have helped bring on board some of the most forceful spokesmen for the developing countries, such as India and Brazil, has gone a long way toward bringing them into the process and being less of a negative force.

The other advantage that we could gain at the end of this process, Mr. Moorhead, is one about which we feel very strongly that is the recognition that national treatment should be the underlying foundation of the Berne Convention; that we should not permit countries to somehow get out of their obligations by resorting to regimes that rely on reciprocity rather than national treatment.

In this regard, you mentioned the Third World as being a problem area, but in many ways our most powerful and rich trading partners are the ones that are depriving us of the greatest amount of money because of these novel ways they have of coming up with schemes that deprive U.S. rightsholders of their rightful share of a royalty pool. If we can get this acknowledgment of national treatment in the protocol at the end of the process, I think everybody will be very pleased.

Mr. MOORHEAD. The Computer Software Rental Amendments Act of 1990 overturned the Red Baron decision of the fourth circuit because the copyright law was being used by Japan to force U.S. arcades to buy an entire video machine rather than just the software. Are you suggesting that we change what we enacted in 1990?

Mr. OMAN. Let me ask Ms. Schrader to comment on the Red Baron case. She prepared for that question earlier.

Ms. SCHRADER. The amendment that you referred to is already subject to a sunset. It will only be in the law through 1995. So unless you take some action, the matter is resolved there. I believe it would be our preference to have it go out of the law.

Mr. MOORHEAD. Japan's unwillingness to repeal its system of remuneration for record rental, would that be similar to the U.S. position on video rental?

Mr. OMAN. Could you repeat the question, Mr. Moorhead?

Mr. MOORHEAD. Japan has an unwillingness to repeal its system of remuneration for record rental. Do we have a similar position on video rental?

Mr. OMAN. We don't have any right whatsoever on video rental. In Japan the law prohibits the rental of sound recordings for 1 year after initial issuance, and that protects the sales market during the most popular period of the sound recording's existence. In the United States we don't have any rental right for audiovisual works and the rightsholders protect themselves by charging a high price for the initial first sale and do not count on any after-market revenues from the rental.

Mr. MOORHEAD. As we are discussing these changes, there is an exhibition going on in another part of the Capitol, in the Telecommunications Subcommittee, in which they show how tremendous the advance in communications systems has become, where a person sitting in that room can be seen on all kinds of forms of communication around the world, in every part of the nation. The head of the religious community in Japan is going to be speaking today. There is no way they can keep him out of China where they love to do that. That is going around the world.

I think these changes that are taking place everyplace are going so fast that we can hardly keep up with it. It is certainly evidence that we constantly need to watch our laws and bring them up to date. It will get ahead of us in no time if we don't.

I appreciate your coming this morning. You do a great job.
Mr. OMAN. Thank you very much, Mr. Moorhead.

Mr. HUGHES. I thank the gentleman from California.

The gentleman from New York, Mr. Fish.

Mr. FISH. Thank you, Mr. Chairman. Ralph, welcome to you. Ralph, if our aim, and it seems like a frequent occurrence, is to continually try to assure copyright owners enjoy their rights, would you say that these changes in the Berne Protocol are designed by and large to bring us up to date on changes in technology?

Mr. ŎMAN. That is the stated objective, and in many ways I think Dr. Bosgch, the director general of the WIPO, holds to the philosophy that "man's reach should exceed his grasp, or what's a heaven for?"

Perhaps some of the proposals are too ambitious for acceptance at this particular juncture, but they certainly have prompted useful debate and will move us in the right direction even if we don't get all the way there as is being proposed by the draft protocol.

Mr. FISH. We know that the United States is very much of a late arrival in the Berne Convention. Does that have any bearing on what influence we might have in this consideration? Are we really a major player with our late entry into the process?

Mr. OMAN. We haven't been handicapped by our late entry into the Berne Convention. We are a full partner in the debate. Our views are respected and listened to very carefully. That's not a function of the eloquence or skills of the negotiators but the fact that the U.S. copyright industries dominate the world. We have to be listened to; our views are extremely important.

Mr. FISH. Thank you very much.

Thank you, Mr. Chairman.

Mr. HUGHES. I think the Register is being very modest. The gentleman and his staff are very well-known and very well respected in the international community. That's because of a lot of hard work in addition to the fact that we are a big market.

The gentleman from Rhode Island.

Mr. REED. Thank you, Mr. Chairman.

Just one question. Stepping back and looking strategically at these negotiations we are considering, what do you think are the critical pitfalls that we should be aware of?

Mr. OMAN. I see the opening up of battle royals domestically as the biggest pitfall to progress internationally. If our domestic industries could resolve their differences and recognize the larger public interest, the larger economic interests of the United States, we could put together a much stronger and consolidated U.S. position and could fight for our rights much more forcefully. So I see the biggest pitfall of the process as the fact that it's triggering a lot of internal debate that is going to spill out into the public and weaken our position internationally.

Mr. REED. This intermural squabbling, that's different forms of media contesting for different advantages; is that what you mean, Mr. Oman?

Mr. OMAN. That is part of it, and certain industries not willing to pay any more money even though it's a small amount compared to what we will gain internationally if we had a similar right. The traditional disputes between labor and management are also entering into the picture. In many ways the international negotiations have become an adjunct to the domestic negotiations, and it makes it very difficult to put together a comprehensive U.S. position until they resolve their disputes domestically.

Mr. REED. Thank you very much, Mr. Oman. Thank you, Mr. Chairman.

Mr. HUGHES. Ralph, have we yet developed a U.S. position?

Mr. OMAN. We are meeting with a group called the Stockholm Group next week in Washington-they are our primary trading partners from around the world-to hear their views on the three important issues that are going to be discussed at the June meeting: distribution, enforcement, and national treatment. We have not yet formulated a U.S. position, but we will do so shortly after that meeting and in full consultation with you.

Mr. HUGHES. That meeting with the Stockholm Group takes place when?

Mr. OMAN. Next Wednesday, Thursday and Friday, in Washington, at the Copyright Office.

Mr. HUGHES. What do you see as the domestic consequences if a broad rental right for all works of authorship in electronic form was adopted?

Mr. OMAN. It would certainly have the virtue of universality. It would be very difficult politically and it perhaps would give rental rights in areas where it's not needed to protect legitimate interests of the author. As the Register of Copyrights, I expect that it would certainly be a step toward to putting us in line with most of our major trading partners.

Mr. HUGHES. Do we have a universal understanding of what we mean by electronic form yet?

Mr. OMAN. We have been focusing on the digital format when we talk about electronic storage. After the symposium that we participated in at Harvard Law School 2 or 3 weeks ago, I think the rule of thumb suggests that when we are talking about electronic we are talking about digital.

Mr. HUGHES. Does any country have a rental right for works in an electronic format?

Mr. OMAN. Not that I'm aware of. Let me ask my colleagues.
They know of none.

Mr. HUGHES. Thank you very much. You've been very, very helpful. We look forward to hearing hopefully positive reports from your meeting with the Stockholm Group.

Mr. OMAN. Thank you.

Mr. HUGHES. Thank you very much.

I would like to call our panel now. The panel consists of Eric Smith, who is no stranger to us, Robert Holleyman, and Jon Baumgarten.

Mr. Smith is executive director and general counsel of the International Intellectual Property Alliance. The alliance is a coalition of some eight trade associations representing the motion picture, music, record, book, and computer software industries.

Mr. Holleyman is the president of the Business Software Alliance. BSA is comprised of leading business software publishers, including Aldus, Apple Computer, Autodesk, Borland, Lotus Development, Microsoft, Novell, and WordPerfect.

Mr. Baumgarten is a partner in the firm of Proskauer, Rose, Goetz & Mendelsohn, and appears on behalf of the Association of American Publishers.

Mr. Smith, I understand there is to be one statement today; your associates will be here to respond to questions. If that is not the case, we will be happy to have you proceed in any way you might see fit. We do have your statement, which we have read. It is excellent. We will make that a part of the record, without objection. We hope you can summarize so we can move right to questions. Mr. Smith, welcome.

STATEMENT OF ERIC H. SMITH, EXECUTIVE DIRECTOR AND GENERAL COUNSEL, INTERNATIONAL INTELLECTUAL PROPERTY ALLIANCE, ACCOMPANIED BY JON BAUMGARTEN, PARTNER, PROSKAUER, ROSE, GOETZ & MENDELSOHN, ON BEHALF OF THE ASSOCIATION OF AMERICAN PUBLISHERS, AND ROBERT HOLLEYMAN, PRESIDENT, BUSINESS SOFTWARE ALLIANCE

Mr. SMITH. Good morning, Mr. Chairman. Thank you very much. That's exactly how we would like to proceed.

We are fortunate that the industry groups representing motion pictures, sound recordings, music publishing, software, and the book publishing industry have forged a general agreement on how to approach the issue of distribution rights, which is why we have one statement and not eight possible statements.

Mr. HUGHES. That's encouraging, for a lot of reasons.

Mr. SMITH. Mr. Chairman, we represent more than 1,500 companies producing, publishing and distributing throughout the world computers and computer software, motion pictures, television programs, home video cassettes, music, records, CD's, audio cassettes, textbooks, trade books, reference and professional publications and journals.

These companies are the leading edge of the world's high technology, entertainment and publishing industries, and in a 1992 report that we commissioned, the U.S. total copyright industries accounted for close to 6 percent of the U.S. GDP and contributed over $34 billion, as Congressman Moorhead cited earlier, in foreign revenues in 1990, making our collective industries one of the most important export sectors in this country, and we believe that if more current data were available, we may have even passed the agriculture and aerospace industry in that regard.

Mr. Chairman, the Berne Protocol and new instrument process is but one aspect of a multipart effort by the U.S. Government and the hundreds of companies and millions of authors, artists and other creators making up the U.S. copyright-based industries to improve the economic climate around the world for the vastly increasing trade in copyrighted works.

As this subcommittee well knows, the scourge of piracy and inadequate protection and enforcement in far too many countries, developed and developing, causes losses to U.S. authors and other own

ers between $12 billion and $15 billion annually. Increasingly, the revenues generated by the sale and licensing of copyrighted material are derived from outside the United States, and the ratio of foreign to U.S. income is fast approaching 50 percent in these industries.

This rapid shift to reliance on foreign markets is due to the fact that the U.S. copyright industries hold a position of unchallenged leadership in the world. America's copyright leadership is due to the nurturing climate afforded by our culture generally and supported by the legal infrastructure reflected in our Copyright Act.

By necessity, the process of maintaining this legal infrastructure now has an international dimension, as the Register so accurately discussed, and this means that the United States must reach out and create a worldwide climate in which creativity is fostered. In this endeavor, we must understand that we must exercise leadership if we are to preserve our competitiveness.

To do this, the Congress has given the executive branch a series of bilateral trade tools, of which the special 301 mechanism is the most important, and has authorized it to negotiate a GATT agreement, which contains strong disciplines for intellectual property protection and enforcement.

The WIPO represents another forum or tool that can be used and will be used to adjust and fine tune international copyright protection for the benefit of U.S. authors and other copyright owners.

We commend you and the subcommittee for convening these hearings. The issues being discussed in this forum are among the most important that now face us in the copyright arena. Fortunately, resolving them does not involve the need to change U.S. law in most instances.

However, there are aspects of U.S. law that in light of technological advances and the practices of our trading partners need to be reexamined. It is thus essential that the Congress stay fully informed and where appropriate even anticipate the eventual outcome of these important discussions. Indeed, the discussions in WIPO and in these oversight hearings will give the Congress a full picture of the international implications of proposed changes being discussed in all these fora.

If I might now turn to the subject at hand, Mr. Chairman, the distribution right. The copyright industries in the IIPA strongly support the adoption of a distribution right in both the protocol and in the new instrument. The explicit recognition of such a distribution right advances adequate copyright protection in two significant respects.

First, it ensures that copyright owners can control the first distribution of their works after creation and provides the underlying conceptual framework for the creation of appropriate rights to control rental and importation.

Second, it fills an important gap in current copyright laws. For example, the existence of a distribution right provides clear authority for copyright owners to prevent, through civil and criminal process, the sale of a pirate copy of a published work where it is not possible to determine who reproduced it without authorization. Clearly, in many, many countries throughout the world the addition of that distribution right and the ability to attack that problem