Judiciary HomepageThank you Mr. Chairman.
My name is Roy Neel and I am here testifying on behalf of the United States Telephone Association (USTA). USTA's members include over 1400 telephone companies, virtually every one of these 1400 local companies are also ISP's (Internet service providers.)
Telco ISP's invariably are both content owners and service providers. In virtually every case we own valuable intellectual property such as directories and data bases that are vulnerable to Internet Piracy today. For our companies the threat of Internet Piracy is not a future prospect. Moreover, many of our largest members are aggressively entering the traditional entertainment business such as those represented by MPAA. Some are already in strategic alliance with some of Mr. Valenti's members. As such we share the as yet unrealized - but potential - threat Mr. Valenti speaks to. Perhaps our major difference is that since our directories and data bases are already subject to attack we realize the need for Congress to act more quickly than the MPAA for whom the threat of Internet Piracy is still years away.
In addition, the ISP service USTA members provide particularly in rural areas, is usually the only opportunity consumers living in these areas have to access the Internet. The Committee should be aware that rural Internet service is not a major revenue producer. Unlike local telephone service, rural Internet access is not subsidized by other LEC services. Margins for Internet access to rural consumers are extremely small. So, while USTA members are committed to the Internet, the threat of copyright lawsuits is becoming an increasingly salient consideration in offering the service at all.
Litigation against ISPs has already begun and more litigation is being boldly threatened by individuals and major trade associations. Some brief examples of this trend include the following.
In 1995, the Church of Scientology filed two lawsuits against small to mid-sized ISPs because third-party infringers had used their Internet access services.
In August of 1995, Scientology sued Digital Gateway Systems (DGS), a small ISP based in northern Virginia, even though DGS responded within two business days to an allegation from the Church that a DGS customer was sending infringing communications and had secured a promise from him to cease all infringing activity.
In 1996 the Software Publishers Association (SPA) independently filed a series of, at least, five lawsuits in the Fall of 1996 against ISPs regardless of whether they had any knowledge of and control over an infringement.
SPA claims that ISP's are liable as infringers of copyrighted works simply by virtue of the fact that subscribers lease server space and Internet services from an ISP, or provides even a hyperlink to infringing materials that exist at another location, remote from the ISP.
The 1997 SPA Report on Global Piracy warns "This case serves as a warning to Internet users..... and to the ISP condoning the illegal activity."
The June 10, 1997 edition of Variety reports on a series of lawsuits filed by the Recording Industry Association of America. Although the specific suits filed by RIAA do not name ISPs, RIAA Vice President Frank Creighton left no doubt that suits against ISPs were coming "The fight about third party liability will be resolved in future litigation" he told Variety.
While USTA supports taking action against the actual pirates through he courts, the suits that have been filed by several trade associations and threatened by others could create a chilling effect on the provision of Internet service - especially in rural areas - unless promptly addressed by Congress.
Before discussing the specifics of the Coble Bill, I would like to make three fundamental points concerning what we believe Congress should do about ISP liability. Legislation needs to be enacted that does two things. First, the Internet itself should not be liable for copyright infringement. Information travels through the local exchange backbone and trunk lines as well as network components such as routers, connectors and servers of the Internet in packets of ones and zeros. While this unidentifiable content is moving through the network there should be no liability.
Second, when information becomes available to the human eye, such as when it resides on a web site, a cooperative system of notice and take down should be established. A cooperative system wherein the content owner has the responsibility to identify infringements and the service provider has responsibility to act on that notification will allow content to flow securely over the Internet.
Last year the subcommittee staff created a "Committee Print" which together with Representative Goodlatte's amendments made an excellent blueprint for such a system. The "mere conduit" provisions of that committee print taken together with the mandatory notice and takedown system are the right architecture for a legislative solution in this area. It is interesting to note that when the Patent and Trademark office looked at this same issue in October of last year they came up with precisely the same architecture, albeit with some different wording. Similarly, for the first time this year a bill has been introduced in the Senate on this issue (S. 1146 by Senator Ashcroft R-MO) which also adopts this same solution of exempting providers of network and establishes a mandatory notice and takedown system. When three different independent fora adapt the same blueprint for a solution to a complex problem we think it is a compelling endorsement of the solution.
Finally, it is critical to understand that only Congress, as a realistic matter, can enact this sort of solution. The suggestion that the courts, acting on a piecemeal case by case basis, develop the sort of system adopted by the May 14 House Committee Print, the October 10th PTO Draft and the Ashcroft Bill is totally unrealistic.
First we congratulate and commend Chairman Coble for introducing the first piece of legislation to clarify the confusion created by the inconsistent case law on service provider liability. We think Rep. Coble is on the right track. We need a legislative solution to this problem and we need it now.
Second we think the bill is on the right track by asserting up front that service providers are not to be deemed liable. We believe that this protection should clearly be mitigated and if they for example are the direct infringer the service provider should lose that liability as the bill states.
Finally we also think the bill is on the right track with its commitment to move the OSP Bill together with the WIPO Implementation Bill. We recommend that we take the next step on this road and actually join the two bills.
With respect to reservations we have about the Chairman's Bill I want to start by asserting that we appreciate that Chairman Coble's intent in introducing the legislation was to lay out the issues to be resolved by negotiation rather than presume to resolve them on introduction. Therefore I would like to divide our concerns regarding this bill into two categories, first its architecture as a vehicle for negotiation and second, specific reservations about the provisions of the bill.
1. Architecture for negotiation
Unlike last year's Committee Print, the Coble Bill does not include a network or conduit exemption. All persons are deemed not to be liable unless they perform any one of a dozen - undefined - activities including initiating content, altering content, sponsoring, endorsing, advertising content, etc.
Presumably, the definitions of these dozen or so functions will be decided via negotiation by interested parties. If via negotiation we could anticipate agreeing on 12 tight definitions that might be fine. Our concern is that if there are loopholes in just one of these definitions, the service provider is left with no protection from law suits at all.
We suggest the subcommittee revisit the solution outlined by Senator Ashcroft in S. 1146 as well as the May 14th 1996 House Committee Print and the October 10th PTO Draft Bill. Specifically, the network itself should be clearly exempted from liability. Second content owners and service providers should engage in a cooperative solution wherein notice by the former and "take down" by the latter provides protection against infringing material on the Internet.
2. Specific reservations about the Coble Bill:
a. The bill provides a disincentive for service providers to offer the very services which make the Internet affordable and usable by the average consumer.
For example (although the terms are currently undefined) the bill disincents service providers from "sponsoring, endorsing or advertising content." Presumably these terms are meant to refer to the functions of providing directories, "hot" and "cool" lists, hyper links and other user friendly devices. According to the bill, if a service provider does any of these things the service provider looses any protection from being sued by a content owner.
USTA questions the wisdom of legislation that inhibits the offering of these user friendly services. Without these services we would be left with the sort of Internet that we had a decade ago when you had to be a research scientist to navigate the Net. The idea of the Internet as a tool for economic development, general education or entertainment would be lost.
b. The bill indirectly forces service providers to institute a costly, inefficient and ineffective monitoring system and makes the service providers the Internet police.
Although the bill specifically says that there is no legislative mandate to monitor the Internet, it includes a laundry list of "prohibited acts" (e.g. sponsor, endorse, advertise, initiate, alter, content etc.) Engaging in any one of these twelve activities results in a loss of the Acts initial protection. Thus the laundry list serves as 12 Achilles heels for service providers.
Litigious content owners will certainly try to "fire" at all 12 and will likely hit one triggering liability for service providers. It is virtually inconceivable that content owners and service providers will be able to agree on air-tight definitions for all 12 acts in a Congressionally sponsored negotiation.
As a result, service providers will be faced with the Faustian decision of either cutting service or, if they offer the service, monitoring the Internet to protect themselves from law suit.
Indeed, the Software Publishers Association has specifically threatened that if ISPs do not adhere to the their code of conduct (which includes an ISP monitoring responsibility) they will be sued. (SPA news release 12/97)
Therefore, even though the bill does not explicitly mandate monitoring by service providers, it indirectly forces the ISP into a monitoring role by stripping the bill's protection from them for violating the laundry list
Monitoring by content owners as part of a "notice and take-down" system would be a practical step towards protecting intellectual property. However a service provider can never know if a particular work has been authorized or not. Hence monitoring by the service provider will ultimately fail to protect intellectual property.
The only sure effect of encouraging service providers to monitor the Internet is to vastly increase the cost of Internet service. Monitoring would have to be 24 hours a day since a web site can be changed at any moment. Monitors would have to be throughly trained since they would be asked to make legal judgements that they cannot make. The enormous costs of this program would be obviously passed on to the consumer.
c. The bill lacks both a network exemption and a mandatory notice and take-down system.
Congress does not need to address good hyper-links versus bad hyper-links, or the difference between a directory and a hot list. Such an effort could very well be overtaken by time or technology. There is a much simpler method that will both better protect intellectual property and provide the security ISPs need. It is the solution of mandatory notice and take down with a clean network exemption as embodied in Senator Aschroft's bill, the PTO Draft and the May 14th Committee Print.
d. The knowledge standard in the Coble bill should be amended.
The single biggest issue in this whole debate is what level of knowledge should incur service provider liability ? Hollywood and the software industry want the standard to be "should have known" and service providers, universities and consumers believe they should be liable only for what they actually do know.
The provision in the Coble bill dealing with knowledge and notice should be amended to eliminate the language referring to an ISP "knowing by other means" than a notice from the content owner. The standard for service provider liability, except when the service provider is the original infringer, should be contingent on "actual knowledge." Actual knowledge is gained by it when it receives a legal notice of alleged infringement from the content owner or licensee.
Hollywood and the software industry like to point to instances of what they call "obvious infringements," where presumably there is no doubt that a particular site contains infringing material. Of course, judging a book by its cover has been an unwise proposition since the advent of the printing press. Moreover our friends on the other side of the issue are not proposing that we are liable only in such cases of reckless disregard of the facts, they want to take us to court and argue about what we should have known.
For example in last week's Senate hearing one witness pointed to a site labeled "Pirate Music" and said there could be no doubt this is unauthorized use. Well it may well be a site of unauthorized use, or it could be a site of totally authorized use of the music by the new band the "Pirates." Some of us are old enough to remember an author named Abby Hoffman who wrote a volume entitled "Steal This Book." Were Mr. Hoffman alive today it is almost certain he would have a web site of his work probably entitled "Steal This Software."
The point is that only the content owner or his agent can ever know for sure what is an authorized use. And even if a telco or ISP had a strong suspicion that a work is infringing based on the title of a site, the content owner is in a better position to make that judgement. Technology is currently available for content owners to search for infringements, since they actually know what they are looking for. And they can act quickly to identify this activity. Our proposal is that they do this and then contact us so we may assist them in fighting piracy by taking the offending material down.
Last week one trade association put out a press release touting its effectiveness in fighting Internet piracy through current legal mechanisms such as cease and desist letters and threatened law suits. The result , they bragged is they now are able to eliminate an infringement in two weeks !
If we amend the Coble bill so the actual knowledge standard coupled with service provider responsibility to block infringements in a reasonable time became the law , pirated material could be deleted or blocked in hours or days, not weeks. This system is far better than the uncertainty of the current process.
There is no insoluble tension between the goals of copyright and the Internet. The stated purpose of our Constitution's copyright clause is to "promote the progress of science and the useful arts." The Internet (still in its infancy) promises to further that purpose as much as -- and perhaps more than -- any human invention.
However, some change to our current copyright law is necessary to make "an equitable and balanced solution" possible. Copyright law is the child of the printing press, which first made possible the widespread reproduction and dissemination of intellectual products. As technology has evolved, copyright law has adapted too, seeking to maintain a proper balance between encouraging the creation of intellectual products, and ensuring the public's reasonable access to those creations.
Until now, the task of adapting copyright law to the Internet has fallen to the courts. Unlike legislatures, courts are not free to adopt new rules appropriate to new technologies; they are constrained to proceed more cautiously, and on a case by case basis. When confronted with new technology, courts typically seek to draw analogies to older, more familiar technologies, to find the answers to today's problems in yesterday's innovations. So far, this has been the response of the few courts and commentators who have sought to reconcile the needs of ISPs and copyright holders. They have turned to analogies for guidance: Is the Internet analogous to a photocopy machine? A dance hall? A VCR?
The problem with this approach is that when we speak of the Internet, our analogies break down. The Internet is different. As the Supreme Court wrote recently, "The Internet is a unique and wholly new medium of worldwide human communication.'" Reno, et al. v. ACLU, --- U.S. ---, ____ S. Ct. ____, ____ (1997). The Internet has no owner. It knows no national boundaries. It is "constantly evolving and difficult to characterize." Id. at ____.
As one commentator has warned, "The use of [existing] copyright concepts, without questioning the continued validity of the assumptions on which they rely may limit our understanding of the digitized environment." Niva Elkin-Koren, Copyright Law and Social Dialogue on the Information Superhighway: The Case Against Copyright Liability of Bulletin Board Operators, 13 Cardozo Arts & Ent. L. J. 345, 381 (1995). The size, scope, and utility of the Internet differ so greatly from all previous media that analogies provide limited assistance when we ask how to accommodate the needs of ISPs and copyright holders. What we need is a new set of norms.
The reason these questions rise to the fore at this juncture is that, under the current state of copyright law, ISPs risk being held liable for massive damages for copyright infringement perpetrated by individuals without the knowledge of the ISP. In other words, ISPs face the prospect of being adjudged culpable for copyright infringement of materials that simply cross their facilities, with no showing whatsoever of (a) willful disregard for the rights of any copyright owner or knowledge that their facilities are even being used for that infringing conduct. Plainly, something is wrong here.
What is wrong is the mechanical application, to the radically new realm of the Internet, of legal norms and doctrines that matured centuries ago, in the age of the printing press. Because of its historical roots, copyright law threatens to put a damper on the expression of ideas on the Internet and to entangle unknowing ISPs in liability on three potential bases: direct liability, vicarious liability, and contributory infringement.
Parties have sued sysops and online service providers on a theory of direct liability for copyright infringement, based on the activities of third parties in uploading infringing materials to their instrumentalities. Although opinions have resulted from those suits at the district court level, the circuit courts have yet to weigh in with precedential opinions. As a consequence, the bounds of direct liability have not yet been drawn with sufficient precision.
USTA believes that the proper analysis for direct liability in this context is the one used by Judge Whyte in Religious Technology Ctr. v. Netcom On-Line Communication Servs., Inc., 907 F. Supp. 1361, 1372 (N.D. Cal. 1995): "[T]he court does not find workable a theory of infringement that would hold the entire Internet liable for activities that cannot reasonably be deterred." Unfortunately, that decision was issued from a district court and therefore does not constitute stare decisis or carry much precedential weight.
Given scant authority outlining the contours of direct liability in this context, it is unclear how a similar future case would be ultimately resolved by other courts. Even if this were to proceed to a higher court, as long as it is unclear that ISPs are free from direct infringement simply for conducting their business -- which a few unscrupulous customers may abuse for their own infringing purposes -- the law's uncertainty casts a pall over the entire Internet.
The two elements required to hold a party vicariously liable are the ability to supervise or direct and a financial interest in the infringing conduct. In the most comprehensive opinion to address vicarious liability for ISPs, the court granted summary judgment against such liability. Netcom, 907 F. Supp. at 1377. In the course of its analysis, the court relied on a recent decision absolving swap-meet operators of liability for the sale of bootleg audio recordings on their premises. Id. at 1376-77, citing Fonovisa, Inc. v. Cherry Auction, Inc., 847 F. Supp. 1492 (E.D. Cal. 1994). However, the Ninth Circuit recently reversed the Fonovisa district court holding. 76 F.3d 259 (9th Cir. 1996 lower court.) The question therefore arises whether, under the Ninth Circuit's expansive reading of vicarious liability, the Netcom case would reach the same result were it decided today.
One commentator argues that the Ninth Circuit's reversal would not make a practical difference; he relies on the fact that an ISP does not derive appreciable revenues from copyright infringement and, thus, stands in contrast to the dance-hall proprietor and the swap meet owner at which infringement notoriously occurred. See Carter Kirkwood, Under Which Theory Should Computer Owners Be Liable for Copyright Infringement by their Users?, 63 U. Chi. L. Rev. 709 (1997).
We agree with that conclusion. Unfortunately, its most salient feature is that it is precisely that -- only speculation. We simply do not know how courts would rule -- even how Netcom itself would be decided today, after the district court case on which it relied was itself reversed by the Ninth Circuit. That type of uncertainty is inimical to the growth of our industry. Again, USTA supports the adoption of certain and sensible equitable business norms for the Internet world.
The elements required for contributory infringement include knowledge of the infringing conduct and facilitating its consummation. The potential mischief comes from the definition of "knowledge." If all courts applied a standard that contributory infringement exists only when the defendant had actual knowledge of the occurrence of copyright infringement, then USTA would not be troubled. Unfortunately, however, some courts construe the knowledge requirement not as actual knowledge,but as constructive knowledge -- meaning that had the defendant engaged in further investigation, it might have uncovered the infringing nature of the subject material.
The difficulty with that scheme in the Internet context is only too apparent. While it may have been reasonable to hold the owner of a dance hall liable to investigate each song performed, it is unrealistic to hold an entity responsible for ten million "songs" transmitted through its "premises" simultaneously. Had the cases initially involved ISPs rather than dance halls, they never would have developed the doctrine of constructive knowledge in its current form.
Our proposal is that copyright owners and ISPs should share responsibility for protecting intellectual property on the Internet. When copyright owners discover infringement on-line, they should notify the ISP whose servers access the infringing material. When ISPs acquire actual knowledge that their services are being misused for infringing purposes, they should be obligated to take reasonable steps to halt further abuse. In response to appropriate notice from the copyright owner, ISPs should be obligated to prevent their services from being used to access infringing material. If, however, an ISP has neither received notice of infringement nor otherwise has actual knowledge that it is occurring, then it should not be held responsible for the acts of third parties. We believe this proposal allocates responsibility for protecting intellectual property fairly and efficiently.
First, it is entirely appropriate to hold ISPs responsible when they commit copyright infringement, or have actual knowledge that specific materials being sent over their facilities infringe a copyright. Under these circumstances, the ISPs can, as a practical matter, stop the infringing activity.
Where, however, ISPs neither facilitate copyright infringement, nor know about it, it would be inappropriate to hold them liable. Unfortunately, current law would hold ISPs liable in precisely this situation. Apologists for the current law argue that it encourages ISPs to ferret out copyright infringement on the Internet. But is it true? Is it possible? And would it be worth it?
We think not. First, such a regime would raise grave privacy concerns. Currently, ISPs do not spend their time monitoring every customer's transfer of electronic data. We, as a society, do not want ISPs to initiate such a massive invasion of privacy.
Second, if ISPs were required to employ an army of snoops to pick through every user's e-mail and Usenet postings, the enormous costs would be passed onto consumers. The consequence would be to convert a convenient and democratic medium into an expensive and elite one.
Finally and more importantly, even if ISPs could investigate every corner of the expanding online universe, ISPs would have no way of knowing whether the material they encounter is authorized by the current copyright owner or not. The Internet use of the copyright could be a licensed use in a vast chain of contracts that only months of research could uncover.
We believe that the task of ferreting out copyright infringement on the Internet should fall to the copyright owner. Today, copyright owners have access to a large array of Internet search engines and "spiders" to sniff out material they know belongs to them (unlike the ISPs, who cannot be certain who may have recently purchased which copyrighted material.) Once the copyright owners discover infringement, they can bring it to the attention of the ISPs. It is at this point that the ISPs can sensibly act.
The regime we propose is one of joint responsibility between copyright owners and ISPs. USTA would support legislation that spells out the obligations of ISPs to take appropriate remedial action in response to notices from affected copyright holders. Obviously, part of that regime must also include an exemption for the ISP from liability to those who may be adversely affected by the ISP's remedial action, even if it is ultimately determined that the material that is screened-off or taken down by the ISP is not, in fact, infringing.
USTA strongly supports protection for copyright and other legal interests on the Internet. While the USTA-member telephone companies provide Internet access services, they are also owners of vast holdings of intellectual property -- ranging from directories to software to traditional literary and audiovisual works. Our members have powerful incentives to preserve the value of their copyright portfolios through the protection of our nation's intellectual property laws. That is why we believe that USTA is uniquely situated to appreciate both sides of the critical issues before Congress today.
To promote the progress of knowledge on the Internet, those who are building the Net
itself need fair and predictable ground rules. Our proposal is designed with that goal in
mind. We look forward to working with the Committee to help forge a consensus on
how to resolve this complex issue.
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