The BMI is a trade association representing approximately 80% of all companies in the United States engaged in the manufacture of books, which includes the pre-press preparation, printing and binding of books. I would like to thank the Committee for allowing me to testify here today on behalf of the members of BMI. At the outset, I wish to emphasize the general support of the BMI for H.R. 2223 and the need for a revision and modernization of the Copyright Law in the United States. With this in mind, let us consider an important provision of the bill which the BMI strongly supports and which has a great importance to the economic future of the book manufacturing industry in this country. SECTION 601, THE MANUFACTURING CLAUSE Since 1891, as the result of legislative compromise, there has been a "manufacturing clause" in some form under our Copyright Law. The present manufacturing clause is contained in Section 16 of Title 17 of the United States Code and is supplemented by Section 107. Basically, Section 16 originally required as a condition to copyright that books in the English language be manufactured from type set, plates made and by a process wholly performed within the United States. As the result of implementing legislation authorizing the participation of the United States in the Universal Copyright Convention of 1955, the manufacturing clause was weakened and resulted in the present version of Section 16 which generally provides that books by American authors, or by foreign authors, residing or domiciled in the United States, in the English language, as a condition of copyright must be manufactured and printed from type set, plates made and by process wholly performed within the United States. Section 601 of the bill represents a further liberalization of the manufacturing clause and constitutes a compromise version developed after long study and effort by the publishers, book manufacturers, trade unions and a succession of House and Senate Committees in previous sessions of Congress. Let us now consider the reasons for the desirability of Section 601 and a manufacturing clause in general. I. THE COPYRIGHT MONOPOLY A strange marriage of crafts is sheltered under the cloak of copyright, namely, authors, publishers, manufacturers and trade unions. The purpose of a copyright is to grant a monopoly in the sense the copyright takes away from the printer the power to control the multiplication and distribution of printable works. Indeed, it was against printers that the Statute of Anne,1 on which our copyright law was based, purported to protect authors. Thus, recognizing that the selection of a book manufacturer to produce copies of a copyrighted work creates an exclusive right to reproduce and distribute copies of that work is essential in understanding the impact of the manufacturing clause on our book manufacturing industry. In effect, the manufacturing clause allows the government to say to the publisher: "We will grant you a monopoly to sell and distribute this work, but as a condition of granting you that monopoly, we want you to have the product produced in this country by United States manufacturers and United States workers." Section 601 and the present version of the manufacturing clause impose a reasonable limitation on the power of the copyright owner to select and exclude who shall benefit from his monopoly. The Copyright Law grants the power of monopoly and the manufacturing clause as a part thereof, limits it, both in the public interest. Those who argue the elimination of the manufacturing clause under the guise of free trade misunderstand the concept of the copyright monopoly. Granting unlimited monopoly within the United States to foreign manufactured books obtained under the Universal Copyright Convention does not bolster free trade since at the same time, the requirements for obtaining a monopoly within the United States has been accomplished and hence, a restraint on domestic trade has resulted. Thus, this issue should not be solely construed as a classic confrontation between free trade and protecting domestic interests. The essential question is whether Congress may impose reasonable limitations and conditions on the grant 18 Anne, C. 19 (1710), Great Britain. The Manufacturing Clause of the U.S. Copyright Law, Copyright Office, Library of Congress, February, 1963. of a monopoly, namely a copyright, in order to provide domestic printers a limited measure of protection admittedly lost when a copyrighted book is manufactured by a foreign competitor. Recognizing that the manufacturing clause is not solely a free trade issue it should be emphasized that the needed protection for our domestic book manufacturing industry is not provided now, and is not likely to be provided in the future under the United States tariffs. Indeed, tariffs prior to February 1, 1967 had been minimal and on most books have been removed entirely as the result of P.L. 89-651 (October 14, 1966) and Presidential Proclamation No. 3754 (November 3, 1966, 3 CFR, 1966 Comp. p. 90) which implemented the "Florence Agreement" by the United States. It should be noted that the United States removed all tariffs on books and educational materials covered by the "Florence Agreement," including imports of these items from countries which to date have not signed the Agreements. During this decade, it should not be overlooked that foreign countries, while generally granting copyright protection to United States manufactured books, impose many kinds of import barriers, currency controls, and similar restrictive devices comparable to the manufacturing clause. Therefore, the existing manufacturing clause and the proposal contained in Section 601 are not an unreasonable limitation on the granting of copyright protection and would not present an undue burden on free trade. II. ECONOMIC JUSTIFICATION FOR THE MANUFACTURING CLAUSE The historical basis for the manufacturing clause was and still is economic. It is common knowledge that the cost of both skilled and unskilled labor in the book manufacturing industry in Europe and Asia is less than the fully compar able cost in the United States. We support the testimony of the International Allied Printing Trades Association on this point. In addition, it is important to note that in the printing industry in the United States, labor costs constitute a higher percentage of total manufacturing costs than in most other industries. As an example, a comparison of data reported by the Department of Commerce, 1972 Census of Manufacturing, indicates that production payroll cost in the book manufacturing industry equals 44.5 percent of total reported value added by manufacture as compared to only 29.7 percent for all U.S. manufacturing generally. In other words, production worker wage costs when related to value added by manufacture are 50 percent higher in bookprinting than the average for all U.S. manufacturing. Generally, our industry has a considerable quality and productivity leadership over foreign manufacturers. However, a number of European and Asian countries have begun to improve their manufacturing facilities through investment in advanced high speed equipment comparable or identical to United States technology and are capable of eventually matching their products with United States standards of service and quality. However, since our industry is really a service oriented industry that is dependent in large part upon the quality of our labor force which represents a substantial percentage of our manufacturing cost as demonstrated above, it is imperative to recognize that labor cost differentials are severe to our industry for competitive purposes. Further, understanding that our products are in a sense a unique service product, dependent upon our high standards of quality and service, it appears inconsistent to penalize our industry which must bear certain heavy "social costs" in the form of OSHA compliance, EPA standards, and other regulatory programs, by allowing foreign produced products manufactured under less expensive social conditions and wage differentials, to compete with our products in the United States. In view of the manufacturing cost advantage of foreign competitors in the form of differentials in United States and foreign labor costs, and hence destructive competition which our industry may not otherwise combat, the effect on our industry of an unrestrictive flow of foreign manufactured books into the United States would obviously be devastating. Section 601 would provide our industry with a limited and reasonable measure of protection against the clearly disparate economic situation. As mentioned earlier, economic justification is the main issue behind the retention of the manufacturing clause. This rationale was summarized by two previous Congressional Committees supporting an identical version of Section 601 as follows: "The real issue that lies between Section 601 and complete repeal is an economic one, and on purely economic grounds the possible dangers to the American print ing industry in removing all restrictions on foreign manufacturing outweigh the possible benefits repeal would bring to American authors and publishers." 3 We submit, the economic justifications responsible for the existence of the manufacturing clause under present law clearly exist today and support the proposed Section 601. III. THE IMPACT ON THE PRINTING TRADE LABOR FORCE It is undisputed that in the United States, labor conditions are far superior to those in foreign countries as was illustrated earlier by the disparity in wages between our industry and that of European and Asian countries. This high standard enjoyed by our labor force is obviously dependent upon a healthy and enduring industry, continuing capital investment and improvements. Our industry has always evidenced those qualities and all indicators point in that direction for the future. As discussed earlier, with tariffs gone, a repeal of the manufacturing clause will remove the only protection afforded our industry from devastating foreign competition. Without the manufacturing clause, investment and risk-taking would be discouraged and increased unemployment would result. It should be remembered that during the last decade, 51 book manufacturers have gone out of business, 23 have merged or been acquired and 3 are to be closed at a later date. The manufacture of books requires the purchase of very expensive printing equipment such as the high speed, long run webb offset press. But, at the same time, return on net worth in the industry has only been in a 5% to 8% range in the past decade. Thus, it can be seen that the manufacturing clause is important. Failure to economically compete in the marketplace caused by repeal of the clause will obviously cause a decline in the production of our industry with a corresponding reduction in the labor force employed in the manufacture of domestic books. This possibility unfortunately is real and may not be capable of reversal under current disparities between the production costs of our industry and our foreign competitors. Thus, in these times of economic uncertainties and under conditions where it is imperative that our skilled labor force be employed to meet our national commitments, it is clear that a reasonable protection for our existing domestic labor force in the form of the manufacturing clause contained in Section 601 should be retained. IV. EFFECT ON IMPORTS OF ENGLISH LANGUAGE BOOKS Based on available data, it is clear that the amount of foreign manufactured books imported into the United States is increasing at an alarming rate. In examining the eight-year period between 1967 and 1974, it is apparent that the value of imported books has increased at a considerably faster rate than domestic production as measured by the BMI Composite and the Standard and Poor's Publishing Industry Composite. Book imports of all classes have increased from $69.3 million in 1967 to $150.7 million in 1974 according to U.S. Department of Commerce figures. This represents a rise in market share penetration of imported books from 2.5% to 3.7% of the U.S. Market. And remember this all occurred with the limited protection of the manufacturing clause! The reason for this rapid increase is the growing practice of the United States publishing industry in investing or placing business abroad. In addition, it is also clear that although the present high ratio of exports of domestic manufactured books to imports of foreign manufactured books exists, a repeal of the manufacturing clause would change this situation quickly since foreign publishers traditionally have never used United States manufacturers. This of course may add to the current balance of payments problems and in addition, severely damage our industry. Thus, retention of the manufacturing clause contained in Section 601 is essential to insure the favorable ratio of exports of domestic manufactured books to imports of foreign manufactured books and the corresponding beneficial effect upon our current balance of payments situation. 3 House of Representatives' Report No. 2237, 89th Cong.. 2nd Session, October 12, 1966, at pp. 162-163; Senate Report No. 983, 93rd Cong.. 2nd Session, July 3, 1974, at p. 196. It is important to note that this Congressional review and conclusion spanned a period of eight years. thus bolstering a clear economic justification for the necessity of the manufacturing clause. V. EROSION OF THE MANUFACTURING CLAUSE As we mentioned at the outset, a manufacturing clause has been contained in our Copyright Law since 1891. The original language of this clause has been repeatedly liberalized and weakened over the years, with the latest revision occurring in 1954. The current language of Section 16 of Title 17 of the United States Code was the result of the 1954 liberalization. During the course of various Congressional deliberations on the general revision of our Copyright Law subsequent to 1954, the issue of repealing or weakening the manufacturing clause was considered. During this period spanning approximately 10 years, the publisher groups, major authors' group, and a number of indirectly interested fringe groups sought to have the manufacturing clause repealed. These proposals were repeatedly rejected and a compromise version of the manufacturing clause was adopted by a series of Congressional Committees with the agreement of the affected groups. This compromise version is now before this distinguished Committee embodied in Section 601 of H.R. 2223.* The major erosion of the manufacturing clause represented by Section 601 is the exemption for American nationals domiciled abroad for at least one year and the removal of the absolute loss of copyright protection upon noncompliance with the manufacturing clause. Other liberalizations are present including the increase to 2,000 in the number of books which may be imported under the exemption from the clause with an elimination of the special "ad interim" time limits and registration requirements of the present law, and an increase in the number of exemptions from the clause for specified types of use. Under subsection (c) of Section 601, importation of reproduction proofs would be permitted, as well as computer tapes from which plates can be prepared, representing a major liberalization of the manufacturing clause. It is therefore clearly agreed by the groups affected by the manufacturing clause that Section 601 represents a further erosion of its effectiveness. However, the compromise achieved in support of Section 601 is recognized by our industry, and in the spirit of mutual cooperation among the differing interests affected by this issue, and for purposes of legislative compromise, we strongly submit that section 601 should be favorably considered by this distinguished Committee. CONCLUSION Based on the above facts, we submit that a repeal or a further weakening of the manufacturing clause will have a disastrous effect upon our industry at a time when there is a necessity for an increased volume of printed material, increased production and investment demands and a skilled labor force to meet these demands. However, in the spirit of reform and recognizing the long and arduous history of compromise of differing economic interests concerning this issue, the book manufacturing industry herewith states its support for the present Section 601 as proposed in H.R. 2223, subject to a technical amendment and clarification in the Committee Report to be proposed hereafter. TECHNICAL AMENDMENT AND CLARIFICATION TO SECTION 601 1. WORK FOR HIRE. FOREIGN SUBSIDIARY OF DOMESTIC EMPLOYER For the purpose of preventing possible abuses in the "work for hire" exemption of Section 601 (b) (1), we respectfully request that the following language be added to the last clause of Section 601(b) (1) so it reads as follows: "***; in the case of work made for hire, the exemption provided by this clause does not apply unless a substantial part of the work was prepared for an employer or other person who is not a national or domiciliary of the United States or a domestic corporation or enterprise or a foreign subsidiary or affiliate thereof." (New language italic.) II. LITERARY MATERIAL The interpretation of the term "literary material" may be capable of conflicting interpretations by administrators charged with enforcing the manufacturing clause. Indeed, under present law, the interpretation as to what types of work Section 601 of H.R. 2223 is identical to Section 601 of S. 1361 reported by the Senate Committee on the Judiciary, July 3, 1974, 93rd Cong., 2nd Session and is very similar to Section 601 of H.R. 4347 and S. 597 considered by the 89th and 90th Congresses. were covered under the clause has been inconsistent and at times conflicting. Thus, for the purpose of accurately reflecting the legislative intent concerning the definition of the term "literary material" as used in Section 601 of the bill, we respectfully request that the Report of the House Subcommittee on Courts, Civil Liberties and the Administration of Justice to accompany H.R. 2223 include language applicable to the definition of "literary work [material]" contained in the last sentence of the third full paragraph appearing on page 17 of the House of Representatives Report No. 83, 90th Congress, 1st Session, March 8, 1967, with revisions so it reads as follows: "The term 'literary material' does not connote any criterion of literary merit or qualitative value; it includes catalogs, directories and similar material." III. PREPONDERANTLY OF NONDRAMATIC LITERARY MATERIAL Finally, we also request that the House Committee Report include language to aid in the definition of "preponderantly" as it relates to nondramatic literary material in Section 601 (a) of the bill. Since the language in Section 601 of the companion bill, S. 22, is similar, it might be helpful to use similar language to that contained in the Senate Committee Report (Sen. Report No. 983, 93rd Congress, 2d Session, July 3, 1974, p. 197). We would respectfully request that the following three paragraphs be included in the House Committee Report to aid in later application of the Section: "The scope of the manufacturing requirement, as set out in subsections (a) and (b) of section 601, is considerably more limited than that of present law. The requirements apply to 'a work consisting preponderantly of nondramatic literary material that is in the English language and is protected under this title,' and would thus not extend to: dramatic, musical, pictorial, or graphic works; foreign-language material; or works consisting preponderantly of material that is not subject to the manufacturing requirement. "A work containing 'nondramatic literary material that is in the English language and is protected under this title,' and also containing dramatic, musical, pictorial, graphic, foreign-language, public domain, or other material that is not subject to the manufacturing requirement, or any combination of these, is not considered to consist 'preponderantly' of the copyright-protected nondramatic English-language literary material unless such material exceeds the exempted material in importance. Thus, where the literary material in a work consists merely of a foreword or preface, and captions, headings, or brief descriptions or explanations of pictorial, graphic or other non-literary material clearly exceeds the literary material in importance, and the entire work is free of the manufacturing requirement. "On the other hand, work which contains both non-dramatic literary material and pictorial, graphic or other non-literary material is subject to the manufacturing requirement if the non-dramatic literary material is necessary to convey the ideas or information being presented, regardless of the relative amount of space occupied by each kind of material. In such a case, the existence of a narrative or exposition means that the non-dramatic literary material plainly exceeds the non-literary material in weight, or importance, in the work and the work is therefore subject to the manufacturing requirement even though it has a high pictorial or graphic content." [The subcommittee received the following statements letters for the record:] STATEMENT BY TOWNSEND HOOPES, PRESIDENT ASSOCIATION OF Mr. Chairman, my name is Townsend Hoopes. I am President of the Association of American Publishers, a trade association comprising the great majority of publishers of general books, textbooks and educational materials. Its more than 260 members, including many university presses and religious book publishers, produce in the aggregate more than 80% of all general, educational and religious books and materials published in the United States. We are grateful for the opportunity to express our views on yet another section of the Copyright Revision Bill, Section 601, the Manufacturing Clause. The Association is on record before this committee in support of the bill as it is now written. We extend this support to the manufacturing clause, although with certain minor reservations. In principle we are opposed to any type of trade restrictions which impede the free flow of educational and cultural mate |