II. FAIR USE IS AN EXCEPTION, NOT A RIGHT

The fair use doctrine codifies nearly two hundred years of judicial experience in balancing the rights of copyright owners with social interests in research, scholarship and the like. The doctrine has worked work well to accommodate these goals while retaining incentives for creators to create and for publishers to invest in bringing new copyrighted products to market. It was for this reason that Congress adopted the principles of the fair use analysis into the copyright statute.

In recent years, with the emergence of digital technologies and the rapid deployment of the Internet, consumers have seen their ability to access, use, copy and transmit digital material vastly expanded. Consumers' use of these digital technologies has been a huge boon to the entertainment software industry, which benefited from consumers' increasing comfort with using computers and the Internet. Unfortunately, it has also led many computer and Internet users to abuse digital materials protected by copyright.

In 1998, Congress enacted the "Digital Millennium Copyright Act" (DMCA). The DMCA was the foundation of an effort by Congress to implement United States treaty obligations and to move the nation's copyright law into the digital age. The DMCA implements two 1996 World Intellectual Property Organization (WIPO) treaties: the_WIPO Copyright Treaty and the WIPO Performances and Phonograms Treaty. The foundation of this effort was to make digital networks safe places to disseminate copyrighted works for the benefit of consumers and copyright owners. Specifically, the treaties require legal prohibitions against circumvention of technological measures employed by copyright owners to protect their works. Congress determined that current law did not adequately protect digital works and that to promote electronic commerce and the distribution of digital works, it was necessary to provide copyright owners with legal tools to prevent widespread piracy. As a result, the DMCA implements the treaty obligations by creating new prohibitions in title 17 on the circumvention of technological protection measures that protect access to a copyrighted work and the manufacture or sale of devices that permit such circumvention.

The most common critique of the DMCA has been that its enforcement constrains the exercise of fair use "rights." However, no such rights are defined in the copyright statute, nor have any such rights been identified in U.S. case law. What U.S. law does provide for, through its codification of the fair use doctrine, is a certain degree of flexibility with respect to certain uses of copyrighted works that, although they may be infringing, may qualify for an exemption for the people engaged in such uses. This is the balancing mechanism that Congress wisely adopted and has served the communities of copyright holders and consumers so well over many years.

Congress continued to retain the balancing of competing interests when legislating in the area of copyright protection. When Congress enacted the DMCA, it balanced the new provisions against circumvention of copyright protection measures by ensuring that consumers would continue to have the ability to make non-infringing uses of copyrighted works in the digital environment. Congress created a tri-annual rule-making process to be conducted by the Librarian of Congress in conjunction with the Copyright Office to determine whether non-infringing uses of copyrighted materials are being harmed or threatened as a result of the circumvention prohibitions in the DMCA and to formulate exemptions as necessary.

Since the DMCA was enacted, two rule-makings have been successfully conducted. In each rulemaking, the Copyright Office held numerous hearings around the country, reviewed evidence and testimony from hundreds of interested parties and considered numerous proposals for new exemptions. In both proceedings, it found evidence that certain users were not able to make certain non-infringing uses of certain classes of works that it deemed, on balance, likely to benefit certain consumers and unlikely to impact copyright holders. As a result, the Librarian issued exemptions for such uses of those classes of works from the prohibition against circumvention of technological protection measures. Specific to the entertainment software industry, exemptions were granted for 1) malfunctioning or old computer programs failing to permit access and 2) video games in obsolete formats to the extent libraries and archives wish to make preservation copies.

Unfortunately, because of the use of the term fair use “rights" in attacks on the DMCA, fair use and the DMCA are often contrasted as reflecting oppositional doctrines. Some point to recent cases, such as efforts to break the encryption of DVD movies and the well-publicized DMCA criminal case against a Russian programmer accused of circumventing the copy protection for Adobe System's e-books, as reasons to re-examine fair use. However, neither case has anything to do with that doctrine. In both cases, the defendants were charged with trafficking in tools that strip off encryption and leave formerly protected material "in the clear" for any use, fair or

piratical. In fact, both fair use and the DMCA reflect Congressional efforts to adopt a level of protection for copyright, balanced against certain uses by consumers that may qualify either as exempt under fair use or non-infringing under the DMCA.

III. WHAT EFFECT DOES FAIR USE HAVE ON THE VIDEO GAME INDUSTRY AND ITS
CONSUMERS?

In our view, any debate in Congress over these issues should be predicated on a complete understanding of the ways the entertainment software industry has sought and succeeded in meeting the legitimate needs of our consumers. The video game industry is a leader in successfully meeting consumer expectations for access to, and use of, video game content.

Our industry has always been digital and did not need to convert from older formats to the digital environment. As a result, entertainment software companies have, for years, been leaders in developing creative business models that provide consumers a wide array of options to sample and play games. Without built-in marketing vehicles like radio, film trailers, and music television, the video game industry has had to develop innovative marketing strategies to generate excitement in new game products. As a result, the industry has used a variety of approaches to allow consumers to sample and play parts of games and, in some cases, entire games prior to purchasing:

• Rental: Under federal law, console video games are the only form of software that may be rented without the permission of the copyright holder, and over the years video game rentals have become a big business for retailers, allowing millions of people to play games without purchasing them and generating nearly $7 million dollars at retail in 2004.

• Game Websites: Our companies routinely make "levels" of games available for free download on their own company sites, or through independent game websites. Through these sites, consumers can enjoy free access to games for a period of time to play and to sample prior to purchase.

• Demo Disks: Game companies provide several levels of games to publishers of gaming enthusiast magazines prior to or soon after release in the form of CDROMs that are inserted into the game magazines. From these demo disks, consumers can then sample literally dozens of new and popular games for free on their PCs.

The video game industry has developed additional means and technologies to deliver game product to consumers for use in a variety of formats to accommodate different consumer preferences:

• Massive Multiplayer Online Games: An entire gaming culture has been built around massive multiplayer games involving hundreds of thousands of individuals. Consumers pay a monthly subscription fee, usually between $10 and $15, to play with and against players from all over the world.

• Free Games: More than 30 million Americans now play board, card, trivia, and other casual games online at least once a month, typically for free.

• Pay to Play: Other games are available online to play for an hourly or daily fee. Episodic Games: Some games are delivered to consumers in episodes, with players paying a fee to receive each new level.

The entertainment software industry has a strong and proactive track record in voluntarily providing information about our products to customers. Consumers of video games have known and accepted for years that video game hardware systems and computer and video game software are copy-protected in various ways. For example, there is no legitimate expectation on the part of consumers to copy a PlayStation game for use on a GameCube or an Xbox, or to copy a PC game for use on a dedicated game console. Our industry's consumers know that the games they purchase are embedded with certain technological restrictions. The use of technological protection measures has not interfered with the entertainment software industry's ability to meet consumer expectations with regard to access, play, portability, and ability to make full use of a game title.

A key factor to bear in mind is that game publishers are able to meet consumer demand for game products in these different forms and modes of access through the use of technologies that permit qualified or conditional access. Without such technologies, and most importantly, the ability to protect the integrity and use of such technologies, game publishers would be unable to respond to the increasing diverse consumer demand for game software on these many different platforms and modalities.

The protections afforded by the DMCA are essential to the vitality and continued growth of the entertainment software industry. It prohibits: 1) the circumvention, or "hacking," of technological measures that game publishers use to control access

to and/or prevent piracy of their products, and 2) the development and distribution of tools to enable such hacking. Without this protection, the development and digital distribution of new game products would become an exceedingly daunting proposition because publishers would be placing at considerable risk the tens of millions of dollars spent in developing and marketing game products.

Because of the nature of the game software business, technological protection measures are a critical element of game publishers' ability to distribute and market their products. Unlike some of the other content industries, where products either pass through a sequence of media or enjoy prolonged life cycles, the active sales cycle of a new game release is often only a few months long. It is therefore critical that the game industry provide its products maximum protection from piracy during the short window in which they have to sell copies of their games after release and recoup the millions of dollars invested in the development and marketing of these game products.

This is the reason that our industry has invested heavily in technological protection measures, as these help to limit the damage that game publishers suffer from pirate versions of their games. For example, video game consoles have built-in access controls designed to prevent the playing of counterfeit versions of the games. These self-help protection methods act as "digital locks" that regulate unauthorized access to the game content. The DMCA's legal protections for these measures provide additional remedies for our industry to use against those who would undermine the use of these measures by promoting their circumvention.

Unfortunately, game publishers' technological protection measures are often circumvented and an unprotected version of a game may become available in the days following its release. The resulting copy is a perfect copy that can be available for any purpose, not just non-infringing uses. In the digital world of today, the "single copy" will quickly become thousands (and ultimately, millions) of equally high-quality copies distributed instantly around the world. Billions of dollars worth of pirated entertainment software products are present in worldwide markets today and there are illegal devices such as "mod chips" and "game copiers" which circumvent access controls and allow for play of counterfeit games.

The entertainment software industry remains concerned about attempts to chip away at the protections afforded by the DMCA and other statutes in the name of fair use. As noted earlier, the DMCA provides those interested in seeking exemptions to the application of its circumvention provisions with a process for doing so. Many have taken advantage of the last two rulemaking processes to proffer suggestions for exempt uses and some have obtained the exemptions they were looking for. Indeed, a new DMCA rulemaking process has recently begun and new proposed exemptions will undoubtedly be considered. The process works; there is no need to undermine the DMCA or other applicable statues at this time.

Those who seek to weaken the DMCA's anti-circumvention provisions in order to promote so-called fair use "rights" may not be aware of the dangers that this poses to copyright holders, particularly the entertainment software industry. No technology exists to ensure that circumvention is done for only legitimate or non-infringing purposes. Any technology or device capable of "enabling significant non-infringing use" may also be capable of permitting rampant piracy. More to the point, should Congress enact proposals to allow circumvention for purposes of making fair use or the making and distributing of circumvention devices for purposes of making fair use, "mod chips" and "game copiers" will be legal and this would be devastating to the video game industry.

IV. CONCLUSION

The ESA and its members strongly endorse the Congressional judgment that led to the codification of the Fair Use doctrine in the U.S. copyright statutes and the enactment of the DMCA. Each reasonably accommodates the needs and interests of copyright holders and the consumers of their products. We believe that the marketplace is where legitimate industry and consumer expectations over product use or access should be resolved. The entertainment software industry is a strong example of this marketplace principle—an industry whose products include protection measures to prevent unauthorized copying and distribution and whose positive relationship with their consumers since the inception of the industry has made us the fastest growing segment of the entertainment industry.

As an industry that uses technology extensively to meets the challenge of everchanging consumer demands, our industry would be unnecessarily and unfairly harmed by legislation aimed at altering the delicate balances embodied in Fair Use and the DMCA. Accordingly, we urge Congress to reject any efforts to erase the legal protections on which our members rely to bring innovative new entertainment

software and technologies to the marketplace in forms and modalities designed to produce the highest levels of consumer satisfaction.

Mr. STEARNS. Thank the gentleman.
Mr. Aiken?

STATEMENT OF PAUL AIKEN

Mr. AIKEN. Mr. Chairman, I am the Executive Director of the Authors Guild, the largest society of published authors in the country and we have a 90-year history of contributing to debates before Congress on the proper scope and function and copyright law. It is an honor and a privilege to be here today for the Authors Guild to continue to serve that role before this committee.

When people discuss policy issues about copyrights, they often talk about balancing the public's interest against that as a rights holder. The public's interest is frequently cast in terms of the public domain. As is the overriding public benefit of copyright is the creation of materials that can be used for free. The public domain does provide a benefit to society but that is not the primary means by which the public benefits from copyrights, not by a long shot. Copyright allows authors and other rights holders to work in a free market economy. Copyright transforms author's creative efforts, their investment of countless hours of work on their manuscripts into marketable goods, licensable products. A fortunate and talented minority of prospective authors find publishers for their works. A published book of course is no guarantee of success. The authors and publisher's investments may be for naught but authors and publishers accept those risks and with a good book, some luck and a bit of marketing skill the authors and publishers investments will pay off in the marketplace and readers will value the book. That book and other books like it, the books that readers value, the books that the public, academic, and corporate libraries choose to acquire for their collection are the primary public benefit of copyrighting. I am speaking now of the book publishing industry but the same paragon applies to the newspaper, magazine, music, movie, and software industries. It is the products that result from the market created by copyrights that are the fundamental and appropriate public benefit of the copyright system that primarily and powerfully fulfills copyright's constitutional purpose of promoting the progress of science and the useful arts.

It seems so obvious but people seem to lose their bearings when discussing copyrights. There is a market for food in this country which functions pretty well. No one seriously doubts that there is a public good in the existence of this system that one has to pay for a sack of potatoes does not mean that there is not a tremendous value to the public and the investments and the efforts of the farmer, distributor, and grocer in getting those potatoes to the store. We may wish those potatoes were cheaper, we may even want them to be free but none would argue the public benefit of a market for food is dependent on the availability of free potatoes.

So it is with public domain. Public domain is a fine thing but it is and always has been merely a nice byproduct of the copyright system. The real public benefit of copyright easily 90 percent of the value is the creation of progress promoting rights that the marketplace values.

What does all of this have to do with fair use? The same sorts of arguments are brought to bear in fair use debates. We are told essentially that in order for copyrights to fulfill its constitutional purpose and provide a real public benefit, we have to make sure that their use is adequately bought. This misapprehends primary value of copyright and the role of fair use in the copyright system. Fair use has traditionally helped define the boundaries between commerce and free expression. Between the commercial incentives secured by copyright and the rights of free expression protected by the first amendment.

Section 107 mediates between protected expression and free expression by setting forth four factors for the court to consider whether use is fair. Factors intended to permit the except, you know, copywriter rights needed for new creative expression so long as the effect on the commercial market for the work is minimal. And unfortunate use, result of the use of four factors to determine the balance of fair use is that fair use appears to be a bit mushy. Advocates of all stripes can and do read into fair use what they care to read into it.

Search engine firms have discovered books. All the major firms now have book digitalization's under way. Google is looking at hooking with major American libraries and one British library in its massive book scanning and storage effort. Some of these libraries are offering Google only public domain books but the University of Michigan and reportedly Stanford are offering up works still protected by copyright. Google seems to have figured something out. There is a demand for searching these books, a demand that warrants the investment of a reported $200 million, a demand that Google is determined to satisfy because Google is a sensible profit seeking enterprise believing its investment will pay off and increase visitors to its sites and increased ad revenues.

Google senses a competitive advantage in making copyrighted books searchable but Google says that is copying of these books, that its scanning of countless copyrighted volumes, and using optical character recognition technology to digitize the text of those works to create files to assemble into a new unimaginably vast data base that all that copying and use of these works would be fair use so it does not need a license from anyone for this copying. For good measure, it is handing over a digital copy of its to its partner libraries and telling them it is okay to post the works on their website. That too it appears is to be considered fair use. And since no license is needed in Google's view, Google does not have to give rights holder contractual assurances of the security of the data base. Could a back up tape go straight from Google or one of its partner libraries unleashing a couple hundred thousand copyrighted works sent to the internet? It sure seems possible. We will have to trust that that is under control. The list of companiesMr. STEARNS. I just need you to sum up.

Mr. AIKEN. Sure. That lose critical data grows daily. We do not believe the courts will share Google's radical expansive and devastating view that the scope of fair-of the scope of fair use. At some point, we believe that Google will do the right thing and look licensing solution for the use it wants to make of these millions of works. That would be good news. A negotiated license could

to