Statement of Marybeth Peters
The Register of Copyrights
before the
Committee on the Judiciary

United States Senate
104^th Congress, 2^nd Session

United States Intellectual Property Organization Act of 1996 (S. 1961)

Mr. Chairman, members of the Judiciary Committee, thank you for the opportunity to testify today on this proposed legislation, which is so important to the future of the U.S. copyright system. My remarks will be limited to Title I of the bill, which would establish a new U.S. Intellectual Property Organization as a wholly-owned government corporation, including within it the Copyright Office.

As the agency responsible for the administration of U.S. copyright law, the Copyright Office always strives to achieve an optimal balance between the concerns of owners and users of copyrighted works, in furtherance of the broad public interest. We have regularly assisted Congress in attempts to improve the copyright system and to identify and cure any problems, and we stand ready to do so today. We must express grave concerns, however, about the impact on the public of the specific provisions of Title I, which would effect a fundamental restructuring of the copyright function of the federal government. We do not oppose the reorganization of the U.S. Patent and Trademark Office as a wholly-owned government corporation, as proposed in H.R. 3460, passed by the House Committee on the Judiciary on June 11. But the hasty and radical changes proposed in this bill pose potential problems of serious dimension for the public interest, and we are not aware of any problems with the existing structure that could justify the risk of such disruption.

The most obvious of these potential problems are economic costs and costs in public access to information. We foresee that placing the Copyright Office on a self-supporting basis, would require sharply increased registration fees. Such an increase would place a substantial financial burden on copyright owners. It is also likely to lead to a steep decline in the use of the copyright registration system that has long been a hallmark of U.S. copyright law, providing a valuable public database today and for the future global electronic marketplace.

Other concerns relate to non-economic values. The proposed structure would mean the loss to Congress and the public of a balanced, non-partisan voice in the formulation of copyright policy. In addition, the basic concept of copyright would change: for the first time, copyright would be treated along with patents and trademarks as a form of purely commercial, industrial property.

The issues raised by the 104 pages of Title I are complex and far-reaching. The Copyright Office has begun the process of gathering information, analyzing the issues and assessing their immediate and long-term implications. Given the short time frame, our analysis is necessarily at a preliminary stage. At this point, we can identify as many questions as answers, and believe that much more study is needed to evaluate fully the impact of the proposals. Meanwhile, we recommend that the status quo be preserved, and that the patent and trademark issues be resolved without implicating copyright in any way. To this end, we urge not only that the specific copyright provisions be removed from the bill, but also that there be no broad references to "intellectual property," as such references may be interpreted to include copyright.

I will begin my remarks with some comments on timing and process. I will then outline the most significant problems we see with the structure proposed in Title I, and suggest an approach to evaluating possible changes to the existing copyright system. My comments will be limited to aspects of the bill specifically affecting copyright interests. The Librarian of Congress is submitting to the Committee a separate statement describing the potential impact on the Library.

A. Timing and Process

In evaluating a change of this magnitude to the basic structure and placement of a government agency, careful consideration should be given to both the need for change and the potential consequences. The first question is whether the current structure causes any problems that are real, as opposed to theoretical. If so, it is critical to identify their precise nature and scope. Only then can one answer the ultimate question: how to solve those problems without creating new ones. Answering all of these questions requires consultation with the affected communities to determine their needs and weigh their perspectives.

This process has not yet taken place with regard to the copyright provisions of S. 1961. There has been no open, public debate of the issues involved. Neither the Copyright Office nor members of the private sector participated in formulating these proposals. Indeed, many interested parties were unaware that such proposals were being considered until the bill's introduction shortly before the August recess. No representative of the author, copyright owner or copyright user communities were given the opportunity to testify today, and no further hearings are scheduled. We are aware that many in these communities have expressed concern about the compressed timetable and lack of input. This process stands in marked contrast to that followed for the patent issues presented by S. 1961, which have been widely aired and debated for years.

Recent experience has shown the dangers of proceeding with a major structural change in the government's copyright functions in a short time frame and without full input and deliberation. In 1993, through a similarly precipitous process, the Copyright Royalty Tribunal (C.R.T.) was abolished, and replaced by a system of arbitration panels located within the Copyright Office. In 1996, the first arbitration proceedings handled under the new system have demonstrated serious problems with its structure and operation, and the Copyright Office has already discussed with Committee staff its intention to recommend to Congress a number of revisions to the law. The lesson from this experience is that such structural changes require time and careful consideration in order to work out the bugs and forestall unintended consequences. The changes proposed in S. 1961 are of a much greater magnitude in number and complexity than the C.R.T. legislation, and pose a correspondingly greater potential for harm.

B. The Dangers of the Proposed Structure

1. Impact on fees

First and foremost, we are concerned about the potential impact on fees and the resulting damage to the existing system of copyright registration and deposit. Central to the government corporation concept as embodied in Title I is the mandate that each subdivision be financially self-supporting. Unlike patents and trademarks, copyright has never been a profit center for the government, and the bill provides no indication of how this change is to be made.

At present, copyright income (consisting principally of registration and document filing fees plus a small percentage of royalty funds allocated to the direct costs of administering the statutory royalty systems) pays for only a portion of the Copyright Office's budget ($18 million out of $30 million); the rest is provided through Congressional appropriations. The Office is also supported in part by Library services provided without charge, such as security, financial services and automation support, and does not pay rent.

Eliminating the cost of appropriations to the taxpayer is appealing, and we have for some time now been considering various options to fund a greater proportion of our costs. For this reason, we urge the Committee to act promptly on H.R. 1861, the Copyright Clarifications Act, as passed by the House of Representatives. Section 6 authorizes the Copyright Office to raise fees, based on a study of various factors, subject to Congressional review. We are prepared to move promptly to design a new fee structure, based on reasonable costs to the applicant, that is fair and equitable giving due consideration to the objectives of the copyright system.

The additional funds that would be required to run a self-supporting Office must come from somewhere; at present, raising fees seems to be the only practical option, since there are no other sources of income readily available to the Office. The only obvious alternative would be to divert to general operating purposes additional funds from the royalty pools collected under the Copyright Act's compulsory licenses -- a solution that is not permissible under existing law, and would disproportionately burden the recipients of those royalties. Our preliminary analysis indicates that, if our operational costs otherwise remained the same, becoming self-supporting outside of the Library would entail a five-fold increase in fees (from $20 to the $100 range). \1\

\1\ While this amount may seem small in relation to patent fees, the comparison is inapt. Simply put, patent fees buy much more. Unlike copyrights, patent rights do not exist without application and payment to the government, and once granted, provide a much stronger, and on average more lucrative legal monopoly. Moreover, every member of the public may be a copyright owner, and a single entity is likely to own many more copyrights than patents, multiplying the cost of registration.

Such an exponential increase in fees would be detrimental to both copyright owners and the public generally. As to copyright owners, those who find it advisable to continue to register their works will be forced to expend large sums, with a potentially major fiscal impact. Some copyright owners, such as music publishers or motion picture companies, own catalogues of hundreds or thousands of works; aggregate fees could be staggering. Many individual authors or small businesses will no longer be able to afford to register on a regular basis. As a result, in many cases, they will be barred from obtaining meaningful remedies against even willful infringers. See 17 U.S.C. section 412; Report of the Co-Chairs, Library of Congress Advisory Committee on Copyright Registration and Deposit at 17 (September 1993).

The Copyright Office would of course be willing to work with Congress and the private sector to find ways to alleviate the impact. While it might be possible to distinguish among types of works, keeping fees low for individual authors and raising them for commercial works or works made for hire, extremely high fees would result for the latter categories, further discouraging registration.

In fact, the impact on fees would likely be even greater than predicted by our preliminary analysis, since operational costs in the proposed structure would be higher than they are today. The bill creates new expenses for the Copyright Office because of the need to fund a more complex bureaucratic structure, including a newly-established appeals board and advisory board. It would also require the Copyright Office to fund one-third of the entire budget of the office of the Commissioner of Intellectual Property -- a budget over which we would have no control. This amount would apparently be added to the cost of funding the Copyright Commissioner's own office and policy division. As a rough yardstick of the amount at issue, the 1996 Patent and Trademark Office budgets for the Executive Office of the Commissioner and the Office of Legislative and International Affairs together are projected to exceed $4 million (exclusive of expenses for management planning, administrative services, automation, and space acquisition and management).

2. Impact on availability of information to the public

The damage from increased fees would not be limited to copyright owners, but would also affect the public generally. As a practical matter, it could mark the end of a vital and meaningful registration and deposit system.

Historical experience shows that registrations decrease in number whenever fees are increased. This experience is likely to be magnified greatly under the current proposal, as no past increase has ever come close to the amount that would be entailed here. We expect that many individual copyright owners would choose not to register their works, and that businesses would register fewer works. The result would be a diminished and less valuable public database of information about works of authorship, making it more difficult for users to determine who owns what rights at a particular point in time. There would also be a corresponding decrease in deposit copies of works received through copyright registrations; the statement of the Librarian of Congress indicates the quantitative and qualitative impact that such a decrease in registration deposits would have on the Library's collections.

Such results would be particularly disturbing in light of the recent recommendations of the Advisory Committee on Copyright Registration and Deposit appointed by the Librarian of Congress in 1993 and co-chaired by former Register of Copyrights Barbara Ringer and Robert Wedgeworth, University Librarian, University of Illinois at Urbana-Champaign. The Advisory Committee (known as "ACCORD") consisted of copyright experts from the legal and academic communities, as well as representatives of leading authors', publishers', library and educational groups. After extensive historical and comparative research and thorough debate, ACCORD strongly affirmed the value and importance of the U.S. registration system to copyright owners, users of copyrighted works, and the general public. It recommended the inducement of increased registration through a combination of legal incentives and Copyright Office practices aimed at simplifying and facilitating the registration process, and considered as one potential form of inducement the lowering of existing fees.

3. Impact on digital marketplace

If anything, the value of registration has become even clearer since the 1993 ACCORD Report, due to new technologies. The full commercial and informational potential of the national information infrastructure will remain unrealized until an efficient, secure and flexible electronic marketplace is developed for copyrighted works. Effective encryption technology is one essential component; a source for accurate, up-to-date information about the ownership of rights is another. In this context, the role of copyright registration in contributing to a national public record is more important than ever. The Copyright Office provides a free, centralized, easily accessible source of information about copyrighted works, with records that are international in scope and cover all varieties of works. A Copyright Office registration system offering integrity, accuracy and completeness can serve as a key component of the electronic marketplace.

In response to this reality, the Copyright Office is today working on various projects making registration and licensing information widely available over digital networks. One significant project already underway is an electronic registration, recordation and deposit system (CORDS), developed in conjunction with the Library of Congress's National Digital Library program. CORDS entails the receipt and storage of copies of works in secure digital repositories along with associated rights and permissions information, including referrals to organizations that manage rights or provide authorized access to the works. A significant fall-off in the use of the registration system, and the separation of the Copyright Office from the Library could be crippling to such future-looking projects.

4. Equal contribution to budget of Commissioner of Intellectual Property

We are also concerned about the proposed funding mechanism for the office of the Commissioner of Intellectual Property ("C.I.P."). Under the bill, the C.I.P.'s budget is paid for equally by the subdivisions, Copyrights, Patents, and Trademarks. This is so despite the fact that copyright revenues to the U.S. government have always been and will likely always be dwarfed by the revenues from trademarks and patents (in 1995, less than $20 million compared to more than $600 million).

This problem has no simple fix, such as making the contributions from the subdivisions proportional to their revenues. If they are proportional, then patent policy concerns will likely predominate in the exercise of the C.I.P.'s judgment. The lack of an apparent solution is not incidental; rather, it suggests an inherent misfit in the merger of copyrights with industrial property.

5. New and continued flaws in royalty administration system

When Congress abolished the Copyright Royalty Tribunal in 1993, it established a royalty adjustment and distribution system using ad hoc three-member arbitration panels. The royalty distribution provisions in S. 1961 are based on the existing system, with the substitution of administrative law judges for the three-member panels.

The weaknesses that experience has revealed in the recently-instituted arbitration system are only partially cured by S. 1961. In addition, we believe that the bill may introduce new problems that we have not had time to evaluate fully. Potential problem areas include: the mechanism for taking appeals from the administrative law judge's decision; time limits which may not be practical; the cost allocation of proceedings among the claimants, including the problem of frivolous claimants who pay nothing, but impose high costs on other claimants; and the employment status of the administrative law judges. Careful consideration, with full participation by the interested parties, is critical in order to identify and resolve such problems in order to avoid repeating the shortcomings of the quickly enacted Copyright Royalty Tribunal Reform Act.

6. Loss of a balanced and neutral perspective

The most significant non-financial problem we see with the bill is the potential increased politicization of copyright policy. The Copyright Office has traditionally served as an expert and non-partisan voice, listening to all perspectives regardless of economic clout or political affiliation, and seeking to reach balanced policy judgments. Our recommendations are not influenced by political agendas or subject to interagency clearance -- a process that imports non-copyright goals. This tradition would inevitably change under the proposed structure. The United States would lose the contribution of a distinctive expert voice to the tapestry of copyright policymaking, and Congress would lose a valuable non-partisan advisor.

Similarly, the absolute discretion over the appointment and continued service of the Commissioner of Copyrights exercised by the Commissioner of Intellectual Property may result in a lack of continuity and developed expertise. While the Register of Copyrights is currently appointed by the Librarian of Congress, neither the Register's nor the Librarian's tenures have historically been affected by political turnover in the Administration. Over the history of the Copyright Office, several Registers have served long terms and developed distinguished reputations as scholars and leaders in copyright policy development. Such careers seem less likely under the proposed structure.

7. Copyrights are different in nature from industrial property

Finally, by combining copyrights with patents and trademarks under the policy direction of a single Commissioner of Intellectual Property, the bill raises a basic conceptual concern. Copyright differs from industrial property in fundamental respects. Many other countries, like the United States, have recognized this difference, handling copyright issues in their ministries of culture, education or justice, and patent and trademark issues in their ministries of commerce or trade. The distinction is also recognized in the two leading international treaties, which are divided into the respective fields of copyright (the Berne Convention) and industrial property (the Paris Convention, covering both patents and trademarks).

To begin with, the subject matter and scope of protection of even the two closer systems, copyright and patent, are quite distinct. A joint study by the Patent Office and the Copyright Office in 1991 stated: "In general, there appear to be few common elements in the subject matter capable of protection under the respective statutes. . . . We conclude that the subject matter overlap in the two statutes appears to be minimal." Patent-Copyright Laws Overlap Study, Prepared for the House Subcommittee on Intellectual Property and the Administration of Justice by the U.S. Patent and Trademark Office and the U.S. Copyright Office, at ii-iii (May 1991). Developments in the field of computer and digital technology have not led to greater convergence. The Overlap Study considered and explicitly included "computer related expressions and inventions" in its conclusion. Nor does the fact that works may be expressed and transmitted in digital electronic form change the nature or essence of the intellectual product that is protected.

These types of property also differ in societal effect. Like industrial property, copyright has tremendous commercial value, and plays a critical role in the U.S. and global economies. The economic interests involved are, and must continue to be, vigorously protected by the government. But copyright policy should not be entirely driven by economic concerns; copyright furthers other important values as well. In a qualitatively different manner from patents or trademarks, it has a unique influence on culture, education, and the dissemination of knowledge. The existence and scope of copyright protection affects the kinds of works that are created, and the ways in which they are used. Every member of the public is both a creator and a user of copyrighted works, and these works are the means by which his or her ideas and thoughts are communicated. In the words of the Supreme Court, "[C]opyright [is] the engine of free expression." Harper & Row, Publishers, Inc. v. Nation Enterprises, 471 U.S. 539, 558 (1985). These values may be slighted if copyright policy is wholly determined by an entity dedicated to the furtherance of commerce.

C. Evaluating the Existing System: A Suggested Approach

1. Does a real problem exist?

Congress is not today legislating in a vacuum, building a new intellectual property system from the ground up. The copyright function of the United States has been located in the Library of Congress for 125 years, with the Copyright Office existing in essentially its present form for the past century. During that time, the United States has developed a copyright system that has encouraged the creation of a thriving marketplace in copyrighted works and has served as a model for countries around the world. Any proposed change must be evaluated in light of this record of success.

So far, we do not believe that a need for change has been established. In 1993, many of the issues implicated by this bill, including the position of the Register, the relationship of the Office to the Library, and the value and functioning of the registration and deposit system, were thoroughly studied during the ACCORD process in connection with the proposed Copyright Reform Act. No legislation was ultimately enacted. Since that time, we have heard no indication from the private sector of any practical problems relating to the structure and placement of the Copyright Office, or of any request for change. In fact, we are not aware of any support for the bill's proposal from any element of the copyright communities. As to the issues that have been raised by the Chairman and Committee staff as justifications for including the Copyright Office in S. 1961, each is either theoretical in nature or does not relate to the overall structural question.

a. Executive branch coordination

The principal justification noted by the Chairman in introducing this bill is a desire to coordinate all international and domestic intellectual property policymaking within one office in the executive branch. This solution may be neat in theory, but overlooks the practical reality of the multilayered and effective structure that is now in place. The U.S. copyright function today can be viewed as a tapestry, with different agencies contributing different threads to the overall weave.

Under the existing structure, copyright is represented by strong voices in the Administration. Copyright has achieved high political visibility in recent years, and is an important component of U.S. economic policy both nationally and internationally. This result has been realized by coordinating input from a variety of sources within the government: the U.S. Trade Representative, the State Department, the Commerce Department, including the Patent and Trademark Office, and the Copyright Office. By combining complementary but distinct areas of expertise, these agencies have offered strength in teamwork, and have furthered U.S. copyright interests at home and abroad over the past decade with remarkable success.

This successful teamwork has been no accident. Congress has over the years considered how best to allocate the governmental functions relating to copyright, and has set the basic parameters by assigning different areas of responsibility to different agencies. The Copyright Office has been given responsibility to handle policy issues, and has been authorized to establish an international training program known as the International Copyright Institute. Areas not specifically allocated by statute have been divided among the agencies based on practical considerations of resources and expertise. Thus, for example, today the U.S. Trade Representative leads negotiations of bilateral copyright agreements as well as trade agreements, but relies upon the Copyright Office and the Patent and Trademark Office for technical expertise.

As to multilateral negotiations, copyright (as opposed to trade) treaties are primarily administered through the World Intellectual Property Organization. In this forum, U.S. delegations have been joint efforts, including representatives from all agencies with relevant expertise. Leadership of the delegations has shifted over the years, depending on personnel and interest, with different agencies taking the lead at different times. The current round of WIPO negotiations has been led by the Patent and Trademark Office, with technical assistance from the Copyright Office. In other years, delegations have been headed by the Copyright Office and by the State Department. Any evaluation of the existing structure should consider the complex and beneficial interactions among the different sources of government expertise over the years, rather than focusing narrowly on a snapshot of one part of the picture at one point in time.

In the past, this cooperative approach to our international efforts has been extraordinarily effective, without problems of exclusion or of conflicting views. Through the present day, the Copyright Office has been an active participant in U.S. negotiations as either the leader of the delegation or a technical advisor.

On the domestic front, policymaking has also been cooperative, with the Copyright Office at the forefront on substantive issues, drawing from our extensive experience with the day-to-day operations of the copyright law. The Copyright Office has formulated copyright policy for nearly a century, primarily through assistance in the development of legislation, issuance of regulations, and participation in litigation. The Office has worked closely with congressional committees on a day-to-day basis, and was integrally involved in drafting the 1976 Copyright Act as well as working on every subsequent amendment. We regularly propose changes in the law, and advise Congress on copyright developments in the United States and abroad. In addition, we cooperate on many issues with various agencies in the Executive branch, most frequently the Justice Department and the Patent and Trademark Office.

In sum, the United States today enjoys the benefits of a flexible copyright structure that allows it to draw on the finest resources the government has to offer. The structure is able to function successfully during shifts in resources and personnel within particular agencies at various times. We believe the strength of this structure is in part responsible for the tremendous achievements of U.S. copyright policy in the international arena in the past decade. It should not be disturbed lightly.

b. Relationship with the Library of Congress

The remaining justifications that have been put forward address the relationship between the Copyright Office and the Library of Congress. Thus, it has been suggested that conflicts of interest may arise in a structure where the Register of Copyrights reports to the Librarian of Congress. The Copyright Office, however, makes its own policy decisions and recommendations to Congress independently of the Library. The Library does not always agree with the policies we espouse. The positions of the Library have, for example, differed in various respects from those of the Copyright Office on a number of bills introduced in this Congress.

We also note that the location of the Copyright Office within the Library may be beneficial for copyright policymaking. As one of the largest users of copyrighted materials in the country, and as a leader in the library and nonprofit community, the Library represents a significant voice in public debates over copyright. Its ties to the Copyright Office give it the benefit of a broader perspective on different sides of the issues, including the long-term impact on copyright owners and the public of proposed changes in law and practices. This benefit would be lost if the Office were moved.

At times, the legislative branch placement of the Copyright Office has raised constitutional separation of powers issues. The issues have led to decisions on how to structure the Office's responsibilities, but have not caused practical problems. As the Congressional Research Service has in the past advised Congress, concerns about separation of powers would be misplaced. The Copyright Office is constitutionally capable of performing any of the ordinary functions of an administrative agency, since the Register is appointed by the Librarian of Congress, a Presidential appointee. See Eltra v. Ringer, 579 F.2d 294, 298-301 (4th Cir. 1978) (holding constitutional under Buckley v. Valeo, 424 U.S. 1 (1978), the power of the Register of Copyrights to issue rules and regulations: "The operations of the Office of the Register are administrative and the Register must accordingly owe his appointment, as he does, to one who is in turn appointed by the President in accordance with the Appointments Clause. It is irrelevant that the Office of the Librarian of Congress is codified under the legislative branch or that it receives its appropriation as part of the legislative appropriation. . . . The Supreme Court has properly assumed over the decades since 1909 that the Copyright Office is an executive office, operating under the direction of an Officer of the United States. . . .").

Other issues that have been raised, such as criticisms of Library management or hiring policies, have nothing to do with the large structural questions under consideration. We note that no government entity, whatever its form, is immune from staffing difficulties. I am pleased to report, however, that the Copyright Office has made great strides in redressing past problems in this area. During the past year, we have hired four highly-qualified lawyers in the Register's Office to work on policy and international matters.

Nor is the placement of the Copyright Office within the Library of Congress a mere historical accident. The Librarian's written statement explains the history and purposes of the long relationship between the two institutions.

2. Any problems should be resolved through appropriately tailored solutions, weighing the costs and benefits

There is no perfect structure for copyright within the government, given its role in both the furtherance of commerce and the development and preservation of culture. Each possible scenario has pros and cons. All of the pros and cons should be explored and weighed in order to determine whether any particular structure is preferable to another.

As to any of the issues that have been raised about the present system, numerous approaches are possible. This bill presents the most extreme option, abandoning a more than century-old structure in favor of an inherently flawed and untested structure. While it may offer certain theoretical benefits, it poses the risk of substantial harm to the Library of Congress, to copyright owners, to the registration system, and to the balance of interests reflected in copyright policymaking. The change itself would also entail significant transition costs. We estimate that the one-time cost of moving the Copyright Office out of the Library of Congress would come to at least $5 million; the less quantifiable costs would include a loss of productivity in serving the public before, during, and after the move. Finally, such a complex structural change often causes unforeseen and unintended consequences (as demonstrated by the C.R.T. experience). If a problem is found to exist, other less drastic solutions should be considered.

Conclusion

The first priority should be to determine whether a real problem exists with the current structure. If so, the Copyright Office would be pleased to assist in analyzing its scope and helping to find an optimal solution. We are committed to the health of the U.S. copyright system, not to any particular structure for its own sake. But at present, no problem is evident, and certainly none of an urgency that requires precipitous action. The wholesale move of an entire government agency necessarily poses risks, and should only be accomplished after careful deliberation. In our view, the desirability of such a move has not been established, and the specific proposal set forth in S. 1961 raises potential problems that could jeopardize valuable elements of the U.S. copyright system.

We therefore urge that the copyright provisions of Title I be deleted from any legislation that may be enacted at this time, along with any references to "intellectual property" generally, in order to provide an opportunity for full analysis and public debate of the important issues that have been raised.