(3) U.S. precedents. Congress has recognized the need to fairly protect interests analogous to those of reliance parties, and has given that protection in Sections 303, 304(c) and 405(b) of the Copyright Act. The Court of Appeals (9th Cir.) also did so its "Rear Window" (Abend v. Stewart) opinion which was affirmed by the Supreme Court.

(4) The public interest. The public interest is not benefited by denying fair and equitable protection to U.S. reliance interests. Nor is it harmed by granting that protection. Granting retroactive copyright to some public domain works does not increase the incentive for authors to create in the future, nor does harsh restrictions on derivative-works reliance parties. (5) The mirror-image theory. A primary reason for the proposed limited and inadequate protection of American reliance interests is the desire of the motion picture, recording and software industries to avoid having other countries protect their reliance interests who are now legally using U.S. works in their public domains.

When these countries grant retroactivity, the theory goes, they will deny their reliance interests real protection - if we do so now. But this is only a theory, and an unlikely one. Most foreign countries, including the Commonwealth countries, already grant us retroactivity. They will not change their laws to restrict protection of their reliance parties. Nor will the few important countries who presently do not retroactively protect U.S. works When they do grant retroactivity they can decide what protection they will grant to their reliance interests. There is nothing to stop them from adopting the British et al buy-out provision. Or to borrow the Congressional formula of sections 203 and 304 (c), or 405 (a), or the 9th Circuit's Abend v. Stewart approach.

VI.

The Fifth Amendment Will Require The U.S.to Pay Just
Compensation To Reliance Parties Prohibited From Continuing
Previously-Legal Direct Uses of Former Public Domain Works

[A] The Takings Clause Will Apply

(1) Absent fair and reasonable "grand fathering" protection for their economic interests, the Bills will violate the Fifth Amendment rights of authors, publishers, producers, distributors, and other reliance parties who had legally conducted enterprises involving the reproduction, publication, performance and other uses of foreign works that are now restored to copyright.

They will be unable to recoup costs, they will be denied the opportunity to continue earning income from their formerly legal enterprises, and whatever inventory of books, records, etc they are left with will be valueless.

The Commonwealth countries recognized the unfairness of this consequences as did the WIPO commentary, and their "Buy-out" protection for reliance parties applies to these enterprises as well as the creation of derivative works.

(2) The birds and booze cases

are not analogous. In Andrus v. Allen, 444 U.S. 51 (1979), the Court held that prohibiting the sale of parts of endangered-species birds was not a "taking" of such parts owned by collectors. The owners of the parts, said the Court, could still transport, devise or exhibit the parts for a fee. Under the Bills, the owner of a restored copyright can prohibit a reliance party from making any use of the former public domain work, including the sale of copies or exhibition of the work for a fee.

Andrus, and in the prohibition cases (e.g. Mugler v. Kansas 123 U,S, 623 (1887) and Hamilton v. Kentucky Distilleries, 251 U.S. 146 (1919), the statute prohibited all sales of the proscribed products to serve the public interest. Here, that is not the case. The continued use of eligible foreign public domain works or derivative works based on them is not proscribed to protect a "public interest." The only legitimate public interest at stake is adherence to the Berne Convention and that does not require inadequate protection of reliance interests. In addition, no ban is place on the continued use of U.S. public domain works that would have been in copyright today had they not failed to comply with one of several formalities --as was the case with many foreign works that will be given retroactive copyright.

For the reasons set forth in our May 6th memorandum, we believe the notice requirement of the Bills violate article 5(2) of the Berne Convention which requires that the enjoyment and exercise of copyright should not be conditioned on any formalities. Ironically, many foreign works that will be granted retroactive copyright fell into our public domain because they failed to comply with such formalities, including the failure to file a "notice" claiming renewal copyright. The Bill would theoretically return their lost copyrights, but then deny them effective protection unless they filed another "notice" which many will not for the same reasons which brought about Berne's Article 5(2), the 1992 Automatic Copyright Renewal Amendment, the 1989 Berne Implementation Act's repeal of mandatory copyright notice, and the elimination of mandatory registration and the manufacturing clause in the 1976 Copyright Revision Act.

Irwin Karp

40 Woodland Drive
Rye Brook, N.Y.

8.

Mr. BERMAN of California. Thank you. I am not sure I understand all this, but let me just ask you a couple questions because I think if I do understand it, it would be pretty interesting.

Mr. Karp, initially you talked about-how do you phrase it, reliance-how do you-your phrase, reliance

Mr. KARP. That is in the bill, the reliance party.
Mr. BERMAN of California. The reliance party.

Mr. KARP. The reliance party is either an individual or organization that has made use of a public domain foreign work which will now be restored to copyright.

Mr. BERMAN of California. And by definition, then a bootlegger, a person who is being protected under the law-let's talk about your reliance party in Thailand who you think is not going to be stupid enough

Mr. KARP. They are not bootleggers. Anybody who lawfullyMr. BERMAN of California. What if Thailand copyright law does not make them bootleggers but

Mr. KARP. I am not making myself clear. The Thailand copyright law protects our works, as well as their works, against unauthorized reproduction. It does not protect, however, those American works which were produced before we entered a copyright treaty with Thailand or joined Berne Convention. I forget how we established it. The whole issue there is not bootlegging.

The whole issue here is how people who legally use property before the retroactivity statute is enacted are to be protected against the economic consequences described in the Berne articles.

Mr. BERMAN of California. Are the individuals who spend a great deal of effort in producing the creative work

Mr. KARP. The bootleggers?

Mr. BERMAN of California. No. The people who spent the effort in producing the creative work, the book, the record, the movie, with the expectation that they would enjoy the fruits of that effort from the revenues in the United States, but because they screwed up on one or more of some very technical formalities, receive no protection, are they in some equitable sense a party that should be viewed as a reliance party that can have some expectation that because they didn't publish and give a proper notice in every country, do every act of the formalities that was required of them, they lost all protection and their work is in the public domain for that purpose? Is there any equity on

Mr. KARP. Oh, sure. There is equity, which I have argued over and over again in the appellate courts, on behalf of people like that, sometimes successfully.

The fact is when someone's work has fallen into the public domain here or in any other country, it is not only legal, it is legitimate and morally proper for other people to use it. And other people do both directly, by reproducing it, or indirectly, as Shakespeare did and a lot of American playwrights and authors do, by borrowing the plot and other copyrighted material.

Mr. BERMAN of California. Is it immoral or illegal or unconstitutional to say at some point, "We are not going to seek back the revenues you got for using that work that mistakenly fell into the public domain, but from this day forward, you can't do it anymore." We are going back to protecting the guy who created the work.

Mr. KARP. Oh, I am all for that. I was for that before most of the people here heard of the word retroactivity. I am for it but on the condition that you also protect the reliance party.

Let's remember, under both bills, once retroactivity vests, no one who hasn't made a use of the work without permission can thereafter do it. So immediately you are restoring work of the creative community involved here to full protection under our law.

All we are talking about is the situation, both here and abroad, of people who exploited the work in good faith and in fact served the public interest by distributing these works or creating new ones and incorporating them. When they are now caught up in this change in American law which retroactively makes something that was public property private property, they are caught up and can suffer loss. There should be some way of mediating between the two interests. And we have proposed different ways of doing it in the memorandum I just referred to.

Mr. BERMAN of California. All right. So you are not saying that that person has some unlimited, unfettered right because they happen to have exploited before retroactivity went into effect.

Mr. KARP. No. There should be a grandfather period longer than is permitted in the bill. There should be provisions for statutory licensing so that the present user can get some compensation but the new copyright owner will also get compensation. These are all outlined in the memorandum and these were all ignored by the USTR in a process which was a very closed process.

I don't think you should for a minute assume that this drafting process equaled that which the House conducted, for example, when it drafted the Berne implementing legislation. There, at every step of the process, the proposed legislation and each draft was available for comment. There were hearings at which all parties who had an interest, including educators and librarians, distributors, could come in and give their comment. That didn't happen here.

Mr. BERMAN of California. Let me ask the professors for a second. What do you think happened? Do you share the same opinion on this takings problem in the context of it is probably limited to derivative works and only

Mr. VOLOKH. The takings problem, I believe, is most acute for derivative works. There is also some degree of a takings problem as to copies under the Hughes' bill, although less certainly so.

Mr. BERMAN of California. Let's assume it is not a closed issue, but you think there is a potential problem there.

Mr. VOLOKH. Exactly.

Mr. BERMAN of California. Let's assume we do this and you turn out to be right. What is the likely court remedy? Is it not to strike down the retroactivity?

Mr. VOLOKH. Not at all.

Mr. BERMAN of California. Wouldn't they create some licer

Mr. VOLOKH. I believe the likely court remedy will be

the payment of money. Somebody will sue the US

saying, you have taken my property by this regul circumstance, the court wouldn't have author ́· going to award a license." The court is”

It isn't seeing whether the a

already been conceded to apply to the derivate work. The court is just being asked to determine whether there is an entitlement to compensation, and the amount of compensation. I would assume the Court of Claims would say, prove your lost value and the Treasury will have to write you a check.

Ms. PERLMUTTER. If I might, the result might be different if you were talking about the copyright clause and not the takings clause. In that situation, the court might strike down at least that portion of the statute that deals with derivative works, which is where I see the potential problem.

Mr. BERMAN of California. All right. Mr. Becerra.

Mr. BECERRA. Thanks.

I also am a little puzzled on some of this. Let me ask a question. I believe, Professor-let me make sure I pronounce his name correctly. Is it Volokh?

Mr. VOLOKH. Close enough for government work.

Mr. BECERRA. OK. You mentioned under the DeConcini bill, there may be less of a problem with the taking because it permits the party with the derivative right to continue to sell off the product.

Mr. VOLOKH. Let's say-I am sorry

Mr. BECERRA. Go ahead.

Mr. VOLOKH [continuing]. Let's say that you have made, before you were given notice, 10,000 copies of some work. Under the DeConcini bill, you have only a year to sell them in bulk. So if you were the original copier, you are going to have to find a bunch of distributors who are willing to sell it, and you will probably have to sell at some discount in order to get rid of all the 10,000 copies in 1 year. But the distributors will say, you know, it is a good deal. We will put them on our shelves and people will buy them, so fine, we will do it. You, as the copier, will then get at least part of your money back.

However, under the Hughes' bill, the retail distributors will say to themselves: Wait a minute, after the year is done, we won't be able to sell copies even one at a time, to consumers, so we are not going to buy these 10,000 copies. They are just going to end up worthless to us. So essentially the value of the copies will be lost. That having been said, I recognize that the copiers are in a less sympathetic position than the derivative work maker, because they haven't invested a lot of creativity. But they might have invested a substantial amount of money and effort into doing that, enough that they might have some claim to at least partial compensation. Mr. BECERRA. But under the DeConcini bill, is it literally one work at a time that you can sell off at the 12-month period?

Mr. VOLOKH. Exactly. The copier will have to sell in bulk to retailers all the stuff during the 1-year period. But the retailers, because their business is generally selling to consumers one copy at a time, will be willing to buy those 10,000 copies because they will know they will be able to sell them.

Mr. BECERRA. So let me make sure of the distinction. The party, the derivative party sells off in bulk for a year. Mr. VOLOKH. Yes.

Mr. BECERRA. After that year is reached