example of this. Pricing will tend to find its way to a point that is low enough to motivate institutions to obtain rights for the reuse of coveted material and avoid possible liability for unauthorized use but high enough to create meaningful new revenue for content owners. iCopyright applauds the Copyright Office's fundamental premise that emerging markets should be permitted to develop with minimal government regulation and that copyright owners and users should have the opportunity to establish mutually satisfying relationships as new technology leads to the development of new markets for copyrighted works. We are confident that the frictionless efficiency and immediacy of automated Web-based copyright clearance transactions will provide the foundation for effective market mechanisms to quickly take hold without the requirement of adjustments to existing law. Thank you again for the opportunity to testify today and I look forward to any questions that may be raised by my testimony. Mr. JENKINS [Presiding]. Thank you, sir. [The prepared statement of Mr. Ochsenreiter follows:] PREPARED STATEMENT OF GLENN OCHSENREITER, VICE PRESIDENT, INDUSTRY RELATIONS, ICOPYRIGHT.COM As we are all aware, technology is creating exciting new educational opportunities for students and teachers both in schools and beyond traditional school boundaries. This same technology, however, creates new challenges for schools and copyright owners because of the unique elements represented by digital transmission and display. I am here on behalf of iCopyright to testify that new technology is coming online that will help overcome these obstacles. iCopyright is a privately funded Internet start-up that is launching the first comprehensive, automated copyright permissions and reprints clearinghouse this fall. It is a non-punitive system that respects both the culture of the Web and the value of intellectual property. This Web-based clearinghouse will greatly simplify the process of obtaining a license to reuse copyrighted material. It covers not only traditional reuses such as photocopying and reprints but a broad range of new electronic reuse opportunities as well, such as electronic reprints, or "e-prints," and the distribution of copyrighted material through e-mail. Our service encourages users to do the right thing by making it convenient to do so. There is no fee for content owners to register their material or for users to review licensing terms and be put in contact with the publisher. The service is currently in a pilot program with a number of leading publishers that represent traditional media as well as original Web content, including Barron's Online, COMTEX, Newsweek Interactive, PricewaterhouseCoopers, Wall Street Journal Interactive and Washingtonpost.com. iCopyright enables content owners and users to find each other easily and provides the automated processing infrastructure to immediately execute licensing transactions for the benefit of both parties. As a true clearinghouse, iCopyright is independent of publishers, corporate customers, academic institutions and any particular encryption or payment technology. As such, iCopyright does not choose sides or have a lobbying agenda with respect to the challenging issues of copyright, exemptions to copyright and fair use. We are, however, in a position to testify that the benefits of technologies like ours will soon transform the copyright permission process itself from a cumbersome and extended undertaking that frequently produces no results into a streamlined, efficient operation providing enhanced benefits for intellectual property licensees and licensors. At iCopyright, we are convinced that most corporations and institutional users want to do the right thing in properly licensing the reuse of content-they are often creators and owners of intellectual property in their own right. It should be noted as well that although our service is based on the honor system, our digital tools do allow for self-policing by publishers and regulatory agencies that are seeking to locate unauthorized reuses of content that has been registered with iCopyright. As described in the Copyright Office report, many educational institutions that would like to license material for digital distance education have reported a number of difficulties: first, in locating copyright owners; second, in obtaining a timely response from the copyright owner once located; and third, in meeting the terms set by the copyright owner. We believe iCopyright's automated permissions clearinghouse will produce a positive impact in all of these problem areas. Publishers can easily register their content with iCopyright and list the types of clearances they are willing to license. Users interested in obtaining a license can quickly review available clearances-this can be as easy as clicking on the iCopyright logo at the bottom of a Web document. This service, at no cost to either party, will reduce from months to moments the time it takes to locate the copyright holder and learn what clearances are available. In addition, we believe most content owners will choose to offer instant clearances through iCopyright's patent-pending Web-based transaction engine which automates the clearance process, collects and distributes licensing royalties, and delivers the content in the desired format with proof of clearance. Licensing terms and all decisions about the types of clearances offered through iCopyright are determined entirely by content owners. We believe, however, that the transition to real-time clearance transactions via the Internet will strongly influence and encourage the simplification of these terms and the moderation of license fees. The automation of clearance transactions removes most of the overhead expense previously incurred by publishers. Lower overhead encourages publishers to offer a range of clearances that they could not economically justify in the past. Because of the opportunity to expand the number of clearances provided, lower overhead also encourages lower prices on previously available clearances. In addition, through iCopyright, content owners can more easily provide licenses at no cost for certain uses or for particular classes of users, such as non-profits, academics or for personal use. Because the process is immediate and easy, publishers will find demand increasing because more users can find their clearance offerings and complete the transaction. Most importantly, access to real-time information about prices leads to a more efficient marketplace where the price you pay reflects actual demand. Online auctions are a prime example of this. Pricing will tend to find its way to a point that is low enough to motivate institutions to obtain rights for the reuse of coveted material and avoid possible liability for unauthorized use, but high enough to create meaningful new revenue for content owners. iCopyright applauds the Copyright Office's fundamental premise that emerging markets should be permitted to develop with minimal government regulation, and that copyright owners and users should have the opportunity to establish mutually satisfying relationships as new technology leads to the development of new markets for copyrighted works. We are confident that the frictionless efficiency and immediacy of automated Web-based copyright clearance transactions will provide the foundation for effective market mechanisms to quickly take hold without the requirement of adjustments to existing law. Mr. JENKINS. Professor Cross. STATEMENT OF JOHN CROSS, PROFESSOR OF LAW, Mr. CROSS. Thank you. I would like to thank the subcommittee for the opportunity to speak today. I would like to thank Representative Mazzoli for his kind words of introduction. My written statement actually deals with both of the matters on the agenda, but because of the makeup of this panel, I thought I would confine my oral testimony to the Copyright Office proposal. Let me say at the outset that I have experience on both sides of the issue of digital distance education. While in practice, a number of my clients were intellectual property owners and my work was to protect their interests. Now I am an educator and I have seen that distance education, although I was a skeptic at first, does hold out a number of advantages. It does hold out a number of advantages especially to the socalled non-traditional student. Like everyone else on the panel, I would like to commend the Copyright Ŏffice for an excellent report. I have no quibbles or qualms whatsoever with the background material. I really have nothing to add to that background. My discussion is going to focus, like everyone else, on the proposals for legislative change that were set out in that report. I think my views correspond quite closely to those of Professor Gasaway. The proposal does make a number of excellent suggestions for changes to section 110(2), the exception that deals with educational transmissions. Because of changes in technology, those proposed amendments are crucial if digital distance education is truly going to work. The goal, as I see it, though, is not simply to make distance education work, but to maximize its use in order to reap the benefits to non-traditional students. If we are going to do that, if we are truly going to maximize the use of digital distance education, then I would suggest the Copyright Office Report's proposals don't go far enough. Currently the Copyright Act has two separate exceptions that deal with educational use. Section 110(2) we have discussed at length. There is also section 110(1), the face-to-face in-class section. If we are going to encourage the use of distance education, why not make the two into one? Why not merge section 2 into section 1, thereby abolishing all of the additional limitations on digital distance education? The greatest impact as we have discussed so far would be on things like audio-visual works. Audio-visual works cannot currently be shown by distance education. They can be shown in the classroom. That would, or could at least, create problems. I think the fear is we are going to have some sort of pirate industry of students downloading vast quantities of material and distributing them in some sort of underground market. I admit that could be a real fear. I would suggest, though, that the Copyright Office proposal provides a way to control that, and again I will return to the question of technology. The proposed changes to section 110(2) recommend the use of technological controls to limit the distance education process. These technological controls really touch on three points. First, they limit student access. They limit access to students enrolled in the class. Second, you limit the students basically to a single opportunity to view the work. Third, you would limit the ability to download works and to make copies for others. If the act is amended to add those restrictions, what real difference is there between distance education and the section 110(1) classroom experience? The fundamental idea underlying the section 110(1) exception is that the student sees the work once and really has no opportunity to make a real copy. If we can add technological restrictions that limit distance education students in the same way, why should we treat the two situations any differently? As long as an educator and an educational institution make a reasonable effort to use available technological controls, then I suggest the two ought to be treated equally. Both ought to be able to show exactly the same sorts of works in their entirety. In closing, I would like to emphasize the Constitution itself tells us why we have copyright. The purpose of copyright is to promote the progress of science. Science in the Constitution means knowledge, and while I agree that it is crucial to provide an incentive to artists, musicians, and authors to produce that knowledge, we can't forget that it is also important to ensure that that knowledge reaches its intended beneficiaries. We need to have amendments to the Copyright Act that allow distance education to reach its full potential. I would like to thank the subcommittee for the opportunity to speak. I would be willing to answer questions not only on the Copyright Act proposal but perhaps as part of the second panel regarding security interest proposal. Thank you. Mr. COBLE. Thank you, Professor. [The prepared statement of Mr. Cross follows:] PREPARED STATEMENT OF JOHN CROSS, PROFESSOR OF LAW, UNIVERSITY OF LOUISVILLE SCHOOL OF LAW SUMMARY Both of the items on today's agenda deal with important issues that have arisen in the realm of intellectual property. Although the proposals contained in each document are essentially sound, both could benefit from a few minor changes. Report on Copyright and Digital Distance Education This comprehensive report does an admirable job setting out the many copyright problems that have arisen in the use of new digital technologies for distance education. I fully agree with the overwhelming majority of the Report, especially the background materials. My few comments relate solely to the suggestions for legislative change contained in the report. In short, I: • Generally agree with most specific proposals set out in the Report. The antiquated language of the § 110 exceptions should be updated to enable the effective use of modern digital technology in distance education. • Disagree with the proposal that teachers involved in distance education should not have the same freedom to use copyrighted works as teachers in the classroom. Suggest that rather than amending § 110(2), Congress should merge that exception into the "face-to-face" education exception in §110(1). This more sweeping change would put distance education on an equal footing with classroom education insofar as the unlicensed use of copyrighted works is concerned. The greater risks posed by distance education could be dealt with by technological controls. Federal Intellectual Property Security Act This proposal for legislation seeks to remedy flaws in the filing systems maintained by various federal offices for security interests in intellectual property. Although the proposal is well thought-out and carefully crafted, it could be improved in several ways, including: Excluding marks from the provision requiring the filing of a federal financing statement. Because of several crucial differences between federal marks and other forms of federal intellectual property, the proposal would result in a de facto “dual-filing" system for marks. In addition to being redundant, this dual-filing system poses some risk to lenders and consumers. • Revising the key provision to make it clear that filing a federal financing statement gives the lender priority not only over subsequent transferees, but also over junior secured lenders. STATEMENT Mr. Chairman and the Members of the Subcommittee: My name is John Cross. I am a Professor of Law at the University of Louisville School of Law in Louisville, Kentucky. Before I begin, I would like to thank the Subcommittee for the opportunity to address the two items on today's agenda. Because of my professional background, I can offer some unique insights into the matters before the Subcommittee. Prior to accepting a faculty position at the University of Louisville, I was an attorney in private practice in Minneapolis, Minnesota. A major portion of my practice involved representing the interests of small firms in obtaining and protecting intellectual property, especially trademarks. In that practice, I had the opportunity to deal with some of the problems that can arise when firms attempt to use their intellectual property as collateral for loans. I have continued to specialize in intellectual property during my academic career. I regularly teach courses in Law and Computers and Trademark Law. I have published several articles dealing with various facets of intellectual property law. I have also had occasion to deal with these issues from a more practical perspective. I have served on my law school's technology committee for several years, acting as chair for the last two. In addition, I regularly provide consulting services for the University's Office of Technology Transfer, focusing primarily on patents. In this same capacity, I recently helped rewrite the University policy concerning ownership of intellectual property in inventions and works produced by University faculty. Finally, for the past several months I have served on a university committee dealing with, among other matters, the use of computer technology in distance education. My work at the University of Louisville has kept me in tune with the myriad problems that arise in connection with distance education. The University of Louisville is a regional leader in providing distance education. Although we, like many other universities, originally used only television technology, the past few years have seen various faculty experiment with the use of other technologies, including interactive synchronous video and asynchronous web-based classrooms. More recently, the Commonwealth of Kentucky launched a major new distance education initiative, called the "Commonwealth Virtual University," in which most of the Commonwealth's universities will participate. Because of these activities, I consider myself qualified to comment on each of the proposals before the Subcommittee. Before dealing with the specifics of each proposal, I would like to offer a few general comments concerning both the Report on Copyright and Distance Digital Education and the proposal for a Federal Intellectual Property Security Act. Both documents deal with important issues facing modern intellectual property owners. Both deal with these issues in a comprehensive and well-considered way. The concrete proposals for legislative change in each document have been carefully crafted to deal with the problems identified. Therefore, I wish to make it clear that although my statement identifies and discusses certain problems with each document, the positive aspects of each document far outweigh the problems. The proposals for legislative change set out in the Report on Copyright and Digital Distance Education would, if enacted into law, go a long way toward ameliorating some of the problems posed by the use of digital technology in distance education. Likewise, the Federal Intellectual Property Security Act could easily be turned into a bill dealing with providing notice of security interests in federal intellectual property. Each of these proposals needs only a little "fine-tuning" to become effective legislation. The remainder of my Statement will deal with each of the documents in turn. Report on Copyright and Digital Distance Education Throughout the history of the United States, there has been a tension between education and copyright. The ultimate purpose of copyright is to advance the general level of knowledge. This goal is reflected in Article I, §8 of the Constitution, which allows Congress "To promote the Progress of Science and the useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries." Yet, the system the framers designed sometimes works at cross-purposes with the ultimate goal of increased knowledge. That system seeks to advance the general level of knowledge by giving authors exclusive control over the fruits of their creative activity. However, neither the Constitution nor the enabling legislation contains a general requirement that authors and inventors disseminate their works. There is no general compulsory licensing requirement in the Copyright Act. Accordingly, a stubborn author may prevent release of her work, thereby denying society the benefits of her creative activity and potentially thwarting the pursuit of greater knowledge. Recognizing this problem, Congress has exempted certain educational activities from the federal copyright laws. As discussed at length in the Report, § 110 of the Copyright Act creates several broad exceptions relating to education. Section 110(1) allows nonprofit educational institutions to perform or display any copyrighted work in the context of face-to-face education. Section 110(2) creates a prerogative to perform or display copyrighted works as part of an educational "transmission." That second exception, of course, directly pertains to distance education. However, the § 110(2) prerogative to transmit works is much narrower than the §110(1) prerogative to use works in the classroom. For example, while a teacher may perform any work in class, he may transmit a performance of only nondramatic literary or musical works. That limitation would significantly impair an educational institution's ability to offer a distance course in, e.g., "Modern American Film." Other provisions |