lutionized the communications field. In any case, it has proven very useful and popular with both commercial users and the public. Why then, one might ask, did it take 11 years after home video recording was introduced for these two studios to try to stop this technology? Thank you for your generous time today. I think you sense how concerned we at Sony Corp. of America are about all the complex implications of this matter. We feel convinced we have a quality product that serves the interests of millions of consumers, broadens their freedom, and grants them full use and enjoyment of the public airwaves. At the same time, even our adversaries admit that this product has harmed no one and has caused no one a loss of revenue. I hope you will act favorably on this remedial legislation and act upon it quickly, so that this serious but in our opinion quite unjust problem may be solved. Thank you.1 Senator DECONCINI. Thank you, Mr. Lagore. At this time I will yield to the Senator from Alabama to introduce Mr. Kretzer. COMMENDATION OF WITNESS Senator DENTON. Thank you very much, Mr. Chairman. One of the real pleasures of serving in this office is the opportunity it provides for working with men like the one sitting in front of me today. Mr. Julius Kretzer is an Alabamian and a Mobilian. I am from that town, and over the years I have admired him as he has helped maintain and improve our city. As a successful businessman and an active community leader, he embodies the highest standards of business integrity and good citizenship. I want to take a minute today to say more, Mr. Chairman, than just welcome to Julie Kretzer. Since his statement mentions freedoms, I believe that committee members should know something of the measure of this man's demonstrated commitment to preserving our freedoms. During World War II, Julie Kretzer was a combat medic who saw action in France and Germany. He also served in Russia. He took part in the Battle of the Bulge and was wounded and lost his leg in Germany in 1945. He returned to the United States, a decorated hero, and began the years of hard work that would lead him to success as one of my city's industrious businessmen. He is currently the president of Kretzer, Inc., and the president of Mobile Downtown Unlimited, a major city development nonprof it organization. As a community servant, he is both a member of the chamber of commerce and a director of the Diabetes Association. Professionally, he has served as the director of the Mobile chapter of the Sales and Marketing Executives and, today, is before this committee in 1 Mr. Lagore's voluminous prepared statement can be found at the close of today's hearing as appendix A on page 165. his capacity as president of the National Association of Retail Dealers of America. I believe that he is uniquely qualified to express the concerns of the retailers of video cassettes and recorders. I want to welcome Julie to Washington and commend him to you, Mr. Chairman, and to this committee. Senator DECONCINI. Senator Denton, thank you. I also have a note, Mr. Kretzer-you are a very popular man down there-from Senator Heflin, who is in Alabama today, regretting and expressing his disappointment that he cannot be here to join Senator Denton in presenting you to the Judiciary Committee. He points out your community activities and as a business leader in the State and in the community of Mobile, and he asks me to express his regrets that he cannot be here. Senator DENTON. Mr. Chairman, would you excuse me? I have just been informed that I have to offer an amendment now on the floor. I must ask that I not hear you. I have read your statement, Mr. Kretzer. I will see you later. Senator DECONCINI. Senator Denton, that would be fine. Maybe you can hold the vote off for a couple of hours. That would be just great. Senator DENTON. All right. I will do my best. Senator DECONCINI. Thank you. Who wants to go next? Mr. Wayman. STATEMENT OF JACK WAYMAN, SENIOR VICE PRESIDENT, CONSUMER ELECTRONICS GROUP, ACCOMPANIED BY J. EDWARD DAY, SPECIAL COUNSEL Mr. WAYMAN. Thank you, Senator. In the interests of time, I am going to take just a few minutes from my prepared statement, Senator. My name is Jack Wayman. I am senior vice president of the Consumer Electronics Group of the 56-year-old Electronic Industries Association, which has its headquarters here in Washington. With me is our long-time special counsel, J. Edward Day. He is a partner of the law firm of Squire, Sanders, and Dempsey. We are a trade association for manufacturers and sellers at the manufacturer's level of consumer electronic products. These include television receivers, radios, tape recorders, audio systems, phonographs, video cassette recorders-the so-called VCR's; by the way, that is the same thing as a videotape recorder, a VTC-and we represent other consumer products. Our membership consists not only of all the major domestic manufacturers but most of the leading foreign-controlled manufacturers which have facilities here in the United States. Our member companies, which include General Electric, RCA, Zenith, and many others, account for well over 95 percent of the sales of these VCR's we are discussing today and 95 percent of the sales of blank videotape, both at the manufacturer's level. The purpose of our testimony today is to urge that VCR recordings of copyrighted materials off the air, when intended only for private, noncommercial use, do not constitute copyright infringe ment as is the case, with congressional approval, for home recordings of copyrighted sound-only audio materials. We seek to have Congress overturn the potentially disastrous effect of the recent decision of the U.S. Court of Appeals for the Ninth Circuit in the case of Universal City Studios, Inc. v. Sony Corporation of America, the so-called Sony case, which reversed the opinion of the lower court. This Sony case has already been in the courts for 5 years, and with further court proceedings underway it could remain there for a long time. We seek legislative relief to avoid the possibility of a long period of uncertainty and confusion while this matter inches its way through the judicial process. Let us talk about some facts about VCR's and their use. There are almost 3 million VCR's in American homes, which means access for about 10 million people. In 1978 the VCR sales to dealers was about 400,000 units. This year, in 1981, we expect that figure to reach 1.3 million units, a 200-percent increase over the 1978 figure. The monetary value of the American public's investment in VCR's and related products exceeds $3 billion, though with limited profit for manufacturers, and this is due to the enormous research and development investment and a very strong competition which exists in our industry. Time shifting is a benefit and not a detriment. Home videotaping occurs primarily for time shifting purposes. That is, if a consumer is unable to watch a program while it is being broadcast, he records it to watch at a more convenient time. Surveys indicate that 70 to 90 percent of all VCR owners use their VCR's primarily to view television programs that they could not otherwise have watched. A. C. Nielsen and Arbitron, the two major rating services, support this view because they now include VCR use in their ratings as an additional, previously unavailable audience of viewers who could not otherwise have watched a program. This was brought out and stated in the FCC study in their 1980 status report on the video cassette industry. Let me point out that fair analysis of VCR usage leads to an inevitable conclusion: Time shifting, the principal use of VCR's, economically benefits rather than injures copyright holders. Indeed, the lower court found no proof that any copyright holder is being damaged by this private copying. We are not attempting to appeal the ninth circuit court decision to this committee, but we do believe the ninth circuit court decision violates the public interest by threatening to prohibit American consumers from utilizing and enjoying a product which significantly improves the quality of their lives. And we feel that certain farreaching public policy issues such as this one should be resolved by Congress and not the courts. In regard to the economics of the motion picture industry, we certainly favor any company or industry making all the money it can. But let me point out that the motion picture companies are already triple dippers in the economic pot, and some of them may want to become quadruple dippers at the expense of the consumer and the profit-squeezed consumer electronics industry. When a new movie is made, a producing company releases it first for showing in theaters for their first dip and for a profit. Then, as a second dip, the company can relese the movie in exchange for generous payments, often 15 to 25 percent of wholesale, to a manufacturer of prerecorded tapes which sell at retail for between $50 and $100. Then the movie company has a third dip-negotiated royalty arrangements to let the movie be shown on television. It is common knowledge that some of these movies are shown on the air dozens or even hundreds of times, some year after year, by broadcasters both large and small and by the networks, all with royalties paid to the motion picture company which owns the copyright. The royalty paid by the broadcaster is subject to negotiation based on expected viewing audience. As already mentioned, because of the consumer convenience feature of time shifting, recording off the air for private, noncommercial use increases the broadcaster's viewing audience. Thus, copyright holders can negotiate for more revenue based on estimated larger audiences. Instead of recognizing these advantages, some movie companies apparently want to take a fourth dip to in some way charge the consumer for off-the-air recording for purely private, noncommercial use. However, we are now becoming convinced that Universal-MCA and perhaps other motion picture companies may not really be aiming for this fourth economic dip. We think what they may actually want is to put video cassette recorders completely out of business. This would be done by obtaining a court injunction against their use. An injunction against the use which the court could impose would be cruel and unusual punishment in this situation. The injunction would apply, at the present time, to only one company selling at the manufacturer's level, Sony, but it might then apply nationwide not just to Sony but to retailers, distributors, and advertising agencies involved in selling the Sony VCR's. It could also affect companies who sell the Betamax VCR under their own brand names, as their source would be cut off. With regard to the violation of right to privacy, not only does the ninth circuit court decision threaten the viability of a growing industry, but its ruling has had the sudden effect of overnight turning law-abiding citizens in almost 3 million American homes into lawbreakers. The ninth circuit decision threatens the privacy of millions of Americans. As regards the economic effects of an injunction, there are an estimated 25,000 retail outlets selling VCR's and/or blank tapes in the United States. VCR's are the most popular product in our consumer electronics industry today. Each of the companies selling VCR's at the manufacturer's level has a marketing structure and a merchandising staff. They have advertising agencies, and in many cases there are representatives and distributors. The economic havoc that an injunction would cause in the terms of profitability and unemployment is inconceivable. With this background, we give you our reasons why an explicit amendment to the Copyright Act is essential. One, we are threatened with a nationwide injunction which would be vindictive and discriminatory. Two, if we are denied a rehearing by the ninth circuit court, we will of course ask the Supreme Court to consider an appeal. Important as this case is, we cannot be sure the Supreme Court will take our case. Three, an appeal to the Supreme Court, even if accepted, would not be resolved for a year or more. Four, in the meantime, in the ninth circuit at least, every person who is using a VCR to record copyrighted material off the air for private use is a law violator. On this last point, the motion picture company plaintiffs in the lawsuit are trying to have it both ways. They say they are not interested in pursuing the individuals who are doing the recording with VCR's, but their whole case hinges on a claim that the people doing the recording for private use, are the lawbreakers. This is because the whole exposure of the manufacturers and retailers to a possible injunction depends entirely on a contributory infringement-on that theory-and if there is no violation by the private tapers there can be no contributory violation. What it boils down to is that Universal and Disney do not care if under their theory, millions of private tapers are breaking the law. They are only interested in getting and destroying the VCR manufacturing and merchandising industries. This is not just a battle between two big industries-one, the movie companies, thriving from their triple dipping, and, on the other hand, the television manufacturing industry, threatened with loss of their most popular product. It is a consumer issue. The copyright laws, like all laws, are supposed to benefit the public at large. The VCR user is not taping for commercial use. He is merely using a convenience that developing technology has made possible as a byproduct of television broadcasting. The copyright laws should face up to and adjust to the vast strides in technological advancement which have made time shifting possible. The copyright laws should not be used for greedy purposes, to hold back inventiveness and technological creativity. We certainly urge the enactment of legislation to exempt from the copyright laws off-the-air VCR recordings for private, noncommercial use, of copyrighted material broadcast for television viewing. Thank you, Senator. Senator DECONCINI. Thank you very much. Mr. Kretzer. STATEMENT OF JULIUS KRETZER, PRESIDENT, NATIONAL Mr. KRETZER. Thank you, Mr. Chairman. I am a little awed by the introduction of Senator Denton. I do not know whether I can carry on. Mr. Chairman, I am Julius Kretzer, president of Kretzer's Television Center, Inc., of Mobile, Ala. I am also president of the National Association of Retail Dealers of America, NARDA, an organization of approximately 3,600 members, who operate more than |