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From: "Mark Blafkin" <[EMAIL PROTECTED]> To: [EMAIL PROTECTED] Subject: PROPOSALS TO PROTECT DIGITAL MUSIC WILL BACKFIRE, ACT TELLS CONGRESS Date: Mon, 8 Apr 2002 14:52:6 -0400 FOR IMMEDIATE RELEASE April 8, 2002 Contact: Mark Blafkin (202) 331-2130 x104; [EMAIL PROTECTED] GOVERMENT-MANDATED PROTECTION OF DIGITAL MUSIC WILL BACKFIRE ACT Tell House Committee that Many Proposals Could Hinder Innovation, Harm Small Companies Washington, DC - Today, the Association for Competitive Technology (ACT) sent its written comments on copyright issues related to digital music to the House Subcommittee on Courts, the Internet, and Intellectual Property. The comments were filed in response to a call by the subcommittee for all interested parties "to submit written views on the merits of relevant digital music issues and related proposed amendments to the Copyright Act." In the written comments, ACT voiced its concerns about the potentially devastating effect of current proposals regarding digital music to innovation and the already thriving digital rights management marketplace. ACT opposes government-mandated and managed technology standards, for the following reasons: � The government should not pick winners and losers through its certification process; especially while the IT industry is working to achieve an open DRM standard. � These standards will "freeze" technology by requiring government approval of design changes. Instead of real-time innovation, we could easily end up with a one-size-fits-all standard. � Publishing standards on government web sites makes it too easy for hackers to circumvent. � Innovators can't receive government certification if your copyright protection technology isn't "reasonably priced" according to a current draft of a legislative proposal. � Standards-setting bodies often become captives of large companies�even in industry standards organizations. But when the standard carries the force of law--allowing only "certified" tools�a few large firms could choke innovation. ACT's comments are available online at www.actonline.org. For more information, please contact Mark Blafkin at 202-331-2130 x104. ACT is a national education and advocacy group for the technology industry. Representing mostly small- and mid-sized companies, ACT is the industry's strongest voice when it comes to preserving competition and innovation in the high tech sector. ACT's members span the industry, including software developers, systems integrators, IT consulting and training firms, and e-businesses. -30- April 8, 2002 F. James Sensenbrenner, Jr. Chairman John Conyers, Jr. Ranking Member Committee on the Judiciary Howard Coble Chairman Howard L. Berman Ranking Member Committee on the Judiciary, Subcommittee on Courts, Internet, and Intellectual Property Chris Cannon Member of Congress Rick Boucher Member of Congress VIA FACSIMILE to the Subcommittee on Courts, Internet, and Intellectual Property Re: Digital Music Copyright Issues The Association for Competitive Technology (ACT) submits the following views pursuant to your request for information on digital music issues. ACT represents over 3,000 information technology (IT) companies and professionals, including those involved in creating solutions to transmit digital content. We strongly believe that the marketplace, without the assistance of additional legislation or regulation, is in the best position to respond to the demands of consumers and copyright holders. With the emergence of web-services, it is a priority to effectively respond to the estimated $270 billion opportunity for digital content. Our comments are broken into two parts. Part one is a discussion of the current digital rights management (DRM) technologies as applied to digital music. Part two is a discussion of the proposed amendments to sections 109 and 117 of the Copyright Act as well as certain parts of proposed legislation. We have limited our discussion to "relevant digital music issues" in keeping with the parameters of your request. We note, however, that many of our comments can and should be applied to other forms of digital content (e.g., movies, digital television broadcasts, et. al.). In preparing this document, ACT mainly drew upon the innovations in the marketplace. In addition, ACT reviewed the Library of Congress Copyright Office section 104 report as required by the Digital Millennium Copyright Act (DMCA), several of the public comments on this issue as well as proposed legislation such as the Music Online Competition Act (MOCA). I. Overview and status of market based content management technologies Currently, the flow of legitimate online music is merely a dribble. Content owners are hesitant to release content for fear that once a song is lost to digital pirates, all value in the song's investment and commercial opportunities are lost as well. Despite differences in opinion, the IT industry and entertainment industry seem to agree that it's going to take continued development of new technology and new business models to provide DRM while expanding consumer distribution, convenience, and choice. In other words, a DRM model needs to allow consumers to rent, buy, time shift and place shift any piece of lawfully acquired music. Content owners, device manufactures and IT companies have agreed that the successful DRM solutions will have these features: � DRM software and devices should be so easy to use that they're nearly invisible to the consumer, even as they move digital entertainment content among their own household and personal devices. � Users should be able to recombine and share any of their own digital content . � DRM solutions should be inter-operable among devices and distribution channels, and the technology should have consistent enforcement of rights wherever the content goes. � DRM technology should be flexible enough to adapt to different business models (e.g., charges for a single use or for a specified time period). � DRM technology and devices should be capable of online updates with new protection software. � Content providers will need DRM databases and systems to define and manage rights to their content. � Enterprises such as corporations and educational institutions need DRM systems to manage content and group rights. In the attempt to implement these features, two machine-to-machine standards have emerged. The eXtensible rights Markup Language (XrML) and Open Digital Rights Language (ORDL) syntaxes provide content owners the opportunity to specify metadata about royalty arrangements, ownership, listening limitations, and context pricing (e.g., sale or rental). This metadata is attached to the content, so it can "travel" across devices without degrading the copyright. XrML has been embraced by Microsoft and is a primary feature of their DRM function. ORDL has been submitted to MPEG and incorporates Real Networks' Extensible Commerce Language. Over 275 companies have licensed XrML and ORDL based technology to create distribution systems for digital content. XrML and ORDL support trial use, rental and sale distribution models. This means that "old" models of selling music will find "new" viability. For example, content owners , utilizing XrML or ORDL based DRM distribution systems, can provide a consumer the opportunity to listen to parts of songs for free, purchase singles for a competitive price, purchase albums for download to a digital device. No doubt there are challenges in balancing the rights of music owners with the demands of music consumers. There should also be no doubt that thousands of technology developers are racing to deliver solutions that meet those challenges. The enormous value of the music market provides a powerful financial incentive for DRM innovation, but it's up to music owners and music consumers to pick the winning solutions. II. The effect of legislative and regulatory proposals on market driven DRM innovations Concomitant with the development of DRM technology have been a number of proposals aimed at amending the Copyright Act as well as proposed legislation to promote the distribution of digital music. Given the maturing market for rights management solutions, we believe that many of these proposals are not warranted and could act as a disincentive for competition. One exception is the proposal to clarify, via legislation, that incidental temporary copies of digital music are not subject to liability. A. Section 109 of the Copyright Act Section 109 deals with the "first sale" doctrine, a limitation on the copyright owners' exclusive right of distribution. The Copyright Office has noted that the first sale doctrine is not a limit on the right of reproduction. The question facing the software community is whether a change to section 109 that would allow transmission of a digital work from one person to another is necessary to affect an increase in the flow of digital content. The question arises because this transmission results in a reproduction on the recipient's computer, a right not currently covered under section 109. Because of the unknown effect on marketplace rights management solutions, there should be no change to Section 109. Expanding the scope of section 109 to include a first sale for transferring digital music as many commentators have urged, could cause market-driven DRM solutions to increase in cost and upset the competitive process. It is clear that a first sale doctrine for transmission and deletion requires "forward and delete" technology whereby a content owner can be assured that the sender's copy has been deleted, therefore barring repeated transmission. There is evidence that many companies, by utilizing the XrML and ORDL standards, are creating distribution systems that already comport with this requirement. In the hyper-competitive DRM market, technology firms and content owners are able to monetize the solution that best meets the needs of consumers and copyright holders. ACT believes a legislative or regulatory fiat requiring expansion the first sale doctrine through would remove this element of competition thus diminishing the incentive to innovate. Finally, with respect to the first sale doctrine, it is important to understand that DRM technologies are in the role of facilitator. ACT believes that lawfully acquired digital content (music, video, et. al) can and should be transferable across platforms and devices. As mentioned above, our belief is supported by the very nature of DRM technology and solutions. However, it is unnecessary and potentially anticompetitive to create an outright "ban" on anticircumvention or tethering technology. Companies are fiercely competing among themselves for the ability to offer digital music. In some instances, they will offer copyright holders the ability to tether and showcase the quality of their anticircumvention technology to attract business. Robust protection is an important component of competition within the digital media market and should not become subordinate to perceived "rights" of a broadly defined "consumer" to receive digital music, irrespective of its origin. B. Section 117 of the Copyright Act Section 117 permits the owner of a copy of a computer program to make an additional copy of the program where the making of such a copy is an essential step in the utilization of the computer program conjunction with a much and that it is used in no other matter. Given that temporary or "buffer" copies are a characteristic of most forms of streaming digital content, there is a question as to whether these copies should be precluded from liability. ACT feels that language should be added to section 117 to remove any uncertainty in this regard as it will aid in the creation of robust DRM solutions for streaming content. Most, if not all, technologies that allow a user (or licensee) to playback streaming music involves the creation of temporary copies of the data in a computer's Random Access Memory (RAM). This data is minimal (usually a few seconds of sound), cannot be accessed for another purpose and is useful only to the streaming media software program. These RAM copies are essential for audio to stream smoothly. It should come as no surprise that smoothly streaming audio is a key consumer expectation. A number of courts have addressed the issue of whether these RAM copies are "reproductions" subject to the meaning of "copies" in section 101 of the Copyright Act. The seminal case on this question is MAI Sys. Corp. v. Peak Computer, Inc., 991 F.2d 511 (9th Cir.1993). In MAI, the court concluded that the data that is loaded into RAM constitutes a "copy" and exposes a lawful licensee to a copyright action and demands for additional royalty payments to the copyright holder. It follows if the webcasters are forced to pay more in royalties, the costs will be passed through to consumers. These increasing costs will drive many consumers away from digital media, which will have a disastrous effect on this promising market. ACT believes that the RAM buffer "copies" of digital music should constitute a fair use. Therefore, concur with the conclusion of the Copyright Office and others and advocate a statutory change to section 117 that reflects the fact that buffer copies are truly incidental, have no independent economic significance and therefore not give rise to liability from the assertion of a copyright owner's reproduction right. One method of implementing this change is to amend section 117 pursuant to section 6(b) of H.R. 3048 which was introduced in the 105th Congress. C. MOCA We chose to address MOCA because of the potential impact to our members and the IT industry. ACT believes its view provides a different and important perspective distinct from copyright holder and digital content advocates. We limit our comments to three provisions of the bill: 1) clarification of incidental and archival copying; 2) updating the "ephemeral" recordings exemption; and 3) assurances of "nondiscriminatory licensing." 1. Incidental and Archival Copying ACT supports this provision for the reasons stated in II.B above. In addition, we agree with the fact that consumers who lawfully acquire digital music should be allowed to make a copy for back-up purposes. While we acknowledge that allowing this type of archiving could create a temptation for unlawful transmittal, content owners can apply existing DRM solutions to prohibit unlawful use. 2. Ephemeral Recordings Currently, the law allows broadcasters and webcasters to make one in-house "ephemeral" copy. Because of the protections that can be afforded to digital music, ACT believes that the changes to the ephemeral recording law are appropriate to reflect technological reality and encourage delivery of online music. Market conditions require that consumers wishing to access streaming digital music do so through dial-up or broadband Internet services. Obviously, consumers using dial-up services need to have a choice to select a slower bit rate or suffer the excruciating experience of listening to a choppy playback. Similarly, broadband users should be able to select a higher bit rate or there would no incentive to use the service. Moreover, companies involved in streaming music have distributed multiple servers to the "edges" of the Internet backbone to best serve geographically dispersed customers. Thus, it is necessary to have copies of the music located on each of the servers! to realize the efficiency of distributed servers. 3. "Nondiscriminatory Licensing" ACT believes that MOCA's nondiscriminatory licensing provision is tantamount to compulsory licensing. Since our formation, ACT has opposed this practice in all its forms. We believe that compulsory licensing schemes erode intellectual property rights and act as a disincentive to innovate. As ACT reads the "nondiscriminatory licensing" provision, if the recording industry's digital music distribution sites MusicNet or Pressplay license songs to one another, equal terms must be granted to any other legitimate distribution site. Advocates of this approach argue that content owners control the supply of songs and if they are not compelled to license them, there will never be true competition among distribution services. ACT finds this argument flawed at best. In the digital music context, record companies are seeking to monetize their content. In the absence of lawful distribution methods, the record companies created their own services. As new services, using robust DRM solutions to protect copyrights, emerge consumers will demand more distribution mechanisms offering specific services (sampling, rental, "per song" downloading, etc.). It seems counterintuitive that record companies to reject these mechanisms by withholding content when the greater distribut! ion would translate into increased revenues and exposure for their artists. Further, it stands to reason that if the record companies were indeed withholding content in an anticompetitive manner, the antitrust laws will provide the appropriate remedy. Wayne Crews of the CATO Institute has noted "Today, with electronic technologies that make it easier to track files and communicate, compulsion is even less defensible." We agree. It appears that proponents of MOCA's "nondiscriminatory licensing" provision are merely trying to protect middlemen and their deep-rooted business models. Conclusion We appreciate the opportunity to share our views on this important subject. Digital music, like other forms of content, provides significant economic opportunities for technology entrepreneurs as well as content owners. It is clear that the IT industry is continuing to work with content owners to achieve a convergence of protected, cost-effective and consumer friendly solutions. It must be said, however, that we remain steadfast in opposing government-mandated and managed technology standards, for several reasons: � The government should not pick winners and losers through its certification process; especially while the IT industry is working to achieve an open DRM standard. � These standards will "freeze" technology by requiring government approval of design changes. Instead of real-time innovation, we could easily end up with a one-size-fits-all standard. � Publishing standards on government web sites makes it too easy for hackers to circumvent. � Innovators can't receive government certification if your copyright protection technology isn't "reasonably priced" according to a current draft of a legislative proposal. � Standards-setting bodies often become captives of large companies�even in industry standards organizations. But when the standard carries the force of law--allowing only "certified" tools�a few large firms could choke innovation. We look forward to discussing your findings. As you continue to consider this issue as well as the broader DRM debate, ACT stands ready to offer any and all assistance. Sincerely, Jonathan Zuck President ------------------------------------------------------------------------- POLITECH -- Declan McCullagh's politics and technology mailing list You may redistribute this message freely if you include this notice. Declan McCullagh's photographs are at http://www.mccullagh.org/ To subscribe to Politech: http://www.politechbot.com/info/subscribe.html This message is archived at http://www.politechbot.com/ ------------------------------------------------------------------------- Politech dinner in SF on 4/16: http://www.politechbot.com/events/cfp2002/ -------------------------------------------------------------------------
