In the 105th Congress, the Digital Millennium Copyright Act of 1998 was enacted into law. The act instructed the U.S. Copyright Office to conduct a study on digital distance education and to report back to the Congress in 6 months. The Copyright Office reported to Congress in May 1999.

The report of the U.S. Copyright Office on Copyright and Digital Distance Education is a comprehensive report on the major issues surrounding distance education. The oversight hearing on the report is intended to explore the issues raised by the report and to discuss the Copyright Office recommendations for legislation to update the Copyright Act to facilitate the growth of distance education, yet protect copyright owners' rights.

The issue of adopting a Federal intellectual property security interest registration system deals with a complex combination of intellectual property law and State law of security interests, usually the UCC.

Creators often need financing in order to fund projects, such as filming a movie or developing software. Lenders typically obtain a security interest in the intellectual property product to protect themselves as against other creditors in the event of a bankruptcy. Until recently, lenders did this by filing a security interest with the Secretary of State in the State where the debtor is located. However, two recent cases in the ninth circuit have created uncertainty as to how to file a security interest in copyrighted material. These cases held that because the Copyright Act provides for recordation of transfers of interests in copyrighted works, the Copyright Act preempts State law, even as to the filing of security interests. Therefore, in order to perfect a security interest, it would have to be filed with the Copyright Office. The resulting confusion among creators, lenders, and the U.S. Copyright Office has brought us here today.

We will discuss two proposals to resolve this issue. The American Bar Association has proposed a comprehensive and uniform system for all types of intellectual property. The Commercial Finance Association has proposed an interim fix that would reverse the ninth circuit cases until more comprehensive legislation is enacted. It is important for Congress to ensure that United States creators are able to get financing for their projects and that lenders feel safe in backing them.

I am now pleased to recognize the ranking member of the subcommittee, the gentleman from California, Mr. Howard Berman.

Mr. BERMAN. Thank you very much, Mr. Chairman, for holding this oversight hearing. One of the most exciting and important aspects of the information age is the ability to provide education to those who currently have no means to obtain an education, either for economic or geographic reasons, and to expand and improve the access to education to those who have presently less than ideal ac

cess.

I know that kids in my district need greater opportunity to make the school-to-career transition. These kids have a wide variety of choices to get an education that can help them move into productive careers in electronics, the building trades, culinary or computing. Many of these kids don't want to go to a university. Everybody who wants to go to a university should be able to, but many want

something different. I see a role for distance education in meeting this need.

I know that in communities throughout the U.S., distance education can substantially improve the quality and variety available in education. And I certainly appreciate the possibilities of providing education to people who don't have access to any education here in the United States and in underdeveloped and developing countries throughout the world. So I have great hope and expectation for the development of new and better distance education programs.

I do have some questions about the need at this particular moment for a change in copyright law to accommodate this growing field.

In setting the stage for its recommendations, the Copyright Office, from whom we shall hear in a moment, observes that education through digital means is rapidly growing and, quote, "Growing pains must be tolerated to give market mechanisms the chance to evolve in an acceptable direction," end of quote. They also observe that, quote, "Sophisticated technologies capable of protecting content are just now in development or coming to market," end of quote, and quote, "Licensing systems are evolving. The challenge in making recommendations at this time is to determine how to set policy during such a period of flux," end of quote.

And they further note that if technology were further along, broadening exemptions could be less dangerous to copyright owners. If licensing were further evolved, broadening exemptions could be less important for educators.

I understand the reasoning for some of the changes the Copyright Office is proposing and I am not suggesting that aspects of these proposals are without merit. With the explosion of digital communications, we have to reexamine how copyright law applies. But in each case, with the rapid development in technology, we should first ask: Is now the right time for government to become involved? If this industry is in its infancy, growing pains are expected and technological mechanisms are just around the corner, is now the time for legislation? Do we have a good perspective on the landscape of distance education? In this rapidly changing landscape, we should be careful in altering the longstanding laws protecting the rights of intellectual property owners. And from reading the Supreme Court decision in this morning's paper, it doesn't matter what we do anyway as to a large number of potential distance educators.

But a second question I would ask is: If we find the time is right for legislation, then are the Copyright Office's recommendations in order? Are they the ones we should proceed with?

Mr. Chairman, I note in our audience today one witness and one non-witness but two former members of this committee, two very distinguished and excellent members of this committee, Ms. Schroeder and Mr. Mazzoli, and it is good to see both of them again. It brings back old times, some of which when we were on that side of the aisle.

Thank you very much for holding the hearing again, Chairman Coble. I look forward to the witnesses.

Mr. COBLE. Thank you, Howard. I want to reiterate what Mr. Berman said about Pat and Ron, it is good to have them both. They both served on this committee, as Mr. Berman said, and they will be recognized in more detail subsequently.

I am going to have to meet with constituents at two different points in this hearing, so don't think that my brief absence indicates lack of interest. I will either ask Mr. Berman, or if one of my Republican colleagues shows up, to chair in my absence.

You all know that we pretty rigidly adhere to the 5-minute rule. I have been taken to task by some people about that, because they didn't know that all witnesses are told prior to coming here that they are asked to reduce their oral testimony to 5 minutes. Now, folks, that is not to say that we are going to cut you off in the middle of a sentence or that we will haul in the U.S. Marshal to apprehend you if you go 6 or 7 minutes, but when that red light illuminates in your eye, that is an indicator to you that it is about time to wrap it up. Now, your written testimony, folks, will be examined in detail; has been and will be.

Our first witness is unknown probably to no one in the room. Or, if so, the uninformed have been living under a rock. We are pleased to welcome back the Honorable Marybeth Peters who is the Register of Copyrights for the United States. She has also served as acting general counsel of the Copyright Office and as chief of both the examining and information and reference divisions. She has served, as well, as a consultant on copyright law to the World Intellectual Property Organization and authored The General Guide to the Copyright Act of 1976. The subcommittee has copies of Ms. Peters' testimony which, without objection, will be made part of the record. And, Ms. Peters, it is good to have you back in 2141.

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

Ms. PETERS. Thank you, Mr. Chairman, members of the subcommittee. I am pleased to be here to testify on our recommendations with respect to digital distance education. You noted that we delivered our report in May, and we did make a number of recommendations to update current educational exemptions to cover certain educational activities taking place through digital technologies.

As we said, distance education in the United States is vibrant and burgeoning. While the concept dates back to the correspondence courses of the 19th century, it is the capabilities of digital technology to deliver instruction to students removed from the instructor in time and space that has vastly increased its appeal and potential.

Today's digital distance education involves copyrighted works being used in new ways, providing new benefits for students and teachers, but also posing new risks for copyright owners. Educational institutions and copyright owners see distance education as a potentially lucrative market. Licensing of copyrighted works in this market will be important. However, exceptions and fair use play a role.

In considering these issues, we focused on two exemptions applicable to educational uses: their use and the specific exemption in 110 for educational broadcasting. This provision was written more than 20 years ago, before the advent of computer networks and personal computers. The question is whether it still strikes the appropriate balance of interest.

This analysis that we did was complicated by time. It is a time of rapid development in both technologies and markets. Many of the concerns on all sides stem from the inability to depend on effective functioning of technological protection and licensing mechanisms. The tools for both exist today. It will become clearer in the next few hours how successfully they can be integrated into the real world of distance education.

As a fundamental premise, the Office believes that emerging markets should be permitted to develop with minimal government regulation. This does not mean, however, that the law must remain frozen. When a statutory provision that is intended to balance interest becomes obsolete due to changes in technology, it may require updating if the policy behind it is to continue. In our view, if that basic policy balance struck in 1976 is to continue, section 110(2) must be updated.

We recommended several changes and additions to the law and also some legislative history. First, we said update the exemption to accommodate the technical requirements of digital transmission over computer networks by making it clear that the term "transmission" in section 110(2) covers such transmission, and by expanding the rights to cover in the exemption those that are needed to accomplish computer network transmission to the extent technologically required.

Second, eliminate the physical classroom requirement in section 110(2). Because instruction can take place anywhere, this limitation has become obsolete. We recommend permitting transmissions to students officially enrolled in the course, regardless of their physical location.

Third, add language that focuses more clearly on the concept of mediated instruction. This would ensure that the performance or display is analogous to the type of performance or display that would take place in a live classroom.

Fourth, because digital transmission poses far greater risks of uncontrolled copying and dissemination, add a number of safeguards as conditions on the applicability of an expanded exemption. These include permitting the retention of transient copies only to the extent that they are necessary to accomplish this transmission. Because I see the yellow light going on, I am just going to quickly say that we also have a recommendation with regard to retaining the nonprofit requirement for eligibility and adding a section to 112 for ephemeral recording. Our most controversial recommendation has to do with expanding categories of works that are to be covered by an exemption, and then we deal with fair use and say that we think that additional legislative history would be helpful.

What I would like to do is turn to, because you asked me to do a second topic which had to do with perfecting security interest-

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