As you know, the Berne Convention, was founded more than 100 years ago. Victor Hugo and the others who participated in its creation realized that the convention would need to be revised periodically. These revisions have occurred about every 20 years. The last! major revision was in 1971. So the time has come to consider bringing the convention into the high tech realities of the 1990's.

The WIPO recognized the immense political difficulties of revising the Berne Convention, since revision requires, under the rules, unanimity. So the WIPO contemplates a special agreement, which they call a protocol, under article 20 of the convention. Such an agreement must not conflict with the provisions that already are in the convention and can only provide higher rights than those that are already provided in the convention.

International copyright protection has, as you mentioned in your opening statement, Mr. Chairman, reached a critical juncture. Technological innovation in the creation, manufacture and distribution of authors' works and in the performances of those works has drastically altered the volume and nature of world cultural trade. It has changed the economic, political and social stakes countries have in maintaining and expanding the present international system of copyright protection.

In general terms, the globalization of copyright markets has sparked a resurgence of protectionism around the world. The problems are multidimensional. We see a wave of doubt as to national treatment as governments worried about negative cash-flows look for cute ways to deprive American authors of new benefits they bestow on their own authors. We see a crisis of enforcement as global piracy flourishes. And we see a failure of consensus as to international standards needed to protect copyright and authors' rights. The GATT TRIPS effort helped move us toward consensus inter- ! nationally under the threat of economic retaliation, but we are not there yet.

The WIPO protocol exercise is extremely important. The WIPO has held two meetings on a possible protocol. It has scheduled a third meeting, as you mentioned, for June 21 to 25 at the WIPO headquarters in Geneva.

At the second meeting of experts last year we discussed both rental rights and the right of importation.

With respect to rental rights, because of the state of our existing law in the United States, the United States supported commercial rental rights for only certain categories of works, that is, sound recordings and computer programs.

With respect to the right of importation, the United States supported recognition of the right to control so-called parallel imports of copies of protected works, which is also in compliance with U.S. law.

Your hearing today on distribution rights is timely. I understand from the director general of the WIPO that he will limit the upcoming meeting in June to three new discussion topics: distribution rights, enforcement, and national treatment, including contract rights.

I am very pleased that you will hold a hearing on national treatment and contract rights on May 27, since this is a topic that is critical to the United States and to many other countries.

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Having said that by way of introduction, Mr. Chairman, let me now turn to a discussion of distribution rights.

Distribution rights go to the heart of the meaning of copyright. They give creators the power to control some or all of the uses of their works. Authors get paid for allowing other people to use their works.

When copyright specialists speak of distribution rights, they may mean several things.

They mean, first, the right to authorize the first public distribution and the right to prohibit specific acts.

Second, they also may mean the right to control the further distribution of copies of a protected work by people who lawfully acquire ownership or possession of them. In other words, we are talking about a rental right here.

Third, they may mean the right to control the importation of cop

ies.

Fourth, they may be talking about the circumstances under which the right to control further distribution is exhausted. Here we are talking about the first sale doctrine.

Fifth, they may be talking about the ability of authors to impose restrictions on the use of copies against people who otherwise lawfully acquire ownership or possession of them. In other words, we are talking about things like shrink-wrap licenses here.

In the United States the distribution right is subject to several restrictions, the most important of which is known as the first sale doctrine. This means the first authorized sale of a copy of a work exhausts the right to control further distribution of that copy. If someone buys a book, the author can't prevent that person from renting it, lending it, or selling it to someone else. That's the first sale doctrine. Congress has exempted sound recordings and computer programs from this rule, at least until October 1, 1997.

Today the Berne Convention is largely silent on distribution rights. There is no express right of first public distribution. There are no minimum rights with respect to rental, importation or exhaustion of distribution rights.

The WIPO proposes that the protocol affirm that authors now enjoy the exclusive rights to control the first distribution and importation for public distribution in Berne states as part of Berne's guarantee of the reproduction right. The WIPO then would begin with a rule of exhaustion of distribution rights with respect to a particular copy of a work following the first sale of that copy. This is in many ways similar to U.S. law.

Exceptions to the exhaustion rule are proposed for sheet music, computer programs, audiovisual works, and works embodied in recordings, and last but not least, any work stored in a digital for

mat.

These proposals were controversial in earlier Berne revision efforts in the late 1960's. They are controversial in the TRIPS negotiations and they will continue to be controversial at the meeting in Geneva in June.

Recognition of the right to control parallel imports as an inseparable corollary to the right of reproduction will be difficult. There are trade considerations, consumer interests, and the fundamental principle of nonextraterritoriality of copyright. Everyone recognizes

the importance of territorial licensing, but we failed to achieve specific recognition of this right in the draft TRIPS text because of the strong opposition of the Third World countries and several industrialized states such as Australia, New Zealand, and the Nordic countries.

The remainder of the distribution right recommendations will also spark familiar debate over video rental rights and raise new debate over rental rights for any work stored in a digital format. Recognition of such rights in the protocol would require the United States to change its law if it wished to sign the protocol. And I recall, Mr. Chairman, that you once viewed a rental right for video as the Congressman's early retirement act. So we face some difficulties ahead.

Perhaps the equities in the video area will shift when video enters the digital age and every Tom, Dick, and Harriet can make perfect copies of Madonna's latest motion picture in a convenient and inexpensive format without having to go through the real-time copying that is now required under the dual port VCR's that are coming into this country.

National treatment, which is so basic to Berne, is a vital component of distribution rights. They should enjoy the same basis of exclusivity as the right of reproduction from which they derive. You will hear this point made repeatedly at your hearing in May.

As you are aware, U.S. copyright owners are deprived of millions of dollars from rental royalty pools in Europe because these rights are often subject to full reciprocity.

So I too look forward to the hearing on the 27th of May when you will air all of these issues.

Finally, Mr. Chairman, a word of caution. Congress needs to keep a weather eye on the changes in the patterns of distribution. As you heard last month in your hearing on performance rights in sound recordings, digital transmission is here. Cable companies are delivering digital music to homes all over the country. In the past, distribution rights have focused on the delivery of physical copies, like books, records, sheet music, and CD-ROM's.

The methods of exploiting works are changing and electronic delivery systems could replace the primary sales market for many of these works. Future teenagers may never buy another compact disk. We have to protect all works delivered electronically as fully as works delivered by traditional means. Failure to do so could have a dramatic consequence not only for the copyright owners, but for society at large. Your task will be to adjust the law to ensure that copyright owners enjoy the broad rights that they need to survive. In addition, in this new environment, Congress may have to look at safeguarding encryption techniques, which is the subject of legislation now pending before this subcommittee.

I see an even larger reason why the United States should support the WIPO effort to update the Berne Convention and why we should be a vigorous, positive and accommodating partner in that process.

A few weeks ago, Mr. Chairman, at your hearing on performance rights, you underscored the importance of engaging Congress in the process of international copyright standard-setting at the outset of the process and not as a take-it-or-leave-it fait accompli sent to

Congress at the last moment on a fast track. Your sentiment is right on target. Congress has a right to be concerned when treaty negotiations create legislative obligations or when they foreclose policy or political options.

But the subtext of your statement seems to go beyond those defensive concerns. You seem to accept without complaint or apparent anxiety the notion that international and domestic issues are now materially intertwined whether we like it or not, and you seem to evidence a willingness to consider changes to U.S. law where it promotes balanced global protection.

You did not sign on to anyone's particular agenda, but I believe you issued an invitation for a partnership between Congress and the executive branch and between foreign and domestic rightsholders and between competing U.S. factions, an invitation to engage in a dialog to examine the possibilities of bringing the United States and the emerging copyright regimes of Europe into a pragmatic harmony that will sustain a global system based on national treatment.

Anyone who has heard the cannon fire and smelled the black powder during the TRIPS negotiations and the NAFTA negotiations knows full well how hard it is to negotiate a strong treaty when the United States declares at the outset that its own laws are off limits. This problem transcended the narrow issue of moral rights. The curious NAFTA language on rental rights and the exemptions clauses, as well as the norms on performance rights and on public performance rights in sound recordings, both in NAFTA and in TRIPS, show how fair solutions can be skewed or distorted by the impossibility of amending U.S. law.

The rapid evolution in international copyright reflects the increased importance of intellectual property in world trade, in national identity, and in the social and economic well-being of nations. What could not be secured in the WIPO in the 1970's set the agenda for the GATT in the 1980's. What could not be secured in the GATT in the 1980's fills the agenda of regional groups such as the EC and the NAFTA in the 1990's. And what is not or could not be settled in those negotiations forms the most ambitious and important part of the agenda for the WIPO in the years ahead.

The United States no longer has the luxury of designing quirky, eccentric solutions at home that disregard the outside world. More and more, Congress will make decisions based on overall national interest with an eye on the international balance of trade and in the expectation that a strong U.S. law could maximize U.S. revenues in foreign markets. Even where the impetus to legislate is purely domestic, Congress will fashion a solution that does no damage to our international legal posture, one that is compatible with our other international legal obligations, and one that is compatible with the other international policy initiatives undertaken in other areas by the executive branch.

If my reading of your attitude is correct, Mr. Chairman, the Berne Protocol may prove a powerful armature for resolving domestic controversies as well as many international disharmonies in copyright that continue to bedevil us. These disharmonies continue despite U.S. adherence to the Berne Convention, and they hurt au