COMPETITION,

INNOVATION, AND PUBLIC POLICY IN THE DIGITAL AGE: IS THE MARKETPLACE WORKING TO PROTECT DIGITAL CREATIVE WORKS?

THURSDAY, MARCH 14, 2002

U.S. SENATE,

COMMITTEE ON THE JUDICIARY,

Washington, DC.

The committee met, pursuant to notice, at 10:02 a.m., in room SD-106, Dirksen Senate Office Building, Hon. Patrick J. Leahy, chairman of the committee, presiding.

Present: Senators Leahy, Biden, Feinstein, Durbin, Cantwell, Edwards, Hatch, Specter, and Brownback.

STATEMENT OF HON. PATRICK J. LEAHY, A U.S. SENATOR FROM THE STATE OF VERMONT

Chairman LEAHY. I appreciate you all being here. I just checked with Senator Hatch. He is delayed at another meeting and so we are beginning.

This is not a paid promotion for Amtrak, but Mr. Parsons is not here because he has been spending several hours trying to fly down from New York. Of course, he could have been here a couple of hours ago if he had taken the train on a foggy morning. That is just a personal thing.

When I first arrived in the Senate, television broadcasts were no longer just in black and white. Record players had high fidelity and the excitement of stereophonic sound. The personal computer, email, high-definition television, CDs, DVDs, wireless communications devices and the Internet were yet to be released and now they are among our most ubiquitous tools. We talk to our friends, we use in our work, we keep in touch with our families, we listen to music, we watch a movie, we play a video game, and all of it is almost like second nature.

Each new tool has spawned new opportunities, entirely new industries, new ways to package and sell products, and new ways for consumers to enjoy copyrighted works. It is no surprise that the intellectual property generated in this country is an economic engine that is the envy of the world.

I would note that in the New York Times this morning Amy Harmon has an excellent article which actually covers much of what we are talking about-"Piracy or Innovation: Hollywood Versus High-Tech," with a picture of Stephen Jobs and Michael Eisner on

it. I am going to put that in the record because it so well spells out and encapsulates some of the debate going on.

There have been hearings recently in the Commerce Committee. I agreed with some of the things that the movie industry, Mr. Eisner and Mr. Valenti said, and I agreed with some of the things that the high-tech industry said. But I had significant disagreement with some of the things that Mr. Eisner and Mr. Valenti and some of the high-tech people said.

I mention this because it points up the differences of opinion in both the members of the Senate and within the various industries. As the article by Ms. Harmon points out, there are these differences. I say this because until the differences are resolved, certainly no legislation will pass this year. I hope everybody will understand that. Those who have to advise their clients, you can advise them without a lot more consensus. No legislation will pass this year.

The entertainment industry certainly has not fully made their case, but the high-tech industry hasn't either. And if you have a case where the cases haven't been made definitively, then I don't think the Congress can act.

The challenge of protecting music and motion pictures and sound recordings and computer software and other copyrighted works in digital formats has been the focus of the Judiciary Committee's sustained attention over the past few years. I have worked in close partnership with Senator Hatch and other members of this committee to keep our copyright laws up to date.

We want to protect the rights of creators. We also want to ensure that consumers enjoy a vast selection of new and different educational, entertainment, and other copyrighted products. We also appreciate, having focused on these issues for so long, that new technological developments pose new challenges about how to protect copyright works and create new business models to deliver those products to customers securely, and so forth.

New technologies often initially at least appear to trump intellectual property protection, but we have also found in the end they many, many times open new opportunities for artists, new choices for consumers, and often business models have to change accordingly. Protecting intellectual property, which has been within the jurisdiction of this committee since establishment in 1816, under another Vermonter as chairman, involves far more than arcane legal issues and requires a careful balance among the rights and interests of consumers, creators and innovators.

We were well aware of these new challenges in 1998 when Senator Hatch and I worked closely together on the Digital Millennium Copyright Act, the DMCA, to advance the goals of protecting digital copyrighted works and promoting the development of innovative technologies.

At the time, this new law was praised by Jack Valenti, of the Motion Picture Association of America. Mr. Valenti is one of the most respected voices up here on Capitol Hill and he said that "offering intellectual property the full weaponry of the law to protect voyages in cyberspace from thieves who have previously determined that stealing creative works is very rewarding and very low risk."

A core provision of the DMCA barred the unauthorized circumvention of technological measures used effectively by content owners to prevent unauthorized access to copyrighted works. It left to the private sector the important decisions of what technological protection measures to develop and use to protect digital works or whether to use any protection measure at all.

Technology has been the bane of content owners who are rightfully dismayed at the rampant online piracy of valuable works. I can't overemphasize how concerned all of us are here to think of people with copyrighted works that are stolen. But technology has also been pivotal to their protection. Since passage of the DMCA, great progress has been made to develop technical tools to protect and manage digital rights.

Multi-industry groups involving technology companies, consumer electronics companies, move studios and other content owners have developed technologies to protect digital content delivered to consumers on DVD and CD, over satellite, cable and broadband systems, and over the Internet.

Content owners are using these new digital rights management tools to develop and experiment with new business models for delivery of content to consumers. In the past few months, new sites like Pressplay and Musicnet have offered legitimate sources for Internet users and music lovers to access music online, protected by digital rights management technology that has been chosen and suits the needs of the owners. Today, we are going to see Mr. Taplin's Web site for consumers to enjoy video on demand, also protected by digital rights management tools that fit his business model and protect the movies from unauthorized copying.

But it is not a perfect world, and three significant gaps in protection of digital works remain. First, movie and TV programming owners are concerned about the theft of their digital works distributed in unprotected over-the-air broadcast, the so-called "broadcast hole." This gap in protection has important policy implications, since the lack of copy protection for digital broadcasts poses the risk that high-quality, digital video content will only be available on cable or satellite, where digital rights management technology is available.

Some content owners have warned that this could lead to a decline in high-quality content available on free over-the-air terrestrial broadcasts. The same multi-industry group that successfully developed the copy protection system used on the DVD is working on technical specifications for a "broadcast flag" that adds bits to broadcasts to prevent redistribution online.

Second, content owners are concerned about the audio-visual content delivered "in the clear" to the analog sets that are a staple in American households. They are concerned about them being converted into unprotected digital format and posted on the Internet for free downloading. The most promising technical solution for this so-called "analog hole" appears to be watermarking copy control technology, and there have been a lot of multi-industry meetings on that.

Finally, all content owners are concerned about peer-to-peer distribution services that allow the downloading of vast selections of valuable content for free. The hard reality is that unless the con

tent is protected at the outset of the distribution chain, I am not aware of any easy technical solution to stop online piracy over these systems, other than tough enforcement of the laws.

So despite the strides that have been made over the past few years to find technical solutions that protect digital works in a variety of distribution channels and forms, some are now telling the Congress that progress in finding technical solutions to the remaining gaps in protection are at an impasse. As a result, they are seeking congressional intervention to give the information technology companies a limited time to find solutions, or else turn the entire job of developing digital rights management systems over to a government agency. That strikes me as wrong-headed.

In an era when technology is changing so fast, to think that we are going to, by government fiat, determine what that is going to be, we will be back to the same kinds of things that slowed the development of good TV reception and a lot of other things.

As I cautioned when the Hatch-Leahy distance education bill passed last summer, the copyright owners are a diverse group and some may want more flexibility. A government-mandated technical standard may produce a one-size-fits-all technology that may not suit the purposes of all content owners and may end up stifling innovative new technologies and implementations. Such a technology will not pass the U.S. Senate. There is no guarantee that the government agency will select the best technology to become the American standard, or in any shorter time period than the voluntary, industry-led process currently underway.

America's creators, innovators and consumers have and will continue to gain a great deal if the private sector works cooperatively to ensure that digital content can be distributed efficiently and securely. In my view, the private sector is best situated to guarantee that innovation, both technological innovation and creative innovation, continues without limitation or inhibition.

I remember some of the communications systems that our Government has put together for everything from Air Force One on through, and great talk about the millions of dollars spent and good they were, and usually they were about one-quarter as good as what they could have bought off the shelf in any company in America.

Government regulators are simply not close enough to the marketplace to be in the best position to craft the kinds of standards that will protect the vital and vibrant asset that is given to consumers around the globe by America's entertainment and copyright industries.

So we will keep on working on this. Senator Hatch and I would ask that senior executives at media, information technology and consumer electronics companies get more involved in the discussions underway about digital rights management systems and make sure that the people participating in those talks meet on a regular basis. We urge you to make sure that they have the appropriate level of seniority, know-how and experience to keep the negotiations moving forward and not simply have negotiations for the sake of having negotiations.

You may want to have monthly conference calls with your peers, whatever works best, but have people that can actually give an an

swer. I hope you will be in touch with each industry sector leader to make sure that we are doing something that is timely, consumer-friendly, technically feasible, and cost-effective. Ms. Rosen and Mr. Valenti and others have been briefing us about these discussions for years. I have taken part in some of them. I would hope you could send Senator Hatch and me regular updates on what you are doing.

We have set up a new page on the committee Web site to post these progress reports. You see them over on that screen, and I would hope that people would use them. It is called "Protecting Creative Works in a Digital Age" and it can be found at www.judiciary.senate.gov. Senator Hatch and I have worked hard on this and we want your comments.

For those are following this debate, we have also provided links to relevant legislation and committee hearings. We have an e-mail address where comments may be sent and we are going to post some of these comments. I am doing this to make this as available as possible, not just for those who are within this room, but whether they are sitting in Provo, Utah, or Bethel, Vermont, or anywhere else, they can do it.

[Information on the committee Web site follows:]