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,
UNIVERSITY OF LOUISVILLE SCHOOL 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 Office 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

in § 110(2) further restrict the freedom to transmit copyrighted works in ways that do not apply in the classroom.

In addition to § 110, the fair use provision of § 107 may also apply to education. An obvious example of an educational fair use not covered by §110 would be the use of an overhead projector to display a picture from a book or a passage from a novel or poem. Because the teacher has "copied" the work onto the overhead rather than performed or displayed the original, the $110 exceptions do not apply. However, because the teacher has used only a portion of the work for educational purposes, and done so in a way that has little if any impact on the market for the work, that use would be a non-infringing fair use.

The Report on Copyright and Digital Distance Education focuses primarily on the educational exceptions of § 110, rather than the more general concept of fair use. Moreover, although it does discuss 110(1) at length, the Report concentrates on the transmission exception of § 110(2). Rather than burden the Subcommittee with a rehash of the Copyright Office's excellent analysis, I will provide only a cursory review of the major points, together with my own observations on the Report's recommendations.

In essence, the Report identifies two basic types of problems with the current legislation. The first are various technical problems posed by changes in the types of technology used in distance education. The second are various policy considerations designed to facilitate the use of distance education.

Technical Proposals. The Committee's proposals concerning the technical matters are contained primarily in Part VI(B)(3)(a)-(e) and (i). I fully agree with all of these proposals. For example, as both § 110(1) and (2) currently allow only "performance" and "display" of copyrighted works, a teacher may not rely on those provisions to copy a work. And yet, most distance education requires the creation of one or more copies, typically on a server. As long as these copies are merely incidental to the educational use, they should not constitute an infringement. Admittedly, such copying could constitute a non-infringing fair use under § 107. However, as the Report accurately points out, the fair use exception is too vague to provide much guidance to teachers and educational administrators who are conscientiously trying to avoid infringing a copyright. If distance education is to succeed, there is a clear need to amend §112 to create the new "ephemeral recording exception" proposed in subsection (i) of the Report. For the same reasons, the subsection (b) proposal to add limited rights of reproduction and distribution is likewise very important.

On the other hand, the Report is also correct in noting that the exceptions should not be amended to the extent that they would effectively undermine the market for copyrighted academic works. In their current form, the § 110(1) and §110(2) exceptions fit a specific paradigm-a single, time-limited performance or display of a work. Although promoting distance education may necessitate relaxing the current requirement that such performance or display occur in a traditional classroom environment, the basic notion that the student's exposure to the work be limited in time should be preserved. In essence, the student should be allowed only a single access to the work. A student who wants to archive the display or performance in order to review it at a later date should ordinarily be required to compensate the copyright owner. In this regard, the distance education student would be treated no differently than a student in a traditional classroom environment. For example, although a college professor is free to read a copyrighted text to his students, any student who wants a permanent copy of the text must either purchase it from an authorized source or obtain permission to copy from the copyright owner.

With respect to these technical issues, I am somewhat more confident than the authors of the Report that technology will develop in a way that will enable an institution providing distance education to meet this "single access” requirement. Although not infallible, the use of passwords has already developed to a stage where access to distance education materials can be limited to students enrolled in a course. Effective technological controls on printing and archiving works should also not be difficult to develop, if in fact they do not already exist. Therefore, in order to ensure that copyright satisfies its ultimate goal of promoting the progress of knowledge, an educational institution that uses such controls should be given relatively free rein to perform or display works, together with any copying and distribution incidental to that performance or display, in connection with distance education.

Policy Issues. Parts VI(B)(3)(f), (g), and (h) of the Report deal with broader questions of policy. Although I agree with much the Report has to say about these matters, I also disagree with certain crucial points in (f) and (g).

Section (f) deals with the ongoing dispute concerning whether the § 110(2) exception should continue to be available only to "nonprofit" educational institutions. I too have concern about a for-profit institution reaping profit from the free use of