gaps in protection for digital content, and how the interests of consumers are being addressed.

These progress reports are important not just for this Committee but for many stakeholders, including Internet users and consumers of digital content. The Committee has set up a new page on the Committee Web site to post these progress reports. The page is called "Protecting Creative Works In A Digital Age: What Is At Stake For Content Creators, Purveyors and Users?" It can be found at [www.judiciary.senate.gov]. For those who are following this important debate, we have also provided links to relevant legislation and Committee hearings. We hope to hear from many stakeholders, consumers and Internet users on this issue and, particularly, as progress reports are made and posted. We will have an email address where comments may be sent and portions of those comments will be posted for perusal on the site.

We appreciate that complicated problems do not lend themselves to quick and easy solutions, and we stand ready to help move these private sector discussions to a timely conclusion. We know that legislation may be necessary to implement some of the intra-industry agreements that are reached and we want to be in a position to move promptly and thoughtfully when the time is ripe.

Chairman LEAHY. I turn to Senator Hatch and ask him for his comments.

STATEMENT OF HON. ORRIN G. HATCH, A U.S. SENATOR FROM THE STATE OF UTAH

Senator HATCH. Well, thank you, Mr. Chairman. We have long worked together on legislation dealing with copyright and other intellectual property laws. We have all worked hard to balance the interests, and done so in a bipartisan fashion. You have cited the landmark Digital Millennium Copyright Act, which clarified the application of copyright law to the digital world in a way that fostered the growth of technology and which sets the floor upon which today's discussion really builds.

Our intellectual property laws govern property rights that inhere in the creative work we enjoy over the Internet, over the television, radio, cable and satellite systems. Copyright and other intellectual property laws give creators the incentive and protection they need to make their movies and music and stories and artworks available to us.

In making intellectual property policy, technology continues to challenge us, but we have attempted to meet those challenges. In passing the Digital Millennium Copyright Act just three years ago, we sought to ensure that copyright owners would make their works available on the Internet by clearly applying the protection of copyright law to the digital world in a way that also allowed technology to grow and develop.

Our committee also worked with the Commerce Committee to take advantage of new technology to make local television signals available over satellite in the Satellite Home Viewer Improvement Act-an advantage I hope will not be undermined by anticompetitive mergers.

This hearing today discusses issues related specifically to additional technological protections for copyrighted content transmitted over digital networks and the Government's role. There are precedents for legislation in this area. Specifically, the Audio Home Recording Act required all home audio recording device makers to conform to the Serial Copy Management System, which allowed unlimited first-generation copying of music but stopped second-generation copying. The Digital Millennium Copyright Act included a

provision adopting the so-called Macrovision standard for copy protection of analog videotapes in all video cassette recorders, while ensuring that certain programming continues to be freely available for copying by television viewers.

The lesson, I think, is we have been here before and we have met the challenge when technology has thrown down the gauntlet. I think it is your preference, however, as well as mine, that the market work these issues out, if it can. On the other hand, when it cannot, Congress can facilitate a resolution that ultimately benefits consumers and creators, the studios, and technology companies.

With respect to market resolution of the specific issues at hand, there seems to be something approaching consensus on the technology and use of the so-called "flag" in digital broadcasts that can allow digital home recording of broadcast programming, but will stop further redistribution of those recorded programs outside the home network to the general public via the Internet.

Plugging the "analog hole," as it is commonly referred to, is more problematic, but likely solvable. This is the problem that occurs when a digital file is converted to an analog signal for viewing or listening and loses any digital instructions that may have been included in the original digital packet. Finally, there is almost no consensus on a technical or policy front with regard to Internet filesharing or general Internet distribution.

While philosophically we agree that the market, with its business and technical expertise, ought to try to solve these issues, I think there is a useful role for Congress, too, in reaching or implementing creator- and consumer-friendly agreements in at least three ways.

First, we can help set deadlines and push for agreement where there may be deadlocks that ultimately hurt both artists and consumers. Second, we can help set balanced objectives and priorities. And, third, we can codify consensus policies or minimum standards.

The growth of broadband opportunities for many of our constituents is stalled, and it may be helpful for Congress to encourage all parties to get agreement when it is best for the markets, consumers and artists. I also believe it is necessary for Congress to help ensure that consumer expectations will be more fully respected than they might otherwise be in private agreement.

For example, I would like to be certain that as new controls are placed on digital content that consumers are allowed to make legitimate personal copies, as they have done before, and use those copies as they have been accustomed to doing. Music fans want to take their music with them in the car, on the beach, to a party. Movie and sports fans want to watch on their big screens, not just on their computer monitors.

Now, let me state clearly as we discuss consumer rights and expectations that we all should not forget that consumers will have nothing to enjoy if there was not the incentive for artists and creators to develop entertainment content and share it with us.

Moreover, as the HDTV market has demonstrated, without digital content there will not be sales of digital electronic devices. As with many things, this is a balancing act, but if there is one thing Congress does regularly, it is balance interests, sometimes not very well.

Consumers want rich content. To get the creators of that rich content to share it in emerging interactive digital systems, they must be assured that destructive misuse will not undermine their businesses. On the other hand, consumers also want to use and enjoy that content with the advanced ease, superior quality, and enhanced enjoyment that the new digital systems will allow.

In another context, Mr. Chairman, I have said that if the media and technology companies will focus on the people at the two ends of their networks-the artists and the audience they can benefit for everybody from end to end. We can learn from the lessons of the Napster case. This has been a cautionary tale to those who would leave the issues to the law of the jungle and protracted litigation.

I should also say that you certainly don't want litigation right now with our courts literally half empty in certain circuits. I just couldn't resist.

Chairman LEAHY. I agree with you. I wish you had allowed some of those nominees to go through during the six years you were chairman.

Senator HATCH. We never had a situation as bad as it is now. I should also say you certainly don't want litigation right now. This is something I would like to see us avoid. But I sincerely hope the ongoing music industry conflicts will not be replicated in the video context, which has been avoided to some degree by the slow rollout of broadband.

However the issues of the Napster case are resolved-I have been calling for years for a market-based, fair resolution to those issues that case may suggest that some involvement by Congress is necessary to ensure that technology and intellectual property work together for consumers and creators.

Finally, we must remember that the Internet is international. As ranking member of the International Trade Subcommittee of the Finance Committee, I know too well that intellectual property is our number one export, and we need to do all we can to ensure that our trading position remains strong and that our trading partners work with us in using digital networks as avenues for legitimate trade. We must continue to ensure that foreign countries will provide adequate and effective protection and that their laws are not eroded as they face new challenges posed by new technologies. In conclusion, I also want to reemphasize my and Chairman Leahy's interest, and others on this committee, in call for ongoing informational updates from the negotiating parties and for input from everyone who has an interest in these issues via our Web site. I want to encourage the parties-the content community and the information technology community-to continue and redouble your efforts to find common ground. These are complex issues and with the right resources I am confident that you can resolve all of these problems.

I think it would be helpful for us to get a variety of views and regular updates on the ongoing private discussions. I should say that if this drags on to the point where it hurts intellectual property, creators and consumers, then I think we here on the committee will introduce balanced legislation.

So, Mr. Chairman, I look forward to the testimony today and I want to thank all of those who are testifying.

Chairman LEAHY. Thank you very much.

Our first witness will be Craig Barrett. He is Intel's chief executive officer. Mr. Barrett had a very distinguished career as a teacher, an author and academic. I understand, Mr. Barrett, that you are the author of a college textbook on materials science that is used today throughout the country. So we feel very fortunate to have you here, and please go ahead. Your whole statement, of course, will be made part of the record, but go ahead and hit us with the points you want us to remember.

STATEMENT OF CRAIG R. BARRETT, CHIEF EXECUTIVE
OFFICER, INTEL CORPORATION

Mr. BARRETT. Certainly, Senator. If I had a digital recorder here today and I could have recorded yours and Senator Hatch's comments and then obtained your copyright license to play it back into the record, that would suffice to give my present position.

I really have four points I want to make. First of all, the hightech or information technology industry does care about intellectual property and copyrighted content. It is the basis of our industry, it is the lifeblood of our industry.

Second, the industries-the IT industry, consumer electronics industry and the content industry-are working together in a voluntary, consensus fashion to create technological solutions to copyright protection. I think that that process can continue effectively without broad Government mandates and will be the most effective way to move the technology forward and to protect content.

Third, I think you will continually hear that the basis for content protection is really protection at the source. Once content is delivered in a free, streaming digital format into the Internet, it is very difficult to recall it or protect it, and I will make a few comments about that later on.

Fourth, I completely agree with both of your comments that, in fact, this is a complicated issue where we have to worry about protecting intellectual property as well as protecting the rights and expectations of consumers as we move from an analog to a digital world. So there has to be some balance between content protection, copyright protection and consumer expectations, where we have educated consumers in the analog world as to what to expect. And now we move into a digital world and they probably carry the same expectations with them.

Just a very few expansive comments on those four points. First, the high-tech industry probably loses four times the dollar content that the content industry or the movie industry and the music industry loses on an annual basis to piracy. The estimates are $11 to $12 billion a year for the high-tech industry, primarily in software licenses which are pirated. That compares to about $3 or $3.5 billion for the content community. I think that gives a relative measure of how important it is to our industry to protect intellectual property.

Second, the IT industry has devoted an extensive amount of time, hundreds of millions of dollars, hundreds of man-years of ef

fort, working with the consumer electronics industry and the content industry to promote technical solutions to copyright protection. I have in front of me, if you would care to look at them, about three or four inches of technical specifications which are in the industry. These cover DVD audio, recordable media, and protecting content over home networks. You can go into any consumer electronics store such as Circuit City today and buy either content or equipment which conforms to these specifications. So over the last six years, we have been doing much more than just talking about the issue. Technical solutions are in the marketplace today.

The basis for these technical specifications are really protection of content at the source, and then simply not passing content on to equipment or facilities that do not respect the rights of the content owners. So if the equipment doesn't honor the rules, then the content doesn't move.

In the six years that the copy protection working group, comprised of the IT, consumer electronics and content industries, has been working, we have addressed many issues. As you pointed out accurately in your opening statement, we are working on terrestrial high-definition TV broadcasting and a probable solution there, including a flag to monitor that content and to protect that content. On solving the analog hole, we expect to have solutions proposed and tested within the next few months. And perhaps the biggest issue is the one you mentioned, which is the peer-to-peer issue of moving unprotected content from computer to computer. I will make a few comments about that later on.

This morning, I am pleased to be seated next to Mr. Parsons' chair, and hopefully he will show up in a few minutes. Being seated next to Dick is important from the standpoint that AOL Time Warner and Intel have worked very closely together in terms of technological protection of content over the years.

We firmly believe that copyright technical solutions are forthcoming from the technical working group. We firmly believe that in some instances there very well need be narrow, mandated Government involvement here, such as the ability to encrypt or put a flag in digital TV signals. But primarily we believe the consensual process among our industries is working, as evidenced by the technology we have already put in the marketplace.

I would like to make a few comments about the peer-to-peer piracy issue. Again, the core issue here is protecting content at the source. It is very difficult to protect unencrypted content once it is just a digital stream on the Internet, and completely stopping the piracy of unprotected content is very, very difficult for the mere reason that it is impossible to determine the difference between lawful content-home movies, home audio on the Internet and copyrighted content on the Internet.

There is no solution to this problem today, although the industry is working toward possible solutions. I believe there is no silver bullet here. It will be a combination probably of legal solutions, business solutions, technology solutions and legislative solutions.

There have been suggestions made that digital devices could continuously monitor content streaming on the Internet and only respond or only play protected copyrighted content back, authorized content. I think this solution is a bit simplistic. As I mentioned,