Testimony of Maren Christensen
Senior Vice President, Intellectual Property Counsel
Vivendi Universal Entertainment
before the House Judiciary Committee
Subcommittee on the Courts, the Internet and Intellectual Property
July 17, 2003
Mr. Chairman, Congressman Berman, Members of the Committee, it is a pleasure to appear before you today. My name is Maren Christensen. I am Senior Intellectual Property Counsel for Vivendi Universal Entertainment. This is the first time that I have appeared before this Subcommittee - although I have followed its accomplishments for the past twenty years both in private practice and as in-house counsel specializing in copyright law. I appreciate the work that the Members of this committee and your predecessors have done to protect the rights of creators and to foster an environment where companies like Universal Studios can invest in new and innovative audiovisual works. Your work has enabled American filmmakers to entertain the world.
Universal is proud of its recent Oscar winners such as The Pianist, A Beautiful Mind and Gladiator This year we are enjoying great success with films like Bruce Almighty and TV programming including American Dreams and the shows within the Law and Order family. We are looking forward to the opening of Seabiscuit next week, and hope to have many more successful movies for years to come.
What is a time of great anticipation for us is also a time of some apprehension. Today, movie studios not only have to find an audience for their films; they also have to stop the pirates who would hijack our audiences using our own product.
As this Committee knows, piracy is the single greatest threat to America's creative industries. We face huge amounts of piracy both in the U.S. and abroad -- traditional physical goods piracy where organized enterprises reproduce and distribute VHS tapes and DVDs, and digital piracy exacerbated by the wonders of the Internet. To an increasing degree, on-line piracy is accomplished through peer-to-peer distribution systems where one illicit copy of a film can be made available almost instantaneously to millions of users around the globe.
Those who traffic in or use pirated materials erode the financial underpinnings of this uniquely creative, collaborative and capital intensive process. Quite simply, producers cannot invest their capital if they cannot recoup their investment and make a profit. Tens of thousands of creative artists - most of whom work off camera and are by no means celebrities or household names -- stand to lose their livelihoods, and movie fans stand to lose a major source of popular entertainment.
Despite the headlines, blockbusters are rare. We forget about the films that fail to find an audience or the TV shows that do not survive even one season. We are an optimistic community always looking for new ways to tell a story and enthrall audiences. But the unfortunate reality is that some 80% of the films and TV shows that we make do not recoup the money invested in production, marketing and distribution. This is a hit driven business where the successes have to pay for those that do not make it. This is not a problem for the pirates: they make money by stealing the hits and ignoring the misses --a great business model.
Technology has always presented us with enormous opportunities as well as risks and challenges. Anyone who has seen movies like "The Hulk," or "The Mummy" knows how enthusiastically the motion picture industry has embraced technology. My colleagues at Universal work tirelessly to reap the benefits of digital technologies, but also to keep tech savvy pirates at bay. Thanks to the committed teams of professionals at the Justice Department, FBI, Copyright Office, Patent and Trademark Office, United States Trade Representative, Customs Service, Federal Communications Commission and other agencies, motion pictures will continue to be one of America's preeminent trade assets, employers and contributors to the GNP.
I have been asked to describe a recent example of the kinds of threats facing the industry, as well as to discuss H.R. 2517, legislation designed to help ensure that the law keeps up with technological developments and that law enforcement has the tools it needs to protect America's creators.
Mr. Chairman, the following account mainly comes from information made public by the U.S. Attorney's Office in its Criminal Information dated June 25 as well as its press release. As I mentioned to the subcommittee staff, there are some facts that I will not be able to reveal in this open session.
On June 6, 2003 - two weeks before the film "The HULK" was scheduled to open in movie theatres - a member of Universal's anti-piracy team discovered that an incomplete work print version of the film had been illegally uploaded onto the Internet.
The studio invested over $150 million dollars to produce, market and distribute "The Hulk." That is not unusual for big summer films with expensive computer-generated graphics. But even films without special effects are expensive to make and release. Recent MPAA statistics indicate that the average - the average film released by a major American studio costs $90 million - some $60 million to make and another $30 million to market and distribute.
With this kind of a capital investment you can imagine how alarmed we were to find that a "work print" of the Hulk with only an early version of the state -of the-art computer graphics, and an incomplete version of the musical score - had been stolen, posted to the net and made available for downloading to PCs around the world. Within days, the original posting turned into tens of thousands of sources from which countless numbers of downloads could be made. And within those same few days, street vendors all over the world were selling DVDs made from a download of this stolen work print. All of this occurred a week before the film was released in theaters.
The threat to Universal and the film was obvious. People who watch a film for free do not have to go to the theatre. Pirates who get a film for free can reproduce it in VHS and DVD, translate it into any number of languages, and sell if for a few dollars. The fact that this was an unfinished version of the film created an additional threat: In an industry that depends on the subjective reaction of individual consumers and critics and positive word of mouth, we never want people to see a film until it is in its final, best form, and particularly not a film like this for which the visual effects and the music are so important.
The studio takes many steps to protect its films. There are internal and external procedures, and we are constantly improving physical and technological safeguards. Each work print of every film carries unique identifying characteristics to help us trace the source of any leaks. Universal had supplied such a work print to an advertising agency in New York that we and other Hollywood studios have worked with many times. The agency, like all other outside vendors who work with early versions of films, had committed to a strict set of security guidelines. The agency had obligated itself to keep the print secure and not to permit anyone to make or distribute a copy. In spite of this agreement, an employee of the ad agency loaned the work print to someone, who in turn loaned it to Mr. Kerry Gonzalez.
Mr. Gonzalez used his home computer to make an unauthorized digital copy of the work print, and then ran a special program designed to defeat the security markings embedded in it. He was able to obliterate some, but not all, of the unique markings on the print. He uploaded the digitized copy of the film to an Internet website chat room hosted from the Netherlands. The site is popular among movie enthusiasts who routinely gather there to post and trade copies of bootleg movies. Soon it was available all over the Internet.
Fortunately, we were able to recover identifying information from the Internet copy and work backward. Through the quick and aggressive action of the FBI's Computer Hacking and Intellectual Property Squad and the U.S. Attorney's office, Mr. Gonzalez was identified and found, and pled guilty to felony copyright infringement [17 USC 506]. He will be sentenced on September 26, 2003. He faces a maximum sentence of three years in prison, and a fine of $250,000.
Mr. Chairman, we are deeply grateful to the FBI and Justice Department - their prompt action led to this unprecedented conviction. We applaud the NY U.S. Attorney's Office for bringing this important criminal action against those who would demolish the creation and investment in a motion picture such as The Hulk. The entire copyright community welcomed the message that it sent to people who upload, download and trade movies on the Internet - the crime is not anonymous, harmless fun. You will get caught and you will be punished to the fullest extent of the law. As Chairman Smith said, "while "The HULK" is a comic book hero known to millions, copyright pirates practice their illegal trade in relative anonymity. In this case the FBI brought the face of copyright piracy public, and for that they are to be commended."
The truth is that more criminal actions like this are necessary in order to send the message that Internet theft will not be tolerated under the law. Had the Congress not authorized additional resources for this case, this investigation would have foundered. Had Members of this committee not encouraged law enforcement officials and copyright owners to prosecute and punish this kind of behavior, we would not be sending the strong anti-piracy message that we are able to send today.
H.R.2517 - The Piracy Deterrence and Education Act of 2003
Universal Studios and the other members of the Motion Picture Association of America support H.R. 2517 because further measures to address the illegal distribution of copyrighted material on the Internet will foster legitimate Internet distribution and business models. H.R. 2517 focuses on two of the most basic elements of the effort to stop piracy -- consumer education and deterrent penalties. If piracy is to be abated, consumers must know that theft of movies, sound recordings and other copyrighted works is wrong, and that there are real consequences to unauthorized reproduction and distribution.
The sponsors of H.R. 2517 correctly recognize that that more work needs to be done to protect America's creators. Had the facts of The Hulk theft taken a different twist or turn, this investigation could have ended quite differently.
Our company's experience indicates that the Justice Department still needs additional human and technical resources so that forensic investigations into the tools of the piracy trade can be completed promptly and comprehensively. H.R. 2517 allows for enhanced programs to deter computer users from committing act of copyright infringement. We particularly applaud the provision of the bill that assigns at least one agent to be responsible for investigating intellectual property crimes within the Department of Justice's Computer Crime and Intellectual Property Section.
Our company's experience also teaches that the law may need to be revised to recognize that some very valuable works may be stolen before the work is finished and registered at the Copyright Office. Under current law, prosecutors require not only that the registration process has been initiated by the filing of the application, but that the certificate has issued from the Copyright Office-something that ordinarily takes many months due to the volume of registrations at the Copyright Office. Although there is an expedited "special handling" procedure, even this requires 5-7 business days to obtain a certificate. As we found, in this age of pre-release Internet piracy of major motion pictures, this can be too long. While the swift action of the FBI and the federal prosecutors allowed them to identify and find the pirate very quickly, it was not possible to secure the plea until the prosecutor had the completed copyright registration in hand. Only due to the efforts of the Copyright Office and its staff were we able to get a registration certificate issued in time for the prosecutor to proceed.
We commend the sponsors of H.R. 2517 for providing that a copyright registration should not be necessary for instituting a criminal copyright action. In fact, requiring a registration is not practical today for criminal or civil infringement actions, particularly for pre-release cases. Usually in these cases the copyright owners have not yet filed their copyright registration applications because the films have not been completed or published. It is neither fair to the Copyright Office's staff (requiring extraordinary time and resources), nor necessary for the courts to require such registrations before commencing a case. The facts provided by the registration, such copyrightability of the work or the identity of its owner, if challenged by a defendant, can be easily proven in court without a certificate. In short, requiring a registration before commencement of an action would not improve criminal (or civil) prosecutions or judicial efficiency and would not deter piracy. Delay while a registration certificate is obtained significantly diminishes the effectiveness of these cases, and is unnecessary.
This is not to say that registration itself, including the requirement of supplying a deposit copy for the Library of Congress, is unnecessary. It is simply a question of timing. There are many incentives for registration that will lead most copyright owners to register their works within three months of release whether or not it is a prerequisite for instituting a judicial proceeding. We would welcome the opportunity to explore with the Subcommittee ways in which the registration requirements can evolve to better meet the threat of Internet piracy.
There is no doubt that an effective government deterrence program, coupled with more prosecutions such as the one regarding "The Hulk," will be a tremendous help in the war on piracy. Law enforcement and private industry must use our collective efforts to make infringers of copyright understand that they are not anonymous and that they will be prosecuted.
For that reason, the educational provisions of H.R. 2517 stress the need to inform users of the potential serious risks they face from participating in peer- to- peer network activities. Many people do not understand that trafficking in copyrighted works on the Internet is a Federal crime, or appreciate the risks associated with the use of peer-to-peer (P2P) file sharing networks.
For example, studies and recent congressional hearings have highlighted that many users of P2P networks have no idea that they are not only sharing music and movies, they are frequently sharing their entire C drive. In many cases, a P2P program installed on your computer can make all your files available to other P2P users. If your son or daughter downloads music through KaZaA during the afternoon, the information you work on at night -- private tax returns, medical records, financial portfolios and private communications - may also be available to other P2P users on the network. Furthermore, P2P network use creates significant exposure to viruses and other security threats.
Fortunately, research indicates that consumers may change their behavior with regard to Internet theft if they are warned about legal action and if they perceive a risk of being caught. According to a recent nationwide survey conducted by Edison Media Research, 33% of downloaders said they would disable their file sharing software if they received a pop-up message warning they are at risk for legal penalties for downloading from file-sharing services. The educational programs established under Section 5 of H.R. 2517 will help to accomplish the critical task of alerting users about the dangers they face from participating on P2P networks.
Finally, by facilitating coordination among law enforcement agencies and removing procedural barriers to prosecution, H.R. 2517 will stimulate greater law enforcement activity against pirates and increase their effectiveness
Today the interests of honest consumers, as well as the livelihood of thousands of hard working artists, crafts persons and others employed in the creative industries are being threatened by a relatively few malicious, ignorant or uncaring people. H.R.2517 will help inform these people that piracy is wrong, and where education is not sufficient, it will impose consequences in response to their illegal acts. It is a good measure that should become law.
I thank you Mr. Chairman for this opportunity to testify before the Subcommittee today on this thoughtful legislation. I look forward to discussing these important issues in greater detail.