protection. He cannot detect from the record an earlier purchase that has not been recorded; and the later recordation of the prior purchase will defeat him if takes place within one month after its execution. On the other hand, the concept of an initial grace period is deeply rooted in U.S. copyright law. See Latman, Study No. 19 at 121. Latman notes that the drafters of the Uniform Conditional Sales Act in 1922 provided for a 10 day period during which a purchaser was protected against subsequent purchases even if he had not yet recorded; this was warranted by considerations of distance and unavoidable delays. Latman went on to note that such considerations were less persuasive in light of modern facilities for transmission of documents but that recordation in Washington, D.C. for transactions occurring throughout the United States might call for some grace period. It is difficult to predict what the effect of abolition of a grace period would be. Despite tremendous advances in communication and transportation, a document executed today in Washington, D.C. can be submitted for recordation before a document executed yesterday in Moscow or even Los Angeles. The factors that justified a grace period in the 1870, 1909 and 1976 Acts may still be present today, although even proponents of the grace period cannot deny that the length of the period could be shortened considerably. With respect to recordation of transfers secured through default of security agreements, section 3(b)(4)(G) would establish special procedures based on recording financing statements rather than the actual security agreements. Thus, for transfers of ownership that result from such defaults, the public record would be confined to a statement by the secured party identifying what was transferred as a result of the default. This would be in contrast to the public record for all other types of transfers, which would still require the recordation of the actual document of transfer. The result could be an impairment of the comprehensiveness and integrity of the public records of copyright ownership. Moreover, the Office would have to establish different procedures with respect to records of transfer of ownership, depending upon whether the transfer was in exercise of a secured party's post-default rights or remedies. Administratively, it is difficult and burdensome to establish different procedures according to the type of document which is being recorded. We see no reason to abandon the current legal requirement that the actual document be submitted; in fact, we regard the requirement to be a strength of the current system. The Copyright Office therefore has serious concerns about the creation of a second category of procedures within section 205. 2. The perfection of security agreements not limited to specific titles of registered works. Ideally, a public record of copyrighted works should permit title searches to ascertain who owns rights in a particular work, and the nature of those rights. That is the clear goal of the current system, which allows any document to be recorded, but gives constructive notice only to documents which specifically identify works by title or registration number. Recordation of transfers performs a vital informational function; titles of works covered by a transfer are extremely important and seem indispensable if the recording system is to be effective. Under the ABA proposal, federal financing statements making general statements as to "intangibles" or "intellectual property" would cover all copyrights owned by the debtor. Since there is no requirement that federal financing statements identify the specific property which the statement covers, it would be impossible to ascertain through a search of the public record the works encumbered by the financing statement. As a result, clearing titles through a search of the public record could become impossible. Adding to the complexity would be the perfection of security interests in federal intellectual property which had been secured at the state level through UCC filing. We discuss this below. 3. The lack of recordation of the actual security agreement, which best defines the rights of the parties. As mentioned above, the documents submitted for recordation are reproduced and maintained in the Copyright Imaging System. Before October, 1997, they were reproduced on microfilm. Retrieving documents is a central feature of the public record, enabling a determination of the precise language used by the parties in transferring, allocating or encumbering various rights. We believe there are clear advantages to a public record that provides public access to the very document that accomplishes a transfer of rights, rather than mere access to one party's characterization of the rights transferred to that party. Under the ABA proposal, recordation of security agreements in either the federal system or the state UCC system would be accomplished by submission of a fairly simple financing statement completed by the financial institution. There is no requirement that the debtor sign the financing statement, and inaccuracies do not invalidate the filing "as long as such errors or omissions are not seriously misleading." The fact that the debtor would have no input to the filing of financing statements raises the possibility of abuse. Third parties interested in knowing what rights have been encumbered would find little useful information in the public record; there would be no means to gain access to the actual security agreement (and the language therein which states what rights are being encumbered) or to learn anything beyond the general description such as "intangibles" or "intellectual property." We recognize that there would be legal advantages for the financing institution to describe the encumbered property as broadly as possible, but we believe that those advantages would be outweighed by the disadvantages described above. 4. The interplay between state UCC systems and the federal system. On previous occasions, the Copyright Office has not objected to proposals to overrule the Peregrine decision through statutory modification of the copyright law. This position was based on an assumption that this was what copyright owners as well as lenders wanted. However, after conferring with copyright owners we have concluded that there is no consensus that Peregrine should be overturned. Moreover, the ABA's proposed two-level system that would replace the current system seems unduly complicated. Judge Kozinski noted in Peregrine that a recording system works by virtue of the fact that interested parties have a specific place to look in order to discover with certainty whether a particular interest has been transferred or encumbered. He wrote, "[t]o the extent there are competing recordation schemes, this lessens the utility of each. ." 17 He stated that "[i]t is for that reason that parallel recordation schemes for the same types of property are scarce as hen's teeth. . . No useful purposes would be served-indeed much confusion would result-if creditors were permitted to perfect security interests by filing with either the Copyright Office or state offices." 18 He added, "if state methods of perfection were valid, a third party (such as a potential purchaser of copyright) who wanted to learn of any encumbrances thereon would have to check not merely the indices of the U.S. Čopyright Office, but also the indices of any relevant secretary of state. Because copyrights are incorporeal-they have no fixed situs-a number of state authorities would be relevant. Thus, interested third parties could never be entirely sure that all relevant jurisdictions have been searched." He found that such a system could hinder the purchase and sale of copyrights and frustrate Congress's policy that copyrights be readily transferable in commerce.19 We believe that Judge Kozinski made a compelling case for a single federal recording system for transfers of copyrights, including security interests. However, the single system need not necessarily be as comprehensive as suggested in Peregrine. We recognize at least two areas where there may be room for the filing of security interests with the states rather than with the Copyright Office: (1) security interests in receivables, and (2) recordation of security interests for purposes of constructive notice to other secured creditors, as distinguished from constructive notice to other assignees. The Copyright Office agrees that the Peregrine decision, insofar as it relates to recordation of security interests in copyrights themselves, reflects the copyright law. Until Peregrine, there was no dissatisfaction of which we are aware with the recordation provisions of the law. We are aware that the banking community and some copyright owners believe that the Peregrine decision should be overturned, and we recognize that they are motivated by legitimate concerns. There may be gaps in the current system that should be addressed. One controversial aspect of Peregrine is Judge Kozinski's conclusion that federal copyright law preempts state methods of perfecting security interests not only in copyrights, but also in related accounts receivable.20 We do not believe section 205 necessarily requires that conclusion, and we do not believe that the policies underlying section 205's centralized recordation system necessarily require such a result. The Ninth Circuit may have undercut this aspect of the Peregrine ruling in Hirsch 17 116 B.R. 200 18 Id. 19 Id. 20 See, e.g., A. Haemmerli, "Insecurity Interests: Where Intellectual Property and Commercial Law Collide," 96 Colum. L. Rev. 1645, 1680 (1996); P. Choate, "Note & Comment: Belts, Suspenders, and the Perfection of Security Interests in Copyrights: the Undressing of the Contemporary Creditor," 31 Loy. L.A. L. Rev. 1415, 1430 n.95 (1998). when it ruled that assignments of a right to receive royalties are not subject to section 205's recordation requirement. To the extent that financial institutions and their borrowers are concerned that their ability to engage in secured transactions is adversely affected by this aspect of Peregrine, it may be that the problem is relatively easy to resolve. A system that recognizes recordation of security interests in receivables at the state level likely would do no harm to the policies underlying section 205. 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 with which they are familiar. It may be that the considerations that led Congress to adopt a unitary filing system for copyright transfers do not require that the federal system be utilized for purposes of prioritizing rights of creditors among themselves. Thus, it may make sense to recognize perfection of security interests in copyrights at the state level for the limited purpose of allocating rights among lien creditors. On the other hand, it would do violence to the statutory scheme if a secured creditor who simply files a UCC-1 with a state secretary of state could obtain priority over a bona fide purchaser for value of all rights in a copyrighted work who has diligently searched the Copyright Office records and has discovered that those records reveal that the seller has clear title to the rights being sold. A secured creditor who wishes to secure his or her rights against the entire world, including those who have purchased all rights in a copyrighted work, should be required to use the centralized system established to provide constructive notice to the world. 5. The feasibility of joint administration of the system of recording security interests in federal intellectual property. The major systems of federal intellectual property protection are copyright, patent, and trademark. The concepts and laws underlying these systems of protection are very different, and we believe administering these rights in the different agencies with specialized expertise enhances efficiency rather than inefficiency. Our other comments make clear that we view as strengths of the current system the requirement that the affected works be identified specifically and the requirement that the document of transfer be recorded and available for public inspection. These features may be irrelevant to the needs of the patent and trademark systems. We do not believe the case has been made for standardizing the system of recordation of security interests or other transfers in all federal intellectual property; therefore, we see no need or benefit from coordination of the various recordation systems. 6. Establishing a Totally New System of Recordation For Security Interests at the Federal Level We have additional concerns about some of the details of the proposed new federal system for recording security interests which removes them from the system used for recording transfers of copyright ownership. We have already indicated some reasons why the proposed system based on federal financing statements seems inferior to the present system. The proposed system is also more complicated in many ways and would impose administrative burdens that do not seem warranted. Under the ABA proposal, each filing statement would have to be date-stamped with the hour of filing. This is not currently done. Statements would lapse after 10 years unless a continuation statement is filed before the lapse. If the continuation statement is filed by someone other than the secured party of record, it must be accompanied by a separate assignment statement authenticated by the secured party of record. The system anticipates terminations and release statements as well as transfer statements. Such a system would take time to develop and establish, require additional personnel and a new computer system. It would force all users to learn this potentially complicated new system. Additionally, a filing in the proposed new federal system may not prevail if there was first perfection at the state level. In short, the benefits of such a system appear to be outweighed by its burdens. CONCLUSIONS Records of copyright ownership are increasingly important in our global, networked society. The current recordation system has been in place since 1870. Enactment of the ABA proposal would change many of the established practices. The Copyright Office would not oppose any change on which a broad consensus has been achieved. However, the Office believes many of the proposed changes are controversial. Today's hearing serves a useful function as a starting point for discussion and debate about these issues. We caution, however, that 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 for so long served the interests of the copyright community. Mr. COBLE. We are joined by the gentleman from Indiana and the gentleman from California, Mr. Pease and Mr. Gallegly. Ms. Peters, copyright owners have raised concerns that expanding section 110(2), would harm their markets both by interfering with opportunities and by increasing the risks of unauthorized dissemination over the Internet. In what way do your recommendations address these concerns? Ms. PETERS. First, our recommendations are premised on the fact that in order to have the exemption, there must be both controls with respect to access to the work; and second, there must also be controls with respect to downstream uses. And the bottom line is if those protections are not in place, then the exemption cannot apply. Mr. COBLE. In reference to filing of security interests with the Copyright Office, Ms. Peters, if you will, expand on why it is important that security interests be applicable to one work rather than applicable to all the works of an owner. MS. PETERS. One, for certainty. If you go back and you look at recordation statutes with respect to land, they record an interest that is very specific. You know where that piece of property is. If you go to the Constitution, you find that copyright is created in works, and it is a work that gets the protection and it is a work that has the bundle of rights and it is a work that has all transactions with respect to that work recorded in the Copyright Office. In the 1976 act, there was a lot of study that went into it and one of the questions was whether or not you really needed to specifically identify the work. There was reference in the 1961 Register's Report about whether or not transfers that refer to all of the copyrights or all of the works owned by X was sufficient, and it was determined at that time by all of the people who were looking at this subject that you should have specific identification. So I think just as we need to specifically identify land, I think that the copyright owner's right is in a work or a series of works and they are identified by registration number or title, and I see no overriding reason why that should be turned on its head. Mr. COBLE. Specificity, I guess, is the key word. Mr. COBLE. In your report, you recommend that Congress expand the categories of works covered by section 110 (2) to include audiovisual works. Why should audio-visual works be included under a new distance education exemption when they were not covered by the previous exemption for instructional broadcasting? Ms. PETERS. I agree that that is the most controversial part of our recommendation. If you look at what was done in the 1976 act, it looked at whole works, so you can display any work; but when it comes to performance, you are limited to performing basically non-dramatic literary works and musical works. And the categories that are not covered are audio-visual works, pantomimes, dramatic works, and I think it was because it was felt that performing the entire work would seriously undercut the market for those works, including audio-visual works, and I think that the drafters of that statute believed that uses of portions of works could be covered by fair use. In our hearings and in our conversations, what we heard was the most difficult issue was licensing of audio-visual works, not whole works, parts of works. And so when you deal with fair use, you are always dealing with uncertainty on whether you can or can't do something. So, after much thought and much wrestling, we concluded that in today's educational world, all types of works should be allowed to be included under certain conditions as long as they don't interfere with the market for the work. And so we recommended including these additional types of works. But remember, we said only portions of works could be used and, again, it is only they can be used if the technological protection measures have been attached to them both with respect to gaining access to the work or making copies of that work. Mr. COBLE. I thank you, Ms. Peters. The red light is now illuminating into my face and I will yield to the gentleman from California. Mr. BERMAN. Thank you very much, Mr. Chairman. It is always a pleasure to have you with us and it seems like your analysis, both in your report and in your testimony is very good but I find a certain disconnect between the analysis and the recommendations. You emphasize in your proposed changes that you got to mandate that the people who are utilizing those broadening exemptions have the appropriate protection to, one, limit access to the authorized; and secondly, to prevent the redistribution, retransmission, redissemination of these works. And then you say if the copyright protection technology were further along, further developed, broadening exemptions would be less dangerous to copyright owners, and if licensing were further involved, broadening exemptions could be less important for educators. Even though you have had these two "ifs," you conclude now is the time for legislation and solve the problem, I guess, by mandating the reasonable protection meas ures. But if reasonable protection-either we have created-we haven't really broadened the exemption, because the reasonable protection measures aren't there and no one can take advantage of it, or we have applied "reasonable" in the sense of what is available now, which is pretty much well conceded is fairly ineffective, and therefore we have opened up the barn door, and I just— MS. PETERS. You could have been part of our discussions. We actually had these discussions for hours and hours and hours. And why we ended up concluding what we did really had to do with going back to the intent in 1976, which we have to really admit section 110(2) as it is cast is a broadcast exemption, it really doesn't cover works going through a computer, and that today computers are being used more and more and more in classrooms and in courses that are being offered by community colleges and universities. And we believed that if the intent that the legislators had in 1976 was intended to be there, then we should update it at least to allow the existing exemption. You can limit it to non-dramatic literary works in music to be updated, to include the transmission |