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thorship in the English language. This accounted for only 13 percent of the value of total book imports in 1964. Thus it would appear that the manufacturing provision has been effective and has added to the U.S. export balance in her book trade. It also could be pointed out that the import figures are probably understated because of what Mr. Cantor stated, which we believe is true, that in many cases foreign reproduction proofs under the designation of publishers' proofs not for resale-with no, or only a nominal, valueare not included in the book-import statistics.

I want to also call your attention to the fact that, while the U.S. book exports continue to exceed imports, the margin has narrowed in recent years. That is brought out in some statistics we submitted. Also we believe that the export titles are overstated, because they include U.S. Government exports and exports to U.S. Government personnel stationed abroad. So that they overstate foreign buying of U.S. books by an unknown but, we feel, a substantial amount.

You may note that the import-export trade is dominated on the one hand by imports from the United Kingdom, and on the other hand by exports to Canada. The United Kingdom is the source of about 50 percent of U.S. book imports—I might add that that is appreciably more than were imported from Yugoslavia--while Canada absorbs nearly 50 percent of our book exports, this shown by analysis of the detailed Department of Commerce statistics on exports and imports. I will be very happy to submit those figures if you wish.

Now, Canada is unique as far as the U.S. book trade goes. It is the only one that suffers a large import balance. While the causes for this situation are numerous, it does not appear that the manufacturing provision is a significant contributor. On the other hand, if the manufacturing provision did not apply to Canadian book manufacturers, they would have the opportunity to manufacture book titles for distribution throughout North America, thus enabling themselves to increase their productivity through longer manufacturing runs. The chief advantage enjoyed by the United States over Canadian book manufacturers derives from the larger size of our national market. If our manufacturing provision did not apply to Canada, and Canadian restrictions on books imported from the United States were removed, the book manufacturers in both countries would be free to manufacture for the whole North American market.

The BMI is recommending enactment of a provision which, we are confident, would result in the early removal of the manufacturing provision's applicability to Canada, as well as to any other country in which the cost of manufacturing books does not differ significantly from the cost of manufacturing comparable books in the United States. We have no objection to competing against foreign book manufacturers who do not have an unfair advantage of substandard labor costs. Canadian book manufacturers don't have that advantage. We would anticipate, of course, that Canada would reciprocate by equalizing her tariffs applicable to imports of books manufactured in the United States with the U.S. tariffs applicable to imports of Canadian books, by withdrawing the application of the Canadian compulsory licensing provision to books manufactured in the United States, and by cooperating in the removal of other restrictions on free flow of printed material between the two countries.

In this connection, I am authorized to state that the BMI has received assurances from the Canadian Book Manufacturers' Institute and the Canadian Graphic Arts Industries Association that the provision being proposed by the BMI to permit waiver of the manufacturing provision's applicability to certain qualifying countries is satisfactory to them and would fulfill the written request submitted to this subcommittee by the Canadian Graphic Arts Industries Association on April 23, 1965.

Now I would like to take a few minutes to simply say that our position on the 1,500 increase to 3,500 is the same as that brought out by Mr. Van Arkel and probably by some of the other unions yesterday. I think it is a reasonable position to take.

However, I would want to bring this statistical data to your attention. That is, on page 22 of my brief there is quite a bit of information about a statistical study made by the Association of American University Presses in 1960, which I think is still fairly applicable. As you can see, this would almost exempt the entire production of university presses, who are already tax exempt; it would exempt nearly their entire production from the manufacturing provision.

I might say that our experience in a survey conducted with some of our members shows that a number of book manufacturers who specialize in small-edition work would be exposed to serious injury if 3,500 copies were exempted instead of 1,500. I think the reproduction loophole has been discussed this morning.

Book manufacturers have long felt that the practice of sending authors' manuscripts abroad and importing foreign-made reproduction proofs for use in printing multiple copies in the United States by the lithographic process, violates the original intent of the existing manufacturing provision, section 16, of the present copyright law. This issue has never been tested in the courts, although the practice has been fairly widespread for at least 10 years. Absent some prior congressional action, the validity of copyright in an unknown but certainly very large number of book titles hinges upon how the courts might decide this issue when and if it is litigated.

While the practice has cost our composing rooms a very substantial amount of work, we have no desire to see these existing copyrights endangered. It could be argued, of course, that those publishers who have engaged in this practice have done so with full knowledge of the risk entailed, and it could be pointed out that they have taken this risk only with respect to their less valuable copyright properties. However, rightly or wrongly, we feel a sense of moral responsibility to our customers for having allowed this practice to go on unchallenged for so many years, until it has now reached the point at which a single case could render valueless a large number of copyrights. Accordingly, we respectfully suggest that, in adopting the new manufacturing provision, the committee give consideration to protecting these existing copyrights by legislative interpretation in its report.

With respect to the new manufacturing provision, we realize that the subcommittee is faced with sharply contrasting views. However, while the publishers have talked about doing away with the manufac

turing provision altogether, they have clearly indicated that their primary concern is to be able to have composition done abroad without ihreat to the validity of their copyrights. As manufacturers, we would naturally prefer not to lose this composition, but we realize that this may be the most practicable solution to a difficult problem.

Accordingly, with respect to the language of proposed section 601, we recommend adoption of the language proposed by the Register of Copyrights which would continue in effect the relevant language of the present law, but we reluctantly would not object to a legislative interpretation in the committee's report exempting such reproduction proofs, at least in a limited way, so that scholarly technical and scientific work might not be so costly that their publication would not be possible. We do not believe that it is necessary to alter the statutory İanguage proposed by the Register of Copyrights.

In summary, the BMI generally supports enactment of the manufacturing provision proposed by the Register of Copyrights. We are in complete accord with the change which removes total loss of copyright as the penalty for violation of the provision's requirements. În general, we feel that proposed section 60s constitutes a great improvement over section 16 of the existing law.

We are, however, strongly opposed to increasing the number of exempt copies to 3,500, and we urge the adoption of a provision authorizing the waiver of the manufacturing requirements with respect to foreign countries whose book manufacturers' costs are on a par with those in the United States. We have technical problems with the provision exempting works written by foreign authors and the provision covering enforcement, but these will be discussed by our other witness, Mr. French.

Thank you again for the opportunity to give you our views on this matter of vital importance to book manufacturers.

(Mr. Howard's complete statement follows:)

STATEMENT OF HARRY F. HOWARD, BOOK MANUFACTURERS' INSTITUTE 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, Norwood, Mass., and La Porte, Ind.

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 BNI members.

Our purpose in appearing before you today, is to inform you of our strong support for section 107, relating to fair use, and section 601, relating to domestic manufacture, of H.R. 4347. The BMI favors enactment of section 107 without amendment, and we urge enactment of section 601 as proposed by the Register of Copyrights with certain modifications which will be detailed by our counsel, Mr. French, following my statement.

At the outset, we wish to thank the committee for giving us this opportunity to acquaint you with the United States book manufacturers' copyright interests and needs. In addition, we would like to express our sincere appreciation for the kindness and cooperation which have been shown the BMI by the subcommittee and its counsel in affording us the opportunity to try to work out a reconciliation of the differing interests of the publishing and book manufacturing communities concerning section 601, the manufacturing provision. We are hopeful that the various groups concerned with the manufacturing provision are much closer together than the testimony would appear to indicate, and we propose to continue our efforts following these hearings.

Before taking up the manufacturing provision, I would like to comment brieis upon the "fair use" limitation upon copyright which has been recommended by the Register of Copyrights.

We support the recommendation of the Register of Copyrights and, accordingly, urge that no definition of fair use be written into section 107 or any other section of H.R. 4347. We do not believe that this court-made limitation on copyright is susceptible of precise or equitable definition. Enactment of a legislative definition of fair use could only have the effect of broadening its scope far beyond the vitality which the courts have been willing to give this doctrine under the present law.

The court-made definition of fair use constitutes nothing more than the application, on a case-by-case basis, of a rule of reason. We believe that any attempt to write this rule of reason into a legislative definition would result in a rast amount of litigation, would seriously impair the value of copyrights, and would unjustly penalize book manufacturers by conferring a broad special privilege upon those who produce copies of books and parts thereof by the use of photo copying machines, while the same privilege could not be enjoyed by book manufacturers who produce copies by the use of printing, lithography, and similar Processes.

The free-use exemption being sought by certain education interests would hare its principal application in exempting copies produced on copying machines owned by libraries, schools, school systems, businesses, and so forth. No organization, regardless of how worthy its objectives, should be allowed to make free use of the creations of authors. Authors and publishers are fully as entitled to compensation for their products as are the producers of any other product, such as school supplies, heating oil or teaching services.

Copying machines are rapidly being improved and made more efficient. The cost of producing photocopies is being reduced while the speed with which copies can be turned out is constantly being increased. Book manufacturers obviously cannot prevent this. However, we do not believe that it would be fair or just to continue to enforce copyright against book manufacturers to its full extent while, at the same time, giving to private owners of copying machinery a legislative fiat to make what would amount to free use of copyrighted material. We do not see how a legislative definition of fair use can be written which would not permit this, and we therefore think that any such definition would be rankly discriminatory against book manufacturers.

I will now turn to the manufacturing provision, contained in section 601 of HI.R. 4347.

The reenactment of this basic provision, which has been a part of the U.S. copyright law for nearly three-quarters of a century, is essential if a strong, enduring national book-manufacturing industry is to be assured. Repeal of this venerable provision of the law, which has been urged by representatives of certain publisher and allied groups, would create chaotic conditions in the U.S. bookmanufacturing industry.

Accession by the Congress to this publisher demand for permission to send U.S. copyrights abroad for low-cost foreign processing would be disastrous. It would remove suddenly a major factor which has permitted the U.S. bookmanufacturing industry to survive and grow to its present stature, and it would catch book manufacturers at a particularly critical time when the cost-price squeeze and heavy expenditures in new equipment have reduced industrywide

profits to a bare minimum and have forced some companies into an operating loss position.

The late fifties and early sixties have witnessed a great surge of expenditures by book inanufacturers for new, modern equipment. The 1963 Census of Manufacturers recently released by the Department of Commerce shows that new capital expenditures by firms engaged in printing, and in both printing and binding, books and pamphlets, rose from $7,243,000 in 1954 to $22,675,000 in 1963. These expenditures are shown as follows: 1947 $4, 268, 000 1960

$16, 614, 000 1951. 7, 243, 000 1961.

17, 618, 000 1958. 10, 816, 000 1962.

19, 503, 000 1959--14, 609, 000 1963.

22, 675, 000 As a result of these heavy capital expenditures, most book manufacturers today are heavily in debt. The burden of liquidating this debt, rising labor costs, and strong customer resistance to price increases have combined to reduce book manufacturing industry profits to dangerously low levels.

An annual BMI survey of member companies shows 1963 ratios of net profit after taxes (1) to sales-3 percent, and (2) to total assets-3.9 percent, for 29 representative companies reporting. The deterioration of the industry's profit position since 1960, as shown by this survey, is as follows:

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While the results of the 1964 survey will not be available until late September, interim figures reveal that the downward trend is continuing and that book manufacturers are dangerously close to the line today, with the manufacturing provision in full effect. If the manufacturing provision were removed, we believe that many L.S. book manufacturers could not long withstand the loss of volume and the price-depressing effect of low-cost foreign competition which would follow, with bankruptcies and plant closings the result. Under these circumstances, removal of the manufacturing provision would be both unjust and contrary to the national interest.

Moreover, repeal of the manufacturing provision would add to the U.S. balance-of-payments deficit. The U.S. international trade in book manufacturing services is a one-way street, with all of the traffic going the wrong way. Foreign book publishers do not place orders with U.S. manufacturers, and it is highly unlikely that they ever will since they can obtain comparable work at much lower cost in their own countries.

Evidences of the ready arailability of foreign book manufacturing services at prices far below anything American book manufacturers can offer, are abundant. They range from the known, wide wage-rate differentials to acivertisements in L.S. trade journals by such organizations as Korean typesetting firms,l to statements by British bookmen such as, “the Americans are understandably concerned at the thought of their editions meeting competition from lower paid British editions in their home market * * *” 2 and it is more economical to publish scientitic and technical books in Britain than in America because composition and operating costs are lower."3 The strongly worded attacks on the C.S. manufacturing provision made by foreign representatives, particularly British, at the recent International Publishers Association conference in Washington provide ampie evidence of the keen expectations for capturing U.S. book manufacturing business held by foreign publisher-manufacturers.

Finally, the concentrated effort being made by some publishers in attacking the manufacturing provision is perhaps the most significant evidence of all.

i See Book Production-Industry magazine, April 1965 issue, p. 84. 2 "The Bookseller," Mar. 18. 1961. 3 AIGA Newsletter, June/July 1963, p. 2.

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