United States House of Representatives

“ To what extent are American consumers being denied access to music by certain foreign artists or genre due to this issue? The Administration is now aware that American consumers are being denied access to the music of any particular artists or genre as a result of the absence of a private audio taping royalty system under U.S. law. ”

“ A "digital audio interface device" is any machine or device, now known or later developed, whether or not included with or as part of some other machine or device, that is designed specifically to communicate a "digital audio interface signal" to a digital audio recording device, and that supplies a digital audio signal through a "nonprofessional interface", as those terms are used in the Digital Audio Interface Standard in part I of the technical reference document or as otherwise defined by the Secretary of Commerce under section 1022 (b) . ”

“ To assure that the standards keep pace with evolving technology, voluntary standards are typically reviewed, modified as necessary, and reissued. The proposed legislation requires the Secretary of Commerce to track these changes and to permit the commerce in devices which do not conform to all of the present specifications if the standards are evolving, the new devices conform to the new standards, and the new devices possess the same functional characteristics with respect to the regulation of serial copying as the Serial Copy Management System in the proposed legislation. ”

“ How much of a price increase can consumers expect for each recorder and medium? The legislation provides that the royalty rate of 2% for a digital audio recorder would be calculated on the "transfer" price, generally the wholesale price of the recorder. The legislation sets a minimum royalty of $1.00 on all digital audio recorders and places an $8.00 cap on the royalty for single drive recorders, and a cap of $12.00 for dual drive devices. The royalty rate for digital audio recording media is set at 3% of the transfer price without any minimum or maximum amount. ”

“ It is unreasonable to presume, given the ingenuity of electronic engineers, that a system would be implemented which could not be defeated, but the cost, effort, and expertise needed to defeat a particular implementation is likely to be determined largely by its individual design. 7. Does the technical reference document set forth standards and specifications that adequately incorporate the intended functional characteristics to regulate the serial copying and that are not incompatible with existing international digital audio interface standards and existing digital audio technology? ”

“ The advent of digital audio recording devices and the introduction of new technologies for "delivering" music to consumers, such as digital audio broadcast and cable pay-per-play services, promise to spur the sale of blank recording media and expand foreign royalty pools. As discussed in the Administration statement, U.S. authors of musical works and their successors in interest currently receive a share of private copying royalties under the levy systems of Berne Convention member countries. U.S. recording industry interests do not. ”

“ West Germany and Iceland also impose a fee on recording equipment. It appears that since the U.S. does not have a similar royalty provision, Americans are not allowed to benefit from those royalty funds. (a) To what extent are Americans at a disadvantage since the U.S. currently does not have a royalty payment system for home copying? The lack of a royalty system here in the United States and the allocation of royalties on the basis of reciprocity under the laws of our trading partners serves to deny U.S. nationals an appropriate share of the royalties collected abroad. ”

“ Testimony presented at hearings on the legislation indicates that as domestic industry after domestic industry has fallen victim to increasingly rigorous international competition, American musical products remain a flagship of American exports and one of the few consistent areas of trade surplus. Many foreign nations have audio home taping royalty funds. Several countries, including Austria, France, Finland, West Germany, Iceland, Portugal and Hungary, impose fees on audio recording media. ”

“ If this legislation passes, the royalty will simply be one factor influence prices. When digital audio recorders enter the market on a large scale, manufacturers will be trying to establish a market for what will be a fairly expensive item. In an attempt to keep prices down, some may choose to absorb this royalty. Also, the initial market price is likely to decrease over time if the experience with other media such as compact disk recorders is any guide. This means that in dollar terms per recorder, the amount of the royalty is likely to decrease over time. ”

“ If copyright protection is asserted via SCMS over any of the input signals, and the generation status of that copyright-asserted signal is not original, then the entire output signal shall indicate that copyright is asserted and that the generation status is not original. 5. Devices that are capable of reading original recordings and/or DAR media, and that are capable of sending digital audio signals that can be recorded by a DAR device, shall accurately read the copyright and generation status information from the media and accurately send that information. ”

“ On the other hand, consumer-electronics manufactures contend that home taping by consumers will actually stimulate sales instead of reduce sales, and is therefore not a theat to recording companies or creative artists. In the mid-eighties, consumer-electronics manufacturers decided to market digital audio tape recorders to American consumers. The Recording Industry of America threatened lawsuits against manufacturers that decided to make digital audio tape recorders available to American consumers. ”

“ The proposed serial copy management scheme is related technically to an existing international standard for the digital audio interface. This international standard is a voluntary consensus standard, a type of standard which is shaped significantly by the affected industry segments. Industrial participation in the development of the standard is one of the mechanisms used to assure that the standard is compatible with industry practice and conventional technology. ”

“ Devices that combine more than one digital audio input signal into one digital audio output signal, such as digital signal processors or mixers, shall reflect in the L Bit of the output signal the highest generation status of any input containing material over which copyright protection has been asserted. ”

“ The Committee has undertaken a significant effort to exclude "professional model products" from the definition of digital audio recording devices. The Committee wants to stress that the equipment manufacturing industry is expected to ensure that there is a sufficient supply of professional model products for use by the intended group. This group includes radio and television stations, who as a matter of ordinary business practice record and edit audio and video material for their viewing and listening public. ”

“ The National Institute of Standards and Technology is part of the Technology Administration of the Department of Commerce. The Institute is the Governments lead laboratory for measurements and is charged with assisting industry in the rapid commercialization of advanced technology. The National Institute of Standards and Technology first became involved in digital audio recording in 1987 at the request of responsible Congressional committees and with the financial support of both the Home Recording Rights Coalition and the Recording Industry Association of America, Inc. ”

“ To our knowledge, there are presently no domestic manufacturers of such digital audio recorders. While the Tandy Corporation has been working to develop and market a digital compact cassette recorder, John Roach, Chairman of the Board of Tandy, has stated and Tandy has been hesitant to manufacture and market such a product absent the certainty that this legislation will provide. Consequently, at this time, we are not able to assess what impact this legislation might have on American consumer electronics manufacturers. ”

“ No person shall encode an audiogram of a sound recording with inaccurate information relating to the category code, copyright status, or generation status of the source material so as to adversely affect the operation of the Serial Copy Management System. ”

“ Rome Convention signatories with private copying levy systems claim, therefore, to be justified in denying distributions to sound recording producers from the United States and other countries that do not have similar systems in place. (b) It has been argued that developing a U.S. royalty fund to compensate for home copying will make it possible for Americans to benefit from royalty funds in other countries. ”

“ Any particular approach to meeting the requirements of the Technical Reference Document can be tested for compliance; its cost of manufacture can be estimated; the ease with which the approach can be circumvented could be determined. Such an assessment depends critically on the details of the approach. A general evaluation is not possible at a meaningful level and NIST accord has not carried out any tests or lab investigations relating to the specifications identified in the technology reference document. ”

“ Thus, assuming the wholesale price is one-half of the retail price, the royalty would be $0.16 for a 60 minute tape, $0.24 for a 90 minute tape, and $0.30 for a 120 minute tape. Whether any or all of this $6.00 royalty for the recorder or the various amounts for the tapes would be passed on to consumers is uncertain for a number of reasons. Pricing a product for marketing is a complex process in which the manufacturer must take into account all sorts of costs. ”

“ This need for "professional model products" will continue to grow as technology changes and better quality equipment is in demand for both consumer and professional use. While there does not appear to be separate distribution channels for professional equipment, apart from consumer equipment, that does not diminish the need to ensure that normal and accepted professional activities be unencumbered by the provisions of this bill. ”

“ Because there is no restriction on the number of copies that can be made from material over which no copyright protection has been asserted, generation status is relevant only where copyright protection has been asserted over the signal. For most products, if the L Bit is set as "0", the source is a recording that is first-generation or higher. ”