[House Hearing, 106 Congress]
[From the U.S. Government Publishing Office]
COSTS OF INTERNET PIRACY FOR THE MUSIC AND SOFTWARE INDUSTRIES
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HEARING
BEFORE THE
SUBCOMMITTEE ON
INTERNATIONAL ECONOMIC POLICY AND TRADE
OF THE
COMMITTEE ON
INTERNATIONAL RELATIONS
HOUSE OF REPRESENTATIVES
ONE HUNDRED SIXTH CONGRESS
SECOND SESSION
__________
JULY 19, 2000
__________
Serial No. 106-174
__________
Printed for the use of the Committee on International Relations
Available via the World Wide Web: http://www.house.gov/
international--relations
__________
U.S. GOVERNMENT PRINTING OFFICE
68-958 WASHINGTON : 2000
______
COMMITTEE ON INTERNATIONAL RELATIONS
BENJAMIN A. GILMAN, New York, Chairman
WILLIAM F. GOODLING, Pennsylvania SAM GEJDENSON, Connecticut
JAMES A. LEACH, Iowa TOM LANTOS, California
HENRY J. HYDE, Illinois HOWARD L. BERMAN, California
DOUG BEREUTER, Nebraska GARY L. ACKERMAN, New York
CHRISTOPHER H. SMITH, New Jersey ENI F.H. FALEOMAVAEGA, American
DAN BURTON, Indiana Samoa
ELTON GALLEGLY, California MATTHEW G. MARTINEZ, California
ILEANA ROS-LEHTINEN, Florida DONALD M. PAYNE, New Jersey
CASS BALLENGER, North Carolina ROBERT MENENDEZ, New Jersey
DANA ROHRABACHER, California SHERROD BROWN, Ohio
DONALD A. MANZULLO, Illinois CYNTHIA A. McKINNEY, Georgia
EDWARD R. ROYCE, California ALCEE L. HASTINGS, Florida
PETER T. KING, New York PAT DANNER, Missouri
STEVEN J. CHABOT, Ohio EARL F. HILLIARD, Alabama
MARSHALL ``MARK'' SANFORD, South BRAD SHERMAN, California
Carolina ROBERT WEXLER, Florida
MATT SALMON, Arizona STEVEN R. ROTHMAN, New Jersey
AMO HOUGHTON, New York JIM DAVIS, Florida
TOM CAMPBELL, California EARL POMEROY, North Dakota
JOHN M. McHUGH, New York WILLIAM D. DELAHUNT, Massachusetts
KEVIN BRADY, Texas GREGORY W. MEEKS, New York
RICHARD BURR, North Carolina BARBARA LEE, California
PAUL E. GILLMOR, Ohio JOSEPH CROWLEY, New York
GEORGE RADAVANOVICH, Califorina JOSEPH M. HOEFFEL, Pennsylvania
JOHN COOKSEY, Louisiana
THOMAS G. TANCREDO, Colorado
Richard J. Garon, Chief of Staff
Kathleen Bertelsen Moazed, Democratic Chief of Staff
John P. Mackey, Republican Investigative Counsel
------
Subcommittee on International Economic Policy and Trade
ILEANA ROS-LEHTINEN, Florida, Chairman
DONALD A. MANZULLO, Illinois ROBERT MENENDEZ, New Jersey
STEVEN J. CHABOT, Ohio PAT DANNER, Missouri
KEVIN BRADY, Texas EARL F. HILLIARD, Alabama
GEORGE RADANOVICH, California BRAD SHERMAN, California
JOHN COOKSEY, Louisiana STEVEN R. ROTHMAN, New Jersey
DOUG BEREUTER, Nebraska WILLIAM D. DELAHUNT, Massachusetts
DANA ROHRABACHER, California JOSEPH CROWLEY, New York
TOM CAMPBELL, California JOSEPH M. HOEFFEL, Pennsylvania
RICHARD BURR, North Carolina
Mauricio Tamargo, Subcommittee Staff Director
Jodi Christiansen, Democratic Professional Staff Member
Yleem Poblete, Professional Staff Member
Victor Maldonado, Staff Associate
C O N T E N T S
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WITNESSES
Page
The Honorable Q. Todd Dickinson, Under Secretary for
Intellectual Property, and Director, Patent and Trademark
Office, U.S. Department of Commerce............................ 6
Joseph Papovich, Assistant U.S. Trade Representative, Services,
Investment and Intellectual Property, Office of the U.S. Trade
Representative................................................. 8
Jack Krumholtz, Director, Federal Government Affairs, and
Associate General Counsel, Microsoft Corporation............... 21
Thomas C. Tyrrell, Senior Vice President, General Counsel, and
Secretary, Sony Music Entertainment............................ 23
APPENDIX
Prepared statements:
The Honorable Ileana Ros-Lehtinen, a Representative in Congress
from Florida and Chair, Subcommittee on International Economic
Policy and Trade, Committee on International Relations......... 36
The Honorable Q. Todd Dickinson.................................. 41
Jack Krumholtz................................................... 47
Thomas C. Tyrrell................................................ 72
COSTS OF INTERNET PIRACY FOR THE MUSIC AND SOFTWARE INDUSTRIES
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WEDNESDAY, JULY 19, 2000
House of Representatives,
Subcommittee on International Economic
Policy and Trade,
Committee on International Relations,
Washington, DC.
The Subcommittee met, pursuant to notice, at 2 p.m., in
room 220, Rayburn House Office Building, Hon. Ileana Ros-
Lehtinen (Chairman of the Subcommittee) presiding.
Ms. Ros-Lehtinen. The Subcommittee will come to order.
Thank you so much for being here this afternoon.
The great expression of talent, innovation and ingenuity
which Americans have exhibited since the early days of the
republic have endowed upon the United States the unenviable
position, yet heavy responsibility of global leadership.
This global leadership has also permitted the United States
to more easily adapt and build upon emerging technologies and
social transformations and herald in a new development and
possibility propelled by brain power industries and sectors
built upon ingenuity and imagination, not railroads and
petroleum.
These new ideas will redefine the landscape of not only our
domestic economy but, indeed, that of the global marketplace.
Yet as more information and business is converted into code and
downloaded into the Internet, the ability for Internet pirates
to inflict even greater damage upon legitimate trade only
grows.
According to the International Intellectual Property
Alliance, in their recommendation to the Office of the U.S.
Trade Representatives for the year 2000, the total losses
attributed to so-called content industries top $8.5 billion in
1999, and the Business Software Alliance, represented today by
Mr. Eric Koenig of Microsoft, calculated a $7.3 billion loss in
revenue by the year 2008 just for the software industry alone.
The BSA further estimates that software piracy cost the
United States over 100,000 jobs in 1998 and by the year 2008
that number could rise to more than 175,000 jobs lost.
While the accuracy of these numbers maybe open to debate,
it is difficult to dispute that by reducing revenues, Internet
piracy will reduce employment opportunities for Americans in
the music and software industries. The potential of the
Internet is limitless. As band width continues to grow and the
ability to compress increasing amounts of information into
smaller space continues to improve, the Internet will evolve
into a vital tool for business, education, entertainment, and
unfortunately piracy.
The American advantages which make our industries the envy
of the global marketplace lead many around the world to emulate
our experiences through stealing, pirating, and counterfeiting,
and we must take immediate steps to insure that we are doing
our best to protect the unauthorized use of American products.
This is not to say that actions taken to combat the scourge
of on-line piracy should be solely an American initiative. On
the contrary, concern spans international borders, and it is,
in fact, an end epidemic problem far beyond the scores of our
own country.
In nations such as Russia and China, the Interactive
Digital Software Alliance has suggested that some 90 percent of
entertainment software is pirated. The United States must
impress upon our neighbors the seriousness of these crimes and
advocate for the greater enforcement of both local regulations
and international norms.
One positive example of such multilateral support can be
found in the Uruguay Round agreement on trade related aspects
of intellectual property right, TRIPS, which took effect in
1996.
By pursuing international support for the increased
security of intellectual property rights, the United States not
only develops forums for dispute resolution, but endorses the
possibility of future dialogues. It cannot be said often enough
without allies in this battle, the United States stands to
become the proverbial boy with his finger in the dam, placing
American interests before an ominous trickle in a futile
attempt to restrain the oncoming flood.
Yet this does not mean that the United States should stand
idly by waiting for the initiatives of others. Specific
industry based solutions, such as digital watermarking and
spider programs, must be employed alongside increased
vigilance, improved enforcement measures in order to create an
environment which is more hostile to the efforts of Internet
pirates.
However, attention must also be paid to the advice offered
by the National Research Council of the National Academies,
which has urged legislators to delay any overhauling of
intellectual property laws and public policy until markets have
had ample time to adjust to new models of doing business and
until sufficient research on the issues is conducted.
Finally, it is necessary to address certain commercial
features which some analysts suggest may precipitate the
trafficking and the use of printed materials. Pricing is
foremost on this list.
For example, it has been estimated that a compact disk
costs as little as 60 cents to manufacture, and depending on
where you live, a new CD will cost you around $15. When CDs
were first introduced in the early 1980's manufacturing costs
represented $3 to $5 per CD and retailed for $15 to $20. As the
manufacturing price per CD has fallen, there has not been a
parallel drop in the retail price.
When compared to the prices offered for music and software
by Internet counterfeiters, there can be little doubt as to why
many ordinarily law abiding citizens are swayed into breaking
the law. This is not an excuse or a justification for on-line
piracy, but merely one example of the need to look at all sides
when approaching a problem as insidious as piracy.
Real jobs, real company, and real lives ultimately depend
on our ability to protect ourselves from on-line piracy, and as
our witnesses today will state, this is not only a global issue
or a national issue. It is also a local problem in our own
communities.
And I would like to recognize Mr. Rothman. Mr. Menendez,
our Ranking Member, has a vote in the Transportation Committee,
and he will be right back to make his opening statement.
Mr. Rothman.
[The prepared statement of Mrs. Ros-Lehtinen appears in the
appendix.]
Mr. Rothman. I would like to thank Chairwoman Ros-Lehtinen
for holding this hearing. I do not have any questions at the
moment, but I am glad to be here and ready to learn.
Ms. Ros-Lehtinen. Thank you so much.
Mr. Manzullo.
Thank you, Mr. Delahunt.
Mr. Delahunt. Yes. Thank you, Madame Chair Lady.
I see many familiar faces in this audience since I serve on
the intellectual property subcommittee of the Judiciary
Committee, and I want to welcome Commissioner Dickinson.
As I am sure most are aware, or in the last session of
Congress, both the Digital Millennium Act was passed, as well
as the so-called NEF Act. Hopefully that has had a salutary
impact on the issue that we are discussing here today, and I
would be interested in terms of your initial impressions of the
effect and hopefully deterrence impact of those particular
pieces of legislation.
And I yield back to the Chair.
Ms. Ros-Lehtinen. Thank you so much.
I would like to take this opportunity to introduce the two
Administration witnesses who will share their views on the
impact of Internet piracy on the music and software industries
with us this afternoon.
Let me begin with Mr. Todd Dickinson, the Under Secretary
for Intellectual Property and Director of Patent and Trademark
Office for the U.S. Department of Commerce, a former Assistant
Secretary of Commerce and Commissioner of Patents and
Trademarks.
Mr. Dickinson serves as principal policy advisor to the
Administration and to Congress on all domestic and
international intellectual property matters.
He will be followed by Mr. Joseph Papovich, the Assistant
Trade Representative for Services, Investment, and Intellectual
Property in the Office of the U.S. Trade Representative [USTR].
A former employee at the Department of Labor, Mr. Papovich was
the chief U.S. negotiator on safeguards at the World Trade
Organization's Uruguay Round on trade negotiations.
Thank you both for being with us today, and it looks like
we have some vote. So as soon as we get back, we will get right
back at it, and I will ask Mr. Manzullo if he would chair the
remaining time of this hearing because I have a bill coming up
after this vote.
So thank you. We have suspended for just a little bit.
Thank you.
[Recess.]
Mr. Manzullo [presiding]. Before we get started, there are
about five or six students outside the door, and if there is
any room in here or if they want to sit on the floor, could
somebody welcome them in?
Mr. Menendez, did you have an opening statement?
Mr. Menendez. Yes. Thank you, Mr. Chairman.
I regret that I had to go to a mark-up that had a roll call
vote. So I regret that I was delayed, and then of course, we
had a vote.
I am looking forward to today's hearing. Clearly the
problem of Internet piracy grows as fast as the computer and
the Internet are used itself, if not even faster. Today about
327 million people in the world have access to the Internet. Of
those, 130 million of them are in the United States, where
nearly 50 percent of citizens are Internet users.
When the rest of the world catches up to the United States,
Finland, Norway, and a handful of other developed nations with
the highest per capita Internet use, the numbers will be
staggering, and it will not take long. When nearly 3 billion
people have access to the Internet, they will also have access
to pirated music, software, and other copyrighted materials.
Pirates will increase the supply to meet the exploding
demand. Clearly the industry, trade associations, and some
governments led by our own recognize the need to work toward
reducing both demand for and supply of pirated material.
Public-private efforts have succeeded in strengthening
copyright protection and enforcement.
The Clinton-Gore Administration has worked diligently to
implement the TRIPS agreement, and within the WTP and the WIPO,
push for the adoption of two WIPO treaties that respond to the
rise of cyber network based deliver of copyrighted materials.
Secretary Daley, before he left office, made ratification
of these as a top priority of his, and I understand we are
halfway toward getting the signatories we need to fully
implement these.
Congress and the President worked during the 105th Congress
to pass the important Digital Millennium Copyright Act, which I
was glad to support. However, government is aided by an army of
acronymed industry associations fighting to protect
intellectual property rights. The IIPA, the International
Intellectual Property Association; the IIPI, the International
Intellectual Property Institute; and the other IIPA,
International Intellectual Property Alliance--and I would like
everybody to say that five times----
[Laughter.]
Mr. Menendez [continuing]. Alone could fill another panel
today.
They and many others, the IFPI, the Business Software
Alliance, the Recording Industry Association of America, and
the Interactive Digital Software Association are some of the
most prominent, are testament to the amount of money that is at
stake.
The IIPA and the BSA estimate that between eight billion
and 15 billion a year of lost revenues from music and software
hard goods alone is a reality. It has been so far impossible to
accurately gauge losses from Internet piracy, and that, of
course, is the subject of today's hearing, and I look forward
to hear from our expert panelists about their work to measure
the losses and combat the problem.
But let me just highlight a few thoughts as the Ranking
Democrat on the Subcommittee, and I would love to hear as you
give your responses, and possibly some of your answers may be
in the question and answer period.
Internet piracy will clearly get worse before it gets
better as the Internet use explodes, outpacing efforts to
restrict unlawful infringement of intellectual property rights.
The problem is probably exacerbated by a feeling among
individuals, societies, and even governments of the developing
world that, quote, we are poor, they are rich; we have a right
to download this free.
We have got to impress upon our trading partners the
importance of strengthening and adhering to the rule of law
because that is what works best for everyone in the long term
for an investment in their countries and overall trade
relations will be adversely affected by lack of will , the
judicial infrastructure, and the ability to combat privacy.
I encourage and applaud efforts by the Patent and Trademark
Office and other U.S. Government agencies to provide technical
assistance to developing nations in their effort to enforce
intellectual property rights, and I wonder if the associations
are doing the same.
We must work toward increased transparency of Internet
commerce at the same time that we respect the privacy of
Internet users. The industry rightfully argues that the
individual who in the privacy of his own home and meaning no
harm trades or shares unauthorized music, video or software
files is just as pernicious for the producers of intellectual
property.
But can we truly treat the individual who is not making
money through their actions the same way we treat the organized
crime syndicates that are involved in piracy in a massive and
increasingly violent scale?
How do we seek to strike the balance in the freedom of
Internet commerce through the legitimate claim of protective
rights of the producers?
And I think one of the greatest difficulties in the
government's efforts here is that someone, for example, in the
creative genius of performing, creating music, ultimately they
wish to be heard. They wish to share their creativity. So long
as that is the burning desire of the creative genius of an
individual, to be heard, it is also one of the great challenges
in this process of assuring the rights that they deserve as a
result of their creativity as their burning desire to be heard
by an incredible number of people.
I am not sure how government does the best job of
reconciling those interests, and I look forward to seeing how
the panel addresses it.
Thank you, Mr. Chairman.
Mr. Manzullo. Does anybody else have an opening statement?
Mr. Delahunt.
Mr. Delahunt. I would just make one observation. When it
comes to the issue of piracy and the music industry,
particularly, and obviously software, it is clear that we have
a substantial issue to deal with when it comes to the
burgeoning balance of trade deficit, and the one account that I
think now exceeds any other account in terms of the positive
side of that ledger is our intellectual property account.
And I know I speak for many who are concerned about this
piracy issue in that it is absolutely critical and essential
that we take every step possible to protect our commercial
interests on a national security basis and our national
economic interests to do what we can to allay and assuage the
problem of Internet piracy.
Mr. Manzullo. Mr. Rothman.
Mr. Rothman. Thank you.
I, for one, am at a little bit of a loss, and I look
forward to the panel addressing this: an elaboration of what
fundamental American value we put in jeopardy if we do not
enforce the private property rights of those artists who
created the music and those who supported the artists to enable
them to create and market their work.
I know my Republican colleagues passed the Private Property
Rights Act to streamline the ability of people to make claims
about the government taking their property without just
compensation, and I voted for that. As far as I am concerned,
the overwhelming burden of proof is on anyone who would
compromise in any way the private property rights of the
artists who created the music and those who supported them to
enable them to market the music. So each should hear what the
other side has to say.
Mr. Dickinson.
STATEMENT OF THE HONORABLE Q. TODD DICKINSON, UNDER SECRETARY
FOR INTELLECTUAL PROPERTY AND DIRECTOR, PATENT AND TRADEMARK
OFFICE, U.S. DEPARTMENT OF COMMERCE
Under Secretary Dickinson. Thank you, Mr. Chairman.
Mr. Manzullo. Could you put the mic a little bit closer to
your mouth?
Under Secretary Dickinson. I sure will.
Mr. Manzullo. Thank you.
Under Secretary Dickinson. It is a pleasure to be back
before this Subcommittee again today to discuss, in particular,
what the U.S. Patent and Trademark Office and this
Administration are doing to help protect American intellectual
property from piracy at home and abroad, particularly on the
Internet.
As was suggested, the Internet has exploded. The President
likes to say when he came into office that there were something
like 100 Web sites, and now there are probably on the order of
100 million.
As the title of the hearing indicates, two of the U.S.
copyright industries most intensely affected by piracy and the
unauthorized use of their works on the Internet are the
software and the music industries. The losses in these areas
easily total in the tens of billions of dollars, translating
into lost jobs, revenues, and foreign royalties for American
workers and businesses.
Given the explosive growth of the Internet and the
increasing use of intellectual property on Web sites, the
problems of piracy are not going to go away on their own. That
is why the Administration has been tackling these problems head
on.
Here at home we have worked with Congress to equip American
intellectual property owners and law enforcement authorities
with better legal tools to fight piracy through the passage of
measures, such as the Digital Millennium Copyright Act and the
No Electronic Theft Act.
At the same time we have partnered with international
associations, such as the World Intellectual Property
Organization [WIPO] and the World Trade Organization [WTO] to
provide similar legal norms at the international level. For
example, we are working with our colleagues at the U.S. Trade
Representative and the Department of State to ensure that our
trading partners implement the protections provided in the 1996
WIPO Internet treaties, as well as the Agreement on Trade
Related Aspects of Intellectual Property Rights or the TRIPS
agreement.
Adopting these legal norms is not enough, however. Our
trading partners must also have the technical means and the
political will to put these legal tools into practice. In that
regard, the USPTO is receiving more requests than ever from our
trading partners. These requests are for technical assistant in
reviewing IP legislation and developing an integrated
enforcement system consisting of civil, criminal, and
administrative procedures and remedies, as well as border
measures.
Many of these requests are in response to the January 1,
2000 deadline for all developed and developing countries who
are WTO members to have domestic laws and enforcement
mechanisms that are TRIPS compliant.
Because of the growing problem of Internet piracy, many of
these countries are also seeking assistance in developing
enforcement mechanisms to deal with technological advances in
IP protection and enforcement.
They also need assistance in understanding and implementing
the WIPO Internet treaties to establish the legal framework to
combat these problems. Accordingly, the focus of our Internet
oriented efforts has been to assist countries in adapting the
enforcement models appropriated for conventional hard goods--
CDs, cassettes, floppy disks, and the like--to the realities of
cyberspace transmission of copyrighted works.
In particular, we are targeting our enforcement training
efforts to focus on problems of Internet enforcement in areas
where Internet usage is rapidly expanding, namely, Latin
America, Africa, and Asia.
This past May, the USPTO and WIPO provided a week long
program on developing a TRIPS compliant and effective
enforcement regime for law enforcement and other government
officials from a number of developing countries. These included
China, Hong Kong, India, Thailand, the Philippines, Israel,
Egypt, and Nigeria.
Next week we're going to partner again with WIPO to provide
a similar training program in Senegal for government officials
from several African nations, which builds on a similar program
we offered last year in Kenya.
In September we will sponsor two regional conferences to
explore the practical problems in developing and implementing
effective IP enforcement mechanisms in today's rapidly changing
digital and technological environment. The first event, which
is actually the second Intellectual Property Symposium of the
Americas, will be held here in Washington on September 11 and
12. It will be attended by judiciary officials, public
prosecutors, domestic enforcement agents, and private rights
holders from throughout North, Central, and South America.
The second forum, an Asian-Pacific regional conference,
will be held in Thailand on September 18 and 19.
As you know, Mr. Chairman, the music software and other
core U.S. copyright industries are a key growth sector for our
economy, accounting for nearly $400 billion in value added to
the U.S. economy and generating an estimated $67 billion in
foreign sales and exports in 1997 alone.
Accordingly, the USPTO and this Administration are
dedicated to ensuring strong protection and enforcement of
these IP products in the global economy. In fact, with
Congress' recent enactment of the National Intellectual
Property Law Enforcement Coordination Council we now have a
formal inter-agency coordination effort for domestic and
international IP law enforcement among Federal and foreign
entities. We believe the Council will help us partner with
industry to develop effective strategies for addressing
Internet piracy, which is a key challenge for the 21st century.
Thank you very much, Mr. Chairman, and I am pleased to
answer any questions which you or the Subcommittee might have.
[The prepared statement of Under Secretary Dickinson
appears in the appendix.]
Mr. Manzullo. I appreciate that.
Mr. Papovich.
STATEMENT OF JOSEPH PAPOVICH, ASSISTANT U.S. TRADE
REPRESENTATIVE FOR SERVICES, INVESTMENT, AND INTELLECTUAL
PROPERTY, OFFICE OF THE U.S. TRADE REPRESENTATIVE
Mr. Papovich. Thank you, Mr. Chairman, Congressman
Menendez, Ms. Chairwoman, and the other Members of the
Subcommittee.
We appreciate the opportunity to speak to you about the
cost of Internet piracy for music and software and other
industries in the United States dependent on intellectual
property and USTR's role in this.
We are a small agency. We have only four of us, including
myself, who work directly or primarily on the implementation of
our intellectual property policy. Therefore, we very much
appreciate the support and interest received from Congress and
from other agencies, including the Patent and Trademark Office
with whom we work very closely.
Our main function or our main policy, as we see it, is to
press other governments. This is USTR's main activity, to press
other governments to provide adequate and effective
intellectual property protection and enforcement, and we focus
particularly on commercial levels of piracy.
That means we press countries to have modern laws and to
enforce them by making available to U.S. right holders
administrative, civil, and criminal sanctions. We use the tools
provided to us to obtain these results.
Our principal focus now, or at least one of our principal
focuses, is securing full implementation of the WTO's so-called
TRIPS agreement, which is the intellectual property agreement
in the World Trade Organization. This agreement requires
members to enact and enforce copyright and other intellectual
property protection.
Obligations for developing countries came into effect on
January 1, 2000, after a 5-year transition period. We have
achieved considerable success obtaining compliance with the
substantive obligations of the agreement. However, compliance
with the enforcement provisions remain a problem in certain
developed countries and in many developing countries, and that
has become increasingly the focus of our attention.
First we focus on insuring the countries changed their laws
to reflect modern intellectual property standards or the
standards of the TRIPS agreement.
Another aspect of our WTO strategy relates to the WTO work
program on electronic commerce. For example, we are seeking
recognition by WTO members of the applicability of existing WTO
rules to electronic commerce. In the context of intellectual
property, this means recognition that the standards established
in the TRIPS agreement are as applicable on the Internet as
they are in the physical world.
We are actively consulting with industry to develop the
best strategy to address Internet piracy. An important first
step in this, of course, was achieved at the World Intellectual
Property Organization when they concluded their two copyright
treaties in 1996.
We are pursuing this in several ways. We are seeking to
incorporate the highest standards of protection for
intellectual property into every bilateral and regional trade
agreement that we negotiate. We are negotiating now with our
trading partners in the Western Hemisphere in an attempt to
conclude a free trade area for the Americas.
The United States is submitting proposals in this
negotiation that incorporate the substantive provisions of the
WIPO copyright treaties. So in this regional agreement we would
seek to have standards higher than those now in the TRIPS
agreement.
Our proposals in the so-called FTAA would also update
copyright and enforcement obligations to reflect other
technological developments.
More immediately, we are engaged in a bilateral negotiation
of a free trade agreement with Jordan. In this negotiation on
the IPR Chapter, the Intellectual Property Chapter, we are
insisting that the Jordanians agree to implement these WIPO
copyright treaties and put provisions in their law that allow
the enforcement of those provisions.
Finally, one of our longer term objectives is to bring the
substantive obligations of the WIPO copyright treaties into the
WTO as obligations for all members under the TRIPS agreement.
At that time, we would intend to further update the TRIPS
agreement to insure that it provides adequate and effective
protection for intellectual property in light of the latest
technological developments.
We also have a fairly active bilateral program. One of the
most effective tools we have is the annual special 301 review
mandated by Congress under the 1988 Trade Act. This tool has
vastly improved intellectual property standards around the
world.
Each year at the end of April, we publish a list of
countries that we believe do not provide adequate and effective
intellectual property protection. The mere publication of that
list warns countries of our concerns and warns investors that
that country may not be a safe place for them to put their
investment money.
In many cases, our actions under special 301 leads to
permanent improvements. We have had some meaningful successes
recently in Bulgaria where there had been serious optical media
CD piracy that has largely been closed down; even more recently
in Hong Kong, which has taken significant steps legislatively
and enforcement-wise to combat optical media.
Perhaps the biggest effort we have made in the second half
of the 1990's was with respect to China. In 1995 and 1996,
persistence tolerance of piracy there led us to threaten China
with $1 billion in trade sanctions. These sanctions helped us
achieve the closure of pirated optical media production in
China.
Our followup work has been to insure that all relevant
Chinese agencies, including trade, customs, judiciary police,
and senior political officials stay involved.
Enforcement of intellectual property rights now has become
part of China's nationwide anti-crime campaign. During 2000,
they are conducting a coordinated anti-piracy campaign
involving a number of enforcement agencies.
As we begin to move our efforts into Internet related
piracy issues, we have been raising this issue increasingly
with countries. While most of our efforts remain with the
problem of physical piracy, which still is very large, we have
begun encountering countries' Internet piracy issues.
My boss, Ambassador Charlene Barshefsky, recently wrote to
one of the Chinese Vice Premiers, urging him to insure that as
China amends its copyright law, which they are doing now, and
in doing so that they make amendments to address Internet
piracy, including implementation of the WIPO copyright
treaties.
In any case, Chinese courts have ruled in a number of
recent cases that unauthorized uses of sound recordings in the
on-line environment are acts of infringement under their
existing copyright law.
Similarly, with Hong Kong, a number of U.S. agencies
recently provided for a training program for Hong Kong's
Department of Customs and Excise. Hong Kong sent members of its
Internet Anti-piracy team to the U.S. Government's Cyber
Smuggling Center in Virginia for a week-long training session
on ways to curb Internet piracy.
On June 22, just a month ago, after Hong Kong's people
returned, they smashed a syndicate there in Hong Kong which had
been soliciting orders for pirate CDs over the Internet. Those
people are now training others in Hong Kong in how to conduct
such enforcement activities.
We need to do much, much more training, and that is
something that we will cooperate with other agencies to do, in
terms of just teaching other governments how to move from
dealing with the still very large physical piracy problem to
trying to tackle the Internet piracy problem.
Intellectual property protection remains one of our most
important and challenging tasks. We protect U.S. intellectual
property rights to encourage research, investments, and ideas
of some of America's leading artists, authors, private sector
and academic researchers.
Congress, through passage of the special 301 law, the
passage of the Digital Millennium Copyright Act, implementing
the WIPO treaties and other actions, including hearings like
this, deserves great credit for bringing public focus to these
issues. We look forward to continuing this effort together as
we move forward.
Thank you very much.
Mr. Manzullo. Thank you.
Mr. Rohrabacher. Todd, good to see you again.
Under Secretary Dickinson. Congressman, and you.
Mr. Rohrabacher. You are doing a good job over there.
Under Secretary Dickinson. Thank you.
Mr. Rohrabacher. I would say you guys have got your job cut
out for you on this one. I do not know what the answer is, but
it is getting more complicated every day, and that is all I've
got to say.
[Laughter.]
Mr. Manzullo. Congressman Menendez, can you follow that
one?
Mr. Menendez. Well, that is the start. So, you know, to get
a compliment from Mr. Rohrabacher and just to say that is as
little as he has to say on the subject is historic. I do not
know that I can----
Mr. Manzullo. You know, we do not have to ask questions.
They gave good testimony.
[Laughter.]
Mr. Menendez. I do have some questions that did not get
answered.
Mr. Papovich, let me ask you. You mentioned, I think, in
your testimony that only 4 of the nearly 200 employees at USTR
are dedicated to the implementation of intellectual property
policy, which is only about 2 percent. Is 2 percent the amount
of--does that represent USTR's work overall on intellectual
property right issues? And do the trade losses of U.S.
businesses represent only 2 percent of the overall issues that
USTR faces?
Mr. Papovich. Actually, my statement may have been a bit of
a misstatement in that sense. First, I included secretaries,
support staff in the 200, and that is some significant number.
But I said primarily involved, and, in fact, the way we
organize ourselves, at least half of our units at USTR are
regional staffs. We have an office for Japan, an office for
China, an office for Europe, and each of those people has as
part of their portfolio the protection of American intellectual
property interests in other countries.
In fact, I will share this with you. A few years ago as I
was sitting with an OMB official talking about our budget
proposal, this person said, ``You know, we ought to change the
name of this institution from USTR to USIPR because you are
spending entirely too much time on intellectual property
issues, or let's put it this way. You are spending an awful lot
of time, not too much time, but an awful lot of time on
intellectual property issues.''
We, the four of us, are responsible for overall policy. We
then, if you will, direct our regional officers to raise
intellectual property issues with the countries that they
interact with on a daily basis. So it is not just the four of
us.
Mr. Menendez. But the question still stands. Are you
expending the resources that are commensurate with the losses
to American industry in this regard? Is it something that
should be reallocated or that your department should be added
to?
I mean obviously we all talked in your statements, as well
as ours, about the explosive nature that is going to take place
as a result of greater Internet use, and therefore, the
potential for piracy is only going to grow. Getting the respect
of countries to respond, those who are on the 301 list,
developing countries who have no excuse other than political
will, and developed countries versus developing countries; it
seems to me that you are not by design or desire, but it seems
you are shortchanging what, in fact, we should be doing in this
regard.
Do you think you have all of the capacity to deal with
this?
Mr. Papovich. It is a tough question for me to answer
because the 200 of us, or the 120 or so who do the substance of
the work, have to cover our entire trade policy for the United
States. Our job is to coordinate trade policy, including
international intellectual property enforcement policy, with
those in our building.
We then have to rely heavily on other agencies to make that
happen, and that is the way the system is set up. So we rely on
PTO, State Department----
Mr. Menendez. By way of example, let's look at China. You
spoke of the huge problem of piracy in China, and the
government's efforts beginning in 1995 and 1996 to curb those
activities.
The question is: when are we going to see a drop-off in
piracy? Because if you look at the IIPA and BSA statistics,
they show little positive change from 1998 to 1999. So, you
know, that is by way of example, one example, of what I am
concerned about in this regard.
When do you see some positive changes moving in the context
of China?
Mr. Papovich. I do not know when we will see that. I hope
we see----
Mr. Menendez. I can understand, sir.
Mr. Papovich. I hope we see it this year, but it is not
easy. It is not easy.
Mr. Menendez. What do the 301--I mean, I know what they are
supposed to do. What do we actually do when we have the 301
list that we promulgate? I mean, what do we do to move
countries?
I mean, developed countries in my mind have even less
reason to be in the midst of not enforcing and providing the
rule of law, enforcing the rule of law, and creating the
infrastructure that they have committed themselves to in
international agreements.
Developing countries might have some arguments about their
technical abilities. Developed countries do not. What are we
doing with, for example, developing countries that are not
meeting their responsibilities?
Mr. Papovich. Well, we are using the WTO dispute settlement
system. We have brought disputes against Sweden, Denmark,
Greece, and Ireland over parts of their IPR system that are in
noncompliance with the TRIPS agreement.
In the case of Denmark and Sweden, the problem was that
they did not permit ex parte searches of otherwise legitimate
business operations that are using pirated software. This is
very important to the software industry to be able to have
these surprise searches.
In both instances Sweden already changed its law after we
challenged them to comply. Denmark is in the process. In the
case of--I did not mention Portugal--Portugal was in
noncompliance. We challenged them in the WTO. We started the
formal dispute settlement process, and then they complied. One
of the biggest problems we have is in the enforcement side
where countries have less stringent penalties than the United
States might have.
A good example is Greece and Italy where crimes of very
severe magnitude committed there do not receive the punishments
that would be allocated here. For economic crimes, like
intellectual property, penalties are also considerably less
than what we would consider appropriate to deter, and we have
been putting pressure on these countries, and it has been a
challenge because they have a hard time seeing that the
economic crime of intellectual property piracy rises to the
level that deserves the punishments we deserve.
But we have used a variety of pressures to get them to
change this, but it is not easy. The Italian government has
legislation, an anti-piracy law, that we hope they will pass
this summer, but we have been working on it for about 4 years
now using different pressures to get that done.
But it is often just a case of perception. The countries,
even developed countries, do not always see intellectual
property as a form of private property even though their own
citizens create a lot of intellectual property. They still are
learning the importance of it as a form of property that needs
to be protected.
Sorry for the long answer, but I wanted to elaborate.
Mr. Menendez. I have other questions that I will submit for
the record. I hope you will answer them.
Mr. Manzullo. I was going to ask you a question about
Macau. I was over there in December 1997 just before the
turnover. Your mentioning of Portugal explains how Macau's
transition from Portugal to the PRC, reminds me of just a
wonderful hand-off to people who do a great job of preserving
intellectual property rights.
But my understanding is that one of the biggest areas of CD
pirating in the world taking place in Macau. Is that still
going on?
Mr. Papovich. Yes. It has begun to improve, and I am not
sure quite what to make of it, but I----
Mr. Manzullo. I will not ask the question to what extent is
it improving because it cannot go anywhere but improve, I
understand.
Mr. Papovich. I have made several trips to Macau on this
problem, and in one meeting I had with one of the chief
prosecutors, I had the impression he was afraid for his life;
that if he prosecuted these people, he would put his life in
danger. This was a Portuguese origin person.
The last time I was there I met with one of the Chinese
prosecutors who did not look very frightened to me, and he
talked about how he was going to clean this up, and I hope he
does. I worry a little bit about insuring the rule of law. I do
not know what tactics he is going to use, but I have noticed in
the past few months that the Macanese police have become more
aggressive about attacking pirates than they were before.
So I see some improvement, and I do not know how much to
attribute that to the hand-over, but I just will note that I
have seen some improvements in recent months.
Mr. Manzullo. There is supposed to be a 5-year period of
time during which developing countries were supposed to phase
in agreements or statutes that would be in compliance with
TRIPS. What is going on there?
Mr. Papovich. As I said in my testimony, there has been
fairly good performance by developing countries in changing
their substantive standards, in modifying their copyright,
patent, trademark laws to make them TRIPS compliant. It is not
perfect by any stretch of the imagination, but pretty good, and
we have a long list that I would be happy to submit if you
would like to have it for all the countries, developing
countries that have amended their intellectual property laws in
the last year in an attempt to comply.
The bigger problem is going to be on the enforcement side.
If a country has a poor judicial enforcement system generally
or a corrupt judicial enforcement system generally, it is going
to be an uphill battle for us to get them to adequately enforce
the intellectual property components of their law.
Mr. Manzullo. Are we mostly talking about piracy here in
terms of reproducing CDs?
Mr. Papovich. That is a big part of it.
Mr. Manzullo. What other aspects are there besides that?
Mr. Papovich. Well, software piracy is often called
corporate end user piracy, where an otherwise legitimate
corporation will buy one piece of software, get no licenses, or
licenses for 1 or 2 machines, and then copy it onto 500
machines.
Mr. Manzullo. Well, that is done in this country.
Mr. Papovich. That is against the law, and that is a
priority for BSA.
Mr. Manzullo. That was a good answer.
Mr. Papovich. I will let them speak to that, but we put a
lot of pressure on countries to act against this.
In the trademark area, of course, counterfeiting is just a
gigantic problem, whether it is footwear or blue jeans or
whatever. That is a problem, too.
Mr. Manzullo. Well, you have both been very candid here. Is
there any hope? All it takes is one country to be a pirate, and
that is enough to destroy intellectual property rights around
the world.
Mr. Papovich. Well, I am an eternal optimist, and I believe
we have been making progress. My bigger fear, despite my
eternal optimism, is that we chase this problem, particularly
this optical media one. We chased it out of China. China was
the central production center for optical media piracy.
Mr. Manzullo. Explain what you mean by that.
Mr. Papovich. Optical media, these are CDs, CD-ROMs, VCDs,
DVDs, all of those, the optical things that go on disks.
We put enormous pressure on the Chinese to stop this in the
mid-1990's. They did shut down the production of these
products. They fled to Macau and Hong Kong first and Taiwan. We
put pressure on all three of them, and we are seeing progress,
particularly in Hong Kong.
The Hong Kong and Macanese police have raided factories
where the machinery was boxed up with addresses like Malaysia,
Thailand, where the product, the machinery was being shipped
because the police pressure was getting too hot on them.
So then I have been traveling to Thailand and Malaysia
doing the same thing and hopefully will see progress, but two
problems loom out there. One is these pirates could move to
places I do not have very easy access to, some place like
Burma, let's say, or it goes to the Internet, which is going to
become much more difficult for everyone to police. It is one
thing for people to have a factory that the police can raid. It
is another thing to have a computer in their house, when they
are facilitating the transfer of all of these CDs.
Mr. Manzullo. Thank you.
Steve, I think it is your turn.
Mr. Rothman. Thank you, Mr. Chairman.
I have a couple of questions. How big is this problem? What
is it costing the American industry? And what does it cost the
American consumer? Do we have any numbers on that?
Mr. Papovich. The only numbers we have are ones that
industry has provided to us. We do not have any capability
ourselves to estimate this, but our annual special 301 review,
each spring the IIPA, the alliance of copyright alliances,
submits a very comprehensive set of estimates to us of the
losses they suffer and the piracy rates and the number of
countries, not every single country, but in many countries so
that we have a feeling for that.
I do not remember the numbers off the top of my head, but
it is something like $4 billion. It was in your testimony.
Mr. Papovich. Yes, we are getting around $4 billion.
Mr. Rothman. And it would be interesting to know $4 billion
out of how many.
Under Secretary Dickinson. Well, the same estimate from the
same entity of how much the contribution to the GDP that the
copyright industry makes is somewhere around $530 billion.
Probably a little over 6 percent of our GDP is dependent on
copyright industries.
Mr. Rothman. $4 billion out of $5 billion?
Under Secretary Dickinson. $530 billion.
Mr. Rothman. $530 billion; $4 billion out of $530 billion.
I do not need to do the calculation. I just want the raw
number.
Under Secretary Dickinson. Now, there is about $66 billion
of foreign sales that are generated, as well. That is all in
the number of domestic and foreign.
Mr. Rothman. OK. I have another question. Do you have
sufficient legislation from us to help you? Do you need
anything from us?
Mr. Papovich. No. The special, from my side----
Under Secretary Dickinson. Let me make a correction, by the
way. That 4 billion represents industry estimates from just one
industry, the recording industry. Software industry estimates
are somewhere on the order of $12 billion in just their
industry.
Mr. Rothman. Well, each of those is----
Under Secretary Dickinson. The $530 billion is all
copyright industries all together.
Mr. Rothman. OK. So now we have got recording is $4
billion, and the other one is what?
Under Secretary Dickinson. Software is, according again to
BSA, the Business Software Alliance, and the Software Industry
Association, $12 billion.
Mr. Rothman. Twelve. So we are up to $16 billion out of
$530 billion. I am not saying whether that is big or small.
Under Secretary Dickinson. And the estimate, and I
apologize for looking down a little further here, the IIPA
estimates the U.S. copyright industries worldwide losses are
$22 billion total.
Mr. Rothman. $22 billion on top of the $16 billion?
Under Secretary Dickinson. I think the total is the $22
billion.
Mr. Rothman. Is the 22. So it is $22 billion out of $530
billion.
Under Secretary Dickinson. Yes.
Mr. Rothman. OK.
Under Secretary Dickinson. Out of $67 billion.
Mr. Rothman. $22 billion out of $67 billion?
Under Secretary Dickinson. Let me just check.
Mr. Rothman. No, because if 16 is the domestic out of 530--
well, you know what? We can get those if you have them.
Under Secretary Dickinson. We can get those numbers back
for you, Congressman. It is a lot of money. Let's put it that
way.
[Laughter.]
Mr. Rothman. It is a lot of money, but you know, we can to
get a sense of the scale of the problem.
Under Secretary Dickinson. We do.
Mr. Rothman. What do cigarettes cost us? What do car
accidents cost us? What does alcohol cost us? It runs into the
billions as well.
Under Secretary Dickinson. Indeed.
Mr. Rothman. Again, I do not mean to minimize the extent of
the danger of this particular bill, and it is a big one, and it
bothers me greatly, but what bothers me is the sense I get, and
I hope I am wrong that the Internet being free, that everything
is for free, and I am not sure all Americans yet have a feeling
for the value of intellectual property, and I think they should
because what is a capitalist society, aside from general
fairness, sense of fairness that one owns, you know, the
product of one's own labor; people have made a great deal of
investments in these intellectual property items, and they want
to be able to be assured of whatever return is due to them and
that some of the proceeds will not be stolen from them.
So what can we tell the average American young person or
average citizen about what their role should be in a world
where they may have a great exposure, greater exposure to these
ill-gotten gains, this stolen property? Should there be some
national campaign or is there one already from the industry?
I think I have seen some of those saying, you know, there
is no such thing as a free lunch or something like that, and I
have had young people say, ``Oh, it is just for free.''
And I said, ``When you go into the candy store and steal
something, that is shoplifting. There is no difference if you
steal someone else's property.''
Do you have any thoughts on that?
Under Secretary Dickinson. Congressman, I think you have
stated the case very well. I think one of the challenges we
face is that intellectual property is an intangible thing, and
being so easy to copy, it is often perceived as something which
is fair game, and if you can get away with it, it is OK. And so
that creates some obvious problems.
We have also seen that problem enormously enhanced by the
rise of the Internet and technologies which have been developed
on the Internet that have allowed for the copying, in some
cases fair use, but in many cases not, of copyrighted works.
That has become a major problem.
And there has been hearings both here and on the other side
of the Hill to deal with this recently and to deal with this
question.
Mr. Rothman. Well, maybe it's up to the people whose goods
are being stolen to do that, and they may very well have
programs to talk about, but I would be interested in that. You
know, as a father, as a member of the community, it is our job
to educate our young people about what is right and what is
wrong.
Under Secretary Dickinson. There is no free lunch.
Sometimes this is perceived, for example, as very wealthy
individuals in the recording industry losing a little bit of
their wealth. What that fails to overlook is the number of
people who are genuinely in that industry at all levels, from
the people who run the pressing machines to the people who run
the recording studios, the people who just have regular jobs in
those industries that are not glamorous and exciting as the
stars might be. Those are real jobs that are lost and real
wages that are affected.
Mr. Manzullo. Mr. Delahunt.
Mr. Delahunt. Thank you, Mr. Chairman.
To attempt to quote Everett Dirksen, I think, it was a bit
in here, a bit in there, and after a while you are starting to
talk about some serious money.
Mr. Manzullo. He is a good Republican.
Mr. Delahunt. I understand that. I know that there are some
good Republicans, Mr. Chairman.
[Laughter.]
In fact, some of my best friends are Republicans.
Mr. Manzullo. Not enough. Well, your time is up.
[Laughter.]
Mr. Rothman. Mr. Chairman, he includes you among them.
Mr. Delahunt. Just let me pursue a little bit because I
really think it is important to underscore that in terms of our
economy and its relationship to the global economy, how
significant the intellectual property account is in terms of
the trade deficit.
Are we talking about a $4 billion loss or a $22 billion
loss, in terms of exports? I think we can agree, you know, that
we have a balance on the export side of some $67 billion, and
what is the best estimate you have in terms of domestic piracy
overseas as opposed to domestic piracy because they really do
present, you know, different problems, if you have it.
Under Secretary Dickinson. I do not happen to have it. Do
you have it, Joe, in terms of the----
Mr. Papovich. No.
Under Secretary Dickinson. I have worldwide estimates by
some of the entities who make these estimates. We can try to
get the breakdown for you.
Mr. Delahunt. OK.
Mr. Papovich. But there is a further complicating factor.
It is not all lost exports. Some of this work would have been
produced in the markets that it is intended to serve. You know,
not every CD that is sold in Asia that is legitimate is not
made--that has, as we say in America, a recording artist on
it--the CD itself is not made in the United States. The CD may
be made in a country where the market is. So it is lost revenue
opportunities, but it is not necessarily exports.
Mr. Delahunt. In terms of the legislation that we passed
last session, the so-called Net Act and the Digital Millennium
Act which dealt with the issue of these anti-circumvention
devices, the prohibition thereof, if you will, and I am sure
that maybe our next panel can respond to it and maybe they have
some experience, have we been able to determine or make any
evaluation as to the effectiveness of what we did last session?
Under Secretary Dickinson. My understanding, Congressman,
is that both of these acts have only recently begun to be used.
We have not had extensive experience with them yet, but my
understanding, for example, is that some parts of them have
been used extensively so far. Under the DMCA, for example, the
notice and take-down provisions that the ISPs and the OSPs use
to bring down Web sites which are inappropriate have been used
rather extensively. Some of the defenses in the DMCA, I
understand, have also been used.
So we will have to wait and see what the ultimate result
is, and some of the other witnesses may have some insights.
Mr. Delahunt. OK.
Mr. Papovich. There is an indirect value, too, and that is
the example that we set for other countries. If we were to
delay, if we had delayed in implementing our requirements under
the WIPO copyright treaties, it would have made it all the
harder for a person like me to go to another country and say,
``You need to do something to implement those WIPO treaties.''
Mr. Delahunt. Right.
Mr. Papovich. The same with the Net Act.
Mr. Delahunt. Well, I think we have got to do that to be in
compliance with the EU and with the TRIPS Act.
Mr. Papovich. Right.
Under Secretary Dickinson. Well, actually the contrary is
the case, Congressman. We have taken the lead internationally.
We were one of the earliest nations to ratify those treaties
and pass the implementing legislation. The EU and European
countries have not yet ratified the treaties, and one of our
biggest jobs is trying to convince our colleagues and friends
in Europe that they need to move forward in a timely way.
Mr. Delahunt. Right. I think you responded, you know, in
terms of what we can do, in terms of legislation and
substantive law. You have the books that we have just alluded
to at your disposal, and again, I think maybe it was Mr.
Menendez that was talking about, you know, there are four of
you in the USTR that are working in terms of intellectual
property, but I think your coordinating role or mission, if you
will, is really the key here, and maybe you can list for us the
agencies that are dealing with this particular issue.
I think, if my memory does not fail me, I think the
Attorney General, Ms. Reno, has established a task force in
terms of dealing with the issue of piracy and intellectual
property.
But I guess the bottom line, after you look at that, is:
are we spending enough resources at this point in time in your
judgments, and not, again, just simply from your agency
perspective, but in terms of what we need to do to protect
American intellectual property in the global marketplace?
Under Secretary Dickinson. Congressman, let me start off.
Among the agencies that are involved, and these are the ones
which are members of the National Intellectual Property Law
Enforcement Coordination Council that we mentioned, the
Assistant Attorney General for Criminal Enforcement, the Under
Secretary of State for Economic Affairs, the Deputy USTR, the
Commissioner of Customs, the Under Secretary of Commerce for
International Trade, and the Register of Copyrights.
Mr. Delahunt. Commissioner, I think it is important to
enumerate them, but I guess what I am saying is what kind of
resources, for example, is the Department of Justice allocating
to this particular initiative. I mean, how many FBI agents are
dealing with this issue? Do we have enough personnel from
whatever Federal agency is involved to really do this job and
to start to make a difference in terms of sending out a
deterrence message?
Under Secretary Dickinson. I think we do not do enough yet.
We do not have enough resources. I think that you would have to
ask the Justice Department the magnitude of their----
Mr. Delahunt. I am not just picking on the Justice
Department.
Under Secretary Dickinson. No.
Mr. Delahunt. But I am talking about all of these, whether
it is Commerce or Customs or whatever.
Under Secretary Dickinson. Well, as you know, one of our
biggest issues this year is gaining access to the fees that are
paid to our office to make sure we have the resources to do the
job.
Mr. Delahunt. I do, and you know that you have a strong
advocate in me in that particular undertaking.
Under Secretary Dickinson. Yes.
Mr. Delahunt. If I can just have one additional question,
in the end in terms of Internet piracy, I was very pleased to
see that the Administration has issued some new guidelines in
terms of the export of encryption technologies, and I would be
eager to hear from the next panel in terms of what the industry
is doing in terms of incorporating into our intellectual
property products the necessary technologies so as to prevent,
if you will, piracy, and maybe either one of you can comment on
that.
Mr. Papovich. I am sorry. I cannot.
Under Secretary Dickinson. I cannot comment directly, but I
think you have obviously hit on a key issue. Besides
traditional law enforcement activities and training activities
that we work on, there are certainly technological mechanisms
for dealing with this.
Mr. Delahunt. I think this is really, really critical, and
I am sure there is a role for government there somewhere in
terms of assisting the private sector because this is about law
enforcement, which I suggest is a government role, and we ought
to be, you know, really working with the private sector to
develop the kind of technologies that they need.
Mr. Manzullo. Mr. Chabot.
Mr. Chabot. Thank you.
I will be brief so that we can get to the next panel, but
would you address the wisdom of going against pirating either
through criminal law, whether it is international agreements,
etc., versus just allowing those that have been harmed, the
private sector, the companies or whomever, to go civilly
against the folks that are involved in this either in other
countries, and I assume you are going to say we need to do it
criminally and here is why, but I would just like to hear the
philosophical and efficacies of going one way versus the other.
Under Secretary Dickinson. Well, I think one of the
challenges on the criminal side that Mr. Papovich mentioned is
making sure that the law enforcement actors who were
responsible for it raised the priority up high enough. They
have to deal with violent crime and other major criminal
issues. That is a concern here both in the United States and
overseas.
On the civil side, it is often in the United States, for
example, a matter of a very long, often dragged out enforcement
proceeding which does not always get the same priority in the
court system. So I think there is some room there.
Another activity which we also engage in, which I think
should not be overlooked, we do it when we do our training, is
to cause developing countries, in particular, to understand how
important intellectual property can become in their own
economies.
As the very large and growing component of our economy
demonstrates, reminding and assuring and educating developing
countries on how important IP can be to their own country, I
think also as an economic incentive will go a long way toward
helping, too.
Mr. Papovich. Civil remedies are almost always inadequate
in many developing countries. So from my perspective, which is
just an international one, far too often the outcome, first of
all, can be many, many years, but then the outcome is some very
modest sanction, a slap on the wrist.
Mr. Chabot. OK. Thank you very much. I yield back the
balance of my time.
Mr. Manzullo. Well, thank you. We appreciate your coming
this afternoon.
If we could get our second panel seated as soon as possible
before some more votes come off that would be appreciated. I
see someone is handing out some CDs. I presume those were made
legally.
[Laughter.]
Did not even catch it, did he?
OK. To complement the expertise of our first panel, I would
like to introduce two gentlemen who are quite sensitive to the
implications of Internet piracy and know first hand the
problems and prospects which face the music and software
industries.
First, I would like to introduce Mr. Jack Krumholtz,
Director of Federal Government Affairs and Associate General
Counsel in the Law and Corporate Affairs Department at
Microsoft Corporation. Jack is a graduate of Georgetown
University School of Foreign Service and the University of
Pennsylvania Law School.
He is Vice Chairman of the Microsoft Political Action
Committee--these are not my notes--and also serves on the
Advisory Council to the Congressional Internet Caucus.
Finally, I would like to introduce Mr. Tom Tyrrell, a
Senior Vice President and General Counsel and Secretary for
Sony Music Entertainment. He is a former head of CBS Records'
Law Department. Mr. Tyrrell served as Senior VP of
Administration in North American Operations for Sony Music
International until 1991.
You know, I was talking to a friend several years ago. He
said at one time knowledge was discovered, but today it is
invented, which leads to this incredible technological
revolution that continues.
Mr. Krumholtz, do you want to lead off, please?
STATEMENT OF JACK KRUMHOLTZ, DIRECTOR OF FEDERAL GOVERNMENT
AFFAIRS AND ASSOCIATE GENERAL COUNSEL, MICROSOFT
Mr. Krumholtz. Thank you, Mr. Chairman.
Good afternoon, Mr. Chairman and Congressmen Menendez and
Members of the Subcommittee. On behalf of Microsoft and the
other members of the Business Software Alliance, including Auto
Desk and Lotus, I appreciate the opportunity to appear before
you today to speak about the challenges confronting software
publishers in protecting their intellectual property against
theft in this age of electronic commerce.
I want to thank Ambassador Barshefsky, Secretary Dickinson,
and Assistant USTR Papovich for their leadership in protecting
copyright protection on a global scale. Software publishers and
technology companies not only are among the chief architects of
electronic commerce. They recognize the tremendous potential of
offering their own physical intellectual property based
products electronically.
Forester Research estimates that E-commerce among
businesses will reach $1.3 trillion worldwide by the year 2003.
The software industry is one of the fastest growing sectors of
the U.S. economy, each year creating thousands of new jobs and
unlimited opportunities for entrepreneurs and small businesses.
I would like to submit for the record a copy of a report
that outlines the industry's contributions to the global
economy. In the 61 countries covered by this report, the
packaged software market reached $133 billion in 1997. In non-
U.S. countries, the industry provided 740,000 jobs. In the
United States in 1998, the industry employed over 800,000
workers.
In addition, the industry contributes significantly to tax
revenues, in the billions of dollars to governments around the
world.
Despite its significant economy contributions, the U.S.
software industry has not reached its potential due, in part,
to global piracy. Software theft cost the industry an estimates
$12 billion on a global basis in 1999. This translates into
thousands of lost jobs and billions of dollars in lost tax
revenues.
The Internet creates tremendous opportunities. However, it
makes no distinction between legitimate businesses and
criminals who want to exploit E-commerce to market their stolen
products. You will hear today about the latest tools Napster
and Nutella from Mr. Tyrrell.
Recently BSA member companies' software has been found on
Napster. We anticipate that this trend will only continue as
broad band technologies become more readily available. Today I
would like to just highlight two types of theft on the
Internet, Web sites and counterfeit goods.
Many thieves today simply set up brazenly illegal Web sites
on any given day by typing in ``wares,'' which is the pirate
slang for stolen software. You can find 2 million Web pages
offering illicit software. These sites are easy to find and are
in every language.
I think you have before you a copy of a site that actually
appears in Spanish, and we would like to submit that for the
record as well.
Hard statistics on the financial losses via the Internet
are not readily available. We estimate that the losses can be
in the billions of dollars.
In terms of the second for of theft on the Internet,
counterfeit, the Internet is used by pirates to advertise,
market, and coordinate the distribution of pirated software
CDs. I have got an example here. These are two of Microsoft's
more popular products, Office 2000. This is a genuine Office
2000 and this is a counterfeit product. I think you would agree
that it would be very hard for a consumer to know what the
difference is, but there are some very important differences.
On the pirated CD there will not be any product or
technical support, any warranties or any discounted or free
upgrades, and in addition, the pirated product is often plagued
by viruses.
After the sale is complete on the Internet, CDs like the
one I just held up are delivered by mail. Developments in CD
replicating technology have made it possible to manufacture
very large volumes of near perfect copies. Here is another
example of Office '97, which is also a counterfeit product.
There are many other types of Internet theft which are
highlighted in my testimony. For example, these include
bulletin boards, news groups, Internet relay chat channels. To
appreciate the Internet's potential impact, one need only to
contrast the number of people who can crowd around a flea
market card table that offers pirated software and the number
who can simultaneously access a pirated Web site.
What can government do? Worldwide governments can help
promote legitimate electronic commerce and fight Internet
piracy by doing a number of things.
First, by insuring that they fulfill their obligations
under the WTO TRIPS agreement by adopting and implementing laws
that provide for effective enforcement.
Second, by ratifying and implementing the WIPO treaties
that insure copyright protection in the digital age.
Third, by putting strong software management policies in
place.
And finally, by dedicating resources to the investigation
and prosecution of Internet piracy.
In closing, Mr. Chairman, electronic commerce promises a
new revolution in development, distribution, and use of
products and services protected by intellectual property. I
appreciate the Subcommittee's interest in these critical issues
and for holding this hearing today. I would be happy to respond
to any questions.
Thank you.
[The prepared statement of Mr. Krumholtz appears in the
appendix.]
Mr. Manzullo. Mr. Krumholtz, the two documents to which you
referenced will be made part of the complete record without
objection.
Mr. Tyrrell.
STATEMENT OF THOMAS C. TYRRELL, SENIOR VICE PRESIDENT, GENERAL
COUNSEL, AND SECRETARY, SONY MUSIC ENTERTAINMENT
Mr. Tyrrell. Thank you.
I would like to thank Madame Chairwoman in absentia and her
fellow Subcommittee Members.
I want to begin by describing Sony Music. Sony Music is the
lead global producer, manufacturer and marketer of recorded
music, video, music publishing. We are headquartered in New
York.
We employ approximately 7,000 people in the United States
in our many record labels, including Columbia and Epic, in our
disk manufacturing plants and our state-of-the-art recording
facilities in New York, and we generate significant U.S.
revenues from our record music publishing business worldwide.
I am here before you today representing the Recording
Industry Association of America, the trade association of
America's record companies, large and small.
The United States is the greatest single source for
copyrighted music exported worldwide. The music business is
very much a U.S. driven business. Whether you are a large
record company like Sony Music or a small, independent company,
all record companies share a common thread, a fragile existence
wholly dependent upon the protection of our intellectual
property.
It is copyright protection upon which so much creativity,
ingenuity and commerce rests, and this protection is under
constant attack. You have before you an unparalleled
opportunity to strengthen this protection by leading the global
fight against piracy. In every instance, whether on the Net or
in the physical marketplace, defeating piracy means the
creation of market opportunities and the expansion of our
cultural and economic well-being.
Given the tremendous stakes for our country, none of us can
afford to permit ourselves to be daunted by the natures of the
obstacles that we confront. The record industry and other
copyright industries currently confront a piracy phenomenon
with two faces, or should I say at least two faces?
For the record industry, I have submitted to the
Subcommittee our current report on worldwide state of piracy,
which I think will address many of the statistical questions
and country-by-country breakdowns referred to earlier.
One face of piracy is in the physical marketplace, which we
confront increasingly organized and multinational criminal
enterprises involved in massive production and trafficking of
pirated CDs and other optical media.
Long gone are the days when piracy music was either
accomplished by die hard fans devoted to recording and
distributing every conceivable bootlegged product of their
favorite band or by some small, underground Mom and Pop
operations making a few dollars from the production and sale of
poorly reproduced pirate cassettes.
Today's pirates operate through multinational criminal
syndicates simultaneously involved in trafficking around the
globe. For example, in today's environment a pirate CD found in
the streets of Sao Palo, Brazil is likely to have been mastered
in Singapore, manufactured in Taiwan, shipped on spindles,
meaning that it has not even been placed into jewel boxes yet,
by air to Uruguay, trans-shipped to Paraguay where the product
is finally assembled and then literally trucked over the bridge
into Brazil, where it goes to central distribution centers, and
then sub-distribution throughout the country, and all of this
is with little worry about anyone facing criminal charges.
With the advent of the CD, the pirate has gained access to
the equivalent of a master recording. It does not degrade no
matter how many times he copies it. The pirate now has a new
tool for his trade, CDRs, recordable CDs.
With CDRs the pirate now has the ability to tailor his
pirating according to demand. No need to worry about inventory.
As much as we have improved the quality of our product over the
years, these same improvements have been accompanied by new
risks.
Today's pirates also rely on traditional means of avoiding
punishment, such as bribery and other forms of corruption, but
they also have new tools in their arsenal relating to their
increased stature: force and threats of violence, the ability
to rapidly change the location of various components of their
enterprises when confronted with governments prepared to tackle
the piracy issues.
Pirates actively seek out jurisdictions in which either the
law lacks enforcement or for relative safety for their
operations. Our job is to decrease, if we can't entirely
eliminate, these zones of safety.
The second face of piracy could not look for different. It
involves not criminal syndicates, but generally law abiding
citizens that mean in some sense no harm and who, in the
privacy of their own homes, are now actively involved in
anonymously unauthorized trading of massive numbers of recorded
music files.
Appearances aside, the impact of this activity on the
copyright owner is no less prejudicial than the other more
obvious forms of unauthorized activities.
The response to these two forms of piracies may be quite
different, but the need for forceful response is no less
pressing. The fight against piracy has been increasingly more
complex with developments in technology that permit the
instantaneous and global reproduction and distribution of
materials with the touch of a button.
In a global information network, protection of the creative
materials that are such a critical part of our country's
economic backbone is only as strong as the weakest link in the
information communication exchange.
Thus, there is an absolute need to eliminate existing gaps
in international legal structure that undermine the protection
enjoyed by copyright holders in national and international
channels of commerce. The WIPO treaties adopted in 1996 set the
stage for fair international digital distribution of music.
These treaties represent significant and necessary improvements
in the international legal structure and contain necessary
provisions relating to the ability to effectively enforce
rights in the digital age.
These global improvements are critical to the ability of
record companies and other copyright owners to do business in a
global information society. These treaties accomplished a
number of extremely important economic objectives.
First, the treaties make it absolutely clear that copyright
holders are granted exclusive rights to control the electronic
delivery of their works to individual members of the public.
This both anticipates and responds to the realities of the
electronic marketplace where copyright owners are likely to
rely increasingly on the communication of signals rather than
the delivery of physical products to meet consumer demand.
This level of copyright protection in conjunction with
technical protections also dealt with in these treaties is
indispensable to the willingness of copyright owners to make
their works available through these new media.
Second, the treaties confirm that existing national
copyright laws and the international copyright system apply in
a generalized manner to all technologies and media and not in a
technology specific manner.
Third, the treaties require countries to effectively
prevent the circumvention of technical measures in interference
with rights management information used by copyright holders to
protect or identify their works. Such technical measures and
rights management information will play an increasingly
important role in the protection and licensing of copyright in
the digital age.
Technology must play a critical role in solving some of the
same problems created by technological developments. These
technological solutions which simultaneously protect
intellectual property and foster technological innovation in
the expansion of commerce must be protected.
A great deal of work is being conducted around the globe to
develop technical systems of protection and viable information
systems to facilitate the administration of rights. These
systems of protections and rights management information will
be meaningless unless countries effectively deter and punish
circumvention or interference.
These WIPO treaties will require countries to do this, thus
establishing key elements of security for global electronic
commerce. The treaties represent an essential building block
for the development of E-commerce and the cultural and economic
development that will ensue if we create the right conditions
for promoting local creativity and its global distribution.
Mr. Manzullo. Could you summarize?
Mr. Tyrrell. Sure. I am almost done.
Mr. Manzullo. You are a fascinating reader. I would love to
have you read to my kids.
Mr. Tyrrell. OK. The position we are in right now is one
where if we look from here backward, I think we have a certain
level of comfort and support, and we believe that in the
executive agencies, such as the USTR, have been wonderful
partners. We believe the WIPO law, this treaty, will provide us
with the protections we need.
But we are not looking backward. We are looking forward,
and in looking forward, we see the whole world changing and at
an accelerating pace, and we feel that we are going to be
facing technological challenges that we did not anticipate even
a few years ago.
And traditional thoughts of what piracy means to us are not
a road map for the future.
[The prepared statement of Mr. Tyrrell appears in the
appendix.]
Mr. Manzullo. So you come to us for a solution.
Mr. Tyrrell. Maybe we come to you at this point to say we
are not an industry that likes to cry ``wolf,'' but we see
wolves on the horizon, yes.
Mr. Manzullo. We appreciate your testimony.
Mr. Tyrrell. Thank you.
Mr. Manzullo. I have a couple of questions. There was a
statement made by the prior panel that all copyright revenue or
market is about $530 billion a year. Does that include written
material, books, etc.? Does anybody want to jump in with an
answer?
I do not know how you can possibly quantify the amount of
piracy unless the people put out disks like that that have--
could you hold that up again? The other one--yes, that has
``counterfeit'' stamped on it. I guess that is the only way you
would know.
Mr. Krumholtz. We added that.
Mr. Manzullo. Presumably.
[Laughter.]
How can you possibly know how much junk is out there that
is counterfeited? How do you measure it?
Mr. Krumholtz. Well, speaking for the software industry and
the Business Software Alliance, what we do, we take what we
think is a very conservative approach to estimating the rate of
piracy in various countries where we have operations, and we
look at the number of computers, the hardware that is shipped,
and then we take an average. For each computer we assume that
there are five software programs that are located on that
computer, which is very conservative if you have ever purchased
a computer, increasingly conservative, and through that then we
compare that number with the number of software programs sold,
and that is how we reach our estimate for piracy rates.
Mr. Manzullo. That is pretty good. What about music CDs?
How would you possibly estimate the impact?
He sounded pretty scientific.
Mr. Tyrrell. Right.
[Laughter.]
In the case of music, starting in some countries, it is
fairly simple. We are not operating there, and all of the
markets and all of the stores are selling our products.
[Laughter.]
Moving up the food chain, we do monitor the more mature
markets. We go into stores, and we buy and we sample and we do
AB tests. We typically find that in the more mature markets the
sales are not taking place in the legitimate stores, but they
will be taking place right next door or right on the corner.
We do keep track of the factories that are out there. I
must admit we are now starting to lose track because with the
introduction of the CDR, it is not--and as I speak of the
future--it is not these big factories that are fairly easy to
locate that are going to represent our future. It may be little
operations in the back of someone's garage where he has 15 or
20 CDR machines set up and he can custom pirate to order.
But to spot a pirate CD is not that hard.
Mr. Manzullo. Let me ask you a question.
Mr. Tyrrell. Yes.
Mr. Manzullo. If someone is found, say, in this country
with a music CD or a business application CD that goes on your
computer and you determine that the person who has that is
carrying around or using it illegally, what do you do? What do
you enforce? What laws are there?
Mr. Tyrrell. We try to go after the source, not somebody
with one or two CDs.
Mr. Manzullo. The same with somebody dealing drugs. It is
wrong in both cases, but you want to get the dealer out. Then
how do you go about tracing it?
Whatever you would like to share with us. I understand this
is very sensitive when it comes to----
Mr. Tyrrell. Well, traditionally we have tried to locate
the factory and shut that down. And also, if somebody has CDs,
they have bought them. So you go after the person who is
selling them.
In the United States right now CD piracy is something that
is relatively under control compared to other countries of the
world.
Mr. Manzullo. Piracy under control.
Mr. Tyrrell. Relatively.
Mr. Manzullo. Relatively.
Mr. Tyrrell. Relatively. It is a constant threat, as I said
in my remarks.
Mr. Manzullo. With the next technological breakthrough
where you may be a business application or a music on something
that is the size of a fingernail, no one knows how this is
going to be controlled.
Mr. Tyrrell. We have it on something smaller than the size
of a fingernail now, on Napster.
Mr. Manzullo. OK. Mr. Menendez.
Mr. Menendez. Thank you both for your testimony.
Let me start off by saying we support your interests and
seek to work with you on your concerns. I think that
intellectual property is incredibly important to use as a
country. It is important to those who create whatever the
medium is to create and whether it is here in this country or
anywhere else in the world, and it needs to be rewarded.
So I start off with that, but I do want to ask you some
questions in terms of public policy. What is our ability, and I
have a greater focus, Mr. Tyrrell, in the industry you
represent, not because I am not interested in the software
industry----
Mr. Tyrrell. Sure.
Mr. Menendez [continuing]. But some of the questions really
posed are in part generational, in part questions of
understanding whether or not the industry in some respects is
over reacting.
For example, in my statement I quoted what you said, that
the private citizen in their home is as, in fact, dangerous and
damaging to the industry as organized criminal piracy, and in
principal you are right, but practically and even politically
speaking, how do you expect the Congress to address that?
Also, there are those analysts of the industry who say, for
example, that the industry needs to figure out a way to work
with Napster and others like it on new bands and albums. They
say that the record labels might be, quote, a little too busy
retaliating right now instead of thinking how they could use
it, in reference to Napster in this case, to their advantage.
There obviously has been a real lack of understanding the value
and marketing potential of this type of software.
And many artists seem to also welcome the increased
exposure of the Internet. On the RIA Web site, for instance,
Thomas Dolby writes about his own experience and that of other
musicals from David Bowie to an amateur folk singer-song writer
with regard to increased creativity and sales as a result of
Internet use.
So in that total, I have given you a lot there, but it is
also the things that we hear from a lot of our constituencies
and also questions about what is the role of the government in
this regard in trying to help you, but in balancing what is
clearly a continuously evolving set of technological challenges
that I am sure even your industry has been looking at and
saying, ``Well, how do we deal with it?''
But is the analyst wrong? Should you be looking at ways of
turning what is a negative into a possibly a powerful force for
yourself, or is it just protective to do so now and say,
``Well, we are getting hurt badly, and let's go after them''?
Mr. Tyrrell. Well, first of all, I think one thing that
Sony Music and Sony cannot be faulted for is being
technological leaders. We were the original Columbia company
that introduced the cylinder, the LP, the CD. So we are always
more than interested. We can to be technological leaders in
finding new technologies that will allow us to combine new
technology and our products.
In terms of--I may not be heeding these questions in
order--in terms of the Internet's ability to create a wider
environment for artists who want a wider exposure, we have no
disagreement with that at all. That is a wonderful feature of
the Internet.
An artist who wants his product to be on a Web site or on
Napster, he has got our complete support. Where we start to
encounter problems, and this is not negativism on our part, but
a business model that is built on the assumption that if you do
not secure any of the rights from the artist or from the song
writer, you pay nothing for the recording, you pay nothing for
the marketing, and then you make it available for free; why
aren't you more open to that business model?
It starts to sound like, well, if there is a pirate
duplicating CDs, why don't you find more of a way to deal with
them?
When I got on the plane to testify today, I have not even
read the article myself. ``Mac World. MP-3, say goodbye to your
CD collection. Napster lets you steal your songs. Free music,
CD-RIP.''
Now, maybe Mac World is a little extreme, but----
Mr. Manzullo. Did you want that made part of the record?
Mr. Tyrrell. Yes, yes.
Mr. Manzullo. Or just the article?
Mr. Tyrrell. It is on all the newsstands.
Mr. Menendez. Can you explain to me then your answers in
the context of the USA Today article of this past May.
Mr. Manzullo. Just 1 minute. It will be just the article.
Mr. Tyrrell. Yes, yes.
Mr. Manzullo. Do you have that?
[The magazine article appears in the appendix.]
Mr. Menendez. USA Today on May 15 had an article that said
that despite the recording industry's ``concern that digital
music would kill the business, music sales rose 8 percent in
1999, the first full year of the boom in the MP3 digital music
format used by Napster, from $13.7 billion to $14.6 billion.''
Mr. Tyrrell. That is a classic case of apples and oranges.
I am sure you can find very popular department stores who, as
their year to year performance increases, have had shoplifting,
I mean, or thefts. It has been our experience, in fact, that in
areas where Napster has been most prevalent, such as college
campuses, it is almost like a black hole. You will see
increased sales, and the closer you get to Napster users.
But, no, we are in the business of being interested in
marketing our music. We are not adverse to things that help our
music, and people who steal our music, while our business may
be up, to see the cause and effect there is something we have
missed.
Mr. Manzullo. OK. Mr. Rothman.
Mr. Rothman. Thank you.
Thank you for your testimony, Mr. Tyrrell.
I do not know. Maybe I am too old for this. Maybe I am a
fuddy-duddy about this, but there is just something
fundamentally wrong with the notion that you can take someone
else's property and not pay for it, and I cannot it has
anything but a horribly chilling effect on business people,
those who want to invest their capital in computer software or
in the record or in the careers of budding young artists. It
can only be a bad thing.
And the other part, the fuddy-duddy part is the moralistic
side of it. I do not think this helps the country in terms of
our sense of right and wrong if we do not send a clear message
to young people and old people, whoever is participating in
this activity, that this is wrong; that there is no positive
spinoff.
And in my opening remarks I asked somebody to give me the
other side. What is good about people stealing someone else's
work and not paying for it? And I think I would look to you
folks to help us help you or get the message out to the people
of our country that this is stealing. This is wrong, No. 1. And
it has a bad effect on the economy.
So I welcome that, and again, I welcome your own public
service announcements, self-interested as they may be, in
helping educate our young people about this. You know, it just
takes my breath away when people say, ``Work with the people
who are stealing your goods.''
Somebody breaks into your house and steals your most
valuable possessions, and the cops say, ``We are not going to
arrest him. Why don't you make a deal with him?''
I mean it just blows my mind.
Mr. Tyrrell. The truth is in between.
Mr. Rothman. So any thoughts about these things?
Mr. Krumholtz. No, I absolutely agree. I think there is
tremendous potential in this new channel distribution, but at
the end of the day, a fundamental cornerstone of electronic
commerce has got to be copyright protection, protection for
intellectual property. It has been, you know, a foundation in
our legal system since the country was founded over 200 years
ago.
You know, that does not change in an electronic
environment. I think we, speaking for the software industry, we
certainly have embraces this channel of distribution, and as
Mr. Tyrrell mentioned, I think, you know, the other copyright
industries are as well, but you need to do that within the
ambit or within the parameters of the existing laws.
At the end of the day it is stealing.
Mr. Rothman. OK. Well, I think what everybody is saying is
we think it is a bad thing, too. We are worried about it, but
to some degree we are going to look to you, the most interested
in this, arguably, for some ideas as to how we can help you,
how we can do our job enforcing the laws that are so important
to our nation. So we will look to you and look to law
enforcement as well.
But, you know, we are just mostly lawyers up here, and so
we're going to look for some ideas from you. I think we get it.
It is a big problem, and I am not romanced by the notion of
steal this video. Abbie Hoffman used to say, ``Steal this
book.'' He used to be somebody----
Mr. Manzullo. Would the gentleman yield?
It occurred to me that people videotape TV shows to show
back later on. What is the difference between videotaping the
TV show and copying the CD?
Mr. Tyrrell. A perfect example.
Mr. Manzullo. I did not mean to preempt you.
Mr. Rothman. No, that is OK.
Mr. Manzullo. I will give you more time if you want.
Mr. Tyrrell. I hope I have a great answer.
The motion picture company, when they make the movie, know
that, first, there is going to be a front worldwide premier in
the top theaters for top dollars, and they do not have to worry
about somebody taping off the air.
Then it goes to the neighborhood theaters. Then maybe it
comes out on DVD. Then it goes to video rental. Then maybe it
is pay per view, and maybe at that point somebody makes a copy
and watches it later in the day, there are all of these
multiple opportunities, and for one thing, the decision to put
that product on the air where it can be taped and watched later
in the day is 100 percent in the control of the movie company.
They know even the day it is going to be shown and the time
because they can contract.
Nobody is coming in and doing this to them.
Mr. Rothman. To reclaim the last 30 seconds that I have.
Mr. Tyrrell. Yes.
Mr. Rothman. And I am repeating myself, but I am concerned
about the detrimental effect on the young people who believe
you can get something for nothing. I mean our Republican
colleagues will say that----
Mr. Tyrrell. I agree.
Mr. Rothman [continuing]. About society in general. Years
ago the Democrats, we got it. We get it. It would be a real
step backward if people excused the theft of intellectual
property as some kind of a cool, romantic way of living.
It is pure and simple theft, and we have got to get that
message out there, not just for the economic well-being of the
country--I sound like a 47-year-old fuddy-duddy--but for the
moral well-being of the country.
Mr. Manzullo. Mr. Delahunt.
Mr. Delahunt. I guess I would, you know, obviously concur
with the sentiments expressed by Mr. Rothman and others.
What I find very fascinating is that there is an argument
that I guess it was Mr. Menendez who was reading from USA Today
that would appear to be a credible position, and when you pause
and think that this is a fine newspapers, but putting that
opinion out there, again, really does go to an erosion, if you
will, of, for lack of a better term, values.
Gee, you know, it is really not stealing because look what
the benefit is. It is enhancing, if you will, creativity and an
increase, if you will, in terms of commerce.
But, you know, this is only a piece of a larger picture,
and I think I would make this observation, I think, more to Mr.
Krumholtz because he represents the software, if you will, the
Software Alliance, and what has happened is that we have
become, and it is picked up in sound bytes, you know. Do not
regulate the Internet. Freedom, freedom on the Internet,
unbridled freedom.
Well, this is part of the public debate today. We are
having a debate in Congress, and it is interesting because some
interesting alliances have occurred between very conservative
and very liberal members in terms of not taxation of the
Internet, but how do in America today the brick and mortar
stores that we are accustomed to deal in a commercial world
where they have to pay a sales tax and remote sellers are free
from that particular burden, putting them at a competitive
disadvantage.
And those of us who have no interest in taxing access to
the Internet say, ``Gee, we ought to do something about it.''
Do no regulate the Internet. You know, do not interfere
with the Internet, and I really think that the high tech.
community really has to pause and think about what makes sense
and what is balanced and what is right in terms of public
policy because this is feeding into exactly that mindset, if
you will, of value system that Mr. Rothman, myself, and others
have alluded to.
So it is a real problem.
Mr. Krumholtz. Mr. Delahunt, if I could just comment and
perhaps some of my colleagues in the high tech. community might
disagree with me on this, but I absolutely think there is a
role for government in this space, and I think perhaps side
stepping the issue of taxation and focusing on intellectual
property, I think the Congress has done a tremendous job in
providing the authority and raising the threshold in terms of
copyright protection in a digital environment through the WIPO
implementing legislation, the Net Act.
And I think one thing that Congress could do now is make
sure that the various enforcement agencies have the funding,
the resources that they need to really adequately enforce those
statutes.
Mr. Delahunt. I think one thing that you can do in terms of
your constituency and whom you represent here today is really,
you know, go out and lobby and advocate because we are not
spending the kind of resources that are necessary to do the
job, and we cannot continue to cut government, on one hand, in
these agencies and expect and anticipate that we are going to
enforce or insure compliance with the statutes that we pass.
On the one hand, we talk about doing something, and then on
the next, where it is most critical, which is in the
enforcement end, we said, you know, ``That is government fat.''
Well, we cannot have it both ways, and it is really the
business community and the high tech. community that has to
step up and say, ``You know, it has got to happen. It is a good
investment. Let's not be penny wise and pound foolish,''
because with the additional tax dollars that go into providing
these resources, we will reap a good return in terms of
America's investment in the global economy.
Got to do it.
Mr. Manzullo. I appreciate that.
You know, I took a quick look at this article.
Mr. Tyrrell. Yes.
Mr. Manzullo. And I find something that is just absolutely
astounding. It says, ``Tell me why you support Napster.''
Answer--I do not know. Chuck D, front man for Public Enemy.
I do not even know who these people are.
Mr. Tyrrell. Right.
[Laughter.]
Mr. Manzullo. You talk about pirates.
Mr. Rothman. You are a fuddy-duddy.
Mr. Manzullo. Evidently.
[Laughter.]
But the Napster is the radio of the 21st century. That is
not true because radio stations determine what goes on and they
pay royalties for it and get licensing from the FCC.
Mr. Delahunt. The public, the people own the airways in
that case.
Mr. Manzullo. But, Bill, what you and Steve were talking
about is exactly what Jefferson studied at William & Mary. He
read Coke. Coke was a revolutionary because that was at the
time when property went from estate tail to absolute fee. In
other words, the king owned everything, and people would have
an opportunity to participate in it, but everything was owned
for the public good.
And then along came Blackstone with his commentaries that
really settled the issue that private property is an absolute
right, including intellectual property. What the mind could
think was also subject to copyright protection.
And the whole idea of copyright protection is only about
250 years old. The fact that what man can think has a right to
be copyrighted and protected. I find the greatest assault on
private property occurring in people simply making the
assumption that just because it is for the public good, it
overrides private property.
That sends us back to Marxism, and that wipes out 250 years
of legal history.
Mr. Delahunt. If you would yield, Mr. Manzullo, I do not
think that. The public good here, OK, is to protect copyright
laws so that creativity, the genius, if you will, of the
American people continues to flourish and, at the same time,
allow us to benefit from that creativity in terms of our role
in the global economy.
There is no conflict between public good here and copyright
law. Copyright law and protection is about the public good.
Mr. Manzullo. Perhaps I could have used the word
``public.''
Mr. Delahunt. I mean, what Napster is doing in my judgment
here is absolutely outrageous.
Mr. Manzullo. Well, this is very interesting. I do not know
if we have resolved anything.
Mr. Tyrrell. And Chuck D, part of his image is that he is
always out. I mean, the group he performs for is Public Enemy.
Mr. Manzullo. I used to play in a rock and roll band when I
was in high school. It was called the Vantrells.
[Laughter.]
We had a very small--this is true. We had a very small
speaker with a Gibson electric guitar. It was one of the first
Gibson electric basses ever made. It was cherry red. It was
back in 1960, and we did not----
Mr. Delahunt. What was it like that far back, Mr. Manzullo?
[Laughter.]
Mr. Manzullo. This was a very interesting hearing. I really
want to take this opportunity to thank you for a very
enlightening hearing. I do not know if we accomplished anything
except to show how bad the problem is and to bring it to public
view, but again, I thank you for coming here.
I will look forward to working with you. We are obviously
extremely open to anything that you would have Members of the
U.S. Congress do to protect the right of private property,
including those industries that you represent.
This Subcommittee is adjourned.
[Whereupon, at 4:13 p.m., the Subcommittee was adjourned.]
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A P P E N D I X
July 19, 2000
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