Recognize for an opening statement Mr. Boucher.

Mr. BOUCHER. Thank you very much, Mr. Chairman. I appreciate your focusing the attention of the subcommittee today on the coequal need to protect copyrighted material against piracy and to respect and to reaffirm the time honored fair use rights of the consumers of that same material.

With the arrival of content in digital form and with a deep penetration of Internet usage, the striking of a reasonable balance between the rights of copyright owners and the rights of the users of copyrighted material has become both more urgently needed and more difficult to achieve.

This hearing evolves from our earlier discussions on facilitating the digital television transition. An element of those discussions was the need to protect from unauthorized copying and from uploading to the Internet the digital TV transmission of high value programming. It is essential that this protection be provided so that program originators will release their high value material for digital television broadcast.

The transition to digital television will never be truly effective if the most desired programs are not available. So copyrighted programs must be protected, but there is a co-equal need. The time honored fair use right of the consumers of digital material to make recordings for noncommercial personal use and for personal convenience must be respected and must be specifically affirmed.

The fair use right of consumers to convey digital material they have lawfully acquired among a wide range of digital devices in the home setting and beyond the home setting to other personal spaces, including the car and the personal office and anyplace to which that consumer of digital information may travel, must also be respected and observed.

This committee, Mr. Chairman, is an excellent forum for addressing these challenges and striking the essential balance between copyright owner rights and user rights that are so essential in this digital era. There is a right way and a wrong way to protect content in digital TV transmissions.

The right way is to look to the affected private sector entities for a technical solution, and on that front truly impressive progress is being made. The Broadcast Protection Discussion Group of the broader Copy Protection Technical Working Group is comprised of digital equipment manufacturers and the major motion picture studios.

The Group has already developed a standard for the protection of digital television signals that arrive in the home by means of cable TV or by means of satellite. These signals pass through a set top box that can both protect the content from unauthorized copying and allow home recording for personal use in appropriate, clearly defined circumstances.

That same Working Group is now very close to agreeing upon a standard broadcast flag for the protection of programming that is delivered by digital television broadcast over the air to be received by antenna or by rabbit ears.

That standard would also honor the fair use right of television viewers to make copies for personal use, and work is continuing by another group to address the problem of the so called analog hole

through which a highly technical and cumbersome process can provide an avenue for uploading of material to the Internet by means of the digitization of analog content. A watermark standard to close the analog hole is in development by another working group.

I want to take the opportunity of this hearing today to congratulate the Working Group companies on the impressive successes that they are achieving. I also commend them for respecting the fair use rights of television viewers as the various technical standards have been developed and approved by the Group.

The Working Group approach is the right way to proceed, and it is achieving solid results. I will be interested to learn from witnesses today and in other future forums the extent to which the protection of content delivered over cable and satellite, which has been achieved, and the protection of over-the-air delivered content, which the Group is on the verge of achieving, is sufficient to persuade the studios to release their highest value content for digital television transmission.

The wrong way to proceed is for Congress to act prematurely, and I am concerned by all of the conversation that has been directed in the last month to an approach recommended in the Senate, which would clearly have the Congress act in a premature fashion.

Legislation has been introduced in the Senate that would have the government develop technical content protection standards. The fair use rights of consumers would not be guaranteed through that measure.

There is every probability that a government standard would impede the functionality of digital receivers, players and recorders. This is clearly the wrong approach, and the progress being made by the private sector Working Group renders that approach not only inappropriate but also clearly unnecessary.

After private sector standards are developed, there may be a role for the government to assure that devices employ the standard. At that time, we can be assured that the functionality of players, receivers, and recorders will not be impeded.

We can be assured that consumer fair use rights will be protected, and that copyrighted material will be safeguarded. Mr. Chairman, I suggest that we not act until we have received those assurances. Thank you again for conducting this hearing, Mr. Chairman, and a warm welcome to all of our witnesses. [The prepared statement of Hon. Rick Boucher follows:]

PREPARED STATEMENT OF HON. RICK BOUCHER, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF VIRGINIA

Thank you, Mr. Chairman for focusing the attention of the Subcommittee on the co-equal need to protect copyrighted material against piracy and to respect and reaffirm the time honored Fair Use Rights of the consumers of the same material.

With the arrival of content in digital form and with a deep penetration of Internet usage, the striking of a reasonable balance between copyright owner rights and the rights of the users of copyrighted material has become both more urgently needed and a great challenge to achieve.

This hearing evolves from our earlier discussions on facilitating the digital television transition. An element of those discussions was the need to protect from unauthorized copying and uploading to the Internet the digital TV transmissions of high value programming.

It is essential that this protection be provided so that program originators will release their high value material for digital TV broadcast. The transition to digital

TV will never be effective if the most desired programs are not available. And so, copyrighted programming must be protected.

But there is a co-equal need. The time honored Fair Use Right of the consumers of digital material to make recordings for non-commercial personal use and convenience must be respected and specifically affirmed. The Fair Use Right of consumers to convey digital material they have lawfully acquired among a wide range of digital devices in the home and the extended personal setting including the car, the personal office and places to which the person may travel must be respected and ob

served.

This Committee is an excellent forum for addressing those challenges and striking the essential balance between copyright owner rights and user rights in the digital

era.

There is a right way and a wrong way to protect content in digital TV transmissions.

The right way is to look to the affected private sector entities for a technical solution. And on that front impressive progress is being made. The Broadcast Protection Discussion Group of the broader Copy Protection Working Group is comprised of digital equipment manufacturers and the major motion picture studios.

The Group has already developed a standard for the protection of digital TV signals that arrive in the home by means of cable TV or by satellite. These signals pass through a set top box that can both protect the content from unauthorized copying and allow home recording for personal use in appropriate defined cir

cumstances.

The same Working Group is now very close to agreeing upon a standard broadcast flag for the protection of programming delivered over the air to the home for receipt by an antenna or by rabbit ears. That standard would also honor the Fair Use Right of TV viewers to make copies for personal use.

And work is continuing by the group to address the problem of the so called analog hole which through a highly technical and cumbersome process can be an avenue for the uploading of material to the Internet by means of the digitization of analog content. A watermark standard to close the analog hole is in development by the Working Group.

I congratulate the Working Group companies on the impressive successes they are achieving. I also commend them for respecting the Fair Use Rights of TV viewers as the various technical standards are approved by the Group.

The Working Group approach is the right way to proceed and it is achieving solid results. I will be interested to learn from our witnesses today the extent to which the protection of content delivered over cable and satellite which has been achieved and the protection of over the air delivered content which the Group is on the verge of achieving is sufficient to persuade the studios to release their highest value content for digital TV delivery.

The wrong way to proceed is for Congress to act prematurely. A measure has been introduced in the Senate which is premature. It would have the government develop technical content protection standards. The Fair Use Rights of consumers would not be guaranteed.

There is every possibility that a government standard would impede the functionality of digital receivers, players and recorders.

This is clearly the wrong approach and the progress being made by the private sector Working Group renders it not only inappropriate but also unnecessary.

After private sector standards are developed, there may be a role for government to assure that devices employ the standard. At that time we can be assured that the functionality of devices will not be impaired, that consumer Fair Use Rights will be protected and that copyrighted material will be safeguarded. We should not act until we have those assurances.

Mr. UPTON. Thank you. Recognize for an opening statement Mr. Stearns, the vice chairman.

Mr. STEARNS. Thank you, Mr. Chairman, and I want to congratulate you for holding this hearing to examine content protection in the digital era.

Of course, I want to commend Chairman Tauzin for his tireless leadership in conducting several TV roundtable groups. As he has pointed out, they have been very helpful.

As we discuss content protection in the digital era, the groups with the most to gain and lose from the digital transition are copy

right holders of digital content and manufacturers and information technology companies that facilitate such content.

For instance, the average cost of making and marketing films is now about $80 million a film. Collectively, however, the copyright industry generates almost $80 billion abroad, and such investments certainly need protecting. As such, intellectual property laws give creators the incentive and protection they need to make their works available to consumers.

Mr. Chairman, in passing the Digital Millennium Copyright Act, Congress updated U.S. copyright law for the digital age by affording copyright owners protections, while establishing fair use for technology in a digital environment. Digital media also creates a new opportunity for new forms of copyright infringement, and new concerns about fair use of copyrighted works and other long established copyright principles.

A recent article in a Wired magazine, May 2002, highlights a man named, "Lord of the Borrowers." He used the Internet and peer to peer applications to accumulate nearly 2,500 movies, video, and software titles, and in turn contributing to the illegal transfer of copyrighted works, including 3,000 songs and movies such as "Harry Potter" and "A Beautiful Mind." Such actors are no different than those who walk into Blockbuster's movie rental and steal merchandise.

In this article it talks about this man in his home. He has music piped into his bathroom, his living room, his kitchen. Every corner of his home has music, with a 28-speaker stereo system that cycles 3,000 songs ranging from 200 from Elvis Presley tunes and all the early Beatles to classical, hip-hop, blues and concert, all that he bootlegged, even Axl Rose doing "White Christmas."

He says, "I had enough music to run a radio station," he brags. "I could let it play for weeks and weeks, and it would never run out." He hasn't spent a dime, and his only real connection comes in the form of a cable modem-"Lord of the Borrowers."

Mr. Chairman, I would like unanimous consent to put this article in the record.

Mr. UPTON. Without objection.

Mr. STEARNS. As a result, the prevention of unauthorized copying of digital work has grown in importance in such technologies being continually developed and improved upon by media and electronic industries. However, there remains several outstanding issues regarding technology, technical industrywide solutions.

The parties appear close to reaching agreement pertaining to broadcast flags in order to prevent broadcast programs exhibited on over-the-air TV stations from being redistributed without authorization. Additionally, protecting digital content in the analog format, or plugging the analog hole, serves as a means of protecting intellectual property.

While these two issues appear to be imminently resolved-immediately resolved, the parties seem far from reaching consensus on how to treat peer to peer applications which allow for distribution of files across the Internet without the need of a centralized server. Nevertheless, as pointed out by the chairman, we have the opportunity to solve these problems, and I think the private industry is the best way to solve these at this point, and not have mandates

from the Federal Government. As so often happens, the Federal Government sometimes strangles innovation.

Finally, Mr. Chairman, while we are quick to protect the investment of content owners, we must balance it out to be doubly sure we protect the rights of consumers. It is imperative that all parties continue to recognize consumers' rights to personal, noncommercial use of the legally purchased copyrighted materials.

Additionally, neither Hollywood nor manufacturers would be profitable without consumers. As such, we need to respect consumers' investment in such technology and ensure that their investments are not made obsolete with efforts to protect content. Mr. Chairman, I again commend you for your hearing. Mr. UPTON. Ms. Harman.

Ms. HARMAN. Thank you, Mr. Chairman. I have a statement for the record, but just want to summarize with a few points.

First of all, the issues we assess today have a huge impact on the digital world, and I am trying very hard to wrap my aging analog brain around them. Second, this is an excellent panel and a stellar group in the first row right behind it, and their spectrum of views is most welcome.

Third, what we do and, just as important, what we do not do really matters in this case. We have had a few hearings lately that I thought mattered a bit less than this one. This one will really make a difference.

So I would just set out a few principles we ought to think about. The first is that government should do no harm. That has been said often, but here we are in a position to do a great deal of harm if we do the wrong thing.

The second is that the transition to digital is not just a question of supply. It is a question of demand, and the demand will not be there if high value content is not there, and high value content will not be there if we don't protect intellectual property. So we had better get that part right.

The third point is that the private sector has a great deal to offer here. There are market mechanisms and, as we have heard, crossindustry mechanisms that can do a lot of the hard work, and perhaps do it better than we can do it.

Fourth, government has a tendency to operate with a sledge hammer. In this case, operating with a scalpel is absolutely required.

So I look forward to the testimony today. I have got some questions for some of the witnesses. This is going to take hard work. We are going to earn our pay getting this thing right, and I look forward to being a part of the bipartisan solution on this committee. Thank you, Mr. Chairman.

Mr. UPTON. Thank you.

Mr. Shimkus.

Mr. SHIMKUS. Thank you, Mr. Chairman. I know this is a tough issue. I am going to listen to the panel. I just remind people who have been before this committee before, my first experience is with my wife, who is a church organist, when she went through the reams of music and took out all the Xeroxed copies of music and threw them in the trash can because she wanted to respect the intellectual rights of the folks who wrote the music.