Report to Congress: Study Examining 17 U.S.C. Sections 109 and 117 Pursuant to Section 104 of the Digital Millennium Copyright Act
Congress enacted the Digital Millennium Copyright Act (the "DMCA" or "the Act")(1) as part of an effort "to begin updating national laws for the digital era."(2) It was designed to "facilitate the robust development and world-wide expansion of electronic commerce, communications, research, development, and education in the digital age."(3)
The DMCA seeks to advance two mutually supportive goals: the protection of intellectual property rights in today's digital environment and the promotion of continued growth and development of electronic commerce.(4) The Act attempts to accomplish these priorities through, inter alia, the interaction of two carefully crafted imperatives. First, as a means of preventing the theft of copyrighted works, the Act affords copyright owners legal protection and remedies against unauthorized circumvention of technological measures employed to prevent unauthorized access to copyrighted works.(5) Second, as a means of advancing a more efficient electronic marketplace, the Act guides legitimate consumers and businesses to create and use appropriate devices, conduct, and models in the course of their electronic transacting.(6) The DMCA reflects Congress' understanding that the melding of these concepts into workable legislation was critical to determining the extent to which electronic commerce realized its potential.
To ensure the continued enactment of policies that promoted both overarching goals, Congress recognized the need for current information that examined the intricate relationship between electronic commerce and the laws governing intellectual property. Such material must not only define that relationship, but also explain its "practical implications on the development of technology to be used in promoting electronic commerce."(7) To this end, Congress explicitly included in the Act a means of acquiring this crucial data. Section 104 of the DMCA directs the Register of Copyrights and the Assistant Secretary for Communications and Information of the Department of Commerce to submit to the Congress a report evaluating the effects of the amendments made by title 1 of the DMCA and the development of electronic commerce and associated technology on the operation of sections 109 and 117 of the Copyright Act, and the relationship between existing and emerging technology and the operation of those sections.(8)
In order to fulfill the mandate established by Congress and to assist in development of a factual basis for this report, on June 5, 2000, the Copyright Office and the National Telecommunications and Information Administration ("NTIA") published a request for public comment in the Federal Register.(9) Thereafter, on October 24, 2000, the agencies published a notice of public hearing, conducted on November 29, 2000, that would amplify the record and permit inquiry into specific areas of concern presented in the written comments.(10)
Part I of this report presents a brief overview of the current state of electronic commerce in the United States and the legislative background of Sections 109 and 117 of the Copyright Act. Part II presents an explanation of the operation of Sections 109 and 117 of the Copyright Act. Part III summarizes the substance of the public comments received by the Copyright Office and NTIA in response to the request for comment and in oral testimony at the hearing. Part IV concludes that it is premature for NTIA to draw any conclusions or make any legislative recommendations at this time with respect to either section, but describes areas of consideration for further Congressional inquiry.
The United States has found itself in the midst of a technological revolution propelled by digital processing. New digitally-based economic arrangements are changing how the nation works, communicates, consumes, and relaxes. Two facets of the digital economy, e-commerce(11) and the information technology ("IT") industries that make e-commerce possible, are maturing at breathtaking speeds, outstripping estimates that only recently appeared merely optimistic.
In 1995, it was nearly impossible to foresee how advances in IT would profoundly alter the manner in which business was conducted and value, created. That year marked the beginning of appreciable commerce over the Internet, with sales generated totaling just over $435 million.(12) Over the next five years, the potential for conducting business electronically was recognized and tapped. Remarkably, recently released estimates of e-commerce sales by retail establishments for 2000 total $25.8 billion.(13)
The impact of e-commerce on the economy extends far beyond simply the dollar value of business activity. The growth of e-commerce has fueled the nation's sustained economic growth and restrained a core inflation rate that remains low despite record employment and the lowest jobless rate in a generation. Despite a modest 8.3 percent share of the economy, IT-producing industries powered the nation's economic performance, contributing approximately 30 percent of U.S. economic growth since 1995.(14) These industries also have accounted for half or more of the recent acceleration in U.S. productivity growth, from 1.4 percent per year during 1973-1995 to 2.8 percent during 1995-1999.(15) IT appears to make it possible for the U.S. economy to grow without sparking increased inflation.
From the consumer's point of view, the most significant potential impact of e-commerce may be on the pricing and delivery of goods and services. Potential buyers can check price and availability of products from a variety of sites in far less time than it would take to conduct a store-to-store comparison. Auction sites have become popular, and "reverse auctions" (where the consumer names the price and the seller decides whether or not to accept it) have grown rapidly. Pricing has been directly influenced by consumers who now have in their control a repository of information on product and service information, previously unattainable before the advent of the World Wide Web. Buyers now can access detailed product, warranty, and repair information, along with comparisons of competitive prices, before finalizing sales.
The Internet also provides new mechanisms for the delivery of goods and services, permitting the immediate downloading of music, photographs, software, books, news reports, and a host of other products. Recent reports on the state of electronic commerce and the digital delivery of goods reveal astonishing estimates.
According to Forrester Research, while only 3 percent of all current online [business-to-consumer] sales consist of digitally-downloaded products, this level could reach 22 percent of all online sales by 2004. The most dramatic growth in direct, digital download sales will probably be in the music sector, while sales could rise from 0.1 percent of online sales in 1999 to 25 percent in 2004, followed by software (rising from 7 percent of online sales in 1999 to 40 percent in 2004) and books (rising from 1 percent of book sales online in 1999 to 13 percent in 2004).(16)
The technologies that drive e-commerce and its operating environment are still evolving. In fact, this new business model and the technologies that support it offer new challenges, as the ability to deliver digital products has, in many ways, outpaced the resolution of contentious yet inseparable legal and policy questions.(17) Given this, full realization of the promise of e-commerce depends, in large measure, on the development of "the same safeguards and predictable legal environment that individuals and businesses have come to expect in the offline world."(18)
Section 109 of the Copyright Act, 17 U.S.C. §109, permits the owner of a particular copy or phonorecord lawfully made under title 17 to sell or otherwise dispose of possession of that copy or phonorecord without the authority of the copyright owner; notwithstanding the copyright owner's exclusive right of distribution under 17 U.S.C. §106(3). Commonly referred to as the "first sale doctrine," this provision permits such activities as the sale of used books. The first sale doctrine is subject to limitations that permit a copyright owner to prevent the unauthorized commercial rental of computer programs and sound recordings.
Section 117 of the Copyright Act, 17 U.S.C. §117, permits the owner of a copy of a computer program to make a copy or adaptation of the program for archival purposes or as an essential step in the utilization of the program in conjunction with a machine. In addition, pursuant to an amendment contained in title III of the DMCA, section 117 permits the owner or lessee of a machine to make a temporary copy of a computer program if such copy is made solely by virtue of the activation of a machine that lawfully contains an authorized copy of the computer program, for purposes of maintenance or repair of that machine.
As noted above, on June 5, 1999, the Copyright Office and NTIA issued a joint Federal Register notice soliciting public comment on the effects of the amendments made by title 1 of the DMCA and the development of electronic commerce and associated technology on the operation of sections 109 and 117 of the Copyright Act, and the relationship between existing and emerging technology and the operation of those sections. The submissions received in response to the Federal Register notice made clear both the complexity of the issues and the depth of the division between different stakeholders and the public.(19) At the request of members of Congress, the agencies conducted a public hearing on November 29, 2000, to amplify the record and permit inquiry into specific areas of concern presented in the written comments.(20) Presented below is a summary of the substantive issues raised in the 49 total responses submitted during the comment period, and a synopsis of pertinent testimony presented at the November Hearing.(21)
A. Section 109
Initial Comments - Proponents of a Digital First Sale Doctrine
The proponents of a digital first sale doctrine, led in large measure by the Digital Media Association ("DiMA"), premised their arguments regarding the need for legislative clarification of section 109 on electronic commerce concerns:
To create a level playing field for ecommerce in digitally-delivered audio, video and other media, the first sale doctrine of 17 U.S.C. §109(a) must be extended, either by judicial interpretation or amendment, to apply to content lawfully acquired by digital transmission. Unless consumers receive from digital media the same quality, value and convenience they receive from physical media, ecommerce will be left stranded at the starting gate.(22)
In the proponents' view, two policies underlie any discussion of whether or how to adapt the Copyright Act to the digital networked environment.(23) First, the proponents noted that copyright exists to promote the public interest. Securing the rights of authors is intended to provide incentives to support that greater public good, not to be an end in itself. As such, statutory changes and interpretations of copyright law should balance the impact of the law upon the copyright owner against the paramount public interest in the dissemination and proliferation of copyrighted works. Second, the proponents argued that copyright law should respond to technological progress, not hinder it. Generally, the competitive market should be given time to evolve before making "pre-emptive" changes to copyright law. Over time, the proponents suggested, existing exemptions created for the "physical" world likely would be adapted to the digital realm by judicial interpretation, or justified under doctrines such as fair use. "Nevertheless, the public interest and the evolution of the marketplace often are better served by laws that clearly address and define the rules for a new technological environment."(24) Thus, the proponents believed that legal certainty in applying copyright to new digital technologies benefit the copyright owner and user alike, and prepares the market for compelling technologies and business models.(25) They concluded that the very issues addressed in this study and which threaten digital media companies are ripe for resolution.
The proponents further noted that the first sale doctrine balances the economic rights of the copyright owner and the consumer with respect to copyrighted works. Copyright law secures to the copyright owner the exclusive right of first distribution, to provide an incentive for the creation and dissemination of works. However, once the copyright holder has been compensated for the initial distribution of the work, no further incentive is required. As such, the copyright owner should be unable to extract further profits from that particular copy of the work. After that first sale, the right to vend has been fully exercised and further limitations cannot be imposed on the disposition of those goods. The proponents argued that these rationales apply with equal force in today's digital world. Although a court could justifiably interpret the existing language of Section 109 to protect digital retransmissions of digitally-acquired content, some copyright owners have disputed this interpretation. To this end, the proponents supported a legislative clarification of Section 109 so as to firmly establish that the first sale doctrine applies to digital retransmissions of digitally-acquired copies and phonorecords of copyrighted works.(26)
In order to meet this objective, the proponents recommended that the Copyright Office and NTIA endorse the provisions of the Ashcroft and Boucher-Campbell bills that seek to update current law for the digital era. First introduced in November 1997 by Representatives Rick Boucher and Tom Campbell, H.R. 3048, the Digital Era Copyright Enhancement Act, would have added to Title 17 a new Section 109(f) that would have permitted the operation of the first sale doctrine by transmission of copyrighted work to a single recipient, if the person effectuating the transfer erases or destroys his or her copy or phonorecord at substantially the same time. As Mr. Boucher explained in his statement accompanying introduction of the bill, "[T]his legislation best advances the interest of both creators and users of copyrighted works in the digital era by modernizing the Copyright Act in a way that will preserve the fundamental balance built into the act by our predecessors throughout the analog era." (27)
According to the proponents, when H.R. 3048 was originally introduced, content owners opposed to a digital first sale privilege contended that such a doctrine would promote widespread copying and redistribution of copyrighted works, and that consumers could not be trusted to delete their copies once transferred. Questions were raised regarding whether technology existed to ensure that the proposed amendment could be implemented as intended. The proponents insisted such technology exists.(28) Copyrighted content can be delivered to consumers with digital rights management ("DRM") systems that enable secure electronic transfers of possession or ownership, and that protect against unauthorized retention of the transferred copy. "Through technological processes such as encryption, authentication, and password-protection, copyright owners can ensure that digitally downloaded copies and phonorecords are either deleted after being transferred or are disabled (such as by permanently transferring with the content the only copy of the decryption key)."(29) In fact, the proponents propounded that DRM technology actually provides a more secure media for digitally-transmitted content than for today's physical media, and that clarification of the law will provide the incentive for development of newer and more efficient DRM tools.(30)
The proponents further noted that any extension of the first sale doctrine cannot apply only to content protected using DRM tools, as several online businesses are successfully marketing digital downloaded media in unprotected or open formats such as MP3. Lastly, "the digital sale right favored by DiMA encompasses electronic transfers of possession only for media lawfully acquired by digital transmission."(31)
Initial Comments - Copyright Community
The copyright community's initial comments were brief, focusing in large measure on the legislative history of Section 109 and a "plain reading" of the statute. In short, it argued that the moniker "digital first sale doctrine" is a faulty construct, aimed not at merely applying the doctrine to digital works, but rather promoting "wholesale expansion of the ... doctrine in derogation of the rights of copyright owners."(32) In its view, the first sale doctrine was developed with respect to tangible copies, and was (and will continue to be) applicable to such tangible copies made under authority of the copyright owners whatever the nature of the technology. However, to the extent that emerging technology "deals not with tangible copies but with streaming and/or downloading of digitized programming, the first sale doctrine neither can nor should have any application."(33)
To support this view, several members of the copyright community examined the first sale doctrine's origin and its current statutory application. Each recognized that the doctrine has as its underlying purpose to prevent untoward use of copyright law to impose price or other conditions on the ability of the owner of a copy of a work to dispose of that copy. That objective was accomplished by providing an exception to the rights granted by Section 106 of the Copyright Act. But of crucial importance to these commenters was that the first sale doctrine does not provide any exception to the exclusive right of reproduction, nor does it apply to copies not "lawfully made under this title." Given this, the copy owner has only the right to transfer possession of the copy/original he holds, and no right to make or distribute additional second generation copies. Stated differently, the copyright community asserts that the first sale doctrine only applies when a particular tangible copy of a work changes hands, and possession of that very copy is surrendered.(34) According to the copyright community, any other formulation (in which the giver and receiver both have copies) would exceed the scope of the first sale doctrine.
Under the copyright community's schema, Section 109 could not apply to works distributed by transmission over the Internet because such action would involve both the reproduction of the initial copy (as to which no exception is provided and, accordingly, the copy being transferred is not "'lawfully made") as well as its distribution.(35) Moreover, the owner of the original/copy of the work would not be surrendering his possession of the initial copy as contemplated by the first sale doctrine.(36) To compound the problem, commenters noted that the copy generated during the distribution is a perfect copy -- one that could serve as a "master for the production of an unlimited number of additional perfect copies, all of which can conveniently be redistributed over digital networks to a virtually limitless class of recipients."(37) Given the foregoing, the consequences of an "unjustified expansion" of the first sale doctrine could easily overwhelm the incentives for production of creative works provided by the copyright law.
While acknowledging recent technical advances in the past five years, at least one commenter rejected the "promise" offered by these developments. That commenter maintained that throughout the "digitally networked environment," distribution of copyrighted material "virtually never occurs without a prior reproduction of the [copyrighted] material," and it is that copy, not the original, that is distributed.(38) According to this commenter, that fact alone would push the distribution action outside the parameters of the first sale doctrine.
Another commenter argued that the development of e-commerce has actually resulted in a reduced need for the first sale doctrine. The creation of new licensing and delivery mechanisms will likely permit computer uses to obtain copies of virtually any work easily and quickly. "In fact, these new licensing and delivery mechanisms will promote alienation and trade in copyrighted works to such a degree that individuals will have less of a need to avail themselves of the first sale exception because they will easily be able to get a copy of a work online. Accordingly, there is no need for the first sale exception to apply to the Internet and related digital distribution systems."(39) Yet another commenter went further, suggesting that the absence of a digital first sale doctrine has actually had the positive effect of encouraging the growth of markets for works in digital form.(40)
Reply Comments - Proponents of a Digital First Sale Doctrine
Proponents of a digital first sale doctrine noted that the comments received in response to the request for comments demonstrate the need for legislative clarification of Section 109 so as to ensure its proper application to digital works. They reiterated that the first sale doctrine is a specific application of the general economic and public policy against restraints on the alienation of property or trade in lawfully-acquired copyrighted works. Moreover, the economic incentive to create such works is satisfied by the first sale of the copy, and therefore, any restraint on alienation was unnecessary to provide that incentive.(41)
At the outset, one commenter took exception to copyright community assertions that the first sale doctrine is unnecessary because e-commerce will enable anyone to buy a copy of works online. This assertion relegates the doctrine to be nothing more than a means to satisfy consumer demand and copyright owners' ability to sell.(42) The commenter argued that the absence of a digital first sale doctrine will impede the free flow of information, including the ability of libraries and others to provide access to digital works to those parts of the public that lack the resources and opportunities that at least one member of the copyright community touts as diminishing the need for a first-sale doctrine.(43)
Proponents claimed that a digital copy authorized by the copyright owner that is downloaded by a consumer is conceptually no different than a copy made by the copyright owner and then sold to the consumer.(44) In both instances, a copy was lawfully made with the copyright holder's permission. Given that several members of the copyright community agreed with this assertion, proponents thought it curious that not one community member would offer a "rationale as to why consumers should not have full possessory rights in a digital file that was created on their computer with the permission of the copyright holder."(45)
The proponents argued that extending to consumers the right to resell the digitally delivered works that they have lawfully acquired will neither encourage nor lead to unlimited reproductions and distribution of copyrighted works. Technology, they stated, exists to secure the first sale privilege in a digital environment, ensuring that the original/initial digital copy is deleted (or made permanently inaccessible) from the transferor's computer upon digitally transferring the data to the transferee.(46) This system, along with digital rights management systems, authentication, encryption, and password-protections, will foster new innovations that will actually decrease the piracy risks that concern these commenters, while concurrently ensuring consumers of their possessory rights.(47)
Lastly, the proponents contended that, although new licensing and delivery mechanisms may enable more consumers to access works via electronic means, the absence of a first sale doctrine may increase the likelihood of abuse of copyrighted works.
[W]ith respect to digital downloading, if you build it, consumers will come; but if copyright owners won't build it, someone else will. If digital delivery satisfies consumer needs, including a means to transfer ownership, then ecommerce will succeed. But if there is no first sale right for digitally-delivered media, consumers will find some other way to exercise these privileges. Without a first sale right, [the proponents] fear that circumvention technologies like DeCSS, DivX, and others, will gain popularity among otherwise law-abiding consumers who cannot abide overly-restrictive licensing terms and hypertechnical copyright laws.(48)
More than one commenter argued that unless copyright law adapts essential consumer privileges such as first sale to the new e-commerce environment, existing onerous licensing restrictions may be merely the harbinger of even more invasive conditions in the offing. Unless Congress acts, the proponents' fear that the copyright owners' use of their copyright monopoly in conjunction with technological measures to circumvent the first sale doctrine and to restrain competition (through the purported licensing of "rights" not recognized by copyright) may well be realized.(49)
Reply Comments - Copyright Community
The copyright community contended that proposals to amend section 109 as suggested by the advocates for a digital first sale doctrine do not update, reaffirm, or extend the doctrine to a new technological environment. Rather, the proposals propound "completely new limits upon the exclusive rights of copyright owners other than the distribution right (the only right which the first sale doctrine limits) ... undermin[ing] the exclusive reproduction right, the fundamental cornerstone of the edifice of copyright protection."(50) The copyright community noted that the "forward-and-delete" proposal, embodied in the amendments to section 109 proposed by Representative Boucher, among others, had been "consistently rejected" in various fora, and while "superficially attractive," cannot withstand close scrutiny as a justification for a broad expansion of section 109 at this time.(51) The copyright community set forth five overarching concerns.
First, the copyright community asserted that Digital Rights Management systems and technology that allow copyright owners to use encryption, authentication, and password protection, are "not yet so ubiquitous and so secure that it can provide the foundation for the substantial diminution of the reproduction right which the H.R. 3048 language represents. Whether this technology ever achieves that status is a decision that will turn on future developments in the marketplace." Moreover, they argue that, at present, it is still too expensive for general application.
Second, the copyright community claimed that the proponents have attempted to expand the first sale doctrine even into areas in which DRM technologies are not in use. The community believes that this fall-back position, tantamount to an honor system for determining whether the original of a forwarded digital copy, was, in fact simultaneously deleted, is "not practical and no more palatable now than it was years ago when it was rejected by Congress ... ."
Third, the community noted that "[e]ven if an expanded section 109 were to apply only to copies or phonorecords to which DRM tools had been applied, it is virtually certain that some users would seek to disable those tools in order to carry out broader unauthorized distribution than the 'forward and delete' model contemplates."(52)
Fourth, the copyright community reiterated its opposition to the language of H.R. 3048 as a threat that would undermine not just one, but four, of the five exclusive rights that copyright owners have historically enjoyed. "[T]he H.R. 3048 language would deny the copyright owner any control over the reproduction needed to carry out an unauthorized performance or display, even though these activities (unlike an authorized distribution) could not plausibly be characterized as ever coming within the first sale doctrine. We must assume as well that the advocates of this approach believe (although the language they support does not explicitly say so) that the public performance or display which is enabled by the (immunized) reproduction should also be free from the control of the copyright owner."(53)
Lastly, the proposal espoused by the advocates of the digital first sale doctrine ignores the flexibility that licensing arrangements can provide to allow trade or selling under certain circumstances without tampering with the statutory first sale doctrine. The community argued that predictions that consumers will become dissatisfied with e-commerce if they cannot trade or sell via transmissions the works they acquire digitally are simply that - predictions.
The copyright community remarked that "technological developments, including DRM tools, will significantly affect the environment within which the first sale doctrine - as well as the rest of the Copyright Act -- is operative. ... We cannot rule out the possibility that the further development of these technologies will, at some point in the future, justify changes to section 109 that can advance the mutually supportive goals of providing adequate incentives for creativity and innovation, and promoting electronic commerce and other digital dissemination of works of authorship. But clearly such changes are not justified at this time."(54)
B. Section 117
Initial Comments - Proponents for a Revision to Section 117
Proponents for a revision to section 117 maintained that the growth and promise of e-commerce call for an expansion of this section to address all forms of digital content, new technologies, and new uses. Three specific suggestions were posited, each based on an examination of how the concepts underlying Section 117 ought to be applied to new technologies and uses. One commenter noted that section 117 was first enacted some twenty years ago upon the recommendation of the National Commission on New Technological Uses of Copyrighted Works. (It has remained essentially unchanged until 1998, when it was amended by the DMCA.) According to this commenter, Congress could not have possibly foreseen the potential applications of the underlying principles of Section 117 to as yet not conceived types of devices and media. Currently, digital media other than software programs and computing devices are pervasive. Content, other than computer programs, is available to the consumer, is susceptible to loss, and cannot be used by the purchaser without temporary copying into device memory. In short, "although the language of Section 117 may have been premised upon a particular technological environment, the conceptual justifications for the exemption were founded on principles that have general application to the digital environment."(55)
Two commenters acknowledged that the growing popularity of digital downloading necessitates that the law continue to guarantee consumers the right to secure their investments in digital media. Consumers must be certain that their lawfully-acquired content will not be lost in the event of a server or hard disk crash. Similarly, consumers who upgrade their computer systems need some means of transferring media to their new computers. Given this, Section 117 must permit archival or back-up copying of media acquired digitally, without the threat of copyright infringement litigation.
Secondly, these commenters observed that "virtually all devices that playback content recorded in a digital format must process that content by first loading all or some portion of it into memory." All devices that perform such digital media effectively are computers, including CD players, DVD players, and HD television receivers. Consumers have begun purchasing these items, as well as a new generation of portable playback devices -- and yet more will come to market in the next year. Ephemeral copies made in the course of viewing or lawfully gaining access to a work have nothing to do with piracy. Given this, these commenters believed that in order to advance the interests of information consumers, while protecting the legitimate interests of copyright owners, Congress should exempt temporary copies of recorded content made in the course of playback (through buffering, caching, or other means) from claims of infringement.(56)
Lastly, proponents asserted that the technical process of Internet webcasting requires that the receiving device temporarily store a few seconds of data transmitted by the webcaster, before playing back the audio or video to the consumer. The small temporary buffer memory copies used in today's webcasting technology have no intrinsic or economic value apart from the performance. In the proponents' view, where the webcaster makes an authorized performance of copyrighted material, the temporary buffers necessary to enable the performance should be exempt from any claim of copyright infringement.(57) The proponents believed this exemption from the reproduction right is "all the more warranted for webcasting, where the same copyright owners of the musical composition, audiovisual work, or the sound recording already will have authorized, and been compensated for, the performance of the work."(58)
To this end, the proponents, especially HRRC and DiMA, expressed support for the legislative models proffered by H.R. 3048 (Boucher-Campbell Bill) and S. 1146 (the Digital Copyright Clarification and Technology Education Act of 1997, introduced by Senator John Ashcroft).(59)
Initial Comments - Copyright Community
Commenters from the copyright community were unaware of any "significant impediments to electronic commerce which have arisen as a result of Section 117." They, too, acknowledged the history of the provision, including recent amendments by the DMCA. In their view, "those amendments appear to be functioning as intended." However, the copyright community did express concerns regarding "misinterpretations of other aspects of Section 117," employed by some not as a defense to infringement "but as an enticement to engage in online piracy."(60) To this end, the copyright community suggested that this report could serve to educate the general public regarding the parameters of the exception provided by Section 117. Four specific discussion topics were envisioned by the copyright community:
First, the archival copying exception applies only to computer programs. No exception exists that would allow the creation of "back-up" copies of any other kind of work, including sound recordings, music, audio-visual works, or databases, except by libraries, archives, broadcasters, and other specifically identified institutions under circumstances defined by law. "Anyone offering unauthorized copies of works other than computer programs as 'back-up copies' is in violation of the law."
Second, the archival copying exception of section 117 does not apply to contemporary personal computer, videogame console, or online gaming environments, where threats of damage or destruction by mechanical or electrical failure are minimal and archival copying is not needed to prepare for them.
Third, only the legitimate owner of a copy of a computer program can make or authorize the making of an archival copy under Section 117 and only from a legitimate copy that he or she owns. A web site or other source offering "back-up copies" for distribution to the public falls outside the exception and is committing copyright infringement.
Lastly, according to the copyright community, the law forbids the transfer of an archival copy except in conjunction with the transfer of an original the transfer of all rights in that original.(61)
Reply Comments - Proponents of a Revision to Section 117
In their Reply Comments, proponents responded to arguments set forth by the copyright community regarding the application and scope of Section 117. At the outset, one commenter argued that miseducation concerning the scope and proper application of Section 117 cannot justify limiting the ownership rights of legitimate consumers, "particularly when case law has upheld laws such as 17 U.S.C. § 1201 against the types of fallacious arguments of concern" to the copyright community. In that commenter's view, there is simply no reason why extending Section 117 to other digital works cannot (nor should not) coexist with a process of educating the public as advocated by the copyright community.(62)
Proponents further assert that arguments that technological changes have made the archival copy exemption largely unnecessary for the purposes for which it was enacted overlook circumstances that necessitate creation of an archival copy to protect one's investment in a copyrighted work, especially when obtained by digital delivery. Suggestions that new business models (such as application service providers that permit access to software any time and anywhere) and other strategies have eliminated the need for Section 117 are misplaced, serving only to misguide and detract from the focus of the section under review. "Section 117 addresses the case where a copy must permanently reside with the user in order for the user to use the product. That may not be necessary for networked or thin client computing, but most definitely is required for digitally-downloaded content ... ."(63)
In their reply comments, the proponents renewed their call for extending Section 117 to apply to other digital devices and media forms beyond merely software. The technical functionality of the Internet makes it:
[L]ogical and reasonable to extend the principles underlying Section 117 to the 'statements and instructions' in new digital media. The transmission of all digital data, whether software or copyrighted works sold or webcast via the Internet, necessarily involves the moving of packets of information from the RAM of one server to the RAM of the next, making at each stage certain reproductions necessary for the system to function. In short, temporary copying is inherent to digital technology. Particularly in the case of Internet webcasting, streaming audio or video requires temporary storage of data before it is reassembled and played for the consumer. ... [T]he temporary buffer storage of a few seconds of content during webcasting is merely a technological means of facilitating smooth performance of real-time transmissions. The data are not recorded or accessed for other purposes and have no economic value apart from the performances themselves (emphasis added).(64)
Thus, the proponents contended that for both downloading and webcasting to become viable modes of e-commerce, the law should be clarified to assure web businesses and consumers that these actions will not expose them to potential copyright liability.
Ecommerce promises to revolutionize the market for copyrighted works, and to give consumers even greater flexibility and control over their own acquired content. Yet, the promises of ecommerce are not guarantees. Indeed, some have argued, not entirely without justification, that copyright owners' first shots fired in the ecommerce revolution have caught them squarely in the foot. Ecommerce will gain acceptance only if and when consumers obtain from lawfully-acquired digital downloads the same full value that they receive from physical media - including first sale rights and archival and temporary copying. This only can occur in a legal environment that supports and facilitates ecommerce, and that adapts reasonably and timely to new technological and economic models.(65)
Reply Comments - Copyright Community
The copyright community maintained that the incidental copying amendment advocated by the proponents is not justified by technological developments and would not promote the healthy growth of electronic commerce, but would "dramatically expand the scope of section 117 and drastically cut back on the exclusive reproduction right in all works."(66) Two years ago, the community argued, the proponents of H.R. 3048 called upon Congress to overturn the holdings of MAI Systems Corp. v. Peak Computer, Inc.,(67) by adopting the "incidental copying exception" that the proponents now seek to "revive."(68) The copyright community stated that Congress did not merely spurn this suggestion, but rather drew the opposite conclusion, passing legislation endorsing and reaffirming the principles of the case, its progeny, and related policy decisions. In fact, Title III of the DMCA added a new section 117(c) that spells out the specific and limited circumstances under which the reproduction of a computer program in memory for the purpose of computer maintenance or repair is not an infringement of the reproduction right. The copyright community remarked that none of the proponents addressed this change to the law, but rather sought:
[T]o employ section 117 as a convenient starting point for a much more comprehensive attack on the exclusive reproduction right. They resurrect a proposal that ... undercuts the reproduction right in all works, not just computer programs; that applies to copies made in any kind of 'device,' not just in a computer; and that purposes to solve a 'problem' whose seriousness has never been demonstrate and that is, in any case, already adequately addressed by other provisions of the DMCA.(69)
The copyright community argued that Congress, in enacting the DMCA, already addressed the "flash points" to which the proponents of H.R. 3048 make reference. For example Title II of the DMCA (now section 512 of the Copyright Act) fashions limitations of remedies that apply to infringements, including notably incidently copying "that may occur in the course of activities that are essential to the smooth functioning of the Internet, such as linking, storing, caching, or providing conduit services."(70) Given this, "the proposed incidental copying exception remains a drastic ... solution in search of something more than a largely theoretical problem."(71)
The copyright community took exception to the suggestion that the narrow exception to the reproduction right set forth in Section 117(a)(2) should somehow be expanded to include back-up copies of sound recordings, music, audiovisual works, or databases -- or for that matter, any other content that consumers lawfully acquire through digital downloading. Adoption of the proponents' request would likely encourage malevolent behavior on the part of certain actors, and mislead the public generally.(72)
C. Hearing Testimony
The testimony presented at the November 29, 2000 hearing supplemented the submissions provided to NTIA and the Copyright Office during the comment period. Summaries of individual testimony provided by the witnesses can be found in Appendix B. This section will highlight selected portions of the hearing that provided additional explication of arguments set forth in the comments and reply comments.
Much discussion during the hearing centered on "forward and delete technology" and its ability to undergird the Boucher-Campbell proposal to amend Section 109. Even assuming the existence of this or similar technology that could reliably restrict the consumer to transmitting a single version of a copyrighted work to a single end-user (with the original copy being rendered unaccessible/unuseable to the initial consumer), representatives of the copyright community were steadfast in their opposition to both the amendment and technology associated with it. Several concerns were raised throughout the course of the day, including quality of the digital transfer;(73) impact on contractual licensing arrangements;(74) and evidentiary, procedural,(75) and privacy(76) considerations. One representative, who agreed that he would not have an objection to amending section 109 if appropriate technologies were extant,(77) set forth "minimum standards" which would have to be satisfied prior to any adoption of new policy with respect to Section 109. These would include the following:
- the technology must be exempted by section 1201 of the DMCA;
- the use of the technology must be voluntary and should not impose substantial costs on the copyright owners;(78)
- use should not impede the incentives underlying the Copyright Act to create and distribute new works of authorship;
- the technology should not burden or adversely affect the copyright owner's interest in exploiting the work itself;
- the technology should be developed pursuant to a broad consensus of copyright owners and other relevant industry representatives and should be made available to those parties on reasonable terms;
- the technology must attach to any generational copy;
- the technology should prevent the source copy from being transferred unless the transferor retains no electronic or nonelectronic copy of the work regardless of the format; and
- the source copy must be destroyed simultaneously.(79)
Testimony was presented that technology is currently available to protect digital goods in such a way as to prevent unauthorized copying. In fact, technology exists (and had been used by the company providing testimony) that permitted digital copies to have as much, if not more, copy protection as the same copyrighted work delivered on a physical medium such as a compact disk.(80) The company, a supporter of a digital first sale doctrine, noted that when digital goods are treated differently from physical goods, content owners are free to apply different rules to those goods, in a manner having a direct negative impact on consumers.(81)
These differences are not consumer friendly and the rules imposed by content owners are often hostile to consumers. ... Consumers expect to have the same rights of ownership they have with physical goods. We found that they don't understand why they can't do the same thing with digital goods as they could with the same product in a physical format. ... The key to digital commerce is acceptance by consumers. Consumers won't accept digital commerce until it is ubiquitous, easy to access, and can be used, consumed, in a manner that is satisfying. ... If consumers aren't buying, there is no market. Without a market, content owners won't be paid for a product they have a right to sell. Everyone loses.(82)
Sentiments expressed by one commenter attempted to encapsulate the reality of the situation:
[Consumers] have for decades bought physical CDs, bought physical books, and have been able to do with them as they wish. When a time comes, and we hope the time never comes that a consumer bumps smack up against a restriction imposed on them because the first sale doctrine was not updated, there is going to be a tremendous human cry and the human cry is not necessarily going to be first to Congress. It's going to be a backlash against e-commerce companies that are selling them something that they think is insufficient, inadequate, and does not deliver to them the full value and flexibility that they expect from CDs, from books, and from hard copies of goods, as well as from digital media which inherently people view as being more flexible and capable.(83)
The copyright community expressed disagreement with this outlook, noting that the marketplace should be given an opportunity to "help us see a little more clearly what it is that consumers want and what is most important to them."(84)
Marketplace Determination of Business Models or Applications to Effect a Digital First Sale
Many within the copyright community argued that the market should determine the type of business model or application to be used. In their view, the marketplace should be allowed to do so without being placed in a "statutory straight jacket" of requiring use of a particular technology.(85) The proponents countered that the doctrine of first sale has never been a creation or function of the marketplace. Rather, it has been a legal limitation on what the marketplace could achieve. "To say that the market ought to control on the question of whether we should have the functional equivalent of first sale in the digital environment seems to be to perhaps wrongly characterize what that first sale functionality has always been; that is, as a limitation on market function. This is essentially a cultural as well as a commercial issue ... ."(86)
A Practical View of "Back-Up Copying" of Computer Programs
Testimony was provided addressing "back-up" copying of computer programs. According to one witness, Section 117 assumes that only computer programs need to be backed up to guard against a failure of the disk drive normally holding the computer program or a similar catastrophic failure that will require the restoration of the computer program, and that archival backups are done on a program-by-program basis. In many common backup situations, neither is the case. One witness summarized his testimony on this issue as follows:
Backup operations on file servers copy an entire file system or selected directories to the archive medium. Between full backups, incremental backups are made comprising those files that have been changed since the last backup was made. Such backup operations generally do not discriminate between computer programs and other types of files. They make a copy of every file on the particular file system or directory. These backup are generally performed by a system administrator, who can't reasonably be aware of whether a file is a computer program or a data file, whether the limits on backup copies in software licenses have been exceeded, or even whether the user has rightful use of the programs and files. With the advent of CD-ROM drives on personal computers, many users are writing similar backup disks of their personal directories. Although such file backups are done (or should be done) at every computer installation, there is nothing in Section 117 that sanctions them. These backups should be addressed by Section 117, so that people will respect its other limits.
Section 117 is also unrealistic in its requirement of destroying all archive copies when a license to a software package has expired. It would be exceeding difficult to delete such program files from a tape backup, even if it were clear which files to delete. It is impossible to selectively delete files from a CD-ROM, which can't be changed after it has been written. But that inability to delete such files will not result in any hardship for copyright owners, since system administrators or users are unlikely to give their backups to others because of the personal information and other files that they also contain.
Amending Section 117 to permit the creation of archive files containing not only computer programs but any digital information, and removing the requirement that files on the archive must be destroyed, will not provide a loophole for copyright infringement of digital material. It would still be an infringement of copyright to use the backed-up information without authorization, since the archive right only covers the creation of the backup, not any reading of information from the backup. But it will recognize the realities in file backup procedures.(87)
Testimony was presented by a number of web companies engaged in the business of Internet webcasting or streaming, all of whom sought legislation clarifying that temporary copies inherent to digital transmissions do not implicate copyrights. This group urged that temporary buffer memory copies for lawful streaming should be explicitly placed outside the copyright owners' monopoly power and right to demand compensation.(88) These copies in buffer memory are technically required for the transmission and playback of streams of music on the Internet both during transmission through the Internet infrastructure and also at the ultimate destination, the user's personal computer.(89) According to these web companies, there is "no practical way to transmit and play back streams without [buffer copies]. These buffer memory copies are not permanent. They bring no value to consumers and consumers will not pay for them. They are mere technical necessities no different ... from the buffer copies made every day in CD players, in e-book readers, and other electronic players of digital material. ... [T]he clarification we request should be precise about exempting buffer memory copies for all lawful transmissions and playback, not just those that are licensed."(90) Absent such clarification, the streamers contended that they "would continue to be exposed to the threats from owners of copyrights and their representatives who contend that we who stream audio files online must not only pay public performance fees (music performance rights and the sound recording performance rights), but also must pay again for the fleeting buffer memory copies as if such were the equivalent of permanent downloads."(91)
The copyright community responded to this line of reasoning by noting that it was not their role to "subsidize certain types of business models by refraining from enforcing, or seeking no compensation for the exercise of, one of their exclusive rights." (92) In short, amending section 117 would compel the copyright owner, the composer, the record copyright or "whatever copyright owner is involved to be forced to forego compensation for exercise of those rights."(93) The web companies pointed out that the resultant copying is purely a "technological accident" of the way that the Internet protocol is created.(94) Choice of business model does not enter into the discussion. The web businesses concluded that "copyright laws should avoid needlessly placing obstacles in the way of commerce and consumer enjoyment, particularly hurdles on the most trivial of technicalities. This is particularly advisable when clarifications of the law will have virtually no effect on a copyright owner's reasonable and just expectations for compensation."(95)
On a related topic, proponents were of one voice in rejecting application of Section 512 of the Copyright Act to their activities.(96) That section, which fashions limitations on the remedies that apply to infringement including all the incidental copying that may occur in the course of activities that are essential to the functioning of the Internet, was thought to be particularly helpful for those who qualified as Internet service providers within the meaning of Section 512. Many webcasters and Internet broadcasters, however, do not claim to be Internet service providers. Moreover, Section 512 does not provide a solution for those at the "end of the process after you get through the ISPs," where the end-users' personal computer is generating a buffer copy that is used in order to facilitate the streamed performance.(97)
Several participants at the hearing were concerned regarding the use of terms incorporated in licenses (including click-thru and shrink wrap licenses) that would "override consumer privileges codified in the Copyright Act such as the Section 109 first-sale doctrine or the Section 117 adaptation and archiving rights."(98) The proponents advocated new legislation, "perhaps in the form of amendments to Section 301 of Title 17 that would provide a clear statement as to the supremacy of federal law providing for consumer privileges under copyright over state contract rules which might be employed to enforce overriding terms and shrink wrap and clink-thru licenses."(99) One commenter attempted to sum up these arguments in the following manner:
The trend toward the displacement of the provisions of a uniform federal law (the United States Copyright Act) with licenses (or contracts) for digital information is of great concern. College and university administrators, faculty, and students who previously turned to a single source of law and experience for determining legal and acceptable use must now evaluate and interpret thousands of independent license terms. A typical license agreement will limit if not eliminate the availability of fundamental copyright provisions (such as "fair use" and the ability for libraries to "archive and preserve" information) by characterizing the information transaction as a "license" rather than a "sale." It is misleading to contend that "freedom of contract" will prevail and that license negotiations are between entities with equal bargaining power, especially when non-profit educational institutions are usually presented with standard license agreements developed by the information providers. The enforceability of "shrinkwrap" or "clickthrough" licenses also poses the same restrictive use regime on individual students, faculty, and researchers. I am not convinced that copyright protections for authors and creators of digital materials is [sic] so much in peril that we must resort to a (non-uniform) system of individual licenses that also opens the floodgates for restrictions on otherwise legitimate uses.(100)
The copyright community responded to these arguments, noting that the intent of the first sale doctrine has never been to "restrict the ability of copyright owners to enter into contracts that [certain communities] find objectionable."(101)
We think that it's important for parties voluntarily to write licenses about what can and cannot be done with copies. They can dispose of them, transfer them, lend them. ... The point I'm making is whatever you chose to do, it's important to ensure that private parties retain the right to write licenses as they see fit and as they freely agree to do so.(102)
Another member of the copyright community addressed these concerns in the following manner:
[C]opyright is a form of property and copyright owners like other property owners must be able to capture the value of that property through the use of licenses and other contracts. Indeed, the rapid development of new digital music business models will require the flexibility of contractual arrangements to meet the expectations of all the parties involves which includes consumers, distributors, recording artists and record companies. This is especially true in this new environment where the needs and desires of these groups can change quickly. Furthermore, the use of technological measures to support the contractual agreements of the parties is also essential to the deployment of new music delivery methods. For this reason, we strongly object to the suggestions of some commentors that Section 109 should be amended to place limits on copyright owner's ability to contract freely with respect to their intellectual property. ... Moreover, other areas of the law such as contract and antitrust are available to resolve any concerns about licensing practices. Section 109 simply is not the place to address these matters.(103)
Additionally, of particular concern to the copyright community was the proponents' views regarding the Uniform Computer Information Transactions Act ("UCITA") and efforts to ensure its passage in every state. The copyright community was concerned that certain proponents for a change to Section 109 would mislead the general public into believing that UCITA ignores the supremacy of federal law.
While ... UCITA provisions may not meet the over zealous demands of the DFC and the libraries for new statutory creation of rights for users of computer information, it is clear that state-based law properly defers to the supremacy of federal law on issues involving fundamental public policies including the applicability of the Copyright Act's fair-use exceptions and the latest provisions of the DMCA. To do otherwise would have risked disturbing or even destroying the delicate but deliberate balance that U.S. law has always maintained between the federal system of copyright protection and the state role in determining agreements among private parties including contracts and licenses.(104)
The record compiled in this matter reveals deep divisions between the proponents of legislative changes to Sections 109 and 117 and the copyright community. Very little consensus appears to exist with respect to the possible application of Sections 109 and 117 to the digital world, and the effect on the development of electronic commerce and associated technologies. The record does contain information about some exciting new technologies that in the near future may assist in resolving some of the more difficult issues presented by the need to adequately protect the rights of the copyright community in the digital world. Thus, NTIA believes that it would be premature to draw any conclusions or make any legislative recommendations at this time with respect to either Section 109 or 117, but believes there are several areas that warrant further Congressional inquiry.
With respect to Section 109, there does appear to be limited consensus with respect to one particular application to digitally downloaded files. Both the proponents and the copyright community seem to agree that if the files are downloaded with the consent of the copyright owner, a "lawfully made copy or phonorecord" will have been created on the PC hard drive or tangible portable medium (such as a writeable CD). Thus, Section 109 would apply to the owner of that new digital copy or phonorecord. With respect to other applications of Section 109 to digitally downloaded files, however, there was considerable divergence between the stakeholders with respect to whether a copyright owner's interest could be adequately protected. There was significant information in the record to suggest, however, that DRM systems and other like developments hold some promise of offering a technological solution.
With respect to Section 117, the record does reflect considerable information about the technical functionality of the Internet and the practical reality of the way, during the course of Internet webcasting, Internet protocols require the temporary storage of data, before reassembling and playing it in real time for the consumer. According to the record, this data is eliminated once the playback actually begins. There was also significant information in the record to suggest that the temporary storage of a few seconds of content during webcasting had no separable economic value apart from the value of the performance itself for which copyright owners would be compensated. Thus, it appears further Congressional consideration of whether an extension of the principles underlying Section 117 to buffered content stored in RAM, as required for playback of Internet webcasting, is warranted.
Similar focus might also be given to examining whether Section 117 principles should be extended to the temporary copies of recorded content made in the course of playback. Virtually all devices that playback content recorded in a digital format must process such content by first loading all or some portion of it into memory. This is an essential and critical step for all computing devices that allow playback, including CD-players, DVD-players, HD television receivers, and a host of new portable devices. Again, while there is considerable division among the stakeholders, further consideration might be given to whether an extension of Section 117 is warranted given the above-cited technological imperatives.
One other issue emerged from the Section 117 examination, not arising out of the reality of "how the technology operates," but rather from a review of practical computing in everyday life. The record contains descriptions of the manner in which some "backup" or "archival" copies are made. First, in connection with an archiving of the data from a computer, most people will likely copy every file on a particular file system or directory. Second, given the growing popularity of digital downloading, the making of a single backup copy of lawfully acquired digital content to protect against server or hard drive crashes (or to transfer to an updated computer system) is not surprising. Thus, Congress might consider further examination of real-world practices raised during comment period and November hearing.
2. H.R. Rep. No. 105-551, pt. 2, at 21 (1998). The objective of Title I of the DMCA was to revise U.S. copyright law to comply with two recent World Intellectual Property Organization treaties and to strengthen copyright protection for motion pictures, sound recordings, computer software, and other copyrighted works in electronic formats. To this end, the Act prohibits the circumvention of copyright protections measures; proscribes the falsification of copyright management information accompanying a copyrighted work; limits the liability of Internet service providers for the infringing activity of their users; and exempts from prohibition the copying of a computer program for the purpose of maintenance or repair.
5. "Due to the ease with which digital works can be copied and distributed worldwide virtually instantaneously, copyright owners will hesitate to make their works readily available on the Internet without reasonable assurance that they will be protected against massive piracy. Legislation implementing the [World Intellectual Property Organization treaties on copyright and on performers and phonograms] provides this protection and creates the legal platform for launching the global digital on-line marketplace for copyrighted works." S. Rep. No. 105-190, at 8 (1998).
6. H.R. Rep. No. 105-551, pt. 2, at 22 (1998). "A thriving electronic marketplace provides new and powerful ways for the creators of intellectual property to make their works available to legitimate consumers in the digital environment. And a plentiful supply of intellectual property -- whether in the form of software, music, movies, literature, or other works -- drives the demand for a more flexible and efficient electronic marketplace." Id.
8. 17 U.S.C. § 104. This report focuses on the electronic commerce aspects of the evaluation consistent with NTIA's mission. The Copyright Office will provide its views in a separate report to follow.
11. "Electronic commerce is a means of conducting transactions that, prior to the evolution of the Internet as a business tool in 1995, would have been completed in more traditional ways - by telephone, mail, facsimile, proprietary electronic data interchange systems, or face-to-face contact." U.S. Department of Commerce, Economic and Statistics Administration, Office of Policy Development, The Emerging Digital Economy II, (June 1999), p. 1.
12. The U.S. Government Working Group on Electronic Commerce, Leadership for the New Millennium: Delivering on Digital Progress and Prosperity, (2000) Third Annual Report (2001), ("Leadership Report 2000"), p. vi.
13. Press Release, United States Department of Commerce, Economic and Statistics Administration, U.S. Census Bureau, Retail E-Commerce Sales in Fourth Quarter 2000 were $8.7 Billion, Up 67.1 Percent from Fourth Quarter 1999, Census Bureau Reports (Feb. 16, 2001).
16. U.S. Department of Commerce, Economics and Statistics Administration, Digital Economy 2000, p.21, referencing Forrester Research, Spectacular Growth for Digital Delivery, February 7, 2000 reported by Nua Internet Surveys (http://www.nua.ie).
17. "Efforts are underway within the U.S. government, multilateral organizations, and within the private sector, to resolve thorny issues related to privacy, safeguards for children, consumer protection, information security, authentications, intellectual property rights, jurisdiction, taxes, and tariffs." Id., at 22.
19. The comments that were received during the comment period are available at the Register of Copyrights, Index of Submissions (visited February 26, 2001) <http://www.loc.gov/copyrights/reports/104study/comments.html> and at the National Telecommunications and Information Administration, Index of Comments (visited February 26, 2001) <http://www.ntia.doc.gov/ntiahome/occ/dmca/commentssindex.htm>.
20. Letter from the Honorable Patty Murray to Marybeth Peters, Register of Copyrights, and Gregory L. Rohde, Assistant Secretary of Commerce and Administrator, National Telecommunications and Information Administration, dated September 21, 2000. Letter from the Honorable Jay Inslee to Gregory L. Rohde, dated September 27, 2000. Letter from the Honorable Slade Gorton to Marybeth Peters and Gregory L. Rohde, Dated September 28, 2000.
21. Although 46 comments and reply comments were received during the comment period and 40 persons presented testimony at the November hearing, two distinct coalitions emerged, based on continuity of views. The first group, the proponents of extending sections 109 and 117 to digital media, included the Digital Media Association (a coalition of more than 50 technology developers, webcasters, and retailers) (DiMA); the Digital Futures Coalition (DFC); the Home Recording Rights Coalition (HRRC); the National Association of Recording Merchandisers (NARM); the Computer & Communications Industry Association (CCIA); the Video Software Dealers Associations (VSDA); and the Library Associations. The second group, the copyright community, included the Copyright Industry Organizations (the American Film Marketing Association, Association of Music Publishers, Business Software Alliance, Interactive Digital Software Association, Motion Picture Association of America, National Music Publishers' Association, and the Recording Industry of America, collectively and individually); Time Warner, Inc.; Software & Information Industry Association, Broadcast Music, Inc.; and Reed Elsevier Inc. The report will use the terms "proponents for change" and "copyright community" for ease of reference. A complete list of commenters and witnesses at the November 29, 2000 hearing is available at Appendix A.
The limited scope of the copyright holder's statutory monopoly, like the limited copyright duration required by the Constitution, reflects a balance of competing claims upon the public interest: Creative work is to be encouraged and rewarded, but private motivation must ultimately serve the cause of promoting broad public availability of literature, music, and the other arts. The immediate effect of our copyright law is to secure a fair return for an 'author's' creative labor. But the ultimate aim is, by this incentive, to stimulate artistic creativity for the general public good. 'The sole interest of the United States and the primary object in conferring the monopoly,' this Court has said, 'lie in the general benefits derived by the public from the labors of authors.' When technological change has rendered its literal terms ambiguous, the Copyright Act must be construed in light of this basis purpose.
DiMA Comments (citing Twentieth Century, at 156 (citations and footnotes omitted); emphasis added).
Where a statutory provision that was intended to implement a particular policy is written in such a way that it becomes obsolete due to changes in technology, the provision may require updating if that policy is to continue. Doing so may be seen not as preempting a new market, but as accommodating existing markets that are being tapped by new methods.
DiMA Comments (quoting Report on Copyright and Digital Distance Education, at 144 (May 1999)).
25. Another commenter, the Home Recording Rights Coalition, went further, noting that legal certainty in applying copyright to new digital technologies will benefit copyright owners and consumers alike, and will open the market to more exciting and compelling technologies and business models. Comments of the Home Recording Rights Coalition (HRRC Comments) (August 4, 2000.)
26. Both the National Association of Recording Merchandisers and the Video Software Dealers Association contend that the first sale doctrine already applies to digital media, and the appropriate inquiry for this study is whether the DMCA or electronic commerce may have an effect on it, such as to weaken its salutary purposes. See Joint Comments of the National Association of Recording Merchandisers and Video Software Dealers Association (NARM and VSDA Comments) (August 4, 2000). NARM and VSDA are concerned by the trend of some major copyright owners to use technological measures to circumvent the operation of the first sale doctrine. "Although technological measures may lawfully be used to prevent copyright infringement and to effectuate the licensing of copyrights, they should not be used to permanently control the lawful distribution and use of copies or phonorecords once the legal right to do so has been exhausted." NARM and VSDA Comments. See also Comments of Robert S. Thau and Bryan Taylor (Thau and Taylor Comments) (August 4, 2000). The Library Association have called for a uniform federal policy that sets minium standards respecting limitations on the exclusive rights of ownership and that set aside state statutes and contractual terms which unduly restrict access rights. See Comments of American Library Association et al.(Library Association Comments) (August 4, 2000).
30. "CDs and books are resold freely; yet, the consumer/reseller may have copied these physical media using cassette or CD recorders, scanners, and photocopy equipment. Denying the first sale doctrine for digitally-delivered media ironically would deprive consumers of traditional privileges in a far more secure environment." DiMA Comments.
31. "DRM systems can protect against any threat posed by file-sharing technologies. If such files may be shared, they either cannot be accessed by the downloader, or (in the case of DRM systems that promote paid superdistribution models) cannot be accessed without payment of a fee." DiMA Comments.
34. For example, the first sale doctrine would be available for both traditional media in which works are fixed (VHS tapes), as well as tangible digital media (DVDs). The fact that the tangible medium contains works embodied in digital form does not affect the application of the first sale doctrine. Id.
35. See Comments of the Software & Information Industry Association (SIIA Comments) (August 4, 2000). See also, Time Warner Comments, n.1 ("We note that the initial downloading of a copy, from an authorized source to a purchaser's computer, can result in lawful ownership of a copy stored in a tangible medium. If the purchaser does not make and retain a second copy, further transfer of that particular copy on such medium would fall within the scope of the first sale doctrine.").
The first sale doctrine does not readily apply in the digital networked environment because the owner of a particular digital copy usually does not sell or otherwise dispose of the possession of that copy. Rather, "disposition" of a digital copy by its owner normally entails reproduction and transmission of that reproduction to another person. The original copy may then be retained or destroyed.
CIO Comments (citing House Manager's Report at 24, 46 J. Copyr. Soc. 631, 657 (1999)).
40. "Because content owners are not faced with the dangers that would result from application (in our view, misapplication) of the first sale doctrine to digital transmissions, content owners are encouraged to make their works available in digital form. They can make those works available for downloading, for streaming and for whatever other new technology develops in a variety of pricing and other arrangements so as to meet diverse consumer needs and desires. Misapplying the first sale doctrine to these businesses would quickly discourage them." CIO Comments.
42. "Copyright policy exists primarily to serve the public good, not only to establish economic rights for copyright owners." "In order to promote e-commerce, consumers that purchase copyrighted works via digital delivery should be ensured that they received the same value for their investment as when they by a book, compact disc, or video game from a traditional retail outlet, which necessarily includes the right to resell, lend or give away that particular item." DiMA Reply Comments.
49. See DiMA Reply Comments. See also NARM and VSDA Comments. DiMA notes that other commenters, including the Library Associations and the Digital Future Coalition, suggest that these problems should be addressed by the adoption of the digital first sale doctrine and an amendment to Section 301 of the Copyright Act confirming the supremacy over state laws (and non-negotiated license terms) of these federal law exemptions and privileges. See Library Associations Comments; Library Associations Reply Comments (September 5, 2000); and Comments of the Digital Future Coalition (DFC Comments) (August 2, 2000).
54. Id. See also, BMI Reply Comments. The copyright community takes exception to the views proposed by some advocates for a digital first sale doctrine when they argue that the tranferees of copies or phonorecords in digital formats should be "free to ignore contractual or licensing restrictions on further redistribution of these material, or that technological measures employed by copyright owners should be stripped of all legal protections if they have an impact on such redistribution." The copyright community notes that no cogent reason has been forwarded why a contract or license should not be enforced simply because it restricts the redistribution right that the transferee would otherwise enjoy under section 109 when applied to traditional media in which works are fixed, as well as tangible digital media. "Indeed, to the extent that the terms of a transfer include redistribution restrictions, it may well be that the transfer does not constitute a sale, the tranferree is not the owner of the copy in question, and the first sale doctrine is completely inapplicable. ... [I]t is hard to understand how the interest of consumers could possibly be served by shutting down particular e-commerce business models because of the particular status and perquisites they offer to the recipient of digital copyrighted products." Id.
57. DiMA Comments. This commenter notes the Copyright Office appears to have "reached a similar conclusion in its study of distance education, resulting in the recommendation that the scope of the Section 110(2) exemption should be expanded to encompass 'transient copies created as part of the automatic technical process of the digital transmission of an exempted performance or display.' Report on Copyright and Digital Distance Education (citation omitted)." Id.
Notwithstanding the provisions of section 106, it is not an infringement to make a copy of a work in digital format if such copying -
(1) is incidental to the operation of a device in the course of the use of a work otherwise lawful under this title; and
(2) does not conflict with the normal exploitation of the work and does not unreasonably prejudice the legitimate interests of the author.
This language, proposed by then-Senator Ashcroft in S.1146 during September 1997, is also found in the 1997 Boucher-Campbell bill, H. 3048.
67. 991 F.2d 4511 (9th Cir. 1993), cert. dismissed, 510 U.S. 1033 (1994). According to the Reply Comments submitted by the copyright community, the central holding of MAI is its reaffirmation that copies of computer programs made in the memory of a computer - in that case, temporary copies made in Random Access Memory (RAM) - are reproductions that fall within the scope of the exclusive reproduction right of the Copyright Act. MAI, 991 F.2d at 518-19. "The second major holding in MAI simply restricted the benefit of the section 117 exceptions to the sole party designated by Congress to enjoy it - the owner of a copy of a computer program, as distinguished from a licensee." MAI, 991 F.2d at 519 n.5. CIO Reply Comments.
70. Id. But cf. Comments of the Computer & Communications Industry Association (CCIA Comments) (August 4, 2000)("The potential exposure of Internet service providers for activities initiated by third parties led to the lengthy and costly negotiations that culminated in the [DMCA's] safe harbor provisions. Service providers now often find themselves modifying the structure of their services in order to comply with the safe harbors' complex legal requirements rather than deploying the most technologically efficient solutions. When the activity can not be squeezed into the DMCA's safe harbors, service providers and users alike must really [sic] on uncertain legal doctrines such as fair use, copyright misuse, and implied license to avoid legal liability").
71. Id. Other commenters were more direct in their approach. "Section 117 has nothing to do with the broadcasting of music and any attendant reproduction rights issues, and there is no indication in Section 104 of the DMCA that Congress intended that this inquiry should involve music or broadcasting-related issues on the Internet. In view of the explosion of webcasting since 1988 ... it is difficult to see how a brand new exemption is necessary to foster webcasting over the next several years. The Office and the NTIA should therefore decline the ... invitation to address these matters in the context of this proceeding." BMI Reply Comments.
73. "Quality of the digital transfer" refers to the speed, convenience, and potential global reach of the proposed first sale transaction. This term also references the ability to transmit, with the copyrighted work, the forward and delete technology such that any subsequent sale/retransmission would be similarly limited.
74. Assuming that technology to effectuate the Boucher amendment existed, one commenter noted that "the testimony and comments of the library communique indicate quite clearly that that would only shift the argument to the question of whether or not the digital first-sale doctrine trumps any kind of contractual licensing arrangement that may be involved with respect to the work." Testimony of Allan Adler, Association of American Publishers, Hearing Transcript, at 71.
Detecting unauthorized transmissions of copyright works is an inevitable and necessary first step in any enforcement effort involving the Internet and such detection would be no more difficult if some of those transmissions were, in fact, potentially privileged by virtue of an amended Section 109. If copyright owners object to being required to show the absence of first sale in connection with proving a claim of Internet-based infringement, the burden of demonstrating that the copy previously acquired by the person making the transmission was, in fact , erased or destroyed might fairly be assigned to whoever is claiming the benefit of the privilege.
Testimony of Professor Peter Jaszi, Digital Future Coalition, Hearing Transcript, at 225. The copyright community retorted that shifting the burden of proof "is really cold comfort here. This is not enforceable and it would be very easy for the end-user to say, 'Yes, I deleted it.' And then what do you do, conduct discovery about when he deleted it and look at his hard drive?" Testimony of Steven J. Metalitz, Esq., Copyright Industry Organizations, Hearing Transcript, at 289.
76. "Yet, when you look at the recommendation that they make in support of Mr. Boucher's approach to amending the first-sale doctrine, which would depend upon some notion of the practical enforceability of a simultaneous deletion concept which would be extremely intrusive in terms of personal privacy if anyone was to attempt to try to see if, in fact, it worked on a practical basis, you are left to try to figure out how to deal with privacy issues which were not even the subject of the study as the Congress set it forth in the requirements of the DMCA." Adler Testimony, Hearing Transcript, at 27-28. (The proponents noted, however, that the same kind of evidentiary privacy issues would arise in a non-digital world (i.e., photocopying a book before selling it to another and/or not destroying the photocopied version). See, Testimony of Rodney Peterson. Library Associations, Hearing Transcript, at 42.)
Another commenter from the copyright community noted that it would be neither possible, nor practical for the copyright owner or the courts "to verify that the source copy was discarded. Even if it was [sic] possible to determine that a source copy had been discarded, it would not be possible the verify that it was done so simultaneously." Testimony of Keith Kupferschmidt, Esq., Software & Information Industry Association, Hearing Transcript, at 87.
79. Kupferschmidt Testimony, Hearing Transcript, at 124-127. One commenter questioned the reason for the change to Section 109 if the forward and delete technology were ever to become ubiquitous, perfect, and met all necessary assumptions. "If copyright owners and everybody else used this technology, I think the best way to look at it would be as either an implied or explicit license to make copies of the material that had been transmitted on the condition that the technology was also employed to delete the original copy." Metalitz Testimony, Hearing Transcript, at 245.
80. "It is more difficult to reproduce those works in violation of the valid purposes of the copyright law than it would be to reproduce a book via a Xerox machine." Testimony of Charles Jennings, Supertracks, Hearing Transcript, at 344.
81. This sentiment was similarly held by other participants at the hearing. "Some commentors appear to contend that consumers who lawfully acquire electronic books or music via digital downloading should not have a first-sale privilege. This, in my view, constitutes a radical expansion of copyright principles." Testimony of Seth Greenstein, Esq., Digital Media Association, Hearing Transcript, at 232.
88. "It is, of course, possible that a real time transmission could be listened to or perceived as well as recorded, and, in that case, yes, both the performance and a reproduction right have been implicated. It is also possible for those to be implicated separately." Greenstein Testimony, Hearing Transcript at 236.
90. Greenstein Testimony, Hearing Transcript, at 329-330. See also CCIA Comments. Of major importance to the web business was that the proposed clarification would address lawful uses and copies as opposed to those authorized by a specific copyright owner. "This formulation is the best way to preserve consumer rights under fair use or consumer rights under exemptions with respect to private performances, i.e., nonpublic performance such as personal streaming from a locker service, and other exceptions and exemptions under the Copyright Act." Greenstein Testimony, Hearing Transcript, at 239. Members of the copyright community could not accept this language. "I would much prefer a term that says authorized because that would say that I have now licensing terms and conditions that are enforceable and the law is enforceable. The extent to which I have imposed, through the license, restrictions on what can and cannot be done are fully enforceable. The problem that we run into is that "lawful" term which sweeps in concepts as intended by Mr. Boucher of fair use which then are intended and interpreted as trumping those licensing terms and conditions. That's where we run into a problem." Testimony of Emery Simon, Business Software Alliance, Hearing Transcript, at 142-143.
91. Testimony of David Pakman, MyPlay, Inc., Hearing Transcript, at 330. After having conducted a study of 4 million customer usage patterns and the economic benefit that could be derived from that usage, MyPlay concluded that an amendment to Section 117 would be beneficial to copyright owners as well. The web business'study conclude that there was no rational business model that allows for payments by consumers or advertisers for mere buffer memory copies. "Royalties and payments due for use of copyrighted works are made possible only when an economically rational business can be built in accordance with the use of such works. We believe strongly that significant profitable businesses can be built from the use of copyrighted works. However, no business can be built or expanded solely by commercializing temporary buffer memory copies. Conversely, if royalties were due on the creation of purely transient copies, there is a substantial danger that presently viable business models would be fatally undermined." Id. at 331-332.
93. "Now there may well be good business reasons to do that and that is why we want negotiation over these fees and whatever other mechanisms are used to set these fees. That's why this is a business decision. There may well be good business reasons to do that but I don't think it's appropriate to amputate part of the reproduction right because the business model for webcasters isn't working out the way they told their venture capitalist it would." Metalitz Testimony, Hearing Transcript, at 277.
94. "But there is a technological necessity because of the way the Internet is designed to operate efficiently that causes this RAM buffer copy to be made. It is not captured in other ways. It evaporates. It is evanescent once the playback occurs. It has no independent commercial significance and we consider it ludicrous that we would be asked to pay for it twice." Greenstein Testimony, Hearing Transcript, at 278.
98. Jaszi Testimony, Hearing Transcript, at 228. See also Testimony of Rodney Peterson, Director of Policy and Planning , University of Maryland, Office of Information Technology, Hearing Transcript, at 22-24, and Testimony of James Neal, Dean of University Libraries, Johns Hopkins University, Hearing Transcript, at 16 ("The first sale doctrine is being undermined by contract and restrictive licensing. ... We believe that no review of the first sale doctrine and computer licensing rules should be completed without the Congress giving favorable consideration to a new federal preeemption provision affecting these rules."
101. Adler Testimony, Hearing Transcript, at 36. The copyright community has taken the view that Section 109 does not prevent them from entering into end-user license agreements and enforcing them through technology, including access control devices. See CIO Reply Comments, at 6 (first sale doctrine would apply to lawfully made copies only "in the absence of licensing or technological restrictions to the contrary"), and Testimony of Cary Sherman, Recording Industry Association of America, Hearing Transcript, at 300. But see, Testimony of Scott Moskowitz, Blue Spike, Inc., Hearing Transcript, at 100 ("[L]eaving digital works uncovered by [the] first sale doctrine give copyright holders and the technologists who develop copyright security schemes little impetus to develop more nuanced and context-appropriate means of securing their works against infringement that access restriction systems").
103. Sherman Testimony, Hearing Transcript, at 300. One member of the copyright community expressed that community's displeasure with the proposed changes advocated for Sections 109 and 117, arguing that they would create "substantial disruption to the marketplace calling into question the viability of well-established business models" for the software community. (Of particular importance to this witness was the impact proposed legislative changes would have to the emergence of application service providers (ASPs), who permit companies to use a software product without having to buy it or having to install it on a local computer. According to this witness, the demand for such services is expected to grow rapidly, by some estimates exceeding $21 billion by next year.) His comments attempted to meld licensing issues and concerns regarding the "reproduction right" as it applies to temporary copies. See Testimony of Emory Simon, Business Software Alliance, Hearing Transcript, at 108-115; 134-135 ("[u]nless we have a cause of action against those portions of copies being made, even on a temporary basis we have no reproduction right-based cause of action to go against now all those people that have exceeded the licensed authorized use of the work").
Another member of the copyright community did not endorse this attempt at melding the two concepts. See Testimony of Keith Kupferschmidt, Software & Information Industry Alliance, Hearing Transcript, at 135-136 ("the thing he brings up on a limited license where someone has licensed 10 copies or the simultaneous use of 10 copies. Because they are on a server and there's more than 10 people using it is a question of whether the person is a rightful user at that time. It's not a thing about whether it's in RAM at the time"). Indeed that comment would be supported in large measure by proponents who have argued that BSA's concerns with respect to ASPs and the proposed changes to Section 117 are mismatched. "Section 117 addresses the case where a copy must permanently reside with the user in order for the user to use the product. That may not be necessary for networked or thin client computing, but most definitely is required for the digitally-downloaded content" addressed by DiMA in its proposal. See DiMA Reply Comments. Another proponent approached BSA's testimony in yet a different manner. See Testimony of John Mitchell, Esq., Video Software Dealers' Association, Hearing Transcript, at 193 ("[t]he Business Software Alliance has indicated that ... they claim not to sell software but only to license the software. If that is the case, then logically if they haven't sold it and they still own it, the first-sale doctrine never applies, which begs the question why they are here? Why they are here is because I think they do recognize that, in fact, they do sell it ...").
Lists of Commenters and Witnesses
David Bender, Carla Funk, Robert Oakley, Emily Sheketoff, Duane Webster
Bryan W. Taylor
Charles Lee Thomason, Esq.
Computer & Communications Industry Association
Steven J. Metalitz, Esq.
Copyright Industry Organizations
Professor Peter Jaszi
Digital Future Coalition
Jonathan Potter and Seth D. Greenstein, Esq.
Digital Media Association
Home Recording Rights Coalition
Interactive Digital Software Association
John M. Zulauf
Computer Professionals for Social Responsibility
Michael L. Love
John T. Mitchell, Esq.
National Association of Recording Merchandisers, Inc. and
Video Software Dealers Association, Inc.
John M. Thompson
Office of Technology Transfer, Stanford Linear Accelerator Center
Patrice A. Lyons, Esq.
Przemek Klosowski, Ph.D.
Ray Van De Walker
Robert S. Thau and Bryan W. Taylor
Ronald C.F. Antony
Software & Information Industry Association
Walter F. McDonough, Esq.
The Future of Music Coalition
Bernard R. Sorkin, Esq.
Time Warner, Inc.
Walter Charles Becktel
I. Fred Koenigsberg, Esq., Joan McGivern, and Samuel Mosenkis
American Society of Composers, Authors and Publishers
Arnold G. Reinhold
Marvin L. Berenson, Joseph J. DiMona, Michael J. Remington, Esq.
Broadcast Music, Inc.
Bryan W. Taylor
Steven J. Metalitz, Esq.
Copyright Industry Organizations
Jonathan Potter and Seth D. Greenstein
Digital Media Association
Daniel C. Duncan,
Digital Commerce Coalition
David Bender, Carla Funk, Robert Oakley, Emily Sheketoff, Duane Webster
Michael (Mickey) McGown
Michael A. Rolenz
Charles J. Sanders, Esq. and Susan Mann, Esq.
National Music Publishers' Association
Christopher A. Mohr, Esq.
Reed Elsevier, Inc.
Software & Information Industry Association
Bernard R. Sorkin, Esq.
Time Warner, Inc.
Walter Charles Becktel
Witnesses at the November 29, 2000 Hearing before the Copyright Office and the National Telecommunications and Information Administration
Association of American Publishers
Motion Picture Association of America
Broadcast Music Inc.
Digital Commerce Coalition
Intertrust Technologies Corporation
Launch Media, Inc.
Digital Media Association
Professor Lee Hollaar
University of Utah
National Association of Recording Merchandisers
Professor Peter Jaszi
Digital Future Coalition
Home Recording Rights Coalition
Red Hat, Inc.
Software and Information Industry Association
National Music Publishers' Association, Inc.
Steven J. Metalitz
Copyright Industry Organizations
John Mitchell (for Crossan Andersen)
Video Software Dealers Association
Blue Spike, Inc.
James Neal and Rodney Peterson
Robert A. Nelson (for Charles Jennings)
Recording Industry Association of America, Inc.
Business Software Alliance
Bernard R. Sorkin, Esq.
Time Warner Inc.
Summaries of Testimony Provided by Witnesses