[DOCID: f:er025.105]
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105th Congress                                              Exec. Rept.
                                 SENATE

 2d Session                                                      105-25
_______________________________________________________________________


      WIPO COPYRIGHT TREATY (WCT) (1996) AND WIPO PERFORMANCES AND
                    PHONOGRAMS TREATY (WPPT) (1996)

                                _______


 October 14 (legislative day, October 2), 1998.--Ordered to be printed

_______________________________________________________________________

   Mr. Helms, from the Committee on Foreign Relations, submitted the
                               following

                              R E P O R T

                   [To accompany Treaty Doc. 105-17]

    The Committee on Foreign Relations, to which was referred
the World Intellectual Property Organization Copyright Treaty
and the World Intellectual Property Organization Performances
and Phonograms Treaty, done at Geneva on December 20, 1996, and
signed by the United States on April 12, 1997, having
considered the same, reports favorably thereon with one
reservation, two declarations and three provisos, and
recommends that the Senate give its advice and consent to the
ratification thereof as set forth in this report and the
accompanying resolution of ratification.

                                CONTENTS
                                                                   Page
  I. Purpose..........................................................1
 II. Background.......................................................2
III. Summary..........................................................3
 IV. Entry Into Force and Termination................................16
  V. Committee Action................................................16
 VI. Committee Comments..............................................16
VII. Explanation of Proposed Convention..............................18
VIII.Text of the Resolution of Ratification..........................18

 IX. Appendix........................................................21

                               I. Purpose

    The World Intellectual Property Organization (WIPO)
Copyright Treaty is intended to provide copyright protection
for computer programs, databases as intellectual works, and
digital communications, including transmission of copyrighted
works over the world-wide Internet and other computer networks.
    The second treaty--the WIPO Performances and Phonograms
Treaty--is intended to provide protection for performers of
audio
works and producers of phonograms (i.e., sound recordings),
usually under ``related'' or ``neighboring rights'' theories of
legal protection. (A country like the United States, however,
that protects sound recordings under copyright law, may
continue to use copyright law to satisfy the obligations of the
Performances-Phonograms Treaty.)

                             II. Background

    The World Intellectual Property Organization (WIPO)--a
specialized agency of the United Nations which administers most
of the international treaties in the field of intellectual
property (patents, trademarks, and copyrights)--convened a
diplomatic conference from December 2-20, 1996, in Geneva,
Switzerland, to consider three draft treaties in the field of
intellectual property. Delegates representing more than 160
countries participated in the conference, which ultimately
adopted two new intellectual property treaties (and postponed
consideration of the third draft treaty on database
protection).
    The President in July 1997 submitted the WIPO Copyright
Treaty and the WIPO Performances and Phonograms Treaty to the
Senate for its advice and consent to ratification of the
treaties by the United States, accompanied by recommendations
for implementing legislation.
    The WIPO Copyright Treaty originated in a WIPO work program
to update the major international copyright treaty, the Berne
Convention for the Protection of Literary and Artistic Works
(``Berne Convention''). This work program started in 1989 and
included discussion of the relevant copyright issues by seven
Committees of Experts. This process was known as the ``Berne
Protocol,'' since it was conceived as a mechanism to modernize
the Berne Convention (last revised in 1971) without engaging in
a full revision of the Convention. The original purpose was to
make explicit in the Berne Convention that computer programs
and databases are protected as copyright subject matter, and
generally to update the Convention concerning use of
copyrighted works in digital, electronic environments.
    Initially, the United States sought to have updated
protection for sound recordings included in the ``Berne
Protocol'' process. The European Union and many other countries
strenuously resisted inclusion of sound recording protection
because sound recordings are not copyright subject matter under
their laws nor, they insisted, under the Berne Convention. The
majority of countries protect sound recordings under so-called
``neighboring'' or ``related'' rights. The principal
neighboring rights convention is the International Convention
for the Protection of Performers, Producers of Phonograms and
Broadcasting Organizations (known as the ``1961 Rome
Convention'' or the ``Neighboring Rights Convention''). The
United States is not a member of the 1961 Rome Convention on
neighboring rights. The United States adheres to a more narrow
sound recording treaty--the Convention for the Protection of
Producers of Phonograms against Unauthorized Duplication of
their Phonograms (``Geneva Phonograms Treaty'') (Geneva, 1971).
    The European Union's viewpoint prevailed: the Berne
Convention could not be the vehicle for improved international
protection for sound recordings since a majority of Berne
States do not protect sound recordings under copyright law.
These countries were unwilling to change their theoretical
basis for protecting sound recordings or agree to an optional
interpretation that sound recordings are copyright subject
matter under the Berne Convention.
    Consequently, in 1992 a decision was made to split the
Berne Protocol process into two phases: an update of copyright
provisions, and the preparation of a possible ``new
instrument'' (i.e., treaty) on the protection of the rights of
performers and producers of phonograms. (``Phonograms'' is the
international term commonly used to refer to protection of
sound recordings). The issues relating to the ``new
instrument'' were considered by six Committees of Experts. This
dual copyright and ``new instrument'' work program culminated
in adoption of two new treaties.

                              III. Summary

                      a. the wipo copyright treaty

    The WIPO Copyright Treaty is a special copyright agreement
updating the Berne Convention. The treaty does not specify
under which intellectual property law protection must be
extended. Countries are free to legislate protection under
copyright, neighboring rights, or possibly misappropriation
theories of law.
    The major policy issues that arose at the 1996 Diplomatic
Conference in the case of the Copyright Treaty were: 1) the
liability of on-line service providers and other communications
entities that provide access to the Internet; and 2) the scope
of the reproduction right as applied to copying of data
transmitted over the Internet.
    The Copyright Treaty issues were resolved by two, separate
``agreed statements'' of the participating States: 1) that mere
provision of communications-Internet physical facilities (i.e.,
wires, telephone lines, modems, and other communications
devices) does not constitute infringement; and 2) that existing
Article 9 of the Berne Convention--the reproduction right--
applies to the use of works in digital form and that storage of
a protected work in digital form in an electronic medium
constitutes a reproduction. However, as part of a compromise,
the actual article on the reproduction right was dropped from
the Copyright Treaty.
    The WIPO Copyright Treaty is a new treaty, but it also
effectively updates the 1971 Paris version of the Berne
Convention by providing strong links to the Berne Convention
and by incorporating Berne articles by reference.
    For countries already bound by the Berne Convention, the
new Copyright Treaty is in the nature of a special agreement
within the meaning of Article 20 of Berne. Under Article 20,
such special agreements are permitted provided they improve
protection for authors of copyrighted works or contain
provisions not inconsistent with Berne obligations. The WIPO
Copyright Treaty increases protection for authors.
    Non-Berne countries may adhere to the new treaty only by
agreeing to comply with the substantive articles of the 1971
Paris version of Berne, i.e., Articles 1-21 and the Appendix
for Developing Countries. In effect, the WIPO Copyright Treaty
legally binds non- Berne adhering countries to apply the Berne
Convention, but such countries do not become dues-paying,
voting members of the Berne Union.
    In addition to requiring the adherents to comply with
Berne's substantive articles, Article 3 of the new treaty
explicitly incorporates Berne Articles 2-6 \1\ and requires
application of Article 18. Berne Article 18 essentially
requires some form of retroactive protection (perhaps pursuant
to a bilateral agreement) for works that entered the public
domain of a new member before adherence to the Berne
Convention, but remain under copyright in the country of
origin.
---------------------------------------------------------------------------
    \1\ Berne Article 2 specifies the subject matter protected
(``literary and artistic works'' in general; specific categories of
works are listed). Berne Article 2bis allows national legislation to
exclude protection for political and legal speeches, and to allow fair
use of lectures, addresses and similar works by the press and media,
subject to the right of the author to copyright a collection of these
works. Berne Article 3 establishes the highly important rules
concerning eligibility to claim protection under the Convention,
usually based on nationality of the author or place of first
publication (so-called ``points of attachment''). Berne Article 4
establishes special eligibility rules for cinematographic works
(usually the place where the author's production facilities are
headquartered or the author's habitual residence in a member country)
and works of architecture (the Berne country where the building is
located). Berne Article 5 prohibits formalities on the enjoyment or
exercise of rights, establishes that protection must be extended to
eligible foreigners based on the principle of national treatment, and
establishes rules defining the ``country of origin'' and provides that
protection in the ``country of origin'' is ordinarily governed by
national law (i.e., the rights granted authors by the Berne Convention
do not have to be applied in the country of origin). Berne Article 6
permits members to retaliate against (i.e., deny protection for works
of) nationals of non-members who fail to provide adequate protection
for works of Berne member nationals, even though the work is first
published in a Berne member country and would otherwise be eligible for
protection under the Convention.
---------------------------------------------------------------------------

1. Subject Matter Provisions

    Computer programs. The treaty makes clear that computer
programs are protected as literary works under Article 2 of the
Berne Convention, whatever may be the mode or form of their
expression (Art. 4).
    Databases. The treaty makes clear that the parties must
accord copyright protection to databases that constitute
``intellectual creations,'' i.e., works in which the selection
or arrangement of the content is the result of intellectual
effort. The compilation of the content (or data) is protected
as copyright subject matter, but protection does not extend to
the content itself (unless the content is independently a work
of the intellect, in which case it enjoys a separate copyright)
(Art. 5).

2. New or Clarified Exclusive Rights

    Reproduction right: No new Treaty article. The most
contentious copyright issue at the WIPO Diplomatic Conference
related to a draft article dealing with the reproduction right
and its application to digital or electronic formats. Internet
service providers, telephone companies, and other
telecommunications entities generally objected to application
of the reproduction right to indirect or temporary copying by
computers transferring files on the Internet and other computer
networks. In the end, draft Article 7 on the reproduction right
was dropped entirely from the text of the Copyright Treaty. The
Diplomatic Conference, however, adopted an ``agreed statement''
concerning the existing Article 9 of Berne.
    Public distribution right. Authors enjoy the exclusive
right of authorizing the making available to the public of
copies of their works (Art. 6(1)). The Treaty permits, but does
not obligate, the parties to limit the public distribution
right by the ``first sale'' or ``exhaustion of rights''
doctrines.
    Rental right. Authors of computer programs, cinematographic
works, and works embodied in phonograms (which works are
determined by national law in the case of phonograms) enjoy a
generally exclusive right of authorizing the commercial rental
of these works (Art. 7(1)).
    There are three exceptions to the exclusive right. (i) In
the case of computer programs, the right does not apply where
the program itself is not the essential object of the
commercial rental. (ii) In the case of cinematographic works,
the right does not apply unless commercial rental in a given
country has led to widespread unauthorized reproduction of
copies, which materially impairs the right of reproduction.
(iii) As a concession to Japan, if a country's law in effect on
April 15, 1994 (the date the GATT Agreement was adopted)
provides only a right of equitable remuneration for rental of
works in phonograms, that remuneration right satisfies the
Treaty obligation as long as there is no ``material
impairment'' of the exclusive right of reproduction.
    Public communication right. Authors enjoy the exclusive
right generally of authorizing any communication to the public
by wire or wireless means, if the public can access the
communication at different times and places (Art. 8). In
effect, this amounts to a transmission right, which extends to
digital on-line and interactive communications, as well as
analog communications. The reference to individual choice of
reception is intended to exclude broadcasting, a right which
remains governed by the existing Berne Convention. Also, the
public communication right of the new Treaty explicitly cannot
prejudice the existing public performance, broadcasting, and
communication rights of authors as set out in Berne Articles
11(1)(ii), 11bis(1)(i) and (ii), 11ter(1)(ii), 14(1)(ii) and
14bis(1).

3. Limitations on Rights

    In addition to the limitations to the exclusive rights
expressed in the grant of the right, the Copyright Treaty
permits two general limitations on the rights.
    Article 2 provides that ``[c]opyright protection extends to
expressions and not to ideas, procedures, methods of operation
or mathematical concepts as such.'' This limitation on the
scope of copyright reflects the well-settled principle known as
the ``idea-expression dichotomy''--copyright protects against
copying of original expressions but does not inhibit copying of
the ideas, concepts, methods, etc. embodied in the expression
of the idea, concept, or method.
    Article 10 allows each Contracting Party to legislate
limitations or exceptions to the Treaty rights ``in certain
special cases that do not conflict with a normal exploitation
of the work and do not unreasonably prejudice the legitimate
interests of the author.'' This general limitation would
presumably justify the limitations and exceptions of existing
United States law and would permit additional limitations or
exceptions that do not conflict with the normal market for a
work and do not ``unreasonably'' harm the interests of the
author.
    The Diplomatic Conference also adopted an ``agreed
statement'' concerning Article 10 that has three main points.
Contracting Parties may extend into the digital environment any
existing limitations and exceptions that have been considered
acceptable under the Berne Convention. They may also devise new
exceptions and limitations ``that are appropriate in the
digital network environment.'' Finally, the Conference
expressed an ``understanding'' that Article 10(2) of the
Copyright Treaty ``neither reduces nor extends the scope of
applicability of the limitations and exceptions permitted by
the Berne Convention.''

4. Term of Protection for Photographs

    Only one article of the Copyright Treaty deals with
duration of protection. Article 9 obligates a Contracting Party
generally to apply the standard term of life of the author plus
50 years to protection for photographic works. (The term of
copyright for works other than photographs would remain
controlled by Article 7 of the Berne Convention. The standard
term is life of the author plus 50 years after his or her
death.) This provision improves the protection accorded
photographs under the Berne Convention, which permits a term as
short as 25 years.

5. Enforcement of Rights

    The Berne Copyright Convention traditionally has not
included detailed provisions regarding enforcement of rights.
The 1996 Diplomatic Conference considered proposals to include
detailed enforcement provisions in the Copyright Treaty, either
as an Annex to the treaty or by reference to the enforcement
articles of the 1994 GATT Agreement on Trade-Related Aspects of
Intellectual Property (TRIPS Agreement). In the end, the
Diplomatic Conference rejected both proposals in favor of a
brief enforcement article that makes no reference to the
provisions of the TRIPS Agreement.
    Article 14 requires Treaty adherents to ensure that
enforcement procedures exist under domestic law to permit
``effective action against any act of infringement of rights
covered by this Treaty, including expeditious remedies'' to
deter future infringements. Paragraph (1) of Article 14
expresses the general obligation of Contracting Parties ``to
undertake to adopt ... the measures necessary to ensure the
application of this Treaty.''

6. Retroactive Application

    Article 13 of the Copyright Treaty binds adherents to apply
the provisions of Article 18 of the Berne Convention, which, in
essence, requires some form of retroactive protection for works
that might have fallen into the public domain of the new member
of the Treaty but remain under copyright in the country of
origin.

7. Technological Measures

    The Copyright Treaty in Article 11 establishes a new kind
of legal protection for authors. Treaty adherents shall provide
``adequate and effective legal protection and effective legal
remedies against the circumvention of effective technological
measures'' (that is, protection against devices or services
that defeat anti-copying technologies). The obligation is
expressed in general language and leaves the details of
protection to national law.

8. Rights Management Information

    Pursuant to Article 12, Treaty adherents must provide
``adequate and effective legal remedies against any person
knowingly performing'' prohibited acts relating to the removal
or alteration of electronic rights management information.
    This obligation extends only to rights management
information in electronic form. By implication, the remedies
could be criminal or civil. In the case of civil remedies,
protection should apply against someone who has reasonable
grounds to know that he or she has engaged in a prohibited act.
    ``Rights management information'' (RMI) means information
that identifies the work, the author, the rights holder, or
discloses terms and conditions concerning use of the work. The
intent is to facilitate widespread use of this information by
rights holders in order to make licensing of works, or
permission to use works, more readily available to the public.
    The Diplomatic Conference adopted an ``agreed statement''
concerning the interpretation of Article 12. First, the
Conference expressed an ``understanding'' that the reference to
``infringement of any right covered by this Treaty or the Berne
Convention'' encompasses both exclusive rights and rights of
remuneration. As a second ``understanding,'' the Conference
stated the Contracting Parties will not use Article 12 to
devise or implement RMI systems that would have the effect of
imposing formalities, prohibiting the free movement of goods,
or impeding the enjoyment of rights under the Treaty.

9. Administrative Provisions

    Any member State of the World Intellectual Property
Organization may become a party to the Copyright Treaty (Art.
17). The Treaty enters into force three months after 30 States
ratify or accede to it (Art. 20). No reservations are
permitted, that is, a country must accept the obligations of
the entire treaty and cannot decline to be bound by certain
provisions (Art. 22).
    Article 15 establishes an ``Assembly'' of the member States
that provides some organizational structure for dealing with
future questions about maintenance, development, or revision of
the Treaty (Art. 15). The Assembly meets in regular session
once every two years upon convocation by the Director General
of WIPO.
    The International Bureau of WIPO performs any
administrative tasks concerning the Treaty (Art. 16).

             b. the wipo performances and phonograms treaty

    The WIPO Performances and Phonograms Treaty is a new
treaty, which has a few links to the existing 1961 Rome
Convention. In contrast, however, to the approach taken in the
WIPO Copyright Treaty (where adherents must apply the
substantive articles of the 1971 Paris Act of the Berne
Convention), adherents to the Performances-Phonograms Treaty
are not required to apply the 1961 Rome Convention, unless they
are already members of that convention.
    Adherents to the Performances-Phonograms Treaty are
required to promise that its provisions ``shall in no way
affect the protection of copyright in literary and artistic
works,'' (Art. 1(2)) nor have any connection with or prejudice
any rights and obligations under any other treaties (Art.
1(3)).
    The Diplomatic Conference also adopted an agreed
interpretation with reference to Article 1 concerning the
relationship between rights in phonograms under the Treaty and
copyright in works embodied in the phonograms. The States
agreed that where permission to use a phonogram is needed from
both the author of a work embodied therein and a performer or
producer, the need to obtain the author's permission does not
cease to exist because permission is also required from the
performer/producer, and vice-versa. This interpretative
understanding merely confirms that copyright rights and related
rights are separate and may be held by different rights
holders. Where there are different rights holders, permission
from one is not sufficient to authorize use of the phonogram.
    The Performances-Phonograms Treaty creates new rights for
performers and producers of sound recordings without specifying
the theory of law under which the rights are enjoyed. That is,
a country may provide the protection specified in the Treaty
under ``related'' or ``neighboring'' rights, under copyright,
or a sui generis law.
    If existing patterns of protection for sound recordings are
maintained, the majority of the countries will extend
protection through related rights laws. The United States
presumably will continue to rely upon copyright law as the
primary vehicle for sound recording protection, supplemented by
criminal penalties for knowing infringements for purposes of
commercial gain. In addition to federal law, the United States
may rely in part on state statutory and common law protection
to satisfy some treaty obligations.

1. National Treatment

    Article 4 of the Treaty obliges a Party to accord the same
treatment to foreigners that the Party accords to its own
nationals with regard to the exclusive rights specifically
granted and the right to equitable remuneration provided by
Article 15, except where a reservation is made concerning the
remuneration right of Article 15. In that case, other countries
are not bound to grant a right of equitable remuneration for
the broadcast or communication to the public of phonograms (in
essence, the public performance of sound recordings) to the
nationals of the country invoking the reservation. Other than
in the case of this exception, foreigners must be granted the
same rights as citizens (nationals).
    The national treatment article represents an enhanced level
of international protection for sound recordings since the 1961
Rome Convention permitted several reservations rather than just
one reservation.

2. Beneficiaries of Protection

    Performers and producers of phonograms who are nationals of
other Parties to the Treaty must be accorded the protection
granted by the Treaty (Art. 3(1)).
    The term ``national'' means those phonogram performers/
producers who meet the eligibility criteria of the 1961 Rome
Convention based on the legal fiction that all members of the
Performances-Phonograms Treaty are also members of the 1961
Rome Convention (Art. 3(2)). If a reservation has been made
under Rome Article 5(3) that a State will not apply either the
criterion of publication or the criterion of fixation to
establish eligibility of a producer, then Article 3(3) of the
Performances and Phonograms Treaty permits a similar
declaration for purposes of this Treaty. The Executive
requested such a reservation for the United Sates.

3. Term of protection

    The rights of performers and producers of phonograms must
be protected generally for a minimum of 50 years computed from
first fixation of the sounds in a phonogram (Art. 17).
    The fixation criterion always applies in computing the term
for performers (because a primary right of a performer is to
authorize the first fixation of the performance in a
phonogram).
    In the case of producers, the 50-year term is computed from
the year of publication, if the phonogram is published. If the
phonogram is not published, the 50-year term for producers is
computed from first fixation.

4. Exclusive rights

    Performers and producers of phonograms generally enjoy the
same exclusive rights under the Performances-Phonograms Treaty
except that i) performers are granted moral rights and rights
in unfixed performances but producers are not, and ii)
technically speaking, performers are granted rights in their
performances and producers are granted rights in their
phonogram, that is, in the fixation of the sounds.
    For clarity's sake, the Treaty sets forth performers' moral
rights, their right in unfixed performances, and performers'
rights of reproduction, public distribution, commercial rental,
and making available to the public of fixed performances by
wire or wireless means, in a separate Chapter II of the Treaty
(comprising Articles 5 through 10 inclusive).
    Producers are not granted moral rights or rights in unfixed
performances. Producers' rights of reproduction, public
distribution, commercial rental, and making available to the
public of a phonogram by wire or wireless means, are set forth
in a separate Chapter III of the Treaty (comprising Articles 11
through 14 inclusive).
    These above-mentioned rights may be exercised separately by
performers and producers. Permission from both the performer
and the producer must be obtained for a third-party to
reproduce, distribute, rent, or make available a phonogram
(subject of course to any limitations on these rights
legislated pursuant to Article 16).
    Moral rights of performers. Independent of their economic
rights, performers must be accorded the ``moral rights''
generally to be named as the performer and to object to any
distortion or other modification of the performance that
prejudices the performer's reputation (Art. 5).
    The moral right applies both to live performances and to
performances fixed in a phonogram.
    After the death of the performer, the moral right must
generally be maintained at least until expiration of the
performer's economic rights. The post mortem moral rights can
be exercised by persons or institutions authorized by the
national law of the country where protection is claimed. As an
exception, however, those States, whose law at the time of
ratification or accession to the Treaty does not maintain all
of the moral rights after the death of the performer, are
permitted to terminate some of the rights on the death of the
performer (Art. 5(2)).
    The details of moral rights protection are left to the
national law of the country where protection is claimed (Art.
5(3)). This deference to national law may allow the United
States to rely upon a patchwork of existing state laws and the
federal trademark law as the legal basis for satisfying the
Treaty obligation, without enacting new federal legislation.
    Performers' right in unfixed performances. Performers, but
not producers, are granted rights under the Treaty in ``unfixed
performances.'' This economic right basically means that
performers have the right to authorize the first fixation of
their performances. They also have the right to authorize the
first broadcast or communication to the public of their unfixed
performances (Art. 6).
    This right is in addition to the qualified remuneration
right of Article 15 to share in payments for the broadcast or
public communication of ``commercially published'' phonograms.
    The remaining exclusive rights apply to performances
``fixed'' in phonograms. Performers and producers have separate
rights of reproduction, public distribution, commercial rental,
and making available to the public by wire or wireless means.
    Reproduction right. The reproduction right applies to
direct or indirect reproduction in any manner or form of the
fixed performance or the phonogram.
    The Diplomatic Conference adopted an agreed interpretation
of the reproduction right in Article 7 (performer's right) and
Article 11 (producer's right), and of the limitations permitted
by Article 16. The statement says that the Treaty's
reproduction rights ``fully apply in the digital environment,
in particular to the use of performances and phonograms in
digital form. It is understood that the storage of a protected
performance or phonogram in digital form in an electronic
medium constitutes a reproduction within the meaning of these
Articles.''
    Public distribution right. Performers and producers enjoy
the exclusive right of authorizing the making available to the
public of copies (Arts. 8(1) and 12(1)). Like the WIPO
Copyright Treaty, the Performances-Phonograms Treaty permits,
but does not require, the States to limit the distribution
right by the ``first sale'' or ``exhaustion of right''
doctrines (Art. 8(2)).
    The Diplomatic Conference adopted an agreed interpretation
concerning the word ``copies'' and the phrase ``original and
copies'' where they appear in Articles 2(e) (definition of
``publication''); Articles 8 and 12 (distribution rights); and
Articles 9 and 13 (rental rights). ``As used in these Articles,
the expressions `copies' and `original and copies,' being
subject to the right of distribution and the right of rental
under the said Articles, refer exclusively to fixed copies that
can be put into circulation as tangible copies.'' (Agreed
Statement Concerning Articles 2(e), 8, 9, 12, and 13).
    Commercial rental right. Performers and producers enjoy a
generally exclusive right of authorizing the commercial rental
of phonograms (Arts. 9(1) and 13(1)). This right, however, is
subject to qualification as a mere right of remuneration if on
April 15, 1994, (the date the Uruguay Round Agreements under
the 1994 General Agreement on Tariffs and Trade (GATT) were
adopted) a country granted only a remuneration right for
phonogram rentals (Art. 9(2)).
    The possibility of a mere remuneration right for rentals is
a concession to Japan, primarily, because their national law
provides only a right of remuneration for rental of phonograms.
The Treaty contains the further condition that such a country
may maintain the remuneration right provided there is no
``material impairment'' of the reproduction right.
    Making available right. Performers and producers enjoy the
exclusive right of authorizing ``the making available to the
public'' of phonograms ``by wire or wireless means, in such a
way that members of the public may access them from a place and
at a time individually chosen by them.'' (Arts. 10 and 14).
    This ``public availability'' right is in essence an
interactive, on-demand public transmission right. It will apply
to interactive and subscription methods of transmitting
phonograms to the public, including dissemination via computer
networks and other electronic means. A principal difference
between the Articles 10 and 14 ``public availability'' right
and the Articles 8 and 12 ``public distribution'' right is that
the latter applies to distribution of copies of phonograms; the
former applies to transmissions.
    The existence of these separate articles, together with the
somewhat ambiguous statement of the reproduction right, is
arguably consistent with a view that, at the international
level, public transmission of phonograms via computer networks
does not amount to a public distribution of the phonograms. The
validity of this viewpoint will be tested by the consensus that
may develop on the meaning and legal force of the agreed
statement concerning the reproduction right of Articles 7 and
11. In its domestic copyright proposals relating to the
transmission of copyrighted works on computer networks, the
Clinton Administration has taken the position that United
States copyright law should be amended to equate public
transmission with public distribution.

5. Remuneration Right for Broadcasts and Communications to the Public

    Two other Treaty rights are set forth in Chapter IV of the
Performances-Phonograms Treaty, which is denominated ``common
provisions.'' These are the rights of broadcasting and
communication to the public for the direct or indirect use of
phonograms published commercially. These rights are not
strictly ``exclusive'' rights because they are subject to a
mere right of equitable remuneration (Article 15(1)). That is,
the rights holders cannot prohibit the use; the rights holders
are at best entitled to compensation. Moreover, unlike the
exclusive rights, these rights are subject to a single payment.
The performers and producers share in the single payment, but
have no separate rights to payment.
    ``Broadcasting'' is defined as the wireless transmission
for public reception of sounds or images and sounds, including
transmission by satellite. The term also includes transmission
of encrypted signals where the broadcasting organization
provides, or consents to the provision of, decryption devices
to the public (Art. 2(f)). The definition applies both to
television and radio broadcasts.
    ``Communication to the public'' means transmission to the
public of sounds by any medium other than broadcasting (Art.
2(g)).
    National law may provide that either the performer, the
producer, or both may claim the payment. In the absence of a
contractual agreement between the performers and the producers,
the national law may regulate the terms for sharing the single
payment (Art. 15(2)).
    Also, in a provision that permits a reservation on
broadcasting-public communication rights, the Treaty allows a
party to declare by notification to the Director General of
WIPO that it will extend these rights i) ``only in respect of
certain uses,'' ii) ``that it will limit their application in
some other way,'' or iii) ``that it will not apply these
provisions at all.'' (Art. 15(3)). In his Transmittal Message
to the Senate, the President has requested that the Senate give
its consent to United States ratification of the WIPO
Performances and Phonograms Treaty, while invoking the
permissible reservation to the broadcasting right. If this
reservation is invoked, the member State has the freedom to
apply these rights to narrowly defined uses, to establish a
compulsory licensing mechanism, or not grant any rights
concerning broadcasts and communications to the public of
phonograms.
    The Treaty specifies that where phonograms are made
available to the public by wire or wireless means in a way that
permits individual access, those phonograms ``shall be
considered as if they had been published for commercial
purposes.'' (Art. 15(4)).
    Although a reservation is possible on the broadcasting-
public communication rights, no reservation is possible on the
``public availability'' right of Articles 10 and 14. This means
member States must provide exclusive rights where the
transmission is made available on an interactive or on-demand
basis. The States can elect, however, not to extend any rights
to traditional broadcasts or to non-interactive public
performances of phonograms (subject to the right of the
performer under Article 6 to authorize the broadcast or public
communication of unfixed performances). That is, the Treaty
requires protection of performers against unauthorized
broadcast of a live performance, but does not require
protection for performers or producers against non-interactive
broadcasts of phonograms (sound recordings).
    The Diplomatic Conference adopted two agreed statements
concerning Article 15. One statement simply recognizes the
reality that the delegations to the Conference ``were unable to
achieve consensus on differing proposals . . . without the
possibility of reservations, and have therefore left the issue
to future resolution.'' The second statement expresses an
understanding that, even though Article 15 ordinarily applies
only to commercially published phonograms, member States are
not prevented from granting broadcasting-public communication
rights in recordings of folklore where the phonograms have not
been published for commercial gain.

6. Limitations on Rights

    The Performances-Phonograms Treaty permits limitations to
the rights granted on the same basis as the WIPO Copyright
Treaty. Any limitations or exceptions applied to copyright
owners of literary and artistic works may be applied to
performers and producers of phonograms (Art. 16(1)).
    Member States may also legislate limitations or exceptions
to the Treaty rights in ``certain special cases which do not
conflict with a normal exploitation of the performance or
phonogram and do not unreasonably prejudice the legitimate
interests of the performer or of the producer of phonograms.''
(Art. 16(2)).
    The Diplomatic Conference also adopted an agreed statement
to Article 16 that incorporates the Copyright Treaty's agreed
statement interpreting its Article 10. This is done by stating
that Article 10 of the Copyright Treaty applies mutatis
mutandis (that is, in the same way) also to Article 16 of the
Performances-Phonograms Treaty. The statement has three main
points: (i) Member States may extend into the digital
environment any existing limitations and exceptions that have
been considered acceptable under the Berne Copyright
Convention; (ii) the States may also devise new exceptions and
limitations appropriate to the digital network environment; and
(iii) Article 10(2) of the Copyright Treaty neither reduces nor
extends the scope of limitations permitted by the Berne
Copyright Convention.

7. Enforcement of Rights

    The international copyright and related rights conventions
have not traditionally included detailed provisions regarding
enforcement of rights. The 1996 Diplomatic Conference
considered proposals to include detailed enforcement provisions
in the WIPO Copyright and Performances-Phonongrams treaties,
either as an Annex or by reference to the enforcement articles
of the 1994 GATT Agreement on Trade-Related Aspects of
Intellectual Property (``TRIPS Agreement'').
    In the end, the Diplomatic Conference rejected both of the
detailed proposals in favor of a brief enforcement article that
makes no reference to the TRIPS enforcement provisions.
    Article 23 requires Treaty adherents to ensure that
enforcement procedures exist under domestic law to permit
``effective action against any act of infringement of rights
covered by this Treaty, including expeditious remedies'' to
deter future infringements (Art. 23(2)). Paragraph (1) of
Article 23 expresses the general obligation to ``undertake to
adopt . . . the measures necessary to ensure the application of
this Treaty.''

8. Retroactive Application

    Adherents to the Performances-Phonograms Treaty are bound
to apply Article 18 of the Berne Convention, mutatis mutandis,
to extend retroactive protection to the rights of performers
and producers of phonograms (Art. 22(1)), except that a Member
State can elect not to extend retroactive protection to the
moral rights of performers for performances which occur before
the State becomes bound by the Treaty (Art. 22(2)).
    This incorporation by reference of Berne Article 18 means,
in essence, that Member States must provide some form of
retroactive protection for performances and phonograms that
were unprotected by the new Member before it joined the Treaty,
but remain under protection in the country of origin.

9. Formalities Prohibited

    Article 20 requires that the ``enjoyment and exercise of
the rights provided for in this Treaty shall not be subject to
any formality.'' This means that no conditions such as
publication in a certain country, use of a notice to claim
rights, or similar requirements may be imposed in order to
enjoy or exercise the rights granted by the Treaty.

10. Technological Measures

    The Performances-Phonograms Treaty in Article 18
establishes a new kind of legal protection for performers and
producers of phonograms. Treaty adherents shall provide
``adequate and effective legal protection and effective legal
remedies against the circumvention of effective technological
measures'' (that is, protection against devices or services
that defeat anti-copying technologies). The obligation is
expressed in general language and leaves the details of
protection to national law.

11. Rights Management Information

    Pursuant to Article 19, Treaty adherents must provide
``adequate and effective legal remedies against any person
knowingly performing'' prohibited acts relating to the removal
or alteration of electronic rights management information.
    This obligation extends only to rights management
information in electronic form. By implication, the remedies
could be criminal or civil. In the case of civil remedies,
protection should apply against someone who has reasonable
grounds to know that he or she has engaged in a prohibited act.
    ``Rights management information'' (RMI) means information
that identifies the performer, the performance of the
performer, the producer of the phonogram, the phonogram, the
owner of any right in the performance or phonogram, or
discloses the terms and conditions of use. The intent is to
facilitate widespread dissemination of this information by
rights holders in order to make licensing of performers' or
producers' rights more readily available to the public.
    In another incorporation by reference from the WIPO
Copyright Treaty, the Diplomatic Conference adopted the
Copyright Treaty's agreed statement concerning its rights
management article. That is, the agreed statement concerning
Article 12 of the Copyright Treaty applies mutatis mutandis
also to Article 19 of the Performances-Phonograms Treaty. The
agreed statement includes two understandings. First, the
reference to ``infringement of any right covered by this
Treaty'' encompasses both exclusive rights and rights of
remuneration. Second, the Member States will not use Article 19
to devise or implement RMI systems that would have the effect
of imposing formalities, prohibiting the free movement of
goods, or impeding the enjoyment of Treaty rights.

12. Audiovisual Performances Excluded

    The major policy controversy concerning the Performances-
Phonograms Treaty at the 1996 Diplomatic Conference was whether
or not to extend rights to performances in audiovisual works
such as motion pictures. The United States argued strongly
against coverage of audiovisual performances, and this
viewpoint prevailed at this time.
    WIPO will convene a new series of meetings to explore
protection of audiovisual performances. In order to create a
treaty obligation in respect of audiovisual performances, a new
diplomatic conference would have to be convened. The 1996
Diplomatic Conference adopted a Resolution Concerning
Audiovisual Performances which recommends development of a
Protocol to the WIPO Performances-Phonograms Treaty concerning
audiovisual performances, with a view to adoption of a Protocol
by the end of 1998.
    The definition of ``phonogram'' embodies the decision to
exclude audiovisual performances. ``Phonogram'' means the
fixation of sounds (or a representation of sounds) other than
in the form of a fixation incorporated in a cinematographic or
other audiovisual work (Art. 2(b)). An agreed statement of the
Diplomatic Conference clarifies that rights in a protected
phonogram (a fixation of sounds) are not affected in any way,
however, by incorporation of that phonogram in the soundtrack
of a motion picture or other audiovisual work (Agreed Statement
concerning Article 2(b)). That is, if a pre-existing sound
recording is re-recorded on the soundtrack of a motion picture,
the rights of the performers and producers of the sound
recording (phonogram) remain protected by the Treaty, even
though the Treaty otherwise excludes protection for
performances in audiovisual works.

13. Administrative Provisions

    Any WIPO member may become a party to the Performances and
Phonograms Treaty (Art. 26(1)). No reservations are permitted,
except for a reservation concerning the remuneration right for
broadcasting and public communications (Art. 21). In addition
to the Article 15(3) reservation, however, the possible
reservations concerning the publication and fixation
eligibility criteria of the 1961 Rome Convention are carried
over into the Performances-Phonograms Treaty pursuant to
Article 3(3). Subject to this one exception, a country must
accept the obligations of the entire Treaty and cannot decline
to be bound by certain provisions (Art. 27).
    Article 24 establishes an ``Assembly'' of the member States
in order to provide some organizational structure for dealing
with future questions about maintenance, development, or
revision of the Treaty (Art. 24(2)). The Assembly meets in
regular session once every two years, upon convocation by the
Director General of WIPO (Art. 24(4)). The International Bureau
of WIPO performs any administrative tasks concerning the Treaty
(Art. 35).

                  IV. Entry into Force and Termination

                          a. entry into force

    Both Conventions enter into force three months after 30
instruments of ratification have been deposited with the
Director General of WIPO.

                             b. termination

    Both Conventions permit for withdrawal by written
notification to the Director General of WIPO. Withdrawal shall
be effective one year after the date of such notification is
received by the Director General.

                          V. Committee Action

    The Committee on Foreign Relations held a public hearing on
the proposed treaties on September 10, 1998 (a transcript of
the hearing can be found in the annex to this report). The
Committee considered the proposed Treaties on October 14, 1998
and ordered the proposed Treaties favorably reported with the
recommendation that the Senate give its advice and consent to
the ratification of the proposed Convention subject to one
reservation, two declarations, and three provisos.

                         VI. Committee Comments

    The Committee on Foreign Relations recommends favorably the
proposed Treaties. On balance, the Committee believes that the
proposed Treaties are in the interest of the United States and
urges the Senate to act promptly to give its advice and consent
to ratification, subject to the conditions contained in the
resolution of ratification. Several issues did arise in the
course of the Committee's consideration of the Treaties, and
the Committee believes that the following comments may be
useful to Senate in its consideration of the proposed Treaties
and to the State Department.

                a. relation to implementing legislation

    According to testimony before the Committee by Alan P.
Larson, the Assistant Secretary of State for Economic Affairs,
the United States core copyright industry (including the motion
picture industry, publishers, software producers, and the music
and recording industry) now accounts for as much as 3.6 percent
of the nation's gross domestic product. Industry statistics
indicate that some 3.5 million Americans are employed in this
sector. An increasing portion of this economic activity is a
result of foreign sales and exports. In 1996 foreign sales and
exports accounted for $60.18 billion according to industry
statistics. The impact of weak foreign copyright laws that
result in piracy and other copyright infringements is not
insignificant.
    These Treaties provide for broad-based principles that
attempt to standardize intellectual property protections
relating to digital communications worldwide. Establishment and
enforcement of clear rules for commerce in this area will
facilitate and perhaps stimulate the further development of
U.S. computer and digital communication industry.
    In order to start this process the Administration, the
Congress, and various interested sectors of the economy have
engaged in negotiations resulting in comprehensive copyright
legislation (H.R. 2281) during the past year. The bill was
passed by the House and Senate and a conference has been
approved by both bodies and is awaiting the President's
signature. The negotiations commenced when consensus was
reached that simply ratifying these Treaties without a
simultaneous review and redrafting of U.S. law in this area
would not advance fair and comprehensive intellectual property
protections that balanced the interests of various sectors of
this growing copyright industry.
    This need for such clarification was anticipated during the
Diplomatic Conference that adopted the WIPO Treaties. The
Conference adopted an ``agreed statement'' regarding Article 8
of the WIPO Copyright Treaty, which states that Internet
service providers (ISPs) should not be held liable when they
merely provide ``physical facilities for enabling or making a
communication.'' In order to address this issue, the WIPO
Treaties implementing legislation (H.R. 2281) has embodied
within it a compromise regarding the issue of copyright
infringement liability for ISPs. The legislation establishes a
clear legal framework for the rights and responsibilities of
ISPs, telephone companies and copyright holders.
    In order to ensure that the Treaties are directly linked to
this legislation, the Committee's resolution of ratification
contains a proviso that prohibits the United States from taking
the final step in the ratification process--the deposit of
instruments of ratification for these Treaties--until the
President has signed into law a bill that implements the
Treaties. The proviso stipulates that a bill implementing the
Treaties must include clarifications to United States law
regarding infringement liability for on-line service providers,
such as contained in H.R. 2281.
    The Committee urges the Executive to promote this
compromise legislation as a model for domestic legislation by
other Parties to the WIPO Treaties. The Committee's resolution
of ratification therefore requires the President to report
annually on U.S. efforts to encourage enactment of such
legislation as part of the Treaty ratification and
implementation process.

           b. implementation and enforcement of the treaties

    The Committee is concerned in general that once
ratification and entry into force of any treaty is secured,
there is little interest in ensuring full enforcement of treaty
commitments. Likewise, the Committee believes that simply
ratifying the proposed Treaties will do little to curb piracy
of copyrighted material unles there is also a serious
commitment to enforce the obligations contained in the
Treaties. The impact of the Treaties therefore will depend on
whether the Parties implement and enforce fully their
obligations under the Treaties.
    The Committee therefore supports ratification of the
Treaties, but cautions this act will be largely symbolic unless
Parties to the Convention both enact and enforce domestic laws
that fully implement the requirements contained in the
Treaties. In addition, these Treaties will do little to
encourage copyright protection in countries that are not
Parties to the Treaties, such as the People's Republic of
China.
    In order to better monitor progress of other Parties to the
Treaties, the Committee has included a reporting requirement in
the resolution of ratification. As a condition of ratification
the President must inform the Committee annually of the status
of ratification by other countries, domestic legislation
enacted by other countries, enforcement of this legislation,
any future negotiations, and efforts by the United States to
expand membership in the Treaties. The Committee expects that
the Administration will take this reporting requirement
seriously and respond to each provision of the reporting
requirement directly.

                       c. no reservations clauses

    Article 22 of the Copyright Treaty prohibits reservations
to the Treaty and Article 21 of the Performances and Phonograms
Treaty prohibits reservations except in one narrow context.
While the Committee recognizes that an abuse of reservations
can be detrimental to enforcement of the conditions agreed to
during a treaty negotiation, the Committee continues to be
concerned by the increasingly common practice of agreeing to
such ``no reservations'' clauses, which impinge upon the
Senate's prerogatives. The Committee questions whether there is
any substantive evidence that other Parties would place
numerous or burdensome reservations on the treaty so as to
undermine U.S. interests.
    The Committee's recommended Resolution of Ratification
contains a declaration that it is the Sense of the Senate that
such ``no reservations'' and ``limited reservations''
provisions can inhibit the Senate in its Constitutional
obligation of providing advice and consent, and approval of
this Treaty should not be read as a precedent for approval of
other treaties containing such a provision.
    Although the Committee has determined that this treaty is
beneficial to the interests of the United States and should be
approved notwithstanding these provisions, the Committee will
continue to object to the inclusion of such provisions in U.S.
Treaties. The Committee repeatedly has expressed in report
language its concern that such ``no reservations'' provisions
are problematic to Senate ratification, yet there has been no
apparent decline in the inclusion of such provisions in
treaties signed by the United States, nor any attempt to
consult with the Committee prior to the inclusion of such
provisions.

                VII. Explanation of Proposed Convention

    For a detailed article-by-article analysis of the proposed
Convention, see the letter of submittal from the Secretary of
State, which is set forth at pages V-X of Treaty Doc. 105-17.

              VIII. Text of the Resolution of Ratification

    Resolved, (two-thirds of the Senators present concurring
therein), That the Senate advise and consent to the
ratification of the World Intellectual Property Organization
Copyright Treaty and the World Intellectual Property
Organization Performances and Phonograms Treaty, done at Geneva
on December 20, 1996, and signed by the United States on April
12, 1997 (Treaty Doc. 105-17), subject to the reservation of
subsection (a), the declarations of subsection (b), and the
provisos of subsection (c).
    (a) RESERVATION.--The advice and consent of the Senate to
the WIPO Performances and Phonograms Treaty is subject to the
following reservation, which shall be included in the
instrument of ratification and shall be binding on the
President:
      REMUNERATION RIGHT LIMITATION.--Pursuant to Article 15(3)
        of the WIPO Performances and Phonograms Treaty, the
        United States will apply the provisions of Article
        15(1) of the WIPO Performances and Phonograms Treaty
        only in respect of certain acts of broadcasting and
        communication to the public by digital means for which
        a direct or indirect fee is charged for reception, and
        for other retransmissions and digital phonorecord
        deliveries, as provided under the United States law.
    (b) DECLARATIONS.--The advice and consent of the Senate is
subject to the following declaration:
      (1) LIMITED RESERVATIONS PROVISIONS.--It is the Sense of
        the Senate that a ``limited reservations'' provision,
        such as that contained in Article 21 of the
        Performances and Phonograms Treaty, and a ``no
        reservations'' provision, such as that contained in
        Article 22 of the Copyright Treaty, have the effect of
        inhibiting the Senate in its exercise of its
        constitutional duty to give advice and consent to
        ratification of a treaty, and the Senate's approval of
        these treaties should not be construed as a precedent
        for acquiescence to future treaties containing such
        provisions.
      (2) TREATY INTERPRETATION.--The Senate affirms the
        applicability to all treaties of the constitutionally
        based principles of treaty interpretation set forth in
        Condition (1) of the resolution of ratification of the
        INF Treaty, approved by the Senate on May 27, 1988, and
        Condition (8) of the resolution of ratification of the
        Document Agreed Among the States Parties to the Treaty
        on Conventional Armed Forces in Europe, approved by the
        Senate on May 14, 1997.
    (c) PROVISOS.--The advice and consent of the Senate is
subject to the following provisos:
      (1) CONDITION FOR RATIFICATION.--The United States shall
        not deposit the instruments of ratification for these
        Treaties until such time as the President signs into
        law a bill that implements the Treaties, and that
        includes clarifications to United States law regarding
        infringement liability for on-line service providers,
        such as contained in H.R. 2281.
      (2) REPORT.--On October 1, 1999, and annually thereafter
        for five years, unless extended by an Act of Congress,
        the President shall submit to the Committee on Foreign
        Relations of the Senate, and the Speaker of the House
        of Representatives, a report that sets out:
                  (A) RATIFICATION.--a list of the countries
                that have ratified the Treaties, the dates of
                ratification and entry into force for each
                country, and a detailed account of U.S. efforts
                to encourage other nations that are signatories
                to the Treaties to ratify and implement them.
                  (B) DOMESTIC LEGISLATION IMPLEMENTING THE
                CONVENTION.--a description of the domestic laws
                enacted by each Party to the Treaties that
                implement commitments under the Treaties, and
                an assessment of the compatibility of the laws
                of each country with the requirements of the
                Treaties.
                  (C) ENFORCEMENT.--an assessment of the
                measures taken by each Party to fulfill its
                obligations under the Treaties, and to advance
                its object and purpose, during the previous
                year. This shall include an assessment of the
                enforcement by each Party of its domestic laws
                implementing the obligations of the Treaties,
                including its efforts to:
                          (i) investigate and prosecute cases
                        of piracy;
                          (ii) provide sufficient resources to
                        enforce its obligations under the
                        Treaties;
                          (iii) provide adequate and effective
                        legal remedies against circumvention of
                        effective technological measures that
                        are used by copyright owners in
                        connection with the exercise of their
                        rights under the Treaties or the Berne
                        Convention and that restrict acts, in
                        respect of their works, which are not
                        authorized by the copyright owners
                        concerned or permitted by law.
                  (D) FUTURE NEGOTIATIONS.--a description of
                the future work of the Parties to the Treaties,
                including work on any new treaties related to
                copyright or phonogram protection.
                  (E) EXPANDED MEMBERSHIP.--a description of
                U.S. efforts to encourage other non-signatory
                countries to sign, ratify, implement, and
                enforce the Treaties, including efforts to
                encourage the clarification of laws regarding
                Internet service provider liability.
    (3) SUPREMACY OF THE CONSTITUTION.--Nothing in the
Convention requires or authorizes legislation or other action
by the United States of America that is prohibited by the
Constitution of the United States as interpreted by the United
States.

                            A P P E N D I X

                    THE WORLD INTELLECTUAL PROPERTY

                   ORGANIZATION COPYRIGHT TREATY AND

                WORLD INTELLECTUAL PROPERTY ORGANIZATION

                  PERFORMANCES AND PHONOGRAMS TREATY;

                          (TREATY DOC. 105-17)

                            C O N T E N T S
                              ----------
                                                                   Page
Byrne, Christopher, Director of Intellectual Property, Silicon
  Graphics, Inc. on Behalf of the Information Technology Industry
  Council........................................................    51
Jaszi, Peter, Professor of Law, Washington College of Law, the
  American University, on Behalf of the Digital Future Coalition.    43
Larson, Alan P., Assistant Secretary of State for Economic and
  Business Affairs...............................................    27
Neel, Roy M., President and Chief Executive Officer, United
  States Telephone Association...................................    37
Valenti, Jack, Chairman and Chief Executive Officer, Motion
  Picture Association of America.................................    34

THE WORLD INTELLECTUAL PROPERTY ORGANIZATION COPYRIGHT TREATY AND WORLD
   INTELLECTUAL PROPERTY ORGANIZATION PERFORMANCES AND PHONO- GRAMS
                       TREATY; TREATY DOC. 105-17

                              ----------

                      THURSDAY, SEPTEMBER 10, 1998

                                       U.S. Senate,
                            Committee on Foreign Relations,
                                                    Washington, DC.
    The committee met, pursuant to notice, at 10:05 a.m., in
room 419, the Dirksen Senate Office Building, Hon. Chuck Hagel,
presiding.
    Present: Senators Hagel, Sarbanes and Feinstein.
    Senator Hagel. Good morning. The Foreign Relations
Committee meets today to consider two Intellectual Property
Treaties negotiated under the auspices of the World
Intellectual Property Organization, known as WIPO, in December
1996.
    Both treaties were submitted to the Senate as a package in
July 1997 and were referred to the Foreign Relations Committee.
Legislation that would amend U.S. Law to bring the United
States fully into compliance with the treaties and resolve a
number of related copyright issues that have arisen in the new
digital environment was passed unanimously by the Senate and is
now pending in the House of Representatives.
    The first treaty, the WIPO Copyright Treaty, updates
existing international copyright obligations and covers
copyright protection for computer programs, data bases, and
digital communications, including copyrighted works of the
worldwide Internet and other computer networks.
    The second treaty, the WIPO Performances and Phonograms
Treaty, mandates new protections for performers of audio works
and producers of sound recordings. Although the United States
will continue to provide protection for performers and
producers under U.S. Copyright law, the treaty permits
countries to fulfill their treaty obligations under different
legal theories.
    As I suspect the witnesses today will testify, support for
the treaties has been generally positive. Given that the United
States copyright industry now employs some 3.5 million
Americans with foreign sales and exports in 1996 totaling $60
billion, the impact of copyright infringement is quite
significant.
    These treaties attempt to standardize intellectual property
protections relating to digital communications worldwide.
Establishment and enforcement of clear rules for commerce in
this area will facilitate the further development of the U.S.
Computer and digital communication industry.
    As with other investment treaties, both treaties are based
on national treatment principles which require parties to
protect foreign works just as they would domestic works.
    This last year of negotiations between the administration,
the Congress, and the affected sectors of the economy to pass
comprehensive legislation has shown that simply ratifying these
treaties without a simultaneous review and redrafting of U.S.
Law in this area will not advance fair and comprehensive
intellectual property protections that balance the interests of
various sectors of this growing industry.
    For this reason, the committee has delayed consideration of
the treaties while the implementing legislation has worked its
way through both the Senate and the House. Rather than leave
these issues for judicial review, which often takes too long
and is fraught with uncertainty for conducing Internet
business, the pending legislation attempts to provide clear
legislative interpretation of existing protections and of
potential treaty commitments.
    In fact, ratification of the treaties without amending U.S.
Law on issues such as the scope of rights and limitations on
the rights would leave the courts with only the treaty language
to determine the outcome of cases and could be an obstacle to
enactment of future legislation in this area.
    Such an outcome would turn the treaty-making process on its
head and leave the executive branch, not the Congress, in the
position of determining U.S. Law in this very important area.
    Given the progress toward enactment of this legislation,
the committee is commencing its consideration of these treaties
today and will hear from both the administration and affected
industries and academics regarding a range of issues, including
the need for advanced protection of U.S. Intellectual property
exported abroad; the impact of the treaties without adherence
by countries like China, India, and Russia, which have long
been major sources of pirating and have not signed the
treaties; the prospects for ratification and enforcement of the
treaties by signatories to the treaties; the means by which
U.S. Industry will be able to enforce their rights under the
treaties in other countries; clarification of liability for
copyright infringement on the Internet; the penalties for anti-
circumvention of technology designed to prevent copyright
infringement; and new rights extended to producers and
performers of sound recording and the compatibility of U.S.
Legal protections for those individuals through copyright law
with other countries' legal theories.
    Senator Hagel. On the first panel, Assistant Secretary of
State Alan P. Larson will testify for the administration.
Secretary Larson will be followed by a second panel, including
Mr. Jack Valenti, President and Chief Executive Officer of the
Motion Picture Association of America; Mr. Roy M. Neel,
President and Chief Executive Office of the United States
Telephone Association; Mr. Peter Jaszi, an Associate Professor
of Law at the Washington College of Law of American University;
and Mr. Christopher Byrne, the Director of Intellectual
Property for Silicon Graphics.
    Welcome, Gentlemen. We are pleased to have you here. We
appreciate your time and your commitment. Before we begin the
official proceedings this morning, let me express on behalf of
our Committee our sympathy and express our condolences to the
families, friends, and colleagues of the WIPO commissioners who
were killed last week in the tragic crash of Swiss Air Flight
111.
    With that, Mr. Larson, please proceed.

 STATEMENT OF ALAN P. LARSON, ASSISTANT SECRETARY OF STATE FOR
                 ECONOMIC AND BUSINESS AFFAIRS

    Mr. Larson. Thank you very much, Mr. Chairman. Mr.
Chairman, I have a written statement which, with your
permission, I would like to submit for the record. And also,
with your permission, I would like to summarize the main points
of that statement.
    Senator Hagel. They will be included in the record, Mr.
Larson.
    Mr. Larson. Thank you.
    Mr. Chairman, we do appreciate this opportunity to put
forward the views of the administration and the Department of
State on these two WIPO treaties. Let me begin with a concise
declaration: the administration and the Department of State
unequivocally endorse the WIPO Copyright Treaty and the WIPO
Performances and Phonograms treaty.
    These two treaties support two very important goals of
American commercial diplomacy: first, adequate protection of
intellectual property rights and, second, greater openness in
the exchange of ideas, goods, and services among all nations.
My testimony today is limited to the ratification of the WIPO
treaties.
    The Administration has submitted previously its views on
aspects regarding the implementation legislation to the
relevant committees, and we will work closely with the
conference committee.
    The WIPO treaties will be critical to ensuring that
copyright regimes in all major countries adequately protect the
original and creative works that enrich our cultures, broaden
our scientific and technical knowledge, and inform and educate
and entertain our citizens. The WIPO treaties come as close as
possible to achieving an optimal balance in providing
incentives for creative effort without unduly burdening the
free exchange of ideas, information, or scientific research.
    The need for refinement of copyright standards was
recognized several years before the convening of the 1996 WIPO
Diplomatic Conference in Geneva. The pace of technology was
accelerating beyond the point where the courts easily could
adapt traditional copyright concepts to new challenges created
by the emerging digital medium.
    This is not to suggest that traditional copyright concepts
were inadequate, but only that there needed to be clarification
and refinement of how they would apply in the digital age.
    Emerging digital technology is a two-edged sword for
copyright holders. The Internet and other new communications
technologies are opening new avenues for rapid and cost-
efficient dissemination of creative works. The same digital
technology, however, provides intellectual property pirates
with new tools for copying and distributing works without the
authorization of the creators and owners. The primary goal of
the WIPO treaties is to fill in the gaps created by digital
technology in the field of copyright protection.
    Maximizing the potential of the Internet and other
innovative communication technologies will require that the
creators of new works in the arts and sciences be protected
from copyright piracy. Without clear rules provided by the WIPO
treaties, the opportunities for exchange of ideas and pursuit
of knowledge will in practice be considerably reduced.
    Promoting the dissemination of creative works, of course,
adds to a nation's store of knowledge, and that is a laudable
objective in and of itself. But there are also very direct and
important commercial advantages for the United States.
    As you indicated, Mr. Chairman, by any measure, U.S.
Copyright-based industries comprise a considerable share of out
output. Taken together, the motion picture industry, the
publishers and software producers, the music recording
industry, the so-called core copyright industries, in recent
years have accounted for as much as 3.6 percent of our national
output.
    And, according to the same sources, the total contribution
of all copyright industries approached 5.7 percent of national
output as recently as 1996.
    The copyright-based sector is one of our economy's most
dynamic sectors. The value added in this sector has increased
consistently since 1997. And by one recent estimate, the annual
growth rate in these core copyright industries has been twice
the average for the economy as a whole. As you indicated,
employment growth in these industries is very important.
    We think that it has grown at three times the rate of the
economy as a whole. And, of course, the U.S. Is the world's
largest exporter of copyright-based products.
    So the continued vitality of the U.S. Copyright sector will
depend on whether other countries adopt standards that deal
with the copyright challenges that are posed by digital
technology.
    The Copyright Treaty provides protection for computer
software. It protects the distribution of copyright materials
though electronic networks. And it imposes legal standards for
the circumvention of copyright protection technology.
    The WIPO Performances and Producers Treaty brings copyright
protection of sound recordings closer to the protection given
other creative works such as books, films, and software.
    Most of these protections are already afforded by U.S. Law.
What the U.S. Needs to do is ensure that other countries
provide such protection as well. But the adoption by those
countries of the WIPO treaties is not likely if the U.S. Is not
in a position to lead by example. And that is why we would urge
the committee to do everything possible to ensure that the U.S.
Quickly ratifies these WIPO treaties.
    Thank you very much, Mr. Chairman. I would be happy to
respond to your questions.
    Senator Hagel. Mr. Secretary, thank you. And your complete
statement will be included in the record.
    [The prepared statement of Mr. Larson follows:]

                  Prepared Statement of Alan P. Larson

    Mr. Chairman and Members of the Committee, thank you for this
opportunity to discuss with you the views of the Department of State
concerning two treaties negotiated within the World Intellectual
Property Organization, or WIPO--the WIPO Copyright Treaty and the WIPO
Performances and Phonograms Treaty.
    Let me begin with a concise declaration: the Department of State
unequivocally endorses the WIPO Copyright Treaty and the WIPO
Performances and Phonograms Treaty. The two WIPO treaties support two
of the Department's major goals of commercial diplomacy: adequate
protection of intellectual property protection and greater openness in
the exchange of ideas, goods, and services among all nations. My
testimony today is limited to the ratification of the WIPO treaties.
The Administration has previously submitted its views on aspects of the
implementing legislation to the relevant committees, and will work
closely with the conference committee.
    The protection of intellectual property rights is one of the
Administration's top priorities in the field of commercial diplomacy.
The WIPO treaties will be critical to ensuring that copyright regimes
in all countries adequately protect the original and creative works
that enrich our cultures, broaden our scientific and technical
knowledge, and inform, educate and entertain our citizens. The WIPO
treaties are the result of extensive negotiations and are based on the
information and views receivedfrom legal scholars, representatives of
various industries, and various government agencies from around the
World. Their efforts have not been in vain. The WIPO treaties come as
close as possible to achieving & optimal balance in providing
incentives for creative effort without unduly burdening the free
exchange of ideas and information or scientific research. Indeed, for
reasons that I will address shortly, the opportunities for exchange of
ideas and the pursuit of knowledge will be considerably lessened if the
WIPO treaties are not adopted.
    As already noted by others, the need for a refinement of copyright
standards was recognized several years before the convening of the 1996
WIPO Diplomatic Conference in Geneva. The pace of technology was
accelerating beyond the point in which courts could adapt traditional
copyright concepts to new challenges created by the emerging digital
medium. This is not to suggest that traditional copyright concepts were
inadequate, but only that there needed to be clarification and
refinement of how they would apply in the digital age.
    Emerging digital technology is a two-edged sword for copyright
holders. The Internet and other new communications technology are
opening new avenues for rapid and cost-efficient dissemination of
creative works. The same digital technology, however, provides
intellectual property (IP) pirates with new tools for copying and
distributing works without the creators'/owners' authorization. The
primary goal of the WIPO treaties is to fill in the gaps created by
digital technology in copyright protection.
    The expansion of digital technology throughout all regions of the
World will provide new opportunities for commercial exchange while
simultaneously making it more difficult to combat intellectual property
piracy. We need other countries to adopt and be required to enforce the
copyright standards set forth in the WIPO treaties. The WIPO treaties
are the best standards for addressing the concerns for copyright
protection that have arisen with the advent of digital technology.
    As I have said, digital technology will open new avenues for the
dissemination of creative works. But maximizing the potential of the
Internet and other innovative communication technologies will require
that the creators of new works in the arts and sciences be protected
fromcopyright piracy. Without the clear rules provided by the WIPO
treaties, the opportunities for exchange of ideas and the pursuit of
knowledge will in practice be considerably reduced.
    Promoting the dissemination of creative works that enrich cultures
and add to a nation's store of knowledge is a laudable objective in and
of itself. But there are direct commercial advantages for the U.S.,
especially in terms of exports and employment, that warrant U.S.
support for the WIPO treaties. By any measure, U.S. copyright-based
industries comprise a considerable share of the U.S. economy's output.
Taken together, the motion picture industry, publishers, software
producers, and the music and recording industry-the so-called ``core''
copyright industries-in recent years have accounted for as much as 3.6%
of the nation's GDP, according to some industry studies. According to
the same sources, the total contribution of all copyright industries
approached 5.7% of GDP as recently as 1996.
    But even more important, similar reports suggest that the
copyright-based sector is one the U.S. economy's most dynamic. Value
added measurements for the copyright sector have increased consistently
since 1977. By one recent estimate, the real annual growth rate of the
core copyright industries has been more than twice the rate of the
overall U.S. economy; while the estimated compound annual growth rate
of the entire economy was 2.6% over the last twenty years, the rate for
the core copyright industries was 5.5%. Similarly, according to the
same report, copyright industries have continued to increase employment
during the same period. Employment growth in the core copyright
industries was nearly three times the rate for the economy as a whole.
    The continued vitality of the U.S. copyright sector will depend on
whether countries adopt standards that deal with the copyright
challenges posed by digital technology. As already pointed out, the
WIPO treaties are crucial for setting copyright standards in the
digital age. The WIPO Copyright Treaty provides protection for computer
software. It protects the distribution of copyright materials via
electronic networks. And it imposes legal standards for the
circumvention of copyright-protection technology. The WIPO Performances
and Producers Treaty brings copyright protection of sound recordings
closer to the protection given other creative works, such as books,
films, and software. Most of these are protections already affordedby
U.S. law. The U.S. needs to ensure that other countries provide such
protection as well.
    The U.S. has an unprecedented opportunity to help establish minimum
international copyright standards. Standards which are critical for the
continued vitality of U.S. copyright-based industries seeking to sell
in markets overseas. But adoption of the WIPO treaties in other
countries is not likely if the U.S. fails to lead by example.
Therefore, I urge the Committee, in the strongest terms, to do all
possible to ensure that the U.S. adopts the WIPO treaties.
    I thank the Committee for providing me this opportunity to give the
Department of State's views on the WIPO treaties.

    Senator Hagel. Mr. Larson, let me ask a few questions. And
the questions that we do not get to this morning and questions
that my colleagues might have will be sent over to your office.
And we will keep the record open for a few days to allow all of
my colleagues to respond as they wish.
    Mr. Secretary, originally the administration had requested
legislation that would just simply make minor changes to U.S.
Law and would not address the question of liability for
Internet copyright infringement by customers of on-line
services and access providers. As you know, the pending
legislation addresses these issues.
    Two questions: Do you support those additional changes,
proposals, in both the Senate Bill, which we have passed, as
you know, and the House Bill, HR-2281, is pending with respect
to the copyright liability of on-line service providers.
    Mr. Larson. Mr. Chairman, as I mentioned at the outset, we
have been submitting our views into the committees that are
working on the implementing legislation.
    As you pointed out, as that implementing legislation has
moved forward, the interested parties, the interested
constituencies in the United States have been working through
to refine the approaches that we take in our implementing
legislation to the questions of balance that arise when you are
trying to at the same time protect copyright owners and also
provide for the free flow of information.
    I think one important point is that the treaties themselves
are providing a framework that allows us through the
implementing legislation to sort out some of these details in a
way that is consistent with our interests and with our
traditions in the copyright area. We are very comfortable with
the way that that process is moving forward.
    As a formal matter, there is not an Administration position
today on the precise text of the legislation that you referred
to. But we are, as I said, very comfortable with the way that
this dialog has moved forward as the implementing legislation
has advanced.
    Senator Hagel. The second part of that, Mr. Secretary, is,
aside from the formal, official position the administration
might or might not take on the verbiage and the specifics, are
you satisfied that the bills adequately deal with the
application of traditional limitations on the rights, rights
such as the free fair use first sale doctrine? In your opinion,
what you know of that language, is it adequate?
    Mr. Larson. What I am very certain of, Mr. Chairman, is
that the treaties themselves, which I testified on today, give
us all of the latitude that we need to protect our traditional
legal approaches to fair use doctrine.
    I, unfortunately, am not the right person, nor am I in a
position to give you an expert assessment on the implementing
legislation itself that is working its way through the
Congress. We are comfortable with the direction that that is
going. But I do not want to be unresponsive to your questions.
I am just not the right person to give you an authoritative
answer.
    Senator Hagel. This will be one of those questions that
your people can give a little focus to when we sent the
questions over and round out the rough edges.
    Mr. Larson. Sure.
    Senator Hagel. Let me ask a more political question. And I
am going to refer back to your statement.
    In your statement you highlighted the growing problems of
intellectual property pirates, of which we are aware.
Obviously, that is why we have some urgency here to deal with
the issue.
    You mentioned that the treaty is an effort to increase
protections to copyright owners. However, for any treaty to be
effective, as you well know, it must be backed by strong
political will and a commitment to enforce its provisions.
    My question is this, Mr. Secretary: What efforts are being
made now and will be made by the State Department to enforce
existing protections internationally?
    Mr. Larson. We are very committed to enforcing existing
protections. I think, with respect to the new obligations that
are created by this treaty, what we want to do is to be in a
position. Through our own ratification and implementation of
the treaty commitments, to be able to put strong pressure on
other countries to move quickly as well. Our sense is that the
major industrial countries share our commitment to move
forward.
    We will want to work with them to make sure that they
implement quickly. We also want to make sure that other
countries that have signed this treaty--I understand there are
some 50 who have signed these treaties--move forward in this
process as quickly in addition.
    There are countries, like India, which is going to be a
member of this arrangement, which has an emerging film
industry, and where it is going to be very important for us,
for the protection of our copyright holders, to make sure that
the disciplines of this agreement are enforced through law.
    Needless to say, we are going to have to continue to
monitor these issues all around the world. We are committed to
the active and aggressive use of all of our tools, including
our domestic trade laws, to enforce the rights of our copyright
holders around the world.
    Senator Hagel. Mr. Secretary, from your perspective, do you
believe there has been an increase, a decrease, or about the
same in the incidence of pirating?
    Mr. Larson. I think that there is a growing appreciation
that property rights protection is in the interest of countries
around the world, that it is part of a sensible policy of
economic development. It is important for any country that
wants to attract foreign investment to have a strong property
rights regime domestically.
    One of the things that we are finding, Mr. Chairman, is
that we have more success now than we have sometimes had in the
past using diplomatic and persuasive strategies, together with
some of the harder-edged strategies, to persuade countries of
their own national interest in adopting and enforcing strong
protection of intellectual property rights.
    It is interesting that some 50 countries saw it in their
interest to pursue this WIPO copyright process. I have
commented on other opportunities before this committee on some
of the progress that we have made, led by Ambassador Barchesky,
with China on copyright issues. It is never easy.
    But I think the important thing is that there is progress
on the international regimes, these types of WIPO treaties and
so forth. And there is, I think, a growing appreciation by many
countries that they have a stake, a very strong stake
themselves, in doing a better job. At the State Department, we
are trying to use our own diplomatic resources and the skills
of our Ambassadors to bring this message home in new ways.
    Senator Hagel. Mr. Secretary, the WIPO Copyright Treaty
recognizes, I believe for the first time, that computer
programs are covered by the Berne Convention and incorporates
these protections by reference. However, parties made an
official statement, I believe, that the existing reproduction
right of the Berne Convention will fully apply to the digital
environment.
    And the question is this: Why did the parties choose to
address this issue as a statement rather than put it in the
treaty text?
    Mr. Larson. Mr. Chairman, it is my understanding that in
the negotiating process it proved to be too difficult and
controversial to get a substantive--get a provision in the text
of the treaty itself on this.
    But our negotiators were able to get a footnote reference
that we believe fully protects our position on this. And that,
you know, after the appropriate analysis, we decided to go
forward on that basis.
    Senator Hagel. Mr. Secretary, let me now ask our friend and
colleague, the distinguished senior Senator from California,
Senator Feinstein, who has joined us, if she has a statement.
    And please proceed, Senator. It is nice to have you.
    Senator Feinstein. Thank you very much, Mr. Chairman. It is
nice to be here.
    I just want to indicate my full support for this treaty. I
think the intellectual property industries are really the
growing mainstay of the American economy. And certainly for my
State, California, it is an extraordinarily important industry.
    I think most people perhaps do not understand how easy it
is to violate copyright protection. And copyright protection is
afforded in this country, but it is not in other countries, or
countries like Argentina, that do not believe that such a thing
should exist.
    Well, passage of WIPO, the World Intellectual Properties
Treaty, will in effect guarantee that the copyright protection
that we afford to our record breaking industries in this nation
is afforded to them throughout the world.
    Our American creative industries have grown twice as fast
as the rest of the United States economy from 1987 to 1994.
Employment in these copyright industries has more than doubled.
About 3.5 million Americans today are employed in copyright-
related industries.
    And the rate of employment growth is three times that of
the economy as a whole. So the copyright employment now
accounts for about 5.2 percent of the entire United States work
force.
    Our exports were more than $60 billion in 1996. That is a
13 percent gain over 1995. This outstrips foreign sales and
exports of our agricultural sector and of the combined
automobile and automobile parts industries. And the business
software alliance reports that 50 to 60 percent of its revenues
today come from overseas.
    I am delighted to welcome Jack Valenti to this hearing. The
entertainment industry, of which he has become a mainstay,
generates employment for more than 450,000 Californians. And
from 1992 to 1996, the industry's payrolls in California have
increased 62 percent to $12 billion.
    And purchases of goods and services in entertainment
production add up to another $15.5 billion. I say these things
not to be a compendium, but simply to indicate how important
protection of copyright is throughout the world.
    We are now in a global economy. You cannot be in a global
economy unless we all play by the same rules. So protection of
copyright industries, the IPR protection, is extraordinarily
important.
    As you know, Mr. Chairman, I also sit on the Judiciary
Committee. We have looked at this treaty. I think the bugs in
it have been worked out. Chairman Hatch and others have spent a
great deal of time reconciling divergent points of view. And I
think that we have a treaty that will stand the test of time
and will provide the kind of world protection to intellectual
property industries that is both warranted and deserved.
    I thank you for that opportunity. And I have no questions
of the distinguished Secretary.
    Senator Hagel. Senator Feinstein, thank you very much. We
are trying to persuade Mr. Valenti, Senator, to look at
Nebraska more favorably for movie making. It is tough.
    Senator Feinstein. Actually, I think all of his energies
are taken up in California.
    Senator Hagel. Mr. Secretary, I have additional questions.
But in the interest of time--I know you have other things to
do. And we have a full panel behind you. I would move to submit
the additional questions I have for the record. You and your
staff can answer those, send those back up. And as I suggested,
some of our colleagues may have questions, which we will keep
the record open for. And they may submit them as well.
    For your interest, I think it is the intent of the Chairman
to try and move this at our, we believe, our final committee
meeting mark-up later this month. As you know, in this town
news does not stay fresh very long. We are hour to hour. So I
do not know if we will have one or more meetings yet before we
adjourn. But it is the intent of the chairman to move on this
quickly.
    I think, as well, he feels, as I said in my opening
statement, that implementing legislation should accompany the
treaty. And if the House can accomplish what it needs to
accomplish here, then I am rather confident that we can get
this out and get the Senate to pass it.
    Mr. Larson. Mr. Chairman, thank you very much for that. We
will work very hard with you and the committees staff to get
quick answers to any questions that members of the committee
may have so that you can stick to your timetable.
    And if I could just say one last comment, picking up on
something that Senator Feinstein said. I do think that here the
big picture is that we are achieving through these treaties the
internationalization of American standards on copyright
protection.
    We are the world's largest exporter of copyright-based
products. We have a huge commercial interest in this. And so,
while there are some very important issues with respect to the
domestic legislation, our sense is the same as Senator
Feinstein's, that those are being worked out and that the big
picture here is that we are basically internationalizing U.S.
Concepts, U.S. Approaches, and U.S. Legal concepts of copyright
protection to the rest of the world, which is very much in our
interest. Thank you.
    Senator Hagel. Senator Feinstein, any additional comments?
    Senator Feinstein. None. Thank you, Mr. Chairman.
    Senator Hagel. Mr. Secretary, thank you.
    If the second panel will come forward, we will get started.
[Pause.]
    Senator Hagel. Mr. Valenti, we will begin with you.
Welcome, again, Jack. It is nice to have you.

    STATEMENT OF JACK VALENTI, CHAIRMAN AND CHIEF EXECUTIVE
         OFFICER, MOTION PICTURE ASSOCIATION OF AMERICA

    Mr. Valenti. Thank you, Senator Hagel. And thank you,
Senator Feinstein, for being here. I am grateful to you.
    When Abraham Lincoln ran for Congress, in his first speech
to his constituency he said, My politics is short and sweet,
like the old woman's dance. So is my testimony. Because this is
not a very complicated issue. You understand what the treaty is
all about.
    I consider this copyright treaty, Mr. Chairman, to be an
anti-theft, anti-crime treaty, because it is going to commit
all of those who sign the treaty to lift the level of their
copyright protection for intellectual property, which is
private property which belongs to those who finance it and
create it.
    There is no question that the United States is the great
electee of this treaty, because as has been said, we have
market supremacy in intellectual property all over the world.
Now, there are those in many parts of the world though, thieves
who with shameless zest steal this private property. And they
do it knowing that it is a high reward, low risk enterprise. I
am hopeful that this treaty will begin to turn that felonious
design on its head.
    Now, the question is, why should those of us who live in
this free and loving land count this treaty to be important? I
think Senator Feinstein has catalogued it beautifully. Because,
today, intellectual property, movies, television programs,
books, music, and computer software are the largest
contributors to the health of this economy. And she set forth
all of the figures.
    And I will not repeat them, though I would like to etch
them on my forehead so that everyone who greeted me on the
street would find for easy reading what this intellectual
property does not just to California, though it is a great boon
to that great State, but for this country as a whole.
    One of the things Senator Feinstein said was that
intellectual property is creating jobs at three times the
national rate of this economy. And she pointed out what it
means to California. But these jobs are being created all over
this country. And these are not minimum wage jobs.
    These are fairly--I would say substantially paying jobs.
But the one fact which is the most congenial and the most
cheerful fiscal fact that ought to be relevant to this
committee is, to follow on with Senator Feinstein's numbers,
for the first time intellectual property has now gathered in
more international revenues than any single American industry
in this country.
    More than aircraft, more than automobiles and auto parts,
and more than agriculture. I think that can be summed up by
saying that intellectual property is America's grandest trade
prize, a triumphant economic and creative achievement that is
worthy of the support and the protection of this Congress.
    Now, the American film industry is, of course, the largest
in the world, singularly successful on all continents. And we
confront thievery every day. Every day we have to be vigilant,
because, like virtue, we are every day besieged. And this war
that has been going on, it is raging. Sometimes we make some
headway, sometimes we fall back. But what I am saying to you
now, unless protective shields are put in place to protect
intellectual piracy in the digital age, all of the grand
promise for the future for this industry is put to hazard.
    Emerson's doctrine says that for every loss there is a gain
and for every gain there is a loss. It was never more alive
than in this issue. The gain is that the magical new digital
technology has unbelievable benefits for those who use it. It
is a wondrous thing to behold. That is the gain.
    But the loss is the dark, corrosive underside to digital
technology in that it makes thievery far easier and far easier
to copy. And that is why, unless we are able to find some way
to balance the losses and the gains and to protect this private
property, this intellectual property when it moves in the
digital world, then we are in peril.
    I hope that this committee and the Senate will pass this
treaty quickly and feel the sure and I like to believe
illuminating pride that comes to any lawmaker when you put your
imprint on something which benefits so many citizens in this
country.
    Now, I am quite fascinated with what I am saying up here.
But I think the best thing I can do is tell you this is the
short and sweet testimony that I promised. Thank you.
    Senator Hagel. Mr. Valenti, thank you.
    [The prepared statement of Mr. Valenti follows:]

                   Prepared Statement of Jack Valenti

    On December of 1996, representatives from over 160 nations gathered
in Geneva and out of the babel of so many varying opinions, they all
agreed to the World Intellectual Property Organization Treaties.
    One treaty dealt with phonogram performers and audio performers'
rights. The other treaty lifts the level of copyright protection in
every country signing the treaty. In short, it obligates signatory
countries to update national copyright laws to cope with the digital
environment. And more importantly, it compels them to enforce those
laws by efficiently and swiftly prosecuting digital thieves who pilfer
the creative works of others. Not surprisingly the largest beneficiary
of this WIPO document is the United States, the most dominant force in
intellectual property throughout the world.
    In May of this year, the U.S. Senate passed the Digital Millennium
Copyright Act, implementing the WIPO treaties by a 99 to 0 vote. On
July 29, the House unanimously passed a companion measure after careful
study and approval by both the Judiciary and Commerce Committees. This
legislative action by both Senate and House now moves to Conference to
shape the final design.
    Now, the Senate Foreign Relations Committee has the responsibility
to ratify the treaty, completing the journey of the WIPO treaty through
the Congress of the United States, thereby offering intellectual
property the full weaponry of the law to protect its voyages in
cyberspace from thieves who have previously determined that stealing
creative works is very rewarding and very low risk. We aim to turn that
felonious design on its head.
    First the numbers. The core copyright industries, and by that I
mean motion pictures, television programs, home video, music, books,
and computer software are immense contributors to our nation's economy.
    In 1996, these industries contributed an estimated $278.4 billion
to the U.S. economy, accounting for 3.65% of the Gross Domestic
Product.
    The real annual growth of the copyright industries has been more
than double the growth rate of the economy as a whole.
    From 1977 to 1996, the job growth in the copyright industries was
nearly three times the employment growth for the economy as a whole.
    And surely the most impressive array of fiscal arithmetic is
located in this fact: This nation's copyright industries have gathered
foreign sales and exports of $60.18 billion. More than agriculture.
More than automobiles and auto parts. More than aircraft. It can all be
summed up in one simple sentence: Intellectual property is America's
grandest trade pnze. a triumphant economic and creative achievement
worthy of the enduring support and protection of this nation.
    Why is it necessary to act now in both the passage of implementing
legislation and ratifying the treaty? Because we are grazing the outer
entering edge to a new world. filled with instant information and
entertainment: The exploration of the Internet and digital horizons
which, at this moment, appear to be limitless.
    Like Emerson's doctrine that ``for every gain there is a loss and
for every loss there is a gain,'' within the glittering potential of
the Internet lies the darker forms of thieves who, armed with magical
new technology, are capable of breaking-and-entering conventional
barriers to steal copyrighted material borne to the Internet by just
about anybody with a working computer. Without protective sinews in
place, without rules of the game enforced by law, America's largest
economic asset would be put to peril, blighted by new technology so
beneficial, and yet so corrosive if copyright owners are unable to
protect their private property. That is not an acceptable road to the
future. That is the central and most commanding reason why this
Committee should ratify the treaty. Updated international standards for
copyright protection, as the WIPO treaties provide, are part of the
solution to this problem.
    While ratification requires only minimum changes to U.S. existing
law, it compels nations around the world to raise their minimum
standards to meet those of the United States. Stated simply, clearly,
this is an anti-crime, anti-theft treaty.
    We must not forget that the Geneva assembly placed a two-year
deadline during which at least 30 nations must ratify the treaties. The
world is watching and waiting to see what the U.S. does. If we, with so
much at stake, do not move to ratify, what possible incentive do other
nations have for taking similar action?
    The U.S. film industry, the most successful on this planet,
currently confronts ceaseless thievery around the globe. We have made
great headway but the war rages on. Our successes come primarily
because the pirates today must cope with formidable distribution
problems. Physical copies of a film must be obtained and then smuggled
across borders and parceled out to distributors before reaching the
ultimate consumer.
    But digital networking will make today's piracy problems seem
almost saintly. A pirate master will be digitized, posted on the Web,
and made available to users of the Internet all over the world. Or the
master can be used to make an infinite number of pristine copies (take
note: the 1,000th digital copy is as pure in quality as the first copy,
which is not so in analog where copying degrades quality). A single
thief in an unprotected digital environment can be a big-time, full-
fledged distributor of illegal filmed product. This is not simply a
question of domestic theft. Entrepreneurial criminals around the globe
are shamelessly excited by the prospect of enlarging riches, ready for
the next technological advance that enables easy transfer of digitized
movies. Even with today's Internet, which will look positively
primitive in the years to come, I have seen pirated copies of films as
current as ``Mulan'' and Steven Spielberg's landmark epic ``Saving
Private Ryan,'' available for downloading. The transition to cyberspace
ought not and must not collapse and destroy the basic American value of
private property. You will be pleased to note that within the
implementing legislation are special protections for libraries,
schools, and other nonprofit institutions. ``Fair use'' remains
unchanged. Legitimate devices are unaffected; the language focuses
specifically on illegitimate devices aimed at circumventing
technologies used to protect creative works online.
    I hope that this Committee will feel the sure pride that comes to
lawmakers when they put their legislative imprint on something with so
much benefit to America's advance into the digital age.

    Senator Hagel. Let me reintroduce our panel as I introduce
each for their statements. As you know, I introduced everyone
at the beginning. But next we will hear from Mr. Neel, Roy
Neel, the President and CEO of the United States Telephone
Association. Mr. Neel, welcome.

    STATEMENT OF ROY M. NEEL, PRESIDENT AND CHIEF EXECUTIVE
          OFFICER, UNITED STATES TELEPHONE ASSOCIATION

    Mr. Neel. Thank you, Mr. Chairman, Senator Feinstein.
    Jack said it very well in terms of the need for this treaty
internationally and protecting of U.S. Property against piracy.
    I represent not only more than 1,000 local telephone
companies, literally hundreds in both Nebraska and California
and throughout the country, but also the ad hoc Copyright
Coalition, which includes virtually the entire Internet service
provider community, which includes many of our traditional
competitors such as AT&T and MCI, and now America On-Line, and
the Commercial Internet Exchange, which represents hundreds of
very small Internet service providers.
    So I am here speaking on behalf of the entire carrier
community, if you will, that is building and developing the
Internet.
    In addition to being carriers of copyrighted property and
all manner of telecommunications, almost all of our members
also own substantial intellectual property, software, data
bases, directories, and so on.
    So we have a stake in both sides of the issue of liability
as it applies to the evolution of the Internet and to the
policing of the unauthorized theft of copyrighted property. We
have a real stake in making sure there are anti-theft measures
in place.
    But we also have a real stake in making sure that carriers
and providers of Internet services are not unduly exposed to
third party lawsuits simply because they move intellectual
property down pikes, whether they repackage it or whatever.
    This industry, and the broader service provider industry,
was facing immense liability from lawsuits which would have--
and I do not believe this is an idle threat--would have
virtually shut down the future development of the Internet. And
without going into platitudes about the Internet and the
importance to the economy of this country and to democracy
worldwide, I think we all understand the implication of
literally bringing the investment in that new technology to a
halt.
    We have been arguing and fighting about these issues about
liability for years now. And it was enormously satisfying to
all of us that Jack and I and Hillary Rosen with the recording
industry, the Internet service community, all of the major--the
content community, the carrier community, the service providers
were able to link arms and agree on a progressive compromise.
    It is virtually historic to get ahead of a technological
curve like this and avoid the kind of protracted, expensive and
miserable legal battles that have faced these kinds of
technologies in the past. So it is very rewarding that we have
been able to do that, that we have completed that process, and
virtually everyone has accepted this. The legislation passed
the Senate 99-0 and the House by a voice vote. So this is
really important.
    This community needs protection from inappropriate
liability challenges, lawsuits that, as I said, could shut down
the entire evolution of the network. That, obviously, is going
to benefit consumers. Not only those who use the Internet
extensively right now, but everyone in the education community,
everyone who is now exploiting this growing technology, this
growing network.
    And the fact that the content community and service
providers have been able to agree on this, with the help of
this committee, of the Judiciary Committee, and all of those
who have been involved in this process in the House and the
Senate, the administration, I think, is really a tribute to
your leadership in this area.
    More particularly, thank you for your opening comments that
there must be linkage between the implementation legislation
and this treaty. We will not get this done if it is not done
this year. It is critical that this treaty be enacted.
    It is critical that the implementation legislation be
enacted, and that they be done together. Because the reality of
this is that if the treaty moves and the implementation
legislation bogs down, dies for whatever reason, narrow or
broad, it could be years before we could come together on this
again. And we would leave the entire U.S. Economy, the
telecommunications economy, and certainly the Internet economy,
in serious jeopardy.
    And as I said, it is historic not only that we have been
able to reach agreement on these liability questions in the
U.S., but that these industries, the motion picture industry,
the record industry, the software publishers, the
telecommunications carriers and others are able to advance this
as a worldwide model, because this technology is not a domestic
medium.
    In its best form we see all manner of folks bringing down
dictatorships, bringing democracy into places where we have
severe problems, Burma and so on, by use of the Internet. It is
an international medium not only for democracy but for
commerce.
    So this should be the model. The implementation legislation
in the U.S. Should and can be the model throughout this world
which will undoubtedly help the U.S. Content community and
others developing Internet services worldwide. It is absolutely
critical.
    And I am very pleased that Jack and the motion picture
industry, the recording industry, and the software publishers
have agreed to lock arms and take this as a model worldwide.
    I will stop there. You have my testimony for the record.
Again, we want to thank you for holding this hearing and, in
particular, thank you for emphasizing the key element of
linkage between these two bills. It is absolutely critical. It
is not just process, it is substance. And it is the whole
future of the Internet economy. Thank you.
    Senator Hagel. Mr. Neel, thank you.
    [The prepared statement of Mr. Neel follows:]

                     Prepared Statement of Roy Neel

    Thank you Mr. Chairman.
    My name is Roy Neel and I am here testifying on behalf of the
United States Telephone Association (USTA). USTA represents over 1400
telephone companies, virtually every one of these 1400 local companies
is also an Internet service provider.
    I appreciate the opportunity to testify about the WIPO Treaties and
the importance of providing legal certainty to the Internet service
providers (``ISPs'') that provide Internet access to millions of people
everyday. The WIPO Treaties provide a framework to protect copyrighted
works in the digital age and the implementing legislation provides
complementary protection for ISPs. Telco ISPs invariably are both
content owners and service providers. In virtually every case we own
valuable intellectual property such as directories that are vulnerable
to Internet Piracy today. At the same time, as service providers, the
current law in the U.S. and many other countries subjects us to the
risk of unreasonable claims of liability that could stifle this new and
expanding medium. In light of this dual role, USTA members are uniquely
situated to appreciate both sides of the critical copyright liability
issues before Congress today.
    We support ratification of the WIPO Treaties in conjunction with
legislation that implements reasonable protection from excessive
copyright infringement liability for ISPs. This legislation is
necessary since the WIPO Treaties do not specifically address the ISP
liability issue. Statements agreed to by the delegates to WIPO,
however, do contemplate that ISPs should be protected from liability
when they provide facilities and services that are used by others to
infringe. The U.S. Congress, after much debate, is poised to pass
legislation (H.R. 2281) to implement a compromise regarding ISP
liability that was agreed to and is supported by the content and
service provider industries.
    The bill was passed by the House by a unanimous voice vote. A
virtually identical bill passed the Senate 99-0. This important
compromise will provide ISPs with much needed liability protection in
the United States. USTA believes it is critical that this legislation
be passed by Congress and signed by the President before the WIPO
treaties are ratified.
    However, even if the compromise legislation provides ISPs a measure
of legal certainty in this country, telephone companies and ISPs still
face grave uncertainty in the international legal arena. The delicate
balance reached in the U.S. and embodied in the WIPO implementing
legislation will be for naught if Telcos and ISPs can still be held
liable overseas for copyright infringements arising from material that
users send across their systems.
    It is crucial that this Committee and this Congress send a very
strong signal to our international partners that ISPs must be protected
from such potentially stifling lawsuits. The legislation that Congress
is expected to pass should serve as model legislation for other
countries of the world as they ratify the WIPO Treaties. We urge the
Committee to reference this model legislation as you ratify the
Treaties.
     Just as Jack Valenti and MPAA want to promote the export of U.S.
movies, our telephone companies want to promote the export of this U.S.
model legislation that ensures fair ground rules for ISPs.
Internet Promotes Free Markets
    We are just beginning to appreciate the multitude of benefits
provided by the Internet. Some have said that the Internet is to the
20th century what the Gutenberg press was to the 15th century: a
technological breakthrough that has unleashed the power of information.
The explosive growth in the Internet is dramatically reshaping
economies and political institutions worldwide.
    At the end of 1997, there were over 100 million Internet users
around the world. According to the director of the MIT Media Lab,
Nicholas Negroponte, the number of worldwide Internet users could soar
to perhaps 1 billion by the end of the decade. Internet traffic will
probably exceed voice telephony by the year 2000. With more than 175
countries connected to the Internet, the Internet has truly become a
global system.
    Companies large and small are taking advantage of affordable
electronic commerce to communicate with worldwide suppliers and
customers, reduce costs, conduct research, and streamline logistics.
According to a report by the Commerce Department, on-line transactions
between businesses have grown significantly and are expected to exceed
$300 billion by the year 2002.
    Today, consumers can order a wide range of goods and services
through their home PC, including books, airline tickets, music,
clothing, securities, and software programs. They can even buy a car
without leaving their homes. The Commerce Department predicts that
other services will be increasingly available through the Internet,
including banking, insurance, entertainment, health care, education,
and consulting.
The Internet Promotes Democracy and Ideas
    The Internet is not just about the exchange of goods and services,
but also ideas. Nowhere is this medium more valuable than in the
struggle to promote democracies and market economies in closed
societies. Ratifying the WIPO Treaties and passing the compromise
legislation will help to promote these vital interests by removing
impediments to the further deployment of Internet access. This new tool
is being used effectively by activists around the globe to expose
abuses, promote change, and build alliances. Its importance has been
compared by the United States Institute of Peace to a ``crowbar that
pries open the very closed, highly secretive and tightly controlled
nation by creating an information-rich highway to the world.''
    In Burma, where all forms of media are controlled by the military,
the opposition has effectively used the Internet to distribute
information inside and outside the country about the abuses of the
military government. Democracy and human rights activists have kept the
world informed of developments in Burma by posting up-to-the-minute
reports in English on the Internet or through e-mail.
    Chinese activists also are tapping into the power of the Internet
to reduce the dependency on government information and to build bridges
to the outside world. Since 1997, an underground group has secretly
published on the Internet a Chinese-language journal called the
``Tunnel'' with the declared intention to ``break through the present
lock on information and controls of expression.'' The democracy journal
is filled with stories about sensitive subjects such as Tiananmen
Square and the collapse of communism in Eastern Europe.
    There are also numerous examples of how the Internet can be used to
promote market-based values in China, the former Soviet Republics, and
many developing countries in the Middle East, and Latin America. The
U.S. Chamber of Commerce's Center for International Private Enterprise,
for instance, is disseminating public information through the Internet
about private property, free trade, and other market-based concepts.
    In light of its numerous advantages, it's not surprising that the
Internet is rapidly becoming the medium of choice for promoting
democracy and market economies around the world. If fax machines and
information can contribute to the collapse of the Iron Curtain and the
Berlin Wall, imagine what the Internet can do.
Summary of the WIPO Treaties
    From December 2-20, 1996, the World Intellectual Property
Organization convened the first Diplomatic Conference in 25 years to
consider several treaties to update copyright laws for the digital age.
Delegates from more than 125 countries attended, as did representatives
from some 90 nongovernmental organizations, including USTA. The
Diplomatic Conference debated and subsequently adopted two treaties (1)
the WIPO Copyright Treaty, which addressed certain copyright issues
pertaining to computer programs, databases and digital environment, and
(2) the ``WIPO Performances and Phonograms Treaty,'' which addresses
certain rights for the performers and producers of sound recordings.
The treaties create significant rights for copyright owners, performers
and record companies.
    The issue of ISP liability was the subject of much debate at the
Diplomatic Conference that adopted the two treaties. It is important to
note that the Conference did adopt language in an ``agreed statement''
indicating its support for the proposition that an ISP that merely
provides facilities for communications should not be deemed thereby to
be an infringer. The Conference decided that the specifics regarding
legal parameters for ISP liability was properly left for national laws,
rather than to the treaties.
    Just as it is important for copyright owners that their rights be
harmonized throughout the world, it is critical to Internet service
providers that the rules governing liability be consistent throughout
the world. The compromise reached by the interested parties in H.R.
2281 should serve as a model for these rules.
Threat of Lawsuits and The Need for Congressional Action
    A consensus has developed in the industry and the Congress that the
issue of ISP liability for copyright liability must be addressed. The
almost unanimous votes in both Houses of Congress are a clear
indication of this overwhelming consensus. This consensus results from
the potentially devastating liability that can be imposed under
copyright law. Liability for direct infringement has been interpreted
to be a strict liability doctrine that will attach to anyone who
copies, distributes or performs a copyrighted work, without regard to
their knowledge or intent. At least one court held a bulletin board
operator strictly liable simply on the basis of the actions of his
bulletin board system, which responded to commands from users.
    In addition, copyright law includes doctrines of contributory and
vicarious liability that have been construed by some courts to be very
broad. Clear limitations need to be placed on these doctrines in the
digital online environment when systems are used by third-party users.
    USTA supports taking action against the actual infringes through
the courts. But the suits that been filed and threatened by others
could create a chilling effect on the provision of Internet service
unless promptly addressed by Congress.
    Furthermore, before the parties worked out the proposed compromise,
copyright owners had at times threatened to make ISPs the Internet
copyright police. For example, in 1995, the Church of Scientology filed
two lawsuits against small to mid-sized ISPs because third-party
infringers had used their Internet access services and posted material
that allegedly violated a copyright.
    In 1996 the Software Publishers' Association (SPA) independently
filed a series of at least five lawsuits against ISPs regardless of
whether they had any knowledge of or control over an infringement. SPA
claimed that ISPs are liable as infringers of copyrighted works simply
by virtue of the fact that subscribers lease server space and Internet
services from an ISP, or provide a mere hyperlink to infringing
materials that exist at another location.
    The 1997 SPA Report on Global Piracy warns ``This case serves as a
warning to Internet users . . . and to the ISP condoning the illegal
activity.'' The June 10, 1997 edition of Variety reports on a series of
lawsuits filed by the Recording Industry Association of America.
Although the specific suits filed by RIAA do not name ISPs, RIAA Vice
President Frank Creighton left no doubt that suits against ISPs were
coming. ``The fight about third party liability will be resolved in
future litigation,'' he told Variety. Fortunately, with the passage of
H.R. 2281, we are hopeful that the days of litigation are over and the
days of cooperation are near.
International Examples
    There is still a concern with the legal uncertainty that we face in
many countries. Under current copyright law in many countries, ISPs
risk being held liable for damages for copyright infringement
perpetrated by individuals without the knowledge of the ISP. There have
been cases in several countries were ISPs have been sued for merely
providing access to a site that contains infringing material.
    Furthermore, this issue is being debated in various parts of the
world: the European Commission (EC) is in the process of preparing a
proposal to clarify various legal concepts in cyberspace, including the
liability issue. The ISP liability issue is under consideration in many
parliaments and legislatures around the world. Countries are looking to
this Congress for leadership.
    USTA members are committed to the Internet, but the threat of
copyright lawsuits is becoming an increasingly salient consideration in
offering Internet service whether in rural markets or international
markets.
The Blueprint for a Model Legal Structure
    Before discussing the specifics of the compromise legislation, I
would like to tell you why we believe Congress should pass legislation
regarding ISP liability. First, information travels through the local
exchange backbone and trunk lines as well as network components such as
routers, connectors and servers in digital packets of ones and zeros.
Hence, monitoring by the service provider will ultimately fail to
protect intellectual property. While this content is moving through the
network in computer code, there should be no liability.
    Furthermore, even if monitoring were feasible, an ISP has no way of
ascertaining whether a particular song or article or computer program
is an authorized version or a pirated, illegal version. The copyrighted
material could be a licensed use that resulted from a vast chain of
contracts that only months of research could uncover. For example, the
famous Beatles' song, ``Yellow Submarine'' provides a good example:
Paul McCartney, one would assume, owns the rights to this Beatles'
song, but he does not--Michael Jackson does.
    Second, when information becomes available to the human eye, such
as when it resides on a web site, a cooperative system of ``notice and
take down'' should be established. Under a cooperative system, the
content owner has the responsibility to identify infringements and the
service provider must act responsibly to act on that notification.
    It is critical to understand that only Congress can enact this sort
of solution. It is unrealistic to expect that the courts, acting on a
piecemeal case by case basis, could develop the ultimate solution.
Likewise, in other countries, the legislatures or parliaments should
address this issue of copyright liability for ISPs.
A Model Approach: The Pending ISP Legislation
    First, we congratulate and commend members of the Senate and House
for passing legislation to clarify the confusion created by the
inconsistent case law on service provider liability. We are very
appreciative of the efforts of Senators Hatch, Leahy and Kohl as well
as Congressmen Coble, Goodlatte, Hyde and Bliley. We are especially
grateful to Senator Ashcroft who introduced one of the early bills on
ISP liability protection. We need a legislative solution to this
problem and we need it in the Congress.
    After weeks of negotiations, the various stakeholders were able to
reach a compromise on legislation to address our concerns regarding ISP
liability. The agreement provides that copyright owners and ISPs should
share responsibility for protecting intellectual property on the
Internet. When copyright owners discover infringement on-line, they
should notify the ISP whose servers access the infringing material.
When ISP's acquire actual knowledge or detect a red flag that their
services are being misused for infringing purposes, they would be
obligated to take reasonable steps to halt further abuse.
    The U.S. compromise can be distilled to three key elements. It
provides:

  1. Clear, unconditional protection for conduit (carriage) activities.
  2. Protection from liability for caching, which is essential to the
        efficient functioning of the Internet.
  3. A ``notice and take down'' regime for material residing on the
        provider's system, coupled with a new, carefully negotiated
        actual knowledge and ``red-flag'' standard in the absence of
        notice.

    The legislation provides that in response to appropriate notice
from the copyright owner, ISPs would be obligated to prevent their
services from being used to access infringing material. If, however, an
ISP has neither received notice of infringement nor otherwise has
actual or ``red flag'' knowledge that it is occurring, then it would
not be held responsible for the acts of third parties. We believe this
proposal allocates responsibility for protecting intellectual property
fairly and efficiently.
Rational for this Model Legislation
    There are several fundamental reasons why a ``notice and take-
down'' structure is an appropriate legislative model to solve this
complex matter. First, the concept of holding ISPs liable for copyright
infringement when the ISP does not have actual knowledge would raise
grave privacy concerns. It is impossible for ISPs to monitor every
customer's transfer of electronic data. We, as a society, do not want
ISPs to initiate such a massive invasion of privacy.
    Second, if ISPs were required to employ an army of snoops to pick
through every user's e-mail and Usenet postings, the enormous cost
ultimately would be passed on to customers. The consequence would be to
convert a convenient and democratic medium into an expensive and elite
one.
    Finally and more importantly, even if ISPs could investigate every
corner of the expanding online universe, ISPs would have no way of
knowing whether the material they encounter is authorized by the
current copyright owner or not.
    We believe that the task of ferreting out copyright infringement on
the Internet should fall to the copyright owner. Today, copyright
owners have access to a large array of Internet search engines and
``spiders'' to sniff out material they know belongs to them. Once
copyright owners discover infringement, they can bring it to the
attention of the ISPs. It is at this point that the ISPs can act and
would be required to act by the compromise legislation.
    The ``notice and take-down'' regime that is proposed is one of
joint responsibility between copyright owners and ISPs. USTA strongly
supports the implementing legislation that spells out the obligations
of the ISPs and copyright owners.
Conclusion
    USTA strongly supports protection for copyright and other legal
interests on the Internet. USTA member telephone companies provide
Internet access services, but they are also owners of vast holdings of
intellectual property. Our members have powerful incentives to preserve
the value of their copyright portfolios through the protection of our
nation's intellectual property laws.
    The ``notice and take-down'' concept set forth in the compromise
legislation implements a commonsense approach. Content owners identify
the infringements and then contact the ISP that can assist them in
fighting piracy by taking the offending material down: This legislation
should serve as a model for countries around the world that must
resolve the complex issues surrounding the Internet and ISP liability.
In order to protect the valuable resource of the Internet, it is
important to secure similar legislative protection in other countries.
Those who are building the Net itself need fair and predictable ground
rules. I urge this Committee to use this opportunity to promote this
common-sense solution to our international partners.
    As the Supreme Court wrote recently, ``The Internet is a unique and
wholly new medium of worldwide human communication.'' Reno, et al. v.
ACLU, 117 5. Ct. 2329 (1997). The Internet has no owner. It knows no
national boundaries.
    We look forward to working with the Committee as you consider the
WIPO Treaties.

    Senator Hagel. Let me reintroduce Professor Jaszi, who is
an Associate Professor of Law at the Washington School of Law,
American University. Is that correct?
    Mr. Jaszi. A full professor, actually.
    Senator Hagel. All right. Fire away. It is nice to have
you.

STATEMENT OF PETER JASZI, PROFESSOR OF LAW, WASHINGTON COLLEGE
   OF LAW, THE AMERICAN UNIVERSITY, ON BEHALF OF THE DIGITAL
                        FUTURE COALITION

    Mr. Jaszi. As a professor of domestic and international
copyright law, Mr. Chairman, Senator Feinstein, Senator
Sarbanes, I am honored to appear before you today on behalf of
the Digital Future Coalition, which includes 43 national
organizations representing millions of educators, librarians,
high tech innovators, creators, and electronic information
consumers.
    Our members own and use copyrighted works, and they depend
on a legal regime which assures both strong proprietary rights
and reasonable opportunities for public access. We welcome this
chance to make three principal points about ratification and
implementation of the WIPO Copyright Treaty and the WIPO
Performances and Phonograms Treaty.
    First, as we have emphasized throughout the 105th Congress,
the DFC strongly supports ratification of the WIPO treaties in
connection with the enactment of balanced implementing
legislation of appropriate scope. Our members would welcome the
additional protection abroad which the treaties could bring.
But foreign protection should be secured at the expense of the
American public.
    Second, neither S-2037, the Senate-passed implementing
bill, or HR-2281 adopted in the House yet strikes the necessary
balance in domestic law. The Senate bill does not do enough to
preserve fair use, while the House bill includes a host of
controversial and extraneous provisions which would overturn
the effect of three recent Supreme Court decisions.
    Third, and finally, we therefore urge the committee to put
its own stamp on the implementation process by delaying action
on a resolution of ratification until Congress has passed
legislation which maintains copyrights historic balance between
owners' rights and users' privileges.
    Here, I would note two important statements by the
delegates to the 1997 WIPO Diplomatic Conference. In a gesture
without precedent in international law, the preambles to the
new treaties specifically acknowledge the need to maintain a
balance between the rights of authors, performers, and
producers and the larger public interest, particularly
education, research, and access to information.
    Moreover, at the urging of the United States delegation,
the texts of both treaties are qualified by an agreed statement
making it clear that nations may carry forward and
appropriately extend into the digital environment limitations
and exceptions in their national laws.
    These statements mean, for example, that the United States
may carry forward the centuries-old fair use doctrine, which we
take for granted in the analog world. Because of it you may
photocopy a newspaper article, quote from a book, or make
limited use of another's work without advanced permission.
    All Americans would benefit if implementing legislation
assured the continued vitality of fair use and of the other
limitations and exceptions that have helped to make our
national copyright system the most successful in the world.
    Unfortunately, S-2037 would effectively gut fair use by
giving copyright owners broad new authority to block what are
now lawful acts. Under Section 1201(a)(1) of that bill it would
be a criminal offense for a student to circumvent a
technological protection measure to include a map in a
multimedia school report.
    It could become illegal to use the next generation of VCRs
to record an over-the-air broadcast program, a privilege
specifically recognized by the Supreme Court in its Beta Max
decision. It would even be unlawful for your staff to destroy a
copy protected computer virus that had infected your office
information system.
    In addition, S-2037 would stifle the development of new
technology by potentially banning a host of useful consumer
products under the guise of regulating so-called black boxes.
Like everyone on the panel, our members are quite prepared to
outlaw black boxes. But we want to be certain that in doing so
Congress does not enact legislation that would outlaw perfectly
legitimate devices with substantial non-infringing uses.
    HR-2281 does the bare minimum necessary to maintain some
semblance of balance. It includes a no mandate provision making
it clear that makers of consumer electronics,
telecommunications, and computing products are not required to
design their devices to respond to any particular technological
protection measure.
    Moreover, the House bill permits encryption research and
provides strong protections for the privacy of information
consumers. And it establishes a procedure to ensure public
access to categories of copyrighted works if certain findings
are made by the Secretary of Commerce.
    In our view, still more should be done to achieve balance.
As demonstrated in an analysis which is attached to my written
statement, the Senate could preserve a strong fair use doctrine
and still meet our WIPO treaty obligations by dropping Section
1201(a)(1) entirely.
    If Section 1201(a)(1) remains, the exceptions to its
prohibitions on circumvention conduct must be broadened.
Discussions are underway, for example, to ensure that
legitimate companies continue to engage in security systems
testing.
    Although it moves toward balance in some respects, the
House bill unfortunately includes many controversial provisions
substantially unrelated to the treaties. Perhaps most
troubling, the bill would provide an extraordinary new form of
protection for collections of information, hampering the
development of electronic commerce and imposing new costs on
libraries, universities, and individual consumers. Its effect
could be to award some data base proprietors a perpetual
exclusive right in simple facts, subject to few if any
meaningful exceptions.
    No hearings have been held on this radical proposal in the
Senate, and yet the House apparently expects the Senate to
exceed to this extraordinary power grab benefiting a few
wealthy information owners.
    Attached to my written testimony is a copy of a memo from
the Office of Legal Counsel of the Department of Justice
strongly questioning the constitutionality of such data base
legislation. And with your permission, Mr. Chairman, I would
also like to include in the record a letter signed by 38
national organizations spelling out their concerns. And I would
emphasize that data base legislation is not called for by the
WIPO treaties.
    In fact, the 1996 Diplomatic Conference specifically
declined to act on proposals to create new international norms
for data protection.
    Your committee can play an important role by making clear
that implementing legislation should be limited to just that,
implementing the treaties, while leaving for another day a
resolution of controversial extraneous matters added by the
House without debate. In short, Mr. Chairman, while we support
ratification of the treaties, the DFC continues to have serious
reservations about the scope and balance of implementing
legislation.
    Thank you.
    Senator Hagel. Professor Jaszi, thank you.
    [The prepared statement of Mr. Jaszi follows:]

                   Prepared Statement of Peter Jaszi

    Mr. Chairman, I want to thank you and the members of the Committee
for the opportunity to testify on behalf of the Digital Future
Coalition, which includes 43 national organizations collectively
committed to the appropriate application of intellectual property laws
in the emerging networked digital information environment. Organized in
October 1995, the DFC includes members representing millions of
educators, librarians, high-technology innovators, creators, and
electronic information consumers. Significantly, DFC represents many
individuals and entities which both own and use copyrighted works, and
thus depend in their daily activities on the existence of a legal
regime which assures both strong proprietary rights for protected works
and reasonable opportunities for public access to those works. Over the
past three years, we have been involved at every stage of the so-called
``digital copyright'' debate, and today we welcome this chance to
present our views on the ratification of the two treaties--the WIPO
Copyright Treaty and the WIPO Performances and Phonograms Treaty--which
were concluded at the December 1996 Diplomatic Conference of the World
Intellectual Property Organization. As we repeatedly have stated, the
DFC strongly supports ratification of the WIPO treaties in connection
with the enactment of balanced domestic law provisions to implement
these new international norms.
Background to the WIPO Treaties
    In the Fall 1996, the DFC concluded that the draft treaties, (or
``Basic Proposals'') submitted by the Chairman of the WIPO Committee of
Experts, as a blueprint for the work of the Diplomatic Conference
represented a less-than-balanced approach to harmonizing owners' and
users' interests in the digital environment. In the months leading up
to the Diplomatic Conference, the DFC was active in advocating the
inclusion of provisions in the final treaties which would adequately
recognize the stakes of information consumers in the development of new
digital intellectual property norms, and would allow countries adhering
to the final treaties sufficient flexibility to implement those new
norms in ways consistent with their traditional domestic copyright
systems.
    Going into the final phase of the WIPO treaty process, it was our
belief that these objectives were of particular importance in
safeguarding the national interests of the United States. Most
countries of the world do not recognize limitations and exceptions to
copyright protection which even approximate in breadth those codified
in the Sec. 107 ``fair use'' provision of the 1976 Copyright Act, or in
various other sections of that act (including Secs. 110 and 117) which
provide for specific exemptions from liability. The United States is
not a leader in international information commerce despite the balanced
character of our traditional copyright law, but because of it. Indeed,
it is the compromise of interests struck in U.S. law, by means of the
cited provisions and others, that has enabled our country's artistic,
scientific, and educational achievements, and provided the basis for
the emergence of our internationally dominant copyright and high
technology industries. To maintain the United States' leadership
position in the global information economy, we must protect and
preserve the unique and valuable features of our highly successful
domestic copyright system, even as we adapt it to the challenges of new
technology.
    With this in mind, the DFC and its member organizations took an
active part in the final preparations for the Geneva Diplomatic
Conference. Individuals associated with the DFC participated in the
United States delegation to the Conference, and others were present in
Geneva as observers. Here at home, the DFC continued to make its views
about the issues at stake in the Conference known to the
Administration.
The WIPO Treaties
    The final product of the Diplomatic Conference held in December
1996 represented substantial improvements over the original drafts in
several respects. In a gesture without precedent in the history of
international intellectual property treaties, their preambles
specifically acknowledge ``the need to maintain a balance between the
rights of [authors, performers, and producers] and the larger public
interest, particularly education, research and access to information,
as reflected in the Berne Convention.''
    Moreover, at the specific urging of the U.S. delegation to the
Conference, the texts of both treaties are qualified by a so-called
``Agreed Statement'' (with special weight as an aid to interpretation
under the terms of the Vienna Convention on the Law of Treaties), to
the effect that:

        [C]ontracting Parties [may] carry forward and appropriately
        extend into the digital environment limitations and exceptions
        in their national laws which have been considered acceptable
        under the Berne Convention. Similarly, these provisions should
        be understood to permit Contracting Parties to devise new
        exceptions and limitations that are appropriate in the digital
        network environment.

    In contrast to the more limiting formulation of the proposed draft
treaties, the final provisions concerning ``Obligations Concerning
Technological Measures'' guarantee parties flexibility with respect to
the implementation of new ``anticircumvention'' rules, stating that:

        Contracting Parties shall provide adequate legal protection and
        effective legal remedies against the circumvention of effective
        technological measures that are used by [authors, producers or
        performers of phonograms] in connection with the exercise of
        their rights under [these Treaties or the Berne Convention] and
        that restrict acts, in respect of their works, which are not
        authorized by the [authors, producers or performers of
        phonograms] concerned or permitted by law.

    On the highly controversial issue of database protection, which had
been the subject of a third draft treaty proposed by the Chairman of
the WIPO Committees of Experts, the Diplomatic Conference concluded
that significant work remained to be done before this subject could be
considered ripe for any consideration within the WIPO framework.
    As already noted, as a matter of general principle the DFC strongly
supports ratification of the new WIPO treaties in their present form.
The many groups of copyright owners represented within the DFC would
welcome the additional protection abroad which the coming into force of
the treaties would afford to their valuable creative assets. At the
same time, however, all the members of the DFC are united in their
conviction that the benefits of such foreign protection for U.S.
copyright owners should not be secured at the cost of domestic U.S.
information consumers, as would be the case were the treaties to be
implemented through less-than-balanced legislation here at home. Thus,
we would respectfully urge the Committee to follow the practice of
reserving any final recommendation on the issue of ratification until
such time as implementing legislation is in place which adequately
addresses to concerns of all affected domestic groups, and which
maintains the historic balance between owners' rights and users'
privileges represented by U.S. copyright law.
Outstanding issues relating to implementation of the WIPO Treaties
    In a letter dated August 24, 1998, a copy of which is attached to
this testimony, the DFC informed the members of the Senate of the full
range of its current concerns with Senate and House bills (S. 2037 and
H.R. 2281, respectively) designed to implement the WIPO treaties.
Rather than reviewing those concerns exhaustively in this testimony, I
will highlight here some of the most urgent and important, putting
particular emphasis on the ways in which outstanding proposals for
implementation do (or do not) relate to the mandates of the treaties
themselves.
Provisions relating to ``black boxes''
    From its inception, the Digital Future Coalition has maintained
that new legislation designed to combat ``piracy'' in the digital
network environment must be crafted to give continuing effect to the
landmark Supreme Court decision in Universal v. Sony, 454 U.S. 417
(1981), which ruled that because consumer use of home video recording
equipment for ``time-shifting'' constituted a ``fair use,'' copyright
law could not be employed to restrict the manufacture, sale or
importation of consumer electronic devices which had this ``substantial
noninfringing use.'' Specifically, we have argued that to preserve the
availability of multi-purpose consumer electronic devices (such as
VCR's and PC's) it is essential that prohibitions on technology
contained in any new digital intellectual property legislation should
be limited to those devices which are specifically designed or marketed
to defeat owners' efforts at technology self-help. The overbreadth of
the technology regulations contained in ``digital copyright'' bills
introduced in the 104th Congress, prior to the conclusion WIPO
treaties, was a principle basis of DFC's opposition to those proposals.
    It is generally acknowledged that the WIPO Treaties' provisions on
``Obligations Concerning Technological Measures'' make it necessary for
contracting states to take steps under national law to discourage and
penalize trafficking in devices which are intended specifically to
avoid or override technological protection measures (such as encryption
and secure passwords) applied by owners of intellectual property to
safeguard material in digital form against unauthorized duplication and
distribution. It is also the opinion of many experts that enactment of
adequate and effective measures against special-purpose ``black boxes''
would, in itself, be sufficient to satisfy a contracting nation's
obligations in this regard. This position is set out more fully in a
recent letter from 19 law teachers to the Senate Judiciary Committee,
dated September 2, a copy of which is attached to this testimony.
    Although ground for controversy remains as to whether any new
legislation is required to bring United States law into compliance with
the mandates of the treaties in this respect, the DFC does not oppose
additional legislation tailored to deal with the problem of ``black
box'' technology (and equivalent services). We continue to be
concerned, however, that in the name of regulating ``black boxes,''
legislation may be enacted which limits the availability of useful
multi-purpose consumer electronic devices. In this regard, neither the
House nor the Senate version of the Digital Millennium Copyright Act,
as the bills to implement the WIPO treaties are known, is ideal.
Neither, for example, contains a clear definition of what constitutes a
qualifying ``technological protection measure,'' and neither deals
adequately with the authority or manufactures, retailers, and ordinary
consumers to make product adjustments to address ``playability''
problems. Having said that, we were heartened that the Senate included
in its bill a ``no mandate'' provision (however circular in its
drafting) that seemed to confirm that nothing in S. 2037 could be
interpreted as a mandate on product manufacturers to design
telecommunications, consumer electronics, and computing products so as
to affirmatively respond to or accommodate technological protection
measures that copyright owners might use to deny access to or the
copying of their works. The House Commerce Committee made an important
contribution by eliminating the potential for misinterpretation of the
``no mandate'' provision of the final House bill, H.R. 2281. This
provision, which we believe should be preserved in any final
implementing legislation, has the effect of assuring that, in practice,
the emphasis in the enforcement of the device-oriented anti-
circumvention provisions will be on true ``black boxes''--just as the
WIPO treaties require.
Provisions relating to ``fair use'' and other consumer use privileges
    Both the Senate and House bills contain provisions which would
impose civil and criminal liability on individual information consumers
who engage in unauthorized ``circumvention'' of technological
protection measures applied by proprietors to protected material in
digital formats. As the September 2 law professors' letter demonstrates
at length, such provisions are not required to implement the WIPO
treaties, and the DFC believes that, as a matter of information policy,
the inclusion of such provisions in any legislation at this time would
be unwise.
    The reasoning behind this conclusion is simple: Because
prohibitions against ``circumvention'' (although codified in Title 17
of the U.S. Code) would not be part of the Copyright Act, they would
not be subject to the various limitations and exceptions to copyright
which the Act incorporates. Thus, for example, a software vendor could
use technological protection measures to prevent purchasers from making
``backup copies'' of its products, and any consumer who nonetheless did
so could be successfully sued or prosecuted--even though 17 U.S.C. Sec.
117 specifically authorizes the making of such archival copies as a
matter of copyright law itself. In the same vein, an electronic
information vendor who wished to restrict the ability of readers,
viewers and listeners to comment negatively on its products could use
technological protection measures backed up with the threat of legal
sanctions against circumvention to frustrate such criticism, even
though the copyright doctrine of ``fair use'' authorizes the use of
quotations from protected works for this purpose. Likewise, providers
could use technological safeguards to compel consumers--whether home
users of the Internet or library patrons--to pay again and again in
order to receive electronic access to the same items of electronic
information.
    The House and Senate bills incorporate some potentially
significant, although narrowly drawn, exceptions to their broadly
worded prohibitions against consumer circumvention. The Senate bill
permits circumvention for law enforcement uses and certain forms of
reverse engineering. The House bill also permits circumvention for
encryption research and for the protection of personal privacy.
Crucially, however, neither bill includes any provisions that would
explicitly reach any of the potential abuses cited in the previous
paragraph, or (to cite another example) that would clearly exempt from
liability the activities of firms and individuals engaged in crucial
and otherwise lawful computer security testing.
    In one respect, however, the two bills differ markedly. While the
``anticircumvention'' provisions of S. 2037 are qualified only by a
handful of specific exemptions, H.R. 2281 adopts an alternative to the
Senate version of this so called Sec. 1201 (a)(1) that would authorize
the Secretary of Commerce to selectively waive the prohibition against
the act of circumvention to prevent a diminution in the availability to
individual users of a particular category of copyrighted materials.
Under the compromise embodied in the House version of the bill, the
Secretary of Commerce would have authority to address the concerns of
libraries, educational institutions, and others potentially threatened
with a denial of access to categories of works in circumstances that
otherwise would be lawful today.
    The DFC cannot support WIPO implementing legislation that does not
contain at least this level of protection for the public interest in
access to protected materials. Nor can we support treaty ratification
unless implementing legislation incorporates at least these minimum
safeguards against the establishment a ubiquitous ``pay per use''
information regime in the digital environment.
Extraneous provisions in proposed implementing legislation
    To summarize the foregoing, the DFC believes that H.R. 2281,
incorporating as it does the results of further efforts to harmonize
conflicting interests which were undertaken after the passage of S.
2037 in May, offers a preferable blueprint for legislation to fulfill
the commitments which the United States would undertake upon
ratification of the new WIPO treaties. As our letter of August 24
details, however, we have profound concerns about other provisions of
H.R. 2281, many of them inserted at literally the last minute. None of
these provisions has been the subject of hearings in the Senate, and
many were never debated or discussed in the House itself. Moreover,
some of these provisions are extremely far-reaching; among other
things, they would effectively overturn three recent opinions of the
United States Supreme Court: Feist Publications. Inc. v. Rural
Telephone Service Corp., 499 U.S. 340 (1991); Bonito Boats v. Thunder
Craft Boats. Inc., 489 U.S. 141 (1989); and Quality King Distributors.
Inc. v. L'anza Research International, Inc., 118 S.Ct. 1125 (1998).
Most crucially, all of them are wholly unrelated to the mandates of the
new WIPO treaties. Instead, they represent an effort to capture the
WIPO implementation process for the advancement of various specialized
private agendas in the field of intellectual property law. In the
interests of space, I will focus here on just two of these sets of
provisions--Sec. 414 and Title V of H.R. 2281.
Section 414: A mischievous revision of the ``fair use'' provision
    Sec. 414 would strip the language referring to use ``by
reproduction in copies or phonorecords or by another other means'' out
of Sec. 107 of the Copyright Act of 1976. But the effect of this
ostensibly clarifying change could be to gut the protections for
educators and consumers that were built into the statutory formulation
of the ``fair use'' doctrine back in 1976, following years of
deliberation and hard bargaining among the affected parties. The House
Report (No. 94-1465) accompanying the 1976 Copyright Act states that
this reference ``is mainly intended to make clear that the doctrine has
as much application to photocopying or taping as to older forms of use.
. . . In deleting the referenced phrase, H.R. 2281 would confuse rather
than clarify the law relating to the scope of this important doctrine.
As a result, copyright owners would be given new legal tools to use
against schools engaging in educational photocopying and against both
individuals who tape broadcast programs for personal use and companies
which supply hardware for non-commercial home taping.
    This potentially drastic revision to the ``fair use'' doctrine has
not previously been considered by the Senate. Nor, to our knowledge,
has it been the subject of any hearings in the House of
Representatives. It appeared for the first time as part of the final
version of H.R. 2281 submitted to the House for action on the
suspension calendar, and even on that occasion no reference was made to
it in any of the floor statements of the legislation's sponsors.
Title V: Database protection
    As already noted, the December 1996 WIPO Diplomatic Conference
pointedly declined to act on a third proposed international agreement,
concerning protection for databases and other compilations of
information. Thus, I would emphasize again, implementation of the new
WIPO treaties does not require any action on this difficult issue.
    In this country, proposals for database protection have proved
highly controversial over the past two years, in part because enacting
such legislation would ignore the wisdom of the Supreme Court's 1991
Feist decision, which unanimously concluded that there were compelling
constitutional and policy reasons not to extend copyright protection to
facts as such. Some large international database conglomerates, such as
Canadian-based Thompson Corp. and the Anglo Dutch Reed-Elsivier, Inc.,
favor strong database protection, as do certain smaller firms based in
the United States. The U.S. science, research, library and educational
communities are united in opposition to legislation which would create
a ``quasi-property'' right in compiled information, and they are joined
by many domestic firms which produce ``value-added'' data products for
the national and international markets, such as Dun & Bradstreet,
Bloomberg, and Charles Schwab & Co.
    The DFC does not categorically oppose database protection. Its
members recognize that predatory commercial competition among database
proprietors may in fact be a problem of some significance. In that
case, however, a true federal misappropriation legislation of limited
scope would presumably be a sufficient cure. However, Title V of H.R.
2281, which apparently sets forth the views of the House Judiciary
Committee on how best to provide legal protection against
misappropriation of collections of information such as databases, is
too much, too soon. In the misleading guise of a ``misappropriation''
provision, Title V would amount, in practice, to a new form of
intellectual property protection applicable to the previously
unprotected items of information which make up the contents of the
``collections of information'' to which it would apply. Though
nominally limited to 15 years in duration, the new rights which Title V
would create could be effectively perpetual. Moreover, as drafted,
Title V includes no effective exceptions for teaching, research or
study uses, nor does it recognize the public interest in reasonable
access to sole source databases or private databases compiled using
government information.
    We note that, to date, the Senate has neither debated nor held
hearings on the necessity and proper scope of database protection.
Under the circumstances, we believe that the premature enactment of
Title V of H.R. 2281 as part of any final WIPO treaty implementation
legislation would represent a miscarriage of the legislative process.
Nor is there any clear urgent reason to act now in this difficult and
conflicted area. Although proponents of database protection cite the
need to harmonize U.S. law with new European legislation on the
subject, in order to obtain reciprocal protection for U.S. data
products in countries of the European Community, this argument ignores
at least three important factors: First, that the process of
implementing the 1996 EC Directive on Databases is still incomplete in
Europe; second, that there is no guarantee that enactment of the Title
V provisions by the United States would be sufficient to persuade
European authorities; and third, that their current refusal to protect
U.S. data products on the basis of ``national treatment'' may well
constitute a violation of international law. U.S.-European relations
with regard to databases present an international political issue,
rather than a legal one. That issue is likely to be resolved only by
high-level political negotiations, and it should not be the occasion
for the premature enactment of domestic legislation which may severely
disadvantage many domestic information consumers and producers.
    The DFC and other critics of H.R. 2652, the House bill on which
Title V is based, have expressed strong reservations about the
measure's overbreadth and its potential deleterious effects on science,
education, and information commerce. The Administration also has
expressed serious concerns about the breadth and potential impact of
the bill. In a recent letter, the General Counsel of the Department of
Commerce said in part:

        Any database misappropriation regime should provide exceptions
        analogous to ``fair use'' principles of copyright law; in
        particular, any effects on non-commercial research should be de
        minimis.
                                 * * *
        The Department of Justice has serious constitutional concerns
        that the First Amendment restricts Congress's ability to enact
        legislation such as H.R. 2652, and that the Intellectual
        Property Clause also may impose some constraints on legislation
        of this sort. We note that those constitutional concerns are
        closely related, in many instances, to some of the points
        described above, particularly fair use, the effects on
        potential markets and transformative uses of data.

    These concerns are reflected in a July 28, 1998, memorandum
prepared by the Department of Justice's Office of Legal Counsel, a copy
of that memorandum is attached to this testimony, follows other critics
of H.R. 2652 in questioning whether the bill may not create a
prohibited new form of intellectual property protection. The Congress
should proceed with special caution in an area so fraught with
constitutional perils.
Conclusion
    In conclusion, I would urge the members of the Committee to assure
that the new WIPO treaties are implemented in a manner which accurately
and completely reflects the new international obligations which the
United States would undertake upon their ratification. In particular, I
would urge you to reject the extraneous provisions of H.R. 2281, while
embracing its approach to core treaty implementation issues. The great
accomplishment of the 1996 WIPO Diplomatic Conference, attributable in
no small part to the work of the United States delegation, was the
articulation of a balanced framework for the introduction of greater
intellectual property discipline in the networked digital environment
worldwide. In our efforts at implementation, we should act in a manner
true to the spirit of those treaties. This is so not as a matter of
principle, but because the collective interests of all the participants
in our prodigiously successful national information economy individual
creators, technology innovators, teachers, students, and consumers, as
well as companies with investments in information production and
distribution will be best served thereby.
    Thank you for your attention.

    Senator Hagel. Mr. Byrne, welcome. Mr. Christopher Byrne,
Director of Intellectual Property at Silicon Graphics. Please
proceed.

   STATEMENT OF CHRISTOPHER BYRNE, DIRECTOR OF INTELLECTUAL
 PROPERTY, SILICON GRAPHICS, INC. ON BEHALF OF THE INFORMATION
                  TECHNOLOGY INDUSTRY COUNCIL

    Mr. Byrne. Thank you. Good morning. It is a privilege to be
here today.
    I am Christopher Byrne, Director of Intellectual Property
for Silicon Graphics. As a lawyer, an electrical engineer, and
a registered patent attorney, it is my job to make sure that
Silicon Graphic's intellectual property is properly protected.
I also serve as Chair of the Intellectual Property Committee
for the Information Technology Industry Council.
    And I am here today on behalf of ITI, which includes the
nation's leading information technology industry companies,
everybody from Apple to Xerox and all of the letters in
between. In the most recent fiscal years the revenues of our
member companies totaled practically $500 billion. We employ
over 1 million United States employees in the highest paying
jobs. And we devote a substantial portion of our revenues to
R&D.
    I want to emphasize two points today. First of all is ITI's
belief in the importance of the WIPO treaty, but also the
importance of a balanced implementation in the United States
based on wide-angle view of intellectual property.
    The importance of the WIPO treaty is that it is a global
acknowledgment of the value of intellectual property, and in
particular that copyright law should apply in the networked
digital regime. The United States should truly lead the world
in this effort. However, our leadership should be through a
balanced wide-angle understanding of the nature and the value
of innovation and creativity in our economy.
    In the past, our economy was grounded in the value of
physical assets: land, natural resources, manufacturing plant
and equipment.
    Today, and even more so tomorrow, the assets of highest
economic value are those human and intellectual assets: ideas,
knowledge, information, creativity, and the ability to
innovate. In a phrase, intellectual capital. Hence, the ability
to exercise creativity and to innovate is critical. Innovation
is how ITI member companies breathe. It is essential to our
health and growth, and ultimately to the health and growth of
our economy.
    And ITI members are indeed innovative. Our innovations have
included the solid state transistor, the integrated circuit,
the microprocessor, the personal computer, the engineering
workstation, the super computer and digital animation, wired
and wireless telecommunications technology, consumer
electronics, and all of the software necessary to run and
network these devices. Our commitment to innovation is measured
by our yearly private R&D investments, which average, again,
approximately 10 percent of our revenues, or nearly $50 billion
a year.
    Finally, the benefits to our economy of our R&D investments
are multiplicative, because these innovations result in
products and technologies which improve the efficiency and the
productivity of working Americans.
    Indeed, our economy is in large measure driven by ITI
member companies' ability to continue to innovate and deliver
higher performance technological goods and services at lower
prices. But today the price and the pace of R&D and innovation
has never been higher.
    For this reason, we are ever mindful of obstacles to our
ability to innovate. Our need to innovate motivated the
modifications which we advocated in the implementation of the
WIPO treaty bills.
    At this point we believe the approach is balanced such that
it will protect intellectual property, thwart digital piracy,
and preserve and promote our ability to innovate. But we really
want to emphasize some critical points. First of all, we must
at all costs maintain the so-called no mandate provision.
    It must be clear that developers and manufacturers of
legitimate technology should not be bound by law to respond to
each and every specific technological protection measure which
may be created to protect copyrighted material. We urge
adoption of the House version of the no mandate provision.
    Second, we very much urge a clearer definition of an
effective technological protection measure. If certain devices
are to be outlawed because of their ability to circumvent an
effective technological protection measure, then we need clear,
workable definitions of such measures. Legal analysis and
statutory construction should not have to be a research and
development skill. Clearer definition here is a must. Hence, we
encourage inclusion of language defining an effective
technological protection measure and drawing distinctions
between active and passive measures.
    Finally, we urge you to remember that the interests of all
of the players in this debate are synergistic and symbiotic,
and ultimately a balanced approach is most sound.
    From our perspective it is historically compelling that the
birthplace of Silicon Valley, a true center of technological
innovation, is the garage in Palo Alto, California where Dave
Packard and Bill Hewlett build their very first product, an
audio-oscillator which they sold to Walt Disney for the making
of the movie Fantasia.
    Our interests were symbiotic and synergistic then, and they
are even more so today. We urge you to strike the balance which
will preserve and promote this synergy.
    Thank you.
    Senator Hagel. Mr. Byrne, thank you.
    [The prepared statement of Mr. Byrne follows:]

                   Prepared Statement of Chris Byrne

I. Introduction
    My name is Chris Byrne. I am appearing today on behalf of the
Information Technology Industry Council (``ITI''), for which I serve as
chair of the Intellectual Property Committee. I am also the Director of
Intellectual Property for Silicon Graphics, Inc., the world leader in
high performance and visual computing, based in the heart of Silicon
Valley. As an electrical engineer and registered patent attorney, I am
responsible for making sure Silicon Graphics' valuable intellectual
property is adequately developed and well protected.
    ITI applauds your efforts, Mr. Chairman, in bringing to bear the
collective expertise of this Committee on the question of whether to
ratify the WIPO Copyright Treaty and the WIPO Performances and
Phonograms Treaty. Ratification of these Treaties, as well as balanced
implementation of their obligations in the U.S. and other countries,
are crucial steps to ensuring proper protection for intellectual
property in the digital age. ITI wholeheartedly supports the Treaties'
ratification and implementation. As producers of our own intellectual
property, ITI's members believe that strong intellectual property
protection is an indispensable element of the expansion of electronic
commerce.
    Thus far, the House and the Senate have each passed legislation to
implement the WIPO treaties. While the two versions differ slightly and
must be reconciled before enactment, leaders in both chambers have
worked hard to write balanced and thoughtful implementing bills. This
is especially important because the United States is poised to become
one of the first countries to ratify the new treaties and governments
around the world will be watching closely to see how our government
implements its obligations under the Treaties.
    I will make several recommendations today on how to complete the
important work of implementing these treaties. Most importantly,
though, I will emphasize the importance of ratifying the treaties and
enacting the implementing legislation as one of the most important
tasks of the 105th Congress.
II. Contributions of the Information Technology Industry
    ITI represents this nation's leading providers of information
technology (``IT'') products and services. In fact, the United States
IT industry is the key to this nation's technological leadership and a
primary engine for national economic growth. In 1997, ITI's members had
worldwide revenues of over $420 billion and employed more than 1.2
million people in the U.S. Revenues for the broader U.S. IT industry
exceeded $804 billion, which amounted to 80 percent of the total
worldwide IT market. ITI member companies are responsible for more than
16% of all U.S. industrially-funded research and development and over
50% of all IT research and engineering.
    The IT industry is responsible for some of our economy's most
valuable inventions, which have improved productivity, efficiency and
quality of life, such as the solid state transistor, the integrated
circuit, the personal computer, computer animation, the microprocessor,
the cellular phone, the compact disc and the digital versatile disc
(DVD). Through our investments in research and innovation, we drive the
development of technologies that make the Internet possible and improve
the quality of life at all levels.
III. The Significance of the WIPO Copyright Treaties
    The WIPO Copyright Treaties underscore the importance and value of
intellectual property in the new global economy. The fact that more
than 70 countries signed the Treaties in December 1996 is extremely
significant as a worldwide recognition of the economic value of
creativity, innovation and intellectual capital as the essential
foundations of the digital economy. By taking a leadership role in
ratifying the Treaties and advocating their adoption by other
countries, the United States will help the digital revolution reach its
full potential.
    ITI's primary interest in the Treaties themselves and the
implementing legislation is in promoting the right balance--inherent in
all intellectual property law--that will provide the greatest incentive
for innovation. It is historically compelling that the birth place of
Silicon Valley in Palo Alto, California is the garage where Dave
Packard and Bill Hewlett made their first product in 1938: an audio
oscillator which they sold to Walt Disney to be used in making the
animated movie Fantasia. This is one of the first of many examples of
the long symbiotic relationship between the content industries that
produce movies, sound recordings, software, etc. and the information
technology industry that builds products to create, deliver and extend
the capabilities of such content.
    A truly wide-angled perspective on the nature of creativity and
innovation will recognize the need to preserve the relationship and
balance between these two industries. One of the major purposes of the
Treaties is to facilitate the use of technological solutions to address
digital piracy on the Internet and in other fora.
    Such technological solutions will inevitably involve the
cooperation of the technology providers themselves--the IT industry. In
pursuing this new approach, there is a delicate balance to be
maintained because it is actually possible, in the worst of
circumstances, to make innovation in one sector difficult through our
efforts to protect intellectual property in another sector. In other
words, our good faith efforts to protect movies, recordings and similar
copyrighted material must not have the unintended effect of actually
restricting innovation in the IT industry.
    The U.S. Constitution, in Article 1, Section 8, gives Congress the
power to create intellectual property in the following way:

        To promote the progress of science and useful arts, by securing
        for limited times to authors and inventors the exclusive right
        to their respective writings and discoveries;

    Note that the goal of the Framers was to promote progress. As
technology advances and the assumptions of previous laws must be
reexamined and adjusted to the exigencies of the digital age, it is not
always immediately clear which policies will best promote that
progress. Striking the right balance is particularly important to ITI
and its members because most of our member companies create both
``content'' in the form of software and other works of authorship as
well as the ``hardware'' to deliver that content. In wrestling with
these complex issues, ITI has developed the following principles that
we believe should govern any legislation implementing the WIPO
Copyright Treaties:

  1. Intellectual property should be strongly protected domestically
        and internationally.
  2. Whenever possible, rely on strong enforcement of existing
        copyright laws.
  3. Regulate behavior, not technology. Legislation should focus on the
        intent to infringe, not on the provision of technology that
        could be used to infringe.
  4. Do not harm the IT innovation engine, which is a key building
        block for economic growth and provides the tools and
        infrastructure that makes the GII possible.
  5. Promote, rather than stifle, innovation.
  6. Maintain the proper balance, inherent in the Constitution, between
        the protection of intellectual property and the promotion of
        innovation.
  7. View technology as an opportunity, not a threat. Technology not
        only provides mechanisms for distributing content and
        generating revenues, it enables creative and effective
        solutions to protect intellectual property.
  8. Remember, IT companies are content providers as well as technology
        providers. There are many synergies to be gained from working
        with content providers to develop mutually beneficial
        solutions. In fact, there are so many synergies that some
        companies have both content divisions and IT divisions, a
        convergence that is likely to grow.

IV. WIPO Implementation in the United States
    For the IT industry, the most important choice the U.S. Congress
will make with regard to these Treaties is how to implement Article 11
of the WIPO Copyright Treaty, which states:

        Contracting Parties shall provide adequate legal protection and
        effective legal remedies against the circumvention of effective
        technological measures that are used by authors in connection
        with the exercise of their rights under this Treaty of the
        Berne Convention and that restrict acts, in respect of their
        works, which are not authorized by the authors concerned or
        permitted by law.

    Happily, the vast majority of work towards a balanced
implementation of Article 11 has already taken place. The House and
Senate have already passed implementing bills that need only be
reconciled and resubmitted before sending the bill to the President for
his approval and both recognize the importance of a balanced
implementation of Article 11.
    As ITI's principles indicate, our member companies were originally
opposed to an implementation that restricted, not only the act of
circumvention, but also products, devices and technologies that could
be used to circumvent the ``effective technological measures'' referred
to in Article 11. We believed that designating certain technologies as
``good'' or ``bad'' was inappropriate because it could stifle
innovation and unfairly target multi-use computers and other legitimate
products that were never designed to aid infringement. Additionally,
such an approach would resonate around the world as other governments
looked to the U.S. for guidance in implementing Article 11.
    As these bills have moved through Congress, however, this
association agreed to significant compromises to accommodate the
concerns of the copyright industries. Our current position is not to
oppose the technology-based implementation of Article 11, but to
identify the essential elements to a balanced implementation if the
legislation must focus on technology. Specifically, we believe the anti
circumvention provisions of the Digital Millennium Copyright Act must
contain the following elements:
1. The ``no mandate'' provision
    The ``no mandate'' has already been included in H.R. 2281 and S.
2037 to modify the ``anti-circumvention'' provisions and make clear
that manufacturers of legitimate information technology and consumer
electronics devices will not be bound by law to respond to each and
every specific technological protection measure created to protect
copyrighted materials.
    This provision is significant because the managers of ITI's member
companies are loathe to tell their engineers and scientists that,
rather than seeking to build the fastest, most powerful and consumer-
responsive products possible, they must instead design the next
generation of products with lawyers at their side, carefully responding
to burdensome technological measures from a myriad of content industry
niches. Such an environment would draw energy away from true innovation
and create the continual possibility of liability for failure to
respond to unknown technological protection measures.
    ITI specifically urges the conference committee on the implementing
legislation to adopt the House version of the ``no mandate'' provision,
which we believe states the Congressional intention clearly without
prejudicing the interests of movie studios, recording companies or
other copyright industries.
2. Definition of ``effective technological protection measures''
    If certain devices are to be outlawed because of their capability
to circumvent ``effective'' technological protection measures, it is
only fair to define ``effective'' measures by specifying that they must
be strong, ``active'' measures, such as encryption or scrambling, which
obscure the content itself. If ``passive'' technological protection
measures, such as ``don't copy'' messages, were covered, IT products
would then have to look for these messages, in all their various
permutations, in every file or program. The IT industry has determined
that it is extremely difficult from an engineering and technology
standpoint to implement these types of ``passive response'' schemes in
personal computers without significant performance degradation. These
systems are also simple for users to bypass.
    Implementing legislation that did not draw a clear distinction
between ``effective'' technological protection measures and all others
would leave us with a Hobbesian choice of producing slow, ``legal''
computers or fast, ``illegal'' computers. For this reason, ITI urges
the conference committee to include language in its report that
explains the term ``effective technological protection measures'' and
draws the distinction between ``active'' and ``passive'' measures.
3. Computer Security
    There is some danger that, as the implementing legislation is
currently drafted, traditional computer security measures, such as
``firewalls'' or password protection, could be construed to be
technological protection measures under the bill's anti-circumvention
provisions. If this happened, the potential liability could chill
legitimate computer security testing and the security of all computer
systems would ultimately suffer. For this reason, ITI supports a
clarification in the conference committee report that says the anti-
circumvention provisions of the Treaties and implementing legislation
do not apply to traditional computer security measures.
4. Technological protection measure terminology
    The House and Senate versions currently differ in the term they use
to refer to technological means used by copyright owners to protect
their material. The Senate version refers to ``technological protection
measures,'' while the House version refers to ``technological
measures.'' Between these two, ITI believes the Senate term provides
more clarification and guidance to a court that must apply the
legislation to a specific set of facts. In reconciling the House and
Senate versions, we would urge Congress to adopt the Senate version.
V. Conclusion
    ITI strongly supports ratification of the WIPO Copyright Treaty and
the WIPO Performances and Phonograms Treaty as well as swift enactment
of the Digital Millennium Copyright Act to implement this country's
obligations under the treaties. We urge the Foreign Relations Committee
to recommend prompt ratification by the full Senate. We also urge the
leaders of both chambers and the members of the conference committee,
should one be appointed, to quickly adopt a balanced implementing bill.
By updating intellectual property law around the world for the digital
revolution, the WIPO Copyright Treaties will lay a strong foundation
for electronic commerce and ultimately improve the economies of this
nation and the world. Thank you for considering our views on this
important issue.

    Senator Hagel. Let me now introduce the senior Senator from
Maryland, our colleague Senator Sarbanes. Welcome.
    Senator Sarbanes. Well, thank you very much, Mr. Chairman.
Unfortunately, I am confronted with the usual conflicts and I
am not going to be able to stay.
    But, first of all, I want to commend you for holding this
hearing. I think this is a very important issue. And I want to
thank the panel for their testimony. I will just make a couple
of observations.
    First of all, this effort to strike a proper balance
between the rights of the creative artists, the authors, and
the performers, without whom there would be no products--I
mean, they are, as it were, the originators of it all. And,
obviously, their efforts need to be protected and rewarded.
    And at the same time to make it possible for libraries and
schools and other similar institutions to make appropriate use
of this without being, in effect, hamstrung or undergoing an
impossible financial burden. It is always a difficult question
on these issues.
    Obviously, there are some important matters to work through
here. I am a little puzzled that since everyone supports the
treaties--as I understand it, both the holders and the users of
copyrights are in support of the treaties. So the treaties have
obviously struck what people are prepared to accept as an
appropriate balance, weighing all of these interests.
    I have a little difficulty in understanding then why were
are not able to develop implementing legislation for the
treaties on which everyone agrees that are within the
parameters of the treaties rather than apparently going outside
those parameters.
    If there was not agreement on the treaties, it would be a
more complicated problem. But since apparently there is
agreement on the treaties--everyone says Well, the treaties are
OK. We ought to approve and ratify the treaties. So, obviously,
that negotiating process arrived at a package that people
perceive as acceptable.
    Now, just as a matter of deduction, so to speak, if we keep
the implementing legislation within the parameters of the
treaties, we ought to be able to have implementing legislation
which everyone says, Well, yes, that implements the treaties
and, therefore, since we are for the treaties, we are for the
implementing legislation.
    Now, apparently we do not find ourselves in that situation.
It seems to me that is the challenge that we have to address.
And I gather--I have not had a chance to look carefully at the
House revisions, but I gather some of them wander--I mean, are
not even essentially on the same playing field or, if so, only
remotely related.
    So I think this is an important hearing. And I do not know
what the time constraints are on us on whether we are going to
be able to work through it. But I think if we come at it that
way, we might be able to reach a solution that is generally
acceptable.
    Thank you, Mr. Chairman.
    Senator Hagel. Senator Sarbanes, thank you.
    Why do we not do this, since I think you have touched on
some of the key issues here, I might, Senator Feinstein, if it
is all right, just roll on down to you. Because you were
involved, I suspect, in some of these issues on the Judiciary
Committee and might well wrap some of this together.
    Because I think you are right, Paul, and I said before you
go there that the Chairman, Chairman Helms, would like to move
on this, but he does not want to get this out ahead of the
implementing legislation. So without implementing legislation I
do not think we will be able to move on this. That is what I
think the Chairman's baseline is here.
    Thank you. Senator.
    Senator Feinstein. Thank you very much, Mr. Chairman.
    As I indicated in my opening comments, with respect to the
implementing legislation, I had thought some of these problems
had been worked out. As the Professor testified, I gather the
problems center around the fair use and the data base
protection acts inclusion in the implementing legislation.
    I just received a copy of a letter sent to Chairman Hatch,
with a copy to ranking member Leahy, dated today, which
contains the signatures of 38 corporations and organizations
which are the consumers and producers of data bases.
    And, essentially, what they say is--and the problem is with
the implementing legislation. I would be hopeful that the
treaty could go ahead and that we could solve some of these
remaining problems.
    They point out that the concern is the inclusion of the
data base protection legislation as Title Five of the Digital
Millennium Copyright Act. And they also say that--I had thought
that there had been some consensus reached in the discussions
which were really lead by Senator Hatchs staff and took some 35
hours.
    They say there was no consensus and that they are
essentially far apart. Some of the parties are present in the
audience that I had convened in Los Angeles between the
American Library Association and the universities and the phone
companies. But, essentially, what they are urging Chairman
Hatch to do is eliminate any new form of data base protection
and defer Judiciary Committee consideration of S-2291 or data
base protection until the 106th Congress, to request a GAO
assessment of the economic impact of 2291, and to schedule at
least one Judiciary Committee hearing on this issue prior to
marking up any data base protection legislation until next
year.
    Let me just begin by asking the Professor, and perhaps Mr.
Byrne, do you see, if that were to be sort of the modus
operandi, any objection to proceeding with ratification of the
treaty right now in this session?
    Mr. Jaszi. With respect to data base, I think that
deferring consideration of that very difficult and highly
contested issue to the next Congress when it could be given a
full hearing would be an optimal solution.
    As I testified earlier, the Digital Future Coalition has
other concerns with the implementing legislation. There are
additional extraneous provisions in the House legislation
beyond the data base provisions, which we describe at somewhat
greater length in a letter that was sent a few weeks ago to all
members of the Senate and a copy of which is attached to my
statement.
    But, as you yourself pointed out, we also have deep
concerns about the failure of the Senate version of the
implementing legislation to deal adequately with the
preservation of balance and the maintenance of a strong and
vital fair use doctrine.
    We believe that modifications need to be made in Section
1201(a)(1), which deals with individual circumvention conduct,
and that, in addition, the approach of the House-passed HR-2281
to the regulation of devices capable of being employed for
circumvention purposes represents a desirable approach, in the
regard especially that Chris pointed out, that is contains an
absolutely unambiguous version of the so-called no mandate
provision.
    Senator Feinstein. Mr. Byrne, do you want to add to that,
or do you agree?
    Mr. Byrne. Well----
    Senator Feinstein. And do you think we could ratify this
treaty and then deal with the implementing legislation
separately?
    Mr. Byrne. I can give you the ITI position on that, and
that is--I would like to qualify it a little bit. And I think
if ITI had to have a sign of the zodiac, it would probably be
Libra.
    And the reason for that is because the nature of our
membership is such that we are very sympathetic to the issues
of all the parties at the table. And to address in some
respects the concerns of the previous gentleman who was
questioning why, if we all agree to the treaty as a good thing,
are we having problems implementing it. And I think it just has
to do with the altitude at which the treaty was written versus
the altitude at which we are going to have to implement this
thing.
    And ITI's concerned with the approach has been,
fundamentally, that we are going at this as if technology was a
problem, technology was a threat to our intellectual property.
And what we would like to believe is that technology is in fact
probably neutral, and ultimately a very positive opportunity.
    But at the same time, we are very cognizant of the value of
intellectual property and we support protecting it. So, at this
time, we are very much in favor of ratification of the treaty.
    And we understand how complicated it is to implement this
thing. But given all of the work that has gone into it and the
balance that we have been able to achieve to-date, I think ITI
would be remorseful if we could not make progress in moving
forward.
    Senator Feinstein. Thank you. Mr. Neel, do you have a
comment on this point?
    Mr. Neel. Well, two points, Senator. One, the ad hoc
Copyright Coalition, which includes all the carriers, the
telephone companies, the long distance and local companies, the
Internet service providers, on-line and so on, we would
strongly object to the decoupling of the implementation
legislation and the treaty. That would represent a disaster for
the evolution of the Internet economy.
    I will also point out that the companies----
    Senator Feinstein. Could you clarify that? When you use the
word decoupling----
    Mr. Neel. Title One and Title Two.
    Senator Feinstein.--are you saying you do not want us to
ratify the treaty now?
    Mr. Neel. Without enacting Title Two, which is the
implementing legislation that deals with service provider
liability issues which are absolutely critical.
    Of course, we want the treaty ratified. But it must be
connected to Title Two of this legislation. It is absolutely
critical. It is a very important issue. The Chairman spoke of
this in his opening statement. And I think it is exactly the
right way to go.
    The objection to the data base provision that you have
referred to and has been discussed here is Title Five----
    Senator Feinstein. Right.
    Mr. Neel:--that you are dealing with. Most of the companies
that expressed their opposition to Title Five have no objection
to Title Two and, in fact, support Title Two, and support the
linkage of the two. I would not want to speak for everyone
personally.
    But that is our point in this. We have no dog in that fight
on data base in Title Five. But we would strongly encourage the
linkage of Title One and Title Two and would fight with every
tool we have to decouple Title One and Title Two, because they
ultimately could take down the entire process.
    Senator Feinstein. You know, we might want to consider--I
wrote a letter to Chairman Hatch earlier urging that we have a
hearing on the data base and Title Five effort. That hearing
did not take place, as has been pointed out.
    I would really think we should go ahead with the treaty if
there is a way of separating out from the implementing
legislation Title Five, having the hearing, doing it in the
next session, and moving ahead with the other titles in this
session. Perhaps we should consider that. If I could just ask
you to reflect on that suggestion, as to what you think about
it, I would appreciate it.
    Mr. Neel. Senator, not to be presumptuous, the others have
a bigger stake in that. But you are suggesting taking out Title
Five. That is a part of the implementing legislation. Is that
right?
    Senator Feinstein. Well, if we just delay it until we can
have the hearing----
    Mr. Neel. Title Five.
    Senator Feinstein.--and make any necessary refinements,
because there has not been a hearing.
    Mr. Valenti. Mr. Chairman, may I just say something? This
is not the forum to debate the implementing legislation. It is
horrifyingly complex. I cannot tell you of the hundreds of
hours that I and my colleagues, Roy and others, have been
involved in negotiating with various groups. It is an enigma
wrapped in a mystery inside a phantom. And there is no way you
can deal with it in this forum.
    Senator Feinstein says let us simplify this. The treaty
ought to be ratified now. Why? Because we are the largest
beneficiary. If we do not ratify, why on earth should any other
country in the world ratify? We are the legatee of all of its
benefits. We dominate the world. And if we are pussyfooting
around on ratifying this treaty, that sends the wrong signal
around the world.
    But the entrails of the treaty do not go into effect until
implementing legislation takes place. Let us not complicate
this thing, Mr. Chairman. I do not want to get involved with
any of the things with some of my compatriots at this table,
because this is not the forum.
    There is no way that this committee is going to understand
all of the squiggly little things that go into make up the
body, a final compromise that has been made. The Judiciary
Committee has the expertise in both Houses to do this. A
conference is now being assembled. They are going to work this
thing out.
    If data base is held over--as Roy says, I do not have a dog
in that fight either. If it is held over, the world will not
come to an end. But what is singularly important, Mr. Chairman,
please do not delay the ratification of this treaty. It is
sending the wrong message to the world.
    Senator Feinstein. I think Jack is right. This is not the
place to do it. And it is very difficult. And I saw that
firsthand in trying to reconcile some of these interests. I do
not know whether it can be done in conference or not, Mr.
Chairman.
    But I strongly feel that Mr. Valenti is correct, that we
have to move ahead and ratify this treaty. And I certainly
offer, you know, to work and try to reconcile the concerns with
the hope that it can be done in conference. If not, I think the
way I suggested earlier, moving with some of the implementing
legislation and not the whole thing right now might be the way.
    Mr. Valenti. If I may say one thing.
    Senator Hagel. Mr. Valenti.
    Mr. Valenti. I think process and procedure is sacred in the
Congress. You cannot function any other way. Procedure says the
Judiciary Committees have supremacy in this matter. In the
House, the Commerce Committee took a sequential referral on
this.
    It has been debated. It has been examined. It has been
prayed over. And we have even had witch doctors called in to
tell us which way to pray on that particular day.
    But the Judiciary Committees have the authority and the
mandate from the Congress to work this out. This is their turf.
And let the process and the procedure work its way. What this
committee can do, and I pray Mr. Chairman, ought to do, is
ratify this treaty.
    The ratification does not do anything except we accept the
premises of the treaty. Now it is the duty of the Congress,
through their Judiciary Committees, to work out how that treaty
can be inserted into U.S. Law. There is a marvelous simplicity
about that. And it ought to be followed.
    But, again, I urge you, please do not delay the
ratification of this treaty, else it halts the whole advance
forward of world ratification of this treaty.
    Mr. Jaszi. Mr. Chairman, if I may.
    Senator Hagel. Professor Jaszi.
    Mr. Jaszi. In Geneva, in December 1996, it was possible for
the nations of the world to arrive at the remarkable consensus
that they achieved and to which Senator Sarbanes referred
earlier precisely because the mandates of the treaty are
general and permissive in nature, and because the treaties
clearly incorporate and recognize, as I mentioned in my
statement earlier, the principle of balance.
    I think for that reason that we need to recognize that
there is real domestic dispute about the meaning of those
treaty mandates as they will be localized in U.S. Law, a
dispute that has to some extent been reflected in the testimony
today.
    I think, for that reason, that it is essential to maintain
a linkage between ratification and implementation. Because if
we ratify before we implement these treaties, we will do so, in
effect, without any knowledge of what that ratification means
for domestic information producers, and especially domestic
information consumers.
    The treaties look forward to ratification, and I think this
committee has a serious and important role to play in assuring
that the implementing legislation is undertaken in a way that
is consistent with the spirit of those treaties.
    Senator Hagel. Mr. Byrne, did you have an additional
comment?
    Mr. Byrne. I think we just wanted to reiterate that I think
the opportunity and the mandate for U.S. Leadership here is
very evident. And we would like to think that that leadership
will manifest itself both in terms of ratification and in
balanced implementation ideally.
    Senator Hagel. Mr. Neel.
    Mr. Neel. The only thing I can say is the obvious, to
reaffirm what you said in your opening statement, that Title
One and Title Two must be linked. We must pass them both. There
is total agreement on Title Two. There appears to be virtually
total agreement on Title One, which is the ratification of the
treaty. It is critical.
    If we do not get it done this year, in the last days of
this Congress, it is hard to imagine when we can get this done
next year.
    Senator Hagel. Well, we have an amazing consensus here, do
you think, Senator?
    Senator Feinstein. Yes.
    Senator Hagel. In fact, we were just speaking briefly.
Senator Feinstein has, as you have heard, had the unique
perspective of coming at this both from a member of the
Judiciary Committee as well as a member of this committee.
    I think until we have a chance to discuss this with
Chairman Helms and Senator Biden and other members of the
committee, which we will do--and, obviously, what we have heard
this morning has added an important dimension to this.
    We understand the timeliness. We understand the
complications. I think the point has been made rather clearly,
as Senator Feinstein said, that this is a complicated process.
Jack Valenti said it well. If you start to unravel this, we may
never find the end of the string here. And, certainly, this
committee is not in a position to do this, nor this forum.
    Let me suggest this. As I stated, we will take back to our
ranking members, Senator Biden and Chairman Helms, the
information that has been offered today, the concerns that you
have, which are real. And I think it is in the best interest of
our country, as expressed by each of you and by the Senators
here today, that we get this done. But we have to do it the
right way, obviously, and protect the interests of everyone
here in our country first.
    Senator Feinstein, do you have any final comments on this?
I do not know if there is any point really in going through the
mechanism of some of the more general questions. I think we
have really hit on the real issue here as to what has to happen
in order to move forward.
    Are there any last comments? Jack, would you like to offer
anything, or Roy, or anybody else?
    Mr. Valenti. No. I hope I have made clear what my position
is.
    Senator Hagel. Rather plainly, Jack. It is that Texas
directive. Thank you.
    Mr. Neel, is there anything else? Professor?
    Mr. Jaszi. Only to say, as I omitted to before, that the
Digital Future Coalition is strongly in support of the Title
Two OSP provisions and feels, as does Mr. Neel and his
organization, that it is extremely important that those
provisions be incorporated in any implementing legislation.
    Senator Hagel. Mr. Byrne.
    Mr. Byrne. It is just a privilege to be here, and we
appreciate your help.
    Senator Hagel. Well, thank you all for your contributions.
They have been important. And we will work mightily to get this
done. Thank you.
    [Whereupon, at 11:25 a.m., the hearing was adjourned.]

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