minute sometimes-and AOL is the real exception; they really have been open in trying to build the industry. But some of their brethren have not been so forthcoming.

Senator CANTWELL. Mr. Hughes, did you want to make a comment?

Mr. HUGHES. Yes, Senator Cantwell. You had earlier asked where are we going to get the best solutions, and I think that that is a very legitimate question. I know that this is not an extensive discussion of that draft legislation that we have seen from Senators Hollings and Stevens, but Senator Specter pointed out that the decision about antitrust law in that draft legislation is to be made by the Secretary of Commerce.

Well, I used to be in the Department of Commerce and to the best of my knowledge we didn't have any particular expertise in that area. At the same time, while that expertise is in the Antitrust Division of Justice and the FTC, this committee in its oversight function should rely on the expertise you pay for in the Patent and Trademark Office, in the Copyright Office, in the information policy experts at the Justice Department and the science agencies, to watch whether the solutions that are being proposed by the private sector are maintaining the balance in copyright law that this committee has for so long and with so much difficult sought to maintain.

Senator CANTWELL. Thank you.

Well, I know as painful as these hearings might sometimes be, they certainly are illuminating. And no doubt, Mr. Parsons, as you have said, the products and services that the public is yet to reap the benefits of are incredible. And how they will help our economy and change our culture probably is not really known to all of us yet.

Thank you for persevering. I think the chairman probably said it, or Senator Hatch, but we will be continuing to monitor this issue. Maybe a little more progress would be made, I think, for the music industry if we had a hearing every 7 to 12 months. Maybe at the next hearing we have, we will have a little more of a report and a little more progress, but we thank you for being here today. The Senate Judiciary Committee is adjourned.

[Whereupon, at 12:33 p.m., the committee was adjourned.]

[Questions and answers and submissions for the record follow.]

QUESTIONS AND ANSWERS

Responses from Joe Kraus of DigitalConsumer.org to written questions following the Senate Judiciary Committee hearing regarding "Competition, Innovation and Public Policy in the Digital Rights Age: Is the Marketplace working to Protect Digital Creative Works" held on March 14, 2002

Questions from Senator Leahy

1. Consumer's interests and personal use rights are not taken into account by the interindustry groups working on solutions to the "analog hole" and the "broadcast hole". There are no consumer organizations at the table. This is the heart of the problem. Those people who purchase the products of both the content industry and the technology industry are not represented.

Consumers have historically lacked representation in many of the decisions that affect how they enjoy the media they legally pay for. For example, consumers had no voice in deciding that DVDs could disable the 'menu' button during previews on DVDs. Consumers had no voice when copy protection technologies for CDs were developed that denied consumers their ability to copy CDs onto their portable music players. Consumers were not represented when it was decided that DAT tapes could only be copied once (even if the voice on the DAT tape was your own). In general, consumers have not been allowed to participate in decisions that affect their daily lives.

This problem is occurring again. The new digital television standards as proposed by the BPDG working group have had no input from consumers. I would strongly urge Congress not to act on any recommendations from these groups as a result.

The 20,000 members of Digital Consumer.org believe that it is imperative that a proactive approach to consumer rights be taken by Congress. Congress should positively assert consumers' personal use rights through legislation in order to ensure that even when the consumer is not present at the bargaining table, their rights are respected and upheld. History has proven that without such an assertion, the consumer is usually on the losing end of the deal.

2. If the United States mandated that DRM technology be placed in every digital device and the international community did not go along I believe there would be several negative consequences.

First, I believe that American consumers would suffer. The primary reason is that the rest of the world would be more free to create innovative products that used a citizen's legally acquired media in creative ways that were not anticipated by the DRM standards bodies (much in the same way that no one could have predicted VCRS at the invention of

television). The DRM technologies would not allow these new uses (because they were not anticipated), and American consumers would be denied access to these new products.

Second, I believe that a government mandate for copy protection technology would be detrimental to American competitiveness. It is likely that foreign consumers would not want to buy technologies which incorporated restrictive technologies, thereby reducing the market for American products. If American companies were to produce two lines of products this would undoubtedly increase expense.

Third, as the question suggests, one likely outcome is that content owners will come back to Congress to complain of the "international hole”. In 1998 media companies promised that the passage of the DMCA would lead to a flood of digital content. A quid pro quo was made: give more protection to the content industry and American consumers will benefit. American consumers are still waiting for the promised torrent of legally available content. Today, media companies are at Congress' door asking for more protections. If 1998 provides any example, it is that after winning this latest round of legislation, the content industry will be back yet again to complain that the final hurdle to digital content is the closing of the "international hole". All the while, consumers will continue to wait.

3. The intersection of privacy and digital rights management is a large issue. Consumers have been unpleasantly surprised as several companies have been implicated in monitoring consumers' media behavior without their permission. For example, Microsoft DRM solutions monitor the songs and videos that a user watches (http://www.msnbc.com/local/sci/a83472.asp).

In response to the second half of the question, our firm conviction and the conviction of over 20,000 citizens of digitalconsumer.org is that the privacy of citizens with respect to their digital content must be protected along with other rights to personal use. Without a positive assertion of consumer rights through legislation, consumers are at the mercy of technical solutions that (if history serves as any lesson) will be far more restrictive then they expect. Today's examples - DVDs where previews cannot be skipped or CDs that can't be copied to a portable MP3 player - indicate that media companies are not interested in protecting a consumer's fair use rights. Until a consumer's rights are positively asserted any DRM solution is likely to seriously disappoint and disadvantage the citizen.

4. The government should not have a mandated "back stop". Market forces are providing enough incentive to bring technology companies and Hollywood together to produce solutions. These industries need one another and interference in the process merely disadvantages one side unnaturally (whomever the government tends to favor).

Internet technology moves incredibly quickly. A government-mandated “back stop” would force Hollywood and tech companies to come to a hurried compromise that would fail to take into account all possible future uses (just as the DMCA failed to take into

account important uses such as allowing blind people to extract the text of electronic books). Once the compromise was frozen in legislation, technology changes would quickly make it obsolete.

If the government is to apply any 'back stop', the backstop should not be to protect either the technology industry or Hollywood, but rather the citizen.

5. What is delaying broadband? First, I would ask why is the government in the business of promoting broadband? Why is the government deciding that deployment is going too slowly? This is a market issue. If consumers aren't buying broadband, why is it the governments business to encourage them?

Second, the logic of the content industry is flawed. They contend that if technical standards for copy protection are mandated then they will unleash a tidal wave of content online. There are two problems with this argument. First, noted computer security experts believe that no system can prevent piracy. Professional pirates will find a way around any copy protection system. We'll end up where we are today, in an insecure world with media companies clamoring for more protection; but this time, consumers will have even less flexibility to use the media they buy. Please refer to Professor Ed Felten's written testimony to the Judiciary Committee Hearing of March 14 for more detail. Second, Hollywood has made this promise before. In 1998 Hollywood came to Congress with a promise: pass the DMCA and content will flow onto the net. Instead of content flowing, the media companies have used the law to stifle competitors by bringing lawsuits against innovative companies while consumers have been left with no viable legal alternatives to the digital downloading of content. We believe that the Hollings approach, if approved, will have a similar outcome.

6. First, we commend this question's title: "fight piracy with legitimate offerings". We believe one reason for the popularity of illegal copying of music and movies is the dearth of commercially viable legal alternatives. MusicNet and PressPlay have serious flaws: they lack deep catalogs and they don't provide consumers with the flexibility they expect from their music (i.e. in many cases they can't transfer music to portable players, or in the case of PressPlay their music “expires” as soon as they stop paying the subscription fee). Consumers are voting with their feet and not patronizing these services. I believe this is not primarily because the competition is free, but because the competition delivers what consumers expect: they can find the music they're looking for and once they find it, they can do with it what they expect (i.e. take it to the gym, listen to it in their car, etc). As this week's Economist magazine (March 21, 2002) accurately observes, "the meaner the industry is over what people can do with the [content] they pay to download, the more the studios' own services will be a second-rate alternative to piracy"

It is instructive to contrast the approach of the media companies to the approach of the software companies in the digital world. As we've heard many times in this forum, media companies claim to lose $3.5B per year to piracy. Software companies claim to lose $12B

per year. Therefore, one would logically expect the software companies to have the same reservations about the digital medium that the media companies have. One would expect that the software industry would be clamoring for government mandates like the media industry. One would expect that the software industry would be shying away from digital distribution like the media industry.

But the software industry does not behave like the content industry even though they suffer nearly 4 times the piracy. Unlike their media company counterparts, software companies have generally chosen to embrace the digital medium. A huge number of software titles are available for digital download. Once downloaded, those software programs behave as a consumer expects. Simply put, they behave like software bought at the store.

We believe it's important to ask why the software companies who lose so much more to piracy embrace the digital medium while the media companies claim that their business will be ruined if they embrace digital delivery in its current "insecure" state?

Along those same lines, it's important to ask why the Business Software Alliance (an organization dedicated to detecting and stopping piracy) does not support government mandated technologies for copy protection. I believe the reason is that the software industry has been down this path before and has found that it does not work. In the early 1980s, many major software companies decided to implement strong copy protection schemes on their products. They discovered two things. First, their schemes did not stop piracy. Dedicated commercial pirates circumvented the copy protection. Second, their copy protection alienated and infuriated paying customers because the copy protection altered the expected behavior of the software. For example, consumers could not back up their software, and if a consumer upgraded his computer by buying a new one, they could not re-install the software on that machine. Software companies discovered that treating all customers as potential criminals was bad for business; it didn't stop theft and it alienated the people who actually paid for their products.

Instead of forcing technical solutions that inconvenienced paying customers, the Business Software Alliance shifted to a strategy of actually pursuing pirates. Today the BSA investigates piracy allegations, conducts raids, and assesses large fines on violators. Through the enforcement of existing law, the BSA has been extremely effective at diminishing piracy in the United States.

In short, computer security experts believe and software history teaches that technical solutions will not solve the problem of piracy. The only way to reduce piracy is to engage the market by offering viable legal alternatives to consumers and to pursue the pirates, not the average consumer.

7. Unfortunately, the answer to the question is yes. DRM schemes coupled with anticircumvention provisions have the potential to extend copyright control beyond the actual protection given under the Copyright Act.