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

United States Senate
107th Congress, 1st Session

May 2, 2001

FY 2002 Budget Request

Mr. Chairman and Members of the Subcommittee:

Thank you for the opportunity to present the Copyright Office budget request for fiscal year 2002. We seek the funding necessary to permit the Copyright Office to administer the nation's copyright law and provide expert policy assistance to Congress and the Executive Branch so that the nation maintains a strong and effective copyright system - one that serves both owners and users of copyrighted works.

I would like to note at the outset that our budget request has been revised to some extent from our original submission to take into account important planning and public service improvement activities in which we are now engaged. We are withdrawing the CORDS Full Large-Scale Production request which lowers our appropriations request for Fiscal Year 2002 by $2,621,185 and 13 FTEs.

Fiscal Year 2002 Request Summary

To enable us to fully serve Congress and the American people, it is critical that the Office's net appropriation be increased from $9.2 million to $12.8 million -- $1 million less than the fiscal 1999 net appropriation of $13,771,000. We have growing policy support requirements to Congress and the Executive Branch, as well as a growing regulatory workload from passage of the Digital Millennium Copyright Act, that require adequate resources. The Office is requesting $12,836,815 in net appropriations and $21,880,000 in offsetting collections authority. This represents a $3,668,843 million net appropriation increase over the fiscal 2001 net appropriation of $9,167,972. The increase is needed to preserve the No-Year account from a further reduction and to fund $1,668,843 for mandatories and price level changes.

The Copyright Office request for its Offsetting Collections Authority represents a decrease of $1,620,000 from $23,500,000 to $21,880,000. The decrease is based on projected annual revenue receipts of $21,500,000 and expending $380,000 from the Copyright Office No-Year account. The Copyright Office believes that the fees collected from the public that are in the No-Year account should be retained and reinvested into providing improved services for the copyright community. As such, we strongly urge the Congress to approve the retention of the No-Year account funds for BPR implementation and information technology improvements.

Approximately two-thirds of the Copyright Office budget is funded by fee receipts, primarily fees paid for registering copyrighted works in the Office. In July 1999, we implemented a new fee schedule which raised our basic registration fee by 50%, from $20 to $30. This fee increase has resulted in fewer copyright registrations, which impacts our copyright system and the Library of Congress collections.

The policy and regulatory functions of the Office - activities benefitting the nation as a whole instead of providing a specific service to an individual or organization - are funded by net appropriations. These activities include support to the Congress and Executive branch agencies, legal and regulatory work under the Copyright Act, and public education efforts.

Major Copyright Office Initiatives

The Copyright Office has two very important, closely-aligned, initiatives now underway. Both initiatives - information technology planning and business process reengineering - will shape the Copyright Office's future and its service to the American people. Just as the copyright law has had to adjust to technological changes, our daily business operations and processes are challenged in similar ways.

1. Information Technology

We have begun a major reassessment and planning effort regarding our information technology (IT) systems. The Copyright Office relies on the collection, processing, storage and presentation of information to fulfill its duties under the U.S. Copyright Act. Information processing and products are critical in the registration of claims to copyright, the recordation of documents pertaining to copyrighted works, statutory licenses, and the Office's responsibilities as an agency of public record. Access to information is also the basis for the substantive policy and regulatory work the Office performs for the U.S. Congress and the executive branch.

Currently, the Copyright Office has more than 20 separate information systems. For the most part, they have been developed separately and are not supportive of full information sharing and integration. Some rely on hardware that is aging and becoming increasingly vulnerable to failure.

Two principal factors will shape Copyright Office IT planning in the next few years. First, in order to fully serve our customers, the Office needs to have its current public services available online to the greatest extent possible. Second, we will soon make a decision on the business process reengineering (BPR) option we will pursue and complete a BPR implementation plan this summer. This effort will result in significant changes to our current processes, organization, and facilities. In addition, the changes will rely heavily on the use of new technology, all of which will result in more effective and timely service to our customers.

Our original direction on reengineering was to work within the confines of our existing IT structure. The results of our reengineering work have shown us that we need to accelerate the Office's use of new technology, not only for the processes impacted by reengineering, but for the entire Office. We need to undertake a fundamental transformation in our public services: from paper and hard-copy based processing to primarily electronic processing. Our processes must change from traditional manual capabilities to IT-enabled functions.

This year, through our Copyright Office Electronic Registration, Recordation and Deposit System (CORDS), we will electronically receive about 30,000 digital works for registration. This is about 5 percent of our total registrations. Now we need to broaden our IT approach so that electronic receipt and processing becomes the primary way we register works. We will encourage that works submitted for registration be submitted online. Once they are submitted, we will use technology to a much greater extent than we have, to process them quickly and ensure a timely public record.

This not only helps the Copyright Office provide better public services, but is also is a key component of the Library's digital strategy which will allow more digital works to be acquired for the Library's collections through copyright registration and through the mandatory deposit provisions of section 407 of the copyright law.

Our newly-formed Copyright Office Information Systems Working Group has just begun its work. So that this critical initial planning can be completed and specific resource requirements identified, I am requesting a modification in our Fiscal Year 2002 request.

Until we revise our overall IT strategy to respond to our new business processes, I believe we should not proceed with funding for the CORDS Full Large-Scale Production System, as requested in our original submission. We do need to maintain the CORDS system so that we can continue to provide an electronic registration option for those now using it and others who wish to. I expect that usage of the current CORDS system will increase in terms of the number of users and quantity and types of works registered. Yet, we do not want to accelerate further development of CORDS until we establish an overall electronic delivery of services strategy.

I request that we proceed as follows:

• Permanently reprogram $620,000 savings from Marking and Tagging in Fiscal Year 2001 to Information Technology Planning and Development. In the current fiscal year, these funds would be used to conduct a requirements analysis which will provide us with an IT strategy that: supports reengineering, redevelops our aging systems and expands the electronic delivery of our public services. (Our Marking and Tagging requirements will continue to be met and security of materials will be one of the principal objectives in the IT requirements analysis.)

• Based on the completed requirements analysis, in Fiscal Year 2002 we will begin systems analysis, design and development work. A multiple-award contract will be developed to rebuild and integrate our information systems to meet our new requirements. We plan to have this contract awarded by July 2002.

• In Fiscal Year 2002, we will use the reprogrammed IT funds ($620,000) for IT contract management and CORDS user support to provide hands-on technical advisory assistance to our current CORDS users.

I very much appreciate your consideration of this modified request for next fiscal year. This shift in funding is critical to our being able to fully meet our statutory obligations and fully serve the American people in the future.

2. Business Process Reengineering: Initial Implementation

The second initiative involves our initial steps to carry out our Business Processing Reengineering Implementation Plan. The plan will be implemented in phases beginning in fiscal 2002. The Copyright Office No-Year account will fund the three-year implementation, except for furniture and furnishings.

In fiscal 2000, the Copyright Office began the BPR project by awarding a contract to PriceWaterhouseCoopers, LLP to conduct a study of its business processes. At the same time, the Office appointed a senior Project Manager, who is an expert in Copyright Office procedures, to oversee the contract and lead the Office BPR team. The project focuses on six major business processes: registration of claims, recordation of documents, requests for information, acquisition of deposits, maintenance of our public records, and financial record keeping. Reengineering will accomplish the following objectives:

Improve operations and service that will achieve better processing times and create timely public records;

Enhance operational efficiency through the use of new or alternative technologies;

Contain the costs of registration, recordation and other services;

Strengthen security within the Copyright Office; and

Use staff and space more efficiently.

In fiscal 2001, the Project Manager is leading a team of twelve Copyright Office staff and several PriceWaterhouseCoopers contractor staff to document the current environment, plan new processes, and develop an implementation plan. The Office plans to complete the study by June 2001.

We are requesting authority to spend $380,000 from our No-Year account for human resource actions (e.g., re-writing position descriptions, performing job analyses) as well as staff training to retool the workforce. A contractor will be hired to perform space design, and some funds will be used for automation equipment and software.

The Copyright Office Mission

The Copyright Office administers the copyright law and is the primary source of copyright expertise in the Federal Government. It provides expert assistance to Congress on intellectual property matters and advises Congress on anticipated changes in U.S. copyright law. It analyzes and assists in the drafting of copyright legislation and legislative reports, conducts and provides studies for Congress and offers advice to Congress on international matters, including compliance with multilateral agreements such as the TRIPS Agreement. The Office works with the State Department, the U.S. Trade Representative's Office, and the Patent and Trademark Office in providing technical expertise in negotiations for international intellectual property agreements; provides technical assistance to other countries in developing their own copyright laws; and through its International Copyright Institute and other international work, promotes worldwide understanding and cooperation in providing protection for intellectual property.

The Copyright Office is also an office of central public record, a place where claims to copyright are registered and where documents relating to copyright may be recorded. The Copyright Office furnishes information about the provisions of the copyright law and the procedures for registration, explains the operations and practices of the Copyright Office, and makes available the public records of the Office. The Office also administers various compulsory licensing provisions of the law, which includes collecting and distributing royalties. Additionally, the Copyright Office and the Library of Congress administer the Copyright Arbitration Royalty Panels (CARP), which meet for limited times for the purpose of setting terms of certain licenses, adjusting rates and distributing royalties.

Given its role as administrator of the copyright law, creator of a central public record of copyright ownership, technical adviser to Congress and government agencies, and a source of copyright information to the public, the Copyright Office has a direct and vital role in the development and resolution of intellectual property policy, legislation and information.

Copyright Industries - A Growing Force in The U.S. Economy

Copyright is the segment of intellectual property law that protects the creative output of millions of composers, lyricists, painters, sculptors, photographers, authors, computer programs, graphic and performing artists, dramatists, motion picture producers and compilers. U.S. copyright industries accounted for about 5% of U.S. Gross Domestic Product (GDP), or over $450 billion in added economic value in 1999. In the last twenty years, the core copyright industries' share of GDP grew more than twice as fast as the rest of the economy. Should this trend continue as expected, the economic impact of the copyright industries will become an even more significant part of the American economy, emphasizing the need for strong copyright protection, and bringing to the fore increasingly challenging issues with which the copyright system must deal.

Copyright Policy Challenges: Technological Change and the Digital Environment

Throughout the second half of the 20th century, the copyright law has had to adjust to a vast array of technological changes. The challenges to copyright posed by the convergence of today's computer and communications technologies are more serious and far-reaching than those posed by the technological developments of the past. The current technologies have the potential to impact every right in the copyright bundle.

The increasing use and distribution of digital information raise significant issues regarding access to and security of copyrighted works. For works available in electronic form, there is often no limit to the number of people who can access a work simultaneously through the Internet and alter or modify them with ease. The Constitution provides for intellectual property protection with the goal of promoting public access to knowledge and innovation. The information infrastructure of the World Wide Web and other computer networks requires careful maintenance of the public good and private interest balance that has guided U.S. intellectual property laws over the past 200 years.

Fiscal 2000 Accomplishments, Fiscal 2001 Focus and Fiscal 2002 Plans

Policy Responsibilities Under the Digital Millennium Copyright Act

A major focus of the Copyright Office's legislative efforts during fiscal 2000 and in fiscal 2001 continued to be the completion of tasks entrusted to us by Congress in the Digital Millennium Copyright Act (DMCA), P. L. 105-304. The DMCA placed several policy-related responsibilities on the Office, including specific studies and rulemakings.

The DMCA made a number of amendments to Title 17, including the addition of Chapter 12 of the copyright statute, which address technological protection and management systems for copyrighted works. Section 1201(a)(1) makes it unlawful to circumvent a technological measure that effectively controls access to a copyrighted work. However, the prohibition against circumvention does not apply to users of a copyrighted work which is in a particular class of works, if those users are, or are likely to be in the succeeding 3-year period, adversely affected by the prohibition in their ability to make noninfringing uses of that particular class of works.

The determination of what classes of works, if any, are subject to this exception is made by the Librarian of Congress on the recommendation of the Register of Copyrights, who conducts a rulemaking proceeding to identify any such classes of works. The initial rulemaking was begun in 1999. After consultation with the Assistant Secretary of Commerce for Communications and Information, the Register made her recommendation to the Librarian of Congress. He accepted the recommendation and published two classes of works subject to the exemption on October 27, 2000. Rulemaking proceedings are to be repeated every three years. The second rulemaking proceeding will commence in fiscal 2002.

In the DMCA, Congress also asked the Copyright Office to study a number of important copyright issues. In May 2000, the Register and the Assistant Secretary of Commerce submitted a report on the effects of another exemption from the anti-circumvention provision in section 1201(a) of 17 U.S.C. which permits circumvention under certain circumstances for good faith encryption research.

This year we will complete a report for Congress examining the effects of the amendments made by Title 1 of the DMCA which are embodied in chapter 12 of Title 17 and the development of electronic commerce on the operation of sections 109 and 117 of the copyright law, and the relationship between existing and emerging technology and the operation of such sections. In addition, we are working closely with Congress on copyright issues related to distance education.

International Issues

In the international sphere, the Office continued to advise the United States Trade Representative and other executive branch agencies on international copyright matters. These efforts assure that foreign countries live up to their obligations under the World Trade Organization (WTO) Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) to provide adequate and effective intellectual property protection to U.S. rights holders. The Office also participated in the legal defense of provisions of the Copyright Act that were challenged in WTO dispute resolution proceedings under the TRIPS agreement.

The Copyright Office was a key participant in the World Intellectual Property Organization's norm setting activities, especially its effort to conclude a new multilateral treaty to protect the interests of performers of audiovisual works (e.g., screen and television actors). We anticipate this effort will continue and that the Office will participate in new WIPO norm setting activities in the areas of folklore/traditional knowledge, protection of databases, and broadcasters' rights in fiscal 2001 and fiscal 2002.

In early fiscal 2001, the Office's International Copyright Institute and the World Intellectual Property Organization (WIPO) held an International Symposium on the Effect of Technology on Copyright and Related Rights at the Copyright Office. Officials and copyright experts from 17 countries participated. The program focused on the effect of technology on copyright and related rights, as well as on copyright protection and legislation in the United States. In fiscal 2002, the Copyright Office anticipates conducting at least one similar international program.

Copyright Arbitration Royalty Panel (CARP) Matters and Related Rulemakings

In fiscal 2000, the Office initiated two CARP proceedings to resolve controversies concerning the distribution of the 1993-1997 cable royalties and the 1995-1998 digital audio recording royalties. The CARP in the cable proceeding is scheduled to deliver its report in April. The CARP in the digital audio recording proceeding delivered its report to the Librarian for adoption. During fiscal 2001, CARPs are anticipated to determine rates and terms for the statutory license for digital transmission of performances of sound recordings by means of webcasting. Issues relating to the digital performance rights for sound recordings and musical compositions and to digital phonorecord deliveries of musical compositions will continue to occupy the Office during fiscal 2001 and fiscal 2002.

Licensing Activities

The Licensing Division administers the copyright law's compulsory licenses and statutory obligations. The Division records licensing documents and collects royalty fees from cable television operators for retransmitting television and radio broadcasts, from satellite carriers for retransmitting "superstation" and network signals, and from importers or manufacturers of digital audio recording equipment who distribute digital audio recorders and blank digital audio recording media in the United States. The Division serves as steward and trustee of the funds paid by the licensees, and invests the funds in interest-bearing securities of the U. S. Treasury. The funds are disbursed to copyright owners, or to agents representing them, under the direction of the Register of Copyrights. During fiscal 2000 the Office collected $182,756,467 in royalty fees for compulsory licenses and distributed $367,824,476. The Licensing Division deducts its operating costs from these royalty fees rather than from appropriated funds.

Registration, Recordation, and Cataloging Operations

In fiscal 2000, the Office processed 588,498 claims, representing more than 800,000 works, and registered 515,612 of these claims. Throughput time was and continues to be a concern to the Copyright Office and the copyright community. A large backlog of copyright claims continued to exist and processing time for the issuance of registration certificates remained at approximately six to eight months.

To address this backlog, the Examining Division continued to hire examiner staff, but examiner retirements and resignations left the division with a deficit of 11 examiners from its 1993 staffing level. We have begun an extensive backlog reduction effort in our Examining Division, which is already resulting in a significant decrease in the number of claims awaiting examination. This is an Office-wide imperative, and we are committed to significant progress this year.

In other efforts, the Examining Division concentrated on several automation initiatives in fiscal 2000, including transferring examining practices to an online format for easier access, and creating an automated production verification system, aimed at providing management with accurate production statistics to aid in workflow strategy and planning.

In fiscal 2000 the Cataloging Division recorded 18,894 documents covering hundreds of thousands of titles. The Division implemented a number of new initiatives to reduce the length of throughput time for cataloging registrations and recording documents, including a successful Backlog Reduction Project, which reduced the number of multiple titles in documents to be entered. Recordation throughput time improved to 14.4 weeks, well under the target of 24 weeks. The turnaround time for cataloging registrations was 10.9 weeks, slightly lower than the target of 12 weeks.

Copyright Education

The provision of information on copyright law and its application is a principal function of the Copyright Office. The demand for the information is growing, as the growth of the digital environment exposes more Americans to copyright issues in the course of their daily lives.

In fiscal 2000, the Office responded to almost 400,000 information requests of which nearly 12,000 were via electronic mail. The use of our Website increased by 67% over the prior year. We expect this demand growth to continue and our efforts in this area to grow as well.

Security Program

The Copyright Office successfully completed several fiscal 2000 scheduled action items in the Library's Security Plan. Among the items accomplished were: laser engraved ownership marking of compact disc and video cassette materials; secure transport of high-risk materials; and item bar code labeling and security tagging of book materials. In fiscal 2001, the Copyright Office will focus on continued improvements in physical security, inventory, and preservation controls.

Copyright Office security initiatives planned for fiscal 2002 include incorporating Item Level Tracking and Inventory Control as part of the Copyright Office reengineering plan, creating in-process records at the point-of-entry, installing electronic access control, and installing a closed-circuit video system in the Mail Center.

Copyright No-Year Account and Fee Projection for Fiscal Year 2002

The "No-Year" account was established by the Technical Amendments Act, P. L.105-80 and holds fees which have been paid by those who use Copyright Office services. We want to use the funds in the No-Year account to improve our public services to those who pay these fees. Our principal use of the No-Year account will be for Business Process Reengineering implementation and development of our information technology systems. We need to insure that adequate funds remain in the account for these critical public service improvements.

The No-Year account balance at the end of the last fiscal year was $4,289,902. The Copyright Office does not expect to add any funds to the No-Year account this year. The Office could use up to $2 million from its No-Year account funds to make up the shortfall caused by the fiscal 2001 net appropriation reduction.

Status of Future Fee Adjustments

The 1997 Technical Amendments Act gives the Register the authority to recommend copyright fees based on certain criteria, with Congress retaining the authority to disapprove a fee increase. In setting fees, the law directs the Register to conduct a study of costs for the service provided. Based on the study, and subject to congressional review, the Register is authorized to fix fees at a level not more than necessary to recover reasonable costs incurred for services plus a reasonable adjustment for inflation. Congress specifically mandated that the fees should also be "fair and equitable and give due consideration to the objectives of the copyright system." These objectives include creating a comprehensive public record of copyright ownership and obtaining works for the use of the Library of Congress for its collections or its exchange programs.

The Copyright Office went through an elaborate and extensive process in establishing the present fees, which became effective on July 1, 1999. This process included hiring two contractors to conduct a cost study and to provide expertise in the new "Federal Managerial Cost Accounting Standards." Since raising fees each year would be costly and disruptive, we indicated that the current fees have a minimum duration of three years. This decision was widely publicized.

The Office is now in the process of assessing the current fee schedule to determine if fee adjustments are warranted for fiscal 2002 and expects that the long-term effect of the July 1999 fee increase will be similar to the experience of the 1991 increase, where claims dropped, then leveled off for the next three years. Even if the Office were to implement a fee increase on July 1, 2002, it would not impact the fiscal 2002 fee receipt projection since the new fees would be in place for just the last quarter of the fiscal year. Based on past experience, we would see a high incidence of "short" fees submitted in that quarter. Based on this historical evidence, the fiscal 2002 fee receipt forecast is the same as fiscal 2001. Based on the receipts received in the first half of this year, the Office may see a higher level of receipts for Fiscal Year 2001 than originally forecasted.

Conclusion

The Copyright Office looks forward to working with Congress in addressing the significant copyright issues facing the United States both at home and abroad. Our two major initiatives for Fiscal Year 2002 - planning and developing our information technology systems and implementing recommendations for reengineering of the Copyright Office business processes - will be fully funded through our No-Year Account and existing resources. They will provide us with the technology and innovation necessary to continue to fulfill the Copyright Office's mission in the digital information environment.