United States House of Representatives

affects ecommerce, and whether new digital rights management technologies can securely implement the digital first sale privilege while protecting the rights of copyright owners.

Finally, Mr. Chairman, we note that many of the provisions recommended by the Copyright Office already have been proposed to this Subcommittee in legislation introduced by two of your members, Representatives Chris Cannon and Rick Boucher. DiMA and its members thank these Congressmen for their interest and insight in assuring a fair and competitive online music marketplace, and we urge the Subcommittee to carefully consider the legislative solutions offered in the Music Online Competition Act of 2001, H.R. 2724, as a reasoned way to implement many of the recommendations of the Copyright Office’s Section 104 Report.

DiMA Represents the Interests of the Online Media Industry.

DiMA advocates the interests of a relatively new industry that digitally delivers and markets music and video in online electronic commerce. Our member companies, large and small, are leaders in developing new technology, infrastructure and business models for the digital entertainment economy. DiMA member companies are a mix of well-known brand names and small start-ups, but each subscribes to certain core principles: First, copyright owners and artists deserve fair and reasonable compensation for commercial uses of their content. Second, copyright and commercial law should not discriminate against new media companies or, conversely, favor existing media companies, based upon the technology used to deliver content to the consumer. Third, in this regard, the laws applicable to analog media and pre-existing technologies should be extended and expanded to grant equivalent and appropriate rights to spur the growth and enjoyment of new digital media.

DiMA’s Longstanding Concern with the Issues Addressed in the Report under the DMCA

Since our founding in June 1998, DiMA has urged policymakers to consider solutions to issues that appear at the crossroads of copyright and ecommerce:

· The need for streamlined licensing of sound recordings for Internet webcasting;

· Exempting from copyright liability the caching and temporary buffers created during the technical process of webcasting;

· Clarifying that downloading and webcasting are two separate acts, so as to avoid duplicative royalty payments to music publishers and composers;

· Assuring consumer rights to make back-up copies of media they lawfully acquire online;

· Obtaining an exemption or right to make multiple ephemeral server recordings of musical works and sound recordings;

· Extending the existing “in-store” exemption for music performances in section 110(7) of the Copyright Act, to support Internet retailing of sound recordings; and,

· Exercising the first sale privilege by digital retransmission.

In 1998, when developing the DMCA, Congress responded favorably to several key points raised by DiMA. Most importantly, Congress clarified and extended the statutory license for the digital performance of sound recordings, in section 114(d) of the Copyright Act, to unambiguously cover noninteractive Internet webcasting.

Additionally, to avoid delaying passage of the DMCA and, yet, interested in the developing online media issues that were first highlighted by Representative Boucher and former Representative Tom Campbell, Congress enacted section 104 of the DMCA, requiring the Copyright Office and NTIA jointly to study two additional concerns, namely, the temporary copying of digital works, and consumers’ right to use digital transmission technology in the exercise of the first sale privilege.

DiMA’s Participation in the Copyright Office and NTIA Study

DiMA actively participated in the study conducted by the Copyright Office and NTIA in preparing their respective reports. In extensive comments and reply comments, and in testimony at the November 29, 2000, hearing, DiMA essentially elaborated upon four key points:

1. Extending the existing pro-consumer elements of today’s copyright law into the digital environment is consistent with the policies underlying the Copyright Act and the World Intellectual Property Organization treaties implemented by the DMCA.

2. Copyright law provisions (i.e., 17 U.S.C. § 117) that legitimize archiving and usage of computer software should be adapted and applied to digitally-delivered audio performances and copies of downloaded sound recordings. Specifically, temporary copies that enable the performance of digital media, including streaming audio, should explicitly be exempted from the exclusive rights of copyright owners, including the rights of reproduction and distribution. Further, consumers should retain the right to make one archival copy of digitally-delivered media to guard against losses from technical errors or equipment failure.

3. 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) should 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 may be left stranded at the starting gate.

4. To rapidly promote ecommerce, it would be preferable for Congress to enact these limitations into law now, rather than wait for the courts to sort through the panoply of issues. Unanswered questions surrounding the legal status of webcasting or consumer rights in digitally-purchased media indisputably will continue to dampen promising markets and technologies.

Six DiMA member companies also testified at the hearing before the Copyright Office and NTIA, where they amplified these points with real world examples of how legal uncertainty continually inhibited their businesses. Specifically, the companies noted that well-funded agents of music publishers were seeking to be paid reproduction royalties for public performances of music over the Internet, and public performance royalties for downloads or distributions over the Internet. As the Copyright Office noted, these music services were being asked unfairly to pay the same copyright owners twice for a single economic act (i.e., webcasting or downloading) primarily because the copyright owners are being represented by different agents. Indeed, in some cases these agents refused to grant licenses to DiMA members only for the rights that the companies wanted, unless the companies also paid for licenses that were not necessary and, indeed, could not lawfully be licensed by these agents because the claims were not within the copyright owners’ rights.

Moreover, our members testified, the requirement to pay duplicative royalties would significantly change the economics of webcasting, and diminish the potential return on margins that already were razor-thin. In an environment in which license rights are uncertain, the current return on investment is elusive, and the possibility of copyright infringement suits and crippling statutory damages remains a constant threat, our member companies told the Copyright Office that it had become increasingly difficult to attract new capital investment necessary to their survival.

DiMA therefore appreciated the acknowledgement in the NTIA report that these licensing conflicts were impeding the development of electronic commerce in online music, and the suggestion in that report that Congress should examine closely the underlying legal issues and take appropriate legislative action.

The Copyright Office Section 104 Report: An Important Event for Consumers and the Online Music Industry

Mr. Chairman, although the August 29, 2001, Copyright Office Section 104 Report does not adopt all of the changes suggested by DiMA and its members, we are gratified that the Copyright Office confirmed three central points: that Internet companies should not have to pay twice for a single economic act, that copyright law should treat webcasters and terrestrial broadcasters essentially alike, and that consumer rights should not be associated only with traditional media or business models.

DiMA Applauds the Report Finding that Temporary RAM Buffers are Fair Use.

Internet webcasters pay license fees to perform copyrighted music and sound recordings over the Internet. Those performance rights fees are paid to the music publisher, the songwriter, the sound recording copyright owner and the performing artist.

As you may be aware, the technical process of webcast “streaming” creates on the user’s computer a small, evanescent buffer of data, so that webcasts will sound to the user as smooth and uninterrupted as terrestrial broadcasts. These buffers are a technological artifact necessitated by the technology of Internet communications. In brief, when the user “tunes in” to an Internet webcast channel, individual packets of data, each constituting a minute portion of the webcast signal, are sent by a multiplicity of routes to the end user’s computer. The user’s computer sequences and stores these packets continually, until it has accumulated a sufficient amount of data in its memory as insurance against further transmission delays. Once the first data in the buffer are performed (i.e., the music is played for the listener), the buffered data are gone and inaccessible to the user. Those data are replaced by the next bits of data, which then will be performed and replaced, and so on. As the Copyright Office found, these buffers have no independent economic value apart from their role in enabling the performances themselves.

Unfortunately, for several years the Harry Fox Agency (“HFA”) and the National Music Publishers Association (“NMPA”) have been taking the position that these buffers infringe the reproduction rights of music publishers and songwriters, and have insisted that Internet webcasters should pay a license fee for these buffers, in addition to the performance royalty fees that the webcasters already pay to these same music publishers and songwriters through ASCAP, BMI and SESAC. Thus, DiMA and its members appreciate that the Copyright Office Report agrees that no additional royalty payments should be required, because“[t]he buffer copy has no economic value independent of the performance that it enables, so there appears to be no conceivable effect upon the market for or value of the copyrighted work” Report at 139. Therefore, the Copyright Office concludes, there is a strong case that the making of these buffers is a fair use that does not infringe the publishers’ and songwriters’ copyrights and does not require a mechanical license payment. The Report further finds that “there appears to be some truth to the allegation made by some commenters that copyright owners are seeking to be paid twice for the same activity.” Report at 140.

Notwithstanding this definitive pronouncement from the Copyright Office, music publishers are conceding no ground. Indeed, they have undertaken an aggressive effort to maximize any remaining legal uncertainty and stifle opposing points of view before Congress, the Copyright Office and the courts. On October 5, 2001, the NMPA, HFA and the RIAA entered into a private agreement that guaranteed RIAA members particular rights that they needed in order to offer subscription on-demand music services, IF the RIAA also conceded that current law requires a mechanical license for the server copies used to make the licensed downloads and performances, and for the buffers made on the users’ PCs during webcast streaming. This is not a question of subtle interpretation, Mr. Chairman; it is right there in black and white in paragraph 8.1 of their agreement.

Perhaps this concession and the additional royalty costs pose no problem for record labels, as they can pass on the costs to independent Internet companies who license their sound recordings. But HFA now is offering this same deal to webcasters; and for webcasters the proposed agreement creates the very scenario that the Copyright Office said should not occur, and that would be avoided if Congress agrees with the 104 Report’s suggestion – webcasters having to pay the same copyright owners twice for a single act of streaming. Effectively, through this agreement the NMPA is using its aggregation of copyright licensing rights to force Internet companies to acquire a tied license that they do not want and do not need, in order to obtain mechanical license rights that are required in order to offer online music services. This, we respectfully submit, is unfair as a matter of business and perhaps as a matter of law.

Furthermore, Mr. Chairman, the NMPA and HFA inserted an additional poison pill into the agreement. Section 8.2 of the agreement specifically states that a licensee cannot argue to any governmental agency – including this Subcommittee, the Copyright Office or the Department of Justice – that the Copyright Office Report is correct, and that under current law webcasting does not require a mechanical license payment. Indeed, the agreement goes so far as to prohibit any licensee from providing financial support to any organization that advocates that the Copyright Office’s interpretation of the law is correct. What is the intention of this clause? If DiMA had signed this license agreement on behalf of its members, would I be able to give this testimony here today, or to honestly answer your questions, without jeopardizing our members’ license rights that they need to compete online? Does this agreement require any DiMA member that signs it (e.g., to avoid costly litigation with music publishers) to resign from DiMA? Would a company that signs this agreement be unable to join DiMA?

For these reasons, Mr. Chairman, the final recommendation of the Copyright Office with respect to temporary webcast buffers is so important. Even though the Report finds that webcasting buffers are protected under the fair use doctrine, the Copyright Office strongly recommends that buffers be exempted from any copyright liability by statute, so as “to preclude any liability arising from the assertion of a copyright owner’s reproduction right with respect to temporary buffer copies that are incidental to a licensed digital transmission of a public performance of a sound recording and any underlying work.” Report at 142-143. As demonstrated by the RIAA’s need to concede their own fair use rights when faced with the risk of expensive complex litigation, legislation clearly and indisputably is needed, now.

Server Copies Used for Licensed Transmissions should be Exempt from Duplicative License Fees.

Solving the buffer problem, Mr. Chairman, would be significant, but would not be sufficient to stimulate the true potential of the legitimate online music market. Perhaps the greatest hurdle to long-term success of new, comprehensive digital music services that will generate valuable new royalty streams for artists, songwriters and publishers, is the ongoing dispute over the need to obtain separate licenses and pay additional royalties in order to make the server copies necessary to make licensed performances of musical works.

To explain webcasters’ dilemma: In order to make licensed digital phonorecord deliveries (DPDs) or licensed public performances of musical works over the Internet, it is necessary for the Internet service first to copy the sound recording onto computer servers. Given that these Internet transmissions must be made to many consumers, who access the Internet at various speeds (e.g., telephone dial-up, cable modem, DSL or T1), using different software (e.g., RealNetworks’ “RealPlayer” or Microsoft’s “Windows Media Player”), Internet companies must make multiple copies of the sound recordings in order to make these licensed transmissions to the marketplace.

Unfortunately, here again the agents of music publishers and composers are exploiting digital media services’ need for multiple copies into a demand for excessive reproduction royalty payments. After thoughtfully considering all sides of this issue, which were ably presented in written and oral testimony, the Copyright Office concluded that there is not “any justification for the imposition of a royalty obligation under a statutory license to make copies that have no independent economic value and are made solely to enable another use that is permitted under a separate compulsory license.” Section 104 Report at 144 n. 434. In other words, because Internet webcasting and DPDs are subject to statutory and compulsory licensing, there is no reason for music publishers, composers or, for that matter, recording companies, to charge additional fees for the reproductions of their musical works and sound recordings that are used to facilitate these licensed performances and downloads. Accordingly, the Copyright Office suggested that Congress (A) repeal Section 112(e) of the Copyright Act, which provides an “ephemeral” copy royalty to sound recording owners, and (B) provide webcasters with an exemption from copyright royalties for all server and cache copies of musical works and sound recordings that are made in (and limited to) the furtherance of licensed performances and downloads. DiMA strongly endorses these proposals.

In this context also, Mr. Chairman, the October 5, 2001, agreement between HFA and NMPA, and RIAA plays a role. That agreement requires reproduction royalty payments for server copies that are used solely to enable licensed webcasts and downloads – precisely the server copies that the Copyright Office suggests should not trigger royalties. Thus, NMPA may claim to this Committee that its agreement with the RIAA is evidence of “marketplace resolution” which obviates the need for legislation. DiMA vigorously disagrees. Rather, this agreement further demonstrates that – as the Copyright Office recommends – Congressional action is needed to establish plainly that multiple server copies made by digital music services in furtherance of licensed webcasts and downloads, are exempt from copyright liability.

Consumers and the Online Music Market Would Benefit From a Workable Electronic Section 115 Mechanical License Process.

In part because of these problems, as highlighted in the Copyright Office Report, there is a continuing need in the digital media marketplace for a functioning compulsory mechanical license in the Copyright Act. Unfortunately, the consensus of users and potential users of the section 115 compulsory license is that it simply does not work for the Internet music market. Testimony from Internet companies and recording labels before this Subcommittee at a May 17, 2001, hearing uniformly criticized the existing process for obtaining the section 115 compulsory mechanical license as unduly expensive, unwieldy and unworkable.

To obtain a compulsory license, one must send a notice of intention to the copyright owner of each individual musical composition for each sound recording to be transmitted by digital phonorecord delivery. To find the name of the copyright owner, one must search the records of the Copyright Office. Electronic searching was only recently made available, but (a) the electronic database only begins in 1978, and so manual searching still is required for a large body of recorded material, and (b) the Copyright Office electronic database is not updated regularly enough. For example, the number one song in the U.S. on the Billboard charts last week is called “U Got It Bad,” by an artist named Usher; the number one country song is “I Wanna Talk About Me,” by Toby Keith; the number one Modern Rock track is “How You Remind Me,” by Nickelback; the top rap record is “Dansin Wit Wolvez (Where My Tribe At?),” by Strik 9ine; and the number one Adult Top 40 record is called “Superman (It’s Not Easy),” by Five for Fighting. An online search of the Copyright Office electronic database shows no copyright registration information for any of those musical works.

Once the information is located, a notice must be sent to the copyright owner on a song-by-song basis. If the copyright owner information is incorrect or if the owner refuses the notice – which, despite the fact that this is a compulsory license, happens more often than you might suspect -- then the Internet service has to serve a new notice on the Copyright Office.

That’s just for one song. New music services being launched this month and in future months each require mechanical licenses for more than 100,000 sound recordings. The existing Copyright Office system clearly cannot handle this load, and so the system must be updated so that all necessary searches and filings with the Copyright Office can be performed online.

Undoubtedly, you will hear testimony at this hearing that the HFA-RIAA agreement is the marketplace solution to these services’ mechanical licensing concerns. However, putting aside for argument’s sake the unacceptable terms of that agreement, it still does not resolve new music services’ dilemma. Even if the Harry Fox Agency represented every music publisher in the United States (which it does not), each HFA publisher has the right to opt out of each agreement that purports to license their rights, including the recent agreement with RIAA. Many publishers in fact have opted out of the RIAA agreement, but HFA apparently refuses to tell its licensees which publishers have dropped out and what songs those publishers represent. Conversely, HFA even refuses to say which publishers have opted in to the agreement, and which songs they represent. Moreover, the fact that a publisher has opted in to an agreement with one service does not guarantee that it will opt in to agreements with all services. Plainly this is not an acceptable solution.

This leaves Internet music services in an impossible quandary, a Catch-22 for the Internet age. If online music services don’t know what licenses they will be getting under the HFA voluntary agreement, the only way services can protect themselves from lawsuits would be to file compulsory license requests. But, as I noted, the current system for obtaining the compulsory license is outmoded and unworkable.

Mr. Chairman, Representative Berman and Members of the Subcommittee: We wish that it were otherwise, but most emphatically the marketplace for Section 115 mechanical licenses does not work for online music services. When the world's largest recording company – Universal Music Group – cannot get statutorily-mandated music licensing rights to launch new interactive services that consumers want -- without risking hundreds of millions of dollars in infringement damages -- something is profoundly wrong with our copyright licensing regime.

What record companies and online music companies (and consumers who wish to utilize legal innovative services) need, Mr. Chairman, is certainty that necessary licenses can be obtained and that payments will flow accurately to creators and publishers. Congress enacted the compulsory mechanical license intending that it be usable by those who needed it. Today, that means there should be simple and reliable electronic methods to comply with the law and to pay creators and copyright owners every dollar they are due. DiMA urges this Subcommittee to consider carefully and act promptly to implement the types of improvements to the existing compulsory mechanical license process proposed by Representatives Cannon and Boucher in H.R. 2724.

DiMA Agrees with the Copyright Office that Downloads are Not Compensable Public Performances.

DiMA and our member companies appreciate that the Copyright Office went beyond the duplicative royalty issues discussed above, and also addressed the symmetrical issue associated with claims for public performance fees being made against digital phonorecord deliveries, or DPDs. A DPD essentially is the equivalent of buying a CD electronically rather than in a physical store. The consumer purchases a copy of the music, then downloads and records the music on a home PC or on a recordable CD (rather than purchasing the music prerecorded on a physical medium manufactured by the recording label). DPDs clearly are an important element of tomorrow’s online commerce. DPDs are a terrific option for consumers who can buy the music and have it delivered to them digitally within minutes. DPDs also are a good deal for the recording industry, which will receive royalties and profits from the sale of DPDs without incurring the costs of manufacturing, warehousing and distributing compact discs.

The Copyright Act states in section 115 that DPDs implicate the reproduction rights of the music publishers and songwriters in the same way that those rights are implicated by the manufacture and distribution of a compact disc. However, each of the three performing rights organizations (“PROs”) in the United States – ASCAP, BMI and SESAC – at various times has demanded that Internet music services make public performance rights royalty payments for the downloading of music files.

Let me be clear what this means in practice. When a compact disc is purchased in a brick and mortar record store, music publishers and composers are paid a single royalty for the mechanical reproduction of their songs in that compact disc. When a CD is purchased from an Internet retailer, like Amazon.com, CDNow or Tower Records Online, and the CD is shipped to the consumer via FedEx, music publishers and composers again are paid the same single mechanical license royalty. But when a DPD is purchased from an Internet retailer and the music is shipped digitally through the Internet, PROs are demanding that Internet services pay the music publishers and composers a second royalty, based on a tortuous interpretation of the law which concludes that any “transmission” of a song file is a “public performance” that justifies a royalty.

Fortunately, the Copyright Office Report rejected the PROs’ interpretation. DiMA noted in its testimony that the definition of “perform” in the Copyright Act unambiguously provides that a transmission is not a “performance” unless the work is being displayed or heard simultaneously with the transmission. As noted by the “White Paper” report of the United States Information Infrastructure Task Force in September 1995:

A distinction must be made between transmissions of copies of works and transmissions of performances or displays of works. When a copy of a work is transmitted over wires, fiber optics, satellite signals or other modes in digital form so that it may be captured in a user’s computer, without the capability of simultaneous “rendering” or “showing,” it has rather clearly not been performed. Thus, for example, a file comprising the digitized version of a motion picture might be transferred from a copyright owner to an end user via the Internet without the public performance right being implicated.

Intellectual Property and the National Information Infrastructure: The Report of the Working Group on Intellectual Property Rights at 71 (Sept. 1995); emphasis in original.

Moreover, the illogical nature of the PROs’ claim was apparent during the November 29, 2000, hearing, in the following colloquy between Copyright Office General Counsel David Carson, and BMI’s Senior Vice President and General Counsel Marvin Berenson:

MR. BERENSON: Our contention is that download or not, if there is a transmission, the public performance right is implicated along with the other rights.

* * *

MR. CARSON: So I may download the file from some website but I may never actually play it and hear it. That’s still a public performance?

MR. BERENSON: Yes.

MR. CARSON: You realize how intuitively that seems to be absolutely wrong?

Notwithstanding the Copyright Office Report’s conclusion that a download does not implicate the performance right, the PROs continue to insist that Internet music sites pay performance rights on downloaded music files. BMI’s Internet license, for example, currently requires payments on downloads as well as streaming:

This Agreement shall only include public performances in the Territory of musical works by transmissions over the Internet received via personal computers or by means of another device capable of receiving the Internet through streaming technologies as well as those transmissions that are downloaded by persons on personal computers or otherwise… .

Thus, DiMA particularly appreciates the finding by the Copyright Office Report that, regardless of whether there is any technical or theoretical “performance,” the transmission has no economic value apart from the value of the download itself and, therefore, is a fair use for which no double-dip payment is required. We urge this Committee to re-affirm the conclusions of the Copyright Office and the National Information Infrastructure Task Force.

DiMA Supports an Exemption for the Making of Archival “Back-Up” Copies.

As ecommerce flourishes, consumers anticipate that they will receive from the goods they purchase electronically tomorrow the same value they acquire from the goods they purchase physically today. The same should be true for music that consumers purchase electronically, online, by DPD. DiMA therefore commented to the Copyright Office and NTIA that consumers need the right to make personal back-up copies of music they download, as a safeguard against accidental erasure, damage from viruses, hard disk crashes, and as a way to migrate downloaded music collections to new computers or more capacious hard drives. We noted that in 1976, Congress enacted in 17 U.S.C. § 117 an archival exemption for computer software, for analogous reasons. Therefore, DiMA suggested that an extension of the current section 117 archival exemption to also cover audio files acquired by digital downloading would be consistent with existing legislative policy, as well as beneficial in promoting ecommerce and consumer satisfaction.

DiMA therefore supports the Copyright Office Report’s conclusion that it would be consistent with policies underlying existing law for an archival exemption to protect downloaded music files against technical vulnerabilities that afflict all digital files. The Report further acknowledges that a strong case can be made that most common consumer archival activities qualify as fair use.

The Copyright Office Report suggests two ways that this archival privilege could be established. We strongly advocate the second of these alternatives; that is, that Congress should ensure consumers’ right to protect their investments in online music by securing the archiving privilege, via an amendment to section 117. We do not support the first alternative, that is, making a change to the language of section 109 (the “first sale” statute). This proposal could lead to uncertain and potentially prejudicial results for consumers and music retailers, particularly in light of the Copyright Office’s conclusion that the first sale doctrine should not otherwise be amended to allow consumers to exercise their first sale privilege by digital transmission. We discuss this point from the Section 104 Report below.

DiMA Supports a “Digital First Sale” Privilege.

DiMA is disappointed that the Copyright Office declined to support consumers’ digital first sale privilege. Although many business models are being tested, we expect that there will always be a role for the purchasing of digital media by download, and that consumers will expect their purchased downloaded digital media to have the same value as purchased paper books or plastic discs. Consumers deserve the right to utilize, for their own legitimate purposes, the flexibility inherent in digital technology, including the right to resell, lend or give away digital media via digital transmissions. Moreover, we

are confident that technology exists to ensure copyright owners that digital redistribution does not have the effect of duplication for multiple uses simultaneously.

Although the Copyright Office Report observes that a digital first sale privilege would benefit consumers (as well as libraries, museums and educational institutions), the Copyright Office believed that the potential threat to copyright owners from abuse outweighed the potential benefit to the public. DiMA remains concerned that the law not reduce well-established economic privileges of law-abiding citizens because of fears associated with the few who misbehave. Moreover, unless the law grants the public at least the same rights and privileges in their digital purchases as their physical purchases, the law will deter rather than facilitate e-commerce.

In the absence of immediate action, we agree with the Copyright Office suggestion that Congress continue to monitor whether the absence of a digital first sale privilege has a negative impact on consumers, ecommerce and the public interest and, if so, to revisit this question in the future. In addition, we recommend that Congress and this Committee monitor the progress of digital rights management technology, so that when technologies are developed that facilitate the secure operation of the first sale doctrine, then Congress could reassess whether the balance has tipped in favor of the use of such technologies to exercise the first sale privilege.

DiMA Supports the Enactment of the Provisions of H.R. 2724, the Music Online Competition Act of 2001.

We note, Mr. Chairman, that before Congress and this Committee now is a bill, authored by two members of this Subcommittee, that resolves many of the issues raised in the Section 104 Report in a manner that is fully consistent with the Copyright Office’s recommendations. On August 2, 2001, Representatives Cannon and Boucher introduced the Music Online Competition Act or “MOCA,” H.R. 2724. Although some have contended that certain provisions of MOCA might prove disruptive to marketplace negotiations, nonpartisan observers such as the Duke University Law and Technology Review have concluded that that MOCA is a modest and “important first step in making beneficial changes to copyright law.” See “The Music Online Competition Act Of 2001: Moderate Change Or Radical Reform?” 2001 Duke L. & Tech. Rev. 0031, available online at http://www.law.duke.edu/journals/dltr/articles/2001dltr0031.html

To those who would counsel against considering the provisions of MOCA now, we would urge this Subcommittee to consider carefully how Congressional action can spur rather than deter the marketplace by creating a level and certain playing field. Early Congressional intervention into the webcasting market, through the enactment of a statutory license for the performance of sound recordings, created the legal certainty necessary to foster investment in webcasting services. Today, music webcasting is ubiquitous, royalty payments are flowing and will increase steadily in future years, and even the hearings of this Subcommittee are webcast over the Internet.

Legislative resolution of the legal (and associated business) issues that NTIA and the Copyright Office identify will have the same result: a more stable, more efficient, more innovative online music industry that generates more royalties for creators and copyright owners, and more value and excitement for consumers.

Since the introduction of MOCA, the intention behind several of its key provisions has found acceptance in both the Copyright Office Report and in private commercial practices. Specifically:

· Section 6 of MOCA narrowly implements two of the findings of the Section 104 Report, with respect to the making of temporary copies during the course of lawful audio webcasting, and the right to make archival copies of music files lawfully acquired by DPD.

· Section 3 of MOCA addresses the Report’s suggestion that multiple server copies made to facilitate lawful webcasting and DPD activities also should be exempt from copyright liability.

· Section 5 of MOCA, dealing with the administration of the compulsory mechanical license in section 115 of the Copyright Act, includes a number of elements that are suggested in the October 5, 2001, agreement between HFA, NMPA and RIAA, and in a recent request for comment published by the Copyright Office.

MOCA includes a number of other elements that we believe are worthy of this Subcommittee’s consideration. One particular provision would modestly and reasonably extend current law into the digital age, by allowing online music retailers the right to give consumers the ability to “try before they buy” – to hear short excerpts of songs they might be interested in purchasing online – without payment of performance license fees. I say that this provision is modest and reasonable for two reasons. First, whereas current law allows brick and mortar retailers to play entire songs, indeed entire CDs, the MOCA provision would permit only the transmission of 30 or 60 second samples of these songs. Second, it is modest and reasonable because the October 5 agreement between the music publishers and the RIAA includes a provision whereby each of them can use sound recording samples for free when promoting the sale of music online. It therefore stands to reason that the exemption for these samples also should be extended to independent Internet retailers.

Conclusion

In conclusion, we thank Chairman Coble, Mr. Berman and this Subcommittee for scheduling hearings on the Copyright Office Report. DiMA believes that the recommendations of the Report with respect to exempting by statute temporary buffers made during webcasting, consumer back-up copies of lawfully downloaded music, and the making of multiple server copies of music files, are sound and necessary to the promotion of a robust and competitive Internet music market that will generate substantial royalties to creators. We therefore urge this Subcommittee to implement these recommendations, and in so doing, to carefully consider the approach and additional provisions of the Music Online Competition Act.

Thank you.