December 17, 2001 — It seems that all of the forces in the music industry have lately been conspiring against the music lover and audiophile. The record labels and their hired gun, the Recording Industry Association of America (RIAA), have so far blocked digital outputs on high-resolution audio players, insisted that watermarks be inserted into both high- and low-resolution audio data, and have even started to restrict consumer's fair use of compact discs and digital downloads.

The National Association of Recording Merchandisers (NARM) is one of the few official voices standing up for the music-buying public, in addition to its primary role as support organization for music retailers. The group recognizes that grumpy consumers ultimately mean unhappy retailers, and it announced last week that it is submitting written testimony to a US House of Representatives oversight hearing, criticizing the Digital Millennium Copyright Act Section 104 Report that was released earlier this year by the Copyright Office.

In a statement, NARM says, "The Copyright Office Report on Section 104 offers important clarifications that could help facilitate electronic commerce in copyrighted works, but it also offers suggestions that, if followed, would seriously undermine public rights while offering additional rights to copyright owners without adequate justification."

NARM agrees with part of the Section 104 Report, specifically its concern about mounting evidence of practices by copyright owners to expand their copyright control beyond the limits imposed by Congress. But the organization disagrees with the report's suggestion that market forces would be able to correct the problem.

NARM notes that when the Copyright Office and National Telecommunications Industry Associations (NTIA) conducted the study last year, PressPlay and MusicNet had not yet been formed, "and there was still hope that free market principles would come into play. In the year since then, we have witnessed the failure of free market forces, and we respectfully suggest that it is no longer premature for Congress to step in to restore the necessary balance."

NARM goes on, "We applaud the Copyright Office for recognizing that the first sale doctrine does, indeed, apply to all lawfully downloaded (reproduced) works, but we are disappointed that its Report suggests that copyright holders may enjoy carte blanche to nullify the rights granted copy owners in Section 109(a) of the Copyright Act."

NARM's testimony is included below:

"America's retailers of music, represented by the National Association of Recording Merchandisers,

"AGREE with the conclusion that a mechanical royalty should be paid when a reproduction is made (a download), and that a performance royalty should be paid when a public performance is made (streaming). No reproduction infringes the performance right unless someone can actually hear the performance. No public performance infringes the reproduction right unless a copy or phonorecord remains after the public performance is over.

"AGREE with the conclusion that lawfully made digital downloads of sound recordings are entitled to the full application of Section 109(a). Section 109(a) entitles the owner of a lawfully made copy to sell it or give it away without the consent of the copyright owner.

"DISAGREE with the Copyright Office's assertion in Footnote 41 that Section 109(a) is a right without a remedy. There is absolutely no legal basis for concluding that Congress didn't mean what it said in enacting Section 109(a), or that Congress intended Section 109(a) to be voidable at the discretion of a copyright owner.

"AGREE with the Copyright Office's conclusion that Section 109(a) should not be interpreted to authorize the sale or other disposition of archival copies apart from the originals. If an archival copy is sold separately from a legally downloaded copy, it is no longer archival, and therefore, it no longer enjoys Section 109(a) rights.

"AGREE that consideration be given to the creation of a new archival exemption that provides expressly that backup copies may not be distributed (Option 2), but with care to avoid unintended results. The proposal to amend Section 109(a) to require that copies be lawfully made and lawfully distributed (Option 1) would have the effect of completely nullifying Section 109(a)'s applicability to digital downloads, and should be rejected. Such language would give copyright owners control over perfectly lawful downloaded copies for which retailers and consumers have already paid.

"QUESTION the wisdom of continuing to just let the marketplace try to solve these issues. In recent months the music industry has announced plans in which consumers will be limited to one of only two similar business models, two media players, little or no price competition, and an incomplete selection of music through a handful of retail channels. Contrary to the first sale doctrine's principles, copyright monopolies are being leveraged to eliminate or restrict all competition in the retailing of copyrighted content. The Copyright Office Report fails to note the potential harm to the public of limiting exclusively to the copyright owners the right to develop new business models.

"DISAGREE with the suggestion that use by copyright owners of Section 1201 to protect business models rather than copyrights does not warrant Congressional concern. Congress never intended for Section 1201 to permit copyright owners to neutralize the limitations Congress justifiably placed upon their copyrights, or to use technology to create for themselves rights never before conferred, such as the right of private performance. Today, Section 1201 is being used to shield the unauthorized usurpation of public rights by copyright owners. Copyright owners are claiming that though the owner of a lawfully made copy may legally sell or give away that copy, the copyright owner may nevertheless use access control technology to prevent the buyer or gift recipient from privately and lawfully performing the work. Such power upsets the careful balance of public and private interests that Congress has historically preserved in crafting the Copyright Act.

"QUESTION some of the unsubstantiated allegations of economic harm (or threats of possible future economic harm) to copyright owners that have colored the Report. Retailers of music are the first to feel the sting of sales lost to pirates. We share the concern of copyright owners about potential harm to our industry. Nevertheless, retailers are reluctant to attribute every lost sale to piracy. Sales are also lost to free CDs from record clubs, to lousy weather, a soft economy, and poor releases. Retailers know that Napster did not kill the singles market. Before Napster came along, record companies were killing the singles market by not releasing singles. We need independent studies which can help us all better evaluate the impact of new technologies on the economics of our business.

"QUESTION the conclusion that Section 109(a) should not be updated so that the principles of the first sale doctrine may carry forward to prevent copyright owners from exercising control over individual copies that they do not own. The Constitution and the public policy foundations of copyright law lend no support for allowing copyright owners to expand their control over electronic commerce once they have been fully compensated for the license to their exclusive rights."