FC: KaZaA to U.S. Senate: RIAA's Hilary Rosen lied to you

[Declan McCullagh <declan () well com>]

KaZaA is one of the post-Napster breed of file-sharing applications.
Since we haven't covered its legal battles on Politech, here are two
Slashdot threads with background:

 "RIAA Looks To Stop KaZaA, Morpheus & Grokster"
 http://slashdot.org/article.pl?sid=01/10/03/125243&mode=thread

 "KaZaA Resumes Downloads, Company Sold?"
 http://slashdot.org/article.pl?sid=02/01/21/1621223&mode=thread

The witness list for Sen. Biden's carefully-balanced hearing last month:
http://foreign.senate.gov/hearings/hrg021202b.html

-Declan

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http://www.politechbot.com/docs/biden.kazaa.letter.030202.html
   
   
   February 26, 2002

   Senator Joseph R. Biden, Jr.
   221 Russell Senate Office Building
   Washington, DC 20510
   Dear Senator Biden:
   
   I am writing to you in your capacity as Chairman of the Senate Foreign
   Relations Committee. We represent Sharman Networks, which last month
   acquired certain assets of KaZaA BV, including the KaZaA.com website
   and the KaZaA Media Desktop Software, as well as the license for the
   FastTrack P2P Stack. Sharman believes that the utilization of
   peer-to-peer (P2P) software applications is essential to generating
   the consumer demand for broadband connectivity that is required if the
   U.S. is to successfully make the next great digital leap forward.
   
   We are compelled to express our great distress at the one-sided and
   unsubstantiated attacks on KaZaA that took place at the Committees
   February 12 hearing, coinciding with the release of its Report titled
   "Theft of American Intellectual Property: Fighting Crime Abroad and at
   Home". We are deeply offended by the gratuitous accusations made
   against KaZaA by witnesses before the Committee, including ludicrous
   attempts to associate an extremely beneficial, next-generation
   software program with organized criminal gangs and even terrorist
   organizations. We believe, as outlined below, that U.S. Courts will
   find the KaZaA software to be legal under current copyright law, and
   that our client is devoid of any civil, much less criminal, liability.
   We also wish the Committee to be aware that:
     * There is no convincing evidence that audio file-sharing has had
       any negative impact on sales of recorded music. In fact, CD sales
       increased in 2001 notwithstanding the economic recession.
     * P2P software such as that provided by KaZaA has the capability for
       numerous, substantial noninfringing uses. These include potential
       benefits to musicians and their audiences through new, independent
       promotion and distribution mechanisms.
     * The recording industrys own "legitimate" online music offerings
       appear to be operating in violation of recording artist contracts
       and to be structured in a manner that leaves the vast majority of
       potential profits in the pockets of largely foreign media
       conglomerates, with little if any compensation going to U.S.
       artists.
     * P2P appears to be the only viable technology for stimulating
       near-term consumer demand for broadband sufficient to drive the
       next leap forward for the U.S. information technology and service
       sectors.
     * KaZaA is ready and willing to join with all other parties who
       benefit from the availability of digital content in a discussion
       of how to best compensate rights holders and creators. It is our
       view that a combination of a new compulsory license with a
       broad-based Intellectual Property Use Fee (IPUF) would be the best
       means of generating substantial new revenues that help preserve
       the incentive goals of copyright law.
       
   The Committee Report
   
   At the outset, we must comment on the ironic incongruity of permitting
   the Recording Industry Association of America to testify at a hearing
   focused on the "Theft of American Intellectual Property". After a
   decade of rampant consolidation, five major labels that collectively
   control nearly ninety percent of the industrys output dominate the
   recording industry. Four of the five members of this recording
   industry oligopoly are not U.S. companies but subsidiaries of
   foreign-based multimedia conglomerates. These companies, which
   dominate the RIAAs policy-making process, routinely strip U.S
   recording artists of all copyrights in their creative output as a
   standard aspect of the industry contract. Indeed, the industry
   recently succeeded in persuading Congress to strip even solo artists
   of the right to regain control of those copyrights, after the 35 year
   wait mandated under current law, by altering copyright law to classify
   all sound recordings! as "works for hire". Congress subsequently
   reversed this action and rest ored the status quo ante when vigorous
   artist protests brought the realization that this was hardly the mere
   "technical" clarification the RIAA had claimed it to be.
   
   The Committees Report asserts that "The music industry has also been
   victimized by piracy.user-friendly, piracy-enabling websites likeKaZaA
   in the Netherlands, allow users all over the world to download music
   illegally at no expense". It continues: "Certainly, the pervasiveness
   of Napsters successorsindicates the extent to which the music industry
   has already been victimized by online piracy; indeed, illegal
   downloading of songs is now at its highest level ever, despite any
   chilling effect brought about by the industrys suit against Napster
   and, as noted earlier, is becoming more difficult to prosecute because
   of decentralization." The only citation providing any documentation
   for these allegations is contained in footnote 38 of the Report,
   citing a "Judiciary Staff Briefing with the Recording Industry
   Association of America, January 14, 2002". We are frankly shocked that
   the Committee would issue a Report suggesting c! oncl usions on
   matters that are currently in litigation in the U.S. District Court
   for the Central District of California, in which the court has yet to
   issue a single substantive ruling, based solely upon the assertions of
   the trade association representative of parties on one side of that
   dispute.
   
   Contrary to recording industry allegations that this alleged "piracy"
   is hurting sales of compact discs (CDs) and other recorded media, the
   industrys problems are almost entirely self-inflicted. Billboard
   magazine, the industrys leading trade publication, recently reported:
   
   Many attribute the album sales decline to the growing popularity of CD
       burning, but no hard data exists to back up that claim. Others
       attribute the decline to the label-led deliberate annihilation of
       the singles configuration.retailers argue that singles are an
       essential tool for encouraging young consumers to buy music, and
       since the labels mostly refuse to release hit songs on the format,
       that group is turning to the Internet to download pirated copies
       of those tunes or asking friends to burn the more costly albums
       that contain them.In looking at album sales by configuration, CD
       album sales increased last year.On the other hand, the cassettes
       decline appears to be a reason why overall album sales declined
       last year, as titles released in the format experienced a
       precipitous drop to 49.4 million units. (emphasis added)
       
   This article makes clear certain facts that were probably not shared
   with Committee staff when they received the RIAA briefing:
   
     * CD sales increased in 2001 despite the recession. There is no
       documented evidence that music file-sharing has had any negative
       impact on record sales. Indeed, many experts believe that the song
       sampling facilitated by this activity actually stimulates such
       sales.
     * Overall recording industry sales would probably have been
       substantially higher if the industry had not unilaterally decided
       to severely curtail its own release of CD singles and audio
       cassettes. Indeed, the article cites file-sharing as a probable
       consequence of the industrys singles cutback, rather than a cause
       of any decline in sales.
     * The only technology cited as possibly displacing record sales is
       that of CD-R burners, which are now routinely packaged with new
       computers as well as sold as separate peripherals. Combined annual
       sales of these devices now number in the millions, while those of
       the blank CDs used by consumers as recording media are
       geometrically higher. These hardware devices allow the creation in
       minutes of an exact, full-quality copy of an entire record album,
       whereas file-sharing generally involves individual songs in the
       radically compressed and therefore somewhat lower audio quality
       MP3 format. Yet the recording industry continues to litigate
       against file-sharing software companies and attempt to scapegoat
       them for its current difficulties (which are largely a result of
       its growing inefficiencies), as they apparently find small,
       underfunded technology startups more tempting litigation targets
       than the large information technology hardware and software firms
       that pro! duce and actively market CD-R burners and related
       programs.
       
   Copyright Law Framework
   
   As you are aware from your prior service as Chairman of, and continued
   service on, the Judiciary Committee, copyright law is extremely
   complex and its application to digital technologies is still in a
   state of uncertainty and judicial flux. Nonetheless, we are confident
   that self-organizing and -generating P2P file-sharing software
   applications such as that provided by KaZaA will be found by U.S.
   courts to be in conformity with all applicable law. When a consumer
   downloads the free KaZaA software that user subsequently decides
   whether and to what extent he wishes to share any files, of any type,
   from his own computers hard drive. All subsequent contacts and
   exchanges between KaZaA users take place on a direct basis, with no
   intervention or facilitation by KaZaA. KaZaA does not provide a
   centralized file index. Moreover, notwithstanding the recording and
   motion picture industries repeated assertions to the contrary, KaZaA
   has no ability to monitor, much! les s control, file exchanges between
   individual users. Indeed, even if KaZaA the company were to cease
   operations at this instant, the KaZaA software would continue to
   function and propagate.
   
   The applicable legal standard for judging the copyright compliance of
   new mass-market technology for a variety of uses ("staple articles of
   commerce") was articulated by the Supreme Court in the 1984 Betamax
   case. In that landmark case, the movie industry attempted to block the
   distribution and sale of videocassette recorders (VCRs). Fortunately
   for both the movie industry and the American consumer, the Supreme
   Court stated:
   
   [T]he sale of copying equipment, like the sale of other articles of
       commerce, does not constitute contributory infringement if the
       product is widely used for legitimate, unobjectionable purposes.
       Indeed, it need merely be capable of substantial noninfringing
       uses. The question is thus whether the Betamax is capable of
       commercially significant noninfringing uses. (emphasis added)
       
   There can be no doubt that P2P software is capable of myriad
   noninfringing uses. Moores Law, which postulates that computing speed
   and capabilities will double every 18 months, is being proven again as
   the typical personal computer acquires the attributes of traditional
   network servers in terms of processing speed and hard drive storage.
   This new capability allows individual PC users to move beyond being
   mere passive recipients of information and content from central
   servers; it is the essence of the true interactivity possible in this
   new era of the distributed network environment. As a ubiquitous
   broadband network connects these powerful computing and storage
   devices, P2P software applications are emerging as the next step in
   the natural and inexorable evolution of the Internet. Indeed, just
   three months ago RIAA President and CEO Hilary Rosen conceded that P2P
   technologies have this substantially noninfringing capability,
   stating:
   
   The multiple exciting applications of P to P that are being discussed
       over these few days show the limitless potential of the technology
       in multiple ways. The ability to achieve cost savings on storage
       and bandwidth, the web tools, the meeting applications, the
       communications applications, the customer service applications are
       all extremely exciting.
       
   Indeed, among the many exciting and substantially noninfringing uses
       for which
       
   P2P software is being utilized are the compilation and distribution
   of:
   
     * more than 4,500 public domain books and documents for Project
       Gutenberg,
     * government publications,
     * authorized media content, and
     * public domain software.
       
   Moving from the Betamax case to the Napster decision, there is little
   wonder that the record industry is unable to capitalize on that latter
   ruling to halt the use of P2P software because the decision makes
   clear that the distribution of such software, in and of itself, is
   noninfringing. In its ruling, the 9th Circuit first referenced the
   Supreme Courts holding in the Betamax case, stating:
   
   The Sony Court refused to hold the manufacturers and retailers of
       video tape recorders liable for contributory infringement despite
       evidence that such machines could be and were used to infringe
       plaintiffs copyrighted television shows.The Sony Court declined to
       impute the requisite level of knowledge where the defendants made
       and sold equipment capable of both infringing and "substantial
       noninfringing uses".
       We are bound to follow Sony, and will not impute the requisite
       level of knowledge to Napster merely because peer-to-peer file
       sharing technology may be used to infringe plaintiffs copyrights.
       We depart from the reasoning of the district court that Napster
       failed to demonstrate that its system is capable of commercially
       significant noninfringing uses.The district court improperly
       confined the use analysis to current uses, ignoring the systems
       capabilities.Consequently, the district court placed undue weight
       on the proportion of current infringing uses as compared to
       current and future noninfringing uses.To enjoin simply because a
       computer network allows for infringing use would, in our opinion,
       violate Sony and potentially restrict activity unrelated to
       infringing use.
       
   As this excerpt makes clear, Napsters P2P architecture, as opposed to
   the service that Napster operated, was found to pass muster under the
   Betamax standard. Indeed, this standard is critical if new information
   processing, storage, and transmission technologies are to avoid being
   crippled or killed at birth by the content industrys pervasive
   protectionism.
   
   Napster ran afoul of the law due to its operation of a central
   file-indexing service that provided it with specific knowledge of
   specific infringements by specific users of its service. The Appeals
   Court stated:
   
   Napsters actual, specific knowledge of direct infringement renders
       Sonys holding of limited assistance to Napster. We are compelled
       to make a clear distinction between the architecture of the
       Napster system and Napsters conduct in relation to the operational
       capacity of the system. (emphasis added)
       
   In stark contrast to Napster, KaZaA does not operate a network or a
   file-indexing service, and does not monitor data or provide a
   data-sharing service. KaZaA merely provides self-generating and
   organizing P2P software and has neither direct knowledge of how it is
   being used nor any ability to curb that use. KaZaAs software does not
   create copies, but merely allows for the sharing of files created
   through other software programs. No central server is involved in the
   systems operation, and all file information resides on the computers
   of individual users. Thus, under the 9th Circuits Napster decision,
   KaZaAs architecture clearly deserves Sony case protection. Indeed, if
   KaZaA were to permanently cease all business operations at this very
   moment users of the software could continue to enjoy its full
   functionality in perpetuity the only way to halt such activity would
   be to permanently shut down the Internet, a step so drastic and r!
   eact ionary that not even the RIAA and MPAA have (yet) dared to
   suggest it.
   
   Were the courts to hold KaZaA guilty of contributory infringement the
   results could be devastating for the entire technology sector, as any
   and all could be the next victims of the content industrys ongoing
   litigation witch hunt. P2P software is but one of the essential tools
   that can facilitate copyright infringement, and KaZaA has no more
   direct knowledge of such uses than the manufacturers and providers of
   these other technologies. They include:
     * Telecommunications firms providing broadband connections.
     * Providers of Internet browser, server, media player, e-mail,
       instant messaging (IM), newsgroup, and File Transfer Protocol
       (FTP) software.
     * Internet relay chat servers.
     * Manufacturers of large capacity storage devices, including hard
       drives, CD-ROM and DVD-ROM burners, and ZIP drives.
     * The hypertext transfer protocol (HTTP), which is the basis for all
       web browsers, as well as e-mail protocols; both of which, like
       KaZaA and similar P2P software, cannot distinguish between
       copyrighted and non-copyrighted materials as they perform their
       search and transmission functions.
       
   The P2P data-sharing technology provided by KaZaA has substantial
       advantages
       
   over previous Internet architectures, including major cost savings on
   bandwidth and storage, stability and protection from denial of service
   attacks, and efficient search capabilities, all of which combine to
   provide far better utilization of computing and network resources.
   
   Summing up, P2P software of the type distributed by KaZaA has myriad
   substantial non-infringing uses that advance Internet technology and
   the public interest. We are confident that KaZaA will be found to be
   operating within the law. Any attempt by the content industries to
   alter the law to prevent the continued utilization of this
   breakthrough technology would be a grave disservice to the U.S.
   technology sector and to the millions of your constituents now
   utilizing the exciting applications made possible by P2P.
   
   The Online Music Marketplace
   
   The testimony presented to the Committee by RIAA head Hilary Rosen
   clearly attempted to blame the recording industrys failure to create a
   viable online music marketplace on P2P software. She stated, "with
   Internet piracy, the lack of real protection is actually stifling the
   development of a new marketplace.We must be vigilant in ensuring that
   standards of protection are not outdated by technology, and that
   financial rewards remain a realizable goal for American creators of
   copyrighted materials. These rewards are put at risk by commercial
   enterprises that allow for the unauthorized use of recorded music."
   
   To the contrary, many observers of the online music marketplace
   believe that no one has done more to stifle its development than the
   major record labels, and that if the labels were granted but one wish
   it would be to make the Internet go away. The major labels appear to
   have one overriding goal, which is to transfer the market control they
   have enjoyed in the distribution of physical goods to the virtual
   digital realm, and their anti-competitive conduct has become the new
   focus of the ongoing Napster litigation. They have either sued and/or
   refused to license their copyrights on reasonable terms to any
   innovative online music venture they do not control. The major labels
   only interaction with KaZaA has been to litigate, and to inform us
   that they will not enter into any constructive discussions as to how
   we might work together until the networks created by the KaZaA
   file-sharing software are shut down (an event that, as we have
   indicated, we are powerl! ess to effect). We find this intransigent
   aggression to be remarkable, and lamentable, given the size of KaZaAs
   user base and the many ways in which the labels could derive
   substantial benefit from P2P distribution utilizing a variety of
   available technical and economic solutions.
   
   The major labels litigation has resulted in the loss of independence
   of the two most exciting and innovative U.S.-based online music
   companies, MP3.com and Napster, and the transfer of control over them
   to, respectively, Frances Universal Vivendi and Germanys Bertelsmann
   media conglomerates. The major labels have also stifled the
   development of the online webcasting market, a goal that Congress
   intended to facilitate by its inclusion of a compulsory license for
   non-interactive webcasts in the Digital Millennium Copyright Act of
   1998. More than three years after enactment of that law, the
   applicable royalty rate has just been determined through a Copyright
   Arbitration Panel (CARP) proceeding. In that proceeding, the RIAA
   proposed a royalty rate that was 30 times higher than the one put
   forward by a coalition of webcasters and broadcasters -- a rate that
   would instantly bankrupt this entire emergent sector.
   
   The major labels own recently unveiled online services almost appear
   to be designed to fail from the start. None of them offers selections
   from all of the major labels due to refusals to cross-license. Even
   within the label groups that are offered by a particular service, many
   recent offerings by major artists are unavailable. These services
   merely rent song downloads to consumers rather than providing
   permanent ownership. They also bar or severely restrict the features
   that consumers find most desirable, including the ability to transfer
   song files to portable digital players or to burn them onto a CD.
   Press reviews of these new services have ranged from severely negative
   to lukewarm, with most advising consumers to save their money until
   the services show substantial improvement. It is unseemly for the RIAA
   to blame the failure of these services to capture customers on KaZaA
   and similar software when they are so clearly lacking the basic
   attributes ! that should make for a compelling online music
   experience. Even within the major labels, voices are now being heard
   that an excessive focus on security is counterproductive to consumer
   acceptance.
   
   Finally, notwithstanding RIAA rhetoric regarding concern for music
   creators, we remind you that they represent record companies and not
   recording artists. The recording industry has a long and
   well-documented history of artist exploitation., including creative
   accounting practices that would do Enron proud. The standard recording
   artist contract has been characterized as the worst personal service
   agreement in the United States, with provisions that range from
   archaic deductions for "breakage" that date back to the days of
   shellac 78 RPM records to modern abuses such as clauses that deny
   artists the ability to own their name, or any variation of them, as a
   website URL in perpetuity (long after the contractual relationship
   between artist and label is likely to have expired). The major labels
   also appear to be using sound recordings on their own proprietary
   websites in violation of recording artist contracts, and to have
   structured any payments t! o ar tists derived from these services as
   licensing fees rather than far more substantial standard royalties.
   These abuses have prompted one well known artist manager to declare
   "Its becoming very obvious to me and my peers that were becoming
   victims of what is a huge conspiracy", and a leading music attorney to
   state, "from our perspective, if the technology is going to be out
   there and the artist isnt really going to make money, wed prefer that
   our fans just get it for free." (emphasis added) We have also already
   noted the RIAAs failed attempt to have Congress enact a "technical"
   copyright amendment that would have characterized all sound recordings
   as "works for hire" and thereby deprived artists of the ability to
   regain their copyrights after a 35 year wait.
   
   But that is hardly their sole anti-artist legislative initiative. At
   this very moment, the RIAA is waging a vigorous lobbying battle
   against such groups as the Recording Artists Coalition, the American
   Federation of Television and Radio Artists (AFTRA), the American
   Federation of Musicians (AFM), and other artist representatives in the
   California legislature. These groups are seeking to repeal a provision
   of California law that exempts recording artists alone from statutory
   protections that ban the enforcement of personal service contracts of
   more than seven years duration. The RIAA is no doubt aware that a
   landmark 1945 court case brought by actress Olivia DeHavilland under
   similar law marked the beginning of the end for the old Hollywood
   movie studio system and its pervasive control over actors careers.
   Some observers of the online music marketplace have opined that one of
   the chief motivations for the record industrys litigation crusade
   against indepe! nden t music upstarts is that they might provide
   recording artists with a promotion and distribution system beyond the
   control of the major labels. The current distribution and promotional
   system has erected such high barriers to entry that it is difficult
   for less well known artists who are not signed to a major label to
   realize their audience potential; musicians remain hopeful that such
   direct relationships can be facilitated through independent Internet
   models.
   
   P2P As The Driver of Broadband Demand
   
   It is well recognized that the rollout and mass adoption of broadband
   connections throughout the United States is the necessary precedent
   for the success of enhanced online services and the continued further
   growth of the telecommunications, computer hardware, and related
   critical industries. It is also increasingly acknowledged that lack of
   demand due to an absence of compelling content is the chief factor
   underlying the growing gap between the availability of broadband
   connections and consumer uptake. While KaZaA and similar P2P software
   is no threat to the content industries, the refusal of the content
   providers to offer attractive online services is a clear and present
   danger to the technological future of this Nation.
   
   FCC Chairman Michael Powell recently took note of this problem:
   
   I discussed earlier the chicken and egg problem of broadband content
       and distribution. Much of what is holding broadband content back
       is caused by copyright holders trying to protect their goods in a
       digitized environment (in other words, a perfect reproduction
       world). Stimulating content creation might involve a reexamination
       of the copyright laws. Arguably, VCRs would not be widely
       available today if Universal Studios had won its infringement case
       against Sony in 1984. They won in the Supreme Court by a vote of
       5-4. (emphasis added)
       
   The recalcitrance of the copyright industries and its direct
   relationship to the lag in broadband uptake has also been noted in the
   mainstream press:
   
   A while back, there was a compelling reason to get a broadband
       connection. It was called Napster. And it was crippled by
       recording industry lawsuits. If cable and telecom companies want
       someone to blame for broadbands lackluster growth, how about the
       record companies, which still arent giving consumers what they
       want.
       
   Another commentator recently observed:
   
   Still, the broadband market isnt operating as freely as it should.
       There are roadblocks that stop consumers from getting what they
       want. And its a legitimate function of government to remove those
       roadblocks especially when government creates them.
       Nearly all the obstacles are on the demand side. Federal
       Communications Chairman Michael Powell has observed that
       "broadband intensive content is in the hands of the major content
       holders" especially music and movie companies that may
       appropriately fear Internet piracy but are inappropriately
       delaying economic progress in the process. These entertainment
       moguls have formed a frightened, retrograde cartel thats been
       withholding content from the Internet.
       Part of the problem is the cowardice and stupidity of Hollywood,
       but another part of it is law that needs to be brought up to date.
       In a recent article in the Washington Post, Stanford law professor
       Lawrence Lessig advocated a review of current copyright laws to
       assure that they do not "become a tool for dinosaurs to protect
       themselves against evolution". Heres a worthy project for the Bush
       Administration that would do far more to disseminate broadband
       than fooling with the 1996 Telecom Act.
       
   When it comes to driving consumer demand for broadband connectivity,
   P2P services are the best hope for near-term success, and the music
   and movie industries are public enemy number one. If the movie
   industry truly intends to withhold its offerings until it can be
   assured of the "seamless protection" that MPAA Chairman Jack Valenti
   spoke of before the Committee, then that day will never arrive. This
   quixotic quest for absolute protection simply cannot be realized in
   the distribution over an open communications system of a consumer good
   meant to be seen and heard by millions; nor can it be reconciled with
   the reliability and ease-of-use demanded by consumers. Knowing that,
   the MPAA apparently intends to seek Congressional intervention to
   mandate so-called protection standards on the manufacturers of
   computer and consumer electronics hardware. This misguided mission,
   which is broadly opposed by a wide array of industry and citizen
   interests, wou! ld i nevitably result in products with inflated price
   tags and diminished functionality.
   
   A just-released and highly praised study by the Computer Science and
   Telecommunications Board of the National Research Council emphasizes
   the critical relationship between content availability and broadband
   demand:
   
   Notably, today's demand level has been based mainly on a limited set
       of applications (e-mail, Web browsing, file sharing, and limited
       audio and video streaming). Indeed, there is a significant gap
       between the capabilities of current broadband services and some of
       the cutting-edge applications that have been touted but are not
       generally available to the public. Continued growth in demand for
       higher-speed services can be foreseen based on applications being
       used or tested by early adopters in enterprise and campus
       networks, experimental initiatives in both industry and academia,
       and the possibilities afforded by increasingly cheap home networks
       and specialized consumer electronics. With new applications, wider
       penetration, and broadband's use as a convergent platform for
       multimedia content delivery, much wider demand and use can occur.
       
   The study also makes clear that a wide variety of content types beyond
   those offered by the entertainment establishment will be facilitated
   (and these substantially noninfringing content types are ideally
   suited for P2P distribution):
   
   More diverse content and applications--beyond mass entertainment and
       more commercially oriented content--could create new sources of
       demand and help attract individuals and communities to make
       further investments in broadband. Examples of such content include
       information of local interest; enhanced access to government
       information and services; and materials related to education,
       health, and culture. Not all such services require broadband
       (narrowband may be sufficient, and a way of reaching a wider
       audience in the short term), but broadband supports much richer
       content.
       
   The study further stresses the tremendous benefits that broadband
   provides to media download applications such as those facilitated by
   P2P software:
   
   It is important not to underestimate the impact of fast
       file-downloading capability on a very wide range of applications,
       including audio and video. Streaming is complicated compared with
       file downloading, and the main reasons that people do it, other
       than for real-time delivery, is because the files are so large
       that users do not want to wait while the files download; the files
       are too big to store locally conveniently (although storage space
       is rapidly becoming very inexpensive); and/or there are
       intellectual property protection concerns (but application of
       digital rights management technologies to stored files can provide
       protection comparable to that of encrypted streams). If one can
       move music files in a few seconds, videos in a minute or two, or
       an entire newspaper or book in a minute, many applications become
       practical. In addition, the economics are becoming more appealing
       with the spread of very large, cheap storage units. Downloading is
       of part! icul ar value when one wants the content for portable
       appliances--such as e-book readers or music players
       
   Finally ,and perhaps most importantly, the study elaborates on the
   large customer
   
   base required to successfully drive the broadband marketplace numbers
   far in excess of even the most optimistic projections for the music
   and movie industrys proprietary services, but that are fully
   consistent with current usage of P2P file-sharing applications:
   
   In addition to technical obstacles, the familiar chicken-and-egg
       phenomenon comes into play. Without a mass market of consumers
       with broadband access, it is hard to develop a business model that
       justifies investment in new content (or translating old content).
       One new media businessperson, Andrew Sharpless, addressed the
       committee from his vantage at that time of developing new online
       services for Discovery Communications. He suggested that at least
       10 million households would need to use broadband before
       meaningful content would emerge, and he noted that cable
       experience shows that serving 50 million customers is key to
       lining up advertisers. (emphasis added)
       
   Summing up, there is no escaping the conclusion that the current
   practices and attitudes of major copyright owners constitute the most
   serious obstacle to mass demand for broadband, while the utilization
   of P2P file-sharing offers the best near-term means to drive that
   demand.
   
   Compensating the Creators Through a Legislated IPUF
   
   KaZaA is fully aware of and sensitive to the need to respect
   applicable copyright law. The KaZaA P2P distribution software is fully
   compatible with digital rights management (DRM) technologies that can
   be used by content owners to protect their copyrighted works. KaZaAs
   web page contains the following conspicuous notice to users of the
   software:
   
       COPYRIGHT - KaZaA does not condone activities and actions that
       breach the copyright of artists and copyright owners - as a KaZaA
       user you are bound by the KaZaA Terms of Use and laws governing
       copyright in each country.
       
   As previously explained in this letter, KaZaA has no means to monitor,
   much less control, any activities by software users that may infringe
   copyright.
   
   While we disagree with the assertions and litigation practices of the
   major corporate copyright owners, we are not insensitive to the need
   to maintain the incentives for creators that are fostered by copyright
   law; and to provide those creators with fair compensation for the
   content that enriches the lives, and advances the business plans, of
   millions.
   
   We suggest that it is time for Congress to step in and halt the
   "whack-a-mole" litigation excesses of the music and movie industries
   through new legislative initiatives that compel content availability,
   while establishing a compensation scheme that requires a contribution
   from all the many industry sectors beyond P2P software that benefit
   from content availability. These players who form the links of this
   long and interdependent media file value chain clearly include:
   
          + Computer hardware manufacturers.
          + Consumer electronics manufacturers.
          + Storage device and media manufacturers.
          + Cable, telephone, and wireless telecommunications firms.
          + Providers of "ripping" and media player software.
       
   
   These industry participants provide the software that creates full or
   compressed files of digital media, the hard drives and optical storage
   media that provide for their storage, the connectivity that provides
   for their transfer, and the portable playback devices that allow for
   use away from the computer. Many of their marketing materials
   implicitly promote the duplication of copyrighted materials as an
   incentive for purchase of their products or services.
   
   The Audio Home Recording Act provides a model for the undertaking that
   needs to be considered. That 1992 statute mandates a small royalty on
   digital audio recorders and recording media, with the proceeds of that
   levy redistributed to content creators. A similar levy an Intellectual
   Property Use Fee (IPUF) -- applied to a much broader base of parties,
   could provide a significant new revenue stream to copyright owners to
   compensate them for the inevitable "leakage" resulting from Internet
   distribution. We do not minimize the difficulty in arriving at a
   reasonable royalty rate or designating the parties or products it
   should be levied on, nor of devising a means for equitable
   distribution of the proceeds (however, most media players already
   possess the ability to monitor and report on content usage, a task
   that can be performed in the aggregate to alleviate privacy concerns,
   and future media compression formats are being designed to tag and
   track th! e individual elements of a creative work). Yet there is
   already ample precedent, es pecially in the music realm, for the need
   for and workability of such compulsory license and royalty schemes. We
   also realize that some would prefer a market solution negotiated by
   private parties, yet the content marketplace is already a landscape
   littered with content and broadcasting oligopolies, performance rights
   organizations operating under antitrust decrees, and myriad compulsory
   licenses facilitated by complex royalty collection and distribution
   schemes. Whatever the difficulties may be in pursuing this concept,
   they are nothing compared to the present practices of the content
   industries that are stifling innovation, retarding the necessary
   rollout of broadband, and threatening the innovative freedom of the
   information technology industry.
   
   This type of policy initiative would also be fully consistent with one
   of the seminal recommendations of the National Research Councils
   groundbreaking "Digital Dilemma" report:
   
   Recommendation: The committee suggests exploring whether or not the
       notion of copy is an appropriate foundation for copyright law, and
       whether a new foundation can be constructed for copyright, based
       on the goal set forth in the Constitution ("promote the progress
       of science and the useful arts") and a tactic by which it is
       achieved, namely, providing incentive to authors and publishers.
       In this framework, the question would not be whether a copy had
       been made, but whether a use of a work was consistent with the
       goal and tactic (i.e., did it contribute to the desired "progress"
       and was it destructive, when taken alone or aggregated with other
       similar copies, of an author's incentive?). This concept is
       similar to fair use but broader in scope, as it requires
       considering the range of factors by which to measure the impact of
       the activity on authors, publishers, and others.
       
   Our notion of an IPUF is consistent with this recommendation, in that
   it moves away from the notion of copy while providing a new means to
   provide the necessary incentive for the continued creation of video,
   audio, and print content that entertains and enlightens millions and
   sustains thousands of different businesses. It also recognizes the
   reality that notions of security and control that may have been
   exercisable in the non-networked, analog world cannot be effectively
   transferred to a realm where even a single digital copy can propagate
   millions of perfect clones, world-wide, almost instantaneously, and
   where control over the quantity and destiny of the bits that comprise
   digital media will be imperfect at best.
   
   Conclusion
   
   As we have outlined, the attempts by the music and movie industries to
   mislead your Committee with the false notion that our clients software
   is criminal in nature, and that P2P software is a major threat to
   their interests and a rationale for their withholding of content from
   the Internet, have no basis in fact or law. These content industries
   have a long history of opposing new reproduction and distribution
   technologies, and in every instance their dire predictions have not
   only been proven wrong but they have been substantially enriched by
   the very developments they sought to stifle. Self-generating and
   organizing P2P software is the natural and inevitable next step in the
   development of the Internet and offers a dizzying array of potential
   benefits to society. It is also the only means at hand for driving the
   mass adoption of broadband that is critical to the advancement of the
   U.S. technology sector and the myriad new services it can support. !
   
   We certainly hope that any future Committee inquiries into
   intellectual property matters provide for a more balanced
   consideration of this complex subject. We stand ready to assist the
   Committee and the Congress in understanding the many benefits provided
   by P2P file-sharing technology and in developing a new means of
   providing creator incentives that is not antithetical to technological
   progress. Congressional intervention driven only by the self-serving
   and incomplete testimony of the content industries could have the
   unintended effect of seriously thwarting U.S. economic and technical
   progress while subverting the very goals that copyright law is meant
   to serve.
   
   Thank you for your consideration of our views.
   
   Sincerely,
   
   Philip S. Corwin
   
   Cc: Members, Senate Foreign Relations Committee
   
   Chairman Patrick Leahy and Ranking Member Orrin Hatch, Senate
       Judiciary Committee




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