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 copies.

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 format.

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

thors everywhere; they hurt American authors; and they poison the climate of international trade.

That concludes my oral testimony, Mr. Chairman. I would be pleased to answer any questions. Thank you.

[The prepared statement of Mr. Oman follows:]

PREPARED STATEMEnt of Ralph OMAN, REGISTER OF COPYRIGHTS, ASSOCIATE LIBRARIAN OF CONGRESS FOR COPYRIGHT Services, LIBRARY OF CONGRESS

Mr. Chairman and members of the Subcommittee and staff, thank you for the opportunity to participate in this oversight hearing concerning the distribution right in the context of the Berne Protocol proposal of the World Intellectual Property Ŏrganization (W.I.P.O. or WIPO).

WIPO has held two meetings regarding a possible Protocol to the Berne Convention. A third session is scheduled for June 21-25, 1993 at WIPO headquarters in Geneva, Switzerland.

I will begin with a general discussion of the distribution right followed by a summary of the United States distribution right, including the first sale doctrine and the issue of parallel importation. Then, as requested by the Staff, I survey the basic principles and nature of the Berne Convention from an historical context. I conclude my statement with reports of international consideration of the distribution right in the context of the Berne Protocol exercise and the trade-related intellectual property standards (TRIPS) negotiations under the Uruguay Round of the General Agreement on Tariffs and Trade (GATT).

I. DISTRIBUTION RIGHTS: GENERAL COMMENTS

Along with the exclusive rights to control reproduction, the power of an author to authorize or prohibit the public distribution of copies of his or her work has everywhere been the essence of industrial age copyright. Copyright arose out of technologies for replication of authors' works. Expansion of authors' rights to include the power to control public performances of works, adaptation and public display is, in large part, also a response to new technologies.

Market evolution and new, particularly computer, technologies now suggest the ultimate break-down of industrial copyright, which had emphasized the manufacture and distribution of copies of authors' works by entrepreneur publishers. New technologies for delivering works and performances of works to the public increasingly involve protected-ultimately digital-transmission systems. But the steady merger of rights of public communication by electronic transmissions with the manufacture and retail sale of copies has not made distribution rights obsolete. They continue to be of vital importance in national and international trade.

When copyright specialists speak of distribution rights, they may mean several things: 1) the right to control (by which I mean the right to do or authorize the doing of, and to prohibit, specified acts) the first public distribution of copies of a protected work; 2) the right to control the further distribution of those copies by persons lawfully acquiring ownership or possession of them; 3) the right to control the importation of copies of a work into a national territory; 4) the circumstances under which the right to control such further distribution of copies is exhausted, or ends; 5) the ability of authors to impose enforceable restrictions upon the permissible utilization of copies by members of the public who lawfully acquire ownership or possession of them; 6) the right of authors to remuneration in mitigation of the damage to retail markets attributable to free public lending of protected works, known generally as the Public Lending Right (PLR);1 and, 7) the droit de suite.

Some of these aspects of distribution rights are present in all copyright laws; others are recognized only partially. Still others exist in juridically different forms (e.g., the droit de destination is the basis in several countries for the authors' power to impose enforceable restrictions on the public's use of lawfully distributed copies of works. In other countries, where the droit de destination is not generally recognized, the enforceability of so-called "shrink wrap" licenses is only a partial analog).

"Distribution rights" involve some of copyright law's most controversial issues, ancient and modern. Recognition of the right to control so-called parallel imports rests on trade considerations, consumer interests and the fundamental principle of the

1The W.I.P.O. briefly characterizes distribution as “offering copies of a work to the general public or any section thereof, mainly through appropriate commercial channels." W.I.P.O., GLOSSARY OF TERMS OF THE LAW OF COPYRIGHT AND NEIGHBORING RIGHTS 83 (1980).

non-extraterritoriality of copyright. Other issues are of more recent vintage. These include the Public Lending Right (PLR) and video, audio recording and computer program rental rights.

Despite their importance to virtually all authors and major copyright industries, international recognition and regulation of distribution rights has long been scant. Although distribution rights and their exhaustion were a subject in the TRIPS negotiations, the work of the W.I.P.O. in connection with a possible Protocol to the Berne Convention and a new instrument for protection of phonogram producers and performers is probably the most comprehensive effort in memory to establish international norms for distribution rights. For many countries, including the United States, implementing these proposals may entail amendment to national copyright laws. They necessarily involve balancing the legitimate interests of right holders with those of the consuming public and commercial enterprises now satisfying legiti mate public demand outside of the control of copyright owners whose distribution rights do not extend to control of those enterprises' activities.

The shortness of time to prepare for this hearing precludes a more careful examination of how various interests might be affected by different levels of distribution rights. Neither has it been possible freshly to assess the impact of specific unauthorized uses of copyrighted works-such as private reprography-on the integrity of present distribution rights.

Much of the complexity associated with distribution rights under copyright lies in how other uses of works and broadcasts may erode the value of the authors' rights of reproduction and public distribution of copies. The individual rights under copyright cannot always be looked at in isolation and this is certainly the case with distribution rights.

The interrelationship among the rights forming the copyright bundle may now be felt most keenly in respect of works which are exploited in a digital format, with end consumers utilizing digital hardware to view and also capture either performances or copies of works. Depending upon the terms of the undertaking, technological configurations (including copy-control systems) and the contracts between distributors and consumers, digital transmissions of protected works may appear to be an exercise of public performance rights or, equally validly, a demand-manufacturing system for the distribution of copies of works, such as sound recordings, or motion pictures.

The appropriate legal characterization of public distribution or performance rights in digital transmission systems (or in copies of machine readable publications) is not expressly dealt with in the TRIPS. It is the subject of proposals in the Protocol and new instrument. This promises to be an interesting and important debate. The scope of exclusive rights, exceptions and-internationally, though not in the U.S.-the availability of compulsory licensing, differ based upon whether we are looking at the right to authorize the reproduction of a work, the right of public distribution of copies, or the public performance rights.

II. UNITED STATES DISTRIBUTION RIGHT AND THE FIRST SALE DOCTRINE

The first sale doctrine distinguishes between the copyright proprietor's exclusive rights in the copyright and the rights in the material object itself. The exclusive rights that an author enjoys as a result of copyright can be traced to our earliest copyright statutes.2 The first sale doctrine has its roots in the common law. Even before the first statutory embodiment of this doctrine in the 1909 Copyright Act, American courts were distinguishing between the owner's exclusive rights in the copyright and the rights of the owner of an object embodying a work that is under copyright.

A. Historical Developments in the United States.

The 1790 Act provided: "... the author and authors of any map, chart, book or books already printed within these United States, a citizen or citizens thereof, or resident within the same, his or their executors, administrators or assigns, who hath or have not transferred to any other person the copyright of such map, chart, book or books, share or shares thereof; and any other person or persons, being a citizen or citizens of these United States, or residents therein, his or their executors, administrators or assigns, who hath or have purchased or legally acquired the copyright of any such map, chart, or books, in order to print, reprint, publish or vend the same, shall have the sole right and liberty of printing, reprinting, publishing and vending such map, chart, book or books, for the term of fourteen years." [Act of May 31, 1790, ch. 15, 1 (italic added).]