Mr. Rose. I read with some interest the testimony from the socalled futurists before this committee, and I must admit I felt I would stick to antitrust law. I get uncomfortable when dealing with uncertain worlds.

Mr. SAWYER. I yield back, Mr. Chairman.

Mr. KASTENMEIER. Thank you.

In that regard, I think what my colleague from Michigan suggests amplifies what the preceding witness, Mr. Silbergeld, suggested, that there are other ways of looking at some of these questions. That's what we've found in looking at the software industry. There are alternatives IBM explores one alternative. Professor Rose suggested another alternative: a cash rebate system which we had not heard of before. I urge you to read the reference made by Professor Rose in his written statement.

But one has to look at it by industry, by new technology. We must decide whether other devices can achieve or should achieve the same equitable results in terms of property protection and balancing of interests that what is proposed here today is sought to achieve.

I want to thank both of you for your contributions, Mr. Johnson and Professor Rose. I think the testimony this morning has been excellent. The Chair has a letter from our colleague, Mr. Hyde, suggesting several other witnesses to testify on this issue. We have had two or three other requests for witnesses, so perhaps we'll have yet another day of hearings on this subject.

I would trust then we can make a decision about it. In any event, we are grateful to you both for your testimony; indeed, to all witnesses who testified today.

The committee stands adjourned.

[Whereupon, at 1 p.m., the hearing was adjourned.]

AUDIO AND VIDEO FIRST SALE DOCTRINE

THURSDAY, APRIL 12, 1984

HOUSE OF REPRESENTATIVES,

SUBCOMMITTEE ON COURTS, CIVIL LIBERTIES,

AND THE ADMINISTRATION of Justice,

COMMITTEE ON THE JUDICIARY,
Washington, DC.

The subcommittee met, pursuant to call, at 10 a.m., in room 2141, Rayburn House Office Building, Hon. Robert W. Kastenmeier (chairman of the subcommittee) presiding.

Present: Representatives Kastenmeier, Mazzoli, Glickman, Morrison, Berman, Hyde, DeWine, and Sawyer.

Staff present: Deborah Leavy, counsel; Michael Remington, chief counsel; Joseph V. Wolfe, associate counsel; and Audrey K. Marcus, clerk.

Mr. KASTENMEIER. The committee will come to order.

Mr. GLICKMAN. Mr. Chairman.

Mr. KASTENMEIER. The gentleman from Kansas.

Mr. GLICKMAN. Mr. Chairman, I ask unanimous consent that the subcommittee permit the meeting this morning to be covered in whole or in part by television broadcast, radio broadcast, still photography, or by other similar methods in accordance with rule 5 of the committee rules.

Mr. KASTENMEIER. Without objection, that request will be agreed to.

This morning, the subcommittee holds its fourth and final hearing on H.R. 1029, the Consumer Video Sales Rental Amendment of 1983. This will represent the completion of our hearings, not only on this bill, but a number of other legislative proposals in the copyright field: cable reform, audio first sale and protection for semiconductor chips.

These proposals and others which have been before the subcommittee, such as home taping, have all been considered not only for their individual merit, but in conjunction with a broader question: How should the copyright law respond to technological change?

The subcommittee has conducted this broader inquiry simultaneously with the consideration of separate bills before us. Last July, we held 2 days of hearings on copyright and technological change. In February, we had the benefit of a 3-day congressional symposium on the subject under the auspices of the Copyright Office.

As I indicated at last week's hearing on patent reform, in the field of intellectual property, it is my firm belief that the needs of proprietors need be balanced with the public interest in mind. This

balance is a delicate one, and care must be exercised to avoid tipping too far in one direction or another.

Inevitably the distribution of property rights involves competing economic interests. The scale I use to adjust these interests is the public interest. Frequently, that requires some kind of compromise among proprietors' interests.

A number of these competing interests are present in many of the copyright bills under consideration by the subcommittee. It is my belief that a compromise can perhaps best be formulated by taking an omnibus approach to the proposals before us. Therefore, after we return from the upcoming recess next week, I intend to introduce a bill that will reflect the fair balance of competing interests, and will protect the public interest as well.

Before calling the first witness, I would like to yield to my colleague from Kansas, Mr. Glickman.

Mr. GLICKMAN. Thank you, Mr. Chairman. I appreciate your recognizing me.

I would like to introduce our first witness, Mr. Steve Gorrell, with G&A Distributors of Wichita, KS, my home community. Steve is not a professional lobbyist, but he was very articulate when he came by my office, and I felt that he should have a chance to express his personal feelings on this before we start the markup on this subject.

He knows that I am a cosponsor of the bill, but he also knows that I have developed a number of concerns about the practical impacts of the bill which make theoretical sense; but the implementation of it has caused him, as well as myself, some concerns.

In reviewing his testimony, Mr. Chairman, I think he makes a good point which gets right to the core of those practical impacts. He says, "What we don't need is for Congress to enhance our chances to fail. Competition is tough enough as it is," and I think that that runs at the basis of what we are looking at this bill to accomplish. What does this bill do to competition and how does it balance against the needs to protect the intellectual property rights and the rights of producers.

So, I am just delighted that Steve is here. He is in the electronics business generally, not in the rental business, and I think that he may have some interesting comments on how this legislation will impact on businesses other than those that sell or rent tapes of movies.

I hope that he will address those in his testimony, Mr. Chairman. I thank you for recognizing me.

Mr. KASTENMEIER. I thank my colleague for introducing Mr. Gorrell, and if he will come forward, he will be our first witness.

I will ask him and our other witnesses this morning, some of whom have filed rather extensive statements which we would be pleased to receive for the record; to summarize your statement for purpose of the presentation this morning.

However, in the case of Mr. Gorrell, I notice you already have a short statement-it is only five pages-so you may proceed as you wish. We are very pleased to have you here and to greet a constituent of Dan Glickman.

TESTIMONY OF STEVEN GORRELL, G&A DISTRIBUTORS,

WICHITA, KS

Mr. GORRELL. Mr. Chairman, members of the subcommittee, my name is Steve Gorrell. I am president of G&A Distributors, Inc., in Wichita, KS. We distribute video cassette recorders and other consumer electronic products in Kansas for Quasar.

I am pleased to have the chance today to tell you why I think eliminating the first-sale doctrine for movies would be potentially disastrous to me and other small businessmen.

Before I discuss the reasons why this legislation threatens my business, I would like to describe just what my business is. In virtually every way, I am a typical American small businessman. I started with a hardware store, a venture I am sad to say reflects the freedom we have in America to fail.

I then entered the consumer electronic retail business in Wellington, KS, a small farming community, in 1978.

After 1 year, I was offered the opportunity, took the chance and bought my current distributorship. I have been running G&A Distributors, Inc., since 1979 and currently employ 11 people from the Wichita area.

I would also like to mention that like most American businessmen, I am very active in community affairs. As the district governor for Kansas of Optimists International, I supervise the efforts of 4,300 members in 92 clubs.

As a distributor, I have witnessed firsthand the explosive growth of video technology. These machines represent the second-largest category of total sales for me after televisions. From January 1, 1984, until April 4, 1984, I sold 208 VCR's for resale to approximately 80 small retail businesses across the State of Kansas. Most of these retail dealers, I might add, are small businessmen like myself. We are typical American dreamers, mortgaged to the hilt. The competition in my market is fierce. I am a relatively small distributor and must compete with distributors of the leading brand, RCA, and other major brands such as Zenith. As such, my profit margin for VCR's is incredibly tight; smaller, in fact, than the margins I can get for most any other product line.

Because competition is tough at the retail and wholesale levels, and because VCR's are the second most popular product I sell, any change in consumer demand would have a potentially disastrous effect on my business.

Having worked in this industry since the start of the VCR sales boom, I think I have a good grasp of why consumers buy VCR's. One of the major reasons why Kansans, and I guess all Americans, buy VCR's is to watch Hollywood's product in their homes. Consumers vote with their pocketbooks and they have voted for video cassette rentals.

If the price of movies, particularly rental cassettes, goes up, as I believe it must, then consumer demand will fall. If demand drops, both my total sales and my already thin profit margin have to follow it down.

If consumers won't pay a higher price to watch movies, a big part of their reason for buying my machines disappears. So you can