Statement of Marybeth Peters
The Register of Copyrights
before the
Subcommittee on Legislative Branch
Committee on Appropriations

United States House of Representatives
108th Congress, 1st Session

April 9, 2003

FY 2004 Budget Request

Mr. Chairman and Members of the Subcommittee:

Thank you for the opportunity to present the Copyright Office FY 2004 budget request. This budget provides the resources for the Copyright Office to continue to play a leadership role in addressing, with the Congress, the increasingly important and complex copyright issues arising from the expanding use of digital technology and computer networks, and to fulfill the statutory responsibilities given the Copyright Office in our Nation’s copyright law.

In my testimony last year, I urged action on a $7.5 million supplemental appropriation request to offset a potential loss of receipts due to the anthrax-related disruption of U.S. Postal Service mail delivery on Capitol Hill. I begin my testimony this year by thanking the committee for approving that request. This funding enabled us to maintain our basic operations and ensured that we continued to meet public service requirements. We are very grateful that the committee recognized the need for this funding and acted so promptly to meet it.

The held mail began to arrive in late April and we made a concerted effort to process it, and the fees it contained, as quickly as possible. We met our goal of processing all of this held mail by September 30^th. As a result, the Office only used $1,850,000 by the end of FY 2002, and $5,650,000 of the supplemental funds remained available. The Office is now, as directed by Congress, using the remaining supplemental funds for basic operations in FY 2003. Our FY 2003 annual appropriation was reduced by the same amount. A principal part of the FY 2004 request I put before you today is to restore this $5,650,000 in base funding.

Our only program change request for FY 2004 is for $2,100,000 in new net appropriations and spending authority to build integrated information technology systems to support our reengineered Copyright Office business processes. The Office is designing these IT systems to improve our services to the public and to meet the demand for these services online. Copyright Office online services can be a major source for the deposit of digital works to the Library of Congress. The new net appropriation will be part of the $4.61 million in FY 2004 spending for IT systems analysis, design, and development. I will address our reengineering program in greater detail later in my testimony.

The Copyright Office Mission

The Office’s FY 2004 budget request supports the Copyright Office’s mission to promote creativity by administering and sustaining an effective national copyright system. The Office carries out the following functions: (1) Administration of the United States Copyright Law: It processes claims for copyright registration, documents for recordation, and works deposited under the mandatory deposit provisions of the law. It creates public records of these actions and provides copies of deposited works for the Library’s collections. For more than 130 years, copyright deposits have been a primary source of works for the Library, especially works by American authors. The Office also administers the law’s compulsory licensing provisions, and convenes arbitration panels to determine royalty rates, terms and conditions of licenses, and the disposition of royalties. (2) Policy Assistance, Regulatory Activities, and Litigation: The Office assists congressional committees in drafting and analyzing legislation relating to intellectual property; carries out important regulatory activities under the Digital Millennium Copyright Act; represents the U.S. Government at international meetings and diplomatic copyright conferences; advises the U.S. Trade Representative, the State Department, and the Commerce Department on domestic and international copyright laws; and assists the Courts and the Department of Justice in litigation involving copyright issues. (3) Public Information and Education: The Copyright Office provides information to the public about United States copyright and related laws and Copyright Office practices and procedures, and conducts searches, which may be certified, of the copyright records. The Office conducts outreach to inform the public discussion of copyright issues.

Fiscal Year 2004 Budget Request Summary

For FY 2004, Offsetting Collections Authority remains at the same level as FY 2003 — $23,321,000. This authority is based on projected annual fee receipts of $21,500,000, and the use of $1,821,000 from the Copyright Office no-year account.

The Copyright Office no-year account balance totaled $3,850,000 as of September 30, 2002. In the current fiscal year the Office will use $1,821,000 from the no-year account to partially fund the ongoing reengineering program. In FY 2004, the Office proposes to continue using no-year account funds for the reengineering program: (1) $1,441,000 to partially fund the IT improvements; and (2) $380,000 to implement other aspects of reengineering. The use of the no-year funds will essentially deplete this account.

Review of Copyright Office Accomplishments and Future Plans

I would like to briefly highlight some of the Office’s current and past work, and our plans for FY 2004.

Policy and Legal Responsibilities

The policy and regulatory work of the Copyright Office is largely dictated by the Congress, through responsibilities it gives the Office directly in the Copyright Act and through its setting of the legislative agenda in this area. Digital technology brings both opportunities and problems to the use of copyrighted works. Much is at stake in policy deliberations in this area – both in economic terms and in advancing education and learning. As such, our policy and regulatory work in this area is both increasingly technical and often contentious. The proceeding we completed last year on setting rates and terms for “webcasting” and the anticircumvention rulemaking now underway are illustrative of this trend.

On the legislative front, we are pleased that the Technology, Education and Copyright Harmonization (TEACH) Act was signed into law last year. The TEACH Act promotes digital distance education by implementing the recommendations made in my May 1999 report to Congress titled “Report on Copyright and Digital Distance Education.” At the request of the Senate Judiciary Committee, the Copyright Office played a key role in bringing about the compromise reflected in the legislation by facilitating negotiations between the affected parties.

We also worked closely with the Judiciary Committees of both houses on the issues raised by two 1999 rulings in which the Supreme Court determined that the doctrine of sovereign immunity prevents states from being held liable for damages for violations of the federal intellectual property laws even though states enjoy the full protection of those laws. Under current law, copyright owners are unable to obtain monetary relief under the copyright law against a state, state entity, or state employee unless the state waives its immunity. I testified on February 27, 2002, in support of S.1611. At the request of the Judiciary Committees, the Office moderated negotiations between intellectual property owners and public universities over the proposed legislation, convening a series of meetings over a period of several weeks. Through this process, the affected parties were able to reach tentative agreement on some issues.

In a similar manner, over the past year we have advised Members and staff on important issues such as piracy in peer-to-peer networks and the protection of authentication measures affixed to or embedded in certain copyrighted works.

Congress is also continuing to study options for reform of the copyright arbitration royalty panel (CARP) system which the Office administers. CARPs are temporary panels composed of hired arbitrators who set or adjust royalty rates and terms of statutory licenses, and determine royalty distributions. These panels have been operating under the auspices of the Copyright Office and the Library of Congress since Congress eliminated the Copyright Royalty Tribunal (CRT) in 1993.

I testified at a June 13 hearing before the House Subcommittee on Courts, the Internet, and Intellectual Property to consider how effective the CARP process has been thus far and ways in which it can be improved. In that testimony, I reviewed the findings of a report on CARP reform that the Office had prepared in 1998 at the request of the Subcommittee, and I commented on the need to reform the CARP process. The Subcommittee held another hearing on this topic this month, and I provided testimony then as well. I would note that changes in the arbitration system could result in functions that are now funded from royalty pools being funded from appropriations. If reform legislation is enacted this session with new requirements, our FY 2004 request would need to be adjusted accordingly.

As I mentioned, this past year we completed what was perhaps the most widely-noticed, and one of the most controversial, CARP proceedings the Office has ever undertaken. It involved setting rates and terms of payment for two statutory licenses that allow for the public performance of a sound recording by means of digital audio transmissions, “webcasting”, and the making of ephemeral recordings in furtherance of these transmissions. Under CARP procedures, the panel proposes rates and terms and I make a recommendation to the Librarian on whether to accept these proposals, or to reject them if they are arbitrary or contrary to law. The Librarian, in a June 20 order, accepted my recommendation to halve the CARP-proposed rates applicable to Internet-only transmissions made by webcasters and commercial broadcasters, while accepting the CARP-proposed rates for Internet retransmissions of radio broadcasts made by these same services.

Later in the year, Congress passed into law the Small Webcaster Settlement Act. This Act declares that all payments to be made by non-commercial webcasters during the period of October 28, 1998 until May 31, 2003, which have not already been paid, shall not be due until June 20, 2003. With respect to small webcasters, SoundExchange was authorized to negotiate agreements with small webcasters; such agreements would cover the period from October 28, 1998 through December 31, 2004. Once the terms of such agreements were published by the Copyright Office in the Federal Register, they would be effective. The law required that the royalty payments in these agreements be based on a percentage of revenue or expenses, or both, and include a minimum fee. These terms would apply in lieu of the decision by the Librarian. To encourage agreements, payments of small webcasters would be delayed up to December 15, 2002, the date for any agreements to be concluded. An agreement was concluded on December 13 and published by the Office in the Federal Register of December 24, 2002.

The section 1201 anticircumvention rulemaking we are currently conducting is mandated by the Digital Millennium Copyright Act, which provides that the Librarian may exempt certain classes of works from the prohibition against circumvention of technological measures that control access to copyrighted works. The purpose of this proceeding is to determine whether there are particular classes of works as to which users are, or are likely to be, adversely affected in their ability to make noninfringing uses due to the prohibition on circumvention of access controls. The first anticircumvention rulemaking under the DMCA was completed in October 2000. The current rulemaking will conclude this October.

The Copyright Office continues to provide ongoing assistance to executive branch agencies on international matters, particularly the United States Trade Representative (USTR), the Patent and Trademark Office (PTO), and the Departments of State and Commerce. There is a full agenda of international intellectual property issues in international fora, such as those presented in free trade agreements, and bilateral negotiations.

Copyright Office staff were part of the U.S. delegation in the May 13-17, 2002, and November 4-8, 2002 meetings of the World Intellectual Property Organization (WIPO) Standing Committee on Copyright and Related Rights, which is considering among other things, a possible treaty on the protection of broadcasting organizations. In cooperation with the PTO, staff prepared a proposed treaty text that became the U.S. proposal and which differed in its scope from the proposals of others because of its inclusion of certain activities of webcasters.

Staff served as part of the U.S. delegation in the World Trade Organization (WTO) Council on TRIPS (trade-related aspects of intellectual property rights), which met in November 2001 and March, June, and September 2002. The TRIPS Council is responsible for monitoring the operation of the TRIPS Agreement, and, in particular, how members comply with their obligations under it. The Council reviews the intellectual property laws of member countries for compliance with TRIPS obligations.

Copyright Office staff were members of the U.S. delegation to the November 2001 and September 2002 meetings of the Intellectual Property Negotiating Group of the Free Trade Area of the Americas and were instrumental in preparations, including the redrafting of U.S. treaty proposals. We also participated in the drafting and negotiation of the intellectual property provisions of bilateral Free Trade Agreements with Chile and Singapore, including the drafting of proposed text, and have also taken part in preliminary discussions concerning a possible bilateral agreement with Morocco and multilateral agreements with groups of nations in Central America and southern Africa.

As part of its responsibility to provide information and assistance to federal departments and agencies and the Judiciary on copyright matters, the Copyright Office has assisted the Department of Justice in a number of cases, most notably in defending the challenge to the Copyright Term Extension Act (CTEA), resulting in the recent decision by the Supreme Court in Eldred v. Ashcroft upholding to CTEA.

Registration, Recordation and Cataloging Operations

The Copyright Office registered and cataloged more than one half million claims for copyrighted works during FY 2002, despite the effects of anthrax incidents on Capitol Hill mail and the subsequent postal disruption which hampered the flow of claims into the Office. The Office received 526,138 claims to copyright covering more than 800,000 works and registered 521,041 claims. The Cataloging Division received 520,752 registrations in FY 2002 and created cataloging records for 578,658. The Division reduced the amount of registrations awaiting cataloging from 183,204 to 78,379, a decrease of 57 percent.

The Documents Recordation Section received 12,600 documents for recordation and cleared 10,506, covering nearly 218,000 titles of works.

During the fiscal year, the Copyright Office transferred to the Library of Congress for its collections 896,504 copies of registered and unregistered works valued at $31,302,048.

Licensing Activities

During FY 2002, the Copyright Office administered eight CARP proceedings that included five rate adjustment proceedings and three distribution proceedings. Of the five rate adjustment proceedings, four involved setting rates and terms for the section 114 digital performance right in sound recordings, and the section 112 statutory license for the making of ephemeral recordings to facilitate these transmissions. The fifth proceeding involved setting rates and terms for the section 118 statutory license for the use of certain copyrighted works in connection with noncommercial broadcasting.

The Copyright Office administers the compulsory licenses and a statutory obligation under title 17. The Licensing Division collects royalty fees from cable operators for retransmitting television and radio broadcasts, from satellite carriers for retransmitting “superstation” and network signals, and from importers and manufacturers of digital audio recording products for later distribution to copyright owners. In FY 2002, the Office distributed approximately $110 million to copyright owners. The Division deducts its full operating costs from the royalty fees and invests the balance in interest-bearing securities with the U. S. Treasury.

Copyright Education

Copyright education is a particularly important aspect of our work, as more and more people implicate copyright laws in their daily online activities. The Copyright Office responds to public requests for information in person, through its website, and via email, telephone, and correspondence. It also engages in outreach programs to educate the public about copyright issues.

In FY 2002, the Office as a whole responded to 358,604 requests for direct reference services, including 57,263 email inquiries, of which some 10,000 were on the issue of webcasting.

The Public Information Section assisted 25,005 members of the public in person, taking in 17,644 registration applications and 2,884 documents for recordation. The Section answered 123,106 telephone inquiries, 10,783 letter requests, and 31,681email requests for information from the public, representing an over 100 percent increase in the use of email communications. This increase in electronic mail requests is partly a result of the public using an alternative means of communication during the mail disruption and website modifications that made it easier to contact the Office by email.

The Copyright Office website continued to play a key role in disseminating information to the copyright community and the general public, with 13 million hits on key pages during the year, an 8 percent increase over the prior year.

Reengineering Program

Over the past three years, we have been undergoing intensive planning and design to improve each of the public services I have just described. The Office’s Reengineering Program will reshape the delivery of our public services. We are very grateful for the support this Committee has given this important effort.

The program is progressing along four fronts: process, organization, facilities, and information technology. All of these areas are linked to each other and have to proceed together. We are making good progress and our request for FY 2004 will allow us to maintain this momentum. Our goal is to complete implementation of our new processes and IT systems in FY 2005.

This budget requests $2,100,000 to support the development of integrated information technology systems for our reengineered public services. This request will augment the $2,500,000 to be obtained from the Office’s base budget. The entire reengineering program depends on the development and implementation of new information technology systems. So many of the efficiencies we will gain will be from using new and better technology, and having all our systems integrated rather than working through numerous stand-alone systems as we do now.

Our FY 2004 request, and our information technology work as a whole, is based on careful planning that has been done over the past two years. We have completed an extensive study and planning effort to design business processes which improve the delivery of our public services and allow the public to secure these services online to the maximum extent possible. Once we developed processes that we believe will enable us to best serve the public, we completed an IT requirements analysis, which identified logical systems components and potential software packages. This year we plan to award a contract, through a government-wide agency contract (GWAC), to begin the work of building integrated information technology systems.

The $2.1 million in new net appropriations will be part of an overall $4.61 million budget for this IT systems development work.

Conclusion

We expect this will be a busy Congressional session addressing copyright matters; we will continue our close collaboration with the committees and individual Members on these often complex and wide-reaching issues. As we continue to fulfill the responsibilities given us under the copyright law, including making over one half million registrations each year, we are also intent on maintaining the progress of our Reengineering Program to improve these services. Our FY 2004 request permits us to meet these challenges.