ual works and would, in the long run, benefit the public. Moreover, S. 33 confers no immunity from antitrust laws, it merely gives video copyright owners the same legal rights which manufacturers of other goods now have. ADMINISTRATION POSITION The Cabinet Council on Commerce and Trade has established a Working Group on Intellectual Property to consider the increasing number of important issues in this field. This Working Group, which I am privileged to chair, considered these bills at its first two meetings. The Working Group recommended to the Cabinet Council that it endorses both measures. Subject to a suggestion with respect to the effective date of these measures, the Cabinet Council endorsed the "Record Rental Amendment of 1983," as passed by the Senate, and the "Consumer Video Sales Rental Amendment of 1983," as introduced. The first-sale doctrine, as applied to copyrighted phonorecords and audiovisual works, seriously undermines the incentive to create fostered by the copyright system. The Cabinet Council is convinced that enactment of these measures would enhance the incentive to create. It would require no amendment to existing antitrust laws. In addition, it would leave the first-sale doctrine intact with respect to copies of works other than sound recordings and audiovisual works and with respect to resale, personal use or dispay, or other nonprofit use or lending of the copies. Accordingly, the Administration believes that the strengthened protection for intellectual property embodied in H.R. 1027 (amended in the same fashion as S. 32) and H.R. 1029 will restore the incentives which new audio and video technologies have taken from the creators of these works. Such protection clearly will be beneficial to the public and should be provided. TECHNICAL SUGGESTION REGARDING EFFECTIVE DATE Section 3 of both H.R. 1027 and H.R. 1029 provides that these measures would become effective upon enactment. It is our understanding that the intent of this provisions is that neither amendment would apply to any work purchased by someone prior to the enactment of these measures. Accordingly, anyone who had acquired ownership of a copyrighted audio or video work prior to enactment of H.R. 1027 or H.R. 1029 could continue to rent that work without the obligation to share the rental income with the copyright owners. While this approach is certainly logical and equitable in that it would not apply retroactively, the Cabinet Council believes and the Administration agrees that the Committee should consider an alternative. Specifically, we believe that H.R. 1027 and H.R. 1029 should only apply to new titles, that is, works copyrighted after the date of enactment. These bills are intended to stimulate creativity and it seems unnecessary to provide the added protection for existing works, that is, works copyrighted prior to the date of enactment. While the Administration believes that, on balance, this approach would be preferable to the approach presently contained in the bills, this is only a suggestion and the Administration would support the bills with the effective date provision presently contained in Section 3. The Office of Management and Budget has advised that there is no objection to the submission of the report from the standpoint of the Administration's program. Sincerely, GERALD J. MOSSINGHOFF, Assistant Secretary and Commisioner of Patents and Trademarks. CONGRESS OF THE UNITED STATES, HOUSE OF REPRESENTATIVES, Washington, DC, November 8, 1983. Hon. ROBERT W. KASTENMEIER, DEAR MR. CHAIRMAN: I wanted to make you aware of my concern regarding two bills under your jurisdiction as Chairman of the Subcommittee on Courts, Civil Liberties and the Administration of Justice. H.R. 1027, the Record Rental Amendment and H.R. 1029, the Consumer Video Sales-Rental Amendment of 1983 are both very important pieces of legislation to their respective affected industries. We have held hearings on these issues during this session and the 97th. I feel both pieces of legislation are responsible and I respectfully request that you bring these bills to mark-up so that they can then be considered by the full House. It is also my hope that you do not delay the mark-up of either bill as a result of the other. As you are fully aware, the issues are related, but separate. I want to express my support for your dedication to the problems of copyright Mr. Chairman. You and your staff have been very persistent in attacking the unending domino effect inherent in amending the Copyright Act. I appreciate you perseverance and would welcome hearing from you regarding the future of these two pieces of legislation. Sincerely, HAROLD S. SAWYER, SUBCOMMITTEE ON COURTS, CIVIL LIBERTIES Hon. HAROLD S. SAWYER, DEAR HAL: Please excuse the delay in responding to your letter regarding H.R. 1027, the Record Rental Amendment, and H.R. 1029, the Consumer Video SalesRental Amendment. As you are aware, the Subcommittee has been making steady progress on these two legislative proposals, having already had one day of hearings on each. In addition, I have scheduled a hearing during the recess on December 14. This should complete hearings on H.R. 1027; an additional day is contemplated for H.R. 1029. I do not intend that this should delay Subcommittee consideration of H.R. 1027. I want you to know how much I appreciate your interest in this subject. Your incisive questioning has been a tremendous help in getting to the heart of these issues in Subcommittee hearings. I hope this will clarify my intentions on processing these bills. Sincerely, ROBERT W. KASTENMEIER, Chairman. Hon. ROBERT W. KASTENMEIER, CONGRESS OF THE UNITED STATES, HOUSE OF REPRESENTATIVES, Washington, DC, February 14, 1984. Chairman, Subcommittee on Courts, Civil Liberties and the Administration of Justice, 2137 Rayburn Building, Washington, DC. DEAR MR. CHAIRMAN: In reviewing the list of witnesses scheduled to appear before the Subcommittee at our hearing on February 23rd, I note that while the major producers of videocassettes will give testimony, the independent producers have not been included. I understand that three such independents are most anxious to present testimony. These producers, while independent, are by no means small in size, and have produced such popular videocassettes as "Jane Fonda's Workout Series" and features of Michael Jackson. It is my thought that these witnesses would give testimony of considerable value and interest to the Subcommittee, and I am requesting that they be extended an invitation to testify on February 23rd: Austin Furst, Chairman, Vestron Video, 1011 High Ridge Road, Stamford, Connecticut 06907, (203) 968-0000. Stuart Karl, President, Karl Video, 899 West 16th Street, Newport Beach, California 92663, (714) 645-7053. Louis Kwiker, National Association of Recording Merchandisers, 1008-F Historia Boulevard, Cherry Hill, New Jersey 08034, (609) 424-7404. I am hopeful that it will be possible to include these witnesses on February 23rd, and thank you in advance for your consideration. With best personal regards, Very truly yours, HENRY J. HYDE. Hon. ROBERT KASTENMEIER, CONGRESS OF THE UNITED STATES, HOUSE OF REPRESENTATIVES, Washington, DC, February 28, 1984. Chairman, House Judiciary Subcommittee on Courts, Civil Liberties and Administration of Justice, 2137 Rayburn House Office Building, Washington, DC. DEAR BOB: The hearings we have had thus far on H.R. 1029, the so-called video first-sale bill, have been most enlightening. As a cosponsor of the bill, I have felt that it made theoretical sense; however, I must say that these hearings have raised a number of questions in my mind that could stand further discussion. I would hope that further hearings will be scheduled so we can better understand the practical implications of the proposed change in the law. I have had a number of individuals visit my office on this matter, including a number of persons who operate videotape rental outlets in my state, who have been particularly articulate. If time permits, I would encourage you to consider one of them as a potential witness. My Legislative Director, Scott Fleming, can provide the Subcommittee staff with names and means of contacting such individuals in Kansas. Thanks for your consideration. With best regards, DAN GLICKMAN, DEPARTMENT FOR PROFESSIONAL EMPLOYEES, AFL-CIO, Hon. ROBERT KASTENMEIER, DEAR MR. CHAIRMAN: I write to thank you for the kind remarks you favored me with in the course of today's hearing on H.R. 1029 (the Consumer Video SalesRental Amendment of 1983). Also, to clearly set forth our position regarding the rental of pre-recorded video cassettes assuming that legislation is enacted. After the hearing was adjourned I heard some comments which made me realize that one of my responses to questions may have been misunderstood by some to favor eliminating the rental of pre-recorded video cassetts. It was not my intention to give such an impression, because it does not reflect my true position or the position of this Department as set forth in my prepared statement. My intention was to convey the point that the first-sale doctrine distorts the marketing of pre-recorded video cassettes causing their retail price to be artificially inflated. Repeal of the doctrine will lower retail prices of cassettes for consumers and make it possible for many of them to own rather than rent. Thus, the need to rent, for those consumers, would no longer exist. But, we also believe that a flourishing rental market in cassettes will continue to exist after repeal of the first-sale doctrine, as it should because it definitely serves many other consumers and union members. Indeed, with the elimination of the first-sale doctrine the copyright owner and motion picture production workers (through the collectively bargained agreements referred to by us during the hearing), will be able to receive more equitable compensation from the rental practice. For this reason alone we would want to see it continue and we believe it will. It would be greatly appreciated if this letter were inserted in the hearing record at the end of my comments. Sincerely, JACK GOLODNER, Director. CONGRESS OF THE UNITED STATES, To: Kansans concerned about H.R. 1029, Video First Sale Doctrine Repeal. Re: Decision to withdraw name as cosponsor. As I indicated to you in my earlier letter, some time ago I was listed as a cosponsor of H.R. 1029, to repeal the first sale doctrine of the copyright laws as it relates to video-recordings. As the hearing process continued and as I began hearing from a good many concerned Kansans raising very valid concerns about this legislation, I have been re-evluating my position. With the hearing record complete, I have come to the conclusion that H.R. 1029 does indeed present some serious problems. Therefore, shortly after the House reconvenes the week after next, I will be removing my name from the list of cosponsors. I appreciate the fact that you made sure I knew of your concerns on this. APPENDIX 3 THE VCR IS CHANGING THE WHOLE TV PICTURE (BY DAVID LACHENBRUCH 1) Unquestionably the most surprising media development of 1983-and the one that has received the least public attention and analysis-was the amazing growth in sales of home video-cassette recorders (VCRs). As 1984 began, 10 percent of American homes, or about 8.3 million, were equipped with VCRS-a number sufficient to make the market for recorded programs begin to look more profitable than pay cable is for movie producers. In 1982, VCR sales of two million units almost doubled the preceding year's sales, and manufacturers and marketers had forecast sales of perhaps 2.5 million units in 1983. As it turned out, the public snapped up more than four million of what must be the hottest electronic gadget on the market. For all the publicity given home computers, their unit sales last year probably were a good bit lower than those of the VCR, and various estimates put the population of home computers (as distinguished from personal business computers) at anywhere from three million to five million units-probably less than one-third the number of VCRs. Since the introduction of home VCRS in late 1975, their sales have almost exactly paralleled the takeoff years of color TV sales, 1959 through 1966. Annual color set sales grew from 90,000 to 4.7 million during that period. Aided by almost continual price reductions in 1983, the spread of VCRs reached the "contagion" stage that seems to occur when a product reaches a penetration of about 7 percent of American homes. In 1966, color television reached a similar point-at which almost everybody knows somebody who owns the new product. January's Supreme Court decision upholding the legality of taping copyrighted material off the air removes any cloud of uncertainty about whether consumers will be permitted to use VCRS as timeshift devices. Perhaps even more significantly, it virtually eliminates any short-term possibility of congressional passage of a tax or fee on VCRs and video cassettes to compensate copyright owners-which would have been almost certain had the decision gone the other way. Although VCR marketers expect a more modest sales increase, to about five million units, in 1984, the current sales momentum and a reasonably good economy could push the year's sales to six million or more. The prognosis for sales is particularly good because of the continued decline in prices. Virtually all VCRs come from Japan, and the units currently being shipped are averaging about $85 less than those imported just a year ago. The price drop could accelerate this year because of a pending flood of VCRs from Korea. The floodgates are due to open in January 1985, when Korean manufacturers will be granted licenses to export VCRs by the Japanese firms controlling the patents. Korea, which brought us 19-inch color TV sets at $198, is expected to accomplish a similar production miracle with VCRs. The Japanese have a year to bring their prices down to a level competitive with those anticipated for Korean exports, and they're now re-engineering their products, simplifying and integrating them. In 1983, VČRS were advertised at below $300, but only occasionally. Before this year ends that could be the established price for lowend machines. Thus 1984 could end with a VCR home population of at least 13 million-about the size of the subscribership that HBO has today. Already in 1983, movie producers were finding recorded cassettes an extremely profitable market. Block-buster movie title on cassette today are grossing in the multimillions of dollars. Paramount delivered nearly 550,000 cassettes of "Raiders of the Lost Ark" plus almost 100,000 video discs of the same title. RCA/Columbia Pictures Home Video was scheduled to ship as many as 100,000 copies of "Tootsie" in early 1984. Even such modest titles as "Bad Boys" and "Dark Crystal" now are released in lots of 30,000 to 40,000 or more cassettes. Video Week newsletter estimates that CBS/Fox Video and Paramount Home Video each shipped more than 1.6 million recorded cassettes last year. Twenty percent of the wholesale price of a video cassette or disc goes to the copyright owner-a higher share than they get from pay-cable showings. Paramount is even considering skipping the HBO release of "Raiders" and going directly from cassette to network broadcast to give the cassette version a longer period of primacy. The horizon in home video is bright for producers, who have succeeded so far without revenue from cassette rentals, which outpace sales by about 10 to one. but in this session of Congress, Administration-backed legislation to give copyright owners a piece of the rental actions is likely to pass. Still unfathomed is the potential of the video disc in the consumer market. About 700,000 to 800,000 video-disc player owners supplement the cassette audience today. RCA this year is force-feeding its video-disc system to the public with player prices starting below $200 and, in cooperation with producers, top movie discs at less than $20. Any real takeoff in video discs could frost the profit cake for the movie companies. Major producers could bring in more money this year from see-what-you-wantwhen-you-want-it devices than from pay cable. With this little-charted growth, home video has become a formidable competitor of pay TV. Despite Hollywood's bitter words in the Betamax case about how the VCR is stealing the copyrighted bread from its mouth, the home tape machine could turn out to be the best thing to happen to the movie business since television. [From the Washington Post, Feb. 23, 1984] HOLLYWOOD AND THE FREE MARKET The motion picture industry, having failed to persuade the Supreme Court that it was entitled to compensation from manufacturers of home videotaping equipment, has turned to Congress for another type of help. Now it wants a change in longstanding copyright law to strengthen its hand in dealing with stores that rent movies on video cassettes. You will be relieved to know that the movie producers are not doing this solely in their own interests. No, their avowed concern is to help the consumer of video cassettes. If you are one of those consumers, however, you may find it hard to understand how the change sought by the industry is going to help you. After all, you can currently rent a movie for as little as $2 or $3 from any one of dozens of rental dealers that are springing up in almost every neighborhood. As things now stand, those dealers buy each copy of a movie tape for a relatively hefty sum from the studios and then hope they can rent it often enough to cover their costs. If Congress changes the copyright law as Hollywood wants, movie makers can sell tapes at higher prices to rental dealers than to other customers or collect part of the rental fees. In either case, rental costs are likely to go up. The movie studios argue that raising costs to dealers is not their intention. They say they want to continue charging rental dealers the current price for a tape but also to be able to sell tapes at lower prices to noncommercial customers. While few people want to see the same movie over and over again, if the price were low enough-say about $20-more people might find it convenient to buy rather than rent, and Hollywood's profits would go up. Of course, unless Congress added many safeguards to the law, Hollywood could also use its new powers to squeeze the small dealers out of business. That would not be fair to the dealers, who had the foresight to recognize, as Hollywood did not, that rentals, not sales, were the main market, and who ran considerable risk in stocking their extensive tape inventories. It might not even be good for Hollywood, which has, almost in spite of itself, reaped hefty profits from sales to dealers. And, of course, like most other legislated interferences in the marketplace, it wouldn't be good for you, the consumer. Movie producers are entitled to a fair return on their creativity. But it is by no means clear that Hollywood has taken full advantage of alternative pricing mechanisms-such as long-term, low-rate rentals to dealers with provisions for sharing in rental fees, or higher sale prices for early releases of new hits-that current law allows. The studios need to build a better case that they can't prosper in the current market before Congress decides that Hollywood needs a helping hand. |