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not directly. When dealing with the copyright area, what we are really talking about is, how do we, as a society, give emphasis to creativity, and reward it so that we expand the knowledge, and the art, and accordingly the things for people to enjoy?

It seems to me that from a philosophical point of view and a practical point of view, that is why we get into the whole copyright area. That is why years and years ago we started getting in to this

area.

Could you comment on that? Do you think that is a correct statement, and if it is, how does it pertain to this particular question?

Mr. LANGE. Yes; I think it is a correct statement.

My comment, which I think is on page 2 of my prepared statement, really takes into account the perspective of the industries in arguing the urgency of the bill. And I am merely suggesting there that I don't think these bills have any urgent need to be passed. I did not mean to say-but your point is one with which I strongly agree about the copyright law in general and about the motion picture industry in particular.

For example, I have some thought that one of the significant reasons why the motion picture industry is structured as it is is because it has been the beneficiary in such odd ways of intellectual property laws for so long. This is a very complex subject for me and I am barely able, as you can see, to state the thesis.

But I have undertaken the beginning of a work with an economics colleague of mine at Duke in an effort to test whether or not, if the intellectual property laws had applied in a different way to the motion picture industry, we might have more film makers in America as we now have many potters and many silversmiths.

Now, when you think about copyright law, I do think that you ought to have some concern for how the law encourages creativity and discretion as exactly as I believe you do. And, no, I don't think that the copyright laws ought to be designed or amended or extended or in any way changed simply in order to preserve an industry qua industry.

The only thing I would say about that to be fair but also as a serious caveat is that this industry has given us an art form which does have, I think, an important place in our society.

I am not proposing and I don't think we would be well advised to do something that would dismantle it for the pleasure of seeing whether we could have some other kind of motion picture industry. But I think in general, I think we ought to have copyright laws that encourage creativity on a very wide scale and don't preserve the entrenched position of one industry on any particular basis.

Creativity ought to be encouraged; industry as such, not necessarily. That is not what I think copyright law was intended to do.

Mr. DEWINE. I appreciate your comments.

Maybe you could address specifically the question of the motion picture industry and the argument that we have heard and will continue to hear that because of changing technology, if we are to preserve creativity, by ensuring that the artists receive the economic benefits from their work, we have to give them this protection. In other words, all we are doing is catching up.

We are using the same principles that we have always used to apply to new technology today. To sort of turn it around on you a

little bit, we are not by some of these bills that we are considering, changing the principles. We are changing the law to let it catch up with the change in technology, but we are keeping the same basic principle, which is those who create get the economic benefit. And by following that principle of rewarding creativity you encourage causing more creativity.

How do you respond to that counter argument?

Mr. LANGE. In the context of this bill, the video first sale bill? Mr. DEWINE. Yes; I would like you to comment both on video and audio, if you could, because I think it is the same basic principle. It may be a different application.

Mr. LANGE. The audio first sale bill strikes me as, in its likely impact, something in the nature of a marginal bill. Frankly, I think it has more metaphorical value than it does practical value. It has some value in terms of what it portends. I don't think it is likely to have very much practical significance upon its passage.

It is one of the reasons I can appear to be on both sides of an issue. It is not desirable legislation, it seems to me, in the longterm sense, but not particularly dangerous in a narrow sense.

The video bill is really where I think this problem that you raise, as I understand it, becomes more severe. When you look at the video bill and you think about what rentals mean, well, they mean two things as I see them. One is that the industry will have access to a new market that in one sense new technology has created but which in another sense is incremental from the industry's point of view. It is kind of a wash.

I don't think that the motion picture industry has to have access to that market in order to survive as they have, though I can understand how if they are given access to that market, they may be encouraged to create a new kind of product. That is a possibility. If they are encouraged to create a new kind of product, Allen Herschfield at 20th Century Fox, who made a statement here a couple of months ago, says that is what they will do. He says they are not in any exigent need of the bill but if they have the bill, then they will be encouraged to respond to this market, and that may mean new kinds of creativity. Then it seems to me the copyright law would be working effectively.

But there are some countervailing considerations. There is also the question of the public domain working effectively, and I at least would like to wait on the video bill.

Mr. DEWINE. What I am talking about is creativity and the original making of something and what you are talking about is dissemination, aren't you? Aren't you talking about expanding the dissemination whereas what I have been talking about is the creation of something. I am not saying one is better than the other; we are just talking about different things.

Mr. LANGE. I thought we were talking about two things originally. I thought originally the question was, isn't the copyright law really fundamentally designed for purposes of encouraging the development of new expression without any particular concern for an industry?

That was the first question I thought you put, and I said yes.
Mr. DEWINE. That is correct.

Mr. LANGE. I wish I had said yes, but I said, yes, in a very long

way.

Then I thought you asked me about the impact of this bill, by which I now mean the video first sale bill on creativity in particular industries, the motion picture industry. There what I said was I can see how access to these new markets in the context of that industry, the motion picture industry, may encourage that industry to create new kinds of product, product which they don't really do much of right now.

An example is the "Jane Fonda Workout" tapes. You can't go to the theaters and in theatrical release and see Jane Fonda panting with 70 others, at least not in the workout context. But you can buy the tape in the rental market and there is a new kind of creativity there.

Mr. DEWINE. I am with you so far. It is the last part that I don't follow.

Mr. LANGE. Well, we may disagree or I may be unclear.

Mr. DEWINE. It seems to me then in your statement you said there are countervailing factors that we need to look at, negative impacts of expanding this creativity. It was my impression that what you were saying is that we are talking about dissemination and not more creativity.

It was my understanding that what you were saying is that by allowing things to evolve without a bill, what we are going to do is expand the potential for dissemination and expand the number of people that would see it and not go to the issue of original creativity.

Mr. LANGE. No, what I really had in mind was if we allow this new extra copyright means of dissemination to expand, this rental market, I can see circumstances in which that rental market may then attract creativity from quarters that are not really part of the established motion picture industry.

My expectation is, frankly, that if the video first sale bill passes or legislation of this kind were to pass, that the interaction between the rental shops and the motion picture industry would become such that there would be less of a tendency for outside creators to create and then bring their products to the shops in the expectation that the shops would handle them. Because my guess is that the shops now having ironed out their problems with the industry would be pretty much in a two-way transaction with the industry. There would be more Hollywood product going out but there would be less room on the shelves for non-Hollywood product.

That is a speculation. I don't know that it is clearly so, but my speculation is that if the public domain, by which I really mean here the unregulated rental industry, is allowed to grow, then because there won't be some particular alliance with the Hollywood industry or it won't be quite as clearly cemented, there won't be the leverage certainly that there would be if S. 33 and H.R. 1029 were to pass, then those shops may be more disposed to make room on their shelves for the kind of thing that you and I might shoot if we just went out to make a movie. That is the kind of thing I

mean.

Mr. DEWINE. I am with you. I understand what you are saying. Thank you, Mr. Chairman.

Mr. KASTENMEIER. Just one final question.

Further, with respect to compulsory license, there is a difference between audio and video with respect to what the industries intended thereby.

Mr. LANGE. Yes.

Mr. KASTENMEIER. In the case of the audio industries, the record companies, they do not intend that there be a compulsory license for the purpose of leasing or renting. They intend to abolish the practice.

Mr. LANGE. I do understand that, Mr. Chairman.

Mr. KASTENMEIER. And in the case of video, on the other hand, they do intend that there be a compulsory license or that there be at least a rental market in which they more fully participate from the standpoint of financial reward and control.

So that being the case, you are seeking, nonetheless, to impose on the audio people a bill which would compel them to license.

Mr. LANGE. Yes, the kind of compulsory license that I would really favor in that bill is a compulsory license that goes substantially beyond the compulsory license that is now technically part of S. 32.

The idea of a compulsory license as incorporated in S. 32 makes sense to me but I think to be effective and to give the bill the kind of balance that I think it ought to have, compulsory license would be one that would not permit the industry to take that position. That is not what is now proposed. That is my proposal. Mr. KASTENMEIER. I understand.

Just one last question. With respect to the Copyright Royalty Tribunal, in the discussion of compulsory license, there has been some criticism over the years of that forum that it is undersupported in terms of financial resources or whatever may be wrong with it. Do you see any other alternative devices to administer or to set compulsory license?

Mr. LANGE. Well, if you depend on compulsory licenses in a very general way, I don't know how you can do it other than through some device like the Royalty Tribunal, and it is that problem, that bickering, that squabbling that makes me think, among other things, that it is not a very good device.

But if you can establish a compulsory license, that is contextually derived and then allows you to be fairly clear about the royalties that are deserved so that the tribunal passes them through rather more than fixes the rates, it seems to me that compulsory license then has some potential utility.

Now, that is not quite an answer to your question, and I understand it. To your question, I don't have a better solution to offer you. I wish I did, but I don't.

Mr. KASTENMEIER. Well, that is a fair answer.

Thank you again on behalf of the committee for your presentation. You have been most refreshing both today and on the other occasion you had to give us the benefit of your views. Your independence institutionally is a perspective I think is badly needed by the committee in its deliberations.

Mr. LANGE. Thank you for asking me.

Mr. KASTENMEIER. Next I would like to call on a distinguished member of, I guess I can say, the President's cabinet. He is the As

sistant Secretary of Commerce as well as being the Commissioner of Patents and Trademarks. He is a frequent witness before this committee, and I assume many other committees, and he also chairs the Cabinet Council on Commerce and Trade. He is our friend, the distinguished and Honorable Gerald J. Mossinghoff.

TESTIMONY OF HON. GERALD J. MOSSINGHOFF, CHAIRMAN, WORKING GROUP ON INTELLECTUAL PROPERTY, CABINET COUNCIL ON COMMERCE AND TRADE, AND ASSISTANT SECRETARY OF COMMERCE, COMMISSIONER OF PATENTS AND TRADEMARKS

Mr. MOSSINGHOFF. Thank you, Mr. Chairman.

Mr. Chairman and Mr. De Wine, I welcome this opportunity to testify both on the Record Rental Amendment of 1983 as contained in H.R.1027 and on the Consumer Video Sales-Rental Amendment of 1983 as embodied in H.R.1029.

Each of these bills would, as you pointed out, amend the firstsale doctrine of the copyright law to permit copyright owners to participate in or prohibit the commercial rental of motion pictures or other audio visual works without the authorization of the copyright owner.

Under the existing first-sale doctrine of the copyright law, a purchaser of a sound or video recording is not liable to the copyright holders for its subsequent rental, sale or other disposal.

Anyone who purchases a copyrighted sound or video recording may rent it to others without any additional financial liability to the copyright owners. As you pointed out, as a result, the commercial renter is in direct competition with the copyright holder in the distribution of the copyrighted work, and the copyright owners derive no benefit from such commercial use of that work.

As a consequence, the first-sale doctrine as presently contained in section 109 of title 17 has provided a convenient route to circumvent the protection of intellectual property afforded by copyright. This result serves as a disincentive to creators and is contrary to the rationale underlying copyright protection: to benefit the public by stimulating new works through the incentive of the grant of the exclusive rights to authors.

With respect to H.R. 1027, the record rental amendment of 1983 would redress the inequity presently experienced by the owner of the copyright in the sound recording and the owner of the copyright in the musical work, who receive no compensation from record rentals or unauthorized home taping.

Record sales fuel the entire music industry. A decline in sales revenue affects the livelihoods of songwriters, publishers, recording artists, vocalists, musicians, manufacturers, suppliers, distributors, and retailers.

Consumers will also be hurt by a decrease in record sales. If sales decrease, unit prices will rise. And seriously declining sales may make it impossible to continue producing nonprofitable, subsidized recordings of classical, jazz, ethnic and gospel music.

Members of the American music industry are concerned that rapidly proliferating commercial record rentals pose an increasing

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