at all, that the sales would drop. Because I listen to music 90 percent of the time in my car, more so than in the home.

Also, I would like to point out one quick statement. The 25,000 record retail shops in this country-and I've been in numerous ones-every one I have ever been into sells blank tape. That seems to be hypocritical from my viewpoint, because what do people do with blank tape? Why does somebody who is against record rentals sell blank tape? I don't understand that.

Mr. KASTENMEIER. You have a point, Mr. Watts.

I would like to ask you, Mr. Watts, about your own operation. How do you acquire records? Do you buy them from wholesale distributors or do you buy them from established retail record shops? Mr. WATTS. We buy our albums from one-stops. I guess they are stores that buy them from RCA and Columbia and that type of thing for distribution. Then we buy them from them. We get absolutely no co-op advertising, nor have we asked for any, because we knew that what we were doing wasn't particularly appreciated by the recording industry. So we have a pretty good burden of expense and we buy an awful lot of albums.

Mr. KASTENMEIER. You buy them at retail, is that correct?

Mr. WATTS. Well, not exactly retail, but we pay a pretty good price. We buy them at what is known as one-stops, and I guess the recording industry could explain that to you probably better than I could. But it's a distribution system, more or less, I guess, for small record retail shops.

Mr. KASTENMEIER. However, isn't it inconsistent for you to suggest that people have a right to copy copyrighted works for their own use, and yet you suggest that you ought to pay an additional royalty, which you tried to pay the copyright owners?

Mr. WATTS. Yes, sir. Let me explain my unique position, I guess, in this particular matter.

I happen to be a music lover. I have been a music lover all my life. I would like to have gotten to shake the hand of the guy who wrote all the beautiful music that I have listened to. Consequently, I feel a moral obligation, that when somebody provides me with that type of enjoyment, that I don't mind paying for it. I have never minded paying for it. But I do feel I ought to have the right to use it and pay for it. So I may be a little unique in that, but I don't feel I should enjoy it without making a fair payment.

Mr. KASTENMEIER. Well, that's interesting.

As far as you know, do the 200 rental stores operate in a similar fashion?

Mr. WATTS. Well, from what Mr. Gortikov mentioned, undoubtedly not, because we have never advertised "Don't buy another album", nor do we rent our albums for 50 cents. So we don't operate that way. We have never done any advertising that would even approach that type of situation. We feel like we're completely legitimate and we have attorneys and doctors who are club members who come in to rent our albums. As a matter of fact, one person that works for the Attorney General's office in South Carolina, he doesn't feel like it's a terrible dishonest thing to do, either. So I hope that answers your question.

Mr. KASTENMEIER. Yes. Those are all the questions I have.

Do my colleagues have any questions? I yield to the gentleman from Michigan.

Mr. SAWYER. I just have one more.

As I have listened to the two panels, I am impressed that both groups want it both ways. You rely on the first sale doctrine that was established 100 years ago when all they were dealing with was books. They didn't even have sound recordings at that point. That imposed the first sale rule, but it also prohibited copying. You could lend it or rent it or do anything else you wanted with it, but the copyright law prohibits and still prohibits its being copied.

Now, with the advent of the sound recording and the taping mechanisms, it has suddenly become possible to violate with apparent impunity in your own home the copying aspect, and that's what the 9th Circuit, at least up to now, has decided.

Now that throws a new light on the first sale doctrine, because under the original first sale doctrine nobody could copy it anyway. For all practical purposes, you would need to go into open commercial, outright visible production and you would be caught violating it. You couldn't do it in your own home as a practical matter. And now, because of the change to the recorded word and the ability to copy, you can now, with almost impunity, and under present mechanisms, nothwithstanding the decision it's illegal, nobody can stop you for all practical purposes.

So the point is, in my view, to carry out the original purpose of the first sale doctrine, namely, which prohibits copying but allows rental or anything else, those rights being cut off by the first sale, in order to carry it out now you have got to either put a charge on copying to stop the copying free, or put some kind of a restriction on the first sale to prevent it.

To say you can't do either, then you'r saying that the whole first sale doctrine and its whole idea is out the window because now it facilitates copying, which has always been prohibited. So, you know, this bothers me. I think both groups want it both ways. In all fairness, to carry out the original first sale doctrine, with the prohibition on copying, privately or otherwise, which was there just as a pure matter of capability, you've got to either approach the first sale doctrine or the copying procedures. I just think by taking a prohibition on both you're, in effect, not honoring the first sale doctrine with the prohibition on copying. You're throwing it out the window.

I just make that observation and yield back, Mr. Chairman. Mr. KASTENMEIER. And undoubtedly, the question being resolved in the Supreme Court, in the Universal Studios v. Sony case, has an impact on the situation as well.

Mr. Cook. May I comment, Mr. Chairman? The Congress dealt with that problem in 1977 and 1978, and the idea that one could tape audio tape for his own use at home was a big issue at that time. It was resolved in favor of the person who wanted to record it for his own use and not for a commercial use. Congress has dealt with that.

We are saying in this instance that the utilization and the elimination of the first sale doctrine is a far, far more serious problem for you to deal with. As a matter of fact, the panel here prior to us admitted that they were quite concerned about audio taping at

home by the individual for his own use, but said that they were not here to contest that aspect of it at all. So I do not believe we are wanting it both ways. We are saying the first sale doctrine should really not be tampered with for the benefit of the consumer.

Mr. KASTENMEIER. Thank you, Senator Cook.

I think in all fairness their position is that they do not intend to deal with that question in the context of this legislation at this time.

Mr. Cook. That is correct.

Mr. KASTENMEIER. I think they have an interest in also exploring that possibility, both legislatively and possibly even judicially.

I want to thank this panel for its contribution this morning. You have all been very helpful. We had a very good turnout for the committee and there is obviously considerable public interest in this question. The committee is grateful for your contribution. The committee stands adjourned.

[Whereupon, at 12:50 p.m., the subcommittee was adjourned.]

AUDIO AND VIDEO FIRST SALE DOCTRINE

THURSDAY, OCTOBER 27, 1983

HOUSE OF REPRESENTATIVES,

COMMITTEE ON THE JUDICIARY,

SUBCOMMITTEE ON COURTS, CIVIL LIBERTIES,

AND THE ADMINISTRATION OF JUSTICE,

Washington, DC.

The subcommittee met at 10:30 a.m. in room 2226 of the Rayburn House Office Building; Hon. Robert W. Kastenmeier (chairman of the subcommittee) presiding.

Kastenmeier, Mazzoli, Morrison,

Present: Representatives Kastenmeier, Berman, DeWine, Kindness, and Sawyer.

Staff present: Deborah Leavy, counsel; Joseph Wolfe, associate counsel; Audrey Marcus, clerk.

Mr. KASTENMEIER. The committee will come to order.

Without objection, the taping or filming of this proceeding by cameras, still cameras, motion picture or videotape, will be permitted.

This morning the subcommittee has before it the second proposal to amend the first sale doctrine of copyright law. Two weeks ago we began consideration of H.R. 1027, the record rental amendment. Today we will hear testimony on H.R. 1029, the consumer video sales rental amendment. Both of these legislative proposals would bar rental, lease or lending of the embodiment of a copyrighted work for direct or indirect commercial advantage without permission of the copyright owner.

This represents a departure from the first sale doctrine of copyright, which in general says that the owner of a lawfully obtained copy of a work is entitled, as with other tangible property, to dispose of it as he or she chooses, with certain licensed exceptions.

While there are obvious similarities between the audio and the video bills, there are also some substantial differences, some immediately apparent and others less so.

The subcommittee looks forward to exploring the specifics of the video first sale issue this morning. Before we do, I would like to insert the text of H.R. 1029 in the hearing record, without objection.

Now I would like to introduce our first distinguished panel: Alan Hirschfield is here today representing the Motion Picture Association of America. He is president and chief executive officer of 20th Century Fox Film Corp. While he may be a relative newcomer to the film business, he does have experience at the top, including being the former president of Columbia Pictures. He is obviously very highly regarded in the industry.

Accompanying Mr. Hirschfield today is Mr. Steven Roberts, president of 20th Century Fox Telecommunications.

Also at the witness table is Bruce Lehman, legislative counsel to 20th Century Fox, formerly chief counsel of this subcommittee and a valued member of its staff for 9 years.

We welcome you all, gentlemen. I think you are known to the committee, even though the committee this year is substantially larger-I think twice as large-as it was in the last Congress. We are now 14 members.

In any event, we will be pleased to hear from you. Mr. Hirschfield, we will call on you, sir.

TESTIMONY OF ALAN HIRSCHFIELD, CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER, 20TH CENTURY FOX FILM CORP., ACCOMPANIED BY STEVEN ROBERTS, PRESIDENT, 20TH CENTURY FOX TELECOMMUNICATIONS; AND BRUCE A.

LEHMAN, LEGISLATIVE COUNSEL, 20TH CENTURY FOX

Mr. HIRSCHFIELD. Thank you very much, Mr. Chairman. I would like to submit the full statement for the record, but in the interest of time and brevity, I have deleted certain portions to try to protect the innocent. [Laughter.]

Mr. KASTENMEIER. Without objection, your 18-page statement will be accepted and received and made part of the record, and you may proceed as you wish.

[The complete statement follows:]