Statement of

Brad Buckles

Executive Vice President, Anti-Piracy

Recording Industry Association of America

on

H.R. 3632,

“The Anticounterfeiting Amendments Act of 2003”

before the

Subcommittee on Courts, the Internet, and Intellectual Property

Committee on the Judiciary

U.S. House of Representatives

February 12, 2004

Mr. Chairman, Members of the Subcommittee, on behalf of the Recording Industry Association of America (“RIAA”), I want to thank you for inviting me to appear before the Subcommittee on an important piece of legislation before you today. My name is Brad Buckles, and I am Executive Vice President for Anti-Piracy at the RIAA.

In my capacity of Director of the Anti-Piracy efforts of the recorded music industry, I oversee a professional staff of full-time employees that represent the “front lines” in our daily battle against piracy. We have ten field offices positioned throughout the country, staffed by a variety of full-time investigators, attorneys, analysts, and administrative support whose sole function is to investigate illegal recorded music distribution and stem the ever-increasing flow of piratical product into the stream of American commerce. Augmenting our full-time staff is a sizeable network of part-time “stringers” and paid informants who provide indispensable input into our investigative efforts.

Prior to joining the RIAA, I served as Director of the Bureau of Alcohol, Tobacco, Firearms and Explosives (“ATF”) in the Department of Justice. My years with ATF exposed me to a variety of organized criminal elements undertaking sophisticated and well-orchestrated activities that endangered the American public and cheated U.S. citizens by ravaging the marketplace. In my new capacity with private industry, I can confidently say that the threats facing the U.S. creative community – while somewhat different in nature than those that I witnessed at ATF – are equally threatening to the bedrock of our American institutions, our American culture, and our American economy.

The Value of Music in America

The RIAA represents over 500 sound recording companies that are responsible for manufacturing over 90% of all legitimate sound recordings released every year in the United States. According to some independent estimates, major and independent record companies release approximately 30,000 new albums in the U.S. and abroad every year. Together these companies and hundreds of others like them strive to bring new exciting music to the American consumers and benefit the American economy. While many people think of famous artists when they think of the music industry, most artists barely make a living by selling moderate numbers of albums combined with other sources of income. Artists are supported by a cast of thousands of people who work behind the scenes as producers, sound technicians, and studio musicians, as well as artist development, marketing, promotion and distribution people. They are supported by people who work at the pressing plants, the warehouses, and the record stores. The intellectual property industries in this country (including the movie industry and the software industry represented here today) represent the largest segment of the American economy – at approximately 5% of the gross domestic product. In recent years, it has represented the sector of the economy growing at the fastest rate, and providing the greatest percentage increase in well-paying jobs. The creative industries demonstrate one area where American exports are booming, and in many countries epitomizes their experience of what it means to “be American.”

We therefore cannot afford to allow such an important component of our economy fall prey to the ongoing piracy we are currently seeing.

The Piracy Problem in America

The creative industries, although a substantial contributor to the vitality of the American economy, are currently under attack by piracy to a degree not witnessed previously. Through the advent of digital technology, individuals can now carry out perfect duplication on a mass scale previously reserved to sophisticated manufacturing operations that required the investment of millions of dollars. In recent years, the technology surrounding computers and CD burning, combined with the plummeting cost of the related raw materials (such as blank CD-Rs), has created an environment where substantial CD counterfeiting operations can be funded for under $10,000. And the same digital technology allows for perfect serial copying on a large scale without the degradation of quality that used to accompany analog piracy. In other words, a would-be pirate can create dozens of secondary copies from a single source, and each of these derivative copies can in turn create hundreds or thousands of derivative copies, and so on – with each copy being as clear as the original.

The exploding nature of piracy can be witnessed in the steady increase in seizures that the RIAA has witnessed over the past five years. Approximately 2.5 million counterfeit or pirate CD-Rs were seized in the first six months of 2003. This number is up 18.1 percent from almost 2.1 million seizures at mid-year 2002. The seizure of CD-R burning equipment during 2003 has demonstrated a similar trend. Likewise, it has been reported that two years ago the annual sales of blank recording media (CD-Rs, etc.) outpaced the sale of legitimate pre-recorded music for the first time. The RIAA estimates that hundreds of millions of dollars are lost every year to domestic sound recording piracy in the physical market alone. This number is increasing every year, and does not include the estimated losses from piracy on the Internet through unauthorized peer-to-peer services.

The ease with which illegal copying can be accomplished, combined with the low entry costs, the extremely large profit margin, and the comparatively lesser likelihood of criminal prosecution has not gone unnoticed by sophisticated criminal enterprises. We are witnessing increasing evidence of ties between physical piracy operations and sophisticated syndicates, including organized crime and international money-laundering rings. Piracy activity is often connected to other illicit activity as well, such as illegal immigration, tax evasion, and fraud. We commend the Subcommittee for being the first to investigate this problem last session with a hearing dedicated to the involvement of crime syndicates and terrorist groups with CD and DVD piracy which provides quick untraceable cash to carry out nefarious activities.

H.R. 3632 – A Good Beginning

In an effort to combat the financial hemorrhaging being experienced by the content owners, many have begun employing various authentication components to confirm the legitimacy of their products to consumers. These components may take the form of holograms or certificates of authenticity, and they help consumers and law enforcement agencies distinguish legitimate product from illegal product. Because it is much more difficult to manufacture these authentication components (especially as compared to manufacturing pirate CDs), they are more difficult for the criminals to pirate, and until recently the presence of such components was a fairly reliable indicator that the affiliated product was legitimate, or that the lack of such an authentication component was an indicator of piracy.

Unfortunately, the criminals are becoming increasingly adept at finding ways to pirate these authentication components, thereby increasing both the attractiveness of their piratical product and the difficulty in detecting fakes. Whether through the theft of legitimately created authentication components, or through the illicit manufacture of look-alike authentication components, the illegal use of such materials is causing the sound recording industry harm in several additional ways. First, their use further complicates the enforcement efforts of the RIAA and its sister organizations worldwide because we can no longer rely on the presence of these authentication components as a true symbol of “authenticity.” Second, they cause further damage to copyright or trademark owners whose intellectual property is affiliated with substandard and illegal products and the fake authentication components. Third, theyH.H. provide an incentive for another level of deception and law-breaking as pirates are forced to either mimic these components or obtain them through illegal means in order to affix them to counterfeit product.

For these reasons, the RIAA strongly supports the Anticounterfeiting Amendments Act of 2003. We believe increased penalties against the illicit use of such authentication components on physical products is a good start towards thwarting another step in the “pirate production line” that is affecting a large portion of American industries.

While physical holograms and certificates of authentication are attached to physical products, digital authentication components will obviously need to be attached to digital music products, and the use of such advanced authentication components may well be the key to effective law enforcement in the growing digital music marketplace. Thus, the concepts and principles contained in this bill can be extended, and should be extended, to the digital arena. Certainly, we believe that the illegal use and duplication of digital authentication components are an issue of great concern and ought to be addressed.

However, we also realize that the application of these anticounterfeiting amendments to non-physical product is a more complex undertaking than these amendments which relate solely to physical product. The interplay with other statutes governing digital piracy and digital copyright laws create challenging issues of statutory drafting. In recognition of the importance of making progress on the physical piracy problem as soon as possible, we support the amendments in their current form at this time. We strongly urge the Subcommittee, however, to turn to the issue of digital authentication components in the near future, so that the benefits of digital authentication technology can be fully realized.