Mr. COBLE. If you will suspend a minute. You have been very diligent in your previous visits here and have never abused the 5minute rule, and since you are addressing two topics, we will cut you some slack.

Ms. PETERS. Thank you. Two very complicated topics, I might add. I have been asked to present our views on the proposal by a task force of the American Bar Association for a Federal Intellectual Property Security Act. The proposal, as you noted, is in response to issues raised by the 1990 Peregrine case. That case held that the only way to perfect a security interest in copyrighted works was to record the security interest in the Copyright Office. The basic holding was unremarkable and, we believe, correct. In fact, the drafters of the 1976 act intended that all assignments of copyrights, including security interests, be recorded in the Copyright Office in order to create a single comprehensive registry of claims to copyright and of transfers of copyright ownership.

Nevertheless, Peregrine was not received favorably in many quarters, especially by lenders who prefer to perfect their security interest and copyright under State law by filing UCC-1 forms with secretaries of state.

The proposal apparently is designed to address the concerns of lenders who wish to avoid the more exacting requirements of the office's recordation system and instead to utilize the much easier but much less informative UCC system. It also addresses the concerns of some copyright owners who believe it would be easier to borrow funds that they need if their lenders can perfect their liens using the UCC system.

The proposal would permit lenders to perfect security interests in copyrights, in fact all Federal intellectual property rights, with a UCC filing at the State level. Alternatively, they could perfect their security interest by filing something called a Federal financing statement, something similar to a UCC-1, with the Copyright Office or, for that matter, with the Patent and Trademark Office or the Plant Variety Protection Office if the security interest pertains to the rights administered by those offices.

The current system for recording transfers of copyright other than security interest would not be altered except that the 1-month grace period for filing a document would be eliminated in favor of a first-to-file system. Transfers secured through a default of a security interest would be recorded by filing financing statements rather than recording the actual document of transfer.

We contacted representatives of a number of copyright industries to hear their views on the current system and the ABA proposal. Despite the publicity that has been given over the past few years to the criticism of Peregrine, we learned that most copyright owners are satisfied with the basic framework of the current system, even after Peregrine, and that they oppose the ABA proposal. The consistent theme was that copyright owners prefer the convenience of being able to search all rights pertaining to a copyright in a single office rather than having to search our records as well as the records of one or more State secretaries of state. They also prefer having access to the actual document of transfer so that they can determine for themselves what rights have been secured or transferred, rather than having access only to a financing statement

that is much less informative. And they prefer the current system that records rights in specific works rather than a system based on vague statements of liens on a party's intangibles or intellectual property rights.

We do not profess to be experts in secured transactions nor do we presume to speak to the merits of the proposal insofar as it may address the needs of reforms in the patent and trademark areas. Based on our experience and expertise in administration of the copyright law, we do have serious concerns about the changes that the proposal will impose on the current system.

Some of our particular concerns which are set forth in greater detail in our written testimony are, one, the proposed changes in the system for recording copyright transfers other than security interests. Two, permitting perfection of security interest without requiring specific identification of the work secured. Three, making an exception for security agreements to the requirement that the actual document embodying the transfer of copyright be submitted for recordation. Finally, we are also concerned that the proposal provides for the coexistence of dual State and Federal systems for recordation of security interest.

We are certainly not here to defend the current system as perfect. We know that some needs of lenders and copyright owners are not being met. For example, the current system does not address the problem of after-acquired property, an issue of particular interest to venture capitalists and start-up companies. We do not, however, come here with a solution to the problem. The proposal is designed to address that solution, but it does so in a way that to meet the needs of one segment of copyright owners and their lenders, it would seriously weaken a system that serves the needs of the vast majority.

Although we believe that the ruling in Peregrine was fundamentally correct, we do not believe that a correct reading of current law necessarily supports the conclusion that Federal copyright law preempts State methods of perfecting security interests in accounts receivable relating to copyrights. We understand that much of the dissatisfaction relates to that part of the case.

Serious consideration should be given to clarifying that security interests in royalties and receivables may be recorded at the State level, even though a copyright may be lurking in the background. We also recognize that secured lenders desire to establish the priority of their liens vis-a-vis other lenders by resorting to the UCC system that they use every day. We do not believe that it would necessarily do violence to the statutory scheme if security interests could be perfected at the State level for the limited purposes of establishing priority among competing security interests. However, we believe that a secured creditor who wishes to secure his rights against the entire world, including those who have purchased rights in a copyrighted work, should be required to use the office's centralized system.

In conclusion, we believe that enactment of the ABA proposal would change many established practices which continue to serve the interest of most copyright owners and others who need access to information about copyright owners. We would not oppose

changes where a broad consensus has been achieved but we believe that many of the changes proposed are controversial.

Today's hearing serves a useful function as a starting point for discussion and debate about these issues, but we believe any changes should be considered only after a careful study of the current system of the needs of copyright owners, creditors, and other users of the recordation system, and of the desirability and feasibility of changing the system that has so long served the interest of the copyright community.

Thank you.

Mr. COBLE. Thank you, Ms. Peters.

[The prepared statement of Ms. Peters follows:]

PREPARED STATEMENT OF MARYBETH PETERS, REGISTER OF COPYRIGHTS, COPYRIGHT OFFICE OF THE UNITED STATES, THE LIBRARY OF CONGRESS

Mr. Chairman, members of the Subcommittee, I am pleased to testify today on a proposal of the American Bar Association Joint Task Force on Security Interests in Intellectual Property labeled the "Federal Intellectual Property Security Act." While it is widely known that the Copyright Office has registered copyright claims since 1870, it is less commonly known that this Office has also recorded transfers of copyrighted materials from that date. Today, transfers of huge catalogs or libraries of copyrighted works occur frequently. Recordation of transfers-including security interests-is one of the core functions of the Copyright Office.

Our testimony today is based upon our expertise and experience in the administration of copyright law. We do not profess to be experts in the law or business of secured transactions. Nor would we presume to speak to the merits of the ABA proposal insofar as it may address needed reforms in the patent and trademark laws. In preparing for this hearing, we have consulted with representatives of various segments of the copyright community who have a stake in the system of recordation of transfers of interests in copyrights. We also recognize that lending institutions have an interest in a system that reliably and efficiently provides constructive notice of interests in copyrights, including security interests. We hope that today's hearing will represent the beginning of a dialog between those who believe that the framework of the current system is fundamentally sound-a view that we believe is shared by most copyright owners-and those who perceive a need for a system that better accommodates the requirements of their lending practices.

As I have suggested, it is the Copyright Office's understanding that some businesses producing copyrighted property and many financial institutions may support the ABA proposal. However, the Copyright Office also believes that the current recordation system, which requires the submission of actual documents and makes them part of the public record, is preferred by most copyright owners. Additionally, many prefer that constructive notice be limited to documents that specifically identify works and support the requirement that the work identified in the document be registered. I believe these are real strengths of the current system.

BACKGROUND TO COPYRIGHT RECORDATION

The current copyright recordation system had its origins in the first copyright statute assigning copyright responsibilities to the Librarian of Congress. In the Copyright Act of 1870,1 section 89 [later recodified as section 4955] provided as follows:

"That copyrights shall be assignable by law, by any instrument of writing, and such assignment shall be recorded in the Office of the librarian of Congress within sixty days after its execution, in default of which it shall be void as against any subsequent purchaser or mortgagee for valuable consideration, without notice."

Courts interpreting the provision ruled that the requirement of recordation was mandatory.2

116 Stat. 212; 41st Cong., 2d Sess., c. 230 sections 85-111 (1870).

2 Brady v. Reliance Motion Picture Corp., 229 Fed. 137 (2nd Cir. 1916) (interpreting the provision in the 1870 Copyright Act).

The 1909 Copyright Act enlarged the grace period but otherwise maintained the essence of the previous recordation system.3 Section 44 [later recodified as section 30] provided as follows:

"Every assignment of copyright shall be recorded in the copyright office within three calendar months after its execution in the United States or within six months after its execution without the limits of the United States, in default of which it shall be void as against any subsequent purchaser or mortgagee for a valuable consideration without notice, whose assignment has been duly recorded."

As with the 1870 Act, courts interpreted the recordation provision in the 1909 Act to be mandatory.4 With respect to mortgages, the Second Circuit ruled in 1921 that copyrights can only be mortgaged under the federal copyright law.5

Based on our review of the background to the adoption of the general revision of the Copyright Act in 1976, it seems clear that Congress intended to create a federal system of copyrighted works which included a registry of claims to copyright and of transfers of copyright ownership. The 1961 Report of the Register of Copyrights on copyright law revision noted that although the previous law's requirement of recordation in the Copyright Office applied only to "assignments," it was not entirely clear under that law whether “assignments" included exclusive licenses or other transfers of less than all rights. The Report proposed that the law be clarified to state that other instruments, such as wills, trust indentures, decrees of distribution, mortgages and discharges, and corporate mergers should be considered transfers of copyright ownership. The Office recommended that the new statute specifically cover exclusive licenses and all other transfers of ownership. (Emphasis added).6 The Register stated that the purposes of a recordation system for copyright transfers were:

(1) to enable a transferee to give constructive notice to all third persons of the transfer of ownership to him; and

(2) to enable third persons to determine from the record who is the owner.7 These goals were also enumerated by Alan Latman in his study of the recordation system. To meet these goals, the recordation system had to embrace all instruments by which the ownership of copyright is transferred in whole or in part. The Report of the Register stated that "records of copyright ownership are particularly important in view of the nature of copyright as a form of intangible and incorporeal property not capable of physical possession."

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With respect to what should be filed, the Office stated that there "should be practical assurance that the instrument recorded is precisely the same as the one executed." 10 Therefore, the Office recommended that the statute explicitly require that any instrument filed for recordation bear the actual signature of the person executing it or a sworn or official certification that it is a true copy. The Office stated that constructive notice should be confined to the facts specified in recorded instruments. Unrecorded documents could not get such effect. Moreover, the Office rejected blanket transfers. The Register's Report stated that “in some cases a recorded transfer will cover 'all the copyrights' owned by the transferor with no identification of the individual works," and concluded that constructive notice should be confined to copyright in works specifically identified by the recorded instrument. Otherwise, it might be "extremely difficult and time-consuming for a third person to ascertain whether the copyright in a particular work is covered by such a blanket transfer." 11 The transfer provisions in the current law reflect the goals and recommendations of the Register. They were determined early in the revision process; the recordation

3 Act of March 4, 1909, ch. 320. section 44, 35 Stat. 1075, 60th Cong. 2d. Sess. (1909).

4 Photo-Drama Motion Picture Co. v. Social Uplift Film Corp., 213 Fed. 374 (S.D.N.Y.), aff'd, 220 Fed. 448 (2nd Cir. 1915).

5 In re Leslie-Judge Co., 272 Fed. 886 (2nd Cir. 1921).

6 Report of the Register of Copyrights on the General Revision of the U.S. Copyright Law, House Committee Print, 87th Cong. 1st Sess. p. 94–95 (1961).

7 Id., p. 95.

8 Alan Latman, The Recordation of Copyright Assignments and Licenses, Copyright Office Study No. 19, Committee Print, Subcomm. on Patents, Trademarks, and Copyrights, Senate Comm. on Judiciary, 86th Cong. 2d Sess. p. 119 (1960). The Latman study was one of 35 copyright law revision studies prepared for the Senate Subcommittee on Patents, Trademarks and Copyrights under the supervision of the Copyright Office.

Report of the Register of Copyrights on the General Revision of the U.S. Copyright Law, House Committee Print, 87th Cong. 1st Sess. p. 95 (1961).

provision of the first revision bill in 1964 was virtually identical to section 205 of the current law. 12 During the next twelve years (i.e., up to and including the passage of the Copyright Act of 1976), this section generated no controversy.

Today processing transfers of copyright ownership involves several steps. The original document that transfers copyright ownership which bears the actual signature of the person who executed it must be submitted for recordation; alternatively, a copy of the document may be submitted if it is accompanied by a sworn or official certification that it is a true copy of the original signed document. A Document Cover Sheet may be used to facilitate the cataloging process. Documents are verified, numbered, cataloged, and imaged for the public record. Certificates of recordation are issued; they bear the date of recordation and the volume and document number identifying the recorded document.13 The original document is returned to the sender with the certificate. An online record is created of recorded documents which is searchable by parties and titles. In addition, registration numbers, if any, the nature of document, the date of execution and other bibliographic data appearing in the document are included in the online record. Processing time is currently about 6 months.

Before 1990, no question had been raised about the scope of the recordation provision. That changed with the decision of In re Peregrine Entertainment Ltd., 116 B.R. 194 (C.D. Cal. 1990), which held that the only way to perfect a security interest in copyrighted works was to record the security interest with the U.S. Copyright Office. This was the intent of the drafters of the 1976 Act. However, after Peregrine some questioned whether section 205 of Title 17 was intended to be the sole method of perfection for security interests in copyrighted works. Moreover, the banking industry apparently believes the UCC filing system for security interests should play a prominent role in financing arrangements regarding copyrighted property.

The Peregrine decision was followed by two additional cases with similar holdings. In re AEG Acquisition Corp., 127 B.R. 34 (Bank. C.D. Cal. 1991), amended, 161 B.R. 50 (9th Cir. BAP 1993); In re Avalon Software, Inc., 209 B.R. 517 (Bank. D. Ariz. 1997). Recently, the United States Court of Appeals for the Ninth Circuit held in Broadcast Music, Inc. v. Hirsch, 104 F.3d 1163 (9th Cir. 1997), that an assignment to creditors of an interest in royalties from a copyrighted work is not a transfer of copyright ownership or a "document pertaining to a copyright" under section 205, and therefore need not be recorded with the Copyright Office. The Court distinguished Peregrine as a case involving a security interest in a copyright subject to recordation under section 205.

The Peregrine decision stimulated a study of the recordation system and a movement towards reform. The proposed Copyright Reform Act of 1993, H.R. 897, 103rd Cong. 1st Sess., would have permitted perfection of security interests by either a UCC filing or recordation with the Copyright Office. The bill also proposed other changes, such as the elimination of the requirement that the work be registered in order to be accorded constructive notice. Register of Copyrights Ralph Oman did not oppose reversing the Peregrine decision, but advised against making precipitous changes without adequate study.14 The American Bar Association and other interested groups testified in favor of reform, but desired a more comprehensive reform incorporating a registry of security interests in all intellectual property including patents and trademarks.15 The provisions were deleted from the proposed legislation in order to study whether a single system could be developed.16

THE ABA PROPOSAL

The ABA proposal would create a dual system permitting the perfection of security interests in federal intellectual property through a UCC filing at the state level or a filing of a new type of "federal financing statement" at the federal level. The proposed system would be radically different than the present system.

UCC filing systems are maintained by the Secretaries of State of the various states; under the ABA proposal, security interests filed at the state level would be

12 H.R. 11947, 88th Cong. 2nd Sess., § 18; S. 3008, 88th Cong. 2nd Sess., § 18.

13 37 C.F.R. $201.4(e) provldes, in pertinent part, "The date of recordation is the date when a proper document under paragraph (c) of this section and a proper fee under paragraph (d) of this section are all received in the Copyright Office."

14 Copyright Reform Act of 1993: Hearings on H.R. 897 before the Subcomm. on Intellectual Property and Judicial Administration of the House Comm. of the Judiciary, 103rd Cong. 1st Sess. 232 (March 4, 1993) (Written Statement of Ralph Oman, Register of Copyrights).

15 Copyright Reform Act of 1993: Hearings on H.R. 897 before the Subcomm. on Intellectual Property and Judicial Administration of the House Comm. of the Judiciary, 103rd Cong. 1st Sess. 160 (March 4, 1993) (Written Statement of J. Michael Cleary).

16 H.R. Rep. No. 103-388, 103rd Cong. 1st Sess. 21 (1993).