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On behalf of the Software Publishers Association (SPA), I wish to thank the Subcommittee on Courts and Intellectual Property of the House Committee for the opportunity to testify today on the National Information Infrastructure Copyright Protection Act of 1995 (H.R. 2441). SPA commends Representative Moorhead, Representative Schroeder, and other sponsors for advancing this important national discussion on the future of the Internet and other interactive telecommunications networks.
While SPA has some suggestions to modify H.R. 2441, its premises and goals are sound, and the bill -will provide software developers with the incentive to create copyrighted works for businesses, homes, and schools. In particular, SPA supports the following objectives of H.R. 2441:
þ To confirm that transmissions of computer programs may be protected as distributions of copies to the public;
þ To prohibit the importation, manufacture, or marketing of so-called "black boxes" for circumventing technical protection for computer programs; and
þ To prohibit removal or alteration of copyright management information -- the equivalent of digital "title pages."
These measures to amend the Copyright Act of 1976 are needed to maintain the balance between copyright owners and users because the Internet is making major changes in the way software developers and publishers provide their copyrighted works to businesses, homes, and schools. SPA urges Congress to keep its gaze fixed clearly on the limited measures proposed by H.R. 2441, and not on "phantom" legislation devised by some opponents whose real dissatisfaction lies not with the bill, but rather with commonly accepted provisions of the current Copyright Act.
Skills Bank Corporation - A Leader in Educational Software
My company, Skills Bank Corporation, is a leading developer and publisher of educational software, specializing in focused training in reading, mathematics, language, writing, and study methods. In just ten years, Skills Bank has grown from an idea to about 70 employees, among them software writers, quality assurance testers, marketing representatives, and managers, in Baltimore, Maryland. Despite its small size, Skills Bank software is used today at almost 13,000 sites, representing nearly 25 percent of middle and high schools in the United States. Skills Bank's next product, the Engydopedia of Basic Skills, will focus on "the home-school connection" - using technology as a bridge to carry learning from school to home and back again.
SPA Membership - A Populist Profile of the Software Industry
Skills Bank is a longtime member of the Software publishers Association (SPA). SPA is the principal trade association of the personal computer software industry, and is committed to protecting the intellectual property and promoting the interests of the computer software industry. SPA has over 1,100 member companies, including almost 300 companies in California alone, including these prominent software developers and publishers:
þ Business software companies Borland International, Novell, Symantec, Peachtree Software, and Adobe Systems;
þ Internet communication company Netscape Communications;
þ Computer hardware companies IBM Corp., Apple Computer, and Silicon Graphics;
þ Consumer software companies Broderbund Software, Intuit, Spectrum HoloByte, and LucasArts Entertainment; and
þ Education software companies Chancery Software, Jostens Learning, and, of course, Skills Bank.
With annual revenues under $10 million, Skills Bank is representative of SPA members and the software industry as a whole. In fact, a recent survey of over 800 U.S. software companies found that 85 percent had annual revenues under $10 million, and that 50 percent has annual revenues under $1 million) Like Skills Bank, these software companies are very entrepreneurial, with nearly 60 percent setting out to establish new markets - like the Internet.2
The Opportunities and Challenges of Digital Highways We have all heard that the Internet promises to transform our society. As a former fourth grade teacher, I never cease being excited about how Internet resources can help students master a difficult lesson, or inspire them to share their curiosity with children thousands of miles away. When that happens, I am glad that my company's software plays a part in teaching the basic skills to open their minds.
As president of Skills Bank, I have more modest hopes for my business. By almost any measure, Skills Bank is a small company, but on the Internet all that matters is the quality of your software and your service to consumers. The digital highway promises to even the odds of our success in the marketplace, free us from shrinking retail shelves - which increasingly only make room for massmarket titles -- and help keep the barriers to entering new software markets low enough for start-up companies.
This promise is reinforced in a recent report by Commercenet, a nonprofit corporation to facilitate electronic commerce. A recent survey found that 24 million people age 16 or older in the US and Canada had access to the Internet, and that 18 million had access to the World Wide Web, the popular Internet grapl-dc interface. ' The survey found that total Internet usage now exceeds that of on-line services such as America Online, and is approximately equivalent to playback of rented videotapes.3 According to the survey, the two most popular Price Waterhouse LLP, 1996 Software Business Practices Survey, p.38. The findings were consistent with a smaller survey conducted by SPA late last year. 2 id., at 34. 3 Executive Summary, CommerceNet/Nielsen Internet Demographics Survey (Oct 30,1995) The CommerceNet Consortium is a nonprofit corporation formed to facilitate the use of an Internet-based infrastructure for electronic commerce. See http:11wuw.commerce.net. uses were sending electronic mail (65 percent) and downloading software (31 percent). 4
To realize their full promise, the digital highways will need an abundance of cutting-edge software. Telecommunications networking software operates servers in offices and schools. Internet browsers and search engines search thousands of linked computers - including Congress's own THOMAS legislative database -- and authoring tools to create vivid graphics for World Wide Web home pages. Content-based multimedia works for recreation and education some of them from Skills Bank -- help us pass the time or learn something new.
Software companies are rushing to meet this burgeoning consumer demand for software. Nearly 50 percent of software companies surveyed expected to use the Internet for product demonstration or marketing in 1995 -- a major increase from the previous year, when less than 20 percent were doing so.5 But the Internet alone is not enough for Skills Bank and other software entrepreneurs to succeed -- or for our customers to enjoy its full promise. To keep up with consumer demand and our competitors, Skills Bank has since 1986 spent $20 million in research and development -- sometimes as high as 40 percent of our revenues.
Companies like Skills Banks need a strong copyright law to protect that investment. Article I, Section 8 of the United States Constitution gives Congress the power ItIo promote the Progress of Science and the useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries." This Constitutional purpose is embodied in the Copyright Act of 1976, which provides an incentive to create by giving authors and other owners of copyright certain rights in computer programs and other literary works, among them the exclusive rights to authorize reproduction, adaptation, and distribution to the public, subject to some limitations.6
4 Executive Summary, CommerceNet/Nielsen Internet Demographics Survey (Oct. 30,1995) The CommerceNet Consortium is a nonprofit corporation formed to facilitate the use of an Internetbased infrastructure for electronic commerce. See http:11www.commerce.net. 5 1996 Software Business Practices Survey, sul2ra. 6 Section 106 of the Copyright Act of 1976,17 U.S.C. 106.
Software Publishers
Association
NH Copyright Act of
1995 (H.R. 2441)
February 7,1996
That investment is chronically undermined by losses from software piracy, a form of copyright infringement involving the illegal duplication and distribution of software without permission of the copyright owner.7 One out of every five consumers recently surveyed admitted that they had copied software from friends at work or school.8 The annual SPA Global Software Piracy report estimates that over $1 billion in business applications alone were pirated in the United States in 1994 from all sources, including bulletin board services (BBS) and the Internet. According to that measure, one out of four business programs being used in the United States is an illegal copy.9
The easy reproduction of computer software, and the far- flung messaging capabilities of the Internet, have shifted the legal balance far away from copyright owners. Whenever software is downloaded or uploaded on the Internet or other networks, an identical and fully functional copy is reproduced on the user's computer -- all too often without the copyright owner's authorization. Moreover, multiple copies of this pirate software can be distributed at no incremental cost to other computers around the world. The following examples illustrate this problem:
þ A fellow SPA member company, id Software of Texas, finds that its best-selling computer games, such as DOOM and DOOM II, are routinely pirated on the Internet -- even though id has offered demonstration versions for trial use at no charge.
þ One suspected bulletin board service had more than 100,000 separate files-available for downloading, including many popular computer programs, and received more than 4,000 calls daily from 14,000 paying subscribers in the U.S., Canada, and Western Europe.
þ May 1995 - A subscriber to an online service sent over 150 unlicensed computer programs attached to e-mail messages, but the online service provider refused to take action against him for this clear violation of the Terms of Service even after being notified by the e- mail recipient.
7 Section 501 of the Copyright Act of 1976,17 U.S.C. 501. 8 SPA 1995 Consumer Survey. ') 1994 piracy rates and losses estimated in The SPA 1995 Global Software Piracy Report, at 5. The estimate does not include other types of software, such as multimedia and educational titles.
Over $1 million in pirated software was alleged to have been downloaded from an Internet site - even though it had operated for less than one month when the FBI shut it down.
With examples like these, it is no wonder that a recent survey found that software piracy and copy protection were ranked among the five most important issues for the software industry - up from 11th place the previous year.10 To deter online software piracy, Congress should recognize that willful copyright infringement on a commercial scale is a crime, even if there is no private financial gain or commercial advantage, and provide law enforcement with the necessary supervision and resources to investigate and prosecute pirate BBS and Internet site operators.
SPA Supports the Goals of H.R. 2441 - A Digital Update for the Copyright Act Companies like Skills Bank need an updated copyright law to effectively protect their copyrighted software on the Internet and other networks. In particular, Skills Bank and SPA supports three objectives of H.R. 2441:
þ To confirm that transmissions of computer programs are fully protected by copyright;
þ To prohibit the importation, manufacture, or marketing of so-called "black boxes" to circumvent technical protection for computer programs; and
þ To prohibit removal or alteration of copyright management information -- the equivalent of digital "title pages."
The premises and goals of H.R. 2441 are sound, and provide software developers with the incentive to create copyrighted works for users in business, homes, and schools.
Distribution by Transmission
SPA supports the amendment of Section 106(3) to include transmissions of reproductions within the exclusive right of distribution, and the amendment of Section 101 to define transmission of a reproduction as 'distributing it by any 10 1995 Software Business Practices Survey, supra. device or process whereby a copy or phonorecord of the work is fixed beyond the place from which it was sent." H.R. 2441 should help Skills Bank and other software companies take action against unauthorized Internet transmissions. Unlike television and radio programming, many if not all transmissions of computer programs and other works will result in complete digital reproductions being received by users. It is very easy for users to retain complete and perfectly functioning copies of the works they receive, and then to send them to as many other Internet sites as they wish -- with potentially significant harm to the copyright owner. These circumstances differ significantly from the public performance or public display of copyrighted works via broadcast or cable television, exclusive rights which are subject to statutory limitations in part because they typically cannot be captured and redistributed in digital form.
Prohibition of Devices and Services That Circumvent Technical Protection H.R. 2441 would add a new Chapter 12 to the Copyright Act of 1976, of which Section 1201 would prohibit the importation, manufacture, or distribution of any device, and prohibit any service, if its primary purpose or effect is to circumvent anv technical means of preventing or inhibiting copyright infringement without the authorization of the copyright owner or the law.
Under Section 1203, any person injured by these circumvention devices and services -- often called 'black boxes" could bring a civil action in U.S. district court for a number of remedies provided for copyright infringement injunctive relief, impoundment and destruction of the devices, actual damages and profits, and reasonable attorney's fees to the prevailing party. Section 1203 would also permit the injured party to elect statutory damages ranging from $200 to $2,500 per device, and authorize the court to order remedial modification of offending devices. Finally, Section 1203 would authorize a court to impose triple damages for repeated violations within three years.
SPA supports the goal of this provision, and urges Congress to study whether the 'primary purpose or effect' test could be made less burdensome for copyright owners, and whether adjusting civil remedies and establishing criminal penalties under appropriate circumstances would provide practical deterrents against these devices and services.
Software companies distributing copies of their software on the Internet may require software publishers to consider two forms of technical protection encryption to ensure that transmissions are not intercepted, and copy protection to inhibit serial copying. By prohibiting "black boxes," rather than mandating standard anti-copying technology, authors and rights holders will have the option whether or not to restrict access or implementation of their software. This will enable them to listen and respond to the desires of consumers in the marketplace, including the amount of serial copying they permit.
Calls for Congress to reject this measure are misplaced. First, H.R. 2441 would not require software publishers to use technological protection. Rather, it gives them additional security if they chose to do so, and their customers continue to license their software. Second, technical protection against copying has thrived for years in the software industry, not only in the form of dongles and other hardware locks for high-priced CAD/CAM applications, but also in the form of the CD-ROM disk, which unlike the floppy disk is still inconvenient and expensive for users to copy.
Prohibition of False or Altered Col2yright Management Information
H.R. 2441 would create a new Chapter 12 for the Copyright Act of 1976, Section 1202 which would prohibit the knowing removal or alteration of copyright management information without the authority of the copyright owner or the law. Copyright management information (CMI) would be defined as the name and other identifying information of the author and copyright owner of a work, the terms and conditions for using the work, and other- information prescribed by the Register of Copyrights.
In addition, Section 1202 would prohibit the knowing removal or alteration of CMI, and knowingly publicly distributing false CM, or importing false CMI for public distribution. Unless otherwise authorized by the copyright owner or the law, Section 1202 would also prohibit the knowing distribution or importation for distribution of altered CM, or the knowing distribution or importation for distribution of copies from which CM has been removed.
SPA supports the goal of this measure, but urges Congress to clarify that CM is not mandatory. Rather, CM should be defined as whatever information, if any, the author and copyright owner decide to use in connection with the work. This modification would be analogous to the pseudonymous and anonymous works implied in Article 15 of the Berne Convention.
Shareware developers already use various forms of CM to identify their computer programs before releasing them into the Internet. Now, mainstream software companies and groups like the American National Standards Institute and the Platform of Internet Content Standards (PICS), are studying how CM can be used to identify copies of computer programs.
Critics allege that this measure would prevent them from disabling so-called11 active" CM agents to protect themselves from invasion of privacy. It is true that intelligent software agents could be used, if need be, to recognize CM, to measure software use on the Internet, and collect royalties for the copyright owners. It should be remembered, however, that there is no privacy interest in copyright infringement, and that Congress would be free to evaluate existing laws on computer crime and privacy, and act if necessary to protect the public.
H.R. 2441 would also make several other changes in the Copyright Act, and SPA respectfully requests leave to make additional comments on these points.
Finally, many criticisms of H.R. 2441 focus on "phantom" provisions that are not proposed by the bill at all, and SPA would like to offer some comment on two of them here -- expanded copyright exemptions for libraries and schools, and expanded exemptions from liability for online services and Internet access providers.
Educational and Library Fair Use
Some representatives of schools and libraries have called for expanding "fair use" guidelines - which currently identify "safe harbors" for schools and libraries to reproduce and distribute books, periodicals, and music without permission - to include digital reproduction and network distribution. As an educational software publisher, Skills Bank agrees with SPA that expanding fair use guidelines to permit digital reproduction and network distribution could dramatically affect the business of hundreds of software developers and publishers who market instructional software for K-12, home, special needs, adult, school-to work, vocational and higher education.
Software licensing -- including lab packs, concurrent 11icenses, and updated site licenses - provides the best means to meet the desire for public access to computer programs. Market forces have dramatically lowered software prices, and software licenses have become increasingly flexible to accommodate the needs of schools. For commonly used programs, such as word processing programs, where many computers will have the same technology-based program installed, volume discount agreements can save the school district money. Some software publishers even report that schools are now negotiating licenses on a state-wide basis, and asking for significant licensing flexibility for the mere privilege to compete for the business of their school districts.
In my experience at Skills Bank, licensing is a win-win situation for software companies and educators alike. First, by increasing volume for software companies, licensing drives prices down for schools. Second, licensing is flexible enough to embrace the concept of "schools without walls," and I am sure that today's school district licenses will become community-wide licenses to make the most of the "home-school connection." Third -- and this is very important -- the increases in volume brought on by broader licenses will enable all school. districts in the community to make use of the licensed software. This promises to erase the economic inequities between school districts, and ensure that some of our children do not become "information have-nots."
Liability of Online Service and Internet Access Providers for Indirect Infringement
H.R. 2441 has no provision affecting the potential liability of online service providers, Internet access providers , and bulletin board services for their own direct infringement or indirect infringement by their subscribers. Because the U.S. district courts are now acting on several cases involving this issue, SPA believes that efforts to alter their liability are premature.
SPA relies on current copyright law - including liability for indirect infringement - to protect hundreds of software companies from piracy, and the software industry faces significant new hurdles in fighting software piracy on the information highway. Moreover, software developers have handled liability for direct infringement by their employees and contractors for years through indemnification and insurance.
A final point is worth making. On the Internet and other networks, software publishers and telecommunications service providers will be partners, and each should learn to value the contribution the other will make to success on the Internet. Therefore, SPA is deeply interested in any change in existing law that could make that fight more difficult or less effective, and would appreciate the opportunity to speak with interested Members of Congress and organizations about such efforts.
Conclusion
Congress should take prompt action to enact the reforms proposed in H.R. 2441 because the dramatic growth of the Internet, and consequent business practices will wait for nothing, even -- with all due respect -- the Congress of the United States. According to a recent survey, an estimated 24 million people now have access to the Internet, spending about the same time using the Internet as playing rented videotapes.
Without the measures now before Congress, it is true that Skills Bank and other software companies may make some software available on the Internet for promotional purposes or supplemental uses. But we would not have the incentive, and frankly just could not afford the risk, of putting our best programs and multimedia works on the Internet. While our customers -- schools and parents - could still license our software through stores and direct mail, they would not enjoy the full promise of the Internet and the digital highway.
An entire generation of Internet users is forming its attitudes and behavior toward copyrighted works at this very moment. Their respect for the copyrights of others will affect the commercial practices of Skills Bank and other software companies. Constitutional purpose of promoting the progress of science and the useful arts - as well as the Internet - is best served by enacting this digital update of the Copyright Act to provide the incentive for software companies to make their best software available on digital highways.