House Report 102-780

102nd Congress

House Report 102-780 Part 1

102 H. Rpt. 780; Part 1

AUDIO HOME RECORDING ACT OF 1992

August 4, 1992. Ordered to be printed

Mr. Dingell, from the Committee on Energy and Commerce, submitted the following

REPORT (To accompany H.R. 4567 which on March 25, 1992, was referred jointly to the Committee on the Judiciary, the Committee on Energy and Commerce, and the Committee on Ways and Means) (Including cost estimate of the Congressional Budget Office)

The Committee on Energy and Commerce, to whom was referred the bill (H.R. 4567) to amend title 17, United States Code, to implement a royalty payment system and a serial copy management system for digital audio recording, to prohibit certain copyright infringement actions, and for other purposes, having considered the same, report favorably thereon with an amendment and recommend that the bill as amended do pass. The amendment is as follows: Strike out all after the enacting clause and insert in lieu thereof the following: SECTION 1. SHORT TITLE. This Act may be cited as the "Audio Home Recording Act of 1992". SEC. 2. IMPORTATION, MANUFACTURE, AND DISTRIBUTION OF DIGITAL AUDIO RECORDING DEVICES AND MEDIA. Title 17, United States Code, is amended by adding at the end the following: "CHAPTER 10 DIGITAL AUDIO RECORDING DEVICES AND MEDIA "SUBCHAPTER A DEFINITIONS, PROHIBITION OF CERTAIN INFRINGEMENT ACTIONS, AND RULES OF CONSTRUCTION" Sec. 1001. Definitions "As used in this chapter, the following terms and their variant forms mean the following: "(1)(A) An udiogram is a material object "(i) in which are fixed, by any method now known or later developed, only sounds (and not, for example, a motion picture or other audiovisual work even though it may be accompanied by sounds), and material, statements, or instructions incidental to those fixed sounds, if any, and "(ii) from which the sounds and material can be perceived, reproduced, or otherwise communicated, either directly or with the aid of a machine or device. "(B) An udiogram does not include a material object "(i) in which the fixed sounds consist entirely of spoken word recordings, or "(ii) in which one or more computer programs are fixed, except that an audiogram may contain statements or instructions constituting the fixed sounds and incidental material, and statements or instructions to be used directly or indirectly in order to bring about the perception, reproduction, or communication of the fixed sounds and incidental material. "(C) For purposes of this paragraph "(i) a poken word recording is a sound recording in which are fixed only a series of spoken words, except that the spoken words may be accompanied by incidental musical or other sounds, and "(ii) the term ncidental means related to and relatively minor by comparison. "(2) A igital audio copied recording is a reproduction in a digital recording format of an audiogram, whether that reproduction is made directly from another audiogram or indirectly from a transmission. "(3) A igital 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 igital audio interface signal to a digital audio recording device, and that supplies a digital audio signal through a onprofessional 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). "(4) A igital audio recording device is any machine or device, now known or later developed, of a type commonly distributed to individuals for use by individuals, whether or not such machine or device is included with or as part of some other machine or device, the digital recording function of which is designed or marketed for the primary purpose of, and that is capable of, making a digital audio copied recording for private use, except for "(A) professional model products, and "(B) dictation machines, answering machines, and other audio recording equipment that is designed and marketed primarily for the creation of sound recordings resulting from the fixation of nonmusical sounds. "(5)(A) A igital audio recording medium is any material object, now known or later developed, in which sounds may be fixed, where the media product is (i) in a form commonly distributed for ultimate sale to individuals for use by individuals (such as magnetic digital audio tape cassettes, optical discs, and magneto-optical discs), and (ii) primarily marketed or most commonly used by consumers for the purpose of making digital audio copied recordings by use of a digital audio recording device. "(B) Such term does not include "(i) any material object that embodies a sound recording at the time it is first distributed by the importer or manufacturer, unless the sound recording has been so embodied in order to evade the requirements of section 1011; or "(ii) any media product that is primarily marketed and most commonly used by consumers either for the purpose of making copies of motion pictures or other audiovisual works or for the purpose of making copies of nonmusical literary works, including, without limitation, computer programs or data bases. "(6) To istribute means to sell, resell, lease, or assign a product to consumers in the United States, or to sell, resell, lease, or assign a product in the United States for ultimate transfer to consumers in the United States. "(7) An nterested copyright party is "(A) the owner of the exclusive right under section 106(1) of this title to reproduce a sound recording of a musical work that has been embodied in an audiogram lawfully made under this title that has been distributed to the public; "(B) the legal or beneficial owner of, or the person that controls, the right to reproduce in an audiogram a musical work that has been embodied in an audiogram lawfully made under this title that has been distributed to the public; or "(C) any association or other organization "(i) representing persons specified in subparagraph (A) or (B), or "(ii) engaged in licensing rights in musical works to music users on behalf of writers and publishers. "(8) An nterested manufacturing party is any person that imports or manufactures any digital audio recording device or digital audio recording medium in the United States, or any association of such persons. "(9) To anufacture means to produce or assemble a product in the United States. "(10) A usic publisher is a person that is authorized to license the reproduction of a particular musical work in a sound recording. "(11)(A) A rofessional model product is an audio recording device "(i) that is capable of sending a digital audio interface signal in which the channel status block flag is set as a rofessional interface, in accordance with the standards and specifications set forth in the technical reference document or established under an order issued by the Secretary of Commerce under section 1022(b); "(ii) that is clearly, prominently, and permanently marked with the letter or the word rofessional on the outside of its packaging, and in all advertising, promotional, and descriptive literature, with respect to the device, that is available or provided to persons other than the manufacturer or importer, its employees, or its agents; and "(iii) that is designed, manufactured, marketed, and intended for use by recording professionals in the ordinary course of a lawful business. "(B) In determining whether an audio recording device meets the requirements of subparagraph (A)(iii), factors to be considered shall include "(i) whether it has features used by recording professionals in the course of a lawful business, including features such as "(I) a data collection and reporting system of error codes during recording and playback; "(II) a record and reproduce format providing ead after write and ead after read; "(III) a time code reader and generator conforming to the standards set by the Society of Motion Picture and Television Engineers for such readers and generators; and "(IV) a professional input/output interface, both digital and analog, conforming to standards set by audio engineering organizations for connectors, signaling formats, levels, and impedances; "(ii) the nature of the promotional materials used to market the audio recording device; "(iii) the media used for the dissemination of the promotional materials, including the intended audience; "(iv) the distribution channels and retail outlets through which the device is disseminated; "(v) the manufacturers or importers price for the device as compared to the manufacturers or importers price for digital audio recording devices implementing the Serial Copy Management System; "(vi) the relative quantity of the device manufactured or imported as compared to the size of the manufacturers or importers market for professional model products; "(vii) the occupations of the purchasers of the device; and "(viii) the uses to which the device is put. "(12) The egister is the Register of Copyrights. "(13) The erial Copy Management System means the system for regulating serial copying by digital audio recording devices that is set forth in the technical reference document or in an order of the Secretary of Commerce under section 1022(b), or that conforms to the requirements of section 1021(a)(1)(C). "(14) The echnical reference document is the document entitled echnical Reference Document for Audio Home Recording Act of 1992 that is set forth in the report of the Committee on Energy and Commerce to the House of Representatives to accompany the Audio Home Recording Act of 1992. "(15) The ransfer price of a digital audio recording device or a digital audio recording medium "(A) is, subject to subparagraph (B) "(i) in the case of an imported product, the actual entered value at United States Customs (exclusive of any freight, insurance, and applicable duty), and "(ii) in the case of a domestic product, the manufacturers transfer price (FOB the manufacturer, and exclusive of any direct sales taxes or excise taxes incurred in connection with the sale); and "(B) shall, in a case in which the transferor and transferee are related entities or within a single entity, not be less than a reasonable arms-length price under the principles of the regulations adopted pursuant to section 482 of the Internal Revenue Code of 1986, or any successor provision to such section. "(16) A ransmission is any audio or audiovisual transmission, now known or later developed, whether by a broadcast station, cable system, multipoint distribution service, subscription service, direct broadcast satellite, or other form of analog or digital communication. "(17) The ribunal is the Copyright Royalty Tribunal. "(18) A riter is the composer or lyricist of a particular musical work. "(19) The terms nalog format, opyright status, ategory code, eneration status, and ource material, mean those terms as they are used in the technical reference document." 1002. Prohibition on certain infringement actions "(a) Certain Actions Prohibited. "(1) Generally. Subject to paragraph (2), no action may be brought under this title, or under section 337 of the Tariff Act of 1930, alleging infringement of copyright based on the manufacture, importation, or distribution of a digital audio recording device or a digital audio recording medium, or an analog audio recording device or analog audio recording medium, or the use of such a device or medium for making audiograms. "(2) Exception. (A) Paragraph (1) does not apply with respect to any claim against a person for infringement by virtue of the making of one or more audiograms, or other material objects in which works are fixed, for direct or indirect commercial advantage. "(B) For purposes of this paragraph, the copying of an audiogram by a consumer for private, noncommercial use is not for direct or indirect commercial advantage. "(b) Effect of This Section. Nothing in this section shall be construed "(1) to create or expand a cause of action for copyright infringement except to the extent such a cause of action otherwise exists under provisions of this title other than this chapter or under section 337 of the Tariff Act of 1930, or "(2) to limit any defenses that may be available to such cause of action. Sec. 1003. Effect on other rights and remedies with respect to private home copying or otherwise "Except as expressly provided in this chapter with respect to audio recording devices and media, neither the enactment of this chapter nor anything contained in this chapter shall be construed to expand, limit, or otherwise affect the rights of any person with respect to private home copying of copyrighted works, or to expand, limit, create, or otherwise affect any other right or remedy that may be held by or available to any person under chapters 1 through 9 of this title. "SUBCHAPTER B ROYALTY PAYMENTS Sec. 1011. Obligation to make royalty payments "(a) Prohibition on Importation and Manufacture. No person shall import into and distribute in the United States, or manufacture and distribute in the United States, any digital audio recording device or digital audio recording medium unless such person "(1) records the notice specified by this section and subsequently deposits the statements of account and applicable royalty payments for such device or medium specified by this section and section 1012, or "(2) complies with the applicable notice, statement of account, and payment obligations under a negotiated arrangement authorized pursuant to section 1016. "(b) Filing of Notice. "(1) Generally. Subject to paragraph (2), the importer or manufacturer of any digital audio recording device or digital audio recording medium, within a product category or utilizing a technology with respect to which such manufacturer or importer has not previously filed a notice under this subsection, shall file a notice with the Register, not later than 45 days after the commencement of the first distribution in the United States of such device or medium, in such form as the Register shall prescribe by regulation. "(2) Exception. No notice shall be required under paragraph (1) with respect to any distribution occurring before the effective date of this chapter. "(3) Contents. A notice under paragraph (1) shall "(A) set forth the manufacturers or importers identity and address, "(B) identify such product category and technology, and "(C) identify any trademark, other trade or business name, or similar indicia of origin that the importer or manufacturer uses or intends to use in connection with the importation, manufacture, or distribution of such device or medium in the United States. "(c) Filing of Quarterly Statements of Account. "(1) Generally. Any importer or manufacturer that distributed during a given quarter of a calendar or fiscal year (in accordance with an election under paragraph (2)) any digital audio recording device or digital audio recording medium that it manufactured or imported shall file with the Register, in such form as the Register shall prescribe by regulation, a quarterly statement of account specifying, by product category, technology, and model, the number and transfer price of all digital audio recording devices and digital audio recording media that it distributed during such quarter. "(2) Period covered. The quarterly statements of account may be filed on either a calendar or fiscal year basis, at the election of the manufacturer or importer. "(3) Statements of account for the first 3 quarters. For the first 3 quarters of any calendar or fiscal year, such statement shall "(A) be filed no later than 45 days after the close of the period covered by the statement, except that any quarterly statement that would be due within 3 months and 45 days after the effective date of this chapter shall not be filed until the next quarterly statement is due, at which time a statement shall be filed covering the entire period since the effective date of this chapter; "(B) be certified as accurate by an authorized officer or principal of the importer or manufacturer; and "(C) be accompanied by the total royalty payment due for such period pursuant to section 1012. "(4) Statement of account for the fourth quarter. The quarterly statement for the final quarter of any calendar or fiscal year shall be incorporated into the annual statement required under subsection (d), which shall be accompanied by the royalty payment due for such quarter. "(d) Filing of Annual Statements of Account. "(1) Generally. Any importer or manufacturer that distributed during a given calendar or fiscal year (as applicable) any digital audio recording device or digital audio recording medium that such importer or manufacturer imported or manufactured shall also file with the Register a cumulative annual statement of account, in such form as the Register shall prescribe by regulation. "(2) Timing and certification. Such statement shall be filed no later than 60 days after the close of such calendar or fiscal year, and shall be certified as accurate by an authorized officer or principal of the importer or manufacturer. "(3) Independent audit. The annual statement of account shall be audited in accordance with United States generally accepted auditing standards by an independent certified public accountant selected by the manufacturer or importer. The independent certified public accountant shall report whether the information contained therein is fairly presented in all material respects, in accordance with the requirements of this chapter. "(4) Reconciliation of royalty payment. The cumulative annual statement of account shall be accompanied by any royalty payment due under section 1012 that was not previously paid under subsection (c). "(e) Verification. "(1) Generally. "(A) The Register shall, after consulting with interested copyright parties, interested manufacturing parties, and appropriate representatives of the accounting profession, prescribe regulations specifying procedures for the verification of statements of account filed pursuant to this section. "(B) Such regulations shall permit interested copyright parties to select independent certified public accountants to conduct audits in order to verify the accuracy of the information contained in the statements of account filed by manufacturers and importers. "(C) Such regulations shall also "(i) specify the scope of such independent audits; and "(ii) establish a procedure by which interested copyright parties will coordinate the engagement of such independent certified public accountants, in order to ensure that no manufacturer or importer is audited more than once per year. "(D) All such independent audits shall be conducted at reasonable times, with reasonable advance notice, and shall be no broader in scope than is reasonably necessary to carry out the purposes of this subsection in accordance with generally accepted auditing standards. "(2) Verification report. The accountants report on the results of each such independent audit shall, in accordance with United States generally accepted auditing standards and the requirements of this chapter, set forth the procedures performed and the accountants findings. The accountants report shall be filed with the Register. "(3) Access to documents in event of dispute. In the event of a dispute concerning the amount of the royalty payment due from a manufacturer or importer resulting from a verification audit conducted under this section "(A) any interested manufacturing party audited pursuant to this subsection, and its authorized representatives, shall be entitled to have access to all documents upon which the audit results under this subsection were based; and "(B) any representative of an interested copyright party that has been approved by the Register under subsection (h)(2) shall be entitled to have access to all documents upon which the audit results under subsection (d) were based, subject to the limitations of subsection (h)(2). "(f) Costs of Verification. "(1) The costs of all verification audits that are conducted pursuant to subsection (e) shall be borne by interested copyright parties, except that, in the case of a verification audit of a manufacturer or importer that leads ultimately to recovery of an annual royalty underpayment of 5 percent or more of the annual payment made, the importer or manufacturer shall provide reimbursement for the reasonable costs of such audit. "(2) Except as may otherwise be agreed by interested copyright parties, the costs of a verification audit conducted pursuant to subsection (e) shall be borne by the party engaging the certified public accountant. Any recovery of royalty underpayments as a result of the audit shall be used first to provide reimbursement for the reasonable costs of such audit to the extent such costs have not otherwise been reimbursed by the manufacturer or importer pursuant to this subsection. Any remaining recovery shall be deposited with the Register pursuant to section 1013, or as may otherwise be provided by a negotiated arrangement authorized under section 1016, for distribution to interested copyright parties as though such funds were royalty payments made pursuant to this section. "(g) Independence of Accountants. Each certified public accountant used by interested copyright parties or interested manufacturing parties pursuant to this section shall be duly licensed to practice as a certified public accountant and shall not be financially dependent upon interested copyright parties or interested manufacturing parties, respectively. The Register may, upon petition by any interested copyright party or interested manufacturing party, prevent the use of a particular certified public accountant on the ground that such accountant does not meet the requirements of this subsection. "(h) Confidentiality. "(1) Generally. The quarterly and annual statements of account filed pursuant to subsections (c) and (d), and information disclosed or generated during verification audits conducted pursuant to subsection (e), shall be presumed to contain information concerning trade secrets, within the meaning of section 1905 of title 18. Except as provided in paragraphs (2), (3), and (4), neither the Register nor any member, officer, or employee of the Copyright Office or the Tribunal may "(A) make available to the public audit information furnished under this section or information contained in quarterly or annual statements of account, except that aggregate information that does not disclose, directly or indirectly, company-specific information may be made available to the public; "(B) use such information for any purpose other than to carry out responsibilities under this chapter; or "(C) except as provided in subparagraph (A), permit anyone (other than members, officers, and employees of the Copyright Office and the Tribunal who require such information in the performance of duties under this chapter) to examine such information. "(2) Procedures for access to be prescribed by register. (A) The Register, after consulting with interested manufacturing parties and interested copyright parties, shall prescribe procedures for disclosing, in confidence, to representatives of interested copyright parties and representatives of interested manufacturing parties information contained in quarterly and annual statements of account and information generated as a result of verification audits. "(B) Such procedures shall provide that only those representatives of interested copyright parties and interested manufacturing parties who have been approved by the Register shall have access to such information, and that all such representatives shall be required to sign a certification limiting the use of the information to "(i) verification functions under this section, and "(ii) any enforcement actions that may result from such verification functions. "(3) Access by audited manufacturer. Any interested manufacturing party that is audited pursuant to subsection (e), and its authorized representatives, shall be entitled to have access to all documents filed with the Register as a result of such audit. "(4) Access by congress. Nothing in this section shall authorize the withholding of information from the Congress. Sec. 1012. Royalty payments "(a) Digital Audio Recording Devices. "(1) Amount of payment. The royalty payment due under section 1011 for each digital audio recording device imported into and distributed in the United States, or manufactured and distributed in the United States, shall be 2 percent of the transfer price. Only the first person to manufacture and distribute or import and distribute such device shall be required to pay the royalty with respect to such device. "(2) Calculation for devices distributed with other devices. With respect to a digital audio recording device first distributed in combination with one or more devices, either as a physically integrated unit or as separate components, the royalty payment shall be calculated as follows: "(A) If the digital audio recording device and such other devices are part of a physically integrated unit, the royalty payment shall be based on the transfer price of the unit, but shall be reduced by any royalty payment made on any digital audio recording device included within the unit that was not first distributed in combination with the unit. "(B) If the digital audio recording device is not part of a physically integrated unit and substantially similar devices have been distributed separately at any time during the preceding 4 quarters, the royalty payment shall be based on the average transfer price of such devices during those 4 quarters. "(C) If the digital audio recording device is not part of a physically integrated unit and substantially similar devices have not been distributed separately at any time during the preceding 4 quarters, the royalty payment shall be based on a constructed price reflecting the proportional value of such device to the combination as a whole. "(3) Limits on royalties. Notwithstanding paragraph (1) or (2), the amount of the royalty payment for each digital audio recording device or physically integrated unit containing a digital audio recording device shall not be less than $1 nor more than the royalty maximum. The royalty maximum shall be $8 per device, except that for a physically integrated unit containing more than one digital audio recording device, the royalty maximum for such unit shall be $12. During the 6th year after the effective date of this chapter, and not more than once each year thereafter, any interested copyright party may petition the Tribunal to increase the royalty maximum and, if more than 20 percent of the royalty payments are at the relevant royalty maximum, the Tribunal shall prospectively increase such royalty maximum with the goal of having not more than 10 percent of such payments at the new royalty maximum; except that the amount of any such increase as a percentage of the royalty maximum shall in no event exceed the percentage increase in the Consumer Price Index of the Department of Labor during the period under review. "(b) Digital Audio Recording Media. The royalty payment due under section 1011 for each digital audio recording medium imported into and distributed in the United States, or manufactured and distributed in the United States, shall be 3 percent of the transfer price, except that only the first person to manufacture and distribute or import and distribute such medium shall be required to pay the royalty with respect to such medium. "(c) Returned or Exported Merchandise. "(1) Deduction. In calculating the amount of royalty payments due under subsections (a) and (b), manufacturers and importers may deduct the amount of any royalty payments already made on digital audio recording devices or media that are "(A) returned to the manufacturer or importer as unsold or defective merchandise, or "(B) exported by the manufacturer or importer or a related entity, within 2 years after the date on which royalty payments under subsections (a) and (b) are paid on such devices or media. "(2) Timing of credit. Any such credit shall be taken during the period when such devices or media are returned or exported, and the basis for any such credit shall be set forth in the statement of account for such period filed under section 1011(c). "(3) Carryovers and additional payments. Any such credit that is not fully used during such period may be carried forward to subsequent periods. If any returned or exported merchandise for which a credit has been taken is subsequently distributed, a royalty payment shall be made as specified under subsection (a) or (b), based on the transfer price applicable to such distribution. Sec. 1013. Deposit of royalty payments and deduction of expenses "The Register shall receive all royalty payments deposited under this chapter and, after deducting the reasonable costs incurred by the Copyright Office under this chapter, shall deposit the balance in the Treasury of the United States as offsetting receipts. All funds held by the Secretary of the Treasury shall be invested in interest-bearing United States securities for later distribution with interest under section 1014, 1015, or 1016. The Register may, in the Registers discretion, 4 years after the close of any calendar year, close out the royalty payments account for that calendar year, and may treat any funds remaining in such account and any subsequent deposits that would otherwise be attributable to that calendar year as attributable to the succeeding calendar year. The Register shall submit to the Copyright Royalty Tribunal, on a monthly basis, a financial statement reporting the amount of royalties under this chapter that are available for distribution. Sec. 1014. Entitlement to royalty payments "(a) Interested Copyright Parties. The royalty payments deposited pursuant to section 1013 shall, in accordance with the procedures specified in section 1015 or 1016, be distributed to any interested copyright party "(1) whose musical work or sound recording has been "(A) embodied in audiograms lawfully made under this title that have been distributed to the public, and "(B) distributed to the public in the form of audiograms or disseminated to the public in transmissions, during the period to which such payments pertain; and "(2) who has filed a claim under section 1015 or 1016. "(b) Allocation of Royalty Payments to Groups. The royalty payments shall be divided into two funds as follows: "(1) The sound recordings fund. 66 2/3 percent of the royalty payments shall be allocated to the Sound Recordings Fund. 2 5/8 percent of the royalty payments allocated to the Sound Recordings Fund shall be placed in an escrow account managed by an independent administrator jointly appointed by the interested copyright parties under section 1001(7)(A) and the American Federation of Musicians (or any successor entity) to be distributed to nonfeatured musicians (whether or not they are members of the American Federation of Musicians) who have performed on sound recordings distributed in the United States. 1 3/8 percent of the royalty payments allocated to the Sound Recordings Fund shall be placed in an escrow account managed by an independent administrator jointly appointed by the interested copyright parties under section 1001(7)(A) and the American Federation of Television and Radio Artists (or any successor entity) to be distributed to nonfeatured vocalists (whether or not they are members of the American Federation of Television and Radio Artists) who have performed on sound recordings distributed in the United States. The remaining royalty payments in the Sound Recordings Fund shall be distributed to claimants under subsection (a) who are interested copyright parties under section 1001(7)(A). Such claimants shall allocate such royalty payments, on a per sound recording basis, in the following manner: 40 percent to the recording artist or artists featured on such sound recordings (or the persons conveying rights in the artists performances in the sound recordings), and 60 percent to the interested copyright parties. "(2) The musical works fund. (A) 33 1/3 percent of the royalty payments shall be allocated to the Musical Works Fund for distribution to interested copyright parties whose entitlement is based on legal or beneficial ownership or control of a copyright in a musical work. "(B) The royalty payments allocated to the Musical Works Fund shall be further allocated as follows: claimants who are music publishers shall be entitled to 50 percent of such payments and claimants who are writers shall be entitled to the other 50 percent of such payments. "(C) Except to the extent inconsistent with the international obligations of the United States, the allocation specified in subparagraph (B) shall govern despite any contractual obligation to the contrary. "(c) Distribution of Royalty Payments Within Groups. If all interested copyright parties within a group specified in subsection (b) do not agree on a voluntary proposal for the distribution of the royalty payments within such group, the Tribunal shall, pursuant to the procedures specified in section 1015(c), allocate such royalty payments based on the extent to which, during the relevant period "(1) for the Sound Recordings Fund, each sound recording was distributed to the public in the form of audiograms; and "(2) for the Musical Works Fund, each musical work was distributed to the public in the form of audiograms or disseminated to the public in transmissions. Sec. 1015. Procedures for distributing royalty payments "(a) Filing of Claims and Negotiations. "(1) During the first 2 months of each calendar year after the calendar year in which this chapter takes effect, every interested copyright party seeking to receive royalty payments to which such party is entitled under section 1014 shall file with the Tribunal a claim for payments collected during the preceding year in such form and manner as the Tribunal shall prescribe by regulation. "(2) All interested copyright parties within each group specified in section 1014(b) shall negotiate in good faith among themselves in an effort to agree to a voluntary proposal for the distribution of royalty payments. Notwithstanding any provision of the antitrust laws, for purposes of this section such interested copyright parties may agree among themselves to the proportionate division of royalty payments, may lump their claims together and file them jointly or as a single claim, or may designate a common agent to receive payment on their behalf; except that no agreement under this subsection may modify the allocation of royalties specified in section 1014(b). "(b) Distribution of Payments in the Absence of a Dispute. Within 30 days after the period established for the filing of claims under subsection (a), in each year after the year in which this section takes effect, the Tribunal shall determine whether there exists a controversy concerning the distribution of royalty payments under section 1014(c). If the Tribunal determines that no such controversy exists, the Tribunal shall, within 30 days after such determination, authorize the distribution of the royalty payments as set forth in the agreements regarding the distribution of royalty payments entered into pursuant to subsection (a), after deducting its reasonable administrative costs under this section. "(c) Resolution of Disputes. If the Tribunal finds the existence of a controversy, it shall, pursuant to chapter 8 of this title, conduct a proceeding to determine the distribution of royalty payments. During the pendency of such a proceeding, the Tribunal shall withhold from distribution an amount sufficient to satisfy all claims with respect to which a controversy exists, but shall, to the extent feasible, authorize the distribution of any amounts that are not in controversy. Sec. 1016. Negotiated collection and distribution arrangements "(a) Scope of Permissible Negotiated Arrangements. "(1) Authority to negotiate. Interested copyright parties and interested manufacturing parties may at any time negotiate among or between themselves a single alternative system for the collection, distribution, or verification of royalty payments provided for in this chapter. "(2) Scope of alternative arrangement. Such a negotiated arrangement may modify the collection, distribution, and verification procedures and requirements that would otherwise apply under sections 1011 through 1015, including the time periods for payment and distribution of royalties, but shall not alter the requirements of section 1011 (a), (b), or (h)(4), section 1012(a) or (b), or section 1014(a) or (b). "(3) Resolution of disputes. Such a negotiated arrangement may also provide that specified types of disputes that cannot be resolved among the parties to the arrangement shall be resolved by binding arbitration or other agreed upon means of dispute resolution. "(4) Inapplicability of antitrust laws. Notwithstanding any provision of the antitrust laws, for purposes of this section interested manufacturing parties and interested copyright parties may negotiate in good faith and voluntarily agree among themselves as to the collection, allocation, distribution, and verification of royalty payments, and may designate common agents to negotiate and carry out such activities on their behalf. "(b) Implementation of a Negotiated Arrangement. "(1) Determination by the tribunal. (A) No negotiated arrangement shall go into effect under this section until the Tribunal has determined, after full opportunity for comment by interested persons, that participants in the negotiated arrangement include "(i) at least 2/3 of all individual interested copyright parties that are entitled to receive royalty payments from the Sound Recordings Fund, "(ii) at least 2/3 of all individual interested copyright parties that are entitled to receive royalty payments from the Musical Works Fund as music publishers, and "(iii) at least 2/3 of all individual interested copyright parties that are entitled to receive royalty payments from the Musical Works Fund as writers. "(B) For purposes of subparagraph (A), the determination with respect to 2/3 participation shall be based on annual retail sales of audiograms in which musical works or sound recordings of musical works are embodied. One or more organizations representing any of the types of individual interested copyright parties specified in the first sentence of this subparagraph shall be presumed to represent 2/3 of that type of interested copyright party if the membership of, or other participation in, such organization or organizations includes 2/3 of that type of interested copyright party based on annual retail sales of audiograms in which musical works or sound recordings of musical works are embodied. "(C) The implementation of the negotiated arrangement shall include all necessary safeguards, as determined by the Tribunal, which ensure that all interested copyright parties who are not participants in the negotiated arrangement receive the royalty payments to which they would be entitled in the absence of such an arrangement. Such safeguards may include accounting procedures, reports, and any other information determined to be necessary to ensure the proper collection and distribution of royalty payments. "(2) Certain parties not subject to negotiated arrangement. Notwithstanding the existence of a negotiated arrangement that has gone into effect under this section, any interested manufacturing party that is not a party to such negotiated arrangement shall remain subject to the requirements of sections 1011 and 1012 and may fully satisfy its obligations under this subchapter by complying with the procedures set forth in such sections. "(c) Maintenance of Jurisdiction by Tribunal. If a negotiated arrangement has gone into effect under this section, the Tribunal shall "(1) hear and address any objections to the arrangement that may arise while it is in effect; "(2) ensure the availability of alternative procedures for any interested manufacturing party or interested copyright party that is not a participant in the negotiated arrangement; "(3) ensure that all interested copyright parties who are not participants in the arrangement receive the royalty payments to which they would be entitled in the absence of such an arrangement; "(4) ensure that it has adequate funds at its disposal, received either through the Copyright Office or through the entity administering the negotiated arrangement, to distribute to interested copyright parties not participating in the arrangement the royalty payments to which they are entitled under section 1014(c) or 1015(b), including applicable interest; and "(5) ensure that the requirements of subsection (b)(1)(C) are met. "(d) Judicial Enforcement. The Tribunal may seek injunctive relief in an appropriate United States district court to secure compliance with the requirements of subsection (c). "SUBCHAPTER C THE SERIAL COPY MANAGEMENT SYSTEM Sec. 1021. Incorporation of the serial copy management system "(a) Prohibition on Importation, Manufacture, and Distribution. "(1) Generally. No person shall import, manufacture, or distribute any digital audio recording device or any digital audio interface device that does not conform to the standards and specifications to implement the Serial Copy Management System that are "(A) set forth in the technical reference document; "(B) set forth in an order by the Secretary of Commerce under section 1022(b) (1), (2), or (3); or "(C) in the case of a digital audio recording device other than a device subject to part II of the technical reference document or an order issued by the Secretary pursuant to section 1022(b), established by the manufacturer (or, in the case of a proprietary technology, the proprietor of such technology) so as to achieve the same functional characteristics with respect to regulation of serial copying as, and to be compatible with the prevailing method for implementation of, the Serial Copy Management System set forth in the technical reference document or in any order of the Secretary issued under section 1022. "(2) Order relating to copying through analog converter. If the Secretary of Commerce approves standards and specifications under section 1022(b)(4), then no person shall import, manufacture, or distribute any digital audio recording device or any digital audio interface device that does not conform to such standards and specifications. "(b) Prohibition on Circumvention of the Serial Copy Management System. No person shall import, manufacture, or distribute any device, or offer or perform any service, the primary purpose or effect of which is to avoid, bypass, remove, deactivate, or otherwise circumvent any program or circuit which implements, in whole or in part, the Serial Copy Management System in a digital audio recording device or a digital audio interface device. "(c) Encoding of Information on Audiograms. "(1) Prohibition on encoding inaccurate information. 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. "(2) Encoding of copyright status not required. Nothing in this subchapter requires any person engaged in the importation, manufacture, or assembly of audiograms to encode any such audiogram with respect to its copyright status. "(d) Information Accompanying Transmissions in Digital Format. Any person who transmits or otherwise communicates to the public any sound recording in digital format is not required under this subchapter to transmit or otherwise communicate the information relating to the copyright status of the sound recording. Any such person who does transmit or otherwise communicate such copyright status information shall transmit or communicate such information accurately. Sec. 1022. Implementing the serial copy management system "(a) Publication of Technical Reference Document and Certification. Within 10 days after the date of the enactment of this chapter, the Secretary of Commerce shall cause to be published in the Federal Register the technical reference document, together with the certification from the National Institute of Standards and Technology, as such certification appears in the report of the Committee on Energy and Commerce to the House of Representatives to accompany the Audio Home Recording Act of 1992, that the technical reference document sets forth standards and specifications that adequately incorporate the intended functional characteristics to regulate serial copying and are not incompatible with existing international digital audio interface standards and existing digital audio technology. "(b) Orders of Secretary of Commerce. The Secretary of Commerce, upon petition by an interested manufacturing party or an interested copyright party, and after consultation with the Register, may, if the Secretary determines that to do so is in accordance with the purposes of this chapter, issue an order to implement the Serial Copy Management System set forth in the technical reference document as follows: "(1) Functionally equivalent alternatives. The Secretary may issue an order for the purpose of permitting in commerce devices that do not conform to all of the standards and specifications set forth in the technical reference document, if the Secretary determines that such devices possess the same functional characteristics with respect to regulation of serial copying as, and are compatible with the prevailing method for implementation of, the Serial Copy Management System set forth in the technical reference document. "(2) Revised general standards. The Secretary may issue an order for the purpose of permitting in commerce devices that do not conform to all of the standards and specifications set forth in the technical reference document, if the Secretary determines that "(A) the standards and specifications relating generally to digital audio recording devices and digital audio interface devices have been or are being revised or otherwise amended or modified such that the standards and specifications set forth in the technical reference document are not or would no longer be applicable or appropriate; and "(B) such devices conform to such new standards and specifications and possess the same functional characteristics with respect to regulation of serial copying as the Serial Copy Management System set forth in the technical reference document. "(3) Standards for new devices. The Secretary may issue an order for the purpose of "(A) establishing whether the standards and specifications established by a manufacturer or proprietor for digital audio recording devices other than devices subject to part II of the technical reference document or a prior order of the Secretary under paragraph (1) or (2) comply with the requirements of subparagraph (C) of section 1021(a)(1); or "(B) establishing alternative standards or specifications in order to ensure compliance with such requirements. "(4) Material input to digital device through analog converter. "(A) Generally. Except as provided in subparagraphs (B) through (D), the Secretary, after publication of notice in the Federal Register and reasonable opportunity for public comment, may issue an order for the purpose of approving standards and specifications for a technical method implementing in a digital audio recording device the same functional characteristics as the Serial Copy Management System so as to regulate the serial copying of source material input through an analog converter in a manner equivalent to source material input in the digital format. "(B) Cost limitation. The order may not impose a total cost burden on manufacturers of digital audio recording devices, for implementing the Serial Copy Management System and the technical method prescribed in such order, in excess of 125 percent of the cost of implementing the Serial Copy Management System before the issuance of such order. "(C) Consideration of other objections. Before issuing the order, the Secretary shall take into account comments submitted by interested parties with respect to the order. "(D) Limitation to digital audio devices. The order shall not affect the recording of any source material on analog recording equipment and the order shall not impose any restrictions or requirements that must be implemented in any device other than a digital audio recording device or digital audio interface device. "SUBCHAPTER D REMEDIES Sec. 1031. Civil remedies "(a) Civil Actions. Any interested copyright party or interested manufacturing party that is or would be injured by a violation of section 1011 or 1021, or the Attorney General of the United States, may bring a civil action in an appropriate United States district court against any person for such violation. "(b) Powers of the Court. In an action brought under subsection (a), the court "(1) except as provided in subsection (h), may grant temporary and permanent injunctions on such terms as it deems reasonable to prevent or restrain such violation; "(2) in the case of a violation of subsection (a), (b), (c), or (d) of section 1011 or a violation of section 1021, shall award damages under subsection (d); "(3) in its discretion may allow the recovery of full costs by or against any party other than the United States or an officer thereof; "(4) in its discretion may award a reasonable attorneys fee to the prevailing party as part of the costs awarded under paragraph (3) if the court finds that the nonprevailing party has not proceeded in good faith; and "(5) may grant such other equitable relief as it deems reasonable. "(c) Recovery of Overdue Royalty Payments. In any case in which the court finds that a violation of section 1011 involving nonpayment or underpayment of royalty payments has occurred, the violator shall be directed to pay, in addition to damages awarded under subsection (d), any such royalties due, plus interest calculated as provided under section 1961 of title 28. "(d) Award of Damages. "(1) Section 1011. "(A) Device. In the case of a violation of subsection (a), (b), (c), or (d) of section 1011 involving a digital audio recording device, the court shall award statutory damages in an amount between a nominal level and $100 per device, as the court considers just. "(B) Medium. In the case of a violation of subsection (a), (b), (c), or (d) of section 1011 involving a digital audio recording medium, the court shall award statutory damages in an amount between a nominal level and $4 per medium, as the court considers just. "(2) Section 1021. "(A) In general. In any case in which the court finds that a violation of section 1021 has occurred, the court shall award damages calculated, at the election of the complaining party at any time before final judgment is rendered, pursuant to subparagraph (B) or (C), but in no event shall the judgment (excluding any award of actual damages to an interested manufacturing party) exceed a total of $1,000,000. "(B) Actual damages. A complaining party may recover its actual damages suffered as a result of the violation and any profits of the violator that are attributable to the violation that are not taken into account in computing the actual damages. In determining the violators profits, the complaining party is required to prove only the violators gross revenue, and the violator is required to prove its deductible expenses and the elements of profit attributable to factors other than the violation. "(C) Statutory damages. "(i) Device. A complaining party may recover an award of statutory damages for each violation of section 1021(a) or (b) in the sum of not less than $1,000 nor more than $10,000 per device involved in such violation or per device on which a service prohibited by section 1021(b) has been performed, as the court considers just. "(ii) Audiogram. A complaining party may recover an award of statutory damages for each violation of section 1021(c) in the sum of not less than $10 nor more than $100 per audiogram involved in such violation, as the court considers just. "(iii) Transmission. A complaining party may recover an award of damages for each transmission or communication that violates section 1021(d) in the sum of not less than $10,000 nor more than $100,000, as the court considers just. "(3) Willful violations. "(A) In any case in which the court finds that a violation of subsection (a), (b), (c), or (d) of section 1011 was committed willfully and for purposes of direct or indirect commercial advantage, the court shall increase statutory damages "(i) for a violation involving a digital audio recording device, to a sum of not less than $100 nor more than $500 per device; and "(ii) for a violation involving a digital audio recording medium, to a sum of not less than $4 nor more than $15 per medium, as the court considers just. "(B) In any case in which the court finds that a violation of section 1021 was committed willfully and for purposes of direct or indirect commercial advantage, the court in its discretion may increase the award of damages by an additional amount of not more than $5,000,000, as the court considers just. "(4) Innocent violations of section 1021. The court in its discretion may reduce the total award of damages against a person violating section 1021 to a sum of not less than $250 in any case in which the court finds that "(A) the violator was not aware and had no reason to believe that its acts constituted a violation of section 1021, or "(B) in the case of a violation of section 1021(a) involving a digital audio recording device, the violator believed in good faith that the device complied with section 1021(a)(1)(C), except that this subparagraph shall not apply to any damages awarded under subsection (d)(2)(A). "(e) Multiple Actions. "(1) Generally. No more than one action shall be brought against any party and no more than one award of statutory damages under subsection (d) shall be permitted "(A) for any violations of section 1011 involving the same digital audio recording device or digital audio recording medium; or "(B) for any violations of section 1021 involving digital audio recording devices or digital audio interface devices of the same model, except that this subparagraph shall not bar an action or an award of damages with respect to digital audio recording devices or digital audio interface devices that are imported, manufactured, or distributed subsequent to a final judgment in a prior action. "(2) Notice and intervention. Any complaining party who brings an action under this section shall serve a copy of the complaint upon the Register within 10 days after the complaining partys service of a summons upon a defendant. The Register shall cause a notice of such action to be published in the Federal Register within 10 days after receipt of such complaint. The court shall permit any other interested copyright party or interested manufacturing party entitled to bring the action under section 1031(a) who moves to intervene within 30 days after the publication of such notice to intervene in the action. "(3) Award. "(A) Generally. Except as provided in subparagraph (B), the court may award recovery of actual damages for a violation of section 1021 pursuant to subsection (d)(2)(B) to each complaining party in an action who elects to recover actual damages. "(B) Limitations. "(i) If more than one complaining party elects to recover actual damages pursuant to subsection (d)(2)(B), only a single award of the violators profits shall be made, which shall be allocated as the court considers just. "(ii) If any complaining interested copyright party or parties elect to recover statutory damages pursuant to subsection (d)(2) in an action in which one or more other complaining interested copyright parties have elected to recover actual damages, the single award of statutory damages permitted pursuant to paragraph (1) shall be reduced by the total amount of actual damages awarded to interested copyright parties pursuant to subsection (d)(2)(B). "(f) Payment of Overdue Royalties and Damages. The court may allocate any award of damages under subsection (d) between or among complaining parties as it considers just. Any award of damages that is allocated to an interested copyright party and any award of overdue royalties and interest under subsection (c) shall be deposited with the Register pursuant to section 1013, or as may otherwise be provided pursuant to a negotiated arrangement authorized under section 1016, for distribution to interested copyright parties as though such funds were royalty payments made pursuant to section 1011. "(g) Impounding of Articles. At any time while an action under this section is pending, the court may order the impounding, on such terms as it deems reasonable, of any digital audio recording device, digital audio interface device, audiogram, or device specified in section 1021(b) that is in the custody or control of the alleged violator and that the court has reasonable cause to believe does not comply with, or was involved in a violation of, section 1021. "(h) Limitations Regarding Professional Models and Other Exempt Devices. Unless a court finds that the determination by a manufacturer or importer that a device is a device described in subparagraph (A) or (B) of section 1001(4) was without a reasonable basis or not in good faith, the court shall not grant a temporary or preliminary injunction against the distribution of such device by the manufacturer or importer. "(i) Remedial Modification and Destruction of Articles. As part of a final judgment or decree finding a violation of section 1021, the court shall order the remedial modification, if possible, or the destruction of any digital audio recording device, digital audio interface device, audiogram, or device specified in section 1021(b) that "(1) does not comply with, or was involved in a violation of, section 1021, and "(2) is in the custody or control of the violator or has been impounded under subsection (g). "(j) Definitions. For purposes of this section "(1) the term omplaining party means an interested copyright party, interested manufacturing party, or the Attorney General of the United States when one of these parties has initiated or intervened as a plaintiff in an action brought under this section; and "(2) the term evice does not include an audiogram. Sec. 1032. Binding arbitration "(a) Disputes To Be Arbitrated. Any dispute between an interested manufacturing party and an interested copyright party shall be resolved through binding arbitration, in accordance with the provisions of this section, if "(1) the parties mutually agree; or "(2) before the date of first distribution in the United States of the product which is the subject of the dispute, an interested manufacturing party or an interested copyright party requests arbitration concerning whether such product is or is not a digital audio recording device, a digital audio recording medium, or a digital audio interface device, or concerning the basis on which royalty payments are to be made with respect to such product. "(b) Arbitral Procedures. "(1) Regulations for coordination of arbitration. The Register shall, after consulting with interested copyright parties, prescribe regulations establishing a procedure by which interested copyright parties will coordinate the arbitration of disputes, including the representation of interested copyright parties. No interested copyright party shall have the authority to request, agree to, or (except as an intervenor pursuant to subsection (c)) enter into, binding arbitration unless that party has been authorized to do so pursuant to the regulations prescribed by the Register. "(2) Panel. Except as otherwise agreed by the parties to a dispute that is to be submitted to binding arbitration under subsection (a), the dispute shall be heard by a panel of 3 arbitrators, with one arbitrator selected by each of the 2 opposing parties to the dispute and the third arbitrator selected by mutual agreement of the first 2 arbitrators chosen. "(3) Decision. The arbitral panel shall render its final decision concerning the dispute, in a written opinion explaining its reasoning, within 120 days after the date on which the selection of arbitrators has been concluded. The Register shall cause to be published in the Federal Register the written opinion of the arbitral panel within 10 days after receipt thereof. "(4) Title 9 provisions to govern. Except to the extent inconsistent with this section, any arbitration proceeding under this section shall be conducted in the same manner, subject to the same limitations, carried out with the same powers (including the power to summon witnesses), and enforced in the courts of the United States as an arbitration proceeding under title 9. "(5) Precedents. In rendering a final decision, the arbitral panel shall take into account any final decisions rendered in prior proceedings under this section that address identical or similar issues. The failure of the arbitral panel to take into account such prior decisions may be considered imperfect execution of arbitral powers under section 10(a)(4) of title 9. "(c) Notice and Right To Intervene. Any interested copyright party or interested manufacturing party that requests an arbitral proceeding under this section shall provide the Register with notice concerning the parties to the dispute and the nature of the dispute within 10 days after formally requesting arbitration under subsection (a). The Register shall cause a summary of such notice to be published in the Federal Register within 30 days after receipt of such notice. The arbitral panel shall permit any other interested copyright party or interested manufacturing party who moves to intervene within 20 days after such publication to intervene in the action. "(d) Authority of Arbitral Panel To Order Relief. "(1) To protect proprietary information. The arbitral panel shall issue such orders as are appropriate to protect the proprietary technology and information of parties to the proceeding, including provision for injunctive relief in the event of a violation of such order. "(2) To terminate proceeding. The arbitral panel shall terminate any proceeding that it has good cause to believe has been commenced in bad faith by a competitor in order to gain access to proprietary information. The panel shall also terminate any proceeding that it believes has been commenced before the technology or product at issue has been sufficiently developed or defined to permit an informed decision concerning the applicability of this chapter to such technology or product. "(3) To order relief. In any case in which the arbitral panel finds, with respect to devices or media that were the subject of the dispute, that royalty payments have been or will be due under section 1011 through the date of the arbitral decision, the panel shall order the deposit of such royalty payments pursuant to section 1013, plus interest calculated as provided under section 1961 of title 28. The arbitral panel shall not award monetary or injunctive relief, as provided in section 1031 or otherwise, except as is expressly provided in this subsection. "(e) Effect of Arbitration Proceeding on Civil Actions and Remedies. "(1) Generally. Subject to paragraph (2), and notwithstanding any provision of section 1031, no civil action may be brought or relief granted under section 1031 against any party to an ongoing or completed arbitration proceeding under this section, with respect to devices or media that are the subject of an arbitration proceeding under this section. "(2) Exception. Paragraph (1) does not bar "(A) an action for injunctive relief at any time based on a violation of section 1021; or "(B) an action or any relief with respect to those devices or media distributed by their importer or manufacturer following the conclusion of such arbitration proceeding, or, if so stipulated by the parties, prior to the commencement of such proceeding. "(f) Arbitral Costs. Except as otherwise agreed by the parties to a dispute, the costs of an arbitral proceeding under this section shall be divided among the parties in such fashion as is considered just by the arbitral panel at the conclusion of the proceeding. Each party to the dispute shall bear its own attorney fees unless the arbitral panel determines that a nonprevailing party has not proceeded in good faith and that, as a matter of discretion, it is appropriate to award reasonable attorneys fees to the prevailing party.". SEC. 3. TECHNICAL AMENDMENTS. (a) Functions of Register. Chapter 8 of title 17, United States Code is amended (1) in section 801(b) (A) by striking "and" at the end of paragraph (2); (B) by striking the period at the end of paragraph (3) and inserting "; and"; and (C) by adding the following new paragraph at the end: "(4) to distribute royalty payments deposited with the Register of Copyrights under section 1011, to determine, in cases where controversy exists, the distribution of such payments, and to carry out its other responsibilities under chapter 10."; and (2) in section 804(d) (A) by inserting "or (4)" after "801(b)(3)"; and (B) by striking "or 119" and inserting "119, 1015, or 1016". (b) Definitions. Section 101 of title 17, United States Code, is amended by striking "As used" and inserting "Except as otherwise provided in this title, as used". (c) Mask Works. Section 912 of title 17, United States Code, is amended (1) in subsection (a) by inserting "or 10" after "8"; and (2) in subsection (b) by inserting "or 10" after "8". (d) Conforming Amendment. The table of chapters for title 17, United States Code, is amended by adding at the end the following: 1001. Digital Audio Recording Devices and Media SEC. 4. EFFECTIVE DATE. This Act and the amendments made by this Act shall take effect on the date of the enactment of this Act.Purpose and Summary Digital audio recording technology has existed for some time, but to date, American consumers have been denied access to this revolutionary technology due to legal battles involving the electronics manufacturers, recording industries, and recording artists in the United States. The Auido Home Recording Act of 1992 (H.R. 4567) is designed to end this stalemate, and to facilitate the wide scale introduction of digital audio technology to the American consumer. The reported legislation would prohibit certain copyright infringement actions, establish a royalty payment system and require the incorporation of the Serial Copy Management System in all digital audio recorders and interface devices. Background and Need for the Legislation I. Background: Digital Audio Recording Technology A. The digital audio recording technology Digital audio technology has existed for several years. Compact discs are examples of this innovative technology. The superior sound quality that digital technology produces has revolutionized the recording industry. A few years ago, the consumer-electronics industry developed digital audio recorders. Unlike the familiar analog recorder, digital audio recorders are able to make virtually perfect copies of source music. With analog recorders, the sound quality of the music deteriorates as each successive generation of copies is made. DAR copies do not change the quality of the recording, so that a 20th generation copy will sound as good as the original version. As a result, digital recording technology represents an advantage over analog recording, which is currently used by consumers for home copying. B. Legal disputes over digital audio recording For more than a decade, the music and electronics industries have been involved in legal disputes over the pending introduction of DARs to American consumers. Recording companies and creative artists believe that the precision of the digital audio recording capabilities will result in reduced sales and royalties due to illegal "bootleg" copying, as well as home copying by consumers. They contend that this will, among other things, make it difficult for recording companies to introduce new artists and produce less popular recordings. Also, music publishers and other creative artists contend that this would serve as a disincentive to crate music. 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 music publishers and songwriters eventually sued Sony regarding the introduction of digital audio recorder. This adversarial climate had a chilling effect on the consumer-electronics manufacturers, who have not made digital audio recorders widely available to the American consumers. C. Previous legislation Aware that the deadlock was not beneficial to any of the parties, the consumer-electronics industry and the recording industry began negotiations to end the stalemate. In June, 1989, the recording industry and the consumer-electronics industry signed a Memorandum of Understanding in Athens, Greece. The parties agreed to make joint recommendations to governmental entities that the Serial Copy Management System ("SCMS") be required to regulate the serial copying of digital audio recordings. Without legislation, parties were not bound to uphold the provisions of this agreement. Following this agreement, and to this end, the industries have advocated that Congress legislate in this area. In the 101st Congress, legislation was introduced to require the implementation of the Serial Copy Management System in digital audio tape recorders. The SCMS allows a digital audio recorder to make unlimited copies of original source music; however, it will not allow copies to be made of copies of copyrighted music. Music publishers and the creative artists opposed the legislation because it did not include a copyright royalty provision. They contended that home taping would lead to reduced royalties. Congress urged the parties to come up with a solution that would be acceptable to all interested parties. D. The recent broad compromise On July 11, 1991, the consumer-electronics industry, the recording industry, music publishers, songwriters and groups in favor of maintaining the consumers home taping capabilities announced that a compromise had been reached on digital audio recording technology. This compromise is embodied in the reported legislation. II. Need for Reported Legislation The reported legislation would regulate digital audio recording technology by providing for the following: (1) the prohibition of certain copyright infringement suits; (2) a royalty payment system; and (3) the incorporation of the SCMS in all digital audio recorders and interface devices. Legislation is necessary to finally resolve the digital audio recording debate because, without legislation, no sector is bound to uphold the compromise "agreement" embodied in the reported legislation. Absent the enactment of the reported legislation, the legal battles and market uncertainty will likely continue, and American consumers will be the losers, lacking access to the newest and most innovative audio recording technology to date. The "Audio Home Recording Act of 1992" is a compromise that combines benefits for consumers and industry. If enacted, it would lead the way toward improving competitiveness while providing consumers with access to exciting technology. A. The scope of the legislation The reported legislation is designed to respond to the threat that the perfect copying capability of the digital audio recorder presents to those engaged in creating and introducing music into commerce in the United States. To this end, the legislation would only cover digital audio recording technology, except to the extent that it specifically refers to analog recording in the provisions that deal with the prohibition of certain copyright infringement actions. The reported legislation would not cover multimedia products or general purpose computer programs. Also, the reported legislation would cover all digital audio recording technology that exists now or is developed in the future. B. Prohibition of certain copyright infringement suits The recording industry has always maintained that home taping is illegal. The consumers and electronics industry have argued that home taping that is not for direct or indirect commercial advantage is not illegal. The ongoing dispute between the music industry, consumers and the electronics industry regarding the legality of home taping has left consumes in an undesirable position. To clear up this ambiguity, the reported legislation prohibits the brining of any copyright infringement suit based on the manufacture, importation, or distribution of a digital or analog audio recorder or medium, or the use of the recorder or medium to make copies. In short, the reported legislation would clearly establish that consumers cannot be sued for making analog or digital audio copies for private noncommercial use. The legislation does not insulate, for example, record piracy from lawsuits. As noted above, this prohibition of suits does not include spoken word recordings, certain computer programs and multimedia works. C. The serial copy management system The reported legislation would require all digital audio recorders and interface devices imported, manufactured or distributed in commerce in the U.S. to incorporate the Serial Copy Management System, which permits the recording of original source material, but does not allow recording from copies. The Technical Reference Document for the Audio Home Recording Act of 1992 ("Technical Reference Document"), which is attached to this Committee report, sets forth the standards and specifications to provide for the incorporation of the Serial Copy Management System. The National Institute of Standards and Technology has certified to the Committee that the Serial Copy Management System as defined in the Technical Reference Document that accompanies the reported legislation sets forth standards and specifications that adequately incorporate the intended functional characteristics to regulate serial copying and that are not incompatible with existing international digital audio interface standards and existing digital audio technology. The certification is attached to this report in the section on Agency Views. The reported legislation would require the Secretary of Commerce to publish the technical Reference Document and the National Institute of Standards and Technology certification in the Federal Register within 10 days after the date of enactment of the legislation. The reported legislation would allow the Secretary of Commerce ("Secretary") to issue additional orders to implement the SCMS if petitioned by an interested manufacturing or copyright party and if the Secretary determines that to do so is in accordance with the purposes of this chapter. The Secretary would have to consult with the Register of Copyrights in the process of deciding whether or not to issue an order. There would be four categories in which the Secretary could issue an order. They cover functionally equivalent alternatives, revised general standards, standards for new devices, and material input to digital device through an analog converter. First, regarding functionally equivalent alternatives, the reported legislation permits an order to be issued to allow in commerce devices that do not conform to all of the standards and specifications in the Technical Reference Document, if those devices have the same functional characteristics with respect to serial copying and are compatible with the prevailing method for implementation of the SCMS in the Technical Reference Document. Second, regarding revised general standards, the reported legislation permits an order to be issued to allow in commerce devices that do not conform to all of the standards and specifications in the Technical Reference Document if the standards and specifications in the Technical Reference Document have been revised to the extent that they are no longer applicable or appropriate and the devices conform to the new standards and specifications and possess the same functional characteristics concerning serial copying as the SCMS in the Technical Reference Document. Third, regarding standards for new devices, the reported legislation permits an order to be issued to establish whether the standards and specifications established by a manufacturer or proprietor for certain future digital audio recording devices meet the requirements of the Act or to establish alternative standards and specifications in order to ensure compliance with such requirements. Fourth, regarding material input to digital device through an analog converter, the reported legislation permits an order to approve standards and specifications for a technical method designed to regulate the serial copying of source material that is converted from analog to digital format in a digital audio recorder. Such an order must be published in the Federal Register and provide a reasonable opportunity for public comment. The order would not be able to impose a total cost burden on the manufacturers of digital audio recording devices in excess of 125 percent of the cost of implementing the SCMS before the issuance of the order. Also, the order would not be allowed to affect recording on analog recorders, and could not impose any requirements that would affect devices other than digital audio recording and interface devices. Hearings and subsequent correspondence indicate that the requirements of the reported legislation will not represent a significant burden to American and smaller consumer-electronics manufactures. D. Benefits to consumers American consumes have been denied overall access to digital audio recording technology, which is the most innovative audio recording technology to date, due to litigation and disputes between the electronics industry, recording industry, songwriters and music publishers in the United States. The reported legislation, if enacted, would finally put an end to the legal battles and ongoing disputes over digital audio recording. This would make way for the electronics manufactures to engage in mass production, and for the music industry to support this technology by developing appropriate software. Eventually, this would lead to the widespread introduction of this technology to the American consumer at affordable prices. The benefits to consumers of the legislation of release from liability regarding home copying and eventual access to digital technology outweigh the limited of burdens having to indirectly pay royalties and enduring some limits on taping through technological fixes. E. Competitiveness issues Enactment of the reported legislation would improve American electronics and recordings companies ability to compete by encouraging the production of digital audio recording equipment and software to support that equipment. F. Trade concerns There are trade-related concerns that the current situation presents concerning the music industry that could be alleviated by the enactment of the reported legislation. 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. West Germany and Iceland also impose a fee on audio recording equipment. Recently, there has emerged a move among some of these countries to enact reciprocity provisions, so that a foreigner is not allowed to participate in the pool unless his or her native country also has an audio home taping royalty fund. There is concern that American songwriters, music publishers, recording artists, and recording companies are not able to benefit from foreign royalty payments on home taping, because the U.S. does not have a home taping royalty provision. This denies the American music industry millions of dollars worth of foreign home taping royalties. The reported legislation will be a first step toward reclaiming those royalties and improving our balance of trade. Hearings The Committees Subcommittee on Commerce, Consumer Protection and Competitiveness held one day of hearings on H.R. 4567 on March 31, 1992. Testimony was received from two witnesses from the Department of Commerce. They were Mr. Michael K. Kirk, Assistant Commissioner for External Affairs of the U.S. Patent and Trademark Office, and Dr. Robert Hebner, Deputy Director, Electronics and Electrical Engineering Laboratory of the National Institute of Standards and Technology. Testimony was also received from Ms. Dionne Warwick, BMI Songwriter and Arista Recording Artist, Mr. John Roach of Tandy Corporation representing the electronics industry, Mr. Jason Berman of the Recording Industry Association of America, Mr. Edward Murphy of the National Music Publishers Association, also representing the Copyright Coalition, and Mr. Gary Shapiro of Electronic Industries Association representing the Home Recording Rights Coalition. Committee Consideration On May 12, 1992, the Subcommittee on Commerce, Consumer Protection and Competitiveness met in open session and ordered reported the bill H.R. 4567, with an amendment, by unanimous voice vote, a quorum being present. On June 2, 1992, the Committee met in open session and ordered reported the bill H.R. 4567, with an amendment, by unanimous voice vote, a quorum being present. Committee Oversight Findings Pursuant to clause 2(l)(3)(A) of rule XI of the Rules of the House of Representatives, no oversight findings or recommendations have been made by the Committee. Committee on Government Operations Pursuant to clause 2(l)(3)(D) of rule XI of the Rules of the House of Representatives, no oversight findings have been submitted to the Committee by the Committee on Government Operations. Committee Cost Estimate In compliance with clause 7(a) of rule XIII of the Rules of the House of Representatives, the Committee believes that the bill will have a minimal, if any, budget effect for fiscal year 1993. For the most part, the reported legislation would pay for itself. The reported legislation would allow the Copyright Office and Tribunal to deduct the reasonable costs incurred by those entities before the funds are ever distributed to copyright holders. The initial cost for the Department of Commerce would be limited to causing the Technical Reference Document, which is already complete, to be printed in the Federal Register. There could be other, minimal costs incurred in monitoring compliance with the legislation and issuing additional orders as described in the background section of this report. It is most likely that the monitoring will actually be performed by interested copyright and manufacturing parties, since the reported legislation would allow private suits to be brought against offending parties. As such, competitors within an industry, as well as opposing industries, will undoubtedly monitor each other. This would have the effect of reducing both the burden and cost of the Commerce Department. Congressional Budget Office Estimate U.S. Congress, Congressional Budget Office, Washington, DC, June 25, 1992. Hon. John D. Dingell, Chairman, Committee on Energy and Commerce, House of Representatives, Washington, DC. Dear Mr. Chairman: The Congressional Budget Office has prepared the attached cost estimate for H.R. 4567, the Audio Home Recording Act of 1992, as ordered reported by the House Committee on Energy and Commerce on June 2, 1992. Because this bill would affect direct spending, it would be subject to pay-as-you-go procedures under section 252 of the Balanced Budget and Emergency Deficit Control Act of 1985. As a result, the estimate required under clause 8 of House Rule XXI also is attached. If you wish further details on this estimate, we will be pleased to provide them. Sincerely, James L. Blum (For Robert D. Reischauer, Director). CONGRESSIONAL BUDGET OFFICE COST ESTIMATE 1. Bill number: H.R. 4567. 2. Bill title: The Audio Home Recording Act of 1992. 3. Bill status: As ordered reported by the House Committee on Energy and Commerce on June 2, 1992. 4. Bill purpose: H.R. 4567 would protect manufacturers, importers, and distributors of digital audio recorders and blank media from lawsuits claiming copyright infringements. The bill would require importers and manufacturers to pay royalties, which would be collected by the Copyright Office and deposited as offsetting receipts into two funds in the Treasury, a Sound Recordings Fund and a Musical Works Fund. The amounts in these funds would then be allocated among persons and groups whose audio works had been distributed to the public. H.R. 4567 would designate those entitled to a share of the funds. The bill would establish a formula for dividing the royalty payments between the funds an for distributing the amounts in the funds. It also would establish a schedule of damages to be paid by those who violate requirements of the act. Finally, H.R. 4567 would direct the Copyright Office to oversee payments into the funds and the Copyright Royalty Tribunal (CRT) to administer their distribution. 5. Estimated cost to the Federal Government: (PLEASE REFER TO ORIGINAL SOURCE) The costs of this bill fall within budget function 370. Basis of estimate: Estimates of royalty payments are based on information provided by the Copyright Office and on an assumed enactment date late in fiscal year 1992. Payments for each quarter would be deposited into the funds within 45 days of the end of the quarter, would be recorded as offsetting receipts (that is, negative budget authority and outlays), and would accrue interest until disbursed. Royalty payments into the funds are estimated to be $73 million in fiscal year 1993, $105 million in 1994, and larger amounts in subsequent years. Disbursements to interested parties would be mandatory and would count as direct spending, as would amounts paid to the Copyright Office and the CRT to cover costs associated with administration of the funds. We assume that distributors would begin marketing digital audio recording devices and tapes in the first quarter of fiscal year 1993; therefore, we expect the Treasury to begin receiving royalty payments in Federal 1993. Disbursements to interested parties would be based on royalties accrued over the previous calendar year. Thus, while receipts would accrue over the entire 1993 fiscal year, disbursements in that year would include only the $23 million in copyright payments accrued in calendar year 1992 (i.e., the first quarter of fiscal year 1993). As a result, receipts in fiscal year 1993 would exceed disbursements by about $50 million. In later years, receipts an disbursements would both include amounts for an entire year. Based on information from the CRT and the Copyright Office, implementing H.R. 4567 would cost the federal government approximately $1.15 million over the next five years. Of this amount, $115,000 would not be recovered from payments to the funds. While the bill would provide that Copyright Office and the CRT can recover costs associated with administering the funds, the Copyright Office would incur some unrecoverable costs in establishing the funds. The CRT, as specified in appropriations bills, recovers only costs associated with fund distribution, which in 1992 comprise approximately 85 percent of total costs. CBO assumes that the Congress will appropriate the full amounts authorized. We estimate accrued interest consistent with CBO baseline assumptions. Outlay estimates are based on historical spending patterns for similar activities. 6. Pay-as-you-go considerations: The Budget Enforcement Act of 1990 sets up pay-as-you-go procedures for legislation affecting direct spending or receipts through 1995. Enacting H.R. 4567 would affect direct spending, and the bill would therefore be subject to pay-as-you-go procedures. The following table summarizes the estimated pay-as-you-go impact of this bill. (PLEASE REFER TO ORIGINAL SOURCE) Royalty payments paid into the funds would be counted as offsetting receipts, which are shown as negative outlays. Payments to interested parties would be mandatory and would count as direct spending, as would amounts paid to the Copyright Office and the CRT to cover costs associated with administration of the funds. CBO estimates that the impact of this bill for pay-as-you-go purposes would be a net decrease in the deficit of $50 million in 1993 and smaller amounts in subsequent years. 7. Estimated cost to State and local governments: None. 8. Estimate comparison: On June 9, 1992, CBO provided to the Senate Committee on the Judiciary a cost estimate for S. 1623, the Audio Home Recording Act of 1991, reflecting proposed floor amendments. H.R. 4567 is nearly identical to that version of S. 1623, and CBO estimates that both bills would have the same budgetary impact. 9. Previous CBO estimate: None. 10. Estimate prepared by: John Webb. 11. Estimate approved by: C.G. Nuckols, Assistant Director for Budget Analysis. congressional budget office estimate

1

The applicable cost estimate of this act for all purposes of sections 252 and 253 of the Balanced Budget and Emergency Deficit Control Act of 1985 shall be as follows:

1 An estimate of H.R. 4567 as ordered reported by the House Committee on Energy and Commerce on June 2, 1992. This estimate was transmitted by the Congressional Budget Office on June 25, 1992. (PLEASE REFER TO ORIGINAL SOURCE) Inflationary Impact Statement Pursuant to clause 2(l)(4) of rule XI of the Rules of the House of Representatives, the Committee makes the following statement with regard to the inflationary impact of the reported bill: The legislation would provide an incentive for the electronics industry and the music industry to remain competitive by manufacturing equipment and producing software to support the equipment on a wide scale for American consumers. As such, the Committee believes that the enactment of the reported legislation would increase jobs as well as lead to lower prices for digital audio recording products. Section-by-Section Analysis Section 1. Short title Section 1 sets forth the title of the bill.Section 2. Importation, manufacture, and distribution of digital audio recording devices and media Section 2 amends Title 17 of the United States Code by adding Chapter 10 "Digital Audio Recording Devices and Media." Chapter 10 has three subchapters: A, B, and C. The provisions of each subchapter are listed below. subchapter a definitions, prohibition of certain infringement actions and rules of construction Section 1001. Definitions Section 1001 defines 23 terms used in the legislation. The terms are audiogram, digital audio copied recording, digital audio interface device, digital audio recording device, digital audio recording medium, distribute, interested copyright party, interested manufacturing party, manufacture, music publisher, professional model product, Register, Serial Copy Management System, Technical Reference Document, transfer price, transmission, Tribunal, writer, analog format, copyright status, category code, generation status, and source material. The definition of "digital audio interface device" makes it clear that the reported legislation does not cover telecommunications systems and general purpose computers either directly or indirectly through their general purpose interfaces because of the special interface signal code used in digital audio signals in this context. In addition, the term includes only those interface devices that are generally marketed to and used by individuals. A "digital audio recording device" is a machine or device that has a digital audio recording function that is designed or marketed primarily for the making of digital audio copied recordings for private use. The recorder must be of a type that is commonly distributed to individuals for use by individuals. This definition makes it clear that the reported legislation would not cover professional model devices or audio recording equipment designed and marketed primarily for the creation of recording resulting from the fixation of nonmusical sounds, such as dictation machines and answering machines. Also, it does not cover general purpose computers because the primary purpose of their recording function is not to make digital audio copied recordings. 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. 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. Similarly, the reported legislation does not cover fixed sounds that consist of entirely spoken word recordings. A spoken word recording is defined in the legislation as "a sound recording in which are fixed only a series of spoken words, expect that the spoken words may be accompanied by incidental musical or other sounds." Essentially, spoken word recordings, such as "audio books" and "books on tape" are not covered by the legislation, even if they use incidental music, such as any music that may be used to link chapters or as occasional background to the spoken words. If the musical or other sounds are more than incidental to the recording, such as in the case of rap, gospel or similar music genre that frequently rely on spoken phrases, the recording is not a "spoken word recording." With respect to recording media, the legislation is only intended to cover those media products primarily marketed or most commonly used by consumers in making digital audio recordings. The legislation would not cover any media products primarily marketed and most commonly used by consumers in making copies of other digitally stored material, including general purpose computer programs. Second, the definition of "digital audio recording medium" establishes that the legislation does not cover products primarily marketed by the computer industry or most commonly used by its consumers to make copies of computer programs and data or products primarily marketed or most commonly used by consumers to make things other than digital audio copied recordings, such as recording media used to make copies of motion pictures or other audio-visual works or used in telecommunications systems. Third the phrase "media product" as used in the definition of a "digital audio recording medium" would relate to marketing, labeling, and other use identification of an item, rather than its generic format or capability. Section 1002. Prohibition is certain infringement actions Subsection (a) provides that no action may be brought under Title 17 or Sec. 337 of the Tariff Act of 1930, alleging infringement of copyright based on the manufacture, importation or distribution of digital or analog recording media or recorder. In addition, no infringement action may be brought against a person for using these recorders and media for making audiograms unless it is for direct or indirect commercial advantage. Subsection (b) notes that nothing in this section shall be construed to create or expand a cause of action for copyright infringement except to the extent that there may be a cause of action that does exist under a provision of title 17 other than this chapter or section 337 of the Tariff Act of 1930. In addition, the legislation provides that nothing shall be construed to limit any defenses that may be available to such a cause of action. Section 1003. Effect on other rights and remedies with respect to private home copying or otherwise This section is designed to make it clear that this bill only deals with audio recorders and media, and does not deal with other taping medium, particularly video recording. subchapter b royalty paymentsSection 1011. Obligation to make royalty payments Subsection (a) provides that no person shall import into and distribute or manufacture and distribute in the United States any digital audio recording device or medium unless the person meets certain notice requirements and then deposits the statements of account and applicable royalty payments for the device or medium. Subsection (b) requires a importer or manufacture of any digital audio recording device or medium to file information with the Register of Copyrights ("Register"). Subsection (c) requires any person that imports and distributes or manufactures and distributes any digital audio recording device or medium to file with the Register a quarterly statement of account. Subsection (d) requires any person that imports and distributes or manufactures and distributes any digital audio device or medium during a given calendar year to file an annual statement of account with the Register. Subsection (e) permits interested copyright parties to select independently a certified public accountant ("CPA") to conduct audits in order to verify the accuracy of the information contained in the statements of account filed. Subsection (f) provides that the costs of all verification audits conduct under subsection (e) shall be paid by the copyright party that engaged the CPA, unless a verification audit leads to a recovery of an annual royalty underpayment of 5 percent or more of the annual payment made. In that case, the manufacturer or importer shall pay the costs. Subsection (g) provides that each CPA used by interested copyright parties under this section shall be duly licensed to practice as a certified public accountant not financially dependent upon interested copyright parties or interested manufacturing parties, as determined by the Register. Subsection (h) provides that the quarterly and annual statements of accounts filed under subsection (c) or (d), and information disclosed or generated during the verification audits under subsection (e) shall be presumed to contain information concerning trade secrets, within the meaning of section 1905 of title 18. Some of this information may be disclosed to the public in the aggregate without any company-specific information. Nothing in this section shall authorize the withholding of information from Congress. Section 1012. Royalty payments Subsection (a) requires that the amount of royalty payment due for each digital audio recording device imported and distributed or manufactured and distributed in the United States shall be 2% of the transfer price, which in most cases will be basically the wholesale price. A royalty is only paid once on a specific device; payment of the royalty is the responsibility of the first person to manufacture and distribute or import and distribute that device. The payment for each digital audio recording device or physically integrated unit containing a digital audio recording device shall not be less than $1. The maximum payment shall be $8 for each device. For a physically integrated unit with more than one digital audio recording device the maximum shall be $12. Any interested copyright party may petition the Tribunal to increase the payment maximums during the 6th year after the effective date of this chapter. Subsection (b) provides that the royalty payment for each digital audio recording medium imported and distributed or manufactured and distributed in the United States shall be 3% of the transfer price. The payment shall only be made by the first person to manufacture and distribute or import and distribute that specific medium. Subsection (c) provides that manufacturers and importers, in calculating royalty payments, may deduct the amount of any royalty payment already made on digital audio recording devices or media that are returned to the manufacturer or importer as unsold or defective or that are exported by the manufacturer or importer within 2 years after the date the royalty payments were made. Section 1013. Deposit of royalty payments and deduction of expenses The Register shall receive all of the royalty payments deposited under this chapter. After the reasonable costs that are incurred by the Copyright Office under this chapter are deducted, the money shall be deposited in the treasury of the United States. Eventually, it shall be distributed with interest to copyright parties under sections 1014, 1015, or 1016. Section 1014. Entitlement to royalty payments Subsection (a) provides that the royalties deposited under section 1013 be distributed to any interested copyright party whose musical work or sound recording was embodied in audiograms. Subsection (b) provides that the royalty payments shall be divided into the Sound Recordings Fund and the Musical Works Fund. The Sound Recordings Fund shall be allocated 66 2/3 % of the royalty payments to benefit those that own rights to the sound recording. The Musical Works Fund shall be allocated 33 1/3 % of the royalty payments to benefit those that own rights to the musical work. Subsection (c) provides that if all of the interested copyright parties within a particular group of a fund do not agree on a voluntary proposal for the distribution of the royalty payments within that fund, the Tribunal must allocate payments pursuant to the procedures outlined in section 1015(c). Section 1015. Procedures for distributing royalty payments Section 1015 establishes procedures by which the Tribunal shall distribute royalty payments. Section 1016. Negotiated collection and distribution arrangements Section 1016 provides for an alternative system for the collection and distribution of royalties based upon a negotiated agreement. The section establishes procedures to ensure that all interests are protected. The Tribunal shall make sure that the negotiated arrangement contains necessary safeguards that ensure that all interested copyright parties who are not participants in the negotiation receive the royalty payments that they would have received if there was no arrangement. Any interested manufacturing party that is not a party to the negotiated arrangement may fully satisfy its obligations by complying with the procedures in sections 1011 and 1012 of this chapter. SUBCHAPTER C THE SERIAL COPY MANAGEMENT SYSTEM Section 1021. Incorporation of the serial copy management system Subsection (a) provides that no person shall import, manufacture or distribute any digital audio recording device or interface device that does not conform to the standards and specifications to implement the Serial Copy Management System ("SCMS") that are set forth in Technical Reference Document ("TRD"), an order by the Secretary of Commerce under section 1022(b) (1), (2), of (3) or, if the TRD or Commerce order do not apply, standards and specifications designed by the manufacturer that implement the SCMS. Subsection (b) provides that no person shall import, manufacture, or distribute any device, or offer or perform any service designed to avoid, bypass, remove, deactivate or otherwise circumvent any program or circuit which implements, in whole or in part, the SCMS in a digital audio recording or interface device. Subsection (c) provides that 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 SCMS. Subsection (d) provides that under this Subchapter, any person who transmits or otherwise communicates to the public any sound recording in digital format is not required to transmit or otherwise communicate the copyright status of the sound recording, but any person who does transmit or otherwise communicate the copyright status must give accurate information. Section 1022. Implementing the serial copy management system Section 1022 establishes standards and procedures for the Secretary of Commerce to follow in adopting changes to the Technical Reference Document. Also, the National Institute of Standards and Technology must certify that the initial Technical Reference Document is in accord with existing technology. SUBCHAPTER D REMEDIES Section 1031. Civil remedies Section 1031 provides standards and procedures for civil suits for damages and equitable injunctive relief. Suits may be brought in the U.S. district court. Section 1032. Binding arbitration Section 1032 establishes procedures for binding arbitration to settle disputes, if the parties agree to such procedures. Section 3. Technical amendments Section 3 makes technical amendments. Section 4. Effective date This provides that the effective date of this chapter is the date of enactment of this Act. Technical Reference Document for the Audio Home Recording Act of 1992 Introduction This Technical Reference Document is provided to facilitate the implementation of legislation relating to digital audio recording ("DAR") devices, known as the "Audio Home Recording Act of 1992" ("the Act"). This Technical Reference Document establishes the standards and specifications that are necessary to implement the Serial Copy Management System ("SCMS") under the Act. It draws in part from specifications proposed to the International Electrotechnical Commission ("IEC") in "IEC 958: Digital Audio Interface" (First edition 1989-03) and "Amendment No. 1 to IEC 958 (1989): Digital Audio Interface, Serial Copy Management System" (Reference 84(CO)126 submitted on June 21, 1991) (collectively, "IEC 958"), and "IEC 60A(CO) 136 Part 6: Serial copy management system for consumer audio use DAT recorders." The standards and specifications set forth herein relate only to the implementation of SCMS via digital audio interface signals, DAR devices and digital audio interface devices. The standards and specifications set forth herein, as they may be amended pursuant to an order of the Secretary of Commerce under Section 1022(b) of Subchapter C of the Act, shall be considered determinative under the Act, regardless of any future action by the IEC or by a manufacturer of by an owner of a proprietary technology. SCMS is intended to prohibit DAR devices from recording "second-generation" digital copies from "first-generation" digital copies containing audio material over which copyright has been asserted via SCMS. It does not generally restrict the ability of such devices to make "first-generation" digital copies from "original" digital sources such as prerecorded commercially available compact discs, digital transmissions of digital tapes. Currently, the predominant type of DAR device offered for sale in the United States is the DAT recorder, which records and sends digital signals in accordance with the IEC 958 nonprofessional digital audio interface format. Additional types of DAR devices and interface formats are being or may be developed. The standards and specifications in this Technical Reference Document are not intended to hinder the development of such new technologies but require, in accordance with Section 1021 (a)(1)(A)-(C) of Subchapter C of the Act, that they incorporate the functional characteristics of SCMS protection. In order for a DAR device to be "compatible with the prevailing method of implementing SCMS," to the extent DAR devices are capable of recording signals sent in a particular digital audio interface signal format, the SCMS information must be accurately received and acted upon by the DAR device so as to correctly implement the same level of SCMS protection provided by that format. "Compatibility" does not require direct bit-for-bit correspondence across every interface signal format; indeed, particular interface signal formats may be recordable by some, but not all, DAR devices. To the extent that any digital audio interface device translates and sends signals in a form that can be recorded by a particular DAR device, however, "compatibility" requires that the SCMS information also be accurately translated and sent by the interface device, and accurately read and acted upon by the DAR device. This document is in three parts. Part I Section A sets forth standards and specifications constituting the functional characteristics for implementing SCMS in digital audio interface signals. Sections B and C then apply these standards and specifications in a specific reference for implementing SCMS in the IEC 958 nonprofessional digital audio interface format. Part II Section A similarly first sets forth standards and specifications constituting the functional characteristics for implementing SCMS in DAR devices. Sections B and C then apply these standards and specifications in a specific reference for implementing SCMS with respect to the recording and play-back functions of non-professional model DAT recorders. Part III contains a series of charts that apply and correlate those codes that are mandated for implementation in DAT recorders by Parts I-C and II-C of this document. The terms "digital audio interface device," "digital audio recording device," "digital audio recording medium," "distrubite," "professional model," and "transmission" as used in this document have the same meanings as in the Act. "Generation status" means whether the signal emanates from a source that has been produced or published by or with the authority of the owner of the material, such as commercially released pre-recorded compact discs or digital tapes or a digital transmission (referred to herein as "original"); or whether the signal emanates from a recording made from such "original" material. Part I. Implementation of SCMS in Digital Audio Interface Formats Various consumer devices are capable of producing digital audio signals. Currently, for example, compact disc players, DAT recorders and analog-to-digital converters can send digital audio signals; future devices may include digital microphones or recordable compact disk devices. To enable communication between these different types of devices and a DAR device, it is necessary and desirable to establish common protocols or "interfaces" that mandate specific information in the digital audio output signal of each device. Digital signal interfaces may enable communication of different types of data. A "digital audio interface signal" communicates audio and related interface data as distinguished from, for example, computer or video data. Digital audio interface signal formats may be established for particular types of devices or uses. For example, interface protocols may exist for broadcast use, or for users of professional model products ("professional interface") or for nonprofessional model products ("nonprofessional interface"). One such set of protocols already has been established in the document IEC 958. Sections B and C of Part I summarize and mandate the implementation of SCMS in the IEC 958 nonprofessional interface. Section A sets forth the standards and specifications for implementing SCMS in digital audio interface signals and devices. A. Digital audio interface standard To implement the functional characteristics of SCMS in nonprofessional digital audio interface signal formats, whether presently known or developed in the future, the following conditions must be observed: 1. The digital audio interface format shall provide a means to indicate: (a) Whether or not copyright protection is being asserted via SCMS over the material being sent via the interface; and, (b) Whether or not the generation status of the material being sent via the interface is original. 2. If the digital audio interface format has discrete professional and nonprofessional modes, the interface format and digital audio interface devices shall indicate accurately the professional or nonprofessional status of the interface signal. Such indication is referred to generically as a "channel status block flag". 3. If the interface format has a discrete mode for sending data other than audio material, the interface format shall indicate accurately whether or not the interface signal contains audio material. 4. If a digital audio interface device is capable of combining more than one digital audio input signal into a single digital audio output signal, and if copyright is asserted via SCMS over the material being sent in at least one of the input signals, then the device shall indicate in the output signal that copyright is asserted over the entire output signal. 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. 6. Devices having a nonprofessional digital audio interface shall receive and accurately send the copyright and generation status information. 7. Professional devices that are capable of sending audio information in a nonprofessional digital audio interface format shall send SCMS information as implemented for that format. However, nothing shall prevent professional devices and/or recording professionals engaged in a lawful business from setting SCMS information according to the needs of recording professionals. 8. If the audio signal is capable of being recorded by a DAR device and the interface format requires an indication of the type of device sending the signal via the interface, then the device shall send the most accurate and specific designation applicable to that device; for example, "Category Codes" as set forth in Part I with reference to the IEC 958 nonprofessional interface. 9. Devices that receive digital audio transmissions sent without copyright and generation status information shall indicate that copyright is asserted over the transmitted audio material and that the generation status is original. If the transmitting entity wishes to transmit copyright status information it shall do so accurately, and the information shall accurately be received and sent unaltered by the receiving device. In the case of Electronic Audio Software Delivery signal transmissions, the receiver shall accurately receive generation status information as sent by the transmitting entity so as to permit or restrict recording of the transmitted signals. "Electronic Audio Software Delivery" refers to a type of transmission whereby the consumer interactively determines what specific work(s) and/or event(s) are received. This includes, for example, "audio on demand" (electronic selection and delivery of sound recordings for copying) or "pay-per-listen" reception, as distinguished from regular broadcast or comparable cable radio programming services. 10. (a) If the digital audio portion of an interface signal format is recordable by a "pre-existing" type of DAR device, i.e., one that was distributed prior to the distribution of the interface signal format, then the signal format shall implement the rules of SCMS so that the pre-existing DAR device will act upon the rules of SCMS applicable to that DAR device. (b) If a type of DAR device is capable of recording the digital audio portion of signals sent by a pre-existing digital audio interface device, then the DAR device shall implement the rules of SCMS so that the DAR device will act upon the rules of SCMS applicable to that pre-existing digital audio interface devices format. (c) If a digital audio interface device is capable of translating a signal from one interface format to another, then the device also shall accurately translate and send the SCMS information. B. Summary of SCMS implementation in the IEC 958 digital audio interface Under IEC 958, SCMS is implemented via inaudible information, known as "channel status data", that accompanies a digital audio signal being sent to or by a DAR device via a nonprofessional digital audio interface. Like all digital data, channel status data consist of numerical information encoded as a series of zeros and ones. Each zero or one constitutes a "bit" of data in which both zero and one may impart information concerning the composition of the audio signal being sent to or by a DAR device. Bits represented in this Technical Reference Document as "X", rather than as zero or one, indicate that those bits may be either zero or one without affecting the specifications set forth herein. Channel status data bits are organized into units of information, known as "blocks," relating to both the left and right stereo audio channels. Each block contains 192 bits of information, numbered consecutively from 0 to 191. Those channel status bits that are significant to the implementation of SCMS via the IEC 958 interface are included within channel status bits 0 through 15. Certain of these 16 bits identify professional or nonprofessional interfaces; some specify copyright assertion; and some identify the generation number of a recording. The remaining bits are "Category Codes" that describe the type of device sending the digital audio signal. More complete descriptions of these channel status bits are set forth in the remaining sections of this Part I. IEC 958 defines professional and nonprofessional interface formats for digital audio signals. An IEC 958 professional interface contains particular types of channel status data for such digital audio recording devices as would be used in professional model products. An IEC 958 nonprofessional interface contains different types of channel status data. The channel status data sent in a nonprofessional interface are incompatible with the channel status data in a professional interface; a DAR device cannot correctly read the channel status data sent in a professional interface. The specifications summarized herein and mandated in Section C apply only to devices that send or read an IEC 958 nonprofessional interface signal. To the extent that a professional device also may have a IEC 958 nonprofessional interface, such a professional device must be capable of sending channel status data via its nonprofessional interface in accordance with the standards set forth herein. However, nothing in this Technical Reference Document shall be interpreted to prevent a professional device having an IEC 958 nonprofessional interface and/or recording professionals engaged in a lawful business from permitting such channel status data bits to be set in accordance with the needs of recording professionals. All devices having a digital audio output capable of supplying a digital audio signal to a DAR device through an IEC 958 nonprofessional interface must implement five types of codes located between Channel Status Bits 0 and 15. For the IEC 958 interface format, Channel Status Bits 0 through 15 are supplied in a digital audio output signal to a DAR device as follows: 1. Bit 0. Bit 0 (the "Channel Status Block Flag"), one of the "Control" bits, shall identify whether the channel status bits are for a professional or nonprofessional interface. Where Bit 0 is set as "1", the signal contains the channel status data required for a professional interface. Where Bit 0 is set as "0", the channel status data is suitable for a nonprofessional interface. The remaining bit assignments are mandated only with respect to a nonprofessional interface, i.e., where Bit 0 is set as "0". 2. Bit 1. Bit 1, another of the "Control" bits, shall identify whether the signal being sent to or by the DAR device is a digital audio or a digital data signal. Where Bit 1 is set as "0", the signal is a digital audio signal. Where Bit 1 is set as "1", the signal is a digital data signal. 3. Bit 2. Bit 2 (the "C" Bit), another of the "Control" bits, shall identify whether copyright protection is asserted for the audio material being sent via the digital audio signal. Where the C Bit is set as "0", copyright protection has been asserted over the material being sent to the digital audio input of the DAR device. Where the C Bit is set as "1", either that material is not protected by copyright or no copyright protection has been asserted by the owner of that material. There are specific applications of the C Bit for three types of devices, as follows: Compact disc players compatible with the standards set forth in IEC 908 (compact disc standard, Category Code 10000000) in effect as of the date of enactment of the Act indicate in the C Bit both the copyright and generation status of the signal. (See description of "Bit 15", infra.) Where the signal is original and copyright protection has been asserted, the C Bit = "0". Where no copyright protection has been asserted, the C Bit = "1". Where the signal is first-generation and copyright protection has been asserted, the C Bit will fluctuate between "0" and "1" at a rate of between 4-10 Hz. Digital Receivers (Category Codes 001XXXXL and 0111XXXL) shall set the C Bit as "0", except that these devices shall send the C Bit as "1" only where the cable operator, broadcaster or other entity specifically transmits information indicating that no copyright protection has been asserted over the material. Devices that combine digital audio input signals into one digital audio output signal (e.g., digital signal mixing devices) shall reflect whether copyright protection has been asserted in the C Bit for at least one of the input signals by setting the C bit as "0" in the resulting digital audio output signal. Devices in the Category Codes for General ("00000000") and Present A/D Converters ("01100XXX") are not capable of sending copyright status information in the C Bit. The C Bit in the channel status data sent by these devices has no meaning. There is no existing legal requirement that a copyright owner must assert protection over its material (and, therefore, set the C Bit as "0"). However, except as provided herein with respect to implementation in Digital Receivers (category codes 001XXXXL and 0111XXXL), a copyright owner may not set the C Bit as "0" for material that is not copyrighted or is in the public domain. 4. Bits 3-7. These bits are sent to and read by a DAR device, but specific bit settings for Bits 3-7 are not necessary for the implementation of SCMS. (Bits 6-7 are Music Production Program Block ("MPPB") flag bits.) 5. Bits 8-14. Bits 8-14 shall specify a "Category Code" that identifies the type of device that produces the digital audio signal sent to or by a DAR device. Using various combinations of zeros and ones, Bits 8-14 can define Category Codes for as many as 128 different devices that can provide digital audio signals to a DAR device. According to IEC 958, the first three to five Category Code bits (numbered Bits 8-10 through 8-12) describe general product groups, and the remaining Category Code bits specify particular devices within each product group. IEC 958 has assigned particular Category Codes to existing and anticipated product groups and devices, and has reserved additional Category Codes for future devices. The Category Code issued by each particular device must reflect the most specific code applicable to that device, with the following exceptions: Digital signal processing and mixing products receive digital audio signals from one or more sources and either process or combine them with other incoming digital audio signals. If all input signals come from analog-to-digital converters having a Category Code "01100XXX", these devices should issue the Category Code of an analog-to-digital converter rather than of the digital signal processing or mixing device. Sampling rate converters and digital sound samplers come under the Category Codes for digital-to-digital converters. If an input signal to a sampling rate converter or digital sound sampler comes from an analog-to-digital converter having a Category Code "01100XXX", the sampling rate converter or digital sound sampler should issue the Category Code of the analog-to-digital converter. These exception cases will permit two generations of digital copies from analog recordings, which currently is permitted under SCMS. The relevance of these Category Codes to SCMS as implemented for devices having the IEC 958 nonprofessional interface is described in Section C and, specifically as to DAT recorders, in Part II Sections B and C. 6. Bit 15. Bit 15 (the "L" Bit) shall indicate the "generation status" of the digital audio signals being sent to or by a DAR device. "Generation status" means whether the signal emanates from a source that has been produced or published by or with the authority of the owner of the material, such as commercially released pre-recorded compact discs or digital tapes or a digital transmission (referred to herein as "original"); or whether the signal emanates from a recording made from such "original" material. In the latter case, a recording made directly from an "original" source is known as a "first-generation" copy; a recording made from a first-generation copy is a "second-generation" copy; and so forth. 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. If the L Bit is set as "1", the source is "original." There are four specific categories of products which indicate generation status differently, as follows: Compact disc players compatible with the specifications in IEC 908 (Category Code 10000000) are incapable of controlling the L Bit. These products signal generation status solely by means of the C Bit (Bit 2). Digital audio output signals from all other laser-optical products (Category Code 100XXXXL) shall send the L Bit as "0" for "original" material and the L Bit as "1" for first-generation or higher recordings. Digital Receivers (Category Codes 001XXXXL and 0111XXXL) shall set the L Bit as "0"; except in the case of receivers for Electronic Audio Software Delivery, which receivers shall send the L Bit as "1" only where the entity specifically transmits information indicating that the material should be treated as if it were first-generation or higher. 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. Thus, where one or more of the constituent input signals contains material that is not original (i.e., a first-generation copy) and over which copyright protection is asserted, then the device must reflect in the L Bit of the digital audio output signal a non-original generation status. In all other cases, the device shall reflect in the L Bit that the output signal is original.C. Mandatory specifications for implementing SCMS in the IEC 958 digital audio interface The following bit assignments for channel status data, as referenced in the provisions of IEC 958 4.2.2 "Channel status data format for digital equipment for consumer use", shall be mandatory for devices implementing the IEC 958 interface: 1. Bits 0-2 of the "CONTROL" Bits: a. Bit 0 ("the "Channel Status Block Flag"): Bit 0="0" Nonprofessional interface. Bit 0="1" Professional interface. b. Bit 1: Bit 1="0" Digital audio signals. Bit 1="1" Non-audio (data) signals. c. Bit 2 (the "C" Bit): i. Case 1: Bit 2="0" Copyright protection asserted. Bit 2="1" No copyright protection asserted or not under copyright. ii. Case 2 Compact Disc Players. For compact disc players compatible with IEC 908 (Category Code 10000000), the C Bit shall indicate: Bit 2="0" Copyright protection asserted and generation status is "original". Bit 2="1" No copyright protection asserted. Where the Bit 2 fluctuates between "0" and "1" at a rate between 4-10 Hz, copyright protection has been asserted and the signal is first-generation or higher. iii. Case 3 Digital Receivers. For Digital Receivers (Category Codes 001XXXXL and 0111XXXL), the C Bit shall indicate, where copyright information is transmitted to the digital receiver: Bit 2 = "0" Copyright protection asserted. Bit 2 = "1" No copyright protection asserted. Where no copyright information is transmitted to the receiver, the digital receiver shall set the C Bit as "0". iv. Case 4 Digital Signal Mixers. Where a single digital audio output signal results from the combination of more than one digital audio input signal: Bit 2 = "0" Copyright protection asserted over at least one of the constituent digital audio input signals. Bit 2 = "1" For all of the constituent digital audio input signals, no copyright protection asserted or not under copyright. v. Exception Case. The C Bit has no meaning for A/D converters for analog signals that do not include status information concerning the C Bit and the L Bit (i.e., A/D converters in Category Code 01100XXX). 2. Bits 3-7: Specific bit settings for Bits 3-7 are not necessary for the implementation of SCMS. 3. Category Code Bits 8-15: a. Bits 8-15 The Category Codes that follow are established for particular product groups. Where Bit 15 is represented by "L" rather than a zero or one, Bit 15 (the "L" Bit) can be either a zero or one without affecting the Category Code. Where Bit 15 is represented by "X" rather than a zero or one, the device is not capable of issuing status information concerning the L Bit. 00000000 general. This category applies to products that are capable of sending channel status data but are not programmed to send such data in accordance with the specifications set forth in this Technical Reference Document because the products were manufactured before the effective date of the Act. This General Category Code shall not be used for products manufactured after the effective date of the Act. 0000001L Experimental products not for commercial sale. 100XXXXL Laser-optical products, such as compact disc players (including recordable and erasable compact disk players) and videodisc players with digital audio outputs. 010XXXXL Digital-to-digital ( "D/D") converters and signal processing products. 110XXXXL Magnetic tape or disk based products, such as DAT players and recorders. 001XXXXL and 0111XXXL Receivers of digitally-encoded audio transmissions with or without video signals. 101XXXXL Musical instruments, microphones and other sources that create original digital audio signals. 01100XXX Analog-to-digital ("A/D") converters for analog signals without status information concerning the C Bit and the L Bit ("Present A/D converters"). 01101XXL A/D converters for analog signals which include status information concerning the C Bit and the L Bit ("Future A/D converters"). 0001XXXL Solid state memory based media products. Particular devices within each product group defined above shall be assigned specific Category Codes in accordance with IEC 958. Manufacturers of any device that is capable of supplying a digital audio input to a DAR device must use the most specific Category Code applicable to that particular device. However, digital signal processing or digital signal mixing products in Category Code product group "010XXXXL" shall issue the Category Code for Present A/D converters where all the input signals have the Category Code for a Present A/D converter. Similarly, sampling rate converters in Category Code "0101100L" and digital sound samplers in Category Code "0100010L" shall issue the Category Code for Present A/D converters where the input signal comes from a Present A/D converter. b. Bit 15 (the "L" Bit): The L Bit shall be used to identify the generation status of the digital input signal as emanating from an "original" source or from a non-original (i.e., first-generation or higher) recording. 1. Case 1 General Case. For all Category Codes (except as explicitly set forth below), the L Bit shall indicate: Bit 15 = "0" First-generation or higher recording. Bit 15="1" "Original" source, such as a commercially released pre-recorded digital audiogram. 2. Case 2 Laser Optical Products. The reverse situation is valid for laser optical products (Category Code 100XXXXL), other than compact disc players compatible with IEC 908 (Category Code 10000000). For laser optical products in Category Code 100XXXXL, the L Bit shall indicate: Bit 15="1" First-generation or higher recording. Bit 15="0" "Original" recording, such as a commercially released pre-recorded compact disc. 3. Case 3 Digital Receivers. For Digital Receivers (Category Codes 001XXXXL and 0111XXXL), Bit 15 always shall be set as "0"; except for receivers for Electronic Audio Software Delivery, for which the L Bit shall indicate: Bit 15="0" Generation status information transmitted as "original" material. Bit 15="1" Generation status information transmitted as for non-original material, or no generation status information transmitted. 4. Case 4 Digital Signal Mixers. Where a single digital audio output signal results from the combination of more than one digital audio input signal: Bit 15="0" One or more of those constituent digital audio input signals over which copyright protection has been asserted is first-generation or higher. Bit 15="1" All other cases. 5. Exception Case. The L Bit has no meaning for A/D converters for analog signals that do not include status information concerning the C Bit and the L Bit (i.e., A/D converters in Category Code 01100XXX) and compact disc players in Category Code 10000000.Part II. Serial Copy Management System for DAR Devices and Nonprofessional Model DAT Recorders The intention of SCMS is generally to prevent DAR devices from making second-generation or higher "serial" digital recordings of "original" digital audio material over which copyright protection has been asserted through SCMS. SCMS does not prevent the making of a first-generation recording of such "original" digital audio material. As future technologies permit, SCMS may limit the digital recording by a DAR device of analog audio material over which copyright protection has been asserted to the making of only first-generation digital copies. However, because present technology does not identify whether analog audio material is protected by copyright, SCMS will not prevent the making of first and second-generation digital copies of such material. SCMS will not restrict digital recording of material carrying an indication through SCMS that copyright has not been asserted. SCMS does not apply to professional model products as defined under the Act.A. General Principles for SCMS Implementation in DAR Devices To implement the functional characteristics of SCMS in DAR devices, whether presently known or developed in the future, the following conditions must be observed: 1. A digital audio recording medium shall be capable of storing an indication of: (a) Whether or not copyright protection is being asserted over the audio material being sent via the interface and stored on the DAR medium; and, (b) Whether or not the generation status of the audio material being sent via the interface and stored on the DAR medium is original. 2. If the digital audio interface format being sent to and read by a DAR device has discrete modes for professional as well as nonprofessional purposes, the DAR device shall distinguish accurately the professional or nonprofessional status of the interface signal. 3. If the interface format has a discrete mode for sending data other than audio material, the DAR device shall distinguish accurately whether or not the interface signal contains audio material. 4. A DAR device capable of receiving and recording digital audio signals shall observe the following rules: (a) Audio material over which copyright is asserted via SCMS and whose generation status is original is permitted to be recorded. In indication that copyright is asserted over the audio material contained in the signal and the generation status of the recording is first generation shall be recorded on the media. (b) Audio material over which copyright is not asserted via SCMS may be recorded, without regard to generation status. An indication that copyright is not asserted shall be recorded on the media. (c) Audio material over which copyright is asserted via SCMS and whose generation status is not original shall not be recorded. 5. DAR media shall store the copyright and generation status information as described herein during recording in a manner that the information can be accurately read. 6. 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 the information. 7. DAR devices shall not be capable of recording digital audio signals transmitted in a professional digital audio interface format. 8. DAR devices having a nonprofessional digital audio interface shall receive and accurately send the copyright and generation status information. 9. Professional devices that are capable of sending audio information in a nonprofessional digital audio interface format shall send SCMS information as implemented for that format. However, nothing shall prevent professional devices and/or recording professionals engaged in a lawful business from setting SCMS information according to the needs of recording professionals. 10. Digital audio signals that are capable of being recorded by a DAR device but that have no information concerning copyright and/or generation status shall be recorded by the DAR device so that the digital copy is copyright asserted and original generation status. 11. If the signal is capable of being recorded by a DAR device and the interface format requires an indication of the type of device sending the signal via the interface, then the device shall send the most accurate and specific designation applicable to that device; for example, "Category Codes" as set forth in Part I with reference to the IEC 958 nonprofessional interface. 12. Except as may be provided pursuant to Section 1022(b)(4) of Subchapter C of the Act, a DAR device that is capable of converting analog input signals to be recorded in digital format shall indicate that the digital copy is copyright asserted and original generation status. 13. (a) If the digital audio portion of an interface signal format is recordable by a "pre-existing" type of DAR device, i.e., one that was distributed prior to the distribution of the interface signal format, then the signal format shall implement the rules of SCMS so that the pre-existing DAR device will act upon the rules of SCMS applicable to that DAR device. (b) If a type of DAR device is capable of recording the digital audio portion of signals sent by a pre-existing digital audio interface device, then the DAR device shall implement the rules of SCMS so that the DAR device will act upon the rules of SCMS applicable to the format of that pre-existing digital audio interface device. (c) If a digital audio interface device is capable of translating a signal from one interface format to another, then the device also shall accurately translate and send the SCMS information. B. Summary of mandatory SCMS specifications for DAT recorders SCMS, to be implemented for DAT machines, requires that a DAT machine must play-back and/or record specific inaudible data in a particular location on a DAT tape. According to IEC documents "IEC 60A(CO)130 Part 1: Digital Audio Tape Cassette System (DAT) Dimensions and Characteristics" and "IEC 60A(CO)136 Part 6: Serial copy management system for consumer audio use DAT recorders", that particular location on the digital audio tape consists of two bits known as "subcode ID6 in the main ID in the main data area" ("ID6"). 1. SCMS operation when playing a DAT tape With respect to the play-back function, a DAT machine that is connected to a DAT recorder can provide digital audio output signals via a nonprofessional interface. In that circumstance, the DAT play-back machine functions as a digital audio interface device that must provide channel status data conforming to the general principles and specifications set forth in Part I. SCMS as implemented for the IEC 958 nonprofessional interface format requires that when a DAT tape is played back, the DAT play-back machine reads the information from ID6 on the tape and then sends the corresponding channel status data (concerning Bit 2 "the C Bit" and Bit 15 "the L Bit"), along with the Category Code for a DAT machine, in its digital audio output signal. The channel status data to be sent in response to the various settings of ID6 are as follows: 1. Where ID6 is set as "00", copyright protection has not been asserted over the material under SCMS. In response to ID6, the digital audio signal output of the DAT will provide the C Bit set as "1" and the L Bit set as "0". 2. Where ID6 is set as "10", copyright protection has been asserted over the material under SCMS and the recording is not "original". In response to ID6, the digital audio output signal of the DAT will provide the C Bit set as "0" and the L Bit set as "0". 3. Where ID6 is set as "11", copyright protection has been asserted over the material under SCMS and the recording is "original". In response to ID6, the digital audio output signal of the DAT will provide the C Bit set as "0" and the L Bit set as "1". 2. SCMS operation when recording on DAT tape With respect to the recording function, SCMS governs the circumstances and manner in which a DAT recorder may record a digital audio input signal. A DAT recorder implementing SCMS information being sent in the IEC 958 nonprofessional interface format must be capable of acknowledging the presence or absence of specific channel status information being sent to the DAT recorder via its digital audio input. The DAT recorder then responds to that channel status information by either preventing or permitting the recording of that digital audio input signal. If recording is permitted, the DAT machine records specific codes in ID6 on the tape, so that when the tape is played back, the DAT machine will issue the correct channel status data in its digital audio output signal. The settings of ID6 to be recorded in response to particular IEC 958 channel status bit information are as follows: 1. Where the C Bit of the digital audio input signal is set as "0" (copyright protection asserted), the DAT recorder shall not record the input, except in three circumstances: (a) where the input is original material and the digital audio input signal comes from one of the products on the "Category Code White List" (section D below); (b) where the digital audio input signal contains an undefined Category Code (in which case only one generation of recording is permitted); or, (c) where the digital audio input signal comes from a product with a defined Category Code but the product currently is not capable of transmitting information regarding copyright protection (in which case, two generations of copying are possible). In circumstances (a) and (b) above, the DAT recorder will record "10" in ID6 to prevent further copying. In circumstance (c) above, the DAT recorder will record "11" in ID6 for the first-generation copy. 2. Where the C Bit of the digital audio input signal is set as "1" (no copyright protection asserted or not copyrighted), the DAT recorder will record "00" in ID6, and unlimited generations of copying will be permitted. 3. Where the C Bit of the digital audio input signal fluctuates between "0" and "1" at a rate of between 4-10 Hz, the signal is coming from a compact disc player compatible with IEC 908 (Category Code 10000000) which plays back a compact disc that is not an "original" and that contains material over which copyright protection has been asserted. The DAT recorder shall not record in this circumstance. 4. The condition "01" in ID6 has been assigned no meaning within SCMS. Therefore, to prevent circumvention of SCMS, the DAT recorder shall not record "01" in ID6 on the tape.C. Mandatory specifications for implementing SCMS in DAT recorders in the IEC 958 format 1. Mandatory standards for digital audio output signals a. Category Code Bit 15 (the "L" Bit). All non-professional model DAT recorders having an IEC 958 interface shall provide the Category Code "1100000L" in the channel status bits of the IEC 958 digital audio output signal. The status of the L Bit of the Category Code shall be provided in the digital audio output signal of the DAT recorder as follows, in accordance with the status of ID6: When ID6 is "00", the digital audio output signal shall indicate in the L Bit of the Category Code that the output source is either a first-generation or higher DAT tape recorded from an "original" source, or an "original" commercially released prerecorded DAT tape of material over which copyright protection is not being asserted under SCMS. In either of these cases, the L Bit shall be set as "0", and the complete Category Code would be "11000000". When ID6 is "10", the digital audio output signal shall indicate in the L Bit of the Category Code that the output source is a first-generation or higher DAT tape recorded from an "original" source (i.e., L Bit="0"). The complete Category Code in this case would be "11000000". When ID6 is "11", the digital audio output signal shall indicate in the L Bit of the Category Code that the output source is an "original" source, such as a commercially released prerecorded DAT tape (i.e., L Bit="1"). The complete Category Code in this case would be "11000001". b. Bit 2 (the "C" Bit). All non-professional model DAT recorders having an IEC 958 nonprofessional interface shall provide an output code in the C Bit in the channel status bits of the IEC 958 digital audio output signal. The C Bit shall be applied in the digital audio output signal as follows, in accordance with the status of ID6: When ID6 is "00", the C Bit shall be set as "1". When ID6 is "10" or "11", the C Bit shall be set as "0".2. Mandatory specifications for recording functions SCMS with respect to recording functions performed by a nonprofessional model DAT recorder receiving digital audio input signals in the IEC 958 nonprofessional interface format shall be implemented as follows: 1. Digital audio input signals in which the C Bit is set as "0" shall not be recorded, except for the cases specified below in paragraphs 2, 4 and 5. 2. A DAT recorder may record a digital audio input signal in which the C Bit is set as "0", where the Category Code of the signal is listed in the "Category Code White List." The DAT recorder shall record "10" in ID6 on the tape in this case. 3. For digital audio input signals in which the C Bit is set as "1", the DAT recorder shall record "00" in ID6 on the tape except for those cases specified below in paragraphs 4 and 5. 4. For digital audio input signals that contain Category Code information that is not defined in this document, the DAT recorder shall record "10" in ID6, regardless of the status of the C Bit or the L Bit. 5. For digital audio input signals originating from a source identified as an A/D converter with the Category Code "01100XXL", or from other sources such as from A/D converters with the Category Code for "General" ("00000000"), the DAT recorder shall record "11" in ID6, regardless of the status of the C Bit or the L Bit. This requirement shall be applied to digital input signals that do not contain source information of the original signal before digitization, e.g., an A/D converter that does not deliver source information. 6. For digital input signals originating from an A/D converter with the Category Code "01101XXL", which can deliver original source information concerning the C Bit and L Bit even if the source is in analog format, the requirement stated above in paragraph 5 shall not be applied. The "Category Code White List" includes this Category Code. 7. A DAT tape of "original" generation status over which copyright protection has been asserted shall contain "11" in ID6. A DAT tape of "original" generation status over which no copyright protection has been asserted shall contain "00" in ID6. 8. A DAT recorder shall not record digital audio input signals where the C Bit alternates between "0" and "1" at a frequency of between 4 and 10 Hz and the Category Code is for a Compact disc digital audio signal ("10000000"), as in the case of digital audio input signals from recordable or erasable compact discs that are not "original" and that contain material over which copyright protection has been asserted. 9. A non-professional model DAT recorder shall not record digital audio input signals sent from a professional interface, i.e., where channel status Bit 0 is set as "1". 10. The condition "01" in ID6 is not to be used. 11. Category codes and the C Bit included in the channel status information of digital audio input signals being sent to or by a DAT recorder shall not be deleted or modified and shall be monitored continuously and acted upon accordingly. D. "Category code white list" 100XXXX0 Laser optical product. 010XXXX1 Digital-to-digital converter and signal processing devices. 110XXXX1 Magnetic tape and disk based product. 001XXXX0 and 0111XXX0 Receivers of digitally encoded audio transmissions with or without video signals. 101XXXX1 Musical instruments. 01101XX1 Future A/D converter (with status information concerning the C Bit and L Bit). 0001XXX1 Solid state memory based media products. 00000011 Experimental products not for commercial sale. Part III. Application of SCMS in DAT Recorders Implementing the IEC 958 Interface The following charts apply and correlate those codes that are mandated under the Act to implement SCMS in non-professional model DAT recorders having an IEC 958 nonprofessional interface, in those situations contemplated by these standards. The columns in each of these charts identify the following information: The "Signal Source" column describes the type of product sending the digital audio signal to a DAT recorder. The three columns under the heading "Digital Audio Input Signal," i.e., the signal sent to the DAT recorder, identify the correct channel status information in the C Bit, Category Code Bits 8-14 and the L Bit, respectively, which correspond to each product. (In each case, Bit 0 will be "0" to indicate that the signal is being sent in the IEC 958 nonprofessional interface format, and Bit 1 will be "0" to indicate that the signal consists of audio data.) The next three columns under the heading "DAT Recorder Response" identify the response of the DAT recorder to the corresponding digital audio input signal. The column "ID6" specifies the code that the DAT recorder will record on the tape in ID6 in response to the digital audio input signal. The last two columns set forth the correct channel status information in the C Bit and L Bit that are sent in the digital audio output signal of a DAT recorder in response to the setting of ID6. Each of the appropriate codes is set forth in the cases described below: Case 1. Where copyright protection has been asserted over the digital audio input, and the source of the input is "original" material (Only first-generation recording permitted): (PLEASE REFER TO ORIGINAL SOURCE) Case 2. Where copyright protection has been asserted over the digital audio input, and the source of the input is "original" material (First-generation and above recording permitted): (PLEASE REFER TO ORIGINAL SOURCE) Case 3. Where copyright protection has been asserted over the digital audio input, and the source of the input to the DAT recorder is not "original" material (No recording permitted): (PLEASE REFER TO ORIGINAL SOURCE) Case 4. Where copyright protection has not been asserted over the digital audio input, and the source of the input to the DAT recorder is not "original" material (Second-generation and above recording permitted): (PLEASE REFER TO ORIGINAL SOURCE) Case 5. Where the digital audio input signal includes Category Code information, but cannot provide information concerning copyright protection of the source (First- and second-generation record permitted): (PLEASE REFER TO ORIGINAL SOURCE) Case 6. Where the digital input signal does not include a defined Category Code (First-generation recording permitted): (PLEASE REFER TO ORIGINAL SOURCE) Case 7. Where copyright protection has been asserted over the digital audio input from a compact disc that is not an "original" by fluctuating the C Bit at a rate between 4-10 Hz (No recording permitted): (PLEASE REFER TO ORIGINAL SOURCE) Case 8. Where the digital signal transmitted to a Digital Receiver does not include information concerning copyright protection (Only first-generation recording permitted): (PLEASE REFER TO ORIGINAL SOURCE) Case 9. Where the digital signal transmitted to a receiver for Electronic Audio Software Delivery provides generation status information as if the status were first-generation or higher (No recording permitted): (PLEASE REFER TO ORIGINAL SOURCE) Agency Views U.S. Department of Commerce, National Institute of Standards and Technology, Gaithersburg, MD, March 31, 1992. Hon. Cardiss Collins, Chairwoman, Subcommittee on Commerce, Consumer Protection, and Competitiveness, Committee on Energy and Commerce, House of Representatives, Washington, DC. Dear Madam Chairwoman: Your recent letter requesting our appearance at the March 31, 1992, hearing on "Digital Audio Recording Technology: Commerce and Consumer Protection Issues" also requested the answer to seven questions. We have coordinated our response with the Patent and Trademark Office, agreeing that three of the questions, numbers 1, 4, and 7, are technical and so appropriate for the National Institute of Standards and Technology. The answers to those questions are enclosed. The remainder of the questions will be answered by the Patent and Trademark Office. Sincerely, John W. Lyons. Enclosure. Statement of John W. Lyons, Director, National Institute of Standards and Technology Madame Chairwoman and Members of the Subcommittee, I thank you for the opportunity to provide comments on digital audio recording technology on behalf of the National Institute of Standards and Technology. 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. Then, technology was being developed to permit producers to encode recordings so that they could not be copied without paying appropriate royalties. By 1987, CBS Records had developed a specific copy protection scheme which it was offering to the industry. The Congressional committees asked NIST (at that time named the National Bureau of Standards) to determine if that particular approach worked, if it degraded the recorded material, and if it could easily be defeated. These questions were amenable to laboratory investigation. Staff from the National Institute of Standards and Technology performed the required measurements and reported the results. Following that report, the proposed copy protection scheme was abandoned. The proposed Serial Copy Management System described in legislation before this Subcommittee differs from the earlier system studied by the National Institute of Standards and Technology in a number of important ways. For example: 1. The previous approach embedded the copy protection information in the audible portion of the signal. The current approach uses a non-audible portion of the signal. 2. In the earlier work, industry had developed a particular implementation of the copy protection requirements which the National Institute of Standards and Technology was asked to evaluate. The proposed legislation specifies performance characteristics, but not circuitry to be used to realize the specified performance. 3. The previous approach resulted from the development, by a single company, of a solution to a perceived problem. The current approach is based on international standards for communications among digital systems and, thus, is inherently consistent with a wide range of current practices. Consequently, the National Institute of Standards and Technology plays a different role in the present deliberations than it did in the earlier situation. While earlier there was a specific embodiment for the National Institute of Standards and Technology to test, the current proposal could be realized by a wide range of circuits. 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. 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. 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. In this way, the proposed legislation can be responsive to, rather than impede, the evolution of digital recording technology. Thank you Madame Chairwoman. I will be pleased to answer any questions you have. Responses to Questions Posed by the House Subcommittee on Commerce, Consumer Protection, and Competitiveness 1. The legislation before this committee requires all digital audio recorders and interface devices to implement the Serial Copy Management System to prohibit multi-generational copying. How easy is it to make prerecorded digital music that will affect the SCMS in a way to prevent copying altogether? To what extent will individuals have an incentive to devise ways to prevent copying altogether? Using the Serial Copy Management System, the information to prevent multi-generational copying is not encoded in the audio portion of the digital signal. In an earlier approach to copy protection, certain types of music could falsely indicate that copyright protection existed where none did. Because of the fundamentally different mode of encoding, a similar situation does not exist in this case. If a recording engineer wanted to distribute tapes which permitted no copies to be made, rather than the specified single copy, it is likely that such a person would have the equipment available to implement that decision. NIST has no information regarding incentives to prevent copying. 4. How easy is it for an individual to avoid, bypass, remove, deactivate, or otherwise circumvent any program or circuit which implements the Serial Copy Management System in digital audio recorders and interface devices? The ease with which a copy prevention circuit could be defeated must be determined on a case-by-case basis. 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? To our knowledge, the technical reference document incorporates the intended functional characteristics to regulate serial copying. We are not aware of any existing international digital audio interface standards or digital audio technology which are incompatible with the standards and specifications set forth in the technical reference document. U.S. Department of Commerce, Patent and Trademark Office, Washington, DC, March 30, 1992. Hon. Cardiss Collins, Chairwoman, Subcommittee on Commerce, Consumer Protection, and Competitiveness, Committee on Energy and Commerce, House of Representatives, Washington, DC. Dear Madam Chairwoman: Thank you for your request to participate in your hearing on "Digital Audio Recording Technology: Commerce and Consumer Protection Issues" on Tuesday, March 31, 1992. I look forward to presenting the Administrations views at that hearing. In your invitation, you also asked for answers to several questions. As noted in your letter, some of these questions lie outside of the competence of the Patent and Trademark Office and should be answered by other agencies in the Department. As my staff has discussed with your staff, we are responding to questions 2, 3, and 5. The National Institute of Standards and Technology will respond to questions 1, 4, and 7. Our answers to questions 2, 3, and 5 are enclosed with this letter. Question 6 raises several sub-questions concerning the impact of this legislation on domestic manufacturers. 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. I appreciate this opportunity to present our views on this important topic. Sincerely, Harry F. Manbeck, Jr., Assistant Secretary and Commissioner of Patents and Trademarks. Enclosure. 2. As you are aware, the legislation before this Subcommittee requires importers and manufacturers to make royalty payments on each digital audio recorder and digital audio medium that is disseminated to consumers. 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. While we do not have ready access to the manufacturers cost data, we can discuss how the royalty might be dealt with. In order to make an estimate, we contacted a local retailer who sells DAT recorders. We were advised that they sold only one model at a price of just under $600 and that it was a special order item. Wholesale prices were not available. However, if we assume that the wholesale cost of the recorder is approximately one half of the retail price, in this instance the royalty would be $6.00 (2% of $300). At the same vendor, tapes for a digital audio recorder sell for $10.97 for a 60 minute tape, $15.97 for a 90 minute tape, and $19.97 for a 120 minute tape. 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. These include such deverse items as potential product liability claims, environmental considerations, manufacturing costs and possible liability for infringement of intellectual property rights. For example, in earlier testimony in the Senate, John V. Roach, Chairman of the Tandy Corporation stated that potential litigation expenses had to be included in Tandys marketing budget or digital audio recorders. 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. 3. How many other nations require the incorporation of the Serial Copy Management System in digital audio recorders or interface devices? At present, Japan requires the inclusion of the Serial Copy Management System (SCMS) through administratively established standards for the manufacture of digital audio recorders. The European Community (EC) has proposed the inclusion of a requirement mandating the use of SCMS as part of its directive on harmonizing royalty systems in the 12 EC Member States. 5. Several countries, including Austria, France, Finland, West Germany, Iceland, Portugal and Hungary, impose fees on recording media. 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. The popularity of U.S. music in foreign markets guarantees that U.S. works are among those most frequently copied. Moreover, collecting royalties in regard to the copying of U.S. works means that more royalties are generated, yielding a windfall for those deemed eligible for distributions under foreign laws. In bilateral and multilateral discussions with our trading partners, U.S. negotiators have stressed the fundamental unfairness of the status quo. The amounts collected under private copying levy systems in major foreign markets are significant. In 1988, collections of audio levies in France and Germany alone totalled $34 million. 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. "Musical works" (the music and its lyrics) are universally understood to be copyrightable subject matter under the Berne Convention. Legal regimes for the protection of "sound recordings" (separate works created by the fixation of a particular recorded rendition of a musical work or other sounds) vary among countries. While the United States and a number of other countries protect sound recordings under copyright law, most of the nations of Europe protect sound recording producers under so-called "neighboring rights" regimes. For the U.S. recording industry, the difference between full copyright protection and neighboring rights protection is far more than semantic; it is economic. While the Berne Convention requires national treatment of the works of foreign authors, the international convention governing neighboring rights, called the Convention for the Protection of Performers, Producers of Phonograms and Broadcasting Organizations (Rome Convention) to which the United States does not belong allows signatories to accord protection to foreign sound recording producers on the basis of reciprocity. 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. Will the legislation before this Subcommittee which only requires that royalties be paid on digital audio recorders and media and not analog recorders or media have the desired reciprocal effect? Enactment of H.R. 3204/S. 1623 will ensure that all affected rights owners and beneficiaries will be compensated for the copying of their works on digital audio recording media and that foreign rights owners will be granted national treatment. The establishment of these principles within a U.S. private copying royalty system will greatly strengthen the Administrations ability to deal effectively with this issue in bilateral negotiations and to forge a constructive consensus on this issue in international fora. It is true that the proposed legislation does not mirror the private copying royalty systems in Europe. H.R. 3204/S. 1623 are prospective in approach, focusing on private copying with digital audio recording technology. Nevertheless, we believe that, from the standpoint of our ability to shape an international consensus on proper treatment of private copying levies, the most salient feature of the legislation is not the type of equipment and media to which it will apply. In the Administrations view, it is far more important that the legislation protects all categories of rights owners and guarantees them national treatment. (c) 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. As a general matter, collections of private copying royalties, where they do exist, do not begin to approach revenues generated by the sale of prerecorded materials. We believe it is reasonable to assume that, owing to the size of the U.S. market, the opportunity to earn revenues on prerecorded products, and at least as to musical works to earn public performance royalties, provides ample incentive for foreign record companies and music publishers to make their works available in the United States. (d) To what extent are American consumers charged higher prices for music by certain foreign artists or genre due to this issue? The Administration does not have, and is not aware of the existence of, figures concerning the impact of private copying on the wholesale or retail price of prerecorded music. We believe it reasonable to conclude, however, that just as the price of many goods purchased from retail outlets is adjusted to account for losses due to theft, the price charged for prerecorded music may, in some instances, reflect an adjustment for sales lost to home taping. We stress that this conclusion is not based on information provided by any company or group of companies.Changes in Existing Law Made by the Bill, as Reported In compliance with clause 3 of rule XIII of the Rules of the House of Representatives, changes in existing law made by the bill, as reported, are shown as follows (existing law proposed to be omitted is enclosed in black brackets, new matter is printed in italics, existing law in which no change is proposed is shown in roman): TITLE 17, UNITED STATES CODE Chapter ...............................Section 1. Subject Matter and Scope of Copyright 101 2. Copyright Ownership and Transfer 201 10. Digital Audio Recording Devices and Media 1001 CHAPTER 1 SUBJECT MATTER AND SCOPE OF COPYRIGHT 101. Definitions As used Except as otherwise provided in this title, as used in this title, the following terms and their variant forms mean the following: An "anonymous work" is a work on the copies or phonorecords of which no natural person is identified as author. An "architectural work" is the design of a building as embodied in any tangible medium of expression, including a building, architectural plans, or drawings. The work includes the overall form as well as the arrangement and composition of spaces and elements in the design, but does not include individual standard features. "Audiovisual works" are works that consist of a series of related images which are intrinsically intended to be shown by the use of machines, or devices such as projectors, viewers, or electronic equipment, together with accompanying sounds, if any, regardless of the nature of the material objects, such as films or tapes, in which the works are embodied. The "Berne Convention" is the Convention for the Protection of Literary and Artistic Works, signed at Berne, Switzerland, on September 9, 1886, and all acts, protocols, and revisions thereto. A work is a "Berne Convention work" if (1) CHAPTER 8. COPYRIGHT ROYALTY TRIBUNAL 801. Copyright Royalty Tribunal: Establishment and purpose (a) (b) Subject to the provisions of this chapter, the purposes of the Tribunal shall be (1) (2) to make determinations concerning the adjustment of the copyright royalty rates in section 111 solely in accordance with the following provisions: (A) (D) The gross receipts limitations established by section 111(d)(1) (C) and (D) shall be adjusted to reflect national monetary inflation or deflation or changes in the average rates charged cable system subscribers for the basic service of providing secondary transmissions to maintain the real constant dollar value of the exemption provided by such section; and the royalty rate specified therein shall not be subject to adjustment; and (3) to distribute royalty fees deposited with the Register of Copyrights under sections 111, 116, and 119(b), and to determine, in cases where controversy exists, the distribution of such fees; and (4) to distribute royalty payments deposited with the Register of Copyrights under section 1011, to determine, in cases where controversy exists, the distribution of such payments, and to carry out its other responsibilities under chapter 10. 804. Institution and conclusion of proceedings (a) (d) With respect to proceedings under section 801(b) (3) or (4), concerning the distribution of royalty fees in certain circumstances under sections 111, 116, or 119 119, 1015, or 1016, the Chairman of the Tribunal shall, upon determination by the Tribunal that a controversy exists concerning such distribution, cause to be published in the Federal Register notice of commencement of proceedings under this chapter. CHAPTER 9 PROTECTION OF SEMICONDUCTOR CHIP PRODUCTS 912. Relation to other laws (a) Nothing in this chapter shall affect any right or remedy held by any person under chapters 1 through 8 or 10 of this title, or under title 35. (b) Except as provided in section 908(b) of this title, references to "this title" or "title 17" in chapters 1 through 8 or 10 of this title shall be deemed not to apply to this chapter. CHAPTER 10 DIGITAL AUDIO RECORDING DEVICES AND MEDIA SUBCHAPTER A DEFINITIONS, PROHIBITION OF CERTAIN INFRINGEMENT ACTIONS, AND RULES OF CONSTRUCTION Sec. 1001. Definitions. 1002. Prohibition on certain infringement actions. 1003. Effect on other rights and remedies with respect to private home copying or otherwise. SUBCHAPTER B ROYALTY PAYMENTS 1011. Obligation to make royalty payments. 1012. Royalty payments. 1013. Deposit of royalty payments and deduction of expenses. 1014. Entitlement to royalty payments. 1015. Procedures for distributing royalty payments. 1016. Negotiated collection and distribution arrangements. SubCHAPTER C THE SERIAL COPY MANAGEMENT SYSTEM 1021. Incorporation of the serial copy management system. 1022. Implementing the serial copy management system. SubCHAPTER D REMEDIES 1031. Civil remedies. 1032. Binding arbitration. SUBCHAPTER A DEFINITIONS, PROHIBITION OF CERTAIN INFRINGEMENT ACTIONS, AND RULES OF CONSTRUCTION 1001. Definitions As used in this chapter, the following terms and their variant forms mean the following: (1)(A) An "audiogram" is a material object (i) in which are fixed, by any method now known or later developed, only sounds (and not, for example, a motion picture or other audiovisual work even though it may be accompanied by sounds), and material, statements, or instructions incidental to those fixed sounds, if any, and (ii) from which the sounds and material can be perceived, reproduced, or otherwise communicated, either directly or with the aid of a machine or device. (B) An "audiogram" does not include a material object (i) in which the fixed sounds consist entirely of spoken word recordings, or (ii) in which one or more computer programs are fixed, except that an audiogram may contain statements or instructions constituting the fixed sounds and incidental material, and statements or instructions to be used directly or indirectly in order to bring about the perception, reproduction, or communication of the fixed sounds and incidental material. (C) For purposes of this paragraph (i) a "spoken word recording" is a sound recording in which are fixed only a series of spoken words, except that the spoken words may be accompanied by incidental musical or other sounds, and (ii) the term "incidental" means related to and relatively minor by comparison. (2) A "digital audio copied recording" is a reproduction in a digital recording format of an audiogram, whether that reproduction is made directly from another audiogram or indirectly from a transmission. (3) 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). (4) A "digital audio recording device" is any machine or device, now known or later developed, of a type commonly distributed to individuals for use by individuals, whether or not such machine or device is included with or as part of some other machine or device, the digital recording function of which is designed or marketed for the primary purpose of, and that is capable of, making a digital audio copied recording for private use, except for (A) professional model products, and (B) dictation machines, answering machines, and other audio recording equipment that is designed and marketed primarily for the creation of sound recordings resulting from the fixation of nonmusical sounds. (5)(A) A "digital audio recording medium" is any material object, now known or later developed, in which sounds may be fixed, where the media product is (i) in a form commonly distributed for ultimate sale to individuals for use by individuals (such as magnetic digital audio tape cassettes, optical discs, and magneto-optical discs), and (ii) primarily marketed or most commonly used by consumers for the purpose of making digital audio copied recordings by use of a digital audio recording device. (B) Such term does not include (i) any material object that embodies a sound recording at the time it is first distributed by the importer or manufacturer, unless the sound recording has been so embodied in order to evade the requirements of section 1011; or (ii) any media product that is primarily marketed and most commonly used by consumers either for the purpose of making copies of motion pictures or other audiovisual works or for the purpose of making copies of nonmusical literary works, including, without limitation, computer programs or data bases. (6) To "distribute" means to sell, resell, lease, or assign a product to consumers in the United States, or to sell, resell, lease, or assign a product in the United States for ultimate transfer to consumers in the United States. (7) An "interested copyright party" is (A) the owner of the exclusive right under section 106(1) of this title to reproduce a sound recording of a musical work that has been embodied in an audiogram lawfully made under this title that has been distributed to the public; (B) the legal or beneficial owner of, or the person that controls, the right to reproduce in an audiogram a musical work that has been embodied in an audiogram lawfully made under this title that has been distributed to the public; or (C) any association or other organization (i) representing persons specified in subparagraph (A) or (B), or (ii) engaged in licensing rights in musical works to music users on behalf of writers and publishers. (8) An "interested manufacturing party" is any person that imports or manufactures any digital audio recording device or digital audio recording medium in the United States, or any association of such persons. (9) To "manufacture" means to produce or assemble a product in the United States. (10) A "music publisher" is a person that is authorized to license the reproduction of a particular musical work in a sound recording. (11)(A) A "professional model product" is an audio recording device (i) that is capable of sending a digital audio interface signal in which the channel status block flag is set as a "professional" interface, in accordance with the standards and specifications set forth in the technical reference document or established under an order issued by the Secretary of Commerce under section 1022(b); (ii) that is clearly, prominently, and permanently marked with the letter "P" or the word "professional" on the outside of its packaging, and in all advertising, promotional, and descriptive literature, with respect to the device, that is available or provided to persons other than the manufacturer or importer, its employees, or its agents; and (iii) that is designed, manufactured, marketed, and intended for use by recording professionals in the ordinary course of a lawful business. (B) In determining whether an audio recording device meets the requirements of subparagraph (A)(iii), factors to be considered shall include (i) whether it has features used by recording professionals in the course of a lawful business, including features such as (I) a data collection and reporting system of error codes during recording and playback; (II) a record and reproduce format providing "read after write" and "read after read"; (III) a time code reader and generator conforming to the standards set by the Society of Motion Picture and Television Engineers for such readers and generators; and (IV) a professional input/output interface, both digital and analog, conforming to standards set by audio engineering organizations for connectors, signaling formats, levels, and impedances; (ii) the nature of the promotional materials used to market the audio recording device; (iii) the media used for the dissemination of the promotional materials, including the intended audience; (iv) the distribution channels and retail outlets through which the device is disseminated; (v) the manufacturers or importers price for the device as compared to the manufacturers or importers price for digital audio recording devices implementing the Serial Copy Management System; (vi) the relative quantity of the device manufactured or imported as compared to the size of the manufacturers or importers market for professional model products; (vii) the occupations of the purchasers of the device; and (viii) the uses to which the device is put. (12) The "Register" is the Register of Copyrights. (13) The "Serial Copy Management System" means the system for regulating serial copying by digital audio recording devices that is set forth in the technical reference document or in an order of the Secretary of Commerce under section 1022(b), or that conforms to the requirements of section 1021(a)(1)(C). (14) The "technical reference document" is the document entitled "Technical Reference Document for Audio Home Recording Act of 1992" that is set forth in the report of the Committee on Energy and Commerce to the House of Representatives to accompany the Audio Home Recording Act of 1992. (15) The "transfer price" of a digital audio recording device or a digital audio recording medium (A) is, subject to subparagraph (B) (i) in the case of an imported product, the actual entered value at United States Customs (exclusive of any freight, insurance, and applicable duty), and (ii) in the case of a domestic product, the manufacturers transfer price (FOB the manufacturer, and exclusive of any direct sales taxes or excise taxes incurred in connection with the sale); and (B) shall, in a case in which the transferor and transferee are related entities or within a single entity, not be less than a reasonable arms-length price under the principles of the regulations adopted pursuant to section 482 of the Internal Revenue Code of 1986, or any successor provision to such section. (16) A "transmission" is any audio or audiovisual transmission, now known or later developed, whether by a broadcast station, cable system, multipoint distribution service, subscription service, direct broadcast satellite, or other form of analog or digital communication. (17) The "Tribunal" is the Copyright Royalty Tribunal. (18) A "writer" is the composer or lyricist of a particular musical work. (19) The terms "analog format", "copyright status", "category code", "generation status", and "source material", mean those terms as they are used in the technical reference document. 1002. Prohibition on certain infringement actions (a) Certain Actions Prohibited. (1) Generally. Subject to paragraph (2), no action may be brought under this title, or under section 337 of the Tariff Act of 1930, alleging infringement of copyright based on the manufacture, importation, or distribution of a digital audio recording device or a digital audio recording medium, or an analog audio recording device or analog audio recording medium, or the use of such a device or medium for making audiograms. (2) Exception. (A) Paragraph (1) does not apply with respect to any claim against a person for infringement by virtue of the making of one or more audiograms, or other material objects in which works are fixed, for direct or indirect commercial advantage. (B) For purposes of this paragraph, the copying of an audiogram by a consumer for private, noncommercial use is not for direct or indirect commercial advantage. (b) Effect of This Section. Nothing in this section shall be construed (1) to create or expand a cause of action for copyright infringement except to the extent such a cause of action otherwise exists under provisions of this title other than this chapter or under section 337 of the Tariff Act of 1930, or (2) to limit any defenses that may be available to such cause of action. 1003. Effect on other rights and remedies with respect to private home copying or otherwise Except as expressly provided in this chapter with respect to audio recording devices and media, neither the enactment of this chapter nor anything contained in this chapter shall be construed to expand, limit, or otherwise affect the rights of any person with respect to private home copying of copyrighted works, or to expand, limit, create, or otherwise affect any other right or remedy that may be held by or available to any person under chapters 1 through 9 of this title. SUBCHAPTER B ROYALTY PAYMENTS 1011. Obligation to make royalty payments (a) Prohibition on Importation and Manufacture. No person shall import into and distribute in the United States, or manufacture and distribute in the United States, any digital audio recording device or digital audio recording medium unless such person (1) records the notice specified by this section and subsequently deposits the statements of account and applicable royalty payments for such device or medium specified by this section and section 1012, or (2) complies with the applicable notice, statement of account, and payment obligations under a negotiated arrangement authorized pursuant to section 1016. (b) Filing of Notice. (1) Generally. Subject to paragraph (2), the importer or manufacturer of any digital audio recording device or digital audio recording medium, within a product category or utilizing a technology with respect to which such manufacturer or importer has not previously filed a notice under this subsection, shall file a notice with the Register, not later than 45 days after the commencement of the first distribution in the United States of such device or medium, in such form as the Register shall prescribe by regulation. (2) Exception. No notice shall be required under paragraph (1) with respect to any distribution occurring before the effective date of this chapter. (3) Contents. A notice under paragraph (1) shall (A) set forth the manufacturers or importers identity and address, (B) identify such product category and technology, and (C) identify any trademark, other trade or business name, or similar indicia of origin that the importer or manufacturer uses or intends to use in connection with the importation, manufacture, or distribution of such device or medium in the United States. (c) Filing of Quarterly Statements of Account. (1) Generally. Any importer or manufacturer that distributed during a given quarter of a calendar or fiscal year (in accordance with an election under paragraph (2)) any digital audio recording device or digital audio recording medium that it manufactured or imported shall file with the Register, in such form as the Register shall prescribe by regulation, a quarterly statement of account specifying, by product category, technology, and model, the number and transfer price of all digital audio recording devices and digital audio recording media that it distributed during such quarter. (2) Period covered. The quarterly statements of account may be filed on either a calendar or fiscal year basis, at the election of the manufacturer or importer. (3) Statements of account for the first 3 quarters. For the first 3 quarters of any calendar or fiscal year, such statement shall (A) be filed no later than 45 days after the close of the period covered by the statement, except that any quarterly statement that would be due within 3 months and 45 days after the effective date of this chapter shall not be filed until the next quarterly statement is due, at which time a statement shall be filed covering the entire period since the effective date of this chapter; (B) be certified as accurate by an authorized officer or principal of the importer or manufacturer; and (C) be accompanied by the total royalty payment due for such period pursuant to section 1012. (4) Statement of account for the fourth quarter. The quarterly statement for the final quarter of any calendar or fiscal year shall be incorporated into the annual statement required under subsection (d), which shall be accompanied by the royalty payment due for such quarter. (d) Filing of Annual Statements of Account. (1) Generally. Any importer or manufacturer that distributed during a given calendar or fiscal year (as applicable) any digital audio recording device or digital audio recording medium that such importer or manufacturer imported or manufactured shall also file with the Register a cumulative annual statement of account, in such form as the Register shall prescribe by regulation. (2) Timing and certification. Such statement shall be filed no later than 60 days after the close of such calendar or fiscal year, and shall be certified as accurate by an authorized officer or principal of the importer or manufacturer. (3) Independent audit. The annual statement of account shall be audited in accordance with United States generally accepted auditing standards by an independent certified public accountant selected by the manufacturer or importer. The independent certified public accountant shall report whether the information contained therein is fairly presented in all material respects, in accordance with the requirements of this chapter. (4) Reconciliation of royalty payment. The cumulative annual statement of account shall be accompanied by any royalty payment due under section 1012 that was not previously paid under subsection (c). (e) Verification. (1) Generally. (A) The Register shall, after consulting with interested copyright parties, interested manufacturing parties, and appropriate representatives of the accounting profession, prescribe regulations specifying procedures for the verification of statements of account filed pursuant to this section. (B) Such regulations shall permit interested copyright parties to select independent certified public accountants to conduct audits in order to verify the accuracy of the information contained in the statements of account filed by manufacturers and importers. (C) Such regulations shall also (i) specify the scope of such independent audits; and (ii) establish a procedure by which interested copyright parties will coordinate the engagement of such independent certified public accountants, in order to ensure that no manufacturer or importer is audited more than once per year. (D) All such independent audits shall be conducted at reasonable times, with reasonable advance notice, and shall be no broader in scope than is reasonably necessary to carry out the purposes of this subsection in accordance with generally accepted auditing standards. (2) Verification report. The accountants report on the results of each such independent audit shall, in accordance with United States generally accepted auditing standards and the requirements of this chapter, set forth the procedures performed and the accountants findings. The accountants report shall be filed with the Register. (3) Access to documents in event of dispute. In the event of a dispute concerning the amount of the royalty payment due from a manufacturer or importer resulting from a verification audit conducted under this section (A) any interested manufacturing party audited pursuant to this subsection, and its authorized representatives, shall be entitled to have access to all documents upon which the audit results under this subsection were based; and (B) any representative of an interested copyright party that has been approved by the Register under subsection (h)(2) shall be entitled to have access to all documents upon which the audit results under subsection (d) were based, subject to the limitations of subsection (h)(2). (f) Costs of Verification. (1) The costs of all verification audits that are conducted pursuant to subsection (e) shall be borne by interested copyright parties, except that, in the case of a verification audit of a manufacturer or importer that leads ultimately to recovery of an annual royalty underpayment of 5 percent or more of the annual payment made, the importer or manufacturer shall provide reimbursement for the reasonable costs of such audit. (2) Except as may otherwise be agreed by interested copyright parties, the costs of a verification audit conducted pursuant to subsection (e) shall be borne by the party engaging the certified public accountant. Any recovery of royalty underpayments as a result of the audit shall be used first to provide reimbursement for the reasonable costs of such audit to the extent such costs have not otherwise been reimbursed by the manufacturer or importer pursuant to this subsection. Any remaining recovery shall be deposited with the Register pursuant to section 1013, or as may otherwise be provided by a negotiated arrangement authorized under section 1016, for distribution to interested copyright parties as though such funds were royalty payments made pursuant to this section. (g) Independence of Accountants. Each certified public accountant used by interested copyright parties or interested manufacturing parties pursuant to this section shall be duly licensed to practice as a certified public accountant and shall not be financially dependent upon interested copyright parties or interested manufacturing parties, respectively. The Register may, upon petition by any interested copyright party or interested manufacturing party, prevent the use of a particular certified public accountant on the ground that such accountant does not meet the requirements of this subsection. (h) Confidentiality. (1) Generally. The quarterly and annual statements of account filed pursuant to subsections (c) and (d), and information disclosed or generated during verification audits conducted pursuant to subsection (e), shall be presumed to contain information concerning trade secrets, within the meaning of section 1905 of title 18. Except as provided in paragraphs (2), (3), and (4), neither the Register nor any member, officer, or employee of the Copyright Office or the Tribunal may (A) make available to the public audit information furnished under this section or information contained in quarterly or annual statements of account, except that aggregate information that does not disclose, directly or indirectly, company-specific information may be made available to the public; (B) use such information for any purpose other than to carry out responsibilities under this chapter; or (C) except as provided in subparagraph (A), permit anyone (other than members, officers, and employees of the Copyright Office and the Tribunal who require such information in the performance of duties under this chapter) to examine such information. (2) Procedures for access to be prescribed by register. (A) The Register, after consulting with interested manufacturing parties and interested copyright parties, shall prescribe procedures for disclosing, in confidence, to representatives of interested copyright parties and representatives of interested manufacturing parties information contained in quarterly and annual statements of account and information generated as a result of verification audits. (B) Such procedures shall provide that only those representatives of interested copyright parties and interested manufacturing parties who have been approved by the Register shall have access to such information, and that all such representatives shall be required to sign a certification limiting the use of the information to (i) verification functions under this section, and (ii) any enforcement actions that may result from such verification functions. (3) Access by audited manufacturer. Any interested manufacturing party that is audited pursuant to subsection (e), and its authorized representatives, shall be entitled to have access to all documents filed with the Register as a result of such audit. (4) Access by congress. Nothing in this section shall authorize the withholding of information from the Congress. 1012. Royalty payments (a) Digital Audio Recording Devices. (1) Amount of payment. The royalty payment due under section 1011 for each digital audio recording device imported into and distributed in the United States, or manufactured and distributed in the United States, shall be 2 percent of the transfer price. Only the first person to manufacture and distribute or import and distribute such device shall be required to pay the royalty with respect to such device. (2) Calculation for devices distributed with other devices. With respect to a digital audio recording device first distributed in combination with one or more devices, either as a physically integrated unit or as separate components, the royalty payment shall be calculated as follows: (A) If the digital audio recording device and such other devices are part of a physically integrated unit, the royalty payment shall be based on the transfer price of the unit, but shall be reduced by any royalty payment made on any digital audio recording device included within the unit that was not first distributed in combination with the unit. (B) If the digital audio recording device is not part of a physically integrated unit and substantially similar devices have been distributed separately at any time during the preceding 4 quarters, the royalty payment shall be based on the average transfer price of such devices during those 4 quarters. (C) If the digital audio recording device is not part of a physically integrated unit and substantially similar devices have not been distributed separately at any time during the preceding 4 quarters, the royalty payment shall be based on a constructed price reflecting the proportional value of such device to the combination as a whole. (3) Limits on royalties. Notwithstanding paragraph (1) or (2), the amount of the royalty payment for each digital audio recording device or physically integrated unit containing a digital audio recording device shall not be less than $1 nor more than the royalty maximum. The royalty maximum shall be $8 per device, except that for a physically integrated unit containing more than one digital audio recording device, the royalty maximum for such unit shall be $12. During the 6th year after the effective date of this chapter, and not more than once each year thereafter, any interested copyright party may petition the Tribunal to increase the royalty maximum and, if more than 20 percent of the royalty payments are at the relevant royalty maximum, the Tribunal shall prospectively increase such royalty maximum with the goal of having not more than 10 percent of such payments at the new royalty maximum; except that the amount of any such increase as a percentage of the royalty maximum shall in no event exceed the percentage increase in the Consumer Price Index of the Department of Labor during the period under review. (b) Digital Audio Recording Media. The royalty payment due under section 1011 for each digital audio recording medium imported into and distributed in the United States, or manufactured and distributed in the United States, shall be 3 percent of the transfer price, except that only the first person to manufacture and distribute or import and distribute such medium shall be required to pay the royalty with respect to such medium. (c) Returned or Exported Merchandise. (1) Deduction. In calculating the amount of royalty payments due under subsections (a) and (b), manufacturers and importers may deduct the amount of any royalty payments already made on digital audio recording devices or media that are (A) returned to the manufacturer or importer as unsold or defective merchandise, or (B) exported by the manufacturer or importer or a related entity, within 2 years after the date on which royalty payments under subsections (a) and (b) are paid on such devices or media. (2) Timing of credit. Any such credit shall be taken during the period when such devices or media are returned or exported, and the basis for any such credit shall be set forth in the statement of account for such period filed under section 1011(c). (3) Carryovers and additional payments. Any such credit that is not fully used during such period may be carried forward to subsequent periods. If any returned or exported merchandise for which a credit has been taken is subsequently distributed, a royalty payment shall be made as specified under subsection (a) or (b), based on the transfer price applicable to such distribution. 1013. Deposit of royalty payments and deduction of expenses The Register shall receive all royalty payments deposited under this chapter and, after deducting the reasonable costs incurred by the Copyright Office under this chapter, shall deposit the balance in the Treasury of the United States as offsetting receipts. All funds held by the Secretary of the Treasury shall be invested in interest-bearing United States securities for later distribution with interest under section 1014, 1015, or 1016. The Register may, in the Registers discretion, 4 years after the close of any calendar year, close out the royalty payments account for that calendar year, and may treat any funds remaining in such account and any subsequent deposits that would otherwise be attributable to that calendar year as attributable to the succeeding calendar year. The Register shall submit to the Copyright Royalty Tribunal, on a monthly basis, a financial statement reporting the amount of royalties under this chapter that are available for distribution. Sec. 1014. Entitlement to royalty payments (a) Interested Copyright Parties. The royalty payments deposited pursuant to section 1013 shall, in accordance with the procedures specified in section 1015 or 1016, be distributed to any interested copyright party (1) whose musical work or sound recording has been (A) embodied in audiograms lawfully made under this title that have been distributed to the public, and (B) distributed to the public in the form of audiograms or disseminated to the public in transmissions, during the period to which such payments pertain; and (2) who has filed a claim under section 1015 or 1016. (b) Allocation of Royalty Payments to Groups. The royalty payments shall be divided into two funds as follows: (1) The sound recordings fund. 66 2/3 percent of the royalty payments shall be allocated to the Sound Recordings Fund. 2 5/8 percent of the royalty payments allocated to the Sound Recordings Fund shall be placed in an escrow account managed by an independent administrator jointly appointed by the interested copyright parties under section 1001(7)(A) and the American Federation of Musicians (or any successor entity) to be distributed to nonfeatured musicians (whether or not they are members of the American Federation of Musicians) who have performed on sound recordings distributed in the United States. 1 3/8 percent of the royalty payments allocated to the Sound Recordings Fund shall be placed in an escrow account managed by an independent administrator jointly appointed by the interested copyright parties under section 1001(7)(A) and the American Federation of Television and Radio Artists (or any successor entity) to be distributed to nonfeatured vocalists (whether or not they are members of the American Federation of Television and Radio Artists) who have performed on sound recordings distributed in the United States. The remaining royalty payments in the Sound Recordings Fund shall be distributed to claimants under subsection (a) who are interested copyright parties under section 1001(7)(A). Such claimants shall allocate such royalty payments, on a per sound recording basis, in the following manner: 40 percent to the recording artist or artists featured on such sound recordings (or the persons conveying rights in the artists performances in the sound recordings), and 60 percent to the interested copyright parties. (2) The musical works fund. (A) 33 1/3 percent of the royalty payments shall be allocated to the Musical Works Fund for distribution to interested copyright parties whose entitlement is based on legal or beneficial ownership or control of a copyright in a musical work. (B) The royalty payments allocated to the Musical Works Fund shall be further allocated as follows: claimants who are music publishers shall be entitled to 50 percent of such payments and claimants who are writers shall be entitled to the other 50 percent of such payments. (C) Except to the extent inconsistent with the international obligations of the United States, the allocation specified in subparagraph (B) shall govern despite any contractual obligation to the contrary. (c) Distribution of Royalty Payments Within Groups. If all interested copyright parties within a group specified in subsection (b) do not agree on a voluntary proposal for the distribution of the royalty payments within such group, the Tribunal shall, pursuant to the procedures specified in section 1015(c), allocate such royalty payments based on the extent to which, during the relevant period (1) for the Sound Recordings Fund, each sound recording was distributed to the public in the form of audiograms; and (2) for the Musical Works Fund, each musical work was distributed to the public in the form of audiograms or disseminated to the public in transmissions. 1015. Procedures for distributing royalty payments (a) Filing of Claims and Negotiations. (1) During the first 2 months of each calendar year after the calendar year in which this chapter takes effect, every interested copyright party seeking to receive royalty payments to which such party is entitled under section 1014 shall file with the Tribunal a claim for payments collected during the preceding year in such form and manner as the Tribunal shall prescribe by regulation. (2) All interested copyright parties within each group specified in section 1014(b) shall negotiate in good faith among themselves in an effort to agree to a voluntary proposal for the distribution of royalty payments. Notwithstanding any provision of the antitrust laws, for purposes of this section such interested copyright parties may agree among themselves to the proportionate division of royalty payments, may lump their claims together and file them jointly or as a single claim, or may designate a common agent to receive payment on their behalf; except that no agreement under this subsection may modify the allocation of royalties specified in section 1014(b). (b) Distribution of Payments in the Absence of a Dispute. Within 30 days after the period established for the filing of claims under subsection (a), in each year after the year in which this section takes effect, the Tribunal shall determine whether there exists a controversy concerning the distribution of royalty payments under section 1014(c). If the Tribunal determines that no such controversy exists, the Tribunal shall, within 30 days after such determination, authorize the distribution of the royalty payments as set forth in the agreements regarding the distribution of royalty payments entered into pursuant to subsection (a), after deducting its reasonable administrative costs under this section. (c) Resolution of Disputes. If the Tribunal finds the existence of a controversy, it shall, pursuant to chapter 8 of this title, conduct a proceeding to determine the distribution of royalty payments. During the pendency of such a proceeding, the Tribunal shall withhold from distribution an amount sufficient to satisfy all claims with respect to which a controversy exists, but shall, to the extent feasible, authorize the distribution of any amounts that are not in controversy. 1016. Negotiated collection and distribution arrangements (a) Scope of Permissible Negotiated Arrangements. (1) Authority to negotiate. Interested copyright parties and interested manufacturing parties may at any time negotiate among or between themselves a single alternative system for the collection, distribution, or verification of royalty payments provided for in this chapter. (2) Scope of alternative arrangement. Such a negotiated arrangement may modify the collection, distribution, and verification procedures and requirements that would otherwise apply under sections 1011 through 1015, including the time periods for payment and distribution of royalties, but shall not alter the requirements of section 1011 (a), (b), or (h)(4), section 1012(a) or (b), or section 1014(a) or (b). (3) Resolution of disputes. Such a negotiated arrangement may also provide that specified types of disputes that cannot be resolved among the parties to the arrangement shall be resolved by binding arbitration or other agreed upon means of dispute resolution. (4) Inapplicability of antitrust laws. Notwithstanding any provision of the antitrust laws, for purposes of this section interested manufacturing parties and interested copyright parties may negotiate in good faith and voluntarily agree among themselves as to the collection, allocation, distribution, and verification of royalty payments, and may designate common agents to negotiate and carry out such activities on their behalf. (b) Implementation of a Negotiated Arrangement. (1) Determination by the tribunal. (A) No negotiated arrangement shall go into effect under this section until the Tribunal has determined, after full opportunity for comment by interested persons, that participants in the negotiated arrangement include (i) at least 2/3 of all individual interested copyright parties that are entitled to receive royalty payments from the Sound Recordings Fund, (ii) at least 2/3 of all individual interested copyright parties that are entitled to receive royalty payments from the Musical Works Fund as music publishers, and (iii) at least 2/3 of all individual interested copyright parties that are entitled to receive royalty payments from the Musical Works Fund as writers. (B) For purposes of subparagraph (A), the determination with respect to 2/3 participation shall be based on annual retail sales of audiograms in which musical works or sound recordings of musical works are embodied. One or more organizations representing any of the types of individual interested copyright parties specified in the first sentence of this subparagraph shall be presumed to represent 2/3 of that type of interested copyright party if the membership of, or other participation in, such organization or organizations includes 2/3 of that type of interested copyright party based on annual retail sales of audiograms in which musical works or sound recordings of musical works are embodied. (C) The implementation of the negotiated arrangement shall include all necessary safeguards, as determined by the Tribunal, which ensure that all interested copyright parties who are not participants in the negotiated arrangement receive the royalty payments to which they would be entitled in the absence of such an arrangement. Such safeguards may include accounting procedures, reports, and any other information determined to be necessary to ensure the proper collection and distribution of royalty payments. (2) Certain parties not subject to negotiated arrangement. Notwithstanding the existence of a negotiated arrangement that has gone into effect under this section, any interested manufacturing party that is not a party to such negotiated arrangement shall remain subject to the requirements of sections 1011 and 1012 and may fully satisfy its obligations under this subchapter by complying with the procedures set forth in such sections. (c) Maintenance of Jurisdiction by Tribunal. If a negotiated arrangement has gone into effect under this section, the Tribunal shall (1) hear and address any objections to the arrangement that may arise while it is in effect; (2) ensure the availability of alternative procedures for any interested manufacturing party or interested copyright party that is not a participant in the negotiated arrangement; (3) ensure that all interested copyright parties who are not participants in the arrangement receive the royalty payments to which they would be entitled in the absence of such an arrangement; (4) ensure that it has adequate funds at its disposal, received either through the Copyright Office or through the entity administering the negotiated arrangement, to distribute to interested copyright parties not participating in the arrangement the royalty payments to which they are entitled under section 1014(c) or 1015(b), including applicable interest; and (5) ensure that the requirements of subsection (b)(1)(C) are met. (d) Judicial Enforcement. The Tribunal may seek injunctive relief in an appropriate United States district court to secure compliance with the requirements of subsection (c). SUBCHAPTER C THE SERIAL COPY MANAGEMENT SYSTEM Sec. 1021. Incorporation of the serial copy management system (a) Prohibition on Importation, Manufacture, and Distribution. (1) Generally. No person shall import, manufacture, or distribute any digital audio recording device or any digital audio interface device that does not conform to the standards and specifications to implement the Serial Copy Management System that are (A) set forth in the technical reference document; (B) set forth in an order by the Secretary of Commerce under section 1022(b) (1), (2), or (3); or (C) in the case of a digital audio recording device other than a device subject to part II of the technical reference document or an order issued by the Secretary pursuant to section 1022(b), established by the manufacturer (or, in the case of a proprietary technology, the proprietor of such technology) so as to achieve the same functional characteristics with respect to regulation of serial copying as, and to be compatible with the prevailing method for implementation of, the Serial Copy Management System set forth in the technical reference document or in any order of the Secretary issued under section 1022. (2) Order relating to copying through analog converter. If the Secretary of Commerce approves standards and specifications under section 1022(b)(4), then no person shall import, manufacture, or distribute any digital audio recording device or any digital audio interface device that does not conform to such standards and specifications. (b) Prohibition on Circumvention of the Serial Copy Management System. No person shall import, manufacture, or distribute any device, or offer or perform any service, the primary purpose or effect of which is to avoid, bypass, remove, deactivate, or otherwise circumvent any program or circuit which implements, in whole or in part, the Serial Copy Management System in a digital audio recording device or a digital audio interface device. (c) Encoding of Information on Audiograms. (1) Prohibition on encoding inaccurate information. 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. (2) Encoding of copyright status not required. Nothing in this subchapter requires any person engaged in the importation, manufacture, or assembly of audiograms to encode any such audiogram with respect to its copyright status. (d) Information Accompanying Transmissions in Digital Format. Any person who transmits or otherwise communicates to the public any sound recording in digital format is not required under this subchapter to transmit or otherwise communicate the information relating to the copyright status of the sound recording. Any such person who does transmit or otherwise communicate such copyright status information shall transmit or communicate such information accurately. 1022. Implementing the serial copy management system (a) Publication of Technical Reference Document and Certification. Within 10 days after the date of the enactment of this chapter, the Secretary of Commerce shall cause to be published in the Federal Register the technical reference document, together with the certification from the National Institute of Standards and Technology, as such certification appears in the report of the Committee on Energy and Commerce to the House of Representatives to accompany the Audio Home Recording Act of 1992, that the technical reference document sets forth standards and specifications that adequately incorporate the intended functional characteristics to regulate serial copying and are not incompatible with existing international digital audio interface standards and existing digital audio technology. (b) Orders of Secretary of Commerce. The Secretary of Commerce, upon petition by an interested manufacturing party or an interested copyright party, and after consultation with the Register, may, if the Secretary determines that to do so is in accordance with the purposes of this chapter, issue an order to implement the Serial Copy Management System set forth in the technical reference document as follows: (1) Functionally equivalent alternatives. The Secretary may issue an order for the purpose of permitting in commerce devices that do not conform to all of the standards and specifications set forth in the technical reference document, if the Secretary determines that such devices possess the same functional characteristics with respect to regulation of serial copying as, and are compatible with the prevailing method for implementation of, the Serial Copy Management System set forth in the technical reference document. (2) Revised general standards. The Secretary may issue an order for the purpose of permitting in commerce devices that do not conform to all of the standards and specifications set forth in the technical reference document, if the Secretary determines that (A) the standards and specifications relating generally to digital audio recording devices and digital audio interface devices have been or are being revised or otherwise amended or modified such that the standards and specifications set forth in the technical reference document are not or would no longer be applicable or appropriate; and (B) such devices conform to such new standards and specifications and possess the same functional characteristics with respect to regulation of serial copying as the Serial Copy Management System set forth in the technical reference document. (3) Standards for new devices. The Secretary may issue an order for the purpose of (A) establishing whether the standards and specifications established by a manufacturer or proprietor for digital audio recording devices other than devices subject to part II of the technical reference document or a prior order of the Secretary under paragraph (1) or (2) comply with the requirements of subparagraph (C) of section 1021(a)(1); or (B) establishing alternative standards or specifications in order to ensure compliance with such requirements. (4) Material input to digital device through analog converter. (A) Generally. Except as provided in subparagraphs (B) through (D), the Secretary, after publication of notice in the Federal Register and reasonable opportunity for public comment, may issue an order for the purpose of approving standards and specifications for a technical method implementing in a digital audio recording device the same functional characteristics as the Serial Copy Management System so as to regulate the serial copying of source material input through an analog converter in a manner equivalent to source material input in the digital format. (B) Cost limitation. The order may not impose a total cost burden on manufacturers of digital audio recording devices, for implementing the Serial Copy Management System and the technical method prescribed in such order, in excess of 125 percent of the cost of implementing the Serial Copy Management System before the issuance of such order. (C) Consideration of other objections. Before issuing the order, the Secretary shall take into account comments submitted by interested parties with respect to the order. (D) Limitation to digital audio devices. The order shall not affect the recording of any source material on analog recording equipment and the order shall not impose any restrictions or requirements that must be implemented in any device other than a digital audio recording device or digital audio interface device. SUBCHAPTER D REMEDIES 1031. Civil remedies (a) Civil Actions. Any interested copyright party or interested manufacturing party that is or would be injured by a violation of section 1011 or 1021, or the Attorney General of the United States, may bring a civil action in an appropriate United States district court against any person for such violation. (b) Powers of the Court. In an action brought under subsection (a), the court (1) except as provided in subsection (h), may grant temporary and permanent injunctions on such terms as it deems reasonable to prevent or restrain such violation; (2) in the case of a violation of subsection (a), (b), (c), or (d) of section 1011 or a violation of section 1021, shall award damages under subsection (d); (3) in its discretion may allow the recovery of full costs by or against any party other than the United States or an officer thereof; (4) in its discretion may award a reasonable attorneys fee to the prevailing party as part of the costs awarded under paragraph (3) if the court finds that the nonprevailing party has not proceeded in good faith; and (5) may grant such other equitable relief as it deems reasonable. (c) Recovery of Overdue Royalty Payments. In any case in which the court finds that a violation of section 1011 involving nonpayment or underpayment of royalty payments has occurred, the violator shall be directed to pay, in addition to damages awarded under subsection (d), any such royalties due, plus interest calculated as provided under section 1961 of title 28. (d) Award of Damages. (1) Section 1011. (A) Device. In the case of a violation of subsection (a), (b), (c), or (d) of section 1011 involving a digital audio recording device, the court shall award statutory damages in an amount between a nominal level and $100 per device, as the court considers just. (B) Medium. In the case of a violation of subsection (a), (b), (c), or (d) of section 1011 involving a digital audio recording medium, the court shall award statutory damages in an amount between a nominal level and $4 per medium, as the court considers just. (2) Section 1021. (A) In general. In any case in which the court finds that a violation of section 1021 has occurred, the court shall award damages calculated, at the election of the complaining party at any time before final judgment is rendered, pursuant to subparagraph (B) or (C), but in no event shall the judgment (excluding any award of actual damages to an interested manufacturing party) exceed a total of $1,000,000. (B) Actual damages. A complaining party may recover its actual damages suffered as a result of the violation and any profits of the violator that are attributable to the violation that are not taken into account in computing the actual damages. In determining the violators profits, the complaining party is required to prove only the violators gross revenue, and the violator is required to prove its deductible expenses and the elements of profit attributable to factors other than the violation. (C) Statutory damages. (i) Device. A complaining party may recover an award of statutory damages for each violation of section 1021(a) or (b) in the sum of not less than $1,000 nor more than $10,000 per device involved in such violation or per device on which a service prohibited by section 1021(b) has been performed, as the court considers just. (ii) Audiogram. A complaining party may recover an award of statutory damages for each violation of section 1021(c) in the sum of not less than $10 nor more than $100 per audiogram involved in such violation, as the court considers just. (iii) Transmission. A complaining party may recover an award of damages for each transmission or communication that violates section 1021(d) in the sum of not less than $10,000 nor more than $100,000, as the court considers just. (3) Willful violations. (A) In any case in which the court finds that a violation of subsection (a), (b), (c), or (d) of section 1011 was committed willfully and for purposes of direct or indirect commercial advantage, the court shall increase statutory damages (i) for a violation involving a digital audio recording device, to a sum of not less than $100 nor more than $500 per device; and (ii) for a violation involving a digital audio recording medium, to a sum of not less than $4 nor more than $15 per medium, as the court considers just. (B) In any case in which the court finds that a violation of section 1021 was committed willfully and for purposes of direct or indirect commercial advantage, the court in its discretion may increase the award of damages by an additional amount of not more than $5,000,000, as the court considers just. (4) Innocent violations of section 1021. The court in its discretion may reduce the total award of damages against a person violating section 1021 to a sum of not less than $250 in any case in which the court finds that (A) the violator was not aware and had no reason to believe that its acts constituted a violation of section 1021, or (B) in the case of a violation of section 1021(a) involving a digital audio recording device, the violator believed in good faith that the device complied with section 1021(a)(1)(C), except that this subparagraph shall not apply to any damages awarded under subsection (d)(2)(A). (e) Multiple Actions. (1) Generally. No more than one action shall be brought against any party and no more than one award of statutory damages under subsection (d) shall be permitted (A) for any violations of section 1011 involving the same digital audio recording device or digital audio recording medium; or (B) for any violations of section 1021 involving digital audio recording devices or digital audio interface devices of the same model, except that this subparagraph shall not bar an action or an award of damages with respect to digital audio recording devices or digital audio interface devices that are imported, manufactured, or distributed subsequent to a final judgment in a prior action. (2) Notice and intervention. Any complaining party who brings an action under this section shall serve a copy of the complaint upon the Register within 10 days after the complaining partys service of a summons upon a defendant. The Register shall cause a notice of such action to be published in the Federal Register within 10 days after receipt of such complaint. The court shall permit any other interested copyright party or interested manufacturing party entitled to bring the action under section 1031(a) who moves to intervene within 30 days after the publication of such notice to intervene in the action. (3) Award. (A) Generally. Except as provided in subparagraph (B), the court may award recovery of actual damages for a violation of section 1021 pursuant to subsection (d)(2)(B) to each complaining party in an action who elects to recover actual damages. (B) Limitations. (i) If more than one complaining party elects to recover actual damages pursuant to subsection (d)(2)(B), only a single award of the violators profits shall be made, which shall be allocated as the court considers just. (ii) If any complaining interested copyright party or parties elect to recover statutory damages pursuant to subsection (d)(2) in an action in which one or more other complaining interested copyright parties have elected to recover actual damages, the single award of statutory damages permitted pursuant to paragraph (1) shall be reduced by the total amount of actual damages awarded to interested copyright parties pursuant to subsection (d)(2)(B). (f) Payment of Overdue Royalties and Damages. The court may allocate any award of damages under subsection (d) between or among complaining parties as it considers just. Any award of damages that is allocated to an interested copyright party and any award of overdue royalties and interest under subsection (c) shall be deposited with the Register pursuant to section 1013, or as may otherwise be provided pursuant to a negotiated arrangement authorized under section 1016, for distribution to interested copyright parties as though such funds were royalty payments made pursuant to section 1011. (g) Impounding of Articles. At any time while an action under this section is pending, the court may order the impounding, on such terms as it deems reasonable, of any digital audio recording device, digital audio interface device, audiogram, or device specified in section 1021(b) that is in the custody or control of the alleged violator and that the court has reasonable cause to believe does not comply with, or was involved in a violation of, section 1021. (h) Limitations Regarding Professional Models and Other Exempt Devices. Unless a court finds that the determination by a manufacturer or importer that a device is a device described in subparagraph (A) or (B) of section 1001(4) was without a reasonable basis or not in good faith, the court shall not grant a temporary or preliminary injunction against the distribution of such device by the manufacturer or importer. (i) Remedial Modification and Destruction of Articles. As part of a final judgment or decree finding a violation of section 1021, the court shall order the remedial modification, if possible, or the destruction of any digital audio recording device, digital audio interface device, audiogram, or device specified in section 1021(b) that (1) does not comply with, or was involved in a violation of, section 1021, and (2) is in the custody or control of the violator or has been impounded under subsection (g). (j) Definitions. For purposes of this section (1) the term omplaining party means an interested copyright party, interested manufacturing party, or the Attorney General of the United States when one of these parties has initiated or intervened as a plaintiff in an action brought under this section; and (2) the term evice does not include an audiogram. 1032. Binding arbitration (a) Disputes To Be Arbitrated. Any dispute between an interested manufacturing party and an interested copyright party shall be resolved through binding arbitration, in accordance with the provisions of this section, if (1) the parties mutually agree; or (2) before the date of first distribution in the United States of the product which is the subject of the dispute, an interested manufacturing party or an interested copyright party requests arbitration concerning whether such product is or is not a digital audio recording device, a digital audio recording medium, or a digital audio interface device, or concerning the basis on which royalty payments are to be made with respect to such product. (b) Arbitral Procedures. (1) Regulations for coordination of arbitration. The Register shall, after consulting with interested copyright parties, prescribe regulations establishing a procedure by which interested copyright parties will coordinate the arbitration of disputes, including the representation of interested copyright parties. No interested copyright party shall have the authority to request, agree to, or (except as an intervenor pursuant to subsection (c)) enter into, binding arbitration unless that party has been authorized to do so pursuant to the regulations prescribed by the Register. (2) Panel. Except as otherwise agreed by the parties to a dispute that is to be submitted to binding arbitration under subsection (a), the dispute shall be heard by a panel of 3 arbitrators, with one arbitrator selected by each of the 2 opposing parties to the dispute and the third arbitrator selected by mutual agreement of the first 2 arbitrators chosen. (3) Decision. The arbitral panel shall render its final decision concerning the dispute, in a written opinion explaining its reasoning, within 120 days after the date on which the selection of arbitrators has been concluded. The Register shall cause to be published in the Federal Register the written opinion of the arbitral panel within 10 days after receipt thereof. (4) Title 9 provisions to govern. Except to the extent inconsistent with this section, any arbitration proceeding under this section shall be conducted in the same manner, subject to the same limitations, carried out with the same powers (including the power to summon witnesses), and enforced in the courts of the United States as an arbitration proceeding under title 9. (5) Precedents. In rendering a final decision, the arbitral panel shall take into account any final decisions rendered in prior proceedings under this section that address identical or similar issues. The failure of the arbitral panel to take into account such prior decisions may be considered imperfect execution of arbitral powers under section 10(a)(4) of title 9. (c) Notice and Right To Intervene. Any interested copyright party or interested manufacturing party that requests an arbitral proceeding under this section shall provide the Register with notice concerning the parties to the dispute and the nature of the dispute within 10 days after formally requesting arbitration under subsection (a). The Register shall cause a summary of such notice to be published in the Federal Register within 30 days after receipt of such notice. The arbitral panel shall permit any other interested copyright party or interested manufacturing party who moves to intervene within 20 days after such publication to intervene in the action. (d) Authority of Arbitral Panel To Order Relief. (1) To protect proprietary information. The arbitral panel shall issue such orders as are appropriate to protect the proprietary technology and information of parties to the proceeding, including provision for injunctive relief in the event of a violation of such order. (2) To terminate proceeding. The arbitral panel shall terminate any proceeding that it has good cause to believe has been commenced in bad faith by a competitor in order to gain access to proprietary information. The panel shall also terminate any proceeding that it believes has been commenced before the technology or product at issue has been sufficiently developed or defined to permit an informed decision concerning the applicability of this chapter to such technology or product. (3) To order relief. In any case in which the arbitral panel finds, with respect to devices or media that were the subject of the dispute, that royalty payments have been or will be due under section 1011 through the date of the arbitral decision, the panel shall order the deposit of such royalty payments pursuant to section 1013, plus interest calculated as provided under section 1961 of title 28. The arbitral panel shall not award monetary or injunctive relief, as provided in section 1031 or otherwise, except as is expressly provided in this subsection. (e) Effect of Arbitration Proceeding on Civil Actions and Remedies. (1) Generally. Subject to paragraph (2), and notwithstanding any provision of section 1031, no civil action may be brought or relief granted under section 1031 against any party to an ongoing or completed arbitration proceeding under this section, with respect to devices or media that are the subject of an arbitration proceeding under this section. (2) Exception. Paragraph (1) does not bar (A) an action for injunctive relief at any time based on a violation of section 1021; or (B) an action or any relief with respect to those devices or media distributed by their importer or manufacturer following the conclusion of such arbitration proceeding, or, if so stipulated by the parties, prior to the commencement of such proceeding. (f) Arbitral Costs. Except as otherwise agreed by the parties to a dispute, the costs of an arbitral proceeding under this section shall be divided among the parties in such fashion as is considered just by the arbitral panel at the conclusion of the proceeding. Each party to the dispute shall bear its own attorney fees unless the arbitral panel determines that a nonprevailing party has not proceeded in good faith and that, as a matter of discretion, it is appropriate to award reasonable attorneys fees to the prevailing party.