• The Honorable Norm Coleman

• The Honorable Sam Brownback
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  The Honorable Sam Brownback

  I would like to begin this morning by thanking Chairman McCain for permitting me to hold this important hearing at the Full Committee. Today’s hearing focuses on two timely issues for consumers in the information age: new challenges to their privacy, and an ongoing Federal Communications Commission proceeding that raise the specter of depriving them of their customary and legal uses of broadcast television content. • Our first panel will discuss the merits of the Digital Millennium Copyright Act’s information subpoena, included in section 512(h) of the Act. Recently a federal court has held that copyright owners may use the subpoena to compel Internet service providers to disclose to them the names, addresses, and phone numbers of their subscribers suspected of piracy. This occurs when an ISP’s service acts as a “conduit”, or the transport, over which the subscriber sends and receives data. This subpoena process includes no due process for the accused ISP subscribers. • This past July, a hardcore pornographer, Titan Media, filed a subpoena against SBC Communications seeking the identifying information of 59 SBC Internet subscribers. Since that time, Titan has offered a most generous amnesty program: those ISP subscribers it suspects of piracy can go to their website and buy porn, and in exchange Titan won’t identify them. Gracious indeed. • I support strong protections of intellectual property, and I will stand on my record in support of property rights against any challenge. But I cannot in good conscience support any tool such as the DMCA information subpoena that can be used by pornographers, and potentially even more distasteful actors, to collect the identifying information of Americans, especially our children. • Yesterday I introduced the Consumers, Schools, and Libraries Digital Rights Management Awareness Act of 2003, in part, to eliminate the results of the RIAA’s case against Verizon to ensure the DMCA information subpoena cannot be used in this manner. • The Consumers, Schools, and Libraries Digital Rights Management Awareness Act of 2003 also addresses other issues vitally important for consumers in the digital environment. This legislation seeks to preserve consumer and educational community customary and legal uses of content, and to create minimum protections for them as digital rights management technologies are increasingly introduced into the marketplace. • Digital rights management, otherwise known simply as DRM, refers to the growing body of technology – software and hardware – that controls access to and use of information, including the ability of individuals to distribute that information over the Internet. • DRM provides content owners with powerful new tools to protect digital content from piracy. DRM can also prohibit Internet redistribution of digital media products. As we have seen with copy protected CDs and the popular tax filing software, Turbo Tax, DRM can also fundamentally change the way consumers have customarily and legally used content. • Today’s hearing seeks to answer the question of whether government should mandate DRM solutions to combat piracy, and whether such an action can be achieved without limiting the public’s customary and legal uses of content. • Two days ago AT&T labs issued a report estimating that 77% of the pirated movie content available through peer-to-peer file sharing software has been made available by movie industry employees, not unaffiliated consumers. This report raises strong questions about whether digital video piracy occurring today is primarily a governmental or intra-industry issue to be dealt with at this point. • Currently the Federal Communications Commission is considering how to implement Hollywood’s proposal for the Broadcast Flag, a DRM proposal designed to protect digital television programming. The proposal would require that a flag be attached to DTV programming, which would in turn inform consumer electronics devices that the DTV content cannot be redistributed over the Internet. • The Flag as envisioned by Hollywood is clearly problematic. Today consumers and the educational community are empowered to use content in a host of ways, none of which require the permission of the copyright owner. By including a complete ban on Internet redistribution of DTV programming, Hollywood’s Broadcast Flag proposal will artificially limit the way consumers may take advantage of the Internet to make these customary and legal uses. In fairness to Hollywood, I am not aware of an existing DRM technology that both prohibits piracy, yet also allows consumers to redistribute content over the Internet in legal ways. • Unfortunately, Hollywood’s Broadcast Flag proposal also makes it exceedingly difficult for new DRM technologies that strike such a balance to ever be deemed “flag compliant.” Hollywood’s proposal makes a few large media companies, and a narrow group of consumer electronics manufacturers who own the patent in the initial DRM technology incorporated into the proposal, the gatekeepers in making such determinations. • To the degree that digital piracy of video content is a real issue, I have proposed a different way to address the protection of DTV content from piracy in the Consumers, Schools, and Libraries Digital Rights Management Awareness Act. Instead of mandating specific technologies, and giving one set of stakeholders a veto over others, my bill would create a self-certification environment, where hardware manufacturers may use whatever technology they determine meets the requirements of the Flag. In addition, the flag itself imposes a rule that DTV content cannot be illegally redistributed to the public over the Internet, which is a more flexible anti-piracy policy that the one in Hollywood’s proposal. In my bill it is the FCC that will resolve any disputes that arise in determining if a self-certified technology does not comply with this anti-piracy safeguard. • These are important issues for our nation’s transition to digital television, as the content community has threatened to withhold digital content unless the issue of digital piracy is addressed. I look forward to hearing from our witnesses on these important issues. ###

Testimony

• Mr. James D. Ellis
  Read statement

  Testimony

  Mr. James D. Ellis

  I would first like to thank Chairman McCain and Senator Brownback and Members of the Committee for inviting me here today to discuss the important issues surrounding the Digital Millennium Copyright Act, the privacy and security of Internet users, and the protection of copyright content. SBC has a considerable body of intellectual property and we take all reasonable and responsible steps to protect those property rights. We recognize and respect the legitimate interests of other copyright owners as well. However, when SBC acts to protect or assert its intellectual property rights, it has to follow fundamental and time-tested rules and procedures that are applied every day in our courts. Others, however, advocate what we believe to be a misapplication of the DMCA in order to create a private and limitless right of subpoena – devoid of all rules and procedures. The recording industry has legitimates rights and concerns - but the answer is not to create a private right of subpoena that completely ignores the safety and privacy of America’s 100 million Internet users. Peer-to-peer file swapping technology, like that utilized by music file swappers, did not exist in 1998 when the DMCA was passed. Yet, the recording industry would have you believe that Congress and the ISPs foresaw the future and agreed to strip all Internet users of their rights of privacy, anonymity and due process just because they are accused of infringing copyright over a peer-to-peer network. Under this distorted interpretation of the DMCA, we have already seen that SBC and all ISPs are being besieged by thousands of subpoenas, all without any court supervision. Given the fact that these subpoenas are merely rubber-stamped by a court clerk with out judicial oversight, we are concerned about the protection of our customers’ safety, rights of privacy, anonymity and due process. However, we remain committed to working with the recording industry and all copyright owners to find solutions that properly balance the rights of all interested parties. I. Accepted Safeguards and Rules of Civil Procedure SBC and thousands of other litigants adhere to the following fundamental and time-tested rules of procedure when protecting their intellectual property rights: i. We have to investigate our claim and the elements of the claim. ii. We have to expose our allegations to the light of day in a court of law; iii. When we file a suit, SBC must abide by the requirements of Rule 11 of the Federal Rules of Procedure which insures that the attorney who signs the pleadings has undertaken a good faith investigation of the facts alleged, iv. If necessary, we would petition the court for expedited discovery to learn the name and location of unknown defendants; v. We could obtain a subpoena for the records of third parties in order to identify such unknown defendants; vi. We would observe the provisions of Rule 45 of the Federal Rules of Civil Procedure and insure that the subpoena is issued by a Court within 100 miles of the party served which affords that party an opportunity to resist the subpoena in a forum convenient to them; and vii. Interested parties would be afforded an opportunity to challenge us in court under the supervision of a judge or magistrate These same procedures are followed by litigants thousands of times a day in courts all across the country. II. A System Without Safeguards or Rules In contrast to the well-settled rules that everyone else follows, the Recording Industry Association of America (“RIAA” or “Recording Industry”) and others would propose the following special treatment to avoid the annoyance of rules and procedures: i. Without regard to Fed. R. of Civ. P. 45, a person claiming to be a copyright owner or its agent can pick any Federal District Court, from Guam to Maine, and can use that court as its private subpoena factory to generate hundreds or thousands of subpoenas on the mere assertion of a “good faith” belief that their copyright has been infringed; ii. The “good faith” belief is not subject to the obligations or sanctions of Fed. R. Civ. P. 11 because no lawsuit need be filed; iii. After paying a small fee, and without any substantive review, the alleged copyright owner can require the clerk of the court to issue a subpoena whereby, under force of law, an ISP must within 7 calendar days, provide the name, address, telephone number and email address of the person or persons informally accused of wrong-doing; iv. The alleged copyright owner never needs to file a formal claim, and never needs to appear before a judge or magistrate. In fact, the party never has to explain what it did with the personal information it obtained. v. By the time any Internet subscriber would be allowed to protect his/her private information or interests, it would be too late. Again, Congress did not intend this application of the DMCA to peer-to-peer activity because peer-to-peer technology did not exist at the time the DMCA was passed in 1998. III. The Safety and Privacy Risks of No Court Oversight While SBC appreciates the need to protect legitimate copyright interests, this unsupervised private right of subpoena poses safety, security and privacy risks to all Internet users. There is great risk that others who under the guise of a copyright owner would obtain a subpoena for illicit or illegitimate purposes. A person’s name, home address and telephone number might be released without that person ever knowing that the information is no longer private. Based on nothing more than an unverified allegation, personal information can be tied to activities, subject matter or affiliation of a person on the Internet and that information can be used for illegitimate reasons that go beyond copyright enforcement. In this system, by the time any abuse is discovered, the name, home address and telephone number of the Internet subscriber has already been released. In addition, this private right of subpoena is available to anyone and everyone, not just the Recording Industry. That thought is especially disturbing considering this private right of subpoena is available to a pedophile lurking in an Internet chat room; an abusive spouse, or a stalker. Someone who is intent on doing bodily harm is not going to be dissuaded simply because the law states that they may be liable for “damages or attorneys fees” for misrepresentations. By then, the harm is done. This past August alone, SBC‘s affiliated Internet Service Providers received almost 200,000 emails complaining of abuses of the Internet. While most of these emails complain about spam, and other Internet abuses, a significant number pertain to harassment and threats. A female subscriber recently complained “This man has been internet stalking me. He was first asking me to call him and when I refused, he started saying that he loved me. Then I received this in my mail... look at the title. I feel he is a threat to me.” The title of the email contains clear threats of bodily harm and is too offensive to repeat in this forum. I have submitted a redacted copy of the email for the record. If this private right of subpoena is ratified, the person making these threats can go to the clerk of any district court, submit a short form letter, pay a small fee and force an ISP to tell him this person’s name, where she lives, and what her telephone number is. This is but one very real example of how the public policy implication of this issue extends far beyond mere music piracy. SBC Internet Services, through its Pacific Bell subsidiary, recently filed suit in California against a company called Titan Media, along with the Recording Industry and one other company, over misuse of the DMCA. Titan Media is a purveyor of gay pornography and, by obtaining the issuance of one single DMCA subpoena in California, Titan demanded that Pacific Bell Internet Services turn over the names, addresses, telephone numbers, and email addresses of 59 individuals who were alleged to have illegally obtained its pornography through peer-to-peer file swapping. SBC has no reason to believe that Titan’s intentions and tactics are based upon any motivation other than simply protecting its copyrights. However, imagine the potential for abuse if such information is provided to a party with less than honorable intentions. Even associating a person’s name with such material might have far reaching affects on the individual’s personal and professional life beyond any copyright issues that may exist. The privacy implications of this unsupervised, private right of subpoena are frightening. IV. Private Subpoena Power – Constitutional Issues The private right of subpoena sought by the Recording Industry and its allies present difficult Constitutional problems as well. Article III of the Constitution limits the power of the courts to pending cases or controversies. Courts may not be private enforcers. Under this proposed system, there is no requirement that a lawsuit is ever filed. The party obtaining the subpoena never has to expose his claims to a judge or magistrate and never even has to explain what he did with the personal information he obtained. The evidence at hand indicates that the Recording Industry alone has obtained close to 2000 subpoenas – all out of the court in Washington DC – but it has only filed approximately 250 lawsuits. This is a clear example of our courts acting as private enforcers with no pending claim or controversy, and this is directly contrary to the Constitution. This unsupervised private right of subpoena also strips Internet users of their First Amendment rights to communicate and publish anonymously – without due process of law. The Recording Industry and its allies have taken the position that they need only make an allegation of infringement and Internet users have no rights. But that “guilty until proven innocent” proposal goes against our entire judicial system – whether civil or criminal. That so-called logic is analogous to saying that citizens who are merely accused of one particular type of crime have no constitutional rights. Thankfully, our judicial system requires the often bothersome task of actually proving your allegations before the rights of the accused are forfeited. V. Resource Burdens and Substantial Costs The interpretation of the DMCA advocated by the Recording Industry and others would result in a limitless, private right of subpoena. As the Recording Industry has shown us, this process can be mechanized like an assembly line. Further, the Recording Industry demands compliance to its limitless subpoenas, all within 7 calendar days. This mis-use of the DMCA would require ISPs to allocate significant resources at substantial costs which, according to the RIAA, cannot be recouped from the party seeking the records. In our experience, each subpoena requires approximately one hour to fully process, and that assumes that all information is correct and easily available. That estimate does not include the time to notify the subscriber that a stranger is asking for his/her personal information. That estimate also does not include the cost of assets and tools necessary to do the job. The Recording Industry has taken the position that ISPs must respond within 7 calendar days, and that they must do so free of charge. This goes against the well-established provisions of Fed. R. Civ. P. 45, and the DMCA and the Federal District Court in the Verizon decision both clearly demand that the protections of Rule 45 apply. However, this assembly line of subpoenas results in other very real and practical problems as well. ISPs do not operate with unlimited resources. Therefore, if any person can submit a limitless number of private subpoenas and demand an “expeditious response” at no cost, then ISPs will have no choice but to divert resources away from assisting with law enforcement subpoenas and warrants sp that they can act as unpaid private investigators for the Recording Industry and others exploiting this abuse of the law. This issue is NOT just about music piracy, and it is not just about the Recording Industry. Before we create an unsupervised private right of subpoena, sweeping away important procedural and Constitutional protections, all of these public policy issues should be addressed by Congress. VI.. Legislative Resolution Legislation like that proposed by Senator Brownback addresses all of these issues because it relies on the same time-tested rules and procedures that the rest of us must follow. Requiring the filing of a lawsuit would bring this subpoena power within Constitutional and procedural safeguards. It would require that the alleged copyright owner reasonably investigate his claims, and expose his claims to the light of day, pursuant to the protections of the Federal Rules of Procedure. In so doing, it would provide Internet users basic notice and an opportunity to be heard –all the protections denied to them by the current abuse of the DMCA– and it would require more than a mere allegation based upon not even the slightest amount of due diligence. Finally, a judge or magistrate would be able to examine the copyright owners’ claims, address any glaring deficiencies in the claims, address any applicable defenses, and ensure that no mistakes were made by copyright owners or their computerized search robots. It would recognize the right of third-parties to recover costs associated with these burdens. And, it would provide basic due process before privacy and First Amendment rights are forever lost. We don’t seek to deny them the ability to assert their rights. We seek an opportunity to work together to protect legitimate copyright interests, while safeguarding the security and privacy of Internet users, and respecting the legitimate interests of ISPs. We propose to do this by applying the same rules to one and all. Thank you for your time and attention to this important matter.

• Mr. John Rose
  Read statement

  Testimony

  Mr. John Rose

  Mr. Chairman, members of the committee, thank you for inviting EMI Music to testify at this hearing. I am the Executive Vice President of the EMI Group and EMI Music. My main areas of responsibility include business strategy, digital distribution and anti-piracy. I have been with EMI for the last two years. Prior to joining EMI, I had a 20-year career as a consultant at McKinsey and Company serving media, telecommunications, and high tech companies. I am not a lawyer and so am here today to testify about the impact of piracy on the record industry and the various ways that we are combating piracy, adapting to the emergence of new technologies, and creating new products and services. Mr. Chairman, we have to win the battle against digital piracy, and we need your help. We have to win not only because hundreds of thousands of American jobs are at stake, not only because a vital sector of the economy – one of the few that runs a positive trade surplus – is at stake, and not only because our product helps drive expansion of the telecommunications, consumer electronics and personal computer industries. We have to win the battle because the future of a unique American heritage – music -- is at stake. EMI Music is the home to the recordings of Frank Sinatra and John Coltrane. Where is the next American music icon? If piracy continues unabated, we may never find him or her. EMI is unique among the music companies—our only business is music. As a result, we have a big stake in online music. EMI has acted aggressively to make its music available to consumers through legitimate online services to meet consumer demand and thereby combat piracy. The lawsuits brought by the RIAA are only one part of an overall strategy whose goal is to reduce the amount of egregious digital piracy that is eroding our business. The other parts of that strategy are educating consumers and aggressively and eagerly providing our music to consumers the way they want it – by licensing our music to any number of legitimate digital distributors. I plan to discuss these other elements of our strategy later in my testimony. The last few years have been dramatic ones for the record industry, including EMI. Few industries have faced the intensity of discontinuity felt by the record industry as a result of dramatic changes in technology, new competition from non-music entertainment products, consumer behavior through piracy, and a changing retail environment. Let me give you just one example of the transformative events experienced by the music business. In 1995, music formats and the devices for playing them were simple and the relationship between the two was straightforward. A vinyl record played on a record player. A cassette tape in a tape deck, a CD in a CD player and so on. A mere seven years later, and not only have the number of music formats and music devices multiplied, but the relationship between the two has grown remarkably complex: Few industries have coped as well with such extensive changes in their business environment. Still, the future of music has the potential to be dynamic and exciting. As we digitally deliver music to consumers and embrace the potential of new forms of distribution, the music industry has the potential to drive dramatic innovations among the music, telecommunications, consumer electronics and computer industries. But if we do not work across industry lines to solve the music piracy problems we face, the future of the industry also has the potential to be bleak. I am not going to repeat all of the piracy facts that Cary Sherman of the RIAA has already presented to you in his written testimony. But I do want to highlight three recent statistics. First, according to the NPD Group, 7.5 billion music files on Americans’ computers were obtained through peer-to-peer (P2P) file swapping. That’s almost two-thirds of the total number of music files on computers. Second, in June of this year, even after extensive publicity that music piracy is illegal, long after the RIAA had initially sought its first subpoena, and long after the RIAA had won its lawsuit against Napster, only 37 percent of people surveyed in a poll knew that downloading files on P2P systems is illegal. Third, the growth in these P2P services has directly and unequivocally harmed our business. Every serious and credible study of these services – conducted by the industry and by third parties -- concludes that a significant portion of the decline in record industry sales over the last three years is attributable to these P2P services. At EMI those numbers have had a real and painful effect on us in several major respects: · Piracy affects our ability to reinvest in new and developing artists thereby imperiling the livelihood of new artists and the future of music itself. Last year, at least in part due to digital piracy, EMI had to cut its artist roster by roughly one-fourth. Moreover, there is simply no question that digital piracy affects our decisions about signing new artists, how much we are willing to pay artists when we sign them, how long we are willing to maintain an unprofitable relationship with them hoping it will become profitable, and how many artistic risks we are willing to take. · Piracy affects our ability to invest in new technologies and in new or creative ways to distribute our product. · Piracy affects each of our shareholders. EMI is the most profitable large music company. Last fiscal year, our operating profits increased 33 percent. But in the same period, our market capitalization declined by 76 percent. · And finally piracy affects our employees. Last year, digital piracy contributed to our decision to publicly and painfully cut our work force by about 20 percent. Every other record company is facing the same situation. In order for us to successfully adapt to these changes and to combat piracy, the legal environment has to remain stable and our ability to enforce and protect our property rights has to be guaranteed. The current legal strategy being pursued by the RIAA using the subpoena authority granted under the Digital Millennium Copyright Act (DMCA) is the result of long and careful thought. Mr. Chairman, there has been a great deal of debate about the privacy implications of the DMCA subpoena process. As I say, I am not a lawyer, but I am confident of three things: First, the DMCA subpoena process is structured the right way. It facilitates rapid and efficient resolution of copyright infringement claims, which is vital if we are to have a legal and business climate where technology can develop while at the same time content producers can thrive -- protecting their substantial capital investments and making the reinvestments necessary to produce new content. Let me elaborate on why an expeditious process is so important. Digital piracy of a new CD produced by an EMI artist – or any record company’s artist – spreads in a flash. A digital pirate file on P2P systems multiplies like a virus. The pirate file is a perfect replica of the genuine file and enables P2P users to essentially set themselves up as miniature digital factories that can churn out our CDs faster than we can. In order to fight the virus, we have to move very quickly. A delay means that the perfect pirate file can have replicated thousands or hundreds of thousands of times before we can get to it. The DMCA subpoena gives us the speed that is so vital for us to survive. You may be under the impression that digital piracy is only conducted by unsuspecting teenagers who just want to listen to the music they love. But that’s not the case. Digital piracy also encompasses the organized and malicious piracy of hacking groups – rings of thieves whose goal is to obtain advance copies of music, videogames, business software and movies and to leak them onto the web. It also includes the piracy of egregious uploaders who make thousands of copyrighted songs available to anyone with an Internet connection. In fact, according to NPD data, eight percent of the total population of people who save digital files on their computers have more than 1,000 files. Those eight percent account for nearly 60 percent of the music available for download on P2P systems. To be sure, some digital piracy is what you may think of as casual – a 14-year-old coming home after school and listening to a few favorite songs. And, yet, more than 40 percent of all music files downloaded today are by people over the age of 30 according to NPD studies. All these types of digital piracy have direct connections to global physical piracy by organized crime rings. In one instance late last year, the new album of one of EMI’s biggest artists was leaked onto peer-to-peer sites several months before the CD was due to arrive in stores. In fact, it was leaked before EMI itself even had the master recording or could begin to execute its own marketing and sales plan. But because of P2P systems, within a matter of hours, a perfect digital copy of the music was available worldwide. Organized crime rings in parts of Asia were able to download the music, burn thousands of physical CDs, and have them on sale on the streets of Singapore and Hong Kong within a few days – complete with bonus material. Second, the recent public debate spurred by the DMCA lawsuits has been enormously useful in raising public consciousness. I recently met in my office with a father of two children who told me that he would never allow his children to copy software. But he actually had been proud of his son’s ability to download music using P2P systems. The RIAA’s public education and legal strategy helped him realize that no principled distinction was guiding his thinking. A three-minute piece of intellectual property that you can listen to on radio may seem like a very different thing than a computer program. But the legal underpinnings of all these copyrighted works is the same. If you undermine the legal support structure for one, you undermine it for all of them. Third, the current argument raised by Verizon and SBC about privacy is not so much about their customers’ privacy as it is about economics. Ironically, Verizon and SBC’s bottom lines are directly tied to the record industry’s fortunes as a result of the increasing interdependence and interrelated economics of our industries. The real question is whether the relationship between their profits and ours has to be inversely related. EMI believes that it does not. Thus far, the RIAA has asked for approximately 1500 subpoenas. The regional Bell operating companies, two of which have representatives sitting before you today, have more than 200 million customers. They provide those customers with detailed bills on a monthly basis. They daily respond to many hundreds of thousands of consumer and government inquiries that dwarf the number of subpoenas that the RIAA has issued. Relatively, responding to a few hundred, or even a few thousand, DMCA subpoenas from the RIAA can hardly be a significant administrative burden. This debate is not about privacy. It is about two phone companies attempting to protect the anonymity of customers who are breaking the law. The telecommunications companies, and the PC and consumer electronics industries, have become increasingly dependent on the content industries, music, movies and video games, to drive their businesses. These are the new economics of piracy. In a good year, the largest record companies and the largest music publishers generated combined worldwide profits of approximately $1 to 1.5 billion, and this is likely an overestimate. As you know, the last few years have not been so good for the record companies, and those profits have been shrinking. EMI recently commissioned a study that demonstrates that the 2.5 billion to 5 billion files traded per month on P2P systems generate calculable, incremental profits worldwide of almost $7 billion per year for the telecommunications, PC and consumer electronic industries. Moreover, these same companies also derive a completely different set of soft benefits from P2P systems – consumer pick up of their products, accelerated broadband penetration, consumer loyalty to the phone service/decreased churn – that are not included in these calculations. Our findings show that the telecommunications industries alone derive approximately $3-4 billion in worldwide incremental profits from P2P activity. The U.S. share of those profits is approximately $1 billion. The analysis in this study requires further refinement, but it is clear that these three industries are reaping enormous profits as a direct result of consumer digital copyright piracy. Even assuming that these numbers are off by 50 percent, these industries made more profit off digital piracy than the worldwide profits in 2002 of all the largest music companies combined. No one in the music industry begrudges the right of the telecommunications, consumer electronics or PC industries to run businesses that profit from consumer behavior. But they certainly should not encourage or protect illegal behavior. A Verizon brochure from last year illustrates this point. The cover of the brochure on “broadband living” highlights three main benefits to buying a broadband connection: sharing photos, working from home and downloading music. That brochure then lists among music sites, a P2P site whose only application for copyrighted music is illegitimate. It has never been clearer that what happens in one industry -- telecommunications -- affects what happens in the other, the copyright industries. The DMCA understood and even tried to pave the way for a mutually beneficial interdependence. ISPs were relieved of liability in most circumstances – thereby removing a legal burden that could have hampered their development. But the copyright industries were provided with a simple, effective and speedy technique for protecting their property – thereby ensuring that rampant digital piracy would not undermine the copyright industries’ business model. The DMCA anticipated a collaborative process between all of the stakeholders in the digital copyright world. At EMI we are trying to deliver on that collaborative process. As I said at the beginning of my testimony, our strategy for combating piracy has three prongs: enforcement, awareness and availability. We will enforce our legal rights vigorously. We will strive to make our music widely available. Finally, we will undertake significant public awareness campaigns. You are already aware of the enforcement efforts that the RIAA has undertaken and the public awareness campaigns. EMI has been at the forefront of efforts to legally distribute music online. No other company has been as aggressive and assertive about these opportunities. EMI was the first of the global record labels to license its repertoire to Pressplay and MusicNet, the first two legitimate digital music distributors. To date, EMI has licensed its music for digital distribution to almost 75 companies, and approximately another 75 deals are currently in the pipeline. Almost 34,000 EMI tracks are available for download in the United States. 140,000 are available worldwide. Our online music is available at Apple’s ITunes store, at Buymusic.com, at MusicMatch and on nearly every major portal and site that sells legitimate digital music. In the face of massive industry change, EMI is actively finding ways to rethink its product and its distribution approaches. The music industry is learning to sell its music in an ever-expanding number of formats in only a few years. EMI has created standard deal terms, legal licenses, product definitions and deal policies that it uses worldwide. The music industry has been criticized for being slow to join the party. But given the dramatic paradigm shift the industry has undergone, I would say it’s actually been faster than other industries in comparable positions. Our ability as an industry to respond is at least comparable to that of the computer industry’s response to the evolution from the mainframe to the mini-computer to the personal computer. Mr. Chairman, EMI Music is one of the world’s oldest recorded music companies. It began in 1897 with the formation of two companies, The Gramophone Company Ltd and the Columbia Graphophone Company Limited. Those two companies merged in 1931 to create Electric and Music Industries. Today, EMI is the third largest record company in the world and the fifth largest in the United States. Its labels in the United States are Capitol, Virgin, Blue Note, Angel, Manhattan, Narada, EMI Christian Music Group, Capitol Nashville, Astralwerks, Higher Octave and S-Curve. EMI’s employees are not just in New York and Los Angeles. In fact the majority of our employees are based elsewhere in the United States. We have employees in Milwaukee, Wisconsin, Jacksonville and Chicago, Illinois, Atlanta, Georgia, and Miami, Florida among other cities. We are actually the largest employer in the Nashville music community as well. EMI releases the works of some of the world’s best known and loved artists: the Beatles, the Rolling Stones, Garth Brooks, Frank Sinatra, the Beach Boys, Norah Jones, Radiohead, Kylie Minogue and Coldplay to name a few. But we also work with a number of artists you may not have heard of – yet. These are the hundreds of new and developing artists that we hope to be able to bring to the world. Keri Noble is a new artist with Angel whose 5 song EP was just recently released. Joss Stone is a remarkable new soul singer whose first album on S-Curve Records was released yesterday. Jennifer Hansen and Dierks Bentley are two of country music’s most exciting new acts. Tribalistas are superstars in Brazil who are beginning to be discovered by American audiences. Maksim is a classical pianist whose first album has just been released in Europe. Online piracy threatens EMI’s ability to work with and invest in these new artists and others. Digital piracy and its follow-on effects have a serious impact on the way we do business. The first recordings made for EMI were made using the old-fashioned horn gramophone. We’ve been through 78 rpm records, LPs, eight track, cassette tapes and now CDs. More advanced audio platforms such as DVD Audio and SACD could be the next technology leap. But today we have to deal with changes that are among the most disruptive we’ve ever faced. Records are still as expensive to produce and market. Those costs do not go down and in fact they continue to go up. But because of piracy, it is harder and harder to run a profitable, long-term business. EMI is the only major record company whose sole business is music. We want to work collaboratively with the telecommunications, consumer electronics and personal computer industries rather than sitting in conflict with them. We are dedicated to making the music business work and thrive. And we have a workable model to accomplish that goal. We are aggressively distributing our product digitally and physically. We have implemented significant measures to curb rampant physical piracy, and we remain committed to intensifying those efforts in the future. Thank you for this opportunity to testify.

• Mr. Alan Davidson
  Read statement

  Testimony

  Mr. Alan Davidson

  Click here for a PDF version of Mr. Davidson's remarks.

• Mr. Cary Sherman
  Read statement

  Testimony

  Mr. Cary Sherman

  Introduction: Let me begin by thanking the Committee for inviting me here today. My name is Cary Sherman. I am the President AND General Counsel of the Recording Industry Association of America, the trade association representing the U.S. recording industry. RIAA members create, manufacture and/or distribute 90 percent of all legitimate sound recordings in the United States. The Piracy Problem Facing the Music Industry: Over the past three years, shipments of recorded music in the U.S. have fallen by an astounding 31%. And worldwide, the music industry has shrunk from a $40 billion industry in 1999 down to a $26 billion industry in 2002. Hit records have been impacted most dramatically. In 2000, the ten top-selling albums in the United States sold a total of 60 million units. In 2001, that number dropped to 40 million. Last year, it totaled just 34 million. The root cause for this drastic decline in record sales is the astronomical rate of music piracy. According to a November 2002 survey by Peter D. Hart Research, by a 2-to-1 margin, most consumers who say they are illegally downloading more music report that they’re purchasing less. The same survey found that the main reason consumers aren’t buying more music is that they get a lot of what they want for free by illegally downloading or copying it from others. These findings are bolstered by a June 2003 Edison Media Research report which found that “among the heaviest downloaders, 48% say they no longer have to buy CDs because they could download the same music for free over the Internet” – an increase of 61% in just one year. These findings are consistent with the skyrocketing number of users of peer-to-peer (“P2P”) file sharing software. As of July 2002, KaZaA -- the most popular peer-to-peer (“P2P”) file-sharing network by far -- boasted 100 million registered users. By May 2003, KaZaA had become the world’s most downloaded software program of any kind, with 230.3 million downloads. All told, millions of users download over 2.6 billion copyrighted files (mostly sound recordings) each month via various peer-to-peer networks. Of course, these networks are not limited to stolen copyrighted works. A GAO Report released earlier this year reveals that a significant percentage of the files available to these 13 million new users per month are pornography, including child pornography. And the problems are not just limited to the type of files available on these systems. Recent hearings in the House Government Reform and Oversight Committee and the Senate Judiciary Committee have also highlighted the serious privacy and security threats posed by P2P software, including the fact that many users on these systems are exposing their personal documents (e.g., tax returns, resumes, and medical records) to millions of other users. Although there is no easy solution to these problems, one thing is clear: Verizon and SBC have little or no economic incentive to combat piracy. SBC and Verizon combined have over 6 million DSL subscribers, more than 65% of all DSL subscribers in the United States. That’s over $2.1 billion in revenues per year just from their consumer DSL business. And music downloading is driving the business. According to a recent report on broadband, “popular music file-swapping programs [such] as KaZaA, Morpheus and Gnutella are eating up a huge chunk of bandwidth capacity on high-speed data networks. . . . "The growth in peer-to-peer is really driving the market," says Greg Hutterer, director of carrier sales for Allot Communications, based in Eden Prairie, Minn. . . . [it] now consumes 50% to 70% of the capacity on cable broadband networks, up from perhaps 20% to 30% a year ago, . . .” With these statistics in mind, it comes as no surprise that Verizon actively encourages subscribers to visit unauthorized P2P services -- instead of legitimate, licensed sites -- as their preferred source for music online. And people wonder why the copyright community is skeptical of Verizon’s claim that the real issue is privacy and not their tacit acceptance and promotion of piracy by their subscribers. The DMCA Balance: So what do these statistics and the ISPs benign neglect toward the problem of piracy have to do with the issues being addressed by the Committee today? First, they help explain why RIAA’s members with the support of a broad array of other organizations in the music industry representing artists, songwriters, music publishers, and record stores, took the action we announced last week to enforce our rights against massive theft of our creations. Second, and perhaps more important for this hearing, they illustrate that Congress saw the future in 1998 when it passed the Digital Millennium Copyright Act. The rampant piracy of music on the Internet is a true to life example of exactly the kind of problem Congress envisioned copyright owners would face in the digital world. Fortunately, at the time, Congress also had the wisdom and saw fit to include in the DMCA a fair and balanced procedure that enables copyright owners meaningfully to enforce their rights in the digital world. The framework established in §512(h) – commonly referred to as the DMCA information subpoena provision -- ensures that copyright owners, with the help of Internet Service Providers (“ISPs”), have an expeditious, accessible and efficient mechanism for identifying individuals who are using the Internet to commit piracy. The balance struck by Congress in §512 was the result of a give and take – in the best sense – between the interests of ISPs and copyright owners, and the need to protect consumers. The final product represented Congress’s recognition that traditional enforcement remedies available to copyright owners were insufficient in an era in which massive amounts of piracy could occur instantly at the hands of anyone with an Internet connection. Congress also understood that in a digital world, ISPs often would be the sole source for identifying individuals who are engaged in online piracy regardless of the type of technology they were using. So, in exchange for exempting ISPs from any liability for the infringing activities occurring on or over the their networks and connections – subject, of course, to certain prerequisites -- Congress created a framework by which copyright owners, with the assistance of ISPs, could expeditiously identify individuals engaging in infringing activities online. That compromise -- expeditious access for copyright owners to identifying information of infringers in exchange for broad liability limitations for ISPs – is as fair today as it was in 1998. Keep in mind that absent the broad liability limitations of the DMCA, ISPs could face enormous monetary liability for the actions of their subscribers. With the current levels of piracy, that could translate into enormous monetary liability. That fact helps explain why Judge Bates -- the federal district judge who presided over the enforcement proceedings between RIAA and Verizon -- concluded that: “[i]t would not serve the public interest for Verizon to continue to receive the benefits of the [DMCA] – liability protection – without the concomitant obligations of disclosing the identity of an alleged infringer [under §512].” Verizon’s Privacy Arguments: Beyond the purely legal, statutory construction questions that have arisen concerning §512 and have been addressed by the courts, Verizon and other ISPs now contend that there are privacy problems associated with the DMCA information subpoena. Before I address these concerns, it’s important to make one thing crystal clear: no one has a privacy right to engage in copyright infringement on the Internet. Despite many novel arguments to the contrary, illegally sharing or downloading copyrighted music online is not a form of free speech or civil disobedience protected by the First Amendment. It is also worth noting that during the first-round of litigation in our case, Verizon failed in any way to even mention or raise what they now contend is the biggest issue presented by this case: privacy. Rather than make their arguments in Court, Verizon chose instead to make their case in the court of public opinion. Only after Verizon lost decisively on its legal arguments in the first-round of litigation did it decide that its privacy-related arguments warranted the Court’s attention. The outcome, however, was no different. The district court found Verizon’s privacy arguments as uncompelling as its legal arguments. Here is some of what Judge Bates specifically had to say about Verizon’s privacy arguments: · Verizon’s customers should have little expectation of privacy (or anonymity) in infringing copyrights. Subscribers to Verizon’s Internet services are put on clear notice that they cannot use Verizon’s service or network to infringe copyrights. · [A]s part of its corporate policy, Verizon alerts its subscribers at the outset that it will “disclose” individual customer information to an outside entity…when Verizon is served with valid legal process for customer information. · [I]f an individual subscriber opens his computer to permit others, through peer-to-peer file-sharing, to download materials from that computer, it is hard to understand just what privacy expectation he or she has after essentially opening the computer to the world. · The [§512 information subpoena] protections ensure that a service provider will not be forced to disclose its customer’s identifying information without a reasonable showing that there has been copyright infringement and [t]hese requirements provide substantial protection to service providers and their customers against overly aggressive copyright owners and unwarranted subpoenas. Although we agree with Judge Bates’ reasoning and conclusions, I want to address some of Verizon’s privacy arguments in greater detail. As I understand Verizon’s argument, disclosing its subscribers’ identifying information (name, address, phone number, and e-mail) pursuant to a valid DMCA information subpoena threatens to violate its subscribers’ privacy because the information subpoena process -- in their estimation -- is susceptible to abuse and does not provide the same protections afforded by a more traditional “John Doe” lawsuit. But Congress considered and decided this question back in 1998. Ironically, the very principle ISPs profess to defend – the privacy of their subscribers – is at greater risk in a John Doe action than through the information subpoena provisions of the DMCA. There are statutory limits on the type of information a copyright owner can obtain via an information subpoena and the purpose for which that information can be used. Under a DMCA information subpoena, a copyright owner can only receive information that is necessary to identify and contact the alleged infringer – a name, address, phone number, and e-mail. More importantly, the copyright owner is statutorily limited to using that information exclusively for purposes of enforcing their copyright. Compare that to the John Doe alternative where a copyright owner can request anything relating to the ISP’s subscriber account, including user habits, website visits, and payment records. Moreover, once that information has been provided to a copyright owner, there are no statutory restrictions whatsoever on how it can be used or to whom it can be shared. This fact makes Verizon’s argument all the more suspect. The information subpoena provisions of the DMCA illustrate that Congress not only understood the importance of protecting the privacy of end users, but also built in specific procedural safeguards designed to protect individuals from unwarranted disclosures of their information. As Judge Bates noted in his decision, the DMCA information subpoena “provides greater threshold protection against issuance of an unsupported subpoena than is available in the context of a [traditional] John Doe action.” The DMCA Information Subpoena Requirements & Safeguards: As I stated previously, P2P software applications like KaZaA and Grokster are, by design and practice, open networks that enable individual users to search for and copy files located on the hard-drives of other users on the network. By logging onto these open networks and searching for files like any other user, the RIAA is able to identify the Internet Protocol addresses (“IP addresses”) of individuals who are illegally uploading or downloading our works. Once we have obtained an IP address and matched that address to an ISP, the information subpoena provision of the DMCA allows us to enlist the help of the ISP in identifying those who steal our works. Before obtaining any subscriber’s information under the subpoena provisions of the DMCA, a copyright owner must provide to the clerk of a Federal district court: o A physical or electronic signature of a person authorized to act on behalf of the owner of an exclusive right that is allegedly infringed. o Identification of the copyrighted work claimed to have been infringed, or, if multiple copyrighted works at a single online site are covered by a single notification, a representative list of such works at that site. o Identification of the material that is claimed to be infringing or to be the subject of infringing activity and that is to be removed or access to which is to be disabled, and information reasonably sufficient to permit the service provider to locate the material. o A statement that the complaining party has a good faith belief that use of the material in the manner complained of is not authorized by the copyright owner, its agent, or the law. o A statement that the information in the notification is accurate, and under penalty of perjury, that the complaining party is authorized to act on behalf of the owner of an exclusive right that is allegedly infringed. o A sworn declaration to the effect that the purpose for which the subpoena is sought is to obtain the identity of an alleged infringer and that such information will only be used for the purpose of protecting rights under this title. A failure to adhere to any of these requirements is a justification for denying the subpoena and any copyright owner who misrepresents itself in satisfying these requirements is liable for damages, including attorney’s fees. With these requirements and safeguards in mind, I want to address some of Verizon’s specific arguments. Anyone who has followed our ongoing litigation has heard Verizon boldly and repeatedly assert – without providing any examples or substantiation – that the DMCA information subpoena process is ripe for abuse at the hands of criminals. It is nothing short of amazing that in an effort to protect its bottom-line, Verizon would repeatedly make such baseless and desperate arguments. The RIAA, the copyright community as a whole and, more importantly, the Members of Congress who crafted the DMCA, would never defend or embrace a procedure that makes it easy for criminals to find victims. Verizon knows this and the public policy debate deserves better. When I think of this argument, it reminds me of an old law school adage: when the law is not on your side, argue the facts; when the facts are not on your side, argue the law; and when neither the facts or the law are on your side, pound the table. In this case, Verizon risks breaking the table with its argument. As Judge Bates noted in his second subpoena decision: o “[I]t is noteworthy that although it has been nearly five years since § 512 came into effect, there is nothing in the record to indicate that the DMCA subpoena authority has been used for stalking or other fraudulent purposes.” o “Verizon’s bald speculation of mistakes, abuse or harassment that has yet to occur to any degree (let alone to any substantial degree) since the statute was enacted is simply not enough,…[and] requirements in the DMCA should prevent such speculation from ever becoming a reality.” On a more practical level, however, Verizon’s arguments simply don’t hold water. Few, if any, criminals are willing to pay money and appear in Federal Court to identify themselves and leave a trail of information for authorities to follow. And even assuming a pedophile were willing go through the hassle of obtaining an anonymous IP address, forge a series of documents establishing his status as a copyright owner, and risk his own anonymity by appearing in Court, he can only obtain the adult ISP subscriber’s contact information – and not any information relating to a child. A cyber-pedophile looking for victims online is much more likely to get what he wants by simply sending an instant message to the unwitting young person who downloads an Olsen twins or pokemon file from the pedophile’s share folder on KaZaA. And for the domestic abuser who already knows the identity of his victim, it’s even harder to imagine that with all of the different ways to track someone down that he’d subject himself to the hassles and risks of the DMCA information subpoena process. The facts and common-sense make clear that the cyber-pedophile and domestic abuser scenarios put forward by Verizon are little more than legal and public policy strawmen. John Doe Lawsuits as an Alternative to Information Subpoenas: Another argument put forward by Verizon is that requiring copyright owners to file a John Doe action in Federal Court will in some way provide greater privacy protections to its subscribers. In fact as discussed earlier, requiring copyright owners to file John Doe lawsuits would provide fewer protections to an ISP’s subscribers, while effectively depriving copyright owners of expeditious access to an alleged infringers’ information – exactly what Congress intended to provide copyright owners through §512. . Not surprisingly, for ISPs, the John Doe approach is a win-win: they retain their broad liability limitation, while making it more difficult for copyright owners to obtain information – despite the fact that online piracy is skyrocketing. In stark contrast, for copyright owners, the John Doe procedure is a lose-lose: they no longer have access to an expeditious procedure for identifying alleged infringers and they are faced with significantly greater administrative and monetary burdens associated with enforcing their rights under the law. It’s not hard to see why ISPs think this approach is better. ISP Notice to Subscribers: The RIAA and the copyright community as a whole understand the interest of the Committee and Congress as a whole in protecting the privacy of individuals. In the context of the DMCA information subpoena process, we also believe that protecting individual privacy reasonably and effectively already can be achieved through ISPs providing notice to their subscribers as soon as information is turned over to a copyright owner pursuant to a valid DMCA subpoena. In fact, nothing prevents ISPs from institutionalizing the practice of notice. The benefits of such a policy are clear -- o the subscriber is made aware that their information (name, address, phone number, and e-mail) has been turned over at the same time it’s being given to a copyright owner pursuant to a valid information subpoena; o the subscriber knows both who the information is being turned over to -- further helping to prevent any potential abuses of the process – and is made aware of the allegations warranting the disclosure; o the subscriber is given an opportunity, in a timely manner and before any formal action is taken, to contact the copyright owner if the subscriber believes that the allegations underlying the subpoena are mistaken; o the subscriber who is engaging in activity (other than piracy) protected by the First Amendment has an opportunity to contest the actions of the entity receiving the information. The benefits of notice go a long way toward resolving any – perceived or real – privacy problems associated with copyright owners using the DMCA information subpoena. And when combined with the statutory use restrictions placed on copyright owners who obtain information under the subpoena provisions, we believe it is clear that no change in the law is needed. Conclusion: The copyright community believes that the DMCA information subpoena represents a fair and balanced process that includes important and meaningful safeguards to protect the privacy of individuals. Thank you for the opportunity to testify today and I look forward to answering the Committee member’s questions.

• Mr. William Barr
  Read statement

  Testimony

  Mr. William Barr

  Mr. Chairman and members of the Committee, thank you for inviting me here today to discuss this important issue. We at Verizon recognize the legitimate interests of copyright owners and the threats to those interests that are posed by the misuse of new technologies, including peer-to-peer software. Verizon remains committed to working with the copyright community to find solutions to these issues that result in effective protection for intellectual property, without placing substantial burdens on Internet service providers or violating the privacy and First Amendment interests of their subscribers. Back in 1998, Verizon and other service providers agreed in the Digital Millennium Copyright Act (“DMCA”) to conduct voluntary industry negotiations aimed at developing “standard technical measures” (also known as digital rights management tools), to protect copyright works from online infringement. The copyright community has never accepted our offer to begin negotiations on digital rights management standards and to work cooperatively toward a technical solution to this problem. Indeed, Congress recognized in its report on the DMCA in 1998 that technological rather than legal solutions constituted the best method of ensuring the lawful dissemination of copyrighted works in our new networked, digital environment. See S. Rep. No 105-190, at 52 (1998) (“The Committee believes that technology is likely to be the solution to many of the issues facing copyright owners and service providers in this digital age.”). Congress, in Title 1 of the DMCA created criminal penalties for those who circumvent such technical measures. In the end, as in the area of VHS recordings and cable television access to broadcast programming, Verizon believes that appropriate technical and legal solutions will be found. As discussed in detail below, a new, unbounded subpoena power is not that solution. As an Internet service provider, Verizon promptly takes down infringing material that resides on our system or network in response to requests from copyright owners and we have strict policies against infringement of copyrights. Verizon also promotes legitimate pay music sites such as MP3.com and Rhapsody as part of its ISP service. We will continue to work with copyright owners to marry the power of the Internet with the creative genius of content providers through new business relationships and licensed websites that offer music, video, and other proprietary content to the over 100 million Internet users in this country. Verizon believes that lawful and licensed access to quality content is essential to the continuing development of the Internet in general and broadband in particular, and we are committed to exploring technological and other solutions so that copyright owners may enjoy the fruits of their labors and Internet users will have access to a rich array of digital content. However, the answer to the copyright community’s present business problems is not a radical new subpoena process, previously unknown in law, that un-tethers binding judicial process from constitutional and statutory protections that normally apply to the discovery of private data regarding electronic communications. Verizon believes that the district court was wrong in concluding that Congress authorized such a broad and promiscuous subpoena procedure—but whatever the courts ultimately conclude on this issue—the subpoena power endorsed by the district court is not an effective remedy for copyright holders and has great costs in terms of personal privacy, constitutional rights of free expression and association, and the continued growth of the Internet. As interpreted by the district court, this subpoena provision grants copyright holders or their agents the right to discover the name, address, and telephone number of any Internet user in this country without filing a lawsuit or making any substantive showing at all to a federal judge. This accords truly breathtaking powers to anyone who can claim to be or represent a copyright owner; powers that Congress has not even bestowed on law enforcement and national security personnel. It stands in marked contrast to the statutory protections that Congress has enacted in the context of video rentals, cable television viewing habits, and even the requirements for law enforcement officers to gain access confidential data associated with electronic communications. All one need do is fill out a one-page form asserting a “good faith” belief that a copyright has been infringed and one can obtain identifying information about anyone using the Internet. There is no review by a judge or a magistrate; the clerk’s office simply issues the subpoena in ministerial fashion. This identifying information can then be linked to particular material sent or received over the Internet, including e-mails, web browsing activity, chat room postings, and file-sharing activity. This subpoena power applies not just to music recordings, it applies to the expression contained in an e-mail or posting in a newsgroup, digital photographs, and even pornographic materials. It has and will be used and abused by parties far less responsible than the recording or movie industries. In essence, anyone willing to assert that they have a good faith belief that someone has used their words, pictures or other expression without permission becomes their own roving grand jury, without any of the normal checks and protections that apply to governmental investigations. This subpoena process lacks the most basic protections that are applied to the discovery of confidential and personal data connected with expressive activity. As noted above, the filing that need be made is truly minimal, and is below the standard for the filing of a civil complaint in federal court. The normal duties to investigate and substantiate a civil claim that apply to the filing of a lawsuit under the Federal Rules of Civil Procedure do not apply. The clerk’s office simply rubberstamps these subpoenas in ministerial fashion—with no inquiry into the bona fides of the party filing the request or the self-interested “belief” that a copyright has been violated. The individual subscriber, whose identity is at issue, is not even entitled to receive notice of the subpoena before his or her personal information is turned over to a third party. Thus, the subscriber, who may in fact be doing nothing illegal, will have his or her identity revealed without ever having an opportunity to be heard. Nor is there any provision for damages or other punishment for wrongfully obtaining or misusing the identity of a subscriber subject to such a subpoena. It is truly ironic that Congress has placed more substantial requirements and protections on law enforcement access to confidential information regarding electronic communications than apply to a private party under this statute. This combination of unlimited scope, minimal substantive requirements, and lack of judicial supervision makes both mistakes and intentional abuses of this new power inevitable. Every time you send an e-mail, browse a website, or join a discussion in a chatroom or newsgroup, others gain access the numerical IP address that you are using. Armed with this IP address, anyone to whom you have sent an e-mail, from whom you have received an e-mail, with whom you or your children have spoken in a chat room, or who operates a web site you have visited, no matter how sensitive the subject matter, can unlock the door to your identity. This list is not limited to those with legitimate interests in enforcing copyrights. As safety and privacy groups like the National Coalition Against Domestic Violence and WiredSafety stated in our litigation, it opens the door to your identity to people with inappropriate or even dangerous motives, such as spammers, blackmailers, pornographers, pedophiles, stalkers, harassers, and identity thieves. In fact, over 92 diverse organizations, representing consumer and Internet interests, submitted letters to this Committee expressing serious concerns about the privacy, safety, and security of Internet users arising from the potential misuse of this subpoena process. These include the ACLU, the American Library Association, the Consumer Federation of America, and the National Coalition Against Domestic Violence. These groups do not condone copyright infringement. Rather, like Verizon, they are concerned that this subpoena power will cause great harm to privacy, free expression, and even personal security of Internet users with little gain in copyright enforcement. As Ms. Aftab, from WiredSafety states, “With one broad sweep, the DMCA subpoena power will frustrate the work of the entire online safety community to arm our children and their parents with cyber-street-smarts. It won’t matter what they voluntarily or mistakenly give away. All the information predators need can be obtained far more easily with the assistance of the local Federal District Court Clerk.” The potential for abuse of this new subpoena power is limited only by the deviousness of the criminal mind. Indeed, just since the district court’s ruling went into effect in June, the evidence of mistakes, potential abuses, and troubling uses of this subpoena power has continued to mount. As you will hear from SBC directly, their company recently filed a suit in California against the Recording Industry, a copyright bounty hunter called “MediaForce” and an entity called Titan Media Group. Titan Media, a purveyor of pornographic videos over the Internet, sent one subpoena to SBC seeking the names, addresses and phone numbers of 59 individual subscribers who Titan asserted were infringing its copyrights in gay pornographic videos by exchanging them over the Internet. Titan eventually withdrew the subpoena when SBC threatened a court challenge, but the episode highlights the fact that this new subpoena power applies to anyone who can claim an interest in any form of expression. Titan Media, imitating the RIAA, has recently announced its own “amnesty program.” Internet users must reveal their identity to Titan and agree to purchase a copy of their pornographic material or Titan threatens to use the subpoena process to expose their identity. In a similar vein, ALS Scan, a purveyor of graphic Internet pornography, has also been a beneficiary of the this process and submitted a declaration in favor of RIAA’s broad interpretation of the subpoena power in the litigation with Verizon. The potential for abuse, for invasion of personal privacy, for reputational harm, and even for blackmail is highlighted by these examples. There is also no requirement that the copyright owner itself obtain the subpoena; it may be obtained by an agent of the copyright holder. A whole industry of copyright “bounty hunters” has sprung up, enterprises that search the Internet for possible instances of copyright infringement spurred on by economic incentives. The use of automated robots, known as “bots” or “spiders” has also led to a significant number of mistaken claims of copyright infringement. These bots operate much like the spiders that crawled through buildings in the movie Minority Report, scouring the Internet in search of file names that look like they match the names of copyrighted works or artists. Bots are far from perfect. Typing words such as “Madonna” or “the police” in an e-mail may earn you a DMCA subpoena, because the “bots” cannot distinguish the legitimate comment or discourse from copyright infringement. In 2001,Warner Bros. sent a letter to UUNet demanding that they terminate the Internet account of someone allegedly sharing a Harry Potter movie online. The small text file was entitled “Harry Potter Book Report.rtf., with a file size of 1k. The file was not an unauthorized copy of the movie, it was a child’s book report, but the bot could not tell the difference and such an “investigation” can quickly form the basis for a DMCA subpoena. In the past few months, RIAA has already admitted numerous cases of “mistaken identity.” In one case, RIAA demanded the take down of Penn State University’s astronomy department’s servers during finals week, based on a claim that it contained infringing songs by the artist Usher. In fact, “Usher” is a professor’s last name and the file at issue was his own creation. RIAA later admitted sending at least two dozen other mistaken notices to Internet users as part of its campaign to warn peer-to-peer file-sharers. And this was before RIAA began its new campaign sending hundreds of subpoenas for subscriber identity to ISPs across the country. These chilling examples all sound like excerpts from the book “1984,” except in this case, “Big Brother” isn’t the Government, it is interested parties armed with their own private search warrants. RIAA’s most recent campaign began in July of this year after the district court’s ruling went into effect. Despite the pending appeal on this issue, the Recording Industry has chosen to unleash numerous subpoenas on Internet service providers. Verizon has already received over 200 subpoenas, with which we have been required to comply. The Recording Industry alone has sent well over 1600 subpoenas to service providers across the country, placing a significant strain on the resources of the clerk’s office of the district court in D.C. and on the subpoena compliance units at many Internet service providers, including Verizon. As another example of the overreaching uses of the subpoena process, , RIAA now claims that it is entitled to discover subscribers’ e-mail addresses and that it may issue these subpoenas from the district court in Washington D.C., regardless of the location of the service provider or the customer. Obviously, obtaining the subpoena in a distant forum makes it a practical impossibility for many service providers and most customers to ever raise any objection to the subpoena. Indeed, Boston College and MIT successfully fought to quash subpoenas issued out of Washington, D.C. that were aimed at their students in Massachusetts. SBC’s lawsuit includes jurisdictional challenges.. Columbia University is seeking to quash subpoenas that RIAA has attempted to serve on it issued by the District of Columbia courts. In Verizon’s view, Congress never intended to unleash a massive wave of subpoenas on public and private Internet service providers and their customers. This is not an effective solution to the very real problems faced by copyright owners; it only creates an additional level of problems for Internet service providers and chills the free exchange of protected content over the Internet. The use of the subpoena power in an attempt to create an in terrorem effect over the entire Internet is both improper and disserves the long-term interests of both copyright owners and Internet service providers. The district court has truly created a Frankenstein monster that Congress never contemplated and that has the potential to cause irreparable damage to public confidence in the privacy of Internet communications. Like the telephone itself, the growth of the Internet as a medium of political, social and economic change depends upon the confidence of users in the privacy of their communications and communications habits. Every person in this room believes that his or her private e-mail or web browsing habits can and should remain private—yet the district court’s erroneous decision is a direct threat to that privacy. It has also burdened Internet service providers with responding to thousands of subpoenas. From our own experience, we can tell you that RIAA’s barrage of subpoenas has diverted and strained our internal resources. This new burden on service providers—responding to thousands of subpoenas issued in the conduit context—was never part of the statutory compromise.. It also threatens the limited resources of subpoena compliance units to satisfy legitimate law enforcement requests—as RIAA bombards service providers with dozens of subpoenas and purports to require responses on seven days or less notice. The protection of copyright, however legitimate a cause, should never be raised above law enforcement and national security efforts—efforts that Verizon has always been in the forefront of supporting. Both the district court in our case and the copyright owners have eschewed a more measured remedy that has always existed in the law and is used by numerous businesses for many purposes, the so-called “John Doe” lawsuit. Under this procedure, a judge or magistrate reviews the merits of a case before a subpoena is issued, and the defendant is given notice and an opportunity to contest disclosure. The law demands a reasonable investigation of the relevant facts, ownership of a valid copyright registration, and a complaint filed in compliance with Rule 11. Verizon has successfully used this process to sue unknown spammers who abuse our network. Despite the Recording Industry’s assertions to the contrary, the filing of a John Doe lawsuit is much more protective of all parties’ interests than the DMCA subpoena process. Since RIAA launched its subpoena campaign, the DC Clerk’s Office publicly complained that its internal resources were being burdened and the clerk’s office had to re-assign new employees to the fulltime task of processing subpoenas on an ongoing basis. If the district court’s decision in our case is not overturned quickly, it threatens to turn the Federal courts into free-floating subpoena mills, unhinged from any pending case or controversy, capable of destroying anonymous Internet communication, and threatening privacy and due process rights as well as public safety. While Verizon firmly believes that this subpoena process and the tactic of targeting college students, universities, libraries and other individual Internet users is inappropriate and will lead to serious harms with little gain in copyright protection, Verizon recognizes that a more comprehensive and long-term solution is necessary. Verizon commends Senator Brownback for taking a first step by introducing the Digital Consumer Internet Privacy Protection Act. This bill builds in necessary protections that addresses the fundamental due process and privacy rights of all Internet users, and ensures that subpoenas cannot be issued without sufficient judicial safeguards in place. The bill also appropriately gives the FTC enforcement authority to monitor the use of subpoenas involving digital media products and provides remedies for abuses of the process. An appropriate next step would be for affected parties to develop effective approaches that combine technical and legal solutions to balance the legitimate needs of all stakeholders. We urge Congress to act now before irreparable damage is done to public confidence in the Internet as a medium of free expression and association. I thank the Chair and the members of this Committee for your attention. We look forward to working with you to resolve this critical issue.

Witness Panel 2

• Mr. Christopher Murray
  Read statement

  Witness Panel 2

  Mr. Christopher Murray

  Chairman McCain, Ranking Member Hollings, and Senator Brownback, I am grateful for the opportunity to represent Consumers Union, the publisher of Consumer Reports magazine, and Public Knowledge before your distinguished committee today. Consumers Union is deeply concerned about piracy, and believes that copyright is crucial to the creation of content. Indeed, we wouldn’t have a business without the revenues that copyright allows us to generate through the production of our magazine. We also take seriously that copyright law strikes balances that benefit the public during the term of copyright ownership—that even unlicensed use of copyrighted works, according to fair use and other principles—benefits citizens generally even in some instances where it does not directly benefit the copyright owner. That is why, for example, we have such a strong tradition of public libraries in this country. These carefully crafted balances are threatened when new technologies make it possible for a single individual to share, in effect, thousands of copies of copyrighted works with millions of users. Music is particularly vulnerable in this scenario because the file sizes of digitized music have grown small enough that even Internet users with relatively slow connections to the Internet can still find and download a favorite song in a short period of time. Statistics from the music industry indicate that record sales have declined over the last two or three years. While some of that decline might be blamed on business decisions by the record companies (given that they have released fewer albums over that time than they did at other times when sales were stronger), or the war, or the recent economic malaise, our instincts tell us that much of this phenomenon is traceable directly to the free downloading of music files from the Internet, via peer-to-peer software or other mechanisms. Couldn’t we simply outlaw peer-to-peer software, or at least impose stronger legal restrictions on it? The answer to this is mixed: peer-to-peer activity on the Internet (a network of computers in which any two can share resources, including but not limited to content and other data) is a central part of the Internet design. A better approach, we think, is to look at ways our legal system can adapt itself to reduce the large-scale trading of music online—from one music fan to ten million strangers, for example—while at the same time exploiting new technologies that both deliver more music to more music fans, that pay more artists more money, that encourage the growth and exploitation of the open-architecture Internet, and that strike a fair deal that benefits artists, publishers, and ordinary citizens in general as we enter the first fully digital century. As consumer advocates, we necessarily favor policies that ensure artists and publishers’ getting paid for their creative work. We are willing to work with the record companies and the studios to come up with creative ways solve their piracy problem. What we won’t do, and what we believe the Congress shouldn’t do either, is attempt to set in stone the business models of the past while moving forward into the digital world. Ordinary citizens and consumers are forced to adapt to the rapid changes brought about by digital technology, and publishers, record companies, and studios will have to change too. Indeed, already many of them are showing signs of positive change, through the immense public success of Apple’s iTunes Music Store (and its quickly responding imitators) to the decision by many studios to deliver movie content to theaters digitally—yet safely—because the content is protected by “digital-rights-management” (DRM) technologies. As always, those who truly understand and embrace the future of technology are quickest to succeed at new models—especially if their competitors, like King Canute knew he could not, sit in their thrones at the edge of the sea and order the tide not to come in. Do not take this example (a story incidentally drawn from the public domain) to mean that we believe obedience to the law and the balances struck by the law are unimportant—take it instead to mean that we believe our legal responses should be thoughtfully applied in a targeted way that not only does justice in particular cases but also communicates to the general public a sense of fairness, of proper scale, and of balance. We accept the need for the deterrent effect of properly targeted enforcement efforts. We also stand opposed to measures, whether they are driven by our legislature or by our regulatory agencies, that attempt to slow down, or throttle, or centralize the digital technological innovation that has been—perhaps even more that the creative works of the movie studios and recording artists—a driving force in our economy for the last two decades. We believe there are ways to capture that ever-increasing technological momentum through approaches that ride the tide of technological innovation rather than seeking to slow or halt it. The open architectures of the Internet and personal computers have revolutionized and benefited American lives already in countless ways. We now have an entire generation of children whose reflexive approach to answer a question may be to ask Google about it, then to trace down the answer on the World Wide Web. Although the same computer and network technology has given us the new problems of copyright protection, it would be a tragedy if the measures we took to protect copyrighted works made the Internet less open, or the personal computer less useable—except when the user pays the appropriate toll. Consumers want cool, convenient, connected gadgets. New technology has always forced us to continually rethink our laws, to reexamine the balance of copyright—from the printing press to the photocopier, from VCRs and MP3 players to personal video recorders like TiVo and Replay TV—and the United States has always embraced that new technology and that is a large part of the formula for our success. New devices have continually transformed the balance between creators and users, but historically we have erred on the side of allowing technology to flourish even when there was potential leakage, for the sake of capturing the substantial benefits of that new technology. If content-protection measures are put on the table that do not centralize the process of innovation, that give consumers new functionalities, give them better products at better prices, we would support them. Unfortunately, many of the current proposals—especially the broadcast flag scheme—require a top-to-bottom redesign of the architectures of digital tools and perhaps even the Internet itself. The cable-compatibility “plug-and-play” proceeding at the Federal Communication Commission, depending on its details (which have not yet been published), could have a similar chilling effect on both innovation and access to information and even on the revenues of artists, who are already exploring new ways of showing and selling their creative works online through our dynamically open and evolving Internet. The broadcast flag and certain aspects of the plug-and-play regulation currently before the Commission present the possibility that a small set of companies will be given a de facto veto on new business models based on political criteria. A much better approach would be to develop, collectively, a set of neutral technological criteria for standards that protect broadcast and cable-carried content – ideally one objective enough to provide predictability to innovators while open-ended enough to inspire ongoing innovation in ways to both protect and present content through digital systems. Make no mistake about it. Closing the architecture of the Internet or of the personal computer will not merely harm consumers in terms of the value they receive when they buy new systems. Nor will the damage be limited to the computer industry, which has relied on open systems to fuel a generation of astounding innovation in digital products. Perhaps the worst aspect is that certain content-protection approaches, because they focus more on limiting consumer uses of traditionally distributed content than on creating new business models and new kinds of offerings, will ultimately hurt creators and publishers as well, and may even slow the already lagging transition to digital television. There are other approaches, including more nuanced “digital-rights-management” approaches, that may not only work better than the content-protection standards currently being developed at the FCC, but also may have positive consumer effects. Imagine, for example, how computer-based DRM could enable a person with disabilities to view a first run movie—on a one-performance-only ticketed basis—through their home theater system, rather than struggling with accessibility issues at a movie theater or simply waiting for the new film to become available on cable or DVD. Or imagine how the Internet could be used to present in-classroom performances of current films with educational value—in ways that both protect the value of the copyrighted work and widen the audience for it. We believe DRM can be overly restrictive as well, but that the leavening effect of allowing a variety of DRM solutions to compete in the marketplace, rather than a narrow, and possibly obsolete scheme being mandated by Congress or by a regulatory agency, will help ensure that consumer flexibility in access to, as well as use of, new content will remain part of our longstanding copyright-law traditions. In a minimally regulated free market for copyrighted works, the consumer wins. The example of DRM in spreadsheet software in the 80s is instructive. Initially, LOTUS 1-2-3 was strongly copy-protected and had a high pricepoint (and probably therefore had a higher need for protection because the incentives to circumvent were so great). Eventually a competitor (Borland, headed by Phillipe Kahn) came into the market with a product that was sold at a much lower price and unprotected. Because the product had a reasonable price – one that more consumers could afford to pay – the need for over-restrictive DRM was lessened, and software consumers generally find today that such DRM as continues to be used is far more humane than the harsh DRM regimes of the 1980s. Please note that nothing we say here should be taken to mean that there is no room for DRM in the market—indeed, properly calibrated and flexible DRM schemes may serve as a consumer-engagement tool. In fact, we encourage the providers of DRM technologies to devote some fraction of their energies to making public-domain works more available through their digital-media platforms, with as few restrictions (or even fewer) than those in traditional analog publishing. Today, the consumer’s experience of DRM is all too often that it blocks something he or she might wish to do, and that he or she might have no problem doing with the work’s analog counterpart. For example, it may be easy and cheap to photocopy a page of a book for an English lesson than it is to extract that same text from the digital version of that same book—even when the work itself is in the public domain. We believe that if consumers had more positive experiences in purchasing and using DRM-protected works, and knew from experience that the DRM-imposed limitations on their use came from publishers’ choices and not from the technology itself, this rationalizing of the content market in itself would both give a human face to digital content platforms and serve to persuade many content vendors, still all-too-fearful of the digital world, to loosen the restrictions they impose through DRM on digital works. The FCC’s Broadcast Flag and “Plug and Play” Orders The broadcast flag dramatically expands the FCC’s regulatory authority and would have the agency regulate personal computers in ways it never has before. What is now a decentralized industry—where the way entrepreneurs now get their products to market is they build them and they sell them—will now come under the purview of the Federal Communications Commission. If Congress wants the FCC to turn itself into the Federal Computer Commission, then the broadcast flag is the quickest way to do it I can imagine. We have always joined the FCC in wishing for convergence between digital computer-based tools and the consumer-electronics market, but we dare not accept convergence at the price of mandating a single closed-architecture approach for every computer that wants to be an avenue for television and movie content. Already, new innovative offerings from companies like Hewlett-Packard and Gateway, not to mention TiVo, have made clear the potential for open-architecture computers to serve at the heart of our home entertainment systems and protect content as well. The studios have acknowledged that the broadcast flag is an incomplete solution, and perhaps not the most robust way to protect content. However, rushing into a scheme that won’t actually work to protect content against piracy and then having to go back and redo this again means that consumers may be forced to pay for this technology transition not once, but twice. When we find out that the broadcast flag doesn’t work, and then we’re told that we’re going to need “just this one more thing” again, consumers are going to be faced with another generation of legacy technology, more stuff that they have to throw out. When that happens, they’re going to come to Congress for an answer, not to the FCC. The broadcast flag requires great swathes of the digital environment in the home and in the outside world to be redesigned to monitor for the flag. This cannot be done without great costs, both in allocating design and manufacturing resources and in removing flexibility and value from digital products offered to consumers. Furthermore, the flag scheme isn’t even a complete solution. As they have told us, shortly after passage of the flag, the studios will be at the Commission asking for a fix to their “analog hole” problem. Congress has been told before by studios that if Congress will just give them this one thing and they’ll roll out digital television—just give them hundreds of billions of dollars worth of digital spectrum for free and they’ll roll out DTV right away—but broadcasters have never given in return any enforceable commitments, and they still look as far away from giving back their analog spectrum as they did at the beginning of this transition. At the very least, I do not see how or why Congress should allow the FCC to commit to a vast new regulatory scheme without an enforceable timeline for the DTV transition. And I do not see that enforceable timeline on the table right now. The FCC’s broadcast flag rulemaking would also be ill-advised to proceed without Congressional input as to what kind of reasonable consumer uses any such technology mandate must protect. It is inevitable that any protection scheme will involve some choices regarding what uses will continue into this next generation of technology and what uses will not be allowed. If consumers turn on their expensive new DTVs in three years and discover they cannot do many of the lawful and reasonable things they used to be able to do with older technology, it will be Congress—not the FCC—who will be held to answer. We have seen no technology that demonstrates it is possible to protect fair use and other reasonable consumer uses, while at the same time protecting content from piracy. Before the Commission begins to demand that such a wide range of consumer electronics have the flag in it, they should insist upon a demonstration of the actual technology and show us how it will work. We support measures to protect content that generally work well, such as encryption or “scrambling” content at the source. That is the approach taken by the DVD market, and even the efforts of a few computer hackers who succeeded in defeating these protection measures had no effect on the DVD market, which continues to grow rapidly. Once again, we favor protection schemes that allow variety and flexibility for consumers – DVDs’ content protection does not yet do this, but, unlike the broadcast flag, for example, DVDs make up for this lack in flexibility in other ways, typically by offering additional features. CU believes the market in sales of digital entertainment will continue to evolve, given the right competitive environment, and avoiding a one-size-fits-all government-imposed solution. The FCC’s cable “Plug and Play” agreement (also known as the cable “encoding rules”), which ostensibly sought to “ease the digital transition for consumers” by mandating that digital televisions be compatible with the content protection systems that cable operators are using and will use. But in the process of supposedly facilitating the digital transition, the FCC excluded computers—a device present in approximately 70 million consumers’ homes that is capable today of displaying a digital signal. The Plug and Play order ensures that cable televisions will have content protection built into them, and ensures that the outputs on digital televisions will not be able to hook up with computers or any devices that are not “secure.” “Plug and Play” used to mean just that: consumers could buy a device, plug it in, and it worked. Now “Plug and Play” means something quite different. It means, rather counter-intuitively, that consumers’ “Plug and Play” TV sets won’t work until they get a special card from their cable operators. And in an especially ironic twist, consumers won’t be notified that their “Plug and Play” sets won’t Plug and Play (because they’ll need the security card from their operator) until after they purchase those TV sets. This is a guaranteed recipe to provoke consumer anger. Depending on the details of the final order, Plug and Play sets the digital TV transition back by not contemplating computers as “unidirectional content receivers” whose generally open architecture, modifiable by the owner, hasn’t prevented companies like TiVo from figuring out how to protect content. Furthermore, there are approximately 70 million devices on the market that could receive a digital signal today: personal computers (with a tuner add-on). But the FCC has specifically excluded computers from this agreement. It is ironic that the FCC has trumpeted the coming convergence of the functionalities of computing and television, yet when presented with an opportunity to do something concrete about that convergence, failed to contemplate computers within the scope of the order. Conclusion Article 1 Section 8 of the United States Constitution tells us that the goal of copyright is “To promote the Progress of Science and useful Arts;” The reason that the Framers put Copyright law into the Constitution was not to protect a small class of citizens who happen to be writers or artists. It was to benefit everybody by encouraging writers and artists to create more. That very same clause says that we have to reward inventors because we know that the health of the nation is built on technological openness and new frontiers. The greatest industrial innovation we’ve seen in the last half century has been cybernetics, the use of tools that process information. Not a year goes by that computing technology does not revolutionize another sector of industry, science, and the arts. We have to find a way to harmonize the creativity of the content producers and the creativity of the engineers and scientists and computer programming that doesn’t involve a prohibition of thinking new thoughts and building new devices, but rather embraces an exploration of all the new things that haven’t been created yet. The incredible changes that we’ve seen in the world are about the fact that literary and artistic creators and engineers and scientific creators have been unfettered and they’ve found new tools for content. Sometimes these things do shake things up, but we’re good enough and clever enough to deal with that. There are all sorts of ways to protect content that don’t involve creating content prisons. We could have digital tools that are interoperable, open, and mutable—and protect content at the same time. Why not set our sights instead on how best to put tools in the hands of inventive men and women, set our sights on how to keep computers open, included in the long-awaited world of convergence, and protect content all at the same time? The beauty of the computer is that it can be a TV or a typewriter or a recipe book, but recipe books and TVs and typewriters can’t be computers. We should not force computer manufacturers to choose either to continue being open, general purpose devices or to become closed platform media appliances. Why turn the clock back on computers merely to return to the world of the 1980s? Why aren’t we looking forward to a 21st century where individuals get to use the content they pay for more flexibly on more platforms in ways that even better fit their lifestyles and schedules? The best way to allow that is to permit the convergence of communications and computing technologies with mainstream media devices. But the FCC’s decisions on the broadcast flag and cable Plug and Play could potentially set us back two decades. Without computers there would be no TiVo, without the World Wide Web there would be no online programming guides, no radio broadcast over the Internet. There are so many things that computers have enabled—we must aim as high as we can see, aim to have devices not just with features, but with potentials.

• Mr Jack Valenti

  Former Chairman and CEO

  Motion Picture Association of America
  Read statement

  Witness Panel 2

  Mr Jack Valenti

  The peril of piracy, to the nation and to the almost one million men and women who create, distribute and market movies. No nation can lay claim to greatness or longevity unless it constructs a rostrum from which springs a “moral imperative” which guides the daily conduct of its citizens. Within the core of that code of conduct is a simple declaration that to take something that does not belong to you not only is wrong, but it is a clear violation of the moral imperative, which is fastened deep in all religions. That is fundamental to how this nation fits itself to honorable conduct. Anyone who deals in infirm logic to certify that “stealing movies off the Internet is okay, nothing wrong about it since everybody does it, and no one gets hurt,” is obviously offering up a defunct mythology to cover their tracks. Piracy, or “stealing,” is the darker side of digital subversion. Digital theft has an inevitable leaning toward a future darkly seen by those who create, distribute and market films. For the almost one million men and women who work in some aspect of the movie industry – 99 percent of whom don’t make big salaries, who are good citizens and good neighbors, with mortgages to pay and kids to send to college – their livelihood is perilously in doubt if digital stealing goes on, increasing in velocity with a casual disregard for other people’s intellectual property. Piracy is a National Problem because Intellectual Property nourishes the American economy Piracy is a national problem. It must be a high priority of the officials who comprise the federal government. Intellectual property (movies, TV programs, home video, books, music, and computer software) is an awesome engine of growth which nourishes the national economy. Not only is intellectual property America’s largest trade export, bringing in more international revenues than agriculture, aircraft, automobiles and auto parts, but it is creating new jobs at three times the rate of the rest of the economy, and is responsible for over five percent of the GDP. The movie industry alone has a surplus balance of trade with every single country in the world. No other American enterprise can make that statement – and at a time when this country is bleeding from a $400 billion-plus deficit balance of trade. The movie industry sits on a fragile fiscal bottom. Only one in ten films ever gets its investment returned through theatrical exhibition. Films have to journey through many market venues – premium and basic cable, satellite delivery, home video, network and individual TV stations, international – in order to try to recoup the private risk capital that brings a movie to life. If a film is kidnapped early in that journey, it’s obvious the worth of that film can be fatally depleted long before it can retrieve its investment. At this moment, the movie industry is suffering from a loss of some $3.5 billion annually from hard-goods piracy – DVD, VCD, videotape. We are every hour of every day fighting that theft all over the world. As yet, we have not put a loss-figure on digital piracy. We are working on it. We do know from outside estimates that some 400,000 to 600,000 films are being stolen every day, and it is getting progressively worse. The movie industry is trying to explain to and educate youngsters and not-so-young about the value of copyrighted material The movie industry is laboring to find rebuttals to piracy. We have launched an education project through TV public service announcements, trailers in theaters, an alliance with one million students via Junior Achievement to ‘explain and educate’ why copyright is central to intellectual property growth, and why filching movies in digital form by uploading and downloading on the Net, is not only just plain wrong, but has a malignant effect on the future of American consumers. We are also launching a long-term technological research project enlisting the finest brains in the high tech industry to discover ways and means to baffle piracy, technologically. We are constantly looking for innovative and robust ways to protect American creative works which, I am proud to report, finds a hospitable reception on all the continents, where our films are patronized and enjoyed by all creeds, cultures and countries. That is why I am here today – to tell you of the immeasurable economic and entertainment value of American films – and to ask for your help in the never-ceasing fight to combat theft of our movies. No one can predict the shape and form of the future I don’t know, nor does anyone else, the shape and form of the future. We do know that the technology we find so magical today will seem primitive 12 to 18 months from now. The ascending curve of change is mind-bending. But no one can chart the digital future. That is why to impose an absolute congressional exile on so-called “technology mandates” is not good public policy. No one can forecast what future technology mandates will be needed. That’s why it is not in the national interest to ban what you cannot see, to prohibit what you do not know, to turn your back on what you cannot measure. An absolute ban on technology mandates for access control or redistribution control technologies would injure the discretion of the FCC. It is an agency created by Congress to regulate in the public interest. To do that it needs the tools to do the job, to carry out its legislative command. Expert agencies like the FCC were created to take on the burden of detailed, abstruse regulations that Congress has agreed it is not equipped to do. To tie the FCC’s hand in advance is surely not in the public interest. I agree that the proposed ban on technology mandates cheers those whose mantra is “all content must be free,” including pornography and material stolen from its owners. But their view collides with the public interest. The FCC should have the authority to adopt regulations that serve the interests of consumers. That may very well include technical mandates that would create a safe environment in which valuable content would be made available in vast amounts to consumers. The Broadcast Flag is a good example of a technological mandate that will serve consumers. The Broadcast Flag is designed simply to stop digital over-the-air broadcasts from being re-directed to the Internet for anyone to pilfer, easily, swiftly. By the way, consumers will never know there is a Broadcast Flag, unless they try to re-distribute a program to the Internet. The Flag enjoys cross-industry support. Without such a mandate, companies that agree to abide by the Flag would be at a disadvantage from companies that did not. In the end, as it always happens, it is the consumer who would get it in the neck. Why? Without a Flag, high-value content would surely migrate from free over-the-air broadcast, which would not be able to protect content from piracy, to pay systems which offer some protection. Sane business executives would never allow their finest programs to go over-the-air, unprotected, hapless prey to digital pirates. Of course, in the realm of technological mandates, all companies competing in the digital arena have singular preferences. For example, Philips supported the “Plug & Play” agreement at the FCC. And with some qualification, so did the Consumers Union. Philips has also developed a most promising watermarking technology to solve the so-called analog reconversion problem – which occurs when a protected digital signal is converted in the consumer’s home TV to analog and back to digital – wherein all the encrypted protection is stripped away, leaving a movie naked and unprotected against illegal copying. To implement Philips’ watermarking as a standard across the board would require a technology mandate. Our most anxious concerns are not about the present, but the future. Is the Congress familiar with experiments now going on that will reshape and enlarge the ease and speed of digital thievery? Cal Tech reported one experiment called “FAST,” which can download a quality DVD movie in five seconds! Another experiment, “Internet-2,” has dispatched 6.7 gigabytes halfway around the world in one minute! (A DVD-movie contains some 4.6 gigabytes.) What is experiment today will be commonplace in the community three to four years from now. Which means that the glorious enticement of FREE and easy uploading and downloading movies, with little risk, will be far more intense than it is now. Pornographic Content on the Internet, so easily available to children This Committee must be sensitive to a most unwholesome fungus which infests “peer-to-peer file swapping sites” such as Gnutella, Morpheus, KaZaa, iMesh, E Donkey, Grockster, etc. That disfiguring fungus is pornography on a scale so squalid it will shake the very core of your being. As easy as it is to illegally download movies, it is equally easy to bring home this foul pornography. Any 10-year-old can do it – and probably does. Do parents know this? While searching for pirated material on these P2P sites, MPAA technicians discovered large caches of pornography disguised as child-friendly fare. This awful content is “meta-tagged” or coded to searches children are likely to undertake, like “Disney,” “Harry Potter,” or “Spy Kids.” Is it the intent of this Committee to ban expert agencies from mandating technical remedies yet to be found to allow parents to fence off this foul material from their children? What the movie industry needs: We need the Congress to understand and appreciate the vast worth of copyrighted intellectual property. In the global film arena the United States is preeminent. We need the Congress to heed our warnings that unless there is put in place various baffle-plates of protection, we will bear witness to the slow undoing of this huge economic and creative force. Which is why I urge the Congress not to close the legislative door on any new technological magic that has the capacity to combat digital thievery which – if unchecked – will drown the movie industry in ever-increasing levels of piracy.

• Dr. Edward Felten
  Read statement

  Witness Panel 2

  Dr. Edward Felten

  Digital technology presents an unprecedented opportunity for the entertainment industry – and an unprecedented challenge. As the price of storing and distributing digital content drops, new services and business models become possible. New types of copyright infringement become possible too; and unfortunately infringement has become all too common. The debate is not about whether this infringement is harmful – we all know it is – but rather about how we should respond to it. Entertainment companies are understandably concerned about the rise in infringement, and they have proposed technology mandates as one response. While well intentioned, these mandate proposals are of dubious technical merit. Worse yet, they may cause serious harm, by curbing innovation in information technology and consumer electronics. The worst case – which is very possible – is that mandates will retard the development of legitimate technologies, while failing to make any dent in infringement. If it is not possible to avoid mandates altogether, the next best alternative is to limit their scope carefully so as to reduce the harm they cause. Technology, like the rest of our culture, relies on a community of creative people striving to combine old ideas with new to advance a common body of knowledge. Although textbooks portray technical progress as an inexorable advance along nearly preordained lines, in practice the process of discovery is anything but predictable. It is only through trial and error – with many zigzags and false starts – that we know which way to go. Technology moves fastest in an open and chaotic marketplace of ideas, unconstrained by mandates. The Digital TV Transition The transition to digital television (DTV) will greatly increase the clarity and visual resolution of TV programming. This change will reduce piracy, by increasing the quality difference between legitimate and pirated programming. Consider the mechanics of DTV piracy. Full-resolution DTV images require an enormous amount of hard drive space to store and an enormous amount of bandwidth to transmit. A three-hour TV movie in ATSC format occupies about 26 Gigabytes (i.e., about 26 billion bytes) of storage. To store just one such movie requires a hard drive that costs about $50 – enough money to buy two or three DVD copies of the same movie. To transfer this file across the Internet to one other person, assuming both parties have fast home broadband connections, takes about two days. Few would-be pirates would go to this much trouble, when the same movie is available, sooner and at a lower price, on DVD or pay-per-view instead. A pirate would choose instead to compress the video file, to make it smaller at the cost of reducing visual quality. A file small enough to transfer quickly over a broadband connection will have fairly poor visual quality. Whether would-be infringers are willing to download these infringing files depends on how the files’ quality compares to that of legitimately obtained content. Today’s analog television offers mediocre visual quality, so highly compressed files may be an acceptable visual substitute (for customers who ignore copyright law). However, DTV offers a much better visual experience, making the degraded quality of compressed files much more evident. The highly compressed files offered by pirates will therefore be less attractive after the DTV transition than they are today. The DTV transition will make legitimate content better, without affecting the quality of pirated on-line content. The result will be to raise the demand for legitimate content. Because of this, technology mandates make even less sense in the future DTV world than they do today. Innovation and Regulation The main effect of mandates would be to impede legitimate technical progress. Innovation is inherently unpredictable. If we know how to do something, we are already doing it; so a technology advance is by definition a surprise. The path forward is not a straight one. We move forward by trial and error, as new insights teach us how to build on past failures. To foster innovation, then, we must keep the field clear for surprising developments, so that experimenters and entrepreneurs can pursue whatever avenue of progress they discover. Closing off these avenues through overregulation carries a high price, in missed opportunities and inventions that are never made. It is tempting to imagine that we can concoct a regulatory regime that is truly technology-neutral, not favoring one technical approach over others but discriminating among products based only on their effectiveness. In practice, though, any regulation will encode certain assumptions into its definitions, its terminology, and its criteria. Those assumptions might seem innocuous when the regulation is written, but over time they will channel and limit progress. Existing approaches will move ahead, but new, innovative technical approaches will be stifled if they conflict with the regulatory assumptions. Since we cannot predict the technical future, we will not be able to write regulations that keep the road clear for future inventions. The winning products, and the winning technical approaches, will be chosen not by the market but by the regulators. Inevitably, this will retard technical progress. Regulation and General Purpose Technologies Regulation has an especially harsh effect on general-purpose technologies such as personal computers and the Internet, which are capable of performing powerful operations on data without needing to understand that data in detail. The classic example of a general-purpose technology is the telephone network, which can carry a conversation about any topic, between any two people, and can do this without the network itself having to understand what those people are talking about. The telephone network is designed for the simple, general-purpose task of transmitting sounds from one place to another. It is indispensable precisely because it is general-purpose – because it can be used to talk about any topic whatsoever, and because it transmits faithfully every pause, inflection, and nuance in the speakers’ voices; and it is feasible to build a flexible, inexpensive, and easy-to-use telephone system only because that system does not try to understand what it is transmitting. Personal computers and the Internet are also general-purpose technologies, as they are designed to operate on data of absolutely any type, without the need to understand that data. As with the telephone, the general-purpose nature of these technologies makes them both more useful and much easier to build than the special-purpose alternatives. Regulation poses a special danger to general-purpose technologies, because those technologies are capable of such a wide range of uses. Any regulatory ban on devices that are merely capable of certain disapproved uses will necessarily ensnare general-purpose technologies, even if those technologies are not designed for or primarily used for nefarious purposes. Consider, for example, a hypothetical regulation that bans technologies that can be used to negotiate drug deals. This regulation, though presumably well intentioned, would amount to a ban on telephones and the telephone network. Someone who did not understand how telephones work might reply that the solution is to redesign the telephone network so that it cannot be used to talk about illegal drugs. But such a mandate would be contrary to the nature of the telephone network, which is fundamentally incapable of understanding how it is being used. Even if it were somehow possible to build such a restricted telephone network, the regulation would still fail to achieve its goal, as drug dealers would just switch to talking in code, perhaps discussing purchases of “sugar” and “flour.” General-purpose technologies will always be capable of both good and bad uses. To eliminate the bad uses is to eliminate the technologies themselves. This is not to say that nothing can be done about telephonic drug dealing, or about any other misuses of general-purpose technologies. My point is that mandates are not the right solution to these problems, which are best addressed through other means, such as traditional police work. A Technical Perspective on Mandates An analysis of technology mandates must start with a clear understanding of what the mandates are trying to achieve. There are two possible goals: they might be intended to control consumers’ use of content, or they might be designed to prevent “Napsterization,” or widespread copyright infringement. To put it more bluntly, a mandate may try to change the rules of our copyright system, by transferring certain rights (in practical terms) from the public to copyright owners; or it may simply try to better enforce the traditional copyright system. It is easy to see how controlling legitimate use serves certain private interests; but mandating such technological control amounts to a significant change in public policy. Other witnesses are addressing the implications of this transfer in more depth, so I will not dwell on it here, except to say that such a policy change, if it is to be made at all, should not be introduced through a regulatory back door. If the goal is to prevent Napsterization, then the protective technology must be especially effective. Network redistribution is such a serious threat because it allows a single illicit copy of a work to become available to hundreds of millions of people all over the world. To prevent Napsterization, then, it is not enough to prevent most consumers from copying most of the time. As long as even one consumer has the technical knowledge to “rip” and redistribute the content, along with the inclination to do so in spite of the law, the content will become available to everybody – it will be Napsterized. To prevent Napsterization, a protective technology must be so strong that not even one would-be pirate can defeat it. Today’s anti-copying technologies don’t even come close to meeting this challenge. At best, they control and limit the activities of ordinary users; but a would-be pirate with a moderate level of technical skill can defeat them with moderate effort. Today’s technologies do not, and cannot, prevent Napsterization. Most independent technical experts believe that no technology will ever prevent the capture and redistribution of digital content by determined pirates. Certainly, this view is consistent with the checkered history of anti-copying technology. If this view is correct, then – like it or not – technology is not the answer to the digital copyright dilemma, and the result of mandates will be all pain and no gain. Even if a technical antidote to Napsterization is in our future, that antidote will come about only through continued research and experimentation. Restricting technical progress by over-regulating will only lock in today’s level of ignorance, delaying the day (if it ever comes) when we know enough to solve this technical puzzle. If we are not careful, we will mandate the use of ineffective technologies, while preventing the creation of better ones. Reducing the Harm Done by Mandates I have argued above that technical mandates retard innovation and provide few if any benefits in return. My hope is that we will have no technical mandates at all. If we must have mandates, they should be structured carefully so as to minimize the harm they cause. To that end, I would suggest four guidelines. First, any mandate should be aimed at preventing infringement, and not at controlling consumers’ legitimate, fair uses of content. The mandate should be limited to technologies that leave fair use and the right of first sale intact. Second, technologies should be evaluated according to simple, neutral technical criteria. Keeping the criteria simple and neutral will reduce their influence on the direction of technical progress, and will keep the barriers to entry low so that new technical approaches can be tried. The criteria should be based on results achieved rather than on the use of specific technical methods. Third, the mandate should allow for the possibility that no satisfactory technologies exist, rather than simply assuming that a suitable technology can be found. If nothing works, the mandate process should be willing to admit that fact and wait for better technologies to develop, rather than locking in a bad solution. Fourth, the set of devices subject to the mandate should be as narrowly defined as possible, so as to minimize the regulatory impact on unrelated markets. A device should not be regulated merely because it might conceivably be modified or reprogrammed for an infringing use. It is especially important to protect general-purpose technologies, which by their nature are especially susceptible to regulatory harm. Conclusion Copyright infringement is a serious problem that has no easy solution. We should resist the “quick fix” of technology mandates, which will do little if anything to reduce infringement, but will impose a regulatory drag on the very industry whose progress might yield a better solution to the piracy problem. If we must have technology mandates, they should be narrow and carefully focused. The path to a better future lies not in limiting technical progress but in embracing it.

• Mr. Lawrence J. Blanford
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  Witness Panel 2

  Mr. Lawrence J. Blanford

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