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Mr. MOSSINGHOFF. That is right, Mr. Chairman. We reached that same issue in the working group very early. One of the agenda items which we have put on the back burner of the Cabinet Council's working group is the so-called Betamax case. And I think that as soon as the Supreme Court reaches a decision in that case, clearly that will be something that Secretary Baldrige will want to have considered by the working group.

The issue was should we go forward with a recommendation on these bills or should we hold it back and wait for a global solution. The unanimous decision of the working group-and we are well represented, as you know, on the working group with the Council of Economic Advisers, the Office of Management and Budget, the Justice Department-is that these are two problems where new technology has displaced or distorted what is a normal relationship of a copyright owner. That problem is "fixable" in a very limited and specific sense, and it would be well to have Congress act on it in that fashion.

Mr. KASTENMEIER. According to your statement, the Cabinet Council bases its support of these bills at least in part on the benefits to be derived by the public. It is clear you have heard from industry representatives because much of your testimony was previously heard from them in precisely the same fashion.

Did you consult with anyone else? Did you consult with consumer groups, representatives of libraries, educational institutions or others who presumed to speak for the public?

Mr. MOSSINGHOFF. We did consult with library groups. That is one of the bases for the strong recommendation that the bills not be changed in any way. Currently they do not apply to noncommercial rental-not rental-noncommercial distribution.

Mr. KASTENMEIER. I don't think that is clear. That was very hotly debated before this committee.

Mr. MOSSINGHOFF. If that is not clear-

Mr. KASTENMEIER. If, indeed, they have cured that problem, it has been cured within a matter of hours; but I can tell you that Mr. Steinhilber would not have agreed with your testimony as of 1 week or 2 weeks or 3 weeks ago.

Mr. MOSSINGHOFF. Well, I thought the definition of what would be proscribed by the bills-if I may, Mr. Chairman――

Mr. KASTENMEIER [reading]:

For the purpose of direct or indirect commercial advantage to dispose of that phonorecord by rental, by lease, or lending, or any other activity or practice, in the nature of rental, lease or lending.

The library groups and other groups were very concerned about that.

Mr. MOSSINGHOFF. I don't in any way doubt that. What I was basing our judgment on was the fact that it had to do with commercial advantage. If it were done by a Fairfax County lending library, I don't think that would be direct or indirect-

Mr. KASTENMEIER. Direct or indirect-

Mr. MOSSINGHOFF. If that could be sharpened, we would strongly recommend it be sharpened. We really are talking about the record rental stores who do it for commercial advantage. As I say, we

would support, as I indicated in my statement, but we do not think the bill should apply to noncommercial uses.

Mr. KASTENMEIER. Did you talk to groups other than library groups?

Mr. MOSSINGHOFF. No, we did not.


Mr. MOSSINGHOFF. Let me clarify that. I did not, and I don't believe the patent and trademark people worked with other groups. I cannot really say whether the other members of the working group consulted or not. I simply don't know.

Mr. KASTENMEIER. Well, I think it would have strengthened your position to have consulted more broadly, with those affected by the legislation, I candidly say to you.

I yield to the gentleman from Ohio.

Mr. DEWINE. Throughout the country, there is an awful lot of other items that are rented, more tangible items-lawn mowers, chain saws, etc. Can you just kind of comment on the conceptual difference between that and what we are talking about, and should the same principle apply?

Mr. MOSSINGHOFF. I would say that in those cases, the first-sale doctrine serves well. Of course, the first-sale doctrine applies also in patents as well as copyrights. In those cases, when you rent a chain saw, you don't do that for the purpose of copying the chain saw in some way. And indeed if you did copy or reproduce the chain saw, you would infringe the patent.

Under a patent-a copy of the patented chain saw that is rented cannot be made, use or sold. I don't think there is a direct analogy here. It is absolutely clear in the phonorecord area that when it is rented, it is rented primarily to be copied, thereby displacing onefor-one the possible sale of that record.

Mr. DEWINE. You mentioned the Cabinet Council. I am curious as to exactly what the process is that you go through in making a decision like this. You have the different depths involved. Maybe not just in this particular case, but in any case, what is the basic procedure you follow?

Mr. MOSSINGHOFF. Several of the things that we have recommended to the Congress. Indeed have been enacted. The new Patent and Trademark Office fees, for example, that were enacted came from a recommendation of a Cabinet Council, the Cabinet Council on Economic Affairs. The number of intellectual property issues began to build up. There was a decision between Secretary Baldrige and the White House that we should have sort of a permanent working group. Such a working group was then formed. It consists of Bill Niskanen from the Council of Economic Advisers; Connie Horner, Associate Director of OMB, and a number of people of that range, that stature, generally assistant secretary level officials.

We met two or three times with candidate issues that we would consider. Everyone was invited to bring issues to the Cabinet Council. We have several things actively under consideration right now. At the meetings, we would discuss the pros and cons of the issue generally. If someone wasn't familiar with an issue, we would arrange for a briefing. For example, one of the issues is the Brussels Satellite Convention. We arranged for the State Department to

give us a briefing on that. Then we would prepare position papers to be circulated prior to the meetings. Opinions would be sharpened at the meetings. And then someone would undertake to draft a position paper for the Cabinet Council itself, and that position paper typically would take the form of a background paper, which would state: "Here is the problem. Here are the economic situations. Here are the pros and cons." Then each member would either agree or attempt modify to the position paper or could write an effective dissent by saying "One agency or another doesn't believe this," and then the Cabinet Council itself, in this case chaired by Secretary Baldrige, is a decisionmaking body. And if there is a general consensus, the Cabinet Council decides what the administration's position will be.

If there are strongly held views to the contrary, the position proceeds one step further. The President, who is the chairman of all the Cabinet Councils and who actually chairs the Cabinet Council meeting, reaches a Presidential decision.

In this case, there was unanimity that we should support these two bills. So the meeting at which that was decided was chaired by Secretary Baldrige, who is the president pro tempore of the Cabinet Council.

Mr. DEWINE. Thank you very much.

Thank you, Mr. Chairman.

Mr. KASTENMEIER. Thank you, Mr. Mossinghoff, for your assist


Mr. MOSSINGHOFF. Thank you, Mr. Chairman.

Mr. KASTENMEIER. Now we would like to call Dr. August Steinhilber, chairman, Educators' Ad Hoc Committee on Copyright Law, Associate Executive Director, National School Boards Association. It is a pleasure to have him back again. We know copyright problems have always been a nettlesome area for educators and county boards and for others.


Mr. STEINHILBER. Thank you very much, Mr. Chairman. I have with me Shelley Steinbach, general counsel of the American Council on Education, just in case there are some questions involving higher education-between the two of us we will be able to answer any question either at the elementary, secondary, or higher education levels.

I am August W. Steinhilber, testifying as chairman of the Educators' Ad Hoc Committee on Copyright Law. I am also associate executive director of the Office of Federal Relations of the National School Boards Association.

The Educators' Ad Hoc Committee on Copyright Law was first organized when Congress started to hold hearings on a general revision of the copyright law about 20 years ago. The committee consists of nonprofit organizations representing virtually every school, college, and library, public and private, and from kindergarten

through graduate education, throughout the country. The names of the participants in the committee are listed in the appendix.

The testimony you have was distributed to all members and with the usual rights of anyone who objected, we would then remove any portion that was objected to. We received no objections to the statement that you have in front of you.

The purpose of the committee was to communicate to Congress the effect on education and scholarship of various proposals for amending the copyright law. The educators', scholars', and librarians' points of view were regularly communicated to the congressional committees as the bills progressed through the legislatiive process.

You have been marvelous to work with, sir, on these kinds of issues.

Section 109(a) of the copyright law states:

Notwithstanding the provisions of Section 106(3), the owner of a particular copy of phonorecord lawfully made under this title, or any person authorized by such owner is entitled, without the authority of the copyright owner, to sell, or otherwise dispose of the possession of that copy or phonorecord.

The House of Representatives Report 94-1476 confirms that the owner of a copy is entitled to dispose of the article by sale, rental, or any other means. Specifically it says, "A library that has acquired ownership of a copy is entitled to lend it under any condition it chooses to impose."

It is this language that guarantees the operation of school and public libraries. The copyright owner's exclusive right to distribute his work is limited to the first sale. After that, the library is free to distribute or resell the copy.

Several legislative proposals have been suggested to change the first sale doctrine to ban renting, leasing or lending of a lawfully purchased work for purposes of direct or indirect commercial advantage.

The ad hoc committee is well aware of the wars that are being waged between the motion picture industry and those who lend video tapes and similar wars in the phonorecord field. We do not wish to become involved in these wars, but we don't want to be a casualty either.

Many libraries charge a fee to lend films, video tapes, records, et cetera, to their patrons. These small fees are used to keep collections current, pay for loss or damage by patrons, et cetera. Many schools, particularly private church-related schools, loan textbooks, and other instructional materials to students for a yearly or semester fee.

In our review of educational activities, we have found that the loaning of instructional materials is done by public libraries, school libraries, university libraries, school systems universities, and finally school or college organizations such as the Future Teachers of America or a sorority.

Materials loaned include books, audio tapes, video tapes, filmstrips, 16-millimeter films, et cetera. In light of the proposed changes in the copyright law do such practices constitute direct or indirect commercial advantage? Specifically, what is an indirect commercial advantage?

As equally as important an issue is the impact this legislation could have on books, magazines, and other written materials. While we understand the legislation is aimed at a narrow issue, we are concerned that once the first sale doctrine begins to come under attack, the publishing industry would join in to kill first sale in toto.

The argument will be that every library loan is a potential loss of a sale. We are sure that some royalty scheme such as a foreign copyright notion called a public lending right will be forthcoming. Therefore, we generally object to the bills so far introduced. We specifically object to the word "indirect" when describing commercial activities. We are equally convinced that committee report language will not help us-it is soon forgotten by commercial inter


Without legislative protection, educators often are frightened of the cost of possible legal action. The mere threat of a law suit has a chilling effect on legitimate usage of copyrighted material.

Some school systems and institutions of higher education often cannot afford their defense, given attorneys' fees now in the $100 to $300 an hour range. What we often forget is that corporations can deduct the cost of litigation as a tax loss-we have to either increase taxes or reduce services for students.

I might add, I have just been involved in such an instance with a school system which, merely upon a threat, said it was no longer going to operate in a manner which was totally within the fair use guidelines. Their reason was that they could not afford litigation.

It happened in a State which had just gone through a proposition 13 kind of situation, and quite frankly, the school system had no funds to litigate. So rather than defend themselves, they said, fine, we will just cease any further activity along this field.

Now, I am pleased to say that there has been some solution or at least compromises. The Educators's Ad Hoc Committee on Copyright Law met all morning in an effort to negotiate language on H.R. 1027 and H.R. 1029 which would remove our objection to these bills.

I am pleased to announce that we have reached an agreement with the music industry-the Coalition to Save Americas' Musicon the following language:

Nothing in the foregoing proviso shall apply to the rental, lease or lending of a phonorecord for nonprofit purposes by a non-profit library or nonprofit educational institution.

By agreeing with this language as part of H.R. 1027, we obtain the complete exemptions and would no longer oppose the bill. However, as in nearly every commercial copyright issue, we do not support the proposed legislation-on the issue we become neutral. Without the language, we will oppose it.

We have also met with a representative of the Motion Picture Association of America on H.R. 1029. And I am pleased to say that we have agreed on the following language:

Nothing in the foregoing proviso shall apply to the rental, lease or lending of a particular copy of motion picture work or other audio visual work for nonprofit purposes by or to a non-profit library or nonprofit educational institution.

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