the below the line employees -- the behind-the-scenes people represented by the IATSE -depend upon the revenues derived from the video aftermarket for their health and medical plans. Payments into the medical plans in 1991 exceeded $70 million.

Because the hearing focuses on government-mandated film labeling, I would like to make it clear that I believe labeling is a proper subject for collective bargaining. The DGA certainly can put "film labeling" on the table during the next round of negotiations. By the way, those negotiations have to be completed before July of 1993. We expect to commence negotiations early next year.

Forty years of experience in collective bargaining reveals that it is a flexible and responsive process, and the one best suited to adapt itself to technological changes that occur rapidly in our business. I would be honored to respond to any questions about the collective bargaining process that the Committee might have.

JNC: mv

Sincerely,

Ильбо

J. Nicholas Counter III

APPENDIX 6.-LETTER FROM WENDELL L. WILLKIE II, GENERAL COUNSEL OF THE U.S. DEPARTMENT OF COMMERCE, TO CHAIRMAN WILLIAM J. HUGHES, MARCH 4, 1992

I am writing on behalf of the Administration to express its
opposition to H.R. 3051, the "Film Disclosure Act of 1991," which
is now pending in your Subcommittee. This bill would amend

Section 43 of the Lanham Trademark Act of 1946, Pub. L.
No. 79-489, 60 Stat. 427, as amended by Pub. L. No. 100-667,
102 Stat. 3935 (15 USC 1125) (hereinafter the "Trademark Act") to
require certain disclosures relating to materially altered films.
The bill would enlarge the "moral rights" of "artistic authors"
of films beyond what is granted currently under U.S. law.

The Administration is opposed to H.R. 3051 for two reasons:
(1) the issue of moral rights should be addressed, if at all, in
the copyright law and not in the trademark law, and (2) the
regulatory scheme proposed by the bill is inconsistent with the
policy of the President to reduce and simplify the burden of
Government regulation on U.S. industry. The Administration is
pleased that, through consideration of this bill, the
Subcommittee is continuing the inquiry into whether problems
exist for authors that would warrant a change in U.S. law and, if
so, what remedies would be appropriate. However, the
Administration does not believe that this bill provides a viable
remedy to any problem that may be identified during the course of
the Subcommittee's consideration of these issues.

H.R. 3051 Creates an Unworkable System to Expand Moral Rights of
Authors of Films.

H.R. 3051 is premised on proposed Congressional findings that the public has a right to know that a film has been materially altered because the public is misled by the distribution of such films; and that artistic authors of films have a right to indicate their objections to material alterations to their films because their reputations may be harmed by the distribution of such films.

The proposed findings regarding the rights of artistic authors of films create a statutory moral right in favor of a limited group of artists who participate in the production of a film and who

In

are not usually the authors or copyright owners of the film. addition to creating this moral right, the bill creates a new category of authors of a film, not previously recognized under U.S. law, in whom this right vests. In most instances, the producer or production company is the author of a film under the law. Those individuals defined in the bill as the artistic authors, namely, the principal director and screenwriter and, in specified instances, the principal cinematographer, are typically employees of the production company. By operation of law or by their employment contract, the product of their efforts inures to the production company as the author.

H.R. 3051 proposes to amend Section 43 of the Trademark Act to require that any public exhibition or commercial distribution of a "materially altered" motion picture shall include a lengthy and detailed label that states that the film has been materially altered, describes the nature of the alteration and indicates the objections to the alteration by the film's artistic authors. This label must appear on the film, in advertising and on packaging. Material alteration is defined broadly in the bill to encompass any change to a motion picture after publication, with only limited exceptions; for example, inserting commercials or transferring film to video. Liability for compliance is placed on all parties in the chain of distribution of motion pictures, videos and television programs, including, to a limited extent, the video rental store and retailer.

Additionally, under the bill, the party altering the film is required to make a good faith effort to notify the artistic authors, or their heirs, of the alteration and determine any objections to both this and potential future alterations.

The bill provides extremely strong penalties for failure to comply with all aspects of this labeling requirement. In addition to equitable relief, the artistic author may obtain actual damages or statutory damages up to $100,000; costs, including attorney's fees; and, where bad faith is shown, punitive damages.

Since U.S. adherence to the Berne Convention in 1988, there have been several bills, and a great deal of discussion, on the issue of moral rights as groups representing various artists' interests have sought an expansion of moral rights protection under U.S. law. The issue is important to people on both sides of the controversy and it is an emotional issue worldwide. Largely in response to artists' objections to the colorizing of films, the National Film Preservation Act of 1988, Pub. L. No. 100-446, Title 1, Section 1, September 27, 1988, 102 Stat. 1782 (2 USC 178) was passed during the 100th Congress. This Act expired on September 27, 1991, but legislation to renew it may be enacted during the 102nd Congress (See H.R. 2372 and S. 756). The Act created a National Film Registry and a National Film Board which,

among other duties, was directed to oversee labeling of materially altered Registry films. The Film Board expressed its discomfort with this role so that the labeling provision may be removed from the law renewing the Act. H.R. 3051 has embraced the concept of a labeling requirement to address this aspect of moral rights. The bill proposes expanding the Act's labeling provision's applicability, requirements, and penalties for noncompliance.

Potential Negative Impact of H.R. 3051 on the Film Industry.

H.R. 3051 proposes a burdensome system of notification and labeling of technologically altered films that, in the Administration's view, would create a practical and economic obstacle to the distribution of technologically altered films. The film/TV industry is a major U.S. industry that, according to the Motion Picture Association of America (MPAA), returns to the U.S. economy more than $3.5 billion annually in surplus balance of trade, with 1989 exports alone valued at $5.3 billion. been argued by MPAA that the labeling requirements in this bill would cause their industry serious economic harm and would result in reduced sales of videos and reduced TV viewing of films, particularly of non-blockbuster films.

It has

It appears that virtually all alterations of film for TV showing or video release would be considered "material alterations" under the bill and, thus, require labeling. The label specified in the bill does substantially more than inform the viewer or purchaser that a film has been technologically altered. It requires use of the term "material alteration" regardless of the nature or extent of alteration. The mandated label is a lengthy statement that must appear prominently at the beginning of a program or video, in advertising and on packaging. The Administration shares the MPAA's concern that the prominence, length and nature of the mandated label seem to unjustifiably disparage the product to which the label is affixed. MPAA is seriously concerned that the public will react negatively to a video or TV release of a film bearing this label, with resulting loss of income from these sources. MPAA statistics indicate that the average total cost of a motion picture, including advertising and printing, is $40.1 million and that 80% of films produced by MPAA members do not recoup their costs from U.S. theatrical distribution. MPAA statistics indicate that the primary source of income is from distribution of videos, domestic and foreign, with substantial income also from domestic and foreign TV.

The Administration strongly cautions against hastily passing legislation addressing technological alterations to films without serious consideration of the economic consequences on the U.S. film industry, which is one of today's strongest and most viable U.S. industries.

Moral Rights Protection in U.8. meets Berne Obligations.

Article 6bis of the Berne Convention provides that moral rights exist independently of the author's economic rights of exploitation under copyright and that moral rights must be protected at least as long as economic rights. The concept of moral rights pertains to the idea that an author has a right to claim authorship of a work and a right in maintaining the integrity of his or her work, aside from the economic benefits of copyright. This concept is associated with copyright law because it concerns the aspect of intellectual property relating to artistic creation. U.S. film directors, in particular, view themselves as artistic authors of a film, regardless of whether they have retained a copyright or contractual interest in the economic exploitation of their films. In general, they have expressed their opposition to colorizing and otherwise technologically altering films without the director's consent. Film directors view this as a violation of their moral right to control the integrity of their artistic creation and they seek legislation to recognize and protect this right.

The Administration continues to believe, consistent with the conclusion of Congress in the Berne-implementing legislation (Berne Convention Implementation Act of October 31, 1988, Pub. L. 100-568, 102 Stat. 2853), that existing Federal, State and common law protects authors' moral rights to an extent adequate to meet U.S. obligations under Article 6bis of the Berne Convention. During the course of its discussion on this issue, Congress referred to Section 43 (a) of the Trademark Act as one law that, under the standards established by existing law and precedent, provides rights and remedies consistent with the concept of moral rights and the obligations under Berne. The proponents of increased moral rights for authors of films seem to have seized upon this legislative reference as justification for focusing their efforts in this Congress on amending the Trademark Act.

H.R. 3051 Differs in Intent and substance from Section 43(a) of the Trademark Act.

The proposed findings in H.R. 3051 that the public is misled by the distribution of altered films appear to be intended to connect the issue of technological alterations of film with Section 43 (a) of the Trademark Act. Conclusions should be drawn about the consumer's perceptions of technologically altered films only after considering actual evidence on this issue. The Administration has seen no evidence, in relation to this bill or prior bills or laws on this subject, that indicates that the public is not aware that films are technologically altered for different viewing situations, for example, for television viewing, or that the public is misled in any way by a technologically altered version of a film. For example, the