Hartsock, National Telecommunications and Information Administration. CHAIRMAN LEHMAN: Well, that's a good share of our Working Group. As you can see, it represents a broad range of Federal Government agencies that have an interest in this subject matter. We also have, I'd like to note, a court reporter here today, and the entire transcript of this hearing will be taken down and will be available from us here at the Patent and Trademark Office after December 3rd for $30.00. You can contact the Office of Legislation and International Affairs, and particularly Terri Southwick here to my right about that. Copies of written statements which have been submitted up to this date are available for inspection in room 902 of Crystal Park II, across the street at 2121 Crystal Drive. Because of the number of persons testifying today, we are going to have to limited each speaker's presentation to a maximum of 10 minutes in order to ensure that all the people who have requested to testify get the opportunity to do so. If time permits, members of the Working Group, the panel, may ask questions. And I must say, to the extent that you're interested in having us have a dialogue with you, you might want to reserve part of your 10 minutes for the questions. Otherwise it's going to be hard to do that. But we will try to be pretty firm about that 10 minutes per person. I wish we could have a longer dialogue with everybody, but I think for obvious reasons we understand that won't work. Therefore, we hope that you will be able, since I think it is important to be able to follow-up and have dialogue, that you will be willing to respond; those who are offering testimony today will be willing to respond to written questions that the Working Group may have following the hearing. The help the speakers stay within the time limit, we have a computer set up here that has a screen which the people sitting at the witness table will be able to see, and that will display a green panel for the first eight minutes of the speaker's presentation. And the yellow screen will appear when two minutes remain, and then finally when the time is up, a red screen will appear. And we have another alternate screen up here so we can sort of bang the gavel if necessary. Hopefully that won't be necessary, and people will wrap up their presentation by the time the red screen appears. A list of all of the speakers today has been prepared and is available in the lobby. I image many of you have already picked it up. This list only gives the approximate times that people have been scheduled to appear. For those of you who may be thinking of leaving the room for a while, you should note that people should be prepared to come forward within a half hour of their scheduled time. This is the second one of these hearing that we've had in the Patent and Trademark Office. And the one we had about a month ago on patent harmonization we found that actually we ran a little bit ahead of schedule and some people who thought that they might have had 10 minutes more, lost their opportunity. So please make certain that you're here in advance so that if we're moving right along, that we can hear from you. Once again we are happy to welcome all the members of the public here today. We'll hope you'll listen carefully to what is being said, that you'll supply us with further written comments if you have any. I think now we can get underway with what we came here for, which is to hear from the first of our witness, Steven Metalitz, Vice President and General Counsel of the Information Industry Association. Welcome, Steve. TESTIMONY BY STEVEN J. METALITZ, ESQ. MR. METALITZ: Thank you very much, Commissioner Lehman, and members of the Working Group. I appreciate this opportunity to present our perspectives. I want to start by commending, first the administration for identifying intellectual property issues as crucial to the success of the National Information Infrastructure, and second commend this Working Group. I think you're asking the right questions and we will do our best to try to provide you with our perspectives on the answers. If I may, Commissioner, exercise the prerogative of the first witness and state something very obvious so the other witnesses don't have to spend their time stating it. And that is that we in the United States already have a National Information Infrastructure, and it works. We, as a people, generate an enormous volume of information, products and services of all kinds. We have distribution networks that deliver this information efficiently and ubiquitously, and they met the needs of an information hungry public. Obviously, the advanced National Information Infrastructure is going to deliver even more information, more economically in a wider variety of media and formats to even more American homes and business and into the schools. But we need to remember why our information infrastructure works so well today. One key element of this infrastructure and the one that sometimes is overlooked in discussions of the NII is the information itself, the information content. And what is so important about the work of this Working Group are the incentives that are in place to stimulate the generation and the distribution of that information content. No more powerful incentive for the investment that's needed in order to accomplish that has yet been discovered in the system of legal protection for intellectual property. The challenge that is before this group and the administration as a whole and, indeed, our whole society, is that the capabilities that give advanced information infrastructure its great potential also invite an epidemic of abuse of intellectual property rights. If we don't prevent that epidemic, then our hopes for what the NII can deliver will never be fully realized. Copyright issues are sometimes described as a problem that is plaguing the development of the NII. And I think that trivializes what's really at stake here. If we aren't able to protect copyright in the new information environment, then the information that will be available, the useful information, the supply of that will be drastically be curtailed. Or just as troubling, it will be limited to the information that the government chooses to create or some other powerful institution chooses to create. So the information content issues really lie at the heart of the NII project and you're grappling with some of the key issues here. I think your questions recognize that it will take a combination of efforts; legal, technological, and perhaps most importantly, educational, to surmount this challenge. Let me turn to the questions briefly that you have posed in your Notice. First, is existing copyright law adequate. In our view, copyright law has proven to be a flexible and a powerful instrument in providing the incentives for authorship in a wide variety of media. And it has done that in an environment of rapid technological change. Copyright isn't a Gutenberg era law. It's also a Daguerre era law, and Edison era law, a Marconi era law, a Norse era law. It's a law that has proved very successful in the post-Gutenberg environment. Accordingly, we don't believe that any fundamental changes are needed in order for existing copyright law to continue to achieve its major objective. And that is to stimulate the create and distribution of original works of authorship. Now that being said, there may be areas where the application of these existing copyright concepts to new technology developments can usefully be clarified. And we've suggested a couple of areas in our written testimony. We're certainly ready to work with the administration, with other interested parties, in identifying areas where it might be useful to draft clarifying legislation and craft the language that's needed to accomplish this. In considering any changes to copyright law the administration must pay particularly close attention to the global copyright law regime. There are two initiatives underway now, as you know, at the World Intellectual Property Organization. And in both of them, both the protocol to the Bern Convention and a possible new instrument, there is a lot of discussion about recognizing and defining exclusive rights in digital transmissions. And that debate is still at an early stage, but it may be quite helpful to the United States in deciding whether or not any changes are needed to its law to clarify the application to digital networks. We've very pleased to see that this administration is expanding the U.S. leadership role in the WIPO and other international fora, because virtually any changes in copyright law will have to take this global environment into account. The second question: Are the existing fair use provisions adequate? Fair use is an integral part of our copyright law. And like the copyright law as a whole, it's proven very adaptable to technological changes, including those involved in the NII. One of the exciting things about the technological developments is that it reinforces a growing trend toward defining permissible uses of copyrighted material by contract. We sometimes overlook the fact that our copyright law works hand-in-hand with contract law to map out the terrain of exclusive rights and the rights of users of copyrighted material. Some of these technological developments could enable more widespread and more flexible use of contracts to define permissible uses of copyrighted material. That material could be accompanied by headers or surrounded by envelopes that offer a range of terms and conditions for varied uses of the materials. Intelligent agents and other software tools could be used to facilitate an automated contracting process between proprietors and users. And that would reduce the transaction costs. So one thing the Federal Government could usefully do is encourage further research and development of the technologies that facilitate electronic contracting and licensing of intellectual property. The statutory fair use provisions, of course, are very important in the extra contractual areas. The third question: Should there be labeling or encoding standards? As I've noted already, there's a lot of work going on now toward developing practical techniques for identifying the ownership of copyrighted material on the networks, and specifying the terms and conditions of authorized use. We're summarizing some of that in a research paper that's underway now which we'll be glad to share with the Working Group when it is completed. Government can play some important roles in this development. It can be a catalyst to support further research and development. It can provide a forum for information sharing, and it can also create an environment that encourages the adoption of voluntary standards. However, we think Government should refrain from setting mandatory standards in this area. There's a very rich creative soup brewing out there and this is really not the time for Government to put it's thumb into it. We think that the users of these networks will ultimately benefit greatly from the technological developments in the labeling and encoding. And by the way, that benefit will not just be in the copyright area, but also in the area of privacy. There's a very clear overlap between the copyright management techniques and the privacy and security techniques. And I know one of our sibling working groups deals with that privacy area, and there's probably a lot of room for interaction. Fourth: Should interoperability or inter-communication standards be adopted? Here again, we think government should serve as a catalyst, but not as a mandator of standards. Market forces are going to lead us to greater interoperability and interconnection, and they should be given a chance to do that. Fifth: Licensing systems. Again, let's think about our existing information infrastructure. We have a wide range of licensing systems: individualized contracts, collective administration on a voluntary basis, and in a few narrow specified instances, compulsory licenses. Under the advanced NII as well, there's not going to be a one size fits all approach. And some of these technological trends that I've already mentioned are going to make it more feasible for individualized licensing to take place and for voluntary collective licensing to be handled quite efficiently with an economy of scale. The goal here really ought to be to facilitate transactions in copyrighted materials. That's the key to getting more and better information dissemination. And these technologies are going to be able to do that much more effectively than a single compulsory licensing system, or even a single voluntary licensing system. There's a lot of room for diversity here. Sixth: Technical means for preventing unauthorized uses. We think that it would be premature at this point to set standards for these kinds of copy protection mechanisms for the reasons we've already discussed. There is one aspect of the 1992 digital audio legislation that is worth looking at, and that is the possibility of providing legal sanctions against devices or techniques whose primary use is to defeat or circumvent intellectual property management technology. It may not be time for that yet, but that's something in the future. And finally, the question of education. You listed it last, but it's certainly not least. It's one of the most important questions. These are not just legal or technical problems, there are also cultural issues here. And unless these cultural factors are addressed, the NII environment will never be fully hospitable to creators and other copyright proprietors. Government has a role here, and so very definitely does industry and other elements of the private sector. We really need to do more to step up to this problem and to find out the best ways to communicate these rules to the millions of Americans who in effect hold the future of this National Information Infrastructure in their hands. Thank you very much. CHAIRMAN LEHMAN: Thanks a lot, Mr. Metalitz. Sorry we're not going to be able to have oral questions if we're going to stick with our schedule here. But hopefully you'll be available for written questions. Next we'll here from Maria Pallante. Welcome, Ms. Pallante. Please go ahead. TESTIMONY BY MARIA PALLANTE, ESQ. MS. PALLANTE: Thank you, Mr. Chairman. My name is Maria Pallante. I'm a lawyer specializing in literary property, and Executive Director of the National Writers Union. I presently also serve as a member of ACCORD, the Advisory Committee on Copyright Registration and Deposit, appointed by the Library of Congress. The National Writers Union is a nationwide trade organization of 4,000 authors. We have 11 chapters from coast to coast and an award-winning members that includes journalists, poets, novelists, biographers, historians, children's book authors and other authors. The livelihoods of our members will undoubtedly be affected by the opportunities presented here today and we're both excited and a little concerned about that. Thank you for giving this opportunity to testify. Intellectual property is a major United States trade assets representing an enormous contribution to the international balance of payments. Not only is the United States the largest market for information in intellectual property, it is the worlds largest producer and exporter of written works, movies and music. We have individual American authors and artists to thank for this. Just as it's a small business and individual entrepreneurs who are creating most of the new jobs, products and services in the U.S. economy today, it is individual authors who create most intellectual property. It is thus vital to U.S. trade advantage that individual copyrights and individual production and distribution, be produced and encouraged, not just those of our corporation who buy their works. Indeed, the policy of granting incentives to individual authors as a means to public creative wealth is a constitutionally-based incentive that does not discriminate between commercial or noncommercial, published or unpublished, good or bad. We believe this policy is important because it serves the nation's diverse interests. The beauty of the NII is that it has the power to increase distribution of minority writers and reach black, Spanish-speaking and Asian markets that have typically been ignored by the mainstream commercial publishers. Small presses, political journals, minority papers and other diverse voices that make up the culture of our country will be able to contribute and compete. We agree with the first speaker that clarification of copyright law may be necessary as we progress. First, it does not definitively distinguish forms of electronic-based rights into categories of performance rights, display rights, distribution rights, reproduction rights, or the right to make electric derivative works. Thus, it does confuse creators and users as to both the scope of existing licenses and the fair market price of those rights that are the subject of negotiation today. Second, it does not statutorily prohibit publishers and other users from claiming by contract with the creator those rights, usually electronic-based rights, that do not yet exist and/or those rights that at the time of negotiation lack measurable economic value, as did CD-ROM rights a few years ago and other optical-based disk rights today. Since the turn of the century, courts have ruled that language granting rights to media is not yet invented may be upheld despite the fact that such rights did not exist at the time of a contract, and despite the fact that they did not achieve measurable value at the time of negotiation and whether or not additional compensation was paid for those rights. Whether the unknown technologies where movies, television or books on tape, the courts have operated from the premise that authors negotiate knowingly and on equal footing. But lack of bargaining power for writers today, the result of a decade of the largest incident of media conglomeration ever, has deteriorated contracts of authors badly. Many are told to sign restrictive language or lose the writing assignment. As new mediums have taken over old mediums, authors have lost fundamental leverage year by year. But the purpose of copyright law which stems directly from the U.S. Constitution is to induce a public stockpile of creative wealth by securing to authors for a limited time the exclusive rights to their works. It is not a present balance between authors and users, rather the law is a meas to an end. Control and compensation are meant to be incentives that inspire individuals to create. But what happens to an author's incentive to create if she cannot negotiate a fair share of the proceeds, and what happens then to her ability to create or to make a living by continuing to create, what happens to the diversity and quality of the creative materials available in our society, if the only creative that is bought and sold is that which drives our major corporate entities? Third, present copyright law does not set forth whether electronic rights in their various manifestations should be calculated on a traditional per use royalty scale, such as compulsory licenses, or if their income shares based on time rental or time access. Fourth, it does not encourage voluntary notice of copyright or variations of notice as clarifying measures that authorize certain uses for academic or other noncommercial use. That is, permission without payment but conditional on proper attribution. We have a working paper out on the Internet with what we call the reverse notice. It says you can use this provided you give us credit. And people have written back and just thanked us in relief that they knew that they could use it. Fifth, it does not adequately address moral rights per the Berne Convention. We think this will become more and more important. Internationally authors works are protected from mutilation and other measures that destroy the integrity of their works. In this country we protect moral rights for visual art, but more and more multimedia products will incorporate visual art as well. Sixth, the work for hire exception may need to be limited further. Audiovisual works are one of the exceptions authorized under the work for hire exception in the statue, but much of the text authors will be writing in the future will be for audiovisual products that are not the traditional motion pictures. If these mediums become the primary publications, authorship could be at risk unless the work for hire doctrine is interpreted narrowly. In terms of fair use, we believe the copyright law must settle the question of whether works available on the NII are published or unpublished or whether this is an artificial distinction. Whether a work is published can have severe repercussions as to the application of the Fair Use Doctrine, application of international law, availability of attorney's fees and statutory damages, and the relative commercial value. It should be noted that authors of unpublished works do not consider their work to be without value and should not be penalized by copyright regulations that protect the mass commercial distribution that is also important. Much of the great reflective works of civilization are discovered by historians looking back, while many of the best sellers of the day are later lost to mediocrity. New technology will allow works to stay in print longer, perhaps forever. But copyright protection must continue to apply to the commercially successful and commercially obscure works alike, whether works are distributed by major international houses or by an individual author, as Walt Whitman printed and distributed "Leaves of Grass" himself in 1855. In terms of labeling and encoding of works, we support the use of technology to develop tracking devices and depositories. Publicly accessible facilities would preserve the contents, including text and author's name in non-erasable media in the order they were submitted. Invisible electronic signatures can be developed to prevent plagiarism. It is also technically feasible to attach authenticated check sums to documents that would reveal whether the document has in any way been altered. Finally, authors and owners of intellectual property should have the right to encrypt their works to ensure that copyrights are not violated. We believe there should be a multiplicity of private licensing systems competing, the transactions of which should be regulated by a government body that takes into account legitimate needs for exemptions from antitrust. Such licensing systems should allow networks and data carriers to automatically transfer payment to the copyright holder each time a book, article, art work or a file is accessed. They must also provide a mechanism for tracking the use of information and providing timely, accurate and understandable royalty reports to copyright holders. Database compilations of intellectual properties should always include permissions information, as will the Library of Congress if the Copyright Reform Act of 1993 passes; names of various rights holders, contract information for permission request, and other relevant data. To the extent that transaction-by-transaction systems require a direct nexus between the user and the copyright holder, we would oppose such a system because authors cannot be easily found and should not have to grant all rights to a corporate entity in order to exploit them. Clearly, education about general copy written law must be available to educators, librarians, researchers, students and private users. The National Writers Union very much wants to assist in this process. Without copyright law, creators lose the economic incentive to create. Without such an incentive, the drive for creativity fails, and progress towards the ultimate goal of increasing the public stockpile of creative wealth falters. Protection of the work of small copyright holders is basic to the public interest. Such protection can only be achieved through partnership with the public, general education on every level, in all academic settings and all public arenas. We hope the Working Group will keep in mind the Constitutional purpose of copyright law and the protection of authors. And we thank you for your time this morning. CHAIRMAN LEHMAN: Thank you very much for that excellent statement. We don't have time to follow-up right now, but I'd like to follow up more. Maybe we could have a written dialogue by what you mean by a government agency to regulate the administration of these rights. Our next witness is Mr. Stephen Haynes, Manager, WESTLAW Research and Development of West Publishing Company in St. Paul, Minnesota. Welcome. TESTIMONY BY STEPHEN L. HAYNES MR. HAYNES: Mr. Chairman, members of the Working Group, good morning. My name is Stephen Haynes and I'm an Executive at West Publishing Company in Minnesota. West is a leading publisher of materials used by lawyers, including Case Law Reporters of the National Reporter System and annotated statues of 22 states, plus the United States Code Annotated. In addition, West proves the WESTLAW computerized legal research service for which I'm manager of research and development. Thus, and perhaps uniquely among the companies whose witnesses will testify before you today, West is both a leading print publisher and a provider of one of the most sophisticated on-line information retrieval services available in the world today. West Publishing has been part of the National Information Infrastructure since 1876. In modern times, since 1975, WESTLAW has been a major provider of on-line research services for attorneys. Over 4,000 databases offer ever conceivable type of textual and abstracted material of interest to attorneys. Virtually the entire National Report system and statues of all 50 states, plus the Federal Government are on-line. In addition, we have gone to considerable lengths to convert or in some cases keyboard from printed sources public domain materials, such as the Federal Register, the Congressional Record and decisions or other publications of numerous federal and state agencies. The sum total of all these databases will exceed one terra byte in size. Now I personally have been long and intensively involved in many aspects of West intellectual property concerns. Several of these concerns relate to the Internet and to the proposed National Information Infrastructure. Among the seven questions posed by the Working Group I will concentrate my remarks today on three: fair use, licensing, and technological solutions for protection of intellectual property. Let me begin, however, that West does not anticipate that existing copyright law prove inadequate for protection of its or other publisher's rights in the NII. West has been diligent in protecting its intellectual property and we will continue to be diligent in the future. However, our greatest concern is not the wholesale copying and offering for sale of West materials. These instances can be detected and the offenders pursued. Rather, we are more concerned with the casual copying and redistribution of our materials in manners that exceed standards of fair use. We believe that use casual copyright infringement is a proper subject of education, and we applaud and support the announced effort to educate the public in appropriate behavior under the copyright law. Now as to fair use, for decades our position has been abundantly clear, if perhaps seldom explicitly stated. West not only accepts appropriate exercise of fair use of our copyrighted material, but in fact has accepted very generous use under certain circumstances. In a former life I was a litigator with a major New York law firm. I know from personal experience the piles, literally piles of West Reporters that daily accumulated in that firm's copying center for reproduction of individual case reports. West accepts this type of copying as a normal consequence of the successful practice of law. As I will shortly discuss, we essentially ratify this position in our WESTLAW license. The AAP preliminarily comments, and perhaps other witnesses will identify high-speed downloading as a concern for publishers. Clearly such downloading may exceed the bounds of fair use. West agrees that this is a concern, but we also feel that detecting such downloading is more properly a function of individual services available over the NII. It will eventually be possible to incorporate technological means to detect downloading of copyright information. But we question whether this is an appropriate investment for the NII as a whole, given the overhead burdens that will be imposed on the infrastructure itself, as well as on individual providers who must take their information to permit detection. Moreover, it is less the high-speed downloading that will concern us as high volume. Whatever mechanistic technologies are proposed to track transmission of copyrighted materials, they will ultimately be ineffective since short of truly Draconian measures, the dedicated infringer can easily modify copyright information so that it cannot be detected. In West's view, striking the appropriate balance between the restriction and fair use of the online environment is best accomplished by traditional written licenses executed between the online service provider and its subscribers. West has used this approach. While West's own WESTLAW subscriber agreement is phrased in legal language, let me try to summarize regarding use of our materials. West explicitly permits WESTLAW subscribers in the regular course of their legal work to download and temporarily store insubstantial portions of information found in WESTLAW databases. The subscriber must retain control over the downloaded material at all times and except in limited circumstances not redistribute it. The subscriber may display the downloaded material internally or quote from it in memoranda, briefs, or other work product provided appropriate citation and credit is given for such use. The subscriber may also create printouts of material contained in the WESTLAW database for internal use and for unpaid distribution to third parties, if such third parties agree not to further distribute those materials. You will note that this latter permission is a relaxation of traditional fair use and is consistent with West's attitude toward copying of its case reports by law firms. As this discussion of the WESTLAW subscriber agreement illustrates, West feels that licenses are a highly appropriate way in dealing with issues raised in the online electronic environment, and we feel that licenses will continue to play a pivotal role in the NII as it evolves. West commends this approach as a non-statutory means to balance the needs of an NII information provider's customers with the provider's own needs for protection. West also generally supports the efforts of some creators and providers to grant copyright licenses to cooperative licensing and royalty collection groups such as ASCAP, BMI and NCC. We do not believe that such licensing is or should be the province of the Federal Government. Finally, let me remark briefly on the role of technological solutions in protecting intellectual property within the NII environment. These comments also relate to the Working Group's questions regarding labeling or encoding of works and the establishment of standards or intercommunication or exchange of information. West agrees with the AAP that it is premature to establish standards for encoding or labeling of copyrighted works. In fact, such steps may prove never to be feasible or practicable. In any event, if such labeling or encoding is eventually deemed desirable we, like the AAP, feel that the marketplace is the appropriate place for competing standards and technologies to be developed and proven. Various forms of encryption, software envelopes, privacy enhanced mail, and hardware solutions, have already been proposed and in some instances debated. Some of them may in time take root. However, many will prove in the end to be not practicable from the standpoint of open market and information. For example, some have suggested that a hardware solution might be imposed analogous to that imposed recently by Audio Home Recording Act for serial copy management in the digital audio tape or DAT environment. Now I remind the Working Group, however, that the serial copy management technology was imposed well before proliferation in this country of DAT units. We are faced now with a plethora of scanners, digital copiers, fax boards and computers, modems and optical character recognition software, all without any restrictive circuitry. This is the proverbial case of barring the gate after the horse has escape. DAT-like solutions are just not feasible at this late date. Moreover, I again emphasize that the best solution for these problems will not be technological but educational. We have the stick: lawsuits; and we have the carrot: pricing of information consistent with its value. Along with pricing will come technological protections selected by individual publishers and on-line providers of information. If an individual publisher's information is of high value and much in demand, that publisher will more likely impose technologies of encryption or software envelopes as a condition of access. If, on the other hand, the information comes from the public domain in unenhanced form, the market will assure an abundance of lower priced unencrypted sources for the information. If current experience on the Internet proves nothing else, for public domain information, a thousand flowers will bloom. Imposition of technology impediments to accessing information will dampen supply and will likely depress the vibrant market for information that is one this country's unique strengths. In summary, we feel that for the most part the NII is moving forward in positive manner. The proper role of government is to foster experimentation, underwriting where appropriate research and development efforts that lie at the cutting edge, but leaving to the private sector development of practical and for-profit solutions to the nation's information needs. Thank you again for this opportunity to present West's views. CHAIRMAN LEHMAN: Thank you very much. Does anyone have any questions that they'd like to ask? (No audible response.) CHAIRMAN LEHMAN: Thank you very much. Next I'd like to ask Timothy King to come forward. He is Vice President, Planning and Development for John Wiley and Sons. Is he not here? I'm sorry, Lisa Freeman is our next witness. I apologize for that. She is the Director and Chair of the Association of American University Presses' Electronic Caucus, and she's from the University of Minnesota Press in Minneapolis. Welcome. TESTIMONY BY LISA FREEMAN MS. FREEMAN: Thank you. I am speaking today on behalf of the Association of American University Presses or AAUP. And I feel compelled to mention that I'm speaking as a publisher and not a lawyer. Before I respond to the specific questions posed by the Working Group, I'd like to provide some brief background about our members and about the importance of copyright to our activities. The AAUP comprises 114 university and other nonprofit scholarly publishers. In this latter group are such diverse publishers as the Modern Language Association, the American Mathematical Society, and the Smithsonian Institution Press. Of the approximately 47,000 books published in the United States last year, roughly 9,000 or, 17 percent, appeared under the imprints of our members. Additionally, the AAUP publishes over 700 scholarly journals. Although our presses produced nearly a fifth of all books and journals sold in the United States last year, the $400 million in income received from those sales represents only 2 percent of total industry-wide revenue during the same period. This gap between the volume of publication and the amount of revenue generated by sales of our products reflects the unique mission of not-for-profit scholarly publishers. University presses primarily serve the interests of the research and education community, making available works of scholarship that would in many cases never be published by for-profit commercial publishers. The contribution of a university press to the wider distribution of scholarly work is even more critical within the disciplines of the humanities and the social sciences, as in many cases university presses are the only outlets for scholars working in these areas. Peer review is perhaps the most important and least well understood aspect of university press publishing. This is the process by which the work of potential authors is reviewed by other scholars prior to its being accepted for publication. Peer review ensures the scholarly quality, integrity and contribution of an individual's work. Its importance is widely recognized by the academic community, most vividly expressed by the value of accorded of university press publication by promotion and tenure. Indeed, there are many institutions of higher education in this country where it is impossible to get tenure or be promoted without a university press publication. My point here is simply to underscore the central role of university presses in the wider systems of scholarly communication, a role that underpins the larger social and cultural enterprise of education more broadly understood. Turning now to the specific question of copyright, I'd like to point out that although copyright is the primary mechanism by which our authors and publishers receive financial remuneration for their efforts, copyright in the scholarly environment also serves another equally important function. When a university press copyrights the scholar's works, the press is also affixing its imprint to that work. And in so doing signals to the purchaser that this the peer reviewed version. In the scholarly world, multiple versions of documents often circulate prior to formal publication via working papers, conference presentations and the like, a practice that has already increased dramatically as a result of the Internet. In this environment the copyright serves to distinguish the authentic version; that is, the version that has been peer reviewed and which the author herself has chosen to disseminate as the authoritative version from earlier drafts. Copyright thus serves to protect not only the financial interests of authors and publishers, but also the intellectual interests of authors and that the larger -- CHAIRMAN LEHMAN: Can I interrupt you just a second. The early version would be copyrighted as well. The unpublished works are copyrighted. MS. FREEMAN: Indeed, but the version that carries the copyright -- for example, the Regents of the University of Minnesota Press -- is the version that has been through the peer review process. CHAIRMAN LEHMAN: And the copyright would be in the University of Minnesota Press or in the author? MS. FREEMAN: In most cases it's in the name of the press; in some cases it's in the author's name. It obviously bears the name of the press on the title page as well. Turning now to the questions posed by the Working Group. The AAUP believes that the present law does adequately protect the rights of creators and consumers of scholarly work whether in print or electronic form. Given the potential for unauthorized copying and transmission on the NII, we are concerned that adequate technical solutions be found to ensure the application and enforcements of the law. We do not believe that any fundamental changes in the law itself are necessary, however, and would resist any changes that would further limit the rights of authors or publishers or which would act in any way, however unintentionally, to undermine the system of scholarly communication outlined above. On the question of the adequacy of current provisions regarding fair use, the AAUP believes that the present fair use provisions of the copyright law are sufficient to protect the interests of both the producers and consumers of works transmitted via the networks. In the educational setting in particular, their use is critical to enabling scholars and researcher to do their work. An appropriate use of copyrighted works supports the larger missions of the institutions of which we university presses are a part. Obviously, determining what constitutes fair use in the electronic environment will be difficult given the technical capabilities that the networks offer. We're concerned that too liberal an interpretation of fair use could undermine the scholarly legitimation function of university presses. Even in the print environment, scholars are continually confronted with the possibilities of their work being cited out of context, or being reproduced in other works without their permission. Scholars care deeply about these issues, as any university press copyright manager can tell you. The possibilities for the abuse of fair use in the electronic environment are obviously much greater. Conversely however, a more strict interpretation of fair use that limits scholars' access to the materials that form the basic of their research would not be in the community's best interest. The present guidelines regarding the citation and inclusion of copyrighted materials under fair use contribute to the wider dissemination of scholarly research and often to additional sales as well. We do not believe that the elimination of fair use on the networks would be in anyone's best interest. On the question of labeling or encoding copyrighted works, the AAUP believes that it would be premature to legislate requirements or impose standards given the rapid pace of technological change. We do support the general principle that some system or systems of identification of copyrighted works needs to be developed. But we are equally concerned that the protection of copyright not impede access to copyrighted materials or compromise First Amendment rights. High quality research is dependent upon the assurance of academic freedom and the free exchange of ideas. Any system of labeling or encoding copyrighted materials should balance these concerns with those of the copyright holders themselves. For similar reasons we also support the general goals of open architecture, interoperability and universal access expressed in the NII's agenda for action. Likewise, we are interested in seeing an NII that enables the largest possible number of users to gain access to our materials. The need to protect copyrighted materials is no justification for inhibiting interoperability, but the goals of interoperability should not be used to justify the weakening of copyright enforcement either. With regard to licenses, the AAUP believes that licensing structures for the use of copyrighted materials may in many cases be appropriate, but the decisions about what such arrangement should look like should be left up to individual copyright holders. Given the complexity of existing contractual arrangements, the differing needs of various end users and producers, and the vast array of copyrighted works that may ultimately be made available, it would be impossible and in our opinion unwise to create any one centralized licensing systems. Although technical means to prevent unauthorized copying may exist or be developed, the AAUP does not believe that these should be mandated or required. As with licensing initiatives, we believe that choices with regard to technical solutions to copyright protection should be left up to individual copyright holders. Finally, we too believe that educational programs to increase public awareness of issues pertaining to copyright are critical. In the context of research and higher education, we are in particular trying to work to inform scholars about the fundamentals importance of copyright to the larger system of scholarly communication. In our experience authors are not well-informed about these matters, and we would urge the Federal Government to take a strong role in educating people about copyright. In closing, I'd like to thank the members of the task force for their time today, and to urge you to ensure that the concerns of the research and education communities continue to be taken into account when considering intellectual property issues in the electronic environment. We will all be much the poorer if the potential of the NII to further research and education is compromised by the desire for excessive or overly-centralized control over the free flow of information and ideas. Thank you. CHAIRMAN LEHMAN: Thank you. I wanted to ask a question about the fair use. You've indicated that you thought that in an electronic environment it was important to retain fair use. You indicated that the guidelines that accompany the existing copyright law -- I assume you're referring to the guidelines in the legislative history -- have been valuable in facilitating that and what fair use means. In an electronic environment is fair use as necessary as it was in an non-electronic environment? In other words, with photocopying, which is the primary concern of the guidelines accompanying the 1976 Copyright Act, there's really no way to kind of give permission very easily for photocopying. On the other hand, in an electronic environment, at least in theory, one can give permission at very low cost, presumably, for use of the work; for any downloading, for any access to it. So it strikes me that from a purely practical point of view fair use is not as necessary to permit the kind of access that you're talking about. MS. FREEMAN: I think there are couple of issues. You mentioned reasonably low cost. In the nonprofit research sector even low cost is cost, and the provisions that I'm referring to are those which allow scholars to cite one another's works or to cite indeed other copyrighted materials for the purposes of criticism and scholarship. Now, the present arrangements allow for one to do that with proper citation, and we certainly think that proper citation should continue to occur. I think that's a separate question from whether someone has to then go ask permission and pay a fee and go through all of those steps when we're talking about a small piece of information as part of someone's scholarly or research work. We're not talking about using copyrighted materials as a substitute for the purchase of the copyrighted work. CHAIRMAN LEHMAN: I think that's important to understand. Clearly, the issue of common citation -- you know, using an excerpt -- that is classical fair use going way back, and is pretty much recognized universally around the world. The question of being able to copy whole articles, significant portions of articles using reprographic technology, of course, is something that has crept into the law relatively recently and is part of our fair use law. And I'm just suggesting it may be that the electronic environment would permit us, if we wished, to move back a little bit to the more traditional fair use which is what you just described. MS. FREEMAN: Yes. I think the present fair use are fair and appropriate as regards one time copies for personal use. I think there are serious technical questions that have to be answered as to how you ensure that the guidelines are followed. But we feel the guidelines are adequate once the technical solutions are found. CHAIRMAN LEHMAN: Thank you very much, we appreciate it. MS. FREEMAN: Thank you. CHAIRMAN LEHMAN: Next we'd like to call -- I apologize for the mixup before -- Mr. Timothy King, Vice President, Planning and Development of John Wiley and Sons. He comes to us from New York City. TESTIMONY BY TIMOTHY B. KING MR. KING: Mr. Commissioner, my name is Tim King. I'm Vice President of Planning and Development for John Wiley and Sons, the New York based publishing firm. I'm here today as a representative of a leading but mid-sized publisher of scientific technical, professional and educational works. We enthusiastically support the development of the National Information Infrastructure, and in particular the development of a free market network which will be open to all, even-handed and equipped to protect copyright and support a full range of intellectual property transactions. We see an important role for government in providing incentives and supporting experimentation for the creation of such a network. The value of this network will depend of the quality of the information available over it. To ensure the publication of the widest range of works on the network, the continued effective implementation of copyright law is essential. We share the opinion of the Association of American Publishers, of which Wiley is a member, that existing copyright law fundamentally seems to protect the rights of those who will make their works available via the NII. But it is possible that supplementary provisions may be needed to ensure that the copyright law can be adequately implemented. We do, however, have some concerns that involve fair use. An author's right to take advantage of fair use in a creative of transformational sense to build upon existing materials in crafting a new work should in principle be the same in the electronic medium as it is in the print medium. However, we fear that there will be a higher incident of plagiarism, whether intentional or due to the mere -- to paraphrase a famous judge -- facile use of the electronic scissors. Consequently, rather than users needing more protection, copyright holders will have to be more vigilant in detecting unfair use. Another type of fair use involves the occasional copying of small parts of works for limited educational purposes under certain conditions. Fair use has always been conditioned on such use not having a detrimental commercial impact on the copyright holder. This privilege was never intended to force rights holders to subsidize educational institutions or other users. In the network environment, a significant component of the commercial use of a work will be the access, transmission and copying of elements of the work. Fair use criteria need to be applied in a manner which reflects this difference from the paper world, and protects the authors and publishers interests in the emerging electronic market. Some technologies that enable and attract such use already exist. And additional technologies are in development and include encryption and reader-identifier systems. In order for the copyright laws to be implemented efficiently, standards for the labeling of copyrighted works with identifiers and the conditioners for their use will be a necessity. Some standards already exist, such as the ISBN and ISSN systems; others are in development. Standards facilitating the exchange of information among different systems will also be necessary if the network is to be widely accessible in the United States and open to all, whether publishers or users. Some such standards as the TCPIP already exist. They need to be augmented with transaction recording protocols. The role of government may well be to support experimental projects and provide incentives for the development of effective standards. There will be a wide range of licensing arrangements in the network environment. No single system could cover all authors, types of work, users, or all forms of use. We do not believe government should mandate a particular system or systems, including collective licensing. Marketplace solutions should be allowed to evolve. For the network to be successful, users must have full confidence that the material they access is authentic and identical to the original. There are technologies in development that could be employed to ensure this, such as digital signatures and hash values. Their use will not have to be mandated as both users and publishers have a strong incentive to employ them. Authors and publishers desire the widest distribution of their works consistent with a reasonable financial return. Neither is interested in creating artificial restraints on the distribution of their works unless it becomes apparent that customers are redistributing or using all or part of their works without permission or payment of fees. In such cases, technical means for preventing unauthorized access or reproduction are required. There are already some technologies that could be used, such as public key encryption. Rather than government mandating such technical means, we believe that government should facilitate their further development and support their availability. Each year in the United States over 35,000 new titles are published: works of research, scholarship and reference, as well as fiction. In order to enable the continued publication of use works in the network environment and permit the creators of intellectual property to benefit from their creations -- and here I wish to emphasize that I'm speaking not for the AAP, but as a mid-sized scientific, technical, professional and college publisher -- it is imperative that there be an orderly network for electronic publishing that is, firstly, capable of ensuring the authenticity and security of all intellectual property offered on the network. Secondly, that it is capable of providing transaction information where the network providers, network access points, or some other entities record for each intellectual property transaction the details necessary to enable payment for such transactions. Thirdly, that is open and even-handed to all, all who wish to publish and all who wish to access published works, where the terms and conditions of use are dependant only on the nature of the service provided, and not on the size or nature of the publisher or user, whether commercial, not-for-profit or public sector. And fourth, which is accessible to all, that is where the requirements for connecting to the system as a user and the requirements for publishing on the system are not burdensome. Existing commercial on-line database host and cable services do not provide such a network. Nor does the Internet, at least not yet. These points are set forth in greater detail in the statement for the record to be submitted by December 10, which is incorporated into my testimony by reference. In closing, we wish to reaffirm our enthusiasm for the development of an open, even-handed transaction-oriented network within the NII. It is our conviction that there are or will technological solutions and free market licensing systems which will facilitate the implementation of copyright protection in the electronic environment, and our belief that the proper role for government is to foster experimentation and provide incentives to industry for the realization of this new open publishing medium. Mr. Commissioner, thank you for the opportunity to testify. CHAIRMAN LEHMAN: Thank you very much. Do any of my colleagues have any questions? (No audible response.) CHAIRMAN LEHMAN: As long as we have just a moment to follow-up on the fair use question -- you indicated that that was a concern -- in the electronic environment, in effect where you can meter every use, is it as necessary to have a broader fair use exemption in your view? MR. KING: We believe that in the electronic environment the type of use made of many of your works, which are small print from scholarly professional works, will be the access of small portions. A work of let's say 400 pages available over the network will be looked at page by page, paragraph by paragraph. People won't buy the whole work. They will look at small bits. Those payment for those small parts will be the commercial aspect of publishing this work. If people could take those small parts without payment, calling it fair use, then in effect the financial return would be enormously reduced. And we would consider that to be unacceptable. It would prevent us from publishing. So we see that in an electric environment what fair use there is will be primarily that of what one might call creative fair use for creating new products, but duplicative, if you will -- duplicative use -- that should be charged on each transaction. CHAIRMAN LEHMAN: So there is a difference between the existing photocopying world and the electronic digitized world? MR. KING: I think the digitized world, the application of what we believe reasonable commercial use, will be clearer in the various cases that are currently before courts, like the Texaco decision. It's clear that we don't even believe that single copy use is necessarily fair, especially as is stated in the Texaco situation. CHAIRMAN LEHMAN: Thank you very much. Next we're going to call on Mr. Robert Oakley who has just come across the river -- he didn't have to come very far -- the Director of the Law Library at the Georgetown University Law Center on behalf of various library and education associations. I know that Mr. Oakley is a prominent member of many of them and he can perhaps describe that more for us. TESTIMONY BY ROBERT L. OAKLEY MR. OAKLEY: Thank you, Mr. Chair. Before I begin, I'd like to make a suggestion to the Working Group that you consider making the transcript of this hearing available over the Internet in addition to being available in paper for $30.00, and I'm sure we could find a host site if that was necessary. As you indicated, I'm the Director of the Law Library at the Georgetown University Law Center, but I'm here this morning on behalf of several different library and education associations; these include the American Association of Law Libraries, the Association of Research Libraries, the American Library Association, the Medical Library Association, the Association of Academic Health Science Library Directors, the Special Libraries Associations, the Association of American Universities, the National Association of State Universities and Land Grant Colleges, the Coalition for Network Information, EDUCOM, CAUSE, and the National Coordination Committee for the Promotion of History. I am not a member of all of them. A brief introduction to these organizations is appended to my full statement which has been submitted for the record. The library and education communities believe that is premature to propose specific legislative changes while the information infrastructure is still in its infancy. Nonetheless, we are concerned about the need to reaffirm that the rights granted to educators, libraries, and their users, apply in the electronic environment as they have in the paper environment. We also believe the law needs strengthening to allow libraries to use the newest technology to preserve the nation's heritage and to meet the needs of their users. We welcome this forum as really the beginning of a discussion that we hope will lead to these changes and allow us to achieve these goals. For this morning I which to emphasize three points. First, that the fundament purpose of copyright is for the public good. Second, that fair use and the library exemptions provided for in the Act should remain equally valid in the electronic environment, as they have in the paper-based environment. And third, that any licensing arrangements that are made should likewise take into account fair use and the existing limitations on the rights for copyright owners. First, the copyright exists for the public good. The Copyright Act balances the rights of creators and the rights of users. The constitutional purpose of copyright is to promote the progress of science and the useful arts. This means that the rights of copyright owners should be broad enough to ensure a fair return on their work, but limited in the public interest so as not to inhibit the use of existing works, especially for research, education and the creation of new knowledge. As Justice O'Connor wrote for the Supreme Court in the Fiest Case, "The primary objective of copyright is not to reward authors, but is to promote science and useful arts. To this end copyright assures authors the right to their original expression, but encourages others to build upon the ideas and information conveyed by a work. This result is neither unfair nor unfortunate. It is the means by which copyright advances the progress of science and art." Now to achieve the goal of promoting the public good, the second point is that the NII should preserve fair use in the library exemptions and allow for a variety of pricing structures. The policy framework for the NII should permit a variety of pricing structures. Any system, for example, must accommodate the distribution of some works at no cost to the individual user, or at least at not cost higher than what might be charged for basic access to the network. There is much that is already flowing over the Internet without a cost to the end user, and there is much that could be added without jeopardizing the rights of copyright owners. The materials that should be readily available include at least three categories of works; non-copyrightable works, such as works from the U.S. Government; works in the public domain because their term of copyright has expired; and works for which the author does not wish to exercise his or her copyright. Just as we believe that certain works should be available without a fee, so too we believe that certain uses should also be permitted without a fee. In particular, fair use should be available regardless of the medium, whether electronic or print. It is true that we cannot know now how the contours of fair use might evolve, but as an equitable rule of reason it should continue to be available. And indeed here I must say that I'm troubled by the last comments about metering. I find it difficult to understand or to think about how individual scholars and school children might have to pay a sum for the use of individual paragraphs out of particular works. Fair use is the means by which researchers learn and in turn write for the benefit of society. It is the fuel that drives the engine of progress envisioned in the Constitution and restated so well by Justice O'Connor. Similarly, the library exemptions in Section 108 must also continue in the electronic environment because they support educational and research endeavors of library users. Section 108 supports primarily preservation and limited interlibrary lending that is not a substitute for a purchase. These goals remain valid even though the methodology is shifting from print to electronic. In fact, with the exception of the preservation subsections, Section 108 is neutral on this point specifying copies not just photocopies. As a result, the intralibrary loan provisions strike a reasonable balance of allowing a library to request a copy of an article, even a copy delivered electronically from another library as long as the other provisions of the Copyright Act are respected. The preservations of the Act, however, need expansion to address the preservation needs of the nation, because they limit preservation coping to a single copy in facsimile form, meaning paper or microform. Because materials printed during the last 150 years are on paper that is becoming brittle with age, the need to preserve the nation's intellectual heritage is a major cultural crisis. Microfilm is still the medium of choose for preservation, but the technology is moving rapidly toward the time when preservation will be done electronically. The law should be amended to accommodate the newest preservation technology. Just as works printed on paper need to be preserved, digital works of enduring value will also need to be preserved. The life expectancy of works in most digital formats is only 15 to 20 years, shorter even than the life expectancy of paper. For such works, preservation takes the work of refreshing or copying the work on to a duplicate of the medium, or even moving it to the next technological generation. The current law does not accommodate this increasingly important need. Similarly, efforts to create digital libraries have run into significant barriers. These barriers must be resolved if we are to move forward anything like the Vice President's vision of making the Library of Congress and other library collections of national significance available electronically. For example, the Library of Congress tried to develop an American Memory Project to make historic collections of photographs, documents, the written word, and sound recordings, available electronically. As the project began, however, the Library found that many of the items, while relatively old, from the 1930s for example, might still be within their term of copyright. In most cases these were not works of famous authors, and it was difficult, if not impossible, to trace the owner. Multiplied by tens of thousands of documents, photographs, and recordings, this worthy effort become impossible, and the project was scaled back to include works clearly in the public domain or for which the Library has specific permission. As a result, the public has been deprived of a valuable learning device even though most of the creators of the works in question would probably have consented readily to the use of their work. Librarians and educators have no desire to deprive authors, publishers and other copyright owners of a reasonable economic benefit for their work. But the library and education communities believe that in cases like interlibrary lending and preservation in the electronic environment or the creation of digital libraries, copyrights should not be a barrier to education and learning. Finally, licensing proposals should also accommodate fair use and library use, as authorized in the act. Licenses might seem to be a means by which some of these goals could be achieved. However, the library and the education communities are concerned that many existing licenses fail to take into account fair use or the library exemptions. As an alternative approach as part of a project to digitize and archive both historic and current legal materials, the Columbia Law Library is working with publishers to develop a system that will preserve fair use and public access, while at the same time providing the necessary controls on user access to electronic information. Licensing should only be for uses that exceed fair use or the other exemptions in the Act. Licenses should not be used to contract around otherwise legitimate uses of proprietary material. Licenses for the acquisition of information create other challenges as well. Increasingly in libraries we are see the substitution of licensees or article-based delivery services to replace subscriptions. These programs satisfy current needs, but they will have a significant economic and structural impact on libraries since libraries will not be able to retain the information to meet futures requests. The NII should support licensing arrangement that provide for the archiving of electronic materials in a way that will recreate the collections and public spaces that have traditionally been presented by libraries. The library and educational communities welcome this forum as the first step of an ongoing process to examine the issues and determine what changes are needed to strengthen the basic goals of copyright. As indicated, we do see some problems that need to be resolved, but we have concluded that it is premature to make specific proposals at this time. We welcome the opportunity to continue the discussion with you and others in the context of developing the National Information Infrastructure. Thank you. CHAIRMAN LEHMAN: Thank you very much, Mr. Oakley, for those very useful comments. Next I'd like to call on Mr. Joseph Cosgrove of the Political Science Department at King's College, Wilkes-Barre, Pennsylvania. TESTIMONY BY JOSEPH M. COSGROVE, ESQ. MR. COSGROVE: Thank you, Mr. Chairman. My name is Joseph Cosgrove and I'm a lawyer and a teacher in the Department of Political Science at King's College in Wilkes-Barre, Pennsylvania, although my remarks are my own and not necessary those of King's College or any particular department. I appreciate the opportunity to address this Working Group given the serious and exciting prospects which development of the National Information Infrastructure will bring. In my capacity as both an instructor of constitutional law at King's College and as a private attorney with the practice largely devoted to the development and protection of basic civil rights and civil liberties, I have undertaken the examination of certain constitutional concerns which may arise with the development of this thriving information superhighway. While the Working Group has asked specific answers to specific questions associated with its mandate, it appears that these questions are premised on a concern for a superhighway that balances the rights of both the holders of copyrights as well as those of the users of this material. In our discussion of ways to protect the rights these holders once the NII goes online, we must keep in mind that there are certain constitutional parameters which mark our debate and certainly any legislation which will stem from it. Although it's sometimes hard to remember, we must be mindful that our national government is one of limited powers, and those powers are specifically enumerated in the Constitution itself, including the patent and copyright clause. Well, this modest civic lesson aside, I'm concerned that a certain fog may be developing our discussion of copyright protection in the NII. Contrary to the customary view, the patent and copyright power which the Constitution bestows upon Congress is concerned not primarily with the interest of the artist, author or creator, but instead protects a broader public right to receive information and ideas. In the world as it exists today, this right of access seems secure. Society has wide access to an almost endless variety of books of magazines and other printed material. The proliferation of television and VCR technology has caused a near explosion in the availability of video and film resources. Development of CD systems has completely revamped our music forms and other recording paradigms. But these all represent informational infants when compared to the possibilities which accompany the NII. What separates the NII from most existing systems is the extraordinary speed with which it will allow distribution of virtually all forms of information to those fortunate enough to be a part of it. But what about those not so fortunate? What of that portion of the public for which the expensive technology necessary to gain a spot on the NII is beyond their reach? Shall they be excised from this information revolution? Shall they relegated to a lower level of national dialogue and thus lose the opportunity to fully participate in the intellectual activity of our nation? I suggest to you that while this segment may lack possession of certain technological tools, it possess something far more important, and that is a constitutional entitlement to be a part of any informational feast which government may assist in creating. This right to access to information has been supported by the Supreme Court at least in the First Amendment context. More than a decade ago in the case Board of Education v. Pico, the plurality opinion of the Court found such a right as it related to a public school student's access to school library materials. Even the dissenting Justices recognized at least a limited version of this essential First Amendment liberty. Interestingly enough Chief Justice Burger voiced his concern that the plurality opinion would seem to, "support a constitutional right of the people to have public libraries as part of a new constitutional right to continuing adult education." It should be noted that the Chief Justice was not very fond of this idea, but he recognized that that certainly could be the import of what the plurality was stating. But the Chief Justice's fears have never really taken constitutional root, but the do, along with the plurality opinion itself, remain a vital part of our First Amendment jurisprudence. Defined, such a broad right to receive and have access to information is found even more easily in the copyright context than it is in the First Amendment analysis. As with any fundament right, a First Amendment right does not require any action of government for it to have a life of its own. It exists by itself, irrespective of governmental considerations. That is why the Court is simply reluctant to imply broad avenues of rights when they are not specifically enumerated in the Constitution. But the cousin of this First Amendment right to receive, which I suggest is contained in the Patent and Copyright Clause, comes into being only upon the affirmative legislative action of Congress in the granting of copyright protection to the artist, the inventor, or the writer. Once that congressional power is exercised, like it or not, the coextensive right to receive and have access to the protected material is immediately born. It is also likely that certain equal protection analysis will also be implicated in this context and supportive of this same right to access. I suggest to the Working Group that this constitutional interpretation will most certainly test the validity of any NII legislation which fails to include all segments of society in its attempt to develop the information superhighway. I suggest that civil libertarians like myself, cantankerous as we can sometimes be, and who rarely encounter our colleagues of the intellectual property bar will almost certainly meet these companions at the court house if the right to access to copyrighted material is not protected by the NII. How can such an unsavory encountered be avoided? It seems that a simple answer to this potential problem is an NII that fully employs the vast national resource that we call the library. NII outlets mandated as part of our national library system, whether the public library or the educational library, would ensure fulfillment of the constitutional requirement that all copyright legislation, "promote the progress of science and the useful arts." The same could also be accomplished through use of public school libraries opened generally after school hours. As an the aside, I once served on a local school board and strongly encouraged a rapidly growing educational philosophy that public schools should be seen simply not as educational institutions, but as vast resources for the general public. Use of school libraries as access points for the NII would serve a dual purpose of furthering this expansive education philosophy as well as protect the access rights previously discussed. Now, I recognize that this interpretation may cause shift in the balance of rights which the Patent and Copyright Clause should inherently maintain. But there are other remedies available to restore this balance. Since commercial interests are presumably at the heart of any copyright holder's concerns, NII legislation could easily expand commercial copyright protection. The First Amendment freedoms that are associated generally with access to information and other aspects of First Amendment freedoms are not as strong when they're taken in a commercial context. One method would be the adoption of the controversial presumption found in the Sony and the Harper and Row cases where the Supreme Court held that every commercial use of copyrighted material is presumptively an unfair exploitation of the monopoly privilege that belongs to the owner of the copyright. Congress is free to adopt this standard as its own and thereby grant even greater affirmative protection to the copyright holder in the commercial realm. Congress can do this, but what it cannot do is fail to grant general and public access to that material once it grants a monopoly protection. In the end, the NII, if it is indeed an information superhighway, must mimic our system of interstate highways to which it is analogized. These highways over the past 25 years have linked communities, rich and poor alike, and has placed access to all parts of our country within the reasonable grasp of the general public. It is in the best interest of this country that the NII do likewise. If it fails to do so, it shall also fail the Constitution from which it derives its very existence and the people which brought that Constitution into being. I offer many thanks for the opportunity to address this group and I offer an open invitation to discuss this further in writing or in oral form. CHAIRMAN LEHMAN: Thank you very much. MR. COSGROVE: Thank you, Mr. Chairman. CHAIRMAN LEHMAN: Do any of my colleges have any questions? MR. ABBOTT: I was wondering if you were suggesting that the copyright protection would be affected by your concern over the First Amendment rights. In other words it don't protect as much or were you not going that far? MR. COSGROVE: Well, we've heard so many discussions of fair use and how fair use will fit into the NII. Fair use has a genesis in the Constitution, aside from any legislative protection, and so we must keep that in mind. What I'm suggesting is that commercial restrictions can be placed within any copyright amendments and still be well within First Amendment parameters. Thank you very much. CHAIRMAN LEHMAN: Anything else? (No audible response.) CHAIRMAN LEHMAN: Thank you very much. Next I'd like call on Mr. Dennis Bybee, the Associate Executive Officer of the International Society for Technology in Education from Alexandria, Virginia. Welcome, Dr. Bybee. TESTIMONY BY DENNIS L. BYBEE, Ph.D. MR. DENNIS BYBEE: Thank you very much, Mr. Lehman and members of the committee Working Group. My name is Dennis Bybee and I'm Associate Executive Officer of the International Society for Technology in Education. We're a 45,000-member American-based professional education society whose members are directly involved in K-12 education. Our members are typically classroom teachers and computer-using educators and directors of technology in school districts and state departments and teacher preparation of people. We're very concerned about advanced technologies in the classroom and for administrative support purposes. I'm probably unique in the witnesses today. I'm not a lawyer. So I'm not here to argue the merits of what needs to be done in terms of law, but to represent the user community and as a representative of one major segment of the group; that is, the intended end users of the NII. I guess I would like to say at the outset that I would like to respectfully agree with much of what Mr. Oakley said and disagree with a lot of the other presumptions. I would like to suggest that this group not assume that the present information infrastructure management systems are adequate, efficient or desirable in a new NII environment. The rules that we have governing the current system seem to be creator-dominated, one-way delivery environment and should not be considered inherently adequate. They should be looked at carefully and maybe in fact unduly restrictive when apply to a new environment which is going to be user-dominated with interactive access as opposed to the rules that are currently in place which seem to be more directed at the single one-way delivery system. So I think with that caveat I would like say that first off we really are concerned about access and availability. Our members and our users in the education and training community, if we're going to have improvement in education, need to have access and availability, and it needs to be to the degree possible unrestricted. At the same time, we are very much in favor of all forms of creative endeavor being compensated. So we are not suggesting that the unrestricted access be at the expense of the creative process. That has been, in our view, the traditional role of the copyright environment, is to balance these interests; the availability of art in all forms or creativity, against the user community's interest in accessing. And so as you move into this new environment, there's a tremendous challenge that this group has to balance those interests, and I think that one should keep in mind the primary objective; to achieve a National Information Infrastructure, which is the free flow of information. We don't want restrictions and inhibitions to preclude the ultimate objective of this kind of a new technology. So as a non-lawyer let me respond to some of your questions. The intellectual property rights of creators: We want, for example, users to have unrestricted access to information. We want them to not be inhibited in any way by protection devices or by rules or other restrictions. Our primary concern is the free speech right of the use. There shouldn't be any restrictions on use, nor should there be any administrative burden placed on the user to limit uses. And I think it would be almost impossible in that environment to expect that millions of new users would exercise restriction. If they have access to information, one presumes that they should use that access. Therefore, that tells us that we should probably recommend that to achieve a freedom of information flow, it would be recommended that protections be universally and systemically provided for all creative works at the point of entry into the system, if you can figure out the methods and the methodologies for adopting a guiding principle that once in the system, universally available to all users. Encoded standards to us are -- we've had a lot of experience with encoded standards and they don't seem to work. There should be unrestricted access. To us, intellectual property rights seem to govern all forms of use and dissemination with the creator having controlling property rights that are selectively conveyed on a case-by-case or use-by-use basis. If such an electronic decision-making process were continued into the NII environment, it would impede the flow of information within the system and place an unacceptable burden on the NII system administration. Encoded standards are not the answer, and their use would probably inhibit information retrieval and creation in derived sources. Any attempt to restrict uses of intellectual property made available through the NII will be unacceptable to potential users and not result in the intended compensation to creators. Just as we found that copyright protection devices were ineffective in controlling intellectual property stored on magnetic media, we must expect that encoded standards would be ineffective in the NII environment. Neither creator nor the user would benefit from encoded standards to control access because user access would be restricted and the limited use of creative works would reduce the compensation to their creators if you would assume that compensation would be based on use. We recommend that you redefine intellectual property rights in the NII environment and restrict creative control to a simple one-time decision-making to either place works into the environment or not. In terms of interoperability, it seems very important to us that the information is held in a common format and in common set of NII information archival format standards may be appropriate. It is not as clear that a similar compelling need to establish full interoperability standards exist with respect to the hardware and the software systems. It is more likely that unregulated flexibility in accessing hardware and in software systems would stimulate continued development of products and services in that information resource marketplace. Our recommendation here is that there should be a common set of the NII information archival standards, but we don't see at this time similar standards for accessing hardware and software systems. In terms of your question about licensing systems, a universal licensing system should be developed and implemented to fully compensate owners of creative works made available on the NII. We would like to see a very simple and comprehensive licensing system providing one-time compensation for works at point of entry or agreed-upon licensing as they come into the system. And we would support some sort of system of compensation to creators based on instances of use. We're recommending a single universal licensing system be developed and implemented to fully compensate owners of creative works made available and used on the NII. In terms of unauthorized reproduction, this term probably has different meaning in the NII setting then it has in the common setting. Information must flow freely within the system without restriction. Since it is expected that the information resources will physically exist somewhere within NII and probably a best location would be a single location rather than multiple locations, and if simultaneous access is intended for a single location, then the concept of reproduction may be in fact irrelevant and access to users within the system should be authorized -- multiple access should be authorized. If in fact the system provides that materials are taken from the system and used in some uncompensated forms, then that might be dealt with as an issue here. But it might not be as lucrative as it currently is, if in fact the system is provided universally to all accesses. In terms of educational programs, it is expected that the new environment will result in new ways of interpreting intellectual property rights, and there probably should be a comprehensive effort to inform the public of how this is handled. We would encourage you, however, to begin with the creative community in terms of ensuring that there is long-term availability. And since there's a lead time in that, that it would take priority over educations of end users. In fact, if you can achieve the goal that we've suggested of having less restrictions on the end user community, it probably would require less education in training of those end users. So I appreciate the opportunity to be with you today. I present these rather unvarnished recommendations and hopefully over the next year or so, as the system is developed, we'll be able to work with this group to present and to represent the educational community in this important endeavor. We're very happy to have you working on this and to be able to present today. CHAIRMAN LEHMAN: Thank you very for sharing your thoughts with us today. Is there anybody who has a question? MR. LINN: A question of clarification. You expressed concern about the access of availability control as there was an existing single entity. What is that entity in your mind that you want to access to control and management of? Is it the Internet? Is that the analogy? Because some of the other speakers have talked about the publishing industry of being part of the NII and this is very different from the perspective and it seems a point of entry that was actually threaded through your comments. MR. BYBEE: The thing that we're hoping that will come out of this is that there will be an unrestricted flow of information. As a two-way environment, it seems impossible to negotiate case-by-case contracts or to preserve the current structure of creators setting the standards and users trying to receive that kind of thing. So whether you create a single entity to regulate that environment or you set up a system, and you've mentioned it a couple of times during the comments, Mr. Lehman, about the possibility of recognizing instances of use. And if recognition of instances of use could also imply some compensation, then I think that could be a solution. I'm not suggesting that we have a solution, but I'm suggesting to you that the solution not be to continue in this environment a quagmire of contractual agreements between end users and the providers. It would be preferable to have something similar to the music industry which I'm sure the creative community is compensated when we listen to music over the radio. And I'm sure there's an instance of use provision somewhere. Somebody has figured some of those ideas out that could apply to the NII. But we need unrestricted flow of information. MR. LINN: Second question. You talked about encoded standards. Does that imply encryption to you? Because it does not to me. Encoding is a scheme for representing information rather than encryption, which is to scramble the information. MR. BYBEE: Running through your statements there was a tenor that I was beginning to see in which we would create classes of information, categories of information, user restrictions. It might be multiple restrictions. There might be different user characteristics and things that you can do. If you in fact have a free flow of information, there should be a single category of information and encryption to the extent of encoding or encryption would inhibit or create classes of information. If you, for example, encoded it, is it going to be used in one environment for single uses and whatever at some cost -- MR. LINN: You are talking then in the since of coded and the law as opposed to a technical use of the term. Is that correct? MR. BYBEE: You said encoded standards. I took that to mean that you would have standards for encoding information and providing protection in individual works. If that was not correct, I can rethink that. MR. LINN: Thank you. CHAIRMAN LEHMAN: Thank you very much. Next we will call David Rothman from Alexandria, Virginia. TESTIMONY BY DAVID ROTHMAN MR. ROTHMAN: I'm probably the only professional writer here. It's rather amusing to here all this talk of creators in the abstract. This isn't just a hearing. In this case I'm the author of two forthcoming books on, among other things, some NII-related issues. Guess how much I'm getting for my electric rights in the case of these books which are both from really good publishers? All of 10 percent. And I believe that's net. And this is outrageous, given the distribution economies that are available. And these are really good publishers. I'm not begrudging the publishers at all. They're just reflecting the realities of the present system. Folks, it's not going to work. It's not working today, and it's not going to work in the future. I'm here with several interests in mind. Interest number one, as a citizen and a former poverty beat reporter, I fear that the new technology will aggravate rather than mitigate the savage inequalities of our schools and our society in general. I really agree with the speaker who preceded me with his concern about obstructions to the flow of information, and I'm saying this, mind you, as a creator. At the same time -- in fact this is along the same lines -- I cringe when I hear librarians talking about the use of local servers as their main way to distribute copyrighted material. Steve Sizzler of Apple Computer came up with some materials cost for public libraries in California. In 1988 the capita figure for Beverly Hills was something like -- well, to be exact, $87.46, and for Shasta County which is also in California, all of $2.51. So I would hope the librarians would keep an open mind in terms of the usefulness of a central national library online reflecting taste of many librarians. That's what I have in mind with the plan I call TeleRead about which I've written in the Washington Post, Computer World and the Baltimore Sun and also in Internet posting. This part of the hearing is already available on the Internet. Anyone here is perfectly free to reach at Rotman Etsign Netcom, NETCOM.COM and I can E-mail the stuff in a flash. I envision a combination of a central library and a server system. My vision is one of electronic federalism where we would have the main library picking up the best technology and content of the servers. Interest number two: As a writer, I fear for my property rights in this new age. You've just gotten one indication in terms of how much I'll actually be getting for my work. But there's another consideration, and that is piracy. I'm worried that if we base copyright laws on the copy protection schemes, I emphasize the pearl of schemes de jour. It will be like building a nuclear reactor and relying on advise from the administrators of Chernobil. Today's copyrights will go on for decades and decades after the dust of writers. We're really talking about widows and orphans here. As if the vagaries of technology aren't enough, human nature abhors protection schemes. Even strangers love to share online. Here's a disk recording some possible violations of copyright law. In one file a man named Jay pops up on the Internet and uses a Net address from the United Kingdom. He casually asks how he might find an electronic copy of a short book by the novelist William Gibson. Jay does not mention that Agripa is copyrighted and has sold reportedly in various editions for between $450 and $7,500. "Good luck, kid," an American named Robert, replies to Jay. The original E-text was designed to destroy itself after decrypting. "Good luck, Robert," a third man shots back. It's all over the Net. Net soon includes the alt E-text news group helping Jay out and other Internet post Mr. Gibson's work for the whole world to download in a flash. I have hunch that Mr. Gibson probably knew that piracy would be taking place here and that he was looking forward in fact to the publicity. When Agripa was released, his publisher told a magazine that a supercomputer could do the job, but a personal computer could not. But again we have to keep in mind that we're talking about decades or even centuries when we're talking about copyright law. Correct me if I'm wrong, but the existing law the copyrights last for my life plus half a century. So we really need to think in the long-term and even in if in the next few years the market system could come up with a copy protection scheme, I'm just somewhat skeptical as to whether it would last this length of time in terms of effectiveness. And I really think my way, from a legal viewpoint, is actually more conservation. That is, the idea of a central library reflecting the taste of many librarians with proper compensation for creators. So I'm making the point that the best way to preserve property rights and maintain the spirit of our existing copyright law is to alter the letter. Interest number three. As a small businessperson, like all profession writers, I hate bureaucracy. I believe that the same telereaders used to display books should also be used for electronic forums to streamline transactions with the government. According to the U.S. Chambers of Commerce, we spend several hundred billion dollars a year in time and money on paperwork for bureaucracies. And what if we could reduce this amount by just a fraction? It would more than cost-justify the TeleRead program, the central library, especially if the technology were used at all levels of government. Everything from city hall to agencies here. I'm suggesting that we could have smart electronic forums that would not just allow citizens to enter information, but which would also supply, if desired, detailed prompts both on the screen and in audio to guide citizens through the forums. The software would instantly alert the citizens if they entered incomplete or inconsistent data. IRS auditors and other hard-working civil servants would have to make fewer follow-up calls. And what's more, there are plenty of opportunities for the private sector. We could private software in place of government forums. It could give birth to a whole new industry. Simply put, TeleRead would dramatically speed up changes of the kind suggested in the National Performance Review Paper. I think the paper is an excellent start in the right direction, but we need to go further in that regard. For reasons of time I won't discuss many other potential uses of TeleRead. I won't tell how TeleRead could promote community networks or allow bookstores to sell paper copies of books from the national database, or how we could use a procurement program for schools and libraries to drive down the cost of sharp screen portable computers for all buyers not just the Federal Government. Nor will I tell how Silicon Valley and telephone and cable companies could sell TeleRead as a new product category. If nothing else, TeleRead would assure small and mid-sized publishers, say the Wileys of this world, or the publishers I'm doing my books for, a wide lane on the information highway in an era when many communication firms want to merge. But even the big database operators and the baby bells might keep open minds. If such corporations truly had value to offer, then as contractors they could earn more money than they would without TeleRead. I think there would be some magnificent opportunities for members of the IIA here. Right now consumers can spend only so much on information services, and TeleRead could vastly increase opportunities for companies of all sizes that truly serve the public. William F. Buckley, Jr., one of journalism's most vigorous defenders of free enterprise and property rights, endorsed this proposal last May in a column called, The TeleRead in your Future. I hope that many other Americans will want TeleRead to be part of their futures. Thank you, and again the full proposal is available to anyone if they'll E-mail me at Rothman Etsign NETCOM.COM. It's 160k. Thank you very much. CHAIRMAN LEHMAN: Thank you very much, Mr. Rothman. Are there any questions? (No audible response.) CHAIRMAN LEHMAN: Thank you. At this point we're going to take a 10-minute break. We'll be back in 10 minutes. (Recess.) CHAIRMAN LEHMAN: Next I'd like to call on Mr. David Pierce, the President of the American Association of Community Colleges. Welcome, Mr. Pierce. TESTIMONY BY DAVID PIERCE MR. PIERCE: Thank you, Mr. Chairman and members of the committee. I'd like to thank you very much for the opportunity to testify this morning. On behalf of the largest single segment of America's post-secondary educational system, the community colleges. My name is Dave Pierce, and I'm President of the American Association of Community Colleges which represents well over 1,100 of the nations associate degree-granting post-secondary institutions. Community colleges enroll approximately one-half of all of the students enrolled in higher education and they are community-based with close ties to their community. And all are very heavily involved in data and in transmission and in various forms of media use in serving their communities. We have more than 6 million students enrolled in credit programs, and an additional 5 million students in courses for personal enrichment and lifelong learning. We serve the majority of Americans first entering college, as well as the largest undergraduate populations of women, ethnic minorities, and the economically disadvantaged. In the emerging global economy where the skills necessary for personal and economic success are consistently changing, community colleges are in the forefront of developing continuing education and training for the nation's workforce, small and large business and health care providers. As pioneers of business education programs and multimedia instruction, we have the technical ability to reach a majority of citizens in the country. Community colleges promote an open door admissions philosophy. Our students come from all walks of life with varying academic credentials, and pursue many different goals. The curricula of community colleges are extraordinarily diverse. They include occupational, technical and life-long programs, in addition to university transfer programs. Community colleges also work in partnership with high schools and the civic and business communities to develop the world class workforce that is prerequisite to success in today's global economy. Community colleges will continue to lead the way in helping all elements of society in the utilization and training of information age technology, and must be an integral part of the development of the National Information Infrastructure. First, the NII must be developed in a partnership. Business, industry, labor, government and higher education must work together to develop the NII. Community colleges are a vital element in this partnership. We're the foremost practitioners of distance learning to bring education to Americans. Therefore, we're a natural vehicle to ensure access and equity to the NII for both urban and rural communities, and are well positioned to serve as the conduit for local communities in accessing, retrieving and communicating from the NII. Second, funding, standardization and interoperability must be integral components of NII. Many obstacles can inhibit the growth of the NII. Diverse protocols, the lack of interoperability, the high cost of equipment, connection and operation will frustrate access and could prevent many entities, including community colleges, from full participation in the information age. As the various aspects of this infrastructure are developed and implemented, funding must be made available to the public sector to ensure connection. Further, standardization and interoperability must be strongly encouraged. Educational institutions cannot afford to invest in equipment hoping that their choice will become the norm. Educators must be confident that their investment and technology will be useful over the long term. Finally, community colleges can provide education and training for this nation's infrastructure. Community colleges are logical links for communities to the NII and will be sought out for training and information on intellectual property and copyright issues. As the system is developed and as the issues of intellectual and copyright law are reviewed and updated, community colleges, leaders in the use of technology for the delivery of education and training, are eager to play an important role in increasing public awareness. Let me give you some examples of what our colleges are currently doing is this area. Community colleges deliver courseware using a variety of technologies, including telecourses, computer assisted instruction and interactive programs. For example, Dallas County Community College District produces telecourses which they deliver over local public television and cable channels to over 11,000 students annually. Kirkwood Community College in Iowa has an extensive live interactive video network that provides credit classes to almost 4,000 students annually at multiple locations. Students in the Mericopa Community College District in Phoenix, Arizona can sit at their PCs at home and have access to a wide array of instructional services communicated via computer network. In fact, at that particular institution, which is the Glendale Community College as a part of that district, students can actually achieve a full associate degree, a two-year program, either going to the college campus and participating at the PC laboratory which they have, or if they choose to do so, they could stay at home and achieve the entire associate degree from their home. The examples are endless. Just yesterday I talked with the President of Hudson Valley Community College in New York and he described a project they had with the local Hispanic Council of preparing programs for transmission into four prisons for Hispanic incarcerated prisoners. Thirty percent of all the prisoners in that state are Hispanic and they're working with the Hispanic leadership in an attempt to provide educational services. If that project is successful, it will be taken statewide. That's simply and example of the positive use of both a community college and technology. With an established information infrastructure educators can concentrate on the content of the programming and not have to worry about the nuts and bolts of the delivery method. Government and private industry will use the community college system as a vehicle for training and supplying information on the policy and procedures for utilizing the NII. A grant program to develop and deliver onsite training, electronic town meetings and local public hearings needs to be established. Community college partnerships with government and industry should be a priority to assure timely dissemination of new regulations as they are developed and implemented. As I've stated in testimony today, community colleges are and will be primary link between the NII and local communities throughout this next decade and beyond. It's critical that we are directly involved in all aspects of National Information Infrastructure development. Thank you for permitting me to appear before you. CHAIRMAN LEHMAN: Thank you very much. I have a question to ask. I notice in the written comments that were submitted you talked about the evolution of use of technology in community college programs, sunrise semester programs and television and so on. When you both have programs in a classroom and you have programs in broadcast, and then presumably if you have programs on some interactive service, I assume that there's some sort of fee that's presumably a modest fee, but some sort of fee that's charged for course materials and so on and so forth for the students. Is that correct? MR. PIERCE: Yes, sir. CHAIRMAN LEHMAN: That mechanism could be a mechanism, I assume, for in effect providing licensing for the copyrighted materials that would go through this system. MR. PIERCE: I think it probability could. CHAIRMAN LEHMAN: In other words, part of putting together the course could be of getting the licenses to use the work and then just building that right into your course fee. MR. PIERCE: Mechanically I believe that's possible. Yes, sir. CHAIRMAN LEHMAN: Thank you. Does anybody else have any questions? (No audible response.) CHAIRMAN LEHMAN: Thank you very much. MR. PIERCE: Thank you very much. CHAIRMAN LEHMAN: Next we're going to hear from Fritz Attaway who is Senior Vice President and General Counsel of the Motion Picture Association of American. Welcome, Mr. Attaway. TESTIMONY BY FRITZ E. ATTAWAY, ESQ. MR. ATTAWAY: Thank you, Secretary Lehman, members of the panel. I'm accompanied here today by Bernard Sorkin who is Vice President and Senior Counsel of Time Warner. CHAIRMAN LEHMAN: Would you like to have him come forward? MR. ATTAWAY: He has refused to come down here and sit with me, but if you have any hard questions, they should be directed to him. There he comes. Thank you, Bernie. Bernie is a real copyright lawyer. I would like to start by commending Vice President Gore and the Clinton Administration both for taking this initiative to develop a National Information Infrastructure, and also for recognizing the critical importance of intellectual property protection in this undertaking. Adequate and effective copyright protection is an essential element of the National Information Infrastructure. Without effective protection of the rights of those who create copyrighted works, the wondrous potential communications technology will be delayed or never developed. The value to society of a National Information Infrastructure will depend in large part on the availability of information. The communication superhighway is of little use to society if it does not have large quantities of information on which that superhighway can carry. Faithful adherence to basic principles of copyright protection, as well as the effective implementation of the work for hire doctrine, has helped this country become the largest creator, user and exporter of intellectual property in the world. The economic importance of America's copyright industries is illustrated by the following statistics just recently released by the International Intellectual Property Alliance. The core copyright industries accounted in 1991 for over $206 billion in revenues from their copyright related activities, or 3.6 percent of the U.S. GDP. In 1991, total copyright industries accounted for $325 billion in value-added or about 5.6 percent of GDP. The core copyright industries grew at close to 3 times the rate as the economy as a whole between 1977 and 1991; 4.2 percent versus 1.5 percent. Total copyright industry employment in 1991 stood at 4.8 percent of all employment, 5.5 million people. These industries employed new workers at a greater rate, 3 percent between 1977 and 1991, than any other comparably sized sector of the U.S. economy. And more than three times of the remainder of the U.S. economy as a whole, 3 percent versus .97 percent. These industries delivered over $36 billion in foreign sales to this country in 1991. Preliminary data for 1992 indicate growth of 9 percent to $39.5 billion, an achievement exceeded only by the aerospace and agriculture industries. The motion picture industry alone, as I'm sure all of you have heard numerous times from Jack Valenti and me and everyone else who represents the industry, contributes over $4 billion in positive balance of trade every year. Trade is essential to the production of copyrighted works in this country. Therefore, my first recommendation to you is that the task force participate in the ongoing GATT talks on intellectual property, the TRIPS negotiations. I know that the Patent and Trademark Office has been very much involved in this process. I would urge that this task force also take a role in this because trade is absolutely vital to the continued development of intellectual property in this country and to communications generally. Specifically, I would urge you to support the provision of full national treatment in a TRIPS agreement. This is an element this is lacking in the current text. It needs to be inserted. Domestically, the task force should seek to ensure that the exclusive rights provided Section 106 of the Copyright Act are broadly constructed to cover new uses of copyrighted material made possible by technological advances. One of the great features of our copyright law is that it lays down basic principles in simple language that can be adapted to changing circumstances. It should presumed that the National Information Infrastructure can function effectively under the current structures of the Copyright Act. In most cases the marketplace can and will adapt to ensure maximum availability of copyrighted works within the bounds of the Copyright Act that maintain financial incentives necessary for the creation and distribution of works. Exceptions to the exclusive rights enumerated in Section 106 should be considered only after clear and convincing evidence has been presented that the marketplace cannot adapt under the existing statue to maximize the long-term interest of creators and users of copyright. Turning to the specific questions presented in the notice of this hearing I would like to make the following points. With relatively modest fine-tuning, including the recognition of performance rights for sound recordings, our existing copyright law is adequate to protect the rights of those who will make their works available via the NII. As recommended above, if existing law is given broad application to protect the rights of copyright owners, few statutory or regulatory changes should be necessary. Second, the fair use provisions of existing law do in fact accommodate legitimate user interest and should not be expanded with regard to works available via the NII. To expand fair use at the expense of rights owners would be counterproductive, because rights owners would be discouraged from using the NII. Third, government should avoid to the greatest extent possible the imposition of standards for labeling, encoding, intercommunications, interoperability, licensing, et cetera. The marketplace should be given maximum opportunity to meet the needs of NII users. Fourth, technical means to prevent unauthorized reproduction should encouraged. But use of government mandates should be limited to situations where the marketplace cannot adopt to meet the needs of owners, and users of copyrighted material. And fifth, there's a need for greater public awareness of intellectual property laws and their value to society. Children should be educated at an early age that intellectual property right are as important as other property rights, and this should be a goal of the task force. That concludes my statement. I would be glad to entertain your questions, as would Mr. Sorkin. CHAIRMAN LEHMAN: Thank you very much. As I understand your statement, you basically don't think there is any need for any statutory change at all. MR. ATTAWAY: At this point circumstances may develop as the information infrastructure develops where statutory changes may be necessary. But at this point, other than, as I mentioned, performance rights for sound recordings and some fine tuning, we don't recommend any major changes to the Copyright Act. CHAIRMAN LEHMAN: Yes, Jerry. MR. LINN: A question about your position on standards. What I think I heard is you don't want the government producing standards, but you did not suggest that the industry produce its own standards. Now, is that proper interpretation of what you said? MR. ATTAWAY: Yes, sir. MR. LINN: Thank you. CHAIRMAN LEHMAN: In that regard, is there -- you know, Mr. Linn is from the National Institute of Standards and Technologies -- is there a role for NIST or government to play in helping facilitate that process? MR. ATTAWAY: Absolutely. I'm sure there's a large government role in facilitating the process. I'm just urging that government mandates be avoided where the industry or the marketplace can develop standards on its own, perhaps with greater flexibility than often occurs when one has government mandates. CHAIRMAN LEHMAN: The other question I have is, to the extent that a system that requires interoperability and requires standards to come extent to work, even though they may be industry-developed standards is going to evolve --does that have any antitrust implications? Is there any necessity to develop a mechanism that provides some immunity basically from antitrust concerns in order to develop these standards? MR. ATTAWAY: Secretary Lehman, I am not an antitrust lawyer, nor familiar with the standard-setting activities that may be going on. Perhaps antitrust exemptions might be called for. I'm not aware of any at this time. CHAIRMAN LEHMAN: It's certainly not a problem that you have in your industry perceive that you can't get together and develop these standards right now? MR. ATTAWAY: So far as I'm aware, there's not problem in that regard. MR. SORKIN: That's true, I think. And I think the day may come when because of particular standard-setting devices that are developed there might conceivability be anti-competitive result, in which case a visit to the Department of Justice might be desirable. But at the moment we don't see it. CHAIRMAN LEHMAN: Any other questions? (No audible response.) CHAIRMAN LEHMAN: Thank you very much for joining us. I should add during the break it was -- one of the attendee who wasn't here for the opening comments, said there was some disappointment we we're more vigorously cross-examining some of the witnesses. I want to reiterate what I said earlier, that we're trying to get through the hearing and give everybody a chance to present their presentations. Generally speaking, we're only asking questions of the witnesses who don't use up their whole 10 minutes in their prepared statements. We on the panel are trying to stay within that 10-minute limit as well. But we will have plenty of opportunity for further discussion after the hearing takes place. MS. ROSEN: I don't know what that's an incentive to do. Speak less or longer. CHAIRMAN LEHMAN: I'd like to call on Hilary Rosen from the Recording Industry Association of America. Maybe you can explain why the movie industry is pushing performance rights in sound recording, and you can introduce your colleague too. TESTIMONY BY HILARY B. ROSEN MS. ROSEN: Fritz has always been a wise counsel. His view of the world is a sound one. I will say up front, though, that we may not share some of the more hands-off approaches on some of the technical issues that come today. RAA is the trade association that manufactures, produces and distributes 90 percent of the sound recordings sold in the United States, and about 60 percent of those sold worldwide. We have submitted written comments in advance and so -- CHAIRMAN LEHMAN: Excuse me. Could you introduce your colleague. MS. ROSEN: I'm sorry. Emil Torick is RAA's Engineering Consultant. And since we have some views on standards and compatibility, I thought that it would be useful to have him present. We certain welcome the Administration's efforts to help forge the creation of NII, and particularly for creating this task force under PTO's leadership. The intellectual property issues within NII are really critical for our industry and I want to echo basically the importance that Fritz outlined of this industry to our nation's economic infrastructure, and so I'm going to try and skip over some of those pieces of my statement. Some have said recently that the purpose of the NII is not to figure out the best way to get MTV to kids, but rather a more -- is MTV a bad example these days? It's a little politically incorrect -- but rather a more serious and important use for the exchange of library or reference resources, data for operations in business, et cetera. We certainly agree that there are a variety of loftier goals for this project than entertainment. However, the public will want entertainment, and by most account will invest the resources necessary to help build the infrastructure that assures access to that entertainment. So we think that by working together that we can assure that the NII will be able to serve a variety of needs with this same system. There are other issues I believe, social and cultural, issues that the NII also raises. We're talking, after all, about creative works and art being digitized and accessed. If this is government sponsored, must we consider content, would there be an approval process? While this is not the subject of today's inquiry, I think that these and other issues should be examined for their impact on our country's cultural development. But for today I'll just stick to the subject at hand and respond to the questions that you have outlined in the hearing notice. First, is the existing copyright law adequate to protect the rights of those whose works will be made available on the NII? The recording industry believes that answer is a resounding no. The copyright law is deficient in one major place, and that's the absence of a right of public performance for sound recordings. Under Section 106 copyright owners enjoy several exclusive rights with respect to their creative works. Among these rights is the exclusive right to control the public performance of your work. Every single type of copyrighted work, except sound recordings enjoys this right. So therefore, while we don't think there is any need to create a new type of right, certainly this loophole must be closed. And without this change sound recording copyright owners have no ability to control how, when and in what manner their works are transmitted via the NII. Certainly a right we think is very important. All the recorded music in existence today could be available on the NII. You'll hear I think from Mr. Kenswil next when he talks about the variety and vastness of just MCA Record's Catalog alone and what opportunities that provides for consumers. But at first blush, while this does seem like a tremendous opportunity, in reality it jeopardizes the fundamental infrastructure of the music industry. When a pre-recorded song is transmitted via the NII, the artists who sings the song, the musicians and backup singers, and record companies whose creative and technical contributions and financial investment made that recording possible, have no right to control or receive compensation for that performance. Without amending our copyright to provide for public performance of sound recordings, access to music via NII syphons off, and in our view eventually eliminates, the major source of revenue for investing in sound recordings and obviously the major source of music. Legislation is pending that I would call this task force's attention to that would remedy this problem and I would urge your leadership in endorsing its passage. Issue two. Are fair use provisions sufficient? In short, we think so. Fair use remains an equitable rule of reason with each case decided on its own particular facts. We don't really see at this point the need for statutory alternatives, although some interesting examples have come up this morning. Issue three, encoding. We believe that it's in the interest of both copyright owners and NII consumers for transmitters to identify copyrighted works. There has to be a commercial incentive to disseminate these works. And perhaps it's a little easier for those of us in the sound recording industry to take this view because potentially, unlike most other copyright industries, we actually have a system in place that would do that identification. It's called the International Standardized Recording Code. It's a series of characters that are embedded in the digital subcode of a recording that will identify the country of origin, the owner of the recording, the recording code and/or the recording item or title. This system is currently being implemented nationwide. It's conceivable that the marketplace alone may dictate that these codes be transmitted via an NII type system even if the government doesn't. But we certainly think its existence in the digital subcodes of audio recordings is something that the government should be aware of, and you should factor into your consideration as you deal with the issues of standardization. Issue four, the compatibility issue. We have a lot of experience in our industry with incompatible systems, and so perhaps that's why I sit here and urge you and take more of an active role in assuring compatibility. The proposed merger of telephone and cable companies, as well as the strategic alliances among programming communications companies, are all aimed at serving a part of this electronic highway. But compression systems that may be employed by these entities are currently incompatible, that at a minimum some significant measure of liaison and coordination we believe is required by the government. It's certainly, in our view, unlikely that NII would ever achieve its full potential until such standards are developed which would encompass the varied user requirements over the full spectrum of telecommunications, computer and entertainment industries. Those standards simply don't exist today. In multimedia applications we have CD-ROM, CDI, CD-graphics, CD-FMV, all of which are incompatible systems. No interface standard for communication between them has been developed yet. In digital audio alone for consumer formats we have a digital compact cassette that's using one compression system called PAS. The mini disk that's using another compression system called A-Track. High definition television sound is going to use a third compression system. And digital audio radio systems which are now under consideration by the FCC are considering two additional ones. We suggested in our written statement that there are a variety of organizations that should be consulted and coordinated with to discuss these standards issue. I think that Gary Shapiro from the EIA could also address some of that later. But in sum, we urge you to take an active role in that. Fifth, the licensing systems. Ultimately, we believe the marketplace should dictate licensing systems. We think that it's really too early to tell what kinds of licensing systems will be required in the marketplace. And we do believe that some antitrust protection may be needed for those licensing systems to effectively serve the number of users that could potentially be required with this infrastructure. Seven. The technical means for presenting unauthorized copy. This is another area where frankly the recording industry has had some experience and some unsatisfactory experience. The Audio Home Recording Act did require implementation of the serial copy management system. We believe that's a worthwhile system, but frankly it's too early to tell whether the plethora of interfaces in consumer audio electronic equipment actually will contain compatible interfaces that would allow that system to be effective. We simply think this is something you should consider and certainly transmitters who will take responsibility for moving data across the NII in our view have a huge responsibility to assure unauthorized uses are not a problem, as well as protections against piracy. And I think that perhaps setting general guidelines in that area may be as far as you need to go. Finally, we think education is certainly a worthy goal of the NII. And while we don't have any particular initiatives, we would be ready to work with the government in any way that you chose. Thank you. CHAIRMAN LEHMAN: Thank you very much. I'd like to ask a brief question which I think does relate to your industry. And that is, which is what the first industry did, confront this in the context as what's known as sampling. But the NII opens up and the associated technology open up the possibility of a kind of interactivity which we have not traditionally had in the use of copyrighted works in which individuals will in effect will oftentimes create others works from pre-existing works. And sometimes these other works in fact may need up being published, it may be marketable, it may be hard sometimes to trace back whether or not their derivative works trace back the genesis particularly if a computer code is in a sense scrambled up. Is there a need in your view to consider this sort of special problems that are created by the interactive nature of the digital environment and the problems that are associated with creating derivative works? MS. ROSEN: Sampling has become a standard practice in sound recording these days. For the most part when artists' works are sampled, they're either acknowledged to have been so by the producer, or they're discovered by somebody within the record company who is producing the work. It's clear that as you take smaller and smaller pieces of a work, it becomes more and more difficult to identify it. And the system of licensing that occurs with sampling today is in some respects a disorganized one. Its a private transaction to a private transaction. I guess the short answer is I'm not sure. Perhaps Mr. Kenswil, as a practitioner of licensing, would have some more views on that. CHAIRMAN LEHMAN: Thank you very much. Did you something? MS. BERNSTEIN: In your testimony you were talking about how you would want the government to ensure the mandatory transmission of codes which identify certain works. My understanding is that there is an industry standard which pretty much everybody is using that you described that the government was not involved in. I'm wondering why there is now a need for the government to get involved in ensuring that these codes are in works, whereas there was a voluntary industry which is already is being used now and it seems to be working. MS. ROSEN: It's a good question. Currently the codes are being inserted, but essentially aren't being used. I mean, there's really not much purpose for them except the development of some consumer hardware that may have digital readouts as to what title and the like is playing. As I said, I had to back-paddle back some from the written statement, because as I read I see that the marketplace may well dictate that transmitters have an incentive to transmit copyright identification. Unfortunately, I think in an area where there's an area to subvert information, where there's an incentive to use unauthorized distribution, or unauthorized piracy, the ability to recognize that a work is copyrighted may be of some value. MS. BERNSTEIN: Why would it be incumbent on the transmitter of information to provide this service rather than on the creator or the publisher of the work to provide some kind of protection? MS. ROSEN: Well, I suppose I should clarify. MS. BERNSTEIN: If you're going to put something on the network, and you're a publisher or something, it seems to me that it's incumbent upon you to notify people what the proper use IS and to take precautions to protect your own work rather than to require, say, the phone company to do it for you. MS. ROSEN: I suppose this gets back to the issue what exactly the system of this NII will be, and it's something different to everybody. We are assuming that a variety of situations could occur where record manufacturers are simply in essence wholesalers to a transmitter, essentially licensing or selling works to somebody who then is responsible for conducting a transaction with the consumer. It's possible that there would direct transactions between manufacturers and consumers. Either way I think that when you have a system of subcodes, as opposed to things that basic music as relied upon, somebody could at their will essentially strip off the subcode information. And so you could get the music without getting the subcode information. So unless there's an incentive to distribute that subcode information, it may not necessarily happen. MS. BERNSTEIN: If there were a technology, though, that would allow the fixing of these codes that it would be difficult to strip them off -- I don't know, some kind of encryption scheme or some kind of other technical means where it would be difficult to strip that information off, would that satisfy your needs? The publisher or the recording industry could cut a deal with the transmitter rather than having to have the transmitter and the user of the work together. I seems to me that there are ways for publishers to protect their works rather than -- that the technology may make available certain means for publishers to protect their works rather than the transmitter. MS. ROSEN: I think that's a fair point. Unfortunately, I agree with something that was said something earlier which is that for every technical system to prevent something if there is an incentive, somebody will come up with an alternative way to access that information. And so I guess I have less confidence in a series of technical sort of means to stop a transmission than I do in some broad based guidelines about information standards. MS. BERNSTEIN: In which case then it's incumbent upon the user to understand -- I mean, then they're breaking the law essential. I mean, if they strip off the encoding, they're breaking the law and there is a mechanism for fixing that problem, which is to sue. There seems to be mechanisms already in place. I'm trying to get at what is it that's new about this technology that requires something new that we're not already doing now. MS. ROSEN: First of all, there's not necessarily a law that would allow any individual copyright owner to go into individual homes. Theoretically you could do it, but it's an impractical level of enforcement. I think that the value of consideration in mandatory inclusion is simply that it provides a level of identification that's broader based than you have now. It creates a system of information that has value. CHAIRMAN LEHMAN: We probably need to move on. I would like to follow-up on something maybe in the written comments, and that is the issue of possibly a modest amendment to the Copyright Act that would make it clear that when one engages in a commercial activity the primary purpose of which is to abet infringement, that that indeed is infringement. That may be unclear in the law right now. That might go to Ms. Bernstein's issue that she's just raised. MS. ROSEN: And it's certainly something that's applicable to copyright owners across the board. Computer software would have exactly the same issue. CHAIRMAN LEHMAN: Thank you very much. MS. ROSEN: Thank you. CHAIRMAN LEHMAN: Next we're going to here from Mr. Lawrence Kenswil, the Vice President for Business and Legal Affairs, MCA Music Entertainment Group from Universal City, California. TESTIMONY BY LAWRENCE KENSWIL MR. KENSWIL: Good morning, Mr. Secretary and the Working Group. And thank you for allowing me to speak here today. My name is Lawrence Kenswil. I'm the Senior Vice President for Business and Legal Affairs for the MCA Music Entertainment Group which includes MCA, Geffen and GRP Records, MCA Music Publishing and other concert and merchandising companies. My testimony today focuses on what the NII might mean to those companies. I can state unequivocally that our primary concern is to ensure that the legal framework is in place to protect the copyright owners whose works will be available on the NII, and to provide an efficient means for delivering those works to the public. It is proper that the first question raised in the announcement for this meeting is whether existing law adequately protects the owners of the intellectual property that will be available on the system. As you have heard, or answer is no. There is not public performance right for sound recordings in the United States. The NII will provide users under a variety of transmission scenarios with a readily accessible source for all types of information. It is reasonable to assume, and in fact desirable, for entertainment products to be available to consumers as well. Indeed, every piece of recorded music could be made available to the public via the NII. The realities of the marketplace currently make it impractical and uneconomical to distribute each and every sound recording my companies control. And even if we did manufacture and make available in our catalog every record we own, no retail store would be large enough or maintain warehousing facilities flexible enough to inventory those recordings. But the NII may be the Holy Grail for lovers of recorded music. Without the need to duplicate, ship, warehouse, and display copies of the record, one can easily foresee a system that would catalog and offer to the public every recording in existence. MCA alone possess hundreds of thousands of master recordings and we produce thousands more each year. Without changes to our copyright law, however, it would also be the death nail for my industry. Every category of copyright work, save one, carries for its owner in its bundle of rights and exclusive public performance right under Section 106 of the Copyright Act. That one, of course, is sound recordings. All of those other copyright proprietors have the right to chose whether and under what conditions their creative works will be made available to users, including on the NII and elsewhere. However, under current law, MCA and all other record companies will not be so fortunate. Until the copyright law is amended to provide sound recording copyright owners a right of public performance, a service provider on the NII will simply be able to procure one copy of our copyrighted works and then transmit them to millions of users at the touch of a button. It is difficult to image a more bleak future for our company and for the artists who create the works. What would be the financial incentive for any record company to invest hundreds of thousands of dollars to produce a recording when the finished product could be made available on the NII without permission? We spend anywhere from $100,000 to well over $1 million to produce and market each record album we release. This investment is especially significant when one considers that a small percentage of all records ever made back their cost production. I know we all agree that no one will be willing to make such an investment if the ability to make a profit is eliminated. And more basically, how could we sign a recording artists in the first place if we cannot offer them financial rewards for a successful recording? As a business person, I see technology rapidly changing the face and the underpinnings of the marketplace. While advancements in technology normally directly benefit my industry and have usually been a welcome sight for intellectual property owners, without legal protection for our sound recording copyrights technology destroys the industries it should benefit. We must ensure that the copyright law keeps pace with those changes. As we speak, two digital cable audio services are in operation in cities and towns across our country. These companies provide subscribers for about $10.00 a month up to 40 channels of commercial-free CD quality music delivered over cable and into the home. These services need buy but one compact disc to enable the transmission of the music on that disc to each of their customers with no degradation of sound and no permission from or compensation to the copyright owners or recording artists. This situation will be compounded as compression technologies allow expansion of channel capacities from dozens to hundreds. One does not have to be a seer to envision each of the top 20 records of the week having their own channel being repeated over and over again 24 hours a day, available at any time to anyone who wants to hear them. It is only a short step from there to pay-per-listen, digital downloading on demand, and most likely through the NII the celestial jukebox. We must correct the inequity in the copyright law and provide performance rights in sound recordings. Once the law has been amended in this record, the NII will be a tremendous opportunity for our company to make a broad category of music available to a wider audience than is now possible. So we just don't understand the rationale for treating sound recording copyrights any differently than all other copyrights. I call the Working Group's attention to legislation currently pending in Congress, House bill 2576 and Senate bill 1421. Passage of this legislation is essential of the establish of the proper legal framework for the recording industry to function in the NII future. And I urge the Administration to lend its support for this critical legislation. In closing, I realize my comments are focused on the singular point of creating the necessary statutory framework before moving forward with the NII. But frankly, there is no greater issue for the MCA Music Entertainment Group and the recording industry. If the NII comes into existence without this change into our copyright, we will see the demise of one of America's most creative and successful enterprises. Thank you for the opportunity to present my company's views here today. We enthusiastically support this initiative and its promise of bringing a new age of opportunity to business and access to the consumer. And we greatly appreciate being given the chance to be part of the process. Thank you. CHAIRMAN LEHMAN: Thank you very much. Are there any questions of the panel? (No audible response.) CHAIRMAN LEHMAN: Do you want to comment about some of the questions that we asked Ms. Rosen? She indicated, for example, on the sampling issue that you might be more knowledge about that. MR. KENSWIL: Sure. CHAIRMAN LEHMAN: Is there a need to deal with that issue in this new NII/digitize world? MR. KENSWIL: The sampling problems in my industry has really created a quagmire creatively and legally. I haven't really thought through whether this would make it worse or better. It certainly should have the opportunity of making it better. I don't know how it could make it worse. Unlike other copyrights, the digital availability of sound recordings is there for anyone who wants them just by buying a CD. I think the problems of sampling are going to become obvious to other types of copyrights, specifically, audiovisual works, as they are digitized and made available to consumers for the first time. Perhaps ways of identifying the work and making that somehow stick to just even portions of the work could help us identify samplers and facilitate the licensing mechanism. CHAIRMAN LEHMAN: That's really I guess the issue I was getting to. I think you've properly pointed out that this is an embryonic problem, but in a digital world it is very possible -- and in a world in one of the major advantages of it is interactivity in the capacity to create new works based on old. Obviously, if the integrity of the copyright system, the intellectual property system, is to be maintained there have to be licensing mechanism. And you've indicated that already in this very narrow area of digital sampling in the sound recording industry there is chaos apparently. So this is, I think, a concern that we'd like to look into a little more and see if there isn't some way of addressing it. MR. LINN: A question regarding -- your concern is digital broadcast, if I understand it properly. And yet your industry has survived with analog broadcast industry for as long as there has been radio waves on the air and people had receivers. How is it that the change from an analog medium to digital medium threatens your industry precipitously? You've already adopted digital media, CD-ROM as an example, or CDs as an example. So why in change of encoding, because that's all we've done when we go from AM to FM to digital transmission, is your industry threatened? MR. KENSWIL: The industry is threatened in two respects. One is the inherit nature of the digital sound being pure with no generational loss to the consumer. So that the problem of the consumer achieving the recording and not having to buy it becomes exacerbated. The greater problem, however, is access on demand or at will by the consumer. When and where they want to hear it. They don't have that now with radio. They turn on the radio and whatever the radio station plays is what they get. The new system in the new world will basically allow them to hear what they want when they want it, and that could well replace sales. CHAIRMAN LEHMAN: Isn't that a distribution, and one of the exclusive rights that you now enjoy under Section 107 of the Copyright Act is the right of distribution. You do enjoy that even though you don't enjoy a public performance right. So aren't you moving from there from public performance to distribution; therefore, you would have exclusivity? MR. KENSWIL: Well certainly it starts to sound like a distribution. However, if we're going to draw a line between performance and distribution and say if you're on one side of it, it's a distribution; and if you're on the other, it's a performance. And if we maintain performances are free and distributions you have to pay for, then there will be an incentive for people for people to cloak what is essentially a distribution as a performance by somehow trying to get it just over the line into performance. And all that will do is it will encourage many lawsuits and years of litigation to figure out what everyone's rights are. I just don't see the need for engaging in that when we can simply protect sound recordings in the same way we protect all other copyrighted works. And you don't have to draw that line in the law. CHAIRMAN LEHMAN: If there are no other questions, we'll move on. Our last witness of this morning, who I'll assume we'll hear quite a different point of view from, Mr. Richard Ducey who is Senior Vice President and Director of Research and the Information Group for the National Association of Broadcasters, and Ben Ivins, Assistant General Counsel for the National Association of Broadcasters. TESTIMONY BY RICHARD DUCEY, Ph.D., AND BENJAMIN F.P. IVINS, ESQ. MR. IVINS: Thank you, Commissioner Lehman. My name is Ben Ivins, I'm Assistant General Counsel for the National Association of Broadcasters. With me today, as you said, is Rick Ducey, Senior Vice President of NAB's Research and Information Group. Mr. Lehman, let me begin by commending you and those others in the Clinton Administration responsible for creating the infrastructure task force. I think the mandate that the task force has established, for both itself in general and for your Working Group in particular, is daunting and formidable. On the one hand you are to promote universal access and the dissemination of information to all Americans, rich and poor, and to those highly educated and to those in need of being educated; on the other hand, your mandate is to ensure the integrity of intellectual property rights and copyrights in information and entertainment products. To be candid at this juncture NAB is nowhere near the point of coming up with the proposed solutions to many of the vexing questions your Working Group must confront. Indeed, we profess not even to have thought probably of all of the questions. Nevertheless, with that caveat, we would like today to give you a two-part presentation of some of NBA's preliminary view on the role we see broadcasters playing with respect to the NII and some of the copyright implications regarding those activities. First, Dr. Ducey will provide you with a synopsis of some of the challenges and opportunities broadcasters foresee will be provided by the advent of digital and compression technologies. And then I will provide you with some of our thoughts on the copyrights issues relating to these developments. MR. DUCEY: Thank you. Good morning to the Working Group. I'm pleased to be here and offer some brief comments on broadcasting as it faces the digital NII age. I think if you pause to consider how people actually consume information, broadcasting is clearly part of the information infrastructure already. In fact, more of the bits pumped into the average home or car or many other places in society these days are broadcast originated. So much of the bit consumption, even though it's transmitted in an analog format, the information and entertainment content is broadcast originated. Certainly there is a lot of television programming consumed and a lot of radio programming consumed in our society. The impact of digitalization in the broadcasting industry -- I think the parameters of that we're trying to explore and understand, and certainly we see a lot of advantage in that. Both radio broadcasting and television broadcasting are leaping one way or another into the digital age in terms of signal format at the transmission level and well in the production and reception level. More intelligence is being added to the process in consumer receivers. For digitalization and its impact on broadcasting there are a couple of different dimensions I think that are important to broadcasters. One is compression. With the same spectrum now more intelligence, more information content can be transmitted from once place to another. Another important factor is at the reception end with smarter receivers, digital receivers of various kinds being built and installed by consumers in various locations. There is a lot more opportunity to receive, store and use those signals in various ways. I think for broadcasters basically this is being viewed as an opportunity to expand our traditional range of services, information and entertainment services; enhance what we have already, the traditional services; and expand into new, different kinds of services. The broadcasting industry is different than other parts of the telecommunications infrastructure in that we operate under a policy of universal and free service. We serve as a statutory mandate in the public interest, convenience and necessity. That, again, makes us a little bit distinct from other kinds of communications media. As part of the National Information Infrastructure, radio and TV broadcast facilities serve essential roles in matters of public safety and emergency communications. We also serve a broader social interest in informing and entertaining the public. By drawing upon different kinds of advances and new technologies, radio and TV broadcasters will provide to the public not only these traditional kinds of radio and TV programming services that we most often associate with broadcasting, but also, again, on the universally-available basis, mobile basis, in addition to the commercially-supported free to the consumer services, other kinds of new advanced services, more kinds of data communications than certainly are being provided over broadcast facilities. Things like electronic mail, video mail, paging services, fax services and various kinds of signalling and telemetry services. A number of these kinds of services are available in a small quantity now using existing broadcast facilities. In fact, I believe even tomorrow there is a committee of National Data Broadcasting Committee working to come up with a standard to provide an additional 1.5 megabytes per second using traditional analog TV broadcast signal. By moving into a digital domain, a normal TV signal in that 6 megaHertz spectrum can be increased to perhaps 20 megabytes per second broadcast over the air. With compression that could yield a lot of different opportunity for moving information through the airways. From a broadcaster's perspective, we truly hope that the National Information Infrastructure is truly technology-neutral, that broadcasters aren't counted out in the deliberations and proceedings and how the infrastructure is envisioned by your group, as well as other groups. Broadcasters look forward to expanding not only on the traditional platform of services that are now made available to the public, but also entering into new markets, new information and data markets on a competitive basis. Unless there are questions, I'll stop here and let my colleague, Ben Ivins, take over. MR. IVINS: Thank you, Rick. From an intellectual property perspective, I think the broadcasters are interested in this proceeding both as prospective copyright owners and users. Accordingly, we look forward to actively participating in this particular Working Group's activities. The cornerstones of American Broadcasting System have and will continue to be universal access, localism, and providing viewpoint diversity. These principles have served both broadcasting and the American public well through the years, and their preservation will be the basis upon which NAB develops its policy with respect to the NII. To the extent that the NII serves to advance these principles, NAB will support its development. To the extent the NII appears to threaten these principles, for example by creating a society divided into those who have educational and financial means to gain access to the NII and those who do not, or by creating info-monopolies that can limit access and control viewpoint diversity, NAB will raise objections and concerns. Historically, significant changes in U.S. copyright law have resulted only through a process of negotiation, compromises, building of consensus where possible, and a balancing of interest among affected parties. There also has been a bias against such changes absent a significant showing of need by those proposing them. Because copyright law has been viewed as a seamless web of compromises and interest balancing among many parties, revisions usually have been general and systematic as opposed to piecemeal to avoid upsetting the delicate balance of interests. While the advent of digital technology and the creation of the NII may or may not warrant changes in the copyright laws, NAB sees no need or justification for departing from the above-reference time-tested approach to considering any such revisions. We commend the infrastructure and the agenda for action for seemingly to adopt this approach of considering all of the aspects of intellectual property and the implications simultaneously. While NAB recognizes that conversion to a digital world and implementation of the NII may require revisions to intellectual property laws, we also see a danger in the attempt by some to use the spectra of these futuristic developments to justify premature, overly-broad and indiscriminate changes to such laws. There is nothing inherent in the digital technology which necessarily demands an immediate radical departure from existing copyright principles. Rather, it is the way in which that technology might be deployed and ultimately used which may give rise to the need for changes in intellectual property law. Thus, for example, a broadcaster's conversion to a digital mode of transmission merely to enhance signal quality over the air or by wire as part of a free ubiquitous service and would not, in and of itself, justify a change in current copyright law regarding performance rights in sound recordings as applied to broadcasters. To the extent that digital technology or deployment of the NII facilitates unauthorized uses of a broadcaster's signal, such as copying of sound recordings or other portions of the signal for commercial gain, the remedies must be targeted to the unauthorized user. In testimony earlier this morning you heard representatives of the recording and motion picture industries urge this Working Group to support pending legislation that would create a sweeping new exclusive public performance rights and sound recordings transmitting by digital means, including broadcasters that transmit in digital. We would strenuously urge you not to endorse this legislation in its current form for several reasons. First, the creation of a such a sweeping new right could profoundly and adversely affect the interests of broadcasters, composers, publishers and the listening and viewing public and would upset the delicate balance and systems of remuneration among these groups. Second, proponents of the creation of this new right have failed to meet their heavy burden of justifying why it should be applied to all broadcasters transmitting sound recordings in any digital format regardless of whether they in fact pose any potential or actual threat to sound recording sales. And thirdly, in this regard, they tend to lump together all of the digital transmissions regardless of the threat to sales. I notice my time is up. In my written comments I have given several specific suggestions relating to some of the questions that you asked. I would be happy to expand or elaborate on those either now or in subsequent written comments. CHAIRMAN LEHMAN: Are there any questions that the members of the panel have? (No audible response.) CHAIRMAN LEHMAN: I was interested in your role in educating the public. One of the issues that we've raised is public education about intellectual property. It occurs to me that broadcasters certainly do, from time to time, educate people about the need to exercise precautions in the health and safety area. Maybe we could work with you on public interest programs to educate people about intellectual property rights. MR. IVINS: We would be more than happy. That was in my prepared remarks. We would be happy to consider that, again, as a free, ubiquitous service. I think we would be in a unique position to provide that kind of education. CHAIRMAN LEHMAN: If there are no other questions, we will adjourn and we will return in a little less than an hour, at 1:10 we'll start up again. (Whereupon, the public hearing in the above-referenced matter recessed, to be reconvened at 1:10 p.m. this same date.) A F T E R N O O N S E S S I O N (1:17 p.m.) CHAIRMAN LEHMAN: Next I would like to call Mr. John Masten, Executive Vice President of the New York Public Library. TESTIMONY BY JOHN MASTEN MR. MASTEN: Good afternoon, Mr. Chairman and members of the Working Group on Intellectual Property. Thank you for the opportunity to testify today. I am John Masten, Executive Vice President of the New York Public Library and my comments today reflect the perspectives of this unique institution. The New York Public Library is a private not-for-profit corporation with a public mission. Founded in 1895 it is a network of 86 libraries consisting of four world-renowned research centers and 82 branch circulating libraries in the neighborhoods of Bronx, Manhattan and Staten Island, with 6 million users annually in those branch libraries and over 1 million in our research libraries. Those research libraries, with holdings of more than 38 million items representing more than 3,000 languages, are the only comprehensive research facilities in the United States other than the Library of Congress that are freely accessible to the public. Mr. Chairman, the founding of American public libraries arose from the same commitment to enlightenment, the broad dissemination of knowledge, and the encouragement of learning and creativity that lies behind the concepts of copyright and patents. The U.S. Constitution gives the Congress the power, in the words that we all know, to promote the progress of science and the useful arts by securing for limited times to authors and inventors the exclusive right to their respective writings and discoveries. This is meant, not only rewarding the creators, but also fostering and ensuring public access to their work. For example, the system of depository libraries for U.S. patents, of which the New York Public Library is just one, is intended not only to inform the public which devices have the protection of patents, but to increase access to ideas and advances in technology and promote their development and contribution to the economic life of this country. Public libraries and the free flow of information are in fact key contributors to creativity in America, the creation of ideas and products. The New York Public Library has always embraced that role. The doors to our collections have been open to all regardless of the means or the affiliation of the user. Inside our doors, countless great books and works of art have been researched. And in our reading rooms, inventions from the Polaroid camera, xerography, to even SoHo soda have been developed. In a more anonymous, but equally important way, the small businesses that use our science, industry and business library daily find access to market information or technology updates that immediately benefit their operations and products. A letter from one of our users speaks to this clearly. "Our success is directly related to the science, industry and business library's CD-ROM center. It has given us the ability to find the right companies and their key personnel in an extremely efficient manner. And since our product increases the sales of our clients' products, the New York economy is helped two-fold." The New York Public Library and other libraries have in the past been able to ensure public access simply by keeping their doors open. Access has meant on-site access to each institution's individual collections. In a predominantly print environment, the fair use doctrine and other provisions of the copyright law pertaining specifically to libraries, have supported the public library's mission of open access to knowledge and information. Now, like all libraries, we are planning for explosive growth in the digital network transmission of information. It is clear to all of us that in this new digital environment, old concepts, including copying, publication and distribution, lose their original meanings and must be reworked. But substantially revising the system of intellectual property rights opens up anew the critical question of balance. On the one hand, a system to manage intellectual property rights must foster creativity by helping to ensure that creativity will be rewarded. On the other hand, if property rights become too rigid, they can restrict public access to the ideas that spark creativity and growth. A system that does not accomplish both ends, to use the words of the Constitution again, cannot promote the progress of science and the useful arts. I would like to make several suggestions about what is desirable in the revision of intellectual property law and practice, suggestions which are grounded in our experience at the New York Public Library. First, the fundamental public good of democratic access to information, a foundation of our economic, political and cultural vigor, must be at the center of that revision. It would be a terrible irony if after having secured open access to the world of ideas through public libraries across America, this country could find no fair or reasonable way to secure that same access to information on the National Information Infrastructure. At the New York Public Library, for example, much of the promise and public benefit of our expanded science, industry and business library that will open in 1995 will be at risk if the network cannot be used to extend off-site a wide range of our services and databases for small businesses and individuals. Second, focusing directly on the importance of democratic access may be a better guide than relying entirely on adapting the copyright concept of fair use to the networked environment. This is not the say that the doctrine of fair use has not played a critically important role in protecting the process of scholarship and learning through the nation's libraries. But the potential of network software to monitor and to record all uses of a proprietary databases is very likely to lead, as it has in fact site-by-site, to separate individual contractual arrangements between owners and users that fall outside the copyright law entirely and make in effect an end run around the concept of fair use. Also, fair use, as free use, implicitly, offers little practical guidance in those cases where network access is found to put potential markets for intellectual property at risk. Third, as a single library, the New York Public Library has been able to secure for our users on-site access to a wide variety of proprietary databases. The costs in site license fees are significant for us, but manageable. But the cost of compensating the owners of those databases by opening them to access through a regional or national network would clearly be prohibitive for us as one institution. Unless some viable mechanism can be found, for example, the creation of a subsidy in aid of public access or the building of a consortium of institutions to carry the cost, it is precisely these proprietary databases, often in high demand because they're the most current and well-edited sources, that will not be available via the network except to paying customers. Two classes of users would be created, the information rich and the information poor. And to put it in a more traditional context, it would be like saying that public libraries cannot offer free consultation of reference books unless they are out of date. Finally, requiring or building into the network a single standard licensing system would be a mistake. It should certainly not be done just because it may be technically feasible. It is important, I think, to leave as much room as possible for individual owners of property rights on the one hand and libraries or other users on the other to negotiate agreements at arm's length that seem mutually beneficial. And it is important to recognize the wide variety of network environments in which these negotiations will occur -- from state-wide or regional networks to academic campuses and to low-cost community networks or free-nets. These environments are highly unlikely to share a single best solution. Moreover, experimentation is valuable. It can surprise us and teach us in which context there may become an interest uniting owners and users. A number of promising models for balancing the interest of owners with a concern for democratic access are in fact developing, including those which give deferential treatment to the hierarchy of uses of material from reviews of contents on to the transmission of full text. It would be a terrible waste of the ingenuity being brought to bear on these issues across the country to impose a single government approved form of licensing. Mr. Chairman, to return to where we began, adapting intellectual property rights to the network environment will continue to require a thoughtful balance in this new setting of two competing and familiar public policy concerns --rewarding the talent and effort that creates intellectual property and ensuring that it is accessible to all. Giving either concern short shrift will betray the promise of the NII and diminish the richness of the resources it can offer to all Americans. Thank you very much. CHAIRMAN LEHMAN: Thank you very much, Mr. Masten. I want to personally commend you on what I think is an excellent statement of the problem of the NII as it relates to libraries. Obviously you haven't given all the solutions, but I think you've very, very much outlined the nature of the problem and the issues. I think particularly your distinction between fair use and democratic access and the hierarchy of users, I think that is extremely helpful. We would very much like to work with you as we formulate policy. MR. MASTEN: We appreciate that. CHAIRMAN LEHMAN: Thank you. Are there any questions for Mr. Masten? (No audible response.) CHAIRMAN LEHMAN: Thank you very much. Next I would like to call Gary Griswold, President of InfoLogic Software of Troy, New York. TESTIMONY BY GARY N. GRISWOLD MR. GRISWOLD: Thank you. Please accept my compliments for organizing task forces on the critical issues of intellectual property privacy in government information. I am very grateful to the committee for this opportunity to present testimony. I come to you as a software developer who has been working on a license management technology which I believe is suitable for the National Information Infrastructure. Our report was submitted last week. At this time I can only give the briefest synopsis of that report. Regarding public libraries, I wanted to make special note of the fact that the concepts of metering are not at all incompatible with having a free public library that is a digital electronic library. Having metered transactions can be the basis upon which you in effect check something back into the library. I'm diverting from my notes here. But you can have an electronic library where something is checked out for, say, a couple of weeks. At the end of two weeks the access to that can be terminated even though it resides on the customer's machine. That's the tricky problem. Then the use of that same piece of information can again return to the library. That would be a way of having a free electronic library where you're using concepts that people might think of metering concepts, but in fact can be used to provide free electronic information. A variety of alternatives have been proposed to deal with copyright protection. Some have proposed using national site licenses. This may work for some scholarly information. But will a method based on planned economics work in the competitive aspects of our market economy? Statistical sampling is used effectively in the music industry. Could it work in text where there are wide variations in product pricing to reflect differences in quality and demand? Advertising works well in television. If no other solution is found here, it may be on the NII as well. The personal computer software industry uses no protection. Many think the same approach will work for information. However, at least one study indicates that the complexity of software makes piracy advantageous to the seller by increasing the base knowledge about the product. Does electronic information have the same requirement for complex knowledge of the product to pull demand? Much electronic information is currently sold with only centralized control at the point of access and no control after the information is distributed. Will this work when information is redistributed at gigabyte speeds? Finally, a number of methods of decentralized control have been proposed. Most are hardware methods. Will hardware vendors willingly add the cost of such devices to computers they produce? The solution I've been working on is a distributed software method which uses encryption to ensure that information is only accessed through the licensing system, uses the network to communicate access events and uses trusted servers to authenticate access to the information. This method can be used to enforce site licenses by preventing access off-site while at the same time allowing the sharing of information on-site. It can also be used to limit the duration of use analogous to the returning of a book to the library. It can be used to implement an electronic subscription by providing an unending duration of use of the product on one machine. It can also be used to meter and charge for each use of the information. It can be used as a way to transfer information between people. In the paper world you can go to the doctor's office and pick up a magazine and you haven't violated copyright. You can give a copy of your magazine to someone else and you haven't violated copyright. The same provisions need to work in the electronic world in order for information to be fully usable. And such a means of centralized control to access to the information would provide that flexibility. In my opinion the selection of any one method is premature at this time. Electronic copyright suffers from controversy and strongly-held diverse opinions. Unfortunately, precious little has yet been done to test any of these methods in the marketplace. My recommendations for further study include national site licensing, statistical sampling, and distributive control using networks and encryption. In 1991 the HPCC Act contained language requiring the N-RAN to protect copyright. One year after the signing of the bill, the Director of the Office of Science and Technology Policy was required to report to Congress on key issues pertaining to the HPCC Act. On the subject of copyright he reported there was no known solution. The Grand Challenges Report published by his office did not specifically mention copyright protection as a research issue, but did give the National Library of Medicine responsibility for research in bibliographic information retrieval and gave the National Science Foundation responsibility for research into computer security. From conversations with administrators of the National Library of Medicine, I've been able to verify that no work in copyright protection has been funded there. Through an electronic search of National Science Foundation grants, I have not been able to identify any research on electronic copyright protection funded by them. In H.R. 1757 Act, the National Information Infrastructure Act, the National Science Foundation -- I should qualify that this is the version I had at the time --the National Science Foundation was assigned funding responsibility for general issues, including copyright protection. The National Science Foundation grant applications are usually reviewed by university faculty. I wonder whether the information industry represented here believes that their concerns will be well understood by that group. The H.R. 1757 Act also assigns funding responsibility to NASA for work on digital libraries. Yet NASA considers all of the information they produce as public domain and not requiring protection or protection schemes. Considering their policy of only funding research they expect to use, it seems unlikely they will fund work in copyright protection. I respectfully suggest that everyone recognize the uniqueness of this problem and identify a group to be responsible for research funding. I personally believe that the Department of Commerce is uniquely qualified on the basis of these hearings and on the basis of the expertise in the Patent Office and in NIST. Thank you very much. CHAIRMAN LEHMAN: Thank you very much for your oral statement and for a very thoughtful written statement as well, which I think will help us a great deal. Questions? (No audible response.) CHAIRMAN LEHMAN: Thank you very much for coming down. Next I would like to call Robert Kahn, President of the Corporation for National Research Initiatives. Welcome, Dr. Kahn. I had a meeting the other day with the Librarian of Congress, James Billington, and we were talking about --speaking of libraries -- about the issue of digitizing libraries and computerizing the copyright registration process and so on. I know that you have been very much a part of that effort. Maybe you can help shed some light on all of these problems that we've been discussing with librarians and others. Welcome. TESTIMONY BY ROBERT E. KAHN, Ph.D. DR. KAHN: I'll do my best. Thank you, Mr. Secretary. In conjunction with that, I've submitted for the record a description of the system that we're in the process of developing with support from the Department of Defense, which I believe is applicable to a wide range of purposes that I think your committee would be interested in, including electronic management of copyright in the network environment, the management of confidential or proprietary information that is not subject to copyright, such as patent filings and contracts and licenses, the negotiation of licensing arrangements of various sorts and royalty payments associated therewith. We are currently applying this technology in the context that you just mentioned, namely to the problem of electronic copyright management in the network environment with the support of the Library of Congress. We plan to do our first demonstration of that in approximately a month. So we should be able to show how that kind of system could be able to be worked. In addition, we're applying that same system in conjunction with a number of the leading universities in this country in conjunction with the great literature that they're developing. I think that's going to be an interesting development as well. We expect several literary organizations possibly to join in. I believe that this is a particularly interesting development, both for this committee and for the NII in general, which we plan to make available to the government since it's supporting this effort in the first place, for its use in conjunction with the dissemination of protected works in the NII. I think it's also going to turn out to be particularly important in conjunction with commercial transactions in the NII which require some form of control of that particular material. I need to say that we're not trying to address the issues of protection for transmission through encryption or other similar transmission protection means because many other groups have addressed that or are addressing that. But this system does deal particularly with issues of computer applications where access by programs to unencrypted data at some point is essential. I think it's important to note that the computer network environment is absolutely going to involve the use of computer programs of many different types. Many of those will be programs into which may be incorporated other copyright related works. The resulting programs may themselves be works protected by copyright. I believe that the protection of the rights in these programs needs to go beyond the right to simply reproduce or distribute them. It would be especially important, I believe, to consider the right to execute or otherwise perform these programs in the network environment. There are a number of technical areas being studied by different groups that deal with unauthorized interception and authentication of communications or objects in those communications, particularly things like privacy-enhanced mail, abuse of digital signature techniques, public key encryption. I'm sure you've heard from other people about similar kinds of things. These are generally not useful techniques for controlling further communication of these computer programs, further control of their processing, further digital information associated with the outputs of these programs. I really believe it is too early to mandate controls on this at this point. We need to gain some experience. I think pilot projects will be particularly important, including the one I just mentioned earlier. Based on that, I think we can end up providing some guidance on what kinds of controls may turn out to be useful. Much work is also going on in the standards bodies in this country and around the world on information exchange and software interoperability. We have been very involved in that through the developments in the Internet going back over 20 years. I believe it's still unclear to what extent the standard bodies are going to address the needs of copyright users and other IP rights holders, intellectual property rights holders. This is an area I really believe needs considerable study and coordination to determine what kinds of additional standards, if any, are required to deal with the situation. Finally, let me just identify two issues which I would like to see the committee put on its agenda if you have time to consider. One of these is the question that many people are encountering in the network environment about what to do with information that they come across where it's not easy to identify either what it is or where it came from or who owns it or in fact what they can do with it. Many of these individuals are going to naturally scan it into their machines and otherwise deal with it. I think that we need some mechanism to understand what it is that we can do to facilitate or otherwise deal with this so we don't become a nation of innocent infringers because we simply don't have any way of dealing with this problem. I'm particularly thinking of somebody who might come across an old photograph of some sort with no identifier on it whatsoever and wants to use it in their system because it's interesting and has no way of knowing whether they're infringing and if so, what the nature of the situation might be. The final issue I would like to put on the table for you to consider is sort of the equivalent of the need for copyright law in the first place in dealing with knowledge. Now, copyright, as you undoubtedly have considered, was developed to try to make it possible for authors to put their works in the hands of the public without losing their rights to the essential elements of those works. We've always had the distinction between knowledge and sort of the expression of knowledge. And it's getting clouded in the area of knowledge-based systems and the development of knowledge structures more generally that can be used by artificial intelligence programs. Many of these systems have knowledge that is sort of represented in only one way or the number of opportunities for expression is very limited. Anything that we can do to encourage people that develop knowledge in codified form to put that in the hands of the public so they can see it without losing their rights to that development of knowledge, I think would serve this country and everyone well. Maybe I should just stop there and take any questions from the panel. Thank you very much. CHAIRMAN LEHMAN: Thank you. With regard to that last point are you really talking about the database issue, really things that would not be classified as works of authorship under the existing copyright law, but that would be knowledge? DR. KAHN: Yes. I'm not sure I would call them databases. But people who -- CHAIRMAN LEHMAN: Some of the things that may have been associated with the Fiest decision, for example? DR. KAHN: No, I was thinking more of someone who has knowledge about how to treat a certain disease and its codified rules. And there aren't very many ways to say if the temperature is above 97.3 degrees and you have a history of such-and-such, then use the following drug treatment or whatever -- the codified rules of behavior, codified rules of practice that might constitute the knowledge of a profession that people today have codified in proprietary systems and they're not willing to make that known to anyone else. CHAIRMAN LEHMAN: In a sense, that's an in between world, between copyright protection, the expression of the idea and patents. You're talking about information which really doesn't meet the test of patentability, but also which is more than just the expression of an idea, but which may be an idea and there is a need for some kind of middle ground. DR. KAHN: That's accurate. I don't think that I'm prepared -- I don't think I'm expert enough -- to know what the right changes to the law are to deal with that or how it should fit in. I just know that it's an issue that we need to deal with and that we ought encourage people who create that kind of knowledge in a form that is more the idea than the expression of the idea to be willing to put it in the public's hands so they can see and understand what it is without losing their essential rights in that material which they otherwise would not make available. CHAIRMAN LEHMAN: In the system that you're creating or working on the test bed with the Library of Congress and the Copyright Office, I think it was mentioned here earlier by one of the witnesses this morning that isn't it a shame, in effect, that the Library of Congress in I think a recent American history project or whatever really wasn't able to be all that it could be because you couldn't get the rights clearances and so on where the Library ran into this problem. The Vice President's vision was referred to about wouldn't it be great if the whole collection of the Library of Congress could be online. I think most people's initial reaction would be, that would be just terrific, if the collection of the Library of Congress could be online. Obviously, once you get beyond that, once you just delve into that a little bit, you realize that the Library of Congress is simply the repository for, at the present time for the most part, of works in print and paper for which the rights, the propriety rights belong to others. But, of course, the Library could be in a position where it could, if it obtained the right permissions, could provide that information. My question to you, is that, from your point of view since you're working on this and you're working with this project with copyright registration, something that is, in terms of the NII, something that we should be trying to facilitate or not? Is that a model that would be an appropriate model for the dissemination of information in the United States? DR. KAHN: I guess my take on that is as follows. The technology is going to be in place where this information, even if it's deposited in the Library for copyright purposes, doesn't need to actually be deposited at the Library. It can be put in repositories around the country. They can be qualified or not, depending on how much protection you need for that material. And those repositories can be part of a national library system architecture that falls on top of various nets that makes it possible for citizens anywhere to get access to that information. What you said was important to get, if the rights and permissions were there, and assuming that the rights and permissions are there, to be able to use it, either because they're developed by some sort of agreement that is a blanket agreement or because you negotiate for them in a transactional mode. If those rights are there, they can be provided by the system and it doesn't require any one institution to actually do that. It can be the basis of a business enterprise that can provide them. The role of the Library of Congress, it seems to me, as a national archive of some sort has real importance in this country. One way that can be manifested is by making it possible for people who go there to be able to access any of the materials on the appropriate terms and conditions at the Library. They had something called the Atrium Group that has been thinking about making such a capability available in the atrium of the Library. And there may be other ways that they can help to facilitate this process. I think that should be the subject of a discussion with the various rights owners to see how it comes out. I know there has been a lot of concern in the past about just how that would proceed. They've had a pilot project on the books going back to the mid-1970s on optical disks for dissemination. That has been the subject of a lot of controversy and concern among the rights owners themselves who had some concerns about the Library getting into that particular area. Frankly, I would like to see a harmonious resolution to this whole area where the Library can continue to play its more traditional roles, where some of this information can get out through broader systems. I frankly think there is a longer term role for the Library of Congress in dealing with some of the aspects of the NII that most people don't yet even recognize as being important, like the development of the languages and the meanings and the anthologies that are going to be necessary for people to relate to the NII on common terms. We know that English is an important capability within our culture, but the ability to have commonly understood linguistic constructs within the NII for developing applications, for naming things, for terms and conditions, for conventions, is going to be extremely important. I think that is a role that the Library of Congress may be particularly suited to help develop because it's very humanitarian in nature. And that is a task that nobody is undertaking at the present time. So I think we're going to see new roles and responsibilities develop. I would hope we could get a harmonious accord between the Library and the rights owners so that they could play their role and we could still make use of technology most effectively to get this capability out to the country. CHAIRMAN LEHMAN: Mr. Linn. DR. KAHN: Your system here keeps blinking red and blue. CHAIRMAN LEHMAN: This is our time, not yours. You were very courteous. MR. LINN: Bob, you indicated that you had reservations about standards related to the NII and yet your professional experience takes you back to the early days. A week ago I was at a meeting of the high performance competing communications information and technology. It was an open meeting with competing industry, CSVP, plus the high performance computer representative. Universally it was expressed that there was need for standards for the NII to be effective. Now, did I mishear you or am I misjudging the situation? Where do you come down on it? DR. KAHN: I want to be categorical about this. The NII cannot work without standards. I mean, the whole essence of the NII architecture is going to hinge upon well-defined interfaces, well-defined objects that flow through it that are understood by not only individuals, but by the machines that process them. The point that I was making is that it's too early, I believe, to try and standardize on those things today. We need some experience in this wide realm of possibilities. We need to find ways that people can introduce new servers into the NII, have them express themselves, have other servers learn about them, build new capabilities that are composed from other capabilities, perhaps even automatically. Nobody yet knows what the nature and form of those interfaces should be. I'm afraid that if we try and standardize too broadly now, that we will inhibit our ability to develop the NII in the future. There are lots of standards that are out there that people are now using. TCPIP is one protocol standard that is now part of the Internet culture. The telecommunications industry is moving rapidly toward ATM and SONED as another set of standards in the telecommunications arena. I can list you hundreds of standards that have been well-developed and well-considered. They are simply pieces of the puzzle. And there is going to be a larger set of interfacing concerns and standards concerns that it's just too early to either identify and certainly to mandate at this point. I think they ought to come out of some real experience dealing with real problems with real applications. Then we ought to systematically go about trying to figure out what those standards are. But I think you just can't sit down and standardize on it today. It would be very premature. CHAIRMAN LEHMAN: What I'm hearing, not only from you, but from other witnesses is that there seems to be a strong prejudice against government or government agencies sitting down right now, a committee, and setting up standards and saying, these are the standards. There is a recognition that there needs to be standards. There needs to be standards and we'll have to evolve toward that. But that has to, somehow or other the interested element in society and the business culture, and so on, need to evolve toward that. The issue is really, is there a role for the government to play, for us to play, in facilitating that process so that it happens in an orderly way and it happens as expeditiously as it can. DR. KAHN: I think the government could play a very important role by making it known where they would like to see standards developed, if that is appropriate; where they thing there are weaknesses that need to be addressed; where there are issues they would like the industry to deal with in some concerted or collaborative way. I want to point out that there are various different ways that you can go about developing standards and I would just like to point out that the development process is a grassroots process. That is, no standard becomes a standard except by ratification after the fact. The Internet is like a big petri dish in which anybody who has an idea can try it out, much like the economy is the place where people can try their new ideas out and business ventures. You can try any idea out on the Internet that you like. You can build communities of interest. People start to use what comes out. They become de facto standards in some cases. And, generally speaking, something doesn't even become a standards track entry until it's in very widespread use and a whole community decides that this is something other people ought to know about. By that time, it gets into more debate, it's vetted across virtually everybody who cares about that topic, not only in the U.S. but now around the world. And by the time something is actually proclaimed a standard, it's probably been in use for 10 years by thousands, if not millions, of people. That's the very inverse procedure of one where a group sits down, defines a standards, writes it in a document, and lets the world know about it so they can implement to it. Because they may have picked the wrong thing. One really vets it out through actual experience and the other one tries to figure it out in advance. I think those are two divergent approaches. There is actually benefit to both, I want to point out. In the dynamic world of research where you're trying to enable as many ideas as you can and really let evolution take place rapidly and flexibly, you want to place as few constraints as possible on the evolution of this kind of capability. But when you're in a heavily commercial activity where revenue streams and business' fates and commercial interests are at stake, most of those businesses are not willing to leave the future of their standards environment up to this kind of grassroots evolutionary process. They want more control, which is why they do it top-down. It seems to me there is room for harmonization of those two processes where the most advanced stuff goes to this more bottoms-up fashion and where the more structured and used and commercial activity is in fact taken over through a more standard kind of process. I think you, therefore, need to let this grassroots process happen for a while before you know what the other processes are going to find worthwhile to maintain. CHAIRMAN LEHMAN: Thank you. We could probably spend all afternoon with just you as our witness, but we'll have other opportunities for that. Thank you very much. DR. KAHN: I'll be delighted to come back. CHAIRMAN LEHMAN: Thank you. Next, I would like to call on Dr. Brad Cox from the Center for Electronic Markets in Centreville, Virginia. TESTIMONY BY BRAD J. COX, Ph.D. DR. COX: Thank you very much for having me today. And thank you for organizing this meeting on a very important topic. I would like to begin by reacting to a viewpoint that I've heard expressed at least once, maybe a few times, in that technology has destroyed something that was once very simple -- when information was primarily on paper. I would like to flip that coin and look at it from the other side in that just as technology has created the opportunity for light speed transportation of electronic goods, it has also created the possibility of solving the very ownership problem that that implies. We now have light speed communications devices, fiber optics. We now have computers at the ends of those wires. And we also have financial institutions which have been around for many years in connection with sales of tangible goods. By integrating those three components, computers, communication links and financial institutions, we could have a technical solution to a problem that is now primarily dealt with by laws and by lawyers. My entry into this topic came originally from the software development industry where I was involved in object-oriented programming language development, built a company, one of whose products was programming language that Steve Jobs uses on his computers. But more fundamentally than that, libraries of reusable software components that we call objects or classes. The fundamental problem that we ran into as a business was the ownership issue of goods that can be very small granularity pieces of software in which the transaction cost of writing contracts or dealing with these in the traditional ways you might deal with ownership of a book just don't work. They're too small. They copy too easily. So instead of focusing in the way most of the speakers have done today on one vertical market or another, the publishing industry or the film industry or the music broadcasting industry, I would like to point out that tangible goods such as that computer on the floor in front of us have a granularity to them and that one company built the goods at the top of the pyramid, the computer itself, and they probably bought the boards from another company and the chips from the third and the silicon to make the chips from some third company. There is a way of looking at this problem vertically, and the same way of looking needs to apply to electronic goods like, let's say an electronic book. Right now most of us may be thinking about books in terms of raw ASCII text. But instead, an electronic book has something that an author wrote, but it might also have a reader program in it that some programmer wrote. And that reader program might have scroll bars in it which might be one of my company's reusable software components. So the real issue that we're dealing with here is supporting ownership and revenue collection for goods of many different granularities simultaneously. So that when somebody buys the book, the guy who built the reader program for the book also sees revenue. Last summer I pulled together a small coalition of companies and government. The National Institute of Standards was one member of that coalition. My university was another. A large semi-conductor company was a third. And a software components company was a fourth. We applied to ARPA for funding to build and deploy a revenue collection system of that nature that would support revenue collection for goods in many different granularities. That is the role in which I come here today. It is to make you aware that the technology takest away, but it also giveth back. There is a possibility of technical solutions to a problem that we might otherwise look to a legal solution only. With that, I'll stop and leave some time for questions. CHAIRMAN LEHMAN: As I understand, the policy point here is that really, from your point of view, there need to be no changes in the copyright law to facilitate the rapid development of the NII; that the NII itself offers the possibility, in conjunction with these technological solutions, to develop adequate licensing mechanisms that will work under the existing copyright law. DR. COX: Absolutely. As I read the copyright law, it's half about copies and it's half about uses. But it gives you the way to own and buy and sell copies of things. It also has performance rights in there where you can own and buy and sell uses. For example, ASCAP and BMI are based on selling use rights to music. Purely on technical grounds I happen to be of the opinion that the easiest way to protect ownership of electronic goods is through those usage based laws, not the copy based part of the copyright law. I think we can make the copies free and charge for the uses. CHAIRMAN LEHMAN: Does anybody else on the panel have any questions? (No audible response.) CHAIRMAN LEHMAN: If not, thank you very much for coming and spending time with us today. Next I would like to call Ronald Laurie of Weil, Gotshal & Manges in Menlo Park, California. TESTIMONY BY RONALD S. LAURIE, ESQ. MR. LAURIE: Thank you, Secretary Lehman, members of the Working Group. I appreciate the opportunity to present the views of a Silicon Valley practitioner, though I would not presume to present the Silicon Valley view because, as elsewhere, there is neither consensus nor unanimity in Silicon Valley as to some of the basic policy issues that are raised by the NII. I've worked in Silicon Valley for 33 years, initially as a software engineer and later as an intellectual property lawyer specializing in computer law. I currently teach a course at Stanford Law School titled Intellectual Property Protection for Information Technologies. I feel that my role here today is somewhat of an agent provocateur because I would like to respectfully suggest that the scope of the inquiry be broadened beyond that outlined in the request for comments. The request for comments is very articulate in setting up the policy balance between, on the one hand, providing effective intellectual property protection primarily via copyright for the "electronic information and entertainment products" flowing through the NII system and, on the other hand, ensuring maximum public access to the system and interoperability of the system components achieved at least in part through the use of standards and potentially through regulatory controls. I believe that this critically important process of balancing intellectual property incentives against accessibility and connectivity should extend not only to the content flowing through the NII system, but also to the delivery mechanisms utilized in the system. One cannot discuss the subject of delivery mechanisms without considering the effects of patents. Let me illustrate my point with the following example. Two interrelated concerns of content owners are security and compensation. Delivery technology is now being developed to address both of these concerns. It has been mentioned in prior testimony under the label of information metering. In an information metering system, the content is initially delivered to the end user in encrypted form. It is decrypted at the user's terminal by secure and, I might add, potentially proprietary hardware and software on an as-needed basis, and it is metered as it is consumed. Compensation to individual content providers is achieved by secure software which periodically transmits usage data to a central accounting center via a modem. Finally, the accounting center aggregates the usage data for all users subscribing to that center and bills the users on a monthly basis, remitting the proper amounts to the various information providers. The system operates as an information utility in much the same way as conventional electricity, gas and water distribution systems. I would like to say two things about this technology. One, it is close to deployment. And, two, it is already patented. To varying degrees, all of the following are potentially patentable: user interfaces; navigation systems; search engines; data formats; transmission protocols; APIs, application programming interfaces. The patent statute, as you well know, does not distinguish between hardware and software. It protects novel and non-obvious systems and processes. Well, what's the effect of this? Potentially every link or step in the NII, from the user's display screen to the heart of the fiber or satellite backbone, is subject to patent protection. Will there be free or low-cost alternatives to the proprietary on-ramps or off-ramps? Certainly, there will. The notion was expressed to me that the government already has enough technology now to offer a virtually complete NII without proprietary protection. So it is possible to provide an alternative system. But there is a high probability that the optimum access routes and methods will be proprietary. The danger, therefore, is a two-tiered, separate, but equal system -- a separate but equal universal access system if that isn't an oxymoron. I could use the example, to extend the highway analogy to a system involving six-lane high-speed freeways with toll gates at every on ramp, and paralleling that system, a single-lane dirt road that are free. Is there access to everyone? Arguably, yes. Is it universal? Arguably, yes. Is it equal? I don't think so. Let me give you an example from my own experience. I got an Internet account just as soon as the DOT.COM access service became available. But I barely used it for a year. And the reason I didn't use it was because in order to talk to Internet you had to be facile in UNIX. And even though my background is in programming, I didn't want to go through the trouble of dealing with UNIX, and especially the UNIX Visual Interpreter to do text editing in order to deal with the Internet. The instant a user friendly interface became available, I went out and I bought it. And I subscribe to a Macintosh interface gateway to the Internet. And it's a pleasure to use it. The problem is that we may end up with an Internet system in which the technologically literate and the economically privileged have better access than the average American citizen. The implementation of this technology thus presents significant policy questions involving the use of intellectual property protection, including both patents and copyrights, to promote the development of innovative information delivery systems on the one hand without unduly prejudicing the interests of information consumers and developers of competitive systems on the other. I think that the patent dimension to the policy issues should be an essential element of the public debate. Thank you. CHAIRMAN LEHMAN: Thank you very much, Mr. Laurie. Hopefully, you'll be able to enlighten us further on the patent dimension of this in January because this Working Group is not going to California, but the Patent and Trademark Office will be having hearings in California. I think it's going to be on the 26th -- three day in San Jose and then there will be two more days following here in Washington -- DR. LAURIE: I'll look forward to that. CHAIRMAN LEHMAN: -- on the patent issues related to the computer software industry generally. I think there are some very serious questions about the way the patent system is working, and some of them do have a relationship to the NII, and our learning there may indeed help us in developing this NII Working Group report as well. I'm a little bit surprised that we haven't -- maybe we will yet this afternoon -- heard more about the patent issue from some of the witnesses here. DR. LAURIE: I suspect you will hear more. CHAIRMAN LEHMAN: Thanks for bringing that to our attention. Is there anybody else that has a question of Mr. Laurie? (No audible response.) CHAIRMAN LEHMAN: Thanks for coming all this way to talk to us. Next I would like to call on Professor Henry Perritt of Villanova University Law School in Villanova, Pennsylvania. TESTIMONY BY HENRY H. PERRITT, JR. MR. PERRITT: Mr. Chairman, members of the Working Group, thank you for this opportunity. It's been a very interesting day. I would like to join the suggestion that Bob Oakley made this morning that you make the proceedings and the statements available on the Internet so that the existing National Information Infrastructure can make more people aware of your good work. CHAIRMAN LEHMAN: Can I make a point there? One of the things we probably should have done was asked for people's statements in digitized form, which we didn't. So anybody that wants -- maybe we can work on that. If anybody that submitted a statement -- the court reporter's transcript, of course, will be able to be made available to us in that form, but maybe any of you who submitted statements who want to submit it in that format, we can experiment with being a part of the NII ourselves here. MR. PERRITT: That seems like a good idea, Mr. Chairman. CHAIRMAN LEHMAN: What kind do we want? MS. BERNSTEIN: We probably want PC format in ASCII -- either plain ASCII or one of the standard -- WordPerfect or Word, or some standard word processing packet. We could probably deal with any of those. MR. PERRITT: Mr. Chairman, my name is Henry Perritt. I'm a law professor at Villanova. I appear in my individual capacity this afternoon. What I would like to do is to emphasize three main points from my written statement that I would ask be incorporated into the record. First, the technologies that now exist and are reasonably foreseeable permit the National Information Infrastructure to be an expansive, electronic marketplace. Not only a marketplace for transactions between publishers and consumers, but also a marketplace for transactions between authors and publishers and between different kinds of publishers. Second, the combination of three protections for intellectual property -- intellectual property law, encryption, and electronic contracting can adequately protect intellectual property in this National Information Infrastructure. Third, however, high levels of encryption in mandated standards can prevent realization of the potential for the National Information Infrastructure. Let me elaborate briefly on each of those three points. The problem we face in realizing this kind of expansive electronic marketplace, like the one that Dr. Cox talked about in which we see a disaggregation of different granules in the publishing process, is that the market is uncertain. People aren't sure what the right product features are, what the right granules are and what the right combinations are among the granules. There hasn't been enough testing in the marketplace of different systems for producing products that are attractive and meet the needs for consumers. And to be sure, there is a fear of piracy of intellectual property. But that's not the only problem. There are three fixes for the fear of intellectual property piracy. There is intellectual property law, which I haven't heard anyone suggest should disappear from the horizon. So that will remain as a feature, at least in the background. And that includes, as Mr. Laurie pointed out, not only copyright and patent, but also trade secret and trademark protection. In addition to that, as Dr. Cox emphasized earlier this afternoon and a number of other people have emphasized and explained, the technologies themselves permit new kinds of protection that don't rely on legal institutions. I think it's worth distinguishing between two kinds of technological protection. One is encryption, which by itself can prevent the piracy technically. And the other is electronic contracting built on the basic concept that is in wide use in the electronic data interchange in which people actually do marketplace transactions at much lower transaction costs by means of the electronic technology. By reducing transaction costs, we make it feasible for contract law to play a much more prominent role in this disaggregated market that is the National Information Infrastructure. And probably the solutions to the intellectual property protection problem always will involve a rich variety of permutations of these three kinds of protections, intellectual property law, electronic contracting and encryption. But before any of the permutations can play a very significant role in enhancing the development of this marketplace, there are some needs. One need is for data structures and other standards. Because even if one wishes to use non-encrypted electronic contracting methods, there have to be some data structures through which one can express the offer and the acceptance and if one wishes to license a copyright, for example, through which one can express the particular rights and permissions that are being granted. Secondly, there is a need for institutions that do not now exist or that don't exist in the right form. There has been reference to cooperatives for licensing intellectual property rights. Those institutions don't yet exist. The electronic counterpart of ASCAP and BMI don't yet exist in this infrastructure. In addition to that, people who engage in electronic data interchange in the commercial document context sometimes find institutional arrangements in the form of trusted third party intermediaries to serve as kind of escrow agents for transactions that represent the electronic contracts. They find those helpful. Public key encryption requires public key authorities. So there is a need for an institutional part of this infrastructure so that the protections can become a reality. And the final, and I think the most acute need, is for much more testing of these various concepts in actual commercial marketplaces. Without that kind of testing, we can't have the foggiest idea of what is going to work and what is going to resonate with consumers and entrepreneurs and what would be a fit approach for endorsement by the Federal Government, if indeed anything is appropriate to be endorsed. Now, there are some risks as we try to meet these needs. One risk is that especially if we go too quickly toward high levels of encryption as the way of protecting intellectual property, what we may end up with is not a National Information Infrastructure, but a collection of proprietary cul-de-sacs in which technology represents not a reduction in transaction costs, but instead represents new barriers to entry for producers and new barriers to access by consumers who already are somewhat fearful of making use of the technology represented by the Internet. Moreover, as an other risk, we may, if we move too quickly and in too heavy-handed a fashion, we may freeze technologies and impede technological development which has been so rapid and so productive of good approaches in this area. There also is the possibility that we may extend the technologies so that the balance that has been struck historically in intellectual property between the appropriate needs and entitlements of the general public to have access to information and the appropriate needs of producers to have protection for their investment, that that balance will be altered inappropriately before we realize it. So what should the Federal Government do? I think it ought to do three things. First of all, it should endorse unambiguously a commitment to a diversity of sources, channels, product concepts and means of protecting intellectual property. Second, it should develop and publicize the development of concepts in this area, as this hearing itself does. And, further, it should demonstrate systems and the commercial feasibility of some of the systems that you've heard about today. Finally, it should make sure that it uses the existing National Information Infrastructure, as we started at the beginning of these remarks, Mr. Chairman, to make sure that the American people generally know of the results of the assessment and the conceptualization. Thank you. CHAIRMAN LEHMAN: Thank you very much, Mr. Perritt. Are there any questions? MR. LINN: I thought I heard you say the Federal Government should demonstrate the commercial feasibility of some of these concepts. Is it commercial feasibility or the technical feasibility? MR. PERRITT: I think it is technical feasibility. But as many people before me have said today, the real issue is whether something is going to be feasible in a real world marketplace. So while I recognize the inappropriateness of the Federal Government being all the way into a commercial activity, I think there needs to be recognition that it's commercial feasibility in the end that counts. We are talking about markets and entrepreneurial activity and the protection of the entrepreneurial effort. MR. ABBOTT: One major Silicon Valley firm recommended to us that interfaces in general, that it did not protect interfaces. It's obviously proprietary software and other developments, they're not interface themselves. o you have any viewpoint on that? MR. PERRITT: As to whether intellectual property law protects interface? MR. ABBOTT: Well, no. As to whether it should protect interfaces or should it be adapted? Have you thought along those lines? MR. PERRITT: I've thought a little bit about that. And it seems to me that there is a persuasive argument to be made that fair use, or some other similar privilege, should extend to interfaces so that there can be interoperability among different kinds of systems, even if the systems themselves are proprietary. Of course, the case law has begun to deal with this a little bit in the video game context, and the authority, as I know it, is mixed on the protectibility of interfaces. CHAIRMAN LEHMAN: If I could inject. I think this is what you're talking about. It's a situation basically where a company has chosen to make available its interfaces, in a sense to put them in the public domain and sort of license them, in a sense. Clearly, there is a range of strategies that different companies have developed. Some are much more liberal in terms of putting aspects of their software into the public domain so that others can develop compatible projects and other products and others are more proprietary oriented. The question for us is, I suppose, whether or not there should be any government intrusion into that process which is already taking place in the business world. MR. ABBOTT: That's why we should let the case law develop on it's own path. MR. PERRITT: I think it would be appropriate to do some analysis of the case law that exists and what the alternatives are. I would not want to jump here to the conclusion that interfaces in general should be protected or not because, as the Chairman has said, the practice varies enormously and some people virtually put the interface in the public domain. And others, as some video game manufacturers, have kept it very closely -- the interface between the cartridge and the machine, very closely guarded. CHAIRMAN LEHMAN: Did you have something? MS. BERNSTEIN: You said something about the creation of new institutions, that perhaps we need certain institutions which don't exist yet. And you mentioned ASCAP and BMI. I was wondering if you think that we need the electronic counterpart of that same kind of thing should we extend what we have now with ASCAP and BMI and those sorts of things into the electronic environment? Or is there some other way of satisfying those needs that might be done some other way? Is there another model? MR. PERRITT: What I think we need to do is to recognize that third party institutions will be necessary for some of these protection systems. I don't mean to suggest that it's timely for the government to go out and set up an electronic ASCAP. But I have heard some discussions of public key encryption -- I don't pretend to be an expert on that -- but I've heard some presentations on that that seem to suggest that the key encryption authority is a point of vulnerability and that unless one can trust the key authority, one really can't trust the encryption system. Now, if that is so, and if the government were to endorse public key encryption as an approach for protecting intellectual property, I think not far behind that government endorsement would be a requirement that the government certify the trustworthiness of the key authorities. I'm not saying that's a bad thing. I'm just saying that that would be a cost, a social cost, and a type of government commitment that we need to think through before we rush to embrace a particular technological approach that may bring behind it some institutional and legal baggage that we don't fully anticipate. CHAIRMAN LEHMAN: Anything else? (No audible response.) CHAIRMAN LEHMAN: I thank you very much for joining us this afternoon, John. MR. PERRITT: Thank you, Mr. Chairman. CHAIRMAN LEHMAN: Thank you for coming. Next we will hear from Ron Palenski who is Senior Vice President and General Counsel with the Information Technology Association of America, right here in Arlington, Virginia. TESTIMONY BY RONALD J. PALENSKI, ESQ. MR. PALENSKI: Good afternoon, Mr. Chairman and members of the NII Intellectual Property Working Group. Like many others who have come before me, I would like to thank you for holding what is obviously going to be the first of a number of inquiries into the subject of intellectual property protection and an enhanced National Information Infrastructure. By way of introduction of ITAA, with more than 2,400 direct and affiliated members, ITAA represents this nation's information technology industry, whose companies build information solutions for business and government customers using computers, software and communications. As such, ITAA has a significant stake in this proceeding as well as in other efforts with other groups to build an enhanced National Information Infrastructure. I would like to point out, as a number of people have already, that we already have a National Information Infrastructure. Actually, we have many national information infrastructures. We have a telephone system. We have cable TV systems. We have commercial television. So we already have a National Information Infrastructure or a series of National Information Infrastructures. What we are looking at here is an enhanced network of networks. The U.S. has already entered into the information age. And spurred by this Administration's NII initiative, we are poised on the cusp of a new era in which, to paraphrase Vice President Gore, digital telecommunications networks will enable people throughout the U.S. and, indeed, the world to share almost unlimited amounts of information, including text, data, images, full motion video and sound. We in the United States are fortunate in that our nation is the world's leading producer of these intellectual properties. Mr. Attaway spoke to you earlier about the economic contributions of the core copyright industries and I won't repeat what he said, although I have a copy of the IIPA report and I'm happy to make it available to the task force, if you wish. Protection of the high value, but easily misappropriated, intellectual assets which our industry and others create is critical, particularly if the creators of software, books, sound recordings, motion pictures and new forms of works that we can hardly imagine today are to be made available by way of a National Information Infrastructure. Given the very early state of development of an enhanced NII, precise predictions about the intellectual property issues that are likely to emerge are difficult. However, ITAA's computer software and services companies believe that certain fundamental principles should guide the development of an NII. First, we believe that the copyright system, including the fair use doctrine, has already demonstrated an amazing adaptability in the face of new technologies. We believe that it will continue to do so in response to the digital revolution going on around us. Second, we believe that establishment of an enhanced NII should not derogate from the existing rights of computer program copyright owners, particularly the rights to control the reproduction, adaptation, display and distribution of their works. Finally, we agree with the many others who have come before me that the content of standards, be they transactional or technical, should continue to emerge primarily from voluntary industry-led consensus-finding processes with government participation and support to be sure so as to Ensure uniformity in public and private transactions. Adherence to these basic precepts we believe will insure an NII that advances both the national interest and that of the many copyright creators who make and will continue to make Cyber Space an exciting place to be. Because the full range of copyright issues raised by an enhanced NII is presently uncertain, we believe that major adjustment of the copyright statute is presently unwarranted. Indeed, from our perspective, the most immediate major challenge will be the enforcement of existing intellectual property rights rather than the creation of new rights or perhaps the modification of existing rights. Nonetheless, there are some issues that do appear on the horizon. First, because their works are high value, but easily misappropriated, commercial computer software developers who make their programs available by way of an NII are likely to employ technical copy protection or encryption systems so as to ensure that their works are not pirated. I need not tell the Chairman or the other members of this task force that software piracy is a major problem, both here in the United States and around the world, and that no legal system of itself is likely to eradicate it. High standards of substantive legal protection, effective enforcement and, at least in the case of programs distributed by way of an NII, technical protection systems, will do much to alleviate the problem. Under current U.S. law circumvention of technical copy protection or encryption systems is not unlawful by statute and would not be found to be unlawful unless it is found to constitute contributory copyright infringement. Accordingly, ITAA recommends consider be given to amending the U.S. copyright statute. The words that I have used in my letter are primarily by way of description, to put a marker. So we would suggest making unlawful the importation, manufacture, distribution of any device or the offering of any system or service, the primary purpose of which is to circumvent technical copy protection or encryption systems. Without this kind of protection, we're concerned that commercial software creators will be unwilling to make their works generally available on the NII and thereby frustrate a goal of the NII, that is to make information technology products and services available to the widest public possible. A second intellectual property issue, which perhaps should be considered and upon which we reserve the right to comment at a later time, is the ownership of intellectual property rights in applications that are created for the NII where the applications are created in part using federal resources. For some months now we have been working with a number of administration officials who are exploring the nature of applications to be made available by way of an NII. And we've been working with these officials in order to craft a model of public/private partnerships that would be needed to create NII applications, particularly in the specialized areas of education, health care and the delivery of government services. Clearly, where applications are created and financed by the private sector, copyright ownership does and will continue to vest, I assume, in the private sector. And where copyrightable works are created by government employees within the scope of their employment, ITAA believes that the provisions of 17 U.S.C. 105 should continue to prevail. Where, however, works are created using the joint resources of the public and private sectors, however, we must make sure to strike that delicate balance between the public interest and the incentives necessary to stimulate the efforts of private creators. I talk in the letter that I sent to the Working Group about standards and I will not repeat those here in the interest of saving some time. Suffice it to say that ITAA generally believes it to be inappropriate for the government to mandate standards for matters such as intercommunication, interoperability, licensing, or copy protection. We prefer to leave these to industry-led, consensus-finding standards processes, which incorporate the government point of view and government assistance as well. I would finally like to turn to the matter of intellectual property education. It's no secret that intellectual property piracy is a major concern both here and around the world. And for its part, the private sector has undertaken litigation, legislation and education initiatives to address this problem. In the United States the public and private sectors have worked together to help establish adequate and effective intellectual property standards and enforcement mechanisms internationally, and ITAA is particularly pleased with the intellectual property text of the NAFTA. We congratulate the U.S. negotiating team, at least one member of which I know is here, for bringing home what we hope will become the basis for future bilateral and multilateral agreements on intellectual property. We expect that the private sector will continue its intellectual property education efforts as the enhanced NII becomes a reality. Indeed, we are confident that software and other digital media creators will employ the very technologies that make an enhanced NII possible to promote the importance of and the need for intellectual property protection. But the U.S. software industry can use government's help today. And I hope I don't tread on too thin ice as I proceed. In February of this year a report from the Department of Defense Inspector General indicated evidence of a significant degree of commercial software piracy in the armed forces and material weaknesses in their systems to promote software protection. The private sector would urge that efforts begin now to implement software protection education programs throughout the Federal Government. Or, if they've already begun, that these be stepped up. For its part, for example, we have already made available our educational brochure, "Thou Shalt Not Dupe," for adaptation by the EPA. And we extend a helping hand to other government agencies to help establish effective software protection programs. I would like to thank you for your time and I welcome any questions. CHAIRMAN LEHMAN: Thank you very much. Any questions from the panel? (No audible response.) CHAIRMAN LEHMAN: If not, thank you. I think at this point we'll take a very short break for about five minutes and then be back. (Recess.) CHAIRMAN LEHMAN: Next, I would like to welcome two representatives of the Software Publishers Association, Irene Rosenthal who is the General Counsel of the Association and Mark Traphagen -- I hope I've got people's titles right --who I guess is Intellectual Property Counsel. TESTIMONY BY MARK TRAPHAGEN, ESQ., and MS. IRENE ROSENTHAL MR. TRAPHAGEN: That's fine. Thank you, Mr. Commissioner and members of the Working Group. SPA is pleased to be here today and have the opportunity to address the Working Group of the National Information Infrastructure Task Force. Today I will restrict my remarks to the time available, but would like the Working Group to make of record the full text of the comments SPA has previously submitted. SPA is the principal trade association of the personal computer software industry. And its more than 1,000 members accounted for more than half of the packaged software sold last year throughout the world. SPA wishes to inform the Working Group of the concerns of its members for protecting intellectual property and works available on the NII and other electronic telecommunications networks. SPA members range from very large software producers to small companies. Regarding multimedia production, they also find themselves in the position of copyright users as well as copyright owners. The common thread is that copyright is the lifeblood of their creative efforts. To turn to the inquiries that the Working Group has made, SPA finds that the Copyright Act of 1976, as amended, appears at present to be adequate to protect the rights of those who make their works available via the NII. The outlines of five copyright issues are now visible, however, and SPA urges the Working Group to focus on them. First, SPA strongly rejects the position of some that copyright and other intellectual property rights are somehow lost when works are made available on electronic telecommunications networks. Rather, copyright and other intellectual property rights must be respected regardless of the technological means by which they are presented or disseminated for rights holders to make their works available at all. Therefore, it should be made clear that the exclusive rights provided to copyright owners, as well as other intellectual property rights, must be respected on the NII. Second, once many works are accessible on demand through the NII and other networks, users may chose to display or perform these works without purchasing a copy. These uses may well substitute for the need to purchase or download copies and thus, to diminish the market for them. Therefore, the copyright law should ensure that the scope of the exclusive rights of public performance and display of copyrighted works on the NII is adequate to preserve their economic potential and is not undermined by exempted uses that supplant demands for copies. Third, serious attention should be given to the possibility that unauthorized copying will become a wide-spread practice. At present it is not infringement to manufacture, distribute or sell a means to circumvent safeguards preventing unauthorized copying. But last year nearly 800 security breaches were recorded on the Internet. And the Computer Emergency Response Team expects to see over 1,000 this year. That amounts to several security breaches each day. Therefore, the copyright law should make illegal as contributory infringement the manufacture, importation or sale of technical devices or computer software products designed to circumvent copy protection of network security and make illegal as copyright infringement their use. Fourth, works available on networks in the United States will be available to network users in many other countries and vice versa. For example, when SPA member Novelle, Inc. released its Netware 4.0 software in Europe, it was illegally copied from an electronic bulletin board in the United States scarcely a week later. Therefore, SPA supports U.S. ratification of multilateral agreements like GATT, TRIPS and NAFTA and continued work in multilateral negotiations such as the Berne Protocol to protect dissemination of copyrighted works on telecommunications networks. Fifth, contract law should be clarified as needed to enable copyright owners to transact licenses in an interactive telecommunications network. Turning to some of the other questions that were raised in the notice, the provisions of Section 107 of the Copyright Act appeared to provide courts with adequate guidance in deciding questions of fair use while preserving the flexibility of the doctrine's common law origins. For now, Section 107 should be applied by the courts in its present form in disputes over the use of works available and on the NII. If judicial development cannot preserve the balance between copyright owners and users, then Congress has shown itself willing to modify the law when necessary. As for the third inquiry, intercommunications standards for the NII should be voluntary, developed by the private sector and tested by the market. This also applies to labeling or encoding standards for works available on the NII. SPA welcomes the task force's willingness to participate more actively in private sector standards-writing bodies. Standards should not imposed by the government, however, because they promise to be outpaced by the rapid technologic change now prevalent in the industry. We've heard that from several speakers today. As far as licensing is concerned, as mentioned before, the Working Group can best assist the development of licensing by ensuring the contracts made available on the NII are fully enforceable. Copyright owners should retain full control of their works and, thus, be free to authorize or prohibit their use by others over the network and set the conditions and cost of their use in a marketplace environment. SPA at this time steadfastedly opposes the use of compulsory licenses for software available via the NII. Copyright owners ought to be free to decide whether access to their copyrighted works on the NII should be restricted by technical means. If they so decide, they should be able to chose the means that best fits their need for security and marketing. Network management systems, such as some that we've heard about already today, promise to provide the technical means to prevent unauthorized reproduction or use of copyrighted works available on networks. In conclusion, probably the most important step in protecting copyrighted works on the NII may be to dispel mistaken notions about reproducing copyrighted works. That can probably best be done by educating users to respect the intellectual property rights of others. For example, SPA staff regularly speaks to business, education, legal, government and other computer user groups about how to comply with copyright law while making use of software products. SPA produces a software management guide, brochures, audit kits, such as this one and video tapes in several languages. The Working Group may wish to consider a similar effort. If so, SPA would be pleased to cooperate with this educational effort. In conclusion, SPA's member companies are poised to provide the software necessary to operate the NII and make its content available to network users and in doing so encourage these copyright owners to make their works available for use on the NII and other telecommunications networks. Thank you very much. CHAIRMAN LEHMAN: Thank you very much, Mark. Would Irene Rosenthal like to add anything? MS. ROSENTHAL: Thank you very much. I was here just because there are other issues that I know this panel has gotten involved in, issues such as encryption that the SPA is very involved in and obviously the piracy. Our major concern, I guess, at SPA is that a National Information Infrastructure doesn't essentially come down to meaning one country, one disk. Obviously there would be no incentive to produce the software if that were the case. CHAIRMAN LEHMAN: Thank you very much. I think that's an excellent point. Are there any questions? Yes? MR. LINN: Mark, you were elaborating a set of points. Point three, if I understood what you said, was that you would treat breaking of the security of a system as contributing to copyright infringement. I don't understand the reasoning for that because I believe that breaking into a system or the security system is already covered by separate statute that is criminal. So what does it get to make it contributory to copyright infringement? MR. TRAPHAGEN: I'm glad you brought that up. The review of the statutes indicates that there are several that address unauthorized access, in particular the Computer Fraud Act. But that also is, in many ways, limited to obtaining access to either federal computers or to financial institution records. That limitation may not be broad enough to encompass all the types of uses or all the nature of all the parties who will be making work available over the network. CHAIRMAN LEHMAN: There is also another factor there. That is that the essence of intellectual property law generally, and the copyright law in particular, is that it really offers a method of civil law enforcement for infringements. It's very, very easy, very efficient, very quick. You don't have to go to the U.S. Attorney and pull him off drug cases in order to enforce basically a commercial right. The idea or suggestion here was that where you have a practice, the primary purpose of which is to abet copyright infringement, that it should be contributory infringement and you should be able to enforce that in a facile kind of civil law way that gives you effective relief. Is that an accurate description? MR. TRAPHAGEN: It's a very accurate description. Thank you, Mr. Commissioner. MR. LINN: But the fact that you actually broke or defeated the security mechanism doesn't imply that you copied anything or took property that was under some kind of protection. MR. TRAPHAGEN: Well, in one respect. You have to keep in mind that copyright is a bundle of rights. And very often we fixate ourselves upon the reproduction right because in a copy-bound society that's the primary means by which works are disseminated. However, in the network that may not be the primary means. As has been discussed earlier today, the primary means of dissemination may in fact be unbound from copies and involve other exclusive rights that have not traditionally been as important, such as the public display right. So by gaining access without authorization and effecting a display there may be infringement or unauthorized access to the work. MS. ROSENTHAL: I wonder if I could just add one thing here. That is that many of our members who produce high-end products have copy protection in their product so that people can't dupe that. These are products normally that sell for several thousand dollars and above. What we're finding is that there is a group out in Canada that creates software that breaks the copy protection. MR. LINN: I understand that. But to defeat the security mechanism on the computer as to the notion of building a device or software whose purpose is to defeat the copy mechanisms, that didn't come through, at least to me, in the testimony. And so I wanted to clarify that. I support that argument. MS. ROSENTHAL: Thank you. At the moment, as you know, the law is very much unfavorable to pursuing the people who are creating the products that break copy protection. CHAIRMAN LEHMAN: If there are no other questions, I want to thank you for coming over this afternoon. Certainly if there is anything else that you want to add, our door is always open and we'll be happy to get more information if you want to give it to us. MR. TRAPHAGEN: Thank you very much. CHAIRMAN LEHMAN: Next I would like to ask Tom Lemberg, who is Vice President and General Counsel of Lotus Development Corporation and is here today on behalf of the Business Software Alliance and also the Alliance to Promote Software Innovation. Welcome. TESTIMONY BY THOMAS M. LEMBERG, ESQ. MR. LEMBERG: Thank you, Mr. Secretary and members of the panel. I'm appearing, as you say, today on behalf of the Business Software Alliance and the Alliance to Promote Software Innovation. And we, like everyone else, would like to thank you for opening this dialogue on these important issues involving intellectual property on the NII. The member companies of BSA and/or APSI include Adobe, Aldis, Apple, Autodesk, Borland, Computer Associates, Digital Equipment, GO, Intel, IBM, Lotus, Microsoft, Novell, UNIX Systems Labs, and WordPerfect. The digital information revolution is underway. The digital revolution will enable everyone to be plugged into and to be interactive with everybody else. Because of the ease, speed, versatility and reliability of creating and transmitting digital information, it will be the preferred pathway for business and commerce and the desired highway for personal and cultural communications. So it isn't surprising that the private sector is already well underway in developing and deploying the infrastructure necessary to support this digital revolution. We've witnessed the birth of a broad array of new enterprises, joint ventures and business alliances as companies get ready for and try to begin participating in the digital future. We expect that trend to accelerate greatly in the months and years ahead. The NII offers us many new opportunities. For one thing, it will generate demand for a wide array of new products and services which will rely on advanced computers and sophisticated software. That, in turn, will create new opportunities for expanding our country's technology base manufacturing and otherwise creating high-paying, high-skilled jobs. Second, of course, new applications of digitized information will offer all Americans, regardless of their location or economic position, access to the latest information in a whole host of areas, including such things as health care education, manufacturing and improved access to information from the government and otherwise in libraries. So the NII will, therefore, be able to serve as the administration has suggested, as an enhanced and efficient provider of social services. However, in order to be able to fully realize these benefits, NII must have a number of essential characteristics. First, it must be capable of affording access to all potential users, whether they're private citizens or hospitals or businesses or schools or whatever. Second, there must be compatibility between the sources of information and the means of access. Users must be able to use and access information through a variety of machines and to transmit the information between different types and sizes of machines everywhere. While much of the talk about the NII naturally revolves around hardware, it is essential to understand that what makes the whole system work is software. The hardware may serve as the muscle, but it is the software products that can be proprietary for an instant, like my company's product, Notes, that will operate as the brains of things like the NII. Software does this in two ways. First, it helps the user navigate oceans of digital information to locate or create that which is useful or desired and also to be able to use and manipulate that information efficiently. Second, once a decision is made to send or receive information, it is the software that actually pulls this information through the computer switches and wires that constitute the physical network. Now, the protection of intellectual property through copyright is an essential element of the successful development and deployment of the NII. Clear and appropriate legal protection of proprietary rights is needed to provide the necessary incentive for the development of the software, hardware and elements of content which will make the NII attractive to users. This protection is also necessary to instill confidence in the owners of software and other created works that their products will not be subjected to piracy and unauthorized use just because they're on the network. I should say just a word, notwithstanding the tremendous success that our industry has had to date, piracy, the unauthorized duplication or distribution of software, remains a major continuing threat to our industry. And worldwide we estimate, just to give you an order of magnitude, that the industry loses about $12 billion annually and at least a couple of million of that in this country to software piracy. The digital information revolution presents unique challenges to protecting the rights of copyright owners. First, digitization offers an easy and inexpensive method to create an unlimited number of perfect copies. Second, digitized information can be instantaneously uploaded and downloaded by an unlimited number of people. And third, information in disk media can be converted into a single digital stream and easily manipulated to create a variety of new works using old works. So the continued growth of the software industry and other information technology related industries and the successful development of the NII will depend on the continuing ability of the copyright law to adapt to these challenges. Moreover, as the NII evolves, it will be critical that aggressive and effective enforcement of copyright laws be a top government priority. Obviously, the NII is evolving rapidly. Our industry is still in the early stages as individual companies in devising business strategies and developing new products and services to take advantage of the many opportunities that the NII affords. We don't yet know the full implications for the industry. Companies are just trying to figure this out. We're trying to figure out what are the commercial opportunities, what will work, what won't work, talking to ourselves, talking to other companies, and frankly, most of what is going on now is people guessing as to what will work and beginning to think about how to experiment with that to determine what will be commercially successful and what won't. While it is likely that some changes in law and policy will be needed for the efficient development of the NII at some point, it is our current judgment that what will be needed is adjustment at the margin, not wholesale change. Copyright laws work awfully well. It's been an awfully flexible instrument, certainly, for the software industry. We don't see any reason why that isn't likely --it's highly likely to continue as the NII develops. In any case, we believe we need more practical experience with the NII and its operation before proceeding with any fundamental changes in the law. Having said this, we do see at least some areas or one area where change may be appropriate. And we do support the suggestion you made, Mr. Secretary, of exploring possible amendments, as was discussed with the prior witnesses, that will make it a criminal and civil offense to manufacture, import, sell, lease, use, or possess, a technical device or a computer program product, the purpose of which is to circumvent either security of the NII or any other security measures included it in or in the copyrighted works themselves; copy protection devices which is one particular example. As for other proposed changes to current copyright law, at this time we believe it would be premature to make any recommendations. With additional experience and further development of the superhighway, we will be better positioned perhaps to suggest other changes, statutory, regulatory, if they seem necessary. Some of the copyright issues that will need particular examination that we need to keep thinking about as we watch this thing involve include the scope of protection for derivative works; the rights of reproduction and distribution; display and performance rights; fair use; and licensing. With respect to copyright licensing systems, we believe that we yet lack the necessary experience with the NII to make recommendations for any proposed such licensing systems for works that are made available via the NII. However, we should say that the history of our industry and I think of other copyright-based industries is that efficient licensing and distribution systems have evolved over time in response to consumer's needs and market forces. Our experience to date has been with individual transactions governed by contracts and it's worked awfully well. We have had very little experience with the collective administration of rights. But we are certain that compulsory licensing of copyrighted works would not be appropriate through the NII. This is particularly true of works of high value, such as programs. We likewise believe that it is premature to talk about establishing standards for labeling or for interconnectivity and interoperability. We believe that the market has worked quite well so far, technology and the market combined, and we don't see any reason, yet at least, to try and legislate a solution that might fossilize technology before it has even had a chance to develop. I do want to say one thing about encryption. I think it's important to recognize that encryption involves not just the protection against piracy of a program, say, something my company might produce or many other companies, but also of the information that customers might wish to convey through the network, whether through a program they buy from one of us or some other means. And that is something that is terribly important today for companies in our industry. We are very, very concerned that the export control policy of the United States, which limits the level of encryption that we can offer to our customers for products that are sold outside of the United States and Canada could very seriously hamper the development of the NII certainly for anyone who wishes to connect it at all with anything that goes on outside of the United States. Again, Mr. Secretary, and other members of the committee, we would like to thank you for providing us with this opportunity to present this statement. We look forward to a continuing dialogue as the NII evolves. Thank you very much. CHAIRMAN LEHMAN: Thank you very much, Mr. Lemberg. Are there any questions? (No audible response.) CHAIRMAN LEHMAN: If not, thank you very much for coming down from Cambridge to join us today. Next I would like to ask Brian Kahin who also came from Cambridge today and is General Counsel and Director of the Intellectual Property Project of the Interactive Multimedia Association. TESTIMONY BY BRIAN KAHIN, ESQ. MR. KAHIN: Mr. Chairman, I would like to ask our Executive Director, Philip Dodds who is here to join us, particularly if there are questions about standards issues; he is the expert. CHAIRMAN LEHMAN: Happy to have him. MR. KAHIN: The IMA is a 260 member trade association representing the emerging multimedia industry. It addresses the needs of the industry through its work on cross platform compatibility, intellectual property, industry convergence, public policy and public awareness in multimedia. The compatibility project that the IMA developed recommended practices in support of cross platform compatibility, both on stand-alone platforms and across networks. We issue requests for technology to identify appropriate technology which can be made publicly available with minimal or no proprietary constraints. Requests for technologies in progress include multimedia scripting languages, data exchange, and multimedia services. Our intellectual property project was launched in early 1992 to address the range of issues faced by multimedia developers and publishers in clearing and managing intellectual property rights for products and services. We are keenly interested in the problems of mediating access to information. And in April of this year we sponsored a workshop on technological strategies for protecting intellectual property in the networked multimedia environment in partnership with the Coalition for Network Information, the MIT program on digital open high-resolution systems, and the Science, Technology and Public Policy program at Harvard's Kennedy School of Government. The proceedings of the workshop, including papers from five or six of those present here, will be published shortly. Just as we believe that cross platform compatibility is critical to Ensuring that there is a market for software, we believe that standards to ensure interoperability and accountability for information are necessary to a fully developed information infrastructure. The envisioned scale, extensibility and interoperation of the infrastructure requires some public oversight of standards development. The role of the government will vary according to circumstances, but it should generally be supportive of standards development processes that have broad cross industry support. There are parts of the infrastructure that may be implemented incompatibly in different regions. In particular, interactive services provided via so-called set top boxes may suffer from incompatible protocols and interfaces, leading to suboptimal interoperation, unequal access or undesirable lock-in effects. The government should encourage industry convergence on common specifications for such critical interconnection points. Standards for managing intellectual property are important, not just for the software they enable, but because they will enable the use of the infrastructure to carry vast amounts of proprietary information that would otherwise not be carried, perhaps not even created. The NII should be a finely mediated, trusted environment in which users can navigate among diverse information objects and sources from diverse owners and publishers and available on a variety of terms and conditions. However, designing an environment that fully enables such linking and interoperation is a monumental challenge. What should be done? First, the National Cooperative Research Act should be amended to clearly apply to the development of open standards, including the use of requests for technology as a procedure for developing recommended industry practices. Standards for labeling and encoding should be strongly encouraged but not mandated absent a clear need. The IMA is eager to work with federal agencies and other industry groups to develop voluntary standards in this area. Similarly, licensing systems should be developed primarily by the private sector, almost exclusively by the private sector, although we would welcome government contribution to the research that may be necessary to design complex licensing systems. Government support for open industry solutions is likely to encourage and accelerate market acceptance. We note, however, that there already are a multiplicity of licensing systems for networked information, such as traditional online systems and authenticated site licensing. The number and variety of licensing systems is likely to grow. Federal policy can help ensure interconnection and interoperability among heterogenous systems. More ambitious ideas of implementing hardware-based authentication and controlled decryption need careful research and planning. Less secure systems that protect intellectual property are viable for many products and services. And such systems will be quicker and easier to implement. Finally, we note a very serious issue omitted from the request for comments: the granting of broad patents on abstract system-level processes. It is ironic that while federal telecommunications policy has been focused on generating competition within hither to monopolistic telecommunications environments, another federal agency has been granting 17-year exclusive franchises on claims for system concepts, methods of presenting information, and educational and business systems, including simple procedures for accounting for the use of information. Often such broad claims are difficult, if not impossible, to design around. They not only stifle competition, but they conflict with fundamental First Amendment principles. It is also ironic that while NTIA and the FCC have considerable expertise in the economics of competition and the technological environment which they oversee, the Patent and Trademark Office does not. Historically, the Patent and Trademark Office has been uninterested in the economic impact of its operations and it lacks expertise to evaluate novelty and non-obviousness in areas that are outside the scope of traditional physical process and product technologies. Most of these patents we are concerned about are obvious or not novel. But the strong presumptions presently built into the patent system make them very difficult to challenge. Issuance of patents on information processes increases the possibility that a common platform or interface may inadvertently incorporate a patented process, a problem which would be greatly alleviated by a first-to-file system with pre-grant publication, especially if the publication were effected shortly after filing rather than the usual 18 months. In general, because information rides on technologies and systems, the value added by publishers and users is jeopardized by patents on underlying technologies and systems. Unlike copyright, patents preclude independent creation. The patentee's exclusive rights extend not only to manufacture and sale, but to use, even the use of direct products of patented processes. This power can exert extraordinary leverage over information flows. The lack of effective limits and controls in the patent system and its insensitivity to competing values are creating outrage and anxiety, as you may have seen in the papers this week. An unfortunate result if these problems persist will be to diminish respect for intellectual property in general. Thank you. CHAIRMAN LEHMAN: Thank you, Mr. Kahin. Are there any questions? As I indicated before Mr. Laurie spoke, prior to the issuance of the multimedia patent we had already planned on having hearings on this very issue. I think you raise important questions that do need to be addressed. And part of the Clinton Administration's agenda is that we are going to address those questions. Today we had one day of hearings on this; we're going to have five in January on that issue. So you may wish to participate. Alden. MR. ABBOTT: Just one quick question. The proposal to expand the National Cooperative Research Act, which of course, was amended and extended somewhat last spring, does that reflect some sort of concern that open standards development -- about the anti-trust include standard development? MR. KAHIN: It's not a great deal of anxiety on our part. We get different messages from some of our members. Some of our members would like us to be registered under the National Cooperative Research Act. But to some extent the Act protects you whether you're registered or not. It protects you against treble damages, but it doesn't offer some of the additional protections unless you are registered. But it's not clear to what extent the Act is designed to protect standards development, which is less in the way of direct research and development, particular way we do our requests for technology. We come up with a set of specifications, expectations about what we would like to see a particular technology to do. Then we solicit input from the industry. But then we have to evaluate it collectively. MR. LINN: I would like to pursue that. There is an open accredited voluntary standards-making process within the U.S, with plenty of professional organizations. Are there explicit extensions that you would recommend in terms of that Act to accommodate standards-making? Is that the thrust of your comment? Or at least I think that's the thrust of your comment, to expand that Act so that it would accommodate making the standards within a cooperative agreement. MR. DODDS: I think that what we're observing is that all of our members and much of the industry that we deal with are in agreement that the standards-making process ought to occur in the private sector and without government intervention. On the other hand, there is also agreement that there are key, perhaps strategic points of agreement, key enabling technologies such as, for example, interfaces and protocols or points of connection, if you will, that have a greater interest and are of concern both to government and to the individual companies within industry for the building of a solid infrastructure. In those cases there needs to be some kind of proactive and positive interaction to put focus specifically on those few key points, and that modification of that Act to incorporate standards might be one way to sharpen that focus and create a structured and well-defined relationship between industry where it does most of the work and where government can effectively point to those points it feels would be enabling or important. MR. LINN: Are you suggesting that the government not participate as an equal in standards-making fora? MR. DODDS: No. I would certainly not propose that. I rather instead would propose that the government take a specific leadership role in those instances where it feels that a standard is important, leaving the work itself to be done in the private sector. MR. LINN: The reason I ask that question is, in fact, there are many of the standards bodies that encourage and invite the government to participate in the making of those technical standards. So is it your association's perspective that you don't want that? MR. DODDS: No, it is not. In fact, all of our technical bodies may all go all through NIST. CHAIRMAN LEHMAN: I want to thank you for joining us this afternoon. I particularly would be interested in following up -- I don't want to do it right now -- but on some of the questions that I raised earlier with the sound recording people, which I think have implications for interactive multimedia. That is the creation of derivative works in an interactive context and how you license the underlying work and deal with that issue. Maybe there is no problem there, but if you have some thoughts on that, maybe we can follow up on that. MR. KAHIN: And the sampling issue. CHAIRMAN LEHMAN: Yes. Sampling is an illustration of it. But it goes way beyond that as you get into the development of real multimedia widely-used. I mean, you can have people all over the place using other people's stuff to make things with. Some of that will be of commercial value. On one hand, that's a great thing I think we want to encourage. On the other hand, we don't want to have the fundamental intellectual property system fall apart by having people just willy-nilly expropriating other people's work. There should be some kind of smooth and easy licensing system, I guess, to permit that if interactive multimedia is going to be all that it can be. That's my initial reaction to it. It's kind of a technical question that probably we could sit and talk about for an hour. So maybe we should follow up with that, but I did want to leave that with you. MR. KAHIN: We do have some thoughts on that we would like to share with you. CHAIRMAN LEHMAN: Okay. Good. Next, Gary Shapiro, Group Vice President of Electronics Industries Association. I sort of feel with a lot of these witnesses that we're all growing old together in various and different capacities. MR. SHAPIRO: Yes, Mr. Chairman, we worked on these issues I believe 11 or 12 years ago. CHAIRMAN LEHMAN: I imagine you started on Capitol Hill longer ago than that and you were with -- MR. SHAPIRO: I think you've come much further than I have. (Laughter.) TESTIMONY BY GARY J. SHAPIRO MR. SHAPIRO: Mr. Chairman, I'm here on behalf of the Electronic Industries Association and the Home Recording Rights Coalition, which I serve as its chairman. Both groups are vitally interested in some of the issues you raised in your Federal Register notice, and we're pleased to offer our viewpoints. The Electronics Industries Association is a national trade association for the electronics industry. It represents about 85 percent of the dollar volume in electronics and it includes defense, telecommunications components, industrial electronics and consumer electronics. The electronics industry is the nation's largest manufacturing employer; we're talking about some 2 million jobs in electronics in the United States. Some of my colleagues who testified earlier also represent segments of the electronics industry. The industry is also, I believe, the largest patent owner in terms of owning individual patents. Mr. Laurie noted that role earlier. He also indicated that most of the focus today has been on the copyright issues and the copyright owners and they will provide the fuel for the engine for the National Information Infrastructure. But that engine will require a physical and electronic infrastructure as well with gateway devices in every home, school, office and probably car. So I think patent issues are certainly vital and important. But today I'll mostly address the copyright issues. I would like to talk about EI a little bit more. One of our most important services is to provide leadership and resources in setting voluntary technical standards. In working with the FCC and other regulatory bodies we set about 100 electronic standards every year. In terms of the National Information Infrastructure, I think we've created one of the most critical one and that is the RS232 or, as we call it, the EIA232, the back of the computer which allows computers to communicate with other devices. We have taken the lead in setting standards for television, including close captioning and electronic data broadcasting as well as FM and AM radio. We are also involved in pending proceedings with respect to high definition television, consumer electronics cable compatibility and digital/audio broadcasting. As industrial and consumer electronics become more fully digital, as they increase in capacity and resolution and in some respects converge, and as the Mexican and Canadian economies become interlinked with our own, we expect that our standards responsibilities will increase. As far as the Home Recording Rights Coalition, it was formed in 1981 after that famous Ninth Circuit U.S. Court of Appeals decision which ruled that selling video tape recorders to consumers was contributory copyright infringement. Although that decision was reversed in 1984 by the United States Supreme Court, the legislative controversies over home recording of both audio and video material have persisted. The HRC's scope is broader than the EIA in that the EIA has electronics companies; the HRC also includes consumer organizations, retail and service organizations and many others. Generally, the HRC has opposed any legislation that would restrict the rights of consumers to make recordings at home for private non-commercial purposes or they would impose general levies on home recorders of blank media. In the last two Congresses, however, the Home Recording Rights Coalition did support legislation to establish standards with respect to digital audio, including the Audio Home Recording Act, that effectively set a conditional access standard for digital audio recorders and digital audio interface devices. Both the HRC and the EIA are very interested in the issues bearing on the personal use of consumer electronics equipment. I would like to just review in a general sense where we stand on issues that pertain to the NII. For HU-TV we have worked on a standard. We've supported the Advisory Committee on Advanced Television Systems. We've helped fund the Advanced Television Test Center. And we've spent a lot of engineering time trying to achieve a national broadcast terrestrial standard. We're hopeful by the 1996 Atlanta Olympics there will be one in place. We believe that that standard will meet the unique needs of the U.S. marketplace. We believe that standards for broadcast and non-broadcast audio/visual media must conform to the greatest extent possible. In terms of cable TV, we have worked towards compatibility and standards for compression, transmission and access. The 1992 Cable Act, Section 17 requires the FCC to act to enhance compatibility between cable media distribution systems and features of consumer electronics equipment such as TVs and VCRs. Thus, we are effectively helping to shape an audio/visual superhighway. That Act arose because there was great frustration in that there was absolutely no standard at all in terms of all the different cable converter boxes out there, yet the TVs were all built to a standard. Consumers were very frustrated and Congress saw fit to act and require that cable and the consumer electronics industries have a standard interface and be compatible with each other. We agreed with the cable industry that there should be a standard interface and we agreed that we must proceed immediately on development towards a single standard for digital compression and transmission of signals. The work towards digital standards includes joint engineering, work towards a national renewable security standard, as well, I might add. For intellectual property, the Home Recording Rights Coalition has developed principles for future application. Certainly the technical, media and political roles have changed significantly since the Supreme Court's 1984 Sony decision. But we believe the Supreme Court made the correct decision in that case and that its analysis with respect to contributory infringement and fair use remains valid today. The VCR, the sale of which the Court legitimized, has been the foundation for a new U.S. entertainment industry, larger than ever and a dominant international exporter. We have not, however, remained committed only to the status quo. We join the entertainment industry and congressional leaders in recognizing the need for standards and an end to controversy with respect to digital audio recorders. The result was the Audio Home Recording Act. Endorsing the Act, we created a statement of principles, which I believe is still valid today in how we look at new technology. First, consumer equity. Any regulation of new technology should primarily benefit consumers. Second, promotion of new technology. Government regulation should enhance access to new technologies. Third, legal certainty. The right to sell and use consumer recording products should be preserved and clarified. Simply put, we do not agree with approaches that would promote uncertainty through new contributory infringement lawsuits. From these perspectives, we can address the questions posed by the Working Group. To suggest that the copyright law is inadequate, as is posed in the form of a question, may be to assert the copyright principles need to be expanded for new technologies. New technology may, but does not necessarily, change the analysis of fair use principles as they pertain to any particular application. In this respect, our view is that first, the fair use issues addressed by the Supreme Court in the Sony case were correctly decided. The reasoning of the Court remains valid today. Second, it should not be assumed that new technology requires a change in the outcome of the fair use analysis. While improvements in delivery and copying may change the level of analysis, the evidence from improvements to date has been that the positive results for copyright proprietors have more than offset the negative potential. The VCR, of course, is the best case in point. And the burden for persuasion should be on those who claim, for example, that an improved VCR or changes in media distribution will lead to a different outcome. Third, while improved technology may enable copyright owners to charge different prices to different users, new legal or technical power to achieve such a result should not necessarily be granted to proprietors as a matter of law. Moving on to other questions as to standards labeling and interoperability, it may be appropriate to provide for identification of contractual conditions that the providers wish to impose on its use. Different types of works may require different conditions or restrictions. The EIA has been a leading proponent of voluntary technical standards and, where appropriate, the setting or acceptance of standards by the FCC. The lesson with respect to non-interactive services has been the confidence in a national system or market, that it is to rely on universal access, requires that the FCC adopt a single standard. You could compare the success of television and FM radio with AM stereo on the other hand to see when there is not a standard that the FCC has chosen. The need for standardization of potentially interactive systems is, in some respects, similar. Clearly where the objective is universal access at the lowest possible cost to consumers, standards are essential. In the FCC cable compatibility proceeding, we have argued vigorously that consumers are best served by competition in the market for display devices and interface devices. As to licensing and technical measures, some copyright owners may wish to establish contractual licensing systems with respect to the NII according to kinds or groups of works. Online systems have demonstrated that the NII is likely to be so dynamic, however, that it seems unlikely that the demand for and nature of uses can be accurately predicted. Accordingly, the workability of contractual and possible technical measures ought to be explored before any judgment can be made about the need for or prospective operation of any compulsory license. The question is, will there be a government role to structure, enforce or extend such systems based on copyright or some system of law and regulation. I think you can look to the Audio Home Recording Act for instruction. It's really, as Hilary Rosen indicated earlier, a little bit too early to judge, but there are some relevant points we can learn from that, and it is in my written statement. In the world of digital audio video works, standards are likely to include conditional access provisions. This is likely to apply to the international voluntary end pay, documentation of the work of the Grand Alliance in ACATs in and HD-TV standard, as well as the work towards a standard for digital cable TV and similar services, including HD-TV implementation. Thus, the work ongoing with respect to conditional access and transmission standards may be relevant to additional standards work now ongoing with respect to reproduction. I see my time has elapsed, Mr. Chairman, so I will refer you to my written statement. I appreciate the opportunity to have appeared today. And we recognize the importance of your work and we stand ready to assist in any way possible. CHAIRMAN LEHMAN: Thank you very much. Are there any questions of any members of the panel? (No audible response.) CHAIRMAN LEHMAN: Thank you very much for joining us. Our next witness will be Dr. Douglas Brotz who is the principal scientist at Adobe Systems, Incorporated, Mountain View, California. I want to make note of the fact that we're going to have one other witness following Dr. Brotz. That is Frank Connolly, Associate Professor at American University. He wasn't on our list here, but we're going to accommodate him by adding him to the list. Then we'll be finished for the afternoon. If you would proceed, Dr. Brotz. Thanks for coming all this way to help us out. TESTIMONY BY DOUGLAS K. BROTZ, Ph.D. DR. BROTZ: Thank you, Mr. Chairman. I represent Adobe Systems, Incorporated, which is a leader in the design of systems for expressing information for display transmission and printing. So, my company is very interested in how the NII will shape up. I find myself in the interesting position of being the next to last witness and, therefore, finding that many of my comments have been stated by previous speakers. So I will need to ask that some of their remarks be incorporated in mine by reference, but, of course, only short quotes so as not to go beyond the bounds of fair use. (Laughter.) DR. BROTZ: I feel that there is an important question that needs to be asked even before the questions that were listed in the notice of hearing. That is, what exactly are we talking about when we talk about the NII? I feel that there is an assumption, a dangerous assumption, that is inherent in many of the questions. And that assumption arises from our use of the superhighway system as a metaphor for this new information system. It is useful to have metaphors so that we can discuss things without understand the deep technology, but sometimes the metaphor becomes the reality for people and we lose sight of what the actual thing is that we're discussing. The NII is not a single isolated entity, like the super highway system. In California, for example, when you enter a freeway there is a little green sign that says "Freeway Entrance." But there will not be any such sign in the NII. The NII, as we have it now and as it will exist in the future, will be a very amorphous collection of information transmission systems. It will use telephone lines, radio waves, physical media being transported from place to place and a variety of mechanisms that we might not even foresee today. So when talk about the NII, I think it's not reasonable to use terms like the security of the NII because we're really talking about how secure intellectual property is in any form that we see it. If I go to strain the analogy a little more, there are no border crossings in the NII. That is, there is no customs gate where we can check to see whether you are going outside the national system and into the international system. As Mr. Traphagen has said, we really have to look beyond our own borders to the international arena to see what the implications are of the policy decisions that we make here. It will be of utmost importance for us to enter into multilateral agreements and harmonization of intellectual property laws because once we put something on a network here, it really is in the global network. I am reminded that much of the initial news that we had about the uprising in Tiananmen Square came over the Internet. There is no finer example for how international this system actually is. Regarding encoding standards and licensing standards, I feel that we currently have absolutely no experience with a truly National Information Infrastructure. What we have today is not available to all people in our country. And the scope of the system that we have today, the Internet and its assorted branches, while extensive, is nowhere near the kind of system that we envision. As a result, I echo the comments of the overwhelming majority of speakers today that setting standards today would be extremely premature. We have found that standards can be developed through the marketplace and that that is generally a very effective mechanism for developing a new technology. Even though my company may benefit from some of our techniques being made standards, we still feel that mandating a standard today would stifle innovation and it would stifle our own company's future. When we talk about security, I think that it is very important for us to encourage a wide variety of security mechanisms and allow experiments with different types of security mechanisms, allow the providers of information to chose the kind of security that they feel is appropriate and not mandate one particular standard, but be open to the inclusion of many different security means in electronic media. We have found in our company that there is a definite trade-off between legal protections and technical protections. That is, in places where there are strong legal protections, you don't need very strong technical protections and vice versa. Where there is no legal protection or very weak legal protection, then you have to depend on strong technical protections. But given the choice, I would come down on the side of strong legal protections rather than technical protections because, in my experience, I have become skeptical of any technical solution for protecting people's rights. We are talking here not about a consumer product such as a digital audio tape where people really don't get into their machines with soldering irons and whatnot. But we are dealing in the world of computer programmers, hackers, people who are very intimately experienced with taking apart pieces of software and hardware and what have you. Even the most baroque protection scheme, I can guarantee you, can be gotten around. Given this state of affairs, I feel that the technical protection is a necessary evil. We should allow it to be, but we should do whatever we can to make it unnecessary. We find that, for example, in places where there is strong legal protection, the technical protection merely gets in the way of selling a product and gets in the way of a more widespread use of the product that we're trying to sell or distribute. Whereas, when we are talking about selling something in a country like China, for instance, no distributor will touch our product with a 10-foot pole unless we have the strictest kind of technical protection. I would also like to say a bit about education. Everybody here is for education. I have not heard a nay vote yet. There are all kinds of ways that we might go about it. Let me take my right to be self-contradictory at this point and lapse into the highway metaphor because I would like to propose a simple idea that I would hope might be elaborated on by others. It is that, given that we are talking about intellectual property rules as being so-called rules of the road, we might have an interesting way of educating the public by coming with the concept of a so-called driver's license for the information highway. This concept does not have to be very deep. However, the Federal Government could take a leading role in defining what the rules of the road actually are, putting together a so-called driver's handbook that would be distributed to people who need it. And perhaps such a driver's license, which might be some complicated piece of password or identification or whatnot, could be used as a baseline by other people in their licensing schemes to at least say that this person has passed the rules of the road test and at least understands what intellectual property is about. My company has experience with trying to get people to contractually obligate themselves to obeying certain rules of the road. When we were trying to sell equipment in Japan we felt that it would be necessary to have every customer sign a license in the store where the person would pick something up because it was considered that shrink-wrap licenses or the other mechanisms that we commonly depend on in the United States just would not cut it there. I think that such a driver's license, as I've proposed, might include some kind of signed obligation saying, yes, I understand what this is. And it might provide some basis. I see my time is finished. If there are any questions, I would be happy to take them. CHAIRMAN LEHMAN: Does anybody have any questions of Dr. Brotz? MS. BERNSTEIN: Yes. Who would run such a system, your driver's license system, if it's a government-controlled thing? DR. BROTZ: I hesitate to appoint the Department of Transportation. (Laughter.) DR. BROTZ: I have not formed this idea much beyond the metaphor stage. But the Department of Commerce, at least the main arm of definition of intellectual property policy, might be a worthwhile candidate. MS. BERNSTEIN: What kind of minimum standards would there be for someone to get such a license in your not-yet-thought-out view? DR. BROTZ: Well, there might be an exam consisting of 10 questions where you have to get them all right, such as, can I copy anybody's floppy. The answer is no. I like that. Of course, exactly what the content of this exam would be, would be open to hearing after hearing. But at least it's something to start with. CHAIRMAN LEHMAN: The question was, who is going to pay for it? MS. BERNSTEIN: Yes. CHAIRMAN LEHMAN: We're a fully user fee funded agency here. MS. BERNSTEIN: Are you going to charge a fee for licensing? CHAIRMAN LEHMAN: That's the way it's done, I guess. Most motor vehicle departments, if we're going to use that analogy, do so. Anybody else? (No audible response.) CHAIRMAN LEHMAN: I really want to thank you for coming all this way and helping us out today. Finally, I would like to call Dr. Frank Connolly, Associate Professor from American University. MS. SOUTHWICK: Do you have copies of your statement with you? DR. CONNOLLY: I've got a couple more I would be happy to share with you. CHAIRMAN LEHMAN: We might be able to cover everybody here. I know that Dr. Connolly has worked a lot with the EDUCOM, the consortium of colleges and universities, dealing with software and copyright related ethics problems. TESTIMONY BY FRANK W. CONNOLLY, Ph.D. DR. CONNOLLY: Thank you, Secretary Lehman. My name is Frank Connolly. I'm an Associate Professor with Information Systems at American University here in Washington, D.C. I want to thank the members of the Working Group for the opportunity to appear at today's hearing in order to express my concerns regarding intellectual property and the NII. I apologize for keeping you overtime since the agenda clearly states that I'm not on it. Since 1988 I've been actively involved with issues associated with intellectual property, particularly as they relate to education. I've worked closely with EDUCOM, as Secretary Lehman mentioned, and with AAHE to develop several ethics related initiatives. At present I had a project seeking wide adoption and discussion of a bill of rights and responsibilities for the electronic learners. The statement is intended as a model for schools and colleges proposing the rights and responsibilities for individuals and institutions regarding computers and computer networks. A copy of the bill is included in the materials I submitted to you. And I'll be pleased to discuss it with you if you would like. The focus of my testimony today, however, is on the effects of possible controls placed on NII resources. There is no doubt as to the impact the NII will have on access to information and entertainment products. In addition, the NII holds the potential to significantly improve the accessibility and quality of education in this country. It is this educational facet that I wish to bring to your attention and consideration by the Working Group. The announcement for this hearing published in the Federal Register read in part, "the commercial viability of the NII hinges not only upon effectively promoting and encouraging the use of the NII by all types of users, but also on implementing standards and policies for the NII in a manner that assures that the owners of products disseminated through the NII retain sufficient control over those products to prevent unauthorized use." The statement succinctly presents the conflicting objectives that I think the group faces: promoting encouraging use of the NII on the one hand and controlling use of the NII on the other hand in order to protect the interest of owners of products disseminated through it. The one seeks to foster open and ready access to resources while the other seeks to measure and limit that access. In considering alternatives for protecting the interests of creators or rights holders, you must also continually weigh the needs of learners and educators within the community of users. Creators and rights holders need protection to ensure their continued effort and to guarantee their viability and success of the information industry in the United States. This is an important economically critical factor in your deliberations. However, I would propose it is not the highest priority for our society. To achieve it's potential, the NII will require citizens who understand the capabilities and limitations of electronic highways and have facility in navigating the intricate highways and byways that it will provide. For this to be realized, students and teachers need to access the network and its resources. To pave the highway up to the schoolhouse and classrooms of the country and then place protectionist roadblocks to using text, images, news clips, musical scores and databases the NII offers, undermines one of its critical objectives. Regulations you propose must encourage access to and use of the teaching and learning materials of the NII by exempting such materials from controls that are appropriate in non-educational settings. By this I mean, I think we should be extending the concept of fair use to the NII that is necessary to significantly improve the manner and quality of education. In print context, fair use makes limited resources available without permission under specific conditions. The spirit of fair use needs to be extended to and promulgated in the NII. Materials for teaching and learning that would otherwise be protected and controlled must be readily and freely available for non-profit educational purposes without the need for time consuming procedures to identify rights holders, request permission to use the material, and then negotiate an agreement that requires review by administrative and legal staffs of one's institution. The very students the NII can benefit most will be hurt if something similar to fair use is not available. Protecting the financial interests of creators and distributors at the expense of teachers and learners will broaden the chasm between have and have-not colleges and schools. The resources the NII will make available to enhance teaching and learning are too valuable for intellectual property protection to restrict their reasonable use for instruction in our classrooms. One objective for the Working Group, again quoting, "effectively promoting and encouraging the use of the NII." I would propose a parallel objective regarding fair use resources on the NII. You ought to strive for policies, procedures, and educational materials effectively promoting and encouraging fair use on the NII. Electronic fair use policy for the National Information Infrastructure should take a proactive stance clearly delineating what is and what is not covered by fair use and encouraging educators and students to take full advantage of those resources. An electronic fair use policy should make resources readily available for non-profit educational purposes. It should be clearly stated and delineated in statements directed to educational institutions. It should provide clear guidelines for determining the limits of fair use for digitized materials in all media. It should encourage and foster the use of materials in education, not just allow it. And it should be widely publicized to educators. In addition to fair use provisions, your recommendations should propose procedures and practices that facilitate the process of gaining permission from rights holders when that, too, is necessary. Working through the maze of distributors, publishers, and collaborating authors and creators will continue to be a significant and time-consuming hassle. Rights holders of material on the NII need to be clearly identified and facilities for communicating with them to request permission for their use need to be available. Although permission services are springing up to help ease the "administrivia" of locating rights holders and gaining permission to use their material, these are of limited benefit to many higher education institutions and to most schools. Commercial firms, large research institutions and well-endowed colleges may be able to take advantage of these service firms, but public school teachers and faculty at thousands of smaller colleges have no budget to pay for such services. With or without permission services, bureaucratic requirements and convoluted permission procedures on the NII will counter the objective of promoting and encouraging the use of the NII by all types of users and it will significantly limit its educational potential. The intent of intellectual property law is to advance science and knowledge. To advance science and knowledge in the 21st Century means that teachers and learners, from kindergarten through graduate school, need fair use access to appropriate uses on the National Information Infrastructure. And last, in the name of rewarding creating and authors it would be short-sighted and counter to the long-term interest of our society and the economy. I thank you for this opportunity to express my concerns to the Working Group. Thank you. CHAIRMAN LEHMAN: Thank you very much, Dr. Connolly. Some of the aspects of your bill of rights could be included, I suppose, in Dr. Brotz's driver's license test. DR. CONNOLLY: I think that's possible. In fact, there are school systems that actually have driver's license procedures for it. I think Montgomery County is one of the school systems that has instituted a program where you have to get a driver's license before you can get access to the school's computers. CHAIRMAN LEHMAN: That's useful information. I didn't know that. Right in our back yard. There are obviously great minds thinking alike around the world. DR. CONNOLLY: I wish I was one of them. CHAIRMAN LEHMAN: I think so. Are there any questions for Dr. Connolly? (No audible response.) CHAIRMAN LEHMAN: I guess not. Thank you very much for joining us. DR. CONNOLLY: Thank you. CLOSING REMARKS CHAIRMAN LEHMAN: My agenda calls for closing remarks. There won't be many other than to say that over many years I've sat through many hearings having to do with intellectual property issues. And I must say this is actually one of the more pleasant ones because by and large there were not violently opposed groups causing us to have to make very hard decisions, with the possible exception of the possible dispute over performance rights and sound recordings where we heard vastly different views from broadcasting interests and sound recording and motion picture interests, as is to be expected. Otherwise, this was of the more sort of harmonious discussions of intellectual property that I've been through in the last 20 years. So I want to thank everybody, many of you for coming long distances, many of you for having the interest to sit here to the bitter end, which was quite remarkable, and all of you for helping us try to provide a better intellectual property foundation for our new National Information Infrastructure. Thanks very much for coming today. Just one final point, Terri Southwick here to my right, is the contact person. Her number is 703-305-9300. If you need to follow-up, I don't have her Internet number committed to memory, but I think it would be a nice thing if those who submitted testimony could submit it in disk format so that we could try to put together a digitized version of this that would be available on the Internet. Also, we're going to try make that available, also, the court reporter's transcript as well. Any follow-up information or whatever that you have, it's in the notice, but you can also call Terri Southwick about it. Thanks. (Whereupon, at 4:05 p.m. the public hearing in the above-entitled matter was concluded.) AMERICAN REPORTERS NATIONWIDE WASHINGTON METROFAX (800) 929-0130 (703) 644-7636(703) 866-7049 {page |1} {page |1}