STATEMENT OF FRITZ ATTAWAY, SENIOR VICE PRESIDENT FOR CONGRESSIONAL AFFAIRS AND GENERAL COUNSEL, MOTION PICTURE ASSOCIATION OF AMERICA (MPAA)

Mr. ATTAWAY. Thank you, Mr. Chairman. Appearing here in place of Jack Valenti and then having to appear after Pat Schroeder puts pressure on me almost more than I can bear, but I will try this. I am also well aware of the 5-minute rule. Your counsel has advised me of that. In fact, she told me if I was a little shorter that would be nice too, so I will try to do that as well.

Mr. COBLE. She was taking undue liberty when she told you that. [Laughter.]

Mr. ATTAWAY. Thank you very much for allowing me to be here to present the views of the Motion Picture Association on these two very important issues.

MPAA commends the Register of Copyrights and her staff for the truly remarkable job that they did in preparing the Report on Digital Distance Education. They did it in the very short time frame provided by the Digital Millennium Copyright Act of 1998 and they did a thorough, thoughtful, illuminating, and insightful job.

We generally agree with the basic findings of the report which are well supported by oral and written statements and related information collected during the Register's short but meticulous investigation. Significantly, the Copyright Office did not find that current requirements for licensing copyrighted works for distance education uses, are materially slowing the development of distance education activities in this country. Although I would very much like to continue praising the Copyright Office report, I must now turn to matters of disagreement.

MPAA does not believe that the record developed through extensive written comments, hearing testimony, and demonstrations supports the recommendations for far-reaching legislative change contained in the report. Having found digital distance education activities in a state of early and dynamic development, and the technology not yet available that will make distance education uses safe for copyright owners, the Copyright Office nonetheless recommends some recalibration of the Copyright Act that at best may be unnecessary, and at worst could have a profound and adverse impact on copyright owners.

The possibilities of improper access and use, as the Office report points out, are manifestly magnified in the digital on-line environment, and has universally recognized the consequences in the digital environment of unauthorized reproduction, distribution, and modification of copyrighted works could be catastrophic. Yet the Office recommends that the use of audio-visual works be permitted in digital distance education in the face of findings that, quote, “Sophisticated technologies capable of protecting content against unauthorized post-access uses are just now in development or coming to market, although it is not clear when they will be widely available in a convenient and affordable forum that can protect all varieties of works."

Mr. Chairman, as a participant in two major negotiations aimed at setting forth fair use guidelines for the use of copyrighted material by educators, I can tell you without hesitation or qualification of any kind, that this is the way to go if existing practices need to

be recalibrated to accommodate digital distance education activities. Face-to-face negotiations by men and women of goodwill and common purpose can produce dramatic results, offering welcome guidance for users and copyright owners alike. Moreover, guidelines can yield flexible results addressing emergent problems and addressing outcomes where necessary.

I urge you to consider that course if you find there is need for recalibration, and to establish a framework with appropriate congressional monitoring and oversight that will meet the educational needs of this country.

Turning now, if I may, to the issue of secured transactions, I have to tell you I am not an expert on the UCC or the law of secured transactions, but I have been advised by the experts in my industry that any changes in existing law are not necessary. On the general question of whether changes are needed in the present law governing security interests and intellectual property, our members see no urgent problem that needs to be fixed. In fact, we see no problem at all. The question that is presented is: Why? Who will benefit? Will any change facilitate the creation of copyrighted works? The current proposals will not benefit the producers that I represent, and if the present system works for creators and copyright owners, I would urge you to resist changing it.

Thank you very much.

Mr. COBLE. Thank you, Mr. Attaway.

[The prepared statement of Mr. Attaway follows:]

PREPARED STATEMENT OF FRITZ ATTAWAY, SENIOR VICE PRESIDENT FOR CONGRESSIONAL AFFAIRS AND GENERAL COUNSEL, MOTION PICTURE ASSOCIATION OF AMERICA (MPAA)

Mr. Chairman, members of the Committee, thank you for giving me this opportunity to express the views of MPAA on the Report of the Copyright Office on Copyright and Digital Distance Education, and on Intellectual Property Security Registration. MPAA member companies, which are among the world's largest owners and distributors of theatrical motion pictures, TV programs and home video material, have vital interests at stake with respect to both of these subjects.

REPORT OF THE U.S. COPYRIGHT OFFICE ON COPYRIGHT AND DIGITAL DISTANCE EDUCATION

MPAA commends the Register of Copyrights and her staff for the remarkable job they did in preparing this Report in the very short time frame provided by the Digital Millennium Copyright Act of 1998. The Report is thorough, thoughtful, illuminating and insightful. It provides an excellent starting point for the consideration of whether the Copyright Act should be amended to facilitate digital distance education.

MPAA participated at every stage of the process that led to this Report, and I am pleased to say that our views are fully and fairly represented, along with those of other interested parties. Moreover, we generally agree with the basic findings in the Report, which are well supported by oral and written statements and related information collected during the Register's short but meticulous investigation. In particular, we fully concur with the findings that:

1. Digital distance education is in its nascent stage of development, but programs in existence are robust and thriving.

2. Digital distance education activities are growing rapidly.

3. Licensing mechanisms are developing to facilitate authorized use of copyrighted works in digital distance education activities.

4. Unauthorized access to, and reproduction and distribution of, copyrighted material used in digital distance education is a major concern that technology is being developed to address.

5. Although significant strides are being made, it remains to be seen when technologies necessary to prevent unauthorized access, reproduction and distribution will become widely deployed and available.

Significantly, the Copyright Office did not find that the current requirements for licensing copyrighted works for distance education uses is materially slowing the development of distance education activities. Of course, there are accounts that licenses could be easier to obtain and less costly, but such comments are not unique to educators. Most users of copyrighted material, including motion picture companies, frequently wish that they could obtain the right to use certain works that are not available for licensing or, in the eye of the user, over-priced.

Although I would very much like to continue praising the Copyright Office Report, I am at the point where I must turn to matters of disagreement. MPAA does not believe that the record developed through extensive written comments, hearing testimony and demonstrations of the vitality and range of distance education initiatives underway, supports the recommendations for far-reaching legislative change contained in the Report.

Having found digital distance education activities in a state of early and dynamic development, and the technology not yet available that will make digital distance education uses safe for copyright owners, the Copyright Office nonetheless recommends some "recalibration" of the Copyright Act that at best may be unnecessary, and at worst could have a profound, adverse impact on copyright owners.

As I view the Office's recommendations, it proposes that Sections 110(1) and 110(2) be collapsed with respect to digital distance education. That is, categories of works permitted for classroom use under Section 110(1) would be permitted for digital distance education purposes where their use would not be allowed (without the permission of the copyright owner) under Section 110(2) which addresses analog distance education activities.

This may not sound particularly radical, but it is. The performance of audiovisual works is permitted by Section 110(1) where use is confined to face-to-face teaching activities in a classroom or similar place devoted to instruction. In this environment, unauthorized access is tightly controlled, as is unauthorized use-in particular, the making and further dissemination of copies. Audiovisual works may not be used without permission under Section 110(2), where students are not all in one place; where access cannot be effectively controlled; and where improper uses cannot be effectively prevented.

The possibilities of improper access and use, as the Office's Report points out, are manifestly magnified in the digital on-line environment. And, as is universally recognized, the consequences in the digital environment of unauthorized reproduction, distribution and modification of copyrighted works could be catastrophic. Yet, the Office recommends that use of audiovisual works be permitted in digital distance education in the face of findings that "Sophisticated technologies capable of protecting content against unauthorized post-access use are just now in development or coming to market, although it is not clear when they will be widely available in a convenient and affordable form that can protect all varieties of works.

In fairness, I should point out that the Office's recommendations include the imposition of new safeguards aimed at counteracting the new risks, and, significantly, that use of audiovisual works be restricted to portions of works, but not entire works. However, the recommendations provide scant illumination of the structure and effectiveness of the "new safeguards," or of the definition of "portions."

As a participant in two major negotiations aimed at setting forth "fair use" guidelines for the use of copyrighted material by educators, I can tell you from personal experience that it is excruciatingly difficult to find the right words to delineate between what can be freely used and what requires permission, even when the parties are in total agreement on the concepts that should apply. But it can be, and has been, done.

After enactment of the 1976 Copyright Law Revision members of the educational and copyright communities negotiated guidelines for the off-air taping of broadcast programming for educational use. To my knowledge, these guidelines have been followed without complaint from either side for some 20 years now. More recently, in 1996, agreement was reached on guidelines governing the use of portions of works in educational multimedia productions.

As a participant in both of these successful negotiations, I can tell you without hesitation or qualification of any kind, this is the way to go if existing practices need to be "recalibrated" to accommodate digital distance education activities. The legislative process is, by its nature, public and often adversarial. Differences tend to be magnified and solidified in the heat of legislative battle by the need to take a firm public posture. By contrast, face-to-face negotiations by men and women of good will

and common purpose can produce dramatic results capable of addressing issues in far greater detail, and offering welcome guidance for users and copyright owners alike. Moreover, guidelines can yield flexible results, addressing emergent problems and adjusting outcomes where necessary. If participants get it wrong, or circumstances change, problems can be fixed without having to undergo the rigors of the legislative process over and over again.

I urge you to consider that course if you find there is a need for "recalibration," and to establish a framework, with appropriate Congressional monitoring and oversight, that will meet the educational needs of our country. Indeed, under the auspices of the Patent and Trademark Office's Conference on Fair use, a significant amount of spade work has already been done with respect to proposed distance learning guidelines. If it does not work, you can always initiate a legislative process. But if you initiate a legislative process now, you may miss a golden opportunity to advance our educational objectives as well as provide necessary protection to copyright owners by the shortest, most efficient route.

INTELLECTUAL PROPERTY SECURITY REGISTRATION

Mr. Chairman, I must admit up front that I am not an expert in the Uniform Commerical Code or the law of secured transactions. I will do my best to relate the concerns expressed to me by experts in my industry. If I come up short, I trust you will permit me to supplement the record at a later time.

On the general question of whether changes are needed in the present law governing security interests in intellectual property, we do not believe the case has been made for change. Perhaps this hearing will reveal evidence to the contrary, but our members see no urgent problem that needs to be fixed. In fact, we see no problem at all. In our industry and in others with whose representatives I have discussed this proposal, creators of copyrighted works do not seem to be seeking changes in the current system because they cannot obtain financing. I would urge you, as a threshold matter, to make sure there is a real world problem that needs to be fixed before you spend your valuable time on complicated, and potentially disruptive changes in the law.

With respect to the proposal on security interests in intellectual property offered by the American Bar Association, we believe it creates serious problems for copyright owners as well as anyone wishing to acquire an interest in a copyrighted work. Vague General Filing: The ABA proposal would eliminate Copyright Office recordation of security interests in specific copyrighted works and would only require filing of a general "federal financing statement" to perfect a security interest in intellectual property. The new federal financing statement under the ABA bill would not contain information sufficient to permit a party seeking to acquire a copyrighted work to determine whether that particular work was subject to a lien. Instead, the ABA bill would only require: (1) the name and address of the debtor and the secured party, and (2) a very general description of the collateral, such as "intellectual property" or "general intangibles."

Copyrighted works are frequently transferred on an individual or "catalogue" basis, and ensuring a clear chain of title for each particular work is critical. The current recordation practice facilitates these transactions. In fact, the Copyright Office records are often the only resource available to be "searched" for information pertaining to the initial ownership of, transer of rights in, and encumbrances on a copyright. The ABA proposal would significantly erode the utility of this important public record by allowing the following statement to satisfy the recordation requirement: "Party X has a security interest in all intellectual property now or hereafter owned by Party Y." The ABA proposal would place a substantial new burden on the purchasers of copyrights to confirm that a work is unencumbered.

Not only is the general filing requirement inappropriately vague, but the ABA proposal deems effective statements that contain errors or omissions, as long as any errors or omissions "are not seriously misleading." This loophole makes the federal financing statement essentially meaningless.

Coverage of Future Works: Under current law, security interests may only be recorded in the Copyright Office with respect to existing copyrighted works that are registered with the Copyright Office. The ABA proposal unwisely overturns this practice and would allow filing against future, as-yet-uncreated, unregistered copyrighted works. The leverage this would provide to lenders over authors and copyright owners is unacceptable. For example, under the ABA proposal, a small, recently established publishing company seeking a business loan may be forced to grant a security interest in later developed works without knowing which specific works are involved. Under current law, the disadvantage that a small company would have against a large financial institution is minimized because security inter

62-500 D-00--2

ests will attach only to those works that are registered and that are specifically identified by the lender. The ABA would upset this balance and tilt the field in favor of financial institutions.

Funding Problems for New Filing System: The ABA proposes to create a new filing bureaucracy in the Copyright Office. The Copyright Office has already expressed its concerns over the large number of recordations of security interests and the expense of administering the existing system. The expense of creating and administering a new filing system would be even greater (particularly given the new ABA administrative requirements, such as renewal and continuation filings). Because most Copyright Office services are now user-fee supported, the new filing bureaucracy would impose a substantial economic burden on copyright owners that regularly use the registration, recordation and other services of the Copyright Office. The inevitable increased fees for copyright owners are not acceptable particularly when we view the vague filing as having little utility to our industries. Lender arguments about the burdens of "double-filing" are disingenuous. As anyone who has ever purchased a house or established a small business knows, financial institutions do not absorb administrative and filing costs-they pass them along to the borrower.

The more brief proposal put forth by the Commercial Finance Association is also of concern to us. The bill would overturn in part the decision in In re Peregrine Entertainment Ltd., which focused on the importance of uniformity in a single filing system to providing adequate notice of encumbrances on copyrights, and held that the Copyright Act preempts state law regarding the manner of perfection of security interests in a copyright. Under the CFA proposal, it would be difficult, if not impossible, to determine whether there are encumbrances on copyrights. Again, our members are not troubled by existing law and practice-indeed they see substantial value in the current system-and do not seek legislative change.

The question "Why?" still looms large over any proposal to change existing law. Who will it benefit? Will it facilitate the creation of copyrighted works? The current proposals will not benefit the producers I represent. If other creators would benefit, we should hear from them. However, if the present system works for creators and copyright owners, I would urge you to resist changing it.

Again, I would like to thank you for giving me this opportunity to present the views of MPAA members. I look forward to responding to your questions.

Mr. COBLE. Ms. Gasaway.

STATEMENT OF LAURA GASAWAY, DIRECTOR OF THE LAW LIBRARY AND PROFESSOR OF LAW, UNIVERSITY OF NORTH CAROLINA, ON BEHALF OF THE ASSOCIATION OF AMERICAN UNIVERSITIES

Ms. GASAWAY. Thank you, Mr. Chairman, members of committee. I am delighted to be here to represent the major higher education associations in support of legislation to amend the Copyright Act to update the exemptions for educational transmission.

As others on the panel have said, the Copyright Office did a marvelous job with its report and we believe that the recommendations contained in the report go a long way toward enabling institutions to move into the next century to utilize fully digital technologies without jeopardizing the market for copyrighted works.

We agree with Ms. Peters, Mr. Chairman, that the time is now to amend the Copyright Act for performance and display in distance education. Such an amendment serves the public interest in making education more accessible to all of our citizens.

Our education associations find themselves in the middle of this higher education debate, because we are certainly the initiators of many of the courses, but we are also the producers of much of the copyrighted material that is used. We have university presses that are a part of us as we approach these hearings, and indeed you have heard that many of the producers are calling for no amendment. On the other side, many of our constituents felt that we