Statement of Professor Jessica Litman on H.R. 3204

Before the Subcommittee on Intellectual Property and Judicial Administration of the House Committee on the Judiciary,

102d Congress, Second Session

February 19, 1992

Mr. Chairman, members of the Subcommittee, my name is Jessica Litman. I am a Professor of Law at Wayne State University. I have taught, and written about, copyright law for eight years. Thank you for inviting me to testify on the Audio Home Recording Bill. I should say at the outset that I neither support nor oppose this legislation; I wish only to raise some issues for your consideration.

This bill results from the negotiation of industry representatives. No member of Congress drafted it or was even involved in its drafting. Instead, private parties negotiated a compromise of their ongoing dispute, embodied their understanding in proposed statutory language, and handed the bill to Congress, saying "Here. We've all agreed on this. Now, you enact it."

That process is, in fact, the same process you have used for drafting and enacting copyright legislation throughout this century. Indeed, the negotiations that led to H.R. 3204, like the negotiations that led to previous copyright statutes, were strongly encouraged by members of this Subcommittee and the Senate Subcommittee. So there is nothing unprecedented in enacting a copyright bill that was devised and drafted entirely by private industry.

Because the substance of the bill was worked out and the language of the bill was drafted with little or no Congressional input, however, it is very important that Congress, in deciding whether to enact the bill, make an independent assessment of whether it serves the public interest. Industry representatives are just doing their jobs when they propose legislation that they believe will benefit their industries. Your job is to ascertain whether that legislation will benefit the public at large. Those inquiries are not the same. My hope is to raise some of the issues that might be relevant to your determination.

First, because this is a negotiated bill that tries to resolve disputes among a number of industry actors, it shows some of the hallmarks of negotiated legislation. For one thing, the bill is very, very long. This is not a bill to curl up with in front of the fire for a good read: when combined with the technical appendix, it may, all by itself, double the number of words in title 17 of the United States Code. Like most privately negotiated bills, it is numbingly specific in some instances, where the parties compromised on very detailed specifications, and frustratingly vague in others, where the parties glossed over their disputes. I would not want to be either of the three administrative agencies charged with administering the statute, nor the court asked to review those agencies' compliance with the statutory mandate.

Second, because this bill is a result of negotiations among private industry representatives, it is important to think about who was not at the bargaining table, and to ask whether their interests are adequately addressed by the resulting proposal. The most obvious absent parties were the members of the general public who engage in home taping of recorded works. The removal of the cloud surrounding whether home taping is fair use is not much of a direct benefit to these consumers, since any rights to prevent their home taping, if they exist, are essentially unenforceable. On the other hand, consumers, by virtue of this bill, will get the opportunity to buy DAT machines and media without the manufacturers being sued, and are asked to pay relatively modest royalties in return for that privilege. Another unrepresented group includes the musicians and artists who

themselves use consumer electronic equipment to to record their own compositions. It is less clear to me that these artists' interests are well-served by this bill, but you may be hearing from them directly. There is, however, a group you cannot hear from, because it doesn't yet exist: the manufacturers and users of future generations of technological products.

The bill is chock-full of up-to-the-minute 1991 technology. It is now 1992; by the time this bill is effectively in force, it will be 1993; by 1994 it will already be having significant unintended effects on new products. I can't predict what those effects will be; none of us can. I am, however, sure they will occur. By defining "digital audio recording device" and "digital audio recording medium" very broadly, the bill attempts to sweep within its scope a wide assortment of products that have not yet been invented. By defining with great specificity the requirements of the serial copy management system that all such devices must implement, however, the bill requires those products of the future to incorporate a particular solution that may make no technological sense for the products in question. Compliance may be infeasible, expensive, or just plain silly in the context of particular products. The Department of Commerce is charged with updating the serial copy management system standards, but the bill appears to contemplate such a course only in connection with devices that are functionally equivalent to audio recording devices now on the market, and gives no meaningful guidance for how to respond to products on the horizon that fit within the literal definition of "digital audio recording device" or "digital audio recording medium" or "digital audio interface device" but are not simply improved tape recorders. Thus, I predict that if you pass this bill in its current form, it will not be too many years before industry comes knocking on your door to request revisions.

These are general concerns: they arise with most negotiated bills that attempt to solve the problems posed by new technology. I would also like to draw your attention to some specific features of this bill that deserve consideration. Let me emphasize that I am

not saying that any of these specific proposals are good ideas or bad ones. I am suggesting only that they merit careful thought before they are made law.

First, and most obviously, the statute confers regulatory authority over the

manufacture and sale of digital audio products on two different administrative agencies, the Commerce Department and the Copyright Royalty Tribunal; three different agencies if you count the Copyright Office. You have done something of this sort before in the copyright field: the compulsory license for cable television in section 111 invoked the authority of the FCC and the Copyright Royalty Tribunal in an analogous way. Some of you may recall that in the late seventies, the FCC and the CRT for a time were working at cross-purposes. The FCC dismantled the regulatory structure that had supplied the basic assumptions underlying the cable compulsory license in section 111; the CRT then frantically tried to impose a compensating regime through adjustment of compulsory license royalties.

Second, the authority conferred on the administrative agencies has some unusual limitations. The Commerce Department is in essence instructed that as an initial matter, it is to treat the technical reference document as if it were regulations that Commerce had adopted -- notwithstanding that it did not propose, draft or seek public comment on the language of the document. Further, while the Commerce Department is given authority to adopt regulations that vary somewhat from the technical reference document, that authority is circumscribed. The Register is instructed to promulgate regulations permitting private parties to request and coordinate audits and to request and coordinate binding arbitration; the Register is, however, given no authority to initiate either.

The Copyright Royalty Tribunal is instructed to distribute the collected royalties among four groups. The first three groups, record companies, composers, and music publishers, are called "interested copyright parties" and are given a variety of procedural rights before the Tribunal, including the ability to opt out of the procedures set by the Copyright Office and the CRT entirely, by two-thirds vote. The fourth group, performers,

are not "interested copyright parties" and have none of these procedural rights. If twothirds of the record companies, composers and music publishers elect to remove the collection and distribution of royalties from the statutory procedure, the Copyright Royalty Tribunal is given no power to prevent their doing so, even if all of the performers should object. In general, the Tribunal has no obligation and no authority to determine whether a negotiated substitute procedure is in the public interest; it is instructed to determine only whether the procedure has the participation of two-thirds of each of the three categories of interested copyright parties.' The bill has a number of provisions designed to encourage the interested copyright parties to reach private agreements about royalty distribution. If private agreements prove elusive, however, the Tribunal is assigned the tremendously complex, and probably infeasible, task of allocating the royalties on a work-by-work basis.

Once the statute has been in force for six years, any interested copyright party may petition the Tribunal to increase the maximum royalty. The Tribunal's discretion is narrowly circumscribed. The bill does not direct the Tribunal to consider whether an increase in the maximum royalty would advance statutory goals; rather, the bill appears to require the Tribunal to grant the increase whenever more than 20% of the royalty payments made are the maximum royalty in the range. That seems almost certain to result in an increase in maximum royalties. The royalty on digital audio recording devices, for example, is set at 2% of the transfer price, with a $1 floor and a $8 initial ceiling. Thus, devices selling for less than $50 would still pay the $1 minimum royalty; devices selling for more than $400 would still pay the $8 maximum. The Tribunal cannot lower the $1 floor. After six years, the Tribunal must raise the royalty ceiling on the petition of any interested copyright party if more than 20% of the digital audio recording devices have a transfer price of more than $400. Devices might sell for substantially more than $400, however, for reasons having nothing to do with their ability to reproduce copyrighted recordings; they

1. The CRT is instructed that it must ensure that alternative distribution procedures are available to any interested copyright party who is not a party to the negotiated arrangement. The bill gives the CRT no instructions about how it is supposed to accomplish this task.