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."9 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). 10 Id. p. 96. 11 Id. 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). filed in the state where the debtor lives. Alternatively, under section (b)(2)(B) of the proposal, holders of security interests in federal intellectual property would also have the option of filing a federal financing statement with the appropriate federal intellectual property agency. The federal financing statement, which would broadly describe the covered intellectual property rights, would encumber all copyrights owned by the debtor without specifying actual works. The proposal encourages the Copyright Office and the Patent and Trademark Office to create a system of joint administration; it does not mandate one unitary system. Priority between state filings and federal filings would be given to the first-to-file. While the basic system for recording transfers of copyright under section 205 would remain the same, in two areas there would be important changes. First, the one-month grace period in section 205 would be eliminated in favor of a first to file system. Second, procedures for recording transfers secured through a default of a security interest would be substantially different from the requirements for recording other transfers. CONCERNS OF THE COPYRIGHT OFFICE In preparation for this hearing, we met with representatives of a number of copyright industries. They stated their preference for a continuation of the present system. We asked what the problem was that the ABA proposal was trying to address; they indicated it was after acquired property, i.e., the needs of venture capitalists and the needs of start-up companies seeking investment capital. When we asked how they dealt with works that have yet to be created, a representative of a major motion picture company stated that periodic registrations are made for the work as it progresses (e.g., registrations of various versions of a screenplay). We recognize that this may not be a solution for all of the copyright industries. In our meeting, a number of concerns were expressed. One had to do with the proposal to have only a financing statement which might simply refer to intangibles and not include any specific titles. A second had to do with the fact that the actual document would not be on file in any public place. As our comments will indicate, we share these concerns. The copyright owners also expressed other concerns which I am sure they will bring to your attention. We believe that most copyright owners oppose elimination of the exclusivity of the federal copyright system. At this point, it appears that for the sake of clarity and simplicity a federal system is better than coexisting federal and state systems. Clearly, the ABA's proposal represents a radical change in the recordation system. It deserves a full and deliberate study. Later in this testimony, I will mention a couple of ways in which the current system might be modified to accommodate the needs of lenders. The Copyright Office has comments on a number of aspects of the ABA proposal, including: (1) changes in the section 205 system for recording copyright transfers other than security interests; (2) permitting perfection of security agreements without requiring specific identification of the works by titles or registration numbers; (3) making an exception, for security agreements, to the requirement that the actual document embodying the transfer of copyright be submitted for recordation; (4) the interplay between state UCC systems and the federal system; (5) the feasibility of and need for a joint administration of the system of recording security interests in federal intellectual property; and (6) administrative burdens posed by the proposed system. Our specific comments in these six areas are as follows: 1. Changes in the section 205 recordation system under the copyright law. The ABA proposal would modify the section 205 recordation system in two areas. First, the one-month (two months for documents executed outside the United States) grace period in section 205(d) would be eliminated in favor of a first to file system. Second, procedures for recording transfers secured through a default of a security interest would be substantially different from the requirements for recording other transfers. The current system giving priority to the first to execute, with a grace period for recordation, has been in place since 1870. The system provides that between two conflicting transfers, the first purchaser is protected as long as the transfer is recorded, in the manner required to give constructive notice, within one month of its execution in the United States or two months after its execution outside of the United States, or at any time before recordation in such manner of the later transfer. Otherwise, the later transfer prevails if it is recorded first in the manner to give constructive notice provided it was taken in good faith and without notice of the earlier transfer. The ABA proposes going to a first to record system. There are advantages to the ABA proposal. A system with a grace period means that a prospective purchaser cannot be completely certain that the silence of the record insures his |