Mr. BECERRA. So there are some cost savings there as well.
Mr. PETERS. Yes. Definitely.

Mr. BECERRA. Thank you. Thank you, Mr. Chairman.

Mr. HUGHES. What is the average submissions a year by your firm?

Mr. PETERS. Well, we have made over 1,500 in the past 3 years. And we have a set of programs-a set of typeface software programs which we will revise every year or two. I mean we will have to submit those revisions unless the law is changed. So I anticipate 1,500 or so every couple of years for us.

Mr. HUGHES. What do you estimate the cost savings would be? Mr. PETERS. Well, I know for the last 3 years it has cost us $400,000. A part of that was participating in some Copyright Office decisions. But we would not have had to participate in those absent this rule.

Mr. HUGHES. Would that be typical of any copyrighted software? Mr. PETERS. I think it is probably higher for us than for most companies.

Mr. HUGHES. Just because of the volume? Sheer volume?
Mr. PETERS. Right.

Mr. HUGHES. All right. I don't have any further questions. I would like to hold the record open for 10 days. I think you have answered all the questions in your testimony in chief. But if not, we will direct the questions to you and we would ask you to respond within 10 days.

Thank you very much. We appreciate your testimony and your help today.

I am going to recess for 5 or 10 minutes so I can catch that vote. We will come back and we will take the last witness. The subcommittee stands in recess.

[Recess.]

Mr. HUGHES. The subcommittee will come to order.

Our final witness today is J. Michael Cleary, a partner in the Washington, DC, law firm of Brylawski, Cleary & Komen, where he specializes in copyright, trademark and unfair competition law. Mr. Cleary is testifying today on behalf of the American Bar Association, Section of Business Law, Ad Hoc Committee on Security Interests, and the Section of Intellectual Property Law.

We have your written statement, Mr. Cleary, and, without objection-there is nobody here to object-it will be made a part of the record in full, and you can proceed as you see fit. Welcome.

STATEMENT OF J. MICHAEL CLEARY, PARTNER, BRYLAWSKI, CLEARY & KOMEN, WASHINGTON, DC, ON BEHALF OF THE AMERICAN BAR ASSOCIATION

Mr. CLEARY. Thank you, Mr. Chairman. Thank you for inviting me to appear today to testify on H.R. 897. My remarks will be limited to the security interests aspects of the bill. As you noted, we have submitted a written statement, which has been available to members in attendance.

Mr. Chairman, at the outset, I would like to acknowledge and thank you for your remarks in introducing H.R. 897 in which you indicate that you are aware that similar issues on security_interests have arisen with respect to filings in the Patent and Trade

mark Office, and that you plan to meet with the Patent and Trademark Office and the affected interests and learn whether amendments should be made to this bill to take into account difficulties in the patent and trademark field. Your remarks could not have been more timely since the groups I represent today have been working diligently for the past 3 years to come up with a solution which would apply to all types of intellectual property and not just copyrights.

I believe that just a very brief historical perspective of who we are and how we came to be here today might give you some better insight into the problem which we perceive surrounding security interests and intellectual property.

In 1990 the chairs of the American Bar Association's Business Law Section and Intellectual Property Law Section realized that their respective groups were working at cross purposes and at loggerheads in trying to solve a problem which had faced the legal community for many years. On the one hand, the intellectual property bar was moving toward a solution which would establish Federal preemption with respect to security interests in the patent and trademark field akin to what is felt to be the present state of the law on copyrights.

On the other hand, the business lawyers who are familiar in working with the Uniform Commercial Code on a daily basis and who viewed the copyright law structure as an aberration and the then recently decided Peregrine case as an abomination were working to take the Federal Government out of play and to return everything to the States, which had in place working systems with which they were familiar. And thus it came to pass that in true lawyerly fashion the business law section organized a task force and the intellectual property group appointed an ad hoc committee and gave the charge to get together and see if you can't work something out.

I am here as chair of the ad hoc committee of the intellectual property section. Regrettably, Michael Bamberger and Alan Christenfeld, the cochairs of the business law task force, are out of the country and could not be here with me today. However, we did have a nationwide telephone conference with our 30-plus members last week, and the views expressed in our written statement reflect our current thinking and also reflect the substance of resolutions which were passed by both sections at the ABA annual meeting last August in San Francisco.

However, I must emphasize that I am not here today to present the views of the ABA, nor of any section, since our resolutions have not yet gone up through the channels of approval which are mandated by the ABA bylaws.

So, what is the problem with security interests and intellectual property? Basically it is one of uncertainty. I can tell you this from experience, because my father was one, that bankers do not like uncertainty when it comes to handing out their money. Anyone of us who has ever put his name on a promissory note or a loan document does not need to be told that the legal effect of what is being signed is uncertain. Even seasoned lawyers in this field approach giving opinions in this area of the law with a great amount of trepidation.

Now, in our written statement we have outlined the historic sources of the problem including article 9 of the Uniform Commercial Code and its contradictory comments, the lack of any statutory or regulatory expression of how to deal with security interests in the patent and trademark arenas, and indeed significant gaps in the statutory and regulatory scheme of the copyright law such as what to do when the debtor defaults.

Indeed this lack of statutory guidance on what happens in the event of default somewhat highlights the uncertainty of the present situation. We all know what happens if we miss a payment on our car or house. The bank can begin foreclosure proceedings and the law is very clear as to what can happen after that.

But how do you foreclose on intangible property? In the area of copyright we know it is not on the material object in which the copyrighted work is embodied because section 202 of the statute tells us so. We also know it is not by seizing the copyright certificate since the Kingsrow Enterprises case involving the Judy Garland tapes tells us that. So how does one foreclose on a copyright? The present Copyright Act as well as H.R. 897 are noticeably silent, and we offer this just as an example of some of the problems we have been trying to grapple with and coming up with a reasonable solution. In our written statement we have set forth our overall recommendations which we have labeled the "mixed approach." And we are very mindful that whenever you have two committees approaching a task from disparate viewpoints the end product may be a camel. But the proposal we have set forth, we believe, provides a comprehensive, yet achievable, solution which would encompass all elements of intellectual property, meets the needs of both owners of intellectual property and those who obtain security interest in the property.

Our approach has been approved to the extent of a resolution being passed by the business law section and also the intellectual property law section. In addition, the U.S. Trademark Association has passed a resolution favoring, in principle, this mixed approach. And we have also received a favorable report from the permanent editorial board of the Uniform Commercial Code, specifically the study group on article 9.

So, if I could summarize the mixed approach in just a few sentences, it would be as follows: We would recommend that the individual States handle all issues of security interests in intellectual property under U.C.C. article 9 from creation through to foreclosure with respect to all parties except subsequent purchasers for value. With respect to those purchasers for value, Federal law would govern priority, and secured parties would protect themselves by filing a copy of their State filing in the Federal office. This approach would clarify what is covered by the State filing and what is covered by the Federal filing, and by dual filing a secured party would be fully protected.

Now, we have discussed this approach with the Register of Copyrights and his staff, and with the former Commissioner of Patents and Trademarks and his staff. We had a very productive meetingthat was almost 1 year ago and our approach was, at least in our view, well received. In our written statement we support the intent of H.R. 897 to the extent that it would begin to move the issues

of security interests in copyright from the Federal arena and back to the States. We applaud this approach because it is part of what we would hope to accomplish. And, while we have some specific criticisms of the limited approach taken in H.R. 897 in our written statement, we hope that our views are not taken in the wrong vein. We have worked very hard on developing an approach which would cover all aspects of intellectual property, and we would like to see the fruits of our labor translated into a legislative proposal which would completely solve the present problem and establish a framework which we could all live with and work with in the future.

We are hopeful that we can finalize our efforts in the next couple of months, and we would eagerly look forward to working with the subcommittee and its staff in drafting appropriate legislation.

Again, thank you for inviting me to appear, and I would welcome any questions.

Mr. HUGHES. Thank you, Mr. Cleary.

[The prepared statement of Mr. Cleary follows:]

PREPARED STATEMENT OF J. MICHAEL CLEARY, PARTNER, BRYLAWSKI, CLEARY & KOMEN, WASHINGTON, DC, ON BEHALF OF THE AMERICAN BAR ASSOCIATION

The Task Force on Security Interests in Intellectual Property of the Section of Business Law of the American Bar Association, together with the Ad Hoc Committee on Security Interests of the Section of Intellectual Property, welcome this opportunity to present their views on the security interest provisions of H.R. 897.

The views presented in this statement reflect positions taken by the Task Force and the Ad Hoc Committee, and are consistent with resolutions passed by the Section of Business Law and the Section of Intellectual Property Law. However, the views do not represent the positions of the American Bar Association nor of any Section, since no authority to present these views could be obtained in the short time since these hearings were scheduled.

The goal of the Task Force, formed in 1990, with the assistance of the Ad Hoc Committee, has been to recommend a comprehensive legal system governing security interests in intellectual property, likely to be enacted by the relevant legislative bodies, dealing responsibly with the interests of the various parties, that would provide certainty, ease of perfection, modest cost, and minimum change. Any such comprehensive system should encompass creation of the security interest, ready access to prior filings, perfection, priority, acknowledgement of the interests of parties other than the debtor and the secured party, and a method of foreclosure. In addition, such a system should accom

modate the interests of the owners of intellectual property,

lenders desiring to take a security purchasers, investors, and licensees.

interest in such property,

The system would: