PREPARED STATEMENT OF JAY D. ROTH, COUNSEL, DIRECTORS GUILD OF America, SCREEN ACTORS GUILD, AFL-CIO, AND WRITERS GUILD of America, WEST, BURBANK, CA

INTRODUCTION

I am Jay Roth, counsel to the Directors Guild of America, Screen Actors Guild, AFL-CIO, and Writers Guild of America, West. My clients represent approximately 100,000 performers, directors and writers in the American motion picture and television industry. The members of these three creative guilds represent a substantial percentage of the creative and performing heart of the industry. Mr. Chairman, we thank you and the Subcommittee for the opportunity to appear at this hearing and address you this morning.

This testimony is offered in support of the broadest possible implementation of National Treatment in international intellectual property areas, and the end to de facto discrimination against American writers, directors, performers and producers in the fields of international copyright and trade.

While the principles of copyright and author's rights1 (Droits D'Auteur) have developed state to state with differing systems and levels of protection for authors and performers, the principle of National Treatment has been, and we believe should be, the internationally recognized standard, especially as it relates to artistic creators. The recognition of National Treatment by the original Berne signatories over a century ago reflected the understanding that creative and artistic work has no borders, and that for full economic and cultural development, society must protect with equal treatment and without discrimination the creators and artists of all nations. It should be noted that although Berne mandates only minimum levels of protection, and does not require contracting states to raise their levels of protection to those of other contracting states, it does, through the principle of National Treatment, require that nationals of other countries signatory to Berne be treated equally with the host nation's citizens in matters of intellectual property.

The development of technology has of course required responses in the form of legal protection for creative and artistic works. Sound recordings, radio, motion pictures, television, the rental and lending of audio and audiovisual works, and the copying of those works onto blank tapes have each presented significant issues that have been addressed by various forums as to the requisite level of protection for creators and artists. The development of new technologies and levels of protection has not occurred uniformly nation to nation. As uneven economic rights and different levels of protection have developed, issues related to whether there should be National Treatment regarding those new levels of protection for nationals of other states have come to the fore. Opposition to National Treatment has been voiced in the call for Reciprocity or Material Reciprocity2 as the rule of law in international intellectual property. The rule of reciprocity is frequently urged by those states which seek to compel other states to adopt their terms of protection, or which seek unfair economic advantage in intellectual property matters for their artists and creators.

THE CHALLENGE TO NATIONAL TREATMENT

In certain European countries, legislation has established levies on blank tapes, recording devices and video rentals. The stated legislative purpose of these statutes is the economic protection of authors, performers and producers whose works are being copied or rented. The need for protection is based upon the sound judgment that copying and renting reduces demand for the development of other works, and further, that those who created or developed audio or audiovisual works should in any event participate in the income stream produced by these new means of exploitation.

1There are significant distinctions between the "copyright" and author's rights' systems. While U.S. law recognizes the producer as the author of a film, granting him copyright protection, author's rights states consider that the author must be a physical person. Certain rights remain with the physical person without regard to "ownership" under these systems.

2 Reciprocity "means that a given provision in the national law applies to foreigners only if, and to the extent to which their country provides for the right and makes it available to foreigners" (WIPO International Bureau 3/12/93 draft. BCP/CE/111/2-111 ¶25, paragraph 83). Material Reciprocity or "subjective reciprocity means that a state may look to the law of another state and make a subjective judgment about whether protection in each is equivalent. This determination is used as the basis to determine whether protection to the foreign national will be provided. Subjective reciprocity is, at its core and at its worst, a mandate to ignore fairness and legal protections at will.

The audiovisual levies on blank tapes in Germany (Art. 54 German Copyright Act) and France ("Copie Priveé," Copyright Revision Act adopted 3 July 1985), adopted in 1982 and 1985 respectively, in 1992 generated in excess of Two Hundred Million U.S. Dollars ($200,000,000.00). Similar levies have been adopted in Spain, Italy, Switzerland, Austria, and the Netherlands. Other countries throughout Europe have either adopted or are in the process of adopting blank taping levies. While the directive is currently in draft form, it is anticipated that the European Community will adopt a blank taping levy as part of the harmonization process. Common to all of the existing statutes and the proposed EC draft is the rejection of the principle of National Treatment.

Levies on the rental of audio and audiovisual tapes are not as prevalent as those for blank taping. Of the major European countries, only Germany (Art. 27) currently has collections on rentals. The EC, however, has adopted a rental directive for the Community which also, because of the requirement of reciprocity, denies protection and shares of remuneration to American performers and producers.

The rejection of National Treatment for the Rule of Reciprocity is well exemplified by the French application of their audiovisual levy of 1985, "Copie Priveé."

At the outset, twenty-five percent (25%) of all funds collected in any year are deducted for social purposes. Thus, in 1992, where there were collections of approximately One Hundred Million Dollars ($100,000,000.00) in France, Twenty-five Million Dollars ($25,000,000.00) was allocated to social uses (i.e., social welfare, training, development) for film authors, performers and producers."

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The denial of National Treatment does not stop here. The remaining funds are divided into three (3) shares: authors, performers and producers, each receiving twenty-five percent (25%). Under the French law, producers and performers are considered to be "neighboring rights" holders who are only entitled to protection if their work is first fixed (recorded) in France or if they are nationals of a state signatory to the Rome Convention. Thus, American producers and performers received none of the Fifty Million Dollars ($50,000,000.00) allocated to their interests in 1992. The American share of this sum was distributed to French performers and producers.

The fixation requirement is a denial of National Treatment to all works except those produced in France, and the requirement of Rome signatory status for producers and performers as applied to audiovisual works is little more than legal sophistry. The Rome Convention makes no reference whatsoever to the audiovisual producer. With respect to audiovisual works, protection under Rome for performers is strictly limited to the right to authorize whether their performance will be fixed. once this occurs, no other rights granted to performers under Rome (i.e., Art. 7, reproduction and broadcasting rights, and Art. 12, rights to remuneration) are afforded. (Article 19, Rome Convention. See also WIPO Guide to the Rome Convention, 19.5-19.10.)

The argument that Rome signatory status is a condition for receiving National Treatment for audiovisual works is thus specious, given that Rome essentially does not address audiovisual works or their producers and performers. On the issue of

While this testimony has focused on audiovisual levies, there are comparable audio levies in France, Germany and other European countries. Such levies will be the subject of harmonization throughout the European Community.

The process of harmonization is intended by the EC through various directives to require minimum levels of protection for intellectual property throughout the international market of the Community. Collections under the audio levies are approximately thirty percent (30%) of the audiovisual levies. Reciprocity is applied under these levies as well.

Social Funds exist in almost all of the European statutes. By limiting their availability to nationals of the particular state, the Social Funds themselves are denials of national (equal) treatment. The following are examples of social fund charges: Austria - 51%, Spain 20%, Holland 15%, Italy - 5%, Germany - 2%, Bulgaria - 20%, Denmark - 33%, Finland 66%. These social funds are thinly disguised subsidies for various countries' film industries. The International Bureau of WIPO's Memorandum of March 1993 proposes:

that no remuneration due to foreign authors or other foreign owners of copyright be used without the authorization of such authors or other owners of copyright, given directly or through persons or bodies representing them, for any purpose other than the distribution of such remuneration among the authors or other owners of copyright concerned (BCP/CE/111/2-111, page 36 142). (N.B., similar prohibitory language is present in the New Instrument draft. INR/CEЛ1/2 p. 28 ¶86)

This witness agrees with WIPO's International Bureau that mandatory social fund deductions should not be permitted by the Protocol or New Instrument.

•Under the European system, performers, film and phonogram producers, and broadcasting organizations are not considered to be copyright holders. Their rights as neighboring rights holders are considered to be rights related to copyright or related rights. Under such a construct, Berne National Treatment protection is inapplicable to all of these categories.

whether U.S. law offers rights that are reciprocal to Rome, U.S. substantive law gives to performers (whether U.S. or foreign) the same sole substantive right that audiovisual performers are granted under Rome, the right to authorize whether their work will be first fixed. As U.S. law grants the right of fixation to U.S. performers, the argument that either the lack of Rome signatory status or the lack of an equivalent level of protection in the U.S. for fixation rights has little substance. It should be noted in this regard that the National Treatment provisions of the proposed New Instrument, which are quite favorable as to what rights holders are covered in the instrument, offer no solace for audiovisual performers and producers. The New Instrument, as currently drafted, does not address audiovisual works. In fact, the International Bureau's Memorandum provides that, pending clarification from the governing bodies of WIPO, “...this Committee of experts should not discuss questions covering audiovisual fixations. It is for this reason that the present memorandum does not deal with audiovisual fixations." (INR/CE/I/2, 3/12/93, pg. 5, ¶ 10) The adoption of the New Instrument as drafted will not grant National Treatment to audiovisual works, and thus will not result in American participation in the producers' or performers' share of the audiovisual blank taping or audiovisual rental levies. The non-inclusion of audiovisual works in the New Instrument means that U.S. signatory status to the proposed Berne Protocol and New Instrument will not cure this ill.

As a result of Berne's National Treatment requirements, American directors and writers, as well as American producers who assert "authorship" under U.S. law, have participated to date in the collections related to the author's share of the levies in Germany, France and Austria. The division of the levy collections of American writers, directors, and producers is governed by a settlement agreement between the major motion picture companies and the Directors Guild (DGA) and Writers Guild (WGA). The Guild-Motion Picture Companies Agreement executed in 1990 has a term of five (5) years, its scope includes blank taping and rental levies, and it is worldwide and retroactive. The agreement has fostered significant cooperation between American writers, directors and producers in their common effort to collect the author's share of the levies. Both the agreement and the resultant cooperation are the products of the parties' attempts to reconcile the different American and European legal perspectives on authorship and authors' entitlement to remuneration. The parties' agreement avoids resolution of the conflicts of law and other legal issues in favor of a pragmatic resolution. As a result of the agreement, clouds that were raised by various European collecting societies and governments regarding the rights of various parties to collect the levies have been resolved, and funds which were frozen pending resolution of entitlement issues have been distributed. American collections to date from France, Germany and Austria are approximately Fifty Million Dollars ($50,000,000.00), with American directors and writers receiving in excess of Seven Million Dollars ($7,000.000.00) of these collections.

While these sums are substantial, they represent a small portion of the total collections (as a result of exclusion from the performers' and producers' shares) and an inappropriate share of the author's share. For example, in Germany, before allocation of shares to film, a five percent (5%) social deduction is made. After this deduction, fifty percent (50%) is allocated to performers, music and other "rightsholders" from which the U.S. receives no share for performers or other "rightsholders." Of the remaining forty-seven and one-half percent (47.5%), fifty-six percent (56%) of the levy is allocated to German films and forty-four percent (44%) to foreign films. Of the forty-four percent (44%) allocated to foreign films, the U.S. receives sixty percent (60%) or twenty-eight percent (28%) of the sum allocated to films. Thus, American films in actuality are allocated a twelve and a half percent (12.5%) share of the total. There is little doubt that the American share of the movies and television product being exhibited, aired and taped in Germany exceeds twelve and a half percent (12.5%). Similar patterns of underestimating the American share exist in other European countries. Thus, while American interests participate in author's share collections in Europe, we are denied substantive National Treatment due to the methods of share calculation.

7The Register of Copyrights, Ralph Oman, addressed this subject in his March 29 testimony before this Committee. "...The ability of a performer to prevent unauthorized fixations and reproductions of his or her live performance is deemed to be so fundamental that legislators and courts alike are willing and prepared to find creative solutions to ensure basic fairness and justice. Because such protection is so fundamental, it is not tied to reciprocity or obligations under existing international conventions. The nationality of the performer and the location of the performance have no relevance to any determination under U.S. law." (Oman testimony, p. 14.)

The German Patent Office declined to approve a distribution scheme for Americans under the German law of 1982 until the Motion Picture Companies-Guild agreement was executed in 1990.

The Screen Actors Guild and the Motion Picture Companies have a five (5) year agreement that is similar to the motion picture companies' DGA/WGA agreement. To date, there have been no collections under this agreement because of the application of the previously discussed rules of reciprocity to the performers' share. That is, the rejection of National Treatment and the interpretation of the reciprocity and first fixation issues results in U.S. performers and producers being totally shut out of their share.

There is no certainty that America's Berne signatory status and the National Treatment requirements of the convention will result in the continued collection of the author's share by American authors. There is increasing popularity in Europe to the argument that the scope of Berne's National Treatment requirement is limited to those rights specifically enumerated in Berne, and that the scope of Berne does extend to new rights. The argument follows that as blank taping and rental are "new rights," there is no requirement that a Berne signatory provide National Treatment to another signatory state's authors. Using this analysis, Denmark, a Berne signatory, denies to U.S. authors any portion of the author's share. It is this argument that the International Bureau of WIPO refers to as a "transmission and proliferation of the cancer of denial of National Treatment" (BCP/CEIII/2-111 p.289, paragraphs 98-9).

There are two additional aspects of this discussion of the denial of National Treatment that must be considered.

The Anglo-American and European systems as they relate to the rights at issue are dissimilar. The Europeans have chosen to create statutory rights of remuneration to protect their creative community, while the U.S. system relies on the collective bargaining system and individual negotiations in which the power of the Guilds and artists is often disproportionate to the power of their multi-billion dollar multinational employers. There are advantages and disadvantages to both systems, the discussion of which is extensive and beyond the scope of my testimony on National Treatment. It is important, however, to recognize that those in Europe who argue for reciprocity and about the lack of rights in the U.S. for the creative community have paid little attention to our collective bargaining agreements and residuals system, which provide for ongoing payments for reuse of motion picture and television product. 10 Residuals are paid under the U.S. collective bargaining agreements regardless of the nationality of the performer, writer or director. For example, there are scores of actors, directors, and writers from Europe who have each received residuals in excess of One Hundred Thousand Dollars ($100,000.00). Their cumulative residuals in the last five years exceed the amounts collected by the DGA and WGA for all of their members from the levies in Europe. The Guilds have never considered denying National Treatment-in effect equal treatment-to the foreign members of the creative community who work under our agreements. In light of the U.S. Guilds' practices and policies, it makes little sense that National Treatment is then denied to the American creative community.

The second consideration is a pragmatic one. Is the challenge to National Treatment purely a matter of approach to copyright, or is it fundamentally a matter of trade? Given the world leadership and market share of U.S. film and television product, is the denial of National Treatment a function of the desire of other nations to develop a legal rationale for declining to send hundreds of millions of dollars annually to the U.S. and instead to use these funds for the subsidization of their own film industry and creative community? If this is so, can these problems ever be resolved in a WIPO context, or must they be resolved in GATT?

Regardless of the forum, the challenge to National Treatment as the norm must be stopped. From the perspective of the creative community, the judgment of the Berne founders in favor of National Treatment remains sound and must be protected and expanded for directors, writers, performers and producers. To do otherwise would result in the discouragement of creativity and the erection of barriers in the form of borders to intellectual property to the disadvantage of the U.S. and world economies.

Generally, the European legal concept requiring artists to receive ongoing equitable remuneration from uses of their work is one we applaud. This is not required by U.S. law, and to the extent it has been achieved in the U.S., it has been a product of the work of strong Guilds and Unions and the frequent sacrifices of their members to obtain these protections.

10 There is another significant distinction between the U.S. and European systems that greatly impacts on the U.S. creative community. The statutory approach protects rights of remuneration (residuals) from substantial losses as a result of a bankruptcy or a transfer of rights without an assumption by the purchaser. The wave of over two dozen entertainment bankruptcies in the last few years, and the increasing trade and exchange of film libraries without the assumption of residual obligations, has continued to put these important rights in jeopardy. To that extent, the European system is superior from the view of the U.S. creative community.

Mr. Chairman and members of the Subcommittee, thank you for the opportunity to appear before you today on this important issue.

Mr. HUGHES. Mr. Hadl.

STATEMENT OF ROBERT D. HADL, VICE PRESIDENT AND GENERAL COUNSEL, MCA INC.

Mr. HADL. Thank you, Mr. Chairman. I don't have a prepared summary of my statement.

I just thought I would spend a few minutes reviewing with you the world as I see it in this area and where we may be going and what we might be able to accomplish.

Mr. HUGHES. That would be helpful.

Mr. HADL. I think that the most critical thing to recognize is that the subject we are dealing with today, national treatment, is a piece of a larger picture.

The larger picture also includes quotas in Europe and subsidies which are distinct from and distinguishable from the kind of subsidy that takes place here when money attributable to U.S. works is kept and used, for example, for French productions.

Quotas are something we must deal with. They are an anathema to us. They have no basis in policy as far as the United States is concerned.

And obviously if we have quotas and we can't get our films or television programs on European television, then we are not even going to be receiving any levies because nobody is going to be able to copy your film or your television program if it's not on in the first place.

The subsidies at the box office, the subsidies from the monthly television bills are all part of the piece.

The numbers I have suggest that in 1992 they totaled over $600 million in the European Community and that the French total alone was roughly 50 percent of that.

National treatment is another piece of this. It's a very important piece and it's another way in which American product is discriminated against in the European Community.

Congressman Berman asked about the French levy. Let's see if we can put that in the right perspective.

Last year in France alone they collected roughly $100 million from the blank tape levy. The way it works is that it is divided first into three parts between the authors, the producers, and the performers.

That money is given to a collecting society representing each of those three groups.

Mr. HOWARD BERMAN. Three different collecting societies.

Mr. HADL. Three different collecting societies. Each of those societies is mandated by the law to deduct 25 percent of what it gets and to use that for cultural and social purposes.

I think that's an important distinction because it's the society itself which uses the money. It's not that it's taken off the top by the Government.

Second, that leaves 25 percent when you take off the cultural fund for each of the groups.