FC: KaZaA to U.S. Senate: RIAA's Hilary Rosen lied to you

From: Declan McCullagh (declanat_private)
Date: Sat Mar 02 2002 - 09:38:12 PST

  • Next message: Declan McCullagh: "FC: Peter Trei: "The Original SSSCA," a short story"

    KaZaA is one of the post-Napster breed of file-sharing applications.
    Since we haven't covered its legal battles on Politech, here are two
    Slashdot threads with background:
     "RIAA Looks To Stop KaZaA, Morpheus & Grokster"
     "KaZaA Resumes Downloads, Company Sold?"
    The witness list for Sen. Biden's carefully-balanced hearing last month:
       February 26, 2002
       Senator Joseph R. Biden, Jr.
       221 Russell Senate Office Building
       Washington, DC 20510
       Dear Senator Biden:
       I am writing to you in your capacity as Chairman of the Senate Foreign
       Relations Committee. We represent Sharman Networks, which last month
       acquired certain assets of KaZaA BV, including the KaZaA.com website
       and the KaZaA Media Desktop Software, as well as the license for the
       FastTrack P2P Stack. Sharman believes that the utilization of
       peer-to-peer (P2P) software applications is essential to generating
       the consumer demand for broadband connectivity that is required if the
       U.S. is to successfully make the next great digital leap forward.
       We are compelled to express our great distress at the one-sided and
       unsubstantiated attacks on KaZaA that took place at the Committees
       February 12 hearing, coinciding with the release of its Report titled
       "Theft of American Intellectual Property: Fighting Crime Abroad and at
       Home". We are deeply offended by the gratuitous accusations made
       against KaZaA by witnesses before the Committee, including ludicrous
       attempts to associate an extremely beneficial, next-generation
       software program with organized criminal gangs and even terrorist
       organizations. We believe, as outlined below, that U.S. Courts will
       find the KaZaA software to be legal under current copyright law, and
       that our client is devoid of any civil, much less criminal, liability.
       We also wish the Committee to be aware that:
         * There is no convincing evidence that audio file-sharing has had
           any negative impact on sales of recorded music. In fact, CD sales
           increased in 2001 notwithstanding the economic recession.
         * P2P software such as that provided by KaZaA has the capability for
           numerous, substantial noninfringing uses. These include potential
           benefits to musicians and their audiences through new, independent
           promotion and distribution mechanisms.
         * The recording industrys own "legitimate" online music offerings
           appear to be operating in violation of recording artist contracts
           and to be structured in a manner that leaves the vast majority of
           potential profits in the pockets of largely foreign media
           conglomerates, with little if any compensation going to U.S.
         * P2P appears to be the only viable technology for stimulating
           near-term consumer demand for broadband sufficient to drive the
           next leap forward for the U.S. information technology and service
         * KaZaA is ready and willing to join with all other parties who
           benefit from the availability of digital content in a discussion
           of how to best compensate rights holders and creators. It is our
           view that a combination of a new compulsory license with a
           broad-based Intellectual Property Use Fee (IPUF) would be the best
           means of generating substantial new revenues that help preserve
           the incentive goals of copyright law.
       The Committee Report
       At the outset, we must comment on the ironic incongruity of permitting
       the Recording Industry Association of America to testify at a hearing
       focused on the "Theft of American Intellectual Property". After a
       decade of rampant consolidation, five major labels that collectively
       control nearly ninety percent of the industrys output dominate the
       recording industry. Four of the five members of this recording
       industry oligopoly are not U.S. companies but subsidiaries of
       foreign-based multimedia conglomerates. These companies, which
       dominate the RIAAs policy-making process, routinely strip U.S
       recording artists of all copyrights in their creative output as a
       standard aspect of the industry contract. Indeed, the industry
       recently succeeded in persuading Congress to strip even solo artists
       of the right to regain control of those copyrights, after the 35 year
       wait mandated under current law, by altering copyright law to classify
       all sound recordings! as "works for hire". Congress subsequently
       reversed this action and rest ored the status quo ante when vigorous
       artist protests brought the realization that this was hardly the mere
       "technical" clarification the RIAA had claimed it to be.
       The Committees Report asserts that "The music industry has also been
       victimized by piracy.user-friendly, piracy-enabling websites likeKaZaA
       in the Netherlands, allow users all over the world to download music
       illegally at no expense". It continues: "Certainly, the pervasiveness
       of Napsters successorsindicates the extent to which the music industry
       has already been victimized by online piracy; indeed, illegal
       downloading of songs is now at its highest level ever, despite any
       chilling effect brought about by the industrys suit against Napster
       and, as noted earlier, is becoming more difficult to prosecute because
       of decentralization." The only citation providing any documentation
       for these allegations is contained in footnote 38 of the Report,
       citing a "Judiciary Staff Briefing with the Recording Industry
       Association of America, January 14, 2002". We are frankly shocked that
       the Committee would issue a Report suggesting c! oncl usions on
       matters that are currently in litigation in the U.S. District Court
       for the Central District of California, in which the court has yet to
       issue a single substantive ruling, based solely upon the assertions of
       the trade association representative of parties on one side of that
       Contrary to recording industry allegations that this alleged "piracy"
       is hurting sales of compact discs (CDs) and other recorded media, the
       industrys problems are almost entirely self-inflicted. Billboard
       magazine, the industrys leading trade publication, recently reported:
       Many attribute the album sales decline to the growing popularity of CD
           burning, but no hard data exists to back up that claim. Others
           attribute the decline to the label-led deliberate annihilation of
           the singles configuration.retailers argue that singles are an
           essential tool for encouraging young consumers to buy music, and
           since the labels mostly refuse to release hit songs on the format,
           that group is turning to the Internet to download pirated copies
           of those tunes or asking friends to burn the more costly albums
           that contain them.In looking at album sales by configuration, CD
           album sales increased last year.On the other hand, the cassettes
           decline appears to be a reason why overall album sales declined
           last year, as titles released in the format experienced a
           precipitous drop to 49.4 million units. (emphasis added)
       This article makes clear certain facts that were probably not shared
       with Committee staff when they received the RIAA briefing:
         * CD sales increased in 2001 despite the recession. There is no
           documented evidence that music file-sharing has had any negative
           impact on record sales. Indeed, many experts believe that the song
           sampling facilitated by this activity actually stimulates such
         * Overall recording industry sales would probably have been
           substantially higher if the industry had not unilaterally decided
           to severely curtail its own release of CD singles and audio
           cassettes. Indeed, the article cites file-sharing as a probable
           consequence of the industrys singles cutback, rather than a cause
           of any decline in sales.
         * The only technology cited as possibly displacing record sales is
           that of CD-R burners, which are now routinely packaged with new
           computers as well as sold as separate peripherals. Combined annual
           sales of these devices now number in the millions, while those of
           the blank CDs used by consumers as recording media are
           geometrically higher. These hardware devices allow the creation in
           minutes of an exact, full-quality copy of an entire record album,
           whereas file-sharing generally involves individual songs in the
           radically compressed and therefore somewhat lower audio quality
           MP3 format. Yet the recording industry continues to litigate
           against file-sharing software companies and attempt to scapegoat
           them for its current difficulties (which are largely a result of
           its growing inefficiencies), as they apparently find small,
           underfunded technology startups more tempting litigation targets
           than the large information technology hardware and software firms
           that pro! duce and actively market CD-R burners and related
       Copyright Law Framework
       As you are aware from your prior service as Chairman of, and continued
       service on, the Judiciary Committee, copyright law is extremely
       complex and its application to digital technologies is still in a
       state of uncertainty and judicial flux. Nonetheless, we are confident
       that self-organizing and -generating P2P file-sharing software
       applications such as that provided by KaZaA will be found by U.S.
       courts to be in conformity with all applicable law. When a consumer
       downloads the free KaZaA software that user subsequently decides
       whether and to what extent he wishes to share any files, of any type,
       from his own computers hard drive. All subsequent contacts and
       exchanges between KaZaA users take place on a direct basis, with no
       intervention or facilitation by KaZaA. KaZaA does not provide a
       centralized file index. Moreover, notwithstanding the recording and
       motion picture industries repeated assertions to the contrary, KaZaA
       has no ability to monitor, much! les s control, file exchanges between
       individual users. Indeed, even if KaZaA the company were to cease
       operations at this instant, the KaZaA software would continue to
       function and propagate.
       The applicable legal standard for judging the copyright compliance of
       new mass-market technology for a variety of uses ("staple articles of
       commerce") was articulated by the Supreme Court in the 1984 Betamax
       case. In that landmark case, the movie industry attempted to block the
       distribution and sale of videocassette recorders (VCRs). Fortunately
       for both the movie industry and the American consumer, the Supreme
       Court stated:
       [T]he sale of copying equipment, like the sale of other articles of
           commerce, does not constitute contributory infringement if the
           product is widely used for legitimate, unobjectionable purposes.
           Indeed, it need merely be capable of substantial noninfringing
           uses. The question is thus whether the Betamax is capable of
           commercially significant noninfringing uses. (emphasis added)
       There can be no doubt that P2P software is capable of myriad
       noninfringing uses. Moores Law, which postulates that computing speed
       and capabilities will double every 18 months, is being proven again as
       the typical personal computer acquires the attributes of traditional
       network servers in terms of processing speed and hard drive storage.
       This new capability allows individual PC users to move beyond being
       mere passive recipients of information and content from central
       servers; it is the essence of the true interactivity possible in this
       new era of the distributed network environment. As a ubiquitous
       broadband network connects these powerful computing and storage
       devices, P2P software applications are emerging as the next step in
       the natural and inexorable evolution of the Internet. Indeed, just
       three months ago RIAA President and CEO Hilary Rosen conceded that P2P
       technologies have this substantially noninfringing capability,
       The multiple exciting applications of P to P that are being discussed
           over these few days show the limitless potential of the technology
           in multiple ways. The ability to achieve cost savings on storage
           and bandwidth, the web tools, the meeting applications, the
           communications applications, the customer service applications are
           all extremely exciting.
       Indeed, among the many exciting and substantially noninfringing uses
           for which
       P2P software is being utilized are the compilation and distribution
         * more than 4,500 public domain books and documents for Project
         * government publications,
         * authorized media content, and
         * public domain software.
       Moving from the Betamax case to the Napster decision, there is little
       wonder that the record industry is unable to capitalize on that latter
       ruling to halt the use of P2P software because the decision makes
       clear that the distribution of such software, in and of itself, is
       noninfringing. In its ruling, the 9th Circuit first referenced the
       Supreme Courts holding in the Betamax case, stating:
       The Sony Court refused to hold the manufacturers and retailers of
           video tape recorders liable for contributory infringement despite
           evidence that such machines could be and were used to infringe
           plaintiffs copyrighted television shows.The Sony Court declined to
           impute the requisite level of knowledge where the defendants made
           and sold equipment capable of both infringing and "substantial
           noninfringing uses".
           We are bound to follow Sony, and will not impute the requisite
           level of knowledge to Napster merely because peer-to-peer file
           sharing technology may be used to infringe plaintiffs copyrights.
           We depart from the reasoning of the district court that Napster
           failed to demonstrate that its system is capable of commercially
           significant noninfringing uses.The district court improperly
           confined the use analysis to current uses, ignoring the systems
           capabilities.Consequently, the district court placed undue weight
           on the proportion of current infringing uses as compared to
           current and future noninfringing uses.To enjoin simply because a
           computer network allows for infringing use would, in our opinion,
           violate Sony and potentially restrict activity unrelated to
           infringing use.
       As this excerpt makes clear, Napsters P2P architecture, as opposed to
       the service that Napster operated, was found to pass muster under the
       Betamax standard. Indeed, this standard is critical if new information
       processing, storage, and transmission technologies are to avoid being
       crippled or killed at birth by the content industrys pervasive
       Napster ran afoul of the law due to its operation of a central
       file-indexing service that provided it with specific knowledge of
       specific infringements by specific users of its service. The Appeals
       Court stated:
       Napsters actual, specific knowledge of direct infringement renders
           Sonys holding of limited assistance to Napster. We are compelled
           to make a clear distinction between the architecture of the
           Napster system and Napsters conduct in relation to the operational
           capacity of the system. (emphasis added)
       In stark contrast to Napster, KaZaA does not operate a network or a
       file-indexing service, and does not monitor data or provide a
       data-sharing service. KaZaA merely provides self-generating and
       organizing P2P software and has neither direct knowledge of how it is
       being used nor any ability to curb that use. KaZaAs software does not
       create copies, but merely allows for the sharing of files created
       through other software programs. No central server is involved in the
       systems operation, and all file information resides on the computers
       of individual users. Thus, under the 9th Circuits Napster decision,
       KaZaAs architecture clearly deserves Sony case protection. Indeed, if
       KaZaA were to permanently cease all business operations at this very
       moment users of the software could continue to enjoy its full
       functionality in perpetuity the only way to halt such activity would
       be to permanently shut down the Internet, a step so drastic and r!
       eact ionary that not even the RIAA and MPAA have (yet) dared to
       suggest it.
       Were the courts to hold KaZaA guilty of contributory infringement the
       results could be devastating for the entire technology sector, as any
       and all could be the next victims of the content industrys ongoing
       litigation witch hunt. P2P software is but one of the essential tools
       that can facilitate copyright infringement, and KaZaA has no more
       direct knowledge of such uses than the manufacturers and providers of
       these other technologies. They include:
         * Telecommunications firms providing broadband connections.
         * Providers of Internet browser, server, media player, e-mail,
           instant messaging (IM), newsgroup, and File Transfer Protocol
           (FTP) software.
         * Internet relay chat servers.
         * Manufacturers of large capacity storage devices, including hard
           drives, CD-ROM and DVD-ROM burners, and ZIP drives.
         * The hypertext transfer protocol (HTTP), which is the basis for all
           web browsers, as well as e-mail protocols; both of which, like
           KaZaA and similar P2P software, cannot distinguish between
           copyrighted and non-copyrighted materials as they perform their
           search and transmission functions.
       The P2P data-sharing technology provided by KaZaA has substantial
       over previous Internet architectures, including major cost savings on
       bandwidth and storage, stability and protection from denial of service
       attacks, and efficient search capabilities, all of which combine to
       provide far better utilization of computing and network resources.
       Summing up, P2P software of the type distributed by KaZaA has myriad
       substantial non-infringing uses that advance Internet technology and
       the public interest. We are confident that KaZaA will be found to be
       operating within the law. Any attempt by the content industries to
       alter the law to prevent the continued utilization of this
       breakthrough technology would be a grave disservice to the U.S.
       technology sector and to the millions of your constituents now
       utilizing the exciting applications made possible by P2P.
       The Online Music Marketplace
       The testimony presented to the Committee by RIAA head Hilary Rosen
       clearly attempted to blame the recording industrys failure to create a
       viable online music marketplace on P2P software. She stated, "with
       Internet piracy, the lack of real protection is actually stifling the
       development of a new marketplace.We must be vigilant in ensuring that
       standards of protection are not outdated by technology, and that
       financial rewards remain a realizable goal for American creators of
       copyrighted materials. These rewards are put at risk by commercial
       enterprises that allow for the unauthorized use of recorded music."
       To the contrary, many observers of the online music marketplace
       believe that no one has done more to stifle its development than the
       major record labels, and that if the labels were granted but one wish
       it would be to make the Internet go away. The major labels appear to
       have one overriding goal, which is to transfer the market control they
       have enjoyed in the distribution of physical goods to the virtual
       digital realm, and their anti-competitive conduct has become the new
       focus of the ongoing Napster litigation. They have either sued and/or
       refused to license their copyrights on reasonable terms to any
       innovative online music venture they do not control. The major labels
       only interaction with KaZaA has been to litigate, and to inform us
       that they will not enter into any constructive discussions as to how
       we might work together until the networks created by the KaZaA
       file-sharing software are shut down (an event that, as we have
       indicated, we are powerl! ess to effect). We find this intransigent
       aggression to be remarkable, and lamentable, given the size of KaZaAs
       user base and the many ways in which the labels could derive
       substantial benefit from P2P distribution utilizing a variety of
       available technical and economic solutions.
       The major labels litigation has resulted in the loss of independence
       of the two most exciting and innovative U.S.-based online music
       companies, MP3.com and Napster, and the transfer of control over them
       to, respectively, Frances Universal Vivendi and Germanys Bertelsmann
       media conglomerates. The major labels have also stifled the
       development of the online webcasting market, a goal that Congress
       intended to facilitate by its inclusion of a compulsory license for
       non-interactive webcasts in the Digital Millennium Copyright Act of
       1998. More than three years after enactment of that law, the
       applicable royalty rate has just been determined through a Copyright
       Arbitration Panel (CARP) proceeding. In that proceeding, the RIAA
       proposed a royalty rate that was 30 times higher than the one put
       forward by a coalition of webcasters and broadcasters -- a rate that
       would instantly bankrupt this entire emergent sector.
       The major labels own recently unveiled online services almost appear
       to be designed to fail from the start. None of them offers selections
       from all of the major labels due to refusals to cross-license. Even
       within the label groups that are offered by a particular service, many
       recent offerings by major artists are unavailable. These services
       merely rent song downloads to consumers rather than providing
       permanent ownership. They also bar or severely restrict the features
       that consumers find most desirable, including the ability to transfer
       song files to portable digital players or to burn them onto a CD.
       Press reviews of these new services have ranged from severely negative
       to lukewarm, with most advising consumers to save their money until
       the services show substantial improvement. It is unseemly for the RIAA
       to blame the failure of these services to capture customers on KaZaA
       and similar software when they are so clearly lacking the basic
       attributes ! that should make for a compelling online music
       experience. Even within the major labels, voices are now being heard
       that an excessive focus on security is counterproductive to consumer
       Finally, notwithstanding RIAA rhetoric regarding concern for music
       creators, we remind you that they represent record companies and not
       recording artists. The recording industry has a long and
       well-documented history of artist exploitation., including creative
       accounting practices that would do Enron proud. The standard recording
       artist contract has been characterized as the worst personal service
       agreement in the United States, with provisions that range from
       archaic deductions for "breakage" that date back to the days of
       shellac 78 RPM records to modern abuses such as clauses that deny
       artists the ability to own their name, or any variation of them, as a
       website URL in perpetuity (long after the contractual relationship
       between artist and label is likely to have expired). The major labels
       also appear to be using sound recordings on their own proprietary
       websites in violation of recording artist contracts, and to have
       structured any payments t! o ar tists derived from these services as
       licensing fees rather than far more substantial standard royalties.
       These abuses have prompted one well known artist manager to declare
       "Its becoming very obvious to me and my peers that were becoming
       victims of what is a huge conspiracy", and a leading music attorney to
       state, "from our perspective, if the technology is going to be out
       there and the artist isnt really going to make money, wed prefer that
       our fans just get it for free." (emphasis added) We have also already
       noted the RIAAs failed attempt to have Congress enact a "technical"
       copyright amendment that would have characterized all sound recordings
       as "works for hire" and thereby deprived artists of the ability to
       regain their copyrights after a 35 year wait.
       But that is hardly their sole anti-artist legislative initiative. At
       this very moment, the RIAA is waging a vigorous lobbying battle
       against such groups as the Recording Artists Coalition, the American
       Federation of Television and Radio Artists (AFTRA), the American
       Federation of Musicians (AFM), and other artist representatives in the
       California legislature. These groups are seeking to repeal a provision
       of California law that exempts recording artists alone from statutory
       protections that ban the enforcement of personal service contracts of
       more than seven years duration. The RIAA is no doubt aware that a
       landmark 1945 court case brought by actress Olivia DeHavilland under
       similar law marked the beginning of the end for the old Hollywood
       movie studio system and its pervasive control over actors careers.
       Some observers of the online music marketplace have opined that one of
       the chief motivations for the record industrys litigation crusade
       against indepe! nden t music upstarts is that they might provide
       recording artists with a promotion and distribution system beyond the
       control of the major labels. The current distribution and promotional
       system has erected such high barriers to entry that it is difficult
       for less well known artists who are not signed to a major label to
       realize their audience potential; musicians remain hopeful that such
       direct relationships can be facilitated through independent Internet
       P2P As The Driver of Broadband Demand
       It is well recognized that the rollout and mass adoption of broadband
       connections throughout the United States is the necessary precedent
       for the success of enhanced online services and the continued further
       growth of the telecommunications, computer hardware, and related
       critical industries. It is also increasingly acknowledged that lack of
       demand due to an absence of compelling content is the chief factor
       underlying the growing gap between the availability of broadband
       connections and consumer uptake. While KaZaA and similar P2P software
       is no threat to the content industries, the refusal of the content
       providers to offer attractive online services is a clear and present
       danger to the technological future of this Nation.
       FCC Chairman Michael Powell recently took note of this problem:
       I discussed earlier the chicken and egg problem of broadband content
           and distribution. Much of what is holding broadband content back
           is caused by copyright holders trying to protect their goods in a
           digitized environment (in other words, a perfect reproduction
           world). Stimulating content creation might involve a reexamination
           of the copyright laws. Arguably, VCRs would not be widely
           available today if Universal Studios had won its infringement case
           against Sony in 1984. They won in the Supreme Court by a vote of
           5-4. (emphasis added)
       The recalcitrance of the copyright industries and its direct
       relationship to the lag in broadband uptake has also been noted in the
       mainstream press:
       A while back, there was a compelling reason to get a broadband
           connection. It was called Napster. And it was crippled by
           recording industry lawsuits. If cable and telecom companies want
           someone to blame for broadbands lackluster growth, how about the
           record companies, which still arent giving consumers what they
       Another commentator recently observed:
       Still, the broadband market isnt operating as freely as it should.
           There are roadblocks that stop consumers from getting what they
           want. And its a legitimate function of government to remove those
           roadblocks especially when government creates them.
           Nearly all the obstacles are on the demand side. Federal
           Communications Chairman Michael Powell has observed that
           "broadband intensive content is in the hands of the major content
           holders" especially music and movie companies that may
           appropriately fear Internet piracy but are inappropriately
           delaying economic progress in the process. These entertainment
           moguls have formed a frightened, retrograde cartel thats been
           withholding content from the Internet.
           Part of the problem is the cowardice and stupidity of Hollywood,
           but another part of it is law that needs to be brought up to date.
           In a recent article in the Washington Post, Stanford law professor
           Lawrence Lessig advocated a review of current copyright laws to
           assure that they do not "become a tool for dinosaurs to protect
           themselves against evolution". Heres a worthy project for the Bush
           Administration that would do far more to disseminate broadband
           than fooling with the 1996 Telecom Act.
       When it comes to driving consumer demand for broadband connectivity,
       P2P services are the best hope for near-term success, and the music
       and movie industries are public enemy number one. If the movie
       industry truly intends to withhold its offerings until it can be
       assured of the "seamless protection" that MPAA Chairman Jack Valenti
       spoke of before the Committee, then that day will never arrive. This
       quixotic quest for absolute protection simply cannot be realized in
       the distribution over an open communications system of a consumer good
       meant to be seen and heard by millions; nor can it be reconciled with
       the reliability and ease-of-use demanded by consumers. Knowing that,
       the MPAA apparently intends to seek Congressional intervention to
       mandate so-called protection standards on the manufacturers of
       computer and consumer electronics hardware. This misguided mission,
       which is broadly opposed by a wide array of industry and citizen
       interests, wou! ld i nevitably result in products with inflated price
       tags and diminished functionality.
       A just-released and highly praised study by the Computer Science and
       Telecommunications Board of the National Research Council emphasizes
       the critical relationship between content availability and broadband
       Notably, today's demand level has been based mainly on a limited set
           of applications (e-mail, Web browsing, file sharing, and limited
           audio and video streaming). Indeed, there is a significant gap
           between the capabilities of current broadband services and some of
           the cutting-edge applications that have been touted but are not
           generally available to the public. Continued growth in demand for
           higher-speed services can be foreseen based on applications being
           used or tested by early adopters in enterprise and campus
           networks, experimental initiatives in both industry and academia,
           and the possibilities afforded by increasingly cheap home networks
           and specialized consumer electronics. With new applications, wider
           penetration, and broadband's use as a convergent platform for
           multimedia content delivery, much wider demand and use can occur.
       The study also makes clear that a wide variety of content types beyond
       those offered by the entertainment establishment will be facilitated
       (and these substantially noninfringing content types are ideally
       suited for P2P distribution):
       More diverse content and applications--beyond mass entertainment and
           more commercially oriented content--could create new sources of
           demand and help attract individuals and communities to make
           further investments in broadband. Examples of such content include
           information of local interest; enhanced access to government
           information and services; and materials related to education,
           health, and culture. Not all such services require broadband
           (narrowband may be sufficient, and a way of reaching a wider
           audience in the short term), but broadband supports much richer
       The study further stresses the tremendous benefits that broadband
       provides to media download applications such as those facilitated by
       P2P software:
       It is important not to underestimate the impact of fast
           file-downloading capability on a very wide range of applications,
           including audio and video. Streaming is complicated compared with
           file downloading, and the main reasons that people do it, other
           than for real-time delivery, is because the files are so large
           that users do not want to wait while the files download; the files
           are too big to store locally conveniently (although storage space
           is rapidly becoming very inexpensive); and/or there are
           intellectual property protection concerns (but application of
           digital rights management technologies to stored files can provide
           protection comparable to that of encrypted streams). If one can
           move music files in a few seconds, videos in a minute or two, or
           an entire newspaper or book in a minute, many applications become
           practical. In addition, the economics are becoming more appealing
           with the spread of very large, cheap storage units. Downloading is
           of part! icul ar value when one wants the content for portable
           appliances--such as e-book readers or music players
       Finally ,and perhaps most importantly, the study elaborates on the
       large customer
       base required to successfully drive the broadband marketplace numbers
       far in excess of even the most optimistic projections for the music
       and movie industrys proprietary services, but that are fully
       consistent with current usage of P2P file-sharing applications:
       In addition to technical obstacles, the familiar chicken-and-egg
           phenomenon comes into play. Without a mass market of consumers
           with broadband access, it is hard to develop a business model that
           justifies investment in new content (or translating old content).
           One new media businessperson, Andrew Sharpless, addressed the
           committee from his vantage at that time of developing new online
           services for Discovery Communications. He suggested that at least
           10 million households would need to use broadband before
           meaningful content would emerge, and he noted that cable
           experience shows that serving 50 million customers is key to
           lining up advertisers. (emphasis added)
       Summing up, there is no escaping the conclusion that the current
       practices and attitudes of major copyright owners constitute the most
       serious obstacle to mass demand for broadband, while the utilization
       of P2P file-sharing offers the best near-term means to drive that
       Compensating the Creators Through a Legislated IPUF
       KaZaA is fully aware of and sensitive to the need to respect
       applicable copyright law. The KaZaA P2P distribution software is fully
       compatible with digital rights management (DRM) technologies that can
       be used by content owners to protect their copyrighted works. KaZaAs
       web page contains the following conspicuous notice to users of the
           COPYRIGHT - KaZaA does not condone activities and actions that
           breach the copyright of artists and copyright owners - as a KaZaA
           user you are bound by the KaZaA Terms of Use and laws governing
           copyright in each country.
       As previously explained in this letter, KaZaA has no means to monitor,
       much less control, any activities by software users that may infringe
       While we disagree with the assertions and litigation practices of the
       major corporate copyright owners, we are not insensitive to the need
       to maintain the incentives for creators that are fostered by copyright
       law; and to provide those creators with fair compensation for the
       content that enriches the lives, and advances the business plans, of
       We suggest that it is time for Congress to step in and halt the
       "whack-a-mole" litigation excesses of the music and movie industries
       through new legislative initiatives that compel content availability,
       while establishing a compensation scheme that requires a contribution
       from all the many industry sectors beyond P2P software that benefit
       from content availability. These players who form the links of this
       long and interdependent media file value chain clearly include:
              + Computer hardware manufacturers.
              + Consumer electronics manufacturers.
              + Storage device and media manufacturers.
              + Cable, telephone, and wireless telecommunications firms.
              + Providers of "ripping" and media player software.
       These industry participants provide the software that creates full or
       compressed files of digital media, the hard drives and optical storage
       media that provide for their storage, the connectivity that provides
       for their transfer, and the portable playback devices that allow for
       use away from the computer. Many of their marketing materials
       implicitly promote the duplication of copyrighted materials as an
       incentive for purchase of their products or services.
       The Audio Home Recording Act provides a model for the undertaking that
       needs to be considered. That 1992 statute mandates a small royalty on
       digital audio recorders and recording media, with the proceeds of that
       levy redistributed to content creators. A similar levy an Intellectual
       Property Use Fee (IPUF) -- applied to a much broader base of parties,
       could provide a significant new revenue stream to copyright owners to
       compensate them for the inevitable "leakage" resulting from Internet
       distribution. We do not minimize the difficulty in arriving at a
       reasonable royalty rate or designating the parties or products it
       should be levied on, nor of devising a means for equitable
       distribution of the proceeds (however, most media players already
       possess the ability to monitor and report on content usage, a task
       that can be performed in the aggregate to alleviate privacy concerns,
       and future media compression formats are being designed to tag and
       track th! e individual elements of a creative work). Yet there is
       already ample precedent, es pecially in the music realm, for the need
       for and workability of such compulsory license and royalty schemes. We
       also realize that some would prefer a market solution negotiated by
       private parties, yet the content marketplace is already a landscape
       littered with content and broadcasting oligopolies, performance rights
       organizations operating under antitrust decrees, and myriad compulsory
       licenses facilitated by complex royalty collection and distribution
       schemes. Whatever the difficulties may be in pursuing this concept,
       they are nothing compared to the present practices of the content
       industries that are stifling innovation, retarding the necessary
       rollout of broadband, and threatening the innovative freedom of the
       information technology industry.
       This type of policy initiative would also be fully consistent with one
       of the seminal recommendations of the National Research Councils
       groundbreaking "Digital Dilemma" report:
       Recommendation: The committee suggests exploring whether or not the
           notion of copy is an appropriate foundation for copyright law, and
           whether a new foundation can be constructed for copyright, based
           on the goal set forth in the Constitution ("promote the progress
           of science and the useful arts") and a tactic by which it is
           achieved, namely, providing incentive to authors and publishers.
           In this framework, the question would not be whether a copy had
           been made, but whether a use of a work was consistent with the
           goal and tactic (i.e., did it contribute to the desired "progress"
           and was it destructive, when taken alone or aggregated with other
           similar copies, of an author's incentive?). This concept is
           similar to fair use but broader in scope, as it requires
           considering the range of factors by which to measure the impact of
           the activity on authors, publishers, and others.
       Our notion of an IPUF is consistent with this recommendation, in that
       it moves away from the notion of copy while providing a new means to
       provide the necessary incentive for the continued creation of video,
       audio, and print content that entertains and enlightens millions and
       sustains thousands of different businesses. It also recognizes the
       reality that notions of security and control that may have been
       exercisable in the non-networked, analog world cannot be effectively
       transferred to a realm where even a single digital copy can propagate
       millions of perfect clones, world-wide, almost instantaneously, and
       where control over the quantity and destiny of the bits that comprise
       digital media will be imperfect at best.
       As we have outlined, the attempts by the music and movie industries to
       mislead your Committee with the false notion that our clients software
       is criminal in nature, and that P2P software is a major threat to
       their interests and a rationale for their withholding of content from
       the Internet, have no basis in fact or law. These content industries
       have a long history of opposing new reproduction and distribution
       technologies, and in every instance their dire predictions have not
       only been proven wrong but they have been substantially enriched by
       the very developments they sought to stifle. Self-generating and
       organizing P2P software is the natural and inevitable next step in the
       development of the Internet and offers a dizzying array of potential
       benefits to society. It is also the only means at hand for driving the
       mass adoption of broadband that is critical to the advancement of the
       U.S. technology sector and the myriad new services it can support. !
       We certainly hope that any future Committee inquiries into
       intellectual property matters provide for a more balanced
       consideration of this complex subject. We stand ready to assist the
       Committee and the Congress in understanding the many benefits provided
       by P2P file-sharing technology and in developing a new means of
       providing creator incentives that is not antithetical to technological
       progress. Congressional intervention driven only by the self-serving
       and incomplete testimony of the content industries could have the
       unintended effect of seriously thwarting U.S. economic and technical
       progress while subverting the very goals that copyright law is meant
       to serve.
       Thank you for your consideration of our views.
       Philip S. Corwin
       Cc: Members, Senate Foreign Relations Committee
       Chairman Patrick Leahy and Ranking Member Orrin Hatch, Senate
           Judiciary Committee
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