TESTIMONY OF HON. DAVID LADD, REGISTER OF COPYRIGHTS AND ASSISTANT LIBRARIAN OF CONGRESS FOR COPYRIGHT SERVICES, ACCOMPANIED BY DOROTHY SCHRADER, GENERAL COUNSEL AND ASSOCIATE REGISTER, KENT DUNLAP, SENIOR ATTORNEY ADVISER, AND MARILYN KRETSINGER, ATTORNEY ADVISER

Mr. LADD. Mr. Chairman, Mr. Railsback, members of the subcommittee and staff. As always, we appreciate the opportunity to present our views on copyright legislation; in this case legislation of extraordinary importance.

Before I turn to my statement, I would like to introduce the people who are accompanying me.

On my immediate right is Dorothy Schrader, who is General Counsel and Associate Register in the Copyright Office.

On my far right is Kent Dunlap, who is senior attorney adviser. On my left is Marilyn Kretsinger, who is an attorney adviser. I would like to take this opportunity publicly to thank them for the extraordinarily good work that they put into this effort.

Mr. Chairman, the Edwards bill, which is the primary focus of my testimony, parallels the bill introduced in the Senate by Senator Mathias. Accordingly, the prepared statement which we submit to this subcommittee parallels our statement presented earlier to the Senate Committee on the Judiciary.

I would suggest, Mr. Chairman, that the prepared statement be included in the record, I will turn to some subjects treated in the prepared statement and some others which are not.

Let me first comment on the impact of the grant of certiorari by the Supreme Court, which has been discussed at some length by the members and by the previous witnesses.

Our view, which we expressed in the Senate before certiorari has been granted, remains the same: it is desirable that Congress act on these issues because the question of copyright liability for audio home taping was carefully and explicitly excluded from the Betamax opinion; nor does that case deal with the issue of tape rentals, both of which are addressed by this legislation.

We should ask ourselves: What will be the result, if the Ninth Circuit Court of Appeals' opinion is either affirmed or reversed? If it is reversed and no liability is found, then these policy issues will be before the Congress again-as a matter of fact, they won't go away.

If, on the other hand, the decision is affirmed, the district court, upon remand, will be faced with the problem of devising an apparatus for imposing and collecting loyalties for the liability. In my view, that is essentially a legislative function. If you think about what would be necessary, let us take as a point of departure the hint that is given in the ninth circuit opinion that judicial compulsory license might be considered as the mode of relief.

The ninth circuit also suggested that the difficulty of shaping relief might have been one of the explanations for the district court's opinion.

First, only those parties before the court will be bound. Thus, some method of binding all of the parties similarly situated will have to be devised. Second, if there is a compulsory license decree,

the rate-setting function will have to be addressed, in addition, apparatus will be needed to administer the licensing, collection and distribution of royalties.

I have stated elsewhere that this kind of decisionmaking is essentially a legislative function. Those views are treated in a paper which I gave to the INTERGU meeting in Toronto last September. I have given Mr. Lehman copies of my paper, and you may or may not, Mr. Chairman, decide to include that as a part of the record. But in any event, it is our view that the Congress should not wait, but rather move to deal with the issues that are raised by the Edwards bill.

I would like to look back over the course of events since Betamax was decided in the Court of Appeals. There was that initial period when the emphasis was laid upon what was argued to be the criminal behavior of householders in home taping, and editorial cartoons appeared showing people breaking into homes and seizing VCR,s and so forth.

We are now past that. It is clear in the legislation before this subcommittee that nobody is suggesting prohibiting the home use of VCR's. The issue now addressed is compensation.

We have moved into what I will call the "what's the harm" stage.

My own perception is that harm has been conceded, on the audio home taping front. As the Department of Justice statement says, on the basis of the evidence now available, it is apparent that substantial harm has occurred in that area.

There is a respectable reargued action occurring on that issue, but I think it is primarily to protect the flank of the same issue with respect to video recording. The evidence is very strong that harm, however defined, to the sound recording industry is substantial.

Those who are resisting either immediate action upon this legislation, or any action at all of this kind, are insisting that copyright owners prove harm. As we approach this, I think it is first useful to ask: What do we mean when we say "harm"? Second we ought to ask: Who should bear the burden of demonstrating harm or lack each of harm? Should the creators of copyrighted works bear the burden, or should those who have not created the work and are profiting by their use bear that burden?

In any event, I believe that those who are insisting upon imposing the burden of proving harm in an economic, measured way have the burden of telling the Congress what they mean by harm.

There are several possibilities. One may consider any copying as harmful because it is an invasion of a right. One may also say that any copying which results in significant displacement of a sale or potential sale-it doesn't have to be most of the sales; just a significant displacement-constitutes harm.

Or harm can be measured by a diminution of a reasonable expectation of growing revenue. For example, can one extrapolate revenue growth from past periods and extend it into the future and say that the reduction in growth represents harm.

An argument along this line was made with respect to the manufacturing clause. Those who urged the Congress to continue the protection afforded by the manufacturing clause contended that

the expiration of the clause would eliminate not only present jobs, but also the expectation of the creation of future jobs. So that is another possible test.

Another test of harm can be based on any copying that results in the diminution of present revenues at present levels. If that is the test, is the Congress willing to select a level of compensation at a particular point in history and to say that is the compensation, measured by present events, and not allow for the dynamics of the market?

And finally, harm can be judged by incipient ruin; that is, the test which some people now are applying to the audio industry. What do you mean by "incipient ruin?" You can look at what is the trend of a number of unauthorized copies in relation to the number of authorized copies. Surely, anybody would concede that when the number of unauthorized copies exceeds the number of authorized copies, you have incipient harm.

Does it mean falling employment, because we have that in the sound recording industry. Does it mean bankruptcies?

I am not trying to choose among any of these tests. All I am saying is that those who are resisting the enactment of this legislation, are simply using harm as an elastic and amorphous notion. They are demanding that the copyright owners demonstrate harm without specifying what they would be satisfied with or what the Congress should be satisfied with as proof of harm.

As far as the present understanding of the harm occasioned by home video taping, I think it is useful to observe that the same elements which have brought the audio industry to its present dire condition also are present in the vidio arena. The phenomenon is the introduction of VCR's and tapes at steadily declining prices, making available unauthorized copying which is difficult to detect. There is one other reason why Congress should act promptly. As one of the witnesses before me has pointed out, the United States is a major exporting copyright nation. I believe the figure of $1 billion was quoted recently as being brought back to the United States in a year through the marketing of Amerian motion picture properties abroad.

This home taping problem is being addressed throughout the world. Attached to our statement is a letter from a Japanese authority indicating that they want to observe what international trends are developing to solve this problem.

My point is that the United States has a very strong interest in maximizing the collection of revenues for the enjoyment of American copyright properties abroad, and to act on it promptly.

Before I turn to the question of the compulsory license mechanism and the role of the Copyright Royalty Tribunal in particular, I would like to observe that I think it is a mistake to view copyright as a privilege, which many people often do.

We are not really talking about large gains for the literati, about authors writing a couple of days, a couple of hours, in their comfortable summer retreats in Bar Harbor. It is true that authors are rewarded out of copyright revenues, but copyright simply becomes the instrument of property around which investment and risk are organized for the production of these properties. The people who

benefit are not merely the copyright owners, but also the actors, the scenarists, the sound engineers, the cameramen.

So it is a mistake, I insist, to look upon copyright as privilege. It is a very effective property instrument.

Now, let me turn to compulsory licensing.

As the subcommittee knows from our testimony on the cable legislation, the Copyright Office prefers market solutions; we would prefer one in this case if it were available.

In this case, however, we endorse the compulsory license provision in the Edwards bill not because we like compulsory licenses but because we do not see any other feasible way of imposing liability, collecting and distributing the royalties.

Let me turn for a moment to the CRT. A lot of disapproval has been expressed here and in other forums about the Copyright Royalty Tribunal. The question was raised in the Senate as to whether I believed the CRT is equipped to handle the charge that would be placed upon them by this legislation.

I believe that they would be, and as evidence of that I cite the GAO study which was done at the behest of this subcommittee. The study concluded that while some disagreed with their function and others disagreed with their particular decisions that the CRT was generally regarded by the affected interests as a competent legal body.

I believe it would be far better, if time permitted, to develop a scheme in which private collecting societies would handle the distribution of these funds. I suspect that when technology changes very rapidly, as it is, that we will be confronted with situations where we have to act very quickly. Because we do not have a collecting society in place nor any experience in rapidly mounting one, we will have to look ahead and try to anticipate where such a society could be created.

I suspect, for example-laying aside for now the rate functions; that the performing lights societies like ASCAP, BMI, and SESAC, have the expertise that could, in rather rapid order, as consultants or in any other manner, put together a society which could distribute these fees.

Now, you may recall that in the cable legislation, Barbara Ringer, my predecessor in this office, suggested a technique called agreed licensing. That concept involves providing a period in which the parties try to reach a contractual agreement about the level of royalties and then, failing that, fall back on a form of compulsory arbitration.

Without endorsing the approach, I want to tell you about an arbitration device which has been used successfully in other contexts. It is a procedure in which there is submitted to the arbitrator only one proposal by each side and the arbitrator is not given the authority to modify either one but must choose between one or the other.

Obviously, this form of arbitration puts a tremendous amount of pressure on the parties to develop an offer which is reasonable enough to maximize its acceptance by the arbitrator. It is possible that some consideration should be given to this approach.

However, the advantage of adopting the proposal in the Edwards bill is that it uses a modality, a procedure, which is already estab

lished and with which we have experience in cable, jukebox licensing, and mechanical royalties. There is substantial opinion that the CRT is competent to do the job, it is in place, and would allow prompt action by the Congress.

There are several more points I would like to make.

The argument is being made by lobbyists on talk shows and the like that payment should not be required for home video taping because the copyright owners have, by authorizing the exhibition of their films on television, relinquished their claim to any further

revenues.

This is the so-called double payment or exhaustion argument. The argument does not stand analysis and if it is not on a public record, I want it here so it can be refuted.

As you know, Mr. Chairman, because you are the architect of the 1976 Copyright Act, the copyright is not a single right. Rather, it is a bundle of rights, and the author may exploit those various rights independently. If the author agrees to exhibit a motion picture, it does not mean that the author agrees to relinquish all future revenues from further exhibition of that motion picture, and it certainly doesn't mean that the author waives other rights in that bundle, such as the right to make copies.

So subjected to very fundamental principles of copyright law, that argument is nonsense. All property is, in a sense, a bundle of rights. If I owned a farm and an outdoor advertising company wanted an easement on my land to put an outdoor billboard there, nobody would argue that because I had done that once that I had relinquished the right to further revenues from other billboards, or indeed to sell crops or to exploit the land in any other way.

The fact that that argument appears only on talk shows and not before congressional committees, I think, is some evidence of its merit.

Another argument which is being made in the Halls of Congress-and I know because I have been called upon by various Congressmen to answer arguments which have been presented to them-is that the difficulties that the motion picture industry finds itself in today is occasioned by the fact that they don't make good films any more.

The short answer to that is that they are good enough that people want to copy them.

Now I want to turn to an issue discussed here earlier this morning: the imposition of the royalty upon the use of tape for purposes other than copying of copyrighted works.

First of all, as the members of the subcommittee know, the bill includes a mechanism which allows the Copyright Royalty Tribunal, in setting the royalty rate, to take into account the proportion of the use of tapes which is not attributed to copying copyrighted works. That, however, does not respond to the argument that even so reduced, the royalty will fall on all tapes, including those not used to reproduce copyrighted works.

The further answer to that, though, is that even the person who buys the tape and immediately dedicates it to a use other than copying copyrighted works does get consideration. That person gets not only the tape; but also the right any time during the life of