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Full text of "Digital Audio Recorder Act of 1987 : hearing before the Subcommittee on Communications of the Committee on Commerce, Science, and Transportation, United States Senate, One hundredth Congress, first session on S. 506 to require the inclusion of copy-code scanners in digital audio recording devices, May 15, 1987"

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y4.C73/7:S.h«t. I00-I7S 

DIGITAL AUDIO RECORDER ACT 
OF 1987 



HEARING 

BtfDRt I HI' 

SUBCOMWnTEE ON COMMUNICATIONS 

OF THE 

COMMITTEE ON COMMERCE. 

SCIENCE, AND TRANSPORTATION 

UNITED STATES SENATE 

ONE HUNIIRHDI H CONGRI-SS 



i-IRSl SESSION 




COMMrrTKE ON COMMKRCT,, SClENCEi. AM) TRANSPOR TMION 

(IRNEST V. HOI.l.lNGS, Soulh Carolina, Chairman 
DANie. K. [NOUYE. Hawaii JOHN C [lANTORlH. MLssoun 

W[3>."DF.LL H. FORD. KKniiiLty BOB PACKWOOI). Oa'KOii 

DONALD W. RIECt.E. JR.. Mithigan NANCY LANIWN KASShBALM. Kans 

J. JAMES FJ<ON. Netiraska I.ARRY PRISSl.f'R. South Dakoia 

ALBtRT GORE, JR.. Tennessee TKD STHVilNS, Alaska 

JOHN 0. ROCKEFRl.E,RR iV. Wesl Virginia ROBI'IRT W. KASTEN. JR., Wisconsin 
LLOYD HENTSEN. Teias PAUI- S, TRIBE.E. JR., Viiginia 

JOHN E. KERRY. Massachustlls PITE WKSON. Caiifomia 

JOHN B. BRFALX. Louisiana JOHN McCAIN. Arimna 

BROCK ADAMS. Waihinglon 

RAUF) B. EVI'Rirrr. Cliit/Counsil aid. luiffOimior 
W, AILKN MOORt. »a\onlyChutoJSlaJf 



SLBCOMMITTF.KON COMMLMC^nONS 

DAMET.K. INOUYF.i{awaii.C/m(>mofi 
ERNEST F. EI0T,[.1NGS. Soulh Carolina BOB PACKWOOD, Oregon 

WENDELL H. FORD. Keiitueky LARRY PRE5SLER, South Dakota 

ALBERT gore: JR.. Tennessee TED STEVENS, Alaska 

J. JAMES EXON, Nebraska PETE WII50N, California 

JOHN F. KERRY, Massachusetts JOHN MCCAIN, Arizona 



•31 



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C ONTENTS 



Opening statement by Senator Inouye 

Opening statement by Senator Gore 

Opening statement by Senator Wilson 

Opening statement by the Chairman 

Opening statement by Senator Danforth... 
Teu of S. 506 



MST OF WITNESSFS 

Berman. Jason S., presideni. Recording Industry Association of America 

Prepared statement 

Utter of June 12, 1987 

Bernstein, Alec, Aesthetic Research Co 

Prepared statement 

Feldman. Leonard. Electronic laboratories 

Prepared statement 

Ferris. Charles D., counsel, representing Home Recording Rights Coalition 

Prepared statement 

Letter of July 10, 1987 

Stebbings, David, director, recording research. CBS Record I'echnolt^y: 
accompanied by Lawrence Gardner, senior engineer 



Travers. Mary, songwriter, representing Peter. Paul, and Mar\ recordtng group 

Weingarten, Fred W., Program Manner. Communication and information 

Technologies. Office of Tedinology Assessment.. 

Prepared statement 

ADDITIONAL ARTICLES, LETTERS. AND STATEMENTS 

Boundas. Louise, editor-in-chief. Stereo Review, letter 

Finer. Marc, president. Ctmununicacion Research, Inc., letter 

Good, Alexander H.. director general, U.S. and Foreign Commercial Senice. 

statement 

Green, Wayne, editor/publisher. Digiial Audio A Compact Disc Review, letter 

Greenleaf. Christopher, Classic Masters, letter 

Hollins, Cheryl J., executive director. Car .\udio Specialists Assn.: 

Statement ., 



let 



Jung. Thomas J., president. Digital Music Products, Inc., letter 

Kobayashi. Yuzuru, president, Hitachi Sales Corp , of America, letter 

Loranger, Robert T., senior vice presideni and trea.surer. Loranger Manufacturing 

Corp.. letter 

Morris, Stevland, statement 

Quigg. Donald J... Assistant Secretary and Commissioner. Patents and 

Trademarks, Department of Commerce, slate 

Sakai, R., president, Sony Hawaii Co., letter... . 



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DIGITAL AUDIO RECORDER ACT OF 1987 



FRIDAY, MAY 15, 1987 

U.S. Senate, 
Committee on Commerce, Science, and Transportation, 

Subcommittee on Communications, 

Washington, DC. 
The subcommittee met, pursuant to notice, at 9:40 a.m. in room 
SR-253, Russell Senate Office Building, Hon. Daniel K. Inouye 
(chairman of the subcommittee) presiding. 

Staff members assigned to this hearing: Tom Cohen and Toni 
Cook, staff counsels; Katherine Meier ana Gina Keeney, minority 
staff counsels. 

OPENING STATEMENT BY SENATOR INOUYE 

Senator Inouye. This morning we meet to consider S. 506, the 
Digital Audio Recorder Act of 1987. This bill was introduced by my 
distinguished colleague, a member of the Communications Subcom- 
mittee, Senator Gore. It is intended to protect the intellectual prop- 
erty rights of prerecorded music from tape recording. 

S. 506 would accomplish this by prohibiting for three years the 
sale, resale, lease, or distribution of digital audio recording devices 
which do not contain a copy code scanner chip. This chip would 
prevent the unauthorized duplication of copyrighted recordings. 

While S. 506 is before the Communications Subcommittee for the 
first time, it raises issues that have been a matter of recent Con- 
gressional debate. The music recording industry and the artists 
making prerecorded music have been arguing for many years that 
illegal recording has been so pervasive that it harms the quantity 
and the diversity of recorded music. 

These parties have attempted to gain relief by having the Con- 
gress pass legislation that would place a fee on tapes and tape re- 
corders. The Congress, however, has yet to be persuaded that such 
legislation is justified. 

S. 506 addresses the same concern about alleged ill^al taping 
and the harm it causes, but it does so in the context of a new prod- 
uct, one not yet on the American market, the digital audio record- 
er. Rather tlian pursuing the fee remedy, this bill proposes that we 
require the adoption of a technological fix, that is the use of the 
copy code scanner chip. 

This bill thus raises the fundametal copyright issues that have 
t)een previously debated and places them in the context of the new 
digital audio recorder. It also rmses the basic issue of whether poli- 
cies should be adopted that forecloses or otherwise limits a certain 
technology. 



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And as chairman of this subcommittee, I look forward to hearing 
from the witnesses on these and other issues. And at this time it 
pleases me greatly to call upon the author of the measure. Senator 
Gore. 

OPENING STATEMENT BY SENATOR GORE 

Senator Gore. Mr. Chairman, thank you very much for your 
statement. Thank you very much for holding this hearing on the 
problems presented by digital audio taping, or DAT, 

As a co-sponsor of S. 506 along with my distinguished colleagues 
Senator Wilson from California, Senator Cranston from California, 
Senator Kerry from Massachusetts and Senator D'Amato from 
New York — and that legislation is known as the Digital Audio Re- 
corder Act — I look forward to having the facts about DAT present- 
ed to the subcommittee today. 

Now, Mr. Chairman, before we begin we should note what this 
legislation does not do. I have noticed with increasing amazement 
how the well-funded and highly oi^anized lobbyists for the Japa- 
nese manufacturers and their importers have distorted the intent 
of this modest l^slation. 

The so-called Home Recording Rights Coalition has tried just 
about every imaginable line in opposing S. 506. The manufacturers' 
group has tried to paint the bill as the slippery slope to eliminating 
video recorders. Recently it even had one of its representatives say 
publicly that the bill would eliminate home satellite dishes. They 
will try anything. 

Mr. Chairman, there is an old saying that, if you do not have the 
facts argue the law, if you do not have the law argue the facts, if 
you have neither pound the table. We have seen a lot of table- 
pounding in opposition to this legislation. 

What the debate is really about is whether or not Intimate 
holders of copyrighted property ought to be able to protect that 
property against unauthorized taking of that property. It is a time- 
honored principle, after all. 

What this debate is about is our commitment to a 100 percent 
domestic industry facing clear injury as a result of a head-in-the- 
aand mentality taken by the Federal government. And Mr. Chair- 
man, let us be candid about the need to keep this bill alive, to keep 
it moving toward enactment. 

The manufacturers overseas will absolutely refuse to negotiate 
with American copyright interests if they believe that Congress has 
decided to ignore the domestic music industry's problem. For that 
reason alone, we must work to keep this bill moving. 

It should also be enacted. I am convinced we must move swiftly 
to address the threat that these DAT recorders pose to American 
music. 

We will hear today from witnesses who will document for us the 
adverse effects that these machines about to be exported to our 
country will inevitably have on our economy and culture. We will 
therefore leave it to them to inform the subcommittee of the dis- 
turbing facts about DAT recorders. 

I would like to highlight, however, some of the compelling argu- 
ments in support of the l^islation to respond to this challenge. For 



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many years, as you noted, Mr. Chairman, the home taping problem 
has grown, causing displacement of record sales. But DAT ma- 
chines will raise the problem to an entirely new dimension, be- 
cause for the first time home tapers will be able to make perfect or 
nearly perfect copies of recordings and to make unlimited addition- 
al copies from each copy, each one just as good as the original. 

There will be very little incentive any longer to go out and buy 
the recording when you can simply borrow someone else's album 
and make a copy just as good as the one in the store, or borrow 
someone else's copy of a copy and copy that, and still have a ver- 
sion identical in quality and in every way to the original version. 

The devastating effect that these machines will have on our 
music community is obvious. The harm of DAT will extend even 
beyond that inflicted on creators and producers who are cheated of 
the full rewards of their labors. 

The music industry is one of the few industries that returns a 
positive trade balance to the United States. You can go anywhere 
in the world, Mr. Chairman, virtually — well, litereilly, any single 
country in the world — and turn on the radio and, if an American 
song is not being played, wait just a few minutes, and an American 
song will be play^. 

It is one of the most successful industries we have ever created, 
and it now has a dominant position throughout the world. It is an 
important contributor to U.S. trade competitiveness and an impor- 
tant source of employment in this country. 

If DAT machines are permitted to undermine the vitality of 
American music, we all stand to lose. What is at stake really is 
whether or not manufacturers of a new kind of hardware will be 
able to siphon away the legitimate profits due to the creators of the 
software, so to speak. 

These are reasons why I have proposed, along with my col- 
leagues, legislation to require the manufacturers of DAT machines 
to install a device called a copy code scanner in their recorders. 
This device will control the unauthorized taping of copyrighted re- 
cordings. 

And I am convinced that this l^slation, which would remain in 
effect for three years, will preserve the status quo and prevent 
grave damage to our music community while we in Congress delib- 
erate and adopt a permanent solution. 

I want to emphasize the necessity of prompt action because the 
DAT machines may be in our stores some time this summer or 
early fall. 

So I am hopeful that the testimony offered today will clarify the 
facts and frame the issues and advance our efforts to work together 
in resolving this problem. I look forward to hearing what I am cer- 
tain will be informative and stimulating testimony. 

Thank you, Mr, Chairman. 

Senator Inouye. Thank you very much. 

And I am pleased to call upon a co-author of the measure before 
us, the gentleman from California, Senator Wilson. 

OPENING STATEMENT BY SENATOR WILSON 

Senator WiiaoN. Thank you very much, Mr. Chairman. 



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First, I thank you for your schedulii^ this hearing on S, 506, the 
Digital Audio Recorder Act. And I commend my collei^nie from 
Tennessee, Senator Gore. I was very pleased to join with him and 
my friend and colleague from California, Senator Cranston, in in- 
troducing the legislation earlier this year. 

While this bill would affect only a small part of the marketplace, 
it is of vital importance to one terribly important segment of our 
economy, a very distinguished American institution, the music in- 
dustry. 

And what I find fascinating about the developing debate on this 
legislation is that those who oppose it have tried to obscure its very 
simple, legitimate purpose. Those who oppose the DAT bill claim 
that it would prevent a practice that has been going on for years, 
namely home taping. 

Well, Mr. Chairman, the fact that an iiy'urious activity has been 
going on for years because of a gap in existing law is nothing new. 
And neither is it new for the Congress to recognize those gaps and 
attempt to take remedial action. And that is precisely what we are 
here this morning to begin. 

Specifically, our wiretap laws used to only prohibit people from 
listening to phone conversations. Then computers came along and 
there was no law there to prevent tapping into computer signals 
being ceirried over telephone lines. But the Congress filled that gap. 
Congress responded, 

A number of h^h school and college computer hackers used to 
like to break into other people's computer systems, and there was 
no law to prevent the theft of information from those systems, for 
there was at the time "no tangible property being taken." 

But Congress recognized that that was vtrong and recognized 
that the gap in the law should not permit it, and Congress took 
action. 

Mr. Chairman, we obviously cannot stop home tapii^. But I am 
not going to sit idly by as foreign producers try to flood our market 
with a machine designed to perfect the practice, any more than I 
could sit idly by and let them start shipping to the United States 
better burglary tools or electronic devices for breaking into bank 
vaults. 

All that this bill provides is that the people who create music 
have a right to be compensated for their efforts and that right, 
time-honored in our law, should be protected, adequately protected. 

It is a right as basic as our economy. It is a right that may not be 
taken by government without just compensation. It is a right of 
any property owner in the country, and no lesser right because the 
property in question is intangible, because it is intellectual 
property. 

A songwriter may write music for the sheer joy of composition, 
but if the public likes the song then it is our expectation that the 
songwriter will be compensated for the time and the effort that has 
been involved in creating that pleasure for himself and for others; 
just as the singer may sing the music because it is pleasing to her 
own ears, but if there are people who want to hear her or who 
want to take home a copy of her rendition, should they not pay for 
the privilege? 



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Well, of course they should, and they have. That has been the 
system for a very long time. 

And a group of musiciems who play music together because they 
enjoy each other's company and enjoy creating that sound together 
may do so for that purpose. But if they then go to the further trou- 
ble of organizing and finding backing to record, why then, we 
expect them to be paid for their efforts, as well aa those who fi- 
nance their efforts. 

Now, of course the songwriter, the singer, and the musicians all 
have a right to benefit from the fruits of their labor. And if some 
technological threat comes to market that would deny America's 
artists, either the famous or those hoping to be famous, from 
making a living, the government should act to see that that threat 
does not work its will. 

Nor should we be dissuaded by the mere fact that some foreign 
purveyors of stereo equipment or magnetic tapes spend money to 
manufacture a claim of consumer interest. American consumers 
have expected to pay for quality. They do not expect something to 
be free in terms of intellectual property, or should not, any more 
them they can expect to walk into a supermarket and walk out 
with a can of peaches or a box of cleanser without pajdng for it. 

American consumers have always been willing to pay for quality 
products, and American music is quality. But it will remain so only 
as long as those that produce it are decently compensated, which 
means they must be protected in their copyright. 

So as I have said, the real rights in question are those rights of 
American artists, and they are very much at risk. What is not a 
right is the practice of copying copyrighted material. 

Such a practice, to the extent that it is allowed, is a matter of 
legislative grace. For while government may not take your proper- 
ty without compensation, it may regulate your use of it, just as 
zoning regulates the use of real property. 

Regulations, which should be kept to a minimum, are nonethe- 
less necessary at times to prevent people from using their property 
to the detriment of others. Specifically, when an individueU pro- 
duces a record, tape, or disk, the copyright on the recorded music 
does not come with the record itself, any more than a copyright 
comes when you buy a copy of a book. 

The copyright is a separate property right apart from the physi- 
caJ medium on which it is recorded. And the problem arises when 
someone uses his or her property right in the physical recording in 
such a way that it lessens the value of the property right that be- 
longs to the copyright holder. 

As long as there has been affordable technol(%y Eillowing the 
copying of prerecorded music, there has been harm inflicted on the 
music makers. But what began the real blood-letting in the music 
industry was the two-port cassette tape recorders, a mechanical li- 
cense to steal. 

Now, while I can appreciate someone meiking a recordii^ of a 
record for use in a Walkman or in a car, it escapes me why more 
than a very few consumers might need more than one cassette 
copy of a record. Certainly the number of consumers needing more 
thfm one tape of any one recording cannot be as great as the 



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number of multi-port tape recorders which has been shipped to the 
United States from Japan, Korea, Taiwan, and Hong Kong. 

These machines are being used for infringing purposes, and this 
is made clear in the way that they are advertised. 

Now comes digital audio technology, DAT. This technology is 
more than a new way to copy music. It is a way unto itself. Why is 
this new technology so significant? Well, as Senator Gore has indi- 
cated, it is because when one considers a DAT recorder's ability to 
copy prerecorded music, it brings to mind the old beer ad: Your 
last one is as good as your first. 

Each bootleg copy is as perfect as the original at the beginning of 
the bootleg chain. A traditional tajw copy, an anal<^ recording of a 
record or tape, is not quite as good as the original. Furthermore, 
subsequent copies are even less true to the or^nal. 

However, digital copies are indistinguishable from the digital 
originals. SpecificeLlly, a DAT recording of a compact disk sounds as 
good as the CD itself. 

Imagine the damage that one collie student could do with a 
good collection of CD s. In the past, if he cared about the longevity 
of his vinyl records he would not loan them to anyone excejrt per- 
haps his closest friends. With a nearly indestructible CD, loans to 
each of his acquaintances owning a DAT machine would cost him 
nothing, but would deny the artist his due many, many times. 

Those who oppose S. 506 claim that it would deny them the right 
to make copies for their own use. Well, let us analyze this claim. 
First, as I stated, there is no right to make copies. It is a matter of 
legislative grace where it exists at all. 

As for the desire for copies, an analysis shows little, if any, dis- 
ruption of reasonable home recording. In the past, some audio- 
philes have made tapes of their vinyl records because the records 
do degrade with use. Others made tapes for their cars or portable 
tape decks, such as Sony's Walkman. 

But with the new technology, the music listeners' interests 
change. There is no need to make a recording of a CD to prevent 
its being degraded by multiple uses. Indeed, a CD, because it has no 
moving parts, will last longer than a digital tape. 

The other claimed need for digital copies is for the car or porta- 
ble player. But the road noise and other sounds one encounters out- 
side make insignificant the better sound produced by a digital re- 
cording. 

Finmly, it is worth noting, as we are in the midst of a national 
debate on trade policy, where the financial interests lay. The vast 
majority of music sold in the U.S. is American. All of the DAT ma- 
chines and all of the digital tapes will be made overseas. 

With this in mind, it makes no sense to reward a number of pros- 
perous Japanese companies that have developed a new technologi- 
cal leech to float on the American economy. 

Mr. Chairman, there are yet other justifications for this legisla- 
tion, but I think that the sponsor in his opening statement and the 
instances that we have produced thus far make it clear why it is 
necessary. It is simply to protect the copyright, without which we 
cannot expect American artists or those who finance their efforts 
to continue making that investment of time, effort or money. 

Senator Inouye. Thank you very much, Senator. 



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At the request of Senator Hollings and Danforth, without objec- 
tion their statement along with the ball will be made part of the 
record. 

[The statement and bill follow:} 

Opening Statement by the Chairman 

I want to thank Senator Inouye for holding this hearing on S. 506, the Digital 
Audio Recorder Act. The Congress has debated for many years the general issue of 
whether copying for private use should be permitted. So far. the consensus appears 
to be that private use — not for commercial gain — should be permitted. This hearii^ 
today will discuss whether that precedent should be continued or altered. In addi- 
tion to addressing the fundamental copyright issue, this hearing will focus on the 
role of the Government in controlling technology. Should the Government generally 
be able to restrict the offering of a specific technology, and if we believe so. under 
what conditions? I look forward to the discussion today on these key issues, as well 
as other matters raised by this legislation. 

Opening Statement by Senator Danforth 

First of all, I want to thank Chairman Inouye for taking time from his very busy 
schedule to chair today's hearing. 

Technological developments have enabled consumers to enjoy products never even 
imagined a few years ago. One example is the video cassette recorder (VCR). An- 
other is the topic of today's hearing, the Digital Audio Tape Recorder (DAT). 

These new products create a tension in the law and in public policy. Should con- 
sumers be permitted to copy the works of artists? How can we ensure that artists 
who compose or play music can profit from their work? Can we stop commercial 
piracy while enabling consumers to make copies for their own use? 

One of my principal concerns as a U.S. Senator has been the protection of intel- 
lectual property rights. When people compose music, write a book, play in a band or 
symphony, make a movie, or create other property of commercial value, they should 
profit from their work. 

I have sponsored l^islation to crack down on commercial piracy in international 
trade, and to improve domestic copyright and patent laws, I am strongly committed 
to the protection of rights conferred by copyrights, trademarks and patents. 

Senator Gore's DAT bill, S. 506, the "Digital Audio Recorder Act of 1987." ap- 
peared to otTer the promise of discouraging commercial piracy of digital audio re- 
cordings. I coBponsored Senator Gore's bill because I believe Coi^ress should act en- 
ergetically to discourage commercial piracy in the broadest possible range of prod- 
ucts and technologies. 

Unfortunately, there is a drawback to S. 506 — the means it employs could impede 
home taping for private and non-commercial use. I believe we should not restrict 
home taping. Therefore, when I decided to consponsor Senator Gore's bill, I made it 
a point to determine whether the bill could be modified to ensure that it does not 
infringe on home taping for private, non-commercial uses. 

Because I concluded that such modifications would be more difllcult than antici- 
pated. I have decided to withdraw my support for the bill. If a means can be found 
to protect intellectual property rights without affecting legitimate home taping. I 
would welcome it. 

Commercial piracy is a very serious problem. In contrast, home recording for pri- 
vate use expands the audience for music and improves sales. One test of legislation 
in this area is that it discourage commercial piracy without infringing on recordings 
by consumers for personal use. I doubt that Senator Gore's bill can be modified to 
meet this test. 1 will not support DAT legislation until 1 see a practical alternative. 



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S.506 

To require ibe incluiioD of copy-code scuiners in digiul Midio recording devices. 



IN THE SENATE OF THE UNITED STATES 

Fbbbuaby 5, 1987 
Mr. QOBE <(or bimielf, Hr. Wilson, Ht. Cbanbton. Mr. Danfobtb, ind Mr. 
Kebrv) inCToduced the following lull; whicb wu retd twice uid referred to 

:, Science, uid Tr&nsport&tioa 



A BILL 

To require the inclusion of copy-code acanners in digital audio 
recording devices. 

1 Be U enacted by the Senate and House of Representa- 

2 lives of the United States of America in Congress assemhled, 

3 SHOBT TfTLE 

4 Section. 1. This Act may be cited as the "Digital 

5 Audio Recorder Act of 1987". 

6 DEFINITIONB 

7 Sec. 2. As used in this Act, the following t«rms and 

8 their variant forms have the following meanings: 

9 (1) "Commerce" means commerce among the sev- 
10 eral States of the United States or with foreign na- 
il tjons, or in any territory or possession of the United 



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2 

1 States or in the District of Columbia, or among the 

2 t«rritorie8 or posseaBions or between any territory, pos- 

3 session, State, foreign nation, or between the District 

4 of Columbia and any State, territory, possession, or 

5 foreign nation. 

6 (2) A "copy-code scanner" is an electronic circuit 

7 or comparable system of circuitry (A) which is built 

8 into the recording mechanism of an audio recording 

9 device; (B) which, if removed, bypassed, or deacdvat- 

10 ed, would render inoperative the recording capabihty of 

11 the audio recording device; (C) which continually de- 

12 tects, within the audio frequency range of 3,500 to 

13 4,100 hertz, a notch in an encoded phonorecord; and 

14 (D) which, upon detecting a notch, prevents the audio 

15 recording device from recording the sounds embodied 

16 in the encoded phonorecord by causing the recording 

17 mechanism of the device to stop recording for at least 

18 25 seconds. 

19 (3) A "digital audio recording device" is any ma- 

20 chine or device, now known or hereafter developed, 

21 which can be used for making audio recordings in a 

22 digital format. The term "digital audio recording 

23 device" includes any machine or device which incorpo- 
34 rates a digital audio recording device as part thereof. 



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1 (4) An "encoded phonorecord" is a phonorecord 

2 which has a not«h within the audio frequency range of 

3 3,700 to 3,900 hertz. 

4 (5) A "notch" is an absence of sound resulting 

5 from t^ removal of sound signals at a certain fre- 

6 quency. 

7 (6) A "person" includes any individual, corpora- 
6 tion, company, association, Gnn, partnership, society, 
9 joint stock company, or any other entity. 

10 (7) A "phonorecord" is a material object in which 

11 sounds, other than those accompanying a motion pic- 

12 ture or other audiovisual work, are fixed by any 

13 method now known or later developed, and from which 

14 the sounds can be perceived, reproduced, or otherwise 

15 communicated, either directly or with the aid of a ma- 

16 chine or device. The term "phonorecord" includes the 

17 material object in which the sounds are first fixed. 

18 DIGITAL AUDIO BECOBDINO DEVICES 

19 Sec. 3. (a) No person shall manufacture, assemble, or 

20 offer for sale, resaJe, lease, or distribution in commerce (1) 

21 any digital audio recording device which does not contain a 

22 copy-code scanner; or (2) any device, product, or service, the 

23 primary purpose or effect of which is to bypass, remove, or 

24 deactivate a copy-code scanner: Provided, that any patent, 

25 technical know-how, or proprietary rights necessary for man- 



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1 ufacturing a copy-code scanner have been made avaOable hy 

2 means of a royalty-free licensS. 

3 (b) No person shall bypass, remove, or deactivate a 

4 copy-code scanner. 

5 REMEDIES 

6 Sec. 4. (a) Any person aggrieved by any violation of 

7 section 3, or any appropriate officer or agency of the United 

8 States, may bring a civil action in any appropriate United 

9 States district court. Such court may (1) grant temporary and 

10 final injunctions on such terms as it may deem reasonable to 

11 prevent or restrain violations of section 3; (2) grant such 

12 oUier equitable reUef as it may deem reasonable; and (3) 

13 direct the recovery of full costs, including reasonable attor- 

14 nejs' fees, by an aggrieved party, other than the United 

15 States or an officer or agency thereof, who prevails. 

16 (b) An aggrieved party shall be entitled to recover dam- 

17 ages which shall be computed, at the election of &b ag- 

18 grieved party at any time before final judgment is entered, in 

19 accordance with either of the following: 

20 (1) the aggrieved party may recover the actual 

21 damages suffered by him as a result of the violation 

22 and any profits of the violator that are attributable to 

23 the violation which are not taken mto account in com- 

24 puting the actual damages; in determining the viola- 

25 tor's profits, the party aggrieved shall be required to 

26 prove only the violator's gross revenue, and the viola- 



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1 tw dull be reqmred to pnm fau dedncdfale e jipwuea 

2 ud the ^raitente of profit lUzftmaUe to boton odxx 
Z thui the viaiMtioa; or 

4 (2) the ig g rieved part}' mi,j leuiwei u swd erf 

5 statutory danuges in u unonnt of not Icbb than 

6 $1,000 nor more than <A) $10 mnlti^ied by the 

7 number ot devices or prodoets invri ved in the viidalian 
6 OT (B) two thues the cnmulatiTe retail vahie (rf the 
9 Bervicea involved in the vii^atioa, as the eoort omisid- 

10 en joft 

11 (e) At an; lime wlule an Mtilm is pmding, the coort 

12 ma; order the inqmunding, oa meb terms as it may de«n 

13 reaaooable, trf any digital audio recording device which does 

14 ovt contain a copy-code scanner, w any device or product the 
m fnimary purpose or effect of which is to bypass or deactivate 
14 a eopy-eode scanner, th^ is in dte custody or control of the 
17 aU«|[«d viotator. 

IH id) Ai part <rf a final judgment or decree, the court may 

l^ ttriet the destruction, modification, or other disposition of any 

20 digital audio recording device which does not contain a copy- 

21 code scanner, or any device or product the primary purpose 

22 or effect of which is to bypass or deactivate a copy-code scan- 
28 ner, that is in the custody or control of the violator. 

24 (e) Any person who knowingly, willfully, and for pur- 

2fi poses of direct or indirect commercial advantage or private 



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1 financial gun violates section 3(a) shall be subject to criminal 

2 prosecution and may be fined, or itaprisoned for not more 

3 than two years, or both. Fines shall be computed at five 

4 times the retail value of the devices, products, or services 

5 involved or $50,000, whichever is greater. 

6 EXEMPTIONS 

7 Sec. 5. The Secretary of Commerce may issue such 

8 rules and regulations as may be necessary to exempt from the 
B requirements of section 3 certain digital audio recording de- 

10 vices used exclusively for legitimate business purposes. 

11 EFFECTIVE DATE 

13 Sec. 6. On and after the expiration of the 36-month 

13 period following the date of the enactment of this Act, the 

14 provisions of this Act shall be considered to have terminated 

15 and of no effect. 

O 

Senator Inouye. This morning our witnesses will appear in three 
pEinels. Our first panel consists of Mr. Jason Berman of the Record- 
ing Industry Association of America, and Mr. Charles Ferris, Es- 
quire, of Mintz, Levin, Cohen, Ferris, Glovsky, and Popeo, two very 
dear friends of mine. Jay and Charlie. 

According to my witness list. Jay Berman starts the show. 

STATEMENT OF JASON S. BERMAN, PRESIDENT. THE RECORDING 
INDUSTRY ASSOCIATION OF AMERICA 

Mr. Herman. Thank you, Mr. Chairman. 

My name is Jeison Berman. I am the President of the Recording 
Industry Association of America. I am pleased to have the opportu- 
nity to address the members of the subcommittee on the subject of 
digital audio tape. 



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14 

DAT poses the most significant technological threat the America 
music industry has ever faced. At the same time, it offers a signifi- 
cant opportunity for Congress to craft a timely and uniquely suita- 
ble legislative response as we enter the next phase of the home 
taping problem, a. problem that, as Senator Gore and Senator 
Wilson have pointed out, has worsened over time. 

hast year, for example, blank tape sales in the United States in- 
creased by 21 percent, while record sales declined by five percent 
Why? Let me quote an article in the December 20th Billboard mag- 
azine concerning the then-popular Bruce Springsteen album. 

A buyer for a multi-store chain was quoted in the article as 
saying that the sale of ein LP or CD Springsteen set leads "to em 
almost automatic sale for a multi-pack of blank audio cassettes. 
Now, it does not take much imagination to figure out what the 
blank tape is being used for — to record our music. 

In fact, if one compares the sales of blank audio tape, 300 million 
cassettes a year, with the sale of prerecorded music in cassette 
form, 345 million units last year, they are virtually one for one. 
For every one we sell, there is a blank tape out there. 

I point out, I purchased this in our local record store from 
Denon, a tape manufacturer: "The most musical cassette tape." 
Unfortunately, there is no music on it, and if there were no one 
would be paid for the music on it, only the blank tape manufactur- 
er. 

Here is another one. This is by Maxell, and I would like to play 
this for you, because it says on here that the XL-2 delivers "Top 
performance pop, rock, jeizz, or country music." And now I think 
we will have an opportunity to find out whether it is rock, pop, 
jazz, or country music. 

[Pause.] 

Now, why would anyone go to a store, spend five dollars and 
change to get that? It defies the imagination. Blank tape becomes 
valuable only insofar as it takes our music, and the problem is that 
it takes it for nothing. 

The only people who are rewarded are the blank tape manufac- 
turers. Blank tape manufacturers do not support the creation of 
music. 

The equipment and blank tape manufacturers in fact continue to 
encourage home taping. They urge consumers in their ads: "Beat 
the system. Save money by copying a friend's cassette, or buy a 
dual recorder because it quickly pays for itself by turning inexpen- 
sive blanks into prerecorded music cassettes." 

Or how about this one: "With the abundance of record collections 
in the dormitory, college is the perfect place to expand a personsd 
music collection by copying a friend's album onto your cassette." 

As bad as that situation is, it is about to get a lot worse. Digital 
audio tape is the tape version of compact disk technolt^y. It is 
about to be introduced into the United States. 

Why do the music industries of the United States, Japan, said 
throughout the world regard DAT as such a threat? Because with 
DAT recorders home tapers can make perfect clones of prerecorded 
music, because DAT eliminates any distinction between originals 
and copies, so that every copy becomes a new original, the equiva- 



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lent of a master sound recording, to be copied again and again and 
again. 

And because DAT is only a copying machine, serving no purpose 
currently other than home taping. At present, for example, record 
compEinies cannot offer their prerecorded music for sale on DAT 
cassettes because there is no commercially feasible high-speed du- 
plication technol(^y for the manufacturer of prerecorded DAT cas- 
settes. Only blank tape will be sold. 

Thus, the current generation of DAT machines offers the music 
industry no new outlets for its prerecorded product, but only an- 
other tool for the taper. 

Fortunately, the same wizardry that has created machines capa- 
ble of producing perfect copies can likewise be used to protect it. 
And I am referring to the copy code technology that allows the cre- 
ator and copyright owner to control the unauthorized taping of its 
recording. My colleague, David Stebbings, will explsiin how the 
system works and will demonstrate it for you. 

For years we have searched for an appropriate solution to the 
home taping problem. Various proposals for compulsory licenses 
under which royalties would be paid on audio blank tape and 
equipment have been around. In fact, last year a Senate Subcom- 
mittee of the Judiciary Conmiittee adopted such a proposal. 

But our opponents, the very same manufacturers of DAT, have 
argued that royalties are somewhat broad in scope and impractical . 
to administer, and so we were asked to find a technologiced solu- 
tion. 

The answer is copy coding. It is a technolo^cal solution to a 
technological problem. It is precisely targeted. Only those who at- 
tempt to copy copyrighted music would be prevented from doing so. 

Those who tape piano lessons, class lectures, music notes, unpro- 
tected recordings — and in that category, I would point out to you 
that all existing records, tapes, and CD 3 would be unaffected. This 
is a totally prospective solution. 

It is also a marketplace solution. Once Congress has enacted this 
l^islation requiring the manufacturers and importers to include 
the scanner in their DAT machines, virtually no further govern- 
mental involvement is necessary. 

Historically, the copyright law has lagged behind technology, 
putting Congress in the politically difficult position of trying to 
stop someone from a particular practice or requiring them to pay 
for it. In such instances, legal r^ht has always given way to politi- 
cal might. 

And that is precisely why the introduction of a new technology 
such as DAT oners a unique opportunity to anticipate, rather than 
respond. DAT has the potential to become the predominant record- 
ii^ technology for generations. That means that by acting now 
Congress can influence the next decade of recording machines in a 
constructive way. 

I used to think all we needed to succeed in international trade 
was a really good product, and we have such a product. It is called 
American recorded music, and it is the most sought-after music in 
the world. But the international competitiveness of this American 
asset is being diminished, not because creative communities in 
other countries are producing better music, but because their engi- 



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16 

neers are producing taping machines that enable others to obtain 
our music without paying for it. 

DAT machines are scheduled to arrive in the United States this 
summer or fall. Before that time, before a single machine has been 
sold, the Congress should enact l^islation to require the manufac- 
turer to include the copy code scanner in the machine. 

Since it is a threat to intellectual property posed by the new 
DAT technology liiat gives rise to our fears, it is ultimately intel- 
lectual property law that should govern the response. The legisla- 
tion we seek today does not attempt to devise a definitive solution 
to either DAT or home taping. Rather, it is intended to provide a 
breathing period during which the status quo would be meiintained. 

During that period, home taping as it currently exists will get no 
better. But insofar as DAT is concerned, it will get no worse. That 
breathing period will give Congress the time it needs to consider 
the issue in a more deliberative fashion. 

And in fact, the House and Senate Judiciary Committees are 
about to begin such a task. For now, we are asking only for interim 
relief, a short term remedy designed to avoid a situation where the 
machines are here and the tapers are fast at work. 

If that were to happen, the law would never have an opportunity 
to harmonize the interests of the copyright owner with eidvances in 
technology. 

Mr. Cheiirman, I would like to read a very brief letter which is 
on the point raised by Senator Wilson about the supermarket anal- 
ogy. It is from a member of the American Federation of Musicians, 
Local 257 in Nashville, and it is called "Food for Thought": 

Bill came to Naahville 22 years ago and opened a grocery store. After a few lean 
years. Bill started making a profit. Now Bill makes a lot of money. 

John came to Nashville 12 years ago and started writing songs. After many lean 
years of working at odd jobs to support his art, John finally had some songs record- 
ed by major stars and was ready to start making a profit. 

Bill loved music. He goes to the store and buys Sony tapes, then he tapes the 
music off his Sony radio onto his Sony tape recorder. He listens to this music all day 
long. He pays Sony for the music; he does not pay John. 

John, like everyone else, has to eat. He goes to Bill's grocery store twice a week 
and pays Bill a lot of money for food. John pays Bill for each item that he buys. 
John pays Bill for his food. Bill does not pay John for his music. 

Soon John will have to get another job so that he can buy food. John will have to 
stop writing the music that Bill loves. Bill will be sad. and so will we. 

Thank you. 

[The statement and questions and answers follow:] 



Mr. Chairman and members of the Subcommittee, my name is Jason S. Herman, 
and I am President of the Recording Industry Association of America. Our member 
companies produce and market about 90% of the prerecorded music sold in the 
United States. 

I am pleased to have the opportunity to address you on the subject of digital audio 
tape, and to solicit your support for the enactment of S.506, a targeted, interim 1^- 
islative response to the imminent introduction of DAT to the U.S. marketplace. 

DAT poses the most significant technological threat that the American music in- 
dustry has ever faced. At the same time, it offers a significant opportunity — to craft 
a timely and uniquely suitable legislative response to the home taping problem. 
Before I elaborate on these points, however, let me first provide you with a little bit 
of background on the home taping problem generally, so that you can better under- 
stand the context in which the DAT issue arises. 



ivGoogle 



For many veara now, millions of people across the country have been taping, 
rather than buying, prerecorded music. At last count, in 19S3, Americans were 
taping the equivalent of about $3,8 billion worth of music a year,' displacing sales 
revenues of some {1.5 billion annually.^ That means that more than a third of the 
record industry's revenues were already being loat to home taping, and with DAT it 
is only going to get worse.' People continue to buy masaive quantities of blank tape: 
According to statistics compiled by the Electronic Industries Association, between 
I98S and 1986 blank tape sales increased by 21%.* Record sales, on the other land, 
diclined by 5% during that same period,' In other words, the public is consuming 
more music than ever; they're just Buying less of it. 

The equipment and blank tape manufacturers have not hesitated to exploit the 
capability of their products to copy prerecorded music. Manufacturers and import- 
ers of blank tapes advertise that theirs is "the most musical cassette tape," that 
their tapes are specially formulated for "digital audio music recording," and that 
their tapes are "for people who want to do some serious taping." One manufacturer 
urges customers to take the brilliant sound quality" of compact discs to the beach 
by taping them onto 90-miDute cassettes; another urges tapers to double their 
"music money rebate" by purchasing extra blank tapes. 

Advertisements for taping equipment encourage home taping even more blatant- 
ly, especially for the dual-well machines that facilitate the dubbing of prerecorded 
cassettes. They exhort consumers to "beat the system" and "save money" by copy- 
ing "a friend's cassette." One advertiser bluntly suggests, "You have friends. Your 
friends have friends. Why not pool your resources and dramatically increase your 
cassette collection with the latest in high speed high quality tape duplicators." Still 
others advise that their dual cassette recorder "quickly pays for itself by turning 
inexpensive blanks into prerecorded music cassettes. It's like getting the high qual- 
ity AM/FM stereo for free." 

But while the largely foreign manufacturers of blank tape and recording equip- 
ment have grown rich off our music, the American music industry, and all who love 
music, have paid the price. You see, TDK and Maxell do not reinvest their blank 
tape profits into the creation of more music. It is record companies and music pub- 
lishers who underwrite the creation of recorded music, and as home taping steadily 
diminishes the revenues they earn from the records they sell, there has been less 
money to invest in new artists, new songwriters, new music. In just the last eight 
years, the amount of new music being released into the market has declined by 
more than 40%! 

But as bad as the situation Is, it is about to get a lot worse — unless Congress acts 
promptly. 



There is about to be introduced into this country a brand new technology that 
will pose a distince threat to the intellectual property rights of the creative commu- 
nity. This technology, called dwital audio tape (DAT"), is the tape version of com- 
pact disc ("CD") technology. Like the CD, it carries sound frequency information in 
the form of a digital signal. The tape cassettes for DAT machines will be about half 
the size of the analog audio cassette, yet they will hold up to two hours of music. 
(Sony is already predicting that a future generation of DAT machines will fit into 
the palm of the hand, and will offer recording times of four to six hours.) 

' Audits & Surveys, Home Taping in America: 1983, reprinted in Video and Audio Home 
Taping: Hearings Before the Subcomm, on Patents, Copyrights and Trademarks of the Senate 
Comm. on the Judiciary, 98th Cong.. Ist Sesa. at 193-224 (19S3). 

'See Statement of Alan Greenspan He S. 1739, Before the Subcomm, on Patenla, Copyrights 
and Trademarks of the Senate Comm. on the Judiciary. 99th Cong., lat Sees. (October 1985). 

' Dr. Alan Greenspan has shown that, each year, home taping mis accounted for an increasing 
percentage of the total hours of recorded music available from both purchase and taping. See 
Statement of Alan Greenspan Re S. 1T39, Before the Subcomm. on the Judiciary, 99th Cong.. 1st 
Sees, at 4-S (October 1985). Other studies also confirm that home taping of music is growing. See 
CBS Records. Blank Tape Buyers: Their Attitudes and Impact on Prerecorded Music Sales at 10 
(Ftdl 19S0): Wa, A Consumer Survey; Home Taping at 4-6 (March 19S2I; both are reprinted in 
Copyright Infringements (Audio anci Video Recorders): Hearings Before the Senate Comm. on 
the Judiciaiy, 9Tth Cong., Ist & Znd Sess. 848-64 (1981 and 19821. 

•In 1985. audio blank tape shipments amounted to 245.6S2,(HK) units. In 1985, they climbed to 
296,681,000 units. 

' RIAA Preu Release of April 8, 1987. The decline in unit sales is consistent with a long-term 
trend: Except for two years, unit salea have declined every year nnce 197S. 



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Why is DAT such a threat? Because it eliminates any distinction between origi- 
nals and copies. Because with DAT, every copy becomes a new original, the equiva- 
lent of the master recordii^. to be copied again, and again, and again. And because 
DAT is only a copying machine, service no purpose currently other than home 
taping. 

DAT technology will allow exact duplicates of a digitally prerecorded disc (CD) or 
tape (DAT) " to be made simply by transferring the digital signal onto a digital 
audio tape. The nature of this transmission ensures that there will be no loss of 
sound quality due to dust, needle or hardware noises. One need only compare the 
DAT to the brilliant sound quality and lasting durability of the CD to imagine the 
high quality of sound that these copies will have. Because DAT recorders elinainate 
the distinction between originals and copies, the combination of CDs and DAT ma- 
chines will provide home tapers with a perfect master and a copying medium that 
allows infmite duplication of perfect copies. This means that the thousandth genera- 
tion of a DAT tape will be identical to the CD from which the first copy was made. 

DAT will also signiiicantly improve the quality of analog-to-digital home copying. 
Unlike existing analog recording, which experiences a loss of sound quality every 
time a new generation of copies is made, DAT will capture and preserve anal<^ re- 
cordings wiUi perfect fidelity. Moreover, subsequent copies of that DAT recording 
will perfectly replicate the original, with no degradation of sound quality. As the 
legal adviser to the London-based International Federation of Phonogram and Vi- 
deogram Producers explains it, if a consumer with a legitimate tape made copies for 
two friends who each made copies for two more friends, "within 25 days you could 
provide the whole of the U.K. with a perfect copy." ' As the Dempa Digest, a Japa- 
nese electronics newsletter, recently pointed out, "copies are the next best thing to 
direct-digital."' 

It is inevitable that the principal impact of DAT technology will be to further 
reduce sales of prerecorded product. At present, record companies cannot even offer 
their prerecorded music for sale on DAT cassettes, because there doesn't exist a 
commercially feasible high-speed duplication technology for the manufacture of 
prerecorded DAT cassettes.' Only blank DAT cassettes will be sold. Thus, the cur- 
rent generation of DAT machines offers the music industry no new outlet for its 
prerecorded product— but only another tool for tapers who wish to avoid having to 
buy CDs. This is of no concern to the Japanese equipment manufacturers, of course. 
As the Dempa Digest has explained, "the lack of pre-recorded software is not the 
hindrance for DAT that it was for CD because of the dubbing capabilities of the new 

recorders. This allows users to quickly build up a tape library ""' This view 

was echoes just recently by Bob Garcia, General Manager of the audio division of 
Sharp Electronics, who was quoted as saying that the absence of prerecorded soft- 
ware would not "be that much of a hindrance because of the recording capabilitice 
of the unit." 



* We understand ^aC the DAT recordera that have just been put on the market in Japan 
■■■- ."■-.- .■ - ...... .. ., ....... . gntinpjjgi. 

capable af such digital cloning. Nor is there anything to prevent the'use of b frequen 



utilize a different sampling frequency for ptayback than recording, theoretically preventing di 

f - . . ,...,- hardware manuftcti 

.uency for recording a 
playback. At various audio fairs, Hitachi and Sharp exhibited prototype DAT machines that ai 



al-todigilal coining. In fact, however, there is nothing to prevent DAT hardwe 

-s from producing DAT machines which utilize the same sampling frequency for recording ai 



le technology for which alread;^ exiats— which wiU aynehronize the frequency sampling 
^r players and recorder?. The chip for such frequency sampling rate converters is available 
lor Buie right now in the Sony catalog. 

The Japanese electronics manufacturers alao claim that their DAT machines will not be capa- 
ble of digital-tiMiigital copying because of a digital flag code in copyrighted musical recordinge 
on CD. Unfortunately, however, such a code is easily defeated — by the use of a simple computer 
program and inexpensive semiconductor chips, or by the use of a "black bos" (probably for 
under J50) that would eliminate the flag code. 

In any event, these DAT machines do not limit digital-analog-digita] copying. Such copying 
produces copies that are barely dietinguiahable from direct-input, digital-todigital copies, and 
are therefore of juat as much concern to the American music industry. 

' Asian Wall St. Jnl. WeeUy, March 2, 1987. 

' Dempa Digeat, February Z3, 1987 at 3, 

'The only technology for the manufacture of prerecorded DAT cassettes that now exists re- 
quires Chat cassettes be duplicated in "real time —in other words, it takes 40 minutes to dupli- 
cate a cassette containing 40 minutes of prerecorded music. This may be sufficient for the hand- 
ful of small record labels that have indicated an intention 1o market their recordings on DAT, 
because the audience for their repetoire is relatively limited. It would not be possible, however, 
to fulfdl the demand for maas-marliet recordings without high-speed duplication technology. 

'" Dempa Digest, February 23, 1987 at 4, 

"Variety, April Z9, 1987 at 141. 



,vGoosle 



19 

In short. DAT technology has the potential to cause the home taping problem to 
escalate completely out of control. As Fumlo Ohta, a Toshiba Corporation executive 
vice president, admitted to the Asian Wall Street Journal Weekly, "Home taping is 
the life of the market. To be able to record is a big drawing point. At the same time. 
[home taping] is a threat to the market" for music." And ae Donal J. Quigg, Assist- 
ant Secretary of Commerce and Commissioner of Patents and Trademarlis, testified 
before the Senate Judicial^ Committee last year on behalf of the Reagan Adminis- 
tration, DAT technology 'can only be expected to provide greater incentives to 
home copies, with a corresponding adverse impact on copyright owners." ' ^ 

Finally, DAT can only exacerbate the problem of commercial record piraCT 
throughout the world. For the first time, even Mom and Pop piracy operations will 
be able to produce cassettes that sound as good as the genuine product. 

These are just some of the reasons why the anticipated introduction of DAT has 
struck fear into the hearts of the music industries throughout the world— fear that 
the practices of home taping and record piracy will become even more widespread 
as tapers and pirates gain the ability to produce their own master-quality record- 
ings. 



Fortunately, the music community need not be rendered helpless in the face of 
this new and sophisticated technology because the same wizardry that has produced 
machines capable of appropriating our musical recordings can likewise be used to 
protect them. 

A new engineering device called "copy-coding" provides a practical and fair way 
to compensate those who create and produce musical recordings for the sales they 
lose when people tape their music rather than buy it, I will leave it to my colleague, 
Devid Stebbings, to explain how copy-coding works. But first let me explain why we 
regard copy-coding as such an attractive solution. 

First, it is targeted: only those who attempt to tape encoded musical recordings 
would be prevented from doing so under this approach. Those who tape piano les- 
sons, class lecture notes or unprotected recordings (as well as all existing records, 
tapes and CDsl would remain untouched by this technological advancement because 
copy-code scanner chips would not interfere with such uses of DAT machines. The 
scanner chips would do but one thing — enable us to protect future versions of our 
copyrigthed recordings. 

Second, copy-coding technology is a marketplace solution. Once Congress has en- 
acted legislation requiring manufacturers and importers to include copy-code scan- 
ners in their DAT machines, virtually no further governmental involvement would 
be necessary. Instead, in the best tradition of our economic society, the market- 
place — not the government — would take over. 

In the free market, creators and copyright owners would be able to make their 
own, individual determinations about how best to respond if there is a consumer 
demand for "copiabte" recordings — i.e., recordings that are not encoded or notched 
to prevent copying. At present, the person who ouys a prerecorded cassette for his 
own listening pleasure, never to be copied for anyone else, has to pay the same price 
as the peraon who buys that same cassette with the intention of supplying copies of 
it to others. 

This need no longer be the case with copy-coding. With this new technology, pro- 
ducers would be able to distinguish between these dilTerent classes of customers and 
consumers could choose the type of recording they want. A copiable version would 
have included in its price compensation for the artists, songwriters, musicians and 
copyright owners whose music is being taped. The person who does not wish to copy 
could buy the less expensive "uncopiable" version. 

At least one record company has already announced its intention to market both 
copiable and uncopiable versions of its records, just as many software publishers 
right now market both copiable and uncopiable versions of their computer pro- 
grams. Many other record companes can be expected to adopt similar policies. Those 
policies, like the value of the right to copy, would be established not by the govern- 
ment, but by the competitive marketplace. 

The Reagan Administration, after very careful analysis, has strongly endorsed the 
copy-code system. Commissioner Quigg, m his testimony before the Senate last year, 
described copy-coding as "the b^t approach for solving the [audio home taping] 

■ " Aaian WaU St, Jnl. Weekly. March 2. 1987. 

"Statement of Donald J. Quigg on 3. 1739 Before the Senate Commitlee on the Judiciary, 
99th Cong., 2d Seas,, at 3 (August 4, 1986). 



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problem," '* and one that was particularlj oppropnatB for the new DAT techndD- 

We couldn't agree man. lite copy-code ^tpiXMcli oflen an attractive BolutioD U 
the home taping problem generally; but ap|died to the new DAT machines, it oBea I 
a once-in-a-l^etime opportunity. 



The introduction of a wholly new tecfanokiKy such as DAT offers Congress a 
unique opportunity — to anticipate, rather than le^und to, technology. DAT has tbe 
potential to be the predominant recording technology for gmerations to conte. iW 
means that, hy acting now. CongresB can influence the nest several decades of re- 
cording machines in a constructive way. 

The legislative response we support is contained in S.506, the Digital Audio R^ 
carder Act of 1987, sponsored by Senators Gore. Wilsra, Cranstun, Ken? and 
lyAniato. This legislation would require that digital audio recording devices tram- 
ported in commerce contain a copy-^ode scanner, an electronic circuit built into the 
recording mechanism which causes the device to stop taping when it detects a cer 
tain signal encoded in recordings. (A brief description of the legislation is a" ' ' 
to this statement. I I should emphasize that the requirements of S.506 would 

in effect for only three years, during which lime Congress can more fully c 

the DAT ivoblem and the appropriate long-term solution. Of course this very target- 
ed legislation will not solve the entire home taping problem; but it will at l^st help 
curb the problem for the future. Congress should take advantage of this rare oppor- 
tunity to write on a clean slate; and to learn from experience by applyirtg the ke- 
sons of analog home taping to the new digital technology before history i^peatx 
itaelf. 

Moreover, this legislative opportunity extends beyond our borders to the horae 
taping problem encountered around the world. We have a rare oppcntunity to ezeit 
a positive influence on the legislative treatment of this next generation of recording 
technology. As the world's leading exporter of music, it is natural for other nations 
to look to the U.S. to see how it protc^ its own creative community. Our failure to 
act on DAT will be perceived as a signal that American music is fair game for 
poachers throughout the world. 

Our failure to act would also be inconsistent with the trend in other nations to 
protect intellectual property rights in music. Nearly a dozen other countries have 
adopted royalty systems to deal with the home taping problem. Now the EEC is con- 
sidering the use of the CBS copy-code system to respond to the new generation of 
digital machines. Representatives of the Commission have already informally noti- 
fied Mm (the Japanese trade ministry! that they are likely to require the installa- 
tion of copy-code scanners in all DAT machines manufactiued in, or imported into, 
the Common Market. The concurrent consideration of a common approach by both 
the Europeans and the Americans offers an invaluable opportunity to forge a world- 
wide consensus on a truly international problem. The Congress should not pass up 
•uch an opportunity. 



rights of creators and owners, but it affects the U.S. balance of trade as w .__ . 

to think that all you needed to succeed in world trade was a really good product. We 
have such a product— it's called American music, and it's the most sought after 
music in the world. From Billy Joel to Huey Lewis, from Benny Goodman to Ala- 
bama, our music is heard literally around the world. With an export product like 
that, you would think that America's music industry would be among the most com- 
petitive in international trade. 

But its competitiveness is being hurt — not because the creative community of 
other countries is oroducing better music, but because their engineers are producing 
taping machines ttiat enable our customers to obtain our music without paying us 
for it. 

Ju«t as most of the premium blank tape and recording machines now used for the 
home taping of music originate in Japan, so will DAT tapes and machines likewise 
come from Japan. (I know of no American companies that are planning to manufac- 
ture these devices.l It is these foreign hardware manufacturers who now benefit 
from the home taping of our prerecorded product and it will be these same manu- 

Tiittee on the Judiciary, 



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21 

li facturers who will be enriched in the future if DAT machines are allowed to cause 
the home taping problem to escalate to even more massive proportions, 

■ With DAT, the Japanese electronics industry will continue to increase its profits 

I at the expense of American creators and producers of music. Meanwhile, the Ameri- 
can music industry — one of the few American industries that returns a positive 
trade balance to the United States— continues to lose revenues and becomes less 
able to offer a diverse variety of musical recordings. Consequently, the new music 

. available to the public and the quantity and variety of musical export products will 
diminish. The end result will be further weakening of yet another American indus- 
try. 

That is why the Reagan Administration included a DAT provision in its "Com- 
petitiveness Initiative" — so as to preserve the competitive vitality of the American 
music industry. The lobbyists for the Japanese electronics companies contend that 
DAT isn't really a trade issue, yet the Japanese government itself appears to regard 
it as such. Delf^tions from MITI have been sent to the U.S. to discuss the problem 
with USTR, and the Japanese electronics industry has poured seemingly limitless 
resources into its efTort to defeat any legislative proposals on DAT. Obviously they 
believe this issue to be of great economic consequence to their trade opportunities in 
the U.S. 

Moreover, within its own borders the Japanese government treats issues like this 
one as simply another element of its trade policy— Le., to protect the interests of 
Japanese industries without regard to the interests of other nations' industries. For 
example, when the Japanese adopted legislation in 1985 to control the commercial 
rental of records, they extended the protection only to Japanese recordings. They 
refused to extend the benefits of their legislation to American recordings.'* Clearly, 
the Japanese are not looking out for the interests of Amercian industries; only the 
U.S. Congress can protect the American music industry. 

Remember, finally, that the DAT issue is not a question of free market competi- 
tion. The Japanese machines do not write better songs; they simply copy our songs 
and thereby displace American sales. They offer no new opportunity for America's 
music community to sell its wares; they offer only the capability to copy the music 
we had hoped to sell. 

The Japanese DAT manufacturers must he told, in no uncertain terms, that their 
parasitic practices cannot continue. The United States should not put itself in the 
position of providing a market for their new technology until and unless these ma- 
chines are equipped with technological protections for American creators. 

THE NEED POR PROMPT LBG1SLAT10N 

The DAT machines will be arriving in the U.S. market as early as this summer or 
fall. Before that time, before a single DAT machine has been sold, the Congress 
should enact S.506 to require hardware manufacturers to install copy-code scanners 
in DAT machines that are shipped in interstate commerce. 

Prompt approval of this legislation will send the Japanese electronics manufactur- 
ers a much-needed message— that their continued disregard for American intellectu- 
al property will no longer be tolerated. 

It is important to note that, since it is the threat to intellectual property posed by 
the new DAT technology that gives rise to our fears, it is ultimately intellectual 
property law that should govern the response. The legislation we seek, therefore, 
does not attempt to devise the definitive resolution of either DAT, or home taping. 
Rather, it is intended to provide a three-year breathing period during which the 
status quo will be maintained. During that period, the home taping problem as it 
currently exists will get no better; but at least, insofar as DAT is concerned, home 
taping will not get any worse. That breathii^ period will give the Congress the time 
it needs to consider the issue in a more deliberate fashion, and craft a comprehen- 
sive solution to the problem. 

For now, we are asking only for interim relief, a skort term remedy designed to 
avoid the permanent foreclosure of the technological solution to the DAT problem. 
But prompt action is critical. Any further delay in respondii^ to the introduction of 
DAT machines will only play into the hands of the Japanese electronics industi^. 

That is why we urge Congress to act now on S. 506 to require copy-code : ~ 

DAT machines. 






owners regardleaa of 



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CONCLUSION 

It is difTicult and frightening to imagine our country without the beautiful a 
emanating from the American music community. We take for granted our po 
in the world music market and continue to deceive ouraelvea into thinking that our I 
musical products will always be abundant and coveted by the rest of the world. 

We must not forget that a national treasure — our music industry — can be lost if 
we do not protect it through our laws. The Congress now has the opportunity to do 
BO, to pave the way for the continued production of diversified music, to devise nm 
laws under which advances in technology can be reconciled with the reasonable 
needs of our intellectual property community. By doing so, the Congreaa would be 
looking to the future in protecting not only the interests of music creators and pro- 
ducers, but those of listeners and lovers of music everywhere. 

The prompt enactment of the interim approach set forth in S. 506 ia vital to Uk 
preservation of the American music industry. We strenuously urge your support. 

SUMMARY OF THE DIGITAL AUDIO RECORDER ACT OP 198T 

Section 3(a) of the Digital Audio Recorder Act of 1987 makes it unlawful to manu- 
facture, assemble, or ofter for sale, resale, lease, or distribution in commerce (1) a 
digital audio recording device that does not contain a copy-code scanner or (2) any 
device, product, or service that renders inoperative a copy-code scanner. Section 3(b] 
makes it unlawful to render inoperative a copy-code scanner. A copy-code scanner ia 
an electronic circuit built into the recording mechanism of an audio recording 
device which causes the device to stop taping when it detects a certain signal en- 
coded in recordings. 

Under Section 4(al, any person aggrieved by a violation of the Act. or an appropri- 
ate officer or agency of the United States, may bring a civil action in district court 
The language of Section 4(a) is a typical "standing" provision intended to provide a 
remedy for anyone harmed by a violation, including songwriters, artists, music pub- 
lishers, record companies and even competing manufacturers of digital audio record- 
ers. Under Section 4(b), an aggrieved party may elect either the actual damages suf- 
fered as a result of the violation or an award of statutory damages. 

Section 4(bX2) gives the court discretion to determine the amount of statutory 
damages. The minimum award has been set at $1,000 to provide a sufticientty 
strong deterrent to violators and an equally strong incentive to private enforcers. 
The maximum award has been set at either (Al $10 multiplied by the number of 
devices or products involved in the violation or (B) two times the cumulative retail 
value of the services involved in the violation, to provide a remedy that corresponds 
to the severity of the violation. 

Section 4(e) allows criminal prosecution for violations of Section 3(a) that are com- 
mitted knowingly, willfully, and for purposes of direct or indirect commercial advan- 
tage or private financial gain. No criminal liability attaches to an individual who 
bypasses, removes, or deactivates a copy-code scanner in violation of Section 3(b). 

Section 5 authorizes the Secretary of Commerce to issue such rules and regula- 
tions as may be necessary to exempt certain digital audio recording devices from the 
requirements of the Act, Under such exemptions, businesses with a legitimate need 
(such as manufacturers of prerecorded DAT cassettes or radio stations) may obtain 
recording devices without copy-code scanners. 

Section 6 provides that the Act shall remain in effect for a period of three years. 

Recording Industry Association of America, Inc., 

Washingloih DC, June 12, 1987. 
Ms, ToNi Cook, 

Counsel, Senate Commerce Committee, Subcommittee on Communiaitiona, Hart 
Senate Office Building, Washington. DC- 
Dear Tont: Enclosed please find our responses to the Subcommittee's questions 
from the hearing on May 15. 
I look forward to meeting with you soon to review the next steps for this legisla- 



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Senate Commerce Committee Questionb 

Question 1. Mr. Berinan, many of the arguments you have presented against digi- 
tal audio tapes (DATI are similar to those presented by the movie industry in con- 
nection with efforts to restrict the sale of video cassette recorders (VCR). The movie 
industry proved to be wrong about the economic consequences of the VCR. There is 
now a $5 billion industry in the sale of prerecorded video tapes. Why should DAT be 
any different? 

Answer. One extremely important difference between what we foresee in the area 
of DATs and what has happened in the video industry is that we have no technology 
for the mase production of prerecorded DAT caseettes. The recording industry 
cannot have any market in the sale of DAT caaeetteB until we are able to produce 
them for sale to the mass market. 

Moreover, we recognize in the question the argument that home taping in gener- 
al, and DAT home taping in particular, will eventually redound to the industry's 
benefit because it will increase interest in prerecorded music. But the DAT ma- 
chines that the foreign manufacturers are so eager to begin importing into the 
United States can be used for one purpose only: the unauthorized duplication of 
copyrighted music. To some extent, even the Japanese government and the DAT 
manufacturers have recognized the grave damage that DAT machines could do tA 
American music if steps are not taken to protect copyrighted musical recordings. It 
is illc^ca! to suggest that technoli^y that serves the sole purpose of copying copy- 
righted music, and displacing record sales, will somehow boost sales. 

Question 2. Mr. Berman, it has been reported in the press that some record com- 
panies and retailers are considering what would amount to a boycott of a manufac- 
turing of prerecorded tape for DAI^ if some sort of legislation is not passed. Is this 
report correct? 

If so, what effect would this have on consumers and competition? 

Answer. 1 know of no such boycott. 

Record companies are quite naturally extremely concerned about the home taping 
problem, and especially concerned about the potential of DAT technology to escalate 
the home taping problem completely out of control. Some of our companies, individ- 
ually, may have arrived at business decisions not to invest in the introduction of a 
new format until they can be reasonably certain that its profitability will not be 
undercut or destroyed by DAT home taping. Such decisions are completely up to our 
individual members. 

Quite apart from all that, it makes no sense to attribute such sinister motives to 
our members in tight of the fact that, as described above, there presently exists no 
technology for the mass marketing of prerecorded music on DAT cassettes. 

Question 3. Mr. Berman, in your testimony, you state that record industry sales 
have declined five percent between 1985 and 1986, Does that figure include sales 
from prerecorded audio tapes and compact discs (CDs)? 

Answer. Yes. The five percent figure reflects a decline in unit sales overall, for all 
the formats in which prerecorded music is released: singles, LPs/EPs (Extended 
Play), CDs, cassettes, and 8-track cartridges. 

Question i. Mr. Berman, can you provide me with the total revenue figures for 
record companies from the sale of prerecorded audio tapes and CDs for the years 
1985 and 1986? 

Answer. In 1985, the manufacturers' dollar value, at suggested list price, of units 
shipped of CDs was {389.5 million; of prerecorded audio tape cassettes was {2,411.5 
million; and of B-track cartridges was $25.3 million, for a total of $2,826.3 million. 

In 1986, those figures were £930.1 million, $2,499.5 million, and $10.5 million, re- 
spectively, for a total of $3,440,1 million. 

In both cases, the totals do not include singles and LP sales. 

Question 5. Mr. Berman, can you tell the Committee the number of dual-well tape 
machines sold in the United States in 1985 and 1986? 

Answer. In 1985, manufacturers of tape recording equipment sold 1,373,733 dual- 
well tape recording machines in the U.S. 

We do not have the figure for 1986. 

Question 6. Mr. Berman, please explain why record companies reported such high 
profits in some cases as much as 50%, in 1986? 

Answer. The recording industry is a volatile business. We have good years and 
bad years. In 1986, several companies were fortunate enough to have experienced a 
good year. But that is only one of many years, and there is no assurance that the 
industry will continue to do well. 

I must also caution that attention focused on the profit reports of a few successful 
record companies may tend to give an exaggerated impression of how the industry 



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24 

is doing overall. Although several companies are doing well, many others are doing 
poorly. TTiose that are doing well credit their success largely to the popularity of 
CDs, which are a profitable product. This is a fortunate development, considering 
that unit sales are down throughout the industry due to home taping. 

Finally, I must emphasize that the basic issue here has to do with the principles 
of intellectual property. The profitability or non profitability of the music industry is 
irrelevant to the need for this legislation: however significant it may be under some 
economic systems, a person's entitlement to compensation for the use of his copy- 
righted property is not, under our system of law, based on a means test. This legisla- 
tion is necessary because home taping displaces sales of prerecorded music; that dis- 
placement deprives the creators and producers of the music of the compensation of 
which they are entitled; and the loss of compensation serves as a disincentive to the 
creation and production of more music, especially that music whoee profitability is 
most margin^, such as that by new artists or that which appeals to smaller audi- 

The success of a handful of companies in our industry should not be used to dis- 
tract attention from the real issues involved here. Nor should it provide the ba«s 
for an argument that because a few companies are doing well, it is all right to ap- 
propriate the industry's product without paying for it. The Japanese manufacturers 
of DAT recorders, analog tape recorders, and blank tape, who have experienced vast 
commercial success in recent years, have never been expected to give away their 
products for free. 

In good years or bad, these equipment manufacturers enjoy patent, trademark 
and copyright protection. Even in those years when an industty s profits might be 
reasonable, or even high, their property rights should not be diminished. No other 
industry or business is expected to live with a cap on its earnings potential, or to be 
the butt of criticism for asserting its right to achieve that potential. The recording 
industry should not be signaled out for such unfair treatment. 

Question 7. Mr. Berman, in your testimony you state that record companies have 
indicated that if this l^slation is passed, record companies can be expected to re- 
lease two versions of records, those than can be copied and those that cannot. Has 
this proposal been discussed with retailers? 

Would that proposal strain retailers who would be forced to carry two sets of in- 
ventory and maybe eliminate less papular artists? 

Answer. RIAA has not undertaken discussions with retailers regarding the sale of 
copiable and uncopiable versions. 

We assume some record companies would offer two versions if there were market- 
place interest and consumer demand for two versions. It would likewise be l^^cal to 
assume that retailers' decisions about whether to offer two versions to their custom- 
ers would also be goverened by marketplace conditions and consumer demand. We 
assume, in other words, that business people at all levels of the production and dis- 
tribution chain will do what is most profitable. If that entails offering two versions 
of musical recordings, then we assume they will be guided by that information. 

It should be not^ that, for many years, retailers or prerecorded music have rou- 
tinely carried sizable inventories of music offered in multiple configurations: mono 
and stereo, 78's, 45's, and 33's. cartridges and reel-to-ree! tapes, and now singles and 
LPs, cassettes and CDs. They have also stocked and ofTered to the public numerous 
varieties of blank tape, which also amounts to a dual or multiple inventory system. 
Thus, record retailers are certainly accustomed to offering merchandise in multiple 
configurations, without experiencing any insurmountable difficulties, or sacrificing 
variety in what they offer the public. 

Question S. Mr. Berman, under current copyright law, it is not apparently illegal 
to copy prerecorded music for private use, TTierefore, on what legal basis can we 
justify the requirement that manufacturers of DATs include the proposed copy-code 

Answer. We do not agree with the supposition that copying for "private use" is 
not ill^al under current copyright law. The Copyright Act of 1976 names several 
specific exceptions to the author s exclusive rights of reproduction, adaptation, dis- 
tribution, performance and display, but audio home taping is not among them. To 
the contrary. Section 114 expressly states that the owners of copyrighted sound re- 
cordings have the exclusive right to "duplicate the sound recording . , . ," 

The claim that the Copyrighted Act contains such an exception rests upon a 
single passage in the House Judiciary Committee's report on the Sound Recording 
Amendment of 1971, That statute extended copyright protection to sound record- 
ii^; it was addressed to the problem, of commercial record piracy. Additional com- 
ments on the home recording issue were made in hearing testimony and on the 
floor of the House. For two reasons, these iBolat«d referenced to home recording in 



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25 

the 1971 proceedings do not rise to the level of establishing and implied home taping 
exemption under the 1976 Copyright Act. 

First, the 1971 Amendment itaelf contained no home recording exemption. There 
was absolutely no mention of home recordii^ in the Senate deliberations over the 
1971 statute. Thus, there is no justification for inferring a congressional intent to 
create an audio home taping exemption either from the 1971 Amendment or its 1^- 
islative history. 

Second, and even more significant, the House references to home recording per- 
tained to a statute that was repealed by the comprehensive revision of the copyright 
law in 1976. The current legal status of audio home taping must be determined pur- 
suant to the Copyright Act of 1976 — not pursuant to the obsolete 1971 Amendment 
or its legislative history. As already noted, the 1976 Act does not contain any ex- 
emption for audio home taping beyond the potential defense of fair use. Indeed, the 
legislative history of the 1976 law incorporates verbatim much of the language con- 
tained in the House report accompanying the 1971 Amendment — but it omits entire- 
ly the passage referring to home recording. As the late Professor Nimmer conclud- 
ed, "(e]ven if . . . [there were] a home-use exemption in the 1971 Amendment, there 
is no suggestion in the legislative history that the 1976 Act incorporated a similar 
exemption." Nimmer, "Copyright Liability for Audio Home Recording: Dispelling 
the Betamax Myth," 68 Va- L, Rev. 1505, 1516 (1982). 

The only basis for exempting home taping from the provisions of Section 106 
would be the fair use doctrine, addressed in Section 107 of the copyright law. The 
doctrine, of fair use immunizes certain uses of copyrighted works from infringement 
liability, based upon a consideration of four statutory factors. They are; <1) the pur- 
pose and character of the use, including whether such use is of a commercial nature 
or is for nonprofit educational purposes; (2) the nature of the copyright work; (31 the 
amount and substantiality of the portion used in relation to the copyrighted work as 
a whole; and (4) the effect of the use upon the potential market for or value of the 
copyrighted work. 

None of these factors, however, justifies the conclusion that home taping of copy- 
righted sound recordings should be considered a fair use. 

First, home taping is a commercial use within the meaning of the "fair use" pro- 
visions despite the fact that the home taper may not sell his or her copies. The Su- 
preme Court has said: "The crux of the profit /nonprofit distinction is not whether 
the sole motive of the use is monetary gain but whether the user stands to profit 
from exploitation of the copyrighted material without paying the customary price," 
The nation's foremost copyright scholar, the late Professor Nimmer, agreed: "The 
individual who engages in audio home recording may not be seeking a commercial 
advantage by selling the recordings, but for fair use purposes his motivation is nev- 
ertheless commercial. By engaging in audio home recording, he avoids the cost of 
purchasing records or prerecorded tapes." 

Second, copyrighted records and tapes are sold for the purpose of entertainment. 
The home taper seeks to use the copyrighted work for the same purpose. As a U.S. 
Court of Appeals put it, "a finding that the alleged infringers copied the material to 
use for the same intrinsic purpose for which the copyright owner intended it to be 
used is strong indicia of no fair use," 

Third, home tapers record entire musical selections. This is not a question of copy- 
ing excerpts or a few selected passages. The appropriation of the copyrighted work 
is total. 

Fourth, as the economic effect of copying on the potential market for the copy- 
righted work grows more severe, the defense of fair use cannot be invoked. The 
studies, market statistics, and economic analysis of the home taping problem vividly 
document home taptng's adverse effect on sales of records and prerecorded tapes. 
The displaced sales, lost because of home taping, cost the recording industry $1.5 
billion annually. As Professor Nimmer stated in his article (at p. 1524): 

These studies merely contirm what is empirically obvious: audio home re- 
cording does have a devastating impact on the market for music and sound 
recordings. If this fourth factor is ever to militate against application of the 
fair use defense, it must do so in the case of audio home recording. 

In testimony before Congress, Donald J. Quigg, Assistant Secretary of Commerce 
and Commissioner of Patents and Trademarks, agreed with this assessment. He 
stated that the sheer magnitude of the home taping problem, that is, its aggreate 
commercial impact on the marketplace, takes it completely out of the domain of fair 



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A separate conBideration sometimes cited in support of the fair use defense is thai 
audio taping occurs in private homes. As Professor Nimmer emphasized, however, 
this does not make home taping a fair use: 

If given conduct is unlawful — such as child abuse, for example — the fact 
that the conduct occurs in the privacy of the home may make it difficult to 
enforce the law .... Yet this does not make child abuse in the home 
lawful. Likewise, enforceability and privacy problems may deter civil copy- 
right infringement actions for audio home recording, but that in itself does 
not make such recording fair use. 

Thus, there is no personal use exemption, nor any fair use immunity to home 
taping. Contrary to the premise of the question, there is no distinction between com- 
mercial and personal home taping. 

Nor did the Supreme Court's Betamax" decision legalize audio home taping. In 
the "Betamax" case, the U.S. Supreme Court decided only that the sale of video re- 
cording equipment is not a contributory copj^ight infringement. The Court 
"expreBs[ed]" no opinion" concerning the legality of audio home taping. The Court'e 
ruling was predicated upon two crucial factors: first, that the primary use of VCRe 
was for time-shifting, and second, that video time-shifting constituted "fair use" 
largely because the plaintiffs were unable to demonstrate a likelihood of actual or 
potential harm. 

The facts of audio home taping are quite different, of course. There is no time- 
shifting in audio taping; taping records is a substitute for buying records. As a 
result, the music industry is losing more than $1.5 billion in sales each year. Thus, 
there is no question that audio home taping is causing significant harm nght now to 
the American music industry. 

Finally, regardless of whether home taping is considered legal or illegal under ex- 
isting law, Congress may properly act on DAT legislation. The issue posed by DAT 
machines is before Congress because home taping has become an enormous prailen 
for the American music industry, and DAT machines will only make the problem 
worse. Congress should therefore enact legislation to protect American music cre- 
ators and producers regardless of whether home taping is an unlawful practice 
under current law. 

Question 9. Mr. Berman, if the proposed legislation is adopted and it is subse- 
quently determined that no legislation concerning the private copying of prerecord- 
ed music is appropriate, we will have a group of consumers that have purchased a 
DAT machine with a scanner system who will have wasted their money. Do you be- 
lieve this is fair? 

Answer. We do not agree with Che conclusion that consumers who have bought 
DAT machines that contain copy-code scanners will have "wasted their money. If 
it is subsequently determined after passage of this legislation that it is not appropri- 
ate to legislate on the subject of private copying of prerecorded music, there would 
be no reason to encode copyrighted music. Therefore, owners of DAT machines, even 
those that contain copy-code scanner chips, would be able to copy any prerecorded 
music available in the marketplace. 

Beyond that, it should be pointed out that even if the legislation was enacted, all 
existing prerecorded music would be copiable. This is a totally prospective solution. 

Question 10. Mr. Berman, if this legislation is passed and the sunset provision is 
later eliminated, in effect, musicians will have unlimited copyright protection, 
unlike current copyright law. Is this the intention of the legislation? 

Answer. The proposed legislation is not intended to extend the term of cofm-ight 
protection beyond that recognized by statute. We do not believe that it would have 
this effect. The maximum term of copyright protection is the life of the creator plus 
50 years, or, in a case of work for hire, 75 years. Although compact discs are dura- 
ble, it is unlikely, as a practical matter, that the encoding of musical recordings will 
have the effect of extending the generous copyright terms already provided in the 

Question. 11. Mr. Berman, what would be the effect of this legislation on people 
who purchase DAT machines but do not make copies of prerecorded music? 

Answer. The legislation will have no effect on those who purchase DAT machines 
and do not make copies of prerecorded music. The copy-code scanner technology con- 
trols the unauthonzed taping of copyrighted prerecorded music only. Owners of 
DAT machines who wish to copy other, noncopyrighted materials will be absolutely 
free to do so. 

" 1 the 



,vGoosle 



27 

Answer. The DAT technology ia one fscet of the home taping problem. Without 

diminishing the magnitude of the home taping issue overall, we think it is fair to 
say that the threat posed by the imminent arrival of DAT machines in the U.S. 
market is the most serious aspect of the problem we have yet confronted. 

We maintain our position that congressional action is required to addreee the 
home taping problem overall. But we believe that the seriousness of the threat 
posed by DAT, which threatens to let the home taping problem grow completely our 
of control, warrants congressional action now. 

Congress is in a unique position to act with respect to DAT, by adopting a techno- 
logical solution that anticipates the introduction and penetration of this new tech- 
nology into the U.S. market. This is in contrast with the overall analog taping prob- 
lem, with respect to which consumer practices and expectations are largely already 
established. 

What we are seeking in this legislation is a temporary hold harml^ period. 
During that period, the copyright issue can be addressed. If the machines were to be 
imported first, the politics of the l^islative process could not accommodate any 
change in copyright law. 

QiHslion. 13. Mr. Berman, would you be as concerned about DATs if they were 
manufactured in the United States? 

Answer. The question is hypothetical since there are no United States manufac- 
turers of DAT machines. But if there were such manufacturers we would be as con- 
cerned about the effect that their machines would have on our nation's music as we 
are about the effect of foreign-manufactured machines. This is because the sale of 
U.S. -manufactured machines would have the same effect of displacing record sales 
as would the sale of foreign-manufactured machines. 

The proposed legislation reflects the consistency of our position in this regard, hy- 
pothetical though the existence of U.S. manufacturers may be. The proposed l^isla- 
tion outlaws commerce in DATs that do not contain copy-code scanners. "Com- 
merce" includes, as defmed in the bill, interstate commerce as well as commerce 
with foreign nations and would have the effect ofr requiring the hypothetical U.S. 
manufacturers of DATs to include copy-code scanners in their products. 

Question. 14. Mr. Berman, is the price of records higher today because of audio 
taping? 

Answer. I do not think that home audio taping has yet had the effect of raising 
record prices. In fact, so far, it has had the effect of depressing record prices. When 
we compare the consumer price index ICPI) with recent trends in record prices, we 
see that record prices have not increased at the same pace as the CPI. This is in 
contrast to the same comparision made before the advent of home taping, when 
record prices closely following the upward pace of the consumer price index. 

The basic fact remains, however, that home taping is a substitute for the purchase 
of prerecorded music. So long as consumers are able to get music for free by copying 
it, many of them will do so. This will continue to have a servere impact on recorded 
revenues, and eventually the volume of sales of prerecorded music will not be h^h 
enough to recover the lixed costs of production. At that point, recorded companies 
will have no choice but increase the unit price of prerecorded music. This, of course, 
would be unfair, because those who buy prerecorded music will have to pay more 
because others tape their music instead of buying it. This will also put record com- 
panies in the untenable position of raising their unit prices, without any resulting 
increase in profitability, notwithstanding that such a price hike would likely in- 
crease the attractiveness and incidence of home taping. This confirms that there is 
no viable marketplace response to the home taping problem: legislation is necessary. 

Question 15, Mr. Berman. as you know Personics Corporation makes specialized 
tapes for consumers, at the retail level and compensates the copyright holder. This 
seems to be an example of the marketplace working to solve the problem. Why 
shold we legislate in this area before we determine whether the market can resolve 
the issues? 

Answer. The question refers to a service provided by the Personics Corporation 
whereby a consumer can buy a customized tape that contains an anthology of songs 
selected by the consumer. A fee is chained for each song selected. The fee includes 
compensation for the copyright holder. 

It is hoped that this service will satisfy a demand for this kind of copying from at 
least some segment of the consuming public. We do not believe, however, that it will 



We support the idea of finding marketplace solutions to the home taping problem. 
we have explored in our industry many marketplace-oriented solutions and have 
restated numerous times our willingness to discuss with the manufacturers solu- 



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28 

tioDB that would allow the marketplace to work the problem out. We remain willing 

We spent a good part of last year discussing the idea of a royalty system that 
would allow copyright holders to be compensated for the privii^e of duplicating 
their copyrighted works. The Home Reconling Rights Coalition, which opposed the 
copy-code scanner solution, vehemently opp<»ed the imposition of royalties. Thue, 
while we have been continually willing to discusa any and all viable solutions to the 
home taping problem, our opponents have been unwiling and uncooperative. 

Senator Inouye. Thank you very much. 
Mr. Ferris. 

STATEMENT OF CHARLES D. FERRIS. COUNSEL, REPRESENTING 
HOME RECORDING RIGHTS COALITION 

Mr, Ferris. Thank you, Mr. Chetirman, members of the commit- 
tee. 

I represent the Home Recording Rights Coalition, which is com- 
prised of companies that are involved in the manufacturer, sale, 
and distribution of audio cassette recorders. Members of our coali- 
tion include the Ampex Corporation, Curtis-Mathis, General Elec- 
tric Company, International Jensen, Inc., Kenwood Electronics, 
Sears Roebuck Company, Sony Corporation of America, the 3M 
Company. 

And our membership includes msmy prominent trade associa- 
tions, including consumer groups, including the American Council 
of tbe Blind, the Car Audio Specialists Association, the Electronics 
Industry Association of America, the National Retail Merchants 
Association. 

I just wanted, Mr. Chairman, to give a representative sample of 
the members in our coalition, because after some of the earlier re- 
marks some might assume that I was sitting up here wearing a 
kimono today, "niese are all American companies that make a tre- 
mendous contribution to the America economic scene. The electron- 
ics industry, consumer electronics industry in this country, contrib- 
utes about $40 billion to the America economy. 

I would like, Mr. Chairman, if I could, to have my prepared 
statement inserted into the record, and I would just attempt to ex- 
temporaneously summarize what I think are the main points that 
are in that testimony. 

First of all, Mr. Berman took out a blank tape and put it into the 
recording/ playback machine and said it does not play any music. I 
have a tape which has prerecorded music on it, and you put it up 
to your ear you cannot hear anything on that tape. 

You need those recording/playback machines over there to hew 
that prerecorded music, and it is the technology that has been pro- 
vided by the hardware manufacturers that has provided tremen- 
dous opportunities and well-deserved opportunities the recording 
industry and the members of the creative community so that they 
may reach millions of Americans who otherwise would never be 
able to hear their creativity and their art. 

So there is a synergy between the hardware manufacturers and 
the software manufacturers. Historically it has been that way. 

We have heard Examples to other technological displacements, 
as when the talking movies put out of business the piano players in 
the silent theaters. Well, that happens when new technology comes 
on, but the general public is benefited significantly by the vrider 



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29 

reach of the creativity that comes to those that do create. I think 
we have to keep that in mind. 

The DAT sits over there, Mr. Chairman, and you will have a 
demonstration of it today. liiose three black machines on the table 
are DAT machines, and they will be used as part of the demonstra- 
tion. 

Senator Inouve. Mr. Ferris, before we go on with the demonstra- 
tion — IB that light necessary? It just shines on the back of your 
head, and it shines in my eyes. If it is not necessary, please turn it 
off. 

Mr. Ferris. The DAT looks just like every other piece of stereo 
high fidelity equipment. And that is a DAT tepe sitting on top of it. 

You will see that this is an extraordinarily good piece of equip- 
ment. It is the next generation of stereo equipment that the Amer- 
ica consumer undoubeteoly will to get great enjoyment from. 

And I am hopeful that this committee will not take any action 
that would prevent the American consumer from making their per- 
sonal decision as to whether or not they wish to pay the $1300 to 
have a machine of that quality. 

The question raised is whether DAT recording/playback machine 
unique and should be treated uniquely. I do not think it should, 
Mr. Chairman. It is another piece of consumer electronic equip- 
ment, which c£m playback and record not perfect copies, as has 
been alluded to ttraay, because it will not make a perfect digital 
copy. 

As a matter of fact, the reason it will not make a perfect digital 
copy is in response to the recording industry that has been protest- 
ing that if the d^tal audio tape would do just that, it would under- 
mine the economic viability of their industry. 

The manufacturers of these machines and the recording industry 
sat down in Europe two years ago and worked out what they called 
the DAT conference. This was the hardware manufacturers world- 
wide and the software manufacturers, and there were 20 non-Japa- 
nese companies involved in that conference. 

And they did negotiate a deal, and the deal was that the DAT, 
digital audio tape machines, will not meike a perfect clone. To be 
able to record music on that machine, you have to go through an 
analog circuit, thus even a digital source of music, must go through 
the degradation that comes from an analog circuit before you an 
make a digital tape. 

So there is a d^adation. There are no perfect clones. And the 
reason is because the recording industry raised that same paranoia 
that you heard this morning, about the perfect digital audio tape 
copy. 

And this line of argument has a sense, I am sure, Mr. Chairman 
and members of the committee, of deja vu, because it was ten years 
ago, the then new piece of technology that came on the scene was 
the VCR, the video ceissette recorder. And the same efforts were 
made then to ban that new technology from the scene, because it 
was going to undermine the economic viability of the motion pic- 
ture industry. 

And a suit was brought to do just that, to ban the VCR. And fi- 
nally The Supreme Court resolved that question of copyright law 
and the competing values between the consumer's desire right to 



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be able to watch at their convenience and the proprietary interests 
of those that make the motion picture were put in balance. 

And the Supreme Court said, no, that taping for personal use is a 
fair use, it is not a violation of the copyright laws. They decided 
that the new VCR technology should be made available to the 
American consumer. 

And how good and wise that decision has been for Motion Pic- 
ture Industry which had valid fears them about the VCR under- 
mining its economic viability. The VCR permitted for the first time 
that motion pictures would be able to be actually owned, in effect, 
to have one in your home for viewing at your convenence rather 
than have it licensed or rented for each public performance. What 
has happened to those cleiims of economic doom? 

The VCR has turned out to be the best friend that the Motion 
Picture Industry has. The revenue stream from prerecorded video 
cassettes last year produced $5 billion, $5 billion in revenue for the 
motion picture industry, and well deserved. 

But their anxiety and their paranoia ten years ago about this 
new technology that was going to destroy their economic viability 
was misplaced. This was a tremendous opportunity for a new reve- 
nue stream, and that $5 billion exceeds any other revenue stream 
the Motion Picture Industry has. It exceeds the revenue stream of 
theatricEil exhibition, which has gone up, incidentally, over the past 
ten years. 

So every new technolc^y that is developed, develops as well an 
anxiety in the existing technology that is threatened by it. There is 
going to be an undermining of the existing technology. 

These machines over here, the digital audio tape recording/play- 
back machines, like the compact disc, are going to provide the 
same opportunity for the recording industry to develop new reve- 
nue streams from all their existing catalogues available now, as 
the VCR has provided new revenue streams for the motion picture 
industry. 

I was glad to hear that Senator Wilson characterized very can- 
didly what this issue is. This is really a home taping issue. There is 
nothing unique about this. This digital audio tape machine is just 
the next generation of hi-fidelity stereo equipment that will be 
used as previous generations have been. 

And the issue raised by the legislation truly is an attack upon 
home taping, and home taping is a legal activity. When the Sound 
Recording Rights Act of 1971 was passed to give for the first time a 
copyright in a sound recording, it was very specifically addressed 
as to whether home taping was legal or not. 

And it was very specifically stated in the House report that 
home taping was not an infringement of the copyright law, and 
copying at home from either the radio or from your own vinyl 
disks was not an infringement of the copyright laws. 

So home taping was recognized then as a valid and legal activity, 
and so well it should have been, Mr. Chairman and members of the 
committee, because there is a tremendous synergy between those 
that tape and listen to music and those that buy music. 

The data in the record that have been developed over the past 
five years on this issue, is clear, that those that do the most home 
taping are those that buy the most prerecorded music. 



,vGoosle 



31 

And when I buy a piece of prerecorded music, I should be able to 
take that disk home, whether it is a compact disk or a vinyl disk, 
and be able to not only listen to it in my home, but be able to buy 
one of these blank tapes that Mr. Berman raised earlier this morn- 
ing and be able to make a customized 90 minute tape to use on my 
Walkman, to be able to take selections from one album that I buy 
or another that I buy and make 90 minutes of my personal selec- 
tions to listen to on the Walkman or to listen to in my car. 

And we always have anecdotes about the kids in the dormitories 
or the teenagers who are swapping and selling music. If they sell 
it, it is a violation of the law. That is piracy, and that is subject to 
criminal sanctions and they should be criminally prosecuted. 

But home taping is about non-commercial private use of taping 
equipment to make one so I can listen to that where it is most con- 
venient to me. It is like the time-shifting in the famous Sony Beta- 
max case. It is place-shifting, so I can take the music that I bought 
and listen to it in the place where it is most convenient to me, in 
my car or on my Walkman. 

I think that is the real issue here. I do not think this committee 
should ban a technology — and that is exactly what this proposal 
before this committee will do. If you require chips to go into this 
machine, these machines will not be made and distributed in this 
country. 

And so it is a ban of this technology, because the manufacturers 
and distributors and the sales people know that if you impose a dis- 
abling technology legislatively on these DAT machines, these ma- 
chines cannot sell. How could a salesman sell a DAT recorder if it 
can do less than the analc^ recorder? 

If it cannot record. How can you sell a DAT recorder that cannot 
record? 

So Mr. Chairman, I certainly hope that this committee will, as 
Senator Gore and you said, develop the facts, because I am sure the 
facts will shed a great deal of light on the real issues. 

Thank you, Mr. Chairman. 

[The statement and questions and answers follow:] 

Statement op Charles D. Ferkis tor the Home Rbcordinc Rights Coaution* 



'The Home Recording Rights Coalition includes companies that are involved in the manufac- 
ture, sale, and distribution of audio cassette recorders and audio tape, and related equipment. 
They include Alpine Electronics Corporation of America; Ampex Corporation; BASF Systems 
Corporation; Curtis Mathes; Fuji Photo Film USA. Inc.; General Electric Company; Hitachi 
Sales Corporation of America; International Jensen Inc.; JBL Incorporated; JVC Company of 
America; Kenwood Electronics; Matsushita Electric Corporation of America; Maxell Corporation 
of America; N.A.P. Consumer Electronics Corporation; NEC Home Electronics (U.S.A.I Inc.; 
Sears, Roebuck & Co.; Sanyo Manufacturing Corporation; Sony Corporation of America, Sansui 
Electronics Corporation; Tandy Corporation; TDK Electronics Corporation; 3-M Company; 
TEAC Corporation of America; Toshiba America. Inc.; Yamaha Electronics Corporation. 

Membership includes many prominent trade associations and consumer groups, such as the 
American Council of the Blind; the Association of General Merchandising Chains; the Car Audio 
Specialists Asaociation; the Consumer Recording Rights Committee; the Electronics Industries 
Association; the International Society of Certified Electronic Technicians; the National Associa- 
tion of Retail Dealers of America; the National Retail Merchants Association; the National As- 
sociation of Television and Electronics Services of America; the National Electronic Sales and 
Services Dealers Association. 



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32 

Glovsky and Popeo. P.C, On behalf of the Home Recording Rights Coalition 

("HRRC") I thank you for inviting me to testify today. 

The HRRC was formed in October 1981, immediately after the decision of the VS. 
Court of Appeals for the Ninth Circuit in the so-called "Betamax" case. That deci- 
sion, for the first time in our history, threatened to ban and withhold from the 
public a new consumer product on grounds that had nothing to do with public 
safety or welfare. Our broadly baeed coalition was formed to counsel against such a 
result. Fortunately for everyone, including the movie industry, the effort to ban the 
VCR failed in the Supreme Court, and efforts to ban, tax or cripple the VCR haw 
consistently been rejeced by the Congress. Today, we are here to apeak up for an- 
other promising new consumer product that is also threatened with banishment. 

The Home Recording Rights Coalition, since 1981, has been a broadly based group 
of companies, organizations, and people. Over the past five years, here are just some 
of the people who have testified for the Home and Audio Recording Rights Coali- 
tions: John Roach, Chairman and President of Tandy Corp.; Jack Battaglia, General 
Manager. Memtek Products (makers of Memorex brand tape); Jack Waymaji, Senior 
Vice President, Electronic Industries Assoc,; Fr. Robert McEwen, Chairman, Con- 
sumer Recording Rights Committee; Oral Miller, President, American Council of the 
Blind; Jim Ritchey, songwriter and musician. Greensborough, North Carolina; Scott 
Graves, audio retailer, Woodstock, Vermont. In opposing various measures that 
would have banned, taxed, or crippled new consumer recording products, these wit- 
nesses have had a common theme: consumers have, and deserve, the right to pur- 
chase new consumer home recorders and to tape at home, for p 



The essence of my testimony today is that the legislation that seeks to ban the 
DAT from the American market constitutes an indictment, trial and death sentence 
of a creative and promising product that is not yet even available to consumers. It 
would be fundamentally unwise for the Congress to begin mandating particular 
technological limitations, unrelated to safety or welfare, for new consumer products. 

The last revolutionary consumer recorder, the VCR, also was subject to attempts 
to ban it before it could gain a foothold. Look at how strained and remote the origi- 
nal objections to the VCR seem now. The fact is that the new recording products 
become established due to of their recording capabilities, but wind up creating even 
greater markets for new prerecorded material. 

The purported reasons for indicting the DAT, and home taping, simply don't 
stand up to scrutiny. Home taping itself does not cause the sort of sales displace- 
ment that the recording industry claims; on balance it may even be beneficial. If 
home taping was a cause of the recording industry's slump in the early 1980's, then 
what is its explanation, now. for the fact that the recording industry has never been 
more profitable, and that major record companies are enjoying results superior to 
any they have even attained, in their entire histories. 

The DAT does nol raise a single new or different home taping issue. The attack 
on the DAT is an attack on the right of consumers to use material which they have 
purchased, for private, noncommercial purposes. This attack on private consumer 
home taping flies in the face of survey evidence. This evidence shows: 

Most tapes made by consumers are of something other than prerecorded 



When people do tape prerecorded music, more than half the time they tape 

something they have already bought. They keep both the original and the copy. 

Every survey every done has shown that the people who do the most home 

taping also buy the most prerecorded music. An attack on home taping is an 

attack by the record industry on its own best customers. 

Home taping has the documented effect of encouraging purchases of prere- 
corded music, either of entire albums that have only been partially taped, or of 
other albums by the artist or composer whose work was taped. 
Considering these facts, how can home taping cost the record industry $1.5 billion 
a year, as it claims? The answer is that the record industry's claim is simply false. 
It is built on flawed data, willful analysis, and a refusal to look at the net, overall 
effects of the activities in question. The falseness of these claims helps explain how 
it can be that the record companies are enjoying the best profits in their historr 
while allegedly losing so much to home taping. 'The answer is simple. They aren t 
losing anything to home taping; it's the home tapers who are leading the resurgence 
in buying recorded music. 



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And quite a resurgence it is. In 19S6. three record companies topped the billion 
dollar market in sales. In the Tirst quarter of 1987, the CBS record division iioasted 
the best profits ever achieved by any record company, anywhere, for any period. Ac- 
cording to an article in the May 18, 1987 issue of Forbes magazine (copy attached), ' 
the record business has become so profitable that companies previously offered for 
sale are now so valuable as to have become untouchable. Clearly, the driving forces 
behind this new profitability have been the prerecorded tape and, especially, the 
compact disc, or CD, The CD was a development of the very same hardware compa- 
nies that the recording industry has pilloried for developing the DAT. Moreover, 
these extraordinary financial results have occurred at a time of shortage of CD 
stamping capacity, so many additional purchases are being delayed while the cus- 
tomer waits for availability on compact disc. 

In light of the phenomenal profitability of the compact disc, the war against the 
DAT appears also to be part of an essentially commercial campaign against a new 
format and a new technol<^. This campaign appears to be based on a wish to stifle 
new competition from within the recording industry itself Let us not mince words: 
m^or record companies are making so much money from selling compact discs at 
high margins that they fear any change in the marketplace that could distract the 
consumer and threaten their leading positions. 

The May 11 issue of Television Digest (article attached) reported from a meeting 
of the International Federal of Phonogram and Videogram Producers (IFPI), the 
Londong-based world-wide association of record companies, that: 5 leading record 
companies (Berterlsman-RCA, CBS, EMI, Polygram, Warner), which account for 
more than 50% of the world's record production, would refuse to issue recorded 
DATs unless playback equipment has anticopy chip. In other words, this subcommit- 
tee is being asked to lend assistance to an old-fashioned commercial boycott appar- 
ently aimed at suppressing competition, in the form of prerecorded DAT tapes, from 
within the ranks of the recording industry. 

We urge that the campaign against the DAT be evaluated as a particularly inap- 
propriate revivial of the war against private consumer home taping. No matter 
what its motives, this campaign should be rejected because the American consumer 
has used new technology to bring magnificent rewards to the recording industry, 
and if well served, can be counted on to continue doing so in the future. 

The DAT has also become embroiled in debates over international trade. Such a 
false linkage was, appropriately, rejected by the House, and we hope the Senate will 
avoid raising a false trade issue, as well. For the last five years, the issue of home 
taping has beer part of a dialogue between the American consumer and the record- 
ing industry. It has nothing to do with trade. Congress should address DAT and 
home taping on their own bottom, not in the context of appending a sector-specific — 
and, in the case of DAT. product-specific— provision to broad trade l^islation. The 
copyright issues raised by the DAT would be no different if the first DATs were to 
be manufactured in Virginia or Maryland, Above all, there is absolutely no need to 
act precipitously now. even before the DATs are in the U.S. 

We urge this subcommittee t^i explore and understand the poverty of the efforts 
that have been made to confuse private, consumer home taping with the altogether 
different subject of commercial piracy. We urge you to review the newspaper edito- 
rials (attached), from around the country, that liave spoken out for the right of the 
American consumer to receive and enjoy the DAT, unencumbered by artificial tech- 
nolt^cal restrictions, and the letters from smaller record companies and other orga- 
nizations urging the same result. These are also attached to my statement today. 

B. 606 WOULD KILL THE DAT 

The DAT doesn't pollute and it doesn't explode. It is simply a better tape record- 
er. It uses the basic recording method of a VCR and the basic electronics of a com- 
pact disc ("CD") player to play digital tapes that are the sonic equal of CDs. If you 
decide thumbs up, these recorders and tapes will be available to the public. Thumbs 
down, they probably won't be. 

The American consumer has supported both the hardware manufacturers and the 
recording industry magnificently. In return, consumers have received, for their pri- 
vate, noncommercial use. the benefits of continued advances in technology. There is 
no reason to stop, limit, or define technology at the door of the DAT. S. 506 is ex- 
traordinarily dangerous, both for its own effects and as precedent. It raises some 
fundamental concerns as to whether Congress, without truly compelling public rea- 
sons, should legislatively define, regulate, and limit new technology. 

' The attachmenta referred to throughout this statement were not reproducible. 



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WHY RECORDERS MUST RECORD 

Fish Eotta' swim, birds gotta' fly, and recorders gotta' record. The anti-taping chip 
required by S. 506 would efTectively kill the DAT as a new fonnat. Take the caMof 
the onhr other new product to go on trial for its life, the VCR. When the VCR was 
first offered, at prices exceeding $1,000 (the same range in which DAT^ reportedly 
would be first offered), wouid anyone have bought it if it lacked the ability to 
record? Indeed, take the standard anali^ cassette, which is now the recording indus- 
try's major prerecorded product. Would anyone have bought home tape decks if they 
lacked the ability to record? 

Common sense, and consumer surveys, teach us that consumera buy new tapes of 
recorders to have the freedom and flexibility to make their own tapes, but they uw 
them primarily to play prerecorded t^P^s. 'The reason is that movie studies and re- 
cording companies are much more efficient in packaging and distributing moviee 
and music than consumers, themselves, will ever be. Of course people make a great 
number of recordirws at home, too. With VCRs, they are primarily for "time shift 
ing" of broadcasts. With audio recorders, recordings are primarily to edit, preserre, 
and make portable the music the home taper has already oought. 

In light of the favorable experience with phonographs, radio, television, the VCR 
and other new consumer recording products, why is the DAT in the dock today? It 
faces three charges, none of which stands up to scrutiny. Charge (1) is that, when it 
comes to consumer home taping practices, the DAT is somehow different from other 
recorders. Charge (2) is that consumer home taping itself should be limited, because 
it all^edly costs the recording industry $1.5 billion per year in displa(»d sales. 
Charge (3) is that home taping has caused the recording industry's new releases to 
decline 43% since the peak year of 1978. 
The DAT will not be used differenlly from existing recorders 

DAT recorders will not be used differently from other recorders; they will princi- 
mlly be used for playback and for some home taping. As my learned friend Len 
Feldman will explain, the DAT, like other recorders, cannot make "master quality" 



recordings of prerecorded music. All it can do is record such music through its 
analog input, to make a very good recording, but a recording that is nothing like a 
"digital clon< 



o whatsoever to assume that DAT recorders are somehow 111^1- 

imate. Under both the 1971 legislative history accompanying the Sound Recording 
Act and case law, private, consumer home taping is legal. No lawsuit has ever been 
brought claiming that audio home taping, by consumers, is illegal. The gist of my 
presentation today, and that of Mr. Feldman, is that there is no reason at all to 
treat the DAT any differently from other home taping devices. 
Home taping does not have the sales displacement effects claimed by the RIAA 

Most home taping of prerecorded music — whether it involves a boom-box, a Naka- 
michi tape deck, or a DAT — is of selections from albums that the taper already 
owns. From this fundamental truth, it should be obvious that the RlAA's analyses, 
which are used to show that home taping causes a net displacement of sales of pre- 
recorded music, must be suspect. 

Contrary to what the recording industry would have Congress believe, home 
taping is, tiy and large, independent of sales of prerecorded music, or actually stimu- 
lates such sales. A full-scale survey of home audio taping in the United States was 
conducted in July 1982 by Yankelovich, Skelly and White. Inc. ("Yankelovich 
Survey") for the Audio Recording Rights Coalition. The study was reported as "Why 
Americans Tape": A Survey of Home Audio Taping in the United States." * The 
Yankelovich Survey findings are, moreover, confirmed by data from the recording 
industry's own earlier surveys of audio taping." Some of these findings are: 



' The full published report of the Yankelovich Survey, including the survey que 



the ARRC, 2001 Eye Street, N.W., Waahington, D.C. 20006. The ARRC is 
HRBC. 



include: AudiU & Surveys, "Home Taping in America: 1! 
pared for the Recording Industry A 
>, Warner Communications, Inc., "A Consumer Survey: Home 'Taping" 



Extent and Impact" (Oct, 19831 ("Audits & Surveys") (prepared fo 



Mar. 1982) ("Warner Survey"!; CBS Records Market Research, "Blank Tape Buyers: Their Atti- 
tudes" ("CBS Survey"); and Roper Organization. Inc., "A Study on Tape Recording Practk«s 
Among the General Public" (June 1979) (conducted for National Music Publishera Association 
end Recording Industry Association of America) ("Roper Survey"). 



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36 

The majority of material that consumers tape is not copyrighted music. 

When people do tape prerecorded music, they do bo to get customized selec- 
tion tapes or features, such as portability, quality, and convenience. 

People tape primarily from albums they themselves have bought. They keep 
the original and the copy. 

Tapers do not make recordings primarily to avoid purchasing records and 
prerecorded tapes. 

Active home music tapers are, by far, the most avid fans and heaviest buyers 
of prerecorded muBic. 



More than half of all home audio taping is done for some purpose other than 
taping prerecorded music* In fact, a quarter of all home tapers never even tape 
prerecorded music' 

Tapers use audio recorders for a myriad of reasons, including family, education- 
al,^ and busing purposes. For example, almost half of all home tapers surveyed 
record music performed by themselves or their family or friends, such as a child's 
musical recital or an amateur rock band.'' Tapes are a common element of both tra- 
ditional festivities, such as weddings and birthday parties, and are used in new tech- 
nologies, from telephone answering machines to home computers, ° 

Over a half-million dictation machines are sold annually in the United States." 
Private and governmental reporting services account for enormous numbers of re- 
corders used in courtrooms, at depositions, and at congressional hearings.'" Educa- 
tional institutions use thousands of tape recorders — in language labs or to tape 
music rehearsals. Non-profit institutions use recorders to bring literature, current 
events, and educational materials to the visually impaired, home-bound, or senior 
citizen communities. 
Home taping does not compete with prerecorded music 

When home tapers do record prerecorded music, the tapes they make are a very 
different product from the records and prerecorded tapes that are available in the 
market. For the great majority of tapers, home taping is largely a means of enjoying 
and organizing their music collections, not an alternative to or substitute for buying 
prerecorded music. 
Home tapers tape primarily to put together their own program of selections 

Tapers' primary reason for taping prerecorded music is to create their own pro- 
grams of musical selections. More than seven out of ten home tapers rated "the abil- 
ity to put together their own programs of selections" as a "very important" advan- 
tage to home-recorded tapes as compared to both records and prerecorded tapes." 
Tapers' actions confirmed their words: two-thirds (65%) of the average home tapers' 
collection of home-recorded tapes contained only musical selections, rather than 
complete albums." 

' Specifically, "home tapers" (persons who made a home audio recording of any kind in the 
last two years) recorded something other than prerecorded music on 52% of the tapes they made 
in the three months preceding the Yankelovich Survey. Yankelovich Survey at 11, 36. In other 
words, fewer than half of the total tapes recorded at home contain prerecorded music. 

■ Yankelovich Survey at 15, 29 44% of tapers age 50 and over have never taped any prere- 
corded music, Yankelovich Survey at 15, 42-43. A study commissioned by the Copyright Royalty 
Tribunal confirmed that over half of home tapers (57%l do not tape music at all. See Wm, B. 
Hamilton. ;'A Survey Of Households With Tape Playback Equipment," at 5 ISept, 19791 ("Hamil- 

" Forty-five percent (45%) of home tapers tape for educational purposes, such as lectures. Yan- 
kelovich Survey at 14, 37-38. 
'H. 

* Id. More than eight out of ten home tapers 182%) have recorded something other than prere- 
corded music. Yankelovich Survey at 37, 

• See Computer and Business Equipment Software and Telecommunications Industry 1960- 
1995, Industry CharacteriaticB Report (1986). 

"> Assuming that each of the 1S,000 members of the National Shorthand Reporter Association 
transcribed forty hours a week, they would, alone, account for thirty-six million hours of taping 
of non-copyrighted material on an annual basis. 

corded tapes, Yankelovich Survey at 17, 63-68, The CBS Survey confirmed that 75% of blank 
tape buyers use recording equipment to make "custom" tapes. CBS Survey at 1 1, 

"Yankelovich Survey at 17, According to the Warner Survey, respondents spent over half 
(56%) of their time taping making records of selections. Warner Survey at 15, 



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Simply stated, the great majority of home-made tapes do not displace sales of 
prerecorded music because they are not mere duplicates of or substitutes for any 
pre-existing records or tapes. They are unique creations assembled by the taper, fre- 
quently from the tapers' own collection of records and prerecorded tapes. 

Indeed, the fact that home taping does not compete with sales of prerecorded 
albums was recently highlighted in news stories about a new system in which some 
record companies would make a limited menu of individual performance available 
for taping, in record stores. The Wall Strvet Journal (May 5. 1987) quoted an official 
or Warner Special Products as saying, "We don't see [this service] as a replacement 
for merchandise in the store, but as a replacement for home taping." 

In other words, the promoters of this system recognize that home taping is not a 
commercial threat to album sales. As one of the system's creators was quoted in 
Billboard (May 9, 1987), "Instead of looking at home taping as something to be out- 
lawed, look at it as a service to be provided," 

Tapers also seek portability, convenience, quality, and availability through home 
taping 

Portability is another major reason for home audio taping. Tapers want music 
they can take where records will not go. Fully 75% of tapers cite portability, and 
57% cite convenience, as "very important" reasons for sometimes using home-re- 
corded tapes instead of records. ' " 80% of all home tapers own one or more portable 
tape players, such as car stereo system or Walkman-type players. 

Even when the demand for portability is met by prerecorded tapes, however, the 
tapes on the market have not satisfied the needs of home tapers. Over half (51%) of 
home tapers consider the longer playing time of home-recorded tapes a very impor- 
tant reason for preferring them to prerecorded tapes. '^ The better quality and 
greater durability of home-recorded tapes are also important to home triers." One 
would think that the recording industry would be quick to embrace the DAT 
format, which promises to make its prerecorded cassette releases the best quality 
achievable, than the worst. 
People do not tape just to save money 

Saving money is not the principal motivation for home taping — notwithstanding 
the bald claims of the recording industry. Home tapers record primarily to obtain 
products or characteristics not otherwise available: tapes of customized selections. 
portability, and better quality. 

Even when comparing home-recorded to prerecorded tapes, tapera do not list cost 
as the primary reason for making their own tapes. That is, virtually all tapers 
(99%) who mentioned cost also listed other reasons for preferring home-recorded 
tapes to records or prerecorded tapes. ' * The idea that the DAT must be kept off the 
market on an emergency basis, to avoid a flood of home taping, is especially at odds 
with experience. Is anyone going to spent $1,500 for a first-generation DAT just to 
save a few bucks on albums? 
Half of ail home tapers of prerecorded music are made from the taper's own records 

Just over half (51%) of all music tapes made at home were made from the taper's 
own collection of records and prerecorded tapes. In each of these cases, the taper 
kept both the original and the copy." Two out of three (66%) home music tapers 
had made home-recorded tapes from their own collection in the six months prior to 
being surveyed.'* The Warner Survey found that a similar share — 45% — of home 
music tapes are made from records and tapes in the taper's own collection." 
Home audio taping stimulates purchases of prerecorded music 

One of the most interesting facets of home taping is that it often stimulates new 
purchases of prerecorded music. The survey data dramatize this fmding. The majori- 
ty of home tapers (55%) often or sometimes buy a record after they have made a 



" Yankelovich Survey at 19, 87-9 

I'M 

" Yankelovich Survey at 2'. 

" Yankelovich Survey at 21 

"M at 22, 52. 

'• Warner Survey at 22, 



.vGoogle 



37 

home tape of the whole record or selected songs or portione of it."* That taping and 
purchasing are symbiotic activities is confirmed by the fact that over half of all 
home music tapes are made from a taper's own collection. 

Many people buy records and compact discs just so they can tape them for their 
cars, their personal stereo, or their office,^' For the home taper, a key component of 
the value the purchase price is that the prerecorded music can be taped; by taping, 
the consumer can both preserve the music purchased, prolong the period during 
which the music can be enjoyed, and expand the area in which it can be played. The 
Warner Survey concludes that, buying and taping both reflect a more general com- 
mitment to music. That is, the more one sees music as important, the more likely 
one is to engage in both buyii^ and taping.'" 

Home audio tapers who buy prerecorded music are much more likely than per- 
sons who buy but do not tape music to rate music as a "very important" element in 
their lives.'^ Interest in buying music, records, and prerecorded tapes, and home 
taping reinforce each other, with each behavior building on and gaining momentum 
from the others.'* Home tapii^ and buying prerecorded music apparently go hand- 

The heaviest home music tapers illustrate this point most dramatically. Those 
who tape the most prerecorded music, on average, are also the largest purchasers of 
prerecorded music. According to the Roper Survey, based on reports from all adults, 
those who record music on tape are much heavier buyers for their own use of 
records, pre-recorded tapes and blank tapes than are non-recorders. . . . Roughly 
twice as many adult tape recorders as non-recorders buy LP records, singles and 
pre-recorded 8-track tapes. Four times as many recorders as non-recorders buy pre- 
recorded cassettes, . . .'* 

Moreover, tapers spend much more money than non-tapers on prerecorded 
music.'* As Arthur H. White, Vice President of Yankelovich, Skelly and White, put 
it in his testimony before the Subcommittee on Courts, Civil Liberties, and the Ad- 
ministration of Justice of the House Judiciary Committee, "In short, those who tape 
also buy, and the more they tape, the more they buy." ^^ This was put even more 
succinctly in an article in Rolling Stone magazine: 

Home tapers aren't a bunch of freeloaders, they're the very people the 
record industry depends on to turn a release platinum .... In essence, the 
record industry is saying that its best customers are its worst enemies.'" 



'" Yankelovich Survey at 16, 45-48. Home taping of borrowed records has introduced two out 
of three tapers (64%l to musical artists or composers whom they discover that they like, and 
well over half 157%! have been prompted to buy records or prerecorded tapes after (aping an 

= ' Yankelovich Survey at 22, 49, 58. The recording industry's surveys confirm that home 
tapers "tape primarily from their own collections," Roper Survey at 3 (tapers' own record and 
tape collections are "the largest single source" of home recordings!; CBS Survey at 12 M0% from 
own collection). 

" Warner Survey at 36, 

" Warner Survey at 33, 35. Those who both tape and buy prerecorded music are more likely 
than others to rate themselves as knowledgeable sources of information alxiuC prerecorded 
music 138% amrmative for taper-buyers compared to 20% for tapes-only/ 18% for buyers-only), 
are more likely to "consider themselves collectors" (51% for tapers versus 17% for non-taperal. 
and to discuss prerecorded music with others (38% versus 6% of non-tapers/ non-buyers), 
Warner Surrey at 36-39, Tapers are also substantially more likely than non-tapers to go to love 
concerts (55% compared to 30%), to read about music |62% versus 36%), and to prefer receiving 
records and tapes to other items as gifts (74% versus 40%), Warner Survey at 39, 

'* tnterestii^ly, heavy radio listeners, who might be expected to tape music from the radio 
instead of buying prerecorded music, are in fact more likely than lighter radio listeners to buy 

6 rerecorded music cassettes, by mareins of g%-49% above the average, depending on age. 
IcGavran-Guild Research, "Cassette 'Tapes, Radio and You" (19821 Once again, music listening 
and bu3dng appear to be additive rather than substitute behaviors, 

"• Roper Survey at 6-7, Indeed, eight out of ten (82%) of the tapers surveyed were current 
buyers of records and prerecorded tapes, while only 44% of non-tapers reported purchasing pre- 
recorded music. Warner Survey at 32. According to the CBS Survey, 80% of blank tape buyers 
also purchase prerecorded music. CBS Survey at 6, 

" Although only 31% of record and prerecorded tape buyers are tapers, in dollar terms they 
account for almost half (48%) of the total amount spent on prerecorded music. Warner Survey 
at 32. Heavy tapers own approximately three times as many record albums and prerecorded 
tapes as light tapers. Yankelovich Survey at 16, 61-62, 

" Home Recording of Copyrighted Works: Hearings on HR. i?83. H.R. i?9i. HR. 4S0S, HR. 
5250. H.R. iiSS, and H.R. 5705 Before the Subcomm. on Courts. Civil Liberties, and the Adminis- 
tration ofjMlice of the House Comm. on the Judiciary. 97th Cong., ad Sess. 1040 (1982) (state- 
ment of Arthur H. White). 

" "The War Against Home Taping," Rolling Stone. Sept. 16, 1982, at 59, 64. 



wnvGoosle 



Recording technology contributes significantly to the recording induelry 

The campaign to depict technology as the enemy of the creative community— a 
characterization brought to its final extreme in the all-out attack on DAT — defies 
economic reality. The facts show that home taping technology has created a billion 
dollar annual prerecorded tape market for the industry. Many key retailer and 
record company executives do recognize the valuable contribution that home record- 
ing technottwy has made to their industry. As Rusa Solomon, President of Tower 
Records, said in an interview: 

[I]f you didn't have the home-recording business, you wouldn't have 
Walkman machines. In other words, the tape technology that came out cf 
the recording machine resulted in the portable playback machine and the 
automobile machine, which created an enormous market for us.^* 



THB RECORDING INDUSTRY SURVEYS PAIL TO PROVE THAT HOME TAPING HAS AN AOVEB9E 
IMPACT ON COPYRIGHT OWNERS 

To support its claim that sales are displaced by home taping and that the impact 
of such behavior on the industry is negative, the recording industry has rested on 
two studies— the Warner Survey of 1982 and that undertaken by Audita & Surveys 
in 19S3 — and two analyses by Dr. Alan Greenspan based on the data from those sui^ 
veys.'" The studies and analysis, however, (1) ignore entirely the stimulative impact 
of home taping behavior on the purchasing of prerecorded music; (2) disregard the 
benefits to copyright owners and the entire creative community from recording 
technology; (3) assume that taping is a substitute for the purchase of prerecorded 
music when the data demonstrate that it is not; and (4) are so riddled by methodo- 
logical and analytic errors as to be completely unreliable as a basis upon Congress 
can or should determine to burden home tapers. 
The net effect of home taping on the recording industry is beneficial, not harmful 

With its tunnel vision on the purported evils of home taping, the industry never 
looks at the whole home taping picture— made up of allegedly displaced sales and 
the substantial sales that are stimulated by the availability of home taping. Thus, 
neither the industry nor Dr. Greenspan has ever tried to measure the net impact of 
home taping. " ' 

Dr. Greenspan has fiatly asserted that "home taping should be viewed as an alter- 
nate means of acquiring recorded music," '^ With this bias, he then estimated that 
more than two-fifths of home taping was in lieu of the purchase of prerecorded 
music in 1982. 5' This estimate is credible only if records and prerecorded tapes are, 
in fact, close substitutes for tapes recorded at home. But clearly they are not.^* 



=' M. Goldberg, "The Wisdom of Solomon," Rolling Slant. Nov. 

Rubs Solomon a words echo those of Jan Timmer, now preaidt_. _. 
who commented on home taping technology at the International Music 
1982: 

[Y]ou can't have the blessings of technology without trying to cope also with the unpleasant 
aspects. 1 would, however, suggest that the influence of technolcgy has been positive and atirou- 
lating and the negative aspects, which we all recognize, are not of greater importance than the 
beneficial elements. 

"IMIC '82: The Challenge of Change: Timmer Keys on New Technologym" Billboanl. June 5. 
1982, at 53. 

'0 See Hearings on S. 1758 Before the Senate Comm. on The Judiciary. 97th Cong,. 1st * 2nd 
Sesa. at 920 (statement of Dr. Alan GreenspanI; Video and Audio Home Taping: Hearingi on S. 
SI and S. 175 Before the Subcomm. on Patents, Copyrights and Trademarhs of the Senate Comm. 
n the Judiciary. 98th Cong., 1st Sess. 229 11983) (statement of Dr. Alan Greenspan) [hereinafter 

'* -■ - ' ' -■ - "- leTSpiJ -"' 



" Video and Audio Home T< 



T his April 1982 nor his October 1983 testimony, does Dr, Greenspan integrate tbe 

'■■■■' ' jed music into his analvsis, Althoug 

taping stimulates record purchases, 
s: asking why people bought a record does not adequately probe the aymbiot 



Surveys did attempt Xo ascertain whether home tapii^ stimulates record purchases, it 



behavior of purchasing and taping prerecorded m 

" Video and Audio Home Taping, at 226, 

" Id at 86, 229, 

" In seeking a preliminary injunction against a proposed joint venture involving Warner 
Communications, Inc, and Polygram Hecords. Inc, the Federal Trade Commission argued that 
the recording industry exaggerates the amount of home taping and that consumers do not view 
home taping as a substitute for prerecorded music. See Merger of Warner Unit, Polygram 
Angers 'Troubled Record Industry." Wall Street Journal. Apr, 12, 1981. at 33, The Ninth Cnruit 
Court of Appeals, in issuing the injunction, noted the distant characteristics of prerecorded 

J ]|g]j ,f|g( "prerecorded music and home tapes are not interchangeable." F.T.C v, 

..__..___ ,__ -,n^„,. ""hCir, IP"" 



Womer Communicaiiom. Inc.. 742 F, 2d 1156, 1163 (9th Cir, 1984), 



,vGoosle 



So first, the record industry's studies should, but do not, exclude sales that cannot 
be a substitute for prerecorded music. Further, the industry surveys and Dr. Green- 
span's analysis do not appropriately discount all taping done from one's own collec- 
tion of records and prerecorded tapes; this music has already be bought and paid 
for. 

The industry surveys do not even address the various uses to which tape recorders 
are put by businesses or educational institutions.^' Thus, the surveys consistently 
misstate the impact of home music taping by greatly exaggerating both the actual 
amount and its proportion to overall audio taping. 

Moreover, the estimates of home audio tapii^ are based on data that are grossly 
defective. First, the industry's own estimates of sales lost due to home taping have 
fluctuated dramatically over the years and are, at best, woefully uncertain.'* More- 
over, the industry is asking decisionmakers to believe the incredible— that the 
number of albums of music taped in a survey year is substantially in excess of the 
known amount of tape sold in that year. The Audits & Surveys estimates of home 
music taping is two to three times larger than the amount of tape sold," 

Furthermore, the industry calculations never even take into account the substan- 
tial quantity of cassettes sold to businesses for taping other than copyrighted music. 
If the recording industry surveys had taken this number into account, there would 
be an even more striking disparity between the tapes actually sold and the amount 
of music that the industry claims is taped at home.^^ 

In addition to being grossly exaggerated by overestimates of home taping, the esti- 
mates of displaced sales, (based on the Audits & Surveys data) are also inflated by 
serious methodological flaws in survey procedure. First, the methodology violated a 
basic principle of market research: it asked people to make hypothetical buying de- 
cisions by asking whether they would have bought a record or prerecorded tape had 
they not been able to make a tape and, if so, how many they would have bought had 
they not been able to tape. It is impossible to obtain reliable data from questions 
that call for entirely speculative responscB, People are always more willing to say 
they will spend money than they are actually to spend it.^* 

A second problem with the Audits & Surveys approach to estimating lost sales is 
that it invited respondents to say that they would have purchased an album of a 
tape for which no album either was available or could, in fact, have been pur- 
chased.'" 

Third, Audita & Surveys also asked people how many records or prerecorded tapes 
they would have purchased had they been unable to tape. It is incredible that 
people would have bought multiple copies of the same recording if they could not 
have made their own tape. To count each of these multiple copies as a displaced sale 

"' A very aubstantial percentage of the audio recorders sold in the U.S. is cDmsumed by buai- 
aeesea. Many businesses, particuiarly small-scale buainesBes, purchase recording equipment from 
ordinary retail storee. Consequently, hardware destined for business use cannot be distinguished 
from that destined for home use. 

" In 19SZ, Dr. Greenspan estimated that loet record sales in 1981 were approximately tWO 
million. Hearings on S. 1758. at 920, Based on the Audits & Surveys data, he opined only a year 
later that losses had risen by over £550 million, to over |1.4 billion. See Video and Audio Home 
Taping, at 229. The Warner Survey, uflinj 1980 data, estimated lost sales at between $608 mil- 
lirai and $2.85 billion annually. Warner Survey at 40. Moreover, ever since 1982, the recording 
industry's coalition has cited the work of Dr. Greenspan and othera to prove that home record- 
ing puohea the price of prerecorded records and tapes up. On the very same occasions, Dr. 
Greenspan himself has testified that home recording pushes the price of prerecorded records 
and tapes down. 

" See Video and Home Taping, at 419. 420-21 (statement of Nina W, Cornell, President, Cor- 
nell, Pelcovits & Brennerl. 

" It is, of course, possible to re-record on audio tape. Nevertheless, this practice means tliat 
many tapes are kept for only a short time. Buried in a footnote ' " 
the notation that his estimates of displacement are based on a s 
chased in 1982, Video and Audio Home Taping, at 90 (Table 5, r 

erased and used more than once, as seems likely. Dr. Greenspan s consistent assumption that 
home taping displaces sales is clearly false, 

" Asking a respondent who tap^ a record that he or she already owns how many copies 
would iiave been purchased had taping not been possible, invites respondents to say that they 
would have liought one or two more addilional copies of a record already in their collections. 
Such questions— and responses — defy common sense. 

'" Thus, Audits & Surveys invited unreliable responses. According to its report. 40 percent of 
all music tapes are made from radio, concerts, and from home-recorded tapes. Audits & Surveys 
at 9, As many of such tapes are not available, or have some special value to the taper, 40 per- 
cent of the decisionB respondents were invited to make were purely speculative, with no ground- 



ivGoogle 



^ 



40 

ie to demonstrate further the exaggeration of the estimate of lost revenues from 
home taping. 

A fourth problem with the methodology was that it presupposed that individuals 
would buy an entire album even though they only taped a selection from that 
album. Audits & Surveys counted each "selection" taped as a lost album sale.*' 
And, from the information available, it appears that one third of the total estimate 
of displacement is from such responses. 

Fifth, the survey report of the RIAA releases no data on how many tapes were 
made from a respondent's own collection. Dr. Greenspan nevertheless estimates that 
42 percent of taping from records already owned by a taper would have resulted in 
purchases of additional copies.'^ From this, and other data, he derives his over-esti- 
mates of sales displaced by home taping behavior. 

Aside from the statistical flaws with respect to both the amount of home taping 
and estimates of displacement based thereon, a major underlying methodolc^cal 
difficulty with the Audits & Surveys approach is the novel manner in which the 
data were collected, through in-home visits. The validity of the data gathered with 
respect to home taping depends entirely on whether the interviewer asked for — and 
was shown — home recorded tapes containing other than prerecorded music. There is 
no indication that each and every type of home recorded tape was produced, wher- 
ever located in the home. The interviewer asked only about "home recorded tapes," 
not reminding the respondents of the wide range of possible uses in addition to 
taping music; nor is there any suggestion that the interviewer asked about locations 
where non-music tapes might be found. 

Moreover, the weekly telephone surveys used by Audits & Surveys also were de- 
signed to produce results that overstated the amount of home music taping. The 
questions focused on the taping of music; it is quite possible, therefore, that subse- 
quent interviews with telephone respondents were with individuals who recorded 

Similarly, it is not surprising that Audits & Surveys did not obtain accurate infor- 
mation with respect to the stimulative effect of home taping on record purchases. 
Respondents were not asked whether they bought records to make them portable, to 
preserve them, or to make selection tapes. Thus, the estimate of displacement over- 
states the impact of taping on the purchases of prerecorded music. 

That the Audits & Surveys statistics are imprecise was acknowledged openly by 
the report, which conceded that the data collected could be interpreted to arrive at 
an entirely different breakdown between copyrighted and non-copyrighted materi- 
al— 64% to 35%, when measured by the total amount of taping, in contrast to 84% 
to 16%, as derived by the audit approach.'^ Although the report speculated as to 
the differences between these two breakdowns, there is no reason to do so. The data 
were collected — the record industry still refuses to release them.'^ 

At bottom, Greenspan's analysis is so far off base that the $1.5 billion figure, pro- 
moted by the recording industrv for several years now, might as well have been 
pulled out of air. When one adijs the greatest omission — the failure to account for 
the benefits of the recording technoli^es^the 1.5 billion dollars could just as easUy 
reflect dollar gains— not losses— from home taping. As Tom G. Palmer observed in 
the March 24, 1987 Wall Street Journal, magnetic tape has become part of a system 
of portable and automotive players, centered around the home tape recorded. This 
system exists only because home recorders exist. It is virtually undeniable that the 
Walkman, the car stereo, and the home tape deck itself have combined to greatly 
enhance the demand for prerecorded music. If all of these tape recorders, and the 
tape players they have spawned, could be collected from consumers and dropped in 
the Pacific Ocean, would the recording industry really be better ofi? 

[O WAV CURES THE OVER-BHEADTH OF ATTACKING ALL HOME TAPING 



'■ Audits & Surveya at 29. 

" Video and Audio Home Taping, at 228-29 (atalement nf Dr. Alan Grecnapan). 
" Audits & Surveys at 10. 

"The failure to release certain critical information makes the Audita & Sun , 
tirely inadequate as a basis for important public policy determinations For example, 

«i..^..„i. ji „, ; ; J ,„ .1 — i-f e „ 1.; .1 * i„j 1 — !,.*_„•-.., 



rhe^iei 



lurvey inquired as to the ownership of records that were recorded by home Capers — 

owned by the taping household or by someone outside that household— the results have 
vn released. Nevertheless, answer? to that question are crucial, both for determining 
record had they not been able to tape it and as to the 
of the various home taping practices. 



ivGoogle 



41 

is that this would avoid the immense unfairnesB of attacking all home taping, be- 
cause about half of all home taping is of something other than prerecord^ music. 
This unfairness is avoided, the industry claims, by implanting a "smart" chip that 
attacks prerecorded music only. 

The rationale for a "smart" anti-taping chip works only in theory, not in practice. 
It ignores the fact that people simply won't buy new, and initially expensive, tape 
recorders if they are less capable than those already on the market, and particular- 
ly if they can't be used to tape records they have bought themselves. Therefore, the 
reality of the anti-taping chip is that it is a ball-and-chain that simply sinks the 
DAT. And if the DAT sinks, all of its potential personal uses, that have nothing to 
do with prerecorded music, go down with it. 

Thus, the anti-taping chip proposal, particularly as applied to DATS, might be the 
most overbroad anti-home taping proposal yet. Here are just some of the potentially 
exciting uses, that have nothing to do with prerecorded music, that would go down 
with the DAT: 

Demonstration tapes by bands that can't afford professional studios- 
Home music practice. 

Composition and performance, electronically or otherwise, involving over-dubbing. 

Use with persona! computers and for other data storage— a 120 minute DAT tape 
holds almost 1 gigabyte of information. 

Recording video information — already, a prototype video camcorder has been 
shown, using OAT tape cassettes. 

In short, the DA'T's greater capabilities n 
tivities that don't involve prerecorded mus 
killing the DATA as a viable consumer product, would keep DATs out of the hand's 
of the people who want to put them to such uses— or, at the very least, would make 
DATs much, much more expensive, because they never would become mass market 
items. Therefore, the anti-taping chip requirement would be as much, and possibly 
more, of an overbroad tax, on the populace at large, as other proposals that would 
tax or curtail home taping. 

HOME TAPING HAS NOT CAUSED THE OECUNE IN NEW EELEASES 

The third chat^ against the DAT is that home taping, by supposedly displacing 
record sales, has caused industry new releases to decline 43% since the peak year of 
1978. But in its trade press, the industry has acknowledged, time and again, the real 
reasons new releases are down: in 1978 the industry was flamboyant, short-sighted, 
and totally unprepared for the down cycle that (like many other industries) it expe- 
rienced from 1980 through 1982. 
77ie recording industry is enjoying new efficiency and record profitability 

One fmds a guide to the true state of the recording industry in the (attached) arti- 
cles from the industry trade press. On a single page in the March 28, 1987 issue of 
Billboard, one headline says, "House Subcommittee OKs DAT Copy-Code Provi- 
eionsi" another headline says: "Polygram's Acts Bring in Banner Year; Global Prof- 
its Soar to $120 Million in '86." The article says 1986 was "the best-ever 12-month 
period in the company's history," and that Polygram has joined WEA and CBS in 
having annual grosses over $1 billion and profits over $100 billion. It then quotes 
London-based Polygram senior executive vice president Leonard Fine as to why this 
company is so profitable: 

Elver since the days of our discussions with WEA [a merger blocked by 
U.S. antitrust authorities], we've been going through a major restructuring 
process. . . We've lowered our break-evens and substantially reduced our 
whole infrastructure cost. 

We're leaner, better-staffed, and better-n 
countries have been trimmed down to siz 

ly 

Mr. Fine said that 1986 results are "a sustainable profit; it's not just a flash in 
the pan." 

I have also attached to my statement articles detailing the extraordinary results 
that have been achieved by the CBS and WCI (Warner) record groups in 1986 and 
the first quarter of 1987. The Billboard articles refer to the 1986 CBS results as "the 
highest revenues and income [ever] generated by a record company," and to C!BS' 
first quarter of 1987 as its most profitable in history. They say that Warner's three 
domestic labels "set a new collecUve sales record." 

And I have appended an article from the May 18, 1987 issue of Forbes, which 
refers to record companies as "gold mines." 



ivGoogle 



42 

mplying that record companies are 

^ „ What we are auggesting Ib that the 

very factors cited by the recording industry as indicating problems due to home 
taping reflect, in reality, efTiciencies that have carried the major labels to new leoels 
of profitability. 

It is also entirely appropriate to consider the present levels of return from the 
marketplaces, whenever the subject ie the adequacy of copyright protection. The 
constitutional purpose of copyright is to encourage creativity, rather than to guar- 
antee any particular rate of return. The spectacular financial results being enjoyed 
by the recording industry indicate that present incentives are more than adequate 
to encourage new investment in prerecorded music. 

When record companies first came forward, in late 1981, pleading for a royalty 
tax on blank tape and recorders, they were by no means reluctant to discuss their 
fmancial results, because they attributed their problems, then, to home tapii^. Now 
that record companies are booming, shouldn't the suppliers of the new hardware 
that their customers have used to give them such record profits get a little credit, 
rather than more abuse? 
New release are constrained by Ike shortage of CD stamping capacity 

In addition to the record industry's new self-discipline, the other major factor af- 
fecting new releases has been the shortage of compact disc stamping capacity. Ever 
since the CD format was introduced by the same companies that manufacture tape 
recorders, the recording industry has consistently underestimated the demand for it. 
New stamping plants, most of them built by hardware manufacturers rather than 
record companies, have been unable to catch up with demand. 

Accordingly, recording industry executives have used the available capacity to 
issue major releases, rather than using the same, limited capacity to issue a greater 
number of more minor releases. Indeed, smaller labels and marg^al artists have 
been squeezed out by the recording industry's shortage of stamping capacity — for 
each mega-hit stamped on CD, there could have been dozens of CD releases by lesser 
known artists, had the capacity been available. In other words, the recording indus- 
try's decline in new releases since the peak in 1978 is much more a matter of supply 
considerations than of dema/id. 

THE FACTS ABOUT A PRERECORDED TAPE BOYCOTT, DUAL INVENTORIES, AND COMHBRCIAJ. 
PIRACY SHOULD BE PULLY DEVELOPED 

Several things about the anti-DAT legislation should draw careful attention from 
a skeptical Congress. Why are major record labels apparently boycotting the prere- 
corded DAT format? Is their true intention to kill the format for competitive, com- 
mercial reasons? Can and will record companies keep their promises to issue a sepa- 
rate inventory of unencoded, copiable recordings? Would the DAT lead to increases 
in commercial piracy, as the recording industry claims? 
The apparent boycott of prerecorded DAT releases 

1 am sure you will agree that the Congress of the United States should not be a 
vehicle for helping major record labels avoid competition from smaller labels. In a 
sense, avoiding such competition is what this legislation is principally about. 

It is ironic indeed that we're beginning to hear objections to the DAT on the (in- 
correct) basis that insufilcient provision has t>een made for production of prerecord- 
ed DAT cassettes. 'This is the old story of shooting your parents and applying for 
relief as an orphan. /( has been executive of some of the major record companies who 
have said they would never license their titles for release as prerecorded DAT tapes. 

One such executive, in a public speech referred to fears that the industry "wall" 
in this respect might be breached, and admonished another major company for sign- 
ing a distribution agreement (not including DAT) with a smaller company that had 
announced it intended to issue albums in the DAT format. Attached to my state- 
ment today are reports from the trade press suggesting that such a boycott is under 
way, indeed, with the assistance of at least one major retailing chain. 

Most recently, the May 11 issue of Television Digest reported from a meet ing of 
the International Federation of Phonogram and Videogram Producers (IFPI), the 
London-based world-wide association of record companies, that five record compa- 
nies, which control more than half the world's production, would engage in such a 
boycott. 

Such a naked, world-wide commercial boycott says much about recording industry 
motivation and tactics with respect to DAT. It means that these companies simply 
have asked the Congress to provide a facilitating device for a conspiracy to protect 
major labels from competition from smaller labels. 



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48 

Prerecorded software duplication is readily auailable 

In addition to itfi apparent insincerity, the char^ that prerecorded software dupli- 
cation facilities will not be available is simply wrong. Attached to my statement is a 
phott^aph and specification sheet of equipment that is already available for real- 
time duplication of prerecorded cassettes. This commercial unit, developed by Sony, 
uses the "master and slave" technique that, until recently, was the only method for 
manufacturing prerecorded video caseettes. A "master" player is hooked up to a 
number of "slave" recorders, so as to produce several tapes simultaneously. 

An even more exiciting prospect is the commercial "contact printer," expected to 
be available in about 1 year (the time necessary for enough DATs to be sold to 
create a large demand for prerecorded software), which will produce prerecorded 
DAT tapes through the phs^ical contact (rather than electronic recording) process 
now used to make many prerecorded video tapes. This machine wil operate at about 
150 times the "real time" speed, so as to make possible the manufacture of prere- 
corded tapes at extremely low cost — lower than the present cost of manufacturing 
compact discs, and perhaps below the coat of manufacturing existing analog prere' 
corded cassettes. 

Indeed, the proepect of a reasonably price prerecorded DAT market clearly ap- 
pears to be a B^niFicant factor in driving major record companies to boycott DAT 
software— at least while margins on CDs remain so high. ** Should the Congress 
play a role in holding off price relief to consumers, through competition, by sup- 
pressing a product that hardware producers, and independent software producers, 
are fully prepared to make available? 

Are record companies sincere about offering encoded and uneneoded inventories? Will 
encoded discs be so labeled? 

The recording industry has suggested, but not promised, that record labels might 
issue a separate inventory or uneneoded recordings, at a higher price, to give people 
the "privilege" of taping their own records. When this idea was first publcily ex- 
plained to leading record retailers, in the speech to which 1 have Just alluded, many 
of them reacted with shock and horror. (Articles quoting their reactions are at- 
tached to this statement.) A separate inventory of every record, tape, disc, and pre- 
recorded DAT tape appears unsustainable — there might be two versions of each 
Bruce Springsteen album, but only at the expense of carrying any version of a more 
minor artiste's release. In my judgment, record retailers simply do not believe that 
the industry will issue dual inventories of more than a few releases, and I think 
they are correct. Moreover, given the criticism, that is now emerging of the effects 
of the CBS encoding, is it even clear that the industry will label or reveal which 
albums it has encoded? 
Piracy is simply irrelevant to DA T 

One other notion Ooated by the recording industry is that the DAT somehow will 
make commercial piracy more of a problem than it is today, and that the CBS chip 
somehow would curtail piracy. This is implausible on its face. Piracy is the unau- 
thorized copying of works and their subsequent commercial sale in competition with 
the original. It is already, and should be. a criminal offense. Once a consumer, 
knowingly or unknowingly, buys a pirated tape, all he needs to to is play it back. He 
doesn't need a recorded of any sort. Pirated tapes are made by professionals, who 
could easily bypass the CBS chip. Indeed, if the record companies really do Intend to 
issue uneneoded versions of each release, all the priate has to do is copy from the 
uneneoded version. 

Our Coalition, from its inception, has asked the Congress to distinguish between 
private, home recording by consumers, for noncommercial purposes, and piracy, 
which is done for completely different purposes and has completely different effects. 
We don't think the recording industry does anyone a service by suggesting that 
home tapers, who are its best customers, who buy the greatest numbers of records, 
tapes and discs, are pirates because they tape to preserve their albums or make 
them portable. 

'" This is not to suegest that the prerecorded DAT will replace the CD— only that its verj 
reasonable price will, if competition ia allowed to nourish, help bring down CD prices. When CD 
players were introducted about 6 years ago, they cost about $1,500 at retail, but can now be had 
for less than tl50. The CD disc was introduced at about $17.99 retail, yet six years later, on 
average, ia still around $15.99. Yet, a CD costs only about $2 more to manufacture than vinyl 



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As the Register of Copyrights has recently teetified, the DAT provision is at vari- 
ance with at least the policy implied in the constitutional "Limited Times" provi- 
sion regarding copyright protection. " Article 1, Section 8, clause 8 of the Constitu- 
tion instructs Congress "te promote the progress of science and the useful arts, by 
securing for limited times to authors and inventors the exclusive right to their re- 
spective writings and discoveries." The balance between the copyright holder and 
the consumer is disrupted by a technology requirement that essentially grants the 
copyright owner the right to prohibit a user of the work from making copies for the 
encoded recording's lifetime. Certainly, a straightforward amendment of "a federal 
copyright statute which purported to grant copyright protection in perpetuity would 
clearly be unconstitutional."'''' Skillful drafting should not be allowed to circum- 
vent the constitution and create such unlimited exclusive rights. 

THE AMBRICAK PRESS ANO PUBUC WANT THE DAT 

Attached to my statement today are only some of the editorials that have been 
written in the nation's newspapers, condemning the anti-DAT legislation as an un- 
warranted attack on progress and new technology. These newspapers include the 
Baltimore Sun, Boston Phoenix, Buffalo News, Cincinnati Post, Cleveland Plain 
Dealer, Kansas City Star, Kentucky Post, Los Angeles Herald-Examiner, Los Angles 
Times. Phoenix Republic, Portland Oregonian, St Louis Post Dispatch, and Wash- 
ington Post. Some of the less well-known newspapers include the Alexandria, Louisi- 
ana Daily Town Talk, the Champaign News-Gazette, the Midland, Texas Reporter 
Telegraph, and the Laramie, Wyoming Boomerang. 

These newspaper editorials really get to the heart of the matter. The Baltimore 
Sun said on May 10: 

What's being said now about digital tape was said before about VCRs. But the 
movies are making big money, at the box office, in video cassette sales and rent- 
als, including re-rentals of favorite Tilnis. What came from Hollywood before is 
now blowing through the record companies' speakers: Hot air. 
The Buffalo News said on April 12: 

Instead of seekii^ ingenious new ways to hit the small consumer, the 
music industry should be pressing for better enforcement of the law against 
the operators of large-scale illegal recording businesses. Those are the real 
predators on the industry, not the small consumer. 
The Kansas City Star said on March 11: 

The Supreme Court has upheld home taping. After many, many hearings 
Congress has not approved legislation to outlaw it. This should be enough; 
the message is that rights of the public should not be curtailed and that 
gains in technology should benefit consumers. 
The Los Angeles Times said on March 27: 

Consumers should be able to purchase these machines with their full ca- 
pabilities, and they should be able to make copies for their own private use. 
Commercial piracy, which is the real problem, can be thwarted in other 
ways. Besides, there is scant evidence that home taping is anywhere near 
the problem that the music industry insists it is. 

Congress should not try to legislate against progress. History shows it 
doesn't work. Nor should it. 
The Phoenix Republic said on April 14: 

Considering that the Hollywood crowd now is making upward of $5 bil- 
lion a year off the videotaping business it once fought so hard, perhaps the 
only protection the recording industry needs is from itself. 

"See Statement of Ralph Oman, Register of Copyrights and ABsistant Librarian for Copy- 
right Services. Before the Senate Subcommittee on Patents. Copyrights and Trademarks, and 
the House Subcommittee on Courts. Civil Lilierties, and the AdminiBtration of Justice, 100 
Cong., iBt Sees, at 19 lApr, 2, 19871 

" Nimmer on Copyright % 1,05[A|, 



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The Supreme Court, in its decision to allow home videotaping of telecast 

movies, was a step in the right direction. The anti-taping house bill is a 

step backward. 

Consumers have been no less outspoken. The June, 1987 issue of Stereo Review 

magazine, on newsstands now, carries a phalanx of letters complaining about ttie 

recording industry proposals. Like the editorials, these letters hit quickly at the 

heart of the matter. Here is the observation of Joseph Cooper, of Santa Bart>ara, 

California: 

"Things are getting curiouaer and curiouser!" exclaimed Alice regarding 
the CBS copy-guard system for audio recordings. "First sound engineers de- 
veloped recording techniques that come ever so near to perfection. Then 
they invent digital recorders that make nearly perfect copies. And Uien, bo 
no will want to make copies with his expensive new digital audio tape deck, 
they propose to spoil the recording they worked on so diligently in the first 

Don t you see, my dear, the White Rabbit explained, "the people who 

buy and copy the popular music won't be able to hear that anything is 

wrong with their records. Only the lovers of classical music will notice the 

missing frequencies, and they are not the ones that record companies are 

worried fdMut! It makes perfect sense." 

In addition, I have attached to this statement copies of letters submitted by small 

record companies, others in the music business, and consumer audio magazines who 

have broken with the recording industry's "party line" about the anti-taping chip. 



Let me be perfectly clear. If the anti-DAT l^islation before these Subcommittees 
is enacted, you will lull a new technology in its cradle. We believe there is no reason 
to stop, limit, or restrictively define technology, and even less justification for the 
federal government doing so for reasons other than health, safety or public welfare. 

There is no precedent for the U.S. Congress to ban a new product on any other 
grounds. Congress should not depart from this very wise precedent with this anti- 
DAT, anti-technology le^lation. We urge you to examine this subject very thor- 
oughly and in detail; as you do, the anti-DAT legislation will become even less de- 
fensible and more outrageous as public policy action. 

Thank you. 

MiNTZ, Levin, Cohn. Fekris, Glovsky and Popeo, P.C, 

Washington, DC, July 10, 19S7. 
Antionette Cook, Esq. 

Subcommiltee on Communications, Committee on Commerce, Science and Transporta- 
tion, U.S. Senate. Hart Senate Office Building. Washington, DC. 
Dear Ms. Cook^ Please fmd enclosed my responses, on behalf of the Home Record- 
ing Rights Coalition, to the Subcommittee's questions. 

1 would be happy to answer any further questions or provide additional informa- 
tion as the Subcommittee requests. 
Sincerely, 

Charles D. Ferris. 
Enclosures. 

Response op Charles D. Ferris to Questions of Senate Subcommftte Members 
Question 1. Mr. Ferris, you claim that the legislation before us today would effec- 
tively kill the DAT as a format. If prerecorded DAT's were available, why wouldn't 
consumers purchase them just as they do prerecorded audio cassette tapes and 
videoa? 

Answers. The examples given in the question are the best illustrations of why the 
DAT will be accepted as a consumer product at Tirst mainly through its recording 
ability, even though its ultimate exploitation will be primarily through playing 
prerecorded matenal. The audio cassette tape was developed by Philips as a busi- 
ness dictation format. It was refined by "hardware" manufacturers as a musical re- 
cording format, but was still resisted by "software" proprietors. Indeed, after the 



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Dolby "B" noise reduction syBtem was perfected, recording companies would not 

apply it to their precorded tapes until its utility was demonstrated by an American 
hardware manufacturer, Advent Corporation, that produced a special line of prere- 
corded tapes demonstrating this process. 

It was only after the recording induetry followed its customers int« tape technolo- 
gy that the market for prerecorded audio cassettes bloomed. People made recordings 
<rf their home albums, to play on their car stereos and on their portable players. 
Later, they filled the demand for such recordings by buying prerecorded tapes, even 
though the quality of such tapes is still usually inferior to that of recordings made 
at home. Without home recording, the audio cassette format simply would not exist. 

The experience in video is even more dramatic. At about the time video recorders 
were introduced, other video systems were introduced that did not provide for home 
recording. Consumers emphatically chose the VCR, because they wanted the free- 
dom to record programs for their own personal use. As other systems withered away 
or failed to grow, the VCR became a mass product, creating a huge market for pre- 
recorded software. Now. this market is worth more than $5 billion annually — more 
than the proceeds from theatrical movie exhibition. None of this would have been 
possible had VCRs lacked the ability to record. 

Question 2. Mr. Ferris, it is a fact that American intellectual property law does 
accord the creators of music copyright protection. It is also a fact that those creators 
are not compensated when one person tapes a recording and gives the tape to an- 
other person. Why shouldn't the creator receive some sort of compensation frata the 
person who makes the copy? 

Answer. Neither the copyright law nor the constitution provides for compensation 
to copyright owners for every single use of copyrighted material. For that matter, 
neither does the patent law, as construed by our courts (even though the scope of 
patent monopolies is greater than the scope of copyright). What the copyright law 
provides is a reasonable opportunity for the copyright owner to be compensated for 
placing his works in the stream of commerce, so that the incentive to create is 
maintained, in accordance with the constitutional purpose of copyright protection. 

In the absence of a right to compensate for each use, it is an open question wheth- 
er there is any right being infringed in the situation posited, and a further question 
whether there is any means by which the government could or should provide for 
enforcement of such a right. As to whether or not such a fight should exist, it is by 
no means clear from the example given that this transaction harms, rather than 
helps, the copyright owner. There is no way of knowing whether this transaction 
has displaced a potential sale that would have generated revenue to the copyright 
owner. There are many indications, however, that this transaction is of financial 
benefit to the copyright owner. First, the fact that friends would be interested in 
this music might have stimulated purchase; in the absence of such a consideration 
perhaps neither party would have made any purchase. Second, our surveys have 
shown that this sort of sharing very often has a promotional effect similar to the 
performance of recordings on the radio. Indeed, it has been said by some artists who 
cannot count on radio airplay that they hope to become known through people hear- 
ing tapes of their recordings under such circumstances. And indeed, the surveys 
showed that people very often buy an entire work of an artist or composer after 
receiving a tape of only part of it. or buy another album of that artist or composer. 

Even assuming that the sort of taping mentioned in this question would generate 
a right, its vindication through legislation would be impractical or unfair. Most 
home taping is from prerecorded material that the taper already owns. The taper 
keeps both the original and the copy. Another large segment of taping behavior is 
from radio broadcasts, which the recording industry considers promotional. Further- 
more, even if one accepted the premise that a copy made for another is less legiti- 
mate than a copy made for oneself, there is no way that an anti-taping chip can 
distinguish among copies intended for the owner of the prerecorded material and 
copies intended for a friend. Therefore, like royalty tax proposals, the anti-taping 
chip is incapable of fairly or effectively discriminating among different types of con- 
sumer home taping. 

Question 3. Mr. Ferris, in your testimony you state that the most common use of 
audio tapes is to tape from albums the person already owns. Do you have any fig- 
ures on the number of people who borrow albums belonging to another person and ' 
copy them or give people copies of selections on albums they have purchased? 

Answer, Yes. Attached ' please find a copy of the report of Yankelovich, Skelly 
and White on audio home taping practices. Please see pages 5, 16, 47-48, 54. 

' The attachment was not reproducible and is in Che Committee tiles. 



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47 

Question i. Mr. Ferris, if it is true that the most people tape from albums that 
they already own, what is the purpose of dual-well recording machines? 
Answer. 1. Make a copy to keep in the car, boom box or Walkman, 

2. Edit out undeeired songe from albums. 

3. Eklit together selections from several prerecorded tapes. 

4. Edit together favorite material from CD, vinyl albums, and prerecorded tape. 

5. Guard against destruction of prerecorded tapes by "tape-eating" recorder/ 
player. 

6. Sequential play (up ti> 3 hours continuous play, unattended). 

7. Demonstration tapes by amateur or semi-pro bands. 

8. To duplicate childrens' performances for all the relatives who want them. 

9. Same uses as single well decks. The fact that people buy a dual well deck does 
not mean that they wilt use it exclusively, or even at ail. in the dual well mode. 
Often, these decks are included in all-purpose systems. Often the predominant or 
only use will be playback of prerecorded material. 

When dual well audio decks were introduced, sales of prerecorded audio tapes 
were only a fraction of those of vinyl record albums. If it were true that dual well 
decks were used only to copy prerecorded tapes in ways that displace sales, the pre- 
recorded cassette would have shriveled as a commercial product. However, exactly 
the opposite happened. Today, the prerecorded cassette is the primary revenue pro- 
ducer for the recording industry, and outsells the vinyl album 3 to 1. 

Question 5. Mr. Ferris, you contend that DAT does not allow perfect digital-to-digi- 
tal clones to be made. However, isn't it true that the DAT recordings are far superi- 
or to anything currently available and that the difference between a DAT recording 
and the original is practically undiscemible? 

Answer. The DAT offers many opportunities and improvements as a format. In 
terms of absolute sound quality, however, it is not true that DAT recordings are 
"far superior" to anything currently available. For less financial outlay than the 
current retail price of DATs in Japan, consumers in the U.S. can make similarly 
high quality recordings by any of the following means; Using any VCR with an out- 
board digital "PCM modulator;" Beta Hi-Fi or VHS Hi/Fi audio-only recording; a 
"high end" analog cassette deck; or an open-reel analog audio recorder. The major 
advantages of DAT over these formats are in convenience, compactness, and poten- 
tial for prerecorded product, rather than in absolute sound reproduction. 

The difference between the sort of DAT recording that the format allows and the 
original is about lOdB, a measurable increment in signal to noise ratio. Whether 
this increase in noise level is audible depends on the type of music, the sensitivity of 
the listening system, the amount of environmental noise, the relative loudness of 
the passages in question, and the amount of noise already on the recording. The 
alight increase in noise attendant to a home recording on DAT gives an absolute 
advantage to prerecorded DAT tapes, which will be able to utilize the full capacities 
of digital recording and playback. In general, however, we have never seen any posi- 
tive relationship between the Fidelity of the music system and the "damage" alleged 
from home recording. In our view, the case against home recording is primarily an- 
ecdotal, and springs from stories about "kids" trying to save money by making 
copies on inexpensive equipment. This has nothing to do with DAT. 

Question 6. Mr. Ferris, it it true that the Japanese manufacturers have developed 
DAT machines capable of digital-to-digital copying? 

Answer, Before the DAT Conference standard was finalized and accepted, manu- 
facturers built various prototypes taking various approaches. We do not know the 
capabilities of any such particular machines. However, all machines that have been 
offered for sale observe the protections against digital-to-digital copying contained in 
the DAT Conference standard. 

Question 7. Mr, Ferris, can't the digital-to-digital copy prevention code that was 
agreed to at the DAT conference be circumvented by connecting the DAT machine 
to your receiver, (thorough digital-analog-digital copying)? 

Answer, Engaging in digital-analog-digital copying does not "circumvent" the 
DAT conference; such copying is deliberately left unaffected by the DAT Conference 
in order to preserve the basic consumer right to record for private, non-commercial 
purposes. It is not possible by the means described in this question, however, to 
make a digital-to-digital copy. Even when the output from a digital source such as 
prerecorded DAT is fed straight to a digital amplifier, the DAT Conference specifica- 
tion requires that any such 'outboard device pass along into its digital output the 
flag code that prevents digital-to-digjtaJ copying. Therefore, even though the connec- 
tion would be through such an amplifier, the fiag code would still be recognized by a 
second DAT and digital-to^igital copying would oe defeated. 



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48 

Question 8. Mr. Ferris, have the Japanese manufacturers agreed in writing to re- 

Siire the d^tal copy prevention code in all of the DAT machines exported to the 
nited States? 

Answer. Manufacturers in Japan have assured government officials that they will 
comply with the dintal-to-digital proviBions of the DAT Conference standard with 
respect to export of DATs <and in other respects as well). 

Question S. Mr. Ferris, do you agree that the distortion problems caused by the 
CBS copy-code scanner can be minimized by the engineer encoding the recording? 

Answer. No. Any attempt by a recording engineer to minimize distortion by 
switching or phasing the encoding in or out mil itself create "transients" (distortion 
attendant to sudden changes such as switchii^) that by themselves add distortion to 
Uie signal. For a thorough discussion of the inevitfdiility of distortion from a system 
such as CBS's, see the article by David Ranada in the July High Fidelity magazine 
(copy attached).^ 

Such attempts also would probably degrade the signal to noise ratio of the master 
tape. It is unlikely that a recording engineer would be able to do such switching 
while the live performance is being first recorded. Therefore, such switching would 
entail extra stages of re-dubbing. Since, as we understand it, the actual encoding 
circuitry of the CBS filter operates in an analog domain, even a "pure digital" re- 
cording would pass through an analog stage when subject to the CBS encoding, so 
would suffer in signal to noise ratio. Adding additional stages in order to moderate 
the distortion of music would mean passing through an analog stage an additional 
time or several times, increasing the noise each time. This affect would be in addi- 
tion to the "transients" created by the switching process. 

Senator Inouye. Why do you not play the music. Thank you very 
much, Mr, Ferris. 

Before proceeding, I would like to assure all of you, your full 
statements will be made part of the record. 

Without objection, so ordered. 

We have a very important vote going on at this moment. It is a 
cloture vote, and we want to get the business on the road, if you 
know. So if you do not mind, we would like to take a short recess. 

But before I do, are you putting that equipment in a record also? 

Mr. Ferris. If that is your pleasure, Mr. Chairman. 

Senator Inouye. Without objection, it will be received. 

[Recess.] 

Senator Inouye. The Chair recognizes Senator Gore. 

Senator Gore. Thank you very much, Mr. Chairman. I want to 
echo the sentiments you expressed when these two witnesses came 
to the table. They are both good friends, and this is quite an inter- 
esting experience to see such able advocates squaring off at the wit- 
ness table. 

Mr. Ferris, I was interested in your statement when you said 
that you pointed with pride to the machine here, and claimed that 
it was mighty good, that it contained an analog circuit which de- 
graded the quality of the recording. 

Is that an admission by the manufacturers that it would be a se- 
rious matter if it did not degrade the quality of the recording? 

Mr. Ferris. No, Senator Gore, it was in my mind much more of a 
recognition, by the manufacturers, of the reality stated to them by 
the recording industries, worldwide, that they would boycott this 
machine of their software unless they agreed to something that 
would degrade the quality of the copy digitally that could be made. 

And as Mr. Herman in his t^timony said, that there is no soft- 
ware or recordings available for these, therefore, they can only 
tape; they can only copy. 

' The article was not reproducible. 



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49 

Well, it is because his companies have stated, even up to now, 
that they are going to withhold software from the distal-audio 
tape machine unless it has a chip in it that will prevent it from 
recordji^. 

So to some degree, it was a recognition of that united front of the 
recording 

Senator Gore. In return for their agreement to what? 

Mr. Ferris. What they did is, they uniformly agreed to design 
these machines to 

Senator Gore. No, no, in return for — did the recording indus- 
try — you stated in your testimony that there was a massive agree- 
ment, and everybody shook hands, and all the problems were re- 
solved. 

What exactly did the recording industry agree to? 

Mr. Ferris. Several dozen companies, and I am not certain of 
their composition, but they were in the industry worldwide, both 
software and hardware, met and made this agreement, which is the 
so-called DAT Conference, which is the agreement that said, the 
design of eill digital-audio tape machines will not permit a digital 
copy of a digital source of music. 

Senator Goke. The way you use that phrase, the DAT Confer- 
ence, I can almost see it in the history books. 

Now, you give the impression to the subcommittee that at this 
historic conference all of the problems were resolved, and there- 
fore, there wouldn't seem to be much point in going forward. 

Mr. Berman, did the industry you represent agree, as Mr. Ferris 
tell us, or as he gives us the impression you agreed? 

Mr. Berman. No, Senator Gore, we have not. To my knowledge, 
we were not a party to it. 

The DAT Conference standard, the so-called flag code, the fact 
that the digital-audio tape recording has a different sampling rate 
than a compact disk, this has nothing to do with record companies. 

I really do not know where all of this comes from, I would like to 
think that it comes from a recognition that the interests of the 
copyright owner in some way should be protected. 

Obviously, it does not come from that. It comes from some imagi- 
nary set of circumstances Charlie has conjured up. But beyond 
that, I v/sait to point out to you that Charlie has already testified 
that he has advised his clients that it was unnecessary to do those 
things, to protect the copyright owner. 

And so I do not find a whole lot of comfort in that. 

Senator Gore. What about the asssertion that this analog circuit 
d^rades the quality? Is that easily bypassed? 

Mr. Bbrman. Yes, it is eeisily bypassed. But let me get to the 
question of the quality. If one were to tape from a cassette to an- 
other cassette in the current analog form, you would get, in terms 
of your dynfunic range, the quality, you would go from 65 Dbs 
down to 61 Dbs. 

If you were to tape from a DAT machine to pass through analog 
Eind go to cassette, you would go from 95 to 65, If you were to go 
from a CD and pass it through analog onto a d^tal-audio tape, you 
would go from a dynamic range of 95 to 91. 

In other words, the different between current analog taping, 
which would result in a copy, the dynamic range of which was 61 



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50 

Dbs, in comparison to this process, which would produce a dynamic 
range of 91 Dbs. 

T^at is an extraordinary difference. 

Senator Gore. What about the potential for bypassing the analog 
circuit? 

Mr. Berman. The technol(^ already exists for equalizing the 
frequency sampling rate differences. And beyond that, the flag 
code, which is apparently built into this, can be bypassed through a 
personal computer, for example. 

And once it is bypassed, that copy, the resultant copy, no longer 
carries the flag code, and every subsequent copy can he copied in 
exactly that same form. 

Let me point out one other thing. Senator Gore. This is the so- 
called conference standard. I do not know who has agreed to this 
standard. Certainly the U.S. record compimies have not. 

I do not believe the Japanese record companies have. 

Why could not the standard be negated tomorrow by a decisions 
of the manufacturers? 

Senator Gore. That is a good point. 

Mr. Berman. And is this standard one that would apply to the 
Koreans and the Taiwanese and anyone else who, six months from 
now, would have the low end model. 

Senator Gore. Well, maybe the DAT Conference will not make it 
into the history books after all, if what you say about it is correct. 

Mr. Ferris, you held up the prerecorded tape to your ear a 
moment ago. This DAT tape, smaller in size, higher in quality, do 
you anticipate that the primary attraction of the DAT machine 
would be to play prerecorded DAT tapes? 

Mr. Ferris. Yes, exactly as the predominant use of every previ- 
ous generation of recording machine. 

Senator Gore. Mr. Ferris, we know each other well. Do you 
really believe that? 

Mr. Ferris. I certainly do. I really do. Senator. I think people 
buy hi fidelity stereo equipment to have the freedom to record. But 
the predominant use is as a playback mechanism. 

Senator Gore. Do you think DAT would in that event replace 
compact disks? 

Mr. Ferris. I do not know. 1 do not know. I know some people 
claim that the compact disk is always going to be the favored 
medium for music. 

Others do not. But the market is going to determine that. I 
mean, someone who is going to pay $1,300 for one of these DAT 
machines, which is what they cost now, I think is going to have to 
really enjoy high fidelity music, to be an audiophile, to expend that 
amount of money to do it. 

But those that first bought compact disks players were in the 
same category they were sold for $1,100. And, the VCR was the 
same. It is used now primarily as a playback device, eilthough it 
was purchased initially because people wanted the opportunity and 
the freedom to be able to record from television. 

But now it is predominantly used as a playback device. Blvery re- 
corder or playback machine people buy primeu-ily for its capacity as 
a recorder, but it turns out to be a tremendous opportunity and a 
revenue stream for those that put out the prerecorded software. 



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51 

I see no reason why this machine will be any different from the 
history of those other new technologies. 

Senator Gore, Mr. Ferris, if you went to a college dormitory, to 
use the example which you referred to as a cliche before, I happen 
to think there really are college dormitories, and there really are 
people with tape machines and so forth, if you went to a college 
dormitory and found someone buying a compact disk, and then re- 
cording 100 copies on DAT tapes for the rest of the dormitory, 
would you see anything wrong with that? 

Mr. Ferris. Is there payment involved? Is the person with the 
DAT selling those tapes to other members in that dormitory? 

Senator Gore. Well, lets take two examples. Let us first take the 
example where the person who bought the compact disks is not 
charging for the taping at all. 

The companies that sell the DATs are charging for the machines, 
and the stores are charging for the blank DAT tapes, but the 
person who initially purchased the music is the only person who is 
paying for the music, and that person is not charging the other 100 
people, who then make perfect copies of that music. 

The only money the person who desires a copy is payii^ money 
to your clients, and to retailers, but they are not paying money to 
the other person in the dormitory. But there are 100 copies in the 
dorm. 

Do you see anything wrong with that? 

Mr. Ferris. If there is no commercial enterprise involved, and 
that is a personal exchange as a book can be exchanged or what- 
ever 

Senator Gore. The only commercial enterprise is with your cli- 
ents. The only commercial transaction in this case is with your cli- 
ents. They are the ones who are getting the money. 

But the student who first purchased the compact disk is not get- 
ting money from the people who are paying your clients. The 
person who created the music is only getting money from the ini- 
tial purchaser; the other 100 are not paying the person who created 
the music. They are paying your clients instead. 

Do you think there is anything wrong with that situation? 

Mr. Ferris. No, and there is not anything in the copyright laws 
that says that is illegal. 

Senator Gore. Well, the person who created the intellectual 
property has been deprived of the opportunity to sell that intellec- 
tual property to 100 people who are enjoying it, listening to it con- 
stantly. But they are not compensating the creator of the intellec- 
tual property. 

Does liiat bother you at all? 

Mr. Ferris. No, it really doesn't. Senator, and let me attempt to 
describe what I think is the different dynamic that I think makes a 
difference in the recordii^ and music business. 

Senator Gore. Can you do it briefly? 

Mr. Ferris. I will attempt to. There is a synei^, I think, and the 
data developed over the years before the judiciary committees, as 

?'0u know, is replete with statistics in this area, that people who 
isten to artists and get selections from someone else's tape, even in 
the dormitory, in the environment that you described but did not 
pay for the original, and it was just an exchange of goods, the like- 



wnvGoosle 



52 

lihood of them going out and purchasing the next offering of that 
artist is far greater because they became familiar with that artist. 

Senator Gore. Oh, there will not be a next offering, Mr. Ferris, 
because they have not been compensated for the first one. 

Mr. Ferris. Well, Senator, as you well know, in the music indus- 
try, the music industry gives away its product to radio stations 
free. As a matter of fact, to a great extent, it has gotten into trou- 
ble at times, historically, of going beyond that. 

Senator Gore. That is not true, Mr. Ferris. 

Mr. Ferris. The promotionftl activities that have been developed 
in the hearings before these committees over the past three dec- 
ades have provided examples of attempts to get the music played 
over and over and over again. 

Senator Gore. They pay for each time they play it. 

Mr. Ferris. They pay who for each time they play it? 

Senator Gore. There is a compensation through ASCAP and 
BMI. 

Mr. Ferris. That is for the composers and authors; not the per- 
formers. 

Mr. Berman. I hope this results in a performance right for the 
owner of the sound recording, and that we can count on Charlie's 
support. 

Mr. Ferris. I would definitely support a performance royalty, 
Senator. 

Senator Gore. Let me turn to a different question, because my 
time is running out. The Chairman is very patient. 

I read a science fiction story many years ago about a new kind of 
Xerox machine that could reproduce objects. The ChairmEui joking- 
ly suggested the possibility of putting your DAT machine in the 
record. 

If the technology vras available which could easily and cheaply 
reproduce identical replicas of the machines made by your clients, 
and a student in a dormitory could purchase one and then it could 
be replicated, and 100 identical machines could be created with no 
compensation given to the original manufacturer, would you see 
anything wrong with that? 

Mr. Ferris. Well, it is unreal. I do not think there is a limited 
Federal property r^ht created in that machine. 

Senator Gore. A few years ago, the DAT wsis unreal also, but 
just given hypothetical, would you see anything wrong with that? 

Mr. Ferris. Being able to duplicate these machines? 

Senator Gore. Yes, and have cheap copies of the machines with- 
out paying the original designer and msuiufacturer? 

Mr. Ferris. I think that happens every day of the week, when 
people take these machines, and they will reverse engineer and do 
exactly that. 

Senator Gore. No, no, you are escaping the hypotheticsil. I want 
you to deal with the example that I gave you. 

If it were possible to cheaply and easily create duplicates of these 
machines, without paying money to the original designer and mfin- 
ufacturer, and one student buys one and then 100 others in the 
dormitory copy it without paying anything to the or^final manufac- 
turer, would that be okay with you? Would you see anything wrong 
with it? 



,vGoosle 



53 

Mr. Ferris. I cannot come up with a real answer. Senator, be- 
cause I do not understand. That happens today with these ma- 
chines. 

Senator Gore. No, it does not happen today, 

Mr. Ferris. I am sure we will come up with a solution with that. 

Senator Gore. Do you know why you are having a problem? Of 
course the reason you are having a problem is, A, you would see 
something wrong with it; it would be very clear to you. 

And B, the reason you do not want to say that is because the 
analogy is almost exact. 

And C, the difficulty a lot of people have in understanding why 
the practice we are talking about here is wrong is that they labor 
under the impression that intellectual property is somehow less de- 
serving of protection than tangible physical property. 

But artists who create intellectual property do it for a living. 
They have rights in that property. And if it is taken from them 
without compensation, they have been deprived of their livelihood, 
just as would be the case if the creator of real, tangible, physical 
property had that property taken from him without compensation. 

It is exactly the same situation. 

Mr. Herman. Senator Gore, can I rescue Charlie here? 

Senator Gore. Yes, I would like to hear your response, - Mr. 
Berman, and then I believe my time has expired. 

Mr. Berman. I will give a more tangible example. Today, when 
the manufacturer of the DAT recorder is also likely to be the meui- 
ufacturer of a cassette player, maybe even a turntable, maybe a car 
cassette player, maybe a compact disk player, does that same man- 
ufacturer give out in its different forms those mediums eifter you 
have bought one? 

When you buy a compact disk player, do you get a turntable, a 
car cassette player, another cassette player? 

That is what he is asking, happens to music. And if it is okay to 
happen to music, then the same principle ought to be at work for 
the hardware manufacturer. 

He wants to make a copy of prerecorded music for the various 
formats that it is available in. In that case, why doesn't he sell 
somebody a compact disk player and give him the cassette player 
and the DAT player and the turntable? 

I do not understemd the diff'erence, except to go back to your 
point, that one is tangible property, and one is intellectual proper- 
ty 

And in fact, in your example, I have no doubt that the people 
who manufacture the machines would find a way to enforce their 
patent r^hts. And what we are trying to find is a way to enforce 
our copyright. 

Senator Gore. Thank you, Mr. Chairman. 

Mr. Ferris. Could I save myself from that rescue, Mr. Chairman? 

The entire discussion here is really a copyright discussion and 
the nature of the limited property right granted to intellectual 
property. I accept that, because these are really copyright issues. 

A Federal grant of a copyright monopoly by the Federal Govern- 
ment in the Constitution, has as its primary purpose the encour- 
agement of the widest dissemination of the creative product. 



,vGoosle 



thi 



54 

That is the real purpose of the copyright law; and the means by 
which you do it is to channel sufficient profits and the rewards to 
the creator to continue them in the business of creativity. 

And I think those primary purposes and goals are valid and 
good. And I think these machines and their predecessors, histori- 
cally, in every generation of technolc^y, enhances that encourage- 
ment of creativity because it disseminates most widely that par- 
ticular product to more of the American public. 

And I think that that is what really should be emphasized— I 
think that really is what should be encouraged. And I think these 
DAT machines reflect a great deal of creativity, Senator Gore, that 
went into the development of these machines. 

They did not just develop out of thin air. An awful lot of creativi- 
ty went to develop these machines, to develop a medium by which 
the music industry and the artists are going to be able to reach the 
public most widely. 

The fundamental issue here is an attempt to impose a tax and a 
royalty, which the discussion here today has reconfirmed. That is 
the real agenda to tax the hardware manufacturers, the tape mfui- 
ufacturers, to siphon it off the consumers to the copyright holders. 

Why then should not the patent makers, the people who have 
the patents on these machines, have the same type of a claim that 
for everytime a piece prerecorded music is sold to be played on the 
DAT machine, that the patent holders have a claim through a tax 
on the prerecorded music. It is the patent holders that created the 
particular machines that permits that music to be played. 

There is always going to be apparent friction and tension be- 
tween the hardware and the software manufacturers, but the reme- 
dies are the patent laws on one side, for the hardware manufactur- 
ers, and the copyright laws on the other side, for the software man- 
ufacturers. 

I think they stand autonomously. I think the copyright laws, as 
they presently exist, and which specifically validate home taping, 
provide a good balance. 

And if there is an imbalance and performers do not get sufficient 
reward when something is played on the radio, I think that should 
be addressed directly to those who use it for commercieJ value, 
rather than to attempt to put a tax or an impediment or a ban on 
a new set of technologies. 

Senator Inouye. Senator Wilson. 

Senator Wilson. Thank you, Mr. Chsurman. 

Mr. Ferris, do you believe that there should be larceny laws on 
the books? 

Mr. Ferris. Yes, Senator. 

Senator Wilson. Would we not, without them, encourage a wider 
dissemination of the ownership of certain articles? 

Mr. Ferris. Well, I do not know if you would. Senator. 

Senator Wilson. Well, let me give you an example. Suppose you 
decided that a book is interesting enough to publish, and you pub- 
lished 5,000 copies. 

And you put those in a warehouse preparatory to distributii^ 
them to retail bookstores. 

If I break into your warehouse, and I steal one copy, you are in- 
jured, are you not? 



,vGoosle 



55 

Mr. Ferris. Yes. 

Senator Wilson. And the law says so? 

Mr. Ferris. Yes. 

Senator Wilson. If I break in and steal two copies, you are 
doubly injured? 

Mr. Ferris. Yes. 

Senator Wilson. And if I finally steal 50 or whatever the break- 
ing point is in the law between larceny and grand larceny, there is 
a much more severe penalty. 

If I break in and steal all 5,000, why, presumably you are greatly 
injured, and the law should punish me for what I have done. 

Now a book ia both a tangible thing, and also, it contains intangi- 
ble property rights. If I break in and steal just one of your books, 
but then copy it, and run it off on a duplicating machine or some 
other reproduction device, which may very well be patented by the 
way, it may be that I can run off 5,000 copies, then if I can sell 
them, clearly, I have violated your copyright, have I not? 

Mr. Ferris. If you steal them then run off and sell 5,000 copies of 
it, yes, you have violated the copyright. 

Senator Wilson. Let us suppose I got into a bookstore and buy a 
copy and then run off 5,000 and I sell them; that is still a violation 
of the copyright? 

Mr. Ferris. Yes. 

Senator WiLSON. But it is your contention that if I go into a 
bookstore and buy one and then run off 5,000 and give them away 
to 5,000 friends, or more realistically, 50 or 100, that that is no vio- 
lation of the copyright? 

Mr. Ferris. Well, I think the copyright law might permit that 
such can be done. And there is a specific case in point where it has 
been done. 

Senator Wilson. Do you think that it should be done? Do you 
think that that is in the spirit of those who gave the copyright pro- 
tection? 

Mr. Ferris. Well, I think the question is a difficult one. I think 
that historically. Senator, the copyright law has made a division 
between commercial gain and private noncommercial uses. 

And whether you have to have a specific payment of a dollar to 
cross over that line, I do not know. 

Senator Wilson. Well, is not the basic point in both the larceny 
law and in the copyright law to protect the property right, in one 
case tangible, in the other case, intangible, in the case of the intel- 
lectual property, of the property owner? 

Mr, Ferris. Yes, absolutely. 

Senator Wilson. All right, let us suppose then in the college dor- 
mitory example, I choose, and that Senator Gore has just ques- 
tioned about, let us suppose that someone runs off 100 copies, or 
makes it possible for 100 friends to do so. 

Now, it seems to me that the person we are trying to protect 
under copyright law is injured just as greatly whether you sell 100 
copies or whether you receive no compensation for it. 

The injury is the same. I mean, the injury in the warehouse situ- 
ation is the same as if I were to sell or give away 50 copies of your 
book. That is 50 seiles you will not get. 



,vGoosle 



Mr. Ferris. I think there might be a question of quantifying how 
many lost sales there would be. Whether everyone who received a 
copy in the dormitory would have purchased a record. 

And I doubt that very much. 

Senator Wilson. Well, where I differ with you is in your inter- 
pretation of the copyright law as having been given in order to 
achieve the widest dissemination. 

I would agree in one sense, but it is to achieve the widest dis- 
semination of intellectual properties by encouraging their produc- 
tion. 

Mr. Ferris. I agree with that. 

Senator Wii^ON. You do not encourage their production if you do 
not give any protection to the property r^ht of the person who cre- 
ates the property; you give a disincentive to expend that kind of 
time and effort and money. 

Mr. Ferris. I do not think the present balance between the dis- 
semination goals of the copyright laws, and the protection of pro- 
prietary interests of the copyright owners, Senator Wilson, are that 
much in imbalance. 

Certainly, in the recording industry, when the rewards and the 
profits of the recording industry are as large as they have ever 
been; and they have recorded their highest profits in the last three 
£uid four years. 

Now, they deserve all those profits, and profits are good. But I 
am saying that the notion is wrong that there is an imbalance in 
the copyright law from the dissemination goal, and the protection 
of proprietary interests. The imbalance cannot be that out of 
whack to have the data with respect to the economic viability of 
the record industry that presently exists. 

Senator Wilson. Well, I think you are engaging in a hypothesis 
there, because these machines have not yet been available, but 
they very shortly will be. And that is precisely why we need to act 
now, I think. 

Let me eissist, though, I think p)erhaps Mr. Berman has a better 
idea of the injury that can occur. 

Mr. Berman, Congress passed legislation a few years ago known 
as the record rental law to protect copyrighted music by outlawing 
record rental stores. 

Is it true that Japan passed a similar law, but that it does not 
protect American music? 

Mr. Herman. It is true. We have a record rental law here. It is 
true that in the copyright law in Japan there is a provision dealing 
with the rental of records. 

It is interesting to see how the Japanese treat this, under Japa- 
nese law. You cannot rent for one year after its initial publication 
Japanese music. It is protected. But you can rent American music, 
and there is a reason for it; because Japanese music lovers want 
American music. 

And what they do is, they rent it in one store, and take it down 
to the next store and get a copy of it. And that is the purpose 
behind the notion of renting music. It goes back to something — I 
thought I was at the wrong hearing when I listened to Charlie. 

I thought I was at a hearing where Jack Valenti was testifying 
on the Betamax case. That is not what this hearing is about, and 



,vGoosle 



57 

Charlie has perverted what the Supreme Court has said, what Con- 
gress has said. 

There is nothing in copyright law that deals with home taping in 
r^ard to audio. He is talking about some gratuitous report Uui- 
guage involving a 1971 act. 

And I am happy to introduce into the record something from 
Nimmer On Copyright that deals with this so-called exemption. It 
is ephemeral. It exists only in Charlie's mind. 

The Senate never acted on this. And when the Congress, in 1976, 
revised the copyright law, it made no mention of this. There is no 
exemption. 

The very best one can say about audio home taping in regard to 
the law is that it could conceivably be a fair use. I happen to be- 
lieve that it is not, and it would be a perversion of the doctrine of 
fair use, which is a very narrow one. 

But the fair use doctrine, it is true, was applied in the Sony Beta- 
max case, and it was applied in a very narrow set of circumstances. 
In a 5 to 4 decision the Supreme Court said it was okay to time 
shift off the air. 

It defies logic when you apply the concept of time shifting to 
sound recordings. People do not tape music to listen to it at 11:00 
o'clock instead of 8:00 o'clock. 

You would not need 300 million blank cassettes a year. It is 
being libraried. Music is forever. It is being played again and again 
and again. And that is the difference. 

Senator Wilson. Mr. Herman, let me ask this: In his direct state- 
ment, Mr. Ferris portrayed this effort as something akin to the 
Luddites breaking the spinning wheels. 

I do not quite see it this way, but perhaps you can think of some 
other instances in which Congress has passed laws to control tech- 
nology or an ajialogy that would justify our taking the step. 

It seems to me, this is not anti-technology, it is pro-copyright. 

Mr. Berman. In fact, we would welcome the DAT technology, 
provided it had a measure of protection for the copyright owner. 

There have been instances in the past. Congress passed the All- 
Channels Receivers Act that required television sets to accommo- 
date a certain type of reception. 

Congress had dealt with electronic eavesdropping and with com- 
puter hackers. Technology, incidentally, is not benign. There are 
consequences. 

And in this case, there are serious consequences. 

Senator Wn^ON. Mr. Berman, I understand that you are not 
here today in the role specifically as a representative for organized 
labor. 

But let me ask your opinion. How would the introduction of DAT 
technology without saf^uards affect the job opportunities of, those 
who form the pyramid of support necessary to create works of art, 
specifically, sound recorders? 

Mr. Herman. It was testified to yesterday, Senator Wilson, by 
Victor Fuenteabla, who is the president of the American Federal of 
Musicians, and Jack Golodner, of the AFL-CIO, that in fact it 
would have a disastrous effect. 

And I think they spoke very eloquently in their own behalf. 



,vGoosle 



58 

Senator Wii^ON. And that would be because of the displacement 
of sales. 

Mr. Berman. The displacement of sales, yes. When one thinks 
about the nature of the quality of the copy that would be available, 
why would people buy prerecorded music when they could get, 
simply by taping, the exact same quality as if we sold it to them, 
and taping is cheaper? 

Because when you tape, you do not pay the songwriter, you do 
not pay the artist, you do not pay the record company. 

In fact, if I can borrow this tape, I was very interested in this 
response to my demonstration, this prerecorded DAT tape. There is 
a DAT machine. 

Someone is going to spend $1,200 to $1,300 for that machine. 
Someone is going to go out and buy a prerecorded DAT tape; I do 
not know how much it is going to cost, $12 or $15. There are people 
being paid in that transaction. 

In this transaction, there are only two people being paid: The 
manufacturers of the blank tape, and the manufacturers of the 
hardware. 

The people who created the song are not being paid. The people 
who recorded the song are not being paid. That is the difference. 

It is true, we need the machines. I have no doubt about that. And 
the machine should respect the property right of the recording in 
the music. 

Senator Wilson. Mr. Ferris, I will just ask this final point — the 
Chairman has been generous. 

But do you really doubt that a displacement of sales is caused by 
home taping, and a displacement that is a significant violation of 
copyright sufficient to actually threaten the livelihood of the re- 
cording artists and those who would seek to finance their efforts in 
recording? 

Mr. Ferris. I do not think. Senator Wilson, that the net benefit 
and harm issue has been fully documented to the point where it 
would give you certainty. 

Mr. Berman talked about 300 million blank tapes sold in the 
United States last year, and 345 million prerecorded music tapes 
sold last year. 

I will accept that. I do not know how many topes were sold. But 
of those 300 million blank to[>es that were sold, the record is clear 
that over half the uses of those tapes have nothing to do with pre- 
recorded music. So you are eliminating 150 million 

Senator Wilson. Well, they probably do not require that quality 
of fidelity either. 

Mr. Berman. Then there is no reason to worry about the copy 
code scanner. If the taping is not being done from music, it has no 
impact. 

Mr. Ferris. Well all I am addressing is the harm question that 
you raise. Senator, from the standpoint of, what are the uses of the 
tape. 

And you tolked in your opening statement about the fact that 
one should be able to toke a disk that they bought and go home 
and put it on a cassette for their Walkman suid enjoy it there. 

Now, of the half of those tapes that remain after you eliminate 
your non-music uses, over half of all the home toping of music is 



,vGoosle 



from the records that the home taper bought. They customize their 
tape. They take selections from each, and they make a 90-minute 
tape out of three albums. 

What I am talking about, you are getting down to a very small 
percentage or segment who are the teenagers and the dormitory 
users. Now, I am saying those questions are very, very hard to vis- 
cerally ascertain. But the notion that someone is going to pay 
$1,300 and then, as Jay said, spend $13 to $15 for each blank tape, 
buy 100 of them to pass out in the dormitory is equally hard. 

I do not think the economics of that make much sense when you 
can buy the compact disk much cheaper. 

Senator Wilson. Mr. Ferris, why then do they advertise, "beat 
the system?" 

Mr. Ferris. Well, who advertises that? The manufacturers do not 
advertise that. Senator Wilson. I mean, you can't stop Slick Freddy 
down in the distribution chain, you cannot control people advertis- 
ing in a way that attempts to get someone in a store to buy things. 

I do not know if it has that much impact anyway. Maybe it does 
to sell, but I do not think it determines the behavior of the pre- 
dominant users of these machines and the taping. 

I just think the notion 

Senator Wilson. I was interested in the pages included in Mr. 
Berman's direct statement that contained several advertisements — 
speaking of slick, quite slick. 

Mr. P^RRis, I have not seen them, but I am sure none of them 
are manufacturers. 

Senator Wilson. I am sure he will be delighted to share them 
with you. 

Mr. Ferris. I am sure none of them are manufacturers. I am 
sure these are retailers that have a unique way of advertising to 
get people into their shops. 

Senator Wiibon. Unique? Thank you, Mr. Chairman, I think I 
should let someone else question. 

Senator Inouye. Thank you. Senator Kerry? 

Senator Kerry. Thank you, Mr. Chairman. 

I know we have other panels, and we want to move on here, and 
I r^ret that I have to go over to the Foreign Relations Committee 
to vote out the State Department authorization bills, so I cannot 
stay for the whole thing. 

But I would just like to ask if I can a few questions. I appreciate 
the quality of the advocacy here from the two friends. 

I would like to ask Mr, Ferris, following up a little bit on a ques- 
tion from Senator Gore, you said in answer to his followup ques- 
tioning, the credulity of whether or not you really believed it, that 
the predominant use of the DAT is going to be for playback, and 
you still assert that? 

Mr. Ferris. Yes. 

Senator Kerry. If the predominant use is in fact for playback, 
why is there a problem, since playback is not affected by the copy 
code at all? 

You can playback all you want. It is not a problem. 

Mr. Ferris. It will not be a problem. 

Senator Kerry. Well, then, what are we arguing about? 



,vGoosle 



60 

Mr. Feeris. Well, people buy these machines as they bought 
every previous generation, as they bought the VCR, for the free- 
dom to make a recording. 

The predominant use always turns into a playback mechanism. 
But you cannot sell a recording machine, Senator, that does not 
record. 

Senator Kerry. Well, the breakthroi^h here, the technoli^cal 
attractiveness of this, is the quality of sound, is it not? 

Mr. Ferris. Yes. Well, it is the quedity of the sound. But if this 
DAT cannot record, it turns into — it has the same capability as a 
compact disk, which can only play back. 

The DAT can do what a compact disk does, but it can record as 
well. 

Senator Kerry. Well, let me pursue that, in light of your stated 
theory about why people are trjang to sell and how they are trying 
to sell. 

You said the governing theory is the effort to get the widest pos- 
sible dissemination; correct? 

Mr. Ferris. I think that is the goal of the copyright law, yes. 

Senator Kerry. But that was never intended to be dissemination 
without compensation, correct? 

Mr. Ferris. Correct. 

Senator Kerry. And in keeping with the notion of wide dissemi- 
nation, you talked about this special synergy that home use and 
multiple taping increases sales, correct? 

Mr. Ferris. That is correct. 

Senator Kerry. And the people who are concerned about the 
sales of the music, and the sales of the tapes that are prerecorded 
are the composers, producers, musicians, and ultimately the dis- 
tributors; correct? 

Mr. F^Ris. That is correct. 

Senator Kerry. Those folks are therefore the ones to really be 
empowered to make a judgment about sales, whether they are 
going to get more sales or less sales of their music. 

The person who sells this machine does not care about that. The 
have sold the machine. That is it for them, correct? 

Mr. Ferris. Their interst is in the sale of the machine tmd the 
popularity of the machines. 

Senator Kerry. Basically terminates at that point in the se- 
quence. 

Now this encoder, and I am particularly concerned about this, 
because I have read some editorials and accusations about how this 
may be conjured up as a restraint in trade, and somehow, does not 
meet the standards of free market and all of that. 

There is no restriction for the so-called stated purpose of use of 
these machines in placing an encoder in the DAT in the source lo- 
cation, and then sending it over here, unless the record comptmies, 
unless the compact disk producers, also encode. 

Mr. Ferris. That is correct. 

Senator Kerry. So why should the Japsuiese not be willing to 
place an encoder in their machine, sell it, and let the record com- 
panies decide whether sales are increasing or decreasing, whether 
they are getting the widest dissemination or lesser dissemination. 



,vGoosle 



61 

by making the judgment eis to whether or not they encode or do 
not encode? 

Now, I take it some performing artists are deciding that. I think 
the Grateful Dead have negotiated a contract in which they say, do 
not encode our music. 

So why should we not be permitted to protect that copyright that 
my coUefigues have talked about and let the record companies 
make their own decision, which is all this does, leaves it entirely 
optional to them as to how they get widest dissemination, which is 
what you say you wsuit, and how composers, performing musicians, 
et cetera, be compensated in the process. 

Why should we not do that? 

Mr. Ferris. Well, in the first instance, if you mandated legisla- 
tively that all these DAT machines have this chip, whose function 
is to shut off this machine, if it receives the subliminal message, 
the notch, that the software recording industry will put in their 
music, I think those that manufacture, distribute and attempt to 
sell machines would recognize very quickly that you can't get 
someone to pay $1,300 for a recording machine that cannot record? 

Or might not be able to. The recording industry has a paremoia 
about this, and they say they are going to put notches in all their 
software, so it will shut off recording machines. 

Senator Kerry. But that is not accurate. All existing music can 
be recorded with this machine. 

Mr. Ferris. That is right. Prospectively, everything prospectively 
would be affected. 

Senator Kerry. Okay, so it is not accurate to say it cannot 
record. 

Mr. Ferris. Well, prospectively, it will not be able to record any- 
thing but the Grateful Dead. 

Senator Kerry. What the perspective means — well, it is not nec- 
essarily all but the Grateful Dead. 

Mr. Ferris. Or any others. But I do not think you can sell a ma- 
chine 

Senator Kerry. But that is not a restrain in trade, is what I zun 
getting at. That is not a restriction that we should be frightened of 
in this country. 

If they put the encoder in, all they are doing is adhering to a 
standard that we, the Congress, decide to undertake in order to 
protect people in this country in their rights as to their intellectual 
property. 

Now a member of your coalition is the Electronic Industry Asso- 
ciation. And I And it a little ironic, because they have worked long 
and hard to protect intellectual property. 

I have been involved with some of them in Massachusetts. And 
we fought hard to ensure that software, computer software, and 
semiconductor chips get protection, and copyright does protect that 
kind of intellectual property. 

Now why should not an artist and a musician be as protected in 
their software? Which is all we are protecting, is the software that 
goes into this machine. Why do they not deserve the same protec- 
tion? 



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62 

Mr. Ferris. I think the copyright laws do give them protection. 
And the balance in those laws. Senator, I think is correct and is 
demonstrated by the tremendous viability in their industry. 

I think there are other rights as well. I me£in, how about the 
rights of the individual to be able to tape at home the particular 
selection that they bought? 

Senator Kerry. They can do that now. 

Mr, Ferris. Well, they would like maybe to have the opportunity 
to do it with this DAT machine as well. Why should the Congress 
intervene and prevent the American consumer from exercising the 
option of buying one of these machines for $1300 and using it as 
they have done every other recording machine? 

Why is it that the Consumers Union and the Consumer Federa- 
tion of America are opposing this l^islation? Because they think 
that the American consumer should have the option to make this 
particular judgment, to be able to make a marketplace judgment as 
to whether or not this machine is going to create value for them in 
providing them with the opportunity to enjoy its uses. 

It is no different from analog recording equipment in that con- 
text. This is all part of home taping, and home taping hets become 
very much a part of the dynamic in the music industry. Hpme 
taping stimulates the sales of prerecorded music, and brings record 
profits to the recording industry and their participants, and pro- 
vides as well tremendous enjoyment to the American public. 

And I think the government stepping in and taking away from 
the consumer the right to purchase one of these machines, which 
they are going to do if they require a chip 

Senator Kerry. Let us talk realistically about that consumer. I 
mean, what are you really talking about? I mean, the average 
person who is building up a significant compact disk collection 
probably has opted for a compact disk portable or has one in their 
car. 

And you may be talking about the person who has a Walkman or 
something who goes skiing, who wants a tape. But you know, there 
are plenty of ways to satisfy those needs. 

What you are really talking about here is the perfect clone ca- 
pacity, supposedly. And how many avereige consumers get into that 
kind of taping situation? I mean, what you are really talking about 
here are the college dorms and the other situations where you may 
have that mass ability to produce something that costs $15.99 today 
and bring it down to four dollars, the cost of the tape or whatever, 
eind broadly disseminate it. 

Can you tell me the other uses? 

Mr. Ferris. Well, the uses are 

Senator Kerry. What is the consumer use you are talking about? 

Mr. Ferris. When the consumer goes out and buys that prere- 
corded piece of music, just how many purchasers buy it or would 
not have purchased it if they did not have the right to make a tape 
to put in their car or in their Walkman. 

If you did not have the right to tape, there would be a significant 
depression of existing sales. There is a stimulative effect by the fact 
of having available the capacity to be able to "place-shift" your 
music, to be able to eiyoy it where you wish to enjoy it. 



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And I think that is why the Consumere Union and Consumer 
Federation of America is eigainst this legislation, because it de- 
prives the American public of that option. The home taping pheno- 
minon has become very much a part of the entire music purchase- 
enjoyment dynamic, which, I think. Senator, has elevated the re- 
cording industry to the record profits that they have now. 

It is because of home taping, the portability that came with the 
Walkman, and high fidelity stereo in the car, and the boom box at 
the turn of this decade that stimulated the great sales and the uses 
of music and the enjoyment of music. 

And I think that is what has brought the recording industry 
back. And what you are going to, if you p£iss this l^slation, is to 
permit the recording industry to shoot itself in the foot. The DAT 
will turn into another great revenue stresun for the recording in- 
dustry, as the compact disk has, as the VCR was to the motion pic- 
ture industry. 

Why do they want to oppose it? They have historically opposed 
every piece of new technology, and that is understandable, because 
any change in the status quo is uncomfortable. 

But I do not think the Congress should step in for the first time 
and ban a technology when it has nothing to do with the health 
and safety of the American public. 

Senator Kerry. Well, I have gone on longer than I wanted to and 
meant to. And I want to ask Mr. Berman to respond to that, and 
then I will end. 

But before I do, I do not think we are banning a technology. I 
think the technol(^ is perfectly legitimate. The technology will be 
welcomed. The technology can sell. We are trying to protect a cer- 
tain and restrict a certain kind of use of that technology. 

That is all that is being talked about here, not the technol(^y 
itself. It is the Japanese who are trying to bully us and are saying: 
Hey, if you guys put any restriction we are not going to sell it. But 
we are not saying that. 

We are simply saying there is a particular kind of use which we 
are concerned about and we want to protect a certain kind of intel- 
lectual property. Sell it, but sell it with the understanding that 
that is the way it ought to be sold, and that is a very different 
thing from banning a technol<^. 

And let me just ask Mr. Berman, then I will not ask any more 
questions, Mr. Chairman. 

Mr. Berman. Senator Kerry, the question which Charlie turned 
on its head really should be whether in fact the ability to home 
tape results in a lost sale because it is cheaper to tape than it is to 
buy. 

Now, it is true that not every taper in effect would end up being 
a purchaser. But in a significant number of c£ises, they would be. 
And it is precisely for the reason that Charlie himself has said so. 
It is a music consumer we are talking about and a consumer who 
has the wherewithal to spend $1,300 for one of these machines. 

So in fact, I think the incentive in terms of lost sale is there. It 
exists. That is the question, the extent to which the opportunity 
and ability to home tape affects the possibility of a sale. And it is 
because of the very person he is talking about that I think that 
possibility and that potential does in fact exist. 



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64 

If all we were talking about Ib the notion — and I do not know 
why Charlie should worry; if most of the taping that goes on is not 
for music, it would be unaffected by what we are talking about. 

And beyond that, att music in existence would be copyable. And 
beyond that, a number of record companies have said that they 
would be willing to issue copyable versions of their product. 

This is not an attempt to stop a technology. I want to go back to 
the point that not all technology is benign; it has consequences. 
And what we are trying to do is achieve a balance between the 
right of the copyright owner and the hardware manufacturer. 

You know, we tried for five years to talk to the hardware manu- 
facturers. The former President of the Recording Industry Associa- 
tion of America went to Japan twice. No one was available to talk 
to him. No one at the hardware manufacturers and no one at MITI 
would talk about the consequences of technolt^y on the recorded 
music industry. 

It was only when a bill was introduced in the last session of the 
99th Congress imposing a very prohibitive tariff on the importation 
of DAT recorders and when the USTR suggested to their counter- 
parts at MITI that this was something to be talked about that we 
were able to get to a meeting. It took place in Vancouver at the 
end of last year, at which representatives of the world music com- 
munity, including Japanese record companies, who are vitally con- 
cerned about the introduction of this machine, met with the hard- 
ware manufacturers. 

And at that meeting we asked the manufacturers if we could 
demonstrate our system to them, and the answer was no. 

Senator Kerry. Thank you, Mr. Chairman. 

Senator Inouye. Thank you. 

Mr. Ferris, some time soon as chairman of this subcommittee I 
suppose I will have to decide whether this measure goes beyond the 
hearing stage. I have not made up my mind, so your assistance will 
be most helpful. 

Mr. Ferris, I am readily available, Mr. Chairman. 

Senator Inouve. I should point out to you that I am a life 
member of the musicians union. I have never recorded a piece, but 
I happen to be — 

Mr. Berman. I think we can fix that, Mr. Chairman. 

Senator Inouye. I happen to believe that we do have certain in- 
tellectual properties. 

Now, correct me if I am wrong. Your position is that it would be 
absolutely legal and proper for me to purchase that equipment, buy 
the tapes, and make as many copies as I wished, as long as I do not 
profit from that? 

Mr. Ferris. That is correct. 

Senator Inouye. In other words, I could purchase a recording 
made by Peter, Paul and Mary, a famous recording group, and I 
decide to give my very dear friends, 100 of them, Christmas gifts. 
And so I make 100 copies and I pass them out. That is okay? 

Mr. Ferris. I would say yes, that is all right under the present 
copyright laws, Mr, Chairman, as long as you were making those 
copies and giving them as gifts to your friends smd the transfer had 
no commercial barter overtones or anythii^ of that nature. 



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65 

If you were in business and giving it to business associates, I 
think you would cross the barrier for that being a commercial 
transaction. 

Senator Inouye. One could argue that I may have profited be- 
cause I did not have to go out and buy the tape. But I did not do 
that. But it is okay as far as you are concerned? 

Mr. Ferris. As far as the present state of the copyright law is, 
that is correct. I believe that is correct, Mr. Chairman. 

Senator Inouye. Twelve years ago, when my son was still ten 
years old at that time, he, after weeks of cajoling me, convinced me 
that I should take him to a rock concert. Obviously, he could not 
attend a Capital Center performsmCB at n^ht by himself. That is 
against the law, and so b^ daddy took his little boy to this rock 
concert. 

And he took along his tape recorder, a little thing that the repro- 
duction would be fuzzy at best. But he wanted to record some of 
the songs that were going to be performed that evening. 

And so here I am with this little tyke getting up to the Capital 
Center, and he is not hiding the tape recorder. He has got it hung 
around his neck. The ticket collector stops us and says: Sir, you 
cannot take that tape recorder in there. 

And I said: Why? And he says: You cannot record the perform- 
ance. That is not possible, he says. 

Well, I am not a constitutional lawyer and I was not about to 
argue, so I told my son, I will get you a regular tape. But I had to 
rush back to the parking lot and lock it away. 

I checked later on with constitutional lawyers and they told me 
that that was proper £ind legal, that they could stop me, that they 
could prevent me from recording the property. 

What is the difference between stopping someone from recording 
on that machine? 

Mr. Ferris. Well, I think when you buy a prerecorded 

Senator Inouye. My son bought the performance also. I bought 
the performance. We went to the Capital Center. We paid good 
money. 

Mr. Ferris. I am sure it would be determined by the implied con- 
tract in purchasing the admission ticket. They impose conditions 
and one of the conditions would be that the performance will not 
be recorded. And it can be policed as a contract matter, Mr. Chair- 
man. 

And when you buy a piece of pre-recorded music, there is a copy- 
right payment that is part of that purchase price, that goes 
through the trickle-down process to the performers and the record- 
ing industry, and with that purchase you gain rights for that piece 
of recorded music, too. 

And one of the rights that you gain under our copyright law is 
that you have the right to make a copy for noncommercial private 
use. Those are rights you get when you purchase that property, 
which is your property. 

Senator Inouye. When I purchased that right to listen to the 
music at Capital Center, you said that very likely the performing 
group had an agreement that they would perform provided you 
cannot record it. 



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What if Peter, Paul and Mary made that agreement with the re- 
cording industry: We will perform provided no one records this. Is 
that legal? 

Mr. Ferris. I think that would be, sure. 

Senator Inouye. That is within the copyright laws? 

Mr. Ferris. Well, it is a matter of enforcement. If the recording 
industry came up with a technical technique that 

Senator Inouye. But as far as the law is concerned, Peter, Paul 
and Mary can, according to your interpretation, say that no one 
may record our music? 

Mr. Ferris. Absolutely, I would think they could say that. The 
directive would be, you can only put this on a medium that cannot 
be recorded. But if you put it in a medium that can be recorded 
that is going to be sold, the person that buys that copyrighted copy 
of prerecorded music, gains rights. 

But if they can develop a medium which has the ability con- 
tained within itself not to record, and purchasers and consumers 
choose to buy that product that has built into the software itself, 
the inability to be recorded, and they make that choice, I think 
that is perfectly valid. 

Senator Inouye. But you say that even the purchase of this copy- 
righted property may be conditioned just as much as my son could 
not record the performance? 

Mr. Ferris. But the condition would really be from the perform- 
er to the recording companies: I am going to let you record my 
music, but you cannot distribute that unless 

Senator Inouye. What about if I say I am going to let you record 
my music, I am going to let you sell my music, provided my music 
is never duplicated? 

Mr. Ferris. I think they could make that judgment. They cer- 
tainly will not be able to use the traditional medium. They will not 
be able to use compact disks, they will not be able to use vinyl 
disks, they will not be able to use any form of traditional 

Senator Inouye. Why not? 

Mr. Ferris. Because each of those media presently provides the 
capacity to record in them. Now, if there was something built into 
the recording, Mr. Chairman, into the recording itself, that self-de- 
structed well, that would be something that the consumer would 
have the option to buy or not to buy. 

Senator Inouye. That is legal? 

Mr. Ferris. I am sure that would be legal. 

Senator Inouye. Why is it not l^al to put something in that 
gadget there — I am not an electronics expert — that would prevent 
that? 

Mr. Ferris. Well, what you would be mandating is a change in 
the circuitry of this particular DAT recorder not in the recording — 
so that the DAT recorder could no longer record, it would shut off 
as a recorder. 

So the problem Mr. Chairman, is if you legislate a circuit in the 
DAT recorder that prevents it from recording, how can you sell it 
as a recorder? It is not. It is no longer a recorder. 

Senator Inouye. In other words, I should have stood up for my 
son's right that evening and insisted that his constitutional right 
permitted him to record that? 



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67 

Mr. Ferris. You made the judgment, explicitly or implicitly, that 
evening, Mr. Chairman, that those terms and conditions were ac- 
ceptable or not. You could have said, I will not pay my money for 
that concert if I cannot bring my recorder in there. And that would 
be the same judgment that a consumer would be permitted to 
make if the software itself had all of the self-contained limitations 
that any particular recording company wanted. 

But when you attempt to change the circuitry in the DAT re- 
corder, so that that the DAT is no longer good for the reason 
people want to purchase them, I fear they would not purchase 
them. You did not walk away that evening but your recorder still 
worked. 

Senator Inouye. Then according to your argument, as a con- 
sumer now it is up to me whether I want to purchase that with or 
without this gadget, is that not right? 

Mr. Ferris. That is correct. But if it had that mandated chip, I 
am just saying that they would not be available, Mr. Chairman 

Senator Inouye. So as a consumer, I am not being denied any of 
my constitutional rights. 

Mr. Ferris. If this legislation that has been proposed, Mr. Chair- 
man, were enacted, these DAT machines would not be imported 
into this country and sold. 

Mr. Berman. That is not a constitutional question. That is not a 
legal qu^tion. It is a commercial question. 

Mr. Ferris. Absolutely, Mr. Berman, it is a commercial question. 
What you are attempting to do is interfere with the operation of 
the free market. You are seeking a legislative mandate to change 
the circuitry in this DAT recorder so that it has no commercial via- 
bility and therefore would not come into this country. 

So this legislation in effect, Mr. Chairman, would ban the digital 
audio tape from the American consumer. 

Senator Inouye. Jay, what do you have to say about that? 

Mr. Berman. I searched the law and I find that Charlie has cre- 
ated a right where none exists. I go back to this notion that he has 
a right to home tape. The law is silent on that, and in fact that is 
why we are here. 

The only conceivable avenue for someone to make the 50 tapes or 
the 100 tapes or whatever it would be — would fall within the 
notion of fair use. That is a very debatable question, Mr. Chair- 
man. 50, is that fair use? 100, is that fair use? 

It is precisely because this is such an unresolved area that we 
come here seeking a temporary solution, in the hopes that the un- 
derlying issue can be addressed. That is what this is all about, be- 
cause if this machine were to come here, and it is only a copying 
machine, but if it were to come here and people were to copy, why, 
the law would never have a chance to accommodate our right. 

That is a straightforward political analysis. It does not take a 
genius to Hgure that out. 

And so I cannot find in the law the right that Charlie claims. I 
do not see it having the samie consequences. This machine, which is 
a very expensive machine, could copy every piece of music in exist- 
ence today. It could copy, and the record companies would have the 
right to issue versions of its music that were not encoded, and some 
might and some might not. 



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So I do not find the serious dilemma. 1 find it would be a com- 
mercial decision if the Japanese manufacturer decided not to sell 
this machine, and I do not believe for a moment that he would 
decide that, for this reason. We are talking about people who are 
mercantilists. They live to export to the United States. They need 
to be in the pocket of the American consumer, and they cannot 
make money any more selling VCR's and compact disk players be- 
cause there are no profit mai^ns in it. 

So it is this machine today and it will be another machine tomoi^ 
row. I do not doubt for a moment that the machine will come here. 

Senator Inouye. Well, both of you have earned your fees this 
morning. You have done very well. But I am still a bit confused. 

Senator Exon. 

Senator Exon. Mr, Chairman, if I might ask a question or two. 
In the first place, I was listening with great interest to the chair- 
man's line of questioning, and I have never sought to get any 
copies of any of the music that our chairman has brought forth on 
the public. But I have been very much disappointed that I have not 
been able to get a recording of your speeches, Mr. Chairman. 

Senator Inouye. That is not intellectual property. 

Senator Exon. I simply say to you that I, like the Chairman, 
have not made up my mind on whether this legislation is proper or 
not. 

The last time that I was in this room, basically at the suggestion 
of my friend, the junior Senator from Tennessee, we had a collec- 
tion of rock music people in the room. And one of the things that I 
said got me to the place where I became famous for the first time 
as a defender of rock music. And that was by error and not by 
design. 

I am a great lover of music and I listen to music whenever I have 
time. I am very much interested in property rights, the intellectual 
rights of individuals. And I think that we do have a responsibility 
to took at that, to make sure that we have those things come along. 

At the same time, I sometimes wonder, and that is why I am 
looking at this piece of legislation, as a member of this subcommit- 
tee and a member of the Commerce Committee to see whether I 
think it is necessary or not. 

Let me ask this general question. The forerunner to this ma- 
chine, I suspect, was Thomas Edison's phonograph. Everything that 
has come down since that time goes back to that means of copying 
or duplicating something. 

Have not the fears that have been expressed here, and many of 
them legitimate, I say, have they not been expressed on every kind 
of a duplicating or copying mechanism that has followed since the 
days of scratchy Thomas Edison phonographs? 

Mr. Ferris. Absolutely. 

Senator ExoN. How is the matter that we face today and how is 
the concerns attempted to be addressed by the legislation that we 
are discussii^ significantly different from that age-old argument 
that goes on and on and on and on? 

Mr. Ferris. None whatsoever. Senator Exon. The anxieties that 
are being expressed here today against this new technology I am 
sure were duplicated from the time of Edison. 



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And each new technology that comes onstream, whether it be the 
sound movie, whether it be television, whether it be cable, whether 
it be the Walkman, whether it be the cassette form of music, the 
same type of anxiety has been expressed, that this new technology 
is going to destroy the economic viability of the present technology. 

And those are real anxieties and I understand that. Transitions 
are always very hard, but every previous technology that has come 
onstream has turned out to expand the benefits of the performing 
artist. And I think this is nothing but the next generation of that 
technology, which too will turn out to be a tremendous benefit to 
the recording artist, as well it should. 

But I think the anxiety is genuinely expressed and very real. But 
I do not think Congress ever before has intervened and banned a 
technology because of the anxieties that we have heard here ex- 
pressed toiday. 

And I certainly hope that Congress wUl not break that uniform 
precedent of not stepping in and banning a technology when it has 
nothing to do with the health and safety of the American public, 
when the consumers and their organizations are in favor of these 
new machines and their introduction and against the intervention 
by the Congress. 

Senator Exon. Thank you, Mr. Ferris. 

Mr. Berman, I assume you would not agree 100 percent? 

Mr. Berman. Indeed I do not. Senator Exon. I think it is a very 
good question, and I think the difference represented by this ma- 
chine is the fact that it is so good, because for the first time it pro- 
duces a perfect copy. Historically, when people taped from current 
analog to another analog, you degrade the copy, and each subse- 
quent copy got worse. 

Here we have a machine that produces perfect copies endlessly. 
In that environment, there is no incentive to buy music. The incen- 
tive is to tape it, because it is cheaper to tape than it is to buy. 

And that is the threat posed by this machine. And it is not that 
we are trying to ban this machine. What we are seeking is some 
accommodation between our ability to sell our product and the 
ability of the consumer to hear it in this particular format. 

That is why this represents such a threat. 

Senator Exon. So basically what you are saying is that it is 
pretty much back to my same question. It is an age-old argument, 
but this is new technology that you think causes much more of a 
concern than all of the previous, is that r^ht? 

Mr. Berman. Yes, sir. 

Senator Exon. There are now laws that prevent me from using 
this or any other copying device. I would simply say to you, Mr. 
Berman, that to my uneducated ear I cannot really distinguish be- 
tween first, second, third, and fourth generation copies. 

Next Christmas, if I get a Christmas card from my distinguished 
colleague with a copy of a speech that he gave, I will not be able to 
tell by listening to it whether it is a second, third, fourth, or fifth 
generation copy. 

Senator Inouye. I will send you only the first. 

Senator Exon. I guess that is my concern. I am wondering if it 
were justified in going in. Is there anything we can do — is there 
anything we can do to satisfy your concerns, which I think there is 



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70 

some basis of legitimate concern about, about tightening the laws 
that would prevent someone from — there are already laws that it 
would be illegal to make copies from that machine, is that right? 

Mr. Berman. Well, the law is — we may well have a right under 
the law, but we have no remedy. Senator Exon. And so what we 
are seeking here is a way to in effect get a remedy by the coopera- 
tion between the software manufacturer and the hardware manu- 
facturer. 

The law is very unclear, and so we have no way of pursuit^ 
what the remedy might be. But you know, it is difHcult for me to 
accept the notion that it Is okay to make 50 copies or 100 copies 
and that falls within the concept of fair use. 

I think it 

Senator Exon. Do you think five? 

Mr. Berman. I do not know. I am asking the Judiciary Commit- 
tee to make that determination. But I am saying, in the meantime 
let us hold up on this machine. I do not think that is an unreason- 
able request. 

Mr. Ferris. Senator Exon, on that point that Jay made, the fact 
that the law is unclear. I think it might be of more than just pass- 
ing significance that the recording industry has never brought a 
lawsuit to clarify that law, to make a determination that home 
taping, even in the most egregious examples that have been hy- 
pothecated here today, is a violation of the copyright law. 

The motion picture industry did bring such a lawsuit on the 
video side. The Recording Industry never did because I think the 
law is so much more clear from the standpoint of what rights were 
granted in the Sound Recording Rights Act of 1971, and with re- 
spect to the specific exemption for home taping for private users. 

If they brought a lawsuit, if they had such confidence, we would 
not be here just talking about remedy, because I think the real 
question here is, is there a violation of the copyright law and is 
there real harm that comes from the home taping phenomenon. 

We should not be just focusing on remedies. And Mr. Berman 
has been extraordinarily succe^ful, and I admire him for it, in 
shifting the debate onto just what the remedy should be and not 
what the harm is from which you fashion a remedy. Unless you 
know what the harm is, how do you fashion a remedy. 

Mr. Herman. Let me go back to this. The reason why a lawsuit 
would prove to no aveiil is for the very same reason that the Su- 
preme Court and other courts in the video home taping case pro- 
duced the result that said that this is a decision that the Congress 
should make. 

And so in effect, we would end up being back here in the Con- 
gress. But let me say something about this notion that in 1971 the 
Congress gave Charlie the right to tape. And I want to read from 
"Nimmer on Copyright." 

Mr. Ferris. Senator Nimmer? 

Mr. Berman. No, the Senate never acted on that, Charlie. You 
are talking about House report language. 

The committee's statement that it is not the intention to restrain home recording, 
if read in cont«xt, reveaU that the committee never intended to create a special ex- 
emption for audio home recording. The passage in which the home recording 
remark appears states: 



ivGoogle 



71 

"It is the intention of the committee that this limited copyright not grant any 
broader rights than are accorded to other copyright proprietors under the existing 
Title 17. Record producers and performers would be in no different position from 
that of the owners of copyright in recorded musical composition over the past 20 

This language emphasizes the point that the 1971 amendment extends to the 
owners of sound recording copyrights the same statutory protection already granted 
to the owners of musical composition. No one has claimed that the pre-19Tl copy- 
right statutes contained any provision other than the doctrine of fair use for ex- 
empting home recording from copyright infringement. 

Since the House report states' that the purpose of the amendment is to extend the 
same protection to sound recordings, it is clear that the amendment did not create a 
new exemption for home recording. The most one can fairly attribute to the House 

And I emphasize, this is a House report; there was no concurrent 
Senate language, and when the Congress in 1976, five years later, 
revised the copyright law, it said nothing about this. 

The most one can fairly attribute to the House report, then, is an opinion that 
home recording constitutee fair use. 

Senator Exon. Mr. Chairman, I appreciate these lengthy answers 
and I can see that this is a very difHcult problem that we are going 
to have to wrestle with, and I will be working with you on it. 

And so I will be glad to close my questioning now with the notice 
to you, Mr. Chairman, that I cannot wait until Christmas. Thank 
you very much. 

Senator Inouye. Ordinarily, as the presiding officer I would 
apply the time constraints on the witnesses and members of the 
panel. However, it is obvious that the decision, if ever made by this 
committee, will have to be based upon the legal and constitutional 
aspects involved. Therefore, I permitted this full and free debate. 

We thank both of you for participating this morning and enlight- 
ening us. But as my friend from Nebraska says, whenever you have 
a bunch of lawyers — and I cannot say the rest of it here. 

But I thank you very much. Charlie. I thank you very much, Jay. 
You have been very helpful. 

Mr. Ferris. Thank you, Mr. Chairman. 

Mr. Herman. Thank you. 

Senator Inouye. Now we come to the pleasant part. We are 
pleased to have with us a member of the great recording group 
Peter, Paul and Mary, Ms. Mary Travers from New York, and Mr. 
Alec Bernstein of Aesthetic Research of Baltimore, Maryland. 

Ms. Travers. 

STATEMENT OF MARY TRAVERS 

Ms. Travers. My name is Mary Travers and I come today repre- 
senting the recording group Peter, Paul and Mary. I also am a 
songwriter, a member of the union AFTRA, and also a music pub- 
lisher. So my vested interests is msmy. 

I would like to thank Chairman Inouye and Chairman HoUings 
and the members of this committee for the opportunity to ask you, 
as representatives of my government, to protect me and my fellow 
artists, to protect our futures, by protecting what is rightfully ours, 
the royalties from our artistic efforts. 

I must say, I have listened to the testimony today, and I do not 
mind being referred to as intellectual property so much, but I have 



,vGoosle 



72 

been called many things in Washington. This is the first time I 
have been referred to as software. 

Although as I get older I do get softer. 

At any rate, the life of a recording artist is for most short, the 
life of a record even more fleeting, and the chances of success in 
my business are very, very slim. For the songwriter or singer, even 
one or two successful records can make a major difference in their 
income, euid sometimes in their income for many, many years. 

Home taping reduces our royalties. There is no question about 
that. And digital audio tape is about to take it the next frightening 
step further. 

In the early years of the recording industry, artists were paid a 
few dollars or sometimes just a couple of bottles of whiskey, and 
the fruits of their talents were collected by others. Many of those 
artists died impoverished, and copyright laws now serve to prevent 
that loss of control over an artist's original work. 

Today's record companies spend enormous sums in recording and 
marketing in hopes that the artists that they have developed will 
communicate their unique artistry successfully. 

And not only the artist hopes that the record will be successful. 
Everyone who participates in the making of a record depends on its 
sale — the songwriter or the composer, the music publisher, the 
sound engineer, the band members the producer, the marketers, 
the graphic artists, the plant operator, the truck driver, the retail- 
er, and on and on. Many people's jote are at stake in the inves^ 
ment both the record company and the artist together have made 
in the production and hoped-for sale of each reproduction of the 
artist's work. 

Now, many things have chained since the industry's beginning, 
when the records were engraved on cylinders, to today when the 
process of recording is a million times more complicated and expen- 
sive. 

But one thing has not changed, the artist. We are, as we were in 
the banning, individual unique talents, making our living by cre- 
ating music and words that move and touch, hopefully, other peo- 
ple's lives. And these creations are our labor, they are our proper- 
ty- 

They are assets as real as any other, and they are hard assets. I 
can go to the bank and borrow against these assets, and I have. 

The costs of creating and recording has risen enormously in the 
last 25 years, since I began. If the recording companies' ability to 
recoup its costs are damaged by the copying of its product by 
others, the recording industry as a whole will be less able to invest 
in new artists. 

But in the end, it is the individual artist that is hurt most of all. 
The legitimate income from his or her copyrighted work will be 
greatly diminished, and the economic base that should have sus- 
tained the artist in order to be able to continue to create new work 
is destroyed. 

Unfortunately, the ability to copy and reproduce music without 
regard to those who own the creation has already proliferated 
alarmingly. What does a copyright mean if the absence of law 
makes it unenforceable? 



,vGoosle 



73 

The history of the industrial revolution in our nation is that as 
new products and new technologies are invented, opportunities for 
jobs and quality of life have improved. The labor movement has in- 
cluded men, women and children who have fought for their rights 
as individuals for decent working conditions and fair pay. 

And this is as true for artists and musicians eis for textile work- 
ers. Technology has changed how artists create, but not our need to 
protect our work. To allow technology to leave the artist's labor 
and property unprotected is to deny the most basic of all laws, that 
men and women are entitled to the fruit of their labors. New tech- 
nol(^y should encourage ideas, not inhibit them. 

Regardless of the revolutions in recording technology yet to 
come — and there will be — there has to be strong legal recognition 
of the right and the responsibility of the law to protect the labor of 
the artist and creator to what is, after all, his or her property. 

Home taping has been made possible by technology, but the fact 
that it is possible is no excuse to let it continue to exist unchecked. 
The argument that the electronics and tape equipment manufac- 
turers make, that they are not responsible for what others do with 
their product, is quite frankly, I think, immoral. 

Everyone knows full well what the majority of their sales are 
used for — to copy the copyrighted work of others. And if it were 
not the case, there would be no lobbying against the legislation 
which would make this situation more equitable. 

We in the music business look forward to new technologies which 
enhance our music. But we do fear the future of an industry that is 
vulnerable to the whims of foreign manufacturers. 

We are afraid that digital audio tape recorders will make the 
taping problem worse. We are concerned that they do not offer us 
the chance to sell our music. Rather, they are only good for taping 
our music without paying for it. We need you to intervene. 

The bill under consideration today will be a welcome recognition 
that technology has not outstripped the law, that we csai as a socie- 
ty confine technolc^y within the human ethic represented by law. 

I thank you. 

Senator Inouye. Thank you very much. 

Mr. Bernstein. 

STATEMENT OF ALEC BERNSTEIN, AESTHETIC RESEARCH 
COMPANY 

Mr, Bernstein. My name is Alec Bernstein. I am testifying today 
to express my concern that composers, musicians, and lovers of 
classical music will not be able to use this new DAT system. 

My qualifications for this testimony are £is follows. I have exten- 
sive backgrounds in both music and digital electronics. I have a 
degree from the Peabody Conservatory of the Johns Hopkins Uni- 
versity in Musical Composition. My music has been performed ex- 
tensively throughout both the United States and in Europe. 

For over ten years, I have been working in the digital audio field. 
For the last five years, I have managed the Aesthetic Research 
Company, which I founded with my partner Dan Carney in 1982. 
My primary responsibility there is designing digital electronic mu- 
sical instrument exclusively for composers and other musicians. 



,vGoosle 



74 

As an artist, I am here to tell you that I see that the DAT is a 
tremendous opportunity for artists, not a threat. The only threat I 
see is the legislation being discussed here today. It Is a threat for 
two reasons. 

First, it would effectively ban the next generation of audio tech- 
nology by making it very undesirable to potential purchasers. 
Second, the proposed CBS copy-code system will destroy the artist's 
creative work by cutting out a notch of music in an audible range. 

The great advEUices in electronics in the lEist few decades have 
led to the enormous enhancement of personal musical electronic 
equipment. The DAT, if it is allowed into the consumer market in 
the United States, will be another very serious improvement in 
this field. 

The proposed restrictions on the device, specifically the CBS anti- 
taping chip, seem to be an attempt to keep the DAT out of the U.S. 
market. The technical limitations of the frequency manipulation by 
the CBS chip make the device essentially unusable for jiny serious 
audio use. No one interested in quality recording will ever use a 
recorder with this chip in it. 

My rights as a consumer and as a working musician will be 
denied if the proposed restrictions keep an important new machine 
out of the market. I strongly urge you to examine these proposals 
in order to safeguard the original goals of copyright protection 
without denying so much to the public at large. 

Killing DAT will mean the loss of a new format for enjoying 
music and will deny all artists a new market for their music. The 
area of music in which I create will be particularly devastated by 
the denial of this technology. Like many other composers, I use 
audio tape recorders extensively in my work. 

I use both standard cassette and multi-track cassette equipment. 
The multi-track equipment allows me to record different instru- 
ments or different musical materials from the same instrument on 
the same tape. In this way, all the parts can be listened to sepa- 
rately, together, or in any combination. 

A DAT, if the digital formats are available for digital mixing and 
editii^, would give essentially unlimited mixing and editing capa- 
bilities. In analog multi-channel recording, each transfer from 
track to track results in a generational loss of quality. The digital 
process possible with this machine would have bEtsically no quality 
loss within my creative process. 

The advent of the DAT in this country would fulfill the needs of 
the artistic populations who record their own music, just as the 
CD's satisfied those who were only interested in playing prerecord- 
ed music. 

Most composers obtain performances by the exposure and dis- 
semination of their music via audio tapes. The process of nuiking 
and distributing these tapes must be at IcEtst equal to the quality 
that the consumer market has. However, as the consumer market 
advances into digital technology the musician remains a generation 
behind in analog tape. 

The DAT. on the other hand, will make individual artistic re- 
cordings finally aiffordable. I have found in my own career, whidi 
is not backed by a record company or media in general, as most 



,vGoosle 



75 

classical contemporary composers are not, that home taping has ac- 
tually been very beneficial to us as a group. 

All of our concerts attendances are basically made by distribu- 
tion of audio cassettes to the general public, many of which are 
copied. Whenever I perform in a place that we have not been 
before, a lot of people who have heard of ms come and ask to buy 
all the other cassettes that are available of my music. 

I do not know how they get these. We have no international dis- 
tribution network. But it has happened all over whenever I have 
performed. They are also interested in coming to whatever concerts 
we are at, and it has been very beneficial for all of us. 

There are several problems with the proposed CBS anti-taping 
chip technology. In any serious classical music recording, the loss 
of frequency in the notch will destroy the music written in the 
upper registers of classical instrumentation and orchestration. 
Actual notes written by composers, which are heard in every per- 
formance, live or recorded, will disappear. 

Good classical performers spend their lives perfecting their tech- 
nique and making every note heard. The complete disrespect for 
our finest orchestras and soloists by this anti-taping chip is simply 
not acceptable. 

The missing notch frequency will also create major problems 
when using the device for recording non-copyrighted material. In a 
recording session, certain passages of music will create sound 
around the notch frequency, but not in it. This will be perceived by 
the chip as a record inhibit and it will stop recording. 

The proposed restrictions will also eliminate the use of the DAT 
as a mass storage device for home computers. This use infringes on 
no one's copyright protection and I see no reason to withhold this 
technol<^y from this additional market. 

Again, I ui^e you to review the methods now proposed to protect 
the DAT system. The question is not one of copyright infringement; 
the question is whether these valuable technological advances will 
be banned from the American people who could most use them. 

Thank you for your considerations to these views. 

[The statement follows:] 

Statement of Alec Bernstein 

Good morning. My name is Alec Bernstein, and I am testifying today to express 
my concern that composers, musicians, and lovers of classical music will not be able 
to use the new DAT Hystera. My qualifications for this testimony are the following: I 
have extensive backgrounds in both music and digital electronics. I have a degree 
from the Peabody Conservatory of The Johns Hopkins University in musical compo- 
sition. My music has been performed extensively throughout boui the United States 
and Europe. For over ten years, I have been working in the digital audio field. For 
the last live yeara, i have managed the Aesthetic Research Company, which I found- 
ed in 1982; my primary responsibility there now is to design digital music equip- 
ment exclusively for composers and musicians. 

As an artist, I'm here to tell you that DAT is a tremendous opportunity for art- 
iste, not a threat. The only threat I see is this legislation being discussed today, it's 
a threat for two reasons. First, it would effectively ban the next generation of audio 
technology by making it undesirable to potential purchasers. Second, the proposed 
CBS copycode system will destroy the artists' creative works by cutting out a notch 
of music in an audible range. 

The great advances in electronics in the last few decades have led to the enor- 
mous enhancement of personal musical electronic equipment. The DAT, if it is al- 
lowed into the consumer market in the United States, would be another serious im- 



,vGoosle 



76 

provement in this field. The proposed restrictions on the device, specifically, the 
CBS anti-taping chip, seem to be an attempt to keep the DAT out of the U.S. 
market. The technical limitations of the frequency manipulation by the CBS chip 
make the device essentially unusable for any serious audio use. No one interested in 
quality recording will ever use a recorder with this chip in it. My rights as a con- 
sumer and as a working musician will, therefore, be denied, if the proposed restric- 
tions keep an important new machine out of the consumer market. I strongly urge 
you to examine these proposals in order to safeguard the original goals of copyright 
protection, without denying so much to the public at large. 

As a musician, and particularly as a composer, I have several serious objections to 
the proposed restrictions on the new form of audio technology — the Digital Audit 
Tape Recorder. These proposed restrictions would significantly inhibit, if not totally 
disallow, me from using an important, innovative technology in my field. None of 
my own uses of such a device would in any way infringe the copyright laws as they 
now stand. As a composer, 1 ceri^nly advocate copyright protection, but I believe 
the copyright laws already offer adequate protection. In any case, this proposed 
method of protection is particularly objectionable. It seems quiet clear that these 
restrictions are en attempt to essentially ban the device from the market. 

As a general matter, killing DAT will mean the loss of new format for enjoying 
music end will deny all artists a new market for their music. More specifically, the 
area of music in which I create will be particularly devastated by the denial of 
DATs. 

Like many other composers, I use audio tape recorders extensively in my work. I 
use both standard cassette and multitrack cassette recording equipment. The multi- 
treck equipment allows me to record different instruments or different musical ma- 
terials on the same instruments one at a time on the same tape. In this way, all the 
parts can be listened to separately, all together, or in any combination. Affordable 
home-use multitrack recorders have four to eight channels available with reasona- 
ble recording quality. A DAT, if the digital formats are available for digital mixing 
and editing, would give essentially unlimited mixing and editing capabilities. In 
analogue audio multichannel recording, each transfer from track to track results in 
a generational loss of quality. The digital process, possible with the DAT, would 
have basically no quality loss whatsoever. 

If the DAT becomes available in the suggested price range, major improvements 
in the quality of home recording of any composer or musician's music will occur. 
The exceptional quality and flexibility of these machines makes them highly desira- 
ble for this purpose. Also, once the music is stored as nvmiber sequences, many 
kinds of manipulations, such as digital filtering of noise and timbres, become easily 
accessible. These manipulations are normally a difiicult and awkward process on 
home analogue recorders. 

Many working musicians who use audio tape recorders as any artistic and compo- 
sitional tool believe, as I do. that we have been discriminated against by the new 
advances in digital audio. This has been particularly true with the introduction of 
CDs in the last few years, CDs are playback-only devices. The exceptional recording 
quality that is possible when recording music on CD is not available for the individ- 
ual's compositional use. 

The advent of the DAT in this country, though, would fulfill the needs of the ar- 
tistic populations who record their own music— just as the CD satisfied those whose 
only interest has been playing prerecorded music. Most of the music written in this 
country is recorded on nome recording equipment. It is ironic and unjust that musi- 
cians, of all people, would he denied access to the m^or improvements that are 
available to the average consumer. And it is out of the question for a serious com- 
poser to spend money on high quality digital audio equipment which cannot be used 
for composing and arranging one's own music. 

Most composers obtain performance contracts and career advancements by the ex- 
posure and dissemination of their music via audio tapes. The process of making and 
distributing these demonstration tapes must be at least comparable to the standard 
of quality that the consumer market enjoys; however, as the consumer market ad- 
vances into the high level of quality offered in digital technology, the musician will 
remain a generation behind in analogue tape. The DAT, on the other hand, will 
make individual artistic recordings finally affordable. 

Another serious problem that follows the CD format is the inability of small and 
independent companies to make recordings of music which do not have a high profit 
margin. Much of the standard twentieth century classical music repertoire is not 
available on CD, Because of a scarcity of pressing facilities, it is prohibitively expen- 
sive for small record companies to produce the music of living composers on CDs, 
Only large commercial music is beii^ produced. Since DATB are much more easily 



ivGoogle 



77 

produced, the introduction of them will certainly bring the high quality of CDs to 
contemporary classical music. 

There are several serious problems with the proposed CBS anti-taping chip tech- 
nology; 

1. In any serious classical muaic recording, the loss of frequency in the "notch," 
which is eliminated by the chip, will destroy the music written in the upper regis- 
ters of classical instrumentation and orchestration. Actual notes, written by the 
composer, which are heard in every performance, live or recorded, will disappear. 
Good classical performers spend their lives perfecting their technique and making 
every note heard. The complete disrespect for our finest orchestras and soloists in 
the great tradition of western classical music by this anti-taping chip is simply not 
acceptable. The fact that some popular music recordings will be minimally affected 
by this process is not a sufficient reason to degrade so much of our cultural herit- 
age. No classical music lover will ever purchase or use a machine that eliminates a 
multitude of notes in the climax of Beethoven's ninth symphony. It has been clearly 
shown that copyright protection can be easily accomplished without the disruption 
of music in the audio range. An encoding system to prohibit the reproduction of per- 
fect clones has already been accepted by the manufacturers of the DAT, which does 
not alter the music. Should it be possible to protect videotapes shown on television 
by cutting a "notch" out of the color spectrum to inhibit the illegal use of the home 
VCR? Would the public accept viewing videotapes without green, so that the VCR 
would be unable to record copyrighted films? The CBS proposal is an equivalently 
absurd proposal. 

2. The missing "notch" frequency will also create major problems in using the 
device for recording noncopyrighted material. Often in a recording session, certain 
passages of music will create sound around the "notch" frequency but not in it. This 
will be perceived by the chip as a record inhibit and will then stop the recording. 
There will also be many times when notes sound below the "notch." Their overtones 
and combined tones will trigger the same cessation of the recordings. This means 
that the CBS system will prevent written music from being recorded, even though 
no copyright infringement has occurred. No one can predict when these disruptions 
will happen. This is a totally unworkable situation. As a result, no working musi- 
cian will purchase or use a machine with such limitations, 

3. The proposed restrictions would also eliminate the use of the DAT as a mass 
storage device for home computers. In my music, 1 use computers as well as acoustic 
instruments to generate sound. The DAT would be a very reliable and inexpensive 
data storage system for computer users like myself This use infringes on no one's 
copyright protection. There is no reason to withhold this technology from this addi- 
tional market. 

Again, I urge you to review the methods now proposed to protect the DAT system. 
The question is not one of copyright infringement; rather, the question is whether 
these valuable technological advances will be banned from the American people 
who could most use them. 

Thank you for your attention to this statement. 

Senator Inouye. What sort of music do you compose? 

Mr. Bernstein. Contemporary classical is a retisonable defini- 
tion, I guess. 

Senator Inouye. And you play your music on this equipment? 

Mr. Bernstein. No, I do not. But I work with tape recorders in 
composing, by using multiple tape recorders to work with severtil 
instruments myself within a general studio use. 

Senator Inouye. Do you believe that your effort is a property 
right? 

Mr. Bernstein. My compositional work? 

Senator Inouye. Yes. 

Mr. Bernstein. Yes, I do. 

Senator Inouye. Do you believe it should be protected? 

Mr, Bernstein. Yes, I do. And I believe it in general has been 
protected by the present copyright laws, and that the amount of 
home taping or people copying my work without my permission 
has personally benefited me and a lot of composers extensively. 



,vGoosle 



78 

I have had apotc^es given to me after concerte from people that 
they have illegally^and that is a word that I have heard before — 
copied my music from cassette tapes, and when there was no other 
route available, and they come and they buy the other cassette 
copies that are available at the concert or at certain distribution 
networks. They come and tell everyone else they know. 

It has been very helpful, and I have found that the number of 
people who would purchase a record of an unknown composer is 
very small. There are thousands of modem composers who no one 
knows of, and recordings are expensive. A lot of things are expen- 
sive. 

People need to hear my music first, get used to the new ideas, 
and then are in my regular audience after that point. 

Senator Inouye. The case I cited was not hypothetical. I did not 
want to mention the person's name because he -was a former col- 
league of mine in the United States Senate, who made 100 tape re- 
cordings of a famous speech. And he took it off another tape, and 
he passed it around to his colleagues. 

Now, would you object if I made 100 tape recordings of your com- 
position and passed it out among my colleagues in the United 
States Senate as a gift? 

Mr. Bernstein. The first thing I am thinking of is the fact that I 
give out betwee 500 and 1,000 audio tapes of my music every year. 

Senator Inouye, That is part of your business, is it not? 

Mr. Bernstein. That is part of my business. 

Senator Inouye. That is part of publicity. 

Mr. Bernstein. And arranging performances and disseminating 
contemporary music, not just my own music but also the music of 
other composers who I work with in exchange systems. I often do 
get recordings from young composers in Europe, asking me to dis- 
tribute them in that same way to people who would be interested 
and would enjoy it. 

Senator Inouye. That is part of free enterprise. But if I purchase 
one of your tapes and make 99 copies and pass it out, you will not 
object to that? 

Mr. Bernstein. Not under the copyright laws as I have been led 
to understand them and the way I feel about them, which is a lim- 
ited copyright protection, not an exclusive copyright protection. 

I may not like, and it certainly does not feel good, to have my 
music copied that way, but the benefits available by limited copy- 
right protection for the dissemination of information in general has 
beneHted me immensely as an individual and as a musician. 

I am not a person that could define the number of copies that 
differentiates the dissemination of information and copyright in- 
fringement. The legal activity is beyond me. But I think it htis been 
very beneficial to have non-commercial home copying in certain 
forms available in this country. 

I use it a lot. I use Xerox machines a lot, I believe within the law 
for educational purposes, studying scores. I buy a score, I Xerox it. 

Ms. Travers. That is against the law. That is a violation of copy- 
right law. 

Mr. Bernstein. To Xerox a score? 

Mb. Travers, To Xerox a score. 

Mr. Bernstein. To study? 



,vGoosle 



79 

Ms. Travers. To Xerox a score. I am sorry. 

Senator Inouye. You had better watch it. You may go to prison. 

Ms. Travers, if I made 99 copies of a recordii^ 

Ms. Travers. I would be mad iis hell, I would. And so would a lot 
of other people. The producer of my record, who is paid on points of 
sales, would be upset. The publishing company of maybe ten differ- 
ent writers would be upset. Ten lyricists, ten musicians who had 
created the music, because very often a song has a lyricist and 
someone who writes the music. 

They are all entitled to every sale or part of that sale. It is not 
just my copyright as a performer I am trying to protect. What I am 
protecting also and concerned about, those people who earn their 
living, not standing on a stage singing, but who earn their living 
writing. And when they sell a song to an artist who is able to sell 
records, it is very important to them. 

When you go to a record company, and if you are lucky enough 
to have them — and I have produced albums on my own, without 
the ability of having the big distribution that a record company 
has. The record company ta^es an artist when they think they 
might be able to make their costs back, and their costs are enor- 
mous. 

And they do not sign artists who are in what I would call very 
artistic areas, but not areas where there is a mass appeal. Unfortu- 
nately for the world, classical music is not sold in the numbers that 
popular music is sold. And that means that it is harder for a classi- 
cal artist to sell records. 

But I believe that classical artists would do better if major record 
labels could afford to lose a little money on them. But if m^or 
record labels are being counterfeited by those at home, they will 
not be able to afford to carry an artist who deserves exposure, but 
who cannot pay his own way. 

Senator Inouye. In determining the price of a recording to the 
consumer, let us say $15, in the determination of that I presume 
there are all different costs: a certain percentage for the perform- 
ing artist, for the lyricist, the composer, the recording company. 

Ms. Travers. The graphic artists. 

Senator Inouye. What have you. 

Is there also a special markup to compensate for those who will 
be making the recordings off your recordii^ 

Ms. Travers. No. 

Senator Inouye. So you are not getting anything out of someone 
who is recording your recording? 

Ms. Travers. No. I get their enjoyment and I am glad they had a 
good time, but I wish I had been there. 

Senator Inouye, Well, I thank you very much. You have been 
very helpful. 

Ms. Travers. Thank you. 

Mr. Bernstein. Thank you, Mr. Chairman. 

Senator Inouye. Our final panel consists of Mr. David Stebbings, 
CBS Record Technology of Milford, Connecticut; Mr. Leonard Feld- 
man. Electronics Laboratories, of Great Neck, New York; and Mr. 
Fred Weingartcn, Communication and Information Technologies, 
Office of Technology Assessment of Wsishington. 

According to my witness list, Mr. Stebbings starts off. 



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80 

STATEMENT OF DAVID STEBBJNGS, DIRECTOR OF RECORDING 

RESEARCH. CBS RECORD TECHNOLOGY, ACCOMPANIED BY 

LAWRENCE GARDNER, SENIOR ENGINEER 

Mr. Stebbings. Good morning, Mr. Chairman and members of 
the subcommittee, I am glad to be here. 

I am David Stebbings, Director of Recording Research at the CBS 
Record Technology Center in Milford. And with me this morning is 
Lawrence Gardner, a senior engineer working on the project. 

We welcome this opportunity to explain and demonstrate the 
CBS copy-code system in action. The copy-code system hais two es- 
sential elements. The first is this electronic device — I hope you can 
see this, the encoder, which is used in the recording studio to 
remove from a master tape a very narrow sliver of sound or notch. 

Listeners cannot distinguish a coded recording from a recording 
which is not coded. To demonstrate, let me play the same brief seg- 
ment of a familiar Barbra Streisand song from the Broadway 
album, one from the compact disk or CD that has been coded 
through this device and one from a CD that has not been coded. 

The lights you see on either side will indicate which of the two 
CD's you are listening to. And I invite you to try and identify 
which recording was coded. 

[Recordings played.] 

Even professional listeners, record producers, artists, and studio 
engineers have not been able to reliably detect which CD was coded 
and which was not. 

Larry, which light indicated the copy-code CD? 

Mr. Gardner. The blue one. 

Mr. Stebbings. I understand it was the blue one, Mr. Chairman, 
because I certainly could not tell from here. 

The second element of the copy-code system is the copy code 
scanner. It is an integrated circuit or chip which could be like this, 
and it would be built into a DAT recorder. When someone attempts 
to tape a musical selection that has been coded, this chip seems the 
music looking for the notch. 

And when it finds it, it would inhibit the recording for about 25 
seconds. The cycle would then be repeated continuously. The chip 
will look again for the notch. If one was found, it would again in- 
terrupt the recording. So the final tape made by the taper of an 
"uncopyable" piece of music would thus consist of portions of music 
interrupted by periods of silence. 

Over here 1 have a standard cassette recorder — I have not got 
access to DAT machines yet — which is equipped with a scanner of 
the type I have just described. It will allow normal taping of tm.y 
album that is not protected by the copy code notch. The scanner 
will simply scan the music, determine there is no notch, and 
permit copying. 

When the music has been coded, however, it will be detected and 
the recording will be interrupted. To demonstrate, we would insert 
a new cassette into this recorder and attempt to copy the coded CD 
that you were just listening to, 

Larry here is pretending to be, if you will, the home taper. You 
will be listening while we are taping to the coded CD source, and 



,vGoosle 



81 

then after we have attempted to make the recording we will roll 
the tape back and show you what happens. 

We have tried to make this recording on a new ceissette tape, and 
Larry is now winding the recorder back and let us listen to the 
result off this tape. 

[Recording played.] 

Mr. Chftirman, you may notice that, unfortunately, the music 
has been interrupted. This is the heart of what the (AS copy-code 
system is all about. 

Representatives of the Japanese electronics industry have been 
attempting to show that the CBS copy-code system notch would 
have an unacceptable effect on sound quality. Since the hardware 
manufacturers have never been given any of the units we have 
built at CBS, it is apparent that they were demonstrating a system 
that they themselves had built, and not the CBS copy-code system. 

Moreover, the Japanese engineers made some errors in encoding 
the demonstration tape which could easily have been avoided with 
CBS technology. 

Unfortunately, the partisan nature of this issue has generated 
some biased and inaccurate reportage about the copy code's effect 
on audio quality. To comply with the recommendation made by 
Chairman DeConcini and Chairman Kastenmeier and in the hope 
of movir^ beyond this distracting area of the controversy, we 
intend to arrange to submit the copy-code system for testing by the 
Nationeil Bureau of Standards. We only ask that they perform 
their tests in a timely manner so as to not impede the progress of 
this l^islation. 

Finally, I would like to comment on the assertions of the repre- 
sentatives of the hardware manufacturers and MITI that their own 
technological solutions will prevent digital to digital copying. First, 
there may now be a difference in frequency sampling rates be- 
tween CD players and DAT machines, but what is to assure that 
that difference would exist next week? Both Sharp and Hitachi 
have tdready shown machines without the differential as proto- 
types, and converter boxes can easily harmonize the frequency 
sampling rates. 

Second, the hardware manufacturers claim that digital flag codes 
will make digital to digital copying impossible, but the code is 
easily defeated in a number of ways. These are explained more 
fully in my written testimony. 

Third and most importantly, the so-called protective alternatives 
do not address the problem of digital-analog-digital copying at all. 
All you need to do is to plug the CD player directly into the DAT 
with a standard stereo hookup cable, which costs about 75 cents. 

In conclusion, Mr. Chairman, the CBS copy code scanner system 
works and is available for implementation. The scanner will add 
virtually nothing to the cost of the DAT's large scale integrated cir- 
cuit. 

Equipment manufacturers are free to develop a compatible chip 
that can perform the same functions, maybe more efficiently or at 
lower cost. And CBS has pledged to license both the encoder and 
copy code scanner that it has developed on a royalty-free basis for 
both hardware and software manufacturers. 

Thank you once again, Mr. Chairmem, for allowing me to testify. 



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[The statement follows:] 



Good Morning, Mr. Chairman, and membere of the Subcommittee. I am David W. 
StebbingB, Director of Recording Research, at the CBS Records Technology Center in 
Milford, CT, With me this morning is Lawrence E. Gardner, a senior engineer, 
working on the project. We welcome this opportunity to appear before you today to 
explain and demonstrate the CBS copy-code system. 

THE CBS COPY-CODE SYSTEM! PROTECTION FOR COPVRIGHTED RECORDINGS 

The copy-code system has two essential elements. It begins with this electronic 
device — the encoder. It removes from a master recording a very narrow silver of 
sound or notch — at a frequency placed so as to fall between the fundamentals, over- 
tones or harmonics of notes on the musical scale. The change caused by the encod- 
ing process is inaudible and does not affect the quality of the music. Listeners 
cannot distinguish an encoded recording from an unencoded recording. To demon- 
strate, let me play the same brief segment of a familiar Barbara Streisand song 
from "The Broadway Album" — one from a compact digital audio disc or CD that has 
been encoded, and one from an unencoded CI>— and I invite you to try to identify 
which is which. Even professional listeners, record producers and studio engineers, 
have not been able to reliably detect which CD was encoded and which was not. 

The second element of the copy-code system is the copy-code scanner, an integrat- 
ed circuit or chip that is to be built into the recording mechanism of any kind of 
audio recorder. For example, it may be incorporated into one of the large scale inte- 
grated semiconductors or LSI, which are part of the Digital Audio Tape recorder or 
DAT machine. When someone attempts to tape a musical selection that has been 
encoded, this chip scans the music looking for the encoded "notch." When the notch 
is detected, the copy-code scanner inhibits the recording function of the machine for 
a period of about 25 seconds. The cycle is then repeated; if the scanner again deter- 
mines that the notch is present, the recording function is interrupted for another 25 
seconds. The final tape made from an encoded or "uncopiable" music selection will 
thus consist of portions of music interrupted by periods of silence. 

This is a standard cassette tape recording machine which we have equipped with 
a scanner of tiie type I have just described. It will allow normal taping of any aJbum 
that is not protected with the copy-code notch. The scanner will simply scan the 
music, determine that there is no notch, and permit copying. 

When the music has been encoded with the notch, however, it will be detected 
and the recording will be interrupted. To demonstrate, we will insert a new premi- 
um, music-quality blank cassette into this recorder and attempt to copy the encoded 
CD you just listened to , , . 

Let us listen to what was taped on the machine . . . You notice that the music 
was interrupted and the same thii^ will happen whenever an attempt is made to 
copy music from an encoded source on an audio recording device equipped with a 



The copy-code system was designed by the engineers at the CBS Records Technol- 
ogy Center, and we have developed over the past 5 years very sophisticated units. 
As you have just seen and heard, our system works, although representatives of the 
Japanese electronics industry have gone to great lengths to try to show that it does 
not. I have now witnessed two demonstrations sponsored by the Home Recording 
Rights Coalition which attempt to show that the notch included in musical record- 
ings using the CBS copy-code system would be audible, and would have an unaccept- 
able effect on the sound quality. Since the HRRC and the Japanese electronics in- 
dustry have never been given any of the units we have built at CBS, it is apparent 
that they were demonstrating a system that they themselves had built — not the 
CBS copy-code system. I am not sure whether to be disturbed or flattered by their 
attempts to emulate our technology. But the simple fact is that the flaws in their 
system prove nothing about how well our system works. 

First, let me point out that whatever system the Japanese are demonstrating, it is 
not a true copy of the CBS system. We have yet to release our technical specifica- 
tions for the encoder to anyone outside the music industry. Moreover, the Japanese 
engineers appear to have made some errore — perhaps unintentionally — in encoding 



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the musical recording usad for the demonstration. Without getting too technical, let 

me just state for the record that the encoding notch in the music was cut too wide- 
far wider than ie necessary for the copy-code scanner to recognize and react to the 
notch. And it was placed on musical notes that were part of the recording in a way 
that overlapped with audible sound. Suffice it to say that any competent audio ei^- 
neer could easily avoid any of these obvious mistakes, at least with CBS technology. 

I should also note that the Japanese representatives are demonstrating only the 
function of the encoder device. Such a demonstation is not really responsive to the 
requirements that would be imposed by the legislation now before you — which re- 
lates only to the other half of the CBS copy-code system— the copy-code scanner 
chip, not the encoding device. In any event, as our demonstration here today has 
shown, a properly encoded musical recording, when played back, is indistinguish- 
able from an unencoded version, and professional sound er^neer^ throughout the 
studio industry have confirmed that this is true, by extensive listening trials held in 
their own studios. 

Unfortunately, the partisan nature of this issue has generated some biased and in- 
accurate reportage about the copy-code's effect on audio quality. To comply with a 
recommendation made by Chairman DeConcini and Chairman Kastenmeier, and in 
the hope of moving beyond this distracting area of the controversy, we intend to 
arrange U> submit the copy-code for testing by the National Bureau of Standards. 
We will ask only that they perform their tests in a timely manner so as not to 
impede the progress of this l^islation. 

THE JAPANESE EUECTRONics industky's proposai£ for protecting copyrighted 



In an apparent effort to fend off U.S. legislation, representatives of Japanese elec- 
tronics companies and the Japanese Ministry of International Trade and Industry 
(Mm) have suggested that there is no reason for the music industry to be con- 
cerned about the impact of DAT because their machines will conform to a DAT Con- 
Terence Standard which will prevent digital-to-digital copying. I would like to com- 
ment on those assertions. 



First, they claim that digital-to-digital copying will not be possible because DAT 
machines mil record at a different "frequency sampling rate" than that at which 
CDs are played. This may be true for the moment. But the technolc^ already exists 
for DAT machines which record at a frequency sampling rate identical to the rate 
at which CDs are played. In fact, the machines already exist: they have been shown 
as prototypes at recent audio fairs and consumer electonic shows by such major Jap- 
anese manufacturers as Sharp and Hitachi, among others. 

Hemember that this DAT Conference Standard is merely a voluntary agreement 
among various equipment manufacturers; it can be changed at any time. Who is to 
say that these Japanese manufacturers, or others, won't change their minds next 
week, or next year, and b^n to market machines designed for direct digital dub- 
bing from CDs? And even if the Japanese companies don't, what is to prevent the 
Korean electronics manufacturers from doing so? Or the Taiwanese? 

Moreover, the technolc^y also exists for the manufacture of "converter boxes" 
that can harmonize the frequency sampling rates of DATs and CDs. In fact, you can 
buy the chip necessary for such a converter box today, right out of the Sony catalog. 
It is obvious that the frequency sampling rate differential is small comfort to the 
copyright owners who are attempting to protect their works. 

Second, the Japanese electronics industry's representatives have stated that digi- 
tal "cloning"— that is, digital -to-digital copying, such as from a CD directly to a 
DAT or from one DAT to another DAT— will be impossible because of a digital flag 
code that accompanies the copyrighted musical recording. But the fact is that such a 
code is easily defeated in a number of ways. For example, anyone who is familiar 
with computers can write a simple computer program to "turn off" the flag code so 
that it will not inhibit recording. Easily enough, he or she could use that program in 
conjunction with inexpensive semiconductor chips to permit digital-to-digital record- 
ing. Alternatively, one could build or buy a "black box," probably for under $50, 
that would elimiante the flag code. 



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The main point is that these so-oalled protective alternatives are designed to do 
but one thing— prevent direct-input, digital-to-digital copying— the kind of copying 
you would do by plugging a DAT directly into a CD player. Putting aside that these 
alternatives are so easily defeated they do not even effectively accomplish this limit- 
ed objective, they still permit digitsl-analog-digital copying which just as surely, and 
just as completely, undercuts the copyright protection of the recording. All you need 
to do is plug the CD player either directly or via your stereo receiver into the DAT, 
using this standard connecting cable which coets about T5t, , . . The flag code 
cannot prevent this sort of copying. 

The Japaneses DAT manufacturers claim that digitai-analog-digital copying would 
entail an unacceptable degradation in the quality of the recorded copy — a loss of 
about 10 dB of signal-to-noise ratio compared to Uie or^nal digital recording, and 
that this would deter would-be home tapers. Now, their 10 dB figure is rather high; 
ei^neering studies indicate a loss of only 3 dB, But even if the loss were as high as 
10 dB, for most people the difference in sound quality between the copy and the 
original will be inaudible. The copy would still be of vastly improved quality over 
what it available through existing technology. With the highest fidelity analog re~ 
corder (equipped with the Dolby C noise reduction system), audiophiles can enjoy a 
s^nal-to-noise ratio of 75 dB. With a DAT machine, the signal-to-noise ratio can 
soar to 98 dB. Even after decoding and re-encoding the d^tal signal by running it 
through a stereo reciever, tapers will still enjoy a signal-to-noise of 88 dB, which 
means that a digital-analog-digital copy will sound 4 to 5 times better than the best 
analog tap available. Moreover, that copy can then be used to produce digital clones, 
with zero loss of quality, when the home taper uses two DAT machines connected 
together. 

THE CBS COPY-CODE SYSTEM IS R&ADY FOR IMPLEMENTATION, WILL BE INEXPENSIVE, AND 

The copy-codii^ technology that I have demonstrated and described here today is 
ready now for implementation. The encoding device you see here is ready for manu- 
facture. The circuitry in the scanner we have here is presently being designed in 
semiconductor chip form, and prototypes will be available shortly for sampling to 
the industry and for mass production as a part of a large scale integrated circuit. 

An important feature of our copy-code scanner is that it is inexpensive when pro- 
duced in large volume for inclusion in DATs. The scanner is expected to add virtual- 
ly nothing to the cost of producitng the large scale integrated circuits that will go 
into the machines. 

We are confident that the electronic circuitry we have developed is efficient, reli- 
able and suitable for mass production for consumer products. However, if the Ja- 
panses manufacturers of audio recording devices believe that they can develop com- 
patible circuitry that can perform the same functions more efficiently or at lower 
cost, they should be free to do so. That is why the proposed legislation prescribes 
only the functional requirements of a copy-code scanner, and not the specific engi- 
neering solution that CBS has developed. In any event, in recognition of the impor- 
tant benefits this system will provide to all copyright beneficiaries, we at CBS have 
pledged to license both the encoder and the scanner that we have developed on a 
royalty-free basis for all hardware and software manufacturers. 

Thank you i^ain. Mr, Chairman, for the opportunity to testify. I shall be happy to 
answer any questions you may have. 

Senator Inouye. Thank you very much for testifying, Mr. Steb- 
bings. 
Mr. Peldman. 

STATEMENT OF LEONARD FELDMAN, ELECTRONIC 
LABORATORIES 

Mr. Feldman. Thank you. Mr. Chairman. 

My name is Leonard Feldman. I come basically with an engineer- 
ing background and, while I certainly respect everything that Mr. 
Berman has said in previous testimony, he made certain technical 
specification statements which I would like to correct. 



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In the first place, I would like you to take a look at that ma- 
chine, the DAT machine, which we fortunately do have here to 
demonstrate. You will note that it is really no different in appear- 
ance from any other previous recorder or any other audio compo- 
nent. 

It does not explode when it is turned on. It does not pollute the 
atmosphere or anything of that nature. It simply records. 

The statement was made earlier that it will make a near-perfect 
recording. Indeed it will. Recording has progressed from Edison's 
days, as we said earlier, through the cycle of the 78 rpm, the LP, 
then the stereo LP recording, and finally the compact disk, which 
we are all enjoying and which has been a great success thus far. 

And now we move very logically to the digital era. Just eis we 
went from LP's to compact disks, which are digital in their format, 
80 it is a natural progression to go from the high quality audio cas- 
sette recorder which has been around for some years now, to the 
digital domain recorder. 

The question of near-perfection came up in earlier testimony 
which I was privileged to present, in which we made a demonstra- 
tion that there is not time for today, but I would like to describe it 
to you briefly. We played a CD, a selection from a CD. 

We played the same selection as recorded onto a high quality 
audio cassette deck, an existing analog audio cassette deck. Then 
we played the same thing as recorded onto one of these new DAT's. 
And we played all three recordings back. 

And just as occurred now, you probably had difficulty in distin- 
guishing between the so-called encoded and un-encoded versions, no 
one could tell the difference. 

Senator Inouye. If that is the case, why would I pay $1,300 to 
buy something, if I cannot tell the difference on it? 

Mr, Fbldman. Because ultimately this is the way the technology 
is going. It is digital, it preserves, it does not wear out with repeat- 
ed playings as quickly. There are many advantages, which I could 
go into on a technical level. 

But the figures quoted before, if we were to take a present day 
recorder and use Dolby C, which is a noise reduction system, we 
would be almost at the same quality, not quite, I agree not quite, 
but we would be almost at the same quality level as what this new 
machine can do. 

In any event, the DAT recording, since you have probably never 
heard one, I would like to play just a couple of seconds of music 
from a DAT. 

Senator Inouye. Sure. I have got plenty of time. Can you identify 
this for the record, so we will know who made it? 

Mr. Feldman. It is a Technics unit. I do not know the model 
number because it is not available in this country, obviously, and 
so it has probably a model number as being sold in Japan at this 
point. 

SV-DIOOO, I am told. But in any case, we would just like to play 
a few seconds of music. 

Senator Inouye. So this is manufactured in Japan? 

Mr. Feldman. That is correct, sir. 

[Recording played.] 



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Mr. Feldman. I am sure we would all like to listen a little 
longer, but in the interest of time 

Senator Inouye. And that was a recording made by? 

Mr. Feldman. That was a prerecorded selection. In other words, 
software that was prerecorded in full digital. 

Incidentally, a statement was made somewhat earlier that there 
is no one — or there is no way of making prerecorded software. I 
must tell you that there are at least four American companies that 
I know of, small record companies, who are just chomping at the 
bit to provide this kind of software. 

Here is an example of a demonstration tape by an American 
company called DMP that is ready, ready and waiting for the hard- 
ware to be available, so that they can start selling their prerecord- 
ed digital high quality software. 

In any event, let me go on to the proposed solution to what may 
or may not be a problem, as described by my good friend — and we 
are friends from way back — Mr. Stebbings. In the first place, he 
keeps alluding to the fact that our demonstration is inaccurate, the 
demonstration which I hope to present to you in a moment. 

The fact of the matter is that among my other duties, I also 
write for Audio magazine. I am one of the senior editors oi Audio 
magazine. And Audio magazine, strangely, is owned by CBS, the 
very people who are promoting this idea. And we have repeatedly 
asked the people at CBS Records, another division, if you will, to 
tell us, if indeed we are not performing this experiment correctly, 
please tell us what we are doing wrong; in what way are we falsify- 
mg the demonstration? 

Thus far, they have refused to do so. I do not know why, really. 
Perhaps in the course of questioning you may wamt to address that 
issue. 

But in any case, what I am proposing to demonstrate to you now 
is exactly the system that CBS' own personnel described to me a 
year and a half ago, because this is not a new technology. Mr. 
Chairman, this technology was developed many, many years ago. 

It is archaic. It has been lying dormant in their closet, literally, 
until they saw a possibility of providing it. The technology as de- 
scribed 

Senator Inouye. Maybe I could ask the question now. Why have 
you people not checked it out? 

Mr, Stebbings, Straightforward, Mr. Chairman, because Mr. 
Feldman has just said that it is archaic, I can assure him that, al- 
though the basic concept of using a notch and switching off a re- 
corder is an old idea, nevertheless the details of our coder and our 
equipment of course is subject to continuous improvement. 

And it has not been in the closet, I assure him. I would not be 
worth my salt as an engineer if I could stand in front of you and 
say that we have done nothing to improve the coder after the last 
three or four years work, in which I have worked with the record 
companies and studies and engineers Eind artists around the world 
in order to make our system inaudible. 

Clearly theirs is not like ours. Ours is inaudible. His is audible. 
You will hear that in a moment. 

Mr. Feldman. Well then, as I said, sir, I would simply like to 
know in what way we are not duplicating the experiment correctly, 



,vGoosle 



87 

80 that we might correct our experiment, because it is my conten- 
tion, sir, that any time you take any kind of a notch out of music 
you are going to remove part of that music. 

I do not care if that notch is one hertz wide. At the moment it 
happens to be considerably wider than that. But whether the notch 
is 250 hertz wide, as shown in this diagram — and this is a simula- 
tion that we are going to demonstrate, by the way. 

This is part of the music that is taken out. It is not in some 
Buper-audible r^on, as you might say, in the supersonic region, 
where perhaps it might not be audible. This is very near the center 
of the audio spectrum, and therefore must afTect the music in dele- 
terious and d^rading ways. 

There is no way that you can make that notch narrow enough so 
that under some musical conditions it will not be heard. Admitted- 
ly, one can find music in which it will not be heard, as you just had 
demonstrated. 

But I would say, especially in the classical domEiin, in piano, in 
solo piano, in single instrument, in chamber music in particular, 
you will hear it, and dozens of engineers have heard it and have 
immediately identified the presence of the notch^ — not my notch, 
not as I am going to do it, "incorrectly," but as demonstrated re- 
cently by Mr. Stebbings himself in England, where engineers as- 
sembled emd heard it, as reported in a copy of Television Digest, a 
very reputable publication, which copy is included in my written 
testimony. 

In any event, let me go on and indicate, perhaps in a more musi- 
cal sense, what we are talking about here. The notch as we under- 
stand it — and again, I stress this was told to me by one of the de- 
velopers of the system over a year and a half ago. 

The notch occurs near the upper end of the piano scale, of the 
piano keyboard. These two notes are directly affected and attenuat- 
ed if that notch is present. 

However, as you well know, I am sure all of you realize that 
music does not consist of fundamental tones alone. There are over- 
tones or harmonics which contribute to the timbre, the quality of 
an instrument. A piano sounds like a piano and not like a clarinet 
because of the content of those overtones. 

Therefore, all of the notes that I have highlighted in red would, 
to some degree, less or more, depending upon where they are as in- 
dicated by this scale, be affected by the insertion of this arbitrary 
notch. 

Now, it has been stated that the notch is "between two notes." 
Well, in modern music or in any music, for that matter, there is no 
such concept as being between two notes. Does not the violinist use 
vibratto when he plays? Does he not move the frequency up and 
down? 

Is there such a thing as absolute tuning of an instrument? No. 
Different orchestras tune to different places. In any event, no notch 
that I can conceive of can be thoroughly disguised so as to be in- 
audible under all circumstances. 

And if I may, I see time is getting short. Let me proceed to the 
demonstration itself First, what we will demonstrate is going to be 
perhaps a little unpleasemt to the ear. It is going to be nothing but 



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a sweeping tone, if you will, a single solitary tone that is going to 
move up in frequency right past the notch and then down again. - 

In the first playing, we will not have used this notch, and bo ' 
what you should see if you observe the meter indications on the in- ' 
strument is that the sound will be continuous, it will be a bit dis- 
turbing, perhaps. I Eim sorry for that. But it will be continuous, and ■ 
there will be no extraction of any portion of it. 

If we can proceed with that 

[Audio demonstration.] 

Now with the notch inserted, watch what happens to the meter 
and listen to what happens with the sound. 

[Audio demonstration.] 

I am sure that was obvious to everyone. There is a difference. 
But of course, we do not listen to single sweeping sine waves, I 
grant you that. And so now let us try it with a music instrument. 

We are going to have a reproduction now of four piano notes in 
the region that I indicated, up near the top of the piano keyboard. 
And I would ask you to listen first to the bell-like quality of the 
overtones in the four piano notes as they are played. 

In the second playing, we will do the same thing we did now. We 
will insert the noteh. It has been inserted in the recording, of 
course. And notice what happei^, particularly to the second and. 
fourth notes in this musical sequence if you would, please. 

First, without any of the encoding notch. 

[Audio demonstration.] 

And now encoded, the second and fourth notes. 

[Audio demonstration.] 

That perhaps was a little more difficult to detect, but I am sure 
most of you did. However, for those who did not, we are going to do 
it again. Please, first without encoding. 

[Audio demonstration.] 

And now with the notch, second and fourth notes. 

[Audio demonstration.] 

Did you notice how the overtone, the bell-like quality, of the 
second £md fourth notes disappeared? It became sort of dull-like, 
almost like a wood block sound, rather than like that clear, sharp 
piftno note. 

I wish Ms. Travers were still here to hear this demonstration, be- 
cause I think she as a pure artist would object to any of her sound 
quality being modified in any way or in any way altered. Artists 
pride themselves on the nature of their sound. 

Senator Inouye. The purpose of the alteration, I suppose, is to 
discourage recordit^, is it not? 

Mr. Feldhan. No, sir. The purpose of the alteration was so that 
that scanner circuitry — which by the way does not exist as a chip 
at all. What the gentleman showed you is, he mentioned it would 
be something like this. It does not exist as yet at all. 

But in any event, it is just so that scanner circuitry would recog- 
nize the absence of those frequencies. It is on the absence of those 
frequencies that the scanner system works. That is what makes the 
system shut the recorder down. 

So by putting in the notch — you see, you have to put it in if you 
want that recorder to shut down. Otherwise, the recorder does not 
shut down. 



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89 

And I might add, several major, major recording engineers and 
recording artists in this country have already heard this and have 
objected strenuously and say they do not want it and they do not 
want to use it, it corrupts the quality of their product. 

We feel certain that, if you were able to detect the effect of this 
notch filter that this sort of musical d^radation would introduce 
to future records and tapes if Congress passes one of the several 
proposed bills to restrict audio technology — even worse, the notch 
might very well not be limited to future prerecorded digital tapes. 

It was said here that every old recording can still be copied effec- 
tively. But what happens when you have to remake those record- 
ings? Recording companies do not have infinite inventory, and 
when those recording company people would go back they can do it 
to LP's, they can do it to re-issues of LP's, re-issues of CD's. 

Even, I might add — and this is not generally known — a radio 
broadcaster could now put this notch right in his signal line and 
restrict you from recording anjrthing broadcast over the air on a 
DAT machine, of course. 

In other words, all you need is the notch, and if that machine 
then has to carry that scanning device it will shut down when you 
record radio programs, even TV sound, because the TV broadcaster 
can see this as a way of preventing the copying that was legalized 
by the Supreme Court, simply by inserting the notch in all his 
audio channels, and you try to record it on a DAT machine, you 
cannot do it because that same DAT machine will shut down even 
on the sound portion of a TV program if this thing proliferates. 

In any event, the freedom to make tape recordings in your own 
home for non-commercial use is, as we said, being threatened, and 
so is the high fidelity quality of records and tapes that you might 
want to buy now or in the future. And it is really the high fidelity 
aspects that concern me most as a technical person. 

Thank you very much, sir. If there are any questions, I will be 
happy to answer them. 

[The statement follows:] 



Mr. Chairman and members of the subcommittee, my name is Leonard Feldman. 
I have been involved in the audio and video industries for more than 30 years, fcioth 
aa an engineer and as a product evaluator and technical journalist. I have written 7 
books on audio subjects and currently I am senior editor of Audio magazine and 
technical editor of Video Review. 1 serve as a representative from the United States 
to one of the technical committees dealing with audio standards of the International 
Electroctechnical Commission ("lEC"), a world standards body. I am a member of 
the Institute of Electrical and Electronic Engineers ("IEEE") as well as of the Audio 
Engineering Society ("AES"). 1 own my own laboratory and consulting firm. And for 
7 years 1 have been a consultant to the Consumer Electronics Group of the Electron- 
ic Industries Association. 

My reasons for urging you not to enact S. 506 are simple. Digital audio tape re- 
corders, or DATs, are a step forward in technology. The CBS anti-copy system man- 
dated by S. 506 is a step backward, I will explain what the DAT does do, what it 
does not do, and why. And, I will demonstrate that, as recording engineers and 
music critics here and abroad have found, the encoding system chosen by my friends 
at CBS does, indeed, distort any music in which it is inserted. 



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combines the recording technique perfected ii 
on a rotating drum, with the tape moving past at an angle — with the digitel elec- 
tronics used in compact disc players as illustrated in this aiagmn. In fact, for sever- -'^ 
a] years, you and 1 have been able to make digital home recordings, by buying some' 
thing known as a digital audio processor, and hooking it up to any VCR. You can do 
this today, for about half of what a DAT is expected to cost But you would be lack- 
ing the convenience, compactness, and easy of operation that the new format will 
offer. Here is a DAT tape. See how much more compact it is than a standard analog 
ceesette or a BeU or VHS video tape. 

DAT's will not make digit AL-TO-DICITAI. copies op paSRBCORDED UUBIC 

The DAT speciiications that resulted from an open international conference biok 
into consideration the question of digital-to-digital copying. 

By digital-to-digital copying we mean hooking up the electronic pulses directly, 
without converting back to analog music frequencies, ao as to make an electronic 
copy that is a perfect clone of the input. The DAT system provides for a "flag" or 
digital code to be placed in the digital data to indicate to any digital recorder that 
digital-to-digital recording should not be allowed. This special digital code, if includ- 
ed in a CD reconiing or on a future DAT prerecorded tape, can be set so that digi- 
tal-to-digital is not poesible. 

The DAT conference required DATs to read and respond to this code. When a 
DAT reads this code, which is there thousands of times a second, it stops recording. 
Unlike the proposed CBS anti-taping chip system, however, this does not interfere 
with the DAT's ability to record the same material after it has been converted to 
anal(% form and reconverted to digital. This type of recording, which is not all that 
different from what consumers have been able to do for their own use with ordinary 
cassette tape recorders that have been around for nearly 20 years, would result in a 
recording that Is three times (lODBl noisier than the ori^nal.' The result is still a 
very good recording — slightly better than you can do with some of the best con- 
sumer analog audio recordinE systems available today — but by no stretch of the 
imagination a "perfect master or "digital clone." 

This digital copy prevention code is already on most of the digital masters from 
which compact discs now on the market have been made. As it Is not part of the 
music, it has not effect on quality. A second copy-prevention method incorporated in 
the DAT standard is the use of a different digital sampling rate — 48KHz — than the 
44.1 KHz rate used in recording CDs. (The "digital sampling rate" is the number of 
times per second the frequency curves are measured, or sampled, when they are 
converted into digitized pulses.) 

The DAT is unable to record at the 44.1 KHz rate. So di^tal-to-digital recording 
from CDs is prevented by both a belt — the digital copy inhibit code — and suspend- 
ers—the different CD sampling rate. Moreover, most CD players on the market 
don't even have digital outputs. 

In summary, what the DAT does is make high quality recordings through its 
analog inputs, of quality comparable to the best analog decks presently available — 
which is quire good, indeed. But if ^ou want digital master qu^ty, you have to buy 
a prerecorded digital tape. These will be so superior to the prerecorded analog tapes 
available now that, personalty speaking, I can hardly wait. Althoiuh I understand, 
from the May 11. 1987 issue of the respected trade publication Television Digest, 
that five major record companies have announced a world-wide boycott of the DAT 
format, 1 know that several smaller companies are very interested in putting out 
prerecorded DAT software as soon as possible, and that duplicating facilities are al- 
ready available. 

THE CBS COPV-CODE SYSTEM IS A SEVERE STEP BACKWARD IN AtmiO TBCHNOtOGr 



made from any encoded source. Therefore, if the CBS ei 



digital-to-analog-t(>diKital conversion could be done with a Iobb of oijy 3 
matter, the roreeeeable state of the art in digital-ttvanalog and analog-to- 
leh that the loss must be about 10 DB. The decibel (DB) scale is logarith- 
ans a doubling in power. 



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to a vinyl recording of a 1938 Caruso performance las 1 expect it would be), it could 
not be copied on a DAT, for playback on a DAT car Htereo, 

Aside from this intended ef^ct on home taping, research has revealed that the 
very encoding used by the CBS system, because it is in the form of a notch cut out 
of the music, distorts the playback of any recording so encoded. Thus, even if I 
never want a DAT or even a CD, and I want to stick to playing back high quality 
vinyl records, the CBS encoding will make these records sound appreciably worse 
when I play them back. The same degrading effect would be present if this system 
were applied to video sound tracks, or to broadcast sound transmitted over the air- 



FBEQUENaES ON THE PIANO KEYBOARD ARE FILTERED OUT BV THE CBS ENCODING 

Let us take a closer look at the CBS system. CBS has maintained that the fre- 
quencies involved in its filtering process are "above the range of fundamental tones 
of musical instruments." Figures 1 and 2, clearly refute that statement. The upper 
diagram of Figure 1 shows the frequency range that would be affected by the intro- 
duction of the notch filter. The filter affects frequencies from 3715 HZ to 3965 HZ, 
while the frequency of greatest attenuation occurs at 3S40 HZ. Figure 2 relates this 
notch frequency range to a piano keyboard. It Is clear that the presence of a CBS 
frequency "notch" wrll have a direct effect upon the highest A-sharp and B-natural 
keys of a standard 88-key piano, for example, since these notes have fundamental 
frequencies of 3720 HZ and 3951 HZ respectively. 

It is less obvious that many other notes of the piano lor any other musical instru- 
ment that is rich in harmonics) would also suffer. The lower portion of this diagram 
[Figure 2) shows the relative effect upon these lower tones. For example, the A- 
sh^p and B-natural notes a full octave below the ones most affected will also un- 
dergo serious degradation. Although their fundamental tones will not be attenuated, 
the harmonic content of these lower notes falls right in the region of the "notch" 
and will therefore be severely attenuated. A piano, like most musical instruments, 
produces sounds that are rich in harmonic content. Remove the harmonics and you 
remove the qualities which make a piano sound like a piano, a violin sound like a 
violin, etc. As the lower diagram (Fig. 2) shows, overall sonic content of other notes 
on the keyboard will also be affected by the introduction of the notch filter, though 
to a lesser degree. 

In addition to the alteration of the harmonic content of notes recorded in the 
presence of such a notch filter, several other harmful effects on program sources 
wUl occur. 

SEVERE PHASE DISTORTION 

Refer once more to Figure I. The lower diagram shows that extreme phase lor 
time-relationship) distortion occurs at or near the center frequency of the notch. 
Many audio critics condemned early Compact Disc players because they exhibited a 
slight phase error at the extreme high frequency end of the audio band. Objections 
were so great over this phase shift problem that most makers of CD players now 
employ new circuit techniques to overcome that phase distortion. Yet, here is a pro- 
posal for a filter that would put much more severe phase distortion right smack 
near the middle of the audio spectrum. 



Under certain coi . . „ . 

pends might occur even with program material that has not been encoded. What 
the CBS chip looks for is 2 conditions: An absence of signal content in its narrow 
band of frequencies that have been filtered out, and the presence of signals in fre- 
quencies on either side of the notch, as illustrated in this diagram IFigure 3), That 
additional "search" is needed so that the "chip" won't shut down a recorder if you 
happen to record something that has no musical content at the frequency of the 

Now, consider these next illustrations {Fig, 4). A violin's output waveform is very 
similar to that of a sawtooth wave. That type of waveform contains a fundamental 
tone and many harmonics above that fundamental. Suppose a note having a pitch 
somewhat lower than l/6th that of the "notch" frequency were produced by a 
violin. Tlie sixth and seventh harmonics of that note would fall on either side of the 
notch frequency, meeting both conditions for recorder shutdown. The anti-taping en- 
coding example is shown in the lower half of the diagram (Fig. 41. A clarinet pro- 
duces a waveform very similar to a square wave. A square wave produces funda- 



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mental frequency plus all the odd hannonics, (3rd, 5th, etc.) of that frequency. 
Again, there is absence of signal content only at the notch frequency and presence 
of signal content in the region above the notch. Again the recorder would shut 
down — unintentionally. While the statistical chances of such an improper shutdown 
are small, there are nevertheless quite possible. 

I should note here that, according to the Television Digest article to which I have 
referred, CBS might be attempting to narrow its notch, in response to determina- 
tions by expert listeners that it causes audible distortion. Such a narrowing would 
significantly increase the chances of "false positives"— prevention of recording 
music that has not been encoded, and it not even prerecorded. 

HOW THB CBS NOTCH FILTER DI3TOBTS THE MUSIC 

At this time, with your kind permission, I should like to demonstrate just a few 
sound examples of how the presence of "notch" filter in program content could 
alther the sound of that program material, (Demonstrations) 

Any number of similar demonstrations could be performed to illustrate the cor- 
ruption of sound quality introduced by such frequency elimination within an impor- 
tant part of the audio spectrum. Indeed, according to the report in Television Digest 
to which I have referred, a demonstration held recently in London by CBS itself re- 
sulted in a convincing determination that the notch audibly distorts music. Here is 
how Television Digest reported on the presentation by Mr, Stebbings: 

"StebbingB acknowledged, in effect, that roomful of engineers could tell difference 
between Copycoded and unaltered recording. At special demonistration in London's 
famous Abbey Rd. studios there was no question— almost without exception, engi- 
neers were able to identify when Copycode was inserted into recording. However, in 
some musical selections there wasn't agreement Coyycoded to non-Copycoded ver- 
sion was prefereable. Upon request of one hi-fi journalist, CBS prepared solo piano 
tape with Copycode, played top 4 notes with and without encoding. On playback, 
differece was absolutely clear to everyone prsent — with clunking sound of bad piano 
on Copycoded version. This was point at which Stebbings said coding of some pas- 
sages could be optional." 

According to the Television Digest report, even at a another demonstration held 
under the auspices of the International Federation of Phonogram and Videogram 
Producers (IFPI) — the London-based association of record companies that has vigor- 
ously been promoting the CBS system— some critics heard audible distortion in CBS' 
own recordings. According to the Television Digest report: 

"Geoffrey Home, highly regarded critic of Gramophone magazine, said of solo on 
choral recording: "That little choir boy was badly damaged." " 

Mr. Chairman, it has been gratifying, in the course of my career, to see high fide- 
ligy music develop from inventors' and tinkerers' dreams to practical reality, avail- 
able to an appreciated by more and people every day. I urge you not to mandate 
into law a system that damages music, as well as artists, industries and consumers. 
The synergy of high quality equipment and high quality recordings has never oper- 
ated better, for the benefit of all concerned. The future is even more promising, if 
we simply will let it develop. 

Thank you for having given me the opportunity to appear today. 



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BFFBCT OF THB ANTI-COPY CHIP ENCODER 
Upon tonal contmt of music ind upon 
slarw Inuglng ind iccuracy. 




Phau 





PtMS* CharacMriaticj 


Frsquancy [kHz] 






r\ 






\ 













■^Iwaal 




\ 






jt A g » y » 


i i, b i ' 



75-332 - 87 - 4 



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/7&a.-THE ANTI-COPY "NOTCH" 

Ellmlnitsi Muilcal Notei 
Altera Muilcal Inatrument Sounda 



iiiiiiiiiiiiiifiiimimiiM 



[u»m»rxy(Hi)\ 




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THE ANTI-COPY CHIP CAN "MAKE MISTAKES" 

» orieht diHMt rtc«r«Bn wtn wDm 




<t 



[Tape Recorder] 



Recording 
Circuit 



Copy Coda 
0«t«cting 
Circuit 



.-J j 

' \ Inhibit Signal | 



iRaconjing T«p«l 



i Operation of Copy Code Detecting Circuit] 




Signal lev«ll| 


\> ^^.^. , J .J 




A 


B 






Casa 1 


None 


Nona 


No Signal 


Continued 


Case 2 


Exist 


Exist 


Normal Audio S«nal 


Continued 


Casa 3 


None 


Exist 


Copy Coded Audio Signal 


Stop 



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UNRELIABILITY OF THE ANT»-COPY CHIP 

Ordinary InitruniMti, such «i a violin, 
dirliwt, can "coofut** th* chip) 





Wave form 


spectrum s | 




5aw-t«ath wave 

NNhsK 




il 


1 Violin 1 


strings 






squ*r« wave 

rULTL 




i 


1 Clarinet i 


WMiniruMMt 


fr«iu«ficy 



Tape Guide Drum 



Pressure Roller 

Tape Drive Capstan 




Schematic Diagram of R-DAT 



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Senator Inouye. Thank you very much. 
Mr. Weingarten. 

STATEMENT OF FRED W. WEINGARTEN, PROGRAM MANAGER, 
COMMUNICATION AND INFORMATION TECHNOLOGIES, OFFICE 
OF TECHNOLOGY ASSESSMENT 

Mr. Weingarten. Thank you very much, Mr. Chairman. I am 
Fred Weingarten. I am Program Manager of the Communication 
and Information Technologies Program of the Office of Technology 
Assessment, which is a Congressional policy research agency. 

Since you have indicated earlier that the written testimony will 
be submitted for the record, I would like, in the interest of brevity, 
just to make a few comments highlighting the main points and 
then be available for answer questions. 

Our testimony is based on a report released in April, 1986 titled 
Intellectual Property Rights in an Age of Electronics and Informa- 
tion. I should say that we have not analyzed any specific legislation 
and OTA does not take positions for or against specific bills. That 
is not our job. 

We have also not examined or tested any particular chip or en- 
coding technology. Evidently that is true of many people. Still, our 
report contains several findings that in our view do pertain to the 
deliberations of the committee, although I do not think we can pro- 
vide answers. We provide more questions, and that is understand- 
ably frustrating. 

The tenor of the report reflects points raised in some of the testi- 
mony this morning. We are in the midst of enormous technological 
change in the way information is created, disseminated, and used 
in our society, and that technological change is undoubtedly 
moving large chunks of intellectual property protection out from 
under traditional legal approaches. 

OTA suggested that the Congress over the next decade or two 
would be faced with a fairly serious task of re-evaluating our soci- 
etal interests and potential approaches we should take to protect- 
ing the creation and protecting and preserving those flows and soci- 
etel interests in access to information. 

Three particular points in the testimony that I think are rele- 
vant or raised in the previous testimony here are as follows: 

In the first place, I think it has been generally agreed that the 
legal status of home taping under existing law is unclear. Despite 
the fact that lawyers, acting as advocates, will argue at various 
times that the law is clear; yet, they will argue that the law is 
clear in completely different ways depending on what side they are 
trying to present. 

The increased capability technology gives individuals in their 
homes to manipulate, communicate and copy information raises 
new kinds of questions about where the balance should be drawn in 
letting people make use of the intellectual products and the tech- 
nologies that are available and restricting activities that seriously 
damage the interests of the producers. 

Our second pqint is that the amount of home taping and the rela- 
tionship to the market impact on the producers is very unclear. 
Most of the data that is available (or that we have found) is data 



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that has been collected and distributed by people who are parties 
to the debate. 

It is part of OTA's bias that survey data comes loaded with ques- 
tions. There has been very little neutral or objective analysis of the 
amounts of home taping and of the amount home taping that does 
occur displaces purchase or in some place actually supplants the 
market for prerecorded tape. 

Finally, we raised in our report the general issue of technological 
fixes and the appropriateness or enforceability of technological 
fixes. In this case certain questions are raised. 

In the first place, there is what I might call a "consumer issue." 
To our understanding, this technology has never been tested in a 
neutral, objective environment for its cost, for its effectiveness, for 
the degree to which it can be bypassed or disabled, for the extent to 
which it degrades music, or (a point raised in earlier testimony 
today) the degree to which it might inhibit other types of uses that 
may be in store for this type of technology^computer data storage, 
storage of video, other forms of digital information that can be 
stored in this format. 

Secondly, there is the question of enforcement. In order to en- 
force a law requiring that such a technolc^y be installed in a 
device, one then in general would need to follow-up making it ille- 
gal to disable or remove that technology. 

That gives the Federal government a new enforcement role in in- 
tellectual property. Traditionally, intellectual property has been 
what the lawyers refer to as a self-enforcing body of law. In this 
case. Customs officials and domestic law enforcement authorities 
would have a new area of concern. 

As I SEiid at the start, we are at the threshold of enormous tech- 
nological change, and information technology is a basic infrastruc- 
ture of our society. It supports economic activity. It supports social 
and political activity. And it presents us with great opportunities, 
but it also presents us with some very deep policy problems. 

If we err too much in preventing the use or the distribution of 
these technologies or the exploration of new uses, we threaten the 
future viability of our society. And yet, if we do not act to protect 
those producers of the software and the information and the data 
bases and the computer programs that we need to make that tech- 
nology work, we will also suffer. 

Thank you, Mr. Chairman. 

[The statement follows:] 

Statement of Peed W. Weingabten and Linda Garcia, Office of Technology 

Thank you, Mr. Chairman. It is a 
committee to discuss OTA's work o 
audio taping. 

My comments today will be based on our report. Intellectual Property in an Age of 
Electronics and Information, released in April, 1986. The testimony was prepared 
with the able assistance of Ms. Linda Garcia, project director, and Mr. Robert Kost, 
legal analyst on that study. 

FINDINGS FROM THE OTA STUDY 

I should caution that we have not done a detailed legislative analysis of any bill 
regarding digital audio taping (DAT), nor have we analyzed the specific technofogiee 
for protecting against copying that are specified in various bills. Nevertheless, sevei^ 



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al of our study's findings seem to bear directly on the considerations of CongresB. 
These findings are: 

Current law is ambiguous about whether private copying is covered, or was ever 
intended to be covered, by copyright law; 

Current estimates of whether, and to what degree, home recording harms produc- 
ers lack a firm and reliable theoretical and empirical basis; 

EMgital audio tape recording may present quantitatively different problems than 
conventional analog tape recording, insofar as copy quality does not degrade over 
generations of copies; 

Technological approaches to preventing (»)pying vary in their effectiveness and 
are generally defeatable over the long run; 

Nontraditional mechanisms for providing intellectual property rights often re- 
quire a greater role for government than traditional ones; 

The global nature of intellectual property problems increasingly requires that 
they be resolved on an international basis and that they take other international 

And the copyright problems presented by digital audio tape are very likely the 
precursors to further problems in the recording industry and in copyright-based in- 
dustries as a whole — problems that may require more comprehensive solutions. 

Based on these findings, I would like to suggest a number of questions that the 
Committee might ask and a number of factors that it might consider when evaluat- 
ing legislation of this kind. 

QUESTIONS AND FACTORS FOR CONSIDERATION 

1. In considering any bill that would create a right to revenues from private copy- 
ing — whether through a technological protection scheme or a tax on blank media 
such as audio or video tape — the first question to ask is whether Congress wants to 
explicitly prohibit unauthorized home copying. To date, the status of home taping 
under copyright law is unclear. As a policy matter, Congress has yet to esplicitly 
decide whether copyright is just the right to control commercial use — the use of a 
work for profit in the marketplace — or whether it also provides the right to control 
private use — the use of a copy after its ultiamte sale. As a legal matter, there have 
been no court decisions that hold copying for private use to be illegal. In Sony v. 
Universal Studios, the court held private use for "time shifting" as legal, fair use. 
but let open the question of whether private use for any other purpose is illegal. 
Further, the l^islative history of a 1971 amendment to the Copyright Act, which 
first estended copyright protection to sound recordings, indicates that Congress did 
not intend the copyright holder's right to reproduce work precluded other, private 
use, particularly "home taping." A House Report accompanying the amendment 
says: 

"Specifically, it is not the intention of the Committee to restrain the home record- 
ing, from broadcasts or from tapes or records, of recorded performances, where the 
home recording is for private use and with no purpose of reproducing or otherwise 
capitalizing on it. H.R. Rep. No, 92-487, 92nd Cong., 1st sess- 2 (1971)." 

Although this language affirms the legality of private use. some contend that the 
law remains ambiguous, because the Copyright Act of 1976 does not reiterate this 
19TI qualification. 

2. Setting aside the legal question of whether the copyright law does prohibit 
home recording, that home recording causes producers significant harm by displac- 
ing sales has so far not been demonstrated. There are no reliable estimates of the 
extent of lost revenues caused by home recording. 

Furthermore, in determining the effect of home taping on revenues, one needs to 
take account of the nature of the marketplace and the ways in which it would 
change were home copying effectively proscribed. For example, existing estimates of 
lost revenue do not take into account such factors as: 

Whether producers would charge higher or lower prices for their products if home 
taping were prohibited. 

Whether consumers who copied at home had additional disposable income they 
were willing to spend on prerecorded material. 

The extent to which home taping increases the value of prerecorded products by 
extending their utility. 

The extent to which the ability to copy increases the value of the hardware, in- 
creases the number of recorders sold, and, hence, increases the potential market for 
prerecorded music. 



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100 

The extent to which individuals who engage in home taping share, give, or sell 

copies to others outside the home, thus potentially displacing the market for com' 
mercially prerecorded music. 

Finally, the particular case of DAT raises a new question, whether the very high 
quality copies possible with DAT will change current home toping behavior. 

The extent to which copy quality affects consumer behavior determines whether 
the issues raised by DAT are, in fact, significantly different than those previously 
addressed by Congress with respect to analog recordings. The software industry 
which also sells digital products, may be an instructive example. 

3. Assuming for the moment the illegality of private copying, the Congress, in con- 
sidering legislation that relies on t«chnol(^cal solutions to prevent copying, will 
need to ascertain how effective a particular preventative device might be. Some sys- 
tems are relatively easy to defeat; others are more difficult. In any case, this ap- 
proach is ofton unworkable over time, because the technology changes rapidly. 

Although OTA did not examine any particular devices in great detoil, it did come 
to some general conclusions about technological solutions. OTA found that techno- 
logical approach to protection often require a trade-off between the security of the 
intellectual property and its accessibility, marketability, cost, and quality. Further- 
more, while any technological barrier may work in some cases by acting as a "stop 
sign." warning against unauthorized use. no form of technological protection is 100 
percent effective against determined opponents. Over the long run, new technologies 
will reduce the effectiveness of these devices. Moreover, the higher the level of soci- 
ety's computing skills, the more difficult the job of technological protection becomes. 

4. Because use of technological devices is a nontraditional approach to enforcing 
copyrights, the Congress might also want to look at the extent to which, and how. 
the Federal Government might need to be Involved in order to make a technological 
solution stick. Insofar as these technologies are susceptible to bypass or deactiva* 
tion, to accomplish this the Government would, first of all, have to make such modi* 
fication illegal. Then, in order to detect and enforce this prohibition, either the gov* 
emment or private parties would have to conduct some form of search, inspection, 
or surveillance. In addition, if such laws entoil the control of imports into the 
United Stotes, an additional burden of enforcement must also be token into account. 
Courts could also experience a greator workload to the extont that deactivating or 
bypassing technological devices result in civil lawsuits. Notwithstanding increased 
government involvement, however, such laws may be institutionally very hard to 
enforce since they attempt to govern how people use their personal property in the 
privaCT of their homes. 

5. There are international implications of using trade restrictions as a way of 
dealing with intellectual property problems. As the OTA report points out, attempts 
to resolve international intellectual property problems are likely to be more effeC' 
tive when they are undertaken as part of a multilateral effort. The unilateral impo- 
sition of trade restrictions might lead to retoliatory restraints on trade and to dete- 
riorating international relationships. And, If the United Stotes is the only country 
to impose such restrictions, then such a policy could have only limited impact on 
the amount of copying worldwide. There is a danger, moreover, that if intellectual 
property policy is esteblished in the context of trade issues, it may be skewed from 
its original goals. 

G. In reviewing this specific legislation. Congress may want to consider whether, 
when, and how often this industry and others will require special, supplementery 
l^islation because of innovations in technology. Technologies that are currently on 
the shelves and in the labs promise to provide unprecedented capabilities for pro- 
ducing, manipulating, regenerating, and distributing all types of information, in- 
cluding audio, video, data, text, and graphics. And, these systems are increasingly 
affordable to small organizations and individuals, rather than just to large indus- 

One emerging technology in the field of analog videocassettes. for example, allows 
the reproduction of video programs with little quality degradation after many gen^ 
erations of copies. Erasible/ re-recordable versions of the compact disk are being de- 
veloped to store and copy digitized video, text, and graphics — along with audio. This 
will affect the recording, motion picture, television, publishing, and computer Indus- 
Looking into the 1990s and beyond, as the telephone and cable television networks 
develop sophisticated capabilities for transporting and processing large amounts of 
all types of information, the flow and exchange of information will greatly increase 
and become more difficult to monitor or control. Already, some of these new capa- 
bilities, such as facsimile transmission, have begun to flourish. These innovations 



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may entail still further legislative action; next time perhaps in the broadcast o 



In short, the controversy surrounding digital audio tape is only the beginning of 
the problems Congress will face in adapting an 18th century law to the new technol- 
<^eB coming to the fore today. 



Finally, 1 would like to develop a point about the broader and longer term context 
of this and similar legislation. A basic theme in much of OTA's work on information 
policy is that new information technology has sharpened the dilemma that Congress 
and the Courts face in trying to balance the need to encourage the dissemination of 
information against the need to restrict its use, for economic, national security, or 
other reasons. The remarkable advances in microelectronics have greatly empow- 
ered the individual to influence the way information is created, disseminated, and 
used in our society. Attempts to control information flows too tightly may either fail 
or be so dmconian as lo be legally and socially unacceptable, as well as economically 
costly. Yet, as in the case of intellectual property, it is often in our vital interest to 
provide control or other incentives for ike development of new information products 
and to protect those products from misappropriation. There is no doubt that informa- 
tion is becoming increasingly valuable to our society, both as a marketable commod- 
ity in its own right and as a basic factor of economic and social activity. 

Because of the difficulties in enforcing laws that regulate private activity, OTA 
found that it is important to design such laws so they can gain broad public accept- 
ance. This appears to be possible, given OTA's finding that the public "draws the 
line at behaviors that infringe on intellectual property rights when they involve the 
obvious or active circumvention of payment, when they are done for sale or profit, 
or on behalf of business or in a corporate setting," While providing protection, such 
a law would need to take into account the desire by individuals to share in the bene- 
fits that the new information and communications technologies afford. 

Although we have not examined any bill in any detail, our study suggests how 
such as analysis might proceed. Figure One, for example, suggests six criteria that 
might be used to evaluate any proposed legislation. These criteria are: efiectiveness 
in meeting overall system goals, efficiency in achieving goals, enforceability, dura- 
bility, precision as a policy, and congruence with international and other national 
systems. Corresponding to these criteria are a number of research questions that 
might be asked to determine how well the criteria can be met and a number of indi- 
cators that serve to answer these questions. The broad scope of the table illustrates 
the magnitude and complexity of intellectual property issues and suggest that deci- 
sions made about them be consider in a broad policy context 



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103 

Senator Inouye. Gentlemen, I thank you very much. 

Because of the very great technical, legal nature of the question 
before us, 1 would hope that you would respond to any questions 
that we may submit to you. 

I am not qualified to be asking you any technical questions, but I 
could hear whatever you are trying to demonstrate. It sounded like 
a carpenter pounding instead of a piano being 

So we will keep the record open until such responses are re- 
ceived. 

We have received severed letters in favor and in opposition to the 
measure before us. Without objection, those letters will be made a 
part of the record. 

Thank you once e^ain for your help. 

[Whereupon, at 12:55 o'clock, p.m., the hearing in the above-enti- 
tled matter was adjourned.] 



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ADDITIONAL ARTICLES, LETTERS, AND STATEMENTS 



Mr. Chairman and Members of the Conunittee: I appreciate the opportunity to 
appear before you today to discuBB S, 506 that provideE for the use of new copy-code 
scanner syetem in digital audio recorders. 



Ever since the day the Constitution first empowered Congress to promote the 
"Progress of Science and the Useful Arts," our laws have sought to achieve the deli- 
cate balance between the need to ensure an adequate reward to artists for the enjoy- 
ment by others of their creations and the right of the public to enjoy them. The 
ultimate goal, of course, is to ensure that Americans have available to them the 
quantity and quality of works that the intellectual property system was designed to 
give them. 

Today, however, developments in technology as well as the ability of entrepre- 
neurs to identify new needs and to develop new markets pose a constant — and 
healthy — challenge to that balance. We are continually called upon to examine in- 
tellectual property concepts in light of these changing developments. In my view, an 
intellectual property system that (a) induces a songwriter to compose something 
that people want to hear, (bl induces an inventor to develop a machine that makes 
it easier for them to hear it, and (c) forces us to take a fresh look at the relevant 
statutes, is doing the job the framers of the Constitution intended two centuries ago. 

That, of course, brings ua to the problem that faces us today. Before the develop- 
ment of modern audio recording devices, it you wanted access to a recorded sot^, 
you bought the record. The authors' exclusive rights to reproduce their works that 
are the heart of intellectual property law was unassailed in principle and unassail- 
able technologically. This is simply no longer so. 

The private copying of copyrighted works has been one of the most important and 
one of the more difficult Issues facing copyright policy makers. Advances in audio 
recording devices permit consumers to duplicate, at very little cost, recordings with- 
out the permission of, or payment of a royalty to, the copyright owner. The intro- 
duction of digital audio tape recorders will make these problems only more acute. 
To meet the challenges of changing technology, we must devise an equitable and 
workable system for compensating creators of intellectual property that minimizes 
Government involvement without imparing public access to both music and the 
fruits of technological advances. 

ECONOMIC HARM CAUSED BV UNAUTHORIZED TAPING 

Some private copying of copyrighted works by individuals m^ht fall within fair 
use, a doctrine originally intended to permit use of portions of copyrighted works for 
scholarship and research. In the course of coping with advances in reproduction 
technology this doctrine has been stretched to include such diverse concepts as pho- 
tocopying of entire journal articles in Williams and Wilkins v. U.S., and off-the-air 
home video taping (for time-shifting purposes only) of broadcast television program- 
ing in Sony v. Universal Studios. Unlike the facts in the Sony case, home audio 
tapii^ is often done for the purpose of retaining a copy to build a library. 

Without such copying, home libraries would be built with purchased, authorized 
copies. In 1980. the Market Research Study by CBS records indicated that home 
taping costs the prerecorded music industry $700 to $800 million annually. A more 
recent Audits and Surveys study found that the equivalent of 564 million albums 
were taped annually. Based upon those figures and other industry estimates. Dr. 
Alan Greenspan estimates that home copying cost the recording industry more than 
$1.4 billion in 1982, While other surveys come up with different figures, there is 
every indication that home copying costs are real and substantial. The net commer- 
(1051 



,vGoosle 



SOLVING THE PROBLEM 

A new technological development can bring better quality sound recording into 
American homes, providing the recording and music industries with markets for 
new media formats. This technological advance is the digital audio tape (DAT) re- 
corder. It can brit^ very high quality sound recordings into the home and give the 
consumer the ability to mE^ce hia own digital tape recordings with "compact disc 
quality." The problem facing the recording and music industries, however, is that 
the d^tal audio tape equipment also gives the consumer an increased incentive to 
copy prerecorded tapes, records, or compact discs. Tapes produced by such devices 
will be virtually indistinguishable from the original prerecorded medium in terms of 
sound reproduction quality. This is a quantum leap from current analog tape copies 
which are inevitably inferior in recording level and quality to the original product. 

Fortunately, the same technology that has spawned the potential problem has de' 
veloped a solution. There is a method of eDcoding sound recordings in a way that 
renders them uncopyable on a DAT recorder if it is equipped with an appropriate 
copy-code scanner device. A recording is encoded by periodically removing sound in 
a narrow band at certain frequencies. The copy-code scanner in the recorder moni- 
tors that frequency range, and when it detects such a "notch" in the frequency 
range, it turns off the recording capability of the recorder for a period of about 30 
seconds. Thus, an attempt to copy an encoded sound recording will result in a copy 
with intermittent gaps of silence. The use of this system will not affect the copyabi- 
lity of existing recordings on either analog disks, tapes, or compact disks, as the in- 
formation contained on them is not encoded. Neither will it affect a consumer's abil- 
ity to copy his own original recordings. 



would give the recording industry a way to stop the unauthorized DAT reproduction 
of sound recordings. Accordingly, the Act would make it unlawful to engage in man- 
ufacture, importation, distribution, or sale in the United States of digital audio re- 
cording machines that do not incorporate copy-code scanning devices, preventing un- 
authorized reproduction of phonorecords. Further, it would be unlawful to import, 
manufacture, sell or lease, any products or services that have the primary purpose 
of deactivating a copy-code scanner. 

While both S. 506 and the Administration's proposal prohibit bvpassing or deacti- 
vating a copy-code scanner, the Administration's proposal would also prohibit the 
production of encoded phonorecords, unless such records are protected under title 
17, United States Code, and the producer is the copyright owner or has his authori- 
zation. The latter prohibition would ensure that works in the public domain would 
be copy able. 

The Administration's proposal would also provide that parties, such as importers 
of machines that comply with the terms of this Act, would sue for injunctive relief 
against parties engaging in practices in violation of this Act. To discourage frivolous 
or nuisance suits, the court could require a plaintiff to post bond before granting 
injunctive relief. S. 506 further provides that an aggrieved party may also recover 
either actual or statutory damages. 

Both the Administration's proposal and S. 506 provide that the Attorney General 
of the United States or his designee could also bring an action for iivjunctive relief, 
and criminal actions could be instituted as well. Further, both would permit the 
ra>urt to impound machines that do not contain a copy-code scanner, as well as any 
products that would violate this Act while an action is pending. Again, the Adminis- 
tration's proposal provides that the court could require a bond as a condition for 
impoundment. 

Both bills also authorize the Department of Commerce to issue rules and regula- 
tions permitting exemptions for digital recording devices. Some persons may need to 
reproduce encoded phonorecords for legitimate business reasons that are not related 
to infringement of any right under the copyright law. As a consequence, some llexi- 
bilitv is needed. Also, the Administration proposes that the U.S. Customs Service 
would be authorized to seize imported digital audio recording devices that do not 
contain copy-code scanners and to enforce forfeiture requirements under provisions 
of the customs laws. 



ivGoogle 



wooki be pcTTUBsem while S 

die major differEoct braween die two bilk, h is oar hi^ie lim a 

ctfilie copfi-cade Hrannffr -wodU be m eSect faefore dipud kiidio recxr&i]^ d ew Mj are 

iitfjiidiiDBd mtc U^ nsninefce. E^ndjtiavK ^titt --'-'>> - -i .^ i 

copy-coife <«^""" and viL pronde a .. _ 

Tins new Tj»f4i>tffcXrig x will fg ^ v cm ¥in*n¥TtwT -iiri Vww¥i^ Tjapit^ atiH f<WTip*i» >a aff- j wi 

wfl] be recejvec frrsD litoee viio wi^ u ccfH from sbIte al txfi^vUe iva>tiiii^ «[ 
pnemB^iH^ h^ti^ir peters tiiati tboee c^iar^c few Ticocopvvbie j tc m d^ Under diit 
a^jfna^L TvcardiDg campanies ipooid be in s posajtm t^ ae^ s > nft*^ p rir^ , jnckn^ 
IBC A rcnthy for ixgrrable iccordii^L based Bpan ihe ExpeOfd hiftttr Taiae awmnnt- 

OS woold be Tilling u per fin- socii ivcardiii^ CansoiDerE who did ma vid lo oopf 

(B llie **infW4pT equipped r^ccirdes^. T^iit apgiroar^ fos^ir^ msi^ei devirmiiiVJDQiE of 
nH-allT Ifi^iIe nnri fi>^i.rih irTif¥r pattemE Cc^wri^fl lvilde7¥ iprald be campezis^iBd 
accoidii^ ic tbe sajef of ciqivable leconfe. and anislf coold be eipecled ic nugnoBir 
fer dieir icsjiecijvc jAiarEs of Uiat CDmpepsBaaii. 

Some faave questjoned n^irv rh^ ^drri ii 'g ^r p^Tr^ supports t^>f trade-lused Hf^n o^A 
to Roh-ing siisi mar be e^v3iciaDy a copvn^i] i^oiE 7^ n^ni-i^ti mdosLriec se a 
«rltf^e, and die ■fgfrw^ rccardiTig and mcxicm pic^uiT? indatfjries is pATiiciilar, ar^ 
vtald leaden Kiu> eam Bnbstanual jvi^uDr&. T^ie *f"lwiiTiHjip^i*rw^ is ccnvinccd dial 
tlie "wid^^iT^Bd impunauan (^ ma^unes dial ^Dcoorage die imaiidion^^d n^nduc- 
tiou et CDfnrigiliad eoond rcoiidiueE vil] rcsoll in lost sales, dins. inqHiring dnc 
indDEEry'f coiiipeiJi.-ve psKrure and redociaE die iucenm^f ui songwritets and p»»- 
iliii II I pnmdsd b?' die cofKn^a lav 

Uai^nal arcat qirh as h^b TTuwar lmn&. ja^ cla^caL and df like mar be die 
first to feel die 1[^. We aie aoiy pir^nsng dial DAT Tvcards^ be eqinpped vidi 
deoodeif id prvmil furdKT mjory to scn^irnxeT^ and scnnid Tvcunlmg producccs- ll 

Sane faave edso ei^ued iha^ if « DAT bill pOB B Efi . die jnnrijie nT "iair use" wiE 
be M.wj>Jy dama^d. We aee die answer here be isdier ■nrr^lr Marn- capfrigia 
""^^''J*'^* — JF^n^nfHr^ l^^t late PrT^e^KS' Nimmei — ar^iv uihi die stieer v^ume of hb- 
■iiil.r-i— < caprrigta of Bound Tccordin^ prcchidee ccmsideirin^ hmne audio "T-^ 
ae fioT Mae. in odtcr wonfe. die kof h^c it ms "fair me." ii ie be i^ioe of fevaerv- 

rkaat bsv^ Eog^eEied diar ^s apynj acfc ic die DAT prt<iie3>i could be die basiE 
fer oA^icf conmtneE tc Lake gitnilHT me^Burfs in oEjier areafa. li k mn D^nun dial 
diis faiO gJVGE IK ac wltn^a imiqii^ ofi^KfrumitT id addrc^ a dir^Bl to l^e n^iiE of 
cxfijrigfal oimEn in an anrunpauvr manner. We —rjmr^ DAT u raguace "^^ItY l^ie 
j^ ae compaci di^f aje i^ilaidng TecardE. If DATs mme eqoijqtec vidi mn rfbc- 
tjve TTwaiTw of BU^^ing unaiidiDriied cop^Tug- uiert- wiL be & smoom u^nsjunn f mfn 
the f WT aami sinianar; w one in whifii a^nrigin owners ran if dier ghooce.. pi g wem 
Ifae nnaud^iriifid ceding of t-^wtt uporit 

We also believe r.har thit a jip r cai cii i£ a fy r xip figte TV*^ x^-cttlje^ "XLAT Ccmferemoe 
Sundard' being promoted in ICTI wiL niB pnwidt e3eci:>t prmemnn. li isn be 



Soop have i^Brhcxaiixed xhf' DAT prnposalf as ant>-'^t:^m[ila^ T^as ortaiidmnHid 
iap^eBliao erf' ayiii giuad wu r kt ie b iec±nQlQp=&IiT generated protilciin. Tns pnt- 
pom] UKE a vr*m rA fi^rst 1 -fir to aci}ve *iy p- nKWTT. iLod QseE dtf markd maf^iBninn 
to aBEiiT« i^w iscriaaaon of rorahi^ Cu}.uijgb: cnme:^ wiL be ^>le ic decide 
wiWifir ifaey wan; lo seD cc^rtdile or imcc^rBhiE rerordirg! and smrnnmFCT wffl be 
iUe to make a choice Ic bur rHgrr or noL T^he. die jnazixi will detenniiK wbKier 
CoraujDeTi art wilhug lo pat ftir die pmiiege of aM»'iuE and TPvalaEs wiE flow tc 
toa gviiunr aad soond i r iir H ' -ii^ pradnECT? wbose wnrts are jwiWid Ttie pvnpiwn i 
can faardlr bt caBed pwrttfif4]Tt ri"^nfT- a^ ii Twpg -Ukf^mako^v tr aAUur dial TmirrWnr- 
iaed tsqnnf » predaded Salei of DAT recordeT? ix rKurd riniiBf anW widKmt Ihe 
enoodm^ -wcij^ld be Qnff^fecled 

Odien argaf- diK dK-r wiT be some adwsTW effec: or sonnd Tecnrdmg qnaBtr if 
'^ adopl tJK copi^-ctxle (»Aem I air nin e ^nu^dii^ encinepr. ba: I harse heard 
DOtcbed recwdin^ and I amid not dnen ani impeinnBi: sf !wuiTid 'tcoe tin ii: qdmI- 
itT. In any case, tbe pr t ^Kwe iC j of dis r^ysiBa. die mund Trmrtbiu: pmhiccT^ wiC 
nol want lo nuariifl a prrxiiiin dm hat impeirtv: fvnnut mmrdmf rvurulartJOE omil- 
itr. T^ JapaDen- prrnKioetitF of DAT i^cenrK p-esxprf e demmistTmaDc tape thai 
pitBLut ed die "TioT j-h-Tif ' of a T^ MP d i i i E ir die wrrs pondike wm Ei«e dua^ 
dKT cfaoBe to place a mde notcb — ::m ngta (^er CBm-TiiaT smo pjanc noto^ — ant i^ 



ivGoogle 



108 

connection, ei 
approach is n 

bilities. 

In summary, the Administration's DAT proposal would put in pla( 
bar to the introduction pf non-decoder equipped DATs into U.S. i 
prooposal in S. 506 would sunset in three years. 

The Administration believes that its proposal is an appropriate response to a 
problem that haE strong links between intellectual property protection and trade. 
We believe that using the trade laws to assure that copyright owners' rights are not 
eroded is appropriate. However, we understand Congress' desire to explore the possi- 
ble impact on the copyright law of this approach. 

We believe the problem facing the U.S. songwriters and sound recording produc- 
ers is real and its solution is urgent. On that basis, we suggest that this legislation 
should be permanent. If a permanent solution is enacted in the copyright law, that 
legislation can repeal this Act. 



Mr. Chairman and members of the subcommittee, I am pleased to be here today 
on behalf of the International Trade Administration (ITA) of the Department of 
Commerce to discuss the role the department plays in the implementation of the 
Trade Development Program (TOP), an agency of the International Development 
Agency (IDCA), 

I would like to note the assistance which the International Trade Administra- 
tion — particularly the units known as the United States and Foreign Commercial 
Service (US&FCS) and Trade Development (TD)— provides TDP, 

Trade Development's Office of International Major Projects (OIMP) is the focal 
point in Washington for helping engineering-construction firms secure project con- 
tracts overseaH. OIMP works closely with TDP identifying projects where feasibility 
studies would enhance the prospects for follow-on exports of American goods and 
services. TDP is also an active member of the major projects coordinating group, 
which develops an interagency strategy to assure our industry's participation in key 
foreign construction activities. 

OIMP has worked closely with TDP since it's inception in 1975 as country-fi- 
nanced technical services. 

Many US&FCS offices abroad work closely with TDP and serve, in many in- 
stances, as TDP'h staff and offices abroad. US&FXJS officers speak enthusiastically 
about TDP as a catalyst for U.S. exports. We believe that TDP is an effective tool 
for expanding U.S. exports. 

Many US&FCS is the only Federal agency with a mandate to promote the export 
of U.S. goods and services which also has the domestic and foreign offices to carry- 
out that mandate. Part of the US&FCS job is to promote and project U.S. business 
interest abroad. 

US&FCS has many services available to support and to counsel U.S. firms. Some 
of the services of US&FCS — such as trade missions, identification of potential com- 
mercial agents for U.S. products, and market studies — rely entirely on Department 
of Commerce resources in Washington or our 48 district offices in the U.S. or our 
128 commercial offices in U.S. embassies and consulates overseas. US&FCS also does 
a great deal of field work in fruthering the interests of the export-import Bank (EX- 
IM) and the Overseas Private Investment Corporation (OPIC) in those countries in 
which the US&FCS has a presence. 

There is a mutuality of purpose and objectives shared by the US&FCS and TDP. 

In March, AID Administrator Peter McPherson wrote to Secretary Baldrige about 
TDP. He said that the J75 million which TDP has obligated has generated almost 
$650 million in additional U.S. exports. Mr. McPherson also expressed his apprecia- 
tion for the support US&FCS provides TDP. 

During Secretary Baldrige's recent Asia-Pacific visits, he signed two TDP projects 
in Beijing and one TDP project in Manila. Secretary Baldrige and Chris Holmes also 
indicated in Seoul that TDP would fund a feasibility study for pollution control. We 
have fund that we can strengthen our commercial relations and improve access to 
host-country governments if we can bring something to the table, TDP accomplishes 
this by making it possible for us to offer support for its projects. The TDP concent is 
a tri«l and true marketing tactic widely used in business. If you can have your 
product's technical characteristics written into the client's specifications, you have a 



,vGoosle 



109 

comparative advantage to win the contract. TDP'b studies are written to U.S. Bpeci- 
fications. 

US&FCS works closely with host-country governments to define projects and re- 
ports this information to TDP for review and a decision. In the 10 countries in 
which TDP has the greatest activity, US&FCS has been the primary representatives 
for TDP in 8 countries. Of the 74 countries in which TDP operates, US&FCS has 
been the primary representative in about GO. Moreover, TDP representatives partici- 
pate in the US&FCS regional meetings each year. 

During the past several months, I have met with our senior commercial officers in 
Europe, the Middle East and Africa, South Asia and the Far East. Several US&FCS 
officers in the less-developed countries identified TDP as the single most valuable 
tool available to the carrying out of their job. Because these USAKIS officers repre- 
sent TDP in their respective countries, they have easier access to key government 
officials. TDP also enhances our contact and relationship with U.S. firms. 

US&FCS commercial officers emphasize that almost all of our foreign competitors 
have export enhancement prc^ams similar to TDP. If the US&FCS did not have a 
close association with a similar program, U.S. export promotion efforts in some 
countries would be hindered. Let me give you some examples about how US&FCS 
and TDP work together to increase U.S. exports. 

In Ecuador, US&FCS negotiated a TDP feasibility study to expand Ecuador's tele- 
communications capabilities, encompassing rural telephone centers, satellites and 
new radio communications potential. The contract was signed just a few weeks ago. 
We anticipate that the U.S. telecommunications industry will begin to feel the effect 
of the TDP-supported study within the next 18 months. 

In Egypt, US&FCS learned that the government wanted to study a project to 
drain an agricultural area. USAID, which has a $1 billion program in Egypt, de- 
clined to consider the project. The Dutch offered to do the study free. US&FCS sent 
a cable to TDP in Washington recommending we offer a similar proposal to the 
Egyptians. It was reviewed and the feasibility study was approved, ofiered to the 
Egyptian, and funded. Because of the swift response by US&FCS and TDP, U.S. 
companies will now have the opportunity to enter an Egyptian market previously 
closed to them. 

In Thailand, US&FCS officers were instrumental in identifying and negotiating 
contracts for a $200,000 lignite development study, a $450,000 Bangkok flood control 
project, and $475,000 waste to energy project, all of which resulted in new business 
for American companies. In fact US&FCS Officers over the past 3 years have negoti- 
ated $4,4 million of contracts for TDP in Thailand. 

In the People's Republic of China, a TDP grant for a feasibility study of a paekag- 
ii^ adhesives factory was signed. Our US&FCS officer in Shenyang reports that 
press coverage of the signing has kindled increased interest among the Chinese 
about opportunities for business with the U.S. 

In general, we can say US&FCS officers do the following individual tasks to help 
generate U.S. exports via TDP; US&FCS: 

Identifies possible projects and puts on paper specific proposals; 

N^otiates between the host government and TOP; 

Facilitates TDP trade missions; 

Assists TDP in securing a feasibility study; and 

Assures that U.S. companies benefit the results of the TDP feasibility study. 

In summary, the U.S. and foreign commercial service is the primary source of in- 
formation and the principal contact with host-country governments where we have 
a commercial organization. While our officers are working for TDP on a no cost 
basis in identifying specific projects and working with host-country government to 
ne£otiat« feasibility contracts, they also are working for all U.S. businesses that 
have the opportunity to benefit from those contracts. 

Our experience worldwide has been that the U.S. and foreign commercial service 
officers handle the negotiations in-country and communicate directly with OIMP 
and TDP in Washington. In some cases, US&FCS represente TDP at the formal 
signing of the feasibility study contracts. This program has been good for the U.S. 
and foreign commercial service in that it adds yet another arrow to our quiver of 
export services and pri^ams, while providing an invaluable service to TDP, 

1 believe the U.S. and fore^ commercial service has been good for the Trade De- 
velopment Pribram in that this organization, with limited staff, can capitalize on 
the experience and expertise of our overseas officers. This allows as much as 90% of 
their appropriated funds to be used for grants which assist American business, and 
less than 10% to be used for overhead. 



,vGoosle 



Mr, Chairman, thank you for the opportunity to provide the vievis of the Depart- 
ment of Commerce on this important trade program and the US&FCS role in TDP. I 
welcome your questions and comments. 

Statement of Stevland Morris 

Please accept my sincere appreciation for the opportunity to express my opposi- 
tion to The Digital Audio Recorder Act of 1987, S. 506 (hereinafter S. 506). 

As you may know I am a recording artist and composer. In both these capacities I 
use advanced computers and high-tech audio equipment. Over the past fifteen years 
I have worked diligently to bring to reality the best audio equipment our minds can 
conceptualize; this task has not been easy. It is because of my extensive involvement 
in the research and development of new audio equipment that I have developed an 
understanding of many of the issues raised by S. 506. 

The Digital Audio Tape Machine ("DAT") creates high fidelity recordings that are 
superior to any other conventional analog tape recorder on the market. This new 
technological advancement has many redeemmg qualities. Some of the benefits of 
the DAT are as follows; 1) artists can make high quality tapes of their live perform- 
ances; 2) artiste can make high quality tapes of their music while traveling on the 
road or simply at any location outside of the home base studio; and 3) struggling 
new artists with low production budgets can make high quality demonstration tapes 
for presentation to record companies. 

Like many consumers when I tape prerecorded music I select songs off of albums 
I already own. These tapes are for my personal use only and not for resale or any 
commercial purpose. In addition, I frequently purchase prerecorded audio cassete 
tapes. As with the conventional tape recorder, I would like to make tapes for my 
personal use with the DAT machine. 

Many of the arguments made against the use of the DAT were used in an attempt 
to ban the VCR. However, those arguments have proved to be unfounded. Today the 

B rerecorded video market is a viable and substantial industry. I submit you that the 
lAT will flourish like the video cassettee market. Moreover, the advent of the DAT 
will further stimulate the interest of the American people to the music industry. 
Finally the copy code scanner system supported by S. 506 will unnecessarily limit 
the usefulness of the DAT, More importantly the encoding process has the effect of 
distorting the music. Consequently, I like other artists, am opposed to the efforts of 
those who want to encode our music. I take great pride in tryii^ to provide quality 
music to the public and I am distressed t« learn that the int^rity of my music will 
be compromised by the encoding process. 

In summation I oppose S. 506 and I respectfully request that you keep my views 

Thank you. 



I am Cheryl Holins. Executive Director of the Car Audio Specialists Association, 
generally known as CASA. 

CASA is a non-profit trade association founded in 197S to represent the aftermar- 
ket car audio industry. Its members are domestic companies and individuals who 
are engaged in the manufacture, importation, distribution, sale and installation of 
audio equipment. 

We have asked for the opportunity to appear before the CommiBsion because of 
our concern that misunderstandings about the nature of competition in our industry 
could lead to inhibitions on the importation of car audio equipment which would be 
the death knell for the independent, the so-called "aftermarket" suppliers of such 
equipment, who are presently struggling for survival in the face of unrelenting anti- 
competitive pressure from Uie automobile manufacturers, primarily the domestic 
manufacturers but also the foreign ones. 

As you know, most aftermarket car audio equipment is foreign sourced. Statistics 
compiled by the Electronic Industries Association, however, show that some 160,000 
jobs are generated in the United States by the autosound industry. Not only are 
these jobs threatened by anticompetitive actions of the automobile manufacturers, 
but so is the freedom of choice of consumers as to the tj'pe and brand of automotive 
sound equijmient that they may have in their automobiles. In fact, over 10,000 con- 
sumers have evidenced their support of CASA's efforts to restore or at least prevent 
further erosion of their freedom of choice. 



ivGoogle 



Ill 

Familiar brand names eold on the aftermarket are KeDwood. Jensen, Alpine, Pio- 
neer, Blaupunkt. Audiovox and Kraco. Afbermarliet products range from simple AM 
radio units at 50 dollars, to medium range AM stereo/FM stereo and casaette sys- 
tems priced at 750 dollars, to highly sophisticated combination at«reo and compact 
disc systems with multiple speakers costing well over 2,000 dollars. 

Aftermarket car audio equipment is largely sold by home electronics stores, by 
car audio retail outlets and by car dealers themselves to the extent that the prac- 
tices of automobile manufacturers allow them to do so. Autosound equipment is also 
sold for do-it-yourselfer installation by mass merchandise and automotive parts sjld 
accessories outlets. 

Since the days when the Ford Motor Comjiany sought to forestall sales of after- 
market radios by installing a solid, almost impervious dashboard in all cars that 
were ordered without factory installed radios, car manufacturers have used one 
means or another to resist free market forces in the sale of car audio equipment. 

Car audio is a big business! 

According to the Venture Development Corporation, an independent market re- 
search firm headquartered in Massachusetts, total sales of car stereo equipment at 
the factory level reached 2.7 billion dollars in 1985. Venture Development says that 
stereo sales will approach 3.1 billion dollars at the factory level in 1991. At retail, 
that's 4 billion dollars. But, during this six-year period the aftermarket, it is predict- 
ed, will lose market share, slipping from 41.3 percent in 198!i to 34.5 percent in 
1991. And when you look at market share for car audio equipment installed in new 
cars, a distinct segment of the total market, market share tilts dramatically in favor 
of the car manufacturers. 

Statistics from Ward's Communications show that over 92.4 percent of all domes- 
tic 1986 model cars sold in this country were equipped with radios selected and in- 
stalled by the automobile manufacturers. The most recent statistics for foreign cars 
show a factory audio installation rate of 73 percent in 19S5. That left less than 8 
percent of all domestic cars and 27 percent of all imports for aftermarket sales. 

The figures supplied in our pre-hearing brief show the correlation of rising factory 
audio installation rates and declining after-market sales. The figures tell the story, 
yet they understate the degree of automobile manufacturer preemption of aftermar- 
ket radio sales because car dealers also install factory-supplied radios in vehicles 
after they arrive at the dealership. 

To understand the extent of the preemption of competition, you really have to 
look at individual automobile manufacturers. Ward's Communications' statistics 
show that the domestic car manufacturers have the highest audio installation rates 
among all auto makers. For instance, Chrysler Corporation has a factory radio in- 
stallation rate of 97.2 percent. 

How does this come about? 

Because radios have been made standard equipment on millions of new cars— In 
fact 92.4 percent of all cars sold today by the Big Three alone come with a standard 
equipment radio and the majority are costly stereo and cassette tape systems. In the 
1983 car model year the figure was much Iower^73.'7 percent. As you know, stand- 
ard equipment means that it comes with the car. There is no choice, it is not a nego- 
tiable option, except in those few instances when a radio delete option is offered, 
and if the consumer knows it is available and if he special orders a car from the 
factory. Otherwise, the delete option is only offered to car dealers when they order 
vehicles for inventory. So, if the radio delete option is not requested, the car is deliv- 
ered with a standard equipment radio— and that's a guaranteed "sale" for the car 
manufacturer. Ever since CASA's "free choice" radio agreements with several auto- 
mobile companies expired in 1984, more and more cars have been sold with stand- 
ard equipment radios and fewer cars have been offered with radio delete options. 

And this is not all. The automobile manufacturers have effectively eliminated 
comi>etition from the automobile radio market by other onerous practices. They are; 

Failure to reveal the full cost of radios to consumers who are unaware that the 
average price of standard equipment radios is now $400; 

U[^rading the level of radios on new cars by installing more expensive sound 
equipment, which costs as much as $1,500 to consumers who are misled about the 
full cost of upgrade radios; 

Promoting sound equipment as a "free" item on the car by various marketing 
techniques; 

Loading new cars with expensive radios at the factory or port increase profits; 

Bundling and loading new cars with accessories that are part of a package of op- 
tions which frequently contain radios; 

Coercing new car dealers to order factory radios rather than sound equipment 
sold by an independent supplier; 



ivGoogle 



112 

Integration audio equipment with other vehicle funcitons. thereby making instal- 
lation of alternative equipment and repair of original equipment difficult or Impos- 

Failure to provide full credit for audio equipment removed by consumer request; 
Allocating cars to dealers loaded with expensive audio equipment that are high 

Gradually eliminating the factory radio delete option as a special order option for 
the few conaumera who order new vehicles from the factory; and 

Failure to offer car dealers credit and return policies without requiring purchase 
of another factory radio, or not offering any return policy, thus placing dealers in 
the position of "getting stuck" with radios removed form cars in stock by consumer 
request. 

Automobile manufacturer practices not only affect new car audio sales but also 
upgrade or replacement sales for vehicles in use. How does this happen? 

On a growing number of cars audio equipment is integrated with climate controls 
and other vehicle systems, thus substantially complicating or totally precluding in- 
stallation of aftermarket audio systems in such cars. And elecronics integration is 
rapidly escalating, 

Aftermarket radios cannot be fitted into a growit^ number of new cars due to the 
positioning of radio controls on steering wheels and to the housing of radios in pod- 
mount configurations. 

The consumer's investment in factory radios is costly and rising — in some vehicles 
as much as 1,500 dollars. This deters many consumers from purchasing two radios, 
the factory unit which they are forced to take with the cars and the aftermarket 
audio system which the consumer may wish to purchase from the aftermarket. 

Consumers are often told that vehicle warranties can be voided or they perceive 
that such warranties will be invalid, if aftermarket audio systems are installed in 

Automobiles are highly sophisticated and installation of audio equipment will be 
increasingly limited to professionals, thus restricting or deterring do-it-yourselfers 
and budget-conscious consumers from replacing factory radios. 

With one exception, credits offered for removal of audio equipment are not full 
credits for the factory radios and. therefore, deters dealers from removing radios by 
consumer request and it deters consumers from removing factory equipment in 
which they have made a substantial investment. 

The future of the car audio aftermarket in the U.S. market and the fate of con- 
sumers choice is grim. 

The strength of the automobile companies lies in their ability to control both tech- 
nology and the automobile environment, to deny free choice to consumers and to 
Stifle competition in the autosound market. The auto makers are effectively destroy- 
ing an innovative car audio aftermarket that fosters competition which benefits con- 
sumers and the American economy. 

Certainly, the need for a repair and replacement market for factory systems is 
but one reason for car audio specialists to remain in business. Certainly, product 
innovation and fair prices are others. 

Today, the aftermarket is the source of most technological innovation in car audio 
electronics. At a time when autosound technology is giving birth to new features in 
the aftermarket, when sound reproduction is improving dramatically in quality, and 
when a wide variety of products are available at competitive prices in the open 
market, choices should be proliferating for consumers, yet they are diminishing. 

Where is the free choice in automotive entertainment options that Ford and Gen- 
eral Motors executives advocated in 1977 during a Congressional hearing? When 
Congress considered legislation to require installation of factory AM/FM radios on 
all new cars, the auto companies defended free choice. Perhaps their greed for prof- 
its has changed their views about the benefits of free choice. 

Let CASA go on record as a staunch advocate of free choice and open and free 
competition in the autosound marketplace. The aftermarket should have an open 
road to contribute to the economy and to provide consumers with a choice of prod- 
ucts and features that fulfill their entertainment needs and desires at a price that 
meets their budget. 

We urge that the economic situation in which the car audio aftermarket industry 
now finds itself, not be exacerbated by any trade action which would contribute to 
making that industry's battle for survival even more perilous, perhaps to the point 
of obliteration. 



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113 

Classic Makers, 
Brooklyn. NY, May 7. 1987. 
Hon. David Inouye, 

Chairman. Commerce, Science, and TYansportation Subcommittee on Communica- 
tions, Washington, DC. 

Dear Senator Inouye: I am the president and producer of Classic Masters, a 
small, independent classical label with releases available on cassette, LP, and digital 
compact disc. I am also a recording engineer in the greater New York area whose 
concert and festival tapes regularly air over MPR (Minnesota Public Radio), NPR 
(National Public Radio), and the three classical stations in New York. As such, 1 am 
sensitive to the needs of musicians as well as to the somewhat different conditions 
governing the health of my small niche in the recording industry. 

I am in production of my first DAT, and intend to produce further digital audio 
tape cassettes as my resources permit and the market allows. I am desperately con- 
cerned that provisions in the Senate Bill before you. S, 506, would seriously cripple 
the great promise that I. as an engineer and as a business man, am unable to ignore 
as I study this new recording medium. Just as the conventional cassette came to 
join the black vinyl LP record, DAT has become the promised tape compliment to 
the compact disc. 

The proposed CBS copy-preventing system is inelegant, from an engineering point 
of view, archaically based upon technologies that have since been replaced with 
modern methods, and , . , most important to music . . . degrades the very sound it's 
alleged to protect. 

Having spoken with many others in the music business, with engineers familiar 
with the proposed alteration to the music signal, with responsible observers of the 
industry, and with my own label artists, I am astounded at the level of concern 
about the way the bill's proponents suggest denaturing the music. I have heard 
demonstrations of the proposed copy-prevention "hole in the music" and have con- 
cluded that it is both audible and degrading to music. 

As a small, independent label, DAT cassette releases appeal strongly to my artists 
and to me as a logical compliment to the highly successful compact disc. Other 
small labels, who are as much friends and colleagues as they are business competi- 
tors, will, I believe firmly, find new opportunities opened ti them by the birth of 
DA'I as well. I see DAT as a significant, even crucial part of Classic Masters' future. 

I submit, as someone who is happily a-straddle the two, co-existing fields of music 
and the recording industry, that the crude, unnatural, and poorly conceived CBS 
coding system would not only be an unacceptable degradation of the music I sell on 
recording, but would be positively offensive to the very ears on which my business 
prospers or falls , . . those of my musicians. I will not use such an anti-musical, 
poorly engineered system in Classic Masters releases. 

Why, when five generations of engineers and music lovers have worked so hard to 
make it possible to record and play music as realistically as science allows, should 
we put our shoulders to a wheel so illogically poised to roll backward? 

Gentleman, please oppose this legislation. 

Please include this letter in the official record of the hearings on this issue. 
Most sincerely, 

Christopher Greenleat. 



CASA, 
Car Audio Speciausts Association, Inc., 

Washington, DC, May 11, 1987. 
Hon. Daniel K. Inouve, 

United States Senate, 
Washington. DC. 

Dear Senator Inouve: This is to follow-up to our earlier correspondence of April 
13th urging you to oppose digital audio tape (DAT) restrictive legislation, S. 506. 

We understand that the Subcommittee on Communications is holding a hearing 
on May 15 to consider this bill. As you know, S. 506 restricts DAT technology by 
requiring the inclusion of copy-code scanners in all digital audio recording devices 
sold in the United States. 

Our industry, the car audio aftermarket, would be adversely affected by such 
taping restrictions. Due to anti-competitive practices by the domestic car manufac- 
turers, who lead the foreign car importers in factory installations of autosound 
equipment, the aftermarket is uniquely dependent on new technology, such as DAT, 
for our very survival. The car audio aftermarket is being locked out of the very 



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114 

market which they created. DAT is the one new technology now ready for market 
that promiseB to restore some balance to the unfair competition in the car audio 
market — at least for the near term, 

DAT playback units for cars also afford us a new opportunity to meet consumer 
demand for quality autosound. Sales of playback units for cars, however, are direct- 
ly dependent on the consumers' ability to use tapes which they will record on DAT 
units they purchase for home use. 

We ask that you oppose S. 506. Taping restrictions on DAT could ultimately mean 
the demise of the car audio aftermarket, an industry which employs over 160,000 
persons throughout the country. 

Please consider the points we have outlined on the enclosure showing how, not 
only our industry, but also consumers, will be adversely affected by taping restric- 
tions on DAT. 
Sincerely, 

Chervl J. HoLUNB, 
Executive Dir^tor. 



Stereo Review, 

New York, NY, May IS, 1987. 
Senator Daniel K. Inouye, 
Hart Senate Office Building, 
Washington. DC. 

Dear Senator Inouye: As Editor-in-Chief of Stereo Review, the country's largest- 
circulation hi-fi equipment and recorded music magazine, I am submitting the at- 
tached editorial, from our June 1987 issue, in connection with your hearing on S. 
506. 

Also in connection with that hearing. 1 am submitting the attached letters to the 
editor that were published in Stereo Review's June issue. These letters are repre- 
sentative of our readers' response to a news item in our April issue describing the 
proposed copyguard system and an article about digital audio tape in our March 
issue. Of all the letters we have received on the subject — I estimate about 50 so far, 
and they're still comity — not one has been favorable toward the copy-guard system. 
I ask that this tetter and its attachments be made a part of the hearing on S. 506. 
Yours truly, 

Louise Boundas, 

Editor-in-Chief. 
Enclosures.' 



Senator Daniel K. Inouve, 
Hart Senati 

Washington 

Dear Senator Inouve: I am the President of Digital Music Products, Inc. 
("DMP"I. DMP is engaged in the production and marketing of recordings of jazz ori- 
ented music. All of DMFs product is recorded d^tally and marketed on compact 
disc. Because of our commitment to offer to the marketplace only the highest qual- 
ity of recorded music, DMP does not offer its product for sale on traditional vinyl 
phonograph records, but only on compact disc, where a far superior level of musical 
accuracy and harmonic int^rity can ne assured. It is this commitment to quality in 
the reproduction of recorded music that inspirits me to address the issue now being 
considered by you with respect to manufacturing and marketing of tape plavers uti- 
lizing the digital audio tape ("DAT") format. I request that this letter be included as 
part of the hearing reconl. 

Firstly, I have had personal experience in working with the DAT format, judging 
the reproductive capability Urst hand, and observing the potential of the format. I 
am convinced that it is a reliable and exceeding well engineered format. 

In the same manner as the tape cassette format replaced cartridge tape, and as 
the compact disc format is now endeavoring to replace vinyl records, the recorded 
music industry must be open to change in its formats. Over the past fifty (50) years 
many technical improvements have dictated changes in consumer tastes. Products 

' The attachments were not reproducible. 



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such as the 78 rpm disc, albums sold on reel-to-reel tape, and tape cartridges have 

vanished from the marketplace for no other reason than the recorded music indus- 
try's ability to offer better and more convenient ways for the consumer to reproduce 
and enjoy recorded music. 

At present only the compact disc containing music recorded in a digital format 
can oner to the general consumer music recorded and reproduced without the an- 
noyance of tape hiss, distortion or the ever present surface noise emanating from a 
phonograph record. Only music which is both recorded and reproduced digitally can 
be truly experienced by a listener in its natural state, allowing the listener to expe- 
rience a clarity of sound heretofore only available while attending a live concert. In 
the current marketplace there is a need for an all d^tal format to provide to per- 
sons who desire to listen to music in its finest state the opportunity to do so, wheth- 
er it be in their automobiles, in their personal tape players (i.e. "waikman-type de- 
vices) or in other locations where circumstances are not appropriate for use of a 
compact disc player. DAT players will serve to satisfy this share of the buying 
public, as well as those who simply would desire to add a DAT machine to their 
home or office stereo systems. 

Many perceive that the use of DAT tape machines for "home taping" purposes 
will endanger the survival of the entire phonograph record industry and that the 
only hope for its continuance is to restrict the recording capacity of the DAT ma- 
chines. I do not deny that DAT machines can offer higher recording quality than 
any other home taping devices currently available, but to limit the capacity of such 
a machine by requiring the installation of an anti-taping chip, as well as the im- 
plantation of a sonic "notch" in all pre-recorded software is not a viable remedy. 
Please consider the following: 

1. The sonic "notch" which would be implanted in all pre-recorded software would 
serve to limit the quality of the recorded sound contained on such software. This 
serves to defeat the basic purpose of DAT, i.e. to offer to the consumer the finest 
quality of recorded music; 

2. The sonic "notch" will complicate the reproductive process of the original re- 
cording by adding distortion and destroying the all digital potential of the format, 

3. The addition of the sonic "notch" an all software as well as the installation of 
the anti-taping chip will add cost to both the DAT machines and the software, there- 
by imposing economic restraints on the potential of DAT in the marketplace. 

"Home taping" has always existed since the introduction of reel-to-reel tape re- 
corders for home use and will continue to exist. It is impassible to determine the 
number of phonograph records that are currently transferred from disc to cassette 
or from cassette to cassette for any number of reasons or purposes. This problem is 
not to be cured by limiting the reproductive capacity of one format while allowing it 
in another. True audiophiles have recently learned that copying a record onto video 
tape will render a higher quality copy than is normally available by transferring a 
record onto cassette. Standing in the way of the DAT format will not serve to pre- 
vent home taping, it will only serve to preclude those who appreciate listening to 
music the opportunity to hear it at its best. 

In my opinion DAT should be viewed as an opportunity for growth and expansion 
of the recorded music industry. I support its use and feel that it should be made 
available to the public without limitation on its quality or potential. DAT offers a 

F -eater range of musical accuracy and realism than has ever before been available. 
look forward to marketing DMP recordings in the DAT format. 
Very truly yours, 

Thomas J. Jung, 

President. 



LoRAMGER Manufacturing Corp., 

Warren, PA. May IS. 1987. 
Hon. Daniel K. Inouve, 
Senate Hart Office Building, U.S. Senate, Washington. DC. 

Dear Senator Inouve: 1 am writing to urge my strong opposition to legislation 
that your Subcommittee is considering — S. 506. This bill would cripple a new tech- 
nology — the digital audio tape ("DAT 1 recorder — that holds enormous promise for 
American consumers and for other sectors of the American economy. I ask that this 
letter be made a part of the hearing record of S. 506. 

I am writing to you because S. 506 would deprive my company, Loranger Manu- 
facturing Corp., of a significant business opportunity. As import^tly, the anti-DAT 
legislation places Congress squarely in the middle of deciding between two compie- 



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mentary formats — compact disc and DAT. I believe that decisionB about formats, 
and about the legitimate business opportunitiee presented to the private sector, 
should be left to the marketplace— and not appropriated by the federal government. 

Loranger Manufacturing Corp. is a medium size buBiness based in Pennsylvania 
employing approximately 300, We began business in 1950. We manufacture audio 
cassettes and other aduio products for record companies and retailers. Our custom- 
ers include Ford. IBM. Kodak, as well as many small retailers nationwide. Our sales 
volume is £20 million. 

Loranger is interested in the DAT because this product represents a aignillcant 
quality improvement to present technology that will create consumer excitement 
and position our company profitably for the future. While attending a recent confer- 
ence on recording quality in present format, it was mentioned by Guy Costa of 
Motown Records that "If it isn't broke, don't fix it." thus implying that today's qual- 
ity is good enough. This type of attitude does not service the artist nor the consumer 
and means that the consumer ia locked into 1960 quality. 

Ford Motor Company today represents an example of where excellence pays off. 
Five years ago product quality, profits, and Ford's future were all bleak. Today they 
are leading the auto industry forward. It is important we allow technology to 
progress to give the American consumer the best. 

We have several fundamental problems with S. 506, The most important of these 
is that the premise underlying the legislation — that home taping is pernicious and 
that the anti-taping chip is needed to stop taping on DATs — is absolutely false. 

The recording industry has long claimed that it loses billions of dollars in sales 
from home taping. This is not bo. I know that people buy records and compact discs 
and then make tapes— of the music that they own — for their car stereos. This prac- 
tice does not hurt the recording industry because the record companies have no le- 
gitimate entitlement to force customers to buy a second cassette version of the 
music that they already own. 

Moreover, many home tapers make selection tapes for their cars. For these home 
tapers there are no prerecorded custom cassettes that are available. How has a 
record company lost anything when a selection tape is made by the home taper? 

Finally, home tapers buy records and compact discs so that they can make tapes 
for their cars and other portable playback devices. Regarding this practice, I see the 
industry as only gaining — not losing — from home taping. 

A second important point is that no one will buy DAT recorders that do not 
record. The anti-taping chip, if required, will be the death knell for the DAT. Even 
though some record companies may not encode their music, you should not be 
misled as to the impact of enacting S. 506. If Congress passes this legislation and 
DAT recorders have anti-taping chips, who will buy a tape recorder that does not 
have the capabilities of existing machines? 

Third, I have read that the recording industry believes that the struggle to bring 
a new, exciting technology to the marketplace is really a battle between the Japa- 
nese hardware manufacturers and American record companies. Nothing could be 
further from the truth. My company represents a vital, domestic segment of the 
consumer electronics and entertainment industry. We have employees and distribu- 
tors who depend on growth and change in consumer electronics. Our livelihood de- 
pends on new formats and new applications of existing technology. In short, we 
relish technological change and advances. 

It is important for you to understand that DAT is a natural evolution from the 
CD and analogue cassette formats, I don't understand why the recording industry 
should be able to prevent us and our customers from enjoying the advantages of the 
DAT. Yet, this is exactly what they are trying to do. 

By asking Congress to stop DATs for three years, the recording industry is impos- 
ing an artificial product cycle on the free market, I have s^ificant reservations 
about legislation that would chain us to the industry's notion of when a product 
should be introduced. After all, first audio cassettes were introduced, and the record 
companies resisted them fiercely; then CDs came along, and that technology is enor- 
mously profitable for them. Now DAT has the potential to be a new and very signif- 
icant source of revenues. Just because the record companies want to protect the 
monies they are making from CD is no reason to allow them to block the DAT. I 
believe that the two formats can live side-by-side. 

Beyond the interests of mj| company, the DAT gives consumers what they want: 
high fidelity and portability in their music. In fact, DAT technology, when it is in- 
stalled in cars, will make American automobiles more attractive to the public. Lor- 
ai^er hopes to manufacture the tapes for the mobile DAT technology. I will be 
proud knowing that my products are part of the decision to purchase a car manufac- 
tured by Ford and other leaders in the automobile industry. 



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117 

The recording industry has always been skeptical of the benefits of new technolo- 
gy. Yet, the DAT offers much to record companies, to duplicators, to the manufac- 
turers of DAT tapes, and, most importantly of all, to the American public. Given a 
chance, and over time, I believe the DAT will prove not merely promising but very 
profitable. In the meantime, I urge that you oppose S. 506. 
Sincerely yours, 

Robert T. Lorangbk, 
Senior Vice President and Treasurer. 



Sony Hawaii Co., 
A Division of Sony Corporation of America, 

Honolulu, HI, May IS, 1987. 
Senator Daniel K. Inouve, 
Hart Senate Office Building. 
as. Senate, Washington. DC. 

Dear Senator Inouve: We understand that you are Chairman of the Subcommit- 
tee on Communications of the Senate Committee on Commerce. Science and Trans- 
portation and that you subcommittee will be holding a hearing on S. 506, legislation 
on Digital Audio Tape ("DAT") technology, on May 15, 1987. As one of your consti- 
tutents, 1 am asking you to oppose S. 506. If you would be so kind, could you please 
include this letter in the record of the hearing. 

I am President of Sony Hawaii Company and am writing to you because S. 596 
would block a technology that is exciting and could be enjoyed by many, many 
Americana, especially the people here. As you may know. Sony Corporation of 
America employs about 6.500 people across the United States. Sony Hawaii, a divi- 
sion of Sony Corporation of America, employs fifty-five full- and part-time employ- 
ees. Throughout the island chain, we distribute consumer and professional electron- 
ic products to approximately one hundred retail outlets. 

Senator Inouye, the consumer electronics industry — from manufacturing, to distri- 
bution, to retail— depends on the flow of new products. More importantly, we do all 
we can to give the public the latest in entertainment technology— products such as 
the videocassette recorder, the audio tape deck, car stereos, the Sony "Walkman," 
and compact disc ("CD") players. In fact, Hawaii consumers purchased over $17 mil- 
lion worth of consumer products in fiscal year 1986! Sony Hawaii itself was ranked 
in the top 250 Hawaii corporations and the number one firm in electronics. 

Make no mistake, consumers will want that DAT. But, DAT technology will only 
be available to them if S. 506 is stopped in its tracks. We understand that S. 506 
prohibits the distribution and sale of DAT recorders without the anti-taping chip. 

If S, 506 passes, it will kill the DAT. Why? Because no consumer will want a tape 
recorder that cannot tape. No consumer will want a tape recorder which has capa- 
bilities inferior to those on the market today. No consumer will want to spend 
money on a technology that depends on a "notch" filter — which audibly degrades 
the sound of precorded music on playback. In short, S. 506, if passed, would simply 
derive consumers of the opportunity to choose a new technology, 

I believe that out local people in particular will want DAT recorders, Hawaii is a 
state in love with recreation. We like the outdoors and want to take our music with 
UB, In fact, as you may know, the Walkman portable stereo is very popular in 
Hawaii for just this reason. 

The DAT combines high quality sound — digital sound just like that now available 
on compact disc— with complete portability. The DAT cassette is smaller than a con- 
ventional cassettee and DAT units will be popular for car stereo units and, like the 
Walkman, for personal stereos, 

I know that the recording industry is saying that DAT is a threat because it will 
increase home taping. We do not believe that DAT players will be used any differ- 
ently from conventional analog players. Now. people tape tapes, records, or discs 
that they own. They buy recorders to play back prerecorded tapes or tapes that they 
have made of their own albums or cassettes. With DAT, they will continue these 
practices in the future, Waht's wrong with that? (Of course, whether or not consum- 
ers will be able to play back prerecorded DAT tapes resta squarely in the hands of 
the m^or record company labels. Right now, however, the large record companies 
are stating that they refuse to produce prerecorded music in the DAT format, 1 

Sony Hawaii now distributes compact disc players and audio recorders. We hope 
that we will be able to distribute DATs, Introducing a new format can be exciting 
and provide tremendous business opportunities for both the hardware and software 
industries, and for the consumer. Thus, although we understand that the record in- 



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118 

duBtry wanta to protect its investment in CD, we strongly believe that all these for- 
mats can and will thrive. Indeed, we are counting on the fact that the formats are 
complementary! We do not thinlt it appropriate for the government to step in, to 
protect one format (the CD) over another (the DAT). 

On behalf of my employees and all of Hawaii's people who love music and the 
convenience of recording and playback technology, I urge that you oppose S. 506. 
Thank you for your favorable consideration. 
Sincerely, 

R. Sakai, President 



Digital Audio & Compact Disc Bkview, 

WGE PuBusHiNG. Inc.. 
Peterborough, NH. May IS, 1987. 
Senator Daniel K. Inouve, 
Hart Senate Office Building. 
Washington, DC 

Dear Sbnatok iNOtJVE: As members of the consumer electronics community with 
a particular interest in digital audio, we are greatly alarmed at the prospect of re- 
stricting the sale of consumer rotary digital audio tape cassette recorders (R-DAT) 

S, 506 calls for a one-year ban on the importation of DAT units that do not incor- 
porate a specific notch-filter-based copyguard copy protection system. 

It is the technology chosen for this system that concerns us most. It requires the 
actual removal of vital musical material centered upon 3838 Hz from all pre-record- 
ed media; Compact Discs, LP records, and cassettes. This audio frequency, while out 
of the range of many musical fundamental tones, is absolutely critical to the accu- 
rate reproduction of the acoustic overtones that help us to identify different musical 
instruments. In short, the audible range in question helps put the fidelity in high- 
fidelity. 

Forcing the inclusions of an electronic system to prevent DAT recorders from 
being able to record from compact discs with a slice of their audio removed will 
needlessly increase the cost of the DAT recorders, making it even more difficult for 
this new technology to be accepted. 

It is highly unlikely that record companies will remove the key audio frequencies 
from the compact discs since news of this butchering of the sound will quickly 
become known to CD buyers. The consumer magazines rating compact discs will 
quickly make it a point to make sure that all such butchered CDs are identified. 
This can be expected to seriously affect their sale, resulting in a serious reluctance 
of the record companies to butcher their CDs. This approach would seem to be 
doomed to failure on the basis of the logical consumer reaction. Even if no differ- 
ence could be heard, the negative consumer emotional reaction would doom the 

Should the industry pursue the proposed butchering of CDs as a way to try and 
prevent copying by DAT recorders, this would merely escalate the electronic war- 
fare one more step. I estimate that a device could be put on the market to detect the 
missing audio on the CDs and replace it so the DAT system would find no missing 
frequencies to trigger the copy prevention circuit. This device should be able to be 
marketed for under $10. Making such a device illegal will only spur an underground 
supply, Just as making CB amplifiers did a few years ago. 

To do so hamstring the Compact Disc medium, in particular, which has made in- 
calcuable contributions to the rejuvenation of the Amnerican recorded music indus- 
try, would be a grave error, and a needless one. 

There already exists a "bit copy" system built into the Compact Disc's digital data 
structure that would effectively restrict the digital-to-digital copying that might be 
exploited by music "bootleggers." This system has no effect whatsoever on the music 
program, and bo will not detract from the high level of technical excellence that the 
Compact Disc now enjoys. 

There are other factors which make it unlikely that DAT systems will be used 
widely for copying compact discs — or even LPs, for that matter. 

For instance, there is the cost of the DAT system itself, which at its present cost 
of around 11,200 will limit its desirability. Yet without the economies of scale of 
large production runs it is unlikely that the price of the equipment will be lowered 
significantly. Unlike CD players, DAT systems already heavily depend on large 
scale integration, so there are few major ccst reductions which can be expected. 



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119 

Normally, as with VCRs and CD players, we would expect an enthusiastic accept- 
Emce by consumersto reduce the cost of a system by at least 30 percent per year for 
the first three or four years But with DAT systems, even if the volume of sales 
meet the most optimistic levels, reductions in manufacturing cost will be much 
more modest. 

Then there is the cost of the DAT tape cassettes. The present prices of these are 
around $13 for the normal two-hour cassette and $9 for one hour. Since the cost of 
blank cassettes is not much less than CD costs, their use for copying CDs as an econ- 
omy measure are unlikely. The high cost of the cassettes are expected to be a seri- 
ously restraining factor in the sale of pre-recorded DAT cassettes. 

Manufacturers of CDs and DAT tape have estimated that the raw material cost of 
the two technologies are very close, so it is unlikely that we will ever see a wide 
spread between the two media in consumer cost. Indeed, the expected slow accept- 
ance of DAT should keep the tape well ahead of CDs in cost, providing an edge to 
CD sales for several years. 

Thirdly, there is the matter of what motives there will be for conaumera to buy 
DAT systems. Without few benefits in making copies of CDs, their use comes down 
to just how much need there is for a tape recorder which provides substantially 
better quality than can be had with today's inexpensive Philips cassette recorders. If 
DAT sales have any relationship to the practical uses for the recorders, their sale 
should be very limited. 

Some hope has been expressed that DAT recorders might be used by low end pro- 
fessionals to replace the Fl Sony r*CM unit which is used with a regular VCR for 
making digital recordings, thus making it possible for small record companies to be 
formed and make digital recordings for release on compact discs. This application 
would be expected to make it possible for hundreds or even thousands of small busi- 
nesses to enter the field — which otherwise would continue to be dominated by a 
small group of large record companies. 

Unfortunately the decision by the DAT manufacturers to prevent making record- 
ings at the 44.1 kHz sampling frequency is going to make it almost impossible to use 
DAT recorders to make CD masters— at least unless they modify the recorders so 
they are able to record at the CD standard sampling rate. I predict that hobbyist 
magazines will quickly provide articles describing circuit modifications for CD re- 
corders which will enable them to record at any desired sampling rate — including 
44.1 kHz. It's better not to try and mess wiith short-term technological fixes for long 
term problems. The proposed systems for preventing copying are neither practical 
nor needed. Finally, we would like to remind you that in every case where industry 
has attempted to inhibit the free advancement of technology, whether video cas- 
settes, computer software, or digital audio, the industry clamoring for protection has 
ultimately fared better from the new technology's acceptance than it had without it. 

In closing, we urge you most energetically to vote against this bill, and allow new 
technology to inject the excitement into the American marketplace on which it 

Sincerely, 

Wayne Green, 

Edilor/PublUher. 



Communication Research, Inc., 

Pittsburgh PA, May 15. 1987. 
Hon. Daniel K. Inouve, 
Hart Senate Office Building. U.S. Senate. Washington, DC. 

Dear SEt^ATOR Inouve: Please find attached my statement in opposition to S, 506, 
the anti-DAT legislation. This statement will appear in the July 1987 issue of Digi- 
tal Audio magazine as a guest editorial. 

I ask that this letter and its attachment be made a part of the record of the May 
15 hearing on S. 506. 
Thank you. 
Sincerely, 

Marc Finer, 
President. 
Attachment,' 



' See Digital Audio, July 1987, p. 22. 



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Hitachi Sales Corp. op America, 

Loa Angeles, CA. June 2. 1987. 
Hon. DANifa. K. Inouye, 

Chairman, Subcommittee on Communications, U.S. Senate Committee on Commerve, 
Science, and Transportation, Washington, DC, 

Dear Chairman Inouye; I am writing to correct the record of your Subcommit- 
tee's hearing on May 15, 1987, regarding the copyright issues presented by the new 
digital audio tape (DAT) technology. 

Specifically, I am writing to correct a misimpreseion about Hitachi's DAT markets 
ing plans that may have been conveyed by two of the witnesses at your hearing, Mr. 
Jason Berman, who testified on behalf of the Recording Industry Association of 
America and Mr. David Stebbings. who testified on behalf of CBS Records. I ask 
that this letter appear in the record of your hearing immediately following the testi- 
mony of these two gentlemen. 

Both in their prepared statements and during Mr. Stebbings' oral presentation, 
these witnesses asserted that Hitachi has exhibited DAT machines that record using 
the same sampling rate as the rate used in compact disc playback, so that the ma- 
chines would be capable of digital-to-digital copying, or in Mr. Berman's words, "dig- 
ital cloning." These witnesses seemed to imply that Hitachi might market such 
DAT machines in the United States. 

The facts are quite different. The DAT machines that Hitachi has just begun to 
market in Japan and that we hope to make available to consumers in the United 
States will not permit digital-to-digital copying. Hitachi's DAT machine will not 
"clone" compact discs, and they will not "clone" pre-recorded DAT tapes. 

Like other actual and potential DAT manufacturers. Hitachi has chosen to adhere 
to a two-part technical standard that prevents such digital-to-digital copying: 

First, the sampling rates for CDs and DATs will be different. While music on CDs 
is digitally encoded and read using a sampling rate of 44.1 KHz, the DAT will not 
record at this sampling rate. The DAT will record and play at a rate of 48 KHz, and 
play (only) at a rate of 44,1 KHz, It will thus not be possible to make a direct digital- 
to-digital "clone" of a CD on a DAT machine. 

Second, a digital "ilag-code" encoded in the source music by the producer of the 
music, will prevent digital-to-digital copying by a DAT machine, whether the digital 
source is a CD player or a pre-recorded DAT tape. When the DAT machine "reads" 
this flag-code, it simply stops copy recording. 

These technical features of Hitachi's DAT machines will prevent the use of our 
machines to copy directly from digital sources such as CDs and pre-recorded d^tal 
tapes. When our machine is used to record through its analog inputs, it will make a 
very good recording, but our machine will not make a "digital clone." As noted 
above, may understanding is that other DAT manufacturers intend to adhere to 
these technical standards, as well. I hope this clarification is helpful. 

You should know that Hitachi Sales Corp, of America based In Los Angeles. Cali- 
fornia, is a member of the Home Recording Rights Coalition, and joins the Coalition 
in urging your Subcommittee and the Congress to reject proposals, such as those 
embodied in S. 506. to disable DAT machines with mandatory copycode scanners. 
Sincerely 

YuzuRU KoBAVASHi, 

President. 



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