S. HRG. 107–283 ONLINE ENTERTAINMENT AND COPYRIGHT LAW: COMING SOON TO A DIGITAL DEVICE NEAR YOU HEARING BEFORE THE COMMITTEE ON THE JUDICIARY UNITED STATES SENATE ONE HUNDRED SEVENTH CONGRESS FIRST SESSION APRIL 3, 2001 Serial No. J–107–9 Printed for the use of the Committee on the Judiciary ( U.S. GOVERNMENT PRINTING OFFICE 77–094 txt WASHINGTON : 2002 For sale by the Superintendent of Documents, U.S. Government Printing Office Internet: bookstore.gpo.gov Phone: toll free (866) 512–1800; DC area (202) 512–1800 Fax: (202) 512–2250 Mail: Stop SSOP, Washington, DC 20402–0001 COMMITTEE ON THE JUDICIARY ORRIN G. HATCH, Utah, Chairman STROM THURMOND, South Carolina PATRICK J. LEAHY, Vermont CHARLES E. GRASSLEY, Iowa EDWARD M. KENNEDY, Massachusetts ARLEN SPECTER, Pennsylvania JOSEPH R. BIDEN, JR., Delaware JON KYL, Arizona HERBERT KOHL, Wisconsin MIKE DEWINE, Ohio DIANNE FEINSTEIN, California JEFF SESSIONS, Alabama RUSSELL D. FEINGOLD, Wisconsin SAM BROWNBACK, Kansas CHARLES E. SCHUMER, New York MITCH MCCONNELL, Kentucky RICHARD J. DURBIN, Illinois MARIA CANTWELL, Washington SHARON PROST, Chief Counsel MAKAN DELRAHIM, Staff Director BRUCE COHEN, Minority Chief Counsel and Staff Director (II) C O N T E N T S STATEMENTS OF COMMITTEE MEMBERS Page Cantwell, Hon. Maria, a U.S. Senator from the State of Washington ................ 170 Hatch, Hon. Orrin G., a U.S. Senator from the State of Utah ............................ 1 Leahy, Hon. Patrick J., a U.S. Senator from the State of Vermont .................... 3 WITNESSES Barry, Hank, Interim Chief Executive Officer, Napster ...................................... 22 Berry, Ken, President and Chief Executive Officer, EMI Recorded Music ......... 51 Cannon, Hon. Chris, a Representative in Congress from the State of Utah ...... 88 Farrace, Mike, Senior Vice President, Digital Business, Tower Records/Books/ Videos, MTS, Inc. ................................................................................................. 106 Fish, Edmund, President, MetaTrust Utility Division, InterTrust Tech- nologies ................................................................................................................. 116 Gottlieb, Steve, President and Founder, TVT Records ......................................... 46 Greenberg, Sally, Senior Product Safety Counsel, Consumers Union ................ 110 Henley, Don, President, Recording Artists Coalition ............................................ 13 Kearby, Gerald W., President and Chief Executive Officer, Liquid Audio, Inc. ......................................................................................................................... 53 Morissette, Alanis, Recording Artist ...................................................................... 17 Murphy, Edward P., President and Chief Executive Officer, National Music Publishers’ Association ........................................................................................ 103 Parsons, Richard D., Co-Chief Operating Officer, AOL Time Warner ................ 7 Richards, Robin, President, MP3.com, Inc. ........................................................... 90 Rosen, Hilary, President and Chief Executive Officer, Recording Industry of America ............................................................................................................. 57 Valenti, Jack, Chairman and Chief Operating Officer, Motion Picture Associa- tion of America ..................................................................................................... 10 QUESTIONS AND ANSWERS Responses of the Recording Artists Coalition to questions submitted by the Senate Judiciary Committee ............................................................................... 125 Responses of Mike Farrace to questions submitted by Senators Hatch, Leahy and Kohl ................................................................................................................ 129 Responses of Mark Traphagen, on behalf of InterTrust Technologies Corpora- tion, to questions submitted by Senators Hatch, Leahy and Kohl .................. 143 Responses of Gerald W. Kearby to questions submitted by Senators Hatch and Leahy ............................................................................................................. 145 Responses of Billy Pitts, Executive Vice President, MP3.com Inc., on behalf of Robin Richards, to questions submitted by Senators Hatch and Leahy ..... 146 Responses of Richard D. Parsons to questions submitted by Senator Hatch ..... 150 Responses of Richard D. Parsons to questions submitted by Senator Leahy ..... 155 Responses of Hilary Rosen to questions submitted by Senator Hatch ................ 159 SUBMISSIONS FOR THE RECORD American Federation of Musicians of the United States and Canada, Steve Young, President, statement ............................................................................... 164 American Federation of Television and Radio Artists, Ann Chaitovitz, Direc- tor of Sound Recordings, statement .................................................................... 165 Boldrin, Michele, Professor of Economics, and David K. Levine, Armen Alchian Professor of Economics, University of Minnesota, letter .................... 168 Broadcast Music, Inc., statement ........................................................................... 169 (III) IV Page CenterSpan Communications Corporation, Frank G. Hausmann, Chairman and CEO, statement ............................................................................................ 172 Feldman, Lawrence E., Esquire, Jenkintown, PA, statement ............................. 175 Future of Music Coalition, Jenny Toomey, Executive Director, statement ........ 177 Griffin, Jim, Founder and CEO, Cherry Lane Digital & OneHouse LLC, article .................................................................................................................... 182 National Association of Recording Merchandisers, statement ............................. 192 NWEZ.NET, Gloria Hylton, President, statement ................................................ 197 Video Software Dealers Association, statement .................................................... 203 ONLINE ENTERTAINMENT AND COPYRIGHT LAW: COMING SOON TO A DIGITAL DEVICE NEAR YOU TUESDAY, APRIL 3, 2001 U.S. SENATE, COMMITTEE ON THE JUDICIARY, Washington, DC. The Committee met, pursuant to notice, at 10:06 a.m., in room SD–226, Dirksen Senate Office Building, Hon. Orrin G. Hatch, Chairman of the Committee, presiding. Present: Senators Hatch, DeWine, Brownback, Leahy, Feinstein, Schumer, Durbin, and Cantwell. OPENING STATEMENT OF HON. ORRIN G. HATCH, A U.S. SENATOR FROM THE STATE OF UTAH Chairman HATCH. Good morning, and welcome to today’s hearing entitled ‘‘Online Entertainment: Coming Soon to a Digital Device Near You.’’ That is kind of a long title. There have been a number of significant developments since the Committee’s hearings last year on online entertainment and copyright law. Among many, let me mention three: First, the Ninth Circuit has ruled that at least as a preliminary matter, Napster as we have known it cannot continue. For them, as Mr. Henley might say, it has been ‘‘The End of the Innocence.’’ Even Napster acknowledges that this is so. And in its alliance with the forward-thinking Bertelsmann, Napster has pledged to reinvent itself so that the technology and music fan community it has un- leashed can work together in a way that respects copyright law and the rights of creators. It has been suggested that this new Napster can be online in June, or at the latest, July. Second, MP3.com has settled its litigation with the large record labels and publishers and yet, having paid damages and been granted licenses to go forward, still cannot bring its service to the public. As Ms. Morissette might question, isn’t it ‘‘Ironic’’? And, third, but by no means least, several significant market de- velopments have been announced that seem to put us a step closer to the ‘‘celestial jukebox.’’ One was reported in last Friday’s Wall Street Journal that two of the five major labels, Vivendi-Universal and Sony, were moving toward launching a consumer online service called ‘‘Duet’’ which will bring their joint catalogs to consumers. And the second, and even more significant, announcement was yes- terday’s deal between three of the big labels—AOL Time Warner, Bertelsmann, and EMI—and the independent music service pro- (1) 2 vider, Real networks, to bring a subscription music service to con- sumers over the Internet. Pro-competition marketplace solutions that provide for a signifi- cant online offering of popular music delivered to consumers through an entity not controlled by the labels has been the type of positive synergy that I have long hoped to see. And I hope to learn more about the details of these developments and to hear more heartening information on this front. This Committee is here today, and will continue in the future, to monitor these and related devel- opments in our ongoing efforts to ensure that our intellectual prop- erty laws keep pace with technology. Technology has made our lives more convenient, but it has also made us more impatient. When a consumer drives up to a gas pump, she can insert her credit car, confirm that she has adequate funds in her account, her account is debited, and the oil company’s account is credited, the transaction is completed, the consumer is thanked, and the tank is filled. All of this occurs within a matter of seconds, and the transfer