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to propose, which I can perhaps summarize or, if necessary, just submit for the record following Mr. Howard's statement. But we would like to present, with the chairman's permission, the principal statement for the BMI.

Mr. KASTENMEIER. With that explanation, Mr. Howard, you may proceed, sir.

STATEMENT OF HARRY F. HOWARD, FOR THE BOOK

MANUFACTURERS' INSTITUTE

Mr. HOWARD. Thank you. My name is Harry F. Howard. My address is the Plimpton Press, Norwood, Mass. The Plimpton Press is one of the larger book manufacturing companies currently employing 1,500 people in two plants, ,

, I have had 40 years service with the company including experience as plant manager, in sales to publishers, and general administration, and am currently administrative vice president. I have also had considerable experience with other branches of the printing industry through trade association work, have been president of the Book Manufacturers’ Institute and am currently a member of its executive committee and board of directors. I have also been on the executive committee and board of directors of Printing Industries of America, the national association of the printing industry, and am a past president of the Graphic Arts Institute of New England, the printing trade association serving Boston and eastern New England. I am immediate past chairman and a member of the Joint Specification Committee of the National Association of State Textbook Directors, American Textbook Publishers Institute, and Book Manufacturers' Institute.

I am testifying on behalf of my own company as well as the Book Manufacturers' Institute, 25 West 43d Street, New York City, of which my company is a member. I am currently serving as chairman of the BMI's Governmental Affairs Committee. The 44 U.S. book manufacturers who are members of the BMI account for more than 75 percent of all book manufacturing in the United States. The BMI also serves the Canadian book manufacturers, almost all of whom are BMI members.

Mr. KASTENMEIER. Mr. Howard, may I interrupt at this point only to inquire-I note your statement is 25 pages long—whether, in view of the fact that you may desire that Mr. French also be able to summarize the points he wants to make on language, whether you might summarize your main points, and then, time permitting, you might return to elaborate.

Mr. HOWARD. All right, I will be glad to. In the first place, we do want to comment on fair use. We support the recommendation of the Register of Copyrights. We do not believe that a court-made limitation on copyright is susceptible of precise or equitable definition, and that enactment of the legislative definition of fair use would broaden its scope far beyond what the courts have ever been willing to permit under the present law. I think that the fair use exemption that is being sought by certain education interests would have its present application in exempting copies produced on copying machines owned

by schools, libraries, and so forth, and that no organization, however worthy its objectives, should be allowed to make free use of the creations of authors.

Authors and publishers are as fully entitled to compensation for their products as well as producers of any other product, whether it be school supplies, heating oil, or teaching services. There is a further point, that what would be a legislative definition of fair use would be giving private owners of copying machines a legislative fiat which would amount to free use of copyrighted material; and that would be rank discrimination against book manufacturers who would not be permitted to use their reproductive equipment freely for reproducing the same material.

Of course, our basic point is the manufacturing provision, section 601. That has been expressed by Mr. Van Arkel. The basic premise or background has been summed up very well. However, I think that accession by the Congress to the demand of the publishers for permission to send U.S. copyrights abroad for low-cost foreign processing would be disastrous, would suddenly remove a major factor which has permitted the U.S. book manufacturing industry to survive, and would catch book manufacturers at a critical time when the cost-price squeeze and heavy expenditures for new equipment have reduced industry wide profits to a bare minimum.

There is a table of figures on page 6 that I would like to have you look at very closely. They show the expenditures for new equipment which have gone from $7 million in 1954 to $22,675,000 in 1963. As a result of those expenditures, most book manufacturers are heavily in debt today. The burden of liquidating this debt and rising labor costs and customer resistance to price increases have reduced the book manufacturing industry profits to really dangerously low levels.

Now the BMI has a survey made each year by a certified public accountant, which covers 29 companies. The 1963 ratios of net profit after taxes to sales is 3 percent, and to total assets is 3.9 percent. That is a far cry from prior testimony which was heard earlier this morning.

Mr. KASTENMEIER. May I interrupt, Mr. Howard, only to inquire as to the nature of the institute with reference to its membership. This may be useful in determining the relevance of your testimony on this fact. Does it take in the Typographical Association, and does it take in binding companies?

Mr. HOWARD. Our organization takes in any segment of the book manufacturing industry. In other words, we may have members who are only compositors. We may have members that bind. We may have members that print. We may have integrated plants. I think it is pretty well split up. I would say that almost all the large integrated plants are members, and a good many of the plants that only print or only bind, and in some cases only set type.

Mr. KASTENMEIER. It includes, for example, some typographers, but goes well beyond that in the spectrum of book manufacturing?

Mr. HOWARD. Yes, it is the basic book manufacturing association. For instance, there are some statistics in one of the tables here that show sales; for instance, exhibit A shows the various breakdowns by components. For instance, of 19 companies that were surveyed on one phase of the inquiry in order to get statistical data, 9 of them had

composing rooms, 10 of them had letterpress rooms, 15 of them had binderies. Obviously, some of them must have had all three to get those totals.

Another point I want to make besides the low-profit margin-and, by the way, that low-profit margin has been declining; it declined from 4 percent on sales in 1960 to 3 percent on sales in 1963; on total assets from 5.8 in 1960 to 3.9 in 1963. I think that if you cannot get more than 3.9 return on your total assets you are better off with your money in the savings bank. Now if the manufacturing provision were removed, we believe that the resulting loss of volume would cause, in such a low-profit margin industry, a certain number of bankruptcies and other signs of financial distress.

Now I think there is a relationship of the manufacturing provision to the balance-of-payments deficit. In other words, the U.S. deficit of trade in international book manufacturing service is a one-way street, with all of the traffic going the wrong way. The foreign book publishers don't place any orders with us. It is hardly likely they ever will, with their cost so much lower than our country. I think it is also significant that the fact that the publishers are attacking the manufacturing provision is that, if it would not make any difference if the manufacturing clause were removed, why not let it stay? The assertion that such repeal would not result in a substantial movement of book manufacturing business out of this country is certainly sort of hard for me to understand.

Now book manufacturing is a very high labor cost business. Mr. Cantor featured that. I have table À which shows in our particular segment of the industry the labor content of the dollar, which runs from 61.2 percent in the composing room to 40.1 percent in the binderies, which have the lowest component of labor of all. That shows why our industry, paying high craft wage rates, is very vulnerable to low-wage foreign competition. Now we have labor comparisons in this report of mine which I think are very significant. I won't go into detail on them. Suffice it to say, that the best paid European printing and bindery employees, who are Swedish, are only 66 percent of the wages of their American counterparts. But the countries where the work is really done—such as England and the Netherlands, and Western Europe---are even less than that. I leave to you the study of the table at the bottom of page 10, which is supplied by the Bureau of Labor Statistics.

Now much has been said about the argument that the U.S. book manufacturing is technologically more advanced than the European. That is largely a myth. The fact is that while a larger percentage of U.S. book manufacturers have modern, high-speed equipment than do European book manufacturers, the more advanced European firms use comparable, and in some cases superior, equipment to any found in the United States. As a matter of fact, American plants are using substantial amounts of European-made equipment. Moreover, with high-speed, jet air transportation becoming the rule rather than the exception, and with favorable westbound freight rates, European book manufacturers can now meet tight production schedules and can lay down completed books in the United States at freight costs competitive with our own high, overland costs.

Much has been said about superior productivity in the United States, implying lower output per man-hour in foreign countries.

COPYRIGHT LAW REVISION

1669

Obviously, output per man-hour on the less sophisticated equipment used for short-run work would be less than that on a high-speed, longrun production line. However, productivity in a Western European plant producing books with the same length of run and specifications as a similarly equipped American plant, which would be the case if the manufacturing provision were removed and the European plant were manufacturing American book titles, would differ little from that of the American plant. Despite the low wages paid, European craftsmen are highly skilled and work hard and effectively. Thus, with their drastically lower labor rates, the per-unit-of-production costs of European plants manufacturing American book titles would be substantially lower than our own unit costs.

It should be remembered that book manufacturers have no product to sell but our manufacturing services. In the entire process of writing, designing, planning, manufacturing, marketing, and distributing books, the book manufacturer performs the simple function of manufacturing the product. We sell our services, not to the general public, but to publishers. We own no book inventory, and we do not sell books. For the most part, we never own even the physical materials which we use to manufacture books. These materials, like the finished books themselves, are the property of the publisher. Moreover, we have no control as to the content, format, advertising, or terms of sale of the books we manufacture. These, too, are in the hands of our customer, the publisher.

Under these circumstances, it will readily be seen that the book manufacturer has very limited areas in which to adjust to adverse competitive conditions. Our only competitive weapons are price, quality, speed, and dependable service. With many European and Asiatic book manufacturers able to offer quality and service comparable to ours and able to meet delivery schedules satisfactorily, all at prices well below the best that we can offer in view of our higher labor costs, removal of the manufacturing provision from the copyright law would result in wholesale importations of foreign book manufacturing services and jobs in substitution for our American book manufacturing services and the jobs of our employees.

We take serious issue with the contention sometimes made that the manufacturing provision is unrelated to copyright and that book manufacturers have no just claim to recognition under the copyright law. It is the book manufacturer who makes possible the commercial exploitation of authors' works by reproducing them in multiple copies. Since it is the book manufacturer who has the physical capability to reproduce authors' creations in multiple copies, it is the book manufacturer who, absent copyright, could profit from the commercial exploitation of such creations. That was the case before there was a copyright law.

Thus, copyright denies to book manufacturers the right to use their skills in such a way as to reap the benefits of an author's creative work by freely selling multiple copies. It forecloses us from competing with authors and places us, instead, at the service of authors and their publisher-agents, who are the real controllers of copyright power. The control of copyright gives publishers a monopoly, the scope of which precludes all book manufacturers except the one selected by the publisher from manufacturing copies of the protected work. The

manufacturing provision is nothing more than a reasonable condition of the grant of that monopoly. Under the requirements of the manufacturing provision, publishers are free to select any book manufacturer they wish so long as it is some domestic manufacturer. If there were no manufacturing provision, the copyright monopoly could, and, we believe, would be used to deny manufacture of a very large number of book titles to all domestic book manufacturers.

We believe that it would be grossly unjust to permit the publishing community, who are the beneficiaries of consumer purchasing power generated by American wage standards, to refuse to pay the cost of American book manufacturing services, and, instead, to buy foreign manufacturing services provided at wages which are far below those which we book manufacturers in the United States must pay. Indeed, it seems to us that repeal of the manufacturing provision would enable publishers to have their cake and eat it, too. Armed with the power of the copyright monopoly, they would buy book manufacturing services in low-cost foreign markets and sell the books in the high-priced U.S. market.

I do not think you need be worried about anything regarding international relations. There is nothing about international relations here. The new manufacturing provision proposed does not apply to any literary work created by nationals of any foreign country. So the manufacturing provision in its true sense does not restrict the importation of foreign books, and it does not hinder in any way the free flow of educational, scientific, or cultural material. It merely prevents the importation of foreign manufacturing services in substitution for American manufacturing services.

Now tariffs are insignificant. They are far below the import duties imposed by a great number of countries. Unlike many foreign countries, we do not have import licenses or internal taxes or anything else. Mr. Van Arkel covered that very well, so I will not go into that any further. But I do have material in my testimony on that.

With one or two notable exceptions, an analysis of present U.S. international book trade statistics produces little useful information bearing on the impact which removal of the manufacturing provision would have on U.S. book manufacturers and our employees. Any attempt to compare trends in imports and exports as they now exist with trends under a marked change of circumstances, such as repeal of the manufacturing provision, is a comparison of apples

It is reasonable to expect that the effects of the elimination of the manufacturing clause would cause a loss in printing and binding paralleling that which has taken place in composition through the so-called reproduction-proof loophole, except that the loss could be expected to be greater since doubt as to the legality under the present law of using foreign reproduction proofs has caused many U.S. publishers to shy away from this practice, particularly with respect to the more valuable copyright properties. As stated previously, it is not possible to obtain valid statistics on the amount of composition set abroad. However, I cite a couple of instances to show that this practice is reasonably widespread.

Now, the manufacturing provision has no effect upon exports. Its only effect upon imports is upon imports of books of American au

and pears.

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