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Mr. Cary Sherman
President
Recording Industry Association of America
1330 Connecticut Ave., N.W.
Suite 300
Washington, DC, 20036
H.R. 107, The Digital Media Consumers' Rights Act of 2003
Subcommittee on Commerce, Trade, and Consumer Protection
May 12, 2004
10:00 AM
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Chairman Stearns, Ranking Democratic Member Schakowsky, and Members of the Subcommittee, my name is Cary Sherman, and I am President of the Recording Industry Association of America (RIAA). Thank you for inviting me here today to discuss H.R. 107 and its potential effects on the development of and investment in sound recordings in the United States. RIAA is the trade group that represents the U.S. recording industry. Our mission is to foster a business and legal climate that supports and promotes our members' creative and financial vitality. Our members are the record companies that comprise the most vibrant national music industry in the world. RIAA members create, manufacture and/or distribute approximately 90% of all legitimate sound recordings produced and sold in the United States. They employ thousands of people, including singers, musicians, producers, sound engineers, talent scouts, graphic designers and retail salespersons, to name only a few.
Music is the world's universal form of communication. It touches every person of every culture on the globe, and the U.S. recording industry accounts for fully one-third of that world market. Exports and other foreign sales account for over fifty percent of the revenues of the U.S. record industry. This strong export base sustains American jobs.
In this respect, the protection of our intellectual property rights is vital to promoting America's competitive advantages in world commerce. As our trade deficit has soared, the contributions of America's copyright industries to the U.S. economy has become even more important.
An important part of our nation's competitive strength lies in the creation of knowledge-intensive intellectual property-based goods and services. This is one of those economic activities that Americans do better than the people of any other nation. The "core" U.S. copyright industries account for more than five percent of US GDP. Employment in our industries has doubled over the past 20 years, growing three times as fast as the annual growth rate of the U.S. economy as a whole. The foreign sales and exports of U.S. copyright industries were nearly $90 billion in 2001, an amount greater than almost any other industry sector, including automobiles and auto parts, agriculture and aircraft.
In a sense, the intellectual property of the United States is like a warehouse of ideas and creativity. For people to disregard intellectual property rights is no more tolerable than to allow the theft of physical goods.
The theft of music is almost as old as the music industry itself, but the advent of the compact disc radically altered the nature of music piracy -- providing the pirate producer with the opportunity to produce near perfect copies of any recording. We already suffer from massive trafficking in illegal CDs; the proliferation of cheap recorders and recordable optical discs (CD-Rs) in recent years has served to create an easy and hard-to-detect means of mass duplication.
Annual world-wide pirate sales approach 2 billion units, worth an estimated $4 - $5 billion. Globally, 2 in 5 recordings are pirate copies. Total optical disc manufacturing capacity (video/audio CDs, CD-ROMs and DVDs) - stands at well over 20 billion units, having quadrupled in the past five years, and greatly exceeds legitimate demand. You can see why allowing the manufacture and distribution of machines that strip away copy protection and permit the making of unlimited copies poses risks for mass duplication that would make the piracy problem even worse.
With the enactment of the DMCA in 1998, Congress went to great lengths to balance the interests of copyright owners and users of their works. The DMCA encourages copyright owners to make products available to consumers in the digital environment by prohibiting the trafficking in hacking tools that disable the technical protection measures copyright owners rely on to prevent the mass reproduction of their creative works. On the other hand, to ensure that legal uses of copyrighted works (such as uses that stem from First Amendment protection) are not adversely affected by access controls that are too limiting, the DMCA imposes a continuous three-year review process by the Librarian of Congress and the National Telecommunications and Information Administration (NTIA).
HR 107 destroys this balance of interests and the protections Congress so carefully crafted. The amendments contained in this bill create not merely a loophole, but an exception that swallows the rule, leaving copyright holders and content providers with no way to protect the works they create.
Because of the DMCA, we now have new legitimate Internet music services such as Apple's iTunes, Real's Rhapsody, MusicMatch, Roxio's Napster 2.0, Wal-Mart's service backed by Liquid Audio, Sony's Direct Connect, Music Now, Best Buy, buymusic.com and other services, with plans for many more such online businesses from competitors like Amazon.com, MTV, Dell, Hewlitt-Packard and Microsoft - all of which use Digital Rights Management, or technological protection measures, to protect the delivery of the music. All of these businesses are meeting consumer expectations in the marketplace in different ways, allowing flexibility while preventing mass infringement. This is the marketplace, and competition, at work.
HR 107 would allow the sale of hacking tools that would bust through the Digital Rights Management of iTunes and other services if the hacker is using the copies for "non-infringing purposes." There are two glaring problems with this proposal:
First, there is no way to assure that the tool ONLY makes non-infringing copies. The only way to do so - and even that would not guarantee success - is to impose a tech mandate for copy controls, which HR 107 does not contain.
This leads to the second problem-Enforcement. It is impossible to monitor private copying to assure that copies are made only for non-infringing uses. A technology or tool which provides circumvention for "non-infringing" purposes necessarily provides circumvention for any use, including blatantly illegal ones. There is simply no way to control how the means to circumvent is used once the tool is in the hands of a user. In fact, Rep. Boucher conceded this fact when he introduced H.R. 107. He said:
"I recognize that because the determination of whether or not a particular use is considered a 'fair use' depends on a highly fact specific inquiry, it is not an easy concept to translate into a technological implementation."
Cong. Rec. E 21 (Jan. 8, 2003).
Unfortunately, Rep. Boucher drastically understated the problem. It is not only "not easy" to create a technology that will permit "fair uses" while prohibiting other uses; it is, at present, impossible.
It is important to distinguish between "fair use" and "free access." It is not a defense to copyright infringement to illegally gain access to a work, whatever the motivation. You cannot steal a CD from a record store in order to make a fair use copy of a portion of it. You cannot break into a library to make fair use of a book. HR 107 would blur this distinction and allow the use of devices to circumvent controls that regulate original access to a copyrighted work.
While this bill is proposed under the banner of consumer rights, consumers will, in fact, be hurt if it were enacted. Members of the music community strive to provide consumers with many different ways of accessing our content. Allowing "free-riders" access to our music by enabling circumvention will raise the costs to honest consumers, and limit the incentive and ability of providers to invest in, and offer, new technology and digital media alternatives.
The DMCA is enabling consumers to pay different prices for different uses of entertainment. Not all consumers desire to pay for complete access to material. Some may want to access entertainment only one time, or for a week or a month. In the case of music, some may want a subscription that allows them access when they desire it without the burden or cost of acquiring a permanent copy.
Currently, download music services provide for permanent copies on a track by track basis or an album basis; the ability to share the song with some other computers; the ability to burn a copy onto a CD-R; and the ability to transfer the song to portable digital music players. In other words, the marketplace is addressing what consumers want and expect, and that's how it should be.
Consumers are benefited by options, not an abstract and misguided application of the ability to make numerous copies. Those options have been, and should continue to be, created by the legitimate marketplace - not by government regulation.
H.R. 107 is a solution in search of a problem. Our own success depends upon the ability of our consumers to access and enjoy our music. If consumers don't think a product at its price point offers enough value - and one of the ways consumers measure value these days is the flexibility they get to use the product in different ways -- then the product will not sell.
The labeling provisions of H.R. 107 likewise pose a solution in search of a problem. Record companies are committed to giving consumers the information they want and need before buying a copy-protected CD, DVD-A, SACD, or other optical disc product. Just over a dozen copy-protected CDs have been released commercially to the public in the United States. The typical copy-protected CD contains a prominent label that informs the consumer about the copy protection. In this case, just as in the case of meeting consumer expectations with regard to flexibility on digital services, consumers will measure value by how well they are able to use the product in different ways. The marketplace is once again working, just as it should.
We continue to work with technology providers to give consumers more choices and greater control over how they access and use digital content and we are committed to providing information to consumers about these products. But our continued ability to offer choices and personal control relies upon the protection afforded by digital technologies. By allowing unimpeded circumvention of these protections with the empty and unenforceable directive to only make non-infringing copies, HR 107 lays waste to the effective-and balanced-DMCA.
We are suffering from piracy. This bill goes in the wrong direction by promoting it. We urge you to oppose it.
Thank you.
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