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

United States House of Representatives
106^th Congress, 1^st Session

February 10, 1999

Fiscal 2000 Budget Request

I appreciate the opportunity to present the budget request of the Copyright Office for fiscal year 2000. For more than 100 years the role of the Office has been one of leadership in the establishment of U.S. copyright policy and service to the nation. The record has been one of solid achievement, and this year is no different.

During fiscal year 1998, the Copyright Office continued to advise the Congress on national and international issues and provided valuable assistance to the United States Trade Representative and other executive branch agencies.

It also continued to create and maintain the on-line catalog of copyright and mask work registrations and recorded documents, to administer the various compulsory licenses and statutory obligations, to further the effort to create a workable automated registration, recordation and deposit system, and to offer technical, legal, and educational assistance in the international arena. The Copyright Office's public services include, responding to copyright information and reference requests in person, over the telephone, through written correspondence, and electronically through the Web; producing and supplying Copyright Office forms, circulars, studies, regulations, and other publications in paper and digital format; maintaining a 24-hour forms hotline and fax delivery service; providing up-to-date information digitally via the Copyright Office Website and through an electronic mailing list.

In fiscal year 1998, the Office processed 644,639 claims, representing over 800,000 works, registered 558,645 claims, representing more than 700,000 works, recorded 14,368 documents, that included more than 250,000 titles, and responded to 395,456 information requests. It transferred to the Library approximately 850,000 copies of works at a value of $26,991,775. The Office collected $15,559,001 for registration, recordation and related services and approximately $217,000,000 in royalty fees for compulsory licenses.

Fiscal Year 1999 Focus

In fiscal year 1999, the Copyright Office will focus on five activities:

• Maintaining and enhancing the policy role of the Copyright Office in domestic and international copyright matters

• Continuing the development, testing, and implementation of the Copyright Electronic Registration, Recordation, and Deposit System (CORDS)

• Improving the efficiency and timeliness in registration processing and in providing copyright reference and information services

• Enhancing the security of copyright deposits and records through the application of anti-theft devices to the collections and the adoption of other measures

• Implementing Copyright Office fee setting legislation.

Policy Role

The Digital Millennium Copyright Act (DMCA), enacted on October 28, 1998, supports and enhances the policy role of the Copyright Office in domestic and international copyright matters. The DMCA resulted in the most extensive changes to Copyright Law since the general revision in 1976. It was the result of nearly two years of intensive activity in the Congress, and the Copyright Office was privileged to work extensively with committees in both the House and Senate throughout the legislative process.

Not only did the Copyright Office play a significant role in advising the Congress on matters relating to the DMCA, but the Act itself ensured that the Office will continue to play a leading role in copyright policy in the future. Section 401 of the Act confirms the authority of the Copyright Office to carry out the policy and international functions that it has carried out under more general statutory language for many years.

On several of the substantive issues addressed in the DMCA the affected parties were very far apart, requiring Congress to craft a number of delicate compromises. One of these compromises establishes a new important and difficult activity for the Librarian of Congress and the Register of Copyrights - - an ongoing administrative-rulemaking proceeding to evaluate the impact of the law's new prohibition on circumventing technologies that protect works from unauthorized access to determine whether users of "particular class[es] of works" would be hindered in their ability to make noninfringing uses of such works by virtue of the new anti-circumvention rules. If so, the Librarian, upon recommendation of the Register of Copyrights, will exempt such persons from the ban on acts of circumvention.

There were a number of issues that were not ripe for resolution in the DMCA. Several matters under consideration -- from distance education to encryption research -- required further study. All six of those studies will be carried out either under the auspices of the Copyright Office or with the Office's participation within the next two years.

Copyright Electronic Registration, Recordation, and Deposit System (CORDS)

In fiscal year 1999 the Office will continue the development, testing, and implementation of CORDS, which, when fully developed, will allow all Internet users to submit electronically claims to copyright, copies of copyrighted works, and documents such as assignments and licenses.

CORDS has no other prototypes available to build on; it is breaking totally new ground, and is doing so in a rapidly changing technical environment. It involves the use of many new technologies emerging with the growth of the Internet, including applying digital signature technology that authenticates the source and integrity of communications with far more depth of reliability and security built into it than basic FTP (file transfer protocol) or Email communications-based systems.

In January 1999, the Library of Congress and the Copyright Office signed a landmark cooperative agreement with UMI that enables electronic submission of applications and deposits of doctoral dissertations and master's theses. This historic agreement also makes UMI the first partner to submit large numbers of copyright claims (20,000 annually, 400 per week) electronically through CORDS, which will be processed online.

In the fiscal year 2000 budget request, the Copyright Office requests funding for 1) hiring one automation specialist (GS-13) and 2) increasing digital storage capability for CORDS. This will permit the Office to receive and process an increasing number of claims electronically at a substantial savings in staff time and physical storage space.

Registration Operations

The Copyright Office's goal is timely, quality service. Throughput time is a major concern to the copyright community. Despite valiant efforts by supervisors and staff, registration has gone from the norm of six to eight weeks in 1993 to six to eight months today. This is clearly unacceptable. Annually, we process approximately 650,000 claims to copyright covering more than 800,000 works and more than 1,000,000 deposit copies per year, received with a fee in most cases, to be processed and routed through many stations in a function-based operation. At the end of fiscal year 1993, the Office had an inventory of 30,000 registration claims to be processed. Normal on-hand ranges for claims to be examined have historically been 30,000 to 45,000.

Beginning in fall 1993, the examiner staff began to decline because of retirements, buyouts, budgetary constraints, and resignations. Over the next three years, the Examining division lost 26 FTEs, or 38 percent, of its examiner staff. Hiring freezes caused by the Copyright Office budget constraints, and the development of the new hiring system prevented the Office from replacing examiners until 1997. Today, there are 52 examiners on staff, only 80 percent of 1993 levels.

To compensate for reduced staff, the Examining Division has held facilitative sessions with staff, offered overtime, cross-trained and utilized staff from other divisions, initiated the use of email and fax correspondence with applicants, streamlined correspondence with frequent applicants, networked correspondence preparation, and initiated better use of technician staff to process uncomplicated claims.

Although these measures are effective in reducing more backsliding, they are not sufficient to recoup the losses. Sixteen new examiners have been hired and are becoming productive; however, the arrearage remains at 125,000 claims. While the division may be able to hold the arrearage at the current level when the new hires are fully trained, there are not enough examiners to reduce the backlog and achieve currency.

To build a cadre of copyright examiners sufficient to ensure the issuance of timely copyright registration certificates will require the funding to hire eight additional examiners (GS-7) which is requested in the fiscal year 2000 budget.

Restructuring the Registration Process in FY2000

To effectively serve the public and the copyright community in the new Millennium, the Copyright Office must restructure and streamline the registration and recordation processes. Funding for this effort is included in the fiscal year 2000 budget request. Restructuring will improve public service, enhance operational efficiency and security, contain costs, respond to the need to acquire and process works fixed in new formats, and meet the demands of the copyright community for a reduction in the claims arrearage and the speedier processing of claims.

This initiative entails:

• hiring eight additional copyright examiners (GS-7) to achieve and maintain currency in registration of copyright claims and one automation specialist (GS-13) and increasing digital storage capability for CORDS, as stated earlier;

• hiring a project manager, (GS-15) NTE 5 years, who is an expert in Copyright Office procedures, to oversee and coordinate the restructuring project throughout the planning and implementation phases, work with the contractors, head up a task force of Copyright Office staff, communicate with and collect input from management, staff, unions, and customers, and evaluate the statutory impact, if any, of restructuring; and

• conducting a process redesign study to develop and implement a restructuring plan for the Office's major registration processing operations and associated functions to enhance operational efficiency and reduce handling of materials.

There are numerous benefits to restructuring the registration process. The value of our records is greatest when up-to-date information on new works is expeditiously made available to the public. Increased staff and more efficient operations will maximize the timeliness of additions to and public accessibility of our records. Office restructuring and electronic filing via CORDS for a growing percentage of applicants are needed to maintain reasonable operating costs in future years and keep user fees, which are based on cost, from escalating to levels unacceptable to the Congress and beyond the means of copyright owners, particularly individual authors. Restructuring will permit better control over material and result in fewer opportunities for misplacement and pilferage. Increasing the use of electronic filing via CORDS will reduce the quantity of materials that require physical handling and storage.

Security Program

The Library of Congress has embarked on a major security effort with regard to its collections. The Copyright Office with the Library of Congress has developed a multi-year plan to improve security. In fiscal year 1998, the Copyright Office conducted five Risk Assessments, that identified control weaknesses and developed plans of action to reduce our vulnerability. In fiscal year 1999, the Copyright Office began implementing these plans. Additionally, the Office received fiscal year 1999 funding to install card readers, institute ownership markings and bar coding systems, and security devices for print and non-print material.

Fee Increases

On February 1, 1999, I submitted to Congress a proposed schedule of fees for filing copyright claims, recording documents and providing related services. These fees would replace the fees specified in section 708(a)(1)-(9) of the copyright law. Our goal is to implement these and other new fees on July 1, 1999. Our proposal would increase the filing fee for basic (as opposed to supplementary or renewal) registrations from $20 to $30. Other statutory fees, such as those for recording a document, researching our records and providing a report of our results, will increase to levels necessary to recover costs. The new fee structure is expected to provide 70 percent cost recovery for registration, recordation and related services. In fiscal year 2000, higher fees are expected to increase the Office's receipts by $4.8 million, fund the budget initiatives and reduce the Office's net appropriation by $2,336,000.

With respect to increasing our fees, I followed the provisions of the Technical Amendments Act, effective November 13, 1997, which require the Register of Copyrights to conduct a study of costs incurred by the Office for the registration of claims, the recordation of documents, and for other related services. On the basis of the study and public policy considerations, and subject to congressional review, registration, recordation and related statutory fees may be raised to recover reasonable costs, including an adjustment for inflation. However, the new fees must be fair and equitable and support the objectives of the copyright system.

The Office worked with two consulting firms. One firm provided cost accounting expertise that produced an in-depth analysis of copyright costs; the other provided expertise in the new federal "Managerial Cost Accounting Standards." In order to address the need for fees to be fair and equitable and to give due consideration to the objectives of the copyright system, I sought information from authors, copyright owners, the general public and from the Library of Congress.

The Office published a notice of proposed fee increases that contained two alternative preliminary fee schedules, each of which would recover the costs for providing registration and other statutory services, and requested written comments on the two fee schedules and offered the public the opportunity to testify orally at a public hearing. The Office received significant input from the intended beneficiaries of the copyright system and users of Copyright Office services. Organizations representing authors and small publishers urged the Office to set fees lower than the amounts required to fully recover basic registration expenses, noting that registration is required for enforcement of a copyright, and that registration before infringement takes place is generally necessary to obtain the crucial remedies of statutory damages and attorneys' fees.

Many commenters mentioned the hardship higher fees would impose on individual authors, noting that the Internet has decreased their ability to regionalize the sale of their works--sales are now global. They urged that the fee be kept at its current level and asserted that the lower fee for individual authors proposed in the second schedule was too high and would result in decreased applications for copyright registration.

I evaluated all testimony and comments and took into account the possibility that a large increase in fees could result in a concomitant decline in registrations which would jeopardize the stability of the registration system and have a long-term effect on user fee revenues. It would also erode the Office's receipt of valuable deposits, which form the underpinning of the Library's Americana collections. The schedule of fees sent to Congress proposes increasing the basic registration fee by 50%; however, some other fee services would increase by as much as 225%.

Justification

Determining an exact figure for an appropriation reduction in fiscal year 2000 is an extremely difficult task because of the uncertainties related both to the precise fees to be assessed and the impact on demand for services. Further, a fee increase carries its own costs, including handling claims arriving with insufficient fees, which, during the first several months, may represent nearly half of all submissions. History demonstrates that any fee increase negatively affects demand for services for at least the first year following the increase. The Office's income projections are based on an expected 20% decline in demand for registrations, the fee service which provides the largest amount of revenue.

Since income in fiscal year 2000 depends on an unpredictable decline in demand and the possibility that our proposed fees might not meet with Congressional approval, and thus might not be implemented at all, the Office believes it is essential to adopt a conservative approach and request a moderate net appropriation reduction and a moderate Offsetting Collections Authority increase for fiscal year 2000. If, as is hoped, income exceeds expenditures, the Office can apply that income toward an appropriation reduction for fiscal year 2001, a year where income projections can be calculated with more certainty based on a half year's experience under the new fee structure.

Summary

In its fiscal year 2000 budget request, the Office is seeking authority to fund new initiatives. They include the funding to hire eight examiners (GS-7), one project manager for our restructuring efforts (GS-15) and one automation specialist (GS-13), to increase our digital storage capacity ($70,000), and to restructure our processes, which includes a process engineering study ($400,000) plus equipment and software for the project manager ($16,000). We are also seeking authority to reimburse the National Records Center for storage of Copyright Office records ($268,204).

Funding our operational improvements, including increasing our digital storage space for claims that are submitted through CORDS, would support our efforts to become more efficient, to improve public service, and to transition to the global networked society of the 21st century. Approval of our request would still allow you to reduce the Office's net appropriation by $2,336,000.