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Chairman Stevens Opening & Closing Statement And Questions and Answers with Witnesses
Chairman Stevens: The Supreme Court decision cleared the way for peer-to-peer and other communication technologies to be liable for contributory or vicarious copyright infringement. Going forward we will all have to balance the competing interests of encouraging innovative services like peer-to-peer that spearhead new services, jobs and economic growth against protecting content providers from piracy to ensure a return on investment and continued innovation in the content space. I know it is a very controversial subject we are dealing with this afternoon and we have a series of witnesses here.
Round I – Q&A
Chairman Stevens: Mr. Kerber, you have mentioned there could be appropriate initiatives to follow up on this Supreme Court decision that would solve some of the problems. What do you mean?
Mr. Kerber: I think what gets mixed up in the whole concept of this, as I’ve said I’m a business person, is the problem has never been technology in our experience with the entertainment industry. When we went the entertainment industry, I’m just going to use this as an example-when we went to the industry, we were about as far out on the outside. I wouldn’t know a record executive if I fell over the top of them at that point when we had gone to the entertainment industry and the labels. And what we did was, we went in with a demonstrated business model that we thought would make money within the industry. We thought that if you do certain things, this model will work on a consumer basis that is compelling to the consumer. Now, then what we did was, we went and said this is the technology we are going to put underneath this business model in order to enable it. And it was received with every major label and, most of the indies, and moving on to all of the other digital media opportunities we have. I think a lot of time what is mistaken here-and I say the appropriate, I think you have to go in, these people are business people; they run publicly traded companies; they have responsibilities to their shareholders; they have to be sure that the folks that they are doing business with will succeed. If you are in business, you want your partners to succeed. And I think that there is just a lot of misconception out there. So I say being appropriate about it is following the right protocol in order to gather up these folks and become partners in the distribution of digital media.
Chairman Stevens: I’m really looking for the question of whether any of you at the table will seek to have Congress address this decision and alter the course of events in any way. Do any of you seek to have a change following this court decision of the way Congress addresses the issue of privacy on the Internet. Mr. Bainwol?
Mr. Bainwol: No. We believe the Court struck the right balance and Congress should leave well enough alone. As Mr. Baker has suggested, if we live life a little bit and see that there are issues down the road, but right now it is very clear that you have a very broad consensus. Tech companies are happy; content is happy. The Court did the right thing and they found the right balance, so let’s let it go and see how it works.
Chairman Stevens: If you own some of these copyrights would you be happy?
Mr. Bainwol: We are happy with this outcome, yes sir.
Chairman Stevens: I said that if you owned the copyrights, would you be happy?
Mr. Bainwol: Yes sir. We are companies that have copyrights, and we believe that the right balance was struck here. Our view is that we want to be able to engage in business in the digital space with responsible partners, and those are folks like Greg Kerber from World Media, who believe that we ought to be compensated for our property. So there is a way to have a bright future for peer-to-peer that provides music for fans and also provides compensation for creators.
Mr. Eisgrau: Mr. Chairman.
Chairman Stevens: Yes sir, Mr. Eisgrau?
Mr. Eisgrau: Thank you, sir. I would simply note for the Committee’s consideration that the collective, the voluntary collective licensing model that we are suggesting, which would not require legislation, to answer your question, but probably would require some Committee encouragement in order to explore more fully, has the potential to provide revenue to copyright holders by the millions who are not presently within the large record label system. There are many, I can’t quantify it for you exactly Mr. Chairman, but I have to believe there are many songwriters; there are many performers, who are out there waiting on tables and working other jobs, perhaps hoping for a record contract, and who are using peer-to-peer to a good degree to get their music out there. But presently, without a voluntary collective licensing setup, there is no way for them to receive compensation. So to the extent that there is a role for the Committee to play, I suppose the good news for the moment it is not legislative with respect to copyrights, but exploration, we believe, of a voluntary collective license of this kind has the potential to maximize peer-to-peer technology, not just for the major record labels and companies, which there a four, soon to be three, but literally for thousands and thousands of individuals. And we hope that is of interest to all of the appropriate committees of jurisdiction, perhaps even Small Business, that I know a number of Members of this Committee also sit on, sir.
Chairman Stevens: Mr. Heesen.
Mr. Heesen: Correct, thank you. As I stated in my statement, we are not coming to Congress to look for any legislative changes. But we would urge Congress to continue to look at the suits that are filed as a result of this decision and the numbers that are filed, and at the appropriate time, if it comes to a point of another area where the entertainment industry continues to sue and sue and sue, then I think we may have to come back and look at that. But at this point, we think, as we stated, there should be some breathing room here, and everyone kind of look at the decision and let the courts and the marketplace work things out.
Mr. Chairman: Do you all believe that we should just sort of accept the fact that there is going to be illegal file-sharing, and will it increase over the years?
Mr. Bainwol: No sir. Illegal file-sharing is wrong, it needs to be contained, and we need to…
Chairman Stevens: How do you propose to do that?
Mr. Bainwol: Well, the Grokster decision was a good first step, because it provided moral clarity, and it tells the world, and it tells parents and teachers, that there is a right way and a wrong way. What we got to do is demythologize this whole question. You have got companies like those that my fellow panelist represents who basically are the equivalent of Jesse James robbing the bank and then coming back to the bank and saying we want the franchise to provide security for that bank. They take our property, and then say they want to be licensed. If there are legitimate players out in the market place, they are doing fine with licenses. Now what we can do to protect and to move toward a world that is more legitimate, is simply to use, we have to enforce the laws that are on the books. We do that self-help. We engage in our own litigation to make sure that there is a deterrence. The government is stepping up in a huge way. The Department of Justice has done a great job in going after these networks, and that’s really the secret. We have to create a society, foster a society, with a value of IP recognized and appreciated, and kids are taught that there is a right way to do this, and they ought to pay for it.
Mr. Eisgrau: Mr. Chairman, may I respond? The people I represent were just impugned to a pretty serious extent.
Chairman Stevens: I’m out of time, but go ahead.
Mr. Eisgrau: Thank you, I appreciate that. Very briefly, these are very complicated issues and I have to make a respectful plea for precision in language. The companies that were at issue in the Supreme Court decision, the other companies who are members of Peer-to-Peer United, do not take anybody’s property. They are software developers, sir. They have developed pipes, pipes in the way that the Internet is a pipe and broadband connectivity is a pipe. They have created a product that people do in fact misuse, and do in fact significantly misuse to infringe the copyrights of the companies Mr. Bainwol represents. But there are no thieves in P2P United, sir. There are companies who have attempted over the years to work with the labels. Going back to 2003, this Committee heard evidence a year ago in the Competition Subcommittee of potential blacklisting by the labels in the form of a deal between Real Networks and Streamcast, one of the parties to the Supreme Court case. So my point is simply, Mr. Chairman, that we need to be very focused on exactly what this technology is, what kind of actions parties in the space are pursuing. And if we are going to maximize the potential of this technology than I would respectfully suggest to Mr. Bainwol that his hope, and Mr. Goldring, the Hollywood music lawyer, backs me up on this, I would hope that we would look at the realities of the marketplace, not just as we hope they might be, but as they are, and maximize the potential for all copyright holders, not just the institutional ones that Mr. Bainwol represents.
Chairman Stevens: I’m out of time, but I’m really concerned that the Internet Service Providers seem to be telling us, “Look, we provide the service but we can’t control what goes on on it.” It reminds me of the old story about the piano player in the gambling hall or the house of you-know-what, not knowing what was going on. Now, you know, somewhere there is a responsibility here to look at the Supreme Court opinion and say that, as a way to move forward and say we are not going to condone the illegal use of intellectual property. Now, I don’t know where it, but I hope we can find some response to that.
Mr. Eisgrau: You’ll find that exactly on our website, for starters, Mr. Chairman.
Round II – Q&A
Chairman Stevens: There was discussion here this last week about the European Commission and what they are trying to do to bring about a gradual response from the providers themselves to illegal file-sharing. It doesn’t sound to me like there is any motivation here for a mechanism to bring about some standards for the future as far as these organizations are concerned, some type of body that would come into being by mutual desire to sort of set standards that will look toward copyright protection. Am I wrong? Is there any motivation here in the industry to do something because of Grokster that will give us a concept of pushing back a little bit and saying, “Look, this is not right, and we are not going to condone it; we are not going to deal with people who do and encourage this type of activity?”
Mr. Baker: If I may, Mr. Chairman, I don’t think that a European Commission-style impetus is necessary here. I think we are all in agreement that we don’t condone it, and I think that the Court was abundantly clear that one may not induce others to infringe on copyrights. And so I think that this is being dealt with…
Chairman Stevens: Well I’m informed that the Commission has taken the position that they want to bring about a situation where the ISPs notify their clients that they are going to be watching to see whether they in fact condone illegal activity. Am I wrong?
Mr. Baker: I’ll agree with your characterization of what the European Commission said. But, again here, we have all made it abundantly clear to all of our members-not just our company, but Internet providers across the board, whether they are independent providers, phone companies, cable companies, whoever, that we don’t condone this. But the problem is that you can’t take the provider of the pipe and make them the policeman. We transmit literally terabytes of information every hour. It is physically impossible to monitor all of the traffic that crosses our network. I mean we do monitor, we are able to filter out viruses; we’re able to filter out spam; we’re able to filter out spyware, things like this. But there is no way, when there is just a music file or something that is just coming across the network, number one, to readily identify what those bits of information are, and number two, to know whether there is a copyright on that or whether someone is downloading it legally.
Chairman Stevens: You mean to tell me that a provider won’t know that there is constant illegal activity going on on its system?
Mr. Baker: That is what I’m saying, Mr. Chairman. Trillions of bits of information every hour transmit across our network.
Chairman Stevens: You are telling me they don’t know? Is that what you are saying?
Mr. Baker: I’m saying that as an Internet provider we don’t know that when these bits of information flow across our servers and routers and off to other carriers and across backbones to know what that content is, much less if it is a music file, whether that has been paid for by a legal service or illegal. Now some products such as Apple I-Tunes, for instance, have a different format, so are readily identifiable, so there is a pretty high-level confidence that those have been paid for. But if it is something like a MP3 file, it’s just a generic format, there are, again, just by looking at those bits of information, no, you can’t tell whether a fee has been paid on that or whether that was pirated.
Chairman Stevens: I’m going to yield to the Senator from California. But, one of the reasons that this hearing is being conducted is we want to send a notice that we are going to be watching. We want to know what are you going to do to follow up on this to take the path the Court seems to think could be taken to give greater protection to this copyrighted material? And I don’t here much, myself, that indicates that there is going to be any attempt to find some ways to set some standards and to do what the Senator from Nevada suggests to bring into the new generations a concept that we do not condone stealing property. Now, I hope that we are being heard. I do hope we are being heard, because there are people in the Senate that want us to move now. And we are holding a hearing to try and see what is going on in these industries to see what might be done to terminate this illegal activity.
Chairman Stevens: We’ve got to wind this up sometime, as we been in this session five hours, almost six hours in this Committee today alone. I do want to say this, Senator Boxer and I rarely agree, but when we do I think people ought to listen a little bit. We are going to have a hearing this fall about the pornography aspect of this. We are talking right now about the business models of trying to contain illegal activity. We are going to get specific about this pornography over the Internet. People tell me we can’t do anything about it. I don’t believe that. So, we’ll see that this fall. We are also told that on peer-to-peer, for promotional activities, the provider puts out a display and tells people what they can see if they watch it. And there are ways of demonstrating to the public why they should watch, or why they should use a portion of the Internet as opposed to another one. I do think that, if that is the case, your Supreme Court footnote has been met, because there is affirmative action on the part of the provider to tell people to look at something. And if they provide a list, and on that list are some items that they know ought to be protected and are not, they are participating in this activity. Now, I’m back to the point where I said, I hope you are listening. Senator Boxer just provided me a good example of the comments I’ve gotten in the Cloakroom about, “Why don’t you do something, Mr. Chairman? Why don’t you follow up on this Supreme Court case?” All we held this hearing for is to listen to you to see if there is any indication that the industry is going to do that. I again say to you, the difference between this I hope you do it, because if you don’t do it, I’m going to move over and meet with Senator Boxer on this, and I think the whole Committee will. We have got to find some way to meet this concept of protecting our intellectual property. We can hardly accuse the people abroad of stealing our intellectual property if we can’t protect it at home. That’s the message we’ve got to give you, and unfortunately I have to adjourn this hearing right now. Thank you very much.
Witness Panel 1
Mr. Mitch BainwolChairman and Chief Executive OfficerRecording Industry Association of America
Mr. Mark G. HeesenPresidentNational Venture Capital Association
Mr. Fritz AttawayExecutive Vice PresidentMotion Picture Industry of America
Mr. Adam EisgrauExecutive DirectorP2P United
Mr. Dave BakerVice President Law & Public PolicyEarthlink Inc.
Mr. Gregory G. KerberChairman and Chief Executive OfficerWurld Media, Inc.