FC: ACT letter says Congress must not set digital rights standards

[Declan McCullagh <declan () well com>]

---

From: "Mark Blafkin" <mblafkin () actonline org>
To: declan () wired com
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; mblafkin () ACTonline org

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 




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