The fact that we are all coming together to design and put in place consumercentric solutions, with only limited government involvement, is a very encouraging sign. It makes me confident that we can work with each other and with Congress to overcome whatever barriers exist to unleashing the full potential of the digital economy. Thank you. Mr. UPTON. Thank you. STATEMENT OF PAUL F. LIAO Mr. LIAO. Mr. Chairman, Ranking Member Markey and members of the subcommittee, thank you for the opportunity to testify before you today. I am here today in my capacity as Chief Technology Officer of Matsushita Electric Corporation of America and President of its Panasonic Technologies Company division. As a company on the cutting edge of the transition to digital television, Panasonic has been deeply involved in efforts to ensure that digital content is adequately protected. My written testimony summarizes some of the many technological developments that Panasonic has been involved in, including the development of the CSS encryption system used to protect DVD discs, the development by the 5C group of companies of the Digital Transmission Content Protection technology that protects copyrighted content as it moves digitally from device to device in a home network, and the invention of the Content Protection for Recordable Media technology to provide secure, encrypted recording and storage of authorized copies of copyrighted content. In participating in these technology development efforts, we have been guided by two overarching principles: (1) Ensuring that the legitimate interests of consumers, which are the bedrock of our business, are preserved in the transition to digital technology; and (2) by enabling-We need to enable new business opportunities for consumer electronics companies such as ourselves, information technology companies, and content companies alike. Although in my prepared remarks today,I will focus most particularly on the experiences of Panasonic, I am here also as a representative of the 5C group of companies, and I will be happy to answer any questions with respect to those activities and initiatives. At the onset, I need to express my gratitude to this committee and its leadership for your continued focus through private meetings, industry roundtables and other means for bringing the various stakeholders together to address and resolve issues that have been affecting the transition to digital television, DTV. Although the topic of today's hearing is ensuring content protection in the digital age, I believe that the availability of robust content protection systems is only one of the building blocks necessary to promote the transition to the digital world. Really, three C's are necessary to make this transition: Carriage, content, and consumer; carriage of DTV signals by broadcasters, cable operators and satellite services; of course, the availability of compelling content, the second C; and obviously, consumer, the consumer awareness of digital TV, including the benefits of consumer DTV equipment that is appealing and, most importantly, affordable. In terms of carriage, good progress has been made with respect to ensuring the carriage of DTV, and particularly HDTV, by broadcasters, cable operators, and satellite systems alike. I think all should be proud of the progress that has been made toward DTV availability. I believe the transition to DTV could be accelerated even further if consumers had access to DTV via cable-ready DTVs and a choice at retail of cables, digital set top boxes. In terms of consumer awareness, Panasonic promotes consumer awareness of DTV opportunities every day through our advertising, our joint efforts with retailers and broadcasters, for example, by sponsoring and co-financing the production of HDTV programs, and through CEA's industry-wide promotion and education efforts, as well as by providing a variety of DTV products that, we hope, consumers are finding appealing. All of the affected industries need to continue these efforts to build consumer awareness around DTV and HDTV. However, with respect to the issue that is the main focus of this hearing, content protection, Panasonic is proud to be part of a private sector interindustry effort to develop technologies that protect content from the source to the time it is displayed on the consumer's TV or PC, and those technologies can continue to provide that protection when an authorized recording of the content is made. The challenges proposed by the digital environment are rapidly evolving. Therefore, all the companies involved in these efforts have continued to innovate new solutions and, of course, all this has to be done with the interest of consumers in mind, because serving our customers, the consumer, is Panasonic's most important goal. These private industry initiatives have proven to be the most effective way to proceed. It is simply not possible for government to mandate from above broad design requirements that address the myriad of interests and technological challenges as effectively as collaborative private sector efforts. We expect, nonetheless, that for any solution to be successful, it must withstand public scrutiny. Therefore, we welcome, and in fact encourage, your continued interest in our efforts to address these challenges. We have mentioned three key elements: Protection of in-the-clear broadcast content using the broadcast flag; addressing the analog hole; and preventing unauthorized peer-to-peer file sharing. In our written comments as well as the comments made by Mr. Parsons and Mr. Chernin already, we have reviewed some of these progresses in each of these areas. I would only like to add that this process is rapidly moving to a conclusion with a return to the broadcast flag. In fact, the 5C companies, the CIG Computer Industry Group, and the MPAA met late last night and reached agreements in a proposal that will be recommended to the full group. In fact, we expect that to be circulated today. The problem of peer-to-peer distribution of copyrighted content is very, very difficult to resolve. To my knowledge, no concrete proposals concerning how to solve this problem have been proposed. In fact, it is quite likely that no single solution to this problem will be developed, and that instead a variety of technical and legal and business approaches will be necessary. At the moment, the immediate, admittedly partial solution appears to be consumer education efforts and strong enforcement of I would like to conclude by just saying that we have built our business on delivering innovative products to our consumers, and we realize that, in order to develop and deliver the greatest value to our customers, we must likewise provide strong copyright protection to the owners of copyrighted content. [The prepared statement of Paul F. Liao follows:] PREPARED STATEMENT OF PAUL F. LIAO, CHIEF TECHNOLOGY OFFICER, MATSUSHITA ELECTRIC CORPORATION OF AMERICA AND PRESIDENT, PANASONIC TECHNOLOGIES COMPANY Mr. Chairman, Members of the Subcommittee, thank you for the opportunity to testify before you today. I am here today in my capacity as Chief Technology Officer of Matsushita Electric Corporation of America and President of its Panasonic Technologies Company division. Our company is the principal U.S. subsidiary of Matsushita Electric Industrial Co., Ltd. ("MEI”). Our principal brand, and the name by which the companies are commonly known is "Panasonic." Panasonic is one of the world's largest producers of innovative electronic and electric products for consumer, business and industrial use. Our consumer and broadcasting product lines include a broad array of audio, video, communications and computing products and components. In the DTV realm, for example, we were proud to introduce the first consumer HDTV in the United States in the summer of 1998. As a company on the cutting edge of the transition to digital television, Panasonic has been deeply involved in efforts to ensure that digital content is adequately protected. My testimony summarizes some of the many technology development efforts Panasonic has been involved in, including the development of the CSS encryption system used to protect DVD discs, the development by the "5C" group of companies of the Digital Transmission Content Protection ("DTCP") technology that protects copyrighted content as it moves digitally from device to device in a home network, and the invention of the Content Protection for Recordable Media ("CPRM") technology to provide secure, encrypted recording and storage of authorized copies of copyrighted content. In participating in these technology development efforts my company has been guided by two overarching principles: (1) Ensuring that the legitimate interests of consumers-the bedrock of our business—are preserved in the transition to digital technology; and (2) Enabling new business opportunities for Consumer Electronics (“CE”). Information Technology ("IT") and content companies alike. Although my prepared remarks today focus most particularly on the experiences of Panasonic, I am here also as a representative of the "5C" group of companies and would be happy to answer questions with respect to 5C activities and initiatives during the question and answer portion of the hearing. At the outset, I would like to express my gratitude to all of the Members of the Committee on Energy and Commerce, including the Ranking Members of the full Committee and this Subcommittee, and especially to both the Chairman of the full Committee and to you, Mr. Chairman, for your continued focus through private meetings, industry roundtables and other means on bringing the various stakeholders together to address and resolve issues that have been affecting the transition to DTV. While the topic of today's hearing is Ensuring Content Protection in the Digital Age, I believe that the availability of robust content protection systems is only one of the building blocks necessary to promote the transition to the digital world. Because this Committee has been so dedicated to encouraging the transition to DTV, and because 5C has played an important role in advancing the transition to DTV, I will use the DTV example to illustrate the role that content protection systems can play in the transition to and availability of new digital technologies and compelling content for consumers. Our experience has shown that careful balancing is necessary to achieve the public policy goals articulated by this Committee, and to harmonize the needs of consumers and of the various affected industries. I believe that three things are necessary to make the DTV transition a reality: Carriage of DTV signals by broadcasters, cable operators and satellite services; Availability of compelling content; and Consumer awareness and education about DTV and consumer DTV equipment that is appealing and affordable To encourage the development of each of these components, a careful balancing of interests is required. Compelling content is required to encourage consumers to look into, learn about, and buy in to DTV; • Adequate security is required before content owners will release compelling content; and • DTV products must be affordable and must respect legitimate consumer expectations about how consumers will be able to use and enjoy content they rightfully acquire. Panasonic-through the 5C and through other private licensing initiatives-has been working hard to meet the legitimate interests of content companies, broadcasters and consumers. I am pleased to report that much progress has been made in each of the three areas I mentioned, however significant issues remain that merit the Committee's attention. Carriage of DTV Good progress has been made with respect to ensuring carriage of DTV by broadcasters, cable operators and satellite systems. I would like to extend congratulations, on behalf of Panasonic to the broadcast industry which has made great strides towards DTV availability. Over 300 broadcast DTV stations are already on the air and carrying a variety of programming in TV markets that comprise over threequarters of all TV households. I would also like to extend congratulations to the cable industry which has been offering increasing DTV content over the past few years to their digital subscribers. There are many digital and some interactive program services already, and several cable operators have recently announced plans to provide more on their systems, including HDTV programming. Congratulations are also in order to satellite service providers, which have carried digital, and to borrow FCC Chairman Powell's phrase, "value-added" TV content from the time satellite services were launched. Panasonic has supported the availability of such value-added content in a variety of ways. Our company has made direct financial contributions to cover program development and HDTV production costs. For instance, we provided significant program production equipment support for the first HDTV presentation of "Monday Night Football", and for the past two years we have sponsored CBS's prime-time HDTV line-up. We likewise provide digital equipment loans and HDTV production support for the efforts of several producers of high-quality digital programming, such as nature, natural history, documentary and other programs which are being aired on public and commercial broadcast, cable and satellite channels. Panasonic is also providing professional DTV and HDTV production equipment to producers, program makers, and special-venue presenters in order assist in the transition to DTV. Progress with respect to carriage of content is encouraging, but I believe the transition to DTV could be accelerated if consumers had access via "cable ready DTVs" and a choice at retail of cable set top boxes. After all, cable is the largest provider of television service to American TV households. A key element of these cable ready DTVs and retail set top boxes is the POD-Host Interface technology. We would like the license agreement for this technology to include clear rules, such as those included in the 5C license for DTCP technology, to ensure that the technology cannot be used to undermine consumers' customary home recording expectations. I applaud the Committee's efforts to date and urge the Committee to keep a keen focus on these issuesContent As I mentioned at the outset, CE and IT manufacturers such as the 5C group of companies involved in developing and licensing the DTCP technology, realize that in order for content providers to fully embrace DTV and other new digital forms for delivery of content, security concerns must be adequately addressed. Panasonic has been at the forefront of developing content protection technologies for use with both audio and video. We have been directly involved in developing and licensing technologies that can protect content from the source to the time it is displayed on a consumer's TV or PC. We have likewise developed technologies to protect the content from unauthorized copying and redistribution if/when it is recorded in the home. In participating in these technology development efforts Panasonic has been guided by several themes: • Technologies should be developed through a process of inter-industry consultation and collaboration to ensure that they are (a) practical to implement; (b) achieve the legitimate copyright protection goals set forth by the content community; and (c) deliver value to consumers. • Technology initiatives should be led by the private sector. The objectives should be achieved by voluntary license agreements where possible, and complemented by narrowly-focused government action only where necessary. • Technology solutions should include rules to preserve consumers' customary recording expectations. We realize that both the opportunities and the potential challenges posed by the digital environment are ever evolving. Despite the fact that the content protection technologies we have been involved in developing were each designed to meet specific sets of requirements outlined by the content companies, the CE and IT companies involved in these efforts have been willing to keep innovating and adding to the existing technologies (and creating new ones) to meet unanticipated or previously unarticulated goals of the content owners. Of course, this has all been done with the interests of consumers in mind, because serving our customers is Panasonic's most important goal. In our view this is the most effective way to proceed. It is simply not possible for the government to mandate from above broad design requirements which as effectively address the myriad of interests and technological challenges as do collaborative private sector efforts. We expect, nevertheless, that for any solution to be successful it must withstand public scrutiny. We therefore welcome your continued interest in our efforts to address these challenges. Some specific examples of our activities with regard to content protection are summarized below. 5C Panasonic is one of five companies (sometimes therefore referred to as the "5C"), that developed the Digital Transmission Content Protection ("DTCP") technology used to protect content as it traverses the IEEE 1394 home network. • DTCP was developed and is being licensed by a license administrator established by the five CE and IT companies to address requirements set forth in a request for proposals by the CPTWG, a multi-industry group that included direct participation by the motion picture industry. • The technology protects content that enters the home via cable, satellite or other means of conditional access technology from being copied or retransmitted beyond the home (e.g., via the Internet) without authorization of copyright holders and will be adapted for use to protect content that enters the home via unencrypted digital broadcast pursuant to the "broadcast flag" technology described below. • DTCP employs encryption and authentication in order to ensure that content is exchanged only among devices which agree to continue to protect the content. • Since approximately 85% of TV households in the U.S. receive programming through cable or satellite conditional access technologies, the DTCP technology may be applied to this conditional-access protected content to prevent unauthorized Internet retransmission. • The DTCP technology license incorporates "encoding rules" modeled after § 1201(k) of the Digital Millennium Copyright Act (“DMCA”) to preserve customary home recording practices. These rules were developed through manufacturer and Content industry consultation beginning in the early 1990s. Pursuant to these provisions, content companies may use the DTCP technology to protect content according to the following minimum rules— • Free TV is freely copyable, but may be restricted from redistribution; • One generation of copies must be permitted for paid programming such as HBO; and • Copying (other than as part of a "pause" function that is periodically deleted) may be prohibited with respect to packaged media, Pay Per View (“PPV”) and Video On Demand ("VOD") type content. CSS Together with Toshiba, Panasonic developed the Content Scramble System technology used to encrypt pre-recorded DVD discs • This technology enabled the launch of DVD—the most successful consumer product ever. • Licensing of CSS has now been turned over to a multi-industry group called the DVD Copy Control Association ("DVDCCA") which is comprised of representatives of the CE, IT and Motion Picture industries. • Beyond licensing the encryption technology used on pre-recorded DVD discs, DVDCCA is tackling a number of additional projects, including the evaluation of a "watermark" to be used in conjunction with pre-recorded DVD content to |