the first sale doctrine in instances where they demonstrated that commercial lending fostered illegal reproduction. As a result, the first sale doctrine has been statutorily curtailed with respect to commercial lending of sound recordings and computer programs.

1. The Record Rental Amendment of 1984.

Copyright owners were successful in securing passage of the Record Rental Amendment of 1984,20 because they made a convincing case that commercial lending of sound recordings was intended to foster unauthorized reproduction of sound recordings. On this point, the House Report provided as follows:21

At present, according to industry estimates, there are approximately 200 commercial record rental establishments in the United States. Testimony before this Committee's Subcommittee has indicated that these establishments rent phonorecords for 24 to 72 hours for fees of $.99 to $2.50 per disc. Frequently blank audio cassette tapes are sold in the same establishment. One such establishment advertised, "Never, ever buy another record."

The direct link between the commercial rental of a phonorecord and the making of a copy of the record without the permission of, or compensation to, the copyright owners was the economic and policy concern behind this legislation. The Subcommittee found that the nexus of commercial record rental and duplication may directly and adversely affect the ability of copyright holders to exercise their reproduction and distribution rights under the Copyright Act.

The amendment provided an exception to the first sale doctrine by inserting a new provision in section 109 of the copyright law providing as follows:

Notwithstanding the provisions of subsection (a), unless authorized by the owners of copyright in the sound recording and in the musical works embodied therein, the owner of a particular phonorecord may not, for purposes of direct or indirect commercial advantage, dispose of, or authorize the disposal of, the possession of that phonorecord by rental, lease, or lending, or by any other act or practice in the nature of rental, lease, or lending. Nothing in the preceding sentence shall apply to the rental, lease, or lending of a phonorecord for nonprofit purposes by a nonprofit library or nonprofit educational institution.

In addition, the amendment created a sunset provision providing for the termination of the prohibition against commercial lending of sound recordings after five years from the date of enactment. In 1988, Congress reaffirmed the prohibition by providing for termination of the provision after 13 years from the date of enactment,22 that is, 1997.

2. Computer Software Rental Amendments Act of 1990.

In 1990, the exception to the first sale doctrine was reconfigured to expand the prohibition to include commercial lending of computer programs.23 Again, copyright owners had successfully made the case that commercial lending of computer software fostered unauthorized reproduction.24 The reconfigured exception reads as follows:25

Notwithstanding the provisions of subsection (a), unless authorized by the owners of copyright in the sound recording or the owner of copyright in a computer program (including any tape, disk, or other medium embodying such program), and in the case of a sound recording in the musical works embodied therein, neither the owner of a particular copy of a computer program (including any tape, disk, or other medium embodying the program), may, for the purposes of direct or indirect commercial advantage, dispose of, or authorize the disposal of, the possession of that phonorecord or computer program (including any tape, disk, or other medium embodying such program) by rental, lease, or lending. Nothing in the preceding sentence shall apply to the rental, lease, or lending of a phonorecord for nonprofit purposes by a nonprofit library or nonprofit education institution. The transfer of possession of a lawfully made copy of a computer program by

20 Act of October 4, 1984, Pub. L. 98-450, 98 Stat. 1727 (1984).

21 H.R. Rep. 98-987, 98th Cong. 2d Sess. 2 (1984).

22 Act of November 5, 1988, Pub. L. 100-617, 102 Stat. 3194 (1988).

23 Computer Software Rental Amendment Act of 1990, Pub. L. 101-650, 104 Stat. 5089, 5134, (1990).

24 136 Cong. Rec. H 13314-15 (daily ed. Oct. 27, 1990) (statement of Rep. Kastenmeier). 25 Currently codified as 17 U.S.C. § 109(bX1XA).

a nonprofit educational institution to another nonprofit educational institution or to faculty, staff, and students does not constitute rental, lease, or lending for direct or indirect commercial purposes under this subsection.

The computer software amendments excluded from the prohibition against commercial lending the following: programs embodied in machinery that were incapable of being copied through ordinary operation or use;26 certain programs embodied in video games;27 and programs containing a warning of copyright that were lent by nonprofit libraries.28 The amendments continued the sunset policy by providing for the termination of the commercial lending prohibition on October 1, 1997.

The Act temporarily overturned the Fourth Circuit's decision in Red Baron-Franklin Park. Inc. v. Taito Corp.,29 which began as a first sale doctrine case. The court found infringement by violation of the public performance right. By amendment of section 109 in a new paragraph (e), Congress provided an exemption to the owner of a lawfully made copy of a video game for the public performance or public display of an electronic audiovisual game intended for use in coin-operated equipment. This exemption is in effect from December 1, 1991 until October 1, 1995.

III. THE UNITED SATES DISTRIBUTION RIGHT AND PARALLEL IMPORTATION

The United States case law regarding the exclusive right of distribution provided by the copyright law reflects the unique character of this right. It deals not with a copying, or reproduction, but with the disposition of tangible objects comprising copyrighted works. To this extent, it is an ancillary right to those that restrict copying. Parallel importation is the importation of goods in a country outside their normal channels of distribution. Such importation occurs in both copyright and trademark contexts.

In the United States, the courts have had some difficulty in applying the statutory law and legislative history involving the relevant provisions of the copyright statute Section 106(3),30 the right of distribution; Section 109(a),31 the statutory limitation on the copyright owner's right of distribution following authorized first sale; and Section 602(a)32 the right of importation, the copyright owner's right to authorize the importation of copyrighted works acquired outside the United States.

The courts also recognize a broader context for copyright actions brought to restrict parallel imports. Owners of copyright property now seek to accomplish trademark objectives by preventing gray market products from entering unauthorized streams of commerce.33 This has become increasingly difficult on pure trademark grounds since the Supreme Court has not extended to trademark owners the right to exercise exclusivity in directing the trademarked products to certain markets.34 Columbia Broadcasting System, Inc. v. Scorpio Music Distributors, Inc., 35 the leading copyright case, holds the unauthorized importation of copyrighted works acquired outside the United States will constitute a copyright infringement under Section 602(a). The plaintiff charged that without its consent, Scorpio imported phonorecords that contained its copyrighted sound recordings. Defendant alleged that the phonorecords, manufactured in the Philippines by an authorized party, were lawfully made and thus did not infringe any reproduction right. The district court had found that the importation of these phonorecords infringed the U.S. copyright owner's exclusive right of distribution.

In its analysis, the Scorpio court reveals the interplay between the copyright owner's exhaustion of any further right to control distribution after first sale and the copyright owner's right to authorize importation of its copyrighted works. The legis

26 17 U.S.C. § 109(bX1XBXi).

27 17 U.S.C. §109(bX1XBXii). 28 17 U.S.C. & 109(bX2XA).

29 883 F.2d 275 (4th Cir. 1989), cert. denied, 493 U.S. 1058 (1990).

30 Section 106 provides, as one of the exclusive rights in copyrighted works that: "Subject to sections 107 through 120, the owner of copyright under this title has the exclusive rights to do and to authorize any of the following: to distribute copies or phonorecords of the copyrighted work to the public by sale or other transfer of ownership, or by rental, lease, or lending."

31 This section provides: "(a) Notwithstanding the provision of section 106(3), the owner of a particular copy or phonorecord lawfully made under this title, or any person authorized by such owner, is entitled, without the authority of the copyright owner, to sell or otherwise dispose of the possession of the copy or phonorecord."

32 Section 602(a) states that: "Importation into the United States, without the authority of the owner of copyright under this title, of copies or phonorecords of a work that have been acquired outside the United States is an infringement of the exclusive right to distribute copies or phonorecords under section 106, actionable under section 501."

33 Neutroena Corp. v. U.S., 7 U.S.P.Q. 2d 1900 (D.S.C. 1988).

34 K-Mart Corp. v. Cartier, 488 U.S. 281, 290 (1988).

36 569 F. Supp. 47 (E.D.Pa. 1983), aff'd mem. 738 F.2d 424 (3d Cir. 1984).

publishing industries noted that digital delivery services are capable of transmitting all of their works in a sequence of ones and ze

roes.

This sequence does not distinguish between the types of work being transmitted. In a reversal of a famous adage, "the medium is not the message."

"

The great leveling effect of digital technology, reducing all works to ones and zeroes, may have important consequences for copyright laws that are based on traditional distribution mechanisms and traditional media, such as print-based books and vinyl records, just to name a couple.

In June of this year the World Intellectual Property Organization will convene a third committee of experts meeting on a possible protocol to the Berne Convention in order to address these technological innovations and other very important issues.

The distribution right is one of the topics to be covered at the June WIPO meeting. In order to stay ahead of the curve and to ensure that the subcommittee is in at the ground floor of any international developments that may require changes in U.S. law, the subcommittee will hear testimony today from witnesses on the WIPO distribution rights proposals.

I urge the witnesses to go beyond the text of the WIPO document and address the larger technological and policy concerns raised by new methods of distribution. For example, should there be a new right of digital delivery instead of relying on the traditional compartmentalized rights of reproduction, distribution, and public performance?

How do we address computer-generated multimedia works in a copyright act that is also based on compartmentalized classes of subject matter, such as literary works and audiovisual works?

These and other questions are very important as we look to the U.S. position on these issues and the important conference that is being convened in June.

I look forward to exploring these and other issues with today's witnesses and with the witnesses at our next hearing, to be held, as you may know, on May 27.

The Chair recognizes the distinguished ranking Republican from California, Mr. Moorhead.

Mr. MOORHEAD. Thank you, Mr. Chairman. I would like to commend you for scheduling these important hearings. The Berne Treaty is the instrument governing international copyright law. Implementing legislation that led to our joining the Berne Convention in 1988 was probably the most significant copyright legislation processed by this subcommittee this century. When we joined in 1988 there were 77 member countries. Today there are 95.

The United States is the world's largest exporter of copyrighted work. America's creativity is the most sought after around the world. In 1990 we exported over $34 billion in foreign sales. Between 1970 and 1990 employment in copyright-based industries in the United States, such as those engaged in motion picture and television program protection, audio recording, publishing, and computer software development, created nearly 3 million jobs. These were new jobs in the United States, from a total of 3 million to a total of nearly 6 million U.S. jobs by 1990.

This is why the Berne Treaty and the ongoing Uruguay Round of trade negotiations under the GATT are so important to the U.S. economy and the maintenance of U.S. jobs and to assist our industry in maintaining their competitive edge as the world's leader in the exportation of copyrighted work.

The reason we are here today is to become more familiar with the changes in the Berne Treaty that are being proposed and that will be put forward before WIPO in Geneva, Switzerland, in June of this year. It is very important that we know and understand these changes and what effect they will have on the U.S. industries and U.S. jobs.

I am looking forward to the morning's testimony. Thank you, Mr. Chairman

Mr. HUGHES. I thank the gentleman.

Before we begin, I would like to acknowledge the presence of a representative of the World Intellectual Property Organization, Richard Owens. Welcome. We are very, very pleased to have you with us today and look forward to a close association with WIPO as we debate the possible protocol, the new instrument, and a host of other issues, and of course we hope you will convey our very best wishes to Dr. Bosgch.

Our first witness is Ralph Oman. Like so many hearings, our distinguished Register of Copyrights is our leadoff witness. The Copyright Office has prepared a very helpful statement setting out the history of the distribution rights in the United States and the history of the Berne Convention. I look forward to your testimony this morning, Ralph, and hope that you will lay the groundwork for the witnesses that will follow. If you would, introduce your colleagues with you at the witness table.

STATEMENT OF RALPH OMAN, REGISTER OF COPYRIGHTS AND ASSOCIATE LIBRARIAN FOR COPYRIGHT SERVICES, LIBRARY OF CONGRESS, ACCOMPANIED BY DOROTHY SCHRADER, GENERAL COUNSEL, AND MARYBETH PETERS, POLICY PLANNING ADVISER

Mr. OMAN. Thank you very much, Mr. Chairman and members of the subcommittee. We appreciate the opportunity to testify at this oversight hearing.

My colleagues need no introduction, but for the record, let me introduce, on my right, Dorothy Schrader, the General Counsel of the Copyright Office, and on my left, Marybeth Peters, Policy Planning Adviser to the Register of Copyrights.

Mr. HUGHES. Welcome.

Mr. OMAN. My written statement contains a full discussion of the U.S. law on distribution rights, including the first sale doctrine and the right of importation. It also has a brief history of the Berne Convention and a summary of the basic principles of the 1971 text of the convention. Last, the statement discusses the distribution right proposals in the GATT TRIPS text and distribution and importation right proposals of the Berne Protocol. I will limit my oral statement to the Berne Protocol.

Mr. HUGHES. Without objection, your entire statement will be made a part of the record.

Mr. OMAN. Thank you, Mr. Chairman.

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 internationally 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.